News Column

ECHOSTAR CORP - 10-K - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

February 21, 2014

You should read the following management's discussion and analysis of our financial condition and results of operations together with the audited consolidated financial statements and notes to our financial statements included elsewhere in this annual report. This management's discussion and analysis is intended to help provide an understanding of our financial condition, changes in our financial condition and our results of operations, and contains forward-looking statements that involve risks, uncertainties and assumptions. The forward-looking statements are not historical facts, but rather are based on current expectations, estimates, assumptions and projections about our industry, business and future financial results. Our actual results may differ materially from the results contemplated by these forward-looking statements due to a number of factors, including those discussed under the caption Item 1A. Risk Factors in this Annual Report on Form 10-K. Any forward-looking statements contained in this report speak only as of the date of this report and we undertake no obligation to update them.



EXECUTIVE SUMMARY

EchoStar Corporation (together with its subsidiaries is referred to as "EchoStar," the "Company," "we," "us" and/or "our") is a global provider of satellite operations, video delivery solutions, and broadband satellite technologies and services for home and office, delivering innovative network technologies, managed services, and solutions for enterprises and governments. We currently operate in three business segments: the EchoStar Technologies segment, the Hughes segment, and the EchoStar Satellite Services segment.



EchoStar Technologies Segment

Our EchoStar Technologies segment designs, develops and distributes digital set-top boxes and related products and technology, primarily for satellite TV service providers, telecommunication companies and international cable companies. A substantial majority of our digital set-top boxes are sold to DISH Network Corporation and its subsidiaries ("DISH Network"), but we also sell digital set-top boxes to Bell TV in Canada, Dish Mexico, S. de R.L. de C.V. ("Dish Mexico") in Mexico and other international customers. Our EchoStar Technologies segment also provides digital broadcast operations, including satellite uplinking/downlinking, transmission services, signal processing, conditional access management, and other services, primarily to DISH Network. In addition, we provide our Slingboxes directly to consumers via retail outlets and online. Sling Media "placeshifting" technology can be used by a consumer, at his or her option, to watch and control their home digital video and audio content via a broadband internet connection. We depend on DISH Network for a substantial portion of our EchoStar Technologies segment revenue and we expect that DISH Network will continue to be the primary source of revenue for our EchoStar Technologies segment. Therefore, the results of operations of our EchoStar Technologies segment are, and will be closely linked to the performance of DISH Network's pay-TV service. In January 2012, we entered into a receiver agreement with DISH Network (the "2012 Receiver Agreement"), expiring on December 31, 2014, pursuant to which DISH Network has the right, but not the obligation, to purchase digital set-top boxes, related accessories and other equipment from us either: (i) at cost (decreasing as we reduce cost and increasing as our costs increase) plus a dollar mark-up which will depend upon the cost of the product subject to a collar on our mark-up; or (ii) at cost plus a fixed margin, which will depend on the nature of the equipment purchased. Under the 2012 Receiver Agreement, our margins will be increased if we are able to reduce the costs of our digital set-top boxes and our margins will be reduced if these costs increase. Based on our experience, we expect our cost of manufacturing a specific set-top box model to decline over time as our contract manufacturers generate efficiencies with scale of production and engineering cost reductions. In addition, our equipment revenue from DISH 47



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Network depends on the timing of orders for set-top boxes and accessories from DISH Network based on its actual and projected subscriber growth plans.

While we also expect to sell equipment to other customers, the number of potential new customers for our EchoStar Technologies segment is small and may be limited as prospective customers that have been competitors of DISH Network may continue to view us as a competitor due to our common ownership with DISH Network. We believe that our best opportunities for developing potential new customers for our EchoStar Technologies segment over the near term lie in international markets, including joint ventures. Thus, our efforts in expanding our digital set-top box business are focused on international markets and we are not actively seeking set-top box opportunities with United States ("U.S.") cable operators. Over the years, we have noticed an increase in new market entrants that offer low cost set-top boxes, including set-top boxes that are modeled after our products or products of our principal competitors. The entry of these new competitors may result in pricing pressure in international markets that we hope to enter. If market prices in international markets are substantially reduced by such new entrants, it may be difficult for us to make profitable sales in international markets. As a result, our ability to generate revenue and income growth in future periods depends greatly on our success in entering the international markets. We continue to focus on building and strengthening our brand recognition by providing unique and technologically advanced features and products, including internet delivery of video content, whole-home high definition digital video recorder ("HD DVR") receivers and MPEG-4 digital compression technology, to our customers. Products containing new technologies and features typically have higher initial selling prices and volumes. These volumes decline over time as DISH Network's demand is reduced due to its use of refurbished equipment. Our success depends heavily on our ability to bring advanced technologies to market to keep pace with our competitors. The revenue and associated margins we earn on sales are determined largely through periodic negotiations that could result in prices reflecting, among other things, the digital set-top boxes and other equipment that best meet our customers' current sales and marketing priorities, the product and service alternatives available from other equipment suppliers, and our ability to respond to customer requirements and to differentiate ourselves from other equipment suppliers on bases other than pricing. Our ability to sustain or increase profitability will also depend in large part on our ability to control or reduce our costs of producing digital set-top boxes. The market for our digital set-top boxes, like other electronic products, has been characterized by regular reductions in selling prices and production costs. Therefore, we will likely be required to reduce production costs to maintain the margins we earn on digital set-top boxes and the profitability of our EchoStar Technologies segment. However, our ability to reduce production costs may be limited by, among other things, economic conditions and a shortage of available parts and may lead to inflated pricing. If we do not compete effectively, demand for our products could decline, our gross margins could decrease, we could lose market share, our revenue and earnings may decline and our growth prospects could be diminished.



Hughes Segment

Our Hughes segment is a global provider of broadband satellite technologies and services for home and office, delivering innovative network technologies, managed services, and solutions for enterprises and governments. The Hughes segment uses its two owned satellites, SPACEWAY 3 and EchoStar XVII, and additional satellite capacity acquired from multiple third-party providers to provide satellite broadband internet access to North American consumers, which we refer to as the consumer market, and broadband network services and equipment to domestic and international enterprise markets. Our Hughes segment also provides managed services to large enterprises and solutions to customers for mobile satellite systems. We incorporate advances in technology to reduce costs and to increase the 48



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functionality and reliability of our products and services. Through the usage of advanced spectrally efficient modulation and coding methodologies, proprietary software web acceleration and compression techniques, we continue to improve the efficiency of our networks. We invest in technologies to enhance our system and network management capabilities, specifically our managed services for enterprises. We also continue to invest in next generation technologies that can be applied to our future products and services. Beginning in October 2012, we introduced HughesNet Gen4 broadband internet services to our customers in North America on EchoStar XVII, which was launched in July 2012. Subsequently, in the fourth quarter of 2012, we enhanced our SPACEWAY 3 satellite platform to provide Gen4 services in regions of the U.S. that EchoStar XVII does not provide service. In October 2012, we entered into a distribution agreement (the "Distribution Agreement") with dishNET Satellite Broadband L.L.C ("dishNET"), a wholly-owned subsidiary of DISH Network, pursuant to which dishNET has the right, but not the obligation, to market, sell and distribute the Hughes satellite internet service (the "Hughes service"). See Note 19 in the Notes to Consolidated Financial Statements in Item 15 of this report for further discussion of our related party transactions with DISH Network. As of December 31, 2013 and 2012, our Hughes segment had approximately 860,000 and 636,000 broadband subscribers, respectively of which, 635,000 and 588,000 were residential retail subscribers, respectively. These broadband subscribers include customers that subscribe to HughesNet broadband services, through retail, wholesale and small/medium enterprise service channels. As of December 31, 2013 and 2012, our Hughes segment had approximately $1.15 billion and $1.06 billion, respectively, of contracted revenue backlog. We define Hughes revenue backlog as our expected future revenue under customer contracts that are non-cancelable, excluding agreements with customers in our consumer market. Of the total contracted revenue backlog as of December 31, 2013, we expect to recognize approximately $383.1 million of revenue in 2014. We continue our efforts in growing our consumer revenue, which depends on our success in adding new subscribers on our Hughes segment's satellite networks. Accordingly, we may need to adjust our service offerings in response to the offerings of our competitors, including ViaSat Communications, Inc. In addition, we focus on expanding our enterprise business, both domestically and internationally. However, the growth of the enterprise business relies heavily on global economic conditions.



EchoStar Satellite Services Segment

Our EchoStar Satellite Services segment operates its business using ten of its owned and leased in-orbit satellites, including EchoStar XVI launched in November 2012. We lease capacity on a full-time and occasional-use basis primarily to DISH Network, and secondarily to Dish Mexico, U.S. government service providers, state agencies, internet service providers, broadcast news organizations, programmers and private enterprise customers. We continue to pursue expanding our business offerings by providing value added services such as telemetry, tracking and control services to third parties. However, there can be no assurance that we will be able to effectively compete against our competitors due to their significant resources and operating history. We depend on DISH Network for a significant portion of the revenue for our EchoStar Satellite Services segment and we expect that DISH Network will continue to be the primary source of revenue for our EchoStar Satellite Services segment. Therefore, the results of operations of our EchoStar Satellite Services segment are and will be closely linked to the performance of DISH Network's pay-TV service as well as changes in DISH Network's satellite capacity requirements. In January 2013, we began to lease EchoStar XVI to DISH Network for the delivery of direct-to-home ("DTH") broadcast services to DISH Network customers in the U.S. Any termination or reduction in the services we 49



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provide to DISH Network would increase excess capacity on our satellites and require that we aggressively pursue alternative sources of revenue for this segment. As of December 31, 2013 and 2012, our EchoStar Satellite Services segment had contracted revenue backlog attributable to satellites currently in orbit of approximately $1.14 billion and $1.44 billion, respectively. Of the total contracted revenue backlog as of December 31, 2013, we expect to recognize approximately $242.5 million of revenue in 2014. While we also expect to provide services to other customers, the number of potential new customers for our EchoStar Satellite Services segment is small and may be limited as prospective customers that have been competitors of DISH Network may continue to view us as a competitor due to our common ownership with DISH Network. Our ability to expand revenue in the EchoStar Satellite Services segment will likely require that we displace incumbent suppliers that generally have well established business models and often benefit from long-term contracts with their customers. As a result, to grow our EchoStar Satellite Services segment we may need to develop or otherwise acquire access to new satellite-delivered services so that we may offer differentiated services to prospective customers. However, there can be no assurance that we would be able to develop or otherwise acquire access to such differentiated services or develop the sales and marketing expertise necessary to sell such services profitably. In addition, as our satellite fleet ages, we will be required to evaluate replacement alternatives such as acquiring, leasing or constructing additional satellites, with or without customer commitments for capacity, which may require us to seek additional financing. However, there can be no assurance that such financing will be available to fund any such replacement alternatives on terms that would be attractive to us or at all.



