Annual Report
Year Ended December 31, 2018
CONNECTING
THE WORLD
March 18, 2019
Dear EchoStar Corporation Shareholder,
2018 was a successful year for EchoStar with many significant accomplishments focused on driving long-term growth and capitalizing
on the global demand for satellite-delivered broadband Internet services and enterprise solutions. We expanded services in the Americas
and Europe, grew our presence in Africa, the Middle East and southwest Asia, launched a new hosted payload and continued the
construction of our next-generation, Ultra High Density Satellite.
Notable highlights include:
• Expanded the footprint of HughesNet®, our high-speed satellite Internet service, in Central and South America with the launch
of the Hughes 63 West payload hosted on the Telstar 19V satellite and the start of service in Peru and Ecuador.
• Commenced our strategic joint venture arrangement with Al Yah Satellite Communications Company PrJSC (Yahsat) to
•
provide commercial satellite broadband services across Africa, the Middle East and southwest Asia.
Increased sales of our JUPITER™ Aero solution for in-flight connectivity, now operating on over 1,100 aircraft - covering
routes across the Americas, the North Atlantic, Europe, Africa and Asia/Pacific.
• Continued construction of EchoStar XXIV/JUPITER 3, our Ultra High Density Satellite, designed to augment capacity for our
growing HughesNet service across the Americas as well as for aeronautical and enterprise broadband services, with a planned
2021 launch.
• Continued developing and deploying EchoStar Mobile Satellite Services in Europe using our EchoStar XXI S Band satellite
and preparing for a next generation hybrid network for IoT.
EchoStar is one of the world’s leading satellite operators, owning and/or leasing 18 satellites. Last year, HughesNet® continued to build
on its success as the #1 consumer satellite Internet service, reaching over 1.3 million subscribers in the Americas and obtaining
approximately 69% U.S. market share. Moreover, for the fourth successive year, the FCC ranked HughesNet® #1 among all ISPs –
cable, DSL, fiber and satellite – in meeting or exceeding advertised download speeds. We are well positioned to take advantage of the
full economic potential of our high-growth consumer business, reinforcing our global leadership overall in satellite network services
and technologies. We intend to continue to utilize our expertise and success in the Americas to propel growth internationally across both
consumer and enterprise markets.
Our Net Income and EBITDA were negatively impacted by non-recurring losses on investments and impairment charges in 2018.
Without these non-recurring items, our consolidated pre-tax net income improved by 20% and consolidated EBITDA increased 11%,
and we had $734.5 million of Cash Flow from Operations. Our Hughes segment revenue and EBITDA, which represent approximately
80% of our total revenue and EBITDA, increased 16% and 27% in 2018. Our balance sheet remained strong at the end of the year with
over $3.2 billion of cash and marketable securities.
Our mission is to be the global connectivity provider for people, enterprises and things, powering a connected future. Looking forward,
we expect to leverage our successes in 2018 and further pursue strategic opportunities to grow organically and through acquisitions and
other commercial and strategic alliances.
As we look across our industry, winning companies are those that never cease breaking new ground and creating new opportunities.
We strongly believe that EchoStar is one of those companies and are confident that the innovative spirit of our experienced and diverse
workforce is what will continue to drive our success.
Thank you for your continued support.
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/A
(Amendment No. 1)
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR
ENDED DECEMBER 31, 2018.
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION
PERIOD FROM TO .
Commission File Number: 001-33807
EchoStar Corporation
(Exact name of registrant as specified in its charter)
Nevada
(State or other jurisdiction of incorporation or organization)
100 Inverness Terrace East, Englewood, Colorado
(Address of principal executive offices)
26-1232727
(I.R.S. Employer Identification No.)
80112-5308
(Zip Code)
Securities registered pursuant to Section 12(b) of the Act:
Registrant’s telephone number, including area code: (303) 706-4000
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
No
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
No
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
No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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
such files). Yes
No
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.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company,
or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging
growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with
any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
No
As of June 30, 2018, the aggregate market value of Class A common stock held by non-affiliates of the registrant was $2.1 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 11, 2019, the registrant’s outstanding common stock consisted of 47,658,409 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 Amendment No. 1 to the Annual Report on Form 10-K/A by reference:
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive Proxy Statement to be filed in connection with its 2019 Annual Meeting of Shareholders are incorporated by
reference in Part III.
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Explanatory Note
This Amendment No. 1 to Form 10-K on Form 10-K/A (this “Amended 10-K”) is being filed with
respect to the Annual Report of EchoStar Corporation (“EchoStar” or the “Company”) on Form 10-
K for the fiscal year ended December 31, 2018 filed with the Securities and Exchange Commission
(“SEC”) on February 21, 2019 (the “10-K”). EchoStar is filing this Amended 10-K to correct various
formatting errors in the 10-K that occurred due to a file corruption discovered after filing the 10-K.
Other than such corrections, there are no other changes, amendments or updates to any other
information in the 10 K, but this Amended 10-K is being filed in its entirety for ease of review.
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Disclosure Regarding Forward Looking Statements
TABLE OF CONTENTS
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
PART I
PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Item 15.
Item 16.
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of
Operations
Quantitative and Qualitative Disclosures about Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
Controls and Procedures
Other Information
PART III
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
PART IV
Exhibits, Financial Statement Schedules
Form 10-K Summary
Signatures
Index to Consolidated Financial Statements
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1
14
32
33
33
34
35
36
38
65
66
66
66
67
68
68
68
68
68
69
75
76
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:
•
•
•
•
•
•
•
significant risks related to the construction and operation of our satellites, such as the risk of not being able
to timely complete the construction of or material malfunction on one or more of our satellites, risks resulting
from potentially missing our regulatory milestones, 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 reliance on DISH Network Corporation and its subsidiaries for a significant portion of our revenue;
our ability to realize the anticipated benefits of our current satellites and any future satellite we may construct
or acquire;
our ability to implement and/or realize benefits of our domestic and/or international investments, commercial
alliances, partnerships, joint ventures, acquisitions, dispositions and other strategic initiatives and transactions;
the failure of third-party providers of components, manufacturing, installation services and customer support
services to appropriately deliver the contracted goods or services;
our ability to bring advanced technologies to market to keep pace with our customers and competitors; and
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, economic
instability and political disturbances.
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.
Although we believe that the expectations reflected in any forward-looking statements are reasonable, we cannot
guarantee future results, events, levels of activity, performance or achievements. We do not assume responsibility
for the accuracy and completeness of any forward-looking statements. We assume no responsibility for updating
forward-looking information contained or incorporated by reference herein or in any documents we file with the SEC,
except as required by law.
Should one or more of the risks or uncertainties described herein or in any documents we file with the SEC occur, or
should underlying assumptions prove incorrect, our actual results and plans could differ materially from those expressed
in any forward-looking statements.
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PART I
ITEM 1. BUSINESS
OVERVIEW
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 and has operated as a separately traded public company from Dish Network Corporation (“DISH”) since
2008. A substantial majority of the voting power of the shares of each of EchoStar Corporation and DISH is owned
beneficially by Charles W. Ergen, our Chairman, and by certain entities established by Mr. Ergen for the benefit of his
family. Our Class A common stock is publicly traded on the Nasdaq Global Select Market (“Nasdaq”) under the symbol
“SATS.”
We are a global provider of broadband satellite technologies, broadband internet services for home and small office
customers, satellite operations and satellite services. We also deliver innovative network technologies, managed
services and various communications solutions for aeronautical, enterprise and government customers.
Our industry continues to evolve with the increasing 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 (“LEO”) networks, medium-earth orbit (“MEO”) systems, balloons and High
Altitude Platform Systems are playing 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, equipment, networks and services for information, the internet-of-
things, entertainment and commerce in North America and internationally for consumers as well as aeronautical,
enterprise and government customers. We are closely tracking the developments in next-generation satellite
businesses, and we are seeking to utilize our services, technologies and expertise to find new commercial opportunities
for our business.
We currently operate in two business segments: Hughes and EchoStar Satellite Services (“ESS”), as discussed below.
Our corporate department operations as well as activities that have not been assigned to our operating segments and
eliminations of intersegment transactions are all accounted for in Corporate and Other in our segment reporting.
During 2017, we and certain of our subsidiaries entered into a share exchange agreement with DISH and certain of
its subsidiaries. We, and certain of our subsidiaries, received all of the shares of the Hughes Retail Preferred Tracking
Stock previously issued by us and one of our subsidiaries (together, the “Tracking Stock”) in exchange for 100% of
the equity interests of certain of our subsidiaries that held substantially all of our former EchoStar Technologies
businesses and certain other assets (collectively, the “Share Exchange”). Following the consummation of the Share
Exchange, we no longer operate our former EchoStar Technologies businesses, the Tracking Stock was retired and
is no longer outstanding, and all agreements, arrangements and policy statements with respect to the Tracking Stock
terminated. As a result of the Share Exchange, the operating results of the EchoStar Technologies businesses have
been presented as discontinued operations and as such, have been excluded from continuing operations and segment
results for all periods presented in our accompanying Consolidated Financial Statements in Item 15 of this Annual
Report on Form 10-K (“Form 10-K”). See Note 4 for further discussion of our discontinued operations.
BUSINESS STRATEGIES
Capitalize on domestic and international demand for broadband services. We intend to capitalize on the domestic
and international demand for satellite-delivered broadband internet services and enterprise solutions by utilizing, among
other things, our industry expertise, technology leadership, increased satellite capacity, access to spectrum resources,
and high-quality, reliable service to drive growth in consumer subscribers and enterprise customers. We also intend
to continue to selectively explore opportunities to pursue investments, commercial alliances, partnerships, joint
ventures, acquisitions, dispositions and other strategic initiatives and transactions, domestically and internationally
that we believe may allow us to increase our market share, increase our satellite capacity, expand into new markets,
obtain new customers, broaden our portfolio of services, products and intellectual property, make our business more
valuable, align us for future growth and expansion, maximize the return on our investments and strengthen our business
and relationships with our customers.
1
Expand satellite capacity and related infrastructure. During 2018, we continued the design and construction of a
new, next-generation, high throughput geostationary satellite, with a planned 2021 launch, that is primarily intended
to provide additional capacity for our HughesNet satellite internet service (the “HughesNet service”) in North, Central
and South America as well as aeronautical and enterprise services. We also continued to increase our satellite capacity
in certain Central and South American countries and added capability for aeronautical, enterprise and international
broadband internet services. We expect that our expertise in the identification, acquisition and development of satellite
spectrum and orbital rights and satellite operations, together with our increased satellite capacity and existing, acquired
or developed infrastructure, will provide opportunities to enter new international markets and enhance our services to
our existing customers. We currently provide satellite broadband internet service in several Central and South American
countries, and expect to continue to launch similar services in other Central and South American countries. 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 to selectively explore new domestic and international strategic initiatives. We intend to continue to
selectively explore opportunities to pursue investments, commercial alliances, partnerships, joint ventures, acquisitions,
dispositions and other strategic initiatives and transactions, domestically and internationally, that we believe may allow
us to increase our existing market share, increase our satellite capacity, expand into new markets and new customers,
broaden our portfolio of services, products and intellectual property, and strengthen our relationships with our
customers. For example, our current agreement with WorldVu Satellites Limited (“OneWeb”), a global LEO satellite
service company, enables us to provide certain equipment and services in connection with the ground network system
for OneWeb’s LEO satellites.
Continue development of S-band and other hybrid spectrum resources. Commercial service has been available
to customers on our EchoStar XXI satellite since the fourth quarter of 2017, and we believe we remain 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. Additionally, we intend to seek additional licenses in the S-band spectrum and opportunities to align
ourselves with other licensees for a coordinated development of the spectrum. We also intend to continue to explore
development of S-band similar spectrum assets in additional international markets.
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.
BUSINESS SEGMENTS
HUGHES SEGMENT
Our Products and Services
Our Hughes segment is a global provider of broadband satellite technologies and broadband internet services to home
and small office customers and broadband network technologies, managed services, equipment, hardware, satellite
services and communications solutions to consumers, aeronautical, enterprise and government customers. The
Hughes segment also designs, provides and installs gateway and terminal equipment to customers for other satellite
systems. In addition, our Hughes segment designs, develops, constructs and provides telecommunication networks
comprising satellite ground segment systems and terminals to mobile system operators and our enterprise customers.
We incorporate advances in technology to reduce costs and to increase the functionality and reliability of our products
and services. Through advanced and proprietary methodologies, technologies, software and 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.
We continue to focus our efforts on growing our consumer revenue by maximizing utilization of our existing satellites
while planning for new satellites to be launched or acquired. Our consumer revenue growth depends on our success
in adding new and retaining existing subscribers in our domestic and international markets across wholesale and retail
channels. The growth of our enterprise businesses, including aeronautical, relies heavily on global economic conditions
and the competitive landscape for pricing relative to competitors and alternative technologies. Service costs related
2
to ongoing support for our direct and indirect customers and partners are typically impacted most significantly by our
growth.
Our Hughes segment currently uses capacity from three of our satellites (the SPACEWAY 3 satellite, the EchoStar
XVII satellite and the EchoStar XIX satellite) and additional satellite capacity acquired from multiple third-party providers
to provide services to our customers. In December 2016, we launched our EchoStar XIX satellite, a high throughput
geostationary satellite employing a multi-spot beam, bent pipe Ka-band architecture, which provides capacity for the
Hughes broadband services to our current and future customers in North America and certain Central and South
American countries and our aeronautical and enterprise broadband services. Until new satellite launches or acquisitions
provide additional capacity for subscriber growth, we manage subscriber growth across our existing satellite platform.
In August 2017, we entered into a contract for the design and construction of the EchoStar XXIV, a new, next-generation,
high throughput geostationary satellite, with a planned 2021 launch. The EchoStar XXIV satellite is primarily intended
to provide additional capacity for our HughesNet service in North, Central and South America as well as aeronautical
and enterprise broadband services. The Federal Communications Commission (“FCC”) granted authorization to
construct, deploy and operate the EchoStar XXIV satellite. In the second half of 2018, Maxar Technologies Inc.
(“Maxar”), the parent company of Space Systems/Loral (“SSL”), the manufacturer of our EchoStar XXIV satellite,
announced that it was reviewing strategic alternatives for its geostationary communications satellite business to improve
its financial performance and that it was in active discussions with potential buyers of the business. SSL has indicated
to us that it intends to meet its contractual obligations regarding the timely manufacture and delivery of the EchoStar
XXIV satellite. However, if SSL or any potential successor fails to meet or is delayed in meeting these obligations for
any reason, including if Maxar decides to discontinue, wind down or otherwise significantly modify its geostationary
communications satellite business, such failure could have a material adverse impact on our business operations,
future revenues, financial position and prospects, completing the manufacture of the EchoStar XXIV satellite and our
planned expansion of satellite broadband services throughout North, South and Central America. Capital expenditures
associated with the construction and launch of this satellite are included in Corporate and Other in our segment
reporting.
We continue our efforts to expand our consumer satellite services business outside of the U.S. We currently provide
satellite broadband internet service in several Central and South American countries, and expect to continue to launch
similar services in other Central and South American countries. In April 2014, we entered into a 15-year agreement
with Eutelsat do Brasil for Ka-band capacity into Brazil on the EUTELSAT 65 West A satellite, which was launched in
March 2016. We began delivering high-speed consumer satellite broadband services in Brazil in July 2016. Additionally,
in September 2015, we entered into 15-year agreements pursuant to which affiliates of Telesat Canada (“Telesat”)
provide us Ka-band capacity on a satellite located at the 63 degree west longitude orbital location. This satellite was
launched in July 2018, placed in service during the fourth quarter of 2018 and augments the capacity being provided
by the EUTELSAT 65 West A and EchoStar XIX satellites in Central and South America.
In August 2018, we entered into an agreement with Al Yah Satellite Communications Company PrJSC (“Yahsat”) to
establish a new entity, Broadband Connectivity Solutions (Restricted) Limited (together with its subsidiaries, “BCS”),
to provide commercial Ka-band satellite broadband services across Africa, the Middle East and southwest Asia
operating over Yahsat's Al Yah 2 and Al Yah 3 Ka-band satellites. The transaction was consummated in December
2018 when we invested $100 million in cash in exchange for a 20% interest in BCS. Under the terms of the agreement,
we may also acquire, for further cash investments, additional ownership interests in BCS in the future provided certain
conditions are met. We supply network operations and management services and equipment to BCS.
Our Customers
Our enterprise, government and aeronautical customers include, but are not limited to, lottery agencies, gas station
operators, aircraft connectivity providers and companies with multi-branch networks that rely on satellite or terrestrial
networks for critical communication across wide geographies. Most of our enterprise customers have contracts with
us for the services they purchase. Our Hughes segment also designs, provides and installs gateway and terminal
equipment to customers for other satellite systems and provides satellite ground segment systems and terminals for
other satellite systems, including mobile system operators. Developments toward the launch of next-generation satellite
systems, including LEO, MEO and geostationary systems, could provide additional opportunities to drive the demand
for our equipment, hardware, technology and services.
3
As of December 31, 2018, 2017 and 2016, we had approximately 1,361,000, 1,208,000 and 1,036,000 broadband
subscribers, respectively. These broadband subscribers include customers that subscribe to our HughesNet services
in North, Central and South America through retail, wholesale and small/medium enterprise service channels.
As of December 31, 2018 and 2017, our Hughes segment had approximately $1.4 billion and $1.6 billion, respectively,
of contracted revenue backlog. We define Hughes contracted revenue backlog as our expected future revenue,
including lease 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, 2018, we expect to recognize
approximately $430 million of revenue in 2019.
Our Competition
Our industry is highly competitive. As a global provider of network technologies, products and services, our Hughes
segment competes with a large number of telecommunications service providers, which puts pressure on prices and
margins. To compete effectively, we emphasize our network quality, customization capability, offering of networks as
a turnkey managed service, position as a single point of contact for products and services and competitive prices.
In our consumer broadband satellite technologies and internet services markets, we compete against traditional
telecommunications and wireless carriers, other satellite internet providers, as well as digital subscriber line (“DSL”),
fiber and cable internet service providers offering competitive services in many markets 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., 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 aeronautical, enterprise and government markets, we compete against providers of satellite-based and terrestrial-
based networks, including fiber, DSL, cable modem service, multiprotocol label switching and interest protocol-based
virtual private networks.
Our principal competitors for the supply of very-small-aperture terminal satellite networks are Gilat Satellite Networks
Ltd, ViaSat, Newtec Cy N.V. and VT iDirect, Inc. 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.
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.
ESS SEGMENT
Our Services
Our ESS segment is a global provider of satellite operations and satellite services. We operate our business using
our owned and leased in-orbit satellites and related licenses. Revenue in our ESS segment depends largely on our
ability to continuously make use of our available satellite capacity with existing customers and our ability to enter into
commercial relationships with new customers. Our ESS segment, like others in the fixed satellite services (“FSS”)
industry, has encountered, and may continue to encounter, negative pressure on transponder rates and demand.
4
We are also pursuing other opportunities such as providing value added services such as telemetry, tracking and
control services to third parties, which leverage the ground monitoring networks and personnel currently within our
ESS segment.
Our Customers
We provide satellite operations and satellite services on a full-time and/or occasional-use basis primarily to DISH and
its subsidiaries (“DISH Network”), Dish Mexico, S. de R.L. de C.V., a joint venture we entered into in 2008 (“Dish
Mexico”), U.S. government service providers, internet service providers, broadcast news organizations, content
providers and private enterprise customers. Our satellite capacity is currently used by our customers for a variety of
applications, including:
• DTH Services. We provide satellite operations and satellite services to broadcast news organizations, internet
service providers and content providers who use our satellites to deliver programming and internet. Our
satellites are also used for the transmission of live sporting events, internet access, disaster recovery, and
satellite news gathering services.
• Government Services. We provide satellite and technical services to U.S. government service providers.
• Network Services. We provide satellite operations and satellite services to companies for 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.
For the years ended December 31, 2018, 2017 and 2016 DISH Network accounted for 86.5%, 87.9% and 85.7% of
our total ESS segment revenue, and we expect that DISH Network will continue to be the primary source of revenue
for our ESS segment as we have entered into certain commercial agreements with DISH Network pursuant to which
we provide DISH Network with satellite services at fixed prices for varying lengths of time depending on the satellite.
Therefore, the results of operations of our ESS segment are linked to changes in DISH Network’s satellite capacity
requirements, which historically have been driven by the addition of new channels and migration of programming to
high-definition television and video on demand services. DISH Network’s future satellite capacity requirements may
change for a variety of reasons, including its ability to construct and launch or acquire its own satellites, to continue
to add new channels and/or to migrate to the provision of such channels and other video on demand services through
streaming and other alternative technologies. There is no assurance that we will continue to provide satellite services
to DISH Network beyond the terms of our agreements. Any termination or reduction in the satellite services we provide
to DISH Network would cause us to have unused capacity on our satellites and require that we aggressively pursue
alternative sources of revenue for this business. The agreement with DISH Network to lease satellite capacity on the
EchoStar VII satellite expired in June 2018. As a result, we expect a $43 million annualized decrease in our revenue.
We are exploring other opportunities to utilize this satellite in the future. See Note 20 in the notes to consolidated
financial statements in Item 15 of this Form 10-K for further discussion of our related party transactions with DISH
Network.
At each of December 31, 2018 and 2017, our ESS segment had contracted revenue backlog of approximately
$832 million and $1.2 billion, respectively. We define contracted revenue backlog for our ESS segment as contracted
future satellite lease revenue. Of the total contracted revenue backlog as of December 31, 2018, we expect to recognize
approximately $288 million of revenue in 2019.
Our Competition
Our ESS segment competes against larger, well-established satellite service companies, such as Intelsat S.A., SES
S.A., Telesat, and Eutelsat Communications S.A., in an industry that is characterized by long-term contracts and high
costs for customers to change service providers. Several of our competitors maintain key North American and other
international orbital slots that may further limit competition and competitive pricing.
OTHER BUSINESS OPPORTUNITIES
We intend to continue to selectively explore opportunities to pursue investments, commercial alliances, partnerships,
joint ventures, acquisitions, dispositions and other strategic initiatives and transactions, domestically and internationally,
that we believe may allow us to increase our existing market share, increase our satellite capacity, expand into new
markets and new customers, broaden our portfolio of services, products and intellectual property, make our business
5
more valuable, align us for future growth and expansion, maximize the return on our investments and strengthen our
business and relationships with our customers. We may allocate or dispose of significant resources for long-term
value that may not have a short or medium-term or any positive impact on our revenue, results of operations, or cash
flow.
In December 2013, we acquired an entity based in Dublin, Ireland, which we subsequently renamed EchoStar Mobile
Limited (“EML”). EML is licensed by the European Union and its member states (“EU”) to provide MSS and CGC
services covering the entire EU using S-band spectrum. Our EchoStar XXI satellite, which provides space segment
capacity to EML in the EU, was launched in June 2017 and placed into service in November 2017. Commercial service
has been available on our EchoStar XXI satellite since the fourth quarter of 2017. EML is focused on expanding its
MSS operations in the EU through development of innovative mobile and machine-to-machine products and services.
We believe we are in a unique position to deploy a European wide MSS and CGC network and maximize the long-
term value of our S-band spectrum in Europe and other regions within the scope of our licenses.
OUR SATELLITE FLEET
Our operating satellite fleet consists of both owned and leased satellites detailed in the table below as of December 31,
2018.
Satellites
Owned:
SPACEWAY 3 (1)
EchoStar XVII
EchoStar XIX
EchoStar VII (2)(3)(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)
EchoStar XXI
EchoStar XXIII
EUTELSAT 10A (“W2A”) (6)
Capital Leases:
Eutelsat 65 West A
Telesat T19V
Nimiq 5 (2)
QuetzSat-1 (2)
EchoStar 105/SES-11
Segment
Launch Date
Nominal Degree
Orbital Location
(Longitude)
Depreciable
Life In Years
Hughes
Hughes
Hughes
ESS
ESS
ESS
ESS
ESS
ESS
ESS
August 2007
July 2012
December 2016
February 2002
August 2003
February 2006
July 2008
July 2003
March 2010
November 2012
95 W
107 W
97.1 W
119 W
121 W
110 W
110 W
86.4 W
119 W
61.5 W
Corporate and
Other
Corporate and
Other
Corporate and
Other
June 2017
10.25 E
March 2017
April 2009
45 W
10 E
Hughes
Hughes
ESS
ESS
ESS
March 2016
July 2018
September 2009
September 2011
October 2017
65 W
63 W
72.7 W
77 W
105 W
12
15
15
3
12
7
9
2
11
15
15
15
—
15
15
15
10
15
(1) Depreciable life represents the remaining useful life as of June 8, 2011, the date EchoStar completed its acquisition of Hughes
Communications, Inc. (“Hughes Communications”) and its subsidiaries.
(2) See Note 20 in the notes to consolidated financial statements in Item 15 of this Form 10-K 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 20 in the notes to consolidated financial statements in Item 15 of this Form
10-K).
(4) Fully depreciated assets as of December 31, 2018.
6
(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.
Construction in progress as of December 31, 2018 included our EchoStar XXIV satellite, which is expected to launch
in 2021.
Recent Developments
EchoStar I and EchoStar VI. The EchoStar I and EchoStar VI satellites were removed from their orbital locations
and retired from commercial service in January 2018 and May 2018, respectively. The retirement of these satellites
has not had, and is not expected to have, a material impact on our results of operations or financial position.
EchoStar 105/SES-11. The EchoStar 105/SES-11 satellite was launched in October 2017 and was placed into service
in November 2017 at the 105 degree west longitude orbital location. Pursuant to agreements that we entered into in
August 2014, we funded substantially all construction, launch and other costs associated with the EchoStar 105/
SES-11 satellite and transferred the C-, Ku- and Ka-band payloads to two affiliates of SES Americom, Inc. (“SES”)
after the launch date, while retaining the right to use the entire Ku-band payload on the satellite for an initial ten-year
term, with an option for us to renew the agreement on a year-to-year basis. In October 2017, we recorded a $77 million
receivable from SES in Other current assets in the Consolidated Balance Sheets,representing capitalized costs
allocable to certain satellite payloads controlled by SES, and we reduced our carrying amount of the satellite by such
amount. In January 2018, we received payment from SES for the receivable plus accrued interest. Our leased Ku-
band payload on the EchoStar 105/SES-11 satellite has replaced the capacity we had on the AMC-15 satellite.
Telesat T19V. In September 2015, we entered into agreements pursuant to which affiliates of Telesat will provide to
us Ka-band capacity on the Telesat T19V satellite at the 63 degree west longitude orbital location for a 15-year term.
The Telesat T19V satellite was launched in July 2018 and placed into service in October 2018. This satellite augments
the capacity being provided by the EUTELSAT 65 West A and EchoStar XIX satellites in Central and South America.
Satellite Anomalies and Impairments
Our satellites may experience anomalies from time to time, some of which may have a significant adverse effect on
their remaining useful lives, the commercial operation of the satellites or our operating results or financial position.
We are not aware of any anomalies with respect to our owned or leased satellites that have had any such significant
adverse effect during the year ended December 31, 2018. There can be no assurance, however, that anomalies will
not have any such adverse effects 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 satellites were to fail.
