Dish Network 2010 Annual Report Download

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ANNUAL REPORT
Year Ended December 31, 2010

Table of contents

  • Page 1
    ANNUAL REPORT Year Ended December 31, 2010

  • Page 2
    ...systems, and enhance our sales and customer service organizations enabled DISH Network to increase revenue and income. DISH Network added more than three million gross new subscribers in 2010, a decrease of 2.1% from 2009. Our gross activations were negatively impacted by slower growth in the pay-TV...

  • Page 3
    ... 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 4
    ... Data...Changes in and Disagreements With Accountants on Accounting and Financial Disclosure...Controls and Procedures...Other Information...PART III Item 10. Item 11. Item 12. Item 13. Item 14. Directors, Executive Officers and Corporate Governance...Executive Compensation...Security Ownership...

  • Page 5
    ... subscriber churn may increase. We may be required to make substantial additional investments to maintain competitive programming offerings. Technology in our industry changes rapidly and could cause our services and products to become obsolete. We may have to upgrade or replace subscriber equipment...

  • Page 6
    ... Cable Act for access to programming from cable-affiliate programmers at costeffective rates. We face increasing competition from other distributors of foreign language programming that may limit our ability to maintain our foreign language programming subscriber base. Our local programming strategy...

  • Page 7
    ..., President and Chief Executive Officer. There can be no assurance 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...

  • Page 8
    ... services. • 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. We have been a technology leader in our industry, introducing award-winning DVRs, dual tuner receivers, 1080p video on demand...

  • Page 9
    ... provided local HD channels to markets representing approximately 94% of U.S. TV households. Receiver Systems. Our subscribers receive programming via equipment that includes a small satellite dish, digital set-top receivers, and remote controls. Some of our advanced receiver models feature DVRs, HD...

  • Page 10
    ... pay-TV service and approximately 63% of pay-TV subscribers receive their programming from a cable operator. Cable companies are typically able to bundle their video services with broadband Internet access and voice services and many have significant investments in companies that provide programming...

  • Page 11
    ... 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 introductory periods for new subscribers. While...

  • Page 12
    ... use of other available spectrum. Increasing our available spectrum is particularly important as more bandwidth intensive HD programming is produced and to address new video and data applications consumers may desire in the future. We currently utilize satellites in geostationary orbit approximately...

  • Page 13
    ... us to offer other value-added services. EchoStar XVI. During 2009, we entered into a ten-year transponder service agreement with EchoStar to lease all of the capacity on EchoStar XVI, a DBS satellite. EchoStar XVI will replace the satellites currently at the 61.5 degree orbital location and will...

  • Page 14
    ... estimated useful life of the satellite to less than 12 years or impact commercial operation of the satellite based on the satellite's current configuration, there can be no assurance that future anomalies will not reduce its useful life or impact its commercial operation. Leased Satellites EchoStar...

  • Page 15
    ..., the granting of related authorizations, and evaluation of the fitness of a company to be a licensee; approval for the relocation of satellites to different orbital locations or the replacement of an existing satellite with a new satellite; ensuring compliance with the terms and conditions of such...

  • Page 16
    .... We and EchoStar are currently receiving service on 23 of these DBS transponders and will receive service on the remaining nine DBS transponders over a phase-in period that will be completed in 2012. We also have month-to-month FSS capacity available from EchoStar on satellites located at the...

  • Page 17
    ... below-cost rates and for which we may not impose additional charges on subscribers. The Satellite Television Extension and Localism Act of 2010 ("STELA") requires the FCC to decrease this set-aside to 3.5 percent for satellite carriers who provide retransmission of state public affairs networks in...

  • Page 18
    .... Furthermore, the rates we are charged for retransmitting local channels have been increasing. We may be unable to pass these increased programming costs on to our customers, which could have a material adverse effect on our financial condition and results of operations. Digital HD Carry-One, Carry...

  • Page 19
    ... that are affiliated with cable system operators. In the case of certain types of programming affiliated with Comcast, Time-Warner Cable, and Liberty, the terms of access to the programming are subject to arbitration if we and the programmer cannot reach agreement on terms, subject to FCC review. We...

  • Page 20
    ..., we operate in only one reportable segment, the DISH Network segment, which provides a DBS subscription television service in the United States. EMPLOYEES We had approximately 22,000 employees at December 31, 2010, most of whom are located in the United States. We generally consider relations with...

