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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 MARCH 31, 2019.
 
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
 
Not Applicable
(Registrant’s telephone number, including area code)
 
(Former name, former address and former fiscal year, if changed since last report)
 
 
 
Securities registered pursuant to Section 12(b) of the Act:
 
 
Class A common stock, $0.001 par value
 
The NASDAQ Stock Market LLC
(Title of each class)
 
(Name of each exchange on which registered)
SATS
 
 
(Ticker symbol)
 
 
 

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
Emerging growth company o
Non-accelerated filer o
Smaller reporting 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 April 30, 2019, the registrant’s outstanding common stock consisted of 48,031,323 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: 

significant risks related to the construction 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 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/or realize benefits of our domestic and/or international investments, commercial alliances, partnerships, joint ventures, acquisitions, dispositions and other strategic initiatives and transactions;
risks 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;
the failure of third-party providers of components, manufacturing, installation services and customer support services to appropriately deliver the contracted goods or services; and
our ability to bring advanced technologies to market to keep pace with our customers and competitors.

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 filed with the Securities and Exchange Commission (“SEC”) as amended by Amendment No. 1 to Form 10-K on Form 10-K/A filed with the SEC (collectively referred to as our “Form 10-K”), 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.

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
(Dollars in thousands, except per share amounts)
 
 
As of
 
 
March 31, 2019
 
December 31, 2018
Assets
 
(Unaudited) 
 
(Audited)
Current assets:
 
 

 
 

Cash and cash equivalents
 
$
1,349,724

 
$
928,306

Marketable investment securities, at fair value
 
1,925,108

 
2,282,152

Trade accounts receivable and contract assets, net (Note 3)
 
216,558

 
201,096

Trade accounts receivable - DISH Network
 
19,510

 
14,200

Inventory
 
76,114

 
75,379

Prepaids and deposits
 
66,119

 
61,177

Other current assets
 
24,508

 
18,539

Total current assets
 
3,677,641

 
3,580,849

Noncurrent assets:
 
 

 
 

Property and equipment, net
 
3,363,404

 
3,414,908

Operating lease right-of-use assets
 
115,647

 

Regulatory authorizations, net
 
494,253

 
495,654

Goodwill
 
504,173

 
504,173

Other intangible assets, net
 
40,550

 
44,231

Investments in unconsolidated entities
 
227,828

 
262,473

Other receivables - DISH Network
 
95,889

 
95,114

Other noncurrent assets, net
 
259,506

 
263,892

Total noncurrent assets
 
5,101,250

 
5,080,445

Total assets
 
$
8,778,891

 
$
8,661,294

Liabilities and Stockholders’ Equity
 
 

 
 

Current liabilities:
 
 

 
 

Trade accounts payable
 
$
115,752

 
$
121,437

Trade accounts payable - DISH Network
 
2,826

 
1,698

Current portion of long-term debt and finance lease obligations
 
953,636

 
959,577

Contract liabilities
 
90,180

 
72,284

Accrued interest
 
55,552

 
47,416

Accrued compensation
 
35,161

 
54,242

Accrued taxes
 
17,455

 
16,013

Accrued expenses and other
 
75,443

 
72,470

Total current liabilities
 
1,346,005

 
1,345,137

Noncurrent liabilities:
 
 

 
 

Long-term debt and finance lease obligations, net
 
2,563,429

 
2,573,204

Deferred tax liabilities, net
 
475,464

 
465,933

Operating lease liabilities
 
95,215

 

Other noncurrent liabilities
 
119,242

 
121,546

Total noncurrent liabilities
 
3,253,350

 
3,160,683

Total liabilities
 
4,599,355

 
4,505,820

Commitments and contingencies (Note 15)
 


 


Stockholders’ equity:
 
 

 
 

Preferred stock, $0.001 par value, 20,000,000 shares authorized, none issued and outstanding at each of March 31, 2019 and December 31, 2018
 

 

Common stock, $0.001 par value, 4,000,000,000 shares authorized:
 
 

 
 

Class A common stock, $0.001 par value, 1,600,000,000 shares authorized, 54,514,833 shares issued and 48,029,912 shares outstanding at March 31, 2019 and 54,142,566 shares issued and 47,657,645 shares outstanding at December 31, 2018
 
