EchoStar CORP - Quarter Report: 2008 June (Form 10-Q)

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

(Mark One)

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2008.

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM                      TO                     .

EchoStar Corporation

(Exact name of registrant as specified in its charter)

Nevada (State or other jurisdiction of incorporation or organization)		26-1232727 (I.R.S. Employer Identification No.)
90 Inverness Circle E. Englewood, Colorado (Address of principal executive offices)		80112 (Zip code)

(303) 706-4000
(Registrant’s telephone number, including area code)

Not Applicable
(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

As of July 25, 2008, the registrant’s outstanding common stock consisted of 42,243,376 shares of Class A common stock and 47,687,039 shares of Class B common stock.

 

 

TABLE OF CONTENTS

		PART I — FINANCIAL INFORMATION
		Disclosure Regarding Forward-Looking Statements		i
Item 1.		Financial Statements
		Condensed Consolidated Balance Sheets — June 30, 2008 and December 31, 2007 (Unaudited)		1
		Condensed Consolidated Statements of Operations For the Three and Six Months Ended June 30, 2008 and 2007 (Unaudited)		2
		Condensed Consolidated Statements of Cash Flows For the Six Months Ended June 30, 2008 and 2007 (Unaudited)		3
		Notes to Condensed Consolidated Financial Statements (Unaudited)		4
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations		35
Item 3.		Quantitative and Qualitative Disclosures about Market Risk		48
Item 4.		Controls and Procedures		52
		PART II — OTHER INFORMATION
Item 1.		Legal Proceedings		52
Item 1A.		Risk Factors		56
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds		56
Item 3.		Defaults Upon Senior Securities		None
Item 4.		Submission of Matters to a Vote of Security Holders		57
Item 5.		Other Information		None
Item 6.		Exhibits		57
		Signatures		58
Section 302 Certification by Chairman and CEO
Section 302 Certification by Executive Vice President and CFO
Section 906 Certification by Chairman and CEO
Section 302 Certification by Executive Vice President and CFO

PART I — FINANCIAL INFORMATION

DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

We make “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 throughout this report. Whenever you read a statement that is not simply a statement of historical fact (such as when we describe what we “believe,” “intend,” “plan,” “estimate,” “expect” or “anticipate” will occur and other similar statements), you must remember that our expectations may not be achieved, even though we believe they are reasonable. We do not guarantee that any future transactions or events described herein will happen as described or that they will happen at all. You should read this report completely and with the understanding that actual future results may be materially different from what we expect. Whether actual events or results will conform with our expectations and predictions is subject to a number of risks and uncertainties. The risks and uncertainties include, but are not limited to, the following:

	•		We may not realize the potential benefits that we expect from our separation (“Spin-off”) from DISH Network including the ability to market our products and services to entities that are competitors of DISH Network. Certain of these benefits depend upon market acceptance of our separation from DISH Network which we cannot predict and which may be affected by significant cross-ownership by our Chairman and Chief Executive Officer as well as interlocks between management and the board of directors of us and DISH Network.
	•		We will incur significant costs as a newly independent company, which may exceed our estimates. There will also be negative effects arising from our separation from DISH Network, including loss of access to its financial resources.
	•		We currently depend on DISH Network for substantially all of our revenue, and the loss of, or a significant reduction in orders from, or a decrease in selling prices of set-top boxes, transponder leasing, digital broadcast operations and/or other services to DISH Network would significantly reduce our revenue and adversely impact our results of operations. Many of our agreements with DISH Network for these services expire on January 1, 2010 and there can be no assurance that we will be able to renew these agreements on substantially similar terms. In addition, a second customer, Bell ExpressVu, accounts for a majority of our revenue that is not from DISH Network.
	•		We expect that for the foreseeable future, DISH Network will continue to be the primary source of revenue for each of our principle businesses. Therefore, weaknesses in the economy and other factors adversely affecting DISH Network could indirectly have an adverse impact on us.
	•		We currently have substantial unused satellite capacity. Future costs associated with this excess capacity will negatively impact our margins if we do not generate revenue to offset these costs. In addition, because a substantial portion of the capacity of each of our AMC-15 and AMC-16 satellites remains without long-term contracts for their capacity, there is a significant risk that in the future, in addition to reporting lower than expected revenues and profitability, we could be required to record a substantial impairment charge relating to one or both of these satellites. We currently estimate that these potential charges could aggregate up to approximately $200 million, which, if incurred, would have a material adverse effect on our results of operations and financial position.
	•		We have suspended construction of the CMBStar satellite and in future periods may conclude it appropriate to record an impairment charge. During April 2008, we notified the State Administration of Radio, Film and Television of China that we were suspending construction of the CMBStar satellite pending, among other things, further analysis relating to efforts to meet the satellite performance criteria and/or confirmation that alternative performance criteria would be acceptable. We are currently evaluating potential alternative uses for the CMBStar satellite. If these alternative uses are unable to recover the carrying value invested to date in the satellite, we may be required to record an impairment charge in a future period relating to the CMBStar satellite. We currently estimate that this potential charge could be as much as $100 million, which would have a material adverse effect on our results of operations and financial position.
	•		Our 2007 combined financial information included in this report is not indicative of our future financial position, future results of operations or future cash flows, nor does it necessarily reflect what our financial position, results of operations or cash flows would have been as a separate company during the periods prior to the Spin-off that are presented in this report. We were not profitable during 2007, as our operations have historically been dedicated primarily to support DISH Network and we provided our products and services to DISH Network at cost.

	•		We may face actual or perceived conflicts of interest with DISH Network in a number of areas relating to our past, ongoing and future relationships, including (i) cross-officerships, directorships and stock ownership, (ii) intercompany transactions, (iii) intercompany agreements, and (iv) business opportunities.
	•		Our ability to increase our income or to generate additional revenues will depend in part on our ability to grow our business. This may require significant additional capital that may not be available on terms that would be attractive to us or at all. In particular, current dislocations in the credit markets, which have significantly impacted the availability and pricing of financing, particularly in the high yield debt and leveraged credit markets, may significantly constrain our ability to obtain financing to support our growth initiatives. These developments in the credit markets may have a significant effect on our cost of financing and our liquidity position and may, as a result, cause us to defer or abandon business strategies that we would otherwise pursue if financing were available on acceptable terms.
	•		We may use a significant portion of our existing cash and marketable securities to fund stock buyback programs. Our board of directors has approved a program in which we may repurchase up to $1.0 billion of our Class A common stock during 2008. There can be no assurance however, that we will repurchase any of our common stock, which will depend on our views of the relative benefits of alternative uses of our capital.
	•		Our relationship with DISH Network could be terminated or substantially curtailed with little or no advance notice, particularly if DISH Network enters into a business combination transaction, or if Mr. Ergen no longer controls a majority of the voting power of DISH Network or of us. Any material reduction in our sales due to a change in control of DISH Network would have a significant material adverse effect on our business and financial position.
	•		Our future success may depend on our ability to identify and successfully exploit opportunities to acquire other businesses or technologies to complement, enhance or expand our current business or products or otherwise offer us growth opportunities. We may not be able to pursue these growth opportunities successfully.
	•		We have entered into certain strategic transactions and investments, and we may increase our strategic investment activity in the United States and in international markets. These investments, which we believe could become substantial over time, involve a high degree of risk, are concentrated in a few companies and could expose us to significant financial losses if the underlying ventures are not successful. These investment opportunities may also cause us to defer or suspend share repurchases.
	•		Our business relies on intellectual property, some of which is owned by third parties, the patents and proprietary rights of which we may inadvertently infringe. We may be required to cease developing or marketing infringing products, to obtain licenses from the holders of the intellectual property at a material cost, or to redesign those products in such a way as to avoid infringing the patent claims of others.
	•		We depend on sales of set-top boxes for the majority of our revenue, and if sales of our set-top boxes decline, our business and financial position will suffer.
	•		Our commercial success in selling our set-top boxes to cable operators and other providers of digital television depends significantly on our ability to obtain licenses to use the conditional access systems deployed by these operators in our set-top boxes. The owners of these conditional access systems are in many cases competitors of ours. There can be no assurance we will be able to obtain such licenses on acceptable terms or at all.
	•		In order to grow our set-top box revenue and business and to build a large customer base, we believe we will be required to increase our sales of set-top boxes in international markets. To succeed in expanding these sales efforts, we believe we must develop and manage new relationships with cable operators and other providers of digital television in international markets.
	•		The future growth of our satellite and transponder leasing, digital broadcast operations, professional services and related businesses, will depend on a number of factors, including: the level of market acceptance and demand for these services, our ability to introduce new services that meet market demand, our ability to develop relationships with and make sales of these services to cable operators and other providers of digital television that are competitors of our former parent, DISH Network, our ability to maintain the health, capacity and control of our existing satellite network, the effectiveness of our competitors in developing and offering similar services and products and our ability to hire additional sales personnel to development and manage new customer relationships.

