Dish Network 2005 Annual Report Download

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ANNUAL REPORT
Year ended December 31, 2006

Table of contents

  • Page 1
    ANNUAL REPORT Year ended December 31, 2006

  • Page 2

  • Page 3
    ... high-speed Internet service while signing up for DISH Network programming. We continue to pursue investment and other business opportunities domestically and abroad. We enhanced our relationships with AT&T, Inc. and other telecommunications providers to offer consumers the best value in programming...

  • Page 4

  • Page 5
    ...26176 EchoStar Communications Corporation (Exact name of registrant as specified in its charter) Nevada (State or other jurisdiction of incorporation or organization) 88-0336997 (I.R.S. Employer Identification No.) 9601 South Meridian Boulevard Englewood, Colorado (Address of principal executive...

  • Page 6
    EXPLANATORY NOTE This Form 10-K/A amends the Form 10-K of EchoStar Communications Corporation ("EchoStar") for the year ended December 31, 2006 by repeating three paragraphs currently included in Management's Discussion and Analysis, as the last three paragraphs of Note 2 to the Consolidated ...

  • Page 7
    ...of Security Holders ...PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities ...Item 6. Selected Financial Data ...Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations ...Item 7A. Quantitative and...

  • Page 8
    ... and increasing competition from satellite and cable television providers as well as new competitors, including telephone companies; our competitors are increasingly offering video service bundled with 2-way high speed Internet access and telephone services that consumers may find attractive and...

  • Page 9
    ... equipment and related services to international direct-to-home service providers may decrease; we depend on telecommunications providers, independent retailers and others to solicit orders for DISH Network services. Certain of these providers account for a significant percentage of our total new...

  • Page 10

  • Page 11
    .... DISH Network services include hundreds of video, audio and data channels, interactive television channels, digital video recording, high definition television, international programming, professional installation and 24-hour customer service. We started offering subscription television services on...

  • Page 12
    ... Definition Programming Packages. We offer over 25 national high definition ("HD") channels for $20 per month, more than any other major pay TV provider in the United States. Further, customers who subscriber to HBO, Showtime and Starz also receive an HD feed of those channels at no additional cost...

  • Page 13
    ... proper point-of-sale materials for our current promotions. Additionally, we dedicate a DISH Network television channel and websites to provide retailers and customers with information about special services and promotions that we offer from time to time. Acquisition Strategy. Our future success in...

  • Page 14
    ...remotes, allowing control through walls when the satellite receiver and TV are not located in the same room. We also offer a variety of specialized products including HD receivers. Receivers communicate with our authorization center through telephone lines to, among other things, report the purchase...

  • Page 15
    ... for sales, hardware, programming, billing, installation and technical support. We continue to work to automate simple phone responses and to increase Internet-based customer assistance in order to better manage customer service costs and improve the customer's self-service experience. Subscriber...

  • Page 16
    ...to offer integrated satellite capacity solutions that may not be available from other providers of wholesale commercial satellite capacity. NEW BUSINESS OPPORTUNITIES Strategic Investments in International Projects We have entered into agreements to construct and launch an S-band satellite and lease...

  • Page 17
    ... Direct Broadcast Satellite ("DBS") band. The low and medium power portion of the Ku-band -- 11.7 to 12.2 GHz -- is known as the Fixed Satellite Service ("FSS") band. Most of our DTH programming is currently delivered using DBS satellites. We continue to explore opportunities to expand our available...

  • Page 18
    ... transponders are currently available for use on EchoStar III, but due to redundancy switching limitations and specific channel authorizations, we can only operate 15 of the 19 FCC authorized frequencies we have the right to utilize at the 61.5 degree location. While we do not expect a large number...

  • Page 19
    ... operating at approximately 110 watts per channel, along with transponders that can provide services in the Ka-Band (a "Ka-band payload"). EchoStar IX provides expanded video and audio channels to DISH Network subscribers who install a specially-designed dish. The Ka-band spectrum is being used...

  • Page 20
    ... and spot beam capacity and could be used at multiple orbital locations. EchoStar XIV could allow DISH Network to offer other value-added services. • • • We have also entered into agreements to lease capacity on the following satellites currently under construction. • An SES Americom DBS...

