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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, 1997
OR
[] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(b) 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 Identification No.)
incorporation or organization)
5701 S. SANTA FE
LITTLETON, COLORADO 80120
(Address of principal executive offices) (Zip Code)
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, 1998, 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
Item 1. Business. . . . . . . . . . . . . . . . . . . . . . . . 1
Item 2. Properties. . . . . . . . . . . . . . . . . . . . . . . 2
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . 2
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 . . . . . . . . . . . . . . . . . . 4
Item 6. Selected Financial Data . . . . . . . . . . . . . . . . *
Item 7. Management's Narrative Analysis of Results
of Operations . . . . . . . . . . . . . . . . . . . . . 4
Item 8. Financial Statements and Supplementary Data . . . . . . 7
Item 9. Changes In and Disagreements with Accountants on
Accounting and Financial Disclosure . . . . . . . . . . 7
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 . . . . . . . . . . . . . . . . . . 8
Signatures. . . . . . . . . . . . . . . . . . . . . . . 14
Index to Financial Statements . . . . . . . . . . . . . F-1
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 Instructions (I)(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 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.
BRIEF DESCRIPTION OF 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 and all direct and indirect wholly-owned subsidiaries thereof. The
Company's management refers readers of this Annual Report on Form 10-K to
EchoStar's Annual Report on Form 10-K for the year ended December 31, 1997.
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 December 31, 1997, EchoStar had approximately 1,040,000
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.
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ITEM 2. PROPERTIES
The following table sets forth certain information concerning
EchoStar's properties:
<TABLE>
<CAPTION>
APPROXIMATE OWNED OR
DESCRIPTION/USE LOCATION SQUARE FOOTAGE LEASED
- ------------------------------ ---------------------- -------------- ---------
<S> <C> <C> <C>
Corporate headquarters . . . . Littleton, Colorado 156,000 Owned
EchoStar Technologies
Corporation office and
distribution center . . . . . Englewood, Colorado 155,000 Owned
Office and distribution
center. . . . . . . . . . . . Sacramento, California 78,500 Owned
Digital Broadcast Operations
Center . . . . . . . . . . . Cheyenne, Wyoming 55,000 Owned
Customer Service Center. . . . Thornton, Colorado 55,000 Owned
European headquarters and
warehouse. . . . . . . . . . Almelo, The Netherlands 53,800 Owned
Warehouse facility . . . . . . Denver, Colorado 40,000 Owned
</TABLE>
ITEM 3. LEGAL PROCEEDINGS
On July 29, 1996, Echostar Acceptance Corporation ("EAC"), Dish Network
Credit Corporation ("DNCC"), ESC and Echosphere Corporation (collectively,
"Echostar Credit"), filed a civil action against associates Investment
Corporation ("ASSOCIATES") which is currently pending in the U.S. District
Court in the District of Colorado. Echostar Credit alleges that Associates,
among other things, breached its contract with Echostar Credit pursuant to
which Associates agreed to finance the purchase of Echostar Receiver Systems
by consumers. Echostar Credit alleges that Associates' refusal to finance
certain prospective consumers has resulted in the loss of prospective
customers to Echostar's competitors. In addition, Echostar Credit alleges
that the loss of sales due to Associate's action forced Echostar to lower the
price on its products. Associates filed counterclaims against EAC for fraud
and breach of contract. Associates seeks approximately $10.0 million by way
of its counterclaims. EAC intends to vigorously defend against such
counterclaims. A trial date has not yet been set. It is too early in the
litigation to make an assessment of the probable outcome.
Certain purchasers of C-band and Dish Network Systems have filed actions
in various state courts in Alabama naming Echostar, EAC or Echosphere
Corporation as a defendant and seeking actual and punitive damages. Eleven
lawsuits were filed against EAC in the state of Alabama. Eight of the suits
involve EAC and Household Retail Services, Inc. ("HRSI") and three suits
involve EAC and Bank One Dayton, N.A. ("Bank One"). All three of the
EAC/Bank One cases recently have been dismissed or are in the process of being
dismissed against all defendants including EAC. Therefore, only the cases
involving EAC and HRSI remain pending. In those cases, the plaintiffs in
those suits allege that the terms of the financing plan were misrepresented to
them by the independent retail dealers. The plaintiffs allege that the
dealers were the agents of EAC and that EAC did not properly train the
dealers. Additional suits may be filed or the plaintiffs' attorneys may
attempt to certify a class and/or add additional plaintiffs to the existing
suits and seek exponentially greater damages. EAC denies liability and
intends to vigorously defend against all remaining claims, which include
allegations of fraud and lending law violations. While the actual damages
claimed in each of these cases are not material, Echostar is aware that juries
in Alabama have recently issued a number of verdicts awarding substantial
punitive damages on actual damage claims of less than $10,000.
EAC and HRSI entered into a Merchandise Financing Agreement in 1989 (the
"Merchant Agreement") pursuant to which HRSI acted as a consumer financing
source for the purchase of, among other things, satellite systems distributed
by Echosphere Corporation, a subsidiary of Echostar, to consumers through EAC
dealers. HRSI terminated the Merchant Agreement as of December 31, 1994.
During February 1995, EAC and Echosphere (the "EAC Parties") filed suit
against HRSI. The case is pending in U.S. District Court in Colorado (the
"HRSI Litigation"). The EAC parties have alleged, among other things, breach
of contract, breach of fiduciary duty, fraud and wanton and willful conduct by
HRSI in connection with termination of the Merchant Agreement and related
matters. The EAC parties are
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seeking damages in excess of $10.0 million. HRSI's counterclaims have been
dismissed with prejudice. Summary judgment motions have been pending on all
remaining issues since may 1996. A trial date has not been set.
During February 1997, Echostar and 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 110DEG. Wl purchased by MCI 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 ASKYB, 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.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
As of March 24, 1997, all 1,000 authorized, issued and outstanding
shares of the Company's Common Stock were held by ESBC. There is currently no
established trading market for the Company's Common Stock.
Dish, Ltd. has never declared or paid any cash dividends on its
common stock and does not expect to declare dividends in the foreseeable
future. Payment of any future dividends will depend upon the earnings and
capital requirements of Dish, Ltd., Dish, Ltd.'s debt facilities, and other
factors the Board of Directors considers appropriate. The Company currently
intends to retain its earnings, if any, to support future growth and
expansion. The Company's ability to declare dividends is affected by
covenants in its debt facilities that prohibit Dish, Ltd. from declaring
dividends and its subsidiaries from transferring funds in the form of cash
dividends, loans or advances to ESBC, DBS Corp and ECC.
ITEM 7. MANAGEMENT'S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997 COMPARED TO THE YEAR ENDED DECEMBER 31, 1996.
REVENUE. Total revenue in 1997 was $476 million, an increase of
141%, or $279 million, as compared to total revenue of $197 million in 1996.
The increase in total revenue in 1997 was primarily attributable to the
operation of the DISH Network during the entirety of 1997, combined with DISH
Network subscriber growth. The Company expects this trend to continue as the
number of DISH Network subscribers increases, and as it develops its
Technology and Satellite Services businesses. Consistent with the increases
in total revenue during 1997, the Company experienced a corresponding
increase in trade accounts receivable at December 31, 1997.
DISH Network subscription television services revenue totaled $299
million during 1997, an increase of $249 million compared to 1996. This
increase was directly attributable to the operation of the DISH Network
during the entirety of 1997, combined with the increase in the number of DISH
Network subscribers. Average monthly revenue per subscriber approximated $39
during 1997 compared to approximately $36 in 1996. The increase in monthly
revenue per subscriber was primarily due to additional channels added upon
commencement of operations of EchoStar II. DISH Network subscription
television services revenue consists primarily of revenue from basic, premium
and pay-per-view subscription television services.
Other DISH Network revenue totaled $43 million in 1997, an increase
of $35 million compared to 1996. Other DISH Network revenue primarily
consists of incremental revenues over advertised subscription rates realized
from the Company's 1996 Promotion (as described below), as well as
installation revenues. In August 1996, the Company lowered the suggested
retail price for a standard EchoStar Receiver System to $199 (as compared to
an average retail price in March 1996 of $499), conditioned upon the
consumer's one-year prepaid subscription to the DISH Network's America's Top
50 CD programming package for $300 (the "1996 Promotion"). In 1997, the
Company recognized incremental revenues related to the 1996 Promotion of
approximately $39 million, an increase of $34 million over 1996. The Company
expects incremental revenue related to the 1996 Promotion to decline at an
accelerated rate in future periods and to cease during the third quarter of
1998.
During 1997, DTH equipment sales and integration services totaled
$90 million. EchoStar currently has agreements for the sale of digital
satellite broadcasting equipment using EchoStar technology to two
international DTH service operators. The Company realized revenues of $74
million related to these agreements during 1997. Of this amount, $59 million
related to sales of digital set-top boxes and other DTH equipment while $15
million resulted from the provision of integration services (revenue from
uplink center design, construction oversight, and
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other project integration services). DBS accessory sales totaled $10 million
during 1997, an $8 million increase compared to 1996.
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 sale of DTH equipment and integration services in international markets
depends largely on the success of the DBS 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 which may be generated from EchoStar's alliances
with foreign DTH operators.
DTH equipment sales and integration services revenue totaled $77
million during 1996. These revenues consisted primarily of sales of EchoStar
Receiver Systems and related accessories prior to the August 1996 nationwide
rollout of the 1996 Promotion.
Satellite services revenue totaled $11 million during 1997, an
increase of $5 million, or 91%, compared to 1996. 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 an increase in the number of content
providers, increased usage by the Company's BTV customers, and an entire year
of operation in 1997.
C-band and other revenue totaled $33 million for 1997, a decrease
of $23 million compared to $56 million in 1996. Other revenue principally
related to domestic and international sales of C-band products and net
domestic C-band programming revenues. This decrease resulted from the
world-wide decrease in demand for C-band products and services. Effective
January 1, 1998, EchoStar ceased operation of its C-band programming business.
DISH NETWORK OPERATING EXPENSES. DISH Network operating expenses
totaled $193 million during 1997, an increase of $151 million as compared to
1996. The increase in DISH Network operating expenses was primarily
attributable to operation of the DISH Network during the entirety of 1997 and
the increase in the number of DISH Network subscribers. Subscriber-related
expenses totaled $144 million in 1997, an increase of $121 million compared
to 1996. Such expenses, which include programming expenses, copyright
royalties, residuals payable to retailers and distributors, and billing,
lockbox and other variable subscriber expenses, totaled 48% of subscription
television services revenues, compared to 46% of subscription television
services revenues during 1996. Satellite and transmission expenses are
comprised primarily of costs associated with the operation of EchoStar's
digital broadcast center, contracted satellite TT&C services, and costs of
maintaining in-orbit insurance on EchoStar's DBS satellites. Satellite and
transmission expenses increased $8 million in 1997 compared to 1996 primarily
as a result of the operation of the DISH Network (including EchoStar II)
during the entirety of 1997. Customer service center and other operating
expenses consist primarily of costs incurred in the operation of the
Company's DISH Network customer service center and expenses associated with
subscriber equipment installation. Customer service center and other
operating expenses totaled $35 million in 1997, an increase of $22 million as
compared to 1996. The increase in customer service center and other
operating expenses was directly attributable to the operation of the DISH
Network during the entirety of 1997, combined with the increase in the number
of DISH Network subscribers. 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 will decline.
COST OF SALES - DTH EQUIPMENT AND INTEGRATION SERVICES. Cost of
sales - DTH equipment and integration services totaled $61 million during
1997, a decrease of $15 million, or 20%, as compared to 1996. During 1997,
cost of sales - DTH equipment and integration services principally
represented costs associated with set-top boxes and related components sold
to international DTH operators. For 1996, cost of sales - DTH equipment and
integration services totaled $76 million and represented costs of EchoStar
Receiver Systems sold prior to the August 1996 rollout of the 1996 Promotion.
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COST OF SALES - C-BAND AND OTHER. Cost of sales - C-band and other
totaled $24 million during 1997, a decrease of $18 million compared to 1996.
This decrease was consistent with the decrease in related revenues and
resulted from the world-wide decrease in the demand for C-band products and
services.
MARKETING EXPENSES. Marketing expenses totaled $183 million for
1997, an increase of $130 million as compared to 1996. The increase in
marketing expenses was primarily attributable to the increase in subscriber
promotion subsidies. Subscriber promotion subsidies represent the excess of
transaction costs over transaction proceeds at the time of sale of EchoStar
Receiver Systems. These costs totaled $149 million during 1997, an increase
of $113 million over 1996. This increase resulted from the commencement of
the 1997 Promotion (as described below) and the increase in the number of
EchoStar Receiver Systems sold during 1997. During 1997, EchoStar further
reduced the "up-front" costs to consumers by maintaining the suggested retail
price for a standard EchoStar Receiver System at $199 and eliminating any
related prepaid subscription commitments (the "1997 Promotion"). Advertising
and other expenses increased $17 million to $35 million during 1997 as a
result of increased marketing activity and operation of the DISH Network
during the entirety of 1997.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
("G&A") expenses totaled $66 million for 1997, an increase of $17 million as
compared to 1996. 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 14% during 1997 as
compared to 25% during 1996. EchoStar expects that its G&A expenses as a
percent of total revenue may continue to decrease in future periods.
EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION AND AMORTIZATION.
Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA") was
negative $51 million for 1997, as compared to negative EBITDA of $65 million
for 1996. This improvement in EBITDA resulted from the factors affecting
revenue and expenses discussed above. The Company believes that EBITDA
results will continue to improve in future periods as the number of DISH
Network subscribers increases. In the event that new subscriber activations
exceed expectations, the Company's EBITDA results may be negatively impacted
in the near-term because subscriber acquisition costs are expensed upon
shipment of EchoStar Receiver Systems.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization
expenses for 1997 (including amortization of subscriber acquisition costs of
$121 million) aggregated $173 million in 1997, an increase of $129 million,
as compared to 1996. The increase in depreciation and amortization expenses
principally resulted from amortization of subscriber acquisition costs
(increase of $105 million) and depreciation of EchoStar II (placed in service
during the fourth quarter of 1996).
