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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999
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)
5701 S. SANTA FE DRIVE
LITTLETON, COLORADO 80120
(Address of principal executive offices) (Zip code)
(303) 723-1000
(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 (1) 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 (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO
----- -----
AS OF MAY 7, 1999, THE REGISTRANT'S OUTSTANDING COMMON STOCK CONSISTED OF
15,845,575 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
<TABLE>
<S> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
December 31, 1998 and March 31, 1999 (Unaudited)................................................. 1
Condensed Consolidated Statements of Operations for the
three months ended March 31, 1998 and 1999 (Unaudited)........................................... 2
Condensed Consolidated Statements of Cash Flows for the
three months ended March 31, 1998 and 1999 (Unaudited)........................................... 3
Notes to Condensed Consolidated Financial Statements (Unaudited)................................... 4
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.............. 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk......................................... None
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.................................................................................. 18
Item 2. Changes in Securities and Use of Proceeds.......................................................... 20
Item 3. Defaults Upon Senior Securities.................................................................... None
Item 4. Submission of Matters to a Vote of Security Holders................................................ None
Item 5. Other Information.................................................................................. None
Item 6. Exhibits and Reports on Form 8-K................................................................... 20
</TABLE>
<PAGE>
ECHOSTAR COMMUNICATIONS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1998 1999
----------------------------
ASSETS (Unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents................................................. $ 106,547 $ 143,900
Marketable investment securities.......................................... 217,553 202,129
Trade accounts receivable, net of allowance for uncollectible accounts of
$2,996 and $3,909, respectively.......................................... 107,233 106,740
Insurance receivable...................................................... - 106,000
Inventories............................................................... 76,708 59,170
Other current assets...................................................... 29,804 30,867
----------------------------
Total current assets......................................................... 537,845 648,806
Restricted Assets:
Interest and satellite escrows and other restricted cash and marketable
investment securities.................................................... 77,657 -
Insurance receivable...................................................... 106,000 -
----------------------------
Total restricted assets...................................................... 183,657 -
Property and equipment, net.................................................. 876,914 861,363
FCC authorizations, net...................................................... 103,434 102,779
Other noncurrent assets...................................................... 105,002 120,845
----------------------------
Total assets............................................................ $1,806,852 $1,733,793
----------------------------
----------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Trade accounts payable.................................................... $ 90,646 $ 93,817
Deferred revenue.......................................................... 132,982 145,678
Accrued expenses.......................................................... 184,470 212,007
Current portion of long-term debt......................................... 22,679 22,764
----------------------------
Total current liabilities.................................................... 430,777 474,266
Long-term obligations, net of current portion:
1994 Notes................................................................ 571,674 1,503
1996 Notes................................................................ 497,955 1,097
1997 Notes................................................................ 375,000 15
Seven Year Notes.......................................................... - 375,000
Ten Year Notes............................................................ - 1,625,000
Mortgages and other notes payable, net of current portion................. 43,450 38,414
Long-term deferred satellite services revenue and other long-term
liabilities.............................................................. 33,498 39,227
----------------------------
Total long-term obligations, net of current portion.......................... 1,521,577 2,080,256
----------------------------
Total liabilities....................................................... 1,952,354 2,554,522
12 1/8% Series B Senior Redeemable Exchangeable Preferred Stock, $.01 par
value, 900,000 shares authorized; 225,301 and no shares issued and
outstanding, respectively................................................. 226,038 -
Commitments and Contingencies (Note 6)
Stockholders' Equity (Deficit):
Preferred Stock, 20,000,000 shares authorized (inclusive of 900,000 shares
designated as Series B Preferred Stock):
8% Series A Cumulative Preferred Stock, 1,616,681 and no shares issued
and outstanding, respectively, including cumulative accrued dividends
of $5,755 and none, respectively....................................... 20,807 -
6 3/4% Series C Cumulative Convertible Preferred Stock, 2,300,000 and
2,299,984 shares issued and outstanding, respectively.................. 108,666 110,499
Class A Common Stock, $.01 par value, 200,000,000 shares authorized,
15,317,380 and 15,648,634 shares issued and outstanding, respectively.... 153 156
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..................................................... 12 12
Additional paid-in capital................................................ 231,617 245,932
Accumulated deficit....................................................... (733,093) (1,177,626)
----------------------------
Total stockholders' equity (deficit)......................................... (371,540) (820,729)
----------------------------
Total liabilities and stockholders' equity (deficit).................... $1,806,852 $1,733,793
----------------------------
----------------------------
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
1
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ECHOSTAR COMMUNICATIONS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
THREE MONTHS ENDED MARCH 31,
--------------------------------
1998 1999
--------------------------------
<S> <C> <C>
REVENUE:
DISH Network:
Subscription television services...................... $128,541 $ 260,801
Other................................................. 6,635 2,263
--------------------------------
Total DISH Network...................................... 135,176 263,064
DTH equipment sales and integration services............ 67,394 32,669
Satellite services...................................... 4,595 7,977
C-band and other........................................ 7,274 5,654
--------------------------------
Total revenue.............................................. 214,439 309,364
COSTS AND EXPENSES:
DISH Network Operating Expenses:
Subscriber-related expenses........................... 63,809 110,145
Customer service center and other..................... 11,735 24,109
Satellite and transmission............................ 5,252 9,446
--------------------------------
Total DISH Network operating expenses................... 80,796 143,700
Cost of sales - DTH equipment and integration services.. 47,507 22,916
Cost of sales - C-band and other........................ 5,942 4,050
Marketing:
Subscriber promotion subsidies........................ 43,965 127,608
Advertising and other................................. 8,253 11,689
--------------------------------
Total marketing expenses................................ 52,218 139,297
General and administrative.............................. 19,694 30,023
Amortization of subscriber acquisition costs............ 11,019 -
Depreciation and amortization........................... 18,428 25,060
--------------------------------
Total costs and expenses................................... 235,604 365,046
--------------------------------
Operating loss............................................. (21,165) (55,682)
Other Income (Expense):
Interest income......................................... 8,934 4,936
Interest expense, net of amounts capitalized............ (37,374) (52,510)
Other................................................... (110) (10)
--------------------------------
Total other income (expense)............................... (28,550) (47,584)
--------------------------------
Loss before income taxes................................... (49,715) (103,266)
Income tax provision, net.................................. (171) (66)
--------------------------------
Net loss before extraordinary charges...................... (49,886) (103,332)
Extraordinary charge for early retirement of debt,
net of tax................................................ - (268,999)
--------------------------------
Net loss................................................... (49,886) (372,331)
8% Series A Cumulative Preferred Stock dividends.......... (301) (124)
12 1/8% Series B Senior Redeemable Exchangeable Preferred
Stock dividends payable in-kind......................... (6,421) (241)
Accretion of 6 3/4% Series C Cumulative Convertible
Preferred Stock........................................... (1,721) (1,834)
--------------------------------
--------------------------------
Numerator for basic and diluted loss per share - loss
attributable to common shareholders..................... $(58,329) $(374,530)
--------------------------------
--------------------------------
Denominator for basic and diluted loss per share -
weighted-average common shares outstanding.............. 44,811 45,191
--------------------------------
--------------------------------
Net loss per common share:
Basic and diluted loss per share before extraordinary
charge................................................ $ (1.30) $ (2.34)
Extraordinary charge.................................... - (5.95)
--------------------------------
--------------------------------
Basic and diluted net loss.............................. $ (1.30) $ (8.29)
--------------------------------
--------------------------------
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
2
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ECHOSTAR COMMUNICATIONS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-----------------------------
1998 1999
-----------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss..................................................................... $ (49,886) $ (372,331)
Adjustments to reconcile net loss to net cash flows from operating
activities:
Extraordinary charge for early retirement of debt......................... - 268,999
Depreciation and amortization............................................. 18,428 25,060
Amortization of subscriber acquisition costs.............................. 11,019 -
Amortization of debt discount and deferred financing costs................ 27,803 11,036
Change in reserve for excess and obsolete inventory....................... (33) (298)
Change in long-term deferred satellite services revenue and other
long-term liabilities.................................................... 2,964 5,729
Other, net................................................................ 508 3,254
Changes in current assets and current liabilities, net.................... (30,986) 63,912
-----------------------------
Net cash flows from operating activities..................................... (20,183) 5,361
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of marketable investment securities................................ (127,213) (213,594)
Sales of marketable investment securities.................................... 247,801 229,018
Funds released from escrow and restricted cash and marketable investment
securities.................................................................. 27,219 77,657
Investment earnings placed in escrow......................................... (2,275) -
Purchases of property and equipment.......................................... (25,668) (8,854)
Issuance of note receivable.................................................. (6,200) -
Other........................................................................ (781) (490)
-----------------------------
Net cash flows from investing activities..................................... 112,883 83,737
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of Seven Year Notes................................... - 375,000
Proceeds from issuance of Ten Year Notes..................................... - 1,625,000
Debt issuance costs and prepayment premiums.................................. - (273,718)
Retirement of 1994 Notes..................................................... - (575,674)
Retirement of 1996 Notes..................................................... - (501,350)
Retirement of 1997 Notes..................................................... - (378,110)
Retirement of Senior Exchange Notes.......................................... - (228,528)
Redemption of Series A Preferred Stock....................................... - (90,934)
Repayments of mortgage indebtedness and notes payable........................ (4,025) (4,956)
Net proceeds from Class A Common Stock options exercised and Class A Common
Stock issued to Employee Stock Purchase Plan................................ 170 1,525
-----------------------------
Net cash flows from financing activities..................................... (3,855) (51,745)
-----------------------------
Net increase in cash and cash equivalents.................................... 88,845 37,353
Cash and cash equivalents, beginning of period............................... 145,207 106,547
-----------------------------
Cash and cash equivalents, end of period..................................... $ 234,052 $ 143,900
-----------------------------
-----------------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Capitalized interest...................................................... $ 7,943 $ -
Accrued capital expenditures.............................................. 10,875 -
8% Series A Cumulative Preferred Stock dividends.......................... 301 124
12 1/8% Series B Senior Redeemable Exchangeable Preferred Stock dividends
payable in-kind.......................................................... 6,421 241
Accretion of 6 3/4% Series C Cumulative Convertible Preferred Stock....... 1,721 1,834
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
3
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ECHOSTAR COMMUNICATIONS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. ORGANIZATION AND BUSINESS ACTIVITIES
PRINCIPAL BUSINESS
The operations of EchoStar Communications Corporation ("ECC," and
together with its subsidiaries, or referring to particular subsidiaries in
certain circumstances, "EchoStar" or the "Company") include three interrelated
business units:
- THE DISH NETWORk - a direct broadcast satellite ("DBS")
subscription television service in the United States. As of March
31, 1999, EchoStar had approximately 2.3 million DISH Network
subscribers.
