Dish Network 2007 Annual Report Download

Download and view the complete annual report

Please find the complete 2007 Dish Network annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 151

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140
  • 141
  • 142
  • 143
  • 144
  • 145
  • 146
  • 147
  • 148
  • 149
  • 150
  • 151

FORM 10-K
ECHOSTAR COMMUNICATIONS CORP
(Annual Report)
Filed 3/1/2007 For Period Ending 12/31/2006
Address 9601 S. MERIDIAN BLVD.
ENGLEWOOD, Colorado 80112
Telephone 303-723-1000
CIK 0001001082
Industry Broadcasting & Cable TV
Sector Services
Fiscal Year 12/31

Table of contents

  • Page 1
    ECHOSTAR COMMUNICATIONS CORP FORM 10-K (Annual Report) Filed 3/1/2007 For Period Ending 12/31/2006 Address Telephone CIK Industry Sector Fiscal Year 9601 S. MERIDIAN BLVD. ENGLEWOOD, Colorado 80112 303-723-1000 0001001082 Broadcasting & Cable TV Services 12/31

  • Page 2

  • Page 3
    ... FROM TO . Commission file number: 0-26176 EchoStar Communications Corporation (Exact name of registrant as specified in its charter) Nevada (State or other jurisdiction of incorporation or organization) 9601 South Meridian Boulevard Englewood, Colorado (Address of principal executive offices) 88...

  • Page 4
    * Without acknowledging that any individual director or executive officer of the Company is an affiliate, the shares over which they have voting control have been included as owned by affiliates solely for purposes of this computation.

  • Page 5
    ... Executive Compensation Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Certain Relationships and Related Transactions, and Director Independence Principal Accountant Fees and Services PART IV Item 15. Exhibits and Financial Statement Schedules...

  • Page 6
    ... 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 which...

  • Page 7
    ... 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 8
    .... 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 9
    ... of programming packages available from the DISH Network. For example, we currently offer our "America's Top 100" ("AT100") package for $29.99 per month. This package includes over 100 of our most popular digital video and audio channels. We estimate that cable operators would typically charge over...

  • Page 10
    ...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 the subscription television industry depends on, among other factors, our...

  • Page 11
    ..., 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 of pay...

  • Page 12
    ... 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 13
    ... 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 mobile video services. The expertise we obtain through these projects may also help...

  • Page 14
    ... of Contents OUR SATELLITES Our DISH Network satellite television programming is currently transmitted to our customers over satellites that operate in the "Ku" band portion of the microwave radio spectrum. The Ku-band is divided into two spectrum segments. The high power portion of the Ku-band - 12...

  • Page 15
    ... Financial Statements in Item 15 of this Annual Report on Form 10-K. EchoStar VII . EchoStar VII was launched during February 2002 and currently operates at the 119 degree orbital location. During March 2006, the satellite experienced an anomaly which resulted in the loss of a receiver. Service was...

  • Page 16
    ... local markets, international programming, backup capacity and fixed satellite service capacity on a wholesale commercial basis (rather than direct to consumers). AMC-2 . AMC-2 currently operates at the 85 degree orbital location. This SES Americom FSS satellite is equipped with 24 medium power Ku...

  • Page 17
    ... could be used at multiple orbital locations. EchoStar XIV could also allow DISH Network to offer other value-added services. An SES Americom DBS satellite ("AMC-14") which is currently expected to launch during late 2007, and commence commercial operation in early 2008 at an orbital location to be...

  • Page 18
    ...demand for new programming or services to generate revenue to offset the costs of this increased capacity. Competition for our Dish Network Business We compete in the subscription television service industry against other DBS television providers, cable television and other system operators offering...

  • Page 19
    ...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 may allow them to offer video services without having to build a new...

  • Page 20
    ...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 21
    ... 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 locations. We also...

