View:
RESPONSE
TO SEC LETTER OF APRIL 22, 2009
May 20,
2009
Via
EDGAR and FedEx
Larry
Spirgel
Assistant
Director
Division
of Corporation Finance
U.S.
Securities and Exchange Commission
100 F.
Street, N.E.
Washington,
D.C. 20549-0404
Re: DISH Network Corporation
("DISH Network" or the "Company")
Form 10-K
for the fiscal year ended December 31, 2008
Filed
March 2, 2009
File No.
0-26176
Dear Mr.
Spirgel:
We are
supplying the following responses to the comments contained in your letter dated
April 22, 2009, regarding the above-referenced document. Our
responses are numbered in accordance with the numbered comments in your
letter.
Form 10-K for the Year Ended
December 31, 2008
Management’s Discussion and
Analysis of Results of Operations and Financial Condition, page
39
General
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1.
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Please
discuss how the following items may impact current and future
results:
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changes
in credit lines;
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credit
availability;
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parties
with which you have credit lines;
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whether
existing credit lines have matured or been
called;
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whether
backup credit lines remain
available;
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9601
South Meridian Blvd., Englewood, CO 80112 Tel:
303.723.1000 Fax: 303.723.1299
Mr. Larry
Spirgel
United
States Securities and Exchange Commission
Page 2
of 26
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the
ability to raise capital in a realistic evaluation of your current
financial situation, current credit ratings, and debt covenants;
and,
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license
impairments.
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Please
provide us with your proposed disclosures.
Response:
Currently,
we have no existing lines of credit, nor have we historically. While
the ability to raise capital on reasonable terms has generally existed for DISH
Network even during the recent market turmoil, the cost of such capital has not
been as attractive as in prior periods. Because of the substantial
free cash flow generated by DISH Network and the absence of any material debt
payments over the next two years, the higher cost of capital will not impact our
current operations. However, we might be less likely than we would
otherwise be to pursue initiatives that could increase shareholder value
over the long run, such as making strategic investments, prepaying debt, or
buying back our own stock. Alternatively, if we decided to still
pursue such initiatives, the cost of doing so would be
greater. Please see our disclosure under Item 2. “Management’s Discussion and Analysis
of Financial Condition and Results of Operations – Executive Summary – Overview
– Availability of Credit and Effect on Liquidity” on page 29 of our
Quarterly Report on Form 10-Q for the quarter ended March 31, 2009 (the
“10-Q”).
We note
the Staff’s comments regarding license impairments and submit that we disclosed
in Note 2 of Notes to Consolidated Financial Statements in our Annual Report on
Form 10-K for the year ended December 31, 2008 (the “2008 10-K”) that we
conducted an impairment test in 2008 and determined that the estimated fair
value of the FCC licenses that had been granted as of December 31, 2008,
calculated using the discounted cash flow analysis, exceeded their carrying
amount and therefore did not affect our operational results. For
further consideration, see our response to question 14 below.
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2.
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Provide
a robust discussion of your prospects for 2009 in a section on trends
after considering the impact of the economic situation in the 4th
quarter of 2008 and the 1st
quarter of 2009. Please remember that there are two assessments
that you must make where a trend, demand, commitment, event or uncertainty
is known:
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Is
the known trend, demand, commitment event or uncertainty likely to come to
fruition? If you determines that it is not reasonably likely to
occur, no disclosure is required;
and,
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9601
South Meridian Blvd., Englewood, CO 80112 Tel:
303.723.1000 Fax: 303.723.1299
Mr.
Larry Spirgel
United
States Securities and Exchange Commission
Page 3
of 26
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If you cannot make that
determination, you must evaluate objectively the consequences of the known
trend, demand, commitment, event or uncertainty, on the assumption that it
will come to fruition. Disclosure is then required unless you
determine that a material effect on the registrant’s financial condition
or results of operations is not reasonably likely to
occur. Please note that “reasonably likely” is a lower
threshold than “more likely than not” but a higher threshold than
“remote.” The concept of “reasonably likely” is used in the
context of disclosure for MD&A purposes and is not intended to mirror
the tests in SFAS
5 established to determine when accrual is necessary, or when disclosure
in the footnotes to the financial statements is
required.
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Please
address the above and include the following in your quantified schedule and
discussion:
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The
loss of 102,000 net subscribers in
2008;
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The
loss of the ATT arrangement;
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The
spin-off of assets to EchoStar and the higher fees you will pay to access
assets or receive certain services;
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The
impact of changes in customer services and plans, including
incentives;
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Further
reductions in your traditional satellite business as other avenues for
similar services become available from different
providers;
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The
cost of implementing the new services as well as other critical strategic
moves;
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Any
known trends or uncertainties that have had or that you reasonably expect
will have a material favorable or unfavorable impact on net sales or
revenues or income from continuing
operations;
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If
events that are likely to cause a material change in the relationship
between costs and revenues, the change in the relationship should be
disclosed; and
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To
the extent there is a material increase in net sales, discuss the price
versus volume mix (whether the overall increase is attributable to
increases in prices or increases in the volume of goods and services being
sold).
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Please
provide us with your proposed disclosures.
Response:
Please
see our disclosure under Item 2. “Management’s Discussion and Analysis
of Financial Condition and Results of Operations – Executive Summary”
beginning on page 27 of the 10-Q for a discussion of our 2009 prospects based
upon recent trends.
9601
South Meridian Blvd., Englewood, CO 80112 Tel:
303.723.1000 Fax: 303.723.1299
Mr.
Larry Spirgel
United
States Securities and Exchange Commission
Page 4
of 26
Furthermore,
in response to the Staff’s questions regarding specific trends, please find our
responses below:
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The
loss of 102,000 net subscribers in
2008
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The
loss of the ATT arrangement
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Further
reductions in your traditional satellite business as other avenues for
similar services become available from different
providers
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In the
first quarter of 2009, we continued to be impacted by the net loss of
subscribers. We lost 102,000 net subscribers in 2008 and an
additional 94,000 net subscribers in the first quarter of 2009. In
recent periods, competition has intensified within our industry with the rapid
growth of fiber-based pay-TV services offered by telecommunications
companies. In addition, our AT&T agreement expired on February 1,
2009, but through the end of February 2009, we continued to activate new
subscribers that had ordered DISH Network service through AT&T prior to
February 1. While AT&T was the largest telecommunications company
that offers our services, we offer our services through other distribution
channels such as direct sales, third party retailers and other
telecommunications companies. Please see our disclosure under Item 2.
“Management’s Discussion and
Analysis of Financial Condition and Results of Operations – Executive Summary –
Overview – Future Liquidity” on page 29 of the 10-Q.
