Dish Network 2012 Annual Report Download - page 90

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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”). During 2009, EchoStar also entered into a satellite service
agreement (the “DISH Nimiq 5 Agreement”) with us, pursuant to which we currently receive service from EchoStar
on all 32 of the DBS transponders covered by the Telesat Transponder Agreement. We have also guaranteed
certain obligations of EchoStar under the Telesat Transponder Agreement. See discussion under “Guarantees” in
Note 16.
Under the terms of the DISH Nimiq 5 Agreement, we make certain monthly payments to EchoStar that commenced
in September 2009 when the Nimiq 5 satellite was placed into service and continue through the service term.
Unless earlier terminated under the terms and conditions of the DISH Nimiq 5 Agreement, the service term will
expire ten years following the date it was placed into service. Upon expiration of the initial term we have the option
to renew the DISH Nimiq 5 Agreement on a year-to-year basis through the end-of-life of the Nimiq 5 satellite.
Upon in-orbit failure or end-of-life of the Nimiq 5 satellite, and in certain other circumstances, we have certain
rights to receive service from EchoStar on a replacement satellite. There can be no assurance that any options to
renew the DISH Nimiq 5 Agreement will be exercised or that we will exercise our option to receive service on a
replacement satellite.
QuetzSat-1 Lease Agreement. During 2008, EchoStar entered into a ten-year satellite service agreement with SES
Latin America S.A. (“SES”), which provides, among other things, for the provision by SES to EchoStar of service
on 32 DBS transponders on the QuetzSat-1 satellite. During 2008, EchoStar also entered into a transponder service
agreement (“QuetzSat-1 Transponder Agreement”) with us pursuant to which we receive service from EchoStar on
24 of the DBS transponders. 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 explored alternative uses for the
QuetzSat-1 satellite. In the interim, EchoStar provided us with alternate capacity at the 77 degree orbital location.
During the third quarter 2012, we and EchoStar entered into an agreement pursuant to which we sublease back to
EchoStar five of the 24 DBS transponders on the QuetzSat-1 satellite. Rental income generated from this sublease
will be recorded as revenue within “Services and other revenue – EchoStar” on our Consolidated Statements of
Operations and Comprehensive Income (Loss). During January 2013, QuetzSat-1 was moved to the 77 degree
orbital location and we commenced commercial operations at that location in February 2013.
Unless earlier terminated under the terms and conditions of the QuetzSat-1 Transponder Agreement, the initial
service term will expire in November 2021. Upon expiration of the initial term, we have the option to renew the
QuetzSat-1 Transponder Agreement on a year-to-year basis through the end-of-life of the QuetzSat-1 satellite.
Upon an in-orbit failure or end-of-life of the QuetzSat-1 satellite, and in certain other circumstances, we have
certain rights to receive service from EchoStar on a replacement satellite. There can be no assurance that any
options to renew the QuetzSat-1 Transponder Agreement will be exercised or that we will exercise our option to
receive service on a replacement satellite.
TT&C Agreement. In connection with the Spin-off, we entered into a telemetry, tracking and control (“TT&C”)
agreement pursuant to which we received TT&C services from EchoStar for a period ending on January 1, 2012
(the “Prior TT&C Agreement”). The fees for services provided under the Prior TT&C Agreement were calculated
at cost plus a fixed margin. We were able to terminate the Prior TT&C Agreement for any reason upon 60 days
notice.
Effective January 1, 2012, we entered into a new TT&C agreement pursuant to which we receive TT&C services
from EchoStar for a period ending on December 31, 2016 (the “2012 TT&C Agreement”). The material terms of
the 2012 TT&C Agreement are substantially the same as the material terms of the Prior TT&C Agreement, except
that the fees for services provided under the 2012 TT&C Agreement are calculated at either: (i) a fixed fee; or (ii)
cost plus a fixed margin, which will vary depending on the nature of the services provided.