  • Page 21
    ... are at a competitive marketing disadvantage compared to DirecTV. DirecTV also offers exclusive programming, and may have access to discounts on programming, not available to us. DirecTV plans to launch two new satellites in 2007 in order to offer local and national channel programming in HD to most...

  • Page 22
    ... of advanced fiber optic networks. Verizon Communications, Inc. ("Verizon") and AT&T have begun deployment of fiber-optic networks that will allow them to offer video services bundled with traditional phone and high speed Internet directly to millions of homes. In addition, telephone companies and...

  • Page 23
    ...the number of markets where we provide local channels, but reduces the number of video channels that could otherwise be offered across the entire United States. The FCC has licensed us to operate a total of 104 direct broadcast satellite frequencies at the following orbital locations 21 frequencies...

  • Page 24
    ... spectrum capable of providing service through spot beams to CONUS. • • • We currently broadcast the majority of our programming from the 110 and 119 degree orbital locations. Almost all of our customers have satellite receiver systems that are equipped to receive signals from both of these...

  • Page 25
    ... in the DBS Band. The FCC has adopted rules that allow non-geostationary orbit fixed satellite services to operate on a co-primary basis in the same frequency band as direct broadcast satellite and Ku-band-based fixed satellite services. In the same rulemaking, the FCC authorized use of the DBS...

  • Page 26
    ...the Cable Act, the FCC imposed public interest requirements on DBS licensees. These rules require us to set aside four percent of our channel capacity exclusively for noncommercial programming for which we must charge programmers below-cost rates and for which we may not impose additional charges on...

  • Page 27
    ...with cable and other satellite companies which provide local signals. While we have been able to reach retransmission consent agreements with most local network stations in markets where we currently offer local channels by satellite, roll-out of local channels in additional cities will require that...

  • Page 28
    ...area data for 2006, 2005 and 2004 see Note 10 in the Notes to the Consolidated Financial Statements in Item 15 of this Annual Report on Form 10-K. EMPLOYEES We had approximately 21,000 employees at December 31, 2006, most of whom are located in the United States. We generally consider relations with...

  • Page 29
    ... Chief Financial Officer President, EchoStar Technologies Corporation Executive Vice President, Commercial and Business Services Executive Vice President, Operations Executive Vice President, General Counsel, Secretary and Director Executive Vice President, Installation and Service Network President...

  • Page 30
    ... joined EchoStar as the Executive Vice President of Operations in February 2007 and is providing oversight of DISH Network's customer service centers and installation service networks. Prior to joining EchoStar, Ms. Kline was Chief Information Officer and Executive Vice President for America Online...

  • Page 31
    ... by, among other things, bundling their video service with 2-way high speed Internet access and telephone services. Cable television operators with analog systems are also able to provide service to multiple television sets within the same household at a lesser incremental cost to the consumer, and...

  • Page 32
    ... of advanced fiber optic networks. Verizon Communications, Inc. ("Verizon") and AT&T have begun deployment of fiber-optic networks that will allow them to offer video services bundled with traditional phone and high speed Internet directly to millions of homes. In addition, telephone companies and...

  • Page 33
    ...the cost of EchoStar receiver systems in order to attract new DISH Network subscribers. Our costs to acquire subscribers, and to a lesser extent our subscriber retention costs, can vary significantly from period to period and can cause material variability to our net income (loss) and free cash flow...

  • Page 34
    ...our ability to generate revenue and our overall competitive position. We, our customers and companies with which we do business may be required to have authority from each country in which we or they provide services or provide our customers use of our satellites. Because regulations in each country...

  • Page 35
    ...to deliver local channels in many markets, as well as our ability to comply with SHVERA requirements without incurring significant additional costs, is dependent on, among other things, the continued successful commercial operation of EchoStar X. We also depend on EchoStar VIII to provide service to...

  • Page 36
    ... affect our operations and revenues and our relationship with current customers, as well as our ability to attract new customers for our direct broadcast satellites and other satellite services. In particular, future anomalies may result in the loss of individual transponders on a satellite, a group...