OTHER INCOME AND EXPENSE. Other expense, net totaled $67 million
during 1997, an increase of $35 million as compared to 1996. The increase in
other expense resulted primarily from increased interest expense associated
with the Company's 12 7/8% Senior Secured Discount Notes due 2004 (the "1994
Notes"). Interest expense associated with the 1994 Notes increased due to
higher accreted balances thereon, combined with a decrease in capitalized
interest. Capitalized interest totaled $2 million during 1997, compared to
$22 million during 1996. Additionally, interest income decreased $2 million
as a result of a decrease in invested balances.
INCOME TAX BENEFIT. The $50 million decrease in the income tax
benefit during 1997 principally resulted from the Company's decision to
increase its valuation allowance sufficient to fully offset net deferred tax
assets arising during the year. Realization of these assets is dependent on
the Company generating sufficient taxable income prior to the expiration of
the net operating loss carryforwards. The Company's net deferred tax assets
($62 million at each of December 31, 1996 and 1997) principally relate to
temporary differences for amortization of original issue discount on the 1994
Notes, net operating loss carryforwards, and various accrued expenses which
are not deductible until paid. If future operating results differ materially
and adversely from the Company's current expectations, its judgment regarding
the magnitude of its valuation allowance may change.
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IMPACT OF YEAR 2000 ISSUE
EchoStar has assessed and continues to assess the impact of the
Year 2000 Issue on its computer systems and operations. The Year 2000 Issue
exists because many computer systems and applications currently use two-digit
date fields to designate a year. Thus, as the century date approaches, date
sensitive systems may recognize the year 2000 as 1900 or not at all. The
inability to recognize or properly treat the Year 2000 may cause computer
systems to process critical financial and operational information incorrectly.
EchoStar presently believes that with modifications to existing
software and conversions to new software, the Year 2000 Issue can be
mitigated. EchoStar is utilizing both internal and external resources to
identify, correct or reprogram, and test all affected systems for Year 2000
compliance. EchoStar has also initiated formal communications with all of
its significant suppliers to determine the extent to which EchoStar is
vulnerable to those third parties' failure to remediate their own Year 2000
Issue. EchoStar believes its costs to successfully mitigate the Year 2000
Issue will not be material.
If EchoStar's remediation plan is not successful or is not
completed in a timely manner, the Year 2000 Issue could significantly disrupt
EchoStar's ability to transact business with its customers and suppliers, and
could have a material impact on its operations. In addition, there can be no
assurance that the systems of other companies with which EchoStar's systems
interact also will be timely converted, or that any such failure to convert
by another company would not have an adverse effect on EchoStar's systems.
EFFECTS OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB")
issued FAS No. 130, "Reporting Comprehensive Income" ("FAS No. 130"), which
establishes standards for reporting and display of comprehensive income and
its components (revenues, expenses, gains and losses) in a full set of
general-purpose financial statements. In June 1997, the FASB issued FAS No.
131, "Disclosures About Segments of an Enterprise and Related Information"
("FAS No. 131") which establishes standards for reporting information about
operating segments in annual financial statements of public business
enterprises and requires that those enterprises report selected information
about operating segments in interim financial reports issued to shareholders
and for related disclosures about products and services, geographic areas,
and major customers. FAS No. 130 and FAS No. 131 are effective for financial
statements for periods beginning after December 15, 1997. The adoption of
FAS No. 130 and FAS No. 131 may require additional disclosure in the
Company's financial statements.
INFLATION
Inflation has not materially affected the Company's operations
during the past three years. The Company believes that its ability to
increase the prices charged for its products and services in future periods
will depend primarily on competitive pressures. The Company does not have
any material backlog of its products.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's 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.
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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:
(1) FINANCIAL STATEMENTS PAGE
Report of Independent Public Accountants . . . . . . . . . . F-2
Consolidated Balance Sheets at December 31, 1996 and 1997. . F-3
Consolidated Statements of Operations for the years ended
December 31, 1995, 1996 and 1997 . . . . . . . . . . . . . . F-4
Consolidated Statements of Changes in Stockholder's
Equity for the years ended December 31, 1995, 1996 and 1997. F-5
Consolidated Statements of Cash Flows for the years
ended December 31, 1995, 1996 and 1997 . . . . . . . . . . . F-6
Notes to Consolidated Financial Statements . . . . . . . . . F-7
(2) FINANCIAL STATEMENT SCHEDULES
None. All schedules have been included in the
Consolidated Financial Statements or Notes thereto.
(3) EXHIBITS
2.1* Amended and Restated Agreement for Exchange of Stock and
Merger, dated as of May 31, 1995, by and among EchoStar
Communications Corporation, a Nevada corporation formed
in April 1995 ("EchoStar"), Charles W. Ergen and Dish,
Ltd. (formerly EchoStar Communications Corporation, a
Nevada corporation formed in December 1993) ("Dish")
(incorporated by reference to Exhibit 2.2 to the
Registration Statement on Form S-1 of EchoStar,
Registration No. 33-91276).
2.2* Plan and Agreement of Merger made as of December 21, 1995
by and among EchoStar, Direct Broadcasting Satellite
Corporation, a Colorado Corporation ("MergerCo") and
Direct Broadcasting Satellite Corporation, a Delaware
Corporation ("DBSC") (incorporated by reference to
Exhibit 2.3 to the Registration Statement on Form S-4 of
EchoStar, Registration No. 333-03584).
2.3* Merger Trigger Agreement entered into as of December 21,
1995 by and among EchoStar, MergerCo and DBSC
(incorporated by reference to Exhibit 2.4 to the
Registration Statement on Form S-4 of EchoStar,
Registration No. 333-03584).
3.1(a)* Amended and Restated Articles of Incorporation of
EchoStar (incorporated by reference to Exhibit 3.1(a) to
the Registration Statement on Form S-1 of EchoStar,
Registration No. 33-91276).
3.1(b)* Bylaws of EchoStar (incorporated by reference to Exhibit
3.1(b) to the Registration Statement on Form S-1 of
EchoStar, Registration No. 33-91276).
3.2(a)* Articles of Incorporation of EchoStar Satellite
Broadcasting Corporation (formerly EchoStar Bridge
Corporation, a Colorado corporation) ("ESBC")
(incorporated by reference to Exhibit 3.1(e) to the
Registration Statement on Form S-1 of ESBC, Registration
No. 333-3980).
3.2(b)* Bylaws of ESBC (incorporated by reference to Exhibit
3.1(f) to the Registration Statement on Form S-1 of ESBC,
Registration No. 333-3980).
3.3(a)* Amended and Restated Articles of Incorporation of Dish
(incorporated by reference to Exhibit 3.1(a) to the
Registration Statement on Form S-1 of Dish, Registration
No. 33-76450).
8
<PAGE>
3.3(b)* Bylaws of Dish (incorporated by reference to Exhibit
3.1(b) to the Registration Statement on Form S-1 of Dish,
Registration No. 33-76450).
3.4(a)* Articles of Incorporation of EchoStar DBS Corporation, a
Colorado corporation ("DBS Corp.") (incorporated by
reference to Exhibit 3.4(a) to the Registration Statement
on Form S-4 of DBS Corp., Registration No. 333-31929).
3.4(b)* Bylaws of DBS Corp. (incorporated by reference to Exhibit
3.4(b) to the Registration Statement on Form S-4 of DBS
Corp., Registration No. 333-31929).
4.1* Indenture of Trust between Dish and First Trust National
Association ("First Trust"), as Trustee (incorporated by
reference to Exhibit 4.1 to the Registration Statement on
Form S-1 of Dish, Registration No. 33-76450).
4.2* Warrant Agreement between EchoStar and First Trust, as
Warrant Agent (incorporated by reference to Exhibit 4.2
to the Registration Statement on Form S-1 of Dish,
Registration No. 33-76450).
4.3* Security Agreement in favor of First Trust, as Trustee
under the Indenture filed as Exhibit 4.1 hereto
(incorporated by reference to Exhibit 4.3 to the
Registration Statement on Form S-1 of Dish, Registration
No. 33-76450).
4.4* Escrow and Disbursement Agreement between Dish and First
Trust (incorporated by reference to Exhibit 4.4 to the
Registration Statement on Form S-1 of Dish, Registration
No. 33-76450).
4.5* Pledge Agreement in favor of First Trust, as Trustee
under the Indenture filed as Exhibit 4.1 hereto
(incorporated by reference to Exhibit 4.5 to the
Registration Statement on Form S-1 of Dish, Registration
No. 33-76450).
4.6* Intercreditor Agreement among First Trust, Continental
Bank, N.A. and Martin Marietta Corporation ("Martin
Marietta") (incorporated by reference to Exhibit 4.6 to
the Registration Statement on Form S-1 of Dish,
Registration No. 33-76450).
4.7* Series A Preferred Stock Certificate of Designation of
EchoStar (incorporated by reference to Exhibit 4.7 to the
Registration Statement on Form S-1 of EchoStar,
Registration No. 33-91276).
4.8* Registration Rights Agreement by and between EchoStar and
Charles W. Ergen (incorporated by reference to Exhibit
4.8 to the Registration Statement on Form S-1 of
EchoStar, Registration No. 33-91276).
4.9* Indenture of Trust between ESBC and First Trust, as
Trustee (incorporated by reference to Exhibit 4.9 to the
Annual Report on Form 10-K of EchoStar for the year ended
December 31, 1995, Commission File No. 0-26176).
4.10* Security Agreement of ESBC in favor of First Trust, as
Trustee under the Indenture filed as Exhibit 4.9 hereto
(incorporated by reference to Exhibit 4.10 to the Annual
Report on Form 10-K of EchoStar for the year ended
December 31, 1995, Commission File No. 0-26176).
4.11* Escrow and Disbursement Agreement between ESBC and First
Trust (incorporated by reference to Exhibit 4.11 to the
Annual Report on Form 10-K of EchoStar for the year ended
December 31, 1995, Commission File No. 0-26176).
9
<PAGE>
4.12* Pledge Agreement of ESBC in favor of First Trust, as Trustee
under the Indenture filed as Exhibit 4.9 hereto
(incorporated by reference to Exhibit 4.12 to the Annual
Report on Form 10-K of EchoStar for the year ended December
31, 1995, Commission File No. 0-26176).
4.13* Pledge Agreement of EchoStar in favor of First Trust, as
Trustee under the Indenture filed as Exhibit 4.9 hereto
(incorporated by reference to Exhibit 4.13 to the Annual
Report on Form 10-K of EchoStar for the year ended December
31, 1995, Commission File No. 0-26176).
4.14* Registration Rights Agreement by and between ESBC, EchoStar,
Dish, MergerCo and Donaldson, Lufkin & Jenrette Securities
Corporation (incorporated by reference to Exhibit 4.14 to
the Annual Report on Form 10-K of EchoStar for the year
ended December 31, 1995, Commission File No. 0-26176).
4.15* Registration Rights Agreement, dated as of June 25, 1997, by
and among DBS Corp., EchoStar Communications Corporation, a
Nevada corporation formed in April 1995 ("EchoStar"),
EchoStar Satellite Broadcasting Corporation, a Colorado
corporation, Dish, Ltd. (formerly EchoStar Communications
Corporation, a Nevada corporation formed in December 1993),
Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ")
and Lehman Brothers Inc. ("Lehman Brothers") (incorporated
by reference to Exhibit 4.15 to the Registration Statement
on Form S-4 of DBS Corp., Registration No. 333-31929).
4.16* Indenture of Trust, dated as of June 25, 1997, between DBS
Corp. and First Trust National Association ("First Trust"),
as Trustee (incorporated by reference to Exhibit 4.16 to
Amendment No. 1 to the Registration Statement on Form S-4 of
DBS Corp., Registration No. 333-31929).
4.17* 12 1/8 % Series B Senior Redeemable Exchangeable Preferred
Stock Certificate of Correction for the Certificate of
Designation of EchoStar (incorporated by reference to
Exhibit 4.17 to Amendment No. 1 to the Registration
Statement on Form S-3 of EchoStar, Registration No. 333-
37683).
4.18 Registration Rights Agreement, dated as of October 2, 1997,
by and among EchoStar, DLJ and Lehman Brothers
(incorporated by reference to Exhibit 4.18 to Amendment No.
1 to the Registration Statement on Form S-3 of EchoStar,
Registration No. 333-37683).
4.19* 6 3/4 % Series C Cumulative Convertible Preferred Stock
Certificate of Designation of EchoStar (incorporated by
reference to Exhibit 4.19 to the Registration Statement on
Form S-4 of EchoStar, Registration No. 333-39901).
4.20* Form of Deposit Agreement between EchoStar and American
Securities Transfer & Trust, Inc. (incorporated by reference
to Exhibit 4.20 to Amendment No. 1 to the Registration
Statement on Form S-3 of EchoStar, Registration No. 333-
37683).
4.21(a)* Form of Underwriting Agreement for 6 3/4 % Series C
Cumulative Convertible Preferred Stock by and between
EchoStar, DLJ and Lehman Brothers (incorporated by reference
to Exhibit 1.1 to Amendment No. 1 to the Registration
Statement on Form S-3 of EchoStar, Registration No.
333-37683).
4.21(b)* Form of Underwriting Agreement for Class A Common Stock by
and between EchoStar, DLJ, BT Alex. Brown Incorporated and
Unterberg Harris (incorporated by reference to Exhibit 1.1
to Amendment No. 1 to the Registration Statement on Form S-3
of EchoStar, Registration No. 333-37683).
10
<PAGE>
4.22* Form of Indenture for EchoStar's 12 1/8 % Senior Exchange
Notes due 2004 (incorporated by reference to Exhibit 4.8
to the Quarterly Report on Form 10-Q of EchoStar for the
quarterly period ended September 30, 1997, Commission File
No. 0-26176).
