_____________________________________________________________________________
UNITED STATES
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 SEPTEMBER 30, 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 333-31929
EchoStar DBS Corporation
(Exact Name of Registrant as Specified in its Charter)
Colorado 84-1328967
(State or Other Jurisdiction (I.R.S. Employer Identification No.)
of 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 November 11, 1999, Registrant's outstanding common stock consisted
of 1,000 shares of Common Stock.
The Registrant meets the conditions set forth in General Instruction
(H)(1)(a) and (b) of Form 10-Q and is therefore filing this Form 10-Q with the
reduced disclosure format.
_____________________________________________________________________________
<PAGE>
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
December 31, 1998 and September 30, 1999
(Unaudited).............................................. 1
Condensed Consolidated Statements of
Operations for the three and nine months
ended September 30, 1998 and 1999 (Unaudited)............ 2
Condensed Consolidated Statements of Cash
Flows for the nine months ended
September 30, 1998 and 1999 (Unaudited).................. 3
Notes to Condensed Consolidated Financial
Statements (Unaudited)................................... 4
Item 2. Management's Narrative Analysis of Results of
Operations............................................... 12
Item 3. Quantitative and Qualitative Disclosures About
Market Risk.............................................. None
PART II OTHER INFORMATION
Item 1. Legal Proceedings......................................... 20
Item 2. Changes in Securities and Use of Proceeds................. *
Item 3. Defaults Upon Senior Securities........................... *
Item 4. Submission of Matters to a Vote of Security Holders....... *
Item 5. Other Information......................................... None
Item 6. Exhibits and Reports on Form 8-K.......................... 22
___________________________
* This item has been omitted pursuant to the reduced disclosure format as set
forth in General Instruction (H)(1)(a) and (b) of Form 10-Q.
<PAGE>
ECHOSTAR DBS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
December 31, September 30,
1998 1999
___________________________________
Assets (Unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents........... $ 25,308 $ 74,195
Marketable investment securities.... 7,000 35,504
Trade accounts receivable, net of
allowance for uncollectible
accounts of $2,996 and $2,627,
respectively....................... 107,743 150,688
Insurance receivable................ - 106,000
Inventories......................... 76,708 89,538
Other current assets................ 24,823 31,515
____________________________
Total current assets.................... 241,582 487,440
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............. 853,818 1,332,126
FCC authorizations, net................. 103,266 725,431
Deferred tax assets..................... 60,638 63,801
Other noncurrent assets................. 27,212 30,486
____________________________
Total assets..................... $1,470,173 $2,639,284
============================
Liabilities and Stockholder's Equity (Deficit)
Current Liabilities:
Trade accounts payable.............. $ 90,562 $ 139,556
Deferred revenue.................... 132,857 160,596
Accrued expenses.................... 176,158 269,946
Advances from affiliates, net....... 54,805 257,316
Current portion of long-term debt... 22,679 20,832
____________________________
Total current liabilities............... 477,061 848,246
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 28,278
Notes payable to ECC, including
accumulated interest............... 59,812 -
Long-term deferred satellite
services revenue and other
long-term liabilities.............. 33,358 58,335
_____________________________
Total long-term obligations, net of
current portion........................ 1,581,249 2,089,228
_____________________________
Total liabilities................ 2,058,310 2,937,474
Commitments and Contingencies (Note 8)
Stockholder's Equity (Deficit):
Common Stock, $.01 par value, 1,000
shares authorized, issued and
outstanding........................ - -
Additional paid-in capital.......... 145,164 1,269,484
Accumulated deficit................. (733,301) (1,567,674)
_____________________________
Total stockholder's equity (deficit).... (588,137) (298,190)
_____________________________
Total liabilities and
stockholder's equity (deficit).. $1,470,173 $2,639,284
=============================
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
1
<PAGE>
ECHOSTAR DBS CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands)
(Unaudited)
<TABLE>
Three Months Ended Nine Months Ended
September 30, September 30,
___________________ __________________
1998 1999 1998 1999
___________________ __________________
<S> <C> <C> <C> <C>
Revenue:
DISH Network:
Subscription television
services................... $ 179,472 $ 356,439 $ 459,540 $ 923,263
Other....................... 1,674 2,116 11,096 6,624
_____________________ ___________________
Total DISH Network............ 181,146 358,555 470,636 929,887
DTH equipment sales and
integration services......... 43,921 49,348 190,787 105,856
Satellite services............ 5,436 12,793 15,805 30,113
C-band and other.............. 6,253 9,685 19,716 24,598
_____________________ ___________________
Total revenue................... 236,756 430,381 696,944 1,090,454
Costs and Expenses:
DISH Network Operating Expenses:
Subscriber-related
expenses................... 77,520 158,144 210,717 403,161
Customer service center
and other.................. 19,539 31,778 45,641 81,153
Satellite and transmission.. 7,013 10,088 17,725 30,393
_____________________ ___________________
Total DISH Network operating
expenses..................... 104,072 200,010 274,083 514,707
Cost of sales DTH equipment
and integration services..... 30,050 35,243 131,050 77,189
Cost of sales C-band and
other........................ 3,331 4,436 12,555 11,870
Marketing:
Subscriber promotion
subsidies.................. 60,295 184,475 165,123 461,302
Advertising and other....... 8,107 19,731 25,694 40,360
_____________________ ___________________
Total marketing expenses...... 68,402 204,206 190,817 501,662
General and administrative.... 24,370 39,199 66,836 98,643
Amortization of subscriber
acquisition costs............ 1,964 - 18,819 -
Depreciation and
amortization................. 21,773 26,910 58,778 76,728
_____________________ ___________________
Total costs and expenses........ 253,962 510,004 752,938 1,280,799
_____________________ ___________________
Operating loss.................. (17,206) (79,623) (55,994) (190,345)
Other Income (Expense):
Interest income............... 2,021 2,788 8,172 10,834
Interest expense, net of
amounts capitalized.......... (45,563) (48,223) (122,219) (147,616)
Other......................... 108 (1,453) (699) (9,816)
______________________ __________________
Total other income (expense).... (43,434) (46,888) (114,746) (146,598)
______________________ __________________
Loss before income taxes........ (60,640) (126,511) (170,740) (336,943)
Income tax provision, net....... 63 (21) (220) (109)