The EchoStar X satellite experienced anomalies in the past which affected seven solar array circuits. In December
2017, the satellite experienced anomalies which affected one additional solar array circuit reducing the number of
functional solar array circuits to 16. As a result of these anomalies, we had a reduction in revenue of $4 million for the
year ended December 31, 2018 as compared to the year ended December 31, 2017.
We historically have not carried in-orbit insurance on our satellites because we have assessed that the cost of insurance
is not economical relative to the risk of failures. Therefore, we generally bear the risk of any 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 in-orbit insurance for our SPACEWAY 3, EchoStar XVI and EchoStar XVII satellites.
Our other satellites, either in orbit or under construction, are not covered by launch or in-orbit insurance. We will
continue to assess circumstances going forward and make insurance decisions on a case-by-case basis.
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.
7
GOVERNMENT REGULATIONS
We are subject to comprehensive regulation by the FCC for our domestic, as well as various 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 those in the EU and North, South and Central American countries. 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. 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:
•
•
•
•
•
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. 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.
Licenses must be obtained prior to launching or operating a satellite.
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, which 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,
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.
8
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 very-small-aperture terminals 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 and we may be subject to penalties
or fines for failing to meet such conditions. Additionally, some countries may have restrictions on the services we
provide and how we provide them and/or may limit the rates that can be charged for the services we provide or impose
other service terms or restrictions. Furthermore, foreign countries in which we currently, or may in the future, operate
may not authorize us access to all of the spectrum that we need to provide service in a particular country.
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 broadcast satellite services 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.
Registration in the United Nations (“UN”) Registry of Space Objects. The U.S. and other jurisdictions in which
we license satellites are generally parties to the UN Convention on the Registration of Objects Launched into Outer
Space, which 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 subject to 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.
9
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 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 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, waste-water discharge and waste
management, most significantly the Resource Conservation and Recovery Act and the Emergency Planning and
Community Right-to-Know Act (“EPCRA”). Under the Resource Conservation and Recovery Act, our Hughes segment
is considered a small quantity generator.
As required by the EPCRA, we file annual reports with regulatory agencies covering four areas: Emergency Planning,
Emergency Release, Hazardous Chemical Storage, and Toxic Chemical Release Inventory. 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 the Superfund Amendments and Reauthorization Act Title III regulatory
requirements and annually report quantities of onsite material storage using Tier II, state DEQ (Department of
Environmental Quality) reporting systems.
Our environmental compliance costs, capital and other expenditures to date have not been material, and we do not
expect them to be material in 2019. However, environmental requirements are complex, change 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 and/or
environmental compliance costs, capital or other expenditures.
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
10
and invention assignment agreements with our employees, subcontractors, and certain customers and other business
partners. Please see Item 3. — Legal Proceedings of this Form 10-K 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.
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 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 are generally 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 - equipment.
GEOGRAPHIC AREA DATA AND TRANSACTIONS WITH MAJOR CUSTOMERS
For principal geographic area data and transactions with major customers for 2018, 2017 and 2016, see Note 18 in
the notes to consolidated financial statements in Item 15 of this Form 10-K. See Item 1A. — Risk Factors for information
regarding risks related to our foreign operations.
EMPLOYEES
As of December 31, 2018, we had approximately 2,200 employees and generally consider relations with them to be
good. Other than approximately 190 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 SEC. Our public filings are 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 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, principal financial officer, principal accounting officer and controller, 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.
11
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
Anders N. Johnson
Pradman P. Kaul
Dean A. Manson
Age
65
70
61
61
72
52
Chairman
Position
Chief Executive Officer, President and Director
Executive Vice President, Chief Financial Officer, Chief Operating
Officer and Treasurer
Chief Strategy Officer and President, EchoStar Satellite Services
L.L.C.
President, Hughes Communications and Director
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, most recently serving as the Chief Executive Officer of DISH Network
from March 2015 to December 2017.
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, from 1990 to 2006, he served in several executive roles at DISH Network, including
as President, Chief Operating Officer, Chief Technical Officer and senior advisor.
David J. Rayner. Mr. Rayner has served as our Executive Vice President, Chief Financial Officer, and Treasurer since
December 2012 and as our Chief Operating Officer since September 2016. 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 and previously as Chief Financial Officer of DISH . Before joining DISH
in December 2004, Mr. Rayner served as Senior Vice President and Chief Financial Officer of Time Warner Telecom
in Denver, beginning in June 1998.
Anders N. Johnson. Mr. Johnson has served as President of EchoStar Satellite Services L.L.C. since June 2011
and as our Chief Strategy Officer since September 2016. Before joining EchoStar, Mr. Johnson was most recently 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 since its formation in February 2006,
and as President of Hughes Network Systems, LLC, a wholly owned subsidiary of Hughes Communications (and
together with Hughes Communications, “Hughes”) since 2000. Mr. Kaul has also served as a member of our Board
of Directors since August 2011 as 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 Hughes Network Systems, LLC.
Dean A. Manson. Mr. Manson has served as our Executive Vice President, General Counsel and Secretary since
November 2011. Mr. Manson also serves as Executive Vice President, General Counsel and Secretary of Hughes
Communications. Mr. Manson joined Hughes in 2000 from the law firm of Milbank, Tweed, Hadley & McCloy LLP,
12
where he focused on international project finance and corporate transactions, and was appointed General Counsel of
Hughes 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.
13
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 or debt repurchase program,
invest capital in or otherwise run our business, execute on our strategic plans 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 DISH Network. The loss of, or a significant
reduction in, orders from, or a decrease in selling prices of satellite services, broadband equipment and/or
other services or products to DISH Network would significantly reduce our revenue and materially adversely
impact our results of operations.
DISH Network accounted for 18.1%, 23.7% and 26.1% of our total revenue for the years ended December 31, 2018,
2017 and 2016, respectively.
DISH Network is the primary customer of the satellite services provided by our ESS segment. For the years ended
December 31, 2018, 2017 and 2016 DISH Network accounted for 86.5%, 87.9% and 85.7% of our total ESS segment
revenue, and we expect that DISH Network will continue to be the primary source of revenue for our ESS segment
as we have entered into certain commercial agreements with DISH Network pursuant to which we provide DISH
Network with satellite services at fixed prices for varying lengths of time depending on the satellite. See Note 20 in
the notes to consolidated financial statements in Item 15 of this report for further discussion of our related party
transactions with DISH Network. The results of operations of our ESS segment are linked to changes in DISH Network’s
satellite capacity requirements, which historically have been driven by the addition of new channels and migration of
programming to high-definition TV and video on demand services. DISH Network’s future satellite capacity
requirements may change for a variety of reasons, including its ability to construct and launch or acquire its own
satellites, to continue to add new channels and/or to migrate to the provision of such channels and other video on
demand services through streaming and other alternative technologies. There is no assurance that we will continue
to provide satellite services to DISH Network beyond the terms of our agreements. Any termination or reduction in
the satellite services we provide to DISH Network or the prices that DISH Network pays us for such services would
cause us to have unused capacity on our satellites, require us to aggressively pursue alternative sources of revenue
for this business and have a material adverse effect on our business, results of operation and financial position.
If we lose DISH Network as a customer of the satellite services provided by our ESS segment, it may be difficult for
us to replace, in whole or in part, our historical revenue from DISH Network because there are a relatively small number
of potential customers for our specialized services, and we have had limited success in attracting such potential new
customers in the past. Historically, many potential customers of our ESS segment 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 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.
Furthermore, DISH Network has transitioned from being a wholesale distributor of the satellite internet service of our
Hughes segment to being a sales agent for such services. DISH Network (i) has the right, but not the obligation, to
market, promote and solicit orders and upgrades for our HughesNet service and related equipment and other
telecommunications services and (ii) installs HughesNet service equipment with respect to activations generated by
DISH Network. For the years ended December 31, 2018, 2017 and 2016, DISH Network accounted for 2.9%, 5.6%
and 7.7% of our total Hughes segment revenue. Any material reduction in or termination of sales generated by DISH
Network in its capacity as our sale agent could have a material adverse effect on our business, results of operations,
and financial position.
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 intend to continue to selectively explore opportunities to pursue investments, commercial alliances, partnerships,
joint ventures, acquisitions, dispositions and other strategic initiatives and transactions, domestically and internationally,
that we believe may allow us to increase our existing market share, increase our satellite capacity, expand into new
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markets, obtain new customers, broaden our portfolio of services, products and intellectual property, make our business
more valuable, align us for future growth and expansion, maximize the return on our investments and strengthen our
business and 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. The
successful implementation of our 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 new and existing markets, the response of existing and potential new customers, and the actions or
reactions of competitors. 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 new or existing markets with established or new
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. There can be no assurance
that we will be able to effectively compete against our competitors due to their significant resources and operating
history. Risks to our business from competition include, but are not limited to, the following:
• Our ESS segment competes against larger, well-established satellite service companies. Because the satellite
services industry is relatively mature, our 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 ESS segment also competes with 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, our Hughes segment faces 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, Central and South 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, our Hughes segment faces 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 continues to increase and the cost of their network and hardware
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services continues to decline. Terrestrial networks also have a competitive edge because of lower latency for
data transmission.
To the extent we have available satellite capacity in our ESS segment, our results of operations may be
materially adversely affected if we are not able to provide satellite services on this capacity to third parties,
including DISH Network.
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 domestic and international ventures), there can be
no assurance that we can successfully develop these business opportunities. If we are unable to utilize our available
satellite capacity for providing satellite services 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 available from our satellites or purchased from third parties to meet demand
and we may not be able to quickly or easily adjust our capacity to changes in demand. As capacity becomes full on
our existing satellites, significant delays in the construction or launch of new satellites and/or satellite anomalies or
failures could materially and adversely affect our ability to provide services to customers. 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. 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 the satellite capacity available to us. Our business and results of operations
could be adversely affected 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 provider. Our ability to provide additional capacity for
subscriber growth in our North American consumer market could also be adversely affected by regulations and/or
legislation in the U.S. that enable or propose to enable the use of a portion of the frequency bands, we currently use
or in the future intend to use for satellite services, 5G mobile terrestrial services or other uses. These bands include
the Ka-band, where we operate our broadband gateway earth stations, and other bands in which we may operate in
the future. Such regulation or legislation could limit our ability to use the Ka-band and/or other bands, limit our flexibility
to change the way in which we use the Ka-band and/or adversely impact our ability to use additional bands in the
future. Other countries in which we currently, or may in the future, operate are also considering regulations that could
similarly limit access to the Ka-band or other frequency bands.
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:
• 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 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
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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.
• 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.
• 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.
•
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 third-party 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.
• 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 and satellite uplink hosting
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 and investments expose us to risks and restrictions not present in our domestic
operations.
Our sales outside the U.S. accounted for approximately 17.3%, 19.3% and 18.2% of our revenue for the years ended
December 31, 2018, 2017 and 2016, respectively. We expect our foreign operations to continue to represent a
significant and growing portion of our business. Over the last 10 years, we sold products in over 100 countries and
began offering broadband internet services to consumers in in several Central and South American countries. Our
foreign operations involve varying degrees of risk and uncertainties inherent in doing business abroad. Such risks
include:
• 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 or offer our products and services in certain circumstances.
In such event, we will not have access to the cash flow and assets of our subsidiaries and joint ventures.
• Difficulties in following a variety of laws and regulations related to foreign operations. Our international
operations are subject to the laws and regulations of many different jurisdictions that may differ significantly
from U.S. laws and regulations. For example, local privacy or intellectual property laws 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
penalties or sanctions, which could have a material adverse impact on our business, financial condition, and
results of operations.
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• 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, penalties 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.
• 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.
• Compliance with applicable export control laws and regulations in the U.S. and other countries. We
must comply with all applicable export control and trade sanctions 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
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
U.S. Department of State’s Directorate of Defense Trade Controls under ITAR. We cannot provide equipment
or 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.
• 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, instability 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.
• 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.
• 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, including in Asia, Latin America,
Middle East, Africa and Eastern Europe, has adversely affected, and is likely to continue to adversely affect,
the development and growth of our business in these regions.
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• 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, 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 or debt 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, dispositions, capital expenditures, the development, acquisition and launch of
new satellites 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 or develop
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 investments,
commercial alliances, partnerships, joint ventures, acquisitions, dispositions or other strategic initiatives and
transactions or development activities, including, without limitation, the design, development, construction, acquisition
and launch of new satellites, to complement or expand our business and satellite fleet. Any such acquisitions,
dispositions, activities, 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:
•
•
•
•
•
•
•
the diversion of our management’s attention from our existing business to integrate or divide the operations
and personnel of the acquired, disposed or combined business, technology or joint venture and/or to engage
in such investments, dispositions and/or other activities;
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, activities, investments, dispositions and/or the
underlying ventures are not successful and/or we are unable to achieve the intended objectives of the
transaction, disposition or investment;
the inability to obtain in the anticipated time frame, or at all, any regulatory approvals required to complete
proposed acquisitions, dispositions, activities, transactions or investments;
the risks associated with complying with regulations applicable to the acquired or developed business or
technologies which may cause us to incur substantial expenses;
the inability to realize anticipated benefits or synergies from acquisitions, dispositions, investments, alliances
and/or the development and launch of new satellites;
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•
•
•
the disruption of relationships with employees, vendors or customers;
the risks associated with foreign and international operations and/or investments or dispositions; and
the risks associated with developing and constructing new satellites.
New investments, commercial alliances, partnerships, joint ventures, acquisitions, dispositions, development activities,
including, without limitation, the design, development, construction and launch of new satellites, and other strategic
initiatives 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 or debt 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.
As of December 31, 2018, our total indebtedness was approximately $3.5 billion. Our ability to make payments on or
to refinance our indebtedness and to fund our operations will depend on our 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 capital 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
or equity may not be available in amounts sufficient to enable us to service our indebtedness or to fund our operations
or other liquidity needs. If we are unable to generate sufficient cash, we may be forced to take actions such as revising
or delaying our strategic plans, reducing or delaying capital expenditures and/or the development, design, acquisition
and construction of new satellites, selling assets, restructuring or refinancing our debt or seeking additional equity
capital. We may not be able to implement any of these actions on satisfactory terms, or at all. The indentures governing
our indebtedness limit our ability to dispose of assets and use the proceeds from such dispositions. Therefore, we
may not be able to consummate those dispositions on satisfactory terms, or at all, or to use those proceeds in a manner
we may otherwise prefer. The Tax Cuts and Jobs Act of 2017 enacted in December 2017 (the “2017 Tax Act”) limits
the deductibility of interest expense for U.S. federal income tax purposes. While the 2017 Tax Act generally is likely
to reduce our federal income tax obligations, if these limitations or other newly enacted provisions become applicable
to us, they could minimize such reductions or otherwise require us to pay additional federal income taxes, which in
turn could result in additional liquidity needs.
In addition, conditions in the financial markets could make it difficult for us to access equity or debt 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 and/or the development, design,
acquisition and construction of new satellites. 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 our indentures restrict our business in many ways.
The indentures governing the HSS 6 1/2% Senior Secured Notes due 2019, 7 5/8% Senior Notes due 2021,
5.250% Senior Secured Notes due August 1, 2026 and 6.625% Senior Unsecured Notes due August 1, 2026 contain
various covenants, subject to certain exceptions, that limit HSS’ ability and/or certain of its subsidiaries’ ability to,
among other things:
•
•
incur additional debt;
pay dividends or make distributions on HSS’ capital stock or repurchase HSS’ capital stock;
• make certain investments;
•
•
create liens or enter into sale and leaseback transactions;
enter into transactions with affiliates;
• merge or consolidate with another company;
•
transfer and sell assets; and
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•
allow to exist certain restrictions on its or their ability to pay dividends, make distributions, make other payments,
or transfer assets.
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 our 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 indentures governing any of our secured notes, could proceed
against the collateral that secures the applicable secured notes. Certain of our subsidiaries have pledged a significant
portion of our assets as collateral to secure the 6 1/2% Senior Secured Notes due 2019 and the 5.250% Senior Secured
Notes due August 1, 2026. If we do not have enough cash to service our debt or fund other liquidity needs, we 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 depends 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 some of our key executives
may have agreements relating to their equity compensation that limit 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 for both DISH Network and us, their attention may be diverted away from our
business and therefore adversely affect our business.
We may be subject to risks relating to the referendum of the United Kingdom’s membership of the EU.
The formal two-year process governing the United Kingdom’s (the “U.K.”) departure from the EU, commonly referred
to as the “Brexit,” began on March 29, 2017. Discussions between the U.K. and the EU focused on finalizing withdrawal
issues and transition agreements are ongoing. However, given the limited progress to date in these negotiations and
ongoing uncertainty within the U.K. Government and Parliament, it is possible that the U.K. will leave the EU on March
29, 2019 without a withdrawal agreement and associated transition period in place, which is likely to cause significant
market and economic disruption. Further, it is possible that there will be greater restrictions on imports and exports
between the U.K. and EU countries. Brexit may also cause our customers to closely monitor their costs and reduce
their spending budgets. The effects of Brexit, the uncertainty regarding the ultimate terms of Brexit and the perceptions
as to the impact of the withdrawal of the U.K. from the EU have affected, and may continue to affect, business activity,
political stability and economic and market conditions in the U.K., the Eurozone, the EU and elsewhere and could
contribute to instability in global financial and foreign exchange markets, including volatility in the value of the Euro
and the British Pound. Additionally, with the U.K. no longer being a part of the EU, there may be certain regulatory
changes that may impact the regulatory regime under which we operate in both the U.K. and the EU. Given that a
portion of our business is conducted in the EU, including the U.K., any of these and other changes, implications and
consequences may adversely affect our business and results of operations.
A natural disaster could diminish our ability to provide service to our customers.
Natural disasters could damage or destroy our ground stations and/or other infrastructure, equipment and facilities,
resulting in a disruption of service to our customers. We currently have backup systems and technology in place to
safeguard our antennas and protect our ground stations during natural disasters such as tornadoes, but the possibility
still exists that our ground facilities and/or other infrastructure, equipment and facilities could be impacted during a
major natural disaster. If a future natural disaster impairs or destroys any of our ground facilities and/or other
infrastructure, equipment and facilities, we may be unable to provide service to our customers in the affected area for
a period of time which may adversely affect our business and results of operations.
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We may have additional tax liabilities and changes in tax laws or regulations may have a material adverse
effect on our business, cash flow, financial condition or results of operations.
We are subject to income taxes in the U.S. and foreign jurisdictions. Significant judgments are required in determining
our provisions for income taxes. In the course of preparing our tax provisions and returns, we must make calculations
where the ultimate tax determination may be uncertain. Our tax returns are subject to examination by the Internal
Revenue Service (“IRS”), state, and foreign tax authorities. There can be no assurance as to the outcome of these
examinations. If the ultimate determination of taxes owed is for an amount in excess of amounts previously accrued,
our operating results, cash flows, and financial condition could be adversely affected.
Additionally, new or modified income, sales, use or other tax laws, statutes, rules, regulations or ordinances could be
enacted at any time, which, like the 2017 Tax Act, could affect the tax treatment of our domestic and foreign earnings.
Any new taxes could adversely affect our domestic and international business operations and our business and financial
performance. Further, existing tax laws, statutes, rules, regulations or ordinances could be interpreted, changed,
modified or applied adversely to us. The 2017 Tax Act contains many significant changes to U.S. tax laws, including
changes in corporate tax rates, the availability of net deferred tax assets relating to our U.S. operations, the taxation
and repatriation of foreign earnings, and the deductibility of expenses. The 2017 Tax Act or other tax reform legislation
has had and could have a material impact on the value of our deferred tax assets, has and could result in significant
charges, and could increase our future U.S. tax expense. Furthermore, changes to the taxation of undistributed foreign
earnings could change our future intentions regarding reinvestment of such earnings. The foregoing items could have
a material adverse effect on our business, cash flow, financial condition or results of operations.
We earn a portion of our operating income from outside the U.S., and any repatriation of funds currently held in foreign
jurisdictions may result in higher effective tax rates for us. In addition, recent changes to U.S. tax laws significantly
impacts how U.S. multinational corporations are taxed on foreign earnings. Numerous countries are evaluating their
existing tax laws due in part, to recommendations made by the Organization for Economic Co-operation and
Development’s Base Erosion and Profit Shifting project. Although we cannot predict whether or in what form any
legislation based on such proposals may be adopted by the countries in which we do business, future tax reform based
on such proposals or otherwise may increase the amount of taxes we pay and adversely affect our operating results
and cash flows.
Recent developments with respect to trade policies, trade agreements, tariffs and related government
regulations could increase our costs, limit the amount of components we can import, decrease demand for
certain of our products and have a material adverse impact on our business, financial condition and results
of operations.
We source certain parts, components and items used in our products from manufacturers located outside of the
U.S. and we sell certain of our products to customers located outside of the U.S. Concerns have been raised about
certain countries potentially engaging in unfair trade practices and, as a result, tariffs have been increased on certain
goods imported into the U.S. from those countries, including China and other countries from which we import
components or raw materials, and there is the possibility of additional tariff increases. The announcement of tariffs
on imported products by the U.S. has triggered actions from certain foreign governments, including China, and may
trigger additional actions by those and other foreign governments, potentially resulting in a “trade war”. A trade war
of this nature or other governmental action related to tariffs, government regulations, or international trade agreements
or policies could materially increase the cost of certain products we import, impact or limit the availability of such
products, require us to change our manufacturers, and/or decrease demand for certain of our products, any or all of
which could have a material adverse impact on our business, financial condition and results of operations.
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, general failures resulting from operating satellites in the harsh environment of
space and cyber-attacks on our satellites.
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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 or outages from occurring and may experience anomalies and outages in the future, whether of the types
described above or arising from the failure of other systems or components. The failure to perform of any of our
manufacturers which provide in-orbit anomaly support for our satellites could result in our inability to determine, eliminate
or manage anomalies for our satellites. Even if alternate in-orbit anomaly support services are available, we may have
difficulty identifying them in a timely manner or we may incur significant additional expense in changing suppliers.
Maxar, through its subsidiary SSL, provides in-orbit anomaly support for several of our satellites. In the second half
of 2018, Maxar announced that it is reviewing strategic alternatives for its geostationary communications satellite
business to improve its financial performance and that it is in active discussions with potential buyers of the business.
A decision by Maxar to discontinue, wind down or otherwise significantly modify its geostationary communications
satellite business could have a material adverse impact on the operation of several of our satellites, including our ability
to remedy any anomalies or outages.
Any single anomaly or outage or series of anomalies or outages could materially and adversely affect our ability to
utilize the satellite, our operations, services and revenue as well as our relationships with current customers and our
ability to attract new customers. In particular, future anomalies or outages may result in, among other things, the loss
of individual transponders/beams and/or functional solar array circuits on a satellite, a group of transponders/beams
on that satellite or the entire satellite, depending on the nature of the anomaly or outage. Anomalies or outages may
also reduce the expected capacity, commercial operation and/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 earlier than planned and could have a material adverse effect on our business,
financial condition and results of operations.
The loss of a satellite or other satellite malfunctions or anomalies or outages 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 or outages 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 anomalies or
outages will not 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 satellites are in uncontrolled orbits, which pass through the geostationary belt at various points
and present hazards to operational satellites, 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 historically have not carried in-orbit insurance on many of our satellites because we have assessed that the cost
of such insurance is uneconomical relative to the risk of failures. If one or more of our in-orbit uninsured satellites fail,
we could be required to record significant impairment charges for the satellite.
Our satellites have minimum design lives of 15 years, but could fail or suffer reduced capacity before then.
Generally, the minimum design life of each of our satellites is 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. Several
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 addition,
continued improvements in satellite technology may make obsolete our existing satellites, or any satellites we may
acquire in the future, prior to the end of their design lives.
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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. Additionally, such relocation would require governmental approval. We cannot be certain that we could
obtain such governmental 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, technology, regulations and
launch that could limit our ability to utilize these satellites and adversely affect our business and financial
condition.
Satellite construction and launch are subject to significant risks, including delays, anomalies, launch failure and incorrect
orbital placement. The technologies in our satellite designs are very complex and difficulties in constructing our designs
could result in delays in the deployment of our satellites or increased or unanticipated costs. There also can be no
assurance that the technologies in our existing satellites or in new satellites that we design, acquire and build will work
as we expect and/or will not become obsolete, that we will realize any or all of the anticipated benefits of our satellite
designs or our new satellites, or that we will obtain all regulatory approvals required to operate our new or acquired
satellites. In addition, 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, launch anomalies and launch failure are usually
greater when the launch vehicle does not have a track record of previous successful flights. Launch anomalies and
failures can 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 business, expenses and results of operations, our ability to meet regulatory
or contractual required milestones, the availability and our use of other or replacement satellite resources and our
ability to provide services to customers as capacity becomes full on existing satellites. In addition, significant delays
in a satellite program 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 delay or 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. Certain ongoing political events 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. If a launch delay, anomaly or failure were to occur, it could result in the revocation of the
applicable license to operate the satellite, undermine our ability to implement our business strategy or develop or
pursue existing or future business opportunities with applicable licenses and otherwise have a material adverse effect
on our business, expenses, assets, revenue, results of operations and ability to fund future satellite procurement and
launch opportunities. Historically, we have not always carried launch insurance for the launch of our satellites and the
occurrence of launch anomalies and 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.
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 broadcast satellite services 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, which could have a material
adverse effect on our business, results of operations and financial position.
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 in the DBS band. Several multichannel video
and data distribution service 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, SSL 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 and Space Exploration. The failure to perform 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. For example, in the second half of 2018, Maxar announced that it is reviewing
strategic alternatives for its geostationary communications satellite business to improve its financial performance and
that it is in active discussions with potential buyers of the business. SSL has indicated to us that it intends to meet its
contractual obligations regarding the timely manufacture and delivery of the EchoStar XXIV satellite. However, if SSL
or any potential successor fails to meet or is delayed in meeting these obligations for any reason, including if Maxar
decides to discontinue, wind down or otherwise significantly modify its geostationary communications satellite business,
such failure could have a material adverse effect on completing the manufacture of the EchoStar XXIV satellite and,
like any other delays in the design, construction or launch of our other satellites, could have a material adverse impact
on our business operations, future revenues, financial position and prospects.
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
could 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 has become more intense as demand for these types of
employees grows. We compete with other companies for these employees and although we strive to attract and retain
these employees, we may not succeed in these respects. Additionally, if we were to lose certain key technically skilled
employees, the loss of knowledge and intellectual capital might have an adverse impact on business, financial condition
and results of operations.
We have made and will continue to make significant investments in research, development, and marketing for new
products, services, satellites and related technologies, as well as entry into new business areas. Investments in new
technologies, satellites 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.
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We may not achieve revenue or profitability from such investments for a number of years, if at all. Moreover, even if
such products, services, satellites, technologies and business areas become profitable, their operating margins may
be minimal.
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 broadband internet connectivity. 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 negatively impacted.
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 or as we plan to conduct it, 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 any such challenges or claims prove to be 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 or developed by us 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, and may become, party to various lawsuits which, if adversely decided, could have a significant
adverse impact on our business, particularly lawsuits regarding intellectual property.
