Table of Contents







UNITED
      STATESSECURITIES
      AND EXCHANGE COMMISSIONWashington,
      D.C.  20549Form
      10-K(Mark
      One)[X]
            ANNUAL
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2009OR[   ]
            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: 333-31929DISH
      DBS Corporation(Exact
      name of registrant as specified in its charter)Colorado
            
            84-1328967(State
      or other jurisdiction of incorporation or organization)
            
            (I.R.S.  Employer
      Identification No.)9601
      South Meridian BoulevardEnglewood,
      Colorado
            
            80112(Address
      of principal executive offices)
            
            (Zip
      Code)Registrant’s
      telephone number, including area code: (303) 723-1000Securities
      registered pursuant to Section 12(b) of the
      Act:    NoneSecurities
      registered pursuant to Section 12(g) of the
      Act:    NoneIndicate
      by check mark if the registrant is a well-known seasoned issuer, as
      defined in Rule 405 of the Securities Act.  Yes £
      No T
              
              Indicate
      by check mark if the registrant is not required to file reports pursuant
      to Section 13 or Section 15(d) of the Act.  Yes £
      No TIndicate
      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 T  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 oNo oIndicate
      by check mark if disclosure of delinquent filers pursuant to Item 405 of
      Regulation S-K (§229.405 of this chapter) is not contained herein, and
      will not be contained, to the best of Registrant’s knowledge, in
      definitive proxy or information statements incorporated by reference in
      Part III of this Form 10-K or any amendment to this Form
      10-K.  TIndicate
      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:Large
      accelerated filer  £
            Accelerated
      filer  £
            Non-accelerated
      filer  T
              (Do
      not check if a smaller reporting company)
            Smaller
      reporting company  £Indicate
      by check mark whether the registrant is a shell company (as defined by
      Rule 12b-2 of the Exchange Act). Yes £
      No TThe
      aggregate market value of the Registrant’s voting interests held by
      non-affiliates on June 30, 2009 was $0.As
      of March 1, 2010, the Registrant’s outstanding common stock consisted of
      1,015 shares of common stock, $0.01 par value per share.The
      Registrant meets the conditions set forth in General Instructions
      (I)(1)(a) and (b) of Form 10-K and is therefore filing this Annual Report
      on Form 10-K with the reduced disclosure format.DOCUMENTS
      INCORPORATED BY REFERENCEThe
      following documents are incorporated into this Form 10-K by reference:
      None







Table of Contents




TABLE OF CONTENTSPART IDisclosure Regarding Forward-Looking
      Statements
              
              iItem 1.
              
              Business
              
              1Item 1A.
              
              Risk Factors
              
              2Item 1B.
              
              Unresolved Staff Comments
              
              14Item 2.
              
              Properties
              
              15Item 3.
              
              Legal Proceedings
              
              15Item
      4.
              
              Reserved
              
              NonePART IIItem 5.
              
              Market for Registrant’s Common Equity, Related Stockholder
      Mattersand Issuer Purchases of Equity
Securities
              
              22Item
      6.
              
              Selected
      Financial Data
              
              *Item 7.
              
              Management’s Narrative Analysis of Results of
      Operations
              
              23Item 7A.
              
              Quantitative and Qualitative Disclosures About Market
      Risk
              
              37Item 8.
              
              Financial Statements and Supplementary
    Data
              
              38Item 9.
              
              Changes in and Disagreements with Accountants on Accounting
      and Financial Disclosure
              
              38Item 9A.
              
              Controls and Procedures
              
              39Item 9B.
              
              Other Information
              
              39PART
      IIIItem
      10.
              
              Directors,
      Executive Officers and Corporate Governance
              
              *Item
      11.
              
              Executive
      Compensation
              
              *Item
      12.
              
              Security
      Ownership of Certain Beneficial Owners and Management and Related
      StockholderMatters
              
              *Item
      13.
              
              Certain
      Relationships and Related Transactions, and Director
      Independence
              
              *Item 14.
              
              Principal Accounting Fees and Services
              
              40PART IVItem 15.
              
              Exhibits, Financial Statement Schedules
              
              41Signatures
              
              47Index to Consolidated Financial
    Statements
              
              F-1




*This
item has been omitted pursuant to the reduced disclosure format as set forth in
General Instructions (I) (2) (a) and (c) of Form 10-K.


Table of Contents


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.  For further discussion see Item 1A.  Risk
Factors.  The risks and uncertainties include, but are not
limited to, the following:







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




·
            If
      we do not improve our operational performance and maintain customer
      satisfaction, our gross subscriber additions may decrease and our
      subscriber churn may increase.




·
            If
      DISH Network gross subscriber additions decrease, or if subscriber churn,
      subscriber acquisition or retention costs increase, our financial
      performance will be further adversely
affected.




·
            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 would be subject to
      substantial liability and would be prohibited from offering DVR
      functionality that would result in a significant loss of subscribers and
      place us at a significant disadvantage to our
  competitors.




·
            We
      face intense and increasing competition from satellite television
      providers, cable television providers and telecommunications
      companies.




·
            Emerging
      digital media competition including companies that provide/facilitate the
      delivery of video content via the Internet could materially adversely
      affect us.




·
            We
      depend on others to provide the programming that we offer to our
      subscribers and, if we lose access to this programming, our subscriber
      additions may decline or we may suffer subscriber losses and subscriber
      churn may increase.




·
            We
      may be required to make substantial additional investments to maintain
      competitive high definition, or HD, programming
  offerings.




·
            Technology
      in our industry changes rapidly and could cause our services and products
      to become obsolete.




·
            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.




·
            AT&T’s
      termination of its distribution agreement with us may increase
      churn.




·
            As
      technology changes, and to remain competitive, we may have to upgrade or
      replace subscriber equipment and make substantial investments in our
      infrastructure.




·
            We
      rely on EchoStar Corporation, or EchoStar, to design and develop all of
      our new set-top boxes and certain related components, and to provide
      transponder capacity, digital broadcast operations and other services for
      us.  Our business would be adversely affected if EchoStar ceases
      to provide these services to us and we are unable to obtain suitable
      replacement services from third
parties.




·
            We
      rely on one or a limited number of vendors, and the inability of these key
      vendors to meet our needs could have a material adverse effect on our
      business.




·
            Our
      programming signals are subject to theft, and we are vulnerable to other
      forms of fraud that could require us to make significant expenditures to
      remedy.




i
 Table of Contents







·
            We
      depend on third parties to solicit orders for DISH Network services that
      represent a significant percentage of our total gross subscriber
      acquisitions.




·
            Our
      competitors may be able to leverage their relationships with programmers
      so that they are able to reduce their programming costs and offer
      exclusive content that will place them at a competitive advantage to
      us.




·
            We
      depend on the Cable Act for access to programming from cable-affiliate
      programmers at cost-effective
rates.




·
            We
      face increasing competition from other distributors of foreign language
      programming that may limit our ability to maintain our foreign language
      programming subscriber base.




·
            Our
      local programming strategy faces uncertainty because we may not be able to
      obtain necessary retransmission consents from local network
      stations.




·
            We
      are subject to significant regulatory oversight and changes in applicable
      regulatory requirements could adversely affect our
    business.




·
            We
      have substantial debt outstanding and may incur additional
      debt.




·
            We
      have limited owned and leased satellite capacity and satellite failures
      could adversely affect our
business.




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




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




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




·
            We
      may have potential conflicts of interest with EchoStar due to DISH Network
      Corporation's ("DISH") common ownership and management.




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




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




·
            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
      are subject to digital HD “carry-one-carry-all” requirements that cause
      capacity constraints.




·
            Our
      parent, DISH, is controlled by one principal stockholder who is also our
      Chairman, President and Chief Executive
Officer.




·
            There
      can be no assurance that there will not be deficiencies leading to
      material weaknesses in our internal control over financial
      reporting.




·
            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.




ii
 Table of Contents


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 “DDBS,” the “Company,” “we,” “our” and “us” refer to DISH DBS
Corporation and its subsidiaries, unless the context otherwise
requires.  “DISH” refers to DISH Network Corporation, our ultimate
parent company, and its subsidiaries including us.  “EchoStar” refers
to EchoStar Corporation and its subsidiaries.





iii
 Table of Contents


PART I





Item
1.                      BUSINESS





Brief
Description of Our Business





DDBS is a
holding company and an indirect, wholly-owned subsidiary of DISH, a publicly
traded company listed on the Nasdaq Global Select Market.  DDBS was
formed under Colorado law in January 1996.  We refer readers of this
report to DISH’s Annual
Report on Form 10-K for the year ended December 31, 2009.





We
operate the DISH Network® television service ("DISH Network") which is the
nation’s third largest pay-TV provider, with approximately 14.100 million
customers across the United States as of December 31, 2009.  Our
principal executive offices are located at 9601 South Meridian Boulevard,
Englewood, Colorado 80112 and our telephone number is (303)
723-1000.





On
January 1, 2008, DISH completed a tax-free distribution of its technology and
set-top box business and certain infrastructure assets (the “Spin-off”) into a
separate publicly-traded company, EchoStar Corporation (“EchoStar”) which was
incorporated in Nevada on October 12, 2007.  DISH and EchoStar 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, President and Chief Executive
Officer.





Business
Strategy





Our
business strategy is to be the best provider of video services in the United
States by providing high-quality products, outstanding customer service, and
great value.  We promote the DISH Network programming packages as
providing our subscribers with a better “price-to-value” relationship than those
available from other subscription television providers.  We believe
that there continues to be unsatisfied demand for high quality, reasonably
priced television programming services.





·
            High-Quality
      Products.  We offer a wide selection of local and
      national programming, featuring more national and local HD channels than
      most pay-TV providers.  We have been a technology leader in our
      industry, introducing award-winning DVRs, dual tuner receivers, 1080p
      video on demand, and external hard drives.  To maintain and
      enhance our competitiveness over the long term, we plan to promote a suite
      of integrated products designed to maximize the convenience and ease of
      watching TV anytime and anywhere, which we refer to as, “TV
      Everywhere.”  Our TV EverywhereTMservice utilizes, among other things, Slingbox “placeshifting”
      technology.




·
            Outstanding Customer
      Service.We strive to provide outstanding customer
      service by improving the quality of the initial installation of subscriber
      equipment, improving the reliability of our equipment, better educating
      our customers about our products and services, and resolving customer
      problems promptly and effectively when they
  arise.




·
            Great
      Value.  We have historically been viewed as the low-cost
      provider in the pay-TV industry because we offer the lowest everyday
      prices available to consumers after introductory promotions
      expire.







WHERE
YOU CAN FIND MORE INFORMATION





We are
subject to the informational requirements of the Exchange Act and accordingly
file our annual report on Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K, proxy statements and other information with the
SEC.  The public may read and copy any materials filed with the SEC at
the SEC’s Public Reference Room at 100 F Street, NE, Washington, D.C.
20549.  Please call the SEC at (800) SEC-0330 for further information
on the operation of the Public Reference Room.  As an electronic
filer, our public filings are also maintained on the SEC’s Internet site that
contains reports, proxy and information statements, and other information
regarding issuers that file electronically with the SEC.  The address
of that website is http://www.sec.gov.


1
 Table of Contents


WEBSITE
ACCESS





Our
annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on
Form 8-K and amendments to those reports filed or furnished pursuant to Section
13(a) or 15(d) of the Exchange Act also may be accessed free of charge through
the website of our parent company, DISH, as soon as reasonably practicable after
we have electronically filed such material with, or furnished it to, the
SEC.  The address of that website is http://www.dishnetwork.com.





We have
adopted a written code of ethics that applies to all of our directors, officers
and employees, including our principal executive officer and senior financial
officers, in accordance with Section 406 of the Sarbanes-Oxley Act of 2002 and
the rules of the SEC promulgated thereunder.  Our code of ethics is
available on our corporate website at http://www.dishnetwork.com.  In
the event that we make changes in, or provide waivers of, the provisions of this
code of ethics that the SEC requires us to disclose, we intend to disclose these
events on our website.








Item 1A.  RISK FACTORS





The
risks and uncertainties described below are not the only ones facing
us.  Additional risks and uncertainties that we are unaware of or that
we currently believe to be immaterial also may become important factors that
affect us.




If
any of the following events occur, our business, financial condition or results
of operations could be materially and adversely affected.




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





Our
ability to grow or maintain our business may be adversely affected by weak
economic conditions, including the effect of wavering consumer confidence, high
unemployment and other factors that may adversely affect the pay TV
industry.  In particular, the weak economic conditions could result in
the following:





·
            Fewer Gross
      Subscriber Additions and Increased Churn.We could face
      fewer gross subscriber additions and increased churn due to, among other
      things: (i) the weak housing market in the United States combined with
      lower discretionary spending; (ii) increased price competition for our
      products and services; and (iii) the potential loss of retailers, who
      generate a significant portion of our new subscribers, because many of
      them are small businesses that are more susceptible to the negative
      effects of a weak economy.  In particular, subscriber churn may
      increase with respect to subscribers who purchase our lower tier
      programming packages and who may be more sensitive to weak economic
      conditions.




·
            Lower
      Average Monthly Revenue per Subscriber (“ARPU”).  Our ARPU
      could be negatively impacted by more aggressive introductory offers by our
      competitors.  Furthermore, due to lower levels of disposable
      income, our customers may downgrade to lower cost programming packages and
      elect not to purchase premium services or pay per view
    movies.




·
            Higher
      Subscriber Acquisition and Retention Costs.  Our
      profits may be adversely affected by increased subscriber acquisition and
      retention costs necessary to attract and retain subscribers in a more
      difficult economic environment.




·
            Increased
      Impairment Charges.  We may be
      more likely to incur impairment charges or losses related to our debt and
      equity investments due to the weak debt and equity
      markets.  Prolonged weak economic conditions could further
      reduce the value of certain assets including, among other things,
      satellites and FCC licenses, and thus increase the possibility of
      impairment charges related to these investments as
  well.




2
 Table of Contents





If
we do not improve our operational performance and maintain customer
satisfaction, our gross subscriber additions may decrease and our subscriber
churn may increase.





If we are
unable to improve our operational performance and maintain customer satisfaction
or if we are unable to combat signal theft or other forms of fraud, we may
experience a decrease in gross subscriber additions and an increase in churn,
which could have a material adverse effect on our business, financial condition
and results of operations.  To address our operational inefficiencies,
we have streamlined our hardware offerings and continue to make significant
investments in staffing, training, information systems, and other initiatives,
primarily in our call center and in-home service operations.  These
investments are intended to help combat inefficiencies introduced by the
increasing complexity of our business, 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 addressing our operational
inefficiencies.  In the meantime, we may continue to incur higher
costs as a result of both our operational inefficiencies and increased
spending.  The adoption of these measures has contributed to higher
expenses and lower margins.  While we believe that the increased costs
will be outweighed by longer-term benefits, there can be no assurance when or if
we will realize these benefits at all.





If
DISH Network gross subscriber additions decrease, or if subscriber churn,
subscriber acquisition or retention costs increase, our financial performance
will be further adversely affected.





We have
not always met our own standards for performing high-quality installations,
effectively resolving subscriber issues when they arise, answering subscriber
calls in an acceptable timeframe, effectively communicating with our subscriber
base, reducing calls driven by the complexity of our business, improving the
reliability of certain systems and subscriber equipment, and aligning the
interests of certain third party retailers and installers to provide
high-quality service.





Most of
these factors have affected both gross subscriber additions as well as existing
subscriber churn.  Our future gross subscriber additions and
subscriber churn may continue to be negatively impacted by these factors, which
could in turn adversely affect our revenue growth and results of
operations.





We may
incur increased costs to acquire new and retain existing
subscribers.  Our subscriber acquisition costs could increase as a
result of increased spending for advertising and the installation of more HD and
DVR receivers, which are generally more expensive than other
receivers.  Meanwhile, retention costs may be driven higher by a
faster rate of upgrading existing subscribers’ equipment to HD and DVR
receivers.  Additionally, certain of our promotions allow consumers
with relatively lower credit scores to become subscribers and these subscribers
typically churn at a higher rate.





Our
subscriber acquisition costs and our subscriber retention costs can vary
significantly from period to period and can cause material variability to our
net income (loss) and free cash flow.  Any material increase in
subscriber acquisition or retention costs from current levels could have a
material adverse effect on our business, financial position and results of
operations.





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 would be
subject to substantial liability and would be prohibited from offering DVR
functionality that would result in a significant loss of subscribersand place us at a
significant disadvantage to our competitors.





In June
2009, the United States District Court granted Tivo’s motion for contempt
finding that our next-generation DVRs continue to infringe Tivo’s intellectual
property and awarded Tivo an additional $103 million dollars in supplemental
damages and interest for the period from September 2006 through April
2008.  In September 2009, the District Court partially granted Tivo’s
motion for contempt sanctions.  In partially granting Tivo’s motion
for contempt sanctions, the District Court 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 enforcement of
the


3
 Table of Contents


award has
been stayed by the District Court pending resolution of our appeal of the
underlying June 2009 contempt order).  As previously disclosed, we
increased our reserve for the Tivo litigation to reflect both the supplemental
damages award for the period September 2006 to April 2008 and for the estimated
cost of alleged software infringement for the period from April 2008 through
June 2009.





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 would be required to eliminate DVR functionality in all
but approximately 192,000 digital set-top boxes in the field and cease
distribution of digital set-top boxes with DVR functionality.  In that
event we would be at a significant disadvantage to our competitors who could
continue offering DVR functionality, which would likely result in a significant
decrease in new subscriber additions as well as a substantial loss of current
subscribers.  Furthermore, the inability to offer DVR functionality
could cause certain of our distribution channels to terminate or significantly
decrease their marketing of DISH Network services.  The adverse effect
on our financial position and results of operations if the District Court’s
contempt order is upheld is likely to be significant.  Additionally,
the awards described above do not include damages, contempt sanctions or
interest for the period after June 2009.  In the event that we are
unsuccessful in our appeal, we could also have to pay substantial additional
damages, contempt sanctions and interest.  Depending on the amount of
any additional damage or sanction award or any monetary settlement, we may be
required to raise additional capital at a time and in circumstances in which we
would normally not raise capital.  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.  We believe the cost of such capital and its terms
and conditions may be substantially less attractive than our previous
financings.





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 or could be required to modify or eliminate our then-current DVR
functionality in some or all set-top boxes in the field.  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 could
be material.  We could also have to pay substantial additional
damages.





Because
both we and EchoStar are defendants in the Tivo lawsuit, we and EchoStar are
jointly and severally liable to Tivo for any final damages and sanctions that
may be awarded by the District Court.  DISH has determined that it is
obligated under the agreements entered into in connection with the Spin-off to
indemnify EchoStar for substantially all liability arising from this
lawsuit.  EchoStar has agreed to contribute an amount equal to its $5
million intellectual property liability limit under the Receiver
Agreement.  DISH and EchoStar have further agreed that EchoStar’s $5
million contribution would not exhaust EchoStar’s liability to DISH for other
intellectual property claims that may arise under the Receiver
Agreement.  DISH and EchoStar also agreed that they 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.





We
face intense and increasing competition from satellite television providers,
cable television providers and telecommunications companies.





Our
business is focused on providing pay-TV services and we have traditionally
competed against satellite and cable television providers, some of whom have
greater financial, marketing and other resources than we do.  Many of
these competitors offer video services bundled with broadband, telephony
services, HD offerings, interactive services and video on demand services that
consumers may find attractive.  Moreover, mergers and acquisitions,
joint ventures and alliances among cable television providers,
telecommunications companies and others may result in, among other things,
greater financial leverage and increase the availability of offerings from
providers capable of bundling television, broadband and telephone services in
competition with our services.




In
addition, DirecTV’s satellite receivers and services are offered through a
significantly greater number of consumer electronics stores than
ours.  As a result of this and other factors, our services are less
known to consumers than those of DirecTV.  Due to this relative lack
of consumer awareness and other factors, we are at a


4
 Table of Contents


competitive
marketing disadvantage compared to DirecTV.  DirecTV also offers
exclusive programming that may be attractive to prospective subscribers, and may
have access to discounts on programming not available to us.





Competition
has intensified in recent quarters with the rapid growth of fiber-based pay-TV
services offered by telecommunications companies such as Verizon and
AT&T.  These telecommunications companies are upgrading their
older copper wire telephone lines with high-bandwidth fiber optic lines in
larger markets.  These fiber optic lines provide significantly greater
capacity, enabling the telecommunications companies to offer substantial HD
programming content as well as bundled services.





In
addition, the recent transition from analog to digital delivery has allowed
broadcasters to provide improved signal quality, offer additional channels
including content broadcast in HD, and explore new business opportunities such
as mobile video.





This
increasingly competitive environment may require us to increase subscriber
acquisition and retention spending or accept lower subscriber acquisitions and
higher subscriber churn.





Emerging
digital media competition including companies that provide/facilitate the
delivery of video content via the Internet could materially adversely affect
us.





Our
business is focused on pay-TV services, and we face emerging competition from
providers of digital media including those companies that offer online services
distributing movies, television shows and other video
programming.  Moreover, new technologies have been, and will likely
continue to be, developed that further increase the number of competitors we
face for our video services.  For example, wireless and other emerging
mobile technologies that provide for the distribution and viewing of video
programming may offer services and technologies that compete with our pay-TV
services.  Some of these companies have greater financial, marketing
and other resources than we do. In particular, programming offered over the
Internet has become more prevalent as the speed and quality of broadband
networks have improved.  Significant changes in consumer behavior with
regard to the means by which they obtain video entertainment and information in
response to this emerging digital media competition could materially adversely
affect our business, results of operations and financial condition or otherwise
disrupt our business.





We
depend on others to provide the programming that we offer to our subscribers
and, if we lose access to this programming, our subscriber additions may decline
or we may suffer subscriber losses and subscriber churn may
increase.





We depend
on third parties to provide us with programming services.  Our
programming agreements have remaining terms ranging from less than one to up to
several years and contain various renewal and cancellation
provisions.  We may not be able to renew these agreements on favorable
terms or at all, and these agreements may be canceled prior to expiration of
their original term.  If we are unable to renew any of these
agreements or the other parties cancel the agreements, there can be no assurance
that we would be able to obtain substitute programming, or that such substitute
programming would be comparable in quality or cost to our existing
programming.  In addition, the loss of programming could increase our
subscriber churn.  We also expect programming costs to continue to
increase.  We may be unable to pass programming costs on to our
customers, which could have a material adverse effect on our business, financial
condition and results of operations.





We
may be required to make substantial additional investments to maintain
competitive HD programming offerings.





We
believe that the availability and extent of HD programming has become and will
continue to be a significant factor in consumer’s choice among pay-TV
providers.  Other pay-TV providers may have more successfully marketed
and promoted their HD programming packages and may also be better equipped and
have greater resources to increase their HD offerings to respond to increasing
consumer demand for this content.  We may be required to make
substantial additional investments in infrastructure to respond to competitive
pressure to deliver additional HD programming, and there can be no assurance
that we will be able to compete effectively with HD programming offerings from
other pay-TV providers.  In particular, in recent quarters, our
capital expenditures have


5
 Table of Contents


increased
because we have made significant efforts to expand our HD capability and provide
more of our subscribers with HD set top boxes.





Technology
in our industry changes rapidly and could cause our services and products to
become obsolete.





Our
operating results are dependent to a significant extent upon our ability to
continue to introduce new products and services on a timely basis and to reduce
costs of our existing products and services.  We may not be able to
successfully identify new product or service opportunities or develop and market
these opportunities in a timely or cost-effective manner.  The success
of new product development depends on many factors, including proper
identification of customer need, cost, timely completion and introduction,
differentiation from offerings of competitors and market
acceptance.  New technologies could also create new competitors for
us.  For instance, we may face threats from companies who use the
Internet to deliver digital video services as the speed and quality of broadband
and wireless services improve.





Technology
in the pay-TV industry changes rapidly as new technologies are developed, which
could cause our services and products to become obsolete.  We and our
suppliers may not be able to keep pace with technological
developments.  If the new technologies on which we intend to focus our
research and development investments fail to achieve acceptance in the
marketplace, our competitive position could be negatively impacted causing a
reduction in our revenues and earnings.  We may also be at a
competitive disadvantage in developing and introducing complex new products and
technologies because of the substantial costs we may incur in making these
products or technologies available across our installed base of over 14 million
subscribers.  For example, our competitors could be the first to
obtain proprietary technologies that are perceived by the market as being
superior.  Further, after we have incurred substantial costs, one or
more of the technologies under our development, or under development by one or
more of our strategic partners, could become obsolete prior to its
introduction.  In addition, delays in the delivery of components or
other unforeseen problems in our DBS system may occur that could materially and
adversely affect our ability to generate revenue, offer new services and remain
competitive.





Technological
innovation is important to our success and depends, to a significant degree, on
the work of technically skilled employees.  We rely on EchoStar to
design and develop set-top boxes with advanced features and
functionality.  If EchoStar is unable to attract and retain
appropriately technically skilled employees, our competitive position could be
materially and adversely affected.


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.


The weak
financial markets could make it more difficult for non-investment grade
borrowers of high yield indebtedness to access capital markets at acceptable
terms or at all. We may need to raise additional capital in the future to among
other things, continue investing in our business, construct and launch new
satellites, and to pursue acquisitions and other strategic
transactions.





Furthermore,
weak equity markets could make it difficult for us to raise equity financing
without incurring substantial dilution to DISH’s existing
shareholders.  In addition, weak economic conditions may limit our
ability to generate sufficient internal cash to fund these investments, capital
expenditures, acquisitions and other strategic transactions.  As a
result, these conditions make it difficult for us to accurately forecast and
plan future business activities because we may not have access to funding
sources necessary for us to pursue organic and strategic business development
opportunities.





AT&T’s
termination of its distribution agreement with us may increase
churn.


Our
distribution relationship with AT&T was a substantial contributor to our
gross and net subscriber additions in prior years, accounting for approximately
17% of our gross subscriber additions for the year ended December 31,
2008.  This distribution relationship ended January 31,
2009.  Consequently, beginning with the second quarter 2009, AT&T
no longer contributed to our gross subscriber additions.  In addition,
nearly one million of our current subscribers were acquired through our
distribution relationship with AT&T and subscribers acquired through this
channel have historically churned at a higher rate than our overall subscriber
base.  Although AT&T is not permitted to target these subscribers
for transition to another pay-TV service and we and AT&T are required to
maintain


6
 Table of Contents


bundled
billing and cooperative customer service for these subscribers, these
subscribers may continue to churn at higher than historical rates following
termination of the AT&T distribution relationship.





As technology
changes, and to remain competitive, we may have to upgrade or replace subscriber
equipment and make substantial investments in our infrastructure.





Our
competitive position depends in part on our ability to offer new subscribers and
upgrade existing subscribers with more advanced equipment, such as receivers
with DVR and HD technology and by otherwise making additional infrastructure
investments, such as those related to our information technology and call
centers.  Furthermore, the increase in demand for HD programming
requires investments in additional satellite capacity.  We may not be
able to pass on to our subscribers the entire cost of these upgrades and
infrastructure investments.





We
rely on EchoStar to design and develop all of our new set-top boxes and certain
related components, and to provide transponder capacity, digital broadcast
operations and other services for us.  Our business would be adversely
affected if EchoStar ceases to provide these services to us and we are unable to
obtain suitable replacement services from third parties.





EchoStar
is our sole supplier of digital set-top boxes and digital broadcast
operations.  In addition, EchoStar is a key supplier of other
satellite services to us.  Because our digital set-top box purchases
are made and digital broadcast operations are received pursuant to contracts
that generally expire on January 1, 2011, EchoStar will have no obligation to
supply digital set-top boxes or digital broadcast operations to us after that
date, however, we have the right to renew this agreement for an additional
year.  Equipment, transponder leasing and digital broadcast operation
costs may increase beyond our current expectations.  We may be unable
to renew agreements for digital set-top boxes or digital broadcast operations
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.
 
 Furthermore,
any transition to a new supplier of set-top boxes could result in increased
costs, resources and development and customer qualification time which could
affect our subscriber acquisition and churn and cause revenue to
decline.  Any reduction in our supply of set-top boxes could
significantly delay our ability to ship set-top boxes to our subscribers and
potentially damage our relationships with our subscribers.


We
rely on one or a limited number of vendors, and the inability of these key
vendors to meet our needs could have a material adverse effect on our
business.





We have
contracted with a limited number of vendors to provide certain key products or
services to us such as information technology support, billing systems, and
security access devices.  Our dependence on these vendors makes our
operations vulnerable to such third parties’ failure to perform
adequately.  In addition, we have historically relied on a single source
for certain items.  If these vendors are unable to meet our needs
because they are no longer in business or because they discontinue a certain
product or service we need, our business, financial position and results of
operations may be adversely affected.  Our inability to develop
alternative sources quickly and on a cost-effective basis could materially
impair our ability to timely deliver our products to our subscribers or operate
our business.  Furthermore, our vendors may request changes in pricing,
payment terms or other contractual obligations between the parties which could
cause us to make substantial additional investments.





Our
programming signals are subject to theft, and we are vulnerable to other forms
of fraud that could require us to make significant expenditures to
remedy.





Increases
in theft of our signal, or our competitors’ signals, could in addition to
reducing new subscriber activations, also cause subscriber churn to
increase.  We use security access devices in our receiver systems to
control access to authorized programming content.





Our
signal encryption 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 Security Access Device replacement programs and
updates in security software, that are intended to make signal theft more
difficult.  It has been our


7
 Table of Contents


prior
experience that security measures may only be effective for short periods of
time or not at all and that we remain susceptible to additional signal
theft.  During the second quarter of 2009, we completed the
replacement of our Security Access Devices that re-secured our system. However,
we expect additional future replacements of these devices will be necessary to
keep our system secure.  We cannot ensure that we will be successful
in reducing or controlling theft of our programming content and we may incur
additional costs in the future if our system’s security is
compromised.





We are
also vulnerable to other forms of fraud.  While we are addressing
certain fraud through a number of actions, including terminating retailers that
we believe were in violation of DISH Network’s business rules, there can be no
assurance that we will not continue to experience fraud which could impact our
subscriber growth and churn.  Weak economic conditions may create
greater incentive for signal theft and other forms of fraud, which could lead to
higher subscriber churn and reduced revenue.





We
depend on third parties to solicit orders for DISH Network services that
represent a significant percentage of our total gross subscriber
acquisitions.





Most of
our retailers are not exclusive to us and may favor our competitors’ products
and services over ours based on the relative financial arrangements associated
with selling our products and those of our competitors.  Furthermore,
some of these retailers are significantly smaller than we are and may be more
susceptible to weak economic conditions that will make it more difficult for
them to operate profitably.  Because our retailers receive most of
their incentive value at activation and not over an extended period of time, our
interests in obtaining and retaining subscribers through good customer service
may not always be aligned with our retailers.  It may be difficult to
better align our interests with our resellers’ because of their capital and
liquidity constraints.  Loss 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.





Our
competitors may be able to leverage their relationships with programmers so that
they are able to reduce their programming costs and offer exclusive content that
will place them at a competitive advantage to us.





The cost
of programming represents a large percentage of our overall
costs.  Certain of our competitors own directly or are affiliated with
companies that own programming content that may enable them to obtain lower
programming costs or offer exclusive programming that may be attractive to
prospective subscribers.  Unlike our larger cable and satellite
competitors, we have not made significant investments in programming
providers.  For example, Comcast and General Electric have agreed to
join their programming properties, including NBC, Bravo and many others that are
available in the majority of our programming packages, in a venture to be
controlled by Comcast.  This transaction may affect us adversely by,
among other things, making it more difficult for us to obtain access to their
programming networks on nondiscriminatory and fair terms, or at
all.  We cannot predict when or if the transaction will receive the
requisite regulatory approvals or if it will be appropriately conditioned to
mitigate potential public interest harms.





We
depend on the Cable Act for access to programming from cable-affiliate
programmers at cost-effective rates.





We
purchase a large percentage of our programming from cable-affiliated
programmers.  The Cable Act’s provisions prohibiting exclusive contracting
practices with cable affiliated programmers were extended for another five-year
period in September 2007.  Cable companies have appealed the FCC’s decision
and oral argument was held before the D.C. Circuit in September 2009.  We
cannot predict the outcome or timing of that litigation.  Any change in the
Cable Act and the FCC’s rules that permit the cable industry or cable-affiliated
programmers to discriminate against competing businesses, such as ours, in the
sale of programming could adversely affect our ability to acquire
cable-affiliated programming at all or to acquire programming on a
cost-effective basis.  As a result, we may be limited in our ability to
obtain access on nondiscriminatory terms to programming from programmers that
are affiliated with the cable system operators.  In the case of certain
types of programming networks affiliated with Comcast and Liberty, access to the
programming is subject to compulsory arbitration if we and the programmer cannot
reach agreement on terms, subject to FCC review.  We cannot be sure
that this procedure will result in favorable terms for us or that the FCC
conditions that establish this procedure will not sunset.


8
 Table of Contents


In
addition, affiliates of certain cable providers have denied us access to sports
programming they feed to their cable systems terrestrially, rather than by
satellite.  The FCC recently held that new denials of such service are
unfair if they have the purpose or effect of significantly hindering us from
providing programming to consumers.  But we cannot be sure that we can
prevail in a complaint related to such programming, and gain access to
it.  Our continuing failure to access such programming could
materially and adversely affect our ability to compete in regions serviced by
these cable providers.





We face
increasing competition from other distributors of foreign language programming
that may limit our ability to maintain our foreign language programming
subscriber base.





We face
increasing competition from other distributors of foreign language programming,
including programming distributed over the Internet.  There can be no
assurance that we will maintain subscribers in our foreign-language programming
services.  In addition, the increasing availability of foreign
language programming from our competitors, which in certain cases has resulted
from our inability to renew programming agreements on an exclusive basis or at
all, could contribute to an increase in our subscriber churn.  Our
agreements with distributors of foreign language programming have varying
expiration dates, and some agreements are on a month-to-month
basis.  There can be no assurance that we will be able to grow or
maintain our foreign language programming subscriber base.





Our
local programming strategy faces uncertainty because we may not be able to
obtain necessary retransmission consents from local network
stations.





Satellite
Home Viewer Extension and Reauthorization Act (“SHVERA”) generally gives
satellite companies a statutory copyright license to retransmit local broadcast
channels by satellite back into the market from which they originated, subject
to obtaining the retransmission consent of the local network
station.  If we fail to reach retransmission consent agreements with
broadcasters we cannot carry their signals.  This could have an
adverse effect on our strategy to compete with cable and other satellite
companies which provide local signals.  While we have been able to
reach retransmission consent agreements with most local network stations in
markets where we currently offer local channels by satellite, roll-out of local
channels in additional cities and in high definition will require that we obtain
additional retransmission agreements.  We cannot be sure that we will
secure these agreements or that we will secure new agreements on acceptable
terms upon the expiration of our current retransmission consent agreements, some
of which are short-term.





We
are subject to significant regulatory oversight and changes in applicable
regulatory requirements could adversely affect our business.





DBS
operators are subject to significant government regulation, primarily by the FCC
and, to a certain extent, by Congress, other federal agencies and foreign, state
and local authorities.  Depending upon the circumstances,
noncompliance with legislation or regulations promulgated by these entities
could result in the suspension or revocation of our licenses or registrations,
the termination or loss of contracts or the imposition of contractual damages,
civil fines or criminal penalties any of which could have a material adverse
effect on our business, financial condition and results of
operations.  Furthermore, the adoption or modification of laws or
regulations relating to the Internet or other areas of our business could limit
or otherwise adversely affect the manner in which we currently conduct our
business.  If we are required to comply with new regulations or
legislation or new interpretations of existing regulations or legislation that
govern Internet network neutrality, this compliance could cause us to incur
additional expenses or alter our business model.  The manner in which
legislation governing Internet network neutrality may be interpreted and
enforced cannot be precisely determined which in turn could have an adverse
effect on our business, financial condition and results of
operations.  You should review the regulatory disclosures under the
caption “Item
1.  Business — Government Regulation — FCC Regulation under the
Communication Act” of DISH’s Annual Report on Form 10-K.





9
 Table of Contents


We
have substantial debt outstanding and may incur additional debt.





