# EchoStar CORP: Form 10-Q for the period ended Sep 30, 2015

- Company: [EchoStar CORP](/companies/echo.md) (CIK 1415404)
- Form: 10-Q
- Filed: 2015-11-06
- Accepted by EDGAR: Nov 5, 2015, 20:14 ET
- Period: 2015-09-30
- Accession: 0001104659-15-076360
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1415404/000110465915076360/a15-17922_110q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1415404/000110465915076360/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2015-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2015-07-01 to 2015-09-30 | $760.9m | us-gaap:SalesRevenueNet |
| Revenue | 9 months, 2015-01-01 to 2015-09-30 | $2.35bn | us-gaap:SalesRevenueNet |
| Cost of revenue | 3 months, 2015-07-01 to 2015-09-30 | $208.0m | us-gaap:CostOfGoodsSold |
| Cost of revenue | 9 months, 2015-01-01 to 2015-09-30 | $706.8m | us-gaap:CostOfGoodsSold |
| Research and development | 3 months, 2015-07-01 to 2015-09-30 | $19.9m | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 9 months, 2015-01-01 to 2015-09-30 | $57.4m | us-gaap:ResearchAndDevelopmentExpense |
| Selling, general and administrative | 3 months, 2015-07-01 to 2015-09-30 | $91.8m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2015-01-01 to 2015-09-30 | $280.5m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2015-07-01 to 2015-09-30 | $88.6m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2015-01-01 to 2015-09-30 | $264.2m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2015-07-01 to 2015-09-30 | $28.9m | us-gaap:InterestExpense |
| Interest expense | 9 months, 2015-01-01 to 2015-09-30 | $96.1m | us-gaap:InterestExpense |
| Income tax | 3 months, 2015-07-01 to 2015-09-30 | $28.6m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2015-01-01 to 2015-09-30 | $65.8m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2015-07-01 to 2015-09-30 | $28.8m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2015-01-01 to 2015-09-30 | $90.0m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2015-07-01 to 2015-09-30 | $0.32 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2015-01-01 to 2015-09-30 | $1.04 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2015-07-01 to 2015-09-30 | $0.33 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2015-01-01 to 2015-09-30 | $1.06 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2015-07-01 to 2015-09-30 | 93,493,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2015-01-01 to 2015-09-30 | 93,480,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2015-01-01 to 2015-09-30 | $607.9m | us-gaap:NetCashProvidedByUsedInOperatingActivitiesContinuingOperations |
| Capital expenditure | 9 months, 2015-01-01 to 2015-09-30 | $585.9m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2015-09-30 | $779.1m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2015-09-30 | $2.26bn | us-gaap:AssetsCurrent |
| Total assets | at 2015-09-30 | $7.29bn | us-gaap:Assets |
| Current liabilities | at 2015-09-30 | $542.9m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2015-09-30 | $3.59bn | us-gaap:Liabilities |
| Shareholders' equity | at 2015-09-30 | $3.62bn | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 4,906 characters.

### EchoStar Technologies Segment

Our EchoStar Technologies segment designs, develops and distributes digital set-top boxes and related products and technology, primarily for satellite TV service providers and telecommunication companies. The primary customer for our digital set-top boxes is DISH Network Corporation and its subsidiaries (“DISH Network”), and we also sell digital set-top boxes to Bell TV, a direct-to-home satellite service provider in Canada, Dish Mexico, S. de R.L. de C.V. (“Dish Mexico”), a joint venture that we entered into in 2008, and other international customers. We depend on DISH Network for a substantial portion of our EchoStar Technologies segment revenue and we expect that DISH Network will continue to be the primary source of revenue for our EchoStar Technologies segment. In addition, our equipment revenue from DISH Network depends on the timing of orders for set-top boxes and related accessories from DISH Network based on its actual and projected subscriber growth. Therefore, the results of operations of our EchoStar Technologies segment are, and are likely to continue to be, closely linked to the performance of DISH Network’s pay-TV service.

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 TVEverywhere technology through Slingboxes directly to consumers via retail outlets and online, as well as to the pay-TV operator market.

Prior to 2015, Move Network, our live linear over-the-top platform business, including certain assets that were distributed to us in August 2014 in connection with the Exchange Agreement with DISH Digital Holding L.L.C. (“Sling TV Holding”), (see Notes 6, 10 and 16 in our notes to condensed consolidated financial statements), was managed separately from our operating segments and was reported within “All Other and Eliminations.” In the first quarter of 2015, we assigned management responsibility for our Move Network business to our EchoStar Technologies segment, where it continues to be managed and reported as a separate reporting unit. We have retrospectively adjusted our segment reporting to reflect our Move Network business as part of the EchoStar Technologies segment in prior periods (see Note 15 in our notes to the condensed consolidated financial statements).