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The
spin-off of assets to EchoStar and the higher fees you will pay to access
assets or receive certain services
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In
connection with the spin-off of assets to EchoStar, DISH Network entered into
certain agreements with EchoStar to establish the parties’ respective rights,
duties and obligations with respect to, among other things, set-top box sales,
access to certain satellite capacity, broadcast services, transition services,
taxes, employees and intellectual property, which impact several of the
Company’s key operating metrics. Please see our disclosure under Item
2. “Management’s Discussion
and Analysis of Financial Condition and Results of Operations – Executive
Summary – Overview – The Spin-off” on page 29 of the
10-Q. However, the Company does not believe that higher fees to
receive certain products and services has had or will have a significant impact
on our operations.
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The
impact of changes in customer services and plans, including
incentives
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The
cost of implementing the new services as well as other critical strategic
moves
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In
marketing our products and services, we incur costs to support new promotions
necessary to attract and retain subscribers. Our “Subscriber-related
expenses” as a percentage of “Subscriber-related revenue” grew from 51.4% to
52.2% in 2008 and reached 54.1% in the first quarter of 2009 and was negatively
impacted in part by costs to
9601
South Meridian Blvd., Englewood, CO 80112 Tel:
303.723.1000 Fax: 303.723.1299
Mr.
Larry Spirgel
United
States Securities and Exchange Commission
Page
5 of 26
attract
and retain subscribers, free up transponder capacity, and improve customer
service. The
increase in customer retention expense was primarily driven by more upgrading of
existing customers to high-definition (“HD”) and digital-video recorder (“DVR”)
receivers and the changing of equipment for certain subscribers to free up
satellite bandwidth in support of HD and other initiatives. We expect
to implement the satellite bandwidth initiatives at least through the first half
of 2009. We believe that the benefit from the increase in available
satellite bandwidth outweighs the short-term cost of these equipment
changes.
The
increases related to call center and in-home service operations were driven in
part by our investments in staffing, training, information systems, and other
initiatives. These investments are intended to help combat
inefficiencies introduced by the increasing complexity of our business and
technology, improve customer satisfaction, reduce churn, increase productivity,
and allow us to better scale our business over the long run. We
cannot, however, be certain that our increased spending will ultimately yield
these benefits. In the meantime, we may continue to incur higher
costs as a result of both our operational inefficiencies and increased
spending.
For a
discussion on the impact of liquidity, please see our disclosure under Item 2.
“Management’s Discussion and
Analysis of Financial Condition and Results of Operations – Executive Summary –
Future Liquidity” on page 29 and “– Results of Operations –
Subscriber-related expenses” on page 34 of the 10-Q.
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Any
known trends or uncertainties that have had or that you reasonably expect
will have a material favorable or unfavorable impact on net sales or
revenues or income from continuing
operations
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Economic
factors common to the pay-TV industry, as well as factors specific to DISH
Network, continued to contribute to the decline in our subscriber base and
slowed the growth in our revenues and income from continuing
operations. The most material trends that we experienced in 2008,
being the net loss of subscribers and the reduction in subscriber-related
margins, have continued into the first quarter of 2009. Given the
overall growth in pay-TV industry subscribers, operational issues specific to
DISH Network had the most significant impact on our subscriber
count. Please see our response to Comment No. 1 and our disclosure
under Item 2. “Management’s
Discussion and Analysis of Financial Condition and Results of Operations –
Executive Summary – Overview” on pages 27 through 29 of the
10-Q.
In
addition, our “Subscriber-related revenue” increased in the first quarter of
2009 compared to the same period in 2008, primarily due to an increase in
average monthly revenue per subscriber (“ARPU”). The increase in ARPU
was primarily attributable to price increases in February 2009 and 2008 on some
of our most popular programming packages and changes in the sales mix toward HD
programming packages and advanced
9601
South Meridian Blvd., Englewood, CO 80112 Tel:
303.723.1000 Fax: 303.723.1299
Mr.
Larry Spirgel
United
States Securities and Exchange Commission
Page 6
of 26
hardware
offerings. Please see our disclosure under Item 2. “Management’s Discussion and Analysis
of Financial Condition and Results of Operations – Results of Operations”
on pages 33 and 34 of the 10-Q.
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If
events that are likely to cause a material change in the relationship
between costs and revenues, the change in the relationship should be
disclosed
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Other
than the increase to “Subscriber-related expenses” as a percentage of revenue
discussed previously and other factors discussed under Item 2. “Management’s Discussion and Analysis
of Financial Condition and Results of Operations” in the 10-Q, the
Company is not aware of any events that are likely to cause a material change in
the relationship between costs and revenues.
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To
the extent there is a material increase in net sales, discuss the price
versus volume mix (whether the overall increase is attributable to
increases in prices or increases in the volume of goods and services being
sold)
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As
described under Item 2. “Management’s Discussion and Analysis
of Financial Condition and Results of Operations – Results of Operations”
on pages 33 and 34 of the 10-Q, the primary driver of increases in our
“Subscriber-related revenue” was an increase in ARPU that was attributable in
large part to price increases in February 2009 and 2008 on some of our most
popular programming packages and changes in the sales mix toward HD programming
packages and advanced hardware offerings.
Executive
Summary
Overview, page
39
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3.
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Please
address the concern that you raise in the last paragraph of page 40
regarding having less flexibility to invest in your business, pursue
strategic investments, prepay debt or buy back your own
stock. Please discuss your realistic plan to ameliorate this
limitation. Please provide us with your proposed
disclosures.
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Response:
As
discussed in our response to the Staff’s Comment No. 1, we might be less likely
to pursue initiatives that could increase shareholder value over the long run,
such as making strategic investments, prepaying debt, or buying back our own
stock to the extent that such initiatives are unattractive as compared to our
cost of capital. Management does not believe that it is necessary to
formulate plans to ameliorate this limitation since decisions are primarily
driven by the value of pursuing such initiatives as compared to our cost of
capital. In response to the Staff’s comment, we have added disclosure
under Item 2.
9601
South Meridian Blvd., Englewood, CO 80112 Tel:
303.723.1000 Fax: 303.723.1299
Mr.
Larry Spirgel
United
States Securities and Exchange Commission
Page 7
of 26
“Management’s Discussion and Analysis
of Financial Condition and Results of Operations – Executive Summary – Overview
– Availability of Credit and Effect on Liquidity” and “– Future Liquidity” on page
29 of the 10-Q.
Explanation of Key Metrics
and Other Items, page 42
DISH Network subscribers,
page 43
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4.
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Show
the actual subscribers and not your estimation of the number of
subscribers represented by commercial accounts. You may show
your estimations as separate calculations that are clearly labeled as
supplementary data.