  • Page 22
    ... in the DBS Band . The FCC has adopted rules that allow non-geostationary orbit fixed satellite services to operate on a coprimary 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 23
    ... the distant network business. The ruling does not impact in any way our ability to provide local channels by satellite, which we currently offer in over 170 markets, representing over 96% of all of U.S. television households. Retransmission of Local Networks . The Satellite Home Viewer Improvement...

  • Page 24
    ... us, causing a loss of customers and adversely affecting our revenues and financial performance. Any change in the Cable Act and the FCC's rules that permit the cable industry or cable-affiliated programmers to discriminate against competing businesses, such as ours, in the sale of programming could...

  • Page 25
    ... of the Exchange Act and accordingly file our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements and other information with the Securities and Exchange Commission ("SEC"). The Public may read and copy any materials filed with the SEC at...

  • Page 26
    ... President, Corporate Development Executive Vice President, Strategic Initiatives Executive Vice President, Sales & Distribution and Director Executive Vice President and Chief Financial Officer President, EchoStar Technologies Corporation Executive Vice President, Commercial and Business Services...

  • Page 27
    ... 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 28
    ... 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 of...

  • Page 29
    ...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 30
    ... addition to new subscriber acquisition costs, we incur costs to retain existing subscribers. In an effort to reduce subscriber turnover, we offer existing subscribers a variety of options for upgraded and add on equipment. We generally lease receivers and subsidize installation of EchoStar receiver...

  • Page 31
    ... to operate satellites internationally could have a material adverse effect on 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...

  • Page 32
    ... a complete failure of that satellite. Therefore, our ability 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...

  • Page 33
    ... direct to consumers) and supplying satellite capacity for new international ventures), we do not have firm plans to utilize all of the additional satellite capacity we expect to acquire. In addition, there can be no assurance that we can successfully develop the business opportunities we currently...

  • Page 34
    ... product or service opportunities or develop and market these opportunities in a timely or cost-effective manner. The success of new product development depends on many factors, including proper identification of customer need, cost, timely completion and introduction, differentiation from offerings...

  • Page 35
    ... 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 36
    ...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 securities balances and cash generated from operations to...

  • Page 37
    ...our internal control over financial reporting in order to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act. This evaluation and testing of internal control over financial reporting includes internal control over financial reporting relating to our operations. Although our management...

  • Page 38
    .../Use/Location Segment(s) Using Property Owned or Leased Corporate headquarters, Englewood, Colorado EchoStar Technologies Corporation engineering offices and service center, Englewood, Colorado EchoStar Technologies Corporation engineering offices, Englewood, Colorado EchoStar Data Networks...

  • Page 39
    ... 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 40
    ..." on our Condensed Consolidated Statement of Operations to reflect the jury verdict, supplemental damages and pre-judgment interest awarded by the Texas court through September 8, 2006. Based on our current analysis of the case, including the appellate record and other factors, we believe it is...

  • Page 41
    ... 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 42
    ...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 43
    ... of record at the close of business on December 8, 2004. We currently do not intend to declare additional dividends on our common stock. Payment of any future dividends will depend upon our earnings and capital requirements, restrictions in our debt facilities, and other factors the Board of...

  • Page 44
    ... 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 45
    ... sales - equipment Cost of sales - other Subscriber acquisition costs General and administrative TiVo litigation expense Depreciation and amortization Total costs and expenses Operating income (loss) Net income (loss) Basic net income (loss) available to common stockholders Diluted net income (loss...

  • Page 46
    ... reversal and current year activity, respectively, of our recorded valuation allowance for those net deferred tax assets that we believe are more likely than not to be realized in the future (see Note 6 in the Notes to the Consolidated Financial Statements in Item 15 of this Annual Report on Form 10...

  • Page 47
    ... 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 48
    ...receivers with multiple tuners that allow the subscriber to receive our DISH Network services in multiple rooms using a single receiver, thereby reducing the number of EchoStar receivers we deploy to each subscriber household. However, our overall costs to retain existing subscribers and acquire new...

