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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------
FORM 10-Q/A-1
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997
OR
[ ] 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 0-26176
ECHOSTAR COMMUNICATIONS CORPORATION
(Exact name of registrant as specified in its charter)
NEVADA 88-0336997
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
90 INVERNESS CIRCLE EAST
ENGLEWOOD, COLORADO 80112
(Address of principal executive offices) (Zip code)
(303) 799-8222
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year,
if changed since last report)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT 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 HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO
--- ---
AS OF NOVEMBER 10, 1997, THE REGISTRANT'S OUTSTANDING COMMON STOCK
CONSISTED OF 14,703,165 SHARES OF CLASS A COMMON STOCK AND 29,804,401 SHARES OF
CLASS B COMMON STOCK.
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TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
December 31, 1996 and September 30, 1997 (Unaudited) 1
Condensed Consolidated Statements of Operations -
Three and nine months ended September 30, 1996
and 1997 (Unaudited) 2
Condensed Consolidated Statements of Cash Flows -
Nine months ended September 30, 1996 and 1997 (Unaudited) 3
Notes to Condensed Consolidated Financial Statements (Unaudited) 4*
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 14
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 25
Item 2. Changes in Securities None
Item 3. Defaults Upon Senior Securities None
Item 4. Submission of Matters to a Vote of Security Holders 25
Item 5. Other Information None
Item 6. Exhibits and Reports on Form 8-K 26
DISH NETWORK-SM- IS A SERVICE MARK OF ECHOSTAR COMMUNICATIONS CORPORATION.
* Note 8 to Condensed Consolidated Financial Statements was revised to
include prior year information.
<PAGE>
ECHOSTAR COMMUNICATIONS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
DECEMBER 31, SEPTEMBER 30,
1996 1997
--------------------------
<S> <C> <C>
ASSETS (Unaudited)
Current Assets:
Cash and cash equivalents $ 39,231 $ 30,973
Marketable investment securities 18,807 31,252
Trade accounts receivable, net of allowance for
uncollectible accounts of $1,494 and $2,809,
respectively 13,516 54,480
Inventories 72,767 23,050
Subscriber acquisition costs, net 68,129 43,338
Other current assets 23,186 11,239
----------- -----------
Total current assets 235,636 194,332
Restricted Cash and Marketable Investment Securities:
1996 Notes escrow 47,491 --
Satellite Escrow -- 91,945
Interest Escrow -- 110,659
Other 31,800 2,245
----------- -----------
Total restricted cash and marketable investment securities 79,291 204,849
Property and equipment, net 590,621 810,771
FCC authorizations, net 72,667 97,072
Deferred tax assets 79,339 79,339
Other noncurrent assets 83,826 38,505
----------- -----------
Total assets $ 1,141,380 $ 1,424,868
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Trade accounts payable $ 40,819 $ 37,928
Deferred revenue 103,100 105,699
Accrued programming 9,462 16,452
Accrued expenses and other current liabilities 21,033 70,678
Deferred tax liabilities 12,563 12,198
Current portion of long-term obligations 11,334 12,572
----------- -----------
Total current liabilities 198,311 255,527
Long-term obligations, net of current portion:
Long-term deferred satellite services revenue 5,949 7,039
1994 Notes 437,127 483,339
1996 Notes 386,165 424,431
1997 Notes -- 375,000
Mortgages and other notes payable, net of
current portion 51,428 42,277
Other long-term obligations 1,203 9,423
----------- -----------
Total long-term obligations, net of current portion 881,872 1,341,509
----------- -----------
Total liabilities 1,080,183 1,597,036
Commitments and Contingencies (Note 10)
Stockholders' Equity (Deficit):
Preferred Stock, 20,000,000 shares authorized, 1,616,681
shares of 8% Series A Cumulative Preferred Stock issued
and outstanding, including accrued dividends of $3,347
and $4,250, respectively 18,399 19,302
Class A Common Stock, $.01 par value, 200,000,000 shares
authorized, 11,115,582 and 11,585,028 shares issued and
outstanding, respectively 111 116
Class B Common Stock, $.01 par value, 100,000,000 shares
authorized, 29,804,401 shares issued and outstanding 298 298
Class C Common Stock, $.01 par value, 100,000,000 shares
authorized, none outstanding -- --
Common Stock Warrants 16 11
Additional paid-in capital 158,113 166,549
Unrealized holding losses on available-for-sale securities,
net of deferred taxes (11) --
Accumulated deficit (115,729) (358,444)
----------- -----------
Total stockholders' equity (deficit) 661,197 (172,168)
----------- -----------
Total liabilities and stockholders' equity (deficit) $ 1,141,380 $ 1,424,868
----------- -----------
----------- -----------
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
1
<PAGE>
ECHOSTAR COMMUNICATIONS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------- -------------------------------
1996 1997 1996 1997
-------------------------------- -------------------------------
<S> <C> <C> <C> <C>
REVENUE:
DISH Network:
Subscription television services $ 13,235 $ 82,078 $ 17,482 $ 192,986
Other 2,794 13,698 9,497 35,090
-------- --------- -------- ---------
Total DISH Network 16,029 95,776 26,979 228,076
DTH equipment sales and integration services 9,933 22,584 72,653 38,651
Satellite services 1,994 3,669 3,819 7,879
Other 2,406 2,797 9,158 7,300
-------- --------- -------- ---------
Total revenue 30,362 124,826 112,609 281,906
COSTS AND EXPENSES:
DISH Network Operating Expenses:
Subscriber-related expenses 7,009 42,732 9,270 97,307
Call center and other 4,418 10,754 6,859 23,189
Satellite and transmission 1,384 3,442 2,882 9,676
-------- --------- -------- ---------
Total DISH Network operating expenses 12,811 56,928 19,011 130,172
Cost of sales - DTH equipment and integration
services 9,466 11,943 72,955 26,642
DISH Network Marketing:
Subscriber promotion subsidies 6,000 63,603 6,000 94,616
Advertising and other 3,946 16,786 11,459 24,104
-------- --------- -------- ---------
Total DISH Network marketing expenses 9,946 80,389 17,459 118,720
General and administrative 13,772 17,209 31,747 48,857
Amortization of subscriber acquisition costs 3,368 34,124 3,460 95,542
Depreciation and amortization 7,897 12,958 17,561 38,315
-------- --------- -------- ---------
Total costs and expenses 57,260 213,551 162,193 458,248
-------- --------- -------- ---------
Operating loss (26,898) (88,725) (49,584) (176,342)
Other Income (Expense):
Interest income 5,335 5,559 14,718 8,902
Interest expense, net of amounts capitalized (19,996) (31,898) (53,180) (73,941)
Other 91 (73) (43) (367)
-------- --------- -------- ---------
Total other income (expense) (14,570) (26,412) (38,505) (65,406)
-------- --------- -------- ---------
Loss before income taxes (41,468) (115,137) (88,089) (241,748)
Income tax benefit (provision), net 14,950 (20) 31,796 (64)
-------- --------- -------- ---------
Net loss $(26,518) $(115,157) $(56,293) $(241,812)
-------- --------- -------- ---------
-------- --------- -------- ---------
Loss attributable to common shares $(26,819) $(115,458) $(57,196) $(242,715)
-------- --------- -------- ---------
-------- --------- -------- ---------
Weighted-average common shares outstanding 40,456 41,558 40,455 41,364
-------- --------- -------- ---------
-------- --------- -------- ---------
Loss per common and common equivalent share $ (0.66) $ (2.78) $ (1.41) $ (5.87)
-------- --------- -------- ---------
-------- --------- -------- ---------
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
2
<PAGE>
ECHOSTAR COMMUNICATIONS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<TABLE>
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
1996 1997
-------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (56,293) $(241,812)
Adjustments to reconcile net loss to net cash
flows from operating activities:
Depreciation and amortization 17,561 38,315
Amortization of subscriber acquisition costs 3,460 95,542
Deferred income tax benefit (27,481) (365)
Amortization of debt discount and deferred financing costs 41,988 60,650
Change in reserve for excess and obsolete inventory 2,579 2,230
Change in other long-term obligations 7,168 9,310
Other, net (2,578) 60
Changes in current assets and current liabilities, net 5,168 (4,009)
-------------------------------
Net cash flows used in operating activities (8,428) (40,079)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of marketable investment securities (54,111) (33,006)
Sales of marketable investment securities 27,846 20,572
Purchases of restricted marketable investment
securities (20,761) (1,145)
Purchases of property and equipment (13,400) (36,727)
Offering proceeds and investment earnings placed
in escrow (191,941) (224,858)
Funds released from escrow accounts and
restricted cash - other 134,968 100,445
Expenditures for satellite systems under construction (167,829) (146,831)
Long-term notes receivable from DBSC (20,000) --
Expenditures for FCC authorizations (13,626) (38)
Other 2,252 (1,541)
-------------------------------
Net cash flows used in investing activities (316,602) (323,129)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of 1996 Notes 336,994 --
Net proceeds from issuance of 1997 Notes -- 362,500
Repayments of mortgage indebtedness and notes payable (4,207) (8,413)
Stock options exercised 1,568 863
-------------------------------
Net cash flows provided by financing activities 334,355 354,950
-------------------------------
Net increase (decrease) in cash and cash equivalents 9,325 (8,258)
Cash and cash equivalents, beginning of period 21,754 39,231
-------------------------------
Cash and cash equivalents, end of period $ 31,079 $ 30,973
-------------------------------
-------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest, net of amounts capitalized $ 11,192 $ 3,529
Cash paid for income taxes -- --
Capitalized interest 22,853 27,861
Class A Common Stock cancelled to foreclose on
convertible subordinated debentures from DBSI -- (4,479)
Note payable issued for deferred satellite construction
payments for EchoStar II 28,000 --
8% Series A Cumulative Preferred Stock dividends 903 903
Accrued satellite construction costs -- 3,500
Satellite launch payment for EchoStar II applied to
EchoStar I launch 15,000 --
Increase in note payable for deferred satellite
construction payments for EchoStar I 3,167 --
Employee incentives funded by issuance of Class A Common Stock 207 60
The purchase price of DBSC was allocated as follows in the
related purchase accounting:
EchoStar III satellite under construction -- 51,241
FCC authorizations -- 16,651
Notes receivable from DBSC, including accrued interest of $3,382 -- (49,382)
Investment in DBSC -- (4,044)
Accounts payable and accrued expenses -- (1,974)
Other notes payable -- (500)
Common stock and additional paid-in capital -- (11,992)
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
3
<PAGE>
ECHOSTAR COMMUNICATIONS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BUSINESS ACTIVITIES
PRINCIPAL BUSINESS
The operations of EchoStar Communications Corporation (together with its
subsidiaries, "EchoStar" or the "Company") include three interrelated
business units: (i) a direct broadcast satellite ("DBS") subscription
television service in the United States (the "DISH Network"); (ii) the
design, manufacture, distribution and sale of DBS set-top boxes, antennae and
other digital equipment for the DISH Network ("EchoStar Receiver Systems"),
and the design, manufacture and distribution of similar equipment for
direct-to-home ("DTH") projects of others internationally, together with the
provision of uplink center design and construction oversight and other
project integration services for international DTH ventures ("Technology");
and (iii) the turn-key delivery of video, audio and data, primarily from
EchoStar satellites, to customers for business television and other satellite
users. These services include uplink, satellite transponder space, sales and
installation of ground segment equipment, and billing services ("Satellite
Services"). EchoStar had approximately 350,000 and 820,000 DISH Network
subscribers as of December 31, 1996 and September 30, 1997, respectively.
EchoStar's C-band DTH products, programming and related services businesses
are no longer material to its operations and EchoStar expects revenues from
its C-band lines of business to continue to decline.