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Response:
As
described on page 43 of the 2008 10-K, the Company provides DISH Network service
to hotels, motels and other commercial accounts. For many of these
commercial accounts, DISH Network does not have detailed end-user
information. In order to derive an approximate subscriber count for
its commercial accounts, DISH Network divides its total revenue earned from
commercial accounts by an amount approximately equal to the retail price of its
Classic Bronze 100 programming package (but taking into account, periodically,
price changes and other factors), and includes the resulting number, which DISH
Network believes is substantially smaller than the actual number of commercial
units served, in our DISH Network subscriber count.
Results of Operations, page
44
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5.
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In
future filings, provide an overview in the beginning of this section to
provide your readers with an assessment of your results of operations for
the periods presented and whether you expect the trends presented in your
reported results to continue, and how any related uncertainties, including
those associated with the current economy, are reasonably likely to have,
a material impact on the company’s liquidity, capital resources or results
of operations.
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Response:
We
provided our assessment of our results of operations, trends and related
uncertainties and our evaluation of whether such uncertainties might have a
material impact on our liquidity, capital resources or results of operations
under Item 7. “Management’s
Discussion and Analysis of Financial Condition and Results of Operations –
Executive Summary – Overview” in the 2008 10-K. In addition,
under Item 2. “Management’s
Discussion and Analysis of Financial Condition and Results of Operations –
Executive Summary – Overview” on pages 28 and 29 of the 10-Q, we have
added three separate
9601
South Meridian Blvd., Englewood, CO 80112 Tel:
303.723.1000 Fax: 303.723.1299
Mr.
Larry Spirgel
United
States Securities and Exchange Commission
Page 8
of 26
sections
discussing trends and related uncertainties and the potential impact of such
uncertainties on our liquidity, capital resources and results of
operations. We will include such discussions in the “Results of
Operations” section and continue to provide such enhanced disclosure in future
filings.
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6.
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Your
discussion regarding results of operations should not consist merely of
numeric dollar and percentage changes measured from period to period of
various line items on the income statement. You should address
the underlying reasons for changes in the price versus volume
mix. For example, if sales declined because the volume of goods
sold decreased by 20%, but this was offset by a 10% increase in price, the
discussion in MD&A should not stop once it identifies the price and
volume components. In this example, the underlying factors that
contributed to the decline in volume as well as the increase in selling
prices should also be discussed rather than simply
enumerated. The focus should be on an analysis of the factors
that caused these changes to occur. In providing this analysis,
you may find it helpful to include a discussion of key variables and
financial measures management is utilizing in managing the
business. These variables may be non-financial in nature or may
represent industry specific metrics. Furthermore, MD&A
should fully explain the results of operations. For example,
MD&A should not merely use the Spin-off for a blanket cause of a
change but rather its impact should be quantified to the extent possible,
and any increase or decrease in the underlying revenues of the
pre-existing business should then be addressed. Please provide
us with your proposed disclosures.
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Response:
We note
the Staff’s comments and have provided enhanced disclosure throughout Item 2.
“Management’s Discussion and
Analysis of Financial Condition and Results of Operations – Results of
Operations” starting on page 32 of the 10-Q to include an analysis of the
underlying factors causing changes in our results of operations. We
will continue to provide such enhanced disclosure in future
filings.
Liquidity and Capital
Resources, page 54
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7.
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As
presented, your disclosure does not provide a clear understanding of your
ability to generate cash and meet existing and known or reasonably likely
short- and long-term cash requirements. In future filings,
revise your discussion and analysis of liquidity to focus on material
changes in operating, investing and financing cash flows and the reasons
underlying those changes to provide your investor with a clear view of
your liquidity and capital resource needs as seen through the eyes of
management. In addition, describe known trends, demands, events
or uncertainties that are reasonably likely to have material effects in
the
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9601
South Meridian Blvd., Englewood, CO 80112 Tel:
303.723.1000 Fax: 303.723.1299
Mr.
Larry Spirgel
United
States Securities and Exchange Commission
Page 9
of 26
future. Identify
any items that contribute to uncertainties or variability in your cash
flows. Refer to Section IV of the Commission’s Interpretive Release
on Managements Discussion and Analysis of Financial Condition and Results of
Operations which is located on our website at: http://www.sec.gov/rules/interp/33-8350.htm.
Response:
We note
the Staff’s comments and have provided enhanced disclosure under Item 2. “Management’s Discussion and Analysis
of Financial Condition and Results of Operations – Executive Summary – Overview
– Liquidity Drivers,” “– Availability of Credit and Effect
on Liquidity” and “–
Future Liquidity” on pages 28 and 29 of the 10-Q to expand the discussion
of our liquidity needs and resources. In addition, we have provided
enhanced disclosure under “Management’s Discussion and Analysis
of Financial Condition and Results of Operations – Liquidity and Capital
Resources” regarding cash flows generated in our operating, investing and
financing activities and explanations for such changes. In future
filings, we will continue to focus on material changes in operating, investing
and financing cash flows and the reasons underlying such changes, in order to
provide investors with a view of our liquidity and capital resource needs as
seen through the eyes of management.
As
discussed in our response to Comment No. 2, the most material trends that we
experienced in 2008, being the net loss of subscribers and the reduction in
subscriber-related margins, have continued into the first quarter of
2009. Please see our response to Comment No. 2 and our disclosure
under Item 2. “Management’s
Discussion and Analysis of Financial Condition and Results of Operations –
Executive Summary – Overview” on pages 27 through 29 of the
10-Q.
Other Liquidity Items, page
56
700 MHz Spectrum, page
56
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8.
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Please
discuss the funds that will be required to satisfy FCC build-out
requirements by 2013. Also discuss why these licenses were
purchased and how it will impact your future
business.
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Response:
Depending
on the nature and scope of our commercialization of the 700 MHz wireless
licenses and the manner in which we satisfy FCC build-out requirements, we may
be required to make significant additional investments. However, as
disclosed in the 2008 10-K, we are also considering business relationships that
would allow us to partner with
9601
South Meridian Blvd., Englewood, CO 80112 Tel:
303.723.1000 Fax: 303.723.1299
Mr.
Larry Spirgel
United
States Securities and Exchange Commission
Page 10
of 26
others. In
such case, our required capital outlay may be significantly lower, as compared
to a build-out done solely by us.
As
discussed in the 2008 10-K, we purchased these 700 MHz wireless licenses to
explore business development opportunities. These licenses may be
used to provide services that are complementary or wholly unrelated to our DISH
Network services.
