Edgar Filing: DISH Network CORP

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

T	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2013.

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

Commission File Number: 0-26176

DISH Network Corporation

(Exact name of registrant as specified in its charter)

Nevada		88-0336997
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

9601 South Meridian Boulevard
Englewood, Colorado		80112
(Address of principal executive offices)		(Zip code)

(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 T No £

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes T No £

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

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

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

As of November 1, 2013, the registrant’s outstanding common stock consisted of 219,368,931 shares of Class A common stock and 238,435,208 shares of Class B common stock.

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TABLE OF CONTENTS

PART I — FINANCIAL INFORMATION

	Disclosure Regarding Forward-Looking Statements	i

Item 1.	Financial Statements

	Condensed Consolidated Balance Sheets — September 30, 2013 and December 31, 2012 (Unaudited)	1

	Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) For the Three and Nine Months Ended September 30, 2013 and 2012 (Unaudited)	2

	Condensed Consolidated Statements of Cash Flows For the Nine Months Ended September 30, 2013 and 2012 (Unaudited)	3

	Notes to Condensed Consolidated Financial Statements (Unaudited)	4

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	53

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	81

Item 4.	Controls and Procedures	83

PART II — OTHER INFORMATION

Item 1.	Legal Proceedings	83

Item 1A.	Risk Factors	91

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	91

Item 3.	Defaults Upon Senior Securities	None

Item 4.	Mine Safety Disclosures	None

Item 5.	Other Information	None

Item 6.	Exhibits	92

	Signatures	93

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PART I — FINANCIAL INFORMATION

DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

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

Competition and Economic Risks Affecting our Business

· We face intense and increasing competition from satellite television providers, cable companies and telecommunications companies, especially as the pay-TV industry has matured, which may require us to increase subscriber acquisition and retention spending or accept lower subscriber activations and higher subscriber churn.

· Competition from digital media companies that provide or facilitate the delivery of video content via the Internet may reduce our gross new subscriber activations and may cause our subscribers to purchase fewer services from us or to cancel our services altogether, resulting in less revenue to us.

· Sustained economic weakness, including continued high unemployment and reduced consumer spending, may adversely affect our ability to grow or maintain our business.

· Our competitors may be able to leverage their relationships with programmers to reduce their programming costs and offer exclusive content that will place them at a competitive advantage to us.

· We face increasing competition from other distributors of unique programming services such as foreign language and sports programming that may limit our ability to maintain subscribers that desire these unique programming services.

Operational and Service Delivery Risks Affecting our Business

· If we do not continue improving our operational performance and customer satisfaction, our gross new subscriber activations may decrease and our subscriber churn may increase.

· If our gross new subscriber activations decrease, or if subscriber churn, subscriber acquisition costs or retention costs increase, our financial performance will be adversely affected.

· Programming expenses are increasing and could adversely affect our future financial condition and results of operations.

· We depend on others to provide the programming that we offer to our subscribers and, if we lose access to this programming, our gross new subscriber activations may decline and subscriber churn may increase.

· Our local programming strategy faces uncertainty because we may not be able to obtain necessary retransmission consent agreements at acceptable rates, or at all, from local network stations.

· We may be required to make substantial additional investments to maintain competitive programming offerings.

· Any failure or inadequacy of our information technology infrastructure could harm our business.

· We currently depend on EchoStar Corporation and its subsidiaries, or EchoStar, to design, develop and manufacture all of our new set-top boxes and certain related components, and to provide transponder capacity, digital broadcast operations and other services to us. Our business would be adversely affected if EchoStar ceases to provide these products and services to us and we are unable to obtain suitable replacement products and services from third parties.

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· We operate in an extremely competitive environment and our success may depend in part on our timely introduction and implementation of, and effective investment in, new competitive products and services, the failure of which could negatively impact our business.

· Technology in our industry changes rapidly and our inability to offer new subscribers and upgrade existing subscribers with more advanced equipment could cause our products and services to become obsolete.

· We rely on a single vendor or a limited number of vendors to provide certain key products or services to us such as information technology support, billing systems, and security access devices, and the inability of these key vendors to meet our needs could have a material adverse effect on our business.

· Our sole supplier of new set-top boxes, EchoStar, relies on a few suppliers and in some cases a single supplier, for many components of our new set-top boxes, and any reduction or interruption in supplies or significant increase in the price of supplies could have a negative impact on our business.

· Our programming signals are subject to theft, and we are vulnerable to other forms of fraud that could require us to make significant expenditures to remedy.

· We depend on third parties to solicit orders for our services that represent a significant percentage of our total gross new subscriber activations.

· We have limited owned and leased satellite capacity and failures or reduced capacity could adversely affect our business.

· Our owned and leased satellites are subject to construction, launch, operational and environmental risks that could limit our ability to utilize these satellites.

· We generally do not carry commercial insurance for any of the in-orbit satellites that we use, other than certain satellites leased from third parties, and could face significant impairment charges if one of our satellites fails.

· We may have potential conflicts of interest with EchoStar due to our common ownership and management.

· We rely on key personnel and the loss of their services may negatively affect our businesses.

Acquisition and Capital Structure Risks Affecting our Business

· We made a substantial investment to acquire certain AWS-4 wireless spectrum licenses and other assets from DBSD North America Inc. (“DBSD North America”) and TerreStar Networks, Inc. (“TerreStar”). We will need to make significant additional investments or partner with others to commercialize these licenses and assets.

· We made a substantial investment to acquire certain 700 MHz wireless spectrum licenses and will need to make significant additional investments or partner with others to commercialize these licenses.

· To the extent we commercialize our wireless spectrum licenses, we will face certain risks entering and competing in the wireless services industry and operating a wireless services business.

· Our Blockbuster business faces risks, including, among other things, operational challenges and increasing competition from video rental kiosks and streaming and mail order businesses that may negatively impact the business, financial condition or results of operations of Blockbuster.

· We may pursue acquisitions and other strategic transactions to complement or expand our businesses that may not be successful and we may lose up to the entire value of our investment in these acquisitions and transactions.

· We may need additional capital, which may not be available on acceptable terms or at all, to continue investing in our businesses and to finance acquisitions and other strategic transactions.

· A portion of our investment portfolio is invested in securities that have experienced limited or no liquidity and may not be immediately accessible to support our financing needs, including investments in public companies that are highly speculative and have experienced and continue to experience volatility.

· We have substantial debt outstanding and may incur additional debt.

· It may be difficult for a third party to acquire us, even if doing so may be beneficial to our shareholders, because of our ownership structure.

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· We are controlled by one principal stockholder who is also our Chairman.

Legal and Regulatory Risks Affecting our Business

· Our business depends on certain intellectual property rights and on not infringing the intellectual property rights of others.

· We are party to various lawsuits which, if adversely decided, could have a significant adverse impact on our business, particularly lawsuits regarding intellectual property.

· Our ability to distribute video content via the Internet involves regulatory risk.

· Changes in the Cable Act of 1992 (“Cable Act”), and/or the rules of the Federal Communications Commission (“FCC”) that implement the Cable Act, may limit our ability to access programming from cable-affiliated programmers at non-discriminatory rates.

· The injunction against our retransmission of distant networks, which is currently waived, may be reinstated.

· We are subject to significant regulatory oversight, and changes in applicable regulatory requirements, including any adoption or modification of laws or regulations relating to the Internet, could adversely affect our business.

· Our business depends on FCC licenses that can expire or be revoked or modified and applications for FCC licenses that may not be granted.

· We are subject to digital high-definition (“HD”) “carry-one, carry-all” requirements that cause capacity constraints.

· There can be no assurance that there will not be deficiencies leading to material weaknesses in our internal control over financial reporting.

· We may face other risks described from time to time in periodic and current reports we file with the Securities and Exchange Commission, or SEC.

