<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 333-3980
ECHOSTAR SATELLITE BROADCASTING CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
COLORADO 84-1337871
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
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
ON MAY 13, 1996, REGISTRANT'S OUTSTANDING VOTING STOCK CONSISTED OF
1,000 SHARES OF COMMON STOCK, $0.01 PAR VALUE.
THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTIONS
(H)(1)(A) AND (B) OF FORM 10-Q AND IS THEREFORE FILING THIS FORM 10-Q WITH
THE REDUCED DISCLOSURE FORMAT.
<PAGE>
ECHOSTAR SATELLITE BROADCASTING CORPORATION AND SUBSIDIARIES
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION PAGE
Item 1. Consolidated Financial Statements:
Balance Sheets as of December 31, 1995
and March 31, 1996 (Unaudited) . . . . . . . 1
Statements of Income for the three months
ended March 31, 1995 and 1996 (Unaudited) . 2
Statements of Cash Flows for the three months
ended March 31, 1995 and 1996 (Unaudited) . 3
Condensed Notes to Financial Statements
(Unaudited). . . . . . . . . . . . . . . . . 5
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations . . . . . . . . . . . . . . . . . 14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . 20
Item 6. Exhibits and Reports on Form 8-K . . . . . . . 21
<PAGE>
ECHOSTAR SATELLITE BROADCASTING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
<TABLE>
DECEMBER 31, MARCH 31,
1995 1996
------------ ---------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 13,949 $162,651
Marketable investment securities . . . . . . . . . . . . . . . . . . . . . . . . . . 210 212
Trade accounts receivable, net . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,435 20,629
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38,769 27,298
Income tax receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,870 4,504
Deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,834 4,600
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,791 12,599
------- -------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . 81,858 232,493
RESTRICTED CASH AND MARKETABLE SECURITIES:
1994 Notes escrow . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73,291 63,617
1996 Notes escrow . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 169,970
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,400 41,900
PROPERTY AND EQUIPMENT, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 333,199 333,231
OTHER NONCURRENT ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44,547 58,146
-------- --------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $559,295 $899,357
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Trade accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 19,063 $ 12,280
Deferred programming revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,563 7,416
Accrued expenses and other current liabilities . . . . . . . . . . . . . . . . . . . 21,335 7,437
Notes payable and current portion of long-term debt . . . . . . . . . . . . . . . . 4,782 4,783
-------- --------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . 50,743 31,916
LONG-TERM DEFERRED PROGRAMMING REVENUE . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 3,790
1994 NOTES, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 382,218 395,333
1996 NOTES, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 350,890
LONG-TERM MORTGAGE DEBT AND NOTE PAYABLE, excluding current portion . . . . . . . . . . . . . 33,444 32,421
-------- --------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . 466,405 814,350
-------- --------
COMMITMENTS AND CONTINGENCIES (Note 6)
STOCKHOLDER'S EQUITY (Note 1):
Preferred Stock, 20,000,000 and no shares authorized, 1,616,681
and no shares of Series A Cumulative Preferred Stock issued and
outstanding, including accrued dividends of $1,555,000 and $0, respectively . . . 16,607 --
Class A Common Stock, $.01 par value, 200,000,000 and no shares
authorized, 6,470,599 and no shares issued and outstanding, respectively . . . . . 65 --
Class B Common Stock, $.01 par value, 100,000,000 and no shares
authorized, 29,804,401 and no shares issued and outstanding, respectively . . . . 298 --
Common Stock, $.01 par value, none and 1,000 shares authorized,
issued and outstanding, respectively . . . . . . . . . . . . . . . . . . . . . . -- --
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89,495 106,466
Unrealized holding gains on available-for-sale securities, net of deferred taxes . . 251 21
Retained earning (deficit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (13,826) (21,480)
-------- --------
Total stockholder's equity . . . . . . . . . . . . . . . . . . . . . . 92,890 85,007
-------- --------
Total liabilities and stockholder's equity . . . . . . . . . . . . . . $559,295 $899,357
-------- --------
-------- --------
</TABLE>
The accompanying notes to consolidated financial
statements are an integral part of these balance sheets.
1
<PAGE>
ECHOSTAR SATELLITE BROADCASTING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
------------------
1995 1996
---- ----
REVENUE:
DTH products and technical services . . . . . . . $ 36,277 $ 36,741
Programming . . . . . . . . . . . . . . . . . . 3,871 3,913
Loan origination and participation income . . . 265 372
-------- --------
Total revenue . . . . . . . . . . . . . . 40,413 41,026
-------- --------
EXPENSES:
DTH products and technical services . . . . . . 29,445 32,750
Programming . . . . . . . . . . . . . . . . . . 3,432 3,283
Selling, general and administrative . . . . . . 7,871 10,571
Depreciation . . . . . . . . . . . . . . . . . .. 363 3,330
-------- --------
Total expenses . . . . . . . . . . . . .. 41,111 49,934
-------- --------
OPERATING LOSS . . . . . . . . . . . . . . . . . . (698) (8,908)
-------- --------
OTHER INCOME (EXPENSE):
Interest income . . . . . . . . . . . . . . . . 3,638 1,974
Interest expense, net of amounts capitalized . . (6,563) (5,784)
Other, net . . . . . . . . . . . . . . . . . . . 28 (1)
-------- -------
Total other income (expense) . . . . . . (2,897) (3,811)
-------- -------
NET LOSS BEFORE INCOME TAXES . . . . . . . . . . . (3,595) (12,719)
BENEFIT FOR INCOME TAXES . . . . . . . . . . . . . 1,355 5,065
-------- -------
NET LOSS . . . . . . . . . . . . . . . . . . . . $ (2,240) $ (7,654)
-------- -------
-------- -------
The accompanying notes to consolidated financial
statements are an integral part of these statements.
2
<PAGE>
ECHOSTAR SATELLITE BROADCASTING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
THREE MONTHS ENDED
MARCH 31,
------------------
1995 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (2,240) $ (7,654)
Adjustments to reconcile net loss to net cash flows from
operating activities --
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 363 3,330
Provision for doubtful accounts . . . . . . . . . . . . . . . . . . . 111 610
Benefit for deferred taxes . . . . . . . . . . . . . . . . . . . . . . (2,493) (3,013)
Amortization of deferred debt issuance costs on 1994 Notes . . . . . . 315 315
Amortization of discount on 1994 Notes, net of amounts capitalized . . 6,131 4,189
Amortization of discount on 1996 Notes, net of amounts capitalized . . -- 843
Equity in earnings of joint venture . . . . . . . . . . . . . . . . . (15) --
Change in reserve for excess and obsolete inventory . . . . . . . . . 233 227
Long-term deferred programming revenue . . . . . . . . . . . . . . . . -- 3,790
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 (170)
Changes in working capital items --
Trade accounts receivable . . . . . . . . . . . . . . . . . . . . . (728) (9,579)
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,238) 11,244
Income tax receivable . . . . . . . . . . . . . . . . . . . . . . . -- (634)
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . (730) 192
Liability under cash management program . . . . . . . . . . . . . . (57) --
Trade accounts payable . . . . . . . . . . . . . . . . . . . . . . . (1,061) (6,783)
Deferred programming revenue . . . . . . . . . . . . . . . . . . . . (657) 1,853
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 1,221 858
Other current liabilities . . . . . . . . . . . . . . . . . . . . . 38 244
------ ------
Net cash flows from operating activities . . . . . . . . . . . . . (3,781) (138)
------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of marketable investment securities . . . . . . . . . . . . . . (15,211) (2)
Sales of marketable investment securities . . . . . . . . . . . . . . . . 27,777 --
Purchases of restricted marketable investment securities . . . . . . . . . -- (15,500)
Purchases of property and equipment . . . . . . . . . . . . . . . . . . . (538) (2,715)
Offering proceeds and investment earnings placed in escrow . . . . . . . . (2,714) (178,452)
Funds released from escrow accounts . . . . . . . . . . . . . . . . . . . 16,257 17,785
Expenditures for satellite systems under construction . . . . . . . . . . (19,621) (7,928)
Expenditures for FCC authorizations . . . . . . . . . . . . . . . . . . . -- (370)
------ -------
Net cash flows from investing activities . . . . . . . . . . . . 5,950 (187,182)
------ -------
</TABLE>
The accompanying notes to consolidated financial
statements are an integral part of these statements.