______________________ __________________
Net loss before extraordinary
charges........................ (60,577) (126,532) (170,960) (337,052)
Extraordinary charge for
early retirement of debt,
net of tax..................... - - - (228,733)
______________________ __________________
Net loss........................ $ (60,577) $ (126,532) $(170,960) $(565,785)
====================== ==================
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
2
<PAGE>
ECHOSTAR DBS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
Nine Months Ended September 30,
_______________________________
1998 1999
_______________________________
<S> <C> <C>
Cash Flows From Operating Activities:
Net loss.................................. $(170,960) $ (565,785)
Adjustments to reconcile net loss to net
cash flows from operating activities:
Extraordinary charge for early
retirement of debt.................... - 228,733
Loss on disposal of assets............. - 9,770
Non-cash deferred compensation......... - 5,983
Depreciation and amortization.......... 58,778 76,728
Amortization of subscriber
acquisition costs..................... 18,819 -
Interest on notes payable to ECC
added to principal.................... 3,900 330
Amortization of debt discount and
deferred financing costs.............. 89,455 12,621
Change in reserve for excess and
obsolete inventory.................... 374 (409)
Change in long-term deferred satellite
services revenue and other long-term
liabilities........................... 8,454 24,977
Changes in current assets and
current liabilities................... (48,888) 102,442
____________________________
Net cash flows from operating activities.. (40,068) (104,610)
Cash Flows From Investing Activities:
Purchases of marketable investment
securities............................... (3,969) (181,148)
Sales of marketable investment
securities............................... 5,868 152,644
Funds released from escrow and
restricted cash and marketable
investment securities.................... 116,468 77,657
Investment earnings placed in escrow...... (5,269) -
Purchases of property and equipment....... (133,807) (63,338)
Other..................................... 1,400 (225)
_____________________________
Net cash flows from investing
activities............................... (19,309) (14,410)
Cash Flows From Financing Activities:
Advances from affiliates.................. 51,689 202,511
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................................ - (233,721)
Retirement of 1994 Notes................. - (575,674)
Retirement of 1996 Notes................. - (501,350)
Retirement of 1997 Notes................. - (378,110)
Capital contribution to ECC.............. - (268,588)
Repayment of notes payable to ECC........ - (60,142)
Repayments of mortgage indebtedness
and notes payable....................... (12,070) (17,019)
______________________________
Net cash flows from financing
activities.............................. 39,619 169,907
______________________________
Net (decrease) increase in cash and
cash equivalents........................ (19,758) 48,887
Cash and cash equivalents, beginning
of period............................... 62,059 25,308
______________________________
Cash and cash equivalents, end
of period............................... $ 42,301 $ 74,195
==============================
Supplemental Disclosure of Cash Flow
Information:
Capitalized interest, including amounts
due from affiliates.................. $ 21,619 $ -
Contribution of satellite asset....... 20,000 -
Satellite vendor financing............ 12,950 -
Assets acquired from News Corporation
and MCI:
FCC licenses and other.............. - 626,120
Satellites.......................... - 451,200
Digital broadcast operations
center............................. - 47,000
Capital contribution from ECC......... - 1,124,320
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
3
<PAGE>
ECHOSTAR DBS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Organization and Business Activities
Principal Business
EchoStar DBS Corporation ("DBS Corp," or the "Company"), is a wholly-owned
subsidiary of EchoStar Communications Corporation ("ECC" and together with its
subsidiaries "EchoStar"), a publicly traded company on the Nasdaq National
Market. During March 1999, EchoStar received approval from the Federal
Communications Commission ("FCC") to reorganize certain of its direct and
indirect wholly-owned subsidiaries in order to streamline its organization and
operations. During the first quarter of 1999, EchoStar placed ownership of
all of its direct broadcast satellites and related FCC licenses into EchoStar
Satellite Corporation ("ESC"). DirectSat Corporation, Direct Broadcasting
Satellite Corporation ("DBSC") and EchoStar Space Corporation ("Space") were
merged into ESC. Dish, Ltd., and EchoStar Satellite Broadcasting Company
("ESBC") were merged into the Company. EchoStar IV and the related FCC
licenses were transferred to ESC. The accompanying financial statements
retroactively reflect this reorganization.
Unless otherwise stated herein, or the context otherwise requires,
references herein to EchoStar shall include ECC, DBS Corp and all direct and
indirect wholly-owned subsidiaries thereof. DBS Corp's management refers
readers of this Quarterly Report on Form 10-Q to EchoStar's Quarterly Report
on Form 10-Q for the nine months ended September 30, 1999. Substantially all
of EchoStar's operations are conducted by subsidiaries of DBS Corp. The
operations of EchoStar include three interrelated business units:
* The DISH Network a direct broadcast satellite ("DBS") subscription
television service in the United States. As of September 30, 1999,
EchoStar had approximately 3.0 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," "EchoStar IV," and "EchoStar V"), digital satellite receivers, digital
broadcast operations centers, 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.
4
<PAGE>
ECHOSTAR DBS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
Recent Developments
On June 24, 1999, EchoStar acquired certain high-power DBS assets from
The News Corporation Limited ("News Corporation") and MCI Telecommunications
Corporation/WorldCom ("MCI") in exchange for shares of its Class A common
stock (the "110 Acquisition). The primary assets acquired by EchoStar from
News and MCI in the transaction are:
* the rights to 28 DBS frequencies at the 110 degrees West Longitude
("WL") orbital location;
* two DBS satellites ("EchoStar V" and "EchoStar VI") to be delivered
in-orbit (including construction, launch and insurance costs),
EchoStar V was launched from Cape Canaveral, Florida on September
23, 1999 and EchoStar VI is currently expected to be launched in
the second quarter of 2000;
* a recently-constructed digital broadcast operations center located
in Gilbert, Arizona;
* a worldwide license from NDS Limited to use certain technology in
connection with the manufacture and distribution of set-top boxes
intended for use with the services of certain network operators; and
* a three-year retransmission consent agreement for the DISH Network
to rebroadcast FOX Broadcasting Company's local station signals in
those markets where FOX owns the local affiliate.