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

Unless otherwise required by the context, in this report, the words “DISH Network,” the “Company,” “we,” “our” and “us” refer to DISH Network Corporation and its subsidiaries, “EchoStar” refers to EchoStar Corporation and its subsidiaries, and “DISH DBS” refers to DISH DBS Corporation and its subsidiaries, a wholly-owned, indirect subsidiary of DISH Network.

iii

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Item 1. FINANCIAL STATEMENTS

DISH NETWORK CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except share amounts)

(Unaudited)

	As of
	September 30,			December 31,
	2013			2012
Assets
Current Assets:
Cash and cash equivalents	$	4,793,453		$	3,606,140
Marketable investment securities	5,508,737			3,631,637
Trade accounts receivable - other, net of allowance for doubtful accounts of $18,725 and $16,945, respectively	895,944			842,905
Trade accounts receivable - EchoStar, net of allowance for doubtful accounts of zero	32,907			26,960
Inventory	580,714			623,720
Deferred tax assets	99,222			99,854
Prepaid income taxes	135,514			110,608
Other current assets (Note 2)	292,497			117,329
Total current assets	12,338,988			9,059,153

Noncurrent Assets:
Restricted cash and marketable investment securities	95,154			134,410
Property and equipment, net of accumulated depreciation of $3,183,169 and $3,043,609, respectively	4,055,871			4,402,360
FCC authorizations	3,296,665			3,296,665
Marketable and other investment securities	141,960			119,051
Other noncurrent assets, net	416,602			367,969
Total noncurrent assets	8,006,252			8,320,455
Total assets	$	20,345,240		$	17,379,608

Liabilities and Stockholders’ Equity (Deficit)
Current Liabilities:
Trade accounts payable - other	$	265,377		$	298,722
Trade accounts payable - EchoStar	336,164			281,875
Deferred revenue and other	862,942			857,280
Accrued programming	1,204,038			1,096,908
Accrued interest	232,400			224,383
Litigation accrual	—			70,999
Other accrued expenses	535,112			556,599
Current portion of long-term debt and capital lease obligations	487,039			537,701
Total current liabilities	3,923,072			3,924,467

Long-Term Obligations, Net of Current Portion:
Long-term debt and capital lease obligations, net of current portion	13,624,285			11,350,399
Deferred tax liabilities	1,801,081			1,662,732
Long-term deferred revenue, distribution and carriage payments and other long-term liabilities	270,966			370,382
Total long-term obligations, net of current portion	15,696,332			13,383,513
Total liabilities	19,619,404			17,307,980

Commitments and Contingencies (Note 12)

Stockholders’ Equity (Deficit):
Class A common stock, $.01 par value, 1,600,000,000 shares authorized, 275,448,372 and 270,613,262 shares issued, 219,330,112 and 214,495,002 shares outstanding, respectively	2,754			2,706
Class B common stock, $.01 par value, 800,000,000 shares authorized, 238,435,208 shares issued and outstanding	2,384			2,384
Class C common stock, $.01 par value, 800,000,000 shares authorized, none issued and outstanding	—			—
Additional paid-in capital	2,569,043			2,440,626
Accumulated other comprehensive income (loss)	205,081			188,803
Accumulated earnings (deficit)	(508,739		)	(1,028,193		)
Treasury stock, at cost	(1,569,459		)	(1,569,459		)
Total DISH Network stockholders’ equity (deficit)	701,064			36,867
Noncontrolling interest	24,772			34,761
Total stockholders’ equity (deficit)	725,836			71,628
Total liabilities and stockholders’ equity (deficit)	$	20,345,240		$	17,379,608

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

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DISH NETWORK CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE INCOME (LOSS)

(Dollars in thousands, except per share amounts)

(Unaudited)

	For the Three Months						For the Nine Months
	Ended September 30,						Ended September 30,
	2013			2012			2013			2012
Revenue:
Subscriber-related revenue	$	3,466,611		$	3,267,380		$	10,275,697		$	9,787,676
Equipment and merchandise sales, rental and other revenue	118,898			251,905			460,043			872,899
Equipment sales, services and other revenue - EchoStar	16,068			4,062			27,194			16,407
Total revenue	3,601,577			3,523,347			10,762,934			10,676,982

Costs and Expenses (exclusive of depreciation shown separately below - Note 7):
Subscriber-related expenses	1,976,712			1,808,285			5,812,325			5,393,202
Satellite and transmission expenses:
EchoStar	131,263			104,631			369,902			321,567
Other	10,177			10,915			30,615			31,772
Cost of sales - equipment, merchandise, services, rental and other	81,521			120,852			257,830			393,175
Subscriber acquisition costs:
Cost of sales - subscriber promotion subsidies	69,579			67,720			214,811			203,989
Other subscriber acquisition costs	426,739			387,749			1,179,943			1,057,660
Total subscriber acquisition costs	496,318			455,469			1,394,754			1,261,649
General and administrative expenses - EchoStar	23,459			20,763			68,636			47,635
General and administrative expenses	224,069			309,601			725,512			986,571
Litigation expense	—			730,457			—			730,457
Depreciation and amortization (Note 7)	260,637			235,403			795,438			743,220
Impairment of long-lived assets (Note 7)	—			—			437,575			—
Total costs and expenses	3,204,156			3,796,376			9,892,587			9,909,248

Operating income (loss)	397,421			(273,029		)	870,347			767,734

Other Income (Expense):
Interest income	39,994			34,304			121,331			61,597
Interest expense, net of amounts capitalized	(189,474		)	(143,818		)	(565,730		)	(391,132		)
Other, net	105,747			69,831			212,728			172,665
Total other income (expense)	(43,733		)	(39,683		)	(231,671		)	(156,870		)

Income (loss) before income taxes	353,688			(312,712		)	638,676			610,864
Income tax (provision) benefit, net	(42,698		)	149,383			(132,084		)	(188,471		)
Net income (loss)	310,990			(163,329		)	506,592			422,393
Less: Net income (loss) attributable to noncontrolling interest	(3,918		)	(4,868		)	(12,862		)	(5,188		)
Net income (loss) attributable to DISH Network	$	314,908		$	(158,461	)	$	519,454		$	427,581

Weighted-average common shares outstanding - Class A and B common stock:
Basic	457,377			451,042			455,372			449,547
Diluted	460,715			451,042			458,396			452,319

Earnings per share - Class A and B common stock:
Basic net income (loss) per share attributable to DISH Network	$	0.69		$	(0.35	)	$	1.14		$	0.95
Diluted net income (loss) per share attributable to DISH Network	$	0.68		$	(0.35	)	$	1.13		$	0.95

Comprehensive Income (Loss):
Net income (loss)	$	310,990		$	(163,329	)	$	506,592		$	422,393
Other comprehensive income (loss):
Foreign currency translation adjustments	(4,570		)	3,990			1,029			5,278
Unrealized holding gains (losses) on available-for-sale securities	40,692			141,781			77,760			123,409
Recognition of previously unrealized (gains) losses on available-for-sale securities included in net income (loss)	(49,221		)	(68,899		)	(54,565		)	(152,921		)
Deferred income tax (expense) benefit, net	3,647			—			(7,946		)	—
Total other comprehensive income (loss), net of tax	(9,452		)	76,872			16,278			(24,234		)
Comprehensive income (loss)	301,538			(86,457		)	522,870			398,159
Less: Comprehensive income (loss) attributable to noncontrolling interest	(3,918		)	(4,868		)	(12,862		)	(5,188		)
Comprehensive income (loss) attributable to DISH Network	$	305,456		$	(81,589	)	$	535,732		$	403,347

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

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DISH NETWORK CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	For the Nine Months
	Ended September 30,
	2013			2012
Cash Flows From Operating Activities:
Net income (loss)	$	506,592		$	422,393
Adjustments to reconcile net income (loss) to net cash flows from operating activities:
Depreciation and amortization	795,438			743,220
Impairment of long-lived assets	437,575			—
Realized and unrealized losses (gains) on investments	(207,592		)	(171,203		)
Non-cash, stock-based compensation	26,111			36,957
Deferred tax expense (benefit)	4,277			395,079
Other, net	55,239			15,902
Change in noncurrent assets	(14,559		)	(77,437		)
Changes in current assets and current liabilities, net	29,235			669,131
Net cash flows from operating activities	1,632,316			2,034,042

Cash Flows From Investing Activities:
Purchases of marketable investment securities	(5,009,859		)	(3,292,823		)
Sales and maturities of marketable investment securities	3,207,640			1,618,843
Purchases and prepaid funding of derivative financial instruments (Note 2)	(696,000		)	—
Settlement of derivative financial instruments and prepaid funding (Note 2)	822,510			—
Purchases of property and equipment	(912,904		)	(681,925		)
Change in restricted cash and marketable investment securities	38,771			(1,739		)
DBSD North America Transaction, less cash acquired of $5,230	—			(40,015		)
TerreStar Transaction	—			(36,942		)
Other	(193,051		)	(56,553		)
Net cash flows from investing activities	(2,742,893		)	(2,491,154		)

Cash Flows From Financing Activities:
Proceeds from issuance of long-term debt	2,300,000			2,900,000
Proceeds from issuance of restricted debt	2,600,000			—
Repurchases of 7% Senior Notes due 2013	(48,552		)	—
Redemption of restricted debt	(2,600,000		)	—
Funding of restricted debt escrow	(2,596,750		)	—
Release of restricted debt escrow	2,596,771			—
Debt issuance costs	(11,427		)	(6,681		)
Repayment of long-term debt and capital lease obligations	(29,585		)	(28,599		)
Net proceeds from Class A common stock options exercised and stock issued under the Employee Stock Purchase Plan	66,598			61,404
Other	20,822			7,572
Net cash flows from financing activities	2,297,877			2,933,696

Effect of exchange rates on cash and cash equivalents	13			1,947

Net increase (decrease) in cash and cash equivalents	1,187,313			2,478,531
Cash and cash equivalents, beginning of period	3,606,140			609,108
Cash and cash equivalents, end of period	$	4,793,453		$	3,087,639

Supplemental Disclosure of Cash Flow Information:
Cash paid for interest (including capitalized interest)	$	666,970		$	385,518
Capitalized interest	$	101,265		$	72,061
Cash received for interest	$	120,852		$	26,209
Cash paid for income taxes	$	235,981		$	270,042
Employee benefits paid in Class A common stock	$	24,230		$	22,280
Satellites and other assets financed under capital lease obligations	$	904		$	850

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

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DISH NETWORK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Organization and Business Activities

Principal Business

DISH Network Corporation is a holding company. Its subsidiaries (which together with DISH Network Corporation are referred to as “DISH Network,” the “Company,” “we,” “us” and/or “our,” unless otherwise required by the context) operate three primary business segments.

