UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

(Mark One)

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2008.

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

FOR THE TRANSITION PERIOD FROM                         TO                      .

DISH Network Corporation

(Exact name of registrant as specified in its charter)

Nevada		88-0336997
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
9601 South Meridian Boulevard Englewood, Colorado		80112
(Address of principal executive offices)		(Zip code)

(303) 723-1000
(Registrant’s telephone number, including area code)

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

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

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

As of October 15, 2008, the registrant’s outstanding common stock consisted of 208,622,455 shares of Class A common stock and 238,435,208 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, 2008 and December 31, 2007 (Unaudited)			1
		Condensed Consolidated Statements of Operations For the Three and Nine Months Ended September 30, 2008 and 2007 (Unaudited)			2
		Condensed Consolidated Statements of Cash Flows For the Nine Months Ended September 30, 2008 and 2007 (Unaudited)			3
		Notes to Condensed Consolidated Financial Statements (Unaudited)			4
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations			34
Item 3.		Quantitative and Qualitative Disclosures about Market Risk			54
Item 4.		Controls and Procedures			57
PART II — OTHER INFORMATION
Item 1.		Legal Proceedings			58
Item 1A.		Risk Factors			63
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds			66
Item 3.		Defaults Upon Senior Securities		None
Item 4.		Submission of Matters to a Vote of Security Holders		None
Item 5.		Other Information		None
Item 6.		Exhibits			67
		Signatures			68
EX-31.1
EX-31.1
EX-32.1
EX-32.2
EX-99.1
EX-99.2

PART I — FINANCIAL INFORMATION

DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

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

	•		We face intense and increasing competition from satellite and cable television providers as well as new competitors, including telephone companies. Many of our competitors offer video services bundled with 2-way high-speed Internet access and telephone services that consumers may find attractive and which are likely to further increase competition. We also expect to face increasing competition from content and other providers who distribute video services directly to consumers over the Internet. The competitive environment may require us to increase promotional and retention spending or accept lower subscriber acquisitions and higher subscriber churn.
	•		As technology changes, and in order to remain competitive, we may have to upgrade or replace some or all subscriber equipment and make substantial investments in our infrastructure. For example, the increase in demand for high definition (“HD”) programming requires not only upgrades to customer premises equipment but also substantial increases in satellite capacity. We may not be able to pass on to our customers the entire cost of these upgrades and investments, and there can be no assurance that we will be able to effectively compete with the HD programming offerings of our competitors.
	•		DISH Network® gross subscriber additions may continue to decrease and subscriber turnover may continue to increase, in each case due to a variety of factors, such as increasing competition and worsening economic conditions, which are outside of our control, and other factors, such as our own operational inefficiencies and levels of customer satisfaction with our products and services, which are within our control, that would require significant investments and expenditures to overcome, which may have a material adverse effect on our results of operations and financial condition.
	•		Our ability to grow or maintain our business may be adversely affected by weakening global or domestic economic conditions, wavering consumer confidence, unemployment, tight credit markets, declines in global and domestic stock markets, falling home prices and other factors adversely affecting the global and domestic economy. Unfavorable events in the economy, including a further deterioration in the credit and equity markets, could significantly affect consumer demand for our pay-TV services as consumers may delay purchasing decisions or reduce or reallocate their discretionary spending. Adverse economic conditions may also make it more difficult for us to access financing on acceptable terms or at all, cause us to impair our investment portfolio, and affect our ability to attract and retain subscribers.
	•		We rely on EchoStar Corporation (“EchoStar”), which we owned prior to its January 1, 2008 separation from us (the “Spin-off”), to design and develop set-top boxes and to provide transponder capacity, digital broadcast operations and other services for us. EchoStar is our sole supplier of digital set-top boxes and digital broadcast operations. Equipment, transponder leasing and digital broadcast operation costs may increase beyond our current expectations. We may be unable to renew agreements for these services with EchoStar on acceptable terms or at all. EchoStar’s inability to develop and produce, or our inability to obtain, equipment with the latest technology, or our inability to obtain transponder capacity and digital broadcast operations and other services from third parties, could affect our subscriber acquisition and churn and cause related revenue to decline.
	•		The loss of our distribution relationship with AT&T on January 31, 2009 may impair our ability to generate gross and net subscriber additions, increase churn and impair our ability to generate revenue growth.
	•		We have made and we will continue to make material investments in staffing, training, information systems, and other initiatives, primarily in our call center and in-home service businesses. These

			investments are intended to help combat inefficiencies introduced by the increasing complexity of our business and technology, improve customer satisfaction, reduce churn, increase productivity, and allow us to scale better over the long run. We cannot, however, be certain that our increased spending will ultimately be successful in yielding such returns. In the meantime, we may continue to incur higher costs as a result of both our operational inefficiencies and increased spending.
	•		Satellite programming signals are subject to theft and we are subject to other forms of fraud. Theft of service and other forms of fraud could increase in the future, causing us to lose subscribers and revenue and to incur higher costs.
	•		We depend on certain telecommunications providers, independent retailers and others to solicit orders for DISH Network services that represent a significant percentage of our total gross subscriber acquisitions. A number of these resellers are not exclusive to us and also offer competitors’ products and services. Loss of one or more of these relationships could have an adverse effect on our subscriber base and certain of our other key operating metrics because we may not be able to develop comparable alternative distribution channels.
	•		We depend on others to produce the programming we distribute to our subscribers, programming costs may increase beyond our current expectations and we may be unable to obtain or renew programming agreements on acceptable terms or at all. Existing programming agreements could be subject to cancellation. We may be denied access to sports and other programming. Foreign programming is increasingly offered on other platforms. We may also be unable to obtain required retransmission consents. Our inability to obtain or renew attractive programming could cause our subscriber base and related revenue to decline and could cause our subscriber turnover to increase.
	•		We depend on and are subject to government regulations and requirements, primarily those of the Federal Communications Commission (“FCC”). Government regulations and requirements could become more burdensome at any time, causing us to expend additional resources on compliance, and critical protections provided for by FCC rules and regulations to ensure non-discriminatory access to cable-owned programming assets may be reduced. In addition, we may lose (or have altered) existing or future government authorizations and licenses that are necessary to conduct our business. We may be unable to obtain needed FCC authorizations or export licenses.
	•		We made a substantial deposit for 700 MHz wireless licenses in an FCC auction. We will be required to make significant additional investments or partner with others to commercialize these licenses and satisfy FCC build-out requirements.
	•		We are highly leveraged and subject to numerous constraints on our ability to raise additional debt. We may be required to raise and/or refinance indebtedness during unfavorable market conditions. Recent developments in the financial markets have made it more difficult for issuers of high yield indebtedness such as us to access capital markets at reasonable rates. We cannot predict with any certainty whether or not we will be impacted in the future by the current conditions, which may adversely affect our ability to refinance our indebtedness, or to secure additional financing to support our growth initiatives.
	•		A portion of our investment portfolio is invested in asset backed securities, auction rate securities, mortgage backed securities and special investment vehicles. The markets associated with these investments have experienced greatly reduced liquidity in recent months and therefore have adversely affected our liquidity. In addition, certain of these securities have defaulted or been materially downgraded causing us to record impairment charges. Should the credit ratings of these securities deteriorate further, we may be required to record additional impairment charges.
	•		If we and EchoStar are unsuccessful in defending against Tivo’s motion for contempt or any subsequent claims that EchoStar’s technology infringes Tivo’s patent, we could be prohibited from distributing DVRs supplied to us by EchoStar, or be required to modify or eliminate certain user-friendly DVR features that we currently offer to consumers. In that event we would be at a significant disadvantage to our competitors who could offer this functionality and, while we would attempt to provide that functionality using different technology and/or manufacturers other than EchoStar, the adverse affect on our business could be material. We could also have to pay substantial additional damages.
	•		If our EchoStar X satellite experiences a significant failure, we could lose the ability to deliver local network channels in many markets. If any of our other owned or leased satellites experienced a significant failure, we could lose the ability to provide other critical programming to the continental United States.

