UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Form 10-Q

(Mark One)

Commission File Number: 0-26176

EchoStar Communications Corporation

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

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes[X]xNo[]o

Indicate by check mark whether the registrant is an accelerated filer (as defined by Rule 12b-2 of the Exchange Act). Yes[X]xNo[]o

As of November 11, 2002,August 8, 2003, the registrant’sRegistrant’s outstanding common stock consisted of 242,353,739245,815,642 shares of Class A Common Stock and 238,435,208 sharesShares of Class B Common Stock.

TABLE OF CONTENTS

DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

We make “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 throughout this document. Whenever you read a statement that is not simply a statement of historical fact (such as when we describe what we “believe,” “expect” or “anticipate” will occur and other similar statements), you must remember that our expectations may not be correct, even though we believe they are reasonable. We do not guarantee that the transactions and events described in this document will happen as described or that they will happen at all. You should read this document completely and with the understanding that actual future results may be materially different from what we expect. Whether actual results will conform with our expectations and predictions is subject to a number of risks and uncertainties. TheThese risks and uncertainties include, but are not limited to: our proposed merger with Hughes Electronics Corporation may not occur as a result of: (1) the failure to obtain necessary federal antitrust clearance, Federal Communications Commission, or FCC, approval or the requisite approval from General Motors’ stockholders, (2) shareholder, state attorney general or other litigation challenging the merger, or (3) the failure to satisfy other conditions; while we need substantial additional financing, we are highly leveraged and subject to numerous constraints on our ability to raise additional debt; we may incur unanticipated costs in connection with the Hughes merger financing or any refinancings we must undertake or consents we must obtain to enable us to consummate the Hughes merger; regulatory authorities may impose burdensome terms on us as a condition of granting their approval of the Hughes merger or the acquisition of Hughes’ interest in PanAmSat, and legislative and regulatory developments may create unexpected challenges for us; we may not realize the benefits and synergies we expect from, and may incur unanticipated costs with respect to, the Hughes merger due to delays, burdensome conditions imposed by regulatory authorities, difficulties in integrating the businesses or disruptions in relationships with employees, customers or suppliers; we may be required to pay a $600 million termination fee to Hughes; we may be required to purchase Hughes’ interest in PanAmSat for approximately $2.7 billion, which may be in excess of the fair market value of PanAmSat at the time of the stock purchase; we are party to various lawsuits which, if adversely decided, could have a significant adverse impact on our business; we may be unable to obtain patent licenses from holders of intellectual property or redesign our products to avoid patent infringement; we may be unable to obtain needed retransmission consents, FCC authorizations or export licenses; the regulations governing our industry may change; our satellite launches may be delayed or fail, our satellites may fail prematurely in orbit, we currently do not have traditional commercial insurance covering losses incurred from the failure of launches and/or satellites; and we may be unable to settle outstanding claims with insurers; weakness in the global economy may harm our business generally, and adverse local political or economic developments may occur in some of our markets; service interruptions arising from technical anomalies on some satellites, or caused by war, terrorist activities or natural disasters, may cause customer cancellations or otherwise harm our business; we face intense and increasing competition from the cable television industry, new competitors may enter the subscription television business, and new technologies may increase competition; DISH Network subscriber growth may decrease; subscriber turnover may increase; and subscriber acquisition costs may increase; sales of digital equipment and related services to international direct-to-home service providers may decrease; future acquisitions, business combinations, strategic partnerships and divestitures may involve additional uncertainties; the September 11, 2001 terrorist attacks and changes in international political conditions as a result of these events may continue to affect the U.S. and the global economy and may increase other risks; and we may face other risks described from time to time in periodic reports we file with the Securities and Exchange Commission. following:

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

All cautionary statements made herein should be read as being applicable to all forward-looking statements wherever they appear. In this connection, investors should consider the risks described herein and should not place undue reliance on any forward-looking statements.

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

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CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)

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

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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)

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

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ECHOSTAR COMMUNICATIONS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

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

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1. Organization and Business Activities

Principal Business

The operations of EchoStar Communications Corporation (“ECC,” and together with its subsidiaries, “EchoStar,” the “Company,” “we,” “us,” and/or referring to particular subsidiaries in certain circumstances, “EchoStar” or the “Company”“our”) include two interrelated business units:

•

The DISH Network — which provides a direct broadcast satellite (“DBS”) subscription television service we refer to as “DBS” in the United States; and

	•		EchoStar Technologies Corporation(“ETC”) — engaged in the design, development, distributionwhich designs and sale ofdevelops DBS set-top boxes, antennae and other digital equipment for the DISH Network (“EchoStarNetwork. We refer to this equipment collectively as “EchoStar receiver systems”)systems.” ETC also designs, develops and the design, development and distribution ofdistributes similar equipment for international satellite service providers.

Since 1994, EchoStar haswe have deployed substantial resources to develop the “EchoStar DBS System.” The EchoStar DBS System currently consists of EchoStar’sour FCC-allocated DBS spectrum, eight DBSnine in-orbit satellites (“EchoStar I” through “EchoStar VIII”IX”), EchoStar receiver systems, digital broadcast operations centers, customer service facilities, and other assets utilized in itsour operations. EchoStar’sOur principal business strategy is to continue developing itsour subscription television service in the United States to provide consumers with a fully competitive alternative to cable television service.

The Proposed Merger of EchoStar with Hughes

     During October, 2001, EchoStar, Hughes Electronics Corporation (“Hughes”) and General Motors (“GM”), which is Hughes’ parent company, signed definitive agreements relating to the merger of EchoStar and Hughes in a stock-for-stock transaction.

     On October 10, 2002, the Federal Communications Commission (“FCC”) announced that it declined to approve the transfer of the licenses necessary to allow EchoStar’s merger with Hughes to close and designated the application for hearing by an administrative law judge. The FCC, however, has given the parties until November 27, 2002 to file an amended application to address the FCC’s concerns and to file a petition to suspend the hearing. On October 31, 2002, the U.S. Department of Justice (“DOJ”), twenty-three states, the District of Columbia and Puerto Rico filed a complaint for permanent injunctive relief in the United States District Court for the District of Columbia against EchoStar, GM and Hughes. The suit seeks to permanently enjoin EchoStar and Hughes from merging and requests a ruling that the proposed merger violates Section 7 of the Clayton Act. EchoStar, Hughes and GM sought an expedited schedule with a trial date in November. The DOJ and states proposed that the trial commence in June. On November 5, 2002, the District Court denied our petition for an expedited trial and denied plantiffs’ proposed trial date, suggesting instead a late February or early March trial date. No trial date has yet been set. The merger agreement provides that either party may, in certain circumstances, terminate prior to the trial date suggested by the Court. Hughes and GM have to date been unwilling to agree to an extension of any merger termination date. EchoStar intends to continue to discuss how to proceed with GM and Hughes. However, no assurances can be given that the required regulatory clearances and approvals will be obtained from the DOJ and the FCC within the timeframes required by the merger agreement, or if so obtained, that all other conditions to the transactions will be satisfied such that the merger can be completed.

