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Table of Contents


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, 2017.
 
OR

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 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  ý  No  o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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
(Do not check is a smaller reporting company)
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 August 1, 2017, the registrant’s outstanding common stock consisted of 47,961,543 shares of Class A common stock and 47,687,039 shares of Class B common stock, each $0.001 par value.


Table of Contents


TABLE OF CONTENTS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



Table of Contents


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;
our ability to implement our strategic initiatives;
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;
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 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” herein and in 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.

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.

i

Table of Contents


PART I — FINANCIAL INFORMATION

Item 1.    FINANCIAL STATEMENTS

ECHOSTAR CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
(Unaudited)
 
 
As of
 
 
June 30, 2017
 
December 31, 2016
Assets
 
 

 
 

Current Assets:
 
 

 
 

Cash and cash equivalents
 
$
2,985,062

 
$
2,570,365

Marketable investment securities, at fair value
 
280,402

 
522,516

Trade accounts receivable, net of allowance for doubtful accounts of $12,541 and $12,956, respectively
 
192,246

 
182,527

Trade accounts receivable - DISH Network, net of allowance for doubtful accounts of zero
 
56,825

 
19,417

Inventory
 
91,265

 
62,620

Prepaids and deposits
 
52,857

 
43,456

Other current assets
 
12,035

 
10,862

Current assets of discontinued operations
 
37,814

 
311,524

Total current assets
 
3,708,506

 
3,723,287

Noncurrent Assets:
 
 

 
 

Restricted cash and marketable investment securities
 
13,847

 
12,926

Property and equipment, net of accumulated depreciation of $2,661,897 and $2,598,492, respectively
 
3,451,362

 
3,398,195

Regulatory authorizations, net
 
544,310

 
544,633

Goodwill
 
504,173

 
504,173

Other intangible assets, net
 
66,316

 
80,734

Investments in unconsolidated entities
 
174,067

 
171,016

Other receivable - DISH Network
 
91,579

 
90,586

Other noncurrent assets, net
 
189,511

 
166,385

Noncurrent assets of discontinued operations
 

 
316,924

Total noncurrent assets
 
5,035,165

 
5,285,572

Total assets
 
$
8,743,671

 
$
9,008,859

Liabilities and Stockholders’ Equity
 
 

 
 

Current Liabilities:
 
 

 
 

Trade accounts payable
 
$
118,563

 
$
170,297

Trade accounts payable - DISH Network
 
961

 
1,072

Current portion of long-term debt and capital lease obligations
 
39,229

 
32,984

Deferred revenue and prepayments
 
54,722

 
59,989

Accrued interest
 
46,280

 
46,487

Accrued compensation
 
37,978

 
53,454

Accrued expenses and other
 
106,366

 
95,726

Current liabilities of discontinued operations
 
3,071

 
71,429

Total current liabilities
 
407,170

 
531,438

Noncurrent Liabilities:
 
 

 
 

Long-term debt and capital lease obligations, net of unamortized debt issuance costs
 
3,611,746

 
3,622,463

Deferred tax liabilities, net
 
736,100

 
746,667

Other noncurrent liabilities
 
131,931

 
90,785

Noncurrent liabilities of discontinued operations
 

 
10,701

Total noncurrent liabilities
 
4,479,777

 
4,470,616

Total liabilities
 
4,886,947

 
5,002,054

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, zero authorized, issued and outstanding at June 30, 2017 and 13,000,000 shares authorized and 6,290,499 issued and outstanding at December 31, 2016
 

 
6

Common stock, $.001 par value, 4,000,000,000 shares authorized:
 
 

 
 

Class A common stock, $.001 par value, 1,600,000,000 shares authorized, 53,486,261 shares issued and 47,953,943 shares outstanding at June 30, 2017 and 52,243,465 shares issued and 46,711,147 shares outstanding at December 31, 2016
 
53

 
52

Class B common stock, $.001 par value, 800,000,000 shares authorized, 47,687,039 shares issued and outstanding at each of June 30, 2017 and December 31, 2016
 
48

 
48

Class C common stock, $.001 par value, 800,000,000 shares authorized, none issued and outstanding at each of June 30, 2017 and December 31, 2016
 

 

Class D common stock, $.001 par value, 800,000,000 shares authorized, none issued and outstanding at each of June 30, 2017 and December 31, 2016
 

 

