Dish Network 2011 Annual Report Download

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ANNUAL REPORT
YEAR ENDING DECEMBER 31, 2011
A WHOLE
N EW ANIMAL
IN WHOLE-HOME
ENTERTAINMENT

Table of contents

  • Page 1
    A WHOLE NEW ANIMAL IN WHOLE-HOME ENTERTAINMENT ANNUAL REPORT YEAR ENDING DECEMBER 31, 2011

  • Page 2

  • Page 3
    ...2011. To better compete with online video services and the increasing video-on-demand offerings of our competitors, we purchased Blockbuster. We believe Blockbuster, an iconic brand, represents "family entertainment and movies," which complements the programming choices available on our DISH service...

  • Page 4

  • Page 5
    ... ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2011 OR Â... TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _____ TO _____. Commission file number: 0-26176 DISH Network Corporation (Exact name of registrant as specified...

  • Page 6

  • Page 7
    ... About Market Risk...Financial Statements and Supplementary 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...

  • Page 8
    ... programming offerings. Any failure or inadequacy of our information technology infrastructure could harm our business. We rely on EchoStar Corporation, or EchoStar, to design and develop all of our new set-top boxes and certain related components, and to provide transponder capacity, digital...

  • Page 9
    ... to provide certain key products or services to us such as information technology support, billing systems, and security access devices, and the inability of these key vendors to meet our needs could have a material adverse effect on our business. Our sole supplier of new set-top boxes, EchoStar...

  • 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. x x x x x x x x x x All cautionary...

  • Page 11
    ... of video services in the United States by providing high-quality products, outstanding customer service, and great value. We promote DISH® programming packages as providing our subscribers with a better "price-to-value" relationship than those available from other subscription television providers...

  • Page 12
    ...channels in HD in more than 170 markets in the U.S., serving approximately 97% of 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...

  • Page 13
    ... and increasing competition from companies providing/facilitating the delivery of video content via the Internet to computers, televisions, and mobile devices. As of September 30, 2011, more than 99 million households subscribe to a pay-TV service. x Other Direct Broadcast Satellite Operators. We...

  • Page 14
    ... 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 programming at no additional charge and/or promotional pricing...

  • Page 15
    ... core business of delivering high-quality video entertainment to consumers. We are promoting our new Blockbuster offerings including Blockbuster@Home which provides movies, games and TV shows through Internet streaming, mail and in-store exchanges and online. This offering is only available to DISH...

  • Page 16
    ...future financial condition or results of operations. Transactions with EchoStar On January 1, 2008, we completed the distribution of our technology and set-top box business and certain infrastructure assets (the "Spin-off") into a separate publicly-traded company, EchoStar. DISH Network and EchoStar...

  • Page 17
    ... 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 22,300 miles above the equator detailed in the table below. Original Useful Life (Years) 12 12 12 12 15 15 Satellites...

  • Page 18
    ... Operation of our pay-TV 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 and offering more HD...

  • Page 19
    ... business, financial condition and results of operations. Furthermore, the adoption or modification of laws or regulations relating to video programming, satellite services, the Internet or other areas of our business could limit or otherwise adversely affect the manner in which we currently conduct...

  • Page 20
    ...channels at the 148 degree orbital location, capable of providing service to the Western United States. We currently do not have any satellites positioned at the 148 degree orbital location as a result of the retirement of EchoStar V. While we have requested approval from the FCC for the future use...

  • Page 21
    ... The term of each of our DBS licenses is ten years. Our licenses are currently set to expire at various times. In addition, we currently operate at the 118.7 degree orbital location under a special temporary authorization. A special temporary authorization is granted for a period of only 180 days or...

  • Page 22
    ... on cable system architectures 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 operations. We cannot predict the timing or...

  • Page 23
    ... additional cable programming in exchange for retransmission consent of their local broadcast stations. These 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...

  • Page 24
    ...'s recent order on network neutrality (even if that order is vacated by judicial or legislative action) and Comcast licensing its affiliated content to us, other traditional pay-TV providers and certain providers of video services over the Internet on fair and nondiscriminatory terms and conditions...

  • Page 25
    ... required to obtain import and export licenses from the United States government to receive and deliver certain components of direct-to-home satellite television systems. In addition, the delivery of satellites and the supply of certain related ground control equipment, technical services and data...