In
response to the Staff’s comments, we have provided further disclosure under Item
2. “Management’s Discussion
and Analysis of Financial Condition and Results of Operations – Liquidity and
Capital Resources – Obligations and Future Capital Requirements” on page
39 and 40 of the 10-Q.
Obligations and Future
Capital Requirements, page 58
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9.
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Combine
the two tables showing future maturities of debt and contractual
obligations as well as interest expense, the projected tax liabilities and
any other known cash requirements. Compare the total with
projected cash flow from operations for 2009 based on 2008 and modified
for churn and loss of the AT&T arrangement. Please discuss
your plan for meeting any shortfall which you have probably addressed in
formulating your budgets for 2009.
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Response:
We will
combine the tables showing future maturities of debt and contractual obligations
as well as interest expense and any other known cash requirements in subsequent
applicable filings.
We note
the Staff’s comments regarding cash flow from operations. For the
three months ended March 31, 2009, we reported net cash flows from operating
activities of $901 million. Furthermore, for the year ended December
31, 2008, we reported net cash flows from operating activities of $2.2
billion. Because we expect to have sufficient cash generated from
operations to cover our known cash requirements, we do not anticipate a
shortfall and therefore we do not have a plan to address any such
shortfalls. As a result, we do not believe that discussions of such
shortfalls or such plans are needed.
Satellite-Related
Obligations, page 59
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10.
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Please
tell us and disclose your estimate of the cost for the launch of the
second satellite and the year that you anticipate incurring the
cost.
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9601
South Meridian Blvd., Englewood, CO 80112 Tel:
303.723.1000 Fax: 303.723.1299
Mr.
Larry Spirgel
United
States Securities and Exchange Commission
Page 11
of 26
Response:
We have
not yet procured a contract for the launch of this satellite. While
the cost of this launch will depend upon the terms and conditions of the
contract, we estimate that the cost could range from approximately $80 million
to $120 million. We anticipate incurring this cost between the
current period and the expected launch of the satellite in late
2010.
Future Capital Requirements,
page 60
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11.
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Please
disclose the nature and amounts of your discretionary and
non-discretionary expected capital expenditures for
2009.
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Response:
The vast
majority of our capital expenditures for 2009 relate to our satellite related
obligations and firm purchase obligations which include, among other things, the
costs associated with subscriber premises equipment. These
expenditures are necessary to operate DISH Network. Consequently, we
consider them to be non-discretionary.
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12.
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Please
discuss in detail and provide a detailed quantifiable analysis supporting
your conclusions how you will fund future requirements discussed in the
first sentence of this section. Please be realistic in light of
the current economic situation and temper your conclusions with a candid
assessment of your prospects considering your current credit
ratings. If one of your solutions is additional borrowing,
factor into your analysis the projected interest rate on future borrowings
as well as debt repayment. Please provide us with your proposed
disclosures.
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Response:
As
discussed in the 10-Q, we expect to fund our near-term working capital, capital
expenditures and debt service requirements from cash generated from operations
and existing cash and marketable investment securities. For the three
months ended March 31, 2009, we reported net cash flows from operating
activities of $901 million and short-term cash and marketable investment
securities of $1.2 billion. Furthermore, for the year ended December
31, 2008, we reported net cash flows from operating activities of $2.2
billion. Because of the substantial free cash flow generated by DISH
Network and the absence of any material debt payments over the next two
years, we expect that the higher cost of capital will not impact our
current operations.
9601
South Meridian Blvd., Englewood, CO 80112 Tel:
303.723.1000 Fax: 303.723.1299
Mr.
Larry Spirgel
United
States Securities and Exchange Commission
Page 12
of 26
In
response to the Staff’s comments, we have provided enhanced discussion of our
current and expected liquidity needs and resources under Item 2. “Management’s Discussion and Analysis
of Financial Condition and Results of Operations – Overview” on pages 28
and 29 of the 10-Q.
Critical Accounting
Estimates
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13.
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Please
note that an accounting estimate is recognized as a “critical accounting
estimate” if:
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·
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the
accounting estimate requires you to make assumptions about matters that
are highly uncertain at the time the accounting estimate is made;
and
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·
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different
estimate that the company reasonably could have used in the current
period, or changes in the accounting estimate that are reasonably likely
to occur from period to period, would have a material impact on the
presentation of your financial condition, changes in financial condition
or results of operations.
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To
inform investors of each critical accounting estimate and to place it the
context of the company’s financial condition, changes in financial condition and
results of operations, the following information is required:
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·
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A
discussion that identifies and describes the estimate, the methodology
used, certain assumptions and reasonably likely
changes;
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·
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An
explanation of the significance of the accounting estimate to your
financial condition, changes in financial condition and results of
operations and, where material, an identification of the line items in the
your financial statements affected by the accounting
estimate;
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·
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A
quantitative discussion of changes in line items in the financial
statements and overall financial performance if you were to assume that
the accounting estimate were changed, either by using reasonably possible
near-term changes in certain assumption(s) underlying the accounting
estimate or by using the reasonably possible range of the accounting
estimate;
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·
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A
quantitative and qualitative discussion of any material changes made to
the accounting estimate in the past three years, the reasons for the
changes, and the effect on line items in the financial statements and
overall financial performance;
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9601
South Meridian Blvd., Englewood, CO 80112 Tel:
303.723.1000 Fax: 303.723.1299
Mr.
Larry Spirgel
United
States Securities and Exchange Commission
Page 13
of 26
Please
provide us with your proposed disclosures.
Response:
We have
reviewed your comments above and propose the following revised critical
accounting estimates disclosure. There have been no material changes
to these estimates for the three years ended December 31, 2008, 2007, and 2006
that we believe require further disclosure in our critical accounting
estimates.
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 the applicable Notes to the Consolidated Financial Statements in the
applicable 10-K.
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·
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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).
|
|
·
|
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
|
9601
South Meridian Blvd., Englewood, CO 80112 Tel:
303.723.1000 Fax: 303.723.1299
Mr.
