Page 1 of 85
`
`10-Q 1 a14-19673_110q.htm 10-Q
`Table of Contents
`
`UNITED STATES
`SECURITIES AND EXCHANGE COMMISSION
`WASHINGTON, D.C. 20549
`FORM 10-Q
`
`(Mark One)
`
`(cid:95) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
`EXCHANGE ACT OF 1934
`
`FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2014.
`
`OR
`
`(cid:134) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
`EXCHANGE ACT OF 1934
`
`FOR THE TRANSITION PERIOD FROM TO .
`
`Commission File Number: 001-33807
`EchoStar Corporation
`(Exact Name of Registrant as Specified in Its Charter)
`
`Nevada
`(State or Other Jurisdiction of Incorporation or Organization)
`
`26-1232727
`(I.R.S. Employer Identification No.)
`
`100 Inverness Terrace East, Englewood, Colorado
`(Address of Principal Executive Offices)
`
`80112-5308
`(Zip Code)
`
`(303) 706-4000
`(Registrant’s Telephone Number, Including Area Code)
`
`Not Applicable
`(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
`
`Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
`Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to
`file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes (cid:95) No (cid:134)
`
`Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every
`Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter)
`during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes
`(cid:95) No (cid:134)
`
`Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a
`smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting
`company” in Rule 12b-2 of the Exchange Act. (Check one):
`
`Large accelerated filer (cid:95)
`
`Non-accelerated filer (cid:134)
`
`Accelerated filer (cid:134)
`
`Smaller reporting company (cid:134)
`
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`CALTECH - EXHIBIT 2010
`
`

`

`(Do not check if a smaller reporting company)
`
`Page 2 of 85
`
`Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes (cid:134) No
`
`(cid:95) A
`
`s of October 29, 2014, the Registrant’s outstanding common stock consisted of 43,760,541 shares of Class A common stock
`and 47,687,039 shares of Class B common stock.
`
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`Page 3 of 85
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`Table of Contents
`
`TABLE OF CONTENTS
`
`Disclosure Regarding Forward-Looking Statements
`
`PART I - FINANCIAL INFORMATION
`
`Item 1.
`
`Financial Statements
`
`Condensed Consolidated Balance Sheets as of September 30, 2014 (Unaudited) and December 31, 2013
`
`Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the Three and Nine
`Months Ended September 30, 2014 and 2013 (Unaudited)
`
`Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Nine Months Ended
`September 30, 2014 and 2013 (Unaudited)
`
`Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2014 and 2013
`(Unaudited)
`
`Notes to Condensed Consolidated Financial Statements (Unaudited)
`
`Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
`
`Item 3.
`
`Quantitative and Qualitative Disclosures about Market Risk
`
`Item 4.
`
`Controls and Procedures
`
`PART II - OTHER INFORMATION
`
`Item 1.
`
`Legal Proceedings
`
`Item 1A. Risk Factors
`
`Item 2.
`
`Unregistered Sales of Equity Securities and Use of Proceeds
`
`Item 3.
`
`Defaults upon Securities
`
`Item 4. Mine Safety Disclosures
`
`Item 5.
`
`Other Information
`
`Item 6.
