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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
 Form 10-K (Mark One)þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED
DECEMBER 31, 2004ORo
    
    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  Colorado
    
    84-1328967(State or other jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Identification No.)9601 South Meridian BoulevardEnglewood, Colorado
    
    80112(Address of principal executive offices)
    
    (Zip Code)
 Registrants telephone number, including area code: (303) 723-1000 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 þ 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 25, 2005,
the Registrants outstanding common stock consisted of 1,015 shares of common stock, $0.01 par value. Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
Yes o No þ 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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TABLE OF CONTENTS PART IDisclosure regarding forward-looking statements
    
    
    iItem 1. Business
    
    
    1Item 2. Properties
    
    
    3Item 3. Legal Proceedings
    
    
    4Item 4. Submission of Matters to a Vote of Security Holders
    
    
    *PART IIItem 5. Market for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
    
    
    10Item 6. Selected Financial Data
    
    
    *Item 7. Managements Narrative Analysis of Results of Operations
    
    
    10Item 7A. Quantitative and Qualitative Disclosures about Market Risk
    
    
    26Item 8. Financial Statements and Supplementary Data
    
    
    28Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    28Item 9A. Controls and Procedures
    
    
    28PART IIIItem 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. Principal Accountant Fees and Services
    
    
    *PART IVItem 15. Exhibits and Financial Statement Schedules
    
    
    29Signatures
    
    
    33Index to Consolidated Financial Statements
    
    
    F-1Section 302 Certification by Chairman and CEOSection 302 Certification by Executive VP and CFOSection 906 Certification by Chairman and CEOSection 906 Certification by Executive VP and CFO
    *This item has been omitted pursuant to the reduced disclosure format as set forth in General
Instructions (I) (2) (a) and (c) of Form 10-K.




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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, intend, plan, estimate,
expect or anticipate will occur and other similar statements), you must remember that our
expectations may not turn out to be correct, even though we believe they are reasonable. We do not
guarantee that any future transactions or events described herein will happen as described or that
they will happen at all. You should read this document completely and with the understanding that
actual future results may be materially different from what we expect. Whether actual events or
results will conform to our expectations and predictions is subject to a number of risks and
uncertainties. These risks and uncertainties include, but are not limited to, the
following:  
    we face intense and increasing competition from the satellite and cable television
industry; new competitors are likely to 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;
    partners in our co-branding and other distribution relationships may de-emphasize or
discontinue their efforts to acquire DISH Network subscribers, or may begin offering
non-DISH Network video services, which would cause our subscriber additions and related
revenue to decline and could cause our subscriber turnover and other costs to increase;
    satellite programming signals have been pirated and will continue to be pirated in the
future; pirating could cause us to lose subscribers and revenue, and result in higher costs
to us;
    programming costs may increase beyond our current expectations; we may be unable to
obtain or renew programming agreements on acceptable terms or at all; existing programming
agreements could be subject to cancellation; foreign programming is increasingly offered on
other platforms which could cause our subscriber additions and related revenue to decline
and could cause our subscriber turnover to increase;
    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;
    the regulations governing our industry may change;
    certain provisions of the Satellite Home Viewer Extension and Reauthorization Act of
2004, or SHVERA, may force us to stop offering local channels in certain markets or incur
additional costs to continue offering local channels in certain markets;
    our satellite launches may be delayed or fail, or our satellites may fail in orbit prior
to the end of their scheduled lives causing extended interruptions of some of the channels
we offer;
    we currently do not have commercial insurance covering losses incurred from the failure
of satellite launches and/or in-orbit satellites;
    service interruptions arising from technical anomalies on satellites or on-ground
components of our DBS system, or caused by war, terrorist activities or natural disasters,
may cause customer cancellations or otherwise harm our business;
    We are heavily dependent on complex information technologies; weaknesses in our
information technology systems could have an adverse impact on our business; we may have
difficulty attracting and retaining qualified personnel to maintain our information
technology infrastructure;
    we may be unable to obtain needed retransmission consents, Federal Communications
Commission (FCC) authorizations or export licenses, and we may lose our current or future
authorizations;
    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;
    we are highly leveraged and subject to numerous constraints on our ability to raise
additional debt; i




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
    acquisitions, business combinations, strategic partnerships, divestitures and other
significant transactions may involve additional uncertainties;
    terrorist attacks, the possibility of war or other hostilities, and changes in political
and economic conditions as a result of these events may continue to affect the U.S. and the
global economy and may increase other risks;
    EchoStar Communications Corporation (EchoStar), our ultimate parent company, is
periodically evaluating and testing its internal controls over financial reporting in order
to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act. This evaluation and
testing of internal control over financial reporting includes internal control over
financial reporting relating to our operations. Although EchoStars management concluded
that its internal control over financial reporting was effective as of December 31, 2004,
if in the future EchoStar is unable to report that its internal control over financial
reporting is effective (or if EchoStars auditors do not agree with EchoStar managements
assessment of the effectiveness of, or are unable to express an opinion on, EchoStars
internal control over financial reporting), investors, customers and business
partners could lose confidence in the accuracy of our financial reports, which could in
turn have a material adverse effect on our business; and
    we may face other risks described from time to time in periodic and current reports we
file with the Securities and Exchange Commission (SEC). All cautionary statements made herein should be read as being applicable to all forward-looking
statements wherever they appear. In this connection, investors should consider the risks described
herein and should not place undue reliance on any forward-looking statements. We assume no responsibility for updating forward-looking information contained or incorporated by
reference herein or in other reports we file with the SEC. In this document, the words we, our, us, and EDBS refer to EchoStar DBS Corporation and
its subsidiaries, unless the context otherwise requires. EchoStar and ECC refer to Echostar
Communications Corporation and its subsidiaries. ii




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PART I 
 Item 1. BUSINESS Brief Description of Business EchoStar DBS Corporation (EDBS, the Company, we, us and/or our) is a holding company and
a wholly-owned subsidiary of EchoStar Communications Corporation (EchoStar or ECC), a publicly
traded company listed on the Nasdaq National Market. EDBS was formed under Colorado law in January
1996. EchoStar has placed ownership of its nine in-orbit satellites and related FCC licenses into
our subsidiaries. We refer readers of this report to EchoStars Annual Report on Form 10-K for the
year ended December 31, 2004. Substantially all of EchoStars operations are conducted by our
subsidiaries which operate two interrelated business units:  
    The DISH Network  which provides a direct broadcast satellite (DBS) subscription
television service in the United States; and
    EchoStar Technologies Corporation(ETC)
 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. ETC also designs, develops and
distributes similar equipment for international satellite service providers. Since 1994, we have deployed substantial resources to develop the EchoStar DBS System. The
EchoStar DBS System consists of our FCC-allocated DBS spectrum, our owned and leased satellites,
EchoStar receiver systems, digital broadcast operations centers, customer service facilities, and
certain other assets utilized in our operations. Our principal business strategy is to continue
developing our subscription television service in the United States to provide consumers with a
fully competitive alternative to cable television service. Recent Developments $1.0 Billion Senior Notes Offering.On October 1, 2004, we sold $1.0 billion principal amount of
our 6 5/8% Senior Notes due October 1, 2014. The Notes were sold in a private placement to
qualified institutional buyers in reliance on Rule 144A under the Securities Act of 1933. We
used the net proceeds from issuance of the Notes, together with available cash, to redeem all of
our outstanding 10 3/8% Senior Notes due 2007. 10 3/8% Senior Notes Redemption.Effective October 1, 2004, we redeemed all of our outstanding 10
3/8% Senior Notes due 2007. In accordance with the terms of the indenture governing the notes, the
$1.0 billion principal amount of the notes was redeemed at 105.188%, for a total of approximately
$1.052 billion. The premium paid of approximately $51.9 million, along with unamortized debt
issuance costs of approximately $4.1 million, were recorded as charges to earnings during the
fourth quarter of 2004. Cash Dividend.On December 14, 2004, EchoStar paid a one-time cash dividend of $1.00 per share,
or approximately $455.7 million, on outstanding shares of its Class A and Class B common stock.
On December 13, 2004, we paid a dividend of approximately $500.0 million to EchoStar to fund the
payment of this dividend and other potential EchoStar cash needs. Cablevision Satellite Acquisition.On January 20, 2005, we agreed to purchase certain satellite
assets from Rainbow DBS Co., a subsidiary of Cablevision Systems Corporation for $200.0 million.
Specifically, we have agreed to purchase Rainbow 1, a direct broadcast satellite located at 61.5
degrees West Longitude, together with the rights to 11 DBS frequencies at that location. The
satellite includes 13 transponders, up to 12 of which can be operated in spot beam mode. Also,
as part of this transaction, we will acquire ground facilities and related assets in Black Hawk,
S.D. The transaction is subject to customary conditions including regulatory approval by the FCC.
There can be no assurance that such approval will be obtained. 1




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Settlement of EchoStar IV Arbitration.Several years ago, EchoStar filed a $219.3 million
insurance claim as a result of the failure of our EchoStar IV satellite to operate properly. The
satellite insurance consisted of separate, substantially identical policies with many carriers for
varying amounts which, in combination, created a total insured amount of $219.3 million. All of
the carriers contested the loss claim, resulting in arbitration under the terms of the policies. On March 4, 2005, EchoStar agreed to settle its insurance claim and related claims for accrued
interest and bad faith with all carriers who agree to pay their proportionate share of an aggregate
net amount of $240.0 million. We retained title to and use of the EchoStar IV satellite. Payment
from each settling carrier is due on or before April 26, 2005, with interest commencing to accrue
on April 12, 2005. EchoStar has received signed agreements back from all insurers. Amounts payable to us in excess of our previously recorded $106.0 million receivable will be
recognized in income during the period in which the respective insurers sign the settlement
agreement. See Item 3  Legal Proceedings for more information relating to the underlying
insurance claim and our historical accounting for that claim. Internal Review.EchoStars Audit Committee recently completed a review of recordkeeping and
internal control issues relating to certain of our vendor and third party relationships (the
Review). The Review concluded that EchoStars recordkeeping in prior years and the current
control environment were deficient and reported one instance in which
one of EchoStars executive officers
in charge of certain business functions directed the preparation, in prior years, of inaccurate
documentation that was used to determine payments made to a vendor. Management has evaluated this
instance and determined that it constitutes a significant
deficiency in EchoStars internal
control over financial reporting, as defined by the Public Company Accounting Oversight Boards
Auditing Standard No. 2. Notwithstanding this determination, no adjustments to our consolidated
financial statements were required as a result of the Review, and none were made. We are, however,
implementing several changes recommended by EchoStars Audit Committee to our governance, operating and
control policies and procedures. EchoStars has also taken disciplinary action and other steps to
remediate the conduct underlying the deficiencies identified by the Audit Committees Review. Following the March 10, 2005 publication of a news article purporting to describe the Review and
other matters, EchoStar received a phone call from the Division of Enforcement of the Securities
and Exchange Commission inquiring about the matters described in the news article. EchoStar
intends to fully respond to that inquiry. On March 14, 2005, a shareholder derivative lawsuit was filed against EchoStar, its chairman and
chief executive officer Charles W. Ergen and the members of its board of directors in the District
Court of Douglas County, Colorado. The complaint alleges, among other things, that the members of
EchoStars board of directors breached their fiduciary duties to EchoStar in connection with the
matters that were the subject of the Review. WHERE YOU CAN FIND MORE INFORMATION We are subject to the informational requirements of the Exchange Act and accordingly file our
annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy
statements and other information with the Securities and Exchange Commission (SEC). The Public
may read and copy any materials filed with the SEC at the SECs Public Reference Room at 450 Fifth
Street, NW, Washington, DC 20549. Please call the SEC at (800) SEC-0330 for further information on
the Public Reference Room. As an electronic filer, our public filings are maintained on the SECs
Internet site that contains reports, proxy and information statements, and other information
regarding issuers that file electronically with the SEC. The address of that website is
http://www.sec.gov. WEBSITE ACCESS Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and
amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange
Act also may be accessed free of charge through our website as soon as reasonably practicable after
we have electronically filed such material with, or furnished it to, the SEC. The address of that
website is http://www.echostar.com. 2




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Item 2. PROPERTIES The following table sets forth certain information concerning the principal properties of EchoStar: ApproximateSegment(s)
    
    
    Square
    
    
    Owned orDescription/Use/Location
    

Using Property
    
    
    Footage
    
    
    LeasedCorporate headquarters, Englewood, Colorado
    
    All
    
    
    476,000
    
    
    OwnedEchoStar Technologies Corporation engineering offices and
service center, Englewood, Colorado
    
    ETC
    
    
    150,000
    
    
    OwnedEchoStar Technologies Corporation engineering offices,
Englewood,
Colorado
    
    ETC
    
    
    63,000
    
    
    OwnedDigital broadcast operations center, Cheyenne, Wyoming
    
    DISH Network
    
    
    123,000
    
    
    OwnedDigital broadcast operations center, Gilbert, Arizona
    
    DISH Network
    
    
    120,000
    
    
    OwnedCustomer call center and data center, Littleton, Colorado
    
    DISH Network
    
    
    202,000
    
    
    OwnedCustomer call center, warehouse and service center, El Paso, Texas
    
    DISH Network
    
    
    171,000
    
    
    OwnedCustomer call center, McKeesport, Pennsylvania
    
    DISH Network
    
    
    106,000
    
    
    LeasedCustomer call center, Christiansburg, Virginia
    
    DISH Network
    
    
    103,000
    
    
    OwnedCustomer call center and general offices, Tulsa, Oklahoma
    
    DISH Network
    
    
    78,500
    
    
    LeasedCustomer call center and general offices, Pine Brook, New Jersey
    
    DISH Network
    
    
    67,000
    
    
    LeasedCustomer call center, Thornton, Colorado
    
    DISH Network
    
    
    55,000
    
    
    OwnedCustomer call center, Harlingen,
Texas
    
    DISH Network
    
    
    54,000
    
    
    OwnedCustomer call center, Bluefield, West Virginia
    
    DISH Network
    
    
    50,000
    
    
    OwnedWarehouse, distribution and service center, Atlanta, Georgia
    
    DISH Network
    
    
    144,000
    
    
    LeasedWarehouse and distribution center, Denver, Colorado
    
    DISH Network
    
    
    163,000
    
    
    LeasedWarehouse and distribution center, Sacramento, California
    
    DISH Network
    
    
    82,000
    
    
    OwnedWarehouse and distribution center, Dallas, Texas
    
    DISH Network
    
    
    80,000
    
    
    LeasedWarehouse and distribution center, Chicago, Illinois
    
    DISH Network
    
    
    48,000
    
    
    LeasedWarehouse and distribution center, Denver, Colorado
    
    DISH Network
    
    
    44,000
    
    
    OwnedWarehouse and distribution center, Baltimore, Maryland
    
    DISH Network
    
    
    37,000
    
    
    LeasedEngineering offices and warehouse, Almelo, The Netherlands
    
    Other
    
    
    55,000
    
    
    Owned
 In addition to the principal properties listed above, we operate several DISH Network service
centers strategically located in regions throughout the United States. 3




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Item 3. LEGAL PROCEEDINGS Distant Network Litigation Until July 1998, we obtained feeds of distant broadcast network channels (ABC, NBC, CBS and FOX)
for distribution to our customers through PrimeTime 24. In December 1998, the United States
District Court for the Southern District of Florida in Miami entered a nationwide permanent
injunction requiring PrimeTime 24 to shut off distant network channels to many of its customers,
and henceforth to sell those channels to consumers in accordance with 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 find that
its method of providing distant network programming did not violate the Satellite Home Viewer
Improvement Act (SHVIA) and hence did not infringe the networks copyrights. In November 1998,
the networks and their affiliate association 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. 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 we do not know if they adhered to this schedule. 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. 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 March 10, 2004, EchoStar reached a private settlement with CBS,
another of the plaintiffs in the litigation and jointly filed a stipulation of dismissal. EchoStar
has also reached private settlements with many independent stations and station groups. EchoStar
was unable to reach a settlement with five of the original eight plaintiffs -Fox and the
independent affiliate groups associated with each of the four networks. A trial took place during April 2003 and the District Court issued a final judgment in June 2003.
The District Court found that with one exception our current distant network qualification
procedures comply with the law. We have revised our procedures to comply with the District Courts
Order. Although the plaintiffs asked the District Court to enter an injunction precluding EchoStar
from selling any local or distant network programming, the District Court refused. While the
plaintiffs did not claim monetary damages and none were awarded, the plaintiffs were awarded
approximately $4.8 million in attorneys fees. This amount is substantially less than the amount
the plaintiffs sought. EchoStar asked the Court to reconsider the award and the Court has vacated
the fee award. When the award was vacated, the District Court also allowed EchoStar an opportunity
to conduct discovery concerning the amount of plaintiffs requested fees. The parties have agreed
to postpone discovery and an evidentiary hearing regarding attorneys fees until after the Court of
Appeals rules on the pending appeal of the Courts June 2003 final judgment. It is not possible to
make a firm assessment of the probable outcome of plaintiffs outstanding request for fees. The District Courts injunction requires us to use a computer model to re-qualify, as of June 2003,
all of our subscribers who receive ABC, NBC, CBS or Fox programming by satellite from a market
other than the city in which the subscriber lives. The Court also invalidated all waivers
historically provided by network stations. These waivers, which have been provided by stations for
the past several years through a third party automated system, allow subscribers who believe the
computer model improperly disqualified them for distant network channels to nonetheless receive
those channels by satellite. Further, even though SHVIA provides that certain subscribers who
received distant network channels prior to October 1999 can continue to receive those channels
through December 4




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2004, the District Court terminated the right of our grandfathered subscribers to continue to
receive distant network channels. EchoStar believes the District Court made a number of errors and appealed the decision. Plaintiffs
cross-appealed. The Court of Appeals granted EchoStars request to stay the injunction until
EchoStars appeal is decided. Oral arguments occurred during February 2004. It is not possible to
predict how or when the Court of Appeals will rule on the merits of EchoStars appeal. In the event the Court of Appeals upholds the injunction, and if EchoStar does not reach private
settlement agreements with additional stations, we will attempt to assist subscribers in arranging
alternative means to receive network channels, including migration to local channels by satellite
where available, and free off air antenna offers in other markets. However, we cannot predict with
any degree of certainty how many subscribers would cancel their primary DISH Network programming as
a result of termination of their distant network channels. We could be required to terminate
distant network programming to all subscribers in the event the plaintiffs prevail on their
cross-appeal and EchoStar is permanently enjoined from delivering all distant network channels.
Termination of distant network programming to subscribers would result, among other things, in a
reduction in average monthly revenue per subscriber and a temporary increase in subscriber churn. Satellite Insurance Several years ago, EchoStar filed a $219.3 million insurance claim for a total loss under the
launch insurance policies covering our EchoStar IV satellite. 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 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 EchoStar a total of approximately $88.0 million, or 40% of the total
policy amount, in settlement of the EchoStar IV insurance claim. EchoStar rejected this settlement
offer and submitted its claim to arbitration pursuant to the terms of the insurance policies. On March 4, 2005, EchoStar agreed to settle its insurance claim and related claims for accrued
interest and bad faith with all carriers who agree to pay their proportionate share of an aggregate
net amount of $240.0 million. We retained title to and use of the EchoStar IV satellite. Payment
from each settling carrier is due on or before April 26, 2005, with interest commencing to accrue
on April 12, 2005. EchoStar has received signed agreements back from all insurers. 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. 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 5




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laws governing unfair competition. Gemstar filed counterclaims alleging infringement of additional
patents and asserted new patent infringement counterclaims. In February 2001, Gemstar filed additional patent infringement actions against EchoStar in the
District Court in Atlanta, Georgia and with the ITC. EchoStar settled all of the litigation with
Gemstar during 2004 (See Note 2 in the Notes to the Consolidated Financial Statements in Item 15 of
this Annual Report on Form 10-K). Superguide During 2000, Superguide Corp. (Superguide) 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. We examined these patents and believe that they are not infringed by any of our products
or services. On summary judgment, the District Court ruled that none of the asserted patents were infringed by
us. These rulings were appealed to the United States Court of Appeals for the Federal Circuit.
During February 2004, the Federal Circuit affirmed in part and reversed in part the District
Courts findings and remanded the case back to the District Court for further proceedings. Based
upon the settlement with Gemstar discussed above, EchoStar now has an additional defense in this
case based upon a license from Gemstar. EchoStar will continue to vigorously defend this case. In
the event that a Court ultimately determines that we infringe on any of the patents, EchoStar may
be subject to substantial damages, which may include treble damages and/or an injunction that could
require us to materially modify certain user-friendly electronic programming guide and related
features that we currently offer to consumers. It is not possible to make a firm assessment of the
probable outcome of the suit or to determine the extent of any potential liability or damages. Broadcast Innovation, L.L.C. In November of 2001, Broadcast Innovation, L.L.C. filed a lawsuit against EchoStar, DirecTV,
Thomson Consumer Electronics and others in Federal District Court in Denver, Colorado. The suit
alleges infringement of United States Patent Nos. 6,076,094 (the 094 patent) and 4,992,066 (the
066 patent). The 094 patent relates to certain methods and devices for transmitting and
receiving data along with specific formatting information for the data. The 066 patent relates to
certain methods and devices for providing the scrambling circuitry for a pay television system on
removable cards. We examined these patents and believe that they are not infringed by any of our
products or services. Subsequently, DirecTV and Thomson settled with Broadcast Innovation leaving
EchoStar as the only defendant. During January 2004, the judge issued an order finding the 066 patent invalid. In August of 2004,
the Court ruled the 094 invalid in a parallel case filed by Broadcast Innovation against Charter
and Comcast. EchoStars case is stayed pending the appeal of the Charter case. EchoStar intends
to continue to vigorously defend this case. In the event that a Court ultimately determines that
we infringe on any of the patents, EchoStar may be subject to substantial damages, which may
include treble damages and/or an injunction that could require us to materially modify certain
user-friendly features that we currently offer to consumers. It is not possible to make a firm
assessment of the probable outcome of the suit or to determine the extent of any potential
liability or damages. TiVo Inc. During January 2004, TiVo Inc. filed a lawsuit against EchoStar in the United States District Court
for the Eastern District of Texas. The suit alleges infringement of United States Patent No.
6,233,389 (the 389 patent). The 389 patent relates to certain methods and devices for
providing what the patent calls time-warping. We have examined this patent and do not believe
that it is infringed by any of our products or services. During March 2005, the Court denied
EchoStars motion to transfer this case to the United States District Court for the Northern
District of California. EchoStar intends to vigorously defend this case. In the event that a
Court ultimately determines that 6




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we infringe this patent, EchoStar may be subject to substantial damages, which may include treble
damages and/or an injunction that could require us to materially modify certain user-friendly
features that we currently offer to consumers. It is not possible to make a firm assessment of the
probable outcome of the suit or to determine the extent of any potential liability or damages. Acacia In June 2004, Acacia Media Technologies filed a lawsuit against EchoStar in the United States
District Court for the Northern District of California. The suit also named DirecTV, Comcast,
Charter, Cox and a number of smaller cable companies as defendants. Acacia is an intellectual
property holding company which seeks to license the patent portfolio that it has acquired. The
suit alleges infringement of United States Patent Nos. 5,132,992, 5,253,275, 5,550,863, 6,002,720
and 6,144,702 (herein after the 992, 275, 863, 720 and 702 patents, respectively). The 992,
863, 720 and 702 patents have been asserted against EchoStar. The asserted patents relate to various systems and methods related to the transmission of digital
data. The 992 and 702 patents have also been asserted against several internet adult content
providers in the United States District Court for the Central District of California. On July 12,
2004, that Court issued a Markman ruling which found that the 992 and 702 patents were not as
broad as Acacia had contended. Acacias various patent infringement cases have now been consolidated for pre-trial purposes in the
United States District court for the Northern District of California. EchoStar intends to
vigorously defend this case. In the event that a Court ultimately determines that we infringe on
any of the patents, EchoStar may be subject to substantial damages, which may include treble
damages and/or an injunction that could require us to materially modify certain user-friendly
features that we currently offer to consumers. It is not possible to make a firm assessment of the
probable outcome of the suit or to determine the extent of any potential liability or damages. California Action 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 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 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 attorneys 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 attorneys fees. During December 2003,
the Court of Appeals affirmed in part; and reversed in part, the lower courts decision granting
summary judgment in EchoStars favor. Specifically, the Court found there were triable issues of
fact whether EchoStar may have violated the alleged consumer statutes with representations
concerning the number of channels and the program schedule. However, the Court found no triable
issue of fact as to whether the representations crystal clear digital video or CD quality audio
constituted a cause of action. Moreover, the Court affirmed that the reasonable consumer
standard was applicable to each of the alleged consumer statutes. Plaintiff argued the standard
should be the least sophisticated consumer. The Court also affirmed the dismissal of Plaintiffs
breach of warranty claim. Plaintiff filed a Petition for Review with the California Supreme Court
and EchoStar responded. During March 2004, the California Supreme Court denied Plaintiffs
Petition for Review. Therefore, the action has been remanded to the trial court pursuant to the
instructions of the Court of Appeals. Hearings on class certification were conducted on December
21, 2004 and on February 7, 2005. The Court denied Plaintiffs motion for class certification on
February 10, 2005. It is uncertain whether the Plaintiff will appeal this decision. Therefore, it
is not possible to make an assessment of the probable outcome of the litigation or to determine the
extent of any potential liability. 7




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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 our 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 is vigorously defending against the suits and has asserted
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 filed a motion for additional time to conduct discovery to enable
them to respond to our motion. The Court granted a limited discovery period which ended November
15, 2004. The Court is hearing discovery related motions and EchoStar expects the Court to follow
with a briefing schedule for the motion for summary judgment. It is not possible 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 against EchoStar 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 we: (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, the ownership of certain
equipment related to the provision of our satellite television service. During September 2001, the
Court granted EchoStars motion to dismiss. 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 perfected appeals before
the Fifth Circuit Court of Appeals. On appeal, the Fifth Circuit upheld the dismissal. The Fifth
Circuit vacated and remanded the District Courts denial of EchoStars motion for sanctions. The
District Court subsequently issued a written opinion containing the same findings. The only issue
remaining is EchoStars collection of costs, which were previously granted by the Court. StarBand Shareholder Lawsuit During August 2002, a limited group of shareholders in StarBand, a broadband Internet satellite
venture in which EchoStar invested, 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 EchoStars Board of Directors. The action stems from the defendants involvement as directors,
and EchoStars position as a shareholder, in StarBand. During July 2003, the Court granted the
defendants motion to dismiss on all counts. The Plaintiffs appealed. On April 15, 2004, the
Delaware Supreme Court remanded the case instructing the Chancery Court to re-evaluate its decision
in light of a recent opinion of the Delaware Supreme Court, Tooley v. Donaldson, No. 84,2004 (Del.
Supr. April 2, 2004). Plaintiffs filed a motion to amend their complaint which was denied by the
Court. The Plaintiffs appealed the denial of their motion to amend and the appeal is pending. It
is not possible to make a firm assessment of the probable outcome of the litigation or to determine
the extent of any potential liability or damages. Enron Commercial Paper Investment Complaint During November 2003, an action was commenced in the United States Bankruptcy Court for the
Southern District of New York, against approximately 100 defendants, including EchoStar, who
invested in Enrons commercial paper. 8




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The complaint alleges that Enrons October 2001 prepayment of its commercial paper is a voidable
preference under the bankruptcy laws and constitutes a fraudulent conveyance. The complaint
alleges that EchoStar received voidable or fraudulent prepayments of approximately $40.0 million.
EchoStar typically invests in commercial paper and notes which are rated in one of the four highest
rating categories by at least two nationally recognized statistical rating organizations. At the
time of EchoStars investment in Enron commercial paper, it was considered to be high quality and
considered to be a very low risk. The defendants have moved the Court to dismiss the case on
grounds that Enrons complaint does not adequately state a legal claim. Those motions are
currently under consideration by the Court. 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. Bank One During March 2004, Bank One, N.A. (Bank One) filed suit against EchoStar and one of our
subsidiaries, EchoStar Acceptance Corporation (EAC), in the Court of Common Pleas of Franklin
County, Ohio alleging breach of a duty to indemnify. Bank One alleges that EAC is contractually
required to indemnify Bank One for a settlement it paid to consumers who entered private label
credit card agreements with Bank One to purchase satellite equipment in the late 1990s. Bank One
alleges that EchoStar entered into a guarantee wherein it agreed to pay any indemnity obligation
incurred by Bank One. During April 2004, EchoStar removed the case to federal court in Columbus,
Ohio. EchoStar denies the allegations and intends to vigorously defend against the claims.
EchoStar filed a motion to dismiss the Complaint which was granted in part and denied in part. The
Court granted EchoStars motion, agreeing EchoStar did not owe Bank One a duty to defend the
underlying lawsuit. However, the Court denied the motion in that Bank One will be allowed to
attempt to prove that EchoStar owed Bank One a duty to indemnify. The case is currently in
discovery. It is too early in the litigation to make an assessment of the probable outcome of the
litigation or to determine the extent of any potential liability or damages. Church Communications Network, Inc. During August 2004, Church Communications Network, Inc. (CCN) filed suit against EchoStar
Satellite L.L.C. (ESLLC) in the United States District Court for the Northern District of
Alabama. CCN contends that our contractual relationship with Dominion Video Satellite, Inc., a
direct broadcast provider that airs only Christian programming, constitutes a breach of a
commercial television services agreement between ESLLC and CCN (the CCN Agreement). Further, CCN
contends that our reluctance to disclose the confidential provisions of the Dominion/EchoStar
agreement warrant causes of action for negligent misrepresentation, intentional misrepresentation,
and non-disclosure. We filed a motion to dismiss CNNs complaint, or alternatively to transfer the
case to a Colorado court. The Court denied our motion to dismiss, but granted our motion to
transfer. As a result, the action was transferred to the United States District Court for the
District of Colorado. Thereafter, we filed a motion to dismiss the case in the Colorado court.
The motion to dismiss is currently pending before the Court and the case is currently in discovery. Although the CCN Agreement specifically limits damages to $500,000, CCN initially sought $1.5
million. As this case progressed, CCN initially increased the amount of its alleged damages to
over $3.0 million and has recently indicated that it is now seeking damages in excess of $15.0
million. As this is currently in early discovery it is not possible to make a firm assessment of
the probable outcome of the litigation or to determine the extent of any potential liability or
damages. Vivendi In January 2005, Vivendi Universal, S.A. (Vivendi), filed suit against EchoStar Communications
Corporation in the United States District Court for the Southern District of New York alleging that
EchoStar has anticipatorily repudiated or is in breach of an alleged agreement between EchoStar and
Vivendi pursuant to which we are allegedly required to broadcast a music-video channel provided by
Vivendi. Vivendis complaint seeks injunctive and declaratory relief, and damages in an
unspecified amount. Vivendi has since filed a motion for a preliminary injunction, in which it
asks the Court to order EchoStar to broadcast the Vivendi music-video channel during the pendency
of the litigation and to pay Vivendi for the provision of its music-video channel. EchoStar
intends to 9




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vigorously defend this case. In the event that a Court determines that Vivendi is entitled to a
preliminary injunction, we may be required to broadcast the Vivendi music-video channel during the
pendency of the litigation, which would impact the bandwidth that we have available to broadcast
other services. In the event that a Court ultimately determines that EchoStar has a contractual
obligation to broadcast the Vivendi music-video channel and that EchoStar is in breach of that
obligation, we may be required to broadcast the Vivendi music-video channel and be subject to
substantial damages. It is not possible to make a firm assessment of the probable outcome of the
suit or to determine the extent of any potential liability or damages. Fox Sports Direct During June 2004, Fox Sports Direct (Fox) sued EchoStar in the United States District Court
Central District of California for alleged breach of contract. During October 2004, EchoStar
reached a settlement with Fox for an immaterial amount. Other In addition to the above actions, EchoStar is subject to various other legal proceedings and
claims which arise in the ordinary course of business. In our opinion, the amount of ultimate
liability with respect to any of these actions is unlikely to materially affect our financial
position, results of operations or liquidity. 
 PART II 
 Item 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES Market Information.As of March 25, 2005, all 1,015 issued and outstanding shares of our common
stock were held by EchoStar. There is currently no established trading market for our common
stock. Cash Dividend.On December 14, 2004, EchoStar paid a one-time cash dividend of $1.00 per share,
or approximately $455.7 million, on outstanding shares of its Class A and Class B common stock.
On December 13, 2004, we paid a dividend of approximately $500.0 million to EchoStar to fund the
payment of this dividend and other potential EchoStar cash needs. Payment of any
future dividends will depend upon our earnings and capital requirements, our debt facilities, and
other factors the 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 EXECUTIVE SUMMARY Our strategy for 2005 will focus on improving our operating results and free cash flow by
attempting to increase our subscriber base, reduce churn, control rising subscriber acquisition
costs and maintain or improve operating margins. We will also focus on improving our competitive
position by leveraging our increased satellite capacity to pursue strategic initiatives. Operational Results and Goals Increase our subscriber base and reduce churn.We added approximately 1.480 million net new
subscribers during 2004, ending the year with approximately 10.905 million DISH Network
subscribers. We remain committed to growing our subscriber base with high quality customers by
continuing to offer compelling consumer promotions. These promotions include offers of free or low
cost advanced consumer electronics products, such as digital video recorders and high definition
receivers, as well as various promotional offers of our DISH Network programming 10




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Item 7.
MANAGEMENTS NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS - Continued packages, which we believe generally have a better price-to-value relationship than packages
currently offered by most other subscription television providers. However, there are many reasons we may not be able to maintain our current rate of new subscriber
growth. For example, our subscriber growth would decrease if our partners in our co-branding and
other distribution relationships de-emphasize or discontinue their efforts to acquire DISH network
subscribers, or if they begin offering non-DISH Network video services. Our subscriber growth
would also be negatively impacted to the extent our competitors offer more attractive consumer
promotions, including, among other things, better priced or more attractive programming packages or
more compelling consumer electronic products and services, including advanced digital video
recorders, video on demand (VOD) services, and HDTV services or additional local channels. Many
of our competitors are also better equipped than we are to offer video services bundled with other
telecommunications services such as telephone and broadband data services, including wireless
services. In order to increase our subscriber base we must control our rate of customer turnover, or churn.
Our percentage monthly churn for the year ended December 31, 2004 was approximately 1.62%,
compared to our percentage churn for the same period in 2003 of approximately 1.57%. Our principal
strategy to control churn is to attract higher quality long term customers by imposing heightened
credit requirements and tailoring our promotions toward subscribers desiring multiple receivers and
advanced products such as digital video recorders and high definition receivers. We also plan to
continue to offer advanced products to existing customers through our lease promotions and to
initiate other loyalty programs to improve our overall subscriber retention. However, there can be
no assurance these and other actions we may take to control subscriber churn will be successful,
and we are unlikely to be able to continue to grow our subscriber base at current rates if we
cannot control our customer churn. We also continue to undertake initiatives with respect to our conditional access system to further
enhance the security of the DISH Network signal and attempt to make theft of our programming
commercially impractical or uneconomical. However, piracy and many other factors may have a
material adverse impact on our subscriber churn. Control rising subscriber acquisition costs.We generally subsidize installation and all or a
portion of the cost of EchoStar receiver systems in order to attract new DISH Network subscribers,
and these and other subscriber acquisition costs have increased significantly over the past year.
If a subscriber churns earlier than previously estimated, we may not fully recover the costs
related to the acquisition of that subscriber. Our principal strategies to control rising
subscriber acquisition costs involve growing our base with higher quality customers who are less
likely to churn and reducing the overall cost of subsidized equipment we provide to new customers.
Our principal method for reducing the cost of subscriber equipment is to lease our receiver systems
to new subscribers rather than selling systems to them at little or no cost. Leasing enables us
to, among other things, reduce our future subscriber acquisition costs by redeploying equipment
returned by disconnected lease subscribers to new subscribers. We are further reducing the cost of
subscriber equipment through our design and deployment of EchoStar receivers with multiple tuners
that allow the subscriber to receive our DISH Network services in multiple rooms using a single
set-top box, thereby reducing the number of EchoStar receivers we deploy to each subscriber
household. However, our overall subscriber acquisition costs, including amounts expensed and
capitalized, both in the aggregate and on a per new subscriber basis, may materially increase in
the future to the extent that we introduce more aggressive promotions or newer, more expensive
consumer electronics products in response to new promotions and products offered by our
competitors. In addition, new compression technologies will inevitably render some portion of our
current and future EchoStar receivers obsolete and we will incur additional costs, which may be
substantial, to upgrade or replace these set-top boxes. Maintain or improve operating margins.We will continue to work to generate cost savings during
2005 by improving our operating efficiency and attempting to control rising programming costs.
During 2004, our operating margins were negatively impacted by costs associated with the expansion
of our installation, in-home service and call center operations. We are attempting to control
these costs by improving the quality of the initial installation, providing better subscriber
education in the use of our products and services, and enhancing our training programs for our
in-home service and call center representatives. However, these initiatives may not be sufficient
to maintain or increase our operational efficiencies and we may not be able to continue to grow our
operations cost effectively. 11




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Item 7.
MANAGEMENTS NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS - Continued Our operating margins have also been adversely impacted by rising programming costs. Payments we
make to programmers for programming content represent one of the largest components of our
operating costs. We expect programming providers to continue to demand higher rates for their
programming. We will continue to negotiate aggressively with programming providers in an effort to
control rising programming costs. However, there can be no assurance we will be successful in
controlling these costs, and we may be forced to drop one or more channels if we cannot reach
acceptable agreements with all of our content providers. In addition, there can be no assurance
that we will be able to increase the price of our programming to offset these programming rate
increases without affecting the competitiveness of our programming packages. Leverage Increased Satellite Capacity.We have recently entered into agreements to purchase or
lease a substantial amount of additional satellite capacity. We are currently evaluating various
opportunities to utilize this capacity, including, but not limited to, launching satellite two-way
and wireless broadband data services, increasing our international programming and expanding our
local and high definition programming. However, we face a variety of risks and uncertainties that
may prevent us from utilizing this additional satellite capacity profitably. These risks include,
among other things, the risks that there may be insufficient market demand for these new services
and program offerings, or that customers might find competing services and program offerings more
attractive. In addition, many of these new services depend on successful development of new
technologies which may not perform as we expect. Our results of operation and financial condition
will be adversely affected if we cannot make profitable use of this additional satellite capacity. Explanation of Key Metrics and Other Items Subscriber-related revenue.Subscriber-related revenue consists principally of revenue from
basic, movie, local, international and pay-per-view subscription television services, advertising
sales, digital video recorder fees, equipment rental fees and additional outlet fees from
subscribers with multiple set-top boxes and other subscriber revenue. Contemporaneous with the
commencement of sales of co-branded services pursuant to our agreement with SBC Communications,
Inc. (SBC) during the first quarter of 2004, Subscriber-related revenue also includes revenue
from equipment sales, installation and other services related to that agreement. Revenue from
equipment sales to SBC is deferred and recognized over the estimated average co-branded subscriber
life. Revenue from installation and certain other services performed at the request of SBC is
recognized upon completion of the services.