  • Page 26
    ... negotiating collective bargaining agreements at these offices. WHERE YOU CAN FIND MORE INFORMATION We are subject to the informational requirements of the Exchange Act and accordingly file our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements...

  • Page 27
    ... installations, customer billing and equipment retrieval and refurbishment operations. Mr. Carlson previously was Senior Vice President of Retail Services, a position he held since mid-2006. He joined DISH Network in 1995 and has held operating roles of increasing responsibility over the years...

  • Page 28
    ...2011 pursuant to a management services agreement between DISH Network and EchoStar. Since joining DISH Network in November 1996, 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...

  • Page 29
    .... Our business is focused on providing pay-TV services and we have traditionally competed against satellite television providers and cable companies, some of whom have greater financial, marketing and other resources than we do. Many of these competitors offer video services bundled with broadband...

  • Page 30
    ... downgrade to lower cost programming packages, elect not to purchase premium services or pay per view movies or may disconnect our services and choose to replace them with less expensive alternatives such as video content delivered via the Internet, including, among others, video on demand. Higher...

  • Page 31
    ... by increased upgrades of existing subscribers' equipment to HD and DVR receivers. Additionally, certain of our promotions, including, among others, pay-in-advance, allow consumers with relatively lower credit scores to become subscribers. These subscribers typically churn at a higher rate. Our...

  • Page 32
    ...significant factor in consumers' choice among pay-TV providers. Other pay-TV providers may have more successfully marketed and promoted their HD programming packages and may also be better equipped and have greater resources to increase their HD offerings to respond to increasing consumer demand for...

  • Page 33
    ... market these opportunities in a timely or cost-effective manner. The research and development of new, technologically advanced products is a complex and uncertain process requiring high levels of innovation and investment. The success of new product and service development depends on many factors...

  • Page 34
    ... 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 continued demand for HD programming...

  • Page 35
    ...price of supplies could have a negative impact on our business. EchoStar relies on a few suppliers and in some cases a single supplier, for many components of our new set-top boxes that we provide to subscribers in order to deliver our digital television services. Our ability to meet customer demand...

  • Page 36
    ... 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 37
    ..., problems with the power systems or control systems of the satellites and general failures resulting from operating satellites in the harsh environment of space. Although we work closely with the satellite manufacturers to determine and eliminate the cause of anomalies in new satellites and provide...

  • Page 38
    ...or controlled affiliates that own or operate domestic or foreign services that may compete with services offered by EchoStar. We may also compete with EchoStar when we participate in auctions for spectrum or orbital slots for our satellites. In addition, EchoStar may in the future use its satellites...

  • Page 39
    ... Vice President and Controller, provides services to EchoStar pursuant to a management services agreement with EchoStar. In addition, Roger J. Lynch also serves as Executive Vice President, Advanced Technologies of EchoStar. To the extent these and other officers are performing services for EchoStar...

  • Page 40
    ... from video rental kiosk, streaming and mail order businesses that may negatively impact the business, financial condition or results of operations of Blockbuster. On April 26, 2011, we completed the Blockbuster Acquisition. As of December 31, 2011, Blockbuster operated over 1,500 retail stores in...

  • Page 41
    ..., our Blockbuster retail store operations face increasing competition from video rental kiosk, streaming and mail order businesses. These competitive pressures have contributed to weak store-level financial performance at many of our Blockbuster retail stores. We expect to close over 500 domestic...

  • Page 42
    ... share, except upon a change in control of our company in which case the holders of Class C are entitled to ten votes per share; a provision that authorizes the issuance of "blank check" preferred stock, which could be issued by our Board of Directors to increase the number of outstanding shares and...

  • Page 43
    ... 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 pay-TV service. At that time...

  • Page 44
    ... over networks owned by broadband and wireless Internet providers. For more information, see "Item 1. Business - Government Regulations - FCC Regulation under the Communications Act - Net Neutrality" of this Annual Report on Form 10-K. We depend on the Cable Act for access to programming from cable...

  • Page 45
    ... business, financial condition and results of operations. Furthermore, the adoption or modification of laws or regulations relating to video programming, satellite services, the Internet or other areas of our business could limit or otherwise adversely affect the manner in which we currently conduct...

