Edgar Filing: EchoStar CORP

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2018.

o 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		26-1232727
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

100 Inverness Terrace East, Englewood, Colorado		80112-5308
(Address of principal executive offices)		(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 ý No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ý No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):



Large accelerated filer ý	Accelerated filer o
Non-accelerated filer o	Smaller reporting company o
	Emerging growth company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No ý

As of July 31, 2018, the registrant’s outstanding common stock consisted of 48,476,391 shares of Class A common stock and 47,687,039 shares of Class B common stock, each $0.001 par value.

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Disclosure Regarding Forward-Looking Statements		i

	PART I - FINANCIAL INFORMATION

Item 1.	Financial Statements	1
	Condensed Consolidated Balance Sheets as of June 30, 2018 (unaudited) and December 31, 2017 (audited)	1
	Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2018 and 2017 (unaudited)	2
	Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and six months ended June 30, 2018 and 2017 (unaudited)	3
	Condensed Consolidated Statements of Changes in Stockholders’ Equity for the six months ended June 30, 2018 and 2017 (unaudited)	4
	Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2018 and 2017 (unaudited)	5
	Notes to Condensed Consolidated Financial Statements (unaudited)	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	49
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	73
Item 4.	Controls and Procedures	75

	PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	76
Item 1A.	Risk Factors	76
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	77
Item 3.	Defaults Upon Senior Securities	77
Item 4.	Mine Safety Disclosures	77
Item 5.	Other Information	77
Item 6.	Exhibits	78
	Signatures	79

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DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (“Form 10-Q”) contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including but not limited to statements about our estimates, expectations, plans, objectives, strategies, 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 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:


•	our reliance on DISH Network Corporation and its subsidiaries (“DISH Network”) for a significant portion of our revenue;

•

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, risks resulting from delays or failures of launches of our satellites and potentially missing our regulatory milestones, 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;


•	our ability to realize the anticipated benefits of our current satellites and any future satellite we may construct or acquire;


•	our ability to implement and realize benefits of our domestic and/or international investments, commercial alliances, partnerships, joint ventures, acquisitions and other strategic initiatives;


•	the failure of third-party providers of components, manufacturing, installation services and customer support services to appropriately deliver the contracted goods or services;


•	our ability to bring advanced technologies to market to keep pace with our customers and competitors; and


•	risk related to our foreign operations and other uncertainties associated with doing business internationally, including changes in foreign exchange rates between foreign currencies and the United States (“U.S.”) dollar, economic instability and political disturbances.

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 Form 10-Q and in Part I, Item 1A of our most recent Annual Report on Form 10-K (“Form 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 in Part I, Item 2 of this Form 10-Q and in Part II, Item 7 of our Form 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, whether as a result of new information, future events or otherwise, except as required by law.

Although we believe that the expectations reflected in any forward-looking statements are reasonable, we cannot guarantee future results, events, levels of activity, performance or achievements. We do not assume responsibility for the accuracy and completeness of any forward-looking statements. We assume no responsibility for updating forward-looking information contained or incorporated by reference herein or in any documents we file with the SEC, except as required by law.

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Should one or more of the risks or uncertainties described herein or in any documents we file with the SEC occur, or should underlying assumptions prove incorrect, our actual results and plans could differ materially from those expressed in any forward-looking statements.

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PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ECHOSTAR CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share amounts)



