Marketable Investment Securities, Restricted Cash and Cash Equivalents, and Other Investment Securities

3 Months Ended

Mar. 31, 2012

Marketable Investment Securities, Restricted Cash and Cash Equivalents, and Other Investment Securities

Marketable Investment Securities, Restricted Cash and Cash Equivalents, and Other Investment Securities

5.Marketable Investment Securities, Restricted Cash  and Cash Equivalents, and Other Investment Securities

Our marketable investment securities, restricted cash and cash equivalents and other investment securities consist of the following:

	As of
	March 31,		December 31,
	2012		2011
	(In thousands)
Marketable investment securities:
Current marketable investment securities - VRDNs	$	185,005	$	160,555
Current marketable investment securities - strategic	452,082		360,052
Current marketable investment securities - other	697,459		911,138
Total current marketable investment securities	1,334,546		1,431,745
Restricted marketable investment securities (1)	76,700		65,843
Noncurrent marketable investment securities - ARS and MBS (2)	118,470		109,327
Total marketable investment securities	1,529,716		1,606,915
Restricted cash and cash equivalents (1)	57,172		66,592
Other investment securities:
Other investment securities - cost method (2)	2,879		2,805
Investment in DBSD North America (Note 8)	—		1,297,614
Total other investment securities	2,879		1,300,419
Total marketable investment securities, restricted cash and cash equivalents and other investment securities	$	1,589,767	$	2,973,926

(1)Restricted marketable investment securities and restricted cash and cash equivalents are included in “Restricted cash and marketable investment securities” on our Condensed Consolidated Balance Sheets.

(2)Noncurrent marketable investment securities — auction rate securities (“ARS”), mortgage backed securities (“MBS”) and other investment securities are included in “Marketable and other investment securities” on our Condensed Consolidated Balance Sheets.

Marketable Investment Securities

Our marketable investment securities portfolio consists of various debt and equity instruments, all of which are classified as available-for-sale, except as specified below.

Current Marketable Investment Securities - VRDNs

Variable rate demand notes (“VRDNs”) are long-term floating rate municipal bonds with embedded put options that allow the bondholder to sell the security at par plus accrued interest.  All of the put options are secured by a pledged liquidity source.  Our VRDN portfolio is comprised of investments in many municipalities, which are backed by financial institutions or other highly rated companies that serve as the pledged liquidity source.  While they are classified as marketable investment securities, the put option allows VRDNs to be liquidated generally on a same day or on a five business day settlement basis.

Current Marketable Investment Securities - Strategic

Our current strategic marketable investment securities include strategic and financial investments in public companies that are highly speculative and have experienced and continue to experience volatility.  As of March 31, 2012, a significant portion of our strategic investment portfolio consisted of securities of several issuers, and a significant portion of the value of that portfolio depends on the value of those issuers.

Current Marketable Investment Securities - Other

Our current marketable investment securities portfolio includes investments in various debt instruments including corporate and government bonds.

Restricted Cash and Marketable Investment Securities

As of March 31, 2012 and December 31, 2011, our restricted marketable investment securities, together with our restricted cash, included amounts required as collateral for our letters of credit or surety bonds and for litigation (See Note 11).

Noncurrent Marketable Investment Securities — ARS and MBS

We have investments in ARS and MBS which are either classified as available-for-sale securities or are accounted for under the fair value method.  Previous events in the credit markets reduced or eliminated current liquidity for certain of our ARS and MBS investments.  As a result, we classify these investments as noncurrent assets, as we intend to hold these investments until they recover or mature.

The valuation of our ARS and MBS investments portfolio is subject to uncertainties that are difficult to estimate.  Due to the lack of observable market quotes for identical assets, we utilize analyses that rely on Level 2 and/or Level 3 inputs, as defined in “Fair Value Measurements.”  These inputs include, among other things, observed prices on similar assets as well as our assumptions and estimates related to the counterparty credit quality, default risk underlying the security and overall capital market liquidity.  These securities were also compared, when possible, to other observable market data for financial instruments with similar characteristics.