RECENT DEVELOPMENTS
The Company launched its third DBS satellite ("EchoStar III") on October
5, 1997. Commencing in January 1998, the Company expects to use EchoStar III
to retransmit local network programming from approximately ten of the largest
cities in the eastern and central time zones (assuming receipt of any
required retransmission consents and copyright licenses and/or congressional
or regulatory action necessary to extend and clarify the scope of the
statutory compulsory license to cover local satellite retransmission of
network-affiliated station signals), and to provide subscribers with
additional sports, foreign language, cultural, business, educational and
other niche programming. As technology advances and demand increases, the
Company also expects to use EchoStar III to provide popular Internet and
other computer data at high transmission speeds and to offer subscribers
HDTV. While all testing of EchoStar III to date indicates the satellite is
functioning properly, the ultimate success of the launch and in-orbit
operation of EchoStar III will not be established until approximately
December 1997.
2. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles and with the instructions to Form 10-Q and Article 10 of
Regulation S-X for interim financial information. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair presentation have been included. All
significant intercompany accounts and transactions have been eliminated in
consolidation. Operating results for the three and nine months ended
September 30, 1997 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1997. For further information,
refer to the consolidated financial statements and footnotes thereto included
in the Company's Annual Report on Form 10-K for the year ended December 31,
1996. Certain prior year amounts have been reclassified to conform with the
current year presentation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses for each
reporting period. Actual results could differ from those estimates.
4
<PAGE>
ECHOSTAR COMMUNICATIONS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
CASH AND CASH EQUIVALENTS
The Company considers all liquid investments purchased with original
maturities of 90 days or less to be cash equivalents. Cash equivalents as of
December 31, 1996 and September 30, 1997 principally consisted of money
market funds, corporate notes and commercial paper; such balances are stated
at cost which equates to market value.
SUBSCRIBER PROMOTION SUBSIDIES AND SUBSCRIBER ACQUISITION COSTS
During August 1996, EchoStar introduced a promotion (the "1996
Promotion") which permits independent retailers to offer a standard EchoStar
Receiver System to consumers for a suggested retail price of $199 (as
compared to the original average retail price prior to August 1996 of
approximately $499), conditioned upon the consumer's prepaid one-year
subscription to the DISH Network's America's Top 50 CD programming package
for approximately $300. Total transaction proceeds to EchoStar are less than
its aggregate costs (equipment, programming and other) for the initial
prepaid subscription period are initially deferred, and recognized as revenue
over the related prepaid subscription term (normally one year). The excess
of EchoStar's aggregate costs over proceeds received is expensed ("subscriber
promotion subsidies") upon shipment of the equipment. Remaining costs are
deferred and reflected in the accompanying consolidated balance sheets as
subscriber acquisition costs and amortized over the prepaid subscription term
of the subscriber. Programming costs are expensed as service is provided.
Excluding expected incremental revenues from premium and Pay-Per-View
programming, this accounting results in revenue recognition over the initial
period of service equal to the sum of programming costs and amortization of
subscriber acquisition costs.
Proceeds from sales made pursuant to the 1996 Promotion attributable to
DISH Network subscription television services are included within the caption
"DISH Network - Subscription Television Services" in the accompanying
statements of operations. The portion of the proceeds from sales made
pursuant to the 1996 Promotion deemed attributable to EchoStar Receiver
Systems is included within the caption "DISH Network - Other" in the
accompanying statements of operations. The following summarizes revenues
recognized pursuant to the 1996 Promotion:
<TABLE>
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------- -------------------------------
1996 1997 1996 1997
-------------------------------- -------------------------------
<S> <C> <C> <C> <C>
Subscription television services $3,346 $36,162 $3,346 $ 93,459
EchoStar Receiver Systems 1,057 11,805 1,057 30,759
-------------------------------- -------------------------------
Total $4,403 $47,967 $4,403 $124,218
-------------------------------- -------------------------------
-------------------------------- -------------------------------
</TABLE>
During June 1997, the 1996 Promotion was enhanced to permit independent
retailers to offer a standard EchoStar Receiver System to consumers for a
suggested retail price of $199 without an extended subscription commitment
(the "1997 Promotion"). Net transaction costs associated with the 1997
Promotion are expensed as incurred (reported as a component of subscriber
promotion subsidies) in the accompanying statements of operations. Since
introduction of the 1997 Promotion, the majority of new subscriber
activations have resulted therefrom.
INCOME TAXES
Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes," requires that the tax benefit of net operating losses ("NOLs")
for financial reporting purposes be recorded as an asset and that deferred
tax assets and liabilities are recorded for the estimated future tax effects
of temporary differences between the tax basis of assets and liabilities and
amounts reported in the consolidated balance sheets. To the extent that
management assesses the realization of deferred tax assets to be less than
"more likely than not," a valuation reserve is established. EchoStar has
fully reserved the 1997 additions to its deferred tax assets.
5
<PAGE>
ECHOSTAR COMMUNICATIONS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
NET LOSS ATTRIBUTABLE TO COMMON SHARES
Net loss attributable to common shares is calculated based on the
weighted-average number of shares of common stock issued and outstanding
during the respective periods. Common stock equivalents (warrants and
employee stock options) are antidilutive and are therefore excluded. Net
loss attributable to common shares also is adjusted for cumulative dividends
on the 8% Series A Cumulative Preferred Stock.
3. RESTRICTED CASH AND MARKETABLE INVESTMENT SECURITIES
Restricted cash and marketable investment securities held in escrow
accounts, as reflected in the accompanying condensed consolidated balance
sheets, includes cash restricted by the indenture associated with the 1997
Notes (as defined) and the remaining restricted cash proceeds from a 1996
offering (the "1996 Notes Offering") of 13 1/8% Senior Secured Discount Notes
due 2004 (the "1996 Notes"), plus in both cases investment earnings thereon.
A portion of the proceeds from the 1997 Notes Offering (as defined) is held
in two separate escrow accounts (the "Interest Escrow" and the "Satellite
Escrow") as required by the related indenture (see Note 7). Restricted cash
and marketable investment securities are invested in certain permitted debt
and other marketable investment securities until disbursed for the express
purposes identified in the applicable indenture.
Other restricted cash includes $5.7 million at December 31, 1996, which
was restricted to satisfy certain covenants in the indenture associated with a
1994 offering of 12 7/8% Senior Secured Discount Notes due 2004 (the "1994
Notes") pertaining to launch insurance for EchoStar II. These covenant
requirements were satisfied during September 1997. In addition, as of
December 31, 1996, a total of $25.0 million was held in two escrow accounts for
the benefit of EchoStar Receiver System manufacturers. These deposits were
released from their respective escrow accounts during May 1997.
4. INVENTORIES
Inventories consist of the following (in thousands):
DECEMBER 31, SEPTEMBER 30,
1996 1997
----------------------------
(UNAUDITED)
EchoStar Receiver Systems $ 32,799 $ 12,157
DBS receiver components 15,736 11,347
Consigned DBS receiver components 23,525 1,988
Finished goods - International 3,491 3,220
Finished goods - C-band 600 4
Spare parts and other 2,279 2,227
Reserve for excess and obsolete inventory (5,663) (7,893)
----------------------------
$ 72,767 $ 23,050
----------------------------
----------------------------
6
<PAGE>
ECHOSTAR COMMUNICATIONS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
5. PROPERTY AND EQUIPMENT
Property and equipment consist of the following (in thousands):
DECEMBER 31, SEPTEMBER 30,
LIFE 1996 1997
(IN YEARS) ---------------------------
---------- (UNAUDITED)
EchoStar I 12 $ 201,607 $ 201,607
EchoStar II 12 228,694 228,694
Furniture, fixtures and equipment 2-12 72,945 81,219
Buildings and improvements 7-40 26,035 31,502
Tooling and other 2 3,253 3,820
Land -- 2,295 6,305
Vehicles 7 1,323 1,334
Construction in progress -- 89,733 329,415
-------------------------
Total property and equipment 625,885 883,896
Accumulated depreciation (35,264) (73,125)
-------------------------
Property and equipment, net $ 590,621 $ 810,771
-------------------------
-------------------------
Construction in progress consists of the following (in thousands):
DECEMBER 31, SEPTEMBER 30,
1996 1997
---------------------------
Progress amounts for satellite (UNAUDITED)
construction, launch, launch insurance and
capitalized interest:
EchoStar III $29,123 $207,534
EchoStar IV 56,320 99,077
Other 4,290 22,804
---------------------------
$89,733 $329,415
---------------------------
---------------------------
6. OTHER NONCURRENT ASSETS
Other noncurrent assets consist of the following (in thousands):
DECEMBER 31, SEPTEMBER 30,
1996 1997
---------------------------
(UNAUDITED)
Notes receivable from DBSC, including
accrued interest of $3,382
and $0, respectively $49,382 $ --
Deferred debt issuance costs 21,284 32,372
SSET convertible subordinated debentures 3,649 4,075
Investment in DBSC 4,044 --
DBSI convertible subordinated debentures 4,640 --
Other, net 827 2,058
---------------------------
$83,826 $ 38,505
---------------------------
---------------------------
During 1995 and 1996, EchoStar purchased a total of $4.6 million principal
amount of convertible subordinated debentures of DBS Industries, Inc. ("DBSI").
These debentures were secured by stock of Direct Broadcasting Satellite
Corporation ("DBSC") owned by DBSI. In connection with EchoStar's January 1997
merger with DBSC, DBSI exchanged its DBSC stock, which secured the debentures,
for 270,414 shares of EchoStar's Class A Common Stock. As of August 1997,
total principal, plus delinquent interest on the debentures, totaled $5.5
million. During August 1997, EchoStar foreclosed on the convertible
subordinated debentures and retired the 270,414 shares of its Class A Common
Stock, reducing the debt by approximately $4.5 million based on the market
value of EchoStar's Class A Common Stock at the time. Contemporaneously, DBSI
made an approximate $1.0 million cash payment to EchoStar resulting in full
satisfaction and cancellation of the underlying debentures.
7
<PAGE>
ECHOSTAR COMMUNICATIONS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
7. 1997 NOTES
On June 25, 1997, EchoStar DBS Corporation ("DBS Corp"), a wholly-
owned subsidiary of EchoStar, consummated an offering (the "1997 Notes
Offering") of 12 1/2% Senior Secured Notes due 2002 (the "1997 Notes"). The
1997 Notes Offering resulted in net proceeds to DBS Corp of approximately
$362.5 million (after payment of underwriting discounts and other issuance
costs aggregating approximately $12.5 million). Interest accrues on the 1997
Notes at a rate of 12 1/2% and is payable in cash semi-annually on January 1
and July 1 of each year, with the first interest payment due January 1, 1998.
Approximately $109.0 million of the net proceeds of the 1997 Notes Offering
were placed in the Interest Escrow account to fund the first five semi-annual
interest payments (through January 1, 2000). Additionally, approximately
$112.0 million of the net proceeds of the 1997 Notes Offering were placed in
the Satellite Escrow account to fund the construction launch and insurance of
EchoStar's fourth DBS satellite ("EchoStar IV"). The 1997 Notes mature on
July 1, 2002.
The 1997 Notes were issued in a private placement pursuant to Rule 144A of
the Securities Act of 1933, as amended (the "Securities Act"). The Company is
in the process of exchanging the privately issued notes for publicly registered
notes with substantially identical terms (including principal amount, interest
rate, maturity, security and ranking). Prior to consummation of the 1997 Notes
Offering, EchoStar contributed (the "Contribution") all of the outstanding
capital stock of its wholly-owned subsidiary EchoStar Satellite Broadcasting
Corporation ("ESBC") to DBS Corp. As a result of the Contribution, ESBC is a
wholly-owned subsidiary of DBS Corp.
The 1997 Notes rank PARI PASSU in right of payment with all senior
indebtedness of DBS Corp. The 1997 Notes are guaranteed on a subordinated
basis by DBS Corp's parent, EchoStar, and, contingent upon the occurrence of
certain events, will be guaranteed by ESBC and Dish, Ltd. and certain other
subsidiaries of DBS Corp and EchoStar. The 1997 Notes are secured by liens on
the capital stock of DBS Corp, EchoStar IV, and certain other assets of DBS
Corp and EchoStar. Although the 1997 Notes are titled "Senior": (i) DBS Corp
has not issued, and does not have any plans to issue, any significant
indebtedness to which the 1997 Notes would be senior; and (ii) the 1997 Notes
are effectively subordinated to all liabilities of ECC (except liabilities to
general creditors). In addition, the ability of Dish, Ltd. to make
distributions to DBS Corp is severely limited by the terms of an indenture to
which it is subject, and the cash flow generated by the assets and operations
of DBS Corp's subsidiaries will only be available to satisfy DBS Corp's
obligations on the 1997 Notes to the extent that such subsidiaries are able to
make distributions, directly or indirectly, to DBS Corp.