As of
December 31, 2009, our total debt, including the debt of our subsidiaries, was
$6.497 billion.  Our debt levels could have significant consequences,
including:





·
            requiring
      us to devote a substantial portion of our cash to make interest and
      principal payments on our debt, thereby reducing the amount of cash
      available for other purposes.  As a result, we would have
      limited  financial and operating flexibility in responding to
      changing economic and competitive
conditions;


·
            limiting
      our ability to raise additional debt because it may be more difficult for
      us to obtain debt financing on attractive terms;
  and


·
            placing
      us at a disadvantage compared to our competitors that have less
      debt.





In
addition, we may incur substantial additional debt in the future.  The
terms of the indentures relating to our senior notes permit us to incur
additional debt.  If new debt is added to our current debt levels, the
risks we now face could intensify.





We
have limited owned and leased satellite capacity and satellite failures could
adversely affect our business.





Operation
of our programming 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 expanding local HD coverage 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 may have a material adverse effect on our business,
financial condition and results of operations.





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





A key
component of our business strategy is our ability to expand our offering of new
programming and services, including increased local and HD
programming.  In order to accomplish this goal, we need to construct
and launch satellites.  Satellite construction and launch is subject
to significant risks, including construction and launch delays, launch failure
and incorrect orbital placement.  Certain launch vehicles that may be
used by us have either unproven track records or have experienced launch
failures in the recent past.  The risks of launch delay and failure
are usually greater when the launch vehicle does not have a track record of
previous successful flights.  Launch failures result in significant
delays in the deployment of satellites because of the need both to construct
replacement satellites, which can take more than three years, and to obtain
other launch opportunities.  Significant construction or launch delays
could materially and adversely affect our ability to generate
revenues.  If we were unable to obtain launch insurance, or obtain
launch insurance at rates we deem commercially reasonable, and a significant
launch failure were to occur, it could have a material adverse effect on our
ability to generate revenues and fund future satellite procurement and launch
opportunities.




In
addition, the occurrence of future launch failures may materially and adversely
affect our ability to insure the launch of our satellites at commercially
reasonable premiums, if at all.  Please see further discussion below
under the caption “We
currently have no commercial insurance coverage on the satellites we own and
could face significant impairment charges if one of our satellites
fails.”





10
 Table of Contents


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





Satellites
are subject to significant operational risks while in orbit.  These
risks include malfunctions, commonly referred to as anomalies, that have
occurred in our satellites and the satellites of other operators as a result of
various factors, such as satellite manufacturers’ errors, problems with the
power systems or control systems of the satellites and general failures
resulting from operating satellites in the harsh environment of
space.





Although
we work closely with the satellite manufacturers to determine and eliminate the
cause of anomalies in new satellites and provide for redundancies of many
critical components in the satellites, we may experience anomalies in the
future, whether of the types described above or arising from the failure of
other systems or components.





Any
single anomaly or series of anomalies could materially and adversely affect our
operations and revenues and our relationship with current customers, as well as
our ability to attract new customers for our multi-channel video
services.  In particular, future anomalies may result in the loss of
individual transponders on a satellite, a group of transponders on that
satellite or the entire satellite, depending on the nature of the
anomaly.  Anomalies may also reduce the expected useful life of a
satellite, thereby reducing the channels that could be offered using that
satellite, or create additional expenses due to the need to provide replacement
or back-up satellites.  You should review the disclosures relating to
satellite anomalies set forth under Note 6 in the Notes to the Consolidated
Financial Statements in Item 15 of this Annual Report on Form 10-K.





Meteoroid
events pose a potential threat to all in-orbit satellites.  The
probability that meteoroids will damage those satellites increases significantly
when the Earth passes through the particulate stream left behind by
comets.  Occasionally, increased solar activity also poses a potential
threat to all in-orbit satellites.





Some
decommissioned spacecraft are in uncontrolled orbits which pass through the
geostationary belt at various points, and present hazards to operational
spacecraft, including our satellites.  We may be required to perform
maneuvers to avoid collisions and these maneuvers may prove unsuccessful or
could reduce the useful life of the satellite through the expenditure of fuel to
perform these maneuvers.  The loss, damage or destruction of any of
our satellites as a result of an electrostatic storm, collision with space
debris, malfunction or other event could have a material adverse effect on our
business, financial condition and results of operations.





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





Our
ability to earn revenue depends on the usefulness of our satellites, each of
which has a limited useful life.  A number of factors affect the
useful lives of the satellites, including, among other things, the quality of
their construction, the durability of their component parts, the ability to
continue to maintain proper orbit and control over the satellite’s functions,
the efficiency of the launch vehicle used, and the remaining on-board fuel
following orbit insertion.  Generally, the minimum design life of each
of our satellites ranges from 12 to 15 years.  We can provide no
assurance, however, as to the actual useful lives of the
satellites.  Our operating results could be adversely affected if the
useful life of any of our satellites were significantly shorter than 12 years
from the launch date.





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, any of which could
have a material adverse effect on our business, financial condition and results
of operations.  A relocation would require FCC approval and, among
other things, a showing to the FCC that the replacement satellite would not
cause additional interference compared to the failed or lost
satellite.  We cannot be certain that we could obtain such FCC
approval.  If we choose to use a satellite in this manner, this use
could adversely affect our ability to meet the operation deadlines associated
with our authorizations.  Failure to meet those deadlines could result
in the loss of such authorizations, which would have an adverse effect on our
ability to generate revenues.





11
 Table of Contents


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





Generally,
we do not carry launch or in-orbit insurance on the satellites we
use.  We currently do not carry in-orbit insurance on any of our
satellites and do not use commercial insurance to mitigate the potential
financial impact of launch or in-orbit failures because we believe that the cost
of insurance premiums is uneconomical relative to the risk of such
failures.  If one or more of our in-orbit satellites fail, we could be
required to record significant impairment charges.





We
may have potential conflicts of interest with EchoStar due to DISH’s common
ownership and management.


We are an
indirect,wholly-owned subsidiary of DISH, which controls all of our voting power and
appoints all of our officers and directors.  As a result of DISH’s
control over us, questions relating to conflicts of interest may arise
between EchoStar and us in a number of areas relating to past and ongoing
relationships between DISH and
EchoStar.  Areas in which conflicts of interest between EchoStar and
us, as a result of our relationship with DISH, could arise
include, but are not limited to, the following:





·
            Cross officerships,
      directorships and stock ownership.We andDISH have
      significant overlap in directors and executive officers with EchoStar,
      which may lead to conflicting interests.  For instance, certain
      of DISH’s executive officers, including Roger J. Lynch, DISH’s Executive
      Vice President, Advanced Technologies, serve as executive officers of
      EchoStar and provide management services to EchoStar pursuant to a
      management services agreement between EchoStar and DISH.  These
      individuals may have actual or apparent conflicts of interest with respect
      to matters involving or affecting each company.  Furthermore,
      DISH’s and our Board of Directors include persons who are members of the
      Board of Directors of EchoStar, including Mr. Ergen, who serves as the
      Chairman of EchoStar and DISH and as one of our directors.  The
      executive officers and the members of DISH’s and our Board of Directors
      who overlap with EchoStar have fiduciary duties to EchoStar’s
      shareholders.  For example, there is the potential for a
      conflict of interest when DISH and us, on the one hand, or EchoStar, on
      the other hand, look at acquisitions and other corporate opportunities
      that may be suitable for both companies.  In addition, certain
      of DISH’s and our directors and officers own EchoStar stock and options to
      purchase EchoStar stock, which they acquired or were granted prior to the
      Spin-off of EchoStar from DISH, including Mr. Ergen, who owns
      approximately 46.3% of the total equity and controls approximately 61.2%
      of the voting power of EchoStar.  Mr. Ergen’s beneficial
      ownership of EchoStar excludes 16,276,214 shares of its Class A Common
      Stock issuable upon conversion of shares of its Class B Common Stock
      currently held by certain trusts established by Mr. Ergen for the benefit
      of his family. These trusts beneficially own approximately 32.1% of
      EchoStar’s total equity securities and possess approximately 31.7% of
      EchoStar’s total voting power.  These ownership interests could
      create actual, apparent or potential conflicts of interest when these
      individuals are faced with decisions that could have different
      implications for DISH and us, on the one hand, and EchoStar, on the other
      hand.





·
            Intercompany agreements
      related to the Spin-off.  DISH has entered into certain
      agreements with EchoStar pursuant to which DISH provides EchoStar with
      certain management, administrative, accounting, tax, legal and other
      services, for which EchoStar pays DISH at its cost plus a fixed
      margin.  In addition, DISH has entered into a number of
      intercompany agreements covering matters such as tax sharing and
      EchoStar’s responsibility for certain liabilities previously undertaken by
      DISH for certain of EchoStar’s businesses.  DISH and us have
      also entered into certain commercial agreements with EchoStar pursuant to
      which EchoStar is, among other things, obligated to sell to DISH and us at
      specified prices, set-top boxes and related equipment.  The
      terms of certain of these agreements were established while EchoStar was a
      wholly-owned subsidiary of DISH and us and were not the result of arm’s
      length negotiations.  The allocation of assets, liabilities,
      rights, indemnifications and other obligations between EchoStar and DISH
      under the separation and other intercompany agreements DISH entered into
      with EchoStar in connection with the Spin-off of EchoStar may have been
      different if agreed to by two unaffiliated parties. Had these agreements
      been negotiated with unaffiliated third parties, their terms may have been
      more favorable, or less favorable, to DISH. In addition, conflicts could
      arise between DISH and us, on the one hand, and EchoStar, on the other
      hand, in the interpretation or any extension or renegotiation of these
      existing agreements.





·
              Additional intercompany
      transactions.EchoStar or its affiliates have and will continue to
      enter into transactions with DISH or its subsidiaries or other affiliates.
      Although the terms of any such transactions will be established based upon
      negotiations between EchoStar and DISH and, when appropriate, subject to
      the approval of the directors on DISH’s board who are not also directors
      on the EchoStar board or a committee of such directors, there can be no
      assurance that the terms of any such transactions will be as favorable to
      DISH or its subsidiaries or affiliates as may otherwise be obtained in
      arm’s length negotiations.





·
            Business
      Opportunities.  DISH has retained interests in various
      U.S. and international companies that have subsidiaries or controlled
      affiliates that own or operate domestic or foreign services that may
      compete with services offered by EchoStar.  DISH may also
      compete with EchoStar when we participate in auctions for spectrum or
      orbital slots for satellites.  In addition, EchoStar may in the
      future use its satellites, uplink and transmission assets to compete
      directly against DISH in the subscription television
    business.





Neither
we nor DISH may be able to resolve any potential conflicts, and, even if either
we or DISH do so, the resolution may be less favorable than if either we or DISH
were dealing with an unaffiliated party. DISH also
does not have any agreements with EchoStar that would prevent us from competing
with EchoStar.





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





We
believe that our future success will depend to a significant extent upon the
performance of Charles W. Ergen, our Chairman, President and Chief Executive
Officer and certain other executives.  The loss of Mr. Ergen or of
certain other key executives could have a material adverse effect on our
business, financial condition and results of operations.  Although all
of our executives have executed agreements limiting their ability to work for or
consult with competitors if they leave us, we do not have employment agreements
with any of them.  Pursuant to a management services agreement with
EchoStar entered into at the time of the Spin-off, we have agreed to make
certain of our key officers available to provide services to
EchoStar.  In addition, Roger J. Lynch also serves as Executive Vice
President, Advanced Technologies of EchoStar.  To the extent Mr. Lynch
and such other officers are performing services for EchoStar, this may divert
their time and attention away from our business and may therefore adversely
affect our business.





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 are
subject to various legal proceedings and claims which arise in the ordinary
course of business, including among other things, disputes with programmers
regarding fees.  Many entities, including some of our competitors,
have or may in the future obtain patents and other intellectual property rights
that cover or affect products or services related to those that we
offer.  In general, if a court determines that one or more of our
products infringes on intellectual property held by others, we may be required
to cease developing or marketing those products, to obtain licenses from the
holders of the intellectual property at a material cost, or to redesign those
products in such a way as to avoid infringing the patent claims.  If
those intellectual property rights are held by a competitor, we may be unable to
obtain the intellectual property at any price, which could adversely affect our
competitive position.  Please see further discussion under Item 1. Business — Patents and
Trademarks of DISH’s Annual Report on Form 10-K for the year ended
December 31, 2009.





We may
not be aware of all intellectual property rights that our services or the
products used in connection with our services may potentially
infringe.  In addition, patent applications in the United States are
confidential until the Patent and Trademark Office issues a
patent.  Therefore, it is difficult to evaluate the extent to which
our services or the products used in connection with our services may infringe
claims contained in pending patent applications.  Further, it is often
not possible to determine definitively whether a claim of infringement is
valid.


12
 Table of Contents




We may pursue
acquisitions and other strategic transactions to complement or expand our
business that may not be successful and we may lose up to the entire value of
our investment in these acquisitions and transactions.
 
 Our
future success may depend on opportunities to buy other businesses or
technologies that could complement, enhance or expand our current business or
products or that might otherwise offer us growth opportunities. We may not be
able to complete such transactions and such transactions, if executed, pose
significant risks and could have a negative effect on our operations. Any
transactions that we are able to identify and complete may involve a number of
risks, including:


·
              the
      diversion of our management’s attention from our existing business to
      integrate the operations and personnel of the acquired or combined
      business or joint venture;
 ·
              possible
      adverse effects on our operating results during the integration
      process;
 ·
              a
      high degree of risk involved in these transactions, which could become
      substantial over time, and higher exposure to significant financial losses
      if the underlying ventures are not successful;
  and
 ·
              our
      possible inability to achieve the intended objectives of the
      transaction.


In
addition, we may not be able to successfully or profitably integrate, operate,
maintain and manage our newly acquired operations or employees. We may not be
able to maintain uniform standards, controls, procedures and policies, and this
may lead to operational inefficiencies.
 
 New
acquisitions, joint ventures and other transactions may require the commitment
of significant capital that would otherwise be directed to investments in our
existing businesses or be distributed to DISH's shareholders. Commitment
of this capital may cause DISH to defer or suspend any share repurchases that it
otherwise may have made.





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





If the
FCC were to cancel, revoke, suspend, or fail to renew any of our licenses or
authorizations, or fail to grant our applications for FCC licenses, it could
have a material adverse effect on our financial condition, profitability and
cash flows.  Specifically, loss of a frequency authorization would
reduce the amount of spectrum available to us, potentially reducing the amount
of programming and other services available to our subscribers.  The
materiality of such a loss of authorizations would vary based upon, among other
things, the location of the frequency used or the availability of replacement
spectrum.  In addition, Congress often considers and enacts
legislation that could affect us, and FCC proceedings to implement the
Communications Act and enforce its regulations are ongoing.  We cannot
predict the outcomes of these legislative or regulatory proceedings or their
effect on our business.





We are subject to
digital HD“carry-one-carry-all”requirements
that cause capacity constraints.





To
provide any full-power local broadcast signal in any market, we are required to
retransmit all qualifying broadcast signals in that market
(“carry-one-carry-all”).  The digital transition required all
full-power broadcasters to cease transmission using analog signals and switch
over to digital signals by June 12, 2009.  The switch to digital
provides broadcasters significantly greater capacity to provide high definition
and multicast programming.  In March 2008, the FCC adopted new digital
carriage rules that require DBS providers to phase in carry-one-carry-all
obligations with respect to the carriage of full-power broadcasters’ HD signals
by February 2013 in HD local markets.  The carriage of additional HD
signals on our DBS system could cause us to experience significant capacity
constraints and limit the number of local markets that we can
serve.  We are also uncertain about how the pending SHVERA
reauthorization legislation may affect this requirement.





In
addition, the FCC is now considering whether to require DBS providers to carry
broadcast stations in both standard definition and high definition starting in
2010, in conjunction with the phased-in HD “carry-one-carry-all” requirements
adopted by the FCC.  If we were required to carry multiple versions of each
broadcast station, we would have to dedicate more of our finite satellite
capacity to each broadcast station, which may force us to reduce the number of
local markets served and limit our ability to meet competitive needs.  We
cannot predict the outcome or timing of that proceeding.  We are also
uncertain about how the pending SHVERA reauthorization legislation may affect
this requirement.


13
 Table of Contents


Our
parent, DISH, is controlled by one principal stockholder who is also our
Chairman, President and Chief Executive Officer.





Charles
W. Ergen, DISH’s Chairman, President and Chief Executive Officer, currently
beneficially owns approximately 51.2% of DISH’s total equity securities and
possesses approximately 83.5% of the total voting power of DISH.  Mr.
Ergen’s beneficial ownership of shares of DISH’s Class A Common Stock excludes
22,023,267 shares of Class A Common Stock issuable upon conversion of shares of
Class B Common Stock currently held by certain trusts established by Mr. Ergen
for the benefit of his family.  These trusts beneficially own
approximately 10.0% of DISH’s total equity securities and possess approximately
8.5% of the total voting power of DISH.  Through his voting power, Mr.
Ergen has the ability to elect a majority of DISH’s directors and to control all
other matters requiring the approval of DISH’s stockholders.  As a
result, DISH is a “controlled company” as defined in the Nasdaq listing rules
and is, therefore, not subject to Nasdaq requirements that would otherwise
require DISH to have (i)  a majority of independent directors; (ii) a
nominating committee composed solely of independent directors; (iii)
compensation of our executive officers determined by a majority of the
independent directors or a compensation committee composed solely of independent
directors; and (iv) director nominees selected, or recommended for the Board’s
selection, either by a majority of the independent directors or a nominating
committee composed solely of independent directors.





There
can be no assurance that there will not be deficiencies leading to material
weaknesses in our internal control over financial reporting.




We
periodically evaluate and test our internal control over financial reporting to
satisfy the requirements of Section 404 of the Sarbanes-Oxley
Act.  Our management has concluded that our internal control over
financial reporting was effective as of December 31, 2009.  If in the
future we are unable to report that our internal control over financial
reporting is effective, investors, customers and business partners could
lose confidence in the accuracy of our financial reports, which could in turn
have a material adverse effect on our business, investor confidence in our
financial results may weaken, and DISH's
stock price may suffer.





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





Item 1B.
            UNRESOLVED
      STAFF COMMENTS





None.








14
 Table of Contents


Item 2.
            PROPERTIES





The
following table sets forth certain information concerning our principal
properties.





Leased
      FromDescription/Use/Location
              
              Segment(s)
      Using Property
              
              Owned
              
              
              EchoStar
              
              
              Other
      Third PartyCorporate
      headquarters, Englewood, Colorado
              
              DISH
      Network
              
              
              
              
              
              XCustomer
      call center and general offices, Pine Brook, New Jersey
              
              DISH
      Network
              
              
              
              
              
              
              
              
              
              XCustomer
      call center and general offices, Tulsa, Oklahoma
              
              DISH
      Network
              
              
              
              
              
              
              
              
              
              XCustomer
      call center, Alvin, Texas
              
              DISH
      Network
              
              
              
              
              
              
              
              
              
              XCustomer
      call center, Bluefield, West Virginia
              
              DISH
      Network
              
              
              XCustomer
      call center, Christiansburg, Virginia
              
              DISH
      Network
              
              
              XCustomer
      call center, College Point, New York
              
              DISH
      Network
              
              
              
              
              
              
              
              
              
              
              XCustomer
      call center, Harlingen, Texas
              
              DISH
      Network
              
              
              XCustomer
      call center, Hilliard, Ohio
              
              DISH
      Network
              
              
              
              
              
              
              
              
              
              
              XCustomer
      call center, Littleton, Colorado
              
              DISH
      Network
              
              
              
              
              
              
              XCustomer
      call center, Phoenix, Arizona
              
              DISH
      Network
              
              
              
              
              
              
              
              
              
              
              XCustomer
      call center, Thornton, Colorado
              
              DISH
      Network
              
              
              XCustomer
      call center, warehouse and service center, El Paso, Texas
              
              DISH
      Network
              
              
              XService
      center, Englewood, Colorado
              
              DISH
      Network
              
              
              
              
              
              
              XService
      center, Spartanburg, South Carolina
              
              DISH
      Network
              
              
              
              
              
              
              
              
              
              
              XWarehouse
      and distribution center, Denver, Colorado
              
              DISH
      Network
              
              
              
              
              
              
              
              
              
              
              XWarehouse
      and distribution center, Sacramento, California
              
              DISH
      Network
              
              
              XWarehouse,
      Denver, Colorado
              
              DISH
      Network
              
              
              XWarehouse,
      distribution and service center, Atlanta, Georgia
              
              DISH
      Network
              
              
              
              
              
              
              
              
              
              
              X




In
addition to the principal properties listed above, we operate several DISH
Network service centers strategically located in regions throughout the United
States.  Furthermore, we own or lease capacity on 11 satellites which
are a major component of our DISH Network DBS System.  See further
discussion under Note 6 in the Notes to the Consolidated Financial Statements in
Item 15 of this Annual Report on Form 10-K.





Item 3. LEGAL
PROCEEDINGS





In
connection with the Spin-off, DISH entered into a separation agreement with
EchoStar which provides among other things for the division of certain
liabilities, including liabilities resulting from litigation.  Under
the terms of the separation agreement, EchoStar has assumed certain liabilities
that relate to its 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, EchoStar will only
be liable for its acts or omissions following the Spin-off and DISH will
indemnify EchoStar for any liabilities or damages resulting from intellectual
property claims relating to the period prior to the Spin-off as well as its acts
or omissions following the Spin-off.





Acacia





During
2004, Acacia Media Technologies (“Acacia”) filed a lawsuit against us and
EchoStar 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.  The plaintiffs have appealed.


15
 Table of Contents




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 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 us, EchoStar, DirecTV, Thomson Consumer Electronics and others in United
States District Court in Denver, Colorado.  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 us as the only
defendant.




During
2004, the judge 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 the ‘094
patent finding of invalidity 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 Federal Circuit
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 cannot predict with any degree of
certainty the outcome of the suit or determine the extent of any potential
liability or damages.





Channel
Bundling Class Action





During
2007, a purported class of cable and satellite subscribers filed an antitrust
action against us in the United States District Court for the Central District
of California.  The suit also names as defendants DirecTV, Comcast,
Cablevision, Cox, Charter, Time Warner, Inc., Time Warner Cable, NBC Universal,
Viacom, Fox Entertainment Group, and Walt Disney Company.  The suit
alleges, among other things, that the defendants engaged in a conspiracy to
provide customers with access only to bundled channel offerings as opposed to
giving customers the ability to purchase channels on an “a la carte”
basis.  On October 16, 2009, the District Court granted defendants’
motion to dismiss with prejudice.  The plaintiffs have
appealed.  We intend to vigorously defend this case.  We
cannot predict with any degree of certainty the outcome of the suit or determine
the extent of any potential liability or damages.





Enron
Commercial Paper Investment





During
2001, we received approximately $40 million from the sale of Enron commercial
paper to a third party broker.  That commercial paper was ultimately
purchased by Enron.  During 2003, an action was commenced in the
United States Bankruptcy Court for the Southern District of New York against
approximately 100 defendants, including us, who invested in Enron’s commercial
paper.  On April 7, 2009, we settled the litigation for an immaterial
amount.





ESPN





During
2008, we filed a lawsuit against ESPN, Inc., ESPN Classic, Inc., ABC Cable
Networks Group, Soapnet L.L.C., and International Family Entertainment
(collectively, “ESPN”) for breach of contract in New York State Supreme
Court.  Our complaint alleges that ESPN failed to provide us with
certain high-definition feeds of the Disney Channel, ESPN News, Toon, and ABC
Family.  ESPN asserted a counterclaim, and then filed a motion for
summary judgment, alleging that we owed approximately $35 million under the
applicable affiliation agreements.


16
 Table of Contents


We
brought a motion to amend our complaint to assert that ESPN was in breach of
certain most-favored-nation provisions under the applicable affiliation
agreements.  On April 15, 2009, the trial court granted our motion to
amend the complaint, and granted, in part, ESPN’s motion on the counterclaim,
finding that we are liable for some of the amount alleged to be owing but that
the actual amount owing is disputed and will have to be determined at a later
date.  We will appeal the partial grant of ESPN’s
motion.  Since the partial grant of ESPN’s motion, ESPN has sought an
additional $30 million under the applicable affiliation
agreements.  We intend to vigorously prosecute and defend this
case.  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 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 EchoStar, 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.  During
April 2008, the Federal Circuit reversed the judgment against DirecTV and
ordered a new trial.  During January 2010, the Federal Circuit
affirmed the District Court’s grant of summary judgment to DirecTV, and
dismissed the action with prejudice.  We are evaluating the impact of
the Federal Circuit’s decision.





We intend
to vigorously prosecute 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 modify our system architecture.  We cannot predict
with any degree of certainty the outcome of the suit or determine the extent of
any potential liability or damages.





Global
Communications





During
April 2007, Global Communications, Inc. (“Global”) filed a patent infringement
action against us and EchoStar in the United States District Court for the
Eastern District of Texas.  The suit alleges infringement of United
States Patent No. 6,947,702 (the ‘702 patent), which relates to satellite
reception.  In October 2007, the United States Patent and Trademark
Office granted our request for reexamination of the ‘702 patent and issued an
initial Office Action finding that all of the claims of the ‘702 patent were
invalid.  At the request of the parties, the District Court stayed the
litigation until the reexamination proceeding is concluded and/or other Global
patent applications issue.





During
June 2009, Global filed a patent infringement action against us and EchoStar in
the United States District Court for the Northern District of
Florida.  The suit alleges infringement of United States Patent No.
7,542,717 (the ‘717 patent), which relates to satellite reception.  In
December 2009, we and EchoStar settled the Texas and Florida actions with Global
on terms and conditions that did not have a material impact on our results of
operations.





Guardian
Media





During
2008, Guardian Media Technologies LTD (“Guardian”) filed suit against us,
EchoStar, EchoStar Technologies L.L.C., DirecTV and several other defendants in
the United States District Court for the Central District of California alleging
infringement of United States Patent Nos. 4,930,158 and
4,930,160.  Both patents are expired and relate to certain parental
lock features.  On September 9, 2009, Guardian voluntarily dismissed
the case against us with prejudice.





Katz
Communications





During
2007, Ronald A. Katz Technology Licensing, L.P. (“Katz”) filed a patent
infringement action against us in the United States District Court for the
Northern District of California.  The suit alleges infringement of 19
patents owned by Katz.  The patents relate to interactive voice
response, or IVR, technology.


17
 Table of Contents


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 cannot predict with any degree of
certainty the outcome of the suit or determine the extent of any potential
liability or damages.





Multimedia
Patent Trust





On
February 13, 2009, Multimedia Patent Trust (“MPT”) filed suit against us,
EchoStar, DirecTV and several other defendants in the United States District
Court for the Southern District of California alleging infringement of United
States Patent Nos. 4,958,226, 5,227,878, 5,136,377, 5,500,678 and 5,563,593,
which relate to video encoding, decoding and compression
technology.  MPT is an entity that seeks to license an acquired patent
portfolio without itself practicing any of the claims recited
therein.  In December 2009, we and EchoStar reached a settlement with
MPT that did not have a material impact on our results of
operations.





NorthPoint
Technology





On July
2, 2009, NorthPoint Technology, Ltd. filed suit against us, EchoStar, 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 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. filed suit against us, EchoStar
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.





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 cannot predict with any degree of
certainty the outcome of the suit or determine the extent of any potential
liability or damages.





Retailer
Class Actions





During
2000, lawsuits were filed by retailers in Colorado state and federal courts
attempting to certify nationwide classes on behalf of certain of our
retailers.  The plaintiffs are requesting the Courts declare certain
provisions of, and changes to, alleged agreements between us and the retailers
invalid and unenforceable, and to award damages for lost incentives and
payments, charge backs, and other compensation.  We have asserted a
variety of counterclaims.  The federal court action has been stayed
during the pendency of the state court action.  We filed a motion for
summary judgment on all counts and against all plaintiffs.  The
plaintiffs filed a motion for additional time to conduct discovery to enable
them to respond to our motion.  The state court granted limited
discovery which ended during 2004.  The plaintiffs claimed we did not
provide adequate disclosure during the discovery process.  The state
court agreed, and denied our motion for summary judgment as a
result.  In April 2008, the state court granted plaintiff’s class
certification motion and in January 2009, the state court entered an order
excluding certain evidence that we can present at trial based on the prior
discovery issues.  The state court also denied plaintiffs’ request to
dismiss our counterclaims.  The final impact of the court’s
evidentiary ruling cannot be fully assessed at this time.  In May
2009, plaintiffs filed a motion for default judgment based on new allegations of
discovery misconduct.  We intend to vigorously defend this
case.  We cannot predict with any degree of certainty the outcome of
the lawsuit or determine the extent of any potential liability or
damages.


18
 Table of Contents


Technology
Development Licensing





On
January 22, 2009, Technology Development and Licensing LLC filed suit against us
and EchoStar 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.  In July 2009, the Court
granted our motion to stay the case pending two re-examination petitions before
the Patent and Trademark Office.





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 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.  As of September 2008, we had recorded a total reserve of $132
million on our Consolidated Balance Sheets to reflect the April 2006 jury
verdict, supplemental damages through September 2006 and pre-judgment interest
awarded by the Texas court, together with the estimated cost of potential
further software infringement prior to implementation of our alternative
technology, discussed below, plus interest subsequent to entry of the
judgment.  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, approximately $105 million of
the total $132 million reserve was released from an escrow account 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
our original alternative technology still infringed the software claims, and
that even if our original alternative technology was “non-infringing,” the
original injunction by its terms required that we 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.  We 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, but has ordered that enforcement of any sanctions award will be
stayed pending resolution of our appeal of the contempt order.  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 we 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.
  19
 Table of Contents


On August
3, 2009, the Patent and Trademark Office (the “PTO”) issued an initial office
action rejecting the software claims of United States Patent No. 6,233,389 (the
‘389 patent) as being invalid in light of two prior patents.  These
are the same software claims that we were found to have infringed and which
underlie the contempt ruling that we are now appealing.  We believe
that the PTO’s conclusions are relevant to the issues on appeal as well as the
pending sanctions proceedings in the District Court.  The PTO’s
conclusions support our position that our original alternative technology is
more than colorably different than the devices found to infringe by the jury;
that our original alternative technology does not infringe; and that we acted in
good faith to design around Tivo’s patent.
 
 On
September 4, 2009, the District Court partially granted Tivo’s motion for
contempt sanctions.  In partially granting Tivo’s motion for contempt
sanctions, the District Court 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 enforcement of the award has been stayed by
the District Court pending resolution of our appeal of the underlying June 2009
contempt order).  The District Court also awarded Tivo its attorneys’
fees and costs incurred during the contempt proceedings.  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.  During the year ended December 31, 2009, we increased our
total reserve by $361 million to reflect the supplemental damages and interest
for the period from implementation of our original alternative technology
through April 2008 and for the estimated cost of alleged software infringement
(including contempt sanctions for the period from April 2008 through June 2009)
for the period from April 2008 through December 2009 plus
interest.  Our total reserve at December 31, 2009 was $394 million and
is included in “Tivo litigation accrual” on our Consolidated Balance
Sheets.
 
 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 EchoStar’s development
process, EchoStar downloaded several of our design-around options to less than
1,000 subscribers for “beta” testing.
 
 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.  We intend to file a
petition for en banc
review of that decision by the full Federal Circuit and to request that the
District Court approve the implementation of one of our new design-around
options on an expedited basis.  There can be no assurance that our
petition for en banc
review will be granted, and historically such petitions have rarely been
granted.  Nor can there be any assurance that the District Court will
approve the implementation of one of our design around options.  Tivo
has stated that it will seek additional damages for the period from June 2009 to
the present.  Although we have accrued our best estimate of damages,
contempt sanctions and interest through December 31, 2009, there can be no
assurance that Tivo will not seek, and that the court will not award, an amount
that exceeds our accrual.
 
 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 would be required to eliminate DVR functionality in all
but approximately 192,000 digital set-top boxes in the field and cease
distribution of digital set-top boxes with DVR functionality.  In that
event we would be at a significant disadvantage to our competitors who could
continue offering DVR functionality, which would likely result in a significant
decrease in new subscriber additions as well as a substantial loss of current
subscribers.  Furthermore, the inability to offer DVR functionality
could cause certain of our distribution channels to terminate or significantly
decrease their marketing of DISH Network services.  The adverse effect
on our financial position and results of operations if the District Court’s
contempt order is upheld is likely to be significant.  Additionally,
the supplemental damage award of $103 million and further award of approximately
$200 million does not include damages, contempt sanctions or interest for the
period after June 2009.  In the event that we are unsuccessful in our
appeal, we could also have to pay substantial additional damages, contempt
sanctions and interest.  Depending on the amount of any additional
damage or sanction award or any monetary settlement, we may be required to raise
additional capital at a time and in circumstances in which we would normally not
raise capital.  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.  We believe the cost of such capital and its terms and
conditions may be substantially less attractive than our previous
financings.
 
 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 or could be required to modify or eliminate our then-current DVR
functionality in some or all set-top boxes in the field.  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 could
be material.  We could also have to pay substantial additional
damages.
  20
 Table of Contents


Because
both we and EchoStar are defendants in the Tivo lawsuit, we and EchoStar are
jointly and severally liable to Tivo for any final damages and sanctions that
may be awarded by the District Court.  DISH has determined that it is
obligated under the agreements entered into in connection with the Spin-off to
indemnify EchoStar for substantially all liability arising from this
lawsuit.  EchoStar has agreed to contribute an amount equal to its $5
million intellectual property liability limit under the Receiver
Agreement.  DISH and EchoStar have further agreed that EchoStar’s $5
million contribution would not exhaust EchoStar’s liability to DISH for other
intellectual property claims that may arise under the Receiver
Agreement.  DISH and EchoStar also agreed that they 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.
 Voom





On May
28, 2008, Voom HD Holdings (“Voom”) filed a complaint against us in New York
Supreme Court.  The suit alleges breach of contract arising from our
termination of the affiliation agreement we had with Voom for the carriage of
certain Voom HD channels on the DISH Network satellite television
service.  In January 2008, Voom sought a preliminary injunction to
prevent us from terminating the agreement.  The Court denied Voom’s
motion, finding, among other things, that Voom was not likely to prevail on the
merits of its case.  Voom is claiming over $2.5 billion in
damages.  We intend to vigorously defend this case.  We
cannot predict with any degree of certainty the outcome of the suit or determine
the extent of any potential liability or damages.





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, including among other
things, disputes with programmers regarding fees.  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.





21
 Table of Contents





PART II





Item 5.
            MARKET
      FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
      PURCHASES OF EQUITY SECURITIES





Market
Information.  As of March 1, 2010, all 1,015 issued and
outstanding shares of our common stock were held by DISH Orbital Corporation
(“DOC”), a direct subsidiary of DISH, formerly known as EchoStar Orbital
Corporation.  There is currently no established trading market for our
common stock.





Cash
Dividends. On
January 1, 2008, DISH spun off EchoStar as a separate publicly-traded company in
the form of a stock dividend distributed to DISH shareholders.  In
connection with the Spin-off, DISH contributed certain satellites, uplink and
satellite transmission assets, real estate and other assets and related
liabilities held by us to EchoStar.  On December 30, 2007, we paid a
dividend of $1.615 billion to DOC to enable DISH to fund the $1.0 billion cash
contribution to EchoStar and for other general corporate purposes.





During
2008, we paid dividends totaling $1.150 billion to DOC for general corporate
purposes.  In addition, we purchased EchoStar XI from DISH Orbital II
L.L.C. (“DOLLC II”), an indirect wholly-owned subsidiary of DISH, and our
affiliate, formerly known as EchoStar Orbital II L.L.C., for its fair value of
approximately $330 million.  We assumed $17 million in vendor
financing and the difference, or $313 million, was paid to our
affiliate.  We recorded the satellite at DOLLC II’s carrying value of
$200 million and recorded the difference, or $130 million, as a capital
distribution to DOC.





On November 6, 2009, the board of
directors of DISH declared a dividend of $2.00 per share on its outstanding
Class A and Class B common stock, or $894 million in the aggregate. On December 1, 2009, we paid a dividend
of $1.050 billion to DOC to fund the payment of DISH’s dividend and other potential DISH
cash needs.


Payment
of any future dividends will depend upon our earnings and capital requirements,
restrictions in our debt facilities, and other factors the Board of Directors
considers appropriate.  Our ability to declare dividends is affected
by covenants in our debt facilities.


22
 Table of Contents
 Item
7. MANAGEMENT’S
NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS




You shouldread the following narrative analysis of our
financial condition and results of operations together with the audited
consolidated financial statements and notes to the financial statements included
elsewhere in this annual report.  This management’s narrative 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 this report,
including under the caption “Item 1A.  Risk Factors” in this Annual
Report on Form 10-K.