  • Page 21
    ... DNS and Service Operations Executive Vice President, Sales, Marketing and Programming Executive Vice President and Director Executive Vice President, General Counsel and Secretary Executive Vice President and Chief Operating Officer Executive Vice President, Direct, Commercial and Advertising Sales...

  • Page 22
    ..., he has held various positions of increasing responsibility in DISH Network's legal department. Bernard L. Han. Mr. Han has served as our Executive Vice President and Chief Operating Officer since April 2009 and is in charge of operations, information technology, accounting and finance functions of...

  • Page 23
    ... the Internet, could materially adversely affect us. Our business is focused on pay-TV services, and we face competition from providers of digital media, including those companies that offer online services distributing movies, television shows and other video programming. Moreover, new technologies...

  • Page 24
    ...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 effect on our financial position and results of operations if...

  • Page 25
    ... for advertising and the installation of more 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...

  • Page 26
    ... aggressive introductory offers by our competitors and the growth of video content being delivered via the Internet. Furthermore, due to lower levels of disposable income, our customers may downgrade to lower cost programming packages, elect not to purchase premium services or pay per view movies or...

  • Page 27
    ... cost, timely completion and introduction, differentiation from offerings of competitors and market acceptance. New technologies could also create new competitors for us. For instance, we face increasing consumer demand for the delivery of digital video services via the Internet, including providing...

  • Page 28
    ... of in-home service and customer care systems. During 2011, we also plan to begin development and testing of a new billing system that is likely to be installed in 2012. We are relying on third parties for developing key components of these systems and ongoing service after their implementation...

  • Page 29
    ... operations. In January 2008, Voom HD Holdings ("Voom") filed a lawsuit against us in New York Supreme Court, alleging breach of contract and other claims arising from our termination of the affiliation agreement governing carriage of certain Voom HD channels on the DISH Network satellite TV service...

  • Page 30
    ... a limited number of vendors to provide certain key products or services to us such as information technology support, billing systems, and security access devices. Our dependence on these vendors makes our operations vulnerable to such third parties' failure to perform adequately. In addition, we...

  • Page 31
    ... that are affiliated with cable system operators. In the case of certain types of programming affiliated with Comcast, Time-Warner Cable, and Liberty, the terms of access to the programming are subject to arbitration if we and the programmer cannot reach agreement on terms, subject to FCC review. We...

  • Page 32
    ... requirements may place constraints on available capacity on our satellites for other programming. Furthermore, the rates we are charged for retransmitting local channels have been increasing. We may be unable to pass these increased programming costs on to our customers, which could have a material...

  • Page 33
    ... our business. Operation of our programming 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 coverage...

  • Page 34
    ... affect our operations and revenues and our relationship with current customers, as well as our ability to attract new customers for our multi-channel video services. In particular, future anomalies may result in the loss of individual transponders on a satellite, a group of transponders on that...

  • Page 35
    ... financial condition and results of operations. We generally do not have commercial insurance coverage on the satellites we use and could face significant impairment charges if one of our satellites fails. Generally, we do not carry launch or in-orbit insurance on the satellites we use. We currently...

  • Page 36
    ...our officers provide services to EchoStar. In addition, Roger J. Lynch also serves as Executive Vice President, Advanced Technologies of EchoStar. To the extent Mr. Lynch and such other officers are performing services for EchoStar, this may divert their time and attention away from our business and...

  • Page 37
    ... 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 38
    ... stockholder who is also our Chairman, President and Chief Executive Officer. Charles W. Ergen, our Chairman, President and Chief Executive Officer, currently beneficially owns approximately 53.6% of our total equity securities (assuming conversion of only the Class B Common Stock held by Mr. Ergen...

  • Page 39
    ...certain information concerning our principal properties, all of which are used by DISH Network, our only business segment. Leased From Other EchoStar (1) Third Party X X X X Description/Use/Location Owned Corporate headquarters, Englewood, Colorado...Customer call center and general offices, Pine...

  • Page 40
    ...Inc., 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 41
    ...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, Toon and ABC Family...

  • Page 42
    ... potential liability or damages. Olympic Developments On January 20, 2011, Olympic Developments AG, LLC ("Olympic") filed suit against us, Atlantic Broadband, Inc., Bright House Networks, LLC, Cable One, Inc., Cequel Communications Holdings I, LLC, CSC Holdings, LLC, GCI Communication Corp., Insight...