Except under certain circumstances requiring prepayment premiums, and in
other limited circumstances, the 1997 Notes are not redeemable at DBS Corp's
option prior to July 1, 2000. Thereafter, the 1997 Notes will be subject to
redemption, at the option of DBS Corp, in whole or in part, at redemption
prices decreasing from 106.25% during the year commencing July 1, 2000 to 100%
on or after July 1, 2002, together with accrued and unpaid interest thereon to
the redemption date.
The 1997 Notes Indenture contains restrictive covenants that, among other
things, impose limitations on the ability of DBS Corp to: (i) incur additional
indebtedness; (ii) issue preferred stock; (iii) apply the proceeds of certain
asset sales; (iv) create, incur or assume liens; (v) create dividend and other
payment restrictions with respect to DBS Corp's subsidiaries; (vi) merge,
consolidate or sell assets; (vii) incur subordinated or junior debt; and (viii)
enter into transactions with affiliates. In addition, DBS Corp may pay
dividends on its equity securities only if: (1) no default is continuing under
the 1997 Notes Indenture; and (2) after giving effect to such dividend and the
incurrence of any indebtedness (the proceeds of which are used to finance the
dividend), DBS Corps's ratio of total indebtedness to cash flow (calculated in
accordance with the 1997 Notes Indenture) would not exceed 6.0 to 1.0.
Moreover, the aggregate amount of such dividends generally may not exceed the
sum of the difference of cumulative consolidated cash flow (calculated in
accordance with the 1997 Notes Indenture) minus 150% of consolidated interest
expense of DBS Corp (calculated in accordance with the 1997 Notes Indenture)
plus an amount equal to 100% of the aggregate net cash proceeds received by DBS
Corp and its subsidiaries from the issuance or sale of equity interests of DBS
Corp or EchoStar (other than equity interests sold to a subsidiary of DBS Corp
or EchoStar, since June 25, 1997).
In the event of a change of control, as defined in the 1997 Notes
Indenture, DBS Corp will be required to make an offer to repurchase all of the
1997 Notes at a purchase price equal to 101% of the aggregate principal amount
thereof, together with accrued and unpaid interest thereon, to the date of
repurchase.
8
<PAGE>
ECHOSTAR COMMUNICATIONS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
8. RECLASSIFICATIONS TO THE STATEMENTS OF OPERATIONS
Beginning with this Quarterly Report, EchoStar has revised its
statements of operations to reflect them in a manner that management believes
will help investors to more easily follow EchoStar's operations as they
expand and change moving forward. If EchoStar had presented its statements
of operations for the quarterly periods ended March 31, 1997 and June 30,
1997 in this revised format, the statements of operations would have appeared
as follows:
<TABLE>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------------------ ----------------
MARCH 31, 1997 JUNE 30, 1997 JUNE 30, 1997
-------------- ------------- ----------------
<S> <C> <C> <C>
REVENUE:
DISH Network:
Subscription television services $ 48,050 $ 62,858 $110,908
Other 8,694 12,698 21,392
-------- -------- --------
Total DISH Network 56,744 75,556 132,300
DTH equipment sales and integration services 2,354 13,713 16,067
Satellite services 2,165 2,045 4,210
Other 2,253 2,250 4,503
-------- -------- --------
Total revenue 63,516 93,564 157,080
COSTS AND EXPENSES:
DISH Network Operating Expenses:
Subscriber-related expenses 23,070 31,505 54,575
Call center and other 6,471 5,964 12,435
Satellite and transmission 2,782 3,452 6,234
-------- -------- --------
Total DISH Network operating expenses 32,323 40,921 73,244
Cost of sales - DTH equipment and integration
services 2,486 12,213 14,699
DISH Network Marketing:
Subscriber promotion subsidies 13,142 17,871 31,013
Advertising and other 3,280 4,038 7,318
-------- -------- --------
Total DISH Network marketing expenses 16,422 21,909 38,331
General and administrative 16,106 15,542 31,648
Amortization of subscriber acquisition costs 28,150 33,268 61,418
Depreciation and amortization 12,625 12,732 25,357
-------- -------- --------
Total costs and expenses 108,112 136,585 244,697
-------- -------- --------
Operating loss $(44,596) $(43,021) $(87,617)
-------- -------- --------
-------- -------- --------
</TABLE>
If EchoStar had presented its statements of operations for the
quarterly periods ended March 31, 1996 and June 30, 1996 and for the six
months ended June 30, 1996 in this revised format, the statements of
operations would have appeared as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------------------ ----------------
MARCH 31, 1996 JUNE 30, 1996 JUNE 30, 1996
-------------- ------------- ----------------
<S> <C> <C> <C>
REVENUE:
DISH Network:
Subscription television services $ 110 $ 4,137 $ 4,247
Other 1,379 5,324 6,703
-------- -------- --------
Total DISH Network 1,489 9,461 10,950
DTH equipment sales and integration services 17,330 45,390 62,720
Satellite services 375 1,450 1,825
Other 3,892 2,860 6,752
-------- -------- --------
Total revenue 23,086 59,161 82,247
COSTS AND EXPENSES:
DISH Network Operating Expenses:
Subscriber-related expenses 88 2,173 2,261
Call center and other 652 1,789 2,441
Satellite and transmission 748 750 1,498
-------- -------- --------
Total DISH Network operating expenses 1,488 4,712 6,200
Cost of sales - DTH equipment and integration services 16,249 47,240 63,489
DISH Network Marketing:
Subscriber promotion subsidies -- -- --
Advertising and other 1,058 6,455 7,513
-------- -------- --------
Total DISH Network marketing expenses 1,058 6,455 7,513
General and administrative 9,590 8,385 17,975
Amortization of subscriber acquisition costs -- 92 92
Depreciation and amortization 3,330 6,334 9,664
-------- -------- --------
Total costs and expenses 31,715 73,218 104,933
-------- -------- --------
Operating loss $ (8,629) $(14,057) $(22,686)
-------- -------- --------
-------- -------- --------
</TABLE>
9
<PAGE>
ECHOSTAR COMMUNICATIONS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
10. COMMITMENTS AND CONTINGENCIES
PURCHASE COMMITMENTS
The Company has entered into agreements with various manufacturers to
purchase DBS satellite receivers and related components manufactured to its
specifications. As of September 30, 1997, these commitments totaled
approximately $205.4 million and the total of all outstanding purchase order
commitments with domestic and foreign suppliers was $206.1 million. All of
the purchases related to these commitments are expected to be made during
1997. The Company expects to finance these purchases from unrestricted cash
and additional cash flows generated from sales of DISH Network programming
and related DBS inventory. In addition to the above, EchoStar will expend
$93.4 million between October 1, 1997 and the second quarter of 1998 related
to the construction, launch and insurance of EchoStar IV.
NEWS CORPORATION LITIGATION
On February 24, 1997, EchoStar and The News Corporation Limited ("News")
announced an agreement (the "News Agreement") pursuant to which, among other
things, News agreed to acquire approximately 50% of the outstanding capital
stock of EchoStar. News also agreed to make available for use by EchoStar
the DBS permit for 28 frequencies at 110DEG. West Longitude ("WL") purchased
by MCI Communications Corporation ("MCI") for over $682 million at a Federal
Communications Commission ("FCC") auction during 1996. During late April
1997, substantial disagreements arose between the parties regarding their
obligations under the News Agreement.
During May 1997, EchoStar initiated litigation alleging, among other
things, breach of contract, failure to act in good faith, and other causes of
action. News has denied all of EchoStar's material allegations and has
asserted numerous counterclaims against EchoStar and its Chairman and Chief
Executive Officer, Charles W. Ergen. The case has been set for a five week
trial commencing in June 1998. While EchoStar is confident of its position
and believes it will ultimately prevail, the litigation process could
continue for many years and there can be no assurance concerning the outcome
of the litigation. An adverse decision could have a material adverse effect
on EchoStar's financial position and results of operations.
OTHER RISKS AND CONTINGENCIES
The Company is subject to various other legal proceedings and claims
which arise in the ordinary course of its business. In the opinion of
management, the amount of ultimate liability with respect to these actions
will not materially affect the financial position or results of operations of
the Company.
11. SUBSEQUENT EVENTS
SERIES B SENIOR REDEEMABLE EXCHANGEABLE PREFERRED STOCK OFFERING
On October 2, 1997, EchoStar consummated an offering (the "Series B
Preferred Offering") of 12 1/8% Series B Senior Redeemable Exchangeable
Preferred Stock due 2004, par value $0.01 per share (including any additional
shares of such stock issued from time to time in lieu of cash dividends, the
"Series B Preferred Stock"). The Series B Preferred Offering resulted in net
proceeds to EchoStar of approximately $193.0 million. The Series B Preferred
Stock was issued in a private placement pursuant to Rule 144A of the
Securities Act. On November 10, 1997, EchoStar filed a Registration
Statement on Form S-4 (the "Registration Statement") to exchange the
privately issued Series B Preferred Stock for publicly registered preferred
stock (the "New Series B Preferred Stock") with substantially identical terms
(including liquidation preference, dividend rate, and ranking). Upon the
effectiveness of the Registration Statement, EchoStar will make an offer to
exchange the Series B Preferred Stock for the New Series B Preferred Stock.
Each share of Series B Preferred Stock has a liquidation preference of $1,000
per share. Dividends on the Series B Preferred Stock are payable quarterly
in arrears, commencing on January 1, 1998. EchoStar may, at its option, pay
dividends in cash or by issuing additional shares of Series B Preferred Stock
having an aggregate liquidation preference equal to the amount of such
dividends.
10
<PAGE>
ECHOSTAR COMMUNICATIONS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
EchoStar may, at its option, exchange all, but not less than all, of the
shares of Series B Preferred Stock then outstanding for EchoStar's 12 1/8%
Senior Exchange Notes due 2004 (including any such senior notes issued from
time to time in lieu of cash interest, the "Senior Exchange Notes"). The
Senior Exchange Notes will bear interest at a rate of 12 1/8% per annum,
payable semiannually in arrears on April 1 and October 1 of each year,
commencing with the first such date to occur after the date of the exchange.
Interest on the Senior Exchange Notes may, at the option of EchoStar, be paid
in cash or by issuing additional Senior Exchange Notes in an aggregate
principal amount equal to the amount of such interest.
SERIES C CUMULATIVE CONVERTIBLE PREFERRED STOCK OFFERING
On November 4, 1997, EchoStar consummated an offering (the "Series C
Preferred Offering") of 2.3 million shares of 6 3/4% Series C Cumulative
Convertible Preferred Stock (the "Series C Preferred Stock"). The Series C
Preferred Offering, after exercise by the underwriters of the 15%
over-allotment option, resulted in net proceeds to EchoStar of approximately
$96.5 million. Simultaneously with the closing of the Series C Preferred
Offering, the purchasers of the Series C Preferred Stock placed approximately
$14.6 million into an account (the "Deposit Account"). The Deposit Account
will provide a quarterly cash payment of approximately $0.844 per share of
Series C Preferred Stock (the "Quarterly Return Amount") commencing February
1, 1998 and continuing until November 1, 1999. After that date, dividends on
the Series C Preferred Stock will begin to accrue. EchoStar may, prior to
the date on which any Quarterly Return Amount would otherwise be payable,
deliver a notice instructing the deposit agent: (i) to purchase from
EchoStar, for transfer to each holder of Series C Preferred Stock, in lieu of
the Quarterly Return Amount, that number of whole shares of Class A Common
Stock determined by dividing the Quarterly Return Amount by 95% of the market
value of the Class A Common Stock as of the date of such notice; or (ii)
defer delivery of the Quarterly Return Amount to holders of Series C
Preferred Stock on such quarterly payment date until the next quarterly
payment date or any subsequent payment date. However, no later than November
1, 1999 (the "Deposit Expiration Date"), any amounts remaining in the Deposit
Account, as of such date, including amounts which have previously been
deferred, will be (i) paid to the holders of Series C Preferred Stock; or
(ii) at EchoStar's option, used to purchase from EchoStar for delivery to
each holder of Series C Preferred Stock that number of whole shares of Class
A Common Stock determined by dividing the balance remaining in the Deposit
Account by 95% of the market value of the shares of Class A Common Stock as
of the date of EchoStar's notice.
