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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________ to ________________.
Commission file number: 333-31929
ECHOSTAR DBS CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
COLORADO 84-1328967
(State or other jurisdiction of incorporation or organization (I.R.S. Employer Identification No.)
5701 S. SANTA FE
LITTLETON, COLORADO 80120
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code: (303) 723-1000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of March 24, 2000, the Registrant's outstanding Common stock
consisted of 1,000 shares of Common Stock, $0.01 par value.
THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTIONS
(I)(1)(a) AND(b) OF FORM 10-K AND IS THEREFORE FILING THIS ANNUAL REPORT ON
FORM 10-K WITH THE REDUCED DISCLOSURE FORMAT.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents are incorporated into this Form 10-K by
reference:
None
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TABLE OF CONTENTS
PART I
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<S> <C> <C>
Item 1. Business................................................................................ 1
Item 2. Properties.............................................................................. 2
Item 3. Legal Proceedings....................................................................... 3
Item 4. Submission of Matters to a Vote of Security Holders..................................... *
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters................... 5
Item 6. Selected Financial Data................................................................. *
Item 7. Management's Narrative Analysis of Results of Operations................................ 5
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.............................. 10
Item 8. Financial Statements and Supplementary Data............................................. 10
Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure.... 10
PART III
Item 10. Directors and Executive Officers of the Registrant...................................... *
Item 11. Executive Compensation.................................................................. *
Item 12. Security Ownership of Certain Beneficial Owners and Management.......................... *
Item 13. Certain Relationships and Related Transactions.......................................... *
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K......................... 11
Signatures............................................................................ 15
Index to Financial Statements......................................................... F-1
</TABLE>
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* This item has been omitted pursuant to the reduced disclosure format as set
forth in General Instructions (1)(1)(a) and (b) of Form 10-K.
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PART I
ITEM 1. BUSINESS
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
sixth satellite, EchoStar VI; delays in the construction of our seventh, eighth
or ninth satellites; 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; an
inability to obtain certain retransmission consents; 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.
BRIEF DESCRIPTION OF BUSINESS
We are a wholly-owned subsidiary of EchoStar Communications
Corporation, a publicly traded company on the Nasdaq National Market under the
symbol "DISH". During March 1999, EchoStar received approval from the Federal
Communications Commission 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. DirectSat Corporation, Direct Broadcasting Satellite
Corporation and EchoStar Space Corporation were merged into EchoStar Satellite
Corporation. Dish, Ltd., and EchoStar Satellite Broadcasting Company were merged
into the Company. EchoStar IV and the related FCC licenses were transferred to
EchoStar Satellite Corporation. The accompanying financial statements
retroactively reflect this reorganization.
Unless otherwise stated, or the context otherwise requires, references
to EchoStar and our parent company shall include all of its direct and indirect
wholly-owned subsidiaries. We refer readers of this report to EchoStar's Annual
Report for the year ended December 31, 1999. Substantially all of our operations
are conducted by subsidiaries. Our operations include three interrelated
business units:
o The DISH Network - our direct broadcast satellite, or DBS,
subscription television service in the United States. As of
December 31, 1999, we had approximately 3.4 million DISH Network
subscribers.
o EchoStar Technologies Corporation - our engineering division,
which is principally responsible for the design of digital
set-top boxes, or satellite receivers, necessary for consumers to
receive DISH Network programming, and the sale of set-top boxes
to international direct-to-home satellite operators. We have also
provided uplink center design, construction oversight and other
project integration services for international direct-to-home
ventures.
o Satellite Services - our division that provides video, audio and
data services to business television customers and other
satellite users.
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RECENT DEVELOPMENTS
During February 2000, we announced the formation of a joint venture
with OpenTV Corp. intended to offer DISH Network customers and other video
platforms around the world a low cost, interactive digital receiver with a
built-in hard disk drive that will permit viewers to pause and record live
programs without the need for video tape. The new set-top box, expected to be
available during the fourth quarter of 2000, would offer interactive television
services developed by OpenTV. In connection with formation of the joint venture,
OpenTV and EchoStar licensed certain intellectual property rights to the joint
venture and EchoStar was issued 2,252,252 shares of OpenTV common Stock. The
shares of OpenTV common Stock are subject to forfeiture if EchoStar fails to
activate the OpenTV system in at least 500,000 set top boxes on or before
February 23, 2003.
During February 2000, we also announced agreements for the construction
and delivery of three new satellites. Two of these satellites, EchoStar VII and
EchoStar VIII, will be advanced, high-powered DBS satellites. Both will include
spot-beam technology which could allow DISH Network to offer local channels or
other value added services in as many as 60 or more markets across the United
States. The third satellite, EchoStar IX, will be a hybrid Ku/Ka-band satellite,
which may provide our satellite services division with increased opportunities
to attract business customers and may provide DISH Network customers with
expanded services such as Internet, data and potentially two-way wireless
communications.
During February 2000, EchoStar filed suit against DirecTV and Thomson
Consumer Electronics/RCA in the Federal District Court of Colorado. The suit
alleges that DirecTV has utilized improper conduct in order to fend off
competition from the DISH Network. According to the complaint, DirecTV has
demanded that certain retailers stop displaying EchoStar merchandise and has
threatened to cause economic damage to retailers if they continued to offer both
product lines in head-to-head competition. The suit alleges that DirecTV has
acted in violation of federal and state anti-trust laws in order to protect
DirecTV's market share. EchoStar is seeking injunctive relief and monetary
damages. It is too early in the litigation to make an assessment of the probable
outcome.
During March 2000, EchoStar announced the acquisition of Kelly
Broadcasting Systems, Inc., a New Jersey based provider of international and
foreign-language programming in the United States. In connection with the
acquisition, EchoStar issued approximately 255,000 shares of its Class A common
stock, valued at the date of issuance at approximately $31 million, and will pay
$3.5 million in cash for 100% ownership of KBS. The acquisition of KBS will be
accounted for as a purchase transaction.
ITEM 2. PROPERTIES
The following table sets forth certain information concerning our
material properties:
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<CAPTION>
SEGMENT(S) USING APPROXIMATE
DESCRIPTION/USE/LOCATION PROPERTY SQUARE FOOTAGE OWNED OR LEASED
- ------------------------------------------------------- -------------------- ------------------- -------------------
<S> <C> <C> <C>
Corporate headquarters and customer service,
Littleton, Colorado................................ All 156,000 Owned
EchoStar Technologies Corporation office and
distribution center, Englewood, Colorado........... ETC 155,000 Owned
Warehouse and distribution center, Denver, Colorado... ETC 132,800 Leased
Customer service center, El Paso, Texas............... DISH Network 100,000 Leased
Customer service center, McKeesport, Pennsylvania..... DISH Network 100,000 Leased
Digital broadcast operations center, Gilbert, AZ...... DISH Network and
Satellite Services 120,000 Owned
Office and distribution center, Sacramento,
California......................................... ETC 78,500 Owned
Digital broadcast operations center, Cheyenne, DISH Network and
Wyoming............................................ Satellite Services 55,000 Owned
Customer service center, Thornton, Colorado........... DISH Network 55,000 Owned
European headquarters and warehouse, Almelo, The
Netherlands........................................ ETC and Other 53,800 Owned
</TABLE>
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ITEM 3. LEGAL PROCEEDINGS
DirecTV
During February 2000, EchoStar filed suit against DirecTV and Thomson
Consumer Electronics/RCA in the Federal District Court of Colorado. The suit
alleges that DirecTV has utilized improper conduct in order to fend off
competition from the DISH Network. According to the complaint, DirecTV has
demanded that certain retailers stop displaying EchoStar merchandise and has
threatened to cause economic damage to retailers if they continued to offer both
product lines in head-to-head competition. The suit alleges that DirecTV has
acted in violation of federal and state anti-trust laws in order to protect
DirecTV's market share. EchoStar is seeking injunctive relief and monetary
damages. It is too early in the litigation to make an assessment of the probable
outcome.
The News Corporation Limited
During February 1997, News Corporation agreed to acquire approximately
50% of our outstanding capital stock. 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, we
have a contingent fee arrangement with the attorneys who represented us 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. We are vigorously contesting the
attorneys' interpretation of the fee arrangement, which we believe significantly
overstates the magnitude of our liability. We also believe that the fee
arrangement is void and unenforceable because the attorneys who represented us
are seeking a fee that we believe is unreasonable and excessive, among other
things. If we are unable to resolve this fee dispute with the attorneys, it
would be resolved through arbitration or litigation. During mid-1999, we
initiated litigation against the attorneys in the District Court, Arapahoe
County, Colorado, arguing that the fee arrangement is void and unenforceable. We
have also asserted claims for breach of fiduciary duty, constructive fraud,
breach of the fee arrangement, and misappropriation of trade secrets against the
attorneys. In December 1999, the attorneys initiated an arbitration proceeding
before the American Arbitration Association. It is too early to determine the
outcome of negotiations, arbitration or litigation regarding this fee dispute.
WIC Premium Television Ltd.
During July 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.
During September 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.
We filed motions to dismiss each of the actions for lack of personal
jurisdiction. The Court in the Alberta court action recently denied our Motion
to Dismiss. The Alberta Court also granted a motion to add more EchoStar parties
to the lawsuit. EchoStar Satellite Corporation, EchoStar DBS Corporation,
EchoStar Technologies Corporation, and EchoStar Satellite Broadcast Corporation
have been added as defendants in the litigation. The newly added defendants have
also challenged jurisdiction. The Court in the Federal court action has stayed
that case before ruling on our motion to dismiss. We intend to vigorously defend
the suits in the event our motions are denied.
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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
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.
During 1998, the national networks and local affiliate stations
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.
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
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 were 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 during September 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, including potentially a nationwide
permanent prohibition on our broadcast of ABC, NBC, CBS and Fox network channels
by satellite. The litigation and the new legislation discussed above, among
other things, could also require us to terminate delivery of network signals to
a material portion of our subscriber base, which could cause many of these
subscribers to cancel their subscription to our other services. While the
networks have not sought monetary damages, they have sought to recover attorney
fees if they prevail. We have sent letters to some of our subscribers warning
that their access to distant broadcast network channels might be terminated soon
and have terminated ABC, NBC, CBS and Fox programming to many customers.
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In November 1999, Congress passed new legislation regarding the
satellite delivery of network programming and it was signed into law by
President Clinton. This new law has the potential of reducing the number of
customers whose network channels EchoStar may otherwise be required to terminate
as the law "grandfathers" in many subscribers.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
As of March 19, 1997, all 1,000 authorized, issued and outstanding
shares of our common stock were held by EchoStar. There is currently no
established trading market for our common stock.
We have never declared or paid any cash dividends on our common stock
and do not expect to declare dividends in the foreseeable future. Payment of any
future dividends will depend upon our earnings and capital requirements, our
debt facilities, and other factors the Board of Directors considers appropriate.
We currently intend to retain our earnings, if any, to support future growth and
expansion. Our ability to declare dividends is affected by covenants in our debt
facilities.
ITEM 7. 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
sixth satellite, EchoStar VI; delays in the construction of our seventh, eighth
or ninth satellites; 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; an
inability to obtain certain retransmission consents; 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
Year Ended December 31, 1999 Compared to the Year Ended December 31, 1998.
Revenue. Total revenue for the year ended December 31, 1999 was $1.606
billion, an increase of $620 million compared to total revenue for the year
ended December 31, 1998 of $986 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. As a result of our free system and free installation programs, our
ability to provide major local broadcast network signals and general economic
conditions, we expect strong sales during the first quarter of 2000.
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DISH Network subscription television services revenue totaled $1.343
billion for the year ended December 31, 1999, an increase of $674 million
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 year ended
December 31, 1999 increased approximately 85% compared to the same period in
1998. As December 31, 1999, we had approximately 3.4 million DISH Network
subscribers compared to 1.9 million at December 31, 1998. Monthly revenue per
subscriber more than $43 during the year ended December 31, 1999 and
approximated $39 during the same period during 1998. 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 year ended December 31, 1999, DTH equipment sales and
integration services totaled $178 million, a decrease of $76 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. 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.
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. Although
there can be no assurance, we expect that our DTH equipment and integration
services revenue for the year ended December 31, 2000 will approximate DTH
equipment and integration services revenue during 1999. 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. While we are not currently aware of any formal
negotiations between Telefonica and Canal Plus Satellite, there are again rumors
of a potential merger in the marketplace. Although we have binding purchase
orders from Telefonica for deliveries of DTH equipment in 2000, 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 $41 million during 1999, an increase
of $19 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
for the year ended December 31, 2000 is expected to increase as compared to the
year ended December 31, 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 other programming
offerings that will follow the launch of EchoStar VI during the second quarter
of 2000.
DISH Network Operating Expenses. DISH Network operating expenses
totaled $745 million during 1999, an increase of $348 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.
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DISH Network operating expenses represented 55% and 59% of subscription
television services revenue during the years ended December 31, 1999 and 1998,
respectively.
Subscriber-related expenses totaled $581 million during 1999, an
increase of $283 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 43% of subscription television services revenues during
the year ended December 31, 1999 compared to 45% 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
$122 million during 1999, an increase of $50 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, and non-cash compensation expense from significant
post-grant appreciation of stock options granted to certain key customer service
center employees during 1999. Customer service center and other expenses totaled
9% of subscription television services revenue during 1999, as compared to 11%
during the same period in 1998. Customer service center and other expenses in
total, and as a percentage of subscription television services revenue, may
increase in future periods as we continue to develop our customer service
centers to provide additional customer support and help us better accommodate
anticipated subscriber growth.
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 $42 million during 1999, a $16 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, and non-cash compensation
expense from significant post-grant appreciation of stock options granted to
certain key digital broadcast operations center employees during 1999. 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 year ended December 31, 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 $150 million during 1999, a
decrease of $25 million compared to the same period in 1998. 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 84% and 69% of DTH equipment revenue, during the years ended
December 31, 1999 and 1998, respectively. The lower margin was principally
attributable to a $16.6 million loss provision primarily for component parts and
purchase commitments related to our first generation model 7100 set-top boxes,
for which production has been suspended in favor of our second generation model
7200 set-top boxes. The write-off partially offset the expected decrease in cost
of sales - DTH equipment and integration services attributable to a decrease in
demand combined with increased competition. 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 $742 million during
1999, an increase of $410 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 $65 million and
$48 million during the years ended December 31, 1999 and 1998, respectively.
