EchoStar CORP - Quarter Report: 2010 September (Form 10-Q)

Large Accelerated Filer

Accelerated Filer

Non-Accelerated Filer

¨ (Do not check if a smaller reporting company)

Smaller Reporting Company

Form 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2010.

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

Commission File Number: 001-33807

EchoStar Corporation

(Exact name of registrant as specified in its charter)


Nevada		26-1232727
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

100 Inverness Terrace East Englewood, Colorado		80112-5308
(Address of principal executive offices)		(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 x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

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

As of October 22, 2010, the registrant’s outstanding common stock consisted of 37,501,322 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 – September 30, 2010 and December 31, 2009 (Unaudited)	1

	Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) For the Three and Nine Months Ended September 30, 2010 and 2009 (Unaudited)	2

	Condensed Consolidated Statements of Cash Flows For the Nine Months Ended September 30, 2010 and 2009 (Unaudited)	3

	Notes to Condensed Consolidated Financial Statements (Unaudited)	4

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	38

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	54

Item 4.	Controls and Procedures	56

PART II – OTHER INFORMATION

Item 1.	Legal Proceedings	57

Item 1A.	Risk Factors	62

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	62

Item 3.	Defaults Upon Senior Securities	None

Item 4.	(Removed and Reserved)	None

Item 5.	Other Information	None

Item 6.	Exhibits	63

	Signatures	64

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:

General Risks Affecting Our Business

•

Weak economic conditions, including high unemployment and reduced consumer spending, may adversely affect our ability to grow or maintain our business.

•

We currently depend on DISH Network Corporation, or DISH Network, and Bell TV for substantially all of our revenue. The loss of, or a significant reduction in, orders from or a decrease in selling prices of digital set-top boxes, transponder leasing, digital broadcast operations and/or other products or services to, DISH Network would significantly reduce our revenue and adversely impact our results of operations. The loss of, or a significant reduction in, orders from or a decrease in selling prices of digital set-top boxes and/ or other products and services to Bell TV would significantly reduce our revenue and adversely impact our results of operations.

•

Adverse developments in DISH Network’s business may adversely affect us.

•

We currently have substantial unused satellite capacity, and our results of operations may be materially adversely affected if we are not able to lease more of this capacity to third parties.

•

Our sales to DISH Network could be terminated or substantially curtailed on short notice, which would have a detrimental effect on us.

•

We may need additional capital, which may not be available on acceptable terms or at all, to continue investing in our business and to finance acquisitions and other strategic transactions.

•

We may experience significant financial losses on our existing investments.

•

We may pursue acquisitions and other strategic transactions to complement or expand our business, which may not be successful and we may lose up to the entire value of our investment in these acquisitions and transactions.

•

We intend to make significant investments in new products, services, technologies and business areas that may not be profitable.

•

We are party to various lawsuits which, if adversely decided, could have a significant adverse impact on our business, particularly lawsuits regarding intellectual property.

•

We have not been an independent company for a significant amount of time and we may be unable to make, on a timely or cost-effective basis, the changes necessary to operate as an independent company.

•

If we are unable to properly respond to technological changes, our business could be significantly harmed.

•

We rely on key personnel and the loss of their services may negatively affect our businesses.

Risks Affecting Our “Digital Set-Top Box” Business

•

We depend on sales of digital set-top boxes for nearly all of our revenue and a decline in sales of our digital set-top boxes would have a material adverse effect on our financial position and results of operations.

•

Our business may suffer if direct-to-home satellite service providers, who currently comprise our customer base, do not compete successfully with existing and emerging alternative platforms for delivering digital television, including cable television operators, terrestrial broadcasters, and Internet protocol television (“IPTV”).

•

Our future financial performance depends in part on our ability to penetrate new markets for digital set-top boxes.

•

Component pricing may remain stable or be affected by inflation, which could have a material adverse effect on our results of operations.

•

The average selling price and gross margins of our digital set-top boxes has been decreasing and may decrease even further, which could negatively impact our financial position and results of operations.

•

Our ability to sell our digital set-top boxes to other operators depends on our ability to obtain licenses to use the conditional access systems utilized by these other operators.

•

Growth in our “Digital Set-Top Box” business likely requires expansion of our sales to international customers, and we may be unsuccessful in expanding international sales.

•

The digital set-top box business is extremely competitive.

•

We expect to continue to face competition from new market entrants, principally located in Asia, that offer low cost set-top boxes.

•

Our digital set-top boxes are highly complex and may experience quality or supply problems.

•

If significant numbers of television viewers are unwilling to pay for premium programming packages that utilize digital set-top boxes, we may not be able to sustain our current revenue level.

•

Our reliance on a single supplier or a limited number of suppliers for several components used in our digital set-top boxes could restrict production, result in higher digital set-top box costs and delay deliveries to customers.

•

Our future growth depends on growing demand for high definition, or HD, television.

•

If the encryption and related security technology used in our digital set-top boxes is compromised, sales of our digital set-top boxes may decline.

Risks Affecting Our “Satellite Services” Business

•

We currently face competition from established competitors in the satellite service business and may face competition from others in the future.

•

Our owned and leased satellites in orbit are subject to significant operational and environmental risks that could limit our ability to utilize these satellites.

•

Our satellites have minimum design lives ranging from 12 to 15 years, but could fail or suffer reduced capacity before then.

•

Our satellites under construction are subject to risks related to construction and launch that could limit our ability to utilize these satellites.

•

Our “Satellite Services” business is subject to risks of adverse government regulation.

•

Our business depends on Federal Communications Commission, or FCC, licenses that can expire or be revoked or modified and applications for FCC licenses that may not be granted.

•

We may not be aware of certain foreign government regulations.

•

Our dependence on outside contractors could result in delays related to the design, manufacture and launch of our new satellites, which could in turn adversely affect our operating results.

•

We currently have no commercial insurance coverage on the satellites we own and could face significant impairment charges if one of our satellites fails.

Risks Relating to the Spin-Off

•

We have potential conflicts of interest with DISH Network due to our common ownership and management.

Risks Relating to our Common Stock and the Securities Market

•

We cannot assure you that there will not be deficiencies leading to material weaknesses in our internal control over financial reporting.

•

It may be difficult for a third party to acquire us, even if doing so may be beneficial to our shareholders, because of our capital structure.

•

We are controlled by one principal shareholder who is our Chairman.

•

We may face other risks described from time to time in periodic and current reports we file with the Securities and Exchange Commission, or SEC.

All cautionary statements made herein should be read as being applicable to all forward-looking statements wherever they appear. 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.

iii

Item 1.

FINANCIAL STATEMENTS

ECHOSTAR CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share amounts)

(Unaudited)


	As of
	September 30, 2010			December 31, 2009
Assets
Current Assets:
Cash and cash equivalents	$	116,704		$	23,330
Marketable investment securities		849,987			805,832
Trade accounts receivable - DISH Network, net of allowance for doubtful accounts of zero		392,404			373,454
Trade accounts receivable - other, net of allowance for doubtful accounts of $5,997 and $5,605, respectively		48,704			84,178
Inventory		43,646			53,014
Deferred tax assets		5,451			5,053
Other current assets		27,855			18,997

Total current assets		1,484,751			1,363,858


Noncurrent Assets:
Restricted cash and marketable investment securities		17,216			18,003
Property and equipment, net of accumulated depreciation of $1,724,660 and $1,609,077, respectively		1,265,276			1,233,185
FCC authorizations		69,810			69,810
Intangible assets, net		126,832			151,813
Marketable and other investment securities		613,353			562,019
Other noncurrent assets, net		56,583			69,380

Total noncurrent assets		2,149,070			2,104,210

Total assets	$	3,633,821		$	3,468,068


Liabilities and Stockholders’ Equity (Deficit)
Current Liabilities:
Trade accounts payable - other	$	204,733		$	171,335
Trade accounts payable - DISH Network		19,999			38,347
Accrued royalties		18,581			22,052
Accrued expenses and other		86,082			78,070
Current portion of long-term debt and capital lease obligations		46,953			54,206

Total current liabilities		376,348			364,010


Long-Term Obligations, Net of Current Portion:
Long-term debt and capital lease obligations, net of current portion		364,674			392,163
Deferred tax liabilities		65,851			31,588
Other long-term liabilities		29,096			15,457

Total long-term obligations, net of current portion		459,621			439,208

Total liabilities		835,969			803,218


Commitments and Contingencies (Note 11)

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, 43,032,780 and 42,655,772 shares issued, 37,500,462 and 37,157,314 shares outstanding, respectively		43			43
Class B common stock, $.001 par value, 800,000,000 shares authorized, 47,687,039 shares issued and outstanding		48			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		3,297,896			3,278,680
Accumulated other comprehensive income (loss)		156,091			77,120
Accumulated earnings (deficit)		(558,064	)		(593,484	)
Treasury stock, at cost		(98,162	)		(97,557	)

Total stockholders’ equity (deficit)		2,797,852			2,664,850

Total liabilities and stockholders’ equity (deficit)	$	3,633,821		$	3,468,068

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

ECHOSTAR CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE INCOME (LOSS)

(In thousands, except per share amounts)

(Unaudited)


	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2010			2009			2010			2009
Revenue:
Equipment revenue - DISH Network	$	392,821		$	314,362		$	1,161,508		$	838,965
Equipment revenue - other		77,471			68,647			276,037			195,635
Services and other revenue - DISH Network		120,031			89,913			353,897			281,282
Services and other revenue - other		16,717			10,010			45,727			29,745

Total revenue		607,040			482,932			1,837,169			1,345,627


Costs and Expenses:
Cost of sales - equipment		401,998			327,522			1,228,206			886,176
Cost of sales - services and other (exclusive of depreciation shown below - Note 6)		62,295			47,954			180,148			149,005
Research and development expenses		11,645			10,633			36,270			31,447
Selling, general and administrative expenses		30,366			37,223			96,342			90,117
General and administrative expenses - DISH Network		3,942			4,447			12,655			17,703
Depreciation and amortization (Note 6)		58,191			58,989			172,866			180,413

Total costs and expenses		568,437			486,768			1,726,487			1,354,861

Operating income (loss)		38,603			(3,836	)		110,682			(9,234	)


Other Income (Expense):
Interest income		3,525			9,757			9,214			24,535
Interest expense, net of amounts capitalized (Note 8)		11,074			(6,964	)		(10,727	)		(21,479	)
Unrealized and realized gains (losses) on marketable investment securities and other investments		(94	)		100,458			(22,099	)		97,504
Unrealized gains (losses) on investments accounted for at fair value, net		(21,087	)		232,359			22,720			349,309
Other, net		1,439			1,400			(6,791	)		(3,645	)

Total other income (expense)		(5,143	)		337,010			(7,683	)		446,224


Income (loss) before income taxes		33,460			333,174			102,999			436,990
Income tax (provision) benefit, net		(28,309	)		(38,492	)		(67,579	)		(41,881	)

Net income (loss)		5,151			294,682			35,420			395,109
Less: Net income (loss) attributable to noncontrolling interest		—			742			—			—

Net income (loss) attributable to EchoStar common shareholders	$	5,151		$	293,940		$	35,420		$	395,109


Comprehensive Income (Loss):
Net income (loss)	$	5,151		$	294,682		$	35,420		$	395,109
Foreign currency translation adjustments		882			(546	)		284			617
Unrealized holding gains (losses) on available-for-sale securities		31,883			41,596			78,779			208,125
Recognition of previously unrealized (gains) losses on available-for-sale securities included in net income (loss)		(95	)		(100,458	)		(92	)		(102,964	)
Deferred income tax (expense) benefit		—			23,270			—			(37,139	)

Comprehensive income (loss)		37,821			258,544			114,391			463,748
Less: Comprehensive income (loss) attributable to noncontrolling interest		—			742			—			—

Comprehensive income (loss) attributable to EchoStar common shareholders	$	37,821		$	257,802		$	114,391		$	463,748


Weighted-average common shares outstanding - Class A and B common stock:
Basic		85,158			85,260			85,040			86,086

Diluted		85,250			85,310			85,136			86,303


Earnings per share - Class A and B common stock:
Basic net income (loss) per share attributable to EchoStar common shareholders	$	0.06		$	3.45		$	0.42		$	4.59

Diluted net income (loss) per share attributable to EchoStar common shareholders	$	0.06		$	3.45		$	0.42		$	4.58

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 Nine Months Ended September 30,
	2010			2009
Cash Flows From Operating Activities:
Net income (loss)	$	35,420		$	395,109
Adjustments to reconcile net income (loss) to net cash flows from operating activities:
Depreciation and amortization		172,866			180,413
Equity in losses (earnings) of affiliates		7,962			4,179
Unrealized and realized (gains) losses on marketable investment securities and other investments		22,099			(97,504	)
Unrealized (gains) losses on investments accounted for at fair value, net		(22,720	)		(349,309	)
Non-cash, stock-based compensation		10,542			10,118
Deferred tax expense (benefit)		29,993			(8,348	)
Other, net		(3,928	)		(14,029	)
Change in noncurrent assets		15,700			(168	)
Changes in current assets and current liabilities, net		(72,101	)		21,078

Net cash flows from operating activities		195,833			141,539


Cash Flows From Investing Activities:
Purchases of marketable investment securities		(1,683,091	)		(1,284,078	)
Sales and maturities of marketable investment securities		1,720,146			1,423,943
Purchases of property and equipment		(157,031	)		(124,910	)
Capital transaction with DISH Network in connection with the launch service (Note 13)		102,913			—
Change in restricted cash and marketable investment securities		787			(15,906	)
Purchase of strategic investments included in marketable and other investment securities		(46,389	)		(53,023	)
Other, net		638			5,052

Net cash flows from investing activities		(62,027	)		(48,922	)


Cash Flows From Financing Activities:
Repayment of long-term debt and capital lease obligations		(42,726	)		(42,094	)
Class A common stock repurchases		(605	)		(29,010	)
Net proceeds from Class A common stock options exercised and issued under the Employee Stock Purchase Plan		2,899			1,476

Net cash flows from financing activities		(40,432	)		(69,628	)


Net increase (decrease) in cash and cash equivalents		93,374			22,989
Cash and cash equivalents, beginning of period		23,330			24,467

Cash and cash equivalents, end of period	$	116,704		$	47,456


Supplemental Disclosure of Cash Flow Information:
Cash paid for interest	$	31,158		$	21,310

Capitalized interest (Note 8)	$	12,566		$	—

Cash received for interest	$	11,697		$	9,506

Cash paid for income taxes	$	14,601		$	25,532

Employee benefits paid in Class A common stock	$	3,814		$	—

Satellites and other assets financed under capital lease obligations	$	48,473		$	2,760

Reduction of capital lease obligations and associated asset value for AMC-16 (Note 6)	$	39,442		$	—

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

EchoStar Corporation is a holding company, whose subsidiaries (which together with EchoStar Corporation are referred to as “EchoStar,” the “Company,” “we,” “us” and/or “our”) operate two primary business units:

•

“Digital Set-Top Box” Business – which designs, develops and distributes digital set-top boxes and related products, including our Slingbox “placeshifting” technology, primarily for satellite TV service providers, telecommunication and cable companies and, with respect to Slingboxes, directly to consumers via retail outlets. Our “Digital Set-Top Box” business also provides digital broadcast operations including satellite uplinking/downlinking, transmission services, signal processing, conditional access management and other services provided primarily to DISH Network.

•

“Satellite Services” Business – which uses our ten owned and leased in-orbit satellites and related FCC licenses to lease capacity on a full time and occasional-use basis to enterprise, broadcast news and government organizations. We currently lease capacity primarily to DISH Network, and secondarily to Dish Mexico, government entities, Internet service providers, broadcast news organizations and private enterprise customers. We also deliver our ViP-TV transport service, offering MPEG-4 encoded Internet Protocol, or IP, streams of video and audio channels to telecommunication companies and small cable operators.

Effective January 1, 2008, DISH Network completed its distribution to us (the “Spin-off”) of its digital set-top box business and certain infrastructure and other assets, including certain of its satellites, uplink and satellite transmission assets, real estate and other assets and related liabilities. We and DISH Network now operate as separate publicly-traded companies, and neither entity has any ownership interest in the other. However, a substantial majority of the voting power of the shares of both companies is owned beneficially by Charles W. Ergen, our Chairman, or by certain trusts established by Mr. Ergen for the benefit of his family.

2. Summary of 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 prepared under GAAP. In our opinion, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Our results of operations for the interim periods presented are not necessarily indicative of the results that may be expected for the full year. 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, 2009 (“2009 10-K/A”). Certain prior period amounts have been reclassified to conform to the current period presentation.

Principles of Consolidation

We consolidate all majority owned subsidiaries, investments in entities in which we have controlling influence and variable interest entities where we have been determined to be the primary beneficiary. Non-majority owned investments are accounted for using the equity method when we have the ability to significantly influence the operating decisions of the investee. When we do not have the ability to significantly influence the operating decisions of an investee, the cost method is used. All significant intercompany accounts and transactions have been eliminated in consolidation.

ECHOSTAR CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Continued

(Unaudited)

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 revenue and expense for each reporting period. Estimates are used in accounting for, among other things, allowances for doubtful accounts, allowance for sales returns, warranty obligations, self-insurance obligations, deferred taxes and related valuation allowances, uncertain tax positions, loss contingencies, fair value 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. Weakened economic conditions have increased the inherent uncertainty in the estimates and assumptions indicated above. 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 in the period they occur.

Fair Value of Financial Instruments

As of September 30, 2010 and December 31, 2009, the carrying value of our cash and cash equivalents, marketable investment securities, trade accounts receivable, net of allowance for doubtful accounts, and current liabilities is equal to or approximates fair value due to their short-term nature. Disclosure regarding fair value of capital leases is not required.