10.1(a)* Satellite Construction Contract, dated as of February 6,
1990, between EchoStar Satellite Corporation ("ESC") and
Martin Marietta 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, 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).
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* Master Purchase and License Agreement, dated as of August 12,
1986, between Houston Tracker Systems, Inc. ("HTS") and
Cable/Home Communications Corp. (a subsidiary of General
Instruments Corporation) (incorporated by reference to
Exhibit 10.4 to the Registration Statement on Form S-1 of
Dish, Registration No. 33-76450).
10.3* Master Purchase and License Agreement, dated as of June 18,
1986, between Echosphere Corporation and Cable/Home
Communications Corp. (a subsidiary of General Instruments
Corporation) (incorporated by reference to Exhibit 10.5 to
the Registration Statement on Form S-1 of Dish, Registration
No. 33-76450).
10.4* Merchandising Financing Agreement, dated as of June 29, 1989,
between Echo Acceptance Corporation and Household Retail
Services, Inc. (incorporated by reference to Exhibit 10.6 to
the Registration Statement on Form S-1 of Dish, Registration
No. 33-76450).
11
<PAGE>
10.5* 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)**
10.6* 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).
10.7* 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).
10.8* 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).**
10.9* 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).
10.10* Manufacturing Agreement, dated as of March 22, 1995, between
HTS 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).
10.11* Manufacturing Agreement dated as of April 14, 1995 by and
between ESC and Sagem Group (incorporated by reference to
Exhibit 10.13 to the Registration Statement on Form S-1 of
EchoStar, Registration No. 33-91276).
10.12* 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 EchoStar,
Registration No. 33-91276).
10.13* 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
EchoStar, Registration No. 33-91276).
10.14* EchoStar 1995 Stock Incentive Plan (incorporated by reference
to Exhibit 10.16 to the Registration Statement on Form S-1 of
EchoStar, Registration No. 33-91276)**
10.15(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 EchoStar for the
quarter ended June 30, 1996, Commission File No. 0-26176).
10.15(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 EchoStar, Registration
No. 333-03584).
10.15(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 EchoStar for the quarter
ended June 30, 1996, Commission File No. 0-26176).
10.16* 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 EchoStar for the quarter ended June 30, 1996,
Commission File No. 0-26176).
12
<PAGE>
10.17* 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 EchoStar, Registration
No. 333-03584).
10.18* Right and License Agreement by and among HTS and Asia
Broadcasting and Communications Network, Ltd., dated December
19, 1996 (incorporated by reference to Exhibit 10.18 to the
Annual Report on Form 10-K of EchoStar for the year ended
December 31, 1996, as amended, Commission file No. 0-26176).
10.19* 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 EchoStar for the
year ended December 31, 1996, as amended, Commission File No.
0-26176).
10.20* Amendment No. 9 to Satellite Construction Contract, effective
as of July 18, 1996, between Direct Satellite Broadcasting
Corporation, a Delaware corporation ("DBSC") and Martin
Marrieta Corporation (incorporated by reference to Exhibit
10.1 to the Quarterly Report on Form 10-Q of EchoStar for the
quarterly period ended June 30, 1997, Commission File No. 0-
26176).
10.21* 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 EchoStar for the quarterly period ended June 30,
1997, Commission File No. 0-26176).
10.22* 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 EchoStar for the
quarterly period ended June 30, 1997, Commission File No. 0-
26176).
24.1+ Powers of Attorney authorizing signature of James DeFranco.
27+ Financial Data Schedule.
+ Filed herewith
* Incorporated by reference.
** Constitutes a management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the fourth
quarter of 1997.
13
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, Dish, Ltd. has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
DISH, LTD.
By: /S/ STEVEN B. SCHAVER
--------------------------------
Steven B. Schaver
Chief Financial Officer
Date: March 27, 1998
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:
SIGNATURE TITLE DATE
- --------- ------ -----
/s/ CHARLES W. ERGEN President and Director March 27, 1998
- ------------------------ (PRINCIPAL EXECUTIVE OFFICER)
Charles W. Ergen
/s/ STEVEN B. SCHAVER Chief Financial Officer March 27, 1998
- ------------------------ (PRINCIPAL FINANCIAL OFFICER)
Steven B. Schaver
/s/ JOHN R. HAGER Treasurer and Controller March 27, 1998
- ------------------------ (PRINCIPAL ACCOUNTING OFFICER)
John R. Hager
* Director March 27, 1998
- ------------------------
James DeFranco
* By: /S/ DAVID K. MOSKOWITZ
-------------------------------
David K. Moskowitz
Attorney-in-Fact
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
CONSOLIDATED FINANCIAL STATEMENTS:
Report of Independent Public Accountants.............................. F-2
Consolidated Balance Sheets at December 31, 1996 and 1997............. F-3
Consolidated Statements of Operations for the years ended
December 31, 1995, 1996 and 1997..................................... F-4
Consolidated Statements of Changes in Stockholder's Equity for the
years ended December 31, 1995, 1996 and 1997......................... F-5
Consolidated Statements of Cash Flows for the years ended December 31,
1995, 1996 and 1997................................................. F-6
Notes to Consolidated Financial Statements............................ F-7
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Dish, Ltd.:
We have audited the accompanying consolidated balance sheets of Dish,
Ltd. (a Nevada corporation) and subsidiaries, as described in Note 1, as of
December 31, 1996 and 1997, and the related consolidated statements of
operations, changes in stockholder's equity and cash flows for each of the
three years in the period ended December 31, 1997. 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 Dish,
Ltd. and subsidiaries as of December 31, 1996 and 1997, and the consolidated
results of their operations and their cash flows for each of the three years
in the period ended December 31, 1997, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Denver, Colorado,
February 27, 1998.
F-2
<PAGE>
DISH, LTD.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
ASSETS 1996 1997
---------- -----------
<S> <S> <S>
Current Assets:
Cash and cash equivalents.................................................................... $ 24,919 $ 35,682
Marketable investment securities............................................................. 242 -
Trade accounts receivable, net of allowance for uncollectible accounts
of $1,494 and $1,347, respectively........................................................ 13,483 66,045
Inventories.................................................................................. 72,767 22,993
Subscriber acquisition costs, net............................................................ 68,129 18,819
Other current assets......................................................................... 19,441 8,927
---------- -----------
Total current assets............................................................................ 198,981 152,466
Restricted cash and marketable investment securities............................................ 31,450 2,245
Property and equipment, net..................................................................... 499,989 505,347
Deferred tax assets............................................................................. 74,328 59,471
Other noncurrent assets......................................................................... 26,217 24,912
---------- -----------
Total assets.............................................................................. $ 830,965 $ 744,441
========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
Current Liabilities:
Trade accounts payable....................................................................... $ 40,793 $ 68,491
Deferred revenue............................................................................. 104,095 122,215
Accrued expenses............................................................................. 40,859 72,369
Advances from affiliates, net................................................................ 134,829 194,265
Current portion of long-term debt............................................................ 11,334 14,924
---------- -----------
Total current liabilities....................................................................... 331,910 472,264
Long-term obligations, net of current portion:
1994 Notes................................................................................... 437,127 499,863
Mortgages and other notes payable, net of current portion.................................... 51,428 40,495
Long-term deferred satellite services revenue and other long-term liabilities................ 7,037 19,500
---------- -----------
Total long-term obligations, net of current portion............................................. 495,592 559,858
---------- -----------
Total liabilities......................................................................... 827,502 1,032,122
Commitments and Contingencies (Note 9)
Stockholder's Equity (Deficit):
Common stock, $.01 par value, 1,000 shares authorized, issued and outstanding................ - -
Additional paid-in capital................................................................... 108,835 108,835
Unrealized holding losses on available-for-sale securities, net of deferred taxes............ ( 9) -
Accumulated deficit.......................................................................... (105,363) ( 396,516)
---------- -----------
Total stockholder's equity (deficit)............................................................ 3,463 ( 287,681)
---------- -----------
Total liabilities and stockholder's equity (deficit)...................................... $ 830,965 $ 744,441
========== ===========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-3
<PAGE>
DISH, LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1995 1996 1997
-------- ---------- ---------
<S> <C> <C> <C>
REVENUE:
DISH Network:
Subscription television services......................................... $ - $ 49,650 $ 298,883
Other.................................................................... - 8,238 42,925
-------- --------- ---------
Total DISH Network.......................................................... - 57,888 341,808
DTH equipment sales and integration services................................ 35,816 77,390 90,263
Satellite services.......................................................... - 5,822 11,135
C-band and other............................................................ 112,704 56,003 32,696
-------- --------- ---------
Total revenue.................................................................. 148,520 197,103 475,902
COSTS AND EXPENSES:
DISH Network Operating Expenses:
Subscriber-related expenses.............................................. - 22,840 143,529
Customer service center and other........................................ - 12,996 35,078
Satellite and transmission............................................... - 6,573 14,563
-------- --------- ---------
Total DISH Network operating expenses....................................... - 42,409 193,170
Cost of sales - DTH equipment and integration services...................... 30,404 75,984 60,918
Cost of sales - C-band and other............................................ 84,846 42,345 23,909
Marketing:
Subscriber promotion subsidies........................................... - 35,239 148,502
Advertising and other.................................................... 1,786 17,929 34,843
-------- --------- ---------
Total marketing expenses.................................................... 1,786 53,168 183,345
General and administrative.................................................. 36,376 48,534 65,982
Amortization of subscriber acquisition costs................................ - 16,073 121,428
Depreciation and amortization............................................... 3,114 27,296 51,408
-------- --------- ---------
Total costs and expenses....................................................... 156,526 305,809 700,160
-------- --------- ---------
Operating loss................................................................. ( 8,006) (108,706) (224,258)
Other Income (Expense):
Interest income............................................................. 12,545 5,083 2,757
Interest expense, net of amounts capitalized................................ (23,985) ( 37,165) ( 68,163)
Other....................................................................... 894 ( 267) ( 1,343)
-------- --------- ---------
Total other income (expense)................................................... (10,546) ( 32,349) ( 66,749)
-------- --------- ---------
Loss before income taxes....................................................... (18,552) (141,055) (291,007)
Income tax benefit (provision), net............................................ 6,191 49,518 ( 146)
-------- --------- ---------
Net loss....................................................................... $(12,361) $( 91,537) $(291,153)
======== ========= =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-4
<PAGE>
DISH, LTD.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
ACCUMULATED
DEFICIT AND
UNREALIZED
COMMON STOCK SERIES A COMMON ADDITIONAL HOLDING
------------------------- PREFERRED STOCK PAID-IN GAINS
SHARES AMOUNT STOCK WARRANTS CAPITAL (LOSSES) TOTAL
------------ -------- -------- -------- ---------- ----------- ---------
(Notes 1 and 2)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994................ 33,544 $ 336 $ 15,990 $ 26,133 $ 62,197 $( 848) $ 103,808
8% Series A Cumulative Preferred Stock
dividends (at $0.38 per share)........ - - 617 - - ( 617) -
Exercise of Common Stock Warrants ...... 2,731 27 - (25,419) 25,392 - -
Common Stock Warrants exchanged for ECC
Warrants.............................. - - - ( 714) 714 - -
Launch bonuses funded by issuance of
ECC's Class A Common Stock............ - - - - 1,192 - 1,192
Unrealized holding gains on
available-for-sale securities, net.... - - - - - 251 251
Net loss................................ - - - - - ( 12,361) ( 12,361)
------- ------ -------- -------- --------- --------- ---------
Balance, December 31, 1995................ 36,275 363 16,607 - 89,495 ( 13,575) 92,890
Exchange of Common Stock (Note 1)....... (36,274) (363) (16,607) - 16,970 - -
Income tax benefit of deduction for
income tax purposes on exercise of
Class A Common Stock options.......... - - - - 2,370 - 2,370
Unrealized holding losses on
available-for-sale securities, net.... - - - - - ( 260) ( 260)
Net loss................................ - - - - - ( 91,537) ( 91,537)
------- ------ -------- --------- --------- --------- ---------
Balance, December 31, 1996................ 1 - - - 108,835 (105,372) 3,463
Unrealized holding gains on
available-for-sale securities, net.... - - - - - 9 9
Net loss................................ - - - - - (291,153) (291,153)
------- ------ -------- --------- --------- --------- ---------
Balance, December 31, 1997................ 1 $ - $ - $ - $108,835 $(396,516) $(287,681)
======= ====== ======== ======== ======== ========= =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-5
<PAGE>
DISH, LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss..................................................................................... $( 12,361) $( 91,537) $(291,153)
Adjustments to reconcile net loss to net cash flows from operating activities:
Depreciation and amortization............................................................. 3,114 27,296 51,408
Amortization of subscriber acquisition costs.............................................. - 16,073 121,428
Deferred income tax benefit............................................................... ( 4,825) ( 45,181) ( 358)
Amortization of debt discount and deferred financing costs................................ 23,528 34,005 63,248
Change in reserve for excess and obsolete inventory....................................... 1,212 2,866 ( 1,823)
Change in long-term deferred satellite services revenue and other long-term liabilities... - 5,949 12,056
Other, net................................................................................ 608 534 407
Changes in current assets and current liabilities:
Trade accounts receivable, net......................................................... ( 1,536) ( 4,368) ( 52,562)
Inventories............................................................................ ( 19,654) ( 36,864) 51,597
Subscriber acquisition costs........................................................... - ( 84,202) ( 72,118)
Other current assets................................................................... ( 14,088) ( 2,698) 13,055
Advances from affiliates, net.......................................................... - 137,402 57,736
Trade accounts payable................................................................. 4,111 21,751 27,677
Deferred revenue....................................................................... ( 1,009) 103,511 18,120
Accrued expenses....................................................................... ( 988) 16,850 44,205
--------- --------- ---------
Net cash flows from operating activities..................................................... ( 21,888) 101,387 42,923
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of marketable investment securities................................................ ( 3,004) ( 33) -
Sales of marketable investment securities.................................................... 33,816 - 251
Purchases of restricted marketable investment securities..................................... ( 15,000) ( 21,100) ( 1,495)
Funds released from escrow and restricted cash and marketable investment securities.......... 122,149 99,788 30,700
Offering proceeds and investment earnings placed in escrow................................... ( 9,589) ( 10,867) -
Purchases of property and equipment.......................................................... (113,555) (157,897) ( 49,385)
Payments received on convertible subordinated debentures from SSET........................... - 6,445 834
Investment in DBSC........................................................................... 4,210 - -
Other........................................................................................ ( 458) ( 123) ( 400)
--------- --------- ---------
Net cash flows from investing activities..................................................... 18,569 ( 83,787) ( 19,495)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of Common Stock....................................................... - 1 -
Repayments of mortgage indebtedness and notes payable........................................ ( 238) ( 6,631) ( 12,665)
--------- --------- ---------
Net cash flows from financing activities..................................................... ( 238) ( 6,630) ( 12,665)
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents......................................... ( 3,557) 10,970 10,763
Cash and cash equivalents, beginning of year................................................. 17,506 13,949 24,919
--------- --------- ---------
Cash and cash equivalents, end of year....................................................... $ 13,949 $ 24,919 $ 35,682
========= ========= =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-6
<PAGE>
DISH, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BUSINESS ACTIVITIES
PRINCIPAL BUSINESS
Dish, Ltd. and subsidiaries ("Dish, Ltd." or the "Company") 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 Annual Report on Form
10-K to EchoStar's Annual Report on Form 10-K for the year ended December 31,
1997. 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 December 31, 1997, EchoStar had approximately
1,040,000 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 orbital spectrum, DBS satellites ("EchoStar I," "EchoStar II,"
"EchoStar III," and "EchoStar IV," respectively), 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 viable alternative to cable television service.
