# EchoStar CORP: Form 10-Q for the period ended Mar 31, 2014

- Company: [EchoStar CORP](/companies/echo.md) (CIK 1415404)
- Form: 10-Q
- Filed: 2014-05-09
- Accepted by EDGAR: May 8, 2014, 18:38 ET
- Period: 2014-03-31
- Accession: 0001104659-14-036637
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1415404/000110465914036637/a14-8954_110q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1415404/000110465914036637/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2014-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2014-01-01 to 2014-03-31 | $826.0m | us-gaap:SalesRevenueNet |
| Cost of revenue | 3 months, 2014-01-01 to 2014-03-31 | $320.7m | us-gaap:CostOfGoodsSold |
| Research and development | 3 months, 2014-01-01 to 2014-03-31 | $14.6m | us-gaap:ResearchAndDevelopmentExpense |
| Selling, general and administrative | 3 months, 2014-01-01 to 2014-03-31 | $87.6m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2014-01-01 to 2014-03-31 | $59.8m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2014-01-01 to 2014-03-31 | $46.0m | us-gaap:InterestExpense |
| Income tax | 3 months, 2014-01-01 to 2014-03-31 | $3.2m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2014-01-01 to 2014-03-31 | $12.1m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2014-01-01 to 2014-03-31 | $0.14 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2014-01-01 to 2014-03-31 | $0.14 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2014-01-01 to 2014-03-31 | 92,336,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2014-01-01 to 2014-03-31 | $201.5m | us-gaap:NetCashProvidedByUsedInOperatingActivitiesContinuingOperations |
| Capital expenditure | 3 months, 2014-01-01 to 2014-03-31 | $113.6m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2014-03-31 | $702.0m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2014-03-31 | $2.45bn | us-gaap:AssetsCurrent |
| Total assets | at 2014-03-31 | $7.24bn | us-gaap:Assets |
| Current liabilities | at 2014-03-31 | $634.5m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2014-03-31 | $3.72bn | us-gaap:Liabilities |
| Shareholders' equity | at 2014-03-31 | $3.42bn | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 4,756 characters.

Our EchoStar Technologies segment also provides digital broadcast operations, including satellite uplinking/downlinking, transmission services, signal processing, conditional access management, and other services, primarily to DISH Network. In addition, we provide our Slingboxes directly to consumers via retail outlets and online. Sling Media “placeshifting” technology gives consumers the ability, at their option, to watch and control their home digital video and audio content via a broadband internet connection.

We continue to focus on building and strengthening our brand recognition by providing unique and technologically advanced features and products. Products containing new technologies and features typically have higher initial selling prices, margins and volumes. The market for our digital set-top boxes, like other electronic products has also been characterized by regular reductions in selling prices and production costs. Our ability to sustain or increase profitability also depends in large part on our ability to control or reduce our costs of producing digital set-top boxes. Based on our experience, we expect our cost of manufacturing a specific set-top box model to decline over time as our contract manufacturers generate efficiencies with scale of production and engineering cost reductions. Overall, our success depends heavily on our ability to bring advanced technologies to market to keep pace with our competitors.

The number of potential new customers for our EchoStar Technologies segment is small and may be limited as prospective customers that have been competitors of DISH Network may continue to view us as a competitor due to our common ownership with DISH Network. We believe that our best opportunities for developing potential new customers for our EchoStar Technologies segment over the near term lie in international markets, including through joint ventures.

### Hughes Segment

Our Hughes segment is a global provider of broadband satellite technologies and services for the home and office, delivering innovative network technologies, managed services, and solutions for consumers, enterprises and governments. We continue our efforts in growing our consumer revenue, which depends on our success in adding new subscribers on our Hughes segment’s satellite networks. The addition of new subscribers, and the performance of our consumer service offering, primarily drive the revenue growth in our consumer business. Service costs related to ongoing support of our direct and indirect customers and partners are typically impacted most significantly by our growth. Long term trends continue to be influenced primarily by the subscriber growth in our consumer business. Additional capacity provided in this business by new satellite launches provides impetus for initial subscriber growth while we manage subscriber growth across our satellite platform. As a satellite fills and beams become congested, this growth rate flattens and growth is constrained until the next satellite launch or additional capacity becomes available to continue the next phase of growth. Therefore, our focus is to balance subscriber acquisition costs and subscriber growth, with capacity availability and plans aligned with the timing of additional satellite capacity becoming available.