  • Page 43
    ... states that the claims are directed to a method and terminal for providing services in a telecommunication network. We intend to vigorously defend this case. In the event that a court ultimately determines that we infringe the asserted patent, we may be subject to substantial damages, which may...

  • Page 44
    ... 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. We received written...

  • Page 45
    ...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 effect on our financial position and results of operations if...

  • Page 46
    ... a lawsuit against us in New York Supreme Court, alleging breach of contract and other claims arising from our termination of the affiliation agreement governing carriage of certain Voom HD channels on the DISH Network satellite TV service. At that time, Voom also sought a preliminary injunction...

  • Page 47
    ... Plans. See "Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters" in 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...

  • Page 48
    ...three years ended December 31, 2010, 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...Long-term debt and capital lease...

  • Page 49
    ...-time purchasers of pay-TV services. Some of our competitors have been especially aggressive by offering discounted programming and services for both new and existing subscribers. Furthermore, although we seek to remain the low cost provider in the pay-TV industry in the U.S., our price increases...

  • Page 50
    ...to transmit certain programming only in MPEG-4 and to activate most new subscribers only with MPEG-4 receivers have accelerated our deployment of MPEG-4 receivers. To meet current demand, we have increased the rate at which we upgrade existing subscribers to HD and DVR receivers. While these efforts...

  • Page 51
    ... 2010. "Subscriber-related expenses" continued to be negatively impacted by increased programming costs and initiatives to improve customer service. We continue to focus on addressing operational inefficiencies specific to DISH Network, which we believe will contribute to long-term subscriber growth...

  • Page 52
    ... from basic, premium movie, local, HD programming, pay-per-view, Latino and international subscription television services, equipment rental fees and other hardware related fees, including fees for DVRs, equipment upgrade fees and additional outlet fees from subscribers with multiple receivers...

  • Page 53
    ...related to equipment sales, professional services, and other agreements with EchoStar. Subscriber acquisition costs. In addition to leasing receivers, we generally subsidize installation and all or a portion of the cost of our receiver systems to attract new DISH Network subscribers. Our "Subscriber...

  • Page 54
    ... 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 55
    ...Year Ended December 31, 2009. Statements of Operations Data Revenue: Subscriber-related revenue...Equipment sales and other revenue...Equipment sales, services and other revenue - EchoStar...Total revenue...Costs and Expenses: Subscriber-related expenses...% of Subscriber-related revenue...Satellite...

  • Page 56
    ... our in-home service operations, and fees for DVRs. This increase was partially offset by increases in the amount of promotional discounts on programming offered to our new subscribers. Equipment sales and other revenue. "Equipment sales and other revenue" totaled $60 million during the year ended...

  • Page 57
    ... 2009, an increase in monthly lease rates per transponder on certain satellites based on the terms of our amended lease agreements and the increase in uplink services. The increase in uplink services was primarily attributable to the launch of additional local channels and increased costs related...

  • Page 58
    ... benefit from payments we received in connection with equipment not returned to us from disconnecting lease subscribers and returned equipment that is made available for sale or used in our existing customer lease program rather than being redeployed through our new lease program. During the years...

  • Page 59
    ... For the Years Ended December 31, 2010 2009 (In thousands) $ 2,311,398 EBITDA...$ 2,955,786 Interest expense, net ...(429,619) (358,391) Income tax (provision) benefit, net...(557,473) (377,429) Depreciation and amortization...(983,965) (940,033) Net income (loss) attributable to DISH Network common...

  • Page 60
    ... % Statements of Operations Data Revenue: Subscriber-related revenue...Equipment sales and other revenue...Equipment sales, services and other revenue - EchoStar...Total revenue...Costs and Expenses: Subscriber-related expenses...% of Subscriber-related revenue...Satellite and transmission expenses...

  • Page 61
    ... by increases in the amount of promotional discounts on programming offered to our new subscribers and retention initiatives offered to existing subscribers, and by decreases in premium movie revenue and pay-perview buys. Equipment sales and other revenue. "Equipment sales and other revenue" totaled...

  • Page 62
    ... benefit from payments we received in connection with equipment not returned to us from disconnecting lease subscribers and returned equipment that is made available for sale or used in our existing customer lease program rather than being redeployed through our new lease program. During the years...

  • 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
    ...is useful in addition to the most directly comparable GAAP measure "Net cash flows from operating activities." During the years ended December 31, 2010, 2009 and 2008, free cash flow was significantly impacted by changes in operating assets and liabilities and in "Purchases of property and equipment...