	As of
	June 30, 2018			December 31, 2017
Assets	(Unaudited)			(Audited)
Current assets:
Cash and cash equivalents	$	1,793,053		$	2,431,456
Marketable investment securities, at fair value	1,640,776			814,161
Trade accounts receivable and contract assets, net (Note 3)	186,962			196,840
Trade accounts receivable - DISH Network, net	26,126			43,295
Inventory	81,388			83,595
Prepaids and deposits	58,911			54,533
Other current assets	15,889			91,671
Total current assets	3,803,105			3,715,551
Noncurrent assets:
Property and equipment, net	3,396,616			3,465,471
Regulatory authorizations, net	528,346			536,936
Goodwill	504,173			504,173
Other intangible assets, net of accumulated amortization of $309,690 and $302,345, respectively	51,593			58,955
Investments in unconsolidated entities	156,022			161,427
Other receivables - DISH Network	93,893			92,687
Other noncurrent assets, net	258,237			214,814
Total noncurrent assets	4,988,880			5,034,463
Total assets	$	8,791,985		$	8,750,014
Liabilities and Stockholders’ Equity
Current liabilities:
Trade accounts payable	$	100,235		$	108,406
Trade accounts payable - DISH Network	1,393			4,753
Current portion of long-term debt and capital lease obligations	1,028,119			40,631
Contract liabilities	72,776			65,959
Accrued interest	45,857			47,616
Accrued compensation	42,612			47,756
Accrued taxes	15,719			16,122
Accrued expenses and other	68,195			82,647
Total current liabilities	1,374,906			413,890
Noncurrent liabilities:
Long-term debt and capital lease obligations, net	2,592,174			3,594,213
Deferred tax liabilities, net	456,401			436,023
Other noncurrent liabilities	124,252			128,503
Total noncurrent liabilities	3,172,827			4,158,739
Total liabilities	4,547,733			4,572,629
Commitments and contingencies (Note 15)
Stockholders’ equity:
Preferred stock, $.001 par value, 20,000,000 shares authorized, none issued and outstanding at each of June 30, 2018 and December 31, 2017	—			—
Common stock, $.001 par value, 4,000,000,000 shares authorized:
Class A common stock, $.001 par value, 1,600,000,000 shares authorized, 54,006,419 shares issued and 48,474,101 shares outstanding at June 30, 2018 and 53,663,859 shares issued and 48,131,541 shares outstanding at December 31, 2017	54			54
Class B convertible common stock, $.001 par value, 800,000,000 shares authorized, 47,687,039 shares issued and outstanding at each of June 30, 2018 and December 31, 2017	48			48
Class C convertible common stock, $.001 par value, 800,000,000 shares authorized, none issued and outstanding at each of June 30, 2018 and December 31, 2017	—			—
Class D common stock, $.001 par value, 800,000,000 shares authorized, none issued and outstanding at each of June 30, 2018 and December 31, 2017	—			—
Additional paid-in capital	3,689,180			3,669,461
Accumulated other comprehensive loss	(154,011		)	(130,154		)
Accumulated earnings	792,278			721,316
Treasury stock, at cost	(98,162		)	(98,162		)
Total EchoStar Corporation stockholders’ equity	4,229,387			4,162,563
Other noncontrolling interests	14,865			14,822
Total stockholders’ equity	4,244,252			4,177,385
Total liabilities and stockholders’ equity	$	8,791,985		$	8,750,014

The accompanying notes are an integral part of these condensed consolidated financial statements.

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ECHOSTAR CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(Unaudited)



	For the three months ended June 30,						For the six months ended June 30,
	2018			2017			2018			2017
Revenue:
Services and other revenue - DISH Network	$	100,171		$	113,734		$	203,976		$	228,689
Services and other revenue - other	375,445			285,053			730,485			554,844
Equipment revenue	50,341			66,289			93,288			114,694
Total revenue	525,957			465,076			1,027,749			898,227

Costs and expenses:
Cost of sales - services and other (exclusive of depreciation and amortization)	151,157			138,227			299,902			273,415
Cost of sales - equipment (exclusive of depreciation and amortization)	41,865			53,662			80,936			94,195
Selling, general and administrative expenses	103,074			89,826			206,349			172,817
Research and development expenses	6,647			7,437			13,784			15,142
Depreciation and amortization	148,449			130,034			294,003			245,117
Total costs and expenses	451,192			419,186			894,974			800,686
Operating income	74,765			45,890			132,775			97,541

Other income (expense):
Interest income	19,253			10,039			34,888			18,330
Interest expense, net of amounts capitalized	(61,534		)	(55,456		)	(124,285		)	(100,852		)
Gains (losses) on investments, net	65,396			1,837			28,733			10,574
Equity in earnings (losses) of unconsolidated affiliates, net	(2,058		)	4,831			(3,067		)	11,239
Other, net	(336		)	2,453			(132		)	3,525
Total other income (expense), net	20,721			(36,296		)	(63,863		)	(57,184		)
Income from continuing operations before income taxes	95,486			9,594			68,912			40,357
Income tax provision, net	(17,802		)	(3,003		)	(12,399		)	(2,991		)
Net income from continuing operations	77,684			6,591			56,513			37,366
Net income from discontinued operations	—			531			—			7,108
Net income	77,684			7,122			56,513			44,474
Less: Net loss attributable to noncontrolling interest in HSS Tracking Stock (Note 1)	—			—			—			(655		)
Less: Net income attributable to other noncontrolling interests	462			182			842			474
Net income attributable to EchoStar Corporation	77,222			6,940			55,671			44,655
Less: Net loss attributable to Hughes Retail Preferred Tracking Stock (Note 1)	—			—			—			(1,209		)
Net income attributable to EchoStar Corporation common stock	$	77,222		$	6,940		$	55,671		$	45,864

