Dish Network 2001 Annual Report Download - page 15

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assert that EchoStar IV was not a constructive total loss, as that term is defined in the policy. We strongly disagree
and filed an arbitration claim against the insurers for breach of contract, failure to pay a valid insurance claim and
bad faith denial of a valid claim, among other things. There can be no assurance that we will receive the amount
claimed or, if we do, that we will retain title to EchoStar IV with its reduced capacity. Based on the carriers’ failure
to pay the amount we believe is owed under the policy and their improper attempts to force us to settle for less than
the full amount of our claim, we have added causes of action in our EchoStar IV demand for arbitration for breach
of the duty of good faith and fair dealing, and unfair claim practices. Additionally, we filed a lawsuit against the
insurance carriers in the U.S. District Court for the District of Colorado asserting causes of action for violation of
Federal and State antitrust laws. During March 2001, we voluntarily dismissed our antitrust lawsuit without
prejudice. We have the right to re-file an antitrust action against the insurers in the future. With respect to our
arbitration claims, we are hopeful they will be resolved, and we believe it is probable that we will receive a
substantial portion of the benefits due.
At the time we filed our claim in 1998, we recognized an impairment loss of $106 million to write-down
the carrying value of the satellite and related costs, and simultaneously recorded an insurance claim receivable for
the same amount. We will have to reduce the amount of the receivable if a final settlement is reached for less than
this amount.
The indentures related to certain of EchoStar DBS Corporation’s (“EDBS”) senior notes contain restrictive
covenants that require us to maintain satellite insurance with respect to at least half of the satellites we own or lease.
In addition, the indenture related to EchoStar Broadband Corporation’s (“EBC”) senior notes requires us to maintain
satellite insurance on the lesser of half of our satellites or three of our satellites. EchoStar I EchoStar IX are owned
by a direct subsidiary of EBC. Insurance coverage is therefore required for at least three of our seven satellites
currently in orbit. The launch and/or in-orbit insurance policies for EchoStar I through EchoStar VII have expired.
To date we have been unable to obtain insurance on any of these satellites on terms acceptable to us. As a result, we
are currently self-insuring these satellites. To satisfy insurance covenants related to EDBS’ and EBC’s senior notes,
we have reclassified an amount equal to the depreciated cost of three of our satellites from cash and cash equivalents
to cash reserved for satellite insurance on our balance sheet. As of December 31, 2001, cash reserved for satellite
insurance totaled approximately $122 million. The reclassifications will continue until such time, if ever, as we can
again insure our satellites on acceptable terms and for acceptable amounts. If we lease or transfer ownership of
EchoStar VII, EchoStar VIII or EchoStar IX to EDBS, which we are currently considering, we would need to
reserve additional cash for the depreciated cost of additional satellites. We believe we have in-orbit satellite
capacity sufficient to expeditiously recover transmission of most programming in the event one of our in-orbit
satellites fails. However, the cash reserved for satellite insurance is not adequate to fund the construction, launch and
insurance for a replacement satellite in the event of a complete loss of a satellite. Programming continuity cannot be
assured in the event of multiple satellite losses.
We may not be able to obtain commercial insurance covering the launch and/or in-orbit operation of
EchoStar VIII at rates acceptable to us and for the full amount necessary to construct, launch and insure a
replacement satellite. In that event, we will be forced to self-insure all or a portion of the launch and/or in-orbit
operation of EchoStar VIII. The manufacturer of EchoStar VIII is contractually obligated to use its reasonable best
efforts to obtain commercial insurance for the launch and in-orbit operation of EchoStar VIII for a period of in-orbit
operation to be determined and in an amount up to $225 million. There is no guarantee that they or we will be able
to obtain commercial insurance for the launch and in-orbit operation of EchoStar VIII at reasonable rates and for the
full replacement cost of the satellite.
Competition for Our Dish Network Business
We compete in the highly competitive subscription television service industry against cable television and
other land-based and satellite-based system operators offering video, audio and data programming and entertainment
services. Many of these competitors have substantially greater financial, marketing and other resources than we
have. Our ability to increase earnings depends, in part, on our ability to compete with these operators.
Cable television operators have a large, established customer base, and many cable operators have
significant investments in, and access to, programming. Of the 97% of United States television households in which
cable television service is currently available, approximately 67% currently subscribe to cable. Cable television