3
<PAGE>
ECHOSTAR SATELLITE BROADCASTING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
THREE MONTHS ENDED
MARCH 31,
------------------
1995 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of mortgage indebtedness and note payable . . . . . . . . . . $ (57) $ (1,022)
Proceeds from issuance of Common Stock . . . . . . . . . . . . . . . . . -- 1
Net proceeds from issuance of 1996 Notes . . . . . . . . . . . . . . . . -- 337,043
-------- ---------
Net cash flows from financing activities . . . . . . . . . . . (57) 336,022
-------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS . . . . . . . . . . . . . . . . . 2,112 148,702
CASH AND CASH EQUIVALENTS, beginning of period . . . . . . . . . . . . . . 17,506 13,949
-------- ---------
CASH AND CASH EQUIVALENTS, end of period . . . . . . . . . . . . . . . . . $ 19,618 $ 162,651
-------- ---------
-------- ---------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest, net of amounts capitalized . . . . . . . . . . . $ 106 $ 354
Cash paid for income taxes . . . . . . . . . . . . . . . . . . . . . . . 39 --
Cumulative Series A Preferred Stock dividends . . . . . . . . . . . . . 301 --
Satellite launch payment for EchoStar II applied to EchoStar I launch . . -- 15,000
</TABLE>
The accompanying notes to consolidated financial
statements are an integral part of these statements.
4
<PAGE>
ECHOSTAR SATELLITE BROADCASTING CORPORATION AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND MARCH 31, 1996
(1) ORGANIZATION AND PRESENTATION OF FINANCIAL STATEMENTS
EchoStar Satellite Broadcasting Corporation ("ESB") is a wholly
owned subsidiary of EchoStar Communications Corporation ("EchoStar").
ESB was formed in January 1996 for the purpose of completing a private
offering (the "1996 Notes Offering"), pursuant to Rule 144A of the
Securities Act of 1933, as amended (the "Securities Act"), of 13 1/8%
Senior Secured Discount Notes due 2004 (the "1996 Notes"), resulting in net
proceeds of approximately $337.0 million. The 1996 Notes Offering was
consummated in March 1996. In connection with the 1996 Notes Offering,
EchoStar contributed all of the outstanding capital stock of its wholly
owned subsidiary, Dish, Ltd., to ESB. This transaction has been accounted
for as a reorganization of entities under common control. Accordingly,
Dish, Ltd. has been treated as the predecessor to ESB and the historical
financial statements of ESB are those of Dish, Ltd. ESB is subject to all,
and EchoStar is subject to certain of, the terms and conditions of the
Indenture related to the 1996 Notes (the "1996 Notes Indenture"). On
April 24, 1996, ESB filed a Registration Statement on Form S-1 under
the Securities Act to exchange the 1996 Notes for publicly registered
notes.
ESB successfully launched its first direct broadcast satellite
("DBS"), EchoStar I, in December 1995 and, on March 4, 1996, began
broadcasting its DBS programming (the "Dish Network-SM-") to the entire
continental United States. The Dish NetworkSM currently includes over 100
channels of high quality digital video and audio programming and
will expand to approximately 200 digital video and audio channels
following the successful launch of a second DBS satellite, DirectSat I
("EchoStar II"), currently scheduled in the fall of 1996.
In addition to its DBS business, ESB is engaged in the design,
manufacture, distribution and installation of satellite direct to home
("DTH") products, domestic distribution of DTH programming and consumer
financing of ESB's domestic DTH products and services. In the first
quarter of 1996, EchoStar formed a wholly owned subsidiary, Dish Network
Credit Corporation ("DNCC"), for the purpose of providing consumer financing
for EchoStar's domestic DTH products and services. At that time, ESB's
subsidiary that previously provided these services ceased new loan
origination activities. In future periods ESB's revenue from loan
origination and participation income will decline.
Proceeds from the 1996 Notes Offering will be used for: (i)
continued development, marketing and distribution of the Dish Network-SM-;
(ii) EchoStar's purchase of DBS frequencies at 148DEG. WL;
(iii) construction, launch and insurance of EchoStar III and EchoStar
IV; (iv) additional launch costs of EchoStar II; and (v) other general
corporate purposes. The additional frequencies were acquired by EchoStar at
a public auction held by the Federal Communications Commission ("FCC") in
January 1996 (the "FCC Auction").
In June 1995, EchoStar completed an offering of its Class A Common
Stock, resulting in net proceeds of approximately $63.0 million (the
"Equity Offering"). In June 1994, Dish, Ltd. completed an offering of 12
7/8% Senior Secured Discount Notes due 2004 (the "1994 Notes") and Warrants
(collectively, the "1994 Notes Offering"), resulting in net proceeds of
approximately $323.3 million. Dish Ltd. and most of its subsidiaries are
subject to the terms and conditions of the Indenture related to the 1994
Notes (the "1994 Notes Indenture").
EchoStar presently owns approximately 40% of the outstanding
common stock of Direct Broadcasting Satellite Corporation ("DBSC"). DBSC's
principal assets include an FCC conditional satellite construction permit
and specific orbital slot assignments for eleven DBS frequencies at 61.5DEG.
WL and eleven DBS frequencies at 175DEG. WL (the "DBS Rights"). EchoStar
intends to merge DBSC with Direct Broadcasting Satellite Corporation
("New DBSC"), a wholly owned subsidiary of EchoStar (the "DBSC
Merger"). The DBSC Merger has been approved by DBSC shareholders but
will not be consummated until the FCC has approved the DBSC Merger.
Although no assurances can be given, EchoStar expects the FCC to issue an
order with respect to the DBSC Merger in the near future. Assuming FCC
approval of the DBSC Merger, EchoStar will hold, through New DBSC, DBSC's
DBS Rights. On April 16, 1996, EchoStar filed a Registration Statement on
Form S-4 under the Securities Act covering 658,000 shares of EchoStar Class
A Common Stock that are intended to be issued in connection with the DBSC
Merger.
5
<PAGE>
ECHOSTAR SATELLITE BROADCASTING CORPORATION AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
The accompanying consolidated financial statements include only the
accounts of ESB and its subsidiaries and exclude all accounts of ESB's
parent, EchoStar.
Unless otherwise stated herein, or the context otherwise requires,
references herein to ESB shall include ESB and all of its direct and
indirect subsidiaries, and EchoStar shall include EchoStar, ESB and all of
their direct and indirect wholly owned subsidiaries.
The accompanying unaudited condensed Consolidated Financial Statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to
Form 10-Q and Article 10 of Regulation S-X. 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
accruals) considered necessary for a fair presentation have been included.
Operating results for the three month period ended March 31, 1996 are not
necessarily indicative of the results that may be expected for the year
ended December 31, 1996. For further information, refer to the Combined
and Consolidated Financial Statements and footnotes thereto included in
Dish, Ltd.'s Annual Report on Form 10-K for the year ended December 31, 1995.
Certain prior year amounts have been reclassified to conform with the current
year presentation.
SIGNIFICANT RISKS AND UNCERTAINTIES
Execution of EchoStar's business strategy to launch and operate
DBS satellites has dramatically changed its operating results and
financial position. As of March 31, 1996, EchoStar expects to expend
approximately an additional $520 million through 1999 to build, launch
and support its first four satellites (Note 6), assuming receipt of all
required FCC licenses and permits. EchoStar consummated the 1994 Notes
Offering, the 1996 Notes Offering and the Equity Offering to satisfy these
capital requirements. Annual interest expense on the 1994 and 1996 Notes and
depreciation of the investment in the satellites and related assets will each
be of a magnitude that exceeds historical levels of income before taxes.
Beginning in 1995 EchoStar reported significant net losses and expects net
losses to continue for the foreseeable future. EchoStar's plans also
include the construction and launch of two fixed service satellites,
additional DBS satellites and marketing campaigns (including
receiver subsidization if market conditions warrant) to promote its DBS
products and services. EchoStar may need to raise significant additional
funds for construction and launch of additional satellites and there
can be no assurance that necessary funds will be available or, if
available, that they will be available on terms favorable to EchoStar.
However, management believes, but can give no assurance, that demand for
its DBS products and services will result in sufficient cash flow which,
together with other sources of capital, will be sufficient to satisfy
future planned expenditures. Significant delays or launch failures in
EchoStar's satellite launch program may have significant adverse
consequences to EchoStar's operating results and financial condition.
The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of management 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.
(2) SUPPLEMENTAL ANALYSIS
CASH AND CASH EQUIVALENTS
ESB considers all liquid investments purchased with an original
maturity of ninety days or less to be cash equivalents. Cash equivalents
as of December 31, 1995, and March 31, 1996 consist of money market funds,
corporate notes and commercial paper stated at cost which equates to market
value.
RESTRICTED CASH AND MARKETABLE SECURITIES
ESB classifies all marketable investment securities as
available-for-sale. Accordingly, these investments are reflected at
market value based on quoted market prices. Related unrealized gains
and losses are reported as a
6
<PAGE>
ECHOSTAR SATELLITE BROADCASTING CORPORATION AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
separate component of stockholder's equity, net of related deferred income
taxes. The specific identification method is used to determine cost in
computing realized gains and losses.
Restricted Cash and Marketable Securities in Escrow Accounts as
reflected on the accompanying balance sheets represent the remaining net
proceeds received from the 1994 Notes Offering and a portion of the
proceeds from the 1996 Notes Offering, plus interest earned, less amounts
expended to date in connection with the development, construction and launch
of the Dish Network-SM-. These proceeds are held in separate escrow
accounts (the "1994 Escrow Account" and the "1996 Escrow Account",
respectively) for the benefit of the holders of the 1994 and 1996 Notes and
are invested in certain debt and other marketable securities, as permitted
by the respective Indentures, until disbursed for the express purposes
identified in the 1994 Notes Offering Prospectus or the 1996 Notes
Offering Memorandum, as the case may be.