  • Page 49
    ..., 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 upgrade fees, HD...

  • Page 50
    ... 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 51
    ..., to our "Subscriber acquisition cost" expense line item prior to dividing by our gross new subscriber number. Management believes subscriber acquisition cost measures are commonly used by those evaluating companies in the multi-channel video programming distribution ("MVPD") industry. Because our...

  • Page 52
    ... programming package, America's Top 100 (but taking into account, periodically, price changes and other factors), and include the resulting number, which is substantially smaller than the actual number of commercial units served, in our DISH Network subscriber count. During April 2004, we acquired...

  • Page 53
    ...% of Subscriber-related revenue Cost of sales - equipment % of Equipment sales Cost of sales - other Subscriber acquisition costs General and administrative % of Total revenue TiVo litigation expense Depreciation and amortization Total costs and expenses Operating income (loss) Other income (expense...

  • Page 54
    ... equipment leasing programs, fees for DVRs, revenue from increased availability of standard and HD local channels by satellite, fees earned from our DishHOME Protection Plan, and HD programming. This increase was partially offset by a decrease in revenues from installation and other services related...

  • Page 55
    ... to higher installation and acquisition advertising costs, partially offset by a higher number of DISH Network subscribers participating in our equipment lease program for new subscribers. The introduction of new equipment resulted in a decrease in our cost per installation during 2006 compared to...

  • Page 56
    ... costs to support the growth of the DISH Network, including, among other things, non-cash, stock-based compensation expense recorded related to the adoption of SFAS 123R, outside professional fees and non-income based taxes. "General and administrative expenses" represented 5.6% and 5.4% of "Total...

  • Page 57
    ... 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, pay taxes and fund capital expenditures. EBITDA should...

  • Page 58
    ... revenue Satellite and transmission expenses % of Subscriber-related revenue Cost of sales - equipment % of Equipment sales Cost of sales - other Subscriber acquisition costs General and administrative % of Total revenue Depreciation and amortization Total costs and expenses Operating income (loss...

  • Page 59
    ...We provided 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...

  • Page 60
    ... of co-branded subscribers acquired under our original AT&T agreement, for which we did not incur subscriber acquisition costs and a greater number of DISH Network subscribers activating higher priced advanced products, such as receivers with multiple tuners, DVRs and HD receivers. Activation of...

  • Page 61
    ... 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, pay taxes and fund capital expenditures. EBITDA should...

  • Page 62
    ...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 63
    ..., 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 64
    ... of changes in net cash flows from operating activities included 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...

  • Page 65
    ... to, an increase in competition from existing competitors and new entrants offering more compelling promotions, as well as new advanced products and services. Competitor bundling of video services with 2-way high speed Internet access and telephone services may contribute more significantly to churn...

  • Page 66
    ... OF OPERATIONS - Continued 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
    ... Statements in Item 15 of this 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...

  • Page 68
    ...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 69
    ... local markets, international and other niche programming. Further, programming continuity cannot be assured in the event of multiple satellite losses. Future capital requirements. In addition to our DBS business plan, we are exploring business plans for FSS extended Ku band and FSS Kaband satellite...

  • Page 70
    ...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 71
    ... Management estimates the amount of required allowances for the potential non-collectibility of accounts receivable based upon past collection experience and consideration of other relevant factors. However, past experience may not be indicative of future collections and therefore additional charges...

  • Page 72
    ... revenues vary throughout the year. As is typical in the subscription television service industry, the first half of the year generally produces fewer new subscribers than the second half of the year. Our operating results in any period may be affected by the incurrence of advertising and promotion...

  • Page 73
    ... 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...

  • Page 74
    ... are subject to an evaluation for other than temporary impairment on a quarterly basis. This quarterly evaluation consists of reviewing, among other things, company business plans and current financial statements, if available, for factors that may indicate an impairment of our investment. Such...