	•		Our satellite launches may be delayed or fail, or our owned or leased satellites may fail in orbit prior to the end of their scheduled lives which could cause extended interruptions of some of the channels we offer and impair our ability to attract and retain subscribers.
	•		We do not carry insurance for any satellite launches or any of the in-orbit satellites that we own or lease, and we bear the risk of any launch or in-orbit satellite failures. Therefore, launch failures and/or failures of any of the in-orbit satellites that we own or lease could have a material adverse effect on our results of operations and financial position and could require us to take substantial impairment charges.
	•		Service interruptions arising from technical anomalies on satellites or on-ground components of our direct broadcast satellite system, or caused by war, terrorist activities or natural disasters, may cause customer cancellations or otherwise harm our business.
	•		We depend heavily on complex information technologies. Weaknesses in our information technology systems could have an adverse impact on our business. We may have difficulty attracting and retaining qualified personnel to maintain our information technology infrastructure.
	•		We may face actual or perceived conflicts of interest with EchoStar in a number of areas relating to our past, ongoing and future relationships, including: (i) cross officerships, directorships and stock ownership, (ii) related party transactions, including those that were entered into in connection with the Spin-off, and (iii) business opportunities.
	•		We rely on key personnel including Charles W. Ergen, our chairman and chief executive officer, and other executives, certain of whom will for some period also have responsibilities with EchoStar through their positions at EchoStar or our management services agreement with EchoStar.
	•		We are party to various lawsuits which, if adversely decided, could have a significant adverse impact on our business.
	•		We may be subject to claims that we infringe certain patents. There can be no assurance that we will be able to obtain licenses or redesign our products to avoid patent infringement.
	•		We may pursue acquisitions, business combinations, strategic partnerships, divestitures and other significant transactions that may require us to raise additional capital, (which may not be available on acceptable terms), could become substantial over time, involve a high degree of risk, and could expose us to significant financial losses if the underlying ventures are not successful.
	•		We periodically evaluate and test our internal control over financial reporting in order to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act. Although our management concluded that our internal control over financial reporting was effective as of December 31, 2007, and while no change in our internal control over financial reporting occurred during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting, if in the future we are unable to report that our internal control over financial reporting is effective (or if our auditors do not agree with our assessment of the effectiveness of, or are unable to express an opinion on, our internal control over financial reporting), we could lose investor confidence in our financial reports, which could have a material adverse effect on our stock price and our business.
	•		We may face other risks described from time to time in periodic and current reports we file with the Securities and Exchange Commission (“SEC”).

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

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

Item 1. FINANCIAL STATEMENTS

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

		As of
		September 30,				December 31,
		2008				2007
Assets
Current Assets:
Cash and cash equivalents		$	971,943			$	919,543
Marketable investment securities			460,704				1,868,653
Restricted cash and cash equivalents (Note 5)			104,600				—
Trade accounts receivable — other, net of allowance for uncollectible accounts of $14,708 and $14,019, respectively			720,745				699,101
Trade accounts receivable — EchoStar			72,160				—
Inventories, net			394,659				306,915
Current deferred tax assets			15,179				342,813
Other current assets			113,139				108,113
Other current assets — EchoStar			3,707				—
Total current assets			2,856,836				4,245,138
Restricted cash and marketable investment securities			75,739				172,520
Property and equipment, net of accumulated depreciation of $2,366,559 and $3,591,594, respectively			2,622,830				4,058,189
FCC authorizations			679,570				845,564
700 MHz wireless spectrum deposit (Note 7)			711,871				—
Deferred tax assets			14,522				—
Intangible assets, net			5,426				218,875
Goodwill			—				256,917
Marketable investment securities			100,078				—
Other noncurrent assets, net (Note 5)			110,376				289,326
Total assets		$	7,177,248			$	10,086,529
Liabilities and Stockholders’ Equity (Deficit)
Current Liabilities:
Trade accounts payable — other		$	97,406			$	314,825
Trade accounts payable — EchoStar			491,886				—
Deferred revenue and other			849,262				857,846
Accrued programming			906,329				914,074
Litigation accrual			104,600				—
Other accrued expenses			717,257				587,942
Current portion of capital lease obligations, mortgages and other notes payable			11,739				50,454
3% Convertible Subordinated Note due 2011 (Note 8)			25,000				—
3% Convertible Subordinated Note due 2010 (Note 8)			—				500,000
5 3/4% Senior Notes due 2008 (Note 8)			971,555				1,000,000
Total current liabilities			4,175,034				4,225,141
Long-term obligations, net of current portion:
6 3/8% Senior Notes due 2011			1,000,000				1,000,000
3% Convertible Subordinated Note due 2011			—				25,000
6 5/8% Senior Notes due 2014			1,000,000				1,000,000
7 1/8% Senior Notes due 2016			1,500,000				1,500,000
7% Senior Notes due 2013			500,000				500,000
7 3/4% Senior Notes due 2015 (Note 8)			750,000				—
Capital lease obligations, mortgages and other notes payable, net of current portion			222,794				550,250
Deferred tax liabilities			—				386,493
Long-term deferred revenue, distribution and carriage payments and other long-term liabilities			158,918				259,656
Total long-term obligations, net of current portion			5,131,712				5,221,399
Total liabilities			9,306,746				9,446,540
Commitments and Contingencies (Note 11)
Stockholders’ Equity (Deficit):
Class A common stock, $.01 par value, 1,600,000,000 shares authorized, 256,689,257 and 255,138,160 shares issued, 208,622,342 and 210,125,360 shares outstanding, respectively			2,567				2,551
Class B common stock, $.01 par value, 800,000,000 shares authorized, 238,435,208 shares issued and outstanding.			2,384				2,384
Class C common stock, $.01 par value, 800,000,000 shares authorized, none issued and outstanding			—				—
Additional paid-in capital			2,085,343				2,033,865
Accumulated other comprehensive income (loss)			(91,445	)			46,698
Accumulated earnings (deficit)			(2,685,388	)			(84,456	)
Treasury stock, at cost			(1,442,959	)			(1,361,053	)
Total stockholders’ equity (deficit)			(2,129,498	)			639,989
Total liabilities and stockholders’ equity (deficit)		$	7,177,248			$	10,086,529