Development and implementation fees received from SBC are being recognized in Subscriber-related
revenue over the next several years. In order to estimate the amount recognized monthly, we first
divide the number of co-branded subscribers activated during the month under the SBC agreement by
total estimated co-branded subscriber activations during the life of the contract. We then
multiply this percentage by the total development and implementation fees received from SBC. The
resulting estimated monthly amount is recognized as revenue ratably over the estimated average
co-branded subscriber life. Effective January 1, 2004, we combined Subscription television service revenue and Other
subscriber-related revenue into Subscriber-related revenue. All prior period amounts were
reclassified to conform to the current period presentation. Equipment sales.Equipment sales consist of sales of digital set-top boxes and related
components by our ETC subsidiary to an international DBS service provider. Equipment sales also
include unsubsidized sales of DBS accessories to retailers and other distributors of our equipment
domestically and to DISH Network subscribers. Equipment sales does not include revenue from
sales of equipment to SBC. Effective January 1, 2004, Equipment sales includes non-DISH Network
receivers and other accessories sold by our EchoStar International Corporation subsidiary to
international customers which were previously included in Other revenue. All prior period
amounts were reclassified to conform to the current period presentation. Other.Other sales consists principally of subscription television service revenues from the
C-band subscription television service business of Superstar/Netlink Group L.L.C. (SNG) that we
acquired in April 2004. Subscriber-related expenses.Subscriber-related expenses principally include costs incurred in
connection with our in-home service and call center operations, overhead costs associated with our
installation business, programming expenses, copyright royalties, residual commissions paid to
retailers or distributors, billing, lockbox, 12




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Item 7.
MANAGEMENTS NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS - Continued subscriber retention and other variable subscriber expenses. Contemporaneous with the commencement
of sales of co-branded services pursuant to our agreement with SBC during the first quarter of
2004, Subscriber-related expenses also include the cost of sales and expenses from equipment
sales, direct costs of installation and other services related to that relationship. Cost of sales
from equipment sales to SBC are deferred and recognized over the estimated average co-branded
subscriber life. Expenses from installation and certain other services performed at the request of
SBC are recognized as the services are performed. Satellite and transmission expenses.Satellite and transmission expenses include costs
associated with the operation of our digital broadcast centers, the transmission of local channels,
satellite telemetry, tracking and control services, satellite and transponder leases, and other
related services. Cost of sales 
equipment.Cost of sales  equipment principally includes costs associated with
digital set-top boxes and related components sold by our ETC subsidiary to an international DBS
service provider and unsubsidized sales of DBS accessories to DISH Network subscribers and to
retailers and other distributors of our equipment domestically.
Cost of sales  equipment does
not include the costs from sales of equipment to SBC. Effective January 1, 2004, Cost of sales -
equipment includes non-DISH Network receivers and other accessories sold by our EchoStar
International Corporation subsidiary to international customers which were previously included in
Cost of sales  other. All prior period amounts conform to the current period presentation. Cost of sales 
other.Cost of sales  other principally includes programming and other expenses
associated with the C-band subscription television service business of SNG we acquired in April
2004. Subscriber acquisition costs.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.
Our Subscriber acquisition costs include the cost of EchoStar receiver systems sold to retailers
and other distributors of our equipment, the cost of receiver systems sold directly by us to
subscribers, net costs related to our promotional incentives, and costs related to installation and
acquisition advertising. We exclude the value of equipment capitalized under our equipment lease
program from our calculation of Subscriber acquisition costs. We also exclude payments and the
value of returned equipment related to disconnected lease program subscribers from our calculation
of Subscriber acquisition costs. SAC and Equivalent SAC.We are not aware of any uniform standards for calculating SAC and believe
presentations of SAC may not be calculated consistently by different companies in the same or
similar businesses. We calculate SAC by dividing total Subscriber acquisition costs for a period
by the number of gross new DISH Network subscribers during the period. We include all new DISH
Network subscribers in our calculation, including DISH Network subscribers added with little or no
subscriber acquisition costs. Equivalent SAC adds to Subscriber acquisition costs the value of
equipment capitalized under our new subscriber lease program less the value of returned equipment
related to disconnected lease program subscribers, which became available for sale rather than
being redeployed through the lease program, together with payments received in connection with
equipment not returned to us. General and
administrative expenses.General and administrative expenses primarily include
employee-related costs associated with administrative services such as legal, information systems,
accounting and finance. It also includes outside professional fees (i.e. legal and accounting
services) and building maintenance expense and other items associated with administration. Interest expense.Interest expense primarily includes interest expense, prepayment premiums and
amortization of debt issuance costs associated with our debt and convertible debt securities, net
of capitalized interest. Other.The main components of Other income and expense are equity in earnings and losses of our
affiliates, gains and losses on the sale of investments, and impairment of marketable and
non-marketable investment securities. Earnings before interest, taxes, depreciation and amortization (EBITDA).EBITDA is defined as
Net income (loss) plus Interest expense net of Interest income, Taxes and Depreciation and
amortization. DISH Network subscribers.We include customers obtained through direct sales, and through our
retail networks, including our co-branding relationship with SBC and other distribution
relationships, in our DISH Network subscriber 13




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Item 7.
MANAGEMENTS NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS - Continued count. We believe our overall economic return for co-branded and traditional subscribers will be
comparable. We also provide DISH Network service to hotels, motels and other commercial accounts.
For certain of these commercial accounts, we divide our total revenue for these commercial accounts
by an amount approximately equal to the retail price of our most widely distributed programming
package, AT60 (but taking into account, periodically, price changes and other factors), and include
the resulting number, which is substantially smaller than the actual number of commercial units
served, in our DISH Network subscriber count. During April 2004, we acquired the C-band subscription television service business of SNG, the
assets of which primarily consist of acquired customer relationships. Although we expect to
convert some of these customer relationships from C-band subscription television services to our
DISH Network DBS subscription television service, acquired C-band subscribers are not included in
our DISH network subscriber count unless they have also subscribed to our DISH Network DBS
television service. Monthly average revenue per subscriber (ARPU).We are not aware of any uniform standards for
calculating ARPU and believe presentations of ARPU may not be calculated consistently by other
companies in the same or similar businesses. We calculate average monthly revenue per subscriber,
or ARPU, by dividing average monthly Subscriber-related revenues for the period (total
Subscriber-related revenues during the period divided by the number of months in the period) by
our average DISH Network subscribers for the period. Average DISH Network subscribers are
calculated for the period by adding the average DISH Network subscribers for each month and
dividing by the number of months in the period. Average DISH Network subscribers for each month
are calculated by adding the beginning and ending DISH Network subscribers for the month and
dividing by two. As discussed in Subscriber-related revenue above, effective January 1, 2004 we
include amounts previously reported as Other subscriber-related revenue in our ARPU calculation.
All prior period amounts conform to the current period presentation. Subscriber churn/subscriber turnover.We are not aware of any uniform standards for calculating
subscriber churn and believe presentations of subscriber churn may not be calculated consistently
by different companies in the same or similar businesses. We calculate percentage monthly
subscriber churn by dividing the number of DISH Network subscribers who terminate service during
each month by total DISH Network subscribers as of the beginning of that month. We calculate
average subscriber churn for any period by dividing the number of DISH Network subscribers who
terminated service during that period by the average number of DISH Network subscribers eligible to
churn during the period, and further dividing by the number of months in the period. Average DISH
Network subscribers eligible to churn during the period are calculated by adding the DISH Network
subscribers as of the beginning of each month in the period and dividing by the total number of
months in the period. Free cash flow.We define free cash flow as Net cash flows from operating activities less
Purchases of property and equipment, as shown on our Consolidated Statements of Cash Flows. 14




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Item 7.
MANAGEMENTS NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS - Continued RESULTS OF OPERATIONS Year Ended December 31, 2004 Compared to the Year Ended December 31, 2003. For the Years EndedDecember 31,
    
    
    Variance2004
    
    
    2003
    
    
    Amount
    
    
    %(In thousands)Statements of Operations DataRevenue:Subscriber-related revenue
    
    $
    6,676,616
    
    
    $
    5,409,386
    
    
    $
    1,267,230
    
    
    
    23.4
    %Equipment sales
    
    
    369,251
    
    
    
    291,776
    
    
    
    77,475
    
    
    
    26.6
    %Other
    
    
    97,161
    
    
    
    30,560
    
    
    
    66,601
    
    
    
    217.9
    %Total revenue
    
    
    7,143,028
    
    
    
    5,731,722
    
    
    
    1,411,306
    
    
    
    24.6
    %Costs and Expenses:Subscriber-related expenses
    
    
    3,580,880
    
    
    
    2,723,129
    
    
    
    857,751
    
    
    
    31.5
    %% of Subscriber-related revenue
    
    
    53.6
    %
    
    
    50.3
    %Satellite and transmission expenses
    
    
    107,587
    
    
    
    74,309
    
    
    
    33,278
    
    
    
    44.8
    %% of Subscriber-related revenue
    
    
    1.6
    %
    
    
    1.4
    %Cost of
sales - equipment
    
    
    305,991
    
    
    
    193,886
    
    
    
    112,105
    
    
    
    57.8
    %% of Equipment sales
    
    
    82.9
    %
    
    
    66.5
    %Cost of
sales - other
    
    
    30,302
    
    
    
    57
    
    
    
    30,245
    
    
    
    N/ASubscriber acquisition costs
    
    
    1,531,843
    
    
    
    1,310,794
    
    
    
    221,049
    
    
    
    16.9
    %General and administrative
    
    
    380,573
    
    
    
    319,133
    
    
    
    61,440
    
    
    
    19.3
    %% of Total revenue
    
    
    5.3
    %
    
    
    5.6
    %Non-cash, stock-based compensation
    
    
    1,180
    
    
    
    3,544
    
    
    
    (2,364
    )
    
    
    (66.7
    %)Depreciation and amortization
    
    
    490,698
    
    
    
    385,098
    
    
    
    105,600
    
    
    
    27.4
    %Total costs and expenses
    
    
    6,429,054
    
    
    
    5,009,950
    
    
    
    1,419,104
    
    
    
    28.3
    %Operating income (loss)
    
    
    713,974
    
    
    
    721,772
    
    
    
    (7,798
    )
    
    
    (1.1
    %)Other income (expense):Interest income
    
    
    30,609
    
    
    
    18,838
    
    
    
    11,771
    
    
    
    62.5
    %Interest expense, net of amounts capitalized
    
    
    (433,364
    )
    
    
    (407,030
    )
    
    
    (26,334
    )
    
    
    6.5
    %Other
    
    
    (741
    )
    
    
    (466
    )
    
    
    (275
    )
    
    
    59.0
    %Total other income (expense)
    
    
    (403,496
    )
    
    
    (388,658
    )
    
    
    (14,838
    )
    
    
    3.8
    %Income (loss) before income taxes
    
    
    310,478
    
    
    
    333,114
    
    
    
    (22,636
    )
    
    
    (6.8
    %)Income tax benefit (provision), net
    
    
    (11,065
    )
    
    
    (13,533
    )
    
    
    2,468
    
    
    
    (18.2
    %)Net income (loss)
    
    $
    299,413
    
    
    $
    319,581
    
    
    $
    (20,168
    )
    
    
    (6.3
    %)Other Data:DISH Network subscribers, as of year end (in millions)
    
    
    10.905
    
    
    
    9.425
    
    
    
    1.480
    
    
    
    15.7
    %DISH Network subscriber additions, gross (in millions)
    
    
    3.441
    
    
    
    2.894
    
    
    
    0.547
    
    
    
    18.9
    %DISH Network subscriber additions, net (in millions)
    
    
    1.480
    
    
    
    1.245
    
    
    
    0.235
    
    
    
    18.9
    %Monthly churn percentage
    
    
    1.62
    %
    
    
    1.57
    %
    
    
    0.05
    %
    
    
    3.2
    %Average revenue per subscriber (ARPU)
    
    $
    54.87
    
    
    $
    51.21
    
    
    $
    3.66
    
    
    
    7.1
    %Average subscriber acquisition costs per subscriber (SAC)
    
    $
    444
    
    
    $
    453
    
    
    $
    (9
    )
    
    
    (2.0
    %)Equivalent average subscriber acquisition costs per
subscriber (Equivalent SAC)
    
    $
    593
    
    
    $
    480
    
    
    $
    113
    
    
    
    23.5
    %EBITDA
    
    $
    1,203,931
    
    
    $
    1,106,404
    
    
    $
    97,527
    
    
    
    8.8
    %
 15




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Item 7.
MANAGEMENTS NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS - Continued DISH Network subscribers.As of December 31, 2004, we had approximately 10.905 million DISH
Network subscribers compared to approximately 9.425 million at December 31, 2003, an increase of
approximately 15.7%. DISH Network added approximately 1.480 million net new subscribers for the
year ended December 31, 2004 compared to approximately 1.245 million net new subscribers during the
same period in 2003. We believe the increase in net new subscribers resulted from a number of
factors, including the commencement of sales under our co-branding agreement with SBC and other
distribution relationships and an increase in our distribution channels. Temporary product
shortages and installation delays during the second half of 2003 were substantially eliminated
during the first quarter of 2004 which also contributed to the current year increase. A material portion of our new subscriber additions are derived from our relationship with SBC.
However, SBC recently announced that in 2005 it will begin deploying an advanced fiber network that
will enable it to offer video services directly. Our net new subscriber additions and certain of
our other key operating metrics would be adversely affected to the extent SBC de-emphasizes or
discontinues its efforts to acquire DISH Network subscribers. Additionally, as the size of our subscriber base continues to increase, if percentage subscriber
churn remains constant, increasing numbers of gross new subscribers are required to sustain net
subscriber growth. Subscriber-related revenue.DISH Network Subscriber-related revenue totaled $6.677 billion for
the year ended December 31, 2004, an increase of $1.267 billion or 23.4% compared to the same
period in 2003. This increase was directly attributable to continued DISH Network subscriber
growth and the increase in ARPU discussed below. ARPU.Monthly average revenue per subscriber was approximately $54.87 during the year ended
December 31, 2004 and approximately $51.21 during the same period in 2003. The $3.66 or 7.1%
increase in monthly average revenue per DISH Network subscriber is primarily attributable to price
increases of up to $2.00 in February 2004 and 2003 on some of our most popular packages, and from
equipment sales, installation and other services related to our relationship with SBC. This
increase was also attributable to a reduction in the number of DISH Network subscribers receiving
subsidized programming through our free and discounted programming promotions, the increased
availability of local channels by satellite, increases in our advertising sales and increases in
the number of DISH Network subscribers with multiple set-top boxes and digital video recorders. We
provided local channels by satellite in 152 markets as of December 31, 2004 compared to 101 markets
as of December 31, 2003. 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 network channels and
superstations to a substantial number of our subscribers, which could cause many of those customers
to cancel their subscription to our other services. In the event the Court of Appeals upholds the
Miami District Courts network litigation injunction, and if we do not reach private settlement
agreements with additional stations, we will attempt to assist subscribers in arranging alternative
means to receive network channels, including migration to local channels by satellite where
available, and free off air antenna offers in other markets. However, we cannot predict with any
degree of certainty how many subscribers might ultimately cancel their primary DISH Network
programming as a result of termination of their distant network channels. We could be required to
terminate distant network programming to all subscribers in the event the plaintiffs prevail on
their cross-appeal and we are permanently enjoined from delivering all distant network channels.
Termination of distant network programming to subscribers would result in, among other things, a
reduction in average monthly revenue per subscriber and a temporary increase in subscriber 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, while we would attempt to continue providing local network channels in all markets
without interruption, 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 and a small
reduction in average monthly revenue per subscriber. Equipment sales.For the year ended December 31, 2004, Equipment sales totaled $369.3 million,
an increase of $77.5 million or 26.6% compared to the same period during 2003. This increase
principally resulted from an increase in sales of DBS accessories to retailers and other
distributors of our equipment domestically and to DISH Network subscribers. 16




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Item 7.
MANAGEMENTS NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS - Continued We currently have certain binding purchase orders and a minimum volume commitment with an
international DBS service provider through March 31, 2006 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. A significant portion of our equipment revenue depends
largely on sustaining substantial orders from this international DBS service provider 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. We have recently decided to downsize and
eliminate certain product lines sold by our EchoStar International Corporation subsidiary and
accordingly, we expect that future sales of our non-DISH Network receivers and other accessories to
international customers will decline as compared to historical levels. Other.Other sales totaled $97.2 million for the year ended December 31, 2004, an increase of
$66.6 million compared to the same period during 2003. This increase is primarily attributable to
the subscription television service revenues from C-band subscribers of the SNG business that we
acquired in April 2004. Subscriber-related expenses.Subscriber-related expenses totaled $3.581 billion during the year
ended December 31, 2004, an increase of $857.8 million or 31.5% compared to the same period in
2003. The increase in Subscriber-related expenses was primarily attributable to the increase in
the number of DISH Network subscribers, which resulted in increased expenses to support the DISH
Network. Subscriber-related expenses represented 53.6% and 50.3% of Subscriber-related revenue
during the years ended December 31, 2004 and 2003, respectively. The increase in this expense to
revenue ratio primarily resulted from increases in our programming and subscriber retention costs,
and costs associated with the expansion of our installation, in-home service and call center
operations. These increased operational costs, some of which are temporary, related to, among
other things, more complicated installations required by receivers with multiple tuners and a
larger dish, or SuperDISH which is used to receive programming from our FSS satellites. The
increase also resulted from cost of sales and expenses from equipment sales, installation and other
services related to our relationship with SBC. Since margins related to our co-branded subscribers
are lower than for our traditional subscribers, we expect this relationship to continue to
negatively impact this ratio to the extent that we continue to add co-branded subscribers under our
SBC agreement. The ratio of Subscriber-related expenses to Subscriber-related revenue could
also continue to increase if our programming and retention costs increase at a greater rate than
our Subscriber-related revenue and if we are unable to improve efficiencies related to our
installation, in-home service and call center operations. We currently offer local broadcast channels in approximately 155 markets across the United States.
In 38 of those markets, two dishes are necessary to receive all local channels in the market.
SHVERA now requires, among other things, that all local broadcast channels delivered by satellite
to any particular market be available from a single dish within 18 months of the laws December 8,
2004 effective date. Because we had planned to transition all local channels in any particular
market to the same dish by 2008 rather than in the shorter transition period mandated by SHVERA,
satellite capacity limitations may force us to move the local channels in as many as 30 markets to
different satellites, requiring subscribers in those markets to install a second or a different
dish to continue receiving their local network channels. We may be forced to stop offering local
channels in some of those markets altogether. The transition of all local channels to the same dish could result in disruptions of service for a
substantial number of our customers, and our ability to timely comply with this requirement without
incurring significant additional costs is dependent on, among other things, the successful launch
and operation of one or more additional satellites. It is possible that the costs of compliance
with this requirement could exceed $100.0 million. To the extent some of those costs are passed on
to our subscribers, and because many subscribers may be unwilling to install a second dish where
one had been adequate, we expect that our subscriber churn could be negatively impacted. In the normal course of business, we enter into various contracts with programmers to provide
content. Our programming contracts generally require us to make payments based on the number of
subscribers to which the respective content is provided. Consequently, our programming expenses
will continue to increase to the extent we are successful in growing our subscriber base. In
addition, because programmers continue to raise the price of content, there can be no assurance
that our Subscriber-related expenses as a percentage of Subscriber-related revenue will not
materially increase absent corresponding price increases in our DISH Network programming packages. 17




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Item 7.
MANAGEMENTS NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS - Continued Satellite and transmission expenses.Satellite and transmission expenses totaled $107.6 million
during the year ended December 31, 2004, an increase of
$33.3 million or 44.8% compared to the same period
in 2003. This increase primarily resulted from commencement of service and operational costs
associated with the increasing number of markets in which we offer local network channels by
satellite as previously discussed, and increases in our FSS satellite lease payment obligations.
Satellite and transmission expenses totaled 1.6% and 1.4% of Subscriber-related revenue during
each of the years ended December 31, 2004 and 2003, respectively. The increase in the expense to
revenue ratio principally resulted from additional operational costs to support the commencement of
service and on-going operations of our local markets discussed above. These expenses will increase
further in the future as we increase the size of our satellite fleet, if we obtain in-orbit
satellite insurance, as we increase the number and operations of our digital broadcast centers and
as additional local markets and other programming services are launched. Cost of sales 
equipment.Cost of sales  equipment totaled $306.0 million during the year
ended December 31, 2004, an increase of $112.1 million or 57.8% compared to the same period in
2003. This increase primarily resulted from the increase in sales of DBS accessories to retailers
and other distributors of our equipment domestically and to DISH Network subscribers discussed
above, and approximately $18.4 million in charges related to slow moving and obsolete inventory.
Cost of sales  equipment represented 82.9% and 66.5% of Equipment sales, during the years
ended December 31, 2004 and 2003, respectively. The increase in the expense to revenue ratio
principally related to the charges for slow moving and obsolete inventory discussed above, and an
approximate $6.8 million reduction in the cost of set-top box equipment during 2003 resulting from
a change in estimated royalty obligations. This increase in the expense to revenue ratio also
related to a decline in margins on the sales of DBS accessories and on sales by our ETC subsidiary
to an international DBS service provider due to reductions in prices and increased sales of lower
margin accessories. Cost of sales 
other.Cost of sales  other totaled $30.3 million during the year ended
December 31, 2004, an increase of $30.2 million compared to the same period in 2003. This increase
is primarily attributable to expenses associated with the C-band subscription television service
business of SNG we acquired in April 2004. Subscriber acquisition costs.Subscriber acquisition costs totaled approximately $1.532 billion
for the year ended December 31, 2004, an increase of $221.0 million or 16.9% compared to the same
period in 2003. Subscriber acquisition costs during the year ended December 31, 2003 included a
benefit of approximately $77.2 million comprised of approximately $42.8 million related to a
reduction in the cost of set-top box equipment resulting from a change in estimated royalty
obligations and $34.4 million from a litigation settlement. The increase in Subscriber
acquisition costs was attributable to a larger number of gross DISH Network subscriber additions
during the year ended December 2004 compared to the same period in 2003, partially offset by a
higher number of DISH Network subscribers participating in our equipment lease program and the
acquisition of co-branded subscribers during 2004 as discussed under SAC and Equivalent SAC
below. SAC and Equivalent SAC.Subscriber acquisition costs per new DISH Network subscriber activation
were approximately $444 for the year ended December 31, 2004 and approximately $453 during the same
period in 2003. SAC during the year ended December 31, 2003 included the benefit of approximately
$77.2 million discussed above. Absent this benefit, our SAC for 2003 would have been approximately
$27 higher, or $480. The decrease in SAC during the year ended December 31, 2004 as compared to
the same period in 2003 (excluding this benefit) was directly attributable to the acquisition of
co-branded subscribers during 2004. Excluding the effect of co-branded subscribers, SAC would have
increased during the current year as compared to the same period in 2003. The increase in SAC
(excluding the effect of co-branded subscribers) was primarily related to more expensive promotions
offered during 2004 including up to three free receivers for new subscribers and free advanced
products, such as digital video recorders and high definition receivers. Further, during 2004,
since a greater number of DISH Network subscribers activated multiple receivers, receivers with
multiple tuners or other advanced products, including SuperDISH, installation costs increased as
compared to 2003. These factors were partially offset by an increase in DISH Network subscribers
participating in our equipment lease program and reduced subscriber acquisition advertising. Penetration of our equipment lease program increased during the second half of 2004. Our capital
expenditures will continue to increase to the extent we maintain or increase our lease penetration
as a percentage of new subscriber additions. Although we believe the increase in capital
expenditures from penetration of our equipment lease program 18




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Item 7.
MANAGEMENTS NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS - Continued will continue to be partially mitigated by the redeployment of equipment returned by disconnected
lease program subscribers, new compression technologies will inevitably render some portion of our
current and future EchoStar receivers obsolete, and we will incur additional costs, which may be
substantial, to upgrade or replace these set-top boxes. Our Subscriber acquisition costs, both
in aggregate and on a per new subscriber activation basis, may further 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. Equipment capitalized under our lease program for new customers totaled approximately $574.8
million and $108.1 million for the year ended December 31, 2004 and 2003, respectively. Returned
equipment related to disconnected lease program subscribers, which became available for sale rather
than being redeployed through the lease program, together with payments received in connection with
equipment not returned to us, totaled approximately $60.8 million and $30.2 million during the
years ended December 31, 2004 and 2003, respectively. If we included in our calculation of SAC the
equipment capitalized less the value of equipment returned and payments received, our Equivalent
SAC would have been approximately $593 during 2004 compared to $480 during 2003. As discussed
above, Subscriber acquisition costs during 2003 included a benefit of approximately $77.2 million
or $27 per subscriber. Absent this benefit, our Equivalent SAC, would have been $507 for the year
ended December 31, 2003. This increase is primarily attributable to a greater number of DISH
Network subscribers activating multiple receivers, and advanced products, such as SuperDISH,
digital video recorders and high definition receivers. Subscriber acquisition promotions.As previously discussed, our Subscriber acquisitions costs
include, among other things, net costs related to our subscriber acquisition promotions. During
the year ended December 31, 2004, our significant new subscriber promotions were as follows: Digital Home Advantage Effective February 1, 2004, our Digital Home Advantage promotion provided
new lease subscribers up to four installed EchoStar receivers, including various premium models,
with a qualifying programming subscription. The subscriber is required to pay a monthly rental fee
for each leased receiver, but is not required to agree to a minimum lease period. The subscriber
must provide a valid major credit card, their social security number, have an acceptable credit
score, and pay a one-time set-up fee of $49.99. The subscriber receives a $49.99 credit on their
first months bill. Effective October 19, 2004, the promotion was expanded whereby the consumer
may agree to either a one or two year commitment in exchange for receiving the benefits of our
Digital Home Protection Plan, an optional extended warranty program, without charge for one or two
years, respectively. Since we retain ownership of equipment installed pursuant to the Digital Home
Advantage promotion, equipment costs are capitalized and depreciated over a period of up to four
years. Although there can be no assurance as to the ultimate duration of our current equipment
lease promotion, we expect it to continue through at least July 31, 2005. Free Dish Effective February 1, 2004, our Free DISH promotion provided new subscribers with a
choice of up to three installed EchoStar receivers, including one premium receiver model for
$49.99. The subscriber receives a $49.99 credit on their first months bill. To be eligible,
subscribers must provide a valid major credit card, their social security number, have an
acceptable credit score, and make a one or two year commitment to subscribe to a qualified
programming package, depending on the set-top box models selected by the subscriber. Certain
advanced products, including digital video recorders and high definition receivers, require
additional upgrade fees. The Free Dish promotion ended on January 31, 2005. Free for All Effective February 1, 2004, our Free for All promotion provides new subscribers who
purchase one or two installed receiver systems for $149.00 or $199.00, respectively, a monthly
credit of $10.00 for 15 or 20 months, respectively. The subscriber must subscribe to a qualifying
programming package and provide their social security number. Effective February 1, 2005, new
subscribers under our Free for All promotion who purchase one or two receiver systems and subscribe
to a qualifying programming package receive a monthly credit of $5.00 for 30 or 40 months,
respectively. 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, 2005. General and administrative expenses.General and administrative expenses totaled $380.6 million
during the year ended December 31, 2004, an increase of $61.4 million or 19.3% compared to the same
period in 2003. The increase in General and administrative expenses was primarily attributable
to increased personnel and infrastructure expenses to support the growth of the DISH Network.
General and administrative expenses represented 5.3% and 19




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Item 7.
MANAGEMENTS NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS - Continued 5.6% of Total revenue during the years ended December 31, 2004 and 2003, respectively. The
decrease in this expense to revenue ratio resulted primarily from Total revenue increasing at a
higher rate than our General and administrative expenses. Non-cash, stock-based compensation.During 1999, EchoStar adopted an incentive plan under its 1995
Stock Incentive Plan, which provided certain key employees with incentives including stock options.
During the year ended December 31, 2004, we recognized $1.2 million of compensation under this
performance-based plan, a decrease of $2.4 million compared to the same period in 2003. All
deferred compensation remaining as of December 31, 2003 was recognized during the quarter ending on
March 31, 2004. In December 2004, the Financial Accounting Standards Board issued Statement of Financial Accounting
Standards No. 123 (Revised 2004), Share Based Payment (SFAS 123®) which is effective for
financial statements as of the beginning of the first interim period that begins after June 15,
2005. We are currently evaluating which transitional provision and fair value methodology we will
follow. However, we expect that any expense associated with the adoption of the provisions of SFAS
123® will have a material negative impact on our results of operations. Depreciation and amortization.Depreciation and amortization expense totaled $490.7 million
during the year ended December 31, 2004, an increase of $105.6 million or 27.4% compared to the
same period in 2003. The increase in Depreciation and amortization expense primarily resulted
from additional depreciation related to the commencement of commercial operation of our EchoStar IX
satellite in October 2003, and increases in depreciation related to equipment leased to customers
and other depreciable assets, including finite lived intangible assets, placed in service during
2003 and 2004. As of December 31, 2003, EchoStar IV was fully depreciated and accordingly, we
recorded no expense for this satellite during the year ended December 31, 2004. This partially
offset the increase in depreciation expense discussed above. Interest income.Interest income totaled $30.6 million during the year ended December 31, 2004,
an increase of $11.8 million or 62.5% compared to the same period in 2003. This increase
principally resulted from higher average balances and returns on our cash and marketable investment
securities during 2004 as compared to 2003. Interest expense, net of amounts capitalized.Interest expense totaled $433.4 million during the
year ended December 31, 2004, an increase of $26.3 million or 6.5% compared to the same period in
2003. This increase primarily resulted from an increase in prepayment premiums and the write-off
of debt issuance costs totaling approximately $134.7 million in 2004 compared to approximately
$60.1 million in 2003. This increase was partially offset by a net reduction in interest expense
of approximately $57.1 million for the year ended December 31, 2004 related to the debt redemptions
and repurchases of our previously outstanding senior debt during 2003 and 2004. See Note 4 in the
Notes to the Consolidated Financial Statements in Item 15 of this Annual Report on Form 10-K. Earnings before interest, taxes, depreciation and amortization.EBITDA was $1.204 billion during
the year ended December 31, 2004, an increase of $97.5 million or 8.8% compared to $1.106 billion
during the same period in 2003. EBITDA during the year ended December 31, 2003 included a benefit
of approximately $77.2 million related to the change in estimated royalty obligations and
litigation settlement discussed above. Absent this 2003 benefit, our increase in EBITDA for the
year ended December 31, 2004 would have been $174.7 million. The increase in EBITDA (excluding
this benefit) was primarily attributable to the changes in operating revenues and expenses
discussed above. EBITDA does not include the impact of capital expenditures under our new and
existing subscriber equipment lease programs of approximately $654.9 million and $118.6 million
during the years ended December 31, 2004 and 2003, respectively. 20




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Item 7.
MANAGEMENTS NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS - Continued The following table reconciles EBITDA to the accompanying financial statements: For the Years EndedDecember 31,2004
    
    
    2003(In thousands)EBITDA
    
    $
    1,203,931
    
    
    $
    1,106,404Less:Interest expense, net
    
    
    402,755
    
    
    
    388,192Income tax provision (benefit), net
    
    
    11,065
    
    
    
    13,533Depreciation and amortization
    
    
    490,698
    
    
    
    385,098Net income
(loss)
    
    $
    299,413
    
    
    $
    319,581
 EBITDA is not a measure determined in accordance with accounting principles generally accepted in
the United States, or GAAP, and should not be considered a substitute for operating income, net
income or any other measure determined in accordance with GAAP. EBITDA is used as a measurement of
operating efficiency and overall financial performance and we believe it to be a helpful measure
for those evaluating companies in the 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. EBITDA should not be considered in
isolation or as a substitute for measures of performance prepared in accordance with GAAP. Income tax benefit (provision), net.Our income tax policy is to record the estimated future tax
effects of temporary differences between the tax bases of assets and liabilities and amounts
reported in our accompanying consolidated balance sheets, as well as operating loss, tax credit
and other carry-forwards. We follow the guidelines set forth in Statement of Financial Accounting
Standards No. 109, Accounting for Income Taxes (SFAS 109) regarding the recoverability of any
tax assets recorded on the balance sheet and provide any necessary valuation allowances as
required. Determining necessary valuation allowances requires us to make assessments about the
timing of future events, including the probability of expected future taxable income and available
tax planning opportunities. We currently have an approximate $577.5 million valuation allowance
recorded as an offset against all of our net deferred tax assets. In accordance with SFAS 109, we
periodically evaluate our need for a valuation allowance based on historical evidence, including
trends, and future expectations in each reporting period. In the future, at such time as is
required by SFAS 109, all or a portion of the current valuation allowance may be reversed. We
recognized Net income for the years ended December 31, 2004 and 2003, and accordingly, now
believe that if this trend continues it is more likely than not we will reverse our current
recorded valuation allowance in the near term which will have a material positive impact on our
Net income (loss). However, there can be no assurance if or when all or a portion of our
valuation allowance will be reversed. Net income (loss).Net income was $299.4 million during the year ended December 31, 2004, a
decrease of $20.2 million or 6.3% compared to $319.6 million for the same period in 2003. The
decrease was primarily attributable to lower Operating income and higher Interest expense
partially offset by an increase in Interest income resulting from the factors discussed above. 21