Larry Spirgel
United
States Securities and Exchange Commission
Page 14
of 26
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.
|
●
|
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. Recent 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
financial instruments for which no or limited observable market data is
available are based on judgments regarding current economic conditions,
liquidity discounts, currency, credit and interest rate risks, loss
experience and other factors. These estimates involve
significant uncertainties and judgments and may be a less precise
measurement of fair value as compared to financial instruments where
observable market data is available. As a result, such
calculated fair value estimates may not be realizable in a current sale or
immediate settlement of the instrument. In addition, changes in
the underlying assumptions used in the fair value measurement technique,
including discount rates, liquidity risks, and estimate of future cash
flows, could significantly affect these fair value estimates, which could
have a material adverse impact on our financial position and results of
operations.
|
|
●
|
Valuation
of long-lived assets. We evaluate the carrying value of
long-lived assets to be held and used, other than goodwill and intangible
assets with indefinite lives, when events and circumstances warrant such a
review. We evaluate our satellite fleet for recoverability as
one asset group, see the applicable Notes to the Consolidated Financial
Statements in the applicable 10-K. The carrying value of a
long-lived asset or asset group is considered impaired when the
anticipated undiscounted cash flows from such asset or asset group is less
than its carrying value. In that event, a loss is recorded in
“Impairments of indefinite-lived and long-lived assets” on our
Consolidated Statements of Operations and Comprehensive Income (Loss)
based on the amount by which the carrying value exceeds the fair value of
the long-lived asset or asset group. Fair value is determined
primarily using the estimated cash flows associated with the asset or
asset group under review, discounted at a rate commensurate
with
|
9601
South Meridian Blvd., Englewood, CO 80112 Tel:
303.723.1000 Fax: 303.723.1299
Mr.
Larry Spirgel
United
States Securities and Exchange Commission
Page
15 of 26
the risk
involved. Losses on long-lived assets to be disposed of by sale are
determined in a similar manner, except that fair values are reduced for
estimated selling costs. Changes in estimates of future cash flows
could result in a write-down of the asset in a future period.
|
●
|
Valuation
of goodwill and intangible assets with indefinite lives. We
evaluate the carrying value of goodwill and intangible assets with
indefinite lives annually, and also when events and circumstances
warrant. We use estimates of fair value to determine the amount
of impairment, if any, of recorded goodwill and intangible assets with
indefinite lives. Fair value is determined primarily using the
estimated future cash flows, discounted at a rate commensurate with the
risk involved. While our impairment tests in 2008 indicated the
fair value of our intangible assets were significantly above their
carrying amounts, significant changes in our estimates of future cash
flows could result in a write-down of goodwill and intangible assets with
indefinite lives in a future period, which would be recorded in
“Impairments of goodwill, indefinite-lived and long-lived assets” on our
Consolidated Statements of Operations and Comprehensive Income (Loss) and
could be material to our consolidated results of operations and financial
position.
|
|
●
|
Income
taxes. Our income tax policy is to record the estimated
future tax effects of temporary differences between the tax bases of
assets and liabilities and amounts reported in the accompanying
consolidated balance sheets, as well as operating loss and tax credit
carryforwards. Determining necessary valuation allowances
requires us to make assessments about the timing of future events,
including the probability of expected future taxable income and available
tax planning opportunities. We periodically evaluate our need
for a valuation allowance based on both historical evidence, including
trends, and future expectations in each reporting period. Any
such valuation allowance is recorded in either “Income tax (provision)
benefit, net” on our Consolidated Statements of Operations and
Comprehensive Income (Loss) or “Accumulated other comprehensive income
(loss) within “Stockholders’ equity (deficit)” on our Consolidated Balance
Sheets. Future performance could have a significant effect on
the realization of tax benefits, or reversals of valuation allowances, as
reported in our consolidated results of
operations.
|
|
●
|
Uncertainty
in tax positions. Management
evaluates the recognition and measurement of uncertain tax positions based
on applicable tax law, regulations, case law, administrative rulings and
pronouncements and the facts and circumstances surrounding the tax
position. Changes in our estimates related to the recognition and
measurement of the amount
|
9601
South Meridian Blvd., Englewood, CO 80112 Tel:
303.723.1000 Fax: 303.723.1299
Mr.
Larry Spirgel
United
States Securities and Exchange Commission
Page 16
of 26
recorded
for uncertain tax positions could result in significant changes in our “Income
tax provision (benefit),” which could be material to our consolidated results of
operations.
|
●
|
Contingent
liabilities. A
significant amount of management judgment is required in determining when,
or if, an accrual should be recorded for a contingency and the amount of
such accrual. Estimates generally are developed in consultation
with outside counsel and are based on an analysis of potential
outcomes. Due to the uncertainty of determining the likelihood
of a future event occurring and the potential financial statement impact
of such an event, it is possible that upon further development or
resolution of a contingent matter, a charge could be recorded in a future
period to “General and administrative expenses” on our Consolidated
Statements of Operations and Comprehensive Income (Loss) that would be
material to our consolidated results of operations and financial
position.
|
|
14.
|
We
note that FCC authorizations accounted for more than 21% of total assets
as of December 31, 2008. Please tell us and disclose when you
performed your annual impairment test and concluded that these
authorizations were not impaired. Tell us whether you performed
subsequent interim impairment tests. If you did not, tell us
why, addressing the factors in paragraph 8 of SFAS 144. You
should discuss in your critical accounting estimates the factors you
considered in determining why no interim impairment testing under SFAS 142
was required.
|
In
light of the significance of the FCC authorizations balance, we expect robust
and comprehensive disclosure in your critical accounting estimates regarding
your impairment testing policy. This disclosure should provide
investors with sufficient information about management’s insights and
assumptions with regard to the recoverability of your FCC
authorizations. Specifically, we believe you should provide the
following information:
|
·
|
Provide
a more detailed description of the steps you perform to review your FCC
authorizations for recoverability.
|
|
·
|
Describe
the nature of the valuation techniques you employed in performing the
impairment tests. Qualitatively and quantitatively describe the
significant estimates and assumptions used in your valuation model to
determine the fair value of each unit of accounting in your impairment
analysis. For example, if you utilize the discounted cash flow
approach, you should disclose at a
minimum:
|
9601
South Meridian Blvd., Englewood, CO 80112 Tel:
303.723.1000 Fax: 303.723.1299
Mr.
Larry Spirgel
United
States Securities and Exchange Commission
Page 17
of 26
|
1)
|
the
discount rates for each unit of accounting and how those discount rates
were determined, including your consideration of any market risk
premium,
|
|
2)
|
how
cash flows were determined, including your assumed growth rates, period of
assumed cash flows and determination of terminal value,
and
|
|
3)
|
the
method you used for isolating the cash flows associated with the
intangible asset.
|
|
·
|
Describe
changes to the assumptions and methodologies, if any, since your annual
impairment test. In addition, tell us how the assumptions in
your most recent test were impacted by the current economic
environment.
|
|
·
|
Further,
disclose any changes to your units of accounting or allocations of FCC
authorizations by unit of accounting and the reasons for such
changes.
|
|
·
|
If
you determined that the fair value of any of your reporting units did not
exceed its carrying value by a significant amount in your most recent
impairment test, disclose both the carrying value and the fair value for
this unit of accounting. Explain to us how the determination of
significance was made. In addition, provide a sensitivity
analysis of your most recent impairment test assumptions based upon
reasonably likely changes.
|
|
·
|
For
units of accounting for which the fair value exceeded the carrying value
by a significant amount, provide a sensitivity analysis that discloses the
impairment amount that would have resulted from hypothetical reductions in
fair value at the time of your impairment
testing.
|
Please
provide us with your proposed disclosures. For further guidance,
refer to Release No. 33-8350 “Interpretation: Commission Guidance
Regarding Management’s Discussion and Analysis of Financial Condition and
Results of Operations.”