New Business Opportunities

We are exploring opportunities to selectively pursue partnerships, joint ventures and strategic acquisition opportunities, domestically and internationally. We believe that investments in these types of opportunities may allow us to increase our existing market share, expand into new markets, broaden our portfolio of products and intellectual property, and strengthen our relationships with our customers. With our extensive experience in designing, developing, and distributing digital set-top boxes and broadband related products, we can leverage the broader adoption of advanced technologies to create opportunities for us. We believe that DTH and satellite broadband services are particularly well-suited for countries without extensive telecommunications and cable infrastructure, and we intend to continue to seek new investments and customer relationships with international DTH service and satellite broadband service providers. In 2012, we acquired the right to use various frequencies at the 45 degree west longitude orbital location ("Brazilian Authorization") from ANATEL, the Brazilian communications regulatory agency. The Brazilian Authorization is intended for use in providing pay-TV services in Brazil. In September 2013, we announced that we were in discussions with GVT, a subsidiary of Vivendi S.A., to form a joint venture to provide pay-TV services in Brazil with the objective to offer a national service using IPTV and satellite distribution. In December 2013, we ceased our discussions with GVT, but we remain committed to delivering a unique pay-TV service to Brazil via a high-powered Broadcast Satellite Service ("BSS") satellite.



In December 2013, we acquired 100.0% of Solaris Mobile, which is based in Dublin, Ireland and licensed by the European Union ("EU") and individual EU Member States to provide mobile satellite services and complementary ground component services covering the entire EU using S-band spectrum. We believe we are well-positioned to commercialize this license due to our access to the TerreStar-2

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S-band satellite as well as the mobile satellite systems technology expertise of our Hughes segment. In December 2013, we amended the T2 Development Agreement with DISH Network to provide for the ability to purchase the TerreStar-2 satellite, which is designed to provide mobile services using S-band frequencies. Through the acquisition of Solaris Mobile and the S-band spectrum and our expertise in developing mobile satellite infrastructures, we expect to accelerate advanced mobile services throughout the EU.



EXPLANATION OF KEY METRICS AND OTHER ITEMS

Equipment revenue-DISH Network. "Equipment revenue-DISH Network" primarily includes sales of digital set-top boxes and related components, including Slingboxes and related hardware products, and sales of satellite broadband equipment and related equipment, primarily related to the Hughes service, to DISH Network.

Equipment revenue-other. "Equipment revenue-other" primarily includes sales of digital set-top boxes and related components to Bell TV, Dish Mexico and other domestic and international customers, including sales of Slingboxes and related hardware products, and sales of broadband equipment and networks to customers in our enterprise and consumer markets. Services and other revenue-DISH Network. "Services and other revenue-DISH Network" primarily includes revenue associated with satellite and transponder leasing, satellite uplinking/downlinking, signal processing, conditional access management, telemetry, tracking and control, development of web-based applications for set-top boxes, professional services, facilities rental revenue and other services provided to DISH Network. Beginning in October 2012, "Services and other revenue-DISH Network" also includes subscriber wholesale service fees for the Hughes service sold to dishNET. Services and other revenue-other. "Services and other revenue-other" primarily includes the sales of enterprise and consumer broadband services, as well as maintenance and other contracted services. "Services and other revenue-other" also includes revenue associated with satellite and transponder leasing, satellite uplinking/downlinking and other services provided to customers other than DISH Network. Cost of sales-equipment. "Cost of sales-equipment" principally includes costs associated with digital set-top boxes and related components sold to DISH Network, Bell TV, Dish Mexico and other domestic and international customers, including costs associated with Slingboxes and related hardware products. "Cost of sales-equipment" also includes the cost of broadband equipment and networks sold to customers in our enterprise and consumer markets, and to DISH Network. Cost of sales-services and other. "Cost of sales-services and other" primarily includes the cost of broadband services provided to our enterprise and consumer customers, and to DISH Network, as well as the cost of providing maintenance and other contracted services. "Cost of sales-services and other" also includes the costs associated with satellite and transponder leasing, satellite uplinking/downlinking, signal processing, conditional access management, telemetry, tracking and control, product support and development of applications for set-top boxes, professional services, facilities rental costs, and other services provided to our customers, including DISH Network.



Research and development expenses. "Research and development expenses" primarily includes costs associated with the design and development of products to support future growth and provide new technology and innovation to our customers.

Selling, general and administrative expenses. "Selling, general and administrative expenses" primarily includes selling and marketing costs and employee-related costs associated with administrative services

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(e.g., information systems, human resources and other services), including stock-based compensation expense. It also includes professional fees (e.g. legal, information systems and accounting services) and other items associated with facilities and administrative services provided by DISH Network and other third parties.

Impairment of long-lived assets. "Impairment of long-lived assets" includes our impairment losses related to our property and equipment, goodwill and intangible assets. Interest income. "Interest income" primarily includes interest earned on our cash, cash equivalents and marketable investment securities, including accretion on debt securities. Interest expense, net of amounts capitalized. "Interest expense, net of amounts capitalized" primarily includes interest expense associated with our long-term debt and capital lease obligations (net of capitalized interest), and amortization of debt issuance costs. Realized gains on marketable investment securities and other investments, net. "Realized gains on marketable investment securities and other investments, net" primarily includes gains, net of any losses, on the sale or exchange of investments. Gains on investments accounted for at fair value, net. "Gains on investments accounted for at fair value, net" includes realized and unrealized gains and losses from changes in fair value of certain strategic investments accounted for at fair value.



Equity in earnings (losses) of unconsolidated affiliates, net. "Equity in earnings (losses) of unconsolidated affiliates, net" includes earnings or losses from our investments accounted for under the equity method.

Other, net. "Other, net" primarily includes foreign exchange gains and losses, dividends received from our marketable investment securities and other non-operating income or expense items that are not appropriately classified elsewhere in our Consolidated Statements of Operations and Comprehensive Income (Loss). Earnings before interest, taxes, depreciation and amortization ("EBITDA"). EBITDA is defined as "Net income attributable to EchoStar" excluding "Interest expense, net of amounts capitalized," "Interest income," "Income tax benefit (provision), net" and "Depreciation and amortization." EBITDA is not a measure determined in accordance with GAAP. This non-GAAP measure is reconciled to "Net income attributable to EchoStar" in our discussion of "Results of Operations" below. EBITDA should not be considered a substitute for operating income, net income or any other measure determined in accordance with GAAP. Conceptually, EBITDA measures the amount of income generated each period that could be used to service debt, pay taxes and fund capital expenditures. EBITDA should not be considered in isolation or as a substitute for measures of performance prepared in accordance with GAAP. EBITDA is used by our management as a measure of operating efficiency and overall financial performance for benchmarking against our peers and competitors. Management believes EBITDA provides meaningful supplemental information regarding liquidity and the underlying operating performance of our business. Management also believes that EBITDA is useful to investors because it is frequently used by securities analysts, investors, and other interested parties to evaluate companies in our industry.



Subscribers. Subscribers include customers that subscribe to our Hughes segment's HughesNet broadband services, through retail, wholesale and small/medium enterprise service channels.

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RESULTS OF OPERATIONS Basis of Presentation



The following discussion and analysis of our consolidated results of operations is presented on a historical basis.

Year Ended December 31, 2013 Compared to the Year Ended December 31, 2012

For the Years Ended December 31,



Variance

Statements of Operations Data 2013 2012



Amount %

(Dollars in



thousands)

Revenue:

Equipment revenue-DISH Network $ 1,311,446$ 1,028,588$ 282,858 27.5 Equipment revenue-other 347,910 621,495 (273,585 ) (44.0 ) Services and other revenue-DISH Network 620,189 515,176 105,013 20.4 Services and other revenue-other 1,002,907 956,445 46,462 4.9 Total revenue 3,282,452 3,121,704 160,748 5.1 Costs and Expenses: Cost of sales-equipment 1,430,777 1,397,512 33,265 2.4 % of Total equipment revenue 86.2 % 84.7 % Cost of sales-services and other 776,121 691,922 84,199 12.2 % of Total services and other revenue 47.8 % 47.0 % Selling, general and administrative expenses (including DISH Network) 358,499 372,644 (14,145 ) (3.8 ) % of Total revenue 10.9 % 11.9 % Research and development expenses 67,942 69,649 (1,707 ) (2.5 ) % of Total revenue 2.1 % 2.2 % Depreciation and amortization 507,111 457,326 49,785 10.9 Impairment of long-lived assets 38,415 32,765 5,650 17.2 Total costs and expenses 3,178,865 3,021,818 157,047 5.2 Operating income 103,587 99,886 3,701 3.7 Other Income (Expense): Interest income 14,656 11,176 3,480 31.1 Interest expense, net of amounts capitalized (192,554 ) (153,029 ) (39,525 ) 25.8 Realized gains on marketable investment securities and other investments, net 38,341 177,558 (139,217 ) (78.4 ) Equity in losses of unconsolidated affiliates, net (5,024 ) (438 ) (4,586 ) * Other, net 6,958 59,531 (52,573 ) (88.3 ) Total other income (expense), net (137,623 ) 94,798



(232,421 ) *

Income (loss) before income taxes (34,036 ) 194,684 (228,720 ) * Income tax benefit, net 37,437 16,329 21,108 * Net income 3,401 211,013 (207,612 ) (98.4 ) Less: Net income (loss) attributable to noncontrolling interests 876 (35 )



911 *

Net income attributable to EchoStar $ 2,525$ 211,048$ (208,523 ) (98.8 ) Other Data: EBITDA $ 650,097$ 793,898$ (143,801 ) (18.1 ) Subscribers, end of period 860,000 636,000 224,000 35.2



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Equipment revenue-DISH Network. "Equipment revenue-DISH Network" totaled $1.31 billion for the year ended December 31, 2013, an increase of $282.9 million or 27.5%, compared to the same period in 2012.

