Dish Network 2004 Annual Report Download - page 10

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10 3/8% Senior Notes Redemption. Effective October 1, 2004, we redeemed all of our outstanding 10 3/8% Senior
Notes due 2007. In accordance with the terms of the indenture governing the notes, the $1.0 billion principal
amount of the notes was redeemed at 105.188%, for a total of approximately $1.052 billion. The premium paid of
approximately $51.9 million, along with unamortized debt issuance costs of approximately $4.1 million, were
recorded as charges to earnings during the fourth quarter of 2004.
Cash Dividend. On December 14, 2004, we paid a one-time cash dividend of $1.00 per share, or approximately $455.7
million, on outstanding shares of our Class A and Class B common stock to shareholders of record at the close of
business on December 8, 2004.
Cablevision Satellite Acquisition. On January 20, 2005, we agreed to purchase certain satellite assets from Rainbow
DBS Co., a subsidiary of Cablevision Systems Corporation for $200.0 million. Specifically, we have agreed to
purchase Rainbow 1, a direct broadcast satellite located at 61.5 degrees West Longitude, together with the rights to
11 DBS frequencies at that location. The satellite includes 13 transponders, up to 12 of which can be operated in
"spot beam" mode. Also, as part of this transaction, we will acquire ground facilities and related assets in Black
Hawk, S.D. The transaction is subject to customary conditions, including regulatory approval by the FCC. There
can be no assurance that such approval will be obtained.
Settlement of EchoStar IV Arbitration. Several years ago, we filed a $219.3 million insurance claim as a result of
the failure of our EchoStar IV satellite to operate properly. The satellite insurance consisted of separate,
substantially identical policies with many carriers for varying amounts which, in combination, created a total insured
amount of $219.3 million. All of the carriers contested the loss claim, resulting in arbitration under the terms of the
policies.
On March 4, 2005, we agreed to settle our insurance claim and related claims for accrued interest and bad faith with
all carriers who agree to pay their proportionate share of an aggregate net amount of $240.0 million. We retained
title to and use of the EchoStar IV satellite. Payment from each settling carrier is due on or before April 26, 2005,
with interest commencing to accrue on April 12, 2005. Currently, we have received signed agreements back from
insurers representing over 90% of the aggregate amount. While we believe the remaining insurers will each sign the
agreement shortly, the arbitration will continue with respect to any insurers who decline to settle.
Amounts payable to us in excess of our previously recorded $106.0 million receivable will be recognized in income
during the period in which the respective insurers sign the settlement agreement. See “Item 3 – Legal Proceedings”
for more information relating to the underlying insurance claim and our historical accounting for that claim.
Internal Review and Filing of Purported Securities Class Action. Our Audit Committee recently completed a
review of recordkeeping and internal control issues relating to certain of our vendor and third party relationships (the
“Review”). The Review concluded that the Company's recordkeeping in prior years and the current control
environment were deficient and reported one instance in which one of our executive officers in charge of certain
business functions directed the preparation, in prior years, of inaccurate documentation that was used to determine
payments made to a vendor. Management has evaluated this instance and determined that it constitutes a
“significant deficiency” in the Company’s internal control over financial reporting, as defined by the Public
Company Accounting Oversight Board’s Auditing Standard No. 2. Management’s complete report on internal
control over financial reporting is set forth under “Item 9A. Controls and Procedures.” Notwithstanding this
determination, no adjustments to our consolidated financial statements were required as a result of the Review, and
none were made. We are, however, implementing several changes recommended by the Audit Committee to our
governance, operating and control policies and procedures. We have also taken disciplinary action and other steps
to remediate the conduct underlying the deficiencies identified by the Audit Committee’s Review.
Following the March 10, 2005 publication of a news article purporting to describe the Review and other matters, we
received a phone call from the Division of Enforcement of the Securities and Exchange Commission inquiring about
the matters described in the news article. The Company intends to fully respond to that inquiry. On March 11,
2005, a purported class action lawsuit was filed against us and several of our current and former officers in the
United States District Court for the District of Colorado. The complaint alleges, among other things, that we made
material misstatements and omissions by issuing financial statements and "reports on operations" that were not in
accordance with GAAP, through inadequate internal controls, failure to disclose related party transactions and