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

6 Months Ended

12 Months Ended

Jun. 30, 2016

Dec. 31, 2015

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

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

4.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
	June 30, 2016		December 31, 2015
	(In thousands)
Marketable investment securities:
Current marketable investment securities	$	4,720	$	141,335
Restricted marketable investment securities (1)		82,099		82,280
Total marketable investment securities		86,819		223,615

Restricted cash and cash equivalents (1)		275		94

Other investment securities:
Investment in EchoStar preferred tracking stock - cost method		228,795		228,795
Investment in HSSC preferred tracking stock - cost method		87,409		87,409
Other investment securities - cost method		8,167		11,046
Total other investment securities		324,371		327,250

Total marketable investment securities, restricted cash and cash equivalents, and other investment securities	$	411,465	$	550,959

(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 various debt and equity instruments, all of which are classified as available-for-sale.

Current Marketable Investment Securities

Our current marketable investment securities portfolio includes investments in equity securities and various debt instruments including, among others, commercial paper, corporate securities and U.S. 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 June 30, 2016 and December 31, 2015, our restricted marketable investment securities, together with our restricted cash and cash equivalents, included amounts required as collateral for our letters of credit.

Other Investment Securities

We have strategic investments in certain debt and equity securities that are included in noncurrent “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

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”). As of November 30, 2015, we no longer lease satellite capacity on the EchoStar I satellite. 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’s 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 Sheets. 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 DISH Network 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 June 30, 2016 and December 31, 2015, we had accumulated net unrealized gains of less than $1 million and $20 million, respectively. These amounts, net of related tax effect, were less than $1 million and $12 million, respectively. All of these amounts are included in “Accumulated other comprehensive income (loss)” within “Total stockholder’s equity (deficit).” The components of our available-for-sale investments are summarized in the table below.



	As of June 30, 2016								As of December 31, 2015
	Marketable								Marketable
	Investment		Unrealized						Investment		Unrealized
	Securities		Gains		Losses		Net		Securities		Gains		Losses		Net
	(In thousands)
Debt securities (including restricted):
U. S. Treasury and agency securities	$	82,290	$	118	$	—	$	118	$	82,124	$	2	$	(135)	$	(133)
Corporate securities		4,529		5		—		5		90,838		3		(174)		(171)
Other		—		—		—		—		17,382		—		(2)		(2)
Equity securities		—		—		—		—		33,271		20,034		—		20,034
Total	$	86,819	$	123	$	—	$	123	$	223,615	$	20,039	$	(311)	$	19,728

As of June 30, 2016, restricted and non-restricted marketable investment securities included debt securities of $69 million with contractual maturities within one year and $18 million with contractual maturities extending longer than one year through and including five years. Actual maturities may differ from contractual maturities as a result of our ability to sell these securities prior to maturity.

Fair Value Measurements

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


	As of
	June 30, 2016								December 31, 2015
	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
	(In thousands)
Cash equivalents (including restricted)	$	139,869	$	115,036	$	24,833	$	—	$	307,406	$	25,814	$	281,592	$	—

Debt securities (including restricted):
U. S. Treasury and agency securities	$	82,290	$	77,560	$	4,730		—	$	82,124	$	77,328	$	4,796	$	—
Corporate securities		4,529		—		4,529		—		90,838		—		90,838		—
Other		—		—		—		—		17,382		—		17,382		—
Equity securities		—		—		—		—		33,271		33,271		—		—
Total	$	86,819	$	77,560	$	9,259	$	—	$	223,615	$	110,599	$	113,016	$	—

During the six months ended June 30, 2016, we had no transfers in or out of Level 1 and Level 2 fair value measurements.