Beneficial interest in the assets and rights acquired by EchoStar in the
110 Acquisition were transferred to the Company promptly after closing.
EchoStar V was successfully launched on September 23, 1999, from Cape
Canaveral, Florida and has reached its final orbit at 110 degrees WL. The solar
panels were successfully deployed a few hours after launch and the
communication antennas were successfully deployed, as expected. During in-
orbit testing of EchoStar V, minor anomalies have been detected which are not
expected to affect service. Assuming successful completion of final in-orbit
testing, EchoStar V is expected to commence commercial service during November
1999.
On November 2, 1999, EchoStar entered into an exclusive multi-year
agreement with Superstar/Netlink Group ("Superstar"), a subsidiary of TV
Guide, Inc., to convert its 1,400,000 current and inactive C-band subscribers
to EchoStar's DBS services. Under the terms of the agreement, Superstar will
actively solicit its C-band subscribers to convert to EchoStar's DBS services
and will not provide its subscriber lists to cable providers or other DBS
providers. In exchange, on or before December 2, 1999, EchoStar will pay
Superstar a $10,000,000 exclusivity fee. In addition, EchoStar will pay
Superstar a commission of $250 for each of their active subscribers that
converts to EchoStar's services and subscribes to DISH Network programming for
at least 12 months following conversion, plus a monthly fee for a period of up
to five years after conversion, so long as the subscriber purchases at least
$19.99 of DISH Network programming per month. For each inactive Superstar
subscriber that converts and subscribes to DISH Network programming for at
least 12 months, EchoStar will pay Superstar a $100 commission and no monthly
fee. To encourage conversion, Echostar will provide its dish system equipment
and installation free to each converting Superstar subscriber. EchoStar will
also provide approximately $50 of free programming to converting Superstar
subscribers who pre-pay for one year of programming.
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 nine months ended September 30, 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 combined and
consolidated financial statements and footnotes thereto included in the
Company'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.
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.
5
<PAGE>
ECHOSTAR DBS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
3. Inventories
Inventories consist of the following (in thousands):
<TABLE>
December 31, September 30,
1998 1999
_______________________________
(Unaudited)
<S> <C> <C>
Finished goods - DBS.................. $ 44,936 $ 39,257
Raw materials......................... 8,473 22,673
Finished goods - reconditioned
and other............................ 18,406 18,697
Consignment........................... 7,654 9,019
Work-in-process....................... 2,420 4,664
Reserve for excess and obsolete
inventory............................ (5,181) (4,772)
_____________________________
$ 76,708 $ 89,538
=============================
</TABLE>
4. Property and Equipment
Property and equipment consist of the
following (in thousands):
<TABLE>
December 31, September 30,
1998 1999
_______________________________
(Unaudited)
<S> <C> <C>
EchoStar I.......................... $ 201,607 $ 201,607
EchoStar II......................... 228,694 228,694
EchoStar III........................ 234,083 234,083
EchoStar IV......................... 105,005 105,005
Furniture, fixtures and
equipment.......................... 182,717 215,937
Buildings and improvements.......... 42,121 39,836
Tooling and other................... 5,551 5,656
Land................................ 1,640 1,640
Vehicles............................ 1,288 1,234
Construction in progress............ 18,329 537,383
___________________________
Total property and equipment...... 1,021,035 1,571,075
Accumulated depreciation............ (167,217) (238,949)
___________________________
Property and equipment, net....... $ 853,818 $ 1,332,126
===========================
Construction in progress consists of
the following (in thousands):
December 31, September 30,
1998 1999
_______________________________
(Unaudited)
Progress amounts for satellite
construction, launch, and
launch insurance:
EchoStar V........................ $ - $ 243,130
EchoStar VI....................... - 208,130
Digital broadcast operations center... - 47,000
Other................................. 18,329 39,123
____________________________
$ 18,329 $ 537,383
============================
</TABLE>
6
<PAGE>
ECHOSTAR DBS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
5. EchoStar IV
As previously announced, as a result of the partial failure of EchoStar
IV solar arrays to deploy, a maximum of approximately 18 transponders on
EchoStar IV are currently available for use at any one time. The number of
available transponders will decrease over time. Additionally, six of the 44
transponders on EchoStar IV have failed, resulting in the loss of use of a
total of 12 transponders. In addition to transponder failures, EchoStar IV has
experienced anomalies affecting its heating systems and fuel system. Based on
existing data, EchoStar expects that approximately 16 transponders will
probably be available over the entire expected life of the satellite, absent
significant additional transponder problems or other failures. In September
1998, EchoStar filed a $219.3 million insurance claim for a constructive total
loss under the launch insurance policy related to EchoStar IV. However, if we
receive $219.3 million for a constructive total loss on the satellite, the
insurers would obtain the sole right to the benefits of salvage from EchoStar
IV under the terms of the launch insurance policy. Although we believe we have
suffered a total loss of EchoStar IV under that definition in the launch
insurance policy, we intend to negotiate a settlement with the insurers to
compensate us for the reduced satellite transmission capacity and allow us to
retain title to the asset.
EchoStar's satellite insurance policy for EchoStar IV consists of
separate identical policies with different carriers for varying amounts which,
in combination, create a total insured amount of $219.3 million. We
anticipate meeting with many of our insurance carriers during late 1999.
However, two of the participants in our insurance line have notified EchoStar
they believe that EchoStar's alleged delay in providing required insurance
claim information may reduce their obligation to pay any settlement related to
the claim. One carrier recently asserted it has no obligation to pay. We
strongly disagree with the position taken by those insurers and continue to
believe that the EchoStar IV insurance claim will be resolved in a manner
satisfactory to EchoStar. However, no assurance can be given that we will
receive the amount claimed or, if we do, that we will retain title to EchoStar
IV with its reduced capacity.
While there can be no assurance, we do not currently expect a material
adverse impact on short or medium term satellite operations. Although we have
not fully assessed the impairment to EchoStar IV from the transponder failures
and other anomalies, we continue to believe that insurance proceeds will be
sufficient to offset all write-downs of satellite assets that might ultimately
be necessary because of lost functionality. However, there can be no
assurance that additional material failures will not occur, and we can provide
no assurance as to the ultimate amount that may be received from the insurance
claim, or that coverage will be available. We will continue to evaluate the
performance of EchoStar IV and may modify our loss assessment as new events or
circumstances develop.