- ECHOSTAR TECHNOLOGIEs CORPORATION ("ETC") - engaged in the design,
distribution and sale of DBS set-top boxes, antennae and other
digital equipment for the DISH Network ("EchoStar receiver
systems"), and the design and distribution of similar equipment
for direct-to-home ("DTH") projects of others internationally,
together with the provision of uplink center design, construction
oversight and other project integration services for international
DTH ventures.
- SATELLITE SERVICES - engaged in the delivery of video, audio and
data services to business television customers and other satellite
users. These services may include satellite uplink services,
satellite transponder space usage, billing, customer service and
other services.
Since 1994, EchoStar has deployed substantial resources to develop
the "EchoStar DBS System." The EchoStar DBS System consists of EchoStar's
FCC-allocated DBS spectrum, DBS satellites ("EchoStar I," "EchoStar II,"
"EchoStar III," and "EchoStar IV"), digital satellite receivers, digital
broadcast operations center, customer service facilities, and other assets
utilized in its operations. EchoStar's principal business strategy is to
continue developing its subscription television service in the United States
to provide consumers with a fully competitive alternative to cable television
service.
RECENT DEVELOPMENTS
On February 2, 1999, EchoStar consummated the acquisition of
privately-held Media4, Inc., ("Media4"), an Atlanta-based supplier of
broadband satellite networking equipment for personal computers. In
connection with the acquisition, EchoStar issued approximately 170,000 shares
of its Class A common stock valued at approximately $10 million for 100% of
the outstanding stock of Media4. The acquisition of Media4 was accounted for
as a purchase transaction.
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, these
statements 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 months ended March 31, 1999
are not necessarily indicative of the results that may be expected for the
year ending December 31, 1999. For further information, refer to the
consolidated financial statements and footnotes thereto included in
EchoStar's Annual Report on Form 10-K for the year ended December 31, 1998.
Certain prior year amounts have been reclassified to conform with the current
year presentation.
4
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ECHOSTAR COMMUNICATIONS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
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.
BASIC AND DILUTED LOSS PER SHARE
As of March 31, 1998 and 1999, options to purchase approximately
1,731,000 and 3,681,000 shares of Class A common stock were outstanding,
respectively. Common stock equivalents (employee stock options and warrants)
are excluded from the calculation of diluted loss per share as they are
antidilutive. Securities which are convertible into shares of Class A common
stock (8% Series A Cumulative Preferred Stock and 6 3/4% Series C Cumulative
Convertible Preferred Stock) also are excluded from the calculation of
diluted loss per share as they are antidilutive. As of March 31, 1998 and
1999, approximately 4,715,000 shares of Class A common stock were issuable
upon conversion of the 6 3/4% Series C Cumulative Convertible Preferred Stock.
3. INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1998 1999
---------------------------------
<S> <C> <C>
DBS receiver components.................................... $ 27,050 $ 30,395
EchoStar receiver systems.................................. 45,025 20,420
Consigned DBS receiver components.......................... 6,073 9,567
Finished goods - analog DTH equipment...................... 2,656 2,785
Spare parts and other...................................... 1,085 886
Reserve for excess and obsolete inventory.................. (5,181) (4,883)
---------------------------------
$ 76,708 $ 59,170
---------------------------------
---------------------------------
</TABLE>
4. LONG-TERM DEBT
On January 25, 1999, EchoStar DBS Corporation ("DBS Corp") sold $375
million principal amount of 9 1/4% Senior Notes due 2006 (the "Seven Year
Notes") and $1.625 billion principal amount of 9 3/8% Senior Notes due 2009
(the "Ten Year Notes," and together with the Seven Year Notes, the "Notes").
Concurrently with the closing of these offerings, EchoStar used approximately
$1.658 billion of net proceeds received from the sale of the Notes to
complete tender offers for the outstanding 12 7/8% Senior Secured Discount
Notes due June 1, 2004 issued by Dish, Ltd. ("the 1994 Notes"), the 13 1/8%
Senior Secured Discount Notes due 2004 issued by EchoStar Satellite
Broadcasting Corporation ("the 1996 Notes") and the 12 1/2% Senior Secured
Notes due 2002 issued by DBS Corp ("the 1997 Notes"). In February 1999,
EchoStar used approximately $268 million of net proceeds received from the
sale of the Notes to complete a tender offer related to the 12 1/8% Senior
Preferred Exchange Notes due 2004, issued on January 4, 1999, in exchange for
all of its issued and outstanding 12 1/8% Series B Senior Redeemable
Exchangeable Preferred Stock. Substantially all of the restrictive covenants
contained in each of the respective indentures were removed upon closing of
the tender offers. The consummation of the tender offers resulted in a
one-time extraordinary charge to EchoStar's net income of $269 million
(approximately $236 million of tender premiums and consent fees and
approximately $33 million associated with the write-off of unamortized
deferred financing costs and other transaction-related costs).
5
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ECHOSTAR COMMUNICATIONS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
5. SERIES A PREFERRED STOCK
On February 8, 1999, EchoStar repurchased all outstanding shares of
its Series A Preferred Stock at $52.611 per share (the average of the
preceding 20 trading day closing price of EchoStar's Class A common stock).
The total repurchase price was approximately $91 million, including accrued
dividends of approximately $6 million. The carrying value of the Series A
Preferred Stock, including accrued dividends, as of the date of repurchase
was approximately $21 million. All of the shares of Series A Preferred Stock
were owned by Charles W. Ergen, President and CEO of EchoStar, and James
DeFranco, EchoStar's Executive Vice President.
6. COMMITMENTS AND CONTINGENCIES
THE NEWS CORPORATION LIMITED
During February 1997, EchoStar and News Corporation Limited ("News
Corporation") announced an agreement pursuant to which, among other things,
News Corporation agreed to acquire approximately 50% of the outstanding
capital stock of EchoStar. News Corporation also agreed to make available for
use by EchoStar the DBS permit for 28 frequencies at the 110DEG. West
Longitude ("WL") orbital slot purchased by MCI Telecommunications
Corporation/WorldCom ("MCI") for more than $682 million following a 1996 FCC
auction (the "110 acquisition"). During late April 1997, substantial
disagreements arose between the parties regarding their obligations under
this agreement. Those substantial disagreements led the parties to
litigation. In mid-1997, EchoStar filed a complaint seeking specific
performance of this agreement and damages, including lost profits. News
Corporation filed an answer and counterclaims seeking unspecified damages,
denying all of the material allegations and asserting numerous defenses.
Discovery commenced in July 1997, and the case was set for trial commencing
March 1999. In connection with the pending 110 acquisition, the litigation
between EchoStar and News Corporation has been stayed and will be dismissed
with prejudice upon closing or if the transaction is terminated for reasons
other than the breach by, or failure to fill a condition within the control
of, News Corporation or MCI.
