Dish Network 1998 Annual Report Download - page 69

ECHOSTAR COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
F–22
5. Income Taxes
As of December 31, 1998, EchoStar had net operating loss carryforwards (“NOLs”) for Federal income tax purposes of
approximately $401 million. The NOLs expire beginning in the year 2011. The use of the NOLs is subject to statutory and
regulatory limitations regarding changes in ownership. Financial Accounting Standard No. 109, “Accounting for Income Taxes,”
(“FAS No. 109”) requires that the potential future tax benefit of NOLs be recorded as an asset. FAS No. 109 also requires that
deferred tax assets and liabilities be recorded for the estimated future tax effects of temporary differences between the tax basis and
book value of assets and liabilities. Deferred tax assets are offset by a valuation allowance to the extent deemed necessary.
In 1998, EchoStar increased its valuation allowance sufficient to fully offset net deferred tax assets arising during the year.
Realization of net deferred tax assets is not assured and is principally dependent on generating future taxable income prior to
expiration of the NOLs. Management believes existing net deferred tax assets in excess of the valuation allowance will, more likely
than not, be realized. EchoStar continuously reviews the adequacy of its valuation allowance. Future decreases to the valuation
allowance will be made only as changed circumstances indicate that it is more likely that not the additional benefits will be realized.
Any future adjustments to the valuation allowance will be recognized as a separate component of EchoStar’s provision for income
taxes.
The temporary differences which give rise to deferred tax assets and liabilities as of December 31, 1997 and 1998 are as
follows (in thousands):
December 31,
1997 1998
Current deferred tax assets:
Accrued royalties ................................................................................. $ 6,506 $ 15,971
Inventory reserves and cost methods...................................................... 1,180 1,759
Accrued expenses................................................................................. 7,136 9,976
Allowance for doubtful accounts ........................................................... 954 1,945
Reserve for warranty costs .................................................................... 270 101
Unrealized holding loss on marketable investment securities ................... 11 –
Total current deferred tax assets................................................................ 16,057 29,752
Current deferred tax liabilities:
Subscriber acquisition costs and other.................................................... (6,846) –
Total current deferred tax liabilities........................................................... (6,846) –
Gross current deferred tax assets ............................................................... 9,211 29,752
Valuation allowance................................................................................. (5,771) (22,429)
Net current deferred tax assets .................................................................. 3,440 7,323
Noncurrent deferred tax assets:
General business and foreign tax credits................................................. 2,224 2,072
Net operating loss carryforwards ........................................................... 117,317 147,097
Amortization of original issue discount on 1994 Notes and 1996 Notes.... 60,831 105,095
Other................................................................................................... 7,571 13,000
Total noncurrent deferred tax assets .......................................................... 187,943 267,264
Noncurrent deferred tax liabilities:
Depreciation ........................................................................................ (17,271) (24,013)
Other................................................................................................... (255) (322)
Total noncurrent deferred tax liabilities ..................................................... (17,526) (24,335)
Gross deferred tax assets .......................................................................... 170,417 242,929
Valuation allowance................................................................................. (106,708) (183,117)
Net noncurrent deferred tax assets............................................................. 63,709 59,812
Net deferred tax assets.............................................................................. $ 67,149 $ 67,135