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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
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 33-76450
DISH, LTD.
(Exact name of registrant as specified in its charter)
NEVADA 88-0312499
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5701 S. Santa Fe Drive
Littleton, Colorado 80120
(Address of principal executive offices) (Zip code)
(303) 723-1000
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year, if changed since last
report)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO
AS OF MAY 8, 1998, REGISTRANT'S OUTSTANDING COMMON STOCK CONSISTED OF 1,000
SHARES OF COMMON STOCK.
THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION
(H)(1)(a) AND (b) OF FORM 10-Q AND IS THEREFORE FILING THIS FORM 10-Q WITH THE
REDUCED DISCLOSURE FORMAT.
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TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
December 31, 1997 and March 31, 1998 (Unaudited) . . . . . . . 1
Condensed Consolidated Statements of Operations for the
three months ended March 31, 1997 and 1998 (Unaudited) . . . . 2
Condensed Consolidated Statements of Cash Flows for the
three months ended March 31, 1997 and 1998 (Unaudited) . . . . 3
Notes to Condensed Consolidated Financial Statements (Unaudited) 4
Item 2. Management's Narrative Analysis of Results of Operations . . . . 7
Item 3. Quantitative and Qualitative Disclosures About Market Risk . . . None
PART II - OTHER INFORMATION
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . 10
Item 2. Changes in Securities and Use of Proceeds. . . . . . . . . . . . *
Item 3. Defaults Upon Senior Securities. . . . . . . . . . . . . . . . . *
Item 4. Submission of Matters to a Vote of Security Holders. . . . . . . *
Item 5. Other Information. . . . . . . . . . . . . . . . . . . . . . . . None
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . 11
DISH NETWORK-SM- IS A SERVICE MARK OF ECHOSTAR COMMUNICATIONS CORPORATION.
- ------------------
* This item has been omitted pursuant to the reduced disclosure format as set
forth in General Instruction (H)(1)(a) and (b) of Form 10-Q.
<PAGE>
DISH, LTD.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
---------------------------------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . $ 35,682 $ 3,227
Trade accounts receivable, net of allowance for
uncollectible accounts of $1,347 and $1,673,
respectively . . . . . . . . . . . . . . . . . . . . . . . . 66,045 82,553
Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . 22,993 34,643
Subscriber acquisition costs, net. . . . . . . . . . . . . . . 18,819 7,848
Other current assets . . . . . . . . . . . . . . . . . . . . . 8,927 8,720
---------------------------------
Total current assets . . . . . . . . . . . . . . . . . . . . . . 152,466 136,991
Restricted cash and marketable investment securities . . . . . . 2,245 2,245
Property and equipment, net. . . . . . . . . . . . . . . . . . . 505,347 515,015
Other noncurrent assets. . . . . . . . . . . . . . . . . . . . . 84,383 82,499
---------------------------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . $ 744,441 $ 736,750
---------------------------------
---------------------------------
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
Current Liabilities:
Trade accounts payable . . . . . . . . . . . . . . . . . . . . $ 68,491 $ 63,453
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . 122,215 113,066
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . 72,369 102,374
Advances from affiliates, net. . . . . . . . . . . . . . . . . 194,265 188,977
Current portion of long-term debt. . . . . . . . . . . . . . . 14,924 15,174
---------------------------------
Total current liabilities. . . . . . . . . . . . . . . . . . . . 472,264 483,044
Long-term obligations, net of current portion:
1994 Notes . . . . . . . . . . . . . . . . . . . . . . . . . . 499,863 516,829
Mortgages and other notes payable, net of
current portion. . . . . . . . . . . . . . . . . . . . . . . 40,495 36,821
Long-term deferred satellite services revenue
and other long-term liabilities. . . . . . . . . . . . . . . 19,500 22,464
---------------------------------
Total long-term obligations, net of current portion. . . . . . . 559,858 576,114
---------------------------------
Total liabilities. . . . . . . . . . . . . . . . . . . . . 1,032,122 1,059,158
Commitments and Contingencies (Note 4)
Stockholder's Equity (Deficit):
Common stock, $.01 par value, 1,000 shares
authorized, issued and outstanding . . . . . . . . . . . . . - -
Additional paid-in capital . . . . . . . . . . . . . . . . . . 108,835 108,835