EXECUTIVE
SUMMARY





Overview





DISH
Network added approximately 422,000 net new subscribers during the year ended
December 31, 2009 as a result of higher gross subscriber additions and reduced
churn.  Our increased gross subscriber additions were primarily a
result of our sales and marketing promotions during the last half of
2009.  Churn was positively impacted by, among other things, the
completion of our security access device replacement program, an increase in our
new subscriber commitment period and initiatives to retain
subscribers.  Historically, we have experienced slightly higher churn
in the months following the expiration of commitments for new
subscribers.  In February 2008, we extended the required new
subscriber commitment from 18 to 24 months.  During the last half of
2009, due to the change in promotional mix, we had fewer expiring new subscriber
commitments.  We continue to focus on addressing operational
inefficiencies specific to DISH Network which we believe will contribute to
long-term subscriber growth.  ARPU has been negatively impacted by
promotional discounts on programming offered to new subscribers and our
initiatives to retain subscribers, both of which negatively impacted our
subscriber-related margins.  “Subscriber-related expenses” continued
to be negatively impacted by increased programming costs and initiatives to
retain subscribers, migrate certain subscribers to make more efficient use of
transponder capacity, and improve customer service.





The
current overall economic environment has negatively impacted many industries
including ours.  In addition, the overall growth rate in the pay-TV
industry has slowed in recent years.  Within this maturing industry,
competition has intensified with the rapid growth of fiber-based pay-TV services
offered by telecommunications companies.  Furthermore, programming
offered over the Internet has become more prevalent as the speed and quality of
broadband networks have improved.  Significant changes in consumer
behavior with regard to the means by which they obtain video entertainment and
information in response to this emerging digital media competition could
materially adversely affect our business, results of operations and financial
condition or otherwise disrupt our business.





While
economic factors have impacted the entire pay-TV industry, our relative
performance has been mostly driven by issues specific to DISH
Network.  In recent years, DISH Network’s position as the low cost
provider in the pay-TV industry has been eroded by increasingly aggressive
promotional pricing used by our competitors to attract new subscribers and
similarly aggressive promotions and tactics used to retain existing
subscribers.  Some competitors have been especially aggressive and
effective in marketing their service.  Furthermore, our subscriber
growth has been adversely affected by signal theft and other forms of fraud and
by operational inefficiencies at DISH Network.  We have not always met
our own standards for performing high-quality installations, effectively
resolving subscriber issues when they arise, answering subscriber calls in an
acceptable timeframe, effectively communicating with our subscriber base,
reducing calls driven by the complexity of our business, improving the
reliability of certain systems and subscriber equipment, and aligning the
interests of certain third party retailers and installers to provide
high-quality service.





Our
distribution relationship with AT&T was a substantial contributor to our
gross and net subscriber additions in prior years, accounting for approximately
17% of our gross subscriber additions for the year ended December 31,
2008.  This distribution relationship ended January 31,
2009.  Consequently, beginning with the second quarter 2009, AT&T
no longer contributed to our gross subscriber additions.  In addition,
nearly one million of our current


23
 Table of Contents
 Item
7. MANAGEMENT’S
NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS - Continued


subscribers
were acquired through our distribution relationship with AT&T and
subscribers acquired through this channel have historically churned at a higher
rate than our overall subscriber base.  Although AT&T is not
permitted to target these subscribers for transition to another pay-TV service
and we and AT&T are required to maintain bundled billing and cooperative
customer service for these subscribers, these subscribers may continue to churn
at higher than historical rates following termination of the AT&T
distribution relationship.





We have
been investing more in advanced technology equipment as part of our subscriber
acquisition and retention efforts.  Recent initiatives to transmit
certain programming only in MPEG-4 and to activate most new subscribers only
with MPEG-4 receivers have accelerated our deployment of MPEG-4
receivers.  To meet current demand, we have increased the rate at
which we upgrade existing subscribers to HD and DVR receivers.  While
these efforts may increase our subscriber acquisition and retention costs, we
believe that they will help reduce subscriber churn and costs over the long
run.





We have
also been changing equipment to migrate certain subscribers to make more
efficient use of transponder capacity in support of HD and other
initiatives.  We expect to continue these initiatives through
2010.  We believe that the benefit from the increase in available
transponder capacity outweighs the short-term cost of these equipment
changes.





To combat
signal theft and improve the security of our broadcast system, we recently
completed the replacement of our security access devices to re-secure our
system.  We expect additional future replacements of these devices to
be necessary to keep our system secure.  To combat other forms of
fraud, we have taken a wide range of actions including terminating retailers
that we believe were in violation of DISH Network’s business
rules.  While these initiatives may inconvenience our subscribers and
disrupt our distribution channels in the short-term, we believe that the
long-term benefits will outweigh the costs.





To
address our operational inefficiencies, we have streamlined our hardware
offerings and continue to make significant investments in staffing, training,
information systems, and other initiatives, primarily in our call center and
in-home service operations.  These investments are intended to help
combat inefficiencies introduced by the increasing complexity of our business,
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.  The adoption of these measures has contributed to higher
expenses and lower margins.  While we believe that the increased costs
will be outweighed by longer-term benefits, there can be no assurance when or if
we will realize these benefits at all.





Programming
costs represent a large percentage of our “Subscriber-related
expenses.”  As a result, our margins may face further downward
pressure from price increases and the renewal of long-term programming contracts
on less favorable pricing terms.





To
maintain and enhance our competitiveness over the long term, we plan to promote
a suite of integrated products designed to maximize the convenience and ease of
watching TV anytime and anywhere, which we refer to as, “TV
Everywhere.”  TV Everywhere utilizes, among other things, Slingbox
“placeshifting” technology.





Liquidity
Drivers





Like many
companies, we make general investments in property such as satellites,
information technology and facilities that support our overall
business.  As a subscriber-based company, however, we also make
subscriber-specific investments to acquire new subscribers and retain existing
subscribers.  While the general investments may be deferred without
impacting the business in the short-term, the subscriber-specific investments
are less discretionary.  Our overall objective is to generate
sufficient cash flow over the life of each subscriber to provide an adequate
return against the upfront investment.  Once the upfront investment
has been made for each subscriber, the subsequent cash flow is generally
positive.





There are
a number of factors that impact our future cash flow compared to the cash flow
we generate at a given point in time.  The first factor is how
successful we are at retaining our current subscribers.  As we lose
subscribers from our existing base, the positive cash flow from that base is
correspondingly reduced.





24
 Table of Contents


Item
7. MANAGEMENT’S
NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS - Continued





The
second factor is how successful
we are at maintaining our subscriber-related margins.  To the extent
our “Subscriber-related expenses” grow faster than our “Subscriber-related
revenue,” the amount of cash flow that is generated per existing subscriber is
reduced.  The third factor is the rate at which we acquire new
subscribers.  The faster we acquire new subscribers, the more our
positive ongoing cash flow from existing subscribers is offset by the negative
upfront cash flow associated with new subscribers.  Finally, our
future cash flow is impacted by the rate at which we make general investments
and any cash flow from financing activities.





Our
subscriber-specific investments to acquire new subscribers have a significant
impact on our cash flow.  While fewer subscribers might translate into
lower ongoing cash flow in the long-term, cash flow is actually aided in the
short-term by the reduction in subscriber-specific investment
spending.  As a result, a slow down in our business due to external or
internal factors does not introduce the same level of short-term liquidity risk
as it might in other industries.





Availability
of Credit and Effect on Liquidity





While the
ability to raise capital has generally existed for us despite the weak
economic conditions, the cost of such capital has not been as attractive as in
prior periods.  Because of the cash flow of our company and the
absence of any material debt payments over the next year, the higher cost of
capital will not impact our current operational plans.  However, we
might be less likely to pursue initiatives which could increase
DISH's shareholder value over the long run, such as making strategic
investments or prepaying debt.  Alternatively, if we decided to pursue
such initiatives, the cost of doing so would be greater.  Currently,
we have no existing lines of credit, nor have we historically.





Future
Liquidity





Our
“Subscriber-related expenses” as a percentage of “Subscriber-related revenue”
grew from 51.4% to 52.2% in 2008 and reached 55.1% during 2009.  Our
“Subscriber-related expenses” continued to be negatively impacted by increased
programming costs and initiatives to retain subscribers, migrate certain
subscribers to make more efficient use of transponder capacity, and improve
customer service.  In addition, our “Subscriber-related revenue” was
negatively impacted by our increase in the use of promotional discounts on
programming offered to new subscribers and retention initiatives offered to
existing subscribers.  Uncertainties about these trends may impact our
cash flow and results of operations.  In addition, although our
subscriber base has recently increased, we continue to be impacted by
operational issues specific to DISH Network, as previously
discussed.





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 would be required to eliminate DVR functionality in all
but approximately 192,000 digital set-top boxes in the field and cease
distribution of digital set-top boxes with DVR functionality.  In that
event we would be at a significant disadvantage to our competitors who could
continue offering DVR functionality, which would likely result in a significant
decrease in new subscriber additions as well as a substantial loss of current
subscribers.  Furthermore, the inability to offer DVR functionality
could cause certain of our distribution channels to terminate or significantly
decrease their marketing of DISH Network services.  The adverse effect
on our financial position and results of operations if the District Court’s
contempt order is upheld is likely to be significant.  Additionally,
the supplemental damage award of $103 million and further award of approximately
$200 million does not include damages, contempt sanctions or interest for the
period after June 2009.  In the event that we are unsuccessful in our
appeal, we could also have to pay substantial additional damages, contempt
sanctions and interest.  Depending on the amount of any additional
damage or sanction award or any monetary settlement, we may be required to raise
additional capital at a time and in circumstances in which we would normally not
raise capital.  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.  We believe the cost of such capital and its terms and
conditions may be substantially less attractive than our previous
financings.





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 or could be required to modify or eliminate our then-current DVR
functionality in some or all set-top boxes in the field.  In that
event we


25
 Table of Contents
 Item
7. MANAGEMENT’S
NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS - Continued


would be
at a significant disadvantage to our competitors who could continue offering DVR
functionality and the adverse effect on our business could be
material.  We could also have to pay substantial additional
damages.





Because
both we and EchoStar are defendants in the Tivo lawsuit, we and EchoStar are
jointly and severally liable to Tivo for any final damages and sanctions that
may be awarded by the District Court.  DISH has determined that it is
obligated under the agreements entered into in connection with the Spin-off to
indemnify EchoStar for substantially all liability arising from this
lawsuit.  EchoStar has agreed to contribute an amount equal to its $5
million intellectual property liability limit under the Receiver
Agreement.  DISH and EchoStar have further agreed that EchoStar’s $5
million contribution would not exhaust EchoStar’s liability to DISH for other
intellectual property claims that may arise under the Receiver
Agreement.  DISH and EchoStar also agreed that they 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.





The
Spin-off.  Effective January 1, 2008, DISH completed the
separation of the assets and businesses it owned and operated historically into
two companies (the “Spin-off”):
 
 ·
              DISH,
      through which it retains the DISH Network pay-TV business,
    and
 
 ·
              EchoStar
      Corporation (“EchoStar”) which operates the digital set-top box business,
      and holds certain satellites, uplink and satellite transmission assets,
      real estate and other assets and related liabilities formerly held by DISH
      and us.
 
 DISH
including us, and EchoStar now operate as separate public companies, and neither
entity has any ownership interest in the other.  However, a majority
of the voting power of the shares of both DISH and EchoStar are controlled by
DISH's and our Chairman, President and Chief Executive Officer, Charles W.
Ergen.  In connection with the Spin-off, DISH and we entered into
certain agreements with EchoStar to define responsibility for obligations
relating to, among other things, set-top box sales, transition services, taxes,
employees and intellectual property, which impact several of our key operating
metrics.  The fees we pay to EchoStar to access assets or receive
certain services following the Spin-off, after taking into account the cost
savings realized from the Spin-off, have not had a significant impact on our
operations.  DISH and we have also entered into certain agreements
with EchoStar subsequent to the Spin-off and may enter into additional
agreements with EchoStar in the future.
 
 Prior to
the Spin-off, our set-top boxes and other subscriber equipment as well as
satellite, uplink and transmission services were provided internally at
cost.  Following the Spin-off, DISH and we purchase set-top boxes from
EchoStar at its cost plus a fixed margin, which varies depending on a number of
factors including the types of set-top boxes that we purchase.  In
addition, DISH and we now purchase and/or lease satellite, uplink and
transmission services from EchoStar at its cost plus a fixed
margin.  The prices that DISH and we pay for these services depend
upon the nature of the services that DISH and we obtain from EchoStar and the
market competition for these services.  Furthermore, as part of the
Spin-off, certain real estate was contributed by us to EchoStar and leased back
to us and we now incur additional costs in the form of rent paid on these
leases.  These additional costs are not reflected in our historical
consolidated financial statements for periods prior to January 1,
2008.


EXPLANATION
OF KEY METRICS AND OTHER ITEMS





Subscriber-related
revenue.  “Subscriber-related
revenue” consists principally of revenue from basic, premium movie, local,
pay-per-view, Latino and international subscription television services,
equipment rental fees and other hardware related fees, including fees for DVRs
and additional outlet fees from subscribers with multiple receivers, advertising
services, fees earned from our in-home service operations, equipment upgrade
fees, HD programming and other subscriber revenue.  Certain of the
amounts included in “Subscriber-related revenue” are not recurring on a monthly
basis.





Equipment sales
and other revenue.  “Equipment sales
and other revenue” principally includes the non-subsidized sales of DBS
accessories to retailers and other third-party distributors of our equipment
domestically and to DISH Network subscribers.




26
 Table of Contents
 Item
7. MANAGEMENT’S
NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS -
Continued





During
2007, this category also included sales of non-DISH Network digital receivers
and related components to international customers and satellite and transmission
revenue, which related to the set-top box business and other assets that were
distributed to EchoStar in connection with the Spin-off.





Equipment sales,
transitional services and other revenue – EchoStar.  “Equipment
sales, transitional services and other revenue – EchoStar” includes revenue
related to equipment sales, and transitional services and other agreements with
EchoStar associated with the Spin-off.





Subscriber-related
expenses.  “Subscriber-related
expenses” principally include programming expenses, costs incurred in connection
with our in-home service and call center operations, billing costs,
refurbishment and repair costs related to receiver systems, subscriber retention
and other variable subscriber expenses.





Satellite and
transmission expenses – EchoStar.  “Satellite and
transmission expenses – EchoStar” includes the cost of digital broadcast
operations provided to us by EchoStar, including satellite
uplinking/downlinking, signal processing, conditional access management,
telemetry, tracking and control and other professional services.  In
addition, this category includes the cost of leasing satellite and transponder
capacity on satellites that were distributed to EchoStar, in connection with the
Spin-off.





Satellite and
transmission expenses – other.  “Satellite and
transmission expenses – other” includes executory costs associated with capital
leases and costs associated with transponder leases and other related
services.  Prior to the Spin-off, “Satellite and transmission expenses
– other” included costs associated with the operation of our digital broadcast
centers, including satellite uplinking/downlinking, signal processing,
conditional access management, telemetry, tracking and control, satellite and
transponder leases, and other related services, which were previously performed
internally.





Equipment,
transitional services and other cost of sales.  “Equipment,
transitional services and other cost of sales” principally includes the cost of
non-subsidized sales of DBS accessories to retailers and other distributors of
our equipment domestically and to DISH Network subscribers.  In
addition, this category includes costs related to equipment sales, transitional
services and other agreements with EchoStar associated with the
Spin-off.





During
2007, “Equipment, transitional services and other cost of sales” also included
costs associated with non-DISH Network digital receivers and related components
sold to international customers and satellite and transmission expenses, which
related to the set-top box business and other assets that were distributed to
EchoStar in connection with the Spin-off.





Subscriber
acquisition costs.In addition to leasing
receivers, we generally subsidize installation and all or a portion of the cost
of our receiver systems to attract new DISH Network subscribers.  Our
“Subscriber acquisition costs” include the cost of our receiver systems sold to
retailers and other distributors of our equipment, the cost of receiver systems
sold directly by us to subscribers, net costs related to our promotional
incentives, and costs related to installation and acquisition
advertising.  We exclude the value of equipment capitalized under our
lease program for new subscribers from “Subscriber acquisition
costs.”





SAC.  Subscriber
acquisition cost measures are commonly used by those evaluating companies in the
pay-TV industry.  We are not aware of any uniform standards for
calculating the “average subscriber acquisition costs per new subscriber
activation,” or SAC, and we believe presentations of SAC may not be calculated
consistently by different companies in the same or similar
businesses.  Our SAC is calculated as “Subscriber acquisition costs,”
plus the value of equipment capitalized under our lease program for new
subscribers, divided by gross subscriber additions.  We include all
the costs of acquiring subscribers (e.g., subsidized and capitalized equipment)
as our management believes it is a more comprehensive measure of how much we are
spending to acquire subscribers.  We also include all new DISH Network
subscribers in our calculation, including DISH Network subscribers added with
little or no subscriber acquisition costs.





General and
administrative expenses.  “General and
administrative expenses” consists primarily of employee-related costs associated
with administrative services such as legal, information systems, accounting and
finance, including  non-cash, stock-based compensation
expense.  It also includes outside professional fees (e.g., legal,
information systems and accounting services) and other items associated with
facilities and administration.


27
 Table of Contents
 Item
7. MANAGEMENT’S
NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS - Continued


Following
the Spin-off, the general and administrative expenses associated with the
business and assets distributed to EchoStar in connection with the Spin-off are
no longer reflected in our “General and administrative expenses.”





Interest expense,
net of amounts capitalized.“Interest expense, net
of amounts capitalized” primarily includes interest expense, prepayment premiums
and amortization of debt issuance costs associated with our senior debt (net of
capitalized interest) and interest expense associated with our capital lease
obligations.





Other,
net.The
main components of “Other, net” are gains and losses realized on the sale of
investments, impairment of marketable and non-marketable investment securities
and equity in earnings and losses of our affiliates.





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





DISH Network
subscribers.  We include customers obtained through direct
sales, third-party retailers and other distribution relationships in our DISH
Network subscriber count. We also provide DISH Network service to hotels, motels
and other commercial accounts.  For certain of these commercial
accounts, we divide our total revenue for these commercial accounts by an amount
approximately equal to the retail price of our America’s Top 120 programming
package (but taking into account, periodically, price changes and other
factors), and include the resulting number, which is substantially smaller than
the actual number of commercial units served, in our DISH Network subscriber
count.





Average monthly
revenue per subscriber (“ARPU”).  We are not aware
of any uniform standards for calculating ARPU and believe presentations of ARPU
may not be calculated consistently by other companies in the same or similar
businesses.  We calculate average monthly revenue per subscriber, or
ARPU, by dividing average monthly “Subscriber-related revenue” for the period
(total “Subscriber-related revenue” during the period divided by the number of
months in the period) by our average DISH Network subscribers for the
period.  Average DISH Network subscribers are calculated for the
period by adding the average DISH Network subscribers for each month and
dividing by the number of months in the period.  Average DISH Network
subscribers for each month are calculated by adding the beginning and ending
DISH Network subscribers for the month and dividing by two.





Average monthly
subscriber churn rate.  We are not aware of any uniform
standards for calculating subscriber churn rate and believe presentations of
subscriber churn rates may not be calculated consistently by different companies
in the same or similar businesses.  We calculate subscriber churn rate
for any period by dividing the number of DISH Network subscribers who terminated
service during the period by the average monthly DISH Network subscribers during
the period, and further dividing by the number of months in the
period.  When calculating subscriber churn, as is the case when
calculating ARPU, the number of subscribers in a given month is based on the
average of the beginning-of-month and the end-of-month subscriber
counts.





Free cash
flow.  We define free
cash flow as “Net cash flows from operating activities” less “Purchases of
property and equipment,” as shown on our Consolidated Statements of Cash
Flows.


28
 Table of Contents
 Item
7. MANAGEMENT’S
NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS - Continued


RESULTS
OF OPERATIONS





Year
Ended December 31, 2009 Compared to the Year Ended December 31,
2008.




For
      the Years Ended December 31,
              
              
              VarianceStatements
      of Operations Data
              
              2009
              
              
              2008
              
              
              Amount
              
              
              %(In
      thousands)Revenue:Subscriber-related
      revenue
              
              $
              11,537,703
              
              
              $
              11,455,575
              
              
              $
              82,128
              
              
              
              0.7Equipment
      sales and other revenue
              
              
              97,856
              
              
              
              124,255
              
              
              
              (26,399
              )
              
              
              (21.2
              )Equipment
      sales, transitional services and other revenue - EchoStar
              
              
              27,559
              
              
              
              37,351
              
              
              
              (9,792
              )
              
              
              (26.2
              )Total
      revenue
              
              
              11,663,118
              
              
              
              11,617,181
              
              
              
              45,937
              
              
              
              0.4Costs
      and Expenses:Subscriber-related
      expenses
              
              
              6,359,138
              
              
              
              5,977,355
              
              
              
              381,783
              
              
              
              6.4%
      of Subscriber-related revenue
              
              
              55.1
              %
              
              
              52.2
              %Satellite
      and transmission expenses - EchoStar
              
              
              319,752
              
              
              
              305,322
              
              
              
              14,430
              
              
              
              4.7%
      of Subscriber-related revenue
              
              
              2.8
              %
              
              
              2.7
              %Satellite
      and transmission expenses - other
              
              
              33,477
              
              
              
              32,407
              
              
              
              1,070
              
              
              
              3.3%
      of Subscriber-related revenue
              
              
              0.3
              %
              
              
              0.3
              %Equipment,
      transitional services and other cost of sales
              
              
              121,238
              
              
              
              169,917
              
              
              
              (48,679
              )
              
              
              (28.6
              )Subscriber
      acquisition costs
              
              
              1,539,515
              
              
              
              1,531,741
              
              
              
              7,774
              
              
              
              0.5General
      and administrative expenses
              
              
              600,110
              
              
              
              540,090
              
              
              
              60,020
              
              
              
              11.1%
      of Total revenue
              
              
              5.1
              %
              
              
              4.6
              %Tivo
      litigation expense
              
              
              361,024
              
              
              
              -
              
              
              
              361,024
              
              
              NMDepreciation
      and amortization
              
              
              939,714
              
              
              
              1,000,230
              
              
              
              (60,516
              )
              
              
              (6.1
              )Total
      costs and expenses
              
              
              10,273,968
              
              
              
              9,557,062
              
              
              
              716,906
              
              
              
              7.5Operating
      income (loss)
              
              
              1,389,150
              
              
              
              2,060,119
              
              
              
              (670,969
              )
              
              
              (32.6
              )Other
      Income (Expense):Interest
      income
              
              
              13,985
              
              
              
              52,755
              
              
              
              (38,770
              )
              
              
              (73.5
              )Interest
      expense, net of amounts capitalized
              
              
              (407,413
              )
              
              
              (368,838
              )
              
              
              (38,575
              )
              
              
              (10.5
              )Other,
      net
              
              
              (19,129
              )
              
              
              45,391
              
              
              
              (64,520
              )
              
              NMTotal
      other income (expense)
              
              
              (412,557
              )
              
              
              (270,692
              )
              
              
              (141,865
              )
              
              
              (52.4
              )Income
      (loss) before income taxes
              
              
              976,593
              
              
              
              1,789,427
              
              
              
              (812,834
              )
              
              
              (45.4
              )Income
      tax (provision) benefit, net
              
              
              (372,938
              )
              
              
              (696,946
              )
              
              
              324,008
              
              
              
              46.5Effective
      tax rate
              
              
              38.2
              %
              
              
              38.9
              %Net
      income (loss)
              
              $
              603,655
              
              
              $
              1,092,481
              
              
              $
              (488,826
              )
              
              
              (44.7
              )Other
      Data:DISH
      Network subscribers, as of period end (in millions)
              
              
              14.100
              
              
              
              13.678
              
              
              
              0.422
              
              
              
              3.1DISH
      Network subscriber additions, gross (in millions)
              
              
              3.118
              
              
              
              2.966
              
              
              
              0.152
              
              
              
              5.1DISH
      Network subscriber additions, net (in millions)
              
              
              0.422
              
              
              
              (0.102
              )
              
              
              0.524
              
              
              NMAverage
      monthly subscriber churn rate
              
              
              1.64
              %
              
              
              1.86
              %
              
              
              (0.22
              %)
              
              
              (11.8
              )Average
      monthly revenue per subscriber  (“ARPU”)
              
              $
              70.04
              
              
              $
              69.27
              
              
              $
              0.77
              
              
              
              1.1Average
      subscriber acquisition costs per subscriber (“SAC”)
              
              $
              697
              
              
              $
              720
              
              
              $
              (23
              )
              
              
              (3.2
              )EBITDA
              
              $
              2,309,735
              
              
              $
              3,105,740
              
              
              $
              (796,005
              )
              
              
              (25.6
              )




29
 Table of Contents
 Item
7. MANAGEMENT’S
NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS - Continued




Overview.Revenue totaled $11.663
billion for the year ended December 31, 2009, an increase of $46 million or 0.4%
compared to the same period in 2008.  “Net income (loss)” totaled $604
million, a decrease of $489 million or 44.7%.





DISH
Network added approximately 422,000 net new subscribers during the year ended
December 31, 2009 as a result of higher gross subscriber additions and reduced
churn.  Our increased gross subscriber additions were primarily a
result of our sales and marketing promotions during the last half of
2009.  Churn was positively impacted by, among other things, the
completion of our security access device replacement program, an increase in our
new subscriber commitment period and initiatives to retain
subscribers.  Historically, we have experienced slightly higher churn
in the months following the expiration of commitments for new
subscribers.  In February 2008, we extended the required new
subscriber commitment from 18 to 24 months.  During the last half of
2009, due to the change in promotional mix, we had fewer expiring new subscriber
commitments.  We continue to focus on addressing operational
inefficiencies specific to DISH Network which we believe will contribute to
long-term subscriber growth.  ARPU has been negatively impacted by
promotional discounts on programming offered to new subscribers and our
initiatives to retain subscribers, both of which negatively impacted our
subscriber-related margins.  “Subscriber-related expenses” continued
to be negatively impacted by increased programming costs and initiatives to
retain subscribers, migrate certain subscribers to make more efficient use of
transponder capacity, and improve customer service.





DISH Network
subscribers.  As of December
31, 2009, we had approximately 14.100 million DISH Network subscribers compared
to approximately 13.678 million subscribers at December 31, 2008, an increase of
3.1%.  DISH Network added approximately 3.118 million gross new
subscribers for the year ended December 31, 2009, compared to approximately
2.966 million during the same period in 2008, an increase of 5.1%.





DISH
Network added approximately 422,000 net new subscribers during the year ended
December 31, 2009, compared to a loss of approximately 102,000 net new
subscribers during the same period in 2008.  Our average monthly
subscriber churn rate for the year ended December 31, 2009 was 1.64%, compared
to 1.86% for the same period in 2008.  We believe this increase in net
new subscribers and the decrease in churn primarily resulted from the factors
discussed in the “Overview” above.  Although churn declined during the
year, given the increasingly competitive nature of our industry and the current
economic conditions, we may not be able to maintain or continue to reduce churn
without increasing our spending on customer retention incentives, which would
have a negative effect on our results of operations and free cash
flow.





We have
not always met our own standards for performing high-quality installations,
effectively resolving subscriber issues when they arise, answering subscriber
calls in an acceptable timeframe, effectively communicating with our subscriber
base, reducing calls driven by the complexity of our business, improving the
reliability of certain systems and subscriber equipment, and aligning the
interests of certain third party retailers and installers to provide
high-quality service. Most of these factors have affected both gross new
subscriber additions as well as existing subscriber churn.  Our future
gross subscriber additions and subscriber churn may continue to be negatively
impacted by these factors, which could in turn adversely affect our revenue
growth.





Our
distribution relationship with AT&T was a substantial contributor to our
gross and net subscriber additions in prior years, accounting for approximately
17% of our gross subscriber additions for the year ended December 31,
2008.  This distribution relationship ended January 31,
2009.  Consequently, beginning with the second quarter 2009, AT&T
no longer contributed to our gross subscriber additions.  In addition,
nearly one million of our current subscribers were acquired through our
distribution relationship with AT&T and subscribers acquired through this
channel have historically churned at a higher rate than our overall subscriber
base.  Although AT&T is not permitted to target these subscribers
for transition to another pay-TV service and we and AT&T are required to
maintain bundled billing and cooperative customer service for these subscribers,
these subscribers may continue to churn at higher than historical rates
following termination of the AT&T distribution relationship.





Subscriber-related
revenue.  DISH Network “Subscriber-related revenue” totaled
$11.538 billion for the year ended December 31, 2009, an increase of $82 million
or 0.7% compared to the same period in 2008.  This change was
primarily related to the increase in “ARPU” discussed below, partially offset by
the decline in our subscriber base from second quarter 2008 through first
quarter 2009.


30
 Table of Contents
 Item
7. MANAGEMENT’S
NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS - Continued


ARPU.  “Average monthly
revenue per subscriber” was $70.04 during the year ended December 31, 2009
versus $69.27 during the same period in 2008.  The $0.77 or 1.1%
increase in ARPU was primarily attributable to price increases in February 2009
and 2008 on some of our most popular programming packages and changes in the
sales mix toward HD programming packages and advanced hardware
offerings.  As a result of our current promotions, which provide an
incentive for advanced hardware offerings, we continue to see increased hardware
related fees, which include fees earned from our in-home service operations,
rental fees and fees for DVRs.  These increases were partially offset
by increases in the amount of promotional discounts on programming offered to
our new subscribers and retention initiatives offered to existing subscribers,
and by decreases in premium movie revenue and pay-per-view buys.





Equipment sales
and other revenue.  “Equipment sales
and other revenue” totaled $98 million during the year ended December 31, 2009,
a decrease of $26 million or 21.2% compared to the same period during
2008.  The decrease in “Equipment sales and other revenue” primarily
resulted from a decrease in sales of non-subsidized DBS
accessories.





Subscriber-related
expenses.  “Subscriber-related expenses” totaled $6.359 billion
during the year ended December 31, 2009, an increase of $382 million or 6.4%
compared to the same period 2008.  The increase in “Subscriber-related
expenses” was primarily attributable to higher costs for programming content and
call center operations.  The increase in programming content costs was
primarily related to price increases in certain of our programming contracts and
the renewal of certain contracts at higher rates.  The increases
related to call center operations were driven in part by our investments in
staffing, training, information systems, and other initiatives.  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 better scale
our business over the long run.  We cannot, however, be certain that
our increased spending will ultimately yield these benefits.  In the
meantime, we may continue to incur higher costs as a result of both our
operational inefficiencies and increased
spending.  “Subscriber-related expenses” represented 55.1% and 52.2%
of “Subscriber-related revenue” during the years ended December 31, 2009 and
2008, respectively.





In the
normal course of business, we enter into contracts to purchase programming
content in which our payment obligations are fully contingent on the number of
subscribers to whom we provide the respective content.  Our
programming expenses will continue to increase to the extent we are successful
in growing our subscriber base.  In addition, our “Subscriber-related
expenses” may face further upward pressure from price increases and the renewal
of long-term programming contracts on less favorable pricing terms.





Satellite and
transmission expenses - EchoStar.  “Satellite and transmission
expenses - EchoStar” totaled $320 million during the year ended December 31,
2009, an increase of $14 million or 4.7% compared to 2008.  The
increase in “Satellite and transmission expenses – EchoStar” is primarily
related to higher uplink center costs, partially offset by fewer transponders
leased during the year ended December 31, 2009 compared to the same period in
2008.  The higher uplink center costs were primarily associated with
an increase in the charges from EchoStar related to infrastructure costs for new
ground equipment to support our new satellites and the routine replacement of
existing uplink equipment.  The decline in transponder lease expense
primarily relates to a reduction in the number of transponders leased as a
result of the launch of an owned satellite.  This decrease was
partially offset by the increase in expense related to the Nimiq 5 satellite,
which was placed in service in October 2009.  “Satellite and
transmission expenses - EchoStar” as a percentage of “Subscriber-related
revenue” increased to 2.8% in 2009 from 2.7% in 2008.





During
September 2009, we entered into a ten-year satellite service agreement with
EchoStar for capacity on the Nimiq 5 satellite.  Pursuant to this
agreement, we will receive service from EchoStar on all 32 of the DBS
transponders covered by our transponder contract with Telesat.  We
began receiving service on 16 of these DBS transponders upon service
commencement of the satellite on October 10, 2009 and will receive service on
the remaining 16 DBS transponders over a phase-in period that will be completed
in 2012.  We expect “Satellite and transmission expenses - EchoStar”
to continue to increase in 2010 as a result of our Nimiq 5 agreement and our
other new satellites to be placed in service.





Equipment,
transitional services and other cost of sales.  “Equipment,
transitional services and other cost of sales” totaled $121 million during the
year ended December 31, 2009, a decrease of $49 million or 28.6% compared to the
same period in 2008.  This decrease in “Equipment, transitional
services and other cost of sales” primarily resulted


31
 Table of Contents
 Item
7. MANAGEMENT’S
NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS - Continued


from
lower non-subsidized sales of DBS accessories, a decline in charges for slow
moving and obsolete inventory and a decrease in services provided to EchoStar
under our transitional services agreement with EchoStar.





Subscriber
acquisition costs.  “Subscriber acquisition costs” totaled
$1.540 billion for the year ended December 31, 2009, an increase of $8 million
or 0.5% compared to the same period in 2008.  This increase was
primarily attributable to the increase in gross new subscribers discussed
previously, partially offset by lower SAC discussed below.





SAC.  SAC
was $697 during the year ended December 31, 2009 compared to $720 during the
same period in 2008, a decrease of $23, or 3.2%.  This decrease was
primarily attributable to a change in sales channel mix and a decrease in
hardware costs per activation, partially offset by an increase in advertising
costs.  The decrease in hardware cost per activation was driven by a
reduction in manufacturing costs for new receivers and due to more
cost-effective deployment of set-top boxes, requiring less equipment per
subscriber.  These decreases in hardware costs were partially offset
by an increase in deployment of more advanced set-top boxes, such as HD
receivers and HD DVRs.





During
the years ended December 31, 2009 and 2008, the amount of equipment capitalized
under our lease program for new subscribers totaled $634 million and $604
million, respectively.  This increase in capital expenditures under
our lease program for new subscribers resulted primarily from the increase in
gross new subscribers.





Capital
expenditures resulting from our equipment lease program for new subscribers were
partially mitigated by the redeployment of equipment returned by disconnecting
lease program subscribers.  However, to remain competitive we upgrade
or replace subscriber equipment periodically as technology changes, and the
costs associated with these upgrades may be substantial.  To the
extent technological changes render a portion of our existing equipment
obsolete, we would be unable to redeploy all returned equipment and consequently
would realize less benefit from the SAC reduction associated with redeployment
of that returned lease equipment.





Our SAC
calculation does not reflect any benefit from payments we received in connection
with equipment not returned to us from disconnecting lease subscribers and
returned equipment that is made available for sale or used in our existing
customer lease program rather than being redeployed through our new lease
program.  During the years ended December 31, 2009 and 2008, these
amounts totaled $94 million and $128 million, respectively.





Several
years ago, we began deploying receivers that utilize 8PSK modulation technology
and receivers that utilize MPEG-4 compression technology.  These
technologies, when fully deployed, will allow more programming channels to be
carried over our existing satellites.  A majority of our customers
today, however, do not have receivers that use MPEG-4 compression and a smaller
but still significant percentage do not have receivers that use 8PSK
modulation.  We may choose to invest significant capital to accelerate
the conversion of customers to MPEG-4 and/or 8PSK to realize the bandwidth
benefits sooner.  In addition, given that all of our HD content is
broadcast in MPEG-4, any growth in HD penetration will naturally accelerate our
transition to these newer technologies and may increase our subscriber
acquisition and retention costs.  All new receivers that we purchase
from EchoStar now have MPEG-4 technology.  Although we continue to
refurbish and redeploy MPEG-2 receivers, as a result of our HD initiatives and
current promotions, we currently activate most new customers with higher priced
MPEG-4 technology.  This limits our ability to redeploy MPEG-2
receivers and, to the extent that our promotions are successful, will accelerate
the transition to MPEG-4 technology, resulting in an adverse effect on our
SAC.





