UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

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

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2008.

OR

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

FOR THE TRANSITION PERIOD FROM                      TO                     .

Commission File Number: 001-33807

EchoStar Corporation

(Exact name of registrant as specified in its charter)

Nevada		26-1232727
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
90 Inverness Circle E.
Englewood, Colorado		80112
(Address of principal executive offices)		(Zip code)

(303) 706-4000
(Registrant’s telephone number, including area code)

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

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

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

Large accelerated filer o		Accelerated filer o		Non-accelerated filer þ		Smaller reporting company o
				(Do not check if a smaller reporting company)

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

As of May 1, 2008, the registrant’s outstanding common stock consisted of 42,065,985 shares of Class A common stock and 47,687,039 shares of Class B common stock.

 

 

TABLE OF CONTENTS

PART I — FINANCIAL INFORMATION
Disclosure Regarding Forward-Looking Statements			i
Item 1. Financial Statements
Condensed Consolidated Balance Sheets - March 31, 2008 and December 31, 2007 (Unaudited)			1
Condensed Consolidated Statements of Operations For the Three Months Ended March 31, 2008 and 2007 (Unaudited)			2
Condensed Consolidated Statements of Cash Flows For the Three Months Ended March 31, 2008 and 2007 (Unaudited)			3
Notes to Condensed Consolidated Financial Statements (Unaudited)			4
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			36
Item 3. Quantitative and Qualitative Disclosures about Market Risk			45
Item 4. Controls and Procedures			47
PART II — OTHER INFORMATION
Item 1. Legal Proceedings			47
Item 1A. Risk Factors			51
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			52
Item 3. Defaults Upon Senior Securities		None
Item 4. Submission of Matters to a Vote of Security Holders		None
Item 5. Other Information		None
Item 6. Exhibits			52
Signatures			54
Pricing Agreement
Section 302 Certification by Chairman and CEO
Section 302 Certification by Executive Vice President and CFO
Section 906 Certification by Chairman and CEO
Section 906 Certification by Executive Vice President and CFO

PART I — FINANCIAL INFORMATION

DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

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

	•		We may not realize the potential benefits that we expect from our separation (“Spin-off”) from DISH Network. Certain of these benefits depend upon market acceptance of our separation from DISH Network which we cannot predict and which may be affected by significant cross-ownership by our Chairman and Chief Executive Officer as well as interlocks between management and the board of directors of us and DISH Network.
	•		We will incur significant costs as a newly independent company, which may exceed our estimates. There will also be negative effects arising from our separation from DISH Network, including loss of access to its financial resources.
	•		We currently depend on DISH Network for substantially all of our revenue, and the loss of, or a significant reduction in orders from, or a decrease in selling prices of set-top boxes, transponder leasing, digital broadcast operations and/or other services to DISH Network would significantly reduce our revenue and adversely impact our operating results. In addition, a second customer, Bell ExpressVu, accounts for a majority of our revenue that is not from DISH Network.
	•		We currently have substantial unused satellite capacity. Future costs associated with this excess capacity will negatively impact our margins if we do not generate revenue to offset these costs. In addition, because a substantial portion of the capacity of each of our AMC-15, AMC-16 and EchoStar IX satellites remains without long-term anticipated use by DISH Network, there is a significant risk that in the future, in addition to reporting lower than expected revenues and profitability, we could be required to record a substantial impairment charge relating to one or more of these satellites. We currently estimate that these potential charges could aggregate up to $250 million, which, if incurred would have a material adverse effect on our reported operating results and financial position.
	•		We are suspending construction of the CMBStar satellite and may record an impairment charge. During April 2008, we notified the State Administration of Radio, Film and Television of China that we were suspending construction of the CMBStar satellite pending, among other things, further analysis relating to efforts to meet the satellite performance criteria and/or confirmation that alternative performance criteria would be acceptable. We are also currently evaluating potential alternative uses for the CMBStar satellite. Therefore, we could be required to record an impairment charge relating to the CMBStar satellite. We currently estimate that this potential charge could be as much as $100 million, which would have a material adverse effect on our results of operations and financial position.
	•		Our 2007 combined financial information included in this report is not indicative of our future financial position, future results of operations or future cash flows, nor does it necessarily reflect what our financial position, results of operations or cash flows would have been as a separate company during the periods prior to the Spin-off that are presented in this report. We were not profitable during the three months ended March 31, 2007, as our operations have historically been dedicated primarily to support DISH Network and we provided our products and services to DISH Network at cost.
	•		We may face actual or perceived conflicts of interest with DISH Network in a number of areas relating to our past, ongoing and future relationships, including (i) cross-officerships, directorships and stock ownership, (ii) intercompany transactions, (iii) intercompany agreements, and (iv) business opportunities.
	•		Our ability to increase our income or to generate additional revenues will depend in part on our ability to grow our business. This may require significant additional capital that may not be available on terms that would be attractive to us or at all. In particular, current dislocations in the credit markets, which have significantly impacted the availability and pricing of financing, particularly in the high yield debt and leveraged credit markets, may significantly constrain our ability to obtain financing to support our growth initiatives. These developments in the credit markets may have a significant effect on our cost of financing and our liquidity position and may, as a result, cause us to defer or abandon profitable business strategies that we would otherwise pursue if financing were available on acceptable terms.

	•		We may also use a significant portion of our existing cash and marketable securities to fund stock buyback programs. Our board of directors has approved a program in which we may repurchase up to $1.0 billion of our Class A common stock during 2008. There can be no assurance however, that we will repurchase any of our common stock, which will depend on our management’s and Board of Directors’ views of the relative benefits of alternative uses of our capital.
	•		If DISH Network enters into a business combination transaction, or if Mr. Ergen no longer controls a majority of the voting power of DISH Network or of us, our relationship with DISH Network could be terminated or substantially curtailed with little or no advance notice. Any material reduction in our sales due to a change in control of DISH Network would have a significant material adverse effect on our business and financial position.
	•		Our future success may depend on our ability to identify and successfully exploit opportunities to acquire other businesses or technologies to complement, enhance or expand our current business or products or otherwise offer us growth opportunities. We may not be able to pursue these growth opportunities successfully.
	•		We have entered into certain strategic transactions and investments, and we may increase our strategic investment activity in the United States and in international markets. These investments, which we believe could become substantial over time, involve a high degree of risk, are concentrated in a few companies and could expose us to significant financial losses if the underlying ventures are not successful. These investment opportunities may also cause us to defer or suspend share repurchases.
	•		Our business relies on intellectual property, some of which is owned by third parties, the patents and proprietary rights of which we may inadvertently infringe. We may be required to cease developing or marketing infringing products, to obtain licenses from the holders of the intellectual property at a material cost, or to redesign those products in such a way as to avoid infringing the patent claims of others.
	•		We depend on sales of set-top boxes for the majority of our revenue, and if sales of our set-top boxes decline, our business and financial position will suffer.
	•		Our commercial success in selling our set-top boxes to cable operators and other providers of digital television depends significantly on our ability to obtain licenses to use the conditional access systems deployed by these operators in our set-top boxes. The owners of these conditional access systems are in many cases competitors of ours. There can be no assurance we will be able to obtain such licenses on acceptable terms or at all.
	•		In order to grow our set-top box revenue and business and to build a large customer base, we believe we will be required to increase our sales of set-top boxes in international markets. We have limited experience selling our set-top boxes internationally. To succeed in expanding these sales efforts, we believe we must hire additional sales personnel and develop and manage new relationships with cable operators and other providers of digital television in international markets.
	•		The future growth of our satellite and transponder leasing, digital broadcast operations, facility rental, professional services and related businesses, will depend on a number of factors, including: the level of market acceptance and demand for these services, our ability to introduce new services that meet market demand, our ability to develop relationships with and make sales of these services to cable operators and other providers of digital television that are competitors of our former parent, DISH Network, our ability to maintain the health, capacity and control of our existing satellite network, the effectiveness of our competitors in developing and offering similar services and products and our ability to hire additional sales personnel to development and manage new customer relationships.
	•		Our set-top boxes are extremely complex and can have defects in design, manufacture or associated software. We could incur significant expenses, lost revenue, and reputational harm if we fail to detect or effectively address such issues through design, testing or warranty repairs.
	•		We obtain many components for our set-top boxes from a single supplier or a limited group of suppliers. Our reliance on a single or limited group of suppliers, particularly foreign suppliers, and our increasing reliance on subcontractors, involves several risks. These risks include a potential inability to obtain an adequate supply of required components, and reduced control over pricing, quality, and timely delivery of these components.

