Dish Network 2000 Annual Report Download - page 72

ECHOSTAR COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
F–21
5. Income Taxes
As of December 31, 2000, EchoStar had net operating loss carryforwards (“NOLs”) for Federal income tax
purposes of approximately $2.050 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 2000, 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 1998, 1999 and 2000 are reconciled to the amounts computed by
applying the statutory Federal tax rate to income before taxes as follows:
Year Ended December 31,
1998 1999 2000
Statutory rate .................................................................. 35.0% 35.0% 35.0%
State income taxes, net of Federal benefit ......................... 1.6 2.3 2.9
Employee stock option exercise and sale .......................... – – 3.3
Non-deductible interest expense....................................... (1.4) (0.3) –
Other ............................................................................. 0.5 1.3 1.6
Increase in valuation allowance........................................ (35.7) (38.3) (42.8)
Total benefit from income taxes................................... –% –% –%
The components of the (provision for) benefit from income taxes are as follows (in thousands):
Year Ended December 31,
1998 1999 2000
Current (provision) benefit:
Federal .................................................................... $ 15 $ – $ –
State... ..................................................................... 18 (45) (80)
Foreign.................................................................... (77) (108) (475)
(44) (153) (555)
Deferred (provision) benefit:
Federal .................................................................... 86,604 286,195 237,744
State........................................................................ 6,463 27,748 27,623
Increase in valuation allowance ................................. (93,067) (313,943) (265,367)
– – –
Total (provision) benefit........................................ $ (44) $ (153) $ (555)