Equipment revenue-DISH Network from our EchoStar Technologies segment for

the year ended December 31, 2013 increased by $237.5 million, or 23.6%, to

$1.24 billion compared to the same period in 2012. The increase in revenue

for the year ended December 31, 2013 was primarily due to an increase of

44.7% in unit sales of set-top boxes, offset partially by a 9.2% decrease

in the weighted average price of set-top boxes. Additionally, unit sales of

related accessories and the weighted average price of related accessories

increased 5.8% and 4.5%, respectively. Our EchoStar Technologies segment

offers multiple set-top boxes with different price points depending on

their capabilities and functionalities. The revenue and associated margins

we earn on sales are determined largely through periodic negotiations that

could result in prices reflecting, among other things, the set-top boxes

and other equipment that meet our customers' current sales and marketing

priorities, the product and service alternatives available from other

equipment suppliers, our ability to respond to customer requirements, and

to differentiate ourselves from other equipment suppliers on bases other

than pricing. In addition, products containing new technologies and

features typically have higher initial prices, which decline over time as a

result of manufacturing efficiencies.

Equipment revenue-DISH Network from our Hughes segment for the year ended

December 31, 2013 increased by $45.4 million to $69.1 million compared to

the same period in 2012. The increase was primarily due to the commencement

of broadband equipment sales to DISH Network pursuant to the Distribution

Agreement we entered into with dishNET in October 2012 such that a full

year of revenue has been included in the 2013 period.

Equipment revenue-other. "Equipment revenue-other" totaled $347.9 million for the year ended December 31, 2013, a decrease of $273.6 million or 44.0%, compared to the same period in 2012.

Equipment revenue-other from our EchoStar Technologies segment for the year

ended December 31, 2013 decreased by $212.8 million, or 58.2%, to

$153.1 million compared to the same period in 2012. The decrease was

primarily attributable to a 54.7% decrease in unit sales and a 20.6%

decrease in the weighted average price of set-top boxes sold to Bell TV and

our other international customers. Additionally, unit sales and the

weighted average price of related accessories sold to Bell TV and our other

international customers decreased 16.1% and 38.8%, respectively, for the

year ended December 31, 2013 compared to the same period in 2012. The sales

to Bell TV and other international customers may remain at the current

levels in the near term, due to customer utilization of refurbished set-top

boxes and lower overall demand in the respective markets that we sell these

products.

Equipment revenue-other from our Hughes segment for the year ended

December 31, 2013 decreased by $61.5 million, or 24.0%, to $194.7 million

compared to the same period in 2012. The decrease was mainly due to a

decrease in sales of mobile satellite systems equipment of $30.4 million

and international broadband equipment of $29.5 million.

Services and other revenue-DISH Network. "Services and other revenue-DISH Network" totaled $620.2 million for the year ended December 31, 2013, an increase of $105.0 million or 20.4%, compared to the same period in 2012.

Services and other revenue-DISH Network from our EchoStar Technologies

segment for the year ended December 31, 2013 increased by $31.5 million, or

11.6%, to $303.7 million compared to the

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same period in 2012. The increase was primarily due to an increase of

$15.3 million in revenue earned from the sales of satellite uplink/downlink

services and $16.9 million related to product support and development of applications for set-top boxes. Services and other revenue-DISH Network from our Hughes segment for the



year ended December 31, 2013 increased by $34.5 million to $44.8 million

compared to the same period in 2012. The increase was primarily attributable to revenue earned pursuant to the Distribution Agreement we entered into with dishNET in October 2012. Services and other revenue-DISH Network from our EchoStar Satellite Services segment for the year ended December 31, 2013 increased by $45.9 million, or 22.8%, to $247.2 million compared to the same period in



2012. The increase was mainly due to a $99.2 million increase in revenue

related to the lease of capacity on the EchoStar XVI satellite which began

in January 2013 and services provided on the lease of transponders of the Quetzsat-1 satellite to DISH Network beginning in February 2013. This increase was partially offset by a $43.7 million decrease relating to the expiration of our satellite capacity lease agreement for the EchoStar VI



satellite, a $5.1 million decrease relating to the renewal of our satellite

capacity agreement for the EchoStar VIII satellite, and a $5.3 million

decrease in revenue related to DISH Network's use of our right to the 61.5

degree west longitude orbital location.

Services and other revenue-other. "Services and other revenue-other" totaled $1.00 billion for the year ended December 31, 2013, an increase of $46.5 million or 4.9%, compared to the same period in 2012.



Services and other revenue-other from our Hughes segment for the year ended

December 31, 2013 increased by $41.1 million, or 4.7%, to $909.6 million

compared to the same period in 2012. The increase was primarily due to an increase in sales of broadband services in our enterprise and consumer markets. Services and other revenue-other from our EchoStar Satellite Services



segment for the year ended December 31, 2013 increased by $6.4 million, or

8.3%, to $82.9 million compared to the same period in 2012. The increase

was mainly due to an increase of $6.4 million in sales of transponder

services.

Cost of sales-equipment. "Cost of sales-equipment" totaled $1.43 billion for the year ended December 31, 2013, an increase of $33.3 million, or 2.4%, compared to the same period in 2012.

Cost of sales-equipment from our EchoStar Technologies segment for the year

ended December 31, 2013 increased by $28.8 million, or 2.5%, to

$1.19 billion compared to the same period in 2012. The increase was

attributable to an increase in equipment costs of $199.3 million, related

directly to the increase in sales of set-top boxes and related accessories

to DISH Network. The increase was partially offset by a decrease in cost of

sales of $168.9 million, primarily related to a decrease in sales of set-top boxes and related accessories to our international customers. Cost of sales-equipment from our Hughes segment for the year ended



December 31, 2013 increased by $4.4 million, or 1.9%, to $237.1 million

compared to the same period in 2012. The increase was primarily

attributable to an increase in the cost of broadband equipment sold to our

wholesale customers of $35.7 million. The increase was primarily offset by

a decrease in cost of sales of $17.2 million, due to the decrease in cost

of sales of mobile satellite systems equipment and a decrease of $14.3 million in cost of sales related to international broadband equipment. 55



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Cost of sales-services and other. "Cost of sales-services and other" totaled $776.1 million for the year ended December 31, 2013, an increase of $84.2 million, or 12.2%, compared to the same period in 2012.

Cost of sales-services and other from our EchoStar Technologies segment for

the year ended December 31, 2013 increased by $31.0 million, or 16.4%, to

$219.7 million compared to the same period in 2012. The increase was

primarily attributable to a $22.8 million increase in engineering services

costs provided in 2013 compared to 2012 and a $4.2 million increase in

uplink/downlink costs.

Cost of sales-services and other from our Hughes segment for the year ended

December 31, 2013 increased by $28.4 million, or 6.7%, to $450.3 million

compared to the same period in 2012. The increase includes a $23.9 million

increase in cost of sales related to an increase in sales of broadband

services in our consumer and enterprise markets and a $4.4 million increase

in cost of sales primarily related to the Distribution Agreement we entered

into with dishNET in October 2012.

Cost of sales-services and other from our EchoStar Satellite Services

segment for the year ended December 31, 2013 decreased by $4.0 million, or

6.5%, to $56.9 million compared to the same period in 2012. The decrease

was primarily attributable to an $8.4 million decrease in lease expense due

to the termination of our satellite lease agreement with DISH Network for EchoStar I in July 2012, partially offset by a $4.4 million increase in cost of sales related to the increase in transponder revenue in 2013. Cost of sales-services and other related to our other operations and business development activities for the year ended December 31, 2013



increased $28.8 million compared to the same period in 2012. The increase

was primarily due to the commencement of our operating lease of the

EchoStar XV satellite capacity from DISH Network in May 2013.

Selling, general and administrative expenses. "Selling, general and administrative expenses" totaled $358.5 million for the year ended December 31, 2013, a decrease of $14.1 million or 3.8%, compared to the same period in 2012. The decrease was mainly due to a $21.6 million decrease in general and administrative expenses as a result of an increase in services billed to DISH Network, a $11.5 million decrease in other general and administrative expenses, a $3.9 million decrease in professional services, and a $3.8 million decrease in professional services provided to us by DISH Network pursuant to our related party agreements. These decreases in general and administrative expenses were partially offset by higher marketing and advertising expenses of $21.8 million incurred primarily by our Hughes segment and an increase of $4.8 million in personnel and other employee-related expenses. Depreciation and amortization. "Depreciation and amortization" expense totaled $507.1 million for the year ended December 31, 2013, an increase of $49.8 million or 10.9%, compared to the same period in 2012. The increase was primarily related to an increase in depreciation of $25.3 million from our Hughes segment related to depreciation from EchoStar XVII, which was placed into service in October 2012, an increase of $24.4 million in depreciation from our EchoStar Satellite Services segment, primarily due to the depreciation of EchoStar XVI, which was placed into service in January 2013, and a $17.4 million increase in depreciation associated with customer rental equipment. These increases in depreciation were partially offset by a decrease in depreciation of $13.5 million on EchoStar VI, which was fully depreciated in August 2012, and a decrease in depreciation of $5.7 million on EchoStar XII due to the impairment of the satellite's carrying amount in the second quarter of 2013. 56



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Impairment of long-lived assets. "Impairment of long-lived assets" totaled $38.4 million for the year ended December 31, 2013, an increase of $5.7 million or 17.2%, compared to the same period in 2012. Impairment losses in 2013 consisted of a $34.7 million impairment of our EchoStar XII satellite and a $3.8 million impairment of goodwill of our EchoStar Technologies segment. Impairment losses in 2012 consisted of a $22.0 million impairment of certain contract rights of our Hughes segment, a $6.6 million impairment of goodwill of our EchoStar Technologies segment, and a $4.2 million impairment of certain regulatory authorizations. Interest expense, net of amounts capitalized. "Interest expense, net of amounts capitalized" totaled $192.6 million for the year ended December 31, 2013, an increase of $39.5 million or 25.8%, compared to the same period in 2012. The increase was mainly due to a $45.1 million decrease in capitalized interest associated with the EchoStar XVII and EchoStar XVI satellites which were placed into service in October 2012 and January 2013, respectively, partially offset by the capitalization of interest expense of $4.0 million primarily related to the construction of the EchoStar XIX and the TerreStar-2 satellites in 2013. Equity in losses of unconsolidated affiliates, net. "Equity in losses of unconsolidated affiliates, net" was $5.0 million for the year ended December 31, 2013, a $4.6 million increase compared to the same period in 2012. The increase was primarily attributable to a $6.3 million increase in our one-third share of losses incurred by DISH Digital Holding, L.L.C., which commenced operations in July 2012. Realized gains on marketable investment securities and other investments, net. "Realized gains on marketable investment securities and other investments, net" totaled $38.3 million for the year ended December 31, 2013, a decrease of $139.2 million or 78.4%, compared to the same period in 2012. The decrease was mainly related to a decrease in gains of $136.4 million recognized on the sale of certain strategic investments in public companies in 2012. Other, net. "Other, net" totaled $7.0 million for the year ended December 31, 2013, a decrease of $52.6 million, or 88.3%, compared to the same period in 2012. The decrease was primarily related to a non-recurring dividend of $46.0 million received from a strategic investment in 2012 and a $5.9 million decrease in gains arising from reductions of the capital lease obligation for the AMC-16 satellite as a result of a partial loss of satellite capacity. Earnings before interest, taxes, depreciation and amortization. EBITDA was $650.1 million for the year ended December 31, 2013, a decrease of $143.8 million, or 18.1%, compared to the same period in 2012. The decrease was primarily due to a decrease in gains of $139.2 million recognized from the sale of certain strategic investments in several public companies in 2012, a non-recurring dividend of $46.0 million received from a strategic investment in 2012, a decrease in gains of $5.9 million arising from reductions of the capital lease obligation for the AMC-16 satellite in 2012, and a decrease of $4.6 million in equity in earnings of unconsolidated affiliates. These decreases were partially offset by a 57