	•		Future demand for our set-top boxes will depend significantly on the growing market acceptance of high definition television, or HDTV. The effective delivery of HDTV will depend on digital television operators developing and building infrastructure to provide wide-spread HDTV programming.
	•		If we are unsuccessful in subsequent appeals in the Tivo case or in defending against claims that our alternate technology infringes Tivo’s patent, we could be prohibited from distributing DVRs or be required to modify or eliminate certain user-friendly DVR features that we currently offer to consumers. The adverse affect on our business could be material. We could also have to pay substantial damages.
	•		The fixed satellite services industry is highly competitive and is characterized by long-term leases and high switching costs. It will be difficult to displace customers from their current relationships with our competitors and we may face competition from others in the future.
	•		Satellites are subject to significant operational risks while in orbit. While we believe that our satellite fleet is generally in good condition, certain satellites in our fleet have experienced malfunctions or anomalies, some of which have had a significant adverse impact on their commercial operation. There can be no assurance that we can recover critical transmission capacity in the event one or more of our in-orbit satellites were to fail. Therefore, the loss of a satellite or other satellite malfunctions or anomalies could have a material adverse effect on us.
	•		We are subject to comprehensive governmental regulation by the FCC for our domestic satellite operations. We are also regulated by other federal agencies, state and local authorities and the International Telecommunication Union. Domestic and international regulations regarding the licensing, authorization and operations of satellite communications providers may restrict our fixed satellite services operations.
	•		We do not anticipate carrying insurance for any of the in-orbit satellites that we will own, and we will bear the risk of any failures in our in-orbit satellites. Because we bear this risk, failures in our in-orbit satellites could have a material adverse effect on our reported operating results and financial position.
	•		We may face other risks described from time to time in periodic and current reports we file with the Securities and Exchange Commission (“SEC”).

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

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

Item 1. FINANCIAL STATEMENTS

ECHOSTAR CORPORATION

(Dollars in thousands, except share amounts)

(Unaudited)

		As of
		March 31,				December 31,
		2008				2007
Assets
Current Assets:
Cash and cash equivalents		$	665,059			$	41,082
Marketable investment securities			677,527				491,185
Trade accounts receivable — DISH Network			478,299				—
Trade accounts receivable — Other, net of allowance for uncollectible accounts of $43 and $51, respectively			58,353				34,154
Insurance receivable			40,750				—
Inventories, net			36,417				21,043
Other current assets			30,831				23,290
Total current assets			1,987,236				610,754
Restricted cash and marketable investment securities			3,150				—
Property and equipment, net of accumulated depreciation of $1,272,805 and $32,857, respectively			1,494,993				213,837
FCC authorizations			165,994				42,873
Intangible assets, net			206,220				71,646
Goodwill			247,856				248,428
Non-marketable investment securities			114,097				59,160
Other noncurrent assets, net			45,080				14,212
Total assets		$	4,264,626			$	1,260,910
Liabilities and Stockholders’ Equity (Deficit)
Current Liabilities:
Trade accounts payable — DISH Network		$	280,735			$	—
Trade accounts payable — Other			127,231				22,786
Deferred revenue and other — DISH Network			6,306				—
Deferred revenue and other			2,174				4,055
Accrued expenses and other			80,845				22,191
Current portion of capital lease obligations, mortgages and other notes payable			52,220				1,365
Total current liabilities			549,511				50,397
Long-term obligations, net of current portion:
Capital lease obligations, mortgages and other notes payable, net of current portion			334,679				2,344
Deferred tax liabilities			133,593				651
Other long-term liabilities			839				—
Total long-term obligations, net of current portion			469,111				2,995
Total liabilities			1,018,622				53,392
Commitments and Contingencies (Note 10)
Stockholders’ Equity (Deficit):
Preferred Stock, $.001 par value, 20,000,000 shares authorized, none issued and outstanding			—				—
Class A common stock, $.001 par value, 1,600,000,000 shares authorized, 42,062,197 shares and no shares issued and outstanding, respectively			42				—
Class B common stock, $.001 par value, 800,000,000 shares authorized, 47,687,039 shares and no shares issued and outstanding, respectively			48				—
Class C common stock, $.001 par value, 800,000,000 shares authorized, none issued and outstanding			—				—
Class D common stock, $.001 par value, 800,000,000 shares authorized, none issued and outstanding			—				—
Additional paid-in capital			3,232,260				—
Accumulated other comprehensive income (loss)			7,953				66,696
Accumulated earnings (deficit)			5,701				—
Owner’s net investment			—				1,140,822
Total stockholders’ equity (deficit)			3,246,004				1,207,518
Total liabilities and stockholders’ equity (deficit)		$	4,264,626			$	1,260,910

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

ECHOSTAR CORPORATION

(Dollars in thousands, except per share amounts)

(Unaudited)

		For the Three Months
		Ended March 31,
		2008				2007
Revenue:
Equipment sales — DISH Network		$	371,694			$	398,840
Equipment sales — other			74,822				45,108
FSS, digital broadcast operations and other services — DISH Network			92,470				—
FSS and other services — other			15,585				3,815
Total revenue			554,571				447,763
Costs and Expenses:
Cost of sales — equipment			382,425				427,699
FSS, digital broadcast operations and other cost of sales			52,516				3,334
Research and development expense			13,666				14,121
Selling, general and administrative expenses			24,979				19,086
General and administrative expenses — DISH Network			6,354				—
Depreciation and amortization (Note 11)			60,970				1,495
Total costs and expenses			540,910				465,735
Operating income (loss)			13,661				(17,972	)
Other Income (Expense):
Interest income			21,369				374
Interest expense			(8,283	)			(267	)
Casualty loss expense (Note 6)			(12,799	)			—
Other			(3,285	)			(164	)
Total other income (expense)			(2,998	)			(57	)
Income (loss) before income taxes			10,663				(18,029	)
Income tax (provision) benefit, net (Note 9)			(4,962	)			(475	)
Net income (loss)		$	5,701			$	(18,504	)
Denominator for basic and diluted net income (loss) per share — Class A and B common stock:
Denominator for basic net income (loss) per share — weighted-average common shares outstanding			89,727				89,712
Denominator for diluted net income (loss) per share — weighted-average common shares outstanding			91,313				89,712
Net income (loss) per share — Class A and B common stock:
Basic net income (loss)		$	0.06			$	(0.21	)
Diluted net income (loss)		$	0.06			$	(0.21	)

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

ECHOSTAR CORPORATION

(In thousands)

(Unaudited)

		For the Three Months
		Ended March 31,
		2008				2007
Cash Flows From Operating Activities:
Net income (loss)		$	5,701			$	(18,504	)
Adjustments to reconcile net income (loss) to net cash flows from operating activities:
Depreciation and amortization			60,970				1,495
Equity in losses (earnings) of affiliates			1,580				164
Realized and unrealized losses (gains) on investments			1,043				(1,471	)
Non-cash, stock-based compensation recognized			5,470				1,007
Deferred tax expense (benefit)			(10,567	)			160
Other, net			12,630				196
Change in noncurrent assets			(9,654)				70
Changes in current assets and current liabilities, net			(74,817	)			11,821
Net cash flows from operating activities			(7,644)				(5,062	)
Cash Flows From Investing Activities:
Purchases of marketable investment securities			(129,235	)			—
Sales and maturities of marketable investment securities			239,233				23,417
Purchases of property and equipment			(61,777	)			(52,719	)
Purchase of strategic investments included in noncurrent assets and other			(57,174	)			(40,000	)
Other			(505	)			(242	)
Net cash flows from investing activities			(9,458	)			(69,544	)
Cash Flows From Financing Activities:
Repayment of capital lease obligations, mortgages and other notes payable			(9,466	)			—
Contribution of cash and cash equivalents from DISH Network in connection with the Spin-off (Note 1)			649,784				—
Changes in advances from owner			—				77,062
Net proceeds from Class A common stock options exercised and Class A common stock issued under the Employee Stock Purchase Plan			761				—
Net cash flows from financing activities			641,079				77,062
Net increase (decrease) in cash and cash equivalents			623,977				2,456
Cash and cash equivalents, beginning of period			41,082				29,621
Cash and cash equivalents, end of period		$	665,059			$	32,077
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest		$	8,027			$	17
Cash received for interest		$	4,025			$	446
Cash paid for income taxes		$	50			$	5
Vendor financing		$	13,946			$	—
Net assets contributed in connection with the Spin-off		$	2,085,747			$	—

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

ECHOSTAR CORPORATION

1. Organization and Business Activities

Principal Business

The spin-off by DISH Network Corporation (“DISH Network”) of technology and infrastructure assets to EchoStar Corporation (“EchoStar,” the “Company,” “we,” and/or “us”) was completed on January 1, 2008 through a distribution of 100% of the common stock of EchoStar to the holders of record of DISH Network’s common stock (the “Spin-off”). The Spin-off was made pursuant to a separation agreement by which DISH Network contributed to EchoStar the subsidiaries and assets that operated its set-top box business, fixed satellite services, digital broadcast operations, certain real estate and other assets and liabilities. The Company has received a private letter ruling from the Internal Revenue Service and an opinion from tax counsel indicating that the Spin-off was tax free to the stockholders of DISH Network and EchoStar.

