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 June 30, 2013 and 2012, we recorded capitalized interest of $34 million and $39 million, respectively. During the six months ended June 30, 2013 and 2012, we recorded capitalized interest of $69 million and $39 million, respectively.

Depreciation and amortization expense consisted of the following:

	For the Three Months				For the Six Months
	Ended June 30,				Ended June 30,
	2013		2012		2013		2012
	(In thousands)
Equipment leased to customers	$	192,598	$	163,474	$	359,810	$	315,917
Satellites	33,866		38,616		67,732		72,453
Buildings, furniture, fixtures, equipment and other (1)	74,010		29,253		107,259		51,671
148 degree orbital location	—		67,776		—		67,776
Total depreciation and amortization	$	300,474	$	299,119	$	534,801	$	507,817

(1) During the second quarter 2013, we ceased operations of our TerreStar MSS business. 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.

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, we have now concluded that T2 and D1 represent excess satellite capacity for the potential commercialization of our wireless spectrum. As a result, we have written 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 have 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 three and six months ended June 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 June 30, 2013, the net book value for T1 was $366 million.

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. EchoStar has informed us that EchoStar XII will likely experience further loss of available electrical power that will impact its operational capability, and EchoStar has 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.

Intangible Assets

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

	As of
	June 30, 2013					December 31, 2012
	Intangible		Accumulated			Intangible		Accumulated
	Assets		Amortization			Assets		Amortization
	(In thousands)
Technology-based	$	35,078	$	(9,182	)	$	39,066	$	(8,345	)
Trademarks	18,236		(5,199		)	18,236		(3,907		)
Contract-based	11,283		(10,515		)	11,275		(10,127		)
Customer relationships	6,974		(6,710		)	6,974		(5,736		)
Total	$	71,571	$	(31,606	)	$	75,551	$	(28,115	)

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 $3 million and $3 million for the three months ended June 30, 2013 and 2012, respectively. Amortization was $7 million and $6 million for the six months ended June 30, 2013 and 2012, respectively.

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

For the Years Ended December 31,
2013 (remaining six months)	$	5,269
2014	9,871
2015	9,150
2016	8,362
2017	3,138
Thereafter	4,175
Total	$	39,965

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 is substantially in excess of the carrying value. As of June 30, 2013 and December 31, 2012, our goodwill was $126 million, which primarily related to our wireless segment.