Accumulated deficit. . . . . . . . . . . . . . . . . . . . . . (396,516) (431,243)
---------------------------------
Total stockholder's equity (deficit) . . . . . . . . . . . . . . (287,681) (322,408)
---------------------------------
Total liabilities and stockholder's equity (deficit) . . . $ 744,441 $ 736,750
---------------------------------
---------------------------------
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
1
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DISH, LTD.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
---------------------------------
1997 1998
---------------------------------
<S> <C> <C>
REVENUE:
DISH Network:
Subscription television services . . . . . . . . . . . . . . $ 48,050 $ 128,541
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,206 6,184
---------------------------------
Total DISH Network . . . . . . . . . . . . . . . . . . . . . . 56,256 134,725
DTH equipment sales and integration services . . . . . . . . . 1,958 66,816
Satellite services . . . . . . . . . . . . . . . . . . . . . . 2,165 4,595
C-band and other . . . . . . . . . . . . . . . . . . . . . . . 8,588 7,888
---------------------------------
Total revenue. . . . . . . . . . . . . . . . . . . . . . . . . . 68,967 214,024
COSTS AND EXPENSES:
DISH Network Operating Expenses:
Subscriber-related expenses. . . . . . . . . . . . . . . . . 23,040 63,809
Customer service center and other. . . . . . . . . . . . . . 6,445 11,733
Satellite and transmission . . . . . . . . . . . . . . . . . 2,785 5,252
---------------------------------
Total DISH Network operating expenses. . . . . . . . . . . . . 32,270 80,794
Cost of sales - DTH equipment and integration services . . . . 2,228 47,251
Cost of sales - C-band and other . . . . . . . . . . . . . . . 6,008 5,942
Marketing:
Subscriber promotion subsidies . . . . . . . . . . . . . . . 12,777 44,835
Advertising and other. . . . . . . . . . . . . . . . . . . . 3,276 8,250
---------------------------------
Total marketing expenses . . . . . . . . . . . . . . . . . . . 16,053 53,085
General and administrative . . . . . . . . . . . . . . . . . . 15,007 19,289
Amortization of subscriber acquisition costs . . . . . . . . . 28,062 10,971
Depreciation and amortization. . . . . . . . . . . . . . . . . 12,643 13,377
---------------------------------
Total costs and expenses . . . . . . . . . . . . . . . . . . . . 112,271 230,709
---------------------------------
Operating loss . . . . . . . . . . . . . . . . . . . . . . . . . (43,304) (16,685)
Other Income (Expense):
Interest income. . . . . . . . . . . . . . . . . . . . . . . . 792 637
Interest expense, net of amounts capitalized . . . . . . . . . (15,660) (18,415)
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . (57) (93)
---------------------------------
Total other income (expense) . . . . . . . . . . . . . . . . . . (14,925) (17,871)
---------------------------------
Loss before income taxes . . . . . . . . . . . . . . . . . . . . (58,229) (34,556)
Income tax provision, net. . . . . . . . . . . . . . . . . . . . (19) (171)
---------------------------------
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(58,248) $(34,727)
---------------------------------
---------------------------------
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
2
<PAGE>
DISH, LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
---------------------------------
1997 1998
---------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (58,248) $ (34,727)
Adjustments to reconcile net loss to net cash flows
from operating activities:
Depreciation and amortization. . . . . . . . . . . . . . . . . 12,643 13,377
Amortization of subscriber acquisition costs . . . . . . . . . 28,062 10,971
Amortization of debt discount and deferred financing costs . . 14,321 17,295
Change in reserve for excess and obsolete inventory. . . . . . (2,302) (33)
Change in long-term deferred satellite services revenue
and other long-term liabilities. . . . . . . . . . . . . . . 3,090 3,015
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . (125) (51)
Changes in current assets and current liabilities. . . . . . . (2,879) (21,086)
---------------------------------
Net cash flows from operating activities . . . . . . . . . . . . (5,438) (11,239)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of restricted marketable investment securities . . . . (1,995) -
Purchases of property and equipment. . . . . . . . . . . . . . . (11,364) (17,000)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (393) (792)
---------------------------------
Net cash flows from investing activities . . . . . . . . . . . . (13,752) (17,792)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of mortgage indebtedness and notes payable. . . . . . (3,130) (3,424)