7
<PAGE> 10
During 1999, our total subscriber acquisition costs, inclusive of
acquisition marketing expenses, totaled approximately $729 million, or
approximately $385 per new subscriber activation. Comparatively, our subscriber
acquisition costs during the year ended December 31, 1998, inclusive of
acquisition marketing expenses and deferred subscriber acquisition costs,
totaled $314 million, or approximately $285 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 1999, our marketing promotions included our DISH Network
One-Rate Plan, C-band bounty program, Great Rewards program (PrimeStar bounty),
cable bounty and a free installation program. Our subscriber acquisition costs
under these programs are significantly higher than those under our marketing
programs historically.
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. To the
extent that actual consumer participation levels exceed present expectations,
subscriber acquisition costs may materially increase. Although there can be no
assurance as to the ultimate duration of the DISH Network One-Rate Plan, it will
continue through at least April 2000.
Under our bounty programs, current cable, C-band and PrimeStar
customers are eligible to receive a free base-level EchoStar receiver system and
free installation. In addition, PrimeStar customers are eligible to receive six
months of our America's Top 40 programming or our DISH Latino programming (both
packages retail for $19.99 per month) without charge. A subscriber must make a
one-year commitment to subscribe to either our America's Top 40, our DISH Latino
programming package or our America's Top 100 CD programming package and prove
that they are a current cable, C-band or PrimeStar customer to be eligible for
these programs. Under our free installation program all customers who purchase
an EchoStar receiver system through April 30, 2000 are eligible to receive a
free professional installation.
We subsidize the purchase and installation of EchoStar receiver systems
in order to attract new DISH Network subscribers. Consequently, our subscriber
acquisition costs are significant. While our average subscriber acquisition cost
was $385 for all of 1999, it was higher during the fourth quarter, averaging
approximately $425 per subscriber. As a result of our free system and free
installation promotion which is anticipated to continue through at least April
30, 2000, we expect our subscriber acquisition costs for 2000 will be highest
during the first several months of the year, but may decline thereafter, and may
average as much as $450 or more for the full year. In connection with our plans
to encourage as many new subscribers as possible to be ready for the additional
services that will become available at the 110(Degree) WL orbital location, and
as a result of continuing competition and our plans to attempt to continue to
drive rapid subscriber growth, we expect that our subscriber acquisition costs
during 2000 could increase by as much as $25 per subscriber or more on average
compared to the fourth quarter of 1999.
In connection with the launch of EchoStar V and EchoStar VI, we will
utilize the 110(Degree) orbital location to enhance revenue opportunities with
new value added services for our current and future subscribers, and maintain
our primary DBS service at the 119(Degree) orbital location. Our existing
subscribers will need to upgrade their dish and receiver systems in order to
take advantage of all of the services we offer. To encourage existing
subscribers to upgrade their systems and remain subscribers, we are currently
subsidizing upgrades by existing subscribers to our DISH 500 system. The cost of
this program could be significant if utilized by a large number of our existing
subscribers.
Our subscriber acquisition costs, both in the aggregate and on a per
new subscriber activation basis, may materially increase further to the extent
that we continue or expand our bounty programs, our "free system/free
installation" program, 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, in November 1999 we entered into an exclusive multi-year
agreement with Superstar/Netlink Group, a subsidiary of TVGuide, to attempt to
convert its current and inactive C-band (large dish) subscribers to our
8
<PAGE> 11
DBS (small dish) services. Under the terms of the agreement, we will incur
substantial subscriber acquisition costs, including payments to Superstar and
the retailer, and for equipment and other incentives to the consumer for each
Superstar subscriber who actually converts to and remains a subscriber to our
DBS Services. Subscriber acquisition costs under the terms of this agreement are
generally higher than under our marketing promotions. As a result of this
agreement, subscriber acquisition costs may increase to the extent our efforts
to convert Superstar's subscribers are even more successful than we currently
anticipate. If subscriber acquisition costs increase materially, it could
adversely affect our financial condition and results of operations.
General and Administrative Expenses. General and administrative
expenses totaled $196 million during 1999, an increase of $101 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 and non-cash compensation expense from significant
post-grant appreciation of stock options granted to key employees during 1999.
G&A expenses as a percentage of total revenue increased to 12% during the year
ended December 31, 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, stock-based compensation. EBITDA was
negative $183 million during the year ended December 31, 1999 compared to
negative $29 million during the same period in 1998. EBITDA, as adjusted to
exclude amortization of subscriber acquisition costs, was negative $183 million
for the year ended December 31, 1999 compared to negative $48 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 year ended December 31,
1999 does not include approximately $61 million of non-cash compensation expense
resulting from post-grant 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 $110 million during 1999, a $8 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, the commencement of operation of
EchoStar V in November 1999 and other depreciable assets placed in service
during 1999, partially offset by subscriber acquisition costs becoming fully
amortized during the third quarter of 1998.
Other Income and Expense. Other expense, net totaled $209 million
during 1999, an increase of $46 million compared to the same period in 1998.
This increase resulted from an increase in interest expense. In January 1999, we
refinanced our outstanding 12 1/2% Senior Secured Notes due 2002 issued in June
1997, our 12 7/8% Senior Secured Discount Notes due 2004 issued in 1994, and our
13 1/8% Senior Secured Discount Notes due 2004 issued in 1996 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. Although the seven and ten year notes have lower interest rates than the
debt securities we repurchased, interest expense increased by approximately $34
million because we raised additional debt to cover tender premiums and consent
and other fees related to the refinancing.
Extraordinary Charge for Early Retirement of Debt. In connection with
the January 1999 refinancing, we recognized an extraordinary loss of $229
million comprised of debt costs, discounts, tender costs, and premiums paid over
the accreted values of the debt retired.
9
<PAGE> 12
YEAR 2000 READINESS DISCLOSURE
As of March 10, 2000 we have experienced no material Year 2000 related
problems with any of our computer systems. Both our internal financial and
administrative systems and our service-delivery systems successfully completed
Year 2000 tests in the early hours of January 1, 2000. Although no material
anomalies are expected, we will continue to review all systems for any Year 2000
anomalies.
EFFECTS OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
None.
INFLATION
Inflation has not materially affected our operations during the past
three years. We believe that our ability to increase the prices charged for our
products and services in future periods will depend primarily on competitive
pressures. We do not have any material backlog of our products.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
MARKET RISKS ASSOCIATED WITH FINANCIAL INSTRUMENTS
Interest Rate Risk. Our exposure to market risk for changes in interest
rates relates to our debt obligations and cash and marketable investment
securities (unrestricted and restricted) portfolio.
As of December 31, 1999, we estimated the fair value of our fixed-rate
debt and mortgages and other notes payable to be approximately $2 billion using
quoted market prices where available, or discounted cash flow analyses. The
market risk associated with our debt and redeemable preferred stock is the
potential increase in fair value resulting from a decrease in interest rates. A
10% decrease in assumed interest rates would increase the fair value of our debt
by approximately $116 million.
Based on our average balance of cash and cash equivalents and
restricted and unrestricted marketable investment securities during 1999, a 10%
decrease in the average interest rate experienced in 1999 would not materially
impact our annual interest income.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Our Condensed Consolidated Financial Statements are included in this
report beginning on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
10
<PAGE> 13
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
<TABLE>
<CAPTION>
(1) Financial Statements PAGE
<S> <C>
Report of Independent Public Accountants.......................................................... F-2
Condensed Consolidated Balance Sheets at December 31, 1998 and 1999............................... F-3
Condensed Consolidated Statements of Operations and Comprehensive Loss for the years
ended December 31, 1997, 1998 and 1999......................................................... F-4
Condensed Consolidated Statements of Changes in Stockholder's Equity for the years ended
December 31, 1997, 1998 and 1999............................................................... F-5
Condensed Consolidated Statements of Cash Flows for the years ended December 31, 1997,
1998 and 1999.................................................................................. F-6
Notes to Condensed Consolidated Financial Statements.............................................. F-7
(2) Financial Statement Schedules
None. All schedules have been included in the Condensed Consolidated
Financial Statements or Notes thereto.
(3) Exhibits
</TABLE>
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
3.1(a)* Articles of Incorporation of the Company (incorporated by
reference to Exhibit 3.4(a) to the Company's Registration
Statement on Form S-4, Registration No. 333-31929).
3.1(b)* Bylaws of the Company (incorporated by reference to Exhibit
3.4(b) to the Company's Registration Statement on Form S-4,
Registration No. 333-31929).
4.1* Indenture relating to the Seven Year Notes, dated as of
January 25, 1999, by and among the Company, the Guarantors
and U.S. Bank Trust National Association, as
trustee.(incorporated by reference to Exhibit 4.1 to the
Company's Registration Statement on Form s-4, Registration
No. 333-71345).
4.2* Indenture relating to the Ten Year Notes, dated as of
January 25, 1999, by and among the Company, the Guarantors
and U.S. Bank Trust National Association, as trustee.
(incorporated by reference to Exhibit 4.3 to the Company's
Registration Statement on Form s-4, Registration No.
333-71345).
4.3* Registration Rights Agreement relating to the Seven Year
Notes by and among the Company, the Guarantors and the
parties named therein. (incorporated by reference to Exhibit
4.5 to the Company's Registration Statement on Form s-4,
Registration No. 333-71345).
4.4* Registration Rights Agreement relating to the Ten Year Notes
by and among the Company, the Guarantors and the parties
named therein. (incorporated by reference to Exhibit 4.6 to
the Company's Registration Statement on Form s-4,
Registration No. 333-71345).
10.1(a)* Satellite Construction Contract, dated as of February 6,
1990, between EchoStar Satellite Corporation ("ESC") and
Martin Marietta as successor to General Electric, EchoStar,
Astro-Space Division ("General Electric") (incorporated by
reference to Exhibit 10.1(a) to the Registration Statement
on Form S-1 of Dish, Ltd. ("Dish") 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 by reference
to Exhibit 10.1(b) to the Registration Statement on Form S-1
of Dish, Registration No. 33-76450).
</TABLE>
11
<PAGE> 14
<TABLE>
<S> <C>
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 by
reference to Exhibit 10.1(c) to the Registration Statement
on Form S-1 of Dish, 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 by reference to Exhibit 10.1(d)to the
Registration Statement on Form S-1 of Dish, 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 by reference to Exhibit 10.1(e) to the
Registration Statement on Form S-1 of Dish, Registration No.
33-76450).
10.1(f)* Form of Fifth Amendment to the Satellite Construction
Contract, between ESC and Martin Marietta (incorporated by
reference to Exhibit 10.1(f) to the Registration Statement
on Form S-1 of Dish, 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 by reference to Exhibit 10.1(g) to the
Registration Statement on Form S-1 of Dish, Registration No.
33-81234).
10.1(h)* Eighth Amendment to the Satellite Construction Contract,
dated as of July 18, 1996, between ESC and Martin Marietta
(incorporated by reference to Exhibit 10.1(h) to the
Quarterly Report on Form 10-Q of EchoStar for the quarter
ended June 30, 1996, Commission File No. 0-26176).
10.2* Key Employee Bonus Plan, dated as of January 1, 1994
(incorporated by reference to Exhibit 10.7 to the
Registration Statement on Form S-1 of Dish, Registration No.
33-76450).
10.3* Consulting Agreement, dated as of February 17, 1994, between
ESC and Telesat Canada (incorporated by reference to Exhibit
10.8 to the Registration Statement on Form S-1 of Dish,
Registration No. 33-76450).
10.4* Form of Satellite Launch Insurance Declarations
(incorporated by reference to Exhibit 10.10 to the
Registration Statement on Form S-1 of Dish, Registration No.
33-81234).
10.5* Dish 1994 Stock Incentive Plan (incorporated by reference to
Exhibit 10.11 to the Registration Statement on Form S-1 of
Dish, Registration No. 33-76450).
10.6* Form of Tracking, Telemetry and Control Contract between
AT&T Corp. and ESC (incorporated by reference to Exhibit
10.12 to the Registration Statement on Form S-1 of Dish,
Registration No. 33-81234).
10.7* Manufacturing Agreement, dated as of March 22, 1995, between
Houston Tracker Systems, Inc. and SCI Technology, Inc.
(incorporated by reference to Exhibit 10.12 to the
Registration Statement on Form S-1 of Dish, Commission File
No. 33-81234).
10.8* Statement of Work, dated January 31, 1995 from ESC to
Divicom Inc. (incorporated by reference to Exhibit 10.14 to
the Registration Statement on Form S-1 of ECC, Registration
No. 33-91276).
10.9* Launch Services Contract, dated as of June 2, 1995, by and
between EchoStar Space Corporation and
Lockheed-Khrunichev-Energia International, Inc.
(incorporated by reference to Exhibit 10.15 to the
Registration Statement on Form S-1 of ECC, Registration No.
33-91276).
10.10* EchoStar 1995 Stock Incentive Plan (incorporated by
reference to Exhibit 10.16 to the Registration Statement on
Form S-1 of ECC, Registration No. 33-91276).
</TABLE>
12
<PAGE> 15
<TABLE>
<S> <C>
10.11(a)* Eighth Amendment to Satellite Construction Contract, dated
as of February 1, 1994, between DirectSat Corporation and
Martin Marietta (incorporated by reference to Exhibit
10.17(a) to the Quarterly Report on Form 10-Q of ECC for the
quarter ended June 30, 1996, Commission File No. 0-26176).
10.11(b)* Ninth Amendment to Satellite Construction Contract, dated as
of February 1, 1994, between DirectSat Corporation and
Martin Marietta (incorporated by reference to Exhibit 10.15
to the Registration Statement of Form S-4 of ECC,
Registration No. 333-03584).
10.11(c)* Tenth Amendment to Satellite Construction Contract, dated as
of July 18, 1996, between DirectSat Corporation and Martin
Marietta (incorporated by reference to Exhibit 10.17(b) to
the Quarterly Report on Form 10-Q of ECC for the quarter
ended June 30, 1996, Commission File No. 0-26176).
10.12* Satellite Construction Contract, dated as of July 18, 1996,
between EDBS and Lockheed Martin Corporation (incorporated
by reference to Exhibit 10.18 to the Quarterly Report on
Form 10-Q of ECC for the quarter ended June 30, 1996,
Commission File No. 0-26176).
10.13* Confidential Amendment to Satellite Construction Contract
between DBSC and Martin Marietta, dated as of May 31, 1995
(incorporated by reference to Exhibit 10.14 to the
Registration Statement of Form S-4 of ECC, Registration No.
