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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 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, 2002
|- |  | --------------------------------------------------------------------------------------------------------------------------------

OR



|o |  | 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: 333-31929

EchoStar DBS Corporation

(Exact name of registrant as specified in its charter)

|                                                                              |  |                                                
|----------------------------------------------------------------------------- |  | -----------------------------------------------
|Colorado
(State or other jurisdiction of incorporation or organization)       |  | 84-1328967
(I.R.S. Employer Identification No.)
|                                                                              |  |                                                
|5701 S. Santa Fe
Littleton, Colorado
(Address of principal executive offices) |  | 80120
(Zip Code)                               

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

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: None

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K 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. o

As of March 7, 2003, the Registrants outstanding Common stock
consisted of 1,000 shares of Common Stock, $0.01 par value.

Indicate by check mark whether the registrant is an accelerated filer (as
defined by Rule 12b-2 of the Exchange Act).
Yes X No

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 REFERENCE

The following documents are incorporated into this Form 10-K by
reference:

None



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|                                                |                                                                                              |  |  |  |  |  |  | 
|----------------------------------------------- | -------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
|PART I                                         
|                                                | Item 1. BUSINESS                                                                            
|                                                | Item 2. Properties                                                                          
|                                                | Item 3. Legal Proceedings                                                                   
|PART II                                        
|                                                | Item 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS               
|                                                | Item 7. MANAGEMENTS NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS                            
|                                                | Item 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                        
|                                                | Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                         
|                                                | Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
|                                                | Item 14. CONTROLS AND PROCEDURES                                                            
|PART IV                                        
|                                                | Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K                    
|SIGNATURES                                     
|INDEX TO CONSOLIDATED FINANCIAL STATEMENTS     



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TABLE OF CONTENTS

|                                                |                                                                                                |  |    
|----------------------------------------------- | ---------------------------------------------------------------------------------------------- |  | ---
|PART I                                         
|                                                |                                                                                                |  |    
|Disclosure regarding forward-looking statements | 1                                                                                             
|Item 1.                                         | Business                                                                                       |  | 2  
|Item 2.                                         | Properties                                                                                     |  | 3  
|Item 3.                                         | Legal Proceedings                                                                              |  | 3  
|Item 4.                                         | Submission of Matters to a Vote of Security Holders                                            |  | *  
|                                                |                                                                                                |  |    
|PART II                                        
|                                                |                                                                                                |  |    
|Item 5.                                         | Market for Registrants Common Equity and Related Stockholder Matters                          |  | 9  
|Item 6.                                         | Selected Financial Data                                                                        |  | *  
|Item 7.                                         | Managements Narrative Analysis of Results of Operations                                       |  | 9  
|Item 7A.                                        | Quantitative and Qualitative Disclosures About Market Risk                                     |  | 19 
|Item 8.                                         | Financial Statements and Supplementary Data                                                    |  | 20 
|Item 9.                                         | Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure           |  | 20 
|                                                |                                                                                                |  |    
|PART III                                       
|                                                |                                                                                                |  |    
|Item 10.                                        | Directors and Executive Officers of the Registrant                                             |  | *  
|Item 11.                                        | Executive Compensation                                                                         |  | *  
|Item 12.                                        | Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters |  | *  
|Item 13.                                        | Certain Relationships and Related Transactions                                                 |  | *  
|Item 14.                                        | Controls and Procedures                                                                        |  | 20 
|Item 15.                                        | Exhibits, Financial Statement Schedules, and Reports on Form 8-K                               |  | 21 
|                                                |                                                                                                |  |    
|                                                | Signatures                                                                                     |  | 26 
|                                                | Section 302 CEO Certification                                                                  |  | 27 
|                                                | Section 302 CFO Certification                                                                  |  | 28 
|                                                | Index to Financial Statements                                                                  |  | F-1

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





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DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

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



| |  |  | we are highly leveraged and subject to numerous constraints on our
ability to raise additional debt;                                                                                                                                                                                                     
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | we face intense and increasing competition from the cable
television industry, new competitors may enter the subscription
television business, and new technologies may increase competition;                                                                                                            
|
| |  |  | DISH Network subscriber growth may decrease, subscriber turnover
may increase, and subscriber acquisition costs may increase;                                                                                                                                                                            
|
| |  |  | satellite programming signals have been pirated and could be
pirated in the future which could cause us to lose subscribers and
revenue, or result in higher costs to us;                                                                                                                                
|
| |  |  | programming costs may increase beyond our current expectations;                                                                                                                                                                                                                                          
|
| |  |  | weakness in the global or U.S. economy may harm our business
generally, and adverse local political or economic developments may
occur in some of our markets;                                                                                                                                           
|
| |  |  | we currently do not have traditional commercial insurance covering
losses incurred from the failure of launches and/or satellites and we
may be unable to settle outstanding claims with insurers;                                                                                                       
|
| |  |  | the regulations governing our industry may change;                                                                                                                                                                                                                                                       
|
| |  |  | our satellite launches may be delayed or, fail or our satellites may fail prematurely in orbit;                                                                                                                                                                                                          
|
| |  |  | service interruptions arising from technical anomalies on some
satellites, or caused by war, terrorist activities or natural
disasters, may cause customer cancellations or otherwise harm our
business;                                                                                                 
|
| |  |  | we may be unable to obtain needed retransmission consents, FCC
authorizations or export licenses;                                                                                                                                                                                                        
|
| |  |  | we are party to various lawsuits which, if adversely decided, could
have a significant adverse impact on our business;                                                                                                                                                                                   
|
| |  |  | we may be unable to obtain patent licenses from holders of
intellectual property or redesign our products to avoid patent
infringement;                                                                                                                                                                  
|
| |  |  | sales of digital equipment and related services to international
direct-to-home service providers may decrease;                                                                                                                                                                                          
|
| |  |  | future acquisitions, business combinations, strategic partnerships
and divestitures may involve additional uncertainties;                                                                                                                                                                                
|
| |  |  | the September 11, 2001 terrorist attacks, the possibility of war or
hostilities relating to Iraq, North Korea and other countries, and
changes in international political conditions as a result of these
events may continue to affect the U.S. and the global economy and may
increase other risks; and
|
| |  |  | we may face other risks described from time to time in periodic
reports we file with the Securities and Exchange Commission.                                                                                                                                                                             

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.

In this document we, our, us and EDBS refer to EchoStar DBS
Corporation and its subsidiaries, unless the context otherwise requires.
EchoStar refers to Echostar Communications Corporation and its subsidiaries.

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PART I




Item 1. BUSINESS

Brief Description of Business

We are a wholly-owned subsidiary of EchoStar Communications Corporation
(EchoStar), a publicly traded company listed on the Nasdaq National Market
under the symbol DISH. Unless otherwise stated, or the context otherwise
requires, references to EchoStar include EDBS and all other direct and
indirect wholly-owned subsidiaries of EchoStar. We refer readers of this
report to EchoStars Annual Report on Form 10-K for the year ended December
31, 2002. Substantially all of EchoStars operations are conducted by
subsidiaries of us. The operations of EchoStar include two interrelated
business units:



| |  |  | The DISH Network  which provides a direct broadcast
satellite subscription television service we refer to as DBS in
the United States: and                                                                                                                                                                                                                
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | EchoStar Technologies Corporation which designs and
develops DBS set-top boxes, antennae and other digital equipment
for the DISH Network. We refer to this equipment collectively as
EchoStar receiver systems. EchoStar Technologies Corporation
also designs, develops and distributes similar equipment for
international satellite service providers.

Recent Developments

Redemption of the 9 1/4% Seven Year Notes. Effective February 1, 2003,
EDBS redeemed all of its outstanding 9 1/4 % Senior Notes due 2006. In
accordance with the terms of the indenture governing the notes, the $375
million principal amount of the notes was repurchased at 104.625 percent, for a
total of approximately $392 million. The premium paid of approximately $17
million, along with unamortized debt issuance costs of approximately $3
million, have been recorded as charges to earnings as of February 1, 2003.

Termination of the Proposed Merger with Hughes.On December 9, 2002
EchoStar reached a termination settlement and release agreement with General
Motors and Hughes Electronic Corporation to terminate its proposed merger with
Hughes. Under the terms of the settlement, Hughes retained its 81% ownership
interest in PanAmSat, which EchoStar was previously obligated to purchase at a
price of $22.47 per share, or approximately $2.7 billion. EchoStar also paid a
$600 million merger termination fee to Hughes and expensed other merger costs.
Since the merger termination fee and other merger costs were paid by our
parent, Echostar Communications Corporation, these costs are not reflected in
our Consolidated Financial Statements.

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Item 2. Properties

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

|                                                                                              |  |                  |  |                |         |          |  |       
|--------------------------------------------------------------------------------------------- |  | ---------------- |  | -------------- | ------- | -------- |  | ------
|                                                                                              |  | Segment(s) Using |  | Approximate    |         | Owned or
|Description/Use/Location                                                                      |  | Property         |  | Square Footage |         | Leased  
|                                                                                              |  |                  |  |                |         |         
|Corporate headquarters and customer service center,
Littleton, Colorado                       |  | All              |  |                | 156,000 |          |  | Owned 
|EchoStar Technologies Corporation engineering
offices and service center, Englewood, Colorado |  | ETC              |  |                | 155,000 |          |  | Owned 
|EchoStar Technologies Corporation engineering
offices, Englewood, Colorado                    |  | ETC              |  |                | 57,200  |          |  | Owned 
|Digital broadcast operations center, Cheyenne,
Wyoming                                        |  | DISH Network     |  |                | 144,000 |          |  | Owned 
|Digital broadcast operations center, Gilbert, Arizona                                         |  | DISH Network     |  |                | 120,000 |          |  | Owned 
|Customer service center, McKeesport, Pennsylvania                                             |  | DISH Network     |  |                | 100,000 |          |  | Leased
|Customer service center and warehouse, El Paso, Texas                                         |  | DISH Network     |  |                | 170,250 |          |  | Owned 
|Customer service center, Christiansburg, Virginia                                             |  | DISH Network     |  |                | 100,000 |          |  | Owned 
|Customer service center and general offices, Pine
Brook, New Jersey                           |  | DISH Network     |  |                | 67,000  |          |  | Leased
|Customer service center, Thornton, Colorado                                                   |  | DISH Network     |  |                | 55,000  |          |  | Owned 
|Customer service center, Bluefield, West Virginia                                             |  | DISH Network     |  |                | 51,000  |          |  | Owned 
|Warehouse and distribution center, Atlanta, Georgia                                           |  | DISH Network     |  |                | 160,000 |          |  | Leased
|Warehouse and distribution center, Denver, Colorado                                           |  | DISH Network     |  |                | 132,800 |          |  | Leased
|Warehouse and distribution center, Sacramento,
California                                     |  | DISH Network     |  |                | 78,500  |          |  | Owned 
|Engineering offices and warehouse, Almelo, The
Netherlands                                    |  | Other            |  |                | 53,800  |          |  | Owned 




Item 3. Legal Proceedings

Fee Dispute

EchoStar had a dispute regarding the contingent fee arrangement with the
attorneys who represented EchoStar in prior litigation with The News
Corporation, Ltd. In early July 2002, the parties resolved their dispute.

WIC Premium Television Ltd

During July 1998, a lawsuit was filed by WIC Premium Television Ltd., an
Alberta corporation, in the Federal Court of Canada Trial Division, against
General Instrument Corporation, HBO, Warner Communications, Inc., John Doe,
Showtime, United States Satellite Broadcasting Company, Inc., EchoStar, and
certain EchoStar subsidiaries.

During September 1998, WIC filed another lawsuit in the Court of Queens
Bench of Alberta Judicial District of Edmonton against certain defendants,
including EchoStar. WIC is a company authorized to broadcast certain
copyrighted work, such as movies and concerts, to residents of Canada. WIC
alleges that the defendants engaged in, promoted, and/or allowed satellite dish
equipment from the United States to be sold in Canada and to Canadian residents
and that some of the defendants allowed and profited from Canadian residents
purchasing and viewing subscription television programming that is only
authorized for viewing in the United States. The lawsuit seeks, among other
things, interim and permanent injunctions prohibiting the defendants from
importing satellite receivers into Canada and from activating satellite
receivers located in Canada to receive programming, together with damages in
excess of $175 million.

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The Court in the Alberta action denied EchoStars Motion to Dismiss, and
EchoStars appeal of that decision. The Federal action has been stayed pending
the outcome of the Alberta action. EchoStar intends to continue to vigorously
defend the suit. Recently, the Supreme Court of Canada ruled that the receipt
in Canada of programming from United States pay television providers is
prohibited. While EchoStar was not a party to that case, the ruling could
aversely affect EchoStars defense. It is too early to make an assessment of
the probable outcome of the litigation or to determine the extent of any
potential liability or damages.

Distant Network Litigation

Until July 1998, EchoStar obtained feeds of distant broadcast network
channels (ABC, NBC, CBS and FOX) for distribution to its customers through
PrimeTime 24, an independent third party programming provider. In December
1998, the United States District Court for the Southern District of Florida
entered a nationwide permanent injunction requiring that provider to shut off
distant network channels to many of its customers, and henceforth to sell those
channels to consumers in accordance with certain stipulations in the
injunction.

In October 1998, EchoStar filed a declaratory judgment action against ABC,
NBC, CBS and FOX in the United States District Court for the District of
Colorado. EchoStar asked the Court to enter judgment declaring that its method
of providing distant network programming did not violate the Satellite Home
Viewer Act and hence did not infringe the networks copyrights. In November
1998, the networks and their affiliate groups filed a complaint against
EchoStar in Miami Federal Court alleging, among other things, copyright
infringement. The Court combined the case that EchoStar filed in Colorado with
the case in Miami and transferred it to the Miami Federal Court. The case
remains pending in Florida. While the networks have not sought monetary
damages, they have sought to recover attorney fees if they prevail.

In February 1999, the networks filed a Motion for Temporary Restraining
Order, Preliminary Injunction and Contempt Finding against DirecTV, Inc. in
Miami related to the delivery of distant network channels to DirecTV customers
by satellite. DirecTV settled that lawsuit with the networks. Under the terms
of the settlement between DirecTV and the networks, some DirecTV customers were
scheduled to lose access to their satellite-provided distant network channels
by July 31, 1999, while other DirecTV customers were to be disconnected by
December 31, 1999. Subsequently, substantially all providers of
satellite-delivered network programming other than EchoStar agreed to this
cut-off schedule, although EchoStar does not know if they adhered to this
schedule.

In December 1998, the networks filed a Motion for Preliminary Injunction
against Echostar in the Florida case and asked the Court to enjoin EchoStar
from providing network programming except under limited circumstances. A
preliminary injunction hearing was held in September 1999. In March 2000, the
networks filed an emergency motion again asking the Court to issue an
injunction requiring EchoStar to cease providing network programming to certain
of its customers. At that time, the networks also argued that EchoStars
compliance procedures violated the Satellite Home Viewer Improvement Act, which
was passed by Congress in November 1999. EchoStar opposed the networks motion
and again asked the Court to hear live testimony before ruling upon the
networks injunction request.

During September 2000, the Court granted the networks motion for
preliminary injunction, denied the networks emergency motion, and denied
EchoStars request to present live testimony and evidence. The Courts
original order required EchoStar to terminate network programming to certain
subscribers no later than February 15, 1999, and contained other dates with
which it would be physically impossible to comply. The order imposed
restrictions on EchoStars past and future sale of distant ABC, NBC, CBS and
FOX channels similar to those imposed on PrimeTime 24 (and, EchoStar believes,
on DirecTV and others). Some of those restrictions go beyond the statutory
requirements imposed by the Satellite Home Viewer Act and the Satellite Home
Viewer Improvement Act.

Twice during October 2000, the Court amended its original preliminary
injunction order in an effort to fix some of the errors in the original order.
The twice-amended preliminary injunction order required EchoStar to shut off,
by February 15, 2001, all subscribers who were ineligible to receive distant
network programming under the Courts order. EchoStar appealed the preliminary
injunction orders. During September 2001, the United States Court of Appeals
for the Eleventh Circuit vacated the District Courts nationwide preliminary
injunction, which the Eleventh Circuit had stayed in November 2000. The
Eleventh Circuit also rejected EchoStars First Amendment challenge to the
Satellite Home Viewer Act. However, the Eleventh Circuit found that the
District Court had made factual findings that were clearly erroneous and not
supported by the evidence, and that the District Court had misinterpreted and

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misapplied the law. The Eleventh Circuit issued an order during January
2002 remanding the case to the Florida District Court. During March 2002, the
Florida District Court entered an order setting the trial in the matter for
January 13, 2003 and setting a discovery and pretrial schedule. In this order,
the District Court denied certain of EchoStars outstanding motions to compel
discovery as moot and granted the networks motion to compel. The trial date
has now been moved to April 7, 2003. During April 2002, the District Court
denied the networks motion for preliminary injunction as moot. In June 2002,
EchoStar filed a counterclaim against the networks asking the District Court to
find that EchoStar is not violating the Satellite Home Viewer Act and seeking
damages resulting from the networks tortious interference with EchoStars
business relationships and from the networks conduct amounting to unfair
competition. The networks filed a motion to dismiss these claims. In August
2002, the District Court denied the networks motion to dismiss. In September
2002, the networks answered our counterclaim.

In April 2002, EchoStar reached a private settlement with ABC, Inc., one
of the plaintiffs in the litigation and jointly filed a stipulation of
dismissal. On April 16, 2002, the District Court entered an order dismissing
the claims between ABC, Inc. and EchoStar. In November 2002, EchoStar reached
a private settlement with NBC, another of the plaintiffs in the litigation and
jointly filed a stipulation of dismissal. On November 25, 2002, the District
court entered an order dismissing the claims between NBC and EchoStar. Six of
the original eight plaintiffs remain, including CBS and Fox, along with the
associations affiliated with each of the four networks. On January 28, 2003,
the parties participated in a court ordered mediation. The mediation did not
resolve the parties disputes. However, the parties agreed to continue the
mediation and participate in another mediation session.

If the District Court enters an injunction against EchoStar, the
injunction could force EchoStar to terminate delivery of distant network
channels to a substantial portion of its distant network subscriber base, which
could also cause many of these subscribers to cancel their subscription to
EchoStars other programming services. Any such terminations would result in a
small reduction in EchoStars reported average monthly revenue per subscriber
and could result in a temporary increase in churn. If EchoStar loses the case
at trial, the judge could, as one of many possible remedies, prohibit all
future sales of distant network programming by EchoStar, which would have a
material adverse affect on its business.

Gemstar

During October 2000, Starsight Telecast, Inc., a subsidiary of Gemstar-TV
Guide International, Inc. (Gemstar), filed a suit for patent infringement
against EchoStar and certain of its subsidiaries in the United States District
Court for the Western District of North Carolina, Asheville Division. The suit
alleges infringement of United States Patent No. 4,706,121 (the `121 Patent)
which relates to certain electronic program guide functions. EchoStar has
examined this patent and believes that it is not infringed by any of its
products or services. This conclusion is supported by findings of the
International Trade Commission (ITC) which are discussed below. The North
Carolina case is stayed pending the appeal of the ITC action to the United
States Court of Appeals for the Federal Circuit.

In December 2000, EchoStar filed suit against Gemstar-TV Guide (and
certain of its subsidiaries) in the United States District Court for the
District of Colorado alleging violations by Gemstar of various federal and
state anti-trust laws and laws governing unfair competition. The lawsuit seeks
an injunction and monetary damages. Gemstar filed counterclaims alleging
infringement of United States Patent Nos. 5,923,362 and 5,684,525 that relate
to certain electronic program guide functions. EchoStar examined these patents
and believe they are not infringed by any of its products or services. In
August 2001, the Federal Multi-District Litigation panel combined this suit,
for pre-trial purposes, with other lawsuits asserting antitrust claims against
Gemstar, which had previously been filed by other parties. In January 2002,
Gemstar dropped the counterclaims of patent infringement. During March 2002,
the Court denied Gemstars Motion to Dismiss EchoStars antitrust claims. A
more recently filed motion for summary judgment based generally on lack of
standing has also been denied. In its answer, Gemstar asserted new patent
infringement counterclaims regarding United States Patent Nos. 4,908,713 and
5,915,068 (which is expired). These patents relate to onscreen programming of
VCRs. EchoStar has examined these patents and believes that they are not
infringed by any of its products or services.

In February 2001, Gemstar filed patent infringement actions against
EchoStar in the District Court in Atlanta, Georgia and with the ITC. These
suits allege infringement of United States Patent Nos. 5,252,066, 5,479,268 and
5,809,204, all of which relate to certain electronic program guide functions.
In addition, the ITC

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action alleges infringement of the `121 Patent which is asserted in the
North Carolina case previously discussed. In the Georgia district court case,
Gemstar seeks damages and an injunction. The Georgia case was stayed pending
resolution of the ITC action and remains stayed at this time. In December
2001, the ITC held a 15-day hearing before an administrative law judge. Prior
to the hearing, Gemstar dropped its allegations regarding United States Patent
No. 5,252,066 with respect to which EchoStar had asserted substantial
allegations of inequitable conduct. The hearing addressed, among other things,
Gemstars allegations of patent infringement and respondents (SCI, Scientific
Atlanta, Pioneer and EchoStar) allegations of patent misuse. During June 2002,
the judge issued a Final Initial Determination finding that none of the patents
asserted by Gemstar had been infringed. In addition, the judge found that
Gemstar was guilty of patent misuse with respect to the `121 Patent and that
the `121 Patent was unenforceable because it failed to name an inventor. The
parties then filed petitions for the full ITC to review the judges Final
Initial Determination. During August 2002, the full ITC adopted the Judges
findings regarding non-infringement and the unenforceability of the `121
Patent. The ITC did not adopt, but did not overturn, the Judges findings of
patent misuse. Gemstar is appealing the decision of the ITC to the United
States Court of Appeals for the Federal Circuit. If the Federal Circuit were
to overturn the Judges decision, such an adverse decision in this case could
temporarily halt the import of EchoStar receivers and could require EchoStar to
materially modify certain user-friendly electronic programming guides and
related features it currently offer to consumers. Based upon EchoStars review
of these patents, and based upon the ITCs decision, EchoStar continues to
believe that these patents are not infringed by any of its products or
services. EchoStar intends to continue to vigorously contest the ITC, North
Carolina and Georgia suits and will, among other things, continue to challenge
both the validity and enforceability of the asserted patents.

During 2000, Superguide Corp. (Superguide) also filed suit against
EchoStar, DirecTV and others in the United States District Court for the
Western District of North Carolina, Asheville Division, alleging infringement
of United States Patent Nos. 5,038,211, 5,293,357 and 4,751,578 which relate to
certain electronic program guide functions, including the use of electronic
program guides to control VCRs. Superguide sought injunctive and declaratory
relief and damages in an unspecified amount. It is EchoStars understanding
that these patents may be licensed by Superguide to Gemstar. Gemstar was added
as a party to this case and asserted these patents against EchoStar. EchoStar
has examined these patents and believes that they are not infringed by any of
its products or services. A Markman ruling interpreting the patent claims was
issued by the Court and in response to that ruling EchoStar filed motions for
summary judgment of non-infringement for each of the asserted patents. Gemstar
filed a motion for summary judgment of infringement with respect to one of the
patents. During July 2002, the Court issued a Memorandum of Opinion on the
summary judgment motions. In its Opinion, the Court ruled that none of
EchoStars products infringe the 5,038,211 and 5,293,357 patents. With respect
to the 4,751,578 patent, the Court ruled that none of EchoStars current
products infringed that patent and asked for additional information before it
could rule on certain low-volume products that are no longer in production.
During July 2002, the Court summarily ruled that the aforementioned low-volume
products did not infringe any of the asserted patents. Accordingly, the Court
dismissed the case and awarded EchoStar its court costs. Superguide and
Gemstar are appealing this case to the United States Court of Appeals for the
Federal Circuit. EchoStar will continue to vigorously defend this case. In
the event the Federal Circuit ultimately determines that EchoStar infringes on
any of the aforementioned patents, EchoStar may be subject to substantial
damages, which may include treble damages and/or an injunction that could
require EchoStar to materially modify certain user-friendly electronic
programming guide and related features that EchoStar currently offers to
consumers. It is too early to make an assessment of the probable outcome of
the suits.

California Actions

A purported class action was filed against EchoStar in the California
State Superior Court for Alameda County during May 2001 by Andrew A. Werby.
The complaint, relating to late fees, alleges unlawful, unfair and fraudulent
business practices in violation of California Business and Professions Code
Section 17200 et seq., false and misleading advertising in violation of
California Business and Professions Code Section 17500, and violation of the
California Consumer Legal Remedies Act. During September 2001, EchoStar filed
an answer denying all material allegations of the complaint, and the Court
entered an Order Pursuant to Stipulation for a provisional certification of the
class, for an orderly exchange of information and for mediation. The
provisional Order specifies that the class will be de-certified upon notice if
mediation does not resolve the dispute. A settlement has been reached with
plaintiffs counsel and the Court issued its preliminary approval of the
settlement on October 18, 2002. The Court issued final approval on March 7, 2003. The Judgement Pursuant to Stipulation is
effective March 12, 2003. As a result, this matter is concluded.

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A purported class action relating to the use of terms such as crystal
clear digital video, CD-quality audio, and on-screen program guide, and
with respect to the number of channels available in various programming
packages was also filed against EchoStar in the California State Superior Court
for Los Angeles County in 1999 by David Pritikin and by Consumer Advocates, a
nonprofit unincorporated association. The complaint alleges breach of express
warranty and violation of the California Consumer Legal Remedies Act, Civil
Code Sections 1750, et seq., and the California Business & Professions Code
Sections 17500 & 17200. A hearing on the plaintiffs Motion for Class
Certification and EchoStars Motion for Summary Judgment was held during June
2002. At the hearing, the Court issued a preliminary ruling denying the
plaintiffs Motion for Class Certification. However, before issuing a final
ruling on Class Certification, the Court granted EchoStars Motion for Summary
Judgment with respect to all of the plaintiffs claims. Subsequently, EchoStar
filed a Motion for Attorneys Fees which was denied by the Court. The
Plaintiffs filed a Notice of Appeal of the Courts Granting of EchoStars
Motion for Summary Judgment and EchoStar Cross-Appealed the Courts ruling on
EchoStars Motion for Attorneys Fees. It is not possible to make a firm
assessment of the probable outcome of the appeal or to determine the extent of
any potential liability or damages.

State Investigation

During April 2002, two state attorneys general commenced a civil
investigation concerning certain of EchoStars business practices. Over the
course of the next six months, 11 additional states ultimately joined the
investigation. The states allege failure to comply with consumer protection
laws based on EchoStars call response times and policies, advertising and
customer agreement disclosures, policies for handling consumer complaints,
issuing rebates and refunds and charging cancellation fees to consumers, and
other matters. EchoStar has cooperated fully in the investigation and is
currently in settlement discussions with the states. It is not possible to
determine the extent of any damages or injunctive relief which could result in
the event a settlement is not reached.

Retailer Class Actions

EchoStar has been sued by retailers in three separate purported class
actions. During October 2000, two separate lawsuits were filed in the Arapahoe
County District Court in the State of Colorado and the United States District
Court for the District of Colorado, respectively, by Air Communication &
Satellite, Inc. and John DeJong, et al. on behalf of themselves and a class of
persons similarly situated. The plaintiffs are attempting to certify
nationwide classes on behalf of certain of EchoStars satellite hardware
retailers. The plaintiffs are requesting the Courts to declare certain
provisions of, and changes to, alleged agreements between EchoStar and the
retailers invalid and unenforceable, and to award damages for lost incentives
and payments, charge backs, and other compensation. EchoStar intends to
vigorously defend against the suits and to assert a variety of counterclaims.
The United States District Court for the District of Colorado stayed the
Federal Court action to allow the parties to pursue a comprehensive
adjudication of their dispute in the Arapahoe County State Court. John DeJong,
d/b/a Nexwave, and Joseph Kelley, d/b/a Keltronics, subsequently intervened in
the Arapahoe County Court action as plaintiffs and proposed class
representatives. EchoStar has filed a Motion for Summary Judgment on all counts
and against all plaintiffs. The plaintiffs have filed a Motion for Additional
Time to Conduct Discovery to enable them to respond to EchoStars motion. The
Court has not ruled on either of the two motions. It is too early to make an
assessment of the probable outcome of the litigation or to determine the extent
of any potential liability or damages.

Satellite Dealers Supply, Inc. (SDS) filed a lawsuit in the United
States District Court for the Eastern District of Texas during September 2000,
on behalf of itself and a class of persons similarly situated. The plaintiff
was attempting to certify a nationwide class on behalf of sellers, installers,
and servicers of satellite equipment who contract with EchoStar and who allege
that EchoStar: (1) charged back certain fees paid by members of the class to
professional installers in violation of contractual terms; (2) manipulated the
accounts of subscribers to deny payments to class members; and (3)
misrepresented, to class members, who owns certain equipment related to the
provision of satellite television service. During September 2001, the Court
granted EchoStars Motion to Dismiss for Lack of Personal Jurisdiction. The
plaintiff moved for reconsideration of the Courts order dismissing the case.
The Court denied the Plaintiffs Motion for Reconsideration. The trial court
denied EchoStars Motions for Sanctions against SDS. Both parties have now
perfected appeals before the Fifth Circuit Court of Appeals. It is not

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possible to make a firm assessment of the probable outcome of the appeal
or to determine the extent of any potential liability or damages.

PrimeTime 24 Joint Venture

PrimeTime 24 Joint Venture (PrimeTime 24) filed suit against EchoStar
during September 1998 seeking damages in excess of $10 million and alleging
breach of contract, wrongful termination of contract, interference with
contractual relations, trademark infringement and unfair competition. EchoStar
denied all of PrimeTime 24s allegations and asserted various counterclaims.
EchoStar has reached a settlement agreement with PrimeTime 24 pursuant to which
the parties agreed to release all parties from any liability and dismiss the
case with prejudice. The settlement amount was not material.

StarBand Shareholder Lawsuit

On August 20, 2002, a shareholder in StarBand filed an action in the
Delaware Court of Chancery against EchoStar and EchoBand Corporation, together
with four EchoStar executives who sat on the Board of Directors for StarBand,
for alleged breach of the fiduciary duties of due care, good faith and loyalty,
and also against EchoStar and EchoBand Corporation for aiding and abetting such
alleged breaches. Two of the individual defendants, Charles W. Ergen and David
K. Moskowitz, are members of the Board of Directors of EchoStar. The action
stems from the defendants involvement as directors, and EchoBands position as
a shareholder, in StarBand, a broadband Internet satellite venture that is
currently in bankruptcy. Plaintiffs allege that the defendants conspired to
ensure StarBands failure in order to guarantee that EchoStars then-pending
merger with Hughes would be successful. Plaintiffs seek an accounting of
damages for their $25 million investment in StarBand in addition to costs and
disbursements. Defendants deny the allegations in the complaint and intend to
defend the litigation vigorously. During October 2002, EchoStar, along with
the other defendants, filed a motion to dismiss the complaint in its entirety
based on lack of personal jurisdiction. These motions have been briefed and
oral argument has been set by the Court for March 18, 2003. It is too early to
make an assessment of the probable outcome of the litigation or to determine
the extent of any potential liability or damages.

Merger Related Proceedings

On October 24, 2002, a purported shareholder filed a Shareholders
Derivative Action against EchoStar and the current members of its Board of
Directors and named EchoStar as a nominal defendant. The Plaintiff filed the
action in the United States District Court of Clark County, Nevada. The
complaint alleges breach of fiduciary duties, corporate waste and other
unlawful acts relating to EchoStars agreement to (1) pay Hughes Electronics
Corporation a $600 million termination fee in certain circumstances and (2)
acquire Hughes shareholder interest in PanAmSat at a premium rate. The
agreements to pay the termination fee and acquire PanAmSat were required in the
event that the merger with DirecTV was not completed by January 21, 2003. No
answer is due from the defendants, and all parties have entered into a
stipulation allowing the defendants to answer only subject to 30-day notice
from the plaintiff. EchoStar and the individual defendants intend to deny all
liability and to defend this action vigorously. The Plaintiff filed a
motion for an Award of Attorneys Fees and Request for Dismissal and
Defendants filed a Motion to Strike Plaintiff's Request for Attorneys
Fees and to conduct discovery. Both motions are set to be heard by
the Court on March 24, 2003 in chambers without the presence of
counsel. It is too early to make an
assessment of the probable outcome of the litigation or to determine the extent
of any potential liability or damages.

Satellite Insurance

In September 1998, EchoStar filed a $219.3 million insurance claim for a
total loss under the launch insurance policies covering EchoStar IV. The
satellite insurance consists of separate substantially identical policies with
different carriers for varying amounts that, in combination, create a total
insured amount of $219.3 million. The insurance carriers include La Reunion
Spatiale; AXA Reinsurance Company (n/k/a AXA Corporate Solutions Reinsurance
Company), United States Aviation Underwriters, Inc., United States Aircraft
Insurance Group; Assurances Generales De France I.A.R.T. (AGF); Certain
Underwriters at Lloyds, London; Great Lakes Reinsurance (U.K.) PLC; British
Aviation Insurance Group; If Skaadeforsikring (previously Storebrand); Hannover
Re (a/k/a International Hannover); The Tokio Marine & Fire Insurance Company,
Ltd.; Marham Space Consortium (a/k/a Marham Consortium Management); Ace Global
Markets (a/k/a Ace London); M.C. Watkins Syndicate; Goshawk Syndicate
Management Ltd.; D.E. Hope Syndicate 10009 (Formerly Busbridge); Amlin
Aviation; K.J. Coles & Others; H.R. Dumas & Others; Hiscox Syndicates, Ltd.;
Cox Syndicate; Hayward Syndicate; D.J. Marshall

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& Others; TF Hart; Kiln; Assitalia Le Assicurazioni DItalia S.P.A. Roma;
La Fondiaria Assicurazione S.P.A., Firenze; Vittoria Assicurazioni S.P.A.,
Milano; Ras  Riunione Adriatica Di Sicurta S.P.A., Milano; Societa Cattolica
Di Assicurazioni, Verano; Siat Assicurazione E Riassicurazione S.P.A, Genova;
E. Patrick; ZC Specialty Insurance; Lloyds of London Syndicates 588 NJM, 1209
Meb AND 861 Meb; Generali France Assurances; Assurance France Aviation; and Ace
Bermuda Insurance Ltd.

The insurance carriers offered us a total of approximately $88 million, or
40% of the total policy amount, in settlement of the EchoStar IV insurance
claim. The insurers assert, among other things, that EchoStar IV was not a
total loss, as that term is defined in the policy, and that we did not abide by
the exact terms of the insurance policies. EchoStar strongly disagrees and
filed arbitration claims against the insurers for breach of contract, failure
to pay a valid insurance claim and bad faith denial of a valid claim, among
other things. Due to individual forum selection clauses in certain of the
policies, EchoStar is pursuing its arbitration claims against Ace Bermuda
Insurance Ltd. in London, England, and its arbitration claims against all of
the other insurance carriers in New York, New York. The New York arbitration
is currently scheduled to begin in late April 2003, but the Insurers have
recently requested that that hearing date be delayed. The parties to the
London arbitration are currently negotiating the schedule for a hearing, and,
while there can be no assurance, EchoStar anticipates that the hearing date in
that proceeding will be set for later in 2003. There can be no assurance that
EchoStar will receive the amount claimed in either the New York or the London
arbitrations or, if EchoStar does, that EchoStar will retain title to EchoStar
IV with its reduced capacity.

We are subject to various other legal proceedings and claims which arise
in the ordinary course of business. In the opinion of management, the amount of
ultimate liability with respect to those actions will not materially affect our
financial position or results of operations.




PART II




Item 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

As of March 7, 2003, all 1,000 authorized, issued and outstanding shares
of our common stock were held by EchoStar. There is currently no established
trading market for our common stock.

We have never declared or paid any cash dividends on our common stock and
do not expect to declare dividends in the foreseeable future. Payment of any
future dividends will depend upon our earnings and capital requirements, our
debt facilities, and other factors our Board of Directors considers
appropriate. We currently intend to retain our earnings, if any, to support
future growth and expansion. Our ability to declare dividends is affected by
covenants in our debt facilities.




Item 7. MANAGEMENTS NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS

Results of Operations

Year Ended December 31, 2002 Compared to the Year Ended December 31, 2001.

Revenue. Total revenue for the year ended December 31, 2002 was $4.804
billion, an increase of $817 million or 20% compared to Total revenue for the
year ended December 31, 2001 of $3.987 billion. The increase in Total
revenue was primarily attributable to continued DISH Network subscriber
growth. The increase in Total revenue was partially offset by our free and
reduced price programming promotions, discussed below.

DISH Network Subscription television services revenue totaled $4.406
billion for the year ended December 31, 2002, an increase of $822 million or
23% compared to the same period in 2001. DISH Network Subscription television
services revenue principally consists of revenue from basic, premium, local,
international and pay-per-view subscription television services. This increase
was attributable to continued DISH Network subscriber growth. DISH Network
added approximately 1.35 million net new subscribers for the year ended
December 31, 2002 compared to approximately 1.57 million net new subscribers
during the same period in 2001. We believe the reduction in net new
subscribers for the year ended December 31, 2002, compared to the same period
in 2001,

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resulted from a number of factors, including the continued weak U.S.
economy and stronger competition from advanced digital cable and cable modems.
Additionally, as the size of our subscriber base continues to increase, even if
percentage churn remains constant, increasing numbers of gross new subscribers
are required to sustain net subscriber growth. As of December 31, 2002, we had
approximately 8.18 million DISH Network subscribers compared to approximately
6.83 million at December 31, 2001, an increase of approximately 20%. DISH
Network Subscription television services revenue will continue to increase to
the extent we are successful in increasing the number of DISH Network
subscribers and maintaining or increasing revenue per subscriber. While there
can be no assurance, notwithstanding our expectation of a continued slow U.S.
economy, we expect to add at least 1 million net new subscribers during 2003.

Monthly average revenue per subscriber was approximately $49.17 during the
year ended December 31, 2002 and approximately $49.32 during the same period in
2001. The decrease in monthly average revenue per subscriber is primarily
attributable to certain promotions, discussed below, under which new
subscribers received free programming for the first three months of their term
of service, and other promotions under which subscribers received discounted
programming for 12 months. This decrease was partially offset by a $1.00 price
increase in February 2002, the increased availability of local channels by
satellite and an increase in subscribers with multiple set-top boxes.

Impacts from our litigation with the networks in Florida, FCC rules
governing the delivery of superstations and other factors could cause us to
terminate delivery of distant network channels and superstations to a material
portion of our subscriber base, which could cause many of those customers to
cancel their subscription to our other services. Any such terminations could
result in a small reduction in average monthly revenue per subscriber and could
result in an increase in our percentage churn.

In April 2002, the FCC concluded that our must carry implementation
methods were not in compliance with the must carry rules. If the FCC finds
our subsequent remedial actions unsatisfactory, we could be forced by capacity
constraints to reduce the number of markets in which we provide local channels.
This could cause a temporary increase in churn.

For the year ended December 31, 2002, DTH equipment sales totaled $285
million, an increase of $18 million compared to the same period during 2001.
DTH equipment sales consist of sales and maintenance of digital set-top boxes
and other digital satellite broadcasting equipment by our ETC subsidiary to
Bell ExpressVu, a subsidiary of Bell Canada, Canadas national telephone
company, and sales of DBS accessories in the United States. The increase in
DTH equipment sales principally resulted from an increase in sales of DBS
accessories to DISH Network subscribers. This increase was partially offset by
a decrease in sales of digital set-top boxes to our international DTH
customers.