Each share of Series C Preferred Stock has a liquidation preference of
$50 per share. Dividends on the Series C Preferred Stock will accrue from
November 2, 1999, and holders of the Series C Preferred Stock will be
entitled to receive cumulative dividends at an annual rate of 6 3/4% of the
liquidation preference, payable quarterly in arrears commencing February 1,
2000. Dividends may, at the option of EchoStar, be paid in cash, by delivery
of fully paid and nonassessable shares of Class A Common Stock, or a
combination thereof. Each share of Series C Preferred Stock is convertible
at any time, unless previously redeemed, at the option of the holder thereof,
into approximately 2.05 shares of Class A Common Stock, subject to adjustment
upon the occurrence of certain events. The Series C Preferred Stock is
redeemable at any time on or after November 1, 2000, in whole or in part, at
the option of EchoStar, in cash, by delivery of fully paid and nonassessable
shares of Class A Common Stock, or a combination thereof, initially at a
price of $51.929 per share and thereafter at prices declining to $50.000 per
share on or after November 1, 2004, plus in each case all accumulated and
unpaid dividends to the redemption date. On October 30, 1997, the Series C
Preferred Stock commenced trading on the Nasdaq National Market under the
symbol "DISHP."
CLASS A COMMON STOCK OFFERING
Also on November 4, 1997, EchoStar consummated an offering of 3.1
million shares of its Class A Common Stock (the "Common Stock Offering").
The Common Stock Offering resulted in net proceeds to EchoStar of
approximately $57.7 million.
11
<PAGE>
ECHOSTAR COMMUNICATIONS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
PRO FORMA FINANCIAL INFORMATION
The following table sets forth certain historical balance sheet data as
of September 30, 1997, along with pro forma balance sheet data which gives
effect to the Series B Preferred Offering, the Series C Preferred Offering,
and the Common Offering (in thousands, except share data):
<TABLE>
AS OF SEPTEMBER 30, 1997
------------------------
ACTUAL PRO FORMA
---------- ----------
<S> <C> <C>
Cash, cash equivalents and marketable
investment securities $ 62,225 $ 409,407
------------------------
------------------------
Total liabilities $1,597,036 $1,597,036
Series B Preferred Stock -- 193,000
Stockholders' Equity (Deficit):
Preferred Stock, 20,000,000 shares authorized:
8% Series A Cumulative Preferred Stock, 1,616,681 shares
issued and outstanding, including accrued dividends of $4,250 19,302 19,302
6 3/4% Series C Preferred Stock, none and 2,300,000 (pro forma)
shares issued and outstanding, respectively -- 100,400
Class A Common Stock, $.01 par value, 200,000,000 shares
authorized, 11,585,028 and 14,685,028 (pro forma) shares
issued and outstanding, respectively 116 147
Class B Common Stock, $.01 par value, 100,000,000 shares
authorized, 29,804,401 shares issued and outstanding 298 298
Class C Common Stock, $.01 par value, 100,000,000 shares
authorized, none outstanding -- --
Common Stock Warrants 11 11
Additional paid-in capital 166,549 220,300
Unrealized holding losses on available-for-sale securities,
net of deferred taxes -- --
Accumulated deficit (358,444) (358,444)
------------------------
Total stockholders' equity (deficit) (172,168) (17,986)
------------------------
Total liabilities and stockholders' equity (deficit) $1,424,868 $1,772,050
------------------------
------------------------
</TABLE>
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
ALL STATEMENTS CONTAINED HEREIN, AS WELL AS STATEMENTS MADE IN PRESS
RELEASES AND ORAL STATEMENTS THAT MAY BE MADE BY THE COMPANY OR BY OFFICERS,
DIRECTORS OR EMPLOYEES OF THE COMPANY ACTING ON THE COMPANY'S BEHALF, THAT
ARE NOT STATEMENTS OF HISTORICAL FACT, CONSTITUTE "FORWARD-LOOKING
STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM
ACT OF 1995. SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS,
UNCERTAINTIES AND OTHER FACTORS THAT COULD CAUSE THE ACTUAL RESULTS OF THE
COMPANY TO BE MATERIALLY DIFFERENT FROM THE HISTORICAL RESULTS OF OR FROM
ANY FUTURE RESULTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS.
AMONG THE FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY ARE
THE FOLLOWING: THE UNAVAILABILITY OF SUFFICIENT CAPITAL ON SATISFACTORY TERMS
TO FINANCE THE COMPANY'S BUSINESS PLAN; INCREASED COMPETITION FROM CABLE,
DIRECT BROADCAST SATELLITE ("DBS"), OTHER SATELLITE SYSTEM OPERATORS, AND
OTHER PROVIDERS OF SUBSCRIPTION TELEVISION SERVICES; THE INTRODUCTION OF NEW
TECHNOLOGIES AND COMPETITORS INTO THE SUBSCRIPTION TELEVISION BUSINESS;
INCREASED SUBSCRIBER ACQUISITION COSTS AND SUBSCRIBER PROMOTION SUBSIDIES;
THE INABILITY OF THE COMPANY TO OBTAIN NECESSARY SHAREHOLDER AND BOND-HOLDER
APPROVAL OF ANY STRATEGIC TRANSACTIONS; THE INABILITY OF THE COMPANY TO
OBTAIN NECESSARY AUTHORIZATIONS FROM THE FEDERAL COMMUNICATIONS COMMISSION
("FCC"); GENERAL BUSINESS AND ECONOMIC CONDITIONS, AND OTHER RISK FACTORS
DESCRIBED FROM TIME TO TIME IN THE COMPANY'S REPORTS FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION ("SEC"). IN ADDITION TO STATEMENTS, WHICH
EXPLICITLY DESCRIBE SUCH RISKS AND UNCERTAINTIES, READERS ARE URGED TO
CONSIDER STATEMENTS LABELED WITH THE TERMS "BELIEVES," "BELIEF," "EXPECTS,"
"PLANS," "ANTICIPATES," OR "INTENDS" TO BE UNCERTAIN AND FORWARD-LOOKING.
ALL CAUTIONARY STATEMENTS MADE HEREIN SHOULD BE READ AS BEING APPLICABLE TO
ALL RELATED FORWARD-LOOKING STATEMENTS WHEREVER THEY APPEAR. IN THIS
CONNECTION, INVESTORS SHOULD CONSIDER THE RISKS DESCRIBED HEREIN.
OVERVIEW
The operations of EchoStar Communications Corporation (together with its
subsidiaries, "EchoStar" or the "Company") include three interrelated
business units: (i) a direct broadcast satellite ("DBS") subscription
television service in the United States (the "DISH Network"); (ii) the
design, manufacture, distribution and sale of DBS set-top boxes, antennae and
other digital equipment for the DISH Network ("EchoStar Receiver Systems"),
and the design, manufacture and distribution of similar equipment for
direct-to-home ("DTH") projects of others internationally, together with the
provision of uplink center design and construction oversight and other
project integration services for international DTH ventures ("Technology");
and (iii) the turn-key delivery of video, audio and data, primarily from
EchoStar satellites, to customers for business television and other satellite
users. These services include uplink, satellite transponder space, sales and
installation of ground segment equipment, and billing services ("Satellite
Services"). EchoStar's C-band DTH products, programming and related services
businesses are no longer material to its operations and EchoStar expects
revenues from its C-band lines of business to continue to decline.
EchoStar's Technology and Satellite Services businesses result from
development of the DISH Network, and EchoStar's revenues are, and will
continue to be, derived principally from subscription fees for DISH Network
programming. While there can be no assurance, EchoStar believes that revenue
from its Technology and Satellite Services businesses may increase in the
future assuming, among other things, the successful launch of EchoStar's
third and fourth DBS satellites ("EchoStar III" and "EchoStar IV,"
respectively). Further those businesses are expected to continue to support
and create revenue opportunities for the DISH Network. For example, the
design of digital set-top equipment for international DTH customers is
performed by the same employees who design EchoStar Receiver Systems.
Consequently, international Technology projects may result in improvements in
design and economies of scale in the production of EchoStar Receiver Systems
for the DISH Network. Further, since Satellite Services customers have DISH
Network set-top equipment in their homes and businesses, they are more likely
than the general population to subscribe to DISH Network programming.
EchoStar III was launched on October 5, 1997. Commencing in January
1998, the Company expects to use EchoStar III to retransmit local network
programming from approximately ten of the largest cities in the eastern and
central time zones (assuming receipt of any required retransmission consents
and copyright licenses and/or congressional or regulatory action necessary to
extend and clarify the scope of the statutory compulsory license to cover
local satellite retransmission of network-affiliated station signals), and to
provide subscribers with additional sports, foreign language, cultural,
business, educational and other niche programming. As technology advances
and demand increases, the Company also expects to use EchoStar III to provide
popular Internet and other computer data at high transmission speeds and to
offer subscribers HDTV. While all testing of EchoStar III to date indicates
the satellite is functioning properly, the ultimate success of the launch and
in-orbit operation of EchoStar III will not be established until
approximately December 1997.
13
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS -- CONTINUED
KEY OPERATING AND FINANCIAL STATISTICS. As of September 30, 1997,
EchoStar had approximately 820,000 DISH Network subscribers compared to
approximately 190,000 subscribers at September 30, 1996. During the three and
nine months ended September 30, 1997, EchoStar added approximately 230,000 and
470,000 DISH Network subscribers, respectively. While EchoStar's factory
manufacturing capacity is adequate to meet demand, subscriber activations
during the third quarter exceeded EchoStar's expectations. As a result of
stronger than expected sales and because certain components of EchoStar
Receiver Systems must be ordered as much as 120 days in advance, certain
models of EchoStar Receiver Systems will have limited availability during the
fourth quarter and EchoStar expects that its fourth quarter subscriber growth
will be limited to approximately the same number of subscribers added during
the third quarter. EchoStar believes that it has ordered, or can timely
order, sufficient quantities of components to meet reasonably expected demand
during 1998.
During the three and nine months ended September 30, 1997, subscriber
churn approximated 1.2% per month. EchoStar's subscriber acquisition costs,
inclusive of advertising expenses, for the three and nine months ended
September 30, 1997 approximated $300 and $350, respectively.
ECHOSTAR MARKETING PROMOTIONS. During August 1996, EchoStar introduced
a promotion (the "1996 Promotion") which permitted independent retailers to
offer a standard EchoStar Receiver System to consumers for a suggested retail
price of $199 (as compared to the original average retail price prior to
August 1996 of approximately $499), conditioned upon the consumer's prepaid
one-year subscription to the DISH Network's America's Top 50 CD programming
package for approximately $300. Total transaction proceeds to EchoStar are
less than its aggregate costs (equipment, programming and other) for the
initial prepaid subscription are initially deferred, and recognized as
revenue over the related prepaid subscription period (normally one year).
During the period from August 1996 through May 1997, substantially all new
subscriber activations resulted from the 1996 Promotion.
During June 1997, the 1996 Promotion was enhanced to permit independent
retailers to offer a standard EchoStar Receiver System to consumers for a
suggested retail price of $199 without an extended subscription commitment
(the "1997 Promotion"). Net transaction costs associated with the 1997
Promotion are expensed as incurred (reported as a component of subscriber
promotion subsidies) in the accompanying statements of operations. Since
introduction of the 1997 Promotion, the majority of new subscriber activations
have resulted therefrom.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THE THREE MONTHS ENDED
SEPTEMBER 30, 1996.