     Assuming consummation, the surviving corporation in the merger would carry the EchoStar name and would provide direct broadcast satellite services in the United States and Latin America, global fixed satellite services and other broadband communication services. The merger is subject to numerous conditions and risks. The agreements among the parties require that EchoStar arrange for the availability of $7.025 billion of cash in connection with the merger and related transactions. EchoStar expects that it will provide about $1.5 billion of this amount from available cash at the time of signing the merger agreement. In addition, EchoStar and Hughes obtained a $5.525 billion bridge

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — Continued
(Unaudited)

financing commitment to assure that the remaining required cash would be available if and to the extent it could not be obtained through traditional capital markets or bank financing transactions. The bridge commitment was reduced to $3.325 billion as a result of the sale of $700 million of EchoStar DBS Corporation’s 9 1/8% senior notes due 2009 and a $1.5 billion investment by Vivendi Universal (“Vivendi”) in EchoStar, which resulted in the issuance of 5,760,479 shares of EchoStar’s Series D convertible preferred stock to a subsidiary of Vivendi. While there can be no assurance, the remaining $3.325 billion bridge commitment is expected to be reduced to zero through a combination of financings by EchoStar, Hughes or a subsidiary of Hughes on or prior to the closing of the Hughes merger through public or private debt or equity offerings, bank debt or a combination thereof. The amount of such cash that could be raised by EchoStar prior to completion of the Hughes merger is severely restricted. EchoStar’s agreements with GM and Hughes also severely restrict the amount of additional equity capital that can be raised by EchoStar, which restrictions may continue for up to two years following completion of the Hughes merger, absent possible favorable IRS rulings or termination of the Hughes merger.

     If the Hughes merger is terminated, under certain circumstances EchoStar may be required to pay a $600 million termination fee to Hughes, and may, under certain circumstances, be required to purchase Hughes’ interest in PanAmSat for approximately $2.7 billion, either directly or through a merger or tender offer. In the event that only Hughes’ interest in PanAmSat is initially acquired, EchoStar would also be required to offer to acquire all of the remaining outstanding stock of PanAmSat at $22.47 per share. EchoStar expects that its acquisition of Hughes’ interest in PanAmSat, which would be at a price of $22.47 per share, together with its assumed purchase of the remaining outstanding PanAmSat shares and its payment of the termination fee to GM would require at least $3.4 billion of cash and approximately $600 million of EchoStar’s class A common stock (although EchoStar might instead choose to use a greater proportion of cash, and less or no stock for the purchase). EchoStar expects that it would meet this cash requirement by utilizing a portion of its cash, cash equivalents, and marketable investment securities on hand.

     As of September 30, 2002, EchoStar has capitalized approximately $43 million in merger related costs. If the Hughes merger is not consummated, EchoStar may be required to record a charge to earnings in future periods equal to all or a portion of this amount, plus remaining deferred bridge commitment fees of approximately $33 million. In addition, EchoStar may be required to record charges to earnings for any amount by which the actual PanAmSat purchase price exceeds the estimated fair value of the investment, and, if applicable, the potential $600 million termination fee discussed above.

2. Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles and with the instructions to Form 10-Q and Article 10 of Regulation S-X for interim financial information. Accordingly, these statements do not include all of the information and footnotesdisclosures required by generally accepted accounting principles for complete financial statements. In theour opinion, of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. All significant intercompany accounts and transactions have been eliminated in consolidation. Operating results for the ninesix months ended SeptemberJune 30, 20022003 are not necessarily indicative of the results that may be expected for the year ending December 31, 2002.2003. For further information, refer to the consolidated financial statements and footnotesdisclosures thereto included in EchoStar’s Annual Report on Form 10-K for the year ended December 31, 2001.2002. Certain prior year amounts have been reclassified to conform with the current year presentation.

Use of Estimates

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

5During the three months ended June 30, 2003, we recorded a reduction to Cost of sales — subscriber promotion subsidies of approximately $34.4 million primarily related to the receipt of a reimbursement payment for previously sold set-top box equipment pursuant to a litigation settlement.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — Continued
(Unaudited)

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

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

Comprehensive Income (Loss)

The components of comprehensive loss,income (loss), net of tax, are as follows (in thousands):follows:

Accumulated other comprehensive income (loss) presented on the accompanying condensed consolidated balance sheets consists of the accumulated net unrealized gains (losses) on available-for-sale securities, net of deferred taxes.

Basic and Diluted Net IncomeEarnings (Loss) Per Share

Statement of Financial Accounting Standards No. 128, “Earnings Per Share” (“FAS No. 128”) requires entities to present both basic earnings per share (“EPS”) and diluted EPS. Basic EPS excludes dilution and is computed by dividing income (loss) available to common shareholders by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if stock options or warrants were exercised orand convertible securities were converted to common stock, resulting in the issuance ofstock.

We recorded a net loss attributable to common stock that then would share in any earnings of the Company.

     EchoStar had net lossesshareholders for the threesix month period ending SeptemberJune 30, 2002 and for the nine month periods ending September 30, 2001 and 2002. Therefore, the effect of the common stock equivalents and convertible securities isare excluded from the computation of diluted earnings (loss) per share for these periodsthat period since the effect of including them is anti-dilutive. Since EchoStarwe reported net income attributable to common shareholders for the three month periods ending June 30, 2003 and 2002 and for the six month period ending SeptemberJune 30, 2001,2003, the potential dilution from stock options exercisable into common stock for thosethese periods was computed using the treasury stock method based on the average fair market value of the Class A common stock for the respective periods.period. The following table reflects the basic and diluted weighted-average shares outstanding used to calculate basic and diluted earnings per share.

As of June 30, 2002 and 2003, options to purchase a total of approximately 21.0 million and 18.4 million shares of Class A common stock were outstanding, respectively. The 4 7/8% Convertible Subordinated Notes and the 5 3/4% Convertible Subordinated Notes were convertible into approximately 22.0 million shares and 23.1 million shares of Class A common stock, respectively, for both the periods ended June 30, 2002 and 2003. The convertible notes are

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — Continued
(Unaudited)

not included in the diluted EPS calculation as the effect of the conversion of the notes would be anti-dilutive. Of the options outstanding as of June 30, 2003, approximately 8.3 million shares were outstanding under a long term incentive plan. Vesting of these options is contingent upon meeting certain longer-term goals which have not yet been achieved. As such, the long-term incentive options are not included in the diluted EPS calculation.

