Dish Network 2009 Annual Report Download - page 76

Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - Continued
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addition, certain of these securities have defaulted or have been materially downgraded, causing us to record
impairment charges. If the credit ratings of these securities further deteriorate or the lack of liquidity in the
marketplace becomes prolonged, we may be required to record further impairment charges. Moreover, the current
significant volatility of domestic and global financial markets has greatly affected the volatility and value of our
marketable investment securities. To the extent we require access to funds, we may need to sell these securities
under unfavorable market conditions, record further impairment charges and fall short of our financing needs.
Credit Ratings
Our current credit ratings are Ba3 and BB- on our long-term senior notes as rated by Moody’s Investor Service
(“Moody’s”) and Standard and Poor’s (“S&P”) Rating Service, respectively. Debt ratings by the various rating
agencies reflect each agency’s opinion of the ability of issuers to repay debt obligations as they come due.
According to Moody’s, a Ba3 rating indicates that the obligations are judged to have speculative elements and are
subject to substantial credit risk. According to S&P, a BB- rating indicates the issuer is less vulnerable to nonpayment
of interest and principal obligations than other speculative issues. However, the issuer faces major ongoing
uncertainties or exposure to adverse business, financial, or economic conditions, which could lead to the obligor’s
inadequate capacity to meet its financial commitment on the obligation.
Critical Accounting Estimates
The preparation of the consolidated financial statements in conformity with GAAP requires management to make
estimates, judgments and assumptions that affect amounts reported therein. Management bases its estimates,
judgments and assumptions on historical experience and on various other factors that are believed to be reasonable
under the circumstances. Due to the inherent uncertainty involved in making estimates, actual results reported in future
periods may be affected by changes in those estimates. The following represent what we believe are the critical
accounting policies that may involve a high degree of estimation, judgment and complexity. For a summary of our
significant accounting policies, including those discussed below, see Note 2 in the Notes to the Consolidated Financial
Statements in Item 15 of this Annual Report on Form 10-K.
x Capitalized satellite receivers. Since we retain ownership of certain equipment provided pursuant to our
subscriber equipment lease programs, we capitalize and depreciate equipment costs that would otherwise be
expensed at the time of sale. Such capitalized costs are depreciated over the estimated useful life of the
equipment, which is based on, among other things, management’s judgment of the risk of technological
obsolescence. Because of the inherent difficulty of making this estimate, the estimated useful life of
capitalized equipment may change based on, among other things, historical experience and changes in
technology as well as our response to competitive conditions. Changes in estimated useful life may impact
“Depreciation and amortization” on our Consolidated Statements of Operations and Comprehensive Income
(Loss). For example, if we decreased the estimated useful life of our capitalized subscriber equipment by one
year, annual depreciation expense would increase by approximately $107 million.
x Accounting for investments in private and publicly-traded securities. We hold debt and equity interests in
companies, some of which are publicly traded and have highly volatile prices. We record an investment
impairment charge in “Other, net” within “Other Income (Expense)” on our Consolidated Statements of
Operations and Comprehensive Income (Loss) when we believe an investment has experienced a decline in
value that is judged to be other-than-temporary. We monitor our investments for impairment by considering
current factors including economic environment, market conditions and the operational performance and other
specific factors relating to the business underlying the investment. Future adverse changes in these factors
could result in losses or an inability to recover the carrying value of the investments that may not be reflected
in an investment’s current carrying value, thereby possibly requiring an impairment charge in the future.
x Fair value of financial instruments. Fair value estimates of our financial instruments are made at a point
in time, based on relevant market data as well as the best information available about the financial
instrument. Weak economic conditions have resulted in inactive markets for certain of our financial
instruments, including Mortgage-Backed Securities (“MBS”) and Auction Rate Securities (“ARS”). For
certain of these instruments, there is no or limited observable market data. Fair value estimates for