  • Page 65
    ... certain rights under a launch contract for EchoStar XV and an increase in expenditures for equipment under our lease program for new subscribers. The increase in free cash flow from 2008 to 2009 of $99 million resulted from an increase in "Net cash flows from operating activities" of $6 million or...

  • Page 66
    ... 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 Security Access Devices in our receiver systems to control...

  • Page 67
    ...also offer free programming and/or promotional pricing for limited periods for existing customers in exchange for a commitment to receive service for a minimum term. A component of our retention efforts includes the installation of equipment for customers who move. Our subscriber retention costs may...

  • Page 68
    ... the EchoStar XVI ten-year satellite lease commitment, which was agreed to in December 2009, and is expected to commence during the fourth quarter of 2012. The obligations associated with this lease would have increased the previously reported "Satellite-related obligations" during 2012, 2013...

  • Page 69
    ... Our 2011 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...

  • Page 70
    ... operations. In January 2008, Voom HD Holdings ("Voom") filed a lawsuit against us in New York Supreme Court, alleging breach of contract and other claims arising from our termination of the affiliation agreement governing carriage of certain Voom HD channels on the DISH Network satellite TV service...

  • Page 71
    ... 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. Such capitalized costs are depreciated over the estimated useful life...

  • Page 72
    ...investments for impairment by considering current factors including economic environment, market conditions and the operational performance and other specific factors relating to the business underlying the investment. Future adverse changes in these factors could result in losses or an inability to...

  • Page 73
    ... (Loss) that would be material to our consolidated results of operations and financial position. • • New Accounting Pronouncements Revenue Recognition - Multiple-Deliverable Arrangements In October 2009, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update 2009...

  • Page 74
    ... held in our strategic marketable investment securities portfolio are not significantly impacted by interest rate fluctuations as their value is more closely related to factors specific to the underlying business. A hypothetical 10% adverse change in the price of our public strategic debt and equity...

  • Page 75
    ...to execute their business plans. Because private markets are not as liquid as public markets, there is also increased risk that we will not be able to sell these investments, or that when we desire to sell them we will not be able to obtain fair value for them. Long-Term Debt As of December 31, 2010...

  • Page 76
    ..., 2010. The effectiveness of our internal control over financial reporting as of December 31, 2010 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 77
    ... identity and business experience of our executive officers is set forth on page 14 of this report under the caption "Executive Officers of the Registrant." Item 11. EXECUTIVE COMPENSATION The information required by this Item will be set forth in our Proxy Statement for the 2011 Annual Meeting of...

  • Page 78
    ...as part of this report: (1) Financial Statements Report of KPMG LLP, Independent Registered Public Accounting Firm ...Consolidated Balance Sheets at December 31, 2010 and 2009...Consolidated Statements of Operations and Comprehensive Income (Loss) for the years ended December 31, 2010, 2009 and 2008...

  • Page 79
    ...Report on Form 8-K of DISH Network Corporation 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 Corporation's Definitive Proxy Statement on Schedule 14A dated April 9, 2002).** Satellite Service Agreement...

  • Page 80
    ...0-26176). Third Amendment to Whole RF Channel Service Agreement, dated October 12, 2004, between Telesat Canada and DISH Network Corporation (incorporated by reference to Exhibit 10.22 to the Annual Report on Form 10-K of DISH Network Corporation for the year ended December 31, 2004, Commission File...

  • Page 81
    ... Restricted Stock Unit Agreement (2005 Long-Term Incentive Plan) (incorporated by reference to Exhibit 99.8 to the Current Report on Form 8-K of DISH Network Corporation filed July 7, 2005, Commission File No. 0-26176).** Separation Agreement between EchoStar Corporation and DISH Network Corporation...

  • Page 82
    ... Incentive Plan (incorporated by reference to DISH Network Corporation's Definitive Proxy Statement on Form 14A filed March 31, 2009, Commission File No. 000-26176). NIMIQ 5 Whole RF Channel Service Agreement, dated September 15, 2009, between Telesat Canada and EchoStar Corporation (incorporated...

  • Page 83
    ... File No. 001-33807). EchoStar XVI Satellite Capacity 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 Corporation for the year ended December 31, 2009, Commission File No. 00133807...

  • Page 84
    ... 402 of Regulation S-T, the information in this Exhibit 101 shall not be deemed "filed" for the purposes of section 18 of the Securities Exchange Act of 1934, as... under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by the specific reference in ...

