Dish Network 2004 Annual Report Download - page 69

Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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Market Risks Associated With Financial Instruments
As of December 31, 2004, our restricted and unrestricted cash, cash equivalents and marketable investment securities
had a fair market value of approximately $1.213 billion. Of that amount, a total of approximately $1.039 billion was
invested in: (a) cash; (b) debt instruments of the U.S. Government and its agencies; (c) commercial paper and notes
with an overall average maturity of less than one year and rated in one of the four highest rating categories by at least
two nationally recognized statistical rating organizations; and (d) instruments with similar risk characteristics to the
commercial paper described above. The primary purpose of these investing activities has been to preserve principal
until the cash is required to, among other things, fund operations, make strategic investments and expand the business.
Consequently, the size of this portfolio fluctuates significantly as cash is received and used in our business.
Our restricted and unrestricted cash, cash equivalents and marketable investment securities had an average annual
return for the year ended December 31, 2004 of approximately 2.1%. A hypothetical 10.0% decrease in interest rates
would result in a decrease of approximately $4.2 million in annual interest income. The value of certain of the
investments in this portfolio can be impacted by, among other things, the risk of adverse changes in securities and
economic markets generally, as well as the risks related to the performance of the companies whose commercial paper
and other instruments we hold. However, the high quality of these investments (as assessed by independent rating
agencies), reduces these risks. The value of these investments can also be impacted by interest rate fluctuations.
At December 31, 2004, all of the $1.039 billion was invested in fixed or variable rate instruments or money market
type accounts. While an increase in interest rates would ordinarily adversely impact the fair market value of fixed and
variable rate investments, we normally hold these investments to maturity. Consequently, neither interest rate
fluctuations nor other market risks typically result in significant realized gains or losses to this portfolio. A decrease in
interest rates has the effect of reducing our future annual interest income from this portfolio, since funds would be re-
invested at lower rates as the instruments mature. Over time, any net percentage decrease in interest rates could be
reflected in a corresponding net percentage decrease in our interest income.
Included in our marketable securities portfolio balance is debt and equity of public and private companies we hold for
strategic and financial purposes. As of December 31, 2004, we held strategic and financial debt and equity investments
of public companies with a fair market value of approximately $174.3 million. We may make additional strategic and
financial investments in debt and other equity securities in the future. The fair market value of our strategic and
financial debt and equity investments can be significantly impacted by the risk of adverse changes in securities markets
generally, as well as risks related to the performance of the companies whose securities we have invested in, risks
associated with specific industries, and other factors. These investments are subject to significant fluctuations in fair
market value due to the volatility of the securities markets and of the underlying businesses. A hypothetical 10.0%
adverse change in the price of our public strategic debt and equity investments would result in approximately a $17.4
million decrease in the fair market value of that portfolio. The fair market value of our strategic debt investments are
currently not materially impacted by interest rate fluctuations due to the nature of these investments.
We currently classify all marketable investment securities as available-for-sale. We adjust the carrying value of our
available-for-sale securities to fair market value and report the related temporary unrealized gains and losses as a
separate component of “Accumulated other comprehensive income” within “Total stockholders’ equity (deficit),” net
of related deferred income tax. Declines in the fair market value of a marketable investment security which are
estimated to be “other than temporary” are recognized in the consolidated statement of operations, thus establishing a
new cost basis for such investment. We evaluate our marketable investment securities portfolio on a quarterly basis to
determine whether declines in the fair market value of these securities are other than temporary. This quarterly
evaluation consists of reviewing, among other things, the fair market value of our marketable investment securities
compared to the carrying amount, the historical volatility of the price of each security and any market and company
specific factors related to each security. Generally, absent specific factors to the contrary, declines in the fair market
value of investments below cost basis for a period of less than six months are considered to be temporary. Declines in
the fair market value of investments for a period of six to nine months are evaluated on a case by case basis to
determine whether any company or market-specific factors exist which would indicate that such declines are other than
temporary. Declines in the fair market value of investments below cost basis for greater than nine months are
considered other than temporary and are recorded as charges to earnings, absent specific factors to the contrary.