Other Restricted Cash includes $11.4 million to satisfy certain
covenants regarding launch insurance required by the 1994 Notes Indenture.
ESB is required to maintain launch insurance and Restricted Cash totalling
$225.0 million for each of EchoStar I and EchoStar II. ESB has obtained
$219.3 million of launch insurance on each satellite, and, together with
the cash segregated and reserved on the accompanying balance sheets,
has satisfied its insurance obligations under the 1994 Notes Indenture.
In addition, as of March 31, 1996, $15.0 million was in an escrow account
established pursuant to a DBS satellite receiver manufacturing contract for
payment to the manufacturer as certain milestones are reached and $15.5
million was in an escrow account for the purpose of cash collateralizing
certain standby letters of credit (Note 4).
The major components of Restricted Cash and Marketable Securities are as
follows (in thousands):
<TABLE>
DECEMBER 31, 1995 MARCH 31, 1996
-------------------------------- --------------------------------
UNREALIZED UNREALIZED
AMORTIZED HOLDING MARKET AMORTIZED HOLDING MARKET
COST GAIN VALUE COST GAIN VALUE
---- ---- ----- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C>
Commercial paper . . . . . $ 66,214 $ -- $ 66,214 $ 70,600 $ -- $ 70,600
Government bonds . . . . . 32,904 420 33,324 204,411 49 204,460
Accrued interest . . . . . 153 -- 153 427 -- 427
-------- ------ -------- -------- ------ --------
$ 99,271 $ 420 $ 99,691 $275,438 $ 49 $275,487
-------- ------ -------- -------- ------ --------
-------- ------ -------- -------- ------ --------
</TABLE>
INVENTORIES
Inventories are stated at the lower of cost or market value. Cost is
determined using the first-in, first-out ("FIFO") method. Proprietary
products are manufactured by outside suppliers to ESB's specifications. ESB
also distributes non-proprietary products purchased from other
manufacturers. Manufactured inventories include materials, labor and
manufacturing overhead. Cost of other inventories includes parts, contract
manufacturers' delivered price, assembly and testing labor, and related
overhead, including handling and storage costs. The major components of
inventory were as follows (in thousands).
7
<PAGE>
ECHOSTAR SATELLITE BROADCASTING CORPORATION AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
DECEMBER 31, MARCH 31,
1995 1996
------------ ---------
Finished goods . . . . . . . . . . . . . . . $ 20,458 $ 17,957
DBS receiver components . . . . . . . . . . . 9,615 9,728
Competitor DBS Receivers . . . . . . . . . . 9,404 559
Spare parts . . . . . . . . . . . . . . . . . 2,089 2,078
Reserve for excess and obsolete inventory . . (2,797) (3,024)
-------- --------
$ 38,769 $ 27,298
-------- --------
-------- --------
ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
The composition of accrued expenses and other current liabilities
is as follows (in thousands):
DECEMBER 31, MARCH 31,
1995 1996
------------ ---------
Accrued EchoStar I launch costs . . . . . . . $ 15,000 $ --
Accrued expenses . . . . . . . . . . . . . . 3,850 4,708
Reserve for warranty costs . . . . . . . . . 1,013 1,013
Other . . . . . . . . . . . . . . . . . . . 1,472 1,716
-------- -------
$ 21,335 $ 7,437
-------- -------
-------- -------
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated
depreciation. Cost includes interest capitalized on the EchoStar DBS System
during construction at ESB's effective borrowing rate. The major components
of property and equipment were as follows (in thousands):
<TABLE>
ESTIMATED
USEFUL LIFE DECEMBER 31, MARCH 31,
(IN YEARS) 1995 1996
----------- ------------ ---------
<S> <C> <C> <C>
Construction in progress . . . . . . . . . -- $ 282,373 $ 81,322
EchoStar I satellite . . . . . . . . . . . 10 -- 198,143
Furniture, fixtures and equipment . . . . . 2-12 17,163 21,329
Buildings and improvements . . . . . . . . 7-40 21,006 21,109
Tooling and other . . . . . . . . . . . . . 2 2,039 3,470
Land . . . . . . . . . . . . . . . . . . . -- 1,613 1,613
Vehicles . . . . . . . . . . . . . . . . . 7 1,310 1,325
Furniture and equipment held for sale . . . 17,062 17,614
Computer equipment held for sale . . . . . 902 885
-------- --------
Total property and equipment . 343,468 346,810
Less-Accumulated depreciation . . . . . . . (10,269) (13,579)
-------- --------
Net property and equipment . . $ 333,199 $ 333,231
-------- --------
-------- --------
</TABLE>
8
<PAGE>
ECHOSTAR SATELLITE BROADCASTING CORPORATION AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Construction in progress principally includes capitalized costs
related to EchoStar II, which is scheduled for launch in the fall of 1996.
Construction in progress consisted of the following (in
thousands):
DECEMBER 31, MARCH 31,
1995 1996
------------ ---------
Progress amounts for satellite construction, launch,
launch insurance, capitalized interest, launch and
in-orbit tracking, telemetry and control services:
EchoStar I . . . . . . . . . . . . $ 193,629 $ --
EchoStar II . . . . . . . . . . . . 88,634 81,133
Other . . . . . . . . . . . . . . . 110 189
--------- --------
$ 282,373 $ 81,322
--------- --------
--------- --------
OTHER NONCURRENT ASSETS
The major components of other noncurrent assets were as follows (in
thousands):
DECEMBER 31, MARCH 31,
1995 1996
------------ ---------
Deferred tax assets, net . . . . . . . . . . . . . $12,109 $12,497
FCC authorizations, net of amortization . . . . . . 11,309 11,681
1996 Notes deferred debt issuance costs . . . . . . -- 13,004
1994 Notes deferred debt issuance costs,
net of amortization . . . . . . . . . . . . . . . 10,622 10,307
SSET convertible subordinated debentures and
accrued interest . . . . . . . . . . . . . . . . 9,610 9,758
Other, net . . . . . . . . . . . . . . . . . . . . 897 899
------- -------
$44,547 $58,146
------- -------
------- -------
(3) LONG-TERM DEBT
1994 NOTES
On June 7, 1994, Dish, Ltd. completed the 1994 Notes Offering of
624,000 units consisting of $624.0 million aggregate principal amount of the
1994 Notes and 3,744,000 Warrants. The 1994 Notes Offering resulted in net
proceeds to Dish, Ltd. of approximately $323.3 million. Interest on the 1994
Notes currently is not payable in cash but accrues through June 1, 1999,
with the 1994 Notes accreting to $624.0 million by that date. Thereafter,
interest on the 1994 Notes will be payable in cash semi-annually on June 1
and December 1 of each year, commencing December 1, 1999. At March 31,
1996, the 1994 Notes were reflected in the accompanying financial
statements at $395.3 million, net of unamortized discount of $228.7 million.
9
<PAGE>
ECHOSTAR SATELLITE BROADCASTING CORPORATION AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
1996 NOTES
On March 25, 1996, ESB completed the 1996 Notes Offering consisting
of $580.0 million aggregate principal amount of the 1996 Notes. The 1996
Notes Offering resulted in net proceeds to ESB of approximately $337.0
million. Interest on the 1996 Notes currently is not payable in cash but
accrues through March 15, 2000, with the 1996 Notes accreting to $580.0
million by that date. Thereafter, interest on the 1996 Notes will be payable
in cash semi-annually on March 15 and September 15 of each year, commencing
September 15, 2000. At March 31, 1996, the 1996 Notes were reflected in the
accompanying financial statements at $350.9 million, net of unamortized
discount of $229.1 million.
(4) BANK CREDIT FACILITY AND LETTERS OF CREDIT
On May 6, 1994, the principal subsidiaries of EchoStar, except
EchoStar Satellite Corporation ("ESC") (the "Borrowers"), entered into an
agreement with Bank of America Illinois, to provide a revolving credit
facility (the "Credit Facility") for working capital advances and for letters
of credit necessary for inventory purchases and satellite construction
payments. The Credit Facility expired in May 1996 and EchoStar does not
currently intend to arrange a new credit facility. Instead, EchoStar is
using available cash to collateralize its letter of credit obligations,
which have historically been the only significant use of the Credit
Facility. At March 31, 1996, EchoStar had cash collateralized $15.5
million of certain standby letters of credit for trade purchases which
is included in restricted cash and marketable securities in the
accompanying financial statements (Note 2).
