Dish Network 2008 Annual Report Download

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ANNUAL REPORT
Year Ended December 31, 2008

Table of contents

  • Page 1
    ANNUAL REPORT Year Ended December 31, 2008

  • Page 2

  • Page 3
    ...wide range of actions including terminating retailers that we believe violated DISH Network's business rules. We took steps toward simplifying our marketing, pricing and promotions to counter aggressive promotional pricing by our competitors. And we introduced stronger new customer offers of our own...

  • Page 4

  • Page 5
    ... ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2008 OR Â... TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _____ TO _____. Commission file number: 0-26176 DISH Network Corporation (Exact name of registrant as specified in...

  • Page 6

  • Page 7
    ... 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 and Services...

  • Page 8
    ... and companies that provide/facilitate the delivery of video content via the internet. We may be required to make substantial additional investments in order to maintain competitive high definition, or HD, programming offerings. Technology in our industry changes rapidly and could cause our services...

  • Page 9
    ... with EchoStar due to our common ownership and management. We rely on key personnel and the loss of their services or the inability to attract and retain them may negatively affect our businesses. We are controlled by one principal stockholder who is also our Chairman, President and Chief Executive...

  • Page 10
    ... be deficiencies leading to material weaknesses in our internal control over financial reporting. We may face other risks described from time to time in periodic and current reports we file with the Securities and Exchange Commission, or SEC. x x x x x x All cautionary statements made herein...

  • Page 11
    ...providing high-quality products, outstanding customer service, and great value. x High-Quality Products. We offer a wide selection of local and national programming, featuring more national and local HD channels than most pay-TV providers and the only HD-only programming packages currently available...

  • Page 12
    ... services. The fees for the services provided under the broadcast agreement are equal to EchoStar's cost plus a fixed margin, which varies depending on the nature of the services provided. Satellites. Our DISH Network programming is currently delivered to customers using satellites that operate...

  • Page 13
    ... device replacement plan is not effective. Distribution Channels While we offer receiver systems and programming through direct sales channels, a majority of our new subscriber acquisitions are generated through independent retailers such as small satellite retailers, direct marketing groups, local...

  • Page 14
    ... consumer demand for new features may result in the returned equipment becoming obsolete. Installation. We incur significant upfront costs to install satellite dishes and receivers in the homes of our new customers. New Customer Promotions. We often offer free programming and/or promotional pricing...

  • Page 15
    ... CSG Systems International, Inc.'s software system for the majority of DISH Network subscriber billing and related functions. New Business Opportunities From time to time we evaluate opportunities for acquisitions and other strategic transactions that may complement our current services and products...

  • Page 16
    ...and could be used at multiple orbital locations. EchoStar XIV will enable better bandwidth utilization, provide back-up protection for our existing offerings, and could allow DISH Network to offer other value-added services. EchoStar XV. In April 2008, we entered into a contract for the construction...

  • Page 17
    ... full power. EchoStar II. During July 2008, our EchoStar II satellite experienced a failure that rendered the satellite a total loss. EchoStar II had been operating primarily as a back-up satellite, but had provided local network channel service to Alaska and six other small markets. All programming...

  • Page 18
    ... 18 transponders are currently available for use. Due to redundancy switching limitations and specific channel authorizations, we can only operate on 15 of our FCC authorized frequencies at the 61.5 degree location. While we do not expect a large number of additional TWTAs to fail in any year, and...

  • Page 19
    ...-14 satellite lease agreement with SES Americom ("SES") to EchoStar with the intent to lease the entire capacity of the satellite from EchoStar. During March 2008, AMC-14 experienced a launch anomaly and failed to reach its intended orbit. SES subsequently declared the AMC-14 satellite a total loss...

  • Page 20
    ...technology which enables us to increase 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 82 DBS frequencies at the following orbital locations...

  • Page 21
    ... a Canadian DBS slot that is capable of providing service to the United States. We also lease occasional-use FSS capacity from EchoStar on satellites located at the 121 and 105 degree orbital locations. 700 MHz Spectrum. We paid $712 million to acquire certain 700 MHz wireless licenses, which were...

  • Page 22
    ... to provide high definition and multicast programming. In March 2008, the FCC adopted new digital carriage rules that require DBS providers to phase in carry-one-carry-all obligations with respect to the carriage of full-power broadcasters' HD signals by February 2013 in HD local markets. The...