54

 
54

Class B convertible common stock, $0.001 par value, 800,000,000 shares authorized, 47,687,039 shares issued and outstanding at each of March 31, 2019 and December 31, 2018
 
48

 
48

Class C convertible common stock, $0.001 par value, 800,000,000 shares authorized, none issued and outstanding at each of March 31, 2019 and December 31, 2018
 

 

Class D common stock, $0.001 par value, 800,000,000 shares authorized, none issued and outstanding at each of March 31, 2019 and December 31, 2018
 

 

Additional paid-in capital
 
3,713,777

 
3,702,522

Accumulated other comprehensive loss
 
(124,251
)
 
(125,100
)
Accumulated earnings
 
709,928

 
694,129

Treasury stock, at cost
 
(131,454
)
 
(131,454
)
Total EchoStar Corporation stockholders’ equity
 
4,168,102

 
4,140,199

Other noncontrolling interests
 
11,434

 
15,275

Total stockholders’ equity
 
4,179,536

 
4,155,474

Total liabilities and stockholders’ equity
 
$
8,778,891

 
$
8,661,294




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

1

Table of Contents


ECHOSTAR CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
(Unaudited)
 
 
For the three months
ended March 31,
 
 
2019
 
2018
Revenue:
 
 

 
 

Services and other revenue - DISH Network
 
$
85,888

 
$
103,805

Services and other revenue - other
 
393,480

 
355,040

Equipment revenue
 
51,714

 
42,947

Total revenue
 
531,082

 
501,792

 
 
 
 
 
Costs and expenses:
 
 

 
 

Cost of sales - services and other (exclusive of depreciation and amortization)
 
153,571

 
148,745

Cost of sales - equipment (exclusive of depreciation and amortization)
 
45,007

 
39,071

Selling, general and administrative expenses
 
112,134

 
103,275

Research and development expenses
 
6,888

 
7,137

Depreciation and amortization
 
154,221

 
145,554

Total costs and expenses
 
471,821

 
443,782

Operating income
 
59,261

 
58,010

 
 
 
 
 
Other income (expense):
 
 

 
 

Interest income
 
24,429

 
15,635

Interest expense, net of amounts capitalized
 
(59,882
)
 
(62,751
)
Gains (losses) on investments, net
 
6,418

 
(36,663
)
Equity in losses of unconsolidated affiliates, net
 
(6,353
)
 
(1,009
)
Other, net
 
(685
)
 
204

Total other expense, net
 
(36,073
)
 
(84,584
)
Income (loss) before income taxes
 
23,188

 
(26,574
)
Income tax benefit (provision), net
 
(8,180
)
 
5,403

Net income (loss)
 
15,008

 
(21,171
)
Less: Net income attributable to noncontrolling interests
 
806

 
380

Net income (loss) attributable to EchoStar Corporation common stock
 
$
14,202

 
$
(21,551
)
 
 
 
 
 
Earnings per share - Class A and B common stock:
 
 

 
 

Basic earnings (loss) per share
 
$
0.15

 
$
(0.22
)
Diluted earnings (loss) per share
 
$
0.15

 
$
(0.22
)













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

2

Table of Contents


ECHOSTAR CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Dollars in thousands)
(Unaudited)
 
 
For the three months
ended March 31,
 
 
2019
 
2018
Comprehensive income (loss):
 
 

 
 

Net income (loss)
 
$
15,008

 
$
(21,171
)
Other comprehensive income, net of tax:
 
 

 
 

Foreign currency translation adjustments
 
911

 
8,592

Unrealized gains (losses) on available-for-sale securities and other
 
487

 
(532
)
Amounts reclassified to net income:
 
 
 
 
Realized gains on available-for-sale securities
 
(549
)
 

Total other comprehensive income, net of tax
 
849

 
8,060

Comprehensive income (loss)
 
15,857

 
(13,111
)
Less: Comprehensive income attributable to noncontrolling interests
 
806

 
166

Comprehensive income (loss) attributable to EchoStar Corporation
 
$
15,051

 
$
(13,277
)


































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

3

Table of Contents


ECHOSTAR CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2019 AND 2018
(Dollars 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, December 31, 2017
 
$
102

 
$
3,669,461

 
$
(130,154
)
 
$
721,316

 
$
(98,162
)
 
