EchoStar Corporation

View:

Download DOC

Download PDF

Download XLS

Download XBRL

Document

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2019.

☐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 ☒ No ☐

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 ☒ No ☐

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	☒	Accelerated filer	☐	Emerging growth company	☐
Non-accelerated filer	☐	Smaller reporting company	☐

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. ☐

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

As of August 1, 2019, the registrant’s outstanding common stock consisted of 49,719,391 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



Disclosure Regarding Forward-Looking Statements		i

	PART I - FINANCIAL INFORMATION

Item 1.	Financial Statements	1
	Condensed Consolidated Balance Sheets as of June 30, 2019 (unaudited) and December 31, 2018 (audited)	1
	Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2019 and 2018 (unaudited)	2
	Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and six months ended June 30, 2019 and 2018 (unaudited)	3
	Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three months ended June 30, 2019 and 2018 (unaudited)	4
	Condensed Consolidated Statements of Changes in Stockholders’ Equity for the six months ended June 30, 2019 and 2018 (unaudited)	5
	Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2019 and 2018 (unaudited)	6
	Notes to Condensed Consolidated Financial Statements (unaudited)	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	43
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	67
Item 4.	Controls and Procedures	69

	PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	70
Item 1A.	Risk Factors	70
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	76
Item 3.	Defaults Upon Senior Securities	76
Item 4.	Mine Safety Disclosures	76
Item 5.	Other Information	76
Item 6.	Exhibits	77
	Signatures	78

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 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 including, without limitation, the pending BSS Transaction (as defined herein);


•	lawsuits relating to the BSS Transaction could result in substantial costs and may delay or prevent the BSS Transaction from being consummated at all or on the terms provided for in the Master Transaction Agreement (as defined herein);


•	the possibility that the BSS Transaction will not be consummated on the terms or timeline currently contemplated, or at all. We have and will continue to expend time and resources of management and to incur legal, advisory and financial services fees related to the BSS Transaction regardless of whether the BSS Transaction is consummated;


•	uncertainty regarding the BSS Transaction may cause customers, suppliers or strategic partners to delay or defer decisions concerning us and adversely affect our ability to effectively manage our business;


•	if the BSS Transaction is not consummated, 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;


•	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

Table of Contents

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.

Table of Contents

PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ECHOSTAR CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in thousands, except per share amounts)



	As of
	June 30, 2019			December 31, 2018
Assets	(Unaudited)			(Audited)
Current assets:
Cash and cash equivalents	$	1,298,005		$	928,306
Marketable investment securities, at fair value	1,203,308			2,282,152
Trade accounts receivable and contract assets, net (Note 3)	201,561			201,096
Trade accounts receivable - DISH Network	13,943			14,200
Inventory	73,345			75,379
Prepaids and deposits	65,589			61,177
Other current assets	19,857			18,539
Total current assets	2,875,608			3,580,849
Noncurrent assets:
Property and equipment, net	3,329,794			3,414,908
Operating lease right-of-use assets	113,643			—
Goodwill	504,173			504,173
Regulatory authorizations, net	493,661			495,654
Other intangible assets, net	36,869			44,231
Investments in unconsolidated entities	225,582			262,473
Other receivables - DISH Network	96,733			95,114
Other noncurrent assets, net	274,028			263,892
Total noncurrent assets	5,074,483			5,080,445
Total assets	$	7,950,091		$	8,661,294
Liabilities and Stockholders’ Equity
Current liabilities:
Trade accounts payable	$	105,929		$	121,437
Trade accounts payable - DISH Network	1,113			1,698
Current portion of long-term debt and finance lease obligations	42,682			959,577
Contract liabilities	106,308			72,284
Accrued interest	42,835			47,416
Accrued compensation	44,829			54,242
Accrued taxes	16,221			16,013
Accrued expenses and other	111,745			72,470
Total current liabilities	471,662			1,345,137
Noncurrent liabilities:
Long-term debt and finance lease obligations, net	2,553,352			2,573,204
Deferred tax liabilities, net	472,872			465,933
Operating lease liabilities	94,979			—
Other noncurrent liabilities	114,275			121,546
Total noncurrent liabilities	3,235,478			3,160,683
Total liabilities	3,707,140			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 June 30, 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, 56,189,672 shares issued and 49,704,751 shares outstanding at June 30, 2019 and 54,142,566 shares issued and 47,657,645 shares outstanding at December 31, 2018	56			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 June 30, 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 June 30, 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 June 30, 2019 and December 31, 2018	—			—
Additional paid-in capital	3,777,499			3,702,522
Accumulated other comprehensive loss	(119,500		)	(125,100		)
Accumulated earnings	704,236			694,129
Treasury stock, at cost	(131,454		)	(131,454		)
Total EchoStar Corporation stockholders’ equity	4,230,885			4,140,199
Noncontrolling interests	12,066			15,275
Total stockholders’ equity	4,242,951			4,155,474
Total liabilities and stockholders’ equity	$	7,950,091		$	8,661,294

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

Table of Contents

ECHOSTAR CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Amounts in thousands, except per share amounts)

(Unaudited)



	For the three months ended June 30,						For the six months ended June 30,
	2019			2018			2019			2018
Revenue:
Services and other revenue - DISH Network	$	85,057		$	100,171		$	170,945		$	203,976
Services and other revenue - other	394,422			375,445			787,902			730,485
Equipment revenue	57,645			50,341			109,359			93,288
Total revenue	537,124			525,957			1,068,206			1,027,749

Costs and expenses:
Cost of sales - services and other (exclusive of depreciation and amortization)	153,198			151,157			306,769			299,902
Cost of sales - equipment (exclusive of depreciation and amortization)	46,549			41,865			91,556			80,936
Selling, general and administrative expenses	152,629			103,074			264,763			206,349
Research and development expenses	6,388			6,647			13,276			13,784
Depreciation and amortization	155,410			148,449			309,631			294,003
Total costs and expenses	514,174			451,192			985,995			894,974
Operating income	22,950			74,765			82,211			132,775