	•		Our set-top boxes are extremely complex and can have defects in design, manufacture or associated software. We could incur significant expenses, lost revenue, and reputational harm if we fail to detect or effectively address such issues through design, testing or warranty repairs.
	•		We obtain many components for our set-top boxes from a single supplier or a limited group of suppliers. Our reliance on a single or limited group of suppliers, particularly foreign suppliers, and our increasing reliance on subcontractors, involves several risks. These risks include a potential inability to obtain an adequate supply of required components, and reduced control over pricing, quality, and timely delivery of these components.
	•		Future demand for our set-top boxes will depend significantly on the growing market acceptance of high definition television, or HDTV. The effective delivery of HDTV will depend on digital television operators developing and building infrastructure to provide wide-spread HDTV programming.
	•		If we are unsuccessful in our appeal to the United States Supreme Court in the Tivo case, or in defending against Tivo’s motion for contempt or any subsequent claims that our alternative technology infringes Tivo’s patent, we could be prohibited from distributing DVRs, or be required to modify or eliminate certain user-friendly DVR features that we currently offer to consumers. In that event, we would be at a significant disadvantage to our competitors who could offer this functionality. We could also have to pay substantial additional damages.
	•		The satellite services industry is highly competitive and is characterized by long-term leases and high switching costs. It will be difficult to displace customers from their current relationships with our competitors and we may face competition from others in the future.
	•		Satellites are subject to significant operational risks while in orbit. While we believe that our satellite fleet is generally in good condition, certain satellites in our fleet have experienced malfunctions or anomalies, some of which have had a significant adverse impact on their commercial operation. There can be no assurance that we can recover critical transmission capacity in the event one or more of our in-orbit satellites were to fail. Therefore, the loss of a satellite or other satellite malfunctions or anomalies could have a material adverse effect on us.
	•		We are subject to comprehensive governmental regulation by the FCC for our domestic satellite operations. We are also regulated by other federal agencies, state and local authorities and the International Telecommunication Union. Domestic and international regulations regarding the licensing, authorization and operations of satellite communications providers may restrict our satellite services operations.
	•		We do not anticipate carrying insurance for any of the in-orbit satellites that we will own, and we will bear the risk of any failures in our in-orbit satellites. Because we bear this risk, failures in our in-orbit satellites could have a material adverse effect on our results of operations and financial position.
	•		We may face other risks described from time to time in periodic and current reports we file with the Securities and Exchange Commission (“SEC”).

All cautionary statements made herein should be read as being applicable to all forward-looking statements wherever they appear. In this connection, investors should consider the risks described herein and should not place undue reliance on any forward-looking statements. We assume no responsibility for updating forward-looking information contained or incorporated by reference herein or in other reports we file with the SEC.

In this report, the words “EchoStar,” the “Company,” “we,” “our” and “us” refer to EchoStar Corporation and its subsidiaries, unless the context otherwise requires. “DISH Network” refers to DISH Network Corporation and its subsidiaries, unless the context otherwise requires.

Item 1. FINANCIAL STATEMENTS

ECHOSTAR CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share amounts)
(Unaudited)

		As of
		June 30,				December 31,
		2008				2007
Assets
Current Assets:
Cash and cash equivalents		$	802,149			$	41,082
Marketable investment securities			260,164				491,185
Trade accounts receivable — DISH Network			278,478				—
Trade accounts receivable — Other, net of allowance for uncollectible accounts of $34 and $51, respectively			54,584				34,154
Inventories, net			59,496				21,043
Other current assets			46,354				23,290
Total current assets			1,501,225				610,754
Restricted cash and marketable investment securities			2,586				—
Property and equipment, net of accumulated depreciation of $1,325,595 and $32,857, respectively			1,477,537				213,837
FCC authorizations			108,531				42,873
Intangible assets, net			197,926				71,646
Goodwill			247,856				248,428
Marketable and non-marketable investment securities			471,863				59,160
Other noncurrent assets, net			66,757				14,212
Total assets		$	4,074,281			$	1,260,910
Liabilities and Stockholders’ Equity (Deficit)
Current Liabilities:
Trade accounts payable — DISH Network		$	51,134			$	—
Trade accounts payable — Other			184,125				22,786
Deferred revenue and other			2,107				4,055
Accrued expenses — DISH Network			966				—
Accrued expenses and other			66,576				22,191
Current portion of capital lease obligations, mortgages and other notes payable			49,724				1,365
Total current liabilities			354,632				50,397
Long-term obligations, net of current portion:
Capital lease obligations, mortgages and other notes payable, net of current portion			323,590				2,344
Deferred tax liabilities			144,628				651
Other long-term liabilities			840				—
Total long-term obligations, net of current portion			469,058				2,995
Total liabilities			823,690				53,392
Commitments and Contingencies (Note 10)
Stockholders’ Equity (Deficit):
Preferred Stock, $.001 par value, 20,000,000 shares authorized, none issued and outstanding			—				—
Class A common stock, $.001 par value, 1,600,000,000 shares authorized, 42,241,956 shares and no shares issued and outstanding, respectively			42				—
Class B common stock, $.001 par value, 800,000,000 shares authorized, 47,687,039 shares and no shares issued and outstanding, respectively			48				—
Class C common stock, $.001 par value, 800,000,000 shares authorized, none issued and outstanding			—				—
Class D common stock, $.001 par value, 800,000,000 shares authorized, none issued and outstanding			—				—
Additional paid-in capital			3,242,701				—
Accumulated other comprehensive income (loss)			(45,725	)			66,696
Accumulated earnings (deficit)			53,525				—
Owner’s net investment			—				1,140,822
Total stockholders’ equity (deficit)			3,250,591				1,207,518
Total liabilities and stockholders’ equity (deficit)		$	4,074,281			$	1,260,910

The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.

ECHOSTAR CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
(Unaudited)

		For the Three Months								For the Six Months
		Ended June 30,								Ended June 30,
		2008				2007				2008				2007
Revenue:
Equipment sales — DISH Network		$	301,039			$	274,973			$	672,733			$	673,813
Equipment sales — other			76,951				53,644				151,773				98,752
Satellite services, digital broadcast operations and other services — DISH Network			93,019				—				185,489				—
Satellite and other services — other			12,331				1,972				27,916				5,787
Total revenue			483,340				330,589				1,037,911				778,352
Costs and Expenses:
Cost of sales — equipment			317,483				310,310				699,908				738,009
Satellite services, digital broadcast operations and other cost of sales			57,699				925				110,215				4,259
Research and development expense			13,899				14,923				27,565				29,044
Selling, general and administrative expenses			26,691				5,931				51,670				12,512
General and administrative expenses — DISH Network			6,942				10,574				13,296				23,079
Depreciation and amortization (Note 11)			63,015				1,414				123,985				2,909
Total costs and expenses			485,729				344,077				1,026,639				809,812
Operating income (loss)			(2,389	)			(13,488	)			11,272				(31,460	)
Other Income (Expense):
Interest income			19,444				568				40,813				942
Interest expense			(8,278	)			(270	)			(16,561	)			(537	)
Casualty loss expense (Note 6)			—				—				(12,799	)			—
Unrealized gains (losses) due to changes in the fair value of certain debt and equity investments, net			(19,643	)			—				(19,643	)			—
Other (Note 5)			64,486				(602	)			61,201				(766	)
Total other income (expense)			56,009				(304	)			53,011				(361	)
Income (loss) before income taxes			53,620				(13,792	)			64,283				(31,821	)
Income tax (provision) benefit, net (Note 9)			(5,796	)			(997	)			(10,758	)			(1,472	)
Net income (loss)		$	47,824			$	(14,789	)		$	53,525			$	(33,293	)
Denominator for basic and diluted net income (loss) per share — Class A and B common stock:
Denominator for basic net income (loss) per share — weighted-average common shares outstanding			89,863				89,712				89,795				89,712
Denominator for diluted net income (loss) per share — weighted-average common shares outstanding			90,261				89,712				91,285				89,712
Net income (loss) per share — Class A and B common stock:
Basic net income (loss)		$	0.53			$	(0.16	)		$	0.60			$	(0.37	)
Diluted net income (loss)		$	0.53			$	(0.16	)		$	0.59			$	(0.37	)

The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.