Our
“Subscriber acquisition costs” and “SAC” may materially increase in the future
to the extent that we transition to newer technologies, introduce more
aggressive promotions, or provide greater equipment subsidies.





General and
administrative expenses.  “General and administrative expenses”
totaled $600 million during the year ended December 31, 2009, an increase of $60
million or 11.1% compared to the same period in 2008.  This increase
was primarily attributable to additional costs to support the DISH Network
television service including personnel costs and professional
fees.  “General and administrative expenses” represented 5.1% and 4.6%
of “Total revenue” during the years ended December 31, 2009 and 2008,
respectively.  The increase in the ratio of the expenses to “Total
revenue” was primarily attributable to the increase in expenses discussed
above.





Tivo litigation
expense.  We recorded $361 million of “Tivo litigation expense”
during the year ended December 31, 2009 for supplemental damages, contempt
sanctions and interest.  See Note 11 in the Notes to the Consolidated
Financial Statements in Item 15 of this Annual Report on Form 10-K for further
discussion.


32
 Table of Contents
 Item
7. MANAGEMENT’S
NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS - Continued


Depreciation and
amortization.  “Depreciation and amortization” expense totaled
$940 million during the year ended December 31, 2009, a $61 million or 6.1%
decrease compared to the same period in 2008.  The decrease in
“Depreciation and amortization” expense was primarily due to the declines in
depreciation expense related to set-top boxes used in our lease programs and the
abandonment of a software development project during 2008 that was designed to
support our IT systems.  The decrease related to set-top-boxes was
primarily attributable to capitalization of a higher mix of new advanced
equipment in 2009 compared to the same period in 2008, which has a longer
estimated useful life.  In addition, the satellite depreciation
expense declined due to the retirements of certain satellites from commercial
service, almost entirely offset by depreciation expense associated with
satellites placed in service in 2008.





Interest
income.“Interest
income” totaled $14 million during the year ended December 31, 2009, a decrease
of $39 million or 73.5% compared to the same period in 2008.  This
decrease principally resulted from lower percentage returns earned on our cash
and marketable investment securities, partially offset by higher average cash
and marketable investment securities balances during the year ended December 31,
2009.





Interest expense,
net of amounts capitalized. “Interest expense, net
of amounts capitalized” totaled $407 million during the year ended December 31,
2009, an increase of $39 million or 10.5% compared to the same period in
2008.  This change primarily resulted from an increase in interest
expense related to the issuance of debt during 2009 and 2008 and the Ciel II
capital lease, partially offset by a decrease in interest expense associated
with 2008 debt redemptions.





Other,
net.“Other, net” expense
totaled $19 million during the year ended December 31, 2009, a change of $65
million compared to the same period in 2008.  The year ended December
31, 2008 was positively impacted by the $53 million gain on the sale of a
non-marketable investment.  In addition, this change resulted from an
increase of $8 million in impairments on our marketable and other investment
securities during 2009 compared to the same period in 2008.





Earnings before
interest, taxes, depreciation and amortization.EBITDA was $2.310
billion during the year ended December 31, 2009, a decrease of $796 million or
25.6% compared to the same period in 2008.  EBITDA for the year ended
December 31, 2009 was negatively impacted by the $361 million “Tivo litigation
expense.”  The following table reconciles EBITDA to the accompanying
financial statements.




For
      the Years EndedDecember
      31,2009
              
              
              2008(In
      thousands)EBITDA
              
              $
              2,309,735
              
              
              $
              3,105,740Less:Interest
      expense, net
              
              
              393,428
              
              
              
              316,083Income
      tax provision (benefit), net
              
              
              372,938
              
              
              
              696,946Depreciation
      and amortization
              
              
              939,714
              
              
              
              1,000,230Net
      income (loss)
              
              $
              603,655
              
              
              $
              1,092,481




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.  EBITDA is used as a measurement of operating
efficiency and overall financial performance and we believe it to be a helpful
measure for those evaluating companies in the pay-TV
industry.  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.





Income tax
(provision) benefit, net.Our income tax
provision was $373 million during the year ended December 31, 2009, a decrease
of $324 million compared to the same period in 2008.  The decrease in
the provision was primarily related to the decrease in “Income (loss) before
income taxes.”


Net income
(loss).  “Net income (loss)” was $604 million during the year
ended December 31, 2009, a decrease of $489 million compared to $1.092 billion
for the same period in 2008.  The decrease was primarily attributable
to the changes in revenue and expenses discussed above.


33
 Table of Contents
 Item
7. MANAGEMENT’S
NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS - Continued




Year
Ended December 31, 2008 Compared to the Year Ended December 31,
2007.





For
      the Years Ended December 31,
              
              
              VarianceStatements
      of Operations Data
              
              2008
              
              
              2007
              
              
              Amount
              
              
              %(In
      thousands)Revenue:Subscriber-related
      revenue
              
              $
              11,455,575
              
              
              $
              10,673,821
              
              
              $
              781,754
              
              
              
              7.3Equipment
      sales and other revenue
              
              
              124,255
              
              
              
              386,662
              
              
              
              (262,407
              )
              
              
              (67.9
              )Equipment
      sales, transitional services and other revenue - EchoStar
              
              
              37,351
              
              
              
              -
              
              
              
              37,351
              
              
              NMTotal
      revenue
              
              
              11,617,181
              
              
              
              11,060,483
              
              
              
              556,698
              
              
              
              5.0Costs
      and Expenses:Subscriber-related
      expenses
              
              
              5,977,355
              
              
              
              5,488,396
              
              
              
              488,959
              
              
              
              8.9%
      of Subscriber-related revenue
              
              
              52.2
              %
              
              
              51.4
              %Satellite
      and transmission expenses - EchoStar
              
              
              305,322
              
              
              
              -
              
              
              
              305,322
              
              
              NM%
      of Subscriber-related revenue
              
              
              2.7
              %
              
              
              0.0
              %Satellite
      and transmission expenses - other
              
              
              32,407
              
              
              
              180,446
              
              
              
              (148,039
              )
              
              
              (82.0
              )%
      of Subscriber-related revenue
              
              
              0.3
              %
              
              
              1.7
              %Equipment,
      transitional services and other cost of sales
              
              
              169,917
              
              
              
              269,817
              
              
              
              (99,900
              )
              
              
              (37.0
              )Subscriber
      acquisition costs
              
              
              1,531,741
              
              
              
              1,575,424
              
              
              
              (43,683
              )
              
              
              (2.8
              )General
      and administrative expenses
              
              
              540,090
              
              
              
              577,743
              
              
              
              (37,653
              )
              
              
              (6.5
              )%
      of Total revenue
              
              
              4.6
              %
              
              
              5.2
              %Litigation
      expense
              
              
              -
              
              
              
              33,907
              
              
              
              (33,907
              )
              
              
              (100.0
              )Depreciation
      and amortization
              
              
              1,000,230
              
              
              
              1,320,625
              
              
              
              (320,395
              )
              
              
              (24.3
              )Total
      costs and expenses
              
              
              9,557,062
              
              
              
              9,446,358
              
              
              
              110,704
              
              
              
              1.2Operating
      income (loss)
              
              
              2,060,119
              
              
              
              1,614,125
              
              
              
              445,994
              
              
              
              27.6Other
      Income (Expense):Interest
      income
              
              
              52,755
              
              
              
              103,619
              
              
              
              (50,864
              )
              
              
              (49.1
              )Interest
      expense, net of amounts capitalized
              
              
              (368,838
              )
              
              
              (372,612
              )
              
              
              3,774
              
              
              
              1.0Other,
      net
              
              
              45,391
              
              
              
              (562
              )
              
              
              45,953
              
              
              NMTotal
      other income (expense)
              
              
              (270,692
              )
              
              
              (269,555
              )
              
              
              (1,137
              )
              
              
              (0.4
              )Income
      (loss) before income taxes
              
              
              1,789,427
              
              
              
              1,344,570
              
              
              
              444,857
              
              
              
              33.1Income
      tax (provision) benefit, net
              
              
              (696,946
              )
              
              
              (534,176
              )
              
              
              (162,770
              )
              
              
              (30.5
              )Effective
      tax rate
              
              
              38.9
              %
              
              
              39.7
              %Net
      income (loss)
              
              $
              1,092,481
              
              
              $
              810,394
              
              
              $
              282,087
              
              
              
              34.8Other
      Data:DISH
      Network subscribers, as of period end (in millions)
              
              
              13.678
              
              
              
              13.780
              
              
              
              (0.102
              )
              
              
              (0.7
              )DISH
      Network subscriber additions, gross (in millions)
              
              
              2.966
              
              
              
              3.434
              
              
              
              (0.468
              )
              
              
              (13.6
              )DISH
      Network subscriber additions, net (in millions)
              
              
              (0.102
              )
              
              
              0.675
              
              
              
              (0.777
              )
              
              
              (115.1
              )Average
      monthly subscriber churn rate
              
              
              1.86
              %
              
              
              1.70
              %
              
              
              0.16
              %
              
              
              9.4Average
      monthly revenue per subscriber  (“ARPU”)
              
              $
              69.27
              
              
              $
              65.83
              
              
              $
              3.44
              
              
              
              5.2Average
      subscriber acquisition costs per subscriber (“SAC”)
              
              $
              720
              
              
              $
              656
              
              
              $
              64
              
              
              
              9.8EBITDA
              
              $
              3,105,740
              
              
              $
              2,934,188
              
              
              $
              171,552
              
              
              
              5.8


34
 Table of Contents
 Item
7. MANAGEMENT’S
NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS - Continued


DISH Network
subscribers.  As of December 31, 2008, we had approximately
13.678 million DISH Network subscribers compared to approximately 13.780 million
subscribers at December 31, 2007, a decrease of 102,000 or 0.7%.  DISH
Network added approximately 2.966 million gross new subscribers for the year
ended December 31, 2008, compared to approximately 3.434 million gross new
subscribers during 2007, a decrease of approximately 468,000 gross new
subscribers.





DISH
Network lost approximately 102,000 net subscribers for the year ended December
31, 2008, compared to adding approximately 675,000 net new subscribers during
the same period in 2007.  This decrease primarily resulted from lower
gross new subscribers discussed above, an increase in our subscriber churn rate,
and churn on a larger average subscriber base for the year.  Our
average monthly subscriber churn for the year ended December 31, 2008 was 1.86%,
compared to 1.70% for the same period in 2007.




We
believe our gross and net subscriber additions as well as our subscriber churn
were negatively impacted by weak economic conditions, aggressive promotional and
retention offerings by our competition, our relative discipline in our own
promotional and retention activities including the amount of discounted
programming or equipment we have offered, the heavy marketing of HD service by
our competition, the growth of fiber-based and Internet-based pay TV
providers , signal
theft and other forms of fraud, andoperational
inefficiencies at DISH Network.Most
of these factors have affected both gross new subscriber additions as well as
existing subscriber churn.





Subscriber-related
revenue.  DISH Network “Subscriber-related revenue” totaled
$11.456 billion for the year ended December 31, 2008, an increase of $782
million or 7.3% compared to 2007.  This increase was primarily related
to the increase in “ARPU” discussed below and a higher average subscriber base
in 2008 compared to 2007.





ARPU.  Average
monthly revenue per subscriber was $69.27 during the year ended December 31,
2008 versus $65.83 during the same period in 2007.  The $3.44 or 5.2%
increase in ARPU was primarily attributable to (i) price increases in February
2008 and 2007 on some of our most popular programming packages, (ii) an increase
in hardware related fees, including rental fees and fees for DVRs, (iii)
increased penetration of HD programming driven in part by the availability of HD
local channels, (iv) an increase in fees earned from our in home service
operations, and (v) increased advertising revenue.  This increase was
partially offset by a decrease in revenue from our original agreement with
AT&T.





Equipment sales
and other revenue.  “Equipment sales and other revenue” totaled
$124 million during the year ended December 31, 2008, a decrease of $262 million
or 67.9% compared to the same period during 2007.  The decrease in
“Equipment sales and other revenue” primarily resulted from the distribution of
our set-top box business and certain other revenue-generating assets to EchoStar
in connection with the Spin-off, partially offset by increases in other
revenue.  During the year ended December 31, 2007, our set-top box
business that was distributed to EchoStar accounted for $282 million of our
“Equipment sales and other revenue.”





Equipment sales,
transitional services and other revenue – EchoStar.  “Equipment
sales, transitional services and other revenue – EchoStar” totaled $37 million
during the year ended December 31, 2008 as a result of the
Spin-off.





Subscriber-related
expenses.  “Subscriber-related expenses” totaled $5.977 billion
during the year ended December 31, 2008, an increase of $489 million or 8.9%
compared to the same period in 2007.  The increase in
“Subscriber-related expenses” was primarily attributable to higher costs
for:  (i) programming content; (ii) customer retention; (iii) call
center operations; (iv) in-home service operations; (v) the refurbishment and
repair of receiver systems used in our equipment lease programs, partially
offset by a decrease in costs associated with our original agreement with
AT&T.  The increase in customer retention expense was primarily
driven by more upgrading of existing customers to HD and DVR receivers and the
changing of equipment for certain subscribers to make more efficient use of
satellite bandwidth in support of HD and other initiatives.  We
believe that the benefit from the increase in available satellite bandwidth
outweighs the short-term cost of these equipment changes.  The
increases related to call center and in-home service operations were driven in
part by our investments in staffing, training, information systems, and other
initiatives.  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 better scale our business over the long run.  We
cannot, however, be certain that our increased spending will ultimately yield
these benefits.  In the meantime, we may continue to incur higher
costs as a result of both our operational inefficiencies and increased
spending.  “Subscriber-related expenses” represented 52.2% and 51.4%
of “Subscriber-related revenue” during the years ended December 31, 2008 and
2007, respectively.  The increase in this expense to revenue ratio
primarily resulted from the increase in “Subscriber-related expenses,” partially
offset by an increase in ARPU.





Satellite and
transmission expenses – EchoStar.  “Satellite and
transmission expenses – EchoStar” totaled $305 million during the year ended
December 31, 2008.  As previously discussed, “Satellite and
transmission expenses – EchoStar” resulted from costs associated with the
services provided to us by EchoStar, including the satellite
and


35
 Table of Contents
 Item
7. MANAGEMENT’S
NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS - Continued


transponder
capacity leases on satellites that were distributed to EchoStar in connection
with the Spin-off, and digital broadcast operations previously provided
internally at cost.





Satellite and
transmission expenses – other.  “Satellite and transmission
expenses – other” totaled $32 million during the year ended December 31, 2008, a
$148 million decrease compared to the same period in 2007.  As
previously discussed, prior to the Spin-off, “Satellite and transmission
expenses – other” included costs associated with the operation of our digital
broadcast centers, including satellite uplinking/downlinking, signal processing,
conditional access management, telemetry, tracking and control, satellite and
transponder leases, and other related services.  Following the
Spin-off, these digital broadcast operation services have been provided to us by
EchoStar and are included in “Satellite and transmission expenses –
EchoStar.”





Equipment,
transitional services and other cost of sales.  “Equipment,
transitional services and other cost of sales” totaled $170 million during the
year ended December 31, 2008, a decrease of $100 million or 37.0% compared to
the same period in 2007.  The decrease primarily resulted from the
elimination of the cost of sales related to the distribution of our set-top box
business to EchoStar in connection with the Spin-off, partially offset by costs
related to our transitional services and other agreements with EchoStar, charges
for obsolete inventory, and an increase in other cost of
sales.  During the year ended December 31, 2007, the costs associated
with our set-top box business that was distributed to EchoStar accounted for
$163 million of our “Equipment, transitional services and other cost of
sales.”





Subscriber
acquisition costs.  “Subscriber acquisition costs” totaled
$1.532 billion for the year ended December 31, 2008, a decrease of $44 million
or 2.8% compared to the same period in 2007.  This decrease was
primarily attributable to the decline in gross new subscribers, partially offset
by an increase in SAC discussed below.





SAC.  SAC
was $720 during the year ended December 31, 2008 compared to $656 during the
same period in 2007, an increase of $64, or 9.8%.  This increase was
primarily attributable to an increase in equipment costs, as well as higher
acquisition advertising expense and an increase in promotional incentives paid
to our independent retailer network.  Our equipment costs were higher
during 2008 as a result of an increase in the number of new DISH Network
subscribers selecting more advanced equipment, such as HD receivers, DVRs and
receivers with multiple tuners and as a result of the Spin-off of our set-top
box business to EchoStar.  Set-top boxes were historically designed
in-house and procured at our cost.  We now acquire this equipment from
EchoStar at its costplus an
agreed-upon margin.  These increases were partially offset by the
increase in the redeployment benefits of our equipment lease program for new
subscribers.





During
the years ended December 31, 2008 and 2007, the amount of equipment capitalized
under our lease program for new subscribers totaled $604 million and $682
million, respectively.  This decrease in capital expenditures under
our lease program for new subscribers resulted primarily from lower subscriber
growth and an increase in redeployment of equipment returned by disconnecting
lease program subscribers, partially offset by higher equipment costs resulting
from higher priced advanced products and the mark-up on set-top boxes as a
result of the Spin-off, discussed above.





Our SAC
calculation does not reflect any benefit from payments we received in connection
with equipment not returned to us from disconnecting lease subscribers and
returned equipment that is made available for sale or used in our existing
customer lease program rather than being redeployed through our new lease
program.  During the years ended December 31, 2008 and 2007, these
amounts totaled $128 million and $87 million, respectively.





General and
administrative expenses.  “General and administrative expenses”
totaled $540 million during the year ended December 31, 2008, a decrease of $38
million or 6.5% compared to the same period in 2007.  This decrease
was primarily attributable to the reduction in headcount and administrative
costs resulting from the Spin-off and a reduction in outside professional fees,
partially offset by an increase in costs related to transitional services and
commercial agreements with EchoStar as a result of the
Spin-off.  “General and administrative expenses” represented 4.6% and
5.2% of “Total revenue” during the years ended December 31, 2008 and 2007,
respectively.  The decrease in the ratio of the expenses to “Total
revenue” was primarily attributable to the changes in expenses discussed
above.





Tivo litigation
expense.The 2007 “Litigation expense” of $34 million related
to the Tivo litigation and represents the estimated cost of any software
infringement prior to the implementation of the alternative technology, plus
interest subsequent to the jury verdict.


36
 Table of Contents
 Item
7. MANAGEMENT’S
NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS - Continued


Depreciation and
amortization.  “Depreciation and amortization” expense totaled
$1.000 billion during the year ended December 31, 2008, a decrease of $320
million or 24.3% compared to the same period in 2007.  This decrease
was primarily a result of our contribution of several satellites, uplink and
satellite transmission assets, real estate and other assets to EchoStar in
connection with the Spin-off.  In addition, the 2007 expense included
the write-off of costs associated with discontinued software development
projects.





Interest
income.“Interest
income” totaled $53 million during the year ended December 31, 2008, a decrease
of $51 million compared to the same period in 2007.  This decrease
principally resulted from lower average carrying balances, as well as rate of
return, of our cash and marketable investment securities during 2008 compared to
the same period in 2007.





Other,
net.“Other, net” income
totaled $45 million during the year ended December 31, 2008, an increase of $46
million compared to the same period in 2007.  This increase primarily
resulted from a gain of $53 million on the sale of a non-marketable
investment.





Earnings before
interest, taxes, depreciation and amortization.EBITDA was $3.106
billion during the year ended December 31, 2008, an increase of $172 million or
5.8% compared to the same period in 2007.  The following table
reconciles EBITDA to the accompanying financial statements.




For
      the Years EndedDecember
      31,2008
              
              
              2007(In
      thousands)EBITDA
              
              $
              3,105,740
              
              
              $
              2,934,188Less:Interest
      expense, net
              
              
              316,083
              
              
              
              268,993Income
      tax provision (benefit), net
              
              
              696,946
              
              
              
              534,176Depreciation
      and amortization
              
              
              1,000,230
              
              
              
              1,320,625Net
      income (loss)
              
              $
              1,092,481
              
              
              $
              810,394




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.  EBITDA is used as a measurement of operating
efficiency and overall financial performance and we believe it to be a helpful
measure for those evaluating companies in the pay-TV
industry.  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.





Income tax
(provision) benefit, net.  Our income tax provision was $697
million during the year ended December 31, 2008, an increase of $163 million
compared to the same period in 2007.  The increase was primarily due
to the increase in “Income (loss) before income taxes.”





Net income
(loss).Net
income was $1.092 billion during the year ended December 31, 2008, an increase
of $282 million compared to the same period in 2007.  The increase was
primarily attributable to the changes in revenue and expenses discussed
above.





Item 7A. 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
December 31, 2009, our cash, cash equivalents and current marketable investment
securities had a fair value of $1.807 billion, all of which was invested in (a)
cash; (b) variable rate demand notes (“VRDNs”) convertible into cash at par
value plus accrued interest in five business days or less; (c) debt instruments
of the United States




37
 Table of Contents
 Item 7A. QUANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT MARKET RISK - Continued


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 (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 December 31,
2009 current non-strategic investment portfolio of $1.807 billion, a
hypothetical 10% increase in average interest rates would result in a decrease
of approximately $29 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 year ended December 31, 2009 of 0.8%.  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 2009 would result in a decrease of approximately $1 million in
annual interest income.




Restricted Cash and Marketable
Investment Securities




As of
December 31, 2009, we had $128 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 (d) instruments with
similar risk, duration and credit quality characteristics to the commercial
paper described above. Based on our December 31, 2009 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.





Fixed Rate Debt,
Mortgages and Other Notes Payable




As of
December 31, 2009, we had fixed-rate debt, mortgages and other notes payable of
$6.192 billion on our Consolidated Balance Sheets. We estimated the fair value
of this debt to be approximately $6.407 billion using quoted market prices for
our publicly traded debt, which constitutes approximately 99% of our debt. The
fair value of our debt is affected by fluctuations in interest rates. A
hypothetical 10% decrease in assumed interest rates would increase the fair
value of our debt by approximately $192 million. To the extent interest rates
increase, our costs of financing would increase at such time as we are required
to refinance our debt. As of December 31, 2009, a hypothetical 10% increase in
assumed interest rates would increase our annual interest expense by
approximately $44 million.




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 8. FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA





Our
Consolidated Financial Statements are included in this report beginning on page
F-1.





Item 9.
            CHANGES
      IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURE





None.


38
 Table of Contents
 Item 9A. CONTROLS AND
PROCEDURES







Under thesupervision 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.





Management’s
Annual Report on Internal Control Over Financial Reporting





Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting. Our internal control over financial reporting
is designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with U.S. generally accepted accounting
principles.





Our
internal control over financial reporting includes those policies and procedures
that:





(i)
            pertain
      to the maintenance of records that, in reasonable detail, accurately and
      fairly reflect our transactions and dispositions of our
      assets;


(ii)
            provide
      reasonable assurance that our transactions are recorded as necessary to
      permit preparation of our financial statements in accordance with
      generally accepted accounting principles, and that our receipts and
      expenditures are being made only in accordance with authorizations of our
      management and our directors; and


(iii)
            provide
      reasonable assurance regarding prevention or timely detection of
      unauthorized acquisition, use, or disposition of our assets that could
      have a material effect on our financial
  statements.





Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements.  Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with policies or procedures may deteriorate.





Our
management conducted an evaluation of the effectiveness of our internal control
over financial reporting based on the framework in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission.  Based on this evaluation, our management concluded that
our internal control over financial reporting was effective as of December 31,
2009.





This
annual report does not include an attestation report of the company’s registered
public accounting firm regarding internal control over financial
reporting.  Management’s report was not subject to attestation by the
company’s registered public accounting firm pursuant to temporary rules of the
Securities and Exchange Commission that permit the company to provide only
management’s report in this annual report.





Item 9B. OTHER
INFORMATION





None.


39
 Table of Contents
 Item 14.PRINCIPAL ACCOUNTING
FEES AND SERVICES




Appointment of Independent Registered Public Accounting
Firm





Appointment
of Independent Registered Public Accounting Firm for 2010.KPMG
served as our independent registered public accounting firm for the fiscal year
ended December 31, 2009.





Our Board
of Directors, in its discretion, may direct the appointment of a different
independent registered public accounting firm at any time during the year if the
Board of Directors believes that a change would be in our best
interests.





Fees
Paid to KPMG LLP for 2009 and 2008





The
following table presents fees for the aggregate professional audit services
rendered by KPMG LLP for the audit of DISH’s and our annual financial statements
for the years ended December 31, 2009 and 2008, and fees billed for other
services rendered by KPMG LLP to DISH and us during those periods.  We
have reported the fees billed for services rendered to both DISH and us because
we represent the substantial majority of DISH’s assets and operations and
because the services are not rendered or billed specifically for us but for the
DISH consolidated group as a whole.  However, the following table does
not include fees for professional services rendered by KPMG LLP that were
charged in respect of EchoStar for 2009 and 2008.




For
      the Years EndedDecember
      31,2009
              
              
              2008Audit
      Fees (1)
              
              $
              1,859,896
              
              
              $
              1,797,264Audit-Related
      Fees (2)
              
              
              18,500
              
              
              
              15,400Total
      Audit and Audit-Related Fees
              
              
              1,878,396
              
              
              
              1,812,664Tax
      Fees (3)
              
              
              370,701
              
              
              
              109,297All
      Other Fees
              
              
              -
              
              
              
              -Total
      Fees
              
              $
              2,249,097
              
              
              $
              1,921,961




(1)Consists
      of fees paid by us for the audit of our consolidated financial statements
      included in our Annual Report on Form 10-K, review of our unaudited
      financial statements included in our Quarterly Reports on Form 10-Q, fees
      in connection with the audit of DISH’s internal control over financial
      reporting and fees for other services that are normally provided by the
      accountant in connection with registration statement filings, issuance of
      consents and professional consultations with respect to accounting
      issues.




(2)  Consists
      of fees for audit of financial statements of certain employee benefit
      plans.




(3)  Consists
      of fees for tax consultation and tax compliance
  services.







Policy
on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of
Independent Registered Public Accounting Firm





Our Board
of Directors has delegated to DISH’s Audit Committee the responsibility for
appointing, setting compensation, retaining, and overseeing the work of our
independent registered public accounting firm.  The Audit Committee of
DISH has established a process regarding pre-approval of all audit and
permissible non-audit services provided by the independent registered public
accounting firm.





Requests
are submitted to the Audit Committee of DISH in one of the following
ways:





·
            Request
      for approval of services at a meeting of the Audit Committee;
      or





·
            Request
      for approval of services by members of the Audit Committee acting by
      written consent.





The
request may be made with respect to either specific services or a type of
service for predictable or recurring services.  100% of the fees paid
to KPMG LLP for services rendered in 2009 and 2008 were pre-approved by the
Audit Committee of DISH.


40
 Table of Contents


PART IV








Item 15.
            EXHIBITS,
      FINANCIAL STATEMENT SCHEDULES





(a)
            The
      following documents are filed as part of this
  report:





(1)
            Financial
      Statements
            Page




Report of KPMG LLP,
      Independent Registered Public Accounting Firm
              F-2Consolidated Balance
      Sheets at December 31, 2009 and 2008
              F-3Consolidated
      Statements of Operations and Comprehensive Income (Loss) for the years
      endedDecember
      31, 2009, 2008 and 2007
              F-4Consolidated
      Statements of Changes in Stockholder’s Equity (Deficit) for the years
      endedDecember
      31, 2007, 2008 and 2009
              F-5Consolidated
      Statements of Cash Flows for the years ended December 31, 2009, 2008 and
      2007
              F-6Notes to
      Consolidated Financial Statements
              F-7


(2)
            Financial Statement
      Schedules





None.  All
schedules have been included in the Consolidated Financial Statements or Notes
thereto.





(3)
            Exhibits





Exhibit
      No.
            Description3.1(a)*
            Articles
      of Incorporation of DDBS (incorporated by reference to Exhibit 3.4(a) to
      the Company’s Registration Statement on Form S-4, Registration No.
      333-31929).3.1(b)*
            Certificate
      of Amendment of the Articles of Incorporation of DDBS, dated as of August
      25, 2003 (incorporated by reference to Exhibit 3.1(b) to the Annual Report
      on Form 10-K of DDBS for the year ended December 31, 2003, Commission File
      No.333-31929).3.1(c)*
            Amendment
      of the Articles of Incorporation of DDBS, effective December 12, 2008
      (incorporated by reference to Exhibit 3.1 to the Current Report on Form
      8-K of DDBS filed December 12, 2008, Registration No.
      333-31929).3.1(d)*
            Bylaws
      of DDBS (incorporated by reference to Exhibit 3.4(b) to the Company’s
      Registration Statement on Form S-4, Registration No.
      333-31929).4.1*
            Indenture,
      relating to DDBS 6 3/8% Senior Notes due 2011, dated as of October 2,
      2003, between DDBS and U.S. Bank Trust National Association, as Trustee
      (incorporated by reference to Exhibit 4.2 to the Quarterly Report on Form
      10-Q of DISH for the
      quarter ended September 30, 2003, Commission File No.
      0-26176).4.2*
            First
      Supplemental Indenture, relating to the 6 3/8% Senior Notes Due 2011,
      dated as of December 31, 2003 between DDBS and U.S. Bank Trust National
      Association, as Trustee (incorporated by reference to Exhibit 4.14 to the
      Annual Report on Form 10-K of DISH for the
      year ended December 31, 2003, Commission File No.
  0-26176).4.3*
            Indenture,
      relating to the 6 5/8% Senior Notes Due 2014, dated October 1, 2004
      between DDBS and U.S. Bank Trust National Association, as Trustee
      (incorporated by reference to Exhibit 4.1 to the Current Report on Form
      8-K of DISH filed
      October 1, 2004, Commission File No.
0-26176).


41
 Table of Contents





4.4*
            Indenture,
      relating to the 7 1/8% Senior Notes Due 2016, dated as of February 2, 2006
      between DDBS and U.S. Bank Trust National Association, as Trustee
      (incorporated by reference to Exhibit 4.1 to the Current Report on Form
      8-K of DISH filed
      February 3, 2006, Commission File No. 0-26176).4.5*
            Indenture,
      relating to the 7% Senior Notes Due 2013, dated as of October 18, 2006
      between DDBS and U.S. Bank Trust National Association, as Trustee
      (incorporated by reference to Exhibit 4.1 to the Current Report on Form
      8-K of DISH filed
      October 18, 2006, Commission File No. 0-26176).4.6*
            Indenture,
      relating to the 7 3/4% Senior Notes Due 2015, dated as of May 27, 2008
      between DDBS and U.S. Bank Trust National Association, as Trustee
      (incorporated by reference to Exhibit 4.1 to the Current Report on Form
      8-K of DISH filed May 28, 2008, Commission File
    No.0-26176).4.7*
            Indenture,
      relating to the 7 3/4% Senior Notes Due 2015, dated as of May 27,
      2008 between DDBS and U.S. Bank Trust National Association, as Trustee
      (incorporated by reference to Exhibit 4.1 to the Current Report on
      Form 8-K of DISH Network filed May 28, 2008, Commission File No.
      0-26176).4.8*
            Indenture,
      relating to the 7 7/8% Senior Notes Due 2019, dated as of August 17,
      2009 between DDBS and U.S. Bank Trust National Association, as Trustee
      (incorporated by reference to Exhibit 4.1 to the Current Report on
      Form 8-K of DISH Network filed August 18, 2009, Commission File
      No. 0-26176).10.1*
            2002
      Class B CEO Stock Option Plan (incorporated by reference to Appendix A to
      DISH’s Definitive Proxy Statement on Schedule 14A dated April 9,
      2002).**10.2*
            Satellite
      Service Agreement, dated as of March 21, 2003, between SES Americom, Inc.,
      EchoStar Satellite Corporation and DISH (incorporated by reference to
      Exhibit 10.1 to the Quarterly Report on Form 10-Q of DISH for the quarter
      ended March 31, 2003, Commission File No.0-26176).***10.3*
            Amendment
      No. 1 to Satellite Service Agreement dated March 31, 2003 between SES
      Americom Inc. and DISH (incorporated by reference to Exhibit 10.1 to the
      Quarterly Report on Form 10-Q of DISH for the quarter ended September 30,
      2003, Commission File No.0-26176).***10.4*
            Satellite
      Service Agreement dated as of August 13, 2003 between SES Americom Inc.
      and DISH (incorporated by reference to Exhibit 10.2 to the Quarterly
      Report on Form 10-Q of DISH for the quarter ended September 30, 2003,
      Commission File No.0-26176).***10.5*
            Satellite
      Service Agreement, dated February 19, 2004, between SES Americom, Inc. and
      DISH (incorporated by reference to Exhibit 10.1 to the Quarterly Report on
      Form 10-Q of DISH for the quarter ended March 31, 2004, Commission File
      No.0-26176). ***10.6*
            Amendment
      No. 1 to Satellite Service Agreement, dated March 10, 2004, between SES
      Americom, Inc. and DISH (incorporated by reference to Exhibit 10.2 to the
      Quarterly Report on Form 10-Q of DISH for the quarter ended March 31,
      2004, Commission File No.0-26176). ***10.7*
            Amendment
      No. 3 to Satellite Service Agreement, dated February 19, 2004, between SES
      Americom, Inc. and DISH (incorporated by reference to Exhibit 10.3 to the
      Quarterly Report on Form 10-Q of DISH for the quarter ended March 31,
      2004, Commission File No.0-26176). ***10.8*
            Whole
      RF Channel Service Agreement, dated February 4, 2004, between Telesat
      Canada and DISH (incorporated by reference to Exhibit 10.4 to the
      Quarterly Report on Form 10-Q of DISH for the quarter ended March 31,
      2004, Commission File No.0-26176).
***


42
 Table of Contents





10.9*
            Letter
      Amendment to Whole RF Channel Service Agreement, dated March 25, 2004,
      between Telesat Canada and DISH (incorporated by reference to Exhibit 10.5
      to the Quarterly Report on Form 10-Q of DISH for the quarter ended March
      31, 2004, Commission File No.0-26176). ***10.10*
            Amendment
      No. 2 to Satellite Service Agreement, dated April 30, 2004, between SES
      Americom, Inc. and DISH (incorporated by reference to Exhibit 10.1 to the
      Quarterly Report on Form 10-Q of DISH for the quarter ended June 30, 2004,
      Commission File No.0-26176). ***10.11*
            Second
      Amendment to Whole RF Channel Service Agreement, dated May 5, 2004,
      between Telesat Canada and DISH (incorporated by reference to Exhibit 10.2
      to the Quarterly Report on Form 10-Q of DISH for the quarter ended June
      30, 2004, Commission File No.0-26176). ***10.12*
            Third
      Amendment to Whole RF Channel Service Agreement, dated October 12, 2004,
      between Telesat Canada and DISH (incorporated by reference to Exhibit
      10.22 to the Annual Report on Form 10-K of DISH for the year ended
      December 31, 2004, Commission File No.0-26176).***10.13*
            Amendment
      No. 4 to Satellite Service Agreement, dated October 21, 2004, between SES
      Americom, Inc. and DISH (incorporated by reference to Exhibit 10.23 to the
      Annual Report on Form 10-K of DISH for the year ended December 31, 2004,
      Commission File No.0-26176).***10.14*
            Amendment
      No. 3 to Satellite Service Agreement, dated November 19, 2004 between SES
      Americom, Inc. and DISH (incorporated by reference to Exhibit 10.24 to the
      Annual Report on Form 10-K of DISH for the year ended December 31, 2004,
      Commission File No.0-26176).***10.15*
            Amendment
      No. 5 to Satellite Service Agreement, dated November 19, 2004, between SES
      Americom, Inc. and DISH (incorporated by reference to Exhibit 10.25 to the
      Annual Report on Form 10-K of DISH for the year ended December 31, 2004,
      Commission File No.0-26176). ***10.16*
            Amendment
      No. 6 to Satellite Service Agreement, dated December 20, 2004, between SES
      Americom, Inc. and DISH (incorporated by reference to Exhibit 10.26 to the
      Annual Report on Form 10-K of DISH for the year ended December 31, 2004,
      Commission File No.0-26176). ***10.17*
            Description
      of the 2005 Long-Term Incentive Plan dated January 26, 2005 (incorporated
      by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q of DISH
      for the quarter ended March 31, 2005, Commission File
      No.0-26176).**10.18*
            Amendment
      No. 4 to Satellite Service Agreement, dated April 6, 2005, between SES
      Americom, Inc. and DISH (incorporated by reference to Exhibit 10.1 to the
      Quarterly Report on Form 10-Q of DISH for the quarter ended June 30, 2005,
      Commission File No.0-26176).***10.19*
            Amendment
      No. 5 to Satellite Service Agreement, dated June 20, 2005, between SES
      Americom, Inc. and DISH (incorporated by reference to Exhibit 10.2 to the
      Quarterly Report on Form 10-Q of DISH for the quarter ended June 30, 2005,
      Commission File No.0-26176).***10.20*
            Incentive
      Stock Option Agreement (Form A) (incorporated by reference to Exhibit 99.1
      to the Current Report on Form 8-K of DISH filed July 7, 2005, Commission
      File No.0-26176).**10.21*
            Incentive
      Stock Option Agreement (Form B) (incorporated by reference to Exhibit 99.2
      to the Current Report on Form 8-K of DISH filed July 7, 2005, Commission
      File No.0-26176).**10.22*
            Restricted
      Stock Unit Agreement (Form A) (incorporated by reference to Exhibit 99.3
      to the Current Report on Form 8-K of DISH filed July 7, 2005, Commission
      File No.0-26176).**


43
 Table of Contents





10.23*
            Restricted
      Stock Unit Agreement (Form B) (incorporated by reference to Exhibit 99.4
      to the Current Report on Form 8-K of DISH filed July 7, 2005, Commission
      File No.0-26176).**10.24*
            Incentive
      Stock Option Agreement (1999 Long-Term Incentive Plan) (incorporated by
      reference to Exhibit 99.5 to the Current Report on Form 8-K of DISH filed
      July 7, 2005, Commission File No.0-26176).**10.25*
            Nonemployee
      Director Stock Option Agreement (incorporated by reference to Exhibit 99.6
      to the Current Report on Form 8-K of DISH filed July 7, 2005, Commission
      File No.0-26176).**10.26*
            Nonqualifying
      Stock Option Agreement (2005 Long-Term Incentive Plan (incorporated by
      reference to Exhibit 99.7 to the Current Report on Form 8-K of DISH filed
      July 7, 2005, Commission File No.0-26176).**10.27*
            Restricted
      Stock Unit Agreement (2005 Long-Term Incentive Plan) (incorporated by
      reference to Exhibit 99.8 to the Current Report on Form 8-K of DISH filed
      July 7, 2005, Commission File No.0-26176).**10.28*
            Separation
      Agreement between EchoStar and DISH (incorporated by reference from
      Exhibit 2.1 to the Form 10 (File No. 001-33807) of
    EchoStar).10.29*
            Tax
      Sharing Agreement between EchoStar and DISH (incorporated by reference
      from Exhibit 10.2 to the Form 10 (File No. 001-33807) of
      EchoStar).10.30*
            Employee
      Matters Agreement between EchoStar and DISH (incorporated by reference
      from Exhibit 10.3 to the Form 10 (File No. 001-33807) of
      EchoStar).10.31*
            Intellectual
      Property Matters Agreement between EchoStar, EchoStar Acquisition L.L.C.,
      Echosphere L.L.C., DDBS, EIC Spain SL, EchoStar Technologies L.L.C. and
      DISH (incorporated by reference from Exhibit 10.4 to the Form 10 (File No.
      001-33807) of EchoStar).10.32*
            Management
      Services Agreement between EchoStar and DISH (incorporated by reference
      from Exhibit 10.5 to the Form 10 (File No. 001-33807) of
      EchoStar).10.33*
            Form
      of Satellite Capacity Agreement between EchoStar Holding Corporation and
      EchoStar Satellite L.L.C. (incorporated by reference from
      Exhibit 10.28 to the Amendment No. 2 to Form 10 of EchoStar
      Corporation filed on December 26, 2007, Commission File
      No. 001-33807).10.34*
            Amendment
      No. 1 to Receiver Agreement dated December 31, 2007 between EchoSphere
      L.L.C. and EchoStar Technologies L.L.C. (incorporated by reference to
      Exhibit 99.1 to the Quarterly Report on Form 10-Q of DISH for the quarter
      ended September 30, 2008, Commission File No.0-26176).10.35*
            Amendment
      No. 1 to Broadcast Agreement dated December 31, 2007 between EchoStar and
      EchoStar Satellite L.L.C. (incorporated by reference to Exhibit 99.2 to
      the Quarterly Report on Form 10-Q of DISH for the quarter ended September
      30, 2008, Commission File No.0-26176).10.36*
            Description
      of the 2008 Long-Term Incentive Plan dated December 22, 2008 (incorporated
      by reference to Exhibit 10.42 to the Annual Report on Form 10-K of DISH
      for the year ended December 31, 2008, Commission File No.
      0-26176).10.37*
            DISH
      Network Corporation 2009 Stock Incentive Plan (incorporated by reference
      to the Definitive Proxy Statement on Form 14A filed on March 31,
      2009, Commission File
No. 000-26176).