Through 2002, our primary international customer was Bell ExpressVu. We
currently have certain binding purchase orders from Bell ExpressVu, and we are
actively trying to secure new orders from other potential international
customers. However, we cannot guarantee at this time that those negotiations
will be successful. Our future international revenue depends largely on the
success of these and other international operators, which in turn, depends on
other factors, such as the level of consumer acceptance of direct-to-home
satellite TV products and the increasing intensity of competition for
international subscription television subscribers.

DISH Network Operating Expenses.DISH Network operating expenses
totaled $2.230 billion during the year ended December 31, 2002, an increase of
$459 million or 26% compared to the same period in 2001. The increase in DISH
Network operating expenses was primarily attributable to the increase in the
number of DISH Network subscribers. DISH Network operating expenses
represented 51% and 49% of Subscription television services revenue during
the years ended December 31, 2002 and 2001, respectively. The increase in
DISH Network operating expenses as a percentage of Subscription television
services revenue primarily resulted from the expansion of our DISH Network
Service Corporation, the opening of a new call center, increased costs in order
to meet the demands of current must carry requirements and costs associated
with offering additional markets where we carry local channels.

Subscriber-related expenses totaled $1.783 billion during the year ended
December, 2002, an increase of $334 million compared to the same period in
2001. The increase in total Subscriber-related expenses is primarily
attributable to the increase in DISH Network subscribers. Such expenses, which
include programming expenses,

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copyright royalties, residuals currently payable to retailers and
distributors, and billing, lockbox and other variable subscriber expenses,
represented 40% of Subscription television services revenues during each of
the years ended December 31, 2002 and 2001. Promotions under which subscribers
received free or discounted programming increased Subscriber-related expenses
as a percentage of Subscription television services revenue in 2002 as
compared to 2001. This increase was offset by a variety of factors including
$1.00 price increase in February 2002, the increased availability of local
channels by satellite in 2002 and an increase in subscribers with multiple
set-top boxes.

Customer service center and other expenses principally consist of costs
incurred in the operation of our DISH Network customer service centers, such as
personnel and telephone expenses, as well as other operating expenses related
to our DISH Network Service Corporation business. Customer service center and
other expenses totaled $391 million during the year ended December 31, 2002,
an increase of $106 million as compared to the same period in 2001. Customer
service center and other expenses totaled 9% and 8% of Subscription
television services revenue during the years ended December 31, 2002 and 2001,
respectively. The increase in Customer service center and other expenses in
total and as a percentage of Subscription television services revenue
primarily resulted from increased personnel and telephone expenses to support
the growth of the DISH Network, the opening of a new call center, increased
operating expenses related to the expansion of our DISH Network Service
Corporation business, increased competition and increased costs due to
second-dish installations in order to meet the demands of must carry. These
expenses and percentages could temporarily increase in the future as additional
infrastructure is added to meet future growth. We intend to continue to
implement the automation of simple telephone responses and to increase Internet
and satellite receiver-based customer assistance in the future in order to
better manage customer service costs.

Satellite and transmission expenses include expenses associated with the
operation of our digital broadcast centers and contracted satellite telemetry,
tracking and control services. Satellite and transmission expenses totaled
$57 million during the year ended December 31, 2002, a $19 million increase
compared to the same period in 2001. The increase in Satellite and
transmission expenses primarily resulted from increased operations at our
digital broadcast centers in order to meet the demands of current must carry
requirements and the launch of 18 additional local markets during the year
ended December 31, 2002. Satellite and transmission expenses totaled 1% of
Subscription television services revenue during each of the years ended
December 31, 2002 and 2001. Satellite and transmission expenses could
increase in the future as additional satellites are placed in service,
additional local markets are launched, to the extent we successfully obtain
commercial in-orbit insurance and to the extent we increase the operations at
our digital broadcast centers in order, among other reasons, to meet the
demands of current must carry requirements.

Cost of sales  DTH equipment.Cost of sales  DTH equipment totaled
$178 million during the year ended December 31, 2002, a decrease of $10 million
compared to the same period in 2001. Cost of sales  DTH equipment
principally includes costs associated with digital set-top boxes and related
components sold to international DTH operators and DBS accessories. Cost of
sales  DTH equipment represented 62% and 70% of DTH equipment sales, during
the years ended December 31, 2002 and 2001, respectively. The decrease, both
in aggregate and as a percentage of revenue, related primarily to reductions in
the cost of set-top box equipment and increased sales of higher margin DBS
accessories.

Subscriber Promotions.During the year ended December 31, 2002, our
marketing promotions included our I Like 9, Free Dish, 1-2-3 Great TV, free
installation program, Free for All and Digital Home Plan, which are described
below.

I Like 9 During August 2001, we commenced our I Like 9 promotion. Under
this promotion, subscribers who purchased an EchoStar receiver system for $199
or higher, received free installation and either our Americas Top 100 CD or
our DISH Latino Dos programming package for $9 a month for the first year.
Subscriber acquisition costs are materially lower under this plan compared to
historical promotions. This promotion expired January 31, 2002.

Free Dish Our Free Dish promotion, under which subscribers receive a
free base-level EchoStar receiver system, commenced during August 2001. To be
eligible, subscribers must provide a valid major credit card and make a
one-year commitment to subscribe to a qualified programming package. Effective
July 13, 2002, eligible subscribers

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are able to purchase a second receiver for $49.99. Although there can be
no assurance as to the ultimate duration of the Free Dish promotion, we expect
it to continue through at least July 31, 2003.

1-2-3 Great TV During January 2002, we commenced our 1-2-3 Great TV
promotion. Under this promotion, subscribers who purchased one or more
receivers, provided a valid major credit card and made a one-year commitment,
received the first three months of qualified programming and installation of up
to two receivers for free. This promotion expired on July 31, 2002.

Free for All Effective August 1, 2002, we commenced our Free for All
promotion. Under this promotion, subscribers who purchase up to two receivers
for $149 or more, depending on the models chosen, and subscribe to a qualifying
programming package, receive free installation, together with credits of $12.50
or $17.00 applied to their programming bill each month for a year. Although
there can be no assurance as to the ultimate duration of the Free For All
promotion, we expect it to continue through at least July 31, 2003.

Digital Home Plan Our Digital Home Plan promotion offers several choices
to consumers, ranging from the use of one EchoStar receiver system and our
Americas Top 50 CD programming package for $29.99 per month, to providing
consumers our Americas Top 150 programming package and two or more EchoStar
receiver systems for $52.99 to $62.99 per month. Each plan includes in-home
service, and the consumer must agree to a one-year commitment, provide a valid
major credit card, have an acceptable credit score and incur a one-time set-up
fee of $49.99. From January to July 2002, the promotion also included the
first three months of qualified programming free for qualified Digital Home
Plan programming packages and for an additional $99, consumers could also
choose to include a Dish PVR in the Digital Home Plan. Effective August 1,
2002, the one-time set-up fee includes only the first months qualified
programming payment and for an additional $50, consumers can also choose to
include a Dish PVR in the Digital Home Plan. Dish PVR receivers include a
built-in hard drive that allows viewers to pause and record live programming
without the need for videotape. Since we retain ownership of equipment
installed pursuant to the Digital Home Plan promotion, equipment costs are
capitalized and depreciated over a period of approximately four years.
Although there can be no assurance as to the ultimate duration of the Digital
Home Plan promotion, we expect it to continue through at least July 31, 2003.

Free Installation Under our free installation program all subscribers
who purchase an EchoStar receiver system are eligible to receive free
professional installation of up to two receivers. Although there can be no
assurance as to the ultimate duration of the Free Installation promotion, we
expect it to continue through at least July 31, 2003.

Subscriber Acquisition Costs.Generally, under most promotions, we
subsidize the installation and all or a portion of the cost of EchoStar
receiver systems in order to attract new DISH Network subscribers. There is no
clear industry standard used in the calculation of subscriber acquisition
costs. Our subscriber acquisition costs include Cost of sales  subscriber
promotion subsidies, Other subscriber promotion subsidies and DISH Network
acquisition marketing expenses. Cost of sales  subscriber promotion
subsidies includes the cost of EchoStar receiver systems sold to retailers and
other distributors of our equipment and receiver systems sold directly by
EchoStar to subscribers. Other subscriber promotion subsidies includes net
costs related to our free installation promotion and other promotional
incentives.

During the year ended December 31, 2002, our subscriber acquisition costs
totaled approximately $1.163 billion, or approximately $421 per new subscriber
activation. Comparatively, our subscriber acquisition costs during the year
ended December 31, 2001 totaled approximately $1.074 billion, or approximately
$395 per new subscriber activation. Total subscriber acquisition costs for the
year ended December 31, 2002 include favorable adjustments which reduced the
costs related to the production of EchoStar receiver systems. During 2002, we
recorded adjustments of approximately $48 million as a result of favorable
litigation developments and the completion of royalty arrangements with more
favorable terms than estimated amounts previously accrued. The increase in
total subscriber acquisition costs primarily resulted from an increase in
Other subscriber promotion subsidies related to additional subsidies on
second receiver installations and a decrease in the sales price of manufactured
equipment, as well as an increase in Advertising and other expense related to
acquisition marketing and our 2002 marketing promotions. A decrease in Digital
Home Plan penetration in 2002 as compared to 2001 also contributed to this
increase. This increase was partially offset by reductions in the cost of
manufactured equipment and an increase in installations we perform on behalf of
retailers. Our subscriber acquisition costs, both in the aggregate and on a
per new subscriber activation basis,

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may materially increase in the future to the extent that we introduce
other more aggressive promotions if we determine that they are necessary to
respond to competition, or for other reasons.

We exclude equipment capitalized under our Digital Home Plan promotion
from our calculation of subscriber acquisition costs. We also exclude payments
and certain returned equipment received from disconnecting Digital Home Plan
subscribers from our calculation of subscriber acquisition costs. Equipment
capitalized under our Digital Home Plan promotion totaled approximately $278
million and $338 million for the years ended December 31, 2002 and 2001,
respectively. Payments and returned equipment received from disconnecting
Digital Home Plan subscribers, which became available for sale through other
promotions rather than being redeployed in the Digital Home Plan, totaled
approximately $38 million and $16 million during the years ended December 31,
2002 and 2001, respectively.

General and Administrative Expenses.General and administrative
expenses totaled $366 million during the year ended December 31, 2002, an
increase of $4 million compared to the same period in 2001. The increase in
G&A expenses was primarily attributable to increased personnel and
infrastructure expenses to support the growth of the DISH Network. This
increase was partially offset by a decrease in legal expenses and litigation
settlements. G&A expenses represented 8% and 9% of Total revenue during
the years ended December 31, 2002 and 2001, respectively.

Non-cash, Stock-based Compensation.During 1999, we adopted an incentive
plan under our 1995 Stock Incentive Plan, which provided certain key employees
with incentives including stock options. The payment of these incentives was
contingent upon our achievement of certain financial and other goals. We met
certain of these goals during 1999. Accordingly, during 1999 we recorded
approximately $179 million of deferred compensation related to post-grant
appreciation of stock options granted pursuant to the 1999 incentive plan. The
related deferred compensation, net of forfeitures, will be recognized over the
five-year vesting period. Accordingly, during the year ended December 31, 2002
we recognized $11 million of compensation under this performance-based plan, a
decrease of $9 million compared to the same period in 2001. This decrease is
primarily attributable to proportionate vesting and stock option forfeitures.
The remaining deferred compensation of $9 million, which will be reduced by
future forfeitures, if any, will be recognized over the remaining vesting
period.

We report all non-cash compensation based on stock option appreciation as
a single expense category in our accompanying statements of operations. The
following table represents the other expense categories in our statements of
operations that would be affected if non-cash, stock-based compensation was
allocated to the same expense categories as the base compensation for key
employees who participate in the 1999 incentive plan (in thousands):

|                                  |                                          |   |                        |        |      |   |        |        | 
|--------------------------------- | ---------------------------------------- | - | ---------------------- | ------ | ---- | - | ------ | ------ | 
|                                  |                                          |   | Year Ended December 31
|                                  |                                          |   | 2001                   |        | 2002
|                                  |                                          |   |                        |        |     
|Customer service center and other |                                          | $ | 1,767                  |        |      | $ | 729    |       
|Satellite and transmission        |                                          |   | 1,115                  |        |      |   | (7     | )     
|General and administrative        |                                          |   | 17,291                 |        |      |   | 10,557 |       
|                                  |                                          |   |                        |        |      |   |        |       
|                                  | Total non-cash, stock-based compensation |   | $                      | 20,173 |      |   | $      | 11,279 | 
|                                  |                                          |   |                        |        |      |   |        |       

Options to purchase an additional 9.1 million shares are outstanding as of
December 31, 2002 and were granted with exercise prices equal to the market
value of the underlying shares on the date they were issued during 1999, 2000
and 2001 pursuant to a long term incentive plan under our 1995 Stock Incentive
Plan. The weighted-average exercise price of these options is $8.96. Vesting
of these options is contingent upon meeting certain longer-term goals which
have not yet been achieved. Consequently, no compensation was recorded during
the year ended December 31, 2002 related to these long-term options. EchoStar
will record the related compensation at the achievement of the performance
goals. Such compensation, if recorded, would likely result in material
non-cash, stock-based compensation expense in our statements of operations.

Pre-Marketing Cash Flow.Pre-marketing cash flow is comprised of EBITDA,
as defined below, plus Cost of sales  subscriber promotion subsidies, Other
subscriber promotion subsidies and Advertising and other expenses.
Pre-marketing cash flow was $1.980 billion during the year ended December 31,
2002, an increase of $389

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million or 24% compared to the same period in 2001. Our pre-marketing
cash flow as a percentage of Total revenue was approximately 41% and 40%
during the years ended December 31, 2002 and 2001, respectively.

Earnings Before Interest, Taxes, Depreciation and Amortization. EBITDA is
defined as Operating income (loss) plus Depreciation and amortization, and
is adjusted for Non-cash, stock-based compensation. EBITDA was $799 million
during the year ended December 31, 2002, compared to $502 million during the
same period in 2001. The improvement in EBITDA was directly attributable to
the increase in the number of DISH Network subscribers, which continues to
result in revenue sufficient to support the cost of new and existing
subscribers, and to adjustments totaling approximately $53 million which reduce
the costs related to the production of receiver systems. For more information
on the adjustments, see Note 2 in Notes to the Consolidated Financial
Statements. The improvement was partially offset by a decrease in Digital Home
Plan penetration compared to the same period in 2001, resulting in a reduction
in capitalized costs for the period. Our calculation of EBITDA for the years
ended December 31, 2002 and 2001 does not include approximately $11 million and
$20 million, respectively, of non-cash compensation expense resulting from
post-grant appreciation of employee stock options. In addition, EBITDA does
not include the impact of capital expenditures under our Digital Home Plan
promotion of approximately $278 million and $338 million during 2002 and 2001,
respectively. As previously discussed, to the extent we introduce more
aggressive marketing promotions and our subscriber acquisition costs materially
increase, our EBITDA results will be negatively impacted because subscriber
acquisition costs are generally expensed as incurred.

The following table reconciles pre-marketing cash flow and EBITDA to the
accompanying financial statements:

|                        |                                                |   |                         |         |      |   |           |         | 
|----------------------- | ---------------------------------------------- | - | ----------------------- | ------- | ---- | - | --------- | ------- | 
|                        |                                                |   | Year Ended December 31,
|                        |                                                |   | 2001                    |         | 2002
|                        |                                                |   |                         |         |     
|Operating income (loss) |                                                | $ | 215,696                 |         |      | $ | 432,444   |        
|                        | Depreciation and amortization                  |   |                         | 265,912 |      |   |           | 355,754 | 
|                        | Non-cash, stock-based compensation             |   |                         | 20,173  |      |   |           | 11,279  | 
|                        |                                                |   |                         |         |      |   |           |        
|EBITDA                  |                                                | $ | 501,781                 |         |      | $ | 799,477   |        
|                        | Cost of sales  subscriber promotion subsidies |   |                         | 466,610 |      |   |           | 445,448 | 
|                        | Other subscriber promotion subsidies           |   |                         | 477,903 |      |   |           | 574,750 | 
|                        | Advertising and other                          |   |                         | 144,724 |      |   |           | 160,394 | 
|                        |                                                |   |                         |         |      |   |           |        
|Pre-marketing cash flow |                                                | $ | 1,591,018               |         |      | $ | 1,980,069 |        
|                        |                                                |   |                         |         |      |   |           |        

It is important to note that EBITDA and pre-marketing cash flow are
supplemental non-GAAP measures and do not represent cash provided or used by
operating activities. Through 2002, we used EBITDA and pre-marketing cash flow
as two of the measurements of operating efficiency and overall financial
performance and believed these can be helpful measures for those evaluating
companies in the multi-channel video programming distribution industry.
Conceptually, EBITDA measures the amount of income generated each period that
could be used to service debt, pay taxes and fund capital expenditures because
EBITDA is independent of the actual leverage and capital expenditures employed
by the business. Pre-marketing cash flow measures EBITDA before costs incurred
to acquire subscribers to help assess the amount of income generated each
period to be used to service debt and acquire subscribers. EBITDA and
pre-marketing cash flow should not be considered in isolation or as a
substitute for measures of performance prepared in accordance with generally
accepted accounting principles.

Depreciation and Amortization.Depreciation and amortization expense
totaled $356 million during the year ended December 31, 2002, a $90 million
increase compared to the same period in 2001. The increase in Depreciation
and amortization expense principally resulted from an increase in depreciation
related to the commencement of commercial operation of EchoStar VII in April
2002, commencement of commercial operations of EchoStar VIII in October 2002
and Digital Home Plan equipment and other additional depreciable assets placed
in service. This increase was partially offset by a reduction of approximately
$19 million of amortization expense as a result of our adoption of Statement of
Financial Accounting Standards No. 142 (FAS 142). In accordance with FAS
142, effective January 2002 we ceased amortization of our FCC authorizations.

Other Income and Expense.Other expense, net, totaled $335 million
during the year ended December 31, 2002, an increase of $152 million compared
to the same period in 2001. This increase is primarily attributable to an

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increase in Interest expense, net of amounts capitalized as a result of
the issuance of our 9 1/8% Senior Notes in December 2001 and due to EDBS
recording the indebtedness of the 10 3/8% Seven Year Notes as of December 31,
2001.

Net income.Net income was $18 million during the year ended December
31, 2002, a decrease of $14 million compared to Net income of $32 million for
the same period in 2001. The decrease was primarily attributable to an
increase in Other income (expense) discussed above and an increase in Income
tax provision. The
decrease in net income was partially offset by an improvement in Operating
income (loss) as discussed above.

Net cash flows from operating activities and purchases of property and
equipment.Net cash flows from operating activities, as reported in our
consolidated statements of cash flows, includes net income or loss for the
period, adjusted for certain non-cash items including, but not limited to,
depreciation and amortization, realized and unrealized gains and losses on
investments, deferred tax expense, and non-cash, stock-based compensation.
Net cash flows from operating activities also includes changes in assets and
liabilities during the period. Net cash flows from operating activities does
not include investing activities or financing activities, nor does it include
charges relating to losses on investing or financing activities. Net cash
flows from operating activities was $813 million and $602 million during the
years ended December 31, 2002 and 2001, respectively. The increase in Net
cash flows from operating activities was attributable to changes in assets and
liabilities which resulted in greater sources of cash in 2002 as compared to
2001. In addition, the 2002 net income figure includes a higher amount of
non-cash expenses as compared to 2001. Our consolidated
statements of cash flows detail the significant components of net cash flows
from operating activities.

Purchases of
property and equipment were $350 million and $442 million
during the years ended December 31, 2002 and 2001, respectively. This decrease
was primarily attributable to the capitalization of less equipment
under our Digital Home Plan and reduced spending on general corporate
expenditures
in 2002 as compared to 2001.

Net cash flows from operating activities less Purchases of property and
equipment was $463 million and $160 million for the years ended December 31,
2002 and 2001, respectively.

Year Ended December 31, 2001 Compared to the Year Ended December 31, 2000.

Revenue. Total revenue for the year ended December 31, 2001 was $3.987
billion, an increase of $1.278 billion or 47% compared to total revenue for the
year ended December 31, 2000 of $2.709 billion. The increase in total
revenue was primarily attributable to continued DISH Network subscriber growth
and higher average revenue per subscriber.

DISH Network Subscription television services revenue totaled $3.584
billion for the year ended December 31, 2001, an increase of $1.242 billion or
53% compared to the same period in 2000. This increase was directly
attributable to continued DISH Network subscriber growth and higher average
revenue per subscriber. DISH Network added approximately 1.57 million net new
subscribers for the year ended December 31, 2001 compared to approximately 1.85
million net new subscriber additions during the same period in 2000. As of
December 31, 2001, we had approximately 6.83 million DISH Network subscribers
compared to approximately 5.26 million at December 31, 2000, an increase of
approximately 30%. Monthly average revenue per subscriber was approximately
$49.32 during the year ended December 31, 2001 and approximately $45.33 during
the same period in 2000. The increase in monthly average revenue per
subscriber is primarily due to the $1.00 price increase in May 2000 and
February 2001, the increased availability of local channels by satellite, the
introduction of our high-end Americas Top 150 basic programming package during
April 2000, together with an increase in subscriber penetration in our higher
priced Digital Home Plans.

For the year ended December 31, 2001, DTH equipment sales totaled $267
million, an increase of $11 million compared to the same period during 2000.
This increase in DTH equipment sales was primarily attributable to an
increase in sales of StarBand equipment and DBS accessories. This increase was
partially offset by a decrease in demand for digital set-top boxes from our two
primary international DTH customers.

DISH Network Operating Expenses.DISH Network operating expenses
totaled $1.771 billion during the year ended December 31, 2001, an increase of
$503 million or 40% compared to the same period in 2000. DISH

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Network operating expenses represented 49% and 54% of Subscription
television services revenue during the years ended December 31, 2001 and 2000,
respectively. The increase in DISH Network operating expenses in total was
consistent with, and primarily attributable to, the increase in the number of
DISH Network subscribers.

Subscriber-related expenses totaled $1.449 billion during the year ended
December 31, 2001, an increase of $468 million compared to the same period in
2000. The increase in total Subscriber-related expenses is primarily
attributable to the increase in DISH Network subscribers. Such expenses
represented 40% and 42% of subscription television services revenues during
the years ended December 31, 2001 and 2000, respectively. The decrease in
Subscriber-related expenses as a percentage of Subscription television
services revenue primarily resulted from our programming package price
increases during 2001.

Customer service center and other expenses totaled $285 million during
the year ended December 31, 2001, an increase of $34 million as compared to the
same period in 2000. The increase in customer service center and other
expenses primarily resulted from increased personnel and telephone expenses to
support the growth of the DISH Network and from operating expenses related to
the expansion of our installation and service business. Customer service
center and other expenses totaled 8% of subscription television services
revenue during the year ended December 31, 2001, as compared to 11% during the
same period in 2000. The decrease in this expense to revenue ratio primarily
resulted from the reduction of on-going construction and start-up costs of our
fifth customer service center in Virginia and our sixth customer service center
in West Virginia which occurred during 2000, as well as increased operating
efficiencies during 2001.

Satellite and transmission expenses totaled $38 million during the year
ended December 31, 2001, a $2 million increase compared to the same period in
2000. Satellite and transmission expenses totaled 1% and 2% of subscription
television services revenue during the year ended December 31, 2001 and 2000,
respectively

Cost of sales  DTH equipment.Cost of sales  DTH equipment totaled
$188 million during the year ended December 31, 2001, a decrease of $9 million
compared to the same period in 2000. The decrease in cost of sales  DTH
equipment principally resulted from a decrease in sales of digital set-top
boxes to our two primary international DTH customers. Cost of sales  DTH
equipment represented 70% and 77% of DTH equipment sales revenue, during the
year ended December 31, 2001 and 2000, respectively. The decrease in this
expense to revenue ratio primarily resulted from an increase in sales of
higher-margin DBS accessories during 2001.

Subscriber Acquisition Costs.Subscriber acquisition costs totaled $1.074
billion during the year ended December 31, 2001 compared to $1.155 billion for
the same period in 2000. This decrease primarily resulted from a decrease in
Other subscriber promotion subsidies as a result of higher penetration of our
Digital Home Plan promotion, pursuant to which certain equipment costs are
capitalized, as discussed below. This decrease was partially offset by an
increase in Other subscriber promotion subsidies due to increases in
installation subsidies for multiple receivers under the Digital Home Plan
promotion and an increase in advertising expense related to our 2001 marketing
promotions, primarily our I Like 9 promotion. Other subscriber promotion
subsidies includes the cost related to EchoStar receiver systems distributed
to retailers and other distributors of our equipment and net costs related to
our free installation promotion and other promotional incentives. Advertising
and other expenses totaled $145 million and $138 million during the year ended
December 31, 2001 and 2000, respectively.

We exclude equipment capitalized under our Digital Home Plan promotion
from our calculation of subscriber acquisition costs. We also exclude payments
and certain returned equipment received from disconnecting Digital Home Plan
subscribers from our calculation of subscriber acquisition costs. Equipment
capitalized under our Digital Home Plan promotion totaled approximately $338
million and $65 million for the years ended December 31, 2001 and 2000,
respectively. Payments and returned equipment received from disconnecting
Digital Home Plan subscribers, which became available for sale through other
promotions rather than being redeployed in Digital Home Plan, totaled
approximately $16 million during the year ended December 31, 2001. Cash and
returned equipment were insignificant during 2000.

General and Administrative Expenses.General and administrative
expenses totaled $362 million during the year ended December 31, 2001, an
increase of $128 million as compared to the same period in 2000. The increase
in G&A expenses was principally attributable to increased legal fees and
personnel expenses to support the growth of

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the DISH Network. G&A expenses represented 9% of total revenue during
the years ended December 31, 2001 and 2000.

Non-cash, Stock-based Compensation.As a result of substantial post-grant
appreciation of stock options, during the years ended December 31, 2001 and
2000 we recognized $20 million and $51 million, respectively, of compensation
under the 1999 incentive plan. The remaining deferred compensation expense ,
which will be reduced by future forfeitures, if any, will be recognized over
the remaining vesting period.

We report all non-cash compensation based on stock option appreciation as
a single expense category in our accompanying statements of operations. The
following table represents the other expense categories in our statements of
operations that would be affected if non-cash, stock-based compensation was
allocated to the same expense categories as the base compensation for key
employees who participate in the 1999 incentive plan:

|                                  |                                          |   |                         |        |      |   |        |        | 
|--------------------------------- | ---------------------------------------- | - | ----------------------- | ------ | ---- | - | ------ | ------ | 
|                                  |                                          |   | Year Ended December 31,
|                                  |                                          |   | 2000                    |        | 2001
|                                  |                                          |   |                         |        |     
|                                  |                                          |   | (in thousands)         
|Customer service center and other |                                          | $ | 1,744                   |        |      | $ | 1,767  |       
|Satellite and transmission        |                                          |   | 3,061                   |        |      |   | 1,115  |       
|General and administrative        |                                          |   | 46,660                  |        |      |   | 17,291 |       
|                                  |                                          |   |                         |        |      |   |        |       
|                                  | Total non-cash, stock-based compensation |   | $                       | 51,465 |      |   | $      | 20,173 | 
|                                  |                                          |   |                         |        |      |   |        |       

Pre-Marketing Cash Flow.Pre-marketing cash flow is comprised of EBITDA,
as defined below, plus cost of sales  subscriber promotion subsidies, other
subscriber subsidies and advertising and other expenses. Pre-marketing cash
flow was $1.591 billion during the year ended December 31, 2001, an increase of
63% compared to the same period in 2000. Our pre-marketing cash flow as a
percentage of total revenue was approximately 40% during the year ended
December 31, 2001 compared to 36% during the same period in 2000.

Earnings Before Interest, Taxes, Depreciation and Amortization. EBITDA is
defined as operating income (loss) plus depreciation and amortization, and
non-cash, stock-based compensation. EBITDA was $502 million during the year
ended December 31, 2001, compared to negative $199 million during the same
period in 2000. This improvement in EBITDA was directly attributable to the
increase in the number of DISH Network subscribers and higher average revenue
per subscriber, resulting in recurring revenue which was large enough to
support the cost of new and existing subscribers, together with the
introduction of our Digital Home Plan in July 2000. Our calculation of EBITDA
for the years ended December 31, 2001 and 2000 does not include approximately
$20 million and $51 million, respectively, of non-cash compensation expense
resulting from post-grant appreciation of employee stock options. In addition,
EBITDA does not include the impact of amounts capitalized under our Digital
Home Plan of approximately $338 million and $65 million during 2001 and 2000,
respectively.

The following table reflects the reconciliation of pre-marketing cash flow
and EBITDA to the accompanying financial statements:

|                        |                                                |   |                         |         |      |   |           |         | 
|----------------------- | ---------------------------------------------- | - | ----------------------- | ------- | ---- | - | --------- | ------- | 
|                        |                                                |   | Year Ended December 31,
|                        |                                                |   | 2000                    |         | 2001
|                        |                                                |   |                         |         |     
|Operating income (loss) |                                                | $ | (424,682                | )       |      | $ | 215,696   |        
|                        | Depreciation and amortization                  |   |                         | 174,607 |      |   |           | 265,912 | 
|                        | Non-cash, stock-based compensation             |   |                         | 51,465  |      |   |           | 20,173  | 
|                        |                                                |   |                         |         |      |   |           |        
|EBITDA                  |                                                | $ | (198,610                | )       |      | $ | 501,781   |        
|                        | Cost of sales  subscriber promotion subsidies |   |                         | 747,020 |      |   |           | 466,610 | 
|                        | Other subscriber promotion subsidies           |   |                         | 290,197 |      |   |           | 477,903 | 
|                        | Advertising and other                          |   |                         | 138,202 |      |   |           | 144,724 | 
|                        |                                                |   |                         |         |      |   |           |        
|Pre-marketing cash flow |                                                | $ | 976,809                 |         |      | $ | 1,591,018 |        
|                        |                                                |   |                         |         |      |   |           |        

Depreciation and Amortization.Depreciation and amortization expenses
aggregated $266 million during the year ended December 31, 2001, a $91 million
increase compared to the same period in 2000. The increase in

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depreciation and amortization expenses principally resulted from an
increase in depreciation related to the commencement of operation of EchoStar
VI in October 2000 and other depreciable assets, including Digital Home Plan
equipment, placed in service during late 2000 and 2001.

Other Income and Expense.Other expense, net, totaled $183 million
during the years ended December 31, 2001 and 2000.

Net income (loss).Net income was $32 million during the year ended
December 31, 2001, an improvement of $640 million compared to Net loss of
$608 million for the same period in 2000. This improvement is primarily
attributable to increases in Subscription television services revenue
discussed above.

Net cash flows from operating activities and purchases of property and
equipment.Net cash flows from operating activities, as reported in our
consolidated statements of cash flows, includes net income or loss for the
period, adjusted for certain non-cash items including, but not limited to,
depreciation and amortization, realized and unrealized gains and losses on
investments, deferred tax expense, and non-cash, stock-based compensation.
Net cash flows from operating activities also includes changes in assets and
liabilities during the period. Net cash flows from operating activities does
not include investing activities or financing activities, nor does it include
charges relating to losses on investing or financing activities. Net cash
flows from operating activities was $602 million and negative $250 million
during the years ended December 31, 2001 and 2000, respectively. The
improvement in net cash flows from operating activities was primarily
attributable to the improvement in Net income (loss) discussed above. Our
consolidated statements of cash flows detail the significant components of net
cash flows from operating activities.

Purchases of property and equipment were $442 million and $175 million
during the years ended December 31, 2001 and 2000, respectively. This increase
was primarily attributable to increased spending on the construction of
satellites and an increase of equipment capitalized under our Digital Home Plan
in 2001 as compared to 2000.

Net cash flows from operating activities less Purchases of property and
equipment was $160 million and negative $425 million for the years ended
December 31, 2001 and 2000, respectively.

Recently Issued Accounting Pronouncements

In July 2002, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 146, Accounting for Costs Associated with
Exit or Disposal Activities (FAS 146), which will require companies to
record exit, including restructuring, or disposal costs when they are incurred
and can be measured at fair value, and subsequently adjust the recorded
liability for changes in estimated cash flows. FAS 146 also provides specific
guidance on accounting for employee and contract terminations that are part of
restructuring activities. The new requirements in FAS 146 are effective
prospectively for exit or disposal activities initiated after December 31,
2002. The application of FAS 146 is not expected to have a material impact on
our financial position or results of operations.

In December 2002, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 148, Accounting for
Stock-Based Compensation  Transition and Disclosure (FAS 148), which (i)
amends FAS Statement No. 123, Accounting for Stock-Based Compensation, to
provide alternative methods of transition for an entity that voluntarily
changes to the fair value based method of accounting for stock-based employee
compensation (ii) amends the disclosure provisions of FAS 123 to require
prominent disclosure about the effects on reported net income of an entitys
accounting policy decisions with respect to stock-based employee compensation
and (iii) amends APB Opinion No. 28, Interim Financial Reporting, to require
disclosure about those effects in interim financial information. Items (ii)
and (iii) of the new requirements in FAS 148 are effective for financial
statements for fiscal years ending after December 15, 2002. We have included
the requirements of item (ii) in Note 2 in the Notes to the Consolidated
Financial Statements in Item 15 of this Annual Report on Form 10-K and will
include the requirements of item (iii) beginning in its first interim period
after December 15, 2002.

In November 2002, the FASB issued FASB Interpretation No. 45, Guarantors
Accounting and Disclosure Requirement for Guarantors, including Indirect
Guarantors of Indebtedness Others (FIN 45). FIN 45 creates new disclosure
and liability recognition requirements for certain guarantees, including,
obligations to stand ready to perform. The initial recognition and measurement
requirements of FIN 45 is effective prospectively for guarantees

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issued or modified after December 31, 2002 and the disclosure requirements
are effective for financial statement periods ending after December 15, 2002.
In accordance with FIN 45, we have disclosed guarantee information.

In January 2003, the Financial Accounting Standards Boards issued FASB
Interpretation No. 46, Consolidation of Variable Interest Entities (FIN
46), which addresses the consolidation of variable interest entities as
defined in the Interpretation. FIN 46 requires an assessment of equity
investments to determine if they are variable interest entities. FIN 46 is
immediately effective for all variable interest entities created after January
31, 2003. For variable interest entities created before February 1, 2003, the
provisions of FIN 46 must be applied no later than the beginning of the first
interim period or annual reporting period beginning after June 15, 2003. In
addition, if it is reasonably possible that an enterprise will consolidate or
disclose information about a variable interest entity, the enterprise shall
discuss the following information in all financial statements issued after
January 31, 2003: (i) the nature, purpose, size or activities of the variable
interest entity and (ii) the enterprises maximum exposure to loss as a result
of its involvement with the variable interest entity. We are currently
evaluating the potential impact, if any, the adoption of FIN 46 will have on
our financial position and results of operations.

Seasonality

Our revenues vary throughout the year. As is typical in the subscription
television service industry, our first six months generally produce fewer new
subscribers than the second half of the year. Our operating results in any
period may be affected by the incurrence of advertising and promotion expenses
that do not necessarily produce commensurate revenues in the short-term until
the impact of such advertising and promotion is realized in future periods.

Inflation

Inflation has not materially affected our operations during the past three
years. We believe that our ability to increase the prices charged for our
products and services in future periods will depend primarily on competitive
pressures. We do not have any material backlog of our products.




Item 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market Risks Associated With Financial Instruments

As of December 31, 2002, our restricted and unrestricted cash, cash
equivalents and marketable investment securities had a fair value of
approximately $696 million which was invested in: (a) cash; (b) debt
instruments of the U.S. Government and its agencies; (c) commercial paper and
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
characteristics to the commercial paper described above. The primary purpose
of these investing activities has been to preserve principal until the cash is
required to fund operations. Consequently, the size of this portfolio
fluctuates significantly as cash is received and used in our business.

The value of certain of the investments in this portfolio can be impacted
by, among other things, the risk of adverse changes in securities and economic
markets generally, as well as the risks related to the performance of the
companies whose commercial paper and other instruments we hold. However, the
high quality of these investments (as assessed by independent rating agencies),
reduces these risks. The value of these investments can also be impacted by
interest rate fluctuations. At December 31, 2002, all of our investments in
this category were in fixed or variable rate instruments or money market type
accounts. While an increase in interest rates would ordinarily adversely
impact the fair value of fixed and variable rate investments, we normally hold
these investments to maturity. Consequently, neither interest rate
fluctuations nor other market risks typically result in significant gains or
losses to this portfolio. A decrease in interest rates has the effect of
reducing our future annual interest income from this portfolio, since funds
would be re-invested at lower rates as the instruments mature. Over time, any
net percentage decrease in interest rates could be reflected in a corresponding
net percentage decrease in our interest income. As of December 31, 2002 our
marketable securities portfolio balance was approximately $696 million with an
average annual return for the year ended December 31, 2002 of approximately
2.3%. A hypothetical 10% decrease in interest rates would result in a decrease
of approximately $2 million in annual interest income.

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In accordance with generally accepted accounting principles, we adjust the
carrying value of our available-for-sale marketable investment securities to
fair market value and report the related temporary unrealized gains and losses
as a separate component of stockholders deficit, net of related deferred
income tax, if applicable. Declines in the fair market value of a marketable
investment security which are estimated to be other than temporary must be
recognized in the statement of operations, thus establishing a new cost basis
for such investment. We evaluate our marketable investment securities
portfolio on a quarterly basis to determine whether declines in the market
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 value of these securities, the
historical volatility of the price of each security and any market and company
specific factors related to each security. Generally, absent specific factors
to the contrary, declines in the fair value of investments below cost basis for
a period of less than six months are considered to be temporary. Declines in
the fair value of investments for a period of six to nine months are evaluated
on a case by case basis to determine whether any company or market-specific
factors exist which would indicate that such declines are other than temporary.
Declines in the fair value of investments below cost basis for greater than
nine months are considered other than temporary and are recorded as charges to
earnings, absent specific factors to the contrary.

As of December 31, 2002, we recorded unrealized gains of approximately $1
million as a separate component of stockholders deficit. During the year
ended December 31, 2002, we also recorded an aggregate charge to earnings for
other than temporary declines in the fair market value of certain of our
marketable investment securities of approximately $2 million, and established a
new cost basis for these securities. If the fair market value of our
marketable securities portfolio does not remain above cost basis or if we
become aware of any market or company specific factors that indicate that the
carrying value of certain of our securities is impaired, we may be required to
record additional charges to earnings in future periods equal to the amount of
the decline in fair value.

As of December 31, 2002, we estimated the fair value of our fixed-rate
debt and mortgages and other notes payable to be approximately $3.9 billion
using quoted market prices where available, or discounted cash flow analyses.
The interest rates assumed in such discounted cash flow analyses reflect
interest rates currently being offered for loans with similar terms to
borrowers of similar credit quality. The fair value of our fixed rate debt and
mortgages 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 $141 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, 2002, a hypothetical 10% increase in assumed interest
rates would increase our annual interest expense by approximately $36 million.

We have not used derivative financial instruments for speculative
purposes. We have not hedged or otherwise protected against the risks
associated with any of our investing or financing activities.