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Item 7.
MANAGEMENTS NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS - Continued Year Ended December 31, 2003 Compared to the Year Ended December 31, 2002. For the Years EndedDecember 31,
    
    
    Variance2003
    
    
    2002
    
    
    Amount
    
    
    %(In thousands)Statements of Operations DataRevenue:Subscriber-related revenue
    
    $
    5,409,386
    
    
    $
    4,423,370
    
    
    $
    986,016
    
    
    
    22.3
    %Equipment sales
    
    
    291,776
    
    
    
    345,938
    
    
    
    (54,162
    )
    
    
    (15.7
    %)Other
    
    
    30,560
    
    
    
    34,329
    
    
    
    (3,769
    )
    
    
    (11.0
    %)Total revenue
    
    
    5,731,722
    
    
    
    4,803,637
    
    
    
    928,085
    
    
    
    19.3
    %Costs and Expenses:Subscriber-related expenses
    
    
    2,723,129
    
    
    
    2,216,297
    
    
    
    506,832
    
    
    
    22.9
    %% of Subscriber-related revenue
    
    
    50.3
    %
    
    
    50.1
    %Satellite and transmission expenses
    
    
    74,309
    
    
    
    56,656
    
    
    
    17,653
    
    
    
    31.2
    %% of Subscriber-related revenue
    
    
    1.4
    %
    
    
    1.3
    %Cost of
sales - equipment
    
    
    193,886
    
    
    
    227,095
    
    
    
    (33,209
    )
    
    
    (14.6
    %)% of Equipment sales
    
    
    66.5
    %
    
    
    65.6
    %Cost of
sales - other
    
    
    57
    
    
    
    584
    
    
    
    (527
    )
    
    
    (90.2
    %)Subscriber acquisition costs
    
    
    1,310,794
    
    
    
    1,172,971
    
    
    
    137,823
    
    
    
    11.7
    %General and administrative
    
    
    319,133
    
    
    
    300,387
    
    
    
    18,746
    
    
    
    6.2
    %% of Total revenue
    
    
    5.6
    %
    
    
    6.3
    %Non-cash, stock-based compensation
    
    
    3,544
    
    
    
    11,279
    
    
    
    (7,735
    )
    
    
    (68.6
    %)Depreciation and amortization
    
    
    385,098
    
    
    
    355,754
    
    
    
    29,344
    
    
    
    8.2
    %Total costs and expenses
    
    
    5,009,950
    
    
    
    4,341,023
    
    
    
    668,927
    
    
    
    15.4
    %Operating income (loss)
    
    
    721,772
    
    
    
    462,614
    
    
    
    259,158
    
    
    
    56.0
    %Other income (expense):Interest income
    
    
    18,838
    
    
    
    10,001
    
    
    
    8,837
    
    
    
    88.4
    %Interest expense, net of amounts capitalized
    
    
    (407,030
    )
    
    
    (338,883
    )
    
    
    (68,147
    )
    
    
    20.1
    %Other
    
    
    (466
    )
    
    
    (5,900
    )
    
    
    5,434
    
    
    
    (92.1
    %)Total other income (expense)
    
    
    (388,658
    )
    
    
    (334,782
    )
    
    
    (53,876
    )
    
    
    16.1
    %Income (loss) before income taxes
    
    
    333,114
    
    
    
    127,832
    
    
    
    205,282
    
    
    
    160.6
    %Income tax benefit (provision), net
    
    
    (13,533
    )
    
    
    (80,941
    )
    
    
    67,408
    
    
    
    (83.3
    %)Net income (loss)
    
    $
    319,581
    
    
    $
    46,891
    
    
    $
    272,690
    
    
    
    581.5
    %Other Data:DISH Network subscribers, as of year end (in millions)
    
    
    9.425
    
    
    
    8.180
    
    
    
    1.245
    
    
    
    15.2
    %DISH Network subscriber additions, gross (in millions)
    
    
    2.894
    
    
    
    2.764
    
    
    
    0.130
    
    
    
    4.7
    %DISH Network subscriber additions, net (in millions)
    
    
    1.245
    
    
    
    1.350
    
    
    
    (0.105
    )
    
    
    (7.8
    %)Monthly churn percentage
    
    
    1.57
    %
    
    
    1.59
    %
    
    
    (0.02
    %)
    
    
    (1.3
    %)Average revenue per subscriber (ARPU)
    
    $
    51.21
    
    
    $
    49.37
    
    
    $
    1.84
    
    
    
    3.7
    %Average subscriber acquisition costs per subscriber (SAC)
    
    $
    453
    
    
    $
    421
    
    
    $
    32
    
    
    
    7.6
    %Equivalent average subscriber acquisition costs per
subscriber (Equivalent SAC)
    
    $
    480
    
    
    $
    507
    
    
    $
    (27
    )
    
    
    (5.3
    %)EBITDA
    
    $
    1,106,404
    
    
    $
    812,468
    
    
    $
    293,936
    
    
    
    36.2
    %
 22




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Item 7.
MANAGEMENTS NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS - Continued DISH Network subscribers.As of December 31, 2003, we had approximately 9.425 million DISH Network
subscribers compared to approximately 8.180 million at December 31, 2002, an increase of
approximately 15.2%. DISH Network added approximately 1.245 million net new subscribers for the
year ended December 31, 2003 compared to approximately 1.350 million net new subscribers during the
same period in 2002. We believe the reduction in net new subscribers for the year ended December
31, 2003, compared to the same period in 2002, resulted from a number of factors, including
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. Subscriber additions during the second half of 2003 were negatively impacted by delays in the
delivery of several newly developed products, which resulted in a temporary product shortage, and
product installations in the third and fourth quarter of 2003. These delays were substantially
eliminated during the first quarter of 2004. Subscriber-related revenue.DISH Network Subscriber-related revenue totaled $5.409 billion for
the year ended December 31, 2003, an increase of $986.0 million or 22.3% compared to the same
period in 2002. This increase was directly attributable to continued DISH Network subscriber
growth and the increase in ARPU discussed below. ARPU.Monthly average revenue per subscriber was approximately $51.21 during the year ended
December 31, 2003 and approximately $49.37 during the same period in 2002. The $1.84 or 3.7%
increase in monthly average revenue per subscriber is primarily attributable to price increases of
up to $2.00 in February 2003 on some of our most popular packages, the increased availability of
local channels by satellite and an increase in the number of DISH Network subscribers with multiple
set-top boxes. During 2003, we launched 47 additional local markets compared to the launch of 18
additional markets during 2002. These increases were partially offset by certain subscriber
promotions, under which new DISH Network subscribers received free programming for the first three
months of their term of service, and other promotions under which DISH Network subscribers received
discounted programming. Equipment sales.For the year ended December 31, 2003, Equipment sales totaled $291.8 million, a
decrease of $54.2 million or 15.7% compared to the same period during 2002. The decrease in
Equipment sales principally resulted from a decline in the number of digital set-top boxes and
related components sold by our ETC subsidiary to an international DBS service provider. Subscriber-related expenses.Subscriber-related expenses totaled $2.723 billion during the year
ended December 31, 2003, an increase of $506.8 million or 22.9% compared to the same period in
2002. The increase in Subscriber-related expenses was primarily attributable to the increase in
the number of DISH Network subscribers. This growth resulted in increased expenses to support the
DISH Network, including programming costs, personnel expenses, the opening of a new call center,
and increased operating expenses related to the expansion of our DISH Network Service L.L.C.
business. Subscriber-related expenses represented 50.3% and 50.1% of Subscriber-related
revenue during the years ended December 31, 2003 and 2002, respectively. The increase in
Subscriber-related expenses as a percentage of Subscriber-related revenue primarily resulted
from an approximately $30.2 million reversal of an accrual during 2002 related to the replacement
of smart cards in satellite receivers owned by us and leased to consumers. This accrual reversal
decreased the 2002 expense to revenue ratio from 50.8% to 50.1%. The increase in the expense to
revenue ratio from 2002 to 2003 was partially offset by an increase in monthly average revenue per
subscriber and increased operating efficiencies. Satellite and transmission expenses.Satellite and transmission expenses totaled $74.3 million
during the year ended December 31, 2003, an increase of $17.7 million or 31.2% compared to the same
period in 2002. This increase primarily resulted from commencement of service and operational
costs associated with the increasing number of markets in which we offer local network channels by
satellite as previously discussed. Satellite and transmission expenses totaled 1.4% and 1.3% of
Subscriber-related revenue during each of the years ended December 31, 2003 and 2002,
respectively. Cost of sales 
equipment.Cost of sales  equipment totaled $193.9 million during the year
ended December 31, 2003, a decrease of $33.2 million or 14.6% compared to the same period in 2002.
This decrease related primarily to a decrease in sales of digital set-top boxes and related
components by our ETC subsidiary to an international DBS service 23




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Item 7.
MANAGEMENTS NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS - Continued provider. Cost of sales
 equipment during the years ended December 31, 2003 and 2002 include
non-recurring reductions in the cost of set-top box equipment of approximately $6.8 million and
$6.5 million, respectively. Cost of sales - equipment represented 66.5% and 65.6% of Equipment
sales, during the years ended December 31, 2003 and 2002, respectively. Subscriber acquisition costs.Subscriber acquisition costs totaled approximately $1.311 billion
for the year ended December 31, 2003, an increase of $137.8 million or 11.7% compared to the same
period in 2002. The increase principally resulted from the sale of equipment at little or no cost
to the subscriber, a decrease in subscriber equipment leases and increases in acquisition marketing
as discussed under SAC and Equivalent SAC below. This increase was partially offset by benefits
of approximately $77.2 million which were recorded in 2003. These benefits include approximately
$34.4 million related to the receipt of a reimbursement payment for previously sold set-top box
equipment pursuant to a litigation settlement and approximately $42.8 million related to a
reduction in the cost of set-top box equipment resulting from a change in estimated royalty
obligations. Subscriber acquisition costs during the year ended December 31, 2002 included a
benefit of approximately $47.7 million resulting from the non-recurring reduction in the cost of
set-top box equipment as a result of favorable litigation developments and the completion of
royalty arrangements with more favorable terms than estimated amounts previously accrued. SAC and Equivalent SAC.Subscriber acquisition costs per new DISH Network subscriber activation
were approximately $453 for the year ended December 31, 2003 and approximately $421 during the same
period in 2002. As discussed above, SAC during the years ended December 31, 2003 and 2002 included
benefits of approximately $77.2 million and $47.7 million, respectively. Absent these benefits,
our SAC for 2003 and 2002 would have been approximately $27 and $17 higher, respectively, or $480
and $438, respectively. The increase in SAC (excluding these benefits) during the year ended
December 31, 2003 as compared to the same period in 2002 was primarily attributable to an increase
in the sale of equipment at little or no cost to the subscriber, including our promotion in which
subscribers are eligible to receive up to three free receivers or a free digital video recorder,
together with a decrease in subscriber equipment leases. The increase also resulted from an
increase in acquisition marketing in 2003 compared to 2002. Equipment capitalized under our lease program for new customers totaled approximately $108.1
million and $277.6 million for the year ended December 31, 2003 and 2002, respectively. Returned
equipment related to disconnected lease program subscribers, which became available for sale rather
than being redeployed through the lease program, together with payments received in connection with
equipment not returned to us, totaled approximately $30.2 million and $37.8 million during the
years ended December 31, 2003 and 2002, respectively. If we included in our calculation of SAC the
equipment capitalized less the value of equipment returned and payments received, our Equivalent
SAC would have been approximately $480 during 2003 compared to $507 during 2002. As discussed
above, Subscriber acquisition costs during the years ended December 31, 2003 and 2002 included
benefits of approximately $77.2 million and $47.7 million, respectively. Absent these benefits,
our Equivalent SAC for 2003 and 2002 would have been $507 and $524, respectively. This decrease
principally resulted from a greater percentage of returned leased equipment being redeployed to new
lease customers and relatively less of that equipment being offered for sale as remanufactured
equipment. General and administrative expenses.General and administrative expenses totaled $319.1 million
during the year ended December 31, 2003, an increase of $18.7 million or 6.2% compared to the same
period in 2002. The increase in General and administrative expenses was primarily attributable
to increased personnel and infrastructure expenses to support the growth of the DISH Network.
General and administrative expenses represented 5.6% and 6.3% of Total revenue during the years
ended December 31, 2003 and 2002, respectively. This decrease in General and administrative
expenses as a percent of Total revenue was the result of increased administrative efficiencies. Non-cash, stock-based compensation.During 1999, EchoStar adopted an incentive plan under its 1995
Stock Incentive Plan, which provided certain key employees with incentives including stock options.
During the year ended December 31, 2003, we recognized $3.5 million of compensation under this
performance-based plan, a decrease of $7.7 million compared to the same period in 2002. This
decrease was primarily attributable to proportionate vesting and stock option forfeitures resulting
from employee terminations. The remaining deferred compensation of $1.2 million as of December 31,
2003 was recognized over the remaining vesting period, ending on March 31, 2004. 24




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Item 7.
MANAGEMENTS NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS - Continued 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: For the Years EndedDecember 31,2003
    
    
    2002(In thousands)Subscriber-related
    
    $
    34
    
    
    $
    729Satellite and
transmission
    
    
    359
    
    
    
    (7
    )General and
administrative
    
    
    3,151
    
    
    
    10,557Total non-cash, stock-based compensation
    
    $
    3,544
    
    
    $
    11,279
 Depreciation and amortization.Depreciation and amortization expense totaled $385.1 million
during the year ended December 31, 2003, an increase of $29.3 million or 8.2% compared to the same
period in 2002. The increase in Depreciation and amortization expense principally resulted from
an increase in depreciation related to the commencement of commercial operation of EchoStar VII,
VIII and IX in April 2002, October 2002, and October 2003, respectively, and leased equipment and
other additional depreciable assets placed in service during 2003. Interest income.Interest income totaled $18.8 million during the year ended December 31, 2003,
an increase of $8.8 million compared to the same period in 2002. This increase principally
resulted from higher cash and marketable investment securities balances in 2003 as compared to 2002
partially offset by lower returns. Interest expense, net of amounts capitalized.Interest expense totaled $407.0 million during the
year ended December 31, 2003, an increase of $68.1 million or 20.1% compared to the same period in
2002. This increase primarily resulted from prepayment premiums and accelerated amortization of
debt issuance costs totaling approximately $60.1 million related to the full and partial
redemptions and repurchases of certain of our debt securities and additional interest expense totaling approximately $36.3 million
related to our $2.5 billion senior notes offering during October 2003. This increase also resulted
from a $15.4 million reduction in the amount of interest capitalized during the year ended December
31, 2003 as compared to the same period in 2002. Interest is capitalized during the construction
phase of a satellite, however, capitalization of additional interest ceases upon commercial
operation of the satellite. Therefore, once EchoStar VII, EchoStar VIII and EchoStar IX commenced
commercial operation during April 2002, October 2002 and August 2003, respectively, we ceased
capitalizing interest related to these satellites. The expensing of this previously capitalized
interest resulted in an increase in Interest expense. This increase was partially offset by a
reduction in interest expense of approximately $42.8 million as a result of the debt redemptions
and repurchases discussed above. Earnings before interest, taxes, depreciation and amortization.EBITDA was $1.106 billion during
the year ended December 31, 2003, compared to $812.5 million during the same period in 2002. The
improvement was primarily attributable 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. The improvement was partially offset by a decrease in subscribers leasing equipment
and a corresponding increase in equipment subsidies compared to the same period in 2002, as well as
a decrease in Equipment sales. EBITDA does not include the impact of capital expenditures under
our new and existing subscriber equipment lease program of approximately $118.6 million during
2003, and our new subscriber equipment lease program of $277.6 million during 2002. 25




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Item 7.
MANAGEMENTS NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS - Continued The following table reconciles EBITDA to the accompanying financial statements: For the Years EndedDecember 31,2003
    
    
    2002(In thousands)EBITDA
    
    $
    1,106,404
    
    
    $
    812,468Less:Interest expense, net
    
    
    388,192
    
    
    
    328,882Income tax provision (benefit), net
    
    
    13,533
    
    
    
    80,941Depreciation and amortization
    
    
    385,098
    
    
    
    355,754Net income
(loss)
    
    $
    319,581
    
    
    $
    46,891
 EBITDA is not a measure determined in accordance with accounting principles generally accepted in
the United States, or GAAP, and should not be considered a substitute for operating income, net
income or any other measure determined in accordance with GAAP. EBITDA is used as a measurement of
operating efficiency and overall financial performance and we believe it to be a helpful measure
for those evaluating companies in the 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. EBITDA should not be considered in
isolation or as a substitute for measures of performance prepared in accordance with GAAP. Net income.Net income was $319.6 million during the year ended December 31, 2003, an increase
of $272.7 million compared to $46.9 million for the same period in 2002. The improvement was
primarily attributable to an increase in Operating income, the components of which are discussed
above. Seasonality Our revenues vary throughout the year. As is typical in the subscription television service
industry, the first half of the year generally produces 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 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, 2004, our restricted and unrestricted cash, cash equivalents and marketable
investment securities had a fair market value of approximately $726.3 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, among other things, fund operations, make strategic investments and expand the
business. Consequently, the size of this portfolio fluctuates significantly as cash is received
and used in our business. Our restricted and unrestricted cash, cash equivalents and marketable investment securities had an
average annual return for the year ended December 31, 2004 of approximately 2.1%. A hypothetical
10.0% decrease in interest rates would result in a decrease of approximately $3.1 million in annual
interest income. 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 26




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Item 7A. QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK - Continued 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, 2004, all of the $726.3 million was invested in fixed or variable rate instruments
or money market type accounts. While an increase in interest rates would ordinarily adversely
impact the fair market 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 realized 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. We currently classify all marketable investment securities as available-for-sale. We adjust the
carrying value of our available-for-sale securities to fair market value and report the related
temporary unrealized gains and losses as a separate component of Accumulated other comprehensive
income within Total stockholders equity (deficit), net of related deferred income tax.
Declines in the fair market value of a marketable investment security which are estimated to be
other than temporary are recognized in the consolidated 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 fair market value of
these securities are other than temporary. This quarterly evaluation consists of reviewing, among
other things, the fair market value of our marketable investment securities compared to the
carrying amount, the historical volatility of the price of each security and any market and company
specific factors related to each security. Generally, absent specific factors to the contrary,
declines in the fair market value of investments below cost basis for a period of less than six
months are considered to be temporary. Declines in the fair market 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 market 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, 2004, we had unrealized losses of approximately $1.7 million as a part of
Accumulated other comprehensive income within Total stockholders equity (deficit). During the
year ended December 31, 2004, we did not record any charge to earnings for other than temporary
declines in the fair market value of our marketable investment securities. Realized gains and
losses are accounted for on the specific identification method. During the twelve months ended
December 31, 2004, our portfolio generally, and our strategic investments particularly, has
experienced and continues to experience volatility. 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 charges to earnings in future periods equal to the amount of
the decline in fair market value. We also have strategic equity investments in certain non-marketable investment securities including
equity interests we received in exchange for non-cash consideration (See Note 2 in the Notes to the
Consolidated Financial Statements in Item 15 of this Annual Report on Form 10-K). We account for
such unconsolidated investments under either the equity method or cost method of accounting. These
securities are not publicly traded and accordingly, it is not practical to regularly estimate the
fair value of these investments, however, these investments are subject to an evaluation for other
than temporary impairment on a quarterly basis. This quarterly evaluation consists of reviewing,
among other things, company business plans and current financial statements, if available, for
factors that may indicate an impairment of our investment. Such factors may include, but are not
limited to, cash flow concerns, material litigation, violations of debt covenants and changes in
business strategy. The fair value of these investments is not estimated unless there are
identified changes in circumstances that are likely to have a significant adverse effect on the
fair value of the investment. Our ability to realize value from our strategic investments in
companies that are not publicly traded is dependent on the success of their business and their
ability to obtain sufficient capital to execute their business plans.
Since private markets are not as liquid as public markets, there is also increased risk that we
will not be able to sell these investments, or that when we desire to sell them we will not be able
to obtain full value for them. For the year ended December 31, 2004, we had $52.7 million
aggregate carrying amount of non-marketable and unconsolidated 27




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Item 7A. QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK - Continued strategic equity investments, of
which all was accounted for under the cost method. During the year ended December 31, 2004, we did
not record any impairment charges with respect to these investments.
As of December 31, 2004, we estimated the fair value of our fixed-rate debt and mortgages and other
notes payable to be approximately $4.412 billion using quoted market prices where available, and
third party valuations or discounted cash flow analyses when it was practicable to do so. The
interest rates assumed in these 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
10.0% decrease in assumed interest rates would increase the fair value of our debt by approximately
$134.5 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, 2004, a hypothetical 10.0%
increase in assumed interest rates would increase our annual interest expense by approximately
$28.2 million. We have not used derivative financial instruments for hedging or speculative purposes. 
 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 9A. CONTROLS AND PROCEDURES Under the supervision and with the participation of our management, including our Chief Executive
Officer and Principal Financial Officer, we evaluated the effectiveness of the design and operation
of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities
Exchange Act of 1934) as of the end of the period covered by this report. Based on that
evaluation, our Chief Executive Officer and Principal Financial Officer concluded that our
disclosure controls and procedures are effective. As part of EchoStars
evaluation of its disclosure controls and procedures and internal control over
financial reporting, EchoStar identified certain deficiencies in its internal control over
financial reporting that constitute a significant deficiency as defined by the Public Company
Accounting Oversight Boards Auditing Standard No. 2. This significant deficiency resulted in part
from the failure to maintain accurate books and records identified by the Review described under
Item 1 Description of Business  Recent Developments  Internal Review. That Review reported
one instance in which one of our executive officers in charge of certain business functions
directed the preparation in prior years of inaccurate documentation that was used to determine
payments made to a vendor. EchoStar has also identified several other significant deficiencies, none of
which individually or in the aggregate constituted a material
weakness in its internal control
over financial reporting as of December 31, 2004. 28




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PART IV 
 Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) The following documents are filed as part of this report:  (1)
    Financial Statements PageReport of KPMG LLP, Independent Registered Public Accounting Firm
    
    
    F-2Consolidated Balance Sheets at December 31, 2004 and 2003
    
    
    F-3Consolidated Statements of Operations and Comprehensive Income (Loss) for the years ended
December 31, 2004, 2003 and 2002
    
    
    F-4Consolidated Statements of Changes in Stockholders Equity (Deficit) for the years ended
December 31, 2002, 2003 and 2004
    
    
    F-5Consolidated Statements of Cash Flows for the years ended December 31, 2004, 2003 and 2002
    
    
    F-6Notes to Consolidated Financial Statements
    
    
    F-7
  (2)
    Financial Statement SchedulesNone. All schedules have been included in the Consolidated Financial Statements or
Notes thereto.(3)
    Exhibits Exhibit No.
    
    Description3.1(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)*
    
    Certificate of Amendment of the Articles of Incorporation of EchoStar DBS
Corporation, dated as of August 25, 2003 (incorporated by reference to Exhibit
3.1(b) to the Annual Report on Form 10-K of EDBS for the year ended December 31,
2003, Commission File No.333-31929).3.1(c)*
    
    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 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, Commission File No.0-26176).4.2*
    
    Indenture, relating to the 9 1/8% Senior Notes Due 2009, dated as of December 28,
2001 between EDBS 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
EchoStar for the year ended December 31, 2001, Commission File No. 0-26176).4.3*
    
    Registration Rights Agreement, relating to the 9 1/8% Senior Notes Due 2009,
dated as of December 28, 2001, by and among EDBS 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 EchoStar for the year ended December 31, 2001, Commission File No.
0-26176).4.4*
    
    Indenture, relating to EDBS 5 3/4% Senior Notes due 2008, dated as of October 2,
2003, between EDBS and U.S. Bank Trust National Association, as Trustee
(incorporated by reference to Exhibit 4.1 to the Quarterly Report on Form 10-Q of
EchoStar for the quarter ended September 30, 2003, Commission File No.0-26176).
 29




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##### Table of Contents



Exhibit No.
    
    Description4.5*
    
    Indenture, relating to EDBS 6 3/8% Senior Notes due 2011, dated as of October 2,
2003, between EDBS and U.S. Bank Trust National Association, as Trustee
(incorporated by reference to Exhibit 4.2 to the Quarterly Report on Form 10-Q of
EchoStar for the quarter ended September 30, 2003, Commission File No.0-26176).4.6*
    
    Indenture, relating to EDBS Floating Senior Notes due 2008, dated as of October
2, 2003, between EDBS and U.S. Bank Trust National Association, as Trustee
(incorporated by reference to Exhibit 4.3 to the Quarterly Report on Form 10-Q of
EchoStar for the quarter ended September 30, 2003, Commission File No.0-26176).4.7*
    
    Registration Rights Agreement dated as of October 2, 2003 among EDBS and the
other parties named herein (incorporated by reference to Exhibit 4.4 to the
Quarterly Report on Form 10-Q of EchoStar for the quarter ended September 30,
2003, Commission File No.0-26176).4.8*
    
    First Supplemental Indenture, relating to the 9 1/8% Senior Notes Due 2009, dated
as of December 31, 2003 between EDBS and U.S. Bank Trust National Association, as
Trustee (incorporated by reference to Exhibit 4.12 to the Annual Report on Form
10-K of EchoStar for the year ended December 31, 2003, Commission File
No.0-26176).4.9*
    
    First Supplemental Indenture, relating to the 5 3/4% Senior Notes Due 2008, dated
as of December 31, 2003 between EDBS and U.S. Bank Trust National Association, as
Trustee (incorporated by reference to Exhibit 4.13 to the Annual Report on Form
10-K of EchoStar for the year ended December 31, 2003, Commission File
No.0-26176).4.10*
    
    First Supplemental Indenture, relating to the 6 3/8% Senior Notes Due 2011, dated
as of December 31, 2003 between EDBS and U.S. Bank Trust National Association, as
Trustee (incorporated by reference to Exhibit 4.14 to the Annual Report on Form
10-K of EchoStar for the year ended December 31, 2003, Commission File
No.0-26176).4.11*
    
    First Supplemental Indenture, relating to the Floating Rate Senior Notes Due
2008, dated as of December 31, 2003 between EDBS and U.S. Bank Trust National
Association, as Trustee (incorporated by reference to Exhibit 4.15 to the Annual
Report on Form 10-K of EchoStar for the year ended December 31, 2003, Commission
File No.0-26176).4.12*
    
    First Supplemental Indenture, relating to the 10 3/8% Senior Notes Due 2007,
dated as of December 31, 2003 between EDBS and U.S. Bank Trust National
Association, as Trustee (incorporated by reference to Exhibit 4.16 to the Annual
Report on Form 10-K of EchoStar for the year ended December 31, 2003, Commission
File No.0-26176).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 Ltd.,
Registration No. 33-81234).10.2*
    
    Manufacturing Agreement, dated as of March 22, 1995, between HTS and SCI
Technology, Inc. (incorporated by reference to Exhibit 10.12 to the Registration
Statement on Form S-1 of Dish Ltd., Commission File No. 33-81234).10.3*
    
    EchoStar 1995 Stock Incentive Plan (incorporated by reference to Exhibit 10.16 to
the Registration Statement on Form S-1 of EchoStar, Registration No. 33-91276).
**10.4*
    
    Echostar 1999 Stock Incentive Plan (incorporated by reference to Exhibit C to
EchoStars Definitive Proxy Statement on Schedule 14A dated March 23, 1999).**10.5*
    
    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).**
 30




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Exhibit No.
    
    Description10.6*
    
    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
EchoStar for the year ended December 31, 1996, as amended, Commission File No.
0-26176).10.7*
    
    Agreement to Form NagraStar L.L.C., dated as of June 23, 1998, by and between
Kudelski S.A., EchoStar and ESC (incorporated by reference to Exhibit 10.28 to
the Annual Report on Form 10-K of EchoStar for the year ended December 31, 1998,
Commission File No. 0-26176).10.8*
    
    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). ***10.9*
    
    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).10.10*
    
    Satellite Service Agreement, dated as of March 21, 2003, between SES Americom,
Inc., EchoStar Satellite Corporation and EchoStar Communications Corporation
(incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q
of EchoStar for the quarter ended March 31, 2003, Commission File No.0-26176).10.11*
    
    Amendment No. 1 to Satellite Service Agreement dated March 31, 2003 between SES
Americom Inc. and EchoStar (incorporated by reference to Exhibit 10.1 to the
Quarterly Report on Form 10-Q of EchoStar for the quarter ended September 30,
2003, Commission File No.0-26176).10.12*
    
    Satellite Service Agreement dated as of August 13, 2003 between SES Americom Inc.
and EchoStar (incorporated by reference to Exhibit 10.2 to the Quarterly Report
on Form 10-Q of EchoStar for the quarter ended September 30, 2003, Commission
File No.0-26176).10.13*
    
    Satellite Service Agreement, dated February 19, 2004, between SES Americom, Inc.
and EchoStar (incorporated by reference to Exhibit 10.1 to the Quarterly Report
on Form 10-Q of EchoStar for the quarter ended March 31, 2004, Commission File
No.0-26176).10.14*
    
    Amendment No. 1 to Satellite Service Agreement, dated March 10, 2004, between SES
Americom, Inc. and EchoStar (incorporated by reference to Exhibit 10.2 to the
Quarterly Report on Form 10-Q of EchoStar for the quarter ended March 31, 2004,
Commission File No.0-26176).10.15*
    
    Amendment No. 3 to Satellite Service Agreement, dated February 19, 2004, between
SES Americom, Inc. and EchoStar (incorporated by reference to Exhibit 10.3 to the
Quarterly Report on Form 10-Q of EchoStar for the quarter ended March 31, 2004,
Commission File No.0-26176).10.16*
    
    Whole RF Channel Service Agreement, dated February 4, 2004, between Telesat
Canada and EchoStar (incorporated by reference to Exhibit 10.4 to the Quarterly
Report on Form 10-Q of EchoStar for the quarter ended March 31, 2004, Commission
File No.0-26176).10.17*
    
    Letter Amendment to Whole RF Channel Service Agreement, dated March 25, 2004,
between Telesat Canada and EchoStar (incorporated by reference to Exhibit 10.5 to
the Quarterly Report on Form 10-Q of EchoStar for the quarter ended March 31,
2004, Commission File No.0-26176).10.18*
    
    Amendment No. 2 to Satellite Service Agreement, dated April 30, 2004, between SES
Americom, Inc. and EchoStar (incorporated by reference to Exhibit 10.1 to the
Quarterly Report on Form 10-Q of EchoStar for the quarter ended June 30, 2004,
Commission File No.0-26176).
 31




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##### Table of Contents



Exhibit No.
    
