Dish Network 2006 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
    .... In 2006, we teamed up with WildBlue to offer satellite two-way broadband serving customers in rural areas. Through agreements with AT&T, GetConnected, Inc. and others, we began offering consumers the option to select DSL high-speed Internet service while signing up for DISH Network programming. We...

  • Page 4

  • Page 5
    ... South Meridian Boulevard Englewood, Colorado (Address of principal executive offices) 80112 (Zip Code) Registrant's telephone number, including area code: (303) 723-1000 Securities registered pursuant to Section 12(b) of the Act: Title of Each Class Class A common stock, $.01 par value Name of...

  • 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
    ... Officers and Corporate Governance ...Item 11. Executive Compensation ...Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters...Item 13. Certain Relationships and Related Transactions, and Director Independence ...Item 14. Principal Accountant Fees...

  • Page 8
    ...; DISH Network subscriber growth may decrease, subscriber turnover may increase and subscriber acquisition costs may increase; we may have difficulty controlling other costs of continuing to maintain and grow our subscriber base; satellite programming signals are subject to theft; theft of service...

  • Page 9
    ... or redesign our products to avoid patent infringement; sales of digital 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...

  • Page 10

  • Page 11
    ... 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 the DISH Network in March 1996. As of December 31, 2006...

  • 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
    ... be developed in those markets. During 2006, AT&T began deploying fiber-optic networks that allow it to offer video services directly to millions of homes. Other telecommunications companies have announced similar plans. Our net new subscriber additions and certain of our other key operating metrics...

  • Page 14
    ... 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 of pay-per-view...

  • Page 15
    ... existing subscribers can call a single telephone number to receive assistance 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...

  • Page 16
    ...-delivered mobile video services, and we are currently evaluating strategic development opportunities in several other international markets. These transactions are part of our strategy to expand our business internationally and support the development of new satellite-delivered services, such as...

  • Page 17
    ... HD programming is produced and in order to address new video and data applications consumers may desire in the future. Although we have provided DTH services on a limited basis using FSS spectrum, due to the larger dish size generally required and other technical limitations, this spectrum is best...

  • Page 18
    ... life of the satellite, it is likely that additional TWTA failures will occur from time to time in the future, and those failures will further impact commercial operation of the satellite. EchoStar IV. EchoStar IV was launched during May 1998 and currently operates at the 77 degree orbital location...

  • Page 19
    ... losses, which could impact the remaining life or commercial operation of the satellite. EchoStar X. EchoStar X was launched during February 2006 and currently operates at the 110 degree orbital location. Its 49 spot beams use up to 42 active 140 watt TWTAs to provide standard and HD local channels...

  • Page 20
    ... orbital location. This satellite will enable better bandwidth utilization, provide backup protection for our existing offerings, and could allow DISH Network to offer other value-added services. Four additional SSL Ka and/or Ku expanded band satellites are contractually scheduled to be completed...

  • Page 21
    ... can successfully develop 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...

  • Page 22
    ...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 other entities are implementing and supporting digital video compression over existing telephone lines which...

  • Page 23
    ... addition, we currently have the right to use 32 frequencies at a Canadian DBS slot at the 129 degree orbital location, capable of providing service to most of CONUS. A new 32 transponder Canadian satellite, Ciel 2, is being constructed for operation at that location. We will have the right to lease...

  • Page 24
    ... customers have satellite receiver systems that are equipped to receive signals from both of these locations. We also sublease six transponders (corresponding to six frequencies) at the 61.5 degree orbital location from licensee Dominion Video Satellite, Inc. ("Dominion"). We are currently operating...

  • Page 25
    ...securities as of December 31, 2006, to satisfy these requirements for our Ka-band and extended Ku-band licenses. Satellite License Proceedings. In 2004, the FCC ruled that businesses holding DBS licenses at orbital locations capable of serving the entire continental United States (including EchoStar...

  • Page 26
    ...whether its rules that require broadcasters, DBS providers and cable operators to transmit closed captioned content should be revised. We currently do not have the capability of captioning every channel that we carry and rely on the program originators to perform this task. No technology exists that...

  • 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
    ... States government to receive and deliver components of DTH satellite TV systems. In addition, the delivery of satellites and related technical information for the purpose of launch by foreign launch services providers is subject to strict export control and prior approval requirements. PATENTS AND...

  • Page 29
    ... Executive Vice President, Installation and Service Network President, EchoStar International Corporation Vice Chairman, President and Director Executive Vice President, Human Resources Charles W. Ergen. Mr. Ergen has been Chairman of the Board of Directors and Chief Executive Officer of EchoStar...

  • Page 30
    ... 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 from June 2003 to February 2006 and was the Senior Vice President for Worldwide Operations of...

  • Page 31
    ... customer base, and many cable operators have significant investments in programming. Cable television operators continue to leverage their incumbency advantages relative to satellite operators by, among other things, bundling their video service with 2-way high speed Internet access and telephone...

  • Page 32
    ...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 other entities are implementing and supporting digital video compression over existing telephone lines which...

