Dish Network 2009 Annual Report Download

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ANNUAL REPORT
Year Ended December 31, 2009

Table of contents

  • Page 1
    ANNUAL REPORT Year Ended December 31, 2009

  • Page 2

  • Page 3
    ... in lower customer churn and positive subscriber growth. We made great strides in 2009 to solidify our position as a forward-thinking company focused on leading the pay-TV industry in video technology. We further extended our leadership in high definition by increasing our national HD channel count...

  • Page 4

  • Page 5
    ... 0-26176 DISH Network 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) Registrant's telephone number, including area code...

  • Page 6

  • Page 7
    ...Directors, Executive Officers and Corporate Governance...Executive Compensation...Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters...Certain Relationships and Related Transactions, and Director Independence...Principal Accounting Fees and Services...PART...

  • Page 8
    ...us may increase churn. As technology changes, and to remain competitive, we may have to upgrade or replace subscriber equipment and make substantial investments in our infrastructure. We rely on EchoStar Corporation, or EchoStar, to design and develop all of our new set-top boxes and certain related...

  • Page 9
    ... face significant impairment charges if one of our satellites fails. We may have potential conflicts of interest with EchoStar due to our common ownership and management. We rely on key personnel and the loss of their services may negatively affect our businesses. We are party to various lawsuits...

  • Page 10
    ... that there will not 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. All cautionary statements made...

  • Page 11
    ...Ergen, our Chairman, President and Chief Executive Officer. Business Strategy Our business strategy is to be the best provider of video services in the United States by providing high-quality products, outstanding customer service, and great value. We promote the DISH Network programming packages as...

  • Page 12
    ...consumers to view movies and other content on their televisions via the Internet and a broadband connection. We rely on EchoStar to design and manufacture all of our new receivers and certain related components. See "Item 1A - Risk Factors." Content Delivery Digital Broadcast Operations Centers. The...

  • Page 13
    ...market. These broadcasters provide local, network and syndicated programming free of charge. The transition from analog to digital delivery has allowed broadcasters to provide improved signal quality, offer additional channels including content broadcast in HD, and explore new business opportunities...

  • Page 14
    ... and consumer demand for new features may render the returned equipment 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 during...

  • Page 15
    ...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 strategic investments or acquisitions that may complement our current services and products, enhance our technical capabilities...

  • Page 16
    ... other things, the estimated useful life of the satellite, whether the replacement satellite fails at launch or in orbit prior to being placed in service, and the exercise of certain renewal options. EchoStar generally has the option to renew this lease on a year-to-year basis through the end of...

  • Page 17
    ... a ten-year transponder service agreement with EchoStar to lease capacity on EchoStar XVI, a DBS satellite, which is expected to be completed during 2012. EchoStar XVI will replace the satellites currently at the 61.5 degree orbital location and will allow us to offer other value-added services. We...

  • Page 18
    ... a material impact on the DISH Network service. As a result of the retirement of EchoStar V, we currently do not have any satellites positioned at the 148 degree orbital location. While we have requested a waiver from the FCC for the continued use of this orbital location, there can be no assurance...

  • Page 19
    ... currently transmit between nine and 13 standard definition digital video channels per DBS frequency channel. Several of our satellites also include spot-beam technology which enables us to increase the number of markets where we provide local channels, but reduces the number of video channels that...

  • Page 20
    ... of the satellite and will receive service on the remaining 16 DBS transponders over a phase-in period that will be completed in 2012. x x x x We also have occasional-use month-to-month FSS capacity available from EchoStar on satellites located at the 85, 105 and 121 degree orbital location. 700...

  • Page 21
    ...impose rules on our DBS operations that are based on cable system architecture or the private cable/consumer electronics tru2way commercial arrangement. Complying with the separate security and other "plug and play" requirements would require potentially costly modifications to our set-top boxes and...

  • Page 22
    ... satellite companies that 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 and in high definition will require...

  • Page 23
    ... respect to network management practices. The FCC is also currently developing a national broadband plan to expand availability of broadband and encourage adoption of that service. We cannot be sure whether these initiatives will result in burdens on us such as the need to use our satellite capacity...