Accounting for Stock-Based Compensation

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

Pro forma information regarding net income and earnings per share is required by FAS No. 123 and Financial Accounting Standard No. 148, “Accounting and Disclosure of Stock-Based Compensation — Transition and Disclosure,” (“FAS No. 148”). Pro forma information has been determined as if we had accounted for our stock-based compensation plans using the fair value method prescribed by FAS No. 123. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the vesting period of the options. A value is not attributed to options that employees forfeit because they fail to satisfy specified service or performance related conditions. The following table, as required by FAS No. 148, illustrates the effect on net income (loss) and income (loss) per share if we had accounted for our stock-based compensation plans using the fair value method prescribed by FAS No. 123 (in thousands).thousands, except per share amounts):

For purposes of this pro forma presentation, the fair value of each option grant was estimated at the date of the grant using a Black-Scholes option pricing model with the following weighted-average assumptions for grants during the three and six months ended June 30, 2002 and 2003.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — Continued
(Unaudited)

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

Non-cash, stock-based compensation

During 1999, we adopted an incentive plan under our 1995 Stock Incentive Plan, that provided certain key employees with incentives including stock options. The table below shows the amount of compensation expense recognized under this performance-based plan for the three and six months ended June 30, 20012002 and 2002,2003. The expense decrease from prior year for both the three and six months is primarily attributable to stock option forfeitures resulting from employee terminations. The remaining deferred compensation of $4.7 million as of June 30, 2003, which will be reduced by future forfeitures, if any, will be recognized over the remaining vesting period, ending on March 31, 2004.

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

In addition, options to purchase a total of approximately 23,738,000 and 21,182,0008.3 million shares of Class A common stock were outstanding respectively. Asas of SeptemberJune 30, 2002,2003 and were granted with exercise prices equal to the 4 7/8% Convertible Subordinated Notesmarket value of the underlying shares on the dates they were issued during 1999, 2000 and the 5 3/4% Convertible Subordinated Notes were convertible into approximately 22 million shares and 23 million shares of Class A common stock, respectively.2001 pursuant to a separate long term incentive plan under our 1995 Stock Incentive Plan. The convertible notes are not included in the diluted EPS calculation as the notes are anti-dilutive because the interest per common share obtainable on conversionweighted-average exercise price of these securities exceedsoptions is $8.85. Vesting of these options is contingent upon meeting certain longer-term goals which have not yet been achieved. Consequently, no compensation was recorded during the basic earnings (loss) per share.six months ended June 30, 2003 related to these long-term options. We will record the related compensation at the achievement, if ever, of the performance goals. Such compensation, if recorded, would likely result in material non-cash, stock-based compensation expense in our statements of operations.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — Continued
(Unaudited)

New Accounting Pronouncements

In July 2001,November 2002, the EITF reached a consensus on Issue No. 00-21, “Accounting for Revenue Arrangements with Multiple Deliverables.” EITF Issue No. 00-21 governs arrangements involving multiple deliverables and how the related revenue should be measured and allocated to each deliverable. EITF Issue No. 00-21 will apply to revenue arrangements entered into after June 30, 2003; however, upon adoption, the EITF allows the guidance to be applied on a retroactive basis, with the change, if any, reported as a cumulative effect of accounting change in the consolidated statements of operations. The implementation of this new EITF issue is not expected to have a material impact on our financial position or results of operations.

In January 2003, the Financial Accounting Standards Board issued StatementFASB Interpretation No. 46, “Consolidation of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets”Variable Interest Entities” (“FAS 142”FIN 46”), which addresses the consolidation of variable interest entities as defined in the Interpretation. FIN 46 requires goodwill and intangible assets with indefinite useful livesan assessment of certain investments to no longer be amortized but to be testeddetermine if they are variable interest entities. FIN 46 is immediately effective for impairment at least annually. Intangible assets that have finite lives will continue to be amortized over their estimated useful lives. The amortization and non-amortization provisions of FAS 142 will be applied to all goodwill and intangible assets acquiredvariable interest entities created after September 30, 2001. Effective January 31, 2003. For variable interest entities created before February 1, 2002, EchoStar adopted2003, the provisions of FAS 142FIN 46 must be applied no later than the beginning of the first interim period or annual reporting period beginning after June 15, 2003. In addition, if it is reasonably possible that an enterprise will consolidate or disclose information about a variable interest entity, the enterprise shall discuss the following information in all financial statements issued after January 31, 2003: (i) the nature, purpose, size or activities of the variable interest entity and ceased amortization(ii) the enterprise’s maximum exposure to loss as a result of its FCC authorizations, which were determined toinvolvement with the variable interest entity. We implemented FIN 46 effective January 1, 2003. Implementation of FIN 46 did not have indefinite lives. In accordance with FAS 142, EchoStar tested its FCC authorizations for impairment as of the date of adoption and determined that there was no impairment. The following table reconciles previously reported net income (loss) and basic and diluted loss per common share as if the provisions of FAS 142 were in effect for the three and nine months ended September 30, 2001 (in thousands).

     As of December 31, 2001 and September 30, 2002, EchoStar had approximately $52 million and $54 million of gross identifiable acquisition intangibles, respectively, with related accumulated amortization of approximately $22 million and $30 million for each period, respectively. These identifiable acquisition intangibles primarily include acquired contracts and technology-based intangibles. Amortization of these intangible assets with an average finite useful life of approximately five years was $3 million and $8 million for the three and nine months ended September 30, 2002, respectively. EchoStar estimates that such amortization expense will aggregate approximately $11 million annually for the remaining useful life of these intangible assets of approximately 2.25 years.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — Continued
(Unaudited)

     In July 2002, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 146, “Accounting for Costs Associated with Exit or Disposal Activities” (“FAS 146”), which will require companies to record exit, including restructuring, or disposal costs when they are incurred and can be measured at fair value, and subsequently adjust the recorded liability for changes in estimated cash flows. FAS 146 also provides specific guidancea material impact on accounting for employee and contract terminations that are part of restructuring activities. The new requirements in FAS 146 are effective prospectively for exit or disposal activities initiated after December 31, 2002. EchoStar is currently evaluating the potential impact, if any, the adoption of FAS 146 will have on itsour financial position andor results of operations.