In connection with the News Corporation litigation that arose in
1997, EchoStar has a contingent fee arrangement with its attorneys, which
provides for the attorneys to be paid a percentage of any net recovery
obtained in its dispute with News Corporation. The lawyers have asserted that
they may be entitled to receive payments in excess of $80 million to $100
million under this fee arrangement in connection with the settlement of the
dispute with News Corporation. EchoStar intends to vigorously contest the
lawyers' interpretation of the fee arrangement, which it believes
significantly overstates the magnitude of its liability thereunder. If the
lawyers and EchoStar are unable to resolve this fee dispute under the fee
arrangement, the fee dispute would be resolved through arbitration. It is too
early to determine the outcome of negotiations or arbitration regarding this
fee dispute.
WIC PREMIUM TELEVISION LTD.
On July 28, 1998, a lawsuit was filed by WIC Premium Television Ltd.
("WIC"), an Alberta corporation, in the Federal Court of Canada Trial
Division, against certain defendants which include: General Instrument
Corporation, HBO, Warner Communications, Inc., John Doe, Showtime, United
States Satellite Broadcasting Corporation, ECC and two of ECC's wholly-owned
subsidiaries, Dish, Ltd. and Echosphere Corporation ("Echosphere"). The
lawsuit seeks, among other things, an interim and permanent injunction
prohibiting the defendants from activating receivers in Canada and from
infringing any copyrights held by WIC. It is too early to determine whether
or when any other lawsuits and/or claims will be filed. It is also too early
to make an assessment of the probable outcome of the litigation or to
determine the extent of any potential liability or damages.
On September 28, 1998, WIC filed another lawsuit in the Court of
Queen's Bench of Alberta Judicial District of Edmonton against certain
defendants, which also include ECC, Dish, Ltd. and Echosphere. WIC is a
company authorized to broadcast certain copyrighted work, such as movies and
concerts, to residents of Canada. WIC alleges that the defendants engaged in,
promoted, and/or allowed satellite dish equipment from the United States to
be sold in Canada and to Canadian residents and that some of the defendants
allowed and profited from Canadian
6
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ECHOSTAR COMMUNICATIONS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
residents purchasing and viewing subscription television programming that is
only authorized for viewing in the United States. The lawsuit seeks, among
other things, interim and permanent injunction prohibiting the defendants
from importing hardware into Canada and from activating receivers in Canada
and damages in excess of the equivalent of US $175 million. It is too early
to determine whether or when any other lawsuits and/or claims will be filed.
It is also too early to make an assessment of the probable outcome of the
litigation or to determine the extent of any potential liability or damages.
BROADCAST NETWORK PROGRAMMING
Section 119 of the Satellite Home Viewer Act authorizes EchoStar to
provide satellite-delivered network channels to customers who qualify as
"unserved households," defined in the Satellite Home Viewer Act as, consumers
who, among other things, "cannot receive, through the use of a conventional
outdoor rooftop receiving antenna, an over-the-air signal of Grade B
intensity (as defined by the FCC) of a primary network station affiliated
with that network." Historically, EchoStar obtained distant broadcast network
signals for distribution to its customers through PrimeTime 24, Joint Venture
("PrimeTime 24"). PrimeTime 24 also distributed network signals to certain of
EchoStar's competitors in the satellite industry.
The national networks and local affiliate stations recently
challenged PrimeTime 24's methods of selling network programming to consumers
based upon copyright infringement. The United States District Court for the
Southern District of Florida entered a nationwide permanent injunction
preventing PrimeTime 24 from selling its programming to consumers unless the
programming was sold in accordance with certain stipulations in the
injunction. The injunction covers "distributors" as well. The plaintiffs in
the Florida litigation informed EchoStar that it considered EchoStar a
"distributor" for purposes of that injunction. A federal district court in
North Carolina has also issued an injunction against PrimeTime 24 prohibiting
certain distant signal retransmissions in the Raleigh area. Other copyright
litigation against PrimeTime 24 is pending.
EchoStar ceased delivering PrimeTime 24 programming in July 1998,
and began uplinking and distributing network channels directly. EchoStar has
also implemented Satellite Home Viewer Act Section 119 compliance procedures
which materially restrict the market for the sale of network channels by
EchoStar.
On October 19, 1998, EchoStar filed a declaratory judgment action in
the United States District Court for the District of Colorado against the
four major networks. EchoStar asked the court to enter a judgment declaring
that its method of providing distant network programming does not violate the
Satellite Home Viewer Act and hence does not infringe the networks'
copyrights. On November 5, 1998, the four major broadcast networks and their
affiliate groups filed a complaint in federal court in Miami alleging, among
other things, copyright infringement against EchoStar. The plaintiffs in that
action have also requested the issuance of a preliminary injunction against
EchoStar. The case filed by EchoStar was subsequently combined with and
transferred to the Miami court.
On February 24, 1999, CBS, NBC, Fox, and ABC filed a "Motion for
Temporary Restraining Order, Preliminary Injunction, and Contempt Finding"
against DIRECTV, Inc. ("DIRECTV") in Miami relating to the delivery of
distant network channels to DIRECTV customers by satellite. On March 12,
1999, DIRECTV and the four networks announced that they had reached a
settlement of that dispute. Under the terms of the settlement, DIRECTV
customers predicted to receive a strong signal (Grade A intensity) from their
local stations will lose access to their satellite provided network channels
by June 30, 1999, while DIRECTV customers predicted to receive a weaker, but
allegedly adequate signal (Grade B intensity) from their local stations will
be disconnected by December 31, 1999. Subsequently, PrimeTime 24 and
substantially all providers of satellite delivered network programming other
than EchoStar agreed to this cut off schedule.
The Networks are currently pursuing a Motion for Preliminary
Injunction in the Miami Court, asking that Court to enjoin EchoStar from
providing network programming except under very limited circumstances. In
general, the networks want EchoStar to turn off programming to its customers
on the same schedule as agreed to by DIRECTV. EchoStar intends to vigorously
contest the issuance of such an injunction. In the event of a decision
7
<PAGE>
ECHOSTAR COMMUNICATIONS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
adverse to EchoStar in this case, significant material restrictions on the
sale of distant ABC, NBC, CBS and Fox channels by EchoStar could result.
Among other things, EchoStar could be required to terminate delivery of
network signals to a material portion of its subscriber base. While the
Networks have not sought monetary damages, they have sought to recover
attorneys fees should they prevail. EchoStar has commenced sending letters to
some of its subscribers warning that their access to distant broadcast
network channels might be terminated commencing in June of this year. Such
terminations would result in a small reduction in average monthly revenue per
subscriber. While there can be no assurance, any such decrease could be
offset by increases in average monthly revenue per subscriber resulting from
the delivery of local network channels by satellite, and increases in
programming offerings that will follow the scheduled launches of EchoStar V
and EchoStar VI later this year. While there can be no assurance, legislation
pending in the Senate would, if passed into law, reduce the number of
customers whose network channels EchoStar may otherwise be required to
terminate.
EchoStar is subject to various other legal proceedings and claims
which arise in the ordinary course of business. In the opinion of management,
the amount of ultimate liability with respect to those actions will not
materially affect the Company's financial position or results of operations.
METEOROID EVENTS
In November 1998 certain meteoroid events occurred as the earth's
orbit passed through the particulate trail of Comet 55P (Tempel-Tuttle).
EchoStar believes that its DBS satellites did not incur any significant
damage as a result of these events. Similar meteoroid events are expected to
occur again in November 1999. These meteoroid events continue to pose a
potential threat to all in-orbit geosynchronous satellites, including
EchoStar's DBS satellites. While the probability that EchoStar's spacecraft
will be damaged by space debris is very small, that probability will increase
by several orders of magnitude during the November 1999 meteoroid events.
EchoStar is presently evaluating the potential effects that the November 1999
meteoroid events may have on its DBS satellites. While there can be no
assurance, due to its excess satellite capacity, EchoStar does not expect to
experience an interruption of service due to any potential damage resulting
from these meteoroid events.
7. SEGMENT REPORTING
EchoStar adopted Financial Accounting Standard No. 131, "Disclosures
About Segments of an Enterprise and Related Information" ("FAS No. 131")
effective as of the year ended December 31, 1998. FAS No. 131 establishes
standards for reporting information about operating segments in annual financial
statements of public business enterprises and requires that those enterprises
report selected information about operating segments in interim financial
reports issued to shareholders.