  • Page 37
    ... the business opportunities we currently plan to pursue with this additional capacity. Future costs associated with this additional capacity will negatively impact our margins if we do not have sufficient growth in subscribers or in demand for new programming or services to generate revenue to...

  • Page 38
    ... to solicit orders for DISH network services. While we offer receiver systems and programming directly, a majority of our new subscriber acquisitions are generated by independent businesses offering our products and services, including small satellite retailers, direct marketing groups, local and...

  • Page 39
    ... growing our business by maintaining and increasing our subscriber base. This may require significant additional capital that may not be available to us. Funds necessary to meet subscriber acquisition and retention costs are expected to be satisfied from existing cash and marketable investment...

  • Page 40
    ... equipment that we provide to subscribers in order to deliver our digital television services. Product shortages and resulting installation delays could cause us to lose potential future subscribers to our DISH Network service. We could be exposed to significant financial losses if our international...

  • Page 41
    ... or Leased Description/Use/Location Corporate headquarters, Englewood, Colorado ...EchoStar Technologies Corporation engineering offices and service center, Englewood, Colorado...EchoStar Technologies Corporation engineering offices, Englewood, Colorado...EchoStar Data Networks engineering offices...

  • Page 42
    ...certain methods and devices for transmitting and receiving data along with specific formatting information for the data. The '066 patent relates to certain methods and devices for providing the scrambling circuitry for a pay television system on removable cards. We examined these patents and believe...

  • Page 43
    ... the successful defense of any challenge that such technology infringes Tivo's patent), we would owe substantial additional damages and we could also be prohibited from distributing DVRs, or be required to modify or eliminate certain userfriendly DVR features that we currently offer to consumers...

  • Page 44
    ... million from the sale of Enron commercial paper to a third party broker. That commercial paper was ultimately purchased by Enron. During November 2003, an action was commenced in the United States Bankruptcy Court for the Southern District of New York against approximately 100 defendants, including...

  • Page 45
    ...a settlement which did not have a material impact on our results of operations. Other In addition to the above actions, we are subject to various other legal proceedings and claims which arise in the ordinary course of business. In our opinion, the amount of ultimate liability with respect to any of...

  • Page 46
    ... by Charles W. Ergen, our Chairman and Chief Executive Officer and the remaining 39,629,759 were held in a trust for members of Mr. Ergen's family. There is currently no trading market for our Class B common stock. Dividend. On December 14, 2004, we paid a one-time cash dividend of $1.00 per share...

  • Page 47
    ... purchases, privately negotiated transactions, or Rule 10b5-1 trading plans, subject to market conditions and other factors. We may elect not to purchase the maximum amount of shares allowable under this program and we may also enter into additional share repurchase programs authorized by our Board...

  • Page 48
    ... Operations Data Revenue: Subscriber-related revenue...Equipment sales...Other ...Total revenue ...Costs and Expenses: Subscriber-related expenses (exclusive of depreciation shown below)...Satellite and transmission expenses (exclusive of depreciation shown below)...Cost of sales - equipment ...Cost...

  • Page 49
    ... the DISH Network as the low price leader in the U.S. pay TV industry, while at the same time offering the highest quality programming, customer service and customer choice possible. We subsidize the cost of equipment and installation, and offer other promotions, to increase our subscriber base. We...

  • Page 50
    ...revenue from basic, movie, local, pay-per-view, and international subscription television services, equipment rental fees, additional outlet fees from subscribers with multiple receivers, digital video recorder ("DVR") fees, advertising sales, fees earned from our DishHOME Protection Plan, equipment...

  • Page 51
    ... centers, the transmission of local channels, satellite telemetry, tracking and control services, satellite and transponder leases, and other related services. Cost of sales - equipment. "Cost of sales - equipment" principally includes costs associated with non-DISH Network digital receivers...

  • Page 52
    ... acquisition costs," plus the value of equipment capitalized under our lease program for new subscribers, divided by gross subscriber additions. During the first quarter of 2006, we included in our calculation of SAC the benefit of payments we received in connection with equipment not returned to...

  • Page 53
    ...period are calculated by adding the DISH Network subscribers as of the beginning of each month in the period and dividing by the total number of months in the period. Free cash flow. We define free cash flow as "Net cash flows from operating activities" less "Purchases of property and equipment," as...