3. Vivendi Universal

     In connection with Vivendi’s purchase of Series D convertible preferred stock during January 2002, Vivendi received contingent value rights. If during a 20 day trading period preceding the three-year anniversary of the completion of the Hughes merger, or if the merger is not completed, the 30 month settlement date specified below (if the Hughes merger is not completed), the average price of EchoStar’s class A common stock is above the $26.04 price per share paid by Vivendi, then no amount will be payable. If the average price of EchoStar’s class A common stock during the relevant 20 day period is below that price, then EchoStar is obligated to pay Vivendi the difference between the price paid by Vivendi and the then current average price, up to a maximum payment under the rights of $225 million if the Hughes merger is completed, or $525 million if the Hughes merger is not completed. Any amount owed under these rights, which may be paid in cash or in EchoStar’s class A common stock at EchoStar’s option, would be settled three years after completion of the Hughes merger, except in certain limited circumstances. If the Hughes merger is not consummated, these rights will be settled at the earlier of 30 months after the acquisition of Hughes’ 81% interest in PanAmSat or the termination of the merger agreement and the PanAmSat stock purchase agreement. Any sale, transfer, or other disposition of the Series D convertible preferred stock, or the EchoStar class A common stock issued upon conversion of the Series D convertible preferred stock (other than to certain wholly owned subsidiaries), will result in termination of the portion of the contingent value rights corresponding to the number of shares transferred. Generally, in the event that the price of EchoStar’s class A common stock is at or above $31.25 for 90 consecutive calendar days prior to maturity of the contingent value rights, the rights automatically expire. However, during the period prior to either consummation of the transactions contemplated by the merger agreement with Hughes or termination of the merger agreements by the parties, Vivendi is prohibited from directly or indirectly selling or otherwise disposing of any EchoStar class A common stock, Series D convertible preferred stock, or any other EchoStar equity security, including from engaging in any hedging or derivative transaction involving such securities, and the contingent value rights cannot expire during that period regardless of the trading price.

     EchoStar used a Black-Scholes pricing model, a widely accepted tool which is commonly used to value financial instruments such as options, warrants, etc., and applied certain other assumptions and judgments described below, to value the contingent rights. The current settlement amount of the contingent value rights is re-estimated on a quarterly basis by revising the current stock price included in the Black-Scholes model and re-evaluating all assumptions, as well as using management’s estimates considering relevant facts and circumstances. Changes in the estimated value are recorded as charges to earnings. As of September 30, 2002, the estimated value of the contingent value rights is approximately $171 million.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — Continued
(Unaudited)

     The Black-Scholes assumptions used to value the contingent value rights are as follows:

     Since the maximum possible payment under the contingent value rights is different depending on whether the merger with Hughes is consummated, the contingent value rights valuation also requires an assumption to be made with respect to the probability that the merger with Hughes will be consummated. As of September 30, 2002, if management decreased by 10 percentage points its estimate regarding the likelihood that the merger will be consummated, without changing any other assumptions, our liabilities, and the estimated value of the contingent value rights, would increase by approximately $9.9 million, resulting in a charge to earnings in the same amount. Similarly, if management increased by 10 percentage points its estimate regarding the likelihood the merger will be consummated, our liabilities, and the estimated value of the contingent value rights, would decrease by approximately $9.9 million, resulting in an increase in earnings by the same amount.

     Further, the contingent rights might terminate prior to their maturity date, either as a result of sales by Vivendi of underlying equity, or as a result of the price of EchoStar’s common stock trading, for 90 consecutive days, at least 20% above the price per share initially paid by Vivendi. As a result, the contingent value rights valuation also requires an adjustment to be made to the Black-Scholes Model to account for the possibility that the contingent value rights will terminate in whole or in part prior to their maturity date. As of September 30, 2002, if management decreased by 10 percentage points its estimate regarding the possibility that the contingent value rights might terminate prior to their maturity, without changing any other assumptions, our liabilities, and the estimated value of the contingent value rights, would increase by approximately $34.1 million, resulting in a charge to earnings in the same amount. Similarly, if management increased by 10 percentage points its estimate of the likelihood the contingent value rights might terminate prior to their maturity date, our liabilities, and the estimated value of the contingent value rights, would decrease by approximately $34.1 million, resulting in an increase in earnings by the same amount.

     As of September 30, 2002, if EchoStar’s stock price decreased by 10%, without changing any other assumptions, our liabilities, and the estimated value of the contingent value rights, would increase by approximately $8.9 million, resulting in a charge to earnings in the same amount. A 10% increase in EchoStar’s stock price, without changing any other assumptions, would result in a decrease in our liabilities, and the estimated value of the contingent value rights, by approximately $8.6 million, and an increase in earnings by the same amount. If all three of the above described factors were simultaneously decreased by the percentages discussed above, our liabilities, and the estimated value of the contingent value rights, would increase by approximately $57.4 million, resulting in a charge to earnings in the same amount. A simultaneous increase of each factor by the percentages discussed above would result in a decrease in our liabilities, and the estimated value of the contingent value rights, by approximately $48.5 million, and an increase in earnings by the same amount.

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     The per share conversion price for the Series D convertible preferred stock was set at $26.04 upon execution of the investment agreement on December 14, 2001. Further, the effective per share value of the Series D convertible preferred stock excluding the contingent value rights was calculated as $25.51. However, the investment was not consummated until January 22, 2002, when the price of EchoStar’s class A common stock was $26.58. Since the price as of the date of consummation of the investment was above the effective per share value and since consummation of the investment was contingent upon regulatory approval, the Series D preferred stock was deemed to be issued with a beneficial conversion feature. This feature required the difference between the effective per share value and the price as of the date of consummation to be recorded as a discount on the Series D convertible preferred stock. Since the Series D convertible preferred stock is immediately convertible at the holder’s option, the Series D convertible preferred stock was accreted to its conversion value through a charge to retained earnings equal to the discount of approximately $61.9 million as of the date of issuance.

     The issuance costs of approximately $16.5 million related to the Series D convertible preferred stock were recorded as a discount on the Series D convertible preferred stock. However, since the Series D convertible preferred stock is redeemable at the holder’s option upon a change of control, as defined in the related agreement, and the redemption price of the Series D convertible preferred stock exceeds the discounted carrying value, the discount would be charged to retained earnings to restore the Series D convertible preferred stock to its redemption value if redemption of the Series D convertible preferred stock became probable. The merger of EchoStar and Hughes does not constitute a change of control with respect to the Series D convertible preferred stock. As of September 30, 2002, redemption of the Series D convertible preferred stock is not considered probable and thus no charge to retained earnings has been recorded.