We are, and may become, subject to various legal proceedings and claims, which arise both in and out of 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, to pay damages 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, accordingly, our products may
infringe claims contained in pending patent applications of which we are not aware. Further, the process of determining
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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 from time to time
may defend patent infringement actions and may from time to time 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 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, audits, 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, audits, and governmental and other
legal proceedings is typically uncertain. Additionally, the possible outcomes of, or resolutions to, these proceedings
could include adverse judgments, settlements, injunctions 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 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 data 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’ data. As a result, sales of our products may decline, our
reputation and customer relationship could be damaged and we may incur additional costs or financial liability in the
future if security of our customers’ system is compromised.
We may be exposed to financial and reputational damage to our business by cybersecurity incidents.
We and third parties with whom we work face a constantly developing landscape of cybersecurity threats in which
hackers and other parties use a complex assortment of techniques and methods to execute cyber-attacks, including
but not limited to the use of stolen access credentials, social engineering, malware, ransomware, phishing, insider
threats (which may be malicious or erroneous), structured query language injection attacks and distributed denial-of-
service attacks. Cybersecurity incidents such as these have increased significantly in quantity and severity and are
expected to continue to increase. Additionally, the risk of cyber-attacks and compromises will likely increase as we
expand our business into other areas of the world outside of North America, some of which are still developing their
cybersecurity infrastructure maturity. Should we be affected by such an incident, we may incur substantial costs and
suffer other negative consequences, which may include:
•
•
•
remediation costs, such as liability for stolen assets or information, repairs of system damage and/or incentives
to customers or business partners in an effort to maintain relationships after an attack;
increased cybersecurity protection costs, which may include the costs of making organizational changes,
deploying additional personnel and protection technologies, training employees and engaging third party
experts and consultants;
increased liability due to financial or other harm inflicted on our partners;
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•
•
•
lost revenues resulting from attacks on our satellites or technology, the unauthorized use of proprietary
information or the failure to retain or attract customers following an attack;
litigation and legal risks, including regulatory actions by state, federal and international regulators; and
loss of or damage to reputation.
Our business is subject to varying degrees of regulation that include programs designed to review our protections
against cybersecurity threats and risks. If it is determined that our systems do not reasonably protect our partners’
assets and data and/or that we have violated these regulations, we could be subject to enforcement activity and
sanctions.
We regularly review and revise our internal cybersecurity policies and procedures, invest in and maintain internal and
external cybersecurity teams and systems and software to detect, deter, prevent and/or mitigate cyber-attacks and
review, modify and supplement our defenses through the use of various services, programs and outside vendors. It
is impossible, however, for us to know when or if any particular cyber-attack may arise or the impact on our business
and operations of any such incident. We expect to continue to incur increasing costs in preparing our infrastructure
and maintaining it to resist any such attacks. There can be no assurance that we can successfully detect, deter,
prevent or mitigate the effects of cyber-attacks, any of which could have a material adverse effect on our business,
costs, operations, prospects, results of operation or financial position. 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.
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. These regulations are subject to
the administrative and political process and do change, for political and other reasons, from time to time and may limit
or constrain and/or have other adverse effects on and implications for our business and operations. The U.S. and
foreign countries in which we currently, or may in the future, operate may not authorize us access to all of the spectrum
that we need to provide service in a particular country. Moreover, the U.S. and 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 subsidiaries
and affiliates will not be adversely affected by future legislation, new regulation or deregulation. The failure to obtain
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or comply with the authorizations and regulations 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. In addition, we must obtain
new licenses from the FCC and other countries’ regulators for the operation of new satellites that we may build and/
or acquire. 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, fail to grant or impose conditions on 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 or limitations on our ability to use the frequencies we currently use and/
or intend to use in the future 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.
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.
Restrictions on immigration or increased enforcement of immigration laws could limit our access to qualified
and skilled professionals, increase our cost of doing business or otherwise disrupt our operations.
The success of our business is dependent on our ability to recruit engineers and other professionals. Immigration
laws in the U.S. and other countries in which we operate are subject to legislative changes, as well as variations in
the standards of application and enforcement due to political forces and economic conditions. It is difficult to predict
the political and economic events that could affect immigration laws, or the restrictive impact they could have on
obtaining or renewing work visas for our professionals. If immigration laws are changed or if new more restrictive
government regulations are enacted or increased, our access to qualified and skilled professionals may be limited,
the costs of doing business may increase and our operations may be disrupted.
RISKS RELATED TO THE SHARE EXCHANGE
29
We might not be able to engage in certain strategic transactions because we have agreed to certain restrictions
to comply with U.S. federal income tax requirements for a tax-free split-off.
To preserve the intended tax-free treatment of the Share Exchange we must comply with certain restrictions under
current U.S. federal income tax laws for split-offs, including (i) refraining from engaging in certain transactions that
would result in a fifty percent or greater change by vote or by value in our stock ownership, (ii) continuing to own and
manage our historic businesses, and (iii) limiting sales or redemptions of our and our subsidiary HSS’s common stock.
If these restrictions, among others, are not followed, the Share Exchange could be taxable to us and possibly our
stockholders. In addition, we could be required to indemnify DISH Network for any tax liability incurred by DISH
Network as a result of our non-compliance with these restrictions.
OTHER RISKS
We are controlled by one principal stockholder who is our Chairman.
Charles W. Ergen, our Chairman, beneficially owns approximately 50.9% of our total equity securities (assuming
conversion of only the Class B common stock beneficially owned by Mr. Ergen into Class A common stock and giving
effect to the exercise of options held by Mr. Ergen that are either currently exercisable as of, or may become exercisable
within 60 days after, February 11, 2019) and beneficially owns approximately 88.3% of the total voting power of all
classes of shares (assuming no conversion of any Class B common stock and giving effect to the exercise of options
held by Mr. Ergen that are either currently exercisable as of, or may become exercisable within 60 days after, February
11, 2019). Through his beneficial ownership of our equity securities, 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; (iv) a
compensation committee charter which provides the compensation committee with the authority and funding to retain
compensation consultants and other advisors and/or (v) 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:
• Cross directorships and stock ownership. We have certain overlap in our directors and Chairman position
with DISH, which may lead to conflicting interests. Our board of directors includes persons who are members
of the board of directors of DISH, including Charles W. Ergen, who serves as the Chairman of and is employed
by both companies. Our Chairman and the other members of our board of directors who overlap with DISH
also have fiduciary duties to DISH’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, some of our directors and officers own DISH stock and
options to purchase DISH stock, certain of which they acquired or were granted prior to our spin-off from DISH
in 2008 (the “Spin-off”), including Mr. Ergen. 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.
•
Intercompany agreements with DISH Network. We have entered into various agreements with DISH
Network. Pursuant to certain agreements, 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 indemnify
each other against certain liabilities arising from our respective businesses. Generally, the amounts paid for
products and services provided under the agreements are based on cost plus a fixed margin, which varies
depending on the nature of the products and services provided. 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.
30
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 in connection with the Spin-Off and the Share Exchange 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 us.
In addition, DISH Network or its affiliates will likely continue to enter into transactions, including joint ventures,
acquisitions, dispositions and other strategic initiatives and 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 approval by a committee of 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.
• Competition for business opportunities. DISH Network may have 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. 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.
We do not have any agreements not to compete with DISH Network. 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:
•
•
•
•
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;
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, our Chairman, beneficially owns approximately 50.9% of our total equity securities
(assuming conversion of only the Class B common stock beneficially owned by Mr. Ergen into Class A common stock
and giving effect to the exercise of options held by Mr. Ergen that are either currently exercisable as of, or may become
exercisable within 60 days after, February 11, 2019) and beneficially owns approximately 88.3% of the total voting
power of all classes of shares (assuming no conversion of any Class B common stock and giving effect to the exercise
of options held by Mr. Ergen that are either currently exercisable as of, or may become exercisable within 60 days
after, February 11, 2019). Through his beneficial ownership of our equity securities, Mr. Ergen has the power to elect
all of our directors and control shareholder decision on matters on which all classes of our common stock vote together.
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
31
the continuity of management, or which could be used to dilute the stock ownership of persons seeking to obtain control
of us.
Our articles of incorporation designate the Eighth Judicial District Court of Clark County of the State of Nevada
as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our
stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with
us or our directors, officers, employees or agents.
Our articles of incorporation provide that, unless we consent in writing to an alternative forum, the Eighth Judicial
District Court of Clark County of the State of Nevada will be the sole and exclusive forum for any and all actions, suits
or proceedings, whether civil, administrative or investigative or that asserts any claim or counterclaim brought in our
name or on our behalf, asserting a claim of breach of a fiduciary duty owed by any of our directors, officers, employees
or agents to us or our stockholders, arising or asserting a claim arising pursuant to any provision of the Nevada Restated
Statutes Chapters 78 or 92A, our articles of incorporation or our bylaws, interpreting, applying, enforcing or determining
the validity of our articles of incorporation or bylaws or asserting a claim that is governed by the internal affairs doctrine.
Any person purchasing or otherwise acquiring any interest in any shares of our capital stock shall be deemed to have
notice of and to have consented to this provision of our articles of incorporation. This choice of forum provision may
limit our stockholders’ ability to bring certain claims, including claims against our directors, officers or employees, in a
judicial forum that the stockholder finds favorable and therefore the choice of forum provision may discourage lawsuits
with respect to such claims. Stockholders who do bring a claim in the Eighth Judicial District Court of Clark County
could face additional litigation costs in pursuing any such claim, particularly if they do not reside in or near Nevada.
The Eighth Judicial District Court of Clark County may also reach different judgments or results than would other courts,
including courts where a stockholder considering an action may be located or would otherwise choose to bring the
action, and such judgments or results may be more favorable to us than to our stockholders. Alternatively, if a court
were to find this provision of our articles of incorporation inapplicable to, or unenforceable in respect of, one or more
of the specified types of actions or proceedings, we may incur additional costs associated with resolving such matters
in other jurisdictions, which could have a material adverse effect on our business, financial condition or results of
operations.
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.
32
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”) and EchoStar Satellite Services segment (“ESS”) and to our
other operations and administrative functions (“Other”) as of December 31, 2018. We operate various facilities in the
United States 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
Segment(s)
Hughes
Englewood, Colorado (1)(4)
Gaithersburg, Maryland
Hughes
Hughes
Leased/
Owned
Leased
Leased
Leased
Southfield, Michigan (1)
Hughes
Leased
Las Vegas, Nevada (1)
Hughes
Leased
American Fork, Utah
Sao Paulo, Brazil
Bangalore, India (2)
Gurgaon, India (1)(2)
New Delhi, India
Milton Keynes, United
Kingdom (3)
Hughes
Hughes
Hughes
Hughes
Hughes
Hughes
Leased
Leased
Leased
Leased
Leased
Leased
Germantown, Maryland (1)
Hughes
Owned
Griesheim, Germany (1)
Hughes
Owned
Cheyenne, Wyoming (1)
Hughes/ESS
Leased
Gilbert, Arizona (1)
Hughes/ESS
Leased
Barueri, Brazil (1)
Hughes/Other
Leased
Function
Engineering and sales offices
Gateways
Manufacturing and testing facilities, engineering
and logistics and administrative offices
Shared hub and regional network management
center
Shared hub, antennae yards, gateway, backup
network operation and control center for
Hughes corporate headquarters
Office space, engineering offices
Hughes Brazil corporate headquarters, sales
offices and warehouse
Engineering office and office space
Administrative offices, shared hub, operations,
warehouse, and development center
Hughes India corporate headquarters
Hughes Europe corporate headquarters and
operations
Hughes corporate headquarters, engineering
offices, network operations and shared hubs
Shared hub, operations, administrative offices
and warehouse
Spacecraft operations center, satellite access
center and gateway
Spacecraft operations center, satellite access
center and gateway
Shared hub, warehouse, operations center and
spacecraft operations center
Black Hawk, South Dakota
(1)
Englewood, Colorado
Campinas, Brazil
ESS
Owned
Spacecraft auto-track operations center
ESS/Other
Other
Owned
Leased
Corporate headquarters, engineering offices
Uplink facility
Cheyenne, Wyoming
_______________________________________________________
(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) We also have multiple gateways throughout the European Union that support the EchoStar XXI satellite.
(4) We have multiple gateways throughout the Western part of the United States, Mexico and Canada that support the SPACEWAY 3, EchoStar
Data Center
Owned
Other
XVII and EchoStar XIX satellites.
ITEM 3. LEGAL PROCEEDINGS
For a discussion of legal proceedings, see Note 17 in the notes to our accompanying Consolidated Financial Statements
in Item 15 of this Annual Report on Form 10-K.
33
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
34
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 publicly traded on the Nasdaq Global Select Market under the
symbol “SATS.”
Holders. As of February 11, 2019, there were approximately 8,086 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 11, 2019, there were 47,687,039 shares outstanding of our Class B common stock of which 5,895,972 shares
were held by Charles W. Ergen, our Chairman and 41,791,067 shares were held in trusts and entities 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, contractual restrictions and other factors the board of directors considers appropriate. We
currently intend to retain our earnings, if any, to support operations, future growth and expansion, although we have
repurchased and may, in the future, repurchase shares of our common stock from time to time. Our ability to declare
dividends is affected by the covenants in our subsidiary Hughes Satellite Systems Corporation’s indentures. 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 million of our Class A common stock through December 31, 2019. During the year ended December 31, 2017,
we did not repurchase any common stock under this program.
The following table provides information regarding repurchases of our Class A common stock during the year ended
December 31, 2018.
Total Number of
Shares (or Units)
Purchased
Average Price Paid
Per Share (Or Unit)
Total Number of
Shares (or Units)
Purchased As Part
of Publicly
Announced Plans
or Program
Maximum Number
(or Approximate
Dollar Value) of
Shares (or Units)
That May Yet Be
Purchased Under
The Plans or
Program (1)
(Dollars in thousands, except per share amounts and per unit amounts)
— $
848,863 $
103,740 $
952,603 $
—
35.00
34.54
34.95
$
848,863 $
103,740 $
952,603 $
500,000
470,292
466,708
466,708
Period
October 1 - 31
November 1 - 30
December 1 - 31
Total
(1) On October 30, 2018, our Board of Directors extended our authorization to repurchase up to $500 million of our Class A common stock through
and including December 31, 2019. Purchases under our repurchase authorization may be made through privately negotiated transactions, open
market repurchases, one or more trading plans in accordance with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended, or
otherwise, subject to market conditions and other factors. We may elect to purchase some or all of, or not to purchase the maximum amount or
any of, the remaining shares allowable under this program and we may also enter into additional share repurchase programs authorized by our
Board of Directors. All shares repurchased reflected in the table above have been converted to treasury shares.
35
ITEM 6.
SELECTED FINANCIAL DATA
The accompanying consolidated financial statements for 2018 included in our accompanying Consolidated Financial
Statements in Item 15 of this Annual Report on Form 10-K (“Form 10-K”) have been prepared in accordance with
generally accepted accounting principles in the United States. Certain prior period amounts have been adjusted 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 accompanying
Consolidated Financial Statements and related notes thereto, and Management’s Discussion and Analysis of Financial
Condition and Results of Operations included elsewhere in this Form 10-K. Historical financial data presented below
may not be indicative of future financial condition. See Notes 1, 4 and 20 in the notes to consolidated financial
statements in Item 15 of this Form 10-K for further discussion of the Share Exchange transaction.
Statements of Operations Data:
Total revenue (2, 3)
Total costs and expenses (2)
Operating income (2)
2018
For the years ended December 31,
2016
(In thousands, except per share amounts)
$ 2,091,363 $1,885,508 $1,810,466 $1,848,857 $1,822,238
2017(1)
2015
2014
1,908,120
1,689,201
1,514,303
1,575,092
1,611,678
$
183,243 $ 196,307 $ 296,163 $ 273,765 $ 210,560
Net income (loss) from continuing
operations to EchoStar common stock
$
(40,475) $ 385,261 $ 137,353 $ 102,421 $
73,151
Basic earnings per share - continuing
operations
Diluted earnings per share - continuing
operations
$
$
(0.42) $
4.04 $
1.46 $
1.11 $
0.80
(0.42) $
3.98 $
1.45 $
1.10 $
0.79
As of December 31,
Balance Sheet Data:
2018
2017(1)
2016
(In thousands)
2015
2014
Cash, cash equivalents and current
marketable securities
Total assets (4)
$ 3,210,458 $3,245,617 $3,092,881 $1,527,883 $1,669,590
$ 8,661,294 $8,750,014 $9,008,859 $6,572,463 $6,601,292
Total debt and capital lease obligations
$ 3,532,781 $3,634,844 $3,655,447 $2,185,272 $2,326,143
Total stockholders’ equity
$ 4,155,474 $4,177,385 $4,006,805 $3,781,642 $3,623,638
Cash Flow Data:
2018
2017
2016
(In thousands)
2015
2014
For the years ended December 31,
Net cash flows from:
Operating activities
Investing activities
Financing activities
$
734,522 $ 726,892 $ 803,343 $ 776,451 $ 840,131
$ (2,098,480) $ (867,932) $ (632,199) $ (275,311) $ (887,590)
(35,096)
$ (136,563) $
72 $1,475,689 $ (120,257) $
(1) The Tax Cuts and Jobs Act of 2017 increased the complexity of our income tax accounting and resulted in significant adjustments to our
deferred income tax accounts in 2017. As a result, our results of operations and balance sheet data for the years ended December 31, 2018
and 2017 are not comparable to our results of operations for the years ended December 31, 2016, 2015 and 2014. See Note 13 to our
accompanying Consolidated Financial Statements in Item 15 of this Form 10-K for further information.
(2) As a result of the Share Exchange, the consolidated financial statements of the EchoStar Technologies businesses have been presented as
discontinued operations and, as such, have been excluded from the selected financial data presented above for all periods presented. See
Note 4 in the notes to our accompanying Consolidated Financial Statements in Item 15 of this Form 10-K for further discussion of our discontinued
operations.
(3) On January 1, 2018, we adopted Topic 606, Revenue from Contracts with Customers, using the modified retrospective approach. As a result,
total revenues for the year ended December 31, 2018 may not be comparable to prior years. See Note 2 in the notes to our accompanying
Consolidated Financial Statements in Item 15 of this Form 10-K for further discussion of the adoption of this standard.
36
(4) 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, 2018, 2017, 2016 and 2015 are not comparable to our total assets as reported in prior years.
37
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 (“U.S.”) dollars. The following
management’s discussion and analysis of our financial condition and results of operations should be read in conjunction
with our accompanying Consolidated Financial Statements and notes thereto included elsewhere in this Annual Report
on Form 10-K (“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 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 Form 10-
K. Further, such forward-looking statements speak only as of the date of this Form 10-K and we undertake no obligation
to update them.
EXECUTIVE SUMMARY
EchoStar is a global provider of broadband satellite technologies, broadband internet services for home and small
office customers, satellite operations and satellite services. We also deliver innovative network technologies, managed
services and various communications solutions for aeronautical, enterprise and government customers.
Prior to March 2017, we operated in three primary business segments: Hughes, EchoStar Technologies and EchoStar
Satellite Services (“ESS”). On January 31, 2017, EchoStar Corporation and certain of our subsidiaries entered into a
share exchange agreement with DISH Network Corporation (“DISH”) and certain of its subsidiaries. We, and certain
of our subsidiaries, received all of the shares of the Hughes Retail Preferred Tracking Stock previously issued by us
and one of our subsidiaries (together, the “Tracking Stock”) in exchange for 100% of the equity interests of certain of
our subsidiaries that held substantially all of our former EchoStar Technologies businesses and certain other assets
(collectively, the “Share Exchange”). Following the consummation of the Share Exchange, we no longer operate our
former EchoStar Technologies businesses, the Tracking Stock was retired and is no longer outstanding, and all
agreements, arrangements and policy statements with respect to the Tracking Stock terminated. See Note 4 in the
notes to our accompanying Consolidated Financial Statements in Item 15 of this Form 10-K for further discussion of
our discontinued operations.
We currently operate in two business segments: Hughes and ESS. These segments are consistent with the way we
make decisions regarding the allocation of resources, as well as how operating results are reviewed by our chief
operating decision maker, who is the Company’s Chief Executive Officer.
Our operations also include various corporate departments (primarily Executive, Treasury, Strategic Development,
Human Resources, IT, Finance, Real Estate, Accounting and Legal) and other activities that have not been assigned
to our operating segments such as costs incurred in certain satellite development programs and other business
development activities, and gains or losses from certain of our investments. These activities, costs and income, as
well as eliminations of intersegment transactions, are accounted for in Corporate and Other in our segment reporting.
Highlights from our financial results are as follows:
Consolidated Results of Operations for the Year Ended December 31, 2018
•
Revenue of $2.1 billion
• Operating income of $183 million
• Net loss from continuing operations of $39 million
•
Net loss attributable to EchoStar common stock of $40 million and basic loss per share of common stock of
$(0.42)
• Earnings before interest, taxes, depreciation and amortization (“EBITDA”) of $757 million (see reconciliation
of this non-GAAP measure on page 48)
38
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - Continued
Consolidated Financial Condition as of December 31, 2018
• Total assets of $8.7 billion
• Total liabilities of $4.5 billion
• Total stockholders’ equity of $4.2 billion
• Cash, cash equivalents and current marketable investment securities of $3.2 billion
Hughes Segment
Our Hughes segment is a global provider of broadband satellite technologies and broadband internet services to home
and small office customers and broadband network technologies, managed services, equipment, hardware, satellite
services and communications solutions to consumers, aeronautical, enterprise and government customers. The
Hughes segment also designs, provides and installs gateway and terminal equipment to customers for other satellite
systems. In addition, our Hughes segment designs, develops, constructs and provides telecommunication networks
comprising satellite ground segment systems and terminals to mobile system operators and our enterprise customers.
We incorporate advances in technology to reduce costs and to increase the functionality and reliability of our products
and services. Through advanced and proprietary methodologies, technologies, software and 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.
We continue to focus our efforts on growing our consumer revenue by maximizing utilization of our existing satellites
while planning for new satellites to be launched or acquired. Our consumer revenue growth depends on our success
in adding new and retaining existing subscribers in our domestic and international markets across wholesale and retail
channels. The growth of our enterprise businesses, including aeronautical, relies heavily on global economic conditions
and the competitive landscape for pricing relative to competitors and alternative technologies. Service costs related
to ongoing support for our direct and indirect customers and partners are typically impacted most significantly by our
growth.
Our Hughes segment currently uses capacity from three of our satellites (the SPACEWAY 3 satellite, the EchoStar
XVII satellite and the EchoStar XIX satellite) and additional satellite capacity acquired from multiple third-party providers
to provide services to our customers. In December 2016, we launched our EchoStar XIX satellite, a high throughput
geostationary satellite employing a multi-spot beam, bent pipe Ka-band architecture, which provides capacity for the
Hughes broadband services to our current and future customers in North America and certain Central and South
American countries and our aeronautical and enterprise broadband services. Until new satellite launches or acquisitions
provide additional capacity for subscriber growth, we manage subscriber growth across our existing satellite platform.
In August 2018, we entered into an agreement with Al Yah Satellite Communications Company PrJSC (“Yahsat”) to
establish a new entity, Broadband Connectivity Solutions (Restricted) Limited (together with its subsidiaries, “BCS”),
to provide commercial Ka-band satellite broadband services across Africa, the Middle East and southwest Asia
operating over Yahsat's Al Yah 2 and Al Yah 3 Ka-band satellites. The transaction was consummated in December
2018 when we invested $100 million in cash in exchange for a 20% interest in BCS. Under the terms of the agreement,
we may also acquire, for further cash investments, additional ownership interests in BCS in the future provided certain
conditions are met. We supply network operations and management services and equipment to BCS.
In August 2017, we entered into a contract for the design and construction of the EchoStar XXIV, a new, next-generation,
high throughput geostationary satellite, with a planned 2021 launch. The EchoStar XXIV satellite is primarily intended
to provide additional capacity for our Hughes satellite internet (“HughesNet”) service in North, Central and South
America as well as aeronautical and enterprise broadband services. In March 2018, the Federal Communications
Commission (“FCC”) granted authorization to construct, deploy and operate the EchoStar XXIV satellite. In the second
half of 2018, Maxar Technologies Inc. (“Maxar”), the parent company of Space Systems/Loral (“SSL”), the manufacturer
of our EchoStar XXIV satellite, announced that it was reviewing strategic alternatives for its geostationary
communications satellite business to improve its financial performance and that it was in active discussions with
potential buyers of the business. SSL has indicated to us that it intends to meet its contractual obligations regarding
39
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - Continued
the timely manufacture and delivery of the EchoStar XXIV satellite. However, if SSL or any potential successor fails
to meet or is delayed in meeting these obligations for any reason, including if Maxar decides to discontinue, wind down
or otherwise significantly modify its geostationary communications satellite business, such failure could have a material
adverse impact on our business operations, future revenues, financial position and prospects, completing the
manufacture of the EchoStar XXIV satellite and our planned expansion of satellite broadband services throughout
North, South and Central America. Capital expenditures associated with the construction and launch of this satellite
are included in Corporate and Other in our segment reporting.
In March 2017, we and a wholly-owned subsidiary of DISH entered into a master service agreement (the “Hughes
Broadband MSA”). Pursuant to the Hughes Broadband MSA, DISH’s subsidiary, among other things: (i) has the right,
but not the obligation, to market, promote and solicit orders and upgrades for the HughesNet service and related
equipment and other telecommunication services and (ii) installs HughesNet service equipment with respect to
activations generated by DNLLC. As a result of the Hughes Broadband MSA, we have not earned and do not expect
to earn in the future, significant equipment revenue from our distribution agreement with another wholly-owned
subsidiary of DISH. We expect churn in the existing wholesale subscribers to continue to reduce Services and other
revenue - DISH Network in the future.
Developments toward the launch of next-generation satellite systems including low-earth orbit (“LEO”), medium-earth
orbit (“MEO”) and geostationary systems could provide additional opportunities to drive the demand for our equipment,
hardware, technology and services. In June 2015, we made an equity investment in WorldVu Satellites Limited
(“OneWeb”), a global LEO satellite service company. The investment is reflected in Corporate and Other. In addition,
we have an agreement with OneWeb to provide certain equipment and services in connection with the ground network
system for OneWeb’s LEO satellites. We expect to continue delivering additional equipment and services to OneWeb.
We continue our efforts to expand our consumer satellite services business outside of the U.S. In April 2014, we
entered into a 15-year agreement with Eutelsat do Brasil for Ka-band capacity into Brazil on the EUTELSAT 65 West
A satellite, which was launched in March 2016. We began delivering high-speed consumer satellite broadband services
in Brazil in July 2016. Additionally, in September 2015, we entered into 15-year agreements pursuant to which affiliates
of Telesat Canada will provide to us Ka-band capacity on a satellite to be located at the 63 degree west longitude
orbital location. This satellite was launched in July 2018, placed in service during the fourth quarter of 2018 and
augmented the capacity being provided by the EUTELSAT 65 West A and EchoStar XIX satellites in Central and South
America. We currently provide satellite broadband internet service in several Central and South American countries,
and expect to continue to launch similar services in other Central and South American countries.