  • Page 23
    ... in markets where we currently offer local channels by satellite, roll-out of local channels in additional cities and in high definition will require that we obtain additional retransmission agreements. We cannot be sure that we will secure these agreements or that we will secure new agreements upon...

  • Page 24
    ... negotiating collective bargaining agreements at these offices. WHERE YOU CAN FIND MORE INFORMATION We are subject to the informational requirements 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...

  • Page 25
    ... a co-founder of DISH Network in 1980. W. Erik Carlson. Mr. Carlson was named Executive Vice President, Operations in February 2008 and is responsible for overseeing our home and commercial installations, customer service centers, internal customer billing and equipment retrieval and refurbishment...

  • Page 26
    ... Officer and Senior Vice President and Chief Marketing Officer at America West Airlines, Inc. Michael Kelly. Mr. Kelly is currently the Executive Vice President, Commercial and Business Development. Mr. Kelly served as the Executive Vice President of DISH Network Service L.L.C. and Customer Service...

  • Page 27
    ... offers. Furthermore, due to lower levels of disposable income, our customers may downgrade to lower cost programming packages and elect not to purchase premium services or pay per view movies. Higher Subscriber Acquisition and Retention Costs. Our profits may be adversely affected by increased...

  • Page 28
    ... DISH Network subscribers. We believe this net loss resulted from weaker economic conditions, aggressive subscriber acquisition and retention promotions by our competition, heavy marketing by our competition, the growth of fiber-based and Internet-based video providers, signal theft and other forms...

  • Page 29
    ... to be a significant factor in consumer's choice among pay-TV providers. Other pay-TV providers may have more successfully marketed and promoted their HD programming packages and may also be better equipped to increase their HD offerings to respond to increasing consumer demand for this content. We...

  • Page 30
    ... DISH Network are made pursuant to contracts that generally expire on January 1, 2010, EchoStar will have no obligation to supply digital set-top boxes and satellite services to us after that date. Equipment, transponder leasing and digital broadcast operation costs may increase beyond our current...

  • Page 31
    ... could impact our subscriber growth and churn. The current economic downturn may create greater incentive for signal theft and other forms of fraud, which could lead to higher subscriber churn and reduced revenue. We depend on third parties to solicit orders for DISH Network services that represent...

  • Page 32
    ... timing of that litigation. 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 adversely affect our ability to acquire cable-affiliated programming...

  • Page 33
    ... 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...

  • Page 34
    ... our business. Operation of our subscription television service requires that we have adequate satellite transmission capacity for the programming we offer. Moreover, current competitive conditions require that we continue to expand our offering of new programming, particularly by expanding local HD...

  • Page 35
    ... or loss of any of our satellites, we may need to acquire or lease additional satellite capacity or relocate one of our other satellites and use it as a replacement for the failed or lost satellite, any of which could have a material adverse effect on our business, financial condition and results...

  • Page 36
    ... lead to conflicting interests. For instance, certain of our executive officers, including Charles W. Ergen, our Chairman, President and Chief Executive Officer, serve as executive officers of EchoStar. Three of our executive officers provide management services to EchoStar pursuant to a management...

  • Page 37
    ... officers available to provide services to EchoStar. In addition Mr. Ergen also serves as Chairman, President and Chief Executive Officer of EchoStar. To the extent Mr. Ergen and such other officers are performing services for EchoStar, this may divert their time and attention away from our business...

  • Page 38
    ... success may depend on opportunities to buy other businesses or technologies that could complement, enhance or expand our current business or products or that might otherwise offer us growth opportunities. We may not be able to complete such transactions and such transactions, if executed, pose...

  • Page 39
    ...the accuracy of our financial reports, which could in turn have a material adverse effect on our business, investor confidence in our financial results may weaken, and our stock price may suffer. We may face other risks described from time to time in periodic and current reports we file with the SEC...

  • Page 40
    ... operate several DISH Network service centers strategically located in regions throughout the United States. Furthermore, we own or lease capacity on 14 satellites which are a major component of our DISH Network DBS System. See further discussion under "Item 1. Business - Satellites" in this Annual...

  • Page 41
    ... features that we currently offer to consumers. We cannot predict with any degree of certainty the outcome of the suit or determine the extent of any potential liability or damages. Channel Bundling Class Action On September 21, 2007, a purported class of cable and satellite subscribers filed...

  • Page 42
    ... to view them, lives. We have turned off all of our distant network channels and are no longer in the distant network business. Termination of these channels resulted in, among other things, a small reduction in average monthly revenue per subscriber and free cash flow, and a temporary increase in...

