Dish Network 2010 Annual Report Download - page 51

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Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - Continued
44
44
Our subscriber-specific investments to acquire new subscribers have a significant impact on our cash flow. While
fewer subscribers might translate into lower ongoing cash flow in the long-term, cash flow is actually aided, in the
short-term, by the reduction in subscriber-specific investment spending. As a result, a slow down in our business
due to external or internal factors does not introduce the same level of short-term liquidity risk as it might in other
industries.
Availability of Credit and Effect on Liquidity
The ability to raise capital has generally existed for DISH Network despite the weak economic conditions. Because
of the cash flow of our company and the absence of any material debt payments until October 2011, modest
fluctuations in the cost of capital will not impact our current operational plans. Currently, we have no existing lines
of credit, nor have we historically.
Future Liquidity
Our “Subscriber-related expenses” as a percentage of “Subscriber-related revenue” was 53.2% during the year ended
December 31, 2010 compared to 55.1% during the same period in 2009. ARPU was positively impacted by price
increases in February and June 2010. “Subscriber-related expenses” continued to be negatively impacted by
increased programming costs and initiatives to improve customer service. We continue to focus on addressing
operational inefficiencies specific to DISH Network, which we believe will contribute to long-term subscriber
growth.
If we are unsuccessful in overturning the District Court’s ruling on Tivo’s motion for contempt, we are not
successful in developing and deploying potential new alternative technology and we are unable to reach a license
agreement with Tivo on reasonable terms, we may be required to eliminate DVR functionality in all but
approximately 192,000 digital set-top boxes in the field and cease distribution of digital set-top boxes with DVR
functionality. In that event we would be at a significant disadvantage to our competitors who could continue
offering DVR functionality, which would likely result in a significant decrease in new subscriber additions as well
as a substantial loss of current subscribers. Furthermore, the inability to offer DVR functionality could cause certain
of our distribution channels to terminate or significantly decrease their marketing of DISH Network services. The
adverse effect on our financial position and results of operations if the District Court’s contempt order is upheld is
likely to be significant. Additionally, the supplemental damage award of $103 million and further award of
approximately $200 million does not include damages, contempt sanctions or interest for the period after June 2009.
In the event that we are unsuccessful in our appeal, we could also have to pay substantial additional damages,
contempt sanctions and interest. Depending on the amount of any additional damage or sanction award or any
monetary settlement, we may be required to raise additional capital at a time and in circumstances in which we
would normally not raise capital. Therefore, any capital we raise may be on terms that are unfavorable to us, which
might adversely affect our financial position and results of operations and might also impair our ability to raise
capital on acceptable terms in the future to fund our own operations and initiatives. We believe the cost of such
capital and its terms and conditions may be substantially less attractive than our previous financings.
If we are successful in overturning the District Court’s ruling on Tivo’s motion for contempt, but unsuccessful in
defending against any subsequent claim in a new action that our original alternative technology or any potential new
alternative technology infringes Tivo’s patent, we could be prohibited from distributing DVRs or could be required
to modify or eliminate our then-current DVR functionality in some or all set-top boxes in the field. In that event we
would be at a significant disadvantage to our competitors who could continue offering DVR functionality and the
adverse effect on our business would be material. We could also have to pay substantial additional damages.