Our subscriber metrics as of December 31, 2018 and for the quarter then ended are as follows were:
Total broadband subscribers
1,361,000
1,208,000
1,036,000
As of December 31,
2018
2017
2016
Net additions
For the three months ended
December 31, 2018 September 30, 2018
33,000
29,000
These broadband subscribers include customers that subscribe to our HughesNet services in North, Central and South
America through retail, wholesale and small/medium enterprise service channels. Our total gross subscriber additions
for the fourth quarter of 2018 decreased by approximately 7,000 compared to the third quarter of 2018 primarily due
to reduced satellite capacity available for sale. Our total net subscriber additions for the quarter ended December 31,
2018 decreased by approximately 4,000 compared to the quarter ended September 30, 2018 primarily due to lower
gross consumer subscriber additions, partially offset by a lower average monthly subscriber churn percentage.
As of December 31, 2018 and 2017, our Hughes segment had approximately $1.4 billion and $1.6 billion, respectively,
of contracted revenue backlog. We define Hughes contracted revenue backlog as our expected future revenue,
40
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - Continued
including lease revenue, under customer contracts that are non-cancelable, excluding agreements with customers in
our consumer market. The decrease in our contracted revenue backlog reflects our recognition of revenue in excess
of additions to backlog resulting from new orders from our customers. Of the total contracted revenue backlog as of
December 31, 2018, we expect to recognize approximately $430 million of revenue in 2019.
ESS Segment
Our ESS segment is a global provider of satellite operations and satellite services. We operate our business using
our owned and leased in-orbit satellites and related licenses. Revenue in our ESS segment depends largely on our
ability to continuously make use of our available satellite capacity with existing customers and our ability to enter into
commercial relationships with new customers. Our ESS segment, like others in the fixed satellite services industry,
has encountered, and may continue to encounter, negative pressure on transponder rates and demand. We are also
pursuing other opportunities such as providing value added services such as telemetry, tracking and control (“TT&C”)
services to third parties, which leverage the ground monitoring networks and personnel currently within our ESS
segment.
We provide satellite operations and satellite services on a full-time and/or occasional-use basis primarily to DISH
Network Corporation and its subsidiaries (“DISH Network”), Dish Mexico, S. de R.L. de C.V., a joint venture we entered
into in 2008 (“Dish Mexico”), U.S. government service providers, internet service providers, broadcast news
organizations, content providers and private enterprise customers.
We depend on DISH Network for a significant portion of the revenue for our ESS segment, and we expect that DISH
Network will continue to be the primary source of revenue for our ESS segment as we have entered into certain
commercial agreements with DISH Network pursuant to which we provide DISH Network with satellite services at fixed
prices for varying lengths of time depending on the satellite. Therefore, the results of operations of our ESS segment
are linked to changes in DISH Network’s satellite capacity requirements, which historically have been driven by the
addition of new channels and migration of programming to high-definition television and video on demand services.
DISH Network’s future satellite capacity requirements may change for a variety of reasons, including its ability to
construct and launch or acquire its own satellites, to continue to add new channels and/or to migrate to the provision
of such channels and other video on demand services through streaming and other alternative technologies. There
is no assurance that we will continue to provide satellite services to DISH Network beyond the terms of our agreements.
Any termination or reduction in the satellite services we provide to DISH Network would cause us to have unused
capacity on our satellites and require that we aggressively pursue alternative sources of revenue for this business.
The agreement with DISH Network to lease satellite capacity on the EchoStar VII satellite expired in June 2018. As
a result, we expect a $43 million annualized decrease in our revenue. We are exploring other opportunities to utilize
this satellite in the future.
In August 2014, we entered into: (i) a contract with Airbus Defence and Space SAS for the construction of the EchoStar
105/SES-11 satellite with C-, Ku- 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. pursuant to which we
transferred the title to the payloads to two affiliates of SES Americom Inc. We retained the right to use the entire Ku-
band payload on the satellite for an initial ten-year term, with an option for us to renew the agreement on a year-to-
year basis. The EchoStar 105/SES-11 satellite was launched in October 2017 and placed into service in November
2017 at the 105 degree west longitude orbital location. Our Ku-band payload on the EchoStar 105/SES-11 satellite
replaced and augments the capacity we had on the AMC-15 satellite. We transferred activities from the AMC-15
satellite to the EchoStar 105/SES-11 satellite in the fourth quarter of 2017 and our agreement for satellite services on
certain transponders on the AMC-15 satellite terminated according to its terms in December 2017.
As of December 31, 2018 and 2017, our ESS segment had contracted revenue backlog of approximately $832 million
and $1.2 billion, respectively. We define contracted revenue backlog for our ESS segment as contracted future satellite
lease revenue. The decrease is primarily driven by the fixed-term nature of the satellite services agreements with
DISH Network and Dish Mexico. Of the total contracted revenue backlog as of December 31, 2018, we expect to
recognize approximately $288 million of revenue in 2019.
41
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - Continued
New Business Opportunities
Our industry continues to evolve with the increasing 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 (“LEO”) networks, medium-earth orbit (“MEO”) systems, balloons and High
Altitude Platform Systems are playing 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, equipment, networks and services for information, the internet-of-
things, entertainment and commerce in North America and internationally for consumers as well as aeronautical,
enterprise and government customers. We are closely tracking the developments in next-generation satellite
businesses, and we are seeking to utilize our services, technologies and expertise to find new commercial opportunities
for our business.
We intend to continue to selectively explore opportunities to pursue investments, commercial alliances, partnerships,
joint ventures, acquisitions, dispositions and other strategic initiatives and transactions, domestically and internationally,
that we believe may allow us to increase our existing market share, increase our satellite capacity, expand into new
markets and new customers, broaden our portfolio of services, products and intellectual property, make our business
more valuable, align us for future growth and expansion, maximize the return on our investments and strengthen our
business and relationships with our customers. We may allocate or dispose of significant resources for long-term value
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 (“45 West”)
from ANATEL, the Brazilian communications regulatory agency. In October 2017, ANATEL declined our request to
extend milestone deadlines we had for our S- band and Ka- band license at 45 West; and, as a result, we do not have
the right to use such license and may be subject to penalties as a result of our failure to meet these milestones. In
January 2019, we determined that we are not able to develop a business using our 45 West regulatory authorization
and, as a result, plan to relocate our EchoStar XXIII satellite. In order to relocate our satellite, we are providing notice
of the relocation to ANATEL and requesting a waiver from it of our obligations for our Ku- band license at 45 West.
In December 2013, we acquired an entity based in Dublin, Ireland, which we subsequently renamed EchoStar Mobile
Limited (“EML”). EML is licensed by the European Union and its member states (“EU”) to provide mobile satellite
service (“MSS”) and complementary ground component (“CGC”) services covering the entire EU using S-band
spectrum. Our EchoStar XXI satellite, which provides space segment capacity to EML in the EU, was launched in June
2017 and placed into service in November 2017. Commercial service has been available on our EchoStar XXI satellite
since the fourth quarter of 2017. EML is focused on expanding its MSS operations in the EU through development of
innovative mobile and machine-to-machine products and services. We believe we are in a unique position to deploy
a European wide MSS and CGC network and maximize the long-term value of our S-band spectrum in Europe and
other regions within the scope of our licenses.
Cybersecurity
As a global provider of satellite technologies and services, internet services and communications equipment and
networks, we may be prone to more targeted and persistent levels of cyber-attacks than other businesses. These
risks may be more prevalent as we continue to expand and grow our business into other areas of the world outside of
North America, some of which are still developing their cybersecurity infrastructure maturity. Detecting, deterring,
preventing and mitigating incidents caused by hackers and other parties may result in significant costs to us and may
expose our customers to financial or other harm that have the potential to significantly increase our liability.
We treat cybersecurity risk seriously and are focused on maintaining the security of our and our partners’ systems,
networks, technologies and data. We regularly review and revise our relevant policies and procedures, invest in and
maintain internal resources, personnel and systems and review, modify and supplement our defenses through the use
of various services, programs and outside vendors. We also maintain agreements with third party vendors and experts
to assist in our remediation and mitigation efforts if we experience or identify a material incident or threat. In addition,
senior management and the Audit Committee of our Board of Directors are regularly briefed on cybersecurity matters.
42
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - Continued
We are not aware of any cyber-incidents with respect to our owned or leased satellites or other networks, equipment
or systems that have had a material adverse effect on our business, costs, operations, prospects, results of operation
or financial position during the year ended December 31, 2018. There can be no assurance, however, that any such
incident can be detected or thwarted or will not have such a material adverse effect in the future.
RESULTS OF OPERATIONS
Basis of Presentation
The following discussion and analysis of our consolidated results of operations is presented on a historical basis.
43
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - Continued
Year Ended December 31, 2018 Compared to the Year Ended December 31, 2017
Statements of Operations Data (1)
Revenue:
Services and other revenue - DISH Network
Services and other revenue - other
Equipment revenue
Total revenue
Costs and expenses:
Cost of sales - services and other
% of total services and other revenue
Cost of sales - equipment
% of total equipment revenue
For the years
ended December 31,
Variance
2018
2017
Amount
%
(Dollars in thousands)
$ 378,694
1,507,259
205,410
2,091,363
$ 445,698
1,200,321
239,489
1,885,508
$
(67,004)
306,938
(34,079)
205,855
(15.0)
25.6
(14.2)
10.9
604,305
563,346
40,959
7.3
32.0%
34.2%
176,600
195,151
(18,551)
(9.5)
86.0%
81.5%
Selling, general and administrative expenses
436,247
366,007
70,240
19.2
% 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 (losses) on investments, net
Equity in earnings (losses) of unconsolidated affiliates, net
Other, net
Total other income (expense), net
Income (loss) from continuing operations before
income taxes
Income tax benefit (provision), net
Net income (loss) from continuing operations
Net income from discontinued operations
Net income (loss)
Less: Net income attributable to
noncontrolling interests
20.9%
27,570
1.3%
19.4%
31,745
1.7%
598,178
65,220
1,908,120
183,243
522,190
10,762
1,689,201
196,307
80,275
(248,568)
(12,207)
(5,954)
(4,749)
(191,203)
(7,960)
(30,673)
(38,633)
—
(38,633)
44,619
(217,240)
53,453
16,973
6,582
(95,613)
100,694
284,286
384,980
8,509
393,489
(4,175)
(13.2)
75,988
54,458
218,919
(13,064)
14.6
*
13.0
(6.7)
35,656
(31,328)
(65,660)
(22,927)
(11,331)
(95,590)
79.9
14.4
*
*
*
100.0
(108,654)
(314,959)
(423,613)
(8,509)
(432,122)
*
*
*
(100.0)
*
1,842
928
914
98.5
Net income (loss) attributable to EchoStar
Corporation
$ (40,475)
$ 392,561
$ (433,036)
*
Other data:
EBITDA (2)
Subscribers, end of period
* Percentage is not meaningful
$ 756,669
1,361,000
$ 794,577
1,208,000
$
(37,908)
153,000
(4.8)
12.7
(1) An explanation of our key metrics is included on pages 63 and 64 under the heading Explanation of Key Metrics and Other Items.
(2) A reconciliation of EBITDA to Net income, the most directly comparable generally accepted accounting principles (“U.S. GAAP”) measure in
the accompanying financial statements, is included on page 48. For further information on our use of EBITDA, see Explanation of Key Metrics
and Other Items on page 64.
44
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - Continued
Services and other revenue — DISH Network. Services and other revenue — DISH Network totaled $379 million
for the year ended December 31, 2018, a decrease of $67 million, or 15.0%, compared to the same period in 2017.
Services and other revenue — DISH Network from our Hughes segment for the year ended December 31,
2018 decreased by $33 million, or 39.5%, to $50 million compared to the same period in 2017. The decrease
was primarily attributable to a continued decrease in residential wholesale broadband services.
Services and other revenue — DISH Network from our ESS segment for the year ended December 31, 2018
decreased by $35 million, or 10.2%, to $310 million compared to the same period in 2017. The decrease was
primarily attributable to the revenue reduction of (i) $21 million resulting from the expiration of DISH Network’s
agreement to lease satellite capacity from us on the EchoStar VII satellite at the end of June 2018, (ii) $7 million
resulting from DISH Network’s termination of its agreement to lease satellite capacity from us on the EchoStar
XII satellite at the end of September 2017, (iii) $4 million as a result of the satellite anomaly experienced by
the EchoStar X satellite in December 2017 which reduced the satellite capacity leased to DISH Network and
(iv) $3 million as a result of a decrease in satellite capacity leased to DISH Network on the EchoStar IX satellite.
Services and other revenue — other. Services and other revenue — other totaled $1.5 billion for the year ended
December 31, 2018, an increase of $307 million, or 25.6%, compared to the same period in 2017.
Services and other revenue — other from our Hughes segment for the year ended December 31, 2018
increased by $305 million, or 26.4%, to $1.5 billion compared to the same period in 2017. The increase was
primarily attributable to increases in sales of broadband services to our consumer and enterprise customers
of $271 million and $28 million, respectively.
Services and other revenue — other from our ESS segment for the year ended December 31, 2018 increased
by $1 million, or 1.8%, to $48 million compared to the same period in 2017. The increase was due to a net
increase in transponder services provided.
Equipment revenue. Equipment revenue totaled $205 million for the year ended December 31, 2018, a decrease of
$34 million, or 14.2%, compared to the same period in 2017. The decrease was primarily due to a decrease in hardware
sales in our Hughes segment of $23 million to our domestic enterprise customers, $8 million to our mobile satellite
systems customers and $6 million to our consumer customers. The decrease was partially offset by an increase in
hardware sales in our Hughes segment of $3 million to our international enterprise customers.
Cost of sales — services and other. Cost of sales — services and other totaled $604 million for the year ended
December 31, 2018, an increase of $41 million, or 7.3%, compared to the same period in 2017.
Cost of sales — services and other from our Hughes segment for the year ended December 31, 2018 increased
by $60 million, or 12.0%, to $555 million compared to the same period in 2017. The increase was primarily
attributable to an increase in the costs of broadband services provided to our consumer and enterprise
customers.
Cost of sales — services and other from our ESS segment for the year ended December 31, 2018 decreased
by $20 million, or 31.7%, to $44 million compared to the same period in 2017. The decrease was primarily
attributable to the termination of our agreement for satellite capacity on the AMC-15 satellite in December
2017.
Cost of sales — equipment. Cost of sales — equipment totaled $177 million for the year ended December 31, 2018,
a decrease of $19 million, or 9.5%, compared to the same period in 2017. The decrease was primarily attributable to
a decrease in hardware sales in our Hughes segment provided to our consumer customers, domestic enterprise
customers and mobile satellite systems customers, partially offset by an increase in hardware sales in our Hughes
segment to our international enterprise customers.
Selling, general and administrative expenses. Selling, general and administrative expenses totaled $436 million
for the year ended December 31, 2018, an increase of $70 million, or 19.2%, compared to the same period in 2017.
45
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - Continued
Selling expenses increased $37 million primarily attributable to the amortization of contract acquisition and fulfillment
costs from our Hughes segment and an increase in marketing and promotional costs from our Hughes segment mainly
associated with our consumer business. General and administration expenses increased $33 million primarily
attributable to increases in bad debt expense, costs associated with beginning operations in certain Central and South
American countries and other administrative costs from our Hughes segment.
Depreciation and amortization. Depreciation and amortization expenses totaled $598 million for the year ended
December 31, 2018, an increase of $76 million, or 14.6%, compared to the same period in 2017. The increase was
primarily due to an increase in depreciation expense of (i) $39 million relating to the EchoStar XIX, EchoStar XXIII,
EchoStar XXI, EchoStar 105/SES-11 satellites that were placed into service in the first, second and fourth quarters of
2017, respectively and the Telesat T19V satellite that was placed into service in the fourth quarter of 2018, (ii) $28 million
relating to our customer rental equipment, (iii) $11 million relating to machinery and equipment and (iv) $9 million
relating to the decrease in depreciable life of the SPACEWAY 3 satellite. The increase in depreciation expense was
partially offset by a decrease of $8 million in amortization expense from certain fully amortized other intangible assets
in our Hughes segment.
Impairment of long-lived assets. During the year ended December 31, 2018, impairment of long-lived assets was
$65 million which was primarily attributable to the determination that the fair value of the 45 degree west longitude
regulatory authorization was de minimis and our recognition of a loss on the assets and in-substance liquidation of the
business related to this regulatory authorization. During the year ended December 31, 2017, impairment of long-lived
assets was $11 million which was primarily attributable to an impairment loss of $6 million relating to our regulatory
authorizations with indefinite lives from our ESS segment in 2017 and a loss of $5 million due to impairment of certain
projects in construction in progress from Corporate and Other in 2017.
Interest income. Interest income totaled $80 million for the year ended December 31, 2018, an increase of $36 million,
or 79.9% compared to the same period in 2017. The increase was primarily attributable to an increase in yield
percentage in 2018 compared to 2017.
Interest expense, net of amounts capitalized. Interest expense, net of amounts capitalized totaled $249 million for
the year ended December 31, 2018, an increase of $31 million or 14.4%, compared to the same period in 2017. The
increase was primarily due to a decrease of $45 million in capitalized interest relating to the EchoStar XIX, EchoStar
XXIII, EchoStar XXI and EchoStar 105/SES-11 satellites that were placed into service in the first, second and fourth
quarters of 2017, respectively. The increase was partially offset by an increase of $11 million in capitalized interest
relating to the construction of the EchoStar XXIV satellite and a decrease of $3 million in interest expense relating to
lower principal balances on certain capital lease obligations.
Gains (losses) on investments, net. Gains (losses) on investments, net totaled $12 million in losses for the year
ended December 31, 2018 compared to $53 million in gains for the year ended December 31, 2017. For the year
ended December 31, 2018, the net loss included (i) unrealized losses of $16 million on certain marketable equity
securities and (ii) unrealized gains of $4 million on certain debt securities that we account for using the fair value option.
For the year ended December 31, 2017, the net gain included (i) gains of $45 million attributable to unrealized gains
on certain marketable equity securities, (ii) gains of $9 million from the sale of our investment in Invidi Technologies
Corporation (“Invidi”) to an entity owned in part by DISH Network, (iii) gains of $3 million from the sales of certain
available-for-sale securities and (iv) an other-than-temporary impairment loss of $3 million on one of our available-for-
sale securities.
Equity in earnings (losses) of unconsolidated affiliates, net. Equity losses of unconsolidated affiliates, net totaled
$6 million for the year ended December 31, 2018 compared to $17 million in earnings for the year ended December
31, 2017. The change of $23 million was primarily related to a decrease in earnings from our investments in our
unconsolidated affiliates.
Other, net. Other, net totaled $5 million in losses for the year ended December 31, 2018 compared to $7 million in
income for the year ended December 31, 2017. The change of $11 million was primarily related to an unfavorable
foreign exchange impact of $17 million in 2018 compared to the same period in 2017 and a decrease of $3 million in
dividends received from certain marketable equity securities in 2018 compared to the same period in 2017. The
46
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - Continued
decreases were partially offset by a net gain of $10 million due to the settlement of certain amounts due to and from
a third party vendor in the second quarter of 2018.
Income tax benefit (provision), net. Income tax provision was $31 million for the year ended December 31, 2018
compared to an income tax benefit of $284 million for the year ended December 31, 2017. Our effective income tax
rate was (385.4)% and (282.3)% for the year ended December 31, 2018 and 2017, respectively. The variations in our
current year effective tax rate from the U.S. federal statutory rate were primarily due to the change in net unrealized
gains that are capital in nature and research and experimentation credits, partially offset by the impact of state and
local taxes and the increase in our valuation allowance associated with certain foreign losses. In addition, we did not
record any tax benefit from the impairment of long-lived assets in Brazil as we do not expect to realize a tax benefit
from this loss in the foreseeable future. This resulted in further variance from the U.S. statutory effective rate in 2018.
The variations in our effective tax rate from the U.S. federal statutory rate for the year ended December 31, 2017 were
primarily due to the Tax Cuts and Jobs Act of 2017, the recognition of a one-time tax benefit for the revaluation of our
deferred tax assets and liabilities due to a change in our state effective tax rate as a result of the Share Exchange, the
increase in our valuation allowance associated with unrealized gains that are capital in nature, and change in the
amount of unrecognized tax benefit from uncertain tax positions. The tax benefit recognized from the change in our
effective tax rate was partially offset by the increase in our valuation allowance associated with certain state and foreign
losses.
Net income (loss) attributable to EchoStar Corporation. Net income (loss) attributable to EchoStar Corporation
was $40 million for the year ended December 31, 2018, a decrease of $433 million, compared to the same period in
2017 as set forth in the following table:
Net income attributable to EchoStar Corporation for the year ended December 31, 2017
$
Increase in income tax provision, net
Decrease in gains on investments, net
Increase in interest expense, net of amounts capitalized
Decrease in equity in earnings of unconsolidated affiliates, net
Decrease in other income
Decrease in net income from discontinued operations
Increase in net income attributable to noncontrolling interests
Increase in operating income, including depreciation and amortization
Increase in impairment of long-lived assets
Increase in interest income
Net loss attributable to EchoStar Corporation for the year ended December 31, 2018
$
Amounts
(In thousands)
392,561
(314,959)
(65,660)
(31,328)
(22,927)
(11,331)
(8,509)
(914)
41,394
(54,458)
35,656
(40,475)
47
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - Continued
EBITDA. 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 Net income (loss), the most directly comparable U.S. GAAP
measure in the accompanying financial statements.
For the years
ended December 31,
Variance
2018
2017
Amount
(Dollars in thousands)
%
Net income (loss)
$
(38,633) $ 393,489 $ (432,122)
*
Interest income and expense, net
Income tax (benefit) provision, net
Depreciation and amortization
Net income from discontinued operations
Net income attributable to noncontrolling interests
EBITDA
* Percentage is not meaningful
168,293
172,621
(4,328)
30,673
(284,286)
314,959
598,178
522,190
—
(1,842)
(8,509)
(928)
75,988
8,509
(914)
$ 756,669 $ 794,577 $
(37,908)
(2.5)
*
14.6
(100.0)
98.5
(4.8)
EBITDA was $757 million for the year ended December 31, 2018, a decrease of $38 million or 4.8%, compared to the
same period in 2017. The decrease was primarily due to (i) a decrease of $66 million in gains (losses) on investments,
net, (ii) an increase of $55 million in impairment of long lived assets, (iii) a decrease of $23 million in equity in earnings
of unconsolidated affiliates, net, and (iv) a decrease of $11 million of other income (expense). The decrease was
partially offset by an increase of $117 million in operating income, excluding depreciation and amortization and
impairment of long lived assets.
Segment Operating Results and Capital Expenditures
For the year ended December 31, 2018
Total revenue
Capital expenditures
EBITDA
For the year ended December 31, 2017
Total revenue
Capital expenditures
EBITDA
$
$
$
$
$
$
Hughes
ESS
Corporate
and Other
Consolidated
Total
(In thousands)
1,716,528 $
358,058 $
16,777 $
2,091,363
390,108 $
(76,582) $
164,091 $
601,319 $
308,058 $
(152,708) $
477,617
756,669
1,477,918 $
392,244 $
15,346 $
1,885,508
376,502 $
20,725 $
169,157 $
475,222 $
315,285 $
4,070 $
566,384
794,577
Capital expenditures in the table above are net of refunds and other receipts related to property and equipment and
exclude capital expenditures from discontinued operations of $12 million for the year ended December 31, 2017.
48
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - Continued
Hughes Segment
Total revenue
Capital expenditures
EBITDA
For the years
ended December 31,
Amount
2017
2018
(Dollars in thousands)
Variance
%
$ 1,716,528 $ 1,477,918 $
376,502 $
$
238,610
13,606
390,108 $
601,319 $
$
475,222 $
126,097
16.1
3.6
26.5
Total revenue for the year ended December 31, 2018 increased by $239 million, or 16.1%, compared to the same
period in 2017. The increase was primarily due to an increase in sales of broadband services to our consumer and
enterprise customers of $271 million and $28 million, respectively, and an increase in hardware sales of $3 million to
our international enterprise customers. The increase was partially offset by (i) a decrease of $33 million in residential
wholesale broadband services and a decrease in hardware sales of (ii) $23 million to our domestic enterprise customers,
(iii) $8 million to our mobile satellite systems customers and (iv) $6 million to our consumer customers.
Capital expenditures for the year ended December 31, 2018 increased by $14 million, or 3.6%, compared to the same
period in 2017, primarily due to increases in capital expenditures relating to our Telesat T19V satellite and our enterprise
business of $31 million. The increases were partially offset by a decrease of $17 million in capital expenditures mainly
associated with satellite ground facilities.
EBITDA for the year ended December 31, 2018 increased by $126 million, or 26.5%, compared to the same period in
2017. The increase was primarily due to an increase of $196 million in gross margin and an other-than-temporary
impairment loss of $3 million on one of our available-for-sale securities in the first quarter of 2017. The increase was
partially offset by (i) an increase of $66 million in selling, general and administrative expenses due to bad debt expense,
the amortization of contract acquisition and fulfillment costs and an increase in marketing and promotional costs mainly
associated with our consumer business and (ii) an unfavorable foreign exchange impact of $11 million in 2018 compared
to the same period in 2017.
ESS Segment
For the years
ended December 31,
Amount
2017
2018
(Dollars in thousands)
Variance
%
$
$
$
358,058 $
(76,582) $
308,058 $
392,244 $
20,725 $
315,285 $
(34,186)
(97,307)
(7,227)
(8.7)
*
(2.3)
Total revenue
Capital expenditures
EBITDA
* Percentage is not meaningful
Total revenue for the year ended December 31, 2018 decreased by $34 million, or 8.7%, compared to the same period
in 2017. The decrease was primarily attributable to revenue reduction of (i) $21 million resulting from the expiration
of DISH Network’s agreement to lease satellite capacity from us on the EchoStar VII satellite at the end of June 2018,
(ii) $7 million resulting from DISH Network’s termination of its agreement to lease satellite capacity from us on the
EchoStar XII satellite at the end of September 2017, (iii) $4 million as a result of the satellite anomaly experienced by
the EchoStar X satellite in December 2017 which reduced the satellite capacity leased to DISH Network and
(iv) $3 million as a result of a decrease in satellite capacity leased to DISH Network on the EchoStar IX satellite.
Capital expenditures for the year ended December 31, 2018 decreased by $97 million compared to the same period
in 2017, primarily reflect a reimbursement of $77 million and a decrease in satellite expenditure as a result of the
EchoStar 105/SES-11 satellite that was placed into service in the fourth quarter of 2017.
49
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - Continued
EBITDA for the year ended December 31, 2018 decreased by $7 million, or 2.3%, compared to the same period in
2017. The decrease was primarily due to the decrease in ESS segment total revenue of $34 million in 2018 compared
to the same period in 2017. The decrease was partially offset by a decrease in satellite services costs of $19 million
mainly associated with the termination of our agreement for satellite capacity on the AMC-15 satellite in December
2017 and an impairment loss of $6 million relating to our regulatory authorizations with indefinite lives in 2017.