Fair Value Election.  As of March 31, 2012, our ARS and MBS noncurrent marketable investment securities portfolio of $118 million includes $69 million of securities accounted for under the fair value method.

Other Investment Securities

We have strategic investments in certain debt and equity securities that are included in noncurrent “Marketable and other investment securities” on our Condensed Consolidated Balance Sheets and accounted for using the cost, equity and/or fair value methods of accounting.

Our ability to realize value from our strategic investments in companies that are not publicly traded depends on the success of those companies’ businesses and their ability to obtain sufficient capital to execute their business plans.  Because private markets are not as liquid as public markets, there is also increased risk that we will not be able to sell these investments, or that when we desire to sell them we will not be able to obtain fair value for them.

Unrealized Gains (Losses) on Marketable Investment Securities

As of March 31, 2012 and December 31, 2011, we had accumulated net unrealized gains of $61 million and $91 million, both net of related tax effect, respectively, as a part of “Accumulated other comprehensive income (loss)” within “Total stockholders’ equity (deficit).”  A full valuation allowance has been established against any deferred taxes that are capital in nature.  The components of our available-for-sale investments are summarized in the table below.

	As of March 31, 2012										As of December 31, 2011
	Marketable										Marketable
	Investment		Unrealized								Investment		Unrealized
	Securities		Gains		Losses			Net			Securities		Gains		Losses			Net
	(In thousands)
Debt securities:
VRDNs	$	185,005	$	—	$	—		$	—		$	160,555	$	—	$	—		$	—
ARS and MBS	49,940		1,056		(10,630		)	(9,574		)	46,657		848		(14,486		)	(13,638		)
ARS fair value election	68,530		—		—			—			62,670		—		—			—
Other (including restricted)	858,719		10,066		(1,250		)	8,816			994,021		5,525		(6,565		)	(1,040		)
Equity securities:
Other	367,522		113,886		(51,813		)	62,073			343,012		89,044		(61,934		)	27,110
Subtotal	1,529,716		125,008		(63,693		)	61,315			1,606,915		95,417		(82,985		)	12,432
Investment in DBSD North America (1)	—		—		—			—			839,009		78,749		—			78,749
Total	$	1,529,716	$	125,008	$	(63,693	)	$	61,315		$	2,445,924	$	174,166	$	(82,985	)	$	91,181

(1)Of our total investment in DBSD North America of $1.298 billion as of December 31, 2011, $839 million was invested in 7.5% Convertible Senior Secured Notes due 2009, which were accounted for as available-for-sale investments prior to the DBSD Transaction.

As of March 31, 2012, restricted and non-restricted marketable investment securities include debt securities of $881 million with contractual maturities of one year or less and $281 million with contractual maturities greater than one year.  Actual maturities may differ from contractual maturities as a result of our ability to sell these securities prior to maturity.

Marketable Investment Securities in a Loss Position

The following table reflects the length of time that the individual securities, accounted for as available-for-sale, have been in an unrealized loss position, aggregated by investment category.  As of March 31, 2012, the unrealized losses on our investments in equity securities represent investments in several companies in the telecommunications and technology industries.  We are not aware of any specific factors which indicate the unrealized losses in these investments are due to anything other than temporary market fluctuations.  As of March 31, 2012 and December 31, 2011, the unrealized losses on our investments in debt securities primarily represent investments in auction rate and mortgage backed securities.  We do not intend to sell our investments in these debt securities before they recover or mature, and it is more likely than not that we will hold these investments until that time.  In addition, we are not aware of any specific factors indicating that the underlying issuers of these debt securities would not be able to pay interest as it becomes due or repay the principal at maturity.  Therefore, we believe that these changes in the estimated fair values of these marketable investment securities are related to temporary market fluctuations.