6. Accrued Expenses
Accrued expenses consist of the
following (in thousands):
<TABLE>
December 31, September 30,
1998 1999
_______________________________
(Unaudited)
<S> <C> <C>
Royalties and copyright fees......... $ 49,400 $ 75,246
Programming.......................... 35,472 60,917
Marketing............................ 33,463 54,929
Interest............................. 24,918 31,627
Other................................ 32,905 47,227
___________________________
$ 176,158 $ 269,946
=============================
</TABLE>
7
<PAGE>
ECHOSTAR DBS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
7. Long-Term Debt
On January 25, 1999, the Company 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"). Concurrent with the closing
of these offerings, the Company 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 ESBC ("the 1996 Notes") and the 12 1/2% Senior Secured Notes
due 2002 issued by the Company ("the 1997 Notes"). In February 1999, ECC 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 the Company's net income of $229 million (approximately $203 million of
tender premiums and consent fees and approximately $26 million associated with
the write-off of unamortized deferred financing costs and other transaction-
related costs).
8. Commitments and Contingencies
The News Corporation Limited
During February 1997, News Corporation agreed to acquire approximately
50% of the outstanding capital stock of EchoStar. During late April 1997,
substantial disagreements arose between the parties regarding their
obligations under this agreement. Those substantial disagreements led to
litigation which the parties subsequently settled. In connection with the
News Corporation litigation, EchoStar has a contingent fee arrangement with
the attorneys who represented EchoStar in that litigation, which provides for
the attorneys to be paid a percentage of any net recovery obtained in the News
Corporation litigation. The attorneys have asserted that they may be entitled
to receive payments totaling hundreds of millions of dollars under this fee
arrangement. EchoStar is vigorously contesting the attorneys' interpretation
of the fee arrangement, which EchoStar believes significantly overstates the
magnitude of its liability. If the attorneys and EchoStar are unable to
resolve this fee dispute, it would be resolved through arbitration or
litigation. It is too early to determine the outcome of negotiations,
arbitration or litigation 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 General Instrument Corporation, HBO, Warner
Communications, Inc., John Doe, Showtime, United States Satellite Broadcasting
Company, Inc., EchoStar, and two of EchoStar's wholly-owned subsidiaries. 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 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,
including EchoStar. 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, an interim and permanent injunction prohibiting the defendants
from importing hardware into Canada and from activating receivers in Canada,
together with damages in excess of $175 million. It is too early to determine
whether or when any other lawsuits 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.
8
<PAGE>
ECHOSTAR DBS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
Broadcast Network Programming
The Satellite Home Viewer Act permits satellite retransmission of distant
network signals only to "unserved households."
The national networks and local affiliate stations recently challenged,
based upon copyright infringement, PrimeTime 24's methods of selling network
programming to consumers. Historically, EchoStar obtained distant broadcast
network signals for distribution to its customers through PrimeTime 24. 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 they
considered EchoStar a "distributor" for purposes of that injunction. A
federal district court in North Carolina also issued an injunction against
PrimeTime 24 prohibiting certain distant signal retransmissions in the Raleigh
area. The Fourth Circuit Court of Appeals recently affirmed the North
Carolina Court's decision. EchoStar has implemented Satellite Home Viewer Act
compliance procedures which materially restrict the market for the sale of
network channels by the Company.
In October 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. In November 1998, the four major broadcast networks and their
affiliate groups filed a complaint against EchoStar in federal court in Miami
alleging, among other things, copyright infringement. The court combined the
case that EchoStar filed in Colorado with the case in Miami and transferred it
to the Miami court.
In February 1999, CBS, NBC, Fox and ABC filed a "Motion for Temporary
Restraining Order, Preliminary Injunction and Contempt Finding" against
DIRECTV, Inc. in Miami related to the delivery of distant network channels to
DIRECTV customers by satellite. Under the terms of a settlement between
DIRECTV and the networks, some DIRECTV customers were scheduled to lose access
to their satellite-provided network channels by July 31, 1999, while other
DIRECTV customers are to be disconnected by December 31, 1999. Subsequently,
PrimeTime 24 and substantially all providers of satellite-delivered network
programming other than us agreed to this cut-off schedule.
The networks are pursuing a Motion for Preliminary Injunction in the
Miami Court, asking the 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
agreed to by DIRECTV.
A preliminary injunction hearing was held on September 21, 1999. The
Court took the issues under advisement to consider the networks' request for
an injunction, whether to hear live testimony before ruling upon the request,
and whether to hear argument on why the Satellite Home Viewer Act may be
unconstitutional, among other things. The Court did not say when a decision
will be made, or whether an additional hearing will be necessary prior to
ruling on the networks' preliminary injunction motion.
If this case is decided against EchoStar, or a preliminary injunction is
issued, significant material restrictions on the sale of distant ABC, NBC, CBS
and Fox channels by EchoStar could result. The litigation and legislation
pending in Congress, among other things, could require the Company to
terminate delivery of network signals to a material portion of its subscriber
base, which could cause these subscribers to cancel EchoStar's services. While
the networks have not sought monetary damages, they have sought to recover
attorney fees if they prevail. EchoStar has commenced sending letters to some
of its subscribers warning that their access to distant broadcast network
channels might be terminated this year. Such
9
<PAGE>
ECHOSTAR DBS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
terminations would result in a small reduction in average monthly revenue per
subscriber and could result in increased subscriber turnover.
Under the Satellite Home Viewer Act, the determination of whether a
household qualifies as "unserved" for the purpose of eligibility to receive a
distant network channel depends, in part, on whether that household can
receive a signal of "Grade B intensity" as defined by the FCC.
In February 1999, the FCC released a report and order on these matters.
Although the FCC declined to change the values of Grade B intensity, it
adopted a method for measuring it at particular households. The FCC also
endorsed a method for predicting Grade B intensity at particular households.