     The $30.7 million initial estimated value of the contingent value rights, together with aggregate quarterly adjustments through June 30, 2002 of approximately $5.4 million, were originally recorded as a component of net income (loss) available (attributable) to common shareholders and reflected in net income (loss) per common share, but were not included as a component of net income (loss). These amounts were also included as a credit to Series D convertible preferred stock and contingent value rights, and therefore were not reflected as liabilities on the March 31, 2002 and June 30, 2002 balance sheets. As of September 30, 2002, the contingent value rights have been reclassified from Series D convertible preferred stock to a liability on the accompanying balance sheets. Changes in the estimated value of the contingent value rights, approximating $134.5 million for the three months ended September 30, 2002, have been recorded as a charge to earnings for the period. In addition, the statement of operations for the nine months ended September 30, 2002 has been adjusted to reflect the changes in the estimated value of the contingent value rights during the six months ended June 30, 2002, aggregating approximately $5.4 million, as a charge to earnings. Accordingly, the estimated value of the contingent value rights of approximately $171 million is reflected as a liability as of September 30, 2002 and the aggregate changes in estimated value of $139.9 million have been reflected as charges to earnings for the nine months then ended. These adjustments had no impact on reported net income (loss) available (attributable) to common shareholders or basic and diluted net income (loss) per share for the nine months ended September 30, 2002, or for any previously reported period. These adjustments also caused an increase to additional paid-in capital of approximately $30.7 million and a corresponding decrease in Series D convertible preferred stock to reflect the allocation of the original proceeds to the contingent value rights and the corresponding impact on the beneficial conversion feature.

4. Marketable and Non-Marketable Investment Securities

     EchoStarWe currently classifiesclassify all marketable investment securities as available-for-sale. In accordance with generally accepted accounting principles, EchoStar adjustswe adjust the carrying value of itsour available-for-sale marketable investment securities to fair market value and reportsreport the related temporary unrealized gains and losses as a separate component of stockholders’ deficit, net of related deferred income tax, if applicable. Declines in the fair market value of a marketable investment security which are estimated to be “other than temporary” must be recognized in the statement of operations, thus establishing a new cost basis for such investment. EchoStar evaluates itsWe evaluate our marketable investment securities portfolio on a quarterly basis to determine whether declines in the market value of these securities

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are other than temporary. This quarterly evaluation consists of reviewing, among other things, the fair value of EchoStar’sour marketable investment securities compared to the carrying value of these securities, the historical volatility of the price of each security and any market and company specific factors related to each security. Generally, absent specific factors to the contrary, declines in the fair value of investments below cost basis for a period of less than six months are considered to be temporary. Declines in the fair value of investments for a period of six to nine months are evaluated on a case by case basis to determine whether any company or market-specific factors exist which would indicate that such declines are other than temporary. Declines in the fair value of investments below cost basis for greater than nine months are considered other than temporary and are recorded as charges to earnings, absent specific factors to the contrary.

As of SeptemberJune 30, 2002, EchoStar2003, we recorded unrealized lossesgains of approximately $60$65.3 million as a separate component of stockholders’ deficit. During the ninesix months ended SeptemberJune 30, 2002, EchoStar2003, we also recorded an aggregate charge to earnings for other than temporary declines in the fair market value of certain of itsour marketable investment securities of approximately $50$2.0 million, and established a new cost basis for these securities. This amount does not include realized gains of approximately $13$2.0 million on the sales of marketable investment securities. EchoStar’sOur approximately $4.2$2.82 billion of restricted and unrestricted cash, cash equivalents and marketable investment securities includeincludes debt and equity securities which EchoStar ownswe own for strategic and financial purposes. The fair market value of these strategic marketable investment securities aggregated approximately $75$168.9 million as of SeptemberJune 30, 2002.2003. During the quartersix months ended SeptemberJune 30, 2002, EchoStar’s2003, our portfolio generally, and EchoStar’sour strategic investments particularly, experienced and continue to experience volatility. If the fair market value of EchoStar’sour marketable securities portfolio does not increase toremain above cost basis or if EchoStar becomeswe become aware of any market or company specific factors that indicate that the carrying value of certain of itsour securities

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is impaired, EchoStarwe may be required to record additional charges to earnings in future periods equal to the amount of the decline in fair value.

     EchoStarWe also hashave made strategic equity investments in certain non-marketable investment securities. EchoStar’sThese securities are not publicly traded. Our ability to create realizablerealize value from itsour strategic investments in companies that are not public is dependent on the success of their business and their ability to obtain sufficient capital to execute their business plans. Since private markets are not as liquid as public markets, there is also increased risk that EchoStarwe will not be able to sell these investments or that when EchoStar desireswe desire to sell them that itwe will not be able to obtain full value for them. EchoStar evaluates itsWe evaluate our non-marketable investment securities on a quarterly basis to determine whether the carrying value of each investment is impaired. The securities of these companies are not publicly traded. As a result, thisThis quarterly evaluation consists of reviewing, among other things, company business plans and current financial statements, if available, for factors which may indicate an impairment in EchoStar’sour investment. Such factors may include, but are not limited to, cash flow concerns, material litigation, violations of debt covenants and changes in business strategy.

     EchoStar made a strategic investment in StarBand Communications, Inc. During April 2002, EchoStar changed its sales and marketing relationship with StarBand and ceased subsidizing StarBand equipment. During the first quarter of 2002, EchoStar determined that the carrying value of its investment in StarBand, net of approximately $8 million of equity in losses of StarBand recorded during 2002, wassix months ended June 30, 2003, we did not recoverable and recorded anrecord any impairment charge of approximately $28 millioncharges with respect to reduce the carrying value of its StarBand investment to zero. The determination was based, among other things, on EchoStar’s continuing evaluation of StarBand’s business model, including further deterioration of StarBand’s limited available cash, combined with increasing cash requirements, resulting in a critical need for additional funding, with no clear path to obtain that cash. StarBand subsequently filed for bankruptcy during June 2002.

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these instruments.

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5.4. Inventories

Inventories consist of the following (in thousands):following:

6.5. Property and Equipment

EchoStar III

During June 2003, a transponder pair on EchoStar III failed, resulting in a temporary interruption of service. Operation of the satellite was quickly restored. Including the six transponder pairs that malfunctioned in prior years, these anomalies have resulted in the failure of a total of fourteen transponders on the satellite to date. While originally designed to operate a maximum of 32 transponders at any given time, the satellite was equipped with a total of 44 transponders to provide redundancy, and can now operate a maximum of 30 transponders. We are only licensed by the FCC to operate 11 transponders at the 61.5 degree orbital location (together with an additional six leased transponders), where EchoStar III is located.

EchoStar V

During 2000, 2001 and 2001,2002, EchoStar V experienced anomalies resulting in the loss of twothree solar array strings, and during August 2002,January 2003, EchoStar V experienced anomalies resulting in the loss of an additional solar array string. The satellite has a total of approximately 96 solar array strings and approximately 92 are required to assure full power availability for the estimated 12-year design life of the satellite. In addition, during January 2003, EchoStar V experienced an anomaly in a spacecraft electronic component which affects the ability to receive telemetry from certain on-board equipment. Other methods of communication have been established to alleviate the effects of the failed

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component. An investigation of the solar array and electronic component anomalies, none of which have impacted commercial operation of the satellite, is continuing. Until the root cause of these anomalies is finally determined, there can be no assurance future anomalies will not cause further losses which could impact commercial operation of the satellite.