`
`Exhibits
`
`Signatures
`
`i
`
`2
`
`3
`
`4
`
`5
`
`6
`
`42
`
`66
`
`68
`
`69
`
`69
`
`70
`
`70
`
`70
`
`70
`
`70
`
`71
`
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`Page 4 of 85
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`Table of Contents
`
`DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
`
`This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the Private Securities
`Litigation Reform Act of 1995, including, in particular, statements about our estimates, expectations, plans, objectives,
`strategies, results of operations and financial condition, expected impact of regulatory developments and legal proceedings,
`opportunities in our industries and businesses and other trends and projections for the next fiscal quarter and beyond. All
`statements, other than statements of historical facts, may be forward-looking statements. Forward-looking statements may
`also be identified by words such as “anticipate,” “intend,” “plan,” “goal,” “seek,” “believe,” “estimate,” “expect,” “predict,”
`“continue,” “future,” “will,” “would,” “could,” “can,” “may” and similar terms. These forward-looking statements are based
`on information available to us as of the date of this Quarterly Report on Form 10-Q and represent management’s current views
`and assumptions. Forward-looking statements are not guarantees of future performance, events or results and involve potential
`known and unknown risks, uncertainties and other factors, many of which may be beyond our control and may pose a risk to
`our operating and financial condition. Accordingly, actual performance, events or results could differ materially from those
`expressed or implied in the forward-looking statements due to a number of factors including, but not limited to:
`
`(cid:120)
`
`(cid:120)
`
`(cid:120)
`
`(cid:120)
`
`(cid:120)
`
`(cid:120)
`
`(cid:120)
`
`(cid:120)
`
`our reliance on our primary customer, DISH Network Corporation (“DISH Network”), for a significant portion of our
`revenue;
`
`the impact of variable demand and the adverse pricing environment for digital set-top boxes;
`
`dependence on our ability to successfully manufacture and sell our digital set-top boxes in increasing volumes on a
`cost-effective basis and with acceptable quality;
`
`our ability to bring advanced technologies to market to keep pace with our competitors;
`
`significant risks related to the construction, launch and operation of our satellites, such as the risk of material
`malfunction on one or more of our satellites, changes in the space weather environment that could interfere with the
`operation of our satellites, and our general lack of commercial insurance coverage on our satellites;
`
`uncertainty in global economic conditions, which may, among other things, cause consumers and enterprise
`customers to defer purchases;
`
`the failure to adequately anticipate the need for satellite capacity or the inability to obtain satellite capacity for our
`Hughes segment; and
`
`the failure of third-party providers of components, manufacturing, installation services and customer support services
`to appropriately deliver the contracted goods or services.
`
`Other factors that could cause or contribute to such differences include, but are not limited to, those discussed under the
`caption “Risk Factors” in Part II, Item 1A of this Quarterly Report on Form 10-Q and in Part I, Item 1A of our most recent
`Annual Report on Form 10-K (“10-K”) filed with the Securities and Exchange Commission (“SEC”), those discussed in
`“Management’s Discussion and Analysis of Financial Condition and Results of Operations” herein and in the 10-K and those
`discussed in other documents we file with the SEC.
`
`All cautionary statements made herein should be read as being applicable to all forward-looking statements wherever they
`appear. Investors should consider the risks and uncertainties described herein and should not place undue reliance on any
`forward-looking statements. We do not undertake, and specifically disclaim, any obligation to publicly release the results of
`any revisions that may be made to any forward-looking statements to reflect the occurrence of anticipated or unanticipated
