Dish Network 2012 Annual Report Download - page 45

Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - Continued
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credit requirements and we strive to provide outstanding customer service, to increase the likelihood of customers
keeping their DISH service over longer periods of time. Our subscriber acquisition costs may vary significantly
from period to period.
We incur significant costs to retain our existing customers, mostly by upgrading their equipment to HD and DVR
receivers. As with our subscriber acquisition costs, our retention spending includes the cost of equipment and
installation services. In certain circumstances, we also offer free programming and/or promotional pricing for
limited periods for existing customers in exchange for a commitment to receive service for a minimum term. A
component of our retention efforts includes the installation of equipment for customers who move. Our subscriber
retention costs may vary significantly from period to period.
Covenants and Restrictions Related to our Senior Notes
The indentures related to our outstanding senior notes contain restrictive covenants that, among other things, impose
limitations on the ability of DISH DBS and its restricted subsidiaries to: (i) incur additional indebtedness; (ii) enter
into sale and leaseback transactions; (iii) pay dividends or make distributions on DISH DBS’s capital stock or
repurchase DISH DBS’s capital stock; (iv) make certain investments; (v) create liens; (vi) enter into certain
transactions with affiliates; (vii) merge or consolidate with another company; and (viii) transfer or sell assets.
Should we fail to comply with these covenants, all or a portion of the debt under the senior notes could become
immediately payable. The senior notes also provide that the debt may be required to be prepaid if certain change-in-
control events occur. As of the date of filing of this Annual Report on Form 10-K, DISH DBS was in compliance
with the covenants.
Other
We are also vulnerable to fraud, particularly in the acquisition of new subscribers. While we are addressing the
impact of subscriber fraud through a number of actions, there can be no assurance that we will not continue to
experience fraud, which could impact our subscriber growth and churn. Sustained economic weakness may create
greater incentive for signal theft and subscriber fraud, which could lead to higher subscriber churn and reduced
revenue.
Obligations and Future Capital Requirements
Contractual Obligations and Off-Balance Sheet Arrangements
As of December 31, 2012, future maturities of our long-term debt, capital lease and contractual obligations are
summarized as follows:
Total 2013 2014 2015 2016 2017 Thereafter
Long-term debt obligations................... 11,638,955$ 508,186$ 1,007,851$ 758,232$ 1,506,742$ 906,975$ 6,950,969$
Capital lease obligations....................... 249,145 29,515 26,672 27,339 30,024 32,958 102,637
Interest expense on long-term...............
debt and capital lease obligations...... 4,918,951 774,373 732,260 634,705 549,420 493,257 1,734,936
Satellite-related obligations.................. 2,259,436 355,154 321,479 301,109 253,144 242,777 785,773
Operating lease obligations (1)............. 245,630 85,482 51,499 32,055 22,878 8,541 45,175
Purchase obligations (1)....................... 3,508,013 1,810,364 520,462 436,396 314,589 165,059 261,143
Total..................................................... 22,820,130$ 3,563,074$ 2,660,223$ 2,189,836$ 2,676,797$ 1,849,567$ 9,880,633$
Payments due by period
(In thousands)
(1) Contractual obligations related to Blockbuster UK are not included above. Our Blockbuster UK Operating
Entities entered into Administration in the United Kingdom on January 16, 2013, as discussed in Note 10 in the
Notes to our Consolidated Financial Statements in Item 15 of this Annual Report on Form 10-K.
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - Continued
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In certain circumstances the dates on which we are obligated to make these payments could be delayed. These
amounts will increase to the extent we procure insurance for our satellites or contract for the construction, launch or
lease of additional satellites.
In addition, the table above does not include $347 million of liabilities associated with unrecognized tax benefits which
were accrued, as discussed in Note 12 in the Notes to our Consolidated Financial Statements in Item 15 of this Annual
Report on Form 10-K, and are included on our Consolidated Balance Sheets as of December 31, 2012. We do not
expect any portion of this amount to be paid or settled within the next twelve months.
Other than the “Guarantees” disclosed in Note 16 in the Notes to our Consolidated Financial Statements in Item 15
of this Annual Report on Form 10-K, we generally do not engage in off-balance sheet financing activities.
Satellites Under Construction
EchoStar XVIII
On September 7, 2012, we entered into a contract with SS/L for the construction of EchoStar XVIII, a DBS satellite
designed with spot beam technology for advanced television services such as HD programming. This satellite is
expected to be launched during 2015. Future commitments related to this satellite are included in the table above
under “Satellite related obligations,” except where noted below. As of December 31, 2012, we had not procured a
launch contract and launch insurance for this satellite; therefore, these costs are not included in our satellite-related
obligations in the table above.
Satellite Insurance
We generally do not carry commercial insurance for any of the in-orbit satellites that we use, other than certain
satellites leased from third parties. We generally do not use commercial insurance to mitigate the potential financial
impact of launch or in-orbit failures because we believe that the cost of insurance premiums is uneconomical relative
to the risk of such failures. 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 2013 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 branded pay-TV service. 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 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 raising