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

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

		For the Three Months								For the Nine Months
		Ended September 30,								Ended September 30,
		2008				2007				2008				2007
Revenue:
Subscriber-related revenue		$	2,886,157			$	2,699,018			$	8,572,163			$	7,927,311
Equipment sales and other revenue			41,918				95,309				95,755				272,009
Equipment sales — EchoStar			2,433				—				8,533				—
Transitional services and other revenue — EchoStar			6,273				—				19,714				—
Total revenue			2,936,781				2,794,327				8,696,165				8,199,320
Costs and Expenses:
Subscriber-related expenses (exclusive of depreciation shown below — Note 12)			1,534,133				1,384,632				4,402,771				4,067,518
Satellite and transmission expenses (exclusive of depreciation shown below — Note 12):
EchoStar			76,848				—				232,798				—
Other			7,651				50,253				22,890				125,931
Equipment, transitional services and other cost of sales			69,315				66,745				131,488				189,576
Subscriber acquisition costs:
Cost of sales — subscriber promotion subsidies — EchoStar (exclusive of depreciation shown below — Note 12)			53,418				25,553				116,489				89,082
Other subscriber promotion subsidies			310,879				314,550				888,849				931,514
Subscriber acquisition advertising			73,469				60,521				178,800				157,521
Total subscriber acquisition costs			437,766				400,624				1,184,138				1,178,117
General and administrative — EchoStar			14,300				—				40,740				—
General and administrative			133,282				151,409				371,364				451,611
Depreciation and amortization (Note 12)			245,646				344,150				766,260				1,008,201
Total costs and expenses			2,518,941				2,397,813				7,152,449				7,020,954
Operating income (loss)			417,840				396,514				1,543,716				1,178,366
Other Income (Expense):
Interest income			16,609				37,074				44,082				98,917
Interest expense, net of amounts capitalized			(101,802	)			(96,251	)			(284,845	)			(312,413	)
Other (Note 5)			(106,055	)			(6,124	)			(124,583	)			(24,099	)
Total other income (expense)			(191,248	)			(65,301	)			(365,346	)			(237,595	)
Income (loss) before income taxes			226,592				331,213				1,178,370				940,771
Income tax (provision) benefit, net			(134,697	)			(131,533	)			(492,007	)			(359,752	)
Net income (loss)		$	91,895			$	199,680			$	686,363			$	581,019
Denominator for basic and diluted net income (loss) per share — Class A and B common stock:
Denominator for basic net income (loss) per share — weighted-average common shares outstanding			449,425				447,496				449,318				447,001
Denominator for diluted net income (loss) per share — weighted-average common shares outstanding			460,042				456,543				461,040				456,048
Net income (loss) per share — Class A and B common stock:
Basic net income (loss)		$	0.20			$	0.45			$	1.53			$	1.30
Diluted net income (loss)		$	0.20			$	0.44			$	1.50			$	1.29

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

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

		For the Nine Months
		Ended September 30,
		2008				2007
Cash Flows From Operating Activities:
Net income (loss)		$	686,363			$	581,019
Adjustments to reconcile net income (loss) to net cash flows from operating activities:
Depreciation and amortization			766,260				1,008,201
Equity in losses (earnings) of affiliates			1,884				3,165
Realized and unrealized losses (gains) on investments			120,669				16,309
Non-cash, stock-based compensation			11,690				16,555
Deferred tax expense (benefit)			151,638				293,756
Other, net			5,878				5,320
Change in noncurrent assets			8,470				(5,253	)
Change in long-term deferred revenue, distribution and carriage payments and other long-term liabilities			31,010				(15,549	)
Changes in current assets and current liabilities, net			41,525				(6,868	)
Net cash flows from operating activities			1,825,387				1,896,655
Cash Flows From Investing Activities:
Purchases of marketable investment securities			(4,344,319	)			(2,640,785	)
Sales and maturities of marketable investment securities			4,457,908				2,413,757
Purchases of property and equipment			(844,265	)			(1,070,033	)
Change in restricted cash and marketable investment securities			1,700				2,269
Deposit for 700 MHz wireless spectrum acquisition			(711,871	)			—
Proceeds from the sale of strategic investment			106,200				—
FCC authorizations			—				(57,463	)
Purchase of strategic investments included in noncurrent assets and other			—				(71,906	)
Other			(705	)			5,803
Net cash flows from investing activities			(1,335,352	)			(1,418,358	)
Cash Flows From Financing Activities:
Distribution of cash and cash equivalents to EchoStar in connection with the Spin-off (Note 1)			(585,147	)			—
Proceeds from issuance of 7 3/4% Senior Notes due 2015 (Note 8)			750,000				—
Debt issuance costs			(4,972	)			—
Redemption of 5 3/4% Convertible Subordinated Notes due 2008			—				(999,985	)
Redemption of 3% Convertible Subordinated Note due 2010			(500,000	)			—
Repurchases of 5 3/4% Senior Notes due 2008			(28,445	)			—
Repayment of capital lease obligations, mortgages and other notes payable			(7,068	)			(31,835	)
Repurchases of Class A common stock (Note 9)			(81,906	)			—
Net proceeds from Class A common stock options exercised and Class A common stock issued under the Employee Stock Purchase Plan			19,903				28,082
Excess tax benefits recognized on stock option exercises			—				4,407
Net cash flows from financing activities			(437,635	)			(999,331	)
Net increase (decrease) in cash and cash equivalents			52,400				(521,034	)
Cash and cash equivalents, beginning of period			919,543				1,749,670
Cash and cash equivalents, end of period		$	971,943			$	1,228,636
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest		$	240,437			$	273,877
Capitalized interest		$	11,812			$	11,965
Cash received for interest		$	36,354			$	73,146
Cash paid for income taxes		$	361,737			$	72,861
Employee benefits paid in Class A common stock		$	19,374			$	17,674
Satellite financed under capital lease obligations		$	—			$	198,219
Satellite and other vendor financing		$	23,314			$	—
Net assets contributed in connection with the Spin-off, excluding cash and cash equivalents		$	2,741,399			$	—

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

DISH NETWORK CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1. Organization and Business Activities

Principal Business

DISH Network Corporation, formerly known as EchoStar Communications Corporation, is a holding company. Its subsidiaries (which together with DISH Network Corporation are referred to as “DISH Network,” the “Company,” “we,” “us” and/or “our”) operate the DISH Network® television service, which provides a direct broadcast satellite (“DBS”) subscription television service in the United States and had 13.780 million subscribers as of September 30, 2008.

We have deployed substantial resources to develop the “DISH Network DBS System.” The DISH Network DBS System consists of our licensed Federal Communications Commission (“FCC”) authorized DBS and Fixed Satellite Service (“FSS”) spectrum, our owned and leased satellites, receiver systems, digital broadcast operations, customer service facilities, in-home service and call center operations and certain other assets utilized in our operations. Our principal business strategy is to continue developing our subscription television service in the United States to provide consumers with a fully-competitive alternative to others in the multi-channel video programming distribution (“MVPD”) industry.

Spin-off of EchoStar Corporation and Technology and Certain Infrastructure Assets

On January 1, 2008, we completed a tax-free distribution of our technology and set-top box business and certain infrastructure assets (the “Spin-off”) into a separate publicly-traded company, EchoStar Corporation (“EchoStar”). DISH Network and EchoStar now operate separately, 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 Chief Executive Officer and Chairman of our board of directors. The two entities consist of the following:

	•		DISH Network Corporation — which retained its subscription television business, the DISH Network®, and
	•		EchoStar Corporation — which sells equipment, including set-top boxes and related components, to DISH Network and international customers, and provides digital broadcast operations and satellite services to DISH Network and other customers.

The Spin-off of EchoStar did not result in the discontinuance of any of our ongoing operations as the cash flows related to, among others things, purchases of set-top boxes, transponder leasing and digital broadcasting services that we purchase from EchoStar continue to be included in our operations.

Our shareholders of record on December 27, 2007 received one share of EchoStar common stock for every five shares of each class of DISH Network common stock they held as of the record date.

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

The table below summarizes the assets and liabilities that were distributed to EchoStar in connection with the Spin-off. The distribution was accounted for at historical cost given the nature of the distribution.