  • Page 43
    ... we currently offer to consumers. We cannot predict with any degree of certainty the outcome of the suit or determine the extent of any potential liability or damages. Guardian Media On December 22, 2008, Guardian Media Technologies LTD ("Guardian") filed suit against EchoStar Corporation, EchoStar...

  • Page 44
    ... DBS system receives program content at broadcast reception and satellite uplinking facilities and transmits such program content, via satellite, to remote satellite receivers. The lawsuit further alleges that we infringe the Harvey Patents by transmitting and using a DBS signal specifically encoded...

  • Page 45
    ...On May 28, 2008, Voom HD Holdings ("Voom") filed a complaint against us in New York Supreme Court. The suit alleges breach of contract arising from our termination of the affiliation agreement we had with Voom for the carriage of certain Voom HD channels on DISH Network. In January 2008, Voom sought...

  • Page 46
    ... President and Chief Executive Officer and the remaining 88,496,990 were held in trusts for members of Mr. Ergen's family. There is currently no trading market for our Class B common stock. Spin-off. On January 1, 2008, DISH Network spun off EchoStar as a separate publicly-traded company in the form...

  • Page 47
    ... this Annual Report on Form 10-K. Purchases of Equity Securities by the Issuer and Affiliated Purchasers The following table provides information regarding purchases of our Class A common stock made by us for the period from January 1, 2008 through December 31, 2008. Maximum Approximate Total Number...

  • Page 48
    ... 31, 2008, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this report. Statements of Operations Data Total revenue ...Total costs and expenses ...Operating income (loss) ...Net income (loss) ...Basic net income (loss) available to...

  • Page 49
    ...specific to DISH. In recent years, DISH Network's position as the low cost provider in the pay-TV industry has been eroded by increasingly aggressive promotional pricing used by our competitors to attract new customers and similarly aggressive promotions and tactics used to retain existing customers...

  • Page 50
    ...current demand, we have increased the rate at which we upgrade existing subscribers to HD and DVR receivers. While these efforts may increase our subscriber acquisition and retention costs, we believe that they will help reduce subscriber churn and costs over the long run. We have also been changing...

  • Page 51
    ..., which varies depending on a number of factors including the types of set-top boxes that we purchase. In addition, we now purchase and/or lease satellite, uplink and transmission services from EchoStar at its cost plus a fixed margin. The prices that we pay for these services depend upon the nature...

  • Page 52
    ... RESULTS OF OPERATIONS - Continued EXPLANATION OF KEY METRICS AND OTHER ITEMS Subscriber-related revenue. "Subscriber-related revenue" consists principally of revenue from basic, movie, local, pay-per-view, Latino and international subscription television services, equipment rental fees and other...

  • Page 53
    ... of these commercial accounts, we divide our total revenue for these commercial accounts by an amount approximately equal to the retail price of our America's Top 100 programming package (but taking into account, periodically, price changes and other factors), and include the resulting number, which...

  • Page 54
    ... RESULTS OF OPERATIONS Year Ended December 31, 2008 Compared to the Year Ended December 31, 2007. Statements of Operations Data Revenue: Subscriber-related revenue...Equipment sales and other revenue...Equipment sales, transitional services and other revenue - EchoStar...Total revenue...Costs and...

  • Page 55
    ...retention activities including the amount of discounted programming or equipment we have offered, the heavy marketing of HD service by our competition, the growth of fiber-based and Internet-based pay TV providers, signal theft and other forms of fraud, and operational inefficiencies at DISH Network...

  • Page 56
    ... customers. To the extent these promotions are successful, ARPU could decline in the short-term as the number of DISH Network subscribers receiving free or discounted programming increases. Equipment sales and other revenue. "Equipment sales and other revenue" totaled $124 million during the year...

  • Page 57
    ...Our equipment costs were higher during 2008 as a result of an increase in the number of new DISH Network subscribers selecting more advanced equipment, such as HD receivers, DVRs and receivers with multiple tuners and as a result of the Spin-off of our set-top box business to EchoStar. Set-top boxes...

  • Page 58
    ... may increase our subscriber acquisition and retention costs. All new receivers that we purchase from EchoStar now have MPEG-4 technology. Although we continue to refurbish and redeploy MPEG-2 receivers, as a result of our HD initiatives and current promotions, most new customers in certain markets...