New Accounting Pronouncements

Revenue Recognition – Multiple-Deliverable Arrangements

In October 2009, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update 2009-13 (“ASU 2009-13”), Revenue Recognition - Multiple-Deliverable Revenue Arrangements. ASU 2009-13 changes the requirements for establishing separate units of accounting in a multiple deliverable arrangement and requires the allocation of arrangement consideration to each deliverable to be based on the relative selling price. We are currently evaluating the impact, if any, ASU 2009-13 will have on our consolidated financial statements, when adopted, as required, on January 1, 2011.

ECHOSTAR CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Continued

(Unaudited)

3. Basic and Diluted Net Income (Loss) Per Share

We present both basic earnings per share (“EPS”) and diluted EPS. Basic EPS excludes potential dilution and is computed by dividing “Net income (loss) attributable to EchoStar common shareholders” by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if stock awards were exercised.

The potential dilution from stock awards was computed using the treasury stock method based on the average market value of our Class A common stock. The following table presents earnings per share amounts for all periods and the basic and diluted weighted-average shares outstanding used in the calculation.


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2010		2009		2010		2009
	(In thousands, except per share amounts)
Net income (loss) attributable to EchoStar common shareholders	$	5,151	$	293,940	$	35,420	$	395,109


Weighted-average common shares outstanding - Class A and B common stock:
Basic		85,158		85,260		85,040		86,086
Dilutive impact of stock awards outstanding		92		50		96		217

Diluted		85,250		85,310		85,136		86,303


Earnings per share - Class A and B common stock:
Basic net income (loss) per share attributable to EchoStar common shareholders	$	0.06	$	3.45	$	0.42	$	4.59

Diluted net income (loss) per share attributable to EchoStar common shareholders	$	0.06	$	3.45	$	0.42	$	4.58

As of September 30, 2010 and 2009, there were stock awards to purchase 5.8 million and 5.0 million shares, respectively, of Class A common stock outstanding, not included in the weighted-average common shares outstanding above, as their effect is antidilutive.

Vesting of options and rights to acquire shares of our Class A common stock (“Restricted Performance Units”) granted pursuant to a performance-based stock incentive plan is contingent upon meeting a certain company goal which is not yet probable of being achieved. As a consequence, the following are also not included in the diluted EPS calculation.


	As of September 30,
	2010		2009
	(In thousands)
Performance-based options		698		731
Restricted Performance Units		94		101

Total		792		832

ECHOSTAR CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Continued

(Unaudited)

4. Marketable Investment Securities, Restricted Cash and Other Investment Securities

Our marketable investment securities, restricted cash and other investment securities consist of the following:


	As of
	September 30, 2010		December 31, 2009
	(In thousands)
Marketable investment securities:
Current marketable investment securities - VRDNs	$	356,100	$	398,630
Current marketable investment securities - strategic		207,517		126,622
Current marketable investment securities - other		286,370		280,580

Total marketable investment securities - current		849,987		805,832
Restricted marketable investment securities (1)		2,215		2,995

Total		852,202		808,827


Restricted cash and cash equivalents (1)		15,001		15,008


Marketable and other investment securities - noncurrent:
Marketable and other investment securities - cost method		19,685		33,288
Marketable and other investment securities - equity method		119,759		94,826
Marketable and other investment securities - fair value method		473,909		433,905

Total marketable and other investment securities - noncurrent		613,353		562,019

Total marketable investment securities, restricted cash and other investment securities	$	1,480,556	$	1,385,854

(1)	Restricted marketable investment securities and restricted cash and cash equivalents are included in “Restricted cash and marketable investment securities” on our Condensed Consolidated Balance Sheets.

Marketable Investment Securities - Current

Our current marketable investment securities portfolio consists of various debt and equity instruments, all of which are classified as available-for-sale.

Current Marketable Investment Securities - VRDNs

Variable rate demand notes (“VRDNs”) are long-term floating rate municipal bonds with embedded put options that allow the bondholder to sell the security at par plus accrued interest. All of the put options are secured by a pledged liquidity source. Our VRDN portfolio is comprised of investments in many municipalities, which are backed by financial institutions or other highly rated companies that serve as the pledged liquidity source. While they are classified as marketable investment securities, the put option allows VRDNs to be liquidated generally on a same day or on a five business day settlement basis.

Current Marketable Investment Securities - Strategic

Our current strategic marketable investment securities are highly speculative and have experienced and continue to experience volatility. As of September 30, 2010, a significant portion of our strategic investment portfolio consisted of securities of several issuers and the value of that portfolio therefore depends on those issuers.

ECHOSTAR CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Continued

(Unaudited)

Current Marketable Investment Securities - Other

Our other current marketable investment securities portfolio includes investments in various debt instruments including corporate and government bonds.

Restricted Cash and Marketable Investment Securities

As of September 30, 2010 and December 31, 2009, our restricted marketable investment securities, together with our restricted cash, included amounts required as collateral for our letters of credit or surety bonds.

Marketable and Other Investment Securities - Noncurrent

We account for our unconsolidated debt and equity investments under the fair value, equity and/or cost method of accounting. We have several strategic investments in certain equity securities that are included in noncurrent “Marketable and other investment securities” on our Condensed Consolidated Balance Sheets.

Marketable and Other Investment Securities – Cost and Equity

Non-majority owned investments are generally accounted for using the equity method when we have the ability to significantly influence the operating decisions of an investee. However, when we do not have the ability to significantly influence the operating decisions of an investee, the cost method is used.

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.

Marketable and Other Investment Securities – Fair Value

We elect the fair value method for certain investments in affiliates whose debt and equity are publicly traded, when we believe the fair value method of accounting provides more meaningful information to our investors. For our investments carried at fair value, interest and dividends are measured at fair value and are recorded in “Unrealized gains (losses) on investments accounted for at fair value, net.” See “Investment in TerreStar” below for more information.

ECHOSTAR CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Continued

(Unaudited)

Unrealized Gains (Losses) on Marketable Investment Securities

As of September 30, 2010 and December 31, 2009, we had accumulated net unrealized gains of $155 million and $77 million, both net of related tax effect, respectively, as a part of “Accumulated other comprehensive income (loss)” within “Total stockholders’ equity (deficit).” A full valuation allowance has been established against any deferred taxes that are capital in nature. The components of our available-for-sale investments are detailed in the table below.


	As of September 30, 2010									As of December 31, 2009
	Marketable Investment Securities		Unrealized							Marketable Investment Securities		Unrealized
	Marketable Investment Securities		Gains		Losses			Net		Marketable Investment Securities		Gains		Losses			Net
	(In thousands)
Debt securities:
VRDNs	$	356,100	$	—	$	—		$	—	$	398,630	$	—	$	—		$	—
Other (including restricted)		328,078		20,219		(187	)		20,032		316,793		15,696		(137	)		15,559
Equity securities:
Other		168,024		135,386		—			135,386		93,404		61,172		—			61,172

Total marketable investment securities	$	852,202	$	155,605	$	(187	)	$	155,418	$	808,827	$	76,868	$	(137	)	$	76,731

As of September 30, 2010, restricted and non-restricted marketable investment securities include debt securities of $639 million with contractual maturities of one year or less and $45 million with contractual maturities greater than one year. Actual maturities may differ from contractual maturities as a result of our ability to sell these securities prior to maturity.

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. We do not intend to sell our investments in debt securities before they recover or mature, and it is more likely than not that we will hold these debt investments until that time. In addition, we are not aware of any specific factors indicating that the underlying issuers of these debt securities would not be able to pay interest as it becomes due or repay the principal at maturity. Therefore, we believe that these changes in the estimated fair values of these marketable investment securities are related to temporary market fluctuations.


	Primary Reason for Unrealized Loss		As of September 30, 2010
			Total Fair Value		Less than Six Months					Six to Nine Months					Nine Months or More
Investment Category					Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
Investment Category					Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
	(In thousands)
Debt securities		Temporary market fluctuations	$	78,944	$	9,923	$	(10	)	$	61,964	$	(175	)	$	7,057	$	(2	)

Total			$	78,944	$	9,923	$	(10	)	$	61,964	$	(175	)	$	7,057	$	(2	)


			As of December 31, 2009
	Primary Reason for Unrealized Loss		Total Fair Value		Less than Six Months					Six to Nine Months					Nine Months or More
					Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
Investment Category					Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
	(In thousands)
Debt securities		Temporary market fluctuations	$	57,683	$	50,648	$	(94	)	$	7,035	$	(43	)	$	—	$	—

Total			$	57,683	$	50,648	$	(94	)	$	7,035	$	(43	)	$	—	$	—

Fair Value Measurements

We determine fair value 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. Market or observable inputs are the preferred source of values, followed by unobservable inputs or assumptions based on hypothetical transactions in the absence of market inputs. We apply the following hierarchy in determining fair value:

•

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 liabilities in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which significant inputs and significant value drivers are observable in active markets; and

•

Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring assumptions based on the best information available.

ECHOSTAR CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Continued

(Unaudited)

Our assets measured at fair value on a recurring basis were as follows:


	As of
	September 30, 2010								December 31, 2009
	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
	(In thousands)
Debt securities:
VRDNs	$	356,100	$	—	$	356,100	$	—	$	398,630	$	—	$	398,630	$	—
Other (including restricted)		328,078		2,217		325,861		—		316,793		2,998		313,795		—

Equity securities		168,024		168,024		—		—		93,404		93,404		—		—

Marketable and other investment securities - noncurrent		473,909		10,413		—		463,496		433,905		28,200		339,677		66,028

Total assets at fair value	$	1,326,111	$	180,654	$	681,961	$	463,496	$	1,242,732	$	124,602	$	1,052,102	$	66,028

Changes in Level 3 instruments are as follows:


	Level 3 Investment Securities
	(In thousands)
Balance as of December 31, 2009	$	66,028
Net realized and unrealized gains (losses) included in earnings		(37,930	)
Purchases, issuances and settlements, net		48,125
Transfers from level 2 to level 3		387,273

Balance as of September 30, 2010	$	463,496

Transfers from level 2 into level 3 are due to a lack of observable market data for these securities during the nine months ended September 30, 2010.

Unrealized and Realized Gains (Losses) on Marketable Investment Securities and Other Investments

“Unrealized and realized gains (losses) on marketable investment securities and other investments” on our Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) includes changes in the carrying amount of our investments as follows:


	For the Three Months Ended September 30,					For the Nine Months Ended September 30,
	2010			2009		2010			2009
	(In thousands)
Unrealized and realized gains (losses) on marketable investment securities and other investments:
Marketable investment securities - gains (losses) on sales/exchange	$	(94	)	$	100,458	$	(87	)	$	104,275
Marketable and other investment securities - other-than-temporary impairments		—			—		(22,012	)		(6,771	)

Total unrealized and realized gains (losses) on marketable investment securities and other investments	$	(94	)	$	100,458	$	(22,099	)	$	97,504

ECHOSTAR CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Continued

(Unaudited)

Investments in TerreStar

We account for our investments in TerreStar Corporation (“TerreStar Corporation”) and TerreStar Networks Inc. (“TerreStar Networks”), an indirect, majority-owned subsidiary of TerreStar Corporation, using the fair value method of accounting which we believe provides more meaningful information to our investors. TerreStar Networks is the principal operating subsidiary of TerreStar Corporation. As discussed further below, TerreStar Networks filed for bankruptcy protection under the U.S. Bankruptcy Code on October 19, 2010. As of November 5, 2010, TerreStar Corporation had not filed for bankruptcy protection; however there can be no assurance whether or not TerreStar Corporation will file for bankruptcy protection in the future.

We have been an investor in TerreStar Corporation and TerreStar Networks for over two years. In February 2008, we completed several transactions under a Master Investment Agreement between us, TerreStar Corporation and 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”) as well as $50 million aggregate principal amount of TerreStar Networks’ 15% Senior Secured Paid-in-Kind Notes due February 15, 2014 (“15% PIK Notes”). We have also from time to time acquired and we currently hold other securities issued by TerreStar Corporation and TerreStar Networks.

Also, in February 2008, we entered into a Spectrum Agreement with TerreStar Corporation, under which in June 2008, TerreStar Corporation completed the acquisition of our holdings of 1.4 GHz spectrum in exchange for the issuance of 30 million shares of its common stock to us.

We also entered into an 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 were 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. As of September 30, 2010, we are owed $43 million by TerreStar Networks under the terms of this credit agreement.

Under the Master Investment Agreement, we have the right to appoint two representatives on TerreStar Corporation’s Board of Directors. We do not presently have any representatives on TerreStar Corporation’s Board of Directors. Our debt investments in TerreStar Networks had a fair value of $464 million and $406 million as of September 30, 2010 and December 31, 2009, respectively. Our equity investments in TerreStar Corporation had a fair value of $10 million and $28 million as of September 30, 2010 and December 31, 2009, respectively.

As a result, our debt and equity investments in TerreStar Corporation and TerreStar Networks had an aggregate fair value of $474 million and $434 million as of September 30, 2010 and December 31, 2009, respectively. Fluctuations in fair value of these investments are recorded in “Unrealized gains (losses) on investments accounted for at fair value, net” on our Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) and directly impact our profitability. For the three months ended September 30, 2010, we recorded a $21 million loss on these investments compared to a $232 million gain for the same period in 2009. For the nine months ended September 30, 2010, we recorded a $23 million gain on these investments compared to a $349 million gain for the same period in 2009.

Our investments in TerreStar Corporation and TerreStar Networks are highly speculative and have experienced and continue to experience significant volatility. The investments in TerreStar Networks are determined using Level 3 inputs under the fair value hierarchy. In estimating those fair values we consider quotes from brokers and other pricing services, if available, and obtain both observable and unobservable inputs in our valuation models which include the use of option pricing and discounted cash flow techniques. The fair value of these investments can be significantly impacted by adverse changes in securities markets generally, as well as risks related to the performance of TerreStar Corporation and TerreStar Networks, their ability to obtain sufficient capital to execute their business plans, risks associated with their specific industries, and other factors.

ECHOSTAR CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Continued

(Unaudited)

In connection with the filings by TerreStar Networks and certain of its affiliates (other than TerreStar Corporation) (the “Debtors”) for protection under Chapter 11 of the U.S. Bankruptcy Code and an ancillary proceeding under the Companies’ Creditors Arrangement Act in Canada, on October 19, 2010, we entered into a commitment to provide a debtor-in-possession credit facility (the “Credit Facility”) to the Debtors. The Credit Facility consists of a non-revolving, multiple draw term loan in the aggregate principal amount of $75 million, with drawings subject to the terms and conditions set forth in the credit agreement. On October 21, 2010, we funded $18 million to the Debtors under this Credit Facility.

On October 19, 2010, we also entered into a restructuring support agreement pursuant to which we have committed to backstop up to $100 million of a $125 million rights offering for preferred shares of TerreStar Networks to be completed upon TerreStar Network’s emergence from bankruptcy. The proceeds from this rights offering will, among other things, repay the Credit Facility. In addition, at our sole option, we will have the right to subscribe for an additional $25 million in preferred shares of TerreStar Networks in connection with its exit from bankruptcy. Under the restructuring support agreement, which remains subject to approval by the Bankruptcy Court, we have also committed to support TerreStar Networks’ plan of reorganization under which: (i) all of the outstanding long-term debt securities of TerreStar Networks would be converted into equity, including the 15% PIK Notes a majority of which we hold, whereby the holders of the 15% PIK Notes would receive an aggregate of 97% of the new common equity in TerreStar Networks; (ii) the remaining 3% of the new common equity would be issued to holders of the Exchangeable Notes and holders of general unsecured claims; (iii) the existing equity in TerreStar Networks would be extinguished; and (iv) TerreStar Networks’ purchase money security credit agreement would be reinstated and remain outstanding.

The ability of TerreStar Networks’ plan of reorganization to become effective and the Debtors’ ongoing business is subject to a number of risks and uncertainties. Certain parties may challenge the plan of reorganization on a number of grounds, including feasibility, the proposed treatment of the outstanding debt, and the appropriateness of the equity distribution. Moreover, the FCC must approve the transfer of control over the Debtors’ licenses under the plan of reorganization, and if it does not do so, the plan of reorganization cannot be implemented in its current form. In addition, it is impossible to predict with certainty the amount of time that the Debtors may spend in bankruptcy or whether the Debtors will be able to obtain confirmation of a plan of reorganization. If the Debtors are unable to obtain confirmation of a viable plan of reorganization on a timely basis, they may be forced to operate in bankruptcy for an extended period and may not have access to sufficient capital to reorganize. As a result, they may be forced to liquidate. Any delay could jeopardize the Debtors’ relationships with their key vendors and suppliers, customers and employees, which, in turn, would have an adverse effect on the Debtors’ operations. A material deterioration in the Debtors’ operations likely would diminish the value of our investment in TerreStar Corporation and TerreStar Networks.

ECHOSTAR CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Continued

(Unaudited)

We report the following TerreStar Corporation financial information on a one-quarter lag as TerreStar Corporation is a public company but not a “large accelerated filer,” as defined by the SEC. As such, the statements of operations data, shown below, includes the three and six months ended June 30 for each respective period presented. We rely on TerreStar Corporation’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 table provides summarized financial information from TerreStar Corporation:


	For the Three Months Ended June 30,						For the Six Months Ended June 30,
Statements of Operations Data (unaudited):	2010			2009			2010			2009
	(In thousands)
Revenue	$	3,243		$	—		$	6,243		$	—

Operating expenses	$	48,175		$	41,932		$	98,289		$	77,884

Net income (loss) from continuing operations	$	(61,238	)	$	(52,624	)	$	(120,431	)	$	(97,155	)

Net income (loss)	$	(61,238	)	$	(52,624	)	$	(120,431	)	$	(97,155	)

Net income (loss) available to common stockholders	$	(62,451	)	$	(60,002	)	$	(128,925	)	$	(112,079	)

5. Inventory

Inventory consists of the following:


	As of
	September 30, 2010		December 31, 2009
	(In thousands)
Finished goods	$	26,074	$	32,988
Raw materials		14,406		16,647
Work-in-process		3,166		3,379

Total inventory	$	43,646	$	53,014

6. Property and Equipment

Depreciation and Amortization Expense

Depreciation and amortization expense consists of the following:


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2010		2009		2010		2009
	(In thousands)
Satellites	$	22,562	$	25,570	$	70,000	$	76,711
Furniture, fixtures, equipment and other		25,632		23,560		73,120		74,140
Identifiable intangible assets subject to amortization		8,266		8,264		24,796		24,793
Buildings and improvements		1,731		1,595		4,950		4,769

Total depreciation and amortization	$	58,191	$	58,989	$	172,866	$	180,413

Cost of sales and operating expense categories included in our accompanying Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) do not include depreciation expense related to satellites.