  • Page 24
    ... could have a material adverse effect on our business. SEGMENT REPORTING DATA AND GEOGRAPHIC AREA DATA For operating segment and principal geographic area data for 2009, 2008 and 2007 see Note 15 in the Notes to the Consolidated Financial Statements in Item 15 of this Annual Report on Form 10-K. 14

  • Page 25
    ... agreements, we are currently 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...

  • Page 26
    ... President, Operations Executive Vice President, Programming, Sales and Marketing Executive Vice President and Director Executive Vice President, General Counsel and Secretary Executive Vice President and Chief Operating Officer Executive Vice President, Commercial and Business Development Executive...

  • Page 27
    ...President, Commercial and Business Development. Mr. Kelly served as the Executive Vice President of DISH Network Service L.L.C. and Customer Service from February 2004 until December 2005. Roger J. Lynch. Mr. Lynch has served as our Executive Vice President, Advanced Technologies since November 2009...

  • Page 28
    ... HD and DVR receivers, which are generally more expensive than other receivers. Meanwhile, retention costs may be driven higher by a faster rate of upgrading existing subscribers' equipment to HD and DVR receivers. Additionally, certain of our promotions allow consumers with relatively lower credit...

  • Page 29
    ...a significant decrease in new subscriber additions as well as a substantial loss of current subscribers. Furthermore, the inability to offer DVR functionality could cause certain of our distribution channels to terminate or significantly decrease their marketing of DISH Network services. The adverse...

  • Page 30
    ... signal quality, offer additional channels including content broadcast in HD, and explore new business opportunities such as mobile video. This increasingly competitive environment may require us to increase subscriber acquisition and retention spending or accept lower subscriber acquisitions...

  • Page 31
    ... also create new competitors for us. For instance, we may face threats from companies who use the Internet to deliver digital video services as the speed and quality of broadband and wireless services improve. Technology in the pay-TV industry changes rapidly as new technologies are developed, which...

  • Page 32
    ... offer new subscribers and upgrade existing subscribers with more advanced equipment, such as receivers with DVR and HD technology and by otherwise making additional infrastructure investments, such as those related to our information technology and call centers. Furthermore, the increase in demand...

  • Page 33
    ... which could impact our subscriber growth and churn. Weak economic conditions 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 34
    ... generally gives satellite companies a statutory copyright license to retransmit local broadcast channels by satellite back into the market from which they originated, subject to obtaining the retransmission consent of the local network station. If we fail to reach retransmission consent agreements...

  • Page 35
    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 and in high definition will require that we obtain ...

  • Page 36
    ... us to incur additional debt. If new debt is added to our current debt levels, the risks we now face could intensify. We have limited owned and leased satellite capacity and satellite failures could adversely affect our business. Operation of our programming service requires that we have adequate...

  • Page 37
    ... life of any of our satellites were significantly shorter than 12 years from the launch date. In the event of a failure 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...

  • Page 38
    ... of interest when we or EchoStar look at acquisitions and other corporate opportunities that may be suitable for both companies. In addition, certain of our directors and officers own EchoStar stock and options to purchase EchoStar stock, which they acquired or were granted prior to the Spin-off...

  • Page 39
    ... to a management services agreement with EchoStar entered into at the time of the Spin-off, we have agreed to make certain of our key officers available to provide services to EchoStar. In addition, Roger J. Lynch also serves as Executive Vice President, Advanced Technologies of EchoStar. To the...

  • Page 40
    ... to cease transmission using analog signals and switch over to digital signals by June 12, 2009. The switch to digital provides broadcasters significantly greater capacity to provide high definition and multicast programming. In March 2008, the FCC adopted new digital carriage rules that require DBS...

  • Page 41
    ... Executive Officer. Charles W. Ergen, our Chairman, President and Chief Executive Officer, currently beneficially owns approximately 51.2% of our total equity securities and possesses approximately 83.5% of the total voting power. Mr. Ergen's beneficial ownership of shares of Class A Common Stock...