Additional paid-in capital
 
3,654,139

 
3,828,677

Accumulated other comprehensive loss
 
(86,068
)
 
(124,803
)
Accumulated earnings
 
373,410

 
314,247

Treasury stock, at cost
 
(98,162
)
 
(98,162
)
Total EchoStar stockholders’ equity
 
3,843,420

 
3,920,065

Noncontrolling interest in HSS Tracking Stock
 

 
73,910

Other noncontrolling interests
 
13,304

 
12,830

Total stockholders’ equity
 
3,856,724

 
4,006,805

Total liabilities and stockholders’ equity
 
$
8,743,671

 
$
9,008,859



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

1

Table of Contents


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,
 
 
2017
 
2016
 
2017
 
2016
Revenue:
 
 

 
 

 
 

 
 

Services and other revenue - DISH Network
 
$
113,734

 
$
115,864

 
$
228,689

 
$
232,313

Services and other revenue - other
 
285,053

 
273,972

 
554,844

 
543,869

Equipment revenue - DISH Network
 
18

 
2,101

 
49

 
4,870

Equipment revenue - other
 
66,271

 
50,721

 
114,645

 
93,580

Total revenue
 
465,076

 
442,658

 
898,227

 
874,632

Costs and Expenses:
 
 

 
 

 
 

 
 

Cost of sales - services and other (exclusive of depreciation and amortization)
 
134,024

 
127,766

 
265,807

 
253,348

Cost of sales - equipment (exclusive of depreciation and amortization)
 
57,865

 
46,545

 
101,803

 
89,653

Selling, general and administrative expenses
 
89,826

 
79,237

 
172,817

 
159,782

Research and development expenses
 
7,437

 
7,562

 
15,142

 
14,494

Depreciation and amortization
 
130,034

 
106,117

 
245,117

 
216,194

Total costs and expenses
 
419,186

 
367,227

 
800,686

 
733,471

Operating income
 
45,890

 
75,431

 
97,541

 
141,161

 
 
 
 
 
 
 
 
 
Other Income (Expense):
 
 

 
 

 
 

 
 

Interest income
 
10,039

 
3,502

 
18,330

 
7,467

Interest expense, net of amounts capitalized
 
(55,456
)
 
(19,889
)
 
(100,852
)
 
(43,060
)
Gains on investments, net
 
1,837

 
5,487

 
13,872

 
7,949

Other-than-temporary impairment loss on available-for-sale securities
 

 

 
(3,298
)
 

Equity in earnings of unconsolidated affiliates, net
 
4,831

 
5,626

 
11,239

 
4,818

Other, net
 
2,453

 
(2,212
)
 
3,525

 
5,167

Total other expense, net
 
(36,296
)
 
(7,486
)
 
(57,184
)
 
(17,659
)
Income from continuing operations before income taxes
 
9,594

 
67,945

 
40,357

 
123,502

Income tax provision
 
(3,003
)
 
(23,692
)
 
(2,991
)
 
(43,864
)
Net income from continuing operations
 
6,591

 
44,253

 
37,366

 
79,638

Net income from discontinued operations
 
531

 
11,656

 
7,108

 
24,714

Net income
 
7,122

 
55,909

 
44,474

 
104,352

Less: Net loss attributable to noncontrolling interest in HSS Tracking Stock
 

 
(188
)
 
(655
)
 
(1,011
)
Less: Net income attributable to other noncontrolling interests
 
182

 
311

 
474

 
422

Net income attributable to EchoStar
 
6,940

 
55,786

 
44,655

 
104,941

Less: Net loss attributable to Hughes Retail Preferred Tracking Stock
 

 
(347
)
 
(1,209
)
 
(1,866
)
Net income attributable to EchoStar common stock
 
$
6,940

 
$
56,133

 
$
45,864

 
$
106,807

 
 
 
 
 
 
 
 
 
Amounts attributable to EchoStar common stock:
 
 
 
 
 
 
 
 
Net income from continuing operations
 
$
6,409

 
$
44,477

 
$
38,756

 
$
82,093

Net income from discontinued operations
 
531

 
11,656

 
7,108

 
24,714

Net income attributable to EchoStar common stock
 
$
6,940

 
$
56,133

 
$
45,864

 
$
106,807

 
 
 
 
 
 
 
 
 
Weighted-average common shares outstanding - Class A and B common stock:
 