(5) INCOME TAXES
The components of the benefit for income taxes were as follows (in
thousands):
THREE MONTHS ENDED
MARCH 31,
------------------
1995 1996
---- ----
Current (provision) benefit
Federal . . . . . . . . . . . . . $ (767) $1,971
State . . . . . . . . . . . . . (194) 203
Foreign . . . . . . . . . . . . . (177) (122)
------ ------
(1,138) 2,052
------ ------
Deferred benefit
Federal . . . . . . . . . . . . . 2,050 2,764
State . . . . . . . . . . . . . . 443 249
------- ------
2,493 3,013
------- ------
Total benefit . . . . . . . . $ 1,355 $5,065
------- ------
------- ------
ESB's deferred tax assets (approximately $17.1 million at March
31, 1996) relate principally to temporary differences for amortization of
original issue discount on the 1994 and 1996 Notes and various accrued
expenses which are not deductible until paid. No valuation allowance has
been provided because ESB currently believes it is more likely than not that
these deferred assets will ultimately be realized. If future operating
results differ materially and adversely from ESB's current expectations,
its judgment regarding the need for a valuation allowance may change.
10
<PAGE>
ECHOSTAR SATELLITE BROADCASTING CORPORATION AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
(6) OTHER COMMITMENTS AND CONTINGENCIES
SATELLITE CONTRACTS
EchoStar has contracted with Martin Marietta Corporation ("Martin
Marietta") for the construction and delivery of high powered DBS satellites
and for related services. Penalties are payable by Martin Marietta as a
result of delays in the delivery of EchoStar I by Martin Marietta and may
be payable with respect to EchoStar II or EchoStar III. As of November
19, 1995, the date that EchoStar I was delivered by Martin Marietta to
China, those penalties totaled approximately $3.2 million with respect to
EchoStar I. Penalties of $2.0 million are payable by Martin Marietta in
the event that EchoStar II is not delivered by May 15, 1996. Thereafter,
delays in the delivery of EchoStar II would result in PER DIEM additional
penalties up to a maximum of $5.0 million in the aggregate. Beginning August
1, 1997, a PER DIEM penalty of $3,333, to a maximum of $100,000, is
payable if EchoStar III is not delivered by July 31, 1997. Beginning
September 1, 1997, additional delays in the delivery of EchoStar III
would result in additional PER DIEM penalties of $33,333, up to a maximum
of $5.0 million in the aggregate.
EchoStar has entered into a contract with Arianespace, Inc.
("Arianespace") to launch EchoStar II from Korou, French Guiana in the
fall of 1996 (the "Arianespace Contract"). The launch is scheduled to be
performed on a dedicated Ariane 42P launch vehicle. The Arianespace
Contract provides the potential for the EchoStar launch to occur before
the fall of 1996 if earlier scheduled launches are accelerated or
delayed. The Arianespace Contract contains provisions entitling either
party to delay the launch in limited circumstances, subject to the payment
of penalties in some cases. As of March 31, 1996, EchoStar has paid
Arianespace approximately $4.4 pursuant to the Arianespace Contract. All
remaining payments are payable monthly and will be due prior to the launch.
EchoStar II was previously scheduled to be launched by the same
launch provider as EchoStar I, China Great Wall Industry Corporation
("Great Wall"). EchoStar I was successfully launched by Great Wall in
December 1995. EchoStar notified Great Wall of its decision to terminate
the launch of EchoStar II with Great Wall. EchoStar applied $15.0 million
previously paid Great Wall in connection with this launch to the final
$15.0 million owed Great Wall related to the launch of EchoStar I. In May
1996, EchoStar received a refund of the remaining $4.5 million previously
paid Great Wall in connection with the second launch.
EchoStar has entered into a contract for launch services with
Lockheed Martin Commercial Launch Services, Inc. ("Lockheed") for the
launch of EchoStar III from Cape Canaveral Air Station, Florida during
the fall of 1997, subject to delay or acceleration in certain
circumstances (the "Lockheed Contract"). The Lockheed Contract provides
for launch of the satellite utilizing an Atlas IIAS launch vehicle.
EchoStar has made an initial payment to Lockheed of $5.0 million and the
remaining cost is payable in installments in accordance with the payment
schedule set forth in the Lockheed Contract, which requires that
substantially all payments be make to Lockheed prior to launch.
EchoStar has contracted with Lockheed-Khrunichev-Energia-International,
Inc. ("LKE") for the launch of EchoStar IV during 1998 from the Kazakh
Republic, a territory of the former Soviet Union, utilizing a Proton launch
vehicle (the "LKE Contract"). Either party may request a delay in the
relevant launch period, subject to the payment of penalties based on the
length of the delay and the proximity of the request to the launch date.
EchoStar has paid LKE $20.0 million pursuant to the LKE Contract. No
additional payments are currently required to be made to LKE until 1997.
11
<PAGE>
ECHOSTAR SATELLITE BROADCASTING CORPORATION AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
PURCHASE COMMITMENTS
ESB has entered into agreements with various manufacturers to
purchase DBS satellite receivers and related components manufactured based
on ESB's supplied specifications. As of March 31, 1996 the remaining
commitments total as much as $622.2 million. At March 31, 1996, the total
of all outstanding purchase order commitments with domestic and foreign
suppliers was as much as $641.3 million. All but approximately $85.9
million of the purchases related to these commitments are expected to be
made during 1996 and the remainder is expected to be made during 1997.
EchoStar expects to finance these purchases from available cash,
marketable investment securities and sales of inventory, including the sale
of EchoStar Receiver Systems and related products.
OTHER RISKS AND CONTINGENCIES
EchoStar is subject to 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 EchoStar.
(7) SUMMARY FINANCIAL INFORMATION FOR SUBSIDIARY GUARANTORS
The 1994 Notes are fully, unconditionally and jointly and severally
guaranteed by all subsidiaries of Dish, Ltd., except for certain de minimis
domestic and foreign subsidiaries.
The 1996 Notes are initially guaranteed by EchoStar on a subordinated
basis. On and after the Dish Guarantee Date (as defined in the 1996
Notes Indenture), the 1996 Notes will be guaranteed by Dish, Ltd.,
which guarantee will rank PARI PASSU with all senior unsecured
indebtedness of Dish, Ltd. On and after the date upon which the DBSC Merger
is consummated, the 1996 Notes will be guaranteed by New DBSC, which
guarantee will rank PARI PASSU with all senior unsecured indebtedness of New
DBSC. If the DBSC Merger is not consummated, New DBSC will not be required
to guarantee the 1996 Notes. There can be no assurance that the DBSC
Merger will be approved by the FCC or that it will be consummated.
The net assets of Dish, Ltd. exceed the net assets of the 1994
Notes Guarantors by approximately $277,000 and $223,000 as of December 31,
1995 and March 31, 1996, respectively. Summarized consolidated financial
information for Dish, Ltd. is as follows (in thousands):
THREE MONTHS ENDED
MARCH 31,
------------------
1995 1996
---- ----
Income Statement Data --
Revenue . . . . . . . . . . . . . . . . $ 40,413 $ 41,026
Expenses . . . . . . . . . . . . . . . . 41,111 49,934
-------- --------
Operating loss . . . . . . . . . . . . . (698) (8,908)
Other income (expense), net . . . . . . (2,897) (3,234)
-------- --------
Net loss before income taxes . . . . . . (3,595) (12,142)
Benefit for income taxes . . . . . . . . 1,355 4,852
-------- --------
Net loss . . . . . . . . . . . . . $ (2,240) $ (7,290)
-------- --------
-------- --------
12
<PAGE>
ECHOSTAR SATELLITE BROADCASTING CORPORATION AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
DECEMBER 31, MARCH 31,
1995 1996
----------- ---------
Balance Sheet Data --
Current assets . . . . . . . . . . . . . . . . . . $ 81,858 $ 64,144
Property and equipment, net . . . . . . . . . . . 333,199 333,231
Other noncurrent assets . . . . . . . . . . . . . 144,238 150,659
-------- --------
Total assets . . . . . . . . . . . . . . . . . $559,295 $548,034
-------- --------
-------- --------
Current liabilities . . . . . . . . . . . . . . . $ 50,743 $ 31,167
Long-term liabilities . . . . . . . . . . . . . . 415,662 431,544
Stockholder's equity . . . . . . . . . . . . . . . 92,890 85,323
-------- --------
Total liabilities and stockholder's equity . . $559,295 $548,034
-------- --------
-------- --------
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
ESB currently operates four related businesses: (i) operation of the
Dish Network-SM- and continued development of the EchoStar DBS System;
(ii) design, manufacture, marketing, installation and distribution of
DTH products worldwide; (iii) domestic distribution of DTH programming;
and (iv) consumer financing of ESB's domestic products and services. The
growth of DBS service and equipment sales has had and will continue to have a
material negative impact on ESB's domestic sales of C-band DTH products.
On March 4, 1996 ESB began broadcasting and selling programming packages
available on the Dish Network-SM- service. ESB expects to derive its revenue
principally from monthly fees from subscribers for Dish Network-SM-
programming and, to a lesser extent, from the sale of EchoStar Receiver
Systems. As sales of EchoStar DBS programming and receivers increase, ESB
expects the decline in its sales of domestic C-band DTH products to continue
at an accelerated rate.
