Dish Network 1999 Annual Report Download - page 67

ECHOSTAR COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
F–19
Satellite Vendor Financing
The purchase price for satellites is required to be paid in progress payments, some of which are non-contingent payments
that are deferred until after the respective satellites are in orbit (satellite vendor financing). EchoStar utilized $36 million, $28
million, $14 million and $13 million of satellite vendor financing for EchoStar I, EchoStar II, EchoStar III and EchoStar IV,
respectively. The satellite vendor financing with respect to EchoStar I and EchoStar II is secured by substantially all assets of DBS
Corp and its subsidiaries (subject to certain restrictions) and a corporate guarantee of ECC. The satellite vendor financings for both
EchoStar III and EchoStar IV are secured by an ECC corporate guarantee.
5. Income Taxes
As of December 31, 1999, EchoStar had net operating loss carryforwards (“NOLs”) for Federal income tax purposes of
approximately $1.483 billion. The NOLs will begin to expire in the year 2012. 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 1999, 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 than not that 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 actual tax (provision) benefit for 1997, 1998 and 1999 are reconciled to the amounts computed by applying the
statutory Federal tax rate to income before taxes as follows:
Year Ended December 31,
1997 1998 1999
Statutory rate.................................................................. 35.0% 35.0% 35.0%
State income taxes, net of Federal benefit ......................... 1.6 1.6 2.3
Research and development and foreign tax credits............. 0.7 – –
Non-deductible interest expense....................................... (0.5) (1.4) (0.3)
Other ............................................................................. (0.8) 0.5 1.3
Increase in valuation allowance........................................ (36.0) (35.7) (38.3)
Total benefit from income taxes................................... –% –% –%