  • Page 59
    ...million valuation allowance against deferred tax assets, which are capital in nature, related to the impairment of marketable and non-marketable investment securities in 2008. Net income (loss). Net income was $903 million during the year ended December 31, 2008, an increase of $147 million compared...

  • Page 60
    ... tax rate...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 per subscriber...

  • Page 61
    ...of our equipment leasing programs, other hardware related fees, fees for DVRs, and revenue from increased availability of standard definition and HD local channels by satellite. Equipment sales and other revenue. "Equipment sales and other revenue" totaled $399 million during the year ended December...

  • Page 62
    ... new subscribers resulted primarily from an increase in redeployment of equipment returned by disconnecting lease program subscribers, decreased subscriber growth, fewer receivers per installation as the number of dual tuner receivers we install continues to increase, lower average equipment costs...

  • Page 63
    ... as a measurement of operating efficiency and overall financial performance and we believe it to be a helpful measure for those evaluating companies in the pay-TV industry. Conceptually, EBITDA measures the amount of income generated each period that could be used to service debt, pay taxes and fund...

  • 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
    ... million resulting from changes in accounts payable, accounts receivable, income tax receivable, deferred revenue and inventories, partially offset by a $277 million increase in net amounts payable to EchoStar. The decrease in "Purchases of property and equipment" in 2008 was primarily attributable...

  • Page 66
    ... significant portion of our cash to acquire or lease additional satellite capacity. Security Systems. Increases in theft of our signal, or our competitors' signals, could in addition to reducing new subscriber activations, also cause subscriber churn to increase. We use microchips embedded in credit...

  • Page 67
    ...increase the likelihood of customers keeping their DISH Network service over longer periods of time. Our subscriber acquisition costs may vary significantly from period to period. We incur significant costs to retain our existing customers, mostly by upgrading their equipment to HD and DVR receivers...

  • Page 68
    ... on two satellites from EchoStar which are currently under construction. Future commitments related to these satellites are included in the table above under "Satellite-related obligations." x Nimiq 5. In March 2008, we entered into a transponder service agreement with EchoStar to lease capacity on...

  • Page 69
    ... purchase orders for receiver systems and related equipment, digital broadcast operations, satellite and transponder leases, engineering and for products and services related to the operation of our DISH Network. Our purchase obligations also include certain guaranteed fixed contractual commitments...

  • Page 70
    ... future working capital and capital expenditure needs varies, depending on, among other things, the rate at which we acquire new subscribers and the cost of subscriber acquisition and retention, including capitalized costs associated with our new and existing subscriber equipment lease programs. The...

  • Page 71
    ... Statements in Item 15 of this Annual Report on Form 10-K. x Capitalized satellite receivers. Since we retain ownership of certain equipment provided pursuant to our subscriber equipment lease programs, we capitalize and depreciate equipment costs that would otherwise be expensed at the time of sale...

  • Page 72
    ... common stock price over the expected term (volatility), and the number of options that will ultimately not complete their vesting requirements (forfeitures), see Note 14 in the Notes to the Consolidated Financial Statements in Item 15 of this Annual Report on Form 10-K. Changes in these assumptions...

  • Page 73
    ..., 2008. We do not expect the adoption of SFAS 160 to have a material impact on our financial position or results of operations. Seasonality Historically, the first half of the year generally produces fewer new subscribers than the second half of the year, as is typical in the pay-TV service industry...

  • Page 74
    ... maturity. Further, the value could be lowered by credit losses should economic conditions worsen. Our cash, cash equivalents and marketable investment securities had an average annual return for the year ended December 31, 2008 of 3.2%. A decrease in interest rates does have the effect of reducing...

  • Page 75
    ... our strategic investments in companies that are not publicly traded depends on the success of those companies' businesses and their ability to obtain sufficient capital to execute their business plans. Because private markets are not as liquid as public markets, there is also increased risk that we...

  • Page 76
    ...public accounting firm, as stated in their report which appears in Item 15(a) of this Annual Report on Form 10-K. Item 9B. OTHER INFORMATION None. PART III Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERANCE The information required by this Item with respect to the identity and business...

  • Page 77
    ... Quarterly Report on Form 10-Q of DISH Network for the quarter ended June 30, 2003, Commission File No. 0-26176) as amended by the Certificate of Amendment to the Articles of Incorporation of DISH Network (incorporated by reference to Annex 1 on the Definitive Information Statement on Schedule 14C...