  • Page 46
    ... stations on DBS providers that do not have a certain contractual relationship with a certain number of such stations. DISH Network has entered into an agreement with a number of PBS stations to comply with the requirements. The carriage of additional HD signals on our pay-TV service could cause us...

  • Page 47
    ...Transactions with EchoStar. In addition to the principal properties listed above, we operate numerous DISH service centers strategically located in regions throughout the United States. Furthermore, we own or lease capacity on 13 satellites which are a major component of our DISH pay-TV service. See...

  • Page 48
    ... 13, 2011, the U.S. Patent and Trademark Office issued a certificate cancelling all claims of the '094 patent. On February 2, 2012, Broadcast Innovation dismissed the case against us with prejudice. Channel Bundling Class Action During 2007, a purported class of cable and satellite subscribers filed...

  • Page 49
    ...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 50
    ... LNBFs, which are antennas used for satellite reception. On April 21, 2011, the U.S. Patent and Trademark Office issued an order granting reexamination of the '636 patent. On June 21, 2011, the District Court entered summary judgment in our favor, finding that all asserted claims of the '636 patent...

  • Page 51
    ...887,243, which relate to satellite signal processing. PMC is an entity that seeks to license an acquired patent portfolio without itself practicing any of the claims recited therein. Subsequently, Motorola Inc. settled with PMC leaving EchoStar and us as defendants. Trial is currently set for August...

  • Page 52
    ... agreements between us and the retailers invalid and unenforceable, and to award damages for lost incentives and payments, charge backs and other compensation. On September 20, 2010, we agreed to a settlement of both lawsuits that provides, among other things, for mutual releases of the claims...

  • Page 53
    ... involving certain DISH digital video recorders, or DVRs, which litigation is described in our periodic reports filed with the Securities and Exchange Commission including in our annual report on Form 10-K for the year ended December 31, 2010 under the caption "Item 3. Legal Proceedings - TiVo...

  • Page 54
    ... In January 2008, 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 pay-TV service. At that time, Voom also sought a preliminary...

  • Page 55
    ... Equity and Related Stockholder Matters Market Information. Our Class A common stock is quoted on the Nasdaq Global Select Market under the symbol "DISH." The high and low closing sale prices of our Class A common stock during 2011 and 2010 on the Nasdaq Global Select Market (as reported by Nasdaq...

  • Page 56
    ..., 2011...December 1, 2011 - December 31, 2011...Total... Total Number of Shares Purchased - (1) Our Board of Directors previously authorized the repurchase of up to $1.0 billion of our Class A common stock. On November 1, 2011, our Board of Directors extended the plan and authorized an increase in...

  • Page 57
    ... Data Total revenue...Total costs and expenses...Operating income (loss)...Net income (loss) attributable to DISH Network...Basic net income (loss) per share attributable to DISH Network...Diluted net income (loss) per share attributable to DISH Network...Cash dividend per common share... 2011...

  • Page 58
    .... In general, our churn rate is impacted by the quality of subscribers acquired in past quarters, our ability to provide outstanding customer service, and our ability to control piracy. "Net income (loss) attributable to DISH Network" for the year ended December 31, 2011 was $1.516 billion compared...

  • Page 59
    ... theft and other forms of fraud and by operational inefficiencies at DISH. To combat signal theft and improve the security of our broadcast system, we completed the replacement of our security access devices to re-secure our system during 2009. We expect that additional future replacements of these...

  • Page 60
    ... core business of delivering high-quality video entertainment to consumers. We are promoting our new Blockbuster offerings including Blockbuster@Home which provides movies, games and TV shows through Internet streaming, mail and in-store exchanges and online. This offering is only available to DISH...

  • Page 61
    ... requirement, the spare satellite requirement and various technical provisions. Waiver of the integrated service requirement would allow DISH to offer single-mode terrestrial terminals to customers who do not desire satellite functionality. The spectrum licenses currently held by DBSD North America...

  • Page 62
    ... 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 pay-TV service. At that time...

  • Page 63
    ... the first quarter 2011, we made two changes to this calculation methodology compared to prior periods. Beginning February 1, 2011, the retail price of our DISH America programming package was used in the calculation rather than America's Top 120 programming package, which had been used in prior...

  • Page 64
    ... of months in the period. When calculating subscriber churn, the same methodology for calculating average number of DISH subscribers is used as when calculating ARPU. Free cash flow. We define free cash flow as "Net cash flows from operating activities" less "Purchases of property and equipment," as...