ECHOSTAR CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

		For the Six Months
		Ended June 30,
		2008				2007
Cash Flows From Operating Activities:
Net income (loss)		$	53,525			$	(33,293	)
Adjustments to reconcile net income (loss) to net cash flows from operating activities:
Depreciation and amortization			123,985				2,909
Equity in losses (earnings) of affiliates			2,696				2,668
Realized and unrealized losses (gains) on investments			(47,162	)			(4,533	)
Non-cash, stock-based compensation recognized			11,021				1,989
Deferred tax expense (benefit)			(17,628	)			6
Other, net			12,096				292
Change in noncurrent assets			(13,904	)			—
Changes in current assets and current liabilities, net			(128,764	)			267
Net cash flows from operating activities			(4,135	)			(29,695	)
Cash Flows From Investing Activities:
Purchases of marketable investment securities			(97,754	)			—
Sales and maturities of marketable investment securities			416,443				—
Purchases of property and equipment			(92,931	)			(84,983	)
Proceeds from insurance settlement			40,750				—
Change in restricted cash and marketable investment securities			564				—
Purchase of strategic investments included in noncurrent assets and other			(133,692	)			(40,000	)
Other			(86	)			(261	)
Net cash flows from investing activities			133,294				(125,244	)
Cash Flows From Financing Activities:
Repayment of capital lease obligations, mortgages and other notes payable			(23,051	)			—
Contribution of cash and cash equivalents from DISH Network in connection with the Spin-off (Note 1)			649,784				—
Changes in advances from owner			—				153,223
Net proceeds from Class A common stock options exercised and Class A common stock issued under the Employee Stock Purchase Plan			5,175				—
Net cash flows from financing activities			631,908				153,223
Net increase (decrease) in cash and cash equivalents			761,067				(1,716	)
Cash and cash equivalents, beginning of period			41,082				29,621
Cash and cash equivalents, end of period		$	802,149			$	27,905
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest		$	16,065			$	27
Cash received for interest		$	9,783			$	591
Cash paid for income taxes		$	19,978			$	—
Vendor financing		$	13,946			$	—
Non-cash investing activities		$	15,862			$	—
Non-cash proceeds from the sale of a company which held certain FCC authorizations		$	132,900			$	—
Net assets contributed in connection with the Spin-off		$	2,085,747			$	—

The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.

ECHOSTAR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1. Organization and Business Activities

Principal Business

The spin-off by DISH Network Corporation (“DISH Network”) of technology and infrastructure assets to EchoStar Corporation (“EchoStar,” the “Company,” “we,” and/or “us”) was completed on January 1, 2008 through a distribution of 100% of the common stock of EchoStar to the holders of DISH Network’s common stock (the “Spin-off”). The Spin-off was made pursuant to a separation agreement by which DISH Network contributed to EchoStar the subsidiaries and assets that operated DISH Network’s set-top box business, satellite services, digital broadcast operations, certain real estate and other assets and liabilities. The Company has received a private letter ruling from the Internal Revenue Service and an opinion from tax counsel indicating that the Spin-off was tax free to the stockholders of DISH Network and EchoStar.

The EchoStar business consists of the following segments:

	•		Equipment sales and digital broadcast operations — Equipment sales include the sales of set-top boxes and related components including Slingboxes to DISH Network and international customers. Digital broadcast operations include satellite uplinking/downlinking, transmission services, signal processing, conditional access management, telemetry, tracking and control, and other services provided primarily to DISH Network.
	•		Satellite Services — Satellite services consists principally of transponder leasing provided primarily to DISH Network, and secondarily to other customers.

The table below summarizes the assets and liabilities which were contributed to us in connection with the Spin-off in addition to the assets included in our historical financial statements. The contribution was accounted for at DISH Network’s historical cost given the nature of the distribution.

ECHOSTAR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — Continued
(Unaudited)

		January 1, 2008
		(In thousands)
Assets
Current Assets:
Cash and cash equivalents		$	649,784
Marketable investment securities			350,216
Trade accounts receivable, net			3,900
Inventories, net			9,957
Other current assets			9,061
Total current assets			1,022,918
Restricted cash and marketable investment securities			3,150
Property and equipment, net			1,302,767
FCC authorizations			123,121
Intangible assets, net			142,898
Other noncurrent assets, net			20,335
Total assets		$	2,615,189
Liabilities
Current Liabilities:
Trade accounts payable		$	—
Deferred revenue and other accrued expenses			11,586
Current portion of capital lease obligations, mortgages and other notes payable			39,168
Total current liabilities			50,754
Long-term obligations, net of current portion:
Capital lease obligations, mortgages and other notes payable, net of current portion			339,542
Deferred tax liabilities			139,146
Total long-term obligations, net of current portion			478,688
Total liabilities			529,442
Net assets contributed		$	2,085,747

2. Significant Accounting Policies

Basis of Presentation

The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and with the instructions to Form 10-Q and Article 10 of Regulation S-X for interim financial information. Accordingly, these statements do not include all of the information and notes required for complete financial statements. In our opinion, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Certain prior year amounts have been reclassified to conform to the current year presentation. For further information, refer to the Consolidated Financial Statements and notes thereto included in our Annual Report on Form 10-K/A for the year ended December 31, 2007 (“2007 10-K/A”).

The unaudited Condensed Consolidated Financial Statements in this quarterly report for the periods presented prior to the Spin-off are presented on a combined basis and principally represent the digital set-top box business and other net assets transferred to us as part of the Spin-off. The assets and liabilities presented have been reflected on a historical basis, as prior to the Spin-off such assets and liabilities were 100% owned by DISH Network. Our historical combined financial statements do not include the satellites, digital broadcast operations assets, certain real estate and other assets and related liabilities that were contributed to us by DISH Network in the Spin-off. Also, the combined financial statements for the periods presented prior to the Spin-off do not include all of the actual expenses that would have been incurred had EchoStar been a stand-alone entity during the periods presented and do

ECHOSTAR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — Continued
(Unaudited)

not reflect EchoStar’s combined results of operations, financial position and cash flows had we been a stand-alone company during the periods presented. The results of operations and the cash flows for any interim period are not necessarily indicative of the results that may be expected for a fiscal year or any other future period.

Principles of Consolidation

We consolidate all majority owned subsidiaries and investments in entities in which we have controlling influence. For entities that are considered variable interest entities we apply the provisions of Financial Accounting Standards Board (“FASB”) Interpretation No. 46R, “Consolidation of Variable Interest Entities — An Interpretation of ARB No. 51” (“FIN 46R”). All significant intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses for each reporting period. Estimates are used in accounting for, among other things, allowances for uncollectible accounts, inventory allowances, warranty obligations, self-insurance obligations, deferred taxes and related valuation allowances, uncertain tax positions, loss contingencies, fair values of financial instruments, fair value of options granted under our stock-based compensation plans, fair value of assets and liabilities acquired in business combinations, capital leases, asset impairments, useful lives of property, equipment and intangible assets, and royalty obligations. Actual results may differ from previously estimated amounts, and such differences may be material to the Condensed Consolidated Financial Statements. Estimates and assumptions are reviewed periodically, and the effects of revisions are reflected prospectively beginning in the period they occur.

