6. 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 consisted of the following:

	As of
	September 30,		December 31,
	2014		2013
	(In thousands)
Marketable investment securities:
Current marketable investment securities - VRDNs	$	21,870	$	116,570
Current marketable investment securities - strategic	575,063		534,449
Current marketable investment securities - other	3,924,616		4,388,363
Total current marketable investment securities	4,521,549		5,039,382
Restricted marketable investment securities (1)	79,100		81,371
Noncurrent marketable investment securities - ARS and other (2)	135,408		133,652
Total marketable investment securities	4,736,057		5,254,405

Restricted cash and cash equivalents (1)	13,674		13,490

Other investment securities:
Investment in EchoStar preferred tracking stock - cost method (2)	228,795		—
Investment in HSSC preferred tracking stock - cost method (2)	87,409		—
Other investment securities - cost method (2)	13,546		17,621
Total other investment securities	329,750		17,621

Total marketable investment securities, restricted cash and cash equivalents, and other investment securities	$	5,079,481	$	5,285,516

(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 September 30, 2014, 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. The fair value of certain of the debt and equity securities in our investment portfolio 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 September 30, 2014 and December 31, 2013, our restricted marketable investment securities, together with our restricted cash, included amounts required as collateral for our letters of credit.

Noncurrent Marketable Investment Securities — ARS and Other Investment Securities

We have investments in ARS and other investment securities which are classified as available-for-sale securities. We generally recognize the changes in fair value of these securities as a separate component of “Accumulated other comprehensive income (loss)” within “Total stockholders’ equity (deficit).” However, for certain of these investment securities, primarily ARS, we have elected to recognize the changes in fair value through “Other, net” within “Other Income (Expense)” on our Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) (the “Fair Value Option”). 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 Option. As of September 30, 2014, our ARS and other noncurrent marketable investment securities portfolio of $135 million included $94 million of securities accounted for under the Fair Value Option.

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 available-for-sale methods of accounting.

Our ability to realize value from our strategic investments in securities that are not publicly traded depends on the success of the issuers’ businesses and their ability to obtain sufficient capital, on acceptable terms or at all, and 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.

Investment in Tracking Stock

To improve our position in the growing consumer satellite broadband market, among other reasons, on February 20, 2014, we entered into agreements with EchoStar to implement a transaction pursuant to which, among other things: (i) on March 1, 2014, we transferred to EchoStar and Hughes Satellite Systems Corporation (“HSSC”), a subsidiary of EchoStar, five satellites (EchoStar I, EchoStar VII, EchoStar X, EchoStar XI and EchoStar XIV (collectively the “Transferred Satellites”), including related in-orbit incentive obligations and cash interest payments of approximately $59 million), and approximately $11 million in cash in exchange for an aggregate of 6,290,499 shares of a series of preferred tracking stock issued by EchoStar and an aggregate of 81.128 shares of a series of preferred tracking stock issued by HSSC (collectively, the “Tracking Stock”); and (ii) beginning on March 1, 2014, we lease back certain satellite capacity on the Transferred Satellites (collectively, the “Satellite and Tracking Stock Transaction”). The Tracking Stock generally tracks the residential retail satellite broadband business of Hughes Network Systems, LLC (“HNS”), a wholly-owned subsidiary of HSSC, including without limitation the operations, assets and liabilities attributed to the Hughes residential retail satellite broadband business (collectively, the “Hughes Retail Group”). The shares of the Tracking Stock issued to us represent an aggregate 80% economic interest in the Hughes Retail Group.

Since the Satellite and Tracking Stock Transaction is among entities under common control, we recorded the Tracking Stock at EchoStar and HSSC’s historical cost basis for these instruments of $229 million and $87 million, respectively. The difference between the historical cost basis of the Tracking Stock received and the net carrying value of the Transferred Satellites of $356 million (including debt obligations, net of deferred taxes), plus the $11 million in cash, resulted in a $51 million capital transaction recorded in “Additional paid-in capital” on our Condensed Consolidated Balance Sheet. Although our investment in the Tracking Stock represents an aggregate 80% economic interest in the Hughes Retail Group, we have no operational control or significant influence over the Hughes Retail Group business, and currently there is no public market for the Tracking Stock. As such, the Tracking Stock is accounted for under the cost method of accounting.

On February 20, 2014, DISH Operating L.L.C. (“DOLLC”) and DISH Network L.L.C. (“DNLLC”), each indirect wholly-owned subsidiaries of us, entered into an Investor Rights Agreement with EchoStar and HSSC with respect to the Tracking Stock (the “Investor Rights Agreement”). The Investor Rights Agreement provides, among other things, certain information and consultation rights for us; certain transfer restrictions on the Tracking Stock and certain rights and obligations to offer and sell under certain circumstances (including a prohibition on transfers of the Tracking Stock for one year, with continuing transfer restrictions (including a right of first offer in favor of EchoStar) thereafter, an obligation to sell the Tracking Stock to EchoStar in connection with a change of control of us and a right to require EchoStar to repurchase the Tracking Stock in connection with a change of control of EchoStar, in each case subject to certain terms and conditions); certain registration rights; certain obligations to provide conversion and exchange rights of the Tracking Stock under certain circumstances; and certain protective covenants afforded to holders of the Tracking Stock. The Investor Rights Agreement generally will terminate with respect to our interest should we no longer hold any shares of the HSSC-issued Tracking Stock and any registrable securities under the Investor Rights Agreement.