44
 Table of Contents





10.38*
            Amended
      and Restated DISH Network Corporation 2001 Nonemployee Director Stock
      Option Plan (incorporated by reference to the Definitive Proxy Statement
      on Form 14A filed on March 31, 2009, Commission File
      No. 000-26176).10.39*
            Amended
      and Restated DISH Network Corporation 1999 Stock Incentive Plan
      (incorporated by reference to the Definitive Proxy Statement on
      Form 14A filed on March 31, 2009, Commission File
      No. 000-26176).10.40*
            Amended
      and Restated DISH Network Corporation 1995 Stock Incentive Plan
      (incorporated by reference to the Definitive Proxy Statement on Form 14A
      filed on March 31, 2009, Commission File No.
    000-26176).10.41*
            NIMIQ
      5 Whole RF Channel Service Agreement, dated September 15, 2009, between
      Telesat Canada and EchoStar (incorporated by reference from Exhibit 10.29
      to the Annual Report on Form 10-K of EchoStar for the year ended December
      31, 2009, Commission File No. 001-33807).***10.42*
            NIMIQ
      5 Whole RF Channel Service Agreement, dated September 15, 2009, between
      EchoStar and DISH Network L.L.C. (incorporated by reference from Exhibit
      10.30 to the Annual Report on Form 10-K of EchoStar for the year ended
      December 31, 2009, Commission File No. 001-33807).***10.43*
            Professional
      Services Agreement, dated August 4, 2009, between EchoStar and DISH
      Network (incorporated by reference from Exhibit 10.3 to the Quarterly
      Report on Form 10-Q of EchoStar for the quarter ended September 30, 2009,
      Commission File No. 001-33807).***10.44*
            Allocation
      Agreement, dated August 4, 2009, between EchoStar and DISH Network
      (incorporated by reference from Exhibit 10.4 to the Quarterly Report on
      Form 10-Q of EchoStar for the quarter ended September 30, 2009, Commission
      File No. 001-33807).10.45*
            Amendment
      to Form of Satellite Capacity Agreement (Form A) between EchoStar
      Corporation and DISH Network L.L.C. (incorporated by reference from
      Exhibit 10.33 to the Annual Report on Form 10-K of EchoStar for the year
      ended December 31, 2009, Commission File No.
001-33807).10.46*
            Amendment
      to Form of Satellite Capacity Agreement (Form B) between EchoStar
      Corporation and DISH Network L.L.C. (incorporated by reference from
      Exhibit 10.34 to the Annual Report on Form 10-K of EchoStar for the year
      ended December 31, 2009, Commission File No.
001-33807).10.47*
            EchoStar
      XVI Satellite Capacity Agreement between EchoStar Satellite Services
      L.L.C. and DISH Network L.L.C. (incorporated by reference from Exhibit
      10.35 to the Annual Report on Form 10-K of EchoStar for the year ended
      December 31, 2009, Commission File No. 001-33807).***10.48*
            Assignment
      of Rights Under Launch Service Contract from EchoStar to DISH Orbital II
      L.L.C. (incorporated by reference from Exhibit 10.36 to the Annual Report
      on Form 10-K of EchoStar for the year ended December 31, 2009, Commission
      File No. 001-33807).21
            Subsidiaries
      of DISH DBS Corporation.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.





45
 Table of Contents





  Filed herewith.


*             
Incorporated by
reference.


**
            Constitutes
      a management contract or compensatory plan or
  arrangement.


***
            Certain
      portions of the exhibit have been omitted and separately filed with the
      Securities and Exchange Commission with a request for confidential
      treatment.







46
 Table of Contents


SIGNATURES





Pursuant
to the requirements of Section 13 or 15(d) 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.





DISH DBS
CORPORATION





By:       /s/Robert
E.
Olson


Robert E.
Olson


Executive
Vice President and Chief Financial Officer





Date:  March
9, 2010








Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.





Signature                                             Title                                                              
        Date








/s/Charles
W.
Ergen                                      Chief
Executive Officer, President and
Chairman                                                          
           March 9,
2010


Charles
W.
Ergen                                             (Principal Executive
Officer)








/s/Robert
E.
Olson                                       
 Executive Vice President and Chief Financial OfficerMarch 9, 2010


Robert E.
Olson                                               (Principal Financial and Accounting
Officer)








/s/
James
DeFranco                                       
Director                                                                  March 9, 2010


James
DeFranco








/s/R.
Stanton
Dodge                                      
Director                                                              March
9, 2010


R.
Stanton Dodge





47
 Table of Contents
 INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS





Consolidated Financial Statements:Page





Report of KPMG LLP, Independent Registered Public
      Accounting Firm
              F-2Consolidated Balance Sheets at December 31, 2009 and
      2008
              F-3Consolidated
      Statements of Operations and Comprehensive Income (Loss) for the years
      endedDecember
      31, 2009, 2008 and 2007
              F-4Consolidated
      Statements of Changes in Stockholder’s Equity (Deficit) for the years
      endedDecember
      31, 2007, 2008 and 2009
              F-5Consolidated Statements of Cash Flows for the years ended
      December 31, 2009, 2008 and 2007
              F-6Notes to Consolidated Financial
    Statements
              F-7


F-1
 Table of Contents
 REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM







The Boardof Directors and Stockholder
 DISH DBS
Corporation:
  We have
audited the accompanying consolidated balance sheets of DISH DBS Corporation and
subsidiaries as of December 31, 2009 and 2008, and the related consolidated
statements of operations and comprehensive income (loss), changes in
stockholder’s equity (deficit), and cash flows for each of the years in the
three-year period ended December 31, 2009.  These consolidated
financial statements are the responsibility of DISH DBS Corporation’s
management.  Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
  We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States).  Those standards require
that we plan and perform the audits to obtain reasonable assurance about whether
the financial statements are free of material misstatement.  An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements.  An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation.  We believe that our audits provide a reasonable basis
for our opinion.
  In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of DISH DBS Corporation and
subsidiaries as of December 31, 2009 and 2008, and the results of its operations
and its cash flows for each of the years in the three-year period ended December
31, 2009, in conformity with U.S. generally accepted accounting
principles.
  
  
  /s/  KPMG
LLP
   Denver,
Colorado
 March  9, 
2010





F-2
 Table of Contents
 DISH
DBS CORPORATION
 CONSOLIDATED
BALANCE SHEETS
 (In
thousands, except share and per share amounts)




As
      of December 31,2009
              
              
              2008AssetsCurrent
      Assets:Cash
      and cash equivalents
              
              $
              98,226
              
              
              $
              98,001Marketable
      investment securities (Note 4)
              
              
              1,709,131
              
              
              
              383,089Trade
      accounts receivable - other, net of allowance for doubtful
      accountsof
      $16,372 and $15,207, respectively
              
              
              741,351
              
              
              
              798,976Trade
      accounts receivable - EchoStar, net of allowance for doubtful accounts of
      zero
              
              
              38,347
              
              
              
              21,570Inventory
              
              
              295,950
              
              
              
              426,671Deferred
      tax assets (Note 8)
              
              
              189,058
              
              
              
              84,734Other
      current assets
              
              
              61,730
              
              
              
              70,645Total
      current assets
              
              
              3,133,793
              
              
              
              1,883,686Noncurrent
      Assets:Restricted
      cash and marketable investment securities (Note 4)
              
              
              128,474
              
              
              
              70,743Property
      and equipment, net (Note 6)
              
              
              2,601,180
              
              
              
              2,430,717FCC
      authorizations
              
              
              679,570
              
              
              
              679,570Other
      investment securities (Note 4)
              
              
              2,805
              
              
              
              26,647Other
      noncurrent assets, net
              
              
              72,971
              
              
              
              64,618Total
      noncurrent assets
              
              
              3,485,000
              
              
              
              3,272,295Total
      assets
              
              $
              6,618,793
              
              
              $
              5,155,981Liabilities
      and Stockholder's Equity (Deficit)Current
      Liabilities:Trade
      accounts payable - other
              
              $
              141,213
              
              
              $
              175,022Trade
      accounts payable - EchoStar
              
              
              269,542
              
              
              
              297,629Deferred
      revenue and other
              
              
              815,864
              
              
              
              830,529Accrued
      programming
              
              
              985,928
              
              
              
              1,020,086Tivo
      litigation accrual
              
              
              393,566
              
              
              
              27,542Other
      accrued expenses
              
              
              485,637
              
              
              
              568,183Current
      portion of long-term debt and capital lease obligations (Note
      7)
              
              
              26,518
              
              
              
              13,333Total
      current liabilities
              
              
              3,118,268
              
              
              
              2,932,324Long-Term
      Obligations, Net of Current Portion:Long-term
      debt and capital lease obligations, net of current portion (Note
      7)
              
              
              6,470,046
              
              
              
              4,969,422Deferred
      tax liabilities
              
              
              370,226
              
              
              
              264,436Long-term
      deferred revenue, distribution and carriage payments and other long-term
      liabilities
              
              
              291,565
              
              
              
              199,476Total
      long-term obligations, net of current portion
              
              
              7,131,837
              
              
              
              5,433,334Total
      liabilities
              
              
              10,250,105
              
              
              
              8,365,658Commitments
      and Contingencies (Note 11)Stockholder’s
      Equity (Deficit):Common
      stock, $.01 par value, 1,000,000 shares authorized, 1,015 shares issued
      and outstanding
              
              
              -
              
              
              
              -Additional
      paid-in capital
              
              
              1,154,614
              
              
              
              1,142,529Accumulated
      other comprehensive income (loss)
              
              
              3,833
              
              
              
              (8,792
              )Accumulated
      earnings (deficit)
              
              
              (4,789,759
              )
              
              
              (4,343,414
              )Total
      stockholder’s equity (deficit)
              
              
              (3,631,312
              )
              
              
              (3,209,677
              )Total
      liabilities and stockholder’s equity (deficit)
              
              $
              6,618,793
              
              
              $
              5,155,981







The
accompanying notes are an integral part of these consolidated financial
statements.
 F-3
 Table of Contents
 DISH
DBS CORPORATION
 CONSOLIDATED
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
 (In
thousands)


For
      the Years Ended December 31,2009
              
              
              2008
              
              
              2007Revenue:Subscriber-related
      revenue
              
              $
              11,537,703
              
              
              $
              11,455,575
              
              
              $
              10,673,821Equipment
      sales and other revenue
              
              
              97,856
              
              
              
              124,255
              
              
              
              386,662Equipment
      sales - EchoStar
              
              
              7,457
              
              
              
              11,601
              
              
              
              -Transitional
      services and other revenue - EchoStar
              
              
              20,102
              
              
              
              25,750
              
              
              
              -Total
      revenue
              
              
              11,663,118
              
              
              
              11,617,181
              
              
              
              11,060,483Costs
      and Expenses:Subscriber-related
      expenses (exclusive of depreciation shownbelow
      - Note 6)
              
              
              6,359,138
              
              
              
              5,977,355
              
              
              
              5,488,396Satellite
      and transmission expenses (exclusive of depreciationshown
      below - Note 6):EchoStar
              
              
              319,752
              
              
              
              305,322
              
              
              
              -Other
              
              
              33,477
              
              
              
              32,407
              
              
              
              180,446Equipment,
      transitional services and other cost of sales
              
              
              121,238
              
              
              
              169,917
              
              
              
              269,817Subscriber
      acquisition costs:Cost
      of sales - subscriber promotion subsidies - EchoStar (exclusive
      ofdepreciation
      shown below - Note 6)
              
              
              188,793
              
              
              
              167,508
              
              
              
              128,739Other
      subscriber promotion subsidies
              
              
              1,071,655
              
              
              
              1,124,103
              
              
              
              1,219,943Subscriber
      acquisition advertising
              
              
              279,067
              
              
              
              240,130
              
              
              
              226,742Total
      subscriber acquisition costs
              
              
              1,539,515
              
              
              
              1,531,741
              
              
              
              1,575,424General
      and administrative expenses - EchoStar
              
              
              45,356
              
              
              
              53,373
              
              
              
              -General
      and administrative expenses
              
              
              554,754
              
              
              
              486,717
              
              
              
              577,743Tivo
      litigation expense (Note 11)
              
              
              361,024
              
              
              
              -
              
              
              
              33,907Depreciation
      and amortization (Note 6)
              
              
              939,714
              
              
              
              1,000,230
              
              
              
              1,320,625Total
      costs and expenses
              
              
              10,273,968
              
              
              
              9,557,062
              
              
              
              9,446,358Operating
      income (loss)
              
              
              1,389,150
              
              
              
              2,060,119
              
              
              
              1,614,125Other
      Income (Expense):Interest
      income
              
              
              13,985
              
              
              
              52,755
              
              
              
              103,619Interest
      expense, net of amounts capitalized
              
              
              (407,413
              )
              
              
              (368,838
              )
              
              
              (372,612
              )Other,
      net
              
              
              (19,129
              )
              
              
              45,391
              
              
              
              (562
              )Total
      other income (expense)
              
              
              (412,557
              )
              
              
              (270,692
              )
              
              
              (269,555
              )Income
      (loss) before income taxes
              
              
              976,593
              
              
              
              1,789,427
              
              
              
              1,344,570Income
      tax (provision) benefit, net (Note 8)
              
              
              (372,938
              )
              
              
              (696,946
              )
              
              
              (534,176
              )Net
      income (loss)
              
              $
              603,655
              
              
              $
              1,092,481
              
              
              $
              810,394Comprehensive
      Income (Loss):Foreign
      currency translation adjustments
              
              
              -
              
              
              
              -
              
              
              
              123Unrealized
      holding gains (losses) on available-for-sale securities
              
              
              12,625
              
              
              
              6,436
              
              
              
              22Recognition
      of previously unrealized (gains) losses onavailable-for-sale
      securities included in net income (loss)
              
              
              -
              
              
              
              (11,247
              )
              
              
              -Deferred
      income tax (expense) benefit
              
              
              -
              
              
              
              (1,577
              )
              
              
              (3
              )Comprehensive
      income (loss)
              
              $
              616,280
              
              
              $
              1,086,093
              
              
              $
              810,536


The
accompanying notes are an integral part of these consolidated financial
statements.
 F-4
 Table of Contents
 DISH
DBS CORPORATION
 CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDER’S EQUITY (DEFICIT)
 (In
thousands)





AccumulatedAdditional
              
              
              Other
              
              
              AccumulatedCommon
              
              
              Paid-In
              
              
              Comprehensive
              
              
              EarningsStock
              
              
              Capital
              
              
              Income
      (Loss)
              
              
              (Deficit)
              
              
              TotalBalance,December 31, 2006
              
              $
              -
              
              
              $
              1,032,925
              
              
              $
              254
              
              
              $
              (1,288,941
              )
              
              $
              (255,762
              )Capital
      contribution from DISH (Note 16)
              
              
              -
              
              
              
              56,390
              
              
              
              -
              
              
              
              -
              
              
              
              56,390Dividends
      to DISH Orbital Corporation (Note 16)
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (2,646,753
              )
              
              
              (2,646,753
              )Stock-based
      compensation
              
              
              -
              
              
              
              21,329
              
              
              
              -
              
              
              
              -
              
              
              
              21,329Income
      tax (expense) benefit related to stock awards and other
              
              
              -
              
              
              
              10,368
              
              
              
              -
              
              
              
              -
              
              
              
              10,368Change
      in unrealized holding gains (losses)on
      available-for-sale securities, net
              
              
              -
              
              
              
              -
              
              
              
              22
              
              
              
              -
              
              
              
              22Foreign
      currency translation
              
              
              -
              
              
              
              -
              
              
              
              123
              
              
              
              -
              
              
              
              123Deferred
      income tax (expense) benefit attributable tounrealized
      holding gains (losses) on available-for-sale securities
              
              
              -
              
              
              
              -
              
              
              
              (3
              )
              
              
              -
              
              
              
              (3
              )Other
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              180
              
              
              
              180Net
      income (loss)
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              810,394
              
              
              
              810,394Balance,
      December 31, 2007
              
              $
              -
              
              
              $
              1,121,012
              
              
              $
              396
              
              
              $
              (3,125,120
              )
              
              $
              (2,003,712
              )Capital
      contribution from DISH (Note 16)
              
              
              -
              
              
              
              5,221
              
              
              
              -
              
              
              
              -
              
              
              
              5,221Dividends
      to DISH Orbital Corporation (Note 16)
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (1,150,000
              )
              
              
              (1,150,000
              )Stock-based
      compensation
              
              
              -
              
              
              
              15,349
              
              
              
              -
              
              
              
              -
              
              
              
              15,349Income
      tax (expense) benefit related to stock awards and other
              
              
              -
              
              
              
              947
              
              
              
              -
              
              
              
              -
              
              
              
              947Change
      in unrealized holding gains (losses)on
      available-for-sale securities, net
              
              
              -
              
              
              
              -
              
              
              
              (4,811
              )
              
              
              -
              
              
              
              (4,811
              )Deferred
      income tax (expense) benefit attributable tounrealized
      holding gains (losses) on available-for-sale securities
              
              
              -
              
              
              
              -
              
              
              
              (1,577
              )
              
              
              -
              
              
              
              (1,577
              )Capital
      distribution to affiliate
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (130,299
              )
              
              
              (130,299
              )Capital
      contribution to DISH in connection with the Spin-off (Note
    1)
              
              
              -
              
              
              
              -
              
              
              
              (2,800
              )
              
              
              (1,030,476
              )
              
              
              (1,033,276
              )Net
      income (loss)
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              1,092,481
              
              
              
              1,092,481Balance,
      December 31, 2008
              
              $
              -
              
              
              $
              1,142,529
              
              
              $
              (8,792
              )
              
              $
              (4,343,414
              )
              
              $
              (3,209,677
              )Dividends
      to DISH Orbital Corporation (Note 16)
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (1,050,000
              )
              
              
              (1,050,000
              )Stock-based
      compensation
              
              
              -
              
              
              
              12,227
              
              
              
              -
              
              
              
              -
              
              
              
              12,227Income
      tax (expense) benefit related to stock awards and other
              
              
              -
              
              
              
              (142
              )
              
              
              -
              
              
              
              -
              
              
              
              (142
              )Change
      in unrealized holding gains (losses)on
      available-for-sale securities, net
              
              
              -
              
              
              
              -
              
              
              
              12,625
              
              
              
              -
              
              
              
              12,625Net
      income (loss)
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              603,655
              
              
              
              603,655Balance,
      December 31, 2009
              
              $
              -
              
              
              $
              1,154,614
              
              
              $
              3,833
              
              
              $
              (4,789,759
              )
              
              $
              (3,631,312
              )


The
accompanying notes are an integral part of these consolidated financial
statements.
 F-5
 Table of Contents
 DISH
DBS CORPORATION
 CONSOLIDATED
STATEMENTS OF CASH FLOWS
 (In
thousands)




For
      the Years Ended December 31,2009
              
              
              2008
              
              
              2007CashFlows From Operating Activities:Net
      income (loss)
              
              $
              603,655
              
              
              $
              1,092,481
              
              
              $
              810,394Adjustments
      to reconcile net income (loss) to net cash flows from operating
      activities:Depreciation
      and amortization
              
              
              939,714
              
              
              
              1,000,230
              
              
              
              1,320,625Equity
      in losses (earnings) of affiliates
              
              
              1,975
              
              
              
              (1,739
              )
              
              
              831Realized
      and unrealized losses (gains) on investments
              
              
              18,933
              
              
              
              (42,226
              )
              
              
              -Non-cash,
      stock-based compensation
              
              
              12,227
              
              
              
              15,349
              
              
              
              21,329Deferred
      tax expense (benefit) (Note 8)
              
              
              (32,513
              )
              
              
              180,245
              
              
              
              255,852Other,
      net
              
              
              5,851
              
              
              
              7,400
              
              
              
              8,929Change
      in noncurrent assets
              
              
              6,507
              
              
              
              7,744
              
              
              
              2,768Change
      in long-term deferred revenue, distribution and carriage payments and
      other long-term liabilities
              
              
              11,857
              
              
              
              (98,957
              )
              
              
              (15,475
              )Changes
      in current assets and current liabilities:Trade
      accounts receivable - other
              
              
              56,460
              
              
              
              (142,614
              )
              
              
              (20,009
              )Allowance
      for doubtful accounts
              
              
              1,165
              
              
              
              1,188
              
              
              
              (186
              )Advances
      to affiliates
              
              
              -
              
              
              
              78,578
              
              
              
              71,314Trade
      accounts receivable - EchoStar
              
              
              (16,777
              )
              
              
              (20,604
              )
              
              
              -Inventory
              
              
              51,411
              
              
              
              (157,761
              )
              
              
              (80,841
              )Other
      current assets
              
              
              9,587
              
              
              
              3,106
              
              
              
              27,284Trade
      accounts payable
              
              
              (33,809
              )
              
              
              (110,912
              )
              
              
              30,791Trade
      accounts payable - EchoStar
              
              
              (28,087
              )
              
              
              297,629
              
              
              
              -Advances
      from affiliates
              
              
              -
              
              
              
              (85,613
              )
              
              
              (80,264
              )Deferred
      revenue and other
              
              
              (14,116
              )
              
              
              (23,262
              )
              
              
              31,305Tivo
      litigation accrual
              
              
              361,024
              
              
              
              -
              
              
              
              -Accrued
      programming and other accrued expenses
              
              
              39,333
              
              
              
              (65,106
              )
              
              
              206,326Net
      cash flows from operating activities
              
              
              1,994,397
              
              
              
              1,935,156
              
              
              
              2,590,973Cash
      Flows From Investing Activities:Purchases
      of marketable investment securities
              
              
              (5,590,668
              )
              
              
              (4,372,496
              )
              
              
              (2,479,745
              )Sales
      and maturities of marketable investment securities
              
              
              4,277,251
              
              
              
              4,595,360
              
              
              
              2,708,568Purchases
      of property and equipment
              
              
              (922,420
              )
              
              
              (1,155,377
              )
              
              
              (1,111,536
              )Change
      in restricted cash and marketable investment securities
              
              
              (57,731
              )
              
              
              79,898
              
              
              
              (701
              )FCC
      authorizations
              
              
              -
              
              
              
              -
              
              
              
              (97,463
              )Purchase
      of strategic investments included in noncurrent other investment
      securities
              
              
              (1,214
              )
              
              
              -
              
              
              
              (21,775
              )Proceeds
      from sale of strategic investment
              
              
              -
              
              
              
              106,200
              
              
              
              -Other
              
              
              -
              
              
              
              3
              
              
              
              3,469Net
      cash flows from investing activities
              
              
              (2,294,782
              )
              
              
              (746,412
              )
              
              
              (999,183
              )Cash
      Flows From Financing Activities:Contribution
      of cash and cash equivalents to EchoStar in connection with the Spin-off
      (Note 1)
              
              
              -
              
              
              
              (27,723
              )
              
              
              -Proceeds
      from issuance of long-term debt
              
              
              1,400,000
              
              
              
              750,000
              
              
              
              -Deferred
      debt issuance costs
              
              
              (23,090
              )
              
              
              (4,972
              )
              
              
              -Repayment
      of long-term debt and capital lease obligations
              
              
              (26,300
              )
              
              
              (1,010,000
              )
              
              
              (43,515
              )Capital
      contribution from DISH (Note 16)
              
              
              -
              
              
              
              -
              
              
              
              53,642Dividend
      to DISH Orbital Corporation (formerly known as EchoStar Orbital
      Corporation)
              
              
              (1,050,000
              )
              
              
              (1,150,000
              )
              
              
              (2,645,805
              )Capital
      distribution to affiliate
              
              
              -
              
              
              
              (130,299
              )
              
              
              -Excess
      tax benefits recognized on stock option exercises
              
              
              -
              
              
              
              -
              
              
              
              12,505Net
      cash flows from financing activities
              
              
              300,610
              
              
              
              (1,572,994
              )
              
              
              (2,623,173
              )Net
      increase (decrease) in cash and cash equivalents
              
              
              225
              
              
              
              (384,250
              )
              
              
              (1,031,383
              )Cash
      and cash equivalents, beginning of period
              
              
              98,001
              
              
              
              482,251
              
              
              
              1,513,634Cash
      and cash equivalents, end of period
              
              $
              98,226
              
              
              $
              98,001
              
              
              $
              482,251




The
accompanying notes are an integral part of these consolidated financial
statements.
 F-6
 Table of Contents
 DISH
DBS CORPORATION
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





1.   
1.  Organizationand Business Activities




Principal
Business


DISH
DBS Corporation (which together with its subsidiaries is referred to as “DDBS,”
the “Company,” “we,” “us” and/or “our”) is a holding company and an indirect,
wholly-owned subsidiary of DISH Network Corporation or DISH, a publicly traded
company listed on the Nasdaq Global Select Market.  In this report,
“DISH” refers to DISH Network Corporation, our ultimate parent company, and its
subsidiaries including us.  DDBS was formed under Colorado law in
January 1996 and its common stock is held by DISH Orbital Corporation ("DOC"),
formerly known as EchoStar Orbital Corporation, a direct subsidiary of
DISH.  We operate the DISH Network® direct broadcast satellite (“DBS”)
subscription television service in the United States which had 14.100 million
subscribers as of December 31, 2009.  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, third-party broadcast operations, customer
service facilities, in-home service and call center operations and certain other
assets utilized in our operations.





Spin-off
of Technology and Certain Infrastructure Assets





On
January 1, 2008, DISH completed a tax-free distribution of its technology and
set-top box business and certain infrastructure assets (the “Spin-off”) into a
separate publicly-traded company, EchoStar Corporation
(“EchoStar”).  DISH and EchoStar 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, President and Chief Executive Officer or by certain trusts established
by Mr. Ergen for the benefit of his family.  The two entities consist
of the following:





·
            DISH Network
      Corporation – which retained its subscription television
      business, 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.





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





F-7
 Table of Contents
 DISH
DBS CORPORATION
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS -
Continued


The table
below summarizes the assets and liabilities held by us that were ultimately
distributed by DISH 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)AssetsCurrent
      Assets:Cash
      and cash equivalents
              
              $
              27,723Marketable
      investment securities
              
              
              3,743Trade
      accounts receivable, net
              
              
              28,071Inventories,
      net
              
              
              18,548Current
      deferred tax assets
              
              
              5,033Other
      current assets
              
              
              3,212Total
      current assets
              
              
              86,330Restricted
      cash and marketable investment securities
              
              
              3,150Property
      and equipment, net
              
              
              1,201,641FCC
      authorizations
              
              
              123,121Intangible
      assets, net
              
              
              146,093Other
      noncurrent assets, net
              
              
              25,608Total
      assets
              
              $
              1,585,943LiabilitiesCurrent
      Liabilities:Trade
      accounts payable
              
              $
              3,715Deferred
      revenue and other accrued expenses
              
              
              35,474Current
      portion of capital lease obligations, mortgages and other notes
      payable
              
              
              39,136Total
      current liabilities
              
              
              78,325Long-term
      obligations, net of current portion:Capital
      lease obligations, mortgages and other notes payable, net of current
      portion
              
              
              339,243Deferred
      tax liabilities
              
              
              135,099Total
      long-term obligations, net of current portion
              
              
              474,342Total
      liabilities
              
              
              552,667Net
      assets distributed
              
              $
              1,033,276




2.
            Summary
      of Significant Accounting Policies





Principles
of Consolidation and Basis of Presentation





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.  Further, in connection with the preparation of the
consolidated financial statements, we have evaluated subsequent events through
the issuance of these financial statements on March 9, 2010.





F-8
 Table of Contents
 DISH
DBS CORPORATION
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS -
Continued


Use
of Estimates





The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States (“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, 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, retailer incentives, programming
expenses, subscriber lives and royalty obligations.  Illiquid credit
markets and general weak 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 Consolidated Financial Statements.  Estimates and
assumptions are reviewed periodically, and the effects of revisions are
reflected prospectively in the period they occur.





Accounting
Standards Codification





In June
2009, the Financial Accounting Standards Board (“FASB”) issued Statement of
Financial Accounting Standards No. 168, “The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting Principles - A
Replacement of FASB Statement No. 162” (“SFAS 168”).  SFAS 168
establishes the FASB Accounting Standards Codification (the “Codification”) as
the single source of authoritative accounting principles recognized by the FASB
to be applied by nongovernmental entities in the preparation of financial
statements in conformity with GAAP.  The Codification does not change
current GAAP, but is intended to simplify user access to all authoritative GAAP
by providing all the authoritative literature in one place related to a
particular topic.  The Codification did not have any impact on our
consolidated financial position or results of operations.  However, it
affects the way we reference authoritative accounting literature in our
Consolidated Financial Statements.  Accordingly, this Annual Report on
Form 10-K and all subsequent applicable public filings will reference the
Codification as the source of authoritative literature.





Foreign
Currency Translation





The
functional currency of the majority of our foreign subsidiaries is the U.S.
dollar because their sales and purchases are predominantly denominated in that
currency.  However, for our subsidiaries where the functional currency
is the local currency, we translate assets and liabilities into U.S. dollars at
the period-end exchange rate and revenues and expenses based on the exchange
rates at the time such transactions arise, if known, or at the average rate for
the period.  The difference is recorded to equity as a component of
other comprehensive income (loss).  Financial assets and liabilities
denominated in currencies other than the functional currency are recorded at the
exchange rate at the time of the transaction and subsequent gains and losses
related to changes in the foreign currency are included in “Other, net” income
or expense in our Consolidated Statements of Operations and Comprehensive Income
(Loss).  Net transaction gains (losses) during 2009, 2008 and 2007
were not significant.





Cash
and Cash Equivalents





We
consider all liquid investments purchased with an original maturity of 90 days
or less to be cash equivalents.  Cash equivalents as of December 31,
2009 and 2008 may consist of money market funds, government bonds, corporate
notes and commercial paper.  The cost of these investments
approximates their fair value.





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 stockholder’s equity (deficit),” net
of related deferred income tax.  Declines in the fair value of a
marketable investment security which are determined to be “other-than-temporary”
are recognized in the Consolidated Statements of Operations and Comprehensive
Income (Loss), thus establishing a new cost basis for such
investment.


F-9
 Table of Contents
 DISH
DBS CORPORATION
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - Continued




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.




Declines
in the fair value of investments below cost basis are generally accounted for as
follows:





Length
      of Time Investment Has Been In a Continuous Loss Position
            Treatment
      of the Decline in Value
              (absent
      specific factors to the contrary)Less
      than six months
            Generally,
      considered temporary.Six
      to nine months
            Evaluated
      on a case by case basis to determine whether any company or
      market-specific factors exist which would indicate that such decline is
      other-than-temporary.Greater
      than nine months
            Generally,
      considered other-than-temporary.  The decline in value is
      recorded as a charge to earnings.





In
situations where the fair value of a debt security is below its carrying amount,
we consider the decline to be other-than-temporary and record a charge to
earnings if any of the following factors apply:




·
            we
      have the intent to sell the
security.




·
            it
      is more likely than not that we will be required to sell the security
      before maturity or recovery.




·
            we
      do not expect to recover the security’s entire amortized cost basis, even
      if there is no intent to sell the
security.




In
general, we use the first in, first out method to determine the cost basis on
sales of marketable investment securities.




Accounts
Receivable





Management
estimates the amount of required allowances for the potential non-collectability
of accounts receivable based upon past collection experience and consideration
of other relevant factors.  However, past experience may not be
indicative of future collections and therefore additional charges could be
incurred in the future to reflect differences between estimated and actual
collections.





Inventory





Inventory
is stated at the lower of cost or market value.  Cost is determined
using the first-in, first-out method.  We depend on EchoStar for the
production of our receivers and many components of our receiver
systems.  Manufactured inventory includes materials, labor,
freight-in, royalties and manufacturing overhead.