---------------------------------
Net cash flows from financing activities . . . . . . . . . . . . (3,130) (3,424)
---------------------------------
Net decrease in cash and cash equivalents. . . . . . . . . . . . (22,320) (32,455)
Cash and cash equivalents, beginning of period . . . . . . . . . 24,919 35,682
---------------------------------
Cash and cash equivalents, end of period . . . . . . . . . . . . $ 2,599 $ 3,227
---------------------------------
---------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest, net of amounts capitalized . . . . . . $ 612 $ 1,128
Cash paid for income taxes . . . . . . . . . . . . . . . . . . - 171
Capitalized interest, including amounts due from affiliates. . - 1,316
Accrued capital expenditures . . . . . . . . . . . . . . . . . - 4,653
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
3
<PAGE>
DISH, LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. ORGANIZATION AND BUSINESS ACTIVITIES
PRINCIPAL BUSINESS
Dish, Ltd. and subsidiaries ("Dish, Ltd.") is a wholly-owned subsidiary
of EchoStar Satellite Broadcasting Corporation ("ESBC"). ESBC is a
wholly-owned subsidiary of EchoStar DBS Corporation ("DBS Corp"), which 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. Unless otherwise stated herein, or the context
otherwise requires, references herein to EchoStar shall include ECC, DBS
Corp, ESBC, Dish, Ltd. and all direct and indirect wholly-owned subsidiaries
thereof. The Company's management refers readers of this Quarterly Report on
Form 10-Q to EchoStar's Quarterly Report on Form 10-Q for the three months
ended March 31, 1998. Substantially all of EchoStar's operations are
conducted by subsidiaries of Dish, Ltd. The operations of EchoStar include
three interrelated business units:
- THE DISH NETWORK - a DBS subscription television service in the United
States. As of March 31, 1998, EchoStar had approximately 1.2 million
DISH Network subscribers.
- TECHNOLOGY - the design, manufacture, distribution and sale of DBS
set-top boxes, antennae and other digital equipment for the DISH
Network ("EchoStar Receiver Systems"), and the design, manufacture and
distribution of similar equipment for direct-to-home ("DTH") projects
of others internationally, together with the provision of uplink
center design, construction oversight and other project integration
services for international DTH ventures.
- SATELLITE SERVICES - the turn-key delivery of video, audio and data
services to business television customers and other satellite users.
These services include satellite uplink services, satellite
transponder space usage, and other services.
Since 1994, EchoStar has deployed substantial resources to develop the
"EchoStar DBS System." The EchoStar DBS System consists of EchoStar's
FCC-allocated DBS spectrum, DBS satellites ("EchoStar I," "EchoStar II,"
"EchoStar III," and "EchoStar IV"), digital satellite receivers, digital
broadcast operations center, customer service facilities, and other assets
utilized in its operations. EchoStar's principal business strategy is to
continue developing its subscription television service in the U.S. to
provide consumers with a fully competitive alternative to cable television
service.
RECENT DEVELOPMENTS
EchoStar IV was launched on May 8, 1998 from the Baikonur Cosmodrome,
Kazakhstan. While initial data indicates the launch was successful, the
ultimate success of the launch and in-orbit operation of EchoStar IV will not
be established for approximately 60 days. Subject to final agreement between
the United States and Mexican administration, EchoStar IV will be tested at
the 127DEG. West Longitude ("WL") orbital location for approximately two
months, and will then be moved to its operational orbital location at
119.2DEG. WL. Together with EchoStar II, it will provide video, audio and
data services throughout the continental United States. EchoStar IV also
will provide video, audio and data services to Alaska and Hawaii.
Provided EchoStar IV is successfully deployed at 119.2DEG. WL, EchoStar
plans to relocate EchoStar I, a 16 transponder DBS satellite, from 119DEG. WL
to 148DEG. WL. EchoStar has a permit, issued by the Federal Communications
Commission (the "FCC"), for the use of 24 frequencies at the 148DEG. WL
orbital slot. The FCC conditionally approved the relocation of EchoStar I to
148DEG. WL in April 1998. To retain its remaining eight frequencies at
148DEG. WL, EchoStar must, in accordance with its FCC license, complete
construction of an additional DBS satellite by December 20, 2000, and that
satellite must be operational by December 20, 2002.