REVENUE. Total revenue for the three months ended September 30, 1997 was
$124.8 million, an increase of $94.4 million as compared to total revenue for
the three months ended September 30, 1996 of $30.4 million. The increase in
total revenue in 1997 was primarily attributable to DISH Network subscriber
growth. The Company expects this trend to continue as the number of DISH
Network subscribers increases, and as EchoStar develops its Technology and
Satellite Services businesses. Consistent with the increases in total revenue
during the three months ended September 30,1997, EchoStar experienced a
corresponding increase in trade accounts receivable at September 30, 1997.
DISH Network subscription television services revenue totaled $82.1
million for the three months ended September 30, 1997, an increase of $68.8
million compared to the three months ended September 30, 1996. This increase
was directly attributable to the increase in the number of DISH Network
subscribers as of September 30, 1997 as compared to September 30, 1996.
Average monthly revenue per subscriber approximated $39.50 for the three
months ended September 30, 1997 compared to approximately $34.50 for the same
period in 1996. The increase in monthly revenue per subscriber was primarily
due to additional channels added upon commencement of operations of EchoStar's
second DBS satellite ("EchoStar II") in November 1996. DISH Network
subscription television services revenue consists primarily of revenue from
basic, premium and pay-per-view subscription television services.
14
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS -- CONTINUED
Other DISH Network revenue totaled $13.7 million for the three months
ended September 30, 1997, an increase of $10.9 million compared to the three
months ended September 30, 1996. Other DISH Network revenue consists
primarily of the recognition of revenue related to EchoStar Receiver Systems
sold pursuant to the 1996 Promotion, DBS system installation revenue, and
loan origination and participation income. During the three months ended
September 30, 1997, EchoStar recognized approximately $11.8 million of
revenue relating to EchoStar Receiver Systems sold pursuant the 1996
Promotion, an increase of $10.7 million as compared to the three months ended
September 30, 1996. EchoStar expects revenue related to the 1996 Promotion to
decline at an accelerated rate in future periods and to end entirely in 1998,
one year following the last sale pursuant to the 1996 Promotion.
For the three months ended September 30, 1997, DTH equipment sales and
integration services was comprised primarily of revenue from set-top boxes
and other DTH equipment sold to international DTH service operators. For the
three months ended September 30, 1997, DBS equipment sales and integration
services totaled $22.6 million. EchoStar currently has agreements with two
international DBS service operators for the distribution of digital satellite
broadcasting equipment. EchoStar recognized revenues of approximately $18.5
million related to these agreements during the three months ended September
30, 1997. Approximately $17.0 million of this revenue related to the sale of
set-top boxes and other DTH equipment and approximately $1.5 million of
revenue related to the provision of integration services (revenue from uplink
center design and construction oversight and other project integration
services for international DTH ventures).
While EchoStar continues to actively pursue other similar distribution
and integration service opportunities, no assurance can be given that any
such additional negotiations will be successful. Although EchoStar expects
its Technology business may grow at an accelerated rate, EchoStar's future
revenue from the sale of DTH equipment and integration services in
international markets depends largely on the success of the DBS operator in
that country, which, in turn, depends on other factors, such as the level of
consumer acceptance of DBS products and the intensity of competition for
international subscription television subscribers. No assurance can be given
regarding the level of expected future revenues which may be generated from
EchoStar's alliances with foreign DTH operators.
For the three months ended September 30, 1996, DTH equipment sales and
integration services consisted primarily of EchoStar Receiver Systems and
related accessories sold prior to the August 1996 nationwide rollout of the
1996 Promotion. DTH equipment sales and integration services revenue for the
three months ended September 30, 1996 totaled $9.9 million.
Satellite services revenue totaled $3.7 million for the three months
ended September 30, 1997, an increase of $1.7 million, or 84%, compared to
the three months ended September 30, 1996. Satellite services revenue
primarily consists of signal carriage revenues from content providers and
business television service revenue for the broadcast of organization
specific telecasts. The increase in satellite services revenue was primarily
attributable to an increase in the number of content providers combined with
increased usage by EchoStar's business television customers.
DISH NETWORK OPERATING EXPENSES. DISH Network operating expenses
totaled $56.9 million for the three months ended September 30, 1997, an
increase of $44.1 million as compared to the same period in 1996. The
increase in DISH Network operating expenses was primarily attributable to the
increase in the number of DISH Network subscribers. Subscriber-related
expenses totaled $42.7 million for the three months ended September 30, 1997,
an increase of $35.7 million compared to the same period in the prior year.
Such expenses, which include programming expenses, copyright royalties,
residuals payable to retailers and distributors, and billing, lockbox and
other variable subscriber expenses, totaled 52% of subscription television
services revenues, compared to 53% of subscription television services
revenues during the same period in 1996. Satellite and transmission expenses
are comprised primarily of costs associated with the operation of EchoStar's
digital broadcast center and costs of maintaining in-orbit insurance on
EchoStar's DBS satellites. Satellite and transmission expenses increased
$2.1 million compared to the same period in 1996 primarily as a result of the
September 1996 launch of EchoStar II. Call center and other operating
expenses consist primarily of costs incurred in the operation of EchoStar's
DISH Network call center and expenses associated with subscriber equipment
installation. Call Center and other operating expenses totaled $10.8 million
for the three months ended September 30, 1997, an increase of $6.3 million as
compared to the same period in 1996. The increase in call center and other
operating expenses was directly attributable to the increase in the number of
DISH Network subscribers. EchoStar expects DISH Network operating
15
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS -- CONTINUED
expenses to continue to increase in the future as subscribers are added.
However, as its DISH Network subscriber base continues to expand, EchoStar
expects that such costs as a percentage of DISH Network revenue will decline.
COST OF SALES - DTH EQUIPMENT AND INTEGRATION SERVICES. Cost of sales
- - DTH equipment and integration services totaled $11.9 million for the three
months ended September 30, 1997 (net of the reclassification of freight
expenses of $1.7 million incurred during the first six months of 1997
associated with shipment of EchoStar Receiver Systems), an increase of $2.5
million, or 26%, as compared to the same period in 1996. For the three
months ended September 30, 1997, cost of sales - DTH equipment and
integration services represents costs associated with set-top boxes and
related components sold to international DTH operators. For the three months
ended September 30, 1996, cost of sales - DTH equipment and integration
services totaled $9.5 million and represent costs of EchoStar Receiver
Systems sold prior to the August 1996 rollout of the 1996 Promotion.
DISH NETWORK MARKETING EXPENSES. DISH Network marketing expenses totaled
$80.4 million for the three months ended September 30, 1997, an increase of
$70.4 million as compared to the same period in 1996. The increase in DISH
Network marketing expenses was primarily attributable to the increase in
subscriber promotion subsidies. Subscriber promotion subsidies represent the
excess of transaction costs over transaction proceeds at the time of sale
associated with EchoStar's various promotions. Such costs totaled
approximately $63.6 million (including a $1.7 million reclassification of
freight expenses described above), an increase of $57.6 million as compared to
the same period in 1996. The increase in subscriber promotion subsidies was
primarily attributable to the commencement of the 1997 Promotion and an
increase in the number of EchoStar Receiver Systems sold during the three
months ended September 30, 1997 as compared to the same period in 1996.
Advertising and other expenses increased $12.8 million to $16.8 million during
the three months ended September 30, 1997 as a result of increased marketing
activity.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative ("G&A")
expenses totaled $17.2 million for the three months ended September 30, 1997,
an increase of $3.4 million as compared to the same period in 1996. The
increase in G&A expenses was principally attributable to increased personnel
expenses to support the growth of DISH Network. G&A expenses as a percentage
of total revenue decreased to 14% during the three months ended September 30,
1997 as compared to 45% during the same period in 1996. EchoStar expects that
its G&A expenses as a percent of total revenue will continue to decrease in
future periods.
EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION AND AMORTIZATION. Earnings
before interest, taxes, depreciation and amortization (including amortization
of subscriber acquisition costs) ("EBITDA") was negative $41.6 million for the
three months ended September 30, 1997 as compared to negative EBITDA of $15.6
million during the same period of 1996. This decrease in EBITDA resulted from
the factors affecting revenue and expenses discussed above. EchoStar believes
that EDITDA results will improve in future periods as its subscriber
acquisition costs decrease and the number of DISH Network subscribers
increases. In the event that new subscriber activations exceed expectations,
EchoStar's EBITDA results would be negatively impacted (as a result of the
accounting treatment applied to the 1997 Promotion whereby net subscriber
acquisition costs are expensed upon subscriber activation).
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses
for the three months ended September 30, 1997 (including amortization of
subscriber acquisition costs of $3.4 million and $34.1 million for the three
months ended September 30, 1996 and September 30, 1997, respectively),
aggregated $47.1 million, an increase of $35.8 million, as compared to the
same period 1996. The increase in depreciation and amortization expenses
principally resulted from amortization of subscriber acquisition costs and
depreciation of EchoStar II (placed in service during the fourth quarter of
1996).
OTHER INCOME AND EXPENSE. Other expense, net totaled $26.4 million for
the three months ended September 30, 1997, an increase of $11.8 million as
compared to the same period during 1996. The increase in other expense in the
third quarter of 1997 resulted primarily from interest expense associated with
the 1997 Notes (as defined), which were issued in June 1997, and increases in
interest expenses associated with EchoStar's 12 7/8% Senior Secured Discount
Notes due 2004 (the "1994 Notes") and its 13 1/8% Senior Secured Discount
Notes due 2004 (the "1996 Notes") due to higher accreted balances thereon.
These increases in interest expenses were partially offset by increases in
capitalized interest. Capitalized interest (principally attributable to
satellite construction) approximated
16
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS -- CONTINUED
$11.2 million during the three months ended September 30, 1997, compared to
approximately $8.5 million during the three months ended September 30, 1996.
INCOME TAX BENEFIT. The decrease in the income tax benefit of $15.0
million (from $15.0 million for the three months ended September 30, 1996 to
an income tax provision of $20,000 for the three months ended September 30,
1997) principally resulted from EchoStar's decision to fully reserve the third
quarter addition to its net deferred tax asset. EchoStar's net deferred tax
assets (approximately $67.1 million at September 30, 1997) relate to temporary
differences for amortization of original issue discount on the 1994 Notes and
1996 Notes, net operating loss carryforwards, and various accrued expenses
which are not deductible until paid. If future operating results differ
materially and adversely from EchoStar's current expectations, its judgment
regarding the magnitude of its reserve may change.
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1996.
REVENUE. Total revenue for the nine months ended September 30, 1997 was
$281.9 million, an increase of $169.3 million, or 150%, as compared to total
revenue for the nine months ended September 30, 1996 of $112.6 million. This
increase was primarily attributable to the increase in the number of DISH
Network subscribers.
DISH Network subscription television services revenue totaled $193.0
million for the nine months ended September 30, 1997, an increase of $175.5
million compared to the nine months ended September 30, 1996. This increase
resulted from operation of the DISH Network during the entirety of the nine
months ended September 30, 1997 (DISH Network operations commenced in March
1996) as well as from the increase in the number of DISH Network subscribers.
During the nine months ended September 30, 1997, EchoStar added 470,000 DISH
Network subscribers and average revenue per subscriber approximated $39.00.
Other DISH Network revenue totaled $35.1 million for the nine months
ended September 30, 1997, an increase of $25.6 million compared to the
nine months ended September 30, 1996. Other DISH Network revenue consists
primarily of the recognition of revenue related to EchoStar Receiver Systems
sold pursuant to the 1996 Promotion, DBS system installation revenue, and loan
origination and participation income. During the nine months ended September
30, 1997, EchoStar recognized approximately $30.0 million of revenue relating
to EchoStar Receiver Systems sold pursuant to the 1996 Promotion, an increase
of $29.0 million as compared to the nine months ended September 30, 1996.