`events or circumstances after the date of such statements, except as required by federal securities laws.
`
`i
`
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`Table of Contents
`
`PART I — FINANCIAL INFORMATION
`Item 1. FINANCIAL STATEMENTS
`
`ECHOSTAR CORPORATION
`CONDENSED CONSOLIDATED BALANCE SHEETS
`(In thousands, except share amounts)
`(Unaudited)
`
`Assets
`
`Current Assets:
`Cash and cash equivalents
`Marketable investment securities
`Trade accounts receivable, net of allowance for doubtful accounts of $14,649 and $13,237,
`respectively
`Trade accounts receivable - DISH Network, net of allowance for doubtful accounts of zero
`Inventory
`Prepaid expenses
`Deferred tax assets
`Other current assets
`Total current assets
`Noncurrent Assets:
`Restricted cash and marketable investment securities
`Property and equipment, net of accumulated depreciation of $2,804,862 and $2,499,889,
`respectively
`Regulatory authorizations, net
`Goodwill
`Other intangible assets, net
`Other investments
`Other receivable - DISH Network
`Other noncurrent assets, net
`Total noncurrent assets
`Total assets
`
`Liabilities and Stockholders’ Equity
`
`Current Liabilities:
`Trade accounts payable
`Trade accounts payable - DISH Network
`Current portion of long-term debt and capital lease obligations
`Deferred revenue and prepayments
`Accrued compensation
`Accrued royalties
`Accrued interest
`Accrued expenses and other
`Total current liabilities
`Noncurrent Liabilities:
`Long-term debt and capital lease obligations, net of current portion
`Deferred tax liabilities
`Other noncurrent liabilities
`Total noncurrent liabilities
`Total liabilities
`Commitments and Contingencies (Note 14)
`Stockholders’ Equity:
`Preferred Stock, $.001 par value, 20,000,000 shares authorized:
`Hughes Retail Preferred Tracking Stock, $.001 par value, 13,000,000 shares authorized,
`6,290,499 issued and outstanding and zero shares issued and outstanding at September 30,
`2014 and December 31, 2013, respectively
`Common Stock, $.001 par value, 4,000,000,000 shares authorized:
`Class A common stock, $.001 par value, 1,600,000,000 shares authorized, 49,286,776 shares
`issued and 43,754,458 shares outstanding at September 30, 2014 and 48,370,956 shares
`issued and 42,838,638 shares outstanding at December 31, 2013
`
`Page 5 of 85
`
`As of
`September 30, December 31,
`2014
`2013
`
`$
`
`760,391 $
`1,019,247
`
`634,119
`986,533
`
`183,468
`303,391
`68,582
`56,898
`70,150
`9,838
`2,471,965
`
`159,292
`355,135
`66,084
`55,400
`69,633
`29,930
`2,356,126
`
`19,095
`
`16,137
`
`2,546,377
`3,080,911
`583,900
`573,337
`504,173
`510,630
`262,039
`214,042
`169,771
`167,518
`89,811
`90,632
`173,629
`184,551
`4,345,837
`4,840,716
`$ 7,312,681 $ 6,701,963
`
`$
`
`231,832 $
`45,717
`44,539
`73,431
`32,764
`23,361
`43,783
`121,293
`616,720
`
`2,332,730
`658,184
`106,634
`3,097,548
`3,714,268
`
`201,416
`55,743
`69,791
`57,592
`30,940
`24,010
`7,838
`111,115
`558,445
`
`2,352,597
`488,206
`76,484
`2,917,287
`3,475,732
`
`6
`
`49
`
`—
`
`48
`
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`Page 6 of 85
`
`48
`
`—
`
`Class B common stock, $.001 par value, 800,000,000 shares authorized, 47,687,039 shares
`issued and outstanding at each of September 30, 2014 and December 31, 2013
`Class C common stock, $.001 par value, 800,000,000 shares authorized, none issued and
`outstanding at each of September 30, 2014 and December 31, 2013
`Class D common stock, $.001 par value, 800,000,000 shares authorized, none issued and
`outstanding at each of September 30, 2014 and December 31, 2013
`Additional paid-in capital
`Accumulated other comprehensive loss
`Accumulated deficit
`Treasury stock, at cost
`Total EchoStar stockholders’ equity
`Noncontrolling interest in HSS Tracking Stock
`Other noncontrolling interests
`Total stockholders’ equity
`Total liabilities and stockholders’ equity
`The accompanying notes are an integral part of these condensed consolidated financial statements.
`2
`
`48
`
`—
`
`—
`—
`3,502,005
`3,707,487
`(14,655)
`(35,258)
`(171,914)
`(68,887)
`(98,162)
`(98,162)
`3,217,370
`3,505,283
`—
`83,122
`8,861
`10,008
`3,226,231
`3,598,413
`$ 7,312,681 $ 6,701,963
`
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`Page 7 of 85
