# EchoStar CORP: Form 10-Q for the period ended Mar 31, 2017

- Company: [EchoStar CORP](/companies/echo.md) (CIK 1415404)
- Form: 10-Q
- Filed: 2017-05-10
- Accepted by EDGAR: May 9, 2017, 19:08 ET
- Period: 2017-03-31
- Accession: 0001415404-17-000029
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1415404/000141540417000029/sats_033117x10qdocument.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1415404/000141540417000029/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2017-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Cost of revenue | 3 months, 2017-01-01 to 2017-03-31 | $43.9m | us-gaap:CostOfGoodsSold |
| Research and development | 3 months, 2017-01-01 to 2017-03-31 | $7.7m | us-gaap:ResearchAndDevelopmentExpense |
| Selling, general and administrative | 3 months, 2017-01-01 to 2017-03-31 | $83.0m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2017-01-01 to 2017-03-31 | $51.7m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2017-01-01 to 2017-03-31 | $45.4m | us-gaap:InterestExpense |
| Income tax | 3 months, 2017-01-01 to 2017-03-31 | −$12.0k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2017-01-01 to 2017-03-31 | $37.7m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2017-01-01 to 2017-03-31 | $0.41 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2017-01-01 to 2017-03-31 | $0.41 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2017-01-01 to 2017-03-31 | 95,893,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2017-01-01 to 2017-03-31 | $141.4m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2017-01-01 to 2017-03-31 | $102.5m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2017-03-31 | $2.80bn | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2017-03-31 | $3.75bn | us-gaap:AssetsCurrent |
| Total assets | at 2017-03-31 | $8.75bn | us-gaap:Assets |
| Current liabilities | at 2017-03-31 | $423.7m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2017-03-31 | $4.90bn | us-gaap:Liabilities |
| Long-term debt | at 2017-03-31 | $3.36bn | us-gaap:LongTermDebt |
| Shareholders' equity | at 2017-03-31 | $3.83bn | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 5,676 characters.

***Research and development expenses. “***Research and development expenses” totaled $7.7 million for the three months ended March 31, 2017, an increase of $0.8 million or 11.2%, compared to the same period in 2016. The increase was primarily related to an increase in research and development expense in our Hughes segment. Our research and development activities vary based on the activity level and scope of other engineering and customer related development contracts.

***Depreciation and amortization. “***Depreciation and amortization” expenses totaled $115.1 million for the three months ended March 31, 2017, an increase of $5.0 million or 4.5%, compared to the same period in 2016. The increase was primarily related to an increase in depreciation expense of the EUTELSAT 65 West A and the EchoStar XIX satellites in our Hughes segment that were placed into service in the second quarter of 2016 and first quarter of 2017, respectively, and an increase in depreciation expense relating to an increase in expenditures for machinery and equipment in 2017, partially offset by a decrease in amortization expense from certain of our fully amortized other intangible assets in our Corporate and Other.

***Interest income. “***Interest income” totaled $8.3 million for the three months ended March 31, 2017, an increase of $4.3 million compared to the same period in 2016. The increase was primarily attributable to the increase in our short term investments from proceeds from the issuance of long-term debt in the third quarter of 2016.

***Interest expense, net of amounts capitalized. “***Interest expense, net of amounts capitalized” totaled $45.4 million for the three months ended March 31, 2017, an increase of $22.2 million or 95.9%, compared to the same period in 2016. The increase was primarily due to the issuance of 5.250% Senior Secured Notes due August 1, 2026 (the “2026 Senior Secured Notes”) and 6.625% Senior Unsecured Notes due August 1, 2026 (the “2026 Senior Unsecured Notes” and together with 2026 Senior Secured Notes, the “2026 Notes”) in the third quarter of 2016.

***Gains and impairment on investments, net. “***Gains and impairment on investments, net” totaled $8.7 million in gains for the three months ended March 31, 2017, an increase of $6.3 million compared to the same period in 2016. The increase was primarily due to a gain of $8.9 million from the sale of our investment in Invidi Technologies Corporation to an entity owned in part by DISH Network in the first quarter of 2017, partially offset by an other than temporary impairment loss of $3.3 million on certain strategic equity securities in our marketable investment securities in 2017.

***Equity in earnings (losses) of unconsolidated affiliates, net. “***Equity in earnings (losses) of unconsolidated affiliates, net” totaled $6.4 million in earnings for the three months ended March 31, 2017 compared to $0.8 million in losses for the three months ended March 31, 2016. The change of $7.2 million was primarily related to an increase in earnings from our investment in Dish Mexico.

***Other, net. “***Other, net” totaled $1.1 million in income for the three months ended March 31, 2017, a decrease of $6.3 million or 85.5%, compared to the same period in 2016. The decrease was primarily related to $6.8 million for a provision recorded in the first half of 2015 in connection with Federal Communications Commission (“FCC”) regulatory fees, which was reversed in the first quarter of 2016, partially offset by a favorable foreign exchange impact of $0.3 million in 2017 and a decrease in loss of $0.1 million in a protective put associated with our trading securities in 2017.

