8. Property and Equipment and Intangible Assets

Property and Equipment

Property and equipment consisted of the following:

	Depreciable
	Life	As of December 31,
	(In Years)	2013			2012
		(In thousands)
Equipment leased to customers	2-5	$	3,596,310		$	3,467,037
EchoStar I	12	201,607			201,607
EchoStar VII	15	177,000			177,000
EchoStar X	15	177,192			177,192
EchoStar XI	15	200,198			200,198
EchoStar XIV	15	316,541			316,541
EchoStar XV	15	277,658			277,658
D1	15	150,000			358,141
T1	15	401,721			401,721
Satellites acquired under capital lease agreements	10-15	499,819			499,819
Furniture, fixtures, equipment and other	1-10	720,570			714,734
Buildings and improvements	1-40	83,531			79,868
Land	—	5,692			5,395
Construction in progress	—	515,447			514,234
Total property and equipment		7,323,286			7,391,145
Accumulated depreciation		(3,225,575		)	(3,024,516		)
Property and equipment, net		$	4,097,711		$	4,366,629

Construction in progress consisted of the following:

	As of December 31,
	2013		2012
	(In thousands)
DBS Satellites	$	143,839	$	37,263
T2	40,000		269,434
Wireless ground equipment, including capitalized interest	284,902		184,663
Software related projects	15,049		6,332
Other	31,657		16,542
Construction in progress	$	515,447	$	514,234

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 Consolidated Balance Sheets based on our average borrowing rate for our debt. During the years ended December 31, 2013 and 2012, we recorded capitalized interest of $137 million and $106 million, respectively, primarily related to the build-out of our AWS-4 wireless spectrum licenses. There were no amounts for capitalized interest during the year ended December 31, 2011.

Depreciation and amortization expense consisted of the following:

	For the Years Ended December 31,
	2013		2012		2011
	(In thousands)
Equipment leased to customers	$	763,796	$	652,327	$	725,904
Satellites	135,464		145,749		128,352
Buildings, furniture, fixtures, equipment and other (1)	154,766		98,632		57,947
148 degree orbital location (2)	—		67,776		—
Total depreciation and amortization	$	1,054,026	$	964,484	$	912,203

(1) During the second quarter 2013, we ceased operations of our TerreStar Mobile Satellite Service (“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) See “FCC Authorizations” below.

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

Satellites

DBS Satellites. As of December 31, 2013, we utilized 14 satellites in geostationary orbit approximately 22,300 miles above the equator, six of which we owned and depreciated over the useful life of each satellite. As of December 31, 2013, we utilized capacity on six satellites from EchoStar, which were accounted for as operating leases. As of December 31, 2013, we also leased two satellites from third parties, which were accounted for as capital leases and were depreciated over the shorter of the economic life or the term of the satellite agreement.

		Degree	Estimated
	Launch	Orbital	Useful Life
Satellites	Date	Location	(Years)
Owned:
EchoStar I (1)(5)	December 1995	77	12
EchoStar VII (2)(5)	February 2002	119	15
EchoStar X (2)(5)	February 2006	110	15
EchoStar XI (2)(5)	July 2008	110	15
EchoStar XIV (5)	March 2010	119	15
EchoStar XV	July 2010	45	15

Leased from EchoStar:
EchoStar VIII (1)(3)(4)	August 2002	77	NA
EchoStar IX (1)(3)	August 2003	121	NA
EchoStar XII (1)(4)	July 2003	61.5	NA
Nimiq 5 (1)(3)	September 2009	72.7	NA
EchoStar XVI (1)	November 2012	61.5	NA
QuetzSat-1 (1)(3)	September 2011	77	NA

Leased from Other Third Party:
Anik F3	April 2007	118.7	NA
Ciel II	December 2008	129	NA

Under Construction:
EchoStar XVIII	2015	110	15

(1) See Note 20 for further discussion of our Related Party Transactions with EchoStar.

(2) During the fourth quarter 2012, the estimated useful life of these satellites was extended from 12 years to 15 years on a prospective basis based on management’s assessment of, among other things, these satellites’ useful lives, technological obsolescence risk, estimated remaining fuel life and estimated useful lives of our other DBS satellites. This increase in the estimated useful life of these satellites had an immaterial effect on our results of operations.

(3) We lease a portion of the capacity on these satellites.

(4) We generally have the option to renew each lease on a year-to-year basis through the end of the respective satellite’s useful life.