  • Page 54
    ... tax benefit (provision), net...Net income (loss)...Other Data: DISH Network subscribers, as of period end (in millions)...DISH Network subscriber additions, gross (in millions)...DISH Network subscriber additions, net (in millions)...Average monthly subscriber churn rate...Average monthly revenue...

  • Page 55
    ... of non-DISH Network digital receivers and related components to international customers. While we currently have certain binding purchase orders from Bell ExpressVu and others through mid-year 2007, we anticipate that 2007 sales could decline compared to 2006. In addition, the availability of new...

  • Page 56
    ... we obtain in-orbit satellite insurance, as we increase the number and operations of our digital broadcast centers and as additional local markets and other programming services are launched. Cost of sales - equipment. "Cost of sales - equipment" totaled $282.4 million during the year ended December...

  • Page 57
    ...our SAC calculation does not include the benefit of payments we received in connection with equipment not returned to us from disconnecting lease subscribers and returned equipment that is made available for sale rather than being redeployed through our lease program. During the years ended December...

  • Page 58
    ...of operating efficiency and overall financial performance and we believe it to be a helpful measure for those evaluating companies in the multi-channel video programming distribution industry. Conceptually, EBITDA measures the amount of income generated each period that could be used to service debt...

  • Page 59
    ... 31, Variance 2005 2004 Amount % (In thousands) $ 7,986,394 367,968 92,813 8,447,175 $ 6,692,949 364,929 100,593 7,158,471 $ 1,293,445 3,039 (7,780) 1,288,704 19.3 0.8 (7.7) 18.0 Statements of Operations Data Revenue: Subscriber-related revenue...Equipment sales...Other...Total revenue...Costs and...

  • Page 60
    ... local channels by satellite in 164 markets as of December 31, 2005 compared to 152 markets as of December 31, 2004. We regularly have promotions to acquire new DISH Network subscribers which provide free and/or discounted programming that negatively impact ARPU. Equipment sales. For the year...

  • Page 61
    ...the number and operations of our digital broadcast centers and as additional local markets and other programming services are launched. Cost of sales - equipment. "Cost of sales - equipment" totaled $271.7 million during the year ended December 31, 2005, an increase of $12.6 million or 4.9% compared...

  • Page 62
    ...of operating efficiency and overall financial performance and we believe it to be a helpful measure for those evaluating companies in the multi-channel video programming distribution industry. Conceptually, EBITDA measures the amount of income generated each period that could be used to service debt...

  • Page 63
    ... with our new and existing subscriber equipment lease programs. The amount of capital required in 2007 will also depend on our levels of investment in infrastructure necessary to support growth in the DISH Network, our wholesale commercial fixed satellite service business and other strategic...

  • Page 64
    ..., subscriber growth, subscriber revenue, subscriber churn, subscriber acquisition costs including amounts capitalized under our equipment lease programs, operating efficiencies, increases or decreases in purchases of property and equipment and other factors. The following table reconciles free cash...

  • Page 65
    ...in "Free cash flow" above. Cash flows from investing activities. Our investing activities generally include purchases and sales of marketable investment securities and cash used to grow our subscriber base and expand our infrastructure. For the years ended December 31, 2006 and 2005, we reported net...

  • Page 66
    ... satellites. New channels we add to our service using only that technology may allow us to further reduce conversion costs and create additional revenue opportunities. We have also implemented MPEG-4 technology in all satellite receivers for new customers who subscribe to our HD programming packages...

  • Page 67
    ..., if we offer existing subscribers more aggressive promotions for HD receivers or EchoStar receivers with other enhanced technologies, or for other reasons. Cash necessary to fund retention programs and total subscriber acquisition costs are expected to be satisfied from existing cash and marketable...

  • Page 68
    ... Statements in Item 15 of this Annual Report on Form 10-K). Semi-annual cash interest payments related to our 7% Senior Notes due 2013 will commence on April 1, 2007. We also have periodic cash interest requirements for our outstanding capital lease obligations, mortgages and other notes payable...