EchoStar expects revenue related to the 1996 Promotion to decline at an
accelerated rate in future periods and to end entirely in 1998, one year
following the last sale pursuant to the 1996 Promotion.
During the nine months ended September 30, 1997, DTH equipment sales and
integration services revenue was comprised primarily of revenue from the sale
of set-top boxes and other DTH equipment sold to international DBS service
operators. These revenues totaled $38.7 million of which approximately $17.0
million was related to the sale of set-top boxes and other DTH equipment.
EchoStar also recognized revenues of approximately $13.4 million relating to
the provision of integration services.
During the nine months ended September 30, 1996, DTH equipment sales and
integration services revenue resulted from the sale, prior to the August 1996
nationwide introduction of the 1996 Promotion, of EchoStar Receiver Systems.
DTH equipment sales totaled $72.7 million during the nine months ended
September 30, 1996.
Satellite services revenue totaled $7.9 million for the nine months ended
September 30, 1997, an increase of $4.1 million, or 106%, compared to the same
period in 1996. The increase in satellite services revenue primarily resulted
from operation of EchoStar I and EchoStar II during the entirety of 1997, an
increase in the number of content providers, and increased usage by EchoStar's
business television customers.
DISH NETWORK OPERATING EXPENSES. DISH Network operating expenses totaled
$130.2 million for the nine months ended September 30, 1997, an increase of
$111.2 million as compared to the same period in 1996. The increase in DISH
Network operating expenses was primarily attributable to operation of the DISH
Network during the entirety of 1997 and the increase in the number of DISH
Network subscribers. Subscriber-related expenses totaled $97.3 million for
the nine months ended September 30, 1997, an increase of $88.0 million as
compared to the same period in the prior year. Such expenses as a percent of
subscription television services revenues were 50%, compared to 53% of
subscription television services revenues during the same period in 1996.
Satellite and transmission expenses increased $6.8 million compared to the
same period in 1996, primarily as a result of operation of the DISH Network
during the entirety of 1997 and the commencement of operation of EchoStar II.
Call center and other operating expenses totaled $23.2 million for the nine
months ended September 30, 1997, an increase of $16.3 million as compared to
the same period in 1996. The increase in these expenses was attributable to
operation of the DISH Network during the entirety of 1997 and from the
increase in the number of DISH Network subscribers.
COST OF SALES - DTH EQUIPMENT AND INTEGRATION SERVICES. Cost of sales
- - DTH equipment and integration services totaled $26.6 million for the nine
months ended September 30, 1997, a decrease of $46.3 million, or 63%,
17
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS -- CONTINUED
compared to the same period in 1996. For the nine months ended September 30,
1997, cost of sales - DTH equipment and integration services principally
consisted of costs associated with the sale of EchoStar Receiver Systems and
related components and the provision of integration services to international
DTH operators. During the nine months ended September 30, 1996, cost of sales
- - DTH equipment and integration services represented costs of EchoStar
Receiver Systems and related components sold prior to the August 1996
nationwide rollout of the 1996 Promotion. As previously described, EchoStar
Receiver Systems sold pursuant to the 1996 Promotion are not included within
this caption on the accompanying statements of operations but are deferred
(i.e., subscriber acquisition costs) and amortized over the prepaid
subscription period.
DISH NETWORK MARKETING EXPENSES. DISH Network marketing expenses totaled
$118.7 million for the nine months ended September 30, 1997, an increase of
$101.3 million as compared to the same period in 1996. The increase in DISH
Network marketing expenses was primarily the result of the increase in
subscriber promotion subsidies. Such costs totaled approximately $94.6
million, an increase of $88.6 million, compared to the same period in 1996.
The increase in subscriber promotion subsidies was primarily attributable to
the commencement of the 1997 Promotion. Advertising and other expenses
increased $12.6 million, or 110%, to $24.1 million during the nine months
ended September 30, 1997, principally due to the operation of the DISH Network
during the entirety of 1997.
GENERAL AND ADMINISTRATIVE EXPENSES. G&A expenses totaled $48.9 million
for the nine months ended September 30, 1997, an increase of $17.1 million as
compared to the same period in 1996. The increase in G&A expenses resulted
from increased personnel expenses to support the growth of DISH Network. G&A
expenses as a percentage of total revenue decreased to 17% for the nine months
ended September 30, 1997, compared to 28% during the same period in 1996.
EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION AND AMORTIZATION. EBITDA
was negative $42.5 million for the nine months ended September 30, 1997,
compared to negative EBITDA of $28.6 million for the same period in 1996. This
decrease in EBITDA of $13.9 million resulted from the factors affecting
revenue and expenses discussed above.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses
for the nine months ended September 30, 1997 (including amortization of
subscriber acquisition costs of $3.5 million and $95.5 million for the nine
months ended September 30, 1996 and September 30, 1997, respectively)
aggregated $133.9 million, an increase of $112.8 million, as compared to the
same period in 1996. The increase in depreciation and amortization expenses
resulted from amortization of subscriber acquisition costs and depreciation of
EchoStar II.
OTHER INCOME AND EXPENSE. Other expense, net totaled $65.4 million for
the nine months ended September 30, 1997, an increase of $26.9 million, as
compared to the same period 1996. The increase in other expense during the
nine months ended September 30, 1997 resulted from an increase in interest
expenses associated with the 1994 Notes, the 1996 Notes, and the 1997 Notes.
Additionally, interest income decreased approximately $5.8 million as a result
of a decrease in invested balances. EchoStar capitalized $27.9 million and
$22.9 million of interest during the nine months ended September 30, 1997 and
1996, respectively.
INCOME TAX BENEFIT. The decrease in the income tax benefit of $31.9
million (from $31.8 million for the nine months ended September 30, 1996 to an
income tax provision of $64,000 for the nine months ended September 30, 1997)
was the result of EchoStar's decision to fully reserve the 1997 additions to
its net deferred tax asset.
LIQUIDITY AND CAPITAL RESOURCES
Capital expenditures, including expenditures for satellite systems under
construction, totaled $181.2 million and $183.6 million during the nine months
ended September 30, 1996 and 1997, respectively. During the nine months ended
September 30, 1997, net cash flows used in operations totaled $40.1 million
compared to $8.4 million used in operations during the same period of 1996.
EchoStar anticipates that its working capital and capital expenditure
requirements will increase during the fourth quarter of 1997 and first half of
1998 as it continues to aggressively build its DISH Network subscriber base,
and as it constructs and prepares to launch and deploy EchoStar IV.
EchoStar's capital requirements during 1997 principally have been funded by
the proceeds from the 1996 Notes Offering and EchoStar DBS Corporation's ("DBS
Corp") June 1997 offering (the "1997 Notes Offering") of 12 1/2% Senior
Secured Notes due 2002 (the "1997 Notes"). The 1997 Notes Offering resulted
in net
18
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS -- CONTINUED
proceeds to the Company of approximately $362.5 million, including
approximately $109.0 million restricted to fund interest payments on the 1997
Notes through January 1, 2000.
In accordance with an agreement (the "News Agreement") with The News
Corporation Limited ("News"), EchoStar had expected to meet its short- and
medium-term capital needs through financial commitments from News. As a
result of the failure by News to honor its obligations under the News
Agreement, EchoStar was required to raise additional capital to continue its
contemplated business plan. Accordingly, EchoStar consummated the 1997 Notes
Offering and the offerings described below (collectively, the "1997
Offerings"). EchoStar intends to seek recovery from News for any costs of
financing, including those costs associated with the 1997 Offerings, in excess
of the costs of the financing committed to by News under the News Agreement.
RECENT FINANCING ACTIVITIES
SERIES B SENIOR REDEEMABLE EXCHANGEABLE PREFERRED STOCK OFFERING. On
October 2, 1997, EchoStar consummated an offering (the "Series B Preferred
Offering") of 12 1/8% Series B Senior Redeemable Exchangeable Preferred Stock
due 2004, par value $0.01 per share (including any additional shares of such
stock issued from time to time in lieu of cash dividends, the "Series B
Preferred Stock"). The Series B Preferred Offering resulted in net proceeds
to EchoStar of approximately $193.0 million. The Series B Preferred Stock was
issued in a private placement pursuant to Rule 144A of the Securities Act. On
November 10, 1997, EchoStar filed a Registration Statement on Form S-4 (the
"Registration Statement") to exchange the privately issued Series B Preferred
Stock for publicly registered preferred stock (the "New Series B Preferred
Stock") with substantially identical terms (including liquidation preference,
dividend rate, and ranking). Upon the effectiveness of the Registration
Statement, EchoStar will make an offer to exchange the Series B Preferred
Stock for the New Series B Preferred Stock. Each share of Series B Preferred
Stock has a liquidation preference of $1,000 per share. Dividends on the
Series B Preferred Stock are payable quarterly in arrears, commencing on
January 1, 1998.
EchoStar may, at its option, pay dividends in cash or by issuing
additional shares of Series B Preferred Stock having an aggregate liquidation
preference equal to the amount of such dividends. EchoStar may, at its
option, exchange all, but not less than all, of the shares of Series B
Preferred Stock then outstanding for EchoStar's 12 1/8% Senior Exchange Notes
due 2004 (including any such senior notes issued from time to time in lieu of
cash interest, the "Senior Exchange Notes"). The Senior Exchange Notes will
bear interest at a rate of 12 1/8% per annum, payable semiannually in arrears
on April 1 and October 1 of each year, commencing with the first such date to
occur after the date of the exchange. Interest on the Senior Exchange Notes
may, at the option of EchoStar, be paid in cash or by issuing additional
Senior Exchange Notes in an aggregate principal amount equal to the amount of
such interest.
SERIES C CUMULATIVE CONVERTIBLE PREFERRED STOCK OFFERING. On November 4,
1997, EchoStar consummated an offering (the "Series C Preferred Offering") of
2.3 million shares of 6 3/4% Series C Cumulative Convertible Preferred Stock
(the "Series C Preferred Stock"). The Series C Preferred Offering, after
exercise by the underwriters of the 15% over-allotment option, resulted in net
proceeds to EchoStar of approximately $96.5 million. Simultaneously with the
closing of the Series C Preferred Offering, the purchasers of the Series C
Preferred Stock placed approximately $14.6 million into an account (the
"Deposit Account"). The Deposit Account will provide a quarterly cash payment
of approximately $0.844 per share of Series C Preferred Stock (the "Quarterly
Return Amount") commencing February 1, 1998 and continuing until November 1,
1999. After that date, dividends on the Series C Preferred Stock will begin
to accrue. EchoStar may, prior to the date on which any Quarterly Return
Amount would otherwise be payable, deliver notice instructing the deposit
agent: (i) to purchase from EchoStar, for transfer to each holder of Series C
Preferred Stock, in lieu of the Quarterly Return Amount, that number of whole
shares of Class A Common Stock determined by dividing the Quarterly Return
Amount by 95% of the market value of the Class A Common Stock as of the date
of such notice; or (ii) defer delivery of the Quarterly Return Amount to
holders of Series C Preferred Stock on such quarterly payment date until the
next quarterly payment date or any subsequent payment date. However, no later
than November 1, 1999 (the "Deposit Expiration Date"), any amounts remaining
in the Deposit Account, as of such date, including amounts which have
previously been deferred, will be: (i) paid to the holders of Series C
Preferred Stock; or (ii) at EchoStar's option, used to purchase from EchoStar
for delivery to each holder of Series C Preferred Stock that number of whole
shares of Class A Common Stock determined by dividing the balance remaining in
the Deposit Account by 95% of the market value of the shares of Class A Common
Stock as of the date of EchoStar's notice.
19
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS -- CONTINUED
Each share of Series C Preferred Stock has a liquidation preference of
$50 per share. Dividends on the Series C Preferred Stock will accrue from
November 2, 1999, and holders of the Series C Preferred Stock will be entitled
to receive cumulative dividends at an annual rate of 6 3/4% of the liquidation
preference, payable quarterly in arrears commencing February 1, 2000.
