March 25, 2016
Dear EchoStar Corporation Shareholders,
2015 was a year of expansion for EchoStar. While we continued to support our core product lines within each of our business units,
we also invested in several strategic initiatives to drive long-term growth and position us for future success. These initiatives included
capitalizing on global demand for broadband Internet access, expanding into the security and home automation market, further
expansion into the over-the-top (OTT) service arena, and finally, investing in numerous satellites that will provide more capacity in
the future. We are committed to diversification and expansion while also continuing to grow our core business areas―and 2015 was a
pivotal year in those efforts.
EchoStar remained steadfast in 2015 in focusing on our core businesses, as evidenced by our performance across the various business
units. We own, lease and/or manage 22 satellites and our EchoStar Satellite Services (ESS) division is working on our fleet expansion
initiatives with the expected launch of five satellites in 2016, including one that launched on March 9. The uses and expected
launches for each of these satellites are described below:
• EchoStar 19 (4th quarter) – Jupiter 2 satellite for expansion of satellite broadband service over North America
• EchoStar 21 (2nd quarter) – Enabling EchoStar Mobile to begin mobile satellite services across the European Union
• EchoStar 23 (3rd quarter) – Deployment at 45 degrees west for Brazilian BSS service
• EchoStar 105 (4th quarter) – Replacing AMC 15 for Fixed Satellite Services (FSS) in the United States
• Eutelsat 65 West A (March 9) – a hosted Ka-band payload to provide satellite broadband services in Brazil
HughesNet, our consumer satellite broadband service, ended the year with approximately 1,035,000 subscribers, compared to 977,000
at the end of 2014. With that 6% increase and our 60% market share of the North American satellite consumer business, we continue
to be market leaders in that arena.
Our EchoStar Technologies (ETC) division continues to offer award-winning set-top boxes and services while also expanding into
new markets such as security and home automation.
While our 2015 revenue was down by approximately $300 million compared to 2014, our net income attributable to EchoStar
shareholders for 2015 was relatively stable. We increased our research and development spending considerably during the year, which
underscores our commitment to identifying potential revenue streams to invest in for the future. Our expansion in Brazil for satellite
broadband delivery is on track for 2016, with much of the planning and preparation having taken place during 2015. Recognizing the
declining set-top-box market, we are diversifying into more direct-to-consumer products and services to prepare for 2016 and beyond.
Finally, we made strategic minority investments in OneWeb and SmarDTV to enable potential future revenue.
2016 will be a busy year as we implement much of what has been initiated in 2015 and earlier and position ourselves to continue to
evolve and grow the company for the long term.
EchoStar will continue to seek ways to diversify our revenue portfolio and increase efficiency while maintaining our technical
leadership in satellite communications and broadcast and video technologies.
Thank you for your continued support―we remain committed to the future success of EchoStar.
Sincerely,
Charles W. Ergen
Chairman of the Board of Directors
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
(cid:55) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2015
OR
(cid:133) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE TRANSITION PERIOD FROM _______________ TO ________________.
Commission file number: 001-33807
EchoStar Corporation
(Exact name of registrant as specified in its charter)
Nevada
(State or Other Jurisdiction of Incorporation or Organization)
26-1232727
(I.R.S. Employer Identification No.)
100 Inverness Terrace East, Englewood, Colorado
(Address of Principal Executive Offices)
80112-5308
(Zip Code)
Registrant’s telephone number, including area code: (303) 706-4000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Class A common stock, $0.001 par value
Name of each exchange on which registered
The NASDAQ Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes (cid:55) No (cid:133)
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes (cid:133) No (cid:55)
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 (cid:55) No (cid:133)
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for
such shorter period that the registrant was required to submit and post such files). Yes (cid:55) No (cid:133)
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) 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. (cid:133)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer (cid:55)
Accelerated filer (cid:133)
Non-accelerated filer (cid:133)
(Do not check if a smaller
reporting company)
Smaller reporting company (cid:133)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes (cid:133) No (cid:55)
As of June 30, 2015, the aggregate market value of Class A common stock held by non-affiliates of the registrant was $2.16 billion based upon
the closing price of the Class A common stock as reported on the Nasdaq Global Select Market as of the close of business on that date.
As of February 16, 2016, the registrant’s outstanding common stock consisted of 45,563,639 shares of Class A common stock and
47,687,039 shares of Class B common stock, each $0.001 par value.
The following documents are incorporated into this Form 10-K by reference:
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive Proxy Statement to be filed in connection with its 2016 Annual Meeting of Shareholders are incorporated by
reference in Part III.
(This page has been left blank intentionally.)
Disclosure Regarding Forward Looking Statements ......................................................................................................i
TABLE OF CONTENTS
PART I
Item 1.
Business ....................................................................................................................................................... 1
Item 1A. Risk Factors ............................................................................................................................................... 18
Item 1B. Unresolved Staff Comments ...................................................................................................................... 37
Properties ................................................................................................................................................... 38
Item 2.
Item 3.
Legal Proceedings ...................................................................................................................................... 38
Item 4. Mine Safety Disclosures ............................................................................................................................ 38
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities .............................................................................................. 39
Selected Financial Data ............................................................................................................................. 40
Item 6.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations ..................... 41
Item 7A. Quantitative and Qualitative Disclosures about Market Risk .................................................................... 70
Item 8.
Financial Statements and Supplementary Data .......................................................................................... 72
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ..................... 72
Item 9.
Item 9A. Controls and Procedures ............................................................................................................................ 72
Item 9B. Other Information ...................................................................................................................................... 73
PART III
Item 10. Directors, Executive Officers and Corporate Governance ......................................................................... 74
Item 11. Executive Compensation ........................................................................................................................... 74
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters .. 74
Item 13. Certain Relationships and Related Transactions, and Director Independence ........................................... 74
Item 14. Principal Accounting Fees and Services .................................................................................................... 74
PART IV
Item 15. Exhibits, Financial Statement Schedules ................................................................................................... 75
Signatures .................................................................................................................................................. 82
Index to Consolidated Financial Statements ............................................................................................ F-1
DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS
This Annual Report on Form 10-K (“Form 10-K”) contains “forward-looking statements” within the meaning of the
Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, including but not limited to statements about our
estimates, expectations, plans, objectives, strategies, and financial condition, expected impact of regulatory
developments and legal proceedings, opportunities in our industries and businesses and other trends and projections
for the next fiscal quarter and beyond. All statements, other than statements of historical facts, may be forward-
looking statements. Forward-looking statements may also be identified by words such as “anticipate,” “intend,”
“plan,” “goal,” “seek,” “believe,” “estimate,” “expect,” “predict,” “continue,” “future,” “will,” “would,” “could,”
“can,” “may” and similar terms. These forward-looking statements are based on information available to us as of
the date of this Form 10-K and represent management’s current views and assumptions. Forward-looking
statements are not guarantees of future performance, events or results and involve potential known and unknown
risks, uncertainties and other factors, many of which may be beyond our control and may pose a risk to our
operating and financial condition. Accordingly, actual performance, events or results could differ materially from
those expressed or implied in the forward-looking statements due to a number of factors including, but not limited
to:
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(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
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our reliance on our primary customer, DISH Network Corporation and its subsidiaries (“DISH Network”),
for a significant portion of our revenue;
our ability to implement our strategic initiatives;
the impact of variable demand and the adverse pricing environment for digital set-top boxes;
dependence on our ability to successfully manufacture and sell our digital set-top boxes in increasing
volumes on a cost-effective basis and with acceptable quality;
our ability to bring advanced technologies to market to keep pace with our customers and competitors;
risk related to our foreign operations and other uncertainties associated with doing business internationally,
including changes in foreign exchange rates between foreign currencies and the United States dollar;
significant risks related to the construction, launch and operation of our satellites, such as the risk of
material malfunction on one or more of our satellites, changes in the space weather environment that could
interfere with the operation of our satellites, and our general lack of commercial insurance coverage on our
satellites;
our failure to adequately anticipate the need for satellite capacity or the inability to obtain satellite capacity
for our Hughes segment; and
the failure of third-party providers of components, manufacturing, installation services and customer
support services to appropriately deliver the contracted goods or services.
Other factors that could cause or contribute to such differences include, but are not limited to, those discussed in
Part I, Item 1A. – Risk Factors and Item 7. – Management’s Discussion and Analysis of Financial Condition and
Results of Operations of this Form 10-K and those discussed in other documents we file with the Securities and
Exchange Commission (“SEC”).
All cautionary statements made herein should be read as being applicable to all forward-looking statements
wherever they appear. Investors should consider the risks and uncertainties described herein and should not place
undue reliance on any forward-looking statements. We do not undertake, and specifically disclaim, any obligation
to publicly release the results of any revisions that may be made to any forward-looking statements, whether as a
result of new information, future events or otherwise, except as required by law.
i
Item 1. BUSINESS
OVERVIEW
PART I
EchoStar Corporation (which, together with its subsidiaries, is referred to as “EchoStar,” the “Company,” “we,” “us”
and/or “our”) is a holding company that was organized in October 2007 as a corporation under the laws of the State
of Nevada. We are a global provider of satellite operations, video delivery solutions, digital set-top boxes, and
broadband satellite technologies and services for home and office, delivering innovative network technologies,
managed services, and solutions for enterprises and governments. Our Class A common stock is publicly traded on
the Nasdaq Global Select Market (“Nasdaq”) under the symbol “SATS.”
We currently operate in the following three business segments:
(cid:120) Hughes – which provides satellite broadband internet access to North American consumers and broadband
network services and equipment to domestic and international enterprise markets. The Hughes segment
also provides managed services to large enterprises and solutions to customers for mobile satellite systems.
(cid:120) EchoStar Technologies (“ETC”) – which designs, develops and distributes secure end-to-end video
technology solutions including digital set-top boxes and related products and technology, primarily for
satellite TV service providers and telecommunication companies. Our EchoStar Technologies segment also
provides digital broadcast operations, including satellite uplinking/downlinking, transmission services,
signal processing, conditional access management, and other services, primarily to DISH Network
Corporation and its subsidiaries (“DISH Network”) and Dish Mexico, S. de R.L. de C.V. (“Dish Mexico”),
a joint venture we entered into in 2008. In addition, we provide our TV Anywhere technology through
Slingbox® units directly to consumers via retail outlets and online, as well as to the pay-TV operator
market. Beginning in 2015, this segment also includes Move Networks, our over-the-top (“OTT”),
Streaming Video on Demand (“SVOD”) platform business, which includes assets acquired from Sling TV
Holding L.L.C. (formerly DISH Digital Holding L.L.C.) (“Sling TV Holding”), and primarily provides
support services to DISH Network’s Sling TV™ operations. In 2016, we plan to introduce a security and
home automation solution provided directly to consumers.
(cid:120) EchoStar Satellite Services (“ESS”) – which uses certain of our owned and leased in-orbit satellites and
related licenses to provide satellite services on a full-time and occasional-use basis primarily to DISH
Network, Dish Mexico, United States (“U.S.”) government service providers, internet service providers,
broadcast news organizations, programmers, and private enterprise customers.
Our operations also include real estate and other activities that have not been assigned to our operating segments,
including, costs incurred in certain satellite development programs and other business development activities,
expenses of various corporate departments, and our centralized treasury operations, including, income from our
investment portfolio and interest expense on our debt. These activities are accounted for in the “All Other and
Eliminations” column in Note 17 in the notes to consolidated financial statements in Item 15 of this report.
In 2008, DISH Network completed its distribution to us of its digital set-top box business, certain infrastructure, and
other assets and related liabilities, including certain of its satellites, uplink and satellite transmission assets, and real
estate (the “Spin-off”). Since the Spin-off, EchoStar and DISH Network have operated as separate publicly-traded
companies. However, as a result of the Satellite and Tracking Stock Transaction, described in Note 4 in the notes to
consolidated financial statements in Item 15 of this report, DISH Network owns shares of our and our subsidiary’s
preferred tracking stock representing an aggregate 80.0% economic interest in the residential retail satellite
broadband business of our Hughes segment. In addition, a substantial majority of the voting power of the shares of
DISH Network and EchoStar is owned beneficially by Charles W. Ergen, our Chairman, and by certain trusts
established by Mr. Ergen for the benefit of his family.
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BUSINESS STRATEGIES
Capitalize on demand for broadband services. We intend to capitalize on the global demand for satellite-delivered
broadband services and enterprise solutions by utilizing, among other things, our industry expertise, technology
leadership, satellite capacity, access to spectrum resources, and high-quality, reliable service to continue growth in
consumer subscribers and the enterprise market.
Expand satellite capacity and related infrastructure. We expect that our expertise in the identification, acquisition
and development of satellite spectrum and orbital rights and satellite operations, together with existing or acquired
infrastructure, will provide opportunities to enter new international markets. We believe market opportunities exist
that will facilitate the acquisition or leasing of additional satellite capacity which will enable us to provide services
to a broader customer base, including providers of pay-TV services, satellite-delivered broadband, corporate
communications, and government services.
Continue development of S-band and other hybrid spectrum resources. We believe we are in a unique position to
deploy a European wide mobile satellite service (“MSS”)/complementary ground component (“CGC”) network and
maximize the long-term value of our S-band spectrum, in Europe and other regions within the scope of our licenses.
We will also continue to explore development of S-band similar spectrum assets in additional international markets,
Exploit our video delivery expertise. With our extensive experience in designing, developing, and operating video
delivery systems for satellite direct-to-home (“DTH”) and internet streaming, we believe we can leverage the
broader adoption of advanced technologies such as placeshifting functionality, hybrid internet offerings and other in-
home solutions to create opportunities for us. Therefore, we continue to explore opportunities, including
partnerships, joint ventures and strategic acquisitions, to expand our existing markets or enter new markets. In
addition, we intend to seek opportunities to license our technology to other original equipment manufacturers and
pay-TV providers.
Develop improved and new technologies. Our engineering capabilities provide us with the opportunity to develop
and deploy cutting edge technologies, license our technologies to others, and maintain a leading technological
position in the industries in which we are active. We also intend to develop and launch next generation media and
content delivery platforms such as our Move Networks business and our security and home automation products and
services.
BUSINESS SEGMENTS
HUGHES SEGMENT
Our Products and Services
Our Hughes segment is a global provider of broadband satellite technologies and services for the home and office,
delivering innovative network technologies, managed services, and solutions for consumers, enterprises and
governments.
Our Hughes segment uses its two owned satellites, the SPACEWAY 3 satellite and the EchoStar XVII satellite, and
additional satellite capacity acquired from multiple third-party providers, to provide satellite broadband internet
access to North American consumers, which we refer to as the consumer market, and broadband network services
and equipment to domestic and international enterprise markets. Our Hughes segment also provides managed
services and equipment to large enterprises and solutions to customers for mobile satellite systems. We incorporate
advances in technology to reduce costs and to increase the functionality and reliability of our products and services.
Through the usage of advanced spectrally efficient modulation and coding methodologies, proprietary software web
acceleration and compression techniques, we continue to improve the efficiency of our networks. We invest in
technologies to enhance our system and network management capabilities, specifically our managed services for
enterprises. We also continue to invest in next generation technologies that can be applied to our future products and
services. Beginning in October 2012, we introduced HughesNet Gen4 satellite broadband internet services to our
customers in North America on the EchoStar XVII satellite.
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We continue our efforts in growing our consumer revenue, which depends on our success in adding new subscribers
on our Hughes segment’s satellite networks. The addition of new subscribers and the performance of our consumer
service offering, primarily drive the revenue growth in our consumer business. Service costs related to ongoing
support of our direct and indirect customers and partners are typically impacted most significantly by our growth.
Long-term trends continue to be influenced primarily by the subscriber growth in our consumer business.
New satellite launches are expected to provide additional capacity for subscriber growth while we manage
subscriber growth across our existing satellite platform. In March 2013, we entered into a contract for the design
and construction of the EchoStar XIX satellite, which is expected to be launched in the fourth quarter of 2016. The
EchoStar XIX satellite is a next-generation, high throughput geostationary satellite that will employ a multi-spot
beam, bent pipe Ka-band architecture and will provide additional capacity for the Hughes broadband services to the
consumer market in North America, as well as new capacity covering Mexico and other Latin American countries.
We continue our efforts in growing our consumer satellite services business outside of the U.S. In April 2014, we
entered into a satellite services agreement pursuant to which Eutelsat do Brasil will provide to us fixed broadband
service using the Ka-band capacity into Brazil on the EUTELSAT 65 West A satellite for a 15-year term. We expect
the satellite to launch in the first quarter of 2016 and to begin delivering consumer satellite broadband services in
Brazil in the second half of 2016. In addition, in September 2015, we entered into satellite services agreements
pursuant to which affiliates of Telesat Canada (“Telesat”) will provide to us fixed broadband service into South
America using the Ka-band capacity on a satellite to be located at the 63 degree west longitude orbital location for a
15-year term. We expect the satellite to be launched in the second quarter of 2018 to deliver consumer satellite
broadband services into South America as well as create a platform to potentially allow for further development of
our business in South America.
Our Customers
Our Hughes segment delivers satellite broadband internet service to North American consumers. It also provides
satellite, network products and services and managed network services and equipment to enterprises and broadband
service providers worldwide. In addition, our Hughes segment provides satellite ground segment systems and
terminals to mobile system operators.
In October 2012, we entered into a distribution agreement (the “Distribution Agreement”) with dishNET Satellite
Broadband L.L.C. (“dishNET”), a wholly-owned subsidiary of DISH Network, pursuant to which dishNET has the
right, but not the obligation, to market, sell and distribute the Hughes satellite internet service (the “Hughes
service”) under the dishNET brand. In February 2014, we amended the Distribution Agreement which, among other
things, extended the term of the agreement through March 1, 2024. DISH Network accounted for 7.8%, 8.5% and
9.3% of our total Hughes segment revenue for the years ended December 31, 2015, 2014 and 2013, respectively.
See Note 19 in the notes to consolidated financial statements in Item 15 of this report for further discussion of our
related party transactions with DISH Network.
As of December 31, 2015, 2014 and 2013, our Hughes segment had approximately 1,035,000, 977,000 and
860,000 broadband subscribers, respectively. These broadband subscribers include customers that subscribe to our
HughesNet broadband services through retail, wholesale and small/medium enterprise service channels.
As of December 31, 2015 and 2014, our Hughes segment had approximately $1.44 billion and $1.26 billion,
respectively, of contracted revenue backlog. We define Hughes contracted revenue backlog as our expected future
revenue under customer contracts that are non-cancelable, excluding agreements with customers in our consumer
market. Of the total contracted revenue backlog as of December 31, 2015, we expect to recognize approximately
$402.1 million of revenue in 2016.
Our Competition
The network communications industry is highly competitive. As a global provider of data network products and
services, our Hughes segment competes with a large number of telecommunications service providers. This
increasingly competitive environment has put pressure on prices and margins. To compete effectively, we
3
emphasize our network quality, our customization capability, our offering of networks as a turnkey managed service,
our position as a single point of contact for products and services and our competitive prices.
In our consumer market, we compete against traditional telecommunications and wireless carriers, other satellite
internet providers, as well as digital subscriber line (“DSL”) and cable internet service providers offering
competitive services in many communities we seek to serve. Cost, speed and accessibility are key determining
factors in the selection of a service provider by the consumer. Our primary satellite competitor in our North
American consumer market is ViaSat Communications, Inc. (“ViaSat Communications”), which is owned by ViaSat,
Inc. (“ViaSat”). We seek to differentiate ourselves based on the ubiquitous availability of our service, quality,
proprietary technology, and distribution channels.
In our enterprise market, our principal competitors for the supply of very-small-aperture terminal (“VSAT”) satellite
networks are Gilat Satellite Networks Ltd, ViaSat, SageNet LLC, Newtec and iDirect Technologies (“iDirect”). To
differentiate ourselves from our competitors, we emphasize particular technological features of our products and
services, our ability to customize networks and perform desired development work and the quality of our customer
service. We also face competition from resellers and numerous local companies who purchase equipment and sell
services to local customers, including domestic and international telecommunications operators, cable companies
and other major carriers.
We believe broadband networks generally have an advantage over terrestrial networks where the network must reach
many locations over large distances, where the customer has a “last mile” or a congestion problem that cannot be
solved easily with terrestrial facilities or where there is a need for transmission to remote locations or emerging
markets. By comparison, ground-based facilities (e.g., fiber optic cables) often have an advantage for carrying large
amounts of bulk traffic between a small number of fixed locations. Our relative competitive position is constantly
changing as we and our competitors strive to improve our respective positions. While our current competitive
position provides us the opportunity to grow our business, we cannot be certain of its continuing effects on our
business as our competitors modify or adapt their strategies and service offerings.
Manufacturing
Certain products in our Hughes segment are assembled at our facilities in Maryland and we outsource a significant
portion of the manufacturing of our products to third parties. We believe that the manufacturing facilities used by
our Hughes segment have sufficient capacity to handle current demand. We adjust our capacity based on our
production requirements. We also work with third-party vendors for the development and manufacture of
components that are integrated into our products. We develop dual sourcing capabilities for critical parts when
practical and we evaluate outsourced subcontract vendors on a periodic basis. Our operations group, together with
our engineering group, works with our vendors and subcontractors to reduce development costs, to increase
production efficiency, and to obtain components at lower prices.
ECHOSTAR TECHNOLOGIES SEGMENT
Our Products and Services
Our EchoStar Technologies business segment provides secure end-to-end video and broadcast technology products
and services to businesses and directly to consumers.
Video Delivery Products and Related Technologies. Our EchoStar Technologies segment designs, develops and
distributes a wide range of video delivery products and related technologies that allow consumers to watch and
control their subscription and over-the-air (“OTA”) TV programming from inside their homes. Our current video
delivery products and related technologies include:
(cid:120)
Set-top boxes. Provides consumers with the ability to access the enhanced picture quality and sound of 4K,
high-definition (“HD”) and/or standard definition (“SD”) content, interactive applications, broadband
connectivity and Bluetooth audio streaming, depending on the type of set-top box purchased.
4
(cid:120) DVR and Whole-Home HD DVR solutions. Provides customers with the ability to record, replay and store
content and multi-room HD content sharing functionality to create a whole-home entertainment experience,
including commercial skipping and sideloading technologies.
(cid:120) TV Anywhere “Placeshifting” Functionality. Provides customers with the ability to watch and control
digital television content on a desktop or mobile device via a broadband internet connection. Customers
have these abilities when using our set-top boxes as well as our standalone Slingbox units, which are sold
directly to consumers via retail outlets and online, as well as to the pay-TV operator market.
In addition to digital set-top boxes, we design and develop related products such as satellite dishes and remote
controls.
Video Broadcast Services. Our EchoStar Technologies segment also provides online video delivery and satellite
video delivery for broadcasters and pay-TV operators, including satellite uplinking/downlinking, transmission
services, signal processing, conditional access management, and other services, primarily to DISH Network and
Dish Mexico. We operate a number of digital broadcast centers in the U.S. Our principal digital broadcast centers
are located in Cheyenne, Wyoming and Gilbert, Arizona. We also have multiple regional and micro digital
broadcast centers that allow us to maximize the use of the spot beam capabilities of our satellites and our customers’
satellites. Programming and other data are received at these centers by fiber optic cable or satellite. The data is
processed, compressed, encrypted and then uplinked to our satellites and our customers’ satellites for transmission to
end-users.
Over-the-Top (“OTT”) Services. Through our Move Networks division, we have developed and launched a
comprehensive OTT SVOD and live linear service platform solution currently utilized by DISH Network’s Sling TV
service, which launched in 2015. We continue to develop and enhance the platform for Sling TV to improve the
customer experience. We also continue to explore new ways to leverage this technology for other business
opportunities.
Other Products and Services. With our expertise in connectivity, security, and video, we are developing new
consumer product and service offerings, including a security and home automation solution that customers can
control from their TV or mobile device.
Our Customers
The primary customer of our EchoStar Technologies segment is DISH Network. DISH Network accounted for
87.9%, 88.7% and 90.2% of the EchoStar Technologies segment’s revenue for the years ended December 31, 2015,
2014 and 2013, respectively. We expect DISH Network will continue to be the primary customer and the key
revenue contributor for our EchoStar Technologies segment. See Note 19 in the notes to consolidated financial
statements in Item 15 of this report for further discussion of our related party transactions with DISH Network. We
also currently sell our digital set-top boxes to other international DTH satellite and cable providers, including Bell
TV, a DTH satellite services provider in Canada, and Dish Mexico, to whom we also provide video broadcast
services.
The number of potential new customers for our set-top box business in our EchoStar Technologies segment is small
and may be limited as prospective customers that have been competitors of DISH Network may continue to view us
as a competitor due to our common ownership with DISH Network. Our customers face emerging competition from
other providers of digital media and potential government action preventing them from using security systems in
connection with set-top boxes. In particular, programming offered over the internet has become more prevalent as
the speed and quality of broadband networks have improved. As a result, we expect that demand for our satellite
television digital set-top boxes from DISH Network and other customers could decline and we may not be able to
sustain our current revenue levels.
5
Our Competition
The video delivery and broadcast, OTT, and security and home automation industries are highly competitive, and
market leadership changes frequently as a result of new products, designs and pricing. As we seek to grow our
revenue and market share in these industries, we face substantial competition. Many of our primary competitors,
such as Arris Group, Inc., Cisco Systems, Inc., Samsung Electronics Co., Ltd., and Technicolor S.A., have
established longstanding relationships with their customers. In addition, a number of rapidly growing companies
have recently entered the market with offerings similar to our existing and contemplated products. The entry of
these new competitors may result in increased pricing pressure in the market. In the video delivery industry, we may
also face competition from international developers of digital set-top box systems that may be able to develop and
manufacture products and services at costs that are substantially lower than our costs. Furthermore, we depend
heavily on our ability to successfully bring advanced technologies to the market, including internet delivery of video
content and our Slingbox unit’s placeshifting functionality.
We believe our use of proprietary technology, together with our in-house engineering expertise, enables us to
innovate and bring new features and enhancements quickly to our customers. In addition, our end-to-end video
solutions may allow us to provide a more cost-effective solution for a pay-TV operator who may have to negotiate
hardware, middleware and a conditional access system separately. We have a long-standing relationship with DISH
Network and provide them with technologically advanced set-top boxes, including advanced hybrid satellite and
internet protocol over-the-top delivery solutions, Slingbox unit’s placeshifting functionality, and whole-home DVR
features.
As we develop new products and services for the consumer markets, we will compete with numerous established
and developing companies who offer similar products, some who will have longstanding distribution outlets and
relationships and established brand awareness. Our success will depend on our ability to create distribution channels
and establish consumer awareness.
Our Manufacturers
Although we design, engineer and distribute digital set-top boxes and other products, we are not directly engaged in
the manufacturing process. Rather, we outsource the manufacturing of our products to third parties who
manufacture our products according to specifications supplied by us. We depend on a few manufacturers, and in
some cases a single manufacturer, for the production of digital set-top boxes and related products. Although there
can be no assurance, we do not believe that the loss of any single manufacturer would materially impact our
business. Sanmina-SCI Corporation, Shanghai DD&TT Electronic Enterprise Co., LTD and Jabil Circuit, Inc.
currently manufacture the majority of our digital set-top boxes and accessories.
ECHOSTAR SATELLITE SERVICES SEGMENT
Our Services
Our EchoStar Satellite Services segment operates its business using its owned and leased in-orbit satellites. We
provide satellite services on a full-time and occasional-use basis primarily to DISH Network, Dish Mexico, U.S.
government service providers, internet service providers, broadcast news organizations, programmers and private
enterprise customers. We also manage satellite operations for several satellites owned by third parties. Our satellite
capacity is currently used by our customers for a variety of applications:
(cid:120) DTH Services. We provide satellite capacity to satellite TV providers, broadcasters and programmers who
use our satellites to deliver programming. Our satellites are also used for the transmission of live sporting
events, internet access, disaster recovery, and satellite news gathering services.
(cid:120) Government Services. We provide satellite services and technical services to U.S. government service
providers. We believe the U.S. government may increase its use of commercial satellites for homeland
security, emergency response, continuing education, distance learning, and training.
6
(cid:120) Network Services. We provide satellite capacity and terrestrial network services to companies. These
networks are dedicated private networks that allow delivery of video and data services for corporate
communications. Our satellites can be used for point-to-point or point to multi-point communications.
Our Customers
We provide satellite capacity on our satellite fleet primarily to DISH Network, Dish Mexico, U.S. government
service providers, internet service providers, broadcast news organizations, programmers and private enterprise
customers. For the years ended December 31, 2015, 2014 and 2013, DISH Network accounted for approximately
86.3%, 84.1% and 74.9% of our total EchoStar Satellite Services segment revenue. We have entered into certain
commercial agreements with DISH Network pursuant to which we are obligated to provide DISH Network with
satellite services at fixed prices for varying lengths of time depending on the satellite. See Note 19 in the notes to
consolidated financial statements in Item 15 of this report for further discussion of our related party transactions
with DISH Network. While we expect to continue to provide satellite services to DISH Network, its satellite
capacity requirements may change for a variety of reasons, including its ability to construct and launch its own
satellites. Any termination or reduction in the services we provide to DISH Network may cause us to have unused
capacity on our satellites and require that we aggressively pursue alternative sources of revenue for this business.
We currently have available satellite capacity. Our other satellite service sales generally are characterized by
shorter-term contracts or spot market sales.
The agreements with DISH Network for the EchoStar I and EchoStar VIII satellites expired pursuant to their terms
effective November 2015. In 2016, we expect to retire the EchoStar I and EchoStar VIII satellites. In addition, our
agreement with SES Americom Colorado, Inc. (“SES”) for satellite services on the AMC-16 satellite terminated
according to its terms in February 2016. The loss of capacity and/or service provided on these three satellites will
adversely impact our future revenue, results of operations and cash flow.
As of December 31, 2015 and 2014, our EchoStar Satellite Services segment had contracted revenue backlog
attributable to satellites currently in orbit of approximately $1.41 billion and $1.71 billion, respectively. Of the total
contracted revenue backlog as of December 31, 2015, we expect to recognize approximately $373.2 million of
revenue in 2016.
Our Competition
In the fixed satellite services market, our EchoStar Satellite Services segment competes against larger, well-
established satellite service companies, such as Intelsat S.A. (“Intelsat”), SES S.A. (“SES”), Telesat, and Eutelsat
Communications S.A. (“Eutelsat”), in an industry that is characterized by long-term contracts and high costs for
customers to change service providers. Therefore, it is difficult to displace customers from their current
relationships with our competitors. Intelsat, SES and other competitors maintain key North American and other
international orbital slots that may further limit competition and competitive pricing.
While we believe that there may be opportunities to capture new business as a result of market trends such as the
increased communications demands of homeland security initiatives, there can be no assurance that we will be able
to effectively compete against our competitors due to their significant resources and operating history.
OTHER BUSINESS OPPORTUNITIES
Our industry is evolving with the increase in worldwide demand for broadband internet access for information,
entertainment and commerce. In addition to fiber and wireless systems, other technologies such as geostationary
high throughput satellites, low-earth orbit networks, balloons, and High Altitude Platform Systems (“HAPS”) will
likely play significant roles in enabling global broadband access, networks and services. We intend to use our
expertise, technologies, capital, investments, global presence, relationships and other capabilities to continue to
provide broadband internet systems, networks and services for information, entertainment and commerce in North
America and internationally for consumers, enterprises and governments.
7
We are selectively exploring opportunities to pursue partnerships, joint ventures and strategic acquisition
opportunities, domestically and internationally, that we believe may allow us to increase our existing market share,
expand into new markets, broaden our portfolio of products and intellectual property, and strengthen our
relationships with our customers. We may allocate significant resources for long-term initiatives that may not have a
short or medium term or any positive impact on our revenue, results of operations, or cash flow.
In 2012, we acquired the right to use various frequencies at the 45 degree west longitude orbital location (“Brazilian
Authorization”) from ANATEL, the Brazilian communications regulatory agency. The Brazilian Authorization
provides us the rights to utilize Ku-band spectrum for broadcast satellite service (“BSS”), Ka-band spectrum and S-
band spectrum. With regards to the Ku-band BSS spectrum, we continue to pursue various opportunities to support
a Brazilian service. We are also exploring options for the Ka-band and S-band spectrums. In April 2014, we entered
into an agreement for the construction of the EchoStar XXIII satellite, a high powered BSS satellite, which will use
some of the components from CMBStar, a satellite that we suspended construction of in 2008. The EchoStar XXIII
satellite is expected to launch in the third quarter of 2016 and will be deployed at the 45 degree west longitude
orbital location.
In December 2013, we acquired 100% of Solaris Mobile, which is based in Dublin, Ireland and licensed by the
European Union and its member states (“EU”) to provide MSS and CGC services covering the entire EU using S-
band spectrum. Solaris Mobile changed its name to EchoStar Mobile Limited (“EchoStar Mobile”) in the first
quarter of 2015. We are in the process of developing commercial services, expected to begin in the second half of
2016, utilizing the operable transponders we own on the EUTELSAT 10A (also known as “W2A”) satellite, along
with our EchoStar XXI S-band satellite. We are currently constructing and expect to launch the EchoStar XXI
satellite in the second quarter of 2016 to provide space segment capacity to EchoStar Mobile. We believe we are in
a unique position to deploy a European wide MSS/CGC network and maximize the long-term value of our S-band
spectrum in Europe and other regions within the scope of our licenses.
In June 2015, we purchased an equity investment in WorldVu Satellites Limited (“OneWeb”), a low-earth orbit
satellite company. In addition, our Hughes segment entered into an agreement with OneWeb to provide certain
equipment and services in connection with the ground system for OneWeb’s low-earth orbit satellites.
8
OUR SATELLITE FLEET
Our operating satellite fleet consists of both owned and leased satellites detailed in the table below as of December
31, 2015.
Segment
Satellites
Owned:
SPACEWAY 3 (1)...........................................
Hughes
EchoStar XVII.................................................. Hughes
EchoStar I (2)(3)(4)..........................................
EchoStar III (4).................................................
EchoStar VI (4).................................................
EchoStar VII (2)(3)...........................................
EchoStar VIII (2)(4).........................................
EchoStar IX (2)(4)............................................
EchoStar X (2)(3).............................................
EchoStar XI (2)(3)............................................
EchoStar XII (2)(4)(5).....................................
EchoStar XIV (2)(3).........................................
EchoStar XVI (2)..............................................
EUTELSAT 10A ("W2A") (6).......................
ESS
ESS
ESS
ESS
ESS
ESS
ESS
ESS
ESS
ESS
ESS
Other
Capital Leases:
Nimiq 5 (2).......................................................
QuetzSat-1 (2)..................................................
Operating Leases:
AMC-15............................................................
AMC-16 (7)......................................................
ESS
ESS
ESS
ESS
Launch
Date
August 2007
July 2012
December 1995
October 1997
July 2000
February 2002
August 2002
August 2003
February 2006
July 2008
July 2003
March 2010
November 2012
April 2009
September 2009
September 2011
October 2004
December 2004
Nominal Degree
Orbital Location
(Longitude)
Depreciable
Life
(In Years)
95 W
107 W
77 W
61.5 W
96.2 W
119 W
77 W
121 W
110 W
110 W
61.5 W
119 W
61.5W
10 E
72.7 W
77 W
105 W
85 W
12
15
-
12
12
3
12
12
7
9
2
11
15
-
15
10
-
-
(1) Depreciable life represents the remaining useful life as of June 8, 2011, the date EchoStar completed its acquisition of Hughes
Communications, Inc. and its subsidiaries.
(2) See Note 19 in the notes to consolidated financial statements in Item 15 of this report for discussion of related party transactions with DISH
(3) Depreciable life represents the remaining useful life as of March 1, 2014, the effective date of our receipt of the satellites from DISH
Network.
Network as part of the Satellite and Tracking Stock Transaction (See Note 4 in the notes to consolidated financial statements in Item 15 of
this report).
(4) Fully depreciated assets.
(5) Depreciable life represents the remaining useful life as of June 30, 2013, the date the EchoStar XII satellite was impaired.
(6) The Company acquired the S-band payload on this satellite, which prior to the acquisition in December 2013, experienced an anomaly at the
time of the launch. As a result, the S-band payload is not fully operational.
(7) Operating lease expired in February 2016.
Our owned and leased satellites under construction as of December 31, 2015 are presented below.
Satellites
EUTELSAT 65 West A (1)
EchoStar XXI
EchoStar XXIII
EchoStar XIX
EchoStar 105/SES-11
Telesat T19V ("63 West") (1)
Segment
Hughes
Other
Other
Other
ESS
Hughes
Expected Launch Date
First quarter of 2016
Second quarter of 2016
Third quarter of 2016
Fourth quarter of 2016
Fourth quarter of 2016
Second quarter of 2018
(1) We entered into satellite services agreements for certain capacity on these satellites once
launched, but are not parties to the construction contracts.
9
Recent Developments
63 West Agreements. In September 2015, we entered into satellite services agreements pursuant to which affiliates
of Telesat will provide to us fixed broadband service into South America using the Ka-band capacity on a satellite to
be located at the 63 degree west longitude orbital location for a 15-year term. We expect the satellite to be launched
in the second quarter of 2018 to deliver consumer satellite broadband services into South America as well as create a
platform to potentially allow for further development of our business in South America.
Satellite Construction – Launch Services Costs. In the third quarter of 2015, we mutually agreed with a vendor to
cancel an existing launch services agreement for the launch of the EchoStar XIX satellite. Pursuant to the
cancellation, we received a refund of prior payments related to the launch services, and credited the refund amount
to construction in progress in the third quarter of 2015. Also in the third quarter of 2015, we entered into an
agreement with a different vendor to provide for the launch services of the satellite, which is expected to be
launched in the fourth quarter of 2016.
AMC-15 and AMC-16. In August 2014, in connection with the execution of agreements related to the EchoStar
105/SES-11 satellite, we entered into amendments that extend the terms of our existing agreements with SES
Americom Colorado, Inc. (“SES”) for satellite services on the AMC-15 and AMC-16 satellites. As amended, the
term of our agreement for satellite services on certain transponders on the AMC-15 satellite was extended from
December 2014 through the in-service date of the EchoStar 105/SES-11 satellite and is being accounted for as an
operating lease. The amended agreement for the AMC-16 satellite services extended the term for the satellite’s
entire communications capacity, subject to available power, for one year following expiration of the initial term in
February 2015 and the agreement terminated according to its terms in February 2016.
As a result of anomalies that affected the operation of the AMC-15 and AMC-16 satellites, our monthly recurring
payments were reduced under the related capital lease agreements. We have accounted for these lease modifications
generally by reducing the carrying amounts of the satellite and related capital lease obligation by the present value
of the payment reduction. In such instances where the carrying amount of the satellite had been reduced to zero as a
result of accumulated depreciation or impairments, we have recognized the reductions in the capital lease
obligations as gains in “Other, net” in our consolidated statements of operations and comprehensive income (loss).
For the years ended December 31, 2015, 2014 and 2013, we recognized such gains of $4.5 million, zero and
$6.7 million, respectively.
Satellite Anomalies and Impairments
Our satellites may experience anomalies from time to time, some of which may have a significant adverse impact on
their remaining useful lives, the commercial operation of the satellites or our operating results. We are not aware of
any anomalies with respect to our owned or leased satellites that have had any such material adverse effect during
the year ended December 31, 2015. There can be no assurance, however, that anomalies will not have any such
adverse impacts in the future. In addition, there can be no assurance that we can recover critical transmission
capacity in the event one or more of our in-orbit satellites were to fail. In some instances, anomalies have resulted in
impairment losses that materially affected our operating results. As discussed in Note 9 to our consolidated financial
statements, in the second quarter of 2013 we recognized a $34.7 million impairment loss as a result of anomalies
affecting the EchoStar XII satellite.
We generally do not carry in-orbit insurance on our satellites or use commercial insurance to mitigate the potential
financial impact of launch or in-orbit failures because we believe that the cost of insurance is uneconomical relative
to the risk of such failures. Therefore, we generally bear the risk of any uninsured launch or in-orbit failures.
Pursuant to the terms of the agreements governing certain portions of our indebtedness, we are required, subject to
certain limitations on coverage, to maintain launch and in-orbit insurance for our SPACEWAY 3, EchoStar XVI, and
EchoStar XVII satellites. In addition, although we were not required to maintain in-orbit insurance pursuant to our
service agreement with DISH Network for the EchoStar XV satellite, we would have been liable for any damage
caused by our use of the satellite and therefore we carried third-party insurance on the EchoStar XV satellite until
the termination of our service agreement with DISH Network for the EchoStar XV satellite in November 2015.
10
We evaluate our satellites for impairment and test for recoverability whenever events or changes in circumstances
indicate that their carrying amount may not be recoverable. Certain of the anomalies previously disclosed, may be
considered to represent a significant adverse change in the physical condition of a particular satellite. However,
based on the redundancy designed within each satellite, certain of these anomalies are not necessarily considered to
be significant events that would require a test of recoverability.
GOVERNMENT REGULATIONS
We are subject to comprehensive regulation by the Federal Communications Commission (“FCC”) for our domestic,
as well as some international, satellite and telecommunications operations and equipment businesses. We are also
regulated by other U.S. federal agencies, state and local authorities, the International Telecommunication Union
(“ITU”), and certain foreign governments, including the EU. In addition, we are also subject to the export control
laws and regulations and trade sanctions laws and regulations of the U.S. and other countries with respect to the
export of telecommunications equipment and services. Depending upon the circumstances, noncompliance with
applicable legislation or regulations could result in suspension or revocation of our licenses or authorizations, the
termination or loss of contracts or the imposition of contractual damages, civil fines or criminal penalties.
The following summary of regulations and legislation is not intended to describe all present and proposed
government regulation and legislation affecting our business. Government regulations that are currently the subject
of judicial or administrative proceedings, draft legislation or administrative proposals could impact us and our
industries to varying degrees. The FCC and other regulators from time to time initiate proceedings that could
adversely impact our satellite operations, including spectrum usage. Under its Spectrum Frontiers proceeding, the
FCC is considering enabling the use of one of our frequency bands, the Ka-band, on a shared basis with 5G services,
which could have a material adverse effect on our operations. In addition, potential FCC actions designed to
increase competition among set-top box providers and prevent or limit the use of security systems in connection
with set-top boxes may result in our customers facing emerging competition from other providers of digital media
and lower sales and revenue to us. We cannot predict either the outcome of these proceedings or proposals or any
potential impact they might have on the industry or on our operations.
FCC Regulations Applicable to Our Operations
FCC Jurisdiction over Satellite and Terrestrial Operations. Non-governmental, including commercial entities, that
use radio frequencies to provide communications services to, from or within the U.S. are subject to the jurisdiction
of the FCC under the Communications Act of 1934, as amended (the “Communications Act”). The
Communications Act gives the FCC regulatory jurisdiction over many areas relating to communications operations,
including:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
the assignment of satellite radio frequencies and orbital locations to specific services and companies, the
licensing of satellites and earth stations, and the granting of related authorizations;
approval for the relocation of satellites to different orbital locations, the replacement of a satellite with
another new or existing satellite, and the authorization of specific earth stations to communicate with such
newly relocated satellites;
ensuring compliance with the terms and conditions of assignments, licenses, authorizations, and approvals;
avoiding harmful interference with other radio frequency emitters; and
ensuring compliance with other applicable provisions of the Communications Act and FCC rules and
regulations.
All satellite licenses issued by the FCC are subject to expiration unless extended by the FCC. The term of each of
our U.S. direct broadcast satellite (“DBS”) licenses is 10 years, and our U.S. fixed satellite services (“FSS”) licenses
generally have 15 year terms. We hold licenses and authorizations for satellite and earth stations as well as other
services, including terrestrial wireless services. To obtain and operate under such FCC licenses and authorizations,
we must satisfy legal, technical qualification requirements and other conditions including, among other things,
satisfaction of certain technical and ongoing due diligence obligations, implementation bonds, annual regulatory fees
and various reporting requirements. A license must be obtained prior to launching or operating a satellite.
11
FCC Jurisdiction over Set-Top Box Operations. Our digital set-top boxes and similar devices must also comply
with FCC technical standards and requirements, including accessibility and other requirements. The FCC has
specific Part 15 regulations for television broadcast receivers and television interface devices.
Telecommunications Regulation. Many of the services we provide are also subject to FCC regulation as
telecommunications services. For certain services in the U.S., we are required to contribute fees, computed as a
percentage of our revenue from telecommunications services to the Universal Service Fund (“USF”) to support
mechanisms that subsidize the provision of services to low-income consumers, high-cost areas, schools, libraries,
and rural health care providers. Current FCC rules permit us to pass this USF contribution through to our customers.
The FCC also requires broadband internet access and internet telephony service providers to comply with the
requirements of the Federal Communications Assistance for Law Enforcement Act (“CALEA”). CALEA generally
requires telecommunications carriers to ensure that law enforcement agencies are able to conduct lawfully-
authorized surveillance of users of their services. In addition, as a provider of interconnected voice over internet
protocol services (“VOIP”), we are required to abide by a number of rules related to telephony service, including
rules dealing with the protection of customer information and the processing of emergency calls.
State and Local Regulation
We are also regulated by state and local authorities. While the FCC has preempted many state and local regulations
that would impair the installation and use of VSATs and other consumer satellite dishes, our businesses nonetheless
are subject to state and local regulation, including, among others, obtaining regulatory authorizations and zoning
regulations that affect the ability to install these consumer satellite earth station antennas.
International Regulation
Foreign Administrations’ Jurisdiction Over Satellite and Terrestrial Operations. Some of our satellites and earth
stations are licensed in foreign jurisdictions. We also have terrestrial authorizations in foreign jurisdictions. In order
to provide service to a foreign location from a U.S. satellite, we are required to obtain approvals from the FCC and
foreign administrative agencies. The laws and regulations addressing access to satellite and terrestrial systems vary
from country to country. In most countries, a license is required to provide our services and to operate satellite earth
stations. Such licenses may impose certain conditions, including implementation and operation of the satellite
system in a manner consistent with certain milestones (such as for contracting, satellite design, construction, launch,
and implementation of service), that the satellite or its launch be procured through a national entity, that the satellite
control center be located in national territory, that a license be obtained prior to launching or operating the satellite,
or that a license be obtained before interconnecting with the local switched telephone network. Some countries may
have restrictions on the services we provide and how we provide them. In addition, certain countries may limit the
rates that can be charged for the services we provide or impose other service terms or restrictions.
The ITU Frequency and Orbital Location Registration. The orbital location and frequencies for our satellites are
subject to the frequency registration and coordination process of the ITU. The ITU Radio Regulations define the
international rules, regulations, and rights for a satellite and associated earth stations to use specific radio
frequencies at a specific orbital location. These rules, which include deadlines for the bringing of satellite networks
into use, differ depending on the type of service to be provided and the frequencies to be used by the satellite. On
our behalf, various countries have made, and may in the future make, additional filings for the frequency
assignments at particular orbital locations that are used or to be used by our current satellite networks and potential
future satellite networks we may build or acquire. In the event the international coordination process that is
triggered by ITU filings under applicable rules is not successfully completed, or that the requests for modification of
the BSS plan regarding the allocation of orbital locations and frequencies are not granted by the ITU, we will have
to operate the applicable satellite(s) on a non-interference basis, which could have an adverse impact on our business
operations. If we cannot do so, we may have to cease operating such satellite(s) at the affected orbital locations. We
cannot be sure of the successful outcome of these ITU coordination processes. We make commercially reasonable
efforts to cooperate with the filing nation in the preparation of ITU filings, coordination of our operations in
accordance with the relevant ITU Radio Regulations, and responses to relevant ITU inquiries.
12
Registration in the UN Registry of Space Objects. The U.S. and other jurisdictions in which we license satellites
are generally parties to the United Nations (“UN”) Convention on the Registration of Objects Launched into Outer
Space (“UN Convention”). The UN Convention requires a satellite’s launching state to register the satellite as a
space object. The act of registration carries liability for the registering country in the event that the satellite causes
third party damage. Administrations may place certain requirements on satellite licensees in order to procure the
necessary launch or operational authorizations that accompany registration of the satellite. In some jurisdictions,
these authorizations are separate and distinct, with unique requirements, from the authorization to use a set of
frequencies to provide satellite services.
Telecommunications Regulation. Many of the services we provide are also are subject the regulation of other
countries as telecommunications services. For certain services, we may be required to contribute fees to a universal
service or other fund to support mechanisms that subsidize the provision of services to designated groups. Many
countries also impose requirements on telecommunications carriers to ensure that law enforcement agencies are able
to conduct lawfully-authorized surveillance of users of their services. In addition, we are subject to a number of
other rules, including rules related to telephony service such as the protection of customer information and
processing of emergency calls.
Export Control Regulation
In the operation of our business, we must comply with all applicable export control and trade sanctions laws and
regulations of the U.S. and other countries. Applicable U.S. laws and regulations include the Arms Export Control
Act, the International Traffic in Arms Regulations (“ITAR”), the Export Administration Regulations (“EAR”), and
the trade sanctions laws and regulations administered by the U.S. Department of the Treasury’s Office of Foreign
Assets Control (“OFAC”).
The export of certain hardware, technical data, and services relating to satellites and the supply of certain ground
control equipment, technical data and services to non-U.S. persons or to destinations outside the U.S. is regulated by
the U.S. Department of Commerce’s Bureau of Industry and Security (“BIS”) under the EAR. In addition, BIS
regulates our export of satellite communications network equipment to non-U.S. persons or to destinations outside
of the U.S. The export of other items is regulated by the U.S. Department of State’s Directorate of Defense Trade
Controls (“DDTC”) under the ITAR and are subject to strict export control and prior approval requirements. In
addition, we cannot provide certain equipment or services to certain countries subject to U.S. trade sanctions unless
we first obtain the necessary authorizations from OFAC. We are also subject to the Foreign Corrupt Practices Act
and other similar foreign regulations, which generally prohibits companies and their intermediaries from making
improper payments or giving or promising to give anything of value to foreign government officials and other
individuals for the purpose of obtaining or retaining business or gaining a competitive advantage.
Environmental Regulation
We are subject to the requirements of federal, state, local, and foreign environmental and occupational safety and
health laws and regulations. These include laws regulating air emissions, water discharge, waste management,
hazardous chemicals and product disposal, most significantly the Resource Conservation and Recovery Act
(“RCRA”) and the Emergency Planning and Community Right-to-Know Act (“EPCRA”). Under the RCRA, our
Hughes segment is considered a small quantity generator.
As required by the EPCRA, we file periodic reports with regulators covering four areas: Emergency Planning,
Emergency Release, Hazardous Chemical Storage, and Toxic Chemical Release. We maintain small quantities of
hazardous materials on our premises and, therefore, have relatively modest reporting requirements under the
EPCRA. We are also subject to the requirements of other environmental and occupational safety and health laws
and regulations. Additionally, we review Tier II reporting requirements of the Department of Environmental Quality
which requires reporting the storage of hazardous materials in large quantities and if they’ve changed from year to
year. These are state run programs and each state may have slightly different requirements.
Our environmental compliance costs to date have not been material, and we currently have no reason to believe that
such costs will become material in the foreseeable future. We do not expect capital or other expenditures for
environmental compliance to be material in 2016. However, environmental requirements are complex, change
13
frequently, and have become more stringent over time. Accordingly, we cannot provide assurance that these
requirements will not change or become more stringent in the future in a manner that could have a material adverse
effect on our business.
PATENTS AND TRADEMARKS
We currently rely on a combination of patent, trade secret, copyright and trademark law, together with licenses, non-
disclosure and confidentiality agreements and technical measures, to establish and protect proprietary rights in our
products. We hold U.S. and foreign patents covering various aspects of our products and services. The duration of
each of our U.S. patents is generally 20 years from the earliest filing date to which the patent has priority. We have
granted licenses to use our trademarks and service-marks to affiliates and resellers worldwide, and we typically
retain the right to monitor the use of those marks and impose significant restrictions on their use in efforts to ensure
a consistent brand identity. We protect our proprietary rights in our software through software licenses that, among
other things, require that the software source code be maintained as confidential information and that prohibit any
reverse-engineering of that code.
We believe that our patents are important to our business. We also believe that, in some areas, the improvement of
existing products and the development of new products, as well as reliance upon trade secrets and unpatented
proprietary know-how, are important in establishing and maintaining a competitive advantage. We believe, to a
certain extent, that the value of our products and services are dependent upon our proprietary software, hardware,
and other technology remaining trade secrets and/or subject to copyright protection. Generally, we enter into non-
disclosure and invention assignment agreements with our employees, subcontractors, and certain customers and
other business partners. Please see Item 3. – Legal Proceedings of this report for more information.
RESEARCH AND DEVELOPMENT AND ENGINEERING
We have a skilled and multi-disciplined engineering organization that develops our products and services. Our in-
house technological capability includes a wide range of skills required to develop systems, hardware, software, and
firmware used in our products and services. In addition, we have pioneered numerous advances in the area of
wireless communication systems, techniques and methodologies, television broadcasting, video placeshifting, video
copy protection, and digital video recording.
With respect to hardware development, we have skill sets that include complex digital designs, radio frequency and
intermediate frequency analog designs, advanced application-specific integrated circuit designs, and sophisticated
consumer and system level packaging designs. We also have extensive experience in developing products for high-
volume, low-cost manufacturing for the consumer industry, including satellite TV set-top receivers and dual mode
satellite and wireless handsets.
As a complement to our hardware development, we have extensive experience in designing reliable, real time,
embedded software systems as part of our communication systems and services offerings. For example, our
broadband product line for the enterprise market supports an extensive range of protocols for data communications.
Our engineers have also developed many large turnkey systems for our customers by designing the overall solution,
implementing the various subsystems, deploying the entire network and user terminals, integrating and verifying the
operational system, and ultimately training the customers’ technicians and operators.
Costs incurred in research and development activities generally are expensed as incurred. A significant portion of
our research and development costs are incurred in connection with the specific requirements of a customer’s order.
In such instances, the amounts for these customer funded development efforts are included in cost of sales. Cost of
sales for the years ended December 31, 2015, 2014 and 2013 includes research and development costs of
approximately $59.2 million, $68.4 million and $65.3 million, respectively. In addition, we incurred $78.3 million,
$60.9 million and $67.9 million for the years ended December 31, 2015, 2014 and 2013, respectively, for research
and development expenses.
14
GEOGRAPHIC AREA DATA AND TRANSACTIONS WITH MAJOR CUSTOMERS
For principal geographic area data and transactions with major customers for 2015, 2014 and 2013, see Note 17 in
the notes to consolidated financial statements in Item 15 of this report. See Item 1A. – Risk Factors for information
regarding risks related to our foreign operations.
EMPLOYEES
As of December 31, 2015, we had approximately 4,400 employees and generally consider relations with them to be
good. Other than approximately 120 of our employees located in Italy and Brazil, none are represented by a union.
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the informational requirements of the Securities Exchange Act of 1934, as amended, and
accordingly file an annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy
statements, and other information with the Securities and Exchange Commission (“SEC”). The public may read and
copy any materials filed with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, D.C.
20549. Please call the SEC at (800) SEC-0330 for further information on the operation of the Public Reference
Room. As an electronic filer, our public filings are also maintained on the SEC’s internet site that contains reports,
proxy and information statements, and other information regarding issuers that file electronically with the SEC. The
address of that website is http://www.sec.gov.
WEBSITE ACCESS
Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to
those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as
amended, may also be accessed free of charge through our website as soon as reasonably practicable after we have
electronically filed such material with, or furnished it to, the SEC. The address of that website is
http://www.echostar.com.
We have adopted a written code of ethics that applies to all of our directors, officers, and employees, including our
principal executive officer and senior financial officers, in accordance with the Sarbanes-Oxley Act of 2002 and the
rules of the SEC promulgated thereunder. Our code of ethics is available on our corporate website at
http://www.echostar.com. In the event that we make changes in, or provide waivers of, the provisions of this code of
ethics that the SEC requires us to disclose, we intend to disclose these events on our website.
15
EXECUTIVE OFFICERS OF THE REGISTRANT
(furnished in accordance with Item 401(b) of Regulation S-K, pursuant to General Instruction G(3) of Form 10-K)
The following table and information below sets forth the name, age and position with EchoStar of each of our
executive officers, the period during which each executive officer has served as such, and each executive officer’s
business experience during at least the past five years:
Name
Charles W. Ergen....................................
Michael T. Dugan...................................
David J. Rayner.......................................
Mark W. Jackson....................................
Anders N. Johnson.................................
Pradman P. Kaul......................................
Kenneth G. Carroll...................................
Sandra L. Kerentoff.................................
Kranti K. Kilaru........................................
Dean A. Manson.....................................
Age
62
67
58
55
58
69
60
62
50
49
Position
Chairman
Chief Executive Officer, President and Director
Executive Vice President, Chief Financial Officer and Treasurer
President, EchoStar Technologies L.L.C.
President, EchoStar Satellite Services L.L.C.
President, Hughes Communications, Inc. and Director
Executive Vice President, Corporate and Business Development
Executive Vice President, Global Human Resources
Executive Vice President, Business Systems, IT and Operations
Executive Vice President, General Counsel and Secretary
Charles W. Ergen. Mr. Ergen has served as our executive Chairman since November 2009 and Chairman of the
Board of Directors since our formation in 2007. Mr. Ergen served as our Chief Executive Officer from our
formation in 2007 until November 2009. Mr. Ergen serves as executive Chairman and has been Chairman of the
Board of Directors of DISH Network since its formation and, during the past five years, has held executive officer
and director positions with DISH Network and its subsidiaries. He has been serving as the Chief Executive Officer
of DISH Network since March 2015.
Michael T. Dugan. Mr. Dugan has served as our Chief Executive Officer and President since November 2009.
Mr. Dugan has also served as a member of our Board of Directors since our formation in 2007. Mr. Dugan served as
a senior advisor to EchoStar from January 1, 2008 until November 2009. From May 2004 to December 2007, he
was a director of DISH Network, and served DISH Network alternately as Chief Technical Officer and senior
advisor from time to time. Mr. Dugan served as a member of the board of directors of Frontier Corporation from
October 2006 until November 2009.
David J. Rayner. Mr. Rayner has served as our Executive Vice President, Chief Financial Officer, and Treasurer
since December 2012. From November 2011 to November 2012, Mr. Rayner served as Chief Financial Officer of
Tendril Networks, Inc., a Boulder, Colorado software company. Mr. Rayner served as our Chief Financial Officer
from June 2010 to November 2011 and served as our Chief Administrative Officer from January 2008 to June 2010.
Prior to that, Mr. Rayner served as Executive Vice President of Installation and Service Networks of DISH Network
and had previously held the position of Chief Financial Officer of DISH Network from December 2004 to
September 2006. Before joining DISH Network in December 2004, Mr. Rayner served as Senior Vice President and
Chief Financial Officer of Time Warner Telecom in Denver, beginning in June 1998.
Mark W. Jackson. Mr. Jackson has served as President of EchoStar Technologies L.L.C. since 2004 and oversees
all day to day operations of our EchoStar Technologies segment. Mr. Jackson served as President of EchoStar
Technologies Corporation from June 2004 through December 2007.
Anders N. Johnson. Mr. Johnson has served as President of EchoStar Satellite Services L.L.C. since June 2011.
Mr. Johnson was previously at SES World Skies where he served as Senior Vice President of Strategic Satellite
Development. Mr. Johnson joined SES GLOBAL after the combination of GE Americom and SES GLOBAL in
2001. Prior to SES GLOBAL, Mr. Johnson worked at GE Capital beginning in 1985 in a variety of executive level
roles in Satellite Services, Aviation Services, and Transportation & Industrial Financing.
Pradman P. Kaul. Mr. Kaul has served as President of Hughes Communications, Inc. (“Hughes Communications”)
since its formation in February 2006 and since 2000, as President and Chief Executive Officer of Hughes Network
Systems, LLC (“HNS” and, together with Hughes Communications, “Hughes”), a wholly owned subsidiary of
Hughes Communications. Mr. Kaul has also served as a member of our Board of Directors since August 2011 as
16
well as a member of the board of directors of Hughes Communications from February 2006 until June 2011.
Previously, Mr. Kaul served as the Chief Operating Officer, Executive Vice President and Director of Engineering of
HNS.