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

Not applicable.




Item 14. CONTROLS AND PROCEDURES



|(a) |  | Under the supervision and with the participation of our management,
including our Chief Executive Officer and Chief Financial Officer, we
conducted an evaluation of the effectiveness of our disclosure controls
and procedures as defined in Rule 13a-14(c) promulgated under the
Securities Exchange Act of 1934 within 90 days of the filing date of this
report. Based on their evaluation, our Chief Executive Officer and Chief
Financial Officer concluded that the design and operation of EchoStars
disclosure controls and procedures were effective as of the date of the
evaluation.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(b) |  | There have been no significant changes (including corrective actions
with regard to significant deficiencies or material weaknesses) in our
internal controls or in other factors that could significantly affect
these controls subsequent to the date of the evaluation referenced in
paragraph (a) above.                                                                                                                                                                                                                                                                                      

20



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##### Table of Contents






PART IV




Item 15.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

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

| |     |                     
| | --- | --------------------
| | (1) | Financial Statements

| |  |  |  |                                                                                                                   |  |     
| |  |  |  | ----------------------------------------------------------------------------------------------------------------- |  | ----
| |  |  |  |                                                                                                                   |  | Page
| |  |  |  |                                                                                                                   |  |     
| |  |  |  | Report of KPMG LLP, Independent Public Accountants                                                                |  | F-2 
| |  |  |  |                                                                                                                   |  |     
| |  |  |  | Report of Arthur Andersen, Independent Public Accountants                                                         |  | F-3 
| |  |  |  |                                                                                                                   |  |     
| |  |  |  | Consolidated Balance Sheets at December 31, 2001 and 2002                                                         |  | F-4 
| |  |  |  |                                                                                                                   |  |     
| |  |  |  | Consolidated Statements of Operations and Comprehensive Loss for the years ended
December 31, 2000, 2001 and 2002 |  | F-5 
| |  |  |  |                                                                                                                   |  |     
| |  |  |  | Consolidated Statements of Changes in Stockholders Deficit for the years ended
December 31, 2000, 2001 and 2002  |  | F-6 
| |  |  |  |                                                                                                                   |  |     
| |  |  |  | Consolidated Statements of Cash Flows for the years ended December 31, 2000, 2001
and 2002                        |  | F-7 
| |  |  |  |                                                                                                                   |  |     
| |  |  |  | Notes to Consolidated Financial Statements                                                                        |  | F-8 

| |     |                                                                                                  
| | --- | -------------------------------------------------------------------------------------------------
| | (2) | Financial Statement Schedules                                                                    
| |     |                                                                                                  
| |     | None. All schedules have been included in the Consolidated Financial Statements or Notes thereto.
| |     |                                                                                                  
| | (3) | Exhibits                                                                                         

|            |  |                                                                                                                                                                                                                                                                                                                                         
|----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                                                                                                                                                                                             
|            |  |                                                                                                                                                                                                                                                                                                                                         
|3.1(a)*     |  | Articles of Incorporation of EDBS (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)*     |  | Bylaws of EDBS (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 the EDBS 9 1/4% Senior Notes (Seven
Year Notes), dated as of January 25, 1999, by and among EDBS,
the Guarantors and U.S. Bank Trust National Association, as
trustee.(incorporated by reference to Exhibit 4.1 to EDBS
Registration Statement on Form S-4, Registration No.
333-71345).                       
|4.2*        |  | Indenture relating to the EDBS 9 3/8% Senior Notes (Ten Year
Notes), dated as of January 25, 1999, by and among EDBS, the
Guarantors and U.S. Bank Trust National Association, as
trustee. (incorporated by reference to Exhibit 4.3 to EDBS
Registration Statement on Form S-4, Registration No.
333-71345).                        
|4.3*        |  | Registration Rights Agreement relating to the Seven Year Notes
by and among EDBS, the Guarantors and the parties named
therein. (incorporated by reference to Exhibit 4.5 to EDBS
Registration Statement on Form S-4, Registration No.
333-71345).                                                                                     
|4.4*        |  | Registration Rights Agreement relating to the Ten Year Notes
by and among EDBS, the Guarantors and the parties named
therein. (incorporated by reference to Exhibit 4.6 to EDBS
Registration Statement on Form S-4, Registration No.
333-71345).                                                                                       
|4.5*        |  | Indenture, relating to the EDBS 9 1/8% Senior Notes Due 2009,
dated as of December 28, 2001 between EchoStar DBS Corporation
and U.S. Bank Trust National Association, as Trustee
(incorporated by reference to Exhibit 4.17 to the Annual
Report on Form 10-K of ECC for the year ended December 31,
2001, Commission File No.0-26176).

21



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|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                    
|----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                        
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                    
|4.6*        |  | Registration Rights Agreement, relating to the EDBS 9 1/8%
Senior Notes Due 2009, dated as of December 28, 2001, by and
among EchoStar DBS Corporation and Deutsche Banc Alex. Brown,
Inc., Credit Suisse First Boston Corporation, Lehman Brothers
Inc. and UBS Warburg LLC (incorporated by reference to Exhibit
4.18 to the Annual Report on Form 10-K of ECC for the year
ended December 31, 2001, Commission File No.0-26176).
|4.7*        |  | Indenture relating to 10 3/8% Senior Notes due 2007, dated as
of November 12, 2002, between EDBS and U.S. Bank Trust
National Association, as trustee. (incorporated by reference
to Exhibit 4.8 to the Annual Report on Form 10-K of EchoStar
for the year ended December 31, 2002).                                                                                                                                              
|10.1*       |  | Form of Satellite Launch Insurance Declarations (incorporated
by reference to Exhibit 10.10 to the Registration Statement on
Form S-1 of Dish, Registration No. 33-81234).                                                                                                                                                                                                                                                         
|10.2*       |  | Form of Tracking, Telemetry and Control Contract between AT&T
Corp. and ESC (incorporated by reference to Exhibit 10.12 to
the Registration Statement on Form S-1 of Dish, Registration
No. 33-81234).                                                                                                                                                                                                                             
|10.3*       |  | Manufacturing Agreement, dated as of March 22, 1995, between
Houston Tracker Systems, Inc. and SCI Technology, Inc.
(incorporated by reference to Exhibit 10.12 to the
Registration Statement on Form S-1 of Dish, Commission File
No. 33-81234).                                                                                                                                                                                  
|10.4*       |  | Statement of Work, dated January 31, 1995 from ESC to Divicom
Inc. (incorporated by reference to Exhibit 10.14 to the
Registration Statement on Form S-1 of ECC, Registration No.
33-91276).                                                                                                                                                                                                                                       
|10.5*       |  | EchoStar 1995 Stock Incentive Plan (incorporated by reference
to Exhibit 10.16 to the Registration Statement on Form S-1 of
ECC, Registration No. 33-91276)**                                                                                                                                                                                                                                                                      
|10.6*       |  | Echostar 1999 Stock Incentive Plan (incorporated by reference
to Exhibit C to Echostars Definitive Proxy Statement on
Schedule 14A dated March 23, 1999).**                                                                                                                                                                                                                                                                       
|10.7*       |  | 2002 Class B CEO Stock Option Plan (incorporated by reference
to Appendix A to Echostars Definitive Proxy Statement on
Schedule 14A dated April 9, 2002).**                                                                                                                                                                                                                                                                       
|10.8*       |  | Satellite Construction Contract, dated as of July 18, 1996,
between EDBS and Lockheed Martin Corporation (incorporated by
reference to Exhibit 10.18 to the Quarterly Report on Form
10-Q of ECC for the quarter ended June 30, 1996, Commission
File No. 0-26176).                                                                                                                                                                
|10.9*       |  | Confidential Amendment to Satellite Construction Contract
between DBSC and Martin Marietta, dated as of May 31, 1995
(incorporated by reference to Exhibit 10.14 to the
Registration Statement of Form S-4 of ECC, Registration No.
333-03584).                                                                                                                                                                                    
|10.10*      |  | Agreement between HTS, ESC and ExpressVu Inc., dated January
8, 1997, as amended (incorporated by reference to Exhibit
10.18 to the Annual Report on Form 10-K of ECC for the year
ended December 31, 1996, as amended, Commission file No.
0-26176).                                                                                                                                                                              
|10.11*      |  | Amendment No. 9 to Satellite Construction Contract, effective
as of July 18, 1996, between Direct Satellite Broadcasting
Corporation, a Delaware corporation (DBSC) and Martin
Marietta Corporation (incorporated by reference to Exhibit
10.1 to the Quarterly Report on Form 10-Q of ECC for the
quarterly period ended June 30, 1997, Commission File No.
0-26176).                                                           
|10.12*      |  | Amendment No. 10 to Satellite Construction Contract, effective
as of May 31, 1996, between DBSC and Lockheed Martin
Corporation (incorporated by reference to Exhibit 10.2 to the
Quarterly Report on Form 10-Q of ECC for the quarterly period
ended June 30, 1997, Commission File No. 0-26176).                                                                                                                                 

22



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|            |  |                                                                                                                                                                                                                                                                                                                                                                     
|----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                                                                                                                                                                                                                         
|            |  |                                                                                                                                                                                                                                                                                                                                                                     
|10.13*      |  | OEM Manufacturing, Marketing and Licensing Agreement, dated as
of February 17, 1998, by and among HTS, ESC and Philips
Electronics North America Corporation (incorporated by
reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q
of EchoStar for the quarterly period ended March 31, 1998,
Commission File No. 0-26176).                               
|10.14*      |  | Licensing Agreement, dated as of February 23, 1998, by and
among HTS, ESC and VTech Communications Ltd. (incorporated by
reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q
of ECC for quarterly period ended March 31, 1998, Commission
File No. 0-26176).                                                                                             
|10.15*      |  | Memorandum OEM Manufacturing Agreement, dated January 9, 2002,
between EchoStar Satellite Corporation, EchoStar Technologies
Corporation and Thomson multimedia, Inc. (incorporated by
reference to Exhibit 10.5 to the Quarterly Report as amended
on Form 10-Q/A of EchoStar for the quarter ended March 31,
2002, Commission File No. 0-26176)***                
|10.16*      |  | Amendment No. 1 to Memorandum OEM Manufacturing Agreement,
dated January 9, 2002, between EchoStar Satellite Corporation,
EchoStar Technologies Corporation and Thomson multimedia, Inc.
(incorporated by reference to Exhibit 10.6 to the Quarterly
Report as amended on Form 10-Q/A of EchoStar for the quarter
ended March 31, 2002, Commission File No. 0-26176)
|10.17*      |  | Amendment No. 2 to Memorandum OEM Manufacturing Agreement,
dated January 9, 2002, between EchoStar Satellite Corporation,
EchoStar Technologies Corporation and Thomson multimedia, Inc.
(incorporated by reference to Exhibit 10.7 to the Quarterly
Report as amended on Form 10-Q/A of EchoStar for the quarter
ended March 31, 2002, Commission File No. 0-26176)
|10.18*      |  | Amendment No. 3 to Memorandum OEM Manufacturing Agreement,
dated January 9, 2002, between EchoStar Satellite Corporation,
EchoStar Technologies Corporation and Thomson multimedia, Inc.
(incorporated by reference to Exhibit 10.8 to the Quarterly
Report as amended on Form 10-Q/A of EchoStar for the quarter
ended March 31, 2002, Commission File No. 0-26176)
|10.19*      |  | Amendment No. 4 to Memorandum OEM Manufacturing Agreement,
dated January 9, 2002, between EchoStar Satellite Corporation,
EchoStar Technologies Corporation and Thomson multimedia, Inc.
(incorporated by reference to Exhibit 10.1 to the Quarterly
Report as amended on Form 10-Q/A of EchoStar for the quarter
ended June 30, 2002, Commission File No. 0-26176) 
|10.20*      |  | Amendment No. 5 to Memorandum OEM Manufacturing Agreement,
dated January 9, 2002, between EchoStar Satellite Corporation,
EchoStar Technologies Corporation and Thomson multimedia, Inc.
(incorporated by reference to Exhibit 10.2 to the Quarterly
Report as amended on Form 10-Q/A of EchoStar for the quarter
ended June 30, 2002, Commission File No. 0-26176) 
|10.21*      |  | Amendment No. 6 to Memorandum OEM Manufacturing Agreement,
dated January 9, 2002, between EchoStar Satellite Corporation,
EchoStar Technologies Corporation and Thomson multimedia, Inc.
(incorporated by reference to Exhibit 10.3 to the Quarterly
Report as amended on Form 10-Q/A of EchoStar for the quarter
ended June 30, 2002, Commission File No. 0-26176) 
|10.22*      |  | License and OEM Manufacturing Agreement, dated July 1, 2002,
between EchoStar Satellite Corporation, EchoStar Technologies
Corporation and Thomson multimedia, Inc. (incorporated by
reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q
of EchoStar for the quarter ended September 30, 2002,
Commission File No. 0-26176) ***                          
|10.23*      |  | Amendment No. 1 to License and OEM Manufacturing Agreement,
dated July 1, 2002, between EchoStar Satellite Corporation,
EchoStar Technologies Corporation and Thomson multimedia, Inc.
(incorporated by reference to Exhibit 10.2 to the Quarterly
Report on Form 10-Q of EchoStar for the quarter ended
September 30, 2002, Commission File No. 0-26176)           

23



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|            |  |                                                                                                                                                                                                                                                                                                                                                            
|----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                                                                                                                                                                                                                
|            |  |                                                                                                                                                                                                                                                                                                                                                            
|10.24*      |  | Amendment No. 2 to License and OEM Manufacturing Agreement,
dated July 1, 2002, between EchoStar Satellite Corporation,
EchoStar Technologies Corporation and Thomson multimedia, Inc.
(incorporated by reference to Exhibit 10.3 to the Quarterly
Report on Form 10-Q of EchoStar for the quarter ended
September 30, 2002, Commission File No. 0-26176)  
|10.25*      |  | Amendment No. 3 to License and OEM Manufacturing Agreement,
dated July 1, 2002, between EchoStar Satellite Corporation,
EchoStar Technologies Corporation and Thomson multimedia, Inc.
(incorporated by reference to Exhibit 10.4 to the Quarterly
Report on Form 10-Q of EchoStar for the quarter ended
September 30, 2002, Commission File No. 0-26176)  
|10.26*      |  | Amendment No. 4 to License and OEM Manufacturing Agreement,
dated July 1, 2002, between EchoStar Satellite Corporation,
EchoStar Technologies Corporation and Thomson multimedia, Inc.
(incorporated by reference to Exhibit 10.5 to the Quarterly
Report on Form 10-Q of EchoStar for the quarter ended
September 30, 2002, Commission File No. 0-26176)  
|10.27*      |  | Amendment No. 5 to License and OEM Manufacturing Agreement,
dated July 1, 2002, between EchoStar Satellite Corporation,
EchoStar Technologies Corporation and Thomson multimedia, Inc.
(incorporated by reference to Exhibit 10.6 to the Quarterly
Report on Form 10-Q of EchoStar for the quarter ended
September 30, 2002, Commission File No. 0-26176)  
|10.28*      |  | Amendment No. 6 to License and OEM Manufacturing Agreement,
dated July 1, 2002, between EchoStar Satellite Corporation,
EchoStar Technologies Corporation and Thomson multimedia, Inc.
(incorporated by reference to Exhibit 10.7 to the Quarterly
Report on Form 10-Q of EchoStar for the quarter ended
September 30, 2002, Commission File No. 0-26176)  
|10.29*      |  | Amendment No. 7 to License and OEM Manufacturing Agreement,
dated July 1, 2002, between EchoStar Satellite Corporation,
EchoStar Technologies Corporation and Thomson multimedia, Inc.
(incorporated by reference to Exhibit 10.8 to the Quarterly
Report on Form 10-Q of EchoStar for the quarter ended
September 30, 2002, Commission File No. 0-26176)  
|10.30*      |  | Amendment No. 8 to License and OEM Manufacturing Agreement,
dated July 1, 2002, between EchoStar Satellite Corporation,
EchoStar Technologies Corporation and Thomson multimedia, Inc.
(incorporated by reference to Exhibit 10.9 to the Quarterly
Report on Form 10-Q of EchoStar for the quarter ended
September 30, 2002, Commission File No. 0-26176)  
|10.31*      |  | Amendment No. 9 to License and OEM Manufacturing Agreement,
dated July 1, 2002, between EchoStar Satellite Corporation,
EchoStar Technologies Corporation and Thomson multimedia, Inc.
(incorporated by reference to Exhibit 10.10 to the Quarterly
Report on Form 10-Q of EchoStar for the quarter ended
September 30, 2002, Commission File No. 0-26176) 
|10.32*      |  | Amendment No. 10 to License and OEM Manufacturing Agreement,
dated July 1, 2002, between EchoStar Satellite Corporation,
EchoStar Technologies Corporation and Thomson multimedia, Inc.
(incorporated by reference to Exhibit 10.11 to the Quarterly
Report on Form 10-Q of EchoStar for the quarter ended
September 30, 2002, Commission File No. 0-26176)
|10.33*      |  | Amendment No. 11 to License and OEM Manufacturing Agreement,
dated July 1, 2002, between EchoStar Satellite Corporation,
EchoStar Technologies Corporation and Thomson multimedia, Inc.
(incorporated by reference to Exhibit 10.12 to the Quarterly
Report on Form 10-Q of EchoStar for the quarter ended
September 30, 2002, Commission File No. 0-26176)
|10.34*      |  | Amendment No. 12 to License and OEM Manufacturing Agreement,
dated July 1, 2002, between EchoStar Satellite Corporation,
EchoStar Technologies Corporation and Thomson multimedia, Inc.
(incorporated by reference to Exhibit 10.13 to the Quarterly
Report on Form 10-Q of EchoStar for the quarter ended
September 30, 2002, Commission File No. 0-26176)

24



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|            |  |                                                                                                                                                                                                                                                                                                                                                     
|----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                                                                                                                                                                                                         
|            |  |                                                                                                                                                                                                                                                                                                                                                     
|10.35*      |  | Amendment No. 13 to License and OEM Manufacturing Agreement,
dated July 1, 2002, between EchoStar Satellite Corporation,
EchoStar Technologies Corporation and Thomson multimedia, Inc.
(incorporated by reference to Exhibit 10.51 to the Annual
Report on Form 10-K of EchoStar for the year ended December
31, 2002, Commission File No. 0-26176)
|10.36*      |  | Amendment No. 14 to License and OEM Manufacturing Agreement,
dated July 1, 2002, between EchoStar Satellite Corporation,
EchoStar Technologies Corporation and Thomson multimedia, Inc.
(incorporated by reference to Exhibit 10.52 to the Annual
Report on Form 10-K of EchoStar for the year ended December
31, 2002, Commission File No. 0-26176)
|10.37*      |  | Amendment No. 15 to License and OEM Manufacturing Agreement,
dated July 1, 2002, between EchoStar Satellite Corporation,
EchoStar Technologies Corporation and Thomson multimedia, Inc.
(incorporated by reference to Exhibit 10.53 to the Annual
Report on Form 10-K of EchoStar for the year ended December
31, 2002, Commission File No. 0-26176)
|10.38*      |  | Amendment No. 16 to License and OEM Manufacturing Agreement,
dated July 1, 2002, between EchoStar Satellite Corporation,
EchoStar Technologies Corporation and Thomson multimedia, Inc.
(incorporated by reference to Exhibit 10.54 to the Annual
Report on Form 10-K of EchoStar for the year ended December
31, 2002, Commission File No. 0-26176)
|10.39*      |  | Amendment No. 17 to License and OEM Manufacturing Agreement,
dated July 1, 2002, between EchoStar Satellite Corporation,
EchoStar Technologies Corporation and Thomson multimedia, Inc.
(incorporated by reference to Exhibit 10.55 to the Annual
Report on Form 10-K of EchoStar for the year ended December
31, 2002, Commission File No. 0-26176)
|10.40*      |  | Amendment No. 18 to License and OEM Manufacturing Agreement,
dated July 1, 2002, between EchoStar Satellite Corporation,
EchoStar Technologies Corporation and Thomson multimedia, Inc.
(incorporated by reference to Exhibit 10.56 to the Annual
Report on Form 10-K of EchoStar for the year ended December
31, 2002, Commission File No. 0-26176)
|10.41*      |  | Amendment No. 19 to License and OEM Manufacturing Agreement,
dated July 1, 2002, between EchoStar Satellite Corporation,
EchoStar Technologies Corporation and Thomson multimedia, Inc.
(incorporated by reference to Exhibit 10.57 to the Annual
Report on Form 10-K of EchoStar for the year ended December
31, 2002, Commission File No. 0-26176)



|*   |  | Incorporated by reference.                                                                                                  
|--- |  | ----------------------------------------------------------------------------------------------------------------------------
|   
|**  |  | Constitutes a management contract or compensatory plan or arrangement.                                                      
|   
|*** |  | Filed in redacted form since confidential treatment has been requested pursuant to Rule 24.b-2 for certain portions thereof.

(b)  Reports on Form 8-K

On November 5, 2002, we filed a Current Report on Form 8-K to report
that on November 5, 2002, we completed our offer to exchange all of the $1
billion principle outstanding of EchoStar Broadband Corporations 10 3/8%
Senior Notes due 2007 for substantially identical notes of EDBS.

On November 14, 2002, we filed a Current Report on Form 8-K in
connection with the filing of our Quarterly Report on Form 10-Q for the
period ended September 30, 2002, stating that our Chief Executive Officer and
our Chief Financial Officer certified our report pursuant to 18 U.S.C. ss.
1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002.

On December 31, 2002, we filed a Current Report on Form 8-K to announce
our election to retire all of our outstanding 9 1/4% Senior Notes due 2006,
three years early pursuant to our optional early redemption right.

25



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##### 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.

|                                                                                                       
|-------------------------------------------------------------------------------------------------------
|ECHOSTAR DBS CORPORATION                                                                               
|                                                                                                       
|By:/s/ Michael
R.
McDonnell
Michael R. McDonnell
     Senior Vice President and Chief Financial Officer

Date: March 11, 2003

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

Charles W. Ergen         |  | Chief Executive Officer and Director(Principal Executive Officer)                             |  | March 11, 2003
|                                               |  |                                                                                               |  |               
|/s/ Michael R. McDonnell

Michael R. McDonnell |  | Senior Vice President and Chief Financial Officer(Principal Financial and Accounting Officer) |  | March 11, 2003
|                                               |  |                                                                                               |  |               
|/s/ James DeFranco

James DeFranco             |  | Director                                                                                      |  | March 11, 2003
|                                               |  |                                                                                               |  |               
|/s/ David K. Moskowitz

David K. Moskowitz     |  | Director                                                                                      |  | March 11, 2003

26



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##### Table of Contents



CERTIFICATION OF CHIEF EXECUTIVE
OFFICERSection 302 Certification

I, Charles W. Ergen, certify that:



|1. |  | I have reviewed this annual report on Form 10-K of EchoStar DBS
Corporation;                                                                                                                                                                                                                                            
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual
report;                   
|  
|4. |  | The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:                                                                                                  



| | a) |  | designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | evaluated the effectiveness of the registrants disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the Evaluation Date); and                                                                                                  
|
| | c) |  | presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        



|5. |  | The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent function):
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to
record, process, summarize and report financial data and have
identified for the registrants auditors any material weaknesses in
internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrants
internal controls; and                                                                                                                                        



|6. |  | The registrants other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Date: March 11, 2003

|                                                         
|---------------------------------------------------------
|/s/ Charles W. Ergen
Chief Executive Officer and Director

27



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##### Table of Contents



CERTIFICATION OF CHIEF FINANCIAL
OFFICER
Section 302 Certification

I, Michael R. McDonnell, certify that:



|1. |  | I have reviewed this annual report on Form 10-K of EchoStar DBS
Corporation;                                                                                                                                                                                                                                            
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual
report;                   
|  
|4. |  | The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:                                                                                                  



| | a) |  | designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | evaluated the effectiveness of the registrants disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the Evaluation Date); and                                                                                                  
|
| | c) |  | presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        



|5. |  | The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent function):
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to
record, process, summarize and report financial data and have
identified for the registrants auditors any material weaknesses in
internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrants
internal controls; and                                                                                                                                        



|6. |  | The registrants other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                                          
|--------------------------------------------------------------------------
|Date: March 11, 2003                                                      
|                                                                          
|/s/ Michael R. McDonnell
Senior Vice President and Chief Financial Officer

28



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##### Table of Contents






INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

|                                   |                                                                                                                            |  |      |     | 
|---------------------------------- | -------------------------------------------------------------------------------------------------------------------------- |  | ---- | --- | 
|                                   |                                                                                                                            |  | Page
|                                   |                                                                                                                            |  |     
|Consolidated Financial Statements: |                                                                                                                            |  |      |    
|                                   | Report of KPMG LLP, Independent Public Accountants                                                                         |  |      | F2 | 
|                                   | Report of Arthur Andersen, Independent Public Accountants                                                                  |  |      | F3 | 
|                                   | Consolidated Balance Sheets at December 31, 2001 and 2002                                                                  |  |      | F4 | 
|                                   | Consolidated Statements of Operations and Comprehensive Income (Loss) for the
years ended December 31, 2000,
2001 and 2002 |  |      | F5 | 
|                                   | Consolidated Statements of Changes in Stockholders Deficit for the years ended December 31, 2000, 2001
and 2002           |  |      | F6 | 
|                                   | Consolidated Statements of Cash Flows for the years ended December 31, 2000, 2001 and 2002                                 |  |      | F7 | 
|                                   | Notes to Consolidated Financial Statements                                                                                 |  |      | F8 | 

F-1



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##### Table of Contents



REPORT OF KPMG LLP, INDEPENDENT PUBLIC ACCOUNTANTS

To EchoStar DBS Corporation:

We have audited the
2002 financial statements of Echostar DBS Corporation, a wholly-owned
subsidiary of EchoStar Communications Corporation,
as listed in the accompanying index. These financial statements are the
responsibility of the Companys management. Our responsibility is to express
an opinion on these financial statements based on our audit. The 2001 and 2000
financial statements of Echostar DBS Corporation as listed in the accompanying
index were audited by other auditors who have ceased operations. Those
auditors expressed an unqualified opinion on those financial statements in
their report dated February 27, 2002.

We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit 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
audit provides a reasonable basis for our opinion.

In our opinion, the 2002 financial statements referred to above present
fairly, in all material respects, the financial position of Echostar DBS
Corporation as of December 31, 2002, and the results of its operations and its
cash flows for the year then ended in conformity with accounting principles
generally accepted in the United States of America.

KPMG LLP

Denver, Colorado,
February 28, 2003

F-2



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##### Table of Contents



REPORT OF ARTHUR ANDERSEN LLP, INDEPENDENT PUBLIC ACCOUNTANTS

The below report is a copy of a previously issued Arthur Andersen LLP report
and this report has not been reissued.

To EchoStar DBS Corporation:

We have audited the accompanying consolidated balance sheets of EchoStar
DBS Corporation (a Colorado corporation) and subsidiaries as of December 31,
2000 and 2001, and the related consolidated statements of operations and
comprehensive loss, changes in stockholders deficit and cash flows for each of
the three years in the period ended December 31, 2001. These financial
statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit 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 financial statements referred to above present fairly,
in all material respects, the consolidated financial position of EchoStar DBS
Corporation and subsidiaries as of December 31, 2000 and 2001, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 2001, in conformity with
accounting principles generally accepted in the United States.



| | ARTHUR ANDERSEN LLP
| | -------------------

Denver, Colorado,
February 27, 2002.

F-3



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##### Table of Contents



ECHOSTAR DBS CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands)

|                                                    |                                                                                                           |                                             |            |              |           |      |            |            |           | 
|--------------------------------------------------- | --------------------------------------------------------------------------------------------------------- | ------------------------------------------- | ---------- | ------------ | --------- | ---- | ---------- | ---------- | --------- | 
|                                                    |                                                                                                           |                                             |            | December 31,
|                                                    |                                                                                                           |                                             |            |             
|                                                    |                                                                                                           |                                             |            | 2001         |           | 2002
|                                                    |                                                                                                           |                                             |            |              |           |     
|Assets                                              |                                                                                                           |                                             |            |              |           |      |            |           
|Current Assets:                                     |                                                                                                           |                                             |            |              |           |      |            |           
|                                                    | Cash and cash equivalents                                                                                 |                                             | $          | 39,052       |           |      | $          | 267,692    |          
|                                                    | Marketable investment securities                                                                          |                                             |            | 89,019       |           |      |            | 277,260    |          
|                                                    | Trade accounts receivable, net of allowance for uncollectible accounts of $8,848 and $9,276,
respectively |                                             |            | 313,580      |           |      |            | 325,928    |          
|                                                    | Insurance receivable                                                                                      |                                             |            | 106,000      |           |      |            | 106,000    |          
|                                                    | Inventories                                                                                               |                                             |            | 189,665      |           |      |            | 149,611    |          
|                                                    | Other current assets                                                                                      |                                             |            | 38,263       |           |      |            | 17,335     |          
|                                                    |                                                                                                           |                                             |            |              |           |      |            |            |          
|Total current assets                                |                                                                                                           |                                             | 775,579    |              |           |      | 1,143,826  |           
|Restricted cash                                     |                                                                                                           |                                             |           |              |           |      | 10         |           
|Cash reserved for satellite insurance (Note 3)      |                                                                                                           |                                             | 122,068    |              |           |      | 151,372    |           
|Property and equipment, net                         |                                                                                                           |                                             | 1,502,221  |              |           |      | 1,831,139  |           
|FCC authorizations, net                             |                                                                                                           |                                             | 696,242    |              |           |      | 696,242    |           
|Other noncurrent assets                             |                                                                                                           |                                             | 91,629     |              |           |      | 38,492     |           
|                                                    |                                                                                                           |                                             |            |              |           |      |            |            |          
|                                                    |                                                                                                           | Total assets                                |            | $            | 3,187,739 |      |            | $          | 3,861,081 | 
|                                                    |                                                                                                           |                                             |            |              |           |      |            |            |          
|Liabilities and Stockholders Deficit               |                                                                                                           |                                             |            |              |           |      |            |           
|Current Liabilities:                                |                                                                                                           |                                             |            |              |           |      |            |           
|                                                    | Trade accounts payable                                                                                    |                                             | $          | 203,685      |           |      | $          | 246,314    |          
|                                                    | Deferred revenue                                                                                          |                                             |            | 356,903      |           |      |            | 440,678    |          
|                                                    | Accrued expenses                                                                                          |                                             |            | 765,178      |           |      |            | 852,499    |          
|                                                    | Advances from affiliates, net                                                                             |                                             |            | 58           |           |      |            |           |          
|                                                    | Current portion of long-term debt                                                                         |                                             |            | 13,444       |           |      |            | 13,262     |          
|                                                    |                                                                                                           |                                             |            |              |           |      |            |            |          
|Total current liabilities                           |                                                                                                           |                                             | 1,339,268  |              |           |      | 1,552,753  |           
|Long-term obligations, net of current portion:      |                                                                                                           |                                             |            |              |           |      |            |           
|                                                    | 9 1/4% Seven Year Notes                                                                                   |                                             |            | 375,000      |           |      |            | 375,000    |          
|                                                    | 9 3/8% Ten Year Notes                                                                                     |                                             |            | 1,625,000    |           |      |            | 1,625,000  |          
|                                                    | 10 3/8% Seven Year Notes                                                                                  |                                             |            | 1,000,000    |           |      |            | 1,000,000  |          
|                                                    | 9 1/8% Seven Year Notes                                                                                   |                                             |            | 700,000      |           |      |            | 700,000    |          
|                                                    | Mortgages and other notes payable, net of current portion                                                 |                                             |            | 5,577        |           |      |            | 32,680     |          
|                                                    | Long-term deferred distribution and carriage payments and other long-term liabilities                     |                                             |            | 102,454      |           |      |            | 91,282     |          
|                                                    |                                                                                                           |                                             |            |              |           |      |            |            |          
|Total long-term obligations, net of current portion |                                                                                                           |                                             | 3,808,031  |              |           |      | 3,823,962  |           
|                                                    |                                                                                                           |                                             |            |              |           |      |            |            |          
|                                                    |                                                                                                           | Total liabilities                           |            |              | 5,147,299 |      |            |            | 5,376,715 | 
|Commitments and Contingencies (Notes 3,4 and 8)     |                                                                                                           |                                             |            |              |           |      |            |           
|Stockholders Deficit:                              |                                                                                                           |                                             |            |              |           |      |            |           
|                                                    | Common Stock, $.01 par value, 1,000 shares authorized, issued and outstanding                             |                                             |            |             |           |      |            |           |          
|                                                    | Additional paid-in capital                                                                                |                                             |            | 435,590      |           |      |            | 843,198    |          
|                                                    | Deferred stock-based compensation                                                                         |                                             |            | (25,456      | )         |      |            | (8,657     | )        
|                                                    | Accumulated
other comprehensive income (loss)                                                             |                                             |            | (642         | )         |      |            | 697        |          
|                                                    | Accumulated deficit                                                                                       |                                             |            | (2,369,052   | )         |      |            | (2,350,872 | )        
|                                                    |                                                                                                           |                                             |            |              |           |      |            |            |          
|Total stockholders deficit                         |                                                                                                           |                                             | (1,959,560 | )            |           |      | (1,515,634 | )         
|                                                    |                                                                                                           |                                             |            |              |           |      |            |            |          
|                                                    |                                                                                                           | Total liabilities and stockholders deficit |            | $            | 3,187,739 |      |            | $          | 3,861,081 | 
|                                                    |                                                                                                           |                                             |            |              |           |      |            |            |          

The accompanying notes are an integral part of the consolidated financial statements.

F-4



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##### Table of Contents



ECHOSTAR DBS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(In thousands)

|                                                                                                    |                                                                                                 |                                   |           |                         |           |      |           |           |           |   |           |           |           | 
|--------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------- | --------------------------------- | --------- | ----------------------- | --------- | ---- | --------- | --------- | --------- | - | --------- | --------- | --------- | 
|                                                                                                    |                                                                                                 |                                   |           | Year Ended December 31,
|                                                                                                    |                                                                                                 |                                   |           |                        
|                                                                                                    |                                                                                                 |                                   |           | 2000                    |           | 2001 |           | 2002     
|                                                                                                    |                                                                                                 |                                   |           |                         |           |      |           |          
|Revenue:                                                                                            |                                                                                                 |                                   |           |                         |           |      |           |           |           |   |           |          
|                                                                                                    | DISH Network:                                                                                   |                                   |           |                         |           |      |           |           |           |   |           |           |          
|                                                                                                    |                                                                                                 | Subscription television services  |           | $                       | 2,342,358 |      |           | $         | 3,583,698 |   |           | $         | 4,406,428 | 
|                                                                                                    |                                                                                                 | Other                             |           |                         | 8,482     |      |           |           | 21,743    |   |           |           | 16,942    | 
|                                                                                                    |                                                                                                 |                                   |           |                         |           |      |           |           |           |   |           |           |           | 
|                                                                                                    | Total DISH Network                                                                              |                                   |           | 2,350,840               |           |      |           | 3,605,441 |           |   |           | 4,423,370 |          
|                                                                                                    | DTH equipment sales                                                                             |                                   |           | 255,925                 |           |      |           | 266,743   |           |   |           | 285,140   |          
|                                                                                                    | Other                                                                                           |                                   |           | 102,149                 |           |      |           | 114,699   |           |   |           | 95,127    |          
|                                                                                                    |                                                                                                 |                                   |           |                         |           |      |           |           |           |   |           |           |           | 
|Total revenue                                                                                       |                                                                                                 |                                   | 2,708,914 |                         |           |      | 3,986,883 |           |           |   | 4,803,637 |          
|Costs and Expenses:                                                                                 |                                                                                                 |                                   |           |                         |           |      |           |           |           |   |           |          
|                                                                                                    | DISH Network Operating Expenses:                                                                |                                   |           |                         |           |      |           |           |           |   |           |           |          
|                                                                                                    |                                                                                                 | Subscriber-related expenses       |           |                         | 981,403   |      |           |           | 1,448,617 |   |           |           | 1,782,528 | 
|                                                                                                    |                                                                                                 | Customer service center and other |           |                         | 250,672   |      |           |           | 284,869   |   |           |           | 390,581   | 
|                                                                                                    |                                                                                                 | Satellite and transmission        |           |                         | 36,178    |      |           |           | 37,555    |   |           |           | 56,656    | 
|                                                                                                    |                                                                                                 |                                   |           |                         |           |      |           |           |           |   |           |           |           | 
|                                                                                                    | Total DISH Network operating expenses
(exclusive of depreciation shown below  Note
3)          |                                   |           | 1,268,253               |           |      |           | 1,771,041 |           |   |           | 2,229,765 |          
|                                                                                                    | Cost of sales  DTH equipment                                                                   |                                   |           | 196,908                 |           |      |           | 187,810   |           |   |           | 177,980   |          
|                                                                                                    | Cost of sales  other                                                                           |                                   |           | 32,978                  |           |      |           | 75,385    |           |   |           | 49,699    |          
|                                                                                                    | Cost of sales  subscriber promotion subsidies
(exclusive of depreciation shown below  Note
3) |                                   |           | 747,020                 |           |      |           | 466,610   |           |   |           | 445,448   |          
|                                                                                                    | Other subscriber promotion subsidies                                                            |                                   |           | 290,197                 |           |      |           | 477,903   |           |   |           | 574,750   |          
|                                                                                                    | Advertising and other                                                                           |                                   |           | 138,202                 |           |      |           | 144,724   |           |   |           | 160,394   |          
|                                                                                                    | General and administrative                                                                      |                                   |           | 233,966                 |           |      |           | 361,629   |           |   |           | 366,124   |          
|                                                                                                    | Non-cash, stock-based compensation                                                              |                                   |           | 51,465                  |           |      |           | 20,173    |           |   |           | 11,279    |          
|                                                                                                    | Depreciation and amortization (Note 3)                                                          |                                   |           | 174,607                 |           |      |           | 265,912   |           |   |           | 355,754   |          
|                                                                                                    |                                                                                                 |                                   |           |                         |           |      |           |           |           |   |           |           |           | 
|Total costs and expenses                                                                            |                                                                                                 |                                   | 3,133,596 |                         |           |      | 3,771,187 |           |           |   | 4,371,193 |          
|                                                                                                    |                                                                                                 |                                   |           |                         |           |      |           |           |           |   |           |           |           | 
|Operating income (loss)                                                                             |                                                                                                 |                                   | (424,682  | )                       |           |      | 215,696   |           |           |   | 432,444   |          
|Other income (expense):                                                                             |                                                                                                 |                                   |           |                         |           |      |           |           |           |   |           |          
|                                                                                                    | Interest income                                                                                 |                                   |           | 13,066                  |           |      |           | 10,321    |           |   |           | 10,001    |          
|                                                                                                    | Interest expense, net of amounts capitalized                                                    |                                   |           | (193,685                | )         |      |           | (192,900  | )         |   |           | (338,883  | )        
|                                                                                                    | Other                                                                                           |                                   |           | (2,239                  | )         |      |           | (620      | )         |   |           | (5,900    | )        
|                                                                                                    |                                                                                                 |                                   |           |                         |           |      |           |           |           |   |           |           |           | 
|Total other income (expense)                                                                        |                                                                                                 |                                   | (182,858  | )                       |           |      | (183,199  | )         |           |   | (334,782  | )        
|                                                                                                    |                                                                                                 |                                   |           |                         |           |      |           |           |           |   |           |           |           | 
|Income (loss) before income taxes                                                                   |                                                                                                 |                                   | (607,540  | )                       |           |      | 32,497    |           |           |   | 97,662    |          
|Income tax provision                                                                                |                                                                                                 |                                   | (125      | )                       |           |      | (846      | )         |           |   | (79,482   | )        
|                                                                                                    |                                                                                                 |                                   |           |                         |           |      |           |           |           |   |           |           |           | 
|Net income (loss)                                                                                   |                                                                                                 | $                                 | (607,665  | )                       |           | $    | 31,651    |           |           | $ | 18,180    |          
|                                                                                                    |                                                                                                 |                                   |           |                         |           |      |           |           |           |   |           |           |           | 
|Unrealized holding losses arising during the period                                                 |                                                                                                 |                                   | (7        | )                       |           |      | (635      | )         |           |   | (700      | )        
|Recognition of previously unrealized losses on
available-for-sale securities included in net
income |                                                                                                 |                                   |          |                         |           |      |          |           |           |   | 2,039     |          
|                                                                                                    |                                                                                                 |                                   |           |                         |           |      |           |           |           |   |           |           |           | 
|Comprehensive income (loss)                                                                         |                                                                                                 | $                                 | (607,672  | )                       |           | $    | 31,016    |           |           | $ | 19,519    |          
|                                                                                                    |                                                                                                 |                                   |           |                         |           |      |           |           |           |   |           |           |           | 

The accompanying notes are an integral part of the consolidated financial statements.