  • Page 78
    ...).** 2002 Class B CEO Stock Option Plan (incorporated by reference to Appendix A to DISH Network's Definitive Proxy Statement on Schedule 14A dated April 9, 2002).** Satellite Service Agreement, dated as of March 21, 2003, between SES Americom, Inc., EchoStar Satellite Corporation and DISH Network...

  • Page 79
    ... Channel Service Agreement, dated March 25, 2004, between Telesat Canada and DISH Network (incorporated by reference to Exhibit 10.5 to the Quarterly Report on Form 10-Q of DISH Network for the quarter ended March 31, 2004, Commission File No.0-26176). Amendment No. 2 to Satellite Service Agreement...

  • Page 80
    ... of the 2005 Long-Term Incentive Plan dated January 26, 2005 (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q of DISH Network for the quarter ended March 31, 2005, Commission File No.0-26176).** Amendment No. 4 to Satellite Service Agreement, dated April 6, 2005...

  • Page 81
    ... Report on Form 10-Q of DISH Network for the quarter ended September 30, 2008, Commission File No.0-26176). Description of the 2008 Long-Term Incentive Plan dated December 22, 2008. Subsidiaries of DISH Network Corporation. Consent of KPMG LLP, Independent Registered Public Accounting Firm. Powers...

  • Page 82
    ...the undersigned, thereunto duly authorized. DISH NETWORK CORPORATION By: /s/ Bernard L. Han Bernard L. Han Executive Vice President and Chief Financial Officer Date: March 2, 2009 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following...

  • Page 83
    ... LLP, Independent Registered Public Accounting Firm...Consolidated Balance Sheets at December 31, 2008 and 2007 ...Consolidated Statements of Operations and Comprehensive Income (Loss) for the years ended December 31, 2008, 2007 and 2006 ...Consolidated Statements of Changes in Stockholders' Equity...

  • Page 84
    ...Board of Directors and Stockholders DISH Network Corporation: We have audited the accompanying consolidated balance sheets of DISH Network Corporation and subsidiaries (the Company) as of December 31, 2008 and 2007, and the related consolidated statements of operations and comprehensive income (loss...

  • Page 85
    ... the financial position of DISH Network Corporation and subsidiaries as of December 31, 2008 and 2007, and the related consolidated statements of operations and comprehensive income (loss), changes in stockholders' equity (deficit), and cash flows for each of the years in the three-year period ended...

  • Page 86
    DISH NETWORK CORPORATION CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except per share amounts) As of December 31, 2008 2007 Assets Current Assets: Cash and cash equivalents...$ 98,574 Marketable investment securities (Note 5)...460,558 Trade accounts receivable - other, net of allowance for ...

  • Page 87
    DISH NETWORK CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (L0SS) (Dollars in thousands, except per share amounts) For the Years Ended December 31, 2008 2007 2006 Revenue: Subscriber-related revenue...$ 11,455,575 Equipment sales and other revenue...124,261 Equipment ...

  • Page 88
    ... of stock options ...Employee benefits...Employee Stock Purchase Plan ...Class A common stock repurchases, at cost...Stock-based compensation...Income tax (expense) benefit related to stock awards and other...Change in unrealized holding gains (losses) on available-for-sale securities, net...Foreign...

  • Page 89
    DISH NETWORK CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) For the Years Ended December 31, 2008 2007 2006 Cash Flows From Operating Activities: Net income (loss)...$ 902,947 Adjustments to reconcile net income (loss) to net cash flows from operating activities: Depreciation and ...

  • Page 90
    ...and leased satellites, receiver systems, third-party broadcast operations, customer service facilities, in-home service and call center operations and certain other assets utilized in our operations. Spin-off of Technology and Certain Infrastructure Assets On January 1, 2008, we completed a tax-free...

  • Page 91
    ...cost given the nature of the distribution. January 1, 2008 (In thousands) Assets Current Assets: Cash and cash equivalents...$ Marketable investment securities...Trade accounts receivable, net...Inventories, net...Current deferred tax assets...Other current assets...Total current assets...Restricted...

  • Page 92
    ... recorded at the exchange rate at the time of the transaction and subsequent gains and losses related to changes in the foreign currency are included in "Other" income or expense in our Consolidated Statements of Operations and Comprehensive Income (Loss). Net transaction gains (losses) during 2008...

  • Page 93
    ... of the price of each security, and any market and company specific factors related to each security. Declines in the fair value of investments below cost basis are generally accounted for as follows: Length of Time Investment Has Been In a Continuous Loss Position Less than six months Six to...