		January 1,
		2008
		(In thousands)
Assets
Current Assets:
Cash and cash equivalents		$	585,147
Marketable investment securities			947,120
Trade accounts receivable, net			38,054
Inventories, net			31,000
Current deferred tax assets			8,459
Other current assets			32,351
Total current assets			1,642,131
Restricted cash and marketable investment securities			3,150
Property and equipment, net			1,516,604
FCC authorizations			165,994
Intangible assets, net			214,544
Goodwill			256,917
Other noncurrent assets, net			93,707
Total assets		$	3,893,047
Liabilities
Current Liabilities:
Trade accounts payable		$	5,825
Deferred revenue and other accrued expenses			38,460
Current portion of capital lease obligations, mortgages and other notes payable			40,533
Total current liabilities			84,818
Long-term obligations, net of current portion:
Capital lease obligations, mortgages and other notes payable, net of current portion			341,886
Deferred tax liabilities			139,797
Total long-term obligations, net of current portion			481,683
Total liabilities			566,501
Net assets distributed		$	3,326,546

2. Significant Accounting Policies

Basis of Presentation

The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and with the instructions to Form 10-Q and Article 10 of Regulation S-X for interim financial information. Accordingly, these statements do not include all of the information and notes required for complete financial statements prepared under GAAP. In our opinion, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the nine months ended September 30, 2008 are not necessarily indicative of the results that may be expected for the year ending December 31, 2008. For further information, refer to the Consolidated Financial Statements and notes thereto included in our Annual Report on Form 10-K/A for the year ended December 31, 2007 (“2007 10-K/A”). Certain prior period amounts have been reclassified to conform to the current period presentation. Variable rate demand notes (“VRDNs”), which we previously reported as cash and cash equivalents, are now classified as current marketable investment securities (see Note 5). We held VRDNs on December 31, 2007 prior to the Spin-off, we distributed VRDNs to EchoStar in connection with the Spin-off, and we continued to hold VRDNs as of September 30, 2008. We reclassified the allocation of cash and cash equivalents and marketable investment securities to accurately reflect the amounts of each we distributed to EchoStar in connection with the Spin-off. There was no change in the combined distribution total of $1.5 billion of cash and cash equivalents and current marketable investment securities (see Note 1). As a result of these reclassifications, “Purchases of marketable investment securities” and “Sales and maturities of marketable investment securities” in “Net cash flows from investing activities” and “Distribution of cash and cash equivalents to EchoStar in connection with the Spin-off” in “Net cash flows from financing activities” on our Condensed Consolidated Statements of Cash Flows have been reclassified for all prior periods. The ongoing purchase and sale of VRDNs now appear on our cash flow statement under “Cash flows from investing activities.”

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

Principles of Consolidation

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

Use of Estimates

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

Comprehensive Income (Loss)

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

		For the Three Months								For the Nine Months
		Ended September 30,								Ended September 30,
		2008				2007				2008				2007
		(In thousands)
Net income (loss)		$	91,895			$	199,680			$	686,363			$	581,019
Foreign currency translation adjustments			(1,384	)			3,652				(2,961	)			6,268
Unrealized holding gains (losses) on available-for-sale securities			(170,447	)			38,103				(231,869	)			44,184
Recognition of previously unrealized (gains) losses on available-for-sale securities included in net income (loss)			148,423				(268	)			146,112				(2,263	)
Deferred income tax (expense) benefit			(29,398	)			(14,950	)			(10,174	)			(16,415	)
Comprehensive income (loss)		$	39,089			$	226,217			$	587,471			$	612,793

“Accumulated other comprehensive income (loss)” presented on the accompanying Condensed Consolidated Balance

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

Sheets and below consists of the accumulated net unrealized gains (losses) on available-for-sale securities and foreign currency translation adjustments, net of deferred taxes.

		Accumulated
		Other
		Comprehensive
		Income
		(In thousands)
Balance, December 31, 2007		$	46,698
Distribution of accumulated other comprehensive income to EchoStar, net of tax (Note 1)			(39,251	)
Foreign currency translation			(2,961	)
Change in unrealized holding gains (losses) on available-for-sale securities, net			(85,757	)
Deferred income tax (expense) benefit			(10,174	)
Balance, September 30, 2008		$	(91,445	)

Basic and Diluted Income (Loss) Per Share

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

The potential dilution from our subordinated notes convertible into common stock was computed using the “if converted method.” The potential dilution from stock options exercisable into common stock was computed using the treasury stock method based on the average market value of our Class A common stock. The following table reflects the basic and diluted weighted-average shares outstanding used to calculate basic and diluted earnings per share. Earnings per share amounts for all periods are presented below in accordance with the requirements of SFAS 128.

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

		For the Three Months								For the Nine Months
		Ended September 30,								Ended September 30,
		2008				2007				2008				2007
		(In thousands)
Numerator:
Numerator for basic net income (loss) per share — Net income (loss)		$	91,895			$	199,680			$	686,363			$	581,019
Interest on subordinated notes convertible into common shares, net of related tax effect			1,537				2,432				6,494				7,295
Numerator for diluted net income (loss) per common share		$	93,432			$	202,112			$	692,857			$	588,314
Denominator:
Denominator for basic net income (loss) per common share — weighted-average common shares outstanding			449,425				447,496				449,318				447,001
Dilutive impact of options outstanding			2,318				1,782				2,941				1,782
Dilutive impact of subordinated notes convertible into common shares			8,299				7,265				8,781				7,265
Denominator for diluted net income (loss) per share — weighted-average diluted common shares outstanding			460,042				456,543				461,040				456,048
Net income (loss) per share — Class A and B common stock:
Basic net income (loss)		$	0.20			$	0.45			$	1.53			$	1.30
Diluted net income (loss)		$	0.20			$	0.44			$	1.50			$	1.29
Shares of Class A common stock issuable upon conversion of:
3% Convertible Subordinated Note due 2010 (Note 8) *			8,299				6,866				8,299				6,866
3% Convertible Subordinated Note due 2011 (Note 8)			482				399				482				399

As of September 30, 2008 and 2007, there were 3.4 million and 1.4 million stock incentive awards outstanding, respectively, not included in the above denominator as their inclusion would have been antidilutive. Vesting of options and rights to acquire shares of our Class A common stock granted pursuant to our long-term incentive plans is contingent upon meeting certain long-term goals which have not yet been achieved. As a consequence, the following are not included in the diluted EPS calculation:

		As of September 30,
		2008				2007
		(In thousands)
Performance-based options			9,548				10,200
Restricted performance units			571				639
Total			10,119				10,839

In addition, the foregoing diluted EPS calculation does not include approximately 0.3 million shares of Class A common stock, the vesting of which is subject to our achievement of a certain long-term subscriber goal, which has not yet been achieved.

Accounting for Uncertainty in Income Taxes

We adopted the provisions of FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement No. 109” (“FIN 48”) on January 1, 2007. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes,” and prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to

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

be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.

In addition to filing federal income tax returns, we and our subsidiaries file income tax returns in all states that impose an income tax and in a small number of foreign jurisdictions where we have insignificant operations. We are subject to U.S. federal, state and local income tax examinations by tax authorities for the years beginning in 1996 due to the carryover of previously incurred net operating losses. As of September 30, 2008, no taxing authority has proposed any significant adjustments to our tax positions. We have no significant current tax examinations in process.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):

Balance as of January 1, 2008		$	20,160
Additions based on tax positions related to the current year			47,707
Reductions based on tax positions related to the current year			(36,712	)
Additions for tax positions of prior years			106,098
Balance as of September 30, 2008		$	137,253

Accrued interest and penalties on uncertain tax positions are recorded as a component of “Other income (expense)” on our Condensed Consolidated Statements of Operations. During the three and nine months ended September 30, 2008, we recorded $1 million and $6 million in interest and penalty expense to earnings, respectively. Accrued interest and penalties was $8 million at September 30, 2008.