F-5



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##### Table of Contents



ECHOSTAR DBS CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS DEFICIT
(In thousands)

|                           |                                                                                                    |  |              |   |            |   |         |   |              |   |                |          |       |   |          |        |             |   |             |          |   |   |            |          |  
|-------------------------- | -------------------------------------------------------------------------------------------------- |  | ------------ | - | ---------- | - | ------- | - | ------------ | - | -------------- | -------- | ----- | - | -------- | ------ | ----------- | - | ----------- | -------- | - | - | ---------- | -------- | -
|                           |                                                                                                    |  |              |   |            |   |         |   |              |   |                |          |       |   |          |        |             |   | Accumulated |          |   |   |           
|                           |                                                                                                    |  |              |   |            |   |         |   |              |   |                |          |       |   | Deferred |        | Deficit and |   |             |          |  
|                           |                                                                                                    |  | Common Stock |   | Additional |   | Stock-  |   | Unrealized   |   |                |          |      
|                           |                                                                                                    |  |              |   | Paid-In    |   | Based   |   | Holding      |   |                |          |      
|                           |                                                                                                    |  | Shares       |   | Amt.       |   | Capital |   | Compensation |   | Gains (Losses) |          | Total
|                           |                                                                                                    |  |              |   |            |   |         |   |              |   |                |          |      
|Balance, December 31, 1999 |                                                                                                    |  | 1            |   |            | $ |        |   |              | $ | 1,448,324      |          |       | $ | (117,780 | )      |             | $ | (1,793,038  | )        |   | $ | (462,494   | )       
|                           | Forfeitures of non-cash,
stock-based compensation                                                  |  |              |  |            |   |         |  |              |   |                | (8,072   | )     |   |          | 6,730  |             |   |             |         |   |   |            | (1,342   | )
|                           | Non-cash, stock-based compensation                                                                 |  |              |  |            |   |         |  |              |   |                |         |       |   |          | 52,857 |             |   |             |         |   |   |            | 52,857   |  
|                           | Unrealized holding losses on
available-for-sale securities,
net                                    |  |              |  |            |   |         |  |              |   |                |         |       |   |          |       |             |   |             | (7       | ) |   |            | (7       | )
|                           | Net loss                                                                                           |  |              |  |            |   |         |  |              |   |                |         |       |   |          |       |             |   |             | (607,665 | ) |   |            | (607,665 | )
|                           |                                                                                                    |  |              |   |            |   |         |   |              |   |                |          |       |   |          |        |             |   |             |          |   |   |            |         
|Balance, December 31, 2000 |                                                                                                    |  | 1            |   |            |   |        |   |              |   | 1,440,252      |          |       |   | (58,193  | )      |             |   | (2,400,710  | )        |   |   | (1,018,651 | )       
|                           | Forfeitures of non-cash,
stock-based compensation                                                  |  |              |  |            |   |         |  |              |   |                | (12,564  | )     |   |          | 5,143  |             |   |             |         |   |   |            | (7,421   | )
|                           | Non-cash, stock-based compensation                                                                 |  |              |  |            |   |         |  |              |   |                |         |       |   |          | 27,594 |             |   |             |         |   |   |            | 27,594   |  
|                           | Assumption of debt, net of
deferred financing costs (Note 1)                                       |  |              |  |            |   |         |  |              |   |                | (992,098 | )     |   |          |       |             |   |             |         |   |   |            | (992,098 | )
|                           | Change in unrealized holding
losses on available-for-sale
securities, net                          |  |              |  |            |   |         |  |              |   |                |         |       |   |          |       |             |   |             | (635     | ) |   |            | (635     | )
|                           | Net income                                                                                         |  |              |  |            |   |         |  |              |   |                |         |       |   |          |       |             |   |             | 31,651   |   |   |            | 31,651   |  
|                           |                                                                                                    |  |              |   |            |   |         |   |              |   |                |          |       |   |          |        |             |   |             |          |   |   |            |         
|Balance, December 31, 2001 |                                                                                                    |  | 1            |   |            |   |        |   |              |   | 435,590        |          |       |   | (25,456  | )      |             |   | (2,369,694  | )        |   |   | (1,959,560 | )       
|                           | Forfeitures of non-cash,
stock-based compensation                                                  |  |              |  |            |   |         |  |              |   |                | (5,520   | )     |   |          | 1,911  |             |   |             |         |   |   |            | (3,609   | )
|                           | Non-cash, stock-based compensation                                                                 |  |              |  |            |   |         |  |              |   |                |         |       |   |          | 14,888 |             |   |             |         |   |   |            | 14,888   |  
|                           | Capital contribution of 10 3/8%
interest payment from EBC                                          |  |              |  |            |   |         |  |              |   |                | 77,812   |       |   |          |       |             |   |             |         |   |   |            | 77,812   |  
|                           | Capital contribution of EchoStar
VII from EchoStar Broadband
Corporation                           |  |              |  |            |   |         |  |              |   |                | 177,000  |       |   |          |       |             |   |             |         |   |   |            | 177,000  |  
|                           | Capital contribution of EchoStar
VIII from EchoStar Broadband
Corporation                          |  |              |  |            |   |         |  |              |   |                | 194,913  |       |   |          |       |             |   |             |         |   |   |            | 194,913  |  
|                           | Assumption of EchoStar
VII and VIII vendor financing from EchoStar Broadband Corporation           |  |              |  |            |   |         |  |              |   |                | (30,000  | )     |   |          |       |             |   |             |         |   |   |            | (30,000  | )
|                           | Reversal of deferred tax asset
for book stock compensation that
exceeded the related tax
deduction |  |              |  |            |   |         |  |              |   |                | (6,597   | )     |   |          |       |             |   |             |         |   |   |            | (6,597   | )
|                           | Change in unrealized holding
losses on available-for-sale
securities, net                          |  |              |  |            |   |         |  |              |   |                |         |       |   |          |       |             |   |             | 1,339    |   |   |            | 1,339    |  
|                           | Net income                                                                                         |  |              |  |            |   |         |  |              |   |                |         |       |   |          |       |             |   |             | 18,180   |   |   |            | 18,180   |  
|                           |                                                                                                    |  |              |   |            |   |         |   |              |   |                |          |       |   |          |        |             |   |             |          |   |   |            |         
|Balance, December 31, 2002 |                                                                                                    |  | 1            |   |            | $ |        |   |              | $ | 843,198        |          |       | $ | (8,657   | )      |             | $ | (2,350,175  | )        |   | $ | (1,515,634 | )       
|                           |                                                                                                    |  |              |   |            |   |         |   |              |   |                |          |       |   |          |        |             |   |             |          |   |   |            |         

The accompanying notes are an integral part of the consolidated financial statements.

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##### Table of Contents



ECHOSTAR DBS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

|                                                                                                    |                                                                                         |                                |          |                         |          |      |          |         |         |   |            |         |         |  
|--------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------- | ------------------------------ | -------- | ----------------------- | -------- | ---- | -------- | ------- | ------- | - | ---------- | ------- | ------- | -
|                                                                                                    |                                                                                         |                                |          | Year Ended December 31,
|                                                                                                    |                                                                                         |                                |          |                        
|                                                                                                    |                                                                                         |                                |          | 2000                    |          | 2001 |          | 2002   
|                                                                                                    |                                                                                         |                                |          |                         |          |      |          |        
|Cash Flows From Operating Activities:                                                               |                                                                                         |                                |          |                         |          |      |          |         |         |   |            |        
|Net income (loss)                                                                                   |                                                                                         | $                              | (607,665 | )                       |          | $    | 31,651   |         |         | $ | 18,180     |        
|Adjustments to reconcile net loss to net cash flows from operating activities:                      |                                                                                         |                                |          |                         |          |      |          |         |         |   |            |        
|                                                                                                    | Realized and unrealized loss on investments                                             |                                |          |                        |          |      |          |        |         |   |            | 2,039   |        
|                                                                                                    | Non-cash, stock-based compensation                                                      |                                |          | 51,465                  |          |      |          | 20,173  |         |   |            | 11,279  |        
|                                                                                                    | Depreciation and amortization                                                           |                                |          | 173,233                 |          |      |          | 265,912 |         |   |            | 355,754 |        
|                                                                                                    | Deferred tax expense                                                                    |                                |          |                        |          |      |          |        |         |   |            | 71,680  |        
|                                                                                                    | Amortization of debt discount and deferred financing costs                              |                                |          | 3,280                   |          |      |          | 3,281   |         |   |            | 6,176   |        
|                                                                                                    | Change in long-term deferred satellite services revenue and other long-term liabilities |                                |          | 37,236                  |          |      |          | 46,266  |         |   |            | (20,924 | )      
|                                                                                                    | Other, net                                                                              |                                |          | 10,512                  |          |      |          | 25,751  |         |   |            | 2,523   |        
|                                                                                                    | Changes in current assets and current liabilities:                                      |                                |          |                         |          |      |          |         |         |   |            |         |        
|                                                                                                    |                                                                                         | Trade accounts receivable, net |          |                         | (117,377 | )    |          |         | (38,259 | ) |            |         | (12,075 | )
|                                                                                                    |                                                                                         | Inventories                    |          |                         | (41,160  | )    |          |         | (25,665 | ) |            |         | 69,306  |  
|                                                                                                    |                                                                                         | Other current assets           |          |                         | 4,062    |      |          |         | (6,169  | ) |            |         | 513     |  
|                                                                                                    |                                                                                         | Trade accounts payable         |          |                         | (43,440  | )    |          |         | 59,422  |   |            |         | 50,811  |  
|                                                                                                    |                                                                                         | Deferred revenue               |          |                         | 101,905  |      |          |         | 73,964  |   |            |         | 83,775  |  
|                                                                                                    |                                                                                         | Accrued expenses               |          |                         | 178,002  |      |          |         | 145,776 |   |            |         | 173,809 |  
|                                                                                                    |                                                                                         |                                |          |                         |          |      |          |         |         |   |            |        
|Net cash flows from operating activities                                                            |                                                                                         |                                | (249,947 | )                       |          |      | 602,103  |         |         |   | 812,846    |        
|Cash Flows From Investing Activities:                                                               |                                                                                         |                                |          |                         |          |      |          |         |         |   |            |        
|Purchases of marketable investment securities                                                       |                                                                                         |                                |         |                         |          |      | (586,648 | )       |         |   | (1,329,043 | )      
|Sales of marketable investment securities                                                           |                                                                                         |                                | 19,775   |                         |          |      | 501,986  |         |         |   | 1,141,401  |        
|Cash reserved for satellite insurance (Note 3)                                                      |                                                                                         |                                | (82,393  | )                       |          |      | (59,488  | )       |         |   | (59,680    | )      
|Changes in cash reserved for satellite insurance due to depreciation on related
satellites (Note 3) |                                                                                         |                                |         |                         |          |      | 19,813   |         |         |   | 30,376     |        
|Purchases of property and equipment                                                                 |                                                                                         |                                | (175,313 | )                       |          |      | (441,874 | )       |         |   | (349,795   | )      
|Payments under in-orbit satellite contract                                                          |                                                                                         |                                | (48,894  | )                       |          |      | (8,441   | )       |         |   | (8,441     | )      
|Other                                                                                               |                                                                                         |                                |         |                         |          |      |         |         |         |   | (4,332     | )      
|                                                                                                    |                                                                                         |                                |          |                         |          |      |          |         |         |   |            |        
|Net cash flows from investing activities                                                            |                                                                                         |                                | (286,825 | )                       |          |      | (574,652 | )       |         |   | (579,514   | )      
|Cash Flows From Financing Activities:                                                               |                                                                                         |                                |          |                         |          |      |          |         |         |   |            |        
|Non-interest bearing advances from (to) affiliates                                                  |                                                                                         |                                | 486,374  |                         |          |      | (758,756 | )       |         |   | (58        | )      
|Proceeds from issuance of 9 1/8% Seven Year Notes                                                   |                                                                                         |                                |         |                         |          |      | 700,000  |         |         |   |           |        
|Debt issuance costs and prepayment premiums                                                         |                                                                                         |                                |         |                         |          |      | (9,450   | )       |         |   |           |        
|Repayments of mortgage indebtedness and other notes payable                                         |                                                                                         |                                | (15,176  | )                       |          |      | (11,765  | )       |         |   | (3,419     | )      
|Other                                                                                               |                                                                                         |                                | (2,615   | )                       |          |      |         |         |         |   | (1,215     | )      
|                                                                                                    |                                                                                         |                                |          |                         |          |      |          |         |         |   |            |        
|Net cash flows from financing activities                                                            |                                                                                         |                                | 468,583  |                         |          |      | (79,971  | )       |         |   | (4,692     | )      
|                                                                                                    |                                                                                         |                                |          |                         |          |      |          |         |         |   |            |        
|Net increase (decrease) in cash and cash equivalents                                                |                                                                                         |                                | (68,189  | )                       |          |      | (52,520  | )       |         |   | 228,640    |        
|Cash and cash equivalents, beginning of year                                                        |                                                                                         |                                | 159,761  |                         |          |      | 91,572   |         |         |   | 39,052     |        
|                                                                                                    |                                                                                         |                                |          |                         |          |      |          |         |         |   |            |        
|Cash and cash equivalents, end of year                                                              |                                                                                         | $                              | 91,572   |                         |          | $    | 39,052   |         |         | $ | 267,692    |        
|                                                                                                    |                                                                                         |                                |          |                         |          |      |          |         |         |   |            |        

The accompanying notes are an integral part of the consolidated financial statements.

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##### Table of Contents



ECHOSTAR DBS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.     Organization and Business Activities

Basis of Presentation

EchoStar DBS Corporation (EDBS or the Company), is a wholly-owned
subsidiary of EchoStar Communications Corporation (ECC and together with its
subsidiaries EchoStar), a publicly traded company listed on the Nasdaq
National Market. EDBS was formed under Colorado law in January 1996.
As of December 31, 2002 EchoStar has
placed ownership of its eight direct broadcast satellites and related FCC
licenses into subsidiaries of the Company.

Principal Business

Unless otherwise stated herein, or the context otherwise require,
references herein to EchoStar shall include ECC, EDBS and all direct and
indirect wholly-owned subsidiaries thereof. The operations of EchoStar include
two interrelated business units:



| |  |  | The DISH Network  a direct broadcast satellite (DBS) subscription
television service in the United States. and                                                                                                                                                                                              
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | EchoStar Technologies Corporation(ETC)  engaged in the design and
development of DBS set-top boxes, antennae and other digital equipment
for the DISH Network (EchoStar receiver systems) and the design,
development and distribution of similar equipment for international
satellite service providers.

Since 1994, EchoStar has deployed substantial resources to develop the
EchoStar DBS System. The EchoStar DBS System consists of EchoStars
FCC-allocated DBS spectrum, eight DBS satellites (EchoStar I through
EchoStar VIII), EchoStar receiver systems, digital broadcast operations
centers, customer service facilities, and other assets utilized in its
operations. EchoStars principal business strategy is to continue developing
its subscription television service in the United States to provide consumers
with a fully competitive alternative to cable television service.

Recent Developments

Termination of the Proposed Merger of EchoStar with Hughes

On December 9, 2002 EchoStar reached a termination, settlement and release
agreement with General Motors and Hughes Electronic Corporation to terminate
its proposed merger with Hughes. Under the terms of the settlement, Hughes
retained its 81% ownership interest in PanAmSat, which EchoStar was previously
obligated to purchase at a price of $22.47 per share, or approximately $2.7
billion. EchoStar also paid a $600 million merger termination fee to Hughes
and expensed other merger costs. Since the merger termination fee and other
merger costs were paid by our parent, Echostar Communications Corporation,
these costs are not reflected in EDBS Consolidated Financial Statements.

Debt Exchange

Effective November 5, 2002, EDBS completed its offer to exchange all of
the $1 billion principal outstanding of EchoStar Broadband Corporations 10
3/8% Senior Notes due 2007 (the EBC Notes) for substantially identical notes
of EDBS. Tenders were received from holders of over 99% of the EBC Notes. In
accordance with the terms of the indenture related to the EBC Notes, since at
least 90% in aggregate principal amount of the outstanding EBC Notes accepted
the exchange offer, all of the then outstanding EBC Notes were deemed to have
been exchanged for EDBS Notes.

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ECHOSTAR DBS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued

EDBS recorded the indebtedness at
December 31, 2001 in an amount equal to the outstanding principal balance of
the 10 3/8% Seven Year Notes, with an offsetting charge to stockholders
equity. As such, the completion of the debt exchange did not affect EDBS
results of operations.

Organization and Legal Structure

Substantially all of EchoStars operations are conducted by subsidiaries
of EDBS. The following table summarizes the organizational structure of EchoStar
and its principal subsidiaries as of December 31, 2002:

|                                    |  |             |  |               
|----------------------------------- |  | ----------- |  | --------------
|                                    |  | Referred to |  |               
|Legal Entity                        |  | Herein As   |  | Parent        
|                                    |  |             |  |               
|EchoStar Communications Corporation |  | ECC         |  | Publicly owned
|EchoStar DBS Corporation            |  | EDBS        |  | ECC           
|EchoStar Orbital Corporation        |  | EOC         |  | ECC           
|EchoStar Satellite Corporation      |  | ESC         |  | EDBS          
|Echosphere Corporation              |  | Echosphere  |  | EDBS          
|EchoStar Technologies Corporation   |  | ETC         |  | EDBS          

Significant Risks and Uncertainties

Substantial Leverage.The Company is highly leveraged, which makes it
vulnerable to changes in general economic conditions. As of December 31, 2002,
the Company had outstanding long-term debt (including both the current and
long-term portions) totaling approximately $3.7 billion. The Company has
semi-annual cash debt service obligations for all of its outstanding long-term
debt securities, as follows:

|                                                           |  |                         |  |                      |            |  |  | 
|---------------------------------------------------------- |  | ----------------------- |  | -------------------- | ---------- |  |  | 
|                                                           |  | Semi-Annual Payment     |  | Semi-Annual Debt    
|                                                           |  | Dates                   |  | Service Requirements
|                                                           |  |                         |  |                     
|9 1/4% Senior Notes due 2006 (9 1/4% Seven Year Notes)*  |  | February 1 and August 1 |  | $                    | 17,343,750 | 
|9 3/8% Senior Notes due 2009 (9 3/8% Ten Year Notes)     |  | February 1 and August 1 |  |                      | 76,171,875 | 
|10 3/8% Senior Notes due 2007 (10 3/8% Seven Year Notes) |  | April 1 and October 1   |  |                      | 51,875,000 | 
|9 1/8% Senior Notes due 2009 (9 1/8% Seven Year Notes)   |  | January 15 and July 15  |  |                      | 31,937,500 | 

*Effective February 1, 2003, these notes were redeemed. See Note 13 
Subsequent Events for further discussion.

Semi-annual debt service requirements related to the Companys 9 1/8%
Senior Notes due 2009 commenced on July 15, 2002. There are no scheduled
principal payment or sinking fund requirements prior to maturity of any of
these notes. The Companys ability to meet its debt service obligations will
depend on, among other factors, the successful execution of its business
strategy, which is subject to uncertainties and contingencies beyond the
Companys control.

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##### Table of Contents



ECHOSTAR DBS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued

2.     Summary of Significant Accounting Policies

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of
the Company and all of its wholly-owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated. The Company
accounts for investments in 50% or less owned entities using the equity or cost
method, except for its investments in marketable equity securities, which are
carried at fair value.

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses for each reporting
period. Actual results could differ from those estimates.

During the three months ended June 30, 2002, the Company recorded an
adjustment to Cost of sales  subscriber promotion subsidies of approximately
$17 million to reduce accrued royalty expenses related to the production of
EchoStar receiver systems. The reduction in accrued royalty expenses primarily
resulted from the completion of royalty arrangements with more favorable terms
than the estimate previously accrued.

During the three months ended September 30, 2002, as a result of favorable
litigation developments, the Company recorded a non-recurring reduction in the
cost of set-top box equipment. The following details the decrease in the
financial statement line items affected by this adjustment (in thousands):

|                                               |  |                    |         |  
|---------------------------------------------- |  | ------------------ | ------- | -
|                                               |  | Three Months Ended
|                                               |  | September 30, 2002
|                                               |  |                   
|Property and equipment, net                    |  | $                  | (5,916  | )
|Cost of sales  DTH equipment                  |  |                    | (5,002  | )
|Cost of sales  subscriber promotion subsidies |  |                    | (30,872 | )
|Depreciation and amortization                  |  |                    | (1,430  | )

Foreign Currency Transaction Gains and Losses

The functional currency of the majority of the Companys foreign
subsidiaries is the U.S. dollar because their sales and purchases are
predominantly denominated in that currency. Transactions denominated in
currencies other than U.S. dollars are recorded based on exchange rates at the
time such transactions arise. Subsequent changes in exchange rates result in
transaction gains and losses which are reflected in income as unrealized (based
on period-end translation) or realized (upon settlement of the transaction).
Net transaction gains (losses) during 2000, 2001 and 2002 were not material to
the Companys results of operations.

Statements of Cash Flows Data

The following presents the Companys supplemental cash flow statement
disclosure (in thousands):

|                                                                  |  |                         |         |      |  |      |         |  |  |   |         | 
|----------------------------------------------------------------- |  | ----------------------- | ------- | ---- |  | ---- | ------- |  |  | - | ------- | 
|                                                                  |  | Year Ended December 31,
|                                                                  |  |                        
|                                                                  |  | 2000                    |         | 2001 |  | 2002
|                                                                  |  |                         |         |      |  |     
|Cash paid for interest                                            |  | $                       | 188,911 |      |  | $    | 187,431 |  |  | $ | 300,418 | 
|Cash paid for income taxes                                        |  |                         | 361     |      |  |      | 979     |  |  |   | 7,249   | 
|Assumption of debt, net of deferred financing costs               |  |                         |        |      |  |      | 992,098 |  |  |   |        | 
|Forfeitures of deferred non-cash, stock-based compensation        |  |                         | 8,072   |      |  |      | 12,564  |  |  |   | 5,520   | 
|EchoStar
VII and EchoStar VIII satellite vendor financing assumed |  |                         |        |      |  |      |        |  |  |   | 30,000  | 
|Capital contribution of EchoStar VII from EBC                     |  |                         |        |      |  |      |        |  |  |   | 177,000 | 
|Capital contribution of EchoStar VIII from EBC                    |  |                         |        |      |  |      |        |  |  |   | 194,913 | 

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ECHOSTAR DBS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued

Cash and Cash Equivalents

The Company considers all liquid investments purchased within 90 days of
their maturity to be cash equivalents. Cash equivalents as of December 31,
2001 and 2002 consist of money market funds, corporate notes and commercial
paper. The cost of these investments approximates their fair market value.

Marketable Investment Securities and Restricted Cash

The Company currently classifies all marketable investment securities as
available-for-sale. In accordance with generally accepted accounting
principles, the Company adjusts the carrying value of its available-for-sale
marketable investment securities to fair market value and reports the related
temporary unrealized gains and losses as a separate component of stockholders
deficit, net of related deferred income tax, if applicable. Declines in the
fair market value of a marketable investment security which are estimated to be
other than temporary must be recognized in the statement of operations, thus
establishing a new cost basis for such investment. The Company evaluates its
marketable investment securities portfolio on a quarterly basis to determine
whether declines in the market value of these securities are other than
temporary. This quarterly evaluation consists of reviewing, among other
things, the fair value of the Companys marketable investment securities
compared to the carrying value of these securities, the historical volatility
of the price of each security and any market and company specific factors
related to each security. Generally, absent specific factors to the contrary,
declines in the fair value of investments below cost basis for a period of less
than six months are considered to be temporary. Declines in the fair value of
investments for a period of six to nine months are evaluated on a case by case
basis to determine whether any company or market-specific factors exist which
would indicate that such declines are other than temporary. Declines in the
fair value of investments below cost basis for greater than nine months are
considered other than temporary and are recorded as charges to earnings, absent
specific factors to the contrary.

As of December 31, 2002, the Company recorded unrealized gains of
approximately $1 million as a separate component of stockholders deficit.
During the year ended December 31, 2002, the Company also recorded an aggregate
charge to earnings for other than temporary declines in the fair market value
of certain of its marketable investment securities of approximately $2 million,
and established a new cost basis for these securities. If the fair market
value of the Companys marketable securities portfolio does not remain above
cost basis or if the Company becomes aware of any market or company specific
factors that indicate that the carrying value of certain of its securities is
impaired, the Company may be required to record additional charges to earnings
in future periods equal to the amount of the decline in fair value.

Restricted cash, as reflected in the accompanying consolidated balance
sheets, include restricted cash for the purpose of repaying a note payable as
of December 31, 2002.

The major components of marketable investment securities and restricted
cash are as follow (in thousands):

|                          |  |                                  |        |                 |  |      |         |      |  |   |   |  |  |   |    | 
|------------------------- |  | -------------------------------- | ------ | --------------- |  | ---- | ------- | ---- |  | - | - |  |  | - | -- | 
|                          |  | Marketable Investment Securities |        | Restricted Cash
|                          |  | December 31,                     |        | December 31,   
|                          |  |                                  |        |                
|                          |  | 2001                             |        | 2002            |  | 2001 |         | 2002
|                          |  |                                  |        |                 |  |      |         |     
|Government bonds          |  | $                                | 3,829  |                 |  | $    | 174,614 |      |  | $ |  |  |  | $ |   | 
|Corporate notes and bonds |  |                                  | 40,053 |                 |  |      | 102,646 |      |  |   |  |  |  |   |   | 
|Commercial paper          |  |                                  | 45,137 |                 |  |      |        |      |  |   |  |  |  |   |   | 
|Restricted cash           |  |                                  |       |                 |  |      |        |      |  |   |  |  |  |   | 10 | 
|                          |  |                                  |        |                 |  |      |         |      |  |   |   |  |  |   |    | 
|                          |  | $                                | 89,019 |                 |  | $    | 277,260 |      |  | $ |  |  |  | $ | 10 | 
|                          |  |                                  |        |                 |  |      |         |      |  |   |   |  |  |   |    | 

As of December 31, 2002, marketable investment securities include debt
securities of $116 million with contractual maturities of one year or less,
$156 million with contractual maturities between one and five years and $5

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##### Table of Contents



ECHOSTAR DBS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued

million with contractual maturities of more than five years. Actual
maturities may differ from contractual maturities as a result of the Companys
ability to sell these securities prior to maturity.

Inventories

Inventories are stated at the lower of cost or market value. Cost is
determined using the first-in, first-out method. Proprietary products are
built by contract manufacturers to EchoStars specifications. Manufactured
inventories include materials, labor, freight-in, royalties and manufacturing
overhead. Inventories consist of the following (in thousands):

|                                          |  |              |         |      |  |   |         |  
|----------------------------------------- |  | ------------ | ------- | ---- |  | - | ------- | -
|                                          |  | December 31,
|                                          |  |             
|                                          |  | 2001         |         | 2002
|                                          |  |              |         |     
|Finished goods  DBS                      |  | $            | 126,316 |      |  | $ | 104,052 |  
|Raw materials                             |  |              | 45,460  |      |  |   | 25,618  |  
|Finished goods  remanufactured and other |  |              | 19,541  |      |  |   | 16,478  |  
|Work-in-process                           |  |              | 7,924   |      |  |   | 7,964   |  
|Consignment                               |  |              | 3,611   |      |  |   | 5,140   |  
|Reserve for excess and obsolete inventory |  |              | (13,187 | )    |  |   | (9,641  | )
|                                          |  |              |         |      |  |   |         |  
|                                          |  | $            | 189,665 |      |  | $ | 149,611 |  
|                                          |  |              |         |      |  |   |         |  

Property and Equipment

Property and equipment are stated at cost.
The costs of satellites
under construction 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 received,
if any, as a result of the launch or in-orbit failure. Depreciation is
recorded on a straight-line basis over lives ranging from two to forty years.
Repair and maintenance costs are charged to expense when incurred. Renewals
and betterments are capitalized.

Long-lived assets

EchoStar accounts for long-lived assets in accordance with the provision
of Statement of Financial Accounting Standards No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets (FAS 44). EchoStar reviews its
long-lived assets and identifiable intangible assets for impairment whenever
events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. For assets which are held and used in
operations, the asset would be impaired if the book value of the asset exceeded
the undiscounted future net cash flows related to the asset. Once an
impairment is determined, the actual impairment is measured 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. EchoStar considers
relevant cash flow, estimated future operating results, trends and other
available information including the fair value of frequency rights owned, in
assessing whether the carrying value of assets are recoverable.

Goodwill and Intangible Assets

In July 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets
(FAS 142), which requires goodwill and intangible assets with indefinite
useful lives to no longer be amortized but to be tested for impairment at least
annually. Intangible assets that have finite lives will continue to be
amortized over their estimated useful lives. The amortization and
non-amortization provisions of FAS 142 will be applied to all goodwill and
intangible assets

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##### Table of Contents



ECHOSTAR DBS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued

acquired after September 30, 2001. Effective January 1, 2002, EchoStar
adopted the provisions of FAS 142 and ceased amortization of its FCC
authorizations, which were determined to have indefinite lives. In accordance
with FAS 142, EchoStar tested its FCC authorizations for impairment as of the
date of adoption and determined that there was no impairment. The following
table reconciles previously reported net income (loss) and basic and diluted
loss per common share as if the provisions of FAS 142 were in effect for the
years ended December 31, 2000 and 2001, respectively, (in thousands).

|                                         |  |                                  |          |      |  |   |        | 
|---------------------------------------- |  | -------------------------------- | -------- | ---- |  | - | ------ | 
|                                         |  | For the years ended December 31,
|                                         |  |                                 
|                                         |  | 2000                             |          | 2001
|                                         |  |                                  |          |     
|Net income (loss), as reported           |  | $                                | (607,665 | )    |  | $ | 31,651 | 
|Add back: FCC authorization amortization |  |                                  | 18,493   |      |  |   | 18,775 | 
|                                         |  |                                  |          |      |  |   |        | 
|Net income (loss), as adjusted           |  | $                                | (589,172 | )    |  | $ | 50,426 | 
|                                         |  |                                  |          |      |  |   |        | 

As of December 31, 2002, the Company had approximately $1 million of gross
identifiable intangibles with related accumulated amortization of approximately
$200 thousand as of the end of the period. These identifiable intangibles
include acquired contracts. The Company estimates amortization of these
intangible assets with an average finite useful life of approximately five
years will aggregate approximately $200 thousand annually for the remaining
useful life of these intangible assets of approximately 4 years. In addition,
during the year ended December 31, 2002 EchoStars business unit DISH Network
acquired approximately $3 million of goodwill.

Deferred Revenue

Deferred revenue principally consists of prepayments received from
subscribers for DISH Network programming. Such amounts are recognized as
revenue in the period the programming is provided to the subscriber.

Accrued Expenses

Accrued expenses consist of the following (in thousands):

|                                 |  |              |         |      |  |   |         | 
|-------------------------------- |  | ------------ | ------- | ---- |  | - | ------- | 
|                                 |  | December 31,
|                                 |  |             
|                                 |  | 2001         |         | 2002
|                                 |  |              |         |     
|Programming                      |  | $            | 250,795 |      |  | $ | 301,282 | 
|Interest                         |  |              | 80,407  |      |  |   | 136,576 | 
|Royalties and copyright fees     |  |              | 140,733 |      |  |   | 89,220  | 
|Marketing and dealer commissions |  |              | 67,996  |      |  |   | 89,221  | 
|Taxes                            |  |              | 16,298  |      |  |   | 32,095  | 
|Other                            |  |              | 208,949 |      |  |   | 204,105 | 
|                                 |  |              |         |      |  |   |         | 
|                                 |  | $            | 765,178 |      |  | $ | 852,499 | 
|                                 |  |              |         |      |  |   |         | 

Long-Term Deferred Carriage Payments

Certain programmers provide us up-front carriage payments. Such amounts
are deferred and recognized as reductions to Subscriber-related expenses on a
straight-line basis over the relevant contract term (up to 10 years).

Income Taxes

EchoStar establishes a provision for income taxes currently payable or
receivable and for income tax amounts deferred to future periods in accordance
with Statement of Financial Accounting Standards No. 109, Accounting for
Income Taxes (FAS 109). FAS 109 requires that deferred tax assets or
liabilities be 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 in accordance with FAS 109.

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##### Table of Contents



ECHOSTAR DBS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued

Fair Value of Financial Instruments

Fair values for EchoStars high-yield debt are based on quoted market
prices. The fair values of EchoStars mortgages and other notes payable are
estimated using discounted cash flow analyses. The interest rates assumed in
such discounted cash flow analyses reflect interest rates currently being
offered for loans with similar terms to borrowers of similar credit quality.

The following table summarizes the book and fair values of EchoStars debt
facilities at December 31, 2001 and 2002 (in thousands):

|                                  |  |                   |           |                   |  |            |           |            |  |   |           |  |  |   |           | 
|--------------------------------- |  | ----------------- | --------- | ----------------- |  | ---------- | --------- | ---------- |  | - | --------- |  |  | - | --------- | 
|                                  |  | December 31, 2001 |           | December 31, 2002
|                                  |  |                   |           |                  
|                                  |  | Book Value        |           | Fair Value        |  | Book Value |           | Fair Value
|                                  |  |                   |           |                   |  |            |           |           
|9 1/4% Seven Year Notes*          |  | $                 | 375,000   |                   |  | $          | 382,500   |            |  | $ | 375,000   |  |  | $ | 386,250   | 
|9 3/8% Ten Year Notes             |  |                   | 1,625,000 |                   |  |            | 1,673,750 |            |  |   | 1,625,000 |  |  |   | 1,706,250 | 
|10 3/8% Seven Year Notes          |  |                   | 1,000,000 |                   |  |            | 1,040,000 |            |  |   | 1,000,000 |  |  |   | 1,070,000 | 
|9 1/8% Seven Year Notes           |  |                   | 700,000   |                   |  |            | 701,750   |            |  |   | 700,000   |  |  |   | 717,500   | 
|Mortgages and other notes payable |  |                   | 19,021    |                   |  |            | 19,021    |            |  |   | 45,942    |  |  |   | 45,942    | 

*Effective February 1, 2003, these notes were redeemed. See Note 13 
Subsequent Events for further discussion.

Due to their short-term nature, book value approximates fair value for
cash and cash equivalents, trade accounts receivable, net of allowance and
current liabilities for the periods ending December 31, 2001 and 2002.

Deferred Debt Issuance Costs and Debt Discount

Costs of issuing debt are generally deferred and amortized to interest
expense over the terms of the respective notes (see Notes 4 and 13).

Revenue Recognition

Revenue from the provision of DISH Network subscription television
services and other satellite services is recognized as revenue in the period
such services are provided. Revenue from international sales of digital
set-top boxes and related accessories is recognized upon shipment to customers.
Specific revenue and subscriber acquisition cost recognition policies relating
to the significant marketing promotions for the period are discussed below.

I Like 9 During August 2001, we commenced our I Like 9 promotion. Under
this promotion, subscribers who purchased an EchoStar receiver system for $199
or higher received free installation and either our Americas Top 100 CD or our
DISH Latino Dos programming package for $9 a month for the first year.
Subscriber acquisition costs are materially lower under this plan compared to
historical promotions. This promotion expired January 31, 2002.

Free Dish Our Free Dish promotion, under which subscribers receive a
free base-level EchoStar receiver system, commenced during August 2001. To be
eligible, subscribers must provide a valid major credit card and make a
one-year commitment to subscribe to a qualified programming package. Effective
July 13, 2002, eligible subscribers are able to purchase a second receiver for
$49.99.

1-2-3 Great TV During January 2002, we commenced our 1-2-3 Great TV
promotion. Under this promotion, subscribers who purchased one or more
receivers, provided a valid major credit card and made a one-year commitment,
received the first three months of qualified programming and installation of up
to two receivers for free. This promotion expired on July 31, 2002.

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ECHOSTAR DBS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued

Free for All Effective August 1, 2002, we commenced our Free for All
promotion. Under this promotion, subscribers who purchase up to two receivers
for $149 or more, depending on the models chosen, and subscribe to a qualifying
programming package, receive free installation, together with credits of $12.50
or $17.00 applied to their programming bill each month for a year.

Free Installation Under our free installation program all subscribers
who purchase an EchoStar receiver system are eligible to receive free
professional installation on up to two receivers.

Digital Home Plan Our Digital Home Plan promotion offers several choices
to consumers, ranging from the use of one EchoStar receiver system and our
Americas Top 50 CD programming package for $29.99 per month, to providing
consumers our Americas Top 150 programming package and two or more EchoStar
receiver systems for $52.99 to $62.99 per month. Each plan includes in-home
service, and the consumer must agree to a one-year commitment, provide a valid
major credit card, have an acceptable credit score and incur a one-time set-up
fee of $49.99. From January to July 2002, the promotion also included the
first three months of qualified programming free for qualified Digital Home
Plan programming packages and for an additional $99, consumers could also
choose to include a Dish PVR in the Digital Home Plan. Effective August 1,
2002, the one-time set-up fee includes only the first months qualified
programming payment and for an additional $50, consumers can also choose to
include a Dish PVR in the Digital Home Plan. Dish PVR receivers include a
built-in hard drive that allows viewers to pause and record live programming
without the need for videotape. Since EchoStar retains ownership of equipment
installed pursuant to the Digital Home Plan promotion, equipment costs are
capitalized and depreciated over a period of approximately four years.
Although there can be no assurance as to the ultimate duration of the Digital
Home Plan promotion, we expect it to continue through at least July 31, 2003.

EchoStars promotions which include programming discounts fall under the
scope of EITF Issue No. 00-14, Accounting for Certain Sales Incentives (EITF
00-14). In accordance with EITF 00-14, programming revenue under these
promotions are recorded at the discounted monthly rate charged to the
subscriber. See Subscriber Promotions Subsidies and Subscriber Acquisition
Costs below for discussion regarding the accounting for costs under these
promotions.

