Kartoon Studios, Inc. Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

Marketable Securities

Marketable Securities

9 Months Ended

Sep. 30, 2023

Marketable SecuritiesThe Company classifies and accounts for its marketable debt securities as AFS and the securities are stated at fair value. On January 1, 2023, the Company adopted ASU 2016-13 Measurement of Credit Losses on Financial Instruments (Topic 326), which replaced the legacy GAAP other-than-temporary impairment (“OTTI”) model with a credit loss model. The credit loss model applicable to AFS debt securities requires the recognition of credit losses through an allowance

account but retains the concept from the OTTI model that credit losses are recognized once securities become impaired. The adoption of the ASU did not have a material impact on the Company's financial statements.

The investments in marketable securities had an adjusted cost basis of $17.7 million and a market value of $16.2 million as of September 30, 2023. The balances consisted of the following securities (in thousands):


	Adjusted Cost		Unrealized Gain/(Loss)		Fair Value
Corporate Bonds	$	6,635	$	(593)	$	6,042
U.S. Treasury	5,203		(389)		4,814
U.S. Agency and Government Sponsored Securities	2,000		(202)		1,798
U.S. States and Municipalities	3,868		(370)		3,498
Total	$	17,706	$	(1,554)	$	16,152

The investments in marketable securities as of December 31, 2022 had an adjusted cost basis of $90.3 million and a market value of $83.7 million. The balances consisted of the following securities (in thousands):


	Adjusted Cost		Unrealized Gain/(Loss)		Fair Value
Corporate Bonds	$	40,823	$	(2,579)	$	38,244
U.S. Treasury	20,869		(1,313)		19,556
Mortgage-Backed	5,980		(606)		5,374
U.S. Agency and Government Sponsored Securities	10,781		(1,221)		9,560
U.S. States and Municipalities	11,801		(895)		10,906
Asset-Backed	67		(1)		66
Total	$	90,321	$	(6,615)	$	83,706

The Company holds 11 AFS securities, all of which were in an unrealized loss position and have been in an unrealized loss position for a period greater than 12 months as of September 30, 2023. The AFS securities held by the Company as of December 31, 2022 had also been in an unrealized loss position for a period greater than 12 months. The Company reported the net unrealized losses in accumulated other comprehensive income (loss), a component of stockholders’ equity. As of September 30, 2023 and December 31, 2022, an allowance for credit loss was not recognized as the issuers of the securities had not established a cause for default, various rating agencies had reaffirmed each security's investment grade status and the Company did not have the intent, nor is it required to sell its securities prior to recovery.

Realized losses of $1.9 million and $4.2 million were recognized in earnings during the three and nine months ended September 30, 2023, respectively, primarily due to selling securities prior to maturity to prevent further market condition losses on the securities. Realized losses of $36,332 and $159,624 were recognized during the three and nine months ended September 30, 2022, respectively, due to prepayments of principal on certain mortgage-backed securities.

The contractual maturities of the Company’s marketable investments as of September 30, 2023 were as follows (in thousands):


	Fair Value
Due within 1 year	$	—
Due after 1 year through 5 years	16,152
Total	$	16,152

The Company may sell certain of its marketable debt securities prior to their stated maturities for reasons including, but not limited to, managing liquidity, credit risk, duration and asset allocation.