ESB will generally bill for Dish Network-SM- programming periodically
in advance and will recognize revenue as service is provided. Revenue
will be a function of the number of subscribers, the mix of
programming packages selected and the rates charged, and transaction fees
for ancillary programming and transponder leasing activities. From time to
time ESB may engage in promotional activities that include discounted rates
for limited periods, which will result in lower average revenue per
subscriber for the applicable periods. DBS programming costs will
generally be based upon the number of subscribers to each programming
offering. Since the Dish Network-SM- did not commence operations until March
1996, its operating activities had a minimal effect on ESB's results of
operations for the three month period ended March 31, 1996.
RESULTS OF OPERATIONS
THREE MONTH PERIOD ENDED MARCH 31, 1996 COMPARED TO THREE MONTH PERIOD ENDED
MARCH 31, 1995
REVENUE. Total revenue for the three month period ended March 31, 1996
was $41.0 million, an increase of $613,000 million, or 2%, as compared to the
same period in 1995 of $40.4 million. Revenue from domestic sales of DTH
products for the three month period ended March 31, 1996 was $24.0 million,
an increase of $3.4 million, or 17%, as compared to the same period in 1995.
The increase in domestic revenue was primarily due to $8.2 million in
revenue from the sale of EchoStar Receiver Systems during the three month
period ended March 31, 1996. There were no EchoStar Receiver System sales
during the comparable period in 1995. Approximately $922,000 of the
increase in domestic revenue for the three month period ended March 31,
1996 was due to an increase in the number of satellite receivers sold for a
competitor's DBS system ("Competitor DBS Receivers"). Revenue from
Competitor DBS Receiver sales was $7.7 million for the three month period
ended March 31, 1996, as compared to $6.8 million for the same period in
1995. The increases in domestic revenue were principally offset by a
decrease of $4.7 million, or 47%, in revenue from sales of C-band satellite
receivers and related accessories, during the three month period ended March
31, 1996, as compared to the same period in 1995. The increases in domestic
revenue were also partially offset by a decrease of $1.2 million, or 42%, in
revenue from sales of non-proprietary descrambler modules, during the three
month period ended March 31, 1996, as compared to the same period in 1995.
The domestic market for C-band DTH products continued to decline during the
three month period ended March 31, 1996, and this decline will continue with
the growth of DBS service and equipment sales. This decline had been
expected by ESB as described below.
Domestically, ESB sold approximately 45,000 satellite receivers in the
three month period ended March 31, 1996, an increase of 67% as compared to
approximately 27,000 receivers for the same period in 1995. Although there
was an increase in the number of satellite receivers sold in 1996 as
compared to 1995, overall revenue did not increase proportionately as a
result of a substantial shift in product mix to lower priced DBS receivers
and related accessories, and an approximate 23% reduction in the average
selling price of C-band receivers. Included in the number of satellite
receivers sold for the three month period ended March 31, 1996 are
approximately 17,000
14
<PAGE>
EchoStar Receiver Systems. EchoStar Receiver System revenue represented
approximately 20% of total revenue for the three month period ended March 31,
1996.
Also included in the number of satellite receivers sold for the three
month period ended March 31, 1996 are approximately 18,000 Competitor DBS
Receivers as compared to 11,000 for the same period in 1995. During the
three month period ended March 31, 1996, the Competitor DBS Receivers were
sold at an approximate 30% reduction in the average selling price as
compared to the same period in 1995. Competitor DBS Receiver revenue was 19%
of total revenue for the three month period ended March 31, 1996. ESB's
agreement to distribute Competitor DBS Receiver systems terminated on
December 31, 1995 and during the first quarter of 1996, ESB sold the
majority of its existing inventory of Competitor DBS Receivers. The
elimination of Competitor DBS Receiver inventory will be offset by a
substantial increase in inventory of EchoStar Receiver Systems and related
components, the sale of which is expected to offset the elimination of
revenue derived from the sale of Competitor DBS Receivers.
ESB markets its current C-band DTH products by offering competitive
pricing and consumer financing in order to minimize the decline in
domestic C-band DTH sales resulting from the increased popularity of DBS
equipment and programming. Additionally, during all of 1995 and through
the first quarter of 1996, ESB sold Competitor DBS Receivers which partially
offset the decline in domestic C-band sales in 1995. During the three
month period ended March 31, 1996 the decline in sales of C-band DTH
products was more than offset by sales of Competitor DBS Receiver and
EchoStar Receiver Systems. With the elimination of Competitor DBS
Receiver inventory, domestic DTH product revenue in subsequent quarters
will be substantially derived from the sale of EchoStar Receiver Systems
which, although no assurances can be given, should accelerate in the second
quarter as demand for Dish Network-SM- programming increases as a result of
heightened advertising and marketing efforts.
Loan origination and participation income for the three month period
ended March 31, 1996 was $372,000, an increase of $107,000, or 40%,
compared to the same period in 1995. The increase in loan origination
and participation income for the three month period ended March 31, 1996 was
primarily due to increased finance volume, including the financing of
EchoStar Receiver Systems. In the first quarter of 1996, EchoStar formed a
wholly owned subsidiary, DNCC, for the purpose of providing consumer
financing for EchoStar's domestic DTH products and services. At that time,
ESB's subsidiary that previously provided these services ceased new loan
origination activities. In future periods, revenue from loan origination
and participation income will decline.
Programming revenue for the three month period ended March 31, 1996
was $3.9 million, an increase of $42,000, or 1%, as compared to the same
period in 1995. The increase was primarily due to Dish Network-SM- consumer
and commercial programming revenue of $464,000 generated during the three
month period ended March 31, 1996. The increase in revenue derived from
the sale of Dish Network-SM- programming was offset by a decrease in C-band
DTH programming revenue. The industry-wide decline in domestic C-band
equipment sales has resulted, and is expected to continue to result in
a decline in C-band DTH programming revenue. ESB believes that the
expected decline in C-band DTH programming revenue in 1996 will be more than
offset by sales of Dish Network-SM- programming.
Revenue from international sales of DTH products for the three month
period ended March 31, 1996 was $12.8 million, a decrease of $3.0 million,
or 19%, as compared to the same period in 1995. This decrease during the
three month period ended March 31, 1996, resulted principally from reduced
sales to the Middle East where ESB's largest international DTH customer is
based, and an approximate 20% reduction in the average selling price of
analog satellite receivers. This decline was partially offset by increased
sales in Africa. Revenue from sales of DTH products in the Middle East
suffered beginning in August 1995 as a result of restrictions against
imports, and may not return to historic analog levels even as import
restrictions are eased. Historic analog sales levels may not be reached
because of new digital service planned for the Middle East which is
currently expected to begin in the third quarter of 1996. Overall, ESB's
international markets for analog DTH products declined during the three month
period ended March 31, 1996 as anticipation for new digital services
increased. Also, the decrease discussed above was partially offset by an
increase in other DTH product revenue. Internationally, ESB sold
approximately 76,000 analog satellite receivers during the three month
period ended March 31, 1996, a decrease of 11%, compared to approximately
85,000 units sold during the same period in 1995. The decrease was
principally due to international
15
<PAGE>
anticipation of new digital services as discussed above. ESB is currently
negotiating with digital service providers to distribute their proprietary
receivers in ESB's international markets.
OPERATING EXPENSES. Costs of DTH products sold were $32.8 million
for the three month period ended March 31, 1996, an increase of $3.3
million, or 11%, as compared to the same period in 1995. The increase in
DTH operating expenses for 1996 resulted primarily from the increase in
sales of DTH products. Operating expenses for DTH products as a percentage
of DTH product revenue were 89% and 81% for the three month period ended
March 31, 1996 and 1995, respectively. The increase was principally the
result of declining sales prices of C-band DTH products and Competitor DBS
Receivers as described above, during the three month period ended March 31,
1996 as compared to the same period in 1995.
Operating expenses for programming were $3.3 million for the three
month period ended March 31, 1996, a decrease of $149,000, or 4%, as
compared to the same period in 1995. Operating expenses for programming
as a percentage of programming revenue for the three month period ended
March 31, 1996 were 84% as compared to 89% for the same period in 1995.
The decrease in operating expenses for programming as a percentage of
programming revenue for the three month period ended March 31, 1996 was
primarily a result of higher margins earned on Dish Network-SM- programming
partially offset by declining margins on C-band programming.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general
and administrative expenses were $10.6 million for the three month period
ended March 31, 1996, an increase of $2.7 million, or 34%, as compared to
the same period in 1995. Selling, general and administrative expenses as a
percentage of total revenue increased to 26% for the three month period
ended March 31, 1996 as compared to 19% for the same period in 1995. This
increase was principally due to: (i) marketing and advertising prior to and
in conjunction with the introduction of Dish Network-SM- service; (ii)
increased personnel in all areas of the organization to support the Dish
Network-SM-; and (iii) costs related to the Digital Broadcast Center, which
commenced operations in the third quarter of 1995.
Research and development costs totaled $1.2 million for the three month
period ended March 31, 1996, as compared to $1.3 million for the same period
in 1995. The decrease was principally due to the reduction in research
necessary to provide C-band receivers to domestic and international
markets, partially offset by increased research and development costs
related to digital DBS satellite receivers.