EchoStars dealer sales under its I like 9, Free Dish, 1-2-3 Great TV, and
Free for All fall under the scope of EITF Issue No. 00-25, Vendor Income
Statement Characterization of Consideration Paid to a Reseller of the Vendors
Products (EITF 00-25). In accordance with the consensus guidance for Issue 2
of EITF 00-25, buydowns should be characterized as a reduction of revenue.
As such, certain commissions and equipment reimbursements paid to dealers are
recorded as a reduction of the net proceeds received by EchoStar from the
dealers. See additional discussion under Subscriber Promotions Subsidies and
Subscriber Acquisition Costs below.

StarBand.Effective September 27, 2001, in connection with EchoStars
increased equity interest in StarBand, EchoStar began subsidizing the cost of
equipment to the subscriber by offering discounted equipment through its
independent dealers. As such, beginning September 27, 2001, EchoStar accounted
for the sale of StarBand equipment similar to the accounting for its dealer
sales under the I like 9, 1-2-3 Great TV and Free for All promotions. EchoStar
offered a bundled price of $100.99 for EchoStars Americas Top 150 (AT 150)
programming and the StarBand Internet service. For StarBand customers who
activated for this bundled price, as a retailer of the StarBand service,
EchoStar recognized the entire $100.99 of revenue for the video and Internet
service and recorded costs equal to the monthly payment made by EchoStar to
StarBand for providing the service. In the event EchoStar did not collect the
monthly programming and Internet payments from a subscriber, EchoStar was still
obligated to remit payment to StarBand for the cost of providing the Internet
service to the customer.

Subscriber Promotion Subsidies and Subscriber Acquisition Costs

Cost of sales  subscriber promotion subsidies includes the cost of
EchoStar receiver systems distributed to retailers and other distributors of
EchoStars equipment and receiver systems sold directly by EchoStar to
subscribers.

F-15



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##### Table of Contents



ECHOSTAR DBS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued

Other subscriber promotion subsidies includes net costs related to
various installation promotions and other promotional incentives. EchoStar
makes payments to its independent dealers as consideration for equipment
installation services and for equipment buydowns (commissions and rebates).
EchoStar expenses payments for equipment installation services as Other
subscriber promotion subsidies. EchoStars 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. EchoStar
reports the net cost from its various sales promotions through its independent
dealer network as a component of Other subscriber promotion subsidies. No
proceeds from the sale of subscriber related equipment is recognized as
revenue. Accordingly, subscriber acquisition costs are generally expensed as
incurred except for under EchoStars Digital Home Plan which was initiated
during 2000 wherein the Company retains title to the receiver and certain other
equipment resulting in the capitalization and depreciation of such equipment
cost over its estimated useful life.

Research and Development Costs

Research and development costs are expensed as incurred. Research and
development costs totaled $17 million, $19 million and $33 million for the
years ended December 31, 2000, 2001 and 2002, respectively.

Accounting for Stock-Based Compensation

EchoStar has elected to follow Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, (APB 25) and related
interpretations in accounting for its stock-based compensation plans, which are
described more fully in Note 6. Under APB 25, EchoStar generally does not
recognize compensation expense on the issuance of stock under its Stock
Incentive Plan because the option terms are typically fixed and typically the
exercise price equals or exceeds the market price of the underlying stock on
the date of grant. In October 1995, the Financial Accounting Standards Board
issued Financial Accounting Standard No. 123, Accounting and Disclosure of
Stock-Based Compensation, (FAS No. 123) which established an alternative
method of expense recognition for stock-based compensation awards to employees
based on fair values. EchoStar elected to not adopt FAS No. 123 for expense
recognition purposes.

Pro forma information regarding net income and earnings per share is
required by FAS No. 123 and has been determined as if EchoStar had accounted
for its stock-based compensation plans using the fair value method prescribed
by that statement. For purposes of pro forma disclosures, the estimated fair
value of the options is amortized to expense over the options vesting period.
All options are initially assumed to vest. Compensation previously recognized
is reversed to the extent applicable to forfeitures of unvested options. The
following table illustrates the effect on net loss and loss per share if
EchoStar had accounted for its stock-based compensation plans using the fair
value method prescribed by FAS 123 (in thousands, except per share amounts):

|                                                                                                                                            |  |                         |          |      |  |      |         |   |  |   |         |  
|------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------- | -------- | ---- |  | ---- | ------- | - |  | - | ------- | -
|                                                                                                                                            |  | Year Ended December 31,
|                                                                                                                                            |  |                        
|                                                                                                                                            |  | 2000                    |          | 2001 |  | 2002
|                                                                                                                                            |  |                         |          |      |  |     
|Net income (loss) reported                                                                                                                  |  | $                       | (607,665 | )    |  | $    | 31,651  |   |  | $ | 18,180  |  
|Add: Stock-based employee
compensation expense included
in reported net income, net of
related tax effects                                  |  |                         | 51,465   |      |  |      | 20,173  |   |  |   | 11,279  |  
|Deduct: Total stock-based
employee compensation expense
determined under fair value
based method for all awards,
net of related tax effects |  |                         | (22,918  | )    |  |      | (28,566 | ) |  |   | (27,081 | )
|                                                                                                                                            |  |                         |          |      |  |      |         |   |  |   |         |  
|Pro forma net income (loss)                                                                                                                 |  | $                       | (579,118 | )    |  | $    | 23,258  |   |  | $ | 2,378   |  
|                                                                                                                                            |  |                         |          |      |  |      |         |   |  |   |         |  

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ECHOSTAR DBS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued

For purposes of this pro forma presentation, the fair value of each option
grant was estimated at the date of the grant using a Black-Scholes option
pricing model with the following weighted-average assumptions:

|                                               |  |                         |       |         |  |         |       |   |  |   |      |  
|---------------------------------------------- |  | ----------------------- | ----- | ------- |  | ------- | ----- | - |  | - | ---- | -
|                                               |  | Year Ended December 31,
|                                               |  |                        
|                                               |  | 2000                    |       | 2001    |  | 2002   
|                                               |  |                         |       |         |  |        
|Risk-free interest rate                        |  |                         | 6.19  | %       |  |         | 4.94  | % |  |   | 4.08 | %
|Volatility factor                              |  |                         | 98    | %       |  |         | 64    | % |  |   | 54   | %
|Dividend yield                                 |  |                         | 0.00  | %       |  |         | 0.00  | % |  |   | 0.00 | %
|Expected term of options                       |  | 6 years                 |       | 6 years |  | 6 years
|Weighted-average fair value of options granted |  | $                       | 30.41 |         |  | $       | 15.75 |   |  | $ | 5.11 |  

The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect the
fair value estimate, the existing models do not necessarily provide a reliable
single measure of the fair value of stock-based compensation awards.

New Accounting Pronouncements

In July 2002, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 146, Accounting for Costs Associated with
Exit or Disposal Activities (FAS 146), which will require companies to
record exit, including restructuring, or disposal costs when they are incurred
and can be measured at fair value, and subsequently adjust the recorded
liability for changes in estimated cash flows. FAS 146 also provides specific
guidance on accounting for employee and contract terminations that are part of
restructuring activities. The new requirements in FAS 146 are effective
prospectively for exit or disposal activities initiated after December 31,
2002. The application of FAS 146 is not expected to have a material impact on
EchoStars financial position or results of operations.

In December 2002, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 148, Accounting for
Stock-Based Compensation  Transition and Disclosure (FAS 148), which (i)
amends FAS Statement No. 123, Accounting for Stock-Based Compensation, to
provide alternative methods of transition for an entity that voluntarily
changes to the fair value based method of accounting for stock-based employee
compensation (ii) amends the disclosure provisions of FAS 123 to require
prominent disclosure about the effects on reported net income of an entitys
accounting policy decisions with respect to stock-based employee compensation
and (iii) amends APB Opinion No. 28, Interim Financial Reporting, to require
disclosure about those effects in interim financial information. Items (ii)
and (iii) of the new requirements in FAS 148 are effective for financial
statements for fiscal years ending after December 15, 2002. EchoStar has
included the requirements of item (ii) in Note 2  Summary of Significant
Accounting Policies and will include the requirements of item (iii) beginning
in its first interim period after December 15, 2002.

In November 2002, the FASB issued FASB Interpretation No. 45, Guarantors
Accounting and Disclosure Requirement for Guarantors, including Indirect
Guarantors of Indebtedness Others (FIN 45). FIN 45 creates new disclosure
and liability recognition requirements for certain guarantees, including,
obligations to stand ready to perform. The initial recognition and measurement
requirements of FIN 45 is effective prospectively for guarantees issued or
modified after December 31, 2002 and the disclosure requirements are effective
for financial statement periods ending after December 15, 2002. In accordance
with FIN 45, EchoStar has disclosed guarantee information.

In January 2003, the Financial Accounting Standards Boards issued FASB
Interpretation No. 46, Consolidation of Variable Interest Entities (FIN
46), which addresses the consolidation of variable interest entities as
defined in the Interpretation. FIN 46 requires an assessment of equity
investments to determine if they are
F-17Table of Contents

ECHOSTAR DBS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued

variable interest entities. FIN 46 is immediately effective for all
variable interest entities created after January 31, 2003. For variable
interest entities created before February 1, 2003, the provisions of FIN 46
must be applied no later than the beginning of the first interim period or
annual reporting period beginning after June 15, 2003. In addition, if it is
reasonably possible that an enterprise will consolidate or disclose information
about a variable interest entity, the enterprise shall discuss the following
information in all financial statements issued after January 31, 2003: (i) the
nature, purpose, size or activities of the variable interest entity and (ii)
the enterprises maximum exposure to loss as a result of its involvement with
the variable interest entity. EchoStar is currently evaluating the potential
impact, if any, the adoption of FIN 46 will have on its financial position and
results of operations.

3.     Property and Equipment

Property and equipment consist of the following (in thousands):

|                                  |                              |  |            |  |      |   |              |           |  |   |          |           | 
|--------------------------------- | ---------------------------- |  | ---------- |  | ---- | - | ------------ | --------- |  | - | -------- | --------- | 
|                                  |                              |  |            |  |      |   | December 31,
|                                  |                              |  | Life       |  |     
|                                  |                              |  | (In Years) |  | 2001 |   | 2002        
|                                  |                              |  |            |  |      |   |             
|EchoStar I                        |                              |  | 12         |  |      | $ | 201,607      |           |  | $ | 201,607  |          
|EchoStar II                       |                              |  | 12         |  |      |   | 228,694      |           |  |   | 228,694  |          
|EchoStar III                      |                              |  | 12         |  |      |   | 234,083      |           |  |   | 234,083  |          
|EchoStar IV                       |                              |  | 4          |  |      |   | 89,505       |           |  |   | 89,505   |          
|EchoStar V                        |                              |  | 12         |  |      |   | 210,446      |           |  |   | 210,446  |          
|EchoStar VI                       |                              |  | 12         |  |      |   | 246,022      |           |  |   | 246,022  |          
|EchoStar VII                      |                              |  | 12         |  |      |   |             |           |  |   | 177,000  |          
|EchoStar VIII                     |                              |  | 12         |  |      |   |             |           |  |   | 194,913  |          
|Furniture, fixtures and equipment |                              |  | 2-12       |  |      |   | 402,014      |           |  |   | 548,506  |          
|Buildings and improvements        |                              |  | 7-40       |  |      |   | 66,799       |           |  |   | 85,306   |          
|Digital Home Plan equipment       |                              |  | 4          |  |      |   | 353,567      |           |  |   | 529,311  |          
|Tooling and other                 |                              |  | 2          |  |      |   | 6,040        |           |  |   | 4,875    |          
|Land                              |                              |  |           |  |      |   | 3,649        |           |  |   | 5,186    |          
|Vehicles                          |                              |  | 7          |  |      |   | 1,550        |           |  |   | 3,435    |          
|Construction in progress          |                              |  |           |  |      |   | 99,089       |           |  |   | 16,589   |          
|                                  |                              |  |            |  |      |   |              |           |  |   |          |          
|                                  | Total property and equipment |  |            |  |      |   |              | 2,143,065 |  |   |          | 2,775,478 | 
|Accumulated depreciation          |                              |  |            |  |      |   | (640,844     | )         |  |   | (944,339 | )        
|                                  |                              |  |            |  |      |   |              |           |  |   |          |          
|                                  | Property and equipment, net  |  |            |  |      |   | $            | 1,502,221 |  |   | $        | 1,831,139 | 
|                                  |                              |  |            |  |      |   |              |           |  |   |          |          

Construction in progress consists of the following (in thousands):

|                                    |  |              |        |      |  |   |        | 
|----------------------------------- |  | ------------ | ------ | ---- |  | - | ------ | 
|                                    |  | December 31,
|                                    |  |             
|                                    |  | 2001         |        | 2002
|                                    |  |              |        |     
|Digital broadcast operations center |  | $            | 56,347 |      |  | $ |       | 
|Other                               |  |              | 42,742 |      |  |   | 16,589 | 
|                                    |  |              |        |      |  |   |        | 
|                                    |  | $            | 99,089 |      |  | $ | 16,589 | 
|                                    |  |              |        |      |  |   |        | 

F-18



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##### Table of Contents



ECHOSTAR DBS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued

Depreciation and amortization expense consists of the following (in
thousands):

|                                               |  |                    |         |      |  |   |         | 
|---------------------------------------------- |  | ------------------ | ------- | ---- |  | - | ------- | 
|                                               |  | For the Year Ended
|                                               |  | December 31,      
|                                               |  |                   
|                                               |  | 2001               |         | 2002
|                                               |  |                    |         |     
|Digital Home Plan equipment                    |  | $                  | 65,653  |      |  | $ | 130,760 | 
|Satellites                                     |  |                    | 113,279 |      |  |   | 128,155 | 
|Furniture, fixtures and equipment              |  |                    | 62,475  |      |  |   | 90,567  | 
|Buildings and improvements                     |  |                    | 2,044   |      |  |   | 2,658   | 
|FCC licenses and other amortizable intangibles |  |                    | 19,108  |      |  |   | 463     | 
|Tooling and other                              |  |                    | 3,353   |      |  |   | 3,151   | 
|                                               |  |                    |         |      |  |   |         | 
|                                               |  | $                  | 265,912 |      |  | $ | 355,754 | 
|                                               |  |                    |         |      |  |   |         | 

Cost of sales and operating expense categories included in the Companys
accompanying consolidated statements of operations do not include depreciation
expense related to satellites or digital home plan equipment.

EchoStar III

During January 2002, a transponder pair on EchoStar III failed, resulting
in a temporary interruption of service. The operation of the satellite was
quickly restored. Including five transponders pairs that malfunctioned in prior
years, these anomalies have resulted in the failure of a total of 12
transponders on the satellite to date. While a maximum of 32 transponders can
be operated at any time, the satellite was equipped with a total of 44
transponders to provide redundancy. In addition, we are only licensed by the
FCC to operate 11 transponders at the 61.5 degree orbital location (together
with an additional six leased transponders). We will continue to evaluate the
performance of EchoStar III.

EchoStar V

During 2000 and 2001, EchoStar V experienced anomalies resulting in the
loss of two solar array strings, and during August 2002, EchoStar V experienced
anomalies resulting in the loss of an additional solar array string. The
satellite has a total of approximately 96 solar array strings and approximately
92 are required to assure full power availability for the estimated 12-year
design life of the satellite. In addition, during January 2003, EchoStar V
experienced an anomaly in a spacecraft electronic component which affects the
ability to receive telemetry from certain on-board equipment. Other methods of
communication have been established to alleviate the effects of the failed
component. An investigation of the solar array and electronic component
anomalies, none of which have impacted commercial operation of the satellite,
is continuing. Until the root cause of these anomalies is finally determined,
there can be no assurance future anomalies will not cause further losses which
could impact commercial operation of the satellite.

EchoStar VI

During 2001, EchoStar VI experienced anomalies resulting in the loss of
two solar array strings, and during July 2002, EchoStar VI experienced
anomalies resulting in the loss of an additional solar array string. The
satellite has a total of approximately 112 solar array strings and
approximately 106 are required to assure full power availability for the
estimated 12-year design life of the satellite. An investigation of the solar
array anomalies, none of which have impacted commercial operation of the
satellite, is continuing. Until the root cause of these anomalies is finally
determined, there can be no assurance future anomalies will not cause further
losses which could impact commercial operation of the satellite.

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ECHOSTAR DBS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued

EchoStar VIII

During October 2002, EchoStar VIII, which launched successfully on August
21, 2002 from the Baikonur Cosmodrome, Kazakhstan, reached its final orbital
location at 110 degrees West Longitude and commenced commercial operation after
completing in-orbit testing.

During September and October 2002, two of the thrusters on EchoStar VIII
experienced anomalous events and are not currently in use. The satellite is
equipped with a total of 12 thrusters that help control spacecraft location,
attitude, and pointing and is currently operating using a combination of the
other 10 thrusters. This workaround requires more frequent maneuvers to
maintain the satellite at its specified orbital location, which are less
efficient and therefore result in accelerated fuel use. In addition, the
workaround will require certain gyroscopes to be utilized for aggregate periods
of time in excess of their originally qualified limits. However, neither of
these workarounds are expected to significantly reduce the estimated 12-year
design life of the satellite. An investigation of the thruster anomalies
including the development of additional workarounds for long term operations is
continuing. None of these events has impacted commercial operation of the
satellite to date. Until the root cause of these anomalies has been finally
determined, there can be no assurance future anomalies will not cause further
losses which could impact commercial operation of the satellite.

Satellite Insurance

As a result of the failure of EchoStar IV solar arrays to fully deploy and
the failure of 38 transponders to date, a maximum of 6 of the 44 transponders
(including spares) on EchoStar IV are available for use at this time. In
addition to transponder and solar array failures, EchoStar IV experienced
anomalies affecting its thermal systems and propulsion system. There can be no
assurance that further material degradation, or total loss of use, of EchoStar
IV will not occur in the immediate future. Currently no programming is being
transmitted to customers on EchoStar IV, and the satellite functions as an
in-orbit spare.

In September 1998, EchoStar filed a $219.3 million insurance claim for a
total loss under the launch insurance policies covering EchoStar IV. The
satellite insurance consists of separate substantially identical policies with
different carriers for varying amounts that, in combination, create a total
insured amount of $219.3 million. The insurance carriers include La Reunion
Spatiale; AXA Reinsurance Company (n/k/a AXA Corporate Solutions Reinsurance
Company), United States Aviation Underwriters, Inc., United States Aircraft
Insurance Group; Assurances Generales De France I.A.R.T. (AGF); Certain
Underwriters at Lloyds, London; Great Lakes Reinsurance (U.K.) PLC; British
Aviation Insurance Group; If Skaadeforsikring (previously Storebrand); Hannover
Re (a/k/a International Hannover); The Tokio Marine & Fire Insurance Company,
Ltd.; Marham Space Consortium (a/k/a Marham Consortium Management); Ace Global
Markets (a/k/a Ace London); M.C. Watkins Syndicate; Goshawk Syndicate
Management Ltd.; D.E. Hope Syndicate 10009 (Formerly Busbridge); Amlin
Aviation; K.J. Coles & Others; H.R. Dumas & Others; Hiscox Syndicates, Ltd.;
Cox Syndicate; Hayward Syndicate; D.J. Marshall & Others; TF Hart; Kiln;
Assitalia Le Assicurazioni DItalia S.P.A. Roma; La Fondiaria Assicurazione
S.P.A., Firenze; Vittoria Assicurazioni S.P.A., Milano; Ras  Riunione
Adriatica Di Sicurta S.P.A., Milano; Societa Cattolica Di Assicurazioni,
Verano; Siat Assicurazione E Riassicurazione S.P.A, Genova; E. Patrick; ZC
Specialty Insurance; Lloyds of London Syndicates 588 NJM, 1209 Meb AND 861 Meb;
Generali France Assurances; Assurance France Aviation; and Ace Bermuda
Insurance Ltd.

The insurance carriers offered us a total of approximately $88 million, or
40% of the total policy amount, in settlement of the EchoStar IV insurance
claim. The insurers assert, among other things, that EchoStar IV was not a
total loss, as that term is defined in the policy, and that we did not abide by
the exact terms of the insurance policies. EchoStar strongly disagrees and
filed arbitration claims against the insurers for breach of contract, failure
to pay a valid insurance claim and bad faith denial of a valid claim, among
other things. Due to individual forum selection clauses in certain of the
policies, EchoStar is pursuing its arbitration claims against Ace Bermuda
Insurance Ltd. in London, England, and its arbitration claims against all of
the other insurance carriers in New York, New York. The New York arbitration
is currently scheduled to begin in late April 2003, but the Insurers have
recently requested that that hearing date be delayed. The parties to the
London arbitration are currently negotiating the schedule for a

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ECHOSTAR DBS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued

hearing, and, while there can be no assurance, EchoStar anticipates that
the hearing date in that proceeding will be set for later in 2003. There can
be no assurance that EchoStar will receive the amount claimed in either the New
York or the London arbitrations or, if EchoStar does, that EchoStar will retain
title to EchoStar IV with its reduced capacity.

At the time EchoStar filed its claim in 1998, EchoStar recognized an
impairment loss of $106 million to write-down the carrying value of the
satellite and related costs, and simultaneously recorded an insurance claim
receivable for the same amount. EchoStar will have to reduce the amount of the
receivable if a final settlement is reached for less than this amount.

As a result of the thermal and propulsion system anomalies, EchoStar
reduced the estimated remaining useful life of EchoStar IV to
approximately 4 years during January 2000. EchoStar will continue to evaluate the performance
of EchoStar IV and may modify its loss assessment as new events or
circumstances develop.

The indentures related to certain of EDBS senior notes contain
restrictive covenants that require EchoStar to maintain satellite insurance
with respect to at least half of the satellites it owns or leases. All of
EchoStars eight in-orbit DBS satellites are currently owned by direct or
indirect subsidiaries of EDBS. Insurance coverage is therefore required for at
least four of EchoStars eight satellites. The launch and/or in-orbit
insurance policies for EchoStar I through EchoStar VIII have expired. EchoStar
has been unable to obtain insurance on any of these satellites on terms
acceptable to EchoStar. As a result, EchoStar is currently self-insuring these
satellites. To satisfy insurance covenants related to EDBS senior notes,
EchoStar has reclassified an amount equal to the depreciated cost of four of
its satellites from cash and cash equivalents to cash reserved for satellite
insurance on its balance sheet. As of December 31, 2002, cash reserved for
satellite insurance totaled approximately $151 million. The reclassifications
will continue until such time, if ever, as EchoStar can again insure its
satellites on acceptable terms and for acceptable amounts, or until the
covenants requiring the insurance are no longer applicable.

4. Long-Term Debt

9 1/4% Seven Year and 9 3/8% Ten Year Notes

On January 25, 1999, EDBS sold $375 million principal amount of the 9 1/4%
Seven Year Notes which mature February 1, 2006 and $1.625 billion principal
amount of the 9 3/8% Ten Year Notes which mature February 1, 2009. Interest
accrues at annual rates of 9 1/4% and 9 3/8%, respectively, and is payable
semi-annually in cash in arrears on February 1 and August 1 of each year,
commencing August 1, 1999.

Concurrently with the
closing of the 9 1/4% Seven Year Notes and 9 3/8%
Ten Year Notes offering, EchoStar used approximately $1.658 billion of net
proceeds received from the sale of the 9 1/4% Seven Year and 9 3/8% Ten Year
Notes to complete tender offers for its then outstanding senior notes issued in
1994, 1996 and 1997. In February 1999, EchoStar used approximately $268
million of net proceeds received from the sale of the 9 1/4% Seven
Year and 9 3/8% Ten Year Notes to complete the tender offers
related to the 12 1/8% Senior
Exchange Notes due 2004, issued on January 4, 1999, in exchange for all issued
and outstanding 12 1/8% Series B Senior Redeemable Exchangeable Preferred
Stock.

With the exception of certain de minimis domestic and foreign
subsidiaries, the 9 1/4% Seven Year and 9 3/8% Ten Year Notes are fully,
unconditionally and jointly and severally guaranteed by all subsidiaries of
EDBS. The 9 1/4% Seven Year and 9 3/8% Ten Year Notes are general senior
unsecured obligations which:



| |  |  | rank pari passuin right of payment to each other and to all
existing and future senior unsecured obligations;                                                            
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | rank senior to all existing and future junior obligations;
and                                                                                                           
|
| |  |  | are effectively junior to secured obligations to the extent
of the collateral securing such obligations, including any
borrowings under future secured credit facilities.

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ECHOSTAR DBS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued

Except under certain circumstances requiring prepayment premiums, and in
other limited circumstances, the 9 1/4% Seven Year and 9 3/8% Ten Year Notes
are not redeemable at EDBS option prior to February 1, 2003 and February 1,
2004, respectively. The 9 1/4% Seven Year Notes are subject to redemption, at
the option of EDBS, in whole or in part, at redemption prices decreasing from
104.625% during the year commencing February 1, 2003 to 100% on or after
February 1, 2005, together with accrued and unpaid interest thereon to the
redemption date. EDBS elected to retire all of its outstanding 9 1/4 % Senior
Notes due 2006, three years early pursuant to its optional early redemption
right (Note 14). The 9 3/8% Ten Year Notes are subject to redemption, at the
option of EDBS, in whole or in part, at redemption prices decreasing from
104.688% during the year commencing February 1, 2004 to 100% on or after
February 1, 2008, together with accrued and unpaid interest thereon to the
redemption date.

The indentures related to the 9 1/4% Seven Year and 9 3/8% Ten Year Notes
(the Seven and Ten Year Notes Indentures) contain restrictive covenants that,
among other things, impose limitations on the ability of EDBS to:



| |  |  | incur additional indebtedness;                                                    
| | - |  | ----------------------------------------------------------------------------------
|
| |  |  | apply the proceeds of certain asset sales;                                        
|
| |  |  | create, incur or assume liens;                                                    
|
| |  |  | create dividend and other payment restrictions with respect to EDBS subsidiaries;
|
| |  |  | merge, consolidate or sell assets; and                                            
|
| |  |  | enter into transactions with affiliates.                                          

In addition, EDBS may pay dividends on its equity securities only if no
default shall have occurred or is continuing under the Seven and Ten Year Notes
Indentures; and after giving effect to such dividend and the incurrence of any
indebtedness (the proceeds of which are used to finance the dividend), EDBS
ratio of total indebtedness to cash flow (calculated in accordance with the
Indentures) would not exceed 8.0 to 1.0. Moreover, the aggregate amount of
such dividends generally may not exceed the sum of the difference of cumulative
consolidated cash flow (calculated in accordance with the Indentures) minus
120% of consolidated interest expense of EDBS (calculated in accordance with
the Indentures) in each case from April 1, 1999, plus an amount equal to 100%
of the aggregate net cash proceeds received by EDBS and its subsidiaries from
the issuance or sale of certain equity interests of EDBS or EchoStar.

In the event of a change of control, as defined in the Seven and Ten Year
Notes Indentures, EDBS will be required to make an offer to repurchase all of
the 9 3/8% Ten Year 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.

10 3/8% Seven Year Notes

On September 25, 2000, our wholly-owned subsidiary, EchoStar Broadband
Corporation (EBC), sold $1 billion principal amount of the 10 3/8% Seven Year
Notes which mature October 1, 2007. Interest accrues at an annual rate of 10
3/8% and is payable semi-annually in cash in arrears on April 1 and October 1
of each year. The proceeds of the 10 3/8% Seven Year Notes will be used
primarily by EchoStars subsidiaries for the construction and launch of
additional satellites, strategic acquisitions and other general working capital
purposes.

Under the terms of the 10 3/8% Seven Year Notes Indenture, EBC agreed to
cause its subsidiary, EDBS to make an offer to exchange (the EDBS Exchange
Offer) all of the outstanding 10 3/8% Seven Year Notes for a new class of
notes issued by EDBS as soon as practical following the first date (as
reflected in EDBS most recent quarterly or annual financial statements) on
which EDBS was permitted to incur indebtedness in an amount equal to the
outstanding principal balance of the 10 3/8% Seven Year Notes under the
Indebtedness to Cash Flow Ratio test contained in the indentures (the EDBS
Indentures) governing the EDBS 9 1/4% Seven Year Notes and 9 3/8% Ten Year
Notes, and such incurrence of indebtedness would not otherwise cause any breach
or violation of, or result in a default under, the terms of the EDBS
Indentures.

Effective November 5, 2002, EDBS completed its offer to exchange all of
the $1 billion principal outstanding of EBCs 10 3/8% Seven Year Notes for
substantially identical notes of EDBS. Tenders were received from holders of

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ECHOSTAR DBS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued

over 99% of the EBC Notes. Per the terms of the indenture related to the
EBC Notes, if at least 90% in aggregate principal amount of the outstanding EBC
Notes have accepted the exchange offer, then all of the then outstanding EBC
Notes shall be deemed to have been exchanged for the EDBS Notes.

Except under certain circumstances requiring prepayment premiums, and in
other limited circumstances, the 10 3/8% Seven Year Notes are not redeemable at
EchoStars option prior to October 1, 2004. Thereafter, the 10 3/8% Seven Year
Notes will be subject to redemption, at EchoStars option, in whole or in part,
at redemption prices decreasing from 105.188% during the year commencing
October 1, 2004 to 100% on or after October 1, 2006, together with accrued and
unpaid interest thereon to the redemption date.

The indenture related to the 10 3/8% Seven Year Notes (the 10 3/8% Seven
Year Notes Indenture) contains certain restrictive covenants that generally do
not impose material limitations on EchoStar. Subject to certain limitations,
the 10 3/8% Seven Year Notes Indenture permits EDBS to incur additional
indebtedness, including secured and unsecured indebtedness that ranks on parity
with the 10 3/8% Seven Year Notes. Any secured indebtedness will, as to the
collateral securing such indebtedness, be effectively senior to the 10 3/8%
Seven Year Notes to the extent of such collateral.

The 10 3/8% Seven Year Notes are:



| |  |  | general unsecured obligations of EDBS;                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | ranked equally in right of payment with all of EDBS existing and future senior debt;                                                                                                                                                                                                                                                                                                                                                                                        
|
| |  |  | ranked senior in right of payment to all of EDBS other existing and future subordinated debt; and                                                                                                                                                                                                                                                                                                                                                                           
|
| |  |  | ranked effectively junior to (i) all liabilities (including
trade payables) of EDBS subsidiaries (ii) all debt and other
liabilities (including trade payables) of any Guarantor if such
Guarantors guarantee is subordinated or avoided by a court of
competent jurisdiction, and (iii) all of EDBS secured obligations,
to the extent of the collateral securing such obligations, including
any borrowings under any of EDBS future secured credit facilities,
if any.

In the event of a change of control, as defined in the 10 3/8% Seven Year
Notes Indenture, EDBS will be required to make an offer to repurchase all or
any part of a holders 10 3/8% Seven Year 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.

9 1/8% Seven Year Notes

On December 28, 2001, EDBS sold $700 million principal amount of the 9
1/8% Seven Year Notes, which mature January 15, 2009. Interest accrues at an
annual rate of 9 1/8% and is payable semi-annually in cash, in arrears on
January 15 and July 15 of each year, commencing July 15, 2002. The proceeds of
the 9 1/8% Seven Year Notes are intended to be used for the construction,
launch and insurance of additional satellites, strategic acquisitions and other
general corporate purposes.

The 9 1/8% Seven Year Notes are guaranteed by substantially all
subsidiaries of EDBS on a senior basis. The 9 1/8% Seven Year Notes are
general unsecured senior obligations which:



| |  |  | rank senior with all of EDBS future subordinated debt; and                                          
| | - |  | -----------------------------------------------------------------------------------------------------
|
| |  |  | rank junior to any of EDBS secured debt to the extent of the value of the assets securing such debt.

Except under certain circumstances requiring prepayment premiums, and in
other limited circumstances, the 9 1/8% Seven Year Notes are not redeemable at
EDBS option prior to January 15, 2006. Thereafter, the 9 1/8% Seven Year
Notes will be subject to redemption, at EDBS option, in whole or in part, at
redemption prices decreasing from 104.563% during the year commencing January
15, 2006 to 100% on or after January 15, 2008, together with accrued and unpaid
interest thereon to the redemption date.

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ECHOSTAR DBS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued

The indenture related to the 9 1/8% Seven Year Notes (the 9 1/8% Seven
Year Notes Indenture) contains restrictive covenants that, among other things,
impose limitations on the ability of EDBS and its restricted subsidiaries to:



| |  |  | incur additional indebtedness or enter into sale and leaseback transactions;                
| | - |  | --------------------------------------------------------------------------------------------
|
| |  |  | pay dividends or make distribution on EDBS capital stock or repurchase EDBS capital stock;
|
| |  |  | make certain investments;                                                                   
|
| |  |  | create liens;                                                                               
|
| |  |  | enter into transactions with affiliates;                                                    
|
| |  |  | merge or consolidate with another company; and                                              
|
| |  |  | transfer and sell assets                                                                    

In the event of a change of control, as defined in the 9 1/8% Seven Year
Notes Indenture, EDBS will be required to make an offer to repurchase all or
any part of a holders 9 1/8% Seven Year 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.

Mortgages and Other Notes Payable

Mortgages and other notes payable consists of the following (in
thousands):

|                                                                                                                                                       |  |              |         |      |  |   |         |  
|------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------ | ------- | ---- |  | - | ------- | -
|                                                                                                                                                       |  | December 31,
|                                                                                                                                                       |  |             
|                                                                                                                                                       |  | 2001         |         | 2002
|                                                                                                                                                       |  |              |         |     
|                                                                                                                                                       |  |              |         |      |  |   |         |  
|8.25% note payable for satellite vendor financing for EchoStar III due in equal monthly installments of $294, including
interest, through October 2002 |  | $            | 2,829   |      |  | $ |        |  
|8.25% note payable for satellite vendor financing for EchoStar
IV due upon resolution of satellite insurance claim (Note 3)                            |  |              | 11,327  |      |  |   | 11,327  |  
|8% note payable for satellite vendor financing for EchoStar VII                                                                                        |  |              |        |      |  |   | 15,000  |  
|8% note payable for satellite vendor financing for EchoStar VIII                                                                                       |  |              |        |      |  |   | 15,000  |  
|Mortgages and other unsecured notes payable due in installments
through November 2009 with interest rates ranging from 4% to
10%                       |  |              | 4,865   |      |  |   | 4,615   |  
|                                                                                                                                                       |  |              |         |      |  |   |         |  
|Total                                                                                                                                                  |  |              | 19,021  |      |  |   | 45,942  |  
|Less current portion                                                                                                                                   |  |              | (13,444 | )    |  |   | (13,262 | )
|                                                                                                                                                       |  |              |         |      |  |   |         |  
|Mortgages and other notes payable, net of current portion                                                                                              |  | $            | 5,577   |      |  | $ | 32,680  |  
|                                                                                                                                                       |  |              |         |      |  |   |         |  

Future maturities of EchoStars outstanding long-term debt are summarized
as follows (in thousands):

|                                  |  |              |        |      |  |      |       |      |  |      |       |            |  |       |         |   |  |   |           |  |  |   |           |  |  |   |           | 
|--------------------------------- |  | ------------ | ------ | ---- |  | ---- | ----- | ---- |  | ---- | ----- | ---------- |  | ----- | ------- | - |  | - | --------- |  |  | - | --------- |  |  | - | --------- | 
|                                  |  | December 31,
|                                  |  |             
|                                  |  | 2003         |        | 2004 |  | 2005 |       | 2006 |  | 2007 |       | Thereafter |  | Total
|                                  |  |              |        |      |  |      |       |      |  |      |       |            |  |      
|Long-term debt                    |  | $            |       |      |  | $    |      |      |  | $    |      |            |  | $     | 375,000 | * |  | $ | 1,000,000 |  |  | $ | 2,325,000 |  |  | $ | 3,700,000 | 
|Mortgages and Other
Notes Payable |  |              | 13,262 |      |  |      | 2,096 |      |  |      | 2,243 |            |  |       | 2,411   |   |  |   | 2,591     |  |  |   | 23,339    |  |  |   | 45,942    | 
|                                  |  |              |        |      |  |      |       |      |  |      |       |            |  |       |         |   |  |   |           |  |  |   |           |  |  |   |           | 
|Total                             |  | $            | 13,262 |      |  | $    | 2,096 |      |  | $    | 2,243 |            |  | $     | 377,411 |   |  | $ | 1,002,591 |  |  | $ | 2,348,339 |  |  | $ | 3,745,942 | 
|                                  |  |              |        |      |  |      |       |      |  |      |       |            |  |       |         |   |  |   |           |  |  |   |           |  |  |   |           | 

*Effective February 1, 2003, these notes were redeemed. See Note 13 
Subsequent Events for further discussion.

Satellite Vendor Financing

As of December 31, 2002, the following amounts were outstanding under
vendor financings for our satellites: Approximately $11 million for EchoStar
IV, which bears interest at 8 1/4% and is payable over five years from launch;
approximately $15 million for EchoStar VII, which bears interest at 8% and is
payable over 13 years

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##### Table of Contents



ECHOSTAR DBS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued

from launch; and approximately $15 million for EchoStar VIII, which also
bears interest at 8 % but is payable over 14 years from launch.

Guarantees

The repayment obligations of EDBS under the vendor financings for EchoStar
IV and Echostar Orbital Corporation under the vendor financing for EchoStar VII
are guaranteed by EchoStar. The maximum potential future payments under these
guarantees are equal to the respective amounts of outstanding principal and
accrued interest.

5. Income Taxes

As of December 31, 2002, EDBS had net operating loss carryforwards
(NOLs) for federal income tax purposes of approximately $2.406 billion and
capital loss and credit carryforwards of approximately $5 million. The NOLs
begin to expire in the year 2011 and capital loss and credit carryforwards will
begin to expire in the year 2006.

During 2002, EDBS increased its valuation allowance by approximately $600
thousand to fully offset all net deferred tax assets. Included in this
allowance is a decrease of $66.7 million relating to net deferred tax liabilities
generated during 2002 and an increase of $67.3 million relating to the balance of the net
deferred tax asset that existed at December 31, 2001.

The federal NOL includes amounts related to tax deductions totaling
approximately $160 million for exercised stock options. The tax benefit of
these deductions has been allocated directly to contributed capital and has
been offset by a valuation allowance.

During 2002, stock option compensation expenses related to the 1999
Incentive Plan, for which an estimated deferred tax benefit was previously
recorded, exceeded the actual tax deductions allowed. Tax charges associated
with the reversal of the prior tax benefit have been allocated to additional
paid-in capital in accordance with Accounting Principals Board Opinion No. 25,
Accounting for Stock Issued to Employees. During 2002, a charge of $7
million was made to additional paid-in capital.