Dividends may, at the option of EchoStar, be paid in cash, by delivery of
fully paid and nonassessable shares of Class A Common Stock, or a combination
thereof. Each share of Series C Preferred Stock is convertible at any time,
unless previously redeemed, at the option of the holder thereof, into
approximately 2.05 shares of Class A Common Stock, subject to adjustment upon
the occurrence of certain events. The Series C Preferred Stock is redeemable
at any time on or after November 1, 2000, in whole or in part, at the option
of EchoStar, in cash, by delivery of fully paid and nonassessable shares of
Class A Common Stock, or a combination thereof, initially at a price of
$51.929 per share and thereafter at prices declining to $50.000 per share on
or after November 1, 2004, plus in each case all accumulated and unpaid
dividends to the redemption date. On October 30, 1997, the Series C Preferred
Stock commenced trading on the Nasdaq National Market under the symbol "DISHP."
CLASS A COMMON STOCK OFFERING. Also on November 4, 1997, EchoStar
consummated an offering of 3.1 million shares of its Class A Common Stock (the
"Common Stock Offering"). The Common Stock Offering resulted in net proceeds
to EchoStar of approximately $57.7 million.
EFFECTS OF CAMPAIGNS TO ACQUIRE SUBSCRIBERS
The 1997 Promotion has significantly increased EchoStar's working capital
requirements. Transaction proceeds associated with the 1997 Promotion vary
dependent on the type of EchoStar Receiver System and the number of additional
outlet receivers purchased, but, on average approximate $225 to $275 per new
subscriber. Transaction costs, consisting of costs of goods sold, activation
fees paid to dealers and distributors, and other promotional costs, range from
$425 to $500 per new subscriber. Thus, each subscriber initially added
pursuant to the 1997 Promotion results in a net use of cash of between
approximately $200 to $275. Comparatively, the 1996 Promotion (which requires
an annual prepaid DISH Network subscription and continues to be available to
consumers) results in approximately breakeven net cash flows at the time of
subscriber activation. EchoStar expects that transaction costs associated with
both the 1996 and 1997 Promotions will decrease during the remainder of 1997
as additional cost reductions associated with the cost to manufacture EchoStar
Receiver Systems are realized, thereby reducing the initial net cash outflow
per new subscriber. From time to time, EchoStar offers other promotions and
incentives to attract additional DISH Network subscribers. Costs associated
with these additional promotions and incentives are expensed as incurred
(reported as a component of subscriber promotion subsidies). After giving
effect to these other promotions and incentives, EchoStar expects that its
aggregate net use of cash to acquire subscribers will approximate $300 per
activation (inclusive of advertising expenses).
The excess of transaction costs over related proceeds from the 1996
Promotion and net transaction costs resulting from the 1997 Promotion are
recognized as subscriber promotion subsidies in the Company's statements of
operations. EBITDA in future periods will be negatively affected as a larger
portion of future subscriber additions will result from the 1997 Promotion
rather than from the 1996 Promotion. A majority of EchoStar's third quarter
subscriber additions resulted from the 1997 Promotion. The adverse EBITDA
impact of the 1997 Promotion (relative to the 1996 Promotion) results from the
immediate recognition of all transaction costs at the time of subscriber
activation. Comparatively, a portion of 1996 Promotion transaction costs are
deferred and amortized over the initial prepaid subscription period.
FUTURE CAPITAL REQUIREMENTS
In addition to the working capital requirements discussed above, during
the remainder of 1997 EchoStar expects to expend: (i) approximately $28.9
million in connection with the construction launch, insurance and deployment
of EchoStar III ($6.1 million) and EchoStar IV ($22.8 million). Additionally,
EchoStar will expend approximately $1.3 million per month to meet debt service
requirements relative to deferred satellite construction payments for EchoStar
I and EchoStar II. Beginning in November 1997, these deferred satellite
construction payments will increase to approximately $1.6 million per month as
a result of the launch of EchoStar III on October 5, 1997. Capital
expenditures related to EchoStar IV may increase in the event of delays, cost
overruns, increased
20
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS -- CONTINUED
costs associated with certain potential change orders under the Company's
satellite or launch contracts, or a change in launch provider.
During 1998 EchoStar anticipates that it will expend approximately $64.5
million to construct, launch and support EchoStar IV, which is expected to be
launched during the first quarter of 1998. These expenditures are expected to
be funded from an escrow account established in connection with the 1997 Notes
Offering (the "Satellite Escrow"). EchoStar's debt service requirements
relative to the deferred satellite construction payments will increase to
approximately $1.9 million per month following the launch of EchoStar IV
(currently scheduled for launch in the first quarter of 1998). Additionally,
beginning in January 1998, EchoStar will be required to make semi-annual
interest payments of $23.4 million on the 1997 Notes. The first five such
semi-annual interest payments will be funded from an escrow account
established in connection with the 1997 Notes Offering (the "Interest Escrow").
EchoStar's working capital, capital expenditure and debt service
requirements are expected to be funded from existing cash and investment
balances, the Satellite and Interest Escrows, cash generated from operations,
and the proceeds of the Series B Preferred, Series C Preferred and Common
Stock Offerings. Increases in subscriber acquisition costs, inadequate
supplies of DBS receivers, or significant launch delays or failures would
significantly and adversely affect EchoStar's operating results and financial
condition.
EchoStar may require additional funds if subscriber growth increases more
rapidly than expected. In addition, EchoStar has applications pending with
the FCC for a two satellite FSS Ku-band satellite system, a two satellite FSS
Ka-band satellite system, a two satellite extended Ku-band satellite system
and a six satellite low earth orbit ("LEO") satellite system. EchoStar will
need to raise additional funds for the foregoing purposes. Further, there may
be a number of factors, some of which are beyond EchoStar's control or ability
to predict, that could require EchoStar to raise additional capital. These
factors include unexpected increases in operating costs and expenses, a defect
in or the loss of any satellite, or an increase in the cost of acquiring
subscribers due to additional competition, among other things. There can be
no assurance that additional debt, equity or other financing will be available
on terms acceptable to EchoStar, or at all.
AVAILABILITY OF OPERATING CASH FLOW TO ECHOSTAR
Since all of EchoStar's, DBS Corp's, EchoStar Satellite Broadcasting
Corporation's ("ESBC") and Dish Ltd.'s ("Dish") operations are conducted
through subsidiaries, the cash flow of EchoStar, DBS Corp, ESBC and Dish and
their ability to service debt, including the 1994 Notes, the 1996 Notes and
the 1997 Notes are dependent upon the earnings of their respective
subsidiaries and, in general, the payment of funds by such subsidiaries to
Dish, by the payment of funds by Dish to ESBC, by the payment of funds by ESBC
to DBS Corp and by the payment of funds by DBS Corp to EchoStar in the form of
loans, dividends or other payments. Although EchoStar may, at its option,
elect to pay dividends on the Series B Preferred Stock in additional shares of
Series B Preferred Stock and interest on the Senior Exchange Notes in
additional Senior Exchange Notes, the ability of EchoStar to redeem the Series
B Preferred Stock, or to retire the Senior Exchange Notes, at maturity, or to
pay cash dividends or cash interest, primarily will depend upon the receipt of
funds by EchoStar from its subsidiaries.
The cash flow generated by subsidiaries of Dish will only be available if
and to the extent that Dish is able to make such cash available to ESBC in the
form of dividends, loans or other payments. The indentures related to the 1994
Notes and the 1996 Notes impose various restrictions on the transfer of funds
among EchoStar and its subsidiaries. The 1994 Notes Indenture contains
restrictive covenants that, among other things, impose limitations on Dish and
its subsidiaries with respect to their ability to: (i) incur additional
indebtedness; (ii) issue preferred stock; (iii) sell assets; (iv) create,
incur or assume liens; (v) create dividend and other payment restrictions with
respect to Dish's subsidiaries; (vi) merge, consolidate or sell assets; and
(vii) enter into transactions with affiliates. In addition, Dish, may pay
dividends on its equity securities only if (1) no default exists under the
1994 Notes Indenture; and (2) after giving effect to such dividends, Dish's
ratio of total indebtedness to cash flow (calculated in accordance with the
1994 Notes Indenture) would not exceed 4.0 to 1.0. Moreover, the aggregate
amount of such dividends generally may not exceed the sum of 50% of Dish's
consolidated net income (less 100% of consolidated net losses) from April 1,
1994, plus 100% of the aggregate net proceeds to Dish from the sale and
issuance of certain equity interests of Dish (including common stock).
21
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS -- CONTINUED
The indenture associated with the 1997 Notes (the "1997 Notes Indenture")
and the certificate of designation for the Series B Preferred Stock contain
restrictive covenants that, among other things, impose limitations on DBS Corp
with respect to its ability to: (i) incur additional indebtedness; (ii) issue
preferred stock; (iii) sell assets; (iv) create, incur or assume liens;
(v) create dividend and other payment restrictions with respect to the
EchoStar's subsidiaries; (vi) merge, consolidate or sell substantially all of
its assets; (vii) enter into transactions with affiliates; and (viii) pay
dividends. In general, DBS Corp may pay dividends on its equity securities
only if: (i) no default exists under the 1997 Notes Indenture; and (ii) after
giving effect to such dividends, DBS Corp's ratio of total indebtedness to cash
flow would not exceed 6.0 to 1.0. Moreover, the aggregate amount of such
dividends generally may not exceed the sum of (A) the difference of
consolidated cash flow (less 100% of such deficit) minus 150% of consolidated
interest expense, in each case from July 1, 1997, plus (B) 100% of the
aggregate net proceeds to DBS Corp and its subsidiaries from the sale of
certain equity interests of DBS Corp or EchoStar.
The indenture associated with the Senior Exchange Notes issuable upon the
exchange of the Series B Preferred Stock contains restrictive covenants that,
among other things, impose limitations that restrict the ability of EchoStar
and certain of its subsidiaries to: (i) pay dividends with the proceeds from
the Series B Preferred Offering, (ii) pay cash dividends on any junior or
parity securities, and (iii) incur indebtedness or pledge the stock of certain
subsidiaries as collateral. The certificate of designation associated with the
Series B Preferred Stock also restricts the ability of DBS Corp and its
subsidiaries to (i) make restricted payments, (ii) incur certain indebtedness
or issue disqualified stock or preferred equity interests, (iii) create payment
restrictions affecting subsidiaries, (iv) engage in transactions with
affiliates or (v) engage in certain asset sales. A majority of the covenants
contained in the certificate of designation associated with the Series B
Preferred Stock and the indenture related to the Senior Exchange Notes are
applicable solely to DBS Corp and its subsidiaries and do not impose
limitations on EchoStar or any of EchoStar's subsidiaries which are not also
subsidiaries of DBS Corp.
If cash generated from operation of the DISH Network is not sufficient to
meet the debt service requirements of the 1994 Notes, the 1996 Notes and the
1997 Notes, EchoStar would be required to obtain additional financing. There
can be no assurance that such financing would be available on terms acceptable
to EchoStar, or if available, that the proceeds of such financing would be
sufficient to enable EchoStar to meet all of its obligations.
EFFECTS OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In March 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share" (SFAS
No. 128), which supersedes Accounting Principles Board Opinion No. 15,
"Earnings Per Share" ("APB No. 15"). SFAS No. 128 simplifies the requirements
for reporting earnings per share ("EPS") by requiring companies only to report
"basic" and "diluted" EPS. SFAS No. 128 is effective for both interim and
annual periods ending after December 15, 1997 but requires retroactive
restatement upon adoption. EchoStar will adopt SFAS No. 128 in the fourth
quarter of 1997. EchoStar does not believe such adoption will have a material
effect on either its previously reported or future EPS.
In March 1997, the FASB issued Statement of Financial Accounting Standards
No. 129, "Disclosure of Information about Capital Structure" (SFAS No. 129),
which continues the existing requirements of APB No. 15 but expands the number
of companies subject to portions of its requirements. Specifically, SFAS No.
129 requires that entities previously exempt from the requirements of APB No.
15 disclose the pertinent rights and privileges of all securities other than
ordinary common stock. SFAS No. 129 is effective for periods ending after
December 15, 1997. EchoStar was not exempt from APB No. 15; accordingly, the
adoption of SFAS No. 129 will not have any effect on EchoStar.
