Dish Network 2001 Annual Report Download - page 92

ECHOSTAR COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
F–27
• Commitment Fees of 1% of the aggregate bridge financing commitments were paid by EchoStar to the
lenders upon execution of the agreements relating to the commitments. These fees, totaling
approximately $55 million, were deferred and are being charged to interest expense as the bridge
commitments are reduced. Approximately $7.4 million of these commitment fees were expensed upon
issuance of the 9 1/8% Seven Year Notes by EDBS during December 2001. If the Hughes merger is
not consummated, total remaining commitment fees will be written off. In the event that the bridge
commitment is drawn, any commitment fees not previously expensed will be charged to interest
expense in future periods.
• Ticking fees of .50% per year on the aggregate remaining bridge financing commitments are payable
quarterly, in arrears, until the closing of either the Hughes merger or the PanAmSat acquisition, or the
termination or expiration of the agreements relating to the bridge commitments. These ticking fees
will be expensed as incurred. As of December 31, 2001, we had expensed approximately $4.9 million
in ticking fees.
5. Income Taxes
As of December 31, 2001, EchoStar had net operating loss carryforwards (“NOLs”) for Federal income tax
purposes of approximately $2.112 billion. The NOLs will begin to expire in the year 2012. The use of the NOLs is
subject to statutory and regulatory limitations regarding changes in ownership. Statement of Financial Accounting
Standard No. 109, “Accounting for Income Taxes,” (“FAS No. 109”) requires that the potential future tax benefit of
NOLs be recorded as an asset. FAS No. 109 also requires that deferred tax assets and liabilities be recorded for the
estimated future tax effects of temporary differences between the tax basis and book value of assets and liabilities.
Deferred tax assets are offset by a valuation allowance to the extent it is considered more likely than not that the
benefits of such assets will not be realized.
In 2001, EchoStar increased its valuation allowance sufficient to offset net deferred tax assets arising during
the year except for the tax deferred asset related to federal alternative minimum income tax, which has an indefinite
life. Realization of net deferred tax assets is not assured and is principally dependent on generating future taxable
income prior to expiration of the NOLs. Management believes existing net deferred tax assets in excess of the
valuation allowance will, more likely than not, be realized. EchoStar continuously reviews the adequacy of its
valuation allowance. Future decreases to the valuation allowance will be made only as changed circumstances indicate
that it is more likely than not that the additional benefits will be realized. Any future adjustments to the valuation
allowance will be recognized in EchoStar’s provision for income taxes.
The actual tax (provision) benefit for 1999, 2000 and 2001 are reconciled to the amounts computed by
applying the statutory Federal tax rate to income before taxes as follows:
Year Ended December 31,
1999 2000 2001
Statutory rate .................................................................. 35.0% 35.0% 35.0%
State income taxes, net of Federal benefit ......................... 2.3 2.9 1.4
Employee stock option exercise and sale .......................... –3.2 1.5
Cumulative effect of change in tax rate resulting from a
revision of apportionment of state income......................... – – (11.9)
Non-deductible interest expense....................................... (0.3) – –
Other ............................................................................. 1.3 1.4 (2.8)
Increase in valuation allowance........................................ (38.3) (42.5) (22.5)
Total benefit from income taxes................................... –% –% 0.7%