Dish Network 1997 Annual Report Download - page 37

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Also on November 4, 1997, EchoStar consummated an offering of 3.4 million shares of its Class A Common
Stock (the “ Common Stock Offering” ), including the exercise of a portion of the underwriters’ over-allotment option in
December 1997. The Common Stock Offering resulted in net proceeds to EchoStar of $63 million.
In addition to its DBS business plan, EchoStar has applications pending with the FCC for a two satellite
FSS Ku-band satellite system, a two satellite FSS Ka-band satellite system, a two satellite extended Ku-band
satellite system and a six satellite low earth orbit (“ LEO”) satellite system. EchoStar would need to raise additional
capital for the foregoing purposes. Further, there may be a number of factors, some of which are beyond EchoStar’s
control or ability to predict, that could require EchoStar to raise additional capital. These factors include unexpected
increases in operating costs and expenses, a defect in or the loss of any satellite, or an increase in the cost of
acquiring subscribers due to additional competition, among other things. There can be no assurance that additional
debt, equity or other financing, if required, will be available on terms acceptable to EchoStar, or at all.
Subscriber Acquisition Costs
As previously described, EchoStar subsidizes the cost of EchoStar Receiver Systems in order to stimulate
DISH Network subscriber growth. Consequently, EchoStar’s subscriber acquisition costs are significant. During 1997,
EchoStar’s aggregate subscriber acquisition costs (deferred subscriber acquisition costs, subscriber promotion subsidies
and acquisition marketing expenses) approximated $330 per new subscriber activation. While there can be no
assurance, EchoStar expects that its subscriber acquisition costs may decrease during 1998 (to less than $300 per new
subscriber activation), principally as expected reductions in the cost of EchoStar Receiver Systems are realized. In the
event that competition for new subscription television subscribers intensifies, or as a result of other factors (competitive
or otherwise), EchoStar’s subscriber acquisition costs may increase. To the extent that such costs materially increase,
EchoStar may be required to obtain additional debt, equity or other financing. There can be no assurance that
additional debt, equity or other financing, if required, will be available on terms acceptable to EchoStar, or at all.
Future Capital Requirements
During 1998 EchoStar anticipates that it will expend $68 million to construct, launch and support
EchoStar IV, which is expected to be launched during the Spring of 1998. These expenditures are expected to be
funded from the Satellite Escrow. Capital expenditures related to EchoStar IV may increase in the event of delays,
cost overruns, increased costs associated with certain potential change orders under EchoStar’s satellite or launch
contracts, or a change in launch provider. Additionally, in January 1998, EchoStar began making the required semi-
annual interest payments of $23 million on the 1997 Notes. The first five such semi-annual interest payments will
be funded from the Interest Escrow.
As of December 31, 1997, EchoStar had approximately $1.4 billion of outstanding long-term debt. Interest
on the 1994 Notes and the 1996 Notes accretes, but currently is not payable in cash. Semi-annual cash interest
payments associated with the 1994 Notes commence December 1, 1999 and will approximate $40 million. The
1994 Notes Indenture requires principal reductions of $156 million on each of June 1, 2002 and 2003. These
principal reductions will result in decreases in semi-annual cash interest payments to $30 million and $20 million,
effective December 1, 2002 and December 1, 2003, respectively. Semi-annual cash interest payments of $38
million associated with the 1996 Notes commence on September 15, 2000. The 1996 Notes mature in full on March
15, 2005. The 1997 Notes require semi-annual interest payments of $23 million in January and July of each year,
commencing January 1, 1998. Interest payments through January 1, 2000 will be funded from the Interest Escrow.
The 1997 Notes mature July 1, 2002. EchoStar utilized $78 million of satellite vendor financing for EchoStar I,
EchoStar II and EchoStar III. As of December 31, 1997, approximately $60 million of such satellite vendor
financing was outstanding. The satellite vendor financing bears interest at 8.25% and is payable in equal monthly
installments over five years following launch of the respective satellites. Satellite vendor financing of $13 million is
expected to be used for EchoStar IV. The terms of the EchoStar IV satellite vendor financing are expected to be
similar to that associated with the other satellite vendor financing.