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

9 Months Ended

Sep. 30, 2023

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 consisted of the following:

	As of
	September 30,		December 31,
	2023		2022
	(In thousands)
Marketable investment securities:
Current marketable investment securities:
Strategic - available-for-sale	$	144	$	144
Strategic - trading/equity		75		655
Other		182,597		835,184
Total current marketable investment securities		182,816		835,983
Restricted marketable investment securities (1)		23,232		41,689
Total marketable investment securities		206,048		877,672
Restricted cash and cash equivalents (1)		84,119		62,925
Other investment securities:
Other investment securities		180,333		168,200
Total other investment securities		180,333		168,200
Total marketable investment securities, restricted cash and cash equivalents, and other investment securities	$	470,500	$	1,108,797

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

Marketable Investment Securities

Our marketable investment securities portfolio consists of and may consist of debt and equity instruments. All equity securities are carried at fair value, with changes in fair value recognized in “Other, net” within “Other Income (Expense)” on our Condensed Consolidated Statements of Operations and Comprehensive Income (Loss). All debt securities are classified as available-for-sale and are recorded at fair value. We report the temporary unrealized gains and losses related to changes in market conditions of marketable debt securities as a separate component of “Accumulated other comprehensive income (loss)” within “Stockholders’ Equity (Deficit),” net of related deferred income tax on our Condensed Consolidated Balance Sheets. The corresponding changes in the fair value of marketable debt securities, which are determined to be company specific credit losses are recorded in “Other, net” within “Other Income (Expense)” on our Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).

Current Marketable Investment Securities – Strategic

Our current strategic marketable investment securities portfolio includes and may include strategic and financial debt and/or equity investments in private and public companies that are highly speculative and have experienced and continue to experience volatility. As of September 30, 2023, this 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 this 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 other marketable investment securities portfolio includes investments in various debt instruments including, among others, commercial paper, corporate securities and United States treasury and/or agency securities.

Commercial paper consists mainly of unsecured short-term, promissory notes issued primarily by corporations with maturities ranging up to 365 days. Corporate securities consist of debt instruments issued by corporations with various maturities normally less than 18 months. U.S. Treasury and agency securities consist of debt instruments issued by the federal government and other government agencies.

Restricted Cash, Cash Equivalents and Marketable Investment Securities

As of September 30, 2023 and December 31, 2022, our restricted marketable investment securities, together with our restricted cash and cash equivalents, included amounts required as collateral for our letters of credit and trusts.

Other Investment Securities

We have strategic investments in certain debt and/or equity securities that are included in noncurrent “Other investment securities” on our Condensed Consolidated Balance Sheets. Our debt securities are classified as available-for-sale and are recorded at fair value, and our equity securities are accounted for using the equity method of accounting or recorded at fair value. Certain of our equity method investments are detailed below.

NagraStar L.L.C. We own a 50% interest in NagraStar L.L.C. (“NagraStar”), a joint venture that is our primary provider of encryption and related security systems intended to assure that only authorized customers have access to our programming.

Invidi Technologies Corporation. In November 2016, we, AT&T Inc., and Cavendish Square Holding B.V., an affiliate of WPP plc, entered into a series of agreements to acquire Invidi Technologies Corporation (“Invidi”), an entity that provides proprietary software for the addressable advertising market.

TerreStar Solutions, Inc.  In March 2019, we closed a transaction with TerreStar Solutions, Inc. (“TSI”) to acquire additional equity securities of TSI, an entity that holds certain 2 GHz wireless spectrum licenses in Canada, in exchange for certain Canadian assets, including, among other things, a portion of the satellite capacity on our T1 satellite, which we had acquired from TerreStar Networks, Inc. in 2012. 

Our ability to realize value from our strategic investments in securities that are not publicly traded depends on, among other things, 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.

Fair Value Measurements

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

	As of
	September 30, 2023								December 31, 2022
	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
	(In thousands)
Cash equivalents (including restricted)	$	745,774	$	54,839	$	690,935	$	—	$	1,620,458	$	174,050	$	1,446,408	$	—
Debt securities (including restricted):
U.S. Treasury and agency securities	$	5,076	$	5,076	$	—	$	—	$	22,824	$	22,824	$	—	$	—
Commercial paper		180,086		—		180,086		—		696,324		—		696,324		—
Corporate securities		17,901		—		17,901		—		156,380		—		156,380		—
Other		2,910		—		2,766		144		1,489		—		1,345		144
Equity securities		75		75		—		—		655		655		—		—
Total	$	206,048	$	5,151	$	200,753	$	144	$	877,672	$	23,479	$	854,049	$	144

As of September 30, 2023, restricted and non-restricted marketable investment securities included debt securities of $206 million with contractual maturities within one year. Actual maturities may differ from contractual maturities as a result of our ability to sell these securities prior to maturity.