    Description10.19*
    
    Second Amendment to Whole RF Channel Service Agreement, dated May 5, 2004,
between Telesat Canada and Echostar (incorporated by reference to Exhibit 10.2 to
the Quarterly Report on Form 10-Q of EchoStar for the quarter ended June 30,
2004, Commission File No.0-26176).10.20*
    
    Third Amendment to Whole RF Channel Service Agreement, dated October 12, 2004,
between Telesat Canada and Echostar (incorporated by reference to Exhibit 10.22
to the Annual Report on Form 10-K of EchoStar for the year ended December 31,
2004, Commission File No.0-26176). ***10.21*
    
    Amendment No. 4 to Satellite Service Agreement, dated October 21, 2004, between
SES Americom, Inc. and EchoStar (incorporated by reference to Exhibit 10.23 to
the Annual Report on Form 10-K of EchoStar for the year ended December 31, 2004,
Commission File No.0-26176). ***10.22*
    
    Amendment No. 3 to Satellite Service Agreement, dated November 19, 2004 between
SES Americom, Inc. and EchoStar (incorporated by reference to Exhibit 10.24 to
the Annual Report on Form 10-K of EchoStar for the year ended December 31, 2004,
Commission File No.0-26176). ***10.23*
    
    Amendment No. 5 to Satellite Service Agreement, dated November 19, 2004, between
SES Americom, Inc. and EchoStar (incorporated by reference to Exhibit 10.25 to
the Annual Report on Form 10-K of EchoStar for the year ended December 31, 2004,
Commission File No.0-26176). ***10.24*
    
    Amendment No. 6 to Satellite Service Agreement, dated December 20, 2004, between
SES Americom, Inc. and EchoStar (incorporated by reference to Exhibit 10.26 to
the Annual Report on Form 10-K of EchoStar for the year ended December 31, 2004,
Commission File No.0-26176). ***31.1H
    
    Section 302 Certification by Chairman and Chief Executive Officer.31.2H
    
    Section 302 Certification by Executive Vice President and Chief Financial Officer.32.1H
    
    Section 906 Certification by Chairman and Chief Executive Officer.32.2H
    
    Section 906 Certification by Executive Vice President and Chief Financial Officer.
   H
    
    Filed herewith.*
    
    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. 32




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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 CORPORATIONBy:
    
    /s/ David J. RaynerDavid J. RaynerExecutive Vice President and Chief Financial OfficerDate: March 29, 2005
 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the registrant and in the capacities and on the dates
indicated: Signature
    
    Title
    
    Date/s/ Charles W. Ergen
    
    Chief Executive Officer and Director
    
    March 29, 2005Charles W. Ergen
    
    (Principal Executive Officer)/s/ David J. Rayner
    
    Executive Vice President and Chief Financial Officer
    
    March 29, 2005David J. Rayner
    
    (Principal Financial and Accounting Officer)/s/ James DeFranco
    
    Director
    
    March 29, 2005James DeFranco/s/ David K. Moskowitz
    
    Director
    
    March 29, 2005David K. Moskowitz
 33




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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS PageConsolidated Financial Statements:Report of KPMG LLP, Independent Registered Public Accounting Firm
    
    F-2Consolidated Balance Sheets at December 31, 2004 and 2003
    
    F-3Consolidated Statements of Operations and Comprehensive Income (Loss) for the years ended December 31,
2004, 2003 and 2002
    
    F-4Consolidated Statements of Changes in Stockholders Equity (Deficit) for the years ended December 31, 2002,
2003 and 2004
    
    F-5Consolidated Statements of Cash Flows for the years ended December 31, 2004, 2003 and 2002
    
    F-6Notes to Consolidated Financial Statements
    
    F-7
 F-1




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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Board of Directors
EchoStar DBS Corporation: We have audited the accompanying consolidated balance sheets of EchoStar DBS Corporation and
subsidiaries as of December 31, 2004 and 2003, and the related consolidated statements of
operations and comprehensive income (loss), stockholders equity (deficit), and cash flows for each
of the years in the three-year period ended December 31, 2004. These consolidated financial
statements are the responsibility of the Companys management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the 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 consolidated financial statements referred to above present fairly, in all
material respects, the financial position of EchoStar DBS Corporation and subsidiaries as of
December 31, 2004 and 2003, and the results of their operations and their cash flows for each of
the years in the three-year period ended December 31, 2004, in conformity with U.S. generally
accepted accounting principles. KPMG LLP Denver, Colorado
March 29, 2005 F-2




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ECHOSTAR DBS CORPORATION 
 CONSOLIDATED BALANCE SHEETS
  As of December 31,2004
    
    
    2003AssetsCurrent Assets:Cash and cash equivalents
    
    $
    511,980
    
    
    $
    968,163Marketable investment
securities
    
    
    214,275
    
    
    
    1,929,105Trade accounts receivable, net of allowance for uncollectible accounts
of $8,429 and $8,152
respectively
    
    
    472,056
    
    
    
    342,352Inventories, net
    
    
    271,514
    
    
    
    154,813Insurance receivable (Note
8)
    
    
    106,000
    
    
    
    Other current
assets
    
    
    146,095
    
    
    
    70,904Total current
assets
    
    
    1,721,920
    
    
    
    3,465,337Restricted cash and marketable investment securities
    
    
    
    
    
    
    20Cash reserved for satellite insurance (Note 3)
    
    
    
    
    
    
    176,843Property and equipment, net (Note 3)
    
    
    2,441,017
    
    
    
    1,761,376FCC
authorizations
    
    
    696,285
    
    
    
    696,242Intangible assets, net (Note
2)
    
    
    238,959
    
    
    
    4,135Insurance receivable (Note 8)
    
    
    
    
    
    
    106,000Other noncurrent assets, net (Note 2)
    
    
    191,395
    
    
    
    84,226Total
assets
    
    $
    5,289,576
    
    
    $
    6,294,179Liabilities and Stockholders Equity (Deficit)Current Liabilities:Trade accounts
payable
    
    $
    240,738
    
    
    $
    171,660Deferred revenue and
other
    
    
    757,011
    
    
    
    514,046Accrued programming
    
    
    604,934
    
    
    
    366,497Other accrued
expenses
    
    
    350,688
    
    
    
    434,399Advances from affiliates (Note
13)
    
    
    9,005
    
    
    
    289,645Current portion of capital lease and other long-term obligations (Note 4)
    
    
    44,972
    
    
    
    14,8369 3/8% Senior Notes due 2009 (Note 4)
    
    
    
    
    
    
    1,423,351Total current liabilities
    
    
    2,007,348
    
    
    
    3,214,434Long-term obligations, net of current portion:10 3/8% Senior Notes due 2007 (Note 4)
    
    
    
    
    
    
    1,000,0009 1/8% Senior Notes due 2009 (Note 4)
    
    
    446,153
    
    
    
    455,000Floating Rate Senior Notes due 2008
    
    
    500,000
    
    
    
    500,0005 3/4% Senior Notes due 2008
    
    
    1,000,000
    
    
    
    1,000,0006 3/8% Senior Notes due
2011
    
    
    1,000,000
    
    
    
    1,000,0006 5/8% Senior Notes due 2014 (Note 4)
    
    
    1,000,000
    
    
    
    Capital lease obligation, mortgages and other notes payable, net of current portion (Note 4)
    
    
    285,894
    
    
    
    41,994Long-term deferred revenue, distribution and carriage payments and other long-term liabilities (Note 2)
    
    
    325,627
    
    
    
    155,015Total long-term obligations, net of current portion
    
    
    4,557,674
    
    
    
    4,152,009Total
liabilities
    
    
    6,565,022
    
    
    
    7,366,443Commitments and Contingencies (Note 8)Stockholders Equity (Deficit):Common stock, $.01 par value, 1,000,000 shares authorized,
1,015 shares issued and outstanding, respectively
    
    
    
    
    
    
    Additional paid-in capital
    
    
    929,002
    
    
    
    930,936Non-cash, stock-based compensation
    
    
    
    
    
    
    (1,180
    )Accumulated other comprehensive income (loss)
    
    
    (1,281
    )
    
    
    560Accumulated deficit
    
    
    (2,203,167
    )
    
    
    (2,002,580
    )Total stockholders equity
(deficit)
    
    
    (1,275,446
    )
    
    
    (1,072,264
    )Total liabilities and stockholders equity (deficit)
    
    $
    5,289,576
    
    
    $
    6,294,179
 The accompanying notes are
an integral part of these consolidated financial statements. F-3




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ECHOSTAR DBS CORPORATION 
 CONSOLIDATED
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
  For the Years Ended December 31,2004
    
    
    2003
    
    
    2002Revenue:Subscriber-related revenue
    
    $
    6,676,616
    
    
    $
    5,409,386
    
    
    $
    4,423,370Equipment
sales
    
    
    369,251
    
    
    
    291,776
    
    
    
    345,938Other
    
    
    97,161
    
    
    
    30,560
    
    
    
    34,329Total
revenue
    
    
    7,143,028
    
    
    
    5,731,722
    
    
    
    4,803,637Costs and Expenses:Subscriber-related expenses (exclusive of depreciation shown
below - Note
3)
    
    
    3,580,880
    
    
    
    2,723,129
    
    
    
    2,216,297Satellite and transmission expenses (exclusive of depreciation
shown below - Note
3)
    
    
    107,587
    
    
    
    74,309
    
    
    
    56,656Cost of
sales - equipment
    
    
    305,991
    
    
    
    193,886
    
    
    
    227,095Cost of sales -
other
    
    
    30,302
    
    
    
    57
    
    
    
    584Subscriber acquisition costs:Cost of
sales - subscriber promotion subsidies (exclusive
of depreciation shown below - Note 3)
    
    
    467,587
    
    
    
    504,901
    
    
    
    445,448Other subscriber promotion subsidies
    
    
    925,195
    
    
    
    628,929
    
    
    
    574,750Subscriber acquisition advertising
    
    
    139,061
    
    
    
    176,964
    
    
    
    152,773Total subscriber acquisition costs
    
    
    1,531,843
    
    
    
    1,310,794
    
    
    
    1,172,971General and administrative
    
    
    380,573
    
    
    
    319,133
    
    
    
    300,387Non-cash, stock-based compensation (Note 6)
    
    
    1,180
    
    
    
    3,544
    
    
    
    11,279Depreciation and amortization (Note 3)
    
    
    490,698
    
    
    
    385,098
    
    
    
    355,754Total costs and expenses
    
    
    6,429,054
    
    
    
    5,009,950
    
    
    
    4,341,023Operating income
(loss)
    
    
    713,974
    
    
    
    721,772
    
    
    
    462,614Other income (expense):Interest
income
    
    
    30,609
    
    
    
    18,838
    
    
    
    10,001Interest expense, net of amounts capitalized
    
    
    (433,364
    )
    
    
    (407,030
    )
    
    
    (338,883
    )Other
    
    
    (741
    )
    
    
    (466
    )
    
    
    (5,900
    )Total other income (expense)
    
    
    (403,496
    )
    
    
    (388,658
    )
    
    
    (334,782
    )Income (loss) before income taxes
    
    
    310,478
    
    
    
    333,114
    
    
    
    127,832Income tax benefit (provision), net
    
    
    (11,065
    )
    
    
    (13,533
    )
    
    
    (80,941
    )Net income
(loss)
    
    $
    299,413
    
    
    $
    319,581
    
    
    $
    46,891Foreign currency translation adjustment
    
    
    (48
    )
    
    
    453
    
    
    
    Unrealized holding gains (losses) on available-for-sale securities
    
    
    (1,793
    )
    
    
    (590
    )
    
    
    (700
    )Recognition of previously unrealized (gains) losses on
available-for-sale securities included in net income (loss)
    
    
    
    
    
    
    
    
    
    
    2,039Comprehensive income (loss)
    
    $
    297,572
    
    
    $
    319,444
    
    
    $
    48,230
 The accompanying notes are an integral part of these consolidated financial statements. F-4




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ECHOSTAR DBS CORPORATION 
 CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY (DEFICIT)
  AccumulatedDeficit andNon-Cash,
    
    
    AccumulatedAdditional
    
    
    Stock-
    
    
    OtherCommon Stock
    
    
    Paid-In
    
    
    Based
    
    
    ComprehensiveShares
    
    
    Amount
    
    
    Capital
    
    
    Compensation
    
    
    Income (Loss)
    
    
    TotalBalance, December 31, 2001
    
    
    1
    
    
    $
    
    
    
    $
    435,590
    
    
    $
    (25,456
    )
    
    $
    (2,369,694
    )
    
    $
    (1,959,560
    )Forfeitures of deferred non-cash, stock-based compensation
    
    
    
    
    
    
    
    
    
    
    (5,520
    )
    
    
    1,911
    
    
    
    
    
    
    
    (3,609
    )Deferred stock-based compensation recognized
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,888
    
    
    
    
    
    
    
    14,888Capital contribution of 10 3/8% interest payment from EBC
    
    
    
    
    
    
    
    
    
    
    77,812
    
    
    
    
    
    
    
    
    
    
    
    77,812Capital contribution of EchoStar VII from EBC
    
    
    
    
    
    
    
    
    
    
    177,000
    
    
    
    
    
    
    
    
    
    
    
    177,000Capital contribution of EchoStar VIII from EBC
    
    
    
    
    
    
    
    
    
    
    194,913
    
    
    
    
    
    
    
    
    
    
    
    194,913Assumption of EchoStar VII and VIII vendor financing
from
EBC
    
    
    
    
    
    
    
    
    
    
    (30,000
    )
    
    
    
    
    
    
    
    
    
    
    (30,000
    )Reversal of deferred tax asset for book stock-based
compensation that exceeded the related tax deduction
    
    
    
    
    
    
    
    
    
    
    (6,597
    )
    
    
    
    
    
    
    
    
    
    
    (6,597
    )Change in unrealized holding gains (losses)
on available-for-sale securities, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,339
    
    
    
    1,339Net income (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    46,891
    
    
    
    46,891Balance, December 31, 2002
    
    
    1
    
    
    $
    
    
    
    $
    843,198
    
    
    $
    (8,657
    )
    
    $
    (2,321,464
    )
    
    $
    (1,486,923
    )Capital contribution from ECC
    
    
    
    
    
    
    
    
    
    
    267,356
    
    
    
    
    
    
    
    
    
    
    
    267,356Capital distribution for EchoStar IX to EOC
    
    
    
    
    
    
    
    
    
    
    (171,624
    )
    
    
    
    
    
    
    
    
    
    
    (171,624
    )Forfeitures of deferred non-cash, stock-based compensation
    
    
    
    
    
    
    
    
    
    
    (3,933
    )
    
    
    
    
    
    
    
    
    
    
    (3,933
    )Deferred stock-based compensation recognized
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,477
    
    
    
    
    
    
    
    7,477Reversal of deferred tax asset for book stock-based
compensation that exceeded the related tax deduction
    
    
    
    
    
    
    
    
    
    
    (4,061
    )
    
    
    
    
    
    
    
    
    
    
    (4,061
    )Change in unrealized holding gains (losses)
on available-for-sale securities, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (590
    )
    
    
    (590
    )Foreign currency translation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    453
    
    
    
    453Net income (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    319,581
    
    
    
    319,581Balance, December 31, 2003
    
    
    1
    
    
    $
    
    
    
    $
    930,936
    
    
    $
    (1,180
    )
    
    $
    (2,002,020
    )
    
    $
    (1,072,264
    )Deferred stock-based compensation recognized
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,180
    
    
    
    
    
    
    
    1,180Reversal of deferred tax asset for book stock-based
compensation that exceeded the related tax deduction
    
    
    
    
    
    
    
    
    
    
    (1,934
    )
    
    
    
    
    
    
    
    
    
    
    (1,934
    )Change in unrealized holding gains (losses)
on available-for-sale securities, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,793
    )
    
    
    (1,793
    )Foreign currency translation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (48
    )
    
    
    (48
    )Dividend to ECC (Note 13)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (500,000
    )
    
    
    (500,000
    )Net income (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    299,413
    
    
    
    299,413Balance, December 31, 2004
    
    
    1
    
    
    $
    
    
    
    $
    929,002
    
    
    $
    
    
    
    $
    (2,204,448
    )
    
    $
    (1,275,446
    )
 The accompanying notes are an integral part of these consolidated financial statements. F-5




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##### Table of Contents



ECHOSTAR DBS CORPORATION 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
  For the Years Ended December 31,2004
    
    
    2003
    
    
    2002Cash Flows From Operating Activities:Net income
(loss)
    
    $
    299,413
    
    
    $
    319,581
    
    
    $
    46,891Adjustments to reconcile net income (loss) to net cash flows from operating activities:Depreciation and amortization
    
    
    490,698
    
    
    
    385,098
    
    
    
    355,754Realized and unrealized losses (gains) on investments
    
    
    
    
    
    
    
    
    
    
    2,039Non-cash, stock-based compensation recognized
    
    
    1,180
    
    
    
    3,544
    
    
    
    11,279Deferred tax expense
(benefit)
    
    
    4,790
    
    
    
    2,845
    
    
    
    73,139Amortization of debt discount and deferred financing costs
    
    
    19,411
    
    
    
    12,556
    
    
    
    6,176Change in noncurrent assets
    
    
    (114,888
    )
    
    
    (49,678
    )
    
    
    Change in long-term deferred revenue, distribution and carriage payments and other long-term liabilities
    
    
    109,522
    
    
    
    11,434
    
    
    
    (20,924
    )Other, net
    
    
    710
    
    
    
    1,918
    
    
    
    2,523Changes in current assets and current liabilities:Trade accounts receivable, net
    
    
    (122,774
    )
    
    
    (16,424
    )
    
    
    (12,075
    )Inventories
    
    
    (70,768
    )
    
    
    17,675
    
    
    
    69,306Other current assets
    
    
    (62,795
    )
    
    
    (9,139
    )
    
    
    513Trade accounts payable
    
    
    77,438
    
    
    
    (74,009
    )
    
    
    50,811Deferred revenue and other
    
    
    211,656
    
    
    
    73,368
    
    
    
    83,775Accrued programming and other accrued expenses
    
    
    177,248
    
    
    
    (1,903
    )
    
    
    143,639Net cash flows from operating activities
    
    
    1,020,841
    
    
    
    676,866
    
    
    
    812,846Cash Flows From Investing Activities:Purchases of marketable investment securities
    
    
    (1,524,017
    )
    
    
    (3,911,404
    )
    
    
    (1,329,043
    )Sales of marketable investment securities
    
    
    3,237,054
    
    
    
    2,258,969
    
    
    
    1,141,401Purchases of property and equipment
    
    
    (892,572
    )
    
    
    (229,930
    )
    
    
    (349,795
    )Change in cash reserved for satellite insurance (Note 3)
    
    
    176,843
    
    
    
    (25,471
    )
    
    
    (29,294
    )Change in restricted cash and marketable investment securities
    
    
    20
    
    
    
    (10
    )
    
    
    (10
    )Incentive payments under in-orbit satellite contract  Echo VI
    
    
    
    
    
    
    
    
    
    
    (8,441
    )Asset acquisition (Note 2)
    
    
    (238,610
    )
    
    
    
    
    
    
    FCC auction
deposits
    
    
    (6,100
    )
    
    
    
    
    
    
    Other
    
    
    91
    
    
    
    453
    
    
    
    (4,332
    )Net cash flows from investing activities
    
    
    752,709
    
    
    
    (1,907,393
    )
    
    
    (579,514
    )Cash Flows From Financing Activities:Proceeds from issuance of 6 5/8% Senior Notes due 2014 (Note 4)
    
    
    1,000,000
    
    
    
    
    
    
    
    Proceeds from issuance of Floating Rate Senior Notes due 2008
    
    
    
    
    
    
    500,000
    
    
    
    Proceeds from issuance of 5 3/4% Senior Notes due 2008
    
    
    
    
    
    
    1,000,000
    
    
    
    Proceeds from issuance of 6 3/8% Senior Notes due 2011
    
    
    
    
    
    
    1,000,000
    
    
    
    Non-interest bearing advances from (to) affiliates (Note 13)
    
    
    (289,000
    )
    
    
    
    
    
    
    (58
    )Redemption of 10 3/8% Senior Notes due 2007 (Note 4)
    
    
    (1,000,000
    )
    
    
    
    
    
    
    Redemption of 9 1/4% Senior Notes due 2006
    
    
    
    
    
    
    (375,000
    )
    
    
    Repurchase and partial redemption of 9 1/8% Senior Notes due 2009, respectively (Note 4)
    
    
    (8,847
    )
    
    
    (245,000
    )
    
    
    Redemption and repurchase of 9 3/8% Senior Notes due 2009, respectively (Note 4)
    
    
    (1,423,351
    )
    
    
    (201,649
    )
    
    
    Deferred debt issuance costs
    
    
    (3,159
    )
    
    
    (12,500
    )
    
    
    Dividend to ECC (Note 13)
    
    
    (500,000
    )
    
    
    
    
    
    
    Capital contribution from ECC
    
    
    
    
    
    
    267,356
    
    
    
    Repayment of mortgages and other notes payable
    
    
    (5,376
    )
    
    
    (2,209
    )
    
    
    (3,419
    )Other
    
    
    
    
    
    
    
    
    
    
    (1,215
    )Net cash flows from financing activities
    
    
    (2,229,733
    )
    
    
    1,930,998
    
    
    
    (4,692
    )Net increase (decrease) in cash and cash equivalents
    
    
    (456,183
    )
    
    
    700,471
    
    
    
    228,640Cash and cash equivalents, beginning of period
    
    
    968,163
    
    
    
    267,692
    
    
    
    39,052Cash and cash equivalents, end of period
    
    $
    511,980
    
    
    $
    968,163
    
    
    $
    267,692
 The accompanying notes are an integral part of these consolidated financial statements. F-6




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##### Table of Contents



ECHOSTAR COMMUNICATIONS CORPORATION 
 NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
 1. Organization and Business Activities EchoStar DBS Corporation (EDBS, the Company, we, us and/or our) is a holding company and
a wholly-owned subsidiary of EchoStar Communications Corporation (EchoStar or ECC), a publicly
traded company listed on the Nasdaq National Market. EDBS was formed under Colorado law in January
1996. EchoStar has placed ownership of its nine in-orbit satellites and related FCC licenses into
our subsidiaries. Principal Business Unless otherwise stated herein, or the context otherwise requires, 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  which provides a direct broadcast satellite (DBS) subscription
television service in the United States; and
    EchoStar Technologies Corporation (ETC)  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. ETC also designs, develops and
distributes similar equipment for international satellite service providers. Since 1994, we have deployed substantial resources to develop the EchoStar DBS System. The
EchoStar DBS System consists of our Federal Communications Commission (FCC) allocated DBS
spectrum, our owned and leased satellites, EchoStar receiver systems, digital broadcast operations
centers, customer service facilities, and certain other assets utilized in our operations. Our
principal business strategy is to continue developing our subscription television service in the
United States to provide consumers with a fully competitive
alternative to cable television
service. Organization and Legal Structure Substantially all of EchoStars operations are conducted by our subsidiaries. The following table
summarizes the organizational structure of EchoStar and its principal subsidiaries as of December
31, 2004: Referred toLegal Entity
    
    Herein As
    
    ParentEchoStar Communications Corporation
    
    ECC
    
    Publicly ownedEchoStar Orbital Corporation
        .
    
    EOC
    
    ECCEchoStar Orbital Corporation
II
    
    EOC II
    
    EOCEchoStar DBS Corporation
    
    EDBS
    
    EOCEchoStar Satellite L.L.C
    
    ESLLC
    
    EDBSEchosphere L.L.C
    
    Echosphere
    
    EDBSEchoStar Technologies Corporation
    
    ETC
    
    EDBSDISH Network Service L.L.C.
    
    DNSLLC
    
    EDBS
 As of December 31, 2004, all of EchoStars DBS FCC licenses and nine of its in-orbit satellites
were owned by one of our direct subsidiaries. Contracts for the construction and launch of
EchoStar X, EchoStar XI and the Ka-band satellites are held in EOC II, our sister company.
EchoStars satellite lease contracts are also held by one of our direct subsidiaries. F-7




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##### Table of Contents



ECHOSTAR DBS CORPORATION NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS - Continued
 Significant Risks and Uncertainties Substantial Leverage.We are highly leveraged, which makes us vulnerable to changes in general
economic conditions. As of December 31, 2004, we had outstanding long-term debt (including both
the current and long-term portions) totaling approximately $4.277 billion. We have quarterly and
semi-annual cash interest requirements for all of our outstanding long-term debt securities, as
follows: AnnualQuarterly/Semi-Annual
    
    Debt ServicePayment Dates
    
    Requirements9 1/8% Senior Notes due
2009
    
    January 15 and July 15
    
    $
    40,711,461Floating Rate Senior
Notes due 2008
    
    January 1, April 1, July
1 and October 1
    
    $
    29,050,0005 3/4% Senior Notes due
2008
    
    April 1 and October 1
    
    $
    57,500,0006 3/8% Senior Notes due
2011
    
    April 1 and October 1
    
    $
    63,750,0006 5/8% Senior Notes due
2014
    
    April 1 and October 1
    
    $
    66,250,000
 Interest accrues on our Floating Rate Senior Notes due 2008 based on the three month London
Interbank Offered Rate (LIBOR) plus 3.25%. The interest rate at December 31, 2004 was 5.81%.
Semi-annual cash interest requirements related to our 6 5/8% Senior Notes due 2014 will commence on
April 1, 2005. There are no scheduled principal payment or sinking fund requirements prior to
maturity on any of these notes. Our ability to meet our debt service requirements will depend on,
among other factors, the successful execution of our business strategy, which is subject to
uncertainties and contingencies beyond our control. 2. Summary of Significant Accounting Policies Basis of Presentation Effective January 1, 2004, we combined Subscription television service revenue and Other
subscriber-related revenue into Subscriber-related revenue. Additionally, Equipment sales and
Cost of sales  equipment now include non-DISH Network receivers and other accessories sold by
our EchoStar International Corporation subsidiary to international customers which were previously
included in Other revenue and Cost of sales  other, respectively. All prior period amounts
were reclassified to conform to the current period presentation. Certain other prior year amounts
have been reclassified to conform with the current year presentation. Principles of Consolidation We consolidate all majority owned subsidiaries and investments in entities in which we have
controlling influence. Non-majority owned investments are accounted for using the equity method
when we have the ability to significantly influence the operating decisions of the investee. When
we do not have the ability to significantly influence the operating decisions of an investee, the
cost method is used. For entities that are considered variable interest entities we apply the
provisions of FASB Interpretation No. (FIN) 46-R, Consolidation of Variable Interest Entities, and
Interpretation of ARB No. 51 (FIN 46-R). All significant intercompany accounts and transactions
have been eliminated in consolidation. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted
in the United States (GAAP) requires us to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and expenses for each
reporting period. Estimates are used in accounting for, among other things, allowances for
uncollectible accounts, inventory allowances, self insurance obligations, deferred taxes and
related valuation allowances, loss contingencies, fair values of financial instruments, fair value
of assets and liabilities acquired in business combinations, asset impairments, useful lives of
property and equipment, retailer commissions, programming expenses, subscriber lives including
those related to our co-branding and other distribution relationships, royalty obligations and
smart card replacement obligations. Actual results may differ
from previously estimated amounts. Estimates and assumptions are reviewed periodically, and the
effects of revisions are reflected in the period they occur. F-8




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##### Table of Contents



ECHOSTAR DBS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued During the three months ended December 31, 2003, we recorded approximately $61.4 million to
reduce our estimated royalty obligations related to the production of EchoStar receiver systems.
The following details the decrease in the financial statement line items affected by this change in
estimate (in thousands): Cost of sales  equipment
    
    $
    (6,839
    )Cost of sales  subscriber promotion subsidies
    
    
    (42,750
    )Depreciation and
amortization
    
    
    (5,937
    )Property and equipment,
net
    
    
    (5,341
    )Inventories,
net
    
    
    (505
    )
 Foreign Currency Translation The functional currency of the majority of our foreign subsidiaries is the U.S. dollar because
their sales and purchases are predominantly denominated in that currency. However, for our
subsidiaries where the functional currency is the local currency, we translate assets and
liabilities into U.S. dollars at the period end exchange rate and record the translation
adjustments as a component of other comprehensive income (loss). We translate revenues and
expenses based on the exchange rates at the time such transactions arise, if known, or at the
average rate for the period. Transactions denominated in currencies other than the functional
currency are recorded at the exchange rate at the time of the transaction and are included in other
miscellaneous income and expense. Net transaction gains (losses) during 2004, 2003 and 2002 were
not significant. Statements of Cash Flows Data The following presents our supplemental cash flow statement disclosure: For the Years Ended December 31,2004
    
    
    2003
    
    
    2002(In thousands)Cash paid for
interest
    
    $
    358,841
    
    
    $
    347,266
    
    
    $
    300,418Capitalized
interest
    
    
    
    
    
    
    8,428
    
    
    
    23,876Cash received for
interest
    
    
    30,609
    
    
    
    18,674
    
    
    
    10,043Cash paid for income taxes
    
    
    2,727
    
    
    
    10,847
    
    
    
    7,249Forfeitures of deferred non-cash, stock-based compensation
    
    
    
    
    
    
    3,933
    
    
    
    5,520Capital contribution of EchoStar VII from
EBC
    
    
    
    
    
    
    
    
    
    
    177,000Capital contribution of EchoStar VIII from
EBC
    
    
    
    
    
    
    
    
    
    
    194,913Capital distribution for EchoStar IX to
EOC
    
    
    
    
    
    
    (171,624
    )
    
    
    Assumption of net operating liabilities in asset acquisition ( Note 2)
    
    
    25,685
    
    
    
    
    
    
    
    Assumption of long-term deferred revenue (Note 2)
    
    
    52,727
    
    
    
    
    
    
    
    Satellite financed under capital lease (Note
4)
    
    
    286,605
    
    
    
    
    
    
    
    Reduction in satellite vendor financing (Note
3)
    
    
    13,712
    
    
    
    
    
    
    
    Satellite and other vendor
financing
    
    
    6,519
    
    
    
    13,097
    
    
    
    30,000
 Cash and Cash Equivalents We consider all liquid investments purchased with an original maturity of 90 days or less to be
cash equivalents. Cash equivalents as of December 31, 2004 and 2003 consist of money market funds,
corporate notes and commercial paper. The cost of these investments approximates their fair market
value. Marketable and Non-Marketable Investment Securities and Restricted Cash We currently classify all marketable investment securities as available-for-sale. We adjust the
carrying value of our available-for-sale securities to fair market value and report the related
temporary unrealized gains and losses as a separate component of Accumulated other comprehensive
income within Total stockholders equity (deficit), net of related deferred income tax.
Declines in the fair market value of a marketable investment security which are estimated to be
other than temporary are recognized in the consolidated statement of operations, thus
establishing a new cost basis for such investment. We evaluate our marketable investment
securities portfolio on a quarterly basis to F-9




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##### Table of Contents



ECHOSTAR DBS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued determine whether declines in the fair market value of
these securities are other than temporary. This quarterly evaluation consists of reviewing, among
other things, the fair market value of our marketable investment securities compared to the
carrying amount, the historical volatility of the price of each security and any market and company
specific factors related to each security. Generally, absent specific factors to the contrary,
declines in the fair market value of investments below cost basis for a period of less than six
months are considered to be temporary. Declines in the fair market 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 market 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, 2004, we had unrealized losses of approximately $1.7 million as a part of
Accumulated other comprehensive income within Total stockholders equity (deficit). During the
year ended December 31, 2004, we did not record any charge to earnings for other than temporary
declines in the fair market value of our marketable investment securities. Realized gains and
losses are accounted for on the specific identification method. During the twelve months ended
December 31, 2004, our portfolio generally, and our strategic investments particularly, has
experienced and continues to experience volatility. 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 marketable securities is
impaired, we may be required to record charges to earnings in future periods equal to the amount of
the decline in fair market value. We also have strategic equity investments in certain non-marketable investment securities including
equity interests we received in exchange for non-cash consideration discussed below. We account
for such unconsolidated investments under either the equity method or cost method of accounting.
These securities are not publicly traded and accordingly, it is not practical to regularly estimate
the fair value of these investments, however, these investments are subject to an evaluation for
other than temporary impairment on a quarterly basis. This quarterly evaluation consists of
reviewing, among other things, company business plans and current financial statements, if
available, for factors that may indicate an impairment of our investment. Such factors may
include, but are not limited to, cash flow concerns, material litigation, violations of debt
covenants and changes in business strategy. The fair value of these investments is not estimated
unless there are identified changes in circumstances that are likely to have a significant adverse
effect on the fair value of the investment. Our ability to realize value from our strategic
investments in companies that are not publicly traded is dependent on the success of their business
and their ability to obtain sufficient capital to execute their business plans. Since private
markets are not as liquid as public markets, there is also increased risk that we will not be able
to sell these investments, or that when we desire to sell them we will not be able to obtain full
value for them. For the year ended December 31, 2004, we had $52.7 million aggregate carrying
amount of non-marketable and unconsolidated strategic equity
investments accounted for under the cost method. During the year ended December 31, 2004, we did not record
any impairment charges with respect to these investments. The major components of marketable investment securities and restricted cash are as follows: Marketable Investment Securities
    
    
    Retricted CashAs of December 31,
    
    
    As of December 31,2004
    
    
    2003
    
    
    2004
    
    
    2003(In thousands)Government bonds
    
    $
    166,182
    
    
    $
    997,953
    
    
    $
    
    
    
    $
    Corporate notes and bonds
    
    
    45,924
    
    
    
    382,928
    
    
    
    
    
    
    
    Commercial paper
    
    
    
    
    
    
    395,803
    
    
    
    
    
    
    
    Asset backed obligations
    
    
    2,169
    
    
    
    152,421
    
    
    
    
    
    
    
    Restricted cash
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20$
    214,275
    
    
    $
    1,929,105
    
    
    $
    
    
    
    $
    20
 As of December 31, 2004, marketable investment securities include debt
securities of $123.3 million with contractual maturities of one year or less, $91.0 million with
contractual maturities between one and three years. Actual maturities may differ from contractual
maturities as a result of our ability to sell these securities prior to maturity. F-10




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ECHOSTAR DBS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued 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 our
specifications. We depend on a few manufacturers, and in some cases a single manufacturer, for
the production of our receivers and many components of our EchoStar receiver systems.
Manufactured inventories include materials, labor, freight-in, royalties and manufacturing
overhead. Inventories consist of the following : As of December 31,2004
    
    
    2003(In thousands)Finished goods - DBS
    
    $
    159,216
    
    
    $
    103,102Raw materials
    
    
    68,087
    
    
    
    32,545Work-in-process - service repair
    
    
    40,698
    
    
    
    14,981Work-in-process
    
    
    11,112
    
    
    
    9,577Consignment
    
    
    2,622
    
    
    
    1,372Inventory allowance
    
    
    (10,221
    )
    
    
    (6,764
    )Inventories,
net
    
    $
    271,514
    
    
    $
    154,813
 Property and Equipment Property and equipment are stated at cost. Cost includes capitalized interest of zero,
approximately $8.4 million and $23.9 million during the years ended December 31, 2004, 2003 and
2002, respectively. The costs of satellites under construction including certain amounts prepaid
under our satellite service agreements (Note 8) are capitalized during the construction phase,
assuming the eventual successful launch and in-orbit operation of the satellite. If a satellite
were to fail during launch or while in-orbit, the resultant loss would be charged to expense in the
period such loss was incurred. The amount of any such loss would be reduced to the extent of
insurance proceeds estimated to be received, if any. Depreciation is recorded on a straight-line
basis over lives ranging from one to forty years. Repair and maintenance costs are charged to
expense when incurred. Renewals and betterments are capitalized. Long-lived Assets We account for long-lived assets in accordance with the provisions of Statement of Financial
Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets
(SFAS 144). We review our 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. Based on the guidance under SFAS 144, we evaluate our satellite fleet for
recoverability as an asset group. For assets which are held and used in operations, the asset
would be impaired if the carrying value of the asset (or asset group) exceeded its undiscounted
future net cash flows. Once an impairment is determined, the actual impairment is reported as the
difference between the carrying value and the fair value as estimated using discounted cash flows.
Assets which are to be disposed of are reported at the lower of the carrying amount or fair value
less costs to sell. We consider relevant cash flow, estimated future operating results, trends and
other available information in assessing whether the carrying value of assets are recoverable. Goodwill and Intangible Assets We account for our goodwill and intangible assets in accordance with the provisions of Statement of
Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (SFAS 142), which
requires goodwill and intangible assets with indefinite useful lives not be amortized, but to be tested for impairment
annually or whenever indicators of impairments arise. Intangible assets that have finite lives
continue to be amortized over their estimated useful lives. Our intangible assets consist
primarily of FCC licenses. Generally, we have determined that our FCC licenses have indefinite
useful lives due to the following:  
    FCC spectrum is a non-depleting asset;
    Existing DBS licenses are integral to our business and will contribute to cash flows indefinitely; F-11




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ECHOSTAR DBS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued  
    Replacement satellite applications are generally authorized by the FCC subject to
certain conditions, without substantial cost under a stable regulatory, legislative and
legal environment;
    Maintenance expenditures in order to obtain future cash flows are not significant;
    DBS licenses are not technologically dependent; and
    We intend to use these assets for the foreseeable future. In accordance with the guidance of EITF Issue No. 02-7, Unit of Accounting for Testing
Impairment of Indefinite-Lived Intangible Asset, (EITF 02-7) we combine all our indefinite life
FCC licenses into a single unit of accounting. The analysis encompasses future cash flows from
satellites transmitting from such licensed orbital locations, including revenue attributable to
programming offerings from such satellites, the direct operating and subscriber acquisition costs
related to such programming, and future capital costs for replacement satellites. Projected
revenue and cost amounts included current and projected subscribers. In conducting our annual
impairment test in 2004, we determined that the estimated fair value of the FCC licenses,
calculated using the discounted cash flow analysis, exceeded their carrying amount. During March 2004, we entered into an agreement with Gemstar-TV Guide International, Inc.
(Gemstar) for use of certain Gemstar intellectual property and technology, use of the TV Guide
brand on our interactive program guides, and for distribution arrangements with Gemstar to provide
for the launch and carriage of the TV Guide Channel as well as the extension of an existing
distribution agreement for carriage of the TVG Network, and acquired Gemstars Superstar/Netlink
Group LLC (SNG), UVTV distribution, and SpaceCom businesses and related assets, for an aggregate
cash payment of $238.0 million, plus transaction costs. We further agreed to resolve all of our
outstanding litigation with Gemstar. These transactions were entered into contemporaneously and
accounted for as a purchase business combination in accordance with Statement of Financial
Accounting Standard No. 141, Business Combinations (SFAS 141). Based on an independent third-party valuation, the purchase consideration was allocated to
identifiable tangible and intangible assets and liabilities as follows (in thousands): Current assets
    
    $
    1,184Property and equipment
    
    
    3,749Intangible assets
    
    
    260,546Total assets acquired
    
    $
    265,479Current liabilities
    
    
    (26,269
    )Long-term liabilities
    
    
    (600
    )Total liabilities assumed
    
    
    (26,869
    )Net assets acquired
    
    $
    238,610
 The total $260.5 million of acquired intangible assets resulting from the Gemstar transactions is
comprised of contract-based intangibles totaling approximately $187.2 million with estimated
weighted-average useful lives of twelve years, and customer relationships totaling approximately
$73.3 million with estimated weighted-average useful lives of four years. The business combination did not have a material impact on our results of operations for the year
ended December 31, 2004 and would not have materially impacted our results of operations for these
periods had the business combination occurred on January 1, 2004. Further, the business
combination would not have had a material impact on our results of operations for the comparable
periods in 2003 and 2002 had the business combination occurred on January 1, 2002. F-12




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ECHOSTAR DBS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued As of December 31, 2004 and 2003, our identifiable intangibles subject to amortization consisted of
the following: As ofDecember 31, 2004
    
    
    December 31, 2003Intangible
    
    
    Accumulated
    
    
    Intangible
    
    
    AccumulatedAssets
    
    
    Amortization
    
    
    Assets
    
    
    Amortization(In thousands)Contract based
    
    $
    189,286
    
    
    $
    (13,492
    )
    
    $
    2,081
    
    
    $
    (1,306
    )Customer relationships
    
    
    73,298
    
    
    