EDBS and its domestic subsidiaries join with EchoStar 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 EDBS are generally those that would have been recorded if EDBS and
its domestic subsidiaries had filed returns as a consolidated group independent
of EchoStar. Cash is due and paid to EchoStar based on amounts that would be
payable based on EDBS consolidated or combined group filings. Amounts are
receivable from EchoStar on a basis similar to when they would be receivable
from the IRS or other state taxing authorities. The components of the
(provision for) benefit from income taxes are as follows (in thousands):

|                              |                                 |                           |      |                         |      |      |        |         |      |   |         |         |         |  
|----------------------------- | ------------------------------- | ------------------------- | ---- | ----------------------- | ---- | ---- | ------ | ------- | ---- | - | ------- | ------- | ------- | -
|                              |                                 |                           |      | Year Ended December 31,
|                              |                                 |                           |      |                        
|                              |                                 |                           |      | 2000                    |      | 2001 |        | 2002   
|                              |                                 |                           |      |                         |      |      |        |        
|Current (provision) benefit:  |                                 |                           |      |                         |      |      |        |         |      |   |         |        
|                              | Federal                         |                           | $    |                        |      |      | $      | (1,400  | )    |   | $       |        |        
|                              | State                           |                           |      | (35                     | )    |      |        | (860    | )    |   |         | (5,946  | )      
|                              | Foreign                         |                           |      | (90                     | )    |      |        | 14      |      |   |         | (1,856  | )      
|                              |                                 |                           |      |                         |      |      |        |         |      |   |         |         |        
|                              |                                 |                           | (125 | )                       |      |      | (2,246 | )       |      |   | (7,802  | )      
|Deferred (provision) benefit: |                                 |                           |      |                         |      |      |        |         |      |   |         |        
|                              | Federal                         |                           |      | 233,640                 |      |      |        | (9,608  | )    |   |         | (55,416 | )      
|                              | State                           |                           |      | 27,091                  |      |      |        | (26,533 | )    |   |         | (15,647 | )      
|                              | Increase in valuation allowance |                           |      | (260,731                | )    |      |        | 37,541  |      |   |         | (617    | )      
|                              |                                 |                           |      |                         |      |      |        |         |      |   |         |         |        
|                              |                                 |                           |     |                         |      |      | 1,400  |         |      |   | (71,680 | )      
|                              |                                 |                           |      |                         |      |      |        |         |      |   |         |         |        
|                              |                                 | Total (provision) benefit |      | $                       | (125 | )    |        | $       | (846 | ) |         | $       | (79,482 | )
|                              |                                 |                           |      |                         |      |      |        |         |      |   |         |         |        

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ECHOSTAR DBS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued

The actual tax (provision) benefit for 2000, 2001 and 2002 are reconciled
to the amounts computed by applying the statutory federal tax rate to income
before taxes as follows:

|                                                 |                                    |  |                         |   |      |  |       |      |    |  |       |       |   
|------------------------------------------------ | ---------------------------------- |  | ----------------------- | - | ---- |  | ----- | ---- | -- |  | ----- | ----- | --
|                                                 |                                    |  | Year Ended December 31,
|                                                 |                                    |  |                        
|                                                 |                                    |  | 2000                    |   | 2001 |  | 2002 
|                                                 |                                    |  |                         |   |      |  |      
|Statutory rate                                   |                                    |  | 35.0                    | % |      |  | (35.0 | )%   |    |  | (35.0 | )%   
|State income taxes, net of Federal benefit       |                                    |  | 2.9                     |   |      |  | (3.2  | )    |    |  | (14.9 | )    
|Foreign taxes and foreign income not U S taxable |                                    |  |                        |   |      |  |      |      |    |  | (1.0  | )    
|Stock option compensation                        |                                    |  | 3.4                     |   |      |  | 9.6   |      |    |  | 5.6   |      
|Cumulative change in effective state tax rate    |                                    |  |                        |   |      |  | (79.5 | )    |    |  | (32.3 | )    
|Intangible amortization and other                |                                    |  | 1.6                     |   |      |  | (10.0 | )    |    |  | (3.2  | )    
|Increase in valuation allowance                  |                                    |  | (42.9                   | ) |      |  | 115.5 |      |    |  | (0.6  | )    
|                                                 |                                    |  |                         |   |      |  |       |      |    |  |       |      
|                                                 | Total (provision) for income taxes |  |                         |  | %    |  |       | (2.6 | )% |  |       | (81.4 | )%
|                                                 |                                    |  |                         |   |      |  |       |      |    |  |       |      

The temporary differences, which give rise to deferred tax assets and
liabilities as of December 31, 2001 and 2002, are as follows (in thousands):

|                                                          |                                       |   |              |          |      |   |          |          |  
|--------------------------------------------------------- | ------------------------------------- | - | ------------ | -------- | ---- | - | -------- | -------- | -
|                                                          |                                       |   | December 31,
|                                                          |                                       |   |             
|                                                          |                                       |   | 2001         |          | 2002
|                                                          |                                       |   |              |          |     
|Deferred tax assets:                                      |                                       |   |              |          |      |   |          |         
|                                                          | NOL and Credit Carryforwards          |   | $            | 729,245  |      |   | $        | 847,310  |  
|                                                          | Unrealized losses on investments      |   |              |         |      |   |          | 697      |  
|                                                          | Accrued expenses                      |   |              | 88,959   |      |   |          | 66,145   |  
|                                                          | Stock compensation                    |   |              | 42,547   |      |   |          | 33,489   |  
|                                                          | Loss on equity method investments     |   |              | 347      |      |   |          |         |  
|                                                          | State taxes net of federal tax effect |   |              | 34,389   |      |   |          |         |  
|                                                          | Other                                 |   |              | 40,598   |      |   |          | 35,304   |  
|                                                          |                                       |   |              |          |      |   |          |          |  
|                                                          | Total deferred tax assets             |   |              | 936,085  |      |   |          | 982,945  |  
|Valuation allowance                                       |                                       |   | (758,091     | )        |      |   | (779,322 | )       
|                                                          |                                       |   |              |          |      |   |          |          |  
|Deferred tax asset after valuation allowance              |                                       |   | 177,994      |          |      |   | 203,623  |         
|                                                          |                                       |   |              |          |      |   |          |          |  
|Deferred tax liabilities:                                 |                                       |   |              |          |      |   |          |         
|                                                          | Depreciation and amortization         |   |              | (109,247 | )    |   |          | (207,672 | )
|                                                          | State taxes net of federal tax effect |   |              |         |      |   |          | (6,877   | )
|                                                          | Other                                 |   |              |         |      |   |          | (14      | )
|                                                          |                                       |   |              |          |      |   |          |          |  
|                                                          | Total deferred tax liabilities        |   |              | (109,247 | )    |   |          | (214,563 | )
|                                                          |                                       |   |              |          |      |   |          |          |  
|Net deferred tax asset (liability)                        |                                       | $ | 68,747       |          |      | $ | (10,940  | )       
|                                                          |                                       |   |              |          |      |   |          |          |  
|Current Portion of net deferred tax asset (liability)     |                                       | $ | 20,415       |          |      | $ | 25,115   |         
|Non current portion of net deferred tax asset (liability) |                                       |   | 48,332       |          |      |   | (36,055  | )       
|                                                          |                                       |   |              |          |      |   |          |          |  
|Total net deferred tax asset (liability)                  |                                       | $ | 68,747       |          |      | $ | (10,940  | )       
|                                                          |                                       |   |              |          |      |   |          |          |  

Internal Revenue Service

During 2001 the Internal Revenue Service (IRS) conducted an audit of
EchoStars consolidated federal income tax returns for the years 1997, 1998,
and 1999. As a result of this review the IRS challenged the timing of
deduction of certain subscriber acquisition costs. In July 2002, EchoStar
received notification from the IRS of their decision to allow the deduction of
the subscriber acquisition costs in accordance with EchoStars filed returns.

6. Stock Compensation Plans

Stock Incentive Plan

EchoStar has adopted stock incentive plans to provide incentive to attract
and retain officers, directors and key employees. EchoStar currently has
reserved 80 million shares of its class A common stock for granting awards

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ECHOSTAR DBS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued

under its 1995 Stock Incentive Plan and an additional 80 million shares of
its class A common stock for granting awards under its 1999 Stock Incentive
Plan. In general, stock options granted through December 31, 2002 have
included exercise prices not less than the fair market value of EchoStars
class A common stock at the date of grant, and vest, as determined by
EchoStars Board of Directors, generally at the rate of 20% per year.

During 1999, EchoStar adopted an incentive plan under its 1995 Stock
Incentive Plan, which provided certain key employees a contingent incentive
including stock options and cash. The payment of these incentives was
contingent upon the achievement of certain financial and other goals of
EchoStar. EchoStar met certain of these goals during 1999. Accordingly, in
1999, EchoStar recorded approximately $179 million of deferred compensation
related to post-grant appreciation of options to purchase approximately 4.2
million shares. The related deferred compensation, net of forfeitures, will be
recognized over the five-year vesting period. During the year ended December
31, 2000, 2001 and 2002, EchoStar recognized expense of $51 million, $20
million and $11 million, respectively, under the 1999 incentive plan. The
remaining deferred compensation of $9 million, which will be reduced by future
forfeitures, if any, will be recognized over the remaining vesting period.

EchoStar reports all non-cash compensation based on stock option
appreciation as a single expense category in our accompanying statements of
operations. The following table represents the other expense categories in our
statements of operations that would be affected if non-cash, stock-based
compensation was allocated to the same expense categories as the base
compensation for key employees who participate in the 1999 incentive plan (in
thousands):

|                                  |                                          |   |                                 |        |      |   |        |        |  |   |        |        | 
|--------------------------------- | ---------------------------------------- | - | ------------------------------- | ------ | ---- | - | ------ | ------ |  | - | ------ | ------ | 
|                                  |                                          |   | For the year ended December 31,
|                                  |                                          |   |                                
|                                  |                                          |   | 2000                            |        | 2001 |   | 2002  
|                                  |                                          |   |                                 |        |      |   |       
|Customer service center and other |                                          | $ | 1,744                           |        |      | $ | 1,767  |        |  | $ | 729    |       
|Satellite and transmission        |                                          |   | 3,061                           |        |      |   | 1,115  |        |  |   | (7     | )     
|General and administrative        |                                          |   | 46,660                          |        |      |   | 17,291 |        |  |   | 10,557 |       
|                                  |                                          |   |                                 |        |      |   |        |        |  |   |        |       
|                                  | Total non-cash, stock-based compensation |   | $                               | 51,465 |      |   | $      | 20,173 |  |   | $      | 11,279 | 
|                                  |                                          |   |                                 |        |      |   |        |        |  |   |        |       

Options to purchase an additional 9.1 million shares are outstanding as of
December 31, 2002 and were granted with exercise prices equal to the market
value of the underlying shares on the date they were issued during 1999, 2000
and 2001 pursuant to a long term incentive plan under EchoStars 1995 Stock
Incentive Plan. The weighted-average exercise price of these options is $8.96.
Vesting of these options is contingent upon meeting certain longer-term goals
which have not yet been achieved. Consequently, no compensation was recorded
during the years ended December 31, 2000, 2001 and 2002 related to these
long-term options. EchoStar will record the related compensation at the
achievement of the performance goals. Such compensation, if recorded, would
likely result in material non-cash, stock-based compensation expense in our
statements of operations.

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ECHOSTAR DBS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued

A summary of EchoStars stock option activity for the years ended December
31, 2000, 2001 and 2002 is as follows:

|                                       |  |         |            |       |  |           |       |       |  |         |            |           |  |   |       |  |  |           |             |   |  |   |       | 
|-------------------------------------- |  | ------- | ---------- | ----- |  | --------- | ----- | ----- |  | ------- | ---------- | --------- |  | - | ----- |  |  | --------- | ----------- | - |  | - | ----- | 
|                                       |  | 2000    |            | 2001  |  | 2002     
|                                       |  |         |            |       |  |          
|                                       |  |         |            |       |  | Weighted- |       |       |  |         |            | Weighted- |  |   |       |  |  | Weighted-
|                                       |  |         |            |       |  | Average   |       |       |  |         |            | Average   |  |   |       |  |  | Average  
|                                       |  |         |            |       |  | Exercise  |       |       |  |         |            | Exercise  |  |   |       |  |  | Exercise 
|                                       |  | Options |            | Price |  | Options   |       | Price |  | Options |            | Price    
|                                       |  |         |            |       |  |           |       |       |  |         |            |          
|Options outstanding, beginning
of year |  |         | 27,843,640 |       |  | $         | 6.26  |       |  |         | 25,117,893 |           |  | $ | 10.81 |  |  |           | 22,747,593  |   |  | $ | 13.18 | 
|Granted                                |  |         | 2,942,000  |       |  |           | 51.56 |       |  |         | 867,500    |           |  |   | 37.30 |  |  |           | 532,088     |   |  |   | 20.76 | 
|Exercised                              |  |         | (3,591,209 | )     |  |           | 3.05  |       |  |         | (1,579,324 | )         |  |   | 5.17  |  |  |           | (1,392,218  | ) |  |   | 5.30  | 
|Forfeited                              |  |         | (2,076,538 | )     |  |           | 20.78 |       |  |         | (1,658,476 | )         |  |   | 10.86 |  |  |           | (1,058,538  | ) |  |   | 12.20 | 
|                                       |  |         |            |       |  |           |       |       |  |         |            |           |  |   |       |  |  |           |             |   |  |   |       | 
|Options outstanding, end of year       |  |         | 25,117,893 |       |  | $         | 10.81 |       |  |         | 22,747,593 |           |  | $ | 13.18 |  |  |           | 20,828,925* |   |  |   | 13.97 | 
|                                       |  |         |            |       |  |           |       |       |  |         |            |           |  |   |       |  |  |           |             |   |  |   |       | 
|Exercisable at end of year             |  |         | 2,911,256  |       |  | $         | 5.49  |       |  |         | 4,701,357  |           |  | $ | 10.77 |  |  |           | 6,325,708   |   |  |   | 13.62 | 
|                                       |  |         |            |       |  |           |       |       |  |         |            |           |  |   |       |  |  |           |             |   |  |   |       | 

Exercise prices for options outstanding as of December 31, 2002 are as
follows:

|                    |                 |               |             |                     |            |                     |      |              |      |                |       |             |      |  |           |         |           |   |       |       |      | 
|------------------- | --------------- | ------------- | ----------- | ------------------- | ---------- | ------------------- | ---- | ------------ | ---- | -------------- | ----- | ----------- | ---- |  | --------- | ------- | --------- | - | ----- | ----- | ---- | 
|                    |                 |               |             | Options Outstanding |            | Options Exercisable
|                    |                 |               |             |                     |            |                    
|                    |                 |               |             | Number              |            | Weighted-           |      |              |      |                |       | Number      |      |  |           |        
|                    |                 |               |             | Outstanding         |            | Average             |      |              |      |                |       | Exercisable |      |  |           |        
|                    |                 |               |             | as of               |            | Remaining           |      | Weighted-    |      | as of          |       | Weighted-  
|Range of            |                 | December 31,  |             | Contractual         |            | Average             |      | December 31, |      | Average       
|Exercise Prices     |                 | 2002          |             | Life                |            | Exercise Price      |      | 2002         |      | Exercise Price
|                    |                 |               |             |                     |            |                     |      |              |      |               
|$    1.167 - $2.750 |                 |               | 2,535,376   |                     |            |                     | 3.74 |              |      | $              | 2.21  |             |      |  | 2,360,960 |         |           | $ | 2.17  |      
|                    |                 | 3.000 - 3.434 |             |                     | 103,864    |                     |      |              | 4.80 |                |       |             | 3.02 |  |           |         | 53,928    |   |       |       | 3.03 | 
|                    |                 | 5.486 - 6.600 |             |                     | 11,159,309 |                     |      |              | 6.08 |                |       |             | 6.01 |  |           |         | 1,808,805 |   |       |       | 6.02 | 
|                    | 10.203 - 19.180 |               |             | 3,109,376           |            |                     |      | 6.28         |      |                |       | 14.36       |      |  |           | 774,615 |           |   |       | 12.17 |     
|                    | 22.703 - 28.320 |               |             | 582,200             |            |                     |      | 7.96         |      |                |       | 25.12       |      |  |           | 110,000 |           |   |       | 22.97 |     
|                    | 32.420 - 39.500 |               |             | 1,796,600           |            |                     |      | 6.31         |      |                |       | 35.49       |      |  |           | 606,600 |           |   |       | 35.07 |     
|                    | 48.750 - 52.750 |               |             | 397,200             |            |                     |      | 7.12         |      |                |       | 49.37       |      |  |           | 181,600 |           |   |       | 49.01 |     
|                    | 60.125 - 79.000 |               |             | 1,145,000           |            |                     |      | 7.42         |      |                |       | 65.81       |      |  |           | 429,200 |           |   |       | 64.93 |     
|                    |                 |               |             |                     |            |                     |      |              |      |                |       |             |      |  |           |         |           |   |       |      
|$1.1667 - $79.000   |                 |               | 20,828,925* |                     |            |                     | 5.98 |              |      | $              | 13.97 |             |      |  | 6,325,708 |         |           | $ | 13.62 |      
|                    |                 |               |             |                     |            |                     |      |              |      |                |       |             |      |  |           |         |           |   |       |      



| |                                                                                                               
| | --------------------------------------------------------------------------------------------------------------
| | * These amounts include approximately 9.1 million shares outstanding
pursuant to the long term incentive plan.

7. Employee Benefit Plans

Employee Stock Purchase Plan

During 1997, the Board of Directors and shareholders approved an employee
stock purchase plan (the ESPP), effective beginning October 1, 1997. Under
the ESPP, EchoStar is authorized to issue a total of 800,000 shares of class A
common stock. Substantially all full-time employees who have been employed by
EchoStar 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 capital stock of EchoStar under all stock purchase plans
of EchoStar at a rate which would exceed $25,000 in fair market value of
capital stock in any one year. The purchase price of the stock is 85% of the
closing price of the 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. The ESPP shall terminate upon the first to
occur of (i) October 1, 2007 or (ii) the date on which the ESPP is terminated
by the Board of Directors. During 2000, 2001 and 2002 employees purchased
approximately 58,000; 80,000 and 108,000 shares of class A common stock through
the ESPP, respectively.

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ECHOSTAR DBS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued

401(k) Employee Savings Plan

EchoStar 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 EchoStar, subject to a maximum annual contribution by EchoStar
of $1,000 per employee. Matching 401(k) contributions totaled approximately
$1.6 million, $2.1 million and $2.4 million during the years ended December 31,
2000, 2001 and 2002, respectively. EchoStar also may make an annual
discretionary contribution to the plan with approval by EchoStars 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 EchoStar stock. Forfeitures of unvested participant balances which are
retained by the 401(k) Plan may be used to fund matching and discretionary
contributions. Expense recognized relating to discretionary contributions was
approximately $7 million, $225 thousand and $17 million during the years ended
December 31, 2000, 2001 and 2002, respectively.

8. Commitments and Contingencies

Leases

Future minimum lease payments under noncancelable operating leases as of
December 31, 2002, are as follows (in thousands):

|                         |            |                              |   |        |        | 
|------------------------ | ---------- | ---------------------------- | - | ------ | ------ | 
|Year ending December 31, |            |                              |   |       
|                         | 2003       |                              | $ | 17,274 |       
|                         | 2004       |                              |   | 14,424 |       
|                         | 2005       |                              |   | 11,285 |       
|                         | 2006       |                              |   | 7,698  |       
|                         | 2007       |                              |   | 3,668  |       
|                         | Thereafter |                              |   | 1,650  |       
|                         |            |                              |   |        |       
|                         |            | Total minimum lease payments |   |        | 55,999 | 
|                         |            |                              |   |        |       

Total rent expense for operating leases approximated $9 million, $14
million and $16 million in 2000, 2001 and 2002, respectively.

Purchase Commitments

As of December 31, 2002, EchoStars purchase commitments totaled
approximately $359 million. The majority of these commitments relate to
EchoStar receiver systems and related components. All of the purchases related
to these commitments are expected to be made during 2003. EchoStar expects to
finance these purchases from existing unrestricted cash balances and future
cash flows generated from operations.

Patents and Intellectual Property

Many entities, including some of EchoStars 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
EchoStar offers. EchoStar may not be aware of all patents and other
intellectual property rights that its products may potentially infringe.
Damages in patent infringement cases can include a tripling of actual damages
in certain cases. Further, EchoStar cannot estimate the extent to which it 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 EchoStars direct broadcast satellite system. EchoStar
cannot be certain that these persons do not own the rights they claim, that its
products do not infringe on these rights, that it would be able to obtain
licenses from these persons on commercially reasonable terms or, if it was
unable to obtain such licenses, that it would be able to redesign its products
to avoid infringement.

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ECHOSTAR DBS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued

Fee Dispute

EchoStar had a dispute regarding the contingent fee arrangement with the
attorneys who represented EchoStar in prior litigation with The News
Corporation, Ltd. In early July 2002, the parties resolved their dispute.

WIC Premium Television Ltd

During July 1998, a lawsuit was filed by WIC Premium Television Ltd., an
Alberta corporation, in the Federal Court of Canada Trial Division, against
General Instrument Corporation, HBO, Warner Communications, Inc., John Doe,
Showtime, United States Satellite Broadcasting Company, Inc., EchoStar, and
certain EchoStar subsidiaries.

During September 1998, WIC filed another lawsuit in the Court of Queens
Bench of Alberta Judicial District of Edmonton against certain defendants,
including EchoStar. WIC is a company authorized to broadcast certain
copyrighted work, such as movies and concerts, to residents of Canada. WIC
alleges that the defendants engaged in, promoted, and/or allowed satellite dish
equipment from the United States to be sold in Canada and to Canadian residents
and that some of the defendants allowed and profited from Canadian residents
purchasing and viewing subscription television programming that is only
authorized for viewing in the United States. The lawsuit seeks, among other
things, interim and permanent injunctions prohibiting the defendants from
importing satellite receivers into Canada and from activating satellite
receivers located in Canada to receive programming, together with damages in
excess of $175 million.

The Court in the Alberta action denied EchoStars Motion to Dismiss, and
EchoStars appeal of that decision. The Federal action has been stayed pending
the outcome of the Alberta action. EchoStar intends to continue to vigorously
defend the suit. Recently, the Supreme Court of Canada ruled that the receipt
in Canada of programming from United States pay television providers is
prohibited. While EchoStar was not a party to that case, the ruling could
aversely affect EchoStars defense. It is too early to make an assessment of
the probable outcome of the litigation or to determine the extent of any
potential liability or damages.

Distant Network Litigation

Until July 1998, EchoStar obtained feeds of distant broadcast network
channels (ABC, NBC, CBS and FOX) for distribution to its customers through
PrimeTime 24, an independent third party programming provider. In December
1998, the United States District Court for the Southern District of Florida
entered a nationwide permanent injunction requiring that provider to shut off
distant network channels to many of its customers, and henceforth to sell those
channels to consumers in accordance with certain stipulations in the
injunction.

In October 1998, EchoStar filed a declaratory judgment action against ABC,
NBC, CBS and FOX in the United States District Court for the District of
Colorado. EchoStar asked the Court to enter judgment declaring that its method
of providing distant network programming did not violate the Satellite Home
Viewer Act and hence did not infringe the networks copyrights. In November
1998, the networks and their affiliate groups filed a complaint against
EchoStar in Miami Federal Court alleging, among other things, copyright
infringement. The Court combined the case that EchoStar filed in Colorado with
the case in Miami and transferred it to the Miami Federal Court. The case
remains pending in Florida. While the networks have not sought monetary
damages, they have sought to recover attorney fees if they prevail.

In February 1999, the networks filed a Motion for Temporary Restraining
Order, Preliminary Injunction and Contempt Finding against DirecTV, Inc. in
Miami related to the delivery of distant network channels to DirecTV customers
by satellite. DirecTV settled that lawsuit with the networks. Under the terms
of the settlement between DirecTV and the networks, some DirecTV customers were
scheduled to lose access to their satellite-provided distant network channels
by July 31, 1999, while other DirecTV customers were to be disconnected by
December 31, 1999.

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ECHOSTAR DBS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued

Subsequently, substantially all providers of satellite-delivered network
programming other than EchoStar agreed to this cut-off schedule, although
EchoStar does not know if they adhered to this schedule.

In December 1998, the networks filed a Motion for Preliminary Injunction
against Echostar in the Florida case and asked the Court to enjoin EchoStar
from providing network programming except under limited circumstances. A
preliminary injunction hearing was held in September 1999. In March 2000, the
networks filed an emergency motion again asking the Court to issue an
injunction requiring EchoStar to cease providing network programming to certain
of its customers. At that time, the networks also argued that EchoStars
compliance procedures violated the Satellite Home Viewer Improvement Act, which
was passed by Congress in November 1999. EchoStar opposed the networks motion
and again asked the Court to hear live testimony before ruling upon the
networks injunction request.

During September 2000, the Court granted the networks motion for
preliminary injunction, denied the networks emergency motion, and denied
EchoStars request to present live testimony and evidence. The Courts
original order required EchoStar to terminate network programming to certain
subscribers no later than February 15, 1999, and contained other dates with
which it would be physically impossible to comply. The order imposed
restrictions on EchoStars past and future sale of distant ABC, NBC, CBS and
FOX channels similar to those imposed on PrimeTime 24 (and, EchoStar believes,
on DirecTV and others). Some of those restrictions go beyond the statutory
requirements imposed by the Satellite Home Viewer Act and the Satellite Home
Viewer Improvement Act.

Twice during October 2000, the Court amended its original preliminary
injunction order in an effort to fix some of the errors in the original order.
The twice-amended preliminary injunction order required EchoStar to shut off,
by February 15, 2001, all subscribers who were ineligible to receive distant
network programming under the Courts order. EchoStar appealed the preliminary
injunction orders. During September 2001, the United States Court of Appeals
for the Eleventh Circuit vacated the District Courts nationwide preliminary
injunction, which the Eleventh Circuit had stayed in November 2000. The
Eleventh Circuit also rejected EchoStars First Amendment challenge to the
Satellite Home Viewer Act. However, the Eleventh Circuit found that the
District Court had made factual findings that were clearly erroneous and not
supported by the evidence, and that the District Court had misinterpreted and
misapplied the law. The Eleventh Circuit issued an order during January 2002
remanding the case to the Florida District Court. During March 2002, the
Florida District Court entered an order setting the trial in the matter for
January 13, 2003 and setting a discovery and pretrial schedule. In this order,
the District Court denied certain of EchoStars outstanding motions to compel
discovery as moot and granted the networks motion to compel. The trial date
has now been moved to April 7, 2003. During April 2002, the District Court
denied the networks motion for preliminary injunction as moot. In June 2002,
EchoStar filed a counterclaim against the networks asking the District Court to
find that EchoStar is not violating the Satellite Home Viewer Act and seeking
damages resulting from the networks tortious interference with EchoStars
business relationships and from the networks conduct amounting to unfair
competition. The networks filed a motion to dismiss these claims. In August
2002, the District Court denied the networks motion to dismiss. In September
2002, the networks answered our counterclaim.

In April 2002, EchoStar reached a private settlement with ABC, Inc., one
of the plaintiffs in the litigation and jointly filed a stipulation of
dismissal. On April 16, 2002, the District Court entered an order dismissing
the claims between ABC, Inc. and EchoStar. In November 2002, EchoStar reached
a private settlement with NBC, another of the plaintiffs in the litigation and
jointly filed a stipulation of dismissal. On November 25, 2002, the District
court entered an order dismissing the claims between NBC and EchoStar. Six of
the original eight plaintiffs remain, including CBS and Fox, along with the
associations affiliated with each of the four networks. On January 28, 2003,
the parties participated in a court ordered mediation. The mediation did not
resolve the parties disputes. However, the parties agreed to continue the
mediation and participate in another mediation session.

If the District Court enters an injunction against EchoStar, the
injunction could force EchoStar to terminate delivery of distant network
channels to a substantial portion of its distant network subscriber base, which
could also cause many of these subscribers to cancel their subscription to
EchoStars other programming services. Any such terminations would result in a
small reduction in EchoStars reported average monthly revenue per subscriber
and could result in a temporary increase in churn. If EchoStar loses the case
at trial, the judge could, as one of many possible

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ECHOSTAR DBS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued

remedies, prohibit all future sales of distant network programming by
EchoStar, which would have a material adverse affect on its business.

Gemstar

During October 2000, Starsight Telecast, Inc., a subsidiary of Gemstar-TV
Guide International, Inc. (Gemstar), filed a suit for patent infringement
against EchoStar and certain of its subsidiaries in the United States District
Court for the Western District of North Carolina, Asheville Division. The suit
alleges infringement of United States Patent No. 4,706,121 (the `121 Patent)
which relates to certain electronic program guide functions. EchoStar has
examined this patent and believes that it is not infringed by any of its
products or services. This conclusion is supported by findings of the
International Trade Commission (ITC) which are discussed below. The North
Carolina case is stayed pending the appeal of the ITC action to the United
States Court of Appeals for the Federal Circuit.

In December 2000, EchoStar filed suit against Gemstar-TV Guide (and
certain of its subsidiaries) in the United States District Court for the
District of Colorado alleging violations by Gemstar of various federal and
state anti-trust laws and laws governing unfair competition. The lawsuit seeks
an injunction and monetary damages. Gemstar filed counterclaims alleging
infringement of United States Patent Nos. 5,923,362 and 5,684,525 that relate
to certain electronic program guide functions. EchoStar examined these patents
and believe they are not infringed by any of its products or services. In
August 2001, the Federal Multi-District Litigation panel combined this suit,
for pre-trial purposes, with other lawsuits asserting antitrust claims against
Gemstar, which had previously been filed by other parties. In January 2002,
Gemstar dropped the counterclaims of patent infringement. During March 2002,
the Court denied Gemstars Motion to Dismiss EchoStars antitrust claims. A
more recently filed motion for summary judgment based generally on lack of
standing has also been denied. In its answer, Gemstar asserted new patent
infringement counterclaims regarding United States Patent Nos. 4,908,713 and
5,915,068 (which is expired). These patents relate to onscreen programming of
VCRs. EchoStar has examined these patents and believes that they are not
infringed by any of its products or services.

In February 2001, Gemstar filed patent infringement actions against
EchoStar in the District Court in Atlanta, Georgia and with the ITC. These
suits allege infringement of United States Patent Nos. 5,252,066, 5,479,268 and
5,809,204, all of which relate to certain electronic program guide functions.
In addition, the ITC action alleges infringement of the `121 Patent which is
asserted in the North Carolina case previously discussed. In the Georgia
district court case, Gemstar seeks damages and an injunction. The Georgia case
was stayed pending resolution of the ITC action and remains stayed at this
time. In December 2001, the ITC held a 15-day hearing before an administrative
law judge. Prior to the hearing, Gemstar dropped its allegations regarding
United States Patent No. 5,252,066 with respect to which EchoStar had asserted
substantial allegations of inequitable conduct. The hearing addressed, among
other things, Gemstars allegations of patent infringement and respondents
(SCI, Scientific Atlanta, Pioneer and EchoStar) allegations of patent misuse.
During June 2002, the judge issued a Final Initial Determination finding that
none of the patents asserted by Gemstar had been infringed. In addition, the
judge found that Gemstar was guilty of patent misuse with respect to the `121
Patent and that the `121 Patent was unenforceable because it failed to name an
inventor. The parties then filed petitions for the full ITC to review the
judges Final Initial Determination. During August 2002, the full ITC adopted
the Judges findings regarding non-infringement and the unenforceability of the
`121 Patent. The ITC did not adopt, but did not overturn, the Judges findings
of patent misuse. Gemstar is appealing the decision of the ITC to the United
States Court of Appeals for the Federal Circuit. If the Federal Circuit were
to overturn the Judges decision, such an adverse decision in this case could
temporarily halt the import of EchoStar receivers and could require EchoStar to
materially modify certain user-friendly electronic programming guides and
related features it currently offer to consumers. Based upon EchoStars review
of these patents, and based upon the ITCs decision, EchoStar continues to
believe that these patents are not infringed by any of its products or
services. EchoStar intends to continue to vigorously contest the ITC, North
Carolina and Georgia suits and will, among other things, continue to challenge
both the validity and enforceability of the asserted patents.

During 2000, Superguide Corp. (Superguide) also filed suit against
EchoStar, DirecTV and others in the United States District Court for the
Western District of North Carolina, Asheville Division, alleging infringement
of

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ECHOSTAR DBS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued

United States Patent Nos. 5,038,211, 5,293,357 and 4,751,578 which relate
to certain electronic program guide functions, including the use of electronic
program guides to control VCRs. Superguide sought injunctive and declaratory
relief and damages in an unspecified amount. It is EchoStars understanding
that these patents may be licensed by Superguide to Gemstar. Gemstar was added
as a party to this case and asserted these patents against EchoStar. EchoStar
has examined these patents and believes that they are not infringed by any of
its products or services. A Markman ruling interpreting the patent claims was
issued by the Court and in response to that ruling EchoStar filed motions for
summary judgment of non-infringement for each of the asserted patents. Gemstar
filed a motion for summary judgment of infringement with respect to one of the
patents. During July 2002, the Court issued a Memorandum of Opinion on the
summary judgment motions. In its Opinion, the Court ruled that none of
EchoStars products infringe the 5,038,211 and 5,293,357 patents. With respect
to the 4,751,578 patent, the Court ruled that none of EchoStars current
products infringed that patent and asked for additional information before it
could rule on certain low-volume products that are no longer in production.
During July 2002, the Court summarily ruled that the aforementioned low-volume
products did not infringe any of the asserted patents. Accordingly, the Court
dismissed the case and awarded EchoStar its court costs. Superguide and
Gemstar are appealing this case to the United States Court of Appeals for the
Federal Circuit. EchoStar will continue to vigorously defend this case. In
the event the Federal Circuit ultimately determines that EchoStar infringes on
any of the aforementioned patents, EchoStar may be subject to substantial
damages, which may include treble damages and/or an injunction that could
require EchoStar to materially modify certain user-friendly electronic
programming guide and related features that EchoStar currently offers to
consumers. It is too early to make an assessment of the probable outcome of
the suits.

California Actions

A purported class action was filed against EchoStar in the California
State Superior Court for Alameda County during May 2001 by Andrew A. Werby.
The complaint, relating to late fees, alleges unlawful, unfair and fraudulent
business practices in violation of California Business and Professions Code
Section 17200 et seq., false and misleading advertising in violation of
California Business and Professions Code Section 17500, and violation of the
California Consumer Legal Remedies Act. During September 2001, EchoStar filed
an answer denying all material allegations of the complaint, and the Court
entered an Order Pursuant to Stipulation for a provisional certification of the
class, for an orderly exchange of information and for mediation. The
provisional Order specifies that the class will be de-certified upon notice if
mediation does not resolve the dispute. A settlement has been reached with
plaintiffs counsel and the Court issued its preliminary approval of the
settlement on October 18, 2002. The Court issued final approval
on March 7, 2003. The Judgment Pursuant to Stipulation is
effective March 12, 2003. As a result, this matter is concluded.

A purported class action relating to the use of terms such as crystal
clear digital video, CD-quality audio, and on-screen program guide, and
with respect to the number of channels available in various programming
packages was also filed against EchoStar in the California State Superior Court
for Los Angeles County in 1999 by David Pritikin and by Consumer Advocates, a
nonprofit unincorporated association. The complaint alleges breach of express
warranty and violation of the California Consumer Legal Remedies Act, Civil
Code Sections 1750, et seq., and the California Business & Professions Code
Sections 17500 & 17200. A hearing on the plaintiffs Motion for Class
Certification and EchoStars Motion for Summary Judgment was held during June
2002. At the hearing, the Court issued a preliminary ruling denying the
plaintiffs Motion for Class Certification. However, before issuing a final
ruling on Class Certification, the Court granted EchoStars Motion for Summary
Judgment with respect to all of the plaintiffs claims. Subsequently, EchoStar
filed a Motion for Attorneys Fees which was denied by the Court. The
Plaintiffs filed a Notice of Appeal of the Courts Granting of EchoStars
Motion for Summary Judgment and EchoStar Cross-Appealed the Courts ruling on
EchoStars Motion for Attorneys Fees. It is not possible to make a firm
assessment of the probable outcome of the appeal or to determine the extent of
any potential liability or damages.

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ECHOSTAR DBS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued

State Investigation

During April 2002, two state attorneys general commenced a civil
investigation concerning certain of EchoStars business practices. Over the
course of the next six months, 11 additional states ultimately joined the
investigation. The states allege failure to comply with consumer protection
laws based on EchoStars call response times and policies, advertising and
customer agreement disclosures, policies for handling consumer complaints,
issuing rebates and refunds and charging cancellation fees to consumers, and
other matters. EchoStar has cooperated fully in the investigation and is
currently in settlement discussions with the states. It is not possible to
determine the extent of any damages or injunctive relief which could result in
the event a settlement is not reached.

Retailer Class Actions

EchoStar has been sued by retailers in three separate purported class
actions. During October 2000, two separate lawsuits were filed in the Arapahoe
County District Court in the State of Colorado and the United States District
Court for the District of Colorado, respectively, by Air Communication &
Satellite, Inc. and John DeJong, et al. on behalf of themselves and a class of
persons similarly situated. The plaintiffs are attempting to certify
nationwide classes on behalf of certain of EchoStars satellite hardware
retailers. The plaintiffs are requesting the Courts to declare certain
provisions of, and changes to, alleged agreements between EchoStar and the
retailers invalid and unenforceable, and to award damages for lost incentives
and payments, charge backs, and other compensation. EchoStar intends to
vigorously defend against the suits and to assert a variety of counterclaims.
The United States District Court for the District of Colorado stayed the
Federal Court action to allow the parties to pursue a comprehensive
adjudication of their dispute in the Arapahoe County State Court. John DeJong,
d/b/a Nexwave, and Joseph Kelley, d/b/a Keltronics, subsequently intervened in
the Arapahoe County Court action as plaintiffs and proposed class
representatives. EchoStar has filed a Motion for Summary Judgment on all counts
and against all plaintiffs. The plaintiffs have filed a Motion for Additional
Time to Conduct Discovery to enable them to respond to EchoStars motion. The
Court has not ruled on either of the two motions. It is too early to make an
assessment of the probable outcome of the litigation or to determine the extent
of any potential liability or damages.

Satellite Dealers Supply, Inc. (SDS) filed a lawsuit in the United
States District Court for the Eastern District of Texas during September 2000,
on behalf of itself and a class of persons similarly situated. The plaintiff
was attempting to certify a nationwide class on behalf of sellers, installers,
and servicers of satellite equipment who contract with EchoStar and who allege
that EchoStar: (1) charged back certain fees paid by members of the class to
professional installers in violation of contractual terms; (2) manipulated the
accounts of subscribers to deny payments to class members; and (3)
misrepresented, to class members, who owns certain equipment related to the
provision of satellite television service. During September 2001, the Court
granted EchoStars Motion to Dismiss for Lack of Personal Jurisdiction. The
plaintiff moved for reconsideration of the Courts order dismissing the case.
The Court denied the Plaintiffs Motion for Reconsideration. The trial court
denied EchoStars Motions for Sanctions against SDS. Both parties have now
perfected appeals before the Fifth Circuit Court of Appeals. It is not possible
to make a firm assessment of the probable outcome of the appeal or to determine
the extent of any potential liability or damages.

PrimeTime 24 Joint Venture

PrimeTime 24 Joint Venture (PrimeTime 24) filed suit against EchoStar
during September 1998 seeking damages in excess of $10 million and alleging
breach of contract, wrongful termination of contract, interference with
contractual relations, trademark infringement and unfair competition. EchoStar
denied all of PrimeTime 24s allegations and asserted various counterclaims.
EchoStar has reached a settlement agreement with PrimeTime 24 pursuant to which
the parties agreed to release all parties from any liability and dismiss the
case with prejudice. The settlement amount was not material.