EBITDA. EBITDA for the three month period ended March 31, 1996
was a negative $5.6 million, a decrease of $5.3 million compared to the
same period in 1995. The decrease resulted from the factors affecting
revenue and expenses discussed above. EBITDA represents earnings before
interest income, interest expense net of other income, income taxes,
depreciation and amortization. EBITDA is commonly used in the
telecommunications industry to analyze companies on the basis of operating
performance, leverage and liquidity. EBITDA is not intended to represent
cash flows for the period, nor has it been presented as an alternative to
operating income as an indicator of operating performance and should not be
considered in isolation or as a substitute for measures of performance
prepared in accordance with generally accepted accounting principles.
DEPRECIATION. Depreciation for the three month period ended March
31, 1996 was $3.3 million, an increase of $3.0 million, or 817%, as
compared to the same period in 1995. The overall increase primarily
resulted from depreciation on the Digital Broadcast Center and EchoStar
I which were placed in service during the fourth quarter of 1995 and the
first quarter of 1996, respectively.
OTHER INCOME AND EXPENSE. Other expense for the three month period
ended March 31, 1996 was $3.8 million, an increase of $914,000 or 32% as
compared to the same period in 1995. The increase in other expense for
the three month period ending March 31, 1996 resulted primarily from a
reduction in interest income due to an overall decrease for the period in the
1994 Notes Escrow Account, cash and marketable investment securities.
This was partially offset by a decrease in interest expense resulting from
additional interest capitalized in 1996 as compared to the same period in
1995.
PROVISION FOR INCOME TAXES. Income tax benefit for the three month
period ended March 31, 1996 was $5.1 million compared to $1.4 million during
the same period in 1995. This increase is principally the result of changes
16
<PAGE>
in components of income and expenses discussed above during the three month
period ended March 31, 1996. ESB's deferred tax assets (approximately
$17.1 million at March 31, 1996) relate principally to temporary differences
for amortization of original issue discount on the 1994 and 1996 Notes and
various accrued expenses which are not deductible until paid. No
valuation allowance has been provided because ESB currently believes it
is more likely than not that these deferred assets will ultimately be
realized. If future operating results differ materially and adversely
from ESB's current expectations, its judgment regarding the need for a
valuation allowance may change.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows used by operations were $138,000 for the three month
period ended March 31, 1996 as compared to $3.8 million used by operations
for the same period in 1995. Cash used by operations for the three month
period ended March 31, 1996 was mainly a result of advances to affiliates
for construction and launch of EchoStar III partially offset by deferred
programming revenue received related to the Dish Network-SM- and the sale of
the majority of Competitor DBS Receiver inventory. ESB expects any declines
in inventory to be offset by substantial increases in EchoStar Receiver
System inventory and related components. The anticipated increase in
inventory is expected to negatively affect cash flow in the short term.
However, as EchoStar builds its Dish Network-SM- subscriber base, the
negative affect on cash flow should be offset by an increase in revenue
attributable to sales of EchoStar Receiver Systems and Dish Network-SM-
programming. In the event subscriptions to Dish Network-SM- programming do
not meet anticipated levels, the negative affect on cash flow will continue.
Certain subsidiaries of EchoStar are parties to a credit facility (the
"Credit Facility") with Bank of America Illinois. The Credit Facility
expired in May 1996 and EchoStar does not currently intend to arrange a
replacement credit facility. Instead, EchoStar is using available cash to
collateralize its letter of credit obligations, which historically was the
only significant use of the Credit Facility. At March 31, 1996, EchoStar
had cash collateralized $15.5 million of certain standby letters of credit
for trade purchases which is included in restricted cash and marketable
securities in the accompanying balance sheet.
During June 1994, Dish, Ltd. issued 624,000 units consisting of $624.0
million principal amount of the 1994 Notes and 3,744,000 Warrants
(representing 2,808,000 shares of EchoStar Class A Common Stock) for
aggregate net proceeds of approximately $323.3 million, which were placed in
the 1994 Escrow Account. Through March 31, 1996, $276.8 million had been
withdrawn from the 1994 Escrow Account. Of that amount, $28.3 million was to
reimburse ESB for monies expended for the construction and launch of
EchoStar I and EchoStar II prior to June 7, 1994, and will be reinvested
in development of the EchoStar DBS System. At March 31, 1996,
approximately $251.9 million of these proceeds had been applied to
development and construction of the EchoStar DBS System and approximately
$24.9 million had been applied to other permitted uses. As of March 31,
1996, approximately $63.6 million remained in the 1994 Escrow Account,
which included investment earnings.
In March 1996, ESB consummated a private placement of the 1996 Notes.
ESB was formed in January 1996 for the purpose of the 1996 Notes Offering.
EchoStar has contributed all of the outstanding capital stock of its
wholly owned subsidiary, Dish, Ltd., to ESB. ESB issued 580,000 notes
consisting of $580.0 million principal amount of the 1996 Notes for
aggregate net proceeds of approximately $337.0 million of which $177.3
million was placed in the 1996 Escrow Account and the remaining $159.7
million is included in cash and cash equivalents in the accompanying
balance sheet at March 31, 1996. Through March 31, 1996, $7.5 million
had been withdrawn from the 1996 Escrow Account for development and
construction of the EchoStar DBS System. As of March 31, 1996,
approximately $170.0 million remained in the 1996 Escrow Account, which
included investment earnings. Total cash on hand and marketable investment
securities at March 31, 1996 were approximately $162.9 million.
Based upon existing cash resources and expected revenue and expenses,
exclusive of Dish Network-SM- marketing expenses, EchoStar anticipates
requiring an additional $40.0 million in working capital in 1996 related
to operations and the development of the EchoStar DBS System. This cash
requirement could increase if subscribers are not added as planned or
expenses, including subsidization of EchoStar Receiver Systems, exceed
present estimates. Additionally, in 1996, EchoStar has expended or
expects to expend: (i) approximately $125.3 million
17
<PAGE>
in connection with the launch of EchoStar II and EchoStar III; (ii)
approximately $46.7 million for launch insurance on EchoStar II and
EchoStar III; (iii) approximately $52.5 million for construction of
EchoStar III and EchoStar IV; (iv) approximately $8.0 million for
in-orbit payments to Martin Marietta on EchoStar I and EchoStar II; (v)
approximately $52.3 million for the purchase of DBS frequencies at 148 WL;
(vi) $10.4 million for other 1994 Escrow related expenditures related to
development of the EchoStar DBS System; and (vii) up to $95.0 million for the
introduction, product marketing and other operating expenses for the Dish
Network-SM-. Funds for these expenditures, as well as proposed
expenditures beyond 1996 related to costs expected to be incurred in
connection with the construction and launch of EchoStar's first four
satellites, in an approximate amount of $235.0 million, are expected to
come from the 1996 Notes Escrow Account, the 1994 Notes Escrow Account and
available cash and marketable investment securities. However, in order to
continue development of the third and fourth satellites beyond the third
quarter in 1997, additional capital will be required. There are no
assurances that additional capital will be available, or, if available, that
it will be available on terms favorable to EchoStar.
In addition to the commitments described above, ESB has entered
into agreements to purchase DBS satellite receivers and related
components for the EchoStar DBS System. As of March 31, 1996 those
purchase order commitments totaled as much as $622.2 million. At March 31,
1996, the total of all outstanding purchase order commitments with
domestic and foreign suppliers was as much as $641.3 million. All
but approximately $85.9 million of the purchases related to these
commitments are expected to be made during 1996 and the remainder is expected
to be made during 1997. EchoStar expects to finance these commitments from
available cash, marketable investment securities and sales of inventory,
including the sale of EchoStar Receiver Systems and related products.
In the event price and marketing competition intensifies among DBS and
other "small dish" operators, EchoStar may be at a competitive disadvantage
as a result of its limited financial resources, and would be required to
raise additional capital during 1996 if DBS hardware subsidizations
increase significantly. EchoStar had outstanding $415.7 million and
$778.6 million of long-term debt (including the 1994 and 1996 Notes,
deferred satellite contract payments on EchoStar I and mortgage debt)
as of December 31, 1995 and March 31, 1996, respectively. In addition,
because interest on the 1994 Notes is not payable currently in cash but
accretes through June 1, 1999, the 1994 Notes will increase by $241.8
million through that date. Also, because interest on the 1996 Notes is
not payable in cash but accretes through March 15, 2000, the 1996 Notes
will increase by $230.0 million through that date. Contractor financing of
$28.0 million is available for EchoStar II. Interest on the contractor
financing is at the prime rate and principal payments are payable in equal
monthly installments over five years following the launch of the satellite.