333-03584).
10.14* Agreement between HTS, ESC and ExpressVu Inc., dated January
8, 1997, as amended (incorporated by reference to Exhibit
10.18 to the Annual Report on Form 10-K of ECC for the year
ended December 31, 1996, as amended, Commission file No.
0-26176).
10.15* Amendment No. 9 to Satellite Construction Contract,
effective as of July 18, 1996, between Direct Satellite
Broadcasting Corporation, a Delaware corporation ("DBSC")
and Martin Marietta Corporation (incorporated by reference
to Exhibit 10.1 to the Quarterly Report on Form 10-Q of ECC
for the quarterly period ended June 30, 1997, Commission
File No. 0-26176).
10.16* Amendment No. 10 to Satellite Construction Contract,
effective as of May 31, 1996, between DBSC and Lockheed
Martin Corporation (incorporated by reference to Exhibit
10.2 to the Quarterly Report on Form 10-Q of ECC for the
quarterly period ended June 30, 1997, Commission File No.
0-26176).
10.17* Contract for Launch Services, dated April 5, 1996, between
Lockheed Martin Commercial Launch Services, Inc. and
EchoStar Space Corporation (incorporated by reference to
Exhibit 10.3 to the Quarterly Report on Form 10-Q of ECC for
the quarterly period ended June 30, 1997, Commission File
No. 0-26176).
10.18* OEM Manufacturing, Marketing and Licensing Agreement, dated
as of February 17, 1998, by and among HTS, ESC and Philips
Electronics North America Corporation (incorporated by
reference to Exhibit 10.1 to the Quarterly Report on Form
10-Q of ECC for the quarterly period ended March 31, 1998,
Commission File No. 0-26176).
10.19* Licensing Agreement, dated as of February 23, 1998, by and
among HTS, ESC and VTech Communications Ltd. (incorporated
by reference to Exhibit 10.2 to the Quarterly Report on Form
10-Q of ECC for quarterly period ended March 31, 1998,
Commission File No. 0-26176).
10.20* Purchase Agreement by and among American Sky Broadcasting,
LLC, The News Corporation Limited, MCI Telecommunications
Corporation and EchoStar Communications Corporation, dated
November 30, 1998. (incorporated by reference to Exhibit
10.1 to the Form 8-K filed by ECC on November 30, 1998,
Commission File No. 0-26176).
</TABLE>
13
<PAGE> 16
<TABLE>
<S> <C>
10.21* Voting Agreement dated November 30, 1998, among EchoStar
Communications Corporation, American Sky Broadcasting, LLC,
The News Corporation Limited and MCI Telecommunications
Corporation (incorporated by reference to Exhibit 10.3 to
the Current Report on Form 8-K of EchoStar, filed as of
December 1, 1998).
10.25* First Amendment, dated June 23, 1999, to the Purchase
Agreement dated November 30, 1998, by and among American Sky
Broadcasting, LLC, The News Corporation Limited, MCI
Telecommunications Corporation, and EchoStar Communications
Corporation (incorporated by reference to Exhibit 10.3 to
the Current Report on Form 8-K of EchoStar, filed as of July
2, 1999, Commission File No. 0-26176).
10.26* Registration Rights Agreement, dated June 24, 1999, by and
among EchoStar Communications Corporation, MCI
Telecommunications Corporation, American Sky Broadcasting,
LLC, and News America Incorporated (incorporated by
reference to Exhibit 10.4 to the Current Report on Form 8-K
of EchoStar, filed as of July 2, 1999, Commission File No.
0-26176).
27 Financial Data Schedule.
</TABLE>
- -------------------
* Incorporated by reference.
** Constitutes a management contract or compensatory plan or arrangement.
Filed herewith.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the fourth quarter of 1999.
14
<PAGE> 17
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, EchoStar has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
ECHOSTAR DBS CORPORATION
By: /s/ Steven B. Schaver
--------------------------------------
Steven B. Schaver
Chief Financial Officer
Date: March 24, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of EchoStar
and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Charles W. Ergen President and Director March 24, 2000
- ------------------------------- (Principal Executive Officer)
Charles W. Ergen
/s/ Steven B. Schaver Chief Financial Officer March 24, 2000
- ------------------------------- (Principal Financial Officer)
Steven B. Schaver
/s/ James DeFranco Director March 24, 2000
- -------------------------------
James DeFranco
/s/ David K. Moskowitz Director March 24, 2000
- -------------------------------
David K. Moskowitz
* By: /s/ David K. Moskowitz
------------------------
David K. Moskowitz
Attorney-in-Fact
</TABLE>
15
<PAGE> 18
INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:
Report of Independent Public Accountants.................................................................. F-2
Condensed Consolidated Balance Sheets at December 31, 1998 and 1999....................................... F-3
Condensed Consolidated Statements of Operations and Comprehensive Loss for the years ended
December 31, 1997, 1998 and 1999....................................................................... F-4
Condensed Consolidated Statements of Changes in Stockholder's Equity for the years ended
December 31, 1997, 1998 and 1999....................................................................... F-5
Condensed Consolidated Statements of Cash Flows for the years ended December 31, 1997, 1998 and 1999...... F-6
Notes to Condensed Consolidated Financial Statements...................................................... F-7
</TABLE>
F-1
<PAGE> 19
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To EchoStar DBS Corporation:
We have audited the accompanying condensed consolidated balance sheets
of EchoStar DBS Corporation (a Colorado corporation) and subsidiaries, as
described in Note 1, as of December 31, 1998 and 1999, and the related condensed
consolidated statements of operations and comprehensive loss, changes in
stockholder's equity and cash flows for each of the three years in the period
ended December 31, 1999. These financial statements are the responsibility of
the Companies' management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
EchoStar DBS Corporation and subsidiaries as of December 31, 1998 and 1999, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 1999, in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Denver, Colorado,
March 10, 2000.
F-2
<PAGE> 20
ECHOSTAR DBS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1998 1999
-------------- --------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 25,308 $ 159,761
Marketable investment securities 7,000 24,774
Trade accounts receivable, net of allowance for uncollectible accounts of
$2,996 and $13,109, respectively 107,743 157,944
Insurance receivable -- 106,000
Inventories 76,708 123,184
Other current assets 24,823 27,027
----------- -----------
Total current assets 241,582 598,690
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 1,314,007
FCC authorizations, net 103,266 722,234
Deferred tax assets 60,638 56,061
Other noncurrent assets 27,212 39,215
----------- -----------
Total assets $ 1,470,173 $ 2,730,207
=========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
Current Liabilities:
Trade accounts payable $ 90,562 187,703
Deferred revenue 132,857 181,034
Accrued expenses 176,158 483,635
Advances from affiliates, net 54,805 272,440
Current portion of long-term debt 22,679 21,017
----------- -----------
Total current liabilities 477,061 1,145,829
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 25,445
Notes payable to ECC, including accumulated interest 59,812 --
Long-term deferred satellite services revenue and other long-term liabilities 33,358 18,812
----------- -----------
Total long-term obligations, net of current portion 1,581,249 2,046,872
----------- -----------
Total liabilities 2,058,310 3,192,701
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 1,448,324
Deferred stock-based compensation -- (117,780)
Accumulated deficit (733,301) (1,793,038)
----------- -----------
Total stockholder's equity (deficit) (588,137) (462,494)
----------- -----------
Total liabilities and stockholder's equity (deficit) $ 1,470,173 $ 2,730,207
=========== ===========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
F-3
<PAGE> 21
ECHOSTAR DBS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(In thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
REVENUE:
DISH Network:
Subscription television services $ 298,883 $ 669,310 $ 1,343,234
Other 42,925 12,799 9,369
----------- ----------- -----------
Total DISH Network 341,808 682,109 1,352,603
DTH equipment sales and integration services 90,263 253,841 178,325
Satellite services 11,135 22,304 40,657
C-band and other 32,696 27,655 34,706
----------- ----------- -----------
Total revenue 475,902 985,909 1,606,291
COSTS AND EXPENSES:
DISH Network Operating Expenses:
Subscriber-related expenses 143,529 298,443 580,979
Customer service center and other 35,078 72,482 121,576
Satellite and transmission 14,563 26,067 42,391
----------- ----------- -----------
Total DISH Network operating expenses 193,170 396,992 744,946
Cost of sales - DTH equipment and integration
services 60,918 174,615 149,527
Cost of sales - C-band and other 23,909 16,496 17,076
Marketing:
Subscriber promotion subsidies 148,502 283,694 677,527
Advertising and other 34,843 47,986 64,660
----------- ----------- -----------
Total marketing expenses 183,345 331,680 742,187
General and administrative 66,060 94,824 196,093
Amortization of subscriber acquisition costs 121,428 18,819 --
Depreciation and amortization 51,408 83,338 110,031
----------- ----------- -----------
Total costs and expenses 700,238 1,116,764 1,959,860
----------- ----------- -----------
Operating loss (224,336) (130,855) (353,569)
Other Income (Expense):
Interest income 12,512 10,111 12,566
Interest expense, net of amounts capitalized (110,003) (172,942) (196,390)
Other (1,451) (618) (24,892)
----------- ----------- -----------
Total other income (expense) (98,942) (163,449) (208,716)
----------- ----------- -----------
Loss before income taxes (323,278) (294,304) (562,285)
Income tax provision, net (146) (71) (131)
----------- ----------- -----------
Net loss before extraordinary charges (323,424) (294,375) (562,416)
Extraordinary charge for early retirement of debt, net
of tax -- -- (228,733)
----------- ----------- -----------
Net loss $ (323,424) $ (294,375) $ (791,149)
=========== =========== ===========
Change in unrealized gain (loss) on available-for-sale
securities, net of tax 4 8 --
----------- ----------- -----------
Comprehensive loss $ (323,420) $ (294,367) $ (791,149)
=========== =========== ===========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
F-4
<PAGE> 22
ECHOSTAR DBS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
ACCUMULATED
DEFICIT
AND
DEFERRED UNREALIZED
COMMON STOCK ADDITIONAL STOCK- HOLDING
--------------- PAID-IN BASED GAINS
SHARES AMT. CAPITAL COMPENSATION (LOSSES) TOTAL
-------- ------ ---------- ------------ ----------- -----------
(Note 1)
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 3 $ - $ 108,841 $ - $ (115,514) $ (6,673)
Purchase price "pushed-down" to DBSC by
ECC (Note 1) - - 16,323 - - 16,323
Unrealized holding gains on
available-for-sale securities, net - - - - 4 4
Net loss - - - - (323,424) (323,424)
-- --- ---------- --------- ----------- -----------
Balance, December 31, 1997 3 - 125,164 - (438,934) (313,770)
Contribution of satellite asset - - 20,000 - - 20,000
Unrealized holding gains on
available-for-sale securities, net - - - - 8 8
Net loss - - - - (294,375) (294,375)
-- --- ---------- --------- ----------- -----------
Balance, December 31, 1998 3 - 145,164 - (733,301) (588,137)
Contribution of satellite assets
acquired by ECC from News Corporation
and MCI - - 1,124,320 - - 1,124,320
Deferred stock-based compensation
funded by ECC - - 178,840 (178,840) - -
Deferred stock-based compensation
recognized - - - 61,060 - 61,060
Capital contribution to ECC - - - - (268,588) (268,588)
Net loss - - - - (791,149) (791,149)
-- --- ---------- --------- ----------- -----------
Balance, December 31, 1999 3 $ - $1,448,324 $(117,780) $(1,793,038) $ (462,494)
== === ========== ========= =========== ===========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
F-5
<PAGE> 23
ECHOSTAR DBS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1997 1998 1999
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(323,424) $(294,375) $(791,149)
Adjustments to reconcile net loss to net cash flows from operating activities:
Extraordinary charge for early retirement of debt -- -- 228,733
Loss on impairment of satellite (Note 3) -- -- 13,741
Loss on disposal of assets -- -- 9,846
Deferred stock-based compensation recognized -- -- 61,060
Depreciation and amortization 51,408 83,338 110,031
Amortization of subscriber acquisition costs 121,428 18,819 --
Interest on notes payable to ECC added to principal 5,215 5,215 330
Deferred income tax benefit (361) -- --
Amortization of debt discount and deferred financing costs 83,221 125,724 13,440
Change in reserve for excess and obsolete inventory (1,823) 1,341 (1,301)
Change in long-term deferred satellite services revenue and other long-term
liabilities 12,056 13,858 10,173
Superstar exclusivity fee -- -- (10,000)
Other, net 403 -- --
Changes in current assets and current liabilities:
Trade accounts receivable, net (52,562) (41,698) (50,201)
Inventories 51,597 (55,056) (45,175)
Subscriber acquisition costs (72,118) -- --
Other current assets 13,359 (11,611) 2,373
Trade accounts payable 27,808 21,526 97,141
Deferred revenue 18,120 10,642 48,177
Accrued expenses 58,124 68,328 217,727
--------- --------- ---------
Net cash flows from operating activities (7,549) (53,949) (85,054)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of marketable investment securities (36,586) (8,970) (186,866)
Sales of marketable investment securities 51,513 5,868 169,092
Purchases of restricted marketable investment securities (1,495) -- --
Funds released from escrow and restricted cash and marketable investment
securities 120,215 116,468 77,657
Offering proceeds and investment earnings placed in escrow (227,561) (6,343) --
Repayments from (advances to) affiliates, net 9,976 -- --
Purchases of property and equipment (221,750) (153,513) (87,597)
Advances from News Corporation and MCI for satellite payments -- -- 67,804
Other (391) 3,150 (1,318)
--------- --------- ---------
Net cash flows from investing activities (306,079) (43,340) 38,772
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances from affiliates -- 77,090 217,635
Net proceeds from issuance of 1997 Notes 362,500 -- --
Proceeds from issuance of Seven Year Notes -- -- 375,000
Proceeds for 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 note payable to ECC (12,000) -- (60,142)
Repayments of mortgage indebtedness and other notes payable (13,253) (16,552) (22,180)
Other -- -- 2,865
--------- --------- ---------
Net cash flows from financing activities 337,247 60,538 180,735
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents 23,619 (36,751) 134,453
Cash and cash equivalents, beginning of year 38,440 62,059 25,308
--------- --------- ---------
Cash and cash equivalents, end of year $ 62,059 $ 25,308 $ 159,761
========= ========= =========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
F-6
<PAGE> 24
ECHOSTAR DBS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BUSINESS ACTIVITIES
Basis of Presentation
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.