Kenneth G. Carroll. Mr. Carroll has served as our Executive Vice President, Corporate and Business Development
since December 2012. Mr. Carroll served as our Executive Vice President and Chief Financial Officer from
November 2011 to November 2012. Mr. Carroll, a 20-year veteran in the satellite TV and satellite broadband
industry, served as Chief Operating Officer of EchoStar Satellite Services from August 2010 to June 2011, and as
Executive Vice President, Business Development and International, of EchoStar from June 2011 to November 2011.
Prior to joining EchoStar, from 2003 to 2010, Mr. Carroll served as President and Chief Operating Officer of
WildBlue Communications, Inc., a nationwide satellite broadband company. In addition, Mr. Carroll previously
served as Chief Financial Officer for Liberty Satellite & Technology and DTH satellite TV provider, PrimeStar.
Sandra L. Kerentoff. Ms. Kerentoff has served as our Executive Vice President, Global Human Resources since
February 2012, following her appointment as head of Global Human Resources in October 2011. Ms. Kerentoff
also has served as Senior Vice President, Administration and Human Resources of HNS since April 2000.
Ms. Kerentoff joined HNS in 1977 and, from 1977 to 2000, held various positions of increasing responsibility.
Kranti K. Kilaru. Mr. Kilaru has served as our Executive Vice President, Business Systems, IT, and Operations
since July 2013. Mr. Kilaru served as our Senior Vice President of our systems engineering group from April 2005
to July 2013 and was responsible for all broadcast centers and systems engineering. Mr. Kilaru joined EchoStar
Technologies L.L.C. in 1989 and, from 1989 to 2005, held various positions of increasing responsibility.
Dean A. Manson. Mr. Manson has served as our Executive Vice President, General Counsel and Secretary since
November 2011, and is responsible for all legal and government affairs of EchoStar and its subsidiaries.
Mr. Manson joined HNS in 2000 from the law firm of Milbank, Tweed, Hadley & McCloy, where he focused on
international project finance and corporate transactions, and was appointed General Counsel of Hughes
Communications in 2004.
There are no arrangements or understandings between any executive officer and any other person pursuant to which
any executive officer was selected as such. Pursuant to the Bylaws of EchoStar, executive officers serve at the
discretion of the Board of Directors.
17
Item 1A. RISK FACTORS
The risks and uncertainties described below are not the only ones facing us. If any of the following events occur,
our business, financial condition, results of operation, prospects or ability to fund a share repurchase program, invest
capital in our business or return capital to our shareholders could be materially and adversely affected.
GENERAL RISKS AFFECTING OUR BUSINESS
We currently derive a significant portion of our revenue from our primary customer, DISH Network. The
loss of, or a significant reduction in, orders from, or a decrease in selling prices of digital set-top boxes,
broadband equipment and services, provision of satellite services and digital broadcast services, and/or other
products, components or services to DISH Network would significantly reduce our revenue and materially
adversely impact our results of operations.
DISH Network accounted for 53.5%, 57.3% and 58.8% of our total revenue for the years ended December 31, 2015,
2014 and 2013, respectively. DISH Network is currently our primary customer of digital set-top boxes, digital
broadcast operation services and our satellite services. These products and services are provided pursuant to
contracts that expire on December 31, 2016. DISH Network is also a wholesale distributor of the Hughes satellite
internet service, and in connection with such wholesale distribution, purchases certain broadband equipment from us
to support the sale of the Hughes service. In addition, DISH Network has no obligations to continue to purchase our
products and only certain obligations to continue to purchase certain of our services. Therefore, our relationship
with DISH Network could be terminated or substantially curtailed with little or no advance notice. Any material
reduction in or termination of our sales to DISH Network or reduction in the prices it pays for the products and
services it purchases from us could have a material adverse effect on our business, results of operations, and
financial position. In addition, regulations designed to increase competition among set-top box providers may result
in lower sales to DISH Network.
DISH Network is involved in several legal proceedings relating to products, components and services purchased
from us. Adverse decisions against DISH Network in these proceedings could decrease the number of products,
components and/or services we provide to DISH Network, which could have a material adverse effect on our
business, results of operations, and financial position.
In addition, because a significant portion of our revenue is derived from DISH Network, our success also depends to
a significant degree on the continued success of DISH Network in attracting new subscribers and marketing
programming packages and other services and features to subscribers that will result in the purchase of new digital
set-top boxes, and in particular, new digital set-top boxes at the high-end of our product range that incorporate high-
definition, multiple tuners, and other advanced technology.
In addition, the timing of orders for digital set-top boxes from DISH Network could vary significantly depending on
equipment promotions offered to its subscribers, changes in technology, and its use of remanufactured digital set-top
boxes, which may cause our revenue to vary significantly quarter over quarter and could expose us to the risks of
inventory shortages or excess inventory. These inventory risks are particularly acute during product end-of-life
transitions in which a new generation of digital set-top boxes is being deployed and inventory of older generation
digital set-top boxes is at a higher risk of obsolescence. This in turn could cause our operating results to fluctuate
significantly.
There are a relatively small number of potential new customers for our digital set-top boxes and digital broadcast
operations, and we expect this customer concentration to continue for the foreseeable future. If we lose DISH
Network as a customer, it may be difficult for us to replace, in whole or in part, our historical revenue from DISH
Network as we have had limited success in attracting such potential new customers in the past. Furthermore,
because of the maturing and competitive nature of the digital set-top box business, the limited number of potential
new customers, and the short-term nature of our purchase orders with DISH Network, we have experienced, and
could in the future continue to experience, downward pricing pressure on our digital set-top boxes sold to DISH
Network, which in turn would adversely affect our gross margins and profitability. Historically, many potential
customers have perceived us as a competitor due to our affiliation with DISH Network. There can be no assurance
that we will be successful in entering into any commercial relationships with potential new customers who are
18
competitors of DISH Network (particularly if we continue to be perceived as affiliated with DISH Network as a
result of common ownership and certain shared services). If we do not develop relationships with new customers,
we may not be able to expand our customer base or maintain or increase our revenue.
Our strategic initiatives may not be successfully implemented, may not elicit the expected customer response
in the market and may result in competitive reactions.
We have identified a number of strategic initiatives that we intend to pursue which are discussed in more detail in
Item 1. – Business of this Annual Report on Form 10-K. The successful implementation of those strategic initiatives
requires an investment of time, talent and money and is dependent upon a number of factors some of which are not
within our control. Those factors include the ability to execute such initiatives in the market, the response of
existing and potential new customers, and the actions or reactions of competitors. We may allocate significant
resources for long-term initiatives that may not have a short or medium term or any positive impact on our revenue,
results of operations, or cash flow. If we fail to properly execute or deliver products or services that address
customers’ expectations, it may have an adverse effect on our ability to retain and attract customers and may
increase our costs and reduce our revenue. Similarly, competitive actions or reactions to our initiatives or
advancements in technology or competitive products or services could impair our ability to execute those strategic
initiatives or advancements. In addition, new strategic initiatives may face barriers to entering existing markets with
established competitors. There can be no assurance that we will successfully implement these strategic initiatives or
that, if successfully pursued, they will have the desired effect on our business or results of operations.
We could face decreased demand and increased pricing pressure to our products and services due to
competition.
Our business operates in an intensely competitive, consumer-driven and rapidly changing environment and
competes with a growing number of companies that provide products and services to consumers. Risks to our
business from competition include, but are not limited to, the following:
(cid:120) The digital set-top box market is intensely competitive, and market leadership changes frequently as a
result of new products, designs, pricing and regulations. We currently face competition from well-
established companies, from new, rapidly growing companies, and from digital video providers who have
developed their own digital set-top boxes, and in the future we may face competition from new and existing
companies that do not currently compete in the market for set-top boxes. If we do not distinguish our
products, particularly our retail products, through distinctive, technologically advanced features and design,
as well as build and strengthen our brand recognition, our business could be harmed as we may not be able
to effectively compete on price alone against new low cost market entrants. Increased pricing pressure may
also make it particularly difficult for us to make profitable sales in international markets where new
competitors are present and in which we have not previously made sales of set-top boxes. In addition, it
can be difficult to acquire additional market share in the digital set-top box market because gaining
additional market share would require displacing well-established companies who have had long-term
contracts with major cable operators in the U.S., which results in relatively high costs for cable operators to
change set-top box providers making it more difficult for us to displace potential customers from their
current relationships with our competitors. In addition, regulations designed to increase competition among
set-top box providers may result in lower sales and revenue. Any of these competitive threats, alone or in
combination with others, could significantly harm our business, operating results and financial condition.
(cid:120) Our EchoStar Satellite Services segment competes against larger, well-established satellite service
companies, such as Intelsat, SES, Telesat, and Eutelsat. Because the satellite services industry is relatively
mature, our growth strategy depends largely on our ability to displace current incumbent providers, which
often have the benefit of long-term contracts with customers. These long-term contracts and other factors
result in relatively high costs for customers to change service providers, making it more difficult for us to
displace customers from their current relationships with our competitors. In addition, the supply of satellite
capacity available in the market has increased in recent years, which makes it more difficult for us to sell
our services in certain markets and to price our capacity at acceptable levels. Competition may cause
downward pressure on prices and further reduce the utilization of our capacity, both of which could have an
adverse effect on our financial performance. Our EchoStar Satellite Services segment also competes with
19
(cid:120)
(cid:120)
both fiber optic cable and terrestrial delivery systems, which may have a cost advantage, particularly in
point-to-point applications where such delivery systems have been installed, and with new delivery systems
being developed, which may have lower latency and other advantages.
In our consumer market, we face competition primarily from DSL, fiber and cable internet service
providers. Also, other telecommunications, satellite and wireless broadband companies have launched or
are planning the launch of consumer internet access services in competition with our service offerings in
North America. Some of these competitors offer consumer services and hardware at lower prices than ours.
In addition, terrestrial alternatives do not require our external dish, which may limit customer acceptance of
our products. We may be unsuccessful in competing effectively against DSL, fiber and cable internet
service providers and other satellite broadband providers, which could harm our business, operating results
and financial condition.
In our enterprise network communications market, we face competition from providers of terrestrial-based
networks, such as fiber, DSL, cable modem service, multiprotocol label switching and internet protocol-
based virtual private networks, which may have advantages over satellite networks for certain customer
applications. Although we also sell terrestrial services to this market, we may not be as cost competitive
and it may become more difficult for us to compete. The network communications industry is
characterized by competitive pressures to provide enhanced functionality for the same or lower price with
each new generation of technology. Terrestrial-based networks are offered by telecommunications carriers
and other large companies, many of which have substantially greater financial resources and greater name
recognition than us. As the prices of our products decrease, we will need to sell more products and/or
reduce the per-unit costs to improve or maintain our results of operations. The costs of a satellite network
may exceed those of a terrestrial-based network or other networks, especially in areas that have
experienced significant DSL and cable internet build-out. It may become more difficult for us to compete
with terrestrial and other providers as the number of these areas increases and the cost of their network and
hardware services declines. Terrestrial networks also have a competitive edge because of lower latency for
data transmission.
The average selling price and gross margins of our digital set-top boxes have been decreasing and may
decrease even further, which could negatively impact our financial position and results of operations.
The average selling price and gross margins of our digital set-top boxes have been decreasing and may decrease
even further due to, among other things, an increase in the sales of lower-priced digital set-top boxes to DISH
Network and increased competitive pricing pressure and production costs. Furthermore, our ability to increase the
average selling prices of our digital set-top boxes is limited and our average selling price may decrease even further
in response to competitive pricing pressures, new product introductions by us or our competitors, lack of demand for
our new product introductions or other factors. If we are unable to increase or at least maintain the average selling
prices of our digital set-top boxes, or if such selling prices further decline, and we are unable to respond in a timely
manner by developing and introducing new products and continually reducing our product costs, our revenue and
gross margin may be negatively affected, which will harm our financial position and results of operations.
If significant numbers of television viewers are unwilling to pay for pay-TV services that utilize digital set-top
boxes, we may not be able to sustain our current revenue level.
We are substantially dependent upon the ability of our customers to promote the delivery of pay-TV services,
including, among others, premium programming packages and services that utilize technology incorporated into our
digital set-top boxes, such as HD technology and IPTV, to generate future revenue. Our customers face emerging
competition from other providers of digital media and potential government action preventing them from using
security systems in connection with set-top boxes. In particular, programming offered over the internet has become
more prevalent as the speed and quality of broadband networks have improved.
As a result, our customers may be unsuccessful in promoting value-added services or may promote alternative
packages, such as free programming packages, in lieu of promoting packages that utilize our high-end digital set-top
box offerings. If our customers are unable to develop and effectively market compelling reasons for their
subscribers to continue to purchase their pay-TV services that utilize our more advanced digital set-top boxes, it will
20
be difficult for us to sustain our historical revenue. Furthermore, as technologies develop, other means of delivering
information and entertainment to television viewers have evolved and contributed to, and will likely continue to
evolve and contribute to, increasing consumer demand for online platforms that provide for the distribution and
viewing of movies, television and other video programming that competes with our customers’ pay-TV services. To
the extent that these online platforms and other new technologies compete successfully against our customers for
viewers, the ability of our existing customer base to attract and retain subscribers may be adversely affected. As a
result, demand for our satellite television digital set-top boxes could decline, and we may not be able to sustain our
current revenue levels.
We may have available satellite capacity in our EchoStar Satellite Services segment, and our results of
operations may be materially adversely affected if we are not able to lease this capacity to third parties,
including DISH Network.
We have available satellite capacity in our EchoStar Satellite Services segment. While we are currently evaluating
various opportunities to make profitable use of our available satellite capacity (including, but not limited to,
supplying satellite capacity for new international ventures), there can be no assurance that we can successfully
develop these business opportunities. If we are unable to lease our available satellite capacity to third parties,
including DISH Network, our margins could be negatively impacted, and we may be required to record impairments
related to our satellites.
The failure to adequately anticipate the need for satellite capacity or the inability to obtain satellite capacity
for our Hughes segment could harm our results of operations.
Our Hughes segment has made substantial contractual commitments for satellite capacity based on our existing
customer contracts and backlog. If our existing customer contracts were to be terminated prior to their respective
expiration dates, we may be committed to maintaining excess satellite capacity for which we will have insufficient
revenue to cover our costs, which would have a negative impact on our margins and results of operations.
Alternatively, we may not have sufficient satellite capacity to meet demand. We have satellite capacity
commitments, generally for two to five year terms, with third parties to cover different geographical areas or support
different applications and features; therefore, we may not be able to quickly or easily adjust our capacity to changes
in demand. We generally only purchase satellite capacity based on existing contracts and bookings. Therefore,
capacity for certain types of coverage in the future may not be readily available to us, and we may not be able to
satisfy certain needs of our customers, which could result in a loss of possible new business and could negatively
impact the margins for those services. At present, until the launch and operation of additional satellites, there is
limited availability of capacity on the frequencies we use in North America, including within our own fleet of
satellites. In addition, the FSS industry has seen consolidation in the past decade, and today, the main FSS providers
in North America and a number of smaller regional providers own and operate the current satellites that are available
for our capacity needs. The failure of any of these FSS providers to replace existing satellite assets at the end of
their useful lives or a downturn in their industry as a whole could reduce or interrupt the satellite capacity available
to us. If we are not able to renew our capacity leases at economically viable rates, or if capacity is not available due
to problems experienced by these FSS providers, our business and results of operations could be adversely affected.
We are dependent upon third-party providers for components, manufacturing, installation services, and
customer support services, and our results of operations may be materially adversely affected if any of these
third-party providers fail to appropriately deliver the contracted goods or services.
We are dependent upon third-party services and products provided to us, including the following:
(cid:120) Components. A limited number of suppliers manufacture, and in some cases a single supplier
manufactures, some of the key components required to build our products. These key components may not
be continually available and we may not be able to forecast our component requirements sufficiently in
advance, which may have a detrimental effect on supply. If we are required to change suppliers for any
reason, we would experience a delay in manufacturing our products if another supplier is not able to meet
our requirements on a timely basis. In addition, if we are unable to obtain the necessary volumes of
components on favorable terms or prices on a timely basis, we may be unable to produce our products at
competitive prices and we may be unable to satisfy demand from our customers. Our reliance on a single
21
or limited group of suppliers, particularly foreign suppliers, and our reliance on subcontractors, involves
several risks. These risks include a potential inability to obtain an adequate supply of required components,
reduced control over pricing, quality, and timely delivery of these components, and the potential
bankruptcy, lack of liquidity or operational failure of our suppliers. We do not generally maintain long-
term agreements with any of our suppliers or subcontractors for our products. An inability to obtain
adequate deliveries or any other circumstances requiring us to seek alternative sources of supply could
affect our ability to ship our products on a timely basis, which could damage our relationships with current
and prospective customers and harm our business, resulting in a loss of market share, and reduced revenue
and income.
(cid:120) Commodity Price Risk. Fluctuations in pricing of raw materials can affect our product costs. To the extent
that component pricing does not decline or increases, whether due to inflation, increased demand,
decreased supply or other factors, we may not be able to pass on the impact of increasing raw materials
prices, component prices or labor and other costs, to our customers, and we may not be able to operate
profitably. Such changes could have an adverse impact on our product costs.
(cid:120) Manufacturing. While we develop and manufacture prototypes for certain of our products, we use
contract manufacturers to produce a significant portion of our hardware. If these contract manufacturers
fail to provide products that meet our specifications in a timely manner, then our customer relationships and
revenue may be harmed.
(cid:120)
Installation and customer support services. Some of our products and services, such as our North
American and international operations, utilize a network of third-party installers to deploy our hardware. In
addition, a portion of our customer support and management is provided by offshore call centers. A decline
in levels of service or attention to the needs of our customers could adversely affect our reputation, renewal
rates and ability to win new business.
(cid:120) Other services. Some of our products rely on third parties to provide services necessary for the operation
of functionalities of the products, such as third party cloud computing services. The failure of these
services could disrupt the operation of certain functionalities of our products, which could harm our
customer relationship and result in a loss of sales. In addition, if the agreements for the provision of these
services are terminated or not renewed, we could face difficulties replacing these service providers, which
would adversely affect our ability to obtain and retain customers and result in reduced revenue and income.
Our foreign operations expose us to regulatory risks and restrictions not present in our domestic operations.
Our sales outside the U.S. accounted for approximately 14.6%, 14.1% and 14.1% of our revenue for the years ended
December 31, 2015, 2014 and 2013, respectively. Collectively, we expect our foreign operations to represent a
significant portion of our business. Over the last 10 years, we have sold products in over 100 countries. Our foreign
operations involve varying degrees of risk and uncertainties inherent in doing business abroad. Such risks include:
(cid:120) Complications in complying with restrictions on foreign ownership and investment and limitations on
repatriation. We may not be permitted to own our operations in some countries and may have to enter into
partnership or joint venture relationships. Many foreign legal regimes restrict our repatriation of earnings
to the U.S. from our subsidiaries and joint venture entities. Applicable law in such foreign countries may
also limit our ability to distribute or access our assets in certain circumstances. In such event, we will not
have access to the cash flow and assets of our subsidiaries and joint ventures.
(cid:120) Difficulties in following a variety of laws and regulations related to foreign operations. Our international
operations are subject to the laws of many different jurisdictions that may differ significantly from U.S.
law. For example, local political or intellectual property law may hold us responsible for the data that is
transmitted over our network by our customers. In addition, we are subject to the Foreign Corrupt Practices
Act and similar anti-bribery laws in other jurisdictions that generally prohibit companies and their
intermediaries from making improper payments or giving or promising to give anything of value to foreign
officials and other individuals for the purpose of obtaining or retaining business or gaining a competitive
advantage. Our policies mandate compliance with these laws. However, we operate in many parts of the
world that have experienced corruption to some degree. Compliance with these laws may lead to increased
operations costs or loss of business opportunities. Violations of these laws could result in fines or other
22
penalties or sanctions, which could have a material adverse impact on our business, financial condition, and
results of operations.
(cid:120) Restrictions on space station landing/terrestrial rights. Satellite market access and landing rights and
terrestrial wireless rights are dependent on the national regulations established by foreign governments,
including, but not limited to obtaining national authorizations or approvals and meeting other regulatory,
coordination and registration requirements for satellites. Because regulatory schemes vary by country, we
may be subject to laws or regulations in foreign countries of which we are not presently aware. Non-
compliance with these requirements may result in the loss of the authorizations and licenses to conduct
business in these countries, as well as fines or other financial and non-financial penalties for non-
compliance with regulations. If that were to be the case, we could be subject to sanctions and/or other
actions by a foreign government that could materially and adversely affect our ability to operate in that
country. There is no assurance that any current regulatory approvals held by us are, or will remain,
sufficient in the view of foreign regulatory authorities, or that any additional necessary approvals will be
granted on a timely basis or at all, in all jurisdictions in which we wish to operate new satellites, or that
applicable restrictions in those jurisdictions will not be unduly burdensome. Violations of laws or
regulations may result in various sanctions including fines, loss of authorizations and the denial of
applications for new authorizations or for the renewal of existing authorizations, and the failure to obtain or
comply with the authorizations and regulations governing our international operations could have a
material adverse effect on our ability to generate revenue and our overall competitive position.
(cid:120) Financial and legal constraints and obligations. Operating pursuant to foreign licenses subjects us to
certain financial constraints and obligations, including, but not limited to: (a) tax liabilities that may or may
not be dependent on revenue; (b) the burden of creating and maintaining additional entities, branches,
facilities and/or staffing in foreign jurisdictions; and (c) legal regulations requiring that we make certain
satellite capacity available for “free,” which may impact our revenue. In addition, if we need to pursue
legal remedies against our customers or our business partners located outside of the U.S., it may be difficult
for us to enforce our rights against them.
(cid:120) Compliance with applicable export control laws and regulations in the U.S. and other countries. We
must comply with all applicable export control laws and regulations of the U.S. and other countries. U.S.
laws and regulations applicable to us include the Arms Export Control Act, ITAR, EAR and the trade
sanctions laws and regulations administered by OFAC. The export of certain hardware, technical data and
services relating to satellites is regulated by BIS under EAR. Other items are controlled for export by the
DDTC under ITAR. We cannot provide services to certain countries subject to U.S. trade sanctions unless
we first obtain the necessary authorizations from OFAC. Violations of these laws or regulations could
result in significant sanctions including fines, more onerous compliance requirements, debarments from
export privileges, or loss of authorizations needed to conduct aspects of our international business. A
violation of ITAR or the other regulations enumerated above could materially adversely affect our business,
financial condition and results of operations.
(cid:120) Changes in exchange rates between foreign currencies and the U.S. dollar. We conduct our business and
incur cost in the local currency of a number of the countries in which we operate. Accordingly, our
applicable results of operations are reported in the relevant local currency and then translated to U.S.
dollars at the applicable currency exchange rate for inclusion in our financial statements. In addition, we
sell our products and services and acquire supplies and components from countries that historically have
been, and may continue to be, susceptible to recessions or currency devaluation. These fluctuations in
currency exchange rates, recessions and currency devaluations have affected, and may in the future affect,
revenue, profits and cash earned on international sales.
(cid:120) Greater exposure to the possibility of economic instability, the disruption of operations from labor and
political disturbances, expropriation or war. As we conduct operations throughout the world, we could be
subject to regional or national economic downturns or instability, acts of terrorism, labor or political
disturbances or conflicts of various sizes, including wars. Any of these disruptions could detrimentally
affect our sales in the affected region or country or lead to damage to, or expropriation of, our property or
danger to our personnel.
23
(cid:120) Competition with large or state-owned enterprises and/or regulations that effectively limit our operations
and favor local competitors. Many of the countries in which we conduct business have traditionally had
state owned or state granted monopolies on telecommunications services that favor an incumbent service
provider. We face competition from these favored and entrenched companies in countries that have not
deregulated. The slower pace of deregulation in these countries, particularly in Asia and Latin America,
has adversely affected the growth of our business in these regions.
(cid:120) Customer credit risks. Customer credit risks are exacerbated in foreign operations because there is often
little information available about the credit histories of customers in certain of the foreign countries in
which we operate.
We may experience loss from some of our customer contracts.
We provide access to our telecommunications networks to customers that use a variety of platforms such as satellite,
wireless 3G and 4G, cable, fiber optic and DSL. These customer contracts may require us to provide services at a
fixed price for the term of the contract. To facilitate the provision of this access, we may enter into contracts with
terrestrial platform providers. Our agreements with these subcontractors may allow for prices to be changed during
the term of the contracts. We assume greater financial risk on these customer contracts than on other types of
contracts because if we do not estimate costs accurately and there is an increase in our subcontractors’ prices, our net
profit may be significantly reduced or there may be a loss on the contracts.
We may experience significant financial losses on our existing investments.
We have entered into certain strategic transactions and investments. These investments involve a high degree of risk
and could diminish our financial condition or our ability to fund a share repurchase program, invest capital in our
business or return capital to our shareholders. The overall sustained economic uncertainty, as well as financial,
operational and other difficulties encountered by certain companies in which we have invested increases the risk that
the actual amounts realized in the future on our debt and equity investments will differ significantly from the fair
values currently assigned to them. In addition, the companies in which we invest or with whom we partner may not
be able to compete effectively or there may be insufficient demand for the services and products offered by these
companies. These investments could also expose us to significant financial losses and may restrict our ability to
make other investments or limit alternative uses of our capital resources. If our investments suffer losses, our
financial condition could be materially adversely affected.
We may pursue acquisitions and other strategic transactions to complement or expand our business, which
may not be successful and we may lose a portion or all of our investment in these acquisitions and
transactions.
Our future success may depend on the existence of, and our ability to capitalize on, opportunities to acquire other
businesses or technologies or partner with other companies that could complement, enhance or expand our current
business, services or products or that may otherwise offer us growth opportunities. We may pursue acquisitions,
joint ventures or other business combination activities to complement or expand our business. Any such
acquisitions, transactions or investments that we are able to identify and complete which may become substantial
over time, involve a high degree of risk, including, but not limited to, the following:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
the diversion of our management’s attention from our existing business to integrate the operations and
personnel of the acquired or combined business or joint venture;
the ability and capacity of our management team to carry out all of our business plans, including with
respect to our existing businesses and any businesses we acquire or embark on in the future;
possible adverse effects on our and our targets’ and partners’ business, financial condition or operating
results during the integration process;
exposure to significant financial losses if the transactions and/or the underlying ventures are not successful;
and/or we are unable to achieve the intended objectives of the transaction;
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(cid:120)
(cid:120)
(cid:120)
(cid:120)
the inability to obtain in the anticipated time frame, or at all, any regulatory approvals required to complete
proposed acquisitions, transactions or investments;
the risks associated with complying with regulations applicable to the acquired business which may cause
us to incur substantial expenses;
the inability to realize anticipated benefits or synergies from an acquisition; and
the disruption of relationships with employees, vendors or customers.
New acquisitions, joint ventures and other transactions may require the commitment of significant capital that may
otherwise be directed to investments in our existing businesses or be distributed to shareholders. Commitment of
this capital may cause us to defer or suspend any share repurchases or capital expenditures that we otherwise may
have made.
We may not be able to generate cash to meet our debt service needs or fund our operations.
Hughes Satellite Systems Corporation (“HSS”), our subsidiary that, together with its subsidiaries, operates our
Hughes segment and our EchoStar Satellite Services segment, has incurred significant indebtedness. HSS currently
has outstanding $990.0 million of senior secured notes (the “Secured Notes”) and $900.0 million of senior
unsecured notes (the “Unsecured Notes” and, together with the Secured Notes, the “Notes”), which are due in 2019
and 2021, respectively. HSS’ ability to make payments on or to refinance its indebtedness and to fund its operations
will depend on its ability to generate cash in the future, which is subject in part to general economic, financial,
competitive, legislative, regulatory and other factors that are beyond our control. We may need to raise additional
debt in order to fund ongoing operations or to capitalize on business opportunities. We may not be able to generate
sufficient cash flow from operations and future borrowings may not be available in amounts sufficient to enable us
to service HSS’ indebtedness or to fund operations or other liquidity needs. If HSS is unable to generate sufficient
cash, it may be forced to take actions such as revising or delaying its strategic plans, reducing or delaying capital
expenditures, selling assets, restructuring or refinancing its debt or seeking additional equity capital. HSS may not
be able to implement any of these actions on satisfactory terms, or at all. The indentures governing the Notes also
limit HSS’ ability to dispose of assets and use the proceeds from such dispositions. Therefore, HSS may not be able
to consummate those dispositions on satisfactory terms, or at all, or to use those proceeds in a manner it may
otherwise prefer.
In addition, conditions in the financial markets could make it difficult for us to access capital markets at acceptable
terms or at all. Instability or other conditions in the equity markets could make it difficult for us to raise equity
financing without incurring substantial dilution to our existing shareholders. In addition, sustained or increased
economic weaknesses or pressures or new economic conditions may limit our ability to generate sufficient internal
cash to fund investments, capital expenditures, acquisitions, and other strategic transactions. We cannot predict with
any certainty whether or not we will be impacted by economic conditions. As a result, these conditions make it
difficult for us to accurately forecast and plan future business activities because we may not have access to funding
sources necessary for us to pursue organic and strategic business development opportunities.
Covenants in HSS’ indentures restrict its business in many ways.
The indentures governing the Notes contain various covenants, subject to certain exceptions, that limit HSS’ ability
and/or its restricted subsidiaries’ ability to, among other things:
pay dividends or make distributions on HSS’ capital stock or repurchase HSS’ capital stock;
(cid:120)
(cid:120)
incur additional debt;
(cid:120) make certain investments;
(cid:120)
(cid:120) merge or consolidate with another company;
(cid:120)
transfer and sell assets;
create liens or enter into sale and leaseback transactions;
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(cid:120)
(cid:120)
enter into transactions with affiliates; and
allow to exist certain restrictions on the ability of certain subsidiaries of HSS to pay dividends, make
distributions, make other payments, or transfer assets to HSS or its subsidiaries.
Failure to comply with these and certain other financial covenants, if not cured or waived, may result in an event of
default under the indentures, which could have a material adverse effect on HSS’ business, financial condition,
results of operations or prospects. If an event of default occurs and is continuing under the respective indenture, the
trustee under that indenture or the requisite holders of the Notes under that indenture may declare all such Notes to
be immediately due and payable and, in the case of the indenture governing the Secured Notes, could proceed
against the collateral that secures the Secured Notes. HSS and certain of its subsidiaries have pledged a significant
portion of their assets as collateral under the indenture governing the Secured Notes. If HSS does not have enough
cash to service its debt or fund other liquidity needs, it may be required to take actions such as requesting a waiver
from the holders of the Notes, reducing or delaying capital expenditures, selling assets, restructuring or refinancing
all or part of the existing debt, or seeking additional equity capital. We cannot assure you that any of these remedies
can be implemented on commercially reasonable terms or at all, which could result in the trustee declaring the Notes
to be immediately due and payable and/or foreclosing on the collateral.
We rely on key personnel and the loss of their services may negatively affect our businesses.
We believe that our future success will depend to a significant extent upon the performance of Mr. Charles W. Ergen,
our Chairman, and certain other key executives. The loss of Mr. Ergen or of certain other key executives or of the
ability of Mr. Ergen or certain other key executives to devote sufficient time and effort to our business could have a
material adverse effect on our business, financial condition and results of operations. Although most of our key
executives have agreements limiting their ability to work for or consult with competitors, under certain
circumstances, we generally do not have employment agreements with them. To the extent Mr. Ergen or other
officers are performing services to both DISH Network and us, their attention may be diverted away from our
business and therefore adversely affect our business.
Pursuant to the terms of our preferred tracking stock and related agreements and policies, we could be
required to use assets attributed to one group to pay liabilities attributed to the other group.
Even though we attribute, for financial reporting purposes, all of our consolidated assets, liabilities, revenue,
expenses and cash flows to either the EchoStar Group or the Hughes Retail Group (see Note 4 in the notes to
consolidated financial statements in Item 15 of this report for definitions and a further discussion of the preferred
tracking stock, the EchoStar Group and the Hughes Retail Group) and prepare separate attributed financial
information for the Hughes Retail Group, we retain legal title to all of our assets and our capitalization will not limit
our legal responsibility, or that of our subsidiaries, for the liabilities included in our financial statements and such
attributed financial information. As such, the assets attributed to one group are potentially subject to the liabilities
attributed to the other group, even if those liabilities arise from lawsuits, contracts or indebtedness that are attributed
to such other group. Although the policy statement (the “Policy Statement”) regarding the relationships between the
EchoStar Group and the Hughes Retail Group with respect to matters such as the attribution and allocation of costs,
tax liabilities and benefits, attribution of assets, corporate opportunities and similar items generally requires that all
changes in the attribution of assets from one group to the other group will be made on a fair value basis as
determined in accordance with certain guiding principles, these policies and our articles of incorporation generally
do not prevent us from satisfying liabilities of one group with assets of the other group, and our creditors are not
limited by our tracking stock capitalization from proceeding against any assets they could have proceeded against if
we did not have a tracking stock capitalization.
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RISKS RELATED TO OUR SATELLITES
Our owned and leased satellites in orbit are subject to significant operational and environmental risks that
could limit our ability to utilize these satellites.
Satellites are subject to significant operational risks while in orbit. These risks include malfunctions, commonly
referred to as anomalies, which have occurred and may occur in the future in our satellites and the satellites of other
operators as a result of various factors, such as satellite design and manufacturing defects, problems with the power
systems or control systems of the satellites and general failures resulting from operating satellites in the harsh
environment of space.
Although we work closely with the satellite manufacturers to determine and eliminate the cause of anomalies in new
satellites and provide for redundancies of many critical components in the satellites, we may not be able to prevent
anomalies from occurring and may experience anomalies in the future, whether of the types described above or
arising from the failure of other systems or components.
Any single anomaly or series of anomalies could materially and adversely affect our ability to utilize the satellite,
our operations and revenue as well as our relationships with current customers and our ability to attract new
customers. In particular, future anomalies may result in the loss of individual transponders/beams on a satellite, a
group of transponders/beams on that satellite or the entire satellite, depending on the nature of the anomaly.
Anomalies may also reduce the expected capacity or useful life of a satellite, thereby reducing the revenue that could
be generated by that satellite, or create additional expenses due to the need to provide replacement or back-up
satellites or satellite capacity.
The loss of a satellite or other satellite malfunctions or anomalies could have a material adverse effect on our
financial performance, which we may not be able to mitigate by using available capacity on other satellites. There
can be no assurance that we can recover critical transmission capacity in the event one or more of our in-orbit
satellites were to fail. In addition, the loss of a satellite or other satellite malfunctions or anomalies could affect our
ability to comply with FCC and other regulatory obligations and our ability to fund the construction or acquisition of
replacement satellites for our in-orbit fleet in a timely fashion, or at all. There can be no assurance that existing and
future anomalies will not further impact the remaining useful life and/or the commercial operation of any of the
satellites in our fleet. In addition, there can be no assurance that we can recover critical transmission capacity in the
event one or more of our in-orbit satellites were to fail.
Meteoroid events pose a potential threat to all in-orbit satellites. The probability that meteoroids will damage those
satellites increases significantly when the Earth passes through the particulate stream left behind by comets.
Occasionally, increased solar activity also poses a potential threat to all in-orbit satellites.
Some decommissioned spacecraft are in uncontrolled orbits, which pass through the geostationary belt at various
points and present hazards to operational spacecraft, including our satellites. We may be required to perform
maneuvers to avoid collisions and these maneuvers may prove unsuccessful or could reduce the useful life of the
satellite through the expenditure of fuel to perform these maneuvers. The loss, damage or destruction of any of our
satellites as a result of an electrostatic storm, collision with space debris, malfunction or other event could have a
material adverse effect on our business, financial condition and results of operations.
We generally do not carry in-orbit insurance on any of our satellites and often do not use commercial insurance to
mitigate the potential financial impact of launch or in-orbit failures because we believe that the cost of insurance is
uneconomical relative to the risk of such failures. If one or more of our in-orbit uninsured satellites fail, we could be
required to record significant impairment charges for the satellite.
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Our satellites have minimum design lives ranging from 12 to 15 years, but could fail or suffer reduced
capacity before then.
Generally, the minimum design life of each of our satellites ranges from 12 to 15 years. We can provide no
assurance, however, as to the actual operational lives of our satellites, which may be shorter or longer than their
design lives. Our ability to earn revenue depends on the continued operation of our satellites, each of which has a
limited useful life. A number of factors affect the useful lives of the satellites, including, among other things, the
quality of their design and construction, the durability of their component parts, the ability to continue to maintain
proper orbit and control over the satellite’s functions, the efficiency of the launch vehicle used, and the remaining
on-board fuel following orbit insertion.
In the event of a failure or loss of any of our satellites, we may relocate another satellite and use it as a replacement
for the failed or lost satellite, which could have a material adverse effect on our business, financial condition and
results of operations. Such relocation would require FCC approval. We cannot be certain that we could obtain such
FCC approval. In addition, we cannot guarantee that another satellite will be available for use as a replacement for a
failed or lost satellite, or that such relocation can be accomplished without a substantial utilization of fuel. Any such
utilization of fuel would reduce the operational life of the replacement satellite.
Our satellites under construction are subject to risks related to construction and launch that could limit our
ability to utilize these satellites.
Satellite construction and launch are subject to significant risks, including delays, launch failure and incorrect orbital
placement. Certain launch vehicles that may be used by us have either unproven track records or have experienced
launch failures in the past. The risks of launch delay and failure are usually greater when the launch vehicle does
not have a track record of previous successful flights. Launch failures result in significant delays in the deployment
of satellites because of the need both to construct replacement satellites, which can take more than three years, and
to obtain other launch opportunities. Such significant delays could materially and adversely affect our operations
and our revenue and our ability to provide services to customers as capacity becomes full on existing satellites. In
addition, significant delays could give customers who have purchased or reserved capacity on that satellite a right to
terminate their service contracts relating to the satellite. We may not be able to accommodate affected customers on
other satellites until a replacement satellite is available. A customer’s termination of its service contracts with us as
a result of a launch failure would reduce our contracted backlog and our ability to generate revenue. One of our
launch services providers is a Russian Federation state-owned company. Recent ongoing political events, including
the imposition of sanctions, have created uncertainty as to the stability of U.S. and Russian Federation relations.
This could add to risks relative to scheduling uncertainties and timing. Historically, we have not always carried
launch insurance for the launch of our satellites; if a launch failure were to occur, it could have a material adverse
effect on our ability to fund future satellite procurement and launch opportunities, preclude us from pursuing new
business opportunities and undermine our ability to implement our business strategy. In addition, the occurrence of
launch failures, whether on our satellites or those of others, may significantly reduce our ability to place launch
insurance for our satellites or make launch insurance uneconomical.
Our use of certain satellites is often dependent on satellite coordination agreements, which may be difficult to
obtain.
Satellite transmissions and the use of frequencies often are dependent on coordination with other satellite systems
operated by U.S. or foreign satellite operators, including governments, and it can be difficult to determine the
outcome of these coordination agreements with these other entities and governments. The impact of a coordination
agreement may result in the loss of rights to the use of certain frequencies or access to certain markets. The
significance of such a loss would vary and it can therefore be difficult to determine which portion of our revenue
will be impacted.
Furthermore, the satellite coordination process is conducted under the guidance of the ITU radio regulations and the
national regulations of the satellites involved in the coordination process. These rules and regulations could be
amended and could therefore materially adversely affect our business, financial condition and results of operations.
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We may face interference from other services sharing satellite spectrum.
The FCC and other regulators have adopted rules or may adopt rules in the future that allow non-geostationary orbit
satellite services to operate on a co-primary basis in the same frequency band as DBS and FSS. The FCC has also
authorized the use of multichannel video and data distribution service (“MVDDS”) in the DBS band. Several
MVDDS systems are now being commercially deployed. Despite regulatory provisions designed to protect DBS
and FSS operations from harmful interference, there can be no assurance that operations by other satellites or
terrestrial communication services in the DBS and FSS bands will not interfere with our DBS and FSS operations
and adversely affect our business.
Our dependence on outside contractors could result in delays related to the design, manufacture and launch
of our new satellites, which could in turn adversely affect our operating results.
There are a limited number of manufacturers that are able to design and build satellites according to the technical
specifications and standards of quality we require, including Airbus Defence and Space, Boeing Satellite Systems,
Lockheed Martin, SS/L and Thales Alenia Space. There are also a limited number of launch service providers that
are able to launch such satellites, including International Launch Services, Arianespace, Lockheed Martin
Commercial Launch Services, Space Exploration and Sea Launch Company. The loss of any of our manufacturers
or launch service providers could increase the cost and result in the delay of the design, construction or launch of our
satellites. Even if alternate suppliers for such services are available, we may have difficulty identifying them in a
timely manner or we may incur significant additional expense in changing suppliers, and this could result in
difficulties or delays in the design, construction or launch of our satellites. Any delays in the design, construction or
launch of our satellites could have a material adverse effect on our business, financial condition and results of
operations.
RISKS RELATED TO OUR PRODUCTS AND TECHNOLOGY
If we are unable to properly respond to technological changes, our business could be significantly harmed.
Our business and the markets in which we operate are characterized by rapid technological changes, evolving
industry standards and frequent product and service introductions and enhancements. If we or our suppliers are
unable to properly respond to or keep pace with technological developments, fail to develop new technologies, or if
our competitors obtain or develop proprietary technologies that are perceived by the market as being superior to
ours, our existing products and services may become obsolete and demand for our products and services may
decline. Even if we keep up with technological innovation, we may not meet the demands of the markets we serve.
Furthermore, after we have incurred substantial research and development costs, one or more of the technologies
under our development, or under development by one or more of our strategic partners, could become obsolete prior
to its introduction. If we are unable to respond to or keep pace with technological advances on a cost-effective and
timely basis, or if our products, applications or services are not accepted by the market, then our business, financial
condition and results of operations would be adversely affected.
Our response to technological developments depends, to a significant degree, on the work of technically skilled
employees. Competition for the services of such employees is intense. Although we strive to attract, retain and
motivate these employees, we may not succeed in these respects.
We have made and will continue to make significant investments in research, development, and marketing for new
products, services and related technologies, as well as entry into new business areas. Investments in new
technologies and business areas are inherently speculative and commercial success thereof depends on numerous
factors including innovativeness, quality of service and support, and effectiveness of sales and marketing. We may
not achieve revenue or profitability from such investments for a number of years, if at all. Moreover, even if such
products, services, technologies and business areas become profitable, their operating margins may be minimal.
29
Our future growth depends on growing demand for advanced technologies.
Future demand and effective delivery for our products will depend significantly on the growing demand for
advanced technologies, such as Ultra HDTV, 3D TV, whole-home HD DVR features, mobile internet delivery of
video content and broadband internet connectivity, and on digital television operators developing and building
infrastructure to provide these advanced technologies. If the deployment of, or demand for, advanced technologies
is not as widespread or as rapid as we or our customers expect, our revenue growth will be limited.
Our business depends on certain intellectual property rights and on not infringing the intellectual property
rights of others. The loss of our intellectual property rights or our infringement of the intellectual property
rights of others could have a significant adverse impact on our business.
We rely on our patents, copyrights, trademarks and trade secrets, as well as licenses and other agreements with our
vendors and other parties, to use our technologies, conduct our operations and sell our products and services. Legal
challenges to our intellectual property rights and claims by third parties of intellectual property infringement could
require that we enter into royalty or licensing agreements on unfavorable terms, incur substantial monetary liability
or be enjoined preliminarily or permanently from further use of the intellectual property in question or from the
continuation of our businesses as currently conducted, which could require us to change our business practices or
limit our ability to compete effectively or could otherwise have an adverse effect on our business, financial
condition, results of operations or prospects. Even if we believe any such challenges or claims are without merit,
they can be time-consuming and costly to defend and may divert management’s attention and resources away from
our business.
Moreover, due to the rapid pace of technological change, we rely in part on technologies developed or licensed by
third parties, and if we are unable to obtain or continue to obtain licenses or other required intellectual property
rights from these third parties on reasonable terms, our business, financial position and results of operations could be
adversely affected. Technology licensed from third parties may have undetected errors that impair the functionality
or prevent the successful integration of our products or services. As a result of any such changes or loss, we may
need to incur additional development costs to ensure continued performance of our products or suffer delays until
replacement technology, if available, can be obtained and integrated.
In addition, we work with third parties such as vendors, contractors and suppliers for the development and
manufacture of components that are integrated into our products and our products may contain technologies
provided to us by these third parties. We may have little or no ability to determine in advance whether any such
technology infringes the intellectual property rights of others. Our vendors, contractors and suppliers may not be
required to indemnify us in the event that a claim of infringement is asserted against us, or they may be required to
indemnify us only up to a maximum amount, above which we would be responsible for any further costs or
damages. Legal challenges to these intellectual property rights may impair our ability to use the products and
technologies that we need in order to operate our business and may materially and adversely affect our business,
financial condition and results of operations.
We are party to various lawsuits which, if adversely decided, could have a significant adverse impact on our
business, particularly lawsuits regarding intellectual property.
We are subject to various legal proceedings and claims, which arise in the ordinary course of our business. Many
entities, including some of our competitors, have or may in the future obtain patents and other intellectual property
rights that cover or affect products or services related to those that we offer. In general, if a court determines that
one or more of our products or services infringes valid intellectual property rights held by others, we may be
required to cease developing or marketing those products or services, to obtain licenses from the holders of the
intellectual property at a material cost, or to redesign those products or services in such a way as to avoid
infringement. If those intellectual property rights are held by a competitor, we may be unable to license the
necessary intellectual property rights at any price, which could adversely affect our competitive position.
We may not be aware of all patents and other intellectual property rights that our products and services may
potentially infringe. In addition, patent applications in the U.S. and foreign countries are confidential until the
Patent and Trademark Office either publishes the application or issues a patent (whichever arises first) and,
30
accordingly, our products may infringe claims contained in pending patent applications of which we are not aware.
Further, the process of determining definitively whether a patent claim is valid and whether a particular product
infringes a valid patent claim often involves expensive and protracted litigation, even if we are ultimately successful
on the merits.
We cannot estimate the extent to which we may be required in the future to obtain licenses with respect to
intellectual property rights held by others and the availability and cost of any such licenses. Those costs, and their
impact on our results of operations, could be material. Damages in patent infringement cases can be substantial, and
in certain circumstances, can be trebled. To the extent that we are required to pay unanticipated royalties to third
parties, these increased costs of doing business could negatively affect our liquidity and operating results. We are
currently defending multiple patent infringement actions and may assert our own actions against parties we suspect
of infringing our patents and trademarks. We cannot be certain the courts will conclude these companies do not own
the rights they claim, that these rights are not valid, or that our products and services do not infringe on these rights.
We also cannot be certain that we will be able to obtain licenses from these persons on commercially reasonable
terms or, if we were unable to obtain such licenses, that we would be able to redesign our products and services to
avoid infringement. The legal costs associated with defending patent suits and pursuing patent claims against others
may be borne by us if we are not awarded reimbursement through the legal process. See further discussion under
Item 1. - Business — Patents and Trademarks and Item 3. - Legal Proceedings of this Annual Report on Form 10-K.
Future litigation or governmental proceedings could result in material adverse consequences, including
judgments or settlements.
We may become involved in lawsuits, regulatory inquiries, consumer claims and governmental and other legal
proceedings arising from of our business, including new products and services that we may offer. Some of these
proceedings may raise difficult and complicated factual and legal issues and can be subject to uncertainties and
complexities. The timing of the final resolutions to lawsuits, regulatory inquiries, and governmental and other legal
proceedings is typically uncertain. Additionally, the possible outcomes of, or resolutions to, these proceedings could
include adverse judgments, settlements or liabilities, any of which could require substantial payments or have other
adverse impacts on our revenue, results of operations or cash flow.
If the encryption and related security technology used in our products is compromised, sales of our products
may decline.
Our customers use encryption and related security technology obtained from us or our suppliers in the products that
they purchase from us to control access to their programming content and to protect their data and products from
unauthorized access to the features or functionalities of such products. Such encryption and related security
technology has been compromised in the past and may be compromised in the future even though we continue to
respond with significant investment in security measures, such as updates in security software, that are intended to
make signal theft more difficult. It has been our prior experience that security measures may only be effective for
short periods of time or not at all. We cannot ensure that we will be successful in reducing or controlling theft of our
customers’ programming content. As a result, sales of our products may decline and we may incur additional costs
in the future if security of our customers’ system is compromised.
We rely on network and information systems and other technologies and a disruption, cyber-attack, failure or
destruction of such networks, systems or technologies may disrupt or harm our business and damage our
reputation, which could have a material adverse effect on our financial condition and operating results.
The capacity, reliability and security of our information technology hardware and software infrastructure are
important to the operation of our business, which would suffer in the event of system disruptions or failures, such as
computer hackings, cyber-attacks, computer viruses or other destructive or disruptive software, process breakdowns,
denial of service attacks or other malicious activities. Security breaches, attacks, unauthorized access and other
malicious activities have significantly increased in recent years, and some of them have involved sophisticated and
highly targeted attacks on computer networks. Our networks, systems and technologies and those of our third-party
service providers and our customers may also be vulnerable to such security breaches, attacks, malicious activities
and unauthorized access, resulting in misappropriation, misuse, leakage, corruption, unscheduled downtime,
falsification and accidental or intentional release or loss of information maintained on our and our third party service
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providers’ information technology systems and networks, including but not limited to customer, personnel and
vendor data. If such risks were to materialize, we could be exposed to significant costs and interruptions, delays or
malfunctions in our operations, any of which could damage our reputation and credibility and have a material
adverse effect on our business, financial condition and results of operations. We may also be required to expend
significant resources to protect against these threats or to alleviate problems, including reputational harm and
litigation, caused by any breaches. Although we have implemented and intend to continue to implement generally
recognized security measures, these measures may prove to be inadequate and we could be subject to regulatory
penalties, fines, sanctions, enforcement actions, remediation obligations, and/or private litigation by parties whose
information was improperly accessed, disclosed or misused which could have a material adverse effect on our
business, financial condition and results of operations. Furthermore, the amount and scope of insurance that we
maintain against losses resulting from these events may not be sufficient to compensate us adequately for any
disruptions to our business or otherwise cover our losses, including reputational harm and negative publicity as well
as any litigation liability. In addition, our ability to expand and update our information technology infrastructure in
response to our growth and changing needs is important to the continued implementation of our new service offering
initiatives. A security breach or attack could impact our ability to expand or upgrade our technology infrastructure
which could have adverse consequences, including the delayed implementation of new offerings, product or service
interruptions, and the diversion of development resources.
If our products contain defects, we could be subject to significant costs to correct such defects and our
product and network service contracts could be delayed or cancelled, which could adversely affect our
revenue.
The products and the networks we deploy are highly complex, and some may contain defects when first introduced
or when new versions or enhancements are released, despite testing and our quality control procedures. For
example, our products may contain software “bugs” that can unexpectedly interfere with their operation. Defects
may also occur in components and products that we purchase from third parties. In addition, many of our products
and network services are designed to interface with our customers’ existing networks, each of which has different
specifications and utilize multiple protocol standards. Our products and services must interoperate with the other
products and services within our customers’ networks, as well as with future products and services that might be
added to these networks, to meet our customers’ requirements. There can be no assurance that we will be able to
detect and fix all defects in the products and networks we sell. The occurrence of any defects, errors or failures in
our products or network services could result in: (i) additional costs to correct such defects; (ii) cancellation of
orders and lost revenue; (iii) a reduction in revenue backlog; (iv) product returns or recalls; (v) diversion of our
resources; (vi) the issuance of credits to customers and other losses to us, our customers or end-users; (vii) liability
for harm to persons and property caused by defects in or failures of our products or services; and (viii) harm to our
reputation if we fail to detect or effectively address such issues through design, testing or warranty repairs. Any of
these occurrences could also result in the loss of or delay in market acceptance of our products and services and loss
of sales, which would harm our reputation and our business and materially adversely affect our revenue and
profitability.
RISKS RELATED TO THE REGULATION OF OUR BUSINESS
Our business is subject to risks of adverse government regulation.
Our business is subject to varying degrees of regulation in the U.S. by the FCC, and other federal, state and local
entities, and in foreign countries by similar entities and internationally by the ITU. For instance, under its Spectrum
Frontiers proceeding, the FCC is considering enabling the use of one of our frequency bands, the Ka-band, on a
shared basis with 5G services, which could have a material adverse effect on our operations. These regulations are
subject to the administrative and political process and do change, for political and other reasons, from time to time.
Moreover, a substantial number of foreign countries in which we have, or may in the future make, an investment,
regulate, in varying degrees, the ownership of satellites and other telecommunication facilities/networks and foreign
investment in telecommunications companies. Violations of laws or regulations may result in various sanctions
including fines, loss of authorizations and the denial of applications for new authorizations or for the renewal of
existing authorizations. Further material changes in law and regulatory requirements may also occur, and there can
be no assurance that our business and the business of our affiliates will not be adversely affected by future
legislation, new regulation or deregulation. The failure to obtain or comply with the authorizations and regulations
32
governing our operations could have a material adverse effect on our ability to generate revenue and our overall
competitive position and could result in our suffering serious harm to our reputation.
Our business depends on regulatory authorizations issued by the FCC and state and foreign regulators that
can expire, be revoked or modified, and applications for licenses and other authorizations that may not be
granted.
Generally all satellite, earth stations and other licenses granted by the FCC and most other countries are subject to
expiration unless renewed by the regulatory agency. Our satellite licenses are currently set to expire at various
times. In addition, we occasionally receive special temporary authorizations that are granted for limited periods of
time (e.g., 180 days or less) and subject to possible renewal. Generally, our licenses and special temporary
authorizations have been renewed on a routine basis, but there can be no assurance that this will continue. There can
be no assurance that the FCC or other regulators will continue granting applications for new licenses or for the
renewal of existing ones. If the FCC or other regulators were to cancel, revoke, suspend, or fail to renew any of our
licenses or authorizations, or fail to grant our applications for FCC or other licenses, it could have a material adverse
effect on our business, financial condition and results of operations. Specifically, loss of a frequency authorization
would reduce the amount of spectrum available to us, potentially reducing the amount of services we provide to our
customers. The significance of such a loss of authorizations would vary based upon, among other things, the orbital
location, the frequency band and the availability of replacement spectrum. In addition, the legislative and executive
branches of the U.S. government and foreign governments often consider legislation and regulatory requirements
that could affect us, as could the actions that the FCC and foreign regulatory bodies take. We cannot predict the
outcomes of these legislative or regulatory proceedings or their effect on our business.
In addition, third parties have or may oppose some of our license applications and pending and future requests for
extensions, modifications, waivers and approvals of our licenses. Even if we have fully complied with all of the
required reporting, filing and other requirements in connection with our authorizations, it is possible a regulator
could decline to grant certain of our applications or requests for authority, or could revoke, terminate, condition or
decline to modify, extend or renew certain of our authorizations or licenses.
Our ability to sell our digital set-top boxes to certain operators depends on our ability to obtain licenses to use
the conditional access systems utilized by these operators.
Our commercial success in selling our digital set-top boxes to cable television and other operators depends
significantly on our ability to obtain licenses to use the conditional access systems deployed by these operators in
our digital set-top boxes. In many cases, the intellectual property rights to these conditional access systems are
owned by the set-top box manufacturer that currently provides the system operator with its set-top boxes. We
cannot assure you that we will be able to obtain required licenses on commercially favorable terms, or at all. If we
do not obtain the necessary licenses, we may be delayed or prevented from pursuing the development of some
potential products with cable or other television operators. Our failure to obtain a license to use the conditional
access systems that we may require to develop or commercialize our digital set-top boxes with cable television or
other operators, in turn, would harm our ability to grow our customer base and our financial condition, revenue and
results of operation.
We may face difficulties in accurately assessing and collecting contributions towards the USF.
Because our customer contracts often include both telecommunications services, which create obligations to
contribute to the USF, and other goods and services, which do not, it can be difficult to determine what portion of
our revenue forms the basis for our required contribution to the USF and the amount that we can recover from our
customers. If the FCC, which oversees the USF, or a court or other governmental entity were to determine that we
computed our USF contribution obligation incorrectly or passed the wrong amount onto our customers, we could
become subject to additional assessments, liabilities, or other financial penalties. In addition, the FCC is considering
substantial changes to its USF contribution and distribution rules. These changes could impact our future
contribution obligations and those of third parties that provide communication services to our business. Any such
change to the USF contribution rules could adversely affect our costs of providing service to our customers. In
addition, changes to the USF distribution rules could intensify the competition we face by offering subsidies to
competing firms and/or technologies.
33
OTHER RISKS
We are controlled by one principal stockholder who is our Chairman.
Charles W. Ergen, our Chairman, beneficially owns approximately 30.2% of our total equity securities (assuming
conversion of only the Class B common stock held by Mr. Ergen into Class A common stock) and possesses
approximately 51.6% of the total voting power of all classes of shares (assuming no conversion of the Class B
common stock and no conversion of the preferred tracking stock). Mr. Ergen’s beneficial ownership excludes
1,640 shares of our Class A common stock and 20,883,001 shares of our Class A common stock issuable upon
conversion of shares of our Class B common stock, in each case, currently held by certain trusts established by
Mr. Ergen for the benefit of his family. These trusts beneficially own approximately 22.4% of our total equity
securities (assuming conversion of only the Class B common stock held by such trusts into Class A common stock)
and possess approximately 39.9% of our total voting power (assuming no conversion of the Class B common stock).
Thus, Mr. Ergen has the ability to elect a majority of our directors and to control all other matters requiring the
approval of our stockholders. As a result of Mr. Ergen’s voting power, we are a “controlled company” as defined in
the Nasdaq listing rules and, therefore, are not subject to Nasdaq requirements that would otherwise require us to
have (i) a majority of independent directors; (ii) a nominating committee composed solely of independent directors;
(iii) compensation of our executive officers determined by a majority of the independent directors or a compensation
committee composed solely of independent directors; and (iv) director nominees selected, or recommended for the
Board’s selection, either by a majority of the independent directors or a nominating committee composed solely of
independent directors.
We have potential conflicts of interest with DISH Network due to our common ownership.
Questions relating to conflicts of interest may arise between DISH Network and us in a number of areas relating to
our past and ongoing relationships. Areas in which conflicts of interest between DISH Network and us could arise
include, but are not limited to, the following:
(cid:120) Cross directorships and stock ownership. We have certain overlap in our directors and Chairman position
with DISH Network, which may lead to conflicting interests. Our board of directors includes persons who
are members of the board of directors of DISH Network, including Charles W. Ergen, who serves as the
Chairman of and is employed by both companies. Our Chairman and the members of our board of
directors who overlap with DISH Network also have fiduciary duties to DISH Network’s shareholders.
Therefore, these individuals may have actual or apparent conflicts of interest with respect to matters
involving or affecting each company. For example, there is potential for a conflict of interest when we or
DISH Network look at acquisitions and other corporate opportunities that may be suitable for both
companies. In addition, many of our directors and officers own DISH Network stock and options to
purchase DISH Network stock, certain of which they acquired or were granted prior to the Spin-off,
including Mr. Ergen. Furthermore, DISH Network holds shares of preferred tracking stock in us and HSS
that in the aggregate represents an 80.0% economic interest in our residential retail satellite broadband
business. These ownership interests could create actual, apparent or potential conflicts of interest when
these individuals are faced with decisions that could have different implications for our company and DISH
Network.
(cid:120)
Intercompany agreements with DISH Network. We have entered into various agreements with DISH
Network. Pursuant to certain agreements, DISH Network provides us certain professional services, for
which we pay DISH Network an amount equal to DISH Network’s cost plus a fixed margin. Certain other
intercompany agreements cover matters such as tax sharing and our responsibility for certain liabilities
previously undertaken by DISH Network for certain of our businesses. We have also entered into certain
commercial agreements with DISH Network. The terms of certain of these agreements were established
while we were a wholly-owned subsidiary of DISH Network and were not the result of arm’s length
negotiations. The allocation of assets, liabilities, rights, indemnifications and other obligations between
DISH Network and us under the separation and ancillary agreements we entered into with DISH Network
did not necessarily reflect what two unaffiliated parties might have agreed to. Had these agreements been
negotiated with unaffiliated third parties, their terms may have been more favorable, or less favorable, to
34
us. In addition, DISH Network or its affiliates will continue to enter into transactions with us or our
subsidiaries or other affiliates. Although the terms of any such transactions will be established based upon
negotiations between DISH Network and us and, when appropriate, subject to the approval of audit
committee and committee of the non-interlocking directors or in certain instances non-interlocking
management, there can be no assurance that the terms of any such transactions will be as favorable to us or
our subsidiaries or affiliates as may otherwise be obtained in negotiations between unaffiliated third parties.
