Edgar Filing: EchoStar CORP

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2014.

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

FOR THE TRANSITION PERIOD FROM TO .

Commission File Number: 001-33807

EchoStar Corporation

(Exact Name of Registrant as Specified in Its Charter)

Nevada		26-1232727
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

100 Inverness Terrace East, Englewood, Colorado		80112-5308
(Address of Principal Executive Offices)		(Zip Code)

(303) 706-4000

(Registrant’s Telephone Number, Including Area Code)

Not Applicable

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, 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 x No o

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

Large accelerated filer T		Accelerated filer £

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

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

As of August 1, 2014, the Registrant’s outstanding common stock consisted of 43,601,705 shares of Class A common stock and 47,687,039 shares of Class B common stock.

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TABLE OF CONTENTS

Disclosure Regarding Forward-Looking Statements		i

PART I - FINANCIAL INFORMATION

Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets as of June 30, 2014 (Unaudited) and December 31, 2013	2
	Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the Three and Six Months Ended June 30, 2014 and 2013 (Unaudited)	3
	Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Six Months Ended June 30, 2014 and 2013 (Unaudited)	4
	Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2014 and 2013 (Unaudited)	5
	Notes to Condensed Consolidated Financial Statements (Unaudited)	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	39
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	62
Item 4.	Controls and Procedures	64

PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	65
Item 1A.	Risk Factors	65
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	66
Item 3.	Defaults upon Senior Securities	66
Item 4.	Mine Safety Disclosures	66
Item 5.	Other Information	66
Item 6.	Exhibits	67
	Signatures	68

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DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, including, in particular, statements about our estimates, expectations, plans, objectives, strategies, results of operations and financial condition, expected impact of regulatory developments and legal proceedings, opportunities in our industries and businesses and other trends and projections for the next fiscal quarter and beyond. All statements, other than statements of historical facts, may be forward-looking statements. Forward-looking statements may also be identified by words such as “anticipate,” “intend,” “plan,” “goal,” “seek,” “believe,” “estimate,” “expect,” “predict,” “continue,” “future,” “will,” “would,” “could,” “can,” “may” and similar terms. These forward-looking statements are based on information available to us as of the date of this Quarterly Report on Form 10-Q and represent management’s current views and assumptions. Forward-looking statements are not guarantees of future performance, events or results and involve potential known and unknown risks, uncertainties and other factors, many of which may be beyond our control and may pose a risk to our operating and financial condition. Accordingly, actual performance, events or results could differ materially from those expressed or implied in the forward-looking statements due to a number of factors including, but not limited to:

· our reliance on our primary customer, DISH Network Corporation (“DISH Network”), for a significant portion of our revenue;

· the impact of variable demand and the adverse pricing environment for digital set-top boxes;

· dependence on our ability to successfully manufacture and sell our digital set-top boxes in increasing volumes on a cost-effective basis and with acceptable quality;

· our ability to bring advanced technologies to market to keep pace with our competitors;

· significant risks related to the construction, launch and operation of our satellites, such as the risk of material malfunction on one or more of our satellites, changes in the space weather environment that could interfere with the operation of our satellites, and our general lack of commercial insurance coverage on our satellites;

· uncertainty in global economic conditions, which may, among other things, cause consumers and enterprise customers to defer purchases;

· the failure to adequately anticipate the need for satellite capacity or the inability to obtain satellite capacity for our Hughes segment; and

· the failure of third-party providers of components, manufacturing, installation services and customer support services to appropriately deliver the contracted goods or services.

Other factors that could cause or contribute to such differences include, but are not limited to, those discussed under the caption “Risk Factors” in Part II, Item 1A of this Quarterly Report on Form 10-Q and in Part I, Item 1A of our most recent Annual Report on Form 10-K (“10-K”) filed with the Securities and Exchange Commission (“SEC”), those discussed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” herein and in the 10-K and those discussed in other documents we file with the 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 and uncertainties described herein and should not place undue reliance on any forward-looking statements. We do not undertake, and specifically disclaim, any obligation to publicly release the results of any revisions that may be made to any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements, except as required by federal securities laws.

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PART I — FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

ECHOSTAR CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share amounts)

(Unaudited)

	As of
	June 30,			December 31,
	2014			2013
Assets
Current Assets:
Cash and cash equivalents	$	708,257		$	634,119
Marketable investment securities	980,303			986,533
Trade accounts receivable, net of allowance for doubtful accounts of $14,766 and $13,237, respectively	173,813			159,292
Trade accounts receivable - DISH Network, net of allowance for doubtful accounts of zero	318,351			355,135
Inventory	63,958			66,084
Prepaid expenses	57,506			55,400
Deferred tax assets	69,603			69,633
Other current assets	11,255			29,930
Total current assets	2,383,046			2,356,126
Noncurrent Assets:
Restricted cash and marketable investment securities	19,179			16,137
Property and equipment, net of accumulated depreciation of $2,703,563 and $2,499,889, respectively	3,027,697			2,546,377
Regulatory authorizations, net	584,168			583,900
Goodwill	504,173			504,173
Other intangible assets, net	218,819			262,039
Other investments	159,600			169,771
Other receivable - DISH Network	90,356			89,811
Other noncurrent assets, net	185,100			173,629
Total noncurrent assets	4,789,092			4,345,837
Total assets	$	7,172,138		$	6,701,963
Liabilities and Stockholders’ Equity
Current Liabilities:
Trade accounts payable	$	211,334		$	201,416
Trade accounts payable - DISH Network	19,789			55,743
Current portion of long-term debt and capital lease obligations	51,080			69,791
Deferred revenue and prepayments	67,189			57,592
Accrued compensation	31,601			30,940
Accrued royalties	28,290			24,010
Accrued expenses and other	113,892			118,953
Total current liabilities	523,175			558,445
Noncurrent Liabilities:
Long-term debt and capital lease obligations, net of current portion	2,339,338			2,352,597
Deferred tax liabilities	640,851			488,206
Other noncurrent liabilities	110,111			76,484
Total noncurrent liabilities	3,090,300			2,917,287
Total liabilities	3,613,475			3,475,732
Commitments and Contingencies (Note 14)

Stockholders’ Equity:
Preferred Stock, $.001 par value, 20,000,000 shares authorized:
Hughes Retail Preferred Tracking Stock, $.001 par value, 13,000,000 shares authorized, 6,290,499 issued and outstanding and zero shares issued and outstanding at June 30, 2014 and December 31, 2013, respectively	6			—
Common Stock, $.001 par value, 4,000,000,000 shares authorized:
Class A common stock, $.001 par value, 1,600,000,000 shares authorized, 49,094,677 and 48,370,956 shares issued, and 43,562,359 and 42,838,638 shares outstanding at June 30, 2014 and December 31, 2013, respectively	49			48
Class B common stock, $.001 par value, 800,000,000 shares authorized, 47,687,039 shares issued and outstanding at June 30, 2104 and December 31, 2013, respectively	48			48
Class C common stock, $.001 par value, 800,000,000 shares authorized, none issued and outstanding	—			—
Class D common stock, $.001 par value, 800,000,000 shares authorized, none issued and outstanding	—			—
Additional paid-in capital	3,700,437			3,502,005
Accumulated other comprehensive loss	(9,726		)	(14,655		)
Accumulated deficit	(129,055		)	(171,914		)
Treasury stock, at cost	(98,162		)	(98,162		)
Total EchoStar stockholders’ equity	3,463,597			3,217,370
Noncontrolling interest in HSS Tracking Stock	85,228			—
Other noncontrolling interests	9,838			8,861
Total stockholders’ equity	3,558,663			3,226,231
Total liabilities and stockholders’ equity	$	7,172,138		$	6,701,963

