Investments

Investments and restricted investments consist of available-for-sale securities and are recorded at fair value, which is based on quoted market prices and pricing data from external pricing services that use prices observed for recently executed market transactions. Unrealized gains and temporary losses on investments, net of tax, are recorded in other comprehensive (loss) income. Realized gains and losses are determined using the specific identification method. The amortized cost of debt securities are adjusted for amortization of premiums and accretion of discounts to maturity computed under the effective interest method. Such amortization and accretion is included in investment income, net. In addition, at March 31, 2016, the Company had investments in short term commercial paper that are classified as cash equivalents, since they had maturity dates of ninety days or less from the date of purchase.

At March 31, 2016 investments and restricted investments classified as available-for-sale securities were as follows:



	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Debt securities:
U.S. Treasury securities	$	184,930	$	19	$	—	$	184,949
Corporate debt securities	9,546		11		1,117		8,440
Preferred stock	265		—		117		148
	194,741		30		1,234		193,537
Restricted investments:
Money market fund	5,651		—		—		5,651
	$	200,392	$	30	$	1,234	$	199,188

At December 31, 2015 investments and restricted investments classified as available-for-sale securities were as follows:



	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Debt securities:
U.S. Treasury securities	$	184,819	$	—	$	79	$	184,740
Corporate debt securities	7,273		—		981		6,292
Preferred stock	265		—		57		208
	192,357		—		1,117		191,240
Restricted investments:
Guaranteed income fund	7,072		—		—		7,072
	$	199,429	$	—	$	1,117	$	198,312

Fairholme Capital Management, L.L.C., or one of its affiliates (“Fairholme Capital”), has served as an investment advisor to the Company since April 2013. As of March 31, 2016, funds managed by Fairholme Capital beneficially owned approximately 32.3% of the Company’s common stock. Mr. Bruce Berkowitz is the Managing Member of Fairholme Capital and the Chairman of the Company’s Board of Directors. Fairholme Capital does not receive any compensation for services as the Company’s investment advisor.

Pursuant to the terms of the Company’s Investment Management Agreement with Fairholme Capital, as amended (the “Agreement”), Fairholme Capital agreed to supervise and direct the investments of investment accounts established by the Company in accordance with the investment guidelines and restrictions approved by the Investment Committee of the Company’s Board of Directors. The investment guidelines are set forth in the Agreement and require that, as of the date of any investment: (i) at least 50% of the investment account be held in cash or cash equivalents, as defined in the Agreement, (ii) no more than 15% of the investment account may be invested in securities of any one issuer (excluding the U.S. Government) and (iii) any investment in any one issuer (excluding the U.S. Government) that exceeds 10%, but not 15%, requires the consent of at least two members of the Investment Committee. The investment account may not be invested in common stock securities.

As of March 31, 2016, the investment account included $184.9 million of U.S. Treasury securities, $8.4 million of corporate debt securities and $0.2 million of preferred stock investments (all of which are classified within investments on the Company’s condensed consolidated balance sheets). The corporate debt securities and preferred stock are issued by Sears Holdings Corp or affiliates, and are non-investment grade.

During the three months ended March 31, 2016, there were no realized losses from the sale or maturity of available-for-sale securities and proceeds from the sale of available-for-sale securities were $8.5 million.

During the three months ended March 31, 2015, there were no realized losses from the sale of available-for-sale securities, proceeds from the sale of available-for-sale securities were $129.1 million and proceeds from the maturity of available-for-sale securities were $125.0 million.

As of March 31, 2016 and December 31, 2015, certain of the Company’s debt securities and preferred stock had unrealized losses of $1.2 million and $1.1 million, respectively, that were deemed temporary and included in accumulated other comprehensive loss. The following table provides the debt securities and preferred stock unrealized loss position and related fair values:



	As of March 31, 2016								As of December 31, 2015
	Less Than 12 Months				12 Months or Greater				Less Than 12 Months				12 Months or Greater
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Debt securities:
U.S. Treasury securities	$	—	$	—	$	—	$	—	$	184,740	$	79	$	—	$	—
Corporate debt securities	8,251		1,117		—		—		6,292		981		—		—
Preferred stock	148		117		—		—		208		57		—		—
	$	8,399	$	1,234	$	—	$	—	$	191,240	$	1,117	$	—	$	—

As of March 31, 2016 and December 31, 2015, the Company did not intend to sell the investments with unrealized losses and it is more likely than not that the Company will not be required to sell any of these securities prior to their anticipated recovery, which could be maturity; therefore, the Company does not believe that its investment in the corporate debt securities was other-than-temporarily impaired at March 31, 2016 and December 31, 2015.

The net carrying value and estimated fair value of investments and restricted investments classified as available-for-sale at March 31, 2016, by contractual maturity are shown in the following table. Actual maturities may differ from contractual maturities because certain borrowers have the right to call or prepay obligations.



	Amortized Cost		Fair Value
Due in one year or less	$	184,930	$	184,949
Due after one year through five years	9,448		8,359
Due after ten years through fifteen years	98		81
	194,476		193,389
Preferred stock	265		148
Restricted investments	5,651		5,651
	$	200,392	$	199,188