  • Page 42
    ... certain information concerning our principal properties. Leased From Other Third Owned EchoStar Party X X X X X X X X X X X X X X X X X X X Description/Use/Location Segment(s) Using Property Corporate headquarters, Englewood, Colorado...Customer call center and general offices, Pine Brook, New...

  • Page 43
    ...., Time Warner Cable, NBC Universal, Viacom, Fox Entertainment Group, and Walt Disney Company. The suit alleges, among other things, that the defendants engaged in a conspiracy to provide customers with access only to bundled channel offerings as opposed to giving customers the ability to purchase...

  • Page 44
    ...ESPN Classic, Inc., ABC Cable Networks Group, Soapnet L.L.C., and International Family Entertainment (collectively, "ESPN") for breach of contract in New York State Supreme Court. Our complaint alleges that ESPN failed to provide us with certain high-definition feeds of the Disney Channel, ESPN News...

  • Page 45
    ... that could require us to materially modify certain user-friendly 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. Retailer Class Actions During 2000, lawsuits were...

  • Page 46
    ... released from an escrow account to Tivo. We also developed and deployed "next-generation" DVR software. This improved software was automatically downloaded to our current customers' DVRs, and is fully operational (our "original alternative technology"). The download was completed as of April 2007...

  • Page 47
    ...a significant decrease in new subscriber additions as well as a substantial loss of current subscribers. Furthermore, the inability to offer DVR functionality could cause certain of our distribution channels to terminate or significantly decrease their marketing of DISH Network services. The adverse...

  • Page 48
    ..., 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 the DISH Network satellite television service. In January...

  • Page 49
    ... W. Ergen, our Chairman, President and Chief Executive Officer and the remaining 22,023,267 were held in trusts established by Mr. Ergen for the benefit of his family. There is currently no trading market for our Class B common stock. Dividend. On December 2, 2009, we paid a cash dividend of $2.00...

  • Page 50
    ... 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 51
    ... and related Notes thereto for the three years ended December 31, 2009, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this report. Balance Sheet Data Cash, cash equivalents and current marketable investment securities...Total assets...

  • Page 52
    ... in recent years. Within this maturing industry, competition has intensified with the rapid growth of fiber-based pay-TV services offered by telecommunications companies. Furthermore, programming offered over the Internet has become more prevalent as the speed and quality of broadband networks have...

  • Page 53
    ... terminating retailers that we believe were in violation of DISH Network's business rules. While these initiatives may inconvenience our subscribers and disrupt our distribution channels in the short-term, we believe that the long-term benefits will outweigh the costs. To address our operational...

  • Page 54
    ...transponder capacity, and improve customer service. In addition, our "Subscriber-related revenue" was negatively impacted by our increase in the use of promotional discounts on programming offered to new subscribers and retention initiatives offered to existing subscribers. Uncertainties about these...

  • Page 55
    ...basic, premium movie, local, pay-per-view, Latino and international subscription television services, equipment rental fees and other hardware related fees, including fees for DVRs and additional outlet fees from subscribers with multiple receivers, advertising services, fees earned from our in-home...

  • Page 56
    ...Network digital receivers and related components sold to international customers and satellite and transmission expenses, which related to the set-top box business and other assets that were distributed to EchoStar in connection with the Spin-off. Subscriber acquisition costs. In addition to leasing...

  • Page 57
    ... 120 programming package (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. Average monthly revenue per subscriber ("ARPU...

  • Page 58
    ... RESULTS OF OPERATIONS Year Ended December 31, 2009 Compared to the Year Ended December 31, 2008. 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 59
    .... Our increased gross subscriber additions were primarily a result of our sales and marketing promotions during the last half of 2009. Churn was positively impacted by, among other things, the completion of our security access device replacement program, an increase in our new subscriber commitment...

  • Page 60
    ... hardware related fees, which include fees earned from our in-home service operations, rental fees and fees for DVRs. These increases were partially offset by increases in the amount of promotional discounts on programming offered to our new subscribers and retention initiatives offered to existing...