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`Table of Contents
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`ECHOSTAR CORPORATION
`CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
`AND COMPREHENSIVE INCOME (LOSS)
`(In thousands, except per share amounts)
`(Unaudited)
`
`Revenue:
`Equipment revenue - DISH Network
`Equipment revenue - other
`Services and other revenue - DISH Network
`Services and other revenue - other
`Total revenue
`Costs and Expenses:
`Cost of sales - equipment (exclusive of depreciation and
`amortization)
`Cost of sales - services and other (exclusive of depreciation
`and amortization)
`Selling, general and administrative expenses
`Research and development expenses
`Depreciation and amortization
`Impairment of long-lived asset
`Total costs and expenses
`Operating income
`
`Other Income (Expense):
`Interest income
`Interest expense, net of amounts capitalized
`Realized gains (losses) on marketable investment securities
`and other investments (includes reclassification of
`realized (gains) losses on available-for-sale (“AFS”)
`securities out of accumulated other comprehensive loss
`of $27, ($1,754), ($7) and ($36,252), respectively), net
`Equity in earnings (losses) of unconsolidated affiliates, net
`Other, net
`Total other expense, net
`Income (loss) before income taxes
`Income tax benefit (provision), net
`Net income (loss)
`Less: Net loss attributable to noncontrolling interest in HSS
`Tracking Stock
`Less: Net income attributable to other noncontrolling interests
`Net income (loss) attributable to EchoStar
`Less: Net loss attributable to Hughes Retail Preferred
`Tracking Stock (Note 2)
`Net income (loss) attributable to EchoStar common stock
`
`Weighted-average common shares outstanding - Class A
`and B common stock:
`Basic
`Diluted
`
`Earnings per share - Class A and B common stock:
`Basic
`Diluted
`
`Comprehensive Income (Loss)
`Net income (loss)
`
`$
`
`$
`
`$
`$
`
`$
`
`For the Three Months
`Ended September 30,
`2014
`2013
`
`For the Nine Months
`Ended September 30,
`2014
`2013
`
`$
`
`299,050
`101,927
`215,935
`278,928
`895,840
`
`340,159
`
`212,298
`93,127
`15,685
`142,294
`—
`803,563
`92,277
`
`360,744
`77,084
`163,067
`248,013
`848,908
`
`378,665
`
`203,268
`84,299
`17,030
`124,742
`—
`808,004
`40,904
`
`$
`
`907,466
`265,890
`609,552
`818,783
`2,601,691
`
`$ 1,003,612
`270,049
`457,055
`743,649
`2,474,365
`
`998,205
`
`1,097,557
`
`626,660
`271,251
`44,841
`416,167
`—
`2,357,124
`244,567
`
`571,892
`268,861
`50,878
`379,585
`34,664
`2,403,437
`70,928
`
`2,270
`(41,688)
`
`2,982
`(47,713)
`
`7,015
`(132,419)
`
`6,941
`(145,485)
`
`(27)
`13,198
`(1,485)
`(27,732)
`64,545
`(6,108)
`58,437
`
`(2,106)
`375
`60,168
`
`(3,887)
`64,055
`
`$
`
`91,358
`92,971
`
`0.70
`0.69
`
`58,437
`
`$
`$
`
`$
`
`1,754
`726
`295
`(41,956)
`(1,052)
`5,689
`4,637
`
`—
`317
`4,320
`
`—
`4,320
`
`89,868
`91,266
`
`0.05
`0.05
`
`4,637
`
`7
`10,137
`(1,050)
`(116,310)
`128,257
`(28,176)
`100,081
`
`(4,049)
`1,103
`103,027
`
`(7,474)
`110,501
`
`$
`
`91,050
`92,723
`
`1.21
`1.19
`
`100,081
`
`$
`$
`
`$
`
`$
`
`$
`$
`
`$
`
`39,184
`(5,656)
`5,423
`(99,593)
`(28,665)
`27,217
`(1,448)
`
`—
`533
`(1,981)
`
`—
`(1,981)
`
`89,081
`89,081
`
`(0.02)
`(0.02)
`
`(1,448)
`
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`Page 8 of 85
`
`Other comprehensive income (loss), net of tax:
`Foreign currency translation adjustments
`Unrealized gains (losses) on AFS securities and other
`Recognition of previously unrealized (gains) losses on AFS
`securities in net income (loss).
`Total other comprehensive loss, net of tax
`Comprehensive income (loss)
`Less: Comprehensive loss attributable to noncontrolling
`interest in HSS Tracking Stock
`Less: Comprehensive income (loss) attributable to other
`noncontrolling interests
`Comprehensive income (loss) attributable to EchoStar
`
`(18,783)
`(6,981)
`
`27
`(25,737)
`32,700
`
`(2,106)
`
`(1,232)
`(848)
`
`(1,754)
`(3,834)
`803
`
`—
`
`(11,068)
`(9,484)
`
`(7)
`(20,559)
`79,522
`
`(4,049)
`
`(12,541)
`13,816
`
`(36,252)
`(34,977)
`(36,425)
`
`—
`
`171
`34,635
`
`$
`
`$
`
`(36)
`839
`
`$
`
`1,147
`82,424
`
`$
`
`(444)
`(35,981)
`
`The accompanying notes are an integral part of these condensed consolidated financial statements.