(cid:120) Competition for business opportunities. DISH Network retains its interests in various companies that have
subsidiaries or controlled affiliates that own or operate domestic or foreign services that may compete with
services offered by our businesses. In addition, pursuant to a distribution agreement, DISH Network has
the right, but not the obligation, to market, sell and distribute our Hughes segment’s satellite broadband
internet service under the dishNET brand which could compete with sales by our Hughes segment. DISH
Network also has a distribution agreement with ViaSat, a competitor of our Hughes segment, to sell
services similar to those offered by our Hughes segment. We may also compete with DISH Network when
we participate in auctions for spectrum or orbital slots for our satellites.
We may not be able to resolve any potential conflicts of interest with DISH Network and, even if we do so, the
resolution may be less favorable to us than if we were dealing with an unaffiliated party.
Except for certain arrangements with Sling TV Holding L.L.C. (“Sling TV Holding,” formerly DISH Digital
Holding L.L.C.) that we entered into with DISH Network, which, subject to certain exceptions, limits DISH
Network’s and our ability to operate an IPTV service other than that operated by Sling TV Holding, we do not have
any agreements with DISH Network that would prevent us from competing with each other. However, many of our
potential customers who compete with DISH Network have historically perceived us as a competitor due to our
affiliation with DISH Network. There can be no assurance that we will be successful in entering into any
commercial relationships with potential customers who are competitors of DISH Network (particularly if we
continue to be perceived as affiliated with DISH Network as a result of common ownership, certain shared
management services and other arrangements with DISH Network).
It may be difficult for a third party to acquire us, even if doing so may be beneficial to our shareholders,
because of our capital structure.
Certain provisions of our articles of incorporation and bylaws may discourage, delay or prevent a change in control
of our company that a shareholder may consider favorable. These provisions include the following:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
a capital structure with multiple classes of common stock: a Class A that entitles the holders to one vote
per share; a Class B that entitles the holders to ten votes per share; a Class C that entitles the holders to one
vote per share, except upon a change in control of our company in which case the holders of Class C are
entitled to ten votes per share and a non-voting Class D; and a class of preferred stock, the Hughes Retail
Tracking Stock, that entitles the holders to one-tenth of one vote per share;
a provision that authorizes the issuance of “blank check” preferred stock, which could be issued by our
board of directors to increase the number of outstanding shares and thwart a takeover attempt;
a provision limiting who may call special meetings of shareholders; and
a provision establishing advance notice requirements for nominations of candidates for election to our
board of directors or for proposing matters that can be acted upon by shareholders at shareholder meetings.
In addition, Charles W. Ergen owns a majority of our common stock, including Class B common stock, which
results in Mr. Ergen having the power to elect all of our directors and control shareholder decision on matters on
which all classes of our common stock vote together.
35
The preferred tracking stock in our capital structure may create conflicts of interest for our board of
directors and management, and our board of directors may make decisions that could adversely affect only
one group of holders.
Our preferred tracking stock capital structure could give rise to occasions when the interests of holders of stock of
one group might diverge or appear to diverge from the interests of holders of stock of the other group and our board
of directors or officers could make decisions that could adversely affect only one group of holders. Nevada law
requires that our board of directors and officers act in good faith and with a view to the interest of the company and
are not required to consider, as a dominant factor, the effect of a proposed corporate action upon any particular group
of stockholders. Decisions deemed to be in the interest of our company may not always align with the best interest
of a particular group of our stockholders when considered independently. Examples include, but are not limited to:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
decisions as to the terms of any business relationships that may be created between the EchoStar Group and
the Hughes Retail Group and the terms of any reattributions of assets between the groups;
decisions as to the allocation of corporate opportunities between the groups, especially where the
opportunities might meet the strategic business objectives of both groups;
decisions as to operational and financial matters that could be considered detrimental to one group but
beneficial to the other;
decisions as to the internal or external financing attributable to businesses or assets attributed to either of
our groups;
decisions as to the payment of dividends on our common stock or preferred tracking stock; and
decisions as to the disposition of assets of either of our groups.
In addition, as our preferred tracking stock is currently held by DISH Network, questions relating to conflicts of
interest may also arise between DISH Network and us due to our common ownership and Chairman.
Provisions of Nevada law and our articles of incorporation may protect decisions of our board of directors and
officers that have a disparate impact on one group of holders. Our stockholders may have limited or no legal
remedies under Nevada law with respect to such decisions even if the actions of our directors or officers adversely
affect the market value of our common stock.
Our board of directors has the ability to change our attribution policies at any time without a vote of our
common stockholders.
Our board of directors has adopted the Policy Statement. Our board of directors may at any time change or make
exceptions to the Policy Statement with only the consent of holders of a majority of the outstanding shares of our
preferred tracking stock. Because these policies relate to matters concerning the day-to-day management of our
company as opposed to significant corporate actions, such as a merger involving the Company or a sale of
substantially all of our assets, no approval from the holders of our Class A common stock is required with respect to
the changes or exceptions to these policies. A decision to change, or make exceptions to the Policy Statement or
adopt additional policies could disadvantage one group of shareholders while advantaging another.
In addition, pursuant to our articles of incorporation we have a significant amount of authorized and unissued stock
that would allow our board of directors to issue shares to persons friendly to current management, thereby protecting
the continuity of management, or which could be used to dilute the stock ownership of persons seeking to obtain
control of us.
36
The preferred tracking stock results in, and may result in further, vote dilution for existing holders of
common stock.
Each share of preferred tracking stock is entitled to one-tenth (1/10th) of one vote per share. This voting right will
cause a reduction in the relative voting power of our exiting common stock holders. Additionally, we may be
required to register some or all of the outstanding shares of the preferred tracking stock. Following such
registration, these shares of preferred tracking stock may be converted or exchanged into shares of EchoStar Class A
common stock. Such conversion may result in further reducing the relative voting power of our existing common
stock holders. As a result of the dilutive effect of the preferred tracking stock, the ability of existing holders of
common stock to elect our directors or to control all other matters requiring the approval of our stockholders may be
reduced.
We generally may dispose of assets of the Hughes Retail Group without shareholder approval.
Nevada law requires stockholder approval only for a sale or other disposition of all or substantially all of the assets
of the Company, taken as a whole, and our amended articles of incorporation do not require a separate class vote in
the case of a sale of a significant amount of assets of any of our groups. As long as the assets attributed to the
Hughes Retail Group proposed to be disposed of represent less than substantially all of our assets, we may approve
sales and other dispositions of any amounts of the assets of such group without any shareholder approval. Based on
the current composition of the Hughes Retail Group and our Company, we believe that a sale of all or substantially
all of the assets of the Hughes Retail Group would not be considered a sale of substantially all of our assets requiring
stockholder approval. Our board of directors would determine how best to proceed in any such sale consistent with
its fiduciary duties to all of our shareholders. Ultimately, however, our board of directors is not required under
Nevada law to select the option that would result in the highest value to any particular group of stockholders.
The market value of our common stock could be adversely affected by events involving the assets and
businesses attributed to only the Hughes Retail Group.
Because we are the issuer of common stock and preferred tracking stock, events relating to the assets and businesses
attributed to the Hughes Retail Group, such as earnings announcements or announcements of new products or
services, or acquisitions or dispositions that the market does not view favorably, may cause an adverse reaction to
our common stock. This could occur even if the triggering event is not material to us as a whole.
We may face other risks described from time to time in periodic and current reports we file with the SEC.
Item 1B.
UNRESOLVED STAFF COMMENTS
None.
37
Item 2.
PROPERTIES
Our principal executive offices are located at 100 Inverness Terrace East, Englewood, Colorado 80112-5308 and our
telephone number is (303) 706-4000. The following table sets forth certain information concerning our principal
properties related to our Hughes segment (“Hughes”), EchoStar Technologies segment (“ETC”), EchoStar Satellite
Services segment (“ESS”) and to our other operations and administrative functions (“Other”) as of December 31,
2015. We operate various facilities in the U.S. and abroad. We believe that our facilities are well maintained and
are sufficient to meet our current and projected needs.
Location (3) (4)
San Diego, California......................
Gaithersburg, Maryland.................
Segment(s)
Hughes
Hughes
Leased/
Owned
Leased
Leased Manufacturing and testing facilities, engineering and logistics
Engineering and sales offices
Function
Southfield, Michigan (1).................
Las Vegas, Nevada (1)....................
Hughes
Hughes
Leased
Leased
Barueri, Brazil (1)..............................
Sao Paulo, Brazil..............................
Hughes
Hughes
Leased
Leased
Griesheim, Germany (1) (5).............
Hughes
Leased
Gurgaon, India (1) (2)......................
Hughes
Leased
New Delhi, India
Milton Keynes, United Kingdom..
American Fork, Utah.......................
Germantown, Maryland (1)............
Hughes
Hughes
Hughes/ETC
Hughes
Leased
Leased
Leased
Owned
Foster City, California.....................
Superior, Colorado..........................
Atlanta, Georgia...............................
Kharkov, Ukraine.............................
Bangalore, India...............................
Gilbert, Arizona (1)..........................
Mustang Ridge, Texas (1)..............
Cheyenne, Wyoming (1)................
Black Hawk, South Dakota (1).......
Englewood, Colorado ....................
ETC
ETC
ETC
ETC
ETC/Hughes
ETC/ESS
ETC/ESS
ETC/ESS
Hughes/ESS
Hughes/ETC/
ESS/Other
and administrative offices
Shared hub
Shared hub, antennae yards, gateway, backup network
operation and control center for Hughes corporate
headquarters
Shared hub and warehouse
Hughes Brazil corporate headquarters, sales offices, and
warehouse
Shared hub, operations, administrative offices and warehouse
Administrative offices, shared hub, operations, warehouse,
and development center
Hughes India corporate headquarters
Hughes Europe corporate headquarters and operations
Office space, engineering and operations
Hughes corporate headquarters, engineering offices, network
operations and shared hubs
Engineering offices
Engineering offices
Engineering offices
Engineering office
Engineering office and office space
Digital broadcast operations center
Leased
Leased
Leased
Leased
Leased
Owned
Owned Micro digital broadcast operations center
Owned
Owned
Owned
Digital broadcast operations center
Spacecraft autotrack operations center
Corporate headquarters, engineering offices, gateways
(1) We perform network services and customer support functions 24 hours a day, 365 days a year at these locations.
(2) These properties are used by subsidiaries that are less than wholly-owned by the Company.
(3)
In addition to the above properties, we have multiple gateways throughout the Western part of the U.S. that support the SPACEWAY 3,
EchoStar XVII, and EchoStar XIX satellites as well as multiple regional broadcast operations centers.
In addition to the above properties, we lease rack and roof top space in 210 designated market areas throughout the U.S. as well as San Juan,
Puerto Rico to collect and broadcast local channels that are used by the ETC segment.
(4)
(5) We purchased this property in January 2016.
Item 3. LEGAL PROCEEDINGS
For a discussion of legal proceedings, see Note 16 in the notes to consolidated financial statements in Item 15 of this
report.
Item 4. MINE SAFETY DISCLOSURES
Not applicable.
38
PART II
Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Price of and Dividends on the Registrant’s Common Equity and Related Stockholder Matters
Market Information. Our Class A common stock is quoted on the Nasdaq Global Select Market (“Nasdaq”) under
the symbol “SATS.” The high and low closing sale prices of our Class A common stock during 2015 and 2014 on
Nasdaq (as reported by Nasdaq) are set forth below.
2015
First Quarter................................................................
Second Quarter...........................................................
Third Quarter..............................................................
Fourth Quarter............................................................
2014
First Quarter................................................................
Second Quarter...........................................................
Third Quarter..............................................................
Fourth Quarter............................................................
High
$
$
$
$
55.31
52.70
49.29
46.39
High
$
$
$
$
51.61
53.59
52.49
53.88
Low
$
$
$
$
49.36
47.95
41.93
36.63
Low
$
$
$
$
46.49
44.80
48.35
43.88
Holders. As of February 16, 2016, there were approximately 9,366 holders of record of our Class A common stock,
not including stockholders who beneficially own Class A common stock held in nominee or street name. As of
February 16, 2016, 26,804,038 of the 47,687,039 outstanding shares of our Class B common stock were held by
Charles W. Ergen, our Chairman, and the remaining 20,883,001 were held in trusts established for the benefit of Mr.
Ergen’s family. There is currently no established trading market for our Class B common stock.
Dividends. We have not paid any cash dividends on our common stock in the past two years. We currently do not
intend to declare dividends on our common stock. Payment of any future dividends will depend upon our earnings,
capital requirements, and other factors the board of directors considers appropriate. We currently intend to retain
our earnings, if any, to support future growth and expansion although we expect to repurchase shares of our common
stock from time to time. See further discussion under Item 7. – Management’s Discussion and Analysis of Financial
Condition and Results of Operations – Liquidity and Capital Resources in this Annual Report on Form
10-K.
Securities Authorized for Issuance Under Equity Compensation Plans. See Item 12. – Security Ownership of
Certain Beneficial Owners and Management and Related Stockholder Matters in this Annual Report on Form 10-K.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
Pursuant to a stock repurchase program approved by our board of directors, we are authorized to repurchase up to
$500.0 million of our outstanding shares of Class A common stock through December 31, 2016. For the years ended
December 31, 2015, 2014 and 2013, we did not repurchase any common stock under this program.
39
Item 6.
SELECTED FINANCIAL DATA
The accompanying consolidated financial statements for 2015 have been prepared in accordance with generally
accepted accounting principles in the United States (“GAAP”) included in our consolidated financial statements in
Item 15 of this report. Certain prior period amounts have been reclassified to conform to the current period
presentation.
The following tables present selected information relating to our consolidated financial condition and results of
operations for the past five years. The selected financial data should be read in conjunction with our consolidated
financial statements and related notes thereto, and “Management’s Discussion and Analysis of Financial Condition
and Results of Operations” included elsewhere in this report.
Statements of Operations Data:
2015
Total revenue...............................................................................
Total costs and expenses..........................................................
Operating income........................................................................
$
3,143,714
2,787,681
356,033
$
2014 (2)
For the Years Ended December 31,
2012
2013
(In thousands, except per share amounts)
$
3,121,704
3,282,452
3,021,818
3,178,865
99,886
103,587
3,445,578
3,117,488
328,090
$
$
$
$
$
2011 (1)
$
2,761,431
2,680,593
80,838
$
Net income attributable to EchoStar common stock..............
$
163,700
$
165,268
$
2,525
$
211,048
$
3,639
Basic weighted-average common shares outstanding..........
Diluted weighted-average common shares outstanding......
Basic earnings per share............................................................
Diluted earnings per share.........................................................
92,397
93,466
1.77
1.75
$
$
91,190
92,616
1.81
1.78
$
$
89,405
90,952
0.03
0.03
$
$
87,150
87,959
2.42
2.40
$
$
86,223
87,089
0.04
0.04
$
$
Balance Sheet Data:
2015
2014 (2)
As of December 31,
2013
(In thousands)
2012
2011
Cash, cash equivalents and current marketable securities...
Total assets (3)............................................................................
Total debt and capital lease obligations..................................
Total stockholders' equity.........................................................
$
$
$
$
1,536,578
7,240,762
2,223,641
3,781,642
$
$
$
$
1,688,156
7,253,998
2,367,687
3,623,638
$
$
$
$
1,620,652
6,701,963
2,422,388
3,226,231
$
$
$
$
1,547,565
6,600,233
2,488,499
3,150,227
$
$
$
$
1,696,442
6,543,737
2,528,654
3,051,626
Cash Flow Data:
Net cash flows from:
2015
2014 (2)
For the Years Ended December 31,
2012
2013
(In thousands)
2011
Operating activities ................................................................
Investing activities ................................................................
Financing activities ................................................................
$
$
$
776,451
(275,311)
(120,257)
$
$
$
840,131
(887,590)
(35,096)
$
$
$
450,507
(570,289)
18,326
$
$
$
505,149
(346,781)
(43,976)
$
$
$
447,018
(1,888,045)
1,913,547
(2)
(1) On June 8, 2011, we completed the acquisition of Hughes Communications, Inc. and its subsidiaries (“the Hughes Acquisition”). As a
result, Hughes became a new segment and our historical financial statements on and after June 9, 2011 give effect to the Hughes
Acquisition. Therefore, our results of operations for the years ended December 31, 2015, 2014, 2013 and 2012 are not comparable to our
results of operations for the year ended December 31, 2011.
In March 2014, we issued preferred tracking stock to DISH Network in exchange for five satellites and $11.4 million in cash. Please see
Note 4 in our consolidated financial statements in Item 15 of this report. As a result, our results of operations for the years ended December
31, 2015 and 2014 are not comparable to our results of operations for the years ended December 31, 2013, 2012 and 2011.
In 2015 we prospectively adopted Accounting Standard Update No. 2015-17, Balance Sheet Classification of Deferred Taxes. As a result,
our total assets as of December 31, 2015 is not comparable to our total assets as reported in prior years.
(3)
40
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Unless the context indicates otherwise, as used herein, the terms “we,” “us,” “EchoStar,” the “Company” and
“our” refer to EchoStar Corporation and its subsidiaries. References to “$” are to United States dollars. The
following management’s discussion and analysis of our financial condition and results of operations should be read
in conjunction with the consolidated financial statements and notes to our financial statements included elsewhere
in this Annual Report on Form 10-K. This management’s discussion and analysis is intended to help provide an
understanding of our financial condition, changes in our financial condition and our results of operations. Many of
the statements in this management’s discussion and analysis are forward-looking statements that involve
assumptions and are subject to risks and uncertainties that are often difficult to predict and beyond our control.
Actual results could differ materially from those expressed or implied by such forward-looking statements. See
“Disclosure Regarding Forward-Looking Statements” in this Annual Report on Form 10-K for further discussion.
For a discussion of additional risks, uncertainties and other factors that could impact our results of operations or
financial condition, see the caption “Risk Factors” in Item 1A of this Annual Report on Form 10-K. Further, such
forward-looking statements speak only as of the date of this Annual Report on Form 10-K and we undertake no
obligation to update them.
EXECUTIVE SUMMARY
EchoStar is a global provider of satellite operations, video delivery solutions, digital set-top boxes, and broadband
satellite technologies and services for the home and office, delivering innovative network technologies, managed
services, and solutions for enterprises and governments. We currently operate in three business segments, which are
differentiated primarily by their operational focus: Hughes, EchoStar Technologies, and EchoStar Satellite Services.
These segments are consistent with the way decisions regarding the allocation of resources are made, as well as how
operating results are reviewed by our chief operating decision maker (“CODM”), who for EchoStar is the
Company’s Chief Executive Officer.
Our segment operating results do not include real estate and other activities, costs incurred in certain satellite
development programs and other business development activities, expenses of various corporate departments, and
our centralized treasury operations, including income from our investment portfolio and interest expense on our
debt. These activities are accounted for in “All Other and Eliminations.”
Highlights from our financial results are as follows:
Consolidated Results of Operations for the Year Ended December 31, 2015
(cid:120) Revenue of $3.14 billion
(cid:120) Operating income of $356.0 million
(cid:120) Net income attributable to EchoStar common stock of $163.7 million and basic earnings per share of
common stock of $1.77
(cid:120) EBITDA of $865.4 million (see reconciliation of this non-GAAP measure in Note 17 to the consolidated
financial statements in Item 15 of this report)
Consolidated Financial Condition as of December 31, 2015
(cid:120) Total assets of $7.24 billion
(cid:120) Total liabilities of $3.46 billion
(cid:120) Total stockholders’ equity of $3.78 billion
(cid:120) Cash, cash equivalents and current marketable investment securities of $1.54 billion
41
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - Continued
Hughes Segment
Our Hughes segment is a global provider of broadband satellite technologies and services for the home and office,
delivering innovative network technologies, managed services, and solutions for consumers, enterprises and
governments.
We continue our efforts in growing our consumer revenue, which depends on our success in adding new subscribers
on our Hughes segment’s satellite networks. The addition of new subscribers and the performance of our consumer
service offering, primarily drive the revenue growth in our consumer business. Service costs related to ongoing
support of our direct and indirect customers and partners are typically impacted most significantly by our growth.
Long-term trends continue to be influenced primarily by the subscriber growth in our consumer business.
New satellite launches are expected to provide additional capacity for subscriber growth while we manage
subscriber growth across our existing satellite platform. In March 2013, we entered into a contract for the design
and construction of the EchoStar XIX satellite, which is expected to be launched in the fourth quarter of 2016. The
EchoStar XIX satellite is a next-generation, high throughput geostationary satellite that will employ a multi-spot
beam, bent pipe Ka-band architecture and will provide additional capacity for the Hughes broadband services to the
consumer market in North America, as well as new capacity covering Mexico and other Latin American countries.
Capital expenditures associated with the construction and launch of the EchoStar XIX satellite are included in “All
Other and Eliminations” in our segment reporting.
Our Hughes segment also provides managed services, hardware, and satellite services to large enterprises. In
addition, we provide gateway and terminal equipment to customers for mobile satellite systems. The fixed pricing
nature of our long-term enterprise contracts minimizes significant quarter to quarter fluctuations; however, the
growth of our enterprise business relies heavily on global economic conditions. We continue to monitor the
competitive landscape for pricing in relation to our competitors and alternative technologies.
We continue our efforts in growing our consumer satellite services business outside of the U.S. In April 2014, we
entered into a satellite services agreement pursuant to which Eutelsat do Brasil will provide to us fixed broadband
service using the Ka-band capacity into Brazil on the EUTELSAT 65 West A satellite for a 15-year term. We expect
the satellite to launch in the first quarter of 2016 and to begin delivering consumer satellite broadband services in
Brazil in the second half of 2016. In addition, in September 2015, we entered into satellite services agreements
pursuant to which affiliates of Telesat Canada (“Telesat”) will provide to us fixed broadband service into South
America using the Ka-band capacity on a satellite to be located at the 63 degree west longitude orbital location for a
15-year term. We expect the satellite to be launched in the second quarter of 2018 to deliver consumer satellite
broadband services into South America as well as create a platform to potentially allow for further development of
our business in South America.
As of December 31, 2015, 2014 and 2013, our Hughes segment had approximately 1,035,000, 977,000 and 860,000
broadband subscribers, respectively. These broadband subscribers include customers that subscribe to our
HughesNet broadband services through retail, wholesale and small/medium enterprise service channels. Gross
subscriber additions decreased for the year ended December 31, 2015 compared to the same period in 2014 and our
average monthly subscriber churn for the year ended December 31, 2015 increased as compared to the same period
in 2014. As a result, for the year ended December 31, 2015, net subscriber additions of approximately 56,000 were
lower than for the year ended December 31, 2014 primarily due to satellite beams servicing certain areas reaching
capacity and the increase in churn on the larger base of subscribers. Subscriber additions excludes small/medium
enterprise service channels.
As of December 31, 2015 and 2014, our Hughes segment had approximately $1.44 billion and $1.26 billion,
respectively, of contracted revenue backlog. We define Hughes contracted revenue backlog as our expected future
revenue under customer contracts that are non-cancelable, excluding agreements with customers in our consumer
market. The increase in contracted revenue backlog is primarily due to an increase in customer contracts from our
international markets as a result of future commitments to provide satellite services and gateway and network
management services on the EchoStar XIX satellite. Of the total contracted revenue backlog as of December 31,
2015, we expect to recognize approximately $402.1 million of revenue in 2016.
42
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - Continued
EchoStar Technologies Segment
Our EchoStar Technologies segment designs, develops and distributes secure end-to-end video technology solutions
including digital set-top boxes and related products and technology, primarily for satellite TV service providers and
telecommunication companies. The primary customer for our digital set-top boxes is DISH Network Corporation
and its subsidiaries (“DISH Network”), and we also our sell digital set-top boxes to Bell TV, a direct-to-home
satellite service provider in Canada, Dish Mexico, S. de R.L. de C.V. (“Dish Mexico”), a joint venture that we
entered into in 2008, and other international customers. We depend on DISH Network for a substantial portion of
our EchoStar Technologies segment revenue and we expect that DISH Network will continue to be the primary
source of revenue for our EchoStar Technologies segment. In addition, our equipment revenue from DISH Network
depends on the timing of orders for set-top boxes and related accessories from DISH Network based on its actual
and projected subscriber growth. Therefore, the results of operations of our EchoStar Technologies segment are, and
are likely to continue to be, closely linked to the performance of DISH Network’s pay-TV service.
Our EchoStar Technologies segment also provides digital broadcast operations, including satellite
uplinking/downlinking, transmission services, signal processing, conditional access management, and other services,
primarily to DISH Network and Dish Mexico. In addition, we provide our TV Anywhere technology through
Slingbox units directly to consumers via retail outlets and online, as well as to the pay-TV operator market.
Prior to 2015, Move Networks, our over-the-top (“OTT”), Streaming Video on Demand (“SVOD”) platform
business, including certain assets that were distributed to us in August 2014 in connection with the Exchange
Agreement with DISH Digital Holding L.L.C. (“Sling TV Holding”), (see Notes 6, 10 and 19 in our notes to
consolidated financial statements in Item 15 of this report), was managed separately from our operating segments
and was reported within “All Other and Eliminations.” In the first quarter of 2015, we assigned management
responsibility for our Move Networks business to our EchoStar Technologies segment. We have retrospectively
adjusted our segment reporting to reflect our Move Networks business as part of the EchoStar Technologies segment
in prior periods (see Note 17 in our notes to the consolidated financial statements in Item 15 of this report).
During the second quarter of 2015, our EchoStar Technologies segment contributed several of its European
subsidiaries to SmarDTV SA (“SmarDTV”), a Swiss subsidiary of Kudelski SA that offers set-top boxes and
conditional access modules, in exchange for a 22.5% interest in the equity and subordinated debt of SmarDTV. We
and SmarDTV also entered into a services agreement pursuant to which our EchoStar Technologies segment
purchases certain engineering services from SmarDTV.
We continue to focus on building and strengthening our brand recognition by providing unique and technologically
advanced features and products. Products containing new technologies and features typically have higher initial
selling prices, margins and volumes. As products mature and new products are in the late stages of development,
volumes typically decrease as our customers, primarily DISH Network, increase deployment of refurbished set-top
boxes as opposed to purchasing new units from us. The market for our digital set-top boxes, like other electronic
products, has also been characterized by regular reductions in selling prices and production costs. Our ability to
sustain or increase profitability also depends in large part on our ability to control or reduce our costs of producing
digital set-top boxes. Based on our experience, we expect our cost of manufacturing a specific set-top box model to
decline over time as our contract manufacturers generate efficiencies with scale of production and engineering cost
reductions. Overall, our success depends heavily on our ability to bring advanced technologies to market to
continue to be a market leader and innovator.
The number of potential new customers for our set-top box business in our EchoStar Technologies segment is small
and may be limited as prospective customers that have been competitors of DISH Network may continue to view us
as a competitor due to our common ownership with DISH Network. Our customers face emerging competition from
other providers of digital media and potential government action preventing them from using security systems in
connection with set-top boxes. In particular, programming offered over the internet has become more prevalent as
the speed and quality of broadband networks have improved. As a result, we expect that demand for our satellite
television digital set-top boxes from DISH Network and other customers could decline and we may not be able to
sustain our current revenue levels.
43
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - Continued
With our expertise in connectivity, security, and video, we are developing new consumer product and service
offerings, including a security and home automation solution, along with other products intended to grow our
EchoStar Technologies segment revenue over time.
EchoStar Satellite Services Segment
Our EchoStar Satellite Services segment operates its business using its owned and leased in-orbit satellites. We
provide satellite services on a full-time and occasional-use basis primarily to DISH Network, Dish Mexico, U.S.
government service providers, internet service providers, broadcast news organizations, programmers and private
enterprise customers.
We depend on DISH Network for a significant portion of the revenue for our EchoStar Satellite Services segment,
and we expect that DISH Network will continue to be the primary source of revenue for our EchoStar Satellite
Services segment. Therefore, the results of operations of our EchoStar Satellite Services segment are linked to long-
term changes in DISH Network’s satellite capacity requirements. We continue to pursue expanding our business
offerings by providing value added services such as telemetry, tracking and control services to third parties.
In August 2014, we entered into: (i) a construction contract with Airbus Defence and Space SAS for the construction
of the EchoStar 105/SES-11 satellite with C-band, Ku-band and Ka-band payloads; (ii) an agreement with SES
Satellite Leasing Limited for the procurement of the related launch services; and (iii) an agreement with SES
Americom Inc. (“SES”) pursuant to which we will transfer the title to the C-band and Ka-band payloads to SES
Satellite Leasing Limited at launch and transfer the title to the Ku-band payload to SES following in-orbit testing of
the satellite. Simultaneously, SES will provide to us satellite service on the entire Ku-band payload on the
EchoStar 105/SES-11 satellite for an initial ten-year term, with an option for us to renew the agreement on a year-to-
year basis.
Revenue growth in our EchoStar Satellite Services segment is a function of available satellite capacity to sell. Our
EchoStar 105/SES-11 satellite is currently under construction and will replace the capacity currently leased on the
AMC-15 satellite. Once launched, which is expected in the fourth quarter of 2016, and placed into operation, we
expect revenue from the satellite to exceed the revenue currently serviced by the AMC-15 satellite. Any factors that
interfere with the construction and launch schedule of the EchoStar 105/SES-11 satellite could impact our expected
revenue. In addition, any disruption in planned renewals of our service arrangements could impact customer
commitments and have an impact on our revenue and financial performance. Technical issues, regulatory and
licensing issues, manufacturer performance/stability and availability of capital to continue to fund our programs also
are factors in achieving our business plans for this segment.
As of December 31, 2015 and 2014, our EchoStar Satellite Services segment had contracted revenue backlog
attributable to satellites currently in orbit of approximately $1.41 billion and $1.71 billion, respectively. The
decrease is primarily driven by the fixed-term nature of the satellite services agreements with DISH Network. Of
the total contracted revenue backlog as of December 31, 2015, we expect to recognize approximately $373.2 million
of revenue in 2016.
New Business Opportunities
Our industry is evolving with the increase in worldwide demand for broadband internet access for information,
entertainment and commerce. In addition to fiber and wireless systems, other technologies such as geostationary
high throughput satellites, low-earth orbit networks, balloons, and High Altitude Platform Systems (“HAPS”) will
likely play significant roles in enabling global broadband access, networks and services. We intend to use our
expertise, technologies, capital, investments, global presence, relationships and other capabilities to continue to
provide broadband internet systems, networks and services for information, entertainment and commerce in North
America and internationally for consumers, enterprises and governments.
We are selectively exploring opportunities to pursue partnerships, joint ventures and strategic acquisition
opportunities, domestically and internationally, that we believe may allow us to increase our existing market share,
expand into new markets, broaden our portfolio of products and intellectual property, and strengthen our
44
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - Continued
relationships with our customers. We may allocate significant resources for long-term initiatives that may not have a
short or medium term or any positive impact on our revenue, results of operations, or cash flow.
In 2012, we acquired the right to use various frequencies at the 45 degree west longitude orbital location (“Brazilian
Authorization”) from ANATEL, the Brazilian communications regulatory agency. The Brazilian Authorization
provides us the rights to utilize Ku-band spectrum for broadcast satellite service (“BSS”), Ka-band spectrum and S-
band spectrum. With regards to the Ku-band BSS spectrum, we continue to pursue various opportunities to support
a Brazilian service. We are also exploring options for the Ka-band and S-band spectrums. In April 2014, we entered
into an agreement with Space Systems Loral, LLC (“SS/L”) for the construction of the EchoStar XXIII satellite, a
high powered BSS satellite, which will use some of the components from CMBStar, a satellite that we suspended
construction of in 2008. The EchoStar XXIII satellite is expected to launch in the third quarter of 2016 and will be
deployed at the 45 degree west longitude orbital location.
In December 2013, we acquired 100% of Solaris Mobile, which is based in Dublin, Ireland and licensed by the
European Union and its member states (“EU”) to provide mobile satellite services (“MSS”) and complementary
ground component (“CGC”) services covering the entire EU using S-band spectrum. Solaris Mobile changed its
name to EchoStar Mobile Limited (“EchoStar Mobile”) in the first quarter of 2015. We are in the process of
developing commercial services, expected to begin in the second half of 2016, utilizing the operable transponders
we own on the EUTELSAT 10A (also known as “W2A”) satellite, along with our EchoStar XXI S-band satellite.
We are currently constructing, and expect to launch, the EchoStar XXI satellite in the second quarter of 2016 to
provide space segment capacity to EchoStar Mobile. We believe we are in a unique position to deploy a European
wide MSS/CGC network and maximize the long-term value of our S-band spectrum in Europe and other regions
within the scope of our licenses.
In June 2015, we purchased an equity investment in WorldVu Satellites Limited (“OneWeb”), a low-earth orbit
satellite company. In addition, our Hughes segment entered into an agreement with OneWeb to provide certain
equipment and services in connection with the ground system for OneWeb’s low-earth orbit satellites.
Capital expenditures associated with the construction and launch of the EchoStar XXIII and EchoStar XXI satellites
are included in “All Other and Eliminations” in our segment reporting.
RESULTS OF OPERATIONS
Basis of Presentation
The following discussion and analysis of our consolidated results of operations is presented on a historical basis.
Prior to 2015, our Move Networks business, including certain assets distributed to us in August 2014 in connection
with the Exchange Agreement with Sling TV Holding (see Notes 6, 10 and 19 to the consolidated financial
statements in Item 15 of this report), was managed separately from our existing operating segments and was
reported within “All Other and Eliminations.” In the first quarter of 2015, we assigned management responsibility
for our Move Networks business to our EchoStar Technologies segment, where it continues to be managed and
reported as a separate reporting unit. All prior period amounts have been retrospectively adjusted to present
operations of our Move Networks business in our EchoStar Technologies segment.
45
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - Continued
Year Ended December 31, 2015 Compared to the Year Ended December 31, 2014
Statements of Operations Data (1)
Revenue:
Equipment revenue - DISH Network...............................................
Equipment revenue - other................................................................
Services and other revenue - DISH Network.................................
Services and other revenue - other..................................................
Total revenue..........................................................................................
Costs and Expenses:
Cost of sales - equipment..................................................................
% of Total equipment revenue................................................
Cost of sales - services and other....................................................
% of Total services and other revenue..................................
Selling, general and administrative expenses.................................
% of Total revenue....................................................................
Research and development expenses.............................................
% of Total revenue....................................................................
Depreciation and amortization..........................................................
Impairment of long-lived asset.........................................................
Total costs and expenses......................................................................
Operating income...................................................................................
Other Income (Expense):
Interest income...................................................................................
Interest expense, net of amounts capitalized.................................
Loss from partial redemption of debt..............................................
Gains (losses) and impairment on marketable investment
securities, net..................................................................................
Equity in earnings of unconsolidated affiliates, net.....................
Other, net.............................................................................................
Total other expense, net........................................................................
Income (loss) before income taxes...................................................
Income tax provision, net..................................................................
Net income...............................................................................................
Less: Net loss attributable to noncontrolling interest in
For the Years
Ended December 31,
2015
2014
Variance
Amount
%
(Dollars in thousands)
$
763,184
358,301
918,301
1,103,928
3,143,714
$
1,145,979
374,049
828,612
1,096,938
3,445,578
$
(382,795)
(15,748)
89,689
6,990
(301,864)
(33.4)
(4.2)
10.8
0.6
(8.8)
948,655
84.6%
856,065
42.3%
374,116
11.9%
78,287
2.5%
528,158
2,400
2,787,681
356,033
10,429
(122,066)
(5,044)
(17,669)
1,895
(2,006)
(134,461)
221,572
(72,201)
149,371
1,288,998
84.8%
838,918
43.6%
372,010
10.8%
60,886
1.8%
556,676
-
3,117,488
328,090
9,102
(171,349)
-
41
8,198
4,251
(149,757)
178,333
(30,784)
147,549
(340,343)
(26.4)
17,147
2,106
2.0
0.6
17,401
28.6
(28,518)
2,400
(329,807)
27,943
1,327
49,283
(5,044)
(17,710)
(6,303)
(6,257)
15,296
43,239
(41,417)
1,822
(5.1)
*
(10.6)
8.5
14.6
(28.8)
*
*
(76.9)
*
(10.2)
24.2
*
1.2
(16.5)
16.4
0.3
HSS Tracking Stock...........................................................................
Less: Net income attributable to other noncontrolling interests...
Net income attributable to EchoStar............................................
(5,603)
1,617
153,357
$
(6,714)
1,389
152,874
$
1,111
228
483
$
Other Data:
EBITDA...................................................................................................
Subscribers, end of period....................................................................
$
865,353
1,035,000
$
902,581
977,000
$
(37,228)
58,000
(4.1)
5.9
* Percentage is not meaningful.
(1) An explanation of our key metrics is included on pages 68 and 69 under the heading “Explanation of Key Metrics and Other Items.”
Equipment revenue – DISH Network. “Equipment revenue – DISH Network” totaled $763.2 million for the year
ended December 31, 2015, a decrease of $382.8 million, or 33.4%, compared to the same period in 2014.
Equipment revenue – DISH Network from our Hughes segment for the year ended December 31, 2015
decreased by $21.2 million, or 66.3%, to $10.8 million compared to the same period in 2014. The decrease
was primarily due to the decrease in the volume of unit sales of broadband equipment to dishNET Satellite
Broadband L.L.C. (“dishNET”). Sales of broadband equipment to dishNET have been decreasing as a
result of a decrease in the unit sales of broadband equipment to dishNET.
46
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - Continued
Equipment revenue – DISH Network from our EchoStar Technologies segment for the year ended
December 31, 2015 decreased by $361.6 million, or 32.5%, to $752.4 million compared to the same period
in 2014. Our EchoStar Technologies segment offers multiple set-top boxes with different price points
depending on their capabilities and functionalities. The revenue and associated margins we earn on sales
are determined largely through a receiver agreement we entered into with DISH Network which could
result in prices reflecting, among other things, the set-top boxes and other equipment that meet DISH
Network’s current sales and marketing priorities, the product and service alternatives available from other
equipment suppliers, our ability to respond to DISH Network’s requirements, and our ability to differentiate
ourselves from other equipment suppliers on bases other than pricing. In addition, products containing new
technologies and features typically have higher initial prices, which reduce over time as a result of
manufacturing efficiencies. Volume of unit sales could reduce over time as a result of demand decreases or
as DISH Network increases the deployment of refurbished units as opposed to new units purchased from
us. The decrease in revenue for the year ended December 31, 2015 was primarily due to a decrease in the
sales of set-top boxes and related accessories. The decrease in revenue of set-top boxes was due to a 41.8%
decrease in the volume of unit sales and a 2.1% decrease in the weighted average price of the set-top boxes
sold. The decrease in revenue of related accessories was due to a 10.1% decrease in the volume of unit
sales and an 8.6% decrease in the weighted average price of related accessories sold.
Equipment revenue – other. “Equipment revenue – other” totaled $358.3 million for the year ended December 31,
2015, a decrease of $15.7 million or 4.2%, compared to the same period in 2014.
Equipment revenue – other from our Hughes segment for the year ended December 31, 2015 increased by
$0.9 million, or 0.4%, to $211.7 million compared to the same period in 2014. The increase was mainly
due to an increase of $5.8 million in sales of broadband equipment to our international customers and
domestic enterprise market, partially offset by a decrease of $5.5 million in sales of broadband equipment
to our domestic consumer market and government projects.
Equipment revenue – other from our EchoStar Technologies segment for the year ended December 31,
2015 decreased by $16.5 million, or 10.1%, to $146.6 million compared to the same period in 2014. The
decrease was attributable to an 11.4% decrease in the volume of unit sales of related accessories, a 7.5%
decrease in the weighted average price of set-top boxes sold primarily to our international customers and a
6.7% decrease in the weighted average price of related accessories.
Services and other revenue – DISH Network. “Services and other revenue – DISH Network” totaled
$918.3 million for the year ended December 31, 2015, an increase of $89.7 million or 10.8%, compared to the same
period in 2014.
Services and other revenue – DISH Network from our Hughes segment for the year ended December 31,
2015 increased by $13.7 million, or 16.9%, to $94.4 million compared to the same period in 2014. The
increase was primarily attributable to an increase in wholesale subscribers receiving services pursuant to
our Distribution Agreement with dishNET.
Services and other revenue – DISH Network from our EchoStar Technologies segment for the year ended
December 31, 2015 increased by $59.6 million, or 18.1%, to $389.0 million compared to the same period in
2014. The increase was primarily due to an increase of $57.0 million in revenue earned for engineering
services related to Sling TV Holding and other projects and satellite uplink/downlink services.
Services and other revenue – DISH Network from our EchoStar Satellite Services segment for the year
ended December 31, 2015 increased by $16.2 million, or 4.0%, to $423.5 million compared to the same
period in 2014. The increase was mainly due to an increase of $26.9 million in revenue recognized from
certain satellite services provided to DISH Network for the five satellites transferred to us from DISH
Network as part of the Satellite and Tracking Stock Transaction. See Note 4 in the notes to consolidated
financial statements in Item 15 of this report for further discussion related to the Satellite and Tracking
Stock Transaction. The increase was partially offset by a decrease of $9.0 million in services provided to
DISH Network on the EchoStar VIII and EchoStar XII satellites.
47
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - Continued
Services and other revenue – other. “Services and other revenue – other” totaled $1.10 billion for the year ended
December 31, 2015, an increase of $7.0 million, or 0.6%, compared to the same period in 2014.
Services and other revenue – other from our Hughes segment for the year ended December 31, 2015
increased by $26.2 million, or 2.6%, to $1.03 billion compared to the same period in 2014. The increase
was primarily attributable to an increase of $54.2 million in sales of broadband services to our domestic
consumer markets, partially offset by a decrease of $24.7 million of broadband services to our international
customers, primarily due to weakening foreign exchange rates in certain markets.
Services and other revenue – other from our EchoStar Technologies segment for the year ended
December 31, 2015 decreased by $10.6 million, or 51.1%, to $10.2 million compared to the same period in
2014. The decrease was primarily attributable to a decrease of $6.1 million in revenue from system
integration services and $4.7 million in revenue from certain non-recurring engineering projects and
services.
Services and other revenue – other from our EchoStar Satellite Services segment for the year ended
December 31, 2015 decreased by $10.0 million, or 13.0%, to $67.1 million compared to the same period in
2014. The decrease was primarily attributable to a decrease in sales of transponder services in 2015
compared to the same period in 2014 due to a decrease in transponders available for sale.
Cost of sales – equipment. “Cost of sales – equipment” totaled $948.7 million for the year ended December 31,
2015, a decrease of $340.3 million, or 26.4%, compared to the same period in 2014.
Cost of sales – equipment from our Hughes segment for the year ended December 31, 2015 decreased by
$13.9 million, or 6.6%, to $195.1 million compared to the same period in 2014. The decrease was
primarily attributable to a decrease in equipment costs related to the decrease in sales volume of broadband
equipment to DISH Network related to our Distribution Agreement with dishNET, partially offset by an
increase in the cost of sales of broadband equipment to our domestic enterprise market.
Cost of sales – equipment from our EchoStar Technologies segment for the year ended December 31, 2015
decreased by $326.4 million, or 30.2%, to $753.5 million compared to the same period in 2014. The
decrease was primarily attributable to a decrease in equipment costs related to the decrease in the volume of
sales of set-top boxes and related accessories sold to DISH Network and a decrease in the volume of sales
of set-top boxes and related accessories to our international customers.
Cost of sales – services and other. “Cost of sales – services and other” totaled $856.1 million for the year ended
December 31, 2015, an increase of $17.1 million, or 2.0%, compared to the same period in 2014.
Cost of sales – services and other from our Hughes segment for the year ended December 31, 2015
decreased by $26.7 million, or 5.5%, to $456.7 million compared to the same period in 2014. The decrease
was primarily attributable to a decrease of $19.2 million in service costs of our broadband services
provided to our international customers primarily due to lower in-country costs denominated in local
currency and a decrease of $3.7 million in the cost of sales related to our domestic broadband services due
to the decrease of third party space segment costs as customers either terminated services or migrated to our
platform.
Cost of sales – services and other from our EchoStar Technologies segment for the year ended
December 31, 2015 increased by $35.8 million, or 14.5%, to $282.2 million compared to the same period in
2014. The increase was primarily due to an increase in support costs related to engineering and uplink
services provided in 2015 compared to the same period in 2014.
Cost of sales – services and other from our EchoStar Satellite Services segment for the year ended
December 31, 2015 increased by $13.5 million, or 23.8%, to $70.2 million compared to the same period in
2014. The increase was primarily due to an increase in cost of sales related to the commencement of the
48
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - Continued
AMC-15 and AMC-16 satellite operating leases in the fourth quarter of 2014 and the first quarter of 2015,
respectively.
Research and development expenses. “Research and development expenses” totaled $78.3 million for the year
ended December 31, 2015, an increase of $17.4 million, or 28.6%, compared to the same period in 2014. The
increase was primarily related to an increase in research and development expense of $6.2 million and $11.2 million
in our Hughes segment and EchoStar Technologies segment, respectively. The Company’s research and
development activities vary based on the activity level and scope of other engineering and customer related
development contracts.
Depreciation and amortization. “Depreciation and amortization” expenses totaled $528.2 million for the year
ended December 31, 2015, a decrease of $28.5 million, or 5.1%, compared to the same period in 2014. The
decrease was primarily attributable to a decrease of $15.0 million in amortization expense from certain of our fully
amortized other intangible assets, a decrease in depreciation expense of $18.5 million relating to the fully
depreciated EchoStar VIII and EchoStar XII satellites and a decrease in depreciation expense of $3.5 million relating
to the expiration of the capital lease for the AMC-15 satellite in December 2014. The decreases were partially offset
by increases in depreciation of $7.9 million from our EchoStar Satellite Services segment, primarily due to the
depreciation of the five satellites we received from DISH Network as part of the Satellite and Tracking Stock
Transaction.
Impairment of long-lived assets. “Impairment of long-lived assets” totaled $2.4 million for the year ended
December 31, 2015, an increase of $2.4 million compared to the same period in 2014, due to the impairment of
certain building and equipment in our EchoStar Technologies segment.
Interest expense, net of amounts capitalized. “Interest expense, net of amounts capitalized” totaled $122.1 million
for the year ended December 31, 2015, a decrease of $49.3 million, or 28.8%, compared to the same period in 2014.
The decrease was primarily due to higher capitalized interest of $40.0 million related to the construction of the
EchoStar XIX, EchoStar XXI, EchoStar XXIII, EchoStar 105/SES-11 and EUTELSAT 65 West A satellites, and a
decrease in interest expense of $7.7 million relating to the partial redemption of $110.0 million of the principal
amount of HSS’ 6 1/2% Senior Secured Notes due 2019 (the “Senior Secured Notes”) in the second quarter of 2015,
the expiration of capital leases for the AMC-15 and AMC-16 satellites, and interest expense relating to two of our
satellites that are accounted for as capital leases.
Loss from partial redemption of debt. “Loss from partial redemption of debt” totaled $5.0 million for the year
ended December 31, 2015, which was due to the loss recorded on the partial redemption of the Senior Secured Notes
in the second quarter of 2015. The $5.0 million loss from the partial redemption of the Senior Secured Notes
included a $3.3 million redemption premium and a $1.7 million write off of related unamortized financing costs.
Gains (losses) and impairment on marketable investment securities, net. “Gains (losses) and impairment on
marketable investment securities, net” totaled $17.7 million in losses for the year ended December 31, 2015, an
increase in loss of $17.7 million compared to the same period in 2014. The increase in loss was primarily due to
other than temporary impairment losses of $11.2 million on certain strategic equity securities in our marketable
investment securities and an increase of $6.5 million in losses on our trading securities.
Equity in earnings of unconsolidated affiliates, net. “Equity in earnings of unconsolidated affiliates, net” totaled
$1.9 million in earnings for the year ended December 31, 2015, a decrease of $6.3 million, or 76.9%, compared to
the same period in 2014. The decrease in earnings is primarily due to a $10.3 million non-recurring adjustment to
increase our equity in earnings of unconsolidated affiliates to reflect an increase from 24.0% to 49.0% in our interest
in Dish Mexico’s inception-to-date net income in 2014 and a net decrease of $6.2 million in our equity of earnings
of certain unconsolidated affiliates in 2015. The decreases were partially offset by a $10.2 million equity in the net
loss of Sling TV Holding in 2014. See Note 6 in the notes to consolidated financial statement in Item 15 of this
report for further discussion of the agreement.
Other, net. “Other, net” totaled $2.0 million in expenses for the year ended December 31, 2015 compared to
$4.3 million in income for the same period in 2014. The decrease of $6.3 million was primarily related to a loss of
$6.8 million attributable to Federal Communications Commission (“FCC”) regulatory fees, a gain of $5.8 million in
49
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - Continued
2014 related to our investment in TerreStar Networks Inc. (“TerreStar”), an increase of $4.7 million in foreign
exchange losses and a loss of $2.6 million related to the deconsolidation of certain of our European subsidiaries in
connection with our investment in SmarDTV. The decrease was partially offset by a $4.8 million gain on an
instrument related to our trading securities, a $4.5 million reduction of the capital lease obligation for the AMC-15
and AMC-16 satellites in the first quarter of 2015 and a gain of $1.7 million on the exchange of accounts receivable
for certain trading securities in the second quarter of 2015.
Earnings before interest, taxes, depreciation and amortization (“EBITDA”). EBITDA was $865.4 million for the
year ended December 31, 2015, a decrease of $37.2 million, or 4.1%, compared to the same period in 2014. Gross
margin, which we define as total revenue less total cost of sales, increased by $21.3 million. There was also a
$4.8 million gain on an instrument related to our trading securities, as well as a $4.5 million reduction of the capital
lease obligation for the AMC-15 and AMC-16 satellites in the first quarter of 2015. These increases in EBITDA
were more than offset by increases in R&D expenses of $17.4 million, $16.1 million of non-recurring gains from
2014, an other-than-temporary impairment loss of $11.2 million on certain strategic equity securities, a loss of $6.8
million attributable to FCC regulatory fees, an increase of $4.7 million in foreign exchange losses, and a loss of $5.0
million from the partial redemption of the Senior Secured Notes. EBITDA is a non-GAAP financial measure and is
described under Explanation of Key Metrics and Other Items below. The following table reconciles EBITDA to
Income before income taxes, the most directly comparable GAAP measure in the accompanying financial
statements.
For the Years
Ended December 31,
2015
2014
Variance
Amount
%
EBITDA............................................................................................
Interest income and expense, net.............................................
Depreciation and amortization..................................................
Net loss attributable to noncontrolling interest in HSS
$
865,353
(111,637)
(528,158)
(Dollars in thousands)
$
$
902,581
(162,247)
(556,676)
(37,228)
50,610
28,518
Tracking Stock and other noncontrolling interests...........
Income before income taxes..............................................
(3,986)
221,572
$
(5,325)
178,333
$
1,339
43,239
$
(4.1)
(31.2)
(5.1)
(25.1)
24.2
Income tax provision, net. Income tax expense was $72.2 million for the year ended December 31, 2015, compared
to $30.8 million for the same period in 2014. Our effective income tax rate was 32.6% for the year ended
December 31, 2015 compared to 17.3% for the same period in 2014. The variation in our current year effective tax
rate from the U.S. federal statutory rate was primarily due to research and experimentation tax credits. For the same
period in 2014, the variation in our effective tax rate from the U.S. federal statutory rate was primarily due to
research and experimentation tax credits and a lower state effective tax rate.
Net income attributable to EchoStar. Net income attributable to EchoStar was $153.4 million for the year ended
December 31, 2015, an increase of $0.5 million, or 0.3%, compared to the same period in 2014. The increase was
primarily due to a decrease in interest expense of $49.3 million related to capitalization of interest expense
associated with the construction of certain of our satellites, the partial redemption of the Senior Secured Notes, the
expiration of capital leases for the AMC-15 and AMC-16 satellites, and interest expense relating to two of our
satellites that are accounted for as capital leases, and an increase in operating income, including depreciation and
amortization, of $27.9 million. The increases were partially offset by an increase of $41.4 million in income tax
expense, an other-than-temporary impairment loss of $11.2 million on certain strategic equity securities in our
marketable investment securities, offset partially by a $4.8 million gain on an instrument related to our trading
securities, a $10.3 million non-recurring adjustment to increase our equity in earnings of unconsolidated affiliates to
reflect an increase from 24.0% to 49.0% in our interest in Dish Mexico’s inception-to-date net income in 2014, a
loss of $6.8 million attributable to FCC regulatory fees, a gain of $5.8 million in 2014 related to our investment in
TerreStar and a loss of $5.0 million from the partial redemption of the Senior Secured Notes.
50
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - Continued
Segment Operating Results and Capital Expenditures
Year Ended December 31, 2015 Compared to the Year Ended December 31, 2014
Hughes
EchoStar
Technologies
EchoStar
Satellite
Services
(In thousands)
All
Other and
Eliminations
Consolidated
Total
$
$
$
1,347,340
285,499
396,684
$
$
$
1,298,198
50,593
106,745
$
$
$
490,591
101,215
412,607
$
$
$
7,585
266,213
(50,683)
$
$
$
3,143,714
703,520
865,353
$
$
$
1,327,718
218,607
356,871
$
$
$
1,627,366
48,616
154,786
$
$
$
484,455
28,734
419,442
$
$
$
6,039
384,069
(28,518)
$
$
$
3,445,578
680,026
902,581
For the Year Ended December 31, 2015
Total revenue................................................
Capital expenditures.....................................
EBITDA.........................................................
For the Year Ended December 31, 2014
Total revenue................................................
Capital expenditures.....................................
EBITDA.........................................................
Hughes Segment
For the Years Ended December 31,
Variance
2015
2014
Amount
%
(Dollars in thousands)
Total revenue...........................
Capital expenditures...............
EBITDA....................................
$
$
$
1,347,340
285,499
396,684
$
$
$
1,327,718
218,607
356,871
$
$
$
19,622
66,892
39,813
1.5
30.6
11.2
Revenue
Hughes segment total revenue for the year ended December 31, 2015 increased by $19.6 million, or 1.5%, compared
to the same period in 2014. The increase was primarily due to an increase of $70.5 million in revenue related to
sales of broadband services to our consumer markets and dishNET. These increases were partially offset by a
decrease of $24.7 million of broadband services to our international customers primarily due to weakening foreign
exchange rates in certain markets and a decrease of $21.2 million in sales of broadband equipment to dishNET.
Capital Expenditures
Hughes segment capital expenditures for the year ended December 31, 2015 increased by $66.9 million, or 30.6%,
compared to the same period in 2014, primarily as a result of an increase in expenditures on satellite ground
infrastructures and the EUTELSAT 65 West A satellite.
EBITDA
Hughes segment EBITDA for the year ended December 31, 2015 was $396.7 million, an increase of $39.8 million,
or 11.2%, compared to the same period in 2014. The increase was primarily driven by an increase of $66.6 million
in gross margin primarily related to an increase in sales of broadband services to our consumer market and dishNET,
offset partially by a decrease in broadband services to our international market, $11.3 million increase in selling,
general and administrative expenses, and a $6.2 million increase in research and development expenses.
51
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - Continued
EchoStar Technologies Segment
For the Years Ended December 31,
Variance
2015
2014
Amount
%
(Dollars in thousands)
Total revenue...........................
Capital expenditures...............
EBITDA....................................
$
$
$
1,298,198
50,593
106,745
$
$
$
1,627,366
48,616
154,786
$
$
$
(329,168)
1,977
(48,041)
(20.2)
4.1
(31.0)
Revenue
EchoStar Technologies segment total revenue for the year ended December 31, 2015 decreased by $329.2 million, or
20.2%, compared to the same period in 2014, primarily resulting from a decrease of $361.6 million in equipment
revenue from DISH Network, a decrease of $16.5 million in equipment revenue - other and a decrease of
$10.6 million in service revenue – other, partially offset by an increase of $59.6 million in service revenue from
DISH Network.
Capital Expenditures
EchoStar Technologies segment capital expenditures for the year ended December 31, 2015 increased by
$2.0 million, or 4.1%, compared to the same period in 2014, primarily due to increased expenditures related to the
support of our Move Networks business of $5.3 million and engineering services of $0.7 million, partially offset by
a decrease in expenditures related to our digital broadcast centers of $5.0 million.
EBITDA
EchoStar Technologies segment EBITDA for the year ended December 31, 2015 was $106.7 million, a decrease of
$48.0 million, or 31.0%, compared to the same period in 2014. The decrease in EBITDA for our EchoStar
Technologies segment was primarily driven by a decrease of $38.6 million in gross margin primarily as a result of
the decrease in sales of set-top boxes and related accessories to DISH Network. The decrease in EBITDA was also
the result of an increase of $11.2 million in research and development expense, a loss of $2.6 million related to the
deconsolidation of certain of our European subsidiaries in connection with our investment in SmarDTV and an
impairment loss of $2.4 million on certain building and equipment. The decreases were partially offset by a
$9.4 million decrease in selling, general and administrative expenses.
EchoStar Satellite Services Segment
For the Years Ended December 31,
Variance
2015
2014
Amount
%
(Dollars in thousands)
Total revenue...........................
Capital expenditures...............
EBITDA....................................
$
$
$
490,591
101,215
412,607
$
$
$
484,455
28,734
419,442
$
$
$
6,136
72,481
(6,835)
1.3
*
(1.6)
Revenue
EchoStar Satellite Services segment total revenue for the year ended December 31, 2015 increased by $6.1 million,
or 1.3%, compared to the same period in 2014, primarily due to an increase of $16.2 million in service revenue
primarily related to satellite services provided to DISH Network on the five satellites we received as part of the
Satellite and Tracking Stock Transaction, partially offset by a decrease of $10.0 million in service revenue – other
attributable to a decrease in sales of transponder services due to a decrease in transponders available for sale.
52
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - Continued
Capital Expenditures
EchoStar Satellite Services segment capital expenditures for the year ended December 31, 2015 increased by
$72.5 million, compared to the same period in 2014, primarily related to the increase in expenditures on the
EchoStar 105/SES-11 satellite.
EBITDA
EchoStar Satellite Services segment EBITDA for the year ended December 31, 2015 was $412.6 million, a decrease
of $6.8 million, or 1.6%, compared to the same period in 2014. The decrease in EBITDA for our EchoStar Satellite
Services segment was primarily due to an increase in cost of sales – services of $13.5 million primarily related to the
commencement of the AMC-15 and AMC-16 satellite operating leases in the fourth quarter of 2014 and the first
quarter of 2015, respectively, partially offset by an increase in service revenue.
All Other and Eliminations
All Other and Eliminations accounts for certain items and activities in our consolidated financial statements that
have not been assigned to our operating segments. These include without limitation real estate and other activities,
costs incurred in satellite development programs and other business development activities, expenses of various
corporate departments, and our centralized treasury activities, including without limitation income from our
investment portfolio and interest expense on our debt.
For the Years Ended December 31,
Variance
2015
2014
Amount
%
Total revenue...........................
Capital expenditures...............
EBITDA....................................
$
$
$
7,585
266,213
(50,683)
Capital Expenditures
(Dollars in thousands)
6,039
384,069
(28,518)
$
$
$
$
$
$
1,546
(117,856)
(22,165)
25.6
(30.7)
77.7
For the year ended December 31, 2015, All Other and Eliminations capital expenditures decreased by
$117.9 million, or 30.7%, compared to the same period in 2014, primarily related to a $105.8 million refund relating
to the cancellation of an existing launch services agreement and a decrease in satellite expenditures on the EchoStar
XIX satellite of $149.0 million and the EchoStar XXI satellite of $43.5 million, partially offset by the increase in
satellite expenditures on the EchoStar XXIII satellite of $73.5 million. The EchoStar XIX satellite is expected to be
used in the operations of our Hughes segment in providing satellite broadband services, the EchoStar XXI satellite is
intended to be used by EchoStar Mobile in providing MSS in the EU, and the EchoStar XXIII satellite will be
deployed at the 45 degree west longitude orbital location providing services in Brazil.