  • Page 69
    ...of binding purchase orders for EchoStar receiver systems and related equipment, and for products and services related to the operation of our DISH Network. Our purchase obligations also include certain guaranteed fixed contractual commitments to purchase programming content. Our purchase obligations...

  • Page 70
    ... products, enhance our technical capabilities or otherwise offer growth opportunities. We may make investments in or partner with others to expand our business into mobile and portable video, data and voice services. Future material investments or acquisitions may require that we obtain additional...

  • Page 71
    ... this Annual Report on Form 10-K. • Capitalized satellite receivers. Since we retain ownership of certain equipment provided pursuant to our new and existing subscriber equipment lease programs, we capitalize and depreciate equipment costs that would otherwise be expensed at the time of sale. Such...

  • Page 72
    ... the smart card replacement reserve. With respect to receivers we lease, we would record the expenses of replacement as incurred. • Allowance for doubtful accounts. Management estimates the amount of required allowances for the potential non-collectibility of accounts receivable based upon past...

  • Page 73
    ... not require any new fair value measurement. This statement is effective for fiscal years beginning after November 15, 2007, and interim periods within that fiscal year. We are currently evaluating the impact the adoption of SFAS 157 will have on our financial position and results of operations. In...

  • Page 74
    ... 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...

  • Page 75
    ... for our private debt, we evaluate market conditions, related securities, various public and private offerings, and other publicly available information. In performing this analysis, we make various assumptions regarding credit spreads, volatility, and the impact of these factors on the value of the...

  • Page 76
    ... report beginning on page F-1. Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. Item 9A. CONTROLS AND PROCEDURES Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial...

  • Page 77
    Our management's assessment of the effectiveness of our internal control over financial reporting as of December 31, 2006 has been audited by KPMG LLP, an independent registered public accounting firm, as stated in their attestation report which is included herein. Item 9B. OTHER INFORMATION None. ...

  • Page 78
    ... Registered Public Accounting Firm The Board of Directors and Stockholders EchoStar Communications Corporation: We have audited management's assessment, included in the accompanying Management's Report on Internal Control Over Financial Reporting, that EchoStar Communications Corporation maintained...

  • Page 79
    ... are filed as part of this report: (1) Financial Statements Report of KPMG LLP, Independent Registered Public Accounting Firm ...Consolidated Balance Sheets at December 31, 2006 and 2005...Consolidated Statements of Operations and Comprehensive Income (Loss) for the years ended December 31, 2006...

  • Page 80
    ... 4.1 to the Quarterly Report on Form 10-Q of EchoStar for the quarter ended June 30, 2001, Commission File No.0-26176). Indenture, relating to EDBS 5 ... 4.14 to the Annual Report on Form 10-K of EchoStar for the year ended December 31, 2003, Commission File No.0-26176). Indenture, relating to the 7 ...

  • Page 81
    ....57 to the Annual Report on Form 10-K of EchoStar for the year ended December 31, 2002, Commission File No.0-26176). Satellite Service Agreement, dated as of March 21, 2003, between SES Americom, Inc., EchoStar Satellite Corporation and EchoStar Communications Corporation (incorporated by reference...

  • Page 82
    ... Satellite Service Agreement, dated December 20, 2004, between SES Americom, Inc. and EchoStar (incorporated by reference to Exhibit 10.26 to the Annual Report on Form 10-K of EchoStar for the year ended December 31, 2004, Commission File No.0-26176). Description of the 2005 Long-Term Incentive Plan...

  • Page 83
    ...Agreement (2005 Long-Term Incentive Plan) (incorporated by reference to Exhibit 99.8 to the Current Report on Form 8-K of EchoStar filed July 7, 2005, Commission File No.0-26176).** Description of the 2006 Cash Incentive Plan (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form...

  • Page 84
    ... President and Chief Financial Officer. Section 906 Certification by Chairman and Chief Executive Officer. Section 906 Certification by Executive Vice President and Chief Financial Officer. _____ * ** Filed herewith. Incorporated by reference. Constitutes a management contract or compensatory plan...

  • Page 85
    ... has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ECHOSTAR COMMUNICATIONS CORPORATION By: /s/ Bernard L. Han Bernard L. Han Executive Vice President and Chief Financial Officer Date: March 6, 2007 Pursuant to the requirements of the Securities...