Corporate and Other
For the years
ended December 31,
Amount
2017
2018
(Dollars in thousands)
Variance
%
$
$
$
16,777 $
164,091 $
(152,708) $
15,346 $
169,157 $
4,070 $
1,431
(5,066)
(156,778)
9.3
(3.0)
*
Total revenue
Capital expenditures
EBITDA
* Percentage is not meaningful
Total revenue for the year ended December 31, 2018 increased by $1 million, or 9.3%, compared to the same period
in 2017. The increase was attributable to an increase in rental income resulting from the lease of certain real estate
to DISH Network.
Capital expenditures for the year ended December 31, 2018 decreased by $5 million, or 3.0%, compared to the same
period in 2017, primarily related to decreases of $46 million in satellite expenditures on the EchoStar XIX, EchoStar
XXIII and EchoStar XXI satellites, partially offset by increases of $44 million in satellite expenditures on the EchoStar
XXIV satellite. The EchoStar XIX, EchoStar XXIII and EchoStar XXI satellites were placed into service in 2017 and
the EchoStar XIX was contributed to the Hughes segment in the first quarter of 2017. The EchoStar XXIV satellite is
primarily intended to provide additional capacity for our HughesNet service in North, South and Central American
countries.
EBITDA for the year ended December 31, 2018 was $153 million in loss compared to $4 million in earnings for the
same period in 2017. The change of $157 million was primarily related to (i) a decrease of $61 million in gains on
certain marketable equity securities in 2018 compared to the same period in 2017, (ii) a $54 million increase in
impairment charges on certain long-lived assets, (iii) a decrease of $23 million in Equity in earnings (losses) of
unconsolidated affiliates, net, in 2018 compared to the same period in 2017, (iv) gains of $9 million from the sale of
our investment in Invidi to an entity owned in part by DISH Network in the first quarter of 2017, (v) an unfavorable
foreign exchange impact of $5 million in 2018 compared to the same period in 2017, (vi) an increase of $3 million in
general and administrative expenses and (vii) a decrease of $3 million in dividends received from certain marketable
equity securities in 2018 compared to the same period in 2017. The decrease was partially offset by a net gain of
$10 million due to the settlement of certain amounts due to and from a third party vendor in the second quarter of 2018.
50
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - Continued
Year Ended December 31, 2017 Compared to the Year Ended December 31, 2016
Statements of Operations Data (1)
Revenue:
For the years
ended December 31,
Variance
2017
2016
Amount
(Dollars in thousands)
%
Services and other revenue - DISH Network
$ 445,698
$ 463,442
$
(17,744)
Services and other revenue - other
Equipment revenue
Total revenue
Costs and expenses:
Cost of sales - services and other
% of total services and other revenue
Cost of sales - equipment
% of total equipment revenue
1,200,321
1,100,828
239,489
246,196
1,885,508
1,810,466
99,493
(6,707)
75,042
563,346
536,568
26,778
34.2%
34.3%
195,151
188,617
6,534
81.5%
76.6%
(3.8)
9.0
(2.7)
4.1
5.0
3.5
Selling, general and administrative expenses
366,007
325,044
40,963
12.6
% of total revenue
19.4%
18.0%
Research and development expenses
31,745
31,170
575
1.8
% 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 (losses) on investments, net
Equity in earnings of unconsolidated affiliates, net
Other, net
1.7%
1.7%
522,190
10,762
432,904
—
1,689,201
1,514,303
196,307
296,163
44,619
21,244
(217,240)
(123,481)
53,453
16,973
6,582
9,767
10,802
2,131
89,286
10,762
174,898
(99,856)
23,375
(93,759)
43,686
6,171
4,451
Total other income (expense), net
(95,613)
(79,537)
(16,076)
Income (loss) from continuing operations
before income taxes
Income tax benefit (provision), net
Net income (loss) from continuing
operations
Net income from discontinued operations
Net income (loss)
Less: Net income attributable to
noncontrolling interests
Net income (loss) attributable to
EchoStar Corporation
Other data:
EBITDA (2)
Subscribers, end of period
* Percentage is not meaningful
100,694
284,286
384,980
8,509
393,489
216,626
(80,254)
(115,932)
364,540
136,372
44,320
180,692
248,608
(35,811)
212,797
928
762
166
21.8
$ 392,561
$ 179,930
$ 212,631
*
$ 794,577
1,208,000
$ 751,005
1,036,000
$
43,572
172,000
5.8
16.6
51
20.6
*
11.5
(33.7)
*
75.9
*
57.1
*
20.2
(53.5)
*
*
(80.8)
*
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - Continued
(1) An explanation of our key metrics is included on pages 63 and 64 under the heading Explanation of Key Metrics and Other Items.
(2) A reconciliation of EBITDA to Net income, the most directly comparable U.S. GAAP measure in the accompanying financial statements, is
included on page 55 For further information on our use of EBITDA, see Explanation of Key Metrics and Other Items on page 64.
Services and other revenue — DISH Network. Services and other revenue — DISH Network totaled $446 million
for the year ended December 31, 2017, a decrease of $18 million, or 3.8%, compared to the same period in 2016.
Services and other revenue — DISH Network from our Hughes segment for the year ended December 31,
2017 decreased by $16 million, or 16.4%, to $82 million compared to the same period in 2016. The decrease
was primarily attributable to a decrease in wholesale subscribers.
Services and other revenue — DISH Network from our ESS segment for the year ended December 31, 2017
decreased by $5 million, or 1.3%, to $345 million compared to the same period in 2016. The decrease was
primarily attributable to the termination of the satellite services agreement with DISH Network on the EchoStar
XII satellite in September 2017.
Services and other revenue — DISH Network from Corporate and Other for the year ended December 31,
2017 increased by $3 million, or 20.0%, to $19 million compared to the same period in 2016. The increase
was primarily attributable to an increase in rental income relating to certain lease agreements pursuant to
which DISH Network leases certain real estate from us.
Services and other revenue — other. Services and other revenue — other totaled $1.2 billion for the year ended
December 31, 2017, an increase of $99 million, or 9.0%, compared to the same period in 2016.
Services and other revenue — other from our Hughes segment for the year ended December 31, 2017
increased by $109 million, or 10.4%, to $1.2 billion compared to the same period in 2016. The increase was
primarily attributable to increases in sales of broadband services of $103 million to our consumer customers,
$15 million to our domestic enterprise customers and $5 million to our mobile satellite systems customers.
The increase was partially offset by a decrease in sales of broadband services of $14 million to our international
enterprise customers.
Services and other revenue — other from our ESS segment for the year ended December 31, 2017 decreased
by $11 million, or 18.4%, to $47 million compared to the same period in 2016. The decrease was primarily
attributable to decreases in sales of transponder services due to expired service contracts.
Equipment revenue. Equipment revenue totaled $239 million for the year ended December 31, 2017, a decrease of
$7 million, or 2.7%, compared to the same period in 2016 primarily from our Hughes segment. The decrease in revenue
was primarily due to a decrease in unit sales of broadband equipment of (i) $17 million to our mobile satellite systems
customers, (ii) $10 million to our international enterprise customers, (iii) $9 million to a subsidiary of DISH as a result
of the Hughes Broadband MSA and (iv) $4 million to our government customers. See Note 20 in the notes to our
accompanying Consolidated Financial Statements in Item 15 of this Form 10-K for additional information about the
Hughes Broadband MSA. The decreases were partially offset by an increase of $32 million in sales of broadband
equipment to our domestic consumer and enterprise customers.
Cost of sales — services and other. Cost of sales — services and other totaled $563 million for the year ended
December 31, 2017, an increase of $27 million, or 5.0%, compared to the same period in 2016.
Cost of sales — services and other from our Hughes segment for the year ended December 31, 2017 increased
by $25 million, or 5.4%, to $495 million compared to the same period in 2016. The increase was primarily
attributable to an increase in the costs of broadband services provided to our consumer customers, domestic
enterprise customers, and mobile satellite systems customers primarily due to the increase in sales of
broadband services.
Cost of sales — services and other from Corporate and Other for the year ended December 31, 2017 increased
by $1 million, or 48.2%, to $4 million compared to the same period in 2016. The increase was primarily
52
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - Continued
attributable to an increase in expenses relating to certain lease agreements pursuant to which DISH Network
leases certain real estate to us.
Cost of sales — equipment. Cost of sales — equipment totaled $195 million for the year ended December 31, 2017,
an increase of $7 million, or 3.5%, compared to the same period in 2016 primarily from our Hughes segment. The
increase was primarily attributable to an increase of $26 million in equipment costs related to the increase in sales to
our domestic consumer and enterprise customers. The increase was partially offset by a decrease of $18 million in
equipment costs related to the decrease in sales to a subsidiary of DISH, international enterprise customers and our
mobile satellite systems customers
Selling, general and administrative expenses. Selling, general and administrative expenses totaled $366 million
for the year ended December 31, 2017, an increase of $41 million, or 12.6%, compared to the same period in 2016.
The increase was primarily related to an increase of $51 million in marketing and promotional costs primarily attributable
to our consumer broadband sales in our Hughes segment and an increase of $3 million in litigation expense in 2017,
partially offset by a decrease of $13 million in general and administrative expenses.
Depreciation and amortization. Depreciation and amortization expenses totaled $522 million for the year ended
December 31, 2017, an increase of $89 million, or 20.6%, compared to the same period in 2016. The increase was
primarily related to (i) an increase of $51 million in depreciation expense of the EUTELSAT 65 West A satellite placed
into service in 2016 and the EchoStar XIX, EchoStar XXIII, EchoStar XXI and EchoStar 105/SES-11 satellites that
were placed into service in 2017, (ii) an increase of $32 million in depreciation expense relating to customer rental
equipment, (iii) an increase of $10 million in depreciation expense relating to buildings and improvements, (iv) an
increase of $10 million in amortization expense relating to the development of externally marketed software and (v) an
increase of $7 million in depreciation expense relating to machinery and equipment. The increase was partially offset
by a decrease of $13 million in amortization expense from certain fully amortized other intangible assets in our Hughes
segment and Corporate and Other and a decrease of $3 million in depreciation expense relating to the fully depreciated
EchoStar VII satellite as of April 2017.
Impairment of long-lived assets. Impairment of long-lived assets totaled $11 million for the year ended December 31,
2017, an increase of $11 million, compared to the same period in 2016. The increase was primarily attributable to an
impairment loss of $6 million relating to our regulatory authorizations with indefinite lives from our ESS segment and
a loss of $5 million due to impairment of certain projects in construction in progress from Corporate and Other.
Interest income. Interest income totaled $45 million for the year ended December 31, 2017, an increase of $23 million
compared to the same period in 2016. The increase was primarily attributable to the increase in our marketable
investments and an increase in yield percentage in 2017 when compared to 2016.
Interest expense, net of amounts capitalized. Interest expense, net of amounts capitalized totaled $217 million for
the year ended December 31, 2017, an increase of $94 million or 75.9%, compared to the same period in 2016. The
increase was primarily due to an increase of $51 million in interest expense relating to the issuance of the 5.250% Senior
Secured Notes due August 1, 2026 and 6.625% Senior Unsecured Notes due August 1, 2026 in the third quarter of
2016 and a decrease of $42 million in capitalized interest relating to the EchoStar XIX and EchoStar XXIII satellites
that were placed into service in the first and second quarters of 2017, respectively, and the EchoStar XXI and EchoStar
105/SES-11 satellites that were placed into service in the fourth quarter of 2017.
Gains (losses) on investments, net. Gains (losses) on investments, net totaled $53 million in gains for the year
ended December 31, 2017, an increase of $44 million, compared to the same period in 2016. The increase was
primarily due to an increase of $41 million in gains on our trading securities in 2017, gains of $9 million from the
sale of our investment in Invidi to an entity owned in part by DISH Network in the first quarter of 2017, partially offset
by an other-than-temporary impairment loss of $3 million on certain strategic equity securities in our marketable
investment securities in 2017 and a decrease of $3 million in realized gains on our securities classified as available-
for-sale in 2017.
Equity in earnings of unconsolidated affiliates, net. Equity in earnings of unconsolidated affiliates, net totaled
$17 million in earnings for the year ended December 31, 2017, an increase of $6 million or 57.1%, compared to the
53
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - Continued
same period in 2016. The increase was primarily related to a net increase in earnings from our investment in
unconsolidated affiliates.
Other, net. Other, net totaled $7 million in income for the year ended December 31, 2017, an increase of $4 million
compared to the same period in 2016. The increase was primarily related to dividends of $6 million received from
certain strategic equity investments in 2017, $3 million in a protective put associated with our trading securities in 2016
and a favorable foreign exchange impact of $2 million in 2017 compared to the same period in 2016, partially offset
by a $7 million for a provision recorded in the first half of 2015 in connection with FCC regulatory fees, which was
reversed in the first quarter of 2016.
Income tax benefit (provision), net. Income tax benefit was $284 million for the year ended December 31, 2017
compared to an income tax provision of $80 million for the year ended December 31, 2016. Our effective income tax
rate was (282.3)% and 37.0% for the year ended December 31, 2017 and 2016, respectively. The effective tax rate
for the year ended December 31, 2017 was significantly impacted by the Tax Cuts and Jobs Act of 2017 enacted in
December 2017 (the “2017 Tax Act”). The 2017 Tax Act made broad and complex changes to the U.S. tax code
including (i) reduction of the U.S. federal corporate income tax rate to 21% effective for years beginning after December
31, 2017, and (ii) requiring a one-time deemed repatriation tax on certain un-repatriated earnings of foreign subsidiaries
that is payable over eight years. We provisionally recorded a deferred tax benefit of $304 million to reflect re-
measurement of our deferred tax assets and liabilities at the new rate. We provisionally estimated that we would have
had a $0.2 million liability resulting from the one-time deemed repatriation tax. See Note 13 of the notes to our
accompanying Consolidated Financial Statements included in Item 15 of this Form 10-K for further information. Further
variations in our effective tax rate from the U.S. federal statutory rate for the year ended December 31, 2017 were
primarily due to the recognition of a one-time tax benefit for the revaluation of our deferred tax assets and liabilities
due to a change in our state effective tax rate as a result of the Share Exchange, the decrease in our valuation allowance
associated with unrealized gains that are capital in nature, and change in the amount of unrecognized tax benefit from
uncertain tax positions. The tax benefit recognized from the change in our effective tax rate was partially offset by the
increase in our valuation allowance associated with certain state and foreign losses. The variations in our effective
tax rate from the U.S. federal statutory rate for the year ended December 31, 2016 were state income taxes and various
permanent differences, partially offset by research and experimentation credits.
Net income (loss) attributable to EchoStar Corporation. Net income (loss) attributable to EchoStar Corporation
was $393 million for the year ended December 31, 2017, an increase of $213 million compared to the same period in
2016 as set forth in the following table:
Net income attributable to EchoStar Corporation for the year ended December 31, 2016
$
Increase in income tax benefit, net
Increase in gains on investments, net
Increase in interest income
Increase in equity in earnings of unconsolidated affiliates, net
Increase in other income
Decrease in operating income, including depreciation and amortization
Decrease in interest expense, net of amounts capitalized
Decrease in net income from discontinued operations
Increase in net income attributable to noncontrolling interests
Net income attributable to EchoStar Corporation for the year ended December 31, 2017
$
Amounts
(In thousands)
179,930
364,540
43,686
23,375
6,171
4,451
(99,856)
(93,759)
(35,811)
(166)
392,561
54
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - Continued
EBITDA. 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 Net income (loss), the most directly comparable U.S. GAAP
measure in the accompanying financial statements.
For the years
ended December 31,
Variance
2017
2016
Amount
(Dollars in thousands)
%
Net income (loss)
$ 393,489 $ 180,692 $ 212,797
*
Interest income and expense, net
Income tax (benefit) provision, net
Depreciation and amortization
Net income from discontinued operations
Net income attributable to noncontrolling interests
EBITDA
* Percentage is not meaningful
172,621
102,237
70,384
(284,286)
80,254
(364,540)
522,190
(8,509)
(928)
432,904
(44,320)
(762)
89,286
35,811
(166)
$ 794,577 $ 751,005 $
43,572
68.8
*
20.6
(80.8)
21.8
5.8
EBITDA was $795 million for the year ended December 31, 2017, an increase of $44 million, or 5.8%, compared to
the same period in 2016. The increase was primarily due to (i) an increase of $44 million in gains on investments, net
of losses and impairments, (ii) an increase of $6 million in equity in earnings of unconsolidated affiliates, net and (iii)
an increase of $5 million in other income. The increase was partially offset by a decrease of $11 million in operating
income, excluding depreciation and amortization.
Segment Operating Results and Capital Expenditures
For the year ended December 31, 2017
Total revenue
Capital expenditures
EBITDA
For the year ended December 31, 2016
Total revenue
Capital expenditures
EBITDA
$
$
$
$
$
$
Hughes
EchoStar
Satellite
Services
Corporate
and Other
Consolidated
Total
(In thousands)
1,477,918 $
392,244 $
15,346 $
1,885,508
376,502 $
20,725 $
169,157 $
475,222 $
315,285 $
4,070 $
566,384
794,577
1,392,361 $
407,660 $
10,445 $
1,810,466
322,362 $
58,925 $
247,223 $
477,165 $
341,516 $
(67,676) $
628,510
751,005
Capital expenditures in the table above are net of refunds and other receipts related to property and equipment and
exclude capital expenditures from discontinued operations of $12 million and $70 million for the years ended
December 31, 2017 and 2016, respectively
55
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - Continued
Hughes Segment
Total revenue
Capital expenditures
EBITDA
For the years
ended December 31,
Amount
2016
2017
(Dollars in thousands)
Variance
%
$ 1,477,918 $ 1,392,361 $
322,362 $
$
376,502 $
475,222 $
$
477,165 $
(1,943)
85,557
54,140
6.1
16.8
(0.4)
Total revenue for the year ended December 31, 2017 increased by $86 million, or 6.1%, compared to the same period
in 2016. The increase was primarily due to an increase of $118 million in sales of broadband equipment and services
to our domestic consumer and enterprise customers, an increase of $33 million in sales of broadband equipment and
services to our international consumer customers and an increase of $5 million in sales of services to our mobile
satellite systems customers. The increase was partially offset by a decrease of $25 million in sales of broadband
equipment and services to DISH Network, a decrease of $25 million in sales of broadband equipment and services to
our international enterprise customers, a decrease of $17 million in sales of broadband equipment to our mobile satellite
systems customers and a decrease of $4 million in sales of broadband equipment to our government customers.
Capital expenditures for the year ended December 31, 2017 increased by $54 million, or 16.8%, compared to the same
period in 2016, primarily as a result of an increase of $134 million in expenditures primarily related to customer rental
equipment for consumer services provided on the EUTELSAT 65 West A and EchoStar XIX satellites that were placed
into service in the third quarter of 2016 and the first quarter of 2017, respectively, partially offset by a decrease of
$83 million in expenditures as a result of the EUTELSAT 65 West A satellite being placed into service and lower spend
on satellite ground facilities.
EBITDA for the year ended December 31, 2017 decreased by $2 million, or 0.4%, compared to the same period in
2016. The decrease was primarily due to (i) an increase of $50 million in marketing and promotional costs primarily
attributable our domestic and international consumer broadband sales, (ii) an other than temporary impairment loss
of $3 million on certain strategic equity securities in our marketable investment securities in 2017, (iii) an increase of
$3 million in litigation expense in 2017 and (iv) an unfavorable foreign exchange impact of $1 million in 2017. The
decrease was partially offset by an increase of $54 million in gross margin and a decrease of $2 million in general and
administrative expenses.
ESS Segment
Total revenue
Capital expenditures
EBITDA
For the years
ended December 31,
Amount
2016
2017
(Dollars in thousands)
Variance
%
$
$
$
392,244 $
20,725 $
315,285 $
407,660 $
58,925 $
341,516 $
(15,416)
(38,200)
(26,231)
(3.8)
(64.8)
(7.7)
Total revenue for the year ended December 31, 2017 decreased by $15 million, or 3.8%, compared to the same period
in 2016, primarily attributable to decreases in sales of transponder services due to expired service contracts and the
termination of the satellite services agreement with DISH Network on the EchoStar XII satellite in September 2017.
Capital expenditures for the year ended December 31, 2017 decreased by $38 million, or 64.8%, compared to the
same period in 2016, primarily related to a decrease in expenditures on the EchoStar 105/SES-11 satellite.
56
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - Continued
EBITDA for the year ended December 31, 2017 decreased by $26 million, or 7.7%, compared to the same period in
2016. The decrease was primarily due to a decrease of $16 million in gross margin, an impairment loss of $6 million
relating to our regulatory authorizations with indefinite lives and a decrease of $4 million for a provision recorded in
the first half of 2015 in connection with FCC regulatory fees, which was reversed in the first quarter of 2016.
Corporate and Other
For the years
ended December 31,
Amount
2016
2017
(Dollars in thousands)
Variance
%
$
$
$
15,346 $
169,157 $
4,070 $
10,445 $
247,223 $
4,901
(78,066)
(67,676) $
71,746
46.9
(31.6)
*
Total revenue
Capital expenditures
EBITDA
* Percentage is not meaningful
Capital expenditures for the year ended December 31, 2017 decreased by $78 million, or 31.6%, compared to the
same period in 2016, primarily related to a decrease in satellite expenditures of $110 million on the EchoStar XIX
satellite, a decrease in satellite expenditures of $41 million on the EchoStar XXIII satellite and a decrease in satellite
expenditures of $33 million on the EchoStar XXI satellite, partially offset by an increase in satellite expenditures of
$110 million on the EchoStar XXIV satellite. The EchoStar XIX, EchoStar XXIII and EchoStar XXI satellites were placed
into service in 2017 and the EchoStar XIX satellite was contributed to the Hughes segment in the first quarter of 2017.
The EchoStar XXIV satellite is intended to provide additional capacity for the Hughes broadband services in North
America and certain Latin American countries.
EBITDA for the year ended December 31, 2017 was $4 million in income compared to $68 million in loss for the same
period in 2016. The change of $72 million was primarily related to (i) an increase of $43 million in gains on our trading
securities in 2017, (ii) a decrease of $13 million in personnel and other employee-related expenses and professional
fees, (iii) a gain of $9 million from the sale of Invidi in the first quarter of 2017, (iv) dividends of $6 million received from
certain strategic equity investments in 2017, (v) an increase of $6 million in equity in earnings of unconsolidated affiliates,
net in 2017, (vi) a favorable foreign exchange impact of $3 million in 2017 when compared to the same period in 2016,
and (vii) an increase of $3 million in rental income relating to certain lease agreements pursuant to which DISH Network
leases certain real estate from us. The increase was partially offset by a loss of $5 million due to impairment of certain
projects in construction in progress and $3 million for a provision recorded in the first half of 2015 in connection with
FCC regulatory fees, which was reversed in the first quarter of 2016.
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 Form 10-K for further discussion regarding
our marketable investment securities.
As of December 31, 2018 and 2017, our cash, cash equivalents, including restricted cash, and current marketable
investment securities, totaled $3.2 billion.
As of December 31, 2018 and 2017, we held $2.3 billion and $814 million, respectively, of marketable investment
securities, consisting of various debt and equity instruments including corporate bonds, corporate equity securities,
government bonds and mutual funds.
57
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, 2018, 2017 and 2016.
Cash flows from operating activities. We typically reinvest the cash flow from operating activities in our business.
For the years ended December 31, 2018, 2017 and 2016, we reported net cash inflows from operating activities of
$735 million, $727 million and $803 million, respectively. Cash flows from operating activities reflects a benefit from
the disposition of the EchoStar Technologies businesses as a result of the Share Exchange.
Net cash inflows from operating activities for the year ended December 31, 2018 increased by $8 million compared to
the same period in 2017. The increase in cash inflows was primarily attributable to a higher net income of $81 million
adjusted to exclude: (i) Depreciation and amortization; (ii) Impairment of long-lived assets; (iii) Equity in earnings
(losses) of unconsolidated affiliates, net; (iv) Gains and losses on investments, net; (v) Stock-based compensation;
(vi) Deferred tax provision (benefit); (vii) Dividends received from unconsolidated entities; (viii) Proceeds from sale of
trading securities; and (ix) Other, net. The decrease in cash inflows was partially offset by an decrease in cash outflows
of $73 million resulting from timing differences in operating assets and liabilities.
Net cash inflows from operating activities for the year ended December 31, 2017 decreased by $77 million compared
to the same period in 2016. The decrease in cash inflows was primarily attributable to a lower net income of $185 million
adjusted to exclude:(i) Depreciation and amortization; (ii) Impairment of long-lived assets; (iii) Equity in earnings (losses)
of unconsolidated affiliates, net; (iv) Gains and losses on investments, net; (v) Stock-based compensation; (vi) Deferred
tax provision (benefit); (vii) Other, net; (viii) Dividends received from unconsolidated entities; and (ix) Proceeds from
sale of trading securities. The decrease in cash inflows was partially offset by an increase in cash outflows of $108 million
resulting from timing differences in operating assets and liabilities.
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,
2018, 2017 and 2016, we reported net cash outflows from investing activities of $2.1 billion, $868 million and
$632 million, respectively.
Net cash outflows from investing activities for the year ended December 31, 2018 increased by $1.2 billion compared
to the same period in 2017. The increase of net cash outflows was primarily related to an increase of $1.2 billion in
purchases of marketable investment securities, net of sales and maturities, an increase of $116 million in investments
in unconsolidated entities, primarily BCS, an increase of $62 million in satellite expenditures associated with the
EchoStar XXIV and Telesat T19V satellites, an increase of $27 million in capital expenditure relating to our enterprise
business in the Hughes segment in 2018 and cash proceeds of $18 million from the sale of our investment in Invidi to
an entity owned in part by DISH Network in the first quarter of 2017. The increase was partially offset by a reimbursement
of $77 million related to the EchoStar 105/SES-11 satellite in the first quarter of 2018, a decrease of $101 million in
satellite expenditures associated with the EUTELSAT 65W, EchoStar XIX, EchoStar XXI, EchoStar 105/SES-11 and
EchoStar XXIII satellites, a $12 million in expenditures for property and equipment of our discontinued operations in
2017.
Net cash outflows from investing activities for the year ended December 31, 2017 increased by $236 million compared
to the same period in 2016. The increase in cash outflows primarily related to a decrease of $358 million in sales and
maturities of marketable investment securities, net of purchases, and an increase of $8 million in expenditures for
externally marketed software and a decrease of $6 million in restricted cash and marketable investment securities.
The increase in cash outflows was partially offset by a decrease of $119 million in capital expenditures, net of related
refunds, in 2017 when compared to the same period in 2016 and cash proceeds of $18 million from the sale of our
investment in Invidi to an entity owned in part by DISH Network in the first quarter of 2017.
Cash flows from financing activities. Our financing activities generally include proceeds related to the issuance of
debt and cash used for the repurchase, redemption or payment of debt and capital lease obligations, payments relating
to stock and debt repurchases 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, 2018, 2017 and
2016, we reported net cash outflows from financing activities of $137 million, net cash inflows from financing activities
of $0.1 million, and net cash inflows from financing activities of $1.5 billion, respectively.