4.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 December 31,
	2015		2014
	(In thousands)
Marketable investment securities:
Current marketable investment securities	$	141,335	$	1,401,145
Restricted marketable investment securities (1)		82,280		76,970
Total marketable investment securities		223,615		1,478,115

Restricted cash and cash equivalents (1)		94		10,014

Other investment securities:
Investment in EchoStar preferred tracking stock - cost method		228,795		228,795
Investment in HSSC preferred tracking stock - cost method		87,409		87,409
Other investment securities - cost method		11,046		11,046
Total other investment securities (2)		327,250		327,250

Total marketable investment securities, restricted cash and cash equivalents, and other investment securities	$	550,959	$	1,815,379

(1)

(2)

Other investment securities are included in “Other noncurrent assets, net” on our 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. See Note 2 for further information.

Current Marketable Investment Securities

Restricted Cash, Cash Equivalents and Marketable Investment Securities

As of December 31, 2015 and 2014, our restricted marketable investment securities, together with our restricted cash and cash equivalents, included amounts required as collateral for our letters of credit.

Other Investment Securities

We have strategic investments in certain debt and equity securities that are included in “Other noncurrent assets, net” on our Consolidated Balance Sheets and accounted for using the cost, equity and/or available-for-sale methods of accounting.

Investment in Tracking Stock

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 Consolidated Balance Sheets. 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.

Unrealized Gains (Losses) on Marketable Investment Securities

As of December 31, 2015 and 2014, we had accumulated net unrealized gains of $20 million and $43 million, respectively. These amounts, net of related tax effect, were $12 million and $28 million, respectively. All of these amounts are included in “Accumulated other comprehensive income (loss)” within “Total stockholder’s equity (deficit).” The components of our available-for-sale investments are summarized in the table below.


	As of December 31,
	2015								2014
	Marketable								Marketable
	Investment		Unrealized						Investment		Unrealized
	Securities		Gains		Losses		Net		Securities		Gains		Losses		Net
	(In thousands)
Debt securities (including restricted):
U. S. Treasury and agency securities	$	82,124	$	2	$	(135)	$	(133)	$	58,254	$	7	$	(11)	$	(4)
Commercial paper		—		—		—		—		65,696		—		—		—
Corporate securities		90,838		3		(174)		(171)		1,247,403		5,608		(145)		5,463
Other		17,382		—		(2)		(2)		55,788		—		—		—
Equity securities		33,271		20,034		—		20,034		50,974		37,737		—		37,737
Total	$	223,615	$	20,039	$	(311)	$	19,728	$	1,478,115	$	43,352	$	(156)	$	43,196

As of December 31, 2015, restricted and non-restricted marketable investment securities included debt securities of $127 million with contractual maturities within one year and $63 million with contractual maturities extending longer than one year through and including five 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 December 31, 2015, the unrealized losses on our investments in debt securities primarily represented investments in U.S. Treasury and agency securities and corporate securities. 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 December 31,
	2015				2014
	Fair		Unrealized		Fair		Unrealized
	Value		Loss		Value		Loss
	(In thousands)
Debt Securities:
Less than 12 months	$	153,580	$	(306)	$	268,492	$	(100)
12 months or more		5,782		(5)		129,092		(56)
Total	$	159,362	$	(311)	$	397,584	$	(156)

Fair Value Measurements

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


	As of December 31,
	2015								2014
	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
	(In thousands)
Cash equivalents (including restricted)	$	307,405	$	25,814	$	281,592	$	—	$	6,605,274	$	258,281	$	6,346,993	$	—

Debt securities (including restricted):
U. S. Treasury and agency securities	$	82,124	$	77,328	$	4,796		—	$	58,254	$	42,710	$	15,544	$	—
Commercial paper		—		—		—		—		65,696		—		65,696		—
Corporate securities		90,838		—		90,838		—		1,247,403		—		1,247,403		—
Other		17,382		—		17,382		—		55,788		—		55,788		—
Equity securities		33,271		33,271		—		—		50,974		50,974		—		—
Total	$	223,615	$	110,599	$	113,016	$	—	$	1,478,115	$	93,684	$	1,384,431	$	—

During the years ended December 31, 2015 and 2014, we had no transfers in or out of Level 1 and Level 2 fair value measurements.