Investments

6 Months Ended

Jun. 30, 2011

Investments [Abstract]

INVESTMENTS

4. INVESTMENTS

At June 30, 2011, we held the following securities and investments, recorded at either fair value or cost.

	Amortized		Gross Unrealized					Carrying
(In thousands)	Cost		Gains		Losses			Value
Deferred compensation plan assets	$	6,438	$	351	$	—		$	6,789
Corporate bonds		200,280		971		(362	)		200,889
Municipal fixed-rate bonds		117,262		597		(5	)		117,854
Municipal variable rate demand notes		94,870		—		—			94,870
Fixed income bond fund		526		225		—			751
Marketable equity securities		12,119		27,516		(212	)		39,423
Available-for-sale securities held at fair value	$	431,495	$	29,660	$	(579	)	$	460,576
Restricted investment held at cost									48,250
Other investments held at cost									2,296
Total carrying value of available-for-sale investments								$	511,122

At December 31, 2010, we held the following securities and investments, recorded at either fair value or cost.

	Amortized		Gross Unrealized					Carrying
(In thousands)	Cost		Gains		Losses			Value
Deferred compensation plan assets	$	3,483	$	770	$	(7	)	$	4,246
Corporate bonds		126,671		630		(229	)		127,072
Municipal fixed-rate bonds		71,212		268		(13	)		71,467
Municipal variable rate demand notes		116,745		—		—			116,745
Fixed income bond fund		526		220		—			746
Marketable equity securities		11,486		36,657		(133	)		48,010
Available-for-sale securities held at fair value	$	330,123	$	38,545	$	(382	)	$	368,286
Restricted investment held at cost									48,250
Other investments held at cost									2,103
Total carrying value of available-for-sale investments								$	418,639

At June 30, 2011, we held $6.8 million of deferred compensation plan assets, carried at fair value.

At June 30, 2011, we held $200.9 million of corporate bonds. These bonds are classified as available-for-sale and had an average duration of 2.2 years at June 30, 2011. At June 30, 2011, approximately 1% of our corporate bond portfolio had a credit rating of AAA, 14% had a credit rating of AA, 55% had a credit rating of A, and 30% had a credit rating of BBB. Because our bond portfolio has a high quality rating and contractual maturities of a short duration, we are able to obtain prices for these bonds derived from observable market inputs, or for similar securities traded in an active market, on a daily basis.

At June 30, 2011, we held $117.9 million of municipal fixed-rate bonds. These bonds are classified as available-for-sale and had an average duration of 1.3 years at June 30, 2011. At June 30, 2011, approximately 24% of our municipal fixed-rate bond portfolio had a credit rating of AAA, 58% had a credit rating of AA, and 18% had a credit rating of A. Because our bond portfolio has a high quality rating and contractual maturities of a short duration, we are able to obtain prices for these bonds derived from observable market inputs, or for similar securities traded in an active market, on a daily basis.

At June 30, 2011, we held $94.9 million of municipal variable rate demand notes, all of which were classified as available-for-sale. At June 30, 2011, 27% of our municipal variable rate demand notes had a credit rating of AAA, 63% had a credit rating of AA, 10% had a credit rating of A, and all contained put options of seven days. Despite the long-term nature of their stated contractual maturities, we routinely buy and sell these securities and we believe that we have the ability to quickly liquidate them. Our investments in these securities are recorded at fair value, and the interest rates reset every seven days. We believe we have the ability to sell our variable rate demand notes to the remarketing agent, tender agent or issuer at par value plus accrued interest in the event we decide to liquidate our investment in a particular variable rate demand note. At June 30, 2011, approximately 24% of our variable rate demand notes were supported by letters of credit from banks that we believe to be in good financial condition. The remaining 76% of our variable rate demand notes were supported by standby purchase agreements. As a result of these factors, we had no cumulative gross unrealized holding gains (losses) or gross realized gains (losses) from these investments. All income generated from these investments was recorded as interest income. We have not recorded any losses relating to municipal variable rate demand notes.

At June 30, 2011, we held $0.8 million of a fixed income bond fund.

At June 30, 2011, we held $39.4 million of marketable equity securities, including a single security, of which we held 1.3 million shares, carried at a fair value of $24.3 million. We sold 0.2 million shares of this security during the six months ended June 30, 2011. The sale of this security resulted in proceeds of $4.2 million and a realized gain of $4.1 million. This single security traded approximately 0.9 million shares per day in the first six months of 2011 in an active market on a European stock exchange. This single security comprises $23.8 million of the gross unrealized gains included in the fair value of our marketable equity securities at June 30, 2011. The remaining $3.7 million of gross unrealized gains and $0.2 million of gross unrealized losses at June 30, 2011 were spread amongst more than 400 equity securities.

At June 30, 2011, we held a $48.3 million restricted certificate of deposit, which is carried at cost. This investment serves as a collateral deposit against the principal amount outstanding under loans made to ADTRAN pursuant to an Alabama State Industrial Development Authority revenue bond (the Bond). At June 30, 2011, the estimated fair value of the Bond was approximately $46.0 million, based on a debt security with a comparable interest rate and maturity and a Standard and Poor’s credit rating of A+. We have the right to set-off the balance of the Bond with the collateral deposit in order to reduce the balance of the indebtedness. For more information on the Bond, see “Debt” under “Liquidity and Capital Resources” in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in Item 2 of Part I of this report.