4
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DISH, LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
(Unaudited)
Once EchoStar I is operational at the 148DEG. WL orbital location,
EchoStar plans to expand its local programming initiative to include certain
of the largest television markets in the Mountain and Pacific time zones, and
to provide expanded international, niche, educational, business television
and data services.
2. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles and with the instructions to Form 10-Q and Article 10 of
Regulation S-X for interim financial information. Accordingly, these
statements do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
adjustments) considered necessary for a fair presentation have been included.
All significant intercompany accounts and transactions have been eliminated
in consolidation. Operating results for the three months ended March 31,
1998 are not necessarily indicative of the results that may be expected for
the year ending December 31, 1998. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1997.
Certain prior year amounts have been reclassified to conform with the current
year presentation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses for each
reporting period. Actual results could differ from those estimates.
3. INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
---------------------------------
(Unaudited)
<S> <C> <C>
DBS receiver components . . . . . . . . $12,506 $13,565
EchoStar Receiver Systems . . . . . . . 7,649 17,917
Consigned DBS receiver components . . . 3,122 4,073
Finished goods - analog DTH equipment . 2,116 1,614
Spare parts and other . . . . . . . . . 1,440 1,281
Reserve for excess and obsolete
inventory . . . . . . . . . . . . . . (3,840) (3,807)
---------------------------------
$22,993 $34,643
---------------------------------
---------------------------------
</TABLE>
4. COMMITMENTS AND CONTINGENCIES
During February 1997, EchoStar and The News Corporation Limited ("News")
announced an agreement (the "News Agreement") pursuant to which, among other
things, News agreed to acquire approximately 50% of the outstanding capital
stock of EchoStar. News also agreed to make available for use by EchoStar
the DBS permit for 28 frequencies at 110 West Longitude purchased by MCI
Communications Corporation for over $682 million following a
5
<PAGE>
DISH, LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
(Unaudited)
1996 FCC auction. During late April 1997, substantial disagreements arose
between the parties regarding their obligations under the News Agreement.
In May 1997, EchoStar filed a Complaint requesting that the Court
confirm EchoStar's position and declare that News is obligated pursuant to
the News Agreement to lend $200 million to EchoStar without interest and upon
such other terms as the Court orders. EchoStar also filed a First Amended
Complaint significantly expanding the scope of the litigation, to include
breach of contract, failure to act in good faith, and other causes of action.
EchoStar seeks specific performance of the News Agreement and damages,
including lost profits based on, among other things, a jointly prepared
ten-year business plan showing expected profits for EchoStar in excess of $10
billion based on consummation of the transactions contemplated by the News
Agreement.
In June 1997, News filed an answer and counterclaims seeking unspecified
damages. News' answer denies all of the material allegations in the First
Amended Complaint and asserts numerous defenses, including bad faith,
misconduct and failure to disclose material information on the part of
EchoStar and its Chairman and Chief Executive Officer, Charles W. Ergen. The
counterclaims, in which News is joined by its subsidiary American Sky
Broadcasting, L.L.C., assert that EchoStar and Ergen breached their
agreements with News and failed to act and negotiate with News in good faith.
EchoStar has responded to News' answer and denied the allegations in their
counterclaims. EchoStar also has asserted various affirmative defenses.
EchoStar intends to vigorously defend against the counterclaims. Discovery
commenced on July 3, 1997 and depositions are currently being taken. The
case has been set for trial commencing November 1998, but that date could be
postponed.
While EchoStar is confident of its position and believes it will
ultimately prevail, the litigation process could continue for many years and
there can be no assurance concerning the outcome of the litigation.
EchoStar is subject to various other legal proceedings and claims which
arise in the ordinary course of its business. In the opinion of management,
the amount of ultimate liability with respect to those actions will not
materially affect the financial position or results of operations of EchoStar.
In November 1998 and 1999, certain meteoroid events will occur as the
earth's orbit passes through the particulate trail of Comet 55P
(Tempel-Tuttle). These meteoroid events pose a potential threat to all
in-orbit geosynchronous satellites, including EchoStar's DBS satellites.