The EchoStar business consists of the following segments:

	•		Equipment sales and digital broadcast operations — Equipment sales include the sales of set-top boxes and related components including Slingboxes to DISH Network and international customers. Digital broadcast operations include satellite uplinking/downlinking, transmission services, signal processing, conditional access management, telemetry, tracking and control, and other services provided primarily to DISH Network.
	•		Fixed Satellite Services (“FSS”) — FSS consists of fixed satellite services provided primarily to DISH Network, and secondarily to other customers.

The table below summarizes the assets and liabilities which were contributed to us in connection with the Spin-off in addition to the assets included in our historical financial statements. The contribution was accounted for at DISH Network’s historical cost given the nature of the distribution.

ECHOSTAR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)

		January 1, 2008
		(In thousands)
Assets
Current Assets:
Cash and cash equivalents		$	649,784
Marketable investment securities			350,216
Trade accounts receivable, net			3,900
Inventories, net			9,957
Other current assets			9,061
Total current assets			1,022,918
Restricted cash and marketable investment securities			3,150
Property and equipment, net			1,302,767
FCC authorizations			123,121
Intangible assets, net			142,898
Other noncurrent assets, net			20,335
Total assets		$	2,615,189
Liabilities
Current Liabilities:
Deferred revenue and other accrued expenses		$	11,586
Current portion of capital lease obligations, mortgages and other notes payable			39,168
Total current liabilities			50,754
Long-term obligations, net of current portion:
Capital lease obligations, mortgages and other notes payable, net of current portion			339,542
Deferred tax liabilities			139,146
Total long-term obligations, net of current portion			478,688
Total liabilities			529,442
Net assets contributed		$	2,085,747

2. Significant Accounting Policies

Basis of Presentation

The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and with the instructions to Form 10-Q and Article 10 of Regulation S-X for interim financial information. Accordingly, these statements do not include all of the information and notes required for complete financial statements. In our opinion, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Certain prior year amounts have been reclassified to conform to the current year presentation. For further information, refer to the Consolidated Financial Statements and notes thereto included in our Annual Report on Form 10-K/A for the year ended December 31,2007
(“2007 10-K/A”).

The unaudited Condensed Consolidated Financial Statements in this quarterly report for the periods presented prior to the Spin-off are presented on a combined basis and principally represent the digital set-top box business and other net assets transferred to us as part of the Spin-off. The assets and liabilities presented have been reflected on a historical basis, as prior to the Spin-off such assets and liabilities were 100% owned by DISH Network. Our historical combined financial statements do not include the satellites, digital broadcast operations assets, certain real estate and other assets and related liabilities that were contributed to us by DISH Network in the Spin-off. Also, the combined financial statements for the periods presented prior to the Spin-off do not include all of the actual expenses that would have been incurred had EchoStar been a stand-alone entity during the periods presented and do not reflect EchoStar’s combined results of operations, financial position and cash flows had we been a stand-alone company during the periods presented. The results of operations and the cash flows for any interim period are not necessarily indicative of the results that may be expected for a fiscal year or any other future period.

ECHOSTAR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)

Principles of Consolidation

We consolidate all majority owned subsidiaries and investments in entities in which we have controlling influence. Non-majority owned investments are accounted for using the equity method when we have the ability to significantly influence the operating decisions of the issuer. When we do not have the ability to significantly influence the operating decisions of an issuer, the cost method is used. For entities that are considered variable interest entities we apply the provisions of Financial Accounting Standards Board (“FASB”) Interpretation No. 46R, “Consolidation of Variable Interest Entities — An Interpretation of ARB No. 51” (“FIN 46R”). All significant intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates

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

Comprehensive Income (Loss)

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

		For the Three Months
		Ended March 31,
		2008				2007
		(In thousands)
Net income (loss)		$	5,701			$	(18,504	)
Foreign currency translation adjustments			(1,200	)			(132	)
Unrealized holding gains (losses) on available-for-sale securities			(41,337	)			2,097
Recognition of previously unrealized (gains) losses on available-for-sale securities included in net income (loss)			(974	)			—
Deferred income tax (expense) benefit attributable to unrealized holding gains (losses) on available-for-sale securities			16,573				—
Comprehensive income (loss)		$	(21,237	)		$	(16,539	)

ECHOSTAR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)

“Accumulated other comprehensive income (loss)” presented on the accompanying Condensed Consolidated Balance Sheets consists of the accumulated net unrealized gains (losses) on available-for-sale securities and foreign currency translation adjustments, net of deferred taxes.

		Accumulated Other
		Comprehensive Income
		(In thousands)
Balance, December 31, 2007		$	66,696
Accumulated other comprehensive income adjustments in connection with the Spin-off			(32,779	)
Foreign currency translation			(1,200	)
Change in unrealized holding gains (losses) on available-for-sale securities, net			(41,337	)
Deferred income tax (expense) benefit attributable to unrealized holding gains (losses) on available-for-sale securities			16,573
Balance, March 31, 2008		$	7,953

Basic and Diluted Income (Loss) Per Share

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

The number of shares presented for the three months ended March 31, 2008 represents the actual weighted-average number of shares outstanding for the period. Prior to January 1, 2008, there were no shares of EchoStar common stock outstanding. Accordingly for all periods prior to the completion of the Spin-off on January 1, 2008, basic and diluted earnings per share are computed using EchoStar’s shares outstanding as of January 1, 2008. The potential dilution from stock options exercisable into common stock was computed using the treasury stock method based on the average market value of our Class A common stock. The following table reflects the basic and diluted weighted-average shares outstanding used to calculate basic and diluted earnings per share. Earnings per share amounts for all periods are presented below in accordance with the requirements of SFAS 128.

		For the Three Months
		Ended March 31,
		2008				2007
		(In thousands)
Numerator:
Numerator for basic net income (loss) per share — Net income (loss)		$	5,701			$	(18,504	)
Denominator:
Denominator for basic net income (loss) per common share — weighted-average common shares outstanding			89,727				89,712
Dilutive impact of options outstanding			1,586				—
Denominator for diluted net income (loss) per share — weighted-average diluted common shares outstanding			91,313				89,712
Net income (loss) per share — Class A and B common stock:
Basic net income (loss)		$	0.06			$	(0.21	)
Diluted net income (loss)		$	0.06			$	(0.21	)

As of March 31, 2008, there were options to purchase 0.4 million shares of Class A common stock outstanding not included in the above denominator as their effect is antidilutive.

Vesting of options and rights to acquire shares of our Class A common stock granted pursuant to our long-term incentive plans is contingent upon meeting certain long-term goals which have not yet been achieved. As a consequence, the following are not included in the diluted EPS calculation:

ECHOSTAR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)

		For the Three
		Months Ended
		March 31, 2008
		(In thousands)
Performance based options			1,938
Restricted performance units			118
Total			2,056

Fair Value Measurements

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

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

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

		Fair Value
		As of
		March 31, 2008				Level 1				Level 2				Level 3
Assets:
Marketable investment securities		$	677,527			$	665,042			$	12,485			$	—
Other investment securities			50,343				—				—				50,343
Total assets at fair value		$	727,870			$	665,042			$	12,485			$	50,343

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

										Net
						Net				realized/unrealized
						realized/unrealized				gains/(losses)
						gains/(losses)				included in Other				Purchases,
		Balance at				included in				comprehensive				issuances and				Balance at
		January 1, 2008				earnings				income				settlements				March 31, 2008
Assets
Other investment securities		$	—			$	—			$	—			$	50,343			$	50,343
Total assets at fair value		$	—			$	—			$	—			$	50,343			$	50,343

ECHOSTAR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)

New Accounting Pronouncements

Revised Business Combinations

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

Noncontrolling Interests in Consolidated Financial Statements

In December 2007, the FASB issued Statement of Financial Accounting Standards No. 160, “Noncontrolling Interests in Consolidated Financial Statements” (“SFAS 160”). SFAS 160 establishes accounting and reporting standards for ownership interests in subsidiaries held by parties other than the parent, the amount of consolidated net income attributable to the parent and to the noncontrolling interest, changes in a parent’s ownership interest and the valuation of retained noncontrolling equity investments when a subsidiary is deconsolidated. SFAS 160 also establishes reporting requirements to clearly identify and distinguish between the interests of the parent and the interests of the noncontrolling owners. This standard is effective for fiscal years beginning after December 15, 2008. We are currently evaluating the impact the adoption of SFAS 160 will have on our financial position and results of operations.