· DISH. The DISH® branded direct broadcast satellite (“DBS”) pay-TV service had 14.049 million subscribers in the United States as of September 30, 2013. The DISH branded pay-TV service consists of Federal Communications Commission (“FCC”) licenses authorizing us to use DBS and Fixed Satellite Service (“FSS”) spectrum, our owned and leased satellites, receiver systems, third party broadcast operations, customer service facilities, a leased fiber network, in-home service and call center operations, and certain other assets utilized in our operations. In addition, we market broadband services under the dishNET™ brand.

· Blockbuster. On April 26, 2011, we completed the acquisition of most of the assets of Blockbuster, Inc. (the “Blockbuster Acquisition”). Blockbuster primarily offers movies and video games for sale and rental through multiple distribution channels such as retail stores, by-mail, digital devices, the blockbuster.com website and the BLOCKBUSTER On Demand® service. On November 6, 2013, we announced that Blockbuster expects to close all of its remaining company-owned domestic retail stores and discontinue the Blockbuster by-mail service by early January 2014. See Note 9 for further information.

· Wireless. In 2008, we paid $712 million to acquire certain 700 MHz wireless spectrum licenses, which were granted to us by the FCC in February 2009 subject to certain interim and final build-out requirements. On March 9, 2012, we completed the acquisitions of 100% of the equity of reorganized DBSD North America Inc. (“DBSD North America”) and substantially all of the assets of TerreStar Networks, Inc. (“TerreStar”), pursuant to which we acquired, among other things, 40 MHz of AWS-4 wireless spectrum licenses held by DBSD North America (the “DBSD Transaction”) and TerreStar (the “TerreStar Transaction”). The financial results of DBSD North America and TerreStar are included in our financial results beginning March 9, 2012. The total consideration to acquire the DBSD North America and TerreStar assets was approximately $2.860 billion. On February 15, 2013, the FCC issued an order, which became effective on March 7, 2013, modifying our AWS-4 licenses to expand our terrestrial operating authority. The FCC’s order of modification has imposed certain limitations on the use of a portion of the spectrum and also mandated certain interim and final build-out requirements for the licenses. See Note 12 for further information.

We currently generate an immaterial amount of revenue and incur expenses associated with certain satellite operations and regulatory compliance matters from our wireless spectrum assets. As we review our options for the commercialization of this wireless spectrum, we may incur significant additional expenses and may have to make significant investments related to, among other things, research and development, wireless testing and wireless network infrastructure.

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DISH NETWORK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — Continued

(Unaudited)

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and with the instructions to Form 10-Q and Article 10 of Regulation S-X for interim financial information. Accordingly, these statements do not include all of the information and notes required for complete financial statements prepared under GAAP. In our opinion, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Our results of operations for the interim periods presented are not necessarily indicative of the results that may be expected for the full year. For further information, refer to the Consolidated Financial Statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2012 (“2012 10-K”). Certain prior period amounts have been reclassified to conform to the current period presentation.

Principles of Consolidation

We consolidate all majority owned subsidiaries, investments in entities in which we have controlling influence and variable interest entities where we have been determined to be the primary beneficiary. Non-majority owned investments are accounted for using the equity method when we have the ability to significantly influence the operating decisions of the investee. When we do not have the ability to significantly influence the operating decisions of an investee, the cost method is used. All significant intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expense for each reporting period. Estimates are used in accounting for, among other things, allowances for doubtful accounts, self-insurance obligations, deferred taxes and related valuation allowances, uncertain tax positions, loss contingencies, the useful lives and residual value surrounding our rental library inventory, estimated accruals related to revenue-sharing titles that are subject to performance guarantees, fair value of financial instruments, fair value of options granted under our stock-based compensation plans, fair value of assets and liabilities acquired in business combinations, fair value of multi-element arrangements, capital leases, asset impairments, estimates of future cash flows used to evaluate impairments, useful lives of property, equipment and intangible assets, asset retirement obligations, retailer incentives, programming expenses, subscriber lives and royalty obligations. Weak economic conditions have increased the inherent uncertainty in the estimates and assumptions indicated above. Actual results may differ from previously estimated amounts, and such differences may be material to our Condensed Consolidated Financial Statements. Estimates and assumptions are reviewed periodically, and the effects of revisions are reflected prospectively in the period they occur.

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DISH NETWORK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — Continued

(Unaudited)

Fair Value Measurements

We determine fair value based on the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. Market or observable inputs are the preferred source of values, followed by unobservable inputs or assumptions based on hypothetical transactions in the absence of market inputs. We apply the following hierarchy in determining fair value:

· Level 1, defined as observable inputs being quoted prices in active markets for identical assets, including U.S. treasury notes;

· Level 2, defined as observable inputs other than quoted prices included in Level 1, including quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar instruments in markets that are not active; model-derived valuations in which significant inputs and significant value drivers are observable in active markets; and derivative financial instruments indexed to marketable investment securities; and

· Level 3, defined as unobservable inputs for which little or no market data exists, consistent with reasonably available assumptions made by other participants therefore requiring assumptions based on the best information available.

As of September 30, 2013 and December 31, 2012, the carrying value for cash and cash equivalents, marketable investment securities, trade accounts receivable (net of allowance for doubtful accounts), derivative financial instruments, and current liabilities (excluding the “Current portion of long-term debt and capital lease obligations”) is equal to or approximates fair value due to their short-term nature or proximity to current market rates. See Note 5 for the fair value of our marketable investment securities.

Fair values for our publicly traded debt securities are based on quoted market prices, when available. The fair values of private debt are estimated based on an analysis in which we evaluate market conditions, related securities, various public and private offerings, and other publicly available information. In performing this analysis, we make various assumptions regarding, among other things, credit spreads, and the impact of these factors on the value of the debt securities. See Note 10 for the fair value of our long-term debt.

Derivative Financial Instruments

We may purchase and hold derivative financial instruments for, among other reasons, strategic or speculative purposes. We record all derivative financial instruments on our Condensed Consolidated Balance Sheets at fair value as either assets or liabilities. Changes in the fair values of derivative financial instruments are recognized in our results of operations and included in “Other, net” within “Other Income (Expense)” on our Condensed Consolidated Statements of Operations and Comprehensive Income (Loss). We currently have not designated any derivative financial instrument for hedge accounting.

During the first and second quarters 2013, we purchased an aggregate notional amount of $592 million of derivative financial instruments that were indexed to the trading price of the common equity securities of Sprint Corporation (“Sprint”). On July 10, 2013, Sprint completed its merger with Softbank Corp. Subsequently, during the third quarter 2013, we settled these derivative financial instruments for cash and common equity securities of Sprint. These common equity securities are classified as available-for-sale and included in “Marketable investment securities” on our Condensed Consolidated Balance Sheets. See Note 5 for further information.

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Advertising Costs

Our advertising costs associated with acquiring new Pay-TV and Broadband subscribers and Blockbuster customers are expensed as incurred. During the three months ended September 30, 2013 and 2012, we recorded advertising costs of $118 million and $134 million, respectively, and during the nine months ended September 30, 2013 and 2012, we recorded advertising costs of $370 million and $364 million, respectively. Advertising costs are included in “Other subscriber acquisition costs” and “General and administrative expenses” on our Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).

Deferred Cost of Sales

On May 22, 2013, we launched a promotion whereby qualifying new Pay-TV subscribers may choose either an Apple® iPad® 2 or programming credits when they, among other things, commit to a two-year contract. The costs of the iPad 2 are recorded as short-term or long-term deferred cost of sales expense within “Other current assets” and “Other noncurrent assets, net,” respectively, on our Condensed Consolidated Balance Sheets and are amortized on a straight-line basis over the related contract term to “Cost of sales — equipment, merchandise, services, rental and other” on our Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).

New Accounting Pronouncements

In July 2013, the Financial Accounting Standards Board issued Accounting Standards Update (ASU) 2013-11, Income Taxes (Topic 740) - Presentation of an Unrecognized Tax Benefit when a Net Operating Loss Carryforward or Tax Credit Carryforward Exists. ASU 2013-11 requires that an unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, with certain exceptions. This standard is effective for reporting periods beginning after December 15, 2013, with early adoption permitted. We do not expect the adoption of ASU 2013-11 to have a material impact on our financial position or results of operations.