  • Page 61
    ...decreases in hardware costs were partially offset by an increase in deployment of more advanced set-top boxes, such as HD receivers and HD DVRs. During the years ended December 31, 2009 and 2008, the amount of equipment capitalized under our lease program for new subscribers totaled $634 million and...

  • Page 62
    ... related to set-top boxes used in our lease programs and the abandonment of a software development project during 2008 that was designed to support our IT systems. The decrease related to set-top-boxes was primarily attributable to capitalization of a higher mix of new advanced equipment in 2009...

  • Page 63
    ... OF OPERATIONS - Continued During the year ended December 31, 2008, our effective tax rate was negatively impacted by the establishment of an $80 million valuation allowance against deferred tax assets, which are capital in nature. Net income (loss) attributable to DISH Network common shareholders...

  • Page 64
    ...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 Expenses: Subscriber-related expenses...% of Subscriber-related revenue...Satellite and transmission...

  • Page 65
    ... 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. Most of these factors have affected both gross new subscriber additions as well as existing subscriber churn. Subscriber-related revenue...

  • Page 66
    ... 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 were historically designed in-house and procured at our cost. We now acquire...

  • Page 67
    ... increase in costs related to transitional services and commercial agreements with EchoStar as a result of the Spin-off. In addition, the 2007 amount included $22 million of in-process research and development costs associated with the acquisition of Sling Media in the fourth quarter 2007. "General...

  • Page 68
    ...deferred tax assets, which are capital in nature, related to the impairment of marketable and non-marketable investment securities in 2008. Net income (loss) attributable to DISH Network common shareholders. Net income attributable to DISH Network common shareholders was $903 million during the year...

  • Page 69
    ... depending upon, among other things, 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. 59

  • Page 70
    ... from investing activities. Our investing activities generally include purchases and sales of marketable investment securities, strategic investments and cash used to grow our subscriber base and expand our infrastructure. For the years ended December 31, 2009, 2008 and 2007, we reported net cash...

  • Page 71
    ... to satisfy FCC build-out requirements. We are currently performing a market test to evaluate different technologies and consumer acceptance. Subscriber Churn DISH Network added approximately 422,000 net new subscribers for the year ended December 31, 2009, compared to losing approximately 102...

  • Page 72
    ...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. As with...

  • Page 73
    ... this Annual Report on Form 10-K., we generally do not engage in off-balance sheet financing activities. Satellite-Related Obligations Satellites Under Construction. As of December 31, 2009, we had entered into the following contracts to construct new satellites which are contractually scheduled to...

  • Page 74
    ...Our 2010 purchase obligations primarily consist of binding 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...

  • Page 75
    ...a significant decrease in new subscriber additions as well as a substantial loss of current subscribers. Furthermore, the inability to offer DVR functionality could cause certain of our distribution channels to terminate or significantly decrease their marketing of DISH Network services. The adverse...

  • Page 76
    ... life of our capitalized subscriber equipment by one year, annual depreciation expense would increase by approximately $107 million. Accounting for investments in private and publicly-traded securities. We hold debt and equity interests in companies, some of which are publicly traded and have highly...

  • Page 77
    ... AND RESULTS OF OPERATIONS - Continued financial instruments for which no or limited observable market data is available are based on judgments regarding current economic conditions, liquidity discounts, currency, credit and interest rate risks, loss experience and other factors. These estimates...

  • Page 78
    ... 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. However, we can not provide assurance that this will continue in the future. Inflation Inflation has not materially affected our operations during the past...

  • Page 79
    ... normally hold these investments to maturity; however, the hypothetical loss in fair value would be realized if we sold the investments prior to maturity. Our cash, cash equivalents and current marketable investment securities had an average annual rate of return for the year ended December 31, 2009...

  • Page 80
    ... the cost, equity and fair value methods of accounting. Our ability to realize value from 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...

  • Page 81
    ..., 2009. The effectiveness of our internal control over financial reporting as of December 31, 2009 has been audited by KPMG LLP, an independent registered 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...