3. Stock-Based Compensation

Stock Incentive Plans

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

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

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

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

We maintain stock incentive plans to attract and retain officers, directors and key employees. Awards under these plans include both performance and non-performance based equity incentives. As of March 31, 2008, we had outstanding under our plans options to acquire 6.4 million shares of our Class A common stock and 0.3 million restricted stock awards. In general, stock options granted through March 31, 2008 were granted with exercise prices equal to or greater than the market value of our Class A common stock at the date of grant and with a maximum term of ten years. Historically, our options have been subject to vesting, typically at the rate of 20% to 25% per year,

ECHOSTAR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)

however, some options have been granted with immediate vesting. As of March 31, 2008, we had 9.5 million shares of our Class A common stock available for future grant under our stock incentive plans.

As of March 31, 2008, the following EchoStar stock incentive awards were outstanding:

		As of
		March 31, 2008
						EchoStar
		EchoStar Stock				Restricted
Stock Awards Outstanding		Options				Stock Units
Held by EchoStar employees			2,943,768				237,006
Held by DISH Network employees			3,475,665				101,047
Total			6,419,433				338,053

In addition, as of March 31, 2008 the following outstanding DISH Network stock incentive awards were held by our employees:

		As of
		March 31, 2008
						DISH
						Network
		DISH Network				Restricted
Stock Awards Outstanding		Stock Options				Stock Units
Held by EchoStar employees			5,776,239				1,178,332

We are responsible for fulfilling all stock incentive awards related to EchoStar common stock and DISH Network is responsible for fulfilling all stock incentive awards related to DISH Network common stock regardless of whether such stock incentive awards are held by our or DISH Network’s employees. Notwithstanding the foregoing, based on the requirements of SFAS 123R, our non-cash, stock-based compensation expense, resulting from awards outstanding at the Spin-off date, is based on the stock incentive awards held by our employees regardless of whether such awards were issued by EchoStar or DISH Network. Accordingly, non-cash, stock-based compensation that we expense with respect to DISH Network stock incentive awards is included in “Additional paid-in capital” on our Condensed Consolidated Balance Sheet.

ECHOSTAR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)

Stock Award Activity

Our stock option activity (including performance and non-performance based options) for the three months ended March 31, 2008 was as follows:

		For the Three Months
		Ended March 31, 2008
						Weighted-
						Average
		Options				Exercise Price
Total options outstanding, beginning of period			4,182,755			$	22.96
Granted			2,386,000				29.54
Exercised			(25,333	)			22.43
Forfeited and Cancelled			(123,989)				29.88
Total options outstanding, end of period			6,419,433				25.27
Performance based options outstanding, end of period *			1,938,150				16.69
Exercisable at end of period			1,273,201				29.10

We realized less than $1 million of tax benefits from stock options exercised during the three month ended March 31, 2008. Based on the closing market price of our Class A common stock on March 31, 2008, the aggregate intrinsic value of our outstanding stock options was $35 million. Of that amount, options with an aggregate intrinsic value of $6 million were exercisable at the end of the period.

Our restricted stock award activity (including performance and non-performance based options) for the three months ended March 31, 2008 was as follows:

		For the Three Months
		Ended March 31, 2008
						Weighted-
		Restricted				Average
		Stock				Grant Date
		Awards *				Fair Value
Total restricted stock awards outstanding, beginning of period			343,386			$	29.69
Granted			—				—
Exercised			—				—
Forfeited and Cancelled			(5,333	)			35.90
Total restricted stock awards outstanding, end of period			338,053				29.59
Restricted performance units outstanding, end of period *			118,053				26.33

ECHOSTAR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)

Long-Term Performance-Based Plans

We have two long-term, performance-based stock incentive plans, the 1999 LTIP and the 2005 LTIP. The 1999 LTIP provided stock options to key employees which vest over five years at the rate of 20% per year. Exercise of the options is also contingent on achieving a company specific goal in relation to an industry-related metric prior to December 31, 2008. The 2005 LTIP provides stock options and restricted performance units, either alone or in combination, which vest over seven years at the rate of 10% per year during the first four years, and at the rate of 20% per year thereafter. Exercise of the options is also subject to a performance condition that a company-specific goal is achieved prior to March 31, 2015.

Contingent compensation related to the 1999 LTIP and the 2005 LTIP will not be recorded in our financial statements unless and until the achievement of the performance condition is probable. The competitive nature of the pay TV business and certain other factors can significantly impact achievement of the goal. Consequently, while it was determined that achievement of either of the goals was not probable as of March 31, 2008, that assessment could change with respect to either goal at any time. In accordance with SFAS 123R, if all of the awards under each plan were vested and each goal had been met during the three months ended March 31, 2008, we would have recorded total non-cash, stock-based compensation expense for our employees as follows:

		For the Three Months
		Ended March 31, 2008
Total Contingent Compensation		1999 LTIP				2005 LTIP
DISH Network awards held by EchoStar employees		$	10,356			$	17,947
EchoStar awards held by EchoStar employees			2,103				3,644
Total		$	12,459			$	21,591

If the goals are met and there are unvested options at that time, the vested amounts would be expensed immediately in our Condensed Consolidated Statements of Operations, with the unvested portion recognized ratably over the remaining vesting period. During the three months ended March 31, 2008, if we had determined each goal was probable, we would have recorded total non-cash, stock-based compensation expense for our employees as follows:

		For the Three Months
		Ended March 31, 2008
Contingent Compensation
Vested Portion at March 31, 2008		1999 LTIP				2005 LTIP
DISH Network awards held by EchoStar employees		$	10,356			$	4,962
EchoStar awards held by EchoStar employees			2,103				1,008
Total		$	12,459			$	5,970

Of the 6.4 million options outstanding under our stock incentive plans as of March 31, 2008, the following options were outstanding pursuant to the 1999 LTIP and the 2005 LTIP:

		As of
		March 31, 2008
						Weighted-
						Average
			Stock			Exercise
Long-Term Performance-Based Plans		Options				Price
1999 LTIP			1,038,800			$	8.96
2005 LTIP			905,350			$	25.60

Further, pursuant to the 2005 LTIP, there were also 118,053 outstanding restricted performance units as of March 31, 2008 with a weighted-average grant date fair value of $26.33. No awards were granted under the 1999 LTIP or 2005 LTIP during the three months ended March 31, 2008.

ECHOSTAR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)

Stock-Based Compensation

Total non-cash, stock-based compensation expense, net of related tax effects, for all of our employees is shown in the following table for the three months ended March 31, 2008 and 2007 and was allocated to the same expense categories as the base compensation for such employees:

		For the Three Months
		Ended March 31,
		2008				2007
		(In thousands)
FSS, digital broadcast operations and other cost of sales		$	127			$	—
Research and development			1,195				268
Selling, general and administrative expenses			3,233				362
Total non-cash, stock based compensation		$	4,555			$	630

As of March 31, 2008, our total unrecognized compensation cost related to our non-performance based unvested stock options was $60 million and includes compensation expense that we will recognize for DISH Network stock options held by our employees as a result of the Spin-off. This cost is based on an estimated future forfeiture rate of approximately 6.5% per year and will be recognized over a weighted-average period of approximately three years. Share-based compensation expense is recognized based on awards ultimately expected to vest and is reduced for estimated forfeitures. SFAS 123R requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Changes in the estimated forfeiture rate can have a significant effect on share-based compensation expense since the effect of adjusting the rate is recognized in the period the forfeiture estimate is changed.

The fair value of each award for the three months ended March 31, 2008 was estimated at the date of the grant using a Black-Scholes option pricing model with the following assumptions:

Risk-free interest rate			2.74	%
Volatility factor			19.98	%
Expected term of options in years			6.1
Weighted-average fair value of options granted		$	7.85

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

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

ECHOSTAR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)

4. Inventories

Inventories consist of the following:

		As of
		March 31,				December 31,
		2008				2007
		(In thousands)
Finished goods		$	17,210			$	16,969
Raw materials			11,981				4,042
Work-in-process			7,479				205
Subtotal			36,670				21,216
Inventory allowance			(253	)			(173	)
Inventories, net		$	36,417			$	21,043

5. Investment Securities

Marketable Investment Securities

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

When an impairment occurs related to a foreign investment, any “Cumulative translation adjustment” associated with the investment remains in “Accumulated other comprehensive income (loss)” within “Total stockholders’ equity (deficit)” on our Condensed Consolidated Balance Sheets until the investment is sold or otherwise liquidated; at which time, it will be released into our Condensed Consolidated Statement of Operations.