<TABLE>
<CAPTION>
ECHOSTAR
DISH TECHNOLOGIES SATELLITE ELIMINATIONS CONSOLIDATED
NETWORK CORPORATION SERVICES AND OTHER TOTAL
------------ --------------- --------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
THREE MONTHS ENDED MARCH 31, 1998
Revenue.............................. $ 141,869 $ 63,778 $ 4,856 $ 3,936 $ 214,439
Net income (loss).................... (38,735) 8,586 4,219 (23,956) (49,886)
THREE MONTHS ENDED MARCH 31, 1999
Revenue.............................. $ 280,776 $ 26,995 $ 9,145 $ (7,552) $ 309,364
Net income (loss) before
extraordinary charges............. (107,322) (3,625) 5,013 2,602 (103,332)
</TABLE>
8
<PAGE>
ECHOSTAR COMMUNICATIONS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
8. SUBSEQUENT EVENTS
ECHOSTAR IV
As previously announced, the south solar array on EchoStar IV did
not properly deploy subsequent to the launch of EchoStar IV on May 8, 1998.
This anomaly resulted in a reduction of power available to operate the
satellite. The solar array anomaly limits EchoStar to the operation of
approximately 18 transponders as of May 13, 1999. Available power will
continue to decline over the next several years, resulting in continuing
reductions in the number of available transponders. Approximately 16
transponders should be available for the entire life of the satellite. In
addition, an unrelated anomaly discovered during the third quarter of 1998
resulted in the failure of six transponders during 1998. The satellite is
equipped with a total of 44 transponders. 24 operating transponders are
necessary to fully utilize EchoStar's 24 frequencies at 148DEG. WL, where the
satellite is located. In September 1998, EchoStar filed a $219.3 million
insurance claim for a total constructive loss (as defined in the launch
insurance policy) related to EchoStar IV. That claim is pending.
During May 1999, EchoStar IV experienced additional anomalies. An
investigation of those anomalies, affecting transponders, heating systems and
fuel lines but which have not caused material reductions in functionality to
date, is continuing. It is not yet possible to conclude whether the
additional anomalies will result in further reductions of satellite
functionality in the future. While there can be no assurance, EchoStar does
not currently expect short or medium term satellite operations to be
materially adversely impacted. EchoStar has not completed its assessment of
the additional impairment, if any, to EchoStar IV, but currently believes
that insurance proceeds will be sufficient to offset any additional
write-down of satellite assets that may be required because of lost
functionality caused by these anomalies. However, no assurance can be
provided as to the ultimate amount that may be received from the insurance
claim, or that coverage will be available. EchoStar will continue to evaluate
the performance of EchoStar IV and may modify its loss assessment as new
events or circumstances develop.
As a result of the recent anomalies experienced by EchoStar IV,
EchoStar has instructed its broker to notify its insurance carriers of
additional occurrences under the terms of the EchoStar IV launch insurance
policy. The EchoStar IV launch insurance policy provides for insurance of
$219.3 million covering the period from launch of the satellite (May 8, 1998)
through May 8, 1999. Due to the anomalies experienced by EchoStar IV and the
pending claim for a total constructive loss, EchoStar did not obtain in-orbit
insurance on EchoStar IV. Consequently, in the event EchoStar's pending
insurance claim is not resolved to its satisfaction, EchoStar IV will not be
insured should further losses occur in the future.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION 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 US OR BY OFFICERS, DIRECTORS
OR EMPLOYEES ACTING ON OUR 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 OUR ACTUAL RESULTS TO BE MATERIALLY DIFFERENT FROM HISTORICAL RESULTS
OR FROM ANY FUTURE RESULTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING
STATEMENTS. AMONG THE FACTORS THAT COULD CAUSE OUR ACTUAL RESULTS TO DIFFER
MATERIALLY ARE THE FOLLOWING: A TOTAL OR PARTIAL LOSS OF A SATELLITE DUE TO
OPERATIONAL FAILURES, SPACE DEBRIS OR OTHERWISE; A DECREASE IN SALES OF
DIGITAL EQUIPMENT AND RELATED SERVICES TO INTERNATIONAL DIRECT-TO-HOME OR DTH
SERVICE PROVIDERS; A DECREASE IN DISH NETWORK SUBSCRIBER GROWTH; AN INCREASE
IN SUBSCRIBER TURNOVER; AN INCREASE IN SUBSCRIBER ACQUISITION COSTS; AN
UNEXPECTED PRODUCT SHORTAGE; IMPEDIMENTS TO THE RETRANSMISSION OF LOCAL OR
DISTANT BROADCAST NETWORK SIGNALS WHICH COULD RESULT FROM PENDING LITIGATION
OR LEGISLATION; LOWER THAN EXPECTED DEMAND FOR OUR DELIVERY OF LOCAL
BROADCAST NETWORK SIGNALS; AN UNEXPECTED BUSINESS INTERRUPTION DUE TO THE
FAILURE OF THIRD-PARTIES TO REMEDIATE YEAR 2000 ISSUES; OUR INABILITY TO
RETAIN NECESSARY AUTHORIZATIONS FROM THE FCC; AN INCREASE IN COMPETITION FROM
CABLE, DIRECT BROADCAST SATELLITE, OTHER SATELLITE SYSTEM OPERATORS, AND
OTHER PROVIDERS OF SUBSCRIPTION TELEVISION SERVICES; THE INTRODUCTION OF NEW
TECHNOLOGIES AND COMPETITORS INTO THE SUBSCRIPTION TELEVISION BUSINESS; A
MERGER OF EXISTING DBS COMPETITORS; A CHANGE IN THE REGULATIONS GOVERNING THE
SUBSCRIPTION TELEVISION SERVICE INDUSTRY; THE OUTCOME OF ANY LITIGATION IN
WHICH WE MAY BE INVOLVED; FAILURE TO CONSUMMATE THE TRANSACTION WITH NEWS
CORPORATION LIMITED AND MCI TELECOMMUNICATIONS CORPORATION/WORLDCOM, REFERRED
TO AS THE 110 ACQUISITION; GENERAL BUSINESS AND ECONOMIC CONDITIONS; AND
OTHER RISK FACTORS DESCRIBED FROM TIME TO TIME IN OUR REPORTS FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. IN ADDITION TO STATEMENTS THAT EXPLICITLY
DESCRIBE SUCH RISKS AND UNCERTAINTIES, READERS ARE URGED TO CONSIDER
STATEMENTS THAT INCLUDE THE TERMS "BELIEVES," "BELIEF," "EXPECTS," "PLANS,"
"ANTICIPATES," "INTENDS" OR THE LIKE TO BE UNCERTAIN AND FORWARD-LOOKING. ALL
CAUTIONARY STATEMENTS MADE HEREIN SHOULD BE READ AS BEING APPLICABLE TO ALL
FORWARD-LOOKING STATEMENTS WHEREVER THEY APPEAR. IN THIS CONNECTION,
INVESTORS SHOULD CONSIDER THE RISKS DESCRIBED HEREIN AND SHOULD NOT PLACE
UNDUE RELIANCE ON ANY FORWARD-LOOKING STATEMENTS.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THE THREE MONTHS ENDED MARCH
31, 1998.
REVENUE. Total revenue for the three months ended March 31, 1999 was
$309 million, an increase of $95 million compared to total revenue for the
three months ended March 31, 1998 of $214 million. The increase in total
revenue was primarily attributable to DISH Network subscriber growth. We
expect that our revenues will continue to increase as the number of DISH
Network subscribers increases.
DISH Network subscription television services revenue totaled $261
million for the three months ended March 31, 1999, an increase of $132
million or 103% compared to the same period in 1998. This increase was
directly attributable to the increase in the number of DISH Network
subscribers and higher average revenue per subscriber. Average DISH Network
subscribers for the three months ended March 31, 1999 increased approximately
87% compared to the same period in 1998. As of March 31, 1999, we had
approximately 2.3 million DISH Network subscribers compared to 1.2 million at
March 31, 1998. Monthly revenue per subscriber approximated $41 and $38
during the three months ended March 31, 1999 and 1998, respectively. DISH
Network subscription television services revenue principally consists of
revenue from basic, premium and pay-per-view subscription television
services. DISH Network subscription television services will continue to
increase to the extent we are successful in increasing the number of DISH
Network subscribers and maintaining or increasing revenue per subscriber.
During the three months ended March 31, 1999 and 1998, our subscriber
turnover (which represents the number of subscriber disconnects during the
period, divided by the weighted-average number of subscribers during the
period) was approximately 1% per month.
For the three months ended March 31, 1999, DTH equipment sales and
integration services totaled $33 million, a decrease of $34 million compared to
1998. DTH equipment sales consist of sales of digital set-top boxes and other
digital satellite broadcasting equipment by us to international DTH service
operators. We currently have agreements to provide equipment to DTH service
operators in Spain and Canada. This expected decrease in DTH
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - CONTINUED
equipment sales and integration services revenue was primarily attributable
to a decrease in demand combined with a decrease in the sales price of
digital set-top boxes attributable to increased competition.