Earnings per share - Class A and B common stock:
Basic earnings from continuing operations per share	$	0.80		$	0.07		$	0.58		$	0.41
Total basic earnings per share	$	0.80		$	0.07		$	0.58		$	0.48
Diluted earnings from continuing operations per share	$	0.80		$	0.07		$	0.57		$	0.40
Total diluted earnings per share	$	0.80		$	0.07		$	0.57		$	0.48

The accompanying notes are an integral part of these condensed consolidated financial statements.

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ECHOSTAR CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands)

(Unaudited)



	For the three months ended June 30,						For the six months ended June 30,
	2018			2017			2018			2017
Comprehensive income (loss):
Net income	$	77,684		$	7,122		$	56,513		$	44,474
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments	(43,727		)	(249		)	(35,135		)	23,789
Unrealized gains (losses) on available-for-sale securities and other	547			(5,626		)	15			14,406
Amounts reclassified to net income:
Realized gains on available-for-sale securities in net income	(3		)	(2		)	(3		)	(2,758		)
Other-than-temporary impairment loss on available-for-sale securities in net income	—			—			—			3,298
Total other comprehensive income (loss), net of tax	(43,183		)	(5,877		)	(35,123		)	38,735
Comprehensive income	34,501			1,245			21,390			83,209
Less: Comprehensive loss attributable to noncontrolling interest in HSS Tracking Stock	—			—			—			(655		)
Less: Comprehensive income (loss) attributable to other noncontrolling interests	(123		)	182			43			474
Comprehensive income attributable to EchoStar Corporation	$	34,624		$	1,063		$	21,347		$	83,390

The accompanying notes are an integral part of these condensed consolidated financial statements.

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ECHOSTAR CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(In thousands)

(Unaudited)



	Class A and B Common Stock		Hughes Retail Preferred Tracking Stock			Additional Paid-In Capital			Accumulated Other Comprehensive Income (Loss)			Accumulated Earnings		Treasury Stock			Noncontrolling Interest in HSS Tracking Stock			Other Noncontrolling Interests			Total
Balance, December 31, 2016	$	100	$	6		$	3,828,677		$	(124,803	)	$	314,247	$	(98,162	)	$	73,910		$	12,830		$	4,006,805
Cumulative effect of adoption of ASU No. 2016-09 as of January 1, 2017	—		—			—			—			14,508		—			—			—			14,508
Balance, January 1, 2017	100		6			3,828,677			(124,803		)	328,755		(98,162		)	73,910			12,830			4,021,313
Issuances of Class A common stock:
Exercise of stock options	1		—			32,949			—			—		—			—			—			32,950
Employee benefits	—		—			11,200			—			—		—			—			—			11,200
Employee Stock Purchase Plan	—		—			4,540			—			—		—			—			—			4,540
Stock-based compensation	—		—			3,908			—			—		—			—			—			3,908
Reacquisition and retirement of Tracking Stock pursuant to Share Exchange Agreement (Note 1)	—		(6		)	(226,815		)	—			—		—			(73,255		)	—			(300,076		)
R&D tax credits utilized by DISH Network	—		—			(320		)	—			—		—			—			—			(320		)
Foreign currency translation adjustment	—		—			—			23,789			—		—			—			—			23,789
Unrealized gains (losses) on available-for-sale securities, net	—		—			—			14,921			—		—			—			—			14,921
Net income (loss)	—		—			—			—			44,655		—			(655		)	474			44,474
Other	—		—			—			25			—		—			—			—			25
Balance, June 30, 2017	$	101	$	—		$	3,654,139		$	(86,068	)	$	373,410	$	(98,162	)	$	—		$	13,304		$	3,856,724