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$53.5 million increase in operating income, exclusive of depreciation and amortization. The following table reconciles EBITDA to the accompanying financial statements. For the Years Ended December 31, Variance 2013 2012 Amount % (Dollars in thousands) EBITDA $ 650,097$ 793,898$ (143,801 ) (18.1 )



Interest income and expense, net (177,898 ) (141,853 ) (36,045 ) 25.4

Income tax benefit, net 37,437 16,329



21,108 *

Depreciation and amortization (507,111 ) (457,326 )



(49,785 ) 10.9

Net income attributable to EchoStar$ 2,525$ 211,048$ (208,523 ) (98.8 )

--------------------------------------------------------------------------------

*

Percentage is not meaningful.

Income tax benefit, net. Income tax benefit totaled $37.4 million for the year ended December 31, 2013, an increase of $21.1 million, compared to the same period in 2012. Our effective income tax rate was 110.0% for the year ended December 31, 2013 compared to (8.4%) for the same period in 2012. The variation in our current year effective tax rate from a U.S. federal statutory rate for the current period was primarily due to the release of the valuation allowance associated with capital loss carryforwards in conjunction with the sale of certain of our capital investments, current year research and experimentation credits, and the reinstatement of the research and experimentation tax credit for 2012, as provided by the American Taxpayer Relief Act enacted on January 2, 2013. For the same period in 2012, the variation from a U.S. federal statutory rate was primarily attributable to the release of the valuation allowance associated with the sale of certain capital investments. In addition, significant fluctuation in the effective tax rate from a U.S. federal statutory rate resulted from our pre-tax losses in the current year. Net income attributable to EchoStar. Net income attributable to EchoStar was $2.5 million for the year ended December 31, 2013, a decrease of $208.5 million, or 98.8%, compared to the same period in 2012. The change was primarily due to a decrease in gains of $139.2 million recognized from the sale of marketable investment securities and other investments in 2012, a gain recognized in 2012 associated with a non-recurring dividend of $46.0 million received from a strategic investment that was not received in 2013, a decrease in capitalized interest of $45.1 million associated with EchoStar XVII and EchoStar XVI, which were placed into service in October 2012 and January 2013, respectively, and a decrease in other income of $5.9 million as a result of a reduction of the capital lease obligation for the AMC-16 satellite when compared to the same period in 2012. These reductions were offset partially by an increase of $21.1 million in income tax benefit, the capitalization of interest expense of $4.0 million primarily related to the construction of the EchoStar XIX and the TerreStar-2 satellites in 2013, and an increase in operating income of $3.7 million. 58



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Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS-Continued

Segment Operating Results and Capital Expenditures

Year Ended December 31, 2013 Compared to the Year Ended December 31, 2012

EchoStar All

EchoStar Satellite Other and Consolidated For the Year Ended December 31, 2013 Technologies Hughes Services Eliminations Total (In thousands) Total revenue $ 1,715,991$ 1,218,126$ 330,177$ 18,158$ 3,282,452 Capital expenditures $ 56,935$ 186,561$ 12,700$ 135,677$ 391,873 EBITDA $ 136,057$ 281,513$ 235,993$ (3,466 )$ 650,097 For the Year Ended December 31, 2012 Total revenue $ 1,660,029$ 1,158,714$ 277,985$ 24,976$ 3,121,704 Capital expenditures $ 69,809$ 292,222$ 118,998$ 31,976$ 513,005 EBITDA $ 110,933$ 265,756$ 212,549$ 204,660$ 793,898



EchoStar Technologies Segment

For the Years Ended December 31, Variance 2013 2012 Amount % (Dollars in thousands) Total revenue $ 1,715,991$ 1,660,029$ 55,962 3.4 Capital expenditures $ 56,935$ 69,809$ (12,874 ) (18.4 ) EBITDA $ 136,057$ 110,933$ 25,124 22.6 Revenue EchoStar Technologies segment total revenue for the year ended December 31, 2013 increased by $56.0 million, or 3.4%, compared to the same period in 2012, primarily as a result of a $269.0 million increase in both equipment and service revenue provided to DISH Network, offset partially by a $213.1 million decrease in other equipment and service revenue primarily due to a decrease in sales of set-top boxes and related accessories to Bell TV and our other international customers. Capital Expenditures



EchoStar Technologies segment capital expenditures for the year ended December 31, 2013 decreased by $12.9 million, or 18.4%, compared to the same period in 2012, primarily due to lower capital requirements related to our digital broadcast center and network operations.

EBITDA

EchoStar Technologies segment EBITDA for the year ended December 31, 2013 was $136.1 million, an increase of $25.1 million, or 22.6%, compared to the same period in 2012. The increase in EBITDA for our EchoStar Technologies segment was primarily driven by a $27.3 million increase in operating income offset partially by a decrease of $1.7 million in gains on the sale of investments compared to the same period in 2012. 59



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Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS-Continued Hughes Segment For the Years Ended December 31, Variance 2013 2012 Amount % (Dollars in thousands) Total revenue $ 1,218,126$ 1,158,714$ 59,412 5.1 Capital expenditures $ 186,561$ 292,222$ (105,661 ) (36.2 ) EBITDA $ 281,513$ 265,756$ 15,757 5.9 Revenue Hughes segment total revenue for the year ended December 31, 2013 increased by $59.4 million, or 5.1%, compared to the same period in 2012. This increase was primarily due to an increase in both service and hardware revenue from DISH Network of $34.5 million and $45.4 million, respectively. This increase in revenue from DISH Network was primarily a result of an increase in sales of broadband equipment and services pursuant to the Distribution Agreement we entered into with dishNET in October 2012. Also contributing to the increase in our Hughes segment revenue was an increase of $41.1 million of other service revenue related to an increase in sales of broadband services. These increases were offset partially by a decrease of $61.5 million in equipment revenue as a result of a decrease in sales of mobile satellite systems equipment and international broadband equipment.



Capital Expenditures

Hughes segment capital expenditures for the year ended December 31, 2013 decreased by $105.7 million, or 36.2%, compared to the same period in 2012, primarily due to a decrease in satellite expenditures related to EchoStar XVII, which was launched in July 2012.

EBITDA

EBITDA for our Hughes segment for the year ended December 31, 2013 was $281.5 million, an increase of $15.8 million, or 5.9%, compared to the same period in 2012. The increase was due primarily to a $22.0 million impairment loss in 2012 on certain contract rights associated with the Hughes Acquisition that did not occur in 2013 and a gain of $2.6 million in connection with the settlement of certain accounts receivables in 2013. These increases were offset partially by a decrease in gains on marketable investment securities of $10.5 million compared to the same period in 2012.



EchoStar Satellite Services Segment

For the Years Ended December 31, Variance 2013 2012 Amount % (Dollars in thousands) Total revenue $ 330,177$ 277,985$ 52,192 18.8 Capital expenditures $ 12,700$ 118,998$ (106,298 ) (89.3 ) EBITDA $ 235,993$ 212,549$ 23,444 11.0 60



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Revenue EchoStar Satellite Services segment total revenue for the year ended December 31, 2013 increased by $52.2 million, or 18.8%, compared to the same period in 2012, primarily due to an increase in sales of transponder services to DISH Network. Capital Expenditures EchoStar Satellite Services segment capital expenditures for the year ended December 31, 2013 decreased by $106.3 million, or 89.3%, compared to the same period in 2012, primarily related to a decrease in satellite expenditures due to the launch of EchoStar XVI in November 2012.



EBITDA

EchoStar Satellite Services segment EBITDA for the year ended December 31, 2013 was $236.0 million, an increase of $23.4 million, or 11.0%, compared to the same period in 2012. The increase in EBITDA for our EchoStar Satellite Services segment was primarily due to a $64.1 million increase in operating income excluding depreciation and amortization and impairment losses primarily related to an increase in the sales of transponder services provided in 2013 compared to 2012 and a decrease in cost of sales related to the termination of our satellite lease contract with DISH Network on EchoStar I, which was effective in July 2012. The increase in operating income was partially offset by the impairment loss of our EchoStar XII satellite of $34.7 million in June 2013 and a decrease in gains of $5.9 million as a result of a reduction of the capital lease obligation for the AMC-16 satellite when compared to the same period in 2012.



All Other and Eliminations

All Other and Eliminations accounts for certain items and activities in our Consolidated Financial Statements that have not been assigned to our operating segments. These include real estate and other activities, costs incurred in satellite development programs and other business development activities, expenses of various corporate departments, and our centralized treasury activities, including income from our investment portfolio and interest expense on our debt. Capital Expenditures For the year ended December 31, 2013 capital expenditures increased by $103.7 million compared to the same period in 2012, primarily related to the increase in satellite expenditures on the EchoStar XIX satellite of $100.8 million and the TerreStar-2 satellite of $13.9 million. The EchoStar XIX satellite is expected to be used in the operations of our Hughes segment and the TerreStar-2 satellite is intended to be used by Solaris Mobile in providing mobile satellite services in the EU.