Property
and Equipment





Property
and equipment are stated at cost.  The costs of satellites under
construction, including certain amounts prepaid under our satellite service
agreements, are capitalized during the construction phase, assuming the eventual
successful launch and in-orbit operation of the satellite.  If a
satellite were to fail during launch or while in-orbit, the resultant loss would
be charged to expense in the period such loss was incurred.  The
amount of any such loss would be reduced to the extent of insurance proceeds
estimated to be received, if any.  Depreciation is recorded on a
straight-line basis over useful lives ranging from one to forty
years.  Repair and maintenance costs are charged to expense when
incurred.  Renewals and improvements that add value or extend the
asset’s useful life are capitalized.


F-10
 Table of Contents
 DISH
DBS CORPORATION
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - Continued




Long-Lived
Assets





We review
our long-lived assets and identifiable finite lived intangible assets for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable.  We evaluate our
satellite fleet for recoverability as one asset group.  For assets
which are held and used in operations, the asset would be impaired if the
carrying value of the asset (or asset group) exceeded its undiscounted future
net cash flows.  Once an impairment is determined, the actual
impairment is reported as the difference between the carrying value and the fair
value as estimated using discounted cash flows.  Assets which are to
be disposed of are reported at the lower of the carrying amount or fair value
less costs to sell.  We consider relevant cash flow, estimated future
operating results, trends and other available information in assessing whether
the carrying value of assets are recoverable.





Other
Intangible Assets





We do not
amortize indefinite lived intangible assets, but test these assets for
impairment annually or whenever indicators of impairments
arise.  Intangible assets that have finite lives are amortized over
their estimated useful lives and tested for impairment as described above for
long-lived assets.  Our intangible assets with indefinite lives
primarily consist of FCC licenses.  Generally, we have determined that
our FCC licenses have indefinite useful lives due to the following:




·
            FCC
      spectrum is a non-depleting asset;




·
            Existing
      DBS licenses are integral to our business and will contribute to cash
      flows indefinitely;




·
            Replacement
      satellite applications are generally authorized by the FCC subject to
      certain conditions, without substantial cost under a stable regulatory,
      legislative and legal environment;




·
            Maintenance
      expenditures to obtain future cash flows are not
    significant;




·
            DBS
      licenses are not technologically dependent;
and




·
            We
      intend to use these assets indefinitely.




We
combine all our indefinite lived FCC licenses into a single unit of
accounting.  The analysis encompasses future cash flows from
satellites transmitting from such licensed orbital locations, including revenue
attributable to programming offerings from such satellites, the direct operating
and subscriber acquisition costs related to such programming, and future capital
costs for replacement satellites.  Projected revenue and cost amounts
include current and projected subscribers.  In conducting our annual
impairment test in 2009, we determined that the estimated fair value of the FCC
licenses, calculated using a discounted cash flow analysis, exceeded their
carrying amounts.





Other
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 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.  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 stockholder’s equity (deficit)” on
our Consolidated Balance Sheets until the investments are sold or otherwise
liquidated; at which time, they will be released into our Consolidated
Statements of Operations and Comprehensive Income (Loss).


F-11
 Table of Contents
 DISH
DBS CORPORATION
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - Continued




Long-Term
Deferred Revenue, Distribution and Carriage Payments





Certain
programmers provide us up-front payments.  Such amounts are deferred
and recognized as reductions to “Subscriber-related expenses” on a straight-line
basis over the relevant remaining contract term (up to 10 years).  The
current and long-term portions of these deferred credits are recorded in the
Consolidated Balance Sheets in “Deferred revenue and other” and “Long-term
deferred revenue, distribution and carriage payments and other long-term
liabilities,” respectively.





Sales
Taxes





We
account for sales taxes imposed on our goods and services on a net basis in our
“Consolidated Statements of Operations and Comprehensive Income
(Loss).”  Since we primarily act as an agent for the governmental
authorities, the amount charged to the customer is collected and remitted
directly to the appropriate jurisdictional entity.





Income
Taxes





We
establish a provision for income taxes currently payable or receivable and for
income tax amounts deferred to future periods.  Deferred tax assets
and liabilities are recorded for the estimated future tax effects of differences
that exist between the book and tax basis of assets and
liabilities.  Deferred tax assets are offset by valuation allowances
when we believe it is more likely than not that such net deferred tax assets
will not be realized.





Accounting
for Uncertainty in Income Taxes





From time
to time, we engage in transactions where the tax consequences may be subject to
uncertainty.  We record a liability when, in management’s judgment, a
tax filing position does not meet the more likely than not
threshold.  For tax positions that meet the more likely than not
threshold, we may record a liability depending on management’s assessment of how
the tax position will ultimately be settled.  We adjust our estimates
periodically for ongoing examinations by and settlements with various taxing
authorities, as well as changes in tax laws, regulations and
precedent.  We classify interest and penalties, if any, associated
with our uncertain tax positions as a component of “Interest expense, net of
amounts capitalized” and “Other, net,” respectively.





Fair
Value of Financial Instruments





The
carrying value for 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.





Fair
values for our publicly traded debt securities are based on quoted market
prices.  The fair values of our private debt is estimated based on an
analysis in which we evaluate market conditions, related securities, various
public and private offerings, and other publicly available
information.  In performing this analysis, we make various
assumptions, among other things, regarding credit spreads, and the impact of
these factors on the value of the notes.  See Note 7 for the fair
value of our long-term debt.





Deferred
Debt Issuance Costs





Costs of
issuing debt are generally deferred and amortized to interest expense ratably
over the terms of the respective notes (see Note 7).





Revenue
Recognition





We
recognize revenue when an arrangement exists, prices are determinable,
collectability is reasonably assured and the goods or services have been
delivered.  Revenue from our subscription television services is
recognized when programming is broadcast to subscribers.  Payments
received from subscribers in advance of the broadcast or service period are
recorded as “Deferred revenue and other” in the Consolidated Balance Sheets
until earned.  For certain of


F-12
 Table of Contents
 DISH
DBS CORPORATION
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS -
Continued


our
promotions relating to our receiver systems, subscribers are charged an upfront
fee.  A portion of this fee may be deferred and recognized over the
estimated subscriber life for new subscribers or the estimated remaining life
for existing subscribers ranging from three to five years.  Revenue
from advertising sales is recognized when the related services are
performed.





Subscriber
fees for equipment rental, additional outlets and fees for receivers with
multiple tuners, high definition (“HD”) receivers, digital video recorders
(“DVRs”), and HD DVRs and our in-home service operations are recognized as
revenue as earned.  Revenue from equipment sales and equipment
upgrades are recognized upon shipment to customers.





Certain
of our existing and new subscriber promotions include programming
discounts.  Programming revenues are recorded as earned at the
discounted monthly rate charged to the subscriber.  See “Subscriber
Acquisition Costs” below for discussion regarding the accounting for costs under
these promotions.





Subscriber-Related
Expenses





The cost
of television programming distribution rights is generally incurred on a per
subscriber basis and various upfront carriage payments are recognized when the
related programming is distributed to subscribers.  The cost of
television programming rights to distribute live sporting events for a season or
tournament is charged to expense using the straight-line method over the course
of the season or tournament.  “Subscriber-related expenses” in the
Consolidated Statements of Operations and Comprehensive Income (Loss)
principally include programming expenses, costs incurred in connection with our
in-home service and call center operations, billing costs, refurbishment and
repair costs related to receiver systems, subscriber retention and other
variable subscriber expenses.  These costs are recognized as the
services are performed or as incurred.





Subscriber
Acquisition Costs





Subscriber
acquisition costs in our Consolidated Statements of Operations and Comprehensive
Income (Loss) consist of costs incurred to acquire new subscribers through third
parties and our direct sales distribution channel.  Subscriber
acquisition costs include the following line items from our Consolidated
Statements of Operations and Comprehensive Income (Loss):




·
            “Cost of sales – subscriber
      promotion subsidies” includes the cost of our receiver systems sold
      to retailers and other distributors of our equipment and receiver systems
      sold directly by us to subscribers.




·
            “Other subscriber promotion
      subsidies” includes net costs related to promotional incentives and
      costs related to installation.




·
            “Subscriber acquisition
      advertising” includes advertising and marketing expenses related to
      the acquisition of new DISH Network subscribers.  Advertising
      costs are expensed as incurred.




We
characterize amounts paid to our independent dealers as consideration for
equipment installation services and for equipment buydowns (incentives and
rebates) as a reduction of revenue.  We expense payments for equipment
installation services as “Other subscriber promotion subsidies.”  Our
payments for equipment buydowns represent a partial or complete return of the
dealer’s purchase price and are, therefore, netted against the proceeds received
from the dealer.  We report the net cost from our various sales
promotions through our independent dealer network as a component of “Other
subscriber promotion subsidies.”  Net proceeds from the sale of
subscriber related equipment pursuant to our subscriber acquisition promotions
are not recognized as revenue.





Equipment
Lease Programs





DISH
Network subscribers have the choice of leasing or purchasing the satellite
receiver and other equipment necessary to receive our
programming.  Most of our new subscribers choose to lease equipment
and thus we retain title to such equipment.  Equipment leased to new
and existing subscribers is capitalized and depreciated over their estimated
useful lives.


F-13
 Table of Contents
 DISH
DBS CORPORATION
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - Continued





Research
and Development Costs





Research
and development costs are expensed as incurred.  For the years ended
December 31, 2009 and 2008, we did not incur any research and development
costs.  For the year ended December 31, 2007, research and development
costs were $50 million.  The research and development costs incurred
in 2007 related to the set-top box business and acquisition of Sling Media which
were distributed to EchoStar in connection with the Spin-off.





New
Accounting Pronouncements





Revenue
Recognition – Multiple-Deliverable Arrangements





In
October 2009, the 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 element 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.





3.
            Statements
      of Cash Flow Data





The
following presents our supplemental cash flow statement disclosure.




For
      the Years Ended December 31,2009
              
              
              2008
              
              
              2007(In
      thousands)Cash
      paid for interest
              
              $
              357,419
              
              
              $
              375,763
              
              
              $
              375,718Capitalized
      interest
              
              
              -
              
              
              
              5,607
              
              
              
              7,434Cash
      received for interest
              
              
              13,985
              
              
              
              52,755
              
              
              
              103,619Cash
      paid for income taxes
              
              
              12,384
              
              
              
              34,814
              
              
              
              37,510Cash
      paid for income taxes to DISH
              
              
              400,468
              
              
              
              602,282
              
              
              
              -Vendor
      financing
              
              
              -
              
              
              
              23,314
              
              
              
              -Satellite
      and other assets financed under capital lease obligations
              
              
              140,109
              
              
              
              1,155
              
              
              
              198,219Net
      assets contributed in connection with the Spin-off, excluding cash and
      cash equivalents
              
              
              -
              
              
              
              1,005,553
              
              
              
              -


With
respect to “Cash paid for income taxes to DISH,” the $602 million paid in 2008
includes $174 million previously reported as paid in 2007 that related to the
2007 fiscal year but was paid in 2008.


F-14
 Table of Contents
 DISH
DBS CORPORATION
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - Continued




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 December 31,2009
              
              
              2008(In
      thousands)Marketable
      investment securities:Current
      marketable investment securities - VRDNs
              
              $
              963,913
              
              
              $
              205,513Current
      marketable investment securities - other
              
              
              745,218
              
              
              
              177,576Total
      current marketable investment securities
              
              
              1,709,131
              
              
              
              383,089Restricted
      marketable investment securities (1)
              
              
              11,042
              
              
              
              10,680Total
      marketable investment securities
              
              
              1,720,173
              
              
              
              393,769Restricted
      cash and cash equivalents (1)
              
              
              117,432
              
              
              
              60,063Other
      investment securities:Other
      investment securities - cost method
              
              
              2,805
              
              
              
              5,739Other
      investment securities - equity method
              
              
              -
              
              
              
              20,908Total
      other investment securities
              
              
              2,805
              
              
              
              26,647Total
      marketable investment securities, restricted cash and other investment
      securities
              
              $
              1,840,410
              
              
              $
              480,479





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





Marketable
Investment Securities





Our
marketable investment securities portfolio consists of various debt instruments,
all of which are classified as available-for-sale (see Note 2).





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 on a same day or on a five business day settlement
basis.





Current
Marketable Investment Securities - other





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





Restricted
Cash and Marketable Investment Securities





As of
December 31, 2009 and 2008, our restricted marketable investment securities,
together with our restricted cash, included amounts required as collateral for
our letters of credit or surety bonds.  Restricted cash and marketable
investment securities as of December 31, 2009 included $62 million related to
our litigation with Tivo.


F-15
 Table of Contents
 DISH
DBS CORPORATION
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - Continued




Other
Investment Securities





We have
strategic investments in certain debt and equity securities that are included in
noncurrent “Other investment securities” on our Consolidated Balance Sheets
accounted for using the cost or equity methods of accounting.





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.





Unrealized
Gains (Losses) on Marketable Investment Securities





As of
December 31, 2009 and 2008, we had accumulated net unrealized gains of $4
million and losses of $9 million, respectively, both net of related tax effect,
as a part of “Accumulated other comprehensive income (loss)” within “Total
stockholder’s equity (deficit).”  A full valuation allowance has been
established against the net deferred tax assets associated with these and other
unrealized capital gains and losses.  The components of our
available-for-sale investments are detailed in the table below.





As
      of December 31,2009
              
              
              2008Marketable
              
              
              
              
              
              
              
              
              
              
              
              MarketableInvestment
              
              
              Unrealized
              
              
              Investment
              
              
              UnrealizedSecurities
              
              
              Gains
              
              
              Losses
              
              
              Net
              
              
              Securities
              
              
              Gains
              
              
              Losses
              
              
              Net(In
      thousands)Debt
      securities:VRDNs
              
              $
              963,913
              
              
              $
              1
              
              
              $
              (3
              )
              
              $
              (2
              )
              
              $
              205,513
              
              
              $
              -
              
              
              $
              -
              
              
              $
              -Other
      (including restricted)
              
              
              756,260
              
              
              
              5,336
              
              
              
              (1,501
              )
              
              
              3,835
              
              
              
              188,256
              
              
              
              60
              
              
              
              (8,852
              )
              
              
              (8,792
              )Total
      marketable investment securities
              
              $
              1,720,173
              
              
              $
              5,337
              
              
              $
              (1,504
              )
              
              $
              3,833
              
              
              $
              393,769
              
              
              $
              60
              
              
              $
              (8,852
              )
              
              $
              (8,792
              )





As of
December 31, 2009, restricted and non-restricted marketable investment
securities include debt securities of $1.591 billion with contractual maturities
of one year or less and $129 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.


F-16
 Table of Contents
 DISH
DBS CORPORATION
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS -
Continued


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.  As of December 31, 2009 and 2008,
the unrealized losses on our investments in debt securities primarily represent
investments in mortgage and asset-backed securities.  We do not intend
to sell our investments in these debt securities before they recover or mature,
and it is more likely than not that we will hold these 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
              
              As
      of December 31, 2009Reason
      for
              
              Total
              
              
              Less
      than Six Months
              
              
              Six
      to Nine Months
              
              
              Nine
      Months or MoreInvestment
              
              Unrealized
              
              Fair
              
              
              Fair
              
              
              Unrealized
              
              
              Fair
              
              
              Unrealized
              
              
              Fair
              
              
              UnrealizedCategory
              
              Loss
              
              Value
              
              
              Value
              
              
              Loss
              
              
              Value
              
              
              Loss
              
              
              Value
              
              
              Loss(In
      thousands)Debt
      securities
              
              Temporary
      market fluctuations
              
              $
              190,760
              
              
              $
              144,819
              
              
              $
              (277
              )
              
              $
              6,892
              
              
              $
              (41
              )
              
              $
              39,049
              
              
              $
              (1,186
              )Total
              
              
              
              $
              190,760
              
              
              $
              144,819
              
              
              $
              (277
              )
              
              $
              6,892
              
              
              $
              (41
              )
              
              $
              39,049
              
              
              $
              (1,186
              )As of December
      31, 2008(In
      thousands)Debt
      securities
              
              Temporary
      market fluctuations
              
              $
              144,798
              
              
              $
              -
              
              
              $
              -
              
              
              $
              6,529
              
              
              $
              (19
              )
              
              $
              138,269
              
              
              $
              (8,833
              )Total
              
              
              
              $
              144,798
              
              
              $
              -
              
              
              $
              -
              
              
              $
              6,529
              
              
              $
              (19
              )
              
              $
              138,269
              
              
              $
              (8,833
              )





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
      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.




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




Total
      Fair Value As of December 31, 2009Assets
              
              Total
              
              
              Level
      1
              
              
              Level
      2
              
              
              Level
      3(In
      thousands)Marketable
      investment securities
              
              $
              1,720,173
              
              
              $
              11,042
              
              
              $
              1,709,131
              
              
              $
              -




F-17
 Table of Contents
 DISH
DBS CORPORATION
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS -
Continued


Gains
and Losses on Sales and Changes in Carrying Values of
Investments





“Other,
net” income and expense included on our Consolidated Statements of Operations
and Comprehensive Income (Loss) includes other changes in the carrying amount of
our marketable and non-marketable investments as follows:




For
      the Years Ended December 31,Other
      Income (Expense):
              
              2009
              
              
              2008
              
              
              2007(In
      thousands)Marketable
      investment securities - other-than-temporary impairments
              
              $
              -
              
              
              $
              (11,247
              )
              
              $
              -Other
      investment securities - other-than-temporary impairments
              
              
              (18,933
              )
              
              
              -
              
              
              
              -Other
      investment securities - gains (losses) on sales
              
              
              -
              
              
              
              53,473
              
              
              
              -Other
              
              
              (196
              )
              
              
              3,165
              
              
              
              (562
              )Total
              
              $
              (19,129
              )
              
              $
              45,391
              
              
              $
              (562
              )







5.  Inventory





Inventory
consists of the following:





As
      of December 31,2009
              
              
              2008(In
      thousands)Finished
      goods - DBS
              
              $
              199,189
              
              
              $
              226,305Raw
      materials
              
              
              60,837
              
              
              
              144,028Work-in-process
      - used
              
              
              34,204
              
              
              
              53,968Work-in-process
      - new
              
              
              1,720
              
              
              
              2,370Inventory
              
              $
              295,950
              
              
              $
              426,671




As of
December 31, 2009 our inventory balance was $296 million, a decline of $131
million compared to our balance at December 31, 2008.  This decline
primarily related to the impact of adding new subscribers as a result of our
sales and marketing promotions together with the impact of reduced churn during
the last half of 2009.








6.  Property
and Equipment





Property
and equipment consist of the following:





DepreciableLife
              
              
              As
      of December 31,(In
      Years)
              
              
              2009
              
              
              2008(In
      thousands)Equipment
      leased to customers
              
              
              2-5
              
              
              $
              3,295,298
              
              
              $
              3,021,149EchoStar
      I
              
              
              12
              
              
              
              201,607
              
              
              
              201,607EchoStar
      V (1)
              
              
              9
              
              
              
              -
              
              
              
              203,511EchoStar
      VII
              
              
              12
              
              
              
              177,000
              
              
              
              177,000EchoStar
      X
              
              
              12
              
              
              
              177,192
              
              
              
              177,192EchoStar
      XI
              
              
              12
              
              
              
              200,198
              
              
              
              200,198Satellites
      acquired under capital lease agreements (2)
              
              
              10-15
              
              
              
              499,819
              
              
              
              223,423Furniture,
      fixtures, equipment and other
              
              
              1-10
              
              
              
              454,048
              
              
              
              419,505Buildings
      and improvements
              
              
              1-40
              
              
              
              65,306
              
              
              
              64,872Land
              
              
              -
              
              
              
              3,760
              
              
              
              3,760Construction
      in progress
              
              
              -
              
              
              
              13,686
              
              
              
              171,207Total
      property and equipment
              
              
              
              
              
              $
              5,087,914
              
              
              $
              4,863,424Accumulated
      depreciation
              
              
              
              
              
              
              (2,486,734
              )
              
              
              (2,432,707
              )Property
      and equipment, net
              
              
              
              
              
              $
              2,601,180
              
              
              $
              2,430,717


(1)
            EchoStar
      V was retired from commercial service on August 3,
  2009.


(2)
            Ciel
      II was placed in service in February
2009.


F-18
 Table of Contents
 DISH
DBS CORPORATION
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS -
Continued





Construction
in progress consists of the following:





As
      of December 31,2009
              
              
              2008(In
      thousands)Progress
      amounts for satellite construction, including certain
    amountsprepaid
      under satellite service agreements and launch costs
              
              $
              -
              
              
              $
              150,468Software
      related projects
              
              
              7,440
              
              
              
              12,102Other
              
              
              6,246
              
              
              
              8,637Construction
      in progress
              
              $
              13,686
              
              
              $
              171,207


Depreciation
and amortization expense consists of the following:




For
      the Years Ended December 31,2009
              
              
              2008
              
              
              2007(In
      thousands)Equipment
      leased to customers
              
              $
              799,169
              
              
              $
              827,599
              
              
              $
              854,533Satellites
              
              
              86,430
              
              
              
              89,435
              
              
              
              245,349Furniture,
      fixtures, equipment and other
              
              
              46,787
              
              
              
              73,447
              
              
              
              176,842Identifiable
      intangible assets subject to amortization
              
              
              2,427
              
              
              
              5,009
              
              
              
              36,031Buildings
      and improvements
              
              
              4,901
              
              
              
              4,740
              
              
              
              7,870Total
      depreciation and amortization
              
              $
              939,714
              
              
              $
              1,000,230
              
              
              $
              1,320,625




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





The cost
of our satellites includes capitalized interest of $6 million and $7 million
during the years ended December 31, 2008 and 2007, respectively.  We
did not record any capitalized interest during the year ended December 31,
2009.


F-19
 Table of Contents
 DISH
DBS CORPORATION
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS -
Continued


Satellites





We
currently utilize 11 satellites in geostationary orbit approximately 22,300
miles above the equator, four of which we own.  Each of the owned
satellites had an original estimated minimum useful life of at least 12
years.  We currently lease capacity on five satellites from EchoStar
with terms ranging from two to ten years.  We account for these as
operating leases.  See Note 16 for further discussion of our satellite
leases with EchoStar.  We also lease two satellites from third
parties, which are accounted for as capital leases and are depreciated over the
shorter of the economic life or the term of the satellite
agreement.





OriginalDegree
              
              
              UsefulLaunch
              
              Orbital
              
              
              Life
              
              
              Lease
      TermSatellites
              
              Date
              
              Location
              
              
              (Years)
              
              
              (Years)Owned:EchoStar
      I (1)
              
              December
      1995
              
              
              77
              
              
              
              12EchoStar
      VII
              
              February
      2002
              
              
              119
              
              
              
              12EchoStar
      X
              
              February
      2006
              
              
              110
              
              
              
              12EchoStar
      XI
              
              July
      2008
              
              
              110
              
              
              
              12Leased
      from EchoStar:EchoStar
      III (1)
              
              October
      1997
              
              
              61.5
              
              
              
              12EchoStar
      VI (1)
              
              July
      2000
              
              
              72.7
              
              
              
              12EchoStar
      VIII (1)(2)
              
              August
      2002
              
              
              77
              
              
              
              12EchoStar
      XII (1)
              
              July
      2003
              
              
              61.5
              
              
              
              10Nimiq
      5 (2)
              
              September
      2009
              
              
              72.7
              
              
              
              10
              
              
              
              10Leased
      from Other Third Party:Anik
      F3 (3)
              
              April
      2007
              
              
              118.7
              
              
              
              15
              
              
              
              15Ciel
      II (3)
              
              December
      2008
              
              
              129
              
              
              
              10
              
              
              
              10Under
      Construction:Leased
      from EchoStarQuetzSat-1
              
              2011
              
              
              77
              
              
              
              10
              
              
              
              10EchoStar
      XVI
              
              2012
              
              
              61.5
              
              
              
              10
              
              
              
              10


(1)
            See
      Note 16 for discussion of the lease term for satellites leased from
      EchoStar.


(2)
            We
      lease a portion of the capacity on these
  satellites.


(3)
            These
      satellites are accounted for as capital
leases.





Satellite
Anomalies





Operation
of our programming 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 expanding local HD coverage 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 may have a material adverse effect on our business,
financial condition and results of operations.


Prior to
2009, 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


F-20
 Table of Contents
 DISH
DBS CORPORATION
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS -
Continued


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 we will bear the risk associated
with any in-orbit satellite failures.  Recent developments with
respect to our satellites are discussed below.





Owned
Satellites





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 disclosed in previous SEC filings.  During 2005,
as a result of this increased fuel consumption, we reduced the remaining
estimated useful life of the satellite and as of October 2008, the satellite was
fully depreciated.  In late July 2009, it was determined that the
satellite had less fuel remaining than previously estimated, therefore the
satellite was removed from the 148 degree orbital location and retired from
commercial service on August 3, 2009. This retirement did not have a material
impact on the DISH Network service.





As a
result of the retirement of EchoStar V, we currently do not have any satellites
positioned at the 148 degree orbital location.  We have requested a
waiver from the FCC for the continued use of this orbital location; however,
there can be no assurance that the FCC will determine that our proposed future
use of this orbital location complies fully with all licensing
requirements.  If the FCC decides to revoke this license, we may be
required to write-off its $68 million carrying value.





Leased
Satellites





EchoStar
III.  EchoStar III was originally designed to operate a maximum
of 32 DBS transponders in full continental United States (“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 an additional pair of TWTA failures during August
2009, only 14 transponders are currently available for use.  Due to
redundancy switching limitations and specific channel authorizations, we are
currently operating on 13 of our FCC authorized frequencies at the 61.5 degree
orbital location.  While the failures have not impacted commercial
operation of the satellite, it is likely that additional TWTA failures will
occur from time to time in the future and such failures could impact commercial
operation of the satellite.





EchoStar
XII.Prior
to 2009, EchoStar XII experienced anomalies resulting in the loss of electrical
power available from its solar arrays.  During March and May 2009,
EchoStar XII experienced more of these anomalies, which further reduced the
electrical power available to operate EchoStar XII.  We currently
operate EchoStar XII in CONUS/spot beam hybrid mode.  If we continue
to operate the satellite in this mode, as a result of this loss of electrical
power, we would be unable to use the full complement of its available
transponders for the remaining useful life of the satellite.  However,
since the number of useable transponders on EchoStar XII depends on, among other
things, whether EchoStar XII is operated in CONUS, spot beam, or hybrid
CONUS/spot beam mode, we are unable to determine at this time the actual number
of transponders that will be available at any given time or how many
transponders can be used during the remaining estimated life of the
satellite.





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 support expansion of our
programming services.  See Note 16 for further
discussion.





Long-Lived
Satellite Assets.  We evaluate our satellite fleet for
impairment as one asset group and test for recoverability whenever events or
changes in circumstances indicate that its carrying amount may not be
recoverable.  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 are not considered to be significant events that would require
evaluation for impairment recognition.  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.


F-21
 Table of Contents
 DISH
DBS CORPORATION
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - Continued




7.  Long-Term
Debt





6
3/8% Senior Notes due 2011





The 6
3/8% Senior Notes mature October 1, 2011.  Interest accrues at an
annual rate of 6 3/8% and is payable semi-annually in cash, in arrears on April
1 and October 1 of each year.





The 6
3/8% Senior Notes are redeemable, in whole or in part, at any time at a
redemption price equal to 100% of their principal amount plus a “make-whole”
premium, as defined in the related indenture, together with accrued and unpaid
interest.





The 6
3/8% Senior Notes are:





·
            general
      unsecured senior obligations of
DDBS;


·
            ranked
      equally in right of payment with all of DDBS’ 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 6 3/8% Senior Notes contains restrictive covenants
that, among other things, impose limitations on the ability of DDBS and its
restricted subsidiaries to:





·
            incur
      additional indebtedness or enter into sale and leaseback
      transactions;


·
            pay
      dividends or make distribution on DDBS’ capital stock or repurchase DDBS’
      capital stock;


·
            make
      certain investments;


·
            create
      liens;


·
            enter
      into transactions with affiliates;


·
            merge
      or consolidate with another company;
and


·
            transfer
      or sell assets.





In the
event of a change of control, as defined in the related indenture, we would be
required to make an offer to repurchase all or any part of a holder’s 6 3/8%
Senior Notes at a purchase price equal to 101% of the aggregate principal amount
thereof, together with accrued and unpaid interest thereon, to the date of
repurchase.





7%
Senior Notes due 2013





The 7%
Senior Notes mature October 1, 2013.  Interest accrues at an annual
rate of 7% and is payable semi-annually in cash, in arrears on April 1 and
October 1 of each year.





The 7%
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.





The 7%
Senior Notes are:





·
            general
      unsecured senior obligations of
DDBS;


·
            ranked
      equally in right of payment with all of DDBS’ 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.


F-22
 Table of Contents
 DISH
DBS CORPORATION
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - Continued




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





·
            incur
      additional debt;


·
            pay
      dividends or make distribution on DDBS’ capital stock or repurchase DDBS’
      capital stock;


·
            make
      certain investments;


·
            create
      liens or enter into sale and leaseback
  transactions;


·
            enter
      into transactions with affiliates;


·
            merge
      or consolidate with another company;
and


·
            transfer
      or sell assets.





In the
event of a change of control, as defined in the related indenture, we would be
required to make an offer to repurchase all or any part of a holder’s 7% Senior
Notes at a purchase price equal to 101% of the aggregate principal amount
thereof, together with accrued and unpaid interest thereon, to the date of
repurchase.





6
5/8% Senior Notes due 2014





The 6
5/8% Senior Notes mature October 1, 2014.  Interest accrues at an
annual rate of 6 5/8% and is payable semi-annually in cash, in arrears on April
1 and October 1 of each year.





The 6
5/8% Senior Notes are redeemable, in whole or in part, at any time at a
redemption price equal to 100% of their principal amount plus a “make-whole”
premium, as defined in the related indenture, together with accrued and unpaid
interest.





The 6
5/8% Senior Notes are:





·
            general
      unsecured senior obligations of
DDBS;


·
            ranked
      equally in right of payment with all of DDBS’ 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 6 5/8% Senior Notes contains restrictive covenants
that, among other things, impose limitations on the ability of DDBS and its
restricted subsidiaries to:





·
            incur
      additional indebtedness or enter into sale and leaseback
      transactions;


·
            pay
      dividends or make distribution on DDBS’ capital stock or repurchase DDBS’
      capital stock;


·
            make
      certain investments;


·
            create
      liens;


·
            enter
      into transactions with affiliates;


·
            merge
      or consolidate with another company;
and


·
            transfer
      or sell assets.





In the
event of a change of control, as defined in the related indenture, we would be
required to make an offer to repurchase all or any part of a holder’s 6 5/8%
Senior Notes at a purchase price equal to 101% of the aggregate principal amount
thereof, together with accrued and unpaid interest thereon, to the date of
repurchase.





73⁄4% Senior Notes
due 2015





The 7 3⁄4%
Senior Notes mature 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.





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


F-23
 Table of Contents
 DISH
DBS CORPORATION
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS -
Continued


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
DDBS;


·
            ranked
      equally in right of payment with all of DDBS’ 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 DDBS and its restricted
subsidiaries to:





·
            incur
      additional debt;


·
            pay
      dividends or make distribution on DDBS’ capital stock or repurchase DDBS’
      capital stock;


·
            make
      certain investments;


·
            create
      liens or enter into sale and leaseback
  transactions;


·
            enter
      into transactions with affiliates;


·
            merge
      or consolidate with another company;
and


·
            transfer
      or sell assets.





In the
event of a change of control, as defined in the related indenture, we would be
required to make an offer to repurchase all or any part of a holder’s 7 3⁄4%
Senior Notes at a purchase price equal to 101% of the aggregate principal amount
thereof, together with accrued and unpaid interest thereon, to the date of
repurchase.





7
1/8% Senior Notes due 2016





The 7
1/8% Senior Notes mature February 1, 2016.  Interest accrues at an
annual rate of 7 1/8% and is payable semi-annually in cash, in arrears on
February 1 and August 1 of each year.





The 7
1/8% 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.





The 7
1/8% Senior Notes are:





·
            general
      unsecured senior obligations of
DDBS;


·
            ranked
      equally in right of payment with all of DDBS’ 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 1/8% Senior Notes contains restrictive covenants
that, among other things, impose limitations on the ability of DDBS and its
restricted subsidiaries to:





·
            incur
      additional debt;


·
            pay
      dividends or make distribution on DDBS’ capital stock or repurchase DDBS’
      capital stock;


·
            make
      certain investments;


·
            create
      liens or enter into sale and leaseback
  transactions;


·
            enter
      into transactions with affiliates;


·
            merge
      or consolidate with another company;
and


·
            transfer
      or sell assets.


F-24
 Table of Contents
 DISH
DBS CORPORATION
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - Continued




In the
event of a change of control, as defined in the related indenture, we would be
required to make an offer to repurchase all or any part of a holder’s 7 1/8%
Senior Notes at a purchase price equal to 101% of the aggregate principal amount
thereof, together with accrued and unpaid interest thereon, to the date of
repurchase.





77⁄8% Senior Notes
due 2019





On August
17, 2009, we issued $1.0 billion aggregate principal amount of our ten-year, 7
7⁄8% Senior Notes due September 1, 2019 at an issue price of
97.467%.  Interest accrues at an annual rate of 7 7⁄8% and is payable
semi-annually in cash, in arrears on March 1 and September 1 of each year,
commencing on March 1, 2010.





On
October 5, 2009, we issued $400 million aggregate principal amount of additional
7 7⁄8% Senior Notes due 2019 at an issue price of 101.750% plus accrued interest
from August 17, 2009.  These notes were issued as additional notes
under the indenture, dated as of August 17, 2009, pursuant to which we issued
the $1.0 billion discussed above.  These notes and the notes
previously issued under the related indenture will be treated as a single class
of debt securities.





The 7 7⁄8%
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 September 1, 2012, we may also redeem up to 35% of
each of the 7 7⁄8% Senior Notes at specified premiums with the net cash proceeds
from certain equity offerings or capital contributions.





The 7 7⁄8%
Senior Notes are:





·
            general
      unsecured senior obligations
of DDBS;


·
            ranked
      equally in right of payment with all of DDBS’ 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 7⁄8% Senior Notes contains restrictive covenants that,
among other things, impose limitations on the ability of DDBS and its restricted
subsidiaries to:





·
            incur
      additional debt;


·
            pay
      dividends or make distributions on DDBS’ capital stock or repurchase DDBS’
      capital stock;


·
            make
      certain investments;


·
            create
      liens or enter into sale and leaseback
  transactions;


·
            enter
      into transactions with affiliates;


·
            merge
      or consolidate with another company;
and


·
            transfer
      or sell assets.





In the
event of a change of control, as defined in the related indenture, we would be
required to make an offer to repurchase all or any part of a holder’s 7 7⁄8%
Senior Notes at a purchase price equal to 101% of the aggregate principal amount
thereof, together with accrued and unpaid interest thereon, to the date of
repurchase.


F-25
 Table of Contents
 DISH
DBS CORPORATION
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - Continued




Interest
on Long-Term Debt





AnnualSemi-Annual
              
              Debt
      ServicePayment
      Dates
              
              Requirements6
      3/8% Senior Notes due 2011
              April
      1 and October 1
              
              $
              63,750,0007%
      Senior Notes due 2013
              April
      1 and October 1
              
              $
              35,000,0006
      5/8% Senior Notes due 2014
              April
      1 and October 1
              
              $
              66,250,0007
      3/4% Senior Notes due 2015
              May
      31 and November 30
              
              $
              58,125,0007
      1/8% Senior Notes due 2016
              February
      1 and August 1
              
              $
              106,875,0007
      7/8% Senior Notes due 2019
              March
      1 and September 1
              
              $
              110,250,000





Our
ability to meet our debt service requirements will depend on, among other
factors, the successful execution of our business strategy, which is subject to
uncertainties and contingencies beyond our control.





