Dish Network 2011 Annual Report Download - page 16

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During the first half of 2011, we entered into a transaction to acquire 100% of the equity of reorganized DBSD
North America for approximately $1.4 billion upon DBSD North America’s emergence from bankruptcy, which
included capital stock and convertible securities of, and certain claims related to, DBSD North America. In
addition, in June 2011, we entered into the TerreStar Transaction for a purchase price of $1.375 billion. We have
paid all but $30 million of the purchase price for the TerreStar Transaction, which will be paid upon closing of the
TerreStar Transaction, or upon certain other conditions being met under the asset purchase agreement. Additionally,
during the fourth quarter 2011, we and Sprint entered into the Sprint Settlement Agreement pursuant to which all
disputed issues relating to our acquisition of DBSD North America and the TerreStar Transaction were resolved
between us and Sprint, including, but not limited to, issues relating to costs allegedly incurred by Sprint to relocate
users from the spectrum now licensed to DBSD North America and TerreStar. Pursuant to the Sprint Settlement
Agreement, we made a net payment of approximately $114 million to Sprint. Our ultimate acquisition of 100% of
the equity of reorganized DBSD North America and consummation of the TerreStar Transaction are subject to
certain conditions, including approval by the FCC.
Under our agreements to acquire DBSD North America and purchase TerreStar’s assets, we paid substantially all of
the purchase price for both transactions prior to the receipt of certain regulatory approvals (the FCC with respect to
DBSD North America, and the FCC and the Canadian federal Department of Industry (“Industry Canada”) with
respect to TerreStar). On February 7, 2012, Industry Canada approved the transfer of the Canadian spectrum
licenses held by TerreStar to us. If the remaining required approvals are not obtained, subject to certain exceptions,
we have the right to require and direct the sale of some or all of the assets of the relevant company to a third party
and we would be entitled to the proceeds from such a sale. These proceeds could, however, be substantially less
than amounts we have paid in the respective transactions.
In addition, our consolidated FCC applications for approval of the license transfers from DBSD North America and
TerreStar were accompanied by requests for waiver of the integrated service 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 and TerreStar do not include a waiver of this integrated service
requirement. Our integrated service requirement waiver request has been opposed by certain parties, and there can
be no assurance that the FCC will approve it. If our FCC applications and waiver requests are not granted by the
FCC, or are granted in a manner that varies from the form we have requested, it could cause the value of these assets
to be impaired, potentially requiring us to take significant write-downs on these assets. We assess potential
impairments to these assets annually, or more often if indicators of impairment arise, to determine whether an
impairment condition may exist. We use a probability weighted analysis considering estimated future cash flows
discounted at a rate commensurate with the risk involved and market based data to assess potential impairments.
To the extent we receive these approvals and waivers, there can be no assurance that we will be able to develop and
implement a business model that will realize a return on these spectrum investments or that we will be able to
profitably deploy the assets represented by these spectrum investments. We will likely be required to make
significant additional investments or partner with others to commercialize these licenses. Because we have not
received approval from the FCC, we do not yet know the full costs (including any build-out requirements)
associated with complying with regulations applicable to our acquisition of DBSD North America or the TerreStar
Transaction. Depending on the nature and scope of such commercialization and build-out, any such investment or
partnership could vary significantly, which may affect the carrying value of our investments and our 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 operate as separate publicly-traded companies, and neither entity has any ownership interest in the other.
However, a substantial majority of the voting power of the shares of both DISH Network and EchoStar is owned
beneficially by Charles W. Ergen, our Chairman, or by certain trusts established by Mr. Ergen for the benefit of his
family.