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ECHOSTAR DBS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued

StarBand Shareholder Lawsuit

On August 20, 2002, a shareholder in StarBand filed an action in the
Delaware Court of Chancery against EchoStar and EchoBand Corporation, together
with four EchoStar executives who sat on the Board of Directors for StarBand,
for alleged breach of the fiduciary duties of due care, good faith and loyalty,
and also against EchoStar and EchoBand Corporation for aiding and abetting such
alleged breaches. Two of the individual defendants, Charles W. Ergen and David
K. Moskowitz, are members of the Board of Directors of EchoStar. The action
stems from the defendants involvement as directors, and EchoBands position as
a shareholder, in StarBand, a broadband Internet satellite venture that is
currently in bankruptcy. Plaintiffs allege that the defendants conspired to
ensure StarBands failure in order to guarantee that EchoStars then-pending
merger with Hughes would be successful. Plaintiffs seek an accounting of
damages for their $25 million investment in StarBand in addition to costs and
disbursements. Defendants deny the allegations in the complaint and intend to
defend the litigation vigorously. During October 2002, EchoStar, along with
the other defendants, filed a motion to dismiss the complaint in its entirety
based on lack of personal jurisdiction. These motions have been briefed and
oral argument has been set by the Court for March 18, 2003. It is too early to
make an assessment of the probable outcome of the litigation or to determine
the extent of any potential liability or damages.

Merger Related Proceedings

On October 24, 2002, a purported shareholder filed a Shareholders
Derivative Action against EchoStar and the current members of its Board of
Directors and named EchoStar as a nominal defendant. The Plaintiff filed the
action in the United States District Court of Clark County, Nevada. The
complaint alleges breach of fiduciary duties, corporate waste and other
unlawful acts relating to EchoStars agreement to (1) pay Hughes Electronics
Corporation a $600 million termination fee in certain circumstances and (2)
acquire Hughes shareholder interest in PanAmSat at a premium rate. The
agreements to pay the termination fee and acquire PanAmSat were required in the
event that the merger with DirecTV was not completed by January 21, 2003. No
answer is due from the defendants, and all parties have entered into a
stipulation allowing the defendants to answer only subject to 30-day notice
from the plaintiff. EchoStar and the individual defendants intend to deny all
liability and to defend this action vigorously. The Plaintiff filed a Motion for an Award of Attorneys Fees and Request for
Dismissal and Defendants filed a Motion to Strike Plaintiffs Request for Attorneys Fees and
to conduct discovery. Both motions are set to be heard by the Court on March
24, 2003 in chambers without the presence of counsel. It is too early to make
an assessment of the probable outcome of the litigation or to determine the
extent of any potential liability or damages.

EchoStar is subject to various other legal proceedings and claims which
arise in the ordinary course of business. In the opinion of management, the
amount of ultimate liability with respect to any of those actions will not
materially affect EchoStars financial position or results of operations.

Meteoroid Events

Meteoroid events pose a potential threat to all in orbit geosynchronous
satellites including EchoStars DBS satellites. While the probability that
EchoStars satellites will be damaged by meteoroids is very small, that
probability increases significantly when the Earth passes through the
particulate stream left behind by various comets.

Occasionally, increased solar activity poses a potential threat to all
in-orbit geosynchronous satellites including EchoStars DBS satellites. The
probability that the effects from this activity will damage our satellites or
cause service interruptions is generally very small.

Some decommissioned spacecraft are in uncontrolled orbits which pass
through the geostationary belt at various points, and present hazards to
operational spacecraft including EchoStars DBS satellites. The locations of
these hazards are generally well known and may require EchoStar to perform
maneuvers to avoid collisions.

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##### Table of Contents



ECHOSTAR DBS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued

9. Financial Information for Subsidiary Guarantors

With the exception of certain de minimis domestic and foreign subsidiaries
(collectively, the Non-Guarantors), the 9 1/4% Seven Year Notes and 9 3/8%
Ten Year Notes are fully, unconditionally and jointly and severally guaranteed
by all subsidiaries of EDBS (collectively, the Subsidiary Guarantors).

The combined assets, stockholders equity, net loss and operating cash
flows of the Non-Guarantors represent less than 1% of the combined and
consolidated assets, stockholders equity, net loss and operating cash flows of
the combined Subsidiary Guarantors for the years ended
December 31, 2000, 2001 and 2002. As a result, the Subsidiary Guarantors and Non-Guarantors are
combined in the following tables. Consolidating financial information is
presented for the following entities (in thousands):

|                                                                
|----------------------------------------------------------------
|EDBS Parent Company Only (referred to as EDBS  PC)           
|Subsidiary Guarantors and Other Subsidiaries                    
|Consolidating and Eliminating Adjustments (referred to as C&E)
|Consolidated EDBS (referred to as EDBS)                       

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##### Table of Contents



ECHOSTAR DBS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued

Consolidating Balance Sheets  As of December 31, 2001

|                                                    |                                                                                      |                   |            |            |           |       |           |                |           |      |          |            |          |   |            |            |           | 
|--------------------------------------------------- | ------------------------------------------------------------------------------------ | ----------------- | ---------- | ---------- | --------- | ----- | --------- | -------------- | --------- | ---- | -------- | ---------- | -------- | - | ---------- | ---------- | --------- | 
|                                                    |                                                                                      |                   |            |            |           |       |           | Subsidiary     |           |      |          |            |          |   |            |           
|                                                    |                                                                                      |                   |            |            |           |       |           | Guarantors and |           |      |          |            |          |   |            |           
|                                                    |                                                                                      |                   |            | EDBS - PC  |           | Other |           | C&E            |           | EDBS
|                                                    |                                                                                      |                   |            |            |           |       |           |                |           |     
|Assets                                              |                                                                                      |                   |            |            |           |       |           |                |           |      |          |            |          |   |            |           
|Current Assets:                                     |                                                                                      |                   |            |            |           |       |           |                |           |      |          |            |          |   |            |           
|                                                    | Cash and cash equivalents                                                            |                   | $          | 36,253     |           |       | $         | 2,799          |           |      | $        |           |          |   | $          | 39,052     |          
|                                                    | Marketable investment securities                                                     |                   |            | 89,019     |           |       |           |               |           |      |          |           |          |   |            | 89,019     |          
|                                                    | Trade accounts receivable, net of allowance for
uncollectible accounts of $8,848     |                   |            |           |           |       |           | 313,580        |           |      |          |           |          |   |            | 313,580    |          
|                                                    | Insurance receivable                                                                 |                   |            | 106,000    |           |       |           |               |           |      |          |           |          |   |            | 106,000    |          
|                                                    | Inventories                                                                          |                   |            |           |           |       |           | 189,665        |           |      |          |           |          |   |            | 189,665    |          
|                                                    | Other current assets                                                                 |                   |            | (21        | )         |       |           | 38,284         |           |      |          |           |          |   |            | 38,263     |          
|                                                    |                                                                                      |                   |            |            |           |       |           |                |           |      |          |            |          |   |            |            |          
|Total current assets                                |                                                                                      |                   | 231,251    |            |           |       | 544,328   |                |           |      |         |            |          |   | 775,579    |           
|Cash reserved for satellite insurance               |                                                                                      |                   | 122,068    |            |           |       |          |                |           |      |         |            |          |   | 122,068    |           
|Property and equipment, net                         |                                                                                      |                   |           |            |           |       | 1,502,221 |                |           |      |         |            |          |   | 1,502,221  |           
|FCC authorizations, net                             |                                                                                      |                   |           |            |           |       | 696,242   |                |           |      |         |            |          |   | 696,242    |           
|Investment in subsidiaries                          |                                                                                      |                   | 457,358    |            |           |       | 189       |                |           |      | (457,547 | )          |          |   |           |           
|Other noncurrent assets                             |                                                                                      |                   | 40,948     |            |           |       | 50,681    |                |           |      |         |            |          |   | 91,629     |           
|                                                    |                                                                                      |                   |            |            |           |       |           |                |           |      |          |            |          |   |            |           
|                                                    |                                                                                      | Total assets      |            | $          | 851,625   |       |           | $              | 2,793,661 |      |          | $          | (457,547 | ) |            | $          | 3,187,739 | 
|                                                    |                                                                                      |                   |            |            |           |       |           |                |           |      |          |            |          |   |            |           
|Liabilities and Stockholders Equity (Deficit)      |                                                                                      |                   |            |            |           |       |           |                |           |      |          |            |          |   |            |           
|Current Liabilities:                                |                                                                                      |                   |            |            |           |       |           |                |           |      |          |            |          |   |            |           
|                                                    | Trade accounts payable                                                               |                   | $          |           |           |       | $         | 203,685        |           |      | $        |           |          |   | $          | 203,685    |          
|                                                    | Deferred revenue                                                                     |                   |            |           |           |       |           | 356,903        |           |      |          |           |          |   |            | 356,903    |          
|                                                    | Accrued expenses                                                                     |                   |            | 83,966     |           |       |           | 681,212        |           |      |          |           |          |   |            | 765,178    |          
|                                                    | Advances (to) from affiliates, net                                                   |                   |            | (972,781   | )         |       |           | 972,839        |           |      |          |           |          |   |            | 58         |          
|                                                    | Current portion of long-term debt                                                    |                   |            |           |           |       |           | 13,444         |           |      |          |           |          |   |            | 13,444     |          
|                                                    |                                                                                      |                   |            |            |           |       |           |                |           |      |          |            |          |   |            |            |          
|Total current liabilities                           |                                                                                      |                   | (888,815   | )          |           |       | 2,228,083 |                |           |      |         |            |          |   | 1,339,268  |           
|Long-term obligations, net of current portion:      |                                                                                      |                   |            |            |           |       |           |                |           |      |          |            |          |   |            |           
|                                                    | 9 1/4% Seven Year Notes                                                              |                   |            | 375,000    |           |       |           |               |           |      |          |           |          |   |            | 375,000    |          
|                                                    | 9 3/8% Ten Year Notes                                                                |                   |            | 1,625,000  |           |       |           |               |           |      |          |           |          |   |            | 1,625,000  |          
|                                                    | 10 3/8% Seven Year Notes                                                             |                   |            | 1,000,000  |           |       |           |               |           |      |          |           |          |   |            | 1,000,000  |          
|                                                    | 9 1/8% Seven Year Notes                                                              |                   |            | 700,000    |           |       |           |               |           |      |          |           |          |   |            | 700,000    |          
|                                                    | Mortgages and other notes payable, net of current
portion                            |                   |            |           |           |       |           | 5,577          |           |      |          |           |          |   |            | 5,577      |          
|                                                    | Long-term deferred distribution and carriage
revenue and other long-term liabilities |                   |            |           |           |       |           | 102,454        |           |      |          |           |          |   |            | 102,454    |          
|                                                    |                                                                                      |                   |            |            |           |       |           |                |           |      |          |            |          |   |            |            |          
|Total long-term obligations, net of current portion |                                                                                      |                   | 3,700,000  |            |           |       | 108,031   |                |           |      |         |            |          |   | 3,808,031  |           
|                                                    |                                                                                      |                   |            |            |           |       |           |                |           |      |          |            |          |   |            |            |          
|                                                    |                                                                                      | Total liabilities |            |            | 2,811,185 |       |           |                | 2,336,114 |      |          |            |         |   |            |            | 5,147,299 | 
|Stockholders Equity (Deficit):                     |                                                                                      |                   |            |            |           |       |           |                |           |      |          |            |          |   |            |           
|                                                    | Common Stock, $.01 par value, 3,000 shares
authorized, issued and outstanding        |                   |            |           |           |       |           | 14,379         |           |      |          | (14,379    | )        |   |            |           |          
|                                                    | Additional paid-in capital                                                           |                   |            | 435,590    |           |       |           | 1,454,087      |           |      |          | (1,454,087 | )        |   |            | 435,590    |          
|                                                    | Deferred stock-based compensation                                                    |                   |            | (25,456    | )         |       |           | (25,456        | )         |      |          | 25,456     |          |   |            | (25,456    | )        
|                                                    | Accumulated other comprehensive loss                                                 |                   |            | (642       | )         |       |           |               |           |      |          |           |          |   |            | (642       | )        
|                                                    | Accumulated deficit                                                                  |                   |            | (2,369,052 | )         |       |           | (985,463       | )         |      |          | 985,463    |          |   |            | (2,369,052 | )        
|                                                    |                                                                                      |                   |            |            |           |       |           |                |           |      |          |            |          |   |            |            |          
|Total stockholders equity (deficit)                |                                                                                      |                   | (1,959,560 | )          |           |       | 457,547   |                |           |      | (457,547 | )          |          |   | (1,959,560 | )         
|                                                    |                                                                                      |                   |            |            |           |       |           |                |           |      |          |            |          |   |            |            |          
|                                                    | Total liabilities and stockholders equity (deficit)                                 |                   | $          | 851,625    |           |       | $         | 2,793,661      |           |      | $        | (457,547   | )        |   | $          | 3,187,739  |          
|                                                    |                                                                                      |                   |            |            |           |       |           |                |           |      |          |            |          |   |            |            |          

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##### Table of Contents



ECHOSTAR DBS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued

Consolidating Balance Sheets  As of December 31, 2002

|                                                    |                                                                                      |                                                      |            |            |           |       |           |                |           |      |            |            |            |   |            |            |           | 
|--------------------------------------------------- | ------------------------------------------------------------------------------------ | ---------------------------------------------------- | ---------- | ---------- | --------- | ----- | --------- | -------------- | --------- | ---- | ---------- | ---------- | ---------- | - | ---------- | ---------- | --------- | 
|                                                    |                                                                                      |                                                      |            |            |           |       |           | Subsidiary     |           |      |            |            |            |   |            |           
|                                                    |                                                                                      |                                                      |            |            |           |       |           | Guarantors and |           |      |            |            |            |   |            |           
|                                                    |                                                                                      |                                                      |            | EDBS - PC  |           | Other |           | C&E            |           | EDBS
|                                                    |                                                                                      |                                                      |            |            |           |       |           |                |           |     
|Assets                                              |                                                                                      |                                                      |            |            |           |       |           |                |           |      |            |            |            |   |            |           
|Current Assets:                                     |                                                                                      |                                                      |            |            |           |       |           |                |           |      |            |            |            |   |            |           
|                                                    | Cash and cash equivalents                                                            |                                                      | $          | 259,784    |           |       | $         | 7,908          |           |      | $          |           |            |   | $          | 267,692    |          
|                                                    | Marketable investment securities                                                     |                                                      |            | 277,260    |           |       |           |               |           |      |            |           |            |   |            | 277,260    |          
|                                                    | Trade accounts receivable, net of allowance for
uncollectible accounts of $9,276     |                                                      |            |           |           |       |           | 325,928        |           |      |            |           |            |   |            | 325,928    |          
|                                                    | Insurance receivable                                                                 |                                                      |            | 106,000    |           |       |           |               |           |      |            |           |            |   |            | 106,000    |          
|                                                    | Inventories                                                                          |                                                      |            |           |           |       |           | 149,611        |           |      |            |           |            |   |            | 149,611    |          
|                                                    | Other current assets                                                                 |                                                      |            | 16,923     |           |       |           | 412            |           |      |            |           |            |   |            | 17,335     |          
|                                                    |                                                                                      |                                                      |            |            |           |       |           |                |           |      |            |            |            |   |            |            |          
|Total current assets                                |                                                                                      |                                                      | 659,967    |            |           |       | 483,859   |                |           |      |           |            |            |   | 1,143,826  |           
|Restricted Cash                                     |                                                                                      |                                                      |           |            |           |       | 10        |                |           |      |           |            |            |   | 10         |           
|Cash reserved for satellite insurance               |                                                                                      |                                                      | 151,372    |            |           |       |          |                |           |      |           |            |            |   | 151,372    |           
|Property and equipment, net                         |                                                                                      |                                                      |           |            |           |       | 1,831,139 |                |           |      |           |            |            |   | 1,831,139  |           
|FCC authorizations, net                             |                                                                                      |                                                      |           |            |           |       | 696,242   |                |           |      |           |            |            |   | 696,242    |           
|Investment in subsidiaries                          |                                                                                      |                                                      | 1,263,811  |            |           |       | 189       |                |           |      | (1,264,000 | )          |            |   |           |           
|Other noncurrent assets                             |                                                                                      |                                                      | (11,236    | )          |           |       | 49,728    |                |           |      |           |            |            |   | 38,492     |           
|                                                    |                                                                                      |                                                      |            |            |           |       |           |                |           |      |            |            |            |   |            |           
|                                                    |                                                                                      | Total assets                                         |            | $          | 2,063,914 |       |           | $              | 3,061,167 |      |            | $          | (1,264,000 | ) |            | $          | 3,861,081 | 
|                                                    |                                                                                      |                                                      |            |            |           |       |           |                |           |      |            |            |            |   |            |           
|Liabilities and Stockholders Equity (Deficit)      |                                                                                      |                                                      |            |            |           |       |           |                |           |      |            |            |            |   |            |           
|Current Liabilities:                                |                                                                                      |                                                      |            |            |           |       |           |                |           |      |            |            |            |   |            |           
|                                                    | Trade accounts payable                                                               |                                                      | $          | 15,273     |           |       | $         | 231,041        |           |      | $          |           |            |   | $          | 246,314    |          
|                                                    | Deferred revenue                                                                     |                                                      |            |           |           |       |           | 440,678        |           |      |            |           |            |   |            | 440,678    |          
|                                                    | Accrued expenses                                                                     |                                                      |            | 134,545    |           |       |           | 717,954        |           |      |            |           |            |   |            | 852,499    |          
|                                                    | Advances (to) from affiliates, net                                                   |                                                      |            | (280,362   | )         |       |           | 280,362        |           |      |            |           |            |   |            |           |          
|                                                    | Current portion of long-term debt                                                    |                                                      |            |           |           |       |           | 13,262         |           |      |            |           |            |   |            | 13,262     |          
|                                                    |                                                                                      |                                                      |            |            |           |       |           |                |           |      |            |            |            |   |            |           
|Total current liabilities                           |                                                                                      |                                                      | (130,544   | )          |           |       | 1,683,297 |                |           |      |           |            |            |   | 1,552,753  |           
|Long-term obligations, net of current portion:      |                                                                                      |                                                      |            |            |           |       |           |                |           |      |            |            |            |   |            |           
|                                                    | 9 1/4% Seven Year Notes                                                              |                                                      |            | 375,000    |           |       |           |               |           |      |            |           |            |   |            | 375,000    |          
|                                                    | 9 3/8% Ten Year Notes                                                                |                                                      |            | 1,625,000  |           |       |           |               |           |      |            |           |            |   |            | 1,625,000  |          
|                                                    | 10 3/8% Seven Year Notes                                                             |                                                      |            | 1,000,000  |           |       |           |               |           |      |            |           |            |   |            | 1,000,000  |          
|                                                    | 9 1/8% Seven Year Notes                                                              |                                                      |            | 700,000    |           |       |           |               |           |      |            |           |            |   |            | 700,000    |          
|                                                    | Mortgages and other notes payable, net of current
portion                            |                                                      |            |           |           |       |           | 32,680         |           |      |            |           |            |   |            | 32,680     |          
|                                                    | Long-term deferred distribution and carriage revenue
and other long-term liabilities |                                                      |            | 10,092     |           |       |           | 81,190         |           |      |            |           |            |   |            | 91,282     |          
|                                                    |                                                                                      |                                                      |            |            |           |       |           |                |           |      |            |            |            |   |            |            |          
|Total long-term obligations, net of current portion |                                                                                      |                                                      | 3,710,092  |            |           |       | 113,870   |                |           |      |           |            |            |   | 3,823,962  |           
|                                                    |                                                                                      |                                                      |            |            |           |       |           |                |           |      |            |            |            |   |            |            |          
|                                                    |                                                                                      | Total liabilities                                    |            |            | 3,579,548 |       |           |                | 1,797,167 |      |            |            |           |   |            |            | 5,376,715 | 
|Stockholders Equity (Deficit):                     |                                                                                      |                                                      |            |            |           |       |           |                |           |      |            |            |            |   |            |           
|                                                    | Common Stock, $.01 par value, 3,000 shares authorized,
issued and outstanding        |                                                      |            |           |           |       |           | 14,368         |           |      |            | (14,368    | )          |   |            |           |          
|                                                    | Additional paid-in capital                                                           |                                                      |            | 843,198    |           |       |           | 1,788,334      |           |      |            | (1,788,334 | )          |   |            | 843,198    |          
|                                                    | Deferred stock-based compensation                                                    |                                                      |            | (8,657     | )         |       |           | (8,657         | )         |      |            | 8,657      |            |   |            | (8,657     | )        
|                                                    | Accumulated other comprehensive loss                                                 |                                                      |            | 697        |           |       |           |               |           |      |            |           |            |   |            | 697        |          
|                                                    | Accumulated deficit                                                                  |                                                      |            | (2,350,872 | )         |       |           | (530,045       | )         |      |            | 530,045    |            |   |            | (2,350,872 | )        
|                                                    |                                                                                      |                                                      |            |            |           |       |           |                |           |      |            |            |            |   |            |            |          
|Total stockholders equity (deficit)                |                                                                                      |                                                      | (1,515,634 | )          |           |       | 1,264,000 |                |           |      | (1,264,000 | )          |            |   | (1,515,634 | )         
|                                                    |                                                                                      |                                                      |            |            |           |       |           |                |           |      |            |            |            |   |            |            |          
|                                                    |                                                                                      | Total liabilities and stockholders equity (deficit) |            | $          | 2,063,914 |       |           | $              | 3,061,167 |      |            | $          | (1,264,000 | ) |            | $          | 3,861,081 | 
|                                                    |                                                                                      |                                                      |            |            |           |       |           |                |           |      |            |            |            |   |            |            |          

F-38



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##### Table of Contents



ECHOSTAR DBS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued

Consolidating Statements of Operations  Year Ended December 31, 2000

|                             |                                                                                                 |                                                                                       |                                   |     |           |   |           |         |                |           |         |     |         |      |           |         |           |           | 
|---------------------------- | ----------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------- | --------------------------------- | --- | --------- | - | --------- | ------- | -------------- | --------- | ------- | --- | ------- | ---- | --------- | ------- | --------- | --------- | 
|                             |                                                                                                 |                                                                                       |                                   |     |           |   |           |         | Subsidiary     |           |         |     |         |      |           |         |          
|                             |                                                                                                 |                                                                                       |                                   |     |           |   |           |         | Guarantors and |           |         |     |         |      |           |         |          
|                             |                                                                                                 |                                                                                       |                                   |     | EDBS - PC |   | Other     |         | C&E            |           | EDBS   
|                             |                                                                                                 |                                                                                       |                                   |     |           |   |           |         |                |           |        
|Revenue:                     |                                                                                                 |                                                                                       |                                   |     |           |   |           |         |                |           |         |     |         |      |           |        
|                             |                                                                                                 | DISH Network:                                                                         |                                   |     |           |   |           |         |                |           |         |     |         |      |           |         |           |          
|                             |                                                                                                 |                                                                                       | Subscription television services  |     | $         |  |           |         | $              | 2,342,358 |         |     | $       |     |           |         | $         | 2,342,358 | 
|                             |                                                                                                 |                                                                                       | Other                             |     |           |  |           |         |                | 8,663     |         |     |         | (181 | )         |         |           | 8,482     | 
|                             |                                                                                                 |                                                                                       |                                   |     |           |   |           |         |                |           |         |     |         |      |           |         |           |           | 
|                             |                                                                                                 | Total DISH Network                                                                    |                                   |     |          |   |           |         | 2,351,021      |           |         |     | (181    | )    |           |         | 2,350,840 |          
|                             |                                                                                                 | DTH equipment sales                                                                   |                                   |     |          |   |           |         | 255,936        |           |         |     | (11     | )    |           |         | 255,925   |          
|                             |                                                                                                 | Other                                                                                 |                                   |     |          |   |           |         | 102,149        |           |         |     |        |      |           |         | 102,149   |          
|                             |                                                                                                 |                                                                                       |                                   |     |           |   |           |         |                |           |         |     |         |      |           |         |           |           | 
|Total revenue                |                                                                                                 |                                                                                       |                                  |     |           |   | 2,709,106 |         |                |           | (192    | )   |         |      | 2,708,914 |        
|Costs and Expenses:          |                                                                                                 |                                                                                       |                                   |     |           |   |           |         |                |           |         |     |         |      |           |        
|                             |                                                                                                 | DISH Network Operating Expenses:                                                      |                                   |     |           |   |           |         |                |           |         |     |         |      |           |         |           |          
|                             |                                                                                                 |                                                                                       | Subscriber-related expenses       |     |           |  |           |         |                | 981,403   |         |     |         |     |           |         |           | 981,403   | 
|                             |                                                                                                 |                                                                                       | Customer service center and other |     |           |  |           |         |                | 250,854   |         |     |         | (182 | )         |         |           | 250,672   | 
|                             |                                                                                                 |                                                                                       | Satellite and transmission        |     |           |  |           |         |                | 36,178    |         |     |         |     |           |         |           | 36,178    | 
|                             |                                                                                                 |                                                                                       |                                   |     |           |   |           |         |                |           |         |     |         |      |           |         |           |           | 
|                             |                                                                                                 | Total DISH Network operating expenses
(exclusive of depreciation shown
below  Note 3 |                                   |     |          |   |           |         | 1,268,435      |           |         |     | (182    | )    |           |         | 1,268,253 |          
|                             | Cost of sales  DTH equipment                                                                   |                                                                                       |                                   | 300 |           |   |           | 196,606 |                |           |         | 2   |         |      |           | 196,908 |          
|                             | Cost of sales  other                                                                           |                                                                                       |                                   |    |           |   |           | 32,978  |                |           |         |    |         |      |           | 32,978  |          
|                             | Cost of sales  subscriber promotion
subsidies (exclusive of depreciation
shown below  Note 3) |                                                                                       |                                   |    |           |   |           | 747,020 |                |           |         |    |         |      |           | 747,020 |          
|                             | Other subscriber promotion subsidies                                                            |                                                                                       |                                   |    |           |   |           | 290,173 |                |           |         | 24  |         |      |           | 290,197 |          
|                             | Advertising and other                                                                           |                                                                                       |                                   |    |           |   |           | 138,222 |                |           |         | (20 | )       |      |           | 138,202 |          
|                             | General and administrative                                                                      |                                                                                       |                                   | 56  |           |   |           | 233,926 |                |           |         | (16 | )       |      |           | 233,966 |          
|                             | Non-cash, stock-based compensation                                                              |                                                                                       |                                   |    |           |   |           | 51,465  |                |           |         |    |         |      |           | 51,465  |          
|                             |                                                                                                 | Depreciation and amortization (Note 3)                                                |                                   |     |          |   |           |         | 174,607        |           |         |     |        |      |           |         | 174,607   |          
|                             |                                                                                                 |                                                                                       |                                   |     |           |   |           |         |                |           |         |     |         |      |           |         |           |           | 
|Total costs and expenses     |                                                                                                 |                                                                                       | 356                               |     |           |   | 3,133,432 |         |                |           | (192    | )   |         |      | 3,133,596 |        
|                             |                                                                                                 |                                                                                       |                                   |     |           |   |           |         |                |           |         |     |         |      |           |         |           |           | 
|Operating loss               |                                                                                                 |                                                                                       | (356                              | )   |           |   | (424,326  | )       |                |           |        |     |         |      | (424,682  | )      
|Other Income (Expense):      |                                                                                                 |                                                                                       |                                   |     |           |   |           |         |                |           |         |     |         |      |           |        
|                             |                                                                                                 | Interest income                                                                       |                                   |     | 2,562     |   |           |         | 10,504         |           |         |     |        |      |           |         | 13,066    |          
|                             |                                                                                                 | Interest expense                                                                      |                                   |     | (190,580  | ) |           |         | (3,105         | )         |         |     |        |      |           |         | (193,685  | )        
|                             |                                                                                                 | Equity in loss of subsidiaries                                                        |                                   |     | (417,483  | ) |           |         |               |           |         |     | 417,483 |      |           |         |          |          
|                             |                                                                                                 | Other                                                                                 |                                   |     | (1,808    | ) |           |         | (431           | )         |         |     |        |      |           |         | (2,239    | )        
|                             |                                                                                                 |                                                                                       |                                   |     |           |   |           |         |                |           |         |     |         |      |           |         |           |           | 
|Total other income (expense) |                                                                                                 |                                                                                       | (607,309                          | )   |           |   | 6,968     |         |                |           | 417,483 |     |         |      | (182,858  | )      
|                             |                                                                                                 |                                                                                       |                                   |     |           |   |           |         |                |           |         |     |         |      |           |         |           |           | 
|Loss before income taxes     |                                                                                                 |                                                                                       | (607,665                          | )   |           |   | (417,358  | )       |                |           | 417,483 |     |         |      | (607,540  | )      
|Income tax provision         |                                                                                                 |                                                                                       |                                  |     |           |   | (125      | )       |                |           |        |     |         |      | (125      | )      
|                             |                                                                                                 |                                                                                       |                                   |     |           |   |           |         |                |           |         |     |         |      |           |         |           |           | 
|Net loss                     |                                                                                                 | $                                                                                     | (607,665                          | )   |           | $ | (417,483  | )       |                | $         | 417,483 |     |         | $    | (607,665  | )      
|                             |                                                                                                 |                                                                                       |                                   |     |           |   |           |         |                |           |         |     |         |      |           |         |           |           | 

F-39



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##### Table of Contents



ECHOSTAR DBS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued

Consolidating Statements of Operations  Year Ended December 31, 2001

|                                  |                                      |                                                                                                 |                                   |   |           |   |           |         |                |           |          |   |          |         |           |         |           |           | 
|--------------------------------- | ------------------------------------ | ----------------------------------------------------------------------------------------------- | --------------------------------- | - | --------- | - | --------- | ------- | -------------- | --------- | -------- | - | -------- | ------- | --------- | ------- | --------- | --------- | 
|                                  |                                      |                                                                                                 |                                   |   |           |   |           |         | Subsidiary     |           |          |   |          |         |           |         |          
|                                  |                                      |                                                                                                 |                                   |   |           |   |           |         | Guarantors and |           |          |   |          |         |           |         |          
|                                  |                                      |                                                                                                 |                                   |   | EDBS - PC |   | Other     |         | C&E            |           | EDBS    
|                                  |                                      |                                                                                                 |                                   |   |           |   |           |         |                |           |         
|Revenue:                          |                                      |                                                                                                 |                                   |   |           |   |           |         |                |           |          |   |          |         |           |        
|                                  |                                      | DISH Network:                                                                                   |                                   |   |           |   |           |         |                |           |          |   |          |         |           |         |           |          
|                                  |                                      |                                                                                                 | Subscription television services  |   | $         |  |           |         | $              | 3,583,698 |          |   | $        |        |           |         | $         | 3,583,698 | 
|                                  |                                      |                                                                                                 | Other                             |   |           |  |           |         |                | 107,447   |          |   |          | (85,704 | )         |         |           | 21,743    | 
|                                  |                                      |                                                                                                 |                                   |   |           |   |           |         |                |           |          |   |          |         |           |         |           |           | 
|                                  |                                      | Total DISH Network                                                                              |                                   |   |          |   |           |         | 3,691,145      |           |          |   | (85,704  | )       |           |         | 3,605,441 |          
|                                  |                                      | DTH equipment sales                                                                             |                                   |   |          |   |           |         | 266,746        |           |          |   | (3       | )       |           |         | 266,743   |          
|                                  |                                      | Other                                                                                           |                                   |   |          |   |           |         | 114,699        |           |          |   |         |         |           |         | 114,699   |          
|                                  |                                      |                                                                                                 |                                   |   |           |   |           |         |                |           |          |   |          |         |           |         |           |           | 
|Total revenue                     |                                      |                                                                                                 |                                  |   |           |   | 4,072,590 |         |                |           | (85,707  | ) |          |         | 3,986,883 |        
|Costs and Expenses:               |                                      |                                                                                                 |                                   |   |           |   |           |         |                |           |          |   |          |         |           |        
|                                  |                                      | DISH Network Operating Expenses:                                                                |                                   |   |           |   |           |         |                |           |          |   |          |         |           |         |           |          
|                                  |                                      |                                                                                                 | Subscriber-related expenses       |   |           |  |           |         |                | 1,448,617 |          |   |          |        |           |         |           | 1,448,617 | 
|                                  |                                      |                                                                                                 | Customer service center and other |   |           |  |           |         |                | 370,573   |          |   |          | (85,704 | )         |         |           | 284,869   | 
|                                  |                                      |                                                                                                 | Satellite and transmission        |   |           |  |           |         |                | 37,555    |          |   |          |        |           |         |           | 37,555    | 
|                                  |                                      |                                                                                                 |                                   |   |           |   |           |         |                |           |          |   |          |         |           |         |           |           | 
|                                  |                                      | Total DISH Network operating expenses
(exclusive of depreciation shown below 
Note 3)          |                                   |   |          |   |           |         | 1,856,745      |           |          |   | (85,704  | )       |           |         | 1,771,041 |          
|                                  |                                      | Cost of sales  DTH equipment                                                                   |                                   |   | (300      | ) |           |         | 188,113        |           |          |   | (3       | )       |           |         | 187,810   |          
|                                  |                                      | Cost of sales  other                                                                           |                                   |   |          |   |           |         | 75,385         |           |          |   |         |         |           |         | 75,385    |          
|                                  |                                      | Cost of sales  subscriber promotion
subsidies (exclusive of depreciation shown
below  Note 3) |                                   |   |          |   |           |         | 466,610        |           |          |   |         |         |           |         | 466,610   |          
|                                  | Other subscriber promotion subsidies |                                                                                                 |                                   |  |           |   |           | 477,903 |                |           |          |  |          |         |           | 477,903 |          
|                                  | Advertising and other                |                                                                                                 |                                   |  |           |   |           | 144,724 |                |           |          |  |          |         |           | 144,724 |          
|                                  |                                      | General and administrative                                                                      |                                   |   | (147      | ) |           |         | 361,776        |           |          |   |         |         |           |         | 361,629   |          
|                                  |                                      | Non-cash, stock-based compensation                                                              |                                   |   |          |   |           |         | 20,173         |           |          |   |         |         |           |         | 20,173    |          
|                                  |                                      | Depreciation and amortization (Note 3)                                                          |                                   |   |          |   |           |         | 265,912        |           |          |   |         |         |           |         | 265,912   |          
|                                  |                                      |                                                                                                 |                                   |   |           |   |           |         |                |           |          |   |          |         |           |         |           |           | 
|Total costs and expenses          |                                      |                                                                                                 | (447                              | ) |           |   | 3,857,341 |         |                |           | (85,707  | ) |          |         | 3,771,187 |        
|                                  |                                      |                                                                                                 |                                   |   |           |   |           |         |                |           |          |   |          |         |           |         |           |           | 
|Operating income                  |                                      |                                                                                                 | 447                               |   |           |   | 215,249   |         |                |           |         |   |          |         | 215,696   |        
|Other Income (Expense):           |                                      |                                                                                                 |                                   |   |           |   |           |         |                |           |          |   |          |         |           |        
|                                  |                                      | Interest income                                                                                 |                                   |   | 7,297     |   |           |         | 3,024          |           |          |   |         |         |           |         | 10,321    |          
|                                  |                                      | Interest expense                                                                                |                                   |   | (190,840  | ) |           |         | (2,060         | )         |          |   |         |         |           |         | (192,900  | )        
|                                  |                                      | Equity in earnings (loss) of subsidiaries                                                       |                                   |   | 214,044   |   |           |         |               |           |          |   | (214,044 | )       |           |         |          |          
|                                  |                                      | Other                                                                                           |                                   |   | 703       |   |           |         | (1,323         | )         |          |   |         |         |           |         | (620      | )        
|                                  |                                      |                                                                                                 |                                   |   |           |   |           |         |                |           |          |   |          |         |           |         |           |           | 
|Total other income (expense)      |                                      |                                                                                                 | 31,204                            |   |           |   | (359      | )       |                |           | (214,044 | ) |          |         | (183,199  | )      
|                                  |                                      |                                                                                                 |                                   |   |           |   |           |         |                |           |          |   |          |         |           |         |           |           | 
|Income (loss) before income taxes |                                      |                                                                                                 | 31,651                            |   |           |   | 214,890   |         |                |           | (214,044 | ) |          |         | 32,497    |        
|Income tax provision              |                                      |                                                                                                 |                                  |   |           |   | (846      | )       |                |           |         |   |          |         | (846      | )      
|                                  |                                      |                                                                                                 |                                   |   |           |   |           |         |                |           |          |   |          |         |           |         |           |           | 
|Net income (loss)                 |                                      | $                                                                                               | 31,651                            |   |           | $ | 214,044   |         |                | $         | (214,044 | ) |          | $       | 31,651    |        
|                                  |                                      |                                                                                                 |                                   |   |           |   |           |         |                |           |          |   |          |         |           |         |           |           | 