We have $128 million in unrecognized tax benefits that, if recognized, could favorably affect our effective tax rate. Of this amount, it is reasonably possible that $103 million may be paid or effectively settled within the next twelve months, depending on the resolution of a change in accounting method filed with the Internal Revenue Service.

New Accounting Pronouncements

Revised Business Combinations

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

Noncontrolling Interests in Consolidated Financial Statements

In December 2007, the FASB issued Statement of Financial Accounting Standards No. 160, “Noncontrolling Interests in Consolidated Financial Statements” (“SFAS 160”). SFAS 160 establishes accounting and reporting standards for ownership interests in subsidiaries held by parties other than the parent, the amount of consolidated net income attributable to the parent and to the noncontrolling interest, changes in a parent’s ownership interest and the valuation of retained noncontrolling equity investments when a subsidiary is deconsolidated. SFAS 160 also establishes reporting requirements for providing sufficient disclosures that clearly identify and distinguish between the interests of the parent and the interests of the noncontrolling owners. This standard is effective for fiscal years beginning after December 15, 2008. We do not expect the adoption of SFAS 160 to have a material impact on our financial position or results of operations.

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

3. Stock-Based Compensation

Stock Incentive Plans

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

	•		an adjusted DISH Network stock option for the same number of shares that were exercisable under the original DISH Network stock option, with an exercise price equal to the exercise price of the original DISH Network stock option multiplied by 0.831219.
	•		a new EchoStar stock option for one-fifth of the number of shares that were exercisable under the original DISH Network stock option, with an exercise price equal to the exercise price of the original DISH Network stock option multiplied by 0.843907.

Similarly, each holder of DISH Network restricted stock units retained his or her DISH Network restricted stock units and received one EchoStar restricted stock unit for every five DISH Network restricted stock units that they held.

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

We maintain stock incentive plans to attract and retain officers, directors and key employees. Awards under these plans include both performance and non-performance based equity incentives. As of September 30, 2008, we had outstanding under these plans options to acquire 20.4 million shares of our Class A common stock and 1.6 million restricted stock awards. Stock options granted through September 30, 2008 were granted with exercise prices equal to or greater than the market value of our Class A common stock at the date of grant and with a maximum term of ten years. While historically we have issued options subject to vesting, typically at the rate of 20% per year, some options have been granted with immediate vesting and other options vest only upon the achievement of certain company-wide objectives. As of September 30, 2008, we had 64.3 million shares of our Class A common stock available for future grant under our stock incentive plans.

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

As of September 30, 2008

Dish Network Awards

EchoStar Awards

Restricted

Restricted

Stock

Stock

Stock

Stock

Stock Incentive Awards Outstanding

Options

Units

Options

Units

Held by DISH Network employees

14,847,200

452,495

3,199,525

90,481

Held by EchoStar employees

5,530,638

1,188,332

N/A

N/A

Total

20,377,838

1,640,827

3,199,525

90,481

We are responsible for fulfilling all stock incentive awards related to DISH Network common stock and EchoStar is responsible for fulfilling all stock incentive awards related to EchoStar common stock, regardless of whether such stock incentive awards are held by our or EchoStar’s employees. Notwithstanding the foregoing, based on the requirements of Statement of Financial Accounting Standards No. 123R, “Share-Based Payments” (“SFAS 123R”), our stock-based compensation expense, resulting from awards outstanding at the Spin-off date, is based on the stock incentive awards held by our employees regardless of whether such awards were issued by DISH Network or EchoStar. Accordingly, stock-based compensation that we expense with respect to EchoStar stock incentive awards is included in “Additional paid-in capital” on our Condensed Consolidated Balance Sheets.

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

Stock Award Activity

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

		For the Nine Months
		Ended September 30, 2008
						Weighted-
						Average
		Options				Exercise Price
Total options outstanding, beginning of period			20,938,403			$	22.61
Granted			1,188,500				28.46
Exercised			(844,278	)			21.76
Forfeited and cancelled			(904,787	)			27.16
Total options outstanding, end of period			20,377,838				22.79
Performance based options outstanding, end of period *			9,547,500				16.41
Exercisable at end of period			6,576,564				28.79

We realized $3 million and $9 million of tax benefits from stock options exercised during the nine months ended September 30, 2008 and 2007, respectively. Based on the closing market price of our Class A common stock on September 30, 2008, the aggregate intrinsic value of our outstanding stock options was $76 million. Of that amount, options with an aggregate intrinsic value of $5 million were exercisable at the end of the period.

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

		For the Nine Months
		Ended September 30, 2008
						Weighted-
		Restricted				Average
		Stock				Grant Date
		Awards				Fair Value
Total restricted stock awards outstanding, beginning of period			1,717,078			$	29.24
Granted			—				—
Exercised			(30,000	)			26.66
Forfeited and cancelled			(46,251	)			30.75
Total restricted stock awards outstanding, end of period			1,640,827				29.27
Restricted performance units outstanding, end of period *			570,827				25.99

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

Long-Term Performance-Based Plans

In February 1999, we adopted a long-term, performance-based stock incentive plan (the “1999 LTIP”) within the terms of our 1995 Stock Incentive Plan. The 1999 LTIP provided stock options to key employees which vest over five years at the rate of 20% per year. Exercise of the options is also contingent on the Company achieving a company-specific goal in relation to an industry-related metric prior to December 31, 2008.

In January 2005, we adopted a long-term, performance-based stock incentive plan (the “2005 LTIP”) within the terms of our 1999 Stock Incentive Plan. The 2005 LTIP provides stock options and restricted performance units, either alone or in combination, which vest over seven years at the rate of 10% per year during the first four years, and at the rate of 20% per year thereafter. Exercise of the options is also subject to a performance condition that a company-specific subscriber goal is achieved prior to March 31, 2015.

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

		Total								Vested Portion
		1999 LTIP				2005 LTIP				1999 LTIP				2005 LTIP
		(In thousands)
DISH Network awards held by DISH Network employees		$	21,609			$	49,873			$	19,772			$	12,654
EchoStar awards held by DISH Network employees			4,387				10,126				4,015				2,569
Total		$	25,996			$	59,999			$	23,787			$	15,223

Of the 20.4 million options and 1.6 million restricted stock awards outstanding under our stock incentive plans as of September 30, 2008, the following awards were outstanding pursuant to the 1999 LTIP and the 2005 LTIP:

		As of
		September 30, 2008
						Weighted-
						Average
Long-Term Performance-Based Plans		Stock Awards				Exercise Price
1999 LTIP options			5,098,000			$	8.71
2005 LTIP options			4,449,500				25.22
2005 LTIP restricted performance units			570,827
Total			10,118,327

No awards were granted under the 1999 LTIP or 2005 LTIP during the nine months ended September 30, 2008.