Comprehensive Income (Loss)

The components of comprehensive income (loss) are as follows:

		For the Three Months								For the Six Months
		Ended June 30,								Ended June 30,
		2008				2007				2008				2007
						(In thousands)
Net income (loss)		$	47,824			$	(14,789	)		$	53,525			$	(33,293	)
Foreign currency translation adjustments			416				988				(784	)			856
Unrealized holding gains (losses) on available-for-sale securities			(22,316	)			1,564				(63,653	)			3,661
Recognition of previously unrealized (gains) losses on available-for-sale securities included in net income (loss)			(34,716	)			(3,048	)			(35,690	)			(3,048	)
Deferred income tax (expense) benefit			3,912				—				20,485				—
Comprehensive income (loss)		$	(4,880	)		$	(15,285	)		$	(26,117	)		$	(31,824	)

“Accumulated other comprehensive income (loss)” presented on the accompanying Condensed Consolidated Balance Sheets consists of the accumulated net unrealized gains (losses) on available-for-sale securities and foreign currency translation adjustments, net of deferred taxes.

ECHOSTAR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — Continued
(Unaudited)

		Accumulated
		Other
		Comprehensive
		Income
		(In thousands)
Balance, December 31, 2007		$	66,696
Accumulated other comprehensive income adjustments in connection with the Spin-off			(32,779	)
Foreign currency translation			(784	)
Change in unrealized holding gains (losses) on available-for-sale securities, net			(99,343	)
Deferred income tax (expense) benefit			20,485
Balance, June 30, 2008		$	(45,725	)

Basic and Diluted Income (Loss) Per Share

Statement of Financial Accounting Standards No. 128, “Earnings Per Share” (“SFAS 128”) requires entities to present both basic earnings per share (“EPS”) and diluted EPS. Basic EPS excludes dilution and is computed by dividing net income (loss) by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if stock options were exercised.

The number of shares presented for the three and six months ended June 30, 2008 represents the actual weighted-average number of shares outstanding for the period. Prior to January 1, 2008, we were a wholly-owned subsidiary of DISH Network and had only a nominal number of shares outstanding. Accordingly for all periods prior to the completion of the Spin-off on January 1, 2008, basic and diluted earnings per share are computed using EchoStar’s shares outstanding as of January 1, 2008. The potential dilution from stock options exercisable into common stock was computed using the treasury stock method based on the average market value of our Class A common stock. The following table reflects the basic and diluted weighted-average shares outstanding used to calculate basic and diluted earnings per share. Earnings per share amounts for all periods are presented below in accordance with the requirements of SFAS 128.

		For the Three Months								For the Six Months
		Ended June 30,								Ended June 30,
		2008				2007				2008				2007
						(In thousands)
Numerator:
Numerator for basic net income (loss) per share — Net income (loss)		$	47,824			$	(14,789	)		$	53,525			$	(33,293	)
Denominator:
Denominator for basic net income (loss) per common share — weighted-average common shares outstanding			89,863				89,712				89,795				89,712
Dilutive impact of options outstanding			398				—				1,490				—
Denominator for diluted net income (loss) per share — weighted-average diluted common shares outstanding			90,261				89,712				91,285				89,712
Net income (loss) per share — Class A and B common stock:
Basic net income (loss)		$	0.53			$	(0.16	)		$	0.60			$	(0.37	)
Diluted net income (loss)		$	0.53			$	(0.16	)		$	0.59			$	(0.37	)

As of June 30, 2008 and 2007, there were options to purchase 0.6 million shares of Class A common stock outstanding not included in the above denominator as their effect is antidilutive.

ECHOSTAR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — Continued
(Unaudited)

Vesting of options and rights to acquire shares of our Class A common stock granted pursuant to our long-term incentive plans is contingent upon meeting certain long-term goals which have not yet been achieved. As a consequence, the following are not included in the diluted EPS calculation:

		As of
		June 30, 2008
		(In thousands)
Performance based options			1,913
Restricted performance units			115
Total			2,028

Fair Value Measurements

Effective January 1, 2008, we adopted Statement of Financial Accounting Standards No. 157, “Fair Value Measurements” (“SFAS 157”), for all financial instruments and non-financial instruments accounted for at fair value on a recurring basis. SFAS 157 establishes a new framework for measuring fair value and expands related disclosures. Broadly, the SFAS 157 framework requires fair value to be determined based on the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. SFAS 157 establishes market or observable inputs as the preferred source of values, followed by unobservable inputs or assumptions based on hypothetical transactions in the absence of market inputs.

	•		Level 1, defined as observable inputs being quoted prices in active markets for identical assets;
	•		Level 2, defined as observable inputs including quoted prices for similar assets; and
	•		Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring assumptions based on the best information available.

Our assets measured at fair value on a recurring basis were as follows (in thousands):

		Fair Value
		As of
		June 30, 2008				Level 1				Level 2				Level 3
Assets:
Marketable investment securities		$	260,164			$	254,536			$	5,628			$	—
Marketable and non-marketable investment securities			416,055				353,895				—				62,160
Total assets at fair value		$	676,219			$	608,431			$	5,628			$	62,160

Changes in Level 3 instruments are as follows (in thousands):

		Level 3
		Investment
Other Investment Securities		Securities
Balance as of January 1, 2008		$	—
Net realized/unrealized gains/(losses) included in earnings			(6,143	)
Net realized/unrealized gains/(losses) included in other comprehensive income			—
Purchases, issuances and settlements, net			68,303
Balance as of June 30, 2008		$	62,160

ECHOSTAR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — Continued
(Unaudited)

New Accounting Pronouncements

Revised Business Combinations

In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141R (revised 2007), “Business Combinations” (“SFAS 141R”). SFAS 141R replaces SFAS 141 and establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, including goodwill, the liabilities assumed and any non-controlling interest in the acquiree. SFAS 141R also establishes disclosure requirements to enable users of the financial statements to evaluate the nature and financial effects of the business combination. This statement is effective for fiscal years beginning after December 15, 2008. We do not expect the adoption of SFAS 141R to have a material impact on our financial position or results of operations.

Noncontrolling Interests in Consolidated Financial Statements

In December 2007, the FASB issued Statement of Financial Accounting Standards No. 160, “Noncontrolling Interests in Consolidated Financial Statements” (“SFAS 160”). SFAS 160 establishes accounting and reporting standards for ownership interests in subsidiaries held by parties other than the parent, the amount of consolidated net income attributable to the parent and to the noncontrolling interest, changes in a parent’s ownership interest and the valuation of retained noncontrolling equity investments when a subsidiary is deconsolidated. SFAS 160 also establishes reporting requirements to clearly identify and distinguish between the interests of the parent and the interests of the noncontrolling owners. This standard is effective for fiscal years beginning after December 15, 2008. We are currently evaluating the impact the adoption of SFAS 160 will have on our financial position and results of operations.

3. Stock-Based Compensation

Stock Incentive Plans

In connection with the Spin-off, as provided in DISH Network’s existing stock incentive plans and consistent with the Spin-off exchange ratio, each DISH Network stock option was converted into two options as follows:

•		an adjusted DISH Network stock option for the same number of shares that were exercisable under the original DISH Network stock option, with an exercise price equal to the exercise price of the original DISH Network stock option multiplied by 0.831219.
•		a new EchoStar stock option for one-fifth of the number of shares that were exercisable under the original DISH Network stock option, with an exercise price equal to the 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 units that they held.

Consequently, the fair value of the DISH Network stock award and the new EchoStar stock award immediately following the Spin-off was equivalent to the fair value of such stock award immediately prior to the Spin-off.

We maintain stock incentive plans to attract and retain officers, directors and key employees. Awards under these plans include both performance and non-performance based equity incentives. As of June 30, 2008, we had outstanding under our plans options to acquire 6.2 million shares of our Class A common stock and 0.3 million restricted stock awards. Stock options granted through June 30, 2008 were granted with exercise prices equal to or greater than the market value of our Class A common stock at the date of grant and with a maximum term of ten years. Historically, our options have been subject to vesting, typically at the rate of 20% to 25% per year, however,

ECHOSTAR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — Continued
(Unaudited)

some options have been granted with immediate vesting. As of June 30, 2008, we had 9.5 million shares of our Class A common stock available for future grant under our stock incentive plans.