ORGANIZATION AND LEGAL STRUCTURE
Certain companies principally owned and controlled by Mr. Charles W.
Ergen were reorganized in 1993 into Dish, Ltd. (together with its
subsidiaries, "Dish, Ltd."). In April 1995, ECC was formed to complete an
initial public offering (the "IPO") of its Class A Common Stock.
Concurrently, Mr. Ergen exchanged all of his then outstanding shares of Class
B Common Stock and 8% Series A Cumulative Preferred Stock of Dish, Ltd. for
like shares of ECC (the "Exchange"). In December 1995, ECC merged Dish, Ltd.
with a wholly-owned subsidiary of ECC (the "Merger"). In connection with the
1996 Notes Offering (as defined), ECC contributed all of the outstanding
capital stock of Dish, Ltd. to ESBC. This transaction was accounted for as a
reorganization of entities under common control whereby Dish, Ltd. was treated
as the predecessor to ESBC.
F-7
<PAGE>
DISH, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
1. ORGANIZATION AND BUSINESS ACTIVITIES - CONTINUED
The following table summarizes the organizational structure of
EchoStar and its principle subsidiaries as of December 31, 1997:
<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 Broadcasting Corporation ESBC DBS Corp
Dish, Ltd. Dish, Ltd. ESBC
EchoStar Satellite Corporation ESC Dish, Ltd.
Echosphere Corporation Echosphere Dish, Ltd.
Houston Tracker Systems, Inc. HTS Dish, Ltd.
EchoStar International Corporation EIC Dish, Ltd.
</TABLE>
SIGNIFICANT RISKS AND UNCERTAINTIES
COMPETITION. The subscription television industry is highly competitive.
EchoStar faces competition from companies offering video, audio, data,
programming and entertainment services. Many of these competitors have
substantially greater financial and marketing resources than EchoStar.
EchoStar's ability to effectively compete in the subscription television
market will depend on a number of factors, including competitive factors (such
as the introduction of new technologies or the entry of additional strong
competitors), the level of consumer demand for such services, the availability
of EchoStar Receiver Systems, and EchoStar's ability to obtain necessary
regulatory changes and approvals.
DEPENDENCE ON SINGLE RECEIVER MANUFACTURER. During 1997, EchoStar
Receiver Systems were manufactured exclusively by SCI Systems, Inc. ("SCI"), a
high-volume contract electronics manufacturer. During February 1998, EchoStar
executed two separate agreements for the manufacture of digital set-top boxes
in accordance with EchoStar's specifications. Phillips Electronics of North
America Corporation ("Phillips") and Vtech Communications Ltd. ("Vtech") are
expected to begin the manufacture of EchoStar's digital set-top boxes during
the second half of 1998. There can be no assurance that either or both of
Phillips or Vtech will be able to successfully manufacture and deliver digital
set-top boxes during 1998, or at all. EchoStar currently is negotiating with
additional brand-name consumer electronics manufacturers to produce receivers
for use with the DISH Network. No assurance can be provided regarding the
ultimate success of those negotiations. In the event that EchoStar's
manufacturers of digital set-top boxes are unable for any reason to produce
receivers in a quantity sufficient to meet its requirements, EchoStar's
ability to add additional subscribers, or its ability to satisfy delivery
obligations for receiver sales to international DTH providers, may be
materially impaired and its results of operations would be adversely affected.
TRANSACTIONS WITH MAJOR CUSTOMERS. During 1997, export sales to two
customers, ExpressVu, Inc. and Distribuidora de Television Digital S.A.,
together accounted for approximately 16% of the Company's total revenue.
Complete or partial loss of one or both of these customers could have a
material adverse effect on the Company's results of operations.
SUBSTANTIAL LEVERAGE. EchoStar is highly leveraged, which makes it
vulnerable to changes in general economic conditions. As of December 31, 1997,
EchoStar had outstanding long-term debt (including both the current and
long-term portion thereof) totaling approximately $1.4 billion. In addition,
EchoStar's long-term debt will increase by at least $266 million through March
2000, as interest on certain of its long-term debt accrues and is not payable
in cash. Substantially all of the assets of EchoStar and its subsidiaries are
pledged as collateral on its long-term debt. Further, the indentures
associated with EchoStar's long-term debt severely restrict its ability to
incur additional indebtedness. Thus, it may be difficult for EchoStar and its
subsidiaries to obtain additional debt
F-8
<PAGE>
DISH, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
1. ORGANIZATION AND BUSINESS ACTIVITIES - CONTINUED
financing if required or desired in order to implement EchoStar's business
strategy. Certain of EchoStar's subsidiaries also are parties to other
agreements which severely restrict their ability to obtain additional debt
financing for working capital, capital expenditures and general corporate
purposes.
EXPECTED OPERATING LOSSES. Due to the substantial expenditures required
to develop the EchoStar DBS System and introduce DISH Network service to
consumers, the Company has sustained significant losses in recent periods. The
Company's operating losses were $8 million, $109 million and $224 million for
the years ended December 31, 1995, 1996 and 1997, respectively. The Company
had net losses of $12 million, $92 million and $291 million during those same
periods. Improvement in the Company's results of operations is largely
dependent upon the Company's ability to expand its DISH Network subscription
base, control subscriber churn (i.e., the rate at which subscribers terminate
service), and effectively manage its operating and overhead costs. No
assurance can be given that the Company will be effective with regard to these
matters. In addition, the Company incurs significant costs to acquire DISH
Network subscribers. The high cost of obtaining new subscribers magnifies the
negative effects of subscriber churn. The Company anticipates that it will
continue to experience operating losses through at least 1999. There can be no
assurance that such operating losses will not continue beyond 1999 or that the
Company's operations will generate sufficient cash flows to pay its
obligations, including its obligations on its long-term debt, or to pay cash
dividends on its common stock.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The financial statements for 1995 present the consolidation of Dish,
Ltd. and its subsidiaries through the date of the Exchange and the consolidation
of ECC and its subsidiaries, thereafter. The Exchange and Merger was accounted
for as a reorganization of entities under common control and the historical cost
basis of assets and liabilities was not affected by the transaction. Effective
March 1994, the stockholders approved measures necessary to increase the
authorized capital stock of Dish, Ltd. to include 200 million shares of Class A
Common Stock, 100 million shares of Class B Common Stock, and 20 million shares
of Series A Convertible Preferred Stock and determined to split all outstanding
shares of common stock on the basis of approximately 4,296 to 1. All significant
intercompany accounts and transactions have been eliminated.
The Company accounts for investments in 50% or less owned entities using
the equity method. At December 31, 1996 and 1997, these investments were not
material to the Company's consolidated financial statements.
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
F-9
<PAGE>
DISH, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
translation) or realized (upon settlement of the transaction). Net transaction
gains (losses) during 1995, 1996 and 1997 were not material to the Company's
results of operations.
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, 1996 and 1997 consist of money market funds, corporate notes and
commercial paper; such balances are stated at cost which equates to market
value.
STATEMENTS OF CASH FLOWS DATA
The following presents the Company's supplemental cash flow statement
disclosure (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1995 1996 1997
------- ------- ------
<S> <C> <C> <C>
Cash paid for interest............................. $ 461 $ 3,007 $4,915
Cash paid for income taxes......................... 3,203 383 209
Capitalized interest, including amounts
due from affiliates.............................. 25,763 22,167 1,700
8% Series A Cumulative Preferred Stock dividends... 618 - -
Accrued satellite contract costs................... 15,000 - -
Satellite launch payment for EchoStar II
applied to EchoStar I launch..................... - 15,000 -
Satellite vendor financing......................... 32,833 31,167 -
Other notes payable................................ - - 5,322
</TABLE>
MARKETABLE INVESTMENT SECURITIES AND RESTRICTED CASH AND MARKETABLE INVESTMENT
SECURITIES
The Company considers its marketable investment securities to be
available-for-sale. Accordingly, these investments are reflected at market
value based on quoted market prices. Related unrealized gains and losses are
reported as a separate component of stockholder's equity, net of related
deferred income taxes. The specific identification method is used to determine
cost in computing realized gains and losses.
Restricted cash and marketable investment securities held in escrow
accounts, as reflected in the accompanying consolidated balance sheets,
include cash restricted by the various indentures associated with certain of
the Company's debt financing transactions (see Note 4), plus investment
earnings thereon. Restricted cash and marketable investment securities are
invested in certain permitted debt and other marketable investment securities
until disbursed for the express purposes identified in the applicable
indenture. As of December 31, 1996 restricted cash and marketable investment
securities consisted of $31 million of commercial paper. The market value of
the commercial paper approximated cost.
As of December 31, 1996, other restricted cash included a total of $25
million held in two escrow accounts for the benefit of EchoStar Receiver
System manufacturers. These deposits were released from their respective
escrow accounts during May 1997. In addition, $6 million at December 31, 1996
was restricted by an indenture to satisfy certain covenants pertaining to
launch insurance for EchoStar II. This covenant was satisfied during September
1997.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair value of the Company's 1994 Notes (as defined, see Note 4) is 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
F-10
<PAGE>
DISH, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
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, 1997 (in thousands):
<TABLE>
<CAPTION>
BOOK VALUE FAIR VALUE
---------- ----------
<S> <C> <C>
1994 Notes................................. $499,863 $570,960
Mortgages and other notes payable.......... 55,419 54,954
</TABLE>
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,
--------------------
1996 1997
-------- --------
<S> <C> <C>
DBS receiver components........................ $ 15,736 $ 12,506
EchoStar Receiver Systems...................... 32,799 7,649
Consigned DBS receiver components.............. 23,525 3,122
Finished goods - analog DTH equipment.......... 4,091 2,116
Spare parts and other.......................... 2,279 1,440
Reserve for excess and obsolete inventory...... ( 5,663) ( 3,840)
-------- --------
$ 72,767 $ 22,993
======== ========
</TABLE>
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Cost includes interest
capitalized of $25 million, $20 million and $2 million during the years ended
December 31, 1995, 1996 and 1997, respectively. 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 assets to be
held and used 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 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 can be
recovered.
F-11
<PAGE>
DISH, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
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 $1 million and $1 million
during the years ended December 31, 1995 and 1996, respectively. No interest
was capitalized during 1997 related to FCC authorizations.
ADVANCES FROM AFFILIATES
Advances from affiliates are recorded at cost and represent the net
amount of funds received from, or advances to, unconsolidated affiliates of
Dish, Ltd. Such advances principally have consisted of advances from DBS Corp
and ESBC to fund satellite construction, launch expenditures and operations.
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
During 1996, in order to stimulate subscriber growth, EchoStar made a
strategic decision to reduce the price charged to consumers for EchoStar
Receiver Systems. Accordingly, beginning in August 1996, EchoStar began
selling its EchoStar Receiver Systems below its manufactured cost (the "1996
Promotion"). The 1996 Promotion lowered the suggested retail price charged by
independent retailers for a standard EchoStar Receiver System to $199 (as
compared to the original average retail price prior to August 1996 of
approximately $499), conditioned upon the consumer's one-year prepaid
subscription to the DISH Network's America's Top 50 CD programming package for
approximately $300. The excess of EchoStar's aggregate costs (equipment,
programming and other) over proceeds received pursuant to the 1996 Promotion
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).
Excluding expected incremental subscriber revenues, such as from premium and
Pay-Per-View services, this accounting treatment results in revenue
recognition over the initial prepaid period of service equal to the sum of
programming costs (which are recognized as service is provided) and
amortization of subscriber acquisition costs. During the period from August
1996 through May 1997, substantially all new subscriber activations resulted
from the 1996 Promotion.
The caption "DISH Network - Subscription Television Services" in the
accompanying statements of operations includes revenues from the 1996
Promotion equal to the advertised subscription rates for related DISH Network
services. Incremental revenues realized from the 1996 Promotion are included
in the caption "DISH Network - Other" and amounted to approximately $5 million
during 1996 and $39 million during 1997.