58
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - Continued
Net cash outflows from financing activities increased by $137 million for the year ended December 31, 2018 compared
to the same period in 2017. The increase in cash outflows of was primarily due to our repurchase of $70 million of
HSS’s 6 1/2% Senior Secured Notes due 2019 (the “2019 Senior Secured Notes”), our repurchase of $33 million of
shares of our common stock, and a decrease of $31 million in net proceeds from Class A common stock options
exercised under our stock incentive plans.
Net cash inflows from financing activities decreased by $1.5 billion for the year ended December 31, 2017 compared
to the same period in 2016. The decrease in cash inflows was primarily due to proceeds of $1.5 billion from the issuance
of the 5.250% Senior Secured Notes due August 1, 2026 and 6.625% Senior Unsecured Notes due August 1, 2026
in the third quarter of 2016.
Obligations and Future Capital Requirements
Contractual Obligations
The following table summarizes our contractual obligations at December 31, 2018:
Total
2019
2020
Long-term debt
$ 3,320,836
$
920,836
$
2021
(In thousands)
900,000
— $
2022
2023
Thereafter
$
— $
— $ 1,500,000
Payments Due in the Year Ending December 31,
Capital lease obligations
Interest on long-term debt
and capital lease
obligations
Satellite-related obligations
Operating lease obligations
Other obligations
228,702
40,662
45,031
46,353
31,857
35,476
29,323
983,824
731,684
93,918
866
209,989
207,403
21,146
176
175,808
166,601
18,081
181
136,662
60,852
13,873
186
98,265
47,996
10,118
192
94,529
47,907
8,814
131
268,571
200,925
21,886
—
Total
$ 5,359,830
$ 1,400,212
$ 405,702
$ 1,157,926
$ 188,428
$ 186,857
$ 2,020,705
Our satellite-related obligations primarily include payments pursuant to agreements for the construction of the EchoStar
XXIV satellite; payments pursuant to Regulatory Authorizations; executory costs for our capital lease satellites; and
in-orbit incentives relating to certain satellites; as well as commitments for satellite service arrangements.
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
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, 2018, we had foreign currency forward contracts with a notional value of $7 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.
Letters of Credit
As of December 31, 2018, we had $39 million of letters of credit and insurance bonds. Of this amount, $10 million
was secured by restricted cash, $4 million was related to insurance bonds and $25 million was issued under credit
59
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - Continued
arrangements available to our foreign subsidiaries. Certain letters of credit are secured by assets of our foreign
subsidiaries.
Satellite Insurance
We historically have not carried in-orbit insurance on our satellites because we have assessed that the cost of insurance
is not economical relative to the risk of failures. Therefore, we generally bear the risk of any 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 in-orbit insurance for our SPACEWAY 3, EchoStar XVI and EchoStar XVII satellites.
Our other satellites, either in orbit or under construction, are not covered by launch or in-orbit insurance. We will
continue to assess circumstances going forward and make insurance decisions on a case-by-case basis.
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. The loss of or a significant reduction in provision of satellite services
would significantly reduce our revenue and materially adversely impact our results of operations. Revenue in our ESS
segment depends largely on our ability to continuously make use of our available satellite capacity with existing
customers and our ability to enter into commercial relationships with new customers. Consumer revenue in our Hughes
segment depends on our success in adding new and retaining existing subscribers and driving higher average revenue
per subscriber across our wholesale and retail channels. Revenue in our aeronautical, enterprise and equipment
businesses relies heavily on global economic conditions and the competitive landscape for pricing relative to competitors
and alternative technologies. Service costs related to ongoing support of our direct and indirect customers and partners
are typically impacted most significantly by our growth. 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, 2018, our total indebtedness was
$3.5 billion, of which $229 million was related to capital lease obligations. For a discussion of the terms of our
indebtedness, see Note 12 in the notes to our accompanying Consolidated Financial Statements in Item 15 of this
Form 10-K. Our liquidity requirements will be significant, primarily due to our debt service requirements and the design
and construction of our new EchoStar XXIV satellite. The 2019 Senior Secured Notes have an outstanding principal
balance as of February 11, 2019 of $919.7 million and will mature and be due and payable in June 2019. As of February
11, 2019, we have repurchased a total of $70.4 million in principal of the 2019 Senior Secured Notes in open market
trades. We may from time to time seek to purchase additional amounts of such notes and/or amounts of our other
outstanding debt in open market purchases, privately negotiated transactions or otherwise, depending on market
conditions, our liquidity needs and other factors. The amounts we may repurchase may be material.
In addition, our future capital expenditures are likely to increase if we make acquisitions or additional investments in
infrastructure or joint ventures to support and expand our business, or if we decide to purchase or build 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 invest or raise significant additional
capital, which may not be available on acceptable terms or at all. The 2017 Tax Act limits the deductibility of interest
expense for U.S. federal income tax purposes. While the 2017 Tax Act generally is likely to reduce our federal income
tax obligations, if these limitations or other newly enacted provisions become applicable to us they could minimize
such reductions or otherwise require us to pay additional federal income taxes, which in turn could result in additional
liquidity needs. We expect to owe U.S. Federal income tax for 2019.
We anticipate that our existing cash and marketable investment securities are sufficient to repay the 2019 Senior
Secured Notes that mature and are due and payable in June 2019 and to fund the currently anticipated operations of
our business through the next twelve months.
60
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - Continued
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, acquire
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 on October 30, 2018, we are authorized
to repurchase up to $500 million of our Class A common stock through December 31, 2019. During the year ended
December 31, 2018, we repurchased 952,603 shares of our common stock at an average price per share of $34.95
for a total purchase price of $33 million. During the years ended December 31, 2017 and 2016, we did not repurchase
any common stock under this program.
Critical Accounting Policies and Estimates
The preparation of our accompanying Consolidated Financial Statements in conformity with U.S. 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 our accompanying Consolidated Financial Statements in Item 15 of this Form 10-
K. 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 accompanying 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 our accompanying Consolidated Financial Statements in
Item 15 of this Form 10-K.
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.
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 over time using an
appropriate method to measure progress toward completion. Depending on the nature of the arrangement, we measure
progress toward completion using the cost-to-cost input method or the units-of-delivery output 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.
61
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - Continued
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 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.
New Accounting Pronouncements
For a discussion of new accounting pronouncements, see Note 2 in the notes to our accompanying Consolidated
Financial Statements in Item 15 of this Form 10-K. We are continuing to assess the impact of adopting certain 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.
Our ESS segment is not generally affected by seasonal impacts.
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.
62
EXPLANATION OF KEY METRICS AND OTHER ITEMS
Services and other revenue — DISH Network. Services and other revenue — DISH Network primarily includes
revenue associated with satellite and transponder leases and services, TT&C, 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 HughesNet service sold to DISH Network.
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 leases and services, satellite uplinking/
downlinking and other services provided to customers other than DISH Network.
Equipment revenue. Equipment revenue primarily includes broadband equipment and networks sold to customers
in our enterprise and consumer markets and sales of satellite broadband equipment and related equipment, related
to the HughesNet service, 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 leases and services, TT&C, professional services, facilities rental costs and other services
provided to our customers, including DISH Network.
Cost of sales — equipment. Cost of sales — equipment consists primarily of the cost of broadband equipment and
networks sold to customers in our enterprise and consumer markets, and to DISH Network. Cost of sales — equipment
also includes certain other costs associated with the deployment of equipment 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.
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.
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.
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 debt and capital lease obligations (net of capitalized interest) and amortization of debt
issuance costs.
Gains (losses) on investments, net. Gains (losses) on investments, net primarily includes changes in fair value of
our marketable equity securities and other investments for which we have elected the fair value option. It may also
include realized gains and losses on the sale or exchange of our available-for-sale debt securities, other-than-temporary
impairment losses on our available-for-sale securities, realized gains and losses on the sale or exchange of our
investments in unconsolidated entities and adjustments to the carrying amount of investments in unconsolidated entities
resulting from impairments and observable price changes.
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 using the equity method.
63
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - Continued
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.
Net income from discontinued operations. Net income from discontinued operations represents net income of the
EchoStar Technologies businesses and certain other assets transferred to DISH Network pursuant to the Share
Exchange.
Earnings before interest, taxes, depreciation and amortization (“EBITDA”). EBITDA is defined as Net income
(loss) excluding Interest income and expense, net, Income tax benefit (provision), net, Depreciation and amortization,
Net income from discontinued operations and Net income attributable to noncontrolling interests. EBITDA is not a
measure determined in accordance with U.S. GAAP. This non-GAAP measure is reconciled to Net income (loss) 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 U.S. GAAP. 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 the
underlying operating performance of our business and is appropriate to enhance an overall understanding of our
financial performance. 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 HughesNet service, through retail, wholesale and
small/medium enterprise service channels.
64
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, 2018, our cash, cash equivalents and current marketable investment securities had a fair value
of $3.2 billion. Of this amount, a total of $3.1 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 United States (“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
cash, cash equivalents and current marketable debt securities investment portfolio of $3.1 billion as of December 31,
2018, a hypothetical 10% change in average interest rates during 2018 would not have had 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, 2018 of 2.4%. 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 2018 would have resulted in a decrease of approximately $8 million in annual interest
income.
Strategic Marketable Investment Securities
As of December 31, 2018, we held current strategic investments in the publicly traded securities of several companies
with a fair value of $91 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 primarily
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 during 2018 would have resulted
in a decrease of approximately $9 million in the fair value of these investments.
Investments in Unconsolidated Entities
As of December 31, 2018, we had investments with an aggregate carrying amount of $262 million in securities of
privately held companies that we hold for strategic business purposes. The fair value of these investments is not
readily determinable. We periodically review these investments and we may estimate fair value and adjust the carrying
amount when there are indications of impairment or observable prices changes for the investments. A hypothetical
adverse change equal to 10% of the carrying amount of these equity instruments during 2018 would have resulted in
a decrease of approximately $26 million in the value of these investments.
65
Our ability to realize value from our strategic investments in companies that are privately held 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 currency forward contracts,
or take other measures, to mitigate risks associated with foreign currency denominated assets, liabilities, commitments
and anticipated foreign currency transactions. As of December 31, 2018, we had $8 million of net foreign currency
denominated receivables and payables outstanding and foreign currency forward contracts with a notional value of
$7 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, 2018. 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 during 2018 would have been
an estimated loss to the cumulative translation adjustment of $23 million as of December 31, 2018.
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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Our accompanying Consolidated Financial Statements are included in Item 15 of this Annual Report on Form 10-K
beginning on page F-4.
ITEM 9.
DISCLOSURE
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
Not applicable.
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 (the “Exchange Act”)) as
of the end of the period covered by this Annual Report on Form 10-K (“Form 10-K). 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 Form 10-K such that the information required to be disclosed in our Securities
and Exchange Commission reports is recorded, processed, summarized and reported within the time periods specified
in the Securities and Exchange Commission 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.
66
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 15d-15(f) under the Exchange Act) that occurred during the three months ended December 31, 2018 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.
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 generally accepted accounting principles in the United States, 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.
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, 2018.
The effectiveness of our internal control over financial reporting as of December 31, 2018 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
Form 10-K.
ITEM 9B. OTHER INFORMATION
On February 21, 2019, we issued a press release (the “Press Release”) announcing our financial results for the quarter
and year ended December 31, 2018. A copy of the Press Release is furnished herewith as Exhibit 99.1.
The foregoing information, including the exhibit related thereto, is furnished in response to Item 2.02 of Form 8-K and
shall not be deemed “filed” for the purposes of Section 18 of the Exchange Act, or otherwise, and shall not be incorporated
by reference into any registration statement or other document pursuant to the Securities Act of 1933, as amended,
or into any filing or other document pursuant to the Exchange Act, except as otherwise expressly stated in any such
filing.
67
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 2019 Annual Meeting of Shareholders, which will be filed
no later than 120 days after December 31, 2018, 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 12-13 of this Annual Report on Form 10-K 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 Annual Report on
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 2019 Annual Meeting of
Shareholders, which will be filed no later than 120 days after December 31, 2018, 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 2019 Annual Meeting of
Shareholders, which will be filed no later than 120 days after December 31, 2018, 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 2019 Annual Meeting of
Shareholders, which will be filed no later than 120 days after December 31, 2018, 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 2019 Annual Meeting of
Shareholders, which will be filed no later than 120 days after December 31, 2018, under the caption “Principal
Accountant Fees and Services,” which information is hereby incorporated herein by reference.
68
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a) The following documents are filed as part of this report:
PART IV
(1) Consolidated Financial Statements
Index to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2018 and 2017
Consolidated Statements of Operations for the years ended December 31, 2018,
2017 and 2016
Consolidated Statements of Comprehensive Income (Loss) for the years ended
December 31, 2018, 2017 and 2016
Consolidated Statements of Changes in Stockholders’ Equity for the years ended
December 31, 2018, 2017 and 2016
Consolidated Statements of Cash Flows for the years ended December 31, 2018,
2017 and 2016
Notes to Consolidated Financial Statements
(2) Financial Statement Schedules
Schedule II — Valuation and Qualifying Accounts
(3) Exhibits
Page
F-1
F-2
F-4
F-5
F-6
F-7
F-8
F-9
F-69
2.1*
2.2*
3.1*
3.2*
3.3*
3.4*
3.5*
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 Hughes Communications Inc.’s Current Report on Form 8-
K, 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).
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).
Certificate of Amendment to Articles of Incorporation of EchoStar Corporation, dated as of May 4, 2016
(incorporated by reference to Exhibit 3.1 to EchoStar Corporation’s Current Report on Form 8-K, filed
May 5, 2016, Commission File No. 001-33807).
Certificate of Withdrawal of Certificate of Designation of EchoStar Corporation (incorporated by reference
to Exhibit 31 to EchoStar Corporation’s Current Report on Form 8-K, filed March 6, 2017, 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).
69
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 4.1 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 relating to the 6 1/2% Senior Secured Notes due 2019 of Hughes Satellite
Systems Corporation, 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 relating to the 7 5/8% Senior Unsecured Notes due 2021 of Hughes
Satellite Systems Corporation, 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).
4.10*
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).
4.11*
Form of Note for 6 1/2% Senior Secured Notes due 2019 (included as part of Exhibit 4.2).
4.12*
Form of Note for 7 5/8% Senior Unsecured Notes due 2021 (included as part of Exhibit 4.3).
70
4.13*
4.14*
4.15*
4.16*
Indenture, relating to the 5.250% Senior Secured Notes, dated as of July 27, 2016, among Hughes
Satellite Systems Corporation, the guarantors party thereto, U.S. Bank National Association, as trustee,
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 on July 27, 2016, Commission File No.
001-33807).
Indenture, relating to the 6.625% Senior Unsecured Notes, dated as of July 27, 2016, among Hughes
Satellite Systems Corporation, the guarantors party thereto and U.S. Bank National Association, as trustee
(incorporated by reference to Exhibit 4.2 to EchoStar Corporation’s Current Report on Form 8-K filed on
July 27, 2016, Commission File No. 001-33807).
Registration Rights Agreement, dated as of July 27, 2016, among Hughes Satellite Systems Corporation,
the guarantors party thereto and Deutsche Bank Securities Inc. (incorporated by reference to Exhibit 4.3
to EchoStar Corporation’s Current Report on Form 8-K filed on July 27, 2016, Commission File No.
001-33807).
Additional Secured Party Joinder, dated as of July 27, 2016, among U.S. Bank National Association, as
trustee, Wells Fargo Bank, National Association, as collateral agent and Hughes Satellite Systems
Corporation (incorporated by reference to Exhibit 4.4 to EchoStar Corporation’s Current Report on Form
8-K filed on July 27, 2016, Commission File No. 001-33807).
4.17*
Form of 5.250% Senior Secured Note due 2026 (included as part of Exhibit 4.13).
4.18*
Form of 6.625% Senior Unsecured Note due 2026 (included as part of Exhibit 4.14).
4.19*
4.20*
4.21*
4.22*
4.23*
4.24*
Joinder Agreement, dated as of March 23, 2017, to the Security Agreement dated as of June 8, 2011, by
and between Cheyenne Data Center L.L.C. and Wells Fargo Bank, National Association, as collateral
agent (incorporated by reference to Exhibit 4.18 to Hughes Satellite Systems Corporation’s Registration
Statement on Form S-4, filed April 6, 2017, Commission File No. 333-179121).
Supplemental Indenture relating to Hughes Satellite Systems Corporation’s 5.250% Senior Secured Notes
due 2026, dated March 23, 2017, by and among Hughes Satellite Systems Corporation, the guarantors
and the supplemental guarantor listed on the signature pages thereto, U.S. Bank National Association,
as trustee, and Wells Fargo Bank, National Association, as collateral agent (incorporated by reference
to Exhibit 4.19 to Hughes Satellite Systems Corporation’s Registration Statement on Form S-4, filed April
6, 2017, Commission File No. 333-179121).
Supplemental Indenture relating to Hughes Satellite Systems Corporation’s 6.625% Senior Notes due
2026, dated as of March 23, 2017, by and among Hughes Satellite Systems Corporation, the guarantors
and the supplemental guarantor listed on the signature pages thereto and U.S. Bank National Association,
as trustee (incorporated by reference to Exhibit 4.20 to Hughes Satellite Systems Corporation’s
Registration Statement on Form S-4, filed April 6, 2017, Commission File No. 333-179121).
Third Supplemental Indenture relating to Hughes Satellite Systems Corporation’s 6½% Senior Secured
Notes due 2019, dated March 23, 2017, by and among Hughes Satellite Systems Corporation, the
guarantors and the supplemental guarantor listed on the signature pages thereto and Wells Fargo Bank,
National Association, as collateral agent and trustee (incorporated by reference to Exhibit 4.21 to Hughes
Satellite Systems Corporation’s Registration Statement on Form S-4, filed April 6, 2017, Commission File
No. 333-179121).
Third Supplemental Indenture relating to Hughes Satellite Systems Corporation’s 7 % Senior Notes due
2021, dated March 23, 2017, by and among Hughes Satellite Systems Corporation, the guarantors and
the supplemental guarantor listed on the signature pages thereto and Wells Fargo Bank, National
Association, as trustee (incorporated by reference to Exhibit 4.22 to Hughes Satellite Systems
Corporation’s Registration Statement on Form S-4, filed April 6, 2017, Commission File No. 333-179121).
Joinder Agreement, dated as of August 10, 2017, to the Security Agreement dated as of June 8, 2011,
by and between HNS Americas, L.L.C., HNS Americas II, L.L.C. and Wells Fargo Bank, National
Association, as collateral agent (incorporated by reference to Exhibit 4.24 to EchoStar Corporation’s
Annual Report on Form 10-K for the year ended December 31, 2017, filed February 22, 2018,
Commission File No. 001-33807).
71
4.25*
4.26*
4.27*
4.28*
10.1*
10.2*
10.3*
10.4*
10.5*
10.6*
10.7*
10.8*
Second Supplemental Indenture relating to Hughes Satellite Systems Corporation’s 5.250% Senior
Secured Notes due 2026, dated August 10, 2017, by and among Hughes Satellite Systems Corporation,
the guarantors and the supplemental guarantor listed on the signature pages thereto, U.S. Bank National
Association, as trustee, and Wells Fargo Bank, National Association, as collateral agent (incorporated
by reference to Exhibit 4.25 to EchoStar Corporation’s Annual Report on Form 10-K for the year ended
December 31, 2017, filed February 22, 2018, Commission File No. 001-33807).
Second Supplemental Indenture relating to Hughes Satellite Systems Corporation’s 6.625% Senior Notes
due 2026, dated as of August 10, 2017, by and among Hughes Satellite Systems Corporation, the
guarantors and the supplemental guarantor listed on the signature pages thereto and U.S. Bank National
Association, as trustee (incorporated by reference to Exhibit 4.26 to EchoStar Corporation’s Annual Report
on Form 10-K for the year ended December 31, 2017, filed February 22, 2018, Commission File
No. 001-33807).
Fourth Supplemental Indenture relating to Hughes Satellite Systems Corporation’s 6½% Senior Secured
Notes due 2019, dated August 10, 2017, by and among Hughes Satellite Systems Corporation, the
guarantors and the supplemental guarantor listed on the signature pages thereto and Wells Fargo Bank,
National Association, as collateral agent and trustee (incorporated by reference to Exhibit 4.27 to
EchoStar Corporation’s Annual Report on Form 10-K for the year ended December 31, 2017, filed
February 22, 2018, Commission File No. 001-33807).
Fourth Supplemental Indenture relating to Hughes Satellite Systems Corporation’s 7 % Senior Notes
due 2021, dated August 10, 2017, by and among Hughes Satellite Systems Corporation, the guarantors
and the supplemental guarantor listed on the signature pages thereto and Wells Fargo Bank, National
Association, as trustee (incorporated by reference to Exhibit 4.28 to EchoStar Corporation’s Annual Report
on Form 10-K for the year ended December 31, 2017, filed February 22, 2018, Commission File
No. 001-33807).
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 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).**
QuetzSat-1 Satellite Service Agreement, dated November 24, 2008, between SES Latin America S.A.
and EchoStar 77 Corporation, a 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 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 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).***
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).***
72
10.9*
10.10*
10.11*
10.12*
10.13*
10.14*
10.15*
10.16*
10.17*
10.18*
10.19*
10.20*
10.21*
10.22*
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, 2009, 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).***
Employment Agreement, dated as of April 23, 2005 between Hughes Network Systems, LLC and Pradman
Kaul (incorporated by reference to Exhibit 10.3 to Hughes Communications Inc.’s Registration Statement
on Form S-1, 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 Hughes
Communications Inc.’s Annual Report on Form 10-K, filed March 7, 2011, Commission File
No. 001-33040).**
Amendment to Employment Agreement, dated as of April 1, 2016, between Hughes Communications, Inc.
and Pradman Kaul (incorporated by reference to Exhibit 10.1 EchoStar Corporation’s Current Report on
Form 8-K, filed April 6, 2016, 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).***
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).**
Form of Stock Option Agreement for 2008 Stock Incentive Plan (1999) (incorporated by reference to
Exhibit 10.39 to EchoStar Corporation’s Annual Report on Form 10-K for the year ended December 31,
2015, filed February 24, 2016, Commission File No. 001-33807).**
Form of Stock Option Agreement for 2008 Stock Incentive Plan — Employee (2008) (incorporated by
reference to Exhibit 10.40 to EchoStar Corporation’s Annual Report on Form 10-K for the year ended
December 31, 2015, filed February 24, 2016, Commission File No. 001-33807).**
Form of Stock Option Agreement for 2008 Stock Incentive Plan — Executive (2008) (incorporated by
reference to Exhibit 10.41 to EchoStar Corporation’s Annual Report on Form 10-K for the year ended
December 31, 2015, filed February 24, 2016, Commission File No. 001-33807).**
Form of Stock Option Agreement for 2008 Stock Incentive Plan — Employee (2014) (incorporated by
reference to Exhibit 10.42 to EchoStar Corporation’s Annual Report on Form 10-K for the year ended
December 31, 2015, filed February 24, 2016, Commission File No. 001-33807).**
Form of Stock Option Agreement for 2008 Stock Incentive Plan — Executive (2014) (incorporated by
reference to Exhibit 10.43 to EchoStar Corporation’s Annual Report on Form 10-K for the year ended
December 31, 2015, filed February 24, 2016, Commission File No. 001-33807). **
Form of Non-Employee Director Stock Option Agreement for 2008 Non-Employee Director Stock Option
Plan (incorporated by reference to Exhibit 10.44 to EchoStar Corporation’s Annual Report on Form 10-
K for the year ended December 31, 2015, filed February 24, 2016, Commission File No. 001-33807). **
73
10.23*
10.24*
10.25*
10.26*
10.27*
10.28*
10.29*
10.30*
10.31*
10.32*
10.33*
10.34*
Form of Restricted Stock Unit Agreement for 2008 Stock Incentive Plan — Executive or Director (2011)
(incorporated by reference to Exhibit 10.45 to EchoStar Corporation’s Annual Report on Form 10-K for
the year ended December 31, 2015, filed February 24, 2016, Commission File No. 001-33807).**
EchoStar Corporation Executive Officer Bonus Incentive Plan, dated as of May 4, 2016 (incorporated by
reference to Exhibit 10.1 to EchoStar Corporation’s Current Report on Form 8-K, filed May 5, 2016,
Commission File No. 001-33807).**
Share Exchange Agreement among DISH Network Corporation, DISH Network L.L.C., DISH Operating
L.L.C., EchoStar Corporation, EchoStar Broadcasting Holding Parent L.L.C., EchoStar Broadcasting
Holding Corporation, EchoStar Technologies Holding Corporation, and EchoStar Technologies 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, 2017, filed May 10, 2017, Commission File No. 001-33807***/****
EchoStar Corporation 2017 Stock Incentive Plan (incorporated by reference to EchoStar Corporation’s
Definitive Proxy Statement on Form 14, filed March 23, 2017, Commission File No. 001-33807).**
EchoStar Corporation 2017 Non-Employee Director Stock Incentive Plan (incorporated by reference to
EchoStar Corporation’s Definitive Proxy Statement on Form 14, filed March 23, 2017, Commission File
No. 001-33807).**
Amended and Restated EchoStar Corporation 2017 Employee Stock Purchase Plan (incorporated by
reference to EchoStar Corporation’s Definitive Proxy Statement on Form 14, filed March 23, 2017,
Commission File No. 001-33807).**
EchoStar Non-Qualified Plan -- Executive Plan and Adoption Agreement, as amended (incorporated by
reference to Exhibit 10.1 to EchoStar Corporation’s Quarterly Report on Form 10-Q for the quarter ended
June 30, 2017, filed August 9, 2017, Commission File No. 001-33807).**
Form of Stock Option Agreement for the EchoStar Corporation 2017 Stock Incentive Plan - Employee
(2017) (incorporated by reference to Exhibit 10.2 to EchoStar Corporation’s Quarterly Report on Form 10-
Q for the quarter ended June 30, 2017, filed August 9, 2017, Commission File No. 001-33807).**
Form of Stock Option Agreement for the EchoStar Corporation 2017 Stock Incentive Plan - Executive
(2017) (incorporated by reference to Exhibit 10.3 to EchoStar Corporation’s Quarterly Report on Form 10-
Q for the quarter ended June 30, 2017, filed August 9, 2017, Commission File No. 001-33807). **
Form of Non-Employee Director Stock Option Agreement for the EchoStar Corporation 2017 Non-
Employee Director Stock Incentive Plan (incorporated by reference to Exhibit 10.4 to EchoStar
Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2017, filed August 9, 2017,
Commission File No. 001-33807).**
Form of Restricted Stock Unit Agreement for the EchoStar Corporation 2017 Stock Incentive Plan -
Executive (2017) (incorporated by reference to Exhibit 10.5 to EchoStar Corporation’s Quarterly Report
on Form 10-Q for the quarter ended June 30, 2017, filed August 9, 2017, Commission File
No. 001-33807).**
Letter Agreement between EchoStar Corporation and DISH Network Corporation, dated August 3, 2018,
amending that certain Form of Tax Sharing Agreement between EchoStar Corporation and DISH Network
(incorporated by reference to Exhibit 10.1 to EchoStar Corporation’s Quarterly Report on Form 10-Q for
the quarter ended September 2018, filed November 8, 2018, Commission File No. 001-33807).