3. Basic and Diluted Net Income (Loss) Per Share

We present both basic earnings per share (“EPS”) and diluted EPS. Basic EPS excludes potential dilution and is computed by dividing “Net income (loss) attributable to DISH Network” by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if stock awards were exercised. The potential dilution from stock awards was computed using the treasury stock method based on the average market value of our Class A common stock. The following table presents EPS amounts for all periods and the basic and diluted weighted-average shares outstanding used in the calculation.

	For the Three Months					For the Nine Months
	Ended September 30,					Ended September 30,
	2013		2012			2013		2012
	(In thousands, except per share amounts)
Net income (loss) attributable to DISH Network	$	314,908	$	(158,461	)	$	519,454	$	427,581

Weighted-average common shares outstanding - Class A and B common stock:
Basic	457,377		451,042			455,372		449,547
Dilutive impact of stock awards outstanding	3,338		—			3,024		2,772
Diluted	460,715		451,042			458,396		452,319

Earnings per share - Class A and B common stock:
Basic net income (loss) per share attributable to DISH Network	$	0.69	$	(0.35	)	$	1.14	$	0.95
Diluted net income (loss) per share attributable to DISH Network	$	0.68	$	(0.35	)	$	1.13	$	0.95

As of September 30, 2013 and 2012, there were stock awards to purchase 0.8 million and 3.2 million shares,

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respectively, of Class A common stock outstanding, not included in the weighted-average common shares outstanding above, as their effect is anti-dilutive.

Vesting of options and rights to acquire shares of our Class A common stock granted pursuant to our performance-based stock incentive plans (“Restricted Performance Units”) is contingent upon meeting certain goals, some of which are not yet probable of being achieved. As a consequence, the following are also not included in the diluted EPS calculation.

	As of September 30,
	2013	2012
	(In thousands)
Performance-based options	7,806	7,943
Restricted Performance Units	1,969	1,190
Total	9,775	9,133

4. Other Comprehensive Income (Loss)

The following tables present the tax effect on each component of “Other comprehensive income (loss).” A full valuation allowance was established against any deferred tax assets that were capital in nature during 2012.

	For the Three Months
	Ended September 30,
	2013								2012
	Before			Tax		Net			Before			Tax		Net
	Tax			(Expense)		of Tax			Tax			(Expense)		of Tax
	Amount			Benefit		Amount			Amount			Benefit		Amount
	(In thousands)
Foreign currency translation adjustments	$	(4,570	)	$	—	$	(4,570	)	$	3,990		$	—	$	3,990
Unrealized holding gains (losses) on available-for-sale securities	40,692			3,647		44,339			141,781			—		141,781
Recognition of previously unrealized (gains) losses on available-for-sale securities included in net income (loss)	(49,221		)	—		(49,221		)	(68,899		)	—		(68,899		)
Other comprehensive income (loss)	$	(13,099	)	$	3,647	$	(9,452	)	$	76,872		$	—	$	76,872

	For the Nine Months
	Ended September 30,
	2013									2012
	Before			Tax			Net			Before			Tax		Net
	Tax			(Expense)			of Tax			Tax			(Expense)		of Tax
	Amount			Benefit			Amount			Amount			Benefit		Amount
	(In thousands)
Foreign currency translation adjustments	$	1,029		$	—		$	1,029		$	5,278		$	—	$	5,278
Unrealized holding gains (losses) on available-for-sale securities	77,760			(7,946		)	69,814			123,409			—		123,409
Recognition of previously unrealized (gains) losses on available-for-sale securities included in net income (loss)	(54,565		)	—			(54,565		)	(152,921		)	—		(152,921		)
Other comprehensive income (loss)	$	24,224		$	(7,946	)	$	16,278		$	(24,234	)	$	—	$	(24,234	)

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The “Accumulated other comprehensive income (loss)” is detailed in the following table.

	Foreign			Unrealized/
	Currency			Recognized
	Translation			Gains
Accumulated Other Comprehensive Income (Loss)	Adjustment			(Losses)			Total
	(In thousands)
Balance as of December 31, 2012	$	(5,033	)	$	193,836		$	188,803
Other comprehensive income (loss) before reclassification	1,029			77,760			78,789
Amounts reclassified from accumulated other comprehensive income (loss)	—			(54,565		)	(54,565		)
Tax (expense) benefit	—			(7,946		)	(7,946		)
Balance as of September 30, 2013	$	(4,004	)	$	209,085		$	205,081

5. Marketable Investment Securities, Restricted Cash and Cash Equivalents, and Other Investment Securities

Our marketable investment securities, restricted cash and cash equivalents, and other investment securities consisted of the following:

	As of
	September 30,		December 31,
	2013		2012
	(In thousands)
Marketable investment securities:
Current marketable investment securities - VRDNs	$	149,920	$	130,306
Current marketable investment securities - strategic	1,377,727		1,261,015
Current marketable investment securities - other	3,981,090		2,240,316
Total current marketable investment securities	5,508,737		3,631,637
Restricted marketable investment securities (1)	72,800		51,366
Noncurrent marketable investment securities - ARS and other (2)	126,856		106,172
Total marketable investment securities	5,708,393		3,789,175

Restricted cash and cash equivalents (1)	22,354		83,044

Other investment securities:
Other investment securities - cost method (2)	15,104		12,879
Total other investment securities	15,104		12,879

Total marketable investment securities, restricted cash and cash equivalents, and other investment securities	$	5,745,851	$	3,885,098

(1) Restricted marketable investment securities and restricted cash and cash equivalents are included in “Restricted cash and marketable investment securities” on our Condensed Consolidated Balance Sheets.

(2) Noncurrent marketable investment securities — auction rate securities (“ARS”) and other investment securities are included in “Marketable and other investment securities” on our Condensed Consolidated Balance Sheets.

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Marketable Investment Securities

Our marketable investment securities portfolio consists of various debt and equity instruments, all of which are classified as available-for-sale, except as specified below.

Current Marketable Investment Securities - VRDNs

Variable rate demand notes (“VRDNs”) are long-term floating rate municipal 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 mainly of investments in municipalities, which are backed by financial institutions or other highly rated obligors 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 a same day or on a five business day settlement basis.

Current Marketable Investment Securities - Strategic

Our current strategic marketable investment securities include strategic and financial debt and equity investments in public companies that are highly speculative and have experienced and continue to experience volatility. As of September 30, 2013, our strategic investment portfolio consisted of securities of a small number of issuers, and as a result the value of that portfolio depends, among other things, on the performance of those issuers. For example, a significant portion of the value of these investments was concentrated in the debt securities of Clearwire Corporation (“Clearwire”). The adjusted cost basis of these Clearwire securities as of September 30, 2013 and December 31, 2012 was $763 million and $751 million, respectively. The fair value of these Clearwire securities as of September 30, 2013 and December 31, 2012 was $932 million and $951 million, respectively. Clearwire has multiple call options on certain of these debt securities upon 30 days notice. The call option price may be less than the fair market value of these debt securities and, if exercised, proceeds could be less than our recorded fair market value as of September 30, 2013 and therefore, reduce our unrealized gains recorded as a separate component of “Accumulated other comprehensive income (loss)” within “Total stockholders’ equity (deficit),” on our Condensed Consolidated Balance Sheets. The fair value of certain of the debt and equity securities in our investment portfolio, including the debt securities of Clearwire, can be adversely impacted by, among other things, the issuers’ respective performance and ability to obtain any necessary additional financing on acceptable terms, or at all.

Current Marketable Investment Securities - Other

Our current marketable investment securities portfolio includes investments in various debt instruments including corporate and government bonds.

Restricted Cash and Marketable Investment Securities

As of September 30, 2013 and December 31, 2012, our restricted marketable investment securities, together with our restricted cash, included amounts required as collateral for our letters of credit or surety bonds and for litigation. During the first quarter 2013, we released $42 million of restricted cash related to litigation. See Note 12 for further information.

Noncurrent Marketable Investment Securities — ARS and Other Investment Securities

We have investments in ARS and other investment securities which are either classified as available-for-sale securities or are accounted for under the fair value method. Previous events in the credit markets reduced or eliminated current liquidity for certain of our ARS and other investment securities. As a result, we classify these investments as noncurrent assets, as we intend to hold these investments until they recover or mature.

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The valuation of our ARS and other investment securities investments portfolio is subject to uncertainties that are difficult to estimate. Due to the lack of observable market quotes for identical assets, we utilize analyses that rely on Level 2 and/or Level 3 inputs, as defined in “Fair Value Measurements.” These inputs include, among other things, observed prices on similar assets as well as our assumptions and estimates related to the counterparty credit quality, default risk underlying the security and overall capital market liquidity. These securities were also compared, when possible, to other observable market data for financial instruments with similar characteristics.

Fair Value Election. As of September 30, 2013, our ARS and other noncurrent marketable investment securities portfolio of $127 million included $81 million of securities accounted for under the fair value method.