***Income tax benefit (provision).*** Income tax benefit was $12.0 thousand for the three months ended March 31, 2017 compared to an income tax expense of $20.2 million for the three months ended March 31, 2016. Our effective income tax rate was zero and 36.3% for the three months ended March 31, 2017 and 2016, respectively. The variations in our current year effective tax rate from the U.S. federal statutory rate for the three months ended March 31, 2017 were primarily due to the recognition of a one-time tax benefit for the revaluation of our deferred tax assets and liabilities due to a change in our state effective tax rate as a result of the Share Exchange Agreement. The tax benefit recognized from the change in our effective tax rate was partially offset by the increase in our valuation allowance associated with certain state and foreign losses. The variations in our effective tax rate from the U.S. federal statutory rate for the three months ended March 31, 2016 were primarily due to the impact of state and local taxes, partially offset by research and experimentation credits.

***Net income attributable to EchoStar. “***Net income attributable to EchoStar” was $37.7 million for the three months ended March 31, 2017, a decrease of $11.4 million or 23.3%, compared to the same period in 2016. The decrease was primarily due to (i) an increase of $22.3 million in interest expense related to the issuance of the 2026 Notes in the third quarter of 2016, (ii) a decrease in operating income of $14.1 million, (iii) $6.8 million for a provision recorded in the first half of 2015 in connection with FCC regulatory fees, which was reversed in the first quarter of 2016 and (iv) a decrease of $6.5 million in income from discontinued operations. The decrease was partially offset by (i) a decrease in income tax expense of $20.2 million, (ii) an increase of $7.2 million in equity in earnings of unconsolidated affiliates, net, (iii) an increase of $6.3 million in gains on

## Market risk

As filed, 7,741 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, 2017, our cash, cash equivalents and current marketable investment securities had a fair value of $3.18 billion. Of this amount, a total of $3.04 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) debt instruments of the U.S. government and its agencies; and/or (d) 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 $3.04 billion as of March 31, 2017, a hypothetical 10% change in average interest rates during 2017 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, 2017 of 1.1%. 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 2017 would have resulted in a decrease of approximately $3.0 million in annual interest income.

### Strategic Marketable Investment Securities

As of March 31, 2017, we held current strategic investments in the publicly traded common stock of several companies with a fair value of $140.1 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 $14.0 million in the fair value of these investments.

### Restricted cash and marketable investment securities and investments in unconsolidated entities

### Restricted cash and marketable investment securities

As of March 31, 2017, we had $8.3 million of restricted cash and marketable investment securities invested in: (a) cash; (b) debt instruments of the U.S. 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; (d) mutual funds; and (e) instruments with similar risk, duration and credit quality characteristics to the commercial paper described above. Based on our investment portfolio as of March 31, 2017, a hypothetical 10% increase in average interest rates would not have a material impact on the fair value of our restricted cash and marketable investment securities.

### Investments in unconsolidated entities

As of March 31, 2017, we had $166.0 million of noncurrent equity instruments that we hold for strategic business purposes and account for under the cost or equity methods of accounting. The fair value of these instruments is not readily determinable. We periodically review these investments and estimate fair value when there are indications of impairment. A hypothetical adverse change equal to 10% of the carrying amount of these equity instruments would result in a decrease of approximately $16.6 million in the value of these investments.

Our ability to realize value from our strategic investments in companies that are privately held 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.

### Foreign Currency Exchange Risk

We generally conduct our business in U.S. dollars. Our international business is conducted in a variety of foreign currencies with our largest exposures being to the Brazilian real, the Indian rupee, and the British pound. This exposes us to fluctuations in foreign currency exchange rates. Transactions in foreign currencies are converted into U.S. dollars using exchange rates in effect on the dates of the transactions.

Our objective in managing our exposure to foreign currency changes is to reduce earnings and cash flow volatility associated with foreign exchange rate fluctuations. Accordingly, we may enter into foreign currency forward contracts, or take other measures, to mitigate risks associated with foreign currency denominated assets, liabilities, commitments and anticipated foreign currency transactions. As of March 31, 2017, we had $9.9 million of net foreign currency denominated receivables and payables outstanding, and foreign currency forward contracts with a notional value of $2.3 million in place to partially mitigate foreign currency exchange risk. The estimated fair values of the foreign exchange contracts were not material as of March 31, 2017. The impact of a hypothetical 10% adverse change in exchange rates on the carrying amount of the net assets and liabilities of our foreign subsidiaries would be an estimated loss to the cumulative translation adjustment of $34.3 million as of March 31, 2017.

### Derivative Financial Instruments

We generally do not use derivative financial instruments for speculative purposes and we generally do not apply hedge accounting treatment to our derivative financial instruments. We evaluate our derivative financial instruments from time to time but there can be no assurance that we will not enter into additional foreign currency forward contracts, or take other measures, in the future to mitigate our foreign exchange risk.

## Controls and procedures

As filed, 1,587 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 amended) 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 15d-15(f) under the Securities Exchange Act of 1934, as amended) that occurred during the first quarter of 2017 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.

Filed May 10, 2017.
Source: SEC EDGAR, the filing index for accession 0001415404-17-000029. Last ingested by Listed: Nov 3, 2026, 08:39 ET. No prices; not investment advice.