DBS Corp was formed under Colorado law in January 1996 for the initial
purpose of participating in an FCC auction. On January 26, 1996, DBS Corp
submitted the winning bid of $52.3 million for 24 direct broadcast satellite
("DBS") frequencies at the 148(degree) West Longitude ("WL") orbital location.
Funds necessary to complete the purchase of the DBS frequencies and commence
construction of the Company's fourth DBS satellite, EchoStar IV, were advanced
to the Company by ECC. In June 1997, DBS Corp completed an offering (the "1997
Notes Offering") of 12 1/2% Senior Secured Notes due 2002 (the "1997 Notes").
The 1997 Notes were retired on January 25, 1999 upon completion of the Tender
Offers (as defined herein). Prior to consummation of the 1997 Notes Offering,
ECC contributed all of the outstanding capital stock (the "Contribution") of
ESBC to DBS Corp. As a result of the Contribution, ESBC became a wholly-owned
subsidiary of DBS Corp. This transaction was accounted for as a reorganization
of entities under common control in which ESBC is treated as the predecessor of
DBS Corp.
F-7
<PAGE> 25
ECHOSTAR DBS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
During 1994, EchoStar acquired approximately 40% of the outstanding
common stock of Direct Broadcasting Satellite Corporation ("Old DBSC"). Old
DBSC's principal assets included an FCC conditional satellite permit and
specific orbital slot assignments for a total of 22 DBS frequencies. Through
December 1996, EchoStar advanced Old DBSC a total of $46 million in the form of
notes receivable to enable Old DBSC to make required payments under its
satellite (EchoStar III) construction contract. On January 8, 1997, EchoStar
consummated the merger of Old DBSC with a wholly-owned subsidiary of EchoStar,
DBSC, as defined above. EchoStar issued approximately 650,000 shares of its
Class A common stock to acquire the remaining 60% of Old DBSC that it did not
previously own. This transaction was accounted for as a purchase and the excess
of the purchase price over the fair value of Old DBSC's tangible assets was
allocated to Old DBSC's FCC authorizations (approximately $16 million). Upon
consummation of the merger, Old DBSC ceased to exist.
Principal Business
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. Substantially all of EchoStar's
operations are conducted by subsidiaries of DBS Corp. The operations of EchoStar
include three interrelated business units:
o The DISH Network - a direct broadcast satellite ("DBS") subscription
television service in the United States. As of December 31, 1999, EchoStar
had approximately 3.4 million DISH Network subscribers.
o EchoStar Technologies Corporation ("ETC") - engaged in the design 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.
o 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.
Organization and Legal Structure
In December 1995, ECC merged Dish, Ltd. with a wholly-owned subsidiary
of ECC. During the first quarter of 1999, EchoStar placed ownership of all of
its direct broadcast satellites and related FCC licenses into ESC. DirectSat
Corporation, DBSC and Space were merged into ESC. Dish, Ltd. and ESBC were
merged into DBS Corp. EchoStar IV and the related FCC licenses were transferred
to ESC. Substantially all of EchoStar's operations are conducted by subsidiaries
of DBS Corp.
The following table summarizes the organizational structure of EchoStar
and its principal subsidiaries as of December 31, 1999:
F-8
<PAGE> 26
ECHOSTAR DBS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
<TABLE>
<CAPTION>
REFERRED TO
LEGAL ENTITY HEREIN AS PARENT
- ------------ ----------- ---------------
<S> <C> <C>
EchoStar Communications Corporation ECC Publicly owned
EchoStar DBS Corporation DBS Corp ECC
EchoStar Satellite Corporation ESC DBS Corp
Echosphere Corporation Echosphere DBS Corp
EchoStar Technologies Corporation ETC DBS Corp
</TABLE>
Significant Risks and Uncertainties
Substantial Leverage. The Company is highly leveraged, which makes it
vulnerable to changes in general economic conditions. As of December 31, 1999,
the Company had outstanding long-term debt (including both the current and
long-term portions) totaling approximately $2.0 billion. In August 1999, Company
began paying semi-annual cash debt service payments of approximately $94 million
related to its 9 1/4% Senior Notes due 2006 (the "Seven Year Notes") and its 9
3/8% Senior Notes due 2009 (the "Ten Year Notes"). The Company's ability to meet
its debt service obligations will depend on, among other factors, the successful
execution of its business strategy, which is subject to uncertainties and
contingencies beyond its control.
Expected Operating Losses. Since 1996, the Company has reported
significant operating and net losses. Improvements in the Company's future
results of operations are largely dependent upon its ability to increase its
customer base while maintaining its overall cost structure, controlling
subscriber turnover and effectively managing its subscriber acquisition costs.
No assurance can be given that the Company will be effective with regard to
these matters. In addition, the Company incurs significant acquisition costs to
obtain DISH Network subscribers. The high cost of obtaining new subscribers
magnifies the negative effects of subscriber turnover.
F-9
<PAGE> 27
ECHOSTAR DBS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The Company accounts for investments in 50% or less owned entities
using the equity method. At December 31, 1997, 1998 and 1999, these investments
were not material to the Company's consolidated financial statements. All
significant intercompany accounts and transactions have been eliminated.
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.
Foreign Currency Transaction Gains and Losses
The functional currency of the Company's foreign subsidiaries is the
U.S. dollar because their sales and purchases are predominantly denominated in
that currency. Transactions denominated in currencies other than U.S. dollars
are recorded based on exchange rates at the time such transactions arise.
Subsequent changes in exchange rates result in transaction gains and losses
which are reflected in income as unrealized (based on period-end translation) or
realized (upon settlement of the transaction). Net transaction gains (losses)
during 1997, 1998 and 1999 were not material to the Company's results of
operations.
Statements of Cash Flows Data
The following presents the Company's supplemental cash flow statement
disclosure (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
Cash paid for interest $ 5,953 $ 57,706 $ 126,172
Cash paid for income taxes 209 83 119
Capitalized interest 43,169 21,619 --
Satellite vendor financing 14,400 12,950 --
Other notes payable 5,322 -- --
Contribution of satellite asset -- 20,000 --
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
The purchase price of DBSC was allocated as follows in the related purchase
accounting:
EchoStar III satellite under construction 51,241 -- --
FCC authorizations 16,243 -- --
Note payable to ECC, including accrued interest of $3,382 (49,382) -- --
Accounts payable and accrued expenses (1,279) -- --
Other notes payable (500) -- --
Additional paid-in capital (16,323) -- --
</TABLE>
F-10
<PAGE> 28
ECHOSTAR DBS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Cash and Cash Equivalents
The Company considers all liquid investments purchased with an original
maturity of 90 days or less to be cash equivalents. Cash equivalents as of
December 31, 1998 and 1999 consist of money market funds, corporate notes and
commercial paper; such balances are stated at cost which equates to market
value.
F-11
<PAGE> 29
ECHOSTAR DBS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Marketable Investment Securities and Restricted Cash and Marketable Investment
Securities
As of December 31, 1998 and 1999, the Company has classified all
marketable investment securities as available-for-sale. The fair market value of
marketable investment securities approximates the carrying value and represents
the quoted market prices at the balance sheet dates. Related unrealized gains
and losses are reported as a separate component of stockholder's equity, net of
related deferred income taxes, if applicable. The specific identification method
is used to determine cost in computing realized gains and losses.
Restricted cash and marketable investment securities, as reflected in
the accompanying consolidated balance sheets, include cash restricted by the
indenture related to the 1997 Notes, plus investment earnings thereon and
restricted cash placed in trust for the purpose of repaying a note payable, as
of December 31, 1998 and 1999, respectively. The major components of marketable
investment securities and restricted cash and marketable investment securities
are as follow (in thousands):
<TABLE>
<CAPTION>
RESTRICTED CASH AND MARKETABLE
MARKETABLE INVESTMENT SECURITIES INVESTMENT SECURITIES
DECEMBER 31, DECEMBER 31,
-------------------------------- ------------------------------
1998 1999 1998 1999
------- ------- ------- --------
<S> <C> <C> <C> <C>
Commercial paper $ -- $ 9,053 $ 8,424 $ --
Corporate notes and bonds 7,000 7,742 54,360 --
Government bonds -- 7,979 14,517 --
Accrued interest -- -- 356 --
------- ------- ------- --------
$ 7,000 $24,774 $77,657 $ --
======= ======= ======= ========
</TABLE>
At December 31, 1999 marketable investment securities include debt
securities of $25 million with contractual maturities of one year or less and no
debt securities with maturities greater than one year. Actual maturities may
differ from contractual maturities as a result of the Company's ability to sell
these securities prior to maturity.
Fair Value of Financial Instruments
Fair values for the Company's 1994 Notes, 1996 Notes, 1997 Notes, Seven
Year Notes, and Ten Year Notes are based on quoted market prices. The fair
values of the Company's mortgages and other notes payable are estimated using
discounted cash flow analyses. The interest rates assumed in such discounted
cash flow analyses reflect interest rates currently being offered for loans with
similar terms to borrowers of similar credit quality.
The following table summarizes the book and fair values of the
Company's debt facilities at December 31, 1998 and 1999 (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1999
--------------------------- ----------------------------
BOOK VALUE FAIR VALUE BOOK VALUE FAIR VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
1994 Notes $ 571,674 $ 636,480 $ 1,503 $ 1,503
1996 Notes 497,955 580,000 1,097 1,097
1997 Notes 375,000 431,250 15 15
Seven Year Notes -- -- 375,000 377,813
Ten Year Notes -- -- 1,625,000 1,637,188
Mortgages and other notes payable 66,129 61,975 46,462 46,065
</TABLE>
F-12
<PAGE> 30
ECHOSTAR DBS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Inventories
Inventories are stated at the lower of cost or market value. Cost is
determined using the first-in, first-out method. Proprietary products are
manufactured by outside suppliers to the Company's specifications. 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.
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1999
------------ ------------
<S> <C> <C>
Finished goods - DBS $ 44,936 $ 63,054
Raw materials 8,473 35,751
Finished goods - reconditioned and other 18,406 19,509
Work-in-process 2,420 7,666
Consignment 7,654 1,084
Reserve for excess and obsolete inventory (5,181) (3,880)
--------- ---------
$ 76,708 $ 123,184
========= =========
</TABLE>
During December 1999, the Company provided for losses of $16.6 million,
primarily for component parts and purchase commitments related to its first
generation model 7100 set-top boxes. Production of model 7100 has been suspended
in favor of its second generation model 7200 set-top boxes.
Property and Equipment
Property and equipment are stated at cost. Cost includes interest
capitalized of $32 million and $16 million during the years ended December 31,
1997 and 1998, respectively. No interest was capitalized during 1999. The costs
of satellites under construction are capitalized during the construction phase,
assuming the eventual successful launch and in-orbit operation of the satellite.
If a satellite were to fail during launch or while in-orbit, the resultant loss
would be charged to expense in the period such loss was incurred. The amount of
any such loss would be reduced to the extent of insurance proceeds received as a
result of the launch or in-orbit failure. Depreciation is recorded on a
straight-line basis for financial reporting purposes. Repair and maintenance
costs are charged to expense when incurred. Renewals and betterments are
capitalized.
The Company reviews its long-lived assets and identifiable intangible
assets for impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. For assets which are
held and used in operations, the asset would be impaired if the book value of
the asset exceeded the undiscounted future net cash flows related to the asset.
For those assets which are to be disposed of, the assets would be impaired to
the extent the fair value does not exceed the book value. The Company considers
relevant cash flow, estimated future operating results, trends and other
available information including the fair value of frequency rights owned, in
assessing whether the carrying value of assets are recoverable.
FCC Authorizations
FCC authorizations are recorded at cost and amortized using the
straight-line method over a period of 40 years. Such amortization commences at
the time the related satellite becomes operational; capitalized costs are
written off at the time efforts to provide services are abandoned. FCC
authorizations include interest capitalized of $11 million and $6 million during
the years ended December 31, 1997 and 1998, respectively.
F-13
<PAGE> 31
ECHOSTAR DBS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Revenue Recognition
Revenue from the provision of DISH Network subscription television
services and satellite services is recognized as revenue in the period such
services are provided. Revenue from sales of digital set-top boxes and related
accessories is recognized upon shipment to customers. Revenue from the provision
of integration services is recognized as revenue in the period the services are
performed.
Subscriber Promotion Subsidies and Subscriber Acquisition Costs
In August 1996, the Company began selling its receiver systems below
manufactured cost to consumers conditioned upon the consumer's one-year prepaid
subscription to the DISH Network's America's Top 50 CD programming package. From
August 1996 through September 1997, the excess of the Company's aggregate costs
(equipment, programming and other) over proceeds from equipment sales and
prepaid programming was expensed ("subscriber promotion subsidies") upon
shipment of the equipment. Remaining costs were deferred ("subscriber
acquisition costs") and amortized over the term of the prepaid subscription
(normally one year). Effective October 1997, promotional programs changed and
new subscribers were not required to prepay for a year of programming.
Consequently, the Company began expensing subscriber acquisition costs as
incurred. As of December 31, 1998, all previously deferred costs were fully
amortized.
During November 1999, EchoStar entered into an exclusive multi-year
agreement with Superstar/Netlink Group ("Superstar"), a subsidiary of TV Guide,
Inc., to convert its 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, in
December 1999, EchoStar paid Superstar a $10,000,000 exclusivity fee. In
addition, EchoStar will incur substantial subscriber acquisition costs,
including payments to Superstar and the retailer, and for equipment and other
incentives to the consumer for each Superstar subscriber who actually converts
to and remains a subscriber to our DBS services. The exclusivity fee will be
amortized to expense as subscribers projected to be converted are activated for
DISH Network services.
Deferred Debt Issuance Costs and Debt Discount
Costs of issuing debt are deferred and amortized to interest expense
over the terms of the respective notes. Prior to being refinanced during January
1999, the original issue discounts related to the 1994 Notes and the 1996 Notes
were being accreted to interest expense so as to reflect a constant rate of
interest on the accreted balance of the 1994 Notes and the 1996 Notes.
Deferred Revenue
Deferred revenue principally consists of prepayments received from
subscribers for DISH Network programming. Such amounts are recognized as revenue
in the period the programming is provided to the subscriber.
Long-Term Deferred Satellite Services Revenue
Long-term deferred satellite services revenue consists of advance
payments from certain content providers for carriage of their signal on the DISH
Network. Such amounts are deferred and recognized as revenue on a straight-line
basis over the related contract terms (up to ten years).