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

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ECHOSTAR CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE INCOME (LOSS)

(In thousands, except per share amounts)

(Unaudited)

	For the Three Months						For the Six Months
	Ended June 30,						Ended June 30,
	2014			2013			2014			2013
Revenue:
Equipment revenue - DISH Network	$	302,734		$	333,993		$	608,416		$	642,868
Equipment revenue - other	95,033			90,875			163,963			192,965
Services and other revenue - DISH Network	209,053			154,063			393,617			293,988
Services and other revenue - other	273,008			251,072			539,855			495,636
Total revenue	879,828			830,003			1,705,851			1,625,457
Costs and Expenses:
Cost of sales - equipment (exclusive of depreciation and amortization)	337,376			365,037			658,046			718,892
Cost of sales - services and other (exclusive of depreciation and amortization)	204,269			189,330			414,362			368,624
Selling, general and administrative expenses	90,492			90,386			178,124			184,562
Research and development expenses	14,574			16,354			29,156			33,848
Depreciation and amortization	140,647			128,144			273,873			254,843
Impairment of long-lived asset	—			34,664			—			34,664
Total costs and expenses	787,358			823,915			1,553,561			1,595,433
Operating income	92,470			6,088			152,290			30,024

Other Income (Expense):
Interest income	2,147			1,982			4,745			3,959
Interest expense, net of amounts capitalized	(44,687		)	(48,672		)	(90,731		)	(97,772		)
Realized gains on marketable investment securities and other investments (includes reclassification of realized gains on available-for-sale (“AFS”) securities out of accumulated other comprehensive loss of $6, $17,968, $34 and $34,498, respectively), net	6			17,967			34			37,430
Equity in losses of unconsolidated affiliates, net	(1,210		)	(2,477		)	(3,061		)	(6,382		)
Other, net	(201		)	(353		)	435			5,128
Total other expense, net	(43,945		)	(31,553		)	(88,578		)	(57,637		)
Income (loss) before income taxes	48,525			(25,465		)	63,712			(27,613		)
Income tax benefit (provision), net	(18,911		)	15,882			(22,068		)	21,528
Net income (loss)	29,614			(9,583		)	41,644			(6,085		)
Less: Net loss attributable to noncontrolling interest in HSS Tracking Stock	(1,619		)	—			(1,943		)	—
Less: Net income attributable to other noncontrolling interests	428			176			728			216
Net income (loss) attributable to EchoStar	30,805			(9,759		)	42,859			(6,301		)
Less: Net loss attributable to Hughes Retail Preferred Tracking Stock (Note 2)	(2,989		)	—			(3,587		)	—
Net income (loss) attributable to EchoStar common stock	$	33,794		$	(9,759	)	$	46,446		$	(6,301	)

Weighted-average common shares outstanding - Class A and B common stock:
Basic	91,097			88,179			90,894			88,681
Diluted	92,714			88,179			92,546			88,681

Earnings per share - Class A and B common stock:
Basic	$	0.37		$	(0.11	)	$	0.51		$	(0.07	)
Diluted	$	0.36		$	(0.11	)	$	0.50		$	(0.07	)

Comprehensive Income (Loss)
Net income (loss)	$	29,614		$	(9,583	)	$	41,644		$	(6,085	)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments	3,208			(13,259		)	7,715			(11,309		)
Unrealized gains on AFS securities and other	(3,252		)	7,135			(2,503		)	14,664
Recognition of previously unrealized gains on AFS securities in net income (loss)	(6		)	(17,968		)	(34		)	(34,498		)
Total other comprehensive income (loss), net of tax	(50		)	(24,092		)	5,178			(31,143		)
Comprehensive income (loss)	29,564			(33,675		)	46,822			(37,228		)
Less: Comprehensive loss attributable to noncontrolling interest in HSS Tracking Stock	(1,619		)	—			(1,943		)	—
Less: Comprehensive income (loss) attributable to other noncontrolling interests	442			(470		)	976			(408		)
Comprehensive income (loss) attributable to EchoStar	$	30,741		$	(33,205	)	$	47,789		$	(36,820	)

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

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ECHOSTAR CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(In thousands)

(Unaudited)

	Hughes Retail		Class				Accumulated									Noncontrolling
	Preferred		A and B		Additional		Other									interest in			Other
	Tracking		Common		Paid-In		Comprehensive			Accumulated			Treasury			HSS Tracking			Noncontrolling
	Stock		Stock		Capital		Income (Loss)			Deficit			Stock			Stock			Interests			Total
Balance, December 31, 2012	$	—	$	93	$	3,394,646	$	18,752		$	(174,439	)	$	(98,162	)	$	—		$	9,337		$	3,150,227
Issuances of Class A common stock:
Exercise of stock options	—		2		41,254		—			—			—			—			—			41,256
Employee benefits	—		—		4,761		—			—			—			—			—			4,761
Employee Stock Purchase Plan	—		—		4,465		—			—			—			—			—			4,465
Stock-based compensation	—		—		10,052		—			—			—			—			—			10,052
Other, net	—		—		2,025		—			—			—			—			(467		)	1,558
Net income (loss)	—		—		—		—			(6,301		)	—			—			216			(6,085		)
Unrealized losses on AFS securities, net and other	—		—		—		(19,834		)	—			—			—			—			(19,834		)
Foreign currency translation adjustment	—		—		—		(10,685		)	—			—			—			(624		)	(11,309		)
Balance, June 30, 2013	$	—	$	95	$	3,457,203	$	(11,767	)	$	(180,740	)	$	(98,162	)	$	—		$	8,462		$	3,175,091

Balance, December 31, 2013	$	—	$	96	$	3,502,005	$	(14,655	)	$	(171,914	)	$	(98,162	)	$	—		$	8,861		$	3,226,231
Issuances of Class A common stock:
Exercise of stock options	—		1		8,264		—			—			—			—			—			8,265
Employee benefits	—		—		10,310		—			—			—			—			—			10,310
Employee Stock Purchase Plan	—		—		6,149		—			—			—			—			—			6,149
Stock-based compensation	—		—		7,178		—			—			—			—			—			7,178
Issuance of Hughes Retail Preferred	—
Tracking Stock (Note 2)	6		—		163,510		—			—			—			87,171			—			250,687
Other, net	—		—		3,021		—			—			—			—			—			3,021
Net income (loss)	—		—		—		—			42,859			—			(1,943		)	728			41,644
Unrealized gains on AFS securities, net and other	—		—		—		(2,537		)	—			—			—			—			(2,537		)
Foreign currency translation adjustment	—		—		—		7,466			—			—			—			249			7,715
Balance, June 30, 2014	$	6	$	97	$	3,700,437	$	(9,726	)	$	(129,055	)	$	(98,162	)	$	85,228		$	9,838		$	3,558,663