  • Page 65
    ... OF OPERATIONS Year Ended December 31, 2011 Compared to the Year Ended December 31, 2010. Statements of Operations Data Revenue: Subscriber-related revenue...Equipment and merchandise sales, rental and other revenue...Equipment sales, services and other revenue - EchoStar...Total revenue...Costs and...

  • Page 66
    ... to price increases during the past year, higher hardware related revenue and fees earned from our in-home service operations, partially offset by decreases in premium and pay per view revenue. Equipment and merchandise sales, rental and other revenue. "Equipment and merchandise sales, rental...

  • Page 67
    ... calculation does not reflect any 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...

  • Page 68
    ... attributable to DISH Network. "Net income (loss) attributable to DISH Network" was $1.516 billion during the year ended December 31, 2011, an increase of $531 million compared to $985 million for the same period in 2010. The increase was primarily attributable to the changes in revenue and expenses...

  • Page 69
    ... Statements of Operations Data Revenue: Subscriber-related revenue...Equipment and merchandise sales, rental and other revenue...Equipment sales, services and other revenue - EchoStar...Total revenue...Costs and Expenses: Subscriber-related expenses...% of Subscriber-related revenue...Satellite and...

  • Page 70
    ... related fees which include rental fees, fees earned from 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 and merchandise sales, rental and other revenue...

  • Page 71
    ... 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 72
    ...) attributable to DISH Network. "Net income (loss) attributable to DISH Network" was $985 million during the year ended December 31, 2010, an increase of $349 million compared to $636 million for the same period in 2009. The increase was primarily attributable to the changes in revenue and expenses...

  • Page 73
    ... in payments for the TiVo and Retailer Class Action settlements. The decrease in "Purchases of property and equipment" in 2011 was primarily attributable to a decrease in satellite construction and a decline in expenditures for equipment under our lease programs for new and existing subscribers...

  • Page 74
    ... related to the issuance of long-term debt, cash used for the repurchase, redemption or payment of long-term debt and capital lease obligations, dividends paid on our Class A and Class B common stock and repurchases of our Class A common stock. For the year ended December 31, 2011, we reported...

  • Page 75
    ... 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 access...

  • Page 76
    ... our existing customers, mostly by upgrading their equipment to HD and DVR receivers. As with our subscriber acquisition costs, our retention spending includes the cost of equipment and installation services. In certain circumstances, we also offer free programming and/or promotional pricing for...

  • Page 77
    ... and use it as a replacement for the failed or lost satellite. Purchase Obligations Our 2012 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...

  • Page 78
    ... requirement, the spare satellite requirement and various technical provisions. Waiver of the integrated service requirement would allow DISH to offer single-mode terrestrial terminals to customers who do not desire satellite functionality. The spectrum licenses currently held by DBSD North America...

  • Page 79
    ... 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 pay-TV service. At that time...

  • Page 80
    ... where observable market data is available. We make certain assumptions related to expected maturity date, credit and interest rate risk based upon market conditions and prior experience. As a result, such calculated fair value estimates may not be realizable in a current sale or immediate...

  • Page 81
    ... rate than the second and third quarter. However, we can not provide assurance that this will continue in the future. Inflation Inflation has not materially affected our operations during the past three years. We believe that our ability to increase the prices charged for our products and services...

  • Page 82
    ... 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 83
    ...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, 2011...

  • Page 84
    ... this report. Changes in internal control over financial reporting On April 26, 2011, we completed the Blockbuster Acquisition. We are currently integrating policies, processes, people, technology and operations for the combined company. Management will continue to evaluate our internal control over...

  • Page 85
    ... LLP, Independent Registered Public Accounting Firm ...Consolidated Balance Sheets at December 31, 2011 and 2010...Consolidated Statements of Operations and Comprehensive Income (Loss) for the years ended December 31, 2011, 2010 and 2009 ...Consolidated Statements of Changes in Stockholders' Equity...

  • Page 86
    ... DISH Network Corporation's Definitive Information Statement on Schedule 14C filed on December 31, 2007, Commission File No. 0-26176). Amended and Restated Bylaws of DISH Network Corporation (incorporated by reference to Exhibit 3.1(b) on the Quarterly Report on Form 10-Q of DISH Network Corporation...