EBITDA
For the year ended December 31, 2015, All Other and Eliminations EBITDA was a loss of $50.7 million, compared
a loss of $28.5 million for the same period in 2014. The $22.2 million decrease in EBITDA was primarily related to
$16.1 million of non-recurring gains from 2014, an other-than-temporary impairment loss of $11.2 million on
certain strategic equity securities in our marketable investment securities, offset partially by a $4.8 million gain on
an instrument related to our trading securities, and a loss of $5.0 million from the partial redemption of the Senior
Secured Notes. The decreases were partially offset by a decrease of $6.9 million in cost of sales relating to
termination of satellite services on the EchoStar XV satellite from DISH Network in November 2015.
53
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - Continued
Year Ended December 31, 2014 Compared to the Year Ended December 31, 2013
Statements of Operations Data (1)
Revenue:
Equipment revenue - DISH Network...............................................
Equipment revenue - other................................................................
Services and other revenue - DISH Network.................................
Services and other revenue - other..................................................
Total revenue..........................................................................................
Costs and Expenses:
Cost of sales - equipment..................................................................
% of Total equipment revenue................................................
Cost of sales - services and other....................................................
% of Total services and other revenue..................................
Selling, general and administrative expenses................................
% of Total revenue....................................................................
Research and development expenses.............................................
% of Total revenue....................................................................
Depreciation and amortization..........................................................
Impairment of long-lived assets.......................................................
Total costs and expenses......................................................................
Operating income...................................................................................
Other Income (Expense):
Interest income...................................................................................
Interest expense, net of amounts capitalized.................................
Gains on marketable investment securities, net.............................
Equity in earnings (losses) of unconsolidated affiliates, net......
Other, net.............................................................................................
Total other expense, net........................................................................
Income (loss) before income taxes...................................................
Income tax benefit (provision), net..................................................
Net income...............................................................................................
Less: Net loss attributable to noncontrolling interest in
For the Years
Ended December 31,
2014
2013
Variance
Amount
%
(Dollars in thousands)
$
1,145,979
374,049
828,612
1,096,938
3,445,578
$
1,311,446
347,910
620,189
1,002,907
3,282,452
$
(165,467)
26,139
208,423
94,031
163,126
(12.6)
7.5
33.6
9.4
5.0
1,288,998
84.8%
838,918
43.6%
372,010
10.8%
60,886
1.8%
556,676
-
3,117,488
328,090
9,102
(171,349)
41
8,198
4,251
(149,757)
178,333
(30,784)
147,549
1,430,777
86.2%
776,121
47.8%
358,499
10.9%
67,942
2.1%
507,111
38,415
3,178,865
103,587
14,656
(192,554)
38,341
(5,024)
6,958
(137,623)
(34,036)
37,437
3,401
(141,779)
(9.9)
62,797
13,511
8.1
3.8
(7,056)
(10.4)
49,565
(38,415)
(61,377)
224,503
9.8
(100.0)
(1.9)
*
(5,554)
21,205
(38,300)
13,222
(2,707)
(12,134)
212,369
(68,221)
144,148
(37.9)
(11.0)
(99.9)
*
(38.9)
8.8
*
*
*
*
58.6
*
38.8
13.6
HSS Tracking Stock...........................................................................
Less: Net income attributable to other noncontrolling interests...
Net income attributable to EchoStar............................................
(6,714)
1,389
152,874
$
-
876
2,525
$
(6,714)
513
150,349
$
Other Data:
EBITDA...................................................................................................
Subscribers, end of period....................................................................
$
902,581
977,000
$
650,097
860,000
$
252,484
117,000
* Percentage is not meaningful.
(1) An explanation of our key metrics is included on pages 68 and 69 under the heading “Explanation of Key Metrics and Other Items.”
Equipment revenue – DISH Network. “Equipment revenue – DISH Network” totaled $1.15 billion for the year
ended December 31, 2014, a decrease of $165.5 million, or 12.6%, compared to the same period in 2013.
Equipment revenue – DISH Network from our Hughes segment for the year ended December 31, 2014
decreased $37.2 million, or 53.8%, to $31.9 million compared to the same period in 2013. The decrease
was primarily due to the decrease in the unit sales of broadband equipment to dishNET.
54
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - Continued
Equipment revenue – DISH Network from our EchoStar Technologies segment for the year ended
December 31, 2014 decreased by $128.3 million, or 10.3%, to $1.11 billion compared to the same period in
2013. Our EchoStar Technologies segment offers multiple set-top boxes with different price points
depending on their capabilities and functionalities. The revenue and associated margins we earn on sales
are determined largely through a receiver agreement we entered into with DISH Network which could
result in prices reflecting, among other things, the set-top boxes and other equipment that meet DISH
Network’s current sales and marketing priorities, the product and service alternatives available from other
equipment suppliers, our ability to respond to DISH Network’s requirements, and our ability to differentiate
ourselves from other equipment suppliers on bases other than pricing. In addition, products containing new
technologies and features typically have higher initial prices, which reduce over time as a result of
manufacturing efficiencies, demand decreases or as DISH Network’s demand changes for new or
refurbished units. The decrease in revenue for the year ended December 31, 2014 was primarily due to
both the sale of set-top boxes and related accessories. In set-top boxes, the decrease was due to a 15.0%
decrease in the weighted average price offset by a 4.3% increase in the unit sales. In related accessories,
the decrease was due to a 13.5% decrease in unit sales partially offset by a 5.4% increase in the weighted
average price.
Equipment revenue – other. “Equipment revenue – other” totaled $374.0 million for the year ended December 31,
2014, an increase of $26.1 million or 7.5%, compared to the same period in 2013.
Equipment revenue – other from our Hughes segment for the year ended December 31, 2014 increased by
$16.1 million, or 8.3%, to $210.8 million compared to the same period in 2013. The increase was mainly
due to a $27.2 million increase in sales of telecom systems equipment and a $4.8 million increase in sales
to international enterprise customers, partially offset by a decrease in sales of broadband equipment of
$15.5 million primarily due to lower sales to our consumer and domestic enterprise markets.
Equipment revenue – other from our EchoStar Technologies segment for the year ended December 31,
2014 increased $10.0 million, or 6.5%, to $163.1 million compared to the same period in 2013. The
increase was attributable to an increase of 64.1% in unit sales of set-top boxes and an increase of 74.3% in
sales of related accessories to our international customers. The increase was partially offset by a 41.9%
decrease in the weighted average price of set-top boxes and a 20.1% decrease in the weighted average price
of related accessories. The decrease in the average price per unit was due to the high volume of
remanufactured products and the mix of product models purchased by our international customers and the
renewal of certain customer contracts at lower contract prices with volume commitments.
Services and other revenue – DISH Network. “Services and other revenue – DISH Network” totaled
$828.6 million for the year ended December 31, 2014, an increase of $208.4 million or 33.6%, compared to the
same period in 2013.
Services and other revenue – DISH Network from our Hughes segment for the year ended December 31,
2014 increased by $36.0 million, or 80.4%, to $80.8 million compared to the same period in 2013. The
increase was primarily attributable to an increase in wholesale subscribers receiving services pursuant to
our Distribution Agreement with dishNET.
Services and other revenue – DISH Network from our EchoStar Technologies segment for the year ended
December 31, 2014 increased by $10.8 million, or 3.4%, to $329.4 million compared to the same period in
2013. The increase was primarily due to an increase of $9.9 million related to application development for
set-top boxes sold to DISH Network.
Services and other revenue – DISH Network from our EchoStar Satellite Services segment for the year
ended December 31, 2014 increased by $160.1 million, or 64.8%, to $407.2 million compared to the same
period in 2013. The increase was mainly due to an increase of $147.9 million in revenue recognized from
certain satellite services provided to DISH Network from the five satellites transferred to us from DISH
Network as part of the Satellite and Tracking Stock Transaction and an increase of $15.7 million from the
renewal of our satellite services agreement related to services provided by the EchoStar VIII satellite to
DISH Network that expired in the first quarter of 2013 and was renewed in the second quarter of 2013.
55
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - Continued
The increases were offset partially by a decrease of $3.5 million attributable to the amended telemetry,
tracking and control (“TT&C”) agreement where we no longer provide TT&C services to DISH Network
on the five satellites transferred to us from DISH Network as part of the Satellite and Tracking Stock
Transaction.
Services and other revenue – other. “Services and other revenue – other” totaled $1.10 billion for the year ended
December 31, 2014, an increase of $94.0 million or 9.4%, compared to the same period in 2013.
Services and other revenue – other from our Hughes segment for the year ended December 31, 2014
increased by $94.6 million, or 10.4%, to $1.00 billion compared to the same period in 2013. The increase
was primarily attributable to an increase in sales of broadband services to our consumer and international
customers.
Services and other revenue – other from our EchoStar Technologies segment for the year ended
December 31, 2014 increased by $4.0 million, or 23.7%, to $20.8 million compared to the same period in
2013. The increase was primarily attributable to an increase of $5.4 million for system integration
solutions, offset partially by a decrease of $1.8 million attributable to nonrecurring engineering projects and
licenses.
Services and other revenue– other from our EchoStar Satellite Services segment for the year ended
December 31, 2014, decreased by $5.8 million, or 7.0%, to $77.1 million compared to the same period in
2013. The decrease was mainly due to a decrease of $5.4 million in sales of uplink services in 2014
compared to the same period in 2013.
Cost of sales – equipment. “Cost of sales – equipment” totaled $1.29 billion for the year ended December 31, 2014,
a decrease of $141.8 million, or 9.9%, compared to the same period in 2013.
Cost of sales – equipment from our Hughes segment for the year ended December 31, 2014 decreased by
$28.1 million, or 11.8%, to $209.0 million compared to the same period in 2013. The decrease was
primarily attributable to reductions in (i) equipment costs of $28.6 million resulting from lower sales of
broadband equipment to dishNET and (ii) equipment development costs of $6.0 million for DISH Network
as compared to the same period in 2013. These decreases were partially offset by higher equipment costs
associated with the increase in sales of broadband equipment to our international enterprise customers and
telecom systems equipment.
Cost of sales – equipment from our EchoStar Technologies segment for the year ended December 31, 2014
decreased by $113.8 million, or 9.5%, to $1.08 billion compared to the same period in 2013. The decrease
was primarily attributable to a decrease in equipment costs of $120.5 million related to the decrease in sales
of set-top boxes and related accessories to DISH Network, offset partially by an increase of $7.8 million in
cost of sales related to the increase in sales of set-top boxes and related accessories to our international
customers.
Cost of sales – services and other. “Cost of sales – services and other” totaled $838.9 million for the year ended
December 31, 2014, an increase of $62.8 million, or 8.1%, compared to the same period in 2013.
Cost of sales – services and other from our Hughes segment for the year ended December 31, 2014
increased by $33.2 million, or 7.4%, to $483.4 million compared to the same period in 2013. The increase
was primarily attributable to an increase in sales of broadband services to our consumer and international
customers.
Cost of sales – services and other from our EchoStar Technologies segment for the year ended
December 31, 2014 increased by $12.3 million, or 5.2%, to $246.4 million compared to the same period in
2013. The increase was primarily due to an increase in support costs of $17.9 million related to
engineering and uplink services provided in 2014 compared to the same period in 2013, offset partially by a
decrease in system integration solutions costs of $5.3 million.
56
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - Continued
Cost of sales – services and other related to our other operations and satellite development activities for the
year ended December 31, 2014 increased by $18.0 million, or 36.6%, to $67.3 million compared to the
same period in 2013. The increase was primarily due to our acquisition of satellite services on the
EchoStar XV satellite from DISH Network in May 2013.
Selling, general and administrative expenses. “Selling, general and administrative expenses” totaled
$372.0 million for the year ended December 31, 2014, an increase of $13.5 million, or 3.8%, compared to the same
period in 2013. The increase was mainly due to a $16.4 million increase in marketing expenses primarily in our
Hughes segment and an increase of $1.8 million in professional fees, offset partially by a $4.0 million decrease in
personnel and other employee-related expenses.
Research and development expenses. “Research and development expenses” totaled $60.9 million for the year
ended December 31, 2014, a decrease of $7.1 million or 10.4%, compared to the same period in 2013. The decrease
was primarily due to reductions of research and development related activities in our Hughes segment and EchoStar
Technologies segment of $1.7 million and $5.4 million, respectively. The Company’s research and development
activities vary based on the activity level and scope of other engineering and customer related development
contracts. Additionally, the decrease in research and development expenses in our Hughes segment was primarily
due to a $6.1 million increase in the development of software projects for products and features to be marketed or
sold to customers that were eligible to be capitalized. Research and development expenses within our EchoStar
Technologies segment decreased primarily due to an increased amount of customer funded projects, which is
included in cost of sales.
Depreciation and amortization. “Depreciation and amortization” expense totaled $556.7 million for the year ended
December 31, 2014, an increase of $49.6 million or 9.8%, compared to the same period in 2013. The increase was
primarily related to an increase in depreciation of $39.7 million from our EchoStar Satellite Services segment,
primarily due to the depreciation of the five satellites we received from DISH Network as part of the Satellite and
Tracking Stock Transaction, an increase in depreciation of $18.6 million associated with customer rental equipment
from our Hughes segment, and an increase of $4.5 million in amortization expense for the regulatory authorizations
with finite useful lives. The increase in depreciation and amortization was partially offset by a decrease in
depreciation of $5.7 million due to the impairment of the EchoStar XII satellite’s carrying amount that occurred in
the second quarter of 2013, a decrease in depreciation of $3.7 million attributable to the EchoStar VIII satellite as it
was fully depreciated as of September 2014 and a decrease in depreciation of $3.3 million relating to the retirement
of certain machinery and equipment.
Impairment of long-lived assets. “Impairment of long-lived assets” totaled zero for the year ended December 31,
2014, a decrease of $38.4 million, compared to the same period in 2013, due to the impairment of our EchoStar XII
satellite of $34.7 million in June 2013 and a $3.8 million impairment of goodwill of our EchoStar Technologies
segment in December 2013. See Note 10 in the notes to consolidated financial statements for further discussion of
the impairment in the second quarter of 2013.
Interest expense, net of amounts capitalized. “Interest expense, net of amounts capitalized” totaled $171.3 million
for the year ended December 31, 2014, a decrease of $21.2 million, or 11.0%, compared to the same period in 2013.
The decrease was due to higher capitalized interest of $19.8 million associated with the construction of our
EchoStar XIX, EchoStar XXI, EchoStar XXIII and EUTELSAT 65 West A satellites in the year ended December 31,
2014 compared to the same period in 2013.
Gains on marketable investment securities, net. “Gains on marketable investment securities, net” totaled
$41.3 thousand for the year ended December 31, 2014, a decrease of $38.3 million, compared to the same period in
2013. The decrease was primarily related to a gain of $35.9 million recognized from the sale of a strategic
investment in a public company in 2013 and a gain of $2.6 million that resulted from the conversion of one of our
investments into a marketable investment security in 2013.
Equity in earnings (losses) of unconsolidated affiliates, net. “Equity in earnings (losses) of unconsolidated
affiliates, net” totaled $8.2 million for the year ended December 31, 2014, an increase of $13.2 million, compared to
the same period in 2013. The increase was primarily related to a $10.3 million non-recurring adjustment to increase
our equity in earnings of Dish Mexico to reflect an increase from 24.0% to 49.0% in our interest in Dish Mexico’s
57
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - Continued
inception-to-date net income, offset partially by a $5.6 million increase in equity in losses in Dish Mexico when
compared to the same period in 2013. In addition, the increase was also attributable to the decrease in equity in
losses of $6.4 million from our investment in Sling TV Holding, due to our exchange of our one-third voting interest
in Sling TV Holding which we accounted for using the equity method, for a 10.0% non-voting interest in Sling TV
Holding, which we account for using the cost method beginning in August 2014. See Note 6 in the notes to
consolidated financial statements for more information regarding our investment in Dish Mexico and Sling TV
Holding.
Other, net. “Other, net” totaled $4.3 million for the year ended December 31, 2014, a decrease of $2.7 million, or
38.9%, compared to the same period in 2013. The decrease was primarily attributable to a non-recurring gain of
$6.7 million in 2013 resulting from a reduction of the capital lease obligation for the AMC-16 satellite and a gain of
$2.6 million in connection with the settlement of certain accounts receivables in 2013. This decrease was partially
offset by a gain of $5.8 million in 2014 related to our investment in TerreStar. See Note 6 in the notes to
consolidated financial statements for further discussion of our investment in TerreStar.
Earnings before interest, taxes, depreciation and amortization. EBITDA was $902.6 million for the year ended
December 31, 2014, an increase of $252.5 million, or 38.8%, compared to the same period in 2013. The increase
was primarily due to an increase in operating income, excluding depreciation and amortization and the net loss
attributable to noncontrolling interests, of $280.3 million, an increase of $13.2 million in equity from earnings of
unconsolidated affiliates, net and a gain of $5.8 million related to our investment in TerreStar for the year ended
December 31, 2014. The increase was partially offset by a gain of $35.9 million recognized from the sale of a
strategic investment in a public company in 2013, a non-recurring gain of $6.7 million recognized in 2013 resulting
from a reduction of the capital lease obligation for the AMC-16 satellite, a gain of $2.6 million that resulted from the
conversion of one of our investments into a marketable investment security in 2013 and a gain of $2.6 million in
connection with the settlement of certain accounts receivables in 2013. EBITDA is a non-GAAP financial measure
and is described under Explanation of Key Metrics and Other Items below. The following table reconciles EBITDA
to Income (loss) before income taxes, the most directly comparable GAAP measure in the accompanying financial
statements.
For the Years
Ended December 31,
2014
2013
Variance
Amount
%
EBITDA............................................................................................
Interest income and expense, net ............................................
Depreciation and amortization..................................................
Net loss attributable to noncontrolling interest in HSS
$
902,581
(162,247)
(556,676)
(Dollars in thousands)
$
$
650,097
(177,898)
(507,111)
252,484
15,651
(49,565)
38.8
(8.8)
9.8
Tracking Stock and other noncontrolling interests...........
Income (loss) before income taxes...................................
(5,325)
178,333
$
876
(34,036)
$
(6,201)
212,369
$
*
*
*Percentage is not meaningful.
Income tax benefit (provision), net. Income tax expense was $30.8 million for the year ended December 31, 2014,
compared to an income tax benefit of $37.4 million for the same period in 2013. Our effective income tax rate was
17.3% for the year ended December 31, 2014 compared to 110.0% for the same period in 2013. The variation in our
current year effective tax rate from a U.S. federal statutory rate for the current period was primarily due to changes
of our valuation allowance associated with realized and unrealized losses that are capital in nature, research and
experimentation tax credits, and a lower state effective tax rate. For the same period in 2013, the variation in our
effective tax rate from a U.S. federal statutory rate was primarily due to the decrease of our valuation allowance
associated with realized and unrealized losses that are capital in nature, current year research and experimentation
tax credits, and reinstatement of the research and experimentation tax credit for 2012, as provided by the American
Taxpayer Relief Act enacted on January 2, 2013.
58
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - Continued
Net income (loss) attributable to EchoStar. Net income attributable to EchoStar was $152.9 million for the year
ended December 31, 2014, an increase of $150.3 million, compared to the same period in 2013. The increase was
primarily due to higher operating income, including depreciation and amortization, of $224.5 million, an increase in
capitalized interest of $19.8 million associated with the construction of the EchoStar XIX, EchoStar XXI,
EchoStar XXIII and EUTELSAT 65 West A satellites, an increase of $13.2 million in equity in earnings of
unconsolidated affiliates, net, and an increase of $6.7 million in the net loss attributable to noncontrolling interest in
HSS Tracking Stock. The increase in “Net income attributable to EchoStar” was partially offset by a decrease of
$68.2 million in income tax benefit, a gain of $35.9 million recognized from the sale of a strategic investment in a
public company in 2013, a non-recurring gain of $6.7 million resulting from a reduction of the capital lease
obligation for the AMC-16 satellite in 2013, and a decrease of $5.6 million in interest income due to lower market
interest rates.
Segment Operating Results and Capital Expenditures
Year Ended December 31, 2014 Compared to the Year Ended December 31, 2013
Hughes
EchoStar
Technologies
EchoStar
Satellite
Services
(In thousands)
All
Other and
Eliminations
Consolidated
Total
$
$
$
1,327,718
218,607
356,871
$
$
$
1,627,366
48,616
154,786
$
$
$
484,455
28,734
419,442
$
$
$
6,039
384,069
(28,518)
$
$
$
3,445,578
680,026
902,581
$
$
$
1,218,126
186,561
281,513
$
$
$
1,730,845
56,935
136,537
$
$
$
330,177
12,700
235,993
$
$
$
3,304
135,677
(3,946)
$
$
$
3,282,452
391,873
650,097
For the Year Ended December 31, 2014
Total revenue................................................
Capital expenditures.....................................
EBITDA.........................................................
For the Year Ended December 31, 2013
Total revenue................................................
Capital expenditures.....................................
EBITDA.........................................................
Hughes Segment
For the Years Ended December 31,
Variance
2014
2013
Amount
%
(Dollars in thousands)
Total revenue...........................
Capital expenditures...............
EBITDA....................................
$
$
$
1,327,718
218,607
356,871
$
$
$
1,218,126
186,561
281,513
$
$
$
109,592
32,046
75,358
9.0
17.2
26.8
Revenue
Hughes segment total revenue for the year ended December 31, 2014 increased by $109.6 million, or 9.0%,
compared to the same period in 2013, primarily due to an increase in service revenue of $94.6 million mainly
attributable to an increase in sales of broadband services to our consumer and international customers, an increase of
$36.0 million in service revenue from DISH Network as a result of the increase in wholesale subscribers on
dishNET and an increase in other equipment revenue of $16.1 million. The increase in revenue was partially offset
by a decrease in equipment revenue from DISH Network of $37.2 million.
Capital Expenditures
Hughes segment capital expenditures for the year ended December 31, 2014 increased by $32.0 million, or 17.2%,
compared to the same period in 2013, primarily due to an increase in expenditures related to EUTELSAT 65 West A
and satellite ground infrastructure. Capital expenditures for the construction and launch of the EchoStar XIX
satellite are reported in “All Other and Eliminations” in our segment reporting.
59
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - Continued
EBITDA
Hughes segment EBITDA for the year ended December 31, 2014 was $356.9 million, an increase of $75.4 million
or 26.8%, compared to the same period in 2013. The increase was primarily attributable to a $104.6 million increase
in gross margin, partially offset by a $26.0 million increase in selling, general and administrative expenses and a
gain of $2.6 million in connection with the settlement of certain accounts receivables in 2013.
EchoStar Technologies Segment
For the Years Ended December 31,
Variance
2014
2013
Amount
%
(Dollars in thousands)
Total revenue...........................
Capital expenditures...............
EBITDA....................................
$
$
$
1,627,366
48,616
154,786
$
$
$
1,730,845
56,935
136,537
$
$
$
(103,479)
(8,319)
18,249
(6.0)
(14.6)
13.4
Revenue
EchoStar Technologies segment total revenue for the year ended December 31, 2014 decreased by $103.5 million, or
6.0%, compared to the same period in 2013, primarily resulting from a decrease of $128.3 million in equipment
revenue earned from DISH Network, offset partially by a $10.8 million increase in service revenue from DISH
Network, an increase of $10.0 million in other equipment revenue and a $4.0 million increase in other service
revenue.
Capital Expenditures
EchoStar Technologies segment capital expenditures for the year ended December 31, 2014 decreased by
$8.3 million, or 14.6%, compared to the same period in 2013, primarily due to a decrease of $7.5 million in
expenditures related to our digital broadcast center.
EBITDA
EchoStar Technologies segment EBITDA for the year ended December 31, 2014 was $154.8 million, an increase of
$18.2 million or 13.4%, compared to the same period in 2013. The increase in EBITDA for our EchoStar
Technologies segment was primarily driven by a decrease of $14.1 million in selling, general and administrative
expenses, a decrease of $5.4 million in research and development, and a decrease of $3.8 million in impairment of
goodwill, partially offset by a $2.0 million decrease in gross margin and an increase of $2.6 million in foreign
exchange losses.
EchoStar Satellite Services Segment
For the Years Ended December 31,
Variance
2014
2013
Amount
%
(Dollars in thousands)
Total revenue...........................
Capital expenditures...............
EBITDA....................................
$
$
$
484,455
28,734
419,442
$
$
$
330,177
12,700
235,993
$
$
$
154,278
16,034
183,449
46.7
*
77.7
Revenue
EchoStar Satellite Services segment total revenue for the year ended December 31, 2014 increased by
$154.3 million, or 46.7%, compared to the same period in 2013, due to a $154.3 million increase in service revenue,
primarily related to satellite services provided to DISH Network on the satellites received as part of the Satellite and
Tracking Stock Transaction.
60
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - Continued
Capital Expenditures
EchoStar Satellite Services segment capital expenditures for the year ended December 31, 2014 increased by
$16.0 million, compared to the same period in 2013, primarily due to an increase in the satellite expenditures related
to the EchoStar 105/SES-11 satellite of $28.5 million in 2014, partially offset by a decrease in satellite expenditures
related to the EchoStar XVI satellite of $12.3 million in 2013. Capital expenditures for our EchoStar XXI and
EchoStar XXIII satellite programs are reported in our corporate and other activities.
EBITDA
EchoStar Satellite Services segment EBITDA for the year ended December 31, 2014 was $419.4 million, an increase
of $183.4 million or 77.7%, compared to the same period in 2013. The increase in EBITDA for our EchoStar
Satellite Services segment was primarily attributable to an increase of $154.4 million in gross margin and a
$34.7 million decrease in loss on impairments due to the impairment of our EchoStar XII satellite in June 2013. The
increase was partially offset by a non-recurring gain of $6.7 million in 2013 resulting from a reduction of the capital
lease obligation for the AMC-16 satellite.
All Other and Eliminations
Capital Expenditures
For the year ended December 31, 2014, All Other and Eliminations capital expenditures increased by $248.4 million
compared to the same period in 2013, primarily related to the increase in satellite expenditures on the EchoStar XXI
satellite of $103.4 million, the EchoStar XIX satellite of $102.7 million, and the EchoStar XXIII satellite of
$48.1 million. The increases in satellite expenditures were partially offset by a $4.8 million expenditure related to a
launch contract in 2013. The EchoStar XIX satellite is expected to be used in the operations of our Hughes segment
and the EchoStar XXI satellite is intended to be used by Solaris Mobile in providing MSS in the EU. The
EchoStar XXIII satellite is expected to launch in the third quarter of 2016 and will be deployed at 45 degree west
longitude orbital location.
EBITDA
For the year ended December 31, 2014, All Other and Eliminations EBITDA was a loss of $28.5 million, compared
to a loss of $3.9 million for the same period in 2013. The $24.6 million decrease in EBITDA was primarily due to a
gain of $35.9 million recognized from the sale of a strategic investment in a public company in 2013 and an increase
of $15.7 million in cost of sales relating to our acquisition of satellite services on the EchoStar XV satellite from
DISH Network in May 2013, which has not been assigned to any of our segments, offset partially by an increase of
$13.2 million in equity in earnings of unconsolidated affiliates, net, an increase of $6.7 million in the net loss
attributable to noncontrolling interest in HSS Tracking Stock and a gain of $5.8 million related to our investment in
TerreStar.
LIQUIDITY AND CAPITAL RESOURCES
Cash, Cash Equivalents and Current Marketable Investment Securities
We consider all liquid investments purchased with an original maturity of 90 days or less to be cash equivalents.
See Item 7A. – Quantitative and Qualitative Disclosures about Market Risk in this Annual Report on Form 10-K for
further discussion regarding our marketable investment securities. As of December 31, 2015, our cash, cash
equivalents and current marketable investment securities totaled $1.54 billion compared to $1.69 billion as of
December 31, 2014, a decrease of $151.6 million.
As of December 31, 2015 and 2014, we held $612.3 million and $1.14 billion, respectively, of various debt and
equity instruments including corporate bonds, corporate equity securities, and government bonds.
61
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - Continued
The following discussion highlights our cash flow activities for the years ended December 31, 2015, 2014 and 2013.
Cash flows from operating activities. We typically reinvest the cash flow from operating activities in our business.
For the years ended December 31, 2015, 2014 and 2013, we reported net cash inflows from operating activities of
$776.5 million, $840.1 million and $450.5 million, respectively.
Net cash inflows from operating activities for the year ended December 31, 2015 decreased by $63.7 million
compared to the same period in 2014. The decrease was primarily attributable to a decrease of $98.8 million
resulting from changes in operating assets and liabilities related to timing differences between the incurrence of
expense and cash payments, partially offset by higher net income of $35.1 million adjusted to exclude:
(i) “Depreciation and amortization;” (ii) “Equity in losses (earnings) of unconsolidated affiliates, net;” (iii) “Loss
from partial redemption of debt,” (iv) “Losses (gains) and other-than-temporary impairment on marketable
investment securities, net;” (v) “Impairment of long-lived assets,” (vi) “Stock-based compensation;” (vii) “Deferred
tax provision;” and (viii) “Other, net.”
Net cash inflows from operating activities for the year ended December 31, 2014 increased by $389.6 million
compared to the same period in 2013. The increase was primarily attributable to higher net income of
$252.9 million adjusted to exclude: (i) “Depreciation and amortization;” (ii) “Equity in losses of unconsolidated
affiliates, net;” (iii) “Gains on marketable investment securities, net;” (iv) “Impairment of long-lived asset,”
(v) “Stock-based compensation;” (vi) “Deferred tax benefit (provision);” and (vii) “Other, net.” In addition, net cash
inflows were increased by $136.7 million resulting from changes in operating assets and liabilities related to timing
differences between the incurrence of expense and cash payments.
Cash flows from investing activities. Our investing activities generally include purchases and sales of marketable
investment securities, capital expenditures, acquisitions, and strategic investments. For the years ended
December 31, 2015, 2014 and 2013, we reported net cash outflows from investing activities of $275.3 million,
$887.6 million and $570.3 million, respectively.
Net cash outflows from investing activities for the year ended December 31, 2015 decreased by $612.3 million
compared to the same period in 2014. The decrease in cash outflows primarily related to a decrease of
$691.0 million in purchases of marketable investment securities, net of sales and maturities, a cash receipt of
$105.8 million refund relating to the cancellation of an existing launch services agreement and capital contributions
of $18.6 million to certain investees in 2014, partially offset by an increase in cash outflows primarily related to a
$129.2 million increase in capital expenditures in 2015 when compared to the same period in 2014, a $64.7 million
increase in investments in OneWeb and SmarDTV, and the acquisition of a regulatory authorization in the first half
of 2015 of $3.4 million.
Net cash outflows from investing activities for the year ended December 31, 2014 increased by $317.3 million
compared to the same period in 2013. The increase in cash outflows primarily related to a $288.2 million increase
in capital expenditures in 2014 when compared to the same period in 2013, a decrease of $15.7 million in restricted
cash and marketable investment securities, and an increase of $11.6 million in capital contributions to certain
investees.
Cash flows from financing activities. Our financing activities generally include proceeds related to the issuance of
long-term debt and cash used for the repurchase, redemption or payment of long-term debt and capital lease
obligations, and the proceeds from Class A common stock options exercised and stock issued under our stock
incentive plans and employee stock purchase plan. For the years ended December 31, 2015, 2014 and 2013, we
reported net cash outflows from financing activities of $120.3 million, net cash outflows from financing activities of
$35.1 million and net cash inflows from financing activities of $18.3 million, respectively.
Net cash outflows from financing activities increased by $85.2 million for the year ended December 31, 2015
compared to the same period in 2014. The increase in cash outflows was primarily due to the partial redemption of
the Senior Secured Notes of $110.0 million and related premium of $3.3 million, and proceeds of $11.4 million, net
of offering costs of $3.9 million from the issuance of our preferred tracking stock received in 2014, partially offset
by a decrease of $22.7 million in capital lease obligation payments relating to the expiration of capital leases for the
62
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - Continued
AMC-15 and AMC-16 satellites, effective December 2014 and February 2015, respectively, and an increase of $11.2
million in excess tax benefits recognized on the exercise of stock options.
Net cash outflows from financing activities increased by $53.4 million for the year ended December 31, 2014
compared to the same period in 2013. The increase in cash outflows was primarily due to lower proceeds of
$42.4 million received from Class A common stock option exercises and stock issued under our stock incentive
plans and employee stock purchase plan, respectively, a decrease of $19.9 million in excess tax benefits from stock
option exercises, and an increase of $5.7 million for in-orbit incentive obligation payments, which was partially
offset by proceeds of $11.4 million, net of offering costs of $3.9 million from the issuance of Hughes Retail
preferred tracking stock and a decrease of $5.5 million in capital lease obligation payments.
Obligations and Future Capital Requirements
Contractual Obligations and Off-Balance Sheet Arrangements
The following table summarizes our contractual obligations at December 31, 2015:
Total
2016
Payments Due in the Year Ending December 31,
2018
(In thousands)
2017
2019
2020
Thereafter
Long-term debt...............................
Capital lease obligations...............
Interest on long-term debt and
capital lease obligations...........
Satellite-related obligations..........
Operating lease obligations.........
Purchase and other obligations...
Total.............................................
$
1,890,803
332,838
$
803
34,895
-
$
34,502
-
$
36,287
$
990,000
40,143
-
$
44,558
$
900,000
142,453
761,689
1,134,217
100,274
227,028
4,446,849
$
166,086
534,871
26,324
225,361
988,340
$
162,805
165,992
19,469
1,667
384,435
$
159,265
119,976
11,919
-
327,447
$
123,191
55,654
9,800
-
$
1,218,788
86,697
53,662
8,543
-
193,460
$
63,645
204,062
24,219
-
$
1,334,379
“Satellite-related obligations” primarily include payments pursuant to agreements for the construction of the
EchoStar XIX, EchoStar XXI, EchoStar XXIII, and EchoStar 105/SES-11 satellites, payments pursuant to launch
services contracts and regulatory authorizations, executory costs for our capital lease satellites, costs under satellite
service agreements and in-orbit incentives relating to certain satellites, as well as commitments for long-term
satellite operating leases and satellite service arrangements.
Our “Purchase and other obligations” primarily consists of binding purchase orders for digital set-top boxes and
related components. Our purchase obligations can fluctuate significantly from period to period due to, among other
things, management’s control of inventory levels, and can materially impact our future operating asset and liability
balances, and our future working capital requirements.
The table above does not include amounts related to deferred tax liabilities, unrecognized tax positions and certain
other amounts recorded in our noncurrent liabilities as the timing of any payments is uncertain. The table also
excludes long-term deferred revenue and other long-term liabilities that do not require future cash payments.
In certain circumstances, the dates on which we are obligated to pay our contractual obligations could change.
Off-Balance Sheet Arrangements
Other than the transactions below, we generally do not engage in off-balance sheet financing activities or use
derivative financial instruments for hedge accounting or speculative purposes.
As of December 31, 2015, we had $45.0 million of letters of credit and insurance bonds. Of this amount,
$20.0 million was secured by restricted cash, $10.0 million was related to insurance bonds, and $15.0 million was
issued under credit arrangements available to our foreign subsidiaries. Certain letters of credit are secured by assets
of our foreign subsidiaries.
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Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - Continued
As of December 31, 2015, we had foreign currency forward contracts with a notional value of $2.6 million in place
to partially mitigate foreign currency exchange risk. From time to time, we may enter into foreign currency forward
contracts, or take other measures, to mitigate risks associated with foreign currency denominated assets, liabilities,
commitments and anticipated foreign currency transactions.
Satellite Insurance
We generally do not carry in-orbit insurance on our satellites or use commercial insurance to mitigate the potential
financial impact of launch or in-orbit failures because we believe that the cost of insurance is uneconomical relative
to the risk of such failures. Therefore, we generally bear the risk of any uninsured launch or in-orbit failures.
Pursuant to the terms of the agreements governing certain portions of our indebtedness, we are required, subject to
certain limitations on coverage, to maintain launch and in-orbit insurance for our SPACEWAY 3, EchoStar XVI, and
EchoStar XVII satellites. In addition, although we were not required to maintain in-orbit insurance pursuant to our
service agreement with DISH Network for the EchoStar XV satellite, we would have been liable for any damage
caused by our use of the satellite and therefore we carried third-party insurance on the EchoStar XV satellite until
the termination of our service agreement with DISH Network for the EchoStar XV satellite in November 2015.
Future Capital Requirements
We primarily rely on our existing cash and marketable investment securities balances, as well as cash flow generated
through our operations to fund our business. Since we currently depend on DISH Network for a substantial portion
of our revenue, our cash flow from operations depends heavily on DISH Network’s needs for equipment and
services. To the extent that DISH Network’s gross new subscriber activations decrease or DISH Network
experiences a net loss of subscribers, sales of our digital set-top boxes and related components as well as broadband
services provided to DISH Network may decline, which in turn could have a material adverse effect on our financial
position and results of operations. There can be no assurance that we will have positive cash flows from operations.
Furthermore, if we experience negative cash flows, our existing cash and marketable investment securities balances
may be reduced.
We have a significant amount of outstanding indebtedness. As of December 31, 2015, our total indebtedness was
$2.22 billion, of which $332.8 million related to capital lease obligations. Our liquidity requirements will be
significant, primarily due to our debt service requirements. In addition, our future capital expenditures are likely to
increase if we make additional investments in infrastructure necessary to support and expand our business, or if we
decide to purchase one or more additional satellites. Other aspects of our business operations may also require
additional capital. We periodically evaluate various strategic initiatives, the pursuit of which could also require us to
raise significant additional capital, which may not be available on acceptable terms or at all.
We anticipate that our existing cash and marketable investment securities are sufficient to fund the currently
anticipated operations of our business through the next twelve months.
Satellites
As our satellite fleet ages, we will be required to evaluate replacement alternatives such as acquiring, leasing, or
constructing additional satellites, with or without customer commitments for capacity. We may also construct or
lease additional satellites in the future to provide satellite services at additional orbital locations or to improve the
quality of our satellite services.
Stock Repurchases
Pursuant to a stock repurchase program approved by our board of directors, we are authorized to repurchase up to
$500.0 million of our outstanding shares of Class A common stock through December 31, 2016. As of
December 31, 2015, 2014, and 2013, we have not repurchased any common stock under this program.
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Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - Continued
Critical Accounting Policies and Estimates
The preparation of consolidated financial statements in conformity with GAAP requires us to make certain
estimates, judgments and assumptions that affect the reported amounts of assets and liabilities at the date of the
balance sheets, the reported amounts of revenue and expenses for each reporting period, and certain information
disclosed in the notes to consolidated financial statements in Item 15 of this report. We base our estimates,
judgments, and assumptions on historical experience and on various other factors that we believe to be relevant
under the circumstances. Actual results may differ from previously estimated amounts, and such differences may be
material to our consolidated financial statements. We review our estimates and assumptions periodically, and the
effects of revisions are reflected in the period they occur or prospectively if the revised estimate affects future
periods. The following represent what we believe are the critical accounting policies that may involve a high degree
of estimation, judgment and complexity. For a summary of our significant accounting policies, including those
discussed below, see Note 2 in the notes to consolidated financial statements in Item 15 of this report.
Marketable Securities and Other Investments
We hold investments in debt and equity securities of various companies, including marketable investments in
publicly traded securities and non-marketable investments in securities of privately held companies. Our marketable
investment securities ordinarily are accounted for as available-for-sale; accordingly, we report those securities at fair
value on a recurring basis and generally recognize unrealized gains and losses in other comprehensive income (loss).
Except in unusual circumstances, the estimated fair values of our marketable investment securities are determined
by reference to quoted prices for identical securities or based primarily on other observable market inputs. Our
investments in non-marketable securities typically are strategic investments in privately held companies and may be
highly speculative. We account for such investments using the equity method when we exercise significant
influence over the investee; otherwise, we account for such investments using the cost method.
All of our investments are subject to quarterly evaluations to determine whether an other-than-temporary impairment
has occurred, in which case we record an impairment loss in determining net income. For our marketable
investment securities, our impairment evaluation considers factors such as the length of time the security has been in
a continuous unrealized loss position, the magnitude of the unrealized loss, current market conditions, company-
specific information, and whether we have the intent and ability to hold the investment in the foreseeable future.
Generally, it is not practicable to estimate fair value of our cost method and equity method investments on a
recurring basis. Our impairment evaluation for such investments considers whether events or changes in
circumstances have occurred that may have a significant adverse effect on the fair value of the investment. As part
of our evaluation, we review available information such as recent company financial statements, business plans and
current economic conditions for factors that may indicate an impairment of our investments. When we determine
that an investment is impaired and the impairment is other than temporary, we adjust the carrying amount of the
investment to its estimated fair value and recognize an impairment loss in earnings. In these circumstances, our fair
value estimates may reflect significant unobservable inputs.
Our periodic investment impairment evaluations require us to make significant estimates, judgments and
assumptions about uncertain future events. In some cases, there may be limited or no observable market data to
support significant assumptions in our estimates. As a result of weakening economic conditions, or other future
events and changes in circumstances affecting our investments, we may subsequently determine that an investment
is impaired or that an existing impairment is other than temporary. Such events and changes in circumstances could
result in our recognition of material investment impairment losses in the future.
Impairment of Long-lived Assets
We evaluate our long-lived assets other than goodwill and intangible assets with indefinite lives for impairment
whenever events and changes in circumstances indicate that their carrying amounts may not be recoverable. The
carrying amount of a long-lived asset or asset group is considered to not be recoverable when the estimated future
undiscounted cash flows from such asset or asset group is less than its carrying amount. In that event, an
impairment loss is recorded in the determination of operating income based on the amount by which the carrying
amount exceeds the estimated fair value of the long-lived asset or asset group. Fair value is determined primarily
using discounted cash flow techniques reflecting the estimated cash flows and discount rate that would be assumed
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Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - Continued
by a market participant for the asset or asset group under review. Our discounted cash flow estimates typically
include assumptions based on unobservable inputs and may reflect probability-weighting of alternative scenarios.
Estimated losses on long-lived assets to be disposed of by sale may be determined in a similar manner, except that
fair value estimates are reduced for estimated selling costs. Changes in estimates of future cash flows, discount rates
and other assumptions could result in recognition of additional impairment losses in future periods.
Impairment of Goodwill and Indefinite-lived Intangible Assets
We test our goodwill for impairment annually and more frequently when events or changes in circumstances indicate
that an impairment may have occurred. There are two steps to the goodwill impairment test. Step one compares the
fair value of a reporting unit with its carrying amount, including goodwill. If the reporting unit’s carrying amount
exceeds its estimated fair value, it is necessary to perform the second step of the impairment test, which compares
the implied fair value of reporting unit goodwill with the carrying amount of such goodwill to determine the amount
of impairment loss. We may bypass the two-step quantitative impairment test when we determine based on a
qualitative assessment that it is more likely than not that the fair value of a reporting unit exceeds its carrying
amount including goodwill.
As of December 31, 2015, our goodwill consisted primarily of goodwill assigned to reporting units of the Hughes
segment. We test such goodwill annually in our second fiscal quarter. Based on our qualitative assessment of
impairment of the goodwill assigned to the Hughes segment in the second quarter of each of 2015 and 2014, we
determined that no further testing of goodwill for impairment was necessary as it was more likely than not that the
fair values of the Hughes segment reporting units exceeded their corresponding carrying amounts. Depending on
our assessment of future events and changes in circumstances, we may be required to perform the two-step
quantitative impairment test in the future. We may determine that some or all of our goodwill is impaired in
connection with future impairment tests.
Our indefinite-lived intangible assets consist primarily of regulatory authorizations for the use of spectrum in
specified orbital locations. We test these intangible assets annually in our fourth fiscal quarter, or more frequently if
events or changes in circumstances indicate that an impairment may have occurred. We recognize an impairment
loss in the determination of operating income when we determine that the carrying amount of an intangible asset
exceeds its estimated fair value. Fair value is determined primarily using discounted cash flow techniques reflecting
the estimated cash flows and discount rate that we believe would be assumed by market participants. Our cash flow
projections typically include significant assumptions based on unobservable inputs. Changes in economic
conditions, laws and regulations, technology, competition and other factors could affect the assumptions reflected in
our fair value estimates and may result in future intangible asset impairments.
Revenue Recognition
Our Hughes segment enters into contracts to design, develop, and deliver telecommunication networks to customers
in our enterprise and mobile satellite systems markets. Those contracts require significant effort to develop and
construct the network over an extended time period. Revenue from such contracts is recognized using the
percentage-of-completion method. Depending on the nature of the arrangement, we measure progress toward
completion using the cost-to-cost method or the units-of-delivery method. Under the cost-to-cost method, revenue
reflects the ratio of costs incurred to estimated total costs at completion. Under the units-of-delivery method,
revenue and related costs are recognized as products are delivered based on the expected profit for the entire
agreement. Profit margins on long-term contracts are based on estimates of total revenue and costs at completion.
We review and revise our estimates periodically and recognize related adjustments in the period in which the
revisions are made. Estimated losses on contracts are recorded in the period in which they are identified. Changes
in our periodic estimates for these contracts could result in significant adjustments to our revenue or costs, which
could be material to our consolidated results of operations.
Income Taxes
We record deferred tax assets and liabilities for the estimated future tax effects of temporary differences between the
tax bases of assets and liabilities and their corresponding carrying amounts reported in our consolidated balance
sheets, as well as for operating loss and tax credit carryforwards. Determining necessary valuation allowances for
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Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - Continued
deferred tax assets requires us to make assessments about the timing of future events, including the probability of
expected future taxable income and available tax planning opportunities. We periodically evaluate the need for
valuation allowances based on both historical evidence, including trends, and future expectations. Our future
operating results and other events and circumstances could have a significant effect on the realization of tax benefits.
Those future events and circumstances could require significant adjustments to our valuation allowances in future
periods, which could be material to our consolidated results of operations.
Management evaluates the recognition and measurement of uncertain tax positions based on applicable tax law,
regulations, case law, administrative rulings and pronouncements, and the facts and circumstances surrounding the
tax position. Changes in our estimates related to the recognition and measurement of the amount recorded for
uncertain tax positions could result in significant adjustments to our income tax provision or benefit in future
periods, which could be material to our consolidated results of operations.
Contingent Liabilities
We record an accrual for litigation and other loss contingencies when we determine that a loss is probable and the
amount of the loss can be reasonably estimated. Legal fees and other costs of defending litigation are charged to
expense as incurred. A significant amount of management judgment is required in determining whether an accrual
should be recorded for a loss contingency and the amount of such accrual. Estimates generally are developed in
consultation with legal counsel and are based on an analysis of potential outcomes. Due to the inherent uncertainty
in determining the likelihood of potential outcomes and the potential financial statement impact of such outcomes, it
is possible that upon further development or resolution of a contingent matter, charges related to existing loss
contingencies could be recorded in future periods, which could be material to our consolidated results of operations
and financial position.
New Accounting Pronouncements
For a discussion of new accounting pronouncements, see Note 2 in the notes to consolidated financial statements in
Item 15 of this report. We are assessing the impact of adopting the recently issued accounting pronouncements on
our consolidated financial statements and related disclosures.
Seasonality
For our Hughes segment, service revenue is generally not impacted by seasonal fluctuations other than those
associated with fluctuations related to sales and promotional activities. However, like many communications
infrastructure equipment vendors, a higher amount of our hardware revenue occurs in the second half of the year due
to our customers’ annual procurement and budget cycles. Large enterprises and operators often allocate their capital
expenditure budgets at the beginning of their fiscal year (which often coincides with the calendar year). The typical
sales cycle for large complex system procurements is six to 12 months, which often results in the customer
expenditure occurring towards the end of the year. Customers often seek to expend the budgeted funds prior to the
end of the year and the next budget cycle.
For our EchoStar Technologies segment, we are affected by seasonality to the extent it impacts our customers as a
result of their sales and promotion activities, which can vary from year to year. Although the seasonal impacts have
not been significant, historically, the first half of the year generally produces fewer new subscribers for the pay-TV
industry than the second half of the year. However, we cannot provide assurance that this trend will continue in the
future.
Our EchoStar Satellite Services segment is not generally affected by seasonal impacts.
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Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - Continued
Inflation
Inflation has not materially affected our operations during the past three years. We believe that our ability to
increase the prices charged for our products and services in future periods will depend primarily on competitive
pressures or contractual terms.
EXPLANATION OF KEY METRICS AND OTHER ITEMS
Equipment revenue – DISH Network. “Equipment revenue – DISH Network” primarily includes sales of digital
set-top boxes and related components, including Slingbox products and related hardware products, and sales of
satellite broadband equipment and related equipment, primarily related to the Hughes service, to DISH Network.
Equipment revenue – other. “Equipment revenue – other” primarily includes sales of digital set-top boxes and
related components to Bell TV, Dish Mexico and other domestic and international customers, including sales of
Slingbox products and related hardware products, and sales of broadband equipment and networks to customers in
our enterprise and consumer markets.
Services and other revenue – DISH Network. “Services and other revenue – DISH Network” primarily includes
revenue associated with satellite and transponder services, satellite uplinking/downlinking, signal processing,
conditional access management, telemetry, tracking and control, development of web-based applications for set-top
boxes, professional services, facilities rental revenue and other services provided to DISH Network. “Services and
other revenue – DISH Network” also includes subscriber wholesale service fees for the Hughes service sold to
dishNET.
Services and other revenue – other. “Services and other revenue – other” primarily includes the sales of enterprise
and consumer broadband services, as well as maintenance and other contracted services. “Services and other
revenue – other” also includes revenue associated with satellite and transponder services, satellite
uplinking/downlinking and other services provided to customers other than DISH Network.
Cost of sales – equipment. “Cost of sales – equipment” principally includes costs associated with digital set-top
boxes and related components sold to DISH Network, Bell TV, Dish Mexico and other domestic and international
customers, including costs associated with Slingbox products and related hardware products. “Cost of sales –
equipment” also includes the cost of broadband equipment and networks sold to customers in our enterprise and
consumer markets, and to DISH Network.
Cost of sales – services and other. “Cost of sales – services and other” primarily includes the cost of broadband
services provided to our enterprise and consumer customers, and to DISH Network, as well as the cost of providing
maintenance and other contracted services. “Cost of sales – services and other” also includes the costs associated
with satellite and transponder services, satellite uplinking/downlinking, signal processing, conditional access
management, telemetry, tracking and control, product support and development of applications for set-top boxes,
professional services, facilities rental costs, and other services provided to our customers, including DISH Network.
Research and development expenses. “Research and development expenses” primarily includes costs associated
with the design and development of products to support future growth and provide new technology and innovation
to our customers.
Selling, general and administrative expenses. “Selling, general and administrative expenses” primarily includes
selling and marketing costs and employee-related costs associated with administrative services (e.g., information
systems, human resources and other services), including stock-based compensation expense. It also includes
professional fees (e.g. legal, information systems and accounting services) and other items associated with facilities
and administrative services provided by DISH Network and other third parties.
Impairment of long-lived assets. “Impairment of long-lived assets” includes our impairment losses related to our
property and equipment, goodwill and other intangible assets.
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Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - Continued
Interest income. “Interest income” primarily includes interest earned on our cash, cash equivalents and marketable
investment securities, including premium amortization and discount accretion on debt securities.
Interest expense, net of amounts capitalized. “Interest expense, net of amounts capitalized” primarily includes
interest expense associated with our long-term debt and capital lease obligations (net of capitalized interest), and
amortization of debt issuance costs.
Loss from partial redemption of debt. “Loss from partial redemption of debt” primarily includes the loss from the
partial redemption of the Senior Secured Notes representing the redemption premium that the Company paid to the
holders of its Senior Secured Notes and the write-off of related unamortized debt issuance costs.
Gains (losses) and impairment on marketable investment securities, net. “Gains (losses) and impairment on
marketable investment securities, net” primarily includes gains, net of any losses, on the sale or exchange of
investments and other-than-temporary impairment on certain of our marketable investment securities.
Equity in earnings (losses) of unconsolidated affiliates, net. “Equity in earnings (losses) of unconsolidated
affiliates, net” includes earnings or losses from our investments accounted for under the equity method.
Other, net. “Other, net” primarily includes foreign exchange gains and losses, dividends received from our
marketable investment securities, and other non-operating income or expense items that are not appropriately
classified elsewhere in our consolidated statements of operations and comprehensive income (loss).
Earnings before interest, taxes, depreciation and amortization (“EBITDA”). EBITDA is defined as “Net income
(loss) attributable to EchoStar” excluding “Interest expense, net of amounts capitalized,” “Interest income,” “Income
tax benefit (provision), net,” and “Depreciation and amortization.” EBITDA is not a measure determined in
accordance with GAAP. This non-GAAP measure is reconciled to “Income (loss) before income taxes” in our
discussion of “Results of Operations” above. EBITDA should not be considered in isolation or as a substitute for
operating income, net income or any other measure determined in accordance with GAAP. Conceptually, EBITDA
measures the amount of income generated each period that could be used to service debt, pay taxes and fund capital
expenditures. EBITDA is used by our management as a measure of operating efficiency and overall financial
performance for benchmarking against our peers and competitors. Management believes EBITDA provides
meaningful supplemental information regarding liquidity and the underlying operating performance of our business.
Management also believes that EBITDA is useful to investors because it is frequently used by securities analysts,
investors, and other interested parties to evaluate the performance of companies in our industry.
Subscribers. Subscribers include customers that subscribe to our Hughes segment’s HughesNet broadband services,
through retail, wholesale and small/medium enterprise service channels.
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Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market Risks Associated with Financial Instruments and Foreign Currency
Our investments and debt are exposed to market risks, discussed below.
Cash, Cash Equivalents and Current Marketable Investment Securities
As of December 31, 2015, our cash, cash equivalents and current marketable investment securities had a fair value
of $1.54 billion. Of this amount, a total of $1.50 billion was invested in: (a) cash; (b) commercial paper and
corporate notes with an overall average maturity of less than one year and rated in one of the four highest rating
categories by at least two nationally recognized statistical rating organizations; (c) debt instruments of the U.S.
government and its agencies; and/or (d) instruments with similar risk, duration and credit quality characteristics to
the commercial paper and corporate obligations described above. The primary purpose of these investing activities
has been to preserve principal until the cash is required to, among other things, fund operations, make strategic
investments and expand the business. Consequently, the size of this portfolio fluctuates significantly as cash is
received and used in our business. The value of this portfolio may be negatively impacted by credit losses; however,
this risk is mitigated through diversification that limits our exposure to any one issuer.
Interest Rate Risk
A change in interest rates would not affect the fair value of our cash, or materially affect the fair value of our cash
equivalents due to their maturities of less than 90 days. A change in interest rates would affect the fair value of our
current marketable debt securities portfolio; however, we normally hold these investments to maturity. Based on our
current non-strategic investment portfolio of $1.50 billion as of December 31, 2015, a hypothetical 10% change in
average interest rates during 2015 would not have a material impact on the fair value of our cash, cash equivalents
and debt securities portfolio due to the limited duration of our investments.
Our cash, cash equivalents and current marketable debt securities had an average annual rate of return for the year
ended December 31, 2015 of 0.8%. A change in interest rates would affect our future annual interest income from
this portfolio, since funds would be re-invested at different rates as the instruments mature. A hypothetical 10%
decrease in average interest rates during 2015 would have resulted in a decrease of approximately $1.0 million in
annual interest income.
Strategic Marketable Investment Securities
As of December 31, 2015, we held current strategic investments in the publicly traded common stock of several
companies with a fair value of $38.9 million. These investments, which are held for strategic and financial
purposes, are concentrated in a small number of companies, are highly speculative and have experienced and
continue to experience volatility. The fair value of these investments can be significantly impacted by the risk of
adverse changes in securities markets generally, as well as risks related to the performance of the companies whose
securities we have invested in, risks associated with specific industries, and other factors. These investments are
subject to significant fluctuations in fair value due to the volatility of the securities markets and of the underlying
businesses. In general, our strategic marketable investment securities portfolio is not significantly impacted by
interest rate fluctuations as it currently consists solely of equity securities, the value of which is more closely related
to factors specific to the underlying business. A hypothetical 10% adverse change in the market price of our public
strategic equity investments would result in a decrease of approximately $3.9 million in the fair value of these
investments.
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Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK - Continued
Restricted Cash and Marketable Investment Securities and Other Investments
Restricted Cash and Marketable Investment Securities
As of December 31, 2015, we had $21.0 million of restricted cash and marketable investment securities invested in:
(a) cash; (b) debt instruments of the U.S. government and its agencies; (c) commercial paper and corporate notes
with an overall average maturity of less than one year and rated in one of the four highest rating categories by at
least two nationally recognized statistical rating organizations; and (d) instruments with similar risk, duration and
credit quality characteristics to the commercial paper described above. Based on our investment portfolio as of
December 31, 2015, a hypothetical 10% increase in average interest rates would not have a material impact on the
fair value of our restricted cash and marketable investment securities.
Investments in Unconsolidated Entities
As of December 31, 2015, we had $209.3 million of noncurrent equity instruments that we hold for strategic
business purposes and account for under the cost or equity methods of accounting. The fair value of these
instruments is not readily determinable. We periodically review these investments and estimate fair value when
there are indications of impairment. A hypothetical 10% adverse change in the value of these debt and equity
instruments would result in a decrease of approximately $20.9 million in the value of these investments.
Our ability to realize value from our strategic investments in companies that are not publicly traded depends on the
success of those companies’ businesses and their ability to obtain sufficient capital to execute their business plans.
Because private markets are not as liquid as public markets, there is also increased risk that we will not be able to
sell these investments, or that when we desire to sell them we will not be able to obtain fair value for them.
Foreign Currency Exchange Risk
We generally conduct our business in U.S. dollars. Our international business is conducted in a variety of foreign
currencies with our largest exposures being to the Brazilian real, the Indian rupee, and the British pound. This
exposes us to fluctuations in foreign currency exchange rates. Transactions in foreign currencies are converted into
U.S. dollars using exchange rates in effect on the dates of the transactions.
Our objective in managing our exposure to foreign currency changes is to reduce earnings and cash flow volatility
associated with foreign exchange rate fluctuations. Accordingly, we may enter into foreign exchange contracts to
mitigate risks associated with foreign currency denominated assets, liabilities, commitments and anticipated foreign
currency transactions. As of December 31, 2015, we had $5.3 million of net foreign currency denominated
receivables and payables outstanding, and foreign currency forward contracts with a notional value of $2.6 million
in place to partially mitigate foreign currency exchange risk. The estimated fair values of the foreign exchange
contracts were not material as of December 31, 2015. The impact of a hypothetical 10% adverse change in
exchange rates on the carrying amount of the net assets and liabilities of our foreign subsidiaries would be an
estimated loss of $22.7 million as of December 31, 2015.
Derivative Financial Instruments
We generally do not use derivative financial instruments for speculative purposes and we generally do not apply
hedge accounting treatment to our derivative financial instruments. We evaluate our derivative financial instruments
from time to time but there can be no assurance that we will not enter into additional foreign currency forward
contracts, or take other measures, in the future to mitigate our foreign exchange risk.
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Item 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Our consolidated financial statements are included in Item 15 of this report beginning on page F-3.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
Item 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our Chief Executive Officer and
Chief Financial Officer, we evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule
13a-15(e) and Rule 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period
covered by this report. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer
concluded that our disclosure controls and procedures were effective as of the end of the period covered by this
report such that the information required to be disclosed in our SEC reports is recorded, processed, summarized and
reported within the time periods specified in the SEC rules and forms, and is accumulated and communicated to our
management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely
decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There has been no change in our internal control over financial reporting (as defined in Rule 13a-15(f) and Rule 15
d-15(f) under the Securities Exchange Act of 1934, as amended) that occurred during our fiscal quarter ended
December 31, 2015 that has materially affected, or is reasonably likely to materially affect, our internal control over
financial reporting. We continue to review our internal control over financial reporting, and may from time to time
make changes aimed at enhancing its effectiveness and to ensure that our systems evolve with our business.
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting.
Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles in the United States (“GAAP”).
Our internal control over financial reporting includes those policies and procedures that:
(i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect our transactions
and dispositions of our assets;
(ii) provide reasonable assurance that our transactions are recorded as necessary to permit preparation of our
financial statements in accordance with GAAP, and that our receipts and expenditures are being made only
in accordance with authorizations of our management and our directors; and
(iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of our assets that could have a material effect on our financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with policies or procedures may
deteriorate.
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Our management conducted an evaluation of the effectiveness of our internal control over financial reporting based
on the framework in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on this evaluation, our management has concluded that our
internal control over financial reporting was effective as of December 31, 2015.
