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,
	2013		2012
	(In thousands)
Marketable investment securities:
Current marketable investment securities - VRDNs	$	123,976	$	130,306
Current marketable investment securities - strategic	1,350,173		1,261,015
Current marketable investment securities - other	2,690,079		2,240,316
Total current marketable investment securities	4,164,228		3,631,637
Restricted marketable investment securities (1)	64,059		51,366
Noncurrent marketable investment securities - ARS and other (2)	112,474		106,172
Total marketable investment securities	4,340,761		3,789,175

Restricted cash and cash equivalents (1)	26,918		83,044

Other investment securities:
Other investment securities - cost method (2)	12,879		12,879
Total other investment securities	12,879		12,879

Total marketable investment securities, restricted cash and cash equivalents and other investment securities	$	4,380,558	$	3,885,098

(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”) 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 mainly of investments in municipalities, which are backed by financial institutions or other highly rated obligors 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 debt and equity investments in public companies that are highly speculative and have experienced and continue to experience volatility. As of March 31, 2013, our strategic investment portfolio consisted of securities of a small number of issuers, and as a result the value of that portfolio depends, among other things, on the performance of those issuers. For example, a significant portion of the value of these investments is concentrated in the debt securities of Clearwire Corporation (“Clearwire”). The adjusted cost basis of these Clearwire securities as of March 31, 2013 and December 31, 2012 was $755 million and $751 million, respectively. The fair value of these Clearwire securities as of March 31, 2013 and December 31, 2012 was $950 million and $951 million, respectively. Clearwire has a call option on certain of these debt securities upon 30 days notice. The call option price is less than the fair market value of these debt securities and, if exercised, proceeds would be less than our recorded fair market value and therefore, reduce our unrealized gains recorded as a separate component of “Accumulated other comprehensive income (loss)” within “Total stockholders’ equity (deficit),” on our Condensed Consolidated Balance Sheets. This potential reduction in our unrealized gain related to the call option on these debt securities would have no impact on our results of operations. In addition, Clearwire has indicated that it will need substantial additional capital to meet its business and financial obligations beyond the next 12 months. The fair value of certain of the debt securities in our investment portfolio, including those of Clearwire, can be adversely impacted by, among other things, the issuers’ respective performance and ability to obtain any necessary additional financing on acceptable terms, or at all.

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, 2013 and December 31, 2012, 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. During the first quarter 2013, we released $42 million of restricted cash related to litigation. See Note 12 for further information.

Noncurrent Marketable Investment Securities — ARS and Other Investment Securities

We have investments in ARS and other investment securities 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 other investment securities. 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 other investment securities 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, 2013, our ARS and other noncurrent marketable investment securities portfolio of $112 million includes $67 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, on acceptable terms or at all, 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, 2013 and December 31, 2012, we had accumulated net unrealized gains of $206 million and $194 million, both net of related tax effect, respectively, as a part of “Accumulated other comprehensive income (loss)” within “Total stockholders’ equity (deficit).” The components of our available-for-sale investments are summarized in the table below.

	As of March 31, 2013										As of December 31, 2012
	Marketable										Marketable
	Investment		Unrealized								Investment		Unrealized
	Securities		Gains		Losses			Net			Securities		Gains		Losses			Net
	(In thousands)
Debt securities:
VRDNs	$	123,976	$	—	$	—		$	—		$	130,306	$	—	$	—		$	—
ARS and other	45,957		1,156		(5,370		)	(4,214		)	43,921		1,375		(8,033		)	(6,658		)
ARS fair value election	66,517		—		—			—			62,251		—		—			—
Other (including restricted)	3,748,615		203,257		(1,036		)	202,221			3,287,317		208,208		(1,203		)	207,005
Equity securities	355,696		38,789		(10,923		)	27,866			265,380		17,918		(11,537		)	6,381
Total	$	4,340,761	$	243,202	$	(17,329	)	$	225,873		$	3,789,175	$	227,501	$	(20,773	)	$	206,728

As of March 31, 2013, restricted and non-restricted marketable investment securities include debt securities of $2.473 billion with contractual maturities within one year, $1.333 billion with contractual maturities after one year through five years and $179 million with contractual maturities after ten years. 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, 2013, the unrealized losses on our investments in equity securities represent investments in companies in the telecommunications industry. 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, 2013 and December 31, 2012, the unrealized losses on our investments in debt securities primarily represent investments in ARS. We have the ability to hold and 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, 2013					December 31, 2012
	Fair		Unrealized			Fair		Unrealized
	Value		Loss			Value		Loss
	(In thousands)
Debt Securities:
Less than 12 months	$	1,213,859	$	(734	)	$	761,551	$	(909	)
12 months or more	51,534		(5,672		)	72,395		(8,327		)
Equity Securities:
Less than 12 months	57,164		(10,923		)	154,566		(11,537		)
12 months or more	—		—			—		—
Total	$	1,322,557	$	(17,329	)	$	988,512	$	(20,773	)

Fair Value Measurements

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

	As of
	March 31, 2013								December 31, 2012
	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
	(In thousands)
Cash equivalents (including restricted)	$	2,533,492	$	4,336	$	2,529,156	$	—	$	3,386,929	$	67,833	$	3,319,096	$	—

Debt securities:
VRDNs	$	123,976	$	—	$	123,976	$	—	$	130,306	$	—	$	130,306	$	—
ARS and other	112,474		—		871		111,603		106,172		—		955		105,217
Other (including restricted)	3,748,615		11,115		3,737,500		—		3,287,317		11,182		3,276,135		—

Equity securities	355,696		355,696		—		—		265,380		265,380		—		—

Subtotal	4,340,761		366,811		3,862,347		111,603		3,789,175		276,562		3,407,396		105,217
Purchases and prepaid funding of derivative financial instruments	558,358		209,034		349,324		—		—		—		—		—
Total	$	4,899,119	$	575,845	$	4,211,671	$	111,603	$	3,789,175	$	276,562	$	3,407,396	$	105,217

As of March 31, 2013 and December 31, 2012, our Level 3 investments consist predominately of ARS and other investment securities. 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 other investment 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 a liquidity discount based on the lack of an active market for these securities.

Changes in Level 3 instruments are as follows:

	Level 3
	Investment
	Securities
	(In thousands)
Balance as of December 31, 2012	$	105,217
Net realized and unrealized gains (losses) included in earnings	4,296
Net realized and unrealized gains (losses) included in other comprehensive income (loss)	2,526
Purchases	—
Settlements	(436		)
Issuances	—
Transfers from level 2 to level 3	—
Balance as of March 31, 2013	$	111,603

During the three months ended March 31, 2013, we had no transfers in and out of Level 1 and Level 2 fair value measurements.

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):	2013			2012
	(In thousands)
Marketable investment securities - gains (losses) on sales/exchanges	$	557		$	4,619
Marketable investment securities - unrealized gains (losses) on investments accounted for at fair value	4,266			8,479
Marketable investment securities - gains (losses) on conversion of DBSD North America Notes (1)	—			99,445
Derivative financial instruments - unrealized gains (losses)	8,358			—
Marketable investment securities - other-than-temporary impairments	(1,919		)	(2,481		)
Other	(1,522		)	220
Total	$	9,740		$	110,282

(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.