  • Page 87
    ...the Current Report on Form 8-K of DISH Network Corporation filed May 5, 2011, Commission File No. 000-26176). 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...

  • Page 88
    ...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 No. 0-26176). Amendment No. 4 to Satellite Service Agreement, dated October 21...

  • Page 89
    ... 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 90
    ... Corporation 1995 Stock 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...

  • Page 91
    ... 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).**** Assignment of Rights Under Launch Service Contract from EchoStar...

  • Page 92
    ... 302 Certification of Chief Financial Officer. Section 906 Certification of Chief Executive Officer. Section 906 Certification of Chief Financial Officer. The following materials from the Annual Report on Form 10-K of DISH Network Corporation for the year ended December 31, 2011, filed on February...

  • Page 93
    ... by the undersigned, thereunto duly authorized. DISH NETWORK CORPORATION By: /s/ Robert E. Olson Robert E. Olson Executive Vice President and Chief Financial Officer Date: February 23, 2012 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the...

  • Page 94
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  • Page 95
    ... LLP, Independent Registered Public Accounting Firm...Consolidated Balance Sheets at December 31, 2011 and 2010...Consolidated Statements of Operations and Comprehensive Income (Loss) for the years ended December 31, 2011, 2010 and 2009 ...Consolidated Statements of Changes in Stockholders' Equity...

  • Page 96
    ... 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, 2011. We also have audited DISH Network Corporation's internal control over financial reporting as of December 31, 2011, based on criteria...

  • Page 97
    ... an evaluation of the internal control over financial reporting of this subsidiary. The aggregate amount of total assets and revenue of Blockbuster included in the consolidated financial statements of DISH Network Corporation and subsidiaries as of and for the year ended December 31, 2011 was $454...

  • Page 98
    DISH NETWORK CORPORATION CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except share amounts) As of December 31, 2011 2010 Assets Current Assets: Cash and cash equivalents...$ 609,108 Marketable investment securities (Note 5)...1,431,745 Trade accounts receivable - other, net of allowance for ...

  • Page 99
    DISH NETWORK CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (In thousands, except per share amounts) For the Years Ended December 31, 2011 2010 2009 Revenue: Subscriber-related revenue...$ 12,976,009 Equipment and merchandise sales, rental and other revenue...1,035...

  • Page 100
    ... of stock options...5 Employee benefits...11 Employee Stock Purchase Plan...2 Class A common stock repurchases, at cost...Non-cash, stock-based compensation...Income tax (expense) benefit related to stock awards and other...Change in unrealized holding gains (losses) on available-for-sale securities...

  • Page 101
    ... cash 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 20)...Change in restricted cash...

  • Page 102
    ... 31, 2011. The DISH pay-TV service consists of Federal Communications Commission ("FCC") licenses authorizing us to use DBS and Fixed Satellite Service ("FSS") spectrum, our owned and leased satellites, receiver systems, third-party broadcast operations, customer service facilities, a leased fiber...

  • Page 103
    ... of each security, and any market and company specific factors related to each security. Declines in the fair value of debt and equity 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 104
    ...for sale to customers at any time, we view these assets as current assets. Blockbuster Merchandise Inventory Our merchandise inventory consists primarily of new and traded movies and video games and other general merchandise, including confections, and are stated at the lower of cost or market value...

  • Page 105
    ... from such licensed orbital locations, including revenue attributable to programming offerings from such satellites, the direct operating and subscriber acquisition costs related to such programming, and future capital costs for replacement satellites. Projected revenue and cost amounts include...

  • Page 106
    ... based data. Changes in circumstances or market conditions including significant changes in our estimates of future cash flows or available market data could result in a write-down of any of these assets in the future. Business Combinations When we acquire a business, we allocate the purchase price...

  • Page 107
    ... proximity to current market rates. Fair values for our publicly traded debt securities are based on quoted market prices. The fair values of our private debt is estimated based on an analysis in which we evaluate market conditions, related securities, various public and private offerings, and other...

  • Page 108
    ... 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 include programming discounts...

  • Page 109
    ... installation services as "Other subscriber promotion subsidies." Our payments for equipment buydowns represent a partial or complete return of the retailer's purchase price and are, therefore, netted against the proceeds received from the retailer. We report the net cost from our various sales...