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

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ECHOSTAR CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	For the Six Months
	Ended June 30,
	2014			2013
Cash Flows from Operating Activities:
Net income (loss)	$	41,644		$	(6,085	)
Adjustments to reconcile net income (loss) to net cash flows from operating activities:
Depreciation and amortization	273,873			254,843
Equity in losses of unconsolidated affiliates, net	3,061			6,382
Realized gains on marketable investment securities and other investments, net	(34		)	(37,430		)
Impairment of long-lived asset	—			34,664
Stock-based compensation	7,178			10,052
Deferred tax provision (benefit)	10,512			(26,865		)
Changes in current assets and current liabilities, net	22,947			(43,155		)
Changes in noncurrent assets and noncurrent liabilities, net	(9,075		)	(6,023		)
Other, net	21,868			6,892
Net cash flows from operating activities	371,974			193,275
Cash Flows from Investing Activities:
Purchases of marketable investment securities	(599,677		)	(557,165		)
Sales and maturities of marketable investment securities	594,306			486,891
Purchases of property and equipment	(269,717		)	(158,272		)
Changes in restricted cash and marketable investment securities	(3,042		)	7,962
Purchase of strategic investments	(27		)	(7,295		)
Other, net	(10,376		)	(3,911		)
Net cash flows from investing activities	(288,533		)	(231,790		)
Cash Flows from Financing Activities:
Net proceeds from Class A common stock options exercised and stock issued under the Employee Stock Purchase Plan	14,414			45,721
Repayment of long-term debt and capital lease obligations	(36,359		)	(38,707		)
Net proceeds from issuance of Tracking Stock (Note 2)	10,104			—
Other	1,082			816
Net cash flows from financing activities	(10,759		)	7,830
Effect of exchange rates on cash and cash equivalents	1,456			(795		)
Net increase in cash and cash equivalents	74,138			(31,480		)
Cash and cash equivalents, beginning of period	634,119			731,614
Cash and cash equivalents, end of period	$	708,257		$	700,134

Supplemental Disclosure of Cash Flow Information:
Cash paid for interest (including capitalized interest)	$	94,195		$	98,425
Capitalized interest	$	7,689		$	711
Cash paid for income taxes	$	8,711		$	5,676
Employee benefits paid in Class A common stock	$	10,310		$	4,761
Satellites and other assets financed under capital lease obligations	$	2,138		$	1,812
Capitalized in-orbit incentive obligations	$	—		$	18,000
Transfer of regulatory authorization to DISH Network included in accounts receivable	$	—		$	23,000
Reduction of capital lease obligation for AMC-16	$	—		$	6,694
Increase (decrease) in capital expenditures included in accounts payable	$	4,981		$	(12,576	)
Net assets transferred from DISH Network in exchange for Tracking Stock (Note 2)	$	398,095		$	—

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

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ECHOSTAR CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1. Organization and Business Activities

Principal Business

EchoStar Corporation (together with its subsidiaries is referred to as “EchoStar,” the “Company,” “we,” “us” and/or “our”) is a holding company that was organized in October 2007 as a corporation under the laws of the State of Nevada. We are a global provider of satellite operations, video delivery solutions, digital set-top boxes, and broadband satellite technologies and services for home and office, delivering innovative network technologies, managed services, and solutions for enterprises and governments. Our Class A common stock is publicly traded on the Nasdaq Global Select Market under the symbol “SATS.”

We currently operate in three business segments.

· EchoStar Technologies (“ETC”) — which designs, develops and distributes digital set-top boxes and related products and technology, primarily for satellite TV service providers, telecommunication companies and international cable companies. Our EchoStar Technologies segment also provides digital broadcast operations, including satellite uplinking/downlinking, transmission services, signal processing, conditional access management, and other services, primarily to DISH Network Corporation and its subsidiaries (“DISH Network”). In addition, we provide our Slingboxes directly to consumers via retail outlets and online.

· Hughes — which provides satellite broadband internet access to North American consumers and broadband network services and equipment to domestic and international enterprise markets. The Hughes segment also provides managed services to large enterprises and solutions to customers for mobile satellite systems.

· EchoStar Satellite Services (“ESS”) — which uses certain of our owned and leased in-orbit satellites and related licenses to provide satellite services on a full-time and occasional-use basis primarily to DISH Network and also to Dish Mexico, S. de R.L. de C.V. (“Dish Mexico”), a joint venture that we entered into in 2008, as well as to United States (“U.S.”) government service providers, state agencies, internet service providers, broadcast news organizations, programmers, and private enterprise customers.

In 2008, DISH Network completed its distribution to us of its digital set-top box business and certain infrastructure and other assets, including certain of their satellites, uplink and satellite transmission assets, real estate, and other assets and related liabilities (the “Spin-off”). Since the Spin-off, EchoStar and DISH Network have operated as separate publicly-traded companies. However, as a result of the Satellite and Tracking Stock Transaction, described in Note 2 below, DISH Network owns preferred tracking stock representing an aggregate 80.0% economic interest in the residential retail satellite broadband business of our Hughes segment. In addition, a substantial majority of the voting power of the shares of DISH Network and EchoStar is owned beneficially by Charles W. Ergen, our Chairman, and by certain trusts established by Mr. Ergen for the benefit of his family.

Note 2. Hughes Retail Preferred Tracking Stock

Satellite and Tracking Stock Transaction

On February 20, 2014, EchoStar entered into agreements with certain subsidiaries of DISH Network pursuant to which effective March 1, 2014, (i) EchoStar issued shares of its newly authorized Hughes Retail Preferred Tracking Stock (the “EchoStar Tracking Stock”) and Hughes Satellite Systems Corporation (“HSS”), a subsidiary of EchoStar, also issued shares of its newly authorized Hughes Retail Preferred Tracking Stock (the “HSS Tracking Stock” and together with the EchoStar Tracking Stock, the “Tracking Stock”) to DISH Network in exchange for five satellites (EchoStar I, EchoStar VII, EchoStar X, EchoStar XI, and EchoStar XIV) (including the assumption of related in-orbit incentive obligations) and $11.4 million in cash and (ii) DISH Network began receiving certain satellite services on these five satellites from us (the “Satellite and Tracking Stock Transaction”). The Tracking

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Stock tracks the residential retail satellite broadband business of our Hughes segment, including certain operations, assets and liabilities attributed to such business (collectively, the “Hughes Retail Group” or “HRG”).

EchoStar and HSS have adopted policy statements (the “Policy Statements”) setting forth management and allocation policies for purposes of attributing all of the business and operations of EchoStar to either the Hughes Retail Group or the “EchoStar Group,” which is defined as all other operations of EchoStar, including all existing and future businesses, other than the Hughes Retail Group. Among other things, the Policy Statements govern how assets, liabilities, revenue and expenses are attributed or allocated between HRG and the EchoStar Group. Such attributions and allocations generally do not affect the amounts reported in our consolidated financial statements, except for the attribution of stockholders’ equity and net income or loss between the holders of Tracking Stock and common stock. The Policy Statements also do not significantly affect the way that management assesses operating performance and allocates resources within our Hughes segment.