Other Investment Securities

We have strategic investments in certain debt and equity securities that are included in noncurrent “Marketable and other investment securities” on our Condensed Consolidated Balance Sheets and accounted for using the cost, equity and/or fair value methods of accounting.

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

Unrealized Gains (Losses) on Marketable Investment Securities

As of September 30, 2013 and December 31, 2012, we had accumulated net unrealized gains of $230 million and $207 million, respectively. These amounts, net of related tax effect, were $209 million and $194 million, respectively. All of these amounts are included in “Accumulated other comprehensive income (loss)” within “Total stockholders’ equity (deficit).” The components of our available-for-sale investments are summarized in the table below.

	As of September 30, 2013										As of December 31, 2012
	Fair		Unrealized								Fair		Unrealized
	Value		Gains		Losses			Net			Value		Gains		Losses			Net
	(In thousands)
Debt securities:
VRDNs	$	149,920	$	—	$	—		$	—		$	130,306	$	—	$	—		$	—
ARS and other	45,430		1,200		(5,150		)	(3,950		)	43,921		1,375		(8,033		)	(6,658		)
ARS fair value election	81,426		—		—			—			62,251		—		—			—
Other (including restricted)	4,989,642		175,922		(1,507		)	174,415			3,287,317		208,208		(1,203		)	207,005
Equity securities	441,975		75,012		(15,555		)	59,457			265,380		17,918		(11,537		)	6,381
Total	$	5,708,393	$	252,134	$	(22,212	)	$	229,922		$	3,789,175	$	227,501	$	(20,773	)	$	206,728

As of September 30, 2013, restricted and non-restricted marketable investment securities included debt securities of $3.553 billion with contractual maturities within one year, $1.533 billion with contractual maturities after one year through five years and $180 million with contractual maturities after ten years. Actual maturities may differ from contractual maturities as a result of our ability to sell these securities prior to maturity.

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Marketable Investment Securities in a Loss Position

The following table reflects the length of time that the individual securities, accounted for as available-for-sale, have been in an unrealized loss position, aggregated by investment category. As of September 30, 2013, the unrealized losses on our investments in equity securities represent investments in a company in the telecommunications industry. We are not aware of any specific factors which indicate the unrealized losses in these investments are due to anything other than temporary market fluctuations. As of September 30, 2013 and December 31, 2012, the unrealized losses on our investments in debt securities primarily represent investments in ARS. We have the ability to hold and do not intend to sell our investments in these debt securities before they recover or mature, and it is more likely than not that we will hold these investments until that time. In addition, we are not aware of any specific factors indicating that the underlying issuers of these debt securities would not be able to pay interest as it becomes due or repay the principal at maturity. Therefore, we believe that these changes in the estimated fair values of these marketable investment securities are related to temporary market fluctuations.

	As of
	September 30, 2013					December 31, 2012
	Fair		Unrealized			Fair		Unrealized
	Value		Loss			Value		Loss
	(In thousands)
Debt Securities:
Less than 12 months	$	1,679,098	$	(936	)	$	761,551	$	(909	)
12 months or more	121,978		(5,721		)	72,395		(8,327		)
Equity Securities:
Less than 12 months	137,995		(15,555		)	154,566		(11,537		)
12 months or more	—		—			—		—
Total	$	1,939,071	$	(22,212	)	$	988,512	$	(20,773	)

Fair Value Measurements

Our investments measured at fair value on a recurring basis were as follows:

	As of
	September 30, 2013								December 31, 2012
	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
	(In thousands)
Cash equivalents (including restricted)	$	4,480,912	$	305,875	$	4,175,037	$	—	$	3,386,929	$	67,833	$	3,319,096	$	—

Debt securities:
VRDNs	$	149,920	$	—	$	149,920	$	—	$	130,306	$	—	$	130,306	$	—
ARS and other	126,856		—		740		126,116		106,172		—		955		105,217
Other (including restricted)	4,989,642		11,033		4,975,142		3,467		3,287,317		11,182		3,276,135		—

Equity securities	441,975		441,975		—		—		265,380		265,380		—		—

Total	$	5,708,393	$	453,008	$	5,125,802	$	129,583	$	3,789,175	$	276,562	$	3,407,396	$	105,217

As of September 30, 2013 and December 31, 2012, our Level 3 investments consisted predominately of ARS and other investment securities. On a quarterly basis we evaluate the reasonableness of significant unobservable inputs used in those measurements. The valuation models used for some of our ARS investments require an evaluation of the underlying instruments held by the trusts that issue these securities. For our other ARS and other investment securities, our evaluation uses, among other things, the terms of the underlying instruments, the credit ratings of the issuers, current market conditions, and other relevant factors. Based on these factors, we assess the risk of realizing

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expected cash flows and we apply an observable discount rate that reflects this risk. We may also reduce our valuations to reflect a liquidity discount based on the lack of an active market for these securities.

Changes in Level 3 instruments were as follows:

	Level 3
	Investment
	Securities
	(In thousands)
Balance as of December 31, 2012	$	105,217
Net realized and unrealized gains (losses) included in earnings	19,289
Net realized and unrealized gains (losses) included in other comprehensive income (loss)	2,961
Purchases	3,480
Settlements	(1,364		)
Issuances	—
Transfers into or out of Level 3	—
Balance as of September 30, 2013	$	129,583

During the nine months ended September 30, 2013, we had no transfers in or out of Level 1 and Level 2 fair value measurements.

Gains and Losses on Sales and Changes in Carrying Values of Investments

“Other, net” within “Other Income (Expense)” included on our Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) included primarily changes in the carrying amount of our marketable and non-marketable investments as follows:

	For the Three Months					For the Nine Months
	Ended September 30,					Ended September 30,
Other Income (Expense):	2013		2012			2013			2012
	(In thousands)
Marketable investment securities - gains (losses) on sales/exchanges	$	49,223	$	111,709		$	63,405		$	119,445
Marketable investment securities - unrealized gains (losses) on investments accounted for at fair value	8,689		667			19,175			(2,395		)
Marketable investment securities - gains (losses) on conversion of DBSD North America Notes (1)	—		—			—			99,445
Derivative financial instruments - net realized and/or unrealized gains (losses)	42,301		—			126,832			—
Marketable investment securities - other-than-temporary impairments	—		(42,811		)	(1,919		)	(45,292		)
Other	5,534		266			5,235			1,462
Total	$	105,747	$	69,831		$	212,728		$	172,665

(1) During the nine months ended September 30, 2012, we recognized a $99 million non-cash gain related to the conversion of our DBSD North America 7.5% Convertible Senior Secured Notes due 2009 in connection with the completion of the DBSD Transaction.

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6. Inventory

Inventory consisted of the following:

	As of
	September 30,		December 31,
	2013		2012
	(In thousands)
DISH:
Finished goods - DBS	$	282,714	$	259,307
Raw materials	116,108		122,769
Work-in-process	125,002		82,361
Total DISH inventory (1)	523,824		464,437
Blockbuster:
Rental library	34,567		81,956
Merchandise	22,323		76,180
Total Blockbuster inventory (2)	56,890		158,136
Wireless:
Finished goods	—		1,147
Total Wireless inventory	—		1,147
Total inventory	$	580,714	$	623,720

(1) The increase in “Total DISH inventory” as of September 30, 2013 primarily related to an increase in Hopper® set-top boxes and broadband equipment.

(2) The decrease in “Total Blockbuster inventory” as of September 30, 2013 primarily related to the deconsolidation of Blockbuster UK on January 16, 2013, Blockbuster domestic store closings during the nine months ended September 30, 2013, and the write down of inventory associated with our Blockbuster operations in Mexico (“Blockbuster Mexico”) during the third quarter 2013. See Note 9 for further information.

7. Property and Equipment and Intangible Assets

Property and Equipment

As we prepare for commercialization of our AWS-4 wireless spectrum licenses which are recorded in FCC Authorizations, interest expense related to their carrying value is being capitalized within “Property and equipment, net” on our Condensed Consolidated Balance Sheets based on our average borrowing rate for our debt. During the three months ended September 30, 2013 and 2012, we recorded capitalized interest of $32 million and $33 million, respectively, primarily related to our AWS-4 wireless spectrum licenses. During the nine months ended September 30, 2013 and 2012, we recorded capitalized interest of $101 million and $72 million, respectively, primarily related to our AWS-4 wireless spectrum licenses.

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Depreciation and amortization expense consisted of the following:

	For the Three Months				For the Nine Months
	Ended September 30,				Ended September 30,
	2013		2012		2013		2012
	(In thousands)
Equipment leased to customers	$	195,843	$	165,959	$	555,653	$	481,876
Satellites	33,866		38,782		101,598		111,235
Buildings, furniture, fixtures, equipment and other (1)	30,928		30,662		138,187		82,333
148 degree orbital location (2)	—		—		—		67,776
Total depreciation and amortization	$	260,637	$	235,403	$	795,438	$	743,220

(1) During the second quarter 2013, we ceased operations of our TerreStar Mobile Satellite Services (“MSS”) business, which had less than 2,000 customers and had less than $1 million in revenue. As a result, we accelerated the depreciable lives of certain assets designed to support this business and the remaining net book value of $53 million was fully depreciated in the second quarter 2013.