`
`3
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`Page 9 of 85
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`Table of Contents
`
`ECHOSTAR CORPORATION
`CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
`(In thousands)
`(Unaudited)
`
`Hughes Retail Class
`Preferred
`A and B Additional
`Tracking Common
`Paid-In
`Stock
`Stock
`Capital
`
`Noncontrolling
`Accumulated
`Other
`Interest in
`Other
`Comprehensive Accumulated Treasury HSS Tracking Noncontrolling
`Income (Loss)
`Deficit
`Stock
`Stock
`Interests
`
`Total
`
`$
`
`— $
`
`93 $3,394,646 $
`
`18,752 $ (174,439)$(98,162)$
`
`— $
`
`9,337 $3,150,227
`
`—
`
`—
`
`—
`
`—
`—
`
`—
`
`3
`
`—
`
`—
`
`52,512
`
`4,761
`
`6,860
`
`— 13,988
`—
`332
`
`—
`
`—
`
`—
`
`—
`
`—
`
`—
`—
`
`—
`
`—
`
`—
`
`—
`
`—
`—
`
`(1,981)
`
`(22,436)
`
`—
`
`—
`
`—
`
`—
`
`—
`—
`
`—
`
`—
`
`—
`
`—
`
`—
`
`—
`—
`
`—
`
`—
`
`—
`
`—
`
`—
`
`—
`(467)
`
`533
`
`52,515
`
`4,761
`
`6,860
`
`13,988
`(135)
`
`(1,448)
`
`— (22,436)
`
`Balance,
`December 31,
`2012
`Issuances of
`Class A
`common
`stock:
`Exercise of
`stock
`options
`Employee
`benefits
`Employee
`Stock
`Purchase
`Plan
`Stock-based
`compensation
`Other, net
`Net income
`(loss)
`Unrealized losses
`on AFS
`securities, net
`and other
`Foreign currency
`translation
`adjustment
`Balance,
`September 30,
`$
`2013
`
`—
`
`—
`
`—
`
`—
`
`—
`
`—
`
`(11,564)
`
`—
`
`—
`
`—
`
`(977)
`
`(12,541)
`
`— $
`
`96 $3,473,099 $
`
`(15,248)$ (176,420)$(98,162)$
`
`— $
`
`8,426 $3,191,791
`
`Balance,
`December 31,
`2013
`Issuances of
`Class A
`common
`stock:
`Exercise of
`stock
`options
`Employee
`benefits
`Employee
`Stock
`Purchase
`Plan
`Stock-based
`compensation
`Issuance of
`Hughes Retail
`
`$
`
`— $
`
`96 $3,502,005 $
`
`(14,655)$ (171,914)$(98,162)$
`
`— $
`
`8,861 $3,226,231
`
`—
`
`—
`
`—
`
`—
`
`1 $
`
`11,665
`
`— 10,310
`
`—
`
`9,012
`
`— 10,648
`
`—
`
`—
`
`—
`
`—
`
`—
`
`—
`
`—
`
`—
`
`—
`
`—
`
`—
`
`—
`
`—
`
`—
`
`—
`
`—
`
`—
`
`—
`
`—
`
`—
`
`11,666
`
`10,310
`
`9,012
`
`10,648
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`Preferred
`Tracking
`Stock (Note
`2)
`DISH Digital
`exchange
`(Note 6)
`Other, net
`Net income
`(loss)
`Unrealized losses
`on AFS
`securities, net
`and other
`Foreign currency
`translation
`adjustment
`Balance,
`September 30,
`$
`2014
`
`6
`
`—
`—
`
`—
`
`—
`
`—
`
`— 163,510
`
`—
`—
`
`—
`
`—
`
`—
`
`8,843
`(8,506)
`
`—
`
`—
`
`—
`
`—
`
`—
`—
`
`—
`
`—
`—
`
`— 103,027
`
`(9,491)
`
`(11,112)
`
`—
`
`—
`
`—
`
`—
`—
`
`—
`
`—
`
`—
`
`87,171
`
`— 250,687
`
`—
`—
`
`—
`—
`
`8,843
`(8,506)
`
`(4,049)
`
`1,103
`
`100,081
`
`—
`
`—
`
`—
`
`44
`
`(9,491)
`
`(11,068)
`
`6 $
`
`97 $3,707,487 $
`
`(35,258)$ (68,887)$(98,162)$
`
`83,122 $
`
`10,008 $3,598,413
`
`The accompanying notes are an integral part of these condensed consolidated financial statements.