The effectiveness of our internal control over financial reporting as of December 31, 2015 has been audited by
KPMG LLP, an independent registered public accounting firm, as stated in their report which appears in Item 15(a)
of this Annual Report on Form 10-K.
Item 9B. OTHER INFORMATION
None.
73
PART III
Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by this Item with respect to the identity and business experience of our directors and
corporate governance will be set forth in our Proxy Statement for the 2016 Annual Meeting of Shareholders, which
will be filed no later than 120 days after December 31, 2015, under the caption “Election of Directors,” which
information is hereby incorporated herein by reference.
The information required by this Item with respect to the identity and business experience of our executive officers
is set forth on pages 16-17 of this report under the caption “Executive Officers of the Registrant.”
The information required by this Item with respect to our code of ethics is contained in Part I of this Form 10-K
under the caption “Item 1. – Business – Website Access.”
Item 11. EXECUTIVE COMPENSATION
The information required by this Item will be set forth in our Proxy Statement for the 2016 Annual Meeting of
Shareholders, which will be filed no later than 120 days after December 31, 2015, under the caption “Executive
Compensation and Other Information,” which information is hereby incorporated herein by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The information required by this Item will be set forth in our Proxy Statement for the 2016 Annual Meeting of
Shareholders, which will be filed no later than 120 days after December 31, 2015, under the captions “Election of
Directors,” “Equity Security Ownership” and “Equity Compensation Plan Information,” which information is
hereby incorporated herein by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
The information required by this Item will be set forth in our Proxy Statement for the 2016 Annual Meeting of
Shareholders, which will be filed no later than 120 days after December 31, 2015, under the caption “Certain
Relationships and Related Party Transactions,” which information is hereby incorporated herein by reference.
Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by this Item will be set forth in our Proxy Statement for the 2016 Annual Meeting of
Shareholders, which will be filed no later than 120 days after December 31, 2015, under the caption “Principal
Accountant Fees and Services,” which information is hereby incorporated herein by reference.
74
Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a) The following documents are filed as part of this report:
PART IV
(1) Consolidated Financial Statements
Page
Index to Consolidated Financial Statements ........................................................................................ F-1
Report of Independent Registered Public Accounting Firm ................................................................. F-2
Consolidated Balance Sheets as of December 31, 2015 and 2014 ....................................................... F-3
Consolidated Statements of Operations and Comprehensive Income (Loss) for the
years ended December 31, 2015, 2014 and 2013 ............................................................................. F-4
Consolidated Statements of Changes in Stockholders’ Equity for the years ended
December 31, 2015, 2014 and 2013 ................................................................................................. F-5
Consolidated Statements of Cash Flows for the years ended December 31, 2015, 2014 and 2013 ..... F-6
Notes to Consolidated Financial Statements ........................................................................................ F-7
(2) Financial Statement Schedules
Schedule I – Condensed Financial Information of Registrant
(Parent Company Information Only) .............................................................................................. F-63
Condensed Balance Sheets ............................................................................................................. F-64
Condensed Statements of Operations and Comprehensive Income (Loss) ..................................... F-65
Condensed Statements of Cash Flows ............................................................................................ F-66
Schedule II – Valuation and Qualifying Accounts .............................................................................. F-67
(3) Exhibits
2.1*
2.2*
3.1*
3.2*
3.3*
Form of Separation Agreement between EchoStar Corporation and DISH Network Corporation
(incorporated by reference to Exhibit 2.1 to Amendment No. 1 of EchoStar Corporation’s Form 10
filed December 12, 2007, Commission File No. 001-33807).
Agreement and Plan of Merger between EchoStar Corporation, EchoStar Satellite Services
L.L.C., Broadband Acquisition Corporation and Hughes Communications, Inc. dated as of
February 13, 2011 (incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K of
Hughes Communications, Inc., filed February 15, 2011, Commission File No. 1-33040). ****
Articles of Incorporation of EchoStar Corporation (incorporated by reference to Exhibit 3.1 to
Amendment No. 1 of EchoStar Corporation’s Form 10 filed December 12, 2007, Commission File
No. 001-33807), as amended by the Amendment to the Articles of Incorporation of EchoStar
Corporation (incorporated by reference to Exhibit 3.1 to EchoStar Corporation’s Current Report
on Form 8-K filed January 25, 2008, Commission File No. 001-33807).
Bylaws of EchoStar Corporation (incorporated by reference to Exhibit 3.2 to Amendment No. 1 of
EchoStar Corporation’s Form 10 filed December 12, 2007, Commission File No. 001-33807).
EchoStar Corporation Certificate of Designation Establishing the Voting Powers, Designations,
Preferences, Limitations, Restrictions, and Relative Rights of the Hughes Retail Preferred
Tracking Stock (incorporated by reference to Exhibit 3.1 to EchoStar Corporation’s Current
Report on Form 8-K filed March 3, 2014, Commission File No. 001-33807)
75
4.1*
4.2*
4.3*
4.4*
4.5*
4.6*
4.7*
4.8*
4.9*
Specimen Class A Common Stock Certificate of EchoStar Corporation (incorporated by reference
to Exhibit 3.2 to Amendment No. 1 of EchoStar Corporation’s Form 10 filed December 12, 2007,
Commission File No. 001-33807).
Indenture relating to the EH Holding Corporation (currently known as Hughes Satellite Systems
Corporation) 6 1/2% Senior Secured Notes due 2019, dated as of June 1, 2011, by and among EH
Holding Corporation, the guarantors listed on the signature page thereto, and Wells Fargo Bank,
National Association, as collateral agent and trustee (incorporated by reference to Exhibit 4.1 to
EchoStar Corporation’s Current Report on Form 8-K filed June 2, 2011, Commission File No.
001-33807).
Indenture relating to the EH Holding Corporation (currently known as Hughes Satellite Systems
Corporation) 7 5/8% Senior Unsecured Notes due 2021, dated as of June 1, 2011, by and among
EH Holding Corporation, the guarantors listed on the signature page thereto, and Wells Fargo
Bank, National Association, as trustee (incorporated by reference to Exhibit 4.2 to EchoStar
Corporation’s Current Report on Form 8-K filed June 2, 2011, Commission File No. 001-33807).
Supplemental Indenture relating to the 6 1/2% Senior Secured Notes due 2019 of EH Holding
Corporation (currently known as Hughes Satellite Systems Corporation), dated as of June 8, 2011,
by and among EH Holding Corporation, the guarantors listed on the signature page thereto, and
Wells Fargo Bank, National Association, as collateral agent and trustee (incorporated by reference
to Exhibit 4.2 to EchoStar Corporation’s Current Report on Form 8-K filed June 9, 2011,
Commission File No. 001-33807).
Supplemental Indenture relating to the 7 5/8% Senior Unsecured Notes due 2021 of EH Holding
Corporation (currently known as Hughes Satellite Systems Corporation), dated as of June 8, 2011,
by and among EH Holding Corporation, the guarantors listed on the signature page thereto, and
Wells Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit 4.3 to
EchoStar Corporation’s Current Report on Form 8-K filed June 9, 2011, Commission File No.
001-33807).
Registration Rights Agreement, dated as of June 1, 2011, among EH Holding Corporation
(currently known as Hughes Satellite Systems Corporation), the guarantors listed on the signature
page thereto and Deutsche Bank Securities Inc. (incorporated by reference to Exhibit 4.3 to
EchoStar Corporation’s Current Report on Form 8-K filed June 2, 2011, Commission File No.
001-33807).
Security Agreement, dated as of June 8, 2011, among EH Holding Corporation (currently known
as Hughes Satellite Systems Corporation), the guarantors listed on the signature pages thereto, and
Wells Fargo Bank, National Association, as collateral agent (incorporated by reference to Exhibit
4.1 to EchoStar Corporation’s Current Report on Form 8-K filed June 9, 2011, Commission File
No. 001-33807).
Second Supplemental Indenture, dated as of March 28, 2014, by and among Hughes Satellite
Systems Corporation, the guarantors and the supplemental guarantors listed on the signature pages
thereto, and Wells Fargo Bank, National Association, as collateral agent and trustee (incorporated
by reference to Exhibit 4.1 to EchoStar Corporation’s Quarterly Report on Form 10-Q for the
quarter ended March 31, 2014, filed May 9, 2014, Commission File No. 001-33807).
Second Supplemental Indenture, dated as of March 28, 2014, by and among Hughes Satellite
Systems Corporation, the guarantors and the supplemental guarantors listed on the signature pages
thereto, and Wells Fargo Bank, National Association, as trustee (incorporated by reference to
Exhibit 4.2 to EchoStar Corporation’s Quarterly Report on Form 10-Q for the quarter ended
March 31, 2014, filed May 9, 2014, Commission File No. 001-33807).
76
4.10*
4.11*
4.12*
10.1*
10.2*
10.3*
10.4*
10.5*
10.6*
10.7*
10.8*
10.9*
Joinder Agreement, dated as of March 28, 2014, to the Security Agreement dated as of June 8,
2011, by and among EchoStar XI Holding L.L.C., EchoStar XIV Holding L.L.C., and Wells Fargo
Bank, National Association, as collateral agent (incorporated by reference to Exhibit 4.3 to
EchoStar Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2014,
filed May 9, 2014, Commission File No. 001-33807).
Form of Note for 6 1/2% Senior Secured Notes due 2019 (included as part of Exhibit 4.2).
Form of Note for 7 5/8% Senior Unsecured Notes due 2021 (included as part of Exhibit 4.3).
Form of Tax Sharing Agreement between EchoStar Corporation and DISH Network Corporation
(incorporated by reference to Exhibit 10.2 to Amendment No. 1 of EchoStar Corporation’s Form
10 filed December 12, 2007, Commission File No. 001-33807).
Form of Employee Matters Agreement between EchoStar Corporation and DISH Network
Corporation (incorporated by reference to Exhibit 10.3 to Amendment No. 1 of EchoStar
Corporation’s Form 10 filed December 12, 2007, Commission File No. 001-33807).**
Form of Intellectual Property Matters Agreement between EchoStar Corporation, EchoStar
Acquisition L.L.C., Echosphere L.L.C., DISH DBS Corporation, EIC Spain SL, EchoStar
Technologies L.L.C. and DISH Network Corporation (incorporated by reference to Exhibit 10.4 to
Amendment No. 1 of EchoStar Corporation’s Form 10 filed December 12, 2007, Commission File
No. 001-33807).
Manufacturing Agreement, dated as of March 22, 1995, between Houston Tracker Systems, Inc.
(“HTS”) and SCI Technology, Inc. (incorporated by reference to Exhibit 10.12 to the Registration
Statement on Form S-1 of Dish Ltd., Commission File No. 33-81234).
Agreement to Form NagraStar L.L.C., dated as of June 23, 1998, by and between Kudelski S.A.,
DISH Network Corporation and DISH Network L.L.C. (incorporated by reference to Exhibit
10.28 to the Annual Report on Form 10-K of DISH Network Corporation for the year ended
December 31, 1998, filed March 17, 1999, Commission File No. 000-26176).
Satellite Service Agreement, dated as of March 21, 2003, between SES Americom, Inc., DISH
Network L.L.C. and DISH Network Corporation (incorporated by reference to Exhibit 10.1 to the
Quarterly Report on Form 10-Q of DISH Network Corporation for the quarter ended March 31,
2003, filed May 6, 2003, Commission File No. 000-26176).***
Amendment No. 1 to Satellite Service Agreement dated July 10, 2003 between SES Americom
Inc., DISH Network L.L.C. and DISH Network Corporation (incorporated by reference to Exhibit
10.1 to the Quarterly Report on Form 10-Q of DISH Network Corporation for the quarter ended
September 30, 2003, filed November 10, 2003, Commission File No. 000-26176).***
Amendment No. 3 to Satellite Service Agreement, dated February 19, 2004, between SES
Americom, Inc., DISH Network L.L.C. and DISH Network Corporation (incorporated by
reference to Exhibit 10.3 to the Quarterly Report on Form 10-Q of DISH Network Corporation for
the quarter ended March 31, 2004, filed May 6, 2004, Commission File No. 000-26176). ***
Amendment No. 4 to Satellite Service Agreement, dated October 21, 2004, between SES
Americom, Inc., DISH Network L.L.C. and DISH Network Corporation (incorporated by
reference to Exhibit 10.23 to the Annual Report on Form 10-K of DISH Network Corporation for
the year ended December 31, 2004, filed March 16, 2005, Commission File No. 000-26176).***
77
10.10*
10.11*
10.12*
10.13*
10.14*
10.15*
10.16*
10.17*
10.18*
10.19*
Amendment No. 5 to Satellite Service Agreement, dated November 19, 2004, between SES
Americom, Inc., DISH Network L.L.C. and DISH Network Corporation (incorporated by
reference to Exhibit 10.25 to the Annual Report on Form 10-K of DISH Network Corporation for
the year ended December 31, 2004, filed March 16, 2005, Commission File No. 000-26176). ***
Amendment No. 6 to Satellite Service Agreement, dated December 20, 2004, between SES
Americom, Inc., DISH Network L.L.C. and DISH Network Corporation (incorporated by
reference to Exhibit 10.26 to the Annual Report on Form 10-K of DISH Network Corporation for
the year ended December 31, 2004, filed March 16, 2005, Commission File No. 000-26176).***
Form of EchoStar Corporation 2008 Class B CEO Stock Option Plan (incorporated by reference
to Exhibit 10.25 to Amendment No. 1 of EchoStar Corporation’s Form 10 filed December 12,
2007, Commission File No. 001-33807).**
Form of Satellite Capacity Agreement between EchoStar Corporation and DISH Network L.L.C.
(incorporated by reference from Exhibit 10.28 to Amendment No. 2 to EchoStar Corporation’s
Form 10 filed December 26, 2007, Commission File No. 001-33807).
QuetzSat-1 Satellite Service Agreement, dated November 24, 2008, between SES Latin America
S.A. and EchoStar 77 Corporation, a direct wholly-owned subsidiary of EchoStar Corporation
(incorporated by reference to Exhibit 10.24 to EchoStar Corporation’s Annual Report on Form 10-
K for the year ended December 31, 2009, filed March 1, 2010, Commission File No. 001-33807).
***
QuetzSat-1 Satellite Service Agreement, dated November 24, 2008, between EchoStar 77
Corporation, a direct wholly-owned subsidiary of EchoStar Corporation, and DISH Network
L.L.C. (incorporated by reference to Exhibit 10.25 to EchoStar Corporation’s Annual Report on
Form 10-K for the year ended December 31, 2009, filed March 1, 2010, Commission File No.
001-33807). ***
Amended and Restated EchoStar Corporation 2008 Employee Stock Purchase Plan (incorporated
by reference to EchoStar Corporation’s Definitive Proxy Statement on Form 14, filed March 31,
2009, Commission File No. 001-33807).**
Amended and Restated EchoStar Corporation 2008 Stock Incentive Plan (the “2008 Stock
Incentive Plan”) (incorporated by reference to EchoStar Corporation’s Definitive Proxy Statement
on Form 14, filed September 18, 2014, Commission File No. 001-33807).**
Amended and Restated EchoStar Corporation 2008 Non-Employee Director Stock Option Plan
(the “2008 Non-Employee Director Stock Option Plan”) (incorporated by reference to EchoStar
Corporation’s Definitive Proxy Statement on Form 14, filed March 31, 2009, Commission File
No. 001-33807).**
NIMIQ 5 Whole RF Channel Service Agreement, dated September 15, 2009, between Telesat
Canada and EchoStar Corporation (incorporated by reference to Exhibit 10.30 to EchoStar
Corporation’s Annual Report on Form 10-K for the year ended December 31, 2009, filed March 1,
2010, Commission File No. 001-33807).***
78
10.20*
10.21*
10.22*
10.23*
10.24*
10.25*
10.26*
10.27*
10.28*
10.29*
NIMIQ 5 Whole RF Channel Service Agreement, dated September 15, 2009, between EchoStar
Corporation and DISH Network L.L.C. (incorporated by reference to Exhibit 10.31 to EchoStar
Corporation’s Annual Report on Form 10-K for the year ended December 31, 2009, filed March 1,
2010, Commission File No. 001-33807).***
Professional Services Agreement, dated August 4, 2009, between EchoStar Corporation and DISH
Network Corporation (incorporated by reference from Exhibit 10.3 to EchoStar Corporation’s
Quarterly Report on Form 10-Q for the quarter ended September 30, 2009, filed November 9,
2009, Commission File No. 001-33807).***
Allocation Agreement, dated August 4, 2009, between EchoStar Corporation and DISH Network
Corporation (incorporated by reference from Exhibit 10.4 to EchoStar Corporation’s Quarterly
Report on Form 10-Q for the quarter ended September 30, 2009, filed November 9, 2004,
Commission File No. 001-33807).
Form A Amendment to form of Satellite Capacity Agreement between EchoStar Corporation and
DISH Network L.L.C. (incorporated by reference to Exhibit 10.34 to EchoStar Corporation’s
Annual Report on Form 10-K for the year ended December 31, 2009, filed March 1, 2010,
Commission File No. 001-33807).
Form B Amendment to Form of Satellite Capacity Agreement between EchoStar Satellite Services
L.L.C. and DISH Network L.L.C. (incorporated by reference to Exhibit 10.35 to EchoStar
Corporation’s Annual Report on Form 10-K for the year ended December 31, 2009, filed March 1,
2010, Commission File No. 001-33807).
EchoStar XVI Satellite Transponder Service Agreement between EchoStar Satellite Operating
Corporation and DISH Network L.L.C., effective December 21, 2009 (incorporated by reference
to Exhibit 10.36 to EchoStar Corporation’s Annual Report on Form 10-K for the year ended
December 31, 2009, filed March 1, 2010, Commission File No. 001-33807).***
Contract between Hughes Network Systems, LLC and Space Systems/Loral, Inc. for the Hughes
Jupiter Satellite Program dated June 8, 2009 (incorporated by reference to Exhibit 10.1 to the
Quarterly Report on Form 10-Q of Hughes Communications, Inc., filed August 7, 2009,
Commission File No. 001-33040). ***
Employment Agreement, dated as of April 23, 2005 between Hughes Network Systems, LLC and
Pradman Kaul (incorporated by reference to Exhibit 10.3 to the Registration Statement on Form
S-1 of Hughes Communications, Inc., filed December 5, 2005, Commission File No. 333-
130136).**
Amendment to Employment Agreement, dated as of December 23, 2010 between Hughes
Communications, Inc. and Pradman Kaul (incorporated by reference to Exhibit 10.29 to the
Annual Report on Form 10-K of Hughes Communications, Inc., filed March 7, 2011, Commission
File No. 001-33040).**
Cost Allocation Agreement, dated April 29, 2011, between EchoStar Corporation and DISH
Network Corporation (incorporated by reference to Exhibit 10.2 to EchoStar Corporation’s
Quarterly Report on Form 10-Q for the quarter ended June 30, 2011, filed August 9, 2011,
Commission File No. 001-33807).
79
10.30*
10.31*
Settlement and Patent License between TiVo Inc. and DISH Network Corporation and EchoStar
Corporation, dated as of April 29, 2011 (incorporated by reference to Exhibit 10.9 to EchoStar
Corporation’s Quarterly Report on Form 10-Q/A for the quarter ended June 30, 2011, filed
February 21, 2012, Commission File No. 001-33807).***
Receiver Agreement dated January 1, 2012 between Echosphere L.L.C and EchoStar
Technologies L.L.C. (“2012 Receiver Agreement”) (incorporated by reference to Exhibit 10.1 to
EchoStar Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2012,
filed May 7, 2012, Commission File No. 001-33807).***
10.32 (H)
Second Amendment to 2012 Receiver Agreement, dated November 4, 2015.
10.33*
10.34*
10.35*
10.36*
10.37*
10.38*
Broadcast Agreement dated January 1, 2012 between EchoStar Broadcasting Corporation and
DISH Network L.L.C. (incorporated by reference to Exhibit 10.2 to EchoStar Corporation’s
Quarterly Report on Form 10-Q for the quarter ended March 31, 2012, filed May 7, 2012,
Commission File No. 001-33807). ***
First Amendment to EchoStar XVI Satellite Transponder Service Agreement, dated as of
December 21, 2012 between EchoStar Satellite Operating Corporation and DISH Network
L.L.C. (incorporated by reference to Exhibit 10.47 to EchoStar Corporation’s Annual Report on
Form 10-K for the year ended December 31, 2012, filed February 20, 2013, Commission File
No. 001-33807).***
Transaction Agreement, dated as of February 20, 2014, by and among EchoStar Corporation,
Hughes Satellite Systems Corporation, Alpha Company LLC, DISH Network, L.L.C., DISH
Operating L.L.C. and EchoStar XI Holding L.L.C. (incorporated by reference to Exhibit 10.1 to
EchoStar Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2014,
filed May 9, 2014, Commission File No. 001-33807).***
Investor Rights Agreement, dated as of February 20, 2014, by and among EchoStar Corporation,
Hughes Satellite Systems Corporation, DISH Operating L.L.C. and DISH Network L.L.C.
(incorporated by reference to Exhibit 10.2 to EchoStar Corporation’s Quarterly Report on Form
10-Q for the quarter ended March 31, 2014, filed May 9, 2014, Commission File No. 001-
33807).***
Form of Satellite Transponder Service Agreement by and between EchoStar Satellite Operating
Corporation and DISH Operating L.L.C (incorporated by reference to Exhibit 10.3 to EchoStar
Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2014, filed May
9, 2014, Commission File No. 001-33807).
Form of Restricted Stock Unit Agreement for 2008 Stock Incentive Plan – Executive or Director
(incorporated by reference to Exhibit 10.1 to EchoStar Corporation’s Quarterly Report on Form
10-Q for the quarter ended September 30, 2015, filed November 6, 2015, Commission File No.
001-33807).**
10.39(H)
Form of Stock Option Agreement for 2008 Stock Incentive Plan (1999) **
10.40(H)
Form of Stock Option Agreement for 2008 Stock Incentive Plan – Employee (2008) **
10.41(H)
Form of Stock Option Agreement for 2008 Stock Incentive Plan – Executive (2008) **
10.42(H)
Form of Stock Option Agreement for 2008 Stock Incentive Plan – Employee (2014) **
10.43(H)
Form of Stock Option Agreement for 2008 Stock Incentive Plan – Executive (2014)**
10.44(H)
Form of Non-Employee Director Stock Option Agreement for 2008 Non-Employee Director
Stock Option Plan. **
80
10.45(H)
Form of Restricted Stock Unit Agreement for 2008 Stock Incentive Plan – Executive or Director
(2011).**
21(H)
Subsidiaries of EchoStar Corporation.
23(H)
Consent of KPMG LLP, Independent Registered Public Accounting Firm.
24(H)
Powers of Attorney of Charles W. Ergen, R. Stanton Dodge, Anthony M. Federico, Pradman P.
Kaul, Tom A. Ortolf and C. Michael Schroeder.
31.1(H)
Section 302 Certification of Chief Executive Officer.
31.2(H)
Section 302 Certification of Chief Financial Officer.
32.1(I)
Section 906 Certifications of Chief Executive Officer and Chief Financial Officer.
99.1(H)
Unaudited Condensed Attributed Financial Information and Notes for Hughes Retail Group
101.INS XBRL Instance Document.
101.SCH XBRL Taxonomy Extension Schema.
101.CAL XBRL Taxonomy Extension Calculation Linkbase.
101.DEF XBRL Taxonomy Extension Definition Linkbase.
101.LAB XBRL Taxonomy Extension Label Linkbase.
101.PRE XBRL Taxonomy Extension Presentation Linkbase.
(H)
(I)
*
**
***
****
Filed herewith.
Furnished herewith
Incorporated by reference.
Constitutes a management contract or compensatory plan or arrangement.
Certain portions of the exhibit have been omitted and separately filed with the Securities and Exchange Commission with a request for
confidential treatment.
Schedules and exhibits have been omitted pursuant to Item 601(b)(2) of Regulation S-K. We agree to furnish supplementally to the
Securities and Exchange Commission a copy of any omitted schedule or exhibit upon request, subject to our right to request
confidential treatment of any requested schedule or exhibit.
81
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
ECHOSTAR CORPORATION
By:
/s/ David J. Rayner
David J. Rayner
Executive Vice President,
Chief Financial Officer, and
Treasurer
Date: February 24, 2016
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ Michael T. Dugan
Michael T. Dugan
Chief Executive Officer, President and Director
(Principal Executive Officer)
February 24, 2016
/s/ David J. Rayner
David J. Rayner
Executive Vice President,
Chief Financial Officer, and Treasurer
(Principal Financial and Accounting Officer)
February 24, 2016
Chairman
February 24, 2016
February 24, 2016
February 24, 2016
February 24, 2016
February 24, 2016
February 24, 2016
*
Charles W. Ergen
*
R. Stanton Dodge
*
Anthony M. Federico
*
Pradman P. Kaul
*
Tom A. Ortolf
Director
Director
Director
Director
*
C. Michael Schroeder
Director
* By: /s/ Dean A. Manson
Dean A. Manson
Attorney-in-Fact
82
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Financial Statements:
Index to Consolidated Financial Statements ....................................................................................................... F-1
Report of Independent Registered Public Accounting Firm ............................................................................... F-2
Consolidated Balance Sheets as of December 31, 2015 and 2014 ..................................................................... F-3
Consolidated Statements of Operations and Comprehensive Income (Loss) for the
years ended December 31, 2015, 2014 and 2013 ............................................................................................ F-4
Consolidated Statements of Changes in Stockholders’ Equity for the years ended
December 31, 2015, 2014 and 2013 ............................................................................................................... F-5
Consolidated Statements of Cash Flows for the years ended December 31, 2015, 2014 and 2013.................... F-6
Notes to Consolidated Financial Statements ...................................................................................................... F-7
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
EchoStar Corporation:
We have audited the accompanying consolidated balance sheets of EchoStar Corporation and subsidiaries as of
December 31, 2015 and 2014, and the related consolidated statements of operations and comprehensive income
(loss), changes in stockholders' equity, and cash flows for each of the years in the three-year period ended
December 31, 2015, and the financial statement schedules I and II listed in Item 15. We also have audited EchoStar
Corporation's internal control over financial reporting as of December 31, 2015, based on criteria established in
Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). EchoStar Corporation's management is responsible for these consolidated financial
statements and financial statement schedules, for maintaining effective internal control over financial reporting, and
for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying
Management's Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an
opinion on these consolidated financial statements and financial statement schedules, and an opinion on EchoStar
Corporation's internal control over financial reporting based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about
whether the financial statements are free of material misstatement and whether effective internal control over
financial reporting was maintained in all material respects. Our audits of the consolidated financial statements
included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by management, and evaluating the overall
financial statement presentation. Our audit of internal control over financial reporting included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and
testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our
audits also included performing such other procedures as we considered necessary in the circumstances. We believe
that our audits provide a reasonable basis for our opinions.
A company's internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company's internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the
financial position of EchoStar Corporation and subsidiaries as of December 31, 2015 and 2014, and the results of
their operations and their cash flows for each of the years in the three-year period ended December 31, 2015, in
conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement
schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly,
in all material respects, the information set forth therein. Also in our opinion, EchoStar Corporation maintained, in
all material respects, effective internal control over financial reporting as of December 31, 2015, based on criteria
established in Internal Control—Integrated Framework (2013) issued by the COSO.
Denver, Colorado
February 24, 2016
/s/ KPMG LLP
F-2
ECHOSTAR CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
As of December 31,
2015
2014
Current Assets:
Assets
Cash and cash equivalents...................................................................................................................................................................
Marketable investment securities, at fair value.................................................................................................................................
Trade accounts receivable, net of allowance for doubtful accounts of $12,485 and $14,188, respectively.............................
Trade accounts receivable - DISH Network, net of allowance for doubtful accounts of zero...................................................
Inventory.................................................................................................................................................................................................
Prepaid expenses....................................................................................................................................................................................
Deferred tax assets.................................................................................................................................................................................
Other current assets...............................................................................................................................................................................
Total current assets...................................................................................................................................................................................
Noncurrent Assets:
Restricted cash and marketable investment securities.....................................................................................................................
Property and equipment, net of accumulated depreciation of $2,998,074 and $2,899,353, respectively...................................
Regulatory authorizations, net.............................................................................................................................................................
Goodwill...................................................................................................................................................................................................
Other intangible assets, net..................................................................................................................................................................
Investments in unconsolidated entities..............................................................................................................................................
Other receivable - DISH Network.........................................................................................................................................................
Other noncurrent assets, net ...............................................................................................................................................................
Total noncurrent assets............................................................................................................................................................................
Total assets.................................................................................................................................................................................
$
924,240
612,338
179,240
277,159
67,010
56,949
-
16,723
2,133,659
$
549,053
1,139,103
163,232
251,669
62,963
67,164
87,208
7,699
2,328,091
21,002
3,412,990
543,812
510,630
132,653
209,264
90,966
185,786
5,107,103
7,240,762
$
18,945
3,194,793
568,378
510,630
195,662
159,962
90,241
187,296
4,925,907
7,253,998
$
Current Liabilities:
Liabilities and Stockholders’ Equity
Trade accounts payable........................................................................................................................................................................
Trade accounts payable - DISH Network...........................................................................................................................................
Current portion of long-term debt and capital lease obligations....................................................................................................
Deferred revenue and prepayments....................................................................................................................................................
Accrued compensation.........................................................................................................................................................................
Accrued royalties...................................................................................................................................................................................
Accrued expenses and other................................................................................................................................................................
Total current liabilities...............................................................................................................................................................................
Noncurrent Liabilities:
Long-term debt and capital lease obligations, net of current portion............................................................................................
Deferred tax liabilities.............................................................................................................................................................................
Other noncurrent liabilities...................................................................................................................................................................
Total noncurrent liabilities........................................................................................................................................................................
Total liabilities.....................................................................................................................................................................................
$
213,671
24,682
35,698
61,881
29,767
22,531
138,601
526,831
$
188,282
32,474
41,912
71,708
32,117
27,590
123,650
517,733
2,187,943
650,392
93,954
2,932,289
3,459,120
2,325,775
679,524
107,328
3,112,627
3,630,360
Commitments and Contingencies (Note 16)
Stockholders’ Equity:
Preferred Stock, $.001 par value, 20,000,000 shares authorized:
Hughes Retail Preferred Tracking Stock, $.001 par value, 13,000,000 shares authorized, 6,290,499 issued and
outstanding at each of December 31, 2015 and 2014................................................................................................................
Common stock, $.001 par value, 4,000,000,000 shares authorized:
Class A common stock, $.001 par value, 1,600,000,000 shares authorized, 51,087,839 shares issued and
45,555,521 shares outstanding at December 31, 2015 and 49,576,247 shares issued and 44,043,929 shares
outstanding at December 31, 2014...............................................................................................................................................
Class B common stock, $.001 par value, 800,000,000 shares authorized, 47,687,039 shares issued and outstanding
at each of December 31, 2015 and 2014.......................................................................................................................................
Class C common stock, $.001 par value, 800,000,000 shares authorized, none issued and outstanding at each of
December 31, 2015 and 2014.........................................................................................................................................................
Class D common stock, $.001 par value, 800,000,000 shares authorized, none issued and outstanding at each of
December 31, 2015 and 2014.........................................................................................................................................................
Additional paid-in capital......................................................................................................................................................................
Accumulated other comprehensive loss............................................................................................................................................
Accumulated earnings (deficit)............................................................................................................................................................
Treasury stock, at cost..........................................................................................................................................................................
Total EchoStar stockholders' equity.......................................................................................................................................................
Noncontrolling interest in HSS Tracking Stock.....................................................................................................................................
Other noncontrolling interests.................................................................................................................................................................
Total stockholders' equity................................................................................................................................................................
Total liabilities and stockholders' equity................................................................................................................................
6
51
48
-
-
6
50
48
-
-
3,776,451
(117,233)
134,317
(98,162)
3,695,478
74,854
11,310
3,781,642
7,240,762
$
3,706,122
(55,856)
(19,040)
(98,162)
3,533,168
80,457
10,013
3,623,638
7,253,998
$
The accompanying notes are an integral part of these consolidated financial statements.
F-3
ECHOSTAR CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(In thousands, except per share amounts)
Revenue:
Equipment revenue - DISH Network........................................................................................
Equipment revenue - other........................................................................................................
Services and other revenue - DISH Network..........................................................................
Services and other revenue - other..........................................................................................
Total revenue..................................................................................................................................
Costs and Expenses:
Cost of sales - equipment (exclusive of depreciation and amortization)............................
Cost of sales - services and other (exclusive of depreciation and amortization)..............
Selling, general and administrative expenses.........................................................................
Research and development expenses......................................................................................
Depreciation and amortization..................................................................................................
Impairment of long-lived assets...............................................................................................
Total costs and expenses..............................................................................................................
Operating income............................................................................................................................
For the Years Ended December 31,
2015
2013
2014
$
763,184
358,301
918,301
1,103,928
3,143,714
$
1,145,979
374,049
828,612
1,096,938
3,445,578
$
1,311,446
347,910
620,189
1,002,907
3,282,452
948,655
856,065
374,116
78,287
528,158
2,400
2,787,681
356,033
1,288,998
838,918
372,010
60,886
556,676
-
3,117,488
328,090
1,430,777
776,121
358,499
67,942
507,111
38,415
3,178,865
103,587
Other Income (Expense):
Interest income............................................................................................................................
Interest expense, net of amounts capitalized..........................................................................
Loss from partial redemption of debt.......................................................................................
Gains (losses) on marketable investment securities, net......................................................
Other-than-temporary impairment loss on marketable investment securities...................
Equity in earnings (losses) of unconsolidated affiliates, net...............................................
Other, net.....................................................................................................................................
Total other expense, net................................................................................................................
Income (loss) before income taxes...........................................................................................
Income tax (provision) benefit, net..........................................................................................
Net income.......................................................................................................................................
Less: Net loss attributable to noncontrolling interest in HSS Tracking Stock.....................
Less: Net income attributable to other noncontrolling interests............................................
Net income attributable to EchoStar............................................................................................
Less: Net loss attributable to Hughes Retail Preferred Tracking Stock (Note 4)..................
Net income attributable to EchoStar common stock.........................................................
10,429
(122,066)
(5,044)
(6,443)
(11,226)
1,895
(2,006)
(134,461)
221,572
(72,201)
149,371
(5,603)
1,617
153,357
(10,343)
163,700
$
9,102
(171,349)
-
41
-
8,198
4,251
(149,757)
178,333
(30,784)
147,549
(6,714)
1,389
152,874
(12,394)
165,268
$
14,656
(192,554)
-
38,341
-
(5,024)
6,958
(137,623)
(34,036)
37,437
3,401
-
876
2,525
-
2,525
$
Weighted-average common shares outstanding - Class A and B common stock:
Basic.............................................................................................................................................
Diluted..........................................................................................................................................
92,397
93,466
91,190
92,616
89,405
90,952
Earnings per share - Class A and B common stock:
Basic.............................................................................................................................................
$
1.77
$
1.81
$
0.03
Diluted..........................................................................................................................................
$
1.75
$
1.78
$
0.03
Comprehensive Income (Loss)
Net income.......................................................................................................................................
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments..............................................................................
Recognition of foreign currency translation loss in net income.........................................
Unrealized gains (losses) on marketable investment securities and other........................
Recognition of other-than-temporary loss on marketable investment
$
149,371
$
147,549
$
3,401
(62,731)
1,889
(12,046)
(31,935)
-
(9,462)
(16,394)
-
18,413
securities in net income.........................................................................................................
11,226
-
-
Recognition of realized gains on marketable investment
securities in net income.........................................................................................................
Total other comprehensive loss, net of tax.................................................................................
Comprehensive income (loss)...................................................................................................
Less: Comprehensive loss attributable to noncontrolling interest in
(35)
(61,697)
87,674
(41)
(41,438)
106,111
(36,312)
(34,293)
(30,892)
HSS Tracking Stock................................................................................................................
Less: Comprehensive income (loss) attributable to other noncontrolling interests........
Comprehensive income (loss) attributable to EchoStar............................................................
(5,603)
1,297
91,980
$
(6,714)
1,152
111,673
$
-
(10)
(30,882)
$
The accompanying notes are an integral part of these consolidated financial statements.
F-4
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T
ECHOSTAR CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
For the Years Ended December 31,
2015
2013
2014
Cash Flows from Operating Activities:
Net income...........................................................................................................................................................
Adjustments to reconcile net income to net cash flows from operating activities:
$
149,371
$
147,549
$
3,401
Depreciation and amortization......................................................................................................................
Equity in losses (earnings) of unconsolidated affiliates, net..................................................................
Loss from partial redemption of debt..........................................................................................................
Losses (gains) and other-than-temporary impairment on marketable investment securities, net......
Impairment of long-lived assets...................................................................................................................
Stock-based compensation...........................................................................................................................
Deferred tax provision (benefit)...................................................................................................................
Changes in current assets and current liabilities, net:
Trade accounts receivable........................................................................................................................
Allowance for doubtful accounts............................................................................................................
Trade accounts receivable - DISH Network...........................................................................................
Inventory.....................................................................................................................................................
Other current assets ..................................................................................................................................
Trade accounts payable............................................................................................................................
Trade accounts payable - DISH Network...............................................................................................
Accrued expenses and other ...................................................................................................................
Changes in noncurrent assets and noncurrent liabilities, net.................................................................
Other, net.........................................................................................................................................................
Net cash flows from operating activities................................................................................................
Cash Flows from Investing Activities:
Purchases of marketable investment securities.............................................................................................
Sales and maturities of marketable investment securities............................................................................
Purchases of property and equipment............................................................................................................
Refunds and other receipts related to capital expenditures.........................................................................
Changes in restricted cash and marketable investment securities.............................................................
Investments in unconsolidated entities..........................................................................................................
Acquisition of regulatory authorization.........................................................................................................
Proceeds from asset transfers to DISH Network...........................................................................................
Capital contribution to Sling TV Holding.......................................................................................................
Expenditures for externally marketed software..............................................................................................
Other, net.............................................................................................................................................................
Net cash flows from investing activities.................................................................................................
Cash Flows from Financing Activities:
528,158
(1,895)
5,044
17,669
2,400
21,839
56,132
(36,749)
(1,703)
(25,490)
(4,906)
6,499
37,228
(7,792)
1,477
1,616
27,553
776,451
(536,430)
1,057,034
(809,270)
105,750
(2,057)
(64,655)
(3,428)
-
-
(22,327)
72
(275,311)
556,676
(8,198)
-
(41)
-
14,683
31,742
(18,023)
950
104,051
2,608
9,930
(22,230)
(26,508)
26,469
(8,305)
28,778
840,131
507,111
5,024
-
(38,341)
38,415
18,353
(35,780)
42,580
(2,995)
(77,790)
16,529
5,182
(76,497)
28,783
38,085
(41,650)
20,097
450,507
(1,523,514)
1,353,157
(680,026)
-
(2,808)
-
-
-
(18,569)
(22,955)
7,125
(887,590)
(1,080,437)
912,030
(391,873)
-
12,908
-
(41,748)
40,398
(7,000)
(17,215)
2,648
(570,289)
Repayment of 6 1/2% Senior Secured Notes due 2019 and related premium............................................
Repayment of other long-term debt and capital lease obligations.............................................................
Net proceeds from Class A common stock options exercised and stock issued under
(113,300)
(44,804)
-
(63,122)
-
(68,225)
the Employee Stock Purchase Plan..............................................................................................................
Net proceeds from issuance of Tracking Stock (Note 4)..............................................................................
Excess tax benefit from stock option exercises..............................................................................................
Other, net.............................................................................................................................................................
Net cash flows from financing activities.................................................................................................
Effect of exchange rates on cash and cash equivalents.......................................................................
Net increase (decrease) in cash and cash equivalents.....................................................................................
Cash and cash equivalents, beginning of period..............................................................................................
Cash and cash equivalents, end of period.....................................................................................................
38,729
-
3,929
(4,811)
(120,257)
(5,696)
375,187
549,053
924,240
$
28,857
7,526
(7,252)
(1,105)
(35,096)
(2,511)
(85,066)
634,119
549,053
$
71,247
-
12,663
2,641
18,326
3,961
(97,495)
731,614
634,119
$
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest (including capitalized interest)..................................................................................
Capitalized interest.............................................................................................................................................
Cash paid for income taxes...............................................................................................................................
Employee benefits paid in Class A common stock.......................................................................................
Satellites and other assets financed under capital lease obligations.........................................................
Increase (decrease) in capital expenditures included in accounts payable, net.......................................
Noncash assets contributed to SmarDTV (Note 6).......................................................................................
Net noncash assets transferred from DISH Network in exchange for Tracking Stock (Note 4).............
Noncash assets received from Sling TV Holding (Note 6)..........................................................................
Capitalized in-orbit incentive obligations.......................................................................................................
Reduction of capital lease obligation for AMC-15 and AMC-16................................................................
Liabilities assumed in regulatory authorization acquisition........................................................................
179,114
$
63,808
$
6,394
$
10,711
$
8,604
$
(7,123)
$
$
6,651
$
-
$
-
$
-
$
4,500
$
-
188,087
$
23,774
$
14,221
$
10,316
$
3,312
$
$
11,436
$
-
$
386,691
$
34,075
$
-
$
-
$
-
188,331
$
3,968
$
16,728
$
4,761
$
5,316
$
$
(8,921)
-
$
-
$
$
-
$
18,000
$
6,694
$
10,304
The accompanying notes are an integral part of these consolidated financial statements.
F-6
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Organization and Business Activities
Principal Business
EchoStar Corporation (which, together with its subsidiaries, is referred to as “EchoStar,” the “Company,” “we,” “us”
and/or “our”) is a holding company that was organized in October 2007 as a corporation under the laws of the State
of Nevada. We are a global provider of satellite operations, video delivery solutions, digital set-top boxes, and
broadband satellite technologies and services for home and office, delivering innovative network technologies,
managed services, and solutions for enterprises and governments. Our Class A common stock is publicly traded on
the Nasdaq Global Select Market (“Nasdaq”) under the symbol “SATS.”
We currently operate in the following three business segments:
(cid:120) Hughes – which provides satellite broadband internet access to North American consumers and broadband
network services and equipment to domestic and international enterprise markets. The Hughes segment
also provides managed services to large enterprises and solutions to customers for mobile satellite systems.
(cid:120) EchoStar Technologies (“ETC”) – which designs, develops and distributes secure end-to-end video
technology solutions including digital set-top boxes and related products and technology, primarily for
satellite TV service providers and telecommunication companies. Our EchoStar Technologies segment also
provides digital broadcast operations, including satellite uplinking/downlinking, transmission services,
signal processing, conditional access management, and other services, primarily to DISH Network
Corporation and its subsidiaries (“DISH Network”) and Dish Mexico, S. de R.L. de C.V. (“Dish Mexico”),
a joint venture we entered into in 2008. In addition, we provide our TV Anywhere technology through
Slingbox® units directly to consumers via retail outlets and online, as well as to the pay-TV operator
market. Beginning in 2015, this segment also includes Move Networks, our over-the-top (“OTT”),
Streaming Video on Demand (“SVOD”) platform business, which includes assets acquired from Sling TV
Holding L.L.C. (formerly DISH Digital Holding L.L.C.) (“Sling TV Holding”), and primarily provides
support services to DISH Network’s Sling TV operations. In 2016, we plan to introduce a security and
home automation solution provided directly to consumers.
(cid:120) EchoStar Satellite Services (“ESS”) – which uses certain of our owned and leased in-orbit satellites and
related licenses to provide satellite services on a full-time and occasional-use basis primarily to DISH
Network, Dish Mexico, United States (“U.S.”) government service providers, internet service providers,
broadcast news organizations, programmers, and private enterprise customers.
Our operations also include real estate and other activities that have not been assigned to our operating segments,
including, costs incurred in certain satellite development programs and other business development activities,
expenses of various corporate departments, and our centralized treasury operations, including, income from our
investment portfolio and interest expense on our debt. These activities are accounted for in the “All Other and
Eliminations” column in Note 17.
In 2008, DISH Network completed its distribution to us of its digital set-top box business, certain infrastructure, and
other assets and related liabilities, including certain of its satellites, uplink and satellite transmission assets, and real
estate (the “Spin-off”). Since the Spin-off, EchoStar and DISH Network have operated as separate publicly-traded
companies. However, as a result of the Satellite and Tracking Stock Transaction, described in Note 4, DISH
Network owns shares of our and our subsidiary’s preferred tracking stock representing an aggregate 80.0%
economic interest in the residential retail satellite broadband business of our Hughes segment. In addition, a
substantial majority of the voting power of the shares of DISH Network and EchoStar is owned beneficially by
Charles W. Ergen, our Chairman, and by certain trusts established by Mr. Ergen for the benefit of his family.
F-7
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Note 2. Summary of Significant Accounting Policies
Principles of Consolidation and Basis of Presentation
We consolidate all entities in which we have controlling financial interest. We are deemed to have a controlling
financial interest in variable interest entities where we are the primary beneficiary. We are deemed to have a
controlling financial interest in other entities when we own more than 50 percent of the outstanding voting shares
and other shareholders do not have substantive rights to participate in management. For entities we control but do
not wholly own, we record a noncontrolling interest within stockholders’ equity for the portion of the entity’s equity
attributed to the noncontrolling ownership interests. As of December 31, 2015 and 2014, noncontrolling interests
consist primarily of HSS Tracking Stock owned by DISH Network (see Note 4). All significant intercompany
balances and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles in the United
States (“GAAP”) requires us to make certain estimates and assumptions that affect the reported amounts of assets
and liabilities at the date of the balance sheets, the reported amounts of revenue and expense for each reporting
period, and certain information disclosed in the notes to our consolidated financial statements. Estimates are used in
accounting for, among other things, amortization periods for deferred subscriber acquisition costs, revenue
recognition using the percentage-of-completion method, allowances for doubtful accounts, allowances for sales
returns and rebates, warranty obligations, self-insurance obligations, deferred taxes and related valuation
allowances, uncertain tax positions, loss contingencies, fair value of financial instruments, fair value of stock-based
compensation awards, fair value of assets and liabilities acquired in business combinations, lease classifications,
asset impairment testing, useful lives and methods for depreciation and amortization of long-lived assets, and certain
royalty obligations. We base our estimates and assumptions on historical experience, observable market inputs and
on various other factors that we believe to be relevant under the circumstances. Due to the inherent uncertainty
involved in making estimates, actual results may differ from previously estimated amounts, and such differences
may be material to our consolidated financial statements. Changing economic conditions may increase the inherent
uncertainty in the estimates and assumptions indicated above. We review our estimates and assumptions
periodically and the effects of revisions are reflected in the period they occur or prospectively if the revised estimate
affects future periods.
Foreign Currency
The functional currency for certain of our foreign operations is determined to be the local currency. Accordingly, we
translate assets and liabilities of these foreign entities from their local currencies to U.S. dollars using period-end
exchange rates and translate income and expense accounts at monthly average rates. The resulting translation
adjustments are recorded in other comprehensive income (loss) as “Foreign currency translation adjustments” in our
consolidated statements of operations and comprehensive income (loss). We have not recorded deferred income
taxes related to our foreign currency translation adjustments.
Gains and losses resulting from re-measurement of assets and liabilities denominated in foreign currencies into the
functional currency are recognized in “Other, net” in our consolidated statements of operations and comprehensive
income (loss). We recognized net foreign currency transaction losses of $7.7 million, $3.0 million and $1.1 million
for the years ended December 31, 2015, 2014 and 2013, respectively.
Cash and Cash Equivalents
We consider all liquid investments purchased with an original maturity of 90 days or less to be cash equivalents.
Cash equivalents as of December 31, 2015 and 2014 primarily consisted of money market funds, government bonds,
corporate notes, and commercial paper. The amortized cost of these investments approximates their fair value.
F-8
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Marketable Investment Securities
We classify our marketable investment securities as available-for-sale, except in certain instances where we have
accounted for certain securities as trading securities. We report our marketable investment securities at fair value
and generally recognize the difference between fair value and amortized cost as “Unrealized gains (losses) on
marketable investment securities and other” in our consolidated statements of operations and comprehensive income
(loss). Declines in the fair value of marketable investment securities that are determined to be other than temporary
are recognized in earnings, thus establishing a new cost basis for the investment. Interest and dividend income from
marketable investment securities is reported in “Interest income” and “Other, net,” respectively, in our consolidated
statements of operations and comprehensive income (loss). Dividend income is recognized on the ex-dividend date.
We evaluate our marketable investment securities portfolio on a quarterly basis to determine whether declines in the
fair value of these securities are other than temporary. Our evaluation consists of reviewing, among other things:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
the fair value of each security compared to its amortized cost;
the length of time and the extent to which the fair value of a security has been lower than amortized cost;
the historical volatility of the price of each security;
any market and company-specific factors related to each security; and
our intent and ability to hold the investment to recovery.
Where the fair value of a debt security has declined below its amortized cost, we consider the decline to be other
than temporary if any of the following factors apply:
(cid:120) we intend to sell the security,
(cid:120)
it is more likely than not that we will be required to sell the security before maturity or recovery, or
(cid:120) we do not expect to recover the security’s entire amortized cost basis, even if there is no intent to sell the
security.
We use the first-in, first-out (“FIFO”) method to determine the cost basis on sales of marketable investment
securities.
Investments in Unconsolidated Entities – Cost and Equity Method
We use the equity method to account for equity investments in entities that we do not control but have the ability to
significantly influence the operating decisions of the investee. We use the cost method when we do not have the
ability to significantly influence the operating decisions of the entity.
Generally, our equity investments accounted for using either the equity method or cost method are not publicly
traded and it is not practicable to regularly estimate the fair value of such investments. We evaluate these equity
investments on a quarterly basis to determine whether an event or changes in circumstances has occurred that may
have a significant adverse effect on the fair value of the investment. As part of our evaluation, we review available
information such as business plans and current financial statements of these companies for factors that may indicate
an impairment of our investments. Such factors may include, but are not limited to, unprofitable operations,
negative cash flow, material litigation, violations of debt covenants, bankruptcy and changes in business strategy.
When we determine that an investment is impaired, and the impairment is other than temporary, we adjust the
carrying amount of the investment to its estimated fair value and recognize the impairment loss in earnings.
Generally, equity method investments are initially recorded at cost and subsequently adjusted for our proportionate
share of the net earnings or loss of the investee, which is reported in “Equity in earnings (losses) of unconsolidated
affiliates, net” in our consolidated statements of operations and comprehensive income (loss). The carrying amount
of our investments may include a component of goodwill if the cost of our investment exceeds the fair value of the
underlying identifiable assets and liabilities of the investee. Dividends received from equity method investees
reduce the carrying amount of the investment. We defer, to the extent of our ownership interest in the investee,
F-9
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
recognition of intra-entity profits on sales of equipment to the investee until the investee has charged the cost of the
equipment to expense in a subsequent sale to a third party or through depreciation. In these circumstances, we
report the gross amounts of revenue and cost of sales in the statement of operations and include the intra-entity profit
eliminations within “Equity in earnings (losses) of unconsolidated affiliates, net.”
Accounts Receivable
We estimate allowances for the potential non-collectability of accounts receivable based upon past collection
experience and consideration of other relevant factors. Past experience may not be indicative of future collections
and therefore additional adjustments could be recognized in the future to reflect differences between estimated and
actual collections.
Inventory
Inventory is stated at the lower of cost, determined using the FIFO method, or net realizable value. Cost of
inventory consists primarily of materials, direct labor and indirect overhead incurred in the procurement and
manufacturing of our products. We use standard costing methodologies in determining the cost of certain of our
finished goods and work-in-process inventories. We determine net realizable value using our best estimates of
future use or recovery, considering the aging and composition of inventory balances, the effects of technological
and/or design changes, forecasted future product demand based on firm or near-firm customer orders, and alternative
means of disposition of excess or obsolete items.
Property and Equipment
Property and equipment is stated at cost, less accumulated depreciation. The cost of our satellites includes
construction costs, including the present value of in-orbit incentives payable to the satellite manufacturer, launch
costs, capitalized interest, and related insurance premiums. Depreciation is recorded on a straight-line basis over
lives ranging from one to 40 years. Repair and maintenance costs are charged to expense when incurred. Costs of
renewals and betterments are capitalized.
Impairment of Long-lived Assets
We review our long-lived assets for recoverability whenever events or changes in circumstances indicate that their
carrying amounts may not be recoverable. The evaluation is performed at the lowest level for which identifiable
cash flows are largely independent of the cash flows of other assets and liabilities. For assets held and used in
operations, the asset is not recoverable if the carrying amount of the asset exceeds its undiscounted estimated future
net cash flows. When an asset is not recoverable, we adjust the carrying amount of such asset to its estimated fair
value and recognize the impairment loss in earnings. Assets to be disposed of are reported at the lower of the
carrying amount or fair value less costs to sell.
Goodwill
Goodwill represents the excess of the cost of acquired businesses over the estimated fair value assigned to the
identifiable assets acquired and liabilities assumed. We do not amortize goodwill, but test goodwill for impairment
annually, or more frequently if circumstances indicate impairment may exist. Our goodwill as of December 31,
2015 consists primarily of goodwill assigned to reporting units of our Hughes segment. We test Hughes goodwill
for impairment in the second fiscal quarter. There are two steps to the goodwill impairment test. Step one compares
the fair value of a reporting unit with its carrying amount, including goodwill. We typically estimate fair value of
the reporting units using discounted cash flow techniques, which includes significant assumptions about prospective
financial information, terminal value and discount rates (Level 3 inputs). If the reporting unit’s carrying amount
exceeds its estimated fair value, it is necessary to perform the second step of the impairment test, which compares
the implied fair value of reporting unit goodwill with the carrying amount of such goodwill to determine the amount
of impairment loss. We may bypass the two-step goodwill impairment test if we determine, based on a qualitative
assessment, that it is more likely than not that the fair value of a reporting unit exceeds its carrying amount including
goodwill.
F-10
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Regulatory Authorizations and Other Intangible Assets
At acquisition and periodically thereafter, we evaluate our intangible assets to determine whether their useful lives
are finite or indefinite. We consider our intangible assets to have indefinite lives when no significant legal,
regulatory, contractual, competitive, economic, or other factors limit the useful life.
Intangible assets that have finite lives are amortized over their estimated useful lives, ranging from approximately
one to 30 years. When we expect to incur significant costs to renew or extend finite-lived intangible assets, we
amortize the total initial and estimated renewal costs over the combined initial and expected renewal terms. In such
instances, actual renewal costs are capitalized when they are incurred. We test intangible assets with finite lives for
impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be
recoverable, as discussed above under “Impairment of Long-lived Assets.”
We do not amortize our indefinite-lived intangible assets, but test those assets for impairment annually or more
frequently if circumstances indicate that it is more likely than not that the asset may be impaired. Costs incurred to
maintain or renew indefinite-lived intangible assets are expensed as incurred.
Our indefinite-lived intangible assets include Federal Communications Commission (“FCC”) authorizations and
certain other contractual or regulatory rights to use spectrum at specified orbital locations (collectively “Regulatory
Authorizations”). We have determined that our FCC authorizations generally have indefinite useful lives due to the
following:
(cid:120) FCC authorizations are non-depleting assets;
(cid:120)
renewal satellite applications generally are authorized by the FCC subject to certain conditions, without
substantial cost under a stable regulatory, legislative, and legal environment;
expenditures required to maintain the authorization are not significant; and
(cid:120)
(cid:120) we intend to use these authorizations indefinitely.
Our non-FCC regulatory authorizations consist primarily of authorizations in Europe and Brazil that we acquired in
2013 and 2012, respectively. We have determined that those Regulatory Authorizations have finite lives due to
uncertainties about the regulatory environments.
Income Taxes
We recognize a provision or benefit for income taxes currently payable or receivable and for income tax amounts
deferred to future periods. Deferred tax assets and liabilities are recorded for the estimated future tax effects of
differences that exist between the financial reporting carrying amount and tax basis of assets and liabilities.
Deferred tax assets are offset by valuation allowances when we determine it is more likely than not that such
deferred tax assets will not be realized in the foreseeable future.
From time to time, we engage in transactions where the income tax consequences are uncertain. We recognize tax
benefits when, in management’s judgment, a tax filing position is more likely than not to be sustained if challenged
by the tax authorities. For tax positions that meet the more-likely-than-not threshold, we may not recognize a
portion of a tax benefit depending on management’s assessment of how the tax position will ultimately be settled.
Unrecognized tax benefits generally are netted against the deferred tax assets associated with our net operating loss
carryforwards. We adjust our estimates periodically based on ongoing examinations by and settlements with various
taxing authorities, as well as changes in tax laws, regulations and precedent. We classify interest and penalties, if
any, associated with our unrecognized tax benefits as a component of income tax provision or benefit.
As discussed below under “New Accounting Pronouncements,” in 2015 we changed our method for classifying
deferred income taxes in our consolidated balance sheets in connection with our adoption of ASU 2015-17.
F-11
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Fair Value Measurements
We determine fair value based on the exchange price that would be received for an asset or paid to transfer a liability
(an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction
between market participants. Market or observable inputs are the preferred source of values, followed by
unobservable inputs or assumptions based on hypothetical transactions in the absence of market inputs. We utilize
the highest level of inputs available according to the following hierarchy in determining fair value:
(cid:120) Level 1, defined as observable inputs being quoted prices in active markets for identical assets;
(cid:120) Level 2, defined as observable inputs other than quoted prices included in Level 1, including quoted prices
for similar assets and liabilities in active markets; quoted prices for identical or similar instruments in
markets that are not active; and model-derived valuations in which significant inputs and significant value
drivers are observable in active markets; and
(cid:120) Level 3, defined as unobservable inputs for which little or no market data exists, consistent with
characteristics of the asset or liability that would be considered by market participants in a transaction to
purchase or sell the asset or liability.
Transfers between levels in the fair value hierarchy are considered to occur at the beginning of the quarterly
accounting period. There were no transfers between levels for each of the years ended December 31, 2015 or 2014.
As of December 31, 2015 and 2014, the carrying amounts of our cash and cash equivalents, trade accounts
receivable, net of allowance for doubtful accounts, accounts payable and accrued liabilities were equal to or
approximated fair value due to their short-term nature or proximity to current market rates.
Fair values of our current marketable investment securities are based on a variety of observable market inputs. For
our investments in publicly traded equity securities and U.S. government securities, fair value ordinarily is
determined based on a Level 1 measurement that reflects quoted prices for identical securities in active markets.
Fair values of our investments in other marketable debt securities generally are based on Level 2 measurements as
the markets for such debt securities are less active. Trades of identical debt securities on or near the measurement
date are considered a strong indication of fair value. Matrix pricing techniques that consider par value, coupon rate,
credit quality, maturity and other relevant features also may be used to determine fair value of our investments in
marketable debt securities.
Fair values for our publicly traded long-term debt are based on quoted market prices in less active markets and are
categorized as Level 2 measurements. The fair values of our privately held debt are Level 2 measurements and are
estimated to approximate their carrying amounts based on the proximity of their interest rates to current market
rates. As of December 31, 2015 and 2014, the fair values of our in-orbit incentive obligations, based on
measurements categorized within Level 2 of the fair value hierarchy, approximated their carrying amounts of
$79.3 million and $85.8 million, respectively. We use fair value measurements from time to time in connection with
impairment testing and the assignment of purchase consideration to assets and liabilities of acquired companies.
Those fair value measurements typically include significant unobservable inputs and are categorized within Level 3
of the fair value hierarchy.
Revenue Recognition
Revenue from the sale of equipment and services generally is recognized when persuasive evidence of an
arrangement exists, prices are fixed or determinable, collectability is reasonably assured, and the goods have been
delivered or services have been rendered. If any of these criteria are not met, revenue recognition is deferred until
such time as all of the criteria are met. Revenue from equipment sales generally is recognized upon shipment to
customers. Revenue from recurring services generally is recognized ratably over the service term. Upfront fees
collected in connection with services to consumer subscribers in our Hughes segment are deferred and recognized as
revenue over the estimated subscriber life. We may offer rebates to qualifying new consumer subscribers in our
Hughes segment. We reduce related revenue at inception of the subscriber contract based on an estimate of the
number of rebates that will be redeemed. Our estimates are based on historical experience and actual sales during
the promotion.
F-12
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Services and other revenue includes revenue from leases of satellite capacity and equipment. We typically
determine based on applicable criteria that our leasing arrangements are operating leases and recognize related
revenue on a straight-line basis over the lease term.
