Dish Network 2000 Annual Report Download - page 10

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The insurance carriers offered us a total of approximately $88 million, or 40% of the total policy amount, in
settlement of the EchoStar IV insurance claim. The insurers allege that all other impairment to the satellite occurred
after expiration of the policy period and is not covered. We strongly disagree with the position of the insurers and
we have filed an arbitration claim against them for breach of contract, failure to pay a valid insurance claim and bad
faith denial of a valid claim, among other things. There can be no assurance that we will receive the amount claimed
or, if we do, that we will retain title to EchoStar IV with its reduced capacity.
At the time we filed our claim in 1998, we recognized an impairment loss of $106 million to write-down
the carrying value of the satellite and related costs, and simultaneously recorded an insurance claim receivable for
the same amount. We continue to believe we will ultimately recover at least the amount originally recorded and do
not intend to adjust the amount of the receivable until there is greater certainty with respect to the amount of the
final settlement.
As a result of thermal and propulsion system anomalies, we reduced the estimated remaining useful life of
EchoStar IV to approximately 4 years during January 2000. This change increased depreciation expense recognized
by us during the year ending December 31, 2000 by approximately $9.6 million. We will continue to evaluate the
performance of EchoStar IV and may modify our loss assessment as new events or circumstances develop.
The in-orbit insurance policies for EchoStar I, EchoStar II, and EchoStar III expired July 25, 2000. The
insurers have to date refused to renew insurance on EchoStar I, EchoStar II and EchoStar III on reasonable terms.
Based on, among other things, the insurance carriers’ unanimous refusal to negotiate reasonable renewal insurance
coverage, we believe that the carriers colluded and conspired to boycott us unless we accept their offer to settle the
EchoStar IV claim for $88 million.
Based on the carriers’ actions, we have added causes of action in our EchoStar IV demand for arbitration
for breach of the duty of good faith and fair dealing, and unfair claim practices. Additionally, we have filed a lawsuit
against the insurance carriers in the United States District Court for the District of Colorado asserting causes of
action for violation of Federal and State Antitrust laws. While we believe we are entitled to the full amount claimed
under the EchoStar IV insurance policy and believe the insurance carriers are in violation of Antitrust laws and have
committed further acts of bad faith in connection with their refusal to negotiate reasonable insurance coverage on
our other satellites, there can be no assurance as to the outcome of these proceedings.
The indentures related to the outstanding EchoStar DBS Corporation senior notes, contain restrictive
covenants that require us to maintain satellite insurance with respect to at least half of the satellites we own. Insurance
coverage is therefore required for at least three of our six satellites currently in orbit. We have procured normal and
customary launch insurance for EchoStar VI. This launch insurance policy provides for insurance of $225.0 million.
The EchoStar VI launch insurance policy expires in July 2001. We are currently self-insuring EchoStar I, EchoStar II,
EchoStar III, EchoStar IV and EchoStar V. During 2000, to satisfy insurance covenants related to the outstanding
EchoStar DBS senior notes, we reclassified the depreciated cost of two of our satellites from cash and cash equivalents
to cash reserved for satellite insurance on our balance sheet. As of December 31, 2000, cash reserved for satellite
insurance totaled approximately $82 million. The reclassifications will continue until such time, if ever, as the insurers
are again willing to insure our satellites on commercially reasonable terms.
Competition for Our Dish Network Business
Our industry is highly competitive. Our competition includes companies that offer video, audio, data,
programming and other entertainment services, including cable television, wireless cable, direct-to-home satellite,
other DBS companies and companies that are developing new technologies. Many of our competitors have access to
substantially greater financial and marketing resources than we have. We believe that quality and variety of video,
audio and data programming, quality of picture and service, and cost are the key bases of competition.
Cable Television. We encounter substantial competition in the subscription television market from cable
television and other land-based systems. Cable television operators have a large, established customer base, and may
have significant investments in, and access to, programming. Cable television service is currently available to more
than 90% of the approximately 100 million United States television households, and approximately 68% of total
United States households currently subscribe to cable. Cable television operators currently have an advantage