  • Page 82
    ...the 2010 Annual Meeting of Shareholders under the caption "Executive Compensation and Other Information," which information is hereby incorporated herein by reference. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS The information required by...

  • Page 83
    ... 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 84
    ... to the Current Report on Form 8-K of DISH Network filed August 18, 2009, Commission File No. 0-26176). 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...

  • Page 85
    ...RF Channel Service Agreement, dated October 12, 2004, between Telesat Canada and DISH Network (incorporated by reference to Exhibit 10.22 to the Annual Report on Form 10-K of DISH Network for the year ended December 31, 2004, Commission File No.026176). Amendment No. 4 to Satellite Service Agreement...

  • Page 86
    ... Form 10 (File No. 001-33807) of EchoStar). Management Services Agreement between EchoStar and DISH Network (incorporated by reference from Exhibit 10.5 to the Form 10 (File No. 001-33807) of EchoStar). Form of Satellite Capacity Agreement between EchoStar Holding Corporation and EchoStar Satellite...

  • Page 87
    ... Agreement between EchoStar Satellite Services L.L.C. and DISH Network L.L.C. (incorporated by reference from Exhibit 10.35 to the Annual Report on Form 10K of EchoStar for the year ended December 31, 2009, Commission File No. 001-33807).**** Assignment of Rights Under Launch Service Contract...

  • Page 88
    ...Chief Financial Officer. The following materials from the Annual Report on Form 10-K of DISH Network for the year ended December 31, 2009, filed on March 1, 2010, formatted in eXtensible Business Reporting Language ("XBRL"): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations...

  • Page 89
    ... undersigned, thereunto duly authorized. DISH NETWORK CORPORATION By: /s/ Robert E. Olson Robert E. Olson Executive Vice President and Chief Financial Officer Date: March 1, 2010 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following...

  • Page 90
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  • Page 91
    ... Page Consolidated Financial Statements: Report of KPMG LLP, Independent Registered Public Accounting Firm...Consolidated Balance Sheets at December 31, 2009 and 2008 ...Consolidated Statements of Operations and Comprehensive Income (Loss) for the years ended December 31, 2009, 2008 and 2007...

  • Page 92
    ... and an opinion on DISH Network Corporation's internal control over financial reporting based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits...

  • Page 93
    ..., the financial position of DISH Network Corporation and subsidiaries as of December 31, 2009 and 2008, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2009, in conformity with U.S. generally accepted accounting principles. Also...

  • Page 94
    DISH NETWORK CORPORATION CONSOLIDATED BALANCE SHEETS (In thousands, except share and per share amounts) As of December 31, 2009 2008 Assets Current Assets: Cash and cash equivalents...$ 105,844 Marketable investment securities (Note 5)...2,033,492 Trade accounts receivable - other, net of allowance...

  • Page 95
    ...-related expenses (exclusive of depreciation shown below - Note 7)...Satellite and transmission expenses (exclusive of depreciation shown below - Note 7): EchoStar...Other...Equipment, transitional services and other cost of sales...Subscriber acquisition costs: Cost of sales - subscriber promotion...

  • Page 96
    ... of stock options ...12 Employee benefits...6 Employee Stock Purchase Plan ...1 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...

  • Page 97
    ......Net proceeds from Class A common stock options exercised and issued under the Employee Stock Purchase Plan...Cash dividend on Class A and Class B common stock...Excess tax benefits recognized on stock option exercises ...Net cash flows from financing activities ...Net increase (decrease) in cash...

  • Page 98
    ... DISH Network DBS System consists of our licensed Federal Communications Commission ("FCC") authorized DBS and Fixed Satellite Service ("FSS") spectrum, our owned and leased satellites, receiver systems, third-party broadcast operations, customer service facilities, in-home service and call center...

  • Page 99
    ...) 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 cash and marketable investment securities...Property and equipment, net...

  • Page 100
    ... acquired in business combinations, capital leases, asset impairments, useful lives of property, equipment and intangible assets, retailer incentives, programming expenses, subscriber lives and royalty obligations. Illiquid credit markets and general weak economic conditions have increased...

