Dish Network 1998 Annual Report Download - page 60

ECHOSTAR COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
F–13
Marketable investment securities and restricted cash and marketable investment securities include debt securities of $293 million
with contractual maturities of one year or less and $2 million with contractual maturities between one and five years. As of
December 31, 1998 EchoStar did not hold any debt securities with contractual maturities of more than five years. Actual maturities
may differ from contractual maturities as a result of EchoStar’s ability to sell these securities prior to maturity. Subsequent to
December 31, 1998, EchoStar has purchased, in open market transactions, a significant portion of PrimeStar, Inc.’s (“ PrimeStar”) 10
7/8% Senior Subordinated Notes and 12 1/4% Senior Subordinated Discount Notes, both of which have contractual maturities of ten
years.
Fair Value of Financial Instruments
Fair values for EchoStar’s 1994 Notes, 1996 Notes, 1997 Notes and Series B Preferred Stock are based on quoted market
prices. The fair values of EchoStar’s mortgages and other notes payable are estimated using discounted cash flow analyses. The
interest rates assumed in such discounted cash flow analyses reflect interest rates currently being offered for loans with similar terms
to borrowers of similar credit quality. The following table summarizes the book and fair values of EchoStar’s debt facilities and
Series B Preferred Stock at December 31, 1997 and 1998 (in thousands):
December 31, 1997
31, 1998
Book Value Book Value
1994 Notes ..................................................... $ 499,863 $ 570,960 $ 571,674 $ 636,480
1996 Notes ..................................................... 438,512 488,650 497,955 580,000
1997 Notes ..................................................... 375,000 406,875 375,000 431,250
Mortgages and other notes payable .................. 69,731 69,127 66,129 61,975
12 1/8% Series B Senior Redeemable
Exchangeable Preferred Stock ..................... 199,164 209,000 226,038 259,944
Inventories
Inventories are stated at the lower of cost or market value. Cost is determined using the first-in, first-out method.
Proprietary products are manufactured by outside suppliers to EchoStar’s specifications. Manufactured inventories include
materials, labor and manufacturing overhead. Cost of other inventories includes parts, contract manufacturers’ delivered price,
assembly and testing labor, and related overhead, including handling and storage costs. Inventories consist of the following (in
thousands):
December 31,
1997 1998
EchoStar receiver systems ............................................................. $ 7,649 $ 45,025
DBS receiver components.............................................................. 12,506 27,050
Consigned DBS receiver components............................................. 3,122 6,073
Finished goods − analog DTH equipment ....................................... 2,116 2,656
Spare parts and other ..................................................................... 1,440 1,085
Reserve for excess and obsolete inventory....................................... (3,840) (5,181)
$ 22,993 $ 76,708
Property and Equipment
Property and equipment are stated at cost. Cost includes interest capitalized of $26 million, $32 million and $16 million
during the years ended December 31, 1996, 1997 and 1998, respectively. The costs of satellites under construction are capitalized
during the construction phase, assuming the eventual successful launch and in-orbit operation of the satellite. If a satellite were to
fail during launch or while in-orbit, the resultant loss would be charged to expense in the period such loss was incurred. The amount
of any such loss would be reduced to the extent of insurance proceeds received as a result of the launch or in-orbit failure.
Depreciation is recorded on a straight-line basis for financial reporting purposes. Repair and maintenance costs are charged to
expense when incurred. Renewals and betterments are capitalized.