During the second quarter of 2015, our EchoStar Technologies segment contributed several of its European subsidiaries to SmarDTV SA (“SmarDTV”), a Swiss subsidiary of Kudelski SA that offers set-top boxes and conditional access modules, in exchange for a 22.5% interest in the equity and subordinated debt of SmarDTV. We and SmarDTV also entered into a services agreement pursuant to which our EchoStar Technologies segment purchases certain engineering services from SmarDTV.

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. As products mature and new products are in the late stages of development, volumes typically decrease as our customers, primarily DISH Network, increase deployment of refurbished set-top boxes as opposed to purchasing new units from us. 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 set-top box business in 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 set-top box business over the near term lie in international markets, including through joint ventures. We have an exclusive equipment partnership with Bell TV through the end of 2015. Additionally, our joint venture with Dish Mexico continues to see growth. We are continuing to work with Dish Mexico on enhanced features and services that we expect will help it respond to competitive pressures in Mexico.

## Market risk

As filed, 3,950 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 September 30, 2015, our cash, cash equivalents and current marketable investment securities had a fair value of $1.59 billion. Of this amount, a total of $1.54 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 $1.54 billion as of September 30, 2015, a hypothetical 10% change in average interest rates during 2015 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 September 30, 2015 of 0.78%. 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 2015 would have resulted in a decrease of approximately $1.0 million in annual interest income.

### Strategic Marketable Investment Securities

As of September 30, 2015, we held current strategic investments in the publicly traded common stock of several companies with a fair value of $43.5 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, our strategic marketable investment securities portfolio is not significantly impacted by interest rate fluctuations as it currently consists solely of equity securities, the value of which 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 $4.4 million in the fair value of these investments.

## Controls and procedures

As filed, 1,564 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) and Rule 15d-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 such that the information required to be disclosed in our SEC reports is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms, and is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

### 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) and Rule 15 d-15(f) under the Securities Exchange Act of 1934) that occurred during the third quarter of 2015 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, 5,101 characters.

Item 1A, “Risk Factors,” of our Form 10-K for the year ended December 31, 2014 includes a detailed discussion of our risk factors. Except as provided below, for the nine months ended September 30, 2015, there were no material changes in our risk factors as previously disclosed.

***The preferred tracking stock in 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, but are not limited to:

- 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;
- decisions as to the payment of dividends on our common stock or preferred tracking stock; and
- decisions as to the disposition of assets of either of our groups.

In addition, as the 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.

***The preferred tracking stock results in vote dilution for existing holders of common stock.***

Each share of preferred tracking stock is entitled to one-tenth (1/10th) of one vote per share. This voting right will cause a reduction in the relative voting power of our exiting common stock holders. As a result of the dilutive effect of the preferred tracking stock, the ability of existing holders of common stock to elect our directors or to control all other matters requiring the approval of our stockholders may be reduced.

***We generally may dispose of assets of the Hughes Retail Group without shareholder approval.***

Nevada law requires stockholder approval only for a sale or other disposition of all or substantially all of the assets of the Company, taken as a whole, and our amended articles of incorporation do not require a separate class vote in the case of a sale of a significant amount of assets of any of our groups. As long as the assets attributed to the Hughes Retail Group proposed to be disposed of represent less than substantially all of our assets, we may approve sales and other dispositions of any amounts of the assets of such group without any shareholder approval. Based on the composition of the Hughes Retail Group, we believe that a sale of all or substantially all of the assets of the Hughes Retail Group would not be considered a sale of substantially all of the assets of our company requiring stockholder approval. Our board of directors would determine how best to proceed in any such sale consistent with its fiduciary duties to all of our shareholders. Ultimately, however, our board of directors is not required under Nevada law to select the option that would result in the highest value to holders of any group of our common stock.

***The market value of our common stock could be adversely affected by events involving the assets and businesses attributed to only the Hughes Retail Group.***

Because we are the issuer of common stock and preferred tracking stock, events relating to the assets and businesses attributed to the Hughes Retail Group, such as earnings announcements or announcements of new products or services, or acquisitions or dispositions that the market does not view favorably, may cause an adverse reaction to our common stock. This could occur even if the triggering event is not material to us as a whole.

Filed Nov 6, 2015.
Source: SEC EDGAR, the filing index for accession 0001104659-15-076360. Last ingested by Listed: Nov 3, 2026, 08:39 ET. No prices; not investment advice.