As of June 30, 2008, the following stock incentive awards were outstanding:

As of June 30, 2008

EchoStar Awards

Dish Network Awards

Restricted

Restricted

Stock

Stock

Stock

Stock

Stock Incentive Awards Outstanding

Options

Units

Options

Units

Held by EchoStar employees

3,012,663

237,656

5,578,570

1,188,332

Held by DISH Network employees

3,214,186

93,314

N/A

N/A

Total

6,226,849

330,970

5,578,570

1,188,332

We are responsible for fulfilling all stock incentive awards related to EchoStar common stock and DISH Network is responsible for fulfilling all stock incentive awards related to DISH Network common stock regardless of whether such stock incentive awards are held by our or DISH Network’s employees. Notwithstanding the foregoing, based on the requirements of SFAS 123R, our non-cash, stock-based compensation expense, resulting from awards outstanding at the Spin-off date, is based on the stock incentive awards held by our employees regardless of whether such awards were issued by EchoStar or DISH Network. Accordingly, non-cash, stock-based compensation that we expense with respect to DISH Network stock incentive awards is included in “Additional paid-in capital” on our Condensed Consolidated Balance Sheet.

Stock Award Activity

Our stock option activity (including performance and non-performance based options) for the six months ended June 30, 2008 was as follows:

		For the Six Months
		Ended June 30, 2008
						Weighted-
						Average
		Options				Exercise Price
Total options outstanding, beginning of period			4,182,755			$	22.96
Granted			2,403,500				29.55
Exercised			(188,838	)			24.66
Forfeited and cancelled			(170,568	)			27.73
Total options outstanding, end of period			6,226,849				25.32
Performance based options outstanding, end of period *			1,912,600				16.67
Total options exercisable at end of period			1,250,452				29.13

We realized $1 million of tax benefits from stock options exercised during the six months ended June 30, 2008. Based on the closing market price of our Class A common stock on June 30, 2008, the aggregate intrinsic value of our outstanding stock options was $33 million. Of that amount, options with an aggregate intrinsic value of $5 million were exercisable at the end of the period.

ECHOSTAR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — Continued
(Unaudited)

Our restricted stock award activity (including performance and non-performance based options) for the six months ended June 30, 2008 was as follows:

		For the Six Months
		Ended June 30, 2008
						Weighted-
		Restricted				Average
		Stock				Grant Date
		Awards *				Fair Value
Total restricted stock awards outstanding, beginning of period			343,386			$	29.69
Granted			—				—
Exercised			(4,000	)			25.45
Forfeited and cancelled			(8,416	)			31.84
Total restricted stock awards outstanding, end of period			330,970				29.69
Restricted performance units outstanding, end of period *			114,970				26.37

Long-Term Performance-Based Plans

We have two long-term, performance-based stock incentive plans, the 1999 LTIP and the 2005 LTIP. The 1999 LTIP provided stock options to key employees which vest over five years at the rate of 20% per year. Exercise of the options is also contingent on achieving a company-specific goal in relation to an industry-related metric prior to December 31, 2008. The 2005 LTIP provides stock options and restricted performance units, either alone or in combination, which vest over seven years at the rate of 10% per year during the first four years, and at the rate of 20% per year thereafter. Exercise of the options is also subject to a performance condition that a company-specific goal is achieved prior to March 31, 2015.

Contingent compensation related to the 1999 LTIP and the 2005 LTIP will not be recorded in our financial statements unless and until the achievement of the performance condition is probable. The competitive nature of our industry and certain other factors can significantly impact achievement of the goal. Consequently, while it was determined that achievement of either of the goals was not probable as of June 30, 2008, that assessment could change with respect to either goal at any time. In accordance with SFAS 123R, if all of the awards under each plan were vested and each goal had been met during the six months ended June 30, 2008, we would have recorded total non-cash, stock-based compensation expense for our employees as indicated in the table below. If the goals are met and there are unvested options at that time, the vested amounts would be expensed immediately on our Condensed Consolidated Statements of Operations, with the unvested portion recognized ratably over the remaining vesting period. During the six months ended June 30, 2008, if we had determined each goal was probable, we would have recorded total non-cash, stock-based compensation expense for our employees as indicated in the table below.

		Total								Vested Portion
		1999 LTIP				2005 LTIP				1999 LTIP				2005 LTIP
		(In thousands)
DISH Network awards held by EchoStar employees		$	10,470			$	18,425			$	10,470			$	5,105
EchoStar awards held by EchoStar employees			2,126				3,741				2,126				1,037
Total		$	12,596			$	22,166			$	12,596			$	6,142

ECHOSTAR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — Continued
(Unaudited)

Of the 6.2 million options outstanding under our stock incentive plans as of June 30, 2008, the following options were outstanding pursuant to the 1999 LTIP and the 2005 LTIP:

		As of
		June 30, 2008
						Weighted-
						Average
Long-Term Performance-Based Plans		Stock Options				Exercise Price
1999 LTIP			1,018,600			$	8.84
2005 LTIP			894,000			$	25.60

Further, pursuant to the 2005 LTIP, there were also 114,970 outstanding restricted performance units as of June 30, 2008 with a weighted-average grant date fair value of $26.37. No awards were granted under the 1999 LTIP or 2005 LTIP during the six months ended June 30, 2008.

Stock-Based Compensation

Total non-cash, stock-based compensation expense, net of related tax effects, for all of our employees is shown in the following table for the three and six months ended June 30, 2008 and 2007 and was allocated to the same expense categories as the base compensation for such employees:

		For the Three Months								For the Six Months
		Ended June 30,								Ended June 30,
		2008				2007				2008				2007
		(In thousands)
Satellite services, digital broadcast operations and other cost of sales		$	108			$	—			$	234			$	—
Research and development expense			1,568				380				3,134				809
Selling, general and administrative expenses			3,012				234				5,874				434
Total non-cash, stock based compensation		$	4,688			$	614			$	9,242			$	1,243

As of June 30, 2008, our total unrecognized compensation cost related to our non-performance based unvested stock options was $54 million and includes compensation expense that we will recognize for DISH Network stock options held by our employees as a result of the Spin-off. This cost is based on an estimated future forfeiture rate of approximately 4.5% per year and will be recognized over a weighted-average period of approximately four years. Share-based compensation expense is recognized based on awards ultimately expected to vest and is reduced for estimated forfeitures. SFAS 123R requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Changes in the estimated forfeiture rate can have a significant effect on share-based compensation expense since the effect of adjusting the rate is recognized in the period the forfeiture estimate is changed.

The fair value of each award for the three and six months ended June 30, 2008 was estimated at the date of the grant using a Black-Scholes option pricing model with the following assumptions:

		For the Three Months				For the Six Months
		Ended June 30,				Ended June 30,
		2008				2008
Risk-free interest rate			3.42	%			2.74% — 3.42	%
Volatility factor			21.86	%			19.98% — 21.86	%
Expected term of options in years			6.0				6.0 — 6.1
Weighted-average fair value of options granted		$	9.29			$	7.85 — $9.29

ECHOSTAR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — Continued
(Unaudited)

We do not currently plan to pay dividends on our common stock, and therefore the dividend yield percentage is set at zero. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. Consequently, our estimate of fair value may differ from other valuation models. Further, the Black-Scholes model requires the input of highly subjective assumptions. Changes in the subjective input assumptions can materially affect the fair value estimate. Therefore, we do not believe the existing models provide as reliable a single measure of the fair value of stock-based compensation awards as a market-based model would.

We will continue to evaluate the assumptions used to derive the estimated fair value of options for our stock as new events or changes in circumstances become known.

4. Inventories

Inventories consist of the following:

		As of
		June 30,				December 31,
		2008				2007
		(In thousands)
Finished goods		$	18,081			$	16,969
Raw materials			31,694				4,042
Work-in-process			10,298				205
Subtotal			60,073				21,216
Inventory allowance			(577	)			(173	)
Inventories, net		$	59,496			$	21,043

5. Marketable and Non-Marketable Investment Securities

Gains and losses on investment securities accounted for at fair value are recognized currently as unrealized gains and losses on our Condensed Consolidated Statements of Operations. Interest income on fair value method debt investment securities is recorded in “Interest income” on our Condensed Consolidated Statements of Operations. Gains and losses on investment securities accounted for as available-for-sale are reported at fair value with the related temporary unrealized gains and losses reported as a separate component of “Accumulated other comprehensive income (loss)” within “Total stockholders’ equity (deficit),” net of related deferred income tax on our Condensed Consolidated Balance Sheets.