$
14,822

 
$
4,177,385

Cumulative effect of accounting changes as of January 1, 2018
 

 

 
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
 

 
3,456

 

 

 

 

 
3,456

Employee benefits
 

 
7,605

 

 

 

 

 
7,605

Employee Stock Purchase Plan
 

 
2,636

 

 

 

 

 
2,636

Stock-based compensation
 

 
2,765

 

 

 

 

 
2,765

R&D tax credits utilized by DISH Network
 

 
(218
)
 

 

 

 

 
(218
)
Other comprehensive income (loss)
 

 

 
8,374

 

 

 
(214
)
 
8,160

Net income (loss)
 

 

 

 
(21,551
)
 

 
380

 
(21,171
)
Other, net
 

 
(128
)
 
(100
)
 

 

 

 
(228
)
Balance, March 31, 2018
 
$
102

 
$
3,685,577

 
$
(111,413
)
 
$
714,423

 
$
(98,162
)
 
$
14,988

 
$
4,205,515

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, December 31, 2018
 
$
102

 
$
3,702,522

 
$
(125,100
)
 
$
694,129

 
$
(131,454
)
 
$
15,275

 
$
4,155,474

Issuances of Class A common stock:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

Exercise of stock options
 

 
2,046

 

 

 

 

 
2,046

Employee benefits
 

 
6,654

 

 

 

 

 
6,654

Employee Stock Purchase Plan
 

 
2,749

 

 

 

 

 
2,749

Stock-based compensation
 

 
2,628

 

 

 

 

 
2,628

R&D tax credits utilized by DISH Network
 

 
(156
)
 

 

 

 

 
(156
)
Noncontrolling interest purchase
 

 
(2,666
)
 

 

 

 
(4,647
)
 
(7,313
)
Other comprehensive income
 

 

 
849

 

 

 

 
849

Net income
 

 

 

 
14,202

 

 
806

 
15,008

Other, net
 

 

 

 
1,597

 

 

 
1,597

Balance, March 31, 2019
 
$
102

 
$
3,713,777

 
$
(124,251
)
 
$
709,928

 
$
(131,454
)
 
$
11,434

 
$
4,179,536







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
(Dollars in thousands)
(Unaudited)
 
 
For the three months ended March 31,
 
 
2019
 
2018
Cash flows from operating activities:
 
 

 
 

Net income (loss)
 
$
15,008

 
$
(21,171
)
Adjustments to reconcile net income to net cash flows from operating activities:
 
 

 
 

Depreciation and amortization
 
154,221

 
145,554

Equity in losses of unconsolidated affiliates, net
 
6,353

 
1,009

Amortization of debt issuance costs
 
2,010

 
1,936

(Gains) losses on investments, net
 
(6,418
)
 
36,673

Stock-based compensation
 
2,628

 
2,765

Deferred tax (benefit) provision
 
6,455

 
(7,036
)
Changes in current assets and current liabilities, net:
 
 
 
 
Trade accounts receivable, net
 
(19,231
)
 
23,153

Trade accounts receivable - DISH Network
 
(5,310
)
 
(13,473
)
Inventory
 
(1,036
)
 
(2,297
)
Other current assets
 
(4,024
)
 
(10,926
)
Trade accounts payable
 
8,831

 
(6,471
)
Trade accounts payable - DISH Network
 
1,128

 
(1,011
)
Accrued expenses and other
 
6,854

 
(2,288
)
Changes in noncurrent assets and noncurrent liabilities, net
 
5,563

 
(13,982
)
Other, net
 
2,914

 
2,840

Net cash flows from operating activities
 
175,946

 
135,275

Cash flows from investing activities:
 
 

 
 

Purchases of marketable investment securities
 
(325,557
)
 
(562,611
)
Sales and maturities of marketable investment securities
 
712,666

 
298,596

Expenditures for property and equipment
 
(111,962
)
 
(128,506
)
Refunds and other receipts related to property and equipment
 

 
77,524

Expenditures for externally marketed software
 
(7,600
)
 
(7,148
)
Net cash flows from investing activities
 
267,547

 
(322,145
)
Cash flows from financing activities:
 
 

 
 

Repayment of debt and finance lease obligations
 
(9,882
)
 
(9,368
)
Repurchase of debt
 
(8,046
)
 