F-14
<PAGE> 32
ECHOSTAR DBS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Accrued Expenses
Accrued expenses consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1998 1999
-------- --------
<S> <C> <C>
Marketing $ 33,463 $ 88,204
Royalties and copyright fees 49,400 87,390
Interest 24,918 78,460
Programming 35,472 59,769
Advances from News Corporation and MCI for satellite payments -- 67,804
Other 32,905 102,008
-------- --------
$176,158 $483,635
======== ========
</TABLE>
Advertising Costs
Advertising costs, exclusive of subscriber promotion subsidies, are
expensed as incurred and totaled $35 million, $48 million and $65 million for
the years ended December 31, 1997, 1998 and 1999, respectively.
Research and Development Costs
Research and development costs are expensed as incurred. Research and
development costs totaled $6 million, $8 million and $10 million for the years
ended December 31, 1997, 1998, and 1999, respectively.
Comprehensive Loss
The change in unrealized gain (loss) on available-for-sale securities
is the only component of the Company's other comprehensive loss. Accumulated
other comprehensive loss presented on the accompanying consolidated balance
sheets consists of the accumulated net unrealized loss on available-for-sale
securities, net of deferred taxes.
Reclassifications
Certain prior year balances in the consolidated financial statements
have been reclassified to conform with the 1999 presentation.
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
LIFE -------------------------------
(IN YEARS) 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
EchoStar I 12 $ 201,607 $ 201,607
EchoStar II 12 228,694 228,694
EchoStar III 12 234,083 234,083
EchoStar IV 10 105,005 89,505
EchoStar V 12 -- 208,578
Furniture, fixtures and equipment 2-12 182,717 241,527
Buildings and improvements 7-40 42,121 47,745
Land -- 1,640 1,659
Tooling and other 2 5,551 5,811
Vehicles 7 1,288 1,119
Construction in progress -- 18,329 319,308
----------- -----------
Total property and equipment 1,021,035 1,579,636
Accumulated depreciation (167,217) (265,629)
----------- -----------
Property and equipment, net $ 853,818 $ 1,314,007
=========== ===========
</TABLE>
F-15
<PAGE> 33
ECHOSTAR DBS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Construction in progress consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1998 1999
-------- --------
<S> <C> <C>
Progress amounts for satellite construction, launch, and launch
insurance:
EchoStar VI $ -- $243,633
Digital broadcast operations center -- 47,000
Other 18,329 28,675
-------- --------
$ 18,329 $319,308
======== ========
</TABLE>
EchoStar IV Impairment
As a result of the failure of EchoStar IV solar arrays to fully deploy
and the unrelated failure of 20 transponders to date, a maximum of approximately
16 of the 44 transponders on EchoStar IV are currently available for use at this
time. Due to the normal degradation of the solar arrays, the number of available
transponders may further decrease over time. Based on current data from Lockheed
Martin, we expect that at least 10 high power transponders or 5 extra-high power
transponders will probably be available over the remaining useful life of the
satellite, absent significant additional transponder problems or other failures.
In addition to transponder failures, EchoStar IV experienced anomalies
affecting its heating systems and fuel system during 1999. As a result of the
heating system and fuel system anomalies, the remaining useful life of EchoStar
IV has been reduced to less than 10 years. Accordingly, as of November 1, 1999,
EchoStar prospectively revised the remaining useful life of EchoStar IV. This
change, after the additional loss provision discussed below, increased
EchoStar's net loss for 1999 by approximately $357,000.
During September 1998, EchoStar recorded a $106 million provision for
loss in connection with the partial failure of EchoStar IV solar arrays to
deploy. During December 1999, EchoStar recorded an additional $13.7 million
provision for loss related to the reduction in the remaining useful life of
EchoStar IV. The aggregate loss provision of $119.7 million represented
EchoStar's estimate, at December 31, 1999, of the asset impairment attributable
to lost transmission capacity on EchoStar IV resulting from the solar array
anomaly described above. EchoStar also recorded a $106 million gain, during
September 1998, attributable to an anticipated insurance claim receivable that
it believes is probable of receipt. While there can be no assurance as to the
amount of the final insurance settlement, EchoStar believes that it will receive
insurance proceeds at least equal to the $106 million receivable recorded. To
the extent that it appears probable that EchoStar will receive insurance
proceeds in excess of the $106 million currently recorded and that no further
provision for loss is necessary, a gain will be recognized for the incremental
amount in the period that the amount of the final settlement can be reasonably
estimated.
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 the Company 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
F-16
<PAGE> 34
ECHOSTAR DBS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
for the reduced satellite transmission capacity and allow us to retain title to
the asset.
The 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. Two of the
participants in EchoStar's insurance line have notified EchoStar they believe
that its 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. EchoStar strongly disagrees with
the position taken by those insurers and continues to believe that the EchoStar
IV insurance claim will be resolved in a manner satisfactory to EchoStar.
However, there can be no assurance that EchoStar will receive the amount claimed
or, if it does, that EchoStar will retain title to EchoStar IV with its reduced
capacity. EchoStar met with its insurance carriers in November 1999 and is
continuing discussions to resolve its claim.
While there can be no assurance, we do not currently expect a material
adverse impact on short or medium term satellite operations. We will continue to
evaluate the performance of EchoStar IV and may modify our loss assessment as
new events or circumstances develop.
4. LONG-TERM DEBT
Tender Offers
Tender offers for EchoStar's 12 7/8% Senior Secured Discount Notes due
June 1, 2004, (the "1994 Notes"), 13 1/8% Senior Secured Discount Notes due
2004, (the "1996 Notes") and 13 1/8% Senior Secured Discount Notes due 2004,
(the "1997 Notes") were consummated on January 25, 1999. The tender offers were
funded with proceeds from the offering of the Seven Year Notes and the Ten Year
Notes. Except for residual aggregate non-tendered debt of approximately $2.6
million, the 1994 Notes, 1996 Notes and the 1997 Notes that were outstanding at
December 31, 1998 were retired in connection with closing of the tender offers
and the concurrent sale of the Seven and Ten Year Notes. Additionally,
substantially all of the restrictive covenants contained in each of the
respective indentures were removed upon closing of the tender offers. As a
result of the January 1999 refinancing, an extraordinary loss of $269 million
was recognized, comprised of deferred debt costs, discounts, tender costs, and
premiums paid over the accreted values of the debt retired. A brief summary of
the terms of the residual notes outstanding follows.
1994 Notes
In June 1994, Dish, Ltd. issued the 1994 Notes and Common Stock
Warrants (the "Warrants") (collectively, the "1994 Notes Offering"). The 1994
Notes Offering resulted in net proceeds to Dish, Ltd. of $323 million. The 1994
Notes bear interest at a rate of 12 7/8% computed on a semi-annual bond
equivalent basis. Interest on the 1994 Notes will not be payable in cash prior
to June 1, 1999, with the 1994 Notes accreting to a principal value at stated
maturity of $1,000 per bond (an aggregate of approximately $1.5 million for the
bonds not tendered) by that date. Commencing in December 1999, interest on the
1994 Notes will be payable in cash on December 1 and June 1 of each year. The
remaining balance of 1994 Notes matures on June 1, 2004.
1996 Notes
In March 1996, ESBC issued the 1996 Notes (the "1996 Notes Offering").
The 1996 Notes Offering resulted in net proceeds to ESBC of approximately $337
million. The 1996 Notes bear interest at a rate of 13 1/8%, computed on a
semi-annual bond equivalent basis. Interest on the 1996 Notes will not be
payable in cash prior to March 15, 2000, with the 1996 Notes accreting to a
principal amount at stated maturity of $1,000 per bond (an aggregate of
approximately $1.1 million for the bonds not tendered) by that date. Commencing
in September 2000, interest on the 1996 Notes will be payable in cash on
September 15 and March 15 of each year. The 1996 Notes that remain outstanding
following the Tender Offers mature on March 15, 2004.
F-17
<PAGE> 35
ECHOSTAR DBS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
1997 Notes
In June 1997, DBS Corp issued the 1997 Notes (the "1997 Notes
Offering"). The 1997 Notes Offering resulted in net proceeds to DBS Corp of
approximately $363 million. Interest accrues on the 1997 Notes at a rate of 12
1/2% and is payable in cash semi-annually on January 1 and July 1 of each year,
commencing January 1, 1998. Approximately $109 million of the net proceeds of
the 1997 Notes Offering was placed in the Interest Escrow to fund the first five
semi-annual interest payments (through January 1, 2000). Additionally,
approximately $112 million of the net proceeds of the 1997 Notes Offering was
placed in the Satellite Escrow to fund the construction, launch and insurance of
EchoStar IV. The 1997 Notes that remain outstanding following the Tender Offers
mature on July 1, 2002.
F-18
<PAGE> 36
ECHOSTAR DBS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Seven and Ten Year Notes
On January 25, 1999, DBS Corp sold $375 million principal amount of
9 1/4% Senior Notes due 2006 (the Seven Year Notes) and $1.625 billion principal
amount of 9 3/8% Senior Notes due 2009 (the Ten Year Notes). Interest accrues at
annual rates of 9 1/4% and 9 3/8% on the Seven Year and Ten Year Notes,
respectively. Interest on the Seven and Ten Year Notes is payable semi-annually
in cash in arrears on February 1 and August 1 of each year, commencing August 1,
1999.
Concurrently with the closing of the Seven and Ten Year Notes offering,
EchoStar used approximately $1.658 billion of net proceeds received from the
sale of the Seven and Ten Year Notes to complete tender offers for its
outstanding 1994 Notes, 1996 Notes and 1997 Notes. In February 1999, EchoStar
used approximately $268 million of net proceeds received from the sale of the
Seven and Ten Year Notes to complete the tender offers related to the 12 1/8%
Senior Exchange Notes due 2004, (the "Senior Exchange Notes") issued on January
4, 1999, in exchange for all issued and outstanding 12 1/8% Series B Senior
Redeemable Exchangeable Preferred Stock ("Series B Preferred Stock").
With the exception of certain de minimis domestic and foreign
subsidiaries, the Seven and Ten Year Notes are fully, unconditionally and
jointly and severally guaranteed by all subsidiaries of DBS Corp, (collectively,
the "Seven and Ten Year Notes Guarantors"). The Seven and Ten Year Notes are
general senior unsecured obligations which:
o rank pari passu in right of payment to each other and to all existing
and future senior unsecured obligations;
o rank senior to all existing and future junior obligations; and
o are effectively junior to secured obligations to the extent of the
collateral securing such obligations, including any borrowings under
future secured credit facilities.
Except under certain circumstances requiring prepayment premiums, and
in other limited circumstances, the Seven and Ten Year Notes are not redeemable
at DBS Corp's option prior to February 1, 2003 and February 1, 2004,
respectively. Thereafter, the Seven Year Notes will be subject to redemption, at
the option of DBS Corp, in whole or in part, at redemption prices decreasing
from 104.625% during the year commencing February 1, 2003 to 100% on or after
February 1, 2005, together with accrued and unpaid interest thereon to the
redemption date. The Ten Year Notes will be subject to redemption, at the option
of DBS Corp, in whole or in part, at redemption prices decreasing from 104.688%
during the year commencing February 1, 2004 to 100% on or after February 1,
2008, together with accrued and unpaid interest thereon to the redemption date.
The indentures related to the Seven and Ten Year Notes (the "Seven and
Ten Year Notes Indentures") contain restrictive covenants that, among other
things, impose limitations on the ability of DBS Corp to:
o incur additional indebtedness;
o apply the proceeds of certain asset sales;
o create, incur or assume liens;
o create dividend and other payment restrictions with respect to DBS
Corp's subsidiaries;
o merge, consolidate or sell assets; and
o enter into transactions with affiliates.
In addition, DBS Corp may pay dividends on its equity securities only
if no default shall have occurred or is continuing under the Seven and Ten Year
Notes Indentures; and after giving effect to such dividend and the incurrence of
any indebtedness (the proceeds of which are used to finance the dividend), DBS
Corps's ratio of total indebtedness to cash flow (calculated in accordance with
the Indentures) would not exceed 8.0 to 1.0. Moreover, the aggregate amount of
such dividends generally may not exceed the sum of the difference of cumulative
consolidated cash flow (calculated in accordance with the Indentures) minus 120%
of consolidated interest expense of DBS Corp (calculated in accordance with the
Indentures), in each case from April 1, 1999 plus an amount equal to 100% of the
aggregate net cash proceeds received by DBS Corp and its subsidiaries from the
issuance or sale of certain equity interests of DBS Corp or EchoStar.
F-19
<PAGE> 37
ECHOSTAR DBS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
In the event of a change of control, as defined in the Seven and Ten
Year Notes Indentures, DBS Corp will be required to make an offer to repurchase
all of the Seven and Ten Year Notes at a purchase price equal to 101% of the
aggregate principal amount thereof, together with accrued and unpaid interest
thereon, to the date of repurchase.
Mortgages and Other Notes Payable
Mortgages and other notes payable consists of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1998 1999
-------- -------
<S> <C> <C>
8.25% note payable for satellite vendor financing for EchoStar I due in equal
monthly installments of $772, including interest, through February 2001 $ 17,137 $ 9,606
8.25% note payable for satellite vendor financing for EchoStar II due in equal
monthly installments of $562, including interest, through November 2001 17,416 11,909
8.25% note payable for satellite vendor financing for EchoStar III due in
equal monthly installments of $294, including interest, through October 2002 12,183 8,645
8.25% note payable for satellite vendor financing for EchoStar IV due in equal
monthly installments of $264, including interest, through May 2003 12,950 9,409
Mortgages and other unsecured notes payable due in installments through
November 2009 with interest rates ranging from 4% to 10% 6,443 6,893
-------- -------
Total 66,129 46,462
Less current portion (22,679) (21,017)
-------- -------
Mortgages and other notes payable, net of current portion $ 43,450 $25,445
======== =======
</TABLE>
Future maturities of the Company's outstanding long-term debt are
summarized as follows (in thousands):
<TABLE>
<CAPTION>
RESIDUAL
NOTES,
MORTGAGES AND
SEVEN YEAR TEN YEAR OTHER NOTES
NOTES NOTES PAYABLE TOTAL
---------- ---------- ------------- ----------
<S> <C> <C> <C> <C>
YEAR ENDING DECEMBER 31,
2000 $ $ $ 21,017 $ 21,017
2001 -- -- 13,776 13,776
2002 -- -- 6,080 6,080
2003 -- -- 1,909 1,909
2004 -- -- 3,253 3,253
Thereafter 375,000 1,625,000 3,042 2,003,042
-------- ---------- ----------- ----------
Total $375,000 $1,625,000 $ 49,077 $2,049,077
======== ========== =========== ==========
</TABLE>
Satellite Vendor Financing
The purchase price for satellites is required to be paid in progress
payments, some of which are non-contingent payments that are deferred until
after the respective satellites are in orbit (satellite vendor financing). The
Company utilized $36 million, $28 million, $14 million and $13 million of
satellite vendor financing for EchoStar I, EchoStar II, EchoStar III and
EchoStar IV, respectively. The satellite vendor financing with respect to
EchoStar I and EchoStar II is secured by substantially all assets of DBS Corp
and its subsidiaries (subject to certain restrictions) and a corporate guarantee
of ECC. The satellite vendor financings for both EchoStar III and EchoStar IV
are secured by an ECC corporate guarantee.