  • Page 110
    ... for all periods and the basic and diluted weighted-average shares outstanding used in the calculation. For the Years Ended December 31, 2011 2010 2009 (In thousands, except per share amounts) Basic net income (loss) attributable to DISH Network...$ 1,515,907 $ 984,729 $ 635,545 Interest on dilutive...

  • Page 111
    ... interest)...$ Capitalized interest...Cash received for interest...Cash paid for income taxes (1)...Employee benefits paid in Class A common stock...Vendor financing...Launch service assigned from EchoStar (Note 20)...Satellites and other assets financed under capital lease obligations...545,406 120...

  • Page 112
    ... or other highly rated companies that serve as the pledged liquidity source. While they are classified as marketable investment securities, the put option allows VRDNs to be liquidated generally on a same day or on a five business day settlement basis. Current Marketable Investment Securities...

  • Page 113
    ... our strategic investments in companies that are not publicly traded depends on the success of those companies' businesses and their ability to obtain sufficient capital to execute their business plans. Because private markets are not as liquid as public markets, there is also increased risk that we...

  • Page 114
    DISH NETWORK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued Unrealized Gains (Losses) on Marketable Investment Securities As of December 31, 2011 and 2010, we had accumulated net unrealized gains of $91 million and $93 million, both net of related tax effect, respectively, as a ...

  • Page 115
    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-for-sale, have been in an unrealized loss position, ...

  • Page 116
    ... in DBSD North America of $1.298 billion as of December 31, 2011 and $103 million as of December 31, 2010, $839 million and $56 million, respectively, are invested in the 7.5% Convertible Senior Secured Notes due 2009, which are accounted for as available-for-sale investments. Changes in Level...

  • Page 117
    ...(losses) on fair value investments and other-than-temporary impairments...Other...Total... $ $ 6. Inventory Inventory consists of the following: As of December 31, 2011 2010 (In thousands) DISH Network: Finished goods - DBS...Raw materials...Work-in-process - used...Work-in-process - new...Total...

  • Page 118
    ... 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 119
    ...operation at the 77 degree orbital location. QuetzSat-1 was launched on September 29, 2011 and was placed into service during the fourth quarter 2011 at the 67.1 degree orbital location while we and EchoStar explore alternative uses for the QuetzSat-1 satellite. In the interim, EchoStar is providing...

  • Page 120
    DISH NETWORK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued Satellite Anomalies Operation of our pay-TV service requires that we have adequate satellite transmission capacity for the programming we offer. Moreover, current competitive conditions require that we continue to expand...

  • Page 121
    ... payment, we received a $4 million refund from escrow, resulting in a net purchase price of $234 million. Blockbuster primarily offers movies and video games for sale and rental through multiple distribution channels such as retail stores, by-mail, digital devices, the blockbuster.com website and...

  • Page 122
    ...impact on cost of goods sold on a unit basis will diminish in the future as we purchase new Blockbuster Inventory. 10. Spectrum Investments TerreStar Transaction Gamma Acquisition L.L.C. ("Gamma"), a wholly-owned subsidiary of DISH Network, entered into the TerreStar Transaction on June 14, 2011. On...

  • Page 123
    ...Senior Secured Notes due 2009, and $19 million in payments for certain claims against a DBSD North America's debtor affiliate and claims against DBSD North America. Restructuring Support Agreement and Implementation Agreement. In connection with the Revised Investment Agreement on March 15, 2011, we...

  • Page 124
    ...transactions with affiliates; merge or consolidate with another company; and transfer or sell assets. In the event of a change of control, as defined in the related indenture, we would be required to make an offer to repurchase all or any part of a holder's 7% Senior Notes at a purchase price equal...

  • Page 125
    ... with affiliates; merge or consolidate with another company; and transfer or sell assets. In the event of a change of control, as defined in the related indenture, we would be required to make an offer to repurchase all or any part of a holder's 6 5/8% Senior Notes at a purchase price equal...

  • Page 126
    ... with affiliates; merge or consolidate with another company; and transfer or sell assets. In the event of a change of control, as defined in the related indenture, we would be required to make an offer to repurchase all or any part of a holder's 7 3/4% Senior Notes at a purchase price equal...