Unrealized Gains (Losses) on Marketable Investment Securities

As of September 30, 2014 and December 31, 2013, we had accumulated net unrealized gains of $164 million and $181 million, respectively. These amounts, net of related tax effect, were $167 million and $178 million, respectively. All of these amounts are included in “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 September 30, 2014										As of December 31, 2013
	Marketable										Marketable
	Investment		Unrealized								Investment		Unrealized
	Securities		Gains		Losses			Net			Securities		Gains		Losses			Net
	(In thousands)
Debt securities:
VRDNs	$	21,870	$	—	$	—		$	—		$	116,570	$	—	$	—		$	—
ARS and other	41,828		1,617		(3,201		)	(1,584		)	45,030		1,188		(5,138		)	(3,950		)
ARS Fair Value Option	93,580		—		—			—			88,622		—		—			—
Other (including restricted)	4,190,657		78,374		(1,344		)	77,030			4,668,532		83,363		(4,741		)	78,622
Equity securities	388,122		93,360		(4,659		)	88,701			335,651		106,684		—			106,684
Total	$	4,736,057	$	173,351	$	(9,204	)	$	164,147		$	5,254,405	$	191,235	$	(9,879	)	$	181,356

As of September 30, 2014, restricted and non-restricted marketable investment securities included debt securities of $2.778 billion with contractual maturities within one year, $1.358 billion with contractual maturities extending longer than one year through and including five years, $1 million with contractual maturities extending longer than five years through and including ten years and $211 million with contractual maturities longer than 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 September 30, 2014, the unrealized losses on our investments in equity securities represented investments in broad-based indices and in the telecommunications industry. We are not aware of any factors that indicate the unrealized losses in these investments are due to factors other than temporary market fluctuations. As of September 30, 2014, the unrealized losses related to our investments in debt securities primarily represented investments in ARS and other corporate bonds. 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
	September 30, 2014					December 31, 2013
	Fair		Unrealized			Fair		Unrealized
	Value		Loss			Value		Loss
	(In thousands)
Debt Securities:
Less than 12 months	$	1,979,006	$	(1,322	)	$	2,208,930	$	(3,106	)
12 months or more	219,053		(3,223		)	84,915		(6,773		)
Equity Securities:
Less than 12 months	56,365		(4,659		)	—		—
12 months or more	—		—			—		—
Total	$	2,254,424	$	(9,204	)	$	2,293,845	$	(9,879	)

Fair Value Measurements

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

	As of
	September 30, 2014								December 31, 2013
	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
	(In thousands)
Cash equivalents (including restricted)	$	4,539,145	$	73,936	$	4,465,209	$	—	$	4,387,252	$	323,638	$	4,063,614	$	—

Debt securities:
VRDNs	$	21,870	$	—	$	21,870	$	—	$	116,570	$	—	$	116,570	$	—
ARS and other	135,408		—		218		135,190		133,652		—		678		132,974
Other (including restricted)	4,190,657		39,834		4,144,970		5,853		4,668,532		11,015		4,644,471		13,046

Equity securities	388,122		388,122		—		—		335,651		335,651		—		—

Subtotal	4,736,057		427,956		4,167,058		141,043		5,254,405		346,666		4,761,719		146,020

Derivative financial instruments	251,030		—		251,030		—		292,507		—		292,507		—

Total	$	4,987,087	$	427,956	$	4,418,088	$	141,043	$	5,546,912	$	346,666	$	5,054,226	$	146,020

As of September 30, 2014 and December 31, 2013, our Level 3 investments consisted 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 were as follows:

	Level 3 Investment Securities
	(In thousands)
Balance as of December 31, 2013	$	146,020
Net realized and unrealized gains (losses) included in earnings	(3,068		)
Net realized and unrealized gains (losses) included in other comprehensive income (loss)	3,465
Purchases	—
Settlements	(5,374		)
Issuances	—
Transfers into or out of Level 3	—
Balance as of September 30, 2014	$	141,043

During the nine months ended September 30, 2014, we had no transfers in or out of Level 1 and Level 2 fair value measurements.

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

“Other, net” within “Other Income (Expense)” included on our Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) is as follows:

	For the Three Months					For the Nine Months
	Ended September 30,					Ended September 30,
Other Income (Expense):	2014			2013		2014			2013
	(In thousands)
Marketable investment securities - gains (losses) on sales/exchanges	$	168		$	49,223	$	6,358		$	63,405
Marketable investment securities - unrealized gains (losses) on investments accounted for using the Fair Value Option	(2,060		)	8,689		4,958			19,175
Derivative financial instruments - net realized and/or unrealized gains (losses)	(41,302		)	52,505		(41,476		)	137,703
Marketable investment securities - other-than-temporary impairments	(1,951		)	—		(8,081		)	(1,919		)
Costs related to early redemption of debt (Note 9)	(7,257		)	—		(7,257		)
Other	(3,687		)	80		(6,946		)	231
Total	$	(56,089	)	$	110,497	$	(52,444	)	$	218,595