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" ("SFAS No. 130") which establishes
standards for reporting and display of comprehensive income and its components
(revenues, expenses, gains and losses) in a full set of general-purpose
financial statements. SFAS No. 130 requires that all items that are required
to be recognized under accounting standards as components of comprehensive
income be reported in a financial statement that is displayed with the same
prominence as other financial statements. SFAS No. 130 does not require a
specific format for that financial statement but requires that the enterprise
display an amount representing total comprehensive income for the period in
that financial statement. SFAS No. 130 is effective for fiscal years beginning
after December 15, 1997. The adoption of SFAS No. 130 will require additional
disclosure in EchoStar's financial statements.
22
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS -- CONTINUED
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
131, "Disclosures About Segments of an Enterprise and Related Information"
("SFAS No. 131") which establishes standards for the way that public business
enterprises report information about operating segments in annual financial
statements and requires that those enterprises report selected information
about operating segments in interim financial reports issued to shareholders.
It also establishes standards for related disclosures about products and
services, geographic areas, and major customers. SFAS No. 131 supersedes
Statement of Financial Accounting Standards No. 14, "Financial Reporting for
Segments of a Business Enterprise," but retains the requirement to report
information about major customers. SFAS No. 131 requires that a public
business enterprise report financial and descriptive information about its
reportable operating statements. Operating segments are components of an
enterprise about which separate financial information is available that is
evaluated regularly by the chief operating decision maker in deciding how to
allocate resources and in assessing performance. Generally, financial
information is required to be reported on the basis that it is used internally
for evaluating segment performance and deciding how to allocate resources to
segments. SFAS No. 131 is effective for financial statements for periods
beginning after December 15, 1997. The adoption of SFAS No. 131 will require
additional disclosure in EchoStar's financial statements.
23
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On February 24, 1997, EchoStar Communications Corporation ("EchoStar") and
The News Corporation Limited ("News") announced an agreement (the "News
Agreement") pursuant to which, among other things, News agreed to acquire
approximately 50% of the outstanding capital stock of EchoStar. News also
agreed to make available for use by EchoStar the DBS permit for 28 frequencies
at 110 West Longitude ("WL") purchased by MCI Communications Corporation
("MCI") for over $682 million following a 1996 Federal Communications
Commission ("FCC") auction. During late April 1997, substantial disagreements
arose between the parties regarding their obligations under the News Agreement.
On May 8, 1997, EchoStar filed a Complaint in the U.S. District Court for
the District of Colorado (the "Court"), Civil Action No. 97-960, requesting
that the Court confirm EchoStar's position and declare that News is obligated
pursuant to the News Agreement to lend $200 million to EchoStar without
interest and upon such other terms as the Court orders.
On May 9, 1997, EchoStar filed a First Amended Complaint significantly
expanding the scope of the litigation, to include breach of contract, failure
to act in good faith, and other causes of action. EchoStar seeks specific
performance of the News Agreement and damages, including lost profits based on,
among other things, a jointly prepared a ten-year business plan showing
expected profits for EchoStar in excess of $10 billion based on consummation of
the transactions contemplated by the News Agreement.
On June 9, 1997, News filed an answer and counterclaims seeking
unspecified damages. News' answer denies all of the material allegations in the
First Amended Complaint and asserts twenty defenses, including bad faith,
misconduct and failure to disclose material information on the part of EchoStar
and its Chairman and Chief Executive Officer, Charles W. Ergen. The
counterclaims, in which News is joined by its subsidiary American Sky
Broadcasting LLC ("AskyB") assert that EchoStar and Ergen breached their
agreements with News and failed to act and negotiate with News in good faith.
EchoStar has responded to News' answer and denied the allegations in their
counterclaims. EchoStar also has asserted various affirmative defenses.
EchoStar intends to diligently defend against the counterclaims. The parties
are now in discovery. The case has been set for a five week trial commencing
June 1998, but that date could be postponed. The litigation process could
continue for many years and there can be no assurance concerning the outcome of
the litigation. An adverse decision could have a material adverse effect on
EchoStar's financial position and results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
a) The annual meeting of shareholders of EchoStar Communications Corporation
was held September 12, 1997.
b) At the annual meeting of shareholders, a vote was held on the election of
Charles W. Ergen, James DeFranco, R. Scott Zimmer, Alan M. Angelich and
Raymond L. Friedlob as directors to serve until the 1998 annual meeting of
shareholders.
c) Other matters voted on at the meeting included (i) approval of the 1997
Employee Stock Purchase Plan and the reservation of 100,000 shares of
EchoStar's Class A Common Stock, $0.01 par value, thereunder (collectively,
"Approval of the 1997 Employee Stock Purchase Plan"); and (ii) ratification
of the appointment of Arthur Andersen LLP as independent auditors for the
Company for 1997.
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The director nominees were elected and all proposals were approved. The
voting results were as follows:
<TABLE>
Votes
------------------------------------------
Proposal For Against Withheld
-------- ----------- ------- --------
<S> <C> <C> <C>
ELECTION AS DIRECTOR:
Charles W. Ergen 323,058,635 -- 44,761
James DeFranco 323,059,165 -- 44,231
R. Scott Zimmer 323,060,393 -- 43,003
Alan M. Angelich 323,056,543 -- 46,853
Raymond L. Friedlob 323,057,354 -- 46,042
APPROVAL OF THE 1997 EMPLOYEE STOCK PURCHASE PLAN 322,923,259 149,624 30,513
RATIFICATION OF THE APPOINTMENT OF ARTHUR
ANDERSEN LLP AS INDEPENDENT AUDITORS FOR
THE COMPANY FOR 1997 323,078,030 7,082 18,284
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS.
EXHIBIT NO. DESCRIPTION
- ----------- -----------
3.1(a)* Articles of Incorporation of EchoStar DBS Corporation, a Colorado
corporation ("DBS Corp.") (incorporated by reference to Exhibit
3.4(a) to the Registration Statement on Form S-4 of DBS Corp.,
Registration No. 333-31929).
3.1(b)* Bylaws of DBS Corp. (incorporated by reference to Exhibit 3.4(b) to
the Registration Statement on Form S-4 of DBS Corp., Registration
No. 333-31929).
4.1* Registration Rights Agreement, dated as of June 25, 1997, by and
among DBS Corp., EchoStar Communications Corporation, a Nevada
corporation formed in April 1995 ("EchoStar"), EchoStar Satellite
Broadcasting Corporation, a Colorado corporation, Dish, Ltd.
(formerly EchoStar Communications Corporation, a Nevada corporation
formed in December 1993), Donaldson, Lufkin & Jenrette Securities
Corporation ("DLJ") and Lehman Brothers Inc. ("Lehman Brothers")
(incorporated by reference to Exhibit 4.15 to the Registration
Statement on Form S-4 of DBS Corp., Registration No. 333-31929).
4.2* Indenture of Trust, dated as of June 25, 1997, between DBS Corp. and
First Trust National Association ("First Trust"), as Trustee
(incorporated by reference to Exhibit 4.16 to Amendment No. 1 to the
Registration Statement on Form S-4 of DBS Corp., Registration No.
333-31929).
4.3* 12 1/8% Series B Senior Redeemable Exchangeable Preferred Stock
Certificate of Corrrection for the Certificate of Designation of
EchoStar (incorporated by reference to Exhibit 4.17 to Amendment
No. 1 to the Registration Statement on Form S-3 of EchoStar,
Registration No. 333-37683).
4.4* Registration Rights Agreement, dated as of October 2, 1997, by and
among EchoStar, DLJ and Lehman Brothers ((incorporated by reference
to Exhibit 4.18 to Amendment No. 1 to the Registration Statement on
Form S-3 of EchoStar, Registration No. 333-37683).
4.5* 6 3/4% Series C Cumulative Convertible Preferred Stock Certificate
of Designation of EchoStar (incorporated by reference to Exhibit
4.19 to the Registration Statement on Form S-4 of EchoStar,
Registration No. 333-39901).
4.6* Form of Deposit Agreement between EchoStar and American Securities
Transfer & Trust, Inc. (incorporated by reference to Exhibit 4.20 to
Amendment No. 1 to the Registration Statement on Form S-3 of
EchoStar, Registration No. 333-37683).
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<PAGE>
4.7(a)* Form of Underwriting Agreement for 6 3/4% Series C Cumulative
Convertible Preferred Stock by and between EchoStar, DLJ and Lehman
Brothers (incorporated by reference to Exhibit 1.1 to Amendment
No. 1 to the Registration Statement on Form S-3 of EchoStar,
Registration No. 333-37683).
4.7(b)* Form of Underwriting Agreement for Class A Common Stock by and
between EchoStar, DLJ, BT Alex. Brown Incorporated and Unterberg
Harris (incorporated by reference to Exhibit 1.1 to Amendment No. 1
to the Registration Statement on Form S-3 of EchoStar, Registration
No. 333-37683).
4.8+ Form of Indenture for EchoStar's 12 1/8% Senior Exchange Notes due
2004.
10.1* Amendment No. 9 to Satellite Construction Contract, effective as of
July 18, 1996, between Direct Satellite Broadcasting Corporation, a
Delaware corporation ("DBSC") and Martin Marrieta Corporation
(incorporated by reference to Exhibit 10.1 to the Quarterly Report
on Form 10-Q of EchoStar for the quarterly period ended June 30,
1997, Commission File No. 0-26176).
10.2* Amendment No. 10 to Satellite Construction Contract, effective as of
May 31, 1996, between DBSC and Lockheed Martin Corporation
(incorporated by reference to Exhibit 10.2 to the Quarterly Report
on Form 10-Q of EchoStar for the quarterly period ended June 30,
1997, Commission File No. 0-26176).
10.3* Contract for Launch Services, dated April 5, 1996, between Lockheed
Martin Commercial Launch Services, Inc. and EchoStar Space
Corporation (incorporated by reference to Exhibit 10.3 to the
Quarterly Report on Form 10-Q of EchoStar for the quarterly period
ended June 30, 1997, Commission File No. 0-26176).
27+ Financial Data Schedule.
99.1* Form of Letter of Transmittal (incorporated by reference to Exhibit
99.1 to the Registration Statement on Form S-4 of EchoStar,
Registration No. 333-39901).
99.2* Form of Notice of Guaranteed Delivery (incorporated by reference to
Exhibit 99.2 to the Registration Statement on Form S-4 of EchoStar,
Registration No. 333-39901).
99.3* Form of Letter to Securities Dealers, Commercial Banks, Trust
Companies and Other Nominees (incorporated by reference to Exhibit
99.3 to the Registration Statement on Form S-4 of EchoStar,
Registration No. 333-39901).
99.4* Form of Letter to Clients (incorporated by reference to Exhibit 99.4
to the Registration Statement on Form S-4 of EchoStar, Registration
No. 333-39901).
99.5* Guidelines for Certification of Taxpayer Identification Number on
Form W-9 (incorporated by reference to Exhibit 99.5 to the
Registration Statement on Form S-4 of EchoStar, Registration No.
333-39901).
- --------------------
* Incorporated by reference.
+ Previously filed.
(b) REPORTS ON FORM 8-K.
On September 5, 1997, a Current Report on Form 8-K was filed to report,
under Item 5, that EchoStar had received written confirmation from the Nasdaq
Stock Market, Inc. that EchoStar's Class A Common Stock will continue to be
listed on the Nasdaq National Market notwithstanding EchoStar's technical non-
compliance with Nasdaq National Market maintenance standards.
26
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ECHOSTAR COMMUNICATIONS CORPORATION
By: /s/ STEVEN B. SCHAVER
-----------------------------------
Steven B. Schaver
Chief Operating Officer and Chief
Financial Officer
(PRINCIPAL FINANCIAL OFFICER)
By: /s/ JOHN R. HAGER
-----------------------------------
John R. Hager
Treasurer and Controller
(PRINCIPAL ACCOUNTING OFFICER)
Date: December 4, 1997