  • Page 127
    ... with affiliates; merge or consolidate with another company; and transfer or sell assets. In the event of a change of control, as defined in the related indenture, we would be required to make an offer to repurchase all or any part of a holder's 7 7/8% Senior Notes at a purchase price equal...

  • Page 128
    ... with affiliates; merge or consolidate with another company; and transfer or sell assets. In the event of a change of control, as defined in the related indenture, we would be required to make an offer to repurchase all or any part of a holder's 6 3/4% Senior Notes at a purchase price equal...

  • Page 129
    .... Anik F3, an FSS satellite, was launched and commenced commercial operation during April 2007. 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 Ku-band capacity on Anik F3 for a period of 15 years. F-35

  • Page 130
    ...December 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 10 year term. As of December 31, 2011 and 2010, we...

  • Page 131
    DISH NETWORK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued As of December 31, 2011, we had benefits of foreign tax credits and net operating loss carryforwards of approximately $9 million, which are fully offset by a valuation allowance. The components of the (provision for) ...

  • Page 132
    ... number of foreign jurisdictions where we have immaterial operations. We are subject to U.S. federal, state and local income tax examinations by tax authorities for the years beginning in 2002 due to the carryover of previously incurred net operating losses. As of December 31, 2011, we are currently...

  • Page 133
    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, 2011,...

  • Page 134
    ... any one year. The purchase price of the stock is 85% of the closing price of the Class A common stock on the last business day of each calendar quarter in which such shares of Class A common stock are deemed sold to an employee under the ESPP. During the years ended December 31, 2011, 2010 and 2009...

  • Page 135
    ... reflects the 2009 Stock Option Adjustment. On January 1, 2008, we completed the distribution of our technology and set-top box business and certain infrastructure assets (the "Spin-off") into a separate publicly-traded company, EchoStar Corporation ("EchoStar"). DISH Network and EchoStar operate as...

  • Page 136
    DISH NETWORK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued Exercise prices for stock options outstanding and exercisable as of December 31, 2011 are as follows: Options Outstanding WeightedNumber WeightedAverage Outstanding Average Remaining as of Exercise December 31, ...

  • Page 137
    DISH NETWORK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued Based on the closing market price of our Class A common stock on December 31, 2011, the aggregate intrinsic value of our stock options was as follows: As of December 31, 2011 Options Options Outstanding Exercisable (In ...

  • Page 138
    DISH NETWORK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued If all of the stock awards under the 2005 LTIP were vested and the goal had been met or if we had determined that achievement of the goal was probable during the year ended December 31, 2011, we would have recorded total...

  • Page 139
    ... expense over the term of the plan... Non-Cash, Stock-Based Compensation Expense Recognized 2008 LTIP...Other employee performance awards...Total non-cash, stock-based compensation expense recognized for performance based awards... For the Years Ended December 31, 2011 2010 2009 (In thousands) $ 19...

  • Page 140
    ... was estimated at the date of the grant using a Black-Scholes option valuation model with the following assumptions: For the Years Ended December 31, Stock Options 2011 2010 2009 Risk-free interest rate...0.36% - 3.18% 1.50% - 2.89% 1.70% - 3.19% Volatility factor...31.74% - 45.56% 33.33% - 38.63...

  • Page 141
    ... 31, 2011, future maturities of our long-term debt, capital lease and contractual obligations are summarized as follows: Total Long-term debt obligations...Capital lease obligations...Interest expense on long-term debt and capital lease obligations...Satellite-related obligations...Operating lease...

  • Page 142
    ... requirement, the spare satellite requirement and various technical provisions. Waiver of the integrated service requirement would allow DISH to offer single-mode terrestrial terminals to customers who do not desire satellite functionality. The spectrum licenses currently held by DBSD North America...

  • Page 143
    ...systems and related equipment, digital broadcast operations, satellite and transponder leases, engineering and for products and services related to the operation of our DISH pay-TV service. Our purchase obligations also include certain guaranteed fixed contractual commitments to purchase programming...

  • Page 144
    DISH NETWORK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued Patents and Intellectual Property Many entities, including some of our competitors, have or may in the future obtain patents and other intellectual property rights that cover or affect products or services that we offer....

  • Page 145
    ... 13, 2011, the U.S. Patent and Trademark Office issued a certificate cancelling all claims of the '094 patent. On February 2, 2012, Broadcast Innovation dismissed the case against us with prejudice. Channel Bundling Class Action During 2007, a purported class of cable and satellite subscribers filed...