AVAILABILITY OF OPERATING CASH FLOW TO ECHOSTAR
The 1994 and 1996 Notes Indentures impose various restrictions on the
transfer of funds among EchoStar and its subsidiaries. Although the 1996
Notes are collateralized by the stock of Dish, Ltd., various assets expected
to form an integral part of the EchoStar DBS System (and not otherwise
encumbered by the 1994 Notes Indenture), and guarantees of EchoStar and
certain of its other subsidiaries, ESB's ability to fund interest and
principal payments on the 1996 Notes will depend on successful operation of
the Dish Network-SM- and ESB having access to available cash flows
generated by the Dish Network-SM-. If cash available to ESB is not
sufficient to service the 1996 Notes, EchoStar would be required to
obtain cash from other sources such as assetsales, issuance of equity
securities, or new borrowings. There can be no assurance that those
alternative sources would be available, or available on favorable terms, or
sufficient to meet debt service requirements on the 1996 Notes.
ASSETS OF PRINCIPAL GUARANTORS
EchoStar guarantees the 1996 Notes on a subordinated basis.
EchoStar's Equity Offering resulted in net proceeds of approximately $63.0
million. EchoStar's assets at March 31, 1996 included assets purchased
with those proceeds and cash remaining from the Equity Offering.
Substantially all of the proceeds from the Equity Offering were used: (i) to
secure launches for a third and fourth satellite; (ii) to support, through
loans to DBSC, construction of a third satellite; (iii) to purchase, for
$4.0 million, convertible subordinated secured debentures from DBS
18
<PAGE>
Industries, Inc.; and (iv) for general corporate purposes, including the
down payment, for DBS frequencies purchased at 148DEG. WL at the FCC
Auction in January 1996, which will be reimbursed with the proceeds of the
1996 Notes Offering.
OTHER
1994 AND 1996 NOTES
EchoStar I was successfully launched by Great Wall in December 1995.
In the event of a launch failure of EchoStar II, Dish, Ltd. would first be
required under the 1994 Notes Indenture to make an offer to repurchase
one-half of the then accreted value of the 1994 Notes. In the event that
EchoStar does not have the right to use orbital slot authorizations granted
by the FCC covering a minimum of 21 transponders at a single full CONUS
orbital slot, ESB and Dish, Ltd. will be required to make an offer to
repurchase all or a portion of the outstanding 1996Notes and 1994 Notes,
respectively. Additionally, in the event that EchoStar DBS Corporation, a
wholly owned subsidiary of EchoStar, fails to obtain authorization from the
FCC for frequencies purchased at the FCC Auction in January 1996, or in the
event that such authorization is revoked or rescinded, ESB will be required
under the 1996 Notes Indenture to repurchase the maximum principal amount
of the 1996 Notes that may be purchased with the proceeds of any
refund received from the FCC.
If the DBSC Merger or similar transaction does not occur on or before
March 1, 1997, ESB will be required to repurchase at least $83.0 million
principal amount of the 1996 Notes. Further, in the event that EchoStar
incurs more than $7.8 million in expenses (as defined in the 1996 Notes
Indenture) in connection with the DBSC Merger, ESB will be required to
apply an amount equal to such expenses minus $7.8 million to an offer to
repurchase the maximum principal amount of the 1996 Notes that may be
purchased out of such proceeds.
If any of the above described events were to occur, EchoStar's
plan of operations, including its liquidity, would be adversely affected
and its current business plan could not be fully implemented. Further,
EchoStar's short-term liquidity would be adversely affected in the event of:
(i) significant delay in the delivery of certain products and equipment
necessary for operation of the EchoStar DBS System; (ii) shortfalls in
estimated levels of operating cash flows; or (iii) unanticipated
expenses in connection with development of the EchoStar DBS System.
RECEIVER MANUFACTURERS
ESB has agreements with two manufacturers to supply the receiver
component of EchoStar Receiver Systems. To date, only one of the
manufacturers has produced a receiver acceptable to ESB, and that
manufacturer is presently manufacturing receivers in quantities sufficient to
meet expected demand. No assurances can be given that ESB's other
manufacturer will be able to produce an acceptable receiver in the future.
In the event the other manufacturer is unable to produce a receiver to ESB,
ESB could be dependent on one manufacturing source for its receivers. To
date, ESB has paid this manufacturer $10.0 million and has an additional
$15.0 million in an escrow account as security for ESB's payment obligations
under the contract.
19
<PAGE>
EFFECTS OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standards No. 121, "Accounting for Impairment Of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" ("SFAS No.
121"). EchoStar has adopted SFAS No. 121 in the first quarter of 1996 and
its adoption has not had a material impact on EchoStar's financial position,
results of operations or cash flows.
Statement of Financial Accounting Standards No. 123 "Accounting
for Stock-Based Compensation" ("SFAS No. 123"), issued by FASB in
October 1995 and effective for fiscal years beginning after December 15,
1995, encourages, but does not require, a fair value based method of
accounting for employee stock options or similar equity instruments. It
also allows an entity to elect to continue to measure compensation cost
under Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" ("APB No. 25"), but requires pro forma disclosures of
net income and earnings per share as if the fair value based method of
accounting had been applied. EchoStar has adopted SFAS No. 123 in the first
quarter of 1996 and has elected to continue to measure compensation cost
under APB No. 25 and to comply with the pro forma disclosure requirements.
Therefore, this statement has had no impact on EchoStar's results of
operations.
IMPACT OF INFLATION; BACKLOG
Inflation has not materially affected EchoStar's operations during
the past three years. EchoStar believes that its ability to increase
charges for products and services in future periods will depend primarily
on competitive pressures. EchoStar does not have any material backlog of
its products.
PART II
ITEM 1. LEGAL PROCEEDINGS
EchoStar is a party to certain legal proceedings arising in the
ordinary course of its business. EchoStar does not believe that any of
these proceedings will have a material adverse affect on EchoStar's financial
position or results of operations.
20
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
Exhibit No. Description
2.1* Amended and Restated Agreement for Exchange of Stock and Merger,
dated as of May 31, 1995, by and among EchoStar Communications
Corporation, a Nevada corporation formed in April 1995
("EchoStar"), Charles W. Ergen and EchoStar (incorporated herein
by reference to Exhibit 2.2 to the Registration Statement
Form S-1, Registration No. 33-91276).
2.2* Agreement regarding purchase of debentures between Dish, Ltd.
(formerly EchoStar Communications Corporation, a Nevada
corporation formed in December 1993 ("Dish")), SSE Telecom,
Inc. ("SET"), dated March 14, 1994, including Plan and Agreement
of Merger, by and among Dish, DirectSat Merger Corporation,
DirectSat Corporation and SET (incorporated herein by reference
to Exhibit 2.2 to the Registration Statement on Form S-1,
Registration No. 33-76450).
3.1(a)* Articles of Incorporation of EchoStar Satellite Broadcasting
Corporation ("ESB") (incorporated herein by reference to
Exhibit 3.1(a) to the Registration Statement Form S-1, Registration
No. 333-3980).
3.1(b)* Bylaws of ESB (incorporated herein by reference to Exhibit 3.1(f)
to the Registration Statement on Form S-1, Registration
No. 333-3980).
4.1* Indenture of Trust between Dish and First Trust National
Association ("First Trust"), as Trustee (incorporated herein
by reference to the Registration Statement on Form S-1 of Dish,
Registration No. 33-76450).
4.2* Warrant Agreement between EchoStar and First Trust, as Warrant
Agent (incorporated herein by reference to the Registration
Statement on Form S-1 of Dish, Registration No. 33-76450).
4.3* Security Agreement in favor of First Trust, as Trustee under the
Indenture filed as Exhibit 4.1 (incorporated herein by reference
to the Registration Statement on Form S-1 of Dish, Registration
No. 33-76450).
4.4* Escrow and Disbursement Agreement between Dish and First Trust
(incorporated herein by reference to the Registration Statement on
Form S-1 of Dish, Registration No. 33-76450).
4.5* Pledge Agreement in favor of First Trust, as Trustee under the
Indenture filed as Exhibit 4.1 herein (incorporated herein by
reference to the Registration Statement on Form S-1 of Dish,
Registration No. 33-76450).
4.6* Intercreditor Agreement among First Trust, Continental Bank, N.A.
and Martin Marietta Corporation ("Martin Marietta") (incorporated
herein by reference to the Registration Statement on Form S-1 of
Dish, Registration No. 33-76450).
4.7* Series A Preferred Stock Certificate of Designation of EchoStar
(incorporated herein by reference to Exhibit 4.7 to the
Registration Statement on Form S-1 of EchoStar, Registration
No. 33-91276).
4.8* Registration Rights Agreement by and between EchoStar and
Charles W. Ergen (incorporated herein by reference to
Exhibit 4.8 to the Registration Statement on Form S-1 of EchoStar,
Registration No. 33-91276).
21
<PAGE>
Exhibit No. Description
- ----------- ------------
4.9* Indenture of Trust between ESB and First Trust, as Trustee
(incorporated herein by reference to Exhibit 4.9 to the Annual
Report on Form 10-K of EchoStar, Commission File No. 0-26176).