  • Page 94
    ... offerings from such satellites, the direct operating and subscriber acquisition costs related to such programming, and future capital costs for replacement satellites. Projected revenue and cost amounts include current and projected subscribers. In conducting our annual impairment test in 2008...

  • Page 95
    ...-16, "Accounting by a Customer (Including a Reseller) for Certain Consideration Received from a Vendor" ("EITF 02-16") are recognized as reductions to "Subscriber-related expenses" on a straight-line basis over the relevant remaining contract term (up to 10 years). The current and long-term portions...

  • Page 96
    ... existing or new subscribers. Revenue from advertising sales is recognized when the related services are performed. Subscriber fees for equipment rental, additional outlets and fees for receivers with multiple tuners, high definition ("HD") receivers, digital video recorders ("DVRs"), and HD DVRs...

  • Page 97
    ... Consolidated Statements of Operations and Comprehensive Income (Loss) principally include programming expenses, costs incurred in connection with our in-home service and call center operations, billing costs, refurbishment and repair costs related to receiver systems, subscriber retention and other...

  • Page 98
    ... is effective for fiscal years beginning after December 15, 2008. We do not expect the adoption of SFAS 160 to have a material impact on our financial position or results of operations. 3. Basic and Diluted Net Income (Loss) Per Share Statement of Financial Accounting Standards No. 128, "Earnings...

  • Page 99
    ... of SFAS 128. For the Years Ended December 31, 2008 2007 2006 (In thousands, except per share data) Numerator: Numerator for basic net income (loss) per share - Net income (loss)...$ 902,947 Interest on dilutive subordinated convertible notes, net of related tax effect...6,638 $ 909,585 Numerator...

  • Page 100
    ...: For the Years Ended December 31, 2008 2007 2006 (In thousands) Cash paid for interest...$ 385,936 16,880 Capitalized interest...44,843 Cash received for interest...430,408 Cash paid for income taxes...19,375 Employee benefits paid in Class A common stock...Satellites financed under capital lease...

  • Page 101
    ...all of which are classified as available-for-sale (see Note 2). Current Marketable Investment Securities - VRDNs Variable rate demand notes ("VRDNs") are long-term floating rate municipal bonds with embedded put options that allow the bondholder to sell the security at par plus accrued interest. All...

  • Page 102
    ... our strategic investments in companies that are not publicly traded depends on the success of those companies' businesses and their ability to obtain sufficient capital to execute their business plans. Because private markets are not as liquid as public markets, there is also increased risk that we...

  • Page 103
    ... of time that the individual securities, accounted for as available-for-sale, have been in an unrealized loss position, aggregated by investment category. As of December 31, 2008, the unrealized losses on our investments in debt securities primarily represent investments in auction rate, mortgage...

  • Page 104
    ... Consolidated Statements of Operations and Comprehensive Income (Loss) includes other changes in the carrying amount of our marketable and non-marketable investments as follows: For the Years Ended December 31, 2008 2007 2006 (In thousands) Marketable investment securities - gains (losses) on sales...

  • Page 105
    ... the satellite a total loss and was written-off during the second quarter 2008 (see further discussion below). (2) These satellites were transferred to EchoStar in connection with the Spin-off. (3) The capital lease agreements for AMC-15 and AMC-16 were contributed to EchoStar in connection with...

  • Page 106
    ... Statements of Operations and Comprehensive Income (Loss) do not include depreciation expense related to satellites or equipment leased to customers. The cost of our satellites includes capitalized interest of $17 million, $18 million, and $20 million during the years ended December 31, 2008...

  • Page 107
    ...be accounted for as a capital lease. Lease payments will commence when the satellite is placed into service. Satellite Anomalies Operation of our programming service requires that we have adequate satellite transmission capacity for the programming we offer. Moreover, current competitive conditions...

  • Page 108
    ... full power. EchoStar II. During July 2008, our EchoStar II satellite experienced a failure that rendered the satellite a total loss. EchoStar II had been operating primarily as a back-up satellite, but had provided local network channel service to Alaska and six other small markets. All programming...

  • Page 109
    ... 18 transponders are currently available for use. Due to redundancy switching limitations and specific channel authorizations, we can only operate on 15 of our FCC authorized frequencies at the 61.5 degree location. While we do not expect a large number of additional TWTAs to fail in any year, and...

  • Page 110
    ...-14 satellite lease agreement with SES Americom ("SES") to EchoStar with the intent to lease the entire capacity of the satellite from EchoStar. During March 2008, AMC-14 experienced a launch anomaly and failed to reach its intended orbit. SES subsequently declared the AMC-14 satellite a total loss...