EchoStar is presently evaluating the potential effects that these meteoroid
events may have on its DBS satellites. At this time, it is not possible to
determine what impact, if any, these meteoroid events could have on
EchoStar's DBS satellites.
6
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ITEM 2. MANAGEMENT'S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS
ALL STATEMENTS CONTAINED HEREIN, AS WELL AS STATEMENTS MADE IN PRESS
RELEASES AND ORAL STATEMENTS THAT MAY BE MADE BY THE COMPANY OR BY OFFICERS,
DIRECTORS OR EMPLOYEES OF THE COMPANY ACTING ON ITS BEHALF, THAT ARE NOT
STATEMENTS OF HISTORICAL FACT CONSTITUTE "FORWARD-LOOKING STATEMENTS" WITHIN
THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. SUCH
FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND
OTHER FACTORS THAT COULD CAUSE THE ACTUAL RESULTS OF THE COMPANY TO BE
MATERIALLY DIFFERENT FROM HISTORICAL RESULTS OR FROM ANY FUTURE RESULTS
EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. AMONG THE FACTORS
THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY ARE THE FOLLOWING: THE
UNAVAILABILITY OF SUFFICIENT CAPITAL ON SATISFACTORY TERMS TO FINANCE THE
COMPANY'S BUSINESS PLAN; INCREASED COMPETITION FROM CABLE, DIRECT BROADCAST
SATELLITE ("DBS"), OTHER SATELLITE SYSTEM OPERATORS AND OTHER PROVIDERS OF
SUBSCRIPTION TELEVISION SERVICES; THE INTRODUCTION OF NEW TECHNOLOGIES AND
COMPETITORS INTO THE SUBSCRIPTION TELEVISION BUSINESS; INCREASED SUBSCRIBER
ACQUISITION COSTS AND SUBSCRIBER PROMOTION SUBSIDIES; THE INABILITY OF THE
COMPANY TO OBTAIN NECESSARY SHAREHOLDER AND BONDHOLDER APPROVAL OF ANY
STRATEGIC TRANSACTIONS; THE INABILITY OF THE COMPANY TO OBTAIN AND RETAIN
NECESSARY AUTHORIZATIONS FROM THE FEDERAL COMMUNICATION COMMISSION ("FCC");
THE OUTCOME OF ANY LITIGATION IN WHICH THE COMPANY MAY BE INVOLVED; GENERAL
BUSINESS AND ECONOMIC CONDITIONS; AND OTHER RISK FACTORS DESCRIBED FROM TIME
TO TIME IN THE COMPANY'S REPORTS FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION ("SEC"). IN ADDITION TO STATEMENTS 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.
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THE THREE MONTHS ENDED MARCH 31,
1997.
REVENUE. Total revenue for the three months ended March 31, 1998 was
$214 million, an increase of $145 million or 210%, as compared to total
revenue for the three months ended March 31, 1997 of $69 million. The
increase in total revenue was primarily attributable to DISH Network
subscriber growth combined with increased revenue from the Company's
Technology business unit. The number of DISH Network subscribers increased
from 1,040,000 at December 31, 1997 to 1.2 million subscribers at March 31,
1998. Comparatively, the number of DISH Network subscribers increased from
350,000 at December 31, 1996 to 479,600 at March 31, 1997. The Company
expects that its revenues will continue to increase as the number of DISH
Network subscribers increases. Consistent with the increases in total
revenue and the number of DISH Network subscribers during the three months
ended March 31, 1998, the Company experienced a corresponding increase in
trade accounts receivable at March 31, 1998. During the three months ended
March 31, 1998 and 1997, the Company's subscriber churn (which represents the
number of subscriber disconnects during the period divided by the
weighted-average number of subscribers during the period) approximated 1% per
month.
DISH Network subscription television services revenue totaled $129
million for the three months ended March 31, 1998, an increase of $81 million
compared to the same period in 1997. This increase was directly attributable
to the increase in the number of DISH Network subscribers. Monthly revenue
per subscriber approximated $38 during each of the three-month periods ended
March 31, 1998 and 1997. 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 as the Company adds DISH Network
subscribers.