4.10* Security Agreement of ESB in favor of First Trust, as Trustee
under the Indenture filed as Exhibit 4.9 (incorporated herein
by reference to Exhibit 4.10 to the Annual Report on Form 10-K
of Echostar. Commission File No. 0-26176).
4.11* Escrow and Disbursement Agreement between ESB and First Trust
(incorporated herein by reference to Exhibit 4.11 to the Annual
Report on Form 10-K of EchoStar. Commission File No. 0-26176).
4.12* Pledge Agreement of ESB in favor of First Trust, as Trustee under
the Indenture filed as Exhibit 4.9 (incorporated herein by
reference to Exhibit 4.12 to the Annual Report on Form 10-K of
EchoStar, Commission File No. 0-26176).
4.13* Pledge Agreement of EchoStar in favor of First Trust, as Trustee
under the Indenture filed as Exhibit 4.9 (incorporated herein by
reference to Exhibit 4.13 to the Annual Report on Form 10-K of
EchoStar, Commission File No. 0-26176).
4.15* Registration Rights Agreement by and between ESB, EchoStar,
Dish, Ltd., New DBSC and Donald, Lufkin & Jenrette Securities
Corporation (incorporated herein by reference to Exhibit 4.14
to the Annual Report on Form 10-K of EchoStar, Commission
File No. 0-26176).
10.1(a)* Satellite Construction Contract, dated as of February 6, 1990,
between EchoStar Satellite Corporation ("ESC") and Martin
Marietta Corporation as successor to General Electric EchoStar,
Astro-Space Division ("General Electric") (incorporated herein by
reference to the Registration Statement on Form S-1 of Dish, Ltd.
Registration No. 33-76450).
10.1(b)* First Amendment to the Satellite Construction Contract, dated as
of October 2, 1992, between ESC and Martin Marietta as successor
to General Electric (incorporated herein by reference to the
Registration Statement on Form S-1 of Dish, Ltd. Registration
No. 33-76450).
10.1(c)* Second Amendment to the Satellite Construction Contract, dated as
of October 30, 1992, between ESC and Martin Marietta as
successor to General Electric (incorporated herein by reference
to the Registration Statement on Form S-1 of Dish, Ltd.
Registration No. 33-76450).
10.1(d)* Third Amendment to the Satellite Construction Contract, dated as of
April 1, 1993, between ESC and Martin Marietta (incorporated
herein by reference to the Registration Statement on Form S-1
of Dish, Ltd. Registration No. 33-76450).
10.1(e)* Fourth Amendment to the Satellite Construction Contract, dated as
of August 19, 1993, between ESC and Martin Marietta (incorporated
herein by reference to the Registration Statement on Form S-1 of
Dish, Ltd. Registration No. 33-76450).
10.1(f)* Form of Fifth Amendment to the Satellite Construction Contract,
between ESC and Martin Marietta (incorporated herein by reference
to the Registration Statement on Form S-8 of EchoStar, Registration
No. 33-81234).
10.1(g)* Sixth Amendment to the Satellite Construction Contract, dated as of
June 7, 1994, between ESC and Martin Marietta (incorporated
herein by reference to the Registration Statement on Form S-8 of
EchoStar, Registration No. 33-81234).
22
<PAGE>
Exhibit No. Description
- ----------- ------------
10.2* Satellite Launch Contract, dated as of September 27, 1993, between
ESC and the China Great Wall Industry Corporation (incorporated
herein by reference to the Registration Statement on Form S-1 of
Dish, Ltd. Registration No. 33-76450).
10.3* Distributor Agreement, dated as of July 30, 1993, between
Echosphere Corporation ("Echosphere") and Thomson Consumer
Electronics, Inc. (incorporated herein by reference to the
Registration Statement on Form S-1 of Dish, Ltd. Registration
No. 33-76450).
10.4* Master Purchase and License Agreement, dated as of August 12, 1986,
between Houston Tracker Systems, Inc. ("HTS") and Cable/Home
Communications Corp. (a subsidiary of General Instruments
Corporation) (incorporated herein by reference to the Registration
Statement on Form S-1 of Dish, Ltd. Registration No. 33-76450).
10.5* Master Purchase and License Agreement, dated as of June 18, 1986,
between Echosphere and Cable/Home Communications Corp. (a
subsidiary of General Instruments Corporation) (incorporated
herein by reference to the Registration Statement on Form S-1 of
Dish, Ltd. Registration No. 33-76450).
10.6* Merchandising Financing Agreement, dated as of June 29, 1989,
between Echo Acceptance Corporation ("EAC") and Household Retail
Services, Inc. (incorporated herein by reference to the
Registration Statement on Form S-1 of Dish, Ltd. Registration
No. 33-76450).
10.7* Key Employee Bonus Plan, dated as of January 1, 1994 (incorporated
herein by reference to the Registration Statement on Form S-1 of
Dish, Ltd. Registration No. 33-76450).
10.8* Consulting Agreement, dated as of February 17, 1994, between ESC
and Telesat Canada (incorporated herein by reference to the
Registration Statement on Form S-1 of Dish, Ltd. Registration
No. 33-76450).
10.9* Form of Satellite Launch Insurance Declarations (incorporated
herein by reference to the Registration Statement on Form S-1
of Dish, Ltd. Registration No. 33-76450).
10.10* Dish 1994 Stock Incentive Plan (incorporated herein by reference
to the Registration Statement on Form S-1 of Dish, Ltd.
Registration No. 33-76450).
10.11* Form of Tracking, Telemetry and Control Contract between AT&T
Corp. and ESC (incorporated herein by reference to the Registration
Statement on Form S-8 of EchoStar, Registration No. 33-81234).
10.12* Manufacturing Agreement, dated as of March 22, 1995, between
HTS and SCI Technology (incorporated herein by reference to
Exhibit 10.12 to the Registration Statement as Form S-1 of Dish,
Ltd. Commission File No. 33-81234).
10.13* Manufacturing Agreement dated as of April 14, 1995 by and between
ESC and Sagem Group (incorporated herein by reference to
Exhibit 10.13 to the Registration Statement on Form S-1 of
EchoStar, Registration No. 33-91276).
10.14* Statement of Work, dated January 31, 1995 from EchoStar Satellite
Corporation Inc. to Divicom Inc. (incorporated herein by reference
to Exhibit 10.14 to the Registration Statement on Form S-1,
Registration No. 33-91276).
23
<PAGE>
Exhibit No. Description
- ----------- -----------
10.15* Launch Services Contract, dated as of June 2, 1995, by and
between EchoStar Satellite Corporation and
Lockheed-Khrunichev-Energia International, Inc. (incorporated
herein by reference to Exhibit 10.15 to the Registration Statement
on Form S-1, Registration No. 33-91276).
10.16* EchoStar 1995 Stock Incentive Plan (incorporated herein by
reference to Exhibit 10.16 to the Registration Statement on
Form S-1, Registration No. 33-91276).
27 Financial Data Schedule
______________________
* Incorporated by reference pursuant to Rule 12D-32 under the Securities and
Exchange Act of 1934, as amended.
(b) REPORTS ON FORM 8-K.
No current reports on Form 8-K were filed by EchoStar during the period
covered by this Quarterly Report on Form 10-Q.
24
<PAGE>
SIGNATURES
Pursuant to the requirement 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 Satellite Broadcasting Corporation
Date: May 13, 1996 /s/ Steven B. Schaver
----------------------------------------------
Steven B. Schaver
Vice President, and Chief Financial Officer
/s/ Steven B. Schaver
-----------------------------------------------
Steven B. Schaver
Principal Financial Officer
25
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
ACCOMPANYING CONSOLIDATED BALANCE SHEET OF ECHOSTAR SATELLITE BROADCASTING
CORPORATION AND SUBSIDIARIES AS OF MARCH 31, 1996 AND THE RELATED CONSOLIDATED
STATEMENTS OF INCOME AND CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 1996
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THOSE FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 162,651
<SECURITIES> 212
<RECEIVABLES> 22,245
<ALLOWANCES> (1,616)
<INVENTORY> 27,298
<CURRENT-ASSETS> 232,493
<PP&E> 346,810
<DEPRECIATION> (13,579)
<TOTAL-ASSETS> 899,357
<CURRENT-LIABILITIES> 31,916
<BONDS> 783,427
0
0
<COMMON> 0
<OTHER-SE> 85,007
<TOTAL-LIABILITY-AND-EQUITY> 899,357
<SALES> 40,654<F1>
<TOTAL-REVENUES> 41,026
<CGS> 36,033<F2>
<TOTAL-COSTS> 49,934
<OTHER-EXPENSES> 3,811
<LOSS-PROVISION> 610
<INTEREST-EXPENSE> 5,784
<INCOME-PRETAX> (12,719)
<INCOME-TAX> 5,065
<INCOME-CONTINUING> (7,654)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,654)
<EPS-PRIMARY> (7,654)
<EPS-DILUTED> (7,654)
<FN>
<F1> INCLUDES SALES OF PROGRAMMING.
<F2> INCLUDES THE COST OF PROVIDING PROGRAMMING.
</FN>
</TABLE>