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

Stock-Based Compensation

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

		For the Three Months								For the Nine Months
		Ended September 30,								Ended September 30,
		2008				2007				2008				2007
		(In thousands)
Subscriber-related		$	127			$	152			$	414			$	458
Satellite and transmission			—				86				—				306
General and administrative			2,185				2,951				6,773				9,460
Total non-cash, stock-based compensation		$	2,312			$	3,189			$	7,187			$	10,224

As of September 30, 2008, our total unrecognized compensation cost related to our non-performance based unvested stock options was $31 million and includes compensation expense that we will recognize for EchoStar stock options held by our employees as a result of the Spin-off. This cost is based on an estimated future forfeiture rate of approximately 4.4% per year and will be recognized over a weighted-average period of approximatly three years. Share-based compensation expense is recognized based on awards ultimately expected to vest and is reduced for estimated forfeitures. SFAS 123R requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Changes in the estimated forfeiture rate can have a significant effect on share-based compensation expense since the effect of adjusting the rate is recognized in the period the forfeiture estimate is changed.

The fair value of each award for the three and nine months ended September 30, 2008 and 2007 was estimated at the date of the grant using a Black-Scholes option pricing model with the following assumptions:

		For the Three Months								For the Nine Months
		Ended September 30,								Ended September 30,
		2008				2007				2008				2007
Risk-free interest rate			3.15	%			4.21% — 4.49	%			2.74% — 3.42	%			4.51% — 4.77	%
Volatility factor			24.90	%			18.63% — 23.95	%			19.98% — 24.90	%			20.17% — 22.29	%
Expected term of options in years			6.1				6.0 — 10.0				6.0 — 6.1				5.9 — 10.0
Weighted-average fair value of options granted		$	6.65				$13.70 — $21.41				$6.65 — $8.72				$13.56 — $20.14

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

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

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

4. Inventories

Inventories consist of the following:

		As of
		September 30,				December 31,
		2008				2007
		(In thousands)
Finished goods — DBS		$	213,627			$	170,463
Raw materials			119,994				70,103
Work-in-process — used			78,771				67,542
Work-in-process — new			3,784				13,546
Subtotal			416,176				321,654
Inventory allowance			(21,517	)			(14,739	)
Inventories, net		$	394,659			$	306,915

5. Investment Securities

Fair Value Measurements

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

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

Investments in Debt and Equity Securities

We have investments in various debt and equity instruments including corporate bonds, corporate equity securities, government bonds, and 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. While they are classified as marketable investment securities, VRDNs can be liquidated per the put option on a same day or on a five business day settlement basis. As of September 30, 2008 and December 31, 2007, we held VRDNs with fair values of $113 million and $261 million, respectively.

We also have invested in auction rate securities (“ARS”) and mortgage backed securities (“MBS”), which are classified as available-for-sale securities and reported at fair value. Recent events in the credit markets have reduced or eliminated current liquidity for certain of our ARS and MBS investments. The fair values of these securities are estimated utilizing a combination of comparable instruments and liquidity assumptions. These analyses consider, among other items, the collateral underlying the investments, credit ratings, and liquidity. These securities were also compared, when possible, to other observable market data with similar characteristics.

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

For our ARS and MBS investments, due to the lack of observable market quotes for identical assets, we utilize analyses that rely on Level 2 and/or Level 3 inputs. These inputs include observed prices on similar assets as well as our assumptions and estimates related to the counterparty credit quality, default risk underlying the security and overall capital market liquidity. The valuation of our ARS and MBS investments portfolio is subject to uncertainties that are difficult to estimate.

As of September 30, 2008, $75 million, net of tax, of unrealized losses were included in “Accumulated other comprehensive income (loss)” on our Condensed Consolidated Balance Sheets, as the result of the dislocation in the credit markets and temporary declines in the fair value for our ARS investments. We have established a full valuation allowance for the deferred tax assets associated with these capital losses. In addition, we continue to classify these investments totaling $92 million as noncurrent assets as we intend to hold these investments until they recover or mature.

As of September 30, 2008, $16 million, net of tax, of unrealized losses were included in “Accumulated other comprehensive income (loss)” on our Condensed Consolidated Balance Sheets, as a result of the dislocation in the credit markets and temporary declines in the fair value for our MBS investments. We have established a full valuation allowance for the tax asset associated with this capital loss. In addition, we continue to classify a portion of these investments totaling $8 million as noncurrent assets as we intend to hold these investments until they recover or mature.

Any future change in fair value related to our ARS and MBS investments that we deem to be temporary would be recorded to “Accumulated other comprehensive income (loss).” If we determine that any declines below our reported cost basis are other than temporary, we would record a charge to earnings, as appropriate.

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

		Total Fair Value as of
		September 30, 2008																December 31,
		Total				Level 1				Level 2				Level 3				2007
Current:
Marketable investment securities — non strategic		$	406,882			$	345,109			$	58,350			$	3,423			$	1,291,840
Marketable investment securities — strategic			53,822				53,822				—				—				576,813
Current marketable investment securities			460,704				398,931				58,350				3,423				1,868,653
Noncurrent:
Marketable investment securities — restricted			68,296				68,296				—				—				58,894
Marketable investment securities — non strategic			100,078				—				—				100,078				—
Other investment securities			4,155				—				—				4,155				11,404
Noncurrent marketable investment and other securities			172,529				68,296				—				104,233				70,298
Total marketable investment and other securities		$	633,233			$	467,227			$	58,350			$	107,656			$	1,938,951

Our marketable investment securities as of December 31, 2007 included $947 million of marketable investment securities that were distributed to EchoStar in connection with the Spin-off (see Note 1).

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

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

		Level 3
						Current and
						Noncurrent
						Marketable				Other
						Investment				Investment
		Total				Securities				Securities
Balance as of January 1, 2008		$	211,999			$	200,595			$	11,404
Net realized/unrealized gains/(losses) included in earnings			(7,249	)			—				(7,249	)
Net realized/unrealized gains/(losses) included in other comprehensive income			(92,788	)			(92,788	)			—
Purchases, issuances and settlements, net			(4,306	)			(4,306	)			—
Balance as of September 30, 2008		$	107,656			$	103,501			$	4,155

Marketable and Non-Marketable Investment Securities

We currently classify all marketable investment securities as available-for-sale. We adjust the carrying value of our available-for-sale securities to fair value and report the related temporary unrealized gains and losses as a separate component of “Accumulated other comprehensive income (loss)” within “Total stockholders’ equity (deficit),” net of related deferred income tax. Declines in the fair value of a marketable investment security which are estimated to be “other than temporary” are recognized in the Condensed Consolidated Statements of Operations, thus establishing a new cost basis for such investment. We evaluate our marketable investment securities portfolio on a quarterly basis to determine whether declines in the fair value of these securities are other than temporary. This quarterly evaluation consists of reviewing, among other things, the fair value of our marketable investment securities compared to the carrying amount, the historical volatility of the price of each security and any market and company specific factors related to each security. Generally, absent specific factors to the contrary, declines in the fair value of investments below cost basis for a continuous period of less than six months are considered to be temporary. Declines in the fair value of investments for a continuous period of six to nine months are evaluated on a case by case basis to determine whether any company or market-specific factors exist which would indicate that such declines are other than temporary. Declines in the fair value of investments below cost basis for a continuous period greater than nine months are considered other than temporary and are recorded as charges to earnings, absent specific factors to the contrary.

As of September 30, 2008 and December 31, 2007, we had accumulated unrealized gains (losses), net of related tax effect, of $100 million in losses and $30 million in gains, respectively, as a part of “Accumulated other comprehensive income (loss)” within “Total stockholders’ equity (deficit).” During the nine months ended September 30, 2008, in accordance with our impairment policy, we recorded $148 million and $4 million in charges to earnings for “other than temporary” declines in the fair value of our marketable and non-marketable investment securities, respectively. During the nine months ended September 30, 2007, we did not record any charge to earnings for other than temporary declines in the fair value of our marketable investment securities. In addition, during the nine months ended September 30, 2008 and 2007, we recognized realized net gains on the sale of marketable investment securities of $3 million and $10 million, respectively.