For the three months ended March 31, 1998, DTH equipment sales and
integration services totaled $67 million, an increase of $65 million compared
to the three months ended March 31, 1997. DTH equipment sales consist of
sales of digital set-top boxes and other digital satellite broadcasting
equipment by the Company to international DTH service operators. EchoStar
currently has agreements to provide equipment to DTH service operators in
Spain and Canada. Sales pursuant to these agreements totaled $59 million for
the three months ended March 31, 1998. DBS accessory and other sales totaled
$8 million during the three months ended March 31, 1998, a $6 million
increase compared to the same period in 1997.
While EchoStar continues to actively pursue other distribution and
integration service opportunities, no assurance can be given that any such
additional negotiations will be successful. EchoStar's future revenue from
the
7
<PAGE>
ITEM 2. MANAGEMENT'S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS--CONTINUED
sale of DTH equipment and integration services in international markets
depends largely on the success of the DTH operator in that country, which, in
turn, depends on other factors, such as the level of consumer acceptance of
DBS products and the intensity of competition for international subscription
television subscribers. No assurance can be given regarding the level of
expected future revenues that may be generated from EchoStar's alliances with
foreign DTH operators.
Satellite services revenue totaled $5 million for the three months ended
March 31, 1998, an increase of $3 million as compared to the same period in
1997. These revenues include, among other things, fees charged to content
providers for signal carriage and revenues earned from business television
(BTV) customers for the broadcast of organizationally specific programming.
The increase in satellite services revenue was primarily attributable to
increased usage by the Company's BTV customers.
DISH NETWORK OPERATING EXPENSES. DISH Network operating expenses
totaled $81 million for the three months ended March 31, 1998, an increase of
$49 million as compared to the same period in 1997. The increase in DISH
Network operating expenses was primarily attributable to the increase in the
number of DISH Network subscribers. For the three months ended March 31,
1998, DISH Network operating expenses represented 63% of subscription
television services revenue compared to 67% of subscription television
revenue during the corresponding period in 1997.
Subscriber-related expenses totaled $64 million for the three months
ended March 31, 1998, an increase of $41 million compared to the same period
in 1997. Such expenses, which include programming expenses, copyright
royalties, residuals payable to retailers and distributors, and billing,
lockbox and other variable subscriber expenses, totaled 50% of subscription
television services revenues for the three months ended March 31, 1998,
compared to 48% of subscription television services revenues for the three
months ended March 31, 1997. The increase in subscriber-related expenses as
a percentage of subscription television services revenue resulted primarily
from an increase in copyright royalties payable by satellite providers for
the transmission of distant broadcast network and superstation signals. This
increase in copyright royalties accounted for approximately $3 million of the
increase in subscriber-related expenses.
Customer service center and other expenses principally consist of costs
incurred in the operation of the Company's DISH Network customer service
center, such as personnel and telephone expenses, as well as subscriber
equipment installation and other operating expenses. Customer service center
and other expenses totaled $12 million for the three months ended March 31,
1998, an increase of $6 million as compared to the three months ended March
31, 1997. Customer service center and other expenses totaled 9% of
subscription television services revenue during the three months ended March
31, 1998, compared to 13% of subscription television services revenue during
the same period of the prior year. The increase in customer service center
and other expenses resulted from increased personnel expenses to support the
growth of the DISH Network. While there can be no assurance that customer
service center and other expenses as a percentage of subscription television
services revenue will not increase, the Company expects this expense to
revenue ratio to remain near first quarter levels for the remainder of 1998.
Satellite and transmission expenses include expenses associated with the
operation of EchoStar's digital broadcast center, contracted satellite
tracking, telemetry and control ("TT&C") services, and in-orbit insurance on
EchoStar's DBS satellites. Satellite and transmission expenses increased $2
million during the three months ended March 31, 1998, as compared to the same
period during 1997. This increase resulted from an increase in the number of
EchoStar's operational DBS satellites. The Company expects DISH Network
operating expenses to continue to increase in the future as subscribers are
added. However, as its DISH Network subscriber base continues to expand, the
Company expects that such costs as a percentage of DISH Network revenue may
decline.