Net proceeds from Class A common stock options exercised
 
2,047

 
3,481

Net proceeds from Class A common stock issued under the Employee Stock Purchase Plan
 
2,749

 
2,636

Noncontrolling interest purchase
 
(7,313
)
 

Repayment of in-orbit incentive obligations
 
(1,573
)
 
(1,265
)
Other, net
 
(131
)
 
(243
)
Net cash flows from financing activities
 
(22,149
)
 
(4,759
)
Effect of exchange rates on cash and cash equivalents
 
(133
)
 
(242
)
Net increase (decrease) in cash and cash equivalents, including restricted amounts
 
421,211

 
(191,871
)
Cash and cash equivalents, including restricted amounts, beginning of period
 
929,495

 
2,432,249

Cash and cash equivalents, including restricted amounts, end of period
 
$
1,350,706

 
$
2,240,378

 
 
 
 
 
Supplemental disclosure of cash flow information:
 
 

 
 

Cash paid for interest, net of amounts capitalized
 
$
54,572

 
$
51,073

Cash paid for income taxes
 
$
772

 
$
839








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 (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 and has operated as a separately traded public company from DISH Network Corporation (“DISH”) since 2008. Our Class A common stock is publicly traded on the Nasdaq Global Select Market under the symbol “SATS.”

We are a global provider of broadband satellite technologies, broadband internet services for home and small office customers, satellite operations and satellite services. We also deliver innovative network technologies, managed services and various communications solutions for aeronautical, enterprise and government customers. We primarily operate in the following two business segments:
 
Hughes — which provides broadband satellite technologies and broadband internet services to domestic and international home and small office customers and broadband network technologies, managed services, equipment, hardware, satellite services and communication solutions to domestic and international consumers and aeronautical, enterprise and government customers. The Hughes segment also designs, provides and installs gateway and terminal equipment to customers for other satellite systems. In addition, our Hughes segment designs, develops, constructs and provides telecommunication networks comprising satellite ground segment systems and terminals to mobile system operators and our enterprise customers.
EchoStar Satellite Services (“ESS”) — which uses certain of our owned and leased in-orbit satellites and related licenses to provide satellite operations and satellite services on a full-time and/or occasional-use basis primarily to DISH Network Corporation and its subsidiaries (“DISH Network”), our joint venture Dish Mexico, S. de R.L. de C.V., (“Dish Mexico”), United States (“U.S.”) government service providers, internet service providers, broadcast news organizations, content providers and private enterprise customers.
 
Our operations also include various corporate departments (primarily Executive, Treasury, Strategic Development, Human Resources, IT, Finance, Real Estate, Accounting and Legal) and other activities that have not been assigned to our operating segments such as costs incurred in certain satellite development programs and other business development activities, and gains or losses from certain of our investments. These activities, costs and income, as well as eliminations of intersegment transactions, are accounted for in Corporate and Other in our segment reporting.
 
During 2017, we and certain of our subsidiaries entered into a share exchange agreement (the “Share Exchange Agreement”) with DISH and certain of its subsidiaries. We, and certain of our subsidiaries, received all of the shares of the Hughes Retail Preferred Tracking Stock previously issued by us and one of our subsidiaries (together, the “Tracking Stock”) in exchange for 100% of the equity interests of certain of our subsidiaries that held substantially all of our former EchoStar Technologies businesses and certain other assets (collectively, the “Share Exchange”). Following the consummation of the Share Exchange, we no longer operate our former EchoStar Technologies businesses, the Tracking Stock was retired and is no longer outstanding, and all agreements, arrangements and policy statements with respect to the Tracking Stock terminated. As a result of the Share Exchange, the operating results of the EchoStar Technologies businesses were presented as discontinued operations in our historical consolidated financial statements in our Form 10-K.


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ECHOSTAR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
Basis of Presentation
 
The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the U.S. (“U.S. GAAP”) and with the instructions to Form 10-Q and Article 10 of Regulation S-X for interim financial information. Accordingly, these financial statements do not include all of the information and notes required for complete financial statements prepared in conformity with U.S. GAAP. In our opinion, all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation have been included. However, our results of operations for the interim periods presented are not necessarily indicative of the results that may be expected for the full year. For further information, refer to the consolidated financial statements and notes thereto included in our Form 10-K for the year ended December 31, 2018.