Our strategic marketable investment securities are highly speculative and have experienced and continue to experience volatility. As of September 30, 2008, a significant portion of our strategic investment portfolio consisted of securities of a single issuer and the value of that portfolio therefore depends on the value of that issuer. If the fair value of our strategic marketable investment securities portfolio does not remain above cost basis or if we become aware of any market or company specific factors that indicate that the carrying value of certain of our securities is impaired, we may be required to record charges to earnings in future periods equal to the amount of the decline in fair value. During October 2008, the value of our strategic marketable investment securities of $54 million declined in excess of 40%.

DISH NETWORK 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 have been in an unrealized loss position, aggregated by investment category. As of September 30, 2008, the unrealized losses on our investments in debt securities primarily represent investments in auction rate, mortgage and asset-backed securities. We are not aware of any specific factors which indicate that the underlying issuers of these investments 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. In addition, we have the ability and intent to hold our investments in these debt securities until they recover or mature.

				As of September 30, 2008
		Primary		Less than Six Months								Six to Nine Months								Nine Months or More
Investment		Reason for		Fair				Unrealized				Fair				Unrealized				Fair				Unrealized
Category		Unrealized Loss		Value				Loss				Value				Loss				Value				Loss
				(In thousands)
		Temporary market
Debt securities		fluctuations		$	57,799			$	(432	)		$	—			$	—			$	358,811			$	(99,581	)
Total				$	57,799			$	(432	)		$	—			$	—			$	358,811			$	(99,581	)

				As of December 31, 2007
				(In thousands)
		Temporary market
Debt securities		fluctuations		$	361,347			$	(7,168	)		$	163,230			$	(1,909	)		$	—			$	—
		Temporary market
Equity securities		fluctuations			186,352				(16,192	)			2,124				(1,027	)			—				—
Total				$	547,699			$	(23,360	)		$	165,354			$	(2,936	)		$	—			$	—

Other Investment Securities

We also have several strategic investments in certain equity securities which are included in “Other noncurrent assets, net” on our Condensed Consolidated Balance Sheets. Our other investment securities consist of the following:

		As of
		September 30,				December 31,
Other Investment Securities		2008				2007
		(In thousands)
Cost method		$	15,794			$	108,355
Equity method			30,179				68,127
Fair value method			4,155				11,404
Total		$	50,128			$	187,886

The decrease in other investment securities as of September 30, 2008 compared to December 31, 2007 primarily resulted from the distribution of assets to EchoStar in connection with the Spin-off (see Note 1). In addition, during the nine months ended September 30, 2008, we recorded a $53 million gain on the sale of one of our non-marketable investment securities.

Generally, we account for our unconsolidated equity investments under either the equity method or cost method of accounting. Because these equity securities are generally not publicly traded, it is not practical to regularly estimate the fair value of the investments; however, these investments are subject to an evaluation for other than temporary impairment on a quarterly basis. This quarterly evaluation consists of reviewing, among other things, company business plans and current financial statements, if available, for factors that may indicate an impairment of our investment. Such factors may include, but are not limited to, cash flow concerns, material litigation, violations of debt covenants and changes in business strategy. The fair value of these equity investments is not estimated unless there are

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

identified changes in circumstances that may indicate an impairment exists and these changes are likely to have a significant adverse effect on the fair value of the investment.

We also have a strategic investment in non-public preferred stock, public common stock and convertible debt of a foreign public company. The debt, which is convertible into the issuer’s publicly traded common shares, is accounted for under the fair value method with changes in fair value reported each period as unrealized gains or losses in “Other” income or expense in our Condensed Consolidated Statements of Operations. We estimate the fair value of the convertible debt using certain assumptions and judgments in applying a discounted cash flow analysis and the Black-Scholes option pricing model including the fair market value of the underlying common stock price as of that date. During 2006, we converted a portion of the convertible debt to public common shares and determined that we have the ability to significantly influence the operating decisions of the issuer. Consequently, we account for the common share component of this investment under the equity method of accounting. As a result of our change to equity method accounting, we evaluate the common share component of this investment on a quarterly basis to determine whether there has been a decline in the value that is other than temporary. Because the shares are publicly traded, this quarterly evaluation considers the fair market value of the common shares in addition to the other factors described above for equity and cost method investments. When impairments occur related to our foreign investments, any “Cumulative translation adjustment” associated with these investments will remain in “Accumulated other comprehensive income (loss)” within “Total stockholders’ equity (deficit)” on our Condensed Consolidated Balance Sheets until the investments are sold or otherwise liquidated; at which time, they will be released into our Condensed Consolidated Statement of Operations.

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.

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

		For the Three Months								For the Nine Months
		Ended September 30,								Ended September 30,
		2008				2007				2008				2007
		(In thousands)
Marketable investment securities — gains (losses) on sales/exchange		$	(363	)		$	687			$	2,120			$	7,161
Other investment securities — gains (losses) on sales			53,473				—				53,473				—
Marketable investment securities — other than temporary impairments			(148,003	)			—				(148,003	)			—
Other investment securities — unrealized gains (losses) on fair value investments and other than temporary impairments			(10,549	)			(4,195	)			(28,259	)			(25,789	)
Other			(613	)			(2,616	)			(3,914	)			(5,471	)
Total		$	(106,055	)		$	(6,124	)		$	(124,583	)		$	(24,099	)

Restricted Cash and Marketable Investment Securities

As of September 30, 2008 and December 31, 2007, restricted cash and marketable investment securities included amounts required as collateral for our letters of credit. Additionally, restricted cash and marketable investment securities as of September 30, 2008 and December 31, 2007 included $105 million and $101 million, respectively, in escrow related to our litigation with Tivo. On October 6, 2008, the Supreme Court denied our petition for certiorari. As a result, approximately $105 million was released from the escrow account to Tivo.

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

6. Satellites

We presently utilize twelve satellites in geostationary orbit approximately 22,300 miles above the equator, five of which are owned by us. Each of the owned satellites had an original estimated minimum useful life of at least 12 years. We lease capacity on six satellites from EchoStar with terms of up to two years and we account for these as operating leases. (See Note 14 for further discussion of our satellite leases with EchoStar.) We also lease one satellite from a third party, which is accounted for as a capital lease pursuant to Statement of Financial Accounting Standards No. 13, “Accounting for Leases” (“SFAS 13”). The capital lease is depreciated over the fifteen year term of the satellite service agreement.

Operation of our subscription television service requires that we have adequate satellite transmission capacity for the programming we offer. Moreover, current competitive conditions require that we continue to expand our offering of new programming, particularly by launching more HD local markets and offering more HD national channels. While we generally have had in-orbit satellite capacity sufficient to transmit our existing channels and some backup capacity to recover the transmission of certain critical programming, our backup capacity is limited.

In the event of a failure or loss of any of our satellites, we may need to acquire or lease additional satellite capacity or relocate one of our other satellites and use it as a replacement for the failed or lost satellite. Such a failure could result in a prolonged loss of critical programming or a significant delay in our plans to expand programming as necessary to remain competitive and thus have a material adverse effect on our business, financial condition and results of operations.