`
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`ECHOSTAR CORPORATION
`CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
`(In thousands)
`(Unaudited)
`
`Cash Flows from Operating Activities:
`Net income (loss)
`Adjustments to reconcile net income (loss) to net cash flows from operating activities:
`Depreciation and amortization
`Equity in (earnings) losses of unconsolidated affiliates, net
`Realized gains on marketable investment securities and other investments, net
`Impairment of long-lived asset
`Stock-based compensation
`Deferred tax provision (benefit)
`Changes in current assets and current liabilities, net
`Changes in noncurrent assets and noncurrent liabilities, net
`Other, net
`Net cash flows from operating activities
`Cash Flows from Investing Activities:
`Purchases of marketable investment securities
`Sales and maturities of marketable investment securities
`Purchases of property and equipment
`Changes in restricted cash and marketable investment securities
`Capital contribution to DISH Digital
`Transfer of regulatory authorization to DISH Network
`Purchase of strategic investments
`Other, net
`Net cash flows from investing activities
`Cash Flows from Financing Activities:
`Net proceeds from Class A common stock options exercised and stock issued under the
`Employee Stock Purchase Plan
`Repayment of long-term debt and capital lease obligations
`Net proceeds from issuance of Tracking Stock (Note 2)
`Other
`Net cash flows from financing activities
`Effect of exchange rates on cash and cash equivalents
`Net increase in cash and cash equivalents
`Cash and cash equivalents, beginning of period
`Cash and cash equivalents, end of period
`
`Supplemental Disclosure of Cash Flow Information:
`Cash paid for interest (including capitalized interest)
`Capitalized interest
`Cash paid for income taxes
`Employee benefits paid in Class A common stock
`Satellites and other assets financed under capital lease obligations
`Capitalized in-orbit incentive obligations
`Reduction of capital lease obligation for AMC-16
`Increase (decrease) in capital expenditures included in accounts payable, net
`Net assets transferred from DISH Network in exchange for Tracking Stock (Note 2)
`Assets received from DISH Digital (Note 6)
`
`For the Nine Months
`Ended September 30,
`2014
`2013
`
`$
`
`100,081
`
`$
`
`(1,448)
`
`416,167
`(10,137)
`(7)
`—
`10,648
`18,773
`110,671
`(10,170)
`26,408
`662,434
`
`(920,672)
`891,917
`(434,428)
`(2,958)
`(18,569)
`—
`(29)
`(15,391)
`(500,130)
`
`20,678
`(52,763)
`7,526
`(9,752)
`(34,311)
`(1,721)
`126,272
`634,119
`760,391
`
`$
`
`$
`106,268
`$
`14,670
`$
`11,610
`10,310
`$
`$
`2,947
`— $
`— $
`3,805
`$
`398,095
`$
`34,075
`$
`
`379,585
`5,656
`(39,184)
`34,664
`13,988
`(32,823)
`19,972
`(11,866)
`22,800
`391,344
`
`(745,822)
`680,789
`(264,843)
`14,094
`—
`23,148
`(7,357)
`(9,245)
`(309,236)
`
`59,375
`(56,413)
`—
`1,339
`4,301
`3,333
`89,742
`731,614
`821,356
`
`110,456
`1,727
`9,747
`4,761
`5,219
`18,000
`6,694
`(7,214)
`—
`—
`
`$
`
`$
`$
`$
`$
`$
`$
`$
`$
`$
`$
`
`The accompanying notes are an integral part of these condensed consolidated financial statements.
`
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`ECHOSTAR CORPORATION
`NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
`(Unaudited)
`
`Note 1.
`
`Organization and Business Activities
`
`Principal Business
`
`EchoStar Corporation (together with its subsidiaries is referred to as “EchoStar,” the “Company,” “we,” “us” and/or “our”) is a
`holding company that was organized in October 2007 as a corporation under the laws of the State of Nevada. We are a global
`provider of satellite operations, video delivery solutions, digital set-top boxes, and broadband satellite technologies and
`services for home and office, delivering innovative network technologies, managed services, and solutions for enterprises and
`governments. Our Class A common stock is publicly traded on the Nasdaq Global Select Market under the symbol “SATS.”