Substantially all of our EchoStar Technologies Corporation or ETC
revenues have resulted from sales to two international DTH providers. As a
result, our ETC business currently is economically dependent on these two DTH
providers. Our future revenue from the sale of DTH equipment and integration
services in international markets depends largely on the success of these DTH
operators and continued demand for our digital set-top boxes. Due to the
continued decrease in the sales price of digital set-top boxes and increasing
competition, we expect that our DTH equipment and integration services
revenue will decline during the remainder of 1999 as compared to 1998. DTH
equipment and integration services revenue may decline as much as 50% during
the remainder of 1999 as compared to 1998.
During July 1998, Telefonica, one of the two DTH service providers
described above, announced its intention to merge with Sogecable (Canal Plus
Satellite), one of its primary competitors. In October 1998, Telefonica
announced that the merger negotiations had been suspended. Subsequently,
negotiations between Telefonica and Canal Plus Satellite were resumed and
again suspended. Although we have binding purchase orders from Telefonica for
1999 deliveries of DTH equipment, we cannot yet predict the impact, if any,
consummation of this merger might have on our future sales to Telefonica. As
part of the 110 acquisition, we expect to receive a minimum order from a
subsidiary of News Corporation for 500,000 set-top boxes. Although we
continue to actively pursue additional distribution and integration service
opportunities internationally, no assurance can be given that any such
additional negotiations will be successful.
Satellite services revenue totaled $8 million during the three
months ended March 31, 1999, an increase of $3 million as compared to the
same period during 1998. These revenues principally include fees charged to
content providers for signal carriage and revenues earned from business
television, or BTV customers. The increase in satellite services revenue was
primarily attributable to increased BTV revenue due to the addition of new
full-time BTV customers. Satellite services revenue is expected to increase
during the remainder of 1999 to the extent we are successful in increasing
the number of our BTV customers and developing and implementing new services.
In order, among other things, to prepare for a potential adverse
result in our pending litigation with the four major broadcast networks and
their affiliate groups, we have commenced sending letters to some of our
subscribers warning that their access to CBS, NBC, Fox and ABC distant
network channels might be terminated commencing in June of this year. Such
terminations would result in a small reduction in average monthly revenue per
subscriber. While there can be no assurance, any such decreases could be
offset by increases in average monthly revenue per subscriber resulting from
the delivery of local network channels by satellite, and increases in
programming offerings that will follow the scheduled launches of EchoStar V
and EchoStar VI later this year. While there can be no assurance, legislation
pending in the Senate would, if passed into law, reduce the number of
customers whose network channels we may otherwise be required to terminate.
DISH NETWORK OPERATING EXPENSES. DISH Network operating expenses
totaled $144 million during the three months ended March 31, 1999, an
increase of $63 million or 78%, compared to the same period in 1998. The
increase in DISH Network operating expenses was consistent with, and
primarily attributable to, the increase in the number of
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - CONTINUED
DISH Network subscribers. DISH Network operating expenses represented 55% and
63% of subscription television services revenue during the three months ended
March 31, 1999 and 1998, respectively.
Subscriber-related expenses totaled $110 million during the three
months ended March 31, 1999, an increase of $46 million compared to the same
period in 1998. Such expenses, which include programming expenses, copyright
royalties, residuals payable to retailers and distributors, and billing,
lockbox and other variable subscriber expenses, represented 42% of
subscription television services revenues during the three months ended March
31, 1999 compared to 50% during the same period in 1998. The decrease in
subscriber-related expenses as a percentage of subscription television
services revenue resulted primarily from a decrease in programming expenses
on a per subscriber basis, which resulted from a change in product mix
combined with price discounts received from certain content providers.
Although we expect subscriber-related expenses as a percentage of
subscription television services revenue to remain near this level in future
periods, this expense to revenue ratio could increase.
Customer service center and other expenses principally consist of
costs incurred in the operation of our DISH Network customer service centers,
such as personnel and telephone expenses, as well as subscriber equipment
installation and other operating expenses. Customer service center and other
expenses totaled $24 million during the three months ended March 31, 1999, an
increase of $12 million as compared to the same period in 1998. The increase
in customer service center and other expenses resulted from increased
personnel and telephone expenses to support the growth of the DISH Network.
Customer service center and other expenses totaled 9% of subscription
television services revenue during each of the three months ended March 31,
1999 and 1998. Although we expect customer service center and other expenses
as a percentage of subscription television services revenue to remain near
this level in future periods, this expense to revenue ratio could increase.
Satellite and transmission expenses include expenses associated with
the operation of our digital broadcast center, contracted satellite
telemetry, tracking and control services, and satellite in-orbit insurance.
Satellite and transmission expenses totaled $9 million during the three
months ended March 31, 1999, a $4 million increase compared to the same
period in 1998. This increase resulted from higher satellite and other
digital broadcast center operating expenses due to an increase in the number
of operational satellites. We expect satellite and transmission expenses to
continue to increase in the future as additional satellites are placed in
service. However, we expect that satellite and transmission expenses as a
percentage of subscription television services revenue may decline to the
extent we are successful in increasing the number of DISH Network subscribers
and maintaining or increasing revenue per subscriber.
COST OF SALES - DTH EQUIPMENT AND INTEGRATION SERVICES. Cost of
sales - DTH equipment and integration services totaled $23 million during the
three months ended March 31, 1999, a decrease of $25 million compared to the
same period in 1998. This decrease is consistent with the decrease in DTH
equipment revenue. Cost of sales - DTH equipment and integration services
principally includes costs associated with digital set-top boxes and related
components sold to international DTH operators. As a percentage of DTH
equipment revenue, cost of sales represented 70% during each of the three
months ended March 31, 1999 and 1998. We expect that cost of sales may
increase as a percentage of DTH equipment revenue in the future, due to price
pressure resulting from increased competition from other providers of DTH
equipment.
MARKETING EXPENSES. Marketing expenses totaled $139 million during
the three months ended March 31, 1999, an increase of $87 million or 167%,
compared to the same period in 1998. The increase in marketing expenses was
primarily attributable to an increase in subscriber promotion subsidies.
Subscriber promotion subsidies include the excess of transaction costs over
transaction proceeds at the time of sale of EchoStar receiver systems,
activation allowances paid to retailers, and other promotional incentives.
Advertising and other expenses totaled $12 million during the three months
ended March 31, 1999, an increase of $4 million over the same period in 1998.
During the three months ended March 31, 1999, our subscriber
acquisition costs, inclusive of acquisition marketing expenses, totaled $142
million, or approximately $355 per new subscriber activation. Comparatively,
our subscriber acquisition costs during the three months ended March 31,
1998, inclusive of acquisition marketing expenses and deferred subscriber
acquisition costs, totaled $51 million, or approximately $250 per new
subscriber
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - CONTINUED
activation. The increase in our subscriber acquisition costs, on a per new
subscriber activation basis, principally resulted from the introduction of
several aggressive marketing promotions to acquire new subscribers.
During the first quarter of 1999, we introduced the PrimeStar bounty
program and enhanced our DISH Network One-Rate Plan. Our subscriber
acquisition costs under these programs are significantly higher than those
under our other marketing programs. Under the enhanced DISH Network One-Rate
Plan, consumers are eligible to receive a rebate that ranges from $100 up to
$298 on the purchase of certain EchoStar receiver systems. To be eligible for
this rebate, a subscriber must make a one-year commitment to subscribe to our
America's Top 100 CD programming package plus additional channels. The amount
of the monthly programming commitment determines the amount of the rebate.
Although subscriber acquisition costs are materially higher under this plan
compared to previous promotions, DISH Network One-Rate Plan customers
generally provide materially greater average revenue per subscriber than a
typical DISH Network subscriber. In addition, we believe that these customers
represent lower credit risk and therefore may be marginally less likely to
disconnect their service than other DISH Network subscribers. Under the
enhanced DISH Network One-Rate Plan, we presently expect the participation
rate to increase to approximately 30% to 40% of new subscriber activations
during the duration of the promotion. To the extent that actual consumer
participation levels exceed present expectations, subscriber acquisition
costs may materially increase. Although there can be no assurance as to the
ultimate duration of the DISH Network One-Rate Plan, it will continue through
at least July 1999.
Under our PrimeStar bounty program, current PrimeStar customers are
eligible to receive a free base-level EchoStar receiver system, free
installation and six months of our America's Top 40 programming (which
retails for $19.99 per month) without charge. A subscriber must make a
one-year commitment to subscribe to either our America's Top 40 or our
America's Top 100 CD programming package and prove that they are a current
PrimeStar customer to be eligible for this program.
Based upon our current promotions we do not expect a material change
in subscriber acquisition costs during the second quarter of 1999. To the
extent that we expand the PrimeStar bounty program and the DISH Network
One-Rate Plan, our subscriber acquisition costs, both in aggregate and on a
per new subscriber activation basis, may materially increase.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses totaled $30 million during the three months ended March 31, 1999, an
increase of $10 million as compared to the same period in 1998. The increase
in G&A expenses was principally attributable to increased personnel expenses
to support the growth of the DISH Network. G&A expenses as a percentage of
total revenue increased to 10% during the three months ended March 31, 1999
compared to 9% during the same period in 1998. Although we expect that G&A
expenses as a percentage of total revenue to remain near this level or
decline modestly in future periods, this expense to revenue ratio could
increase.
EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION AND AMORTIZATION
("EBITDA"). EBITDA was negative $31 million and negative $3 million, during
the three months ended March 31, 1999 and 1998, respectively. EBITDA, as
adjusted to exclude amortization of subscriber acquisition costs, was
negative $31 million for the three months ended March 31, 1999 compared to $8
million for the same period in 1998. This decline in EBITDA principally
resulted from a decrease in DTH equipment revenue and an increase in
subscriber promotion subsidies. It is important to note that EBITDA does not
represent cash provided or used by operating activities and should not be
considered in isolation or as a substitute for measures of performance
prepared in accordance with generally accepted accounting principles.
As previously discussed, to the extent we expand our current
marketing promotions and our subscriber acquisition costs materially
increase, our EBITDA results will be negatively impacted because subscriber
acquisition costs are expensed as incurred.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization
expenses including amortization of subscriber acquisition costs, aggregated
$25 million during the three months ended March 31, 1999, a $4 million
decrease compared to the same period in 1998. The decrease in depreciation
and amortization expenses principally resulted
13
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - CONTINUED
from subscriber acquisition costs no longer being amortized, partially offset
by an increase in depreciation related to the commencement of operation of
EchoStar IV in August of 1998 and other depreciable assets placed in service
during 1998.
OTHER INCOME AND EXPENSE. Other expense, net totaled $48 million
during the three months ended March 31, 1999, an increase of $19 million as
compared to the same period in 1998. The increase in other expense resulted
primarily from interest expense associated with our 9 1/4% Senior Notes due
2006, and our 9 3/8% Senior Notes due 2009, both issued in January 1999,
partially offset by a decrease in interest expense associated with our
12 1/2% Senior Secured Notes due 2002 issued in June 1997, referred to herein
as the 1997 notes; our 12 7/8% Senior Secured Discount Notes due 2004 issued
in 1994, referred to herein as the 1994 notes; and our 13 1/8% Senior Secured
Discount Notes due 2004 issued in 1996, referred to herein as the 1996 Notes.
LIQUIDITY AND CAPITAL RESOURCES
CASH SOURCES
On January 25, 1999 we sold $375 million principal amount of 9 1/4%
Senior Notes due 2006, referred to herein as the seven year notes and $1.625
billion principal amount of 9 3/8% Senior Notes due 2009, referred to herein
as the ten year notes and together with the seven year notes referred to as
the notes. Concurrently with the closing of these offerings, we used
approximately $1.658 billion of net proceeds received from the sale of the
notes to complete tender offers for our outstanding 1994 notes, 1996 notes
and 1997 notes. In February 1999, we used approximately $268 million of net
proceeds received from the sale of the notes to complete a tender offer for
our 12 1/8% Senior Preferred Exchange Notes issued on January 4, 1999, in
exchange for all issued and outstanding 12 1/8% Series B Senior Redeemable
Exchangeable Preferred Stock.
As of March 31, 1999, our unrestricted cash, cash equivalents and
marketable investment securities totaled $346 million compared to $324
million as of December 31, 1998. For the three months ended March 31, 1998
and 1999, we reported net cash flows from operating activities of ($20
million) and $5 million, respectively.
We expect that our future working capital, capital expenditure and
debt service requirements will be satisfied from existing cash and investment
balances and cash generated from operations. Our ability to generate positive
future operating and net cash flows is dependent upon our ability to continue
to rapidly expand our DISH Network subscriber base, retain existing DISH
Network subscribers and our ability to grow our ETC and Satellite Services
businesses. There can be no assurance that we will be successful in achieving
these goals. The amount of capital required to fund the remainder of our 1999
working capital and capital expenditure needs will vary, dependent upon the
growth rate of the Dish Network and our ability to expand our other business
units. During the first quarter of 1999, subscriber growth exceeded our
expectations. To the extent the subscriber growth rate continues to exceed
our expectations, it may be necessary for us to raise additional capital to
fund increased working capital requirements. In addition, our working capital
and capital expenditure requirements could increase materially in the event
of increased competition for subscription television customers, significant
satellite failures, or general economic downturn, among other factors.
SUBSCRIBER ACQUISITION COSTS
As previously described, we subsidize the cost of EchoStar receiver
systems in order to attract new DISH Network subscribers. Consequently, our
subscriber acquisition costs are significant. During the three months ended
March 31, 1999, our aggregate subscriber acquisition costs, which include
subscriber promotion subsidies and acquisition marketing expenses,
approximated $355 per new subscriber activation. To the extent that we
continue the PrimeStar bounty and the DISH Network One-Rate Plan, our
subscriber acquisition costs, both in the aggregate and on a per new
subscriber activation basis, may materially increase. Funds necessary to meet
these subscriber acquisition costs will be satisfied from existing cash and
investment balances to the extent available. We may, however, be required to
raise additional capital in the future to meet these requirements. There can
be no assurance that additional financing will be available on acceptable
terms, or at all.
14
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - CONTINUED
OBLIGATIONS
Interest accrues at a rate of 9 1/4% and 9 3/8% on the seven and ten
year notes, respectively. Interest on the seven and ten year notes is payable
semi-annually in cash in arrears on February 1 and August 1 of each year,
commencing August 1, 1999. Although the seven and ten year notes have lower
interest rates than our previous debt securities, reported interest expense
will not materially decrease because we raised additional debt to cover
tender premiums and consent and other fees related to the refinancing.
FUTURE CAPITAL REQUIREMENTS
As of March 31, 1999, we had approximately $2.0 billion of
outstanding long-term debt. Beginning in August 1999, we will have
semi-annual cash debt service requirements of approximately $94 million
related to the notes. There will be no scheduled principal payment or sinking
fund requirements prior to maturity of the notes.
We utilized $91 million of satellite vendor financing for our first
four satellites. As of March 31, 1999, approximately $55 million of that
satellite vendor financing remained outstanding. The satellite vendor
financing bears interest at 8 1/4% and is payable in equal monthly
installments over five years following launch of the satellite to which it
relates.
During the remainder of 1999, we anticipate total capital
expenditures to be approximately $70 million. This amount includes
approximately $35 million for capital expenditures related to digital
encoders required by the Cheyenne digital broadcast center to accommodate
expansion to approximately 500 video and audio channels, as a result of the
110 acquisition. In addition, we expect to expend over $100 million, and
perhaps more than $125 million, primarily during 2000 in one-time expenses
associated with repositioning subscriber satellite dishes toward the 110DEG.
West Longitude orbital location.
As a result of the anomalies experienced by EchoStar IV and in order to
fully exploit certain of our remaining FCC-allocated DBS frequencies, we
intend to deploy one or more additional DBS satellites. If the 110
acquisition is consummated, it would provide for the deployment of two
additional DBS satellites at 110DEG. WL. We are also evaluating other
contingency plans. All of these possible deployments are subject to several
FCC approvals. There can be no assurance that net insurance proceeds will be
sufficient to fully cover the costs to deploy DBS satellites.
In addition to our DBS business plan, we have licenses, or
applications pending with the FCC, for a two satellite FSS Ku-band satellite
system, a two satellite FSS Ka-band satellite system, and a proposed
modification thereof and a Low Earth Orbit Mobile-Satellite Service
6-satellite system. We will need to raise additional capital to fully
construct these satellites. Further, there may be a number of factors, some
of which are beyond our control or ability to predict, that could require us
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, if required, will be available on terms acceptable to us, or
at all.
If cash generated from our operations is not sufficient to meet our
debt service requirements or other obligations, we would be required to
obtain cash from other financing sources. There can be no assurance that such
financing would be available on terms acceptable to us, or if available, that
the proceeds of such financing would be sufficient to enable us to meet all
of our obligations. At March 31, 1999, a total of $2.6 million of 1994 notes,
1996 notes, 1997 notes, and Senior Exchange notes remain outstanding. We are
required to retire these remaining notes when they mature, and the indentures
governing the 1994, 1996 and 1997 notes will remain outstanding (although
substantially all of the restrictive covenants have been eliminated) until
each series of notes has been retired in full.
YEAR 2000 READINESS DISCLOSURE
We have assessed and continue to assess the impact of the Year 2000
issue on our computer systems and operations. The Year 2000 issue exists
because many computer systems and applications currently use two-digit date
fields to designate a year. Thus, as the century date approaches, date
sensitive systems may recognize the year 2000 as 1900 or not at all. The
inability to recognize or properly treat the year 2000 may cause computer
systems to process critical financial and operational information
incorrectly. If our Year 2000 remediation plan is not successful or is not
completed in a timely manner, the Year 2000 issue could significantly disrupt
our ability to transact business with our customers and suppliers, and could
have a material impact on our operations. Even if our Year 2000 remediation
plan is successful or completed on time, there can be no assurance that the
systems of other companies with which our
15
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - CONTINUED
systems interact will be timely converted, or that any such failure to
convert by another company would not have an adverse effect on our business
or operations.