ECHOSTAR CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Continued

(Unaudited)

Satellites

We currently utilize 10 satellites in geostationary orbit approximately 22,300 miles above the equator, four of which are leased. Three of our leased satellites are accounted for as capital leases and are depreciated over the terms of the satellite service agreements. We also lease capacity on one satellite from DISH Network that is accounted for as an operating lease. See Note 13 for further discussion of our satellite leases with DISH Network.

Certain satellites in our fleet have experienced anomalies, some of which have had a significant adverse impact on their remaining life and commercial operation. There can be no assurance that future anomalies will not further impact the remaining life and commercial operation of any of these satellites. See “Long-Lived Satellite Assets” below for further discussion of evaluation of impairment. 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. We do not anticipate carrying insurance for any of the in-orbit satellites that we own, and therefore will bear the risk of any in-orbit failures. Recent developments with respect to our satellites are discussed below.

Owned Satellites

EchoStar III. EchoStar III was originally designed to operate a maximum of 32 DBS transponders in CONUS mode 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 amplifiers (“TWTAs”) to provide redundancy. As a result of TWTA failures in previous years and during January and May 2010, only 12 transponders are currently available for use. Although these failures have impacted the commercial operation of the satellite, it is fully depreciated. It is likely that additional TWTA failures will occur from time to time in the future and such failures could further impact commercial operation of the satellite.

Leased Satellites

AMC-16. AMC-16, an FSS satellite, commenced commercial operation during February 2005 and currently operates at the 85 degree orbital location. This SES World Skies satellite is equipped with 24 Ku-band FSS transponders that operate at approximately 120 watts per channel and a Ka-band payload consisting of 12 spot beams. During the first quarter 2010, SES World Skies notified us that AMC-16 had experienced a solar-array anomaly that further reduced its available transponder capacity. As a result, our monthly recurring payment was reduced and our capital lease obligation and the corresponding asset value were lowered by approximately $39 million.

Long-Lived Satellite Assets

We evaluate our satellites for impairment and test for recoverability whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. This evaluation is performed at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. 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. However, based on the redundancy designed within each satellite, these anomalies are not considered to be significant events that would require evaluation for impairment recognition because the projected cash flows have not been significantly affected by these anomalies.

ECHOSTAR CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Continued

(Unaudited)

7. Intangible Assets

As of September 30, 2010 and December 31, 2009, our identifiable intangibles subject to amortization consisted of the following:


	As of
	September 30, 2010					December 31, 2009
	Intangible Assets		Accumulated Amortization			Intangible Assets		Accumulated Amortization
	(In thousands)
Contract-based	$	190,566	$	(104,203	)	$	190,566	$	(91,733	)
Customer relationships		23,632		(23,603	)		23,600		(17,700	)
Technology-based		73,314		(32,874	)		73,314		(26,234	)

Total	$	287,512	$	(160,680	)	$	287,480	$	(135,667	)

Amortization of these intangible assets is recorded on a straight line basis over an average finite useful life primarily ranging from approximately three to 20 years. Amortization was $8 million for each of the three months ended September 30, 2010 and 2009. Amortization was $25 million for each of the nine months ended September 30, 2010 and 2009, respectively.

Estimated future amortization of our identifiable intangible assets as of September 30, 2010 is as follows (in thousands):


For the Years Ended December 31,
2010 (remaining three months)	$	6,371
2011		25,012
2012		23,191
2013		23,187
2014		21,976
Thereafter		27,095

Total	$	126,832

8. Long-Term Debt and Capital Lease Obligations

Capital Lease Obligations

As of September 30, 2010 and December 31, 2009, we had $524 million and $509 million capitalized for the estimated fair value of satellites acquired under capital leases included in “Property and equipment, net,” with related accumulated depreciation of $262 million and $240 million, respectively.

In our Condensed Consolidated Statements of Operations and Comprehensive Income (Loss), we recognized depreciation expense on satellites acquired under capital lease agreements as follows:


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2010		2009		2010		2009
	(In thousands)
Depreciation expense - capital leases	$	6,444	$	4,575	$	21,645	$	13,726

ECHOSTAR CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Continued

(Unaudited)

The following satellites are accounted for as capital leases and depreciated over the 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 ten-year 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 ten-year term, and provides us with certain rights to lease capacity on replacement satellites.

Nimiq 5. Nimiq 5 was launched in September 2009 and commenced commercial operation at the 72.7 degree orbital location during October 2009, where it provides additional high-powered capacity to our satellite fleet. See Note 13 for further discussion.

Future minimum lease payments under these capital lease obligations, together with the present value of the net minimum lease payments as of September 30, 2010 are as follows (in thousands):


For the Years Ended December 31,
2010 (three months remaining)	$	20,310
2011		116,442
2012		115,432
2013		115,335
2014		110,581
Thereafter		401,941

Total minimum lease payments		880,041
Less: Amount representing use of the orbital location and estimated executory costs (primarily insurance and maintenance) including profit thereon, included in total minimum lease payments		(255,970	)

Net minimum lease payments		624,071
Less: Amount representing interest		(218,989	)

Present value of net minimum lease payments		405,082
Less: Current portion		(46,204	)

Long-term portion of capital lease obligations	$	358,878

During the three months ended September 30, 2010, $7 million, $3 million, and $4 million of interest was capitalized into construction in progress that relates to interest expense that should have been capitalized in 2009, first quarter 2010 and second quarter 2010, respectively.

9. Stockholders’ Equity (Deficit)

Common Stock Repurchase Program

During the nine months ended September 30, 2010, we repurchased 34 thousand shares of our Class A common stock for $605,000. As of September 30, 2010, we were authorized by our Board of Directors to repurchase up to $499 million of our Class A common stock. On November 3, 2010, our Board of Directors extended the plan and authorized an increase in the maximum dollar value of shares that may be repurchased under the plan, such that we are currently authorized to repurchase up to $500 million of our outstanding shares of Class A common stock through and including December 31, 2011.

ECHOSTAR CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Continued

(Unaudited)

10. Stock-Based Compensation

Stock Incentive Plans

We maintain stock incentive plans to attract and retain officers, directors and key employees. Stock awards under these plans include both performance and non-performance based stock incentives. As of September 30, 2010, we had outstanding under these plans stock options to acquire 8.1 million shares of our Class A common stock and 0.1 million restricted stock units. Stock options granted prior to and on September 30, 2010 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. While historically we have issued stock awards subject to vesting, typically at the rate of 20% to 33% per year, some stock awards have been granted with immediate vesting and other stock awards vest only upon the achievement of certain company-wide objectives. As of September 30, 2010, we had 6.6 million shares of our Class A common stock available for future grant under our stock incentive plans.

In connection with the Spin-off, as permitted by DISH Network’s existing stock incentive plans and consistent with the Spin-off exchange ratio, each DISH Network stock option was converted into two stock 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.

As of September 30, 2010, the following stock awards were outstanding:


	As of September 30, 2010
	EchoStar Awards				DISH Network Awards
Stock Awards Outstanding	Stock Options		Restricted Stock Units		Stock Options		Restricted Stock Units
Held by EchoStar employees		6,986,140		63,040		3,527,086		365,841
Held by DISH Network employees		1,070,874		59,517		N/A		N/A

Total		8,057,014		122,557		3,527,086		365,841

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

ECHOSTAR CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Continued

(Unaudited)

Stock Award Activity

Our stock option activity for the nine months ended September 30, 2010 was as follows:


	For the Nine Months Ended September 30, 2010
	Options			Weighted- Average Exercise Price
Total options outstanding, beginning of period		7,203,101		$	24.85
Granted		1,248,000			19.10
Exercised		(80,152	)		14.11
Forfeited and cancelled		(313,935	)		37.40

Total options outstanding, end of period		8,057,014			23.38

Performance-based options outstanding, end of period (1)		697,800			25.38

Exercisable at end of period		2,458,487			26.34

(1)

These stock options, which are included in the caption “Total options outstanding, end of period,” were issued pursuant to a performance-based stock incentive plan. Vesting of these stock options is contingent upon meeting a certain company goal which is not yet probable of being achieved. See discussion of the 2005 LTIP below.

We realized tax benefits from stock awards exercised during the three and nine months ended September 30, 2010 and 2009 as follows:


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2010		2009		2010		2009
	(In thousands)
Tax benefit from stock awards exercised	$	53	$	65	$	1,005	$	357

Based on the closing market price of our Class A common stock on September 30, 2010, the aggregate intrinsic value of our stock options was as follows:


	As of September 30, 2010
	Options Outstanding		Options Exercisable
	(In thousands)
Aggregate intrinsic value	$	5,839	$	1,182

ECHOSTAR CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Continued

(Unaudited)

Our restricted stock unit activity for the nine months ended September 30, 2010 was as follows:


	For the Nine Months Ended September 30, 2010
	Restricted Stock Units			Weighted- Average Grant Date Fair Value
Total restricted stock units outstanding, beginning of period		130,040		$	27.78
Granted		—			—
Vested		—			—
Forfeited and cancelled		(7,483	)		26.41

Total restricted stock units outstanding, end of period		122,557			27.86

Restricted Performance Units outstanding, end of period (1)		94,007			26.64

(1)

These Restricted Performance Units, which are included in the caption “Total restricted stock units outstanding, end of period,” were issued pursuant to a performance-based stock incentive plan. Vesting of these Restricted Performance Units is contingent upon meeting a certain company goal which is not yet probable of being achieved. See discussion of the 2005 LTIP below.

Long-Term Performance-Based Plans

2005 LTIP. During 2005, DISH Network adopted a long-term, performance-based stock incentive plan (the “2005 LTIP”). The 2005 LTIP provides stock options and restricted stock 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 stock awards is subject to a performance condition that a company-specific goal is achieved by March 31, 2015.

Contingent compensation related to 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 the goal was not probable as of September 30, 2010, that assessment could change at any time.

If all of the stock awards under the 2005 LTIP were vested and the goal had been met or if we had determined that achievement of the goal was probable during the nine months ended September 30, 2010, we would have recorded total non-cash, stock-based compensation expense for our employees as indicated in the table below. If the goal is met and there are unvested stock awards at that time, the vested amounts would be expensed immediately on our Condensed Consolidated Statements of Operations and Comprehensive Income (Loss), with the unvested portion recognized ratably over the remaining vesting period.


	2005 LTIP
	Total		Vested Portion
	(In thousands)
DISH Network awards held by EchoStar employees	$	17,641	$	10,102
EchoStar awards held by EchoStar employees		3,455		1,976

Total	$	21,096	$	12,078

ECHOSTAR CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Continued

(Unaudited)

Of the 8.1 million stock options and 0.1 million restricted stock units outstanding under our stock incentive plans as of September 30, 2010, the following awards were outstanding pursuant to the 2005 LTIP:


	As of September 30, 2010
	Number of Awards		Weighted- Average Exercise Price
Stock options		697,800	$	25.38
Restricted Performance Units		94,007

Total		791,807

Other Employee Performance Awards. Our employees who were hired prior to the Spin-off are eligible to receive a DISH Network stock award. Vesting of this award is contingent upon meeting a certain company-specific goal, which is currently not probable of being achieved. While DISH Network is responsible for fulfillment of this award, we would have incurred compensation expense of approximately $2 million had achievement of the goal been probable as of September 30, 2010.

Stock-Based Compensation

Total non-cash, stock-based compensation expense for all of our employees is shown in the following table for the three and nine months ended September 30, 2010 and 2009 and was allocated to the same expense categories as the base compensation for such employees:


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2010		2009		2010		2009
	(In thousands)
Research and development expenses	$	755	$	680	$	2,883	$	2,617
Selling, general and administrative expenses		2,486		2,577		7,659		7,501

Total non-cash, stock based compensation	$	3,241	$	3,257	$	10,542	$	10,118

As of September 30, 2010, our total unrecognized compensation cost related to our non-performance based unvested stock awards was $31 million and includes compensation expense that we will recognize for DISH Network stock awards held by our employees as a result of the Spin-off. This cost is based on an estimated future forfeiture rate of approximately 1.3% per year and will be recognized over a weighted-average period of approximately three years. Share-based compensation expense is recognized based on stock awards ultimately expected to vest and is reduced for estimated forfeitures. Forfeitures are 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.

ECHOSTAR CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Continued

(Unaudited)

The fair value of each stock award for the three and nine months ended September 30, 2010 and 2009 was estimated at the date of the grant using a Black-Scholes option valuation model with the following assumptions:


	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
Stock Options	2010			2009			2010	2009
Risk-free interest rate		1.64	%		2.72	%	1.64% - 2.97%	2.00% - 2.92%
Volatility factor		31.32	%		29.87	%	31.00% - 31.51%	28.48% - 29.87%
Expected term of options in years		6.2			6.3		6.1 - 6.2	6.2 - 6.3
Weighted-average fair value of options granted	$	6.44		$	6.55		$6.44 - $7.38	$4.76 - $6.55

We do not currently intend to pay dividends on our common stock and accordingly, the dividend yield percentage used in the Black-Scholes option valuation model is set at zero for all periods. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded stock 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 option valuation model requires the input of 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 our stock options as new events or changes in circumstances become known.

11. Commitments and Contingencies

Commitments

Subsequent to September 30, 2010, and in connection with TerreStar Networks’ bankruptcy, we entered into agreements to provide a $75 million Credit Facility to TerreStar Networks and certain of its affiliates. On October 21, 2010, we funded $18 million to TerreStar Networks under this Credit Facility. Additionally, subsequent to September 30, 2010 and in connection with TerreStar Networks’ bankruptcy, we also entered into a restructuring support agreement pursuant to which we have committed to backstop up to $100 million of a $125 million rights offering for preferred shares of TerreStar Networks to be completed upon TerreStar Network’s emergence from bankruptcy. See Note 4 under “Investments in TerreStar” for further discussion.

Contingencies

In connection with the Spin-off, we entered into a separation agreement with DISH Network, which provides among other things for the division of certain liabilities, including liabilities resulting from litigation. Under the terms of the separation agreement, we have assumed certain liabilities that relate to our business including certain designated liabilities for acts or omissions prior to the Spin-off. Certain specific provisions govern intellectual property related claims under which, generally, we will only be liable for our acts or omissions following the Spin-off and DISH Network will indemnify us for any liabilities or damages resulting from intellectual property claims relating to the period prior to the Spin-off as well as DISH Network’s acts or omissions following the Spin-off.

Acacia

ECHOSTAR CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Continued

(Unaudited)

Patent Nos. 5,132,992; 5,253,275; 5,550,863; 6,002,720; and 6,144,702, which relate to certain systems and methods for transmission of digital data. On September 25, 2009, the District Court granted summary judgment to the defendants on invalidity grounds, and dismissed the action with prejudice. On October 8, 2010, the Federal Circuit Court of Appeals affirmed the dismissal. The plaintiffs can appeal that decision to the United States Supreme Court. We intend to vigorously defend this case. In the event that a court ultimately determines that we infringe any of the asserted patents, we may be subject to substantial damages, which may include treble damages, and/or an injunction that could require us to materially modify certain user-friendly features that we currently offer to consumers. We are being indemnified by DISH Network for any potential liability or damages resulting from this suit relating to the period prior to the effective date of the Spin-off. We cannot predict with any degree of certainty the outcome of the suit or determine the extent of any potential liability or damages.

Broadcast Innovation, L.L.C.

During 2001, Broadcast Innovation, L.L.C. (“Broadcast Innovation”) filed a lawsuit against DISH Network, DirecTV, Thomson Consumer Electronics and others in United States District Court in Denver, Colorado. Broadcast Innovation is an entity that seeks to license an acquired patent portfolio without itself practicing any of the claims recited therein. The suit alleges infringement of United States Patent Nos. 6,076,094 (the ‘094 patent) and 4,992,066 (the ‘066 patent). The ‘094 patent relates to certain methods and devices for transmitting and receiving data along with specific formatting information for the data. The ‘066 patent relates to certain methods and devices for providing the scrambling circuitry for a pay television system on removable cards. Subsequently, DirecTV and Thomson settled with Broadcast Innovation leaving DISH Network as the only defendant.

During 2004, the District Court issued an order finding the ‘066 patent invalid. Also in 2004, the District Court found the ‘094 patent invalid in a parallel case filed by Broadcast Innovation against Charter and Comcast. In 2005, the United States Court of Appeals for the Federal Circuit overturned that finding of invalidity with respect to the ‘094 patent and remanded the Charter case back to the District Court. During June 2006, Charter filed a reexamination request with the United States Patent and Trademark Office. The District Court has stayed the Charter case pending reexamination, and our case has been stayed pending resolution of the Charter case.

We intend to vigorously defend this case. In the event that a court ultimately determines that we infringe any of the asserted patents, we may be subject to substantial damages, which may include treble damages, and/or an injunction that could require us to materially modify certain user-friendly features that we currently offer to consumers. We are being indemnified by DISH Network for any potential liability or damages resulting from this suit relating to the period prior to the effective date of the Spin-off. We cannot predict with any degree of certainty the outcome of the suit or determine the extent of any potential liability or damages.

Finisar Corporation

Finisar Corporation (“Finisar”) obtained a $100 million verdict in the United States District Court for the Eastern District of Texas against DirecTV for patent infringement. Finisar, an entity that seeks to license an acquired patent portfolio without itself practicing any of the claims recited therein, alleged that DirecTV’s electronic program guide and other elements of its system infringe United States Patent No. 5,404,505 (the ‘505 patent).

