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 SEPTEMBER 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 October 31, 2018, the registrant’s outstanding common stock consisted of 48,548,092 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 September 30, 2018 (unaudited) and December 31, 2017 (audited)	1
	Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2018 and 2017 (unaudited)	2
	Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended September 30, 2018 and 2017 (unaudited)	3
	Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three months ended September 30, 2018 and 2017 (unaudited)	4
	Condensed Consolidated Statements of Changes in Stockholders’ Equity for the nine months ended September 30, 2018 and 2017 (unaudited)	5
	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2018 and 2017 (unaudited)	6
	Notes to Condensed Consolidated Financial Statements (unaudited)	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	50
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	74
Item 4.	Controls and Procedures	76

	PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	77
Item 1A.	Risk Factors	77
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	79
Item 3.	Defaults Upon Senior Securities	79
Item 4.	Mine Safety Disclosures	79
Item 5.	Other Information	79
Item 6.	Exhibits	80
	Signatures	81

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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:

•

significant risks related to the construction, launch and operation of our satellites, such as the risk of not being able to timely complete the construction of or material malfunction on one or more of our satellites, risks resulting from 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 reliance on DISH Network Corporation and its subsidiaries (“DISH Network”) for a significant portion of our revenue;


•	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
	September 30, 2018			December 31, 2017
Assets	(Unaudited)			(Audited)
Current assets:
Cash and cash equivalents	$	1,597,295		$	2,431,456
Marketable investment securities, at fair value	1,842,875			814,161
Trade accounts receivable and contract assets, net (Note 3)	217,524			196,840
Trade accounts receivable - DISH Network	11,065			43,295
Inventory	70,061			83,595
Prepaids and deposits	56,149			54,533
Other current assets	17,222			91,671
Total current assets	3,812,191			3,715,551
Noncurrent assets:
Property and equipment, net	3,442,537			3,465,471
Regulatory authorizations, net	525,595			536,936
Goodwill	504,173			504,173
Other intangible assets, net	47,912			58,955
Investments in unconsolidated entities	160,669			161,427
Other receivables - DISH Network	94,503			92,687
Other noncurrent assets, net	262,866			214,814
Total noncurrent assets	5,038,255			5,034,463
Total assets	$	8,850,446		$	8,750,014
Liabilities and Stockholders’ Equity
Current liabilities:
Trade accounts payable	$	119,235		$	108,406
Trade accounts payable - DISH Network	1,411			4,753
Current portion of long-term debt and capital lease obligations	1,030,088			40,631
Contract liabilities	74,135			65,959
Accrued interest	57,589			47,616
Accrued compensation	41,341			47,756
Accrued taxes	16,681			16,122
Accrued expenses and other	72,464			82,647
Total current liabilities	1,412,944			413,890
Noncurrent liabilities:
Long-term debt and capital lease obligations, net	2,582,819			3,594,213
Deferred tax liabilities, net	471,259			436,023
Other noncurrent liabilities	124,694			128,503
Total noncurrent liabilities	3,178,772			4,158,739
Total liabilities	4,591,716			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 September 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, 54,080,228 shares issued and 48,547,910 shares outstanding at September 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 September 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 September 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 September 30, 2018 and December 31, 2017	—			—
Additional paid-in capital	3,694,682			3,669,461
Accumulated other comprehensive loss	(160,947		)	(130,154		)
Accumulated earnings	808,330			721,316
Treasury stock, at cost	(98,162		)	(98,162		)
Total EchoStar Corporation stockholders’ equity	4,244,005			4,162,563
Other noncontrolling interests	14,725			14,822
Total stockholders’ equity	4,258,730			4,177,385
Total liabilities and stockholders’ equity	$	8,850,446		$	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 September 30,						For the nine months ended September 30,
	2018			2017			2018			2017
Revenue:
Services and other revenue - DISH Network	$	87,859		$	111,135		$	291,835		$	339,824
Services and other revenue - other	388,248			310,973			1,118,733			865,817
Equipment revenue	56,846			59,125			150,134			173,819
Total revenue	532,953			481,233			1,560,702			1,379,460

Costs and expenses:
Cost of sales - services and other (exclusive of depreciation and amortization)	152,011			143,048			451,913			416,463
Cost of sales - equipment (exclusive of depreciation and amortization)	46,318			47,644			127,254			141,839
Selling, general and administrative expenses	107,490			91,003			313,839			263,820
Research and development expenses	6,544			8,302			20,328			23,444
Depreciation and amortization	150,555			134,822			444,558			379,939
Total costs and expenses	462,918			424,819			1,357,892			1,225,505
Operating income	70,035			56,414			202,810			153,955