As of March 31, 2008 and December 31, 2007, the fair values of our marketable investment securities and strategic marketable investment securities were as follows:

		As of
		March 31,				December 31,
		2008				2007
		(In thousands)
Marketable investment securities		$	174,229			$	—
Marketable investment securities — strategic			503,298				491,185
Total marketable investment securities		$	677,527			$	491,185

The increase in our marketable investment securities from December 31, 2007 was primarily due to the contribution of marketable investment securities from DISH Network in connection with the Spin-off (see Note 1).

ECHOSTAR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)

Our strategic marketable investment securities are highly speculative and are concentrated in a small number of companies. Additionally, during the three months ended March 31, 2008 our strategic investments have experienced and continue to experience volatility. If the fair value of our strategic marketable investment securities portfolio does not remain above cost basis or if we become aware of any market or company specific factors that indicate that the carrying value of certain of our securities is impaired, we may be required to record charges to earnings in future periods equal to the amount of the decline in fair value.

As of March 31, 2008 and December 31, 2007, we had accumulated unrealized gains net of related tax effect of $6 million and $64 million as a part of “Accumulated other comprehensive income (loss)” within “Total stockholders’ equity (deficit),” respectively. During the three months ended March 31, 2008 we recorded aggregate charges to earnings for other than temporary declines in the fair value of certain of our marketable investment securities of $1 million, and established a new cost basis for this security. During three months ended March 31, 2007, we did not record any charge to earnings for other than temporary declines in the fair value of our marketable investment securities. In addition, during the three months ended March 31, 2008 and 2007, we recognized realized and unrealized net gains (losses) on marketable investment securities of less than $1 million in losses and a $2 million gain, respectively.

Marketable Investment Securities in a Loss Position. The following table reflects the length of time that the individual securities have been in an unrealized loss position, aggregated by investment category. The unrealized losses on our investments in corporate securities represent investments in the marketable common stock of four companies and losses on our investments in corporate debt represent investments in the marketable corporate debt of two companies, each of which are in the communications industry. We are not aware of any specific factors which indicate the unrealized loss in these investments is due to anything other than temporary market fluctuations. In addition, we have the ability and intent to hold our investments in “Corporate bonds” until maturity when the issuers are required to redeem them at their full face value.

								As of March 31, 2008
		Primary		Maturity				Less than Six Months								Six to Nine Months								Nine Months or More
Investment		Reason for		in				Fair				Unrealized				Fair				Unrealized				Fair				Unrealized
Category		Unrealized Loss		Years				Value				Loss				Value				Loss				Value				Loss
																(In thousands)
Corporate bonds		Temporary market fluctuations			5-6			$	278,040			$	(19,556	)		$	—			$	—			$	—			$	—
Corporate equity securities		Temporary market fluctuations			N/A				119,752				(14,619	)			—				—				—				—
Total								$	397,792			$	(34,175	)		$	—			$	—			$	—			$	—

Non-Marketable Investment Securities

We also have several strategic investments in certain non-marketable equity securities which are included in “Non-Marketable Investment Securities” on our Condensed Consolidated Balance Sheets.

		As of
		March 31,				December 31,
		2008				2007
		(In thousands)
Non-Marketable Investment Securities
Fair value method		$	50,343			$	—
Cost method			45,219				39,046
Equity method			18,535				20,114
Total		$	114,097			$	59,160

ECHOSTAR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)

Generally, we account for our unconsolidated equity investments under either the equity method or cost method of accounting. Because these equity securities are generally not publicly traded, it is not practical to regularly estimate the fair value of the investments; however, these investments are subject to an evaluation for other than temporary impairment on a quarterly basis. This quarterly evaluation consists of reviewing, among other things, company business plans and current financial statements, if available, for factors that may indicate an impairment of our investment. Such factors may include, but are not limited to, cash flow concerns, material litigation, violations of debt covenants and changes in business strategy. The fair value of these equity investments is not estimated unless there are identified changes in circumstances that may indicate an impairment exists and these changes are likely to have a significant adverse effect on the fair value of the investment. During the three months ended March 31, 2008 and 2007 we did not record any impairment charges with respect to these investments, respectively.

Our ability to realize value from our strategic investments in companies that are not publicly traded depends on the success of those companies’ businesses and their ability to obtain sufficient capital to execute their business plans. Because private markets are not as liquid as public markets, there is also increased risk that we will not be able to sell these investments, or that when we desire to sell them we will not be able to obtain fair value for them.

We also have an investment in non-marketable convertible debt which is included in “Non-Marketable Investment Securities” on our Condensed Consolidated Balance Sheets. This debt is fair valued each reporting period based upon inputs other than quoted market prices that are observable for the debt, either directly or indirectly with changes in fair value recorded in the statement of operations. The fair value analysis takes into consideration the price of the underlying company stock as well as changes in the credit market, including yield curves and interest rates.

Investment in TerreStar

On February 7, 2008, we completed several transactions under a Master Investment Agreement, dated as of February 5, 2008 between us, and TerreStar Corporation and TerreStar Networks. Under the Master Investment Agreement, we acquired $50 million in aggregate principal amount of TerreStar Networks’ 6¹/2% Senior Exchangeable Paid-in-Kind Notes due June 15, 2014 (“Exchangeable Notes”). In addition, we acquired $50 million aggregate principal amount of TerreStar Networks’ 15% Senior Secured Paid-in-Kind Notes due February 15, 2014, which is included in “Marketable investment securities” on our Condensed Consolidated Balance Sheets.

The Exchangeable Notes are guaranteed by TerreStar License Inc. and TerreStar National Services, Inc. and will mature on June 15, 2014. The Exchangeable Notes are exchangeable for shares of TerreStar Corporation common stock based on a price of $5.57 per share following effectiveness of TerreStar Corporation stockholder approval. TerreStar Networks may be obligated to repurchase all or a part of the Exchangeable Notes under certain circumstances, including upon a change of control of TerreStar Networks or if stockholder approval of the issuance of TerreStar Corporation common stock is not effective by July 23, 2008. The Exchangeable Notes will bear interest at 6.5% per annum, with such interest being payable in additional Exchangeable Notes through March 2011. Additional cash interest may be payable in the event that certain milestones leading to the effectiveness of the stockholder approval are not met. We account for the Exchangeable Notes at fair value with the changes in fair value reported in our Condensed Consolidated Statements of Operations.

We also entered into a Purchase Money Credit Agreement with TerreStar and Harbinger Capital Partners Master Fund I, Ltd. and Harbinger Capital Partners Special Situations Fund LP (collectively, “Harbinger”), in which we and Harbinger have each committed to provide up to $50 million in secured financing, the proceeds of which may be advanced to TerreStar Networks from time to time as required for TerreStar Networks to make required payments in connection with a communications satellite to be constructed and launched for TerreStar Networks. Pursuant to a Security Agreement, dated as of February 5, 2008, from TerreStar Networks in favor of US Bank National

ECHOSTAR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)

Association, as Collateral Agent, TerreStar Networks granted a security interest to the Collateral Agent in certain of TerreStar Networks’ assets to be financed by the proceeds of the loan, including, among other things, the communications satellite and related raw materials, work-in-progress, and finished goods. As of March 31, 2008, we had advanced approximately $7 million to TerreStar under the terms of this agreement which are included in “Non-marketable Investment Securities” on our Condensed Consolidated Balance Sheets, accounted for at cost. An additional $10 million was advanced to TerreStar subsequent to March 31, 2008.

We also entered into a Spectrum Agreement with TerreStar Corporation and TerreStar Networks. Under the Spectrum Agreement, one of our subsidiaries has entered into an agreement with TerreStar Corporation for the 1.4 GHz spectrum that we acquired from DISH Network in the Spin-off. TerreStar Corporation has the option exercisable on or before July 23, 2008, to acquire the intermediate holding company through which we hold the spectrum, in exchange for the issuance by TerreStar Corporation of 30 million shares of its common stock. The issuance of these common shares and exercise by TerreStar Corporation of its option is subject to the effectiveness of shareholder approval of the issuance of these shares.

Restricted Cash and Marketable Investment Securities

As of March 31, 2008, restricted cash and marketable investment securities included amounts required for our letters of credit.