  • Page 101
    ... 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 102
    ... 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 2009...

  • Page 103
    ...Taxes We account for sales taxes imposed on our goods and services on a net basis in our "Consolidated Statements of Operations and Comprehensive Income (Loss)." Since we primarily act as an agent for the governmental authorities, the amount charged to the customer is collected and remitted directly...

  • Page 104
    ...high definition ("HD") receivers, digital video recorders ("DVRs"), and HD DVRs and our in-home service operations are recognized as revenue as earned. Revenue from equipment sales and equipment upgrades are recognized upon shipment to customers. Certain of our existing and new subscriber promotions...

  • Page 105
    ... our direct sales distribution channel. Subscriber acquisition costs include the following line items from our Consolidated Statements of Operations and Comprehensive Income (Loss): x x x "Cost of sales - subscriber promotion subsidies" includes the cost of our receiver systems sold to retailers and...

  • Page 106
    ... used in the calculation. For the Years Ended December 31, 2009 2008 2007 (In thousands, except per share amounts) Basic net income (loss) attributable to DISH Network common shareholders...$ 635,545 $ 902,947 $ 756,054 Interest on dilutive subordinated convertible notes, net of related tax...

  • Page 107
    .... For the Years Ended December 31, 2009 2008 2007 (In thousands) Cash paid for interest...$ Capitalized interest...Cash rec eived for interest...Cash paid for income taxes...Employee benefits paid in Class A common stock...Vendor financing ...Launch contract purchased from EchoStar (Note 18...

  • Page 108
    ... put option allows VRDNs to be liquidated on a same day or on a five business day settlement basis. Current Marketable Investment Securities - Strategic Our current strategic marketable investment securities include strategic and financial investments of public companies that are highly speculative...

  • Page 109
    ... for using the cost, equity or fair value methods of accounting. Our ability to realize value from 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...

  • Page 110
    ... little or no market data exists, therefore requiring assumptions based on the best information available. x Our assets measured at fair value on a recurring basis were as follows: Total Fair Value as of De cember 31, 2009 Assets Marketable investment securities... Total Level 1 Level 2 Le...

  • Page 111
    ... used...Work-in-process - new...Inventory...$ At December 31, 2009 our inventory balance was $296 million, a decline of $131 million compared to our balance at December 31, 2008. This decline primarily related to the impact of adding new subscribers as a result of our sales and marketing promotions...

  • Page 112
    ... Life (In Years) Equipment leased to customers...EchoStar I ...EchoStar V (1)...EchoStar VII ...EchoStar X...EchoStar XI...Satellites acquired under capital lease agreements (2)...Furniture, fixtures, equipment and other ...Buildings and improvements ...Land ...Construction in progress ...Total...

  • Page 113
    ...offer. Moreover, current competitive conditions require that we continue to expand our offering of new programming, particularly by expanding local HD coverage and offering more HD national channels. While we generally have had in-orbit satellite capacity sufficient to transmit our existing channels...

  • Page 114
    ...not have a material impact on the DISH Network service. As a result of the retirement of EchoStar V, we currently do not have any satellites positioned at the 148 degree orbital location. We have requested a waiver from the FCC for the continued use of this orbital location; however, there can be no...

  • Page 115
    ... FCC build-out requirements. We are currently performing a market test to evaluate different technologies and consumer acceptance. In conducting our annual impairment test in 2009, we determined that the estimated fair value of the FCC licenses, calculated using the discounted cash flow analysis...

  • Page 116
    ... and its restricted subsidiaries to: x x x x x x x incur additional debt; pay dividends or make distribution on DDBS' capital stock or repurchase DDBS' capital stock; make certain investments; create liens or enter into sale and leaseback transactions; enter into transactions with affiliates; merge...

  • Page 117
    ... and its restricted subsidiaries to: x x x x x x x incur additional debt; pay dividends or make distribution on DDBS' capital stock or repurchase DDBS' capital stock; make certain investments; create liens or enter into sale and leaseback transactions; enter into transactions with affiliates; merge...

