Dish Network 2003 Annual Report Download - page 90

ECHOSTAR COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
F–23
Satellite Insurance
As a result of the failure of EchoStar IV solar arrays to fully deploy and the failure of 38 transponders to date, a
maximum of 6 of the 44 transponders (including spares) on EchoStar IV are available for use at this time. In addition
to transponder and solar array failures, EchoStar IV has experienced anomalies affecting its thermal systems and
propulsion system. EchoStar IV is currently located at the 157 degree orbital location. There can be no assurance that
further material degradation, or total loss of use, of EchoStar IV will not occur in the immediate future. As of
December 31, 2003, EchoStar IV is fully depreciated.
In September 1998, we filed a $219.3 million insurance claim for a total loss under the launch insurance policies
covering EchoStar IV. The satellite insurance consists of separate substantially identical policies with different carriers
for varying amounts that, in combination, create a total insured amount of $219.3 million. The insurance carriers
include La Reunion Spatiale; AXA Reinsurance Company (n/k/a AXA Corporate Solutions Reinsurance Company),
United States Aviation Underwriters, Inc., United States Aircraft Insurance Group; Assurances Generales De France
I.A.R.T. (AGF); Certain Underwriters at Lloyd’s, London; Great Lakes Reinsurance (U.K.) PLC; British Aviation
Insurance Group; If Skaadeforsikring (previously Storebrand); Hannover Re (a/k/a International Hannover); The Tokio
Marine & Fire Insurance Company, Ltd.; Marham Space Consortium (a/k/a Marham Consortium Management); Ace
Global Markets (a/k/a Ace London); M.C. Watkins Syndicate; Goshawk Syndicate Management Ltd.; D.E. Hope
Syndicate 10009 (Formerly Busbridge); Amlin Aviation; K.J. Coles & Others; H.R. Dumas & Others; Hiscox
Syndicates, Ltd.; Cox Syndicate; Hayward Syndicate; D.J. Marshall & Others; TF Hart; Kiln; Assitalia Le
Assicurazioni D'Italia S.P.A. Roma; La Fondiaria Assicurazione S.P.A., Firenze; Vittoria Assicurazioni S.P.A.,
Milano; Ras - Riunione Adriatica Di Sicurta S.P.A., Milano; Societa Cattolica Di Assicurazioni, Verano; Siat
Assicurazione E Riassicurazione S.P.A, Genova; E. Patrick; ZC Specialty Insurance; Lloyds of London Syndicates 588
NJM, 1209 Meb AND 861 Meb; Generali France Assurances; Assurance France Aviation; and Ace Bermuda Insurance
Ltd.
The insurance carriers offered us a total of approximately $88.0 million, or 40% of the total policy amount, in
settlement of the EchoStar IV insurance claim. The insurers assert, among other things, that EchoStar IV was not a
total loss, as that term is defined in the policy, and that we did not abide by the exact terms of the insurance policies.
We strongly disagree and filed arbitration claims against the insurers for breach of contract, failure to pay a valid
insurance claim and bad faith denial of a valid claim, among other things. Due to individual forum selection clauses
in certain of the policies, we are pursuing our arbitration claims against Ace Bermuda Insurance Ltd. in London,
England, and our arbitration claims against all of the other insurance carriers in New York, New York. The New
York arbitration commenced on April 28, 2003, and the Arbitration Panel has now conducted approximately thirty-
five days of hearings. The parties to the London arbitration have agreed to stay that proceeding pending a ruling in
the New York arbitration.
At the time we filed our claim in 1998, we recognized an initial impairment loss of $106.0 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 will have to reduce the amount of this receivable if a final settlement is reached for less than this amount.
In addition, during 1999, we recorded an impairment loss of approximately $16.0 million as a charge to earnings to
further write-down the carrying value of the satellite.
The $106.0 million insurance claim receivable has historically been classified as a current asset. While there can be
no assurance that we will receive the amount claimed in either the New York or the London arbitrations, we
continue to believe the insurance claim amount is fully recoverable and expect to receive a favorable decision prior
to December 31, 2004. However, due to the delays which have repeatedly occurred in the arbitration, as well as
uncertainty whether any decision might be appealed, we are not confident that we will receive the cash proceeds
related to this claim prior to December 31, 2004. Consequently, during 2003, we reclassified the insurance claim
receivable from current to long-term. The classification of this receivable will continue to be evaluated each quarter
until such time as payment is received. All prior year amounts have been reclassified to conform to current year
presentation.