We have established a five-phase plan to address potential Year 2000
issues:
- INVENTORY - the identification of all relevant hardware and
software to establish the scope of subsequent testing;
- ASSESSMENT - the process of evaluating the current level of Year
2000 readiness of all components identified in the inventory
phase, defining actions necessary to retire, replace or otherwise
correct all non-conforming components and estimating resources and
timelines required by action plans;
- REMEDIATION - the correction of previously identified Year 2000
issues;
- VALIDATION/TESTING - the evaluation of each component's
performance as the date is rolled forward to January 1, 2000 and
other dates and times relating to the Year 2000 issue; and
- IMPLEMENTATION - the process of updating components and correcting
Year 2000 issues in the production operating environment of a
system.
In connection with this effort, we have segregated our computer
systems and corresponding Year 2000 readiness risk into three categories:
internal financial and administrative systems, service-delivery systems, and
third-party systems.
INTERNAL FINANCIAL AND ADMINISTRATIVE SYSTEMS
With respect to our internal financial and administrative systems,
we have completed the inventory phase of the Year 2000 readiness plan by
identifying all systems with potential Year 2000 problems. We are currently
in the process of assessing these systems by communicating with our outside
software and hardware vendors and reviewing their certifications of Year 2000
readiness, as well as reviewing internal custom programming codes. We expect
to have the assessment phase substantially completed by the end of May 1999.
Upon completion of the assessment phase, we will begin the
remediation and validation/testing phases. During the remediation phase, we
will attempt to correct all problems detected while performing the assessment
phase. During the validation/testing phase, we will create a parallel
environment of all internal and administrative systems. We will run tests on
the parallel environment to assess its reaction to changes in dates and times
relating to the Year 2000 issue. We currently expect the remediation and
validation/testing phases to be complete by the end of August 1999.
Once all known problems are corrected within the parallel
environment, we will make changes to the actual operating environment of our
internal financial and administrative systems during the implementation
phase. We currently expect to complete the implementation phase by mid
October 1999. While we presently believe that our internal financial and
administrative systems are Year 2000 ready, we will not be able to certify
our Year 2000 readiness until the successful completion of the implementation
phase. As new technology and software are integrated into our financial and
administrative systems we will perform additional testing to attempt to
ensure continued Year 2000 readiness.
SERVICE-DELIVERY SYSTEMS
We have defined service-delivery systems as all internal systems
necessary to deliver DISH Network programming to our subscribers. During the
inventory phase we initially identified our set-top boxes, compression and
conditional access systems at our digital broadcast center, DBS satellites
and third-party billing system as systems with potential Year 2000 issues.
Given the interdependent nature of the receiver and broadcast
systems used to deliver our service, we previously implemented a smaller,
offline version of our overall system to aid in the evaluation and test of
hardware and software changes that normally occur over time. This system
gives us the ability to perform "real-time" testing of the various elements
of the system by simulating the year 2000 rollover, and confirming system
operation. This ability to perform accurate offline simulations has provided
a tremendous benefit to our Year 2000 test process.
16
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - CONTINUED
We have completed initial testing of our set-top receivers. During
these tests, the dates in the broadcast system, and hence the set-top
receivers were rolled forward to each of the dates and times affected by the
Year 2000 issue. We deemed these initial tests successful, as no problems
were detected during thorough testing of the set-top receivers when the dates
were rolled forward. These tests also affirm the integrity of the broadcast
systems supplying the set-top receivers with critical operational system
information. As new technology and software are integrated into our set-top
receivers, we will perform additional testing to attempt to ensure continued
Year 2000 readiness.
In addition to the practical testing performed above, we have
completed an independent inventory and assessment of the systems at our
digital broadcast center and are currently in the remediation phase of our
Year 2000 readiness plan. The remediation phase of the plan is expected to be
complete by July 1999. We expect to perform validation and testing of
communications between our digital broadcast center and our DBS satellites
during the third quarter of 1999. The validation and testing of our digital
broadcast center is not expected to cause interruption of programming to DISH
Network subscribers.
During the assessment of our DBS satellites, we determined that our
satellites do not operate under a calendar-driven system. Therefore, we do
not expect changes in dates and times to affect the operation of our DBS
satellites.
We are currently working with the vendor of our third-party billing
system to attempt to ensure its Year 2000 readiness. This vendor has
indicated it has completed all remediation activities and is currently in the
final stages of testing/validation. Subsequent to completion of its
testing/validation activities, the vendor has indicated it will contractually
certify its Year 2000 readiness during the second quarter of 1999, however we
can not provide any assurance in this regard.
THIRD-PARTY SYSTEMS
We also are currently assessing our vulnerability to unexpected
business interruptions due to the failure of third-parties to remediate Year
2000 readiness issues associated with products or services on which our
business relies. In connection with this assessment, we sent letters to
third-party business partners, suppliers and vendors which we deemed
significant requesting that they certify their Year 2000 readiness. To date,
we have received responses from approximately 70% of these vendors. We are
presently in the process of contacting our critical suppliers and vendors who
have either not responded or have not responded adequately to our requests
for proof of certification and will continue to follow-up on unresolved
issues thereafter. There can be no assurance that third-parties who have
responded, or will respond, to our request regarding Year 2000 readiness have
responded, or will respond, accurately or satisfactorily, or that anticipated
Year 2000 actions set forth in their responses will be properly conducted.
CONTINGENCY PLANNING
We also are involved in limited contingency planning. In the event
that previously undetected Year 2000 issues arise, contingency plans will be
used to try to mitigate potential system problems. Our internal financial and
administrative and service-delivery contingency plan includes making back-up
copies of certain systems as well as using standby power generators at our
digital broadcasting center. With respect to other third-party systems, we
will continue to contact our critical vendors in order to obtain
certification of their Year 2000 readiness. However, no assurance can be made
that such contingency plans will resolve any Year 2000 problems that may
occur, in a manner which is satisfactory or desirable to us.
COSTS
We have not yet determined the full cost of our Year 2000 readiness
plan and its related impact on our financial condition. In the ordinary
course of business, we have made capital expenditures over the past few years
to improve our systems, for reasons other than Year 2000 remediation. Because
these upgrades also resulted in improved Year 2000 readiness, replacement and
remediation costs have not been material. We currently have budgeted $300,000
for the completion of our Year 2000 readiness plan. While there can be no
assurance, we believe our costs to successfully mitigate the Year 2000 issue
will not be material to our operations. No assurance can be made, however, as
to the total cost for the Year 2000 plan until the plan has been completed.
17
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
THE NEWS CORPORATION LIMITED
During February 1997, EchoStar and News Corporation announced an
agreement pursuant to which, among other things, News Corporation agreed to
acquire approximately 50% of the outstanding capital stock of EchoStar. News
Corporation also agreed to make available for use by EchoStar the DBS permit
for 28 frequencies at the 110DEG. WL orbital slot purchased by MCI for more
than $682 million following a 1996 FCC auction. During late April 1997,
substantial disagreements arose between the parties regarding their
obligations under this agreement. Those substantial disagreements led the
parties to litigation. In mid-1997, EchoStar filed a complaint seeking
specific performance of this agreement and damages, including lost profits.
News Corporation filed an answer and counterclaims seeking unspecified
damages, denying all of the material allegations and asserting numerous
defenses. Discovery commenced in July 1997, and the case was set for trial
commencing March 1999. In connection with the pending 110 acquisition, the
litigation between EchoStar and News Corporation will be stayed and has been
dismissed with prejudice upon closing or if the transaction is terminated for
reasons other than the breach by, or failure to fill a condition within the
control of, News Corporation or MCI.
In connection with the News Corporation litigation that arose in
1997, EchoStar has a contingent fee arrangement with its attorneys, which
provides for the attorneys to be paid a percentage of any net recovery
obtained in its dispute with News Corporation. The lawyers have asserted that
they may be entitled to receive payments in excess of $80 million to $100
million under this fee arrangement in connection with the settlement of the
dispute with News Corporation. EchoStar intends to vigorously contest the
lawyers' interpretation of the fee arrangement, which it believes
significantly overstates the magnitude of its liability thereunder. If the
lawyers and EchoStar are unable to resolve this fee dispute under the fee
arrangement, the fee dispute would be resolved through arbitration. It is too
early to determine the outcome of negotiations or arbitration regarding this
fee dispute.
WIC PREMIUM TELEVISION LTD.