Derivative Instruments

We have the option to purchase certain of T-Mobile’s 800 MHz spectrum licenses from T-Mobile at a fixed price.  This instrument meets the definition of a derivative and is valued based upon, among other things, our estimate of the underlying asset price, the expected term, volatility, the risk free rate of return and the probability of us exercising the option. The instrument acquisition date fair value was $713 million. The derivative is remeasured quarterly. As of September 30, 2023 and December 31, 2022, the derivative’s fair value was $1.501 billion and $1.693 billion, respectively, and is included in “Other noncurrent assets, net” on our Condensed Consolidated Balance Sheets. The change in the derivative’s carrying value was primarily driven by a decrease in our estimated probability of exercising the option. This decrease was partially offset by an increase in the estimated underlying asset value based on Level 3 current market data indicative pricing for similar assets. All changes in the derivative’s fair value are recorded in “Other, net” on our Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) until the option is either exercised or expires. See the table below. If we elect to exercise the option and purchase these licenses, we will record the licenses at fair value at that date in “FCC authorizations” on our Condensed Consolidated Balance Sheets. If we elect to not exercise the option or it expires, we will expense the derivative’s fair value at that date on our Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) and were potentially subject to pay T-Mobile a fee of approximately $72 million per the License Purchase Agreement under certain circumstances. In conjunction with the Amendment that modifies the License Purchase Agreement, discussed below, the $72 million fee has been superseded by the Upfront Payment, defined below. See Note 10 further information on the License Purchase Agreement.

On June 30, 2023, the United States Department of Justice, Antitrust Division (the “DOJ”) provided notice to the United States District Court for the District of Columbia (the “District Court”) that, pursuant to its discretion under the Final Judgment, it granted a 60-day extension of the deadline for T-Mobile to divest the 800 MHz spectrum licenses, which expired on August 30, 2023.

On August 17, 2023, we filed a petition with the District Court seeking an extension of the deadline for T-Mobile to divest the 800 MHz spectrum licenses.

On October 15, 2023, we and T-Mobile entered into an amendment to the License Purchase Agreement (the “Amendment”) that, among other things, extends the date by which we may purchase the 800 MHz spectrum licenses to April 1, 2024 (the “Extension”). In connection with the Extension, we agreed to make an upfront payment of $100 million (the “Upfront Payment”) to T-Mobile. The Amendment also resolves all outstanding disputes between the parties with respect to the License Purchase Agreement.

The Amendment has been approved by the DOJ in accordance with the Stipulation and Order filed in the District Court on July 26, 2019 and the Final Judgment entered by the District Court on April 1, 2020. The Amendment became effective upon the District Court entering the Amended Final Judgment on October 23, 2023.

The Upfront Payment is fully creditable against the purchase price in the event we exercise our option to purchase the 800 MHz spectrum licenses from T-Mobile. T-Mobile has the right (but not the obligation) to pursue an alternative offer between now and April 1, 2024 provided that we retain the first right to purchase the spectrum before April 1, 2024. If we elect to not exercise the option to purchase the 800 MHz spectrum licenses pursuant to the License Purchase Agreement or it expires, T-Mobile will retain the $100 million Upfront Payment per the Amendment and we will expense the Upfront Payment at that date on our Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).

As of September 30, 2023, we recorded the $100 million Upfront Payment in “Other noncurrent assets, net” with the offsetting liability in “Other accrued expenses” on our Condensed Consolidated Balance Sheets. Subsequently, on October 25, 2023, we paid the $100 million Upfront Payment to T-Mobile.

We account for our option to purchase certain T-Mobile’s 800 MHz spectrum licenses under the License Purchase Agreement as a Level 3 instrument within the fair value hierarchy.

Gains and Losses on Sales and Changes in Carrying Amounts of Investments and Other

“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 Ended				For the Nine Months Ended
	September 30,				September 30,
Other, net:	2023		2022		2023		2022
	(In thousands)
Marketable and non-marketable investment securities - realized and unrealized gains (losses)	$	20	$	26,569	$	1,432	$	26,531
Derivative instruments - net realized and/or unrealized gains (losses) (1)		(155,133)		34,000		(192,107)		92,000
Gains (losses) related to early redemption of debt (2)		4,480		—		72,566		(1,149)
Equity in earnings (losses) of affiliates		(1,216)		(570)		(3,596)		687
Other		352		(2,058)		979		(3,805)
Total	$	(151,497)	$	57,941	$	(120,726)	$	114,264

(1) The change in the derivative’s carrying value was primarily driven by a decrease in our estimated probability of exercising the option to purchase certain of T-Mobile’s 800 MHz spectrum licenses. This decrease was partially offset by an increase in the estimated underlying asset value based on Level 3 current market data indicative pricing for similar assets.

(2) This change primarily resulted from repurchases of our Convertible Notes and 5 7/8% Senior Notes due 2024 during the three and nine months ended September 30, 2023. See Note 9 for further information.