Declines in the fair value of an available-for-sale investment security which are determined to be “other than temporary” are recognized in the Condensed Consolidated Statements of Operations in the “Other” component of “Other Income (Expense),” thus establishing a new cost basis for the investment. We evaluate our available-for-sale investment securities portfolio on a quarterly basis to determine whether declines in the fair value of these securities are other than temporary. This quarterly evaluation consists of reviewing, among other things, the fair value of our marketable investment securities compared to the carrying amount, the historical volatility of the price of each security and any market and company-specific factors related to each security. Generally, absent specific factors to the contrary, declines in the fair value of investments below cost basis for a continuous period of less than six months are considered to be temporary. Declines in the fair value of investments for a continuous period of six to nine months are evaluated on a case by case basis to determine whether any company or market-specific factors exist which would indicate that such declines are other than temporary. Declines in the fair value of investments below cost basis for a continuous period greater than nine months are considered other than temporary and are recorded as charges to earnings, absent specific factors to the contrary.

ECHOSTAR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — Continued
(Unaudited)

For the equity securities that are not publicly traded, it is not practical to regularly estimate the fair value of the investments; however, these investments are subject to an evaluation for other than temporary impairment on a quarterly basis. This quarterly evaluation consists of reviewing, among other things, company business plans and current financial statements, if available, for factors that may indicate an impairment of our investment. Such factors may include, but are not limited to, cash flow concerns, material litigation, violations of debt covenants and changes in business strategy. The fair value of these equity investments is not estimated unless there are identified changes in circumstances that may indicate an impairment exists and these changes are likely to have a significant adverse effect on the fair value of the investment.

We also have an investment in non-marketable convertible debt which is included in “Marketable and non-marketable investment securities” on our Condensed Consolidated Balance Sheets. This debt is fair valued each reporting period based upon inputs other than quoted market prices that are observable for the debt, either directly or indirectly, with changes in fair value recorded as unrealized gains and losses on our Condensed Consolidated Statements of Operations. The fair value analysis takes into consideration the price of the underlying company stock as well as changes in the credit market, including yield curves and interest rates.

Our ability to realize value from our strategic investments in companies that are not publicly traded depends on the success of those companies’ businesses and their ability to obtain sufficient capital to execute their business plans. Because 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.

Current “Marketable Investment Securities”

As of June 30, 2008 and December 31, 2007, the fair values of our marketable investment securities and strategic marketable investment securities, which are included in “Marketable investment securities” on our Condensed Consolidated Balance Sheets, were as follows:

		As of
		June 30,				December 31,
		2008				2007
		(In thousands)
Marketable investment securities		$	81,199			$	—
Marketable investment securities — strategic			178,965				491,185
Total marketable investment securities		$	260,164			$	491,185

At June 30, 2008, we hold approximately $354 million of investment securities reported as non-current in “Marketable and non-marketable investments securities” on our Condensed Consolidated Balance Sheets that are publicly traded. Of this amount, $207 million was previously included in “Marketable investment securities” at December 31, 2007.

Our strategic marketable investment securities are highly speculative and are concentrated in a small number of companies. Additionally, during the six months ended June 30, 2008 our strategic investments have experienced and continue to experience volatility. If the fair value of our strategic marketable investment securities portfolio, accounted for as available-for-sale, does not remain above cost basis or if we become aware of any market or company-specific factors that indicate that the carrying value of certain of our securities is impaired, we may be required to record charges to earnings in future periods equal to the amount of the decline in fair value.

As of June 30, 2008 and December 31, 2007, we had accumulated unrealized losses of $48 million, net of related tax effect, and unrealized gains of $64 million, net of related tax effect, as a part of “Accumulated other comprehensive income (loss)” within “Total stockholders’ equity (deficit),” respectively.

ECHOSTAR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — Continued
(Unaudited)

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, aggregated by investment category. The unrealized losses on our investments in corporate equity securities represent investments in the common stock of five companies and losses on our investments in corporate debt represent investments in the marketable corporate debt of two companies. Of our investments in debt and equity securities, five are in companies in the communications industry and one is in the technology industry. We are not aware of any specific factors which indicate the unrealized loss in these investments is due to anything other than temporary market fluctuations. In addition, we have the ability and intent to hold our investments in “Corporate bonds” until maturity when the issuers are required to redeem them at their full face value.

						As of June 30, 2008
						Less than Six Months								Six to Nine Months								Nine Months or More
		Primary
Investment		Reason for				Fair				Unrealized				Fair				Unrealized				Fair				Unrealized
Category		Unrealized Loss				Value				Loss				Value				Loss				Value				Loss
						(In thousands)
Corporate bonds		Temporary market
		fluctuations				$	33,074			$	(958	)		$	16,770			$	(2,503	)		$	—			$	—
Corporate equity securities		Temporary market
		fluctuations					19,384				(2,338	)			84,539				(46,994	)			—				—
Total						$	52,458			$	(3,296	)		$	101,309			$	(49,497	)		$	—			$	—

Non-Current “Marketable and Non-Marketable Investment Securities”

We account for our unconsolidated equity investments under the fair value, equity or cost method of accounting. Non-majority owned investments are generally accounted for using the equity method when we have the ability to significantly influence the operating decisions of the issuer. However, when we believe the fair value method of accounting provides more meaningful information to our investors, we elect the fair value method for certain investments in affiliates whose equity is publicly traded. When we do not have the ability to significantly influence the operating decisions of an issuer, the cost method is used.

We also have several strategic debt and equity investments and other equity securities which are included in “Marketable and non-marketable investment securities” on our Condensed Consolidated Balance Sheets. These consist of the following:

		As of
		June 30,				December 31,
		2008				2007
		(In thousands)
Fair value method		$	416,055			$	—
Cost method			38,389				39,046
Equity method			17,419				20,114
Total		$	471,863			$	59,160

During the six months ended June 30, 2008, we recorded $20 million of unrealized losses due to changes in the fair value of certain debt and equity securities on our Condensed Consolidated Statements of Operations.

ECHOSTAR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — Continued
(Unaudited)

“Other” income and expense included on our Condensed Consolidated Statements of Operations includes other changes in the carrying amount of our current and non-current marketable investment securities and other items as follows:

		For the Three Months								For the Six Months
		Ended June 30,								Ended June 30,
		2008				2007				2008				2007
		(In thousands)
Gain on sale of a company which held certain FCC authorizations		$	67,624			$	—			$	67,624			$	—
Gains on sale of marketable investment securities			44,873				—				45,253				1,984
Other than temporary impairments			(44,650	)			—				(46,073	)			—
Other			(3,361	)			(602	)			(5,603	)			(2,750	)
Total		$	64,486			$	(602	)		$	61,201			$	(766	)

Master Investment Agreement with TerreStar

On February 7, 2008, we completed several transactions under a Master Investment Agreement, dated as of February 5, 2008 between us, TerreStar Corporation (“TerreStar”) and TerreStar Networks, Inc. (“TerreStar Networks”). Under the Master Investment Agreement, we acquired $50 million in aggregate principal amount of TerreStar Networks’ 6¹/2% Senior Exchangeable Paid-in-Kind Notes due June 15, 2014 (“Exchangeable Notes”). In addition, we acquired $50 million aggregate principal amount of TerreStar Networks’ 15% Senior Secured Paid-in-Kind Notes due February 15, 2014 (“15% PIK Notes”).

The Exchangeable Notes are guaranteed by TerreStar License Inc. and TerreStar National Services, Inc. and matures on June 15, 2014. The Exchangeable Notes are exchangeable for shares of TerreStar common stock based on a conversion price of $5.57 per share. TerreStar Networks may be obligated to repurchase all or a part of the Exchangeable Notes under certain circumstances, including upon a change of control of TerreStar Networks. The Exchangeable Notes bear interest at 6.5% per annum, with such interest being payable in additional Exchangeable Notes through March 2011 and cash thereafter. Additional cash interest may be payable in the event that certain milestones are not satisfied.

