Dish Network 2008 Annual Report Download - page 69

Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - Continued
59
Capital Lease Obligations
Anik F3. Anik F3, an FSS satellite, was launched and commenced commercial operation during April 2007. We
have leased all 32 Ku-band FSS transponders on Anik F3 for a period of 15 years.
In accordance with Statement of Financial Accounting Standards No. 13, “Accounting for Leases” (“SFAS 13”), we
have accounted for the satellite component of this agreement as a capital lease (see Note 9 in the Notes to the
Consolidated Financial Statements in Item 15 of this Annual Report on Form 10-K). The commitment related to the
present value of the net future minimum lease payments for the satellite component of the agreement is included under
Capital Lease Obligations in the table above. The commitment related to future minimum payments designated for the
lease of the orbital slot and other executory costs are included under Satellite-Related Obligations in the table above.
The commitment related to the amount representing interest is included under Interest on Long-Term Debt in the table
above.
Future Capital Lease Obligation
Ciel II. Ciel II, a Canadian DBS satellite, was launched in December 2008 and commenced commercial operation at
the 129 degree orbital location in February 2009. Our initial ten-year term lease for 100% of the capacity on the
satellite has been accounted for as a capital lease upon commencement of commercial operation in February 2009.
As of December 31, 2008, the commitment related to this agreement is included under Satellite-related Obligations
in the table above.
Satellite Insurance
We currently have no commercial insurance coverage on the satellites we own. We do not use commercial
insurance to mitigate the potential financial impact of in-orbit failures because we believe that the premium costs are
uneconomical relative to the risk of satellite failure. While we generally have had in-orbit satellite capacity
sufficient to transmit our existing channels and some backup capacity to recover the transmission of certain critical
programming, our backup capacity is limited. In the event of a failure or loss of any of our satellites, we may need
to acquire or lease additional satellite capacity or relocate one of our other satellites and use it as a replacement for
the failed or lost satellite.
Purchase Obligations
Our 2009 purchase obligations primarily consist of binding purchase orders for receiver systems and related
equipment, digital broadcast operations, satellite and transponder leases, engineering and for products and services
related to the operation of our DISH Network. Our purchase obligations also include certain guaranteed fixed
contractual commitments to purchase programming content. Our purchase obligations can fluctuate significantly
from period to period due to, among other things, management’s control of inventory levels, and can materially
impact our future operating asset and liability balances, and our future working capital requirements.
Programming Contracts
In the normal course of business, we enter into contracts to purchase programming content in which our payment
obligations are fully contingent on the number of subscribers to whom we provide the respective content. These
programming commitments are not included in the “Contractual obligations and off-balance sheet arrangements”
table. The terms of our contracts typically range from one to ten years with annual rate increases. Our programming
expenses will continue to increase to the extent we are successful growing our subscriber base. In addition, our
margins may face further downward pressure from price escalations in current contracts and the renewal of long
term programming contracts on less favorable pricing terms.