  • Page 75
    Table of Contents 13a-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the ...

  • Page 76
    ... the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of EchoStar Communications Corporation and subsidiaries as of December 31, 2006 and 2005, and the related consolidated statements of operations and comprehensive income (loss), changes in...

  • Page 77
    ... to the identity and business experience of our executive officers is set forth on page 19 of this report under the caption "Executive Officers." Item 11. EXECUTIVE COMPENSATION The information required by this Item will be set forth in our Proxy Statement for the 2007 Annual Meeting of Shareholders...

  • Page 78
    ... SCHEDULES (a) The following documents are filed as part of this report: (1) Financial Statements Page 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...

  • Page 79
    ... Plan (incorporated by reference to Appendix A to EchoStar's Definitive Proxy Statement on Schedule 14A dated April 9, 2002).** Agreement between HTS, ESC and ExpressVu Inc., dated January 8, 1997, as amended (incorporated by reference to Exhibit 10.18 to the Annual Report on Form 10-K of EchoStar...

  • Page 80
    ... the Quarterly Report on Form 10-Q of EchoStar for the quarter ended June 30, 2004, Commission File No.0-26176). Third Amendment to 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...

  • Page 81
    ... No.0-26176).** Description of the 2005 Cash Incentive Plan dated January 22, 2005 (incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q of EchoStar for the quarter ended March 31, 2005, Commission File No.0-26176).** Settlement Agreement and Release effective February 25...

  • Page 82
    ...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 of Attorney authorizing signature of James DeFranco...

  • Page 83
    ... 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 1, 2007 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by...

  • Page 84
    ... INDEX TO CONSOLIDATED FINANCIAL STATEMENTS 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...

  • Page 85
    ... Statement of Financial Accounting Standards 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...

  • Page 86
    ... receivable, net of allowance for uncollectible accounts of $15,006 and $11,523, respectively Inventories, net Current deferred tax assets (Note 6) Other current assets Total current assets Restricted cash and marketable investment securities Property and equipment, net (Note 4) FCC authorizations...

  • Page 87
    Total liabilities and stockholders' equity (deficit) $ 9,768,696 $ 7,410,210 The accompanying notes are an integral part of these consolidated financial statements. F-3

  • Page 88
    ... of Contents ECHOSTAR COMMUNICATIONS CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (In thousands, except per share amounts) 2006 For the Years Ended December 31, 2005 2004 Revenue: Subscriber-related revenue Equipment sales Other Total revenue Costs and Expenses...

  • Page 89
    The accompanying notes are an integral part of these consolidated financial statements. F-4

  • Page 90
    ... options 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 associated...

  • Page 91
    ...Employee benefits Employee Stock Purchase Plan Class A common stock repurchases, at cost Stock-based compensation, net of tax Change in unrealized holding gains (losses) on available-for-sale securities, net Foreign currency translation Deferred income tax (expense) benefit... financial statements. F-5

  • Page 92
    ... Allowance for doubtful accounts Inventories Other current assets Trade accounts payable Deferred revenue and other Accrued programming and other accrued expenses Net cash flows from operating activities Cash Flows From Investing Activities: Purchases of marketable investment securities Sales...

  • Page 93
    Cash and cash equivalents, beginning of period Cash and cash equivalents, end of period 615,669 $ 1,923,105 $ 704,560 615,669 $ 1,290,859 704,560 The accompanying notes are an integral part of these consolidated financial statements. F-6

  • Page 94
    ... 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 television...

  • Page 95
    ... 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 96
    .... 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 97
    ... are subject to an evaluation for other than temporary impairment on a quarterly basis. This quarterly evaluation consists of reviewing, among other things, company business plans and current financial statements, if available, for factors that may indicate an impairment of our investment. Such...