6. Property and Equipment

Property and equipment consist of the following:

		Depreciable				As of
		Life				March 31,				December 31,
		(In Years)				2008				2007
						(In thousands)
Land			—			$	30,033			$	2,509
Buildings and improvements			1-40				199,717				17,482
Furniture, fixtures, equipment and other			1-10				584,285				41,292
Satellites:
EchoStar III			12				234,083				—
EchoStar IV — fully depreciated			N/A				78,511				—
EchoStar VI			12				244,305				—
EchoStar VIII			12				175,801				—
EchoStar IX			12				127,376				—
EchoStar XII			10				190,051				—
Satellites acquired under capital leases			10				551,628				—
Construction in process			—				352,008				185,411
Total property and equipment						$	2,767,798			$	246,694
Accumulated depreciation							(1,272,805	)			(32,857	)
Property and equipment, net						$	1,494,993			$	213,837

The majority of the increase in property and equipment in the table above is associated with the assets contributed to us in connection to the Spin-off (see Note 1).

ECHOSTAR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)

“Construction in process” consists of the following:

		As of
		March 31,				December 31,
		2008				2007
		(In thousands)
Progress amounts for satellite construction and launch costs		$	242,412			$	185,411
Digital broadcast equipment			90,241				—
Other			19,355				—
Construction in progress		$	352,008			$	185,411

Satellites

In connection with the Spin-off, DISH Network contributed six of its owned satellites and two of its satellite lease agreements to us. The two leased satellites are accounted for as capital leases pursuant to Statement of Financial Accounting Standards No. 13, “Accounting for Leases” (“SFAS 13”) and are depreciated over the ten-year terms of the satellite service agreements.

We believe that overall our satellites are generally in good condition. Prior to 2008, certain of these satellites have experienced anomalies, some of which have had a significant adverse impact on their commercial operation. Certain of these anomalies are discussed below.

EchoStar III.

EchoStar III was 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, and was equipped with a total of 44 transponders to provide redundancy. As a result of past traveling wave tube amplifier (“TWTA”) failures, only 18 transponders are currently available for use. Due to redundancy switching limitations and specific channel authorizations, we can only operate on 15 of the 19 FCC authorized frequencies at the 61.5 degree location. While we do not expect a large number of additional TWTAs to fail in any year, and the failures have not reduced the original minimum 12-year design life of the satellite, it is likely that additional TWTA failures will occur from time to time in the future, and those failures will further impact commercial operation of the satellite. See discussion of evaluation of impairment in “Long-Lived Assets” below.

EchoStar IV.

EchoStar IV currently operates at the 77 degree orbital location, which is licensed by the government of Mexico. The satellite was 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. As a result of past TWTA failures, only six transponders are currently available for use and the satellite has been fully depreciated. There can be no assurance that further material degradation, or total loss of use, of EchoStar IV will not occur in the immediate future. See discussion of evaluation of impairment in “Long-Lived Assets” below.

EchoStar VI.

EchoStar VI was originally equipped with 108 solar array strings, approximately 102 of which are required to assure full power availability for the original minimum 12-year useful life of the satellite. Prior to 2007, EchoStar VI experienced anomalies resulting in the loss of 17 solar array strings. During the fourth quarter 2007, five additional solar array strings failed, reducing the number of functional solar array strings to 86. While the useful life of the satellite has not been affected, commercial operability has been reduced. The satellite was designed to operate 32 transponders at approximately 125 watts per channel, switchable to 16 transponders operating at approximately 225

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watts per channel. The power reduction resulting from the solar array failures currently limits us to operation of a maximum of 26 transponders in standard power mode, or 13 transponders in high power mode. These numbers are expected to decrease to 25 and 12, respectively, by September 2008. The number of transponders to which power can be provided is expected to continue to decline in the future at the rate of approximately one transponder every three years. See discussion of evaluation of impairment in “Long-Lived Assets” below.

EchoStar VIII.

EchoStar VIII was designed to operate 32 transponders at approximately 120 watts per channel, switchable to 16 transponders operating at approximately 240 watts per channel. EchoStar VIII also includes spot-beam technology. This satellite has experienced several anomalies since launch, but none have reduced the 12-year estimated useful life of the satellite. However, there can be no assurance that future anomalies will not cause further losses which could materially impact its commercial operation, or result in a total loss of the satellite. See discussion of evaluation of impairment in “Long-Lived Assets” below.

EchoStar IX.

EchoStar IX was designed to operate 32 FSS transponders operating at approximately 110 watts per channel, along with transponders that can provide services in the Ka-Band (a “Ka-band payload”). The satellite also includes a C-band payload which is owned by a third party. Prior to 2007, EchoStar IX experienced the loss of one of its three momentum wheels, two of which are utilized during normal operations. A spare wheel was switched in at the time and the loss did not reduce the 12-year estimated useful life of the satellite. During September 2007, the satellite experienced anomalies resulting in the loss of three solar array strings. An investigation of the anomalies is continuing. The anomalies have not impacted commercial operation of the satellite to date. However, there can be no assurance future anomalies will not cause further losses, which could impact the remaining life or commercial operation of the satellite. See discussion of evaluation of impairment in “Long-Lived Assets” below.

EchoStar XII.

EchoStar XII was designed to operate 13 transponders at 270 watts per channel in CONUS mode which provides service to the entire continental United States, or 22 spot beams using a combination of 135 and 65 watt TWTAs. We currently operate the satellite in spot beam/CONUS hybrid mode. EchoStar XII has a total of 24 solar array circuits, approximately 22 of which are required to assure full power for the original minimum 12-year design life of the satellite. Since late 2004, eight solar array circuits on EchoStar XII have experienced anomalous behavior resulting in both temporary and permanent solar array circuit failures. The cause of the failures is still being investigated. The design life of the satellite has not been affected. However, these temporary and permanent failures have resulted in a reduction in power to the satellite which will preclude us from using the full complement of transponders on EchoStar XII for the 12-year design life of the satellite. The extent of this impact is being investigated. There can be no assurance future anomalies will not cause further losses, which could further impact commercial operation of the satellite or its useful life. See discussion of evaluation of impairment in “Long-Lived Assets” below.

AMC-14

In connection with the Spin-off, DISH Network contributed its AMC-14 satellite services contract to us. SES Americom has announced that it has declared to insurers that the AMC-14 satellite is now considered a total loss, due to a lack of viable options to reposition the satellite to its proper geostationary orbit. Therefore, we have no obligation to make any future monthly lease payments to SES Americom with respect to the satellite. However, we did make up-front payments with respect to the satellite prior to launch and recorded capitalized interest and insurance costs related to the satellite. These amounts, net of expected insurance proceeds of $41 million, totaled $13 million and were written-off during the three months ended March 31, 2008 in our Condensed Consolidated Statement of Operations.

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AMC-16.

DISH Network contributed its AMC-16 satellite services contract to us in connection with the Spin-off. During the first quarter of 2008 SES Americom notified us that the satellite had experienced an anomaly and is no longer capable of operating at full capacity. Pursuant to the satellite services agreement, we are entitled to a reduction of our monthly recurring payment in the event of a partial loss of satellite capacity. We will record a reduction in our capital lease obligation and corresponding asset when the new monthly recurring payment is finalized with SES Americom.

Long-Lived Satellite Assets

We account for impairments of long-lived satellite assets in accordance with the provisions of Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS 144”). SFAS 144 requires a long-lived asset or asset group to be tested for recoverability whenever events or changes in circumstance indicate that its carrying amount may not be recoverable. Based on the guidance under SFAS 144, we evaluate our satellites for recoverability at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. While certain of the anomalies discussed above, and previously disclosed, may be considered to represent a significant adverse change in the physical condition of a particular satellite, based on the redundancy designed within each satellite, these anomalies are not considered to be significant events that would require evaluation for impairment recognition pursuant to the guidance under SFAS 144.

In connection with the Spin-off, we performed an impairment analysis in accordance with SFAS 144 and currently expect the undiscounted cash flows of each satellite to be greater than the current carrying amounts. Should we be unable to achieve our business plan, or if conditions require us to change that plan, one or more of our satellites could become partially or fully impaired, which could have a material adverse effect on our results of operations and financial position.

7. Goodwill, FCC Authorizations and Intangible Assets

Goodwill and FCC Authorizations

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 useful lives continue to be amortized over their estimated useful lives. Generally, we have determined that our FCC licenses have indefinite useful lives due to the following:

	•		FCC spectrum is a non-depleting asset;
	•		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; and
	•		we intend to use these assets indefinitely.