Principles of Consolidation
 
We consolidate all entities in which we have a controlling financial interest. We are deemed to have a controlling financial interest in variable interest entities where we are the primary beneficiary. We are deemed to have a controlling financial interest in other entities when we own more than 50% of the outstanding voting shares and other shareholders do not have substantive rights to participate in management. For entities we control but do not wholly own, we record a noncontrolling interest within stockholders’ equity for the portion of the entity’s equity attributed to the noncontrolling ownership interests. All significant intercompany balances and transactions have been eliminated in consolidation.
 
Reclassification

Certain prior period amounts have been reclassified to conform with the current period presentation.

Recently Adopted Accounting Pronouncements

Leases

We adopted ASU No. 2016-02-Leases (Topic 842), as amended, or ASC 842, as of January 1, 2019. The primary impact of ASC 842 on our consolidated financial statements is the recognition of right-of-use assets and related liabilities on our consolidated balance sheet for operating leases where we are the lessee. We have elected to initially apply the requirements of the new standard on January 1, 2019 and we have not restated our consolidated financial statements for prior periods. Consequently, certain amounts reported in our Condensed Consolidated Balance Sheet as of March 31, 2019 are not comparable to those reported as of December 31, 2018 or earlier dates. Our adoption of ASC 842 did not have a material impact on the results of our operations or on our cash flows for the three months ended March 31, 2019.

Under ASC 842, leases are classified either as operating leases or finance leases. The lease classification affects the recognition of lease expense by lessees in the statement of operations. Consistent with prior accounting standards, operating lease expense is included in operating expenses, while finance lease expense is split between depreciation expense and interest expense. ASC 842 does not fundamentally change the lessor accounting model, which requires leases to be classified as operating leases or sales-type leases. Operating lease revenue generally is recognized over the lease term, while sales-type lease revenue is recognized primarily upon lease commencement, except for amounts representing interest on related accounts receivable.

Except for the new requirement to recognize assets and liabilities on the balance sheet for operating leases where we are the lessee, under our ASC 842 transition method we continue to apply prior accounting standards to leases that commenced prior to 2019. We fully apply ASC 842 requirements only to leases that commenced or were modified on or after January 1, 2019. We elected certain practical expedients under our transition method, including elections to not reassess (i) whether a contract is or contains a lease and (ii) the classification of existing leases. We also elected not to apply hindsight in determining whether optional renewal periods should be included in the lease term, which in some instances may impact the initial measurement of the lease liability and the calculation of straight-line expense over the lease term for operating leases. As a result of our transition elections, there was no change in our recognition of revenue and expense for leases that commenced prior to 2019. In addition, the application of ASC 842 requirements

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ECHOSTAR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

to new and modified leases did not materially affect our recognition of revenue or expenses for the three months ended March 31, 2019.

Our adoption of ASC 842 resulted in the following adjustments to our Condensed Consolidated Balance Sheet as of December 31, 2018.

 
 
As Reported December 31,2018
 
Adoption of ASC 842 Increase (Decrease)
 
Balance January 1, 2019
 
 
(in thousands)
Prepaids and deposits
 
$
61,177

 
$
(28
)
 
$
61,149

Operating lease right-of-use assets
 
$

 
$
120,358

 
$
120,358

Other noncurrent assets, net
 
$
263,892

 
$
(7,272
)
 
$
256,620

Total assets
 
$
8,661,294

 
$
113,058

 
$
8,774,352

Accrued expenses and other
 
$
72,470

 
$
17,453

 
$
89,923

Operating lease liabilities
 
$

 
$
100,085

 
$
100,085

Other noncurrent liabilities
 
$
121,546

 
$
(3,871
)
 
$
117,675

Total liabilities
 
$
4,505,820

 
$
113,667

 
$
4,619,487

Accumulated earnings
 
$
694,129

 
$
(609
)
 
$
693,520

Total stockholders’ equity
 
$
4,155,474

 
$
(609
)
 
$
4,154,865

Total liabilities and stockholders’ equity
 
$
8,661,294

 
$
113,058

 
$
8,774,352



Our accounting policies under ASC 842 are summarized below. Additional disclosures required by the new standard are included in Note 4.