F-20
<PAGE> 38
ECHOSTAR DBS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
5. INCOME TAXES
As of December 31, 1999, the Company had net operating loss
carryforwards ("NOLs") for Federal income tax purposes of approximately $1.530
billion. The NOLs expire beginning in the year 2012. The use of the NOLs is
subject to statutory and regulatory limitations regarding changes in ownership.
Financial Accounting Standard No. 109, "Accounting for Income Taxes," ("FAS No.
109") requires that the potential future tax benefit of NOLs be recorded as an
asset. FAS No. 109 also requires that deferred tax assets and liabilities be
recorded for the estimated future tax effects of temporary differences between
the tax basis and book value of assets and liabilities. Deferred tax assets are
offset by a valuation allowance if deemed necessary.
In 1999, the Company increased its valuation allowance sufficient to
fully offset net deferred tax assets arising during the year. Realization of net
deferred tax assets is not assured and is principally dependent on generating
future taxable income prior to expiration of the NOLs. Management believes
existing net deferred tax assets in excess of the valuation allowance will, more
likely than not, be realized. The Company continuously reviews the adequacy of
its valuation allowance. Future decreases to the valuation allowance will be
made only as changed circumstances indicate that it is more likely that not the
additional benefits will be realized. Any future adjustments to the valuation
allowance will be recognized as a separate component of the Company's provision
for income taxes.
The temporary differences that give rise to deferred tax assets and
liabilities as of December 31, 1998 and 1999 are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1998 1999
--------- ---------
<S> <C> <C>
Current deferred tax assets:
Accrued royalties $ 15,971 $ 30,018
Inventory reserves and cost methods 1,759 1,355
Accrued expenses 9,845 29,263
Allowance for doubtful accounts 1,098 4,842
Reserve for warranty costs 101 78
Unrealized holding loss on marketable investment securities -- --
--------- ---------
Total current deferred tax assets 28,774 65,556
Current deferred tax liabilities:
Subscriber acquisition costs and other -- (28)
--------- ---------
Total current deferred tax liabilities -- (28)
--------- ---------
Gross current deferred tax assets 28,774 65,528
Valuation allowance (22,065) (54,242)
--------- ---------
Net current deferred tax assets 6,709 11,286
Noncurrent deferred tax assets:
General business and foreign tax credits 2,072 2,504
Net operating loss carryforwards 164,123 568,859
Amortization of original issue discount on 1994 Notes
and 1996 Notes 105,095 --
Other 12,999 9,551
--------- ---------
Total noncurrent deferred tax assets 284,289 580,914
Noncurrent deferred tax liabilities:
Depreciation (24,115) (43,949)
Other (144) (245)
--------- ---------
Total noncurrent deferred tax liabilities (24,259) (44,194)
--------- ---------
Gross deferred tax assets 260,030 536,720
--------- ---------
Valuation allowance (199,392) (480,659)
--------- ---------
Net noncurrent deferred tax assets 60,638 56,061
--------- ---------
Net deferred tax assets $ 67,347 $ 67,347
========= =========
</TABLE>
F-21
<PAGE> 39
ECHOSTAR DBS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
The components of the benefit from (provision for) income taxes are as
follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Current benefit (provision):
Federal $ (361) $ -- $ --
State (9) 6 (46)
Foreign (137) (77) (85)
-------- -------- --------
(507) (71) (131)
Deferred benefit:
Federal 108,598 97,819 285,724
State 8,082 7,319 27,720
Increase in valuation allowance (116,319) (105,138) (313,444)
-------- -------- --------
361 -- --
-------- -------- --------
Total benefit (provision) $ (146) $ (71) $ (131)
======== ======== ========
</TABLE>
The actual tax benefit (provision) for 1997, 1998 and 1999 are
reconciled to the amounts computed by applying the statutory Federal tax rate to
income before taxes as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1997 1998 1999
----- ----- -----
<S> <C> <C> <C>
Statutory rate 35.0% 35.0% 35.0%
State income taxes, net of Federal benefit 1.6 1.6 2.3
Research and development and foreign tax credits 0.7 -- --
Non-deductible interest expense (0.5) (1.3) (0.3)
Other (0.8) 0.4 1.5
Increase in valuation allowance (36.0) (35.7) (38.5)
----- ----- -----
Total benefit from income taxes --% --% --%
===== ===== =====
</TABLE>
6. STOCK COMPENSATION PLANS
Stock Incentive Plan
In April 1994, EchoStar adopted a stock incentive plan to provide
incentive to attract and retain officers, directors and key employees. EchoStar
currently has reserved up to 40 million shares of its Class A common stock for
granting awards under its 1995 Stock Incentive Plan and an additional 40 million
shares of its Class A common stock for granting awards under its 1999 Stock
Incentive Plan. In general, stock options granted through December 31, 1999 have
included exercise prices not less than the fair market value of EchoStar's Class
A common stock at the date of grant, and vest, as determined by EchoStar's Board
of Directors, generally at the rate of 20% per year.
During 1999, EchoStar adopted the 1999 Incentive Plan which provided
certain key employees a contingent incentive including stock options and cash.
The payment of these incentives was contingent upon the achievement of certain
financial and other goals of EchoStar. EchoStar met certain of these goals
during 1999. Accordingly, EchoStar accrued $675,000 related to cash incentives
to be paid. EchoStar also recorded approximately $179 million of deferred
compensation related to post-grant appreciation of options to purchase
approximately 2.1 million shares, granted pursuant to the 1999 Incentive Plan.
The related deferred compensation will be recognized over the five-year vesting
period. As a result of substantial post-grant appreciation of options, variable
plan accounting principles require that EchoStar recognize during 1999, $61
million of the total of $179 million of deferred stock-based compensation under
this performance based plan. The remainder will be recognized over the remaining
vesting period.
F-22
<PAGE> 40
ECHOSTAR DBS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Options to purchase an additional 5.6 million shares were granted at
fair market value during 1999 pursuant to the Long Term Incentive Plan. Vesting
of these options is contingent on meeting certain longer-term goals, the
achievement of which can not be reasonably predicted as of December 31, 1999.
Accordingly, no compensation was recorded during 1999 related to these long-term
options. EchoStar will continue to evaluate the likelihood of achieving these
long-term goals and will record the related compensation at the time achievement
of these goals becomes probable. The Board of Directors has approved a 2000
Incentive Plan. Any future payments under this plan are contingent upon the
achievement of certain financial and other goals.
A summary of EchoStar's incentive stock option activity for the years
ended December 31, 1997, 1998 and 1999 is as follows:
<TABLE>
<CAPTION>
1997 1998 1999
------------------------------ ------------------------------ ------------------------------
WEIGHTED-AVERAGE WEIGHTED-AVERAGE WEIGHTED-AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
----------- ---------------- ----------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding, beginning of
year 4,101,092 $ 3.57 6,098,268 $ 3.75 5,788,060 $ 4.07
Granted 3,118,200 4.26 2,792,540 4.70 10,423,856 15.42
Repriced 1,023,176 4.25 -- -- -- --
Exercised (392,632) 2.41 (752,728) 3.13 (1,904,057) 3.67
Forfeited (1,751,568) 4.87 (2,350,020) 4.27 (386,039) 9.84
----------- ----------- ----------- ----------- ----------- -----------
Options outstanding, end of year 6,098,268 $ 3.75 5,788,060 $ 4.07 13,921,820 $ 12.51
=========== =========== =========== =========== =========== ===========
Exercisable at end of year 1,388,036 $ 3.04 1,929,212 $ 3.46 1,377,716 $ 3.71
=========== =========== =========== =========== =========== ===========
</TABLE>
Exercise prices for options outstanding as of December 31, 1999 are as
follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------------- ----------------------------------
NUMBER NUMBER
OUTSTANDING WEIGHTED-AVERAGE WEIGHTED- EXERCISABLE
AS OF REMAINING AVERAGE AS OF WEIGHTED-
RANGE OF DECEMBER 31, CONTRACTUAL EXERCISE DECEMBER 31, AVERAGE
EXERCISE PRICES 1999 LIFE PRICE 1999 EXERCISE PRICE
- ---------------------- ------------ ---------------- -------------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
$ 2.333 - $ 2.967 509,759 2.79 $ 2.37 482,795 $ 2.33
4.250 - 4.573 2,509,249 5.51 4.27 814,814 4.27
5.500 - 6.868 658,198 6.62 5.70 73,318 5.92
8.243 - 10.00 204,036 7.21 9.97 2,327 8.24
10.973 - 13.200 8,410,426 8.61 12.01 4,462 11.39
20.406 - 20.406 1,034,152 7.29 20.41 -- --
38.360 - 38.360 288,000 9.50 38.36 -- --
45.407 - 45.407 128,000 9.75 45.41 -- --
97.500 - 97.500 180,000 10.00 97.50 -- --
- --------------------- ---------- ----- -------- --------- -------
$ 2.333 - $ 97.500 13,921,820 7.67 $ 12.51 1,377,716 $ 3.71
===================== ========== ===== ======== ========= =======
</TABLE>
On July 1, 1997, the Board of Directors approved a repricing of
substantially all outstanding options with an exercise price greater than $4.25
per share of Class A common stock to $4.25 per share. The Board of Directors
would not typically consider reducing the exercise price of previously granted
options. However, these options were repriced due to the occurrence of certain
events beyond the reasonable control of the employees of EchoStar which
F-23
<PAGE> 41
ECHOSTAR DBS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
significantly reduced the incentive these options were intended to create. The
fair market value of the Class A common stock was $3.81 on the date of the
repricing. Options to purchase approximately 1,024,000 shares of Class A common
stock were affected by this repricing.
F-24
<PAGE> 42
ECHOSTAR DBS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Accounting for Stock-Based Compensation
EchoStar has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees," ("APB 25") and related
interpretations in accounting for its stock-based compensation plans. Under APB
25, EchoStar generally does not recognize compensation expense on the issuance
of stock under its Stock Incentive Plan because the option terms are typically
fixed and typically the exercise price equals the market price of the underlying
stock on the date of grant. In October 1995, the Financial Accounting Standards
Board issued Financial Accounting Standard No. 123, "Accounting and Disclosure
of Stock-Based Compensation," ("FAS No. 123") which established an alternative
method of expense recognition for stock-based compensation awards to employees
based on fair values. EchoStar elected to not adopt FAS No. 123 for expense
recognition purposes.
Pro forma information regarding net income and earnings per share is
required by FAS No. 123 and has been determined as if EchoStar had accounted for
its stock-based compensation plans using the fair value method prescribed by
that statement. For purposes of pro forma disclosures, the estimated fair value
of the options is amortized to expense over the options' vesting period. All
options are initially assumed to vest. Compensation previously recognized is
reversed to the extent applicable to forfeitures of unvested options. The fair
value of each option grant was estimated at the date of the grant using a
Black-Scholes option pricing model with the following weighted-average
assumptions:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1997 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
Risk-free interest rate 6.09% 5.64% 5.38%
Volatility factor 68% 67% 76%
Dividend yield 0.00% 0.00% 0.00%
Expected term of options 6 years 6 years 6 years
Weighted-average fair value of options granted $ 2.60 $ 3.01 $ 14.27
</TABLE>
The Company's pro forma net loss was $325 million, $297 million and
$741 million for the years ended December 31, 1997, 1998 and 1999, respectively.
The pro forma net loss for 1999 is less than the loss reported in the statement
of operations because the $61 million charge for the post-grant appreciation of
stock-based compensation, determined under APB 25 and reported by the Company,
is greater than the amount of stock-based compensation that would have been
reported by the Company under the provisions of FAS No. 123.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect the
fair value estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its
stock-based compensation awards.
7. EMPLOYEE BENEFIT PLANS
Employee Stock Purchase Plan
During 1997, the Board of Directors and shareholders approved an
employee stock purchase plan (the "ESPP"), effective beginning October 1, 1997.
Under the ESPP, EchoStar is authorized to issue a total of 400,000 shares of
Class A common stock. Substantially all full-time employees who have been
employed by EchoStar for at least one calendar quarter are eligible to
participate in the ESPP. Employee stock purchases are made through payroll
deductions. Under the terms of the ESPP, employees may not deduct an amount
which would permit such employee to purchase capital stock of EchoStar under all
stock purchase plans of EchoStar at a rate which would
F-25
<PAGE> 43
ECHOSTAR DBS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
exceed $25,000 in fair market value of capital stock in any one year. The
purchase price of the stock is 85% of the closing price of the Class A common
stock on the last business day of each calendar quarter in which such shares of
Class A common stock are deemed sold to an employee under the ESPP. The ESPP
shall terminate upon the first to occur of (i) October 1, 2007 or (ii) the date
on which the ESPP is terminated by the Board of Directors. During 1997, 1998 and
1999, employees purchased approximately 16,000, 64,000 and 22,000 shares of
Class A common stock through the ESPP, respectively.
401(k) Employee Savings Plan
EchoStar sponsors a 401(k) Employee Savings Plan (the "401(k) Plan")
for eligible employees. Voluntary employee contributions to the 401(k) Plan may
be matched 50% by EchoStar, subject to a maximum annual contribution by EchoStar
of $1,000 per employee. EchoStar also may make an annual discretionary
contribution to the plan with approval by EchoStar's Board of Directors, subject
to the maximum deductible limit provided by the Internal Revenue Code of 1986,
as amended. EchoStar's cash contributions to the 401(k) Plan totaled $329,000 in
1997, and $314,000 in 1998 and 1999. Additionally, during 1998, EchoStar
contributed 320,000 shares of its Class A common stock (fair value of
approximately $2 million) to the 401(k) Plan related to its 1997 discretionary
contribution. During 1999, EchoStar contributed 260,000 shares of its Class A
common stock (fair value of approximately $3 million) to the 401(k) Plan related
to its 1998 discretionary contribution. During 2000, EchoStar expects to
contribute approximately 60,000 shares of its Class A common stock (fair value
of approximately $6 million) to the 401(k) Plan related to its 1999
discretionary contribution.