    (13,493
    )
    
    
    
    
    
    
    Total
    
    $
    262,584
    
    
    $
    (26,985
    )
    
    $
    2,081
    
    
    $
    (1,306
    )
 Amortization of these intangible assets, recorded on a straight line basis over an average finite
useful life primarily ranging from approximately four to twelve years, was $25.7 million and $10
thousand for the years ended December 31, 2004 and 2003, respectively. The aggregate amortization
expense is estimated to be approximately $34.5 million for 2005, $34.5 million for 2006, $33.9
million for 2007, $20.3 million for 2008 and $15.5 million for 2009. The excess of our investments
in consolidated subsidiaries over net tangible and intangible asset value at acquisition is
recorded as goodwill. We had approximately $3.4 million of goodwill as of December 31, 2004 and
2003 which arose from a 2002 acquisition. In conducting our annual impairment test in 2004, we
determined that the carrying amount of our goodwill was not impaired. Smart Card Replacement We use conditional access technology, including embedding microchips in credit card-sized access
cards, or smart cards, to encrypt the programming we transmit to subscribers so that only those
who pay for service can receive our programming. Theft of cable and satellite programming has been
widely reported and our signal encryption has been pirated and could be further compromised in the
future. In order to combat piracy and maintain the functionality of active set-top boxes, we are
in the process of replacing older generation smart cards with newer generation smart cards. We
have accrued a liability for the replacement of smart cards in satellite receivers sold to and
owned by subscribers based on the estimated number of cards that will be needed to execute our
plan. This estimate is based on a number of variables, including historical subscriber churn
trends and the estimated per card costs for smart card replacements. We expect to complete the
replacement of older generation smart cards during the second half of 2005. As of December 31, 2004 and 2003, we had accrued $48.2 million and $74.6 million, respectively, for
replacement of these smart cards. This accrual is included in Other accrued expenses in our
consolidated balance sheets. Charges recorded to Subscriber-related expenses in our consolidated
statements of operations and comprehensive income (loss) totaled $2.9 million during the year ended
December 31, 2002. There was no additional expense recorded for smart card replacements during
2004 and 2003. During the years ended December 31, 2004 and 2003, approximately $13.4 million and
$6.2 million, respectively, were charged against the smart card accrual for the replacement of
older generation smart cards. This liability will be reduced further as smart card replacements
occur. During 2004, we reduced Subscriber-related expenses by approximately $13.0 million to
reduce our accrual for the replacement of smart cards. This reduction primarily resulted from a
decrease in our estimate of the number of older satellite receivers that will be active when we
exchange smart cards. Long-Term Deferred Revenue, Distribution and Carriage Payments Certain programmers provide us up-front payments. Such amounts are deferred and in accordance with
EITF Issue No. 02-16, Accounting by a Customer (Including a Reseller) for Certain Consideration
Received from a Vendor (EITF 02-16) and are recognized as reductions to Subscriber-related
expenses on a straight-line basis over the relevant remaining contract term (up to 10 years). The
current and long-term portions of these deferred credits are recorded in the consolidated balance
sheets in Deferred revenue and other and Long-term deferred revenue, distribution and carriage
payments and other long-term liabilities, respectively. During the year ended December 31, 2004, we entered into an agreement in exchange for an equity
interest in a certain entity. We accounted for the equity interest received in accordance with
Emerging Issues Task Force Issue F-13




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ECHOSTAR DBS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued No. 00-8, Accounting by a Grantee for an Equity Instrument to be
Received in Conjunction with Providing Goods or Services (EITF 00-8) and recorded approximately
$52.7 million related to the fair value of the equity interest in Other noncurrent assets as of
December 31, 2004. We account for this unconsolidated investment under the cost method of
accounting. The value of the equity interest has also been recorded as a deferred credit and will
be recognized as reductions to Subscriber-related expenses ratably as our actual costs are
incurred under the related agreement in accordance with the guidance under EITF 02-16. These
deferred credits have been recorded as a component of Long-term deferred revenue, distribution and
carriage payments and other long-term liabilities in our consolidated balance sheets. Income Taxes We establish 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 (SFAS 109). SFAS 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 bases of assets and liabilities. Deferred tax assets are offset by valuation
allowances in accordance with SFAS 109, because we believe it is more likely than not that such net
deferred tax assets will not be realized. Fair Value of Financial Instruments Fair market values for our publicly traded debt securities are based on quoted market prices. The
fair values of our mortgages and other notes payable are estimated using discounted cash flow
analyses when it is practicable to do so. 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 our debt facilities at December 31, 2004
and 2003: As of December 31, 2004
    
    
    As of December 31, 2003Book Value
    
    
    Fair Value
    
    
    Book Value
    
    
    Fair Value(In thousands)9 3/8% Senior Notes due 2009*
    
    $
    
    
    
    $
    
    
    
    $
    1,423,351
    
    
    $
    1,498,07710 3/8% Senior Notes due 2007*
    
    
    
    
    
    
    
    
    
    
    1,000,000
    
    
    
    1,100,0009 1/8% Senior Notes due 2009
    
    
    446,153
    
    
    
    490,768
    
    
    
    455,000
    
    
    
    509,031Floating Rate Senior Notes due 2008
    
    
    500,000
    
    
    
    518,125
    
    
    
    500,000
    
    
    
    520,6255 3/4% Senior Notes due 2008
    
    
    1,000,000
    
    
    
    1,012,500
    
    
    
    1,000,000
    
    
    
    1,011,2506 3/8% Senior Notes due 2011
    
    
    1,000,000
    
    
    
    1,047,500
    
    
    
    1,000,000
    
    
    
    1,025,0006 5/8% Senior Notes due 2014
    
    
    1,000,000
    
    
    
    1,012,500
    
    
    
    
    
    
    
    Capital lease obligation, mortgages
and other notes payable
    
    
    330,866
    
    
    

    330,866
    
    
    
    56,830
    
    
    
    56,830$
    4,277,019
    
    
    $
    4,412,259
    
    
    $
    5,435,181
    
    
    $
    5,720,813
   *The 9 3/8% Senior Notes due 2009 and the 10 3/8% Senior Notes due 2007 were redeemed February
2, 2004 and October 1, 2004, respectively. 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, 2004 and 2003. Deferred Debt Issuance Costs Costs of issuing debt are generally deferred and amortized to interest expense over the terms of
the respective notes (Note 4). Revenue Recognition We recognize revenue when an arrangement exists, prices are determinable, collectibility is
reasonably assured and the goods or services have been delivered. Revenue from our subscription
television services is recognized when F-14




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ECHOSTAR DBS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued programming is broadcast to subscribers. Subscriber fees
for multiple set-top receivers, digital video recorders, equipment rental and other services are
recognized as revenue, monthly as earned. Revenue from advertising sales is recognized when the
related services are performed. Payments received from subscribers in advance of the broadcast or
service period are recorded as Deferred revenue in the consolidated balance sheets until earned.
Revenue from equipment sales is recognized upon shipment to customers. Contemporaneous with the commencement of sales of co-branded services pursuant to our agreement
with SBC Communications, Inc. (SBC) during the first quarter of 2004, revenue from equipment
sales to SBC and development and implementation fees received from SBC is deferred and recognized
ratably over the estimated average co-branded subscriber life. Revenue from installation and
certain other services performed at the request of SBC is recognized upon completion of the
services. Accounting for our new subscriber promotions which include programming discounts falls under the
scope of EITF Issue No. 01-9, Accounting for Consideration Given by a Vendor to a Customer
(Including a Reseller of the Vendors Capital Products) (EITF 01-9). In accordance with EITF
01-9, programming revenues under these promotions are recorded at the discounted monthly rate
charged to the subscriber. See Subscriber Acquisition Costs below for discussion regarding the
accounting for costs under these promotions. Subscriber-related expenses The cost of television programming distribution rights is generally incurred on a per subscriber
basis and various upfront carriage payments are recognized when the related programming is
distributed to subscribers. The cost of television programming rights to distribute live sporting
events for a season or tournament is charged to expense using the straight-line method over the
course of the season or tournament. Programming costs are included in Subscriber-related
expenses in the consolidated statements of operations and comprehensive income (loss).
Subscriber-related expenses also include costs incurred in connection with our in-home service
and call center operations, overhead costs associated with our installation business, copyright
royalties, residual commissions, billing, lockbox, subscriber retention and other variable
subscriber expenses. These costs are recognized as the services are performed or as incurred. Contemporaneous with the commencement of sales of co-branded services pursuant to our agreement
with SBC during the first quarter of 2004, Subscriber-related expenses also include the cost of
sales and expenses from equipment sales, direct costs of installation and other services related to
that relationship. Cost of sales from equipment sales to SBC are deferred and recognized over the
estimated average co-branded subscriber life. Expenses from installation and certain other
services performed at the request of SBC are recognized as the services are performed. Subscriber Acquisition Costs Subscriber acquisition costs in our consolidated statements of operations and comprehensive income
(loss) consist of costs incurred to acquire new subscribers through third parties and our direct
customer acquisition distribution channel. Subscriber acquisition costs include the following line
items from our consolidated statements of operations and comprehensive income (loss):  
    Cost of sales  subscriber promotion subsidiesincludes the cost of EchoStar receiver
systems sold to retailers and other distributors of our equipment and receiver systems sold
directly by us to subscribers.
    Other subscriber promotion subsidiesincludes net costs related to promotional
incentives and costs related to installation.
    Subscriber acquisition advertisingincludes advertising and marketing expenses related
to the acquisition of new DISH Network subscribers. Advertising costs generally are
expensed as incurred. During the year ended December 31, 2004, our significant subscriber acquisition promotions were as
follows: Digital Home Advantage Effective February 1, 2004, our Digital Home Advantage promotion provided
new lease subscribers up to four installed EchoStar receivers, including various premium models,
with a qualifying programming subscription. The subscriber is required to pay a monthly rental fee
for each leased receiver, but is not required to agree to a minimum lease period. The subscriber
must provide a valid major credit card, their social F-15




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##### Table of Contents



ECHOSTAR DBS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued security number, have an acceptable credit
score, and pay a one-time set-up fee of $49.99. The subscriber receives a $49.99 credit on their
first months bill. Effective October 19, 2004, the promotion was expanded whereby the consumer
may agree to either a one or two year commitment in exchange for receiving the benefits of our
Digital Home Protection Plan, an optional extended warranty program, without charge for one or two
years, respectively. Since we retain ownership of equipment installed pursuant to the Digital Home
Advantage promotion, equipment costs are capitalized and depreciated over a period of up to four
years. Although there can be no assurance as to the ultimate duration of our current equipment
lease promotion, we expect it to continue through at least July 31, 2005. Free Dish Effective February 1, 2004, our Free DISH promotion provided new subscribers with a
choice of up to three installed EchoStar receivers, including one premium receiver model for
$49.99. The subscriber receives a $49.99 credit on their first months bill. To be eligible,
subscribers must provide a valid major credit card, their social security number, have an
acceptable credit score, and make a one or two year commitment to subscribe to a qualified
programming package, depending on the set-top box models selected by the subscriber. Certain
advanced products, including digital video recorders and high definition receivers, require
additional upgrade fees. The Free Dish promotion ended on January 31, 2005. Free for All Effective February 1, 2004, our Free for All promotion provides new subscribers who
purchase one or two installed receiver systems for $149.00 or $199.00, respectively, a monthly
credit of $10.00 for 15 or 20 months, respectively. The subscriber must subscribe to a qualifying
programming package and provide their social security number. Effective February 1, 2005, new
subscribers under our Free for All promotion who purchase one or two receiver systems and subscribe
to a qualifying programming package receive a monthly credit of $5.00 for 30 or 40 months,
respectively. 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, 2005. Accounting for dealer sales under our promotions fall within the scope of EITF 01-9. In accordance
with that guidance, we characterize amounts paid to our independent dealers as consideration for
equipment installation services and for equipment buydowns (commissions and rebates) as a reduction
of revenue. We expense payments for equipment installation services as Other subscriber promotion
subsidies. Our payments for equipment buydowns represent a partial or complete return of the
dealers purchase price and are, therefore, netted against the proceeds received from the dealer.
We report the net cost from our various sales promotions through our independent dealer network as
a component of Other subscriber promotion subsidies. No net proceeds from the sale of subscriber
related equipment pursuant to our subscriber acquisition promotions are recognized as revenue.
Accordingly, subscriber acquisition costs are generally expensed as incurred except for under our
equipment lease promotion wherein we retain 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
$25.9 million, $19.8 million and $21.8 million for the years ended December 31, 2004, 2003 and
2002, respectively. Accounting for Stock-Based Compensation We apply the intrinsic value method of accounting under Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, (APB 25) and related interpretations in accounting
for our stock-based compensation plans, which are described more fully in Note 6. Under APB 25, we
generally do not recognize compensation expense on the grant of options under our Stock Incentive
Plan because typically the option terms are fixed and the exercise price equals or exceeds the
market price of the underlying stock on the date of grant. We apply the disclosure only provisions
of Statement of Financial Accounting Standards No. 123, Accounting and Disclosure of Stock-Based
Compensation, (SFAS 123). Pro forma information regarding net income and earnings per share is required by SFAS 123 and has
been determined as if we had accounted for our 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 on a straight-line basis. 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 F-16




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ECHOSTAR DBS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued effect on net income
(loss) per share if we had accounted for our stock-based compensation plans using the fair value
method: For the Years Ended December 31,2004
    
    
    2003
    
    
    2002(In thousands)Net income (loss), as reported
    
    $
    299,413
    
    
    $
    319,581
    
    
    $
    46,891Add: Stock-based employee compensation expense included
in reported net income (loss), net of related tax
effects
    
    
    1,139
    
    
    
    3,420
    
    
    
    10,884Deduct: Total stock-based employee compensation expense determined
under fair value based method for all awards, net of
related tax effects
    
    
    (19,534
    )
    
    
    (24,798
    )
    
    
    (22,960
    )Pro forma net income (loss), as
reported
    
    $
    281,018
    
    
    $
    298,203
    
    
    $
    34,815
 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: For the Years Ended December 31,2004
    
    
    2003
    
    
    2002Risk-free interest rate
    
    
    3.69
    %
    
    
    3.32
    %
    
    
    4.14
    %Volatility factor
    
    
    33.23
    %
    
    
    71.08
    %
    
    
    71.96
    %Expected term of options in
years
    
    
    5.4
    
    
    
    6.7
    
    
    
    6.7Weighted-average fair value of options granted
    
    $
    11.64
    
    
    $
    20.39
    
    
    $
    15.08
 During December 2004, EchoStar paid a one-time dividend of $1 per outstanding share of its Class A
and Class B common stock (Note 13) for the first time in its history. EchoStar does not intend to
pay additional dividends on its common stock and accordingly, the dividend yield percentage is zero
for all periods. The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully transferable and so,
our estimate of fair value may differ from other valuation models. Further, the Black-Scholes
model requires the input of highly subjective assumptions 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. During 2004, in accordance with the guidance under SFAS 123 for selecting assumptions to use in an
option pricing model, we reduced our estimate of expected volatility based upon a re-evaluation of
the variability in the market price of EchoStars publicly traded stock. Historically, we have
relied on the variability in EchoStars daily stock price since inception to derive our estimate of
expected volatility. Upon review of this variability in EchoStars stock price over more recent
periods, we believe unadjusted historical experience is a relatively poor predictor of our future
expectation of volatility. Accordingly, we specifically identified extraordinary events in our
history which resulted in irregular movements in EchoStars stock price, and have disregarded the
related periods in calculating our historical average annual volatility. This adjustment, together
with changes in the intervals of our regular historical price observations, contributed to the
reduction in our estimated volatility factor. We will continue to evaluate our assumptions used to derive the estimated fair value of options for
EchoStars stock as new events or changes in circumstances become known. New Accounting Pronouncements In December 2004, the Financial Accounting Standards Board issued Statement of Financial Accounting
Standards No. 123 (Revised 2004), Share Based Payment (SFAS 123(R)) which (i) revises SFAS No.
123, Accounting for Stock-Based Compensation, (SFAS 123) to eliminate the disclosure only
provisions of that statement and the alternative to follow the intrinsic value method of accounting
under Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB
25) and its related implementation guidance, and (ii) requires a public entity to measure the cost
of employee services received in exchange for an award of equity instruments, including grants of
employee stock options, based on the grant-date fair value of the award and recognize that cost in
its results of operations over the period during which an employee is required to provide the
requisite service in exchange for that award. The statement is effective for financial statements
as of the beginning of the first interim period that begins after June 15, 2005. Companies may
elect to apply this statement either prospectively, or on a F-17




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ECHOSTAR DBS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued modified version of retrospective
application under which financial statements for prior periods are adjusted on a basis consistent
with the pro forma disclosures required for those periods under SFAS 123. We are currently
evaluating which transitional provision and fair value methodology we will follow. However, we
expect that any expense associated with the adoption of the provisions of SFAS 123(R) will have a
material negative impact on our results of operations. 3. Property and Equipment Property and equipment consist of the following: DepreciableLife
    
    
    As of December 31,(In Years)
    
    
    2004
    
    
    2003(In thousands)EchoStar I
    
    
    12
    
    
    $
    201,607
    
    
    $
    201,607EchoStar II
    
    
    12
    
    
    
    228,694
    
    
    
    228,694EchoStar III
    
    
    12
    
    
    
    234,083
    
    
    
    234,083EchoStar IV
    
    
    4
    
    
    
    78,511
    
    
    
    78,511EchoStar V
    
    
    12
    
    
    
    210,446
    
    
    
    210,446EchoStar VI
    
    
    12
    
    
    
    246,022
    
    
    
    246,022EchoStar VII
    
    
    12
    
    
    
    177,000
    
    
    
    177,000EchoStar VIII
    
    
    12
    
    
    
    175,801
    
    
    
    189,513EchoStar IX
    
    
    12
    
    
    
    127,376
    
    
    
    127,376AMC-15 satellite acquired under capital lease (Note 4)
    
    
    10
    
    
    
    330,800
    
    
    
    Furniture, fixtures and equipment
    
    
    2-10
    
    
    
    651,383
    
    
    
    601,815Buildings and improvements
    
    
    5-40
    
    
    
    94,073
    
    
    
    90,671Equipment leased to customers
    
    
    3-4
    
    
    
    1,045,949
    
    
    
    543,954Tooling and other
    
    
    1-5
    
    
    
    12,253
    
    
    
    4,095Land
    
    
    
    
    
    
    6,592
    
    
    
    5,510Vehicles
    
    
    7
    
    
    
    3,368
    
    
    
    3,400Construction in progress
    
    
    
    
    
    
    163,401
    
    
    
    51,740Total property and equipment
    
    
    
    
    
    
    3,987,359
    
    
    
    2,994,437Accumulated depreciation
    
    
    
    
    
    
    (1,546,342
    )
    
    
    (1,233,061
    )Property and equipment, net
    
    
    
    
    
    $
    2,441,017
    
    
    $
    1,761,376
 Construction in progress consists of the following: As of December 31,2004
    
    
    2003(In thousands)Progress amounts for satellite construction, including certain amounts
prepaid under satellite agreements, launch, and launch insurance
    
    $
    93,020
    
    
    $
    Software related
projects
    
    
    36,848
    
    
    
    35,148Other
    
    
    33,533
    
    
    
    16,592Construction in
progress
    
    $
    163,401
    
    
    $
    51,740
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ECHOSTAR DBS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued Depreciation and amortization expense consists of the following: For the Years Ended December 31,2004
    
    
    2003
    
    
    2002(In thousands)Equipment leased to
customers
    
    $
    210,432
    
    
    $
    138,637
    
    
    $
    130,760Satellites
    
    
    134,619
    
    
    
    145,232
    
    
    
    128,155Furniture, fixtures and equipment
    
    
    108,025
    
    
    
    91,396
    
    
    
    90,567Identifiable intangible assets subject to amortization
    
    
    25,679
    
    
    
    10
    
    
    
    463Buildings and improvements
    
    
    3,008
    
    
    
    2,969
    
    
    
    2,658Tooling and other
    
    
    8,935
    
    
    
    6,854
    
    
    
    3,151Total depreciation and
amortization
    
    $
    490,698
    
    
    $
    385,098
    
    
    $
    355,754
 Cost of sales and operating expense categories included in our accompanying consolidated statements
of operations and comprehensive income (loss) do not include depreciation expense related to
satellites or Digital Home Advantage equipment. Our Satellites We presently have twelve owned or leased satellites in geostationary orbit approximately 22,300
miles above the equator. Each of the eight DBS satellites (EchoStar I through EchoStar VIII) and
one FSS Ku/Ka-band satellite (EchoStar IX) we own and operate has a minimum design life of at least
12 years. Our satellite fleet is a major component of our Echostar DBS System. While we believe
that overall our satellite fleet is in general good health, during 2004 and prior periods, certain
satellites within our fleet have experienced various anomalies, some of which have had a
significant adverse impact on their commercial operation. EchoStar I and II EchoStar I and II currently operate at the 148 degree orbital location. Each of these Series 7000
class satellites were designed and manufactured by Lockheed Martin Corporation, has 16 transponders
that operate at approximately 130 watts of power. While both satellites are currently functioning
properly in orbit, similar Lockheed Series 7000 class satellites owned by third parties have
experienced total in-orbit failure. While we currently do not have sufficient information
available to reach any conclusions as to whether other satellites of the Series 7000 class might be
at increased risk of suffering a similar malfunction, no telemetry or other data indicates EchoStar
I or EchoStar II would be expected to experience a similar failure. EchoStar I and II are each
equipped with 24 Traveling Wave Tube Amplifiers (TWTA), of which 16 are required to support the
transponders authorized for operation on each satellite. Prior to 2004, failures or reduced
capabilities on a single TWTA on each of EchoStar I and II left each satellite with 23 usable
TWTAs. While we dont expect a large number of additional TWTAs to fail in any year, it is likely
that additional TWTA failures will occur from time to time in the future, and that those failures
may impact commercial operation of the satellites. We will continue to evaluate the performance of
EchoStar I and EchoStar II as new events or changes in circumstances become known. EchoStar III EchoStar III currently operates at the 61.5 degree orbital location. During January 2004, a TWTA
pair on this satellite failed, resulting in a loss of service on one of our licensed transponders.
An additional TWTA pair failed in March 2004. Including the seven TWTA pairs that malfunctioned in
prior years, these anomalies have resulted in the failure of a total of 18 TWTAs on the satellite
to date. While originally designed to operate a maximum of 32 transponders at approximately 120
watts per channel, switchable to 16 transponders operating at over 230 watts per channel, the
satellite was equipped with a total of 44 TWTAs to provide redundancy. EchoStar III can now
operate a maximum of 26 transponders, but due to redundancy switching limitations and specific
channel authorizations it currently can only operate on 18 of the 19 FCC authorized frequencies we
utilize at the 61.5 degree west orbital location. While we dont expect a large number of additional TWTAs to fail in any year, it is
likely that additional TWTA failures will occur from time to time in the future, and that those
failures will further impact commercial operation of the satellite. We will continue to evaluate
the performance of EchoStar III as new events or changes in circumstances become known. F-19




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ECHOSTAR DBS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued EchoStar IV EchoStar IV is currently located at the 157 degree orbital location. Prior to 2004, this satellite
experienced failures with the deployment of its solar arrays and with 38 of its 44 transponders
(including spares), and further experienced anomalies affecting its thermal systems and propulsion
systems. Several years ago, EchoStar filed a $219.3 million insurance claim for a total loss under
the launch insurance policies covering this satellite. On March 4, 2005, EchoStar agreed to settle
this claim (Note 8). On September 4, 2004, the south solar array on EchoStar IV deployed fully and
appears to be producing nominal current. There can be no assurance that further material
degradation, or total loss of use, of EchoStar IV will not occur in the immediate future. As of
December 31, 2003, EchoStar IV was fully depreciated. EchoStar V EchoStar V is currently located at the 119 degree orbital location. This satellite is equipped
with a total of 96 solar array strings, 92 of which are required to assure full power availability
for the 12-year design life of the satellite. Prior to 2004, EchoStar V experienced anomalies
resulting in the loss of 4 solar array strings. During March 2004, EchoStar V lost an additional
solar array string, reducing solar array power to approximately 95% of its original capacity.
While originally designed to operate a maximum of 32 transponders at approximately 110 watts per
channel, switchable to 16 transponders operating at approximately 220 watts per channel, the solar
array anomalies may prevent the use of some of those transponders for the full 12-year design life
of the satellite. In addition, momentum wheel anomalies previously experienced resulted in more
rapid use of fuel and a corresponding minor reduction of spacecraft life. An investigation of the
anomalies is continuing. Until the root causes are finally determined, there can be no assurance
that future anomalies will not cause further losses which could impact commercial operation of the
satellite. EchoStar V is not currently carrying any traffic and is being utilized as an in-orbit
spare. We will continue to evaluate the performance of EchoStar V as new events or changes in
circumstances become known. Increased fuel use resulting from commercial operation of the
spacecraft or other events and circumstances would require us to reduce the remaining depreciable
life of EchoStar V. EchoStar VI EchoStar VI currently operates at the 110 degree orbital location. The satellite has a total of
112 solar array strings and approximately 106 are required to assure full power availability for
the estimated 12-year design life of the satellite. Prior to 2004, EchoStar VI lost a total of 3
solar array strings. During April and July 2004 and again in March 2005, EchoStar VI experienced
anomalies resulting in the loss of three additional solar array strings, bringing the total number
of string losses to six . While originally designed to operate a maximum of 32
transponders at approximately 120 watts per channel, switchable to 16 transponders operating at
approximately 240 watts per channel, the solar array anomalies may prevent the use of some of those
transponders for the full 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.
We will continue to evaluate the performance of EchoStar VI as new events or changes in
circumstances become known. EchoStar VII EchoStar VII currently operates at the 119 degree orbital location. This satellite has 32
transponders that operate at approximately 120 watts per channel, switchable to 16 transponders
operating at approximately 240 watts per channel. EchoStar VII also includes spot-beam technology
which enables us to increase the number of markets where we provide local channels, but reduces the
number of video channels that could otherwise be offered across the entire United States. Each
transponder can transmit multiple digital video, audio and data channels. During March 2004, our
EchoStar VII satellite lost a solar array circuit. EchoStar VII was designed with 24 solar array
circuits and needs 23 for the spacecraft to be fully operational at end of life. While this
anomaly is not expected to reduce the estimated design life of the satellite to less than 12 years
and has not impacted commercial operation of the satellite to date, an investigation of the anomaly
is continuing. Until the root causes are finally determined, there
can be no assurance future anomalies will not cause further losses which could impact commercial
operation of the satellite. We will continue to evaluate the performance of EchoStar VII as new
events or changes in circumstances become known. F-20




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ECHOSTAR DBS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued EchoStar VIII EchosStar VIII currently operates at the 110 degree orbital location. This satellite has 32
transponders that operate at approximately 120 watts per channel, switchable to 16 transponders
operating at approximately 240 watts per channel. EchoStar VIII also includes spot-beam
technology. During June 2004, EchoStar VIII experienced an anomaly which affected operation of one
of the primary gyroscopes on the satellite. A spare gyroscope has been switched in and is
performing nominally. EchoStar VIII was originally configured with three primary, and one spare,
gyroscope. Further, an anomaly previously experienced has resulted in certain gyroscopes being
utilized for aggregate periods of time substantially in excess of their originally qualified limits
in order to maintain nominal spacecraft operations and pointing. An investigation is underway to
determine the root cause of the anomaly and to develop procedures for continued spacecraft
operation in the event of future gyroscope anomalies. In January 2005, EchoStar VIII experienced a
fault within one of the computer components in the spacecraft control electronics. The system is
operating nominally on one processor with limited backup capacity. An investigation is underway to
determine the root cause of this anomaly and whether any permanent degradation or loss of
redundancy has occurred. While these anomalies are not expected to reduce the estimated design
life of the satellite to less than 12 years and have not impacted commercial operation of the
satellite to date, until the root causes of the anomalies are determined, there can be no assurance
future anomalies will not cause losses which could impact commercial operation of the satellite. EchoStar VIII is equipped with two solar arrays which convert solar energy into power for the
satellite. Those arrays rotate continuously to maintain optimal exposure to the sun. During 2003,
EchoStar VIII experienced anomalies that temporarily halted rotation of each solar array. Both
arrays are currently fully functional, but rotating in a mode recommended by the satellite
manufacturer which allows full rotation but is different than the originally prescribed mode. 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 losses which could impact commercial operation of
the satellite. During 2003, a single battery cell on EchoStar VIII exhibited reduced capacity. There are 72
battery cells on EchoStar VIII and all loads can be maintained for the full design life of the
satellite with up to two battery cells fully failed. An investigation of the battery cell anomaly,
which has not impacted commercial operation of the satellite, is underway. Until the root cause of
the anomaly is determined, there can be no assurance future anomalies will not cause losses which
could impact commercial operation of the satellite. We depend on EchoStar VIII to provide local channels to over 40 markets until at least such time as
our EchoStar X satellite is successfully launched which is currently expected during the fourth
quarter of 2005 (Note 8). In the event that EchoStar VIII experienced a total or substantial
failure, we could transfer many, but not all, of those channels to other in-orbit satellites. We were required to make in-orbit incentive payments in the aggregate amount of $15.0 million over
a period of 14 years from launch as part of the purchase price for EchoStar VIII. These in-orbit
incentive payments may be reduced in the event that certain anomalies are experienced by the
satellite. Following launch of EchoStar VIII, we recognized the total amount of these in-orbit
incentive payments by increasing the amount capitalized for the satellite. As a result of the
anomalies experienced by the satellite to date, we determined that payment of these in-orbit
incentives was no longer probable and reduced our remaining estimated obligation of approximately
$13.7 million to zero as December 31, 2004 by reducing the amount capitalized for the satellite. EchoStar IX EchoStar IX currently operates at the 121 degree orbital location. This satellite has 32 Ku-band
transponders that operate at approximately 110 watts per channel, along with transponders that can
provide services in Ka-Band (a Ka-band payload). EchoStar IX provides expanded video and audio
channels to DISH Network subscribers who install a specially-designed dish. The Ka-band spectrum
is being used to test and verify potential future broadband initiatives and to implement those
services. SFAS 144 requires a long-lived asset or asset group to be tested for recoverability whenever events
or changes in circumstance indicate that its carrying amount may not be recoverable. Based on the
guidance under SFAS 144, we F-21




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ECHOSTAR DBS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued evaluate our satellite fleet for recoverability as an asset group.
While certain of the anomalies discussed above, and previously disclosed, may be considered to
represent a significant adverse change in the physical condition of an individual satellite, based
on the redundancy designed within each satellite and considering the asset grouping, these
anomalies (none of which caused a loss of service for an extended period) are not considered to be
significant events that would require evaluation for impairment recognition pursuant to the
guidance under SFAS 144. Should any one satellite be abandoned or determined to have no service
potential, the net carrying amount would be written off. We currently do not carry insurance for any of our in-orbit satellites. To satisfy insurance
covenants related to our 9 3/8% Senior Notes due 2009 and 10 3/8% Senior Notes due 2007, we
previously classified an amount equal to the depreciated cost of five of our satellites as cash
reserved for satellite insurance on our consolidated balance sheets. As of December 31, 2003, this
amount totaled approximately $176.8 million. During 2004, we redeemed all of these Notes (Note 4)
and are no longer subject to these insurance covenants. Since the indentures for our remaining
outstanding notes do not have covenants requiring satellite insurance, we reclassified the
remaining amount of the reserve to cash and cash equivalents during the fourth quarter of 2004. We believe we have in-orbit satellite capacity sufficient to expeditiously recover transmission of
most programming in the event one of our in-orbit satellites fails. However, programming
continuity cannot be assured in the event of multiple satellite losses. 4. Long-Term Debt 9 3/8% Senior Notes due 2009 and 10 3/8% Senior Notes due 2007 Effective February 2, 2004, we redeemed the remainder of our outstanding 9 3/8% Senior Notes due
2009. In accordance with the terms of the indenture governing the notes, the remaining $1.423
billion principal amount of the notes was repurchased at 104.688%, for a total of approximately
$1.490 billion. As a result of this redemption, we have been discharged and released from our
obligations under the related indenture. The premium paid of approximately $66.7 million, along
with unamortized debt issuance costs of approximately $10.8 million, was recorded as charges to
earnings and is included in interest expense in the consolidated statements of operations and
comprehensive income (loss). Effective October 1, 2004, we redeemed all of our outstanding 10 3/8% Senior Notes due 2007. In
accordance with the terms of the indenture governing the notes, the $1.0 billion principal amount
of the notes was redeemed at 105.188%, for a total of approximately $1.052 billion. As a result of
this redemption, we have been discharged and released from our obligations under the related
indenture. The premium paid of approximately $51.9 million, along with unamortized debt issuance
costs of approximately $4.1 million, was recorded as charges to earnings and is included in
interest expense in the consolidated statements of operations and comprehensive income (loss). 9 1/8% Senior Notes due 2009 The 9 1/8% Senior Notes 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. Effective September 3, 2003, we redeemed $245.0 million principal amount of our 9 1/8% Senior Notes
due 2009, fully exercising our optional partial redemption right. During the second quarter of
2004, we repurchased in open market transactions approximately $8.8 million principal amount of our
9 1/8% Senior Notes due 2009. The approximate $1.1 million difference between the market price
paid and the principal amount of the notes, together with approximately $0.1 million of unamortized
debt issuance costs related to the notes repurchased during 2004, were recorded as charges to
earnings and are included in interest expense in the consolidated statements of operations and
comprehensive income (loss). The outstanding principal amount of the notes after the redemption
and repurchase is $446.2 million. As a portion of the 9 1/8% Senior Notes remains outstanding as
of December 31, 2004, we continue to be subject to the terms of the related indentures until such
time as the 9 1/8% Senior Notes are fully redeemed. The 9 1/8% Senior Notes are guaranteed by substantially all our subsidiaries on a senior basis.
The 9 1/8% Senior Notes are general unsecured senior obligations which: F-22




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ECHOSTAR DBS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued  
    rank senior with all of our future subordinated debt; and
    rank junior to any of our 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% Senior Notes are not redeemable at our option prior to January 15, 2006.
Thereafter, the 9 1/8% Senior Notes will be subject to redemption, at our 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. The indenture related to the 9 1/8% Senior Notes (the 9 1/8% Senior Notes Indenture) contains
restrictive covenants that, among other things, impose limitations on our and our restricted
subsidiaries ability to:  
    incur additional indebtedness or enter into sale and leaseback transactions;
    pay dividends or make distribution on our capital stock or repurchase our 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% Senior Notes Indenture, we will be
required to make an offer to repurchase all or any part of a holders 9 1/8% Senior Notes at a
purchase price equal to 101% of the aggregate principal amount thereof, together with accrued and
unpaid interest thereon, to the date of repurchase. Floating Rate Senior Notes due 2008 On October 2, 2003, we sold $500.0 million principal amount of our Floating Rate Senior Notes which
mature October 1, 2008. Interest accrues at a floating rate based on the three month LIBOR plus
3.25%, and is payable quarterly in cash in arrears on January 1, April 1, July 1 and October 1 of
each year, commencing January 1, 2004. The interest rate at December 31, 2004 was 5.81%. The
proceeds, along with proceeds from the 5 3/4% and 6 3/8% Senior Notes, were used primarily to
repurchase or redeem all or a portion of our outstanding 9 3/8% Senior Notes due 2009 and other
outstanding debt securities, and for general corporate purposes. The Floating Rate Senior Notes will be redeemable, in whole or in part, at any time beginning
October 1, 2005 at redemption prices decreasing from 102% during the year commencing October 1,
2005 to 100% on or after October 1, 2007. Prior to October 1, 2005, we may also redeem up to 35%
of each of the Floating Rate Senior Notes at premiums specified in the indenture with the net cash
proceeds from certain equity offerings or capital contributions. The Floating Rate Senior Notes are:  
    general unsecured senior obligations of ours;
    ranked equally in right of payment with all of our and the guarantors existing and
future unsecured senior debt;
    ranked effectively junior to our and the guarantors current and future secured
senior indebtedness up to the value of the collateral securing such indebtedness. The indenture related to our Floating Rate Senior Notes (the Floating Rate Senior Notes
Indenture) contains restrictive covenants that, among other things, impose limitations on our and
our restricted subsidiaries ability to:  
    incur additional indebtedness or enter into sale and leaseback transactions;
    pay dividends or make distribution on our capital stock or repurchase our capital stock;
    make certain investments;
    create liens;
    enter into transactions with affiliates;
    merge or consolidate with another company; and
    transfer and sell assets F-23