  • Page 33
    ..., 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 34
    ... with the cable system operators. Affiliates of certain cable providers have denied us access to sports programming they feed to their cable systems terrestrially, rather than by satellite. To the extent that cable operators deliver additional programming terrestrially in the future, they may...

  • Page 35
    ... things, the continued successful commercial operation of EchoStar X. We also depend on EchoStar VIII to provide service to CONUS at least until such time as our EchoStar XI satellite has commenced commercial operation, which is currently expected during the second half of 2008. AMC-14, which is...

  • 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
    ... can successfully develop 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...

  • 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
    ... future. In addition to our DBS business plan, we have contracts to construct, and conditional licenses and pending FCC applications for, a number of FSS Ku-band, Ka-band and extended Ku-band satellites. We may need to raise additional capital to construct, launch, and insure satellites and complete...

  • 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
    ... Owned Leased Leased Owned Leased Owned Leased Owned Owned In addition to the principal properties listed above, we operate several DISH Network service centers strategically located in regions throughout the United States. Item 3. LEGAL PROCEEDINGS Distant Network Litigation On October 20, 2006...

  • Page 42
    ... 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 that they are not infringed by any of our products or services...

  • 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
    ... certain of our satellite hardware retailers. The plaintiffs are requesting the Courts declare certain provisions of, and changes to, alleged agreements between us and the retailers invalid and unenforceable, and to award damages for lost incentives and payments, charge backs, and other compensation...

  • 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
    ... amount of $1.0 billion of stock has been purchased. Purchases under our repurchase program may be made through open market 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...

  • Page 48
    ... 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 per subscriber ("ARPU")...Average subscriber acquisition costs per subscriber ("SAC")...Net cash...

  • Page 49
    ... to continue adding new subscribers by offering compelling value-based consumer promotions. These promotions include offers of free or low cost advanced consumer electronics products, such as receivers with multiple tuners, HD receivers, DVRs, and HD DVRs, as well as programming packages which we...

  • Page 50
    ...Subscriber-related revenue" consists principally of 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...

  • Page 51
    ... television service business of SNG and costs related to satellite transmission services. Subscriber acquisition costs. In addition to leasing receivers, we generally subsidize installation and all or a portion of the cost of EchoStar receiver systems in order to attract new DISH Network subscribers...

  • Page 52
    ... 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 us from disconnecting lease subscribers and returned equipment that is made available for sale...

  • 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
    ... 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 31, 2006, an increase of $10...

  • Page 57
    ...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 31, 2006 and 2005, these amounts totaled...

  • Page 58
    ... and current year activity, respectively, of our recorded valuation allowance. 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 periods. In addition, the year ended December 31, 2006, includes...

  • Page 59
    ... 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 60
    ...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 ended December 31, 2005, "Equipment sales" totaled $368.0 million, an...

  • Page 61
    ...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 62
    ... change in fair value of a non-marketable strategic investment accounted for at fair value and $28.4 million in gains related to the conversion of bond instruments into common stock during the year ended December 31, 2005. These gains were partially offset by a $25.4 million charge to earnings for...

  • Page 63
    ...capitalized costs associated 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...

  • Page 64
    ... flow will not be negatively impacted by material changes in operating assets and liabilities in future periods, since these changes depend upon, among other things, management's timing of payments and control of inventory levels, and cash receipts. In addition to fluctuations resulting from changes...

  • Page 65
    ... 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 cash outflows from investing activities of $1.994...

  • 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
    ... Annual Report on Form 10-K). Satellite-Related Obligations Satellites under Construction. We have entered into contracts to construct new satellites which are contractually scheduled to be completed within the next three years, see "Item 1 - Business - Our Satellites." Future commitments related...

  • Page 69
    ... 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 70
    ... losses. Future capital requirements. In addition to our DBS business plan, we are exploring business plans for extended FSS Ku-band and FSS Ka-band satellite systems, including licenses to operate at the 97, 109, 113 and 121 degree orbital locations. As a result of expected penetration of our new...

  • Page 71
    ... position. 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...

  • Page 72
    ... account a number of variables, including the cost of the cards and historical subscriber churn trends. Changes in, among other things, the timing of the replacement plan could result in increases or decreases in the smart card replacement reserve. With respect to receivers we lease, we would record...

  • Page 73
    ... commensurate revenues until the impact of such advertising and promotion is realized in future periods. Inflation Inflation has not materially affected our operations during the past three years. We believe that our ability to increase the prices charged for our products and services in future...

  • Page 74
    ... 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...

  • Page 75
    ... using quoted market prices where available. In completing our analysis 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...

  • Page 76
    ... Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report. There has been no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities...

  • 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
    ...on management's assessment and an opinion on the effectiveness of the Company's internal control over financial reporting based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan...

  • Page 79
    ...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, 2005 and 2004...

  • Page 80
    ... (incorporated by reference to Exhibit 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 1/8% Senior Notes Due 2016, dated as of February 2, 2006 between EDBS and U.S. Bank Trust National Association, as...

  • 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
    ... Whole RF Channel Service Agreement, dated October 12, 2004, between Telesat Canada and EchoStar (incorporated by reference to Exhibit 10.22 to the Annual Report on Form 10-K of EchoStar for the year ended December 31, 2004, Commission File No.0-26176). Amendment No. 4 to Satellite Service Agreement...