See Note 9 for information about the five satellites received from DISH Network, Note 14 for information about the assumed in-orbit incentive obligations, and Note 16 for information regarding the related satellite services agreements with DISH Network. We provide unaudited attributed financial information for HRG and the EchoStar Group in an exhibit to our periodic reports on Form 10-Q and Form 10-K. Set forth below is information about certain terms of the Tracking Stock and the initial recording of the Satellite and Tracking Stock Transaction in our consolidated financial statements.

Description of the Tracking Stock

Tracking stock is a type of capital stock that the issuing company intends to reflect or “track” the economic performance of a particular business component within the company, rather than reflect the economic performance of the company as a whole. The Tracking Stock is intended to track the economic performance of the Hughes Retail Group. The shares of the Tracking Stock issued to DISH Network represent an aggregate 80.0% economic interest in the Hughes Retail Group (51.89% issued as EchoStar Tracking Stock and 28.11% issued as HSS Tracking Stock). In addition to the remaining 20.0% economic interest in the Hughes Retail Group, EchoStar retains all economic interest in the wholesale satellite broadband business and other businesses of EchoStar. The Hughes Retail Group is not a separate legal entity and therefore cannot own assets, issue securities or enter into legally binding agreements. Holders of the Tracking Stock have no direct claim to the assets of the Hughes Retail Group; rather, holders of the Tracking Stock are stockholders of its respective issuer (EchoStar or HSS) and are subject to all risks and liabilities of the issuer. Holders of shares of the Tracking Stock vote with holders of the outstanding shares of common stock of its respective issuer, as a single class, with respect to any and all matters presented to stockholders for their action or consideration. Each share of the Tracking Stock is entitled to one-tenth (1/10th) of one vote. The EchoStar Tracking Stock is a series of preferred stock consisting of 13,000,000 authorized shares with a par value of $0.001 per share, of which 6,290,499 shares were issued to DISH Network on March 1, 2014. The HSS Tracking Stock is a series of HSS preferred stock consisting of 300 authorized shares with a par value of $0.001 per share, of which 81.128 shares were issued to DISH Network on March 1, 2014. Following the issuance of the shares of the EchoStar Tracking Stock and the HSS Tracking Stock, DISH Network held 6.5% and 7.5% of the aggregate number of outstanding shares of EchoStar and HSS capital stock, respectively.

Investor Rights Agreement

In connection with the Satellite and Tracking Stock Transaction, EchoStar, HSS and DISH Network entered into an agreement (the “Investor Rights Agreement”) setting forth certain rights and obligations of the parties with respect to the Tracking Stock. Among other provisions, the Investor Rights Agreement provides: (i) certain information and consultation rights for DISH Network; (ii) certain transfer restrictions on the Tracking Stock and certain rights and obligations to offer and sell under certain circumstances (including a prohibition on transfer of the Tracking Stock until March 1, 2015), with continuing transfer restrictions (including a right of first offer in favor of EchoStar) thereafter, an obligation to sell the Tracking Stock to us in connection with a change of control of DISH Network and a right to require us to repurchase the Tracking Stock in connection with a change of control of EchoStar, in each case subject to certain terms and conditions; and (iii) certain protective covenants afforded to holders of the Tracking Stock.

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In addition, the Investor Rights Agreement provides that DISH Network may, on or after September 1, 2016, require EchoStar to use its commercially reasonable efforts to register some or all of the outstanding shares of the Tracking Stock under the Securities Act of 1933, subject to certain terms and conditions (including our right, upon the receipt of a demand for registration, to offer to repurchase all of the Tracking Stock). In connection with any demand for registration, DISH Network may require any outstanding shares of the HSS Tracking Stock to be exchanged for shares of the EchoStar Tracking Stock with an equivalent economic interest in the Hughes Retail Group. In the event that a registration of shares of Tracking Stock is effected, EchoStar is required to use its reasonable best efforts to amend the terms of the Tracking Stock so that the Tracking Stock will be convertible or exchangeable for shares of EchoStar Class A Common Stock with equivalent market value.

Initial Recording of the Satellite and Tracking Stock Transaction

EchoStar and DISH Network are entities under common control. In accordance with accounting principles that apply to transfers of assets between entities under common control, EchoStar and HSS recorded the net assets received from DISH Network in the Satellite and Tracking Stock Transaction at their historical carrying amounts as reflected in DISH Network’s consolidated financial statements as of February 28, 2014, the day prior to the effective date of the Satellite and Tracking Stock Transaction. DISH Network transferred the EchoStar I, EchoStar VII, and EchoStar X satellites to HSS and transferred the EchoStar XI and EchoStar XIV satellites to EchoStar. The historical carrying amounts of net assets transferred to EchoStar and HSS were as follows:

	EchoStar(1)			HSS			Total
	(In thousands)
Cash	$	—		$	11,404		$	11,404
Property and equipment, net	349,243			82,837			432,080
Current liabilities	(3,479		)	(3,076		)	(6,555		)
Noncurrent liabilities	(30,121		)	(8,713		)	(38,834		)
Transferred net assets	$	315,643		$	82,452		$	398,095

(1) All of the net assets received by EchoStar as part of the Satellite and Tracking Stock Transaction were immediately transferred to HSS and are being used by our EchoStar Satellite Services segment.

The transferred net assets increased EchoStar stockholders’ equity and HSS stockholders’ equity by amounts that reflect the carrying amounts of net assets that would be distributed to holders of the Tracking Stock and common stock in a hypothetical liquidation, which would be in proportion to the relative market values (as defined in applicable agreements) of each class of stock. The amounts credited to equity were reduced by direct costs of the Tracking Stock issuance and deferred income tax liabilities arising from differences between the financial reporting carrying amounts and the tax bases of the transferred satellites.

The net amounts credited to EchoStar stockholders’ equity for the EchoStar Tracking Stock (primarily additional paid-in capital) and the noncontrolling interest in the HSS Tracking Stock were as follows:

	EchoStar			Noncontrolling
	Stockholders			Interest			Total
	(In thousands)
Transferred net assets	$	315,643		$	82,452		$	398,095
Offering costs, net of tax	(2,302		)	(610		)	(2,912		)
Deferred income taxes	(114,525		)	(29,971		)	(144,496		)
Reallocation based on relative liquidation values	(35,300		)	35,300			—
Net increase in stockholders’ equity	$	163,516		$	87,171		$	250,687

Note 3. 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 U.S. (“GAAP”) and with the instructions to Form 10-Q and Article 10 of Regulation S-X for interim financial information. Accordingly, these financial statements do not

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include all of the information and notes required for complete financial statements prepared in accordance with 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, 2013.