EBITDA

All Other and Eliminations EBITDA for the year ended December 31, 2013 was a loss of $3.5 million, compared to income of $204.7 million for the same period in 2012. The $208.1 million decrease in EBITDA was primarily due to a decrease in gains of $126.1 million recognized from the sale of marketable investment securities and other investments in 2012 and non-recurring dividends of $46.0 million received from a strategic investment in 2012. 61



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Year Ended December 31, 2012 Compared to the Year Ended December 31, 2011

Our results of operations for the year ended December 31, 2011 does not include the operations of Hughes Communications prior to June 8, 2011, the date the Hughes Acquisition was completed. Therefore, our results of operations for the year ended December 31, 2012 are not comparable to our results of operations for the year ended December 31, 2011. For the Years Ended December 31,



Variance

Statements of Operations Data 2012 2011



Amount %

(Dollars in



thousands)

Revenue:

Equipment revenue-DISH Network $ 1,028,588$ 1,158,293$ (129,705 ) (11.2 ) Equipment revenue-other 621,495 513,504 107,991 21.0 Services and other revenue-DISH Network 515,176 496,636 18,540 3.7 Services and other revenue-other 956,445 592,998 363,447 61.3 Total revenue 3,121,704 2,761,431 360,273 13.0 Costs and Expenses: Cost of sales-equipment 1,397,512 1,414,791 (17,279 ) (1.2 ) % of Total equipment revenue 84.7 % 84.6 % Cost of sales-services and other 691,922 492,702 199,220 40.4 % of Total services and other revenue 47.0 % 45.2 % Selling, general and administrative expenses (including DISH Network) 372,644 303,276 69,368 22.9 % of Total revenue 11.9 % 11.0 % Research and development expenses 69,649 50,966 18,683 36.7 % of Total revenue 2.2 % 1.8 % Depreciation and amortization 457,326 385,894 71,432 18.5 Impairment of long-lived assets 32,765 32,964 (199 ) (0.6 ) Total costs and expenses 3,021,818 2,680,593 341,225 12.7 Operating income 99,886 80,838 19,048 23.6 Other Income (Expense): Interest income 11,176 10,821 355 3.3 Interest expense, net of amounts capitalized (153,029 ) (82,593 ) (70,436 ) 85.3 Realized gains on marketable investment securities and other investments, net 177,558 13,666 163,892 * Gains on investments accounted for at fair value, net - 15,871 (15,871 ) (100.0 ) Equity in earnings (losses) of unconsolidated affiliates, net (438 ) 11,860 (12,298 ) * Other, net 59,531 (24,688 ) 84,219 * Total other income (expense), net 94,798 (55,063 ) 149,861 * Income before income taxes 194,684 25,775 168,909 * Income tax benefit (provision), net 16,329 (21,501 ) 37,830 * Net income 211,013 4,274 206,739 * Less: Net income (loss) attributable to noncontrolling interests (35 ) 635



(670 ) *

Net income attributable to EchoStar $ 211,048$ 3,639$ 207,409 * Other Data: EBITDA $ 793,898$ 482,806$ 311,092 64.4 Subscribers, end of period(1) 636,000 602,000 34,000 5.6



--------------------------------------------------------------------------------

* Percentage is not meaningful. (1)



Excludes approximately 23,000 and 24,000 subscribers as of December 31,

2012 and 2011, respectively, receiving services through third parties who

have capacity arrangements with us previously reported in our subscriber

totals. 62



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Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS-Continued

Equipment revenue-DISH Network. "Equipment revenue-DISH Network" totaled $1.03 billion for the year ended December 31, 2012, a decrease of $129.7 million or 11.2% compared to the same period in 2011.

Equipment revenue-DISH Network from our EchoStar Technologies segment for

the year ended December 31, 2012 decreased by $152.9 million, or 13.2%, to

$1.01 billion compared to the same period in 2011. Our EchoStar

Technologies segment offers multiple set-top boxes with different price

points depending on their capabilities and functionalities. The revenue and

associated margins we earn on sales are determined largely through periodic

negotiations that could result in prices reflecting, among other things,

the set-top boxes and other equipment that meet our customers' current

sales and marketing priorities, the product and service alternatives

available from other equipment suppliers, our ability to respond to

customer requirements, and to differentiate ourselves from other equipment

suppliers on bases other than pricing. In addition products containing new

technologies and features typically have higher initial prices, which

reduce over time as demand decreases or as DISH Network's demand for new or

refurbished units changes. The decrease in our equipment revenue from DISH

Network was primarily due to a 22.0% decrease in the weighted average price

of set-top boxes, offset partially by a 6.0% increase in unit sales of

set-top boxes. Additionally, unit sales of related accessories increased

134.7%, offset partially by a 60.7% decrease in weighted average price of related accessories.



Equipment revenue-DISH Network from our Hughes segment for the year ended

December 31, 2012 increased by $23.2 million to $23.8 million compared to

the same period in 2011. The increase was primarily due to the commencement

of broadband equipment sales to DISH Network pursuant to the Distribution

Agreement we entered into with dishNET in October 2012.

Equipment revenue-other. "Equipment revenue-other" totaled $621.5 million for the year ended December 31, 2012, an increase of $108.0 million or 21.0% compared to the same period in 2011.

Equipment revenue-other from our EchoStar Technologies segment for the year

ended December 31, 2012 increased by $13.7 million, or 3.9%, to

$365.9 million compared to the same period in 2011. The increase was

primarily due to an increase in sales of $16.2 million of set-top boxes and

related accessories sold to our international customers, which was

partially offset by the decrease in sales of $2.6 million of Sling boxes.

Equipment revenue-other from our Hughes segment for the year ended

December 31, 2012 increased by $95.3 million, or 59.2%, to $256.2 million

compared to the same period in 2011. The increase was due to a partial-year

revenue earned in 2011 compared to a full-year of revenue earned 2012 as

the Hughes Acquisition was not completed until June 2011.

Services and other revenue-other. "Services and other revenue-other" totaled $956.4 million for the year ended December 31, 2012, an increase of $363.4 million or 61.3% compared to the same period in 2011.

Services and other revenue-other from our Hughes segment for the year ended

December 31, 2012 increased by $355.1 million, or 69.2%, to $868.5 million

compared to the same period in 2011. The increase was due to partial-year

revenue earned in 2011 compared to a full-year of revenue earned 2012 as the Hughes Acquisition was not completed until June 2011. Services and other revenue-other from our EchoStar Satellite Services



segment for the year ended December 31, 2012 increased by $14.5 million, or

23.3%, to $76.5 million compared to the

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same period in 2011. The increase was mainly due to higher transponder

services of $11.1 million provided in 2012 compared to 2011.

Cost of sales-equipment. "Cost of sales-equipment" totaled $1.40 billion for the year ended December 31, 2012, a decrease of $17.3 million or 1.2% compared to the same period in 2011.



Cost of sales-equipment from our EchoStar Technologies segment for the year

ended December 31, 2012 decreased by $121.4 million, or 9.4%, to

$1.17 billion compared to the same period in 2011. The decrease was

attributable to a decrease in equipment costs of $133.3 million, related

directly to a decrease in sales of set-top boxes and related accessories

sold to DISH Network. The decrease was partially offset by an increase in

cost of sales of $13.0 million, primarily related to an increase in sales

of set-top boxes and related accessories to our other international customers. Cost of sales-equipment from our Hughes segment for the year ended



December 31, 2012 increased by $104.3 million, or 81.2%, to $232.7 million

compared to the same period in 2011. The increase was due to partial-year

expenses recognized in 2011 compared to a full-year of expenses recognized

in 2012 as the Hughes Acquisition was not completed until June 2011.

Cost of sales-services and other. "Cost of sales-services and other" totaled $691.9 million for the year ended December 31, 2012, an increase of $199.2 million or 40.4% compared to the same period in 2011.

Cost of sales-services and other from our EchoStar Technologies segment for

the year ended December 31, 2012 increased by $18.8 million, or 11.1%, to

$188.7 million compared to the same period in 2011. The increase was

primarily attributable to a $16.6 million increase in support costs related

to engineering services provided in 2012 compared to 2011 and a

$4.0 million increase in uplink/downlink costs.

Cost of sales-services and other from our Hughes segment for the year ended

December 31, 2012 increased by $186.3 million, or 79.1%, to $421.9 million

compared to the same period in 2011. The increase was due to partial-year

expenses recognized in 2011 compared to a full-year of expenses recognized

in 2012 as the Hughes Acquisition was not completed until June 2011.

Cost of sales-services and other from our EchoStar Satellite Services

segment for the year ended December 31, 2012 decreased by $10.5 million, or

14.7%, to $60.8 million compared to the same period in 2011. The decrease

was primarily attributable to a decrease in cost of sales of $13.4 million

due to the termination of our satellite lease agreement with DISH Network

for EchoStar I in July 2012, partially offset by a $3.8 million increase in

cost of sales related to the increase in transponder revenue in 2012.

Selling, general and administrative expenses. "Selling, general and administrative expenses" totaled $372.6 million for year ended December 31, 2012, an increase of $69.4 million or 22.9% compared to the same period in 2011. The increase primarily related to higher marketing and advertising expenses and other general and administrative expenses of $72.0 million incurred by our Hughes segment. "Selling, general and administrative expenses" represented 11.9% and 11.0% of total revenue for the years ended December 31, 2012 and 2011, respectively. The increase in the expense to revenue ratio principally resulted from an increase in revenue and expenses from our Hughes segment, which was acquired in connection with the Hughes Acquisition in June 2011. 64



