Dish Network 2007 Annual Report Download - page 70

Table of Contents
periods may be affected by changes in those estimates. The following represent what we believe are the critical accounting policies that may
involve a high degree of estimation, judgment and complexity. For a summary of our significant accounting policies, including those discussed
below, see Note 2 in the Notes to the Consolidated Financial Statements in Item 15 of this Annual Report on Form 10-K.
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Item 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS —
Continued
• Capitalized satellite receivers . Since we retain ownership of certain equipment provided pursuant to our new and existing subscriber
equipment lease programs, we capitalize and depreciate equipment costs that would otherwise be expensed at the time of sale. Such
capitalized costs are depreciated over the estimated useful life of the equipment, which is based on, among other things, management’
s
judgment of the risk of technological obsolescence. Because of the inherent difficulty of making this estimate, the estimated useful life
of capitalized equipment may change based on, among other things, historical experience and changes in technology as well as our
response to competitive conditions.
•
Accounting for investments in private and publicly
-traded securities .
We hold debt and equity interests in companies, some of which
are publicly traded and have highly volatile prices. We record an investment impairment charge when we believe an investment has
experienced a decline in value that is judged to be other than temporary. We monitor our investments for impairment by considering
current factors including economic environment, market conditions and the operational performance and other specific factors relating
to the business underlying the investment. Future adverse changes in these factors could result in losses or an inability to recover the
carrying value of the investments that may not be reflected in an investment’s current carrying value, thereby possibly requiring an
impairment charge in the future.
• Valuation of investments in non-marketable investment securities . We calculate the fair value of our interest in non-marketable
investment securities either at consideration given, or for non-cash acquisitions, based on the results of valuation analyses utilizing a
discounted cash flow or DCF model. The DCF methodology involves the use of various estimates relating to future cash flow
projections and discount rates for which significant judgments are required.
• Valuation of long-lived assets . We evaluate the carrying value of long-lived assets to be held and used, other than goodwill and
intangible assets with indefinite lives, when events and circumstances warrant such a review. We evaluate our satellite fleet for
recoverability as one asset group. See Note 2 in the Notes to the Consolidated Financial Statements in Item 15 of this Annual Report
on Form 10-K. The carrying value of a long-lived asset or asset group is considered impaired when the anticipated undiscounted cash
flow from such asset or asset group is less than its carrying value. In that event, a loss is recognized based on the amount by which the
carrying value exceeds the fair value of the long-lived asset or asset group. Fair value is determined primarily using the estimated cash
flows associated with the asset or asset group under review, discounted at a rate commensurate with the risk involved. Losses on long-
lived assets to be disposed of by sale are determined in a similar manner, except that fair values are reduced for estimated selling costs.
Changes in estimates of future cash flows could result in a write
-
down of the asset in a future period.
• Valuation of goodwill and intangible assets with indefinite lives . We evaluate the carrying value of goodwill and intangible assets
with indefinite lives annually, and also when events and circumstances warrant. We use estimates of fair value to determine the
amount of impairment, if any, of recorded goodwill and intangible assets with indefinite lives. Fair value is determined primarily using
the estimated future cash flows, discounted at a rate commensurate with the risk involved. Changes in our estimates of future cash
flows could result in a write-down of goodwill and intangible assets with indefinite lives in a future period, which could be material to
our consolidated results of operations and financial position.
•
Smart card replacement
. We use microchips embedded in credit card-sized access cards, called “smart cards,” or in security chips in
our EchoStar receiver systems to control access to authorized programming content. Our signal encryption has been compromised by
theft of service and could be further compromised in the future. We continue to respond to compromises of our encryption system with
security measures intended to make signal theft of our programming more difficult. During 2005, we completed the replacement of our
smart cards. While the smart card replacement did not fully secure our system, we continue to implement software patches and other
security measures to help protect our service. There can be no assurance that our security measures will be effective in reducing theft
of our programming signals.
As of December 31, 2006, we did not have any accrual for future smart card replacement. At the time, if ever, that we determine
existing smart cards will be replaced again, we would accrue a liability for the estimated cost to replace those cards in receivers sold to
and owned by subscribers. That cost estimate would be based on the number of cards expected to be replaced, taking into account a
number of variables, including the cost of the cards and historical subscriber churn trends. Changes in, among other things, the timing
of the replacement plan could result in increases or decreases in the smart card replacement reserve. With respect to receivers we lease,
we would record the expenses of replacement as incurred.