(2) During the second quarter 2012, we recorded $68 million of “Depreciation and amortization” expense related to the termination of our license by the FCC for use of the 148 degree orbital location.

Cost of sales and operating expense categories included in our accompanying Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) do not include depreciation expense related to satellites or equipment leased to customers.

DBS Satellites. We currently utilize 15 satellites in geostationary orbit approximately 22,300 miles above the equator, six of which we own and depreciate over the useful life of each satellite. We currently utilize capacity on seven satellites from EchoStar, which are accounted for as operating leases. See Note 14 for further discussion of our satellite leases with EchoStar. We also lease two satellites from third parties, which are accounted for as capital leases and are depreciated over the shorter of the economic life of the satellite or the term of the satellite agreement.

AWS-4 Satellites. As a result of the DBSD Transaction and the TerreStar Transaction, three AWS-4 satellites were added to our satellite fleet, including two in-orbit satellites (D1 and T1) and one satellite under construction (T2). Based on the FCC’s recently issued rules applicable to our AWS-4 authorizations no longer requiring an integrated satellite component or ground spare and on our evaluation of the satellite capacity needed for our wireless segment, among other things, during the second quarter 2013, we concluded that T2 and D1 represented excess satellite capacity for the potential commercialization of our wireless spectrum. As a result, during the second quarter 2013, we wrote down the net book value of T2 from $270 million to $40 million and the net book value of D1 from $358 million to $150 million, and recorded an impairment charge in our wireless segment of $438 million in “Impairment of long-lived assets” on our Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the nine months ended September 30, 2013. Our fair value estimates for these satellites were determined based upon, among other things, probability-weighted analyses utilizing the income and/or the cost approaches. The estimates used in our fair value analysis are considered Level 3 in the fair value hierarchy. While the FCC’s recently issued rules applicable to our AWS-4 authorizations no longer require an integrated satellite component or ground spare, we are currently planning on using T1 in the commercialization of our wireless spectrum or for other commercial purposes. If T1 is not used in the commercialization of our wireless spectrum, we may need to impair it in the future. As of September 30, 2013, the net book value for T1 was $359 million.

EchoStar XVIII Launch Service. Pursuant to the Professional Services Agreement we entered into with EchoStar in 2010, we have the right, but not the obligation, to engage EchoStar to manage the process of procuring new satellite capacity for us, which includes the procurement of satellite launch services. During November 2012, EchoStar entered into an agreement with ArianeSpace S.A. (“Ariane”) for certain launch services, pursuant to which we were designated in September 2013 by EchoStar to receive certain launch services from Ariane. During October

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2013, we entered into an agreement directly with Ariane for these launch services. In total, we expect to pay EchoStar and Ariane approximately $120 million for these launch services. We plan to use these launch services for EchoStar XVIII, a DBS satellite with spot beam technology designed, among other things, for HD programming. EchoStar XVIII is expected to be launched during 2015.

Satellite Anomalies. Operation of our DISH branded pay-TV service requires that we have adequate DBS satellite transmission capacity for the programming we offer. Moreover, current competitive conditions require that we continue to expand our offering of new programming. While we generally have had in-orbit DBS satellite capacity sufficient to transmit our existing channels and some backup capacity to recover the transmission of certain critical programming, our backup capacity is limited.

In the event of a failure or loss of any of our satellites, we may need to acquire or lease additional satellite capacity or relocate one of our other satellites and use it as a replacement for the failed or lost satellite. Such a failure could result in a prolonged loss of critical programming or a significant delay in our plans to expand programming as necessary to remain competitive and thus may have a material adverse effect on our business, financial condition and results of operations.

Prior to 2013, certain of our owned and leased satellites have experienced anomalies, some of which have had a significant adverse impact on their remaining useful life and/or commercial operation. There can be no assurance that future anomalies will not further impact the remaining useful life and/or commercial operation of any of the satellites in our fleet. See “Long-Lived DBS Satellite Assets” below for further discussion of evaluation of impairment of our DISH branded pay-TV DBS satellite fleet. 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. We generally do not carry commercial insurance for any of the in-orbit satellites that we use, other than certain satellites leased from third parties, and therefore, we will bear the risk associated with any uninsured in-orbit satellite failures. Recent developments with respect to certain of our satellites are discussed below.

Leased Satellites

EchoStar XII. Prior to 2010, EchoStar XII experienced anomalies resulting in the loss of electrical power available from its solar arrays, which reduced the number of transponders that could be operated. In September 2012, November 2012, and January 2013, EchoStar XII experienced additional solar array anomalies, which further reduced the electrical power available. During the third quarter 2013, EchoStar informed us that EchoStar XII will likely experience further loss of available electrical power that will impact its operational capability, and EchoStar reduced the remaining estimated useful life of the satellite to 18 months. Pursuant to our satellite lease agreement with EchoStar, we are entitled to a reduction in our monthly recurring lease payments in the event of a partial loss of satellite capacity or complete failure of the satellite. Since the number of useable transponders on EchoStar XII depends on, among other things, whether EchoStar XII is operated in CONUS, spot beam, or hybrid CONUS/spot beam mode, we are unable to determine at this time the actual number of transponders that will be available at any given time or how many transponders can be used during the remaining estimated life of the satellite. This satellite is currently not in service and serves as an in-orbit spare.

Long-Lived DBS Satellite Assets. We evaluate our DISH branded pay-TV DBS satellite fleet for impairment as one asset group and test for recoverability whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. While certain of the anomalies discussed above, and previously disclosed, may be considered to represent a significant adverse change in the physical condition of an individual satellite, based on the redundancy designed within each satellite and considering the asset grouping, these anomalies are not considered to be significant events that would require evaluation for impairment recognition. Unless and until a specific satellite is abandoned or otherwise determined to have no service potential, the net carrying amount related to the satellite would not be written off.

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Intangible Assets

As of September 30, 2013 and December 31, 2012, our identifiable intangibles subject to amortization consisted of the following:

	As of
	September 30, 2013					December 31, 2012
	Intangible		Accumulated			Intangible		Accumulated
	Assets		Amortization			Assets		Amortization
	(In thousands)
Technology-based	$	34,078	$	(10,537	)	$	39,066	$	(8,345	)
Trademarks	18,236		(5,813		)	18,236		(3,907		)
Contract-based	9,082		(9,082		)	11,275		(10,127		)
Customer relationships	4,294		(4,294		)	6,974		(5,736		)
Total	$	65,690	$	(29,726	)	$	75,551	$	(28,115	)

These identifiable intangibles are included in “Other noncurrent assets, net” on our Condensed Consolidated Balance Sheets. Amortization of these intangible assets is recorded on a straight line basis over an average finite useful life primarily ranging from approximately one to ten years. Amortization was $4 million and $6 million for the three months ended September 30, 2013 and 2012, respectively. Amortization was $11 million and $12 million for the nine months ended September 30, 2013 and 2012, respectively.

Estimated future amortization of our identifiable intangible assets as of September 30, 2013 is as follows (in thousands):

For the Years Ended December 31,
2013 (remaining three months)	$	2,278
2014	9,096
2015	8,983
2016	8,362
2017	3,138
Thereafter	4,107
Total	$	35,964

Goodwill

The excess of our investments in consolidated subsidiaries over net tangible and identifiable intangible asset value at the time of the investment is recorded as goodwill and is not subject to amortization but is subject to impairment testing annually or whenever indicators of impairment arise. In conducting our annual impairment test in 2012, we determined that the fair value was substantially in excess of the carrying value. As of September 30, 2013 and December 31, 2012, our goodwill was $126 million, which primarily related to our wireless segment.

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8. Acquisitions

DBSD North America and TerreStar Transactions

On March 2, 2012, the FCC approved the transfer of 40 MHz of AWS-4 wireless spectrum licenses held by DBSD North America and TerreStar to us. On March 9, 2012, we completed the DBSD Transaction and the TerreStar Transaction, pursuant to which we acquired, among other things, certain satellite assets and wireless spectrum licenses held by DBSD North America and TerreStar. In addition, during the fourth quarter 2011, we and Sprint entered into a mutual release and settlement agreement (the “Sprint Settlement Agreement”) pursuant to which all issues then being disputed relating to the DBSD Transaction and the TerreStar Transaction were resolved between us and Sprint, including, but not limited to, issues relating to costs allegedly incurred by Sprint to relocate users from the spectrum then licensed to DBSD North America and TerreStar. The total consideration to acquire the DBSD North America and TerreStar assets was approximately $2.860 billion. This amount includes $1.364 billion for the DBSD Transaction, $1.382 billion for the TerreStar Transaction, and the net payment of $114 million to Sprint pursuant to the Sprint Settlement Agreement. See Note 12 for further information.