The FCC recently denied in part and granted in part EchoStar's petition for
reconsideration, allowing EchoStar some additional flexibility in the method
for measuring Grade B intensity but denying the Company's requests on other
matters. EchoStar cannot be sure whether these methods are favorable to the
Company or what weight, if any, the courts will give to the FCC's decision.
EchoStar also cannot be certain whether the application of these methods by
the courts will result in termination of distant signal delivery to a material
portion of its subscribers or decreases in future subscriber activations.
In addition, the Satellite Home Viewer Act is set to expire at the end of
1999 if the currently pending legislation is not passed into law. If that
legislation does not pass, EchoStar would lose the right to transmit all
network programming and superstation signals by satellite.
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 significant satellite capacity, EchoStar is relatively well positioned
to avoid any material interruption of service due to any potential damage
resulting from these meteoroid events.
10
<PAGE>
ECHOSTAR DBS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
9. Segment Reporting
The Company 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>
DBS Corp
Eliminations EchoStar Other Affiliates
Dish Satellite and Consolidated EchoStar And Sub-
Network ETC Services Other Total Activity sidiaries
_______ _____ _________ ______ _________ _______ ________
Nine Months
Ended
September
30, 1998
__________
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue... $497,155 $186,377 $16,913 $(4,761) $695,684 $1,260 $696,944
Net income
(loss)... (233,008) 25,461 14,283 45,690 (147,574)(23,386)(170,960)
Nine Months
Ended September
30, 1999
__________
Revenue... $962,854 $94,306 $43,497 $(13,919)$1,086,738 $3,716 $1,090,454
Net income
(loss)
before
extraordinary
charges.. (562,740) (8,086) 22,028 244,936 (303,862)(33,190)(337,052)
</TABLE>
11
<PAGE>
Item 2. MANAGEMENT'S NARRATIVE ANALYSIS OF 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; an unsuccessful launch or
deployment of our fifth or sixth satellite, EchoStar V and EchoStar VI,
respectively; 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; 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 change in the
regulations governing the subscription television service industry; the
outcome of any litigation in which we may be involved; 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 September 30, 1999 Compared to the Three Months Ended
September 30, 1998.
Revenue. Total revenue for the three months ended September 30, 1999 was
$430 million, an increase of $193 million compared to total revenue for the
three months ended September 30, 1998 of $237 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
$356 million for the three months ended September 30, 1999, an increase of
$177 million or 99% 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 September 30, 1999 increased
approximately 86% compared to the same period in 1998. As of September 30,
1999, we had approximately 3.0 million DISH Network subscribers compared to
1.6 million at September 30, 1998. Monthly revenue per subscriber
approximated $43 and $40 during the three months ended September 30, 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 revenue 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.
For the three months ended September 30, 1999, DTH equipment sales and
integration services totaled $49 million, an increase of $5 million compared
to the same period during 1998. DTH equipment sales consist of sales of
digital set-top boxes and other digital satellite broadcasting equipment to
international DTH service operators and sales of DBS accessories. The increase
in DTH equipment sales and integration services revenue was primarily
attributable to an increase in sales of DBS accessories, partially offset by a
decrease in shipments to international DTH service operators during the three
months ended September 30, 1999 as compared to the same period in 1998.
12
<PAGE>
Item 2. MANAGEMENT'S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS - Continued
Substantially all of our EchoStar Technologies Corporation, or ETC,
revenues have resulted from sales to two international DTH providers. We
currently have agreements to provide equipment to DTH service operators in
Spain and Canada. 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 increasing competition and the continued decrease in the
sales price of digital set-top boxes, we expect that our DTH equipment and
integration services revenue for the year ended December 31, 1999 may decline
as much as 50% as compared to 1998. Although we continue to actively pursue
additional distribution and integration service opportunities internationally,
no assurance can be given that any such efforts will be successful.
As previously reported, since 1998, Telefonica, one of the two DTH
service providers described above, has had recurrent discussions and
negotiations for a possible merger with Sogecable (Canal Plus Satellite), one
of its primary competitors. Currently, we are not aware of any ongoing
negotiations between Telefonica and Canal Plus Satellite. Although we have
binding purchase orders from Telefonica for 1999 deliveries of DTH equipment,
we cannot predict the impact, if any, eventual consummation of this possible
merger might have on our future sales to Telefonica.
Satellite services revenue totaled $13 million during the three months
ended September 30, 1999, an increase of $8 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 sent letters to some of our subscribers warning that
their access to CBS, NBC, Fox and ABC distant network channels might be
terminated this year. Such terminations would result in a small reduction in
average monthly revenue per subscriber and possibly increased subscriber
turnover. 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 operation of EchoStar V later this
year and launch of EchoStar VI during 2000. While there can be no assurance,
legislation pending 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
$200 million during the three months ended September 30, 1999, an increase of
$96 million or 92%, 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 DISH Network subscribers. DISH Network
operating expenses represented 56% and 58% of subscription television services
revenue during the three months ended September 30, 1999 and 1998,
respectively.
Subscriber-related expenses totaled $158 million during the three months
ended September 30, 1999, an increase of $80 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 44% of
subscription television services revenues during the three months ended
September 30, 1999 compared to 43% during the same period in 1998. Although
we do not currently expect subscriber-related expenses as a percentage of
subscription television services revenue to increase materially in future
periods, there can be no assurance this expense to revenue ratio will not
materially 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 $32 million during the three months ended September 30, 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
13
<PAGE>
Item 2. MANAGEMENT'S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS - Continued
television services revenue during the three months ended September 30, 1999,
as compared to 11% during the same period in 1998. Although we do not expect
customer service center and other expenses as a percentage of subscription
television services revenue to increase materially in future periods, there
can be no assurance this expense to revenue ratio will not materially
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 $10 million during the three months ended
September 30, 1999, a $3 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 or digital broadcast centers
are placed in service. Satellite and transmission expenses totaled 3% and 4%
of subscription television services revenue during the three months ended
September 30, 1999 and 1998, respectively. While we can provide no assurance,
we expect this expense to revenue ratio to 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 $35 million during the three
months ended September 30, 1999, an increase of $5 million compared to the
same period in 1998. This increase is consistent with the increase 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 and DBS accessories. Cost of
sales DTH equipment and integration services represented 71% and 68% of DTH
equipment revenue, during the three months ended September 30, 1999 and 1998,
respectively. We expect that cost of sales DTH equipment and integration
services 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 $204 million during the
three months ended September 30, 1999, an increase of $136 million 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 $20 million and $8 million during the three months
ended September 30, 1999 and 1998, respectively.