  • Page 86
    ... Financial Statements: Report of KPMG LLP, Independent Registered Public Accounting Firm ...Consolidated Balance Sheets at December 31, 2006 and 2005...Consolidated Statements of Operations and Comprehensive Income (Loss) for the years ended December 31, 2006, 2005 and 2004...Consolidated...

  • Page 87
    ... No. 123(R), Share-Based Payment. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of EchoStar Communications Corporation's internal control over financial reporting as of December 31, 2006, based on criteria...

  • Page 88
    ECHOSTAR COMMUNICATIONS CORPORATION CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except per share amounts) As of December 31, 2006 2005 Assets Current Assets: Cash and cash equivalents...$ 1,923,105 Marketable investment securities...1,109,465 Trade accounts receivable, net of allowance for ...

  • Page 89
    ECHOSTAR COMMUNICATIONS CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (L0SS) (In thousands, except per share amounts) For the Years Ended December 31, 2006 2005 2004 Revenue: Subscriber-related revenue...$ 9,375,519 Equipment sales...362,098 Other...80,869 Total revenue...

  • Page 90
    ... ...Employee benefits...Employee Stock Purchase Plan ...Class A common stock repurchases, at cost...Deferred stock-based compensation recognized ...Change in unrealized holding gains (losses) on available-for-sale securities, net...Foreign currency translation...Reversal of valuation allowance...

  • Page 91
    ECHOSTAR COMMUNICATIONS CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) For the Years Ended December 31, 2006 2005 2004 Cash Flows From Operating Activities: Net income (loss)...$ 608,272 $ 1,514,540 $ 214,769 Adjustments to reconcile net income (loss) to net cash flows from ...

  • Page 92
    ... business units: • • The DISH Network - which provides a direct broadcast satellite ("DBS") subscription television service in the United States; and EchoStar Technologies Corporation ("ETC") - which designs and develops DBS receivers, antennae and other digital equipment for the DISH Network...

  • Page 93
    ... under our stock-based compensation plans, fair value of assets and liabilities acquired in business combinations, capital leases, asset impairments, useful lives of property, equipment and intangible assets, retailer commissions, programming expenses, subscriber lives including those related to our...

  • Page 94
    ... 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...

  • Page 95
    ... and 2005, the unrealized loss on our investments in corporate equity securities represents an investment in the marketable common stock of three companies in the communications industry and one company in the satellite communications service industry, respectively. We are not aware of any specific...

  • Page 96
    ...that used for marketable securities, as discussed above. Our ability to realize value from our strategic investments in companies that are not publicly traded is dependent on the success of their business and their ability to obtain sufficient capital to execute their business plans. Because private...

  • Page 97
    ... the years ended December 31, 2006, 2005 and 2004, respectively. The costs of satellites under construction, including certain amounts prepaid under our satellite service agreements, are capitalized during the construction phase, assuming the eventual successful launch and in-orbit operation of...

  • Page 98
    ... impaired. Smart Card Replacement We use microchips embedded in credit card-sized access cards, called "smart cards," or in security chips in our EchoStar receiver systems to control access to authorized programming content. Our signal encryption has been compromised by theft of service and could be...

  • Page 99
    ECHOSTAR COMMUNICATIONS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued historical subscriber churn trends. With respect to receivers we lease, we would record the expenses of replacement as incurred. The total replacement cost could exceed $100.0 million. Long-Term Deferred ...

  • Page 100
    .... Subscriber fees for receivers with multiple tuners, high definition ("HD") receivers, digital video recorders ("DVRs"), and HD DVRs, our DishHOME Protection Plan and other services are recognized as revenue, monthly as earned. Revenue from equipment sales is recognized upon shipment to customers...

  • Page 101
    ... agreement. Subscriber Acquisition Promotions DISH Network subscribers have the choice of purchasing or leasing the satellite receiver and other equipment necessary to receive our programming. We generally subsidize installation and all or a portion of the cost of EchoStar receiver systems in order...