During June 1997, EchoStar introduced the "1997 Promotion." The 1997
Promotion maintained the suggested retail price for a standard EchoStar
Receiver System at $199, but eliminated the extended subscription commitment.
Net transaction costs associated with the 1997 Promotion are expensed as
incurred (reported as a component of subscriber promotion subsidies) in the
accompanying statements of operations. While some sales continue to be made
under the terms of the 1996 Promotion, the majority of new subscriber
activations have resulted from the 1997 Promotion since its introduction. As a
result, beginning in October 1997, net transaction
F-12
<PAGE>
DISH, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
costs resulting from the sale of EchoStar Receiver Systems pursuant to the
1996 Promotion also are expensed as incurred. Consequently, no additional
subscriber acquisition costs will be deferred. The unamortized balance of such
costs ($19 million at December 31, 1997) is expected to be fully amortized by
September 1998.
DEFERRED DEBT ISSUANCE COSTS AND DEBT DISCOUNT
Costs of completing the 1994 Notes Offering (as defined, see Note 4) were
deferred and are being amortized to interest expense over the term of the 1994
Notes. The original issue discounts related to the 1994 Notes is being
accreted to interest expense so as to reflect a constant rate of interest on
the accreted balance of the 1994 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).
ACCRUED EXPENSES
Accrued expenses consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1996 1997
-------------------
<S> <C> <C>
Accrued expenses......................... $11,029 $34,604
Accrued programming...................... 9,463 20,018
Accrued royalties........................ 7,693 17,747
Deferred tax liabilities................. 12,674 -
-------------------
$40,859 $72,369
===================
</TABLE>
ADVERTISING COSTS
Advertising costs, exclusive of subscriber promotion subsidies, are
expensed as incurred and totaled $2 million, $18 million and $35 million for
the years ended December 31, 1995, 1996 and 1997, respectively.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued FAS No. 130, "Reporting Comprehensive
Income" ("FAS No. 130"), which establishes standards for reporting and display
of comprehensive income and its components (revenues, expenses, gains and
losses) in a full set of general-purpose financial statements. In June 1997,
the FASB issued FAS No. 131, "Disclosures About Segments of an Enterprise and
Related Information" ("FAS No. 131") which establishes standards for reporting
information about operating segments in annual financial statements of public
business enterprises and requires that those enterprises report selected
information about operating segments in interim financial reports issued
F-13
<PAGE>
DISH, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
to shareholders and for related disclosures about products and services,
geographic areas, and major customers. FAS No. 130 and FAS No. 131 are
effective for financial statements for periods beginning after December 15,
1997. The adoption of FAS No. 130 and FAS No. 131 may require additional
disclosure in the Company's financial statements.
RECLASSIFICATIONS
Certain amounts from the prior years consolidated financial statements
have been reclassified to conform with the 1997 presentation.
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
LIFE ------------------------
(IN YEARS) 1996 1997
---------- ------------------------
<S> <C> <C> <C>
EchoStar I........................... 12 $ 201,607 $ 201,607
EchoStar II.......................... 12 228,694 228,694
Furniture, fixtures and equipment.... 2-12 72,932 92,170
Buildings and improvements........... 7-40 21,649 22,114
Tooling and other.................... 2 3,253 4,336
Land................................. - 1,613 1,636
Vehicles............................. 7 1,323 1,320
Construction in progress............. - 4,137 39,253
-----------------------
Total property and equipment.... 535,208 591,130
Accumulated depreciation............. ( 35,219) ( 85,783)
-----------------------
Property and equipment, net..... $ 499,989 $ 505,347
=======================
</TABLE>
4. LONG-TERM DEBT
1994 NOTES
In June 1994, Dish, Ltd. completed an offering of 12 7/8% Senior Secured
Discount Notes due June 1, 2004 (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 (including
amounts attributable to the issuance of the Warrants and after payment of
underwriting discounts and other issuance costs aggregating approximately $13
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 $624 million by that date. Commencing
December 1, 1999, interest on the 1994 Notes will be payable in cash on December
1 and June 1 of each year.
The 1994 Notes rank senior in right of payment to all subordinated
indebtedness of Dish, Ltd. and PARI PASSU in right of payment with all other
senior indebtedness of Dish, Ltd. The 1994 Notes are secured by liens on certain
assets of Dish, Ltd., including EchoStar I, EchoStar II and all other components
of the EchoStar DBS System owned by Dish, Ltd. and its subsidiaries. The 1994
Notes are further guaranteed by each material, direct subsidiary of Dish, Ltd.
(see Note 10). Although the 1994 Notes are titled "Senior," Dish, Ltd. has not
issued, and does not have any current arrangements to issue, any significant
indebtedness to which the 1994 Notes would be senior. The 1996 Notes and the
F-14
<PAGE>
DISH, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
4. LONG-TERM DEBT - CONTINUED
1997 Notes are effectively subordinated to the 1994 Notes and all other
liabilities of Dish, Ltd. and its subsidiaries. Furthermore, at December 31,
1997, the 1994 Notes were effectively subordinated to approximately $9 million
of mortgage indebtedness with respect to certain assets of Dish, Ltd.'s
subsidiaries, not including the EchoStar DBS System, and rank PARI PASSU with
the security interest of approximately $30 million of satellite vendor
financing.
Except under certain circumstances requiring prepayment premiums, and in
other limited circumstances, the 1994 Notes are not redeemable at Dish, Ltd.'s
option prior to June 1, 1999. Thereafter, the 1994 Notes will be subject to
redemption, at the option of Dish, Ltd., in whole or in part, at redemption
prices ranging from 104.828% during the year commencing June 1, 1999, to 100%
of principal value at stated maturity on or after June 1, 2002, together with
accrued and unpaid interest thereon to the redemption date. On each of June 1,
2002, and June 1, 2003, Dish, Ltd. will be required to redeem 25% of the
original aggregate principal amount of 1994 Notes at a redemption price equal
to 100% of principal value at stated maturity thereof, together with accrued
and unpaid interest thereon to the redemption date. The remaining principal of
the 1994 Notes matures on June 1, 2004.
In the event of a change of control and upon the occurrence of certain
other events, as described in the indenture related to the 1994 Notes (the
"1994 Notes Indenture"), Dish, Ltd. will be required to make an offer to each
holder of 1994 Notes to repurchase all or any part of such holder's 1994 Notes
at a purchase price equal to 101% of the accreted value thereof on the date of
purchase, if prior to June 1, 1999, or 101% of the aggregate principal amount
thereof, together with accrued and unpaid interest thereon to the date of
purchase, if on or after June 1, 1999.
The 1994 Notes Indenture contains restrictive covenants that, among other
things, impose limitations on Dish, Ltd. and its subsidiaries with respect to
their ability to: (i) incur additional indebtedness; (ii) issue preferred
stock; (iii) apply the proceeds of certain asset sales; (iv) create, incur or
assume liens; (v) create dividend and other payment restrictions with respect
to Dish, Ltd.'s subsidiaries; (vi) merge, consolidate or sell assets; (vii)
incur subordinated or junior debt; and (viii) enter into transactions with
affiliates. In addition, Dish, Ltd., may pay dividends on its equity
securities only if (1) no default is continuing under the 1994 Notes
Indenture; and (2) after giving effect to such dividend, Dish, Ltd.'s ratio of
total indebtedness to cash flow (calculated in accordance with the 1994 Notes
Indenture) would not exceed 4.0 to 1.0. Moreover, the aggregate amount of such
dividends generally may not exceed the sum of 50% of Dish, Ltd.'s consolidated
net income (calculated in accordance with the 1994 Notes Indenture) from April
1, 1994, plus 100% of the aggregate net proceeds to Dish, Ltd. from the
issuance and sale of certain equity interests of Dish, Ltd. (including common
stock).
COLLATERALIZATION OF ESBC'S 1996 NOTES
In March 1996, ESBC, an indirect wholly-owned subsidiary of ECC,
completed an offering (the "1996 Notes Offering") of 13 1/8% Senior Secured
Discount Notes due 2004 (the "1996 Notes"). The 1996 Notes Offering resulted
in net proceeds to ESBC of approximately $337 million (after payment of
underwriting discounts and other issuance costs aggregating approximately $13
million). The 1996 Notes are guaranteed on a subordinated basis by ECC, and
are secured by liens on certain assets of ESBC, ECC and certain of ECC's
subsidiaries, including all of the outstanding capital stock of Dish, Ltd.
CONTINGENT GUARANTEE OF DBS CORP'S 1997 NOTES
In June 1997, DBS Corp consummated an offering (the "1997 Notes
Offering") of 12 1/2% Senior Secured Notes due 2002 (the "1997 Notes"). The
1997 Notes Offering resulted in net proceeds to DBS Corp of approximately $363
million (after payment of underwriting discounts and other issuance costs
aggregating approximately $12 million). The 1997 Notes are guaranteed on a
subordinated basis by ECC and, contingent upon the occurrence of certain
events, will be guaranteed by ESBC, Dish, Ltd., and certain other subsidiaries
of DBS Corp and ECC. Dish, Ltd. will become a guarantor of the 1997 Notes on
the first date that Dish, Ltd. is permitted under the terms of both the 1996
Notes Indenture and the 1994 Notes Indenture to guarantee the 1997 Notes and
both the 1996 Notes and the 1994 Notes are no longer outstanding or have been
defeased.
F-15
<PAGE>
DISH, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
4. LONG-TERM DEBT - CONTINUED
MORTGAGES AND OTHER NOTES PAYABLE
Mortgages and other notes payable consists of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1996 1997
---------------------
<S> <C> <C>
8.25% note payable for satellite vendor financing for
EchoStar I due in equal monthly installments of $722,
including interest, throuugh February 2001.............. $ 30,463 $ 24,073
8.25% note payable for satellite vendor financing for
EchoStar II due in equal monthly installments
of $562, including interest, through November 2001...... 27,161 22,489
Mortgages and other unsecured notes payable due in
installments through April 2009 with interest rates
ranging from 8% to 10.5%............................... 5,138 8,857
---------------------
Total.................................................... 62,762 55,419
Less current portion..................................... (11,334) (14,924)
--------------------
Mortgages and other notes payable, net of current portion $ 51,428 $ 40,495
====================
</TABLE>
Future maturities of amounts outstanding under the Company's long-term
debt facilities as of December 31, 1997 are summarized as follows (in
thousands):
<TABLE>
<CAPTION>
MORTGAGES
AND OTHER
1994 NOTES
NOTES PAYABLE TOTAL
-----------------------------------
<S> <C> <C> <C>
YEAR ENDING DECEMBER 31,
1998.............................. $ - $14,924 $ 14,924
1999.............................. - 15,101 15,101
2000.............................. - 14,908 14,908
2001.............................. - 7,691 7,691
2002.............................. 156,000 356 156,356
Thereafter........................ 468,000 2,439 470,439
Unamortized discount.............. (124,137) - (124,137)
-----------------------------------
Total................................ $ 499,863 $55,419 $ 555,282
===================================
</TABLE>
SATELLITE VENDOR FINANCING
The purchase price for satellites is required to be paid in progress
payments, some of which are non-contingent payments deferred until after the
respective satellites are in orbit (satellite vendor financing). The Company
utilized $36 million and $28 million of satellite vendor financing for
EchoStar I and EchoStar II, respectively. The satellite vendor financing with
respect to EchoStar I and EchoStar II is secured by substantially all assets
of Dish, Ltd. and its subsidiaries (subject to certain restrictions) and a
corporate guarantee of ECC.
F-16
<PAGE>
DISH, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
5. INCOME TAXES
The components of the (provision for) benefit from income taxes are as
follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1995 1996 1997
-------------------------------
<S> <C> <C> <C>
Current (provision) benefit:
Federal............................ $ 1,711 $ 4,595 $( 358)
State.............................. ( 44) ( 49) ( 9)
Foreign............................ ( 301) ( 209) ( 137)
------------------------------
1,366 4,337 ( 504)
Deferred benefit:
Federal............................ 4,440 42,971 99,744
State.............................. 385 2,210 7,366
Increase in valuation allowance.... - - (106,752)
------------------------------
4,825 45,181 358
------------------------------
Total benefit (provision)....... $ 6,191 $ 49,518 $( 146)
==============================
</TABLE>
The actual tax benefit (provision) for 1995, 1996 and 1997 are reconciled
to the amounts computed by applying the statutory Federal tax rate to income
before taxes as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1995 1996 1997
------------------------
<S> <C> <C> <C>
Statutory rate................................... 35.0% 35.0% 35.0%
State income taxes, net of Federal benefit....... 1.2 1.8 1.6
Tax exempt interest income....................... 0.1 - -
Research and development and foreign tax credits. 0.2 - 0.7
Non-deductible interest expense.................. (1.7) (1.5) ( 0.3)
Other............................................ (1.4) (0.2) ( 0.8)
Increase in valuation allowance.................. - - (36.2)
------------------------
Total benefit from income taxes.................. 33.4% 35.1% -%
========================
</TABLE>
As of December 31, 1997, the Company had net operating loss carryforwards
("NOLs") for Federal income tax purposes of approximately $323 million. The
NOLs expire beginning in the year 2011. The use of the NOLs is subject to
statutory and regulatory limitations regarding changes in ownership. FAS No.
109, "Accounting for Income Taxes," 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 1997, 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.