While we believe that overall our satellite fleet is generally in good condition, during 2008 and prior periods, certain satellites in our fleet have experienced anomalies, some of which have had a significant adverse impact on their commercial operation. There can be no assurance that future anomalies will not cause further losses which could impact commercial operation, or the remaining lives, of the satellites. See discussion of evaluation of impairment in “Long-Lived Satellite Assets” below. Recent developments with respect to our satellites are discussed below.

EchoStar I. EchoStar I, a 7000 class satellite, designed and manufactured by Lockheed Martin Corporation (“Lockheed”), is currently functioning properly in orbit. However, similar Lockheed Series 7000 class satellites have experienced total in-orbit failures, including our own EchoStar II, discussed below. While no telemetry or other data indicates EchoStar I would be expected to experience a similar failure, Lockheed has been unable to conclude these and other Series 7000 satellites will not experience similar failures. EchoStar I, which was launched in December 1995, is fully depreciated.

EchoStar II. On July 14, 2008, our EchoStar II satellite experienced a failure that rendered the satellite a total loss. EchoStar II had been operating from the 148 degree orbital location primarily as a back-up satellite, but had provided local network channel service to Alaska and six other small markets. All programming and other services previously broadcast from EchoStar II were restored to Echostar I, the primary satellite at the 148 degree location, within several hours after the failure. The $6 million book value of EchoStar II was written-off during the second quarter of 2008.

EchoStar V. EchoStar V was originally designed with a minimum 12-year design life. Momentum wheel failures in prior years, together with relocation of the satellite between orbital locations, resulted in increased fuel consumption, as previously disclosed. These issues have not impacted commercial operation of the satellite. Prior to 2008, EchoStar V also experienced anomalies resulting in the loss of ten solar array strings. During 2008, three additional solar array strings on the satellite have failed. The solar array failures, which will result in a reduction in the number of transponders to which power can be provided in later years, have not impacted commercial operation of the satellite to date. As of October 2008, EchoStar V was fully depreciated.

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

EchoStar XI. EchoStar XI was launched in July 2008 and commenced commercial operation at the 110 degree orbital location during August 2008, where it provides additional high-powered capacity to support expansion of our programming services, including high definition programming.

EchoStar XV. On April 14, 2008, Space Systems/Loral, Inc. began the construction of EchoStar XV, a direct broadcast satellite expected to launch during 2010. This satellite will enable better bandwidth utilization, provide back-up protection for our existing offerings, and could allow us to offer other value-added services.

AMC-14. In connection with the Spin-off, we distributed our AMC-14 satellite lease agreement with SES Americom (“SES”) to EchoStar with the intent to lease the entire capacity of the satellite from EchoStar. During March 2008, AMC-14 experienced a launch anomaly and failed to reach its intended orbit. SES subsequently declared the AMC-14 satellite a total loss due to a lack of viable options to reposition the satellite to its proper geostationary orbit. We did not incur any financial liability as a result of the AMC-14 satellite being declared a total loss.

Long-Lived Satellite Assets

We account for impairments of long-lived satellite assets in accordance with the provisions of Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS 144”). SFAS 144 requires a long-lived asset or asset group to be tested for recoverability whenever events or changes in circumstance indicate that its carrying amount may not be recoverable. Based on the guidance under SFAS 144, we evaluate our owned and capital leased satellites for recoverability as one asset group. While certain of the anomalies discussed above, and previously disclosed, may be considered to represent a significant adverse change in the physical condition of an individual satellite, based on the redundancy designed within each satellite and considering the asset grouping, these anomalies (none of which caused a loss of service to subscribers for an extended period) are not considered to be significant events that would require evaluation for impairment recognition pursuant to the guidance under SFAS 144. Unless and until a specific satellite is abandoned or otherwise determined to have no service potential, the net carrying amount related to the satellite would not be written off.

7. Intangible Assets

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

		As of
		September 30, 2008								December 31, 2007
		Intangible				Accumulated				Intangible				Accumulated
		Assets				Amortization				Assets				Amortization
						(In thousands)
Contract-based		$	—			$	—			$	192,845			$	(60,754	)
Customer and reseller relationships			—				—				96,898				(70,433	)
Technology-based			5,814				(388	)			69,797				(9,478	)
Total		$	5,814			$	(388	)		$	359,540			$	(140,665	)

As of January 1, 2008, intangible assets with a net book value of $215 million were distributed to EchoStar in connection with the Spin-off (see Note 1). Amortization of our intangible assets was less than $1 million and $9 million for the three months ended September 30, 2008 and 2007, respectively. Amortization was $5 million and $27 million for the nine months ended September 30, 2008 and 2007, respectively.

We made a $712 million deposit for 700 MHz wireless licenses in an FCC auction. The FCC has not yet issued the licenses. We will be required to make significant additional investments or partner with others to commercialize these licenses and satisfy FCC build-out requirements.

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

8. Long-Term Debt

3% Convertible Subordinated Note due 2010

During the three months ended September 30, 2008, we repaid our $500 million 3% Convertible Subordinated Note due in 2010.

5 ³/4% Senior Notes due 2008

During the three months ended September 30, 2008, we repurchased $28 million of our 5 ³/4% Senior Notes due 2008 in open market transactions. On October 1, 2008, the remaining balance of $972 million was redeemed.

3% Convertible Subordinated Note due 2011

Our 3% Convertible Subordinated Note due 2011, which was sold to CenturyTel Service Group, LLC (“CTL”) in a privately negotiated transaction, has an aggregate principal amount of $25 million and is convertible into 481,881 shares of our Class A common stock at the option of CTL (an effective conversion price of $51.88 per share). The number of shares was adjusted from 398,724 shares of our Class A common stock during the first quarter 2008 in connection with the Spin-off and as required by the terms of the Note.

Commencing August 25, 2009, we may redeem, and CTL may require us to repurchase, all or a portion of the note without a premium. Therefore, during the three months ended September 30, 2008, this note was reclassified to current liabilities on our “Condensed Consolidated Balance Sheets.”

7 ³/4% Senior Notes due 2015

On May 27, 2008, we sold $750 million aggregate principal amount of our seven-year, 7 ³/4% Senior Notes due May 31, 2015. Interest accrues at an annual rate of 7 ³/4% and is payable semi-annually in cash, in arrears on May 31 and November 30 of each year, commencing on November 30, 2008. The net proceeds that we received from the sale of the notes are intended to be used for general corporate purposes.

The 7 ³/4% Senior Notes are redeemable, in whole or in part, at any time at a redemption price equal to 100% of the principal amount plus a “make-whole” premium, as defined in the related indenture, together with accrued and unpaid interest. Prior to May 31, 2011, we may also redeem up to 35% of each of the 7 ³/4% Senior Notes at specified premiums with the net cash proceeds from certain equity offerings or capital contributions.

The 7 ³/4% Senior Notes are:

	•		general unsecured senior obligations of EDBS;
	•		ranked equally in right of payment with all of EDBS’ and the guarantors’ existing and future unsecured senior debt; and
	•		ranked effectively junior to our and the guarantors’ current and future secured senior indebtedness up to the value of the collateral securing such indebtedness.

The indenture related to the 7 ³/4% Senior Notes contains restrictive covenants that, among other things, impose limitations on the ability of EDBS and its restricted subsidiaries to:

	•		incur additional debt;
	•		pay dividends or make distribution on EDBS’ capital stock or repurchase EDBS’ capital stock;
	•		make certain investments;
	•		create liens or enter into sale and leaseback transactions;

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

	•		enter into transactions with affiliates;
	•		merge or consolidate with another company; and
	•		transfer and sell assets.