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Depreciation and amortization. "Depreciation and amortization" expense totaled $457.3 million for the year ended December 31, 2012, an increase of $71.4 million or 18.5% compared to the same period in 2011. The increase was primarily related to higher amortization and depreciation expense of $67.0 million incurred from our Hughes segment as we did not complete the Hughes Acquisition until June 2011. In addition, the increase in depreciation expense was attributable to an increase of $25.7 million related to satellites that were accounted for as capital leases, partially offset by a decrease in depreciation expense of $6.7 million from our EchoStar Satellite Services segment related to EchoStar VI, which was fully depreciated in August 2012. The overall increase in depreciation and amortization expense from our Hughes segment and EchoStar Satellite Services segment was partially offset by lower amortization and depreciation expense of $11.7 million from our EchoStar Technologies segment, primarily relating to the retirement of certain assets. Impairments of long-lived assets. "Impairments of long-lived assets" totaled $32.8 million for the year ended December 31, 2012, a decrease of $0.2 million or 0.6% compared to the same period in 2011. Our 2012 impairments relate to a $22.0 impairment of certain contract rights associated with the Hughes Acquisition that were determined to have a lower probability of being realized than was assumed in prior estimates, goodwill impairment of $6.6 million associated with the EchoStar Technologies segment, and an impairment of $4.2 million of certain of our regulatory authorizations. Our 2011 impairment loss of $33.0 million was related to the impairment of our CMBStar satellite. See Note 8 and Note 9 for a discussion of the impairments recorded in 2012 and 2011, respectively, in the Notes to Consolidated Financial Statements in Item 15 of this report. Interest expense, net of amounts capitalized. "Interest expense, net of amounts capitalized" totaled $153.0 million for the year ended December 31, 2012, an increase of $70.4 million or 85.3% compared to the same period in 2011. The increase was primarily related to higher interest expense of: (i) $58.4 million incurred on the Notes and (ii) $10.7 million incurred on our capital lease obligations. Realized gains on marketable investment securities and other investments, net. "Realized gains on marketable investment securities and other investments, net" totaled $177.6 million for the year ended December 31, 2012, an increase of $163.9 million compared to the same period in 2011. The increase primarily related to higher gains of $168.2 million recognized on sales of certain of our strategic investments in public companies in 2012. Other, net. "Other, net" totaled $59.5 million for the year ended December 31, 2012, an increase of $84.2 million compared to the same period in 2011. The increase was primarily related to dividends received of $46.0 million from a special dividend declaration from one of our strategic investments in 2012, and transaction costs of $35.3 million related to the Hughes Acquisition in 2011. Earnings before interest, taxes, depreciation and amortization. EBITDA was $793.9 million for the year ended December 31, 2012, an increase of $311.1 million or 64.4% compared to the same period in 2011. The increase was primarily due to an increase in gains of $163.9 million recognized on sales of our strategic marketable investment securities, an increase in operating income of $90.5 million, a dividend received of $46.0 million from one of our strategic investments in 2012, and transaction costs of $35.3 million incurred in 2011 relating to the Hughes Acquisition. The increase in EBITDA was partially offset by the gains recognized of $15.9 million from the sale of investments accounted for at 65



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fair value in 2011 and the decrease in equity in earnings of $12.3 million from unconsolidated affiliates. The following table reconciles EBITDA to the accompanying consolidated financial statements.

For the Years Ended December 31, Variance 2012 2011 Amount % (Dollars in thousands) EBITDA $ 793,898$ 482,806$ 311,092 64.4



Interest income and expense, net (141,853 ) (71,772 ) (70,081 ) 97.6

Income tax benefit (provision), net 16,329 (21,501 ) 37,830 *

Depreciation and amortization (457,326 ) (385,894 )



(71,432 ) 18.5

Net income attributable to EchoStar$ 211,048$ 3,639$ 207,409 *

--------------------------------------------------------------------------------

*

Percentage is not meaningful.

Income tax benefit (provision), net. Our income tax benefit totaled approximately $16.3 million for the year ended December 31, 2012 compared to an income tax provision of $21.5 million for the same period in 2011. Our effective income tax rate was (8.4%) for the year ended December 31, 2012 compared to 83.4% for the same period in 2011. Our effective tax rate for the years ended December 31, 2012 and 2011 were significantly impacted by the changes in our valuation allowance for deferred taxes that are capital in nature.



Segment Operating Results

Year Ended December 31, 2012 Compared to the Year Ended December 31, 2011

EchoStar All

EchoStar Satellite Other and Consolidated For the Year Ended December 31, 2012 Technologies Hughes Services Eliminations Total (In thousands) Total revenue $ 1,660,029$ 1,158,714$ 277,985$ 24,976$ 3,121,704 Capital expenditures $ 69,809$ 292,222$ 118,998$ 31,976$ 513,005 EBITDA $ 110,933$ 265,756$ 212,549$ 204,660$ 793,898 For the Year Ended December 31, 2011 Total revenue $ 1,780,642$ 676,222$ 278,125$ 26,442$ 2,761,431 Capital expenditures $ 81,420$ 156,768$ 119,004$ 19,980$ 377,172 EBITDA $ 144,753$ 167,100$ 197,848$ (26,895 )$ 482,806



EchoStar Technologies Segment

For the Years Ended December 31, Variance 2012 2011 Amount % (Dollars in thousands) Total revenue $ 1,660,029$ 1,780,642$ (120,613 ) (6.8 ) Capital expenditures $ 69,809$ 81,420$ (11,611 ) (14.3 ) EBITDA $ 110,933$ 144,753$ (33,820 ) (23.4 ) 66



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Revenue EchoStar Technologies segment total revenue for the year ended December 31, 2012 decreased by $120.6 million, or 6.8%, compared to the same period in 2011, as a result of a $139.1 million decrease in total equipment revenue, offset partially by a $18.5 million increase in total service revenue primarily due to a decrease in sales of set-top boxes and related accessories to DISH Network.



Capital Expenditures

EchoStar Technologies segment capital expenditures for the year ended December 31, 2012 decreased by $11.6 million, or 14.3%, compared to the same period in 2011, primarily due to the construction of a data center in 2011 that did not occur in 2012. EBITDA EchoStar Technologies segment EBITDA for the year ended December 31, 2012 was $110.9 million, a decrease of $33.8 million or 23.4% compared to the same period in 2011. The decrease was primarily driven by lower equipment revenue earned from the sales of set-top boxes and related accessories, higher research and development costs and impairment of goodwill. Hughes Segment For the Years Ended December 31, Variance 2012 2011 Amount % (Dollars in thousands) Total revenue $ 1,158,714$ 676,222$ 482,492 71.4 Capital expenditures $ 292,222$ 156,768$ 135,454 86.4 EBITDA $ 265,756$ 167,100$ 98,656 59.0 Revenue Hughes segment total revenue for the year ended December 31, 2012 increased by $482.5 million, or 71.4%, compared to the same period in 2011, primarily due to partial-year revenue earned in 2011 compared to a full-year of revenue earned in 2012 as the Hughes Acquisition was not completed until June 2011.



Capital Expenditures

Hughes segment capital expenditures for the year ended December 31, 2012 decreased by $135.5 million, or 86.4%, compared to the same period in 2011, primarily due to a decrease in satellite expenditures related to EchoStar XVII, which was launched in July 2012.

EBITDA

Hughes segment EBITDA for the year ended December 31, 2012 was $265.8 million, an increase of $98.7 million or 59.0% compared to the same period in 2011. The increase was primarily due to partial-year revenue and expenses recognized in 2011 compared to a full-year of revenue and expenses recognized in 2012 as the Hughes Acquisition was not completed until June 2011. 67



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EchoStar Satellite Services Segment

For the Years Ended December 31, Variance 2012 2011 Amount % (Dollars in thousands) Total revenue $ 277,985$ 278,125$ (140 ) (0.1 ) Capital expenditures $ 118,998$ 119,004$ (6 ) (0.0 ) EBITDA $ 212,549$ 197,848$ 14,701 7.4 Revenue



EchoStar Satellite Services segment total revenue for the year ended December 31, 2012 increased by $0.1 million, or 0.1%, compared to the same period in 2011, primarily due to a $0.1 million increase in sales of transponder services to DISH Network.

Capital Expenditures

EchoStar Satellite Services segment capital expenditures for the year ended December 31, 2012 remained flat compared to the same period in 2011.

EBITDA

EchoStar Satellite Services segment EBITDA for the year ended December 31, 2012 was $212.5 million, an increase of $14.7 million or 7.4% compared to the same period in 2011. The increase was primarily due to lower cost of sales of $13.4 million relating to the termination of our satellite lease contract on EchoStar I with DISH Network, which was effective in July 2012.



All Other and Eliminations

EBITDA

All Other and Eliminations EBITDA for the year ended December 31, 2012 was income of $204.7 million, compared to a loss of $26.9 million for the same period in 2011. The $231.6 million increase in EBITDA was primarily due to increases in gains of $148.8 million on marketable investment securities and other investments, non-recurring dividends of $46.0 million received from a strategic investment in 2012, and $35.3 million in non-recurring transaction costs related to the Hughes Acquisition in 2011.



LIQUIDITY AND CAPITAL RESOURCES

Cash, Cash Equivalents and Current Marketable Investment Securities

We consider all liquid investments purchased with an original maturity of 90 days or less to be cash equivalents. See Item 7A.-Quantitative and Qualitative Disclosures about Market Risk in this Annual Report on Form 10-K for further discussion regarding our marketable investment securities. As of December 31, 2013, our cash, cash equivalents and current marketable investment securities totaled $1.62 billion compared to $1.55 billion as of December 31, 2012, an increase of $73.1 million. 68



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We have investments in various debt and equity instruments including corporate bonds, corporate equity securities, government bonds, and variable rate demand notes ("VRDNs"). VRDNs are long term floating rate bonds with embedded put options that allow the bondholder to sell the security at par plus accrued interest. All of the put options are secured by a pledged liquidity source. Our VRDN portfolio is comprised of investments in municipalities and corporations, which are backed by financial institutions or other highly rated companies that serve as the pledged liquidity source. While they are classified as marketable investment securities, the put option allows VRDNs to be liquidated generally on the same day or on a five business day settlement basis. As of December 31, 2013 and 2012, we held VRDNs, within our current marketable investment securities portfolio, with fair values of $34.7 million and $66.1 million, respectively. Our other current marketable investment securities portfolio consists primarily of corporate and government bonds. As of December 31, 2013 and 2012, we held $918.2 million and $693.5 million, respectively, of corporate and government bonds and other investment securities.



The following discussion highlights our cash flow activities for the years ended December 31, 2013, 2012 and 2011.

Cash flows from operating activities. We typically reinvest the cash flow from operating activities in our business. For the years ended December 31, 2013, 2012 and 2011, we reported net cash inflows from operating activities of $450.5 million, $505.1 million and $447.0 million, respectively. Net cash flows from operating activities for the year ended December 31, 2013 decreased by $54.6 million compared to the same period in 2012. The decrease was primarily attributable to lower net income of $37.6 million adjusted to exclude: (i) "Depreciation and amortization;" (ii) "Realized gains on marketable investment securities and other investments, net;" (iii) "Equity in losses (earnings) of unconsolidated affiliates, net;" (iv) "Impairment of long-lived assets", (v) "Deferred tax benefit;" and (vi) "Other, net." Net cash flows from operating activities for the year ended December 31, 2012 increased by $58.1 million compared to the same period in 2011. The improvement was primarily attributable to the increase in net income of $162.6 million adjusted to exclude non-cash changes in: (i) "Depreciation and amortization;" (ii) "Realized gains on marketable investment securities and other investments;" (iii) "Equity in losses (earnings) of unconsolidated affiliates;" (iv) "Gains on investments accounted for at fair value, net;" (v) "Deferred tax expense (benefit);" and (vi) "Other, net." The increase in net income adjusted to exclude non-cash was partially offset by a $103.0 million decrease from changes in operating assets and liabilities related to timing differences between the incurrence of expense and cash payments.