During 2006, we and DISH Network, together with NagraStar LLC, filed a Complaint for Declaratory Judgment in the United States District Court for the District of Delaware against Finisar that asks the Court to declare that we do not infringe, and have not infringed, any valid claim of the ‘505 patent. Finisar brought counterclaims against us, DISH Network and NagraStar alleging that we infringed the ‘505 patent. During April 2008, the Federal Circuit reversed the judgment against DirecTV and ordered a new trial. On remand, the District Court granted summary judgment in favor of DirecTV and during January 2010, the Federal Circuit affirmed the District Court’s grant of summary judgment, and dismissed the action with prejudice. Finisar then agreed to dismiss its counterclaims against us, DISH Network and NagraStar without prejudice. We also agreed to dismiss our Declaratory Judgment action without prejudice.

ECHOSTAR CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Continued

(Unaudited)

Nazomi Communications

On February 10, 2010, Nazomi Communications, Inc. (“Nazomi”) filed suit against Sling Media, Inc, a subsidiary of ours, and several other defendants, in the United States District Court for the Central District of California alleging infringement of United States Patent No. 7,080,362 (“the ‘362 patent”) and United States Patent No. 7,225,436 (“the ‘436 patent”). The ‘362 patent and the ‘436 patent relate to Java hardware acceleration. The suit alleges that the Slingbox-Pro-HD product infringes the ‘362 patent and the ‘436 patent because the Slingbox-PRO HD allegedly incorporates an ARM926EJ-S processor core capable of Java hardware acceleration.

We intend to vigorously defend this case. In the event that a court ultimately determines that we infringe the asserted patent, we may be subject to substantial damages, which may include treble damages, and/or an injunction that could require us to materially modify certain features that we currently offer to consumers. We cannot predict with any degree of certainty the outcome of the suit or determine the extent of any potential liability or damages.

NorthPoint Technology

On July 2, 2009, NorthPoint Technology, Ltd filed suit against us, DISH Network, and DirecTV in the United States District Court for the Western District of Texas alleging infringement of United States Patent No. 6,208,636 (the ‘636 patent). The ‘636 patent relates to the use of multiple low-noise block converter feedhorns, or LNBFs, which are antennas used for satellite reception.

We intend to vigorously defend this case. In the event that a court ultimately determines that we infringe the asserted patent, we may be subject to substantial damages, which may include treble damages, and/or an injunction that could require us to materially modify certain features that we currently offer to consumers. We are being indemnified by DISH Network for any potential liability or damages resulting from this suit relating to the period prior to the effective date of the Spin-off. We cannot predict with any degree of certainty the outcome of the suit or determine the extent of any potential liability or damages.

Personalized Media Communications

During 2008, Personalized Media Communications, Inc. (“PMC”) filed suit against us, DISH Network and Motorola, Inc. in the United States District Court for the Eastern District of Texas alleging infringement of United States Patent Nos. 4,694,490; 5,109,414; 4,965,825; 5,233,654; 5,335,277; and 5,887,243, which relate to satellite signal processing. PMC is an entity that seeks to license an acquired patent portfolio without itself practicing any of the claims recited therein.

Suomen Colorize Oy

During October 2010, Suomen Colorize Oy (“Suomen”) filed suit against us and DISH Network L.L.C., an indirect wholly owned subsidiary of DISH Network, in the United States District Court for the Middle District of Florida alleging infringement of United States Patent No. 7,277,398. The abstract of the patent states that the claims are directed to a method and terminal for providing services in a telecommunication network.

Technology Development Licensing

On January 22, 2009, Technology Development and Licensing LLC (“TDL”) filed suit against us and DISH Network in the United States District Court for the Northern District of Illinois alleging infringement of United States Patent No. 35,952, which relates to certain favorite channel features. TDL is an entity that seeks to license an acquired patent portfolio without itself practicing any of the claims recited therein. In July 2009, the Court granted our motion to stay the case pending two re-examination petitions before the Patent and Trademark Office.

ECHOSTAR CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Continued

(Unaudited)

We intend to vigorously defend this case. In the event that a court ultimately determines that we infringe the asserted patent, we may be subject to substantial damages, which may include treble damages, and/or an injunction that could require us to materially modify certain user-friendly features that we currently offer to consumers. We are being indemnified by DISH Network for any potential liability or damages resulting from this suit relating to the period prior to the effective date of the Spin-off. We cannot predict with any degree of certainty the outcome of the suit or determine the extent of any potential liability or damages.

Tivo Inc.

During January 2008, the United States Court of Appeals for the Federal Circuit affirmed in part and reversed in part the April 2006 jury verdict concluding that certain of our digital video recorders, or DVRs, infringed a patent held by Tivo. In its January 2008 decision, the Federal Circuit affirmed the jury’s verdict of infringement on Tivo’s “software claims,” and upheld the award of damages from the District Court. The Federal Circuit, however, found that we did not literally infringe Tivo’s “hardware claims,” and remanded such claims back to the District Court for further proceedings. On October 6, 2008, the Supreme Court denied our petition for certiorari. As a result, DISH Network paid approximately $105 million to Tivo.

We also developed and deployed “next-generation” DVR software. This improved software was automatically downloaded to our current customers’ DVRs, and is fully operational (our “original alternative technology”). The download was completed as of April 2007. We received written legal opinions from outside counsel that concluded our original alternative technology does not infringe, literally or under the doctrine of equivalents, either the hardware or software claims of Tivo’s patent. Tivo filed a motion for contempt alleging that we are in violation of the Court’s injunction. We opposed this motion on the grounds that the injunction did not apply to DVRs that have received our original alternative technology, that our original alternative technology does not infringe Tivo’s patent, and that we were in compliance with the injunction.

In June 2009, the United States District Court granted Tivo’s motion for contempt, finding that our original alternative technology was not more than colorably different than the products found by the jury to infringe Tivo’s patent, that the original alternative technology still infringed the software claims, and that even if the original alternative technology was “non-infringing,” the original injunction by its terms required that DISH Network disable DVR functionality in all but approximately 192,000 digital set-top boxes in the field. The District Court also amended its original injunction to require that we inform the court of any further attempts to design around Tivo’s patent and seek approval from the court before any such design-around is implemented. The District Court awarded Tivo $103 million in supplemental damages and interest for the period from September 2006 through April 2008, based on an assumed $1.25 per subscriber per month royalty rate. DISH Network posted a bond to secure that award pending appeal of the contempt order. On July 1, 2009, the Federal Circuit Court of Appeals granted a permanent stay of the District Court’s contempt order pending resolution of our appeal.

The District Court held a hearing on July 28, 2009 on Tivo’s claims for contempt sanctions. Tivo sought up to $975 million in contempt sanctions for the period from April 2008 to June 2009 based on, among other things, profits Tivo alleges DISH Network made from subscribers using DVRs. We opposed Tivo’s request arguing, among other things, that sanctions are inappropriate because we made good faith efforts to comply with the Court’s injunction. We also challenged Tivo’s calculation of profits. On September 4, 2009, the District Court partially granted Tivo’s motion for contempt sanctions and awarded $2.25 per DVR subscriber per month for the period from April 2008 to July 2009 (as compared to the award for supplemental damages for the prior period from September 2006 to April 2008, which was based on an assumed $1.25 per DVR subscriber per month). By the District Court’s estimation, the total award for the period from April 2008 to July 2009 is approximately $200 million. The District Court also awarded Tivo its attorneys’ fees and costs incurred during the contempt proceedings. Enforcement of these awards has been stayed by the District Court pending resolution of our appeal of the underlying June 2009 contempt order. On February 8, 2010, we and Tivo submitted a stipulation to the District Court that the attorneys’ fees and costs, including expert witness fees and costs, that Tivo incurred during the contempt proceedings amounted to $6 million.

ECHOSTAR CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Continued

(Unaudited)

In light of the District Court’s finding of contempt, and its description of the manner in which it believes our original alternative technology infringed the ‘389 patent, we are also developing and testing potential new alternative technology in an engineering environment. As part of our development process, we downloaded several of our design-around options to less than 1,000 subscribers for “beta” testing. On March 11, 2010, we requested that the District Court approve the implementation of one of our design-around options on an expedited basis. There can be no assurance that the District Court will approve this request.

Oral argument on our appeal of the contempt ruling took place on November 2, 2009, before a three-judge panel of the Federal Circuit Court of Appeals. On March 4, 2010, the Federal Circuit affirmed the District Court’s contempt order in a 2-1 decision. On May 14, 2010, our petition for en banc review of that decision by the full Federal Circuit was granted and the opinion of the three-judge panel was vacated. Oral argument is scheduled for November 9, 2010. There can be no assurance that the full Federal Circuit will reverse the decision of the three-judge panel. Tivo has stated that it will seek additional damages for the period from June 2009 to the present.

On October 6, 2010, the Patent and Trademark Office (the “PTO”) issued an office action confirming the validity of certain of the software claims of United States Patent No. 6,233,389 (the ‘389 patent). However, the PTO only confirmed the validity of the ‘389 patent after Tivo made statements that we believe narrow the scope of its claims. The claims that were confirmed thus should not have the same scope as the claims that we were found to have infringed and which underlie the contempt ruling that we are now appealing. Therefore, we believe that the PTO’s conclusions are relevant to the issues on appeal. The PTO’s conclusions support our position that our original alternative technology does not infringe and that we acted in good faith to design around Tivo’s patent.

If we are unsuccessful in overturning the District Court’s ruling on Tivo’s motion for contempt, we are not successful in developing and deploying potential new alternative technology and we are unable to reach a license agreement with Tivo on reasonable terms, we may be required to cease distribution of digital set-top boxes with DVR functionality. In that event, our sales of digital set-top boxes to DISH Network and others would likely significantly decrease and could even potentially cease for a period of time. Furthermore, the inability to offer DVR functionality would place us at a significant disadvantage to our competitors and make it even more difficult for us to penetrate new markets for digital set-top boxes. The adverse effect on our financial position and results of operations if the District Court’s contempt order is upheld would be significant.

If we are successful in overturning the District Court’s ruling on Tivo’s motion for contempt, but unsuccessful in defending against any subsequent claim in a new action that our original alternative technology or any potential new alternative technology infringes Tivo’s patent, we could be prohibited from distributing DVRs. In that event, we would be at a significant disadvantage to our competitors who could continue offering DVR functionality and the adverse effect on our business would be material.

Because both we and DISH Network are defendants in the Tivo lawsuit, we and DISH Network are jointly and severally liable to Tivo for any final damages and sanctions that may be awarded by the District Court. DISH Network has agreed that it is obligated under the agreements entered into in connection with the Spin-off to indemnify us for substantially all liability arising from this lawsuit. We contributed an amount equal to our $5 million intellectual property liability limit under the Receiver Agreement, and during the second quarter 2009, we recorded a charge included in “General and administrative expenses – DISH Network” on our Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for this amount to reflect this contribution. We and DISH Network have further agreed that our $5 million contribution would not exhaust our liability to DISH Network for other intellectual property claims that may arise under the Receiver Agreement. We and DISH Network also agreed that we would each be entitled to joint ownership of, and a cross-license to use, any intellectual property developed in connection with any potential new alternative technology.

Because we are jointly and severally liable with DISH Network, to the extent that DISH Network does not or is unable to pay any damages or sanctions arising from this lawsuit, we would then be liable for any portion of these damages and sanctions not paid by DISH Network. Any amounts that DISH Network may be required to pay could impair its ability to pay us and also negatively impact our future liquidity.

ECHOSTAR CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Continued

(Unaudited)

If we become liable for any portion of these damages or sanctions, we may be required to raise additional capital at a time and in circumstances in which we would normally not raise capital and there can be no assurance that such capital would be available on terms that would be attractive to us or at all. Therefore, any capital we raise may be on terms that are unfavorable to us, which might adversely affect our financial position and results of operations and might also impair our ability to raise capital on acceptable terms in the future to fund our own operations and initiatives.

Other

In addition to the above actions, we are subject to various other legal proceedings and claims which arise in the ordinary course of business. In our opinion, the amount of ultimate liability with respect to any of these actions is unlikely to materially affect our financial position, results of operations or liquidity.

12. Segment Reporting

Operating segments are components of an enterprise for which separate financial information is available and regularly evaluated by the chief operating decision maker(s) of an enterprise. Total assets by segment have not been specified because the information is not available to the chief operating decision-maker. Under this definition, we operate as two business units.

•

The “All Other” category consists of revenue and net income (loss) attributable to EchoStar common shareholders from other operations including our corporate investment portfolio for which segment disclosure requirements do not apply.

ECHOSTAR CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Continued

(Unaudited)


	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2010			2009			2010			2009
	(In thousands)
Revenue:
Digital set-top box	$	535,927		$	438,858		$	1,627,452		$	1,210,802
Satellite services		66,869			39,774			196,503			121,127
All other		4,244			4,300			13,214			13,698

Total revenue	$	607,040		$	482,932		$	1,837,169		$	1,345,627


Net income (loss) attributable to EchoStar common shareholders:
Digital set-top box	$	12,518		$	(2,744	)	$	23,748		$	(21,319	)
Satellite services		20,258			(2,431	)		33,682			(5,866	)
All other		(27,625	)		299,115			(22,010	)		422,294

Total net income (loss) attributable to EchoStar common shareholders	$	5,151		$	293,940		$	35,420		$	395,109

Geographic Information and Transactions with Major Customers

Geographic Information. Revenues are attributed to geographic regions based upon the location where the goods and services are provided. North American revenue includes transactions with North American customers. All other revenue includes transactions with customers in Europe, Asia, South America and the Middle East. The following table summarizes total long-lived assets and revenue attributed to the North American and foreign locations.


	As of
Long-lived assets, including FCC authorizations:	September 30, 2010		December 31, 2009
	(In thousands)
North America	$	1,420,073	$	1,411,292
All other		41,845		43,516

Total	$	1,461,918	$	1,454,808


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
Revenue:	2010		2009		2010		2009
	(In thousands)
North America	$	597,656	$	474,618	$	1,806,380	$	1,317,707
All other		9,384		8,314		30,789		27,920

Total	$	607,040	$	482,932	$	1,837,169	$	1,345,627

ECHOSTAR CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Continued

(Unaudited)

Transactions with Major Customers. During the three and nine months ended September 30, 2010 and 2009, our revenue primarily included sales to two major customers. The following table summarizes sales to each customer and its percentage of total revenue.


	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2010			2009			2010			2009
	(In thousands)
Total revenue:
DISH Network	$	512,852		$	404,275		$	1,515,405		$	1,120,247
Bell TV		41,243			50,459			164,551			149,420
Other		52,945			28,198			157,213			75,960

Total revenue	$	607,040		$	482,932		$	1,837,169		$	1,345,627


Percentage of total revenue:
DISH Network		84.5	%		83.7	%		82.5	%		83.3	%

Bell TV		6.8	%		10.4	%		9.0	%		11.1	%

13. Related Party Transactions

Related Party Transactions with DISH Network

Following the Spin-off, we and DISH Network have operated as separate public companies and DISH Network has no ownership interest in us. However, a substantial majority of the voting power of the shares of both companies is owned beneficially by our Chairman, Charles W. Ergen or by certain trusts established by Mr. Ergen for the benefit of his family.

In connection with the Spin-off and subsequent to the Spin-off, we and DISH Network have entered into certain agreements pursuant to which we obtain certain products, services and rights from DISH Network, DISH Network obtains certain products, services and rights from us, and we and DISH Network have indemnified each other against certain liabilities arising from our respective businesses. We also may enter into additional agreements with DISH Network in the future. The following is a summary of the terms of the principal agreements that we have entered into with DISH Network that may have an impact on our financial position and results of operations.

In the near term, we expect that DISH Network will remain our principal customer. However, the agreements pursuant to which DISH Network purchases digital set-top boxes or digital broadcast operation services from us expire on January 1, 2012. Therefore, if we are unable to extend these contracts on similar terms with DISH Network, or if we are otherwise unable to obtain similar contracts from third parties before that date, there could be a significant adverse effect on our business, results of operations and financial position.

Generally, the prices charged for products and services provided under the agreements entered into in connection with the Spin-off are based on our cost plus a fixed margin (unless noted differently below), which varies depending on the nature of the products and services provided.

“Equipment revenue – DISH Network”

Receiver Agreement. In connection with the Spin-off, we entered into a receiver agreement pursuant to which DISH Network has the right but not the obligation to purchase digital set-top boxes and related accessories, and other equipment from us. During July 2010, DISH Network exercised its right to extend the receiver agreement until January 1, 2012. The receiver agreement allows DISH Network to purchase digital set-top boxes, related accessories and other equipment from us at cost plus a fixed margin, which varies depending on the nature of the equipment purchased. Additionally, we provide DISH Network with standard manufacturer warranties for the goods sold under the receiver agreement. DISH Network may terminate the receiver agreement for any reason upon 60 days written notice to us. We may terminate the receiver agreement if certain entities were to acquire DISH Network. The receiver agreement also includes an indemnification provision, whereby the parties indemnify each other for certain intellectual property matters.

ECHOSTAR CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Continued

(Unaudited)

“Services and other revenue – DISH Network”

Broadcast Agreement. In connection with the Spin-off, DISH Network entered into a broadcast agreement pursuant to which we provide certain broadcast services to DISH Network, including teleport services such as transmission and downlinking, channel origination services, and channel management services. During July 2010, DISH Network exercised its right to extend the broadcast agreement until January 1, 2012. DISH Network may terminate channel origination services and channel management services for any reason and without any liability upon 60 days written notice to us. If DISH Network terminates teleport services for a reason other than our breach, DISH Network is obligated to pay us the aggregate amount of the remainder of the expected cost of providing the teleport services. The fees for services provided under the broadcast agreement are calculated at cost plus a fixed margin, which varies depending on the nature of the products and services provided.