F-17
<PAGE>
DISH, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
5. INCOME TAXES - CONTINUED
The temporary differences which give rise to deferred tax assets and
liabilities as of December 31, 1996 and 1997 are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1996 1997
-------------------
<S> <C> <C>
Current deferred tax assets:
Accrued royalties.................................... $ 3,029 $ 6,506
Inventory reserves and cost methods.................. 1,811 1,180
Accrued expenses..................................... 1,414 6,391
Allowance for doubtful accounts...................... 674 517
Reserve for warranty costs........................... 284 270
Other................................................ 57 -
-------------------
Total current deferred tax assets...................... 7,269 14,864
Current deferred tax liabilities:
Subscriber acquisition costs and other............... (19,943) ( 6,846)
-------------------
Total current deferred tax liabilities................. (19,943) ( 6,846)
-------------------
Gross current deferred tax assets (liabilities)........ (12,674) 8,018
Valuation allowance.................................... - ( 5,477)
-------------------
Net current deferred tax assets (liabilities).......... (12,674) 2,541
Noncurrent deferred tax assets:
General business and foreign tax credits............. - 2,224
Net operating loss carryforwards..................... 81,058 118,391
Amortization of original issue discount on 1994 Notes 26,424 48,461
Other................................................ 3,456 7,571
-------------------
Total noncurrent deferred tax assets................... 110,938 176,647
Noncurrent deferred tax liabilities:
Capitalized costs deducted for tax................... (17,683) -
Depreciation......................................... (18,927) ( 15,671)
Other................................................ - ( 230)
-------------------
Total noncurrent deferred tax liabilities.............. (36,610) ( 15,901)
-------------------
Gross deferred tax assets.............................. 74,328 160,746
-------------------
Valuation allowance.................................... - (101,275)
-------------------
Net noncurrent deferred tax assets..................... 74,328 59,471
-------------------
Net deferred tax assets................................ $ 61,654 $ 62,012
===================
</TABLE>
6. STOCK COMPENSATION PLANS
STOCK INCENTIVE PLAN
In April 1994, EchoStar adopted a stock incentive plan (the "Stock
Incentive Plan") to provide incentive to attract and retain officers,
directors and key employees. EchoStar has reserved up to 10 million shares of
its Class A Common Stock for granting awards under the Stock Incentive Plan.
All stock options granted through December 31, 1997 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.
F-18
<PAGE>
DISH, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
6. STOCK COMPENSATION PLANS - CONTINUED
A summary of EchoStar's incentive stock option activity for the years
ended December 31, 1995, 1996 and 1997 is as follows:
<TABLE>
<CAPTION>
1995 1996 1997
-------------------- --------------------- ----------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
--------------------- --------------------- ----------------------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding, beginning of year.. 744,872 $ 9.33 1,117,133 $12.23 1,025,273 $14.27
Granted................................. 419,772 17.13 138,790 27.02 779,550 17.05
Repriced................................ - - - - 255,794 17.00
Exercised............................... ( 4,284) 9.33 (103,766) 10.24 ( 98,158) 9.64
Forfeited............................... (43,227) 10.55 (126,884) 13.27 (437,892) 19.46
--------------------- --------------------- -----------------------
Options outstanding, end of year........ 1,117,133 $12.23 1,025,273 $14.27 1,524,567 $14.99
===================== ===================== =======================
Exercisable at end of year.............. 142,474 $ 9.33 258,368 $11.31 347,009 $12.15
===================== ===================== =======================
</TABLE>
Exercise prices for options outstanding as of December 31, 1997 are as
follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------------------------------
NUMBER WEIGHTED- NUMBER
OUTSTANDING AVERAGE WEIGHTED- EXERCISABLE WEIGHTED-
AS OF REMAINING AVERAGE AS OF AVERAGE
RANGE OF DECEMBER 31, CONTRACTUAL EXERCISE DECEMBER 31, EXERCISE
EXERCISE PRICES 1997 LIFE PRICE 1997 PRICE
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 9.333 - $11.870 429,644 4.60 $ 9.53 226,771 $ 9.48
17.000 - 17.000 1,053,683 7.11 17.00 117,990 17.00
18.290 - 26.688 41,240 4.79 20.58 2,248 26.69
- --------------------------------------------------------------------------------
$ 9.333 - $26.688 1,524,567 6.34 $14.99 347,009 $12.15
================================================================================
</TABLE>
On July 1, 1997, the Board of Directors approved a repricing of
substantially all outstanding options with an exercise price greater than
$17.00 per share of Class A Common Stock to $17.00 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 significantly reduced the incentive these options were intended
to create. The fair market value of the Class A Common Stock was $15.25 on the
date of the repricing. Options to purchase approximately 256,000 shares of
Class A Common Stock were affected by this repricing.
ACCOUNTING FOR STOCK-BASED COMPENSATION
The Company 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, because the exercise price of EchoStar's employee stock options is
equal to the market price of the underlying stock on the date of the grant, no
compensation expense is recognized. In October 1995, the FASB issued FAS 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. The Company elected to
not adopt FAS No. 123 for expense recognition purposes.
Pro forma information regarding net income is required by FAS No. 123 and
has been determined as if the Company had accounted for its stock-based
compensation plans using the fair value method prescribed by that
F-19
<PAGE>
DISH, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
6. STOCK COMPENSATION PLANS - CONTINUED
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>
YEARS ENDED DECEMBER 31,
-----------------------------
1995 1996 1997
-----------------------------
<S> <C> <C> <C>
Risk-free interest rate..................... 6.12% 6.80% 6.09%
Volatility factor........................... 62% 62% 68%
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.................................... $9.86 $16.96 $10.38
</TABLE>
The Company's pro forma net loss was $13 million, $92 million and $293
million for the years ended December 31, 1995, 1996 and 1997, respectively.
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 of ECC approved an
employee stock purchase plan (the "ESPP"), effective beginning October 1,
1997. Under the ESPP, EchoStar is authorized to issue a total of 100,000
shares of ECC's 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 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 ECC's Class A Common Stock
on the last business day of each calendar quarter in which such shares of
ECC's 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 the
fourth quarter of 1997, employees of the Company purchased 4,430 shares of
ECC's Class A Common Stock through the ESPP.
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. The Company's cash contributions to the 401(k) Plan
totaled
F-20
<PAGE>
DISH, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
7. EMPLOYEE BENEFIT PLANS - CONTINUED
$177,000, $226,000 and $329,000 during 1995, 1996 and 1997, respectively.
Additionally, the Company contributed 55,000 shares of EchoStar's Class A Common
Stock in 1995 and 1996, (fair value of $1 million and $935,000, respectively) to
the 401(k) Plan as discretionary contributions. During 1998, the Company expects
to contribute 80,000 shares of EchoStar's Class A Common Stock (fair value of
approximately $2 million) to the 401(k) Plan related to its 1997 discretionary
contribution.
8. C-BAND AND OTHER REVENUE
Effective January 1, 1998, the Company ceased operation of its C-band
programming business. Consequently, the net result of the Company's C-band
programming business is reported as "C-band and other revenue" in the
accompanying statements of operations. C-band and other revenue consists of
the following (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1995 1996 1997
------------------------------
<S> <C> <C> <C>
C-band equipment sales and other.... $110,992 $ 54,592 $32,308
C-band programming sales............ 15,232 11,921 7,100
C-band programming - cost of sales.. (13,520) (10,510) (6,712)
------------------------------
C-band and other revenue, net.... $112,704 $ 56,003 $32,696
==============================
</TABLE>
9. OTHER COMMITMENTS AND CONTINGENCIES
EchoStar has contracted with Lockheed-Khrunichev-Energia-International,
Inc. ("LKE") for the launch of EchoStar IV from the Baikonur Cosmodrome in the
Republic of Kazakhstan, a territory of the former Soviet Union, utilizing a
Proton launch vehicle (the "LKE Contract"). The launch is currently expected
to occur in the Spring of 1998. Either party may request a delay in the launch
period, subject to the payment of penalties based on the length of the delay
and the proximity of the request to the launch date. During 1998, EchoStar
expects to expend approximately $68 million in connection with the
construction launch and insurance of EchoStar IV. These expenditures will be
funded from the Satellite Escrow.
EchoStar has filed applications with the Federal Communications
Commission ("FCC") for authorization to construct, launch and operate a two
satellite FSS (fixed satellite service) Ku-band system and a two satellite FSS
Ka-band satellite system. No assurance can be given that EchoStar's
applications will be approved by the FCC or that, if approved, EchoStar will
be able to successfully develop the FSS Ku-band or the Ka-band systems.
EchoStar believes that establishment of the FSS Ku-band system or the FSS
Ka-band system would enhance its competitive position in the DTH industry. In
the event EchoStar's FSS Ku-band or Ka-band system applications are approved
by the FCC, additional debt or equity financing would be required. No
assurance can be given that such financing will be available, or that it will
be available on terms acceptable to EchoStar.
PURCHASE COMMITMENTS
As of December 31, 1997, the Company's purchase commitments totaled
approximately $87 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 1998. The Company expects
to finance these purchases from existing unrestricted cash balances and future
cash flows generated from operations, if any.
OTHER RISKS 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
F-21
<PAGE>
DISH, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
9. OTHER COMMITMENTS AND CONTINGENCIES - CONTINUED
outstanding capital stock of EchoStar. News also agreed to make available for
use by EchoStar the DBS permit for 28 frequencies at 110DEG. 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. PARENT COMPANY ONLY AND CONSOLIDATION OF SUBSIDIARY GUARANTORS
The following pages present the consolidating financial information for
EchoStar and its subsidiaries as of December 31, 1996 and 1997 and for each of
the three years in the period ended December 31, 1997. See Note 4 for a more
complete description of the subsidiary guarantors of each of the 1997 Notes,
the 1996 Notes and the 1994 Notes. Because the formations of EchoStar
(incorporated in 1995), DBS Corp (incorporated in 1996), and ESBC
(incorporated in 1996) were all accounted for as reorganizations of entities
under common control, the consolidated statements of operations and cash flows
of Dish, Ltd. for the year ended December 31, 1995 also represent the
consolidated statements of operations and cash flows of EchoStar, DBS Corp and
ESBC. Consolidating financial information is presented for the following
entities:
Consolidated Dish, Ltd. (referred to as "Dish")
ESBC Parent Company Only (referred to as "ESBC - PC")
Consolidating and eliminating adjustments (referred to as "C&E")
Consolidated ESBC (referred to as "ESBC")
DBS Corp Parent Company Only (referred to as "DBS Corp - PC")
Consolidated DBS Corp (referred to as "DBS Corp")
ECC Parent Company Only (referred to as "ECC - PC")
Other direct wholly-owned subs of ECC (referred to as "Other")
Consolidated ECC (referred to as "ECC")
F-22
<PAGE>
DISH, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
10. PARENT COMPANY ONLY AND CONSOLIDATION OF SUBSIDIARY GUARANTORS - CONTINUED
CONSOLIDATING BALANCE SHEETS - AS OF DECEMBER 31, 1996 (IN MILLIONS)
<TABLE>
<CAPTION>
DBS
Corp- DBS ECC-
DISH ESBC-PC C&E ESBC PC C&E CORP PC Other C&E ECC
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents..................... $ 25 $ 14 $ - $ 39 $ - $ - $ 39 $ - $ - $ - $ 39
Marketable investment securities.............. - 19 - 19 - - 19 - - - 19
Trade accounts receivable, net................ 14 - - 14 - - 14 - - - 14
Inventories................................... 73 - - 73 - - 73 - - - 73
Subscriber acquisition costs, net............. 68 - - 68 - - 68 - - - 68
Other current assets.......................... 19 - - 19 - - 19 1 3 - 23
--------------------------------------------------------------------------------
Total current assets............................. 199 33 - 232 - - 232 1 3 - 236
Investment in subsidiary......................... - 3 ( 3) - - - - - - - -
Advances to affiliates, net...................... - 280 (135) 145 - (76) 69 - - (69) -
Restricted cash and marketable investment
securities.................................... 32 47 - 79 - - 79 - - - 79
Property and equipment, net...................... 500 - - 500 29 - 529 - 62 - 591
FCC authorizations, net.......................... 12 - - 12 60 - 72 - - - 72
Other noncurrent assets.......................... 88 17 - 105 - - 105 70 1 (13) 163
--------------------------------------------------------------------------------
Total assets............................... $831 $380 $(138) $1,073 $ 89 $(76) $1,086 $71 $66 $(82) $1,141
================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Trade accounts payable........................ $ 41 $ - $ - $ 41 $ - $ - $ 41 $ - 1 $( 1) $ 41
Deferred revenue.............................. 104 - - 104 - - 104 - - - 104
Accrued expenses.............................. 41 - - 41 2 - 43 1 - ( 2) 42
Advances from affiliates, net................. 135 - (135) - 76 (76) - 2 64 (66) -
Current portion of long-term debt............. 11 - - 11 - - 11 - - - 11
--------------------------------------------------------------------------------
Total current liabilities........................ 332 - (135) 197 78 (76) 199 3 65 (69) 198
Long-term obligations, net of current portion:
Investment in subsidiaries.................... - - - - 6 ( 6) - 7 - ( 7) -
1994 Notes.................................... 437 - - 437 - - 437 - - - 437
1996 Notes.................................... - 386 - 386 - - 386 - - - 386
Mortgages and other notes payable, net of
current portion............................ 52 - - 52 12 - 64 - - (12) 52
Long-term deferred satellite services revenue
and other long-term liabilities............ 7 - - 7 - - 7 - - - 7
--------------------------------------------------------------------------------
Total long-term liabilities...................... 496 386 - 882 18 ( 6) 894 7 - (19) 882