  • Page 98
    ...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 99
    ... amounts prepaid under our satellite service agreements, are capitalized during the construction phase, assuming the eventual successful launch and in-orbit operation of the satellite. If a satellite were to fail during launch or while in-orbit, the resultant loss would be charged to expense in the...

  • Page 100
    ... life FCC licenses into a single unit of accounting. The analysis encompasses 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...

  • Page 101
    ... 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 spreads, and the impact of these factors...

  • Page 102
    .... 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 103
    ... the estimated life of the subscribers acquired under the original AT&T 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...

  • Page 104
    ...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 105
    Table of Contents ECHOSTAR COMMUNICATIONS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued 2006 For the Years Ended December 31, 2005 2004 (In thousands, except per share data) Numerator: Numerator for basic net income (loss) per share - Net income (loss) Interest on dilutive ...

  • Page 106
    ... 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 results of operations over the...

  • Page 107
    ... had accounted for our stock-based compensation plans using the fair value method under SFAS 123: For the Years Ended December 31, 2005 2004 (In thousands) Net income (loss), as reported Add: Stock-based employee compensation expense included in reported net income (loss), net of related tax effect...

  • Page 108
    ... incentive 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...

  • Page 109
    ... ECHOSTAR COMMUNICATIONS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued Exercise prices for options outstanding and exercisable as of December 31, 2006 are as follows: Number Outstanding as of December 31, 2006 * Options Outstanding Weighted Average Remaining Contractual Life...

  • Page 110
    ...: Depreciable Life (In Years) As of December 31, 2006 2005 (In thousands) 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 leases...

  • Page 111
    ... 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 112
    ... materially impact its commercial operation, or result in a total loss of the satellite. We 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...

  • Page 113
    ... 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, and other programming, to markets...

  • Page 114
    ... 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 2010 at a purchase price equal to 100% of the aggregate principal amount thereof, together with...

  • 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 5 3/4% Senior Notes at a purchase price equal...

  • Page 116
    ... 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 117
    ... 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 7 1/8% Senior Notes at a purchase price equal...

  • Page 118
    ... redeemed on February 15, 2007 (Note 5) Our ability to meet our debt service requirements will depend on, among other factors, the successful execution of our business strategy, which is subject to uncertainties and contingencies beyond our control. Capital Lease Obligations, Mortgages and Other...

  • Page 119
    ... ECHOSTAR COMMUNICATIONS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued AMC-15. We make monthly payments to SES Americom to lease all of the capacity on AMC 15, an FSS satellite, which commenced commercial operation during January 2005. The ten-year satellite service agreement...

  • Page 120
    .... Determining necessary valuation allowances requires us to make assessments about historical financial information as well as the timing of future events, including the probability of expected future taxable income and available tax planning opportunities. During the second quarter of 2005, we...

  • Page 121
    ... million related to amended state filings. The income tax benefit for the year ended December 31, 2005 included credits of $592.8 million and $322.0 million to our provision for income taxes resulting from the reversal and current year activity, respectively, of our recorded valuation allowance. The...

  • Page 122
    Table of Contents ECHOSTAR COMMUNICATIONS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued 7. Stockholders' Equity (Deficit... the holder, into one share of Class A common stock. Upon a change in control of ECC, each holder of outstanding shares of Class C common stock is entitled to...

  • Page 123
    ... program does not require us to acquire any specific number or amount of securities and may be terminated at any time. 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...

  • Page 124
    ... 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 125
    ... 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 126
    ... 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 127
    ..." on our Condensed Consolidated Statement of Operations to reflect the jury verdict, supplemental damages and pre-judgment interest awarded by the Texas court through September 8, 2006. Based on our current analysis of the case, including the appellate record and other factors, we believe it is...

  • Page 128
    ...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 a Court ultimately determines that we...

  • Page 129
    ... the information is not available to the chief operating decision-maker. Under this definition we currently operate as two business units. The All Other category consists of revenue, expenses and net income (loss) from other operating segments for which the disclosure requirements of SFAS 131 do...