Fair
Value of our Long-Term Debt





The
following table summarizes the carrying values and fair values of our debt
facilities at December 31, 2009 and 2008:




As
      of December 31,2009
              
              
              2008Carrying
      Value
              
              
              Fair
      Value
              
              
              Carrying
      Value
              
              
              Fair
      Value(In
      thousands)6
      3/8% Senior Notes due 2011
              
              $
              1,000,000
              
              
              $
              1,028,750
              
              
              $
              1,000,000
              
              
              $
              899,0007 %
      Senior Notes due 2013
              
              
              500,000
              
              
              
              515,000
              
              
              
              500,000
              
              
              
              419,0006
      5/8% Senior Notes due 2014
              
              
              1,000,000
              
              
              
              1,010,000
              
              
              
              1,000,000
              
              
              
              840,3007
      3/4% Senior Notes due 2015
              
              
              750,000
              
              
              
              789,375
              
              
              
              750,000
              
              
              
              600,0007
      1/8% Senior Notes due 2016
              
              
              1,500,000
              
              
              
              1,548,750
              
              
              
              1,500,000
              
              
              
              1,246,8907
      7/8% Senior Notes due 2019
              
              
              1,400,000
              
              
              
              1,473,500
              
              
              
              -
              
              
              
              -Mortgages
      and other notes payable
              
              
              42,107
              
              
              
              42,107
              
              
              
              46,210
              
              
              
              46,210Subtotal
              
              $
              6,192,107
              
              
              $
              6,407,482
              
              
              $
              4,796,210
              
              
              $
              4,051,400Capital
      lease obligations (1)
              
              
              304,457
              
              
              
              N/A
              
              
              
              186,545
              
              
              
              N/ATotal
      long-term debt (including current portion)
              
              $
              6,496,564
              
              
              $
              6,407,482
              
              
              $
              4,982,755
              
              
              $
              4,051,400




(1)
Disclosure regarding fair value of capital leases is not
required.


F-26
 Table of Contents
 DISH
DBS CORPORATION
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS -
Continued





Other
Long-Term Debt and Capital Lease Obligations





Other
long-term debt and capital lease obligations consist of the
following:





As
      of December 31,2009
              
              
              2008(In
      thousands)Satellites
      and other capital lease obligations
              
              $
              304,457
              
              
              $
              186,5458%
      note payable for EchoStar VII satellite vendor financing, payable over 13
      years from launch
              
              
              8,773
              
              
              
              9,8816%
      note payable for EchoStar X satellite vendor financing, payable over 15
      years from launch
              
              
              11,704
              
              
              
              12,4986%
      note payable for EchoStar XI satellite vendor financing, payable over 15
      years from launch
              
              
              16,748
              
              
              
              17,500Mortgages
      and other unsecured notes payable due in installments through
      2017with
      interest rates ranging from approximately 2% to 13%
              
              
              4,882
              
              
              
              6,332Total
              
              
              346,564
              
              
              
              232,756Less
      current portion
              
              
              (26,518
              )
              
              
              (13,333
              )Other
      long-term debt and capital lease obligations, net of current
      portion
              
              $
              320,046
              
              
              $
              219,423





Capital
Lease Obligations





Anik F3.  Anik F3,
an FSS satellite, was launched and commenced commercial operation during April
2007.  This satellite is accounted for as a capital lease and
depreciated over the term of the satellite service agreement.  We have
leased 100% of the Ku-band capacity on Anik F3 for a period of 15
years.





Ciel II.  Ciel II,
a Canadian DBS satellite, was launched in December 2008 and commenced commercial
operation during February 2009.  This satellite is accounted for as a
capital lease and depreciated over the term of the satellite service
agreement.  We have leased 100% of the capacity on Ciel II for an
initial ten-year term.





As of
December 31, 2009 and 2008, we had $500 million and $223 million capitalized for
the estimated fair value of satellites acquired under capital leases included in
“Property and equipment, net,” with related accumulated depreciation of $66
million and $26 million, respectively.  In our Consolidated Statements
of Operations and Comprehensive Income (Loss), we recognized $40 million, $15
million and $66 million in depreciation expense on satellites acquired under
capital lease agreements during the years ended December 31, 2009, 2008 and
2007, respectively.





Future
minimum lease payments under the capital lease obligation, together with the
present value of the net minimum lease payments as of December 31, 2009 are as
follows (in thousands):





For
      the Years Ending December 31,2010
              
              $
              81,2632011
              
              
              78,3532012
              
              
              75,9702013
              
              
              75,9702014
              
              
              75,970Thereafter
              
              
              466,209Total
      minimum lease payments
              
              
              853,735Less:  Amount
      representing lease of the orbital location and estimated executory costs
      (primarilyinsurance
      and maintenance) including profit thereon, included in total minimum lease
      payments
              
              
              (392,544
              )Net
      minimum lease payments
              
              
              461,191Less:  Amount
      representing interest
              
              
              (156,734
              )Present
      value of net minimum lease payments
              
              
              304,457Less:  Current
      portion
              
              
              (22,375
              )Long-term
      portion of capital lease obligations
              
              $
              282,082





The
summary of future maturities of our outstanding long-term debt as of December
31, 2009 is included in the commitments table in Note 11.


F-27
 Table of Contents
 DISH
DBS CORPORATION
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - Continued




8.
            Income
      Taxes and Accounting for Uncertainty in Income
  Taxes





Income
Taxes





Our
income tax policy is to record the estimated future tax effects of temporary
differences between the tax bases of assets and liabilities and amounts reported
on our Consolidated Balance Sheets, as well as probable operating loss, tax
credit and other carryforwards.  Deferred tax assets are offset by
valuation allowances when we believe it is more likely than not that net
deferred tax assets will not be realized.  We periodically evaluate
our need for a valuation allowance.  Determining necessary valuation
allowances requires us to make assessments about historical financial
information as well as the timing of future events, including the probability of
expected future taxable income and available tax planning
opportunities.





As of
December 31, 2009, we had no net operating loss carryforwards (“NOLs”) for
federal income tax purposes and $1 million of NOLs for state income tax
purposes. The state NOLs begin to expire in the year 2020.




DDBS and
its domestic subsidiaries join with DISH in filing U.S. consolidated federal
income tax returns and, in some states, combined or consolidated
returns.  The federal and state income tax provisions or benefits
recorded by DDBS are generally those that would have been recorded if DDBS and
its domestic subsidiaries had filed returns as a consolidated group independent
of DISH.  Cash is due and paid to DISH based on amounts that would be
payable based on DDBS consolidated or combined group filings.  Amounts
are receivable from DISH on a basis similar to when they would be receivable
from the IRS or other state taxing authorities.  The
amounts paid to DISH during the years ended December 31, 2009 and 2008 were $400
million and $602 million, respectively.  We did not pay any taxes to
DISH during the year ended December 31, 2007.


The
components of the (provision for) benefit from income taxes are as
follows:





For
      the Years Ended December 31,2009
              
              
              2008
              
              
              2007(In
      thousands)Current
      (provision) benefit:Federal
              
              $
              (360,974
              )
              
              $
              (459,864
              )
              
              $
              (204,590
              )State
              
              
              (44,399
              )
              
              
              (56,837
              )
              
              
              (71,756
              )Foreign
              
              
              (78
              )
              
              
              -
              
              
              
              (1,978
              )(405,451
              )
              
              
              (516,701
              )
              
              
              (278,324
              )Deferred
      (provision) benefit:Federal
              
              
              38,828
              
              
              
              (156,589
              )
              
              
              (233,729
              )State
              
              
              789
              
              
              
              (19,354
              )
              
              
              (22,372
              )Decrease
      (increase) in valuation allowance
              
              
              (7,104
              )
              
              
              (4,302
              )
              
              
              24932,513
              
              
              
              (180,245
              )
              
              
              (255,852
              )Total
      benefit (provision)
              
              $
              (372,938
              )
              
              $
              (696,946
              )
              
              $
              (534,176
              )


F-28
 Table of Contents
 DISH
DBS CORPORATION
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - Continued




The
actual tax provisions for 2009, 2008 and 2007 reconcile to the amounts computed
by applying the statutory Federal tax rate to income before taxes as
follows:





For
      the Years Ended December 31,2009
              
              
              2008
              
              
              2007%
      of pre-tax (income)/lossStatutory
      rate
              
              
              (35.0
              )
              
              
              (35.0
              )
              
              
              (35.0
              )State
      income taxes, net of Federal benefit
              
              
              (3.4
              )
              
              
              (2.6
              )
              
              
              (4.1
              )Foreign
      taxes and income not U.S. taxable
              
              
              -
              
              
              
              -
              
              
              
              (0.1
              )Stock
      option compensation
              
              
              (0.2
              )
              
              
              -
              
              
              
              (0.2
              )Other
              
              
              1.1
              
              
              
              (1.1
              )
              
              
              (0.3
              )Decrease
      (increase) in valuation allowance
              
              
              (0.7
              )
              
              
              (0.2
              )
              
              
              -Total
      benefit (provision) for income taxes
              
              
              (38.2
              )
              
              
              (38.9
              )
              
              
              (39.7
              )





The
temporary differences, which give rise to deferred tax assets and liabilities as
of December 31, 2009 and 2008, are as follows:





As
      of December 31,2009
              
              
              2008(In
      thousands)Deferred
      tax assets:NOL,
      credit and other carryforwards
              
              $
              1,473
              
              
              $
              447Unrealized
      losses on investments
              
              
              9,122
              
              
              
              6,531Accrued
      expenses
              
              
              169,773
              
              
              
              47,451Stock
      compensation
              
              
              9,109
              
              
              
              7,826Deferred
      revenue
              
              
              43,328
              
              
              
              62,110State
      taxes net of federal effect
              
              
              3,878
              
              
              
              689Other
              
              
              373
              
              
              
              -Total
      deferred tax assets
              
              
              237,056
              
              
              
              125,054Valuation
      allowance
              
              
              (9,891
              )
              
              
              (6,897
              )Deferred
      tax asset after valuation allowance
              
              
              227,165
              
              
              
              118,157Deferred
      tax liabilities:Equity
      method investments
              
              
              -
              
              
              
              (318
              )Depreciation
      and amortization
              
              
              (408,333
              )
              
              
              (297,541
              )Total
      deferred tax liabilities
              
              
              (408,333
              )
              
              
              (297,859
              )Net
      deferred tax asset (liability)
              
              $
              (181,168
              )
              
              $
              (179,702
              )Current
      portion of net deferred tax asset (liability)
              
              $
              189,058
              
              
              $
              84,734Noncurrent
      portion of net deferred tax asset (liability)
              
              
              (370,226
              )
              
              
              (264,436
              )Total
      net deferred tax asset (liability)
              
              $
              (181,168
              )
              
              $
              (179,702
              )


F-29
 Table of Contents
 DISH
DBS CORPORATION
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS -
Continued


Accounting
for Uncertainty in Income Taxes





In
addition to filing federal income tax returns, we and one or more of our
subsidiaries file income tax returns in all states that impose an income tax and
a small number of foreign jurisdictions where we have immaterial
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 December
31, 2009, 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, 2009
              
              $
              208,103Additions
      based on tax positions related to the current year
              
              
              7,952Additions
      based on tax positions related to prior years
              
              
              11,974Reductions
      based on tax positions related to prior years
              
              
              (6,042
              )Reductions
      based on tax positions related to settlements with taxing
      authorities
              
              
              (5,899
              )Reductions
      based on tax positions related to the lapse of the statute of
      limitations
              
              
              (2,182
              )Balance
      as of December 31, 2009
              
              $
              213,906




We have
$159 million in unrecognized tax benefits that, if recognized, could favorably
affect our effective tax rate.  We do not expect any portion of this
amount to be paid or settled within the next twelve months.





Accrued
interest and penalties on uncertain tax positions are recorded as a component of
“Other, net” on our Consolidated Statements of Operations and Comprehensive
Income (Loss).  During the year ended December 31, 2009, we recorded
$8 million in interest and penalty expense to earnings.  Accrued
interest and penalties was $15 million at December 31, 2009.





9.  Employee
Benefit Plans





Employee
Stock Purchase Plan





During
1997, DISH’s Board of Directors and stockholders approved an employee stock
purchase plan (the “ESPP”).  During 2006, this plan was amended for
the purpose of registering an additional 1.0 million shares of Class A common
stock, such that DISH was authorized to issue a total of 1.8 million shares of
Class A Common stock.  At December 31, 2009, DISH had 0.7 million
remaining Class A common stock available for issuance under this
plan.  Substantially all full-time employees who have been employed by
DISH for at least one calendar quarter are eligible to participate in the
ESPP.  Employee stock purchases are made through payroll
deductions.  Under the terms of the ESPP, employees may not deduct an
amount which would permit such employee to purchase DISH’s capital stock under
all of DISH’s stock purchase plans at a rate which would exceed $25,000 in fair
value of capital stock in any one year.  The purchase price of the
stock is 85% of the closing price of DISH’s Class A common stock on the last
business day of each calendar quarter in which such shares of Class A common
stock are deemed sold to an employee under the ESPP.  During the years
ended December 31, 2009, 2008 and 2007, employee purchases of Class A common
stock through the ESPP totaled approximately 0.2 million, 0.1 million and 0.1
million shares, respectively.





401(k)
Employee Savings Plan





DISH
sponsors a 401(k) Employee Savings Plan (the “401(k) Plan”) for eligible
employees.  Voluntary employee contributions to the 401(k) Plan may be
matched 50% by DISH, subject to a maximum annual contribution of $1,500 per
employee.  Forfeitures of unvested participant balances which are
retained by the 401(k) Plan may be used to fund matching and discretionary
contributions.  DISH also may make an annual discretionary
contribution to the plan with approval by our Board of Directors, subject to the
maximum deductible limit provided by the Internal Revenue Code of 1986, as
amended.  These contributions may be made in cash or in DISH’s
stock.


F-30
 Table of Contents
 DISH
DBS CORPORATION
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - Continued




The
following table summarizes the expense associated with our matching
contributions and discretionary contributions:





For
      the Years Ended December 31,Expense
      Recognized Related to the 401(k) Plan
              
              2009
              
              
              2008
              
              
              2007(In
      thousands)Matching
      contributions, net of forfeitures
              
              $
              6,116
              
              
              $
              4,641
              
              
              $
              2,444Discretionary
      stock contributions, net of forfeitures
              
              $
              29,004
              
              
              $
              12,436
              
              
              $
              19,594





10.  Stock-Based
Compensation





Stock
Incentive Plans





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





·
            an
      adjusted DISH stock option for the same number of shares that were
      exercisable under the original DISH stock option, with an exercise price
      equal to the exercise price of the original DISH 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 stock option, with an exercise price
      equal to the exercise price of the original DISH stock option multiplied
      by 0.843907.





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





Consequently,
the fair value of the DISH 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.





DISH
maintains stock incentive plans to attract and retain officers, directors and
key employees.  Our employees participate in the DISH stock incentive
plans.  Stock awards under these plans include both performance and
non-performance based stock incentives.  As of December 31, 2009,
there were outstanding under these plans stock options to acquire 18.1 million
shares of DISH’s Class A common stock and 0.9 million restricted stock units
associated with our employees.  Stock options granted through December
31, 2009 were granted with exercise prices equal to or greater than the market
value of DISH Class A common stock at the date of grant and with a maximum term
of ten years.  While historically DISH’s board of directors has issued
stock awards subject to vesting, typically at the rate of 20% per year, some
stock awards have been granted with immediate vesting and other stock awards
vest only upon the achievement of certain DISH-specific
objectives.  As of December 31, 2009, DISH had 79.2 million shares of
its Class A common stock available for future grant under its stock incentive
plans.  The 2009 Stock Incentive Plan, which was approved at the
annual meeting of shareholders on May 11, 2009, allows DISH to grant new stock
awards following the expiration of the 1999 Stock Incentive Plan on April 16,
2009.





As of
December 31, 2009, the following stock awards were outstanding:




As
      of December 31, 2009DISH
      Awards
              
              
              EchoStar
      AwardsStock
      Awards Outstanding
              
              Stock
                Options
              
              Restricted
                Stock
                Units
              
              Stock
                Options
              
              Restricted
                Stock
                UnitsHeld
      by DDBS employees
              
              
              18,094,235
              
              
              
              857,719
              
              
              
              1,278,344
              
              
              
              63,000


F-31
 Table of Contents
 DISH
DBS CORPORATION
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS -
Continued





DISH is
responsible for fulfilling all stock  awards related to DISH common
stock and EchoStar is responsible for fulfilling all stock  awards
related to EchoStar common stock, regardless of whether such stock awards are
held by our or EchoStar’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 DISH or
EchoStar.  Accordingly, stock-based compensation that we expense with
respect to EchoStar stock awards is included in “Additional paid-in capital” on
our Consolidated Balance Sheets.





Exercise
prices for DISH stock options outstanding and exercisable associated with our
employees as of December 31, 2009 are as follows:




Options
      Outstanding
              
              
              Options
      ExercisableNumber
      Outstanding as of December 31, 2009
              
              
              Weighted-
      Average Remaining Contractual Life
              
              
              Weighted-
      Average Exercise Price (1)
              
              
              Number
      Exercisable as of December 31, 2009
              
              
              Weighted-
      Average Remaining Contractual Life
              
              
              Weighted-
      Average Exercise Price (1)$
              10.00
              
              
              -
              
              $
              15.00
              
              
              
              6,985,805
              
              
              
              8.88
              
              
              $
              11.09
              
              
              
              608,055
              
              
              
              7.36
              
              
              $
              11.09$
              15.00
              
              
              -
              
              $
              20.00
              
              
              
              1,232,250
              
              
              
              9.07
              
              
              $
              16.73
              
              
              
              23,250
              
              
              
              3.79
              
              
              $
              15.93$
              20.00
              
              
              -
              
              $
              25.00
              
              
              
              3,741,313
              
              
              
              6.19
              
              
              $
              23.42
              
              
              
              870,763
              
              
              
              5.17
              
              
              $
              23.34$
              25.00
              
              
              -
              
              $
              30.00
              
              
              
              4,312,667
              
              
              
              6.01
              
              
              $
              26.68
              
              
              
              2,963,567
              
              
              
              5.37
              
              
              $
              26.25$
              30.00
              
              
              -
              
              $
              35.00
              
              
              
              450,900
              
              
              
              6.76
              
              
              $
              31.65
              
              
              
              226,100
              
              
              
              5.97
              
              
              $
              31.83$
              35.00
              
              
              -
              
              $
              40.00
              
              
              
              520,300
              
              
              
              7.39
              
              
              $
              36.40
              
              
              
              180,000
              
              
              
              7.37
              
              
              $
              36.33$
              40.00
              
              
              -
              
              $
              66.00
              
              
              
              851,000
              
              
              
              0.48
              
              
              $
              50.92
              
              
              
              851,000
              
              
              
              0.48
              
              
              $
              50.92$
              10.00
              
              
              -
              
              $
              66.00
              
              
              
              18,094,235
              
              
              
              7.16
              
              
              $
              20.86
              
              
              
              5,722,735
              
              
              
              4.90
              
              
              $
              28.36






(1)
            The
      weighted-average exercise prices in the above table do not reflect this
      reduction to the exercise price related to the Offer to Exchange,
      discussed under “Valuation” below.  The majority of the
      outstanding eligible incentive stock options at December 31, 2009 were
      exchanged subsequent to year
end.


F-32
 Table of Contents
 DISH
DBS CORPORATION
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - Continued




Stock
Award Activity





DISH
stock option activity associated with our employees for the years ended December
31, 2009, 2008 and 2007 was as follows:





2009
              
              
              2008
              
              
              2007Options
              
              
              Weighted-
      Average Exercise Price
              
              
              Options
      (1)
              
              
              Weighted-
      Average Exercise Price
              
              
              Options
              
              
              Weighted-
      Average Exercise Price (2)Total
      stock options outstanding, beginning of period
              
              
              18,267,950
              
              
              $
              21.86
              
              
              
              14,786,967
              
              
              $
              22.80
              
              
              
              22,002,305
              
              
              $
              25.65Granted
              
              
              3,077,000
              
              
              
              15.69
              
              
              
              7,998,500
              
              
              
              13.67
              
              
              
              1,493,526
              
              
              
              42.77Exercised
              
              
              (233,795
              )
              
              
              10.95
              
              
              
              (669,117
              )
              
              
              20.74
              
              
              
              (2,029,258
              )
              
              
              24.98Forfeited
      and cancelled
              
              
              (3,016,920
              )
              
              
              22.44
              
              
              
              (3,848,400
              )
              
              
              12.92
              
              
              
              (1,554,356
              )
              
              
              19.42Total
      stock options outstanding, end of period (3)
              
              
              18,094,235
              
              
              
              20.86
              
              
              
              18,267,950
              
              
              
              21.86
              
              
              
              19,912,217
              
              
              
              27.53Performance
      based stock options outstanding, end of period (3) (4)
              
              
              8,253,500
              
              
              
              16.27
              
              
              
              9,094,250
              
              
              
              16.28
              
              
              
              9,910,250
              
              
              
              20.47Exercisable
      at end of period (3)
              
              
              5,722,735
              
              
              
              28.36
              
              
              
              4,898,400
              
              
              
              30.00
              
              
              
              5,528,097
              
              
              
              35.02





(1)On the date of the Spin-off, former DDBS
employees that transferred to EchoStar held approximately 5.1 million DISH stock
options.  Stock option activity associated with these employees is
included in the 2007 activity.  However, these stock options are
excluded from the 2008 and 2009 activity because these individuals were no
longer DDBS employees after the Spin-off.





(2)           The
weighted-average exercise prices for 2007 reflect share prices before the
Spin-off.








(3)           The
weighted-average exercise prices in the above table do not reflect this
reduction to the exercise price related to the Offer to Exchange, discussed
under “Valuation” below.  The majority of the outstanding eligible
incentive stock options at December 31, 2009 were exchanged subsequent to year
end.





(4)           These
stock options, which are included in the caption “Total options outstanding, end
of period,” were issued pursuant to performance-based stock incentive
plans.  Vesting of these stock options is contingent upon meeting
certain long-term DISH-specific goals.  See discussion of the 2005
LTIP, 2008 LTIP and other employee performance plans below.





We
realized tax benefits from stock awards exercised during the years ended
December 31, 2009, 2008 and 2007 as follows:




For
      the Years Ended December 31,2009
              
              
              2008
              
              
              2007(In
      thousands)Tax
      benefit from stock awards exercised
              
              $
              1,116
              
              
              $
              2,905
              
              
              $
              14,826




Based on
the closing market price of DISH Class A common stock on December 31, 2009, the
aggregate intrinsic value of stock options associated with our employees was as
follows:





As
      of December 31, 2009Options
      Outstanding
              
              Options
      Exercisable(In
      thousands)Aggregate
      intrinsic value
              
              $
              72,583
              
              
              $
              5,998





F-33
 Table of Contents
 DISH
DBS CORPORATION
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS -
Continued


DISH
restricted stock unit activity associated with our employees for the years ended
December 31, 2009, 2008 and 2007 was as follows:




2009
              
              
              2008
              
              
              2007Restricted
                Stock
                Awards
              
              
              Weighted-
      Average Grant Date Fair Value
              
              
              Restricted
                Stock
                Awards
      (1)
              
              
              Weighted-
      Average Grant Date Fair Value
              
              
              Restricted
                Stock
                Awards
              
              
              Weighted-
      Average Grant Date Fair Value (2)Total
      restricted stock awards outstanding, beginning of period
              
              
              987,625
              
              
              $
              24.88
              
              
              
              1,008,636
              
              
              $
              26.38
              
              
              
              1,309,688
              
              
              $
              29.21Granted
              
              
              6,666
              
              
              
              11.11
              
              
              
              88,322
              
              
              
              11.09
              
              
              
              39,580
              
              
              
              43.43Exercised
              
              
              (38,072
              )
              
              
              22.76
              
              
              
              (30,000
              )
              
              
              26.66
              
              
              
              (30,000
              )
              
              
              31.16Forfeited
      and cancelled
              
              
              (98,500
              )
              
              
              23.33
              
              
              
              (79,333
              )
              
              
              28.33
              
              
              
              (137,800
              )
              
              
              30.44Total
      restricted stock awards outstanding, end of period
              
              
              857,719
              
              
              
              25.04
              
              
              
              987,625
              
              
              
              24.88
              
              
              
              1,181,468
              
              
              
              31.60Restricted
      performance units outstanding, end of period (3)
              
              
              857,719
              
              
              
              25.04
              
              
              
              917,625
              
              
              
              24.78
              
              
              
              1,081,468
              
              
              
              29.30




(1)           On
the date of the Spin-off, former DDBS employees that transferred to EchoStar
held approximately 173,000 DISH restricted stock awards.  Restricted
stock award activity associated with these employees is included in the 2007
activity.  However, these restricted stock awards are excluded from
the 2008 and 2009 activity because these individuals were no longer DDBS
employees after the Spin-off.


(2)           The
weighted average grant date fair values for 2007 reflect share prices before the
Spin-off.





(3)           These
restricted performance units, which are included in the caption “Total
restricted stock units outstanding, end of period,” were issued pursuant to,
performance-based stock incentive plans.  Vesting of these restricted
performance units is contingent upon meeting certain long-term DISH-specific
goals.  See discussion of the 2005 LTIP, 2008 LTIP and other employee
performance plans below.





Long-Term
Performance-Based Plans





2005
LTIP.  During 2005, DISH 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 DISH-specific subscriber 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 management concludes achievement of the performance
condition is probable.  Given the competitive nature of DISH’s
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 the
goal was not probable as of December 31, 2009, that assessment could change at
any time.


F-34
 Table of Contents
 DISH
DBS CORPORATION
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - Continued




If all of
the stock awards under the 2005 LTIP were vested and the goal had been met or if
management had determined that achievement of the goal was probable during the
year ended December 31, 2009, 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 Consolidated
Statements of Operations and Comprehensive Income (Loss), with the unvested
portion recognized ratably over the remaining vesting period.





2005
      LTIPTotal
              
              
              Vested
      Portion(In
      thousands)DISH
      awards held by DDBS employees
              
              $
              38,537
              
              
              $
              14,052EchoStar
      awards held by DDBS employees
              
              
              7,823
              
              
              
              2,853Total
              
              $
              46,360
              
              
              $
              16,905




2008
LTIP.  During 2008, DISH adopted a long-term, performance-based
stock incentive plan (the “2008 LTIP”). The 2008 LTIP provides stock options and
restricted stock units, either alone or in combination, which vest based on
DISH-specific subscriber and financial metrics.  Exercise of the stock
awards is contingent on achieving these goals by December 31, 2015.





During
2009, DISH generated cumulative free cash flow in excess of $1.0 billion which
resulted in approximately 10% of the 2008 LTIP stock awards
vesting.  We recorded non-cash, stock-based compensation expense for
the year ended December 31, 2009 as indicated in the table
below.  Additional compensation related to the 2008 LTIP will be
recorded based on management’s assessment of the probability of meeting the
remaining performance conditions.  If the remaining goals are probable
of being achieved and stock awards vest, we will recognize the additional
non-cash, stock-based compensation expense on our Consolidated Statements of
Operations and Comprehensive Income (Loss) over the term of this stock incentive
plan as follows.





Non-CashStock-BasedCompensation2008
      LTIP
              
              Expense(In
      thousands)Expense
      recognized during the year ended December 31, 2009
              
              $
              3,560Expense
      expected to be recognized during 2010
              
              $
              1,486Contingent
      expense subsequent to 2010
              
              
              22,418Total
      remaining expense over the term of the plan
              
              $
              23,904






Other Employee
Performance Plans.  In addition to the above long-term,
performance stock incentive plans, DISH has other plans that provide stock
awards which vest based on certain performance metrics.  Exercise of
the stock awards is contingent on achieving these goals prior to various dates
over the next two years.  Contingent compensation of $23 million
related to these plans will not be recorded in our financial statements unless
and until management concludes achievement of the performance condition is
probable.





Given the
competitive nature of DISH’s 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 the goal was not probable as of December 31, 2009, that
assessment could change at any time.


F-35
 Table of Contents
 DISH
DBS CORPORATION
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - Continued




Of the
18.1 million stock options and 0.9 million restricted stock units outstanding
under the DISH stock incentive plans associated with our employees as of
December 31, 2009, the following awards were outstanding pursuant to the
performance based stock incentive plans:





As
      of December 31, 2009Performance
      Based Stock Options
              
              Number
      of Awards
              
              
              Weighted-Average
      Exercise Price2005
      LTIP
              
              
              2,513,250
              
              
              $
              25.292008
      LTIP
              
              
              5,540,250
              
              
              $
              12.01Other
      employee performance plan
              
              
              200,000
              
              
              $
              20.77Total
              
              
              8,253,500
              
              
              $
              16.27Restricted
      Performance Units and Other2005
      LTIP restricted performance units
              
              
              315,0792008
      LTIP restricted performance units
              
              
              72,750Other
      employee performance plan
              
              
              469,890Total
              
              
              857,719


Stock-Based
Compensation





Total
non-cash, stock-based compensation expense for all of our employees is shown in
the following table for the years ended December 31, 2009, 2008 and 2007 and was
allocated to the same expense categories as the base compensation for such
employees:





For
      the Years Ended December 31,2009
              
              
              2008
              
              
              2007(In
      thousands)Subscriber-related
              
              $
              1,069
              
              
              $
              797
              
              
              $
              967Satellite
      and transmission
              
              
              -
              
              
              
              -
              
              
              
              645General
      and administrative
              
              
              11,158
              
              
              
              14,552
              
              
              
              19,717Total
      non-cash, stock based compensation
              
              $
              12,227
              
              
              $
              15,349
              
              
              $
              21,329






As of
December 31, 2009, our total unrecognized compensation cost related to the
non-performance based unvested stock awards was $24 million and includes
compensation expense that we will recognize for EchoStar 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 4.5% 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.


F-36
 Table of Contents
 DISH
DBS CORPORATION
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - Continued




Valuation





The fair
value of each stock award for the years ended December 31, 2009, 2008 and 2007
was estimated at the date of the grant using a Black-Scholes option valuation
model with the following assumptions:





Stock
      Options
              
              For
      the Years Ended December 31,2009
              
              
              2008
              
              
              2007Risk-free
      interest rate
              
              
              1.70%
      - 3.19
              %
              
              
              1.00%
      - 3.42
              %
              
              
              3.51%
      - 5.19
              %Volatility
      factor
              
              
              29.72%
      - 45.97
              %
              
              
              19.98%
      - 39.90
              %
              
              
              18.63%
      - 24.84
              %Expected
      term of options in years
              
              
              3.0
      - 7.25
              
              
              
              3.0
      - 7.5
              
              
              
              6.0
      - 10.0Weighted-average
      fair value of options granted
              
              $
              3.86
      - $    8.29
              
              
              $
              3.12
      - $    8.72
              
              
              $
              10.55
      - $    21.41






On
December 2, 2009, DISH paid a $2.00 cash dividend per share on its outstanding
Class A and Class B common stock.  DISH does not intend to pay
additional dividends on its 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 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.





As
discussed in Note 16, on November 6, 2009, DISH declared a dividend of $2.00 per
share on its outstanding Class A and Class B common stock.  The
dividend was paid in cash on December 2, 2009 to shareholders of record on
November 20, 2009.  In light of such dividend, the DISH Executive
Compensation Committee, which administers the stock incentive plans, determined
to adjust the exercise price of certain stock options issued under the plans by
decreasing the exercise price by $2.00 per share; provided, that the exercise
price of eligible stock options will not be reduced below $1.00.  As a
result of this adjustment, a majority of the stock options outstanding as of
December 31, 2009 were adjusted subsequent to the year ended December 31,
2009.  This adjustment will result in additional incremental non-cash,
stock-based compensation expense.





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


F-37
 Table of Contents
 DISH
DBS CORPORATION
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - Continued




11.  Commitments
and Contingencies





Commitments





Future
maturities of our long-term debt, capital lease and contractual obligations as
of December 31, 2009 are summarized as follows:





Payments
      due by periodTotal
              
              
              2010
              
              
              2011
              
              
              2012
              
              
              2013
              
              
              2014
              
              
              Thereafter(In
      thousands)Long-term
      debt obligations
              
              $
              6,192,107
              
              
              $
              4,143
              
              
              $
              1,004,375
              
              
              $
              4,622
              
              
              $
              504,183
              
              
              $
              1,003,732
              
              
              $
              3,671,052Capital
      lease obligations
              
              
              304,457
              
              
              
              22,375
              
              
              
              21,043
              
              
              
              20,569
              
              
              
              22,630
              
              
              
              25,943
              
              
              
              191,897Interest
      expense on long-term debt and capital lease
    obligations
              
              
              2,892,646
              
              
              
              471,415
              
              
              
              465,280
              
              
              
              399,589
              
              
              
              397,485
              
              
              
              360,202
              
              
              
              798,675Satellite-related
      obligations
              
              
              1,845,193
              
              
              
              218,667
              
              
              
              207,882
              
              
              
              219,022
              
              
              
              173,805
              
              
              
              153,788
              
              
              
              872,029Operating
      lease obligations
              
              
              135,510
              
              
              
              54,562
              
              
              
              31,386
              
              
              
              24,975
              
              
              
              13,567
              
              
              
              5,049
              
              
              
              5,971Purchase
      obligations
              
              
              1,395,012
              
              
              
              1,331,031
              
              
              
              22,460
              
              
              
              18,750
              
              
              
              18,941
              
              
              
              3,830
              
              
              
              -Total
              
              $
              12,764,925
              
              
              $
              2,102,193
              
              
              $
              1,752,426
              
              
              $
              687,527
              
              
              $
              1,130,611
              
              
              $
              1,552,544
              
              
              $
              5,539,624





The table
above does not include $214 million of liabilities associated with unrecognized
tax benefits which were accrued, discussed in Note 8, and are included on our
Consolidated Balance Sheets as of December 31, 2009.  We do not expect
any portion of this amount to be paid or settled within the next twelve
months.





In
certain circumstances the dates on which we are obligated to make these payments
could be delayed.  These amounts will increase to the extent we
procure insurance for our satellites or contract for the construction, launch or
lease of additional satellites.





Satellite-Related
Obligations





Satellites Under
Construction.  We have agreed
to lease capacity on two satellites from EchoStar that are currently under
construction.  Future commitments related to these satellites are
included in the table above under “Satellite-related obligations.”





·
            QuetzSat-1.  During
      2008, we entered into a ten-year transponder service agreement with
      EchoStar to lease capacity on QuetzSat-1, a DBS satellite, which is
      expected to be completed during
2011.





·
            EchoStar
      XVI.  During 2009, we entered into a ten-year transponder
      service agreement with EchoStar to lease capacity on EchoStar XVI, a DBS
      satellite, expected to be completed during
2012.





Guarantees





In
connection with the Spin-off, we distributed certain satellite lease agreements
to EchoStar and remained the guarantor under those capital leases for payments
totaling approximately $422 million over the next five years that are not
included in the table above.





In
addition, during the third quarter of 2009, EchoStar entered into a new
satellite transponder service agreement for Nimiq 5 through 2024.  We
sublease this capacity from EchoStar and DISH guarantees a certain portion of
its obligation under this agreement through 2019.  As of December 31,
2009, the remaining obligation under this agreement was $595 million and is
included in the table above.





As of
December 31, 2009, we have not recorded a liability on the balance sheet for any
of these guarantees.


F-38
 Table of Contents
 DISH
DBS CORPORATION
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - Continued




Purchase
Obligations





Our 2010
purchase obligations primarily consist of binding purchase orders for receiver
systems and related equipment, digital broadcast operations, satellite and
transponder leases, engineering and for products and services related to the
operations of our DISH Network.  Our purchase obligations also include
certain guaranteed fixed contractual commitments to purchase programming
content.  Our purchase obligations can fluctuate significantly from
period to period due to, among other things, management’s control of inventory
levels, and can materially impact our future operating asset and liability
balances, and our future working capital requirements.





Programming
Contracts





In the
normal course of business, we enter into contracts to purchase programming
content in which our payment obligations are fully contingent on the number of
subscribers to whom we provide the respective content.  These
programming commitments are not included in the “Commitments” table
above.  The terms of our contracts typically range from one to ten
years with annual rate increases.  Our programming expenses will
continue to increase to the extent we are successful growing our subscriber
base.  In addition, our margins may face further downward pressure
from price increases and the renewal of long term programming contracts on less
favorable pricing terms.





Rent
Expense





Total
rent expense for operating leases was $189 million, $204 million and $74 million
in 2009, 2008 and 2007, respectively.  The increase in rent expense
from 2007 to 2008 primarily resulted from costs associated with satellite and
transponder capacity leases on satellites that were distributed to EchoStar in
connection with the Spin-off.