During the three months ended September 30, 1999, our total subscriber
acquisition costs, inclusive of acquisition marketing expenses, totaled
$195 million, or approximately $390 per new subscriber activation.
Comparatively, our subscriber acquisition costs during the three months ended
September 30, 1998, inclusive of acquisition marketing expenses and deferred
subscriber acquisition costs, totaled $64 million, or approximately $240 per
new subscriber 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 third quarter of 1999, we continued our C-band bounty program,
our Great Rewards program (PrimeStar bounty), and 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 DISH Network
One-Rate Plan, consumers are eligible to receive a rebate that ranges from
$100 up to $299 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 DISH Network One-Rate Plan, we presently expect the
participation rate to approximate 20% to 30% 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
14
<PAGE>
Item 2. MANAGEMENT'S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS - Continued
ultimate duration of the DISH Network One-Rate Plan, it will continue through
at least December 1999.
Under our bounty programs, current C-band and 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 C-band or
PrimeStar customer to be eligible for this program.
Based upon our current promotions we expect a modest increase in average
subscriber acquisition costs during the remainder of 1999. However our
subscriber acquisition costs, both in aggregate and on a per new subscriber
activation basis, may materially increase to the extent that we expand our
bounty programs or the DISH Network One-Rate Plan, or if we determine that
more aggressive promotions are necessary to respond to competition, or for
other reasons. Further, subscriber acquisition costs will increase in
connection with the agreement to convert Superstar/Netlink Group C-band
subscribers to our DISH Network.
General and Administrative Expenses. General and administrative expenses
totaled $39 million during the three months ended September 30, 1999, an
increase of $15 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 decreased to 9% during the three months ended September 30, 1999
compared to 10% during the same period in 1998. Although we expect G&A
expenses as a percentage of total revenue to remain near the current level or
decline modestly in future periods, this expense to revenue ratio could
increase.
EBITDA. EBITDA represents earnings before interest, taxes, depreciation,
amortization, and non-cash deferred compensation. EBITDA was negative
$48 million during the three months ended September 30, 1999 compared to $5
million during the three months ended September 30, 1998. EBITDA, as adjusted
to exclude amortization of subscriber acquisition costs, was negative
$48 million for the three months ended September 30, 1999 compared to
$7 million for the same period in 1998. This decline in EBITDA principally
resulted from an increase in DISH Network operating and marketing expenses.
It is important to note that EBITDA does not represent cash provided or used
by operating activities. Further, our calculation of EBITDA for the three
months ended September 30, 1999 does not include approximately $4.3 million of
non-cash compensation resulting from appreciation of stock options granted to
employees. EBITDA 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
aggregated $27 million during the three months ended September 30, 1999, a
$3 million increase compared to the same period in 1998, during which
subscriber acquisition costs were amortized. Commencing October 1997, we
instead expensed all of these costs at the time of sale. The increase in
depreciation and amortization expenses principally resulted from 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,
partially offset by subscriber acquisition costs becoming fully amortized
during the third quarter of 1998.
Other Income and Expense. Other expense, net totaled $47 million during
the three months ended September 30, 1999, an increase of $4 million compared
to the same period in 1998. This increase resulted from a decrease in
interest income and an increase in interest expense. In January 1999, we
refinanced our outstanding 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, at more favorable interest rates and
terms. In connection with the refinancing, we consummated an offering of
9 1/4% Senior Notes due 2006, referred to herein as the seven year notes, and
9 3/8% Senior Notes due 2009, referred to herein as the ten year notes.
15
<PAGE>
Item 2. MANAGEMENT'S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS - Continued
Although the seven and ten year notes have lower interest rates than the debt
securities we repurchased, interest expense increased by approximately $4
million because we raised additional debt to cover tender premiums and consent
and other fees related to the refinancing.
Nine Months Ended September 30, 1999 Compared to the Nine Months Ended
September 30, 1998.
Revenue. Total revenue for the nine months ended September 30, 1999 was
$1.09 billion, an increase of $393 million compared to total revenue for the
nine months ended September 30, 1998 of $697 million. The increase in total
revenue was primarily attributable to DISH Network subscriber growth and
higher average revenue per subscriber.
DISH Network subscription television services revenue totaled
$923 million for the nine months ended September 30, 1999, an increase of
$463 million or 101%, 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 nine months ended September 30, 1999 increased
approximately 87% compared to the same period in 1998.
For the nine months ended September 30, 1999, DTH equipment sales and
integration services totaled $106 million, a decrease of $85 million compared
to the same period during 1998. This expected decrease in DTH 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.
Satellite services revenue totaled $30 million during the nine months
ended September 30, 1999, an increase of $14 million as compared to the same
period during 1998. The increase in satellite services revenue was primarily
attributable to increased BTV revenue due to the addition of new full-time BTV
customers.
DISH Network Operating Expenses. DISH Network operating expenses totaled
$515 million during the nine months ended September 30, 1999, an increase of
$241 million or 88%, 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 DISH Network subscribers. DISH
Network operating expenses represented 56% and 60% of subscription television
services revenue during the nine months ended September 30, 1999 and 1998,
respectively.
Subscriber-related expenses totaled $403 million during the nine months
ended September 30, 1999, an increase of $192 million compared to the same
period in 1998. Such expenses represented 44% of subscription television
services revenues during the nine months ended September 30, 1999 compared to
46% during the same period in 1998. The decrease in this expense to revenue
ratio resulted from subscription television services revenue increasing at a
greater rate than subscriber-related expenses, due to greater premium channel
penetration and subscription price increases. 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 totaled $81 million during the
nine months ended September 30, 1999, an increase of $35 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% and 10% of subscription television services revenue during the nine
months ended September 30, 1999 and 1998, respectively.
Satellite and transmission expenses totaled $30 million during the nine
months ended September 30, 1999, a $12 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. Satellite and transmission expenses represented 3%
and 4% of subscription television services revenue during the nine months
ended September 30, 1999 and 1998, respectively.