	As of
	March 31, 2012					December 31, 2011
	Fair		Unrealized			Fair		Unrealized
	Value		Loss			Value		Loss
	(In thousands)
Debt Securities:
Less than 12 months	$	439,812	$	(796	)	$	694,199	$	(4,793	)
12 months or more	61,872		(11,084		)	98,240		(16,258		)
Equity Securities:
Less than 12 months	218,885		(51,813		)	247,683		(61,934		)
12 months or more	—		—					—
Total	$	720,569	$	(63,693	)	$	1,040,122	$	(82,985	)

Our investments measured at fair value on a recurring basis were as follows:

	As of
	March 31, 2012								December 31, 2011
	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
	(In thousands)
Cash equivalents (including restricted)	$	1,146,565	$	46,748	$	1,099,817	$	—	$	397,777	$	46,371	$	351,406	$	—
Debt securities:
VRDNs	$	185,005	$	—	$	185,005	$	—	$	160,555	$	—	$	160,555	$	—
ARS and MBS	118,470		—		3,409		115,061		109,327		—		3,412		105,915
Other (including restricted)	858,719		—		858,719		—		994,021		—		994,021		—
Equity securities	367,522		367,522		—		—		343,012		343,012		—		—
Subtotal	1,529,716		367,522		1,047,133		115,061		1,606,915		343,012		1,157,988		105,915
Investment in DBSD North America (1)	—		—		—		—		839,009		—		—		839,009
Total	$	1,529,716	$	367,522	$	1,047,133	$	115,061	$	2,445,924	$	343,012	$	1,157,988	$	944,924

(1)   Of our total investment in DBSD North America of $1.298 billion as of December 31, 2011, $839 million was invested in 7.5% Convertible Senior Secured Notes due 2009, which were accounted for as available-for-sale investments prior to the DBSD Transaction.

As of March 31, 2012, our Level 3 investments consist predominately of ARS and MBS.  On a quarterly basis we evaluate the reasonableness of significant unobservable inputs used in those measurements.  The valuation models used for some of our ARS investments require an evaluation of the underlying instruments held by the trusts that issue these securities.  For our other ARS and MBS securities, our evaluation uses, among other things, the terms of the underlying instruments, the credit ratings of the issuers, current market conditions, and other relevant factors.  Based on these factors, we assess the risk of realizing expected cash flows and we apply an observable discount rate that reflects this risk.  We may also reduce our valuations to reflect other claims to trust assets or to reflect a liquidity discount based on the lack of an active market for these securities.

Changes in Level 3 instruments are as follows:

	For the Three Months
	Ended March 31,
Level 3 Investment Securities	2012			2011
	(In thousands)
Balance as of December 31, 2011 and 2010	$	944,924		$	168,993
Net realized and unrealized gains (losses) included in earnings	84,726			3,314
Net realized and unrealized gains (losses) included in other comprehensive income (loss)	(74,929		)	57,803
Purchases	—			—
Settlements (1)	(839,660		)	(762		)
Issuances	—			—
Transfers from level 2 to level 3	—			—
Balance as of March 31, 2012 and 2011	$	115,061		$	229,348

(1)  For the three months ended March 31, 2012, this amount primarily relates to the conversion of our DBSD North America 7.5% Convertible Senior Secured Notes due 2009.  See Note 8 for further information.

Gains and Losses on Sales and Changes in Carrying Values of Investments

“Other, net” income and expense included on our Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) includes other changes in the carrying amount of our marketable and non-marketable investments as follows:

	For the Three Months
	Ended March 31,
Other Income (Expense):	2012			2011
	(In thousands)
Marketable investment securities - gains (losses) on sales/exchanges	$	4,619		$	6,391
Marketable investment securities - unrealized gains (losses) on investments accounted for at fair value	8,479			(4,773		)
Marketable investment securities - gains (losses) on conversion of DBSD North America Notes (1)	99,445			—
Other investment securities - gains (losses) on sales/exchanges	—			10,000
Marketable investment securities - other-than-temporary impairments	(2,481		)	—
Other	220			15
Total	$	110,282		$	11,633

(1)During the three months ended March 31, 2012, we recognized a $99 million non-cash gain related to the conversion of our DBSD North America 7.5% Convertible Senior Secured Notes due 2009 in connection with the completion of the DBSD Transaction.  See Note 8 for further information.