EchoStar VI

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

EchoStar VIII

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

     During September and October 2002, two of the thrusters on EchoStar VIII experienced anomalous events and are not currently in use. During March 2003, an additional thruster on EchoStar VIII experienced an anomalous event and is not currently in use. The satellite is equipped with a total of 12 thrusters that help control spacecraft location, attitude, and pointing.pointing and is currently operating using a combination of the other nine thrusters. This workaround requires more frequent maneuvers to maintain the satellite at its specified orbital location, which are less efficient and therefore result in accelerated fuel use. In addition, the workaround will require certain gyroscopes to be utilized for aggregate periods of time substantially in excess of their originally qualified limits. However, neither of these workarounds are expected to reduce the estimated design life of the satellite to less than 12 years. An investigation of the thruster anomalies including the development of additional workarounds for long term operations is continuing. None of these events has impacted commercial operation of the satellite to date. Until the root cause of these anomalies has been finally determined, there can be no assurance that these or future anomalies will not cause further losses which could impact commercial operation of the satellite.

EchoStar VIII is equipped with two solar arrays which convert solar energy into power for the satellite. Those arrays rotate continuously to maintain optimal exposure to the sun. During June and July 2003, EchoStar VIII experienced anomalies that temporarily halted rotation of one of the solar arrays. The array is currently fully functional but rotating in a mode recommended by the satellite manufacturer which allows full rotation, but which is different than the originally prescribed mode. An investigation of the solar array anomalies, none of which have impacted commercial operation of the satellite, to date, is continuing. The satellite can operate using a combination of the other 10 thrusters. UntilUnless the root cause of these anomalies is finally determined, there can be no assurance future anomalies will not cause further losses which could impact commercial operation of the satellite.

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Satellite Insurance

As a result of the failure of EchoStar IV solar arrays to fully deploy and the failure of 38 transponders to date, a maximum of 6 of the 44 transponders (including spares) on EchoStar IV are available for use at this time. In addition to the transponder and solar array failures, EchoStar IV experienced anomalies affecting its thermal systems and propulsion system. There can be no assurance that further material degradation, or total loss of use, of EchoStar IV will not occur in the immediate future. Currently no programming is being transmitted to customers on EchoStar IV andis currently located at the satellite functions as an in-orbit spare.157 degree orbital location.

In September 1998, EchoStarwe filed a $219.3 million insurance claim for a constructive total loss under the launch insurance policies covering EchoStar IV. The satellite insurance consists of separate substantially identical policies with different carriers for varying amounts that, in combination, create a total insured amount of $219.3 million. The insurance carriers include La Reunion Spatiale; AXA Reinsurance Company (n/k/a AXA Corporate Solutions Reinsurance Company), United States Aviation Underwriters, Inc., United States Aircraft Insurance Group; Assurances Generales De France I.A.R.T. (AGF); Certain Underwriters at Lloyd’s, London; Great Lakes Reinsurance (U.K.) PLC; British Aviation Insurance Group; If Skaadeforsikring (previously Storebrand); Hannover Re (a/k/a International Hannover); The Tokio Marine & Fire Insurance Company, Ltd.; Marham Space Consortium (a/k/a Marham Consortium Management); Ace Global Markets (a/k/a Ace London); M.C. Watkins Syndicate; Goshawk Syndicate Management Ltd.; D.E. Hope Syndicate 10009 (Formerly Busbridge); Amlin Aviation; K.J. Coles & Others; H.R. Dumas & Others; Hiscox Syndicates, Ltd.; Cox Syndicate; Hayward Syndicate; D.J. Marshall & Others; TF Hart; Kiln; Assitalia Le Assicurazioni D’Italia S.P.A. Roma; La Fondiaria Assicurazione S.P.A., Firenze; Vittoria Assicurazioni S.P.A., Milano; Ras — Riunione Adriatica Di Sicurta S.P.A., Milano; Societa Cattolica Di Assicurazioni, Verano; Siat Assicurazione E Riassicurazione S.P.A, Genova; E. Patrick; ZC Specialty Insurance; Lloyds of London Syndicates 588

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NJM, 1209 Meb AND 861 Meb; Generali France Assurances; Assurance France Aviation; and Ace Bermuda Insurance Ltd.

The insurance carriers offered EchoStarus a total of approximately $88$88.0 million, or 40%40.0% of the total policy amount, in settlement of the EchoStar IV insurance claim. The insurers assert, among other things, that EchoStar IV was not a constructive total loss, as that term is defined in the policy, and that EchoStarwe did not abide by the exact terms of the insurance policies. EchoStarWe strongly disagreesdisagree and filed arbitration claims against the insurers for breach of contract, failure to pay a valid insurance claim and bad faith denial of a valid claim, among other things. Due to individual forum selection clauses in certain of the policies, we are pursuing our arbitration claims against Ace Bermuda Insurance Ltd. in London, England, and our arbitration claims against all of the other insurance carriers in New York, New York. The New York arbitration commenced on April 28, 2003, and hearings were held for two weeks. The arbitration will resume on September 16, 2003. The parties to the London arbitration have agreed to stay that proceeding pending a ruling in the New York arbitration. There can be no assurance that EchoStarwe will receive the amount claimed in either the New York or the London arbitrations or, if EchoStar does,we do, that EchoStarwe will retain title to EchoStar IV with its reduced capacity. While there can be no assurance, the arbitration is expected to occur during 2003.

At the time EchoStarwe filed itsour claim in 1998, EchoStarwe recognized an initial impairment loss of $106$106.0 million to write-down the carrying value of the satellite and related costs, and simultaneously recorded an insurance claim receivable for the same amount. EchoStarWe will have to reduce the amount of thethis receivable if a final settlement is reached for less than this amount. In addition, during 1999, we recorded an impairment loss of approximately $16.0 million as a charge to earnings to further write-down the carrying value of the satellite.

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

The indentures related to certain of EchoStar DBS Corporation’s (“EDBS”) senior notes contain restrictive covenants that require EchoStarus to maintain satellite insurance with respect to at least half of the satellites it owns or leases. In addition, the indenture related to EchoStar Broadband Corporation’s (“EBC”) senior notes requires EchoStar to maintain satellite insurance on the lesserEight of half of its satellites or three of its satellites. All of EchoStar’s eightour nine in-orbit DBS satellites are currently owned by a direct or indirect subsidiariessubsidiary of EDBS. Insurance coverage is therefore required for at least four of EchoStar’sEDBS’ eight satellites. The launch and/or in-orbit insurance policies for EchoStar I through EchoStar VIIVIII have expired. EchoStar hasWe have been unable to obtain insurance on any of these satellites on terms acceptable to EchoStar.us. As a result, EchoStar iswe are currently self-insuring these satellites. To satisfy insurance covenants related to EDBS’ and EBC’s senior notes, EchoStar haswe have reclassified an amount equal to the depreciated cost of four of

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its our satellites from cash and cash equivalents to cash reserved for satellite insurance on itsour balance sheet. As of SeptemberJune 30, 2002,2003, cash reserved for satellite insurance totaled approximately $159$135.2 million. The reclassifications will continue until such time, if ever, as EchoStarwe can again insure itsour satellites on acceptable terms and for acceptable amounts, or until the covenants requiring the insurance are no longer applicable.