  • Page 111
    ... The 6 3/8% Senior Notes mature October 1, 2011. Interest accrues at an annual rate of 6 3/8% and is payable semi-annually in cash, in arrears on April 1 and October 1 of each year. The 6 3/8% Senior Notes are redeemable, in whole or in part, at any time at a redemption price equal to 100% of their...

  • Page 112
    ... on January 15, 2008, the conversion price was adjusted to $51.88 per share (481,881 shares) as a result of the Spin-off. Interest accrues at an annual rate of 3% and is payable semiannually in cash, in arrears on June 30 and December 31 of each year. The 3% Convertible Subordinated Note due 2011 is...

  • Page 113
    DISH NETWORK 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 6 5/8% Senior Notes at a purchase price equal to 101% of the ...

  • Page 114
    ..., 2015. Interest accrues at an annual rate of 7 ¾% and is payable semi-annually in cash, in arrears on May 31 and November 30 of each year, commencing on November 30, 2008. The net proceeds that we received from the sale of the notes were used for general corporate purposes. The 7 ¾% Senior Notes...

  • Page 115
    ... leases is not required. As of December 31, 2008 and 2007, the carrying value is equal to or approximates fair value for cash and cash equivalents, marketable investment securities, trade accounts receivable, net of allowance for doubtful accounts, and current liabilities due to their short-term...

  • Page 116
    ... and $175 million, respectively. This decrease during 2008 related to the contribution of the AMC-15 and AMC-16 satellite lease agreements to EchoStar in connection with the Spin-off. In our Consolidated Statements of Operations and Comprehensive Income (Loss), we recognized $15 million, $66 million...

  • Page 117
    ... historical financial information as well as the timing of future events, including the probability of expected future taxable income and available tax planning opportunities. As of December 31, 2008, we had no net operating loss carryforwards ("NOL's") for federal income tax purposes, $2 million...

  • Page 118
    DISH NETWORK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued The components of the (provision for) benefit from income taxes are as follows: For the Years Ended December 31, 2008 2007 2006 (In thousands) Current (provision) benefit: Federal ...$ State...Foreign ...Deferred (...

  • Page 119
    ... on the resolution of a change in accounting method filed with the Internal Revenue Service. Accrued interest and penalties on uncertain tax positions are recorded as a component of "Other, net" on our Consolidated Statements of Operations and Comprehensive Income (Loss). During the year ended F-37

  • Page 120
    .... Sling Media, a leading innovator in the digitallifestyle space, was acquired to allow us to offer new products and services to our subscribers. On January 1, 2008, Sling Media was distributed to EchoStar in the Spin-off. This transaction was accounted for as a purchase business combination in...

  • Page 121
    ... employee to purchase our capital stock under all of our stock purchase plans at a rate which would exceed $25,000 in fair value of capital stock in any one year. The purchase price of the stock is 85% of the closing price of the Class A common stock on the last business day of each calendar quarter...

  • Page 122
    ... our Class A common stock available for future grant under our stock incentive plans. As of December 31, 2008, the following stock incentive awards were outstanding: As of December 31, 2008 DISH Network Awards EchoStar Awards Restricted Restricted Stock Stock Stock Stock Options Units Options Units...

  • Page 123
    ... long-term company goals. See discussion of the 2005 LTIP and 2008 LTIP below. We realized $3 million, $14 million, and $11 million of tax benefits from stock options exercised during the years ended December 31, 2008, 2007 and 2006, respectively. Based on the closing market price of our Class...

  • Page 124
    ...will not be recorded in our financial statements unless and until management concludes achievement of the performance condition is probable. Given the competitive nature of our business, small variations in subscriber churn, gross subscriber addition rates and certain other factors can significantly...

  • Page 125
    ... EchoStar awards held by DISH Network employees...9,957 2,599 Total...$ 58,996 $15,397 2008 LTIP. In December 2008, we adopted a long-term, performance-based stock incentive plan (the "2008 LTIP") within the terms of our 1999 Stock Incentive Plan. The 2008 LTIP provides stock options and restricted...

  • Page 126
    ...at the date of the grant using a Black-Scholes option pricing model with the following assumptions: Stock Options Risk-free interest rate ...Volatility factor ...Expected term of options in years...Weighted-average fair value of options granted ...For the Years Ended December 31, 2008 2007 2006 1.00...