9601
South Meridian Blvd., Englewood, CO 80112 Tel:
303.723.1000 Fax: 303.723.1299
Mr.
Larry Spirgel
United
States Securities and Exchange Commission
Page 18
of 26
Response:
|
·
|
We
note that FCC authorizations accounted for more than 21% of total assets
as of December 31, 2008. Please tell us and disclose when you
performed your annual impairment test and concluded that these
authorizations were not impaired.
|
We
performed our annual impairment test for our FCC authorizations as of December
31, 2008. As disclosed in Note 8 of Notes to the Consolidated
Financial Statements in our 2008 10-K, during 2008, we made a deposit of $712
million to acquire certain 700 MHz wireless licenses. Because the 700
MHz licenses were not granted to us until February 2009, they were not included
in our impairment test. However, because these licenses were granted
to us prior to filing our 2008 10-K, we included them in the $1.4 billion of
“FCC authorizations” on our Consolidated Balance Sheets as of December 31,
2008. With respect to the remaining FCC authorizations (totaling $679
million), we concluded that they were not impaired. In applicable
future filings, we will disclose the date on which we perform our annual
impairment test.
|
·
|
Tell
us whether you performed subsequent interim impairment
tests. If you did not, tell us why, addressing the factors in
paragraph 8 of SFAS 144. You should discuss in your critical
accounting estimates the factors you considered in determining why no
interim impairment testing under SFAS 142 was
required.
|
When
indicators of impairments occur, we assess if any of the factors in paragraph 8
of SFAS 144 listed below are triggered, as these factors pertain to both our
amortizing assets and assets not subject to amortization. During
2008, we concluded that there were no events or changes in circumstances that
indicated that the carrying value of our FCC licenses were
impaired. Specifically, we concluded that there were no:
|
i.
|
significant
decreases in the market price of our FCC
licenses;
|
|
ii.
|
significant
adverse changes in the extent or manner in which our FCC licenses were
being used or in the physical condition of the
licenses;
|
|
iii.
|
significant
adverse changes in legal factors or in the business climate that could
affect the value of our FCC licenses, including an adverse action or
assessment by a regulator;
|
|
iv.
|
accumulation
of costs significantly in excess of the amount originally expected for the
acquisition of our FCC licenses or construction activities required by
such licenses;
|
|
v.
|
current-period
operating or cash flow loss combined with a history of operating or cash
flow losses or a projection or forecast that demonstrates continuing
losses associated with the use of our FCC licenses;
or
|
9601
South Meridian Blvd., Englewood, CO 80112 Tel:
303.723.1000 Fax: 303.723.1299
Mr.
Larry Spirgel
United
States Securities and Exchange Commission
Page 19
of 26
|
vi.
|
a
current expectation that, more likely than not, a long-lived asset (asset
group) will be sold or otherwise disposed of significantly before the end
of its previously estimated useful
life.
|
In
addition to the factors above, there were no other indicators that caused us to
believe that our assets were impaired.
|
|
In
light of the significance of the FCC authorizations balance, we expect
robust and comprehensive disclosure in your critical accounting estimates
regarding your impairment testing policy. This disclosure
should provide investors with sufficient information about management’s
insights and assumptions with regard to the recoverability of your FCC
authorizations. Specifically, we believe you should provide the
following information:
|
|
·
|
Provide
a more detailed description of the steps you perform to review your FCC
authorizations for recoverability.
|
|
·
|
Describe
the nature of the valuation techniques you employed in performing the
impairment tests. Qualitatively and quantitatively describe the
significant estimates and assumptions used in your valuation model to
determine the fair value of each unit of accounting in your impairment
analysis. For example, if you utilize the discounted cash flow
approach, you should disclose at a
minimum:
|
|
|
1)
|
the
discount rates for each unit of accounting and how those discount rates
were determined, including your consideration of any market risk
premium,
|
|
|
2)
|
how
cash flows were determined, including your assumed growth rates, period of
assumed cash flows and determination of terminal value,
and
|
|
|
3)
|
the
method you used for isolating the cash flows associated with the
intangible asset.
|
|
·
|
Describe
changes to the assumptions and methodologies, if any, since your annual
impairment test. In addition, tell us how the assumptions in
your most recent test were impacted by the current economic
environment.
|
|
·
|
Further,
disclose any changes to your units of accounting or allocations of FCC
authorizations by unit of accounting and the reasons for such
changes.
|
9601
South Meridian Blvd., Englewood, CO 80112 Tel:
303.723.1000 Fax: 303.723.1299
Mr.
Larry Spirgel
United
States Securities and Exchange Commission
Page
20 of 26
|
·
|
If
you determined that the fair value of any of your reporting units did not
exceed its carrying value by a significant amount in your most recent
impairment test, disclose both the carrying value and the fair value for
this unit of accounting. Explain to us how the determination of
significance was made. In addition, provide a sensitivity
analysis of your most recent impairment test assumptions based upon
reasonably likely changes.
|
|
·
|
For
units of accounting for which the fair value exceeded the carrying value
by a significant amount, provide a sensitivity analysis that discloses the
impairment amount that would have resulted from hypothetical reductions in
fair value at the time of your impairment
testing.
|
Please
provide us with your proposed disclosures. For further guidance,
refer to Release No. 33-8350 “Interpretation: Commission Guidance
Regarding Management’s Discussion and Analysis of Financial Condition and
Results of Operations.”
We
utilize FCC allocated DBS spectrum in order to provide service to our
subscribers. There are limited locations designated by the FCC that
have a “footprint” that cover the entire continental United
States. These licenses are referred to as full
CONUS. Licenses that are not full CONUS are referred to as
non-CONUS. We evaluate these licenses as a single unit of
accounting. Since this spectrum is an integral part of any
direct broadcast business, these licenses are extremely
valuable.