  • Page 130
    ... of Contents ECHOSTAR COMMUNICATIONS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued DISH Network EchoStar Technologies Corporation All Other (In thousands) Consolidated Total Eliminations Year Ended December 31, 2006 Total revenue Depreciation and amortization Total costs and...

  • Page 131
    ... Income (Loss). Net Income for the periods was 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...

  • Page 132

  • Page 133
    .... Additionally, as of December 31, 2006, we were committed to purchase $35.5 million of security access devices from NagraStar. 14. Subsequent Events On February 21, 2007, we announced a $40.0 million investment in TU Media Corp., a Korean provider of satellite-delivered mobile video services...

  • Page 134
    ... by reference to Exhibit 3.1(b) on the Quarterly Report on Form 10-Q of EchoStar for the quarter ended June 30, 2003, Commission File No. 0-26176). Articles of Incorporation of EDBS (incorporated by reference to Exhibit 3.4(a) to the Registration Statement on Form S-4 of EDBS, Registration No. 333...

  • Page 135
    ... Plan (incorporated by reference to Appendix A to EchoStar's Definitive Proxy Statement on Schedule 14A dated April 9, 2002).** Agreement between HTS, ESC and ExpressVu Inc., dated January 8, 1997, as amended (incorporated by reference to Exhibit 10.18 to the Annual Report on Form 10-K of EchoStar...

  • Page 136
    ... the Quarterly Report on Form 10-Q of EchoStar for the quarter ended June 30, 2004, Commission File No.0-26176). Third Amendment to 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...

  • Page 137
    ...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 of Attorney authorizing signature of James DeFranco...

  • Page 138

  • Page 139
    ... EchoStar Satellite Operating Corporation Echosphere L.L.C. EchoStar Technologies Corporation Dish Network Service L.L.C. (1) This is a subsidiary of EchoStar DBS Corporation Colorado Colorado Colorado Colorado Colorado Colorado Texas Colorado 100% 100% 100% 100%(1) 100%(1) 100%(1) 100%(1) 100...

  • Page 140

  • Page 141
    ... of internal control over financial reporting as of December 31, 2006, which reports appear in the December 31, 2006 annual report on Form 10-K of EchoStar Communications Corporation. Our report refers to the Company's adoption of Securities and Exchange Commission Staff Accounting Bulletin...

  • Page 142

  • Page 143
    ...and agent of the undersigned, with full power of substitution and resubstitution, for and in the name, place and stead of the undersigned, in any and all capacities, to sign the Annual Report on Form 10-K of EchoStar Communications Corporation, a Nevada corporation formed in April 1995, for the year...

  • Page 144

  • Page 145
    EXHIBIT 31.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER Section 302 Certification I, Charles W. Ergen, certify that: 1. 2. I have reviewed this annual report on Form 10-K of EchoStar Communications Corporation; Based on my knowledge, this report does not contain any untrue statement of a material fact...

  • Page 146

  • Page 147
    EXHIBIT 31.2 CERTIFICATION OF CHIEF FINANCIAL OFFICER Section 302 Certification I, Bernard L. Han, certify that: 1. 2. I have reviewed this annual report on Form 10-K of EchoStar Communications Corporation; Based on my knowledge, this report does not contain any untrue statement of a material fact ...

  • Page 148

  • Page 149
    ... respects, the financial condition and results of operations of the Company. Dated: March 1, 2007 Name: /s/ Charles W. Ergen Title: Chairman of the Board of Directors and Chief Executive Officer A signed original of this written statement required by Section 906, or other document authenticating...

  • Page 150

  • Page 151
    ... 18 U.S.C. § 1350, the undersigned officer of EchoStar Communications Corporation (the "Company"), hereby certifies that to the best of his knowledge the Company's Annual Report on Form 10-K for the year ended December 31, 2006 (the "Report") fully complies with the requirements of Section 13(a) or...