On July 28, 1998, a lawsuit was filed by WIC Premium Television
Ltd., an Alberta corporation, in the Federal Court of Canada Trial Division,
against certain defendants which include: General Instrument Corporation,
HBO, Warner Communications, Inc., John Doe, Showtime, United States Satellite
Broadcasting Corporation, EchoStar Communications Corporation or ECC and two
of ECC's wholly-owned subsidiaries, Dish, Ltd. and Echosphere Corporation.
The lawsuit seeks, among other things, an interim and permanent injunction
prohibiting the defendants from activating receivers in Canada and from
infringing any copyrights held by WIC. It is too early to determine whether
or when any other lawsuits and/or claims will be filed. It is also too early
to make an assessment of the probable outcome of the litigation or to
determine the extent of any potential liability or damages.
On September 28, 1998, WIC filed another lawsuit in the Court of
Queen's Bench of Alberta Judicial District of Edmonton against certain
defendants, which also include ECC, Dish, Ltd. and Echosphere. WIC is a
company authorized to broadcast certain copyrighted work, such as movies and
concerts, to residents of Canada. WIC alleges that the defendants engaged in,
promoted, and/or allowed satellite dish equipment from the United States to
be sold in Canada and to Canadian residents and that some of the defendants
allowed and profited from Canadian residents purchasing and viewing
subscription television programming that is only authorized for viewing in
the United States. The lawsuit seeks, among other things, interim and
permanent injunction prohibiting the defendants from importing hardware into
Canada and from activating receivers in Canada and damages in excess of the
equivalent of US $175 million. It is too early to determine whether or when
any other lawsuits and/or claims will be filed. It is also too early to make
an assessment of the probable outcome of the litigation or to determine the
extent of any potential liability or damages.
BROADCAST NETWORK PROGRAMMING
Section 119 of the Satellite Home Viewer Act authorizes EchoStar to
provide satellite-delivered network channels to customers who qualify as
"unserved households," defined in the Satellite Home Viewer Act as, consumers
who, among other things, "cannot receive, through the use of a conventional
outdoor rooftop receiving
18
<PAGE>
PART II - OTHER INFORMATION
antenna, an over-the-air signal of Grade B intensity, as defined by the FCC,
of a primary network station affiliated with that network." Historically,
EchoStar obtained distant broadcast network signals for distribution to its
customers through PrimeTime 24, Joint Venture. PrimeTime 24 also distributed
network signals to certain of EchoStar's competitors in the satellite
industry.
The national networks and local affiliate stations recently
challenged PrimeTime 24's methods of selling network programming to consumers
based upon copyright infringement. The United States District Court for the
Southern District of Florida entered a nationwide permanent injunction
preventing PrimeTime 24 from selling its programming to consumers unless the
programming was sold in accordance with certain stipulations in the
injunction. The injunction covers "distributors" as well. The plaintiffs in
the Florida litigation informed EchoStar that it considered EchoStar a
"distributor" for purposes of that injunction. A federal district court in
North Carolina has also issued an injunction against PrimeTime 24 prohibiting
certain distant signal retransmissions in the Raleigh area. Other copyright
litigation against PrimeTime 24 is pending.
EchoStar ceased delivering PrimeTime 24 programming in July 1998,
and began uplinking and distributing network channels directly. EchoStar has
also implemented Satellite Home Viewer Act Section 119 compliance procedures
which materially restrict the market for the sale of network channels by
EchoStar.
On October 19, 1998, EchoStar filed a declaratory judgment action in
the United States District Court for the District of Colorado against the
four major networks. EchoStar asked the court to enter a judgment declaring
that its method of providing distant network programming does not violate the
Satellite Home Viewer Act and hence does not infringe the networks'
copyrights. On November 5, 1998, the four major broadcast networks and their
affiliate groups filed a complaint in federal court in Miami alleging, among
other things, copyright infringement against EchoStar. The plaintiffs in that
action have also requested the issuance of a preliminary injunction against
EchoStar. The case filed by EchoStar was subsequently combined with and
transferred to the Miami court.
On February 24, 1999, CBS, NBC, Fox, and ABC filed a "Motion for
Temporary Restraining Order, Preliminary Injunction, and Contempt Finding"
against DIRECTV, Inc. in Miami relating to the delivery of distant network
channels to DIRECTV customers by satellite.. On March 12, 1999, DIRECTV and
the four networks announced that they had reached a settlement of that
dispute. Under the terms of the settlement, DIRECTV customers predicted to
receive a strong signal (Grade A intensity) from their local stations will
lose access to their satellite provided network channels by June 30, 1999,
while DIRECTV customers predicted to receive a weaker, but allegedly adequate
signal (Grade B intensity) from their local stations will be disconnected by
December 31, 1999. Subsequently, PrimeTime 24 and substantially all providers
of satellite delivered network programming other than EchoStar agreed to this
cut off schedule.
The Networks are currently pursuing a Motion for Preliminary
Injunction in the Miami Court, asking that Court to enjoin EchoStar from
providing network programming except under very limited circumstances. In
general, the networks want EchoStar to turn off programming to its customers
on the same schedule as DIRECTV has agreed to. EchoStar intends to vigorously
contest the issuance of such an injunction. In the event of a decision
adverse to EchoStar in this case, significant material restrictions on the
sale of distant ABC, NBC, CBS and Fox channels by EchoStar could result.
Among other things, EchoStar could be required to terminate delivery of
network signals to a material portion of its subscriber base. While the
Networks have not sought monetary damages, they have sought to recover
attorney fees should they prevail. EchoStar has commenced sending letters to
some of its subscribers warning that their access to distant broadcast
network channels might be terminated commencing in June of this year. Such
terminations would result in a small reduction in average monthly revenue per
subscriber. While there can be no assurance, any such decrease could be
offset by increases in average monthly revenue per subscriber resulting from
the delivery of local network channels by satellite, and increases in
programming offerings that will follow the scheduled launches of EchoStar V
and EchoStar VI later this year. While there can be no assurance, legislation
pending in the Senate would, if passed into law, reduce the number of
customers whose network channels EchoStar may otherwise be required to
terminate.
We are subject to various other legal proceedings and claims which
arise in the ordinary course of business. In the opinion of management, the
amount of ultimate liability with respect to those actions will not
materially affect our financial position or results of operations.
19
<PAGE>
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
This information is incorporated by reference to Item 1 of Part I of
this document.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS.
27+ Financial Data Schedule.
- --------------------------------
+ Filed herewith.
(B) REPORTS ON FORM 8-K.
On January 5, 1999, we filed a Current Report on Form 8-K to report
that we had commenced a cash tender offer to purchase any and all of our
outstanding 12 1/8% Senior Exchange Notes due 2004 that were issued on
January 4, 1999 in exchange for all of our 12 1/8% Series B Senior Redeemable
Exchangeable Preferred Stock due 2004. The tender offer was part of a plan to
refinance our existing indebtedness at more favorable interest rates and
terms which was successfully executed during the first quarter of 1999.
20
<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/ DAVID K. MOSKOWITZ
---------------------------------------------
David K. Moskowitz
Senior Vice President, General Counsel,
Secretary and Director
(DULY AUTHORIZED OFFICER)
By: /S/ STEVEN B. SCHAVER
---------------------------------------------
Steven B. Schaver
Chief Financial Officer
(PRINCIPAL FINANCIAL OFFICER)
Date: May 17, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF ECHOSTAR COMMUNICATIONS CORPORATION AS OF AND FOR THE
THREE MONTHS ENDED MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO THOSE FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 143,900
<SECURITIES> 202,129
<RECEIVABLES> 106,740
<ALLOWANCES> 3,909
<INVENTORY> 59,170
<CURRENT-ASSETS> 648,806
<PP&E> 861,363
<DEPRECIATION> 191,863
<TOTAL-ASSETS> 1,733,793
<CURRENT-LIABILITIES> 474,266
<BONDS> 2,041,029
0
110,499
<COMMON> 454
<OTHER-SE> (931,682)
<TOTAL-LIABILITY-AND-EQUITY> 1,733,793
<SALES> 301,387<F1>
<TOTAL-REVENUES> 309,364
<CGS> 170,666<F2>
<TOTAL-COSTS> 365,046
<OTHER-EXPENSES> 47,584
<LOSS-PROVISION> 3,370
<INTEREST-EXPENSE> 52,510
<INCOME-PRETAX> (103,266)
<INCOME-TAX> 66
<INCOME-CONTINUING> (103,332)
<DISCONTINUED> 0
<EXTRAORDINARY> (268,999)
<CHANGES> 0
<NET-INCOME> (372,331)
<EPS-PRIMARY> (8.29)
<EPS-DILUTED> (8.29)
<FN>
<F1>INCLUDES SALES OF PROGRAMMING.
<F2>INCLUDING COSTS OF PROGRAMMING.
</FN>
</TABLE>
