Smart-Card Fund Might Delay EchoStar

Satellite TV company over-accrued reserves for replacement of security cards, says SEC.
Stephen TaubMarch 12, 2004

The Securities and Exchange Commission might require EchoStar to restate some previous financial results, according to the company. As a result, the satellite television company may seek a 15-day extension for filing its annual report for 2003.

The SEC let EchoStar know that it over-accrued $17 million and $9 million for the replacement of smart cards during 2001 and 2002, respectively, according to a company filing. The cards, which prevent nonpaying customers from receiving programming delivered by EchoStar, become obsolete as a result of piracy.

From 1996 through 2002, EchoStar gradually set up a reserve to accrue for the estimated cost to replace the cards, which are included in satellite receivers that EchoStar sells and leases to consumers, according to the company.

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The SEC concluded that EchoStar’s accrual to replace the smart cards in satellite receivers sold to and owned by consumers was appropriate. The commission found, however, that the company shouldn’t have accrued a liability for smart cards in satellite receivers owned by EchoStar and leased to consumers, the company noted.

EchoStar said the reversal of the $17 million reserve established in 2001 would require the company to restate its results for 2001.

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