Dish Network 2003 Annual Report Download - page 57

Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - Continued
52
Programming Contracts
In the normal course of business, we have entered into numerous contracts to purchase programming content and
will continue to do so. These programming commitments are not included in the table above. The terms of our
contracts typically range from one to ten years and our payment obligations are fully contingent on the number of
subscribers to which we provide the respective content. Consequently, our programming expenses will continue to
increase to the extent we are successful growing our subscriber base. Programming expenses are included in
“Subscriber-related expenses” in the accompanying consolidated statements of operations and comprehensive
income (loss).
Satellite Insurance. As of December 31, 2003, the indentures related to certain of EDBS’ outstanding senior notes
contain restrictive covenants that required us to maintain satellite insurance with respect to at least half of the
satellites we own or lease. All of our nine in-orbit satellites are currently owned by direct subsidiaries of EDBS.
We currently do not carry launch and/or in-orbit insurance for any of our nine in-orbit satellites. To satisfy
insurance covenants related to EDBS’ senior notes, we have reclassified an amount equal to the depreciated cost of
five of our satellites from cash and cash equivalents to cash reserved for satellite insurance on our balance sheet. As
of December 31, 2003, cash reserved for satellite insurance totaled approximately $176.8 million. Effective
February 2, 2004, as a result of the redemption of the EDBS 9 3/8% Senior Notes due 2009, our obligation to
reserve for satellite insurance declined to the depreciated cost of three of our satellites. As an indirect result of this
redemption, during February 2004, we were able to reduce our reserve and reclassify approximately $57.2 million,
representing the depreciated cost of two of our satellites, from cash reserved for satellite insurance to cash and cash
equivalents. We will continue to reserve cash for satellite insurance on our balance sheet until such time, if ever, as
we can again insure our satellites on acceptable terms and for acceptable amounts, or until the covenants requiring
the insurance are no longer applicable. We believe we have in-orbit satellite capacity sufficient to expeditiously
recover transmission of most programming in the event one of our in-orbit satellites fails. However, the cash
reserved for satellite insurance is not adequate to fund the construction, launch and insurance for a replacement
satellite in the event of a complete loss of a satellite. Programming continuity cannot be assured in the event of
multiple satellite losses.
Future capital requirements. In addition to our DBS business plan, we are exploring business plans for FSS Ku-
band and Ka-band satellite systems, including licenses to operate at the 97 and 123 degree orbital locations.
As a result of recent changes in our equipment lease and subscriber retention promotions, we anticipate an increase in
capitalized subscriber equipment during 2004. In addition, in order to support the anticipated increase in the number of
local markets in which we offer local network channels by satellite and for future broadband services, during 2004 we
plan to construct four mini-digital broadcast operations centers. As previously discussed, we expect our capital
expenditures for 2004 to be higher than 2003 capital expenditures of $321.8 million.
From time to time we evaluate opportunities for strategic investments or acquisitions that would complement our
current services and products, enhance our technical capabilities or otherwise offer growth opportunities. As a result,
acquisition discussions and offers, and in some cases, negotiations may take place and future material investments or
acquisitions involving cash, debt or equity securities or a combination thereof may result.
Security Ratings
Our current credit ratings are Ba3 and BB- on our long-term senior notes, and B2 and B with respect to our convertible
subordinated notes, as rated by Moody’s Investor Service and Standard and Poor’s Rating Service, respectively. Debt
ratings by the various rating agencies reflect each agency’s opinion of the ability of issuers to repay debt obligations as
they come due.
With respect to Moody’s, the Ba3 rating for senior debt indicates that the obligations are judged to have speculative
elements and are subject to substantial credit risk. For S&P, the BB- rating indicates the issuer is less vulnerable to
nonpayment of interest and principal obligations than other speculative issues. However, the issuer faces major
ongoing uncertainties or exposure to adverse business, financial, or economic conditions, which could lead to the
obligor’s inadequate capacity to meet its financial commitment on the obligation.