  • Page 85
    ..., thereunto duly authorized. DISH NETWORK CORPORATION By: /s/ Robert E. Olson Robert E. Olson Executive Vice President and Chief Financial Officer Date: February 24, 2011 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following...

  • Page 86
    ... Financial Statements: Report of KPMG LLP, Independent Registered Public Accounting Firm...Consolidated Balance Sheets at December 31, 2010 and 2009 ...Consolidated Statements of Operations and Comprehensive Income (Loss) for the years ended December 31, 2010, 2009 and 2008 ...Consolidated...

  • Page 87
    ...31, 2010 and 2009, 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 December 31, 2010. We also have audited DISH Network Corporation's internal control...

  • Page 88
    ... REGISTERED PUBLIC ACCOUNTING FIRM In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of DISH Network Corporation and subsidiaries as of December 31, 2010 and 2009, and the results of their operations and...

  • Page 89
    ... shares issued and outstanding...Class C common stock, $.01 par value, 800,000,000 shares authorized, none issued and outstanding...Additional paid-in capital...Accumulated other comprehensive income (loss)...Accumulated earnings (deficit)...Treasury stock, at cost...Total DISH Network stockholders...

  • Page 90
    DISH NETWORK CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (In thousands, except per share amounts) For the Years Ended December 31, 2010 2009 2008 Revenue: Subscriber-related revenue...$ 12,543,794 Equipment sales and other revenue...59,770 Equipment sales - ...

  • Page 91
    ... 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 92
    ... flows from operating activities ...Cash Flows From Investing Activities: Purchases of marketable investment securities...Sales and maturities of marketable investment securities...Purchases of property and equipment...Launch service assigned from EchoStar (Note 17)...Change in restricted cash and...

  • Page 93
    ... The 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, leased fiber network, in-home...

  • Page 94
    ... plans, fair value of assets and liabilities 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. Weak economic conditions have increased...

  • Page 95
    DISH NETWORK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued 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 nine months Greater than ...

  • Page 96
    ... 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 2010...

  • Page 97
    ... 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 on the value of the...

  • Page 98
    ...including DVRs, additional outlets and fees for receivers with multiple tuners, 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 99
    ...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 100
    ... used in the calculation. For the Years Ended December 31, 2010 2009 2008 (In thousands, except per share amounts) Basic net income (loss) attributable to DISH Network common shareholders...$ 984,729 $ 635,545 $ 902,947 Interest on dilutive subordinated convertible notes, net of related tax...

  • Page 101
    ......Cash received for interest...Cash paid for income taxes...Employee benefits paid in Class A common stock...Vendor financing ...Launch service purchased from EchoStar (Note 17)...Satellites and other assets financed under capital lease obligations...Net assets contributed in connection with...

  • Page 102
    ... of various debt and equity instruments, 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...

  • Page 103
    ...in "Marketable and other investment securities." The face value of these securities as of December 31, 2010 was $112 million. In addition, as of December 31, 2010 and 2009, we held a $47 million line of credit pursuant to the Amended and Restated Revolving Credit Agreement, dated as of April 7, 2008...

  • Page 104
    DISH NETWORK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued 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 ...

  • Page 105
    DISH NETWORK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued Marketable Investment Securities in a Loss Position The following table reflects the length of time that the individual securities, accounted for as available-forsale, have been in an unrealized loss position, aggregated...

  • Page 106
    ... 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, 2010 2009 2008 (In thousands) Marketable investment securities - gains (losses) on sales/exchanges...

  • Page 107
    ... and equipment consists of the following: Depreciable Life (In Years) Equipment leased to customers...EchoStar I ...EchoStar VII ...EchoStar X...EchoStar XI...EchoStar XIV...EchoStar XV...Satellites acquired under capital lease agreements...Furniture, fixtures, equipment and other ...Buildings and...

  • Page 108
    ... on five satellites from EchoStar, which are accounted for as operating leases. We also lease two satellites from third parties, which are accounted for as capital leases and are depreciated over the shorter of the economic life or the term of the satellite agreement. Original Useful Life (Years) 12...

  • Page 109
    ... used as an in-orbit spare when EchoStar XVI commences commercial operations during the second half of 2012. 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 110
    DISH NETWORK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued Leased Satellites EchoStar VI. EchoStar VI was designed with 108 solar array strings, of which approximately 102 are required to assure full power availability for the original minimum 12-year useful life of the ...