--------------------------------------------------------------------------------
Total liabilities.......................... 828 386 (135) 1,079 96 (82) 1,093 10 65 (88) 1,080
Stockholders' equity (deficit)................... 3 ( 6) ( 3) ( 6) ( 7) 6 ( 7) 61 1 6 61
--------------------------------------------------------------------------------
Total liabilities and stockholders' equity
(deficit)............................... $831 $380 $(138) $1,073 $ 89 $(76) $1,086 $71 $66 $(82) $1,141
================================================================================
</TABLE>
F-23
<PAGE>
DISH, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
10. PARENT COMPANY ONLY AND CONSOLIDATION OF SUBSIDIARY GUARANTORS - CONTINUED
CONSOLIDATING BALANCE SHEETS - AS OF DECEMBER 31, 1997 (IN MILLIONS)
<TABLE>
<CAPTION>
DBS
Corp- DBS CC-
DISH ESBC-PC C&E ESBC PC C&E CORP PC Other C&E ECC
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents..................... $ 36 $ 10 $ - $ 46 $ 16 $ - $ 62 $ 83 $ - $ - $ 145
Marketable investment securities.............. - - - - 4 - 4 271 - - 275
Trade accounts receivable, net................ 66 - - 66 - - 66 - - - 66
Inventories................................... 23 - - 23 - - 23 - - - 23
Subscriber acquisition costs, net............. 19 - - 19 - - 19 - - - 19
Other current assets.......................... 8 - - 8 - - 8 10 3 ( 5) 16
-------------------------------------------------------------------------------
Total current assets............................. 152 10 - 162 20 - 182 364 3 (5) 544
Advances to affiliates, net...................... - 386 (194) 192 38 - 230 13 - (243) -
Restricted cash and marketable investment
securities.................................... 2 - - 2 186 - 188 - - - 188
Property and equipment, net...................... 505 - - 505 64 - 569 - 306 - 875
FCC authorizations, net.......................... 12 - - 12 69 - 81 - 18 - 99
Other noncurrent assets.......................... 73 16 - 89 12 - 101 47 1 (49) 100
-------------------------------------------------------------------------------
Total assets............................... $ 744 $ 412 $(194) $ 962 $ 389 $ - $1,351 $424 $328 $(297) $1,806
===============================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Trade accounts payable........................ $ 68 $ - - $ 68 $ - $ - $ 68 $ - $ - $ - $ 68
Deferred revenue.............................. 122 - - 122 - - 122 - - 1 123
Accrued expenses.............................. 72 - - 72 25 - 97 3 11 ( 9) 102
Advances from affiliates, net................. 194 - (194) - - - - - 243 (243) -
Current portion of long-term debt............. 15 - - 15 - - 15 - 3 - 18
-------------------------------------------------------------------------------
Total current liabilities........................ 471 - (194) 277 25 - 302 3 257 (251) 311
Long-term obligations, net of current portion:
Investment in subsidiaries.................... - 288 (288) - 314 (314) - 311 (311) -
1994 Notes.................................... 500 - - 500 - - 500 - - - 500
1996 Notes.................................... - 438 - 438 - - 438 - - - 438
1997 Notes.................................... - - - - 375 - 375 - - - 375
Mortgages and other notes payable, net of
current portion............................ 41 - - 41 - - 41 - 57 ( 46) 52
Long-term deferred satellite services revenue
and other long-term liabilities............ 20 - - 20 - - 20 - - - 20
-------------------------------------------------------------------------------
Total long-term liabilities...................... 561 726 (288) 999 689 (314) 1,374 311 57 (357) 1,385
-------------------------------------------------------------------------------
Total liabilities.......................... 1,032 726 (482) 1,276 714 (314) 1,676 314 314 (608) 1,696
12 1/8% Series B Senior Redeemable Exchangeable
Preferred Stock............................ - - - - - - - 199 - - 199
Stockholders' equity (deficit)................... (288) (314) 288 (314) (325) 314 (325) (89) 14 311 (89)
-------------------------------------------------------------------------------
Total liabilities and stockholders' equity
(deficit)............................... $ 744 $ 412 $(194) $ 962 $ 389 $ - $1,351 $424 $328 $(297) $1,806
===============================================================================
</TABLE>
F-24
<PAGE>
DISH, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
10. PARENT COMPANY ONLY AND CONSOLIDATION OF SUBSIDIARY GUARANTORS - CONTINUED
CONSOLIDATING STATEMENTS OF OPERATIONS - YEAR ENDED DECEMBER 31, 1995
(IN MILLIONS)
<TABLE>
<CAPTION>
DISH ECC - PC C&E ECC
------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUE:
DTH equipment sales and integration services...................... $ 36 $ - $ - $ 36
C-band and other.................................................. 112 - - 112
------------------------------------------------------
Total revenue........................................................ 148 - - 148
COSTS AND EXPENSES:
Cost of sales - DTH equipment and integration services............ 30 - - 30
Cost of sales - C-band and other.................................. 85 - - 85
Advertising and other............................................. 2 - - 2
General and administrative........................................ 36 - - 36
Depreciation and amortization..................................... 3 - - 3
------------------------------------------------------
Total costs and expenses............................................. 156 - - 156
------------------------------------------------------
Operating loss....................................................... ( 8) - - ( 8)
Other Income (Expense):
Interest income................................................... 13 1 - 14
Interest expense, net of amounts capitalized...................... ( 24) - - ( 24)
Other............................................................. 1 - - 1
Equity in losses of subsidiaries.................................. - (12) 12 -
------------------------------------------------------
Total other income (expense)......................................... ( 10) (11) 12 ( 9)
------------------------------------------------------
Loss before income taxes............................................. ( 18) (11) 12 ( 17)
Income tax benefit (provision), net.................................. 6 - - 6
------------------------------------------------------
Net loss............................................................. $( 12) $(11) $12 $( 11)
======================================================
</TABLE>
F-25
<PAGE>
DISH, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
10. PARENT COMPANY ONLY AND CONSOLIDATION OF SUBSIDIARY GUARANTORS - CONTINUED
CONSOLIDATING STATEMENTS OF OPERATIONS - YEAR ENDED DECEMBER 31, 1996
(IN MILLIONS)
<TABLE>
<CAPTION>
DBS
Corp- DBS ECC-
DISH ESBC-PC C&E ESBC PC C&E CORP PC Other C&E ECC
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUE:
DISH Network:
Subscription television services.......... $ 50 $ - $ - $ 50 $ - $ - $ 50 $ - $ - $ - $ 50
C-band and other.......................... 8 - - 8 - - 8 - 2 - 10
--------------------------------------------------------------------------------
Total DISH Network........................... 58 - - 58 - - 58 - 2 - 60
DTH equipment sales and integration services. 77 - - 77 - - 77 - 7 (6) 78
Satellite services........................... 6 - - 6 - - 6 - - - 6
Other........................................ 56 - - 56 - - 56 - 1 (2) 55
--------------------------------------------------------------------------------
Total revenue................................... 197 - - 197 - - 197 - 10 (8) 199
COSTS AND EXPENSES:
DISH Network Operating Expenses:
Subscriber-related expenses............... 23 - - 23 - - 23 - - - 23
Customer service center and other......... 13 - - 13 - - 13 - 1 (1) 13
Satellite and transmission................ 7 - - 7 - - 7 - - - 7
--------------------------------------------------------------------------------
Total DISH Network operating expenses........ 43 - - 43 - - 43 - 1 (1) 43
Cost of sales - DTH equipment and integration 76 - - 76 - - 76 - 6 (6) 76
services..................................
Cost of sales - C-band and other............. 42 - - 42 - - 42 - - - 42
Marketing:
Subscriber promotion subsidies............ 35 - - 35 - - 35 - - (1) 34
Advertising and other..................... 18 - - 18 - - 18 - - - 18
--------------------------------------------------------------------------------
Total marketing expenses..................... 53 - - 53 - - 53 - - (1) 52
General and administrative................... 49 - - 49 - - 49 - 3 - 52
Amortization of subscriber acquisition costs. 16 - - 16 - - 16 - - - 16
Depreciation and amortization................ 27 - - 27 - - 27 - - - 27
--------------------------------------------------------------------------------
Total costs and expenses........................ 306 - - 306 - - 306 - 10 (8) 308
--------------------------------------------------------------------------------
Operating loss.................................. (109) - - (109) - - (109) - - - (109)
Other Income (Expense):
Interest income.............................. 4 10 - 14 - - 14 1 - - 15
Interest expense, net of amounts
capitalized............................... ( 37) ( 24) - ( 61) ( 1) - ( 62) - (1) 1 ( 62)
Equity in losses of subsidiaries............. - ( 92) 92 - (101) 101 - (101) - 101 -
---------------------------------------------------------------------------------
Total other income (expense).................... ( 33) (106) 92 ( 47) (102) 101 ( 48) (100) (1) 102 ( 47)
---------------------------------------------------------------------------------
Loss before income taxes........................ (142) (106) 92 (156) (102) 101 (157) (100) (1) 102 (156)
Income tax benefit (provision), net............. 50 5 - 55 - - 55 ( 1) 1 - 55
---------------------------------------------------------------------------------
Net loss........................................ $ ( 92) $(101) $92 $(101) $(102) $101 $(102) $(101) $ - $102 $(101)
=================================================================================
</TABLE>
F-26
]<PAGE>
DISH, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
10. PARENT COMPANY ONLY AND CONSOLIDATION OF SUBSIDIARY GUARANTORS - CONTINUED
CONSOLIDATING STATEMENTS OF OPERATIONS - YEAR ENDED DECEMBER 31, 1997
(IN MILLIONS)
<TABLE>
<CAPTION>
DBS
Corp- DBS ECC-
DISH ESBC-PC C&E ESBC PC C&E CORP PC Other C&E ECC
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUE:
DISH Network:
Subscription television services......... $ 299 $ - $ - $ 299 $ - $ - $ 299 $ - $ - $ - $ 299
Other.................................... 43 - - 43 - - 43 - 1 1 45
-------------------------------------------------------------------------------
Total DISH Network.......................... 342 - - 342 - - 342 - 1 1 344
DTH equipment sales and integration services 90 - - 90 - - 90 - 15 (13) 92
Satellite services.......................... 11 - - 11 - - 11 - - - 11
C-band and other............................ 33 - - 33 - - 33 - 1 ( 4) 30
-------------------------------------------------------------------------------
Total revenue.................................. 476 - - 476 - - 476 - 17 (16) 477
COSTS AND EXPENSES:
DISH Network Operating Expenses:
Subscriber-related expenses.............. 144 - - 144 - - 144 - - - 144
Customer service center and other........ 35 - - 35 - - 35 - 3 ( 3) 35
Satellite and transmission............... 14 - - 14 - - 14 - - - 14
-------------------------------------------------------------------------------
Total DISH Network operating expenses....... 193 - - 193 - - 193 - 3 ( 3) 193
Cost of sales - DTH equipment and
integration services..................... 61 - - 61 - - 61 - 9 ( 8) 62
Cost of sales - C-band and other............ 24 - - 24 - - 24 - 1 ( 1) 24
Marketing:
Subscriber promotion subsidies........... 149 - - 149 - - 149 - - ( 4) 145
Advertising and other.................... 35 - - 35 - - 35 - - - 35
-------------------------------------------------------------------------------
Total marketing expenses.................... 184 - - 184 - - 184 - - ( 4) 180
General and administrative.................. 66 - - 66 - - 66 1 2 - 69
Amortization of subscriber acquisition
costs....................................... 121 - - 121 - - 121 - - 1 122
Depreciation and amortization............... 51 - - 51 - - 51 - - - 51
-------------------------------------------------------------------------------
Total costs and expenses....................... 700 - - 700 - - 700 1 15 (15) 701
-------------------------------------------------------------------------------
Operating loss................................. (224) - - (224) - - (224) ( 1) 2 ( 1) (224)
Other Income (Expense):
Interest income............................. 3 2 - 5 8 - 13 11 - ( 7) 17
Interest expense, net of amounts
capitalized.............................. ( 68) ( 19) - ( 87) ( 18) - (105) - ( 5) 6 (104)
Other....................................... ( 2) - - ( 2) - - ( 2) - - - ( 2)
Equity in losses of subsidiaries............ - (291) 291 - (308) 308 - (323) - 323 -
-------------------------------------------------------------------------------
Total other income (expense)................... ( 67) (308) 291 ( 84) (318) 308 ( 94) (312) ( 5) 322 ( 89)
-------------------------------------------------------------------------------
Loss before income taxes....................... (291) (308) 291 (308) (318) 308 (318) (313) ( 3) 321 (313)
Income tax benefit (provision), net............ - - - - - - - - - - -
-------------------------------------------------------------------------------
Net loss....................................... $(291) $(308) $291 $(308) $(318) $308 $(318) $(313) $( 3) $321 $(313)
===============================================================================
</TABLE>
F-27
<PAGE>
DISH, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
10. PARENT COMPANY ONLY AND CONSOLIDATION OF SUBSIDIARY GUARANTORS - CONTINUED
CONSOLIDATING STATEMENTS OF CASH FLOWS - YEAR ENDED DECEMBER 31, 1995
(IN MILLIONS)
<TABLE>
<CAPTION>
DISH ECC - PC Other C&E ECC
-------------------------------------------------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............................................................ $( 12) $(11) $ - $12 $( 11)
Adjustments to reconcile net income (loss) to net cash flows from operating
activities:
Equity in (earnings) losses of subsidiaries.............................. - 12 - (12) -
Depreciation and amortization............................................ 3 - - - 3
Deferred income tax benefit.............................................. ( 5) - - - ( 5)
Amortization of debt discount and deferred financing costs............... 24 - - - 24
Other, net............................................................... 1 - - - 1
Changes in current assets and current liabilities, net................... ( 33) (20) 20 - ( 33)
-------------------------------------------------
Net cash flows from operating activities..................................... ( 22) (19) 20 - ( 21)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of marketable investment securities................................ ( 3) (22) - - ( 25)
Sales of marketable investment securities.................................... 34 7 - - 41
Purchases of restricted marketable investment securities..................... ( 15) - - - ( 15)