 

 
 

 
 

 
 

Basic
 
95,537

 
93,751

 
95,143

 
93,541

Diluted
 
96,785

 
94,330

 
96,451

 
94,090

 
 
 
 
 
 
 
 
 
Earnings per share - Class A and B common stock:
 
 

 
 

 
 

 
 

Basic:
 
 
 
 
 
 
 
 
Continuing operations
 
$
0.07

 
$
0.47

 
$
0.41

 
$
0.88

Discontinued operations
 

 
0.13

 
0.07

 
0.26

Total basic earnings per share
 
$
0.07

 
$
0.60

 
$
0.48

 
$
1.14

Diluted:
 
 
 
 
 
 
 
 
Continuing operations
 
$
0.07

 
$
0.47

 
$
0.40

 
$
0.87

Discontinued operations
 

 
0.13

 
0.08

 
0.27

Total diluted earnings per share
 
$
0.07

 
$
0.60

 
$
0.48

 
$
1.14



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

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Table of Contents


ECHOSTAR CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands, except per share amounts)
(Unaudited)
 
 
For the Three Months
Ended June 30,
 
For the Six Months
Ended June 30,
 
 
2017
 
2016
 
2017
 
2016
Comprehensive Income:
 
 

 
 

 
 

 
 

Net income
 
$
7,122

 
$
55,909

 
$
44,474

 
$
104,352

Other comprehensive income (loss), net of tax:
 
 

 
 

 
 

 
 

Foreign currency translation adjustments
 
(249
)
 
(338
)
 
23,789

 
11,286

Unrealized gains (losses) on available-for-sale securities and other
 
(5,626
)
 
(1,988
)
 
14,406

 
(485
)
Recognition of realized gains on available-for-sale securities in net income
 
(2
)
 
(3,327
)
 
(2,758
)
 
(5,574
)
Recognition of other-than-temporary impairment loss on available-for-sale securities in net income
 

 

 
3,298

 

Total other comprehensive income (loss), net of tax
 
(5,877
)
 
(5,653
)
 
38,735

 
5,227

Comprehensive income
 
1,245

 
50,256

 
83,209

 
109,579

Less: Comprehensive loss attributable to noncontrolling interest in HSS Tracking Stock
 

 
(188
)
 
(655
)
 
(1,011
)
Less: Comprehensive income attributable to other noncontrolling interests
 
182

 
125

 
474

 
236

Comprehensive income attributable to EchoStar
 
$
1,063

 
$
50,319

 
$
83,390

 
$
110,354































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

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Table of Contents


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, 2015
 
$
99

 
$
6

 
$
3,776,451

 
$
(117,233
)
 
$
134,317

 
$
(98,162
)
 
$
74,854

 
$
11,310

 
$
3,781,642

Issuances of Class A common stock:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Exercise of stock options
 
1

 

 
2,974

 

 

 

 

 

 
2,975

Employee benefits
 

 

 
11,126

 

 

 

 

 

 
11,126

Employee Stock Purchase Plan
 

 

 
7,530

 

 

 

 

 

 
7,530

Stock-based compensation
 

 

 
8,328

 

 

 

 

 

 
8,328

R&D tax credits utilized by DISH Network
 

 

 
(1,379
)
 

 

 

 

 

 
(1,379
)
Other, net
 

 

 
(450
)
 

 

 

 

 

 
(450
)
Net income (loss)
 

 

 

 

 
104,941

 

 
(1,011
)
 
422

 
104,352

Foreign currency translation adjustment
 

 

 

 
11,472

 

 

 

 
(186
)
 
11,286

Unrealized losses on available-for-sale securities, net and other
 

 

 

 
(6,059
)
 

 

 

 

 
(6,059
)
Balance, June 30, 2016
 
$
100

 
$
6

 
$
3,804,580

 
$
(111,820
)
 
$
239,258

 
$
(98,162
)
 
$
73,843

 
$
11,546

 
$
3,919,351

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, December 31, 2016
 
$
100

 
$
6

 
$
3,828,677

 
$
(124,803
)
 
$
314,247

 
$
(98,162
)
 
$
73,910

 
$
12,830

 
$
4,006,805

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

Cumulative effect of adoption of ASU 2016-09 as of January 1, 2017
 

 

 

 

 
14,508

 

 

 

