# EchoStar CORP: Form 10-Q for the period ended Sep 30, 2010

- Company: [EchoStar CORP](/companies/echo.md) (CIK 1415404)
- Form: 10-Q
- Filed: 2010-11-05
- Accepted by EDGAR: Nov 5, 2010, 10:01 ET
- Period: 2010-09-30
- Accession: 0001193125-10-248699
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1415404/000119312510248699/d10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1415404/000119312510248699/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2010-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2010-07-01 to 2010-09-30 | $607.0m | us-gaap:SalesRevenueNet |
| Revenue | 9 months, 2010-01-01 to 2010-09-30 | $1.84bn | us-gaap:SalesRevenueNet |
| Cost of revenue | 3 months, 2010-07-01 to 2010-09-30 | $402.0m | us-gaap:CostOfGoodsSold |
| Cost of revenue | 9 months, 2010-01-01 to 2010-09-30 | $1.23bn | us-gaap:CostOfGoodsSold |
| Research and development | 3 months, 2010-07-01 to 2010-09-30 | $11.6m | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 9 months, 2010-01-01 to 2010-09-30 | $36.3m | us-gaap:ResearchAndDevelopmentExpense |
| Selling, general and administrative | 3 months, 2010-07-01 to 2010-09-30 | $30.4m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2010-01-01 to 2010-09-30 | $96.3m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2010-07-01 to 2010-09-30 | $38.6m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2010-01-01 to 2010-09-30 | $110.7m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2010-07-01 to 2010-09-30 | $28.3m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2010-01-01 to 2010-09-30 | $67.6m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2010-07-01 to 2010-09-30 | $5.2m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2010-01-01 to 2010-09-30 | $35.4m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2010-07-01 to 2010-09-30 | $0.06 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2010-01-01 to 2010-09-30 | $0.42 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2010-07-01 to 2010-09-30 | $0.06 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2010-01-01 to 2010-09-30 | $0.42 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2010-07-01 to 2010-09-30 | 85,250,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2010-01-01 to 2010-09-30 | 85,136,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2010-01-01 to 2010-09-30 | $195.8m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2010-01-01 to 2010-09-30 | $157.0m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Share repurchases | 9 months, 2010-01-01 to 2010-09-30 | $605.0k | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2010-09-30 | $116.7m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2010-09-30 | $1.48bn | us-gaap:AssetsCurrent |
| Total assets | at 2010-09-30 | $3.63bn | us-gaap:Assets |
| Current liabilities | at 2010-09-30 | $376.3m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2010-09-30 | $836.0m | us-gaap:Liabilities |
| Shareholders' equity | at 2010-09-30 | $2.80bn | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 5,473 characters.

During 2008, we entered into a joint venture for a direct-to-home, or DTH, service in Mexico known as Dish Mexico, S. de R.L. de C.V., or Dish Mexico. Pursuant to these arrangements, we provide certain broadcast services and satellite capacity and sell hardware such as digital set-top boxes and related equipment to Dish Mexico. Subject to a number of conditions, including regulatory approvals and compliance with various other arrangements, we committed to provide $112 million of value over an initial ten year period, of which $110 million has been satisfied in the form of cash, equipment and services, leaving $2 million remaining under this commitment. Of the remaining commitment, less than $1 million is expected to be paid in cash and the remaining amounts may be satisfied in the form of certain services or equipment. During the three and nine months ended September 30, 2010, we sold $19 million and $67 million, respectively, of set-top boxes and related accessories to Dish Mexico that are not related to the original commitment associated with our investment in Dish Mexico.

During December 2009, we entered into a joint venture to provide a DTH service in Taiwan and certain other targeted regions in Asia. We own 50% and have joint control of the joint venture. Pursuant to these arrangements, we sell hardware such as digital set-top boxes and provide certain technical support services to the joint venture. We have provided $18 million of cash to the joint venture, and an $18 million line of credit that the joint venture may only use to purchase set-top boxes from us. As of September 30, 2010 and December 31, 2009, amounts receivable from the joint venture were $10 million and $4 million, respectively.

Our strategic transactions including our joint venture to provide a DTH service in Taiwan involve a high degree of risk and could expose us to significant financial losses if the underlying ventures are not successful; and/or we are unable to achieve the intended objectives of the transaction.

***Dependence on DISH Network.*** We currently depend on DISH Network for a substantial portion of the revenue for our “Digital Set-Top Box” business and we expect that for the foreseeable future DISH Network will continue to be the primary source of revenue for each of our businesses. Therefore, our results of operations are, and will for the foreseeable future be, closely linked to the performance of DISH Network’s satellite pay-TV business. In addition, while we expect to sell equipment to other customers, the number of potential new customers for our “Digital Set-Top Box” business is small and may be limited by our common ownership and related management with DISH Network, and our current customer concentration is likely to continue for the foreseeable future.

