Note 5. Investment Securities

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

	As of December 31,
	2012		2011
	(In thousands)
Marketable investment securities—current:
Corporate bonds	$	654,096	$	561,149
VRDNs	66,145		218,665
Strategic	56,288		216,090
Other	39,422		86,503
Total marketable investment securities—current	815,951		1,082,407
Restricted marketable investment securities (1)	7,529		3,939
Total	823,480		1,086,346

Restricted cash and cash equivalents (1)	21,516		20,347

Other investment securities—noncurrent:
Cost method	27,711		26,193
Equity method	155,500		114,246
Total other investment securities—noncurrent	183,211		140,439
Total marketable investment securities, restricted cash and cash equivalents, and other investment securities	$	1,028,207	$	1,247,132

(1) Restricted marketable investment securities and restricted cash and cash equivalents are included in “Restricted cash and marketable investment securities” 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.

Corporate bonds

Our corporate bond portfolio includes debt instruments issued by individual corporations, primarily in the industrial and financial services industry securities.

Variable rate demand notes (“VRDNs”)

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 municipalities and corporations, 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.

Strategic

Our strategic investment portfolio consists of investments in shares of common stock of public companies, which are highly speculative and have experienced and continue to experience volatility. The value of our investment portfolio depends on the value of such shares of common stock. For the year ended December 31, 2012, we received $46 million in dividend income from one of our strategic investments. We did not receive any dividend income for the years ended December 31, 2011 and 2010.

Other

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

Restricted Cash and Marketable Investment Securities

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

Other Investment Securities - Noncurrent

We have several strategic investments in certain equity securities that are accounted for using either the equity or the cost method 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.

As of December 31, 2012, our equity method investments included a $35 million investment in DISH Digital Holding L.L.C. (“DISH Digital”), a joint venture between us and DISH Network. The carrying amount of our investment reflects the $45 million aggregate carrying amount of cash and certain noncash assets that we contributed to DISH Digital upon its formation on July 1, 2012 in exchange for a one-third equity interest in DISH Digital, less $10 million from our equity in the net loss of DISH Digital for the year ended December 31, 2012. See Note 19 for additional information about our investment in DISH Digital.

Unrealized Gains (Losses) on Marketable Investment Securities

The components of our available-for-sale investments are summarized in the table below.

								Estimated
	Amortized		Unrealized					Fair
	Cost		Gains		Losses			Value
	(In thousands)
As of December 31, 2012
Debt securities:
Corporate bonds	$	653,812	$	591	$	(307	)	$	654,096
VRDNs	66,145		—		—			66,145
Other (including restricted)	46,946		5		—			46,951
Equity securities - strategic	21,214		35,074		—			56,288
Total marketable investment securities	$	788,117	$	35,670	$	(307	)	$	823,480
As of December 31, 2011
Debt securities:
Corporate bonds	$	563,625	$	228	$	(2,704	)	$	561,149
VRDNs	218,665		—		—			218,665
Other (including restricted)	90,428		25		(11		)	90,442
Equity securities - strategic	33,876		182,214		—			216,090
Total marketable investment securities	$	906,594	$	182,467	$	(2,715	)	$	1,086,346

As of December 31, 2012, restricted and non-restricted marketable investment securities included debt securities of $655 million with contractual maturities of one year or less and $112 million with contractual maturities greater than one year. We may realize proceeds from certain investments prior to contractual maturity as a result of our ability to sell these securities prior to their contractual maturity.

Marketable Investment Securities in a Loss Position

The following table reflects the length of time that our available-for-sale debt securities have been in an unrealized loss position. We do not intend to sell these debt securities before they recover or mature, and it is more likely than not that we will hold these debt securities until they recover or mature. 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 debt securities are primarily related to temporary market fluctuations.

	As of December 31,
	2012					2011
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
	(In thousands)
Less than 12 months	$	275,587	$	(288	)	$	507,925	$	(2,709	)
12 months or more	12,963		(19		)	3,931		(6		)
Total	$	288,550	$	(307	)	$	511,856	$	(2,715	)

Realized Gains on Marketable Investment Securities and Other Investments

We recognized realized gains on our marketable investment securities and other investments of $178 million, $14 million and $3 million for the years ended December 31, 2012, 2011 and 2010, respectively.

Fair Value Measurements

Our current marketable investment securities were measured at fair value on a recurring basis as summarized in the table below. As of December 31, 2012 and 2011, we did not have investments that were categorized within Level 3 of the fair value hierarchy.

	As of December 31,
	2012						2011
	Total		Level 1		Level 2		Total		Level 1		Level 2
	(In thousands)
Cash equivalents (including restricted)	$	533,943	$	23,621	$	510,322	$	543,243	$	16,197	$	527,046
Debt securities:
Corporate bonds	$	654,096	$	—	$	654,096	$	561,149	$	—	$	561,149
VRDNs	66,145		—		66,145		218,665		—		218,665
Other (including restricted)	46,951		—		46,951		90,442		—		90,442
Equity securities - strategic	56,288		56,288		—		216,090		216,090		—
Total marketable investment securities	$	823,480	$	56,288	$	767,192	$	1,086,346	$	216,090	$	870,256

In 2012, we did not have investments that were accounted for using the fair value method. In 2011, we held investments that were accounted for using the fair value method, and we reported realized and unrealized gains and losses on such investments in “Gains on investments accounted for at fair value, net” in our Condensed Consolidated Statements of Operations and Comprehensive Income (Loss). Certain unrealized gains and losses on investments accounted for using the fair value method were based on fair value measurements categorized within Level 3 of the fair value hierarchy. Changes in our fair value method investments during 2011 were as follows:

	Amount
	(In thousands)
Balance as of December 31, 2010	$	608,955
Net realized gains included in earnings	9,194
Purchases	51,936
Issuances	27,313
Settlements	(697,398		)
Balance as of December 31, 2011	$	—

Investments in TerreStar

In February 2008, we completed several transactions under a Master Investment Agreement between us, TerreStar Corporation and TerreStar Networks Inc. (“TerreStar”). Under the Master Investment Agreement, we acquired, among other things, $50 million in aggregate principal amount of TerreStar’s 6 1/2% Senior Exchangeable Paid-in-Kind Notes due June 15, 2014 (“Exchangeable Notes”). TerreStar and certain of its affiliates filed for bankruptcy protection under Chapter 11 of the United States Bankruptcy Code on October 19, 2010. The United States Bankruptcy Court for the Southern District of New York confirmed TerreStar’s Chapter 11 plan of reorganization (the “TerreStar Plan”) on February 15, 2012. Effective March 29, 2012, the Exchangeable Notes were cancelled pursuant to the TerreStar Plan. As of December 31, 2012, we had no investment in TerreStar.