DBSD North America Agreement. On March 9, 2012, we completed the DBSD Transaction. During the second
quarter 2011, EchoStar acquired Hughes Communications, Inc. (“Hughes”). Prior to our acquisition of DBSD
North America and EchoStar’s acquisition of Hughes, DBSD North America and HNS, a wholly-owned subsidiary
of Hughes, entered into an agreement pursuant to which HNS provides, among other things, hosting, operations and
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maintenance services for DBSD North America’s satellite gateway and associated ground infrastructure. This
agreement renewed for a one-year period ending on February 15, 2014, and renews for three successive one-year
periods unless terminated by DBSD North America upon at least 30 days notice prior to the expiration of any
renewal term.
TerreStar Agreement. On March 9, 2012, we completed the TerreStar Transaction. Prior to our acquisition of
substantially all the assets of TerreStar and EchoStar’s acquisition of Hughes, TerreStar and HNS entered into
various agreements pursuant to which HNS provides, among other things, hosting, operations and maintenance
services for TerreStar’s satellite gateway and associated ground infrastructure. These agreements generally may be
terminated by us at any time for convenience.
“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 as the amount of
purchases that are included in “Cost of sales – subscriber promotion subsidies – EchoStar” on our Consolidated
Statements of Operations and Comprehensive Income (Loss). The remaining amount is included in “Inventory” and
“Property and equipment, net” on our Consolidated Balance Sheets.
Purchases from EchoStar 2012 2011 2010
Set-top boxes and other equipment................................................. 1,028,588$ 1,158,293$ 1,470,173$
Set-top boxes and other equipment included in “Cost
of sales – subscriber promotion subsidies – EchoStar”................ 267,133$ 249,440$ 175,777$
For the Years Ended December 31,
(In thousands)
In connection with the Spin-off, we and EchoStar entered into a receiver agreement pursuant to which we had the
right, but not the obligation, to purchase digital set-top boxes and related accessories, and other equipment from
EchoStar for a period ending on January 1, 2012 (the “Prior Receiver Agreement”). The Prior Receiver Agreement
allowed us to purchase digital set-top boxes, related accessories and other equipment from EchoStar at cost plus a
fixed percentage margin, which varied depending on the nature of the equipment purchased. Additionally, EchoStar
provided us with standard manufacturer warranties for the goods sold under the Prior Receiver Agreement. We
were able to terminate the Prior Receiver Agreement for any reason upon at least 60 days notice to EchoStar.
EchoStar was able to terminate the Prior Receiver Agreement if certain entities were to acquire us. The Prior
Receiver Agreement also included an indemnification provision, whereby the parties indemnified each other for
certain intellectual property matters.
Effective January 1, 2012, we and EchoStar entered into a new agreement (the “2012 Receiver Agreement”)
pursuant to which we have the right, but not the obligation, to purchase digital set-top boxes, related accessories,
and other equipment from EchoStar for the period from January 1, 2012 to December 31, 2014. We have an option,
but not the obligation, to extend the 2012 Receiver Agreement for one additional year upon 180 days notice prior to
the end of the term. The material terms of the 2012 Receiver Agreement are substantially the same as the material
terms of the Prior Receiver Agreement, except that the 2012 Receiver Agreement allows us to purchase digital set-
top boxes, related accessories and other equipment from EchoStar either: (i) at a cost (decreasing as EchoStar
reduces costs and increasing as costs increase) plus a dollar mark-up which will depend upon the cost of the product
subject to a collar on EchoStar’s mark-up; or (ii) at cost plus a fixed margin, which will depend on the nature of the
equipment purchased. Under the 2012 Receiver Agreement, EchoStar’s margins will be increased if they are able to
reduce the costs of their digital set-top boxes and their margins will be reduced if these costs increase.
“General and administrative expenses – EchoStar”
Product Support Agreement. In connection with the Spin-off, we entered into a product support agreement pursuant
to which we have the right, but not the obligation, to receive product support from EchoStar (including certain
engineering and technical support services) for all set-top boxes and related accessories that EchoStar has