Dish Network 2000 Annual Report Download - page 59

ECHOSTAR COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
F–8
Significant Risks and Uncertainties
Substantial Leverage. EchoStar is highly leveraged, which makes it vulnerable to changes in general
economic conditions. As of December 31, 2000, EchoStar had outstanding long-term debt (including both the
current and long-term portions) totaling approximately $4.0 billion. In August 1999, EchoStar began paying semi-
annual interest payments of approximately $94 million related to its 9 1/4% Senior Notes due 2006 (the “9 1/4%
Seven Year Notes”) and its 9 3/8% Senior Notes due 2009 (the “9 3/8% Ten Year Notes”). During July 2000,
EchoStar began making semi-annual interest payments on its 4 7/8% Convertible Subordinated Notes due 2007 (the
“4 7/8% Convertible Notes”) of approximately $24 million. Further, beginning in April 2001, EchoStar will have
semi-annual interest payments due on its 10 3/8% Senior Notes due 2007 (the “10 3/8% Seven Year Notes”) of
approximately $52 million. EchoStar’s ability to meet its debt service obligations will depend on, among other
factors, the successful execution of its business strategy, which is subject to uncertainties and contingencies beyond
EchoStar’s control.
Expected Operating Losses. Since 1996, EchoStar has reported significant operating and net losses.
Improvements in EchoStar’s future results of operations are largely dependent upon its ability to increase its
customer base while maintaining its overall cost structure, controlling subscriber turnover and effectively managing
its subscriber acquisition costs. No assurance can be given that EchoStar will be effective with regard to these
matters. In addition, EchoStar incurs significant acquisition costs to obtain DISH Network subscribers. The high
cost of obtaining new subscribers magnifies the negative effects of subscriber turnover.
2. Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of EchoStar and all of its wholly-
owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. EchoStar
accounts for investments in 50% or less owned entities using the equity or cost method, except for its investments in
marketable equity securities, which are carried at fair value. At December 31, 1998, 1999 and 2000, these equity
and cost method investments were not material to EchoStar’s consolidated financial statements.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of
revenues and expenses for each reporting period. Actual results could differ from those estimates.
Stock Splits
On each of July 19, 1999, October 25, 1999 and March 22, 2000, EchoStar completed a two-for-one split of
its outstanding Class A and Class B common stock. An amount equal to the par value of the common shares issued
for the July, October and March stock splits was transferred from additional paid-in capital to Class A common
stock and Class B common stock. All references to shares and per share amounts included herein retroactively give
effect to the stock splits completed in July 1999, October 1999 and March 2000.
Foreign Currency Transaction Gains and Losses
The functional currency of EchoStar’s foreign subsidiaries is the U.S. dollar because their sales and
purchases are predominantly denominated in that currency. Transactions denominated in currencies other than U.S.
dollars are recorded based on exchange rates at the time such transactions arise. Subsequent changes in exchange
rates result in transaction gains and losses which are reflected in income as unrealized (based on period-end
translation) or realized (upon settlement of the transaction). Net transaction gains (losses) during 1998, 1999 and
2000 were not material to EchoStar’s results of operations.