  • Page 146
    ...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 147
    ... LNBFs, which are antennas used for satellite reception. On April 21, 2011, the U.S. Patent and Trademark Office issued an order granting reexamination of the '636 patent. On June 21, 2011, the District Court entered summary judgment in our favor, finding that all asserted claims of the '636 patent...

  • Page 148
    DISH NETWORK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued Olympic Developments AG, LLC 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, ...

  • Page 149
    ... agreements between us and the retailers invalid and unenforceable, and to award damages for lost incentives and payments, charge backs and other compensation. On September 20, 2010, we agreed to a settlement of both lawsuits that provides, among other things, for mutual releases of the claims...

  • Page 150
    ... involving certain DISH digital video recorders, or DVRs, which litigation is described in our periodic reports filed with the Securities and Exchange Commission including in our annual report on Form 10-K for the year ended December 31, 2010 under the caption "Item 3. Legal Proceedings - TiVo...

  • Page 151
    ... In January 2008, 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 pay-TV service. At that time, Voom also sought a preliminary...

  • Page 152
    ... 31, 2011. The DISH pay-TV service consists of FCC licenses authorizing us to use DBS and FSS spectrum, our owned and leased satellites, receiver systems, third-party broadcast operations, customer service facilities, a leased fiber network, in-home service and call center operations, and certain...

  • Page 153
    DISH NETWORK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued Geographic Information. Revenues are attributed to geographic regions based upon the location where the goods and services are provided. During the year ended December 31, 2011, our international revenue includes ...

  • Page 154
    ... Services Agreement with EchoStar pursuant to which we make certain of our officers available to provide services (which are primarily legal and accounting services) to EchoStar. Specifically, Paul W. Orban remains employed by us, but also serves as EchoStar's Senior Vice President and Controller...

  • Page 155
    ...capacity from us on EchoStar I. The fee for the services provided under this satellite capacity agreement depends, among other things, upon the orbital location of the satellite and the length of the lease. The lease generally terminates upon the earlier of: (i) the end of life or replacement of the...

  • Page 156
    ... degree orbital location, we are obligated to pay EchoStar a fee, which varies depending on the number of frequencies 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...

  • Page 157
    ... nature of the services provided. "Cost of sales - subscriber promotion subsidies - EchoStar" Receiver Agreement. EchoStar is currently our sole supplier of set-top box receivers. The table below indicates the dollar value of set-top boxes and other equipment that we purchased from EchoStar as well...

  • Page 158
    ...in the future may sell to us. The fees for the services provided under the product support agreement are calculated at cost plus a fixed margin, which varies depending on the nature of the services provided. The term of the product support agreement is the economic life of such receivers and related...

  • Page 159
    ... website. Move Networks Services Agreement. In the fourth quarter 2011, EchoStar granted us the right to use Move Network's software and video publishing systems, which facilitate the streaming, downloading and distribution of audio and video content to set-top boxes via the Internet. The fees...

  • Page 160
    ...$5 million. International Programming Rights Agreement. During the year ended December 31, 2011 we made no purchases and for the years ended December 31, 2010 and 2009 we purchased $2 million and $8 million, respectively, of certain international rights for sporting events from EchoStar, included in...

  • Page 161
    ... our provider of encryption and related security systems intended to assure that only authorized customers have access to our programming. The table below summarizes our transactions with NagraStar. For the Years Ended December 31, 2011 2010 2009 (In thousands) Purchases (including fees): Purchases...

  • Page 162
    ... of 5 Year Cumulative Total Return Assumes Initial Investment of $100 December 2011 140.00 120.00 100.00 80.00 60.00 40.00 20.00 0.00 2006 2007 DISH Network Corp 2008 2009 2010 Peer Group 2011 NASDAQ Composite-Total Returns Total Return Analysis DISH Network Corporation NASDAQ Composite...

  • Page 163
    ... President Blockbuster L.L.C. Roger J. Lynch Executive Vice President, Advanced Technologies Robert E. Olson Executive Vice President and Chief Financial Officer Stephen W. Wood Executive Vice President, Human Resources Shareholder Information Investor Relations Department DISH Network Corporation...

  • Page 164
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