COST OF SALES - DTH EQUIPMENT AND INTEGRATION SERVICES. Cost of sales -
DTH equipment and integration services totaled $47 million for the three
months ended March 31, 1998, an increase of $45 million, as compared to the
three months ended March 31, 1997. This increase is consistent with the
increase in DTH equipment revenue. During the three months ended March 31,
1998, cost of sales - DTH equipment and integration services principally
8
<PAGE>
ITEM 2. MANAGEMENT'S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS--CONTINUED
included costs associated with digital set-top boxes and related components
sold to international DTH operators. For the three months ended March 31,
1997, cost of sales - DTH equipment and integration services totaled $2
million and consisted almost entirely of costs of DBS accessories sold.
MARKETING EXPENSES. Marketing expenses totaled $53 million for the
three months ended March 31, 1998, an increase of $37 million as compared to
the same period in 1997. The increase in marketing expenses was primarily
attributable to the 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. The Company
recognizes subscriber promotion subsidies as incurred. These expenses
totaled $45 million for the three months ended March 31, 1998, an increase of
$32 million over the same period in 1997. This increase principally resulted
from the immediate recognition of all subscriber promotion subsidies incurred
in 1998, whereas during the three-month period ended March 31, 1997, a
portion of such expenses were initially deferred and amortized over the
related prepaid subscription term (generally one year). This accelerated
expense recognition resulted from the introduction of the "1997 Promotion" in
June 1997. The 1997 Promotion maintained the suggested retail price for a
standard EchoStar Receiver System at $199, but eliminated the requirement for
the coincident purchase of an extended subscription commitment. For the
three months ended March 31, 1998, the Company's subscriber acquisition
costs, inclusive of acquisition marketing expenses, totaled $51 million
(approximately $250 per new subscriber activation). Comparatively, the
Company's subscriber acquisition costs, inclusive of acquisition marketing
expenses and deferred subscriber acquisition costs, totaled $58 million (in
excess of $400 per new subscriber activation) during the same period in 1997.
The decrease in the Company's subscriber acquisition costs, on a per new
subscriber activation basis, principally resulted from decreases in the
manufactured cost of EchoStar Receiver Systems. Advertising and other
expenses totaled $8 million for the three months ended March 31, 1998, an
increase of $5 million over the same period in 1997, as a result of increased
marketing activity.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative ("G&A")
expenses totaled $19 million for the three-month period ended March 31, 1998,
an increase of $4 million as compared to the same period in 1997. The
increase in G&A expenses was principally attributable to increased personnel
expenses to support the growth of the DISH Network. G&A expenses as a
percentage of total revenue decreased to 9% for the three months ended March
31, 1998 compared to 22% for the corresponding period in 1997. While there
can be no assurance that G&A expenses as a percentage of total revenue will
not increase, the Company expects this expense to revenue ratio to remain
near first quarter levels for the remainder of 1998.
EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION AND AMORTIZATION
("EBITDA"). EBITDA for the three months ended March 31, 1998 improved to $8
million compared to negative EBITDA of $3 million for the same period in
1997. This improvement in EBITDA principally resulted from increases in DISH
Network and Technology revenues. The Company believes that its EBITDA
results may continue to improve in future periods as the number of DISH
Network subscribers increases. However, in the event that new subscriber
activations exceed expectations or subscriber acquisition costs materially
increase, the Company's EBITDA results may be negatively impacted in the
near-term because subscriber acquisition costs are expensed as incurred.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses
for the three months ended March 31, 1998 (including amortization of
subscriber acquisition costs of $11 million) aggregated $24 million, a
decrease of $17 million as compared to the corresponding period in 1997. The
decrease in depreciation and amortization expenses principally resulted from
the decrease in amortization of subscriber acquisition costs. Beginning in
October 1997, net subscriber acquisition costs are expensed as incurred.
Consequently, no additional subscriber acquisition costs are being deferred.
The unamortized balance of such costs is expected to be fully amortized by
September 1998.
OTHER INCOME AND EXPENSE. Other expense, net totaled $18 million for
the three months ended March 31, 1998, an increase of $3 million as compared
to the same period in 1997. The increase in other expense resulted primarily
from an increase in interest expense associated with an increase accreted
balance on the Company's 12 7/8% Senior Secured Discount Notes due 2004.