Patents
and Intellectual Property





Many
entities, including some of our competitors, now have and may in the future
obtain patents and other intellectual property rights that cover or affect
products or services directly or indirectly related to those that we
offer.  We may not be aware of all patents and other intellectual
property rights that our products may potentially infringe.  Damages
in patent infringement cases can include a tripling of actual damages in certain
cases.  Further, we cannot estimate the extent to which we may be
required in the future to obtain licenses with respect to patents held by others
and the availability and cost of any such licenses.  Various parties
have asserted patent and other intellectual property rights with respect to
components within our direct broadcast satellite system.  We cannot be
certain that these persons do not own the rights they claim, that our products
do not infringe on these rights, that we would be able to obtain licenses from
these persons on commercially reasonable terms or, if we were unable to obtain
such licenses, that we would be able to redesign our products to avoid
infringement.





Contingencies





In
connection with the Spin-off, DISH entered into a separation agreement with
EchoStar, which provides among other things for the division of certain
liabilities, including liabilities resulting from litigation.  Under
the terms of the separation agreement, EchoStar has assumed certain liabilities
that relate to its 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, EchoStar will only
be liable for its acts or omissions following the Spin-off and DISH will
indemnify EchoStar for any liabilities or damages resulting from intellectual
property claims relating to the period prior to the Spin-off as well as its acts
or omissions following the Spin-off.





Acacia





During
2004, Acacia Media Technologies (“Acacia”) filed a lawsuit against us and
EchoStar 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


F-39
 Table of Contents
 DISH
DBS CORPORATION
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS -
Continued


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.  The plaintiffs have
appealed.





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 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 us, EchoStar, DirecTV, Thomson Consumer Electronics and others in United
States District Court in Denver, Colorado.  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 us as the only
defendant.




During
2004, the judge 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 the ‘094
patent finding of invalidity 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 Federal Circuit
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 cannot predict with any degree of
certainty the outcome of the suit or determine the extent of any potential
liability or damages.





Channel
Bundling Class Action





During
2007, a purported class of cable and satellite subscribers filed an antitrust
action against us in the United States District Court for the Central District
of California.  The suit also names as defendants DirecTV, Comcast,
Cablevision, Cox, Charter, Time Warner, Inc., Time Warner Cable, NBC Universal,
Viacom, Fox Entertainment Group, and Walt Disney Company.  The suit
alleges, among other things, that the defendants engaged in a conspiracy to
provide customers with access only to bundled channel offerings as opposed to
giving customers the ability to purchase channels on an “a la carte”
basis.  On October 16, 2009, the District Court granted defendants’
motion to dismiss with prejudice.  The plaintiffs have
appealed.  We intend to vigorously defend this case.  We
cannot predict with any degree of certainty the outcome of the suit or determine
the extent of any potential liability or damages.





Enron
Commercial Paper Investment





During
2001, we received approximately $40 million from the sale of Enron commercial
paper to a third party broker.  That commercial paper was ultimately
purchased by Enron.  During 2003, an action was commenced in the
United States Bankruptcy Court for the Southern District of New York against
approximately 100 defendants, including us, who invested in Enron’s commercial
paper.  On April 7, 2009, we settled the litigation for an immaterial
amount.


F-40
 Table of Contents
 DISH
DBS CORPORATION
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - Continued




ESPN





During
2008, we filed a lawsuit against ESPN, Inc., ESPN Classic, Inc., ABC Cable
Networks Group, Soapnet L.L.C., and International Family Entertainment
(collectively, “ESPN”) for breach of contract in New York State Supreme
Court.  Our complaint alleges that ESPN failed to provide us with
certain high-definition feeds of the Disney Channel, ESPN News, Toon, and ABC
Family.  ESPN asserted a counterclaim, and then filed a motion for
summary judgment, alleging that we owed approximately $35 million under the
applicable affiliation agreements.  We brought a motion to amend our
complaint to assert that ESPN was in breach of certain most-favored-nation
provisions under the applicable affiliation agreements.  On April 15,
2009, the trial court granted our motion to amend the complaint, and granted, in
part, ESPN’s motion on the counterclaim, finding that we are liable for some of
the amount alleged to be owing but that the actual amount owing is disputed and
will have to be determined at a later date.  We will appeal the
partial grant of ESPN’s motion.  Since the partial grant of ESPN’s
motion, ESPN has sought an additional $30 million under the applicable
affiliation agreements.  We intend to vigorously prosecute and defend
this case.  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 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 EchoStar, 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.  During
April 2008, the Federal Circuit reversed the judgment against DirecTV and
ordered a new trial.  During January 2010, the Federal Circuit
affirmed the District Court’s grant of summary judgment to DirecTV, and
dismissed the action with prejudice.  We are evaluating the impact of
the Federal Circuit’s decision.





We intend
to vigorously prosecute 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 modify our system architecture.  We cannot predict
with any degree of certainty the outcome of the suit or determine the extent of
any potential liability or damages.





Global
Communications





During
April 2007, Global Communications, Inc. (“Global”) filed a patent infringement
action against us and EchoStar in the United States District Court for the
Eastern District of Texas.  The suit alleges infringement of United
States Patent No. 6,947,702 (the ‘702 patent), which relates to satellite
reception.  In October 2007, the United States Patent and Trademark
Office granted our request for reexamination of the ‘702 patent and issued an
initial Office Action finding that all of the claims of the ‘702 patent were
invalid.  At the request of the parties, the District Court stayed the
litigation until the reexamination proceeding is concluded and/or other Global
patent applications issue.





During
June 2009, Global filed a patent infringement action against us and EchoStar in
the United States District Court for the Northern District of
Florida.  The suit alleges infringement of United States Patent No.
7,542,717 (the ‘717 patent), which relates to satellite reception.  In
December 2009, we and EchoStar settled the Texas and Florida actions with Global
on terms and conditions that did not have a material impact on our results of
operations.


F-41
 Table of Contents
 DISH
DBS CORPORATION
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - Continued




Guardian
Media





During
2008, Guardian Media Technologies LTD (“Guardian”) filed suit against us,
EchoStar, EchoStar Technologies L.L.C., DirecTV and several other defendants in
the United States District Court for the Central District of California alleging
infringement of United States Patent Nos. 4,930,158 and
4,930,160.  Both patents are expired and relate to certain parental
lock features.  On September 9, 2009, Guardian voluntarily dismissed
the case against us with prejudice.





Katz
Communications





During
2007, Ronald A. Katz Technology Licensing, L.P. (“Katz”) filed a patent
infringement action against us in the United States District Court for the
Northern District of California.  The suit alleges infringement of 19
patents owned by Katz.  The patents relate to interactive voice
response, or IVR, technology.





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 cannot predict with any degree of
certainty the outcome of the suit or determine the extent of any potential
liability or damages.





Multimedia
Patent Trust





On
February 13, 2009, Multimedia Patent Trust (“MPT”) filed suit against us,
EchoStar, DirecTV and several other defendants in the United States District
Court for the Southern District of California alleging infringement of United
States Patent Nos. 4,958,226, 5,227,878, 5,136,377, 5,500,678 and 5,563,593,
which relate to video encoding, decoding and compression
technology.  MPT is an entity that seeks to license an acquired patent
portfolio without itself practicing any of the claims recited
therein.  In December 2009, we and EchoStar reached a settlement with
MPT that did not have a material impact on our results of
operations.





NorthPoint
Technology





On July
2, 2009, NorthPoint Technology, Ltd. filed suit against us, EchoStar, 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 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. filed suit against us, EchoStar
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.





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 cannot predict with any degree of
certainty the outcome of the suit or determine the extent of any potential
liability or damages.


F-42
 Table of Contents
 DISH
DBS CORPORATION
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - Continued




Retailer
Class Actions





During
2000, lawsuits were filed by retailers in Colorado state and federal courts
attempting to certify nationwide classes on behalf of certain of our
retailers.  The plaintiffs are requesting the Courts declare certain
provisions of, and changes to, alleged agreements between us and the retailers
invalid and unenforceable, and to award damages for lost incentives and
payments, charge backs, and other compensation.  We have asserted a
variety of counterclaims.  The federal court action has been stayed
during the pendency of the state court action.  We filed a motion for
summary judgment on all counts and against all plaintiffs.  The
plaintiffs filed a motion for additional time to conduct discovery to enable
them to respond to our motion.  The state court granted limited
discovery which ended during 2004.  The plaintiffs claimed we did not
provide adequate disclosure during the discovery process.  The state
court agreed, and denied our motion for summary judgment as a
result.  In April 2008, the state court granted plaintiff’s class
certification motion and in January 2009, the state court entered an order
excluding certain evidence that we can present at trial based on the prior
discovery issues.  The state court also denied plaintiffs’ request to
dismiss our counterclaims.  The final impact of the court’s
evidentiary ruling cannot be fully assessed at this time.  In May
2009, plaintiffs filed a motion for default judgment based on new allegations of
discovery misconduct.  We intend to vigorously defend this
case.  We cannot predict with any degree of certainty the outcome of
the lawsuit or determine the extent of any potential liability or
damages.





Technology
Development Licensing





On
January 22, 2009, Technology Development and Licensing LLC filed suit against us
and EchoStar 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.  In July 2009, the Court
granted our motion to stay the case pending two re-examination petitions before
the Patent and Trademark Office.





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 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.  As of September 2008, we had recorded a total reserve of $132
million on our Consolidated Balance Sheets to reflect the April 2006 jury
verdict, supplemental damages through September 2006 and pre-judgment interest
awarded by the Texas court, together with the estimated cost of potential
further software infringement prior to implementation of our alternative
technology, discussed below, plus interest subsequent to entry of the
judgment.  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, approximately $105 million of
the total $132 million reserve was released from an escrow account 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
 F-43
 Table of Contents
 DISH
DBS CORPORATION
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS -
Continued
 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
our original alternative technology still infringed the software claims, and
that even if our original alternative technology was “non-infringing,” the
original injunction by its terms required that we 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.  We 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, but has ordered that enforcement of any sanctions award will be
stayed pending resolution of our appeal of the contempt order.  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 we 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 August
3, 2009, the Patent and Trademark Office (the “PTO”) issued an initial office
action rejecting the software claims of United States Patent No. 6,233,389 (the
‘389 patent) as being invalid in light of two prior patents.  These
are the same software claims that we were found to have infringed and which
underlie the contempt ruling that we are now appealing.  We believe
that the PTO’s conclusions are relevant to the issues on appeal as well as the
pending sanctions proceedings in the District Court.  The PTO’s
conclusions support our position that our original alternative technology is
more than colorably different than the devices found to infringe by the jury;
that our original alternative technology does not infringe; and that we acted in
good faith to design around Tivo’s patent.
 
 On
September 4, 2009, the District Court partially granted Tivo’s motion for
contempt sanctions.  In partially granting Tivo’s motion for contempt
sanctions, the District Court 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 enforcement of the award has been stayed by
the District Court pending resolution of our appeal of the underlying June 2009
contempt order).  The District Court also awarded Tivo its attorneys’
fees and costs incurred during the contempt proceedings.  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.  During the year ended December 31, 2009, we increased our
total reserve by $361 million to reflect the supplemental damages and interest
for the period from implementation of our original alternative technology
through April 2008 and for the estimated cost of alleged software infringement
(including contempt sanctions for the period from April 2008 through June 2009)
for the period from April 2008 through December 2009 plus
interest.  Our total reserve at December 31, 2009 was $394 million and
is included in “Tivo litigation accrual” on our Consolidated Balance
Sheets.
 
 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 EchoStar’s development
process, EchoStar downloaded several of our design-around options to less than
1,000 subscribers for “beta” testing.
  F-44
 Table of Contents
 DISH
DBS CORPORATION
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS -
Continued




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.  We intend to file a
petition for en banc
review of that decision by the full Federal Circuit and to request that the
District Court approve the implementation of one of our new design-around
options on an expedited basis.  There can be no assurance that our
petition for en banc
review will be granted, and historically such petitions have rarely been
granted.  Nor can there be any assurance that the District Court will
approve the implementation of one of our design around options.  Tivo
has stated that it will seek additional damages for the period from June 2009 to
the present.  Although we have accrued our best estimate of damages,
contempt sanctions and interest through December 31, 2009, there can be no
assurance that Tivo will not seek, and that the court will not award, an amount
that exceeds our accrual.
 
 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 would be required to eliminate DVR functionality in all
but approximately 192,000 digital set-top boxes in the field and cease
distribution of digital set-top boxes with DVR functionality.  In that
event we would be at a significant disadvantage to our competitors who could
continue offering DVR functionality, which would likely result in a significant
decrease in new subscriber additions as well as a substantial loss of current
subscribers.  Furthermore, the inability to offer DVR functionality
could cause certain of our distribution channels to terminate or significantly
decrease their marketing of DISH Network services.  The adverse effect
on our financial position and results of operations if the District Court’s
contempt order is upheld is likely to be significant.  Additionally,
the supplemental damage award of $103 million and further award of approximately
$200 million does not include damages, contempt sanctions or interest for the
period after June 2009.  In the event that we are unsuccessful in our
appeal, we could also have to pay substantial additional damages, contempt
sanctions and interest.  Depending on the amount of any additional
damage or sanction award or any monetary settlement, we may be required to raise
additional capital at a time and in circumstances in which we would normally not
raise capital.  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.  We believe the cost of such capital and its terms and
conditions may be substantially less attractive than our previous
financings.
 
 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 or could be required to modify or eliminate our then-current DVR
functionality in some or all set-top boxes in the field.  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 could
be material.  We could also have to pay substantial additional
damages.
 
 Because
both we and EchoStar are defendants in the Tivo lawsuit, we and EchoStar are
jointly and severally liable to Tivo for any final damages and sanctions that
may be awarded by the District Court.  DISH has determined that it is
obligated under the agreements entered into in connection with the Spin-off to
indemnify EchoStar for substantially all liability arising from this
lawsuit.  EchoStar has agreed to contribute an amount equal to its $5
million intellectual property liability limit under the Receiver
Agreement.  DISH and EchoStar have further agreed that EchoStar’s $5
million contribution would not exhaust EchoStar’s liability to DISH for other
intellectual property claims that may arise under the Receiver
Agreement.  DISH and EchoStar also agreed that they 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.


Voom





On May
28, 2008, Voom HD Holdings (“Voom”) filed a complaint against us in New York
Supreme Court.  The suit alleges breach of contract arising from our
termination of the affiliation agreement we had with Voom for the carriage of
certain Voom HD channels on the DISH Network satellite television
service.  In January 2008, Voom sought a preliminary injunction to
prevent us from terminating the agreement.  The Court denied Voom’s
motion, finding, among other things, that Voom was not likely to prevail on the
merits of its case.  Voom is claiming over $2.5 billion in
damages.  We intend to vigorously defend this case.  We
cannot predict with any degree of certainty the outcome of the suit or determine
the extent of any potential liability or damages.





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, including among other
things, disputes with programmers regarding fees.  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.


F-45
 Table of Contents
 DISH
DBS CORPORATION
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS -
Continued





12.  Financial
Information for Subsidiary Guarantors





DDBS’s
senior notes are fully, unconditionally and jointly and severally guaranteed by
all of our subsidiaries other than minor subsidiaries and the stand alone entity
DDBS has no independent assets or operations. Therefore, supplemental financial
information on a condensed consolidating basis of the guarantor subsidiaries is
not required. There are no restrictions on our ability to obtain cash dividends
or other distributions of funds from the guarantor subsidiaries, except those
imposed by applicable law.





13.  Segment
Reporting





Financial
Data by Business Unit





Operating
segments are components of an enterprise about 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.  The “All Other” category consists of revenue, expense
and net income (loss) from other operating segments for which disclosure
requirements do not apply.  Following the Spin-off, we operate in only
one reportable segment, the DISH Network segment, which provides a DBS
subscription television service in the United States.  Prior to 2008,
we had two reportable segments, DISH Network and EchoStar Technologies
Corporation.


EchoStar
                
                
                
                
                
                
                
                
                DISH
                
                
                
                
                
                DDBSDISH
                
                
                Technologies
                
                
                All
                
                
                
                
                
                Consolidated
                
                
                Other
                
                
                andYear
      Ended December 31, 2007
                
                Network
                
                
                Corporation
                
                
                Other
                
                
                Eliminations
                
                
                Total
                
                
                Activities
                
                
                Subsidiaries(In
      thousands)Total
      revenue
                
                $
                10,808,753
                
                
                $
                177,774
                
                
                $
                141,100
                
                
                $
                (37,252
                )
                
                $
                11,090,375
                
                
                $
                (29,892
                )
                
                $
                11,060,483Depreciation
      and amortization
                
                
                1,215,626
                
                
                
                8,238
                
                
                
                105,546
                
                
                
                -
                
                
                
                1,329,410
                
                
                
                (8,785
                )
                
                
                1,320,625Total
      costs and expenses
                
                
                9,198,397
                
                
                
                232,382
                
                
                
                123,972
                
                
                
                (37,780
                )
                
                
                9,516,971
                
                
                
                (70,613
                )
                
                
                9,446,358Interest
      income
                
                
                134,136
                
                
                
                40
                
                
                
                3,696
                
                
                
                -
                
                
                
                137,872
                
                
                
                (34,253
                )
                
                
                103,619Interest
      expense, net of amounts capitalized
                
                
                (404,628
                )
                
                
                (43
                )
                
                
                (648
                )
                
                
                -
                
                
                
                (405,319
                )
                
                
                32,707
                
                
                
                (372,612
                )Other
                
                
                (39,732
                )
                
                
                23
                
                
                
                (15,567
                )
                
                
                (528
                )
                
                
                (55,804
                )
                
                
                55,242
                
                
                
                (562
                )Income
      tax benefit (provision), net
                
                
                (545,047
                )
                
                
                31,565
                
                
                
                19,383
                
                
                
                -
                
                
                
                (494,099
                )
                
                
                (40,077
                )
                
                
                (534,176
                )Net
      income (loss)
                
                
                755,085
                
                
                
                (23,023
                )
                
                
                23,992
                
                
                
                -
                
                
                
                756,054
                
                
                
                54,340
                
                
                
                810,394
 
 F-46
 Table of Contents
 DISH
DBS CORPORATION
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS -
Continued


Geographic
Information




UnitedRevenue
              
              States
              
              
              International
              
              
              Total(In
      thousands)2009
              
              $
              11,663,118
              
              
              $
              -
              
              
              $
              11,663,1182008
              
              $
              11,617,181
              
              
              $
              -
              
              
              $
              11,617,1812007
              
              $
              10,972,020
              
              
              $
              88,463
              
              
              $
              11,060,483




As of
December 31, 2009 and 2008, all of our long-lived assets were located in the
United States.  Revenues are attributed to geographic regions based
upon the location from where the sale originated.  United States
revenue includes transactions with both United States and customers
abroad.  International revenue includes transactions with customers in
Europe, Africa, South America and the Middle East.  Prior to 2008,
revenues from these customers are included within the All Other operating
segment and related to the set-top box business and other assets that were
distributed to EchoStar in connection with the Spin-off.





14.  Valuation
and Qualifying Accounts





Our
valuation and qualifying accounts as of December 31, 2009, 2008 and 2007 are as
follows:




Allowance
      for doubtful accounts
              
              Balance
      at Beginning of Year
              
              
              Charged
      to Costs and Expenses
              
              
              Deductions
              
              
              Balance
      at End of Year(In
      thousands)For
      the years ended:December
      31, 2009
              
              $
              15,207
              
              
              $
              112,025
              
              
              $
              (110,860
              )
              
              $
              16,372December
      31, 2008
              
              $
              14,019
              
              
              $
              98,629
              
              
              $
              (97,441
              )
              
              $
              15,207December
      31, 2007
              
              $
              14,205
              
              
              $
              101,914
              
              
              $
              (102,100
              )
              
              $
              14,019




15.  Quarterly
Financial Data (Unaudited)





Our
quarterly results of operations are summarized as follows:




For
      the Three Months EndedMarch
      31
                
                
                June
      30
                
                
                September
      30
                
                
                December
      31(In
      thousands)Year
      ended December 31, 2009:Total
      revenue
                
                $
                2,905,320
                
                
                $
                2,903,699
                
                
                $
                2,891,793
                
                
                $
                2,962,306Operating
      income (loss)
                
                
                574,778
                
                
                
                263,001
                
                
                
                195,305
                
                
                
                356,066Net
      income (loss)
                
                
                303,645
                
                
                
                85,594
                
                
                
                52,528
                
                
                
                161,888Year
      ended December 31, 2008:Total
      revenue
                
                $
                2,844,393
                
                
                $
                2,914,989
                
                
                $
                2,936,778
                
                
                $
                2,921,021Operating
      income (loss)
                
                
                505,971
                
                
                
                620,643
                
                
                
                418,189
                
                
                
                515,316Net
      income (loss)
                
                
                262,980
                
                
                
                349,834
                
                
                
                223,710
                
                
                
                255,957
  F-47
 Table of Contents
 DISH
DBS CORPORATION
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS -
Continued




16.  Related
Party Transactions





Related
Party Transactions with DISH





On
February 15, 2007, DISH redeemed all of its outstanding 5 3/4% Convertible
Subordinated Notes due 2008 at a redemption price of 101.643% of the principal
amount, or $1.016 billion, plus accrued interest through the redemption date of
$14 million.  On February 15, 2007, we paid a dividend of
approximately $1.031 billion to DOC, our parent company, to enable
DISH to fund the payment of this redemption.





During
2007, a building and land was contributed to us from DISH for its fair value of
approximately $6 million.  We recorded the asset at its carrying value
of $5 million and recorded the difference of $1 million as a capital
distribution.





During
December 2007, DISH contributed
two of its subsidiaries, Kelly Broadcasting Systems, Inc. (“KBS”) and
Transponder Encryption Services Corporation (“TESC”), to us as a capital
contribution in the amount of $56 million.  Prior to the TESC
contribution, we leased transponders and provided certain other services to
TESC.





On
January 1, 2008, DISH spun off EchoStar as a separate publicly-traded company in
the form of a stock dividend distributed to DISH shareholders.  In
connection with the Spin-off, DISH contributed certain satellites, uplink and
satellite transmission assets, real estate and other assets and related
liabilities held by us to EchoStar.  Our net assets distributed in
connection with the Spin-off are summarized in Note 1.  On December
30, 2007, we paid a dividend of $1.615 billion to DOC to enable DISH to fund the
$1.0 billion cash contribution to EchoStar and for other general corporate
purposes.





During
2008, we paid dividends totaling $1.150 billion to DOC for general corporate
purposes.  In addition, we purchased EchoStar XI from DISH Orbital II
L.L.C. (“DOLLC II”), an indirect wholly-owned subsidiary of DISH, and our
affiliate, formerly known as EchoStar Orbital II L.L.C., for its fair value of
approximately $330 million.  We assumed $17 million in vendor
financing and the difference, or $313 million, was paid to our
affiliate.  We recorded the satellite at DOLLC II’s carrying value of
$200 million and recorded the difference, or $130 million, as a capital
distribution to DOC.





On November 6, 2009, the board of
directors of DISH declared a dividend of $2.00 per share on its outstanding
Class A and Class B common stock, or $894 million in the aggregate. On December 1, 2009, we paid a dividend
of $1.050 billion to DOC to fund the payment of DISH’s dividend and other potential DISH
cash needs.


Related
Party Transactions with EchoStar





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





EchoStar
is our primary supplier of set-top boxes and digital broadcast operations and
our key supplier of transponder leasing.  Generally the prices charged
for products and services provided under the agreements entered into in
connection with the Spin-off are based on pricing equal to EchoStar’s cost plus
a fixed margin (unless noted differently below), which will vary depending on
the nature of the products and services provided.  Prior to the
Spin-off, these products were provided and services were performed internally at
cost.





In
connection with the Spin-off and subsequent to the Spin-off, we and EchoStar
have entered into certain agreements pursuant to which we obtain certain
products, services and rights from EchoStar, EchoStar obtains certain products,
services and rights from us, and we and EchoStar have indemnified each other
against certain liabilities arising from our respective
businesses.  We also may enter into additional agreements with
EchoStar


F-48
 Table of Contents
 DISH
DBS CORPORATION
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS -
Continued


in the
future.  The following is a summary of the terms of the principal
agreements that we have entered into with EchoStar that may have an impact on
our financial position and results of operations.





“Equipment
sales - EchoStar”





Remanufactured Receiver
Agreement.In connection with the Spin-off, we entered into a
remanufactured receiver agreement with EchoStar under which EchoStar has the
right to purchase remanufactured receivers and accessories from us for a
two-year period ending on January 1, 2010.  In August 2009, we and
EchoStar agreed to extend this agreement through January 1,
2011.  Under the remanufactured receiver agreement, EchoStar has the
right, but not the obligation, to purchase remanufactured receivers and
accessories from us at cost plus a fixed margin, which varies depending on the
nature of the equipment purchased.  EchoStar may terminate the
remanufactured receiver agreement for any reason upon sixty days written notice
to us.  We may also terminate this agreement if certain entities
acquire us.





“Transitional
services and other revenue - EchoStar”





Transition Services
Agreement.In connection with the Spin-off, DISH entered into
a transition services agreement with EchoStar pursuant to which EchoStar had the
right, but not the obligation, to receive the following services from
DISH:  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 equal to 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,
DISH and EchoStar have agreed that following January 1, 2010 EchoStar will
continue to have the right, but not the obligation, to receive from DISH 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,DISH and EchoStar
agreed that following January 1, 2010 EchoStar will continue to have the right,
but not the obligation, to receive from DISH 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 will continue to have the right, but not the
obligation, to engage EchoStar to manage the process of procuring new satellite
capacity for them (as discussed below previously provided under the satellite
procurement agreement) and receive logistics, procurement and quality assurance
services from EchoStar (as discussed below 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 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.





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


F-49
 Table of Contents
 DISH
DBS CORPORATION
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - Continued




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




Satellite Capacity Leased to
EchoStar.  In December 2009, we entered into a satellite
capacity agreement pursuant to which EchoStar leases satellite capacity on a
certain satellite owned by us.  The fee for the services provided
under this satellite capacity agreement depends, among other things, upon the
orbital location of the satellite and the frequency on which the satellite
provides services.  The term of this lease is set forth
below:





EchoStar
I.EchoStar leases certain satellite capacity from us on
EchoStar I.  The lease generally terminates upon the earlier
of:  (i) the end of the life or the replacement of the satellite
(unless EchoStar 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 in service, and the exercise
of certain renewal options.  EchoStar generally has 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.





Real Estate Lease
Agreement.  During 2008, DISH entered into a sublease for space
at 185 Varick Street, New York, New York to EchoStar 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
EchoStar is responsible for its portion of the taxes, insurance, utilities and
maintenance of the premises.





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





“Satellite
and transmission expenses – EchoStar”





Broadcast
Agreement.In connection with the Spin-off, we entered into a
broadcast agreement pursuant to which EchoStar provides us broadcast services,
including teleport services such as transmission and downlinking, channel
origination, and channel management services.  The term of this
agreement expires on January 1, 2011.  We have the right, but not the
obligation, to extend the broadcast agreement for one additional
year.  We may terminate channel origination services and channel
management services for any reason and without any liability upon sixty days
written notice to EchoStar.  If we terminate teleport services for a
reason other than EchoStar’s breach, we are obligated to pay EchoStar the
aggregate amount of the remainder of the expected cost of providing the teleport
services. The fees for the services to be provided under the broadcast agreement
are cost plus a fixed margin, which vary depending on the nature of the products
and services provided.


F-50
 Table of Contents
 DISH
DBS CORPORATION
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - Continued




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





EchoStar III, VI, VIII, and
XII.We lease certain satellite capacity from EchoStar on
EchoStar III, VI, VIII, and XII.  The leases generally terminate upon
the earlier of:  (i) the end of the life or the 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 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 in service, and the exercise
of certain renewal options.  We generally have 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.





EchoStar XVI.  We
will lease certain satellite capacity from EchoStar onEchoStar 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, we
have 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.





Nimiq 5
Agreement.  During September 2009, EchoStar entered into a
fifteen-year satellite service agreement with Telesat Canada (“Telesat”) to
receive service on all 32 DBS transponders on the Nimiq 5 satellite at the 72.7
degree orbital location (the “Telesat Transponder Agreement”).  During
September 2009, EchoStar also entered into a satellite service agreement (the
“DISH Telesat Agreement”) with us, pursuant to which we will receive service
from EchoStar on all of the DBS transponders covered by the Telesat Transponder
Agreement. We have also guaranteed certain obligations of EchoStar under the
Telesat Transponder Agreement. See discussions under “Guarantees” in Note
11.
 
 Under the
terms of the DISH Telesat Agreement, we make certain monthly payments to
EchoStar that commenced 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 in service. Upon expiration of the initial term
we have 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, we
have certain rights to receive service from EchoStar on a replacement
satellite.





QuetzSat-1 Lease
Agreement.  During November 2008, EchoStar entered into a
ten-year satellite service agreement with SES Latin America S.A (“SES”), which
provides, among other things, for the provision by SES to EchoStar of service on
32 DBS transponders on the QuetzSat-1 satellite expected to be placed in service
at the 77 degree orbital location.  During November 2008, EchoStar
also entered into a transponder service agreement (“QuetzSat-1 Transponder
Agreement”) with us pursuant to which we will receive service from EchoStar on
24 of the DBS transponders.


F-51
 Table of Contents
 DISH
DBS CORPORATION
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS -
Continued





Under the
terms of the QuetzSat-1 Transponder Agreement, we will make certain monthly
payments to EchoStar 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, we have the
option to renew the QuetzSat-1 Transponder Agreement on a year-to-year basis
through the end-of-life of the QuetzSat-1 satellite.  Upon a launch
failure, in-orbit failure or end-of-life of the QuetzSat-1 satellite, and in
certain other circumstances, we have certain rights to receive service from
EchoStar on a replacement satellite.  QuetzSat-1 is expected to be
completed during 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
receive TT&C services from EchoStar for a period ending on January 1,
2011.  DISH Network has the right, but not the obligation, to extend
the agreement for up to one additional year.  The fees for the
services provided under the TT&C agreement are cost plus a fixed
margin.  We may terminate the TT&C agreement for any reason upon
sixty days prior written notice.




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





“Cost
of sales – subscriber promotion subsidies – EchoStar”





Receiver
Agreement.EchoStar is currently our sole supplier of set-top
box receivers. The table below indicates the dollar value of set-top boxes and
other equipment that we purchased from EchoStar as well as the amount of such
purchases that are included in “Cost of sales – subscriber promotion subsidies –
EchoStar” on our Consolidated Statements of Operations and Comprehensive Income
(Loss).  The remaining amount is included in “Inventory” and “Property
and equipment, net” on our Consolidated Balance Sheets.





For
      the Years Ended December 31,2009
              
              
              2008
              
              
              2007(In
      thousands)Set-top
      boxes and other equipment purchased from EchoStar
              
              $
              1,174,763
              
              
              $
              1,491,556
              
              
              $
              1,280,296Set-top
      boxes and other equipment purchased from EchoStar includedin
      “Cost of sales – subscriber promotion subsidies –
EchoStar”
              
              $
              188,793
              
              
              $
              167,508
              
              
              $
              128,739





Under our
receiver agreement with EchoStar entered into in connection with the Spin-off,
we have the right but not the obligation to purchase digital set-top boxes and
related accessories, and other equipment from EchoStar for a period ending on
January 1, 2011.  We also have the right, but not the obligation, to
extend the receiver agreement annually for an additional year.  The
receiver agreement allows us to purchase digital set-top boxes, related
accessories and other equipment from EchoStar at cost plus a fixed margin, which
varies depending on the nature of the equipment
purchased.  Additionally, EchoStar provides us with standard
manufacturer warranties for the goods sold under the receiver
agreement.  We may terminate the receiver agreement for any reason
upon sixty days written notice to EchoStar.  EchoStar may terminate
the receiver agreement if certain entities were to acquire us.  The
receiver agreement also includes an indemnification provision, whereby the
parties indemnify each other for certain intellectual property
matters.


F-52
 Table of Contents
 DISH
DBS CORPORATION
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS -
Continued





“General
and administrative – EchoStar”





Product Support
Agreement.In connection with the Spin-off, we entered into a
product support agreement pursuant to which we have the right, but not the
obligation to receive product support from EchoStar (including certain
engineering and technical support services) for all digital set-top boxes and
related accessories that EchoStar has previously sold and in the future may sell
to us.  The fees for the services provided under the product support
agreement are equal to EchoStar’s 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.  We may terminate the product
support agreement for any reason upon sixty days prior written
notice.  In the event of an early termination of this agreement, we
are entitled to a refund of any unearned fees paid to EchoStar for the
services.





Real Estate Lease
Agreements.We have entered into certain lease agreements
pursuant to which we lease certain real estate from EchoStar.  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 EchoStar is responsible for its 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, is for a period ending on January 1,
2011.





Meridian Lease
Agreement.The lease for all of 9601 S. Meridian Blvd. in
Englewood, Colorado, is for a period ending on January 1, 2011 with annual
renewal options for up to two additional years.





Santa Fe Lease
Agreement.The lease for all of 5701 S. Santa Fe Dr. in
Littleton, Colorado, is for a period ending on January 1, 2011 with annual
renewal options for up to two additional years.





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.





Services
Agreement.In connection with the Spin-off,DISH entered into a
services agreement pursuant to which it had the right, but not the obligation,
to receive logistics, procurement and quality assurance services from
EchoStar.  This agreement expired on January 1, 2010. However, DISH
and EchoStar have agreed that following January 1, 2010, DISH will continue to
have the right, but not the obligation, to receive from EchoStar the services
previously provided under the services agreement pursuant to the Professional
Services Agreement as described above.





Other
Agreements - EchoStar





Tax Sharing
Agreement.In connection with the Spin-off,DISH entered into a tax
sharing agreement with EchoStar 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, and DISH will indemnify EchoStar for such taxes.  However,
DISH is not liable for and will not indemnify EchoStar 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 EchoStar’s stock, stock options or assets, (ii) any action that EchoStar
takes or fails to take or (iii) any action that EchoStar takes 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, EchoStar is
solely liable for, and will indemnify DISH for, any resulting taxes,
as


F-53
 Table of Contents
 DISH
DBS CORPORATION
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS -
Continued


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 EchoStar are defendants in the Tivo lawsuit, we and EchoStar are jointly
and severally liable to Tivo for any final damages and sanctions that may be
awarded by the District Court.  DISH has determined that it is
obligated under the agreements entered into in connection with the Spin-off to
indemnify EchoStar for substantially all liability arising from this
lawsuit.  EchoStar has agreed to contribute an amount equal to its $5
million intellectual property liability limit under the Receiver
Agreement.  DISH and EchoStar have further agreed that EchoStar’s $5
million contribution would not exhaust EchoStar’s liability to DISH for other
intellectual property claims that may arise under the Receiver
Agreement.  DISH and EchoStar also agreed that they 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, we determined that we are obligated under the agreements entered
into in connection with the Spin-off to indemnify EchoStar for all of the
settlement relating to the period prior to the Spin-off and a portion of the
settlement relating to the period after the Spin-off.  EchoStar has
agreed that its contribution towards the settlement shall not be applied against
EchoStar’s aggregate liability cap under the Receiver Agreement.





International Programming Rights
Agreement.  For each of the years ended December 31, 2009 and
2008, we purchased certain international rights for sporting events from
EchoStar included in “Subscriber-related expenses” on the Consolidated
Statements of Operations and Comprehensive Income (Loss) for $8 million of which
EchoStar only retained a certain portion.





Other
Agreements





On
November 4, 2009, Mr. Roger Lynch, became employed by both DISH and EchoStar as
Executive Vice President.  Mr. Lynch reports to Mr. Ergen and is
responsible for the development and implementation of advanced technologies that
are of potential utility and importance to both DISH and
EchoStar.  Mr. Lynch’s compensation consists of cash and equity
compensation and is borne by both EchoStar and DISH.




Related
Party Transactions with NagraStar L.L.C.
  Prior to
the Spin-off, DISH owned 50% of NagraStar L.L.C. (“NagraStar”), which was
contributed to EchoStar in connection with the Spin-off.  NagraStar is
a joint venture that is our provider of encryption and related security systems
intended to assure that only paying customers have access to our
programming.  During the years ended December 31, 2009, 2008 and 2007,
we purchased security access devices from NagraStar and incurred other fees at
an aggregate cost to us of $82 million, $59 million and $55 million,
respectively.  As of December 31, 2009 and 2008, amounts payable to
NagraStar totaled $17 million and $44 million, respectively.
 F-54