10.35(J)
Amendment to EchoStar Non-Qualified Plan -- Executive Plan and Adoption Agreement, dated November
1, 2018.**
21(J)
Subsidiaries of EchoStar Corporation.
23(H)
Consent of KPMG LLP, Independent Registered Public Accounting Firm.
74
24(H)
Powers of Attorney of Charles W. Ergen, R. Stanton Dodge, Anthony M. Federico, Pradman P. Kaul, Tom
A. Ortolf, C. Michael Schroeder and William David Wade.
99.1(J)
Press release dated February 21, 2019 issued by EchoStar Corporation regarding financial results for
the quarter and full year ended December 31, 2018.
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.
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)
(J)
*
**
***
****
Filed herewith.
Furnished herewith
Included as an exhibit to EchoStar Corporation’s Annual Report on Form 10-K for the year ended December 31, 2018, filed February 21,
2019, Commission File No. 001-33807.
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.
ITEM 16. FORM 10-K SUMMARY
None.
75
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,
Chief Operating Officer, and
Treasurer
Date: February 27, 2019
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 27, 2019
/s/ David J. Rayner
David J. Rayner
*
Charles W. Ergen
*
R. Stanton Dodge
*
Anthony M. Federico
*
Pradman P. Kaul
*
Tom A. Ortolf
*
C. Michael Schroeder
*
William David Wade
Executive Vice President, Chief Financial Officer,
Chief Operating Officer and Treasurer
(Principal Financial and Accounting Officer)
February 27, 2019
Chairman
February 27, 2019
Director
Director
Director
Director
Director
Director
February 27, 2019
February 27, 2019
February 27, 2019
February 27, 2019
February 27, 2019
February 27, 2019
* By:
/s/ Dean A. Manson
Dean A. Manson
Attorney-in-Fact
76
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Financial Statements:
Index to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2018 and 2017
Consolidated Statements of Operations for the years ended December 31, 2018, 2017 and 2016
Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2018,
2017 and 2016
Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31,
2018, 2017 and 2016
Consolidated Statements of Cash Flows for the years ended December 31, 2018, 2017 and 2016
Notes to Consolidated Financial Statements
Page
F-1
F-2
F-4
F-5
F-6
F-7
F-8
F-9
F-1
Report of Independent Registered Public Accounting Firm
To the stockholders and board of directors
EchoStar Corporation:
Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting
We have audited the accompanying consolidated balance sheets of EchoStar Corporation and subsidiaries (the
“Company”) as of December 31, 2018 and 2017, the related consolidated statements of operations, comprehensive
income (loss), changes in stockholders’ equity, and cash flows for each of the years in the three-year period ended
December 31, 2018, and the related notes and financial statement schedule II listed in Item 15, collectively, the
“consolidated financial statements.” We also have audited the Company’s internal control over financial reporting as
of December 31, 2018, based on criteria established in Internal Control - Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the
financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 2018, in conformity with U.S. generally
accepted accounting principles. Also in our opinion, the Company maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2018, based on criteria established in Internal Control - Integrated
Framework (2013) issued by COSO.
Changes in Accounting Principles
As discussed in Note 2 to the consolidated financial statements, in 2018 the Company has changed its method of
accounting for revenue recognition due to the adoption of Accounting Standards Update No. 2014-09, Revenue from
Contracts with Customers and changed its method of accounting for marketable investment securities and fair value
measurements due to the adoption of Accounting Standards Update No. 2016-01, Recognition and Measurement of
Financial Assets and Financial Liabilities. In 2017, the Company has changed its method of accounting for excess tax
benefits and deficiencies related to share-based payment awards due to the adoption of Accounting Standards Update
No. 2016-09, Improvements to Employee Share-Based Payment Accounting.
Basis for Opinions
The Company’s management is responsible for these consolidated financial statements, for maintaining effective
internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control
Over Financial Reporting, and for its assessment of the effectiveness of internal control over financial reporting. Our
responsibility is to express an opinion on the Company’s consolidated financial statements and an opinion on the
Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered
with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent
with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations
of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of
material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting
was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material
misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and
disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles
used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated
financial statements. 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.
F-2
Definition and Limitations of Internal Control Over Financial Reporting
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.
We have served as the Company’s auditor since 2007.
/s/ KPMG LLP
Denver, Colorado
February 21, 2019
F-3
ECHOSTAR CORPORATION
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts)
Assets
Current assets:
Cash and cash equivalents
Marketable investment securities, at fair value
Trade accounts receivable and contract assets, net (Note 3)
Trade accounts receivable - DISH Network
Inventory
Prepaids and deposits
Other current assets
Total current assets
Noncurrent assets:
Property and equipment, net
Regulatory authorizations, net
Goodwill
Other intangible assets, net
Investments in unconsolidated entities
Other receivables - DISH Network
Other noncurrent assets, net
Total noncurrent assets
Total assets
Liabilities and Stockholders’ Equity
Current liabilities:
Trade accounts payable
Trade accounts payable - DISH Network
Current portion of long-term debt and capital lease obligations
Contract liabilities
Accrued interest
Accrued compensation
Accrued taxes
Accrued expenses and other
Total current liabilities
Noncurrent liabilities:
Long-term debt and capital lease obligations, net
Deferred tax liabilities, net
Other noncurrent liabilities
Total noncurrent liabilities
Total liabilities
Commitments and contingencies (Note 17)
Stockholders’ equity:
As of December 31,
2018
2017
$
928,306
$
2,431,456
2,282,152
201,096
14,200
75,379
61,177
18,539
814,161
196,840
43,295
83,595
54,533
91,671
3,580,849
3,715,551
3,414,908
3,465,471
495,654
504,173
44,231
262,473
95,114
263,892
536,936
504,173
58,955
161,427
92,687
214,814
5,080,445
8,661,294
$
5,034,463
8,750,014
121,437
$
108,406
$
$
1,698
959,577
72,284
47,416
54,242
16,013
72,470
4,753
40,631
65,959
47,616
47,756
16,122
82,647
1,345,137
413,890
2,573,204
465,933
121,546
3,160,683
4,505,820
3,594,213
436,023
128,503
4,158,739
4,572,629
Preferred stock, $0.001 par value, 20,000,000 shares authorized, none issued and outstanding at each of
December 31, 2018 and 2017
Common stock, $0.001 par value, 4,000,000,000 shares authorized:
Class A common stock, $0.001 par value, 1,600,000,000 shares authorized, 54,142,566 shares issued and
47,657,645 shares outstanding at December 31, 2018 and 53,663,859 shares issued and 48,131,541 shares
outstanding at December 31, 2017
Class B convertible common stock, $0.001 par value, 800,000,000 shares authorized, 47,687,039 shares
issued and outstanding at each of December 31, 2018 and 2017
Class C convertible common stock, $0.001 par value, 800,000,000 shares authorized, none issued and
outstanding at each of December 31, 2018 and 2017
Class D common stock, $0.001 par value, 800,000,000 shares authorized, none issued and outstanding at
each of December 31, 2018 and 2017
Additional paid-in capital
Accumulated other comprehensive loss
Accumulated earnings
Treasury stock, at cost
Total EchoStar Corporation stockholders’ equity
Other noncontrolling interests
Total stockholders’ equity
—
54
48
—
—
3,702,522
(125,100)
694,129
(131,454)
4,140,199
15,275
4,155,474
Total liabilities and stockholders’ equity
$
8,661,294
$
The accompanying notes are an integral part of these consolidated financial statements.
F-4
—
54
48
—
—
3,669,461
(130,154)
721,316
(98,162)
4,162,563
14,822
4,177,385
8,750,014
ECHOSTAR CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
Revenue:
Services and other revenue - DISH Network
Services and other revenue - other
Equipment revenue
Total revenue
Costs and expenses:
Cost of sales - services and other (exclusive of depreciation and
amortization)
Cost of sales - equipment (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
Other income (expense):
Interest income
Interest expense, net of amounts capitalized
Gains (losses) on investments, net
Equity in earnings (losses) of unconsolidated affiliates, net
Other, net
Total other income (expense), net
Income (loss) from continuing operations before income
taxes
Income tax benefit (provision), net
Net income (loss) from continuing operations
Net income from discontinued operations
Net income (loss)
Less: Net income attributable to noncontrolling
interests
Net income (loss) attributable to EchoStar
Corporation
Less: Net loss attributable to Hughes Retail
Preferred Tracking Stock (Note 1)
Net income (loss) attributable to EchoStar
Corporation common stock
Earnings per share - Class A and B common stock:
Basic earnings (loss) from continuing operations per share
Total basic earnings (loss) per share
Diluted earnings (loss) from continuing operations per share
Total diluted earnings (loss) per share
For the years ended December 31,
2018
2017
2016
$
378,694 $
445,698 $
463,442
1,507,259
1,200,321
1,100,828
205,410
239,489
246,196
2,091,363
1,885,508
1,810,466
604,305
563,346
536,568
176,600
436,247
27,570
598,178
65,220
195,151
366,007
31,745
522,190
10,762
188,617
325,044
31,170
432,904
—
1,908,120
1,689,201
1,514,303
183,243
196,307
296,163
80,275
44,619
21,244
(248,568)
(217,240)
(123,481)
(12,207)
(5,954)
(4,749)
53,453
16,973
6,582
9,767
10,802
2,131
(191,203)
(95,613)
(79,537)
(7,960)
(30,673)
(38,633)
—
100,694
284,286
384,980
8,509
(38,633)
393,489
216,626
(80,254)
136,372
44,320
180,692
1,842
928
762
(40,475)
392,561
179,930
—
(1,209)
(1,743)
$
(40,475) $
393,770 $
181,673
$
$
$
$
(0.42) $
(0.42) $
(0.42) $
(0.42) $
4.04 $
4.13 $
3.98 $
4.07 $
1.46
1.94
1.45
1.92
The accompanying notes are an integral part of these consolidated financial statements.
F-5
ECHOSTAR CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Dollars in thousands)
Comprehensive income (loss):
Net income (loss)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments
Unrealized gains (losses) on available-for-sale securities and other
Amounts reclassified to net income:
Foreign currency translation realized to due impairment of long
lived assets
Realized gains on available-for-sale securities
Other-than-temporary impairment loss on available-for-sale
securities
Total other comprehensive income (loss), net of tax
Comprehensive income (loss)
Less: Comprehensive income attributable to noncontrolling
interests
Comprehensive income (loss) attributable to EchoStar
Corporation
For the years ended December 31,
2018
2017
2016
$
(38,633) $
393,489 $
180,692
(34,399)
(2,872)
16,413
(21,895)
(11,315)
9,149
32,136
—
(278)
(5,413)
(44,046)
—
—
(2,758)
(5,590)
3,298
(4,942)
—
(7,756)
388,547
172,936
453
1,337
576
$
(44,499) $
387,210 $
172,360
The accompanying notes are an integral part of these consolidated financial statements.
F-6
ECHOSTAR CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(Dollars in thousands)
Class
A and B
Common
Stock
Hughes Retail
Preferred
Tracking
Stock
Additional
Paid-In
Capital
Accumulated
Other
Comprehensive
Income (Loss)
Accumulated
Earnings
(Deficit)
Treasury
Stock
Noncontrolling
Interest in
HSS Tracking
Stock
Other
Noncontrolling
Interests
Total
Balance, January 1, 2016
$
99
$
6
$ 3,776,451
$
(117,233)
$
134,317
$
(98,162)
$
74,854
$
11,310
$ 3,781,642
Issuances of Class A common stock:
Exercise of stock options
Employee benefits
Employee Stock Purchase Plan
Stock-based compensation
Excess tax benefit from stock option
exercises
R&D tax credits utilized by DISH
Network
Other comprehensive loss
Net income (loss)
Other, net
Balance, December 31, 2016
Cumulative effect of adoption of ASU
No. 2016-09 as of January 1, 2017
(Note 2)
Balance, January 1, 2017
Issuances of Class A common stock:
Exercise of stock options
Employee benefits
Employee Stock Purchase Plan
Stock-based compensation
Reacquisition and retirement of
Tracking Stock pursuant to the Share
Exchange (Note 1)
R&D tax credits utilized by DISH
Network
Other comprehensive loss
Net income (loss)
Other, net
Balance, December 31, 2017
Cumulative effect of adoption of ASU
No. 2014-09 and ASU No. 2016-01
as of January 1, 2018 (Note 2)
Balance, January 1, 2018
Issuances of Class A common stock:
Exercise of stock options
Employee benefits
Employee Stock Purchase Plan
Stock-based compensation
R&D tax credits utilized by DISH
Network
Other comprehensive income (loss)
Net income (loss)
Treasury share repurchase
Other, net
1
—
—
—
—
—
—
—
—
100
—
100
2
—
—
—
—
—
—
—
—
102
—
102
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
6
—
6
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
13,065
11,126
14,367
15,234
848
(1,600)
—
—
(814)
—
—
—
—
—
—
(7,506)
—
(64)
—
—
—
—
—
—
—
179,930
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(186)
13,066
11,126
14,367
15,234
848
(1,600)
(7,692)
(944)
—
1,706
180,692
—
(878)
3,828,677
(124,803)
314,247
(98,162)
73,910
12,830
4,006,805
—
—
14,508
—
3,828,677
(124,803)
328,755
(98,162)
—
73,910
—
14,508
12,830
4,021,313
36,503
11,200
8,758
10,103
1,624
—
—
(126)
(6)
(227,278)
—
—
—
—
—
—
(5,443)
—
92
—
—
—
—
—
—
—
392,561
—
—
—
—
—
—
—
—
—
—
3,669,461
(130,154)
721,316
(98,162)
—
10,467
12,656
—
3,669,461
(119,687)
733,972
(98,162)
4,404
7,605
9,368
9,990
1,822
—
—
—
—
—
—
—
—
(3,462)
—
—
(128)
(1,951)
—
—
—
—
—
—
(40,475)
—
—
—
—
—
—
—
—
632
(33,292)
—
—
—
—
—
(73,255)
—
—
—
—
—
—
—
—
36,505
11,200
8,758
10,103
(300,539)
1,624
409
(5,034)
(655)
1,583
393,489
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(34)
14,822
4,177,385
—
23,123
14,822
4,200,508
—
—
—
—
—
4,404
7,605
9,368
9,990
1,822
(1,389)
(4,851)
1,842
(38,633)
—
—
(33,292)
(1,447)
Balance, December 31, 2018
$
102
$
— $ 3,702,522
$
(125,100)
$
694,129
$ (131,454)
$
— $
15,275
$ 4,155,474
The accompanying notes are an integral part of these consolidated financial statements.
F-7
ECHOSTAR CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Cash flows from operating activities:
Net income (loss)
Adjustments to reconcile net income (loss) to net cash flows from operating activities:
For the years ended December 31,
2018
2017
2016
$
(38,633) $
393,489
$
180,692
Depreciation and amortization
Impairment of long-lived assets
Equity in earnings of unconsolidated affiliates, net
Amortization of debt issuance costs
Gains and losses on investments, net
Stock-based compensation
Deferred tax provision (benefit)
Dividends received from unconsolidated entities
Proceeds from sale of trading securities
Changes in current assets and current liabilities, net:
Trade accounts receivable, net
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
Expenditures for property and equipment
Refunds and other receipts related to property and equipment
Sale of investment in unconsolidated entity
Expenditures for externally marketed software
Investments in unconsolidated entities
Other, net
598,178
65,220
6,037
7,923
12,109
9,990
26,327
10,000
—
(17,842)
29,188
5,650
(16,261)
9,562
(3,055)
23,105
(5,070)
12,094
734,522
(2,973,254)
1,498,463
(555,141)
77,524
1,558
(31,639)
(115,991)
—
533,849
10,762
(15,814)
7,378
(53,453)
10,103
(288,577)
19,000
8,922
421
235,227
(19,291)
(15,352)
(78,419)
731
11,993
(36,975)
2,898
726,892
(855,717)
580,235
(583,211)
4,311
17,781
(31,331)
—
—
495,068
—
(13,310)
6,551
(9,767)
15,234
98,148
15,000
7,140
(26,942)
(1,456)
(4,814)
2,263
(24,571)
(19,650)
55,998
9,459
18,300
803,343
(921,247)
1,009,310
(722,341)
24,087
—
(23,252)
(1,636)
2,880
Net cash flows from investing activities
(2,098,480)
(867,932)
(632,199)
Cash flows from financing activities:
Proceeds from issuance of long-term debt
Payments of debt issuance costs
Repurchase of the 2019 Senior Secured Notes (Note 12)
Purchase of treasury shares (Note 14)
Repayment of debt and capital lease obligations
Net proceeds from Class A common stock options exercised
Net proceeds from Class A common stock issued under the Employee Stock Purchase Plan
Repayment of in-orbit incentive obligations
Cash exchanged for Tracking Stock (Note 1)
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, including restricted amounts, beginning of period
Cash and cash equivalents, including restricted amounts, end of period
Supplemental disclosure of cash flow information:
Cash paid for interest, net of amounts capitalized
Cash paid for income taxes
—
—
(70,173)
(33,292)
(41,019)
4,424
9,368
(5,350)
—
(521)
(136,563)
(2,233)
(1,502,754)
2,432,249
—
(414)
—
—
(37,670)
35,536
8,758
(5,487)
(651)
—
72
1,351
(139,617)
2,571,866
929,495
$
2,432,249
$
1,500,000
(7,097)
—
—
(40,364)
13,065
14,367
(5,499)
—
1,217
1,475,689
138
1,646,971
924,895
2,571,866
240,596
5,209
$
$
207,617
11,033
$
$
78,312
11,700
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
F-8
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 and has operated as a separately traded public company from Dish Network Corporation (“DISH”) since
2008. Our Class A common stock is publicly traded on the Nasdaq Global Select Market under the symbol “SATS.”
We are a global provider of broadband satellite technologies, broadband internet services for home and small office
customers, satellite operations and satellite services. We also deliver innovative network technologies, managed
services and various communications solutions for aeronautical, enterprise and government customers. We primarily
operate in the following two business segments:
• Hughes — which provides broadband satellite technologies and broadband internet services to domestic and
international home and small office customers and broadband network technologies, managed services,
equipment, hardware, satellite services and communication solutions to domestic and international consumers
and aeronautical, enterprise and government customers. The Hughes segment also designs, provides and
installs gateway and terminal equipment to customers for other satellite systems. In addition, our Hughes
segment designs, develops, constructs and provides telecommunication networks comprising satellite ground
segment systems and terminals to mobile system operators and our enterprise customers.
• EchoStar Satellite Services (“ESS”) — which uses certain of our owned and leased in-orbit satellites and
related licenses to provide satellite operations and satellite services on a full-time and/or occasional-use basis
primarily to DISH Network Corporation and its subsidiaries (“DISH Network”), Dish Mexico, S. de R.L. de C.V.,
a joint venture we entered into in 2008 (“Dish Mexico”), United States (“U.S.”) government service providers,
internet service providers, broadcast news organizations, content providers and private enterprise customers.
Our operations also include various corporate departments (primarily Executive, Treasury, Strategic Development,
Human Resources, IT, Finance, Real Estate, Accounting and Legal) and other activities that have not been assigned
to our operating segments such as costs incurred in certain satellite development programs and other business
development activities, and gains or losses from certain of our investments. These activities, costs and income, as
well as eliminations of intersegment transactions, are accounted for in Corporate and Other in our segment reporting.
During 2017, we and certain of our subsidiaries entered into a share exchange agreement with DISH and certain of
its subsidiaries. We, and certain of our subsidiaries, received all of the shares of the Hughes Retail Preferred Tracking
Stock previously issued by us and one of our subsidiaries (together, the “Tracking Stock”) in exchange for 100% of
the equity interests of certain of our subsidiaries that held substantially all of our former EchoStar Technologies
businesses and certain other assets (collectively, the “Share Exchange”). Following the consummation of the Share
Exchange, we no longer operate our former EchoStar Technologies businesses, the Tracking Stock was retired and
is no longer outstanding, and all agreements, arrangements and policy statements with respect to the Tracking Stock
terminated. As a result of the Share Exchange, the operating results of the EchoStar Technologies businesses have
been presented as discontinued operations and as such, have been excluded from continuing operations and segment
results for all periods presented in our accompanying Consolidated Financial Statements. See Note 4 for further
discussion of our discontinued operations.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation and Basis of Presentation
We consolidate all entities in which we have a 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% 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. Prior to the consummation of the Share Exchange, noncontrolling interests consisted primarily
F-9
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
of the Hughes Retail Preferred Tracking Stock issued by our subsidiary, Hughes Network Systems Corporation (“HSS”),
(the “HSS Tracking Stock”) owned by DISH Network as described in Notes 1 and 4. All significant intercompany
balances and transactions have been eliminated in consolidation.
Reclassification
Certain prior period amounts have been reclassified to conform with the current period presentation.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles in the U.S. (“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 financial statements. Estimates are used in accounting for, among other
things, (i) amortization periods for deferred contract acquisition costs, (ii) inputs used to recognize revenue over time,
(iii) allowances for doubtful accounts, (iv) warranty obligations, (v) self-insurance obligations, (vi) deferred taxes and
related valuation allowances, (vii) uncertain tax positions, (viii) loss contingencies, (ix) fair value of financial instruments,
(x) fair value of stock-based compensation awards, (xi) fair value of assets and liabilities acquired in business
combinations, (xii) lease classifications, (xiii) asset impairment testing and (xiv) useful lives and methods for depreciation
and amortization of long-lived assets.
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
financial statements. Additionally, 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
thereto are reflected in the period they occur or prospectively if the revised estimate affects future periods.
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:
•
•
•
Level 1 - Defined as observable inputs being quoted prices in active markets for identical assets;
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
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.
Fair values of our 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 Level 1 measurements that reflect quoted prices for identical securities in active markets. Fair values of our
investments in other marketable debt securities are generally based on Level 2 measurements, as the markets for
such debt securities are less active. We consider trades of identical debt securities on or near the measurement date
as a strong indication of fair value and matrix pricing techniques that consider par value, coupon rate, credit quality,
maturity and other relevant features may also be used to determine fair value of our investments in marketable debt
securities. Fair values for our outstanding debt (see Note 12) are based on quoted market prices in less active markets
and are categorized as Level 2 measurements. Additionally, we use fair value measurements from time to time in
connection with asset impairment testing and the assignment of purchase consideration to assets and liabilities of
F-10
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
acquired companies. Those fair value measurements typically include significant unobservable inputs and are
categorized within Level 3 of the fair value hierarchy.
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, 2018 and 2017.
As of December 31, 2018 and 2017, the carrying amounts of our cash and cash equivalents, trade and other receivables,
net of allowance for doubtful accounts, accounts payable and accrued liabilities were equal to or approximated their
fair value due to their short-term nature or proximity to current market rates.
Revenue Recognition
Overview
We account for our sales and services revenue in accordance with Accounting Standards Codification (“ASC”) Topic
606, Revenue from Contracts with Customers (“Topic 606”), which we adopted on January 1, 2018, using the modified
retrospective approach to contracts not completed as of the adoption date. Topic 606 provides a five-step revenue
recognition model that we apply to our customer contracts. Under this model we (i) identify the contract with the
customer, (ii) identify our performance obligations in the contract, (iii) determine the transaction price for the contract,
(iv) allocate the transaction price to our performance obligations and (v) recognize revenue when or as we satisfy our
performance obligations.
Revenue is recognized upon transfer of control of the promised goods or our performance of the services to our
customers in an amount that reflects the consideration we expect to receive in exchange for those goods or services.
We enter into contracts that may include various combinations of products and services, which are generally distinct
and accounted for as separate performance obligations.
Additionally, a significant portion of our revenue is derived from leases of property and equipment that is reported in
Services and other revenue - other and Services and other revenue - DISH Network in our Consolidated Statements
of Operations. Certain of our customer contracts contain embedded equipment leases, which we separate from non-
lease components of the contract based on the relative standalone selling prices of the lease and non-lease components.
Hughes
Our Hughes segment provides various communication and networking services to consumer and enterprise customers
in both domestic and international markets. Our service contracts typically obligate us to provide substantially the
same services on a recurring basis in exchange for fixed recurring fees over the term of the contract. We satisfy such
performance obligations over time and recognize revenue ratably as services are rendered over the service period.
Certain of our contracts with service obligations provide for fees based on usage, capacity or volume. We satisfy these
performance obligations and recognize the related revenue at the point in time or over the period when the services
are rendered. Our Hughes segment also sells and leases communications equipment to its customers. Revenue from
equipment sales generally is recognized upon shipment of the equipment. Our equipment sales contracts typically
include standard product warranties, but generally do not provide for returns or refunds. Revenue for extended
warranties is recognized ratably over the extended warranty period. For contracts with multiple performance obligations,
we typically allocate the contract’s transaction price to each performance obligation based on their relative standalone
selling prices. When the standalone selling price is not observable, our primary method used to estimate standalone
selling price is the expected cost plus a margin. Our contracts generally require customer payments to be made at or
shortly after the time we transfer control of goods or perform the services.
In addition to equipment and service offerings, our Hughes segment also enters into long-term contracts to design,
develop, construct and install complex telecommunication networks to customers in its enterprise and mobile satellite
systems markets. Revenue from such contracts is generally recognized over time at a measure of progress that depicts
the transfer of control of the goods or services to the customer. Depending on the nature of the arrangement, we
measure progress toward contract completion using an appropriate input method or output method. Under the input
method, we recognize the transaction price as revenue based on the ratio of costs incurred to estimated total costs at
completion. Under the output method, revenue and cost of sales are recognized as products are delivered based on
F-11
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
the expected profit for the entire agreement. Profit margins on long-term contracts generally 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 generally receive interim payments as work progresses, although for some contracts, we may be
entitled to receive an advance payment.
ESS
Our ESS segment provides satellite operations through leasing arrangements and satellite services on a full-time and/
or occasional-use basis to DISH Network and Dish Mexico, as well as government service providers, internet service
providers, broadcast news organizations, content providers and private enterprise customers. Our ESS segment also
provides telemetry, tracking and control (“TT&C”) services for satellites owned by DISH Network and technical consulting
services that are billed by the hour. Generally, our service contracts with customers contain a single performance
obligation and therefore there is no need to allocate the transaction price. We transfer control and recognize revenue
for satellite services at the point in time or over the period when the services are rendered.
Other
Sales and Value Added Taxes, Universal Service Fees and other taxes that we collect concurrent with revenue
producing activities are excluded from revenue.
Shipping and handling costs associated with outbound freight are accounted for as a fulfillment cost after control over
a product has transferred to the customer and are included in Cost of sales - equipment in our Consolidated Statements
of Operations at the time of shipment.
Contract Balances
Trade Accounts Receivable
Trade accounts receivable includes amounts billed and currently due from customers and represents our unconditional
rights to consideration arising from our performance under our customer contracts. Trade accounts receivable also
includes amounts due from customers under our leasing arrangements. We make ongoing estimates relating to the
collectability of our trade accounts receivable and maintain an allowance for estimated losses resulting from the inability
of our customers to make the required payments. In determining the amount of the allowance, we consider historical
levels of credit losses and make judgments about the creditworthiness of our customers based on ongoing credit
evaluations. Past due trade accounts receivable balances are written off when our internal collection efforts have been
unsuccessful. Bad debt expense related to our trade accounts receivable and other contract assets is included in
Selling, general and administrative expenses in our Consolidated Statements of Operations.