We also entered into a Purchase Money Credit Agreement with TerreStar Networks and Harbinger Capital Partners Master Fund I, Ltd. and Harbinger Capital Partners Special Situations Fund LP (collectively, “Harbinger”), in which we and Harbinger each committed to provide up to $50 million in secured financing, the proceeds of which may be advanced to TerreStar Networks from time to time as required for TerreStar Networks to make required payments in connection with a communications satellite to be constructed and launched for TerreStar Networks. Pursuant to a Security Agreement, dated as of February 5, 2008, from TerreStar Networks in favor of US Bank National Association, as Collateral Agent, TerreStar Networks granted a security interest to the Collateral Agent in certain of TerreStar Networks’ assets to be financed by the proceeds of the loan, including, among other things, the communications satellite and related raw materials, work-in-progress, and finished goods. As of June 30, 2008, we had advanced approximately $17 million to TerreStar Networks under the terms of this agreement.

Also, on February 5, 2008, we entered into a Spectrum Agreement (“Spectrum Agreement”) with TerreStar, which provided for the lease to TerreStar of our holdings of 1.4 GHz spectrum along with an option for TerreStar to acquire the company through which we held these licenses in exchange for the issuance of 30 million shares of TerreStar’s common stock (“Common Stock”). On June 10, 2008, TerreStar completed the acquisition of the company under the Spectrum Agreement and issued 30 million shares of Common Stock to us. The $68 million gain resulting from our sale of the company which held certain FCC authorizations was recorded in “Other” on our Condensed Consolidated Statements of Operations.

ECHOSTAR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — Continued
(Unaudited)

We have two representatives on TerreStar’s board of directors and have the ability to exert significant influence. We currently account for all of our investments in TerreStar using the fair value method of accounting as we believe that the fair value approach provides our investors with the most meaningful information. All of our investments in TerreStar are included in “Marketable and non-marketable investment securities” on our Condensed Consolidated Balance Sheets.

We rely on TerreStar’s management to provide us with accurate summary financial information. We are not aware of any errors in or possible misstatements of the financial information provided to us that would have a material effect on our Condensed Consolidated Financial Statements. The following tables provide summarized financial information for TerreStar:

		As of
		June 30,				December 31,
Balance Sheets (unaudited)		2008				2007
		(In thousands)
Assets
Current assets		$	235,610			$	107,558
Noncurrent assets			1,374,607				1,135,665
Total assets		$	1,610,217			$	1,243,223
Liabilities and Stockholders’ Equity (Deficit)
Current liabilities		$	38,086			$	52,611
Long-term liabilities			1,035,920				753,254
Minority interest			—				12,141
Cumulative preferred dividend			408,500				408,500
Stockholders’ equity (deficit)			127,711				16,717
Total liabilities and stockholders’ equity (deficit)		$	1,610,217			$	1,243,223

		For the Three Months								For the Six Months
		Ended June 30,								Ended June 30,
Statement of Operations (unaudited)		2008				2007				2008				2007
						(In thousands)
Operating expenses		$	57,280			$	50,298			$	124,474			$	89,260
Net income (loss)		$	(66,715	)		$	(56,168	)		$	(161,289	)		$	(123,758	)
Net income (loss) available to common stockholders		$	(73,640	)		$	(63,155	)		$	(175,139	)		$	(137,631	)

Restricted Cash and Marketable Investment Securities

As of June 30, 2008, restricted cash and marketable investment securities included amounts required for our letters of credit.

ECHOSTAR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — Continued
(Unaudited)

6. Property and Equipment

Property and equipment consist of the following:

		Depreciable				As of
		Life				June 30,				December 31,
		(In Years)				2008				2007
						(In thousands)
Land			—			$	30,066			$	2,509
Buildings and improvements			1-40				211,521				17,482
Furniture, fixtures, equipment and other			1-10				621,585				41,292
Satellites:
EchoStar III			12				234,083				—
EchoStar IV — fully depreciated			N/A				78,511				—
EchoStar VI			12				244,305				—
EchoStar VIII			12				175,801				—
EchoStar IX			12				127,376				—
EchoStar XII			10				190,051				—
Satellites acquired under capital leases			10				551,628				—
Construction in process			—				338,205				185,411
Total property and equipment						$	2,803,132			$	246,694
Accumulated depreciation							(1,325,595	)			(32,857	)
Property and equipment, net						$	1,477,537			$	213,837

The majority of the increase in property and equipment in the table above is associated with the assets contributed to us in connection to the Spin-off (see Note 1).

“Construction in process” consists of the following:

		As of
		June 30,				December 31,
		2008				2007
		(In thousands)
Progress amounts for satellite construction and launch costs		$	248,688			$	185,411
Digital broadcast equipment			79,167				—
Software and other			10,350				—
Construction in progress		$	338,205			$	185,411

Satellites

In connection with the Spin-off, DISH Network contributed six of its owned satellites and two of its satellite lease agreements to us. The two leased satellites are accounted for as capital leases pursuant to Statement of Financial Accounting Standards No. 13, “Accounting for Leases” (“SFAS 13”) and are depreciated over the ten-year terms of the satellite service agreements.

We believe that overall our satellites are generally in good condition. Prior to 2008, certain of these satellites have experienced anomalies, some of which have had a significant adverse impact on their commercial operation. There can be no assurance future anomalies will not cause further losses, which could impact the remaining life or commercial operation of any of these satellites. See discussion of evaluation of impairment in “Long-Lived Assets” below. Certain of these anomalies are discussed below.

ECHOSTAR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — Continued
(Unaudited)

EchoStar III

EchoStar III was originally designed to operate a maximum of 32 DBS transponders in CONUS, which provides service to the entire continental United States, at approximately 120 watts per channel, switchable to 16 transponders operating at over 230 watts per channel, and was equipped with a total of 44 traveling wave tube amplifier (“TWTA”) to provide redundancy. As a result of past TWTA failures, only 18 transponders are currently available for use. Due to redundancy switching limitations and specific channel authorizations, we can only operate on 15 of the 19 FCC authorized frequencies at the 61.5 degree location. While we do not expect a large number of additional TWTAs to fail in any year, and the failures have not reduced the original minimum 12-year design life of the satellite, it is likely that additional TWTA failures will occur from time to time in the future and those failures will further impact commercial operation of the satellite.

EchoStar IV

EchoStar IV currently operates at the 77 degree orbital location, which is licensed by the government of Mexico. The satellite was originally designed to operate a maximum of 32 DBS transponders in CONUS at approximately 120 watts per channel, switchable to 16 transponders operating at over 230 watts per channel. As a result of past TWTA failures, only six transponders are currently available for use and the satellite has been fully depreciated. There can be no assurance that further material degradation, or total loss of use, of EchoStar IV will not occur in the immediate future. Based on the remaining fuel life, EchoStar IV is not expected to be in operation beyond the first quarter of 2009.

EchoStar VI

EchoStar VI was originally equipped with 108 solar array strings, approximately 102 of which are required to assure full power availability for the original minimum 12-year useful life of the satellite. Prior to 2008, EchoStar VI experienced anomalies resulting in the loss of 22 solar array strings, reducing the number of functional solar array strings to 86. While the useful life of the satellite has not been affected, commercial operability has been reduced. The satellite was designed to operate 32 DBS transponders in CONUS at approximately 125 watts per channel, switchable to 16 transponders operating at approximately 225 watts per channel. The power reduction resulting from the solar array failures currently limits us to operation of a maximum of 26 transponders in standard power mode, or 13 transponders in high power mode. These numbers are expected to decrease to 25 and 12, respectively, by September 2008. The number of transponders to which power can be provided is expected to continue to decline in the future at the rate of approximately one transponder every three years.

EchoStar VIII

EchoStar VIII was designed to operate 32 DBS transponders in CONUS at approximately 120 watts per channel, switchable to 16 transponders operating at approximately 240 watts per channel. EchoStar VIII also includes spot-beam technology. This satellite has experienced several anomalies since launch, but none have reduced the 12-year estimated useful life of the satellite.