F-40



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##### Table of Contents



ECHOSTAR DBS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued

Consolidating Statements of Operations  Year Ended December 31, 2002

|                                  |                                                                                                 |                                   |         |           |   |       |           |                |           |      |          |          |          |   |           |           |           | 
|--------------------------------- | ----------------------------------------------------------------------------------------------- | --------------------------------- | ------- | --------- | - | ----- | --------- | -------------- | --------- | ---- | -------- | -------- | -------- | - | --------- | --------- | --------- | 
|                                  |                                                                                                 |                                   |         |           |   |       |           | Subsidiary     |           |      |          |          |          |   |           |          
|                                  |                                                                                                 |                                   |         |           |   |       |           | Guarantors and |           |      |          |          |          |   |           |          
|                                  |                                                                                                 |                                   |         | EDBS - PC |   | Other |           | C&E            |           | EDBS
|                                  |                                                                                                 |                                   |         |           |   |       |           |                |           |     
|Revenue:                          |                                                                                                 |                                   |         |           |   |       |           |                |           |      |          |          |          |   |           |          
|                                  | DISH Network:                                                                                   |                                   |         |           |   |       |           |                |           |      |          |          |          |   |           |           |          
|                                  |                                                                                                 | Subscription television services  |         | $         |  |       |           | $              | 4,406,428 |      |          | $        |         |   |           | $         | 4,406,428 | 
|                                  |                                                                                                 | Other                             |         |           |  |       |           |                | 254,568   |      |          |          | (237,626 | ) |           |           | 16,942    | 
|                                  |                                                                                                 |                                   |         |           |   |       |           |                |           |      |          |          |          |   |           |           |           | 
|                                  | Total DISH Network                                                                              |                                   |         |          |   |       |           | 4,660,996      |           |      |          | (237,626 | )        |   |           | 4,423,370 |          
|                                  | DTH equipment sales                                                                             |                                   |         |          |   |       |           | 285,140        |           |      |          |         |          |   |           | 285,140   |          
|                                  | Other                                                                                           |                                   |         |          |   |       |           | 95,127         |           |      |          |         |          |   |           | 95,127    |          
|                                  |                                                                                                 |                                   |         |           |   |       |           |                |           |      |          |          |          |   |           |           |           | 
|Total revenue                     |                                                                                                 |                                   |        |           |   |       | 5,041,263 |                |           |      | (237,626 | )        |          |   | 4,803,637 |          
|Costs and Expenses:               |                                                                                                 |                                   |         |           |   |       |           |                |           |      |          |          |          |   |           |          
|                                  | DISH Network Operating Expenses:                                                                |                                   |         |           |   |       |           |                |           |      |          |          |          |   |           |           |          
|                                  |                                                                                                 | Subscriber-related expenses       |         |           |  |       |           |                | 1,782,528 |      |          |          |         |   |           |           | 1,782,528 | 
|                                  |                                                                                                 | Customer service center and other |         |           |  |       |           |                | 627,848   |      |          |          | (237,267 | ) |           |           | 390,581   | 
|                                  |                                                                                                 | Satellite and transmission        |         |           |  |       |           |                | 56,656    |      |          |          |         |   |           |           | 56,656    | 
|                                  |                                                                                                 |                                   |         |           |   |       |           |                |           |      |          |          |          |   |           |           |           | 
|                                  | Total DISH Network operating expenses
(exclusive of depreciation shown below 
Note 3)          |                                   |         |          |   |       |           | 2,467,032      |           |      |          | (237,267 | )        |   |           | 2,229,765 |          
|                                  | Cost of sales  DTH equipment                                                                   |                                   |         |          |   |       |           | 177,980        |           |      |          |         |          |   |           | 177,980   |          
|                                  | Cost of sales  other                                                                           |                                   |         |          |   |       |           | 50,058         |           |      |          | (359     | )        |   |           | 49,699    |          
|                                  | Cost of sales  subscriber promotion
subsidies (exclusive of depreciation shown
below  Note 3) |                                   |         |          |   |       |           | 445,448        |           |      |          |         |          |   |           | 445,448   |          
|                                  | Other subscriber promotion subsidies                                                            |                                   |         |          |   |       |           | 574,750        |           |      |          |         |          |   |           | 574,750   |          
|                                  | Advertising and other                                                                           |                                   |         |          |   |       |           | 160,394        |           |      |          |         |          |   |           | 160,394   |          
|                                  | General and administrative                                                                      |                                   |         | 147       |   |       |           | 365,977        |           |      |          |         |          |   |           | 366,124   |          
|                                  | Non-cash, stock-based compensation                                                              |                                   |         |          |   |       |           | 11,279         |           |      |          |         |          |   |           | 11,279    |          
|                                  | Depreciation and amortization (Note 3)                                                          |                                   |         |          |   |       |           | 355,754        |           |      |          |         |          |   |           | 355,754   |          
|                                  |                                                                                                 |                                   |         |           |   |       |           |                |           |      |          |          |          |   |           |           |           | 
|Total costs and expenses          |                                                                                                 |                                   | 147     |           |   |       | 4,608,672 |                |           |      | (237,626 | )        |          |   | 4,371,193 |          
|                                  |                                                                                                 |                                   |         |           |   |       |           |                |           |      |          |          |          |   |           |           |           | 
|Operating income                  |                                                                                                 |                                   | (147    | )         |   |       | 432,591   |                |           |      |         |          |          |   | 432,444   |          
|Other Income (Expense):           |                                                                                                 |                                   |         |           |   |       |           |                |           |      |          |          |          |   |           |          
|                                  | Interest income                                                                                 |                                   |         | 9,849     |   |       |           | 152            |           |      |          |         |          |   |           | 10,001    |          
|                                  | Interest expense, net of amounts capitalized                                                    |                                   |         | (336,998  | ) |       |           | (1,885         | )         |      |          |         |          |   |           | (338,883  | )        
|                                  | Equity in earnings (loss) of subsidiaries                                                       |                                   |         | 411,269   |   |       |           |               |           |      |          | (411,269 | )        |   |           |          |          
|                                  | Other                                                                                           |                                   |         | (1,827    | ) |       |           | (4,073         | )         |      |          |         |          |   |           | (5,900    | )        
|                                  |                                                                                                 |                                   |         |           |   |       |           |                |           |      |          |          |          |   |           |           |           | 
|Total other income (expense)      |                                                                                                 |                                   | 82,293  |           |   |       | (5,806    | )              |           |      | (411,269 | )        |          |   | (334,782  | )        
|                                  |                                                                                                 |                                   |         |           |   |       |           |                |           |      |          |          |          |   |           |           |           | 
|Income (loss) before income taxes |                                                                                                 |                                   | 82,146  |           |   |       | 426,785   |                |           |      | (411,269 | )        |          |   | 97,662    |          
|Income tax provision              |                                                                                                 |                                   | (63,966 | )         |   |       | (15,516   | )              |           |      |         |          |          |   | (79,482   | )        
|                                  |                                                                                                 |                                   |         |           |   |       |           |                |           |      |          |          |          |   |           |           |           | 
|Net income (loss)                 |                                                                                                 | $                                 | 18,180  |           |   | $     | 411,269   |                |           | $    | (411,269 | )        |          | $ | 18,180    |          
|                                  |                                                                                                 |                                   |         |           |   |       |           |                |           |      |          |          |          |   |           |           |           | 

F-41



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##### Table of Contents



ECHOSTAR DBS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued

Consolidating Statements of Cash Flows  Year Ended December 31, 2000

|                                                                               |                                                                                         |                                |          |           |        |       |          |                |          |      |         |          |   |   |          |         |          |  
|------------------------------------------------------------------------------ | --------------------------------------------------------------------------------------- | ------------------------------ | -------- | --------- | ------ | ----- | -------- | -------------- | -------- | ---- | ------- | -------- | - | - | -------- | ------- | -------- | -
|                                                                               |                                                                                         |                                |          |           |        |       |          | Subsidiary     |          |      |         |          |   |   |          |        
|                                                                               |                                                                                         |                                |          |           |        |       |          | Guarantors and |          |      |         |          |   |   |          |        
|                                                                               |                                                                                         |                                |          | EDBS - PC |        | Other |          | C&E            |          | EDBS
|                                                                               |                                                                                         |                                |          |           |        |       |          |                |          |     
|Cash Flows From Operating Activities:                                          |                                                                                         |                                |          |           |        |       |          |                |          |      |         |          |   |   |          |        
|Net loss                                                                       |                                                                                         | $                              | (607,665 | )         |        | $     | (417,483 | )              |          | $    | 417,483 |          |   | $ | (607,665 | )      
|Adjustments to reconcile net loss to net cash flows from operating activities: |                                                                                         |                                |          |           |        |       |          |                |          |      |         |          |   |   |          |        
|                                                                               | Equity in losses of subsidiaries                                                        |                                |          | 417,483   |        |       |          |               |          |      |         | (417,483 | ) |   |          |        |         
|                                                                               | Non-cash, stock-based compensation (forfeitures)                                        |                                |          | (8,072    | )      |       |          | 59,537         |          |      |         |         |   |   |          | 51,465  |         
|                                                                               | Depreciation and amortization                                                           |                                |          |          |        |       |          | 173,233        |          |      |         |         |   |   |          | 173,233 |         
|                                                                               | Amortization of debt discount and deferred financing costs                              |                                |          | 3,276     |        |       |          | 4              |          |      |         |         |   |   |          | 3,280   |         
|                                                                               | Change in long-term deferred satellite services revenue and other
long-term liabilities |                                |          |          |        |       |          | 37,236         |          |      |         |         |   |   |          | 37,236  |         
|                                                                               | Other, net                                                                              |                                |          |          |        |       |          | 10,512         |          |      |         |         |   |   |          | 10,512  |         
|                                                                               | Changes in current assets and current liabilities:                                      |                                |          |           |        |       |          |                |          |      |         |          |   |   |          |         |         
|                                                                               |                                                                                         | Trade accounts receivable, net |          |           |       |       |          |                | (117,377 | )    |         |          |  |   |          |         | (117,377 | )
|                                                                               |                                                                                         | Inventories                    |          |           |       |       |          |                | (41,160  | )    |         |          |  |   |          |         | (41,160  | )
|                                                                               |                                                                                         | Other current assets           |          |           | 532    |       |          |                | 3,530    |      |         |          |  |   |          |         | 4,062    |  
|                                                                               |                                                                                         | Trade accounts payable         |          |           | (2,609 | )     |          |                | (40,831  | )    |         |          |  |   |          |         | (43,440  | )
|                                                                               |                                                                                         | Deferred revenue               |          |           |       |       |          |                | 101,905  |      |         |          |  |   |          |         | 101,905  |  
|                                                                               |                                                                                         | Accrued expenses               |          |           | 1,020  |       |          |                | 176,982  |      |         |          |  |   |          |         | 178,002  |  
|                                                                               |                                                                                         |                                |          |           |        |       |          |                |          |      |         |          |   |   |          |        
|Net cash flows from operating activities                                       |                                                                                         |                                | (196,035 | )         |        |       | (53,912  | )              |          |      |        |          |   |   | (249,947 | )      
|Cash Flows From Investing Activities:                                          |                                                                                         |                                |          |           |        |       |          |                |          |      |         |          |   |   |          |        
|Sales of marketable investment securities                                      |                                                                                         |                                | 19,775   |           |        |       |         |                |          |      |        |          |   |   | 19,775   |        
|Cash reserved for satellite insurance                                          |                                                                                         |                                | (82,393  | )         |        |       |         |                |          |      |        |          |   |   | (82,393  | )      
|Purchases of property and equipment                                            |                                                                                         |                                |         |           |        |       | (175,313 | )              |          |      |        |          |   |   | (175,313 | )      
|Advances and payments under in-orbit satellite contract                        |                                                                                         |                                |         |           |        |       | (48,894  | )              |          |      |        |          |   |   | (48,894  | )      
|                                                                               |                                                                                         |                                |          |           |        |       |          |                |          |      |         |          |   |   |          |        
|Net cash flows from investing activities                                       |                                                                                         |                                | (62,618  | )         |        |       | (224,207 | )              |          |      |        |          |   |   | (286,825 | )      
|Cash Flows From Financing Activities:                                          |                                                                                         |                                |          |           |        |       |          |                |          |      |         |          |   |   |          |        
|Non-interest bearing advances from affiliates                                  |                                                                                         |                                | 61,816   |           |        |       | 424,558  |                |          |      |        |          |   |   | 486,374  |        
|Repayments of mortgage indebtedness and other notes payable                    |                                                                                         |                                |         |           |        |       | (15,176  | )              |          |      |        |          |   |   | (15,176  | )      
|Other                                                                          |                                                                                         |                                | (2,615   | )         |        |       |         |                |          |      |        |          |   |   | (2,615   | )      
|                                                                               |                                                                                         |                                |          |           |        |       |          |                |          |      |         |          |   |   |          |        
|Net cash flows from financing activities                                       |                                                                                         |                                | 59,201   |           |        |       | 409,382  |                |          |      |        |          |   |   | 468,583  |        
|Net increase (decrease) in cash and cash equivalents                           |                                                                                         |                                | (199,452 | )         |        |       | 131,263  |                |          |      |        |          |   |   | (68,189  | )      
|Cash and cash equivalents, beginning of year                                   |                                                                                         |                                | 120,133  |           |        |       | 39,628   |                |          |      |        |          |   |   | 159,761  |        
|                                                                               |                                                                                         |                                |          |           |        |       |          |                |          |      |         |          |   |   |          |        
|Cash and cash equivalents, end of year                                         |                                                                                         | $                              | (79,319  | )         |        | $     | 170,891  |                |          | $    |        |          |   | $ | 91,572   |        
|                                                                               |                                                                                         |                                |          |           |        |       |          |                |          |      |         |          |   |   |          |        

F-42



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##### Table of Contents



ECHOSTAR DBS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued

Consolidating Statements of Cash Flows  Year Ended December 31, 2001

|                                                                                          |                                                                                         |                                |          |           |        |       |          |                |         |      |          |         |   |   |          |         |         |  
|----------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------- | ------------------------------ | -------- | --------- | ------ | ----- | -------- | -------------- | ------- | ---- | -------- | ------- | - | - | -------- | ------- | ------- | -
|                                                                                          |                                                                                         |                                |          |           |        |       |          | Subsidiary     |         |      |          |         |   |   |          |        
|                                                                                          |                                                                                         |                                |          |           |        |       |          | Guarantors and |         |      |          |         |   |   |          |        
|                                                                                          |                                                                                         |                                |          | EDBS - PC |        | Other |          | C&E            |         | EDBS
|                                                                                          |                                                                                         |                                |          |           |        |       |          |                |         |     
|Cash Flows From Operating Activities:                                                     |                                                                                         |                                |          |           |        |       |          |                |         |      |          |         |   |   |          |        
|Net loss                                                                                  |                                                                                         | $                              | 31,651   |           |        | $     | 214,044  |                |         | $    | (214,044 | )       |   | $ | 31,651   |        
|Adjustments to reconcile net loss to net cash flows from operating activities:            |                                                                                         |                                |          |           |        |       |          |                |         |      |          |         |   |   |          |        
|                                                                                          | Equity in losses of subsidiaries                                                        |                                |          | (214,044  | )      |       |          |               |         |      |          | 214,044 |   |   |          |        |        
|                                                                                          | Non-cash, stock-based compensation                                                      |                                |          |          |        |       |          | 20,173         |         |      |          |        |   |   |          | 20,173  |        
|                                                                                          | Depreciation and amortization                                                           |                                |          |          |        |       |          | 265,912        |         |      |          |        |   |   |          | 265,912 |        
|                                                                                          | Amortization of debt discount and deferred financing costs                              |                                |          | 3,277     |        |       |          | 4              |         |      |          |        |   |   |          | 3,281   |        
|                                                                                          | Change in long-term deferred satellite services revenue and other
long-term liabilities |                                |          |          |        |       |          | 46,266         |         |      |          |        |   |   |          | 46,266  |        
|                                                                                          | Other, net                                                                              |                                |          |          |        |       |          | 25,751         |         |      |          |        |   |   |          | 25,751  |        
|                                                                                          | Changes in current assets and current liabilities:                                      |                                |          |           |        |       |          |                |         |      |          |         |   |   |          |         |        
|                                                                                          |                                                                                         | Trade accounts receivable, net |          |           |       |       |          |                | (38,259 | )    |          |         |  |   |          |         | (38,259 | )
|                                                                                          |                                                                                         | Inventories                    |          |           |       |       |          |                | (25,665 | )    |          |         |  |   |          |         | (25,665 | )
|                                                                                          |                                                                                         | Other current assets           |          |           | (2,906 | )     |          |                | (3,263  | )    |          |         |  |   |          |         | (6,169  | )
|                                                                                          |                                                                                         | Trade accounts payable         |          |           | (58    | )     |          |                | 59,480  |      |          |         |  |   |          |         | 59,422  |  
|                                                                                          |                                                                                         | Deferred revenue               |          |           |       |       |          |                | 73,964  |      |          |         |  |   |          |         | 73,964  |  
|                                                                                          |                                                                                         | Accrued expenses               |          |           | 1,676  |       |          |                | 144,100 |      |          |         |  |   |          |         | 145,776 |  
|                                                                                          |                                                                                         |                                |          |           |        |       |          |                |         |      |          |         |   |   |          |        
|Net cash flows from operating activities                                                  |                                                                                         |                                | (180,404 | )         |        |       | 782,507  |                |         |      |         |         |   |   | 602,103  |        
|Cash Flows From Investing Activities:                                                     |                                                                                         |                                |          |           |        |       |          |                |         |      |          |         |   |   |          |        
|Purchases of marketable investment securities                                             |                                                                                         |                                | (586,648 | )         |        |       |         |                |         |      |         |         |   |   | (586,648 | )      
|Sales of marketable investment securities                                                 |                                                                                         |                                | 501,986  |           |        |       |         |                |         |      |         |         |   |   | 501,986  |        
|Cash reserved for satellite insurance                                                     |                                                                                         |                                | (59,488  | )         |        |       |         |                |         |      |         |         |   |   | (59,488  | )      
|Change in cash reserved for satellite insurance due to depreciation on
related satellites |                                                                                         |                                | 19,813   |           |        |       |         |                |         |      |         |         |   |   | 19,813   |        
|Purchases of property and equipment                                                       |                                                                                         |                                |         |           |        |       | (441,874 | )              |         |      |         |         |   |   | (441,874 | )      
|Advances and payments under in orbit satellite contract                                  |                                                                                         |                                |         |           |        |       | (8,441   | )              |         |      |         |         |   |   | (8,441   | )      
|                                                                                          |                                                                                         |                                |          |           |        |       |          |                |         |      |          |         |   |   |          |        
|Net cash flows from investing activities                                                  |                                                                                         |                                | (124,337 | )         |        |       | (450,315 | )              |         |      |         |         |   |   | (574,652 | )      
|Cash Flows From Financing Activities:                                                     |                                                                                         |                                |          |           |        |       |          |                |         |      |          |         |   |   |          |        
|Non-interest bearing advances from affiliates                                             |                                                                                         |                                | (270,237 | )         |        |       | (488,519 | )              |         |      |         |         |   |   | (758,756 | )      
|Proceeds from issuance of 9 1/8% Seven Year Notes                                         |                                                                                         |                                | 700,000  |           |        |       |         |                |         |      |         |         |   |   | 700,000  |        
|Debt issuance costs and prepayment premiums                                               |                                                                                         |                                | (9,450   | )         |        |       |         |                |         |      |         |         |   |   | (9,450   | )      
|Repayments of mortgage indebtedness and other notes payable                               |                                                                                         |                                |         |           |        |       | (11,765  | )              |         |      |         |         |   |   | (11,765  | )      
|                                                                                          |                                                                                         |                                |          |           |        |       |          |                |         |      |          |         |   |   |          |        
|Net cash flows from financing activities                                                  |                                                                                         |                                | 420,313  |           |        |       | (500,284 | )              |         |      |         |         |   |   | (79,971  | )      
|Net increase (decrease) in cash and cash equivalents                                      |                                                                                         |                                | 115,572  |           |        |       | (168,092 | )              |         |      |         |         |   |   | (52,520  | )      
|Cash and cash equivalents, beginning of year                                              |                                                                                         |                                | (79,319  | )         |        |       | 170,891  |                |         |      |         |         |   |   | 91,572   |        
|                                                                                          |                                                                                         |                                |          |           |        |       |          |                |         |      |          |         |   |   |          |        
|Cash and cash equivalents, end of year                                                    |                                                                                         | $                              | 36,253   |           |        | $     | 2,799    |                |         | $    |         |         |   | $ | 39,052   |        
|                                                                                          |                                                                                         |                                |          |           |        |       |          |                |         |      |          |         |   |   |          |        

F-43



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##### Table of Contents



ECHOSTAR DBS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued

Consolidating Statements of Cash Flows  Year Ended December 31, 2002

|                                                                                          |                                                                                         |                                |            |           |         |       |           |                |         |      |          |         |   |   |            |         |         |  
|----------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------- | ------------------------------ | ---------- | --------- | ------- | ----- | --------- | -------------- | ------- | ---- | -------- | ------- | - | - | ---------- | ------- | ------- | -
|                                                                                          |                                                                                         |                                |            |           |         |       |           | Subsidiary     |         |      |          |         |   |   |            |        
|                                                                                          |                                                                                         |                                |            |           |         |       |           | Guarantors and |         |      |          |         |   |   |            |        
|                                                                                          |                                                                                         |                                |            | EDBS - PC |         | Other |           | C&E            |         | EDBS
|                                                                                          |                                                                                         |                                |            |           |         |       |           |                |         |     
|Cash Flows From Operating Activities:                                                     |                                                                                         |                                |            |           |         |       |           |                |         |      |          |         |   |   |            |        
|Net income (loss)                                                                         |                                                                                         | $                              | 18,180     |           |         | $     | 411,269   |                |         | $    | (411,269 | )       |   | $ | 18,180     |        
|Adjustments to reconcile net loss to net cash flows from operating activities:            |                                                                                         |                                |            |           |         |       |           |                |         |      |          |         |   |   |            |        
|                                                                                          | Equity in losses of subsidiaries                                                        |                                |            | (411,269  | )       |       |           |               |         |      |          | 411,269 |   |   |            |        |        
|                                                                                          | Realized and unrealized loss on investments                                             |                                |            | 2,039     |         |       |           |               |         |      |          |        |   |   |            | 2,039   |        
|                                                                                          | Non-cash, stock-based compensation                                                      |                                |            |          |         |       |           | 11,279         |         |      |          |        |   |   |            | 11,279  |        
|                                                                                          | Depreciation and amortization                                                           |                                |            |          |         |       |           | 355,754        |         |      |          |        |   |   |            | 355,754 |        
|                                                                                          | Deferred tax expense                                                                    |                                |            | 32,499    |         |       |           | 39,181         |         |      |          |        |   |   |            | 71,680  |        
|                                                                                          | Amortization of debt discount and deferred financing costs                              |                                |            | 6,172     |         |       |           | 4              |         |      |          |        |   |   |            | 6,176   |        
|                                                                                          | Change in long-term deferred satellite services revenue and other
long-term liabilities |                                |            |          |         |       |           | (20,924        | )       |      |          |        |   |   |            | (20,924 | )      
|                                                                                          | Other, net                                                                              |                                |            | (41,991   | )       |       |           | 44,514         |         |      |          |        |   |   |            | 2,523   |        
|                                                                                          | Changes in current assets and current liabilities:                                      |                                |            |           |         |       |           |                |         |      |          |         |   |   |            |         |        
|                                                                                          |                                                                                         | Trade accounts receivable, net |            |           |        |       |           |                | (12,075 | )    |          |         |  |   |            |         | (12,075 | )
|                                                                                          |                                                                                         | Inventories                    |            |           |        |       |           |                | 69,306  |      |          |         |  |   |            |         | 69,306  |  
|                                                                                          |                                                                                         | Other current assets           |            |           | (21     | )     |           |                | 534     |      |          |         |  |   |            |         | 513     |  
|                                                                                          |                                                                                         | Trade accounts payable         |            |           | 15,273  |       |           |                | 35,538  |      |          |         |  |   |            |         | 50,811  |  
|                                                                                          |                                                                                         | Deferred revenue               |            |           |        |       |           |                | 83,775  |      |          |         |  |   |            |         | 83,775  |  
|                                                                                          |                                                                                         | Accrued expenses               |            |           | 128,391 |       |           |                | 45,418  |      |          |         |  |   |            |         | 173,809 |  
|                                                                                          |                                                                                         |                                |            |           |         |       |           |                |         |      |          |         |   |   |            |        
|Net cash flows from operating activities                                                  |                                                                                         |                                | (250,727   | )         |         |       | 1,063,573 |                |         |      |         |         |   |   | 812,846    |        
|Cash Flows From Investing Activities:                                                     |                                                                                         |                                |            |           |         |       |           |                |         |      |          |         |   |   |            |        
|Purchases of marketable investment securities                                             |                                                                                         |                                | (1,329,043 | )         |         |       |          |                |         |      |         |         |   |   | (1,329,043 | )      
|Sales of marketable investment securities                                                 |                                                                                         |                                | 1,141,401  |           |         |       |          |                |         |      |         |         |   |   | 1,141,401  |        
|Cash reserved for satellite insurance                                                     |                                                                                         |                                | (59,680    | )         |         |       |          |                |         |      |         |         |   |   | (59,680    | )      
|Change in cash reserved for satellite insurance due to depreciation on
related satellites |                                                                                         |                                | 30,376     |           |         |       |          |                |         |      |         |         |   |   | 30,376     |        
|Purchases of property and equipment                                                       |                                                                                         |                                |           |           |         |       | (349,795  | )              |         |      |         |         |   |   | (349,795   | )      
|Advances and payments under in orbit satellite contract                                  |                                                                                         |                                |           |           |         |       | (8,441    | )              |         |      |         |         |   |   | (8,441     | )      
|Other                                                                                     |                                                                                         |                                |           |           |         |       | (4,332    | )              |         |      |         |         |   |   | (4,332     | )      
|                                                                                          |                                                                                         |                                |            |           |         |       |           |                |         |      |          |         |   |   |            |        
|Net cash flows from investing activities                                                  |                                                                                         |                                | (216,946   | )         |         |       | (362,568  | )              |         |      |         |         |   |   | (579,514   | )      
|Cash Flows From Financing Activities:                                                     |                                                                                         |                                |            |           |         |       |           |                |         |      |          |         |   |   |            |        
|Non-interest bearing advances from affiliates                                             |                                                                                         |                                | 687,950    |           |         |       | (688,008  | )              |         |      |         |         |   |   | (58        | )      
|Repayments of mortgage indebtedness and other notes payable                               |                                                                                         |                                |           |           |         |       | (3,419    | )              |         |      |         |         |   |   | (3,419     | )      
|Other                                                                                     |                                                                                         |                                | (1,215     | )         |         |       |          |                |         |      |         |         |   |   | (1,215     | )      
|                                                                                          |                                                                                         |                                |            |           |         |       |           |                |         |      |          |         |   |   |            |        
|Net cash flows from financing activities                                                  |                                                                                         |                                | 686,735    |           |         |       | (691,427  | )              |         |      |         |         |   |   | (4,692     | )      
|                                                                                          |                                                                                         |                                |            |           |         |       |           |                |         |      |          |         |   |   |            |        
|Net increase (decrease) in cash and cash equivalents                                      |                                                                                         |                                | 219,062    |           |         |       | 9,578     |                |         |      |         |         |   |   | 228,640    |        
|Cash and cash equivalents, beginning of year                                              |                                                                                         |                                | 36,253     |           |         |       | 2,799     |                |         |      |         |         |   |   | 39,052     |        
|                                                                                          |                                                                                         |                                |            |           |         |       |           |                |         |      |          |         |   |   |            |        
|Cash and cash equivalents, end of year                                                    |                                                                                         | $                              | 255,315    |           |         | $     | 12,377    |                |         | $    |         |         |   | $ | 267,692    |        
|                                                                                          |                                                                                         |                                |            |           |         |       |           |                |         |      |          |         |   |   |            |        

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##### Table of Contents



ECHOSTAR DBS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued

10. Segment Reporting

Financial Data by Business Unit (in thousands)

Statement of Financial Accounting Standard No. 131, Disclosures About
Segments of an Enterprise and Related Information (FAS No. 131) establishes
standards for reporting information about operating segments in annual
financial statements of public business enterprises and requires that those
enterprises report selected information about operating segments in interim
financial reports issued to shareholders. 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.
Under this definition EchoStar currently operates as two business units. The
All Other column consists of revenue and expenses from other operating segments
for which the disclosure requirements of FAS No. 131 do not apply.

|                             |                                               |  |         |           |     |  |           |         |              |  |       |         |          |  |              |        |              |  |          |           |       |  |      |          |   |  |   |           |  
|---------------------------- | --------------------------------------------- |  | ------- | --------- | --- |  | --------- | ------- | ------------ |  | ----- | ------- | -------- |  | ------------ | ------ | ------------ |  | -------- | --------- | ----- |  | ---- | -------- | - |  | - | --------- | -
|                             |                                               |  |         |           |     |  |           |         |              |  |       |         |          |  |              |        |              |  | EchoStar |           | Other |  | EDBS
|                             |                                               |  | Dish    |           |     |  |           |         |              |  |       |         |          |  |              |        | Consolidated |  | EchoStar |           | And  
|                             |                                               |  | Network |           | ETC |  | All Other |         | Eliminations |  | Total |         | Activity |  | Subsidiaries
|                             |                                               |  |         |           |     |  |           |         |              |  |       |         |          |  |             
|Year Ended December 31, 2000 |                                               |  |         |           |     |  |           |         |              |  |       |         |          |  |              |        |              |  |          |           |       |  |      |          |   |  |   |          
|                             | Revenue                                       |  | $       | 2,435,127 |     |  | $         | 207,945 |              |  | $     | 75,589  |          |  | $            | (3,441 | )            |  | $        | 2,715,220 |       |  | $    | (6,306   | ) |  | $ | 2,708,914 |  
|                             | Depreciation and amortization                 |  |         | 160,910   |     |  |           | 5,338   |              |  |       | 19,108  |          |  |              |       |              |  |          | 185,356   |       |  |      | (10,749  | ) |  |   | 174,607   |  
|                             | Total costs and expenses                      |  |         | 2,755,965 |     |  |           | 197,073 |              |  |       | 194,363 |          |  |              | (8,115 | )            |  |          | 3,139,286 |       |  |      | (5,690   | ) |  |   | 3,133,596 |  
|                             | Interest income                               |  |         | 79,760    |     |  |           |        |              |  |       | 304     |          |  |              | (331   | )            |  |          | 79,733    |       |  |      | (66,667  | ) |  |   | 13,066    |  
|                             | Interest expense                              |  |         | (267,650  | )   |  |           | (233    | )            |  |       | (438    | )        |  |              | 331    |              |  |          | (267,990  | )     |  |      | 74,305   |   |  |   | (193,685  | )
|                             | Income tax benefit
(provision), net           |  |         | (48       | )   |  |           | (32     | )            |  |       | (475    | )        |  |              |       |              |  |          | (555      | )     |  |      | 430      |   |  |   | (125      | )
|                             | Net income (loss)                             |  |         | (685,599  | )   |  |           | (155    | )            |  |       | 35,637  |          |  |              | (209   | )            |  |          | (650,326  | )     |  |      | 42,661   |   |  |   | (607,665  | )
|Year Ended December 31, 2001 |                                               |  |         |           |     |  |           |         |              |  |       |         |          |  |              |        |              |  |          |           |       |  |      |          |   |  |   |          
|                             | Revenue                                       |  | $       | 3,683,156 |     |  | $         | 189,150 |              |  | $     | 133,426 |          |  | $            | (4,594 | )            |  | $        | 4,001,138 |       |  | $    | (14,255  | ) |  | $ | 3,986,883 |  
|                             | Depreciation and amortization                 |  |         | 243,810   |     |  |           | 6,682   |              |  |       | 28,160  |          |  |              |       |              |  |          | 278,652   |       |  |      | (12,740  | ) |  |   | 265,912   |  
|                             | Total costs and expenses                      |  |         | 3,273,670 |     |  |           | 188,699 |              |  |       | 331,061 |          |  |              | (4,594 | )            |  |          | 3,788,836 |       |  |      | (17,649  | ) |  |   | 3,771,187 |  
|                             | Interest income                               |  |         | 96,994    |     |  |           |        |              |  |       | 949     |          |  |              | (272   | )            |  |          | 97,671    |       |  |      | (87,350  | ) |  |   | 10,321    |  
|                             | Interest expense                              |  |         | (370,331  | )   |  |           | (211    | )            |  |       | (1,095  | )        |  |              | 272    |              |  |          | (371,365  | )     |  |      | 178,465  |   |  |   | (192,900  | )
|                             | Income tax benefit
(provision), net           |  |         | (51       | )   |  |           |        |              |  |       | (1,403  | )        |  |              |       |              |  |          | (1,454    | )     |  |      | 608      |   |  |   | (846      | )
|                             | Net income (loss)                             |  |         | (230,431  | )   |  |           | (7,478  | )            |  |       | 22,411  |          |  |              |       |              |  |          | (215,498  | )     |  |      | 247,149  |   |  |   | 31,651    |  
|Year Ended December 31, 2002 |                                               |  |         |           |     |  |           |         |              |  |       |         |          |  |              |        |              |  |          |           |       |  |      |          |   |  |   |          
|                             | Revenue                                       |  | $       | 4,524,721 |     |  | $         | 189,503 |              |  | $     | 113,445 |          |  | $            | (6,844 | )            |  | $        | 4,820,825 |       |  | $    | (17,188  | ) |  | $ | 4,803,637 |  
|                             | Depreciation and amortization                 |  |         | 328,287   |     |  |           | 7,322   |              |  |       | 37,349  |          |  |              |       |              |  |          | 372,958   |       |  |      | (17,204  | ) |  |   | 355,754   |  
|                             | Total costs and expenses                      |  |         | 3,945,873 |     |  |           | 177,891 |              |  |       | 282,557 |          |  |              | (6,844 | )            |  |          | 4,399,477 |       |  |      | (28,284  | ) |  |   | 4,371,193 |  
|                             | Interest income                               |  |         | 111,511   |     |  |           |        |              |  |       | 1,416   |          |  |              |       |              |  |          | 112,927   |       |  |      | (102,926 | ) |  |   | 10,001    |  
|                             | Interest expense, net of
interest capitalized |  |         | (482,409  | )   |  |           | (188    | )            |  |       | (306    | )        |  |              |       |              |  |          | (482,903  | )     |  |      | 144,020  |   |  |   | (338,883  | )
|                             | Income tax benefit
(provision), net           |  |         | (74,699   | )   |  |           | 4,233   |              |  |       | (2,078  | )        |  |              |       |              |  |          | (72,544   | )     |  |      | (6,938   | ) |  |   | (79,482   | )
|                             | Net income (loss)                             |  |         | (919,570  | )   |  |           | 10,893  |              |  |       | 27,027  |          |  |              |       |              |  |          | (881,650  | )     |  |      | 899,830  |   |  |   | 18,180    |  

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##### Table of Contents



ECHOSTAR DBS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued

Geographic Information (in thousands) and Transaction with Major Customers

|                                                |  |               |           |        |  |       |        |  |  |   |           | 
|----------------------------------------------- |  | ------------- | --------- | ------ |  | ----- | ------ |  |  | - | --------- | 
|                                                |  | United States |           | Europe |  | Total
|                                                |  |               |           |        |  |      
|2000                                            |  |               |           |        |  |       |        |  |  |   |           | 
|Total revenue                                   |  | $             | 2,660,827 |        |  | $     | 48,087 |  |  | $ | 2,708,914 | 
|Long-lived assets, including FCC authorizations |  |               | 2,035,452 |        |  |       | 3,546  |  |  |   | 2,038,998 | 
|2001                                            |  |               |           |        |  |       |        |  |  |   |           | 
|Total revenue                                   |  | $             | 3,889,352 |        |  | $     | 97,531 |  |  | $ | 3,986,883 | 
|Long-lived assets, including FCC authorizations |  |               | 2,193,584 |        |  |       | 4,879  |  |  |   | 2,198,463 | 
|2002                                            |  |               |           |        |  |       |        |  |  |   |           | 
|Total revenue                                   |  | $             | 4,742,187 |        |  | $     | 61,450 |  |  | $ | 4,803,637 | 
|Long-lived assets, including FCC authorizations |  |               | 2,524,557 |        |  |       | 2,824  |  |  |   | 2,527,381 | 

Revenues are attributed to geographic regions based upon the location from
which the sale originated. United States revenue includes transactions with
both United States and International customers. Europe revenue includes
transactions with customers in Europe, Africa and the Middle East. During the
years ended December 31, 2000 and 2001, United States revenue included export
sales to two international customers which totaled $187 million and $176
million, respectively. During the year ended December 31, 2002, United States
revenue included export sales to one international customer which totaled $169
million. These international sales accounted for approximately 7%, 4% and 3.5%
of EchoStars total revenue during each of the years ended December 31, 2000,
2001 and 2002, respectively. Revenues from these customers are included within
the EchoStar Technologies Corporation operating segment.

11. Valuation and Qualifying Accounts

The Companys valuation and qualifying accounts as of December 31, 2000,
2001 and 2002 are as follows (in thousands):

|                              |         |                                 |  |                   |        |                  |  |            |        |             |  |            |         |   |  |   |        | 
|----------------------------- | ------- | ------------------------------- |  | ----------------- | ------ | ---------------- |  | ---------- | ------ | ----------- |  | ---------- | ------- | - |  | - | ------ | 
|                              |         |                                 |  | Balance at        |        | Charged to Costs |  |            |        |             |  | Balance at
|                              |         |                                 |  | Beginning of Year |        | and Expenses     |  | Deductions |        | End of Year
|                              |         |                                 |  |                   |        |                  |  |            |        |            
|Year ended December 31, 2000: |         |                                 |  |                   |        |                  |  |            |        |             |  |            |         |   |  |  
|                              | Assets: |                                 |  |                   |        |                  |  |            |        |             |  |            |         |   |  |   |       
|                              |         | Allowance for doubtful accounts |  | $                 | 13,109 |                  |  | $          | 45,091 |             |  | $          | (38,266 | ) |  | $ | 19,934 | 
|                              |         | Reserve for inventory           |  |                   | 3,880  |                  |  |            | 6,357  |             |  |            | (395    | ) |  |   | 9,842  | 
|Year ended December 31, 2001: |         |                                 |  |                   |        |                  |  |            |        |             |  |            |         |   |  |  
|                              | Assets: |                                 |  |                   |        |                  |  |            |        |             |  |            |         |   |  |   |       
|                              |         | Allowance for doubtful accounts |  | $                 | 19,934 |                  |  | $          | 59,076 |             |  | $          | (70,162 | ) |  | $ | 8,848  | 
|                              |         | Reserve for inventory           |  |                   | 9,842  |                  |  |            | 12,174 |             |  |            | (8,829  | ) |  |   | 13,187 | 
|Year ended December 31, 2002: |         |                                 |  |                   |        |                  |  |            |        |             |  |            |         |   |  |  
|                              | Assets: |                                 |  |                   |        |                  |  |            |        |             |  |            |         |   |  |   |       
|                              |         | Allowance for doubtful accounts |  | $                 | 8,848  |                  |  | $          | 52,871 |             |  | $          | (52,443 | ) |  | $ | 9,276  | 
|                              |         | Reserve for inventory           |  |                   | 13,187 |                  |  |            | 7,341  |             |  |            | (10,887 | ) |  |   | 9,641  | 

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##### Table of Contents



ECHOSTAR DBS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Continued

12. Quarterly Financial Data (Unaudited)

The Companys quarterly unaudited results of operations are summarized as
follows (in thousands, except per share amounts):

|                              |                         |  |                    |           |         |  |              |           |             |  |   |           |  |  |   |           |  
|----------------------------- | ----------------------- |  | ------------------ | --------- | ------- |  | ------------ | --------- | ----------- |  | - | --------- |  |  | - | --------- | -
|                              |                         |  | Three Months Ended
|                              |                         |  |                   
|                              |                         |  | March 31           |           | June 30 |  | September 30 |           | December 31
|                              |                         |  |                    |           |         |  |              |           |            
|                              |                         |  | (Unaudited)       
|Year Ended December 31, 2001: |                         |  |                    |           |         |  |              |           |             |  |   |           |  |  |   |          
|                              | Total revenue           |  | $                  | 858,306   |         |  | $            | 962,600   |             |  | $ | 1,019,335 |  |  | $ | 1,146,642 |  
|                              | Operating
income (loss) |  |                    | (12,462   | )       |  |              | 67,184    |             |  |   | 77,496    |  |  |   | 83,478    |  
|                              | Net income (loss)       |  |                    | (57,905   | )       |  |              | 25,107    |             |  |   | 30,318    |  |  |   | 34,131    |  
|Year Ended December 31, 2002: |                         |  |                    |           |         |  |              |           |             |  |   |           |  |  |   |          
|                              | Total revenue           |  | $                  | 1,101,153 |         |  | $            | 1,160,040 |             |  | $ | 1,220,482 |  |  | $ | 1,321,962 |  
|                              | Operating income (loss) |  |                    | 101,617   |         |  |              | 143,214   |             |  |   | 98,626    |  |  |   | 88,987    |  
|                              | Net income (loss)       |  |                    | 18,927    |         |  |              | 51,193    |             |  |   | 14,872    |  |  |   | (66,812   | )

13. Subsequent Events

Effective February 1, 2003, EDBS redeemed all of its outstanding 9 1/4 %
Senior Notes due 2006. In accordance with the terms of the indenture governing
the notes, the $375 million principal amount of the notes was repurchased at
104.625 percent, for a total of approximately $392 million. The premium paid
of approximately $17 million, along with unamortized debt issuance costs of
approximately $3 million, have been recorded as charges to earnings as of
February 1, 2003.

F-47