`
`We currently operate in three business segments.
`
`(cid:120)
`
`EchoStar Technologies (“ETC”) — which designs, develops and distributes digital set-top boxes and related
`products and technology, primarily for satellite TV service providers, telecommunication companies and international
`cable companies. Our EchoStar Technologies segment also provides digital broadcast operations, including satellite
`uplinking/downlinking, transmission services, signal processing, conditional access management, and other services,
`primarily to DISH Network Corporation and its subsidiaries (“DISH Network”). In addition, we provide our
`Slingboxes directly to consumers via retail outlets and online.
`
`(cid:120) Hughes — which provides satellite broadband internet access to North American consumers and broadband network
`services and equipment to domestic and international enterprise markets. The Hughes segment also provides
`managed services to large enterprises and solutions to customers for mobile satellite systems.
`
`(cid:120)
`
`EchoStar Satellite Services (“ESS”) — which uses certain of our owned and leased in-orbit satellites and related
`licenses to provide satellite services on a full-time and occasional-use basis primarily to DISH Network and also to
`Dish Mexico, S. de R.L. de C.V. (“Dish Mexico”), a joint venture that we entered into in 2008, as well as to United
`States (“U.S.”) government service providers, state agencies, internet service providers, broadcast news
`organizations, programmers, and private enterprise customers.
`
`In 2008, DISH Network completed its distribution to us of its digital set-top box business and certain infrastructure and other
`assets, including certain of their satellites, uplink and satellite transmission assets, real estate, and other assets and related
`liabilities (the “Spin-off”). Since the Spin-off, EchoStar and DISH Network have operated as separate publicly-traded
`companies. However, as a result of the Satellite and Tracking Stock Transaction, described in Note 2 below, DISH Network
`owns shares of our preferred tracking stock representing an aggregate 80.0% economic interest in the residential retail satellite
`broadband business of our Hughes segment. In addition, a substantial majority of the voting power of the shares of DISH
`Network and EchoStar is owned beneficially by Charles W. Ergen, our Chairman, and by certain trusts established by
`Mr. Ergen for the benefit of his family.
`
`Note 2.
`
`Hughes Retail Preferred Tracking Stock
`
`Satellite and Tracking Stock Transaction
`
`On February 20, 2014, EchoStar entered into agreements with certain subsidiaries of DISH Network pursuant to which,
`effective March 1, 2014, (i) EchoStar issued shares of its newly authorized Hughes Retail Preferred Tracking Stock (the
`“EchoStar Tracking Stock”) and Hughes Satellite Systems Corporation (“HSS”), a subsidiary of EchoStar, also issued shares
`of its newly authorized Hughes Retail Preferred Tracking Stock (the “HSS Tracking Stock” and together with the EchoStar
`Tracking Stock, the “Tracking Stock”) to DISH Network in exchange for five satellites (EchoStar I, EchoStar VII, EchoStar X,
`EchoStar XI, and EchoStar XIV) (including the assumption of related in-orbit incentive obligations) and $11.4 million in cash
`and (ii) DISH Network began receiving certain satellite services on these five satellites from us (the “Satellite and Tracking
`Stock Transaction”). The Tracking
`
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`Stock tracks the residential retail satellite broadband business of our Hughes segment, including certain operations, assets and
`liabilities attributed to such business (collectively, the “Hughes Retail Group” or “HRG”).
`
`EchoStar and HSS have adopted policy statements (the “Policy Statements”) setting forth management and allocation policies
`for purposes of attributing all of the business and operations of EchoStar to either the Hughes Retail Group or the “EchoStar
`Group,” which is defined as all other operations of EchoStar, including all existing and future businesses, other than the
`Hughes Retail Group. Among other things, the Policy Statements govern how assets, liabilities, revenue and expenses are
`attributed or allocated between HRG and the EchoStar Group. Such attributions and allocations generally do not affect the
`amounts reported in our consolidated financial statements, except for the attribution of stockholders’ equity and net income or
`loss between the holders of Tracking Stock and common stock. The Policy Statements also do not significantly affect the way
`that management assesses operating performance and allocates resources within our Hughes segment.