 
14,508

Reacquisition and retirement of Tracking Stock pursuant to Share Exchange Agreement
 

 
(6
)
 
(226,815
)
 

 

 

 
(73,255
)
 

 
(300,076
)
R&D tax credits utilized by DISH Network
 

 

 
(320
)
 

 

 

 

 

 
(320
)
Net income (loss)
 

 

 

 

 
44,655

 

 
(655
)
 
474

 
44,474

Foreign currency translation adjustment
 

 

 

 
23,789

 

 

 

 

 
23,789

Unrealized gains and impairment on available-for-sale securities, net and other
 

 

 

 
14,946

 

 

 

 

 
14,946

Balance, June 30, 2017
 
$
101

 
$

 
$
3,654,139

 
$
(86,068
)
 
$
373,410

 
$
(98,162
)
 
$

 
$
13,304

 
$
3,856,724


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,
 
 
2017
 
2016
Cash Flows from Operating Activities:
 
 

 
 

Net income
 
$
44,474

 
$
104,352

Adjustments to reconcile net income to net cash flows from operating activities:
 
 

 
 

Depreciation and amortization
 
256,776

 
247,239

Equity in earnings of unconsolidated affiliates, net
 
(10,080
)
 
(6,017
)
Gain and impairment on investments, net
 
(10,574
)
 
(7,949
)
Stock-based compensation
 
3,908

 
8,328

Deferred tax provision
 
673

 
53,091

Dividends received from unconsolidated entity
 
7,500

 
10,000

Proceeds from sale of trading securities
 
8,922

 
7,140

Changes in current assets and current liabilities, net
 
87,305

 
(73,916
)
Changes in noncurrent assets and noncurrent liabilities, net
 
(11,763
)
 
2,859

Other, net
 
5,738

 
10,507

Net cash flows from operating activities
 
382,879

 
355,634

Cash Flows from Investing Activities:
 
 

 
 

Purchases of marketable investment securities
 
(46,533
)
 
(641,358
)
Sales and maturities of marketable investment securities
 
291,944

 
500,775

Expenditures for property and equipment
 
(230,530
)
 
(376,856
)
Refunds and other receipts related to capital expenditures
 

 
24,087

Changes in restricted cash and marketable investment securities
 
(921
)
 
(1,689
)
Investments in unconsolidated entities
 

 
(1,636
)
Sale of investment in unconsolidated entity
 
17,781

 

Expenditures for externally marketed software
 
(17,119
)
 
(12,299
)
Other, net
 

 
1,462

Net cash flows from investing activities
 
14,622

 
(507,514
)
Cash Flows from Financing Activities:
 
 

 
 

Repayment of debt and capital lease obligations
 
(17,718
)
 
(20,433
)
Net proceeds from Class A common stock options exercised
 
31,992

 
2,975

Net proceeds from Class A common stock issued under the Employee Stock Purchase Plan
 
4,540

 
7,530

Cash exchanged for Tracking Stock
 
(651
)
 

Other, net
 
(2,712
)
 
(1,320
)
Net cash flows from financing activities
 
15,451

 
(11,248
)
Effect of exchange rates on cash and cash equivalents
 
967

 
728

Net increase (decrease) in cash and cash equivalents
 
413,919

 
(162,400
)
Cash and cash equivalents, beginning of period
 
2,571,143

 
924,240

Cash and cash equivalents, end of period
 
$
2,985,062

 
$
761,840

 
 
 
 
 
Supplemental Disclosure of Cash Flow Information:
 
 

 
 

Cash paid for interest (including capitalized interest)
 
$
130,231

 
$
87,213

Capitalized interest
 
$
33,768

 
$
47,093

Cash paid for income taxes
 
$
9,369

 
$
6,199

Employee benefits paid in Class A common stock
 
$
11,200

 
$
11,126

Property and equipment financed under capital lease obligations
 
$
8,189

 
$
6,857

Increase (decrease) in capital expenditures included in accounts payable, net
 
$
(3,404
)
 
$
8,238

Capitalized in-orbit incentive obligations
 
$
43,890

 
$

Noncash net assets exchanged for Tracking Stock
 
$
299,425

 
$

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

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Table of Contents


ECHOSTAR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 1.    Organization and Business Activities
 
Principal Business
 
EchoStar Corporation (which, 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 service operations, video delivery solutions, broadband satellite technologies and broadband services for home and small office customers. We deliver innovative network technologies, managed services, and various communications solutions for enterprise and government customers. Our Class A common stock is publicly traded on the Nasdaq Global Select Market (“Nasdaq”) under the symbol “SATS.”

