Dish Network 2005 Annual Report Download - page 74

Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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Market Risks Associated With Financial Instruments
As of December 31, 2006, our restricted and unrestricted cash, cash equivalents and marketable investment securities
had a fair value of $3.206 billion. Of that amount, a total of $2.884 billion was invested in: (a) cash; (b) debt
instruments of the U.S. Government and its agencies; (c) commercial paper and notes with an overall average maturity
of less than one year and rated in one of the four highest rating categories by at least two nationally recognized
statistical rating organizations; and (d) instruments with similar risk characteristics to the commercial paper described
above. The primary purpose of these investing activities has been to preserve principal until the cash is required to,
among other things, fund operations, make strategic investments and expand the business. Consequently, the size of
this portfolio fluctuates significantly as cash is received and used in our business.
Our restricted and unrestricted cash, cash equivalents and marketable investment securities had an average annual
return for the year ended December 31, 2006 of 5.4%. A hypothetical 10.0% decrease in interest rates would result in a
decrease of approximately $12.6 million in annual interest income. The value of certain of the investments in this
portfolio can be impacted by, among other things, the risk of adverse changes in securities and economic markets
generally, as well as the risks related to the performance of the companies whose commercial paper and other
instruments we hold. However, the high quality of these investments (as assessed by independent rating agencies),
reduces these risks. The value of these investments can also be impacted by interest rate fluctuations.
At December 31, 2006, all of the $2.884 billion was invested in fixed or variable rate instruments or money market
type accounts. While an increase in interest rates would ordinarily adversely impact the fair value of fixed and variable
rate investments, we normally hold these investments to maturity. Consequently, neither interest rate fluctuations nor
other market risks typically result in significant realized gains or losses to this portfolio. A decrease in interest rates has
the effect of reducing our future annual interest income from this portfolio, since funds would be re-invested at lower
rates as the instruments mature.
Included in our marketable investment securities portfolio balance is debt and equity of public companies we hold for
strategic and financial purposes. As of December 31, 2006, we held strategic and financial debt and equity investments
of public companies with a fair value of $321.2 million. We may make additional strategic and financial investments
in debt and other equity securities in the future. The fair value of our strategic and financial debt and equity
investments can be significantly impacted by the risk of adverse changes in securities markets generally, as well as
risks related to the performance of the companies whose securities we have invested in, risks associated with specific
industries, and other factors. These investments are subject to significant fluctuations in fair value due to the volatility
of the securities markets and of the underlying businesses. A hypothetical 10.0% adverse change in the price of our
public strategic debt and equity investments would result in approximately a $32.1 million decrease in the fair value of
that portfolio. The fair value of our strategic debt investments are currently not materially impacted by interest rate
fluctuations due to the nature of these investments.
We currently classify all marketable investment securities as available-for-sale. We adjust the carrying value of our
available-for-sale securities to fair value and report the related temporary unrealized gains and losses as a separate
component of “Accumulated other comprehensive income (loss)” within “Total stockholders’ equity (deficit),” net of
related deferred income tax. Declines in the fair value of a marketable investment security which are estimated to be
“other than temporary” are recognized in the Consolidated Statements of Operations and Comprehensive Income
(Loss), thus establishing a new cost basis for such investment. We evaluate our marketable investment securities
portfolio on a quarterly basis to determine whether declines in the fair value of these securities are other than
temporary. This quarterly evaluation consists of reviewing, among other things, the fair value of our marketable
investment securities compared to the carrying amount, the historical volatility of the price of each security and any
market and company specific factors related to each security. Generally, absent specific factors to the contrary,
declines in the fair value of investments below cost basis for a continuous period of less than six months are considered
to be temporary. Declines in the fair value of investments for a continuous period of six to nine months are evaluated
on a case by case basis to determine whether any company or market-specific factors exist which would indicate that
such declines are other than temporary. Declines in the fair value of investments below cost basis for a continuous
period greater than nine months are considered other than temporary and are recorded as charges to earnings, absent
specific factors to the contrary.