Broadcast Agreement for Certain Sports Related Programming. During May 2010, DISH Network entered into a broadcast agreement pursuant to which we provide certain broadcast services to DISH Network in connection with their carriage of certain sports related programming. The term of this agreement is for ten years. If DISH Network terminates this agreement for a reason other than our breach, DISH Network is generally obligated to reimburse us for any direct costs we incur related to any such termination that they cannot reasonably mitigate. The fees for the broadcast services provided under this agreement depend, among other things, upon the cost to develop and provide such services.

Satellite Capacity Agreements. In connection with the Spin-off and subsequent to the Spin-off, we entered into certain satellite capacity agreements pursuant to which DISH Network leases certain satellite capacity on certain satellites owned or leased by us. The fees for the services provided under these satellite capacity agreements depend, among other things, upon the orbital location of the applicable satellite. The term of each of the leases is set forth below:

EchoStar VI, VIII and XII. DISH Network leases certain satellite capacity from us on EchoStar VI, VIII and XII. The leases generally terminate upon the earlier of: (i) the end of life or replacement of the satellite (unless DISH Network determines to renew on a year-to-year basis); (ii) the date the satellite fails; (iii) the date the transponder on which service is being provided fails; or (iv) a certain date, which depends upon, among other things, the estimated useful life of the satellite, whether the replacement satellite fails at launch or in orbit prior to being placed into service, and the exercise of certain renewal options. DISH Network generally has the option to renew each lease on a year-to-year basis through the end of the respective satellite’s life. There can be no assurance that any options to renew such agreements will be exercised. In August 2010, DISH Network’s lease of EchoStar III terminated when it was replaced by EchoStar XV.

EchoStar XVI. DISH Network will lease certain satellite capacity from us on EchoStar XVI after its service commencement date and this lease generally terminates upon the earlier of: (i) the end of life or replacement of the satellite; (ii) the date the satellite fails; (iii) the date the transponder(s) on which service is being provided under the agreement fails; or (iv) ten years following the actual service commencement date. Upon expiration of the initial term, DISH Network has the option to renew on a year-to-year basis through the end of life of the satellite. There can be no assurance that any options to renew this agreement will be exercised. EchoStar XVI is expected to be launched during the second half of 2012.

EchoStar XV. EchoStar XV is owned by DISH Network and is operated at the 61.5 degree orbital location. The FCC has granted us an authorization to operate the satellite at the 61.5 degree orbital location. For so long as EchoStar XV remains in service at the 61.5 degree orbital location, DISH Network is obligated to pay us a fee which varies depending on the number of frequencies being used by EchoStar XV.

Nimiq 5 Agreement. During September 2009, we 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 September 2009, DISH Network also entered into a

ECHOSTAR CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Continued

(Unaudited)

satellite service agreement (the “DISH Telesat Agreement”) with us, pursuant to which they will receive service from us on all 32 of the DBS transponders covered by the Telesat Transponder Agreement. We and DISH Network are currently receiving service on 22 of these DBS transponders and will receive service on the remaining 10 DBS transponders over a phase-in period that will be completed in 2012.

Under the terms of the DISH Telesat Agreement, DISH Network makes certain monthly payments to us that commenced in October 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 Telesat Agreement, the service term will expire ten years following the date it was placed into service. Upon expiration of the initial term DISH Network has the option to renew the DISH Telesat 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, DISH Network has certain rights to receive service from us on a replacement satellite. There can be no assurance that any options to renew this agreement will be exercised or that DISH Network will exercise its option to receive service on a replacement satellite.

QuetzSat-1 Lease Agreement. During 2008, we 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 us of service on 32 DBS transponders on the QuetzSat-1 satellite expected to be placed into service at the 77 degree orbital location in 2011. During 2008, we also entered into a transponder service agreement (“QuetzSat-1 Transponder Agreement”) with DISH Network pursuant to which they will receive service from us on 24 of the DBS transponders on QuetzSat-1, which will replace certain other transponders leased from us. The remaining eight DBS transponders on QuetzSat-1 are expected to be used by Dish Mexico.

Under the terms of the QuetzSat-1 Transponder Agreement, DISH Network will make certain monthly payments to us commencing when the QuetzSat-1 satellite is placed into service and continuing through the service term. Unless earlier terminated under the terms and conditions of the QuetzSat-1 Transponder Agreement, the service term will expire ten years following the actual service commencement date. Upon expiration of the initial term, DISH Network has 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 a launch failure, in-orbit failure or end of life of the QuetzSat-1 satellite, and in certain other circumstances, DISH Network has certain rights to receive service from us on a replacement satellite. There can be no assurance that any options to renew this agreement will be exercised or that DISH Network will exercise its option to receive service on a replacement satellite. QuetzSat-1 is expected to be launched during the second half of 2011.

TT&C Agreement. In connection with the Spin-off, we entered into a telemetry, tracking and control (“TT&C”) agreement pursuant to which we provide TT&C services to DISH Network and its subsidiaries for a period ending on January 1, 2011. During August 2010, DISH Network exercised its right to extend the TT&C agreement until January 2012. The fees for services provided under the TT&C agreement are calculated at cost plus a fixed margin. DISH Network may terminate the TT&C agreement for any reason upon 60 days prior written notice.

Real Estate Lease Agreements. We have entered into lease agreements pursuant to which DISH Network leases certain real estate from us. The rent on a per square foot basis for each of the leases is comparable to per square foot rental rates of similar commercial property in the same geographic area, and DISH Network is responsible for a portion of the taxes, insurance, utilities and maintenance of the premises. The term of each of the leases is set forth below:

Inverness Lease Agreement. The lease for certain space at 90 Inverness Circle East in Englewood, Colorado expires on January 1, 2012.

Meridian Lease Agreement. During August 2010, DISH Network exercised their right to extend this lease for all of 9601 S. Meridian Blvd. in Englewood, Colorado until January 1, 2012. DISH Network has the right to extend the Meridian Lease Agreement for one additional year.

ECHOSTAR CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Continued

(Unaudited)

Santa Fe Lease Agreement. During August 2010, DISH Network exercised their right to extend this lease for all of 5701 S. Santa Fe Dr. in Littleton, Colorado until January 1, 2012. DISH Network has the right to extend the Santa Fe Lease Agreement for one additional year.

Gilbert Lease Agreement. The lease for certain space at 801 N. DISH Dr. in Gilbert, Arizona expired on January 1, 2010.

EDN Sublease Agreement. The sublease for certain space at 211 Perimeter Center in Atlanta, Georgia, is for a period of three years, ending on April 30, 2011.

Product Support Agreement. In connection with the Spin-off, we entered into a product support agreement pursuant to which DISH Network has the right, but not the obligation, to receive product support (including certain engineering and technical support services) for all digital set-top boxes and related accessories that our subsidiaries have previously sold and in the future may sell to DISH Network. The fees for the services provided under the product support agreement are calculated at cost plus a fixed margin, which varies depending on the nature of the services provided. The term of the product support agreement is the economic life of such receivers and related accessories, unless terminated earlier. DISH Network may terminate the product support agreement for any reason upon 60 days prior written notice. In the event of an early termination of this agreement, DISH Network shall be entitled to a refund of any unearned fees paid to us for the services.

Satellite Procurement Agreement. In connection with the Spin-off, we entered into a satellite procurement agreement pursuant to which DISH Network had the right, but not the obligation, to engage us to manage the process of procuring new satellite capacity for DISH Network. The satellite procurement agreement expired on January 1, 2010. However, we and DISH Network have agreed that following January 1, 2010, DISH Network shall continue to have the right, but not the obligation, to engage us to manage the process of procuring new satellite capacity for DISH Network pursuant to the Professional Services Agreement as described below.

Services Agreement. In connection with the Spin-off, we entered into a services agreement pursuant to which DISH Network had the right, but not the obligation, to receive logistics, procurement and quality assurance services from us. This agreement expired on January 1, 2010. However, we and DISH Network have agreed that following January 1, 2010, DISH Network shall continue to have the right, but not the obligation, to receive from us certain of the services previously provided under the services agreement pursuant to the Professional Services Agreement as discussed below.

DISHOnline.com Services Agreement. Effective January 1, 2010, DISH Network entered into a two-year agreement with us pursuant to which DISH Network will receive certain services associated with an online video portal. The fees for the services provided under this services agreement depend, among other things, upon the cost to develop and operate such services. DISH Network has the option to renew this agreement for three successive one year terms and the agreement may be terminated for any reason upon 120 days written notice to us.

DISH Remote Access Services Agreement. Effective February 23, 2010, DISH Network entered into an agreement with us pursuant to which DISH Network will receive, among other things, certain remote DVR management services. The fees for the services provided under this services agreement depend, among other things, upon the cost to develop and operate such services. This agreement has a term of five years with automatic renewal for successive one year terms and may be terminated for any reason upon 120 days written notice to us.

SlingService Services Agreement. Effective February 23, 2010, DISH Network entered into an agreement with us pursuant to which DISH Network will receive certain place-shifting services. The fees for the services provided under this services agreement depend, among other things, upon the cost to develop and operate such services. This agreement has a term of five years with automatic renewal for successive one year terms and may be terminated for any reason upon 120 days written notice to us.

International Programming Rights Agreement. DISH Network purchased certain international rights for sporting events from us included in “Services and other revenue – DISH Network” on the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss), of which we only retain a certain portion.

ECHOSTAR CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Continued

(Unaudited)

“General and administrative expenses – DISH Network”

Management Services Agreement. In connection with the Spin-off, we entered into a management services agreement with DISH Network pursuant to which DISH Network makes certain of its officers available to provide services (which are primarily legal and accounting services) to us. Specifically, R. Stanton Dodge and Paul W. Orban remain employed by DISH Network, but also serve as our Executive Vice President and General Counsel, and Senior Vice President and Controller, respectively. We make payments to DISH Network based upon an allocable portion of the personnel costs and expenses incurred by DISH Network with respect to such DISH Network officers (taking into account wages and fringe benefits). These allocations are based upon the estimated percentages of time to be spent by the DISH Network executive officers performing services for us under the management services agreement. We also reimburse DISH Network for direct out-of-pocket costs incurred by DISH Network for management services provided to us. We and DISH Network evaluate all charges for reasonableness at least annually and make any adjustments to these charges as we and DISH Network mutually agree upon.

The management services agreement automatically renewed on January 1, 2010 for an additional one-year period until January 1, 2011 and renews automatically for successive one-year periods thereafter, unless terminated earlier: (i) by us at any time upon at least 30 days’ prior written notice; (ii) by DISH Network at the end of any renewal term, upon at least 180 days’ prior notice; or (iii) by DISH Network upon written notice to us, following certain changes in control.

Real Estate Lease Agreement. During 2008, we entered into a sublease for space at 185 Varick Street, New York, New York from DISH Network for a period of approximately seven years. The rent on a per square foot basis for this sublease was comparable to per square foot rental rates of similar commercial property in the same geographic area at the time of the sublease, and we are responsible for our portion of the taxes, insurance, utilities and maintenance of the premises.

Transition Services Agreement. In connection with the Spin-off, we entered into a transition services agreement with DISH Network pursuant to which we had the right, but not the obligation, to receive the following services from DISH Network: finance, information technology, benefits administration, travel and event coordination, human resources, human resources development (training), program management, internal audit, legal, accounting and tax, and other support services. The fees for the services provided under the transition services agreement were calculated at cost plus a fixed margin, which varied depending on the nature of the services provided. The transition services agreement expired on January 1, 2010. However, we and DISH Network have agreed that following January 1, 2010 we shall continue to have the right, but not the obligation, to receive from DISH Network certain of the services previously provided under the transition services agreement pursuant to the Professional Services Agreement, as discussed below.

Professional Services Agreement. During December 2009, we and DISH Network agreed that following January 1, 2010, we shall continue to have the right, but not the obligation, to receive from DISH Network the following services, among others, certain of which were previously provided under the transition services agreement: information technology, travel and event coordination, internal audit, legal, accounting and tax, benefits administration, program acquisition services and other support services. Additionally, following January 1, 2010, DISH Network shall continue to have the right, but not the obligation, to engage us to manage the process of procuring new satellite capacity for DISH Network (as discussed above, previously provided under the satellite procurement agreement) and receive logistics, procurement and quality assurance services from us (as discussed above, previously provided under the services agreement). The professional services agreement has a term of one year ending on January 1, 2011, but renews automatically for successive one-year periods thereafter, unless terminated earlier by either party at the end of the then-current term, upon at least 60 days’ prior notice. However, either party may terminate the services it receives with respect to a particular service for any reason upon 30 days notice.

ECHOSTAR CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Continued

(Unaudited)

Other Agreements – DISH Network

Satellite Capacity Leased from DISH Network. In December 2009, we entered into a satellite capacity agreement pursuant to which we lease certain satellite capacity from DISH Network on EchoStar I. The fee for the services provided under this satellite capacity agreement depends, among other things, upon the orbital location of the satellite. During the three and nine months ended September 30, 2010, the amount of those fees included in “Cost of sales – services and other” on the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) were approximately $5 million and $13 million, respectively. During the three and nine months ended September 30, 2009, we did not lease satellite capacity from DISH Network on EchoStar I. The lease generally terminates upon the earlier of: (i) the end of life or replacement of the satellite (unless we determine to renew on a year-to-year basis); (ii) the date the satellite fails; (iii) the date the transponder on which service is being provided fails; or (iv) a certain date, which depends, among other things, upon the estimated useful life of the satellite, whether the replacement satellite fails at launch or in orbit prior to being placed into service, and the exercise of certain renewal options. We generally have the option to renew this lease on a year-to-year basis through the end of the satellite’s life. There can be no assurance that any options to renew this agreement will be exercised.

Packout Services Agreement. In connection with the Spin-off, we entered into a packout services agreement, whereby we had the right, but not the obligation, to engage a DISH Network subsidiary to package and ship satellite receivers to customers that are not associated with DISH Network or its subsidiaries. This agreement expired on January 1, 2010.

Remanufactured Receiver Agreement. In connection with the Spin-off, we entered into a remanufactured receiver agreement with DISH Network pursuant to which we have the right, but not the obligation, to purchase remanufactured receivers and accessories from DISH Network at cost plus a fixed margin, which varies depending on the nature of the equipment purchased for a two-year period ending on January 1, 2010. In November 2010, we and DISH Network extended this agreement until January 1, 2012. We may terminate the remanufactured receiver agreement for any reason upon 60 days written notice to us. DISH Network may also terminate this agreement if certain entities acquire it. During the three and nine months ended September 30, 2010, we purchased remanufactured receivers and accessories from DISH Network for an aggregate amount of $1 million and $3 million, respectively. During the three and nine months ended September 30, 2009, we purchased remanufactured receivers and accessories from DISH Network for an aggregate amount of $1 million and $6 million, respectively.

Tax Sharing Agreement. In connection with the Spin-off, we entered into a tax sharing agreement with DISH Network which governs our respective rights, responsibilities and obligations after the Spin-off with respect to taxes for the periods ending on or before the Spin-off. Generally, all pre-Spin-off taxes, including any taxes that are incurred as a result of restructuring activities undertaken to implement the Spin-off, are borne by DISH Network, and DISH Network will indemnify us for such taxes. However, DISH Network is not liable for and will not indemnify us for any taxes that are incurred as a result of the Spin-off or certain related transactions failing to qualify as tax-free distributions pursuant to any provision of Section 355 or Section 361 of the Code because of: (i) a direct or indirect acquisition of any of our stock, stock options or assets; (ii) any action that we take or fail to take; or (iii) any action that we take that is inconsistent with the information and representations furnished to the IRS in connection with the request for the private letter ruling, or to counsel in connection with any opinion being delivered by counsel with respect to the Spin-off or certain related transactions. In such case, we will be solely liable for, and will indemnify DISH Network for, any resulting taxes, as well as any losses, claims and expenses. The tax sharing agreement will only terminate after the later of the full period of all applicable statutes of limitations, including extensions, or once all rights and obligations are fully effectuated or performed.

Tivo. Because both we and DISH Network are defendants in the Tivo lawsuit, we and DISH Network are jointly and severally liable to Tivo for any final damages and sanctions that may be awarded by the District Court. DISH Network has agreed that it is obligated under the agreements entered into in connection with the Spin-off to indemnify us for substantially all liability arising from this lawsuit. We contributed an amount equal to our $5 million intellectual property liability limit under the Receiver Agreement, and during the second quarter 2009, we recorded a charge included in “General and administrative expenses – DISH Network” on our Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for this amount to reflect this contribution. We and DISH Network

ECHOSTAR CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Continued

(Unaudited)

have further agreed that our $5 million contribution would not exhaust our liability to DISH Network for other intellectual property claims that may arise under the Receiver Agreement. We and DISH Network also agreed that we would each be entitled to joint ownership of, and a cross-license to use, any intellectual property developed in connection with any potential new alternative technology.

Multimedia Patent Trust. In December 2009, DISH Network agreed that it is obligated under the agreements entered into in connection with the Spin-off to indemnify us for all of the costs to settle this lawsuit relating to the period prior to the Spin-off and a portion of such settlement costs relating to the period after the Spin-off. We have agreed that our contribution towards such settlement costs shall not be applied against our aggregate liability cap under the Receiver Agreement.

Launch Service. On December 21, 2009, we assigned certain of our rights under a launch contract to DISH Network for its fair value of $103 million. We recorded the assignment of these rights at our net book value of $89 million and recorded the $14 million difference between our net book value and DISH Network’s purchase price as a capital transaction with DISH Network. The $103 million was received in the first quarter 2010.

Weather Related Programming Agreement. During May 2010, DISH Network entered into an agreement pursuant to which, among other things, we agreed to develop certain weather related programming and DISH Network received the right to distribute such programming. This agreement was terminated during June 2010. In July 2010, we sold our interest in the entity that held such weather related programming for $5 million.