Other income (expense):
Interest income	23,213			19,253			47,642			34,888
Interest expense, net of amounts capitalized	(60,163		)	(61,534		)	(120,045		)	(124,285		)
Gains (losses) on investments, net	12,856			65,396			19,791			28,733
Equity in losses of unconsolidated affiliates, net	(4,754		)	(2,058		)	(11,107		)	(3,067		)
Other, net	1,760			(336		)	558			(132		)
Total other income (expense), net	(27,088		)	20,721			(63,161		)	(63,863		)
Income (loss) before income taxes	(4,138		)	95,486			19,050			68,912
Income tax provision, net	(922		)	(17,802		)	(9,102		)	(12,399		)
Net income (loss)	(5,060		)	77,684			9,948			56,513
Less: Net income attributable to noncontrolling interests	632			462			1,438			842
Net income (loss) attributable to EchoStar Corporation common stock	$	(5,692	)	$	77,222		$	8,510		$	55,671

Earnings per share - Class A and B common stock:
Basic earnings (loss) per share	$	(0.06	)	$	0.80		$	0.09		$	0.58
Diluted earnings (loss) per share	$	(0.06	)	$	0.80		$	0.09		$	0.57

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

Table of Contents

ECHOSTAR CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Amounts in thousands)

(Unaudited)



	For the three months ended June 30,						For the six months ended June 30,
	2019			2018			2019			2018
Net income (loss)	$	(5,060	)	$	77,684		$	9,948		$	56,513
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments	2,896			(43,727		)	3,807			(35,135		)
Unrealized gains on available-for-sale securities and other	1,872			547			2,359			15
Amounts reclassified to net income (loss):
Realized gains on available-for-sale securities	(17		)	(3		)	(566		)	(3		)
Total other comprehensive income (loss), net of tax	4,751			(43,183		)	5,600			(35,123		)
Comprehensive income (loss)	(309		)	34,501			15,548			21,390
Less: Comprehensive income (loss) attributable to noncontrolling interests	632			(123		)	1,438			43
Comprehensive income (loss) attributable to EchoStar Corporation	$	(941	)	$	34,624		$	14,110		$	21,347

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

Table of Contents

ECHOSTAR CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

FOR THE THREE MONTHS ENDED JUNE 30, 2019 AND 2018

(Amounts in thousands)

(Unaudited)



	Class A and B Common Stock		Additional Paid-In Capital			Accumulated Other Comprehensive Loss			Accumulated Earnings			Treasury Stock			Noncontrolling Interests			Total
Balance, March 31, 2018	$	102	$	3,685,577		$	(111,413	)	$	714,423		$	(98,162	)	$	14,988		$	4,205,515
Issuances of Class A common stock:
Exercise of stock options	—		589			—			—			—			—			589
Employee Stock Purchase Plan	—		2,250			—			—			—			—			2,250
Stock-based compensation	—		2,345			—			—			—			—			2,345
R&D tax credits utilized by DISH Network	—		(1,580		)	—			—			—			—			(1,580		)
Other comprehensive loss	—		—			(42,457		)	—			—			(585		)	(43,042		)
Net income	—		—			—			77,222			—			462			77,684
Other, net	—		(1		)	(141		)	633			—			—			491
Balance, June 30, 2018	$	102	$	3,689,180		$	(154,011	)	$	792,278		$	(98,162	)	$	14,865		$	4,244,252

Balance, March 31, 2019	$	102	$	3,713,777		$	(124,251	)	$	709,928		$	(131,454	)	$	11,434		$	4,179,536
Issuances of Class A common stock:
Exercise of stock options	2		59,455			—			—			—			—			59,457
Employee Stock Purchase Plan	—		2,325			—			—			—			—			2,325
Stock-based compensation	—		2,205			—			—			—			—			2,205
R&D tax credits utilized by DISH Network	—		(263		)	—			—			—			—			(263		)
Other comprehensive income	—		—			4,751			—			—			—			4,751
Net income (loss)	—		—			—			(5,692		)	—			632			(5,060		)
Balance, June 30, 2019	$	104	$	3,777,499		$	(119,500	)	$	704,236		$	(131,454	)	$	12,066		$	4,242,951

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

Table of Contents

ECHOSTAR CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

FOR THE SIX MONTHS ENDED JUNE 30, 2019 AND 2018

(Amounts in thousands)

(Unaudited)



	Class A and B Common Stock		Additional Paid-In Capital			Accumulated Other Comprehensive Loss			Accumulated Earnings		Treasury Stock			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	—		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		)
Other comprehensive loss	—		—			(34,083		)	—		—			(799		)	(34,882		)
Net income	—		—			—			55,671		—			842			56,513
Other, net	—		(129		)	(241		)	633		—			—			263
Balance, June 30, 2018	$	102	$	3,689,180		$	(154,011	)	$	792,278	$	(98,162	)	$	14,865		$	4,244,252

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		61,501			—			—		—			—			61,503
Employee benefits	—		6,654			—			—		—			—			6,654
Employee Stock Purchase Plan	—		5,074			—			—		—			—			5,074
Stock-based compensation	—		4,833			—			—		—			—			4,833
R&D tax credits utilized by DISH Network	—		(419		)	—			—		—			—			(419		)
Purchase of noncontrolling interest	—		(2,666		)	—			—		—			(4,647		)	(7,313		)
Other comprehensive income	—		—			5,600			—		—			—			5,600
Net income	—		—			—			8,510		—			1,438			9,948
Other, net	—		—			—			1,597		—			—			1,597</