  • Page 118
    ... and its restricted subsidiaries to: x x x x x x x incur additional debt; pay dividends or make distribution on DDBS' capital stock or repurchase DDBS' capital stock; make certain investments; create liens or enter into sale and leaseback transactions; enter into transactions with affiliates; merge...

  • Page 119
    ... and its restricted subsidiaries to: x x x x x x x incur additional debt; pay dividends or make distributions on DDBS' capital stock or repurchase DDBS' capital stock; make certain investments; create liens or enter into sale and leaseback transactions; enter into transactions with affiliates; merge...

  • Page 120
    ... Statements of Operations and Comprehensive Income (Loss), we recognized $40 million, $15 million and $66 million in depreciation expense on satellites acquired under capital lease agreements during the years ended December 31, 2009, 2008 and 2007, respectively. Future minimum lease payments under...

  • Page 121
    ... future taxable income and available tax planning opportunities. As of December 31, 2009, we had no net operating loss carryforwards ("NOLs") for federal income tax purposes, $13 million of NOLs for state income tax purposes, and $4 million of tax benefits related to credit carryforwards. The...

  • Page 122
    ...of unrecognized tax benefits is as follows (in thousands): Balance as of January 1, 2009...$ 233,360 Additions based on tax positions related to the current year...7,952 Additions based on tax positions related to prior years...12,838 Reductions based on tax positions related to prior years...(6,042...

  • Page 123
    ...price of the Class A common stock on the last business day of each calendar quarter in which such shares of Class A common stock are deemed sold to an employee under the ESPP. During the years ended December 31, 2009, 2008 and 2007, employee purchases of Class A common stock through the ESPP totaled...

  • Page 124
    ... under these plans stock options to acquire 21.9 million shares of our Class A common stock and 1.2 million restricted stock units. Stock options granted through December 31, 2009 were granted with exercise prices equal to or greater than the market value of our Class A common stock at the...

  • Page 125
    DISH NETWORK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued As of December 31, 2009, the following stock awards were outstanding: As of December 31, 2009 DISH Network Awards EchoStar Awards Restricted Restricted Stock Stock Stock Stock Units Units Options Options 18,094,235 857,...

  • Page 126
    ... as follows: For the Years Ended December 31, 2009 2008 2007 (In thousands) $ 1,116 $ 2,905 $ 14,294 Tax benefit from stock awards exercised... Based on the closing market price of our Class A common stock on December 31, 2009, the aggregate intrinsic value of our stock options was as follows: As...

  • Page 127
    DISH NETWORK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued Our restricted stock unit activity for the years ended December 31, 2009, 2008 and 2007 was as follows: 2009 WeightedAverage Grant Date Fair Value $ 27.44 11.11 28.47 30.09 25.93 25.18 2008 WeightedAverage Grant Date ...

  • Page 128
    ... addition rates and certain other factors can significantly impact subscriber growth. Consequently, while it was determined that achievement of the goal was not probable as of December 31, 2009, that assessment could change at any time. Of the 21.9 million stock options and 1.2 million restricted...

  • Page 129
    ... Class A and Class B common stock. We do not intend to pay additional dividends on our common stock and accordingly, the dividend yield percentage used in the Black-Scholes option valuation model is set at zero for all periods. The Black-Scholes option valuation model was developed for use...

  • Page 130
    ...related obligations." x QuetzSat-1. During 2008, we entered into a ten-year transponder service agreement with EchoStar to lease capacity on QuetzSat-1, a DBS satellite, which is expected to be completed during 2011. EchoStar XVI. During 2009, we entered into a ten-year transponder service agreement...

  • Page 131
    ...Our 2010 purchase obligations primarily consist of binding 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...

  • Page 132
    ...Technologies ("Acacia") filed a lawsuit against us and EchoStar in the United States District Court for the Northern District of California. The suit also named DirecTV, Comcast, Charter, Cox and a number of smaller cable companies as defendants. Acacia is an entity that seeks to license an acquired...