Acquisition of Alta Wireless, Inc. and Sale of South.com, LLC. During October 2010, we purchased an additional equity interest in Alta Wireless, Inc. from another party for $2.8 million. This transaction increased our ownership in Alta Wireless, Inc. from 49.9% to 95%. Alta Wireless Inc. holds certain authorizations for local multipoint distribution service (LMDS) spectrum in the United States. Additionally, during October 2010, we and the same counterparty sold our respective interests in South.com, LLC to DISH Network for $3 million and $2 million, respectively. South.com, LLC holds certain authorizations for multichannel video and data distribution service (MVDDS) spectrum in the United States.

Other Agreements

In November 2009, Mr. Roger Lynch became employed by both us and DISH Network as Executive Vice President. Mr. Lynch is responsible for the development and implementation of advanced technologies that are of potential utility and importance to both us and DISH Network. Mr. Lynch’s compensation consists of cash and equity compensation and is borne by both DISH Network and us.

Related Party Transactions with NagraStar L.L.C.

We own 50% of NagraStar L.L.C. (“NagraStar”), a joint venture that is our primary provider of encryption and related security technology used in our set-top boxes. Although we do not consolidate NagraStar, we have the ability to significantly influence its operating policies; therefore, we account for our investment in NagraStar under the equity method of accounting.

ECHOSTAR CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Continued

(Unaudited)

The table below summarizes our transactions with NagraStar.


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2010		2009		2010		2009
	(In thousands)
Purchases:
Purchases from NagraStar	$	7,272	$	14,777	$	15,481	$	35,250


	As of
	September 30, 2010		December 31, 2009
	(In thousands)
Amounts Payable and Commitments:
Amounts payable to NagraStar	$	717	$	3,683

Commitments to purchase from NagraStar	$	6,098	$	11,836

Related Party Transactions with Dish Mexico

During 2008, we entered into a joint venture for a direct-to-home, or DTH, service in Mexico known as Dish Mexico, S. de R.L. de C.V., or Dish Mexico. Pursuant to these arrangements, we provide certain broadcast services and satellite capacity and sell hardware such as digital set-top boxes and related equipment to Dish Mexico. Subject to a number of conditions, including regulatory approvals and compliance with various other arrangements, we committed to provide $112 million of value over an initial ten year period, of which $110 million has been satisfied in the form of cash, equipment and services, leaving $2 million remaining under this commitment. Of the remaining commitment, less than $1 million is expected to be paid in cash and the remaining amounts may be satisfied in the form of certain services or equipment.

The following table summarizes our transactions with Dish Mexico.


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2010		2009		2010		2009
	(In thousands)
Sales:
Sales of set-top boxes and related accessories that are not related to the original commitment associated with our investment in Dish Mexico	$	19,498	$	4,265	$	67,030	$	7,995


	As of
	September 30, 2010		December 31, 2009
	(In thousands)
Receivable:
Amounts receivable from Dish Mexico	$	2,798	$	15,132

Related Party Transactions with a Joint Venture in Taiwan

During December 2009, we entered into a joint venture to provide a DTH service in Taiwan and certain other targeted regions in Asia. We own 50% and have joint control of the joint venture. Pursuant to these arrangements, we sell hardware such as digital set-top boxes and provide certain technical support services to the joint venture. We have provided $18 million of cash to the joint venture, and an $18 million line of credit that the joint venture may only use to purchase set-top boxes from us. As of September 30, 2010 and December 31, 2009, amounts receivable from the joint venture were $10 million and $4 million, respectively.

Our strategic transactions including our joint venture to provide a DTH service in Taiwan involve a high degree of risk and could expose us to significant financial losses if the underlying ventures are not successful; and/or we are unable to achieve the intended objectives of the transaction.

ECHOSTAR CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Continued

(Unaudited)

14. Subsequent Event

Item 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of operations together with the condensed consolidated financial statements and notes to the financial statements included elsewhere in this quarterly report. This management’s discussion and analysis is intended to help provide an understanding of our financial condition, changes in financial condition and results of our operations and contains forward-looking statements that involve risks and uncertainties. The forward-looking statements are not historical facts, but rather are based on current expectations, estimates, assumptions and projections about our industry, business and future financial results. Our actual results could differ materially from the results contemplated by these forward-looking statements due to a number of factors, including those discussed in our Annual Report on Form 10-K/A for the year ended December 31, 2009 and this Quarterly Report on Form 10-Q, under the caption “Item 1A. Risk Factors.”

EXECUTIVE SUMMARY

Overview

EchoStar Corporation is a holding company, whose subsidiaries operate two primary business units:

•

“Digital Set-Top Box” Business

Our “Digital Set-Top Box” business designs, develops and distributes digital set-top boxes and related products and technology, including our Slingbox “placeshifting” technology, primarily for satellite TV service providers, telecommunication and cable companies and, with respect to Slingboxes, directly to consumers via retail outlets. Slingbox “placeshifting” technology allows consumers to watch and control their home digital video and audio content anywhere in the world via a broadband Internet connection. Most of our digital set-top boxes are sold to DISH Network, but we also sell a significant number of digital set-top boxes to Bell TV in Canada, Dish Mexico and other international customers.

Our “Digital Set-Top Box” business also provides digital broadcast operations including satellite uplinking/downlinking, transmission services, signal processing, conditional access management and other services provided primarily to DISH Network.

We believe opportunities exist to expand our business by selling equipment and services in both the United States and international markets. As a result of our extensive experience with digital set-top boxes and digital broadcast operations, we can provide end-to-end pay TV delivery systems incorporating our satellite and backhaul capacity, customized digital set-top boxes and related components, and network design and management.

Item 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued

Dependence on DISH Network. We currently depend on DISH Network for a substantial portion of the revenue for our “Digital Set-Top Box” business and we expect that for the foreseeable future DISH Network will continue to be the primary source of revenue for each of our businesses. Therefore, our results of operations are, and will for the foreseeable future be, closely linked to the performance of DISH Network’s satellite pay-TV business. In addition, while we expect to sell equipment to other customers, the number of potential new customers for our “Digital Set-Top Box” business is small and may be limited by our common ownership and related management with DISH Network, and our current customer concentration is likely to continue for the foreseeable future.

As disclosed by DISH Network in its Form 10-Q for the period ended September 30, 2010, DISH Network had higher than normal inventory levels of digital set-top boxes and related components at September 30, 2010 and also experienced a net loss of subscribers during the three months ended September 30, 2010. While we expect that DISH Network will continue to purchase digital set-top boxes and related components from us, as a result of such higher than normal inventory levels, we anticipate that over the near term DISH Network will purchase fewer digital set-top boxes and related components from us than it has purchased during the nine months ended September 30, 2010. This decrease could have a material adverse effect on our results of operations. To the extent that DISH Network continues to experience a net loss of subscribers or its net loss of subscribers increases, sales of our digital set-top boxes and related components to DISH Network may further decline, which in turn could have a further material adverse effect on our financial position and results of operations.

The impact to us of any decreases in DISH Network subscriber growth may be offset in the near term by an increase in sales to DISH Network resulting from the upgrade of DISH Network subscribers to advanced products such as high definition (“HD”) receivers and HD digital video recorders (“DVRs”), as well as by the upgrade of DISH Network digital set-top boxes to new technologies such as MPEG-4digital compression technology or Slingbox placeshifting technology. However, there can be no assurance that any of these factors will mitigate any decreases in subscriber growth at DISH Network. In addition, although we expect DISH Network to continue to purchase products and services from us, there can be no assurance that DISH Network will continue to purchase products and services from us in the future.

We may experience significant pressure on margins we earn on the sale of digital set-top boxes and other equipment, including on sales to DISH Network. This pressure may be due to economic conditions, advancements in the technology and functionality of digital set-top boxes and other equipment. The margins we earn on sales are determined largely through periodic negotiations that could result in pricing reflecting, among other things, the digital set-top boxes and other equipment that best meet our customers’ current sales and marketing priorities, the product and service alternatives available from other equipment suppliers, and our ability to respond to customer requirements and to differentiate ourselves from other equipment suppliers on bases other than pricing.

Item 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued

Our future success may also depend on the extent to which prospective customers that have been competitors of DISH Network are willing to purchase products and services from us. Many of these customers may continue to view us as a competitor as a result of common ownership and related management with DISH Network. If we do not develop relationships with new customers, we may not be able to expand our customer base and our ability to increase or even maintain our revenue will be impacted.

Additional Challenges for our “Digital Set-Top Box” Business. We believe that our best opportunities for developing potential new customers for our “Digital Set-Top Box” business over the near term lie in international markets, and we therefore expect our performance in international markets to be a significant factor in determining whether we will be able to generate revenue and income growth in future periods. However, there can be no assurance that we will be able to sustain or grow our international business. In particular, we have noticed an increase in new market entrants, primarily located in Asia, that offer low cost set-top boxes, including set-top boxes that are modeled after our products or products of our principal competitors. The entry of these new competitors may result in pricing pressure in international markets that we hope to enter. If market prices in international markets are substantially reduced by such new entrants, it may be difficult for us to make profitable sales in international markets.

Furthermore, if we do not continue to distinguish our products through distinctive, technologically advanced features and design, as well as continue to build and strengthen our brand recognition, our business could be harmed as we may not be able to effectively compete on price alone in both domestic and international markets against low cost competitors that are principally located in Asia. If we do not otherwise compete effectively, demand for our products could decline, our gross margins could decrease, we could lose market share, our revenues and earnings may decline, and our growth prospects would be diminished.

Weakened economic conditions and volatile credit markets may cause certain suppliers that we rely on to cease operations which, in turn, may cause us to suffer disruptions to our supply chain or incur higher production costs.

Our ability to sustain or increase profitability will also depend in large part on our ability to control or reduce our costs of producing digital set-top boxes. The market for our digital set-top boxes, like other electronic products, has been characterized by regular reductions in selling prices and production costs. Therefore, we will likely be required to reduce production costs to maintain the margins we earn on digital set-top boxes and the profitability of our “Digital Set-Top Box” business. Our ability to reduce production costs could be negatively impacted by the economic conditions which could cause inflated pricing as a result of a shortage of available parts.

“Satellite Services” Business

Our satellite services segment consists principally of transponder leasing provided primarily to DISH Network, and secondarily to Dish Mexico, government entities, Internet service providers, broadcast news organizations and private enterprise customers. We also deliver our ViP-TV transport service, offering MPEG-4 encoded Internet Protocol, or IP, streams of video and audio channels to telecommunication companies and small cable operators. We operate the “Satellite Services” business using our owned and leased in-orbit satellites, multiple digital broadcast centers and other transmission assets. We are also pursuing expanding our business offerings by providing value added services such as telemetry, tracking and control services to third parties. However, there can be no assurance that we will be able to effectively compete against our competitors due to their significant resources and operating history.

Dependence on DISH Network. We currently depend on DISH Network for a substantial portion of the revenue for our “Satellite Services” business. Therefore, our results of operations are and will for the foreseeable future be closely linked to the performance of DISH Network’s satellite pay-TV business.

While we expect to continue to provide satellite services to DISH Network for the foreseeable future, its satellite capacity requirements may change for a variety of reasons, including the launch of its own additional satellites. Any termination or reduction in the services we provide to DISH Network would increase excess capacity on our

Item 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued

satellites and require that we aggressively pursue alternative sources of revenue for this business. Possible adverse effects on the “Digital Set-Top Box” business from DISH Network’s higher than normal inventory balance of digital set-top boxes and related components and net loss of subscribers are not expected to impact the revenue generated within the “Satellite Services” segment.

During September 2009, we entered into a ten-year satellite service agreement with DISH Network for capacity on the Nimiq 5 satellite. Pursuant to this agreement, DISH Network will receive service from us on all 32 of the DBS transponders covered by our satellite service agreement with Telesat. DISH Network is currently receiving service on 22 of these DBS transponders and will receive service on the remaining 10 DBS transponders over a phase-in period that will be completed in 2012.

During 2008, we entered into a ten-year satellite service agreement with DISH Network for capacity on the QuetzSat-1 satellite. QuetzSat-1 is expected to be launched in the second half of 2011 and will operate at the 77 degree orbital location. Pursuant to this agreement, DISH Network will receive service from us on 24 of the 32 DBS transponders covered by our satellite service agreement with SES Latin America S.A. (“SES”).

In addition, because the number of potential new customers for our “Satellite Services” business is small and may be limited by our relationship with DISH Network, our current customer concentration is likely to continue for the foreseeable future. Our future success may also depend on the extent to which prospective customers that have been competitors of DISH Network are willing to purchase services from us. Many of these customers may continue to view us as a competitor given the common ownership and management team we continue to share with DISH Network.

Additional Challenges for our “Satellite Services” Business. Our ability to expand revenues in the “Satellite Services” business will likely require that we displace incumbent suppliers that generally have well established business models and often benefit from long-term contracts with their customers. As a result, to grow our “Satellite Services” business we may need to develop or otherwise acquire access to new satellite-delivered services so that we may offer differentiated services to prospective customers. However, there can be no assurance that we would be able to develop or otherwise acquire access to such differentiated services or the sales and marketing expertise necessary to sell such services profitably.

In addition, as our satellite fleet ages, we will be required to evaluate replacement alternatives such as acquiring, leasing or constructing additional satellites, with or without customer commitments for capacity, which may require us to seek additional financing. However, there can be no assurance that such financing will be available to fund any such replacement alternatives on terms that would be attractive to us or at all.

Adverse Economic Conditions

Our ability to grow or maintain our business may be adversely affected by weak global and domestic economic conditions, including wavering consumer confidence and constraints on discretionary purchasing, unemployment, tight credit markets, declines in global and domestic stock markets, falling home prices and other factors that may adversely affect the markets in which we operate. Our ability to increase our income or to generate additional revenues will depend in part on our ability to organically grow our business, identify and successfully exploit opportunities to acquire other businesses or technologies, and enter into strategic partnerships. These activities may require significant additional capital that may not be available on terms that would be attractive to us or at all. In particular, current volatile credit markets, which have significantly impacted the availability and cost of financing, specifically in the leveraged finance markets, may significantly constrain our ability to obtain financing to support our growth initiatives. These developments in the credit markets may increase our cost of financing and impair our liquidity position. In addition, these developments may cause us to defer or abandon business strategies and transactions that we would otherwise pursue if financing were available on acceptable terms.

Furthermore, unfavorable events in the economy, including further deterioration in the credit and equity markets could cause consumer demand for pay-TV services and consequently sales of our digital set-top boxes to DISH Network, Bell TV, Dish Mexico and other international customers to decline materially because consumers may delay purchasing decisions or reduce or reallocate their discretionary spending.

Item 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued

Future Capital Sources

We primarily rely on our existing cash and marketable investment securities balances, as well as cash flow generated through operations to fund our investment needs. Since we currently depend on DISH Network for a substantial portion of our revenue, our cash flow from operations depends heavily on their needs for equipment and services. As disclosed by DISH Network in its Form 10-Q for the period ended September 30, 2010, DISH Network had higher than normal inventory levels of digital set-top boxes and related components at September 30, 2010 and also experienced a net loss of subscribers during the three months ended September 30, 2010. While we expect that DISH Network will continue to purchase digital set-top boxes and related components from us, as a result of such higher than normal inventory levels, we anticipate that over the near term DISH Network will purchase fewer digital set-top boxes and related components from us than it has purchased during the nine months ended September 30, 2010. This decrease could have a material adverse effect on our results of operations. To the extent that DISH Network continues to experience a net loss of subscribers or its net loss of subscribers increases, sales of our digital set-top boxes and related components to DISH Network may further decline, which in turn could have a further material adverse effect on our financial position and results of operations. As a result, there can be no assurances that we will always have positive cash flows from operations and should our cash flows turn negative, our existing cash and marketable investment securities balances may be reduced.

In addition, if we are unsuccessful in overturning the District Court’s ruling on Tivo’s motion for contempt, we are not successful in developing and deploying potential new alternative technology and we are unable to reach a license agreement with Tivo on reasonable terms, we may be required to cease distribution of digital set-top boxes with DVR functionality. In that event, our sales of digital set-top boxes to DISH Network and others would likely significantly decrease and could even potentially cease for a period of time. Furthermore, the inability to offer DVR functionality would place us at a significant disadvantage to our competitors and make it even more difficult for us to penetrate new markets for digital set-top boxes. The adverse effect on our financial position and results of operations if the District Court’s contempt order is upheld would be significant.

Item 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued

Other Risks

Our profitability is affected by our noncurrent marketable investment securities portfolio as of September 30, 2010 of $613 million, of which $474 million is accounted for at fair value and represents our investments in TerreStar Corporation and TerreStar Networks. The fluctuations in fair value of these investments are recorded in “Unrealized gains (losses) on investments accounted for at fair value, net” on our Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) and directly impact our profitability. For the three months ended September 30, 2010, we recorded a $21 million loss on these investments compared to a $232 million gain for the same period in 2009. For the nine months ended September 30, 2010, we recorded a $23 million gain on these investments compared to a $349 million gain for the same period in 2009. Our investments in TerreStar Corporation and TerreStar Networks are highly speculative and have experienced and continue to experience significant volatility. The investments in TerreStar Networks are determined using Level 3 inputs under the fair value hierarchy. In estimating those fair values we consider quotes from brokers and other pricing services, if available, and obtain both observable and unobservable inputs in our valuation models which include the use of option pricing and discounted cash flow techniques. The fair value of these investments can be significantly impacted by adverse changes in securities markets generally, as well as risks related to the performance of TerreStar Corporation and TerreStar Networks, their ability to obtain sufficient capital to execute their business plans, risks associated with their specific industries, and other factors. See Note 4 under “Investment in TerreStar” in the Notes to the Condensed Consolidated Financial Statements for further discussion.

Our profitability is also affected by costs associated with our efforts to expand our sales, marketing, product development and general and administrative capabilities in all of our businesses. As we expand internationally, we may also incur additional costs to conform our digital set-top boxes to comply with local laws or local specifications and to ship our digital set-top boxes to our international customers.

EXPLANATION OF KEY METRICS AND OTHER ITEMS

Equipment revenue – DISH Network. “Equipment revenue – DISH Network” primarily includes sales of digital set-top boxes and related components to DISH Network, including Slingboxes and related hardware products.