We
currently have authorizations for 50 of the 96 full CONUS FCC licenses and 32 of
the 160 non-CONUS licenses. As of December 31, 2008, the net carrying
value of our 50 full CONUS and 32 non-CONUS FCC licenses was $679
million. The remaining $712 million of FCC authorization on our
Consolidated Balance Sheets as of December 31, 2008 was related to a
deposit made to acquire certain 700 MHz wireless licenses. As
previously discussed, the 700 MHz licenses were not included in the impairment
test because they were not granted to us until February 2009. We
acquired 21 of our 50 full CONUS licenses in 1994 at a nominal cost, principally
because DBS television services were not yet a proven alternative, nor a viable
competitor, to traditional coaxial cable services. Over time, as DBS
television services became a proven alternative, and viable competitor, to
traditional coaxial cable services, the value of the DBS spectrum increased
substantially as evidenced by the $683 million price paid by MCI for 28 full
CONUS licenses at the last completed DBS auction during 1996. Since
1996, the DBS business has grown to become a strong competitor to cable service
providers. DBS providers currently serve almost 32% of the
subscription television service industry, compared to less than 5% in
1996. Our ability to remain a competitive DBS player results largely
from barriers to entry into the DBS market, principally due to the limited DBS
FCC licenses that exist and the substantial cost to acquire such licenses
if
9601
South Meridian Blvd., Englewood, CO 80112 Tel:
303.723.1000 Fax: 303.723.1299
Mr.
Larry Spirgel
United
States Securities and Exchange Commission
Page
21 of 26
they
become available for purchase. Accordingly, the fair value of
our FCC licenses has substantially increased since we acquired
them.
Critical
accounting estimates, by definition, are those that are highly uncertain and
subject to reasonably likely changes that would have a material
impact. While the estimates we used in our impairment test for our
FCC licenses were judgmental and uncertain, we concluded that a change in our
estimates and assumptions that could result in an impairment was not
reasonably likely at December 31, 2008, our assessment date, because of: (i) the
importance of our FCC licenses; (ii) their limited resource and availability;
and (iii) the significant cash flows we generate from our FCC
licenses. Given the substantial cash flows generated and expected to
be generated in the future, our 2008 annual impairment test resulted in a
substantial excess of fair value over carrying value. As of December 31,
2008, the carrying value of our amortizable long-lived assets and
non-amortizable intangible assets was $4.1 billion. Our cash flows
from operations during 2008 and 2007 were $2.2 billion and $2.6 billion,
respectively. Our free cash flows during 2008 and 2007 (which
included cash flows used for purchases of property and equipment) were
approximately $1.1 billion and $1.2 billion, respectively. Further, a
30% hypothetical decrease, for example, in the estimated fair value of these
licenses would not result in an impairment loss.
With
respect to disclosure of discount rates, including assumed growth rates, periods
of assumed cash flows and market risk premiums, based on the factors indicated
above, we do not believe this information would be useful or material to
investors because any reasonable change in assumption would not have an impact
on our conclusion that our FCC licenses are not impaired. Our
conclusion that no impairment is required, is consistent with how we
believe the marketplace values us. As of December 31, 2008, our
market capitalization was $5.0 billion (before consideration of a control
premium) and our equity value was negative $1.9 billion. While this
general data point is not definitive or conclusive of any one specific asset
value, it is an additional indicator that the marketplace believes our primary
assets (satellites, subscriber premises equipment and FCC licenses) have fair
values significantly in excess of their carrying amounts.
As
discussed in our Comment No. 13, we proposed additional disclosure in our
Critical Accounting Estimates for intangible assets with indefinite
lives. This proposed disclosure addresses the significant excess
of fair value over carrying value that we estimated in our 2008 impairment
test.
|
15.
|
We
note that you utilize various inputs to determine the fair value of
certain auction rate and mortgage backed securities (determined under
Level 2 and/or Level 3 of the fair value hierarchy). Please
provide us with a more detailed description of the models. Please
provide us with a more detailed description of the inputs (for example,
the discount rates used) and information used to develop those inputs for
your models. Tell us how your
approach
|
9601
South Meridian Blvd., Englewood, CO 80112 Tel:
303.723.1000 Fax: 303.723.1299
Mr.
Larry Spirgel
United
States Securities and Exchange Commission
Page
22 of 26
complies
with paragraph 30 and the related appendices of SFAS 157. Further,
please address the following:
|
·
|
Since
the securities are considered illiquid, tell us the amount of the
liquidity discount assigned to such securities, if any, and your basis for
that discount. If a liquidity discount was not assigned, tell
us why.
|
|
·
|
Describe
your assumptions about risk.
|
|
·
|
Regarding
your ability to hold the auction rate securities and mortgage backed
securities, your ability to hold them for an extended period of time
should not impact the fair value determination. However, your
disclosure is unclear as to whether this was one of the assumptions used
to determine the valuation. Please
advise.
|
Please
revise your disclosures in critical accounting policies to include a detailed
discussion of your accounting policy. Further, provide a sensitivity
analysis of your assumptions based upon reasonably likely
changes. For further guidance, refer to Release No. 33-8350
“Interpretation: Commission Guidance Regarding Management’s
Discussion and Analysis of Financial Condition and Results of
Operations.”
Response:
As of
March 31, 2009, a portion of our marketable investment securities are MBS and
ARS. Since these securities have been illiquid during the current
economic environment, we assigned different liquidity discount rates to them in
our assessment of their fair value.
MBS are
grouped according to their respective credit ratings and time to
maturity. For each group, comparable trades are considered on a
weekly basis after discussion with dealers in MBS. Based on these
discussions and the historical rate of principal paydown, we apply a liquidity
discount to quoted or estimated pricing, based on the credit rating and time to
maturity. The basis for this discount is the amount that we consider
to be a reasonable exit price in an orderly transaction for the
MBS.
The
pricing and liquidity discount applicable to ARS depends on the existence of a
liquid market for the underlying collateral or comparable
securities. If a liquid market exists for the underlying collateral
or comparable securities, we do not assign a liquidity discount to the
ARS. For ARS where a liquid market does not exist (there are no
observed trades for the underlying collateral or comparable securities), we
establish a comparable interest rate spread by comparing a comparable corporate
bond that is regularly traded to ARS’ current interest rate
spread. We then apply a liquidity discount. The basis for
the
9601
South Meridian Blvd., Englewood, CO 80112 Tel:
303.723.1000 Fax: 303.723.1299
Mr.
Larry Spirgel
United
States Securities and Exchange Commission
Page
23 of 26
discount
is the amount we consider to be a reasonable exit price in an orderly
transaction for the ARS.
Based on
our evaluations, we believe the risk of default on principal and/or interest on
these investments is not likely. We will revise the relevant
disclosure in future filings to reflect the foregoing.
We note
the Staff’s comments regarding our ability to hold the ARS and MBS for an
extended period of time. We advise the Staff that we did not use our
ability to hold ARS and MBS to maturity as one of the assumptions used in fair
value determination of these securities. Our reference to our ability
and intent to hold these securities for an extended period of time was meant to
highlight the fact that our investment in such securities was non-current and
that the impairment in accordance with the guidance of FASB No. 115-1
represented temporary market fluctuations absent any specific factors indicating
that the issuers of these underlying securities would be unable to pay interest
as they become due or repay the principal amounts at maturity. We
will revise the relevant disclosure in future filings to reflect the
foregoing.