EchoStar IX

EchoStar IX was designed to operate 32 fixed satellite service (“FSS”) band transponders in CONUS at approximately 110 watts per channel, along with transponders that can provide services in the Ka-Band (a “Ka-band payload”). The satellite also includes a C-band payload which is owned by a third party. Prior to 2007, EchoStar IX experienced the loss of one of its three momentum wheels, two of which are utilized during normal operations. A spare wheel was switched in at the time and the loss did not reduce the 12-year estimated useful life of the satellite. During 2007, the satellite experienced anomalies resulting in the loss of three solar array strings. The anomalies have not impacted commercial operation of the satellite to date.

ECHOSTAR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — Continued
(Unaudited)

EchoStar XII

EchoStar XII was designed to operate 13 DBS transponders at 270 watts per channel in CONUS mode, or 22 spot beams using a combination of 135 and 65 watt TWTAs. We currently operate the satellite in spot beam/CONUS hybrid mode. EchoStar XII has a total of 24 solar array circuits, approximately 22 of which are required to assure full power for the original minimum 12-year design life of the satellite. Prior to 2008, eight solar array circuits on EchoStar XII have experienced anomalous behavior resulting in both temporary and permanent solar array circuit failures. Although the design life of the satellite has not been affected, these circuit failures have resulted in a reduction in power to the satellite which will preclude us from using the full complement of transponders on EchoStar XII for the 12-year design life of the satellite. The extent of this impact has not been determined.

AMC—14

In connection with the Spin-off, DISH Network contributed its AMC-14 satellite services contract to us. During March 2008, AMC-14 experienced a launch anomaly and failed to reach its intended orbit. SES Americom subsequently declared the AMC-14 satellite a total loss due to a lack of viable options to reposition the satellite to its proper geostationary orbit. Therefore, we have no obligation to make any future monthly lease payments to SES Americom with respect to the satellite. However, we did make up-front payments with respect to the satellite prior to launch and recorded capitalized interest and insurance costs related to the satellite. These amounts, net of insurance proceeds of $41 million, totaled $13 million and were written-off during the first quarter of 2008. The insurance proceeds were collected during the second quarter of 2008.

AMC—16

DISH Network contributed its AMC-16 satellite services contract to us in connection with the Spin-off. During the first quarter of 2008 SES Americom notified us that the satellite had experienced an anomaly and is no longer capable of operating at full capacity. Pursuant to the satellite services agreement, we are entitled to a reduction of our monthly recurring payment in the event of a partial loss of satellite capacity. We will record a reduction in our capital lease obligation and the corresponding asset by the same amount when the new monthly recurring payment is finalized with SES Americom.

CMBStar

We have suspended construction of the CMBStar satellite and in future periods may conclude it appropriate to record an impairment charge. During April 2008, we notified the State Administration of Radio, Film and Television of China that we were suspending construction of the CMBStar satellite pending, among other things, further analysis relating to efforts to meet the satellite performance criteria and/or confirmation that alternative performance criteria would be acceptable. We are currently evaluating potential alternative uses for the CMBStar satellite. If these alternative uses are unable to recover the carrying value invested to date in the satellite, we may be required to record an impairment charge in a future period relating to the CMBStar satellite. We currently estimate that this potential charge could be as much as $100 million, which would have a material adverse effect on our results of operations and financial position.

ECHOSTAR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — Continued
(Unaudited)

Long-Lived Satellite Assets

We account for impairments of long-lived satellite assets in accordance with the provisions of Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS 144”). SFAS 144 requires a long-lived asset or asset group to be tested for recoverability whenever events or changes in circumstance indicate that its carrying amount may not be recoverable. Based on the guidance under SFAS 144, we evaluate our satellites for recoverability at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. While certain of the anomalies discussed above, and previously disclosed, may be considered to represent a significant adverse change in the physical condition of a particular satellite, based on the redundancy designed within each satellite, these anomalies are not considered to be significant events that would require evaluation for impairment recognition pursuant to the guidance under SFAS 144.

In connection with the Spin-off, we performed an impairment analysis in accordance with SFAS 144 and currently expect the undiscounted cash flows of each satellite to be greater than the current carrying amounts. Should we be unable to achieve our business plan, or if conditions require us to change that plan, one or more of our satellites could become partially or fully impaired, which could have a material adverse effect on our results of operations and financial position.

7. Goodwill, FCC Authorizations and Intangible Assets

Goodwill and FCC Authorizations

We account for our goodwill and intangible assets in accordance with the provisions of Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”), which requires goodwill and intangible assets with indefinite useful lives not be amortized, but to be tested for impairment annually or whenever indicators of impairments arise. Intangible assets that have finite useful lives continue to be amortized over their estimated useful lives. Generally, we have determined that our FCC licenses have indefinite useful lives due to the following:

	•		FCC spectrum is a non-depleting asset;
	•		replacement satellite applications are generally authorized by the FCC subject to certain conditions, without substantial cost under a stable regulatory, legislative and legal environment;
	•		maintenance expenditures in order to obtain future cash flows are not significant; and
	•		we intend to use these assets indefinitely.

Intangible Assets

As of June 30, 2008 and December 31, 2007, our identifiable intangibles subject to amortization consisted of the following:

		As of
		June 30, 2008								December 31, 2007
		Intangible				Accumulated				Intangible				Accumulated
		Assets				Amortization				Assets				Amortization
		(In thousands)
Contract-based		$	190,566			$	(66,789	)		$	4,640			$	(373	)
Customer relationships			27,602				(9,902	)			23,600				(1,967	)
Technology-based			69,797				(13,348	)			50,297				(4,551	)
Total		$	287,965			$	(90,039	)		$	78,537			$	(6,891	)

ECHOSTAR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — Continued
(Unaudited)

Amortization of these intangible assets, recorded on a straight line basis over an average finite useful life primarily ranging from approximately three to 20 years, was $8 million for the three months ended June 30, 2008 and $16 million for the six months ended June 30, 2008.

Estimated future amortization of our identifiable intangible assets as of June 30, 2008 is as follows (in thousands):

For the Years Ending December 31,
2008 (remaining six months)		$	16,088
2009			32,176
2010			30,209
2011			24,028
2012			23,182
2013			23,174
Thereafter			49,069
Total		$	197,926

8. Long-Term Debt

Capital Lease Obligations, Mortgages and Notes Payable

Capital lease obligations, mortgages and notes payable consist of the following:

		As of
		June 30,				December 31,
		2008				2007
		(In thousands)
Capital lease obligations:
Satellites financed under capital lease obligations		$	351,439			$	—
Other equipment financed under capital lease obligations			10,378				—
8% note payable for EchoStar IX satellite vendor financing, payable over 14 years from launch			8,139				—
Other mortgages and notes payable in installments through 2017 with interest ranging from 4% to 20%			3,358				3,709
Total		$	373,314			$	3,709
Less current portion			(49,724	)			(1,365	)
Capital lease obligations, mortgages and other notes payable, net of current portion		$	323,590			$	2,344

Capital Lease Obligations

In connection with the Spin-off, the satellite lease contracts for AMC-15 and AMC-16 were contributed to EchoStar. These satellites are accounted for as capital leases pursuant to SFAS 13 and are depreciated over the ten-year terms of the satellite service agreements.

AMC—15. AMC-15, an FSS satellite, commenced commercial operation during January 2005. This lease is renewable by us on a year-to-year basis following the initial term, and provides us with certain rights to lease capacity on replacement satellites.

AMC—16. AMC-16, an FSS satellite, commenced commercial operation during February 2005. This lease is renewable by us on a year-to-year basis following the initial term, and provides us with certain rights to lease capacity on replacement satellites.

ECHOSTAR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — Continued
(Unaudited)

Future minimum lease payments under these capital lease obligations, together with the present value of the net minimum lease payments as of June 30, 2008 are as follows (in thousands):

For the Years Ended December 31,
2008 (remaining six months)		$	50,311
2009			89,918
2010			86,351
2011			86,351
2012			86,351
2013			86,351
Thereafter			81,673
Total minimum lease payments			567,306
Less: Amount representing lease of the orbital location and estimated executory costs (primarily insurance and maintenance) including profit thereon, included in total minimum lease payments			(94,246	)
Net minimum lease payments			473,060
Less: Amount representing interest			(111,243	)
Present value of net minimum lease payments			361,817
Less: Current portion			(47,505	)
Long-term portion of capital lease obligations		$	314,312