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

  • Page 112
    ... at an annual rate of 6 % and is payable semi-annually in cash, in arrears on April 1 and October 1 of each year. The 6 % Senior Notes are redeemable, in whole or in part, at any time at a redemption price equal to 100% of their principal amount plus a "make-whole" premium, as defined in the related...

  • Page 113
    ... at an annual rate of 7 % and is payable semi-annually in cash, in arrears on February 1 and August 1 of each year. The 7 % Senior Notes are redeemable, in whole or in part, at any time at a redemption price equal to 100% of the principal amount plus a "make-whole" premium, as defined in the related...

  • Page 114
    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 7 % Senior Notes at a purchase price equal to 101% of the ...

  • Page 115
    ... among other factors, the successful execution of our business strategy, which is subject to uncertainties and contingencies beyond our control. Fair Value of our Long-Term Debt The following table summarizes the carrying and fair values of our debt facilities as of December 31, 2010 and 2009: As of...

  • Page 116
    ...2008 and commenced commercial operation during February 2009. This satellite is accounted for as a capital lease and depreciated over the term of the satellite service agreement. We have leased 100% of the capacity on Ciel II for an initial tenyear term. As of December 31, 2010 and 2009, we had $500...

  • Page 117
    ... available tax planning opportunities. As of December 31, 2010, we had no net operating loss carryforwards ("NOLs") for federal income tax purposes and $13 million of NOL benefit for state income tax purposes. The state NOLs begin to expire in the year 2020. In addition, there are $11 million of tax...

  • 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, 2010 2009 2008 (In thousands) Current (provision) benefit: Federal...$ (287,523) State...(68,550) Foreign...

  • Page 119
    ... 31, 2010 2009 2008 (In thousands) $ 224,029 $ 226,528 $ 17,593 7,382 7,952 37,583 11,800 3,665 208,137 (45,197) (6,042) (36,785) (493) (5,899) (4,201) (2,175) $ 193,320 $ 224,029 $ 226,528 Unrecognized tax benefit Balance as of beginning of period...Additions based on tax positions related to the...

  • Page 120
    DISH NETWORK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued 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 December 31, 2010,...

  • Page 121
    ... DISH Network employee stock purchase plan (the "ESPP"), in which we are authorized to issue 1.8 million shares of Class A common stock. At December 31, 2010, we had 0.5 million shares of Class A common stock which remain available for issuance under this plan. Substantially all full-time employees...

  • Page 122
    ... exercise price of the original DISH Network stock option multiplied by 0.843907. • Similarly, each holder of DISH Network restricted stock units retained his or her DISH Network restricted stock units and received one EchoStar restricted stock unit for every five DISH Network restricted stock...

  • Page 123
    ... of whether such stock awards were issued by DISH Network or EchoStar. Accordingly, stock-based compensation that we expense with respect to EchoStar stock awards is included in "Additional paid-in capital" on our Consolidated Balance Sheets. Exercise prices for stock options outstanding and...

  • Page 124
    ... our business, small variations in subscriber churn, gross new subscriber 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, 2010, that assessment could change at...

  • Page 125
    ... by DISH Network employees...$ 38,134 $ 20,533 EchoStar awards held by DISH Network employees...7,466 4,013 Total...$ 45,600 $ 24,546 2008 LTIP. During 2008, we adopted a long-term, performance-based stock incentive plan (the "2008 LTIP"). The 2008 LTIP provides stock options and restricted stock...

  • Page 126
    ... new subscriber addition rates and certain other factors can significantly impact subscriber growth. Consequently, while it was determined that achievement of certain company-specific subscriber and financial goals was not probable as of December 31, 2010, that assessment could change at any time...

  • Page 127
    ...31, Stock Options 2010 2009 2008 Risk-free interest rate ...1.50% - 2.89% 1.70% - 3.19% 1.00% - 3.42% Volatility factor ...33.33% - 38.63% 29.72% - 45.97% 19.98% - 39.90% Expected term of options in years...5.2 - 7.5 3.0 - 7.3 3.0 - 7.5 Weighted-average fair value of options granted ...$6.83 - $8.14...

  • Page 128
    ... above under "Satellite-related obligations." • 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 launched during the second half of 2011. EchoStar XVI. During December 2009, we...

  • Page 129
    ... Our 2011 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...