Other income (expense):
Interest income	21,349			12,012			56,237			30,342
Interest expense, net of amounts capitalized	(62,086		)	(55,646		)	(186,371		)	(156,498		)
Gains and losses on investments, net	4,693			20,090			33,426			30,664
Equity in earnings (losses) of unconsolidated affiliates, net	416			4,381			(2,651		)	15,620
Other, net	(5,069		)	4,686			(5,201		)	8,211
Total other income (expense), net	(40,697		)	(14,477		)	(104,560		)	(71,661		)
Income from continuing operations before income taxes	29,338			41,937			98,250			82,294
Income tax provision, net	(12,836		)	(6,082		)	(25,235		)	(9,073		)
Net income from continuing operations	16,502			35,855			73,015			73,221
Net income (loss) from discontinued operations	—			(654		)	—			6,454
Net income	16,502			35,201			73,015			79,675
Less: Net income attributable to noncontrolling interests	450			532			1,292			351
Net income attributable to EchoStar Corporation	16,052			34,669			71,723			79,324
Less: Net loss attributable to Hughes Retail Preferred Tracking Stock (Note 1)	—			—			—			(1,209		)
Net income attributable to EchoStar Corporation common stock	$	16,052		$	34,669		$	71,723		$	80,533

Earnings per share - Class A and B common stock:
Basic earnings from continuing operations per share	$	0.17		$	0.37		$	0.75		$	0.78
Total basic earnings per share	$	0.17		$	0.36		$	0.75		$	0.84
Diluted earnings from continuing operations per share	$	0.17		$	0.36		$	0.74		$	0.77
Total diluted earnings per share	$	0.17		$	0.36		$	0.74		$	0.83

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 September 30,						For the nine months ended September 30,
	2018			2017			2018			2017
Comprehensive income (loss):
Net income	$	16,502		$	35,201		$	73,015		$	79,675
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments	(7,405		)	9,373			(42,540		)	33,162
Unrealized gains (losses) on available-for-sale securities and other	(120		)	(12,037		)	(105		)	2,369
Amounts reclassified to net income:
Realized gains on available-for-sale securities	(1		)	—			(4		)	(2,758		)
Other-than-temporary impairment loss on available-for-sale securities	—			—			—			3,298
Total other comprehensive income (loss), net of tax	(7,526		)	(2,664		)	(42,649		)	36,071
Comprehensive income	8,976			32,537			30,366			115,746
Less: Comprehensive income (loss) attributable to noncontrolling interests	(140		)	532			(97		)	351
Comprehensive income attributable to EchoStar Corporation	$	9,116		$	32,005		$	30,463		$	115,395

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

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2018 AND 2017

(In thousands)

(Unaudited)



	Class A and B Common Stock		Additional Paid-In Capital			Accumulated Other Comprehensive Income (Loss)			Accumulated Earnings		Treasury Stock			Other Noncontrolling Interests			Total
Balance, June 30, 2017	$	101	$	3,654,139		$	(86,068	)	$	373,410	$	(98,162	)	$	13,304		$	3,856,724
Issuances of Class A common stock:
Exercise of stock options	1		1,155			—			—		—			—			1,156
Employee Stock Purchase Plan	—		2,398			—			—		—			—			2,398
Stock-based compensation	—		3,261			—			—		—			—			3,261
R&D tax credits utilized by DISH Network	—		(257		)	—			—		—			—			(257		)
Other comprehensive loss	—		—			(2,664		)	—		—			—			(2,664		)
Net income	—		—			—			34,669		—			532			35,201
Balance, September 30, 2017	$	102	$	3,660,696		$	(88,732	)	$	408,079	$	(98,162	)	$	13,836		$	3,895,819

Balance, June 30, 2018	$	102	$	3,689,180		$	(154,011	)	$	792,278	$	(98,162	)	$	14,865		$	4,244,252
Issuances of Class A common stock:
Exercise of stock options	—		360			—			—		—			—			360
Employee Stock Purchase Plan	—		2,542			—			—		—			—			2,542
Stock-based compensation	—		2,661			—			—		—			—			2,661
R&D tax credits utilized by DISH Network	—		(61		)	—			—		—			—			(61		)
Other comprehensive loss	—		—			(6,936		)	—		—			(590		)	(7,526		)
Net income	—		—			—			16,052		—			450			16,502
Balance, September 30, 2018	$	102	$	3,694,682		$	(160,947	)	$	808,330	$	(98,162	)	$	14,725		$	4,258,730

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

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2018 AND 2017

(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	2		—			34,104			—			—		—			—			—		34,106
Employee benefits	—		—			11,200			—			—		—			—			—		11,200
Employee Stock Purchase Plan	—		—			6,938			—			—		—			—			—		6,938
Stock-based compensation	—		—			7,169			—			—		—			—			—		7,169
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	—		—			(577		)	—			—		—			—			—		(577		)
Other comprehensive income	—		—			—			36,071			—		—			—			—		36,071
Net income (loss)	—		—			—			—			79,324		—			(655		)	1,006		79,675
Balance, September 30, 2017	$	102	$	—		$	3,660,696		$	(88,732	)	$	408,079	$	(98,162	)	$	—		$	13,836	$	3,895,819

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	—		—			4,405			—			—		—			—			—		4,405
Employee benefits	—		—			7,605			—			—		—			—			—		7,605
Employee Stock Purchase Plan	—		—			7,428			—			—		—			—			—		7,428
Stock-based compensation	—		<