Purchases of property and equipment.......................................... (114) - (20) - (134)
Offering proceeds and investment earnings placed in escrow................... ( 10) - - - ( 10)
Funds released from escrow accounts.......................................... 122 - - - 122
Investment in convertible subordinated debentures from DBSI.................. - ( 1) - - ( 1)
Investment in DBSC........................................................... 5 ( 5) - - -
Long-term notes receivable from and investment in DBSC....................... - (16) - - ( 16)
-------------------------------------------------
Net cash flows from investing activities..................................... 19 (37) (20) - ( 38)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of Class A Common Stock........................... - 63 - - 63
-------------------------------------------------
Net cash flows from financing activities..................................... - 63 - - 63
-------------------------------------------------
Net increase (decrease) in cash and cash equivalents......................... ( 3) 7 - - 4
Cash and cash equivalents, beginning of year................................. 18 - - - 18
-------------------------------------------------
Cash and cash equivalents, end of year....................................... $ 15 $ 7 $ - $ - $ 22
=================================================
</TABLE>
F-28
<PAGE>
DISH, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
10. PARENT COMPANY ONLY AND CONSOLIDATION OF SUBSIDIARY GUARANTORS - CONTINUED
CONSOLIDATING STATEMENTS OF CASH FLOWS - YEAR ENDED DECEMBER 31, 1996
(IN MILLIONS)
<TABLE>
<CAPTION>
DBS
Corp- DBS ECC-
DISH ESBC-PC C&E ESBC PC C&E CORP PC Other C&E ECC
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............................. $( 92) $(101) $ 92 $(101) $(102) $ 101 $(102) $(101) $ - $ 102 $(101)
Adjustments to reconcile net income (loss) to
net cash flows from operating activities:
Equity in (earnings) losses of subsidiaries. - 92 (92) - 101 (101) - 101 - (101) -
Depreciation and amortization............... 27 - - 27 - - 27 - - - 27
Amortization of subscriber acquisition costs 16 - - 16 - - 16 - - - 16
Deferred income tax benefit................. ( 45) ( 5) - ( 50) - - ( 50) - - - ( 50)
Amortization of debt discount and deferred
financing costs............................ 34 24 3 61 - - 61 - - - 61
Other, net.................................. 10 - - 10 - - 10 ( 2) - - 8
Changes in current assets and current
liabilities, net........................... 152 (268) ( 3) (119) 70 - ( 49) 26 38 ( 4) 11
---------------------------------------------------------------------------------
Net cash flows from operating activities...... 102 (258) - (156) 69 - ( 87) 24 38 ( 3) ( 28)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of marketable investment securities. - (138) - (138) - - (138) - - - (138)
Sales of marketable investment securities..... - 120 - 120 - - 120 15 - - 135
Purchases of restricted marketable investment
securities................................... ( 21) - - ( 21) - - ( 21) - - - ( 21)
Funds released from escrow and restricted
cash and marketable investment securities.... 100 136 - 236 - - 236 - - - 236
Purchases of property and equipment........... (158) - - (158) ( 26) - (184) - (38) - (222)
Offering proceeds and investment earnings
placed in escrow............................. ( 11) (183) - (194) - - (194) - - - (194)
Payments received on convertible subordinated
debentures from SSET......................... 6 - - 6 - - 6 - - - 6
Long-term notes receivable from DBSC.......... - - - - - - - ( 30) - - ( 30)
Long-term note receivable from DBS Corp....... - - - - - - - ( 12) - 12 -
Expenditures for FCC authorizations........... - - - - ( 55) - ( 55) - - - ( 55)
Other......................................... - - - - - - - ( 6) - 3 ( 3)
---------------------------------------------------------------------------------
Net cash flows from investing activities...... ( 84) ( 65) - (149) ( 81) - (230) ( 33) (38) 15 (286)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of 1996 Notes...... - 337 - 337 - - 337 - - - 337
Proceeds from note payable to ECC............. - - - - 12 - 12 - - ( 12) -
Repayments of mortgage indebtedness and
notes payable................................ ( 8) - - ( 8) - - ( 8) - - - ( 8)
Stock options exercised....................... - - - - - - - 2 - - 2
---------------------------------------------------------------------------------
Net cash flows from financing activities...... ( 8) 337 - 329 12 - 341 2 - ( 12) 331
---------------------------------------------------------------------------------
Net increase (decrease) in cash and cash
equivalents.................................. 10 14 - 24 - - 24 ( 7) - - 17
Cash and cash equivalents, beginning of year.. 15 - - 15 - - 15 7 - - 22
---------------------------------------------------------------------------------
Cash and cash equivalents, end of year........ $ 25 $ 14 $ - $ 39 $ - $ - $ 39 $ - $ - $ - $ 39
=================================================================================
</TABLE>
F-29
<PAGE>
DISH, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
10. PARENT COMPANY ONLY AND CONSOLIDATION OF SUBSIDIARY GUARANTORS - CONTINUED
CONSOLIDATING STATEMENTS OF CASH FLOWS - YEAR ENDED DECEMBER 31, 1997
(IN MILLIONS)
<TABLE>
<CAPTION>
DBS
Corp- DBS ECC-
DISH ESBC-PC C&E ESBC PC C&E CORP PC Other C&E ECC
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)................................ $(291) $(308) $ 291 $(308) $(318) $ 308 $(318) $(313) $( 3) $ 321 $(313)
Adjustments to reconcile net income (loss) to
net cash flows from operating activities:
Equity in (earnings) losses of subsidiaries.... - 291 (291) - 308 (308) - 323 - (323) -
Depreciation and amortization.................. 51 - - 51 - - 51 - - - 51
Amortization of subscriber acquisition costs... 121 - - 121 - - 121 - - - 121
Amortization of debt discount and deferred
financing costs............................... 63 19 - 82 1 - 83 - - - 83
Other, net..................................... 11 - - 11 - - 11 - - - 11
Changes in current assets and current
liabilities, net.............................. 88 ( 71) - 17 (106) - ( 89) (18) 158 ( 4) 47
-------------------------------------------------------------------------------
Net cash flows from operating activities......... 43 ( 69) - ( 26) (115) - (141) ( 8) 155 ( 6) -
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of marketable investment securities.... - ( 5) - ( 5) ( 32) - ( 37) (271) - - (308)
Sales of marketable investment securities........ - 23 - 23 29 - 52 - - - 52
Purchases of restricted marketable investment
securities...................................... ( 1) - - ( 1) - - ( 1) - - - ( 1)
Funds released from escrow and restricted
cash and marketable investment securities....... 31 48 - 79 41 - 120 - - - 120
Purchases of property and equipment.............. ( 49) - - ( 49) ( 30) - ( 79) - (153) - (232)
Offering proceeds and investment earnings
placed in escrow................................ - - - - (228) - (228) - - - (228)
Other............................................ - ( 1) - ( 1) - - ( 1) 8 ( 2) ( 6) ( 1)
-------------------------------------------------------------------------------
Net cash flows from investing activities......... ( 19) 65 - 46 (220) - (174) (263) (155) ( 6) (598)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of Class A Common
Stock........................................... - - - - - - - 63 - - 63
Net proceeds from issuance of 1997 Notes......... - - - - 363 - 363 - - - 363
Net proceeds from issuance of 12 1/8%
Series B Senior Redeemable Exchangeable Preferred - - - - - - - 193 - - 193
Net proceeds from issuance of 6 3/4% Series C
Cumulative Convertible Preferred Stock.......... - - - - - - - 97 - - 97
Repayment of note payable to ECC................. - - - - ( 12) - ( 12) - - 12 -
Repayments of mortgage indebtedness and
notes payable................................... ( 13) - - ( 13) - - ( 13) - - - ( 13)
Net proceeds from Class A Common Stock options
exercised and Class A Common Stock issued
to Employee Stock Purchase Plan................. - - - - - - - 1 - - 1
-------------------------------------------------------------------------------
Net cash flows from financing activities......... ( 13) - - ( 13) 351 - 338 354 - 12 704
-------------------------------------------------------------------------------
Net increase (decrease) in cash and cash
equivalents...................................... 11 ( 4) - 7 16 - 23 83 - - 106
Cash and cash equivalents, beginning of year..... 25 14 - 39 - - 39 - - - 39
-------------------------------------------------------------------------------
Cash and cash equivalents, end of year........... $ 36 $ 10 $ - $ 46 $ 16 $ - $ 62 $ 83 $ - $ - $ 145
===============================================================================
</TABLE>
F-30
<PAGE>
DISH, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
11. OPERATIONS IN GEOGRAPHIC AREAS
The Company sells certain of its products on a worldwide basis
and has operations in Europe and the Pacific Rim. Information about the
Company's operations in different geographic areas as of December 31, 1995,
1996 and 1997 and for the years then ended, is as follows (in thousands):
<TABLE>
<CAPTION>
UNITED STATES EUROPE OTHER INTERNATIONAL TOTAL
------------------ ----------------- --------------------- ----------------
<S> <C> <C> <C> <C>
1995
Total revenue..................... $ 95,259 $ 31,351 $ 21,910 $ 148,520
================= ================= ================ ================
Export sales...................... $ 6,317
=================
Operating income (loss)........... $( 7,895) $ 146 $( 257) $( 8,006)
================= ================= ================
Other income (expense), net....... $( 10,546)
----------------
Net loss before income taxes...... $( 18,552)
================
Identifiable assets............... $ 63,136 $ 10,088 $ 3,788 $ 77,012
================= ================= ================
Corporate assets.................. $ 482,283
----------------
Total assets...................... $ 559,295
================
1996
Total revenue..................... $ 159,611 $ 26,984 $ 10,508 $ 197,103
================= ================= ================ ================
Export sales...................... $ 1,536
=================
Operating loss.................... $(106,536) $( 1,274) $( 896) $(108,706)
================= ================= ================
Other income (expense), net....... $( 32,349)
----------------
Net loss before income taxes...... $(141,055)
================
Identifiable assets............... $594,470 $ 5,795 $ 1,871 $ 602,136
================= ================= ================
Corporate assets.................. $ 228,829
----------------
Total assets...................... $ 830,965
================
1997
Total revenue..................... $ 446,461 $ 20,592 $ 8,849 $ 475,902
================= ================= ================ ================
Export sales...................... $ 74,065
=================
Operating loss.................... $(222,632) $( 1,224) $( 402) $(224,258)
================= ================= ================
Other income (expense), net....... $( 66,749)
----------------
Net loss before income taxes...... $(291,007)
================
Identifiable assets............... $ 696,776 $ 5,696 $ 2,682 $ 705,154
================= ================= ================
Corporate assets.................. $ 39,287
----------------
Total assets...................... $ 744,441
================
</TABLE>
F-31
<PAGE>
DISH, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
12. VALUATION AND QUALIFYING ACCOUNTS
The Company's valuation and qualifying accounts as of December 31,
1995, 1996 and 1997 are as follows (in thousands):
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO COSTS BALANCE AT END
BEGINNING OF YEAR AND EXPENSES DEDUCTIONS OF YEAR
------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1995:
Assets:
Allowance for doubtful accounts........... $ 186 $ 1,160 $( 240) $1,106
Loan loss reserve......................... 95 19 ( 36) 78
Reserve for inventory..................... 1,585 1,511 ( 299) 2,797
Liabilities:
Reserve for warranty costs and other...... 1,493 562 ( 950) 1,105
YEAR ENDED DECEMBER 31, 1996:
Assets:
Allowance for doubtful accounts........... $1,106 $ 2,340 $ (1,952) $1,494
Loan loss reserve......................... 78 157 ( 94) 141
Reserve for inventory..................... 2,797 4,304 (1,438) 5,663
Liabilities:
Reserve for warranty costs and other...... 1,105 ( 342) - 763
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
</TABLE>
13. 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, 1996:
Total revenue........................ $ 37,057 $ 66,478 $ 37,506 $ 56,062
Operating loss....................... ( 8,908) (17,653) (27,564) (54,581)
Net loss............................. ( 7,290) (17,198) (22,143) (44,906)
Year Ended December 31, 1997:
Total revenue........................ $ 68,967 $ 97,831 $ 129,662 $ 179,442
Operating loss....................... (43,304) (43,490) ( 91,182) ( 46,282)
Net loss............................. (58,248) (59,775) (108,323) ( 64,807)
</TABLE>
Certain revenue amounts reflected above have been reclassified to
conform with the 1997 presentation.
F-32
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned person whose
signature appears below constitutes and appoints David K. Moskowitz as the true
and lawful attorney-in-fact and agent of the undersigned, with full power of
substitution and resubstitution, for and in the name, place and stead of the
undersigned, in any and all capacities, to sign the Annual Report on Form 10-K
of Dish, Ltd., a Nevada corporation, for the year ended December 31, 1997, and
any and all amendments thereto and to file the same, with all exhibits thereto
and other documents in connection therewith, with the United States Securities
and Exchange Commission, and hereby grants to said attorney-in-fact and agent
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in connection therewith, as fully as to all
intents and purposes as the undersigned might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent, or his
substitute, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Power Attorney has been signed by the following person in the capacity and on
the date indicated.
Signature Title Date
--------- ----- ----
/S/ JAMES DEFRANCO Director March 27, 1998
- ----------------------------------
James DeFranco
<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 YEAR ENDED DECEMBER 31,
1997 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-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 35,682
<SECURITIES> 0
<RECEIVABLES> 67,392
<ALLOWANCES> 1,347
<INVENTORY> 22,993
<CURRENT-ASSETS> 152,466
<PP&E> 591,130
<DEPRECIATION> (85,783)
<TOTAL-ASSETS> 744,441
<CURRENT-LIABILITIES> 472,264
<BONDS> 540,358
0
0
<COMMON> 0
<OTHER-SE> (396,516)
<TOTAL-LIABILITY-AND-EQUITY> 744,441
<SALES> 464,767<F1>
<TOTAL-REVENUES> 475,902
<CGS> 277,997<F2>
<TOTAL-COSTS> 700,160
<OTHER-EXPENSES> 66,749
<LOSS-PROVISION> 4,163
<INTEREST-EXPENSE> 68,163<F3>
<INCOME-PRETAX> (291,007)
<INCOME-TAX> (146)
<INCOME-CONTINUING> (291,153)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (291,153)
<EPS-PRIMARY> (291,153)
<EPS-DILUTED> (291,153)
<FN>
<F1>INCLUDES SALES OF PROGRAMMING
<F2>INCLUDES COSTS OF PROGRAMMING
<F3>NET OF AMOUNTS CAPITALIZED
</FN>
</TABLE>