Principles of Consolidation

We consolidate all majority owned subsidiaries, investments in entities in which we have controlling interest and variable interest entities where we are the primary beneficiary. For entities we control but do not wholly-own, we record a noncontrolling interest within stockholders’ equity for the portion of the entity’s equity attributed to the noncontrolling ownership interests. For the noncontrolling interest in the HSS Tracking Stock, we periodically attribute a portion of HSS net income or loss to the noncontrolling interest in HSS Tracking Stock with such portion equal to the economic interest (currently 28.11%) in the Hughes Retail Group represented by the HSS Tracking Stock, as determined in accordance with the Policy Statements and other documents governing the Tracking Stock. We use the equity method to account for investments in entities that we do not control but 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 the 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 accordance with GAAP requires us to make certain estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the balance sheets, the reported amounts of revenue and expense for each reporting period, and certain information disclosed in the notes to the Condensed Consolidated Financial Statements. Estimates are used in accounting for, among other things, amortization periods of deferred revenue and deferred subscriber acquisition costs, percentage-of-completion related to revenue recognition, allowances for doubtful accounts, allowances for sales returns and rebates, warranty obligations, self-insurance obligations, deferred taxes and related valuation allowances, uncertain tax positions, loss contingencies, fair value of financial instruments, fair value of our stock-based compensation plans, fair value of assets and liabilities acquired in business combinations, lease classifications, asset impairments, useful lives and amortization methods of property, equipment and intangible assets, goodwill impairment testing, royalty obligations, and allocations to HRG that affect the periodic determination of net income or loss attributable to the noncontrolling interest in the HSS Tracking Stock. We base our estimates and assumptions on historical experience and on various other factors that we believe to be relevant under the circumstances. Weakened economic conditions may increase the inherent uncertainty in the estimates and assumptions indicated above. Due to the inherent uncertainty involved in making estimates, 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 in the period they occur or prospectively if the revised estimate affects future periods.

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 utilize the highest level of inputs available according to the following hierarchy in determining fair value:

· Level 1, defined as observable inputs being quoted prices in active markets for identical assets;

· 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; and model-derived valuations in which significant inputs and significant value drivers are observable in active markets; and

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· 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.

Transfers between levels in the fair value hierarchy are considered to occur at the beginning of the quarterly accounting period. There were no transfers between levels for the six months ended June 30, 2014 or 2013.

As of June 30, 2014 and December 31, 2013, the carrying amount of our cash and cash equivalents, trade accounts receivable, net of allowance for doubtful accounts, accounts payable and accrued liabilities were equal to or approximated fair value due to their short-term nature or proximity to current market rates.

Fair values of our current marketable investment securities are based on a variety of observable market inputs. For our investments in publicly traded equity securities, fair value ordinarily is determined based on a Level 1 measurement that reflects quoted prices for identical securities in active markets. Fair values of our investments in marketable debt securities generally are based on Level 2 measurements, as the markets for debt securities are less active. Trades of identical debt securities on or near the measurement date are considered a strong indication of fair value. Matrix pricing techniques that consider par value, coupon rate, credit quality, maturity and other relevant features also may be used to determine fair value of our investments in marketable debt securities.

Fair values for our publicly traded long-term debt are based on quoted market prices in less active markets and are categorized as Level 2 measurements. The fair values of our privately held debt are Level 2 measurements and are estimated to approximate their carrying amounts based on the proximity of their interest rates to current market rates. See Note 11 for the fair value of our long-term debt. As of June 30, 2014 and December 31, 2013, the fair values of our orbital incentive obligations, based on measurements categorized within Level 2 of the fair value hierarchy, approximated their carrying amounts of $89.0 million and $48.4 million, respectively. We use fair value measurements from time-to-time in connection with impairment testing and the assignment of purchase consideration to assets and liabilities of acquired companies that typically include significant unobservable inputs and are categorized within Level 3 of the fair value hierarchy.

New Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”). It outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The core principle of the revenue model is that “an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.” ASU 2014-09 is effective for annual periods beginning after December 15, 2016 and interim periods within those annual periods and may be applied either retrospectively to prior periods or as a cumulative-effect adjustment as of the date of adoption. Early adoption is not permitted. Management has not selected a transition method and is assessing the impact of adopting this new accounting standard on our financial statements and related disclosures.

Note 4. Earnings per Share

We present basic earnings per share (“EPS”) and diluted EPS for our Class A and Class B common stock. The EchoStar Tracking Stock is a participating security that shares in our consolidated earnings and therefore, effective March 1, 2014, the issuance date of the EchoStar Tracking Stock, we apply the two-class method to calculate EPS. Under the two-class method, we allocate net income or loss attributable to EchoStar between common stock and the EchoStar Tracking Stock considering both dividends declared on each class of stock and the participation rights of each class of stock in undistributed earnings. Based on the 51.89% economic interest in the Hughes Retail Group currently outstanding as the EchoStar Tracking Stock, we allocate undistributed earnings to the EchoStar Tracking Stock based on 51.89% of the attributed net income or loss of the Hughes Retail Group. For the three and six months ended June 30, 2014, we allocated a net loss of $3.0 million and $3.6 million to the EchoStar Tracking Stock, respectively, reflecting DISH Network’s 51.89% economic interest (represented by the EchoStar Tracking Stock) in the net loss of the Hughes Retail Group for the period from the issuance of the EchoStar Tracking Stock on March 1, 2014 to June 30, 2014. Moreover, because the reported amount of “Net

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income (loss) attributable to EchoStar” in our Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) excludes DISH Network’s 28.11% economic interest (represented by the HSS Tracking Stock) in the net loss of the Hughes Retail Group (reported as a noncontrolling interest), the amount of consolidated net income or loss allocated to holders of Class A and Class B common stock effectively excludes an aggregate 80.0% interest in the attributed net loss of the Hughes Retail Group.

Basic EPS for our Class A and Class B common stock excludes potential dilution and is computed by dividing “Net income (loss) attributable to EchoStar” by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if our common stock awards were exercised. The potential dilution from common stock awards was computed using the treasury stock method based on the average market value of our Class A common stock during the period. The calculation of our diluted weighted-average common shares outstanding excluded (i) underlying options to purchase shares of our Class A common stock, as their effect is anti-dilutive, of 0.7 million and 1.6 million shares for the three months ended June 30, 2014 and 2013, respectively, and 0.7 million and 1.4 million shares for the six months ended June 30, 2014 and 2013, respectively, and (ii) shares of our Class A common stock that are contingently issuable pursuant to our performance based stock incentive plan based upon meeting a company-specific performance measure by March 31, 2015, which was not probable of being achieved as of June 30, 2014 of 0.7 million and 0.7 million shares for the three and six months ended June 30, 2014 and 2013, respectively.

The following table presents basic and diluted EPS amounts for all periods and the corresponding weighted-average shares outstanding used in the calculations.

	For the Three Months						For the Six Months
	Ended June 30,						Ended June 30,
	2014			2013			2014			2013
	(In thousands, except per share amounts)
Net income (loss) attributable to EchoStar	$	30,805		$	(9,759	)	$	42,859		$	(6,301	)
Net income (loss) attributable to EchoStar Tracking Stock	(2,989		)	—			(3,587		)	—
Net income (loss) attributable to EchoStar common stock	$	33,794		$	(9,759	)	$	46,446		$	(6,301	)

Weighted-average common shares outstanding :
Class A and B common stock:
Basic	91,097			88,179			90,894			88,681
Dilutive impact of stock awards outstanding	1,617			—			1,652			—
Diluted	92,714			88,179			92,546			88,681

Earnings per share:
Class A and B common stock:
Basic	$	0.37		$	(0.11	)	$	0.51		$	(0.07	)
Diluted	$	0.36		$	(0.11	)	$	0.50		$	(0.07	)

Note 5. Other Comprehensive Income (Loss) and Related Tax Effects

We have not recognized any tax effects on foreign currency translation adjustments because they are not expected to result in future taxable income or deductions. We have not recognized any tax effects on unrealized gains or losses on available-for-sale securities because such gains or losses would affect the amount of existing capital loss carryforwards for which the related deferred tax asset has been fully offset by a valuation allowance.