8. OTHER COMMITMENTS AND CONTINGENCIES
Leases
Future minimum lease payments under noncancelable operating leases as
of December 31, 1999, are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
<S> <C>
2000 $ 6,662
2001 6,565
2002 5,912
2003 4,996
2004 2,195
Thereafter 5,760
--------
Total minimum lease payments $ 32,090
========
</TABLE>
Total rental expense for operating leases approximated $1 million in
1997 and 1998 and $3 million in 1999.
Purchase Commitments
As of December 31, 1999, the Company's purchase commitments totaled
approximately $209 million. The majority of these commitments relate to EchoStar
receiver systems and related components. All of the purchases related to these
commitments are expected to be made during 2000. The Company expects to finance
these purchases from existing unrestricted cash balances and future cash flows
generated from operations, if any.
Patents and Intellectual Property
Many entities, including some of EchoStar's competitors, now have and
may in the future obtain patents and other intellectual property rights that
cover or affect products or services directly or indirectly related to those
that EchoStar offers. EchoStar may not be aware of all patents and other
intellectual property rights that its products
F-26
<PAGE> 44
ECHOSTAR DBS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
may potentially infringe. Damages in patent infringement cases can include a
tripling of actual damages in certain cases. Further, EchoStar cannot estimate
the extent to which it may be required in the future to obtain licenses with
respect to patents held by others and the availability and cost of any such
licenses. Various parties have asserted patent and other intellectual property
rights with respect to components within EchoStar's direct broadcast satellite
system. EchoStar cannot be certain that these persons do not own the rights they
claim, that its products do not infringe on these rights, that it would be able
to obtain licenses from these persons on commercially reasonable terms or, if it
was unable to obtain such licenses, that it would be able to redesign its
products to avoid infringement.
DirecTV
During February 2000 EchoStar filed suit against DirecTV and Thomson
Consumer Electronics/RCA in the Federal District Court of Colorado. The suit
alleges that DirecTV has utilized improper conduct in order to fend off
competition from the DISH Network. According to the complaint, DirecTV has
demanded that certain retailers stop displaying EchoStar merchandise and has
threatened to cause economic damage to retailers if they continued to offer both
product lines in head-to-head competition. The suit alleges that DirecTV has
acted in violation of federal and state anti-trust laws in order to protect
DirecTV's market share. EchoStar is seeking injunctive relief and monetary
damages. It is too early in the litigation to make an assessment of the probable
outcome.
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 it believes significantly overstates the magnitude of its
liability. EchoStar also believes that the fee arrangement is void and
unenforceable because the attorneys who represented EchoStar are seeking a fee
that it believes is unreasonable and excessive, among other things. If EchoStar
is unable to resolve this fee dispute with the attorneys, it would be resolved
through arbitration or litigation. During mid-1999, EchoStar initiated
litigation against the attorneys in the District Court, Arapahoe County,
Colorado, arguing that the fee arrangement is void and unenforceable. EchoStar
has also asserted claims for breach of fiduciary duty, constructive fraud,
breach of the fee arrangement, and misappropriation of trade secrets against the
attorneys. In December 1999, the attorneys initiated an arbitration proceeding
before the American Arbitration Association. It is too early to determine the
outcome of negotiations, arbitration or litigation regarding this fee dispute.
WIC Premium Television Ltd.
During July 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.
F-27
<PAGE> 45
ECHOSTAR DBS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
During September 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.
EchoStar filed motions to dismiss each of the actions for lack of
personal jurisdiction. The Court in the Alberta court action recently denied its
Motion to Dismiss. The Alberta Court also granted a motion to add more EchoStar
parties to the lawsuit. EchoStar Satellite Corporation, EchoStar DBS
Corporation, EchoStar Technologies Corporation, and EchoStar Satellite Broadcast
Corporation have been added as defendants in the litigation. The newly added
defendants have also challenged jurisdiction. The Court in the Federal court
action has stayed that case before ruling on EchoStar's motion to dismiss.
EchoStar intends to vigorously defend the suits in the event its motions are
denied. 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
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.
During 1998, the national networks and local affiliate stations
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.
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 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 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
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 were 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.
F-28
<PAGE> 46
ECHOSTAR DBS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
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 during September 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, including potentially a
nationwide permanent prohibition on its broadcast of ABC, NBC, CBS and Fox
network channels by satellite. The litigation and the new legislation discussed
above, among other things, could also require EchoStar to terminate delivery of
network signals to a material portion of our subscriber base, which could cause
many of these subscribers to cancel their subscription to EchoStar's other
services. While the networks have not sought monetary damages, they have sought
to recover attorney fees if they prevail. EchoStar has sent letters to some of
its subscribers warning that their access to distant broadcast network channels
might be terminated soon and have terminated ABC, NBC, CBS and Fox programming
to many customers.
In November 1999, Congress passed new legislation regarding the
satellite delivery of network programming and it was signed into law by
President Clinton. This new law has the potential of reducing the number of
customers whose network channels EchoStar may otherwise be required to terminate
as the law "grandfathers" in many subscribers.
Meteoroid Events
In November 1998 and 1999, certain meteoroid events occurred as the
Earth's orbit passed through the particulate trail of Comet 55P (Tempel-Tuttle).
Similar meteoroid events are expected to occur again in November 2000. These
meteoroid events pose a potential threat to all in orbit geosynchronous
satellites including our DBS satellites. While the probability that our
satellites will be damaged by space debris is very small, that probability will
increase by several orders of magnitude during these meteoroid events.
9. SUMMARY FINANCIAL INFORMATION FOR SUBSIDIARY GUARANTORS
With the exception of certain de minimis domestic and foreign
subsidiaries (collectively, the "Non-Guarantors"), the Seven and Ten Year Notes
are fully, unconditionally and jointly and severally guaranteed by all
subsidiaries of DBS Corp.
The combined assets, stockholders' equity, net loss and operating cash
flows of the Non-Guarantors represent less than 1% of the combined and
consolidated assets, stockholder's equity, net loss and operating cash flows of
DBS Corp, including the non-guarantors during both 1998 and 1999. Summarized
combined and consolidated financial information for DBS Corp is as follows (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue $ 475,877 $ 985,909 $ 1,606,291
Expenses 700,104 1,116,764 1,959,860
----------- ----------- -----------
Operating loss (224,227) (130,855) (353,569)
Other income (expense) (98,941) (163,449) (208,716)
----------- ----------- -----------
Net loss before taxes (323,168) (294,304) (562,285)
Income tax benefit (provision), net (146) (71) (131)
----------- ----------- -----------
Net loss before extraordinary charges (323,314) (294,375) (562,416)
Extraordinary charge for early retirement of debt, net
of tax - - (228,733)
----------- ----------- -----------
Net loss $ (323,314) $ (294,375) $ (791,149)
=========== =========== ===========
</TABLE>
F-29
<PAGE> 47
ECHOSTAR DBS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1998 1999
----------- -----------
<S> <C> <C>
BALANCE SHEETS DATA:
Current assets $ 241,582 $ 598,690
Property and equipment, net 853,818 1,314,007
Other noncurrent assets 374,773 817,510
----------- -----------
Total assets $ 1,470,173 $ 2,730,207
=========== ===========
Current liabilities $ 477,061 $ 1,145,829
Long-term liabilities 1,581,249 2,046,872
Stockholder's equity (deficit) (588,137) (462,494)
----------- -----------
Total liabilities and stockholder's equity (deficit) $ 1,470,173 $ 2,730,207
=========== ===========
</TABLE>
F-30
<PAGE> 48
ECHOSTAR DBS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
10. SEGMENT REPORTING
Business Unit Descriptions
The operations of EchoStar include three interrelated business units:
o The DISH Network - a DBS subscription television service in the United
States.
o EchoStar Technologies Corporation - the design, distribution and sale
of EchoStar receiver systems for the DISH Network as well as for
direct-to-home projects of other internationally, together with the
provision of uplink center design, construction oversight and other
project integration services for international direct-to-home ventures.
o Satellite Services - engaged in the delivery of video, audio and data
services to business television customers and other satellite users.
These services my include satellite uplink services, satellite
transponder space usage, billing, customer service and other services.
The accounting policies for the above business units are the same as
those described in the summary of significant accounting policies for the
consolidated entity. Both EchoStar and the Company account for intersegment
sales and transfers at cost. All other revenue and expenses from segments below
the quantitative thresholds are attributable to sales of C-band equipment and
other corporate administrative functions. Only those assets and measures of
profit and loss that are included in the measure of assets and profit and loss
used by EchoStar's chief operating decision maker are reported (in thousands).
Financial Data by Business Unit
<TABLE>
<CAPTION>
DBS CORP,
ECHOSTAR OTHER AFFILIATES
DISH SATELLITE ELIMINATIONS CONSOLIDATED ECHOSTAR AND
NETWORK ETC SERVICES AND OTHER TOTAL ACTIVITY SUBSIDIARIES
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1997
Revenue $ 378,377 $ 82,609 $ 3,458 $ 12,974 $ 477,418 $ (1,516) $ 475,902
Depreciation and amortization 158,992 1,659 - 12,625 173,276 (440) 172,836
Total expenses 569,998 73,081 329 58,281 701,689 (1,451) 700,238
EBITDA (32,629) 11,186 3,129 (32,681) (50,995) (505) (51,500)
Interest income 10,114 180 - 6,957 17,251 (4,739) 12,512
Interest expense 27,503 - - 76,689 104,192 5,811 110,003
Income tax provision, net (7) (32) - (107) (146) - (146)
Net income (loss) (231,223) 4,378 2,889 (88,869) (312,825) (10,599) (323,424)
YEAR ENDED DECEMBER 31, 1998
Revenue $ 733,382 $ 251,958 $ 23,442 $ (26,116) $ 982,666 $ 3,243 $ 985,909
Depreciation and amortization 85,107 2,097 26 15,406 102,636 (479) 102,157
Total expenses 871,269 193,852 3,495 36,941 1,105,557 11,207 1,116,764
EBITDA (52,781) 60,202 19,973 (47,649) (20,255) (8,443) (28,698)
Interest income 9,280 - 2 21,004 30,286 (20,175) 10,111
Interest expense 49,042 282 - 118,205 167,529 5,413 172,942
Income tax benefit
(provision), net 17 (11) - (50) (44) (27) (71)
Net loss (199,356) 30,333 18,409 (110,268) (260,882) (33,493) (294,375)
YEAR ENDED DECEMBER 31, 1999
Revenue $ 1,373,789 $ 160,276 $ 47,312 $ 21,464 $ 1,602,841 $ 3,450 $ 1,606,291
Depreciation and amortization 97,899 4,434 193 10,702 113,228 (3,197) 110,031
Total expenses 1,622,928 165,238 15,956 145,810 1,949,932 9,928 1,959,860
EBITDA (151,241) (528) 31,549 (52,733) (172,953) (9,675) (182,628)
Interest income 26,205 1 375 (402) 26,179 (13,613) 12,566
Interest expense (201,356) (253) - (4) (201,613) 5,223 (196,390)
Income tax benefit
(provision), net - (46) - (108) (154) 23 (131)
Net income (loss) (1,949,914) (31,884) 27,273 1,161,678 (792,847) 1,698 (791,149)
</TABLE>
F-31
<PAGE> 49
ECHOSTAR DBS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Geographic Information
<TABLE>
<CAPTION>
OTHER
UNITED STATES EUROPE INTERNATIONAL TOTAL
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
1997
Total revenue* $ 446,461 $ 20,592 $ 8,849 $ 475,902
Long-lived assets 957,166 1,217 121 958,504
1998
Total revenue* $ 967,746 $ 18,163 $ -- $ 985,909
Long-lived assets 955,586 1,498 -- 957,084
1999
Total revenue* $ 1,583,442 $ 22,849 $ -- $ 1,606,291
Long-lived assets 2,033,142 3,099 -- 2,036,241
</TABLE>
* Revenues are attributed to geographic regions based upon the location from
which the sale originated.
Transactions with Major Customers
During 1999, export sales to two customers together totaled $126
million and accounted for approximately 8% of the Company's total revenue.
Revenues from these customers are included within the EchoStar Technologies
Corporation business unit. Complete or partial loss of one or both of these
customers would have a material adverse effect on the Company's results of
operations.
11. VALUATION AND QUALIFYING ACCOUNTS
The Company's valuation and qualifying accounts as of December 31,
1997, 1998 and 1999 are as follows (in thousands):
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO
BEGINNING OF COSTS AND BALANCE AT
YEAR EXPENSES DEDUCTIONS END OF YEAR
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1997:
Assets:
Allowance for doubtful accounts $ 1,494 $ 4,343 $ (4,490) $ 1,347
Loan loss reserve 141 7 (87) 61
Reserve for inventory 5,663 1,650 (3,473) 3,840
Liabilities:
Reserve for warranty costs and other 763 - (53) 710
YEAR ENDED DECEMBER 31, 1998:
Assets:
Allowance for doubtful accounts $ 1,347 $ 10,692 $ (9,043) $ 2,996
Loan loss reserve 61 31 (92) -
Reserve for inventory 3,840 1,744 (403) 5,181
Liabilities:
Reserve for warranty costs and other 710 - (435) 275
YEAR ENDED DECEMBER 31, 1999:
Assets:
Allowance for doubtful accounts $ 2,996 $ 23,481 $ (13,368) $ 13,109
Reserve for inventory 5,181 1,718 (3,019) 3,880
Liabilities:
Reserve for warranty costs and other 275 - (65) 210
</TABLE>
F-32
<PAGE> 50
ECHOSTAR DBS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
12. QUARTERLY FINANCIAL DATA (UNAUDITED)
The Company's quarterly results of operations are summarized as follows
(in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Year Ended December 31, 1998:
Total revenue $ 214,024 $ 246,165 $ 236,755 $ 288,965
Operating loss (21,682) (17,106) (17,206) (74,861)
Net loss (57,261) (53,122) (60,577) (123,415)
Year Ended December 31, 1999:
Total revenue $ 310,335 $ 350,445 $ 431,259 $ 514,252
Operating loss (57,437) (53,285) (79,623) (163,224)
Net loss (333,317) (105,936) (126,532) (225,364)
</TABLE>
The portion of the revenue received from certain Satellite Services
customers, over and above guaranteed minimum channel lease payments, has been
reclassified to subscription television services for each of the first three
quarters. The total amount of the reclassification was approximately $9.6
million. The related expense items have been similarly reclassified.