Cost of sales DTH equipment and Integration Services. Cost of sales
DTH equipment and integration services totaled $77 million during the nine
months ended September 30, 1999, a decrease of $54 million or 41% compared to
16
<PAGE>
Item 2. MANAGEMENT'S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS - Continued
the same period in 1998. This decrease is consistent with the decrease in DTH
equipment revenue. Cost of sales DTH equipment and integration services
represented 73% of DTH equipment revenue during the nine months ended
September 30, 1999 as compared to 69% during the same period in 1998.
Marketing Expenses. Marketing expenses totaled $502 million during the
nine months ended September 30, 1999, an increase of $311 million compared to
the same period in 1998. The increase in marketing expenses was primarily
attributable to an increase in subscriber promotion subsidies. Advertising
and other expenses totaled $40 million during the nine months ended September
30, 1999, an increase of $14 million over the same period in 1998.
During the nine months ended September 30, 1999, our total subscriber
acquisition costs, inclusive of acquisition marketing expenses, totaled
$488 million. Comparatively, our subscriber acquisition costs during the nine
months ended September 30, 1998, inclusive of acquisition marketing expenses
and deferred subscriber acquisition costs, totaled $160 million. 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.
General and Administrative Expenses. General and administrative expenses
totaled $99 million during the nine months ended September 30, 1999, an
increase of $32 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 totaled 9% and 10% during the nine months ended September 30,
1999 and 1998, respectively.
EBITDA. EBITDA represents earnings before interest, taxes, depreciation,
amortization, and other non-cash deferred compensation. EBITDA was negative
$108 million and $3 million, during the nine months ended September 30, 1999
and 1998, respectively. EBITDA, as adjusted to exclude amortization of
subscriber acquisition costs, was negative $108 million for the nine months
ended September 30, 1999 compared to $22 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. Further, our calculation of EBITDA for the nine months ended
September 30, 1999 does not include approximately $6.0 million of non-cash
compensation resulting from appreciation of stock options granted to
employees. EBITDA should not be considered in isolation or as a substitute
for measures of performance prepared in accordance with generally accepted
accounting principles.
Depreciation and Amortization. Depreciation and amortization expenses
aggregated $77 million during the nine months ended September 30, 1999, a
$1 million decrease compared to the same period in 1998, during which
subscriber acquisition costs were amortized. The decrease in depreciation and
amortization expenses principally resulted from subscriber acquisition costs
becoming fully amortized during the third quarter of 1998, 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 $147 million during
the nine months ended September 30, 1999, an increase of $32 million as
compared to the same period in 1998. The increase in other expense resulted
primarily from an increase in interest expense associated with our seven and
ten year notes, partially offset by a gain on the sale of the investments.
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
17
<PAGE>
Item 2. MANAGEMENT'S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS - Continued
successful or completed on time, there can be no assurance that the systems of
other companies with which our 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 have also
completed 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.
Upon completion of the assessment phase, we began the remediation and
validation/testing phases. During the remediation phase, we corrected all
problems detected while performing the assessment phase. During the
validation/testing phase, we created a parallel environment of all internal
and administrative systems. This parallel environment was tested to assess
its reaction to changes in dates and times relating to the Year 2000 issue.
All problems encountered during these tests were fixed. As of September 30,
1999, the remediation and validation/testing phases were complete for all of
our corporate systems, except two non-business critical applications. These
applications have recently been upgraded to Year 2000 compliant versions and
will be tested during November 1999.
During the implementation phase software upgrades and patches were
implemented in the actual operating environment of our internal financial and
administrative systems for all known problems detected in previous phases.
While there can be no guarantee we presently believe that our internal
financial and administrative systems are Year 2000 ready. As new or enhanced
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.
18
<PAGE>
Item 2. MANAGEMENT'S NARRATIVE ANALYSIS OF 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 have substantially completed the remediation phase of our
Year 2000 readiness plan. We will continue to perform validation and testing
of communications within our digital broadcast center and expect to complete
this testing during November 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 substantially completed all testing and remediation
activities on its core systems and is currently testing its custom interfaces.
The vendor has indicated it believes it is currently Year 2000 ready, 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 85% 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
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. To date
we have incurred approximately $1.4 million in costs associated with the Year
2000 issue. While there can be no assurance, we believe our total 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.
19
<PAGE>
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The News Corporation Limited
During February 1997, News Corporation agreed to acquire approximately
50% of the outstanding capital stock of EchoStar. During late April 1997,
substantial disagreements arose between the parties regarding their
obligations under this agreement. Those substantial disagreements led to
litigation which the parties subsequently settled. In connection with the
News Corporation litigation, EchoStar has a contingent fee arrangement with
the attorneys who represented EchoStar in that litigation, which provides for
the attorneys to be paid a percentage of any net recovery obtained in the News
Corporation litigation. The attorneys have asserted that they may be entitled
to receive payments totaling hundreds of millions of dollars under this fee
arrangement. EchoStar is vigorously contesting the attorneys' interpretation
of the fee arrangement, which EchoStar believes significantly overstates the
magnitude of its liability. If the attorneys and EchoStar are unable to
resolve this fee dispute, it would be resolved through arbitration or
litigation. It is too early to determine the outcome of negotiations,
arbitration or litigation 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
General Instrument Corporation, HBO, Warner Communications, Inc., John Doe,
Showtime, United States Satellite Broadcasting Company, Inc., EchoStar, and
two of EchoStar's wholly-owned subsidiaries. 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 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,
including EchoStar. 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, an interim and permanent injunction prohibiting the defendants
from importing hardware into Canada and from activating receivers in Canada,
together with damages in excess of $175 million. It is too early to determine
whether or when any other lawsuits 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
The Satellite Home Viewer Act permits satellite retransmission of distant
network signals only to "unserved households."
The national networks and local affiliate stations recently challenged,
based upon copyright infringement, PrimeTime 24's methods of selling network
programming to consumers. Historically, we obtained distant broadcast network
signals for distribution to our customers through PrimeTime 24. 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 us they considered
us a "distributor" for purposes of that injunction. A federal district court
in North Carolina also issued an injunction against PrimeTime 24 prohibiting
certain distant signal retransmissions in the Raleigh area. The Fourth
Circuit Court of Appeals recently affirmed the North Carolina Court's
decision. We have implemented Satellite Home Viewer Act compliance procedures
which materially restrict the market for the sale of network channels by us.