In situations where customer offerings represent an arrangement for both services and equipment, revenue elements
with standalone value to the customer are separated for revenue recognition purposes based on their selling prices if
sold separately. We determine selling prices under a hierarchy that considers vendor-specific objective evidence
(“VSOE”), third-party evidence and estimated selling prices. Typically, we derive VSOE from service renewal rates
and optional equipment prices specified in customer contracts or we estimate prices based on the gross margin that
we ordinarily realize in transactions with similarly situated customers.
In addition to equipment and service offerings, our Hughes segment also enters into contracts to design, develop,
and deliver complex telecommunication networks to customers in its enterprise and mobile satellite systems
markets. Those contracts require significant effort to develop and construct the network over an extended time
period. Revenue from such contracts is recognized using the percentage-of-completion method. Depending on the
nature of the arrangement, we measure progress toward contract completion using the cost-to-cost method or the
units-of-delivery method. Under the cost-to-cost method, revenue reflects the ratio of costs incurred to estimated
total costs at completion multiplied by the total estimated contract revenue. Under the units-of-delivery method,
revenue and related costs are recognized as products are delivered based on the expected profit for the entire
agreement. Profit margins on long-term contracts are based on estimates of revenue and costs at completion. We
review and revise our estimates periodically and recognize related adjustments in the period in which the revisions
are made. Estimated losses on contracts are recorded in the period in which they are identified.
We report revenue net of sales taxes imposed on our goods and services in our consolidated statements of operations
and comprehensive income (loss). Since we primarily act as an agent for the governmental authorities, the amount
charged to the customer is collected and remitted directly to the appropriate jurisdictional entity.
Debt Issuance Costs
Costs of issuing debt generally are deferred and amortized utilizing the effective interest method with amortization
included in “Interest expense, net of amounts capitalized” in our consolidated statements of operations and
comprehensive income (loss).
Cost of Sales - Equipment and Services
Cost of sales - equipment primarily consists of inventory costs, including freight and royalties. Cost of sales -
equipment generally is recognized as products are delivered to customers and related revenue is recognized. Cost of
sales - services primarily consists of costs of digital broadcast operations, satellite capacity and services, hub
infrastructure, customer care, wireline and wireless capacity, and direct labor costs associated with the services
provided. Costs of sales - services generally are charged to expense as incurred.
Research and Development
Costs incurred in research and development activities generally are expensed as incurred. A significant portion of
our research and development costs are incurred in connection with the specific requirements of a customer’s order.
In such instances, the amounts for these customer funded development efforts are included in cost of sales.
Cost of sales for the years ended December 31, 2015, 2014 and 2013 includes research and development costs of
approximately $59.2 million, $68.4 million and $65.3 million, respectively. In addition, we incurred $78.3 million,
$60.9 million and $67.9 million for the years ended December 31, 2015, 2014 and 2013, respectively, for other
research and development expenses.
F-13
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Subscriber Acquisition Costs
Subscriber Acquisition Costs (“SAC”) consists of costs paid to third-party dealers and customer service
representative commissions on new service activations and hardware upgrades and, in certain cases, the cost of
hardware and installation services provided to non-wholesale consumer customers at the inception of service or
hardware upgrade. SAC is deferred when a customer enters into a service agreement and is subsequently amortized
over the service agreement term in proportion to when the related service revenue is recognized. We monitor the
recoverability of deferred SAC and are entitled to an early termination fee if the subscriber cancels service prior to
the end of the service agreement term. The recoverability of deferred SAC is reasonably assured through the
monthly service fee charged to customers, our ability to recover the equipment, and/or our ability to charge an early
termination fee. Deferred SAC is included in “Other noncurrent assets, net” in our consolidated balance sheets.
Capitalized Software Costs
Costs related to the procurement and development of software for internal use and externally marketed software are
capitalized and amortized using the straight-line method over the estimated useful life of the software, not in excess
of five years. Capitalized costs of internal-use software are included in “Property and equipment, net” and
capitalized costs of externally marketed software are included in “Other noncurrent assets, net” in our consolidated
balance sheets. Externally marketed software is generally installed in the equipment we sell to customers. We
conduct software program reviews for externally marketed capitalized software costs at least annually, or as events
and circumstances warrant such a review, to determine if capitalized software development costs are recoverable and
to ensure that costs associated with programs that are no longer generating revenue are expensed. As of
December 31, 2015 and 2014, the net carrying amount of externally marketed software was $62.8 million and
$48.9 million, respectively. For the years ended December 2015, 2014 and 2013, we capitalized costs of
$22.4 million, $23.1 million and $17.0 million, respectively, related to the development of externally marketed
software. For the years ended December 31, 2015, 2014 and 2013, we recorded amortization expense relating to the
development of externally marketed software of $8.4 million, $5.4 million and $1.7 million, respectively. The
weighted average useful life of our externally marketed software was approximately four years as of December 31,
2015.
Stock-based Compensation Expense
Stock-based compensation expense is recognized based on the fair value of stock awards ultimately expected to vest.
Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures
differ from those estimates. Compensation expense for awards with service conditions only is recognized on a
straight-line basis over the requisite service period for the entire award. Compensation expense for awards subject
to performance conditions is recognized only when satisfaction of the performance condition is probable.
Advertising Costs
Advertising costs are expensed as incurred and are included in “Selling, general and administrative expenses” in our
consolidated statements of operations and comprehensive income (loss). For the years ended December 31, 2015,
2014 and 2013, we incurred advertising expense of $49.9 million, $50.8 million and $47.4 million, respectively.
New Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2014-
09, Revenue from Contracts with Customers (“ASU 2014-09”). It outlines a single comprehensive model for
entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue
recognition guidance, including industry-specific guidance. The core principle of the revenue model is that “an
entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects
the consideration to which the entity expects to be entitled in exchange for those goods or services.” In August
2015, the FASB issued Accounting Standards Update No. 2015-14, which deferred by one year the mandatory
effective date of ASU 2014-09. As a result, public entities are required to adopt the new revenue standard in annual
periods beginning after December 15, 2017 and in interim periods within those annual periods. The standard may
be applied either retrospectively to prior periods or as a cumulative-effect adjustment as of the date of adoption.
F-14
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Early adoption is permitted, but not before annual periods beginning after December 15, 2016. We have not
determined when we will adopt the new revenue standard or selected the transition method that we will apply upon
adoption. We are assessing the impact of adopting this new accounting standard on our consolidated financial
statements and related disclosures.
In February 2015, the FASB issued Accounting Standards Update No. 2015-02, Consolidation (Topic 810):
Amendments to the Consolidation Analysis (“ASU 2015-02”). This standard amends the consolidation guidance for
variable interest entities (“VIEs”) and general partners’ investments in limited partnerships and similar entities.
ASU 2015-02 is effective for annual periods beginning after December 15, 2015 and interim periods within those
annual periods, and requires either a retrospective or a modified retrospective approach as of the beginning of the
fiscal year of adoption. Early adoption is permitted. We do not expect the adoption of this standard to have a
material impact on our consolidated financial statements or related disclosures. We will adopt this standard on the
effective date.
In April 2015, the FASB issued Accounting Standards Update No. 2015-03, Simplifying the Presentation of Debt
Issuance Costs (“ASU 2015-03”). This standard requires that debt issuance costs related to a recognized debt
liability be presented in the balance sheet as a direct deduction from the carrying amount of debt liability, consistent
with debt discounts or premiums. ASU 2015-03 is effective for annual periods beginning after December 15, 2015
and interim periods within those annual periods, and requires a retrospective approach to adoption. Early adoption
is permitted. Based on our preliminary assessment, upon adoption of this standard, we expect to present
unamortized deferred costs in other noncurrent assets with a carrying amount of $31.3 million and $39.1 million as
of December 31, 2015 and 2014, respectively, as a reduction of our long-term debt balances. We will adopt this
standard on the effective date.
In November 2015, the FASB issued Accounting Standards Update No. 2015-17, Balance Sheet Classification of
Deferred Taxes (“ASU 2015-17”). This standard requires that deferred income tax liabilities and assets be presented
as noncurrent assets or liabilities in the balance sheet. ASU 2015-17 is effective for annual periods beginning after
December 15, 2016 and interim periods within those annual periods, and may be applied either prospectively to all
deferred tax liabilities and assets or retrospectively to all periods presented. Early adoption is permitted. We
adopted this standard early on a prospective basis in our consolidated balance sheet as of December 31, 2015.
In January 2016, the FASB issued Accounting Standards Update No. 2016-01, Recognition and Measurement of
Financial Assets and Financial Liabilities (“ASU 2016-01”). This update substantially revises standards for the
recognition, measurement and presentation of financial instruments. This standard revises an entity’s accounting
related to (1) the classification and measurement of investments in equity securities and (2) the presentation of
certain fair value changes for financial liabilities measured at fair value. It also amends certain disclosure
requirements associated with the fair value of financial instruments. ASU 2016-01 is effective for annual periods
beginning after December 15, 2017, including interim periods within those annual periods, with early adoption
permitted for certain requirements. We are assessing the impact of adopting this new accounting standard on our
consolidated financial statements and related disclosures.
Note 3. Earnings per Share
We present basic earnings per share (“EPS”) and diluted EPS for our Class A and Class B common stock. The
EchoStar Tracking Stock (see Note 4 for definitions and a further discussion of the preferred tracking stock, the
EchoStar Group and the Hughes Retail Group) is a participating security that shares in our consolidated earnings and
therefore, effective March 1, 2014, the issuance date of the EchoStar Tracking Stock, we apply the two-class method
to calculate EPS. Under the two-class method, we allocate net income or loss attributable to EchoStar between
common stock and the EchoStar Tracking Stock considering both dividends declared on each class of stock and the
participation rights of each class of stock in undistributed earnings. Based on the 51.89% economic interest in the
Hughes Retail Group, represented by the EchoStar Tracking Stock, we allocate undistributed earnings to the
EchoStar Tracking Stock based on 51.89% of the attributed net income or loss of the Hughes Retail Group.
Moreover, because the reported amount of “Net income attributable to EchoStar” in our consolidated statements of
operations and comprehensive income (loss) excludes DISH Network’s 28.11% economic interest (represented by
the HSS Tracking Stock) in the net loss of the Hughes Retail Group (reported as a noncontrolling interest), the
F-15
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
amount of consolidated net income or loss allocated to holders of Class A and Class B common stock effectively
excludes an aggregate 80.0% of the attributed net loss of the Hughes Retail Group.
Basic EPS for our Class A and Class B common stock excludes potential dilution and is computed by dividing “Net
income attributable to EchoStar common stock” by the weighted-average number of common shares outstanding for
the period. Diluted EPS reflects the potential dilution that could occur if our common stock awards were exercised.
The potential dilution from common stock awards was computed using the treasury stock method based on the
average market value of our Class A common stock during the period. The calculation of our diluted weighted-
average common shares outstanding excluded options to purchase shares of our Class A common stock, whose effect
would be anti-dilutive, of 2.3 million, 2.3 million and 2.7 million shares for the years ended December 31, 2015,
2014 and 2013, respectively. The calculation also excluded 0.7 million shares of our Class A common stock that
were issuable pursuant to our performance based stock incentive plans contingent upon meeting a company-specific
performance measure by March 31, 2015, that was not achieved and which resulted in the expiration of such awards
as of March 31, 2015.
The following table presents basic and diluted EPS amounts for all periods and the corresponding weighted-average
shares outstanding used in the calculations.
Net income attributable to EchoStar..............................................
Less: Net loss attributable to EchoStar Tracking Stock.............
Net income attributable to EchoStar common stock...................
Weighted-average common shares outstanding :
Class A and B common stock:
Basic...............................................................................................
Dilutive impact of stock awards outstanding..........................
Diluted............................................................................................
For the Years Ended December 31,
2013
2014
2015
(In thousands, except per share amounts)
$
2,525
-
2,525
153,357
(10,343)
163,700
152,874
(12,394)
165,268
$
$
$
$
$
92,397
1,069
93,466
91,190
1,426
92,616
89,405
1,547
90,952
Earnings per share:
Class A and B common stock:
Basic...............................................................................................
Diluted............................................................................................
$
$
1.77
1.75
$
$
1.81
1.78
$
$
0.03
0.03
Note 4. Hughes Retail Preferred Tracking Stock
Satellite and Tracking Stock Transaction
On February 20, 2014, EchoStar entered into agreements with certain subsidiaries of DISH Network pursuant to
which, effective March 1, 2014, (i) EchoStar issued shares of its newly authorized Hughes Retail Preferred Tracking
Stock (the “EchoStar Tracking Stock”) and Hughes Satellite Systems Corporation (“HSS”), a subsidiary of
EchoStar, also issued shares of its newly authorized Hughes Retail Preferred Tracking Stock (the “HSS Tracking
Stock” and together with the EchoStar Tracking Stock, the “Tracking Stock”) to DISH Network in exchange for five
satellites (EchoStar I, EchoStar VII, EchoStar X, EchoStar XI, and EchoStar XIV), including the assumption of
related in-orbit incentive obligations, and $11.4 million in cash and (ii) DISH Network began receiving certain
satellite services on these five satellites from us (the “Satellite and Tracking Stock Transaction”). The Tracking
Stock tracks the residential retail satellite broadband business of our Hughes segment, including certain operations,
assets and liabilities attributed to such business (collectively, the “Hughes Retail Group” or “HRG”). The Satellite
and Tracking Stock Transaction was consistent with the long-term strategy of the Company to increase the scale of
its satellite services business, which provides high-margin revenues, while continuing to benefit from the growth of
the satellite broadband business. As a result of the additional satellites received in the Satellite and Tracking Stock
Transaction, EchoStar has increased short-term cash flow that it believes will better position it to achieve its
strategic objectives.
F-16
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
EchoStar and HSS have adopted policy statements (the “Policy Statements”) setting forth management and
allocation policies for purposes of attributing all of the business and operations of EchoStar to either the Hughes
Retail Group or the “EchoStar Group,” which is defined as all other operations of EchoStar, including all existing
and future businesses, other than the Hughes Retail Group. Among other things, the Policy Statements govern how
assets, liabilities, revenue and expenses are attributed or allocated between HRG and the EchoStar Group. Such
attributions and allocations generally do not affect the amounts reported in our consolidated financial statements,
except for the attribution of stockholders’ equity and net income or loss between the holders of Tracking Stock and
common stock. The Policy Statements also do not significantly affect the way that management assesses operating
performance and allocates resources within our Hughes segment.
We provide unaudited attributed financial information for HRG and the EchoStar Group in an exhibit to our periodic
reports on Form 10-Q and Form 10-K. Set forth below is information about certain terms of the Tracking Stock and
the initial recording of the Satellite and Tracking Stock Transaction in our consolidated financial statements.
Description of the Tracking Stock
Tracking stock is a type of capital stock that the issuing company intends to reflect or “track” the economic
performance of a particular business component within the company, rather than reflect the economic performance
of the company as a whole. The Tracking Stock is intended to track the economic performance of the Hughes Retail
Group. The shares of the Tracking Stock issued to DISH Network represent an aggregate 80.0% economic interest
in the Hughes Retail Group (the shares issued as EchoStar Tracking Stock represent a 51.89% economic interest in
the Hughes Retail Group and the shares issued as HSS Tracking Stock represent a 28.11% economic interest in the
Hughes Retail Group). In addition to the remaining 20.0% economic interest in the Hughes Retail Group, EchoStar
retains all economic interest in the wholesale satellite broadband business and other businesses of EchoStar. The
80.0% economic interest was determined at the time of issuance based on the estimated fair value of the
consideration received from DISH Network in exchange for the Tracking Stock, consisting of the five satellites and
$11.4 million in cash, relative to the estimated fair value of the Hughes Retail Group. The allocation of economic
interest represented by the Tracking Stock of 51.89% issued as EchoStar Tracking Stock and 28.11% issued as HSS
Tracking Stock reflected the relative assignment to HSS Tracking Stock and EchoStar Tracking Stock of the
aggregate increase in equity resulting from DISH Network’s contribution of the satellites and cash. The tracking
stock structure and the allocation of the tracking stock economic interest between EchoStar and HSS was
advantageous to EchoStar from an economic and tax perspective by allowing the Company to increase cash flow by
using the value of the Hughes Retail Group to purchase the satellites from DISH Network.
While DISH Network, as the holder of the Tracking Stock, holds an aggregate 80.0% economic interest in the
Hughes Retail Group, the Hughes Retail Group is not a separate legal entity and therefore cannot own assets, issue
securities or enter into legally binding agreements. Holders of the Tracking Stock have no direct claim to the assets
of the Hughes Retail Group; rather, holders of the Tracking Stock are stockholders of its respective issuer (EchoStar
or HSS) and are subject to all risks and liabilities of the issuer.
The EchoStar Tracking Stock is a series of preferred stock consisting of 13,000,000 authorized shares with a par
value of $0.001 per share, of which 6,290,499 shares were issued to DISH Network on March 1, 2014. The HSS
Tracking Stock is a series of HSS preferred stock consisting of 300 authorized shares with a par value of $0.001 per
share, of which 81.128 shares were issued to DISH Network on March 1, 2014. Following the issuance of the
shares of the EchoStar Tracking Stock and the HSS Tracking Stock, DISH Network held 6.5% and 7.5% of the
aggregate number of outstanding shares of EchoStar and HSS capital stock, respectively. As of December 31, 2015,
DISH Network held 6.3% and 7.5% of the aggregate number of outstanding shares of EchoStar and HSS capital
stock, respectively.
Holders of shares of the Tracking Stock vote with holders of the outstanding shares of common stock of its
respective issuer, as a single class, with respect to any and all matters presented to stockholders for their action or
consideration. Each share of the Tracking Stock is entitled to one-tenth (1/10th) of one vote, which resulted in a
relative loss of voting power for our Class A and Class B common stockholders. In the event of a liquidation of
EchoStar, holders of shares of EchoStar Class A common stock, EchoStar Class B common stock and the EchoStar
Tracking Stock are entitled to receive their respective proportionate interests in the net assets of EchoStar, if any,
remaining for distribution upon liquidation, pro rata based upon the aggregate market value of outstanding shares of
F-17
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
the EchoStar Tracking Stock (determined by an independent appraisal to the extent such shares are not then listed or
quoted on any U.S. national or regional securities exchange or quotation system) as compared to the aggregate
market value of outstanding shares of EchoStar Class A common stock and EchoStar Class B common stock.
Similarly, in the event of a liquidation of HSS, holders of shares of HSS common stock and HSS Tracking Stock are
entitled to receive their respective proportionate interests in the net assets of HSS, if any, remaining for distribution
upon liquidation, pro rata based upon the aggregate market value of outstanding shares of HSS Tracking Stock as
compared to the aggregate market value of outstanding shares of HSS common stock. Market values of HSS
Tracking Stock and HSS common stock are to be determined by an independent appraisal to the extent such shares
are not then listed or quoted on any U.S. national or regional securities exchange or quotation system.
Should our board of directors, or the board of directors of HSS, make a future determination to pay a dividend on
any shares of capital stock, the respective board of directors may, in its sole discretion, declare dividends only on
shares of common stock, only on shares of the Tracking Stock or on shares of both the common stock and the
Tracking Stock of the respective company. No dividend or other distribution may be paid on any shares of EchoStar
Tracking Stock unless a dividend or distribution in an equivalent amount is paid on shares of HSS Tracking Stock
and no dividend or other distribution may be paid on any shares of HSS Tracking Stock unless a dividend or
distribution in an equivalent amount is paid on shares of EchoStar Tracking Stock.
EchoStar and HSS may each, at its option, redeem all of the outstanding shares of its Tracking Stock in exchange for
shares of common stock in an HRG Holding Company (as defined below), which EchoStar is required to establish
pursuant to the Investor Rights Agreement discussed below.
Investor Rights Agreement
In connection with the Satellite and Tracking Stock Transaction, EchoStar, HSS and DISH Network entered into an
agreement (the “Investor Rights Agreement”) setting forth certain rights and obligations of the parties with respect
to the Tracking Stock. Among other provisions, the Investor Rights Agreement provides: (i) certain information and
consultation rights for DISH Network; (ii) certain transfer restrictions on the Tracking Stock and certain rights and
obligations to offer and sell under certain circumstances (including a prohibition on transfer of the Tracking Stock
until March 1, 2015), with continuing transfer restrictions (including a right of first offer in favor of EchoStar)
thereafter, an obligation to sell the Tracking Stock to us in connection with a change of control of DISH Network
and a right to require us to repurchase the Tracking Stock in connection with a change of control of EchoStar, in
each case subject to certain terms and conditions; (iii) certain protective covenants afforded to holders of the
Tracking Stock; and (iv) a requirement for EchoStar to establish a holding company subsidiary (an “HRG Holding
Company”) that is directly or indirectly wholly owned by EchoStar and that will hold the Hughes Retail Group.
In addition, the Investor Rights Agreement provides that DISH Network may, on or after September 1, 2016, require
EchoStar to use its commercially reasonable efforts to register some or all of the outstanding shares of the Tracking
Stock under the Securities Act of 1933, as amended, subject to certain terms and conditions (including our right,
upon the receipt of a demand for registration, to offer to repurchase all of the Tracking Stock). In connection with
any demand for registration, DISH Network may require any outstanding shares of the HSS Tracking Stock to be
exchanged for shares of the EchoStar Tracking Stock with an equivalent economic interest in the Hughes Retail
Group. In the event that a registration of shares of Tracking Stock is effected, EchoStar is required to use its
reasonable best efforts to amend the terms of the Tracking Stock so that the Tracking Stock will be convertible or
exchangeable for shares of EchoStar Class A common stock with equivalent market value.
Initial Recording of the Satellite and Tracking Stock Transaction
EchoStar and DISH Network are entities under common control. In accordance with accounting principles that
apply to transfers of assets between entities under common control, EchoStar and HSS recorded the net assets
received from DISH Network in the Satellite and Tracking Stock Transaction at their historical carrying amounts as
reflected in DISH Network’s consolidated financial statements as of February 28, 2014, the day prior to the effective
date of the Satellite and Tracking Stock Transaction. DISH Network transferred the EchoStar I, EchoStar VII, and
EchoStar X satellites to HSS and transferred the EchoStar XI and EchoStar XIV satellites to EchoStar. The
historical carrying amounts of net assets transferred to EchoStar and HSS were as follows:
F-18
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
EchoStar(1)
Cash................................................................................
Property and equipment, net......................................
Current liabilities...........................................................
Noncurrent liabilities....................................................
Transferred net assets.................................................
-
$
349,243
(3,479)
(30,121)
315,643
$
HSS
(In thousands)
11,404
$
82,837
(3,076)
(8,713)
82,452
$
Total
$
11,404
432,080
(6,555)
(38,834)
398,095
$
(1) All of the net assets received by EchoStar as part of the Satellite and Tracking Stock Transaction were immediately transferred to
HSS and are being used by our EchoStar Satellite Services segment.
The transferred net assets increased EchoStar stockholders’ equity and HSS shareholders’ equity by amounts that
reflect the carrying amounts of net assets that would be distributed to holders of the Tracking Stock and common
stock in a hypothetical liquidation, which would be in proportion to the relative market values (as defined in
applicable agreements) of each class of stock. The amounts credited to equity were reduced by direct costs of the
Tracking Stock issuance and deferred income tax liabilities arising from differences between the financial reporting
carrying amounts and the tax bases of the transferred satellites.
The net amounts credited to EchoStar stockholders’ equity for the EchoStar Tracking Stock (primarily additional
paid-in capital) and the noncontrolling interest in the HSS Tracking Stock were as follows:
Transferred net assets.................................................
Offering costs, net of tax.............................................
Deferred income taxes..................................................
Reallocation based on relative liquidation values...
Net increase in stockholders' equity.........................
EchoStar
Stockholders
$
315,643
(2,302)
(114,525)
(35,300)
163,516
Noncontrolling
Interest
(In thousands)
82,452
$
(610)
(29,971)
35,300
87,171
$
Total
$
398,095
(2,912)
(144,496)
-
250,687
$
$
Note 5. Other Comprehensive Income (Loss) and Related Tax Effects
We have not recognized any tax effects on foreign currency translation adjustments because they are not expected to
result in future taxable income or deductions. We have not recognized any tax effects on unrealized gains or losses
on marketable investment securities because such gains or losses would affect the amount of existing capital loss
carryforwards for which the related deferred tax asset has been fully offset by a valuation allowance.
Accumulated other comprehensive loss includes cumulative foreign currency translation losses of $124.3 million,
$63.8 million and $32.1 million as of December 31, 2015, 2014 and 2013, respectively.
F-19
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Reclassifications out of accumulated other comprehensive loss for the years ended December 31, 2015, 2014 and
2013 were as follows:
Accumulated Other Comprehensive Loss Components
Affected Line Item in our
Condensed Consolidated
Statement of Operations
For the Years Ended December 31,
2014
(In thousands)
2015
2013
Recognition of realized gains on marketable investment
securities in net income (1).............................................................
Gains (losses) on marketable
investment securities, net
$
(35)
$
(41)
$
(36,312)
Recognition of other-than-temporary impairment loss
on marketable investment securities in net income (2)..............
Other-than-temporary impairment loss
on marketable investment securities
11,226
-
-
Recognition of foreign currency translation losses
in net income (3)............................................................................... Other, net
1,889
13,080
-
$
(41)
-
(36,312)
$
Total reclassifications, net of tax and noncontrolling interests...
(1) When marketable investment securities are sold, the related unrealized gains and losses that were previously recognized in other
$
(2)
comprehensive income (loss) are reclassified and recognized as Gains (losses) on marketable investment securities, net, in our consolidated
statement of operations and comprehensive income (loss).
In June 2015, September 2015 and December 2015, we recorded other-than-temporary impairment losses on shares of certain common
stock included in our strategic equity securities. See Note 6 for further discussion.
(3) As a result of the deconsolidation of several of our European subsidiaries in connection with our investment in SmarDTV SA in May 2015,
the related cumulative translation adjustments that were previously recognized in other comprehensive income (loss) were reclassified and
recognized as a loss within “Other income (expense)” in our consolidated statement of operations and comprehensive income (loss). See
Note 6 for further discussion.
Note 6.
Investment Securities
Our marketable investment securities, restricted cash and cash equivalents, and investments in unconsolidated
entities consisted of the following:
As of December 31,
2015
2014
Marketable investment securities—current:
Corporate bonds.........................................................................................................................
Strategic equity securities.........................................................................................................
Other.............................................................................................................................................
Total marketable investment securities—current..............................................................
Restricted marketable investment securities (1).....................................................................
Total..........................................................................................................................................
(In thousands)
$
$
562,236
38,864
11,238
612,338
13,227
625,565
1,049,139
41,705
48,259
1,139,103
11,712
1,150,815
Restricted cash and cash equivalents (1)...............................................................................
7,775
7,233
Investments in unconsolidated entities—noncurrent:
Cost method................................................................................................................................
Equity method.............................................................................................................................
Total investments in unconsolidated entities—noncurrent............................................
Total marketable investment securities, restricted cash and cash equivalents,
81,174
128,090
209,264
31,174
128,788
159,962
and investments in unconsolidated entities.......................................................................
$
842,604
$
1,318,010
(1) Restricted marketable investment securities and restricted cash and cash equivalents are included in “Restricted cash and marketable
investment securities” in our consolidated balance sheets.
Marketable Investment Securities
Our marketable investment securities portfolio consists of various debt and equity instruments, which generally are
classified as available-for-sale. As of December 31, 2015, certain of our equity securities were classified as trading
securities in order to reflect our investment strategy for those securities. The value of our investment portfolio
depends on the value of such securities and other instruments comprising the portfolio.
Corporate Bonds
Our corporate bond portfolio includes debt instruments issued by individual corporations, primarily in the industrial
and financial services industries.
F-20
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Strategic Equity Securities
Our strategic investment portfolio consists of investments in shares of common stock of public companies, which
are highly speculative and have experienced and continue to experience volatility. We did not receive any dividend
income for the years ended December 31, 2015, 2014 and 2013.
As of December 31, 2015 and 2014, our strategic equity securities included shares of common stock of one of our
customers that we received in satisfaction of certain milestone payments that were required to be paid to us under an
existing long-term contract. For the year ended December 31, 2015, “Other-than-temporary impairment loss on
marketable investment securities” included a $6.1 million other-than-temporary impairment of such common stock
in our marketable investment portfolio. For the year ended December 31, 2015, “Gains (losses) on marketable
investment securities, net” includes $6.5 million in losses on such common stock in our trading securities portfolio,
which had a fair value of $10.3 million as of December 31, 2015. Other-than-temporary impairment losses for the
year ended December 31, 2015 also includes a $5.1 million impairment of our shares of common stock in another
company that experienced a severe decline in market value during the third and fourth quarters of 2015. We did not
record any other-than-temporary impairment losses during the years ended December 31, 2014 or 2013.
Other
Our other current marketable investment securities portfolio includes investments in various debt instruments,
including U.S. government bonds.
Restricted Cash and Marketable Investment Securities
As of December 31, 2015 and 2014, our restricted marketable investment securities, together with our restricted
cash, included amounts required as collateral for our letters of credit or surety bonds.
Unrealized Gains (Losses) on Marketable Investment Securities
The components of our available-for-sale investments are summarized in the table below.
As of December 31, 2015
Debt securities:
Corporate bonds............................................
Other (including restricted)..........................
Equity securities - strategic..............................
Total marketable investment securities......
As of December 31, 2014
Debt securities:
Corporate bonds............................................
Other (including restricted)..........................
Equity securities - strategic..............................
Total marketable investment securities......
Amortized
Cost
Unrealized
Gains
Losses
(In thousands)
Estimated
Fair Value
$
$
562,849
24,495
20,855
608,199
10
$
-
7,748
7,758
$
$
$
(623)
(30)
(82)
(735)
562,236
24,465
28,521
615,222
$
$
$
$
$
$
1,050,803
59,977
32,081
1,142,861
33
1
12,849
12,883
$
$
(1,697)
(7)
(3,225)
(4,929)
$
$
1,049,139
59,971
41,705
1,150,815
As of December 31, 2015, restricted and non-restricted marketable investment securities included debt securities of
$519.3 million with contractual maturities of one year or less and $67.4 million with contractual maturities greater
than one year. We may realize proceeds from certain investments prior to their contractual maturity as a result of
our ability to sell these securities prior to their contractual maturity.
F-21
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Marketable Investment Securities in a Loss Position
The following table reflects the length of time that our available-for-sale securities have been in an unrealized loss
position. We do not intend to sell these securities before they recover or mature, and it is more likely than not that
we will hold these securities until they recover or mature. We believe that changes in the estimated fair values of
these securities are primarily related to temporary market conditions as of December 31, 2015.
As of December 31,
2015
2014
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
(In thousands)
Less than 12 months...........................................
12 months or more...............................................
Total..................................................................
Sales of Marketable Investment Securities
$
$
364,160
149,889
514,049
$
$
(609)
(126)
(735)
968,941
-
968,941
$
$
(4,929)
-
(4,929)
$
$
We recognized de minimis gains from the sales of our available-for-sale securities for the year ended December 31,
2015 and $0.1 million and $36.3 million for the years ended December 31, 2014 and 2013, respectively. We
recognized de minimis losses from the sales of our available-for-sale securities for each of the years ended
December 31, 2015, 2014 and 2013, respectively.
Proceeds from sales of our available-for-sale securities totaled $111.5 million, $190.5 million and $177.5 million for
the years ended December 31, 2015, 2014 and 2013, respectively.
Fair Value Measurements
Our current marketable investment securities are measured at fair value on a recurring basis as summarized in the
table below. As of December 31, 2015 and 2014, we did not have investments that were categorized within Level 3
of the fair value hierarchy.
Cash equivalents (including restricted).....
Debt securities:
Corporate bonds........................................
Other (including restricted)......................
Equity securities - strategic..........................
Total marketable investment securities..
Total
2015
Level 1
As of December 31,
Level 2
Total
(In thousands)
2014
Level 1
Level 2
$
840,950
$
38,771
$
802,179
$
437,886
$
58,108
$
379,778
$
$
562,236
24,465
38,864
625,565
$
-
12,078
38,864
50,942
$
$
$
562,236
12,387
-
574,623
$
$
1,049,139
59,971
41,705
1,150,815
$
-
5,630
41,705
47,335
$
$
1,049,139
54,341
-
$
1,103,480
Investments in Unconsolidated Entities – Noncurrent
We have several strategic investments in certain non-publicly traded equity securities that are accounted for using
either the equity or the cost method of accounting. Our ability to realize value from our strategic investments in
companies that are not publicly traded depends on the success of those companies’ businesses and their ability to
obtain sufficient capital to execute their business plans. Because private markets are not as liquid as public markets,
there is also increased risk that we will not be able to sell these investments, or that when we desire to sell them we
will not be able to obtain fair value for them.
In June 2015, we purchased an equity investment in WorldVu Satellites Limited (“OneWeb”), a low-earth orbit
satellite company. OneWeb plans to develop and operate a global network of low-earth orbit Ku-band satellites to
F-22
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
provide internet access to fixed and mobile terminals. We do not exercise significant influence over the
management of OneWeb; accordingly, we account for the investment using the cost method.
In May 2015, we acquired a 22.5% interest in the equity and subordinated debt of SmarDTV SA (“SmarDTV”), a
Swiss subsidiary of Kudelski SA that offers set-top boxes and conditional access modules, in exchange for cash of
$13.9 million and the contribution of several of our European subsidiaries to SmarDTV. We recorded our initial
investment in SmarDTV at $20.0 million, representing our estimate of the investment’s fair value using discounted
cash flow techniques. Our estimate included significant unobservable inputs related to SmarDTV’s future
operations and is categorized within Level 3 of the fair value hierarchy. As of the acquisition date, we
deconsolidated the contributed entities and recognized a $2.6 million loss within “Other income (expense)” in our
consolidated statement of operations and comprehensive income (loss), consisting of: (i) a $0.7 million loss resulting
from our initial investment (at fair value) being less than the sum of our $13.9 million cash payment and the carrying
amount of the net assets of the deconsolidated entities and (ii) the reclassification from accumulated other
comprehensive loss of $1.9 million in foreign currency translation adjustments related to the deconsolidated entities.
The net assets of the deconsolidated entities included property and equipment of $6.7 million and cash of
$0.8 million. We have the ability to exercise significant influence over SmarDTV and therefore account for our
investment using the equity method. We and SmarDTV also entered into a services agreement pursuant to which
our EchoStar Technologies segment purchases certain engineering services from SmarDTV. See Note 19 for
information about our related party transactions with SmarDTV subsequent to the date of our initial investment.
On August 8, 2014, an option providing for an unrelated party to acquire a 51.0% equity interest in Dish Mexico was
terminated. Although we have owned 49.0% of the equity of Dish Mexico since its inception in 2008, we accounted
for our investment as a 24.0% equity interest using the equity method based on assumed dilution that would occur
upon the exercise of the option. Upon termination of the option, we recorded a $10.3 million adjustment to increase
“Equity in earnings (losses) of unconsolidated affiliates” to reflect an increase from 24.0% to 49.0% in our interest
in Dish Mexico’s inception-to-date net income. For periods subsequent to the date of the termination of the option,
we account for our investment in Dish Mexico as a 49.0% equity interest using the equity method.
As of December 31, 2013, our equity method investments included $18.0 million for our investment in DISH Digital
Holding, L.L.C. (now known as Sling TV Holding L.L.C., “Sling TV Holding”), a joint venture between us and
DISH Network. The carrying amount of our investment reflected the $44.7 million aggregate carrying amount of
cash and certain noncash assets that we contributed to Sling TV Holding upon its formation on July 1, 2012 in
exchange for a one-third equity interest in Sling TV Holding, less our equity in the net loss of Sling TV Holding of
$16.5 million and $10.2 million for the years ended December 31, 2013 and 2012, respectively. Effective August 1,
2014, we and Sling TV Holding entered into an exchange agreement (the “Exchange Agreement”) pursuant to
which, we exchanged our one-third voting interest in Sling TV Holding, which we accounted for using the equity
method, for a 10.0% non-voting interest in Sling TV Holding, which we account for using the cost method. As part
of this transaction, we received a distribution of certain noncurrent assets associated with Move Networks, including
property and equipment, technology-related intangible assets and goodwill. Because we and Sling TV Holding are
entities under common control, we recorded the distributed assets at their carrying amounts in Sling TV Holding’s
accounts, which totaled $34.1 million at the date of distribution, and we recorded our non-voting interest at
$1.1 million, which represents 10.0% of the carrying amount of the remaining equity in Sling TV Holding. These
amounts exceeded the carrying amount of our existing equity method investment by $8.8 million, which was
credited to additional paid-in capital because gain recognition generally is precluded by GAAP in exchanges
between entities under common control. In connection with our obligations associated with our interest prior to the
Exchange Agreement, we contributed $18.6 million in cash to Sling TV Holding during the third quarter of 2014.
We have no obligation to contribute additional capital to Sling TV Holding. See Note 19 for more information
regarding the Exchange Agreement with Sling TV Holding.
Investment in TerreStar
In 2008, we invested in certain debt securities (“Exchangeable Notes”) of TerreStar Networks Inc. (“TerreStar”),
which subsequently filed for bankruptcy protection under Chapter 11 of the U.S. Bankruptcy Code in 2010. We
accounted for our investment in the Exchangeable Notes using the fair value method and, as of December 31, 2011,
our investment was stated at its estimated fair value of zero. Effective March 29, 2012, the Exchangeable Notes
were cancelled pursuant to TerreStar’s Chapter 11 plan of reorganization. In December 2014 and January 2016, we
F-23
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
received $5.8 million and $0.8 million, respectively, in cash distributions from the indenture trustee in satisfaction of
our claims related to the Exchangeable Notes. We accrued a receivable as of December 31, 2015 for the 2016
receipt and recognized the distributions as gains in “Other, net” within “Other Income (Expense)” in our
consolidated statement of operations and comprehensive income (loss) and we reported the 2014 cash receipt in
“Other, net” within “Cash Flows from Investing Activities” in our consolidated statement of cash flows for the year
ended December 31, 2014.
Note 7. Trade Accounts Receivable
Our trade accounts receivable consisted of the following:
As of December 31,
2015
2014
(In thousands)
Trade accounts receivable.................................................................................
Contracts in process, net....................................................................................
Total trade accounts receivable....................................................................
Allowance for doubtful accounts.....................................................................
Trade accounts receivable - DISH Network....................................................
Total trade accounts receivable, net.............................................................
$ 168,714
23,011
191,725
(12,485)
277,159
$
456,399
$ 160,886
16,534
177,420
(14,188)
251,669
$
414,901
As of December 31, 2015 and 2014, progress billings offset against contracts in process amounted to $2.9 million
and $2.5 million, respectively.
Note 8.
Inventory
Our inventory consisted of the following:
As of December 31,
2015
2014
Finished goods.................................................................................................
Raw materials....................................................................................................
Work-in-process...............................................................................................
Total inventory.............................................................................................
Note 9. Property and Equipment
Property and equipment consisted of the following:
$
$
(In thousands)
52,839
9,042
5,129
67,010
49,038
6,192
7,733
62,963
$
$
Depreciable
Life
(In Years)
As of December 31,
2015
2014
Land........................................................................................
Buildings and improvements...............................................
Furniture, fixtures, equipment and other...........................
Customer rental equipment..................................................
Satellites - owned .................................................................
Satellites acquired under capital leases.............................
Construction in progress.....................................................
Total property and equipment........................................
Accumulated depreciation ..................................................
Property and equipment, net...........................................
-
1-40
1-12
2-4
2-15
10-15
-
$
$
(In thousands)
41,457
367,947
1,254,325
588,430
2,381,120
665,518
1,112,267
6,411,064
(2,998,074)
3,412,990
$
42,826
375,920
1,223,807
498,180
2,381,120
935,104
637,189
6,094,146
(2,899,353)
3,194,793
$
As of December 31, 2015 and 2014, accumulated depreciation included amounts for satellites acquired under capital
leases of $268.1 million and $481.5 million, respectively. In August 2014, our then existing capital lease
F-24
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
agreements for the AMC-15 and AMC-16 satellites were extended and are being accounted for as operating leases
for their extended terms.
In December 2015, we recognized an impairment loss of $2.4 million related to certain building and equipment in
our EchoStar Technologies segment.
Construction in progress consisted of the following:
As of December 31,
2015
2014
(In thousands)
Progress amounts for satellite construction, including
prepayments under capital leases and launch services costs...
Satellite related equipment...................................................................
Other.......................................................................................................
Construction in progress.................................................................
$
$
963,103
126,373
22,791
1,112,267
$
$
583,877
34,270
19,042
637,189
For the years ended December 31, 2015, 2014 and 2013, we recorded $63.8 million, $23.8 million and $4.0 million,
respectively, of capitalized interest related to our satellites and satellite payloads under construction.
Depreciation expense associated with our property and equipment consisted of the following:
Satellites...................................................................................
Furniture, fixtures, equipment and other.............................
Customer rental equipment...................................................
Buildings and improvements................................................
Total depreciation expense...............................................
2013
2015
For the Years Ended December 31,
2014
(In thousands)
$
210,763
123,360
116,685
13,734
464,542
197,469
135,536
105,725
13,513
452,243
$
$
$
180,517
126,625
98,076
13,449
418,667
$
$
Satellites depreciation expense includes amortization of satellites under capital lease agreements of $56.2 million,
$59.7 million and $59.7 million for the years ended December 31, 2015, 2014 and 2013, respectively.
Satellites
As of December 31, 2015, we utilized in support of our operations, 18 of our owned and leased satellites in
geosynchronous orbit, approximately 22,300 miles above the equator. We depreciate our owned satellites on a
straight-line basis over the estimated useful life of each satellite. Two of our satellites are accounted for as capital
leases and are depreciated on a straight-line basis over their respective lease terms. We utilized two satellites that
were accounted for as operating leases and are not included in property and equipment as of December 31, 2015.
F-25
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Our operating satellite fleet consists of both owned and leased satellites detailed in the table below as of
December 31, 2015.
Segment
Satellites
Owned:
SPACEWAY 3 (1)...........................................
Hughes
EchoStar XVII.................................................. Hughes
EchoStar I (2)(3)(4)..........................................
EchoStar III (4).................................................
EchoStar VI (4).................................................
EchoStar VII (2)(3)...........................................
EchoStar VIII (2)(4).........................................
EchoStar IX (2)(4)............................................
EchoStar X (2)(3).............................................
EchoStar XI (2)(3)............................................
EchoStar XII (2)(4)(5).....................................
EchoStar XIV (2)(3).........................................
EchoStar XVI (2)..............................................
EUTELSAT 10A ("W2A") (6).......................
ESS
ESS
ESS
ESS
ESS
ESS
ESS
ESS
ESS
ESS
ESS
Other
Capital Leases:
Nimiq 5 (2).......................................................
QuetzSat-1 (2)..................................................
Operating Leases:
AMC-15............................................................
AMC-16 (7)......................................................
ESS
ESS
ESS
ESS
Launch
Date
August 2007
July 2012
December 1995
October 1997
July 2000
February 2002
August 2002
August 2003
February 2006
July 2008
July 2003
March 2010
November 2012
April 2009
September 2009
September 2011
October 2004
December 2004
Nominal Degree
Orbital Location
(Longitude)
Depreciable
Life
(In Years)
95 W
107 W
77 W
61.5 W
96.2 W
119 W
77 W
121 W
110 W
110 W
61.5 W
119 W
61.5W
10 E
72.7 W
77 W
105 W
85 W
12
15
-
12
12
3
12
12
7
9
2
11
15
-
15
10
-
-
(1) Depreciable life represents the remaining useful life as of June 8, 2011, the date EchoStar completed its acquisition of Hughes
Communications, Inc. and its subsidiaries.
(2) See Note 19 for discussion of related party transactions with DISH Network.
(3) Depreciable life represents the remaining useful life as of March 1, 2014, the effective date of our receipt of the satellites from DISH
Network as part of the Satellite and Tracking Stock Transaction (See Note 4).
(4) Fully depreciated assets.
(5) Depreciable life represents the remaining useful life as of June 30, 2013, the date the EchoStar XII satellite was impaired.
(6) The Company acquired the S-band payload on this satellite, which prior to the acquisition in December 2013, experienced an anomaly at the
time of the launch. As a result, the S-band payload is not fully operational.
(7) Operating lease expired in February 2016.
Our owned and leased satellites under construction as of December 31, 2015 are presented below.
Satellites
EUTELSAT 65 West A (1)
EchoStar XXI
EchoStar XXIII
EchoStar XIX
EchoStar 105/SES-11
Telesat T19V ("63 West") (1)
Segment
Hughes
Other
Other
Other
ESS
Hughes
Expected Launch Date
First quarter of 2016
Second quarter of 2016
Third quarter of 2016
Fourth quarter of 2016
Fourth quarter of 2016
Second quarter of 2018
(1) We entered into satellite services agreements for certain capacity on these satellites once
launched, but are not parties to the construction contracts.
F-26
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Recent Developments
63 West Agreements. In September 2015, we entered into satellite services agreements pursuant to which affiliates
of Telesat Canada (“Telesat”) will provide to us fixed broadband service into South America using the Ka-band
capacity on a satellite to be located at the 63 degree west longitude orbital location for a 15-year term. The satellite
services agreements require us to make prepayments while the satellite is under construction. We expect the satellite
to be launched in the second quarter of 2018 to deliver consumer satellite broadband services into South America as
well as create a platform to potentially allow for further development of our business in South America.
Satellite Construction – Launch Services Costs. In the third quarter of 2015, we mutually agreed with a vendor to
cancel an existing launch services agreement for the launch of the EchoStar XIX satellite. Pursuant to the
cancellation, we received a refund of prior payments related to the launch services, and credited the refund amount
to construction in progress in the third quarter of 2015. Also in the third quarter of 2015, we entered into an
agreement with a different vendor to provide for the launch of the satellite, which is expected to be launched in the
fourth quarter of 2016.
AMC-15 and AMC-16. In August 2014, in connection with the execution of agreements related to the
EchoStar 105/SES-11 satellite, we entered into amendments that extend the terms of our existing agreements with
SES Americom Colorado, Inc. (“SES”) for satellite services on the AMC-15 and AMC-16 satellites. As amended,
the term of our agreement for satellite services on certain transponders on the AMC-15 satellite was extended from
December 2014 through the in-service date of the EchoStar 105/SES-11 satellite and is being accounted for as an
operating lease. The amended agreement for the AMC-16 satellite services extended the term for the satellite’s
entire communications capacity, subject to available power, for one year following expiration of the initial term in
February 2015 and the agreement terminated according to its terms in February 2016.
As a result of anomalies that affected the operation of the AMC-15 and AMC-16 satellites, our monthly recurring
payments were reduced under the related capital lease agreements. We have accounted for these lease modifications
generally by reducing the carrying amounts of the satellite and related capital lease obligation by the present value
of the payment reduction. In such instances where the carrying amount of the satellite had been reduced to zero as a
result of accumulated depreciation or impairments, we have recognized the reductions in the capital lease
obligations as gains in “Other, net” in our consolidated statements of operations and comprehensive income (loss).
For the years ended December 31, 2015, 2014 and 2013, we recognized such gains of $4.5 million, zero, and
$6.7 million, respectively.
Satellite Anomalies and Impairments
Our satellites may experience anomalies from time to time, some of which may have a significant adverse impact on
their remaining useful lives, the commercial operation of the satellites or our operating results. We are not aware of
any anomalies with respect to our owned or leased satellites that have had any such material adverse effect during
the year ended December 31, 2015. There can be no assurance, however, that anomalies will not have any such
adverse impacts in the future. In addition, there can be no assurance that we can recover critical transmission
capacity in the event one or more of our in-orbit satellites were to fail.
We generally do not carry in-orbit insurance on our satellites or use commercial insurance to mitigate the potential
financial impact of launch or in-orbit failures because we believe that the cost of insurance is uneconomical relative
to the risk of such failures. Therefore, we generally bear the risk of any uninsured launch or in-orbit failures.
Pursuant to the terms of the agreements governing certain portions of our indebtedness, we are required, subject to
certain limitations on coverage, to maintain launch and in-orbit insurance for our SPACEWAY 3, EchoStar XVI, and
EchoStar XVII satellites. In addition, although we were not required to maintain in-orbit insurance pursuant to our
service agreement with DISH Network for the EchoStar XV satellite, we would have been liable for any damage
caused by our use of the satellite and therefore we carried third-party insurance on the EchoStar XV satellite until
the termination of our service agreement with DISH Network for the EchoStar XV satellite in November 2015.
F-27
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
We evaluate our satellites for impairment and test for recoverability whenever events or changes in circumstances
indicate that their carrying amount may not be recoverable. Certain of the anomalies previously disclosed, may be
considered to represent a significant adverse change in the physical condition of a particular satellite. However,
based on the redundancy designed within each satellite, certain of these anomalies are not necessarily considered to
be significant events that would require a test of recoverability.
EchoStar XII. Prior to 2013, our EchoStar XII satellite experienced anomalies resulting in the loss of electrical
power available from its solar arrays, which reduced the number of transponders that could be operated. The
satellite is currently leased to DISH Network pursuant to an agreement that entitles DISH Network to a reduction in
its monthly recurring lease payments in the event of a partial loss of satellite capacity or complete failure of the
satellite. In the second quarter of 2013, we determined that the carrying amount of the satellite was not recoverable
as a result of expected reductions in the monthly recurring lease payments due to future capacity loss.
Consequently, in the second quarter of 2013, we recognized a $34.7 million impairment loss within our EchoStar
Satellite Services segment to reduce the carrying amount of the satellite to its estimated fair value of $11.3 million as
of June 30, 2013. Our fair value estimate was determined using probability weighted discounted cash flow
techniques and is categorized within Level 3 of the fair value hierarchy. Our estimate included significant
unobservable inputs related to predicted electrical power levels and the number of billable transponders that can be
supported by predicted available power. In connection with our impairment analysis, we revised our estimate of the
useful life of the satellite to reflect a remaining estimated useful life of 18 months. As of December 31, 2015 and
2014, the EchoStar XII satellite was fully depreciated.
Note 10. Goodwill, Regulatory Authorizations and Other Intangible Assets
Goodwill
The excess of the cost of an acquired business over the fair values of net tangible and identifiable intangible assets at
the time of the acquisition is recorded as goodwill. Goodwill is assigned to our reporting units of our operating
segments and is subject to impairment testing annually, or more frequently when events or changes in circumstances
indicate the fair value of a reporting unit is more likely than not less than its carrying amount.
Changes in the carrying amount of our goodwill by reportable segment for the years ended December 31, 2015 and
2014 are as follows:
Hughes
Balance as of December 31, 2013..................
Sling TV Holding exchange.......................
Balance as of December 31, 2014..................
Balance as of December 31, 2015..................
$
$
504,173
-
504,173
504,173
ETC
(In thousands)
$
-
6,457
6,457
6,457
$
Consolidated
Total
$
$
504,173
6,457
510,630
510,630
As of December 31, 2015, approximately $504.2 million of our goodwill was assigned to reporting units of our
Hughes segment. We test this goodwill for impairment annually in the second quarter. Based on our qualitative
assessment of impairment of such goodwill in the second quarter of 2015, we determined that it was not more likely
than not that the fair values of the Hughes segment reporting units were less than the corresponding carrying
amounts.
In August 2014, we and Sling TV Holding entered into the Exchange Agreement pursuant to which, among other
things, Sling TV Holding distributed certain assets to us at their carrying amounts, including our Move Networks
business with associated goodwill of $6.5 million. See Note 19 for information about the Exchange Agreement.
F-28
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Regulatory Authorizations
Regulatory authorizations included amounts with finite and indefinite useful lives, as follows:
As of
December 31,
2014
Additions
Currency
Translation
Adjustment
As of
December 31,
2015
(In thousands)
Finite useful lives:
Cost........................................................
Accumulated amortization..................
Net..............................................................
Indefinite lives..........................................
Total regulatory authorizations, net..
$
$
103,499
(6,778)
96,721
471,657
568,378
$
-
(4,741)
(4,741)
-
(4,741)
$
$
$
(21,492)
1,667
(19,825)
-
(19,825)
82,007
(9,852)
72,155
471,657
543,812
$
$
In December 2013, we acquired 100.0% of Solaris Mobile which is based in Dublin, Ireland and licensed by the
European Union and its member states (“EU”) to provide mobile satellite services and a complementary ground
component services covering the entire EU using S-band spectrum. Solaris Mobile changed its name to EchoStar
Mobile Limited (“EchoStar Mobile”) in the first quarter of 2015. On the acquisition date, EchoStar Mobile lacked
certain inputs and processes that would be necessary to be considered a business. Accordingly, we accounted for the
transaction as an acquisition of net assets. The primary acquired asset was an EU regulatory authorization for S-
band frequencies, which had a cost of $51.8 million, consisting of $43.4 million in cash payments and $10.3 million
in assumed liabilities. The cost of the regulatory authorization is being amortized using the straight-line method
over the remaining term of the authorization ending in May 2027.
In June 2013 we entered into an agreement with DISH Network pursuant to which we conveyed to DISH Network
certain of our rights under a Canadian regulatory authorization to develop certain spectrum rights at the 103 degree
west longitude orbital location, which we acquired for $20.0 million in cash in 2012. In the third quarter of 2013,
we received $23.1 million from DISH Network in exchange for these rights. In accordance with accounting
principles that apply to transfers of assets between companies under common control, we did not recognize any gain
on this transaction. Rather, we increased our additional paid-in capital to reflect the excess of the cash payment over
the carrying amount of the derecognized intangible asset, net of related income taxes.
Amortization expense for the regulatory authorizations with finite lives was $4.7 million, $6.1 million and
$1.5 million for the years ended December 31, 2015, 2014 and 2013.
Other Intangible Assets
Our other intangible assets, which are subject to amortization, consisted of the following:
Weighted
Average
Useful life
(in Years)
As of December 31,
2015
2014
Cost
Accumulated Carrying
Amount
Amortization
Cost
Accumulated Carrying
Amount
Amortization
Customer relationships...............
Contract-based.............................
Technology-based......................
Trademark portfolio.....................
Favorable leases..........................
Total other intangible assets.
8
10
7
20
4
293,932
255,366
137,337
29,700
4,707
721,042
(213,543)
(251,493)
(111,840)
(6,806)
(4,707)
(588,389)
$
(In thousands)
80,389
3,873
25,497
22,894
-
132,653
293,932
255,366
140,837
29,700
4,707
724,542
$
(185,393)
(233,009)
(100,940)
(5,321)
(4,217)
(528,880)
108,539
22,357
39,897
24,379
490
195,662
$
$
$
$
$
$
$
$
$
$
Customer relationships are amortized predominantly in relation to the expected contribution of cash flow to the
business over the life of the intangible asset. Other intangible assets are amortized on a straight-line basis over the
periods the assets are expected to contribute to our cash flows. For the years ended December 31, 2015, 2014 and
2013, intangible asset amortization expense was $75.9 million, $92.1 million and $88.4 million, respectively,
including amortization of regulatory authorizations with finite lives and externally marketed capitalized software.
F-29
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Future Amortization
As of December 31, 2015, our estimated future amortization of intangible assets, including regulatory authorizations
with finite lives, was as follows:
For the Years Ending December 31,
2016................................................................................................
2017................................................................................................
2018................................................................................................
2019................................................................................................
2020................................................................................................
Thereafter.....................................................................................
Total..........................................................................................
Amount
(In thousands)
$
48,913
30,040
22,325
21,111
15,774
69,996
208,159
$
Note 11. Debt and Capital Lease Obligations
As of December 31, 2015 and 2014, our debt primarily consisted of our Senior Secured Notes and Senior Unsecured
Notes, as defined below, and our capital lease obligations. The Notes are registered with the Securities and
Exchange Commission.
The following table summarizes the carrying amounts and fair values of our debt:
As of December 31,
2015
2014
Interest
Rates
Carrying
Amount
Fair
Value
Carrying
Amount
Fair
Value
(In thousands)
6 1/2% Senior Secured Notes due 2019....................................
7 5/8% Senior Unsecured Notes due 2021...............................
Other..............................................................................................
Subtotal.....................................................................................
Capital lease obligations.............................................................
Total debt and capital lease obligations...............................
Less: Current portion..................................................................
Long-term portion of debt and capital lease obligations...
6.500%
7.625%
990,000
$
900,000
5.5 - 13.25% 803
1,890,803
332,838
2,223,641
(35,698)
2,187,943
$
1,071,675
$
954,000
803
$ 2,026,478
$
1,100,000
900,000
1,240
2,001,240
366,447
2,367,687
(41,912)
2,325,775
$
$
1,177,000
994,500
1,240
$ 2,172,740
We estimated the fair value of our publicly traded long-term debt using market prices in less active markets
(Level 2).
6 1/2% Senior Secured Notes due 2019 and 7 5/8% Senior Unsecured Notes due 2021
On June 1, 2011, our subsidiary, Hughes Satellite Systems Corporation (“HSS”), issued $1.10 billion aggregate
principal amount of 6 1/2% Senior Secured Notes (the “Senior Secured Notes”) at an issue price of 100.0%,
pursuant to a Secured Indenture dated June 1, 2011, (as amended the “Secured Indenture”). The Senior Secured
Notes mature on June 15, 2019. Interest accrues at an annual rate of 6 1/2% and is payable semi-annually in cash, in
arrears on June 15 and December 15 of each year. As of December 31, 2015, the outstanding principal balance on
the Senior Secured Notes was $990.0 million.
On June 1, 2011, HSS also issued $900.0 million aggregate principal amount of 7 5/8% Senior Unsecured Notes (the
“Senior Unsecured Notes,” and together with the “Senior Secured Notes,” the “Notes”) at an issue price of 100.0%,
pursuant to an Unsecured Indenture dated June 1, 2011, (as amended the “Unsecured Indenture”, and together with
the “Secured Indenture”, the “Indentures”). The Senior Unsecured Notes mature on June 15, 2021. Interest accrues
at an annual rate of 7 5/8% and is payable semi-annually in cash, in arrears on June 15 and December 15 of each
year. As of December 31, 2015, the outstanding principal balance on the Senior Unsecured Notes was
$900.0 million.
F-30
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
The Notes are redeemable, in whole or in part, at any time at a redemption price equal to 100.0% of the principal
amount thereof plus a “make-whole” premium, as defined in the Indentures, together with accrued and unpaid
interest, if any, to the date of redemption. On June 12, 2015, we redeemed $110.0 million of the Senior Secured
Notes at a redemption price equal to 103.0% of the principal amount plus related and unpaid accrued interest. As a
result, we recorded a $5.0 million loss consisting of the $3.3 million redemption premium and a $1.7 million write-
off of related deferred financing costs.
The Senior Secured Notes are:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
general secured obligations of HSS;
secured by a first priority security interest in substantially all of the assets of HSS and certain of its
subsidiaries, subject to certain exceptions and permitted liens as provided in the Secured Indenture;
effectively junior to HSS’ obligations that are secured by assets that are not part of the collateral that
secures the Senior Secured Notes, in each case to the extent of the value of the collateral securing such
obligations;
effectively senior to HSS’ existing and future unsecured obligations to the extent of the value of the
collateral securing the Senior Secured Notes, after giving effect to permitted liens as provided in the
Secured Indenture;
senior in right of payment to all existing and future obligations of HSS that are expressly subordinated to
the Senior Secured Notes;
structurally junior to any existing and future obligations of any of HSS’ subsidiaries that do not guarantee
the Senior Secured Notes; and
unconditionally guaranteed, jointly and severally, on a general senior secured basis by certain of HSS’
subsidiaries that guarantee the Senior Secured Notes.
The Senior Unsecured Notes are:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
general unsecured obligations of HSS;
effectively junior to HSS’ obligations that are secured to the extent of the value of the collateral securing
such obligations;
senior in right of payment to all existing and future obligations of HSS that are expressly subordinated to
the Senior Unsecured Notes;
structurally junior to any existing and future obligations of any of HSS’ subsidiaries that do not guarantee
the Senior Unsecured Notes; and
unconditionally guaranteed, jointly and severally, on a general senior basis by certain of HSS’ subsidiaries
that guarantee the Senior Unsecured Notes.