Accumulated other comprehensive loss includes cumulative foreign currency translation losses of $24.6 million and $32.1 million as of June 30, 2014 and December 31, 2013, respectively.

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Note 6. Investment Securities

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

	As of
	June 30,		December 31,
	2014		2013
	(In thousands)
Marketable investment securities—current:
Corporate bonds	$	858,451	$	833,791
VRDNs	31,095		34,705
Strategic equity securities	32,715		33,613
Other	58,042		84,424
Total marketable investment securities—current	980,303		986,533
Restricted marketable investment securities (1)	10,560		7,965
Total	990,863		994,498

Restricted cash and cash equivalents (1)	8,619		8,172

Other investments—noncurrent:
Cost method	25,977		25,977
Equity method	133,623		143,794
Total other investments—noncurrent	159,600		169,771
Total marketable investment securities, restricted cash and cash equivalents, and other investments	$	1,159,082	$	1,172,441

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

Marketable Investment Securities

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

Corporate Bonds

Our corporate bond portfolio includes debt instruments issued by individual corporations, primarily in the industrial and financial services industries.

Variable Rate Demand Notes (“VRDNs”)

VRDNs are long-term floating rate bonds with embedded put options that allow the bondholder to sell the security at par plus accrued interest. All of the put options are secured by a pledged liquidity source. Our VRDN portfolio is comprised of investments in municipalities and corporations, which are backed by financial institutions or other highly rated companies that serve as the pledged liquidity source. While they are classified as marketable investment securities, the put option allows VRDNs to be liquidated generally on a same day or on a five business day settlement basis.

Strategic Equity Securities

Our strategic investment portfolio consists of investments in shares of common stock of public companies, which are highly speculative and have experienced and continue to experience volatility. The value of our investment portfolio depends on the value of such shares of common stock.

Other

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

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Restricted Cash and Marketable Investment Securities

As of June 30, 2014 and December 31, 2013, our restricted marketable investment securities, together with our restricted cash, included amounts required as collateral for our letters of credit or surety bonds.

Other Investments - Noncurrent

We have several strategic investments in certain equity securities that are accounted for using either the equity or the cost method 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 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

The components of our available-for-sale investments are summarized in the table below.

	Amortized		Unrealized					Estimated
	Cost		Gains		Losses			Fair Value
	(In thousands)
As of June 30, 2014
Debt securities:
Corporate bonds	$	858,406	$	304	$	(259	)	$	858,451
VRDNs	31,095		—		—			31,095
Other (including restricted)	68,583		20		(1		)	68,602
Equity securities - strategic	17,904		14,811		—			32,715
Total marketable investment securities	$	975,988	$	15,135	$	(260	)	$	990,863
As of December 31, 2013
Debt securities:
Corporate bonds	$	833,888	$	227	$	(324	)	$	833,791
VRDNs	34,705		—		—			34,705
Other (including restricted)	92,876		14		(501		)	92,389
Equity securities - strategic	15,272		18,341		—			33,613
Total marketable investment securities	$	976,741	$	18,582	$	(825	)	$	994,498

As of June 30, 2014, restricted and non-restricted marketable investment securities included debt securities of $756.5 million with contractual maturities of one year or less and $201.6 million with contractual maturities greater than one year. We may realize proceeds from certain investments prior to their contractual maturity as a result of our ability to sell these securities prior to their contractual maturity.

Marketable Investment Securities in a Loss Position

The following table reflects the length of time that our available-for-sale securities have been in an unrealized loss position. We do not intend to sell these securities before they recover or mature, and it is more likely than not that we will hold these securities until they recover or mature. In addition, we are not aware of any specific factors indicating that the underlying issuers of these 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 securities are primarily related to temporary market fluctuations.

	As of
	June 30, 2014					December 31, 2013
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
	(In thousands)
Less than 12 months	$	477,201	$	(256	)	$	571,592	$	(825	)
12 months or more	12,041		(4		)	—		—
Total	$	489,242	$	(260	)	$	571,592	$	(825	)

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Realized Gains (Losses) on Marketable Investment Securities

We recognized minimal gains from the sales of our available-for-sale marketable investment securities for the three and six months ended June 30, 2014. For the three and six months ended June 30, 2013, we recognized gains from the sales of our available-for-sale marketable investment securities of $18.0 million and $37.4 million, respectively. We recognized minimal losses from the sales of our available-for-sale marketable investment securities for the three and six months ended June 30, 2014 and 2013.

Proceeds from sales of our available-for-sale marketable investment securities totaled $4.8 million and $5.4 million for the three and six months ended June 30, 2014, respectively, and $53.9 million and $95.3 million for the three and six months ended June 30, 2013, respectively.

Fair Value Measurements

Our current marketable investment securities are measured at fair value on a recurring basis as summarized in the table below. As of June 30, 2014 and December 31, 2013, we did not have investments that were categorized within Level 3 of the fair value hierarchy.

	As of
	June 30, 2014						December 31, 2013
	Total		Level 1		Level 2		Total		Level 1		Level 2
	(In thousands)
Cash equivalents (including restricted)	$	593,659	$	7,864	$	585,795	$	548,714	$	49,338	$	499,376
Debt securities:
Corporate bonds	$	858,451	$	—	$	858,451	$	833,791	$	—	$	833,791
VRDNs	31,095		—		31,095		34,705		—		34,705
Other (including restricted)	68,602		—		68,602		92,389		—		92,389
Equity securities - strategic	32,715		32,715		—		33,613		33,613		—
Total marketable investment securities	$	990,863	$	32,715	$	958,148	$	994,498	$	33,613	$	960,885

Note 7. Trade Accounts Receivable

Our trade accounts receivable consisted of the following:

	As of
	June 30,			December 31,
	2014			2013
	(In thousands)
Trade accounts receivable	$	179,025		$	164,900
Contracts in process, net	9,554			7,629
Total trade accounts receivable	188,579			172,529
Allowance for doubtful accounts	(14,766		)	(13,237		)
Trade accounts receivable - DISH Network	318,351			355,135
Total trade accounts receivable, net	$	492,164		$	514,427

As of June 30, 2014 and December 31, 2013, progress billings offset against contracts in process amounted to $13.0 million and $2.6 million, respectively.