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ECHOSTAR DBS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued In the event of a change of control, as defined in the related indenture, we will be required to
make an offer to repurchase all or any part of a holders Floating Rate Senior Notes at a
purchase price equal to 101% of the aggregate principal amount thereof, together with accrued and
unpaid interest thereon, to the date of repurchase. 5 3/4% Senior Notes due 2008 On October 2, 2003, we sold $1.0 billion principal amount of our 5 3/4% Senior Notes which mature
October 1, 2008. Interest accrues at an annual rate of 5 3/4% and is payable semi-annually in cash
in arrears on April 1 and October 1 of each year, commencing April 1, 2004. The proceeds, along
with proceeds from the Floating Rate Senior Notes and the 6 3/8% Senior Notes, were used primarily
to repurchase or redeem all or a portion of our outstanding 9 3/8% Senior Notes due 2009 and other
outstanding debt securities, and for general corporate purposes. The 5 3/4% Senior Notes will be redeemable, in whole or in part, at any time at a redemption price
equal to 100% of their principal amount plus a make-whole premium, as defined in the related
indenture, together with accrued and unpaid interest. Prior to October 1, 2006, we may also redeem
up to 35% of each of the 5 3/4% Senior Notes at specified premiums with the net cash proceeds from
certain equity offerings or capital contributions. The 5 3/4% Senior Notes are:  
    general unsecured senior obligations of ours;
    ranked equally in right of payment with all of our and the guarantors existing and
future unsecured senior debt;
    ranked effectively junior to our and the guarantors current and future secured
senior indebtedness up to the value of the collateral securing such indebtedness. The indenture related to the 5 3/4% Senior Notes (the 5 3/4% Senior Notes Indenture) contains
restrictive covenants that, among other things, impose limitations on our and our restricted
subsidiaries ability to:  
    incur additional indebtedness or enter into sale and leaseback transactions;
    pay dividends or make distribution on our capital stock or repurchase our 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 related indenture, we will be required to
make an offer to repurchase all or any part of a holders 5 3/4% Senior Notes at a purchase price
equal to 101% of the aggregate principal amount thereof, together with accrued and unpaid interest
thereon, to the date of repurchase. 6 3/8% Senior Notes due 2011 On October 2, 2003, we sold $1.0 billion principal amount of our 6 3/8% Senior Notes which mature
October 1, 2011. Interest accrues at an annual rate of 6 3/8% and is payable semi-annually in cash
in arrears on April 1 and October 1 of each year, commencing April 1, 2004. The proceeds, along
with proceeds from the Floating Rate Senior Notes and the 5 3/4% Senior Notes, were used primarily
to repurchase or redeem all or a portion of our outstanding 9 3/8% Senior Notes due 2009 and other
outstanding debt securities, and for general corporate purposes. The 6 3/8% Senior Notes will be redeemable, in whole or in part, at any time at a redemption price
equal to 100% of their principal amount plus a make-whole premium, as defined in the related
indenture, together with accrued and unpaid interest. Prior to October 1, 2006, we may also redeem
up to 35% of each of the 6 3/8% Senior Notes at specified premiums with the net cash proceeds from
certain equity offerings or capital contributions. The 6 3/8% Senior Notes are:  
    general unsecured senior obligations of ours;
    ranked equally in right of payment with all of our and the guarantors existing and
future unsecured F-24




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ECHOSTAR DBS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued  senior debt;
    ranked effectively junior to our and the guarantors current and future secured
senior indebtedness up to the value of the collateral securing such indebtedness. The indenture related to the 6 3/8% Senior Notes (the 6 3/8% Senior Notes Indenture) contains
restrictive covenants that, among other things, impose limitations on our and our restricted
subsidiaries ability to:  
    incur additional indebtedness or enter into sale and leaseback transactions;
    pay dividends or make distribution on our capital stock or repurchase our 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 related indenture, we will be required to
make an offer to repurchase all or any part of a holders 6 3/8% Senior Notes at a purchase price
equal to 101% of the aggregate principal amount thereof, together with accrued and unpaid
interest thereon, to the date of repurchase. 6 5/8% Senior Notes due 2014 On October 1, 2004, we sold $1.0 billion principal amount of our 6 5/8% Senior Notes which mature
October 1, 2014 in a private placement to qualified institutional buyers in reliance on Rule 144A
under the Securities Act of 1933. Interest accrues at an annual rate of 6 5/8% and is payable
semi-annually in cash in arrears on April 1 and October 1 of each year, commencing April 1, 2005.
The proceeds, together with available cash, were used to redeem all of our outstanding 10 3/8%
Senior Notes due 2007. We have agreed to offer to exchange the 6 5/8% Senior Notes for new issues of identical debt
securities registered under the Securities Act of 1933. The 6 5/8% Senior Notes will be redeemable, in whole or in part, at any time at a redemption price
equal to 100% of their principal amount plus a make-whole premium, as defined in the related
indenture, together with accrued and unpaid interest. Prior to October 1, 2007, we may also redeem
up to 35% of each of the 6 5/8% Senior Notes at specified premiums with the net cash proceeds from
certain equity offerings or capital contributions. The 6 5/8% Senior Notes are:  
    general unsecured senior obligations of ours;
    ranked equally in right of payment with all of our and the guarantors existing and
future unsecured senior debt;
    ranked effectively junior to our and the guarantors current and future secured
senior indebtedness up to the value of the collateral securing such indebtedness. The indenture related to the 6 5/8% Senior Notes (the 6 5/8% Senior Notes Indenture) contains
restrictive covenants that, among other things, impose limitations on our and our restricted
subsidiaries ability to:  
    incur additional indebtedness or enter into sale and leaseback transactions;
    pay dividends or make distribution on our capital stock or repurchase our 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 related indenture, we will be required to
make an offer to repurchase all or any part of a holders 6 5/8% Senior Notes at a purchase price
equal to 101% of the aggregate principal amount thereof, together with accrued and unpaid interest
thereon, to the date of repurchase. F-25




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ECHOSTAR DBS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued Capital Lease Obligation, Mortgages and Other Notes Payable Capital lease obligation, mortgages and other notes payable consists of the following: As of December 31,2004
    
    
    2003(In thousands)AMC-15 satellite financed under capital lease obligation
    
    $
    286,605
    
    
    $
    8.25% note payable for EchoStar IV satellite vendor financing due
upon resolution of satellite insurance claim (Note 9)
    
    
    11,327
    
    
    
    11,3278% note payable for EchoStar VII satellite vendor financing, payable over 13 years from launch
    
    
    13,549
    
    
    
    14,3028% note payable for EchoStar VIII satellite vendor financing (Note 3)
    
    
    
    
    
    
    14,3818% note payable for EchoStar IX satellite vendor financing, payable over 14 years from launch
    
    
    9,587
    
    
    
    10,000Mortgages and other unsecured notes payable due in installments through
January 2017 with interest rates ranging from 2% to 10%
    
    
    9,798
    
    
    
    6,820Total
    
    
    330,866
    
    
    
    56,830Less current portion
    
    
    (44,972
    )
    
    
    (14,836
    )Capital lease obligation, mortgages and other notes payable, net of current portion
    
    $
    285,894
    
    
    $
    41,994
 Capital Lease Obligation During March 2003, we entered into a satellite service agreement with SES Americom for all of the
capacity on a new Fixed Satellite Service (FSS) satellite, AMC-15, which successfully launched
during the fourth quarter of 2004 and commenced commercial operations in January 2005. In
connection with this agreement, we prepaid $50.0 million to SES Americom during 2003. The ten-year
satellite service agreement for the new satellite is renewable by us on a year to year basis
following the initial term, and provides us with certain rights to replacement satellites. We are
required to make monthly payments to SES Americom for this satellite over the next ten years
beginning in 2005. In accordance with Statement of Financial Accounting Standards No. 13 (SFAS
13), we have accounted for the satellite component of this agreement as a capital lease. We did
not recognize any depreciation on the satellite acquired under this capital lease during 2004. Future minimum lease payments under this capital lease obligation, together with the present value
of the net minimum lease payments as of December 31, 2004 are as follows: For the Year Ending December 31,2005
    
    $
    56,6002006
    
    
    52,0002007
    
    
    52,0002008
    
    
    52,0002009
    
    
    52,000Thereafter
    
    
    254,656Total minimum lease
payments
    
    
    519,256Less: Amount representing lease of the orbital location and estimated executory costs (primarily
insurance and maintenance) including profit thereon, included in total minimum lease payments
    
    
    (113,690
    )Net minimum lease
payments
    
    
    405,566Less: Amount representing
interest
    
    
    (118,961
    )Present value of net minimum lease
payments
    
    
    286,605Less: Current
portion
    
    
    (28,463
    )Long-term portion of capital lease
obligation
    
    $
    258,142
 F-26




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ECHOSTAR DBS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued Future maturities of our outstanding long-term debt, including the current portion, are summarized
as follows: Payments due by periodTotal
    
    
    2005
    
    
    2006-2007
    
    
    2008-2009
    
    
    Thereafter(In thousands)Long-term debt
obligations
    
    $
    3,946,153
    
    
    $
    
    
    
    $
    
    
    
    $
    1,946,153
    
    
    $
    2,000,000Capital lease obligation, mortgages and other notes payable
    
    
    330,866
    
    
    
    44,972
    
    
    
    48,683
    
    
    
    53,812
    
    
    
    183,399Total
    
    $
    4,277,019
    
    
    $
    44,972
    
    
    $
    48,683
    
    
    $
    1,999,965
    
    
    $
    2,183,399
 Interest on Long-Term Debt We also have periodic cash interest requirements for our outstanding long-term debt securities,
capital lease obligation, mortgages and other notes payable. Future maturities of these
requirements are summarized as follows: Payments due by periodTotal
    
    
    2005
    
    
    2006-2007
    
    
    2008-2009
    
    
    Thereafter(In thousands)Long-term
debt
    
    $
    1,637,459
    
    
    $
    256,569
    
    
    $
    514,523
    
    
    $
    407,617
    
    
    $
    458,750Capital lease obligation, mortgages and other notes payable
    
    
    132,419
    
    
    
    22,453
    
    
    
    39,508
    
    
    
    32,034
    
    
    
    38,424Total
    
    $
    1,769,878
    
    
    $
    279,022
    
    
    $
    554,031
    
    
    $
    439,651
    
    
    $
    497,174
 Interest accrues on our Floating Rate Senior Notes due 2008 based on the three month LIBOR plus
3.25%. The interest rate as of December 31, 2004, or 5.81%, was used in the table above. 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, 2004, we had net operating loss carryforwards (NOLs) for federal income
tax purposes of approximately $2.424 billion and credit
carryforwards of approximately $10.5 million. The NOLs expire between the year 2011 and 2024 and
capital loss and credit carryforwards generally expire between the year 2006 and 2023. During 2004 and 2003, we decreased our valuation allowance by approximately $106.8 million and
$121.5 million, respectively, as a result of a decrease in net deferred tax assets each year.
During 2002, we decreased our valuation allowance by approximately $9.4 million to fully offset all
net deferred tax assets. Included in this decrease is $57.9 million relating to 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 $268.9 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 2004 and 2003, 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 2004 and 2003, charges of $2.5 and $6.0
million, respectively, were made to additional paid-in capital. F-27




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ECHOSTAR DBS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued 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 amounts payable as of December 31, 2004, 2003 and 2002 were
$2.7 million, $0.5 million and
zero, respectively. The components of the (provision for) benefit from income taxes are as
follows: For the Years Ended December 31,2004
    
    
    2003
    
    
    2002(In thousands)Current (provision) benefit:Federal
    
    $
    (1,307
    )
    
    $
    
    
    
    $
    State
    
    
    (6,421
    )
    
    
    (12,175
    )
    
    
    (5,946
    )Foreign
    
    
    (383
    )
    
    
    (482
    )
    
    
    (1,856
    )(8,111
    )
    
    
    (12,657
    )
    
    
    (7,802
    )Deferred (provision) benefit:Federal
    
    
    (103,001
    )
    
    
    (114,632
    )
    
    
    (65,465
    )State
    
    
    (6,719
    )
    
    
    (7,756
    )
    
    
    (17,106
    )Decrease (increase) in valuation allowance
    
    
    106,766
    
    
    
    121,512
    
    
    
    9,432(2,954
    )
    
    
    (876
    )
    
    
    (73,139
    )Total benefit (provision)
    
    $
    (11,065
    )
    
    $
    (13,533
    )
    
    $
    (80,941
    )
 The actual tax provisions for 2004, 2003 and 2002 reconcile to the amounts computed by applying the
statutory Federal tax rate to income before taxes as follows: For the Years Ended December 31,2004
    
    
    2003
    
    
    2002% of pre-tax (income)/lossStatutory rate
    
    
    (35.0
    )
    
    
    (35.0
    )
    
    
    (35.0
    )State income taxes, net of Federal benefit
    
    
    (2.8
    )
    
    
    (3.8
    )
    
    
    (12.2
    )Foreign taxes and income not U. S. taxable
    
    
    (0.2
    )
    
    
    0.6
    
    
    
    (0.7
    )Stock option compensation
    
    
    (0.5
    )
    
    
    (2.4
    )
    
    
    4.3Deferred tax asset adjustment for filed returns
    
    
    0.6
    
    
    
    
    
    
    
    (24.6
    )Intangible amortization and other
    
    
    (0.1
    )
    
    
    0.1
    
    
    
    (2.5
    )Decrease (increase) in valuation allowance
    
    
    34.4
    
    
    
    36.4
    
    
    
    7.4Total benefit (provision) for income taxes
    
    
    (3.6
    )
    
    
    (4.1
    )
    
    
    (63.3
    )
 F-28




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ECHOSTAR DBS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued The temporary differences, which give rise to deferred tax assets and liabilities as of December
31, 2004 and 2003, are as follows: As of December 31,2004
    
    
    2003(In thousands)Deferred tax assets:NOL, credit and other carryforwards
    
    $
    858,571
    
    
    $
    864,451Unrealized losses on investments
    
    
    2,361
    
    
    
    758Accrued expenses
    
    
    19,711
    
    
    
    29,791Stock compensation
    
    
    16,001
    
    
    
    18,093Deferred
revenue
    
    
    68,896
    
    
    
    33,213Other
    
    
    9,664
    
    
    
    7,966Total deferred tax assets
    
    
    975,204
    
    
    
    954,272Valuation allowance
    
    
    (577,548
    )
    
    
    (671,422
    )Deferred tax asset after valuation allowance
    
    
    397,656
    
    
    
    282,850Deferred tax liabilities:Equity method investments
    
    
    (18,455
    )
    
    
    Depreciation and amortization
    
    
    (386,694
    )
    
    
    (288,799
    )State taxes net of federal tax effect
    
    
    (16,381
    )
    
    
    (12,508
    )Total deferred tax liabilities
    
    
    (421,530
    )
    
    
    (301,307
    )Net deferred tax asset (liability)
    
    $
    (23,874
    )
    
    $
    (18,457
    )Current portion of net deferred tax asset (liability)
    
    $
    25,189
    
    
    $
    40,425Noncurrent portion of net deferred tax asset (liability)
    
    
    (49,063
    )
    
    
    (58,882
    )Total net deferred tax asset (liability)
    
    $
    (23,874
    )
    
    $
    (18,457
    )
 6. Stock Compensation Plans Stock Incentive Plans EchoStar has adopted stock incentive plans to attract and retain officers, directors and key
employees. EchoStar currently has 80.0 million shares of its Class A common stock reserved for
granting awards under its 1995 Stock Incentive Plan and an additional 80.0 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, 2004 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, we recorded
approximately $178.8 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, was recognized over the five-year option vesting period. During the year ended
December 31, 2004, 2003 and 2002, we recognized expense of $1.2 million, $3.5 million and $11.3
million, respectively, under the 1999 incentive plan. There is no remaining deferred compensation
to be recognized under this plan. Effective January 26, 2005, EchoStar adopted a long-term, performance-based stock incentive plan
(the 2005 LTIP) within the terms of its 1999 Stock Incentive Plan to provide incentive to its
executive officers and certain other key employees upon achievement of specified long-term business
objectives. Employees participating in the 2005 LTIP may elect to receive a one-time award of (i) an option to acquire a specified number of
shares of EchoStars Class A common stock priced at market value on the date of the awards,
expected to be March 31, 2005; (ii) rights to acquire for no additional consideration a specified
smaller number of shares of EchoStars Class A common stock; or (iii) a corresponding combination
of a lesser number of option shares and such rights to acquire EchoStars Class A common stock.
The options and rights will vest at a varying rate over a seven year period; provided, however,
that none of the options or rights will vest if EchoStar fails to achieve the specified long-term F-29




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##### Table of Contents



ECHOSTAR DBS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued performance goal. We will record the related compensation when achievement of this performance
goal becomes probable, if ever. Such compensation, if recorded, would likely result in material
non-cash, stock-based compensation expense in our consolidated statements of operations and
comprehensive income (loss). We report all non-cash compensation based on stock option appreciation as a single expense category
in our accompanying consolidated statements of operations and comprehensive income (loss). The
following table represents the other expense categories in our consolidated statements of
operations and comprehensive income (loss) 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. For the Years Ended December 31,2004
    
    
    2003
    
    
    2002(In thousands)Subscriber-related
    
    $
    51
    
    
    $
    34
    
    
    $
    729Satellite and
transmission
    
    
    69
    
    
    
    359
    
    
    
    (7
    )General and
administrative
    
    
    1,060
    
    
    
    3,151
    
    
    
    10,557Total non-cash, stock-based compensation
    
    $
    1,180
    
    
    $
    3,544
    
    
    $
    11,279
 Options to purchase an additional 6.8 million shares are outstanding as of December 31, 2004 and
were granted with exercise prices equal to the fair 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
$8.84. 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, 2004, 2003 and 2002 related to these long-term options. We will record the related
compensation at the achievement of the performance goals, if ever. Such compensation, if recorded,
would likely result in material non-cash, stock-based compensation expense in our consolidated
statements of operations and comprehensive income (loss). A summary of our stock option activity for the years ended December 31, 2004, 2003 and 2002 is as
follows: 2004
    
    
    2003
    
    
    2002Weighted-
    
    
    
    
    
    
    Weighted-
    
    
    
    
    
    
    Weighted-Average
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    AverageExercise
    
    
    
    
    
    
    Exercise
    
    
    
    
    
    
    ExerciseOptions
    
    
    Price
    
    
    Options
    
    
    Price
    
    
    Options
    
    
    PriceOptions outstanding, beginning of period
    
    
    17,225,688
    
    
    $
    16.31
    
    
    
    20,297,369
    
    
    $
    13.75
    
    
    
    22,213,207
    
    
    $
    12.88Granted
    
    
    4,190,000
    
    
    
    31.64
    
    
    
    1,329,000
    
    
    
    29.95
    
    
    
    531,000
    
    
    
    20.76Exercised
    
    
    (2,142,450
    )
    
    
    6.62
    
    
    
    (2,966,987
    )
    
    
    5.71
    
    
    
    (1,409,394
    )
    
    
    5.29Forfeited
    
    
    (2,138,554
    )
    
    
    19.87
    
    
    
    (1,433,694
    )
    
    
    14.68
    
    
    
    (1,037,444
    )
    
    
    10.16Options outstanding, end of period
    
    
    17,134,684
    
    
    
    20.82
    
    
    
    17,225,688
    
    
    
    16.31
    
    
    
    20,297,369
    
    
    
    13.75Exercisable at end of period
    
    
    5,334,284
    
    
    
    25.33
    
    
    
    5,333,838
    
    
    
    18.79
    
    
    
    6,137,213
    
    
    
    12.94
 F-30




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##### Table of Contents



ECHOSTAR DBS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued Exercise prices for options outstanding as of December 31, 2004 are as follows: Options Outstanding
    
    
    Options ExercisableNumber
    
    
    Weighted-
    
    
    
    
    
    
    NumberOutstanding
    
    
    Average
    
    
    Weighted-
    
    
    Exercisable
    
    
    Weighted-as of
    
    
    Remaining
    
    
    Average
    
    
    As of
    
    
    AverageDecember 31,
    
    
    Contractual
    
    
    Exercise
    
    
    December 31,
    
    
    Exercise2004*
    
    
    Life
    
    
    Price
    
    
    2004
    
    
    Price$  2.12500
    -
    $
    3.00785
    
    
    538,251
    
    
    
    1.96
    
    
    $
    2.34
    
    
    
    538,251
    
    
    $
    2.34$  5.48625
    -
    $
    6.60000
    
    
    7,101,187
    
    
    
    4.83
    
    
    
    6.00
    
    
    
    1,357,187
    
    
    
    6.00$10.20315
    -
    $
    19.18000
    
    
    1,624,746
    
    
    
    5.02
    
    
    
    14.02
    
    
    
    709,746
    
    
    
    11.80$22.70325
    -
    $
    28.88000
    
    
    1,310,800
    
    
    
    7.50
    
    
    
    27.83
    
    
    
    326,600
    
    
    
    26.85$30.75000
    -
    $
    39.50000
    
    
    5,314,700
    
    
    
    7.66
    
    
    
    32.80
    
    
    
    1,513,700
    
    
    
    34.84$48.75000
    -
    $
    52.75000
    
    
    138,000
    
    
    
    5.16
    
    
    
    50.55
    
    
    
    80,000
    
    
    
    49.95$60.12500
    -
    $
    79.00000
    
    
    1,107,000
    
    
    
    5.41
    
    
    
    65.36
    
    
    
    808,800
    
    
    
    64.06$  2.12500
    -
    $
    79.00000
    
    
    17,134,684
    
    
    
    5.88
    
    
    
    20.82
    
    
    
    5,334,284
    
    
    
    25.33
   *These amounts include approximately 6.8 million shares outstanding pursuant to the
Long-Term Incentive Plan. 7. Employee Benefit Plans Employee Stock Purchase Plan During 1997, EchoStars 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 its 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 EchoStars
capital stock under all of EchoStars stock purchase plans 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 EchoStars Class A common stock on the last business day of each calendar quarter
in which such shares of Class A common stock are deemed sold to an employee under the ESPP. 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 EchoStars Board of Directors. During 2004, 2003 and 2002 employees
purchased approximately 78,000, 66,000 and 107,000 shares of EchoStars Class A common stock
through the ESPP, respectively. 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. Forfeitures of unvested
participant balances which are retained by the 401(k) Plan may be used to fund matching and
discretionary contributions. We did not recognize any expense related to matching 401(k)
contributions during the year ended December 31, 2004 as 401(k) Plan forfeitures were sufficient to
fund all of the company matching contributions. Expense recognized related to matching 401(k)
contributions, net of forfeitures, totaled approximately $632 thousand and $993 thousand during the
years ended December 31, 2003 and 2002, respectively. EchoStar also may make an annual
discretionary contribution to the plan with approval by its 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s stock. Discretionary contributions, net of
forfeitures, were approximately $12.8 million, $15.4 million and $16.9 million relating to the
401(k) Plan years ended December 31, 2004, 2003 and 2002, respectively. F-31




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ECHOSTAR DBS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued 8. Commitments and Contingencies Commitments Future maturities of our contractual obligations are summarized as follows: Payments due by periodTotal
    
    
    2005
    
    
    2006-2007
    
    
    2008-2009
    
    
    Thereafter(In thousands)Satellite-related obligations
    
    $
    1,531,309
    
    
    $
    55,442
    
    
    $
    232,846
    
    
    $
    255,305
    
    
    $
    987,716Operating lease obligations
    
    
    82,890
    
    
    
    24,710
    
    
    
    40,509
    
    
    
    15,415
    
    
    
    2,256Purchase obligations
    
    
    1,413,617
    
    
    
    1,197,871
    
    
    
    91,729
    
    
    
    98,060
    
    
    
    25,957Total
    
    $
    3,027,816
    
    
    $
    1,278,023
    
    
    $
    365,084
    
    
    $
    368,780
    
    
    $
    1,015,929
 Satellite-Related Obligations Satellites under Construction.EchoStar has entered into contracts to construct four new
satellites. As discussed under Organization and Legal Structure above, these contracts are held
in EOC II, a wholly owned subsidiary of ECC, and our affiliate, and accordingly, future obligations
for payment related to these satellites are not included in the table above. During July 2003, EchoStar entered into a contract for the construction of EchoStar X, a Lockheed
Martin A2100 class DBS satellite. We anticipate construction to be completed and that this
satellite will be launched during the fourth quarter of 2005. EchoStar X will enable better
bandwidth utilization, provide back-up protection for our existing local channel offerings,
capacity to potentially offer local channels in additional markets, and could allow DISH Network to
offer other value-added services. During December 2004, EchoStar entered into a contract for the construction of EchoStar XI, a Space
Systems Loral FS1300 class DBS satellite. In connection with this agreement, EchoStar obtained an
option for the construction of other additional satellites. Construction is expected to be
completed during 2007 and is contingent upon, among other things, the finalization of the necessary
bankruptcy court approvals. There can be no assurance that these approvals will be finalized or
that the satellite will ultimately be launched. EchoStar XI will enable better bandwidth
utilization, provide back-up protection for our existing offerings, and could allow DISH Network to
offer other value-added services. During December 2004 and March 2005, EchoStar entered into contracts for the construction of two
Lockheed Martin A2100 class spot beam Ka-band satellites, which are expected to be completed during
2008. These satellites will enable better bandwidth utilization and could allow DISH Network to
offer other value-added services including 2-way broadband and video. Satellites under Lease.In addition to our lease of the AMC-15 satellite (Note 4), we have also
entered into satellite service agreements to lease capacity on four other satellites. In connection with the SES Americom agreement discussed under Capital Lease Obligation(Note 4), we
are currently leasing all of the capacity on an existing in-orbit FSS satellite, AMC-2, at the 105
degree orbital location. Our lease of this satellite will continue at least until AMC-15 is placed
in service at this location, which is expected to occur during the second half of 2005. We use the
capacity on AMC-2 to provide local network channels. During February 2004, we entered into two additional satellite service agreements for capacity on
FSS satellites. The satellite under the first of these agreements, AMC-16, launched during the
fourth quarter of 2004 and commenced commercial operations during the first quarter of 2005. We
could use this additional satellite, which is currently located at the 85 degree orbital location,
as backup for AMC-15, and may also utilize the satellite to offer local network channels in
additional markets, together with satellite-delivered high-speed internet services. This ten-year
satellite service agreement is renewable by us on a year to year basis following the initial term,
and provides us with certain rights to replacement satellites. In connection with this agreement, we
prepaid $29.0 F-32




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ECHOSTAR DBS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued million during 2004 and are required to make monthly payments for this satellite for
the ten-year period following commencement of commercial operations. The satellite under the second of these agreements is planned for launch during 2006 and is
contingent upon, among other things, obtaining necessary regulatory approvals. There can be no
assurance that we will obtain these approvals or that the satellite will ultimately be launched.
This additional satellite could allow DISH Network to offer other value-added services. In
connection with this agreement, we prepaid $55.0 million during 2004 and are required to make
monthly payments for this satellite for the 15-year period following commencement of commercial
operations. Future commitments related to this satellite are included in the table above. During August 2003, we exercised our option under the SES Americom agreement for AMC-15 to also
lease for an initial ten-year term all of the capacity on a new DBS satellite at an orbital
location to be determined at a future date. In connection with this agreement, we prepaid $20.9
million to SES Americom during 2004. We anticipate that this satellite will be launched during
2006 and could be used as additional backup capacity and to offer other value-added services. As a result of our recent agreements with fixed satellite service providers, our obligations for
payment related to satellites have increased substantially. In certain circumstances the dates on
which we are obligated to make these payments could be delayed. These
amounts will increase if we purchase any of the satellites under
construction from EOC II, and would
further increase to the extent we procure insurance for our satellites or contract for the
construction, launch or lease of additional satellites. Purchase Obligations Our 2005 purchase obligations primarily consist of binding purchase orders for EchoStar receiver
systems and related equipment, and for products and services related to the operation of our DISH
Network. Our purchase obligations also include certain guaranteed fixed contractual commitments to
purchase programming content. Programming Contracts In the normal course of business, we have also entered into numerous contracts to purchase
programming content whereby our payment obligations are fully contingent on the number of
subscribers to which we provide the respective content. These programming commitments are not
included in the table above. The terms of our contracts typically range from one to ten years.
Our programming expenses will continue to increase to the extent we are successful growing our
subscriber base. Programming expenses are included in Subscriber-related expenses in the
accompanying consolidated statements of operations and comprehensive income (loss). Rent Expense Total rent expense for operating leases approximated $56.0 million, $31.6 million and $17.6 million
in 2004, 2003 and 2002, respectively. Patents and Intellectual Property Many entities, including some of our competitors, now have and may in the future obtain patents and
other intellectual property rights that cover or affect products or services directly or indirectly
related to those that we offer. We may not be aware of all patents and other intellectual property
rights that our products may potentially infringe. Damages in patent infringement cases can
include a tripling of actual damages in certain cases. Further, we cannot estimate the extent to
which we may be required in the future to obtain licenses with respect to patents held by others
and the availability and cost of any such licenses. Various parties have asserted patent and other
intellectual property rights with respect to components within our direct broadcast satellite
system. We cannot be certain that these persons do not own the rights they claim, that our
products do not infringe on these rights, that we would be able to obtain licenses from these
persons on commercially reasonable terms or, if we were unable to obtain such licenses, that we
would be able to redesign our products to avoid infringement. F-33




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ECHOSTAR DBS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued Contingencies Distant Network Litigation Until July 1998, we obtained feeds of distant broadcast network channels (ABC, NBC, CBS and FOX)
for distribution to our customers through PrimeTime 24. In December 1998, the United States
District Court for the Southern District of Florida in Miami entered a nationwide permanent
injunction requiring PrimeTime 24 to shut off distant network channels to many of its customers,
and henceforth to sell those channels to consumers in accordance with 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 find that
its method of providing distant network programming did not violate the Satellite Home Viewer
Improvement Act (SHVIA) and hence did not infringe the networks copyrights. In November 1998,
the networks and their affiliate association 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. 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 we do not know if they adhered to this schedule. 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. 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 March 10, 2004, EchoStar reached a private settlement with CBS,
another of the plaintiffs in the litigation and jointly filed a stipulation of dismissal. EchoStar
has also reached private settlements with many independent stations and station groups. EchoStar
was unable to reach a settlement with five of the original eight plaintiffs Fox and the
independent affiliate groups associated with each of the four networks. A trial took place during April 2003 and the District Court issued a final judgment in June 2003.
The District Court found that with one exception our current distant network qualification
procedures comply with the law. We have revised our procedures to comply with the District Courts
Order. Although the plaintiffs asked the District Court to enter an injunction precluding EchoStar
from selling any local or distant network programming, the District Court refused. While the
plaintiffs did not claim monetary damages and none were awarded, the plaintiffs were awarded
approximately $4.8 million in attorneys fees. This amount is substantially less than the amount
the plaintiffs sought. EchoStar asked the Court to reconsider the award and the Court has vacated
the fee award. When the award was vacated, the District Court also allowed EchoStar an opportunity
to conduct discovery concerning the amount of plaintiffs requested fees. The parties have agreed
to postpone discovery and an evidentiary hearing regarding attorneys fees until after the Court of
Appeals rules on the pending appeal of the Courts June 2003 final judgment. It is not possible to
make a firm assessment of the probable outcome of plaintiffs outstanding request for fees. The District Courts injunction requires us to use a computer model to re-qualify, as of June 2003,
all of our subscribers who receive ABC, NBC, CBS or Fox programming by satellite from a market
other than the city in which the subscriber lives. The Court also invalidated all waivers
historically provided by network stations. These waivers, which have been provided by stations for
the past several years through a third party automated system, allow subscribers who believe the
computer model improperly disqualified them for distant network channels to nonetheless receive
those channels by satellite. Further, even though SHVIA provides that certain subscribers who
received distant network channels prior to October 1999 can continue to receive those channels
through December 2004, the District Court terminated the right of our grandfathered subscribers to
continue to receive distant network channels. F-34




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ECHOSTAR DBS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued EchoStar believes the District Court made a number of errors and appealed the decision. Plaintiffs
cross-appealed. The Court of Appeals granted EchoStars request to stay the injunction until
EchoStars appeal is decided. Oral arguments occurred during February 2004. It is not possible to
predict how or when the Court of Appeals will rule on the merits of EchoStars appeal. In the event the Court of Appeals upholds the injunction, and if EchoStar does not reach private
settlement agreements with additional stations, we will attempt to assist subscribers in arranging
alternative means to receive network channels, including migration to local channels by satellite
where available, and free off air antenna offers in other markets. However, we cannot predict with
any degree of certainty how many subscribers would cancel their primary DISH Network programming as
a result of termination of their distant network channels. We could be required to terminate
distant network programming to all subscribers in the event the plaintiffs prevail on their
cross-appeal and EchoStar is permanently enjoined from delivering all distant network channels.
Termination of distant network programming to subscribers would result, among other things, in a
reduction in average monthly revenue per subscriber and a temporary increase in subscriber churn. Satellite Insurance Several years ago, EchoStar filed a $219.3 million insurance claim for a total loss under the
launch insurance policies covering our EchoStar IV satellite. 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 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 EchoStar a total of approximately $88.0 million, or 40% of the total
policy amount, in settlement of the EchoStar IV insurance claim. EchoStar rejected this settlement
offer and submitted its claim to arbitration pursuant to the terms of the insurance policies. On March 4, 2005, EchoStar agreed to settle its insurance claim and related claims for accrued
interest and bad faith with all carriers who agree to pay their proportionate share of an aggregate
net amount of $240.0 million. We retained title to and use of the EchoStar IV satellite. Payment
from each settling carrier is due on or before April 26, 2005, with interest commencing to accrue
on April 12, 2005. EchoStar has received signed agreements back from all insurers. 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. 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. Gemstar filed
counterclaims alleging infringement of additional patents and asserted new patent infringement
counterclaims. F-35