20
<PAGE>
PART II - OTHER INFORMATION
In October 1998, we filed a declaratory judgment action in the United
States District Court for the District of Colorado against the four major
networks. We asked the court to enter a judgment declaring that our method of
providing distant network programming does not violate the Satellite Home
Viewer Act and hence does not infringe the networks' copyrights. In November
1998, the four major broadcast networks and their affiliate groups filed a
complaint against us in federal court in Miami alleging, among other things,
copyright infringement. The court combined the case that we filed in Colorado
with the case in Miami and transferred it to the Miami court.
In February 1999, CBS, NBC, Fox and ABC filed a "Motion for Temporary
Restraining Order, Preliminary Injunction and Contempt Finding" against
DIRECTV, Inc. in Miami related to the delivery of distant network channels to
DIRECTV customers by satellite. Under the terms of a settlement between
DIRECTV and the networks, some DIRECTV customers were scheduled to lose access
to their satellite-provided network channels by July 31, 1999, while other
DIRECTV customers are to be disconnected by December 31, 1999. Subsequently,
PrimeTime 24 and substantially all providers of satellite-delivered network
programming other than us agreed to this cut-off schedule.
The networks are pursuing a Motion for Preliminary Injunction in the
Miami Court, asking the Court to enjoin us from providing network programming
except under very limited circumstances. In general, the networks want us to
turn off programming to our customers on the same schedule agreed to by
DIRECTV.
A preliminary injunction hearing was held on September 21,1999. The
Court took the issues under advisement to consider the networks' request for
an injunction, whether to hear live testimony before ruling upon the request,
and whether to hear argument on why the Satellite Home Viewer Act may be
unconstitutional, among other things. The Court did not say when a decision
will be made, or whether an additional hearing will be necessary prior to
ruling on the networks' preliminary injunction motion.
If this case is decided against us, or a preliminary injunction is
issued, significant material restrictions on the sale of distant ABC, NBC, CBS
and Fox channels by us could result. The litigation and legislation pending
in Congress, among other things, could require us to terminate delivery of
network signals to a material portion of our subscriber base, which could
cause these subscribers to cancel our services. While the networks have not
sought monetary damages, they have sought to recover attorney fees if they
prevail. We have commenced sending letters to some of our subscribers warning
that their access to distant broadcast network channels might be terminated
this year. Such terminations would result in a small reduction in average
monthly revenue per subscriber and could result in increased subscriber
turnover.
Under the Satellite Home Viewer Act, the determination of whether a
household qualifies as "unserved" for the purpose of eligibility to receive a
distant network channel depends, in part, on whether that household can
receive a signal of "Grade B intensity" as defined by the FCC.
In February 1999, the FCC released a report and order on these matters.
Although the FCC declined to change the values of Grade B intensity, it
adopted a method for measuring it at particular households. The FCC also
endorsed a method for predicting Grade B intensity at particular households.
The FCC recently denied in part and granted in part our petition for
reconsideration, allowing us some additional flexibility in the method for
measuring Grade B intensity but denying our requests on other matters. We
cannot be sure whether these methods are favorable to us or what weight, if
any, the courts will give to the FCC's decision. We also cannot be certain
whether the application of these methods by the courts will result in
termination of distant signal delivery to a material portion of our
subscribers or decreases in future subscriber activations.
In addition, the Satellite Home Viewer Act is set to expire at the end of
1999 if the currently pending legislation is not passed into law. If that
legislation does not pass, we would lose the right to transmit all network
programming and superstation signals by satellite.
21
<PAGE>
PART II - OTHER INFORMATION
Environmental Protection Agency
In connection with the expansion of our digital broadcast center in
Cheyenne, Wyoming, two additional underground storage tanks were installed by
a contractor. The underground storage tanks were properly installed and are
being operated in accordance with Environmental Protection Agency regulations.
However, the EPA alleged that the State of Wyoming was not timely advised of
the installation of those tanks, and that a certificate of compliance was not
timely filed following installation. As a result, during May 1999, we
received notice that the EPA filed a complaint against us and proposed to
assess a civil penalty of $9,500. During August 1999, the matter was settled
without admission or denial of the factual allegations contained in the
complaint and all counts against us were dropped. The total civil penalty was
reduced to $3,600 and, in accordance with our construction contract for the
digital broadcast center, the general contractor paid the penalty to the EPA.
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.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
27* Financial Data Schedule.
________________________________
* Filed herewith.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the third quarter of 1999.
22
<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 DBS 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: November 11, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF ECHOSTAR DBS CORPORATION AS OF AND FOR THE QUARTER ENDED
SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 74,195
<SECURITIES> 35,504
<RECEIVABLES> 150,688
<ALLOWANCES> 2,627
<INVENTORY> 89,538
<CURRENT-ASSETS> 487,440
<PP&E> 1,332,126
<DEPRECIATION> 238,949
<TOTAL-ASSETS> 2,639,284
<CURRENT-LIABILITIES> 848,246
<BONDS> 2,030,893
0
0
<COMMON> 0
<OTHER-SE> (298,190)
<TOTAL-LIABILITY-AND-EQUITY> 2,639,284
<SALES> 1,060,341<F1>
<TOTAL-REVENUES> 1,090,454
<CGS> 603,766<F2>
<TOTAL-COSTS> 1,280,799
<OTHER-EXPENSES> 146,598
<LOSS-PROVISION> 13,657
<INTEREST-EXPENSE> 147,616
<INCOME-PRETAX> (336,943)
<INCOME-TAX> (109)
<INCOME-CONTINUING> (337,052)
<DISCONTINUED> 0
<EXTRAORDINARY> (228,733)
<CHANGES> 0
<NET-INCOME> (565,785)
<EPS-BASIC> 0
<EPS-DILUTED> 0
<FN>
<F1>INCLUDES SALES OF PROGRAMMING.
<F2>INCLUDES COSTS OF PROGRAMMING.
</FN>
</TABLE>