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Intangible Assets

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

		As of
		March 31, 2008								December 31, 2007
		Intangible				Accumulated				Intangible				Accumulated
		Assets				Amortization				Assets				Amortization
		(In thousands)
Contract-based		$	190,566			$	(62,632	)		$	4,640			$	(373	)
Customer relationships			27,602				(7,685	)			23,600				(1,967	)
Technology-based			69,797				(11,428	)			50,297				(4,551	)
Total		$	287,965			$	(81,745	)		$	78,537			$	(6,891	)

Amortization of these intangible assets, recorded on a straight line basis over an average finite useful life primarily ranging from approximately three to 20 years, was $8 million for the three months ended March 31, 2008.

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Estimated future amortization of our identifiable intangible assets as of March 31, 2008 is as follows (in thousands):

For the Years Ending December 31,
2008 (remaining nine months)		$	24,382
2009			32,176
2010			30,209
2011			24,028
2012			23,182
2013			23,174
Thereafter			49,069
Total		$	206,220

8. Long-Term Debt

Capital Lease Obligations, Mortgages and Notes Payable

Capital lease obligations, mortgages and notes payable consist of the following:

		As of
		March 31,				December 31,
		2008				2007
		(In thousands)
Capital lease obligations:
Satellites financed under capital lease obligations		$	360,949			$	—
Other equipment financed under capital lease obligations with an interest rate of 3.1%			13,946				—
8% note payable for EchoStar IX satellite vendor financing, payable over 14 years from launch			8,139				—
Other mortgages and notes payable in installments through 2017 with interest ranging from 2% to 21%			3,865				3,709
Total		$	386,899			$	3,709
Less current portion			(52,220	)			(1,365	)
Capital lease obligations, mortgages and other notes payable, net of current portion		$	334,679			$	2,344

Capital Lease Obligations

In connection with the Spin-off, the satellite lease contracts for AMC-15 and AMC-16 were contributed to EchoStar. These satellites are accounted for as capital leases pursuant to SFAS 13 and are depreciated over the ten-year terms of the satellite service agreements.

AMC-15. AMC-15, an FSS satellite, commenced commercial operation during January 2005. This lease will be renewable by us on a year to year basis following the initial term, and will provide us with certain rights to replacement satellites.

AMC-16. AMC 16, an FSS satellite, commenced commercial operation during February 2005. This lease is renewable by us on a year to year basis following the initial term, and will provide us with certain rights to replacement satellites.

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Future minimum lease payments under these capital lease obligations, together with the present value of the net minimum lease payments as of March 31, 2008 are as follows:

For the Years Ended December 31,
2008 (remaining nine months)		$	75,466
2009			89,918
2010			86,351
2011			86,351
2012			86,351
2013			86,351
Thereafter			81,673
Total minimum lease payments			592,461
Less: Amount representing lease of the orbital location and estimated executory costs (primarily insurance and maintenance) including profit thereon, included in total minimum lease payments			(98,541	)
Net minimum lease payments			493,920
Less: Amount representing interest			(119,026	)
Present value of net minimum lease payments			374,894
Less: Current portion			(50,027	)
Long-term portion of capital lease obligations		$	324,869

9. Income Tax

As of March 31, 2008, we had net operating loss carryforwards (“NOL’s”) for federal income tax purposes of approximately $35 million and tax benefits related to credit carryforwards of approximately $.5 million. The NOL’s and credit carryforwards begin to expire in the year 2024.

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 Condensed Consolidated Balance Sheets, as well as probable operating loss, tax credit and other carryforwards. We follow the guidelines set forth in SFAS 109 regarding the recoverability of any tax assets recorded on the balance sheet and provide any necessary valuation allowances as required. In accordance with SFAS 109, we periodically evaluate our need for a valuation allowance. Determining necessary valuation allowances requires us to make assessments about historical financial information as well as the timing of future events, including the probability of expected future taxable income and available tax planning opportunities.

In connection with the Spin-off, our tax basis of assets and liabilities changed significantly. Furthermore, we had income before taxes for the three months ended March 31, 2008 and project taxable ordinary income into the future. As a result of the Spin-off and the related tax requirements governing the use of our tax assets by DISH Network, we adjusted our deferred tax assets and corresponding valuation allowance to report our net deferred tax assets at an amount that is more likely than not realizable. The use of our deferred tax assets by DISH Network and related effect on our valuation allowance was recorded as a deemed distribution to DISH Network. As of March 31, 2008, we had a valuation allowance against deferred tax assets that are capital in nature, that we currently believe are not realizable.

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The actual tax provision for the three months ended March 31, 2008 reconciles to the amounts computed by applying the statutory Federal tax rate to income before taxes as follows:

		For the Three Months
		Ended March 31,
		2008
		% of pre-tax (income)/loss
Statutory rate			(35.0	)
State income taxes, net of Federal benefit			(2.4	)
Foreign taxes and income not U.S. taxable			(4.3	)
Stock option compensation			(1.0	)
Other			(3.8	)
Total benefit (provision) for income taxes			(46.5	)

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10. Commitments and Contingencies

Commitments

Future maturities of our contractual obligations as of March 31, 2008 are summarized as follows:

		Payments due by period
		Total				2008				2009				2010				2011				2012				2013				Thereafter
														(In thousands)
Satellite-related obligations		$	1,085,399			$	306,446			$	172,977			$	86,491			$	54,472			$	48,761			$	47,662			$	368,590
Capital lease obligations			374,895				39,713				46,319				47,420				52,463				57,971				63,989				67,020
Operating lease obligations			13,290				4,776				4,951				2,592				943				24				4				—
Purchase obligations			651,693				632,527				15,833				3,333				—				—				—				—
Mortgages and other notes payable			12,004				1,785				2,588				1,090				748				808				872				4,113
Total		$	2,137,281			$	985,247			$	242,668			$	140,926			$	108,626			$	107,564			$	112,527			$	439,723

Contingencies

Separation Agreement

In connection with the Spin-off, we have entered into a separation agreement with DISH Network, which provides for, among other things, the division of liability resulting from litigation. Under the terms of the separation agreement, we have assumed liability for any acts or omissions that relate to our business whether such acts or omissions occurred before or after the Spin-off. Certain exceptions are provided, including for intellectual property related claims generally, whereby we will only be liable for our acts or omissions that occurred following the Spin-off. Therefore, we have been indemnified by DISH Network for any potential liability or damages resulting from intellectual property claims relating to the period prior to the effective date of the Spin-off.

Acacia

During 2004, Acacia Media Technologies, (“Acacia”) filed a lawsuit against us and DISH Network in the United States District Court for the Northern District of California. The suit also named DirecTV, Comcast, Charter, Cox and a number of smaller cable companies as defendants. Acacia is an 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 (the ‘992 patent), 5,253,275 (the ‘275 patent), 5,550,863 (the ‘863 patent), 6,002,720 (the ‘720 patent) and 6,144,702 (the ‘702 patent). The ‘992, ‘863, ‘720 and ‘702 patents have been asserted against us.

The 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 content providers in the United States District Court for the Central District of California. During 2004 and 2005, the Court issued Markman rulings which found that the ‘992 and ‘702 patents were not as broad as Acacia had contended, and that certain terms in the ‘702 patent were indefinite. The Court issued additional claim construction rulings on December 14, 2006, March 2, 2007, October 19, 2007, and February 13, 2008. On March 12, 2008, the Court issued an order outlining a schedule for filing dispositive invalidity motions based on its claim constructions. Acacia has agreed to stipulate that all claims in the suit are invalid according to various of the Court’s claim constructions and argues that the case should proceed immediately to the Federal Circuit. The Court has set a hearing for May 6, 2008, at which time it will determine whether the parties will proceed with additional invalidity motions or enter final judgment based on Acacia’s agreement that all asserted claims are invalid.

Acacia’s various patent infringement cases have been consolidated for pre-trial purposes in the United States District Court for the Northern District of California. We intend to vigorously defend this case. In the event that a Court ultimately determines that we infringe any of the patents, we may be subject to substantial damages, which may include treble damages and/or an injunction that could require us to materially modify certain user-friendly features

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that we currently offer to consumers. We are being indemnified by DISH Network for any potential liability or damages resulting from this suit relating to the period prior to the effective date of the Spin-off. We cannot predict with any degree of certainty the outcome of the suit or determine the extent of any potential liability or damages.

Broadcast Innovation, L.L.C.

In 2001, Broadcast Innovation, L.L.C. (“Broadcast Innovation”) filed a lawsuit against DISH Network, 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 us as the only defendant.

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

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

Datasec

During April 2008, Datasec Corporation (“Datasec”) sued us, DISH Network and DirecTV Corporation in the United States District Court for the Central District of California, alleging infringement of U.S. Patent No. 6,075,969 (the ’969 patent). The ‘969 patent was issued in 2000 to inventor Bruce Lusignan, and is entitled “Method for Receiving Signals from a Constellation of Satellites in Close Geosynchronous Orbit.”