  • Page 127
    ... additional satellites. Satellite-Related Obligations Ciel II. Ciel II, a Canadian DBS satellite, was launched in December 2008 and commenced commercial operation at the 129 degree orbital location in February 2009. Our initial ten-year term lease for 100% capacity on the satellite will be accounted...

  • Page 128
    ... purchase orders for receiver systems and related equipment, digital broadcast operations, satellite and transponder leases, engineering and for products and services related to the operation of our DISH Network. Our purchase obligations also include certain guaranteed fixed contractual commitments...

  • Page 129
    ... features that we currently offer to consumers. We cannot predict with any degree of certainty the outcome of the suit or determine the extent of any potential liability or damages. Channel Bundling Class Action On September 21, 2007, a purported class of cable and satellite subscribers filed...

  • Page 130
    ... to view them, lives. We have turned off all of our distant network channels and are no longer in the distant network business. Termination of these channels resulted in, among other things, a small reduction in average monthly revenue per subscriber and free cash flow, and a temporary increase in...

  • Page 131
    ... we currently offer to consumers. We cannot predict with any degree of certainty the outcome of the suit or determine the extent of any potential liability or damages. Guardian Media On December 22, 2008, Guardian Media Technologies LTD ("Guardian") filed suit against EchoStar Corporation, EchoStar...

  • Page 132
    ... DBS system receives program content at broadcast reception and satellite uplinking facilities and transmits such program content, via satellite, to remote satellite receivers. The lawsuit further alleges that we infringe the Harvey Patents by transmitting and using a DBS signal specifically encoded...

  • Page 133
    ...was released from an escrow account to Tivo. In addition, we have developed and deployed 'next-generation' DVR software to our customers' DVRs. This improved software is fully operational and has been automatically downloaded to current customers (our "alternative technology"). We have written legal...

  • Page 134
    ...On May 28, 2008, Voom HD Holdings ("Voom") filed a complaint against us in New York Supreme Court. The suit alleges breach of contract arising from our termination of the affiliation agreement we had with Voom for the carriage of certain Voom HD channels on DISH Network. In January 2008, Voom sought...

  • Page 135
    DISH NETWORK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued EchoStar Technologies Corporation $ - DISH Network Year Ended December 31, 2008 Total revenue ...$ 11,617,187 Depreciation and amortization ...1,000,230 Total costs and expenses ...9,561,007 Interest income ...51,217 ...

  • Page 136
    ... shares of both companies is owned beneficially by our Chief Executive Officer and Chairman, Charles W. Ergen. EchoStar is our primary supplier of set-top boxes and digital broadcast operations and our key supplier of transponder leasing. Generally all agreements entered into in connection with the...

  • Page 137
    ..., benefits administration, travel and event coordination, human resources, human resources development (training), program management, internal audit and corporate quality, legal, accounting and tax, and other support services. The transition services agreement has a term of no longer than two years...

  • Page 138
    ... date of such agreement. "Cost of sales - subscriber promotion subsidies - EchoStar" Receiver Agreement. EchoStar is currently our sole supplier of set-top box receivers. During the year ended December 31, 2008, we purchased set-top box and other equipment from EchoStar totaling $1.492 billion. Of...

  • Page 139
    .... Bell ExpressVu currently has the right to receive service on the entire communications capacity of the Nimiq 5 satellite pursuant to an agreement with Telesat Canada. On March 11, 2008, EchoStar also entered into a transponder service agreement with DISH Network L.L.C. ("DISH L.L.C."), our wholly...

  • Page 140
    ... and conditions of the Transponder Agreement, the service term will expire fifteen years following the actual service commencement date of the Nimiq 5 satellite. Upon expiration of this initial term, EchoStar has the option to continue to receive service on the Nimiq 5 satellite on a monthto-month...

  • Page 141
    ..., DISH Network Corporation, The DirecTV Group, Inc., and Time Warner Cable, Inc. Although the companies included in the industry peer group were selected because of similar industry characteristics, they are not entirely representative of our business. Comparison of 5 Year Cumulative Total Return...

  • Page 142

  • Page 143
    ... Investor Relations Department DISH Network Corporation 9601 S. Meridian Blvd. Englewood, Colorado 80112 www.dishnetwork.com/aboutus For more information please visit the Investor Relations section of our website at www.dishnetwork.com/aboutus EXECUTIVE OFFICERS Charles W. Ergen Chairman, President...

  • Page 144
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