13. SUBSEQUENT EVENTS
On February 1, 2000, EchoStar filed suit against DirecTV and Thomson
Consumer Electronics/RCA in the Federal District Court of Colorado. The suit
alleges that DirecTV has utilized improper conduct in order to fend off
competition. According to the complaint, DirecTV has demanded that certain
retailers stop displaying EchoStar merchandise and has threatened to cause
economic damage to retailers if they continued to offer both product lines in
head-to-head competition. The suit alleges that DirecTV has acted in violation
of federal and state anti-trust laws in order to protect DirecTV's market share.
EchoStar is seeking injunctive relief and monetary damages. It is too early in
the litigation to make an assessment of the probable outcome.
During February 2000, EchoStar announced the formation of a joint
venture with OpenTV Corp. intended to offer DISH Network customers and other
video platforms around the world a low cost, interactive digital receiver with a
built-in hard disk drive that will permit viewers to pause and record live
programs without the need for video tape. The new set-top box is expected to be
available during the fourth quarter of 2000. In connection with formation of the
joint venture, OpenTV and EchoStar licensed certain intellectual property rights
to the joint venture and EchoStar was issued 2,252,252 shares of OpenTV common
stock. The shares of OpenTV common stock are subject to forfeiture if EchoStar
fails to activate the OpenTV system in at least 500,000 set top boxes on or
before February 23, 2003.
During February 2000, EchoStar also announced agreements for the
construction and delivery of three new satellites. Two of these satellites,
EchoStar VII and EchoStar VIII, will be advanced, high-powered DBS satellites.
Both will include spot-beam technology which could allow DISH Network to offer
local channels or other value added services in as many as 60 or more markets
across the United States. The third satellite, EchoStar IX, will be a hybrid
Ku/Ka-band satellite, which may provide EchoStar with increased opportunities to
attract business customers and may provide DISH Network customers with expanded
services such as Internet, data and potentially two-way wireless communications.
F-33
<PAGE> 51
ECHOSTAR DBS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
During March 2000, EchoStar announced the acquisition of Kelly
Broadcasting Systems, Inc. ("KBS"), a New Jersey based provider of international
and foreign-language programming in the United States. In connection with the
acquisition, EchoStar issued approximately 255,000 shares of its Class A common
stock, valued at the date of issuance at approximately $31 million, and paid
$3.5 million in cash, for 100% ownership of KBS.
During March 2000, EchoStar announced a $50 million investment in iSKY
Inc. Pursuant to the agreement, following the launch of iSKY's service,
currently anticipated during late 2001, EchoStar would also distribute the iSKY
satellite Internet service along with DISH Network satellite TV service through
its more than 23,000 retailers nationwide. With this investment, EchoStar will
own 12% of iSKY and receive warrants which, based on reaching iSKY customer
targets, could increase its stake up to 20.8% on an outstanding basis.
F-34
<PAGE> 52
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
3.1(a)* Articles of Incorporation of the Company (incorporated by
reference to Exhibit 3.4(a) to the Company's Registration
Statement on Form S-4, Registration No. 333-31929).
3.1(b)* Bylaws of the Company (incorporated by reference to Exhibit
3.4(b) to the Company's Registration Statement on Form S-4,
Registration No. 333-31929).
4.1* Indenture relating to the Seven Year Notes, dated as of
January 25, 1999, by and among the Company, the Guarantors and
U.S. Bank Trust National Association, as trustee.(incorporated
by reference to Exhibit 4.1 to the Company's Registration
Statement on Form s-4, Registration No. 333-71345).
4.2* Indenture relating to the Ten Year Notes, dated as of January
25, 1999, by and among the Company, the Guarantors and U.S.
Bank Trust National Association, as trustee. (incorporated by
reference to Exhibit 4.3 to the Company's Registration
Statement on Form s-4, Registration No. 333-71345).
4.3* Registration Rights Agreement relating to the Seven Year Notes
by and among the Company, the Guarantors and the parties named
therein. (incorporated by reference to Exhibit 4.5 to the
Company's Registration Statement on Form s-4, Registration No.
333-71345).
4.4* Registration Rights Agreement relating to the Ten Year Notes
by and among the Company, the Guarantors and the parties named
therein. (incorporated by reference to Exhibit 4.6 to the
Company's Registration Statement on Form s-4, Registration No.
333-71345).
10.1(a)* Satellite Construction Contract, dated as of February 6, 1990,
between EchoStar Satellite Corporation ("ESC") and Martin
Marietta as successor to General Electric, EchoStar,
Astro-Space Division ("General Electric") (incorporated by
reference to Exhibit 10.1(a) to the Registration Statement on
Form S-1 of Dish, Ltd. ("Dish") 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 by reference to
Exhibit 10.1(b) to the Registration Statement on Form S-1 of
Dish, Registration No. 33-76450).
</TABLE>
<PAGE> 53
<TABLE>
<S> <C>
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 by reference to
Exhibit 10.1(c) to the Registration Statement on Form S-1 of
Dish, 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 by reference to Exhibit 10.1(d)to the
Registration Statement on Form S-1 of Dish, 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 by reference to Exhibit 10.1(e) to the
Registration Statement on Form S-1 of Dish, Registration No.
33-76450).
10.1(f)* Form of Fifth Amendment to the Satellite Construction
Contract, between ESC and Martin Marietta (incorporated by
reference to Exhibit 10.1(f) to the Registration Statement on
Form S-1 of Dish, 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 by reference to Exhibit 10.1(g) to the
Registration Statement on Form S-1 of Dish, Registration No.
33-81234).
10.1(h)* Eighth Amendment to the Satellite Construction Contract, dated
as of July 18, 1996, between ESC and Martin Marietta
(incorporated by reference to Exhibit 10.1(h) to the Quarterly
Report on Form 10-Q of EchoStar for the quarter ended June 30,
1996, Commission File No. 0-26176).
10.2* Key Employee Bonus Plan, dated as of January 1, 1994
(incorporated by reference to Exhibit 10.7 to the Registration
Statement on Form S-1 of Dish, Registration No. 33-76450).
10.3* Consulting Agreement, dated as of February 17, 1994, between
ESC and Telesat Canada (incorporated by reference to Exhibit
10.8 to the Registration Statement on Form S-1 of Dish,
Registration No. 33-76450).
10.4* Form of Satellite Launch Insurance Declarations (incorporated
by reference to Exhibit 10.10 to the Registration Statement on
Form S-1 of Dish, Registration No. 33-81234).
10.5* Dish 1994 Stock Incentive Plan (incorporated by reference to
Exhibit 10.11 to the Registration Statement on Form S-1 of
Dish, Registration No. 33-76450).
10.6* Form of Tracking, Telemetry and Control Contract between AT&T
Corp. and ESC (incorporated by reference to Exhibit 10.12 to
the Registration Statement on Form S-1 of Dish, Registration
No. 33-81234).
10.7* Manufacturing Agreement, dated as of March 22, 1995, between
Houston Tracker Systems, Inc. and SCI Technology, Inc.
(incorporated by reference to Exhibit 10.12 to the
Registration Statement on Form S-1 of Dish, Commission File
No. 33-81234).
10.8* Statement of Work, dated January 31, 1995 from ESC to Divicom
Inc. (incorporated by reference to Exhibit 10.14 to the
Registration Statement on Form S-1 of ECC, Registration No.
33-91276).
10.9* Launch Services Contract, dated as of June 2, 1995, by and
between EchoStar Space Corporation and
Lockheed-Khrunichev-Energia International, Inc. (incorporated
by reference to Exhibit 10.15 to the Registration Statement on
Form S-1 of ECC, Registration No. 33-91276).
10.10* EchoStar 1995 Stock Incentive Plan (incorporated by reference
to Exhibit 10.16 to the Registration Statement on Form S-1 of
ECC, Registration No. 33-91276).
</TABLE>
<PAGE> 54
<TABLE>
<S> <C>
10.11(a)* Eighth Amendment to Satellite Construction Contract, dated as
of February 1, 1994, between DirectSat Corporation and Martin
Marietta (incorporated by reference to Exhibit 10.17(a) to the
Quarterly Report on Form 10-Q of ECC for the quarter ended
June 30, 1996, Commission File No. 0-26176).
10.11(b)* Ninth Amendment to Satellite Construction Contract, dated as
of February 1, 1994, between DirectSat Corporation and Martin
Marietta (incorporated by reference to Exhibit 10.15 to the
Registration Statement of Form S-4 of ECC, Registration No.
333-03584).
10.11(c)* Tenth Amendment to Satellite Construction Contract, dated as
of July 18, 1996, between DirectSat Corporation and Martin
Marietta (incorporated by reference to Exhibit 10.17(b) to the
Quarterly Report on Form 10-Q of ECC for the quarter ended
June 30, 1996, Commission File No. 0-26176).
10.12* Satellite Construction Contract, dated as of July 18, 1996,
between EDBS and Lockheed Martin Corporation (incorporated by
reference to Exhibit 10.18 to the Quarterly Report on Form
10-Q of ECC for the quarter ended June 30, 1996, Commission
File No. 0-26176).
10.13* Confidential Amendment to Satellite Construction Contract
between DBSC and Martin Marietta, dated as of May 31, 1995
(incorporated by reference to Exhibit 10.14 to the
Registration Statement of Form S-4 of ECC, Registration No.
333-03584).
10.14* Agreement between HTS, ESC and ExpressVu Inc., dated January
8, 1997, as amended (incorporated by reference to Exhibit
10.18 to the Annual Report on Form 10-K of ECC for the year
ended December 31, 1996, as amended, Commission file No.
0-26176).
10.15* Amendment No. 9 to Satellite Construction Contract, effective
as of July 18, 1996, between Direct Satellite Broadcasting
Corporation, a Delaware corporation ("DBSC") and Martin
Marietta Corporation (incorporated by reference to Exhibit
10.1 to the Quarterly Report on Form 10-Q of ECC for the
quarterly period ended June 30, 1997, Commission File No.
0-26176).
10.16* Amendment No. 10 to Satellite Construction Contract, effective
as of May 31, 1996, between DBSC and Lockheed Martin
Corporation (incorporated by reference to Exhibit 10.2 to the
Quarterly Report on Form 10-Q of ECC for the quarterly period
ended June 30, 1997, Commission File No. 0-26176).
10.17* Contract for Launch Services, dated April 5, 1996, between
Lockheed Martin Commercial Launch Services, Inc. and EchoStar
Space Corporation (incorporated by reference to Exhibit 10.3
to the Quarterly Report on Form 10-Q of ECC for the quarterly
period ended June 30, 1997, Commission File No. 0-26176).
10.18* OEM Manufacturing, Marketing and Licensing Agreement, dated as
of February 17, 1998, by and among HTS, ESC and Philips
Electronics North America Corporation (incorporated by
reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q
of ECC for the quarterly period ended March 31, 1998,
Commission File No. 0-26176).
10.19* Licensing Agreement, dated as of February 23, 1998, by and
among HTS, ESC and VTech Communications Ltd. (incorporated by
reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q
of ECC for quarterly period ended March 31, 1998, Commission
File No. 0-26176).
10.20* Purchase Agreement by and among American Sky Broadcasting,
LLC, The News Corporation Limited, MCI Telecommunications
Corporation and EchoStar Communications Corporation, dated
November 30, 1998. (incorporated by reference to Exhibit 10.1
to the Form 8-K filed by ECC on November 30, 1998, Commission
File No. 0-26176).
</TABLE>
<PAGE> 55
<TABLE>
<S> <C>
10.21* Voting Agreement dated November 30, 1998, among EchoStar
Communications Corporation, American Sky Broadcasting, LLC,
The News Corporation Limited and MCI Telecommunications
Corporation (incorporated by reference to Exhibit 10.3 to the
Current Report on Form 8-K of EchoStar, filed as of December
1, 1998).
10.25* First Amendment, dated June 23, 1999, to the Purchase
Agreement dated November 30, 1998, by and among American Sky
Broadcasting, LLC, The News Corporation Limited, MCI
Telecommunications Corporation, and EchoStar Communications
Corporation (incorporated by reference to Exhibit 10.3 to the
Current Report on Form 8-K of EchoStar, filed as of July 2,
1999, Commission File No. 0-26176).
10.26* Registration Rights Agreement, dated June 24, 1999, by and
among EchoStar Communications Corporation, MCI
Telecommunications Corporation, American Sky Broadcasting,
LLC, and News America Incorporated (incorporated by reference
to Exhibit 10.4 to the Current Report on Form 8-K of EchoStar,
filed as of July 2, 1999, Commission File No. 0-26176).
27 Financial Data Schedule.
</TABLE>
- -------------------
* Incorporated by reference.
** Constitutes a management contract or compensatory plan or arrangement.
Filed herewith.
<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 YEAR ENDED
DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 159,761
<SECURITIES> 24,774
<RECEIVABLES> 157,944
<ALLOWANCES> 13,109
<INVENTORY> 123,184
<CURRENT-ASSETS> 596,133
<PP&E> 1,314,007
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,730,207
<CURRENT-LIABILITIES> 1,145,829
<BONDS> 2,028,060
0
0
<COMMON> 0
<OTHER-SE> (462,494)
<TOTAL-LIABILITY-AND-EQUITY> 2,730,207
<SALES> 1,565,634<F1>
<TOTAL-REVENUES> 1,606,291
<CGS> 911,549<F2>
<TOTAL-COSTS> 1,959,860
<OTHER-EXPENSES> 208,716
<LOSS-PROVISION> 23,342
<INTEREST-EXPENSE> 196,390
<INCOME-PRETAX> (562,285)
<INCOME-TAX> (131)
<INCOME-CONTINUING> (562,416)
<DISCONTINUED> 0
<EXTRAORDINARY> (228,733)
<CHANGES> 0
<NET-INCOME> (791,149)
<EPS-BASIC> 0
<EPS-DILUTED> 0
<FN>
<F1> Includes programming revenue.
<F2> Includes costs of programming.
</FN>
</TABLE>