Equipment revenue – other. “Equipment revenue – other” primarily includes sales of digital set-top boxes and related components to Bell TV, Dish Mexico and other international and domestic customers, including sales of Slingboxes and related hardware products.

Services and other revenue – DISH Network. “Services and other revenue – DISH Network” primarily includes revenue associated with satellite and transponder leasing, satellite uplinking/downlinking, signal processing, conditional access management, telemetry, tracking and control, professional services, facilities rental revenue and other services provided to DISH Network.

Services and other revenue – other. “Services and other revenue – other” primarily includes revenue associated with satellite and transponder leasing, satellite uplinking/downlinking and other services provided to customers other than DISH Network.

Cost of sales – equipment. “Cost of sales – equipment” principally includes costs associated with digital set-top boxes and related components sold to DISH Network, Bell TV, Dish Mexico and other international and domestic customers, including costs associated with Slingboxes and related hardware products.

Cost of sales – services and other. “Cost of sales – services and other” principally includes costs associated with satellite and transponder leasing, satellite uplinking/downlinking, signal processing, conditional access management, telemetry, tracking and control, professional services, facilities rental revenue, and other services.

Research and development expenses. “Research and development expenses” consist primarily of costs associated with the design and development of our digital set-top boxes, Slingboxes and related components, including among other things, salaries and consulting fees.

Item 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued

Selling, general and administrative expenses. “Selling, general and administrative expenses” consists primarily of selling and marketing costs and employee-related costs associated with administrative services (i.e., information systems, human resources and other services), including non-cash, stock-based compensation expense. It also includes professional fees (i.e., legal, information systems and accounting services) and other items associated with facilities and administrative services provided by DISH Network and other third parties.

Interest income. “Interest income” consists primarily of interest earned on our cash, cash equivalents and marketable investment securities, including accretion on debt securities.

Interest expense, net of amounts capitalized. “Interest expense, net of amounts capitalized” primarily includes interest expense associated with our capital lease obligations.

Unrealized and realized gains (losses) on marketable investment securities and other investments. “Unrealized and realized gains (losses) on marketable investment securities and other investments” consists primarily of gains and losses realized on the sale or exchange of investments and “other-than-temporary” impairments of marketable and other investment securities.

Unrealized gains (losses) on investments accounted for at fair value, net. “Unrealized gains (losses) on investments accounted for at fair value, net” consists of unrealized gains and losses from changes in fair value of marketable and other strategic investments accounted for at fair value.

Other, net. The main component of “Other, net” is primarily equity in earnings and losses of our affiliates.

Earnings before interest, taxes, depreciation and amortization (“EBITDA”). EBITDA is defined as “Net income (loss) attributable to EchoStar common shareholders” plus “Interest expense, net of amounts capitalized” net of “Interest income,” “Income taxes” and “Depreciation and amortization.” This “non-GAAP measure” is reconciled to “Net income (loss) attributable to EchoStar common shareholders” in our discussion of “Results of Operations” below.

Item 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued

RESULTS OF OPERATIONS

Three Months Ended September 30, 2010 Compared to the Three Months Ended September 30, 2009.


	For the Three Months Ended September 30,						Variance
Statements of Operations Data	2010			2009			Amount			%
	(In thousands)
Revenue:
Equipment revenue - DISH Network	$	392,821		$	314,362		$	78,459			25.0
Equipment revenue - other		77,471			68,647			8,824			12.9
Services and other revenue - DISH Network		120,031			89,913			30,118			33.5
Services and other revenue - other		16,717			10,010			6,707			67.0

Total revenue		607,040			482,932			124,108			25.7


Costs and Expenses:
Cost of sales - equipment		401,998			327,522			74,476			22.7
% of Total equipment revenue		85.5	%		85.5	%
Cost of sales - services and other		62,295			47,954			14,341			29.9
% of Total services and other revenue		45.6	%		48.0	%
Research and development expenses		11,645			10,633			1,012			9.5
% of Total revenue		1.9	%		2.2	%
Selling, general and administrative expenses		34,308			41,670			(7,362	)		(17.7	)
% of Total revenue		5.7	%		8.6	%
Depreciation and amortization		58,191			58,989			(798	)		(1.4	)

Total costs and expenses		568,437			486,768			81,669			16.8


Operating income (loss)		38,603			(3,836	)		42,439			NM


Other Income (Expense):
Interest income		3,525			9,757			(6,232	)		(63.9	)
Interest expense, net of amounts capitalized		11,074			(6,964	)		18,038			NM
Unrealized and realized gains (losses) on marketable investment securities and other investments		(94	)		100,458			(100,552	)		(100.1	)
Unrealized gains (losses) on investments accounted for at fair value, net		(21,087	)		232,359			(253,446	)		NM
Other, net		1,439			1,400			39			2.8

Total other income (expense)		(5,143	)		337,010			(342,153	)		NM


Income (loss) before income taxes		33,460			333,174			(299,714	)		(90.0	)
Income tax (provision) benefit, net		(28,309	)		(38,492	)		10,183			26.5
Effective tax rate		84.6	%		11.6	%

Net income (loss)		5,151			294,682			(289,531	)		(98.3	)
Less: Net income (loss) attributable to noncontrolling interest		—			742			(742	)		(100.0	)

Net income (loss) attributable to EchoStar common shareholders	$	5,151		$	293,940		$	(288,789	)		(98.2	)


Other Data:
EBITDA	$	77,052		$	388,628		$	(311,576	)		(80.2	)

Item 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued

Equipment revenue – DISH Network. “Equipment revenue – DISH Network” totaled $393 million during the three months ended September 30, 2010, an increase of $78 million or 25.0% compared to the same period in 2009. This change related primarily to an increase in unit sales of set-top boxes, partially offset by a decline in average revenue per unit. The decline in average revenue per unit was driven by continued manufacturing efficiencies and a change to one of our component vendor contracts, which reduced our set-top box costs. Pursuant to the receiver agreement, discussed below, set-top boxes are sold to DISH Network at cost plus a fixed margin resulting in a decline in revenue per unit when lower set-top box costs are incurred.

Currently, we expect DISH Network to remain the primary customer of our “Digital Set-Top Box” business and the primary source of our total revenue. Pursuant to the commercial agreements we entered into with DISH Network, we are obligated to sell digital set-top boxes to DISH Network until January 1, 2012, although DISH Network has no obligation to purchase digital set-top boxes from us during or after this period. As disclosed by DISH Network in its Form 10-Q for the period ended September 30, 2010, DISH Network had higher than normal inventory levels of digital set-top boxes and related components at September 30, 2010 and also experienced a net loss of subscribers during the three months ended September 30, 2010. While we expect that DISH Network will continue to purchase digital set-top boxes and related components from us, as a result of such higher than normal inventory levels, we anticipate that over the near term DISH Network will purchase fewer digital set-top boxes and related components from us than it has purchased during the nine months ended September 30, 2010. This decrease could have a material adverse effect on our results of operations. To the extent that DISH Network continues to experience a net loss of subscribers or its net loss of subscribers increases, sales of our digital set-top boxes and related components to DISH Network may further decline, which in turn could have a further material adverse effect on our financial position and results of operations.

Equipment revenue – other. “Equipment revenue – other” totaled $77 million during the three months ended September 30, 2010, an increase of $9 million or 12.9% compared to the same period in 2009. This change resulted primarily from an increase in sales to Dish Mexico and an increase in retail sales of Slingboxes and related equipment, partially offset by a decrease in sales to Bell TV. Although the number of units sold to Bell TV decreased, the average revenue per unit to Bell TV increased compared to the same period in 2009 due to a change in sales mix. The sales to Dish Mexico were in addition to the original commitment associated with our investment in Dish Mexico.

Services and other revenue – DISH Network. “Services and other revenue – DISH Network” totaled $120 million during the three months ended September 30, 2010, an increase of $30 million or 33.5% compared to the same period in 2009. The change was driven by an increase in transponder leasing primarily related to the Nimiq 5 satellite, which was placed into service in October 2009, and an increase in monthly lease rates per transponder on certain satellites based on the terms of our amended lease agreements and an increase in uplink services. The increase in uplink services was primarily attributable to the launch of additional local channels and additional satellites being placed into service. See Note 13 in the Notes to the Condensed Consolidated Financial Statements for further discussion.

Cost of sales – equipment. “Cost of sales – equipment” totaled $402 million during the three months ended September 30, 2010, an increase of $74 million or 22.7% compared to the same period in 2009. This change primarily resulted from an increase in sales of digital set-top boxes and related components to DISH Network, Dish Mexico and an increase in retail sales of Slingboxes and related equipment, partially offset by a decrease in sales to Bell TV. “Cost of sales – equipment” represented 85.5% of total equipment sales during each of the three months ended September 30, 2010 and 2009.

Cost of sales – services and other. “Cost of sales – services and other” totaled $62 million during the three months ended September 30, 2010, an increase of $14 million or 29.9% compared to the same period in 2009. This change primarily resulted from an increase in costs related to the Nimiq 5 satellite, which was placed into service in October 2009, and the EchoStar I satellite, which we began leasing from DISH Network during the first quarter 2010. “Cost of sales - services and other” represented 45.6% and 48.0% of total “Services and other revenue” during the three months ended September 30, 2010 and 2009, respectively. The improvement in this expense to revenue ratio was primarily driven by an increase in transponder leasing revenue. The majority of our costs associated with transponder leasing are related to satellites which are included in “Depreciation and amortization” expense.

Item 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued

Interest expense, net of amounts capitalized. “Interest expense, net of amounts capitalized” totaled a negative $11 million during the three months ended September 30, 2010, a decrease in expense of $18 million compared to the same period in 2009. This change primarily resulted from $7 million, $3 million and $4 million of interest which was capitalized into construction in progress during the quarter that relates to interest expense that should have been capitalized in 2009, first quarter 2010 and second quarter 2010, respectively.

Unrealized and realized gains (losses) on marketable investment securities and other investments. “Unrealized and realized gains (losses) on marketable investment securities and other investments” totaled a net loss of less than $1 million during the three months ended September 30, 2010, a $101 million decrease compared to the same period in 2009. This change was attributable to a net gain of $101 million on the sale of marketable investment securities during the three months ended September 30, 2009.

Unrealized gains (losses) on investments accounted for at fair value, net. “Unrealized gains (losses) on investments accounted for at fair value, net” for the three months ended September 30, 2010 was a net loss of $21 million compared to a net gain of $232 million during the same period in 2009. This change is attributable to decreases in fair value related to investments accounted for under the fair value method. See Note 4 under “Investments in TerreStar” in the Notes to the Condensed Consolidated Financial Statements for further discussion.

Earnings before interest, taxes, depreciation and amortization. EBITDA was $77 million during the three months ended September 30, 2010, a decrease of $312 million compared to the same period in 2009. This change primarily resulted from gains of $232 million in “Unrealized gains (losses) on investments accounted for at fair value, net,” and gains of $100 million in “Unrealized and realized gains (losses) on marketable investment securities” during the three months ended September 30, 2009. The following table reconciles EBITDA to the accompanying financial statements.


	For the Three Months Ended September 30,
	2010			2009
	(In thousands)
EBITDA	$	77,052		$	388,628
Interest expense, net		14,599			2,793
Income tax (provision) benefit, net		(28,309	)		(38,492	)
Depreciation and amortization		(58,191	)		(58,989	)

Net income (loss) attributable to EchoStar common shareholders	$	5,151		$	293,940

EBITDA is not a measure determined in accordance with accounting principles generally accepted in the United States, or GAAP, and should not be considered a substitute for operating income, net income or any other measure determined in accordance with GAAP. Conceptually, EBITDA measures the amount of income generated each period that could be used to service debt, pay taxes and fund capital expenditures. EBITDA should not be considered in isolation or as a substitute for measures of performance prepared in accordance with GAAP. EBITDA is used by our management as a measure of operating efficiency and overall financial performance for benchmarking against our peers and competitors. Management believes EBITDA provides meaningful supplemental information regarding liquidity and the underlying operating performance of our business. Management also believes that EBITDA is useful to investors because it is frequently used by securities analysts, investors and other interested parties to evaluate companies in the digital set-top box industry.

Income tax (provision) benefit, net. The income tax provision totaled $28 million during the three months ended September 30, 2010, a decrease of $10 million compared to the same period in 2009. This change resulted primarily from a decrease in “Income (loss) before income taxes,” partially offset by an increase in our effective tax rate. The increase in our effective tax rate was primarily related to changes in our valuation allowances against certain deferred tax assets that are capital in nature.

Net income (loss) attributable to EchoStar common shareholders. Our net income attributable to EchoStar common shareholders was $5 million during the three months ended September 30, 2010, a decrease of $289 million compared to the same period in 2009. This decrease was primarily attributable to the changes in revenue and expenses discussed above.

Item 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued

RESULTS OF OPERATIONS

Nine Months Ended September 30, 2010 Compared to the Nine Months Ended September 30, 2009.


	For the Nine Months Ended September 30,						Variance
Statements of Operations Data	2010			2009			Amount			%
	(In thousands)
Revenue:
Equipment revenue - DISH Network	$	1,161,508		$	838,965		$	322,543			38.4
Equipment revenue - other		276,037			195,635			80,402			41.1
Services and other revenue - DISH Network		353,897			281,282			72,615			25.8
Services and other revenue - other		45,727			29,745			15,982			53.7

Total revenue		1,837,169			1,345,627			491,542			36.5


Costs and Expenses:
Cost of sales - equipment		1,228,206			886,176			342,030			38.6
% of Total equipment revenue		85.4	%		85.7	%
Cost of sales - services and other		180,148			149,005			31,143			20.9
% of Total services and other revenue		45.1	%		47.9	%
Research and development expenses		36,270			31,447			4,823			15.3
% of Total revenue		2.0	%		2.3	%
Selling, general and administrative expenses		108,997			107,820			1,177			1.1
% of Total revenue		5.9	%		8.0	%
Depreciation and amortization		172,866			180,413			(7,547	)		(4.2	)

Total costs and expenses		1,726,487			1,354,861			371,626			27.4


Operating income (loss)		110,682			(9,234	)		119,916			NM


Other Income (Expense):
Interest income		9,214			24,535			(15,321	)		(62.4	)
Interest expense, net of amounts capitalized		(10,727	)		(21,479	)		10,752			50.1
Unrealized and realized gains (losses) on marketable investment securities and other investments		(22,099	)		97,504			(119,603	)		NM
Unrealized gains (losses) on investments accounted for at fair value, net		22,720			349,309			(326,589	)		(93.5	)
Other, net		(6,791	)		(3,645	)		(3,146	)		(86.3	)

Total other income (expense)		(7,683	)		446,224			(453,907	)		NM


Income (loss) before income taxes		102,999			436,990			(333,991	)		(76.4	)
Income tax (provision) benefit, net		(67,579	)		(41,881	)		(25,698	)		(61.4	)
Effective tax rate		65.6	%		9.6	%

Net income (loss)		35,420			395,109			(359,689	)		(91.0	)
Less: Net income (loss) attributable to noncontrolling interest		—			—			—			NM

Net income (loss) attributable to EchoStar common shareholders	$	35,420		$	395,109		$	(359,689	)		(91.0	)


Other Data:
EBITDA	$	277,378		$	614,347		$	(336,969	)		(54.8	)

Item 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued

Equipment revenue – DISH Network. “Equipment revenue – DISH Network” totaled $1.162 billion during the nine months ended September 30, 2010, an increase of $323 million or 38.4% compared to the same period in 2009. This change related primarily to an increase in unit sales of set-top boxes, partially offset by a decline in average revenue per unit. The decline in average revenue per unit was driven by continued manufacturing efficiencies and a change to one of our component vendor contracts, which reduced our set-top box costs. Pursuant to the receiver agreement, set-top boxes are sold to DISH Network at cost plus a fixed margin resulting in a decline in revenue per unit when lower set-top box costs are incurred.

Equipment revenue – other. “Equipment revenue – other” totaled $276 million during the nine months ended September 30, 2010, an increase of $80 million or 41.1% compared to the same period in 2009. This change resulted primarily from an increase in sales to Dish Mexico and to Bell TV. Although the number of units sold to Bell TV increased, the average revenue per unit to Bell TV decreased compared to the same period in 2009 due to a change in sales mix and as a result of the early 2009 amendment to our agreement with Bell TV, discussed below. The sales to Dish Mexico were in addition to the original commitment associated with our investment in Dish Mexico.

Other than our revenue from DISH Network, a majority of our revenue during the nine months ended September 30, 2010 was attributable to sales of equipment to Bell TV. In early 2009, we completed a multi-year contract extension with Bell TV that makes us the exclusive provider of certain digital set-top boxes to Bell TV. The agreement includes fixed pricing over the term of the agreement as well as providing future engineering development for enhanced Bell TV service offerings. There can be no assurance that sales to Bell TV will continue at historical levels, and any decline could adversely affect our gross margins and profitability.

Services and other revenue – DISH Network. “Services and other revenue – DISH Network” totaled $354 million during the nine months ended September 30, 2010, an increase of $73 million or 25.8% compared to the same period in 2009. The change was driven by an increase in transponder leasing primarily related to the Nimiq 5 satellite, which was placed into service in October 2009, and the increase in monthly lease rates per transponder on certain satellites based on the terms of our amended lease agreements. See Note 13 in the Notes to the Condensed Consolidated Financial Statements for further discussion.

Cost of sales – equipment. “Cost of sales – equipment” totaled $1.228 billion during the nine months ended September 30, 2010, an increase of $342 million or 38.6% compared to the same period in 2009. This change primarily resulted from an increase in sales of digital set-top boxes and related components to DISH Network, Dish Mexico and Bell TV. “Cost of sales – equipment” represented 85.4% and 85.7% of total equipment sales during the nine months ended September 30, 2010 and 2009, respectively.