In February 2014, EchoStar entered into agreements with certain subsidiaries of DISH Network Corporation (“DISH”) pursuant to which, effective March 1, 2014, (i) EchoStar and our subsidiary Hughes Satellite Systems Corporation (“HSS”) issued the Tracking Stock (as defined below) to subsidiaries of DISH 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 and certain of its subsidiaries began receiving certain satellite services on these five satellites from us (the “Satellite and Tracking Stock Transaction”). The Tracking Stock tracked the economic performance of 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”), and represented an aggregate 80.0% economic interest in HRG (the shares issued as EchoStar Tracking Stock represented a 51.89% economic interest in HRG and the shares issued as HSS Tracking Stock represented a 28.11% economic interest in the Hughes Retail Group). In addition to the remaining 20.0% economic interest in HRG, EchoStar retained all economic interest in the wholesale satellite broadband business and other businesses of EchoStar.
 
On January 31, 2017, EchoStar Corporation and certain of its subsidiaries entered into a Share Exchange Agreement (the “Share Exchange Agreement”) with DISH and certain of its subsidiaries. Pursuant to the Share Exchange Agreement, on February 28, 2017, among other things, EchoStar Corporation and certain of its subsidiaries received all of the shares of the Hughes Retail Preferred Tracking Stock issued by EchoStar Corporation (the “EchoStar Tracking Stock”) and the Hughes Retail Preferred Tracking Stock issued by HSS (the “HSS Tracking Stock”, together with the EchoStar Tracking Stock, the “Tracking Stock”) in exchange for 100% of the equity interests of certain EchoStar subsidiaries that held substantially all of our EchoStar Technologies businesses and certain other assets (collectively, the “Share Exchange”). Following consummation of the Share Exchange, EchoStar no longer operates the EchoStar Technologies business segment and the EchoStar Tracking Stock and HSS Tracking Stock were retired and are no longer outstanding and all agreements, arrangements and policy statements with respect to such tracking stock terminated and are of no further effect. As a result of the Share Exchange, the condensed consolidated financial statements of the EchoStar Technologies businesses have been presented as discontinued operations and, as such, have been excluded from continuing operations and segment results for all periods presented. See Note 3 for further discussion of our discontinued operations.

We currently operate in the following two business segments:
 
Hughes — which provides broadband satellite technologies and broadband services to home and small office customers and network technologies, managed services and communication solutions to domestic and international consumers and enterprise and government customers. The Hughes segment also provides managed services, hardware, and satellite services to large enterprises and government customers, and designs, provides and installs gateway and terminal equipment to customers for other satellite systems. In addition, our Hughes segment provides satellite ground segment systems and terminals to mobile system operators.
EchoStar Satellite Services (“ESS”) — which uses certain of our owned and leased in-orbit satellites and related licenses to provide satellite service operations and video delivery solutions on a full-time and occasional-use basis primarily to DISH Network Corporation and its subsidiaries (“DISH Network”), Dish Mexico, S. de R.L. de C.V., a joint venture we entered into in 2008 (“Dish Mexico”), United States (“U.S.”) government service providers, internet service providers, broadcast news organizations, programmers, and private enterprise customers. We also manage satellite operations for certain satellites owned by DISH Network.
 

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Table of Contents
ECHOSTAR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)

Our operations also include various corporate departments (primarily Executive, Strategic Development, Human Resources, IT, Finance, Real Estate and Legal) as well as other activities that have not been assigned to our operating segments, including costs incurred in certain satellite development programs and other business development activities, our centralized treasury operations, and gains (losses) from certain of our investments. These activities, costs and income are accounted for in “Corporate and Other.”
 
In 2008, DISH Network completed its distribution to us of its digital set-top box business, certain infrastructure, and other assets and related liabilities, including certain of its satellites, uplink and satellite transmission assets, and real estate (the “Spin-off”).  Since the Spin-off, EchoStar and DISH have operated as separate publicly-traded companies.  Prior to the consummation of the Share Exchange on February 28, 2017, DISH Network held the Tracking Stock discussed above. A substantial majority of the voting power of the shares of each of EchoStar and DISH 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.