Subject to certain exceptions, the Indentures contain restrictive covenants that, among other things, impose
limitations on the ability of HSS and, in certain instances, the ability of certain of its subsidiaries, to:
pay dividends or make distributions on capital stock or repurchase capital stock;
(cid:120)
(cid:120)
incur additional debt;
(cid:120) make certain investments;
(cid:120)
(cid:120) merge or consolidate with another company;
(cid:120)
(cid:120)
enter into transactions with affiliates; and
transfer or sell assets;
create liens or enter into sale and leaseback transactions;
F-31
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
(cid:120)
allow to exist certain restrictions on the ability of certain subsidiaries of HSS to pay dividends, make
distributions, make other payments, or transfer assets to us.
In the event of a change of control, as defined in the Indentures, HSS would be required to make an offer to
repurchase all or any part of a holder’s Notes at a purchase price equal to 101.0% of the aggregate principal amount
thereof, together with accrued and unpaid interest thereon to the date of repurchase.
As discussed above, HSS and certain of its subsidiaries have granted a first priority security interest in substantially
all of their assets, subject to certain exceptions and permitted liens, to secure HSS’ obligations under the Senior
Secured Notes and related guarantees.
Debt Issuance Costs
As of December 31, 2015 we had not early adopted ASU 2015-03 (see Note 2) and unamortized debt issuance costs
associated with our Notes were reported in “Other noncurrent assets” in our consolidated balance sheets. For the
years ended December 31, 2015, 2014 and 2013, we amortized $6.0 million, $5.8 million and $5.4 million of debt
issuance costs, respectively, which are included in “Interest expense, net of amounts capitalized” in our consolidated
statements of operations and comprehensive income (loss).
Capital Lease Obligations
Our capital lease obligations reflect the present value of future minimum lease payments under noncancelable lease
agreements, primarily for certain of our satellites (see Note 9). These agreements require monthly recurring
payments, which generally include principal, interest, an amount for use of the orbital location and estimated
executory costs, such as insurance and maintenance. The monthly recurring payments generally are subject to
reduction in the event of failures that reduce the satellite transponder capacity. Certain of these agreements provide
for extension of the initial lease term at our option. The effective interest rates for our satellite capital lease
obligations range from 9.1% to 11.2%, with a weighted average of 10.5% as of December 31, 2015.
Our capital lease obligations consist primarily of our payment obligations under agreements for the Nimiq 5 and
QuetzSat-1 satellites, which have remaining noncancelable terms ending in September 2024 and November 2021,
respectively. As discussed in Note 19, we have subleased transponders on these satellites to DISH Network. As
discussed in Note 9, in August 2014, our then existing capital lease agreements for the AMC-15 and AMC-16
satellites were extended. The AMC-15 agreement is being accounted for as an operating lease. The amended
agreement for the AMC-16 satellite services extended the term for the satellite’s entire communications capacity,
subject to available power, for one year following expiration of the initial term in February 2015 and the agreement
terminated according to its terms in February 2016.
F-32
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Future minimum lease payments under our capital lease obligations, together with the present value of the net
minimum lease payments as of December 31, 2015, are as follows:
For the Years Ending December 31,
2016..........................................................................................................................................................................
2017..........................................................................................................................................................................
2018..........................................................................................................................................................................
2019..........................................................................................................................................................................
2020..........................................................................................................................................................................
Thereafter...............................................................................................................................................................
Total minimum lease payments...........................................................................................................................
Less: Amount representing lease of the orbital location and estimated executory costs (primarily
insurance and maintenance) including profit thereon, included in total minimum lease payments.....
Net minimum lease payments..............................................................................................................................
Less: Amount representing interest..................................................................................................................
Present value of net minimum lease payments.................................................................................................
Less: Current portion...........................................................................................................................................
Long-term portion of capital lease obligations.................................................................................................
Amount
(In thousands)
94,008
$
90,144
88,182
87,930
87,818
257,999
706,081
(214,242)
491,839
(159,001)
332,838
(34,895)
297,943
$
For the years ended December 31, 2015, 2014 and 2013, we received rental income of approximately
$132.4 million, $132.4 million and $126.7 million, respectively, from the sublease of our capital lease satellites. As
of December 31, 2015, our future minimum sublease rental income was $613.3 million, relating to such satellites.
Note 12. Income Taxes
The components of income (loss) before income taxes are as follows:
Domestic ..............................................................
Foreign .................................................................
Total income (loss) before income taxes..
For the Years Ended December 31,
2014
2015
2013
(In thousands)
172,276
6,057
178,333
224,058
(2,486)
221,572
$
$
$
$
(50,551)
16,515
(34,036)
$
$
The components of the benefit (provision) for income taxes are as follows:
Current benefit (provision):
Federal ...................................................................
State........................................................................
Foreign ..................................................................
Total current benefit (provision)....................
Deferred benefit (provision):
Federal ...................................................................
State .......................................................................
Foreign...................................................................
Total deferred (provision) benefit..................
Total income tax (provision) benefit, net..
$
For the Years Ended December 31,
2014
2015
2013
(In thousands)
(2,593)
9,006
(5,455)
958
(165)
(9,601)
(6,303)
(16,069)
$
$
1,118
6,531
(5,992)
1,657
(62,572)
4,818
1,622
(56,132)
(72,201)
$
(31,905)
(1,283)
1,446
(31,742)
(30,784)
$
26,511
10,074
(805)
35,780
37,437
$
F-33
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
The actual tax provisions for the years ended December 31, 2015, 2014 and 2013 reconcile to the amounts computed
by applying the statutory federal tax rate to income (loss) before income taxes as shown below:
For the Years Ended December 31,
2015
2013
2014
Statutory rate........................................................
State income taxes, net of Federal benefit .......
Permanent differences.........................................
Tax credits.............................................................
Valuation allowance ...........................................
Other......................................................................
Total effective tax rate.................................
35.0 %
2.1 %
3.6 %
(10.1)%
2.8 %
(0.8)%
32.6 %
35.0 %
(0.2)%
0.6 %
(18.6)%
(0.9)%
1.4 %
17.3 %
35.0 %
21.0 %
(10.7)%
48.7 %
14.2 %
1.8 %
110.0 %
The components of the deferred tax assets and liabilities are as follows:
As of December 31,
2015
2014
Deferred tax assets:
Net operating losses, credit and other carryforwards ...............
Unrealized losses on investments, net ........................................
Accrued expenses ..........................................................................
Stock-based compensation ...........................................................
Other asset .......................................................................................
Total deferred tax assets ............................................................
Valuation allowance .......................................................................
Deferred tax assets after valuation allowance ........................
(In thousands)
$
$
315,924
47,678
34,037
13,345
9,534
420,518
(72,131)
348,387
412,744
30,248
34,632
8,445
12,157
498,226
(73,664)
424,562
Deferred tax liabilities:
Depreciation and amortization ......................................................
Other liabilities ................................................................................
Total deferred tax liabilities .......................................................
Total net deferred tax liabilities (1)........................................
(993,326)
(1,412)
(994,738)
(646,351)
$
(1,014,812)
(748)
(1,015,560)
(590,998)
$
Current portion of net deferred tax assets (1)..............................
Noncurrent portion of net deferred tax liabilities .......................
Total net deferred tax liabilities..............................................
$
-
(646,351)
(646,351)
$
$
87,208
(678,206)
(590,998)
$
(1)
In 2015, we early adopted ASU 2015-17 (see Note 2), which resulted in the classification of all of our deferred taxes as
noncurrent as of December 31, 2015. We did not retrospectively reclassify our current deferred tax balances as of
December 31, 2014.
Deferred tax assets and liabilities reflect the effects of tax losses, credits, and the future income tax effects of
temporary differences between the consolidated financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and are measured using enacted tax rates that apply to taxable income in the
years in which those temporary differences are expected to be recovered or settled.
We evaluate our deferred tax assets for realization and record a valuation allowance when we determine that it is
more likely than not that the amounts will not be realized. Overall, our net deferred tax assets were offset by a
valuation allowance of $72.1 million and $73.7 million as of December 31, 2015 and 2014, respectively. The
change in the valuation allowance primarily relates to a decrease in realized and unrealized gains that are capital in
nature, partially offset by an increase in the net operating loss carryforwards of certain foreign subsidiaries.
Tax benefits of net operating loss and tax credit carryforwards are evaluated on an ongoing basis, including a review
of historical and projected future operating results, the eligible carryforward period, and other circumstances. As of
December 31, 2015, we had net operating loss carryforwards of $768.8 million, including $92.7 million of foreign
net operating loss carryforwards. A substantial portion of these net operating loss carryforwards will begin to expire
F-34
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
in 2029. As of December 31, 2015, we have tax credit carryforwards of $96.9 million and $30.6 million for federal
and state income tax purposes, respectively. If not utilized, the federal tax credit carryforwards will begin to expire
in 2026 and the state tax credit carryforwards will begin to expire in 2016.
Additionally, tax benefits from excess tax deductions attributable to stock-based compensation has resulted in
$38.4 million of net operating loss carryforwards that will not be recognized as a credit to additional paid in capital
until such deductions reduce taxes payable. We follow the tax law ordering rules, which assume that stock option
deductions are realized when they have been used for tax purposes.
As of December 31, 2015, we had undistributed earnings attributable to foreign subsidiaries for which no provision
for U.S. income taxes or foreign withholding taxes has been made because it is expected that such earnings will be
reinvested outside the U.S. indefinitely. It is not practicable to determine the amount of the unrecognized deferred
tax liability at this time.
Accounting for Uncertainty in Income Taxes
In addition to filing U.S. federal income tax returns, we file income tax returns in all states that impose an income
tax. As of December 31, 2015, we are currently under a U.S. federal income tax examination for fiscal years 2009
and 2010. We also file income tax returns in the United Kingdom, Brazil, India and a number of other foreign
jurisdictions. We generally are open to income tax examination in these foreign jurisdictions for taxable years
beginning in 2003. As of December 31, 2015, we are currently being audited by the Indian tax authorities for fiscal
years 2003 through 2012. We have no other on-going significant income tax examinations in process in our foreign
jurisdictions.
A reconciliation of the beginning and ending amount of unrecognized income tax benefits is as follows:
Unrecognized tax benefit
Balance as of beginning of period........................................................
Additions based on tax positions related to the current year......
Additions based on tax positions related to prior years...............
Reductions based on tax positions related to prior years............
Reductions based on tax settlements..............................................
Balance as of end of period...................................................................
For the Years Ended December 31,
2014
2015
2013
(In thousands)
$
$
$
44,839
11,748
5,779
-
-
62,366
43,319
3,806
4,643
(81)
(6,848)
44,839
34,677
81
9,929
(1,253)
(115)
43,319
$
$
$
As of December 31, 2015, we had $62.4 million of unrecognized income tax benefits, all of which, if recognized,
would affect our effective tax rate. As of December 31, 2014, we had $44.8 million of unrecognized income tax
benefits, all of which if recognized, would affect our effective tax rate. We do not believe that the total amount of
unrecognized income tax benefits will significantly increase or decrease within the next twelve months due to the
lapse of statute of limitations or settlement with tax authorities.
For the years ended December 31, 2015, 2014 and 2013, our income tax provision or benefit included an
insignificant amount of interest and penalties.
Estimates of our uncertain tax positions are made based upon prior experience and are updated in light of changes in
facts and circumstances. However, due to the uncertain and complex application of tax regulations, it is possible
that the ultimate resolution of audits may result in liabilities which could be materially different from these
estimates. In such an event, we will record additional income tax provision or benefit in the period in which such
resolution occurs.
F-35
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Note 13. Stockholders’ Equity
Preferred Stock
Our board of directors is authorized to divide the preferred stock into series and, with respect to each series, to
determine the preferences and rights and the qualifications, limitations or restrictions of the series, including the
dividend rights, conversion rights, voting rights, redemption rights and terms, liquidation preferences, sinking fund
provisions, the number of shares constituting the series, and the designation of such series. Our board of directors
may, without stockholder approval, issue additional preferred stock of existing or new series with voting and other
rights that could adversely affect the voting power of the holders of common stock and could have certain anti-
takeover effects.
In February 2014, our board of directors authorized 13,000,000 shares of Hughes Retail Preferred Tracking Stock
with a par value of $0.001 per share, of which 6,290,499 shares were issued to DISH Network on March 1, 2014 and
remain outstanding as of December 31, 2015. See Note 4 for a discussion of the Hughes Retail Preferred Tracking
Stock.
Common Stock
Our Class A, Class B, and Class C common stock are equivalent except for voting rights. Holders of Class A and
Class C common stock are entitled to one vote per share and holders of Class B common stock are entitled to
10 votes per share. Upon a change in control of the Company, each holder of outstanding shares of Class C common
stock is entitled to 10 votes for each share of Class C common stock held. Each share of Class B and Class C
common stock is convertible, at the option of the holder, into one share of Class A common stock. Our principal
stockholder owns the majority of all outstanding Class B common stock and, together with all other stockholders,
owns outstanding Class A common stock. There are no shares of Class C common stock outstanding.
Any holder of Class D common stock is not entitled to a vote on any matter or to convert the shares of Class D
common stock into any other class of common stock. There are no shares of Class D common stock outstanding.
Each share of common stock is entitled to receive its pro rata share, based upon the number of shares of common
stock held, of dividends and distributions upon liquidation.
Common Stock Repurchase Program
Pursuant to a stock repurchase program approved by our board of directors, we are authorized to repurchase up to
$500.0 million of our outstanding shares of Class A common stock through and including December 31, 2016. For
the years ended December 31, 2015, 2014 and 2013, we did not repurchase any common stock under this program.
Note 14. Employee Benefit Plans
Employee Stock Purchase Plan
We have an employee stock purchase plan (the “ESPP”), under which we are authorized to issue 2.5 million shares
of Class A common stock. As of December 31, 2015, we had 0.8 million shares of Class A common stock which
remain available for issuance under this plan. Substantially all full-time employees who have been employed by us
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 our capital stock under all of our stock purchase plans at a rate which would exceed $25,000
in fair value of capital stock in any one year. The purchase price of the stock is 85.0% of the closing price of the
Class A common stock on the last business day of each calendar quarter in which such shares of Class A common
stock are deemed sold to an employee under the ESPP. For the years ended December 31, 2015, 2014 and 2013,
employee purchases of Class A common stock through the ESPP totaled 362,000 shares, 283,000 shares and
268,000 shares, respectively.
F-36
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
401(k) Employee Savings Plans
Under the EchoStar 401(k) Plan (“the Plan”), eligible employees were entitled to contribute up to 75.0% of their
compensation subject to the Internal Revenue Service (“IRS”) limit of $18,000 (or $24,000 for employees eligible to
make Catch-Up contributions) in 2015. We amended the Plan in October 2015 to provide eligible employees with
the option to make after-tax contributions (“Roth 401(k) contributions”) to the Plan so that they may contribute up to
75% of their compensation on a pre-tax and/or after-tax basis subject to the IRS limit. For Roth 401(k)
contributions, earnings receive favorable tax treatment upon distribution as long as certain conditions are met. All
employee contributions to the Plan are immediately vested. The Company will match 50 cents on the dollar for the
first 6.0% of each employee’s salary contributions to the Plan for a total of 3.0% match on a pre-tax basis up to a
maximum of $7,500 annually. The Company match is calculated each pay period there is an employee contribution.
Company contributions under the Plan vest at 20.0% per year and are 100.0% vested after an eligible employee has
completed five years of service. Forfeitures of unvested participant balances which were retained by the EchoStar
401(k) Plan may be used to fund matching and discretionary contributions. Our board of directors may also
authorize an annual discretionary contribution to the Plan to be made in cash or our stock, subject to the maximum
deductible limit provided by the Internal Revenue Code of 1986, as amended.
For the years ended December 31, 2015, 2014 and 2013, we recognized matching contributions, net of forfeitures, of
$7.4 million, $6.8 million and $6.1 million, respectively, and made discretionary contributions of shares of our Class
A common stock, net of forfeitures, with a fair value of $10.4 million, $10.2 million and $10.3 million, respectively
(approximately 204,000, 207,000 and 139,000 shares, respectively), to the Plan.
Note 15. Stock-Based Compensation
Stock Incentive Plans
We maintain stock incentive plans to attract and retain officers, directors and key employees. Stock awards under
these plans include both performance-based and non-performance based stock incentives. As of December 31,
2015, we had outstanding under these plans stock options to acquire 5.9 million shares of our Class A common stock
and approximately 57,000 restricted stock units. Stock options granted prior to and on December 31, 2015 were
granted with exercise prices equal to or greater than the market value of our Class A common stock at the date of
grant and with a maximum term of ten years. While generally we issue stock awards subject to vesting, typically
over three to five years, some stock awards have been granted with immediate vesting and other stock awards vest
only upon the achievement of certain performance objectives. As of December 31, 2015, we had 4.3 million shares
of our Class A common stock available for future grant under our stock incentive plans.
Exercise prices for stock options outstanding and exercisable as of December 31, 2015 are as follows:
Number
Outstanding
as of
December
31, 2015
686
84,329
246,524
496,947
305,415
403,001
2,378,839
1,977,500
5,893,241
Options Outstanding
Weighted-
Average
Remaining
Contractual Term
(In Years)
1
3
4
4
4
7
6
9
7
Weighted-
Average
Exercise
Price
$
$
$
$
$
$
$
$
$
2.12
14.83
18.96
20.29
28.12
34.04
37.90
49.42
38.38
Number
Exercisable
as of
December
31, 2015
686
84,329
246,524
480,947
227,415
349,001
1,440,839
252,500
3,082,241
Options Exercisable
Weighted-
Average
Remaining
Contractual Term
(In Years)
1
3
4
4
3
6
6
8
5
Weighted-
Average
Exercise
Price
$
$
$
$
$
$
$
$
$
2.12
14.83
18.96
20.25
28.64
34.02
37.70
48.09
32.61
Price Range
$0.00 - $10.00
$10.01 - $15.00
$15.01 - $20.00
$20.01 - $25.00
$25.01 - $30.00
$30.01 - $35.00
$35.01 - $40.00
$40.01 and above
F-37
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Stock Award Activity
Our stock option activity was as follows:
2015
For the Years Ended December 31,
2014
2013
Weighted-
Average
Exercise
Price
Weighted-
Average
Exercise
Price
Weighted-
Average
Exercise
Price
Total options outstanding, beginning of period......................
Granted ...........................................................................................
Exercised.........................................................................................
Forfeited and cancelled.................................................................
Total options outstanding, end of period..................................
Performance-based options outstanding, end of period (1)...
Exercisable at end of period.........................................................
(1) These stock options are included in the caption “Total options outstanding, end of period.” See discussion of the 2005 LTIP below.
34.02
$
51.59
$
27.78
$
29.45
$
$
38.38
$
-
$
32.61
30.43
47.84
24.87
32.65
34.02
25.27
29.66
$
$
$
$
$
$
$
$
$
$
$
$
$
$
3,082,241
-
27.21
38.75
24.65
27.01
30.43
25.27
28.69
Options
7,908,300
1,190,000
(2,494,893)
(332,349)
6,271,058
629,300
2,712,891
Options
6,271,058
1,161,000
(697,544)
(64,900)
6,669,614
623,100
3,013,114
Options
6,669,614
929,000
(894,071)
(811,302)
5,893,241
We realized total tax benefits from stock options exercised of $7.9 million, $7.2 million and $21.9 million for the
years ended December 31, 2015, 2014 and 2013, respectively.
Our restricted stock unit activity was as follows:
2015
For the Years Ended December 31,
2014
2013
Restricted
Stock
Units
96,768
100,000
(83,992)
(55,448)
57,328
33,334
Weighted-
Average
Grant Date
Fair Value
$
29.29
$
50.00
$
45.72
$
27.01
$
42.31
$
50.00
Restricted
Stock
Units
121,877
-
(22,877)
(2,232)
96,768
55,448
Weighted-
Average
Grant Date
Fair Value
$
29.93
$
-
$
33.08
$
25.51
$
29.29
$
27.00
Restricted
Stock
Units
151,683
-
(22,876)
(6,930)
121,877
57,680
Weighted-
Average
Grant Date
Fair Value
$
30.18
$
-
$
33.08
$
24.88
$
29.93
$
26.94
Total restricted stock units outstanding, beginning of period...
Granted................................................................................................
Vested..................................................................................................
Forfeited and cancelled.....................................................................
Total restricted stock units outstanding, end of period..............
Restricted Performance Units outstanding, end of period..........
We granted 100,000 restricted stock units (“RSUs”) for the year ended December 31, 2015. The RSUs vest based
on the attainment of certain quarterly company performance criteria for the second, third and fourth quarters of 2015
and will expire on March 31, 2016. For the year ended December 31, 2015, 66,666 of the RSUs vested and vesting
of the remaining 33,334 RSUs is probable.
2005 LTIP. During 2005, DISH Network adopted a long-term, performance-based stock incentive plan (the “2005
LTIP”). The 2005 LTIP provided stock options and RSUs, either alone or in combination, with vesting over seven
years at the rate of 10.0% per year during the first four years, and at the rate of 20.0% per year thereafter. In
connection with the Spin-off, those stock options and RSUs were converted into EchoStar stock options and RSUs
with the same terms and obligations as were provided under the 2005 LTIP. As of December 31, 2014, all
outstanding awards under the terms of the 2005 LTIP had satisfied applicable time-based vesting requirements and
were subject only to a performance condition that a company-specific goal is achieved by March 31, 2015. In 2015
we determined that the company-specific goal was no longer achievable under the terms of the 2005 LTIP.
Accordingly, the 2005 LTIP and all outstanding awards under the terms of the 2005 LTIP were cancelled and
terminated during 2015.
F-38
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Stock-Based Compensation
Total non-cash, stock-based compensation expense for all of our employees is shown in the following table for the
years ended December 31, 2015, 2014 and 2013 and was assigned to the same expense categories as the base
compensation for such employees:
For the Years Ended December 31,
2014
(In thousands)
2013
2015
Research and development expenses...........................
Selling, general and administrative expenses...............
Total stock-based compensation...............................
$
4,570
17,269
21,839
$
$
2,403
12,280
14,683
$
$
3,478
14,875
18,353
$
As of December 31, 2015, total unrecognized stock-based compensation cost, net of estimated forfeitures, related to
our unvested stock awards was $33.1 million. This cost is based on an estimated future forfeiture rate of
approximately 2.0% per year and will be recognized over a weighted-average period of approximately two years.
Valuation of Stock Options
The fair value of each stock option granted for the years ended December 31, 2015, 2014 and 2013 was estimated at
the date of the grant using a Black-Scholes option valuation model. The estimated grant-date fair values and related
assumptions were as follows:
Assumptions:
Risk-free interest rate......................................................
Volatility factor.................................................................
Expected term of options in years.................................
Weighted-average grant-date fair value..........................
2015
1.38% - 1.80%
27.16% - 27.85%
5.3 - 5.4
$12.25 - $15.05
For the Years Ended December 31,
2014
1.72% - 1.85%
29.05% - 35.02%
5.2 - 5.3
$13.79 - $17.21
2013
0.99% - 1.54%
37.54% - 42.23%
5.4 - 5.5
$15.59 - $17.20
We do not currently intend to pay dividends on our common stock and accordingly, the dividend yield percentage
used in the Black-Scholes option valuation model was assumed to be zero for all periods. The Black-Scholes option
valuation model was developed for use in estimating the fair value of traded stock options which have no vesting
restrictions and are fully transferable. Consequently, our estimate of fair value may differ from other valuation
models. Further, the Black-Scholes option valuation model requires the input of subjective assumptions. Changes
in the subjective input assumptions can materially affect the fair value estimate.
Based on the closing market price of our Class A common stock on December 31, 2015, the aggregate intrinsic value
of our stock options was $24.7 million for options outstanding and $22.3 million for options exercisable as of
December 31, 2015.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Note 16. Commitments and Contingencies
Commitments
The following table summarizes our contractual obligations at December 31, 2015:
Total
2016
Payments Due in the Year Ending December 31,
2018
(In thousands)
2017
2019
2020
Thereafter
Long-term debt...............................
Capital lease obligations...............
Interest on long-term debt and
capital lease obligations...........
Satellite-related obligations..........
Operating lease obligations.........
Purchase and other obligations...
Total.............................................
$
1,890,803
332,838
$
803
34,895
-
$
34,502
-
$
36,287
$
990,000
40,143
-
$
44,558
$
900,000
142,453
761,689
1,134,217
100,274
227,028
4,446,849
$
166,086
534,871
26,324
225,361
988,340
$
162,805
165,992
19,469
1,667
384,435
$
159,265
119,976
11,919
-
327,447
$
123,191
55,654
9,800
-
$
1,218,788
86,697
53,662
8,543
-
193,460
$
63,645
204,062
24,219
-
$
1,334,379
“Satellite-related obligations” primarily include payments pursuant to agreements for the construction of the
EchoStar XIX, EchoStar XXI, EchoStar XXIII, and EchoStar 105/SES-11 satellites, payments pursuant to launch
services contracts and regulatory authorizations, executory costs for our capital lease satellites, costs under satellite
service agreements and in-orbit incentives relating to certain satellites, as well as commitments for long-term
satellite operating leases and satellite service arrangements. We incurred satellite-related expenses of
$160.8 million, $178.8 million and $181.2 million for the years ended December 31, 2015, 2014 and 2013,
respectively.
Our “Purchase and other obligations” primarily consists of binding purchase orders for digital set-top boxes and
related components. Our purchase obligations can fluctuate significantly from period to period due to, among other
things, management’s control of inventory levels, and can materially impact our future operating asset and liability
balances, and our future working capital requirements.
The table above does not include amounts related to deferred tax liabilities, unrecognized tax positions and certain
other amounts recorded in our noncurrent liabilities as the timing of any payments is uncertain. The table also
excludes long-term deferred revenue and other long-term liabilities that do not require future cash payments.
In certain circumstances, the dates on which we are obligated to pay our contractual obligations could change.
Rent Expense
For the years ended December 31, 2015, 2014 and 2013, we recorded $22.0 million, $21.3 million and
$22.6 million, respectively, of operating lease expense relating to the leases of office space, equipment, and other
facilities.
Contingencies
Patents and Intellectual Property
Many entities, including some of our competitors, have or may in the future obtain patents and other intellectual
property rights that cover or affect products or services directly or indirectly related to those that we offer. We may
not be aware of all patents and other intellectual property rights that our products and services may potentially
infringe. Damages in patent infringement cases can be substantial, and in certain circumstances can be trebled.
Further, we cannot estimate the extent to which we may be required in the future to obtain licenses with respect to
intellectual property rights held by others and the availability and cost of any such licenses. Various parties have
asserted patent and other intellectual property rights with respect to components within our DBS products and
services. We cannot be certain that these persons do not own the rights they claim, that these rights are not valid or
that our products and services do not infringe on these rights. Further, we cannot be certain that we would be able to
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
obtain licenses from these persons on commercially reasonable terms or, if we were unable to obtain such licenses,
that we would be able to redesign our products and services to avoid infringement.
Separation Agreement
In connection with the Spin-off, we entered into a separation agreement with DISH Network that provides, among
other things, for the division of certain liabilities, including liabilities resulting from litigation. Under the terms of
the separation agreement, we have assumed certain liabilities that relate to our business, including certain designated
liabilities for acts or omissions that occurred prior to the Spin-off. Certain specific provisions govern intellectual
property related claims under which, generally, we will only be liable for our acts or omissions following the Spin-
off and DISH Network will indemnify us for any liabilities or damages resulting from intellectual property claims
relating to the period prior to the Spin-off, as well as DISH Network’s acts or omissions following the Spin-off.
Litigation
We are involved in a number of legal proceedings (including those described below) concerning matters arising in
connection with the conduct of our business activities. Many of these proceedings are at preliminary stages and/or
seek an indeterminate amount of damages. We regularly evaluate the status of the legal proceedings in which we are
involved to assess whether a loss is probable or there is a reasonable possibility that a loss or an additional loss may
have been incurred and to determine if accruals are appropriate. We record an accrual for litigation and other loss
contingencies when we determine that a loss is probable and the amount of the loss can be reasonably estimated. If
accruals are not appropriate, we further evaluate each legal proceeding to assess whether an estimate of possible loss
or range of loss can be made. There can be no assurance that legal proceedings against us will be resolved in
amounts that will not differ from the amounts of our recorded accruals. Legal fees and other costs of defending
litigation are charged to expense as incurred.
For certain cases described below, management is unable to predict with any degree of certainty the outcome or
provide a meaningful estimate of the possible loss or range of possible loss because, among other reasons, (i) the
proceedings are in various stages; (ii) damages have not been sought or specified; (iii) damages are unsupported,
indeterminate and/or exaggerated in management’s opinion; (iv) there is uncertainty as to the outcome of pending
appeals or motions; (v) there are significant factual issues to be resolved; and/or (vi) there are novel legal issues or
unsettled legal theories to be presented or a large number of parties are involved (as with many patent-related
cases). For these cases, however, management does not believe, based on currently available information, that the
outcomes of these proceedings will have a material adverse effect on our financial condition, operating results or
cash flows, though there is no assurance that the resolution and outcomes of these proceedings, individually or in the
aggregate, will not be material to our financial condition, operating results or cash flows for any particular period,
depending, in part, upon the operating results for such period.
We intend to vigorously defend the proceedings against us. In the event that a court ultimately rules against us, we
may be subject to adverse consequences, including, without limitation, substantial damages, which may include
treble damages, fines, penalties, compensatory damages and/or other equitable or injunctive relief that could require
us to materially modify our business operations or certain products or services that we offer to our consumers. In
addition, adverse decisions against DISH Network in the proceedings described below could decrease the number of
products and components we sell to DISH Network, which could have a material adverse effect on our business
operations and our financial condition, results of operation and cash flows.
California Institute of Technology
On October 1, 2013, the California Institute of Technology (“Caltech”) filed suit against two of our subsidiaries,
Hughes Communications, Inc. and Hughes Network Systems, LLC (“HNS”), as well as against DISH Network,
DISH Network L.L.C., and dishNET Satellite Broadband L.L.C., in the United States District Court for the Central
District of California alleging infringement of United States Patent Nos. 7,116,710; 7,421,032; 7,916,781; and
8,284,833, each of which is entitled “Serial Concatenation of Interleaved Convolutional Codes forming Turbo-Like
Codes.” Caltech asserted that encoding data as specified by the DVB-S2 standard infringes each of the asserted
patents. In the operative Amended Complaint, served on March 6, 2014, Caltech claims that the HopperTM set-top
box that we design and sell to DISH Network, as well as certain of our Hughes segment’s satellite broadband
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products and services, infringe the asserted patents by implementing the DVB-S2 standard. On September 26, 2014,
Caltech requested leave to amend its Amended Complaint to add EchoStar Corporation and our subsidiary, EchoStar
Technologies L.L.C. as defendants, as well as to allege that a number of additional set-top boxes infringe the
asserted patents. On November 7, 2014, the Court rejected that request. Additionally, on November 4, 2014, the
Court ruled that the patent claims at issue in the suit are directed to patentable subject matter. On February 17, 2015,
Caltech filed a second complaint in the same district against the same defendants alleging that HNS’ Gen4 HT1000
and HT1100 products infringe the same patents asserted in the first case. We answered that second complaint on
March 24, 2015. The trial for the first case which was scheduled to commence on April 20, 2015, was vacated by
the Court on March 16, 2015 and a new trial date has yet to be set. On May 5, 2015, the Court granted summary
judgment for us on a number of issues, finding that Caltech’s damages theory improperly apportioned alleged
damages, that allegations of infringement against DISH Network, DISH Network L.L.C., and dishNET Satellite
Broadband L.L.C. should be dismissed from the case, and affirming that Caltech could not assert infringement under
the doctrine of equivalents. The Court also granted motions by Caltech seeking findings that certain of its patents
were not indefinite or subject to equitable estoppel. The Court otherwise denied motions for summary judgment,
including a motion by Caltech seeking summary judgment of infringement. On May 14, 2015, the judge assigned to
the case passed away. A new judge has not yet been formally assigned. The parties are discussing resolving these
cases without further litigation. There can be no assurance that a settlement agreement will be reached. If a
settlement agreement is not reached, we cannot predict with any degree of certainty the outcome of the suit or
determine the extent of any potential liability or damages and we intend to vigorously defend these cases.
ClearPlay, Inc.
On March 13, 2014, ClearPlay, Inc. (“ClearPlay”) filed a complaint against EchoStar Corporation and our
subsidiary, EchoStar Technologies L.L.C., as well as against DISH Network and DISH Network L.L.C. in the
United States District Court for the District of Utah. The complaint alleges infringement of United States Patent
Nos. 6,898,799, entitled “Multimedia Content Navigation and Playback”; 7,526,784, entitled “Delivery of
Navigation Data for Playback of Audio and Video Content”; 7,543,318, entitled “Delivery of Navigation Data for
Playback of Audio and Video Content”; 7,577,970, entitled “Multimedia Content Navigation and Playback”; and
8,117,282, entitled “Media Player Configured to Receive Playback Filters From Alternative Storage Mediums.”
ClearPlay alleges that the AutoHop™ feature of the HopperTM set-top box infringes the asserted patents. On
February 11, 2015, the Court stayed the case pending various third-party challenges before the United States Patent
and Trademark Office regarding the validity of certain of the patents ClearPlay asserted in the case.
CRFD Research, Inc. (a subsidiary of Marathon Patent Group, Inc.)
On January 17, 2014, CRFD Research, Inc. (“CRFD”) filed a complaint against EchoStar Corporation and our
subsidiary, EchoStar Technologies L.L.C., as well as against DISH Network, DISH DBS Corporation and DISH
Network L.L.C., in United States District Court for the District of Delaware, alleging infringement of United States
Patent No. 7,191,233 (the “233 patent”). The 233 patent is entitled “System for Automated, Mid-Session, User-
Directed, Device-to-Device Session Transfer System,” and relates to transferring an ongoing software session from
one device to another. CRFD alleges that certain of our set-top boxes infringe the 233 patent. On the same day,
CRFD filed patent infringement complaints against AT&T Inc.; Comcast Corp.; DirecTV; Time Warner Cable Inc.;
Cox Communications, Inc.; Level 3 Communications, Inc.; Akamai Technologies, Inc.; Cablevision Systems Corp.
and Limelight Networks, Inc. On January 26, 2015, we and DISH Network filed a petition before the United States
Patent and Trademark Office challenging the validity of the 233 patent, which was subsequently instituted along
with two third-party petitions also challenging the validity of the 233 patent. On June 4, 2015, the litigation in the
District Court was ordered stayed pending resolution of our petition before the United States Patent and Trademark
Office, and on January 16, 2016, the United States Patent and Trademark Office held oral arguments on the merits of
the petition. CRFD is an entity that seeks to license an acquired patent portfolio without itself practicing any of the
claims recited therein.
Elbit
On January 23, 2015, Elbit Systems Land and C4I LTD and Elbit Systems of America Ltd. (together referred to as
“Elbit”) filed a complaint against our subsidiary HNS, as well as against Black Elk Energy Offshore Operations,
LLC, Bluetide Communications, Inc. and Helm Hotels Group, in the United States District Court for the Eastern
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District of Texas, alleging infringement of United States Patent Nos. 6,240,073 (the “073 patent”) and 7,245,874
(“874 patent”). The 073 patent is entitled “Reverse Link for a Satellite Communication Network” and the 874
patent is entitled “Infrastructure for Telephony Network.” Elbit alleges that the 073 patent is infringed by broadband
satellite systems that practice the Internet Protocol Over Satellite standard. Elbit alleges that the 874 patent is
infringed by the manufacture and sale of broadband satellite systems that provide cellular backhaul service via
connections to E1 or T1 interfaces at cellular backhaul base stations. On April 2, 2015, Elbit filed an amended
complaint removing Helm Hotels Group as a defendant, but making similar allegations against a new defendant,
Country Home Investments, Inc. On April 20, 2015, the defendants filed motions to dismiss portions of Elbit’s
amended complaint. On January 15, 2016, the defendants filed a petition challenging the validity of the 073 patent
and the 874 patent.
The Hopper Litigation
On May 24, 2012, DISH Network L.L.C., filed suit in the United States District Court for the Southern District of
New York against American Broadcasting Companies, Inc. (“ABC”), CBS Corporation (“CBS”), Fox Entertainment
Group, Inc., Fox Television Holdings, Inc., Fox Cable Network Services, L.L.C. (collectively, “Fox”) and
NBCUniversal Media, LLC (“NBC”). The lawsuit seeks a declaratory judgment that DISH Network L.L.C is not
infringing any defendant’s copyright, or breaching any defendant’s retransmission consent agreement, by virtue of
the PrimeTime Anytime™ and AutoHop™ features of the Hopper™ set-top boxes we design and sell to DISH
Network. A consumer can use the PrimeTime Anytime feature at his or her option, to record certain primetime
programs airing on ABC, CBS, Fox, and/or NBC up to every night, and to store those recordings for up to eight
days. A consumer can use the AutoHop feature at his or her option, to watch certain recordings the subscriber made
with our PrimeTime Anytime feature, commercial-free, if played back at a certain point after the show’s original
airing.
Later on May 24, 2012, (i) Fox Broadcasting Company, Twentieth Century Fox Film Corp. and Fox Television
Holdings, Inc. filed a lawsuit against DISH Network and DISH Network L.L.C. (collectively, “DISH”) in the United
States District Court for the Central District of California, alleging that the PrimeTime Anytime feature, the
AutoHop feature, as well as DISH’s use of Slingbox unit’s placeshifting functionality infringe their copyrights and
breach their retransmission consent agreements, (ii) NBC Studios LLC, Universal Network Television, LLC, Open 4
Business Productions LLC and NBCUniversal Media, LLC filed a lawsuit against DISH in the United States District
Court for the Central District of California, alleging that the PrimeTime Anytime feature and the AutoHop feature
infringe their copyrights, and (iii) CBS Broadcasting Inc., CBS Studios Inc. and Survivor Productions LLC filed a
lawsuit against DISH in the United States District Court for the Central District of California, alleging that the
PrimeTime Anytime feature and the AutoHop feature infringe their copyrights.
As a result of certain parties’ competing counterclaims and venue-related motions brought in both the New York and
California actions, as described below, and certain networks filing various amended complaints, the claims have
proceeded in the following venues: (1) the copyright and contract claims regarding the ABC and CBS parties in
New York; and (2) the copyright and contract claims regarding the Fox and NBC parties in California.
California Actions. On August 17, 2012, the NBC plaintiffs filed a first amended complaint in their California
action adding EchoStar Corporation and our subsidiary EchoStar Technologies L.L.C. to the NBC litigation, alleging
various claims of copyright infringement. We and our subsidiary answered on September 18, 2012.
On November 7, 2012, the California court denied the Fox plaintiffs’ motion for a preliminary injunction to enjoin
the Hopper set-top box’s PrimeTime Anytime and AutoHop features, and the Fox plaintiffs appealed. On March 27,
2013, at the request of the parties, the Central District of California granted a stay of all proceedings in the action
brought by the NBC plaintiffs, pending resolution of the appeal by the Fox plaintiffs. On July 24, 2013, the United
States Court of Appeals for the Ninth Circuit affirmed the denial of the Fox plaintiffs’ motion for a preliminary
injunction as to the PrimeTime Anytime and AutoHop features. On August 7, 2013, the Fox plaintiffs filed a
petition for rehearing and rehearing en banc, which was denied on January 24, 2014. The United States Supreme
Court granted the Fox plaintiffs an extension until May 23, 2014 to file a petition for writ of certiorari, but they did
not file. As a result, the stay of the NBC plaintiffs’ action expired. On August 6, 2014, at the request of the parties,
the Central District of California granted a further stay of all proceedings in the action brought by the NBC
plaintiffs, pending a final judgment on all claims in the Fox plaintiffs’ action. As discussed below, the Fox action
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was dismissed on February 11, 2016. As a result, the parties to the NBC action have until February 26, 2016 to file
a status report indicating their intended course of action. No trial date is currently set on the NBC claims.
In addition, on February 21, 2013, the Fox plaintiffs filed a second motion for preliminary injunction against: (i)
DISH Network, seeking to enjoin the Hopper Transfers™ feature in the second-generation Hopper set-top box,
alleging breach of a retransmission consent agreement; and (ii) EchoStar Technologies L.L.C. and DISH Network,
seeking to enjoin the Slingbox unit’s placeshifting functionality in the second-generation Hopper set-top box,
alleging copyright infringement by both defendants, and breach of the earlier-mentioned retransmission consent
agreement by DISH Network. The Fox plaintiffs’ motion was denied on September 23, 2013. The Fox plaintiffs
appealed, and on July 14, 2014, the United States Court of Appeals for the Ninth Circuit affirmed the denial of the
Fox plaintiffs’ motion. On October 17, 2014, the California court heard oral argument on the Fox plaintiffs’ and our
respective motions for summary judgment. On January 12, 2015, the Court entered an order ruling on the parties’
respective summary judgment motions, holding that: (a) the Slingbox unit’s placeshifting functionality and the
PrimeTime Anytime, AutoHop and Hopper Transfers features do not violate copyright law; (b) certain quality
assurance copies (which were discontinued in November 2012) did violate copyright law; and (c) the Slingbox unit’s
placeshifting functionality, the Hopper Transfers feature and certain quality assurance copies breach DISH’s
retransmission consent agreement with Fox. At the parties’ joint request, the Court had stayed the case until January
15, 2016. Pursuant to a settlement agreement between us, DISH Network and the Fox plaintiffs, on February 10,
2016, we, DISH Network and the Fox plaintiffs filed a motion to dismiss with prejudice all of our respective claims
pending in the California Court. That motion was granted on February 11, 2016.
New York Actions. On October 9, 2012, the ABC plaintiffs filed copyright counterclaims in the New York action
against EchoStar Technologies, L.L.C., with the CBS plaintiffs filing similar copyright counterclaims in the New
York action against EchoStar Technologies L.L.C. on October 12, 2012. Additionally, the CBS plaintiffs filed a
counterclaim alleging that DISH Network fraudulently concealed the AutoHop feature when negotiating the renewal
of its CBS retransmission consent agreement.
On November 23, 2012, the ABC plaintiffs filed a motion for a preliminary injunction to enjoin the Hopper set-top
box’s PrimeTime Anytime and AutoHop features. On September 18, 2013, the New York court denied that motion.
The ABC plaintiffs appealed, and oral argument on the appeal was heard on February 20, 2014 before the United
States Court of Appeals for the Second Circuit. Pursuant to a settlement between us and the ABC parties, on March
4, 2014, the ABC parties withdrew their appeal to the United States Court of Appeals for the Second Circuit, and, on
March 6, 2014, we and the ABC parties dismissed without prejudice all of our respective claims pending in the
United States District Court for the Southern District of New York. The CBS claims in the New York action were
scheduled for trial on May 29, 2015. However, on December 6, 2014 the parties to the CBS case reached a
settlement agreement and all claims pending in New York Court were dismissed with prejudice on December 10,
2014.
Kappa Digital, LLC
On June 1, 2015, Kappa Digital LLC (“Kappa”) filed suit against our subsidiary HNS in the United States District
Court for the Eastern District of Texas alleging infringement of United States Patent No. 6,349,135, entitled
“Method and System for a Wireless Digital Message Service.” Kappa generally alleges that HNS’ “HughesNet Gen
4 residential internet service/systems” and “HughesNet Business Broadband service/systems” infringe its asserted
patent. Kappa is an entity that seeks to license an acquired patent portfolio without itself practicing any of the
claims recited therein. On February 1, 2016, Kappa filed a motion to dismiss its claims with prejudice and on
February 2, 2016, the action was dismissed accordingly.
LightSquared/Harbinger Capital Partners LLC (LightSquared Bankruptcy)
On August 6, 2013, Harbinger Capital Partners LLC and other affiliates of Harbinger (collectively, “Harbinger”), a
shareholder of LightSquared Inc. (“LightSquared”), filed an adversary proceeding against EchoStar Corporation,
DISH Network, L-Band Acquisition, LLC (“LBAC”), Charles W. Ergen (our Chairman), SP Special Opportunities,
LLC (“SPSO”) (an entity controlled by Mr. Ergen), and certain other parties, in the LightSquared bankruptcy cases
pending in the United States Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”),
which cases are jointly administered under the caption In re LightSquared Inc., et. al., Case No. 12 12080 (SCC).
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Harbinger alleged, among other things, claims based on fraud, unfair competition, civil conspiracy and tortious
interference with prospective economic advantage related to certain purchases of LightSquared secured debt by
SPSO. Subsequently, LightSquared intervened to join in certain claims alleged against certain defendants other than
us, DISH Network and LBAC.
On October 29, 2013, the Bankruptcy Court dismissed all of the claims against us in Harbinger’s complaint in their
entirety, but granted leave for LightSquared to file its own complaint in intervention. On November 15, 2013,
LightSquared filed its complaint, which included various claims against us, DISH Network, Mr. Ergen and SPSO.
On December 2, 2013, Harbinger filed an amended complaint, asserting various claims against SPSO. On
December 12, 2013, the Bankruptcy Court dismissed several of the claims asserted by LightSquared and Harbinger.
The surviving claims included, among others, LightSquared’s claims against SPSO for declaratory relief, breach of
contract and statutory disallowance; LightSquared’s tortious interference claim against us, DISH Network and Mr.
Ergen; and Harbinger’s claim against SPSO for statutory disallowance. These claims proceeded to a non-jury trial
on January 9, 2014, which concluded on January 17, 2014. The parties submitted post-trial briefs and a hearing for
closing arguments occurred on March 17, 2014. In its Post-Trial Findings of Fact and Conclusions of Law entered
on June 10, 2014, the Bankruptcy Court rejected all claims against us and DISH Network, and it rejected some but
not all claims against the other defendants. On July 7, 2015, the United States District Court for the Southern
District of New York denied Harbinger’s motion for an appeal of certain Bankruptcy Court orders in the adversary
proceeding.
Michael Heskiaoff, Marc Langenohl, and Rafael Mann
On July 10, 2015, Messrs. Michael Heskiaoff and Marc Langenohl, purportedly on behalf of themselves and all
others similarly situated, filed suit against our subsidiary Sling Media, Inc. in the United States District Court for the
Southern District of New York. The complaint alleges that Sling Media Inc.’s display of advertising to its customers
violates a number of state statutes dealing with consumer deception. On September 25, 2015, the plaintiffs filed an
amended complaint, and Mr. Rafael Mann, purportedly on behalf of himself and all others similarly situated, filed an
additional complaint alleging similar causes of action. On November 16, 2015, the cases were consolidated.
Personalized Media Communications, Inc.
During 2008, Personalized Media Communications, Inc. (“PMC”) filed suit against EchoStar Corporation, DISH
Network and Motorola Inc. in the United States District Court for the Eastern District of Texas alleging infringement
of United States Patent Nos. 5,109,414; 4,965,825; 5,233,654; 5,335,277; and 5,887,243, which relate to satellite
signal processing. PMC is an entity that seeks to license an acquired patent portfolio without itself practicing any of
the claims recited therein. Subsequently, Motorola Inc. settled with PMC, leaving DISH Network and us as
defendants. On July 18, 2012, pursuant to a Court order, PMC filed a Second Amended Complaint that added Rovi
Guides, Inc. (f/k/a/ Gemstar-TV Guide International, Inc.) and TVG-PMC, Inc. (collectively, “Gemstar”) as a party,
and added a new claim against all defendants seeking a declaratory judgment as to the scope of Gemstar’s license to
the patents in suit, under which DISH Network and we are sublicensees. On August 12, 2014, in response to the
parties’ respective summary judgment motions related to the Gemstar license issues, the Court ruled in favor of
PMC and dismissed all claims by or against Gemstar and entered partial final judgment in PMC’s favor as to those
claims. On September 16, 2014, we and DISH Network filed a notice of appeal of that partial final judgment, which
is pending. On November 5, 2014, PMC supplemented its expert report on damages, dropping a higher value
damages theory and disclosing that it seeks damages ranging from $167 million to $447 million as of September 30,
2014, excluding pre-judgment interest and possible treble damages under Federal law. On May 7, 2015, we, DISH
Network and PMC entered into a settlement and release agreement that provided, among other things, for a license
by PMC to us and DISH Network for certain patents and patent applications and the dismissal of all of PMC’s
claims in the action against us and DISH Network with prejudice. In June 2015, we and DISH Network agreed that
we would contribute a one-time payment of $5.0 million towards the settlement under the agreements entered into in
connection with the Spin-off and the 2012 Receiver Agreement. On June 4, 2015, the Court dismissed all of PMC’s
claims in the action against us and DISH Network with prejudice. We have recorded a loss related to the settlement
within “Selling, general and administrative expenses” in our consolidated statement of operations and
comprehensive income (loss) of $5.0 million for the year ended December 31, 2015.
Phoenix Licensing, L.L.C./LPL Licensing, L.L.C.
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On July 30, 2015, Phoenix Licensing, L.L.C. and LPL Licensing, L.L.C. (together referred to as “Phoenix”) filed a
complaint against our subsidiary HNS in the United States District Court for the Eastern District of Texas, alleging
infringement of United States Patent Nos. 5,987,434, entitled “Apparatus and Method for Transacting Marketing and
Sales of Financial Products”; 7,890,366, entitled “Personalized Communication Documents, System and Method for
Preparing Same”; 8,352,317, entitled “System for Facilitating Production of Variable Offer Communications”;
8,234,184, entitled “Automated Reply Generation Direct Marketing System”; 6,999,938, entitled “Automated Reply
Generation Direct Marketing System”; 8,738,435, entitled “Method and Apparatus for Presenting Personalized
Content Relating to Offered Products and Services”; and 7,860,744, entitled “System and Method for Automatically
Providing Personalized Notices Concerning Financial Products and/or Services.” Phoenix alleged that HNS
infringes the asserted patents by making and using products and services that generate customized marketing
materials. Phoenix is an entity that seeks to license a patent portfolio without itself practicing any of the claims
recited therein against us. On October 16, 2015, Phoenix moved to dismiss the litigation against us without
prejudice pursuant to a settlement agreement, and on November 3, 2015, the action was dismissed accordingly.
Realtime Data LLC
On May 8, 2015, Realtime Data LLC (“Realtime”) filed suit against EchoStar Corporation and our subsidiary HNS
in the United States District Court for the Eastern District of Texas alleging infringement of United States Patent
Nos. 7,378,992, entitled “Content Independent Data Compression Method and System”; 7,415,530, entitled “System
and Methods for Accelerated Data Storage and Retrieval”; and 8,643,513, entitled “Data Compression System and
Methods.” Realtime generally alleges that the asserted patents are infringed by certain HNS data compression
products and services. Realtime is an entity that seeks to license an acquired patent portfolio without itself
practicing any of the claims recited therein.
Shareholder Derivative Litigation
On December 5, 2012, Greg Jacobi, purporting to sue derivatively on behalf of EchoStar Corporation, filed suit (the
“Jacobi Litigation”) against Charles W. Ergen, Michael T. Dugan, R. Stanton Dodge, Tom A. Ortolf, C. Michael
Schroeder, Joseph P. Clayton, David K. Moskowitz, and EchoStar Corporation in the United States District Court for
the District of Nevada. The complaint alleges that a March 2011 attempted grant of 1.5 million stock options to
Charles Ergen breached defendants’ fiduciary duties, resulted in unjust enrichment, and constituted a waste of
corporate assets.
On December 18, 2012, Chester County Employees’ Retirement Fund, derivatively on behalf of EchoStar
Corporation, filed a suit (the “Chester County Litigation”) against Charles W. Ergen, Michael T. Dugan, R. Stanton
Dodge, Tom A. Ortolf, C. Michael Schroeder, Anthony M. Federico, Pradman P. Kaul, Joseph P. Clayton, and
EchoStar Corporation in the United States District Court for the District of Colorado. The complaint similarly
alleges that the March 2011 attempted grant of 1.5 million stock options to Charles Ergen breached defendants’
fiduciary duties, resulted in unjust enrichment, and constituted a waste of corporate assets.
On February 22, 2013, the Chester County Litigation was transferred to the District of Nevada, and on April 3, 2013,
the Chester County Litigation was consolidated into the Jacobi Litigation. Oral argument on a motion to dismiss the
Jacobi Litigation was held February 21, 2014. On April 11, 2014, the Chester County litigation was stayed pending
resolution of the motion to dismiss. On March 30, 2015, the Court dismissed the Jacobi litigation, with leave for
Jacobi to amend his complaint by April 20, 2015. On April 20, 2015, Jacobi filed an amended complaint, which on
June 12, 2015, we moved to dismiss.
Of the attempted grant of 1.5 million options to Mr. Ergen in 2011, only 800,000 were validly granted and remain
outstanding.
F-46
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Technology Development and Licensing, LLC
On January 22, 2009, Technology Development and Licensing, LLC (“TDL”) filed suit against EchoStar
Corporation and DISH Network in the United States District Court for the Northern District of Illinois alleging
infringement of United States Patent No. Re. 35,952, which relates to certain favorite channel features. TDL is an
entity that seeks to license an acquired patent portfolio without itself practicing any of the claims recited therein.
The case has been stayed since July 2009, pending two reexamination petitions before the United States Patent and
Trademark Office, which concluded in August 2015 resulting in 42 out of the 53 claims of the 952 patent being
cancelled. As a result, the case resumed in August 2015. A trial date has not been set.
TQ Beta LLC
On June 30, 2014, TQ Beta LLC (“TQ Beta”) filed suit against DISH Network, DISH DBS Corporation, DISH
Network L.L.C., as well as EchoStar Corporation and our subsidiaries, EchoStar Technologies, L.L.C, HSS, and
Sling Media, Inc., in the United States District Court for the District of Delaware, alleging infringement of United
States Patent No. 7,203,456 (the “456 patent”), which is entitled “Method and Apparatus for Time and Space
Domain Shifting of Broadcast Signals.” TQ Beta alleges that the Hopper, Hopper with Sling, ViP 722 and ViP 722k
DVR devices, as well as the DISH Anywhere service and DISH Anywhere mobile application, infringe the 456
patent, but has not specified the amount of damages that it seeks. TQ Beta is an entity that seeks to license an
acquired patent portfolio without itself practicing any of the claims recited therein. During August 2015, EchoStar
Corporation and DISH Network L.L.C. filed petitions before the United States Patent and Trademark Office
challenging the validity of the 456 patent. Trial is scheduled to commence on December 12, 2016.
Two-Way Media Ltd
On February 17, 2016, Two-Way Media Ltd (“TWM”) filed a complaint against EchoStar Corporation and our
subsidiaries EchoStar Technologies L.L.C., EchoStar Satellite Services L.L.C., and Sling Media, Inc., as well as
against DISH Network Corporation, DISH DBS Corporation, DISH Network L.L.C., DISH Network Service L.L.C.,
Sling TV Holding L.L.C., Sling TV L.L.C., and Sling TV Purchasing L.L.C. TWM brought the suit in the United
States District Court for the District of Colorado, alleging infringement of United States Patent Nos. 5,778,187;
5,983,005; 6,434,622; and 7,266,686, each entitled “Multicasting Method and Apparatus”; and 9,124,607, entitled
“Methods and Systems for Playing Media.” TWM alleges that the SlingTV, Sling International, DISH Anywhere,
and DISHWorld services, as well as the Slingbox units and Sling-enabled DISH DVRs, infringe the asserted
patents. TWM is an entity that seeks to license an acquired patent portfolio without itself practicing any of the
claims recited therein.
Other
In addition to the above actions, we are subject to various other legal proceedings and claims, which arise in the
ordinary course of our business. As part of our ongoing operations, the Company is subject to various inspections,
audits, inquiries, investigations and similar actions by third parties, as well as by governmental/regulatory authorities
responsible for enforcing the laws and regulations to which the Company is subject. Further, under the federal False
Claims Act, private parties have the right to bring qui tam, or “whistleblower,” suits against companies that submit
false claims for payments to, or improperly retain overpayments from, the federal government. Some states have
adopted similar state whistleblower and false claims provisions. In addition, the Company from time to time
receives inquiries from federal, state and foreign agencies regarding compliance with various laws and regulations.
In our opinion, the amount of ultimate liability with respect to any of these actions is unlikely to materially affect
our financial position, results of operations or cash flows, though the resolutions and outcomes, individually or in
the aggregate, could be material to our financial position, operating results or cash flows for any particular period,
depending, in part, upon the operating results for such period.
The Company indemnifies its directors, officers and employees for certain liabilities that might arise from the
performance of their responsibilities for the Company. Additionally, in the normal course of its business, the
Company enters into contracts pursuant to which the Company may make a variety of representations and
warranties and indemnify the counterparty for certain losses. The Company’s possible exposure under these
F-47
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
arrangements cannot be reasonably estimated as this involves the resolution of claims made, or future claims that
may be made, against the Company or its officers, directors or employees, the outcomes of which are unknown and
not currently predictable or estimable.
Note 17. Segment Reporting
Operating segments are business components of an enterprise for which separate financial information is available
and regularly evaluated by the chief operating decision maker (“CODM”), who for EchoStar is the Company’s Chief
Executive Officer. Under this definition, we operate the following three primary business segments:
(cid:120) Hughes – which provides satellite broadband internet access to North American consumers and broadband
network services and equipment to domestic and international enterprise markets. The Hughes segment
also provides managed services to large enterprises and solutions to customers for mobile satellite systems.
(cid:120) EchoStar Technologies (“ETC”) – which designs, develops and distributes secure end-to-end video
technology solutions including digital set-top boxes and related products and technology, primarily for
satellite TV service providers and telecommunication companies. Our EchoStar Technologies segment also
provides digital broadcast operations, including satellite uplinking/downlinking, transmission services,
signal processing, conditional access management, and other services, primarily to DISH Network and
Dish Mexico. In addition, we provide our TV Anywhere technology through Slingbox® units directly to
consumers via retail outlets and online, as well as to the pay-TV operator market. Beginning in 2015, this
segment also includes Move Networks, our over-the-top (“OTT”), Streaming Video on Demand (“SVOD”)
platform business, which includes assets acquired from Sling TV Holding L.L.C. (formerly DISH Digital
Holding L.L.C.), and primarily provides support services to DISH Network’s Sling TV operations. In
2016, we plan to introduce a security and home automation solution provided directly to consumers.
(cid:120) EchoStar Satellite Services – which uses certain of our owned and leased in-orbit satellites and related
licenses to provide satellite services on a full-time and occasional-use basis primarily to DISH Network,
Dish Mexico, U.S. government service providers, internet service providers, broadcast news organizations,
programmers, and private enterprise customers.
The primary measure of segment profitability that is reported regularly to our CODM is earnings before interest,
taxes, depreciation and amortization, or EBITDA. Our segment operating results do not include real estate and other
activities, costs incurred in certain satellite development programs and other business development activities,
expenses of various corporate departments and our centralized treasury operations, including income from our
investment portfolio and interest expense on our debt. These activities are accounted for in the “All Other and
Eliminations” column in the table below. Total assets by segment have not been reported herein because the
information is not provided to our CODM on a regular basis. The Hughes Retail Group is included in our Hughes
segment and our CODM reviews separate HRG financial information only to the extent such information is included
in our periodic filings with the SEC. Therefore, we do not consider HRG to be a separate operating segment.
Prior to 2015, our Move Networks business, including certain assets distributed to us in August 2014 in connection
with the Exchange Agreement with Sling TV Holding (see Notes 6, 10 and 19), was managed separately from our
existing operating segments and was reported within “All Other and Eliminations.” In the first quarter of 2015, we
assigned management responsibility for our Move Networks business to our EchoStar Technologies segment, where
it continues to be managed and reported as a separate reporting unit. All prior period amounts have been
retrospectively adjusted to present operations of our Move Networks business in our EchoStar Technologies
segment.
For the years ended December 31, 2015, 2014 and 2013, transactions between segments were not significant.
F-48
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
The following table presents revenue, EBITDA, and capital expenditures for each of our operating segments:
Hughes
EchoStar
Technologies
EchoStar
Satellite
Services
(In thousands)
All
Other and
Eliminations
Consolidated
Total
For the Year Ended December 31, 2015
External revenue...........................................
Intersegment revenue..................................
Total revenue............................................
EBITDA.........................................................
Capital expenditures.....................................
For the Year Ended December 31, 2014
External revenue...........................................
Intersegment revenue..................................
Total revenue............................................
EBITDA.........................................................
Capital expenditures.....................................
For the Year Ended December 31, 2013
External revenue...........................................
Intersegment revenue..................................
Total revenue............................................
EBITDA.........................................................