  • Page 102
    ...equipment installation services as "Other subscriber promotion subsidies." Our payments for equipment buydowns represent a partial or complete return of the dealer's purchase price and are, therefore, netted against the proceeds received from the dealer. We report the net cost from our various sales...

  • Page 103
    ECHOSTAR COMMUNICATIONS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued For the Years Ended December 31, 2006 2005 2004 (In thousands, except per share data) Numerator: Numerator for basic net income (loss) per share - Net income (loss)...Interest on dilutive subordinated ...

  • Page 104
    ... to follow the intrinsic value method of accounting under Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and related interpretations, and (ii) requires the cost resulting from all share-based payment transactions with employees be recognized in the...

  • Page 105
    ... compensation plans using the fair value method under SFAS 123: For the Years Ended December 31, 2005 2004 (In thousands) $ 1,514,540 $ 214,769 190 (21,822) $ 1,492,908 $ $ $ $ 3.35 3.22 3.30 3.18 1,139 (20,515) 195,393 0.46 0.46 0.42 0.42 Net income (loss), as reported ...Add: Stock-based employee...

  • Page 106
    ... to our executive officers and certain other key employees upon achievement of specified long-term business objectives. In general, employees participating in the 2005 LTIP elect to receive a one-time award of: (i) an option to acquire a specified number of shares priced at market value on the...

  • Page 107
    ECHOSTAR COMMUNICATIONS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued A summary of our stock option activity for the years ended December 31, 2006, 2005 and 2004 is as follows: 2006 WeightedAverage Exercise Price Options 25,086,883 $ 24.43 2,155,500 32.41 (1,519,550) 14.14 (2,...

  • Page 108
    ...Property and Equipment Depreciable Life (In Years) Equipment leased to customers...EchoStar I ...EchoStar II ...EchoStar III ...EchoStar IV - fully depreciated...EchoStar V ...EchoStar VI ...EchoStar VII ...EchoStar VIII ...EchoStar IX ...EchoStar X...EchoStar XII...Satellites acquired under capital...

  • Page 109
    ... programming continuity cannot be assured in the event of multiple satellite losses. EchoStar I. EchoStar I was launched during December 1995 and currently operates at the 148 degree orbital location. The satellite can operate up to 16 transponders at 130 watts per channel. During the second quarter...

  • Page 110
    ... transponders are currently available for use on EchoStar III, but due to redundancy switching limitations and specific channel authorizations, we can only operate 15 of the 19 FCC authorized frequencies we have the right to utilize at the 61.5 degree location. While we do not expect a large number...

  • Page 111
    ... operating at approximately 110 watts per channel, along with transponders that can provide services in the Ka-Band (a "Ka-band payload"). EchoStar IX provides expanded video and audio channels to DISH Network subscribers who install a specially-designed dish. The Ka-band spectrum is being used...

  • Page 112
    ECHOSTAR COMMUNICATIONS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued been determined. There can be no assurance future anomalies will not cause further losses, which could further impact commercial operation of the satellite or its useful life. See discussion of evaluation of ...

  • Page 113
    ... with affiliates; merge or consolidate with another company; and transfer and sell assets. In the event of a change of control, as defined in the related indenture, we would be required to make an offer to repurchase all or any part of a holder's 5 3/4% Senior Notes at a purchase price equal...

  • Page 114
    ... with affiliates; merge or consolidate with another company; and transfer and sell assets. In the event of a change of control, as defined in the related indenture, we would be required to make an offer to repurchase all or any part of a holder's 6 3/8% Senior Notes at a purchase price equal...

  • Page 115
    ... with affiliates; merge or consolidate with another company; and transfer and sell assets. In the event of a change of control, as defined in the related indenture, we would be required to make an offer to repurchase all or any part of a holder's 6 5/8% Senior Notes at a purchase price equal...

  • Page 116
    ECHOSTAR COMMUNICATIONS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued In the event of a change of control, as defined in the related indenture, we would be required to make an offer to repurchase all or any part of a holder's 7 1/8% Senior Notes at a purchase price equal to 101%...

  • Page 117
    ... rights to replacement satellites. AMC-16. We also make monthly payments to SES Americom to lease all of the capacity on AMC 16, an FSS satellite, which commenced commercial operation during February 2005. The ten-year satellite service agreement is renewable by us on a year to year basis following...