  • Page 130
    ... to certain methods and devices for transmitting and receiving data along with specific formatting information for the data. The '066 patent relates to certain methods and devices for providing the scrambling circuitry for a pay television system on removable cards. Subsequently, DirecTV and Thomson...

  • Page 131
    ... 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 highdefinition feeds of the Disney Channel, ESPN News, Toon and ABC Family...

  • Page 132
    ... Systems Inc., Xerox Corporation, Adobe Systems Inc., AOL Inc., Apple Inc., Axibase Corporation, DirecTV, E*Trade Securities L.L.C., Exinda Networks, Fidelity Brokerage Services L.L.C., Firstrade Securities Inc., HewlettPackard Company, iControl Inc., International Business Machines Corporation...

  • Page 133
    DISH NETWORK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued Olympic Developments On January 20, 2011, Olympic Developments AG, LLC ("Olympic") filed suit against us, Atlantic Broadband, Inc., Bright House Networks, LLC, Cable One, Inc., Cequel Communications Holdings I, LLC, CSC ...

  • Page 134
    ... 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. We received written...

  • Page 135
    ... 31, 2010 and 2009, we recorded $124 million and $361 million, respectively, of "Litigation expense" on our Consolidated Statements of Operations and Comprehensive Income (Loss). During the year ended December 31, 2008, we did not record any litigation expense related to this case. Our total accrual...

  • Page 136
    ...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 effect on our financial position and results of operations if...

  • Page 137
    ... a lawsuit against us in New York Supreme Court, alleging breach of contract and other claims arising from our termination of the affiliation agreement governing carriage of certain Voom HD channels on the DISH Network satellite TV service. At that time, Voom also sought a preliminary injunction...

  • Page 138
    ... of set-top boxes and digital broadcast operations and our key supplier of transponder capacity. Generally, the prices charged for products and services provided under the agreements entered into in connection with the Spin-off are based on pricing equal to EchoStar's cost plus a fixed margin...

  • Page 139
    ... support services. Additionally, we and EchoStar agreed that we shall continue to have the right, but not the obligation, to engage EchoStar to manage the process of procuring new satellite capacity for DISH Network (as discussed below, previously provided under the satellite procurement agreement...

  • Page 140
    ...a year-to-year basis); (ii) the date the satellite fails; (iii) the date the transponder on which service is being provided fails; or (iv) a certain date, which depends, among other things, upon the estimated useful life of the satellite, whether the replacement satellite fails at launch or in orbit...

  • Page 141
    ... being used by EchoStar XV. Nimiq 5 Agreement. During 2009, EchoStar entered into a fifteen-year satellite service agreement with Telesat Canada ("Telesat") to receive service on all 32 DBS transponders on the Nimiq 5 satellite at the 72.7 degree orbital location (the "Telesat Transponder Agreement...

  • Page 142
    ... the process of procuring new satellite capacity for us pursuant to the Professional Services Agreement as discussed above. "Cost of sales - subscriber promotion subsidies - EchoStar" Receiver Agreement. EchoStar is currently our sole supplier of set-top box receivers. The table below indicates...

  • Page 143
    ..., we entered into a two-year agreement with EchoStar pursuant to which we will receive certain services associated with an online video portal. The fees for the services provided under this services agreement depend, among other things, upon the cost to develop and operate such services. We have the...

  • Page 144
    ..., upon the cost to develop and operate such services. This agreement has a term of five years with automatic renewal for successive one year terms and may be terminated for any reason upon at least 120 days notice to EchoStar. Other Agreements - EchoStar Tax Sharing Agreement. In connection with the...

  • Page 145
    ... is our provider of encryption and related security systems intended to assure that only paying customers have access to our programming. During the years ended December 31, 2010, 2009 and 2008, we incurred security access and other fees and purchased security access devices at an aggregate cost to...

  • Page 146
    ..., DISH Network Corporation, The DirecTV Group, Inc., Time Warner Cable, Inc., and Verizon Communications. 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...

  • Page 147
    ...on May 2, 2011 Executive Officers Charles W. Ergen Chairman, President and Chief Executive Officer James DeFranco Director Cantey Ergen Director Shareholder Information Investor Relations Department DISH Network Corporation 9601 South Meridian Boulevard Englewood, Colorado 80112 www.dishnetwork...

  • Page 148
    (NASDAQ: DISH) 9601 South Meridian Boulevard • Englewood, CO • 80112 • 303.723.1000 www.dishnetwork.com