Dish Network 2009 Annual Report Download - page 74

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Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - Continued
64
In addition, we have agreed to lease capacity on two satellites from EchoStar that are currently under construction.
Future commitments related to these satellites are included in the table above under “Satellite-related obligations.”
x QuetzSat-1. During 2008, we entered into a ten-year transponder service agreement with EchoStar to lease
capacity on QuetzSat-1, a DBS satellite, which is expected to be completed during 2011.
x EchoStar XVI. During December 2009, we entered into a ten-year transponder service agreement with
EchoStar to lease capacity on EchoStar XVI, a DBS satellite, which is expected to be completed during
2012.
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 2010 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 above. 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 in our subscriber base. In
addition, our margins may face further downward pressure from price increases and the renewal of long term
programming contracts on less favorable pricing terms.
Future Capital Requirements
We expect to fund our future working capital, capital expenditure and debt service requirements from cash generated
from operations, existing cash and marketable investment securities balances, and cash generated through new
additional capital. The amount of capital required to fund our future working capital and capital expenditure needs
varies, depending on, among other things, the rate at which we acquire new subscribers and the cost of subscriber
acquisition and retention, including capitalized costs associated with our new and existing subscriber equipment
lease programs. The majority of our capital expenditures for 2010 are driven by the costs associated with subscriber
premises equipment, included in our firm purchase obligations, as well as capital expenditures for our satellite-
related obligations. These expenditures are necessary to operate and maintain the DISH Network television service.
Consequently, we consider them to be non-discretionary. The amount of capital required will also depend on the
levels of investment necessary to support potential strategic initiatives, including our plans to expand our national
and local HD offerings and other strategic opportunities that may arise from time to time. Our capital expenditures
vary depending on the number of satellites leased or under construction at any point in time, and could increase
materially as a result of increased competition, significant satellite failures, or continued weak economic conditions.
These factors could require that we raise additional capital in the future.