Our Hughes segment also provides managed services to large enterprises and solutions to customers for mobile satellite systems. The fixed pricing nature of our long term enterprise contracts minimizes any significant quarter to quarter fluctuations. We continue to monitor the competitive landscape for pricing in relation to our competitors and alternative technologies. However, the growth of our enterprise businesses relies heavily on global economic conditions.

As of March 31, 2014 and December 31, 2013, our Hughes segment had approximately 914,000 and 860,000 broadband subscribers, respectively, and approximately $1.19 billion and $1.15 billion of contracted revenue backlog, respectively. Subscribers include subscriptions with HughesNet services, through retail, wholesale and small/medium enterprise service channels. We define Hughes revenue backlog as our expected future revenue under customer contracts that are non-cancelable, excluding agreements with customers in our consumer market.

### EchoStar Satellite Services Segment

Our EchoStar Satellite Services segment operates its business using 15 of our owned and leased in-orbit satellites. We provide satellite services on a full-time and occasional-use basis primarily to DISH Network, and also to Dish Mexico, U.S. government service providers, state agencies, internet service providers, broadcast news organizations, programmers and private enterprise customers.

## Market risk

As filed, 4,388 characters.

### Market Risks Associated with Financial Instruments and Foreign Currency

Our investments and debt are exposed to market risks, discussed below.

### Cash, Cash Equivalents and Current Marketable Investment Securities

As of March 31, 2014, our cash, cash equivalents and current marketable investment securities had a fair value of $1.71 billion. Of this amount, a total of $1.67 billion was invested in: (a) cash; (b) commercial paper and corporate notes with an overall average maturity of less than one year and rated in one of the four highest rating categories by at least two nationally recognized statistical rating organizations; (c) VRDNs convertible into cash at par value plus accrued interest generally in five business days or less; (d) debt instruments of the U.S. government and its agencies; and/or (e) instruments with similar risk, duration and credit quality characteristics to the commercial paper and corporate obligations described above. The primary purpose of these investing activities has been to preserve principal until the cash is required to, among other things, fund operations, make strategic investments and expand the business. Consequently, the size of this portfolio fluctuates significantly as cash is received and used in our business. The value of this portfolio may be negatively impacted by credit losses; however, this risk is mitigated through diversification that limits our exposure to any one issuer.

### Interest Rate Risk

A change in interest rates would not affect the fair value of our cash, or materially affect the fair value of our cash equivalents due to their maturities of less than 90 days. A change in interest rates would affect the fair value of our current marketable debt securities portfolio; however, we normally hold these investments to maturity. Based on our current non-strategic investment portfolio of $1.67 billion as of March 31, 2014, a hypothetical 10% change in average interest rates during 2014 would not have a material impact on the fair value of our cash, cash equivalents and debt securities portfolio due to the limited duration of our investments.

Our cash, cash equivalents and current marketable debt securities had an average annual rate of return for the three months ended March 31, 2014 of 0.7%. A change in interest rates would affect our future annual interest income from this portfolio, since funds would be re-invested at different rates as the instruments mature. A hypothetical 10% decrease in average interest rates during 2014 would have resulted in a decrease of approximately $1.0 million in annual interest income.

### Strategic Marketable Investment Securities

As of March 31, 2014, we held current strategic investments in the publicly traded common stock of several public companies with a fair value of $33.2 million. These investments, which are held for strategic and financial purposes, are concentrated in a small number of companies, are highly speculative and have experienced and continue to experience volatility. The fair value of these investments can be significantly impacted by the risk of adverse changes in securities markets generally, as well as risks related to the performance of the companies whose securities we have invested in, risks associated with specific industries, and other factors. These investments are subject to significant fluctuations in fair value due to the volatility of the securities markets and of the underlying businesses. In general, the debt instruments held in our strategic marketable investment securities portfolio are not significantly impacted by interest rate fluctuations as their value is more closely related to factors specific to the underlying business. A hypothetical 10% adverse change in the market price of our public strategic equity investments would result in a decrease of approximately $3.3 million in the fair value of these investments.

### Restricted Cash and Marketable Investment Securities and Other Investments

### Restricted Cash and Marketable Investment Securities

As of March 31, 2014, we had $19.1 million of restricted cash and marketable investment securities invested in: (a) cash; (b) VRDNs convertible into cash at par value plus accrued interest generally in five business days or less; (c) debt instruments of the U.S. government and its agencies; (d) commercial paper and corporate notes with an

## Controls and procedures

As filed, 1,151 characters.

### Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.

### Changes in Internal Control over Financial Reporting

There has been no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) that occurred during the first quarter of 2014 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. We continue to review our internal control over financial reporting, and may from time to time make changes aimed at enhancing its effectiveness and to ensure that our systems evolve with our business.

## Risk factors

As filed, 5,199 characters.

Item 1A, “Risk Factors,” of our Annual Report on Form 10-K for the year ended December 31, 2013 includes a detailed discussion of our risk factors. Except as provided below, for the three months ended March 31, 2014, there have been no material changes in our risk factors as previously disclosed.

***Our capital structure may create conflicts of interest for our board of directors and management, and our board of directors may make decisions that could adversely affect only one group of holders.***

Our preferred tracking stock capital structure could give rise to occasions when the interests of holders of stock of one group might diverge or appear to diverge from the interests of holders of stock of the other group and our board of directors or officers could make decisions that could adversely affect only one group of holders. Nevada law requires that our board of directors and officers act in good faith and with a view to the interest of the company and are not required to consider, as a dominant factor, the effect of a proposed corporate action upon any particular group of stockholders. Decisions deemed to be in the interest of our company may not always align with the best interest of a particular group of our stockholders when considered independently. Examples include:

- decisions as to the terms of any business relationships that may be created between the EchoStar Group and the Hughes Retail Group and the terms of any reattributions of assets between the groups;
- decisions as to the allocation of corporate opportunities between the groups, especially where the opportunities might meet the strategic business objectives of both groups;
- decisions as to operational and financial matters that could be considered detrimental to one group but beneficial to the other;
- decisions as to the internal or external financing attributable to businesses or assets attributed to either of our groups; and
- decisions as to the disposition of assets of either of our groups.

In addition, as our preferred tracking stock is currently held by DISH Network, questions relating to conflicts of interest may also arise between DISH Network and us due to our common ownership and management.

Provisions of Nevada law and our articles of incorporation may protect decisions of our board of directors and officers that have a disparate impact on one group of holders. Our stockholders may have limited or no legal remedies under Nevada law with respect to such decisions even if the actions of our directors or officers adversely affect the market value of our common stock.

***Our board of directors has the ability to change our attribution policies at any time without a vote of our common stockholders.***

Our board of directors has adopted certain management and allocation policies regarding the relationships between the EchoStar Group and the Hughes Retail Group with respect to matters such as the attribution and allocation of costs, tax liabilities and benefits, attribution of assets, corporate opportunities and similar items. Our board of directors may at any time change or make exceptions to these policies with only the consent of holders of a majority of the outstanding shares of Hughes Retail Preferred Tracking Stock. Because these policies relate to matters concerning the day-to-day management of our company as opposed to significant corporate actions, such as a merger involving our company or a sale of substantially all of our assets, no approval from our Class A common stockholders is required with respect to the changes or exceptions to these policies. A decision to change, or make exceptions to these policies or adopt additional policies could disadvantage one group while advantaging the other.

***We could be required to use assets attributed to one group to pay liabilities attributed to the other group.***

Even though we attribute, for financial reporting purposes, all of our consolidated assets, liabilities, revenue, expenses and cash flows to either the EchoStar Group or the Hughes Retail Group and prepare separate attributed financial information for the Hughes Retail Group, we retain legal title to all of our assets and our capitalization will not limit our legal responsibility, or that of our subsidiaries, for the liabilities included in our financial statements and such attributed financial information. As such, the assets attributed to one group are potentially subject to the liabilities attributed to the other group, even if those liabilities arise from lawsuits, contracts or indebtedness that are attributed to such other group. Although our management and allocation policies generally require that all changes in the attribution of assets from one group to the other group will be made on a fair value basis as determined in accordance with certain guiding principles, these policies and our articles of incorporation generally do not prevent us from satisfying liabilities of one group with assets of the other group, and our creditors are not limited by our tracking stock capitalization from proceeding against any assets they could have proceeded against if we did not have a tracking stock capitalization.

Filed May 9, 2014.
Source: SEC EDGAR, the filing index for accession 0001104659-14-036637. Last ingested by Listed: Nov 3, 2026, 08:39 ET. No prices; not investment advice.