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)			2015		2014
				(In thousands)
Equipment leased to customers	2	-	5	$	3,549,701	$	3,639,607
EchoStar XV			15		277,658		277,658
D1		N/A			55,000		150,000
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		775,834		747,139
Buildings and improvements	1	-	40		86,928		85,509
Land			—		5,504		5,504
Construction in progress			—		382,464		774,567
Total property and equipment					6,034,629		6,581,524
Accumulated depreciation					(3,110,449)		(2,807,985)
Property and equipment, net				$	2,924,180	$	3,773,539

Construction in progress consisted of the following:


	As of December 31,
	2015		2014
	(In thousands)
Capitalized interest on FCC authorizations (1)	$	—	$	456,360
EchoStar XVIII, including capitalized interest		346,417		271,497
Other		36,047		46,710
Total construction in progress	$	382,464	$	774,567

(1)

During the fourth quarter 2015, we reclassified capitalized interest related to certain FCC authorizations on our Consolidated Balance Sheets from construction in progress within “Property and equipment, net,” to “FCC authorizations,” which is the qualifying asset on which interest is capitalized. See Note 2 for further information.

Depreciation and amortization expense consisted of the following:


	For the Years Ended December 31,
	2015		2014		2013
	(In thousands)
Equipment leased to customers	$	824,799	$	854,759	$	763,796
Satellites (1)		87,827		95,766		135,464
Buildings, furniture, fixtures, equipment and other (2)		87,422		127,411		154,766
Total depreciation and amortization	$	1,000,048	$	1,077,936	$	1,054,026

(1)

Depreciation and amortization expense decreased $40 million in 2014 as a result of the Satellite and Tracking Stock Transaction. See Note 6 and Note 19 for further information.

(2)

During 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 2013.

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

Pay-TV Satellites. We currently utilize 12 satellites in geostationary orbit approximately 22,300 miles above the equator, one of which we own and depreciate over its estimated useful life. We currently utilize certain capacity on nine satellites that we lease from EchoStar, which are accounted for as operating leases. 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 or the term of the satellite agreement.

As of December 31, 2015, our pay-TV satellite fleet consisted of the following:


			Estimated
			Useful Life
			(Years) /
		Degree	Lease
	Launch	Orbital	Termination
Satellites	Date	Location	Date
Owned:
EchoStar XV	July 2010	61.5	15

Under Construction:
EchoStar XVIII	Second quarter 2016	110	15

Leased from EchoStar (1):
EchoStar VII (2)(3)	February 2002	119	June 2017
EchoStar IX	August 2003	121	Month to month
EchoStar X (2)(3)	February 2006	110	February 2021
EchoStar XI (2)(3)	July 2008	110	September 2021
EchoStar XII (3)	July 2003	61.5	September 2017
EchoStar XIV (2)(3)	March 2010	119	February 2023
EchoStar XVI (4)	November 2012	61.5	January 2017
Nimiq 5	September 2009	72.7	September 2019
QuetzSat-1	September 2011	77	November 2021

Leased from Other Third Party:
Anik F3	April 2007	118.7	April 2022
Ciel II	December 2008	129	January 2019

(1)

See Note 19 for further information on our Related Party Transactions with EchoStar.

(2)

On February 20, 2014, we entered into the Satellite and Tracking Stock Transaction with EchoStar pursuant to which, among other things, we transferred these satellites to EchoStar and lease back all available capacity on these satellites. See Note 6 and Note 19 for further information.

(3)

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

(4)

We have the option to renew this lease for an additional six-year period. If we exercise our six-year renewal option, we have the option to renew this lease for an additional five years.

AWS-4 Satellites. On March 2, 2012, the FCC approved the transfer of 40 MHz of wireless spectrum licenses held by DBSD North America, Inc. (“DBSD North America”) and TerreStar Networks, Inc. (“TerreStar”) to us. On March 9, 2012, we completed the acquisitions of 100% of the equity of reorganized DBSD North America and substantially all of the assets of TerreStar, pursuant to which we acquired, among other things, certain satellite assets and 40 MHz of spectrum licenses held by DBSD North America (the “DBSD Transaction”) and TerreStar (the “TerreStar Transaction”), which licenses the FCC modified in March 2013 to add AWS-4 authority (“AWS-4”). See Note 15 for further information. As a result of the DBSD Transaction and the TerreStar Transaction, we acquired three AWS-4 satellites, including two in-orbit satellites (D1 and T1) and one satellite under construction (T2). See below for further information.