Capital expenditures.....................................
$
$
$
$
$
1,344,945
2,395
1,347,340
396,684
285,499
$
$
$
$
$
1,297,510
688
1,298,198
106,745
50,593
$
$
$
$
$
489,842
749
490,591
412,607
101,215
$
$
$
$
$
11,417
(3,832)
7,585
(50,683)
266,213
$
$
$
$
$
1,325,887
1,831
1,327,718
356,871
218,607
$
$
$
$
$
1,626,826
540
1,627,366
154,786
48,616
$
$
$
$
$
481,579
2,876
484,455
419,442
28,734
$
$
$
$
$
11,286
(5,247)
6,039
(28,518)
384,069
$
$
$
$
$
1,215,783
2,343
1,218,126
281,513
186,561
$
$
$
$
$
1,730,433
412
1,730,845
136,537
56,935
$
$
$
$
$
326,828
3,349
330,177
235,993
12,700
$
$
$
$
$
9,408
(6,104)
3,304
(3,946)
135,677
3,143,714
$
$
-
$
$
$
3,143,714
865,353
703,520
3,445,578
$
$
-
$
$
$
3,445,578
902,581
680,026
3,282,452
$
$
-
$
$
$
3,282,452
650,097
391,873
The following table reconciles total consolidated EBITDA to reported “Income (loss) before income taxes” in our
consolidated statements of operations and comprehensive income (loss):
For the Years Ended December 31,
2015
2013
2014
(In thousands)
$
$
$
865,353
(111,637)
(528,158)
(3,986)
221,572
902,581
(162,247)
(556,676)
(5,325)
178,333
$
$
$
650,097
(177,898)
(507,111)
876
(34,036)
EBITDA.........................................................................................
Interest income and expense, net .............................................
Depreciation and amortization...................................................
Net income (loss) attributable to noncontrolling interests...
Income (loss) before income taxes....................................
F-49
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Geographic Information and Transactions with Major Customers
Geographic Information. Revenue is attributed to geographic regions based upon the location where the goods and
services are provided. North America revenue includes transactions with North America customers. All other
revenue includes transactions with customers in Asia, Africa, Australia, Europe, South America, and the Middle
East. The following table summarizes total long-lived assets and revenue attributed to the North America and other
foreign locations.
Long-lived assets:
North America:
As of December 31,
2015
2014
(In thousands)
United States...............................................................
Other.............................................................................
All other...........................................................................
Total.............................................................................
$
4,440,590
1,242
158,253
$ 4,600,085
$
4,313,649
585
155,229
$ 4,469,463
Revenue:
North America:
2015
For the Years Ended December 31,
2014
(In thousands)
2013
United States...............................................................
Other.............................................................................
All other...........................................................................
Total.............................................................................
$ 2,685,665
203,813
254,236
$ 3,143,714
$ 2,958,539
220,122
266,917
$ 3,445,578
$ 2,819,968
215,787
246,697
$ 3,282,452
Transactions with Major Customers. For the years ended December 31, 2015, 2014 and 2013, our revenue
included sales to one major customer. The following table summarizes sales to this customer and its percentage of
total revenue.
2015
For the Years Ended December 31,
2014
(In thousands)
2013
$
$
$
105,181
1,141,435
423,465
11,404
1,681,485
1,462,229
3,143,714
112,692
1,443,419
407,236
11,244
1,974,591
1,470,987
3,445,578
113,869
1,560,905
247,174
9,687
1,931,635
1,350,817
3,282,452
$
$
$
53.5%
46.5%
57.3%
42.7%
58.8%
41.2%
Total revenue:
DISH Network:
Hughes segment.........................................................
EchoStar Technologies segment.............................
EchoStar Satellite Services segment........................
Other.............................................................................
Total DISH Network.......................................................
All other...........................................................................
Total revenue..........................................................
Percentage of total revenue:
DISH Network.................................................................
All other...........................................................................
F-50
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Note 18. Quarterly Financial Data (Unaudited)
Our quarterly results of operations are summarized as follows:
Year ended December 31, 2015:
Total revenue ...................................................................
Operating income.............................................................
Net income attributable to EchoStar common stock...
Basic earnings per share.................................................
Diluted earnings per share..............................................
Year ended December 31, 2014:
Total revenue ...................................................................
Operating income.............................................................
Net income attributable to EchoStar common stock...
Basic earnings per share.................................................
Diluted earnings per share..............................................
For the Three Months Ended
March 31
June 30
September 30 December 31
(In thousands, except per share amounts)
$
$
$
$
$
798,653
81,205
33,402
0.36
0.36
$
$
$
$
$
793,595
94,348
33,900
0.37
0.36
$
$
$
$
$
760,879
88,607
30,102
0.33
0.32
$
$
$
$
$
790,587
91,873
66,296
0.71
0.71
$
$
$
$
$
826,023
59,820
12,653
0.14
0.14
$
$
$
$
$
879,828
92,470
33,794
0.37
0.36
$
$
$
$
$
895,840
92,277
64,055
0.70
0.69
$
$
$
$
$
843,887
83,523
54,766
0.60
0.59
For the quarter ended December 31, 2015, our effective income tax rate decreased due primarily to the re-enactment
of federal research and experimentation tax credits in December 2015. The decrease in our effective tax rate
resulted in a $23.2 million decrease in our quarterly tax provision.
For the quarter ended December 31, 2014, our operating results included a gain of $5.8 million related to our
investment in TerreStar (See Note 6).
Note 19. Related Party Transactions
DISH Network
Following the Spin-off, we and DISH Network have operated as separate publicly-traded companies. However,
pursuant to the Satellite and Tracking Stock Transaction, described in Note 4 and below, DISH Network owns
Hughes Retail Preferred Tracking Stock representing an aggregate 80.0% economic interest in the residential retail
satellite broadband business of our Hughes segment, including certain operations, assets and liabilities attributed to
such business. In addition, a substantial majority of the voting power of the shares of both companies is owned
beneficially by Charles W. Ergen, our Chairman, and by certain trusts established by Mr. Ergen for the benefit of his
family.
In connection with and following the Spin-off, we and DISH Network have entered into certain agreements pursuant
to which we obtain certain products, services and rights from DISH Network; DISH Network obtains certain
products, services and rights from us; and we and DISH Network have indemnified each other against certain
liabilities arising from our respective businesses. We also may enter into additional agreements with DISH Network
in the future. Generally, the amounts DISH Network pays for products and services provided under the agreements
are based on our cost plus a fixed margin (unless noted differently below), which varies depending on the nature of
the products and services provided.
The following is a summary of the terms of our principal agreements with DISH Network that may have an impact
on our financial condition and results of operations.
F-51
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
“Equipment revenue – DISH Network”
Receiver Agreement. Effective January 2012, we and DISH Network entered into a receiver agreement (the “2012
Receiver Agreement”), pursuant to which DISH Network has the right, but not the obligation, to purchase digital
set-top boxes, related accessories, and other equipment from us for the period from January 2012 to December 2014.
The 2012 Receiver Agreement replaced the receiver agreement we entered into with DISH Network in connection
with the Spin-off. The 2012 Receiver Agreement allows DISH Network to purchase digital set-top boxes, related
accessories, and other equipment from us either: (i) at cost (decreasing as we reduce costs and increasing as costs
increase) plus a dollar mark-up which will depend upon the cost of the product subject to a collar on our mark-up; or
(ii) at cost plus a fixed margin, which will depend on the nature of the equipment purchased. Under the 2012
Receiver Agreement, our margins will be increased if we are able to reduce the costs of our digital set-top boxes and
our margins will be reduced if these costs increase. We provide DISH Network with standard manufacturer
warranties for the goods sold under the 2012 Receiver Agreement. Additionally, the 2012 Receiver Agreement
includes an indemnification provision, whereby the parties indemnify each other for certain intellectual property
matters. DISH Network is able to terminate the 2012 Receiver Agreement for any reason upon at least 60 days’
notice to us. We are able to terminate the 2012 Receiver Agreement if certain entities acquire DISH Network.
DISH Network has an option, but not the obligation, to extend the 2012 Receiver Agreement for one additional year
upon 180 days’ notice prior to the end of the term. In May 2014, we received DISH Network’s notice to extend the
2012 Receiver Agreement for one year to December 2015, and in November 2015, we amended the 2012 Receiver
Agreement with DISH Network to extend the term of the 2012 Receiver Agreement for one year to December 2016.
“Services and other revenue – DISH Network”
Broadcast Agreement. Effective January 2012, we and DISH Network entered into a broadcast agreement (the
“2012 Broadcast Agreement”) pursuant to which we provide certain broadcast services to DISH Network, including
teleport services such as transmission and downlinking, channel origination services, and channel management
services, for the period from January 2012 to December 2016. The 2012 Broadcast Agreement replaced the
broadcast agreement that we entered into with DISH Network in connection with the Spin-off. The fees for the
services provided under the 2012 Broadcast Agreement are calculated at either: (a) our cost of providing the
relevant service plus a fixed dollar fee, which is subject to certain adjustments; or (b) our cost of providing the
relevant service plus a fixed margin, which will depend on the nature of the services provided. DISH Network has
the ability to terminate channel origination services and channel management services for any reason and without
any liability upon at least 60 days’ notice to us. If DISH Network terminates the teleport services provided under the
2012 Broadcast Agreement for a reason other than our breach, DISH Network generally is obligated to reimburse us
for any direct costs we incur related to any such termination that we cannot reasonably mitigate.
Broadcast Agreement for Certain Sports Related Programming. In May 2010, we and DISH Network entered into
a broadcast agreement pursuant to which we provide certain broadcast services to DISH Network in connection with
its carriage of certain sports related programming. The term of this agreement is ten years. If DISH Network
terminates this agreement for a reason other than our breach, DISH Network generally is obligated to reimburse us
for any direct costs we incur related to any such termination that we cannot reasonably mitigate. The fees for the
broadcast services provided under this agreement depend, among other things, upon the cost to develop and provide
such services.
Satellite Services Provided to DISH Network. Since the Spin-off, we have entered into certain satellite service
agreements pursuant to which DISH Network receives satellite services on certain satellites owned or leased by us.
The fees for the services provided under these satellite service agreements depend, among other things, upon the
orbital location of the applicable satellite, the number of transponders that are providing services on the applicable
satellite, and the length of the service arrangements. The terms of each service arrangement is set forth below:
EchoStar I, EchoStar VII, EchoStar X, EchoStar XI and EchoStar XIV. As part of the Satellite and Tracking
Stock Transaction discussed in Note 4, in March 2014, we began providing certain satellite services to DISH
Network on the EchoStar I, EchoStar VII, EchoStar X, EchoStar XI and EchoStar XIV satellites. The term of
each satellite services agreement generally terminates upon the earlier of: (i) the end of life of the satellite;
(ii) the date the satellite fails; or (iii) a certain date, which depends upon, among other things, the estimated
useful life of the satellite. DISH Network generally has the option to renew each satellite service agreement on
F-52
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
a year-to-year basis through the end of the respective satellite’s life. There can be no assurance that any options
to renew such agreements will be exercised. DISH Network has elected not to renew the satellite services
agreement relative to the EchoStar I satellite. The agreement for the EchoStar I satellite expired pursuant to its
terms effective November 2015. In December 2015, DISH Network renewed the satellite services agreement
relative to the EchoStar VII satellite for one year to June 2017.
EchoStar VIII. In May 2013, DISH Network began receiving satellite services from us on the EchoStar VIII
satellite as an in-orbit spare. Effective March 2014, this satellite services arrangement converted to a month-to-
month service agreement with both parties having the right to terminate upon 30 days’ notice. The agreement
terminated in accordance with its terms effective November 2015.
EchoStar IX. Effective January 2008, DISH Network began receiving satellite services from us on the EchoStar
IX satellite. Subject to availability, DISH Network generally has the right to continue to receive satellite
services from us on the EchoStar IX satellite on a month-to-month basis.
EchoStar XII. DISH Network receives satellite services from us on the EchoStar XII satellite. The term of the
satellite services agreement terminates upon the earlier of: (i) the end of life of the satellite; (ii) the date the
satellite fails or the date the transponder(s) on which the service was being provided under the agreement fails;
or (iii) September 2017. DISH Network generally has the option to renew the agreement on a year-to-year basis
through the end of the satellite’s life. There can be no assurance that any options to renew this agreement will
be exercised.
EchoStar XVI. In December 2009, we entered into an initial ten-year transponder service agreement with DISH
Network, pursuant to which DISH Network has received satellite services from us on the EchoStar XVI satellite
since January 2013. Effective December 2012, we and DISH Network amended the transponder service
agreement to, among other things, change the initial term to generally expire upon the earlier of: (i) the end-of-
life or replacement of the satellite; (ii) the date the satellite fails; (iii) the date the transponder(s) on which
service is being provided under the agreement fails; or (iv) four years following the actual service
commencement date. Prior to expiration of the initial term, we, upon certain conditions, and DISH Network
have the option to renew for an additional six-year period. If either we or DISH Network exercise our
respective six-year renewal options, DISH Network has the option to renew for an additional five-year period
prior to expiration of the then-current term. There can be no assurance that any option to renew this agreement
will be exercised. In the event that we or DISH Network does not exercise the six-year renewal option or DISH
does not exercise the five-year renewal options, DISH Network has the option to purchase the EchoStar XVI
satellite for a certain price. If DISH Network does not elect to purchase the EchoStar XVI satellite at that time,
we may sell the EchoStar XVI satellite to a third party and DISH Network is required to pay us a certain amount
in the event we are not able to sell the EchoStar XVI satellite for more than a certain amount.
Nimiq 5 Agreement. In September 2009, we entered into a fifteen-year satellite service agreement with Telesat
to receive service on all 32 DBS transponders on the Nimiq 5 satellite at the 72.7 degree west longitude orbital
location (the “Telesat Transponder Agreement”). In September 2009, we also entered into a satellite service
agreement (the “DISH Nimiq 5 Agreement”) with DISH Network, pursuant to which DISH Network receives
satellite services from us on all 32 of the DBS transponders covered by the Telesat Transponder Agreement.
Under the terms of the DISH Nimiq 5 Agreement, DISH Network makes certain monthly payments to us that
commenced in September 2009, when the Nimiq 5 satellite was placed into service, and continue through the
service term. Unless earlier terminated under the terms and conditions of the DISH Nimiq 5 Agreement, the
service term will expire ten years following the date the Nimiq 5 satellite was placed into service. Upon
expiration of the initial term, DISH Network has the option to renew the DISH Nimiq 5 Agreement on a year-
to-year basis through the end of life of the Nimiq 5 satellite. Upon in-orbit failure or end of life of the Nimiq 5
satellite, and in certain other circumstances, DISH Network has certain rights to receive service from us on a
replacement satellite. There can be no assurance that any options to renew the DISH Nimiq 5 Agreement will
be exercised or that DISH Network will exercise its option to receive service on a replacement satellite.
QuetzSat-1 Agreement. In November 2008, we entered into a ten-year satellite service agreement with SES
Latin America, which provides, among other things, for the provision by SES Latin America to us of service on
F-53
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
32 DBS transponders on the QuetzSat-1 satellite. Concurrently, in 2008, we entered into a transponder service
agreement with DISH Network, pursuant to which DISH Network receives satellite services on 24 of the DBS
transponders on the QuetzSat-1 satellite. The QuetzSat-1 satellite was launched in September 2011 and was
placed into service during November 2011 at the 67.1 degree west longitude orbital location. In the interim, we
provided DISH Network with alternate capacity at the 77 degree west longitude orbital location. In February
2013, we and DISH Network entered into an agreement pursuant to which we receive certain satellite services
from DISH Network on five DBS transponders on the QuetzSat-1 satellite. In January 2013, the QuetzSat-1
satellite was moved to the 77 degree west longitude orbital location and DISH Network commenced
commercial operations at such location in February 2013.
Under the terms of our contractual arrangements with DISH Network, we began to provide service to DISH
Network on the QuetzSat-1 satellite in February 2013 and will continue to provide service through the
remainder of the service term. Unless extended or earlier terminated under the terms and conditions of our
agreement with DISH Network for the QuetzSat-1 satellite, the initial service term will expire in November
2021. Upon expiration of the initial service term, DISH Network has the option to renew the agreement for the
QuetzSat-1 satellite on a year-to-year basis through the end of life of the QuetzSat-1 satellite. Upon an in-orbit
failure or end of life of the QuetzSat-1 satellite, and in certain other circumstances, DISH Network has certain
rights to receive service from us on a replacement satellite. There can be no assurance that any options to renew
this agreement will be exercised or that DISH Network will exercise its option to receive service on a
replacement satellite.
103 Degree Orbital Location/SES-3. In May 2012, we entered into a spectrum development agreement (the
“103 Spectrum Development Agreement”) with Ciel Satellite Holdings Inc. (“Ciel”) to develop certain
spectrum rights at the 103 degree west longitude orbital location (the “103 Spectrum Rights”). In June 2013,
we and DISH Network entered into a spectrum development agreement (the “DISH 103 Spectrum Development
Agreement”) pursuant to which DISH Network may use and develop the 103 Spectrum Rights. Unless earlier
terminated under the terms and conditions of the DISH 103 Spectrum Development Agreement, the term
generally will continue for the duration of the 103 Spectrum Rights.
In connection with the 103 Spectrum Development Agreement, in May 2012, we also entered into a ten-year
service agreement with Ciel pursuant to which we receive certain satellite services from Ciel on the SES-3
satellite at the 103 degree orbital location. In June 2013, we and DISH Network entered into an agreement
pursuant to which DISH Network receives certain satellite services from us commencing in June 2013 on the
SES-3 satellite (the “DISH 103 Service Agreement”). Under the terms of the DISH 103 Service Agreement,
DISH Network makes certain monthly payments to us through the service term. Unless earlier terminated
under the terms and conditions of the DISH 103 Service Agreement, the initial service term will expire on the
earlier of: (i) the date the SES-3 satellite fails; (ii) the date the transponder(s) on which service was being
provided under the agreement fails; or (iii) ten years following the service commencement date. Upon in-orbit
failure or end of life of the SES-3 satellite, and in certain other circumstances, DISH Network has certain rights
to receive service from us on a replacement satellite. There can be no assurance that DISH Network will
exercise its option to receive service on a replacement satellite.
Satellite and Tracking Stock Transaction. In February 2014, we entered into agreements with DISH Network to
implement a transaction pursuant to which, among other things: (i) in March 2014, EchoStar and HSS issued shares
of the Tracking Stock to DISH Network in exchange for five satellites owned by DISH Network (EchoStar I,
EchoStar VII, EchoStar X, EchoStar XI and EchoStar XIV) (including assumption of related in-orbit incentive
obligations) and approximately $11.4 million in cash; and (ii) in March 2014, DISH Network began receiving
certain satellite services on these five satellites from us. See Note 4 for further information.
TT&C Agreement. Effective January 2012, we entered into a telemetry, tracking and control (“TT&C”) agreement
pursuant to which we provide TT&C services to DISH Network and its subsidiaries for a period ending in December
2016 (the “2012 TT&C Agreement”). The 2012 TT&C Agreement replaced the TT&C agreement we entered into
with DISH Network in connection with the Spin-off. The fees for services provided under the 2012 TT&C
Agreement are calculated at either: (i) a fixed fee or (ii) cost plus a fixed margin, which will vary depending on the
nature of the services provided. DISH Network is able to terminate the 2012 TT&C Agreement for any reason upon
60 days’ notice.
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In connection with the Satellite and Tracking Stock Transaction, in February 2014, we amended the TT&C
Agreement to cease the provision of TT&C services to DISH Network for the EchoStar I, EchoStar VII, EchoStar X,
EchoStar XI and EchoStar XIV satellites. Effective March 2014, we provide TT&C services for the D-1 and
EchoStar XV satellites; however, for the period that we receive satellite services on the EchoStar XV satellite from
DISH Network, we have waived the fees for the TT&C services on the EchoStar XV satellite.
Real Estate Lease Agreements. We have entered into lease agreements pursuant to which DISH Network leases
certain real estate from us. The rent on a per square foot basis for each of the leases is comparable to per square foot
rental rates of similar commercial property in the same geographic area at the time of the lease, and DISH Network
is responsible for its portion of the taxes, insurance, utilities and maintenance of the premises. The term of each of
the leases is set forth below:
Inverness Lease Agreement. The lease for certain space at 90 Inverness Circle East in Englewood, Colorado is
for a period ending in December 2016. This agreement can be terminated by either party upon six months’ prior
notice. This agreement may be extended by mutual consent, in which case this agreement will be converted to a
month-to-month lease agreement. Upon such extension, both parties have the right to terminate this agreement
upon 30 days’ notice. In February 2016, DISH Network provided us notice to terminate this lease effective
August 10, 2016.
Meridian Lease Agreement. The lease for all of 9601 S. Meridian Blvd. in Englewood, Colorado is for a period
ending in December 2016. This agreement may be extended by mutual consent, in which case this agreement
will be converted to a month-to-month lease agreement. Upon extension, both parties have the right to
terminate this agreement upon 30 days’ notice.
Santa Fe Lease Agreement. The lease for all of 5701 S. Santa Fe Dr. in Littleton, Colorado is for a period
ending in December 2016. This agreement may be extended by mutual consent, in which case this agreement
will be converted to a month-to-month lease agreement. Upon extension, both parties have the right to
terminate this agreement upon 30 days’ notice.
EchoStar Data Networks Sublease Agreement. The sublease for certain space at 211 Perimeter Center in
Atlanta, Georgia is for a period ending in October 2016. DISH Network may extend this agreement for an
additional five years.
Gilbert Lease Agreement. The original lease for certain space at 801 N. DISH Dr. in Gilbert, Arizona was a
month to month lease and could be terminated by either party upon 30 days’ prior notice. The original lease
was terminated in May 2014. Effective August 2014, we began leasing this space to DISH Network under a
new lease for a period ending in July 2016. DISH Network has renewal options for three additional one year
terms.
Cheyenne Lease Agreement. The lease for certain space at 530 EchoStar Drive in Cheyenne, Wyoming is for a
period ending in December 2031. This agreement may be extended by mutual consent, in which case this
agreement will be converted to a month-to-month lease agreement. Upon extension, both parties have the right
to terminate this agreement upon 30 days’ notice.
Product Support Agreement. In connection with the Spin-off, we entered into a product support agreement pursuant
to which DISH Network has the right, but not the obligation, to receive product support from us (including certain
engineering and technical support services) for all set-top boxes and related accessories that we have previously sold
and in the future may sell to DISH Network. The fees for the services provided under the product support
agreement are calculated at cost plus a fixed margin, which varies depending on the nature of the services provided.
The term of the product support agreement is the economic life of such set-top boxes and related accessories, unless
terminated earlier. DISH Network may terminate the product support agreement for any reason upon at least
60 days’ notice. In the event of an early termination of this agreement, DISH Network is entitled to a refund of any
unearned fees paid to us for the services.
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DISHOnline.com Services Agreement. Effective January 2010, DISH Network entered into a two-year agreement
with us pursuant to which DISH Network receives certain services associated with an online video portal. The fees
for the services provided under this services agreement depend, among other things, upon the cost to develop and
operate such services. DISH Network has the option to renew this agreement for successive one year terms and the
agreement may be terminated by DISH Network for any reason upon at least 120 days’ notice to us. In October
2014, DISH Network exercised its right to renew this agreement for a one-year period ending in December 2015,
and in November 2015, DISH Network exercised its right to renew this agreement for an additional one-year period
ending in December 2016.
DISH Remote Access Services Agreement. Effective February 2010, we entered into an agreement with DISH
Network pursuant to which DISH Network receives, among other things, certain remote digital video recorder
(“DVR”) management services. The fees for the services provided under this services agreement depend, among
other things, upon the cost to develop and operate such services. This agreement had an initial term of five years
with automatic renewal for successive one year terms. This agreement automatically renewed in February 2016 for
an additional one-year period until February 2017. The agreement may be terminated by DISH Network for any
reason upon at least 120 days’ notice to us.
SlingService Services Agreement. Effective February 2010, we entered into an agreement with DISH Network
pursuant to which DISH Network receives certain services related to placeshifting. The fees for the services
provided under this services agreement depend, among other things, upon the cost to develop and operate such
services. This agreement had an initial term of five years with automatic renewal for successive one year terms.
This agreement automatically renewed in February 2016 for an additional one-year period until February 2017. The
agreement may be terminated by DISH Network for any reason upon at least 120 days’ notice to us.
Blockbuster Agreements. In April 2011, DISH Network acquired substantially all of the assets of Blockbuster, Inc.
(the “Blockbuster Acquisition”). In June 2011, we completed the acquisition of Hughes Communications, Inc. and
its subsidiaries (the “Hughes Acquisition”). HNS, a wholly-owned subsidiary of Hughes Communications, Inc.,
provided certain broadband products and services to Blockbuster, Inc. (with its subsidiaries, “Blockbuster”) pursuant
to an agreement that was entered into prior to the Blockbuster Acquisition and the Hughes Acquisition. Subsequent
to both the Blockbuster Acquisition and the Hughes Acquisition, Blockbuster entered into a new agreement with
HNS pursuant to which Blockbuster could continue to purchase broadband products and services from our Hughes
segment.
Effective February 2014, all services to all Blockbuster locations, including Blockbuster franchisee locations,
terminated in connection with the closing of all of the Blockbuster retail locations.
Radio Access Network Agreement. In November 2012, HNS entered into an agreement with DISH Network L.L.C.
pursuant to which HNS constructed for DISH Network a ground-based satellite radio access network for a fixed fee.
The parties mutually agreed to terminate this agreement in December 2014.
TerreStar Agreement. In March 2012, DISH Network completed its acquisition of substantially all the assets of
TerreStar Networks Inc. (“TerreStar”). Prior to DISH Network’s acquisition of substantially all the assets of
TerreStar and our completion of the Hughes Acquisition, TerreStar and HNS entered into various agreements
pursuant to which our Hughes segment provides, among other things, hosting, operations and maintenance services
for TerreStar’s satellite gateway and associated ground infrastructure. These agreements generally may be
terminated by DISH Network at any time for convenience.
Hughes Broadband Distribution Agreement. Effective October 2012, HNS and dishNET Satellite Broadband
L.L.C. (“dishNET”), a wholly-owned subsidiary of DISH Network, entered into a distribution agreement (the
“Distribution Agreement”) pursuant to which dishNET has the right, but not the obligation, to market, sell and
distribute the Hughes satellite internet service (the “Hughes service”). dishNET pays HNS a monthly per subscriber
wholesale service fee for the Hughes service based upon a subscriber’s service level, and, beginning in
January 2014, based upon certain volume subscription thresholds. The Distribution Agreement also provides that
dishNET has the right, but not the obligation, to purchase certain broadband equipment from us to support the sale
of the Hughes service. The Distribution Agreement had an initial term of five years with automatic renewal for
successive one year terms unless terminated by either party with a written notice at least 180 days before the
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ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
expiration of the then-current term. In February 2014, HNS and dishNET entered into an amendment to the
Distribution Agreement which, among other things, extended the initial term of the Distribution Agreement through
March 2024. Upon expiration or termination of the Distribution Agreement, the parties will continue to provide the
Hughes service to the then-current dishNET subscribers pursuant to the terms and conditions of the Distribution
Agreement.
Set-Top Box Application Development Agreement. During November 2012, we and DISH Network entered into a
set-top box application development agreement (the “Application Development Agreement”) pursuant to which we
provide DISH Network with certain services relating to the development of web-based applications for set-top boxes
for the period ending in February 2016. The Application Development Agreement automatically renewed in
February 2016 for a one-year period ending in February 2017, and renews automatically for successive one-year
periods thereafter, unless terminated earlier by us or DISH Network at any time upon at least 90 days’ notice. The
fees for services provided under the Application Development Agreement are calculated at our cost of providing the
relevant service plus a fixed margin, which will depend on the nature of the services provided.
XiP Encryption Agreement. In July 2012, we entered into an encryption agreement with DISH Network for our
whole-home HD DVR line of set-top boxes (the “XiP Encryption Agreement”) pursuant to which we provide certain
security measures on our whole-home HD DVR line of set-top boxes to encrypt the content delivered to the set-top
box via a smart card and secure the content between set-top boxes. The XiP Encryption Agreement’s term ends on
the same day as the 2012 Receiver Agreement and therefore was automatically extended until December 2016 when
we and DISH Network extended the 2012 Receiver Agreement in November 2015. We and DISH Network each
have the right to terminate the XiP Encryption Agreement for any reason upon at least 180 days’ notice and 30 days’
notice, respectively. The fees for the services provided under the XiP Encryption Agreement are calculated on a
monthly basis based on the number of receivers utilizing such security measures each month.
DBSD North America Agreement. In March 2012, DISH Network completed its acquisition of 100% of the equity
of reorganized DBSD North America, Inc. (“DBSD North America”). Prior to DISH Network’s acquisition of
DBSD North America and our completion of the Hughes Acquisition, DBSD North America and HNS entered into
an agreement pursuant to which our Hughes segment provides, among other things, hosting, operations and
maintenance services of DBSD North America’s satellite gateway and associated ground infrastructure. This
agreement will expire in February 2017.
Sling TV Holding L.L.C. (formerly DISH Digital Holding L.L.C.) (“Sling TV Holding”). Effective July 2012, we
and DISH Network formed Sling TV Holding, which was owned two-thirds by DISH Network and one-third by us.
Sling TV Holding was formed to develop and commercialize certain advanced technologies. At that time, we, DISH
Network and Sling TV Holding entered into the following agreements with respect to Sling TV Holding: (i) a
contribution agreement pursuant to which we and DISH Network contributed certain assets in exchange for our
respective ownership interests in Sling TV Holding; (ii) a limited liability company operating agreement (“Operating
Agreement”), which provides for the governance of Sling TV Holding; and (iii) a commercial agreement
(“Commercial Agreement”) pursuant to which, among other things, Sling TV Holding had: (a) certain rights and
corresponding obligations with respect to its business; and (b) the right, but not the obligation, to receive certain
services from us and DISH Network, respectively.
Effective August 2014, we and Sling TV Holding entered into the Exchange Agreement pursuant to which, among
other things, Sling TV Holding distributed certain assets to us and we reduced our interest in Sling TV Holding to a
10.0% non-voting interest. As a result, DISH Network has a 90.0% equity interest and a 100% voting interest in
Sling TV Holding. In addition, we, DISH Network and Sling TV Holding amended and restated the Operating
Agreement, primarily to reflect the changes implemented by the Exchange Agreement. Finally, we, DISH Network
and Sling TV Holding amended and restated the Commercial Agreement, pursuant to which, among other things,
Sling TV Holding: (1) continues to have certain rights and corresponding obligations with respect to its business;
(2) continues to have the right, but not the obligation, to receive certain services from us and DISH Network; and
(3) has a license from us to use certain of the assets distributed to us as part of the Exchange Agreement.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
“Cost of sales – equipment – DISH Network”
Remanufactured Receiver Agreement. In connection with the Spin-off, we entered into a remanufactured receiver
agreement with DISH Network pursuant to which we have the right, but not the obligation, to purchase
remanufactured receivers and related components from DISH Network at cost plus a fixed margin, which varies
depending on the nature of the equipment purchased. In November 2014, we and DISH Network extended this
agreement for a one-year period ending in December 2015, and in November 2015, we and DISH Network extended
this agreement for a one-year period ending in December 2016. We may terminate the remanufactured receiver
agreement for any reason upon at least 60 days’ notice to DISH Network. DISH Network may also terminate this
agreement if certain entities acquire DISH Network.
“Cost of sales – services and other – DISH Network”
Satellite Services Received from DISH Network. Since the Spin-off, we entered into certain satellite services
agreements pursuant to which we receive satellite services from DISH Network on certain satellites owned or leased
by DISH Network. The fees for the services provided under these satellite services agreements depend, among other
things, upon the orbital location of the applicable satellite, the number of transponders that are providing services on
the applicable satellite and the length of the service term. The term of each satellite service agreement is set forth
below:
D-1. In November 2012, HNS entered into a satellite service agreement pursuant to which HNS received
satellite services from DISH Network on the D-1 satellite for research and development. This agreement
terminated in June 2014.
EchoStar XV. In May 2013, we began receiving satellite services from DISH Network on the EchoStar XV
satellite and relocated the satellite to the 45 degree west longitude orbital location for testing pursuant to our
Brazilian authorization. Effective March 2014, this satellite services agreement converted to a month-to-month
service agreement with both parties having the right to terminate this agreement upon 30 days’ notice. In
October 2015, we provided DISH Network a notice to terminate this agreement effective in November 2015,
and the agreement was terminated according to its terms in November 2015.
“General and administrative expenses – DISH Network”
Professional Services Agreement. In connection with the Spin-off, we entered into various agreements with DISH
Network including the Transition Services Agreement, Satellite Procurement Agreement and Services Agreement,
which all expired in January 2010 and were replaced by a Professional Services Agreement. In January 2010, we
and DISH Network agreed that we shall continue to have the right, but not the obligation, to receive the following
services from DISH Network, among others, certain of which were previously provided under the Transition
Services Agreement: information technology, travel and event coordination, internal audit, legal, accounting and
tax, benefits administration, program acquisition services and other support services. Additionally, we and DISH
Network agreed that DISH Network would continue to have the right, but not the obligation, to engage us to manage
the process of procuring new satellite capacity for DISH Network (previously provided under the Satellite
Procurement Agreement), receive logistics, procurement and quality assurance services from us (previously
provided under the Services Agreement) and other support services. The Professional Services Agreement
automatically renewed in January 2016 for an additional one-year period until January 2017 and renews
automatically for successive one-year periods thereafter, unless terminated earlier by either party upon at least
60 days’ notice. However, either party may terminate the Professional Services Agreement in part with respect to
any particular service it receives for any reason upon at least 30 days’ notice.
Real Estate Lease Agreements. We have entered into lease agreements pursuant to which we lease certain real
estate from DISH Network. The rent on a per square foot basis for each of the leases is comparable to per square
foot rental rates of similar commercial property in the same geographic area at the time of the lease, and we are
responsible for our portion of the taxes, insurance, utilities and maintenance of the premises. The term of each of
the leases is set forth below:
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
El Paso Lease Agreement. The lease for certain space at 1285 Joe Battle Blvd., El Paso, Texas was for an initial
period ending in August 2015, and provided us with renewal options for four consecutive three year terms.
Effective August 2015, we exercised our first renewal option for a period ending in August 2018.
American Fork Occupancy License Agreement. The license for certain space at 796 East Utah Valley Drive in
American Fork, Utah is for a period ending in July 2017, subject to the terms of the underlying lease agreement.
In connection with the Exchange Agreement, this license was terminated in August 2014.
“Other agreements – DISH Network”
Tax Sharing Agreement. In connection with the Spin-off, we entered into a tax sharing agreement with DISH
Network which governs our respective rights, responsibilities and obligations after the Spin-off with respect to taxes
for the periods ending on or before the Spin-off. Generally, all pre-Spin-off taxes, including any taxes that are
incurred as a result of restructuring activities undertaken to implement the Spin-off, are borne by DISH Network,
and DISH Network will indemnify us for such taxes. However, DISH Network is not liable for and will not
indemnify us for any taxes that are incurred as a result of the Spin-off or certain related transactions failing to
qualify as tax-free distributions pursuant to any provision of Section 355 or Section 361 of the Internal Revenue
Code of 1986, as amended because of: (i) a direct or indirect acquisition of any of our stock, stock options or assets;
(ii) any action that we take or fail to take; or (iii) any action that we take that is inconsistent with the information and
representations furnished to the IRS in connection with the request for the private letter ruling, or to counsel in
connection with any opinion being delivered by counsel with respect to the Spin-off or certain related transactions.
In such case, we will be solely liable for, and will indemnify DISH Network for, any resulting taxes, as well as any
losses, claims and expenses. The tax sharing agreement will only terminate after the later of the full period of all
applicable statutes of limitations, including extensions, or once all rights and obligations are fully effectuated or
performed.
In light of the tax sharing agreement, among other things, and in connection with our consolidated federal income
tax returns for certain tax years prior to and for the year of the Spin-off, in September 2013, we and DISH Network
agreed upon a supplemental allocation of the tax benefits arising from certain tax items resolved in the course of the
IRS’s examination of our consolidated tax returns. Prior to the agreement with DISH Network, the federal tax
benefits of $83.2 million were reflected as a deferred tax asset for depreciation and amortization, which was netted
in our noncurrent deferred tax liabilities. The agreement requires DISH Network to pay us $83.2 million of the
federal tax benefit it receives at such time as we would have otherwise been able to realize such tax benefit, which
we currently estimate would be after 2016. Accordingly, we recorded a noncurrent receivable from DISH Network
for $83.2 million in “Other receivable – DISH Network” and a corresponding increase in our net noncurrent
deferred tax liabilities to reflect the effects of this agreement in September 2013. In addition, in September 2013, we
and DISH Network agreed upon a tax sharing arrangement for filing certain combined state income tax returns and a
method of allocating the respective tax liabilities between us and DISH Network for such combined returns, through
the taxable period ending on December 31, 2017.
We and DISH Network file combined income tax returns in certain states. In 2014 and 2015, we earned and
recognized a tax benefit for certain state income tax credits that we would be unable to utilize currently if we had
filed separately from DISH Network. DISH Network expects to utilize these tax credits to reduce its state income
tax payable. Consistent with accounting principles that apply to transfers of assets between entities under common
control, we recorded a charge of $3.0 million and $5.3 million in additional paid-in capital for the years ended
December 31, 2015 and 2014, respectively, representing the amount that we estimate is more likely than not to be
realized by DISH Network as a result of its utilization of the tax credits that we earned. We expect to increase
additional paid-in capital upon receipt of any consideration paid to us by DISH Network in exchange for these tax
credits.
TiVo. In April 2011, we and DISH Network entered into a settlement agreement with TiVo, Inc. (“TiVo”). The
settlement resolved all pending litigation between us and DISH Network, on the one hand, and TiVo, on the other
hand, including litigation relating to alleged patent infringement involving certain DISH Network DVRs. Under the
settlement agreement, all pending litigation was dismissed with prejudice and all injunctions that permanently
restrain, enjoin or compel any action by us or DISH Network were dissolved. We and DISH Network are jointly
responsible for making payments to TiVo in the aggregate amount of $500.0 million, including an initial payment of
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
$300.0 million and the remaining $200.0 million in six equal annual installments between 2012 and 2017. Pursuant
to the terms and conditions of the agreements entered into in connection with the Spin-off, DISH Network made the
initial payment to TiVo in May 2011, except for the contribution from us totaling approximately $10.0 million,
representing an allocation of liability relating to our sales of DVR-enabled receivers to an international customer.
Subsequent payments are allocated between us and DISH Network based on historical sales of certain licensed
products, with EchoStar being responsible for 5% of each annual payment.
Sling Trademark License Agreement. In December 2014, DISH Digital (now known as Sling TV Holding) entered
into an agreement with Sling Media, Inc., our subsidiary, pursuant to which Sling TV Holding has the right, for a
fixed fee, to use certain trademarks, domain names and other intellectual property related to the “Sling” trademark
through December 2016.
gTLD Bidding Agreement. In April 2015, we and DISH Network entered into a gTLD Bidding Agreement
whereby, among other things: (i) DISH Network obtained rights from us to participate in a generic top level domain
(“gTLD”) auction, assuming all rights and obligations from us related to our application with ICANN for a
particular gTLD; (ii) DISH Network agreed to reimburse us for our ICANN application fee and certain out-of-
pocket expenses related to the application and the auction; and (iii) we and DISH Network agreed to split equally the
net proceeds obtained by DISH Network as the losing bidder in the auction, less such fee reimbursement and out-of-
pocket expenses.
Patent Cross-License Agreements. In December 2011, we and DISH Network entered into separate patent cross-
license agreements with the same third party whereby: (i) we and such third party licensed our respective patents to
each other subject to certain conditions; and (ii) DISH Network and such third party licensed their respective patents
to each other subject to certain conditions (each, a “Cross-License Agreement”). Each Cross-License Agreement
covers patents acquired by the respective party prior to January 2017 and aggregate payments under both Cross-
License Agreements total less than $10.0 million. Each Cross-License Agreement also contains an option to extend
each Cross-License Agreement to include patents acquired by the respective party prior to January 2022. If both
options are exercised, the aggregate additional payments to such third party would total less than $3.0 million.
However, we and DISH Network may elect to extend our respective Cross-License Agreement independently of
each other. Since the aggregate payments under both Cross-License Agreements were based on the combined
annual revenue of us and DISH Network, we and DISH Network agreed to allocate our respective payments to such
third party based on our respective percentage of combined total revenue.
PMC. In 2008, PMC filed suit against us, DISH Network and Motorola Inc., in the United States District Court for
the Eastern District of Texas, alleging infringement of United States Patent Nos. 5,109,414; 4,965,825; 5,233,654;
5,335,277 and 5,887,243, which relate to satellite signal processing. In May 2015, we, DISH Network and PMC
entered into a settlement and release agreement that provided, among other things, for a license by PMC to us and
DISH Network for certain patents and patent applications and the dismissal of all of PMC’s claims in the action
against us and DISH Network with prejudice. In June 2015, the Court dismissed all of PMC’s claims in the action
against us and DISH Network with prejudice. See Note 16 for further discussion. In June 2015, we and DISH
Network agreed that we would contribute a one-time payment of $5.0 million towards the settlement under the
agreements entered into in connection with the Spin-off and the 2012 Receiver Agreement.
TerreStar-2 Development Agreement. In August 2013, we and DISH Network entered into a development
agreement (“T2 Development Agreement”) with respect to the EchoStar XXI satellite under which we reimburse
DISH Network for amounts it pays pursuant to an authorization to proceed (“T2 ATP”) with SS/L in connection with
the construction of the EchoStar XXI satellite. In exchange, DISH Network granted us a right of first refusal and
right of first offer to purchase the EchoStar XXI satellite during the term of the T2 Development Agreement. The
T2 Development Agreement was amended in December 2013 to provide for the right and option to purchase DISH
Network’s rights and obligations under the T2 ATP and the related agreement for the construction of the EchoStar
XXI satellite with SS/L. In December 2014, we exercised our option to purchase DISH Network’s rights and
obligations under the T2 Development Agreement for $55.0 million in cash and the agreement terminated pursuant
to its terms. In accordance with accounting principles that apply to transfers of assets between companies under
common control, we recorded a $9.6 million charge to additional-paid-in-capital, net of related deferred income
taxes.
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Roger J. Lynch. In November 2009, Mr. Roger J. Lynch became employed by both us and DISH Network as
Executive Vice President. Mr. Lynch was responsible for the development and implementation of advanced
technologies that are of potential utility and importance to both us and DISH Network. Mr. Lynch’s compensation
consisted of cash and equity compensation and was borne by both DISH Network and us. Mr. Lynch’s employment
with us terminated in December 2014.
Other Agreements
Hughes Systique Corporation (“Hughes Systique”)
We contract with Hughes Systique for software development services. In February 2008, HNS agreed to make
available to Hughes Systique a term loan facility of up to $1.5 million. Also in 2008, HNS funded an initial
$0.5 million to Hughes Systique pursuant to the term loan facility. In 2009, HNS funded the remaining $1.0 million
of its $1.5 million commitment under the term loan facility. The loans bear interest at 6%, payable annually, and are
convertible into shares of Hughes Systique upon non-payment or an event of default. In May 2014, Hughes and
Hughes Systique amended the term loan facility to increase the interest rate from 6% to 8%, payable annually, to
reflect current market conditions. The loans, as amended, matured on May 1, 2015. In April 2015, we extended the
maturity date of the loans to May 1, 2016 on the same terms. In 2015, Hughes Systique repaid $1.5 million of the
outstanding principal of the loans. As of December 31, 2015, the principal outstanding amount of the loans was
$0.7 million. In addition to our 44.0% ownership in Hughes Systique, Mr. Pradman Kaul, the President of Hughes
Communications, Inc. and a member of our board of directors and his brother, who is the CEO and President of
Hughes Systique, in the aggregate, owned approximately 25.8%, on an undiluted basis, of Hughes Systique’s
outstanding shares as of December 31, 2015. Furthermore, Mr. Pradman Kaul serves on the board of directors of
Hughes Systique. Hughes Systique is a variable interest entity and we are considered the primary beneficiary of
Hughes Systique due to, among other factors, our ability to direct the activities that most significantly impact the
economic performance of Hughes Systique. As a result, we consolidate Hughes Systique’s financial statements in
our consolidated financial statements.
NagraStar L.L.C.
We own 50.0% of NagraStar L.L.C. (“NagraStar”), a joint venture that is our primary provider of encryption and
related security technology used in our set-top boxes. We account for our investment in NagraStar using the equity
method. We made purchases from NagraStar totaling approximately $19.6 million, $22.6 million and $14.9 million
for the years ended December 31, 2015, 2014 and 2013, respectively. As of December 31, 2015 and 2014, we had
trade accounts payable to NagraStar totaling approximately $2.6 million and $3.2 million, respectively.
Dish Mexico
We own 49.0% of an entity that provides direct-to-home satellite services in Mexico known as Dish Mexico. We
provide certain broadcast services and satellite services and sell hardware such as digital set-top boxes and related
equipment to Dish Mexico.
The following table summarizes revenue from sales of hardware and services we provided to Dish Mexico.
For the Years Ended December 31,
2014
(In thousands)
$ 60,464
$ 23,327
$ 6,251
$ -
Digital set-top boxes and related accessories......................................
Satellite services........................................................................................
Uplink services..........................................................................................
Other services............................................................................................
$ 66,779
$ 23,347
$ 4,996
$ -
$ 36,929
$ 22,638
$ 6,735
$ 127
2015
2013
As of December 31,
2015
2014
Due from Dish Mexico..............................................................................
F-61
(In thousands)
32,906
$
11,012
$
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Deluxe/EchoStar LLC
We own 50.0% of Deluxe/EchoStar LLC (“Deluxe”), a joint venture that we entered into in 2010 to build an
advanced digital cinema satellite distribution network targeting delivery to digitally equipped theaters in the U.S.
and Canada. We account for our investment in Deluxe using the equity method. For the years ended December 31,
2015, 2014 and 2013, we recognized revenue from Deluxe for transponder services and the sale of broadband
equipment of approximately $2.7 million, $3.3 million and $1.8 million, respectively. As of December 31, 2015 and
2014, we had trade accounts receivable from Deluxe of approximately $0.1 million and $0.2 million, respectively.
SmarDTV
In May 2015, we acquired a 22.5% interest in SmarDTV, which we account for using the equity method. Pursuant
to a services agreement, we purchased engineering services from SmarDTV totaling $3.6 million for the year ended
December 31, 2015. As of December 31, 2015, we had trade accounts payable to SmarDTV of $0.9 million and a
$0.5 million current note receivable from SmarDTV arising from a working capital adjustment pursuant to the
acquisition agreement.
F-62
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
ECHOSTAR CORPORATION
SCHEDULE I
We have corrected errors in the presentation of certain assets and liabilities as of December 31, 2014 and in the
presentation of related cash flows for the years ended December 31, 2014 and 2013 in the following condensed
financial information of the registrant (parent company information only). We do not believe these errors were
material to the condensed financial information. The errors were limited to the condensed financial information of
registrant and did not affect any other reported amounts or disclosures in our consolidated financial statements.
Condensed Balance Sheet Data
Other current assets..........................................................
Investments in consolidated subsidiaries,
including intercompany balances................................
Deferred tax assets.............................................................
Total assets.................................................................
Accrued expenses and other............................................
Total liabilities................................................................
Total liabilities and stockholders' equity................
As of
December 31, 2014
As previously
reported
As adjusted
(In thousands)
$
-
$
6,796
$
$
$
$
$
$
2,547,478
340,852
4,042,822
509,654
509,654
4,042,822
$
$
$
$
$
$
2,034,447
340,246
3,535,981
2,813
2,813
3,535,981
For the Years Ended
December 31, 2014
December 31, 2013
Condensed Statement of Cash Flows Data
Deferred tax provision (benefit).......................................
Changes in current assets and current liabilities, net...
Changes in noncurrent assets and
As previously
reported
$
$
(267,175)
298,661
As adjusted
As previously
reported
(In thousands)
(1,105)
6,389
$
$
33,380
88,677
$
$
As adjusted
$
$
7,473
11,426
noncurrent liabilities, net..............................................
Net cash flows from operating activities ...............
Contributions to subsidiaries and affiliates, net...........
Net cash flows from investing activities ...............
$
$
$
$
(975)
63,114
(300,737)
(215,088)
$
$
$
$
35
37,922
(275,545)
(189,896)
$
$
$
$
(88,874)
55,205
(98,387)
(198,434)
$
-
$
40,921
$
(84,103)
$
(184,150)
F-63
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
CONDENSED BALANCE SHEETS
(Parent Company Information Only– See notes to consolidated financial statements)
(In thousands, except per share amounts)
Current Assets:
Assets
As of December 31,
2015
2014
(As adjusted)
Cash and cash equivalents............................................................................................................
Marketable investment securities.................................................................................................
Other current assets.......................................................................................................................
Total current assets............................................................................................................................
Noncurrent Assets:
Investments in consolidated subsidiaries, including intercompany balances......................
Restricted cash and marketable investment securities..............................................................
Deferred tax assets..........................................................................................................................
Other intangible assets, net ..........................................................................................................
Investments in unconsolidated entities......................................................................................
Other receivable - DISH Network.................................................................................................
Total noncurrent assets.....................................................................................................................
Total assets..............................................................................................................................
$
530,678
358,995
2,560
892,233
$
273,646
744,112
6,796
1,024,554
2,446,916
862
245,457
5,221
26,476
88,503
2,813,435
3,705,668
$
2,034,447
1,293
340,246
22,185
25,319
87,937
2,511,427
3,535,981
$
Current Liabilities:
Liabilities and Stockholders' Equity
Accrued expenses and other.........................................................................................................
Total current liabilities........................................................................................................................
Total liabilities.............................................................................................................................
10,190
10,190
10,190
2,813
2,813
2,813
Commitments and Contingencies
Stockholders' Equity:
Preferred Stock, $.001 par value, 20,000,000 shares authorized:
Hughes Retail Preferred Tracking Stock, $.001 par value, 13,000,000 shares
authorized, 6,290,499 issued and outstanding at December 31, 2015
and 2014, respectively............................................................................................................
Common Stock, $.001 par value, 4,000,000,000 shares authorized:
Class A common stock, $.001 par value, 1,600,000,000 shares authorized,
51,087,839 shares issued and 45,555,521 shares outstanding at December 31, 2015
49,576,247 shares issued and 44,043,929 shares outstanding at December 31, 2014....
Class B common stock, $.001 par value, 800,000,000 shares authorized,
47,687,039 shares issued and outstanding at each of December 31, 2015 and 2014.....
Class C common stock, $.001 par value, 800,000,000 shares authorized,
none issued and outstanding at each of December 31, 2015 and 2014...........................
Class D common stock, $.001 par value, 800,000,000 shares authorized,
none issued and outstanding at each of December 31, 2015 and 2014...........................
Additional paid-in capital..............................................................................................................
Accumulated other comprehensive loss.....................................................................................
Accumulated earnings (deficit).....................................................................................................
Treasury stock, at cost...................................................................................................................
Total stockholders' equity.........................................................................................................
Total liabilities and stockholders' equity.............................................................................
6
51
48
-
-
6
50
48
-
-
3,776,451
(117,233)
134,317
(98,162)
3,695,478
3,705,668
$
3,706,122
(55,856)
(19,040)
(98,162)
3,533,168
3,535,981
$
F-64
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
ECHOSTAR CORPORATION
CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(Parent Company Information Only– See notes to consolidated financial statements)
(In thousands)
For the Years Ended December 31,
2015
2013
2014
Costs and Expenses:
Selling, general and administrative expenses...................................................
Depreciation and amortization............................................................................
Total costs and expenses........................................................................................
Operating loss...........................................................................................................
$
1,482
16,964
18,446
(18,446)
$
1,536
16,965
18,501
(18,501)
$
1,598
16,964
18,562
(18,562)
Other Income (Expense):
Interest income and expense, net.......................................................................
Gains (losses) and impairment on marketable investment securities, net....
Equity in earnings (losses) of unconsolidated affiliates, net.........................
Other, net...............................................................................................................
Total other income, net............................................................................................
Income (loss) before income taxes and equity in earnings of
7,941
(5,067)
6,157
790
9,821
8,880
73
(4,389)
5,835
10,399
7,197
36,280
(12,068)
(598)
30,811
consolidated subsidiaries, net........................................................................
Equity in earnings (losses) of consolidated subsidiaries, net.......................
Income tax benefit (provision), net....................................................................
Net income.................................................................................................................
(8,625)
166,731
(4,749)
153,357
$
(8,102)
159,871
1,105
152,874
$
12,249
(2,251)
(7,473)
2,525
$
Comprehensive Income (Loss):
Net income.................................................................................................................
Other comprehensive loss, net of tax:
Foreign currency translation adjustments........................................................
Recognition of foreign currency translation loss in net income...................
Unrealized gains (losses) on marketable investment securities and other..
Recognition of other-than-temporary loss on marketable investment
$
153,357
$
152,874
$
2,525
(62,411)
1,889
(12,046)
(31,698)
-
(9,462)
(15,508)
-
18,413
securities in net income...................................................................................
11,226
-
-
Recognition of realized gains on marketable investment securities
in net income.....................................................................................................
Total other comprehensive loss, net of tax...........................................................
Comprehensive income (loss).............................................................................
(35)
(61,377)
91,980
$
(41)
(41,201)
111,673
$
(36,312)
(33,407)
(30,882)
$
F-65
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
ECHOSTAR CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(Parent Company Information Only– See notes to consolidated financial statements)
(In thousands)
Cash Flows from Operating Activities:
Net income...........................................................................................................................
Adjustments to reconcile net income to net cash flows from operating activities:
Depreciation and amortization......................................................................................
Equity in losses (earnings) of unconsolidated affiliates, net...................................
Equity in losses (earnings) of consolidated subsidiaries, net.................................
Gains (losses) and impairment on marketable investment securities, net..............
Deferred tax provision (benefit)....................................................................................
Changes in current assets and current liabilities, net................................................
Changes in noncurrent assets and noncurrent liabilities, net..................................
Other, net..........................................................................................................................
Net cash flows from operating activities ................................................................
Cash Flows from Investing Activities:
Purchases of marketable investment securities..............................................................
Sales and maturities of marketable investment securities.............................................
Contributions to subsidiaries and affiliates, net............................................................
Capital contribution to Sling TV Holding........................................................................
Changes in restricted cash and marketable investment securities..............................
Net cash flows from investing activities ................................................................
Cash Flows from Financing Activities:
Net proceeds from Class A common stock options exercised and stock
For the Years Ended December 31,
2015
2013
2014
(As adjusted)
(As adjusted)
$
2,525
$
152,874
153,357
$
16,964
(6,157)
(166,731)
5,067
4,749
7,205
(566)
12,705
26,593
(327,610)
701,832
(182,943)
-
431
191,710
16,965
4,389
(159,871)
(73)
(1,105)
6,389
35
18,319
37,922
(1,013,699)
1,118,187
(275,545)
(18,569)
(270)
(189,896)
16,964
12,068
2,251
(36,280)
7,473
11,426
-
24,494
40,921
(957,142)
857,139
(84,103)
-
(44)
(184,150)
issued under the Employee Stock Purchase Plan .....................................................
Other.....................................................................................................................................
Net cash flows from financing activities ................................................................
38,729
-
38,729
28,857
(3,075)
25,782
71,247
-
71,247
Net increase (decrease) in cash and cash equivalents .....................................................
Cash and cash equivalents, beginning of period...............................................................
Cash and cash equivalents, end of period......................................................................
257,032
273,646
530,678
$
(126,192)
399,838
273,646
$
(71,982)
471,820
399,838
$
F-66
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
ECHOSTAR CORPORATION
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
Our valuation and qualifying accounts as of December 31, 2015, 2014 and 2013 were as follows:
Allowance for doubtful accounts
For the years ended:
December 31, 2015.................................................
December 31, 2014.................................................
December 31, 2013.................................................
Balance at
Beginning
of Year
Charged to
Costs and
Expenses
Deductions
Balance at
End of Year
(In thousands)
$
$
$
14,188
13,237
16,894
$
$
$
6,712
7,242
7,662
$
$
$
(8,415)
(6,291)
(11,319)
$
$
$
12,485
14,188
13,237
F-67
COMPARATIVE PERFORMANCE
The following graph sets forth the cumulative total stockholder return on our Class A Shares during the period from
December 31, 2010 to December 31, 2015. The graph assumes the investment on December 31, 2010 of $100 in (i)
our Class A Shares, (ii) the NASDAQ Stock Market Index (US Companies), (iii) our chosen industry peer group for
the year ended December 31, 2014 (the “Old Peer Group Index”) and (iv) our chosen industry peer group for the
year ended December 31, 2015 (the “New Peer Group Index”). The graph reflects reinvestment of dividends and
market capitalization weighting.
Our Old Peer Group Index is comprised of the following publicly traded companies: Gilat Satellite Networks Ltd.,
ViaSat, Inc., Pace Plc., ARRIS International Plc. (formerly ARRIS Group, Inc.), SES S.A. and Eutelsat
Communications S.A. In re-evaluating our peer group this year, we made revisions that we believe provide a more
meaningful comparison of our stock price performance to that of our primary competition. Our New Peer Group
Index is comprised of the following publicly traded companies: Gilat Satellite Networks Ltd., ViaSat, Inc., ARRIS
International Plc., SES S.A., Eutelsat Communications S.A., Technicolor S.A. and Intelsat S.A. Although the
companies included in the Old Peer Group Index and the New Peer Group Index were selected because of similar
industry characteristics, they are not entirely representative of our business.
Historical point-in-time daily foreign currency exchange rates were utilized for the calculations for foreign entities
listed only on foreign exchanges included in the New Peer Group Index and the Old Peer Group Index. The stock
price performance shown on this graph is not necessarily indicative of future price performance of our Class A
Shares.
Total Return Analysis
12/31/2010
12/31/2011
12/31/2012
12/31/2013
12/31/2014
12/31/2015
EchoStar Corp.
NASDAQ Stock Market
(US Companies)
New Peer Group Index
Old Peer Group Index
$ 100.00
$ 83.86
$ 137.04
$ 199.12
$ 210.25
$ 156.63
$ 100.00
$ 100.51
$ 118.87
$ 165.68
$ 191.04
$ 205.76
$ 100.00
$ 100.00
$ 100.70
$ 98.75
$ 108.50
$ 109.64
$ 128.30
$ 130.26
$ 137.31
$ 141.45
$ 120.75
$ 123.66
*The comparative performance graph and the total return analysis set forth above were prepared by Zacks Investment
Research, Inc.
CORPORATE PROFILE
BOARD OF DIRECTORS
Charles W. Ergen
Chairman of the Board
Michael T. Dugan
Director
R. Stanton Dodge
Director
Anthony M. Federico
Director
Pradman P. Kaul
Director
Tom A. Ortolf
Director
C. Michael Schroeder
Director
TRANSFER AGENT
Computershare
Investor Services
8742 Lucent Boulevard, Ste. 225
Highlands Ranch, CO 80129
INDENTURE TRUSTEE
Wells Fargo Bank, N.A.
Corporate Trust Services
150 East 42nd St., 40th floor
New York, NY 10017
Attn: Julius Zamora
ANNUAL MEETING
The 2016 Annual Meeting of
Shareholders will be held on
May 4, 2016.
For additional information,
contact:
Investor Relations Department
EchoStar Corporation
100 Inverness Terrace East
Englewood, Colorado 80112
echostar.com
(cid:3)
EXECUTIVE OFFICERS
Charles W. Ergen
Chairman
Michael T. Dugan
Chief Executive Officer
and President
Pradman P. Kaul
President,
Hughes Communications, Inc.
Mark W. Jackson
President,
EchoStar Technologies L.L.C.
Anders N. Johnson
President,
EchoStar Satellite Services L.L.C.
Kenneth G. Carroll
Executive Vice President,
Corporate and Business
Development
Sandra L. Kerentoff
Executive Vice President,
Global Human Resources
Kranti K. Kilaru
Executive Vice President,
Business Systems, IT and
Operations
Dean A. Manson
Executive Vice President,
General Counsel and Secretary
David J. Rayner
Executive Vice President,
Chief Financial Officer and
Treasurer