Cash flows from investing activities. Our investing activities generally include purchases and sales of marketable investment securities, capital expenditures, acquisitions, and strategic investments. For the years ended December 31, 2013, 2012 and 2011, we reported net cash outflows from investing activities of $570.3 million, $346.8 million and $1.89 billion, respectively.

Net cash outflows from investing activities for the year ended December 31, 2013 increased by $223.5 million compared to the same period in 2012. The increase in cash outflows primarily related to an increase of $446.0 million in net purchases of marketable investment securities. This increase was partially offset by a $121.1 million reduction in capital expenditures, decrease of $56.7 million in acquisitions of regulatory authorizations, and proceeds of $40.4 million in 2013 from the transfer of a regulatory authorization and satellite launch services contract to DISH Network. 69



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Net cash outflows from investing activities for the year ended December 31, 2012 decreased by $1.54 billion compared to the same period in 2011. The decrease was primarily due to the net acquisition cost of Hughes Communications of $2.08 billion partially offset by proceeds from the sale of a strategic investment of $712.9 million in 2011. In addition, the decrease in net cash outflows was attributable to higher net proceeds from our marketable investment securities of $347.8 million in 2012 compared to 2011. The decrease in net cash outflows was partially offset by a $135.8 million increase in capital expenditures in 2012 compared to 2011. Cash flows from financing activities. Our financing activities generally include proceeds related to the issuance of long-term debt and cash used for the repurchase, redemption or payment of long-term debt and capital lease obligations. For the years ended December 31, 2013, 2012 and 2011, we reported net cash inflows from financing activities of $18.3 million, net cash outflows from financing activities of $44.0 million, and net cash inflows from financing activities of $1.91 billion, respectively. Net cash inflows from financing activities increased to $18.3 million for the year ended December 31, 2013 compared to net cash outflows of $44.0 million for the same period in 2012. The increase was primarily due to higher proceeds of $55.8 million received from Class A common stock options exercised and stock issued under our Employee Stock Purchase Plan and an increase in excess tax benefit from stock option exercises, which was partially offset by an increase in repayments of long-term debt of $8.2 million. Net cash outflows from financing activities decreased by $1.96 billion for the year ended December 31, 2012 compared to the same period in 2011. The decrease was primarily due to the one-time proceeds received of $2.00 billion from the issuance of the Notes in 2011.



Obligations and Future Capital Requirements

Contractual Obligations and Off-Balance Sheet Arrangements

The following table summarizes our contractual obligations at December 31, 2013 and the effect such obligations are expected to have on our liquidity and cash flow in future periods: Payments due in the Year Ending December 31, Total 2014 2015 2016 2017 2018 Thereafter (In thousands) Long-term debt obligations $ 2,001,588$ 1,431$ 150$ 7 $ - $ - $ 2,000,000 Capital lease obligations 420,800 68,360 28,005 29,074 32,414 35,949 226,998 Interest expense on long-term debt and capital lease obligations 1,143,017 180,475 175,822 172,990 169,863 166,378 277,489 Satellite-related obligations 1,106,738 466,992 236,438 68,222 52,414 45,914 236,758 Operating lease obligations 71,170 22,143 18,589 12,918 8,460 2,830 6,230 Purchase and other obligations 212,108 207,107 1,667 1,667 1,667 - - Total $ 4,955,421$ 946,508$ 460,671$ 284,878$ 264,818$ 251,071$ 2,747,475

"Satellite-related obligations" primarily includes, among other things, payment pursuant to agreements for the construction of the EchoStar XIX and TerreStar-2 satellites, payments pursuant to launch services contracts, executory costs for our capital lease satellites, costs under transponder agreements and in-orbit incentives relating to certain satellites. 70



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Our "Purchase and other obligations" primarily consists of binding purchase orders for digital set-top boxes and related components. Our purchase obligations can fluctuate significantly from period to period due to, among other things, management's control of inventory levels, and can materially impact our future operating asset and liability balances, and our future working capital requirements.

The table above does not include amounts related to deferred tax liabilities, unrecognized tax positions and certain other amounts recorded in our noncurrent liabilities as the timing of any payments is uncertain. The table also excludes long-term deferred revenue and other long-term liabilities that do not require future cash payments.



In certain circumstances, the dates on which we are obligated to pay our contractual obligations could change.

Off-Balance Sheet Arrangements

Other than the transactions below, we generally do not engage in off-balance sheet financing activities or use derivative financial instruments for hedge accounting or speculative purposes. As of December 31, 2013, we had $39.4 million of letters of credit and insurance bonds. Of this amount, $8.1 million was secured by restricted cash; $12.4 million related to insurance bonds; and $18.9 million was issued under credit arrangements available to our foreign subsidiaries. Certain letters of credit are secured by assets of our foreign subsidiaries. As of December 31, 2013, we had foreign currency forward contracts with a notional value of $8.4 million in place to partially mitigate foreign currency exchange risk. From time to time, we may enter into foreign currency forward contracts, or take other measures, to mitigate risks associated with foreign currency denominated assets, liabilities, commitments and anticipated foreign currency transactions. Satellite Insurance We generally do not carry insurance for any of the in-orbit satellites that we use because we believe that the premium costs are uneconomical relative to the risk of satellite failure. However, pursuant to the terms of the agreements governing certain portions of our indebtedness, we are required, subject to certain limitations on coverage, to maintain launch and in-orbit insurance for SPACEWAY 3, EchoStar XVI, and EchoStar XVII. The loss of a satellite or other satellite malfunctions or anomalies could have a material adverse effect on our financial performance, which we may not be able to mitigate by using available capacity on other satellites. 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. In addition, the loss of a satellite or other satellite malfunctions or anomalies could affect our ability to comply with Federal Communications Commission and other regulatory obligations and our ability to fund the construction or acquisition of replacement satellites for our in-orbit fleet in a timely fashion, or at all.



Future Capital Requirements

We primarily rely on our existing cash and marketable investment securities balances, as well as cash flow generated through our operations to fund our investment needs. Since we currently depend on DISH Network for a substantial portion of our revenue, our cash flow from operations depends heavily on DISH Network's needs for equipment and services. To the extent that DISH Network's gross subscriber additions decrease or DISH Network experiences a net loss of subscribers, sales of our digital set-top boxes and related components to DISH Network may further decline, which in turn 71



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could have a further material adverse effect on our financial position and results of operations. As of December 31, 2013, our remaining obligations related to EchoStar XVI, EchoStar XVII, EchoStar XIX, TerreStar-2 and launch contracts with Arianespace, SA and International Launch Services, Inc. totaled $553.6 million. There can be no assurance that we will have positive cash flows from operations. Furthermore, if we experience negative cash flows, our existing cash and marketable investment securities balances may be reduced. We have a significant amount of outstanding indebtedness. As of December 31, 2013, our total indebtedness was $2.42 billion, of which $420.8 million related to capital lease obligations. Our liquidity requirements will be significant, primarily due to our debt service requirements. In addition, our future capital expenditures are likely to increase if we make additional investments in infrastructure necessary to support and expand our business, or if we decide to purchase one or more additional satellites. Other aspects of our business operations may also require additional capital. We periodically evaluate various strategic initiatives, the pursuit of which could also require us to raise significant additional capital.



Satellites

As our satellite fleet ages, we will be required to evaluate replacement alternatives such as acquiring, leasing, or constructing additional satellites, with or without customer commitments for capacity. We may also construct or lease additional satellites in the future to provide satellite services at additional orbital locations or to improve the quality of our satellite services.

Stock Repurchases

Pursuant to a stock repurchase plan approved by our Board of Directors, we are authorized to repurchase up to $500.0 million of our outstanding shares of Class A common stock through and including December 31, 2014. For the years ended December 31, 2013, 2012 and 2011, we did not repurchase any common stock under this plan.



Critical Accounting Policies and Estimates

The preparation of consolidated financial statements in conformity with GAAP requires us to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities at the date of the balance sheets, the reported amounts of revenue and expenses for each reporting period, and certain information disclosed in the Notes to Consolidated Financial Statements in Item 15 of this report. We base our estimates, judgments, and assumptions on historical experience and on various other factors that we believe to be relevant under the circumstances. Actual results may differ from previously estimated amounts, and such differences may be material to our consolidated financial statements. We review our estimates and assumptions periodically, and the effects of revisions are reflected in the period they occur or prospectively if the revised estimate affects future periods. The following represent what we believe are the critical accounting policies that may involve a high degree of estimation, judgment and complexity. For a summary of our significant accounting policies, including those discussed below, see Note 2 in Notes to Consolidated Financial Statements in Item 15 of this report.



Marketable Securities and Other Investments

We hold investments in debt and equity securities of various companies, including marketable investments in publicly traded securities and non-marketable investments in securities of privately held

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companies. Our marketable investment securities ordinarily are accounted for as available-for-sale; accordingly, we report those securities at fair value on a recurring basis and generally recognize unrealized gains and losses in other comprehensive income (loss). Except in unusual circumstances, the estimated fair values of our marketable investment securities are determined by reference to quoted prices for identical securities or based primarily on other observable market inputs. Our investments in non-marketable securities typically are strategic investments in privately held companies and may be highly speculative. We account for such investments using the equity method when we exert significant influence over the investee; otherwise, we account for such investments using the cost method. All of our investments are subject to quarterly evaluations to determine whether an other-than-temporary impairment has occurred, in which case we record an impairment loss in determining net income. For our marketable investment securities, our impairment evaluation considers factors such the length of time the security has been in a continuous unrealized loss position, the magnitude of the unrealized loss, current market conditions, company-specific information, and whether we have the intent and ability to hold the investment in the foreseeable future. Generally, it is not practicable to estimate fair value of our cost method and equity method investments on a recurring basis. Our impairment evaluation for such investments considers whether events or changes in circumstances have occurred that may have a significant adverse effect on the fair value of the investment. As part of our evaluation, we review available information such as recent company financial statements, business plans and current economic conditions for factors that may indicate an impairment of our investments. When we determine that an investment is impaired and the impairment is other-than-temporary, we adjust the carrying amount of the investments to its estimated fair value and recognize an impairment loss in earnings. In these circumstances, our fair value estimates may reflect significant unobservable inputs. Our periodic investment impairment evaluations require us to make significant estimates, judgments and assumptions about uncertain future events. In some cases, there may be limited or no observable market data to support significant assumptions in our estimates. As a result of weakening economic conditions, or other future events and changes in circumstances affecting our investments, we may subsequently determine that an investment is impaired or that an existing impairment is other-than-temporary. Such events and changes in circumstances could result in our recognition of material investment impairment losses in the future.