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. During the fourth quarter 2014, EchoStar purchased our rights to the T2 satellite for $55 million. See Note 19 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	N/A

GAAP requires that a long-lived asset be reviewed for impairment when circumstances indicate that the carrying amount of the asset might not be recoverable. It was determined that the T1 and D1 satellites met this criteria and therefore in the fourth quarter 2015 we tested the T1 satellite and D1 satellite and related ground equipment for impairment. We have concluded that the T1 satellite’s fair value exceeded its carrying amount and no impairment was necessary. In addition, we have concluded that the carrying amount of the D1 satellite and related ground equipment exceeded their fair value determined under the cost approach. To arrive at fair value utilizing the cost approach, a replacement cost for the satellite was determined, which was then reduced for, among other things, depreciation and obsolescence. As a result of this assessment, we wrote down the net book value of the D1 satellite from $150 million to $55 million and the net book value of the related ground equipment from $28 million to zero and recorded an impairment charge of $123 million in “Impairment of long-lived assets” on our Consolidated Statements of Operations and Comprehensive Income (Loss) for the year ended December 31, 2015. The estimates used in our fair value analysis are considered Level 3 in the fair value hierarchy. As of December 31, 2015, the net book value for T1 and D1 was $299 million and $55 million, respectively.

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 launch during the second quarter 2016.

Satellite Anomalies

Operation of our DISH branded pay-TV service requires that we have adequate satellite transmission capacity for the programming that 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 owned or leased satellites, we may need to acquire or lease additional satellite capacity or relocate one of our other owned or leased 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.

In the past, 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 impact the remaining useful life and/or commercial operation of any of the owned and leased satellites in our fleet. See Note 2 “Impairment of Long-Lived Assets” for further information on evaluation of impairment. There can be no assurance that we can recover critical transmission capacity in the event one or more of our owned or leased in-orbit satellites were to fail. We generally do not carry commercial launch or in-orbit insurance on any of the owned or leased 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. In light of current favorable market conditions, during January 2016, we procured commercial launch and in-orbit insurance (for a period of one year following launch) for the EchoStar XVIII satellite, which is expected to launch during the second quarter 2016.

Intangible Assets

As of December 31, 2015 and 2014, our identifiable intangibles subject to amortization consisted of the following:


	As of
	December 31, 2015				December 31, 2014
	Intangible		Accumulated		Intangible		Accumulated
	Assets		Amortization		Assets		Amortization
		(In thousands)
Technology-based	$	14,510	$	(6,297)	$	7,210	$	(4,445)
Trademarks		16,257		(2,512)		19,704		(5,644)
Contract-based		8,650		(8,650)		8,650		(8,650)
Customer relationships		2,900		(2,900)		2,900		(2,900)
Total	$	42,317	$	(20,359)	$	38,464	$	(21,639)

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 five to 20 years. Amortization was $9 million, $6 million and $11 million for the years ended December 31, 2015, 2014 and 2013, respectively.

Estimated future amortization of our identifiable intangible assets as of December 31, 2015 is as follows (in thousands):


For the Years Ended December 31,
2016	$	5,045
2017		3,687
2018		2,902
2019		2,770
2020		1,962
Thereafter		5,592
Total	$	21,958

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. As of December 31, 2015 and 2014, our goodwill was $120 million and $120 million, respectively, which relates to our wireless segment. In conducting our annual impairment test for 2015, we determined that the fair value of our wireless segment, which consists of a single reporting unit, was in excess of the carrying amount.

FCC Authorizations

As of December 31, 2015 and 2014, our FCC Authorizations consisted of the following:


	As of December 31,
	2015		2014
		(In thousands)
DBS Licenses	$	611,794	$	611,794
700 MHz Licenses		711,871		711,871
MVDDS Licenses		24,000		24,000
AWS-4 Licenses		1,949,000		1,949,000
H-Block Licenses		1,671,506		1,671,506
AWS-3 Licenses (1)		9,890,389		—
Capitalized Interest (2)		809,044		—
Total	$	15,667,604	$	4,968,171

(1)

On October 27, 2015, the FCC granted the AWS-3 Licenses to Northstar Wireless and SNR Wireless, respectively. See Note 15 for further information.

(2)

During the fourth quarter 2015, we have changed the classification of capitalized interest related to certain FCC authorizations on our Consolidated Balance Sheets from construction in progress within “Property and equipment, net,” to “FCC authorizations,” which is the qualifying asset on which interest is capitalized. See Note 2 for further information.