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

Finisar Corporation

Finisar Corporation (“Finisar”) obtained a $100 million verdict in the United States District Court for the Eastern District of Texas against DirecTV for patent infringement. Finisar alleged that DirecTV’s electronic program guide and other elements of its system infringe United States Patent No. 5,404,505 (the ‘505 patent).

In July 2006, DISH Network, together with NagraStar LLC, filed a Complaint for Declaratory Judgment in the United States District Court for the District of Delaware against Finisar that asks the Court to declare that they and we do not infringe, and have not infringed, any valid claim of the ‘505 patent. Trial is not currently scheduled. The District Court has stayed our action until the Federal Circuit has resolved DirecTV’s appeal. During April 2008, the

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Federal Circuit reversed the judgment against DirecTV and ordered a new trial. We are evaluating the Federal Circuit’s decision to determine the impact on our action.

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

Global Communications

On April 19, 2007, Global Communications, Inc., which we refer to as Global, filed a patent infringement action against DISH Network in the United States District Court for the Eastern District of Texas. The suit alleges infringement of United States Patent No. 6,947,702 (the ‘702 patent). This patent, which involves satellite reception, was issued in September 2005. On October 24, 2007, the United States Patent and Trademark Office granted our request for reexamination of the ‘702 patent and issued an Office Action finding that all of the claims of the ‘702 patent were invalid. Based on the PTO’s decision, we have asked the District Court to stay the litigation until the reexamination proceeding is concluded.

We intend to vigorously defend this case. In the event that a Court ultimately determines that we infringe the ‘702 patent, we may be subject to substantial damages, which may include treble damages and/or an injunction that could require us to materially modify certain user-friendly features that we currently offer to consumers. We are being indemnified by DISH Network for any potential liability or damages resulting from this suit relating to the period prior to the effective date of the Spin-off. We cannot predict with any degree of certainty the outcome of the suit or determine the extent of any potential liability or damages.

Personalized Media Communications

In February 2008, Personalized Media Communications, Inc. filed suit against us, DISH Network and Motorola, Inc. in the United States District Court for the Eastern District of Texas alleging infringement of United States Patent Nos. 4,694,490 (the ‘490 patent), 5,109,414 (the ‘414 patent), 4,965,825 (the ‘825 patent), 5,233,654 (the ‘654 patent), 5,335,277 (the ‘277 patent), and 5,887,243 (the ‘243 patent), all of which were issued to John Harvey and James Cuddihy as named inventors. The ‘490 patent, the ‘414 patent, the ‘825 patent, the ‘654 patent and the ‘277 patent are defined as the “Harvey Patents.” The Harvey Patents are entitled “Signal Processing Apparatus and Methods.” The lawsuit alleges, among other things, that our DBS system receives program content at broadcast reception and satellite uplinking facilities and transmits such program content, via satellite, to remote satellite receivers. The lawsuit further alleges that we infringe the Harvey Patents by transmitting and using a DBS signal specifically encoded to enable the subject receivers to function in a manner that infringes the Harvey Patents, and by selling services via DBS transmission processes which infringe the Harvey Patents.

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

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Superguide

During 2000, Superguide Corp. (“Superguide”) filed suit against us. DISH Network, DirecTV, Thomson 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 (the ‘211 patent), 5,293,357 (the ‘357 patent) and 4,751,578 (the ‘578 patent) 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.

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 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. In 2005, Superguide indicated that it would no longer pursue infringement allegations with respect to the ‘211 and ‘357 patents and those patents have now been dismissed from the suit. The District Court subsequently entered judgment of non-infringement in favor of all defendants as to the ‘211 and ‘357 patents and ordered briefing on Thomson’s license defense as to the ‘578 patent. During December 2006, the District Court found that there were disputed issues of fact regarding Thomson’s license defense, and ordered a trial solely addressed to that issue. That trial took place in March 2007. In July 2007, the District Court ruled in favor of Superguide. As a result, Superguide will be able to proceed with its infringement action against us, DirecTV and Thomson.

We intend to vigorously defend this case. In the event that a Court ultimately determines that we infringe the ‘578 patent, we may be subject to substantial damages, which may include treble damages and/or an injunction that could require us to materially modify certain user-friendly electronic programming guide and related features that we currently offer to consumers. We are being indemnified by DISH Network for any potential liability or damages resulting from this suit relating to the period prior to the effective date of the Spin-off. We cannot predict with any degree of certainty the outcome of the suit or determine the extent of any potential liability or damages.

Tivo Inc.

On January 31, 2008, the U.S. Court of Appeals for the Federal Circuit affirmed in part and reversed in part the April 2006 jury verdict concluding that certain of our digital video recorders, or DVRs, infringed a patent held by Tivo. In its decision, the Federal Circuit affirmed the jury’s verdict of infringement on Tivo’s “software claims,” upheld the award of damages from the district court, and ordered that the stay of the district court’s injunction against us, which was issued pending appeal, will dissolve when the appeal becomes final. The Federal Circuit, however, found that we did not literally infringe Tivo’s “hardware claims,” and remanded such claims back to the district court for further proceedings. We are appealing the Federal Circuit’s ruling to the United States Supreme Court.

In addition, we have developed and deployed ‘next-generation’ DVR software to our customers’ DVRs. This improved software is fully operational and has been automatically downloaded to current customers (the “Design-Around”). We have formal legal opinions from outside counsel that conclude that our Design-Around does not infringe, literally or under the doctrine of equivalents, either the hardware or software claims of Tivo’s patent.

If the Federal Circuit’s decision is upheld and Tivo decides to challenge the Design-Around, we will mount a vigorous defense. If we are unsuccessful in subsequent appeals or in defending against claims that the Design-Around infringes Tivo’s patent, we could be prohibited from distributing DVRs, or be required to modify or eliminate certain user-friendly features in DVRs that we currently sell to our customers. In that event we would be at a significant disadvantage to our competitors who could offer this functionality and, while we would attempt to provide that functionality through other means, the adverse affect on our business could be material. We could also have to pay substantial additional damages. We are being indemnified by DISH Network for any potential liability or damages resulting from this suit relating to the period prior to the effective date of the Spin-off. Although we

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believe that we do not infringe under any of the claims asserted against us and DISH Network, we cannot predict with any degree of certainty the outcome of the suit or determine the extent of any potential liability or damages.

Other

In addition to the above actions, we are subject to various other legal proceedings and claims which arise in the ordinary course of business. 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.

11. Depreciation and Amortization Expense

Depreciation and amortization expense consists of the following:

		For the Three Months
		Ended March 31,
		2008				2007
		(In thousands)
Satellites		$	34,786			$	—
Furniture, fixtures, equipment and other			16,562				1,087
Identifiable intangible assets subject to amortization			8,222				294
Buildings and improvements			1,400				114
Total depreciation and amortization		$	60,970			$	1,495

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

12. Segment Reporting

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

	•		Equipment sales and digital broadcast operations – Equipment sales include the sales of set-top boxes and related components including Slingboxes to DISH Network and international customers. Digital broadcast operations include satellite uplinking/downlinking, transmission services, signal processing, conditional access management, telemetry, tracking and control, and other services provided primarily to DISH Network.
	•		Fixed Satellite Services (“FSS”) – FSS consists of fixed satellite services provided primarily to DISH Network, and secondarily to other customers.

ECHOSTAR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)

The “All Other” category consists of revenue and net income (loss) from other operating segments for which the disclosure requirements of SFAS 131 do not apply.

		For the Three Months
		Ended March 31,
		2008				2007
		(In thousands)
Revenue:
Equipment sales and digital broadcast operations		$	493,615			$	447,763
FSS			56,204				—
All other			4,752				—
Total revenue		$	554,571			$	447,763
Net income (loss):
Equipment sales and digital broadcast operations		$	6,318			$	(18,504	)
FSS			(17,093	)			—
All other			16,476				—
Total net income (loss)		$	5,701			$	(18,504	)

13. Geographic Information and Transactions with Major Customers

Geographic Information

The following table summarizes total long-lived assets and revenue attributed to foreign locations:

		United
		States				Europe				Asia				Total
						(In thousands)
Long-lived assets, including FCC authorizations
March 31, 2008		$	1,898,479			$	12,471			$	204,113			$	2,115,063
December 31, 2007		$	379,826			$	12,679			$	184,279			$	576,784
Revenue
March 31, 2008		$	519,683			$	34,888			$	—			$	554,571
March 31, 2007		$	428,702			$	19,061			$	—			$	447,763