9
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
During February 1997, EchoStar and The News Corporation Limited ("News")
announced an agreement (the "News Agreement") pursuant to which, among other
things, News agreed to acquire approximately 50% of the outstanding capital
stock of EchoStar. News also agreed to make available for use by EchoStar
the DBS permit for 28 frequencies at 110 West Longitude purchased by MCI
Communications Corporation for over $682 million following a 1996 FCC
auction. During late April 1997, substantial disagreements arose between the
parties regarding their obligations under the News Agreement.
In May 1997, EchoStar filed a Complaint requesting that the Court
confirm EchoStar's position and declare that News is obligated pursuant to
the News Agreement to lend $200 million to EchoStar without interest and upon
such other terms as the Court orders. EchoStar also filed a First Amended
Complaint significantly expanding the scope of the litigation, to include
breach of contract, failure to act in good faith, and other causes of action.
EchoStar seeks specific performance of the News Agreement and damages,
including lost profits based on, among other things, a jointly prepared
ten-year business plan showing expected profits for EchoStar in excess of $10
billion based on consummation of the transactions contemplated by the News
Agreement.
In June 1997, News filed an answer and counterclaims seeking unspecified
damages. News' answer denies all of the material allegations in the First
Amended Complaint and asserts numerous defenses, including bad faith,
misconduct and failure to disclose material information on the part of
EchoStar and its Chairman and Chief Executive Officer, Charles W. Ergen. The
counterclaims, in which News is joined by its subsidiary American Sky
Broadcasting, L.L.C., assert that EchoStar and Ergen breached their
agreements with News and failed to act and negotiate with News in good faith.
EchoStar has responded to News' answer and denied the allegations in their
counterclaims. EchoStar also has asserted various affirmative defenses.
EchoStar intends to vigorously defend against the counterclaims. Discovery
commenced on July 3, 1997 and depositions are currently being taken. The
case has been set for trial commencing November 1998, but that date could be
postponed.
While EchoStar is confident of its position and believes it will
ultimately prevail, the litigation process could continue for many years and
there can be no assurance concerning the outcome of the litigation.
EchoStar is subject to various other legal proceedings and claims which
arise in the ordinary course of its business. In the opinion of management,
the amount of ultimate liability with respect to those actions will not
materially affect the financial position or results of operations of EchoStar.
10
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS.
27+ Financial Data Schedule.
________________________________
+ Filed herewith.
(b) REPORTS ON FORM 8-K.
No reports on Form 8-K were filed during the first quarter of 1998.
11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DISH LTD
By: /s/ DAVID K. MOSKOWITZ
--------------------------------------
David K. Moskowitz
Senior Vice President, General Counsel and Secretary
By: /s/ JOHN R. HAGER
--------------------------------------
John R. Hager
Vice President - Controller
(PRINCIPAL ACCOUNTING OFFICER)
Date: May 15, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF DISH, LTD. AS OF AND FOR THE QUARTER ENDED MARCH 31,
1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THOSE FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 3,227
<SECURITIES> 0
<RECEIVABLES> 84,226
<ALLOWANCES> 1,673
<INVENTORY> 34,643
<CURRENT-ASSETS> 136,991
<PP&E> 614,064
<DEPRECIATION> 99,049
<TOTAL-ASSETS> 736,750
<CURRENT-LIABILITIES> 483,044
<BONDS> 553,650
0
0
<COMMON> 0
<OTHER-SE> (322,408)
<TOTAL-LIABILITY-AND-EQUITY> 736,750
<SALES> 209,429<F1>
<TOTAL-REVENUES> 214,024
<CGS> 133,987<F2>
<TOTAL-COSTS> 230,709
<OTHER-EXPENSES> 17,871
<LOSS-PROVISION> 1,678
<INTEREST-EXPENSE> 18,415<F3>
<INCOME-PRETAX> (34,556)
<INCOME-TAX> 171
<INCOME-CONTINUING> (34,727)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (34,727)
<EPS-PRIMARY> (34,727)
<EPS-DILUTED> (34,727)
<FN>
<F1>Includes sales of programming.
<F2>Includes costs of programming.
<F3>Net of amounts capitalized.
</FN>
</TABLE>