  • Page 133
    ...ESPN Classic, Inc., ABC Cable Networks Group, Soapnet L.L.C., and International Family Entertainment (collectively, "ESPN") for breach of contract in New York State Supreme Court. Our complaint alleges that ESPN failed to provide us with certain high-definition feeds of the Disney Channel, ESPN News...

  • Page 134
    ... patent), which relates to satellite reception. In December 2009, we and EchoStar settled the Texas and Florida actions with Global on terms and conditions that did not have a material impact on our results of operations. Guardian Media During 2008, Guardian Media Technologies LTD ("Guardian") filed...

  • Page 135
    ..., 2009, Technology Development and Licensing LLC filed suit against us and EchoStar in the United States District Court for the Northern District of Illinois alleging infringement of United States Patent No. 35, 952, which relates to certain favorite channel features. In July 2009, the Court granted...

  • Page 136
    ... released from an escrow account to Tivo. We also developed and deployed "next-generation" DVR software. This improved software was automatically downloaded to our current customers' DVRs, and is fully operational (our "original alternative technology"). The download was completed as of April 2007...

  • Page 137
    ...a significant decrease in new subscriber additions as well as a substantial loss of current subscribers. Furthermore, the inability to offer DVR functionality could cause certain of our distribution channels to terminate or significantly decrease their marketing of DISH Network services. The adverse...

  • Page 138
    ..., 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 the DISH Network satellite television service. In January...

  • Page 139
    ...DBS subscription television service in the United States. Prior to 2008, we had two reportable segments, DISH Network and EchoStar Technologies Corporation. DISH Network Year Ended December 31, 2009 Total revenue ...$ 11,664,151 Depreciation and amortization ...940,033 Total costs and expenses ...10...

  • Page 140
    ... Data (Unaudited) Our quarterly results of operations are summarized as follows: March 31 Year ended December 31, 2009: Total revenue...$ 2,905,321 Operating income (loss)...574,563 Net income (loss) ...312,684 Net income (loss) attributable to DISH Network common shareholders...312,684 Basic...

  • Page 141
    ... Mr. Ergen for the benefit of his family. EchoStar is our primary supplier of set-top boxes and digital broadcast operations and our key supplier of transponder leasing. Generally, the prices charged for products and services provided under the agreements entered into in connection with the Spin-off...

  • Page 142
    ... other things, the estimated useful life of the satellite, whether the replacement satellite fails at launch or in orbit prior to being placed in service, and the exercise of certain renewal options. EchoStar generally has the option to renew this lease on a year-to-year basis through the end of...

  • Page 143
    ... value and our purchase price as a capital transaction with EchoStar. We expect to use this launch contract for EchoStar XV, which is scheduled to launch in late 2010. Nimiq 5 Agreement. During September 2009, EchoStar entered into a fifteen-year satellite service agreement with Telesat Canada...

  • Page 144
    ... EchoStar to manage the process of procuring new satellite capacity for DISH Network pursuant to the Professional Services Agreement as described above. "Cost of sales - subscriber promotion subsidies - EchoStar" Receiver Agreement. EchoStar is currently our sole supplier of set-top box receivers...

  • Page 145
    ... have the right, but not the obligation, to extend the receiver agreement annually for an additional year. The receiver agreement allows us to purchase digital set-top boxes, related accessories and other equipment from EchoStar at cost plus a fixed margin, which varies depending on the nature of...

  • Page 146
    .... International Programming Rights Agreement. For each of the years ended December 31, 2009 and 2008, we purchased certain international rights for sporting events from EchoStar included in "Subscriber-related expenses" on the Consolidated Statements of Operations and Comprehensive Income (Loss...

  • Page 147
    ... of dividends and market capitalization weighting. We have included an industry peer group comprised of: AT&T Inc., Cablevision Systems Corporation, Comcast Corporation, DISH Network Corporation, The DirecTV Group, Inc., Time Warner Cable, Inc., and Verizon Communications. Although the companies...

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  • Page 151
    ...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 and Chief...

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