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Note 8. Inventory

Our inventory consisted of the following:

	As of
	June 30,		December 31,
	2014		2013
	(In thousands)
Finished goods	$	49,246	$	50,357
Raw materials	6,203		8,658
Work-in-process	8,509		7,069
Total inventory	$	63,958	$	66,084

Note 9. Property and Equipment

Property and equipment consisted of the following:

	Depreciable	As of
	Life	June 30,			December 31,
	(In Years)	2014			2013
		(In thousands)
Land	—	$	42,574		$	42,850
Buildings and improvements	3-40		380,758		377,208
Furniture, fixtures, equipment and other	1-12		1,192,990		1,157,325
Customer rental equipment	2-4		436,998		374,688
Satellites - owned	2-15	2,381,120			1,949,040
Satellites acquired under capital leases	10-15		935,104		935,104
Construction in progress	—	361,716			210,051
Total property and equipment		5,731,260			5,046,266
Accumulated depreciation		(2,703,563		)	(2,499,889		)
Property and equipment, net		$	3,027,697		$	2,546,377

As of June 30, 2014, our owned satellites included $432.1 million for the five satellites we received from DISH Network as part of the Satellite and Tracking Stock Transaction discussed in Note 2. This amount represents the net carrying amount of those satellites in DISH Network’s consolidated financial statements as of February 28, 2014, the day prior to the effective date of the Satellite and Tracking Stock Transaction. Accumulated depreciation for those satellites as of June 30, 2014 was $15.9 million, representing depreciation expense recognized in our consolidated financial statements for the period subsequent to the effective date of the Satellite and Tracking Stock Transaction.

Construction in progress consisted of the following:

			As of
			June 30,		December 31,
	Segment		2014		2013
		(In thousands)
Progress amounts for satellite construction, including certain amounts prepaid under satellite service agreements and launch costs:
EchoStar XIX	Other		$	223,981	$	122,070
TerreStar-2/EchoStar XXI	Other		55,354		16,433
EchoStar XXIII	Other		22,981		19,210
EUTELSAT 65W A	Hughes		10,337		—
Other	Other/ESS		4,440		4,950
Uplinking equipment	ETC/Hughes		24,245		20,793
Other	ETC/Hughes/ESS		20,378		26,595
Construction in progress			$	361,716	$	210,051

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Depreciation expense associated with our property and equipment consisted of the following:

	For the Three Months				For the Six Months
	Ended June 30,				Ended June 30,
	2014		2013		2014		2013
	(In thousands)
Satellites	$	55,576	$	46,529	$	103,139	$	93,073
Furniture, fixtures, equipment and other	29,161		32,805			59,052	64,771
Customer rental equipment	29,016		23,793		56,908		47,080
Buildings and improvements	3,413		3,366			6,943	6,681
Total depreciation expense	$	117,166	$	106,493	$	226,042	$	211,605

Satellites

As of June 30, 2014, we utilized 18 of our owned and leased satellites in geosynchronous orbit, approximately 22,300 miles above the equator. Four of our satellites are accounted for as capital leases and are depreciated on a straight-line basis over the terms of the satellite service agreements. We depreciate our owned satellites on a straight-line basis over the estimated useful life of each satellite.

Information for our satellite fleet is presented below.

			Nominal Degree	Depreciable
		Launch	Orbital Location	Life
Satellites	Segment	Date	(Longitude)	(In Years)
Owned:
SPACEWAY 3 (5)	Hughes	August 2007	95 W	12
EchoStar XVII	Hughes	July 2012	107 W	15
EchoStar I (1)(2)(3)	ESS	December 1995	77 W	—
EchoStar III (3)	ESS	October 1997	61.5 W	12
EchoStar VI (3)	ESS	July 2000	96.2 W	12
EchoStar VII (1)(2)	ESS	February 2002	119 W	3
EchoStar VIII (1)	ESS	August 2002	77 W	12
EchoStar XII (1)(6)	ESS	July 2003	61.5 W	2
EchoStar IX (1)	ESS	August 2003	121 W	12
EchoStar X (1)(2)	ESS	February 2006	110 W	7
EchoStar XI (1)(2)	ESS	July 2008	110 W	9
EchoStar XIV (1)(2)	ESS	March 2010	119 W	11
EchoStar XVI (1)	ESS	November 2012	61.5 W	15
EUTELSAT 10A (“W2A”) (7)	Other	April 2009	10 E	—

Leased from Third Parties (4):
AMC-15	ESS	October 2004	105 W	10
AMC-16	ESS	December 2004	85 W	10
Nimiq 5 (1)	ESS	September 2009	72.7 W	15
QuetzSat-1 (1)	ESS	September 2011	77 W	10

(1) See Note 16 for further discussion of our transactions with DISH Network.

(2) Depreciable life represents the remaining useful life as of March 1, 2014, the effective date of our receipt of the satellites from DISH Network as part of the Satellite and Tracking Stock Transaction (See Note 2).

(3) Fully depreciated assets.

(4) These satellites are accounted for as capital leases and their launch dates represent dates that the satellites were placed into service.

(5) Depreciable life represents the remaining useful life as of the date of the Hughes Acquisition (as defined below).

(6) Depreciable life represents the remaining useful life as of June 30, 2013, the date EchoStar XII was impaired.

(7) The Company acquired the S-band payload on this satellite, which prior to the acquisition in December 2013, experienced an anomaly at the time of the launch. As a result, the S-band payload is not fully operational.

Recent Developments

CMBStar and EchoStar XXIII. In 2008, we suspended construction of the CMBStar satellite. In April 2014, we entered into an agreement with Space Systems Loral, LLC (“SSL”) for the construction of the EchoStar XXIII

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satellite, as a high powered Broadcast Satellite Service (“BSS”) satellite which will use some of the components from the CMBStar satellite. This agreement superseded and replaced the CMBStar construction contract. EchoStar XXIII is expected to launch in 2016.

EUTELSAT 65 West A. In April 2014, we entered into a satellite services agreement pursuant to which Eutelsat do Brasil will provide to Hughes Telecomunicaҫões do Brasil Ltda, our indirect wholly-owned subsidiary, the fixed broadband service on the entire Ka-band capacity into Brazil on the EUTELSAT 65 West A satellite for a 15-year term. The satellite is scheduled to be placed into service in the second quarter of 2016.

EchoStar XIX. In February 2012 and September 2013, ViaSat and its subsidiary ViaSat Communications filed lawsuits in the U.S. District Court for the Southern District of California against SSL, the manufacturer of EchoStar XVII and EchoStar XIX. In the first-filed case, ViaSat alleged, among other things, that SSL infringed three patents and breached its contractual obligations through the use of such patented technology to manufacture EchoStar XVII. A jury trial was held in that case in March and April 2014, and the jury found that in connection with EchoStar XVII, SSL directly infringed the asserted patents and that SSL breached certain agreements with ViaSat. While we are not a party to this matter, the adverse decision against SSL may have an impact on our ability to make use of EchoStar XIX or other satellites from SSL and may adversely affect our business operations and results of operations. Until there are further developments in the case, including rulings on post-trial motions and appeals, we cannot determine whether there will be an adverse impact and, if so, the extent of any such impact.

EchoStar I, EchoStar VII, EchoStar X, EchoStar XI, and EchoStar XIV. As discussed in Note 2, we received five satellites (EchoStar I, EchoStar VII, EchoStar X, EchoStar XI and EchoStar XIV) from DISH Network as part of the Satellite and Tracking Stock Transaction. These satellites are BSS communications satellites operating in Ku-band frequencies and DISH Network began receiving certain services from us on these satellites effective March 1, 2014.