Balance, December 31, 2017	$	102	$	—		$	3,669,461		$	(130,154	)	$	721,316	$	(98,162	)	$	—		$	14,822		$	4,177,385
Cumulative effect of adoption of ASU No. 2014-09 and ASU No. 2016-01 as of January 1, 2018 (Note 2)	—		—			—			10,467			14,658		—			—			—			25,125
Balance, January 1, 2018	102		—			3,669,461			(119,687		)	735,974		(98,162		)	—			14,822			4,202,510
Issuances of Class A common stock:
Exercise of stock options	—		—			4,045			—			—		—			—			—			4,045
Employee benefits	—		—			7,605			—			—		—			—			—			7,605
Employee Stock Purchase Plan	—		—			4,886			—			—		—			—			—			4,886
Stock-based compensation	—		—			5,110			—			—		—			—			—			5,110
R&D tax credits utilized by DISH Network	—		—			(1,798		)	—			—		—			—			—			(1,798		)
Foreign currency translation adjustment	—		—			—			(34,336		)	—		—			—			(799		)	(35,135		)
Unrealized gains (losses) on available-for-sale securities, net	—		—			—			253			—		—			—			—			253
Net income	—		—			—			—			55,671		—			—			842			56,513
Other	—		—			(129		)	(241		)	633		—			—			—			263
Balance, June 30, 2018	$	102	$	—		$	3,689,180		$	(154,011	)	$	792,278	$	(98,162	)	$	—		$	14,865		$	4,244,252

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)



	For the six months ended June 30,
	2018			2017
Cash flows from operating activities:
Net income	$	56,513		$	44,474
Adjustments to reconcile net income to net cash flows from operating activities:
Depreciation and amortization	294,003			256,776
Equity in (earnings) losses of unconsolidated affiliates, net	3,067			(10,080		)
Amortization of debt issuance costs	3,905			3,617
(Gains) losses and impairments on investments, net	(28,674		)	(10,574		)
Stock-based compensation	5,110			3,908
Deferred tax provision	10,231			673
Dividend received from unconsolidated entity	5,000			7,500
Proceeds from sale of trading securities	—			8,922
Changes in current assets and current liabilities, net:
Trade accounts receivable, net	(3,061		)	4,496
Trade accounts receivable - DISH Network	17,262			184,077
Inventory	238			(24,330		)
Other current assets	(5,430		)	(6,193		)
Trade accounts payable	2,364			(65,179		)
Trade accounts payable - DISH Network	(3,360		)	(3,061		)
Accrued expenses and other	7,749			(2,505		)
Changes in noncurrent assets and noncurrent liabilities, net	(17,200		)	(11,763		)
Other, net	5,822			2,121
Net cash flows from operating activities	353,539			382,879
Cash flows from investing activities:
Purchases of marketable investment securities	(1,632,930		)	(46,533		)
Sales and maturities of marketable investment securities	841,638			291,082
Expenditures for property and equipment	(248,098		)	(230,530		)
Refunds and other receipts related to property and equipment	77,524			—
Sale of investment in unconsolidated entity	—			17,781
Expenditures for externally marketed software	(15,000		)	(17,119		)
Net cash flows from investing activities	(976,866		)	14,681
Cash flows from financing activities:
Repayment of debt and capital lease obligations	(18,417		)	(17,718		)
Net proceeds from Class A common stock options exercised	4,064			31,992
Net proceeds from Class A common stock issued under the Employee Stock Purchase Plan	4,886			4,540
Cash exchanged for Tracking Stock (Note 1)	—			(651		)
Repayment of in-orbit incentive obligations	(3,272		)	(3,194		)
Other, net	(401		)	482
Net cash flows from financing activities	(13,140		)	15,451
Effect of exchange rates on cash and cash equivalents	(1,941		)	967
Net increase (decrease) in cash and cash equivalents, including restricted amounts	(638,408		)	413,978
Cash and cash equivalents, including restricted amounts, beginning of period	2,432,249			2,571,866
Cash and cash equivalents, including restricted amounts, end of period	$	1,793,841		$	2,985,844

Supplemental disclosure of cash flow information:
Cash paid for interest, net of amounts capitalized	$	122,017		$	96,463
Cash paid for income taxes	$	2,574