Fair Value of Financial Instruments

Fair value estimates of our financial instruments are made at a point in time, based on relevant market data and the specific characteristics of the financial instrument. Weak economic conditions have in prior periods resulted in inactive markets for certain of our financial instruments, including certain debt securities that historically have been included in "Other investments" in our Consolidated Balance Sheets. For certain of these instruments, there may be limited or no observable market data. Fair value estimates for financial instruments for which limited or no observable market data is available are based on judgments regarding current economic conditions, liquidity discounts, currency, credit and interest rate risks, loss experience, bankruptcy and other factors. These estimates involve significant uncertainties and judgments and generally are less precise than measurements of fair value based on observable market data. We make certain assumptions related to expected maturity date, credit and interest rate risk based upon market conditions and prior experience. As a result, such calculated fair value estimates may not be realizable in a current sale or immediate settlement of the instrument. In addition, changes in the underlying assumptions used in the fair value measurement technique, including liquidity risks and estimates of future cash flows, could significantly affect these fair value 73



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estimates, which could have a material adverse impact on our financial position and results of operations.

Impairment of Long-lived Assets

We evaluate our long-lived assets other than goodwill or intangible assets with indefinite lives, for impairment whenever events and changes in circumstances indicate that their carrying amounts may not be recoverable. The carrying amount of a long-lived asset or asset group is considered to not be recoverable when the estimated future undiscounted cash flows from such asset or asset group is less than its carrying amount. In that event, an impairment loss is recorded in the determination of operating income based on the amount by which the carrying amount exceeds the estimated fair value of the long-lived asset or asset group. Fair value is determined primarily using discounted cash flow techniques reflecting the estimated cash flows and discount rate that would be assumed by a market participant for the asset or asset group under review. Our discounted cash flow estimates typically include assumptions based on unobservable inputs and may reflect probability-weighting of alternative scenarios. Estimated losses on long-lived assets to be disposed of by sale may be determined in a similar manner, except that fair value estimates are reduced for estimated selling costs. Changes in estimates of future cash flows, discounts rates and other assumptions could result in recognition of additional impairment losses in future periods.



Impairment Goodwill and Indefinite-lived Intangible Assets

We test our goodwill for impairment annually and more frequently when events or changes in circumstances indicate that an impairment may have occurred. There are two steps to the goodwill impairment test. Step one compares the fair value of a reporting unit with its carrying amount, including goodwill. If the reporting unit's carrying amount exceeds its estimated fair value, it is necessary to perform the second step of the impairment test, which compares the implied fair value of reporting unit goodwill with the carrying amount of such goodwill to determine the amount of impairment loss. We may bypass the two-step quantitative impairment test when we determine based on a qualitative assessment that it is more likely than not that the fair value of a reporting unit exceeds its carrying amount including goodwill. As of December 31, 2013, our goodwill consisted entirely of goodwill assigned to reporting units of our Hughes segment in connection with the 2011 acquisition of Hughes Communications, Inc. and its subsidiaries ("Hughes Acquisition"). We test the goodwill related to the Hughes segment annually in our second fiscal quarter. In the second quarter of 2013, we determined based on a qualitative assessment that it was more likely than not that the fair values of our Hughes reporting units exceeded their carrying amounts including goodwill. Our qualitative assessment considered the results of our quantitative annual impairment test in 2012 and generally favorable trends in the operations of the reporting units and in other significant inputs that would be used to determine fair value. Depending on our assessment of future events and changes in circumstances, we may be required to perform the two-step quantitative impairment test in the future. We may determine that some or all of our goodwill is impaired in connection with future impairment tests. Our indefinite-lived intangible assets consist primarily of regulatory authorizations for the use of spectrum in specified orbital locations. We test these intangible assets annually in our fourth fiscal quarter, or more frequently if events or changes in circumstances indicate that an impairment may have occurred. We recognize an impairment loss in the determination of operating income when we determine that the carrying amount of an intangible asset exceeds its estimated fair value. Fair value is 74



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determined primarily using discounted cash flow techniques reflecting the estimated cash flows and discount rate that we believe would be assumed by market participants. Our cash flow projections typically include significant assumptions based on unobservable inputs. Changes in economic conditions, laws and regulations, technology, competition and other factors could affect the assumptions reflected in our fair value estimates and may result in future intangible asset impairments.



Business Combinations

When we acquire a business, we assign the purchase price to the acquired assets and liabilities based upon their fair value using various valuation techniques, including the market approach, income approach, and/or cost approach. The accounting standard for business combinations requires most identifiable assets, liabilities, noncontrolling interests and goodwill acquired to be recorded at fair value. Transaction costs related to the acquisition of the business are expensed as incurred. Costs associated with the issuance of debt associated with a business combination are capitalized and included as a yield adjustment to the underlying debt's stated rate. Acquired intangible assets other than goodwill are amortized over their estimated useful lives unless the lives are determined to be indefinite. Amortization of these intangible assets is recorded on a straight line basis over an average finite useful life primarily ranging from approximately one to twenty years or in relation to the estimated discounted cash flows over the life of the intangible.



Revenue Recognition

Our Hughes segment enters into contracts to design, develop, and deliver telecommunication networks to customers in our enterprise and mobile satellite systems markets. These contracts for telecommunication networks require significant effort to develop and construct the network, over an extended time period. Revenue under these contracts is recognized using the percentage-of-completion method of accounting. Depending on the nature of the deliverables in each arrangement, we recognize revenue under the cost-to-cost method or the units of delivery method. Under the cost-to-cost method, sales are recorded equivalent to costs incurred plus a portion of the profit expected to be realized, based on the ratio of costs incurred to estimated total costs at completion. Under the units of delivery method, sales are recorded as products are delivered and costs are recognized based on the expected profit for the entire agreement. Profits expected to be realized on long-term contracts are based on estimates of total revenue and costs at completion. These estimates are reviewed and revised periodically throughout the lives of the contracts, and adjustments to profits resulting from such revisions are recorded in the accounting period in which the revisions are made. Estimated losses on contracts are recorded in the period in which they are identified. Changes in our estimates related to revenue recognition for these contracts could result in significant changes in our revenue or costs, which could be material to our consolidated results of operations.



Income Taxes

We record the estimated future tax effects of temporary differences between the tax bases of assets and liabilities and amounts reported in the accompanying consolidated balance sheets, as well as operating loss and tax credit carryforwards. Determining necessary valuation allowances requires us to make assessments about the timing of future events, including the probability of expected future taxable income and available tax planning opportunities. We periodically evaluate our need for a valuation allowance based on both historical evidence, including trends, and future expectations in each reporting period. Any such valuation allowance is recorded in either "Income tax benefit (provision), net" in our Consolidated Statements of Operations and Comprehensive Income (Loss) or "Accumulated other 75



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comprehensive income (loss)" within "Stockholders' equity" in our Consolidated Balance Sheets. Future performance could have a significant effect on the realization of tax benefits, or reversals of valuation allowances, as reported in our consolidated results of operations. Management evaluates the recognition and measurement of uncertain tax positions based on applicable tax law, regulations, case law, administrative rulings and pronouncements, and the facts and circumstances surrounding the tax position. Changes in our estimates related to the recognition and measurement of the amount recorded for uncertain tax positions could result in significant changes in our "Income tax benefit (provision), net" in our Consolidated Statements of Operations and Comprehensive Income (Loss) which could be material to our consolidated results of operations.



Contingent Liabilities

A significant amount of management judgment is required in determining whether an accrual should be recorded for a loss contingency and the amount of such accrual. Estimates generally are developed in consultation with counsel and are based on an analysis of potential outcomes. Due to the uncertainty of determining the likelihood of a future event occurring and the potential financial statement impact of such an event, it is possible that upon further development or resolution of a contingent matter, a charge could be recorded in a future period in our Consolidated Statements of Operations and Comprehensive Income (Loss) which could be material to our consolidated results of operations and financial position. We record an accrual for litigation and other loss contingencies when we determine that a loss is probable and the amount of the loss can be reasonably estimated. Legal fees and other costs of defending litigation are charged to expense as incurred.



New Accounting Pronouncements

For a discussion of new accounting pronouncements, see Note 2 in the Notes to Consolidated Financial Statements in Item 15 of this report. We do not anticipate that any recently issued accounting pronouncements will have a significant effect on our consolidated financial statements.

Seasonality

For our EchoStar Technologies segment, we are affected by seasonality to the extent it impacts our customers as a result of their sales and promotion activities, which can vary from year to year. Although the seasonal impacts have not been significant, historically, the first half of the year generally produces fewer new subscribers for the pay-TV industry than the second half of the year. However, we cannot provide assurance that this trend will continue in the future. For our Hughes segment, service revenue is generally not impacted by seasonal fluctuations other than those related to fluctuations related to sales and promotional activities. However, like many communications infrastructure equipment vendors, a higher amount of our hardware revenue occur in the second half of the year due to our customers' annual procurement and budget cycles. Large enterprises and operators often allocate their capital expenditure budgets at the beginning of their fiscal year (which often coincides with the calendar year). The typical sales cycle for large complex system procurements is six to 12 months, which often results in the customer expenditure occurring towards the end of the year. Customers often seek to expend the budgeted funds prior to the end of the year and the next budget cycle. In the Hughes consumer business, we see a similar seasonality for consumer acquisitions, and therefore hardware revenue, as is seen in the consumer and retail sectors where the first and fourth calendar quarters tend to be higher than the second and third quarters. 76



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Our EchoStar Satellite Services segment is not generally affected by seasonal impacts.

Inflation



Inflation has not materially affected our operations during the past three years. We believe that our ability to increase the prices charged for our products and services in future periods will depend primarily on competitive pressures or contractual terms.


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