Lessee Accounting

We lease real estate, satellite capacity and equipment in the conduct of our business operations. For contracts entered into on or after January 1, 2019, we assess at contract inception whether the contract is, or contains a lease. Generally, we determine that a lease exists when (i) the contract involves the use of a distinct identified asset, (ii) we obtain the right to substantially all economic benefits from use of the asset and (iii) we have the right to direct the use of the asset. A lease is classified as a finance lease when one or more of the following criteria are met: (i) the lease transfers ownership of the asset by the end of the lease term, (ii) the lease contains an option to purchase the asset that is reasonably certain to be exercised, (iii) the lease term is for a major part of the remaining useful life of the asset, (iv) the present value of the lease payments equals or exceeds substantially all of the fair value of the asset or (v) the asset is of a specialized nature and there is not expected to an alternative use to the lessor at the end of the lease term. A lease is classified as an operating lease if it does not meet any of these criteria.

At the lease commencement date, we recognize a right-of-use asset and a lease liability for all leases, except short-term leases with an original term of 12 months or less. The right-of-use asset represents the right to use the leased asset for the lease term. The lease liability represents the present value of the lease payments under the lease. The right-of-use asset is initially measured at cost, which primarily comprises the initial amount of the lease liability, plus any prepayments to the lessor and initial direct costs such as brokerage commissions, less any lease incentives received. All right-of-use assets are periodically reviewed for impairment in accordance with standards that apply to long-lived assets. The lease liability is initially measured at the present value of the lease payments, discounted using an estimate of our incremental borrowing rate for a collateralized loan with the same term as the underlying lease. The incremental borrowing rates used for the initial measurement of lease liabilities as of January 1, 2019 were based on the original lease terms.

Lease payments included in the measurement of lease liabilities consist of (i) fixed lease payments for the noncancelable lease term, (ii) fixed lease payments for optional renewal periods where it is reasonably certain the renewal option will

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ECHOSTAR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

be exercised, and (iii) variable lease payments that depend on an underlying index or rate, based on the index or rate in effect at lease commencement. Certain of our real estate lease agreements require payments for non-lease costs such as utilities and common area maintenance. We have elected an accounting policy, as permitted by ASC 842, not to account for such payments separately from the related lease payments. Our policy election results in a higher initial measurement of lease liabilities when such non-lease payments are fixed amounts. Certain of our real estate lease agreements require variable lease payments that do not depend on an underlying index or rate, such as sales and value-added taxes and our proportionate share of actual property taxes, insurance and utilities. Such payments and changes in payments based on a rate or index are recognized in operating expenses when incurred.

Lease expense for operating leases consists of the fixed lease payments recognized on a straight-line basis over the lease term plus variable lease payments as incurred. Lease expense for finance leases consists of the amortization of the right-of-use asset on a straight-line basis over the lease term and interest expense on the lease liability based on the discount rate at lease commencement. For both operating and finance leases, lease payments are allocated between a reduction of the lease liability and interest expense. Amortization of the right-of-use asset for operating leases reflects amortization of the lease liability, any differences between straight-line expense and related lease payments during the accounting period, and any impairments.

Lessor Accounting

We lease satellite capacity, communications equipment and real estate to certain of our customers, including DISH Network. We identify and determine the classification of such leases as operating leases or sales-type leases based on the criteria discussed above for lessees. A lease is classified as a sales-type lease if it meets the above criteria for a finance lease; otherwise it is classified as an operating lease. Some of our leases are embedded in contracts with customers that include non-lease performance obligations. For such contracts, except where we have elected otherwise as discussed below, we allocate consideration in the contract between lease and non-lease components based on their relative standalone selling prices. We have elected an accounting policy, as permitted by ASC 842, to not separate the lease of equipment from related services in our HughesNet broadband internet service contracts with consumers. We account for all revenue from such contracts as non-lease service revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers.

Our accounting for revenue from operating leases and sales-type leases was not substantially changed by our adoption of ASC 842. However, we anticipate that certain leases that would have been classified as operating leases under prior accounting standards may be classified as sales-type leases under ASC 842. Operating lease revenue generally is recognized on a straight-line basis over the lease term. Sales-type lease revenue and a corresponding receivable generally are recognized at lease commencement based on the present value of the future lease payments and related interest income on the receivable is recognized over the lease term. Payments under sales-type leases generally are discounted at the interest rate implicit in the lease.