Contract Assets and Contract Liabilities
Contract assets represent revenue that we have recognized in advance of billing the customer and are included in
Trade accounts receivable and contract assets, net or Other noncurrent assets, net in our Consolidated Balance Sheets
based on the expected timing of customer payment. Our contract assets include amounts that we referred to as
Contracts in Process in prior periods. Our contract assets typically relate to our long-term contracts where we recognize
revenue using the cost-based input method and the revenue recognized exceeds the amount billed to the customer.
Contract liabilities consist of advance payments and billings in excess of revenue recognized under customer contracts
and are included in Contract liabilities or Other noncurrent liabilities in our Consolidated Balance Sheets based on the
timing of when we expect to recognize revenue. Contract liabilities include amounts that we referred to as deferred
revenue in prior periods. We recognize contract liabilities as revenue after all revenue recognition criteria have been
met.
F-12
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Contract Acquisition and Fulfillment Costs
Contract Acquisition Costs
Our contract acquisition costs represent incremental direct costs of obtaining a contract and consist primarily of sales
incentives paid to employees and third-party representatives. When we determine that our contract acquisition costs
are recoverable, we defer and amortize the costs over the contract term, or over the estimated life of the customer
relationship if anticipated renewals are expected and the incentives payable upon renewal are not commensurate with
the initial incentive. We amortize contract acquisition costs in proportion to the revenue to which the costs relate. We
expense sales incentives as incurred if the expected amortization period is one year or less. Unamortized contract
acquisition costs are included in Other noncurrent assets, net in our Consolidated Balance Sheets and related
amortization expense is included in Selling, general and administrative expenses in our Consolidated Statements of
Operations.
Contract Fulfillment Costs
We recognize costs to fulfill a contract as an asset when the costs relate directly to a specific contract, the costs
generate or enhance our resources that will be used in satisfying future performance obligations and the costs are
expected to be recovered. We may incur such costs on certain contracts that require initial setup activities in advance
of the transfer of goods or services to the customer. We amortize these costs in proportion to the revenue to which
the costs relate. Unamortized contract fulfillment costs are included in Other noncurrent assets, net in our Consolidated
Balance Sheets and related amortization expense is included in Cost of sales - services and other in our Consolidated
Statements of Operations.
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 reported in other comprehensive income (loss) as Foreign currency translation adjustments in our
Consolidated Statements of Comprehensive Income (Loss). Except in certain uncommon circumstances, we have
not recorded deferred income taxes related to our foreign currency translation adjustments. Gains and losses resulting
from re-measurement of monetary assets and liabilities denominated in foreign currencies into the functional currency
are recognized in Other, net in our Consolidated Statements of Operations.
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, 2018 and 2017 primarily consisted of commercial paper, government bonds, corporate
notes, and money market funds. The amortized cost of these investments approximates their fair value.
Inventory
Inventory is stated at the lower of cost, determined using the first-in, first-out (“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. We recognize losses within operating income when we determine that the
cost of inventory and commitments to purchase inventory exceed net realizable value.
F-13
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Capitalized Software Costs
Internal-Use Software
Costs related to the procurement and development of software for internal-use 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 in our Consolidated Balance Sheets.
Externally Marketed Software
Costs related to the procurement and development of software for 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 externally marketed software are included in Other noncurrent assets, net in our Consolidated
Balance Sheets. Externally marketed software generally is installed in the equipment we sell or lease 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.
Marketable Investment Securities
Our marketable investment securities portfolio consists of investments in debt and equity instruments with readily
determinable fair values.
Debt Securities
We classify all of our debt securities as available-for-sale based on our investment strategy for the securities. Generally,
we recognize periodic changes in the difference between fair value and amortized cost in Unrealized gains (losses)
on available-for-sale securities and other in our Consolidated Statements of Comprehensive Income (Loss). Realized
gains and losses upon sales of debt securities are reclassified from other comprehensive income (loss) and recognized
on the trade date in Gains (losses) on investments, net in our Consolidated Statements of Operations. We use the
FIFO method to determine the cost basis on sales of debt securities. Interest income from debt securities is reported
in Interest income in our Consolidated Statements of Operations. We could realize proceeds from certain investments
prior to their contractual maturity if we sell these securities before such maturity.
We evaluate our available-for-sale debt securities portfolio periodically to determine whether declines in the fair value
of these securities are other-than-temporary. Our evaluation considers, among other things, the length of time and
the extent to which the fair value of such security has been lower than amortized cost, market and company-specific
factors related to the security and our intent and ability to hold the investment to maturity or when it recovers its value.
We generally consider a decline to be other-than-temporary when: (i) we intend to sell the security, (ii) it is more likely
than not that we will be required to sell the security before maturity or when it recovers its value, or (iii) we do not expect
to recover the amortized cost of the security at maturity. Declines in the fair value of available-for-sale debt securities
that are determined to be other-than-temporary are reclassified from other comprehensive income (loss) and recognized
in Net income (loss) in our Consolidated Statements of Operations, thus establishing a new cost basis for the investment.
From time to time we make strategic investments in corporate debt securities. Generally, we elect to account for these
debt securities using the fair value option because it results in consistency in accounting for unrealized gains and
losses for all securities in our portfolio of strategic investments. When we elect the fair value option for investments
in debt securities, we recognize periodic changes in fair value of these securities in Gains (losses) on investments,
net in our Consolidated Statements of Operations. Interest income from these securities is reported in Interest income
in our Consolidated Statements of Operations.
Equity Securities
Prior to January 1, 2018, we classified our marketable equity securities as available-for-sale or trading securities,
depending on our investment strategy for the securities. For available-for-sale securities, we recognized periodic
changes in the difference between fair value and cost in Unrealized gains (losses) on available-for-sale securities and
F-14
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
other in our Consolidated Statements of Comprehensive Income (Loss). Realized gains and losses upon sale of
available-for-sale securities were reclassified from other comprehensive income (loss) and recognized on the trade
date in Gains (losses) on investments, net in our Consolidated Statements of Operations. We used the FIFO method
to determine the cost basis on sales of available-for-sale securities. For trading securities, we recognized periodic
changes in the fair value of the securities in Gains (losses) on investments, net in our Consolidated Statements of
Operations.
Effective January 1, 2018, we adopted Accounting Standards Update (“ASU”) No. 2016-01, Financial Instruments (the
“New Investment Standard”), which established new requirements for investments in equity securities in ASC Topic
321, Investments - Equity Securities. Accordingly, beginning in 2018, we recognize periodic changes in the fair value
of all of our equity securities with a readily determinable fair value that are not accounted for using the equity method
in Gains (losses) on investments, net in our Consolidated Statements of Operations. We recognize dividend income
on equity securities on the ex-dividend date and report such income in Other, net in our Consolidated Statements of
Operations.
Restricted Marketable Investment Securities
Restricted marketable investment securities that are pledged as collateral for our letters of credit or surety bonds are
included in Other noncurrent assets, net in our Consolidated Balance Sheets. Restricted marketable securities are
accounted for in the same manner as marketable securities that are not restricted, however, the restricted marketable
securities are presented differently in the consolidated financial statements.
Investments in Unconsolidated Entities
Our investments in unconsolidated entities consist of investments in equity securities that are not publicly traded and
do not have readily determinable fair values.
Equity Method
We use the equity method to account for investments when we have the ability to exercise significant influence on the
operating decisions of the investee. Such investments in unconsolidated entities 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. The carrying
amount of such 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, 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 Consolidated Statements of Operations and include the intra-entity profit eliminations within Equity in earnings
(losses) of unconsolidated affiliates, net in our Consolidated Statements of Operations.
Other Investments
Prior to January 1, 2018, we accounted for other investments without a readily determinable fair value using the cost
method. In connection with our adoption of the New Investment Standard as of January 1, 2018, we have elected to
measure such investments at cost, adjusted for changes resulting from impairments and observable price changes in
orderly transactions for identical or similar securities of the same issuer. We consider information in periodic financial
statements and other documentation provided by our investees and we may make inquiries of investee management
to determine whether observable price changes have occurred.
Impairment Considerations
We evaluate all of our investments in unconsolidated entities periodically to determine whether events or changes in
circumstances have occurred that may have a significant adverse effect on the fair value of the investment. As part
F-15
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
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, we adjust the carrying amount of
the investment to its estimated fair value and recognize the impairment loss in Gains (losses) on investments, net in
our Consolidated Statements of Operations.
Property and Equipment
Property and equipment is stated at cost, less accumulated depreciation. Depreciation is recorded on a straight-line
basis over lives ranging from one to 40 years. 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. 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 Net Income in our Consolidated Statements of Operations. Assets to be disposed
of by sale 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, 2018
and 2017 is assigned to reporting units of our Hughes segment. We test such goodwill for impairment in the second
fiscal quarter. The goodwill impairment test involves a comparison of the fair value of a reporting unit with its carrying
amount, including goodwill. We typically estimate fair value of 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, we recognize an impairment loss
equal to such excess, not to exceed the carrying amount of goodwill. We may bypass the quantitative 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.
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 their useful lives.
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
(see Impairment of Long-lived Assets above).
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.
F-16
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
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:
• FCC authorizations are non-depleting assets;
•
•
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
• 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 ability to extend or renew their terms.
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. We report
unamortized debt issuance costs as a reduction of the related long-term debt in our Consolidated Balance Sheets.
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 based on enacted tax laws 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. We determine deferred tax assets and liabilities
separately for each taxing jurisdiction and report the net amount for each jurisdiction as a noncurrent asset or liability
in our Consolidated Balance Sheets.
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.
Cost of Sales - Services and Equipment
Cost of sales - services and other in our Consolidated Statements of Operations primarily consists of costs of satellite
capacity and services, hub infrastructure, customer care, wireline and wireless capacity, and direct labor costs
associated with the services provided. Cost of sales - services and other generally are charged to expense as incurred.
Cost of sales - equipment in our Consolidated Statements of Operations 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.
F-17
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Research and Development
Costs incurred in research and development activities are generally 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 - equipment
in our Consolidated Statements of Operations.
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. We adopted ASU No. 2016-09,
Improvements to Employee Share-Based Payment Accounting, prospectively as of January 1, 2017. This update
requires all excess tax benefits and deficiencies to be recognized as income tax expense or benefit and permits an
entity to make an entity-wide policy election to either estimate forfeitures or recognize forfeitures as they occur. Upon
adoption of this standard as of January 1, 2017, we recorded a $14 million deferred tax asset and a corresponding
credit to Accumulated earnings in our Consolidated Balance Sheets for excess tax benefits that had not previously
been recognized because the related tax deductions had not reduced taxes payable. We did not change our accounting
policy to estimate forfeitures in determining compensation cost.
Advertising Costs
Advertising costs are expensed as incurred and are included in Selling, general and administrative expenses in
Consolidated Statements of Operations.
Recently Adopted Accounting Pronouncements
Revenue Recognition and Financial Instruments
On January 1, 2018, we adopted ASU No. 2014-09, Revenue from Contracts with Customers and related amendments
(collectively, the “New Revenue Standard”). The New Revenue Standard established a comprehensive new model
for revenue recognition, which is codified in Topic 606 (see Revenue Recognition above), and provided guidance for
certain costs associated with customer contracts. We adopted the New Revenue Standard using the modified
retrospective method for contracts that were not completed as of January 1, 2018. Accordingly, comparative information
for prior periods has not been restated and continues to be reported under the accounting standards in effect for those
periods. Upon adoption of the New Revenue Standard, we recognized the cumulative effect of its initial application
as a net increase to Accumulated earnings in our Consolidated Balance Sheets of $23 million, net of related income
taxes. The adoption of the New Revenue Standard also impacted the timing of recognition of certain fees charged to
our customers in our consumer markets; however, the adoption has not had, and we do not expect it to have, a material
impact on the overall timing or amount of revenue recognition.
The primary impacts of the New Revenue Standard on our operating results relate to how we account for sales incentive
costs. Historically, we charged sales incentives to expense as incurred, except for incentives related to the consumer
business in our Hughes segment, which were initially deferred and subsequently amortized over the related service
agreement term. Under the New Revenue Standard, we continue to defer incentives for our consumer business;
however, we now amortize those incentives over the estimated customer life, which includes expected contract renewal
periods. In addition, we now defer certain sales incentives related to other businesses in our Hughes segment and
amortize those incentives over the related service agreement term. As a result of these changes, we have recognized
additional contract acquisition costs on our Consolidated Balance Sheets and the costs generally are recognized as
expenses over a longer period of time in our Consolidated Statements of Operations. The adoption of the New Revenue
Standard by an unconsolidated entity had a similar impact on our investment in the unconsolidated entity, which we
account for using the equity method.
F-18
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Additionally, on January 1, 2018, we prospectively adopted the applicable requirements of the New Investment
Standard. The New Investment Standard substantially revises standards for the recognition, measurement and
presentation of financial instruments, including requiring all equity investments, except for investments in consolidated
subsidiaries and investments accounted for using the equity method, to be measured at fair value with changes in the
fair value recognized through earnings. The New Investment Standard permits an entity to elect to measure an equity
security without a readily determinable fair value at its cost, adjusted for changes resulting from impairments and
observable price changes in orderly transactions for identical or similar securities of the same issuer. It also amends
certain disclosure requirements associated with equity investments and the fair value of financial instruments. Upon
adoption of the New Investment Standard on January 1, 2018, we recorded a $10 million charge to Accumulated
earnings to include net unrealized losses on our marketable equity securities then designated as available-for-sale,
which previously were recorded in Accumulated other comprehensive loss in our Consolidated Balance Sheets. For
our equity investments without a readily determinable fair value that were previously accounted for using the cost
method, we have elected to measure such securities at cost, adjusted for impairments and observable price changes.
We expect our future net income or loss to be more volatile as a result of these changes in accounting for our investments
in equity securities that were previously accounted for as available-for-sale or using the cost method.
The cumulative effects of changes to the impacted line items on our Consolidated Balance Sheets as of January 1,
2018 for the adoption of these standards were as follows:
Assets:
Trade accounts receivable and contract assets, net
Other current assets
Investments in unconsolidated entities
Other noncurrent assets, net
Total assets
Liabilities:
Contract liabilities
Accrued expenses and other
Deferred tax liabilities, net
Other noncurrent liabilities
Total liabilities
Stockholders’ Equity:
Accumulated other comprehensive income (loss)
Accumulated earnings (losses)
Total stockholders’ equity
Total liabilities and stockholders’ equity
Adjustments Due to the
Balance at
December 31,
2017
New Revenue
Standard
New
Investment
Standard
Balance at
January 1,
2018
(In thousands)
$
$
$
$
$
$
$
$
$
$
$
$
$
$
196,840
91,671
161,427
214,814
8,750,014
65,959
82,647
436,023
128,503
4,572,629
$
$
$
$
$
$
$
$
$
$
(7,103) $
533
6,917
22,545
22,892
$
$
$
$
(1,542) $
255
5,124
$
$
(4,068) $
(231) $
— $
— $
— $
— $
— $
— $
— $
— $
— $
— $
189,737
92,204
168,344
237,359
8,772,906
64,417
82,902
441,147
124,435
4,572,398
(130,154) $
721,316
4,177,385
8,750,014
$
$
$
— $
10,467
$
(119,687)
23,123
23,123
22,892
$
$
$
(10,467) $
733,972
— $
— $
4,200,508
8,772,906
F-19
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Our adoption of these standards impacted the referenced line items on our Consolidated Balance Sheets, Statement
of Operations and Statements of Comprehensive Income (Loss) as follows:
Balance Sheet
Assets:
Trade accounts receivable and contract assets, net
Other current assets
Investments in unconsolidated entities
Other noncurrent assets, net
Total assets
Liabilities:
Contract liabilities
Accrued expenses and other
Deferred tax liabilities, net
Other noncurrent liabilities
Total liabilities
Stockholders’ Equity:
Accumulated other comprehensive income (loss)
Accumulated earnings (losses)
Total stockholders’ equity
Total liabilities and stockholders’ equity
As of December 31, 2018
Adjustments Due to the
As Reported
New Revenue
Standard
New
Investment
Standard
(In thousands)
Balances If We
Had Not
Adopted the
New
Standards
$
$
$
$
$
$
$
$
$
$
$
$
$
$
201,096
18,539
262,473
263,892
8,661,294
72,284
72,470
465,933
121,546
4,505,820
$
$
$
$
$
$
$
$
$
$
8,379
$
(533) $
(5,639) $
(35,314) $
(33,107) $
878
$
(255) $
(6,976) $
1,635
$
(4,718) $
— $
— $
— $
— $
— $
— $
— $
— $
— $
— $
209,475
18,006
256,834
228,578
8,628,187
73,162
72,215
458,957
123,181
4,501,102
(125,100) $
694,129
4,155,474
8,661,294
$
$
$
— $
20,064
$
(105,036)
(28,389) $
(28,389) $
(33,107) $
(20,064) $
645,676
— $
— $
4,127,085
8,628,187
F-20
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
For the year ended December 31, 2018
Statement of Operations
As Reported
Adjustments Due to the
New
Revenue
Standard
New
Investment
Standard
Balances If
We Had Not
Adopted the
New
Standards
Revenue:
Services and other revenue - other
Total revenue
Costs and expenses:
Cost of sales - services and other (exclusive of depreciation and
amortization)
Selling, general and administrative expenses
Total costs and expenses
Operating income (loss)
Other income (expense):
Interest expense, net of amounts capitalized
Gains and losses on investments, net
Equity in earnings (losses) of unconsolidated affiliates, net
Total other income (expense), net
Income (loss) from continuing operations before income taxes
Income tax benefit (provision)
Net income (loss)
Net income (loss) attributable to EchoStar Corporation common stock
Earnings (losses) per share:
Basic
Diluted
(In thousands, except per share amounts)
1,507,259
2,091,363
604,305
436,247
1,908,120
183,243
$
$
$
$
$
$
2,323
2,323
2,738
8,520
11,258
$
$
$
$
$
— $
1,509,582
— $
2,093,686
— $
— $
607,043
444,767
— $
1,919,378
(8,935) $
— $
174,308
(248,568) $
539
$
— $
(248,029)
(12,207) $
(5,954) $
(191,203) $
— $
(30,531) $
(42,738)
1,278
1,817
$
$
— $
(4,676)
(30,531) $
(219,917)
(7,960) $
(7,118) $
(30,531) $
(30,673) $
1,852
$
— $
(38,633) $
(5,266) $
(30,531) $
(40,475) $
(5,266) $
(30,531) $
(45,609)
(28,821)
(74,430)
(76,272)
(0.42) $
(0.42) $
(0.05) $
(0.05) $
(0.32) $
(0.32) $
(0.79)
(0.79)
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
For the year ended December 31, 2018
Statement of Comprehensive Income (Loss)
As Reported
Adjustments Due to the
New
Revenue
Standard
New
Investment
Standard
Balances If
We Had Not
Adopted the
New
Standards
(In thousands)
Net income (loss)
Other comprehensive income (loss), net of tax:
Unrealized gains (losses) on available-for-sale securities and other
Other-than-temporary impairment loss on available-for-sale securities in
net income
Total other comprehensive income (loss), net of tax
Comprehensive income (loss)
Comprehensive income (loss) attributable to EchoStar Corporation
$
$
$
$
$
$
(38,633) $
(5,266) $
(30,531) $
(74,430)
(2,872) $
— $
(6,485) $
(9,357)
— $
(5,413) $
(44,046) $
(44,499) $
— $
— $
37,016
30,531
$
$
(5,266) $
(5,266) $
— $
— $
37,016
25,118
(49,312)
(49,765)
Restricted Cash and Cash Equivalents
ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash requires restricted cash and restricted cash
equivalents to be included with cash and cash equivalents in our Statement of Cash Flows. We adopted ASU No.
2016-18 as of January 1, 2018. As a result, the beginning and ending balances of cash and cash equivalents presented
in our Consolidated Statements of Cash Flows include amounts for restricted cash and cash equivalents, which
historically were not included in such balances, and receipts and payments of restricted cash and cash equivalents,
exclusive of transfers to and from unrestricted accounts, are reported in our Consolidated Statements of Cash Flows.
The adoption of this accounting standard did not have a material impact on our Statements of Cash Flows and related
disclosures.
F-21
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Leases
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). This standard requires lessees to recognize
assets and liabilities for all leases with lease terms greater than 12 months, including leases classified as operating
leases. The standard also modifies the definition of a lease and the criteria for classifying leases as operating, finance
or sales-type leases and requires certain additional disclosures. ASU No. 2016-02 is effective for fiscal years beginning
after December 15, 2018 and interim periods within those fiscal years. The new standard, as amended in July 2018,
may be applied either on a modified retrospective basis or prospectively as of the adoption date without restating prior
periods, with certain practical expedients available. We adopted the new standard prospectively as of January 1, 2019
and elected certain practical expedients permitted under the new standard’s transition guidance. This allows us to
carry forward the historical lease classification and to not reassess the lease term for leases in existence as of the
adoption date and to carry forward our historical accounting treatment for land easements on agreements existing on
the adoption date. We also made policy elections for certain classes of underlying assets to not separate lease and
non-lease components in a contract as permitted under the new standard.
We currently lease real estate and equipment from third parties under operating leases and we lease certain satellites
from third parties under capital leases. We also lease satellites, real estate and equipment to some of our customers.
Upon adoption of the new standard, we recognized right-of-use assets and liabilities related to substantially all operating
leases where we are the lessee. While our work is not finalized, we expect that the aggregate increase in our operating
lease assets and liabilities will be approximately 1% of total assets as of January 1, 2019.
Our accounting for capital leases was not significantly impacted on the adoption date. Based on our transition method,
practical expedients and policy elections, our leases existing as of the adoption date will continue to be reported in our
Consolidated Statements of Operations in accordance with current accounting standards throughout their remaining
terms unless the leases are modified. However, all leases entered into or modified after the adoption date will be
accounted for in accordance with the new standard. The classification of those leases as operating, finance or sales
type may be impacted by the new standard and affect our future operating results and the classification of our cash
flows.
Recently Issued Accounting Pronouncements Not Yet Adopted
Credit Losses
In June 2016, the FASB issued ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments, which
introduces a new approach to estimate credit losses on certain types of financial instruments based on expected losses
instead of incurred losses. It also modifies the impairment model for available-for-sale debt securities and provides a
simplified accounting model for purchased financial assets with credit deterioration since their origination. ASU No.
2016-13 is effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years.
Early adoption is permitted. We are currently assessing the impact of adopting this new accounting standard on our
Consolidated Financial Statements and related disclosures.
F-22
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE 3. REVENUE RECOGNITION
Information About Contract Balances
The following table provides information about our contract balances with customers, including amounts for certain
embedded leases.
As of
December 31, 2018
January 1, 2018
(In thousands)
Trade accounts receivable:
Sales and services
Leasing
Total
Contract assets
Allowance for doubtful accounts
$
154,415 $
7,990
162,405
55,295
(16,604)
Total trade accounts receivable and contract assets, net $
201,096 $
Trade accounts receivable - DISH Network:
Sales and services
Leasing
Total trade accounts receivable - DISH Network, net
Contract liabilities:
Current
Noncurrent
Total contract liabilities
$
$
$
$
12,274 $
1,926
14,200 $
72,284 $
10,133
82,417 $
156,794
10,355
167,149
34,615
(12,027)
189,737
16,118
27,177
43,295
64,417
13,036
77,453
For the year ended December 31, 2018, we recognized revenue of $52 million that was previously included in the
contract liability balance at January 1, 2018.
Our bad debt expense was $25 million, $10 million and $14 million for the years ended December 31, 2018, 2017 and
2016, respectively.
Transaction Price Allocated to Remaining Performance Obligations
As of December 31, 2018, the remaining performance obligations for our customer contracts with original expected
durations of more than one year was $939 million. We expect to recognize approximately 35.7% of our remaining
performance obligations of these contracts as revenue in the next twelve months. This amount excludes agreements
with consumer customers in our Hughes segment and our leasing arrangements.
F-23
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Disaggregation of Revenue
In the following tables, revenue is disaggregated by segment, primary geographic market, nature of the products and
services and transactions with major customers.
Geographic Information
The following table disaggregates revenue from customer contracts attributed to our North America (the U.S and its
territories, Mexico and Canada), South and Central America and other foreign locations as well as by segment, based
on the location where the goods or services are provided. All other revenue includes transactions with customers in
Asia, Africa, Australia, Europe, and the Middle East.
For the year ended December 31, 2018
North America
South and Central America
All other
Total revenue
Nature of Products and Services
Hughes
ESS
Corporate
and Other
Consolidated
Total
(In thousands)
$
$
1,444,628 $
101,632
170,268
1,716,528 $
357,357 $
—
701
358,058 $
17,478 $
—
(701)
16,777 $
1,819,463
101,632
170,268
2,091,363
The following table disaggregates revenue based on the nature of products and services and by segment.
For the year ended December 31, 2018
Equipment
Services
Design, development and construction services
Revenue from sales and services
Leasing income
Total revenue
Hughes
ESS
Corporate
and Other
Consolidated
Total
(In thousands)
$
119,657 $
— $
— $
119,657
1,313,059
85,753
1,518,469
198,059
24,113
—
24,113
333,945
18,908
1,356,080
—
18,908
(2,131)
85,753
1,561,490
529,873
$
1,716,528 $
358,058 $
16,777 $
2,091,363
During the fourth quarter of 2018, we reclassified our revenue among the categories above applicable for the full year.
F-24
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE 4. DISCONTINUED OPERATIONS
On February 28, 2017, EchoStar Corporation and certain of our subsidiaries consummated the Share Exchange,
pursuant to which, among other things, we received all of the shares of the Tracking Stock in exchange for 100% of
the equity interests of certain of our subsidiaries that held substantially all of our former EchoStar Technologies
businesses and certain other assets. Following the consummation of the Share Exchange, we no longer operate our
former EchoStar Technologies businesses, the Tracking Stock was retired and is no longer outstanding, and all
agreements, arrangements and policy statements with respect to the Tracking Stock terminated.
As a result of the Share Exchange, the historical financial results of our EchoStar Technologies segment prior to the
closing of the Share Exchange are reflected in our accompanying Consolidated Financial Statements as discontinued
operations and, as such, have been excluded from continuing operations and segment results for all periods presented.
The noncontrolling interest in HSS Tracking Stock, as reflected in our stockholders’ equity, was extinguished as of
February 28, 2017 as a result of the Share Exchange.
We have had de minimis activity from our discontinued operations for the year ended December 31, 2018. The following
table presents the operating results of our discontinued operations for the years ended December 31, 2017 and 2016:
Revenue:
Equipment, services and other revenue - DISH Network
$
143,118 $
1,127,610
For the years
ended December 31,
2016
2017
(In thousands)
Equipment, services and other revenue - other
Total revenue
Costs and expenses:
Cost of equipment, services and other
Selling, general and administrative expenses
Research and development expenses
Depreciation