  • Page 83
    ... Plan (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q of EchoStar for the quarter ended March 31, 2006, Commission File No.0-26176). Subsidiaries of EchoStar Communications Corporation. Consent of KPMG LLP, Independent Registered Public Accounting Firm. Powers...

  • Page 84
    ... by Executive Vice 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...

  • Page 85
    ..., 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 Exchange Act of 1934, this report has been signed below by the following...

  • Page 86
    ... Page Consolidated 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...

  • 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
    ... A common stock: Exercise of stock options ...Employee benefits...Employee Stock Purchase Plan ...Class A common stock repurchases, at cost...Exercise of stock warrants...Deferred stock-based compensation recognized ...Change in unrealized holding gains (losses) on available-for-sale securities, net...

  • 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
    ..., our owned and leased satellites, EchoStar receiver systems, digital broadcast operations centers, customer service facilities, in-home service and call center operations and certain other assets utilized in our operations. Our principal business strategy is to continue developing our subscription...

  • 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
    .... Marketable and Non-Marketable Investment Securities and Restricted Cash 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...

  • Page 95
    ... 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 factors which...

  • 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
    ... and the fair value as estimated using discounted cash flows. Assets which are to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. We consider relevant cash flow, estimated future operating results, trends and other available information in assessing...

  • Page 98
    ... future cash flows from satellites transmitting from such licensed orbital locations, including revenue attributable to programming offerings from such satellites, the direct operating and subscriber acquisition costs related to such programming, and future capital costs for replacement satellites...

  • Page 99
    ...fair values of our private debt is estimated based on an analysis in which we evaluate market conditions, related securities, various public and private offerings, and other publicly available information. In performing this analysis, we make various assumptions, among other things, regarding credit...

  • Page 100
    ... fee is received from existing or new subscribers. Revenue from advertising sales is recognized when the related services are performed. Subscriber fees for receivers with multiple tuners, high definition ("HD") receivers, digital video recorders ("DVRs"), and HD DVRs, our DishHOME Protection Plan...

  • Page 101
    ... 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 to attract new DISH Network...

  • 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
    ... and Class B common stock. We do not currently plan to pay additional dividends on our common stock, and therefore the dividend yield percentage is set at zero for all periods. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no...

  • Page 106
    ECHOSTAR COMMUNICATIONS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued estimate. Therefore, the existing models do not provide as reliable of a single measure of the fair value of stock-based compensation awards as a market-based model would. Changes in the intervals of our ...

  • Page 107
    ... which management has determined are not probable as of December 31, 2006. As of December 31, 2006, our total unrecognized compensation cost related to our non-performance based unvested stock options was $55.2 million. This cost is based on an assumed future forfeiture rate of 8.0% per year and...

  • Page 108
    ... 31, 2006. 4. 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...

  • 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
    ... life of the satellite, it is likely that additional TWTA failures will occur from time to time in the future, and those failures will further impact commercial operation of the satellite. EchoStar IV. EchoStar IV was launched during May 1998 and currently operates at the 77 degree orbital location...

  • Page 111
    ... losses, which could impact the remaining life or commercial operation of the satellite. EchoStar X. EchoStar X was launched during February 2006 and currently operates at the 110 degree orbital location. Its 49 spot beams use up to 42 active 140 watt TWTAs to provide standard and HD local channels...

  • Page 112
    ... 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 impairment in "Long-Lived Satellite Assets" below. Long-Lived Satellite Assets. We account for impairments of long...

  • 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
    ... limitations on us. 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 the holder's 3% Convertible Subordinated Note due 2011 at a purchase price equal to 100% of the aggregate principal amount thereof...

  • 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
    ... to a new repurchase plan. During 2006 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...

  • Page 121
    ... COMMUNICATIONS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued Cash Dividend During 2004, we paid a one-time cash dividend of $1.00 per share, or $455.7 million, on outstanding shares of our Class A and Class B common stock. 8. Employee Benefit Plans Employee Stock Purchase Plan...

  • Page 122
    ... event certain other in-orbit satellites fail. 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...

  • Page 123
    ... launches for these satellites. Purchase Obligations Our 2007 purchase obligations primarily consist 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...

  • Page 124
    ... 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 that they are not infringed by any of our products or services...

  • Page 125
    ... 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 126
    ... No. 6,285,746 (the '746 patent). The '746 patent discloses a video teleconferencing system which utilizes digital telephone lines. We have examined this patent and do not believe that it is infringed by any of our products or services. We intend to vigorously defend this case. In the event that...

  • Page 127
    ... 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 business enterprises and requires that those enterprises...

  • Page 128
    ... EchoStar Technologies 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...

  • 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
    ... not affected. (2) "Total revenue" in our Consolidated Statements of Operations and Comprehensive Income (Loss) for the three months ended December 31, 2006 reflects a $13.8 million out of period pre-tax adjustment for payments received from subscribers during the first nine months of the year. This...

  • Page 131
    ... Investor Relations Department EchoStar 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...

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