At June 30, 2011, we held $2.3 million of other investments carried at cost, consisting of interests in two private equity funds and an investment in a privately held telecommunications equipment manufacturer. The fair value of these investments was estimated to be approximately $10.5 million at June 30, 2011, based on unobservable inputs including information supplied by the company and the fund managers. We have committed to invest up to an aggregate of $7.9 million in the two private equity funds, and we have contributed $8.4 million as of June 30, 2011, of which $7.7 million has been applied toward these commitments. As of June 30, 2011, we have received distributions related to these two private equity funds of $7.9 million, of which $1.4 million was recorded as investment income. These investments are carried at cost, net of distributions, with distributions in excess of our investment recorded as investment income. The remaining commitment under the funds is $0.2 million, which expires in 2013. We have not been required to record any impairment losses related to these investments during the six months ended June 30, 2011.

We review our investment portfolio for potential “other-than-temporary” declines in value on an individual investment basis. We assess, on a quarterly basis, significant declines in value which may be considered other-than-temporary and, if necessary, recognize and record the appropriate charge to write-down the carrying value of such investments. In making this assessment, we take into consideration qualitative and quantitative information, including but not limited to the following: the magnitude and duration of historical declines in market prices, credit rating activity, assessments of liquidity, public filings, and statements made by the issuer. We generally begin our identification of potential other-than-temporary impairments by reviewing any security with a fair value that has declined from its original or adjusted cost basis by 25% or more for six or more consecutive months. We then evaluate the individual security based on the previously identified factors to determine the amount of the write-down, if any. As a result of our review, we recorded an other-than-temporary impairment charge of $12 thousand during the six months ended June 30, 2011 related to three marketable equity securities. For the six months ended June 30, 2010, we recorded an other-than-temporary impairment charge of $42 thousand related to three marketable equity securities.

In accordance with the Fair Value Measurements and Disclosures Topic of the FASB ASC, we have categorized our cash equivalents held in money market funds and our investments held at fair value into a three-level fair value hierarchy based on the priority of the inputs to the valuation technique for the cash equivalents and investments as follows: Level 1 — Values based on unadjusted quoted prices for identical assets or liabilities in an active market; Level 2 — Values based on quoted prices in markets that are not active or model inputs that are observable either directly or indirectly; Level 3 — Values based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. These inputs include information supplied by investees.

	Fair Value Measurements at June 30, 2011 Using
			Quoted Prices
			in Active		Significant
			Market for		Other		Significant
			Identical		Observable		Unobservable
			Assets		Inputs		Inputs
(In thousands)	Fair Value		(Level 1)		(Level 2)		(Level 3)
Cash equivalents
Money market funds	$	10,737	$	10,737	$	—	$	—
Available-for-sale securities
Deferred compensation plan assets		6,789		6,789		—		—
Available-for-sale debt securities
Corporate bonds		200,889		—		200,889		—
Municipal fixed-rate bonds		117,854		—		117,854		—
Municipal variable rate demand notes		94,870		—		94,870		—
Fixed income bond fund		751		751		—		—
Available-for-sale marketable equity securities
Equity securities — technology industry		25,591		25,591		—		—
Equity securities — other		13,832		13,832		—		—
Available-for-sale securities		460,576		46,963		413,613		—
Total	$	471,313	$	57,700	$	413,613	$	—

	Fair Value Measurements at December 31, 2010 Using
			Quoted Prices
			in Active		Significant
			Market for		Other		Significant
			Identical		Observable		Unobservable
			Assets		Inputs		Inputs
(In thousands)	Fair Value		(Level 1)		(Level 2)		(Level 3)
Cash equivalents
Money market funds	$	14,532	$	14,532	$	—	$	—
Available-for-sale securities
Deferred compensation plan assets		4,246		4,246		—		—
Available-for-sale debt securities
Corporate bonds		127,072		—		127,072		—
Municipal fixed-rate bonds		71,467		—		71,467		—
Municipal variable rate demand notes		116,745		—		116,745		—
Fixed income bond fund		746		746		—		—
Available-for-sale marketable equity securities
Equity securities — technology industry		35,596		35,596		—		—
Equity securities — other		12,414		12,414		—		—
Available-for-sale securities		368,286		53,002		315,284		—
Total	$	382,818	$	67,534	$	315,284	$	—

As of June 30, 2011 and December 31, 2010, the fair value of the investments in available-for-sale Level 2 corporate bonds and municipal fixed-rate bonds was $318.7 million and $198.5 million, respectively. The fair value of these securities is calculated using a weighted average market price for each security. Market prices are obtained from a variety of industry standard data providers, security master files from large financial institutions, and other third-party sources. These multiple market prices are used as inputs into a distribution-curve-based algorithm to determine the daily market value of each security.

As of June 30, 2011 and December 31, 2010, the fair value of the investments in available-for-sale Level 2 municipal variable rate demand notes was $94.9 million and $116.7 million, respectively. These securities have a structure that implies a standard expected market price. The frequent interest rate resets make it reasonable to expect the price to stay at par. These securities are priced at the expected market price.