EchoStar VIII. In May 2013, DISH Network began receiving satellite services from us on EchoStar VIII as an in-orbit spare. Effective March 1, 2014, this service arrangement was converted to a month-to-month service agreement. Both parties have the right to terminate this agreement upon 30 days’ notice.

EchoStar XV. In May 2013, we began receiving satellite services from DISH Network on EchoStar XV (classified as an operating lease) and relocated the satellite to the 45 degree west longitude orbital location. Effective March 1, 2014, this service arrangement was converted to a month-to-month service agreement. Both parties have the right to terminate this agreement upon 30 days’ notice. Although we are not required to maintain in-orbit insurance pursuant to our service arrangement with DISH Network for EchoStar XV, we are liable for any damage caused by our use of the satellite and therefore we carry insurance on EchoStar XV.

Satellite Anomalies

Certain of our satellites have experienced anomalies, some of which have had a significant adverse impact on their remaining useful lives and/or the commercial operation of the satellites. There can be no assurance that existing and future anomalies will not further impact the remaining useful life and/or the commercial operation of any of the satellites in our fleet. In addition, 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 in-orbit insurance on our satellites; therefore, we generally bear the risk of any uninsured in-orbit failures. Pursuant to the terms of the agreements governing certain portions of our indebtedness, we are required, subject to certain limitations on coverage, to maintain launch and in-orbit insurance for SPACEWAY 3, EchoStar XVI, and EchoStar XVII.

We have previously disclosed in our financial statements as of and for the year ended December 31, 2013, anomalies in prior years that affect our in-service owned and leased satellites, including EchoStar III, EchoStar VI, EchoStar VIII, EchoStar XII, and AMC-16. We are not aware of any additional anomalies that have occurred on any of our owned or leased satellites in 2014 as of the date of this report that affected the commercial operation of these satellites. EchoStar III and EchoStar VI are fully depreciated and EchoStar III is being used as an in-orbit spare; accordingly, the prior anomalies affecting these satellites have not had a significant effect on our operating results and cash flows. EchoStar XII has experienced several anomalies, which have resulted in a loss of electrical power. Those anomalies have not had a significant adverse impact on service under the related satellite services agreement with DISH Network for EchoStar XII; however, the anomalies have increased the risk of future

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transponder failures that could result in reductions in our revenue and require recognition of a satellite impairment loss. See Satellite Impairments below.

The five satellites received from DISH Network pursuant to the Satellite and Tracking Stock Transaction have experienced certain anomalies prior to March 1, 2014, the effective date of the Satellite and Tracking Stock Transaction as described below.

EchoStar I. During the first quarter of 2012, DISH Network determined that EchoStar I experienced a communications receiver anomaly. The communications receivers process signals sent from the uplink center for transmission by the satellite to customers. While this anomaly did not impact commercial operation of the satellite, there can be no assurance that future anomalies will not impact its future commercial operation. EchoStar I is fully depreciated.

EchoStar VII. Prior to 2012, EchoStar VII experienced certain thruster failures. During the fourth quarter of 2012, DISH Network determined that EchoStar VII experienced an additional thruster failure. Thrusters control the satellite’s location and orientation. While this anomaly did not impact commercial operation of the satellite, there can be no assurance that future anomalies will not reduce its useful life or impact its commercial operation.

EchoStar X. During the second and third quarters of 2010, EchoStar X experienced anomalies which affected seven solar array circuits reducing the number of functional solar array circuits to 17. While these anomalies did not impact commercial operation of the satellite, there can be no assurance that future anomalies will not reduce its useful life or impact its commercial operation.

EchoStar XI. During the first quarter of 2012, DISH Network determined that EchoStar XI experienced solar array anomalies that reduced the total power available for use by the satellite. While these anomalies did not impact commercial operation of the satellite, there can be no assurance that future anomalies will not reduce its useful life or impact its commercial operation.

EchoStar XIV. During the third quarter of 2011 and the first quarter of 2012, DISH Network determined that EchoStar XIV experienced solar array anomalies that reduced the total power available for use by the satellite. While these anomalies did not impact commercial operation of the satellite, there can be no assurance that future anomalies will not reduce its useful life or impact its commercial operation.

Satellite Impairments

We evaluate our satellites for impairment and test for recoverability whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. Certain of the anomalies discussed above, and previously disclosed, may be considered to represent a significant adverse change in the physical condition of a particular satellite. However, based on the redundancy designed within each satellite, certain of these anomalies are not necessarily considered to be significant events that would require a test of recoverability. There have been no satellite impairments in 2014 as of the date of this report.

EchoStar XII. Prior to 2010, EchoStar XII experienced anomalies resulting in the loss of electrical power available from its solar arrays. In September 2012, November 2012, and January 2013, EchoStar XII experienced additional solar array anomalies, which further reduced the electrical power available to operate EchoStar XII. An engineering analysis completed in the second quarter of 2013 indicated further loss of available electrical power and resulting capacity loss was likely. As a result, we recognized a $34.7 million impairment loss in the second quarter of 2013. Additional solar array anomalies are likely, and if they occur, they will continue to degrade the operational capability of EchoStar XII and could lead to additional impairment charges in the future. EchoStar XII has experienced no additional electrical power loss or solar array anomalies in 2014 as of the date of this report.

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Note 10. Goodwill and Other Intangible Assets

Goodwill

The excess of the cost of an acquired business over the fair values of net tangible and identifiable intangible assets at the time of the acquisition is recorded as goodwill. Goodwill is assigned to our reporting units of our operating segments and is subject to our annual impairment testing, or more frequently when events or changes in circumstances indicate the fair value of a reporting unit is more likely than not less than its carrying amount.

As of June 30, 2014, all of our goodwill was assigned to reporting units of the Hughes segment. Based on our qualitative assessment of impairment of such goodwill in the second quarter of 2014, we determined that no further testing of goodwill for impairment as of that date was necessary as it was not more likely than not that the fair values of the Hughes segment reporting units were less than the corresponding carrying amounts.

Regulatory Authorizations

Regulatory authorizations with finite and indefinite useful lives are as follows:

	As of
	June 30,			December 31,
	2014			2013
	(In thousands)
Finite useful lives:
Cost	$	117,238		$	113,764
Accumulated amortization	(4,727		)	(1,521		)
Net	112,511			112,243
Indefinite lives	471,657			471,657
Total regulatory authorizations, net	$	584,168		$	583,900

Amortization expense for the regulatory authorizations with finite useful lives was $1.6 million and zero for the three months ended June 30, 2014 and 2013, respectively, and $3.1 million and zero for the six months ended June 30, 2014 and 2013, respectively.

Other Intangible Assets

Our other intangible assets, which are subject to amortization, consisted of the following:

	Weighted	As of
	Average	June 30, 2014							December 31, 2013
	Useful life			Accumulated			Carrying				Accumulated			Carrying
	(in Years)	Cost		Amortization			Amount		Cost		Amortization			Amount
		(In thousands)
Customer relationships	8	$	293,932	$	(169,020	)	$	124,912	$	293,932	$	(152,647	)	$	141,285
Contract-based	10	255,366		(221,674		)	33,692		255,366		(204,835		)	50,531
Technology-based	7	126,272		(92,257 </