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ECHOSTAR DBS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued In February 2001, Gemstar filed additional patent infringement actions against EchoStar in the
District Court in Atlanta, Georgia and with the ITC. EchoStar settled all of the litigation with
Gemstar during 2004 (See Note 2 in the Notes to the Consolidated Financial Statements in Item 15 of
this Annual Report on Form 10-K). Superguide During 2000, Superguide Corp. (Superguide) 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. We examined these patents and believe that they are not infringed by any of our products
or services. On summary judgment, the District Court ruled that none of the asserted patents were infringed by
us. These rulings were appealed to the United States Court of Appeals for the Federal Circuit.
During February 2004, the Federal Circuit affirmed in part and reversed in part the District
Courts findings and remanded the case back to the District Court for further proceedings. Based
upon the settlement with Gemstar discussed above, EchoStar now has an additional defense in this
case based upon a license from Gemstar. EchoStar will continue to vigorously defend this case. In
the event that a Court ultimately determines that we infringe on any of the patents, EchoStar may
be subject to substantial damages, which may include treble damages and/or an injunction that could
require us to materially modify certain user-friendly electronic programming guide and related
features that we currently offer to consumers. It is not possible to make a firm assessment of the
probable outcome of the suit or to determine the extent of any potential liability or damages. Broadcast Innovation, L.L.C. In November of 2001, Broadcast Innovation, L.L.C. filed a lawsuit against EchoStar, DirecTV,
Thomson Consumer Electronics and others in Federal District Court in Denver, Colorado. The suit
alleges infringement of United States Patent Nos. 6,076,094 (the 094 patent) and 4,992,066 (the
066 patent). The 094 patent relates to certain methods and devices for transmitting and
receiving data along with specific formatting information for the data. The 066 patent relates to
certain methods and devices for providing the scrambling circuitry for a pay television system on
removable cards. We examined these patents and believe that they are not infringed by any of our
products or services. Subsequently, DirecTV and Thomson settled with Broadcast Innovation leaving
EchoStar as the only defendant. During January 2004, the judge issued an order finding the 066 patent invalid. In August of 2004,
the Court ruled the 094 invalid in a parallel case filed by Broadcast Innovation against Charter
and Comcast. EchoStars case is stayed pending the appeal of the Charter case. EchoStar intends
to continue to vigorously defend this case. In the event that a Court ultimately determines that
we infringe on any of the patents, EchoStar may be subject to substantial damages, which may
include treble damages and/or an injunction that could require us to materially modify certain
user-friendly features that we currently offer to consumers. It is not possible to make a firm
assessment of the probable outcome of the suit or to determine the extent of any potential
liability or damages. TiVo Inc. During January 2004, TiVo Inc. filed a lawsuit against EchoStar in the United States District Court
for the Eastern District of Texas. The suit alleges infringement of United States Patent No.
6,233,389 (the 389 patent). The 389 patent relates to certain methods and devices for
providing what the patent calls time-warping. We have examined this patent and do not believe
that it is infringed by any of our products or services. During March 2005, the Court denied
EchoStars motion to transfer this case to the United States District Court for the Northern
District of California. EchoStar intends to vigorously defend this case. In the event that a
Court ultimately determines that we infringe this patent, EchoStar may be subject to substantial
damages, which may include treble damages and/or an injunction that could require us to materially
modify certain user-friendly features that we currently offer to consumers. It is not possible to
make a firm assessment of the probable outcome of the suit or to determine the extent of any
potential liability or damages. F-36




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ECHOSTAR DBS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued Acacia In June 2004, Acacia Media Technologies filed a lawsuit against EchoStar in the United States
District Court for the Northern District of California. The suit also named DirecTV, Comcast,
Charter, Cox and a number of smaller cable companies as defendants. Acacia is an intellectual property holding company which seeks to
license the patent portfolio that it has acquired. The suit alleges infringement of United States
Patent Nos. 5,132,992, 5,253,275, 5,550,863, 6,002,720 and 6,144,702 (herein after the 992, 275,
863, 720 and 702 patents, respectively). The 992, 863, 720 and 702 patents have been
asserted against EchoStar. The asserted patents relate to various systems and methods related to the transmission of digital
data. The 992 and 702 patents have also been asserted against several internet adult content
providers in the United States District Court for the Central District of California. On July 12,
2004, that Court issued a Markman ruling which found that the 992 and 702 patents were not as
broad as Acacia had contended. Acacias various patent infringement cases have now been consolidated for pre-trial purposes in the
United States District court for the Northern District of California. EchoStar intends to
vigorously defend this case. In the event that a Court ultimately determines that we infringe on
any of the patents, EchoStar may be subject to substantial damages, which may include treble
damages and/or an injunction that could require us to materially modify certain user-friendly
features that we currently offer to consumers. It is not possible to make a firm assessment of the
probable outcome of the suit or to determine the extent of any potential liability or damages. California Action 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 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 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 attorneys 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 attorneys fees. During December 2003,
the Court of Appeals affirmed in part; and reversed in part, the lower courts decision granting
summary judgment in EchoStars favor. Specifically, the Court found there were triable issues of
fact whether EchoStar may have violated the alleged consumer statutes with representations
concerning the number of channels and the program schedule. However, the Court found no triable
issue of fact as to whether the representations crystal clear digital video or CD quality audio
constituted a cause of action. Moreover, the Court affirmed that the reasonable consumer
standard was applicable to each of the alleged consumer statutes. Plaintiff argued the standard
should be the least sophisticated consumer. The Court also affirmed the dismissal of Plaintiffs
breach of warranty claim. Plaintiff filed a Petition for Review with the California Supreme Court
and EchoStar responded. During March 2004, the California Supreme Court denied Plaintiffs
Petition for Review. Therefore, the action has been remanded to the trial court pursuant to the
instructions of the Court of Appeals. Hearings on class certification were conducted on December
21, 2004 and on February 7, 2005. The Court denied Plaintiffs motion for class certification on
February 10, 2005. It is uncertain whether the Plaintiff will appeal this decision. Therefore, it
is not possible to make an assessment of the probable outcome of the litigation or to determine the
extent of any potential liability. 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 our satellite hardware retailers. The plaintiffs are requesting the Courts to
declare certain provisions F-37




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ECHOSTAR DBS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued 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 is vigorously defending against the suits and has asserted
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 filed a motion for additional time to conduct discovery to enable them to respond to our
motion. The Court granted a limited discovery period which ended November 15, 2004. The Court is
hearing discovery related motions and EchoStar expects the Court to follow with a briefing schedule
for the motion for summary judgment. It is not possible 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 against EchoStar 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 we: (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, the ownership of certain
equipment related to the provision of our satellite television service. During September 2001, the
Court granted EchoStars motion to dismiss. 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 perfected appeals before
the Fifth Circuit Court of Appeals. On appeal, the Fifth Circuit upheld the dismissal. The Fifth
Circuit vacated and remanded the District Courts denial of EchoStars motion for sanctions. The
District Court subsequently issued a written opinion containing the same findings. The only issue
remaining is EchoStars collection of costs, which were previously granted by the Court. StarBand Shareholder Lawsuit During August 2002, a limited group of shareholders in StarBand, a broadband Internet satellite
venture in which EchoStar invested, 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 EchoStars Board of Directors. The action stems from the defendants involvement as directors,
and EchoStars position as a shareholder, in StarBand. During July 2003, the Court granted the
defendants motion to dismiss on all counts. The Plaintiffs appealed. On April 15, 2004, the
Delaware Supreme Court remanded the case instructing the Chancery Court to re-evaluate its decision
in light of a recent opinion of the Delaware Supreme Court, Tooley v. Donaldson, No. 84,2004 (Del.
Supr. April 2, 2004). Plaintiffs filed a motion to amend their complaint which was denied by the
Court. The Plaintiffs appealed the denial of their motion to amend and the appeal is pending. It
is not possible to make a firm assessment of the probable outcome of the litigation or to determine
the extent of any potential liability or damages. Enron Commercial Paper Investment Complaint During November 2003, an action was commenced in the United States Bankruptcy Court for the
Southern District of New York, against approximately 100 defendants, including EchoStar, who
invested in Enrons commercial paper. The complaint alleges that Enrons October 2001 prepayment
of its commercial paper is a voidable preference under the bankruptcy laws and constitutes a
fraudulent conveyance. The complaint alleges that EchoStar received voidable or fraudulent
prepayments of approximately $40.0 million. EchoStar typically invests in commercial paper and
notes which are rated in one of the four highest rating categories by at least two nationally
recognized statistical rating organizations. At the time of EchoStars investment in Enron
commercial paper, it was considered to be high quality and considered to be a very low risk. The
defendants have moved the Court to dismiss the case on grounds that Enrons complaint does not
adequately state a legal claim. Those motions are currently under consideration by the Court. 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. F-38




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ECHOSTAR DBS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued Bank One During March 2004, Bank One, N.A. (Bank One) filed suit against EchoStar and one of our
subsidiaries, EchoStar Acceptance Corporation (EAC), in the Court of Common Pleas of Franklin
County, Ohio alleging breach of a duty to indemnify. Bank One alleges that EAC is contractually
required to indemnify Bank One for a settlement it paid to consumers who entered private label
credit card agreements with Bank One to purchase satellite equipment
in the late 1990s. Bank One alleges that EchoStar entered into a guarantee wherein it agreed to
pay any indemnity obligation incurred by Bank One. During April 2004, EchoStar removed the case to
federal court in Columbus, Ohio. EchoStar denies the allegations and intends to vigorously defend
against the claims. EchoStar filed a motion to dismiss the Complaint which was granted in part and
denied in part. The Court granted EchoStars motion, agreeing EchoStar did not owe Bank One a duty
to defend the underlying lawsuit. However, the Court denied the motion in that Bank One will be
allowed to attempt to prove that EchoStar owed Bank One a duty to indemnify. The case is currently
in discovery. It is too early in the litigation to make an assessment of the probable outcome of
the litigation or to determine the extent of any potential liability or damages. Church Communications Network, Inc. During August 2004, Church Communications Network, Inc. (CCN) filed suit against EchoStar
Satellite L.L.C. (ESLLC) in the United States District Court for the Northern District of
Alabama. CCN contends that our contractual relationship with Dominion Video Satellite, Inc., a
direct broadcast provider that airs only Christian programming, constitutes a breach of a
commercial television services agreement between ESLLC and CCN (the CCN Agreement). Further, CCN
contends that our reluctance to disclose the confidential provisions of the Dominion/EchoStar
agreement warrant causes of action for negligent misrepresentation, intentional misrepresentation,
and non-disclosure. We filed a motion to dismiss CNNs complaint, or alternatively to transfer the
case to a Colorado court. The Court denied our motion to dismiss, but granted our motion to
transfer. As a result, the action was transferred to the United States District Court for the
District of Colorado. Thereafter, we filed a motion to dismiss the case in the Colorado court.
The motion to dismiss is currently pending before the Court and the case is currently in discovery. Although the CCN Agreement specifically limits damages to $500,000, CCN initially sought $1.5
million. As this case progressed, CCN initially increased the amount of its alleged damages to
over $3.0 million and has recently indicated that it is now seeking damages in excess of $15.0
million. As this is currently in early discovery it is not possible to make a firm assessment of
the probable outcome of the litigation or to determine the extent of any potential liability or
damages. Vivendi In January 2005, Vivendi Universal, S.A. (Vivendi), filed suit against EchoStar Communications
Corporation in the United States District Court for the Southern District of New York alleging that
EchoStar has anticipatorily repudiated or is in breach of an alleged agreement between EchoStar and
Vivendi pursuant to which we are allegedly required to broadcast a music-video channel provided by
Vivendi. Vivendis complaint seeks injunctive and declaratory relief, and damages in an
unspecified amount. Vivendi has since filed a motion for a preliminary injunction, in which it
asks the Court to order EchoStar to broadcast the Vivendi music-video channel during the pendency
of the litigation and to pay Vivendi for the provision of its music-video channel. EchoStar
intends to vigorously defend this case. In the event that a Court determines that Vivendi is
entitled to a preliminary injunction, we may be required to broadcast the Vivendi music-video
channel during the pendency of the litigation, which would impact the bandwidth that we have
available to broadcast other services. In the event that a Court ultimately determines that
EchoStar has a contractual obligation to broadcast the Vivendi music-video channel and that
EchoStar is in breach of that obligation, we may be required to broadcast the Vivendi music-video
channel and be subject to substantial damages. It is not possible to make a firm assessment of the
probable outcome of the suit or to determine the extent of any potential liability or damages. F-39




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##### Table of Contents



ECHOSTAR DBS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued Fox Sports Direct During June 2004, Fox Sports Direct (Fox) sued EchoStar in the United States District Court
Central District of California for alleged breach of contract. During October 2004, EchoStar
reached a settlement with Fox for an immaterial amount. Other In addition to the above actions, EchoStar is subject to various other legal proceedings and claims
which arise in the ordinary course of business. In our opinion, the amount of ultimate liability
with respect to any of these actions is unlikely to materially affect our financial position,
results of operations or liquidity. Reauthorization of Satellite Home Viewer Improvement Act We currently offer local broadcast channels in approximately 155 markets across the United States.
In 38 of those markets, two dishes are necessary to receive all local channels in the market.
SHVERA nowrequires, among other things, that all local broadcast channels delivered by
satellite to any particular market be available from a single dish within 18 months of the laws
December 8, 2004 effective date. Because we had planned to transition all local channels in any
particular market to the same dish by 2008 rather than in the shorter transition period mandated by
SHVERA, satellite capacity limitations may force us to move the local channels in as many as 30
markets to different satellites, requiring subscribers in those markets to install a second or a
different dish to continue receiving their local network channels. We may be forced to stop
offering local channels in some of those markets altogether. The transition of all local channels to the same dish could result in disruptions of service for a
substantial number of our customers, and our ability to timely comply with this requirement without
incurring significant additional costs is dependent on, among other things, the successful launch
and operation of one or more additional satellites. It is possible that the costs of compliance
with this requirement could exceed $100.0 million. To the extent some of those costs are passed on
to our subscribers, and because many subscribers may be unwilling to install a second dish where
one had been adequate, we expect that our subscriber churn could be negatively impacted. It is too
early to make a firm determination of the cost of compliance. 9. Financial Information for Subsidiary Guarantors With the exception of certain de minimis domestic and foreign subsidiaries (collectively, the
Non-Guarantors), our senior notes are fully, unconditionally and jointly and severally guaranteed
by all of our subsidiaries (collectively, the Subsidiary Guarantors). The
combined assets, stockholders equity, net income (loss) and operating cash flows of the Non-Guarantors
represent less than 1% of the combined and consolidated assets,
stockholders equity, net income (loss) and
operating cash flows of the combined Subsidiary Guarantors for the years ended December 31, 2004,
2003 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 SubsidiariesConsolidating 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, 2004. SubsidiaryGuarantorsEDBS - PC
    
    
    and Other
    
    
    C&E
    
    
    EDBS(In thousands)AssetsCurrent Assets:Cash and cash
equivalents
    
    $
    509,194
    
    
    $
    2,786
    
    
    $
    
    
    
    $
    511,980Marketable investment securities
    
    
    214,275
    
    
    
    
    
    
    
    
    
    
    
    214,275Trade accounts receivable,
net
    
    
    951
    
    
    
    471,105
    
    
    
    
    
    
    
    472,056Inventories,
net
    
    
    
    
    
    
    271,514
    
    
    
    
    
    
    
    271,514Insurance
receivable
    
    
    106,000
    
    
    
    
    
    
    
    
    
    
    
    106,000Other current
assets
    
    
    3,126
    
    
    
    142,969
    
    
    
    
    
    
    
    146,095Total current
assets
    
    
    833,546
    
    
    
    888,374
    
    
    
    
    
    
    
    1,721,920Property and equipment,
net
    
    
    
    
    
    
    2,441,017
    
    
    
    
    
    
    
    2,441,017FCC
authorizations
    
    
    
    
    
    
    696,285
    
    
    
    
    
    
    
    696,285Intangible assets,
net
    
    
    
    
    
    
    238,959
    
    
    
    
    
    
    
    238,959Investment in
subsidiaries
    
    
    2,520,722
    
    
    
    (255
    )
    
    
    (2,520,467
    )
    
    
    Other noncurrent assets,
net
    
    
    61,112
    
    
    
    130,283
    
    
    
    
    
    
    
    191,395Total
assets
    
    $
    3,415,380
    
    
    $
    4,394,663
    
    
    $
    (2,520,467
    )
    
    $
    5,289,576Liabilities and Stockholders Equity (Deficit)Current Liabilities:Trade accounts
payable
    
    $
    125
    
    
    $
    240,613
    
    
    $
    
    
    
    $
    240,738Deferred revenue and
other
    
    
    
    
    
    
    757,011
    
    
    
    
    
    
    
    757,011Accrued programming
    
    
    
    
    
    
    604,934
    
    
    
    
    
    
    
    604,934Other accrued
expenses
    
    
    64,605
    
    
    
    286,083
    
    
    
    
    
    
    
    350,688Advances from (to) affiliates,
net
    
    
    623,439
    
    
    
    (614,434
    )
    
    
    
    
    
    
    9,005Current portion of capital lease and other long-term obligations
    
    
    3,216
    
    
    
    41,756
    
    
    
    
    
    
    
    44,972Total current
liabilities
    
    
    691,385
    
    
    
    1,315,963
    
    
    
    
    
    
    
    2,007,348Long-term obligations, net of current portion:9 1/8% Senior Notes due 2009
    
    
    446,153
    
    
    
    
    
    
    
    
    
    
    
    446,153Floating Rate Senior Notes due 2008
    
    
    500,000
    
    
    
    
    
    
    
    
    
    
    
    500,0005 3/4% Senior Notes due 2008
    
    
    1,000,000
    
    
    
    
    
    
    
    
    
    
    
    1,000,0006 3/8% Senior Notes due 2011
    
    
    1,000,000
    
    
    
    
    
    
    
    
    
    
    
    1,000,0006 5/8% Senior Notes due 2014
    
    
    1,000,000
    
    
    
    
    
    
    
    
    
    
    
    1,000,000Capital lease obligation, mortgages and other notes payable,
net of current
portion
    
    
    3,270
    
    
    
    282,624
    
    
    
    
    
    
    
    285,894Long-term deferred revenue, distribution and carriage payments
and other long-term
liabilities
    
    
    50,018
    
    
    
    275,609
    
    
    
    
    
    
    
    325,627Total long-term obligations, net of current portion
    
    
    3,999,441
    
    
    
    558,233
    
    
    
    
    
    
    
    4,557,674Total
liabilities
    
    
    4,690,826
    
    
    
    1,874,196
    
    
    
    
    
    
    
    6,565,022Stockholders Equity (Deficit):Common stock, $.01 par value, 1,000,000 sharesauthorized, 1,015 issued and outstanding
    
    
    
    
    
    
    8
    
    
    
    (8
    )
    
    
    Members
capital
    
    
    
    
    
    
    1,791,730
    
    
    
    (1,791,730
    )
    
    
    Additional paid-in
capital
    
    
    929,002
    
    
    
    (514
    )
    
    
    514
    
    
    
    929,002Accumulated other comprehensive income (loss)
    
    
    (1,281
    )
    
    
    
    
    
    
    
    
    
    
    (1,281
    )Accumulated earnings
(deficit)
    
    
    (2,203,167
    )
    
    
    729,243
    
    
    
    (729,243
    )
    
    
    (2,203,167
    )Total stockholders equity
(deficit)
    
    
    (1,275,446
    )
    
    
    2,520,467
    
    
    
    (2,520,467
    )
    
    
    (1,275,446
    )Total liabilities and stockholders equity (deficit)
    
    $
    3,415,380
    
    
    $
    4,394,663
    
    
    $
    (2,520,467
    )
    
    $
    5,289,576
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##### Table of Contents



ECHOSTAR DBS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued Consolidating Balance Sheets  As of December 31, 2003. SubsidiaryGuarantorsEDBS - PC
    
    
    and Other
    
    
    C&E
    
    
    EDBS(In thousands)AssetsCurrent Assets:Cash and cash
equivalents
    
    $
    952,657
    
    
    $
    15,506
    
    
    $
    
    
    
    $
    968,163Marketable investment
securities
    
    
    1,929,105
    
    
    
    
    
    
    
    
    
    
    
    1,929,105Trade accounts receivable,
net
    
    
    
    
    
    
    342,352
    
    
    
    
    
    
    
    342,352Inventories,
net
    
    
    
    
    
    
    154,813
    
    
    
    
    
    
    
    154,813Other current
assets
    
    
    (3,545
    )
    
    
    74,449
    
    
    
    
    
    
    
    70,904Total current
assets
    
    
    2,878,217
    
    
    
    587,120
    
    
    
    
    
    
    
    3,465,337Restricted cash and marketable investment securities
    
    
    
    
    
    
    20
    
    
    
    
    
    
    
    20Cash reserved for satellite
insurance
    
    
    176,843
    
    
    
    
    
    
    
    
    
    
    
    176,843Property and equipment,
net
    
    
    
    
    
    
    1,761,376
    
    
    
    
    
    
    
    1,761,376FCC
authorizations
    
    
    
    
    
    
    696,242
    
    
    
    
    
    
    
    696,242Intangible assets,
net
    
    
    
    
    
    
    4,135
    
    
    
    
    
    
    
    4,135Investment in
subsidiaries
    
    
    1,828,720
    
    
    
    (304
    )
    
    
    (1,828,416
    )
    
    
    Insurance
receivable
    
    
    106,000
    
    
    
    
    
    
    
    
    
    
    
    106,000Other noncurrent assets,
net
    
    
    76,151
    
    
    
    8,075
    
    
    
    
    
    
    
    84,226Total
assets
    
    $
    5,065,931
    
    
    $
    3,056,664
    
    
    $
    (1,828,416
    )
    
    $
    6,294,179Liabilities and Stockholders Equity (Deficit)Current Liabilities:Trade accounts
payable
    
    $
    22,989
    
    
    $
    148,671
    
    
    $
    
    
    
    $
    171,660Deferred revenue and
other
    
    
    
    
    
    
    514,046
    
    
    
    
    
    
    
    514,046Accrued programming
    
    
    
    
    
    
    366,497
    
    
    
    
    
    
    
    366,497Other accrued
expenses
    
    
    140,631
    
    
    
    293,768
    
    
    
    
    
    
    
    434,399Advances from (to) affiliates,
net
    
    
    554,073
    
    
    
    (264,428
    )
    
    
    
    
    
    
    289,645Current portion of long-term
obligations
    
    
    1,008
    
    
    
    13,828
    
    
    
    
    
    
    
    14,8369 3/8% Senior Notes due
2009
    
    
    1,423,351
    
    
    
    
    
    
    
    
    
    
    
    1,423,351Total current
liabilities
    
    
    2,142,052
    
    
    
    1,072,382
    
    
    
    
    
    
    
    3,214,434Long-term obligations, net of current portion:10 3/8% Senior Notes due
2007
    
    
    1,000,000
    
    
    
    
    
    
    
    
    
    
    
    1,000,0009 1/8% Senior Notes due
2009
    
    
    455,000
    
    
    
    
    
    
    
    
    
    
    
    455,000Floating Rate Senior Notes due
2008
    
    
    500,000
    
    
    
    
    
    
    
    
    
    
    
    500,0005 3/4% Senior Notes due
2008
    
    
    1,000,000
    
    
    
    
    
    
    
    
    
    
    
    1,000,0006 3/8% Senior Notes due
2011
    
    
    1,000,000
    
    
    
    
    
    
    
    
    
    
    
    1,000,000Mortgages and other notes payable, net of current portion
    
    
    1,823
    
    
    
    40,171
    
    
    
    
    
    
    
    41,994Long-term deferred revenue, distribution and carriage payments and
other long-term
liabilities
    
    
    39,320
    
    
    
    115,695
    
    
    
    
    
    
    
    155,015Total long-term obligations, net of current portion
    
    
    3,996,143
    
    
    
    155,866
    
    
    
    
    
    
    
    4,152,009Total
liabilities
    
    
    6,138,195
    
    
    
    1,228,248
    
    
    
    
    
    
    
    7,366,443Stockholders Equity (Deficit):Common stock, $.01 par value, 1,000,000 shares
authorized, 1,015 shares issued and outstanding
    
    
    
    
    
    
    8
    
    
    
    (8
    )
    
    
    Additional paid-in
capital
    
    
    930,936
    
    
    
    1,793,436
    
    
    
    (1,793,436
    )
    
    
    930,936Non-cash, stock-based
compensation
    
    
    (1,180
    )
    
    
    (1,180
    )
    
    
    1,180
    
    
    
    (1,180
    )Accumulated other comprehensive income (loss)
    
    
    560
    
    
    
    
    
    
    
    
    
    
    
    560Accumulated earnings
(deficit)
    
    
    (2,002,580
    )
    
    
    36,152
    
    
    
    (36,152
    )
    
    
    (2,002,580
    )Total stockholders equity
(deficit)
    
    
    (1,072,264
    )
    
    
    1,828,416
    
    
    
    (1,828,416
    )
    
    
    (1,072,264
    )Total liabilities and stockholders equity (deficit)
    
    $
    5,065,931
    
    
    $
    3,056,664
    
    
    $
    (1,828,416
    )
    
    $
    6,294,179
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##### Table of Contents



ECHOSTAR DBS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued Consolidating Statements of Operations  Year Ended December 31, 2004. SubsidiaryGuarantorsEDBS - PC
    
    
    and Other
    
    
    C&E
    
    
    EDBS(In thousands)Revenue:Subscriber-related revenue
    
    $
    
    
    
    $
    7,201,986
    
    
    $
    (525,370
    )
    
    $
    6,676,616Equipment
sales
    
    
    
    
    
    
    369,251
    
    
    
    
    
    
    
    369,251Other
    
    
    
    
    
    
    97,161
    
    
    
    
    
    
    
    97,161Total
revenue
    
    
    
    
    
    
    7,668,398
    
    
    
    (525,370
    )
    
    
    7,143,028Costs and Expenses:Subscriber-related expenses
    
    
    
    
    
    
    4,105,561
    
    
    
    (524,681
    )
    
    
    3,580,880Satellite and transmission expenses
    
    
    
    
    
    
    107,587
    
    
    
    
    
    
    
    107,587Cost of sales - equipment
    
    
    
    
    
    
    305,991
    
    
    
    
    
    
    
    305,991Cost of sales - other
    
    
    
    
    
    
    30,991
    
    
    
    (689
    )
    
    
    30,302Cost of sales - subscriber promotion subsidies
    
    
    
    
    
    
    467,587
    
    
    
    
    
    
    
    467,587Other subscriber promotion subsidies
    
    
    
    
    
    
    925,195
    
    
    
    
    
    
    
    925,195Subscriber acquisition advertising
    
    
    
    
    
    
    139,061
    
    
    
    
    
    
    
    139,061General and administrative
    
    
    
    
    
    
    380,573
    
    
    
    
    
    
    
    380,573Non-cash, stock-based compensation
    
    
    
    
    
    
    1,180
    
    
    
    
    
    
    
    1,180Depreciation and amortization
    
    
    
    
    
    
    490,698
    
    
    
    
    
    
    
    490,698Total costs and expenses
    
    
    
    
    
    
    6,954,424
    
    
    
    (525,370
    )
    
    
    6,429,054Operating income (loss)
    
    
    
    
    
    
    713,974
    
    
    
    
    
    
    
    713,974Other income (expense):Interest
income
    
    
    30,509
    
    
    
    100
    
    
    
    
    
    
    
    30,609Interest expense, net of amounts capitalized
    
    
    (430,241
    )
    
    
    (3,123
    )
    
    
    
    
    
    
    (433,364
    )Equity in earnings (losses) of subsidiaries
    
    
    692,788
    
    
    
    
    
    
    
    (692,788
    )
    
    
    Other
    
    
    (350
    )
    
    
    (391
    )
    
    
    
    
    
    
    (741
    )Total other income (expense)
    
    
    292,706
    
    
    
    (3,414
    )
    
    
    (692,788
    )
    
    
    (403,496
    )Income (loss) before income taxes
    
    
    292,706
    
    
    
    710,560
    
    
    
    (692,788
    )
    
    
    310,478Income tax benefit (provision), net
    
    
    6,707
    
    
    
    (17,772
    )
    
    
    
    
    
    
    (11,065
    )Net income
(loss)
    
    $
    299,413
    
    
    $
    692,788
    
    
    $
    (692,788
    )
    
    $
    299,413
 F-43




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##### Table of Contents



ECHOSTAR DBS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued Consolidating Statements of Operations  Year Ended December 31, 2003. SubsidiaryGuarantorsEDBS - PC
    
    
    and Other
    
    
    C&E
    
    
    EDBS(In thousands)Revenue:Subscriber-related revenue
    
    $
    
    
    
    $
    5,697,938
    
    
    $
    (288,552
    )
    
    $
    5,409,386Equipment
sales
    
    
    
    
    
    
    291,776
    
    
    
    
    
    
    
    291,776Other
    
    
    
    
    
    
    30,560
    
    
    
    
    
    
    
    30,560Total
revenue
    
    
    
    
    
    
    6,020,274
    
    
    
    (288,552
    )
    
    
    5,731,722Costs and Expenses:Subscriber-related expenses
    
    
    
    
    
    
    3,011,540
    
    
    
    (288,411
    )
    
    
    2,723,129Satellite and transmission expenses
    
    
    
    
    
    
    74,309
    
    
    
    
    
    
    
    74,309Cost of sales - equipment
    
    
    
    
    
    
    193,886
    
    
    
    
    
    
    
    193,886Cost of sales - other
    
    
    
    
    
    
    198
    
    
    
    (141
    )
    
    
    57Cost of sales - subscriber promotion subsidies
    
    
    
    
    
    
    504,901
    
    
    
    
    
    
    
    504,901Other subscriber promotion subsidies
    
    
    
    
    
    
    628,929
    
    
    
    
    
    
    
    628,929Subscriber acquisition advertising
    
    
    
    
    
    
    176,964
    
    
    
    

    
    
    
    176,964General and administrative
    
    
    
    
    
    
    319,133
    
    
    
    
    
    
    
    319,133Non-cash, stock-based compensation
    
    
    
    
    
    
    3,544
    
    
    
    
    
    
    
    3,544Depreciation and amortization
    
    
    
    
    
    
    385,098
    
    
    
    
    
    
    
    385,098Total costs and expenses
    
    
    
    
    
    
    5,298,502
    
    
    
    (288,552
    )
    
    
    5,009,950Operating income (loss)
    
    
    
    
    
    
    721,772
    
    
    
    
    
    
    
    721,772Other income (expense):Interest
income
    
    
    18,638
    
    
    
    200
    
    
    
    
    
    
    
    18,838Interest expense, net of amounts capitalized
    
    
    (404,135
    )
    
    
    (2,895
    )
    
    
    
    
    
    
    (407,030
    )Equity in earnings (losses) of subsidiaries
    
    
    709,148
    
    
    
    
    
    
    
    (709,148
    )
    
    
    Other
    
    
    
    
    
    
    (466
    )
    
    
    
    
    
    
    (466
    )Total other income (expense)
    
    
    323,651
    
    
    
    (3,161
    )
    
    
    (709,148
    )
    
    
    (388,658
    )Income (loss) before income taxes
    
    
    323,651
    
    
    
    718,611
    
    
    
    (709,148
    )
    
    
    333,114Income tax benefit (provision), net
    
    
    (4,070
    )
    
    
    (9,463
    )
    
    
    
    
    
    
    (13,533
    )Net income
(loss)
    
    $
    319,581
    
    
    $
    709,148
    
    
    $
    (709,148
    )
    
    $
    319,581
 F-44




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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. SubsidiaryGuarantorsEDBS - PC
    
    
    and Other
    
    
    C&E
    
    
    EDBS(In thousands)Revenue:Subscriber-related revenue
    
    $
    
    
    
    $
    4,660,996
    
    
    $
    (237,626
    )
    
    $
    4,423,370Equipment
sales
    
    
    
    
    
    
    345,938
    
    
    
    
    
    
    
    345,938Other
    
    
    
    
    
    
    34,329
    
    
    
    
    
    
    
    34,329Total
revenue
    
    
    
    
    
    
    5,041,263
    
    
    
    (237,626
    )
    
    
    4,803,637Costs and Expenses:Subscriber-related expenses
    
    
    
    
    
    
    2,453,564
    
    
    
    (237,267
    )
    
    
    2,216,297Satellite and transmission expenses
    
    
    
    
    
    
    56,656
    
    
    
    
    
    
    
    56,656Cost of sales - equipment
    
    
    
    
    
    
    227,095
    
    
    
    
    
    
    
    227,095Cost of sales - other
    
    
    
    
    
    
    943
    
    
    
    (359
    )
    
    
    584Cost of sales - subscriber promotion subsidies
    
    
    
    
    
    
    445,448
    
    
    
    
    
    
    
    445,448Other subscriber promotion subsidies
    
    
    
    
    
    
    574,750
    
    
    
    
    
    
    
    574,750Subscriber acquisition advertising
    
    
    
    
    
    
    152,773
    
    
    
    
    
    
    
    152,773General and administrative
    
    
    147
    
    
    
    300,240
    
    
    
    
    
    
    
    300,387Non-cash, stock-based compensation
    
    
    
    
    
    
    11,279
    
    
    
    
    
    
    
    11,279Depreciation and amortization
    
    
    
    
    
    
    355,754
    
    
    
    
    
    
    
    355,754Total costs and expenses
    
    
    147
    
    
    
    4,578,502
    
    
    
    (237,626
    )
    
    
    4,341,023Operating income (loss)
    
    
    (147
    )
    
    
    462,761
    
    
    
    
    
    
    
    462,614Other income (expense):Interest
income
    
    
    9,849
    
    
    
    152
    
    
    
    
    
    
    
    10,001Interest expense, net of amounts capitalized
    
    
    (336,998
    )
    
    
    (1,885
    )
    
    
    
    
    
    
    (338,883
    )Equity in earnings (losses) of subsidiaries
    
    
    439,980
    
    
    
    
    
    
    
    (439,980
    )
    
    
    Other
    
    
    (1,827
    )
    
    
    (4,073
    )
    
    
    
    
    
    
    (5,900
    )Total other income (expense)
    
    
    111,004
    
    
    
    (5,806
    )
    
    
    (439,980
    )
    
    
    (334,782
    )Income (loss) before income taxes
    
    
    110,857
    
    
    
    456,955
    
    
    
    (439,980
    )
    
    
    127,832Income tax benefit (provision), net
    
    
    (63,966
    )
    
    
    (16,975
    )
    
    
    
    
    
    
    (80,941
    )Net income
(loss)
    
    $
    46,891
    
    
    $
    439,980
    
    
    $
    (439,980
    )
    
    $
    46,891
 F-45




---



##### Table of Contents



ECHOSTAR DBS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued Consolidating Statements of Cash Flows  Year Ended December 31, 2004. SubsidiaryGuarantorsEDBS - PC
    
    
    and Other
    
    
    C&E
    
    
    EDBS(In thousands)Cash Flows From Operating Activities:Net income
(loss)
    
    $
    299,413
    
    
    $
    692,788
    
    
    $
    (692,788
    )
    
    $
    299,413Adjustments to reconcile net income (loss) to net cash flows from operating activities:Depreciation and
amortization
    
    
    
    
    
    
    490,698
    
    
    
    
    
    
    
    490,698Equity in losses (earnings) of affiliates
    
    
    (692,788
    )
    
    
    
    
    
    
    692,788
    
    
    
    Non-cash, stock-based compensation recognized
    
    
    
    
    
    
    1,180
    
    
    
    
    
    
    
    1,180Deferred tax expense
(benefit)
    
    
    (113
    )
    
    
    4,903
    
    
    
    
    
    
    
    4,790Amortization of debt discount and deferred financing costs
    
    
    19,387
    
    
    
    24
    
    
    
    
    
    
    
    19,411Change in noncurrent
assets
    
    
    
    
    
    
    (114,888
    )
    
    
    
    
    
    
    (114,888
    )Change in long-term deferred revenue, distribution and carriage
payments and other long-term liabilities
    
    
    2,935
    
    
    
    106,587
    
    
    
    
    
    
    
    109,522Other,
net
    
    
    
    
    
    
    710
    
    
    
    
    
    
    
    710Changes in current assets and current liabilities:Trade accounts receivable,
net
    
    
    (951
    )
    
    
    (121,823
    )
    
    
    
    
    
    
    (122,774
    )Inventories
    
    
    
    
    
    
    (70,768
    )
    
    
    
    
    
    
    (70,768
    )Other current
assets
    
    
    
    
    
    
    (62,795
    )
    
    
    
    
    
    
    (62,795
    )Trade accounts
payable
    
    
    (22,864
    )
    
    
    100,302
    
    
    
    
    
    
    
    77,438Deferred revenue and
other
    
    
    
    
    
    
    211,656
    
    
    
    
    
    
    
    211,656Accrued programming and other accrued expenses
    
    
    (76,026
    )
    