As a result of these acquisitions, we recognized the acquired assets and assumed liabilities based on our estimates of fair value at their acquisition date, including $102 million in an uncertain tax position in “Long-term deferred revenue, distribution and carriage payments and other long-term liabilities” on our Condensed Consolidated Balance Sheets. Subsequently, in the third quarter 2013, this uncertain tax position was resolved. During the three and nine months ended September 30, 2013, $102 million was reversed and recorded as a decrease in “Income tax (provision) benefit, net” on our Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).

LightSquared LP

On July 23, 2013, L-Band Acquisition, LLC (“LBAC”), our wholly-owned subsidiary, formed to make a bid to acquire assets of LightSquared LP, entered into a Plan Support Agreement (the “PSA”) with certain senior secured lenders to LightSquared LP, which contemplates the purchase by LBAC of substantially all of the assets of the LightSquared LP Entities (as defined below) for a purchase price of $2.22 billion in cash, plus the assumption of certain liabilities pursuant to the terms and conditions of a proposed asset purchase agreement (the “Proposed APA”). SP Special Opportunities, LLC, an entity controlled by Charles W. Ergen, our Chairman, is a senior secured lender to LightSquared LP and holds a substantial portion of LightSquared LP’s senior secured debt. We are a party to the PSA solely with respect to certain guaranty obligations. Our Board of Directors (the “Board”) approved entering into the PSA, which would implement the Proposed APA, based, among other things, on the recommendation of a special committee of the Board (the “Special Committee”) and a fairness opinion that was prepared by a financial advisory firm at the request of the Special Committee.

Pursuant to the PSA, LBAC and such lenders have agreed, subject to the terms and conditions set forth therein, to support and pursue confirmation of a plan of reorganization (the “LightSquared LP Plan”) for LightSquared LP and certain of its subsidiaries that are debtors and debtors in possession (collectively, the “LightSquared LP Entities”) in pending bankruptcy cases under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”), which cases are jointly administered under the caption In re LightSquared Inc., et. al., Case No. 12-12080 (SCC).

LBAC’s purchase offer under the LightSquared LP Plan is subject to the submission of higher and better offers in accordance with certain bid procedures that were approved by the Bankruptcy Court on October 1, 2013 as further discussed below. In addition, the LightSquared LP Plan is subject to confirmation by the Bankruptcy Court. The Proposed APA has not been accepted or executed by the LightSquared LP Entities. Consummation of the acquisition contemplated under the Proposed APA is subject to, among other things, Bankruptcy Court, FCC and Canadian federal Department of Industry (“Industry Canada”) approvals. However, funding of the purchase price under the Proposed

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APA is not conditioned upon receipt of approvals from the FCC or Industry Canada. We would be a party to the Proposed APA solely with respect to certain guaranty obligations.

On August 6, 2013, Harbinger Capital Partners LLC and other affiliates of Harbinger (collectively, “Harbinger”), the majority and controlling shareholders of LightSquared Inc. and its subsidiaries, filed an adversary proceeding against us, LBAC, EchoStar, Charles W. Ergen (our Chairman), other affiliates of Mr. Ergen, and certain other parties, in the Bankruptcy Court. On October 29, 2013, the Bankruptcy Court dismissed all of the claims in Harbinger’s adversary proceeding in their entirety. See Note 12 for further information.

On October 1, 2013, the Bankruptcy Court issued an order confirming LBAC as a qualified bidder and establishing certain bid protections for LBAC, including payment of a break-up fee of $52 million and reimbursement of expenses of up to $2 million in the event LBAC is not the successful bidder at auction. Further, the Bankruptcy Court’s order established, among other things: (i) bid procedures for the sale of all or substantially all of the assets of the LightSquared LP Entities; (ii) November 20, 2013 as the deadline for potential bidders to submit bids (the “Bid Deadline”), subject to extension under certain circumstances, but in no event beyond November 25, 2013; and (iii) if a qualified bid is received prior to the Bid Deadline, November 25, 2013 as the date to hold an auction to solicit higher or otherwise better bids for the LightSquared LP Entities’ assets, subject to extension under certain circumstances, but in no event beyond December 6, 2013. The Bankruptcy Court also scheduled a confirmation hearing on December 10, 2013 to consider the sale of the LightSquared LP Entities’ assets.

There can be no assurance that we will ultimately be able to complete the acquisition contemplated under the Proposed APA. Further, to the extent that we complete the acquisition contemplated under the Proposed APA, there can be no assurance that we would be able to develop and implement a business model that would realize a return on the acquired assets or that we would be able to profitably deploy the acquired assets, which could affect the carrying value of these assets and our future financial condition or results of operations. If we are unable to successfully address these challenges and risks, our business, financial condition or results of operations could suffer.

Furthermore, if we enter into the Proposed APA, our funding of the purchase price is not conditioned upon receipt of approvals from the FCC or Industry Canada. If the required approvals are not obtained, subject to certain exceptions, we would have the right to direct and require a sale of some or all of the assets of the LightSquared LP Entities to a third party and we would be entitled to the proceeds of such a sale. These proceeds could, however, be substantially less than our proposed funding for the purchase. Therefore, if we fail to obtain these necessary regulatory approvals, we may suffer significant financial losses.

9. Blockbuster

Blockbuster - Domestic

Since the Blockbuster Acquisition, we have continually evaluated the impact of certain factors, including, among other things, competitive pressures, the ability of significantly fewer company-owned domestic retail stores to continue to support corporate administrative costs, and other issues impacting the store-level financial performance of our company-owned domestic retail stores. These factors, among others, have previously led us to close a significant number of company-owned domestic retail stores. As of September 30, 2013, Blockbuster operated approximately 400 company-owned retail stores in the United States. On November 6, 2013, we announced that Blockbuster expects to close all of its remaining company-owned domestic retail stores and discontinue the Blockbuster by-mail service by early January 2014. As a result, we expect to incur future losses estimated to range from $15 million to $30 million. These estimated losses are based on a number of factors, including, among others, lease terminations and inventory liquidation. Our actual losses may differ from our estimates.

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Blockbuster - Mexico

During the third quarter 2013, we determined that Blockbuster Mexico is “held for sale,” consistent with U.S. GAAP. We have written down our “Inventory” and “Property and equipment” on our Condensed Consolidated Balance Sheets by $18 million and $3 million, respectively, to record these assets at their estimated fair value less estimated selling costs. These charges were recorded in “Cost of sales - equipment, merchandise, services, rental and other” and “Depreciation and amortization” expense on our Condensed Consolidated Statements of Operations and Comprehensive Income (Loss), respectively, during the three months ended September 30, 2013.

Blockbuster UK Administration

Blockbuster Entertainment Limited and Blockbuster GB Limited, our Blockbuster operating subsidiaries in the United Kingdom (collectively, the “Blockbuster UK Operating Entities”), entered into administration proceedings in the United Kingdom on January 16, 2013 (the “Administration”). Administrators were appointed by the English courts to sell or liquidate the assets of the Blockbuster UK Operating Entities for the benefit of their creditors. Since we no longer exercise control over operating decisions for the Blockbuster UK Operating Entities, we were required to deconsolidate our Blockbuster entities in the United Kingdom (collectively, “Blockbuster UK”) on January 16, 2013. As a result of the Administration, we wrote down the assets of Blockbuster UK to their estimated net realizable value on our Consolidated Balance Sheets as of December 31, 2012. In total, we recorded charges of approximately $46 million on a pre-tax basis including $25 million in “Other, net” within “Other Income (Expense)” and $21 million in “Cost of sales — equipment, merchandise, services, rental and other” on our Consolidated Statements of Operations and Comprehensive Income (Loss) for the year ended December 31, 2012 related to the Administration.

For the three and nine months ended September 30, 2012, Blockbuster UK had $67 million and $207 million, respectively, of revenue and an operating loss of $1 million and $6 million, respectively. Upon deconsolidation on January 16, 2013, the revenue and expenses related to the operations of Blockbuster UK are no longer recorded in our Condensed Consolidated Financial Statements.

10. Long-Term Debt

5% Senior Notes due 2017

On May 28, 2013, we issued $1.25 billion aggregate principal amount of our four-year, 5% Senior Notes due May 15, 2017 at an issue price of 100%. The net proceeds from the 5% Senior Notes due 2017 were placed into escrow to finance a portion of the cash consideration for our proposed merger with Sprint. On June 21, 2013, we abandoned our efforts to acquire Sprint and, on June 24, 2013, we redeemed all of the 5% Senior Notes due 2017 at a redemption price equal to 100% of the aggregate principal amount of the 5% Senior Notes due 2017, plus accrued and unpaid interest.

During the second quarter 2013, we recorded $7 million in interest expense and deferred financing costs related to the issuance and redemption of our 5% Senior Notes due 2017 as “Interest expense, net of amounts capitalized” on our Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).

