Dish Network 1997 Annual Report Download - page 59

ECHOSTAR COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
2. Summary of Significant Accounting Policies – Continued
F–12
Inventories
Inventories are stated at the lower of cost or market value. Cost is determined using the first-in, first-out method.
Proprietary products are manufactured by outside suppliers to EchoStar’s specifications. Manufactured inventories include
materials, labor and manufacturing overhead. Cost of other inventories includes parts, contract manufacturers’ delivered price,
assembly and testing labor, and related overhead, including handling and storage costs. Inventories consist of the following (in
thousands):
December 31,
1996 1997
DBS receiver components ................................ ................... $ 15,736 $ 12,506
EchoStar Receiver Systems ................................ ................. 32,799 7,649
Consigned DBS receiver components ................................ .. 23,525 3,122
Finished goods − analog DTH equipment ............................. 4,091 2,116
Spare parts and other ................................ ........................... 2,279 1,440
Reserve for excess and obsolete inventory ............................ ( 5,663) ( 3,840)
$ 72,767 $ 22,993
Property and Equipment
Property and equipment are stated at cost. Cost includes interest capitalized of $25 million, $26 million and $32 million
during the years ended December 31, 1995, 1996 and 1997, respectively. The costs of satellites under construction are capitalized
during the construction phase, assuming the eventual successful launch and in-orbit operation of the satellite. If a satellite were to
fail during launch or while in-orbit, the resultant loss would be charged to expense in the period such loss was incurred. The amount
of any such loss would be reduced to the extent of insurance proceeds received as a result of the launch or in-orbit failure.
Depreciation is recorded on a straight-line basis for financial reporting purposes. Repair and maintenance costs are charged to
expense when incurred. Renewals and betterments are capitalized.
EchoStar reviews its long-lived assets and identifiable assets to be held and used for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. For assets
which are held and used in operations, the asset would be impaired if the book value of the asset exceeded the
undiscounted future cash flows related to the asset. For those assets which are to be disposed of, the assets would be
impaired to the extent the fair value does not exceed the book value. EchoStar considers relevant cash flow, estimated
future operating results, trends and other available information including the fair value of frequency rights owned, in
assessing whether the carrying value of assets can be recovered.
FCC Authorizations
FCC authorizations are recorded at cost and amortized using the straight-line method over a period of 40
years. Such amortization commences at the time the related satellite becomes operational; capitalized costs are written
off at the time efforts to provide services are abandoned. FCC authorizations include interest capitalized of $1 million,
$6 million and $11 million during the years ended December 31, 1995, 1996 and 1997, respectively.