Notes to Consolidated
Financial Statements
2. Summary of
Significant Accounting Policies
Principles of Consolidation
and Basis of Presentation, page F-10
|
16.
|
We
note the reclassification that was made for variable rate demand
notes. Please tell us why you have not restated your financial
statements to reflect this correction of an
error.
|
Response:
In the
third quarter 2008, we determined that our classification of variable rate
demand notes (“VRDNs”) did not technically meet the definition of a cash
equivalent, notwithstanding their liquidity and our history of frequently buying
and selling such investments, at par. In evaluating the impact of
that classification on our previously issued financial statements, we determined
that the reclassification principally impacted cash and cash equivalents,
marketable investment securities and cash flows from investing
activities.
We
considered the guidance in Staff Accounting Bulletin (“SAB”) 99. In
addition to each of the considerations suggested in SAB 99, we analyzed the
affect that the reclassification had on key DISH Network operational metrics
including GAAP metrics (such as net income, earnings per share, operating
income, net cash flow from operating
9601
South Meridian Blvd., Englewood, CO 80112 Tel:
303.723.1000 Fax: 303.723.1299
Mr.
Larry Spirgel
United
States Securities and Exchange Commission
Page
24 of 26
activities
and assets and liabilities (including current, non-current and total)) and
non-GAAP metrics (such as ARPU, churn rate, subscriber growth, SAC, EBITDA and
free cash flow). We also considered whether there was any impact to
our debt covenants and overall liquidity. The affect of the
reclassification regarding marketable investments and cash equivalents did not
impact any of such metrics or the total amount of current assets.
While the
reclassification does affect our cash flows from investing activities,
management determined it was unlikely that the judgment of a reasonable person
relying upon the financial statements would have been changed or influenced by
the reclassification. Therefore, management did not believe that a
restatement of our previously issued financial statements was necessary to
address such reclassification. Nevertheless, we disclosed that we had
reclassified our investments in VRDNs to marketable investment securities and
also provided disclosure regarding the amounts of VRDNs held at each balance
sheet date and the nature of such investments.
5. Marketable
Investment Securities, Restricted Cash and Other Investment
Securities
Marketable Investment
Securities
Current Marketable
Investment Securities - -VRDNs, page F-19
|
17.
|
Show
us how the securities can be liquidated on the same day or on a five
business day settlement basis in the current economic
environment. Provide us with more detail as to the names of the
borrowers.
|
Response:
VRDNs are
long-term floating rate municipal bonds with embedded put options that allow the
bondholder to sell the security at par plus accrued interest. All of the put
options are secured by a pledged liquidity source. While they are classified as
marketable investment securities, the put option allows for VRDNs to be
liquidated on a same day or on a five business day settlement
basis.
During
the last twelve months, we have purchased and sold numerous VRDNs and have not
experienced any illiquidity or settlements at amounts other than par plus
accrued interest. We note that we were buying and selling VRDNs at
par on a regular basis during the third and fourth quarter of 2008 when
liquidity in the financial markets was significantly constrained.
We
respectfully submit that the names of the borrowers, which typically are
government municipalities, are not relevant for an evaluation of the VRDNs given
the previous and continued liquidity in the VRDN market. Further, it
is not practical to provide the names
9601
South Meridian Blvd., Englewood, CO 80112 Tel:
303.723.1000 Fax: 303.723.1299
Mr.
Larry Spirgel
United
States Securities and Exchange Commission
Page
25 of 26
given
that our VRDN portfolio is constantly varying (we buy and sell VRDNs
frequently).
Noncurrent Marketable
Investment Securities – ARS and MBS, page F-19
|
18.
|
Given your current financial
condition, please show us how you have the ability to hold these until
maturity.
|
Response:
We
believe that we have the ability to hold ARS and MBS securities to maturity
based on three factors:
|
·
|
We
had a strong balance sheet with $264 million of cash and cash equivalents
and $905 million of current marketable investment securities as of March
31, 2009.
|
|
·
|
We
generated strong cash flows, represented by $313 million of net income
during the three months ended March 31, 2009, and expect to generate
significant cash flows that will support our capital expenditures and
further improve our balance sheet through the maturity of the ARS and
MBS. For the three months ended March 31, 2009, we
reported net cash flows from operating activities of
$901 million. Furthermore, for the year ended December 31,
2008, we reported net cash flows from operating activities of $2.2
billion.
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We
do not have any material debt payments over the next two
years.
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6. Inventories, page
F-23
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19.
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We note the $426,671 balance in
inventory at December 31, 2008. Tell us how many months you
have on hand and how this inventory relates to your plans to implement new
products and services in the near
future.
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Response:
Our
$426,671,000 balance in inventory at December 31, 2008 represented approximately
three months of inventory on hand. For the past three years, we have
typically had approximately one to three months of inventory on
hand. Therefore, our inventory balance at December 31, 2008 was
consistent with the historical levels of inventory that we have maintained for
the past three years.
The mix
of products within our inventory varies depending on the products and services
that we offer. For example, as we expand our HD offerings and HD
demand increases, we expect that a larger portion of our inventory will consist
of HD set-top boxes. However, we would still try to maintain one to
three months of total inventory even though we are carrying a larger amount of
HD set-top boxes.
9601
South Meridian Blvd., Englewood, CO 80112 Tel:
303.723.1000 Fax: 303.723.1299
Mr.
Larry Spirgel
United
States Securities and Exchange Commission
Page 26 of 26
In
accordance with your request, we acknowledge that:
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·
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We
are responsible for the adequacy and accuracy of the disclosure in our
filings;
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·
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Staff
comments or changes to disclosures in response to staff comments do not
foreclose the Commission from taking any action with respect to the
filings; and
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·
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We
may not assert staff comments as a defense in any proceeding initiated by
the Commission or any person under the federal securities laws of the
United States.
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We
appreciate your assistance in our compliance with applicable disclosure
requirements and enhancing the overall disclosures in our
filings. Should you have any questions or comments regarding our
responses, please call me at (303) 723-1285. I can also be reached by
fax at (720) 514-5957.
Sincerely,
/s/
Robert E. Olson
Executive
Vice President and Chief Financial Officer
cc: Kyle Moffatt,
SEC
Dean Suehiro,
SEC
9601
South Meridian Blvd., Englewood, CO 80112 Tel:
303.723.1000 Fax: 303.723.1299