`
`See Note 9 for information about the five satellites received from DISH Network, Note 14 for information about the assumed
`in-orbit incentive obligations, and Note 16 for information regarding the related satellite services agreements with DISH
`Network. We provide unaudited attributed financial information for HRG and the EchoStar Group in an exhibit to our
`periodic reports on Form 10-Q and Form 10-K. Set forth below is information about certain terms of the Tracking Stock and
`the initial recording of the Satellite and Tracking Stock Transaction in our consolidated financial statements.
`
`Description of the Tracking Stock
`
`Tracking stock is a type of capital stock that the issuing company intends to reflect or “track” the economic performance of a
`particular business component within the company, rather than reflect the economic performance of the company as a whole.
`The Tracking Stock is intended to track the economic performance of the Hughes Retail Group. The shares of the Tracking
`Stock issued to DISH Network represent an aggregate 80.0% economic interest in the Hughes Retail Group (51.89% issued as
`EchoStar Tracking Stock and 28.11% issued as HSS Tracking Stock). In addition to the remaining 20.0% economic interest in
`the Hughes Retail Group, EchoStar retains all economic interest in the wholesale satellite broadband business and other
`businesses of EchoStar. The Hughes Retail Group is not a separate legal entity and therefore cannot own assets, issue
`securities or enter into legally binding agreements. Holders of the Tracking Stock have no direct claim to the assets of the
`Hughes Retail Group; rather, holders of the Tracking Stock are stockholders of its respective issuer (EchoStar or HSS) and are
`subject to all risks and liabilities of the issuer. Holders of shares of the Tracking Stock vote with holders of the outstanding
`shares of common stock of its respective issuer, as a single class, with respect to any and all matters presented to stockholders
`for their action or consideration. Each share of the Tracking Stock is entitled to one-tenth (1/10th) of one vote. The EchoStar
`Tracking Stock is a series of preferred stock consisting of 13,000,000 authorized shares with a par value of $0.001 per share,
`of which 6,290,499 shares were issued to DISH Network on March 1, 2014. The HSS Tracking Stock is a series of HSS
`preferred stock consisting of 300 authorized shares with a par value of $0.001 per share, of which 81.128 shares were issued to
`DISH Network on March 1, 2014. Following the issuance of the shares of the EchoStar Tracking Stock and the HSS Tracking
`Stock, DISH Network held 6.5% and 7.5% of the aggregate number of outstanding shares of EchoStar and HSS capital stock,
`respectively.
`
`Investor Rights Agreement
`
`In connection with the Satellite and Tracking Stock Transaction, EchoStar, HSS and DISH Network entered into an agreement
`(the “Investor Rights Agreement”) setting forth certain rights and obligations of the parties with respect to the Tracking Stock.
`Among other provisions, the Investor Rights Agreement provides: (i) certain information and consultation rights for DISH
`Network; (ii) certain transfer restrictions on the Tracking Stock and certain rights and obligations to offer and sell under
`certain circumstances (including a prohibition on transfer of the Tracking Stock until March 1, 2015), with continuing transfer
`restrictions (including a right of first offer in favor of EchoStar) thereafter, an obligation to sell the Tracking Stock to us in
`connection with a change of control of DISH Network and a right to require us to repurchase the Tracking Stock in connection
`with a change of control of EchoStar, in each case subject to certain terms and conditions; and (iii) certain protective covenants
`afforded to holders of the Tracking Stock.
`
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`In addition, the Investor Rights Agreement provides that DISH Network may, on or after September 1, 2016, require EchoStar
`to use its commercially reasonable efforts to register some or all of the outstanding shares of the Tracking Stock under the
`Securities Act of 1933, subject to certain terms and conditions (including our right, upon the receipt of a demand for
`registration, to offer to repurchase all of the Tracking Stock). In connection with any demand for registration, DISH Network
`may require any outstanding shares of the HSS Tracking Stock to be exchanged for shares of the EchoStar Tracking Stock
`with an equivalent economic interest in the Hughes Retail Group. In the event that a registration of shares of Tracking Stock is
`effected, EchoStar is required to use its reasonable best efforts to amend the terms of the Tracking Stock so that the Tracking
`Stock will be convertible or exchangeable for shares of EchoStar Class A Common Stock with equivalent market value.
`
`Initial Recording of the Satellite and Tracking Stock Transaction
`
`EchoStar and DISH Network are entities under common control. In accordance with