7. Bridge Financing Commitments6. Goodwill and Intangible Assets

     In connection with the proposed merger between EchoStarAs of December 31, 2002 and Hughes, EchoStar and Hughes obtained a $5.525 billion bridge financing commitment and EchoStar paidJune 30, 2003, we had approximately $55$53.8 million of commitment fees in connection therewith. As a resultgross identifiable intangibles with related accumulated amortization of approximately $33.6 million and $38.7 million as of the saleend of 9 1/8% Senior Notes due 2009 by EDBS during December 2001each period, respectively. These identifiable intangibles primarily include acquired contracts and technology-based intangibles. Amortization of these intangible assets with an average finite useful life of approximately five years was about $2.6 million and $5.1 million for the closingthree and six months ended June 30, 2003, respectively. We estimate that such amortization expense will aggregate approximately $10.0 million annually for the remaining useful life of the $1.5 billion Vivendi investment in EchoStar during January 2002, the bridge commitment was reduced to $3.325 billion.

     Approximately $7.4these intangible assets of approximately 1.5 years. In addition, our business unit DISH Network had approximately $3.4 million of deferred commitment fees were expensed upon issuance of the 9 1/8% Senior Notes by EDBS and approximately $15 million of deferred commitment fees were expensed upon closing of the $1.5 billion equity investment in EchoStar by Vivendi. Approximately $33 million of deferred commitment fees remaingoodwill as of SeptemberDecember 31, 2002 and June 30, 2002. That amount will be charged to interest expense as and if the bridge commitment is further reduced. If the Hughes merger is not consummated, total remaining commitment fees will be immediately charged to earnings. In the event that the bridge commitment is drawn, any deferred commitment fees not previously expensed will be amortized to interest expense in future periods.2003.

     A fee of .50% per year on the aggregate bridge financing commitment outstanding is payable quarterly, in arrears, until the closing of the Hughes merger, or the termination or expiration of the agreements relating to the bridge commitments. These fees are expensed as incurred. During the nine months ended September 30, 2002, EchoStar expensed approximately $13 million for these fees.

8. Commitments and Contingencies

Fee Dispute

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

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7. Long-Term Debt

Effective February 1, 2003, EDBS redeemed all of its outstanding9 1/4% Senior Notes due 2006. In accordance with the terms of the indenture governing the notes, the $375.0 million principal amount of the notes was repurchased at 104.625%, for a total of approximately $392.3 million. The premium paid of approximately $17.3 million, along with unamortized debt issuance costs of approximately $3.3 million, were recorded as charges to earnings as of February 1, 2003.

8. Commitments and Contingencies

Commitments

SES Americom

During March 2003, one of our wholly-owned subsidiaries, EchoStar Satellite Corporation (“ESC”), entered into a satellite service agreement with SES Americom for all of the capacity on a Fixed Satellite Service (“FSS”) satellite to be located at the 105 degree west orbital location. This satellite is scheduled to be launched during the second half of 2004. ESC also agreed to lease all of the capacity on an existing in-orbit FSS satellite at the 105 degree orbital location beginning August 1, 2003 and continuing in most circumstances until the new satellite is launched.

ESC intends to use the capacity on the satellites to offer a combination of satellite TV programming including local network channels in additional markets and expanded high definition programming, together with satellite-delivered, high-speed internet services. In connection with the SES agreement, ESC paid $50.0 million to SES Americom to partially fund construction of the new satellite. The ten-year satellite service agreement is renewable by ESC on a year to year basis following the initial term, and provides ESC with certain rights to replacement satellites at the 105 degree west orbital location. We are required to make monthly payments to SES Americom for both the existing in-orbit FSS satellite and also for the new satellite for the ten-year period following its launch.

EchoStar X

During July 2003, we entered into a contract for the construction of EchoStar X, a high-powered DBS satellite. Construction is expected to be completed during 2005. With spot-beam capacity, EchoStar X will provide back up protection for our existing local channel offerings, and could allow DISH Network to offer other value added services.

Satellite-Related Obligations

As a result of our recent agreements with SES Americom, and for the construction of EchoStar X, our obligations for payments related to satellites have increased substantially. While in certain circumstances the dates on which we are obligated to make these payments could be delayed, the aggregate amount due under all of our existing satellite-related contracts including satellite construction and launch, satellite leases, in-orbit payments to satellite manufacturers and tracking, telemetry and control payments is expected to be approximately $48.0 million for the remainder of 2003, $79.0 million during 2004, $87.0 million during 2005, $72.0 million during 2006, $57.0 million during 2007 and similar amounts in subsequent years. These amounts will increase further when we procure and commence payments for the launch of EchoStar X, and would further increase to the extent we procure insurance for our satellites or contract for the construction, launch or lease of additional satellites.

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Legal Proceedings

WIC Premium Television LtdLtd.

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

During September 1998, WIC filed another lawsuit in the Court of Queen’s Bench of Alberta Judicial District of Edmonton against certain defendants, including EchoStar.us. WIC is a company authorized to broadcast certain copyrighted work, such as movies and concerts, to residents of Canada. WIC alleges that the defendants engaged in, promoted, and/or allowed satellite dish equipment from the United States to be sold in Canada and to Canadian residents and that some of the defendants allowed and profited from Canadian residents purchasing and viewing subscription television programming that is only authorized for viewing in the United States. The lawsuit seeks, among other things, interim and permanent injunctions prohibiting the defendants from importing satellite receivers into Canada and from activating satellite receivers located in Canada to receive programming, together with damages in excess of $175$175.0 million.

The Court in the Alberta action denied EchoStar’s Motionour motion to Dismiss,dismiss, and EchoStar’sour appeal of that decision. The Federal action has been stayed pendingdismissed by the outcome of thefederal court. The Alberta action. The caseaction is now in discovery. EchoStar intendspending. We intend to continue to vigorously defend the suit. Recently,During 2002, the Supreme Court of Canada ruled that the receipt in Canada of programming from United States pay television providers is prohibited. While EchoStar waswe were not a party to that case, the ruling could averselyadversely affect EchoStar’sour defense. It is too early to make an assessment of the probable outcome of the litigation or to determine the extent of any potential liability or damages.