As disclosed by DISH Network in its Form 10-Q for the period ended September 30, 2010, DISH Network had higher than normal inventory levels of digital set-top boxes and related components at September 30, 2010 and also experienced a net loss of subscribers during the three months ended September 30, 2010. While we expect that DISH Network will continue to purchase digital set-top boxes and related components from us, as a result of such higher than normal inventory levels, we anticipate that over the near term DISH Network will purchase fewer digital set-top boxes and related components from us than it has purchased during the nine months ended September 30, 2010. This decrease could have a material adverse effect on our results of operations. To the extent that DISH Network continues to experience a net loss of subscribers or its net loss of subscribers increases, sales of our digital set-top boxes and related components to DISH Network may further decline, which in turn could have a further material adverse effect on our financial position and results of operations.

The impact to us of any decreases in DISH Network subscriber growth may be offset in the near term by an increase in sales to DISH Network resulting from the upgrade of DISH Network subscribers to advanced products such as high definition (“HD”) receivers and HD digital video recorders (“DVRs”), as well as by the upgrade of DISH Network digital set-top boxes to new technologies such as MPEG-4digital compression technology or Slingbox placeshifting technology. However, there can be no assurance that any of these factors will mitigate any decreases in subscriber growth at DISH Network. In addition, although we expect DISH Network to continue to purchase products and services from us, there can be no assurance that DISH Network will continue to purchase products and services from us in the future.

We may experience significant pressure on margins we earn on the sale of digital set-top boxes and other equipment, including on sales to DISH Network. This pressure may be due to economic conditions, advancements in the technology and functionality of digital set-top boxes and other equipment. The margins we earn on sales are determined largely through periodic negotiations that could result in pricing reflecting, among other things, the digital set-top boxes and other equipment that best meet our customers’ current sales and marketing priorities, the product and service alternatives available from other equipment suppliers, and our ability to respond to customer requirements and to differentiate ourselves from other equipment suppliers on bases other than pricing.

## Market risk

As filed, 4,302 characters.

#### Strategic Marketable Investment Securities

As of September 30, 2010, we held strategic and financial debt and equity investments of public companies with a fair value of $208 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 our strategic and financial debt and equity 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 price of our public strategic debt and equity investments would result in a decrease of approximately $21 million in the fair value of these investments.

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

#### Restricted Cash and Marketable Investment Securities

As of September 30, 2010, we had $17 million of restricted cash and marketable investment securities invested in: (a) cash; (b) debt instruments of the United States Government and its agencies; (c) 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; and/or (d) instruments with similar risk, duration and credit quality characteristics to the commercial paper described above. Based on our September 30, 2010 investment portfolio, a hypothetical 10% increase in average interest rates would not have a material impact in the fair value of our restricted cash and marketable investment securities.

#### Other Investment Securities

As of September 30, 2010, we had $613 million of public and nonpublic debt and equity instruments that we hold for strategic business purposes and account for under the cost, equity and/or fair value methods of accounting. Of this amount, $474 million relates to our investments in TerreStar Networks and TerreStar Corporation which are accounted for under the fair value method. TerreStar Networks filed for bankruptcy protection under the U.S. Bankruptcy Code on October 19, 2010. As of November 5, 2010, TerreStar Corporation had not filed for bankruptcy protection. See Note 4 in the Notes to the Condensed Consolidated Financial Statements for further discussion. A hypothetical 10% adverse change in the price of these debt and equity instruments would result in a decrease of approximately $47 million in the fair value of these investments. The remaining amount of our other investment securities portfolio of $139 million is accounted for under the cost and equity methods of accounting. A hypothetical 10% adverse change in the price of these debt and equity instruments would result in a decrease of approximately $14 million in the fair value of these investments.

Our ability to realize value from our strategic investments in companies that are not publicly traded depends on the success of those companies’ businesses and their ability to obtain sufficient capital to execute their business plans. Because private markets are not as liquid as public markets, there is also increased risk that we will not be able to sell these investments, or that when we desire to sell them we will not be able to obtain fair value for them.

### Long-Term Debt

As of September 30, 2010, we had $412 million of long-term debt, of which $405 million represents our capital lease obligations, which are not subject to fair value disclosure requirements.

### Derivative Financial Instruments

In general, we do not use derivative financial instruments for hedging or speculative purposes, but we may do so in the future.

## Controls and procedures

As filed, 846 characters.

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.

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) during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 1,323 characters.

Item 1A, “Risk Factors,” of our Annual Report on Form 10-K/A for the year ended December 31, 2009 includes a detailed discussion of our risk factors. The information presented below updates, and should be read in conjunction with, the risk factors and information disclosed in our Annual Report on Form 10-K/A for 2009.

***If the encryption and related security technology used in our digital set-top boxes is compromised, sales of our digital set-top boxes may decline.***

Our customers use our encryption and related security technology in the digital set-top boxes that they purchase from us to control access to their programming content. Our encryption and related security technology has been compromised in the past and may be compromised in the future even though we continue to respond with significant investment in security measures, such as updates in security software, that are intended to make signal theft more difficult. It has been our prior experience that security measures may only be effective for short periods of time or not at all. We cannot ensure that we will be successful in reducing or controlling theft of our customers’ programming content. As a result, sales of our digital set-top boxes may decline and we may incur additional costs in the future if our system’s security is compromised.

Filed Nov 5, 2010.
Source: SEC EDGAR, the filing index for accession 0001193125-10-248699. Last ingested by Listed: Nov 10, 2026, 16:52 ET. No prices; not investment advice.