(5) On February 20, 2014, we entered into agreements with EchoStar pursuant to which, among other things, we will transfer these satellites to EchoStar and lease back certain satellite capacity on these satellites. See Note 21 for further discussion of our Subsequent Events.

Recent Developments

Recent developments with respect to certain of our satellites are discussed below. In addition, see Note 21 for further discussion of our Subsequent Events.

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). See the table below for further information.

		Degree	Estimated
	Launch	Orbital	Useful Life
Satellites	Date	Location	(Years)
Owned:
T1	July 2009	111.1	15
D1	April 2008	92.85	15

Under Construction:
T2 (1)	—	—	—

(1) Launch date and operational requirements have not yet been determined.

Based on the FCC’s 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 Consolidated Statements of Operations and Comprehensive Income (Loss) for the year ended December 31, 2013. Our fair value estimates for these satellites were determined based upon, among other things, probability-weighted analyses utilizing the income and/or cost approaches. The estimates used in our fair value analysis are considered Level 3 in the fair value hierarchy. While we are no longer required to operate an integrated satellite component, we are currently planning on using T1 in the commercialization of our wireless spectrum or for other commercial purposes. In addition, T1 is subject to certain Canadian satellite regulations, including, among other things, an integrated satellite component. If T1 is not used in the commercialization of our wireless spectrum, we may need to impair it in the future. As of December 31, 2013, the net book value for T1 was $353 million.

Satellites Under Construction

EchoStar XVIII. On September 7, 2012, we entered into a contract with Space Systems/Loral, Inc. (“SS/L”) for the construction of EchoStar XVIII, a DBS satellite with spot beam technology designed for, among other things, HD programming. During October 2013, we entered into an agreement with ArianeSpace S.A. for launch services for this satellite, which is expected to be launched during 2015.

Satellite Anomalies

Operation of our DISH branded pay-TV service requires that we have adequate 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 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 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 impact the remaining useful life and/or commercial operation of any of the satellites in our fleet. See Note 2 “Long-Lived Assets” for further discussion of evaluation of impairment. 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 which provides service to the continental United States, 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.

FCC Authorizations

As of December 31, 2013 and 2012, our FCC Authorizations consisted of the following:

	As of December 31,
	2013		2012
	(In thousands)
DBS Licenses	$	611,794	$	611,794
MVDDS	24,000		24,000
700 MHz Licenses	711,871		711,871
AWS Licenses	1,949,000		1,949,000
Total	$	3,296,665	$	3,296,665

In 2008, we acquired certain 700 MHz wireless spectrum licenses, which were granted to us by the FCC in February 2009. In addition, on March 9, 2012, we completed the DBSD Transaction and the TerreStar Transaction, pursuant to which we acquired the AWS-4 licenses held by DBSD North America and TerreStar. These licenses are subject to certain interim and final build-out requirements.

On May 31, 2012, the International Bureau of the FCC announced the termination of our license for use of the 148 degree orbital location associated with our DISH segment. We had not had a satellite positioned at the 148 degree orbital location since the retirement of EchoStar V in August 2009. Our license for use of the 148 degree orbital location had a $68 million carrying value. This amount was recorded as “Depreciation and amortization” expense on our Consolidated Statements of Operations and Comprehensive Income (Loss) in the second quarter 2012 due to the termination of this license by the FCC.

Intangible Assets

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

	As of
	December 31, 2013					December 31, 2012
	Intangible		Accumulated			Intangible		Accumulated
	Assets		Amortization			Assets		Amortization
	(In thousands)
Technology-based	$	34,078	$	(12,222	)	$	38,066	$	(8,178	)
Trademarks	20,424		(6,432		)	18,236		(3,907		)
Contract-based	8,650		(8,650		)	8,650		(8,650		)
Customer relationships	4,294		(4,294		)	4,294		(3,503		)
Total	$	67,446	$	(31,598	)	$	69,246	$	(24,238	)

These identifiable intangibles are included in “Other noncurrent assets, net” on our 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 $11 million, $13 million and $8 million for the years ended December 31, 2013, 2012 and 2011, respectively.

Estimated future amortization of our identifiable intangible assets as of December 31, 2013 is as follows (in thousands):

For the Years Ended December 31,
2014	$	9,202
2015	9,091
2016	8,469
2017	3,248
2018	1,362
Thereafter	4,476
Total	$	35,848

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 2013, we determined that the fair value was substantially in excess of the carrying value. As of December 31, 2013 and 2012, our goodwill was $126 million, which primarily related to our wireless segment.