Distant Network Litigation

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

In October 1998, EchoStarwe filed a declaratory judgment action against ABC, NBC, CBS and FOX in the United States District Court for the District of Colorado. EchoStarWe asked the Court to enter judgment declaringfind that itsour method of providing distant network programming did not violate the Satellite Home Viewer Act and hence did not infringe the networks’ copyrights. In November 1998, the networks and their affiliate association groups filed a complaint against EchoStarus in Miami Federal Court alleging, among other things, copyright infringement. The Court combined the case that EchoStarwe filed in Colorado with the case in Miami and transferred it to the Miami Federal Court. The case remains pending in Florida. While the networks havedid not soughtclaim monetary damages and none were awarded, they have sought to recoverare seeking attorney fees if they prevail.in excess of $6.0 million. It is too early to make an assessment of the probable outcome of the plaintiff’s fee petition or to determine the extent of any potential liability.

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

     In December 1998, the networks filed a Motion for Preliminary Injunction against Echostar in the Florida case and asked the Court to enjoin EchoStar from providing network programming except under limited circumstances. A preliminary injunction hearing was held during September 1999. In March 2000, the networks filed an emergency motion again asking the Court to issue an injunction requiring EchoStar to cease providing network programming to

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certain of its customers. At that time, the networks also argued that EchoStar’s compliance procedures violated the Satellite Home Viewer Improvement Act. EchoStar opposed the networks’ motion and again asked the Court to hear live testimony before ruling upon the networks’ injunction request.

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

     Twice during October 2000, the Court amended its original preliminary injunction order in an effort to fix some of the errors in the original order. The twice amended preliminary injunction order required EchoStar to shut off, by February 15, 2001, all subscribers who were ineligible to receive distant network programming under the Court’s order. EchoStar appealed the preliminary injunction orders. During September 2001, the United States Court of Appeals for the Eleventh Circuit vacated the District Court’s nationwide preliminary injunction, which the Eleventh Circuit had stayed in November 2000. The Eleventh Circuit also rejected EchoStar’s First Amendment challenge to the Satellite Home Viewer Act. However, the Eleventh Circuit found that the District Court had made factual findings that were clearly erroneous and not supported by the evidence, and that the District Court had misinterpreted and misapplied the law. The Eleventh Circuit issued an order during January 2002, remanding the case to the Florida District Court. During March 2002, the Florida District Court entered an order setting the trial in the matter for January 13, 2003 and setting a discovery and pretrial schedule. In this order, the District Court denied certain of EchoStar’s outstanding motions to compel discovery as moot and granted the networks’ motion to compel. The trial date has now been moved to February 10, 2003. During April 2002, the District Court denied the networks’ motion for preliminary injunction as moot. In June 2002, EchoStar filed a counterclaim against the networks asking the District Court to find that EchoStar is not violating the Satellite Home Viewer Act and seeking damages resulting from the networks’ tortious interference with EchoStar’s business relationships and from the networks’ conduct amounting to unfair competition. The networks filed a motion to dismiss these claims. In August 2002, the District Court denied the networks’ motion to dismiss. In September 2002, the networks answered our counterclaim.

In April 2002, EchoStarwe reached a private settlement with ABC, Inc., one of the plaintiffs in the litigation and jointly filed a stipulation of dismissal. In November 2002, we reached a private settlement with NBC, another of the plaintiffs in

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the litigation and jointly filed a stipulation of dismissal. We have also reached private settlements with a small number of independent stations and station groups. We were unable to reach a settlement with six of the original eight plaintiffs — CBS, Fox, or the associations affiliated with each of the four networks.

The trial commenced on April 11, 2003 and concluded on April 25, 2003. On April 16, 2002,June 10, 2003, the Court issued its final judgment. The District Court found that with one exception our current distant network qualification procedures comply with the law. We have revised our procedures to comply with the District Court’s Order. Although the plaintiffs asked the District Court enteredto enter an order dismissing the claims between ABC, Inc. and EchoStar.

     If after a trialinjunction precluding us from selling any local or distant network programming, the District Court enters anrefused.

However, the District Court’s injunction against EchoStar,does require us to use a computer model to requalify, as of June 2003, all of our subscribers who receive ABC, NBC, CBS or Fox programming by satellite from a market other than the injunction could force EchoStar to terminate delivery ofcity in which the subscriber lives. The Court also invalidated all waivers historically provided by network stations. These waivers, which have been provided by stations for the past several years through a third party automated system, allow subscribers who believe the computer model improperly disqualified them for distant network channels, to a substantial portion of itsnone-the-less receive those channels by satellite. Further, even though the SHVIA provides that certain subscribers who received distant network subscriber base, which could also cause manychannels prior to October 1999 can continue to receive those channels through December 2004, the District Court terminated the right of theseour grandfathered subscribers to continue to receive distant network channels.

While we are pleased the District Court did not provide the relief sought by the plaintiffs, we believe the District Court made a number of errors and have filed a notice of appeal of the District Court’s decision. We have also asked the Court of Appeals to stay, until our appeal is decided, the current September 22, 2003 date by which EchoStar has been ordered to terminate distant network channels to all subscribers impacted by the District Court’s decision. The Court of Appeals has indicated it will rule on our request for a stay on or before August 15, 2003. It is not possible to predict how the Court of Appeals will rule on our stay, or how or when the Court of Appeals will rule on the merits of our appeal.

In the event the Court of Appeals does not stay the lower court’s ruling, and if we do not reach private settlement agreements with additional stations, we will attempt to assist subscribers in arranging alternative means to receive network channels, including migration to local channels by satellite where available, and free off air antenna offers in other markets. However, we can not predict with any degree of certainty how many subscribers will cancel their subscriptionprimary DISH Network programming as a result of termination of their distant network channels. Termination of distant network programming to EchoStar’s other programming services. Any suchsubscribers would result in a reduction in ARPU of no more than $0.30 per subscriber per month. While there can be no assurance, we do not expect that those terminations would result in any more than a small reduction in EchoStar’s reported average monthly revenue per subscriber and could result in a temporaryone percentage point increase in churn. If EchoStar losesour otherwise anticipated churn over the case at trial,course of the judge could, as one of many possible remedies, prohibit all future sales of distant network programming by EchoStar, which would have a material adverse affect on its business.next 12 months.

Gemstar

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

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In December 2000, EchoStarwe filed suit against Gemstar-TV Guide (and certain of its subsidiaries) in the United States District Court for the District of Colorado alleging violations by Gemstar of various federal and state anti-trust laws and laws governing unfair competition. The lawsuit seeks an injunction and monetary damages. Gemstar filed counterclaims alleging infringement of United States Patent Nos. 5,923,362 and 5,684,525 that relate to certain electronic program guide functions. EchoStarWe examined these patents and believe they are not infringed by any of itsour products or services. In

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