  • Page 118
    ECHOSTAR COMMUNICATIONS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued Income (Loss), we recognized $55.2 million and $53.3 million in depreciation expense on satellites acquired under capital lease agreements during the years ended December 31, 2006 and 2005, respectively. ...

  • Page 119
    ... tax asset adjustment for filed returns ...Other ...Decrease (increase) in valuation allowance ...Total benefit (provision) for income taxes ... The year ended December 31, 2006 includes a credit of $13.5 million related to the recognition of state net operating loss carryforwards ("NOLs") for prior...

  • Page 120
    ... and 2005, we purchased approximately 0.4 million and 13.2 million shares of our Class A common stock for $11.7 million and $362.5 million, respectively. Our share repurchase program does not require us to acquire any specific number or amount of securities and may be terminated at any time. F-35

  • Page 121
    ... all of the Company matching contributions. We also may make an annual discretionary contribution to the plan with approval by our Board of Directors, subject to the maximum deductible limit provided by the Internal Revenue Code of 1986, as amended. These contributions may be made in cash or in our...

  • Page 122
    ... A Telesat FSS satellite ("Anik F3") which is currently expected to launch during the second quarter of 2007. We are required to make monthly payments for the 15-year period following commencement of commercial operation. We will account for the Telesat Anik F3 satellite agreement as a capital lease...

  • Page 123
    ... EchoStar receiver systems and related equipment, and for products and services related to the operation of our DISH Network. Our purchase obligations also include certain guaranteed fixed contractual commitments to purchase programming content. Programming Contracts In the normal course of business...

  • Page 124
    ...certain methods and devices for transmitting and receiving data along with specific formatting information for the data. The '066 patent relates to certain methods and devices for providing the scrambling circuitry for a pay television system on removable cards. We examined these patents and believe...

  • Page 125
    ...COMMUNICATIONS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued Tivo Inc. During April 2006, a Texas jury concluded that certain of our digital video recorders, or DVRs, infringed a patent held by Tivo. The Texas court subsequently issued an injunction prohibiting us from offering...

  • Page 126
    ECHOSTAR COMMUNICATIONS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued Forgent In July 2005, Forgent Networks, Inc. ("Forgent") filed a lawsuit against us in the United States District Court for the Eastern District of Texas. The suit also named DirecTV, Charter, Comcast, Time ...

  • Page 127
    ...Segment Reporting Financial Data by Business Unit Statement of Financial Accounting Standards No. 131, "Disclosures About Segments of an Enterprise and Related Information" ("SFAS 131") establishes standards for reporting information about operating segments in annual financial statements of public...

  • Page 128
    ... Corporation $ DISH Network Year Ended December 31, 2006 Total revenue ...Depreciation and amortization ...Total costs and expenses ...Interest income ...Interest expense, net of amounts capitalized ...Income tax benefit (provision), net ...Net income (loss) ...Year Ended December 31, 2005 Total...

  • Page 129
    ..., respectively. These international sales accounted for approximately 1.9%, 2.1% and 1.8% of our total revenue during each of the years ended December 31, 2006, 2005 and 2004, respectively. Revenues from these customers are included within the EchoStar Technologies Corporation operating segment. 11...

  • Page 130
    ...period pre-tax adjustment for payments received from subscribers during the first nine months of the year. This adjustment was not material to all prior periods presented and did not impact our Consolidated Statements of Operations and Comprehensive Income (Loss) for the year ended December 31, 2006...

  • Page 131
    ...Communications Corporation 9601 S. Meridian Blvd. Englewood, Colorado 80112 www.echostar.com. For more information please visit the Investor Relations section of our website at www.echostar.com. EXECUTIVE OFFICERS Charles W. Ergen Chairman and Chief Executive Officer Thomas A. Cullen Executive Vice...

  • Page 132
    ( N AS DAQ : D I S H ) 9601 S. Meridian Blvd. • E n g l e w o o d , C O • 8 0 1 1 2 • 3 0 3 . 72 3 . 1 0 0 0 w w w. e ch o s t a r. c o m • w w w. d i s h n e t w o r k . c o m