Recently Issued Accounting Pronouncements Not Yet Adopted

Credit Losses

In June 2016, the FASB issued ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments, which introduces a new approach to estimate credit losses on certain types of financial instruments based on expected losses instead of incurred losses. It also modifies the impairment model for available-for-sale debt securities and provides a simplified accounting model for purchased financial assets with credit deterioration since their origination. ASU No. 2016-13 is effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years. Early adoption is permitted. We are currently assessing the impact of adopting this new accounting standard on our Consolidated Financial Statements and related disclosures.


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ECHOSTAR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 3.     REVENUE RECOGNITION

Information About Contract Balances

The following table provides information about our contract balances with customers, including amounts for certain embedded leases.
 
 
As of
 
 
March 31, 2019
 
December 31, 2018
 
 
(In thousands)
Trade accounts receivable:
 
 
 
 
Sales and services
 
$
164,310

 
$
154,415

Leasing
 
7,776

 
7,990

Total
 
172,086

 
162,405

Contract assets
 
58,500

 
55,295

Allowance for doubtful accounts
 
(14,028
)
 
(16,604
)
Total trade accounts receivable and contract assets, net
 
$
216,558

 
$
201,096

 
 
 
 
 
Trade accounts receivable - DISH Network:
 
 
 
 
Sales and services
 
$
17,252

 
$
12,274

Leasing
 
2,258

 
1,926

Total trade accounts receivable - DISH Network, net
 
$
19,510

 
$
14,200

 
 
 
 
 
Contract liabilities:
 
 
 
 
Current
 
$
90,180

 
$
72,284

Noncurrent
 
10,778

 
10,133

Total contract liabilities
 
$
100,958

 
$
82,417



For the three months ended March 31, 2019, we recognized revenue of $39 million that was previously included in the contract liability balance at December 31, 2018.

Our bad debt expense was $4 million and $5 million for the three months ended March 31, 2019 and 2018, respectively.

Transaction Price Allocated to Remaining Performance Obligations

As of March 31, 2019, the remaining performance obligations for our customer contracts with original expected durations of more than one year was $1.1 billion. We expect to recognize approximately 36% of our remaining performance obligations of these contracts as revenue in the next twelve months. This amount excludes agreements with consumer customers in our Hughes segment and our leasing arrangements.


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

Disaggregation of Revenue

In the following tables, revenue is disaggregated by segment, primary geographic market, nature of the products and services and transactions with major customers.  See Note 4 for additional information about revenue associated with leases.

Geographic Information

The following table disaggregates revenue from customer contracts attributed to our North America (the U.S and its territories, Mexico and Canada), South and Central America and other foreign locations as well as by segment, based on the location where the goods or services are provided. All other revenue includes transactions with customers in Asia, Africa, Australia, Europe, and the Middle East.

 
 
Hughes
 
ESS
 
Corporate and Other
 
Consolidated
Total
 
 
(In thousands)
For the three months ended March 31, 2019
 
 
 
 
 
 
 
 
North America
 
$
367,829

 
$
81,084

 
$
4,661

 
$
453,574

South and Central America
 
26,863

 

 

 
26,863

All other
 
50,645

 
175

 
(175
)
 
50,645

Total revenue
 
$
445,337

 
$
81,259

 
$
4,486

 
$
531,082

 
 
 
 
 
 
 
 
 
For the three months ended March 31, 2018
 
 
 
 
 
 
 
 
North America
 
$
336,020

 
$
96,578

 
$
4,396

 
$
436,994

South and Central America
 
24,488

 

 

 
24,488

All other
 
40,310

 
175

 
(175
)
 
40,310

Total revenue
 
$
400,818

 
$
96,753

 
$
4,221

 
$
501,792



Nature of Products and Services

The following table disaggregates revenue based on the nature of products and services and by segment.
 
 
Hughes
 
ESS
 
Corporate and Other
 
Consolidated
Total
 
 
(In thousands)
For the three months ended March 31, 2019
 
 
 
 
 
 
 
 
Equipment
 
$
25,960

 
$

 
$

 
$
25,960

Services
 
380,783

 
3,740

 
1,736

 
386,259

Design, development and construction services
 
25,066

 

 

 
25,066

Revenue from sales and services
 
431,809

 
3,740

 
1,736