4 1/4% Senior Notes due 2018

On April 5, 2013, we issued $1.2 billion aggregate principal amount of our five-year, 4 1/4% Senior Notes due April 1, 2018 at an issue price of 100%. Interest accrues at an annual rate of 4 1/4% and is payable semi-annually in cash in arrears on April 1 and October 1 of each year, commencing on October 1, 2013.

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The 4 1/4% Senior Notes due 2018 are redeemable, in whole or in part, at any time at a redemption price equal to 100% of the principal amount plus a “make-whole” premium, as defined in the related indenture, together with accrued and unpaid interest. Prior to April 1, 2016, we may also redeem up to 35.0% of the 4 1/4% Senior Notes due 2018 at a specified premium with the net cash proceeds from certain equity offerings or capital contributions.

The 4 1/4% Senior Notes due 2018 are:

· general unsecured senior obligations of DISH DBS;

· ranked equally in right of payment with all of DISH DBS’ and the guarantors’ existing and future unsecured senior debt; and

· ranked effectively junior to DISH DBS’ and the guarantors’ current and future secured senior indebtedness up to the value of the collateral securing such indebtedness.

The indenture related to the 4 1/4% Senior Notes due 2018 contains restrictive covenants that, among other things, impose limitations on the ability of DISH DBS and its restricted subsidiaries to:

· incur additional debt;

· pay dividends or make distributions on DISH DBS’ capital stock or repurchase DISH DBS’ capital stock;

· make certain investments;

· create liens or enter into sale and leaseback transactions;

· enter into transactions with affiliates;

· merge or consolidate with another company; and

· transfer or sell assets.

In the event of a change of control, as defined in the related indenture, we would be required to make an offer to repurchase all or any part of a holder’s 4 1/4% Senior Notes due 2018 at a purchase price equal to 101% of the aggregate principal amount thereof, together with accrued and unpaid interest thereon, to the date of repurchase.

5 1/8% Senior Notes due 2020

On April 5, 2013, we issued $1.1 billion aggregate principal amount of our seven-year, 5 1/8% Senior Notes due May 1, 2020 at an issue price of 100%. Interest accrues at an annual rate of 5 1/8% and is payable semi-annually in cash in arrears on May 1 and November 1 of each year, commencing on November 1, 2013.

The 5 1/8% Senior Notes due 2020 are redeemable, in whole or in part, at any time at a redemption price equal to 100% of the principal amount plus a “make-whole” premium, as defined in the related indenture, together with accrued and unpaid interest. Prior to May 1, 2016, we may also redeem up to 35.0% of the 5 1/8% Senior Notes due 2020 at a specified premium with the net cash proceeds from certain equity offerings or capital contributions.

The 5 1/8% Senior Notes due 2020 are:

· general unsecured senior obligations of DISH DBS;

· ranked equally in right of payment with all of DISH DBS’ and the guarantors’ existing and future unsecured senior debt; and

· ranked effectively junior to DISH DBS’ and the guarantors’ current and future secured senior indebtedness up to the value of the collateral securing such indebtedness.

The indenture related to the 5 1/8% Senior Notes due 2020 contains restrictive covenants that, among other things, impose limitations on the ability of DISH DBS and its restricted subsidiaries to:

· incur additional debt;

· pay dividends or make distributions on DISH DBS’ capital stock or repurchase DISH DBS’ capital stock;

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· make certain investments;

· create liens or enter into sale and leaseback transactions;

· enter into transactions with affiliates;

· merge or consolidate with another company; and

· transfer or sell assets.

In the event of a change of control, as defined in the related indenture, we would be required to make an offer to repurchase all or any part of a holder’s 5 1/8% Senior Notes due 2020 at a purchase price equal to 101% of the aggregate principal amount thereof, together with accrued and unpaid interest thereon, to the date of repurchase.

6 1/4% Senior Notes due 2023

On May 28, 2013, we issued $1.35 billion aggregate principal amount of our ten-year, 6 1/4% Senior Notes due May 15, 2023 at an issue price of 100%. The net proceeds from the 6 1/4% Senior Notes due 2023 were placed into escrow to finance a portion of the cash consideration for our proposed merger with Sprint. On June 21, 2013, we abandoned our efforts to acquire Sprint and, on June 24, 2013, we redeemed all of the 6 1/4% Senior Notes due 2023 at a redemption price equal to 101% of the aggregate principal amount of the 6 1/4% Senior Notes due 2023, plus accrued and unpaid interest.

During the second quarter 2013, we recorded $23 million in premiums, interest expense and deferred financing costs related to the issuance and redemption of our 6 1/4% Senior Notes due 2023 as “Interest expense, net of amounts capitalized” on our Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).

Fair Value of our Long-Term Debt

The following table summarizes the carrying and fair values of our debt facilities as of September 30, 2013 and December 31, 2012:

	As of
	September 30, 2013				December 31, 2012
	Carrying				Carrying
	Value		Fair Value		Value		Fair Value
	(In thousands)
7 % Senior Notes due 2013 (1)	$	451,448	$	451,498	$	500,000	$	521,875
6 5/8% Senior Notes due 2014	1,000,000		1,055,050		1,000,000		1,078,500
7 3/4% Senior Notes due 2015	750,000		821,100		750,000		844,725
7 1/8% Senior Notes due 2016	1,500,000		1,649,595		1,500,000		1,683,750
4 5/8% Senior Notes due 2017	900,000		920,250		900,000		940,500
4 1/4% Senior Notes due 2018	1,200,000		1,203,000		—		—
7 7/8% Senior Notes due 2019	1,400,000		1,598,100		1,400,000		1,669,500
5 1/8% Senior Notes due 2020	1,100,000		1,081,135		—		—
6 3/4% Senior Notes due 2021	2,000,000		2,108,600		2,000,000		2,280,000
5 7/8% Senior Notes due 2022	2,000,000		2,019,900		2,000,000		2,150,000
5% Senior Notes due 2023	1,500,000		1,393,125		1,500,000		1,548,750
Mortgages and other notes payable	82,321		82,321		88,955		88,955
Subtotal	13,883,769		$	14,383,674	11,638,955		$	12,806,555
Capital lease obligations (2)	227,555		NA		249,145		NA
Total long-term debt and capital lease obligations (including current portion)	$	14,111,324			$	11,888,100

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(1) During the three months ended September 30, 2013, we repurchased $49 million of our 7% Senior Notes due 2013 in open market transactions. On October 1, 2013, we redeemed the remaining $451 million principal balance of our 7% Senior Notes due 2013.

(2) Disclosure regarding fair value of capital leases is not required.

We estimated the fair value of our publicly traded long-term debt using market prices in less active markets (Level 2).

11. Stock-Based Compensation

Stock Incentive Plans

We maintain stock incentive plans to attract and retain officers, directors and key employees. Stock awards under these plans include both performance and non-performance based stock incentives. As of September 30, 2013, we had outstanding under these plans stock options to acquire 14.6 million shares of our Class A common stock and 2.0 million restricted stock units. Stock options granted prior to September 30, 2013 were granted with exercise prices equal to or greater than the market value of our Class A common stock at the date of grant and with a maximum term of approximately ten years. While historically we have issued stock awards subject to vesting, typically at the rate of 20% per year, some stock awards have been granted with immediate vesting and other stock awards vest only upon the achievement of certain company-specific subscriber, operational and/or financial goals. As of September 30, 2013, we had 69.7 million shares of our Class A common stock available for future grant under our stock incentive plans.

On December 28, 2012, we paid a dividend in cash of $1.00 per share on our outstanding Class A and Class B common stock to shareholders of record on December 14, 2012. In light of such dividend, during January 2013, the exercise price of 16.3 million stock options, affecting approximately 550 employees, was reduced by $0.77 per share (the “2012 Stock Option Adjustment”). Except as noted below, all information discussed below reflects the 2012 Stock Option Adjustment.

On January 1, 2008, we completed the distribution of our technology and set-top box business and certain infrastructure assets (the “Spin-off”) into a separate publicly-traded company, EchoStar. In connection with the Spin-off, each DISH Network stock award was converted into an adjusted DISH Network stock award and a new EchoStar stock award consistent with the Spin-off exchange ratio. We are responsible for fulfilling all stock awards related to DISH Network common stock and EchoStar is responsible for fulfilling all stock awards related to EchoStar common stock, regardless of whether such stock awards are held by our or EchoStar’s employees. Notwithstanding the foregoing, our stock-based compensation expense, resulting from stock awards outstanding at the Spin-off date, is based on the stock awards held by our employees regardless of whether such stock awards were issued by DISH Network or EchoStar. Accordingly, stock-based compensation that we expense with respect to EchoStar stock awards is included in “Additional paid-in capital” on our Condensed Consolidated Balance Sheets. As of March 31, 2013, we have recognized all of our stock-based compensation expense resulting from EchoStar stock awards outstanding at the Spin-off date held by our employees except for the 2005 LTIP performance awards, which were determined not to be probable as of September 30, 2013. See discussion of the 2005 LTIP below.