Cost of sales – services and other. “Cost of sales – services and other” totaled $180 million during the nine months ended September 30, 2010, an increase of $31 million or 20.9% compared to the same period in 2009. This change primarily resulted from an increase in costs related to the Nimiq 5 satellite, which was placed into service in October 2009, and the EchoStar I satellite which we began leasing from DISH Network during the first quarter 2010. “Cost of sales - services and other” represented 45.1% and 47.9% of total “Services and other revenue” during the nine months ended September 30, 2010 and 2009, respectively. The improvement in this expense to revenue ratio was primarily driven by an increase in transponder leasing revenue. The majority of our costs associated with transponder leasing are related to satellites which are included in “Depreciation and amortization” expense.

Depreciation and amortization. “Depreciation and amortization” expense totaled $173 million during the nine months ended September 30, 2010, an $8 million or 4.2% decrease compared to the same period in 2009. The change in “Depreciation and amortization” expense was primarily related to declines in depreciation expense related to satellites that became fully depreciated in 2010, partially offset by depreciation expense associated with Nimiq 5 which was placed into service in October 2009.

Interest expense, net of amounts capitalized. “Interest expense, net of amounts capitalized” totaled $11 million during the nine months ended September 30, 2010, a decrease of $11 million or 50.1% compared to the same period in 2009. This change primarily resulted from $7 million of interest which was capitalized into construction in progress during the period that relates to interest expense that should have been capitalized in 2009. This decrease was partially offset by an increase in interest expense related to the Nimiq 5 capital lease.

Item 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued

Unrealized and realized gains (losses) on marketable investment securities and other investments. “Unrealized and realized gains (losses) on marketable investment securities and other investments” totaled a net loss of $22 million during the nine months ended September 30, 2010, a $120 million decrease compared to the same period in 2009. This change primarily resulted from a net gain of $104 million on the sale of marketable investment securities in 2009 and an increase in impairment charges on our marketable and other investment securities during 2010 compared to the same period in 2009.

Unrealized gains (losses) on investments accounted for at fair value, net. “Unrealized gains (losses) on investments accounted for at fair value, net” totaled a net gain of $23 million during the nine months ended September 30, 2010, a $327 million decrease compared to the same period in 2009. This change is attributable to a decline in gains related to investments accounted for under the fair value method. See Note 4 under “Investments in TerreStar” in the Notes to the Condensed Consolidated Financial Statements for further discussion.

Earnings before interest, taxes, depreciation and amortization. EBITDA was $277 million during the nine months ended September 30, 2010, a decrease of $337 million compared to the same period in 2009. This change primarily resulted from gains of $349 million in “Unrealized gains (losses) on investments accounted for at fair value, net,” and gains of $98 million in “Unrealized and realized gains (losses) on marketable investment securities” during the three months ended September 30, 2009. The following table reconciles EBITDA to the accompanying financial statements.


	For the Nine Months Ended September 30,
	2010			2009
	(In thousands)
EBITDA	$	277,378		$	614,347
Interest expense, net		(1,513	)		3,056
Income tax (provision) benefit, net		(67,579	)		(41,881	)
Depreciation and amortization		(172,866	)		(180,413	)

Net income (loss) attributable to EchoStar common shareholders	$	35,420		$	395,109

Income tax (provision) benefit, net. The income tax provision totaled $68 million during the nine months ended September 30, 2010, an increase of $26 million compared to the same period in 2009. This increase resulted primarily from an increase in the effective tax rate, offset by the decrease in “Income (loss) before income taxes.” The increase in the effective tax rate is related to changes in our valuation allowances against certain deferred tax assets that are capital in nature.

Net income (loss) attributable to EchoStar common shareholders. Our net income attributable to EchoStar common shareholders was $35 million during the nine months ended September 30, 2010, a decrease of $360 million compared to the same period in 2009. This decrease was primarily attributable to the changes in revenue and expenses discussed above.

Item 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued

LIQUIDITY AND CAPITAL RESOURCES

Cash, Cash Equivalents and Current Marketable Investment Securities

We consider all liquid investments purchased within 90 days of their maturity to be cash equivalents. See “Item 3. – Quantitative and Qualitative Disclosures About Market Risk” for further discussion regarding our marketable investment securities. As of September 30, 2010, our cash, cash equivalents and current marketable investment securities totaled $967 million compared to $829 million as of December 31, 2009, an increase of $138 million. This increase in cash, cash equivalents and current marketable investment securities was primarily related to cash generated from operations of $196 million, a cash payment received from DISH Network of $103 million for the assignment of certain rights under a launch contract and an increase of $79 million in the value of certain marketable investment securities, partially offset by capital expenditures of $157 million, purchases of strategic investments of $46 million and repayment of debt of $43 million.

We have investments in various debt and equity instruments including corporate bonds, corporate equity securities, government bonds, and variable rate demand notes (“VRDNs”). VRDNs are long-term floating rate municipal bonds with embedded put options that allow the bondholder to sell the security at par plus accrued interest. All of the put options are secured by a pledged liquidity source. Our VRDN portfolio is comprised of investments in many municipalities, which are backed by financial institutions or other highly rated companies that serve as the pledged liquidity source. While they are classified as marketable investment securities, the put option allows VRDNs to be liquidated generally on a same day or on a five business day settlement basis. As of September 30, 2010 and December 31, 2009, we held VRDNs with fair values of $356 million and $399 million, respectively.

The following discussion highlights our cash flow activities during the nine months ended September 30, 2010.

Cash Flow

Cash flows from operating activities

For the nine months ended September 30, 2010, we reported “Net cash flows from operating activities” of $196 million. This amount is primarily comprised of net income, adjusted to exclude non-cash changes in “Depreciation and amortization” expense and “Deferred tax expense (benefit)” of $238 million, partially offset by changes in operating assets and liabilities related to timing differences between book expense and cash payments. Our cash flows from operations were negatively impacted by net increases in amounts receivable from DISH Network, partially offset by other changes in operating assets and liabilities.

Cash flows from investing activities

For the nine months ended September 30, 2010, we reported “Net cash outflows from investing activities” of $62 million that were primarily related to capital expenditures of $157 million and purchases of strategic investments of $46 million, partially offset by a payment received from DISH Network of $103 million for the assignment of certain rights under a launch contract and net sales of marketable investment securities of $37 million. The capital expenditures include $85 million of satellite related capital expenditures and $72 million of other corporate capital expenditures.

Cash flows from financing activities

For the nine months ended September 30, 2010, we reported “Net cash outflows from financing activities” of $40 million primarily resulting from repayment of debt.

Satellites

As our satellite fleet ages, we will be required to evaluate replacement alternatives such as acquiring, leasing or constructing additional satellites, with or without customer commitments for capacity.

Item 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued

Stock Repurchases

Contractual Obligations

Subsequent to September 30, 2010, and in connection with TerreStar Networks’ bankruptcy, we entered into agreements to provide a $75 million Credit Facility to TerreStar Networks and certain of its affiliates. On October 21, 2010, we funded $18 million to TerreStar Networks under this Credit Facility. Additionally, subsequent to September 30, 2010 and in connection with TerreStar Networks’ bankruptcy, we also entered into a restructuring support agreement pursuant to which we have committed to backstop up to $100 million of a $125 million rights offering for preferred shares of TerreStar Networks to be completed upon TerreStar Network’s emergence from bankruptcy. See Note 4 under “Investments in TerreStar” in the Notes to the Condensed Consolidated Financial Statements for further discussion.

Off-Balance Sheet Arrangements

In general, we do not engage in off-balance sheet financing activities.

Item 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued

Future Capital Requirements

Item 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued

New Accounting Pronouncements

Revenue Recognition – Multiple-Deliverable Arrangements

Item 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market Risks Associated With Financial Instruments

Our investments and debt are exposed to market risks, discussed below.

Cash, Cash Equivalents and Current Marketable Investment Securities

As of September 30, 2010, our cash, cash equivalents and current marketable investment securities had a fair value of $967 million. Of that amount, a total of $759 million was invested in: (a) cash; (b) VRDNs convertible into cash at par value plus accrued interest generally in five business days or less; (c) debt instruments of the United States Government and its agencies; (d) commercial paper and corporate notes with an overall average maturity of less than one year and rated in one of the four highest rating categories by at least two nationally recognized statistical rating organizations; and/or (e) instruments with similar risk, duration and credit quality characteristics to the commercial paper and corporate obligations described above. The primary purpose of these investing activities has been to preserve principal until the cash is required to, among other things, fund operations, make strategic investments and expand the business. Consequently, the size of this portfolio fluctuates significantly as cash is received and used in our business. The value of this portfolio is negatively impacted by credit losses; however, this risk is mitigated through diversification that limits our exposure to any one issuer.

Interest Rate Risk

A change in interest rates would affect the fair value of our cash, cash equivalents and current marketable investment securities portfolio. Based on our September 30, 2010 current non-strategic investment portfolio of $759 million, a hypothetical 10% increase in average interest rates would result in a decrease of approximately $10 million in fair value of this portfolio. We normally hold these investments to maturity; however, the hypothetical loss in fair value would be realized if we sold the investments prior to maturity.

Our cash, cash equivalents and current marketable investment securities had an average annual rate of return for the nine months ended September 30, 2010 of 1.0%. A change in interest rates would affect our future annual interest income from this portfolio, since funds would be re-invested at different rates as the instruments mature. A hypothetical 10% decrease in average interest rates during 2010 would result in a decrease of approximately $1 million in annual interest income.

Item 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK - Continued

Strategic Marketable Investment Securities

As of September 30, 2010, we held strategic and financial debt and equity investments of public companies with a fair value of $208 million. These investments, which are held for strategic and financial purposes, are concentrated in a small number of companies, are highly speculative and have experienced and continue to experience volatility. The fair value of our strategic and financial debt and equity investments can be significantly impacted by the risk of adverse changes in securities markets generally, as well as risks related to the performance of the companies whose securities we have invested in, risks associated with specific industries, and other factors. These investments are subject to significant fluctuations in fair value due to the volatility of the securities markets and of the underlying businesses. In general, the debt instruments held in our strategic marketable investment securities portfolio are not significantly impacted by interest rate fluctuations as their value is more closely related to factors specific to the underlying business. A hypothetical 10% adverse change in the price of our public strategic debt and equity investments would result in a decrease of approximately $21 million in the fair value of these investments.

Restricted Cash and Marketable Investment Securities and Noncurrent Marketable and Other Investment Securities

Restricted Cash and Marketable Investment Securities

As of September 30, 2010, we had $17 million of restricted cash and marketable investment securities invested in: (a) cash; (b) debt instruments of the United States Government and its agencies; (c) commercial paper and corporate notes with an overall average maturity of less than one year and rated in one of the four highest rating categories by at least two nationally recognized statistical rating organizations; and/or (d) instruments with similar risk, duration and credit quality characteristics to the commercial paper described above. Based on our September 30, 2010 investment portfolio, a hypothetical 10% increase in average interest rates would not have a material impact in the fair value of our restricted cash and marketable investment securities.

Other Investment Securities

As of September 30, 2010, we had $613 million of public and nonpublic debt and equity instruments that we hold for strategic business purposes and account for under the cost, equity and/or fair value methods of accounting. Of this amount, $474 million relates to our investments in TerreStar Networks and TerreStar Corporation which are accounted for under the fair value method. TerreStar Networks filed for bankruptcy protection under the U.S. Bankruptcy Code on October 19, 2010. As of November 5, 2010, TerreStar Corporation had not filed for bankruptcy protection. See Note 4 in the Notes to the Condensed Consolidated Financial Statements for further discussion. A hypothetical 10% adverse change in the price of these debt and equity instruments would result in a decrease of approximately $47 million in the fair value of these investments. The remaining amount of our other investment securities portfolio of $139 million is accounted for under the cost and equity methods of accounting. A hypothetical 10% adverse change in the price of these debt and equity instruments would result in a decrease of approximately $14 million in the fair value of these investments.

Long-Term Debt

As of September 30, 2010, we had $412 million of long-term debt, of which $405 million represents our capital lease obligations, which are not subject to fair value disclosure requirements.

Derivative Financial Instruments

In general, we do not use derivative financial instruments for hedging or speculative purposes, but we may do so in the future.

Item 4.

CONTROLS AND PROCEDURES

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.

There has been no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1.

LEGAL PROCEEDINGS

Acacia

During 2004, Acacia Media Technologies (“Acacia”) filed a lawsuit against us and DISH Network in the United States District Court for the Northern District of California. The suit also named DirecTV, Comcast, Charter, Cox and a number of smaller cable companies as defendants. Acacia is an entity that seeks to license an acquired patent portfolio without itself practicing any of the claims recited therein. The suit alleges infringement of United States Patent Nos. 5,132,992; 5,253,275; 5,550,863; 6,002,720; and 6,144,702, which relate to certain systems and methods for transmission of digital data. On September 25, 2009, the District Court granted summary judgment to the defendants on invalidity grounds, and dismissed the action with prejudice. On October 8, 2010, the Federal Circuit Court of Appeals affirmed the dismissal. The plaintiffs can appeal that decision to the United States Supreme Court. We intend to vigorously defend this case. In the event that a court ultimately determines that we infringe any of the asserted patents, we may be subject to substantial damages, which may include treble damages, and/or an injunction that could require us to materially modify certain user-friendly features that we currently offer to consumers. We are being indemnified by DISH Network for any potential liability or damages resulting from this suit relating to the period prior to the effective date of the Spin-off. We cannot predict with any degree of certainty the outcome of the suit or determine the extent of any potential liability or damages.

Broadcast Innovation, L.L.C.

PART II – OTHER INFORMATION - Continued

Finisar Corporation

Nazomi Communications

NorthPoint Technology

We intend to vigorously defend this case. In the event that a court ultimately determines that we infringe the asserted patent, we may be subject to substantial damages, which may include treble damages, and/or an injunction that could require us to materially modify certain features that we currently offer to consumers. We are being indemnified by DISH Network for any potential liability or damages resulting from this suit relating to the period prior to the effective date of the Spin-off. We cannot predict with any degree of certainty the outcome of the suit or determine the extent of any potential liability or damages.

Personalized Media Communications

PART II – OTHER INFORMATION - Continued

Suomen Colorize Oy

Technology Development Licensing

We intend to vigorously defend this case. In the event that a court ultimately determines that we infringe the asserted patent, we may be subject to substantial damages, which may include treble damages, and/or an injunction that could require us to materially modify certain user-friendly features that we currently offer to consumers. We are being indemnified by DISH Network for any potential liability or damages resulting from this suit relating to the period prior to the effective date of the Spin-off. We cannot predict with any degree of certainty the outcome of the suit or determine the extent of any potential liability or damages.

Tivo Inc.

PART II – OTHER INFORMATION - Continued

Other

PART II – OTHER INFORMATION - Continued

Item 1A.

RISK FACTORS

Item 1A, “Risk Factors,” of our Annual Report on Form 10-K/A for the year ended December 31, 2009 includes a detailed discussion of our risk factors. The information presented below updates, and should be read in conjunction with, the risk factors and information disclosed in our Annual Report on Form 10-K/A for 2009.

If the encryption and related security technology used in our digital set-top boxes is compromised, sales of our digital set-top boxes may decline.

Our customers use our encryption and related security technology in the digital set-top boxes that they purchase from us to control access to their programming content. Our encryption and related security technology has been compromised in the past and may be compromised in the future even though we continue to respond with significant investment in security measures, such as updates in security software, that are intended to make signal theft more difficult. It has been our prior experience that security measures may only be effective for short periods of time or not at all. We cannot ensure that we will be successful in reducing or controlling theft of our customers’ programming content. As a result, sales of our digital set-top boxes may decline and we may incur additional costs in the future if our system’s security is compromised.

Item 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Issuer Purchases of Equity Securities

The following table provides information regarding repurchases of our Class A common stock from July 1, 2010 through September 30, 2010.


Period	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs (1)
	(In thousands, except per share data)
July 1 - July 31, 2010		—	$	—		—	$	499,395
August 1 - August 31, 2010		—		—		—		499,395
September 1 - September 30, 2010		—		—		—		499,395

Total		—	$	—		—	$	499,395

(1)

Our Board of Directors previously authorized stock repurchases of up to $500 million of our Class A common stock. On November 3, 2010, our Board of Directors extended the plan and authorized an increase in the maximum dollar value of shares that may be repurchased under the plan, such that we are currently authorized to repurchase up to $500 million of our outstanding shares through and including December 31, 2011. Purchases under our repurchase program may be made through open market purchases, privately negotiated transactions, or Rule 10b5-1 trading plans, subject to market conditions and other factors. We may elect not to purchase the maximum amount of shares allowable under this program and we may also enter into additional share repurchase programs authorized by our Board of Directors.

PART II – OTHER INFORMATION - Continued

Item 6.

EXHIBITS

(a) Exhibits.


31.1¨		Section 302 Certification of Chief Executive Officer.

31.2¨		Section 302 Certification of Chief Financial Officer.

32.1¨		Section 906 Certification of Chief Executive Officer.

32.2¨		Section 906 Certification of Chief Financial Officer.

101*		The following materials from the Quarterly Report on Form 10-Q of EchoStar for the quarter ended September 30, 2010, filed on November 5, 2010, formatted in eXtensible Business Reporting Language (“XBRL”): (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations and Comprehensive Income (Loss), (iii) Condensed Consolidated Statements of Cash Flows and (iv) related notes to these financial statements tagged as blocks of text.

¨	Filed herewith.

In accordance with Rule 402 of Regulation S-T, the information in this Exhibit 101 shall not be deemed “filed” for the purposes of section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liability of that section, and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by the specific reference in such filing.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


				ECHOSTAR CORPORATION

				By:		/s/ Michael T. Dugan
						Michael T. Dugan
						President and Chief Executive Officer
						(Duly Authorized Officer)

				By:		/s/ David J. Rayner
						David J. Rayner
						Chief Financial Officer
						(Principal Financial Officer)

Date: November 5, 2010