    
    253,274
    
    
    
    
    
    
    
    177,248Net cash flows from operating activities
    
    
    (471,007
    )
    
    
    1,491,848
    
    
    
    
    
    
    
    1,020,841Cash Flows From Investing Activities:Purchases of marketable investment securities
    
    
    (1,524,017
    )
    
    
    
    
    
    
    
    
    
    
    (1,524,017
    )Sales of marketable investment securities
    
    
    3,237,054
    
    
    
    
    
    
    
    
    
    
    
    3,237,054Purchases of property and equipment
    
    
    
    
    
    
    (892,572
    )
    
    
    
    
    
    
    (892,572
    )Change in cash reserved for satellite insurance
    
    
    176,843
    
    
    
    
    
    
    
    
    
    
    
    176,843Change in restricted cash and marketable investment securities
    
    
    
    
    
    
    20
    
    
    
    
    
    
    
    20Asset
acquisition
    
    
    
    
    
    
    (238,610
    )
    
    
    
    
    
    
    (238,610
    )FCC auction
deposits
    
    
    
    
    
    
    (6,100
    )
    
    
    
    
    
    
    (6,100
    )Other
    
    
    
    
    
    
    91
    
    
    
    
    
    
    
    91Net cash flows from investing activities
    
    
    1,889,880
    
    
    
    (1,137,171
    )
    
    
    
    
    
    
    752,709Cash Flows From Financing Activities:Proceeds from issuance of 6 5/8% Senior Notes due 2014
    
    
    1,000,000
    
    
    
    
    
    
    
    
    
    
    
    1,000,000Non-interest bearing advances from (to) affiliates
    
    
    75,885
    
    
    
    (364,885
    )
    
    
    
    
    
    
    (289,000
    )Redemption of 10 3/8% Senior Notes due 2007
    
    
    (1,000,000
    )
    
    
    
    
    
    
    
    
    
    
    (1,000,000
    )Repurchase of 9 1/8% Senior Notes due 2009
    
    
    (8,847
    )
    
    
    
    
    
    
    
    
    
    
    (8,847
    )Redemption of 9 3/8% Senior Notes due 2009
    
    
    (1,423,351
    )
    
    
    
    
    
    
    
    
    
    
    (1,423,351
    )Deferred debt issuance
costs
    
    
    (3,159
    )
    
    
    
    
    
    
    
    
    
    
    (3,159
    )Dividend to
ECC
    
    
    (500,000
    )
    
    
    
    
    
    
    
    
    
    
    (500,000
    )Repayment of mortgages and other notes payable
    
    
    (2,864
    )
    
    
    (2,512
    )
    
    
    
    
    
    
    (5,376
    )Net cash flows from financing activities
    
    
    (1,862,336
    )
    
    
    (367,397
    )
    
    
    
    
    
    
    (2,229,733
    )Net increase (decrease) in cash and cash equivalents
    
    
    (443,463
    )
    
    
    (12,720
    )
    
    
    
    
    
    
    (456,183
    )Cash and cash equivalents, beginning of period
    
    
    952,657
    
    
    
    15,506
    
    
    
    
    
    
    
    968,163Cash and cash equivalents, end of period
    
    $
    509,194
    
    
    $
    2,786
    
    
    $
    
    
    
    $
    511,980
 F-46




---



##### Table of Contents



ECHOSTAR DBS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued Consolidating Statements of Cash Flows  Year Ended December 31, 2003. SubsidiaryGuarantorsEDBS - PC
    
    
    and Other
    
    
    C&E
    
    
    EDBS(In thousands)Cash Flows From Operating Activities:Net income
(loss)
    
    $
    319,581
    
    
    $
    709,148
    
    
    $
    (709,148
    )
    
    $
    319,581Adjustments to reconcile net income (loss) to net cash flows from operating activities:Depreciation and
amortization
    
    
    
    
    
    
    385,098
    
    
    
    
    
    
    
    385,098Equity in losses (earnings) of affiliates
    
    
    (709,148
    )
    
    
    
    
    
    
    709,148
    
    
    
    Non-cash, stock-based compensation recognized
    
    
    
    
    
    
    3,544
    
    
    
    
    
    
    
    3,544Deferred tax expense
(benefit)
    
    
    (36,481
    )
    
    
    39,326
    
    
    
    
    
    
    
    2,845Amortization of debt discount and deferred financing costs
    
    
    12,553
    
    
    
    3
    
    
    
    
    
    
    
    12,556Change in noncurrent
assets
    
    
    
    
    
    
    (49,678
    )
    
    
    
    
    
    
    (49,678
    )Change in long-term deferred revenue, distribution and carriage
payments and other long-term liabilities
    
    
    
    
    
    
    11,434
    
    
    
    
    
    
    
    11,434Other,
net
    
    
    
    
    
    
    1,918
    
    
    
    
    
    
    
    1,918Changes in current assets and current liabilities:Trade accounts receivable,
net
    
    
    
    
    
    
    (16,424
    )
    
    
    
    
    
    
    (16,424
    )Inventories
    
    
    
    
    
    
    17,675
    
    
    
    
    
    
    
    17,675Other current
assets
    
    
    
    
    
    
    (9,139
    )
    
    
    
    
    
    
    (9,139
    )Trade accounts
payable
    
    
    7,716
    
    
    
    (81,725
    )
    
    
    
    
    
    
    (74,009
    )Deferred revenue and
other
    
    
    
    
    
    
    73,368
    
    
    
    
    
    
    
    73,368Accrued programming and other accrued expenses
    
    
    6,086
    
    
    
    (7,989
    )
    
    
    
    
    
    
    (1,903
    )Net cash flows from operating activities
    
    
    (399,693
    )
    
    
    1,076,559
    
    
    
    
    
    
    
    676,866Cash Flows From Investing Activities:Purchases of marketable investment securities
    
    
    (3,911,404
    )
    
    
    
    
    
    
    
    
    
    
    (3,911,404
    )Sales of marketable investment securities
    
    
    2,258,969
    
    
    
    
    
    
    
    
    
    
    
    2,258,969Purchases of property and equipment
    
    
    
    
    
    
    (229,930
    )
    
    
    
    
    
    
    (229,930
    )Change in cash reserved for satellite insurance
    
    
    (25,471
    )
    
    
    
    
    
    
    
    
    
    
    (25,471
    )Change in restricted cash and marketable investment secutities
    
    
    
    
    
    
    (10
    )
    
    
    
    
    
    
    (10
    )Other
    
    
    (1
    )
    
    
    454
    
    
    
    
    
    
    
    453Net cash flows from investing activities
    
    
    (1,677,907
    )
    
    
    (229,486
    )
    
    
    
    
    
    
    (1,907,393
    )Cash Flows From Financing Activities:Non-interest bearing advances from (to) affiliates
    
    
    834,435
    
    
    
    (834,435
    )
    
    
    
    
    
    
    Proceeds from issuance of Floating Rate Senior Notes due 2008
    
    
    500,000
    
    
    
    
    
    
    
    
    
    
    
    500,000Proceeds from issuance of 5 3/4% Senior Notes due 2008
    
    
    1,000,000
    
    
    
    
    
    
    
    
    
    
    
    1,000,000Proceeds from issuance of 6 3/8% Senior Notes due 2011
    
    
    1,000,000
    
    
    
    
    
    
    
    
    
    
    
    1,000,000Redemption of 9 1/4% Senior Notes due 2006
    
    
    (375,000
    )
    
    
    
    
    
    
    
    
    
    
    (375,000
    )Partial redemption of 9 1/8% Senior Notes due 2009
    
    
    (245,000
    )
    
    
    
    
    
    
    
    
    
    
    (245,000
    )Repurchase of 9 3/8% Senior Notes due 2009
    
    
    (201,649
    )
    
    
    
    
    
    
    
    
    
    
    (201,649
    )Deferred debt issuance
costs
    
    
    (12,500
    )
    
    
    
    
    
    
    
    
    
    
    (12,500
    )Capital contribution from
ECC
    
    
    267,356
    
    
    
    
    
    
    
    
    
    
    
    267,356Repayment of mortgages and other notes payable
    
    
    
    
    
    
    (2,209
    )
    
    
    
    
    
    
    (2,209
    )Other
    
    
    2,831
    
    
    
    (2,831
    )
    
    
    
    
    
    
    Net cash flows from financing activities
    
    
    2,770,473
    
    
    
    (839,475
    )
    
    
    
    
    
    
    1,930,998Net increase (decrease) in cash and cash equivalents
    
    
    692,873
    
    
    
    7,598
    
    
    
    
    
    
    
    700,471Cash and cash equivalents, beginning of period
    
    
    259,784
    
    
    
    7,908
    
    
    
    
    
    
    
    267,692Cash and cash equivalents, end of period
    
    $
    952,657
    
    
    $
    15,506
    
    
    $
    
    
    
    $
    968,163
 F-47




---



##### Table of Contents



ECHOSTAR DBS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued Consolidating Statements of Cash Flows  Year Ended December 31, 2002. SubsidiaryGuarantorsEDBS - PC
    
    
    and Other
    
    
    C&E
    
    
    EDBS(In thousands)Cash Flows From Operating Activities:Net income
(loss)
    
    $
    46,891
    
    
    $
    439,980
    
    
    $
    (439,980
    )
    
    $
    46,891Adjustments to reconcile net income (loss) to net cash flows from operating activities:Depreciation and
amortization
    
    
    
    
    
    
    355,754
    
    
    
    
    
    
    
    355,754Equity in losses (earnings) of affiliates
    
    
    (439,980
    )
    
    
    
    
    
    
    439,980
    
    
    
    Realized and unrealized losses (gains) on investments
    
    
    2,039
    
    
    
    
    
    
    
    
    
    
    
    2,039Non-cash, stock-based compensation recognized
    
    
    
    
    
    
    11,279
    
    
    
    
    
    
    
    11,279Deferred tax expense
(benefit)
    
    
    32,499
    
    
    
    40,640
    
    
    
    
    
    
    
    73,139Amortization of debt discount and deferred financing costs
    
    
    6,172
    
    
    
    4
    
    
    
    
    
    
    
    6,176Change in long-term deferred revenue, distribution and carriage
payments and other long-term liabilities
    
    
    
    
    
    
    (20,924
    )
    
    
    
    
    
    
    (20,924
    )Other,
net
    
    
    (41,991
    )
    
    
    44,514
    
    
    
    
    
    
    
    2,523Changes in current assets and current liabilities:Trade accounts receivable,
net
    
    
    
    
    
    
    (12,075
    )
    
    
    
    
    
    
    (12,075
    )Inventories
    
    
    
    
    
    
    69,306
    
    
    
    
    
    
    
    69,306Other current
assets
    
    
    (21
    )
    
    
    534
    
    
    
    
    
    
    
    513Trade accounts
payable
    
    
    15,273
    
    
    
    35,538
    
    
    
    
    
    
    
    50,811Deferred revenue and
other
    
    
    
    
    
    
    83,775
    
    
    
    
    
    
    
    83,775Accrued programming and other accrued expenses
    
    
    128,391
    
    
    
    15,248
    
    
    
    
    
    
    
    143,639Net cash flows from operating activities
    
    
    (250,727
    )
    
    
    1,063,573
    
    
    
    
    
    
    
    812,846Cash Flows From Investing Activities:Purchases of marketable investment securities
    
    
    (1,329,043
    )
    
    
    
    
    
    
    
    
    
    
    (1,329,043
    )Sales of marketable investment securities
    
    
    1,141,401
    
    
    
    
    
    
    
    
    
    
    
    1,141,401Purchases of property and equipment
    
    
    
    
    
    
    (349,795
    )
    
    
    
    
    
    
    (349,795
    )Change in cash reserved for satellite insurance
    
    
    (29,294
    )
    
    
    
    
    
    
    
    
    
    
    (29,294
    )Change in restricted cash and marketable investment secutities
    
    
    (10
    )
    
    
    
    
    
    
    
    
    
    
    (10
    )Incentive payments under in-orbit satellite contract - Echo VI
    
    
    
    
    
    
    (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 (to) affiliates
    
    
    692,419
    
    
    
    (692,477
    )
    
    
    
    
    
    
    (58
    )Repayment of mortgages and other notes payable
    
    
    
    
    
    
    (3,419
    )
    
    
    
    
    
    
    (3,419
    )Other
    
    
    (1,215
    )
    
    
    
    
    
    
    
    
    
    
    (1,215
    )Net cash flows from financing activities
    
    
    691,204
    
    
    
    (695,896
    )
    
    
    
    
    
    
    (4,692
    )Net increase (decrease) in cash and cash equivalents
    
    
    223,531
    
    
    
    5,109
    
    
    
    
    
    
    
    228,640Cash and cash equivalents, beginning of period
    
    
    36,253
    
    
    
    2,799
    
    
    
    
    
    
    
    39,052Cash and cash equivalents, end of period
    
    $
    259,784
    
    
    $
    7,908
    
    
    $
    
    
    
    $
    267,692
 F-48




---



##### Table of Contents



ECHOSTAR DBS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued 10. Segment Reporting Financial Data by Business Unit Statement of Financial Accounting Standards No. 131, Disclosures About Segments of an Enterprise
and Related Information (SFAS 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 we currently operate as two business units. The All Other
column consists of revenue from other satellite services and expenses from other operating segments
for which the disclosure requirements of SFAS 131 do not apply. EchoStar
    
    
    
    
    
    
    
    
    
    
    ECC
    
    
    Other
    
    
    EDBSDISH
    
    
    Technologies
    
    
    All
    
    
    
    
    
    
    Consolidated
    
    
    EchoStar
    
    
    AndNetwork
    
    
    Corporation
    
    
    Other
    
    
    Eliminations
    
    
    Total
    
    
    Activities (1)
    
    
    SubsidiariesYear Ended December 31, 2002Total revenue
    
    $
    4,544,550
    
    
    $
    169,674
    
    
    $
    113,445
    
    
    $
    (6,844
    )
    
    $
    4,820,825
    
    
    $
    (17,188
    )
    
    $
    4,803,637Depreciation and amortization
    
    
    328,495
    
    
    
    7,114
    
    
    
    37,349
    
    
    
    
    
    
    
    372,958
    
    
    
    (17,204
    )
    
    
    355,754Total costs and expenses
    
    
    4,158,324
    
    
    
    136,387
    
    
    
    81,440
    
    
    
    (6,844
    )
    
    
    4,369,307
    
    
    
    (28,284
    )
    
    
    4,341,023Interest income
    
    
    111,593
    
    
    
    
    
    
    
    1,334
    
    
    
    
    
    
    
    112,927
    
    
    
    (102,926
    )
    
    
    10,001Interest expense, net of amounts capitalized
    
    
    (482,512
    )
    
    
    (188
    )
    
    
    (203
    )
    
    
    
    
    
    
    (482,903
    )
    
    
    144,020
    
    
    
    (338,883
    )Income tax benefit (provision), net
    
    
    (75,253
    )
    
    
    4,233
    
    
    
    (2,078
    )
    
    
    
    
    
    
    (73,098
    )
    
    
    (7,843
    )
    
    
    (80,941
    )Net income
(loss)
    
    
    (916,607
    )
    
    
    37,440
    
    
    
    27,133
    
    
    
    
    
    
    
    (852,034
    )
    
    
    898,925
    
    
    
    46,891Year Ended December 31, 2003Total revenue
    
    $
    5,518,183
    
    
    $
    131,684
    
    
    $
    97,983
    
    
    $
    (8,554
    )
    
    $
    5,739,296
    
    
    $
    (7,574
    )
    
    $
    5,731,722Depreciation and amortization
    
    
    347,331
    
    
    
    6,717
    
    
    
    44,158
    
    
    
    
    
    
    
    398,206
    
    
    
    (13,108
    )
    
    
    385,098Total costs and expenses
    
    
    4,852,543
    
    
    
    115,012
    
    
    
    72,747
    
    
    
    (8,554
    )
    
    
    5,031,748
    
    
    
    (21,798
    )
    
    
    5,009,950Interest income
    
    
    64,750
    
    
    
    
    
    
    
    308
    
    
    
    
    
    
    
    65,058
    
    
    
    (46,220
    )
    
    
    18,838Interest expense, net of amounts capitalized
    
    
    (551,768
    )
    
    
    (161
    )
    
    
    (561
    )
    
    
    
    
    
    
    (552,490
    )
    
    
    145,460
    
    
    
    (407,030
    )Income tax benefit (provision), net
    
    
    (12,604
    )
    
    
    (1,085
    )
    
    
    (687
    )
    
    
    
    
    
    
    (14,376
    )
    
    
    843
    
    
    
    (13,533
    )Net income
(loss)
    
    
    182,809
    
    
    
    15,445
    
    
    
    26,252
    
    
    
    
    
    
    
    224,506
    
    
    
    95,075
    
    
    
    319,581Year Ended December 31, 2004Total revenue
    
    $
    6,926,528
    
    
    $
    125,881
    
    
    $
    107,675
    
    
    $
    (8,868
    )
    
    $
    7,151,216
    
    
    $
    (8,188
    )
    
    $
    7,143,028Depreciation and amortization
    
    
    446,822
    
    
    
    6,718
    
    
    
    49,361
    
    
    
    
    
    
    
    502,901
    
    
    
    (12,203
    )
    
    
    490,698Total costs and expenses
    
    
    6,222,175
    
    
    
    154,147
    
    
    
    80,457
    
    
    
    (8,868
    )
    
    
    6,447,911
    
    
    
    (18,857
    )
    
    
    6,429,054Interest income
    
    
    41,717
    
    
    
    
    
    
    
    570
    
    
    
    
    
    
    
    42,287
    
    
    
    (11,678
    )
    
    
    30,609Interest expense, net of amounts capitalized
    
    
    (504,612
    )
    
    
    (133
    )
    
    
    (987
    )
    
    
    
    
    
    
    (505,732
    )
    
    
    72,368
    
    
    
    (433,364
    )Income tax benefit (provision), net
    
    
    (11,464
    )
    
    
    (385
    )
    
    
    240
    
    
    
    
    
    
    
    (11,609
    )
    
    
    544
    
    
    
    (11,065
    )Net income
(loss)
    
    
    215,582
    
    
    
    (28,767
    )
    
    
    27,954
    
    
    
    
    
    
    
    214,769
    
    
    
    84,644
    
    
    
    299,413
   (1)
    
    Other EchoStar Activities represents the activity of affiliates consolidated in
ECCs consolidated financial statements but not included in our consolidated financial statements. F-49




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##### Table of Contents



ECHOSTAR DBS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued Geographic Information and Transactions with Major Customers United States
    
    
    Europe
    
    
    Total(In thousands)Long-lived assets, including FCC authorizations2003
    
    $
    2,458,896
    
    
    $
    2,857
    
    
    $
    2,461,7532004
    
    $
    3,373,389
    
    
    $
    2,872
    
    
    $
    3,376,261Revenue2002
    
    $
    4,742,187
    
    
    $
    61,450
    
    
    $
    4,803,6372003
    
    $
    5,679,619
    
    
    $
    52,103
    
    
    $
    5,731,7222004
    
    $
    7,096,480
    
    
    $
    46,548
    
    
    $
    7,143,028
 Revenues are attributed to geographic regions based upon the location from where the sale
originated. United States revenue includes transactions with both United States and International
customers. Europe revenue includes transactions with customers in Europe, Africa and the Middle
East. Revenues from these customers are included within the All Other operating segment. During the years ended December 31, 2004, 2003 and 2002, United States revenue included export
sales to one international customer which totaled $125.3 million, $127.6 million and $169.1
million, respectively. These international sales accounted for approximately 1.8%, 2.2% and 3.5%
of our total revenue during each of the years ended December 31, 2004, 2003 and 2002, respectively.
Revenues from these customers are included within the EchoStar Technologies Corporation operating
segment. 11. Valuation and Qualifying Accounts Our valuation and qualifying accounts as of December 31, 2002, 2003 and 2004 are as follows: Balance at
    
    
    Charged toBeginning of
    
    
    Costs and
    
    
    
    
    
    
    Balance atYear
    
    
    Expenses
    
    
    Deductions
    
    
    End of Year(In thousands)Year ended December 31, 2002:Assets:Allowance for doubtful
accounts
    
    $
    8,848
    
    
    $
    52,871
    
    
    $
    (52,443
    )
    
    $
    9,276Reserve for inventory
    
    
    13,187
    
    
    
    7,341
    
    
    
    (10,887
    )
    
    
    9,641Year ended December 31, 2003:Assets:Allowance for doubtful
accounts
    
    $
    9,276
    
    
    $
    61,303
    
    
    $
    (62,427
    )
    
    $
    8,152Reserve for inventory
    
    
    9,641
    
    
    
    1,584
    
    
    
    (4,461
    )
    
    
    6,764Year ended December 31, 2004:Assets:Allowance for doubtful
accounts
    
    $
    8,152
    
    
    $
    65,708
    
    
    $
    (65,431
    )
    
    $
    8,429Reserve for inventory
    
    
    6,764
    
    
    
    8,266
    
    
    $
    (4,809
    )
    
    
    10,221
 F-50




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##### Table of Contents



ECHOSTAR DBS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued 12. Quarterly Financial Data (Unaudited) Our quarterly results of operations are summarized as follows: For the Three Months EndedMarch 31
    
    
    June 30
    
    
    September 30
    
    
    December 31(In thousands, except per share data)(Unaudited)Year ended December 31, 2003:Total revenue
    
    $
    1,356,602
    
    
    $
    1,412,735
    
    
    $
    1,450,465
    
    
    $
    1,511,920Operating income
    
    
    181,395
    
    
    
    224,864
    
    
    
    163,803
    
    
    
    151,710Net income (loss)
    
    
    75,438
    
    
    
    142,431
    
    
    
    56,534
    
    
    
    45,178Year ended December 31, 2004:Total revenue
    
    $
    1,577,533
    
    
    $
    1,776,042
    
    
    $
    1,860,355
    
    
    $
    1,929,098Operating income
    
    
    125,583
    
    
    
    186,628
    
    
    
    197,805
    
    
    
    203,958Net income (loss)
    
    
    (24,983
    )
    
    
    111,558
    
    
    
    123,569
    
    
    
    89,269
 13. Related Party Transactions On December 14, 2004, EchoStar paid a one-time cash dividend of $1.00 per share, or approximately
$455.7 million, on outstanding shares of its Class A and Class B common stock. On December 13,
2004, we paid a dividend of approximately $500.0 million to EchoStar to fund the payment of this
dividend and other potential EchoStar cash needs. During 2003, we recorded a $289.0 million payable to our affiliate, EOC II, related to our
purchase of the EchoStar IX satellite. We repaid this amount during 2004. EchoStar owns 50% of NagraStar L.L.C. (NagraStar), a joint venture that is our exclusive provider
of security access devices. Nagra USA, a subsidiary of the Kudelski Group, owns the other 50% of
NagraStar. NagraStar purchases these security access devices from NagraCard SA, a Swiss company
which is also a subsidiary of the Kudelski Group. Because EchoStar is not required to consolidate
NagraStar, but it does have the ability to significantly influence its operating policies, EchoStar
accounted for its investment in NagraStar under the equity method of accounting for all periods
presented. During the years ended December 31, 2004, 2003 and 2002, we purchased from NagraStar
approximately $123.8 million, $68.4 million and $56.2 million, respectively, for security access
devices. As of December 31, 2004 and 2003, amounts payable to NagraStar totaled $22.7 million and
$7.7 million, respectively. As of December 31, 2004, we were committed to purchase approximately
$92.5 million of security access devices from NagraStar. Approximately $22.8 million of these
commitments had been accrued for as of December 31, 2004 on our consolidated balance sheets. We purchase certain programming content from Satellite Communications Operating Corporation
(SCOC), a wholly-owned subsidiary of ECC, and our affiliate. During the years ended December 31,
2004, 2003 and 2002, we paid SCOC approximately $13.2 million, $15.6 million and $17.5 million,
respectively, for programming services. As of December 31, 2004 and 2003, there were no amounts
payable to SCOC. We lease transponders and provide certain other services to Transponder Encryption Services
Corporation (TESC), a wholly-owned subsidiary of ECC, and our affiliate. During the years ended
December 31, 2004, 2003 and 2002, we recognized approximately $114.9 million, $89.8 million and
$83.6 million, respectively, of revenues from TESC for leasing and other services. As of December
31, 2004 and 2003, amounts payable to TESC were $40.5 million and $25.4 million, respectively. F-51




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##### Table of Contents



ECHOSTAR DBS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued 14. Subsequent Events Cablevision Satellite Acquisition On January 20, 2005, we agreed to purchase certain satellite assets from Rainbow DBS Co., a
subsidiary of Cablevision Systems Corporation for $200.0 million. Specifically, we have agreed to
purchase Rainbow 1, a direct broadcast satellite located at 61.5 degrees West Longitude, together
with the rights to 11 DBS frequencies at that location. The satellite includes 13 transponders, up
to 12 of which can be operated in spot beam mode. Also, as part of this transaction, we will
acquire ground facilities and related assets in Black Hawk, S.D. The transaction is subject to
customary conditions including regulatory approval by the FCC. There can be no assurance that such
approval will be obtained. Settlement of EchoStar IV Arbitration On March 4, 2005, EchoStar agreed to settle its insurance claim and related claims for accrued
interest and bad faith with all carriers who agree to pay their proportionate share of an aggregate
net amount of $240.0 million. We retained title to and use of the EchoStar IV satellite. Payment
from each settling carrier is due on or before April 26, 2005, with interest commencing to accrue
on April 12, 2005. EchoStar has received signed agreements back from all insurers. Amounts payable to us in excess of our previously recorded $106.0 million receivable will be
recognized in income during the period in which the respective insurers sign the settlement
agreement. See Note 8 for more information relating to the underlying insurance claim and our
historical accounting for that claim. F-52




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##### Table of Contents



Index to Exhibits Exhibit No.
    
    Description3.1(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)*
    
    Certificate of Amendment of the Articles of Incorporation of EchoStar DBS
Corporation, dated as of August 25, 2003 (incorporated by reference to Exhibit
3.1(b) to the Annual Report on Form 10-K of EDBS for the year ended December 31,
2003, Commission File No.333-31929).3.1(c)*
    
    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 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, Commission File No.0-26176).4.2*
    
    Indenture, relating to the 9 1/8% Senior Notes Due 2009, dated as of December 28,
2001 between EDBS 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
EchoStar for the year ended December 31, 2001, Commission File No. 0-26176).4.3*
    
    Registration Rights Agreement, relating to the 9 1/8% Senior Notes Due 2009,
dated as of December 28, 2001, by and among EDBS 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 EchoStar for the year ended December 31, 2001, Commission File No.
0-26176).4.4*
    
    Indenture, relating to EDBS 5 3/4% Senior Notes due 2008, dated as of October 2,
2003, between EDBS and U.S. Bank Trust National Association, as Trustee
(incorporated by reference to Exhibit 4.1 to the Quarterly Report on Form 10-Q of
EchoStar for the quarter ended September 30, 2003, Commission File No.0-26176).




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##### Table of Contents



Exhibit No.
    
    Description4.5*
    
    Indenture, relating to EDBS 6 3/8% Senior Notes due 2011, dated as of October 2,
2003, between EDBS and U.S. Bank Trust National Association, as Trustee
(incorporated by reference to Exhibit 4.2 to the Quarterly Report on Form 10-Q of
EchoStar for the quarter ended September 30, 2003, Commission File No.0-26176).4.6*
    
    Indenture, relating to EDBS Floating Senior Notes due 2008, dated as of October
2, 2003, between EDBS and U.S. Bank Trust National Association, as Trustee
(incorporated by reference to Exhibit 4.3 to the Quarterly Report on Form 10-Q of
EchoStar for the quarter ended September 30, 2003, Commission File No.0-26176).4.7*
    
    Registration Rights Agreement dated as of October 2, 2003 among EDBS and the
other parties named herein (incorporated by reference to Exhibit 4.4 to the
Quarterly Report on Form 10-Q of EchoStar for the quarter ended September 30,
2003, Commission File No.0-26176).4.8*
    
    First Supplemental Indenture, relating to the 9 1/8% Senior Notes Due 2009, dated
as of December 31, 2003 between EDBS and U.S. Bank Trust National Association, as
Trustee (incorporated by reference to Exhibit 4.12 to the Annual Report on Form
10-K of EchoStar for the year ended December 31, 2003, Commission File
No.0-26176).4.9*
    
    First Supplemental Indenture, relating to the 5 3/4% Senior Notes Due 2008, dated
as of December 31, 2003 between EDBS and U.S. Bank Trust National Association, as
Trustee (incorporated by reference to Exhibit 4.13 to the Annual Report on Form
10-K of EchoStar for the year ended December 31, 2003, Commission File
No.0-26176).4.10*
    
    First Supplemental Indenture, relating to the 6 3/8% Senior Notes Due 2011, dated
as of December 31, 2003 between EDBS and U.S. Bank Trust National Association, as
Trustee (incorporated by reference to Exhibit 4.14 to the Annual Report on Form
10-K of EchoStar for the year ended December 31, 2003, Commission File
No.0-26176).4.11*
    
    First Supplemental Indenture, relating to the Floating Rate Senior Notes Due
2008, dated as of December 31, 2003 between EDBS and U.S. Bank Trust National
Association, as Trustee (incorporated by reference to Exhibit 4.15 to the Annual
Report on Form 10-K of EchoStar for the year ended December 31, 2003, Commission
File No.0-26176).4.12*
    
    First Supplemental Indenture, relating to the 10 3/8% Senior Notes Due 2007,
dated as of December 31, 2003 between EDBS and U.S. Bank Trust National
Association, as Trustee (incorporated by reference to Exhibit 4.16 to the Annual
Report on Form 10-K of EchoStar for the year ended December 31, 2003, Commission
File No.0-26176).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 Ltd.,
Registration No. 33-81234).10.2*
    
    Manufacturing Agreement, dated as of March 22, 1995, between HTS and SCI
Technology, Inc. (incorporated by reference to Exhibit 10.12 to the Registration
Statement on Form S-1 of Dish Ltd., Commission File No. 33-81234).10.3*
    
    EchoStar 1995 Stock Incentive Plan (incorporated by reference to Exhibit 10.16 to
the Registration Statement on Form S-1 of EchoStar, Registration No. 33-91276).
**10.4*
    
    Echostar 1999 Stock Incentive Plan (incorporated by reference to Exhibit C to
EchoStars Definitive Proxy Statement on Schedule 14A dated March 23, 1999).**10.5*
    
    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).**




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##### Table of Contents



Exhibit No.
    
    Description10.6*
    
    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
EchoStar for the year ended December 31, 1996, as amended, Commission File No.
0-26176).10.7*
    
    Agreement to Form NagraStar L.L.C., dated as of June 23, 1998, by and between
Kudelski S.A., EchoStar and ESC (incorporated by reference to Exhibit 10.28 to
the Annual Report on Form 10-K of EchoStar for the year ended December 31, 1998,
Commission File No. 0-26176).10.8*
    
    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). ***10.9*
    
    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).10.10*
    
    Satellite Service Agreement, dated as of March 21, 2003, between SES Americom,
Inc., EchoStar Satellite Corporation and EchoStar Communications Corporation
(incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q
of EchoStar for the quarter ended March 31, 2003, Commission File No.0-26176).10.11*
    
    Amendment No. 1 to Satellite Service Agreement dated March 31, 2003 between SES
Americom Inc. and EchoStar (incorporated by reference to Exhibit 10.1 to the
Quarterly Report on Form 10-Q of EchoStar for the quarter ended September 30,
2003, Commission File No.0-26176).10.12*
    
    Satellite Service Agreement dated as of August 13, 2003 between SES Americom Inc.
and EchoStar (incorporated by reference to Exhibit 10.2 to the Quarterly Report
on Form 10-Q of EchoStar for the quarter ended September 30, 2003, Commission
File No.0-26176).10.13*
    
    Satellite Service Agreement, dated February 19, 2004, between SES Americom, Inc.
and EchoStar (incorporated by reference to Exhibit 10.1 to the Quarterly Report
on Form 10-Q of EchoStar for the quarter ended March 31, 2004, Commission File
No.0-26176).10.14*
    
    Amendment No. 1 to Satellite Service Agreement, dated March 10, 2004, between SES
Americom, Inc. and EchoStar (incorporated by reference to Exhibit 10.2 to the
Quarterly Report on Form 10-Q of EchoStar for the quarter ended March 31, 2004,
Commission File No.0-26176).10.15*
    
    Amendment No. 3 to Satellite Service Agreement, dated February 19, 2004, between
SES Americom, Inc. and EchoStar (incorporated by reference to Exhibit 10.3 to the
Quarterly Report on Form 10-Q of EchoStar for the quarter ended March 31, 2004,
Commission File No.0-26176).10.16*
    
    Whole RF Channel Service Agreement, dated February 4, 2004, between Telesat
Canada and EchoStar (incorporated by reference to Exhibit 10.4 to the Quarterly
Report on Form 10-Q of EchoStar for the quarter ended March 31, 2004, Commission
File No.0-26176).10.17*
    
    Letter Amendment to Whole RF Channel Service Agreement, dated March 25, 2004,
between Telesat Canada and EchoStar (incorporated by reference to Exhibit 10.5 to
the Quarterly Report on Form 10-Q of EchoStar for the quarter ended March 31,
2004, Commission File No.0-26176).10.18*
    
    Amendment No. 2 to Satellite Service Agreement, dated April 30, 2004, between SES
Americom, Inc. and EchoStar (incorporated by reference to Exhibit 10.1 to the
Quarterly Report on Form 10-Q of EchoStar for the quarter ended June 30, 2004,
Commission File No.0-26176).




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##### Table of Contents



Exhibit No.
    
    Description10.19*
    
    Second Amendment to Whole RF Channel Service Agreement, dated May 5, 2004,
between Telesat Canada and Echostar (incorporated by reference to Exhibit 10.2 to
the Quarterly Report on Form 10-Q of EchoStar for the quarter ended June 30,
2004, Commission File No.0-26176).10.20*
    
    Third Amendment to Whole RF Channel Service Agreement, dated October 12, 2004,
between Telesat Canada and Echostar (incorporated by reference to Exhibit 10.22
to the Annual Report on Form 10-K of EchoStar for the year ended December 31,
2004, Commission File No.0-26176). ***10.21*
    
    Amendment No. 4 to Satellite Service Agreement, dated October 21, 2004, between
SES Americom, Inc. and EchoStar (incorporated by reference to Exhibit 10.23 to
the Annual Report on Form 10-K of EchoStar for the year ended December 31, 2004,
Commission File No.0-26176). ***10.22*
    
    Amendment No. 3 to Satellite Service Agreement, dated November 19, 2004 between
SES Americom, Inc. and EchoStar (incorporated by reference to Exhibit 10.24 to
the Annual Report on Form 10-K of EchoStar for the year ended December 31, 2004,
Commission File No.0-26176). ***10.23*
    
    Amendment No. 5 to Satellite Service Agreement, dated November 19, 2004, between
SES Americom, Inc. and EchoStar (incorporated by reference to Exhibit 10.25 to
the Annual Report on Form 10-K of EchoStar for the year ended December 31, 2004,
Commission File No.0-26176). ***10.24*
    
    Amendment No. 6 to Satellite Service Agreement, dated December 20, 2004, between
SES Americom, Inc. and EchoStar (incorporated by reference to Exhibit 10.26 to
the Annual Report on Form 10-K of EchoStar for the year ended December 31, 2004,
Commission File No.0-26176). ***31.1H
    
    Section 302 Certification by Chairman and Chief Executive Officer.31.2H
    
    Section 302 Certification by Executive Vice President and Chief Financial Officer.32.1H
    
    Section 906 Certification by Chairman and Chief Executive Officer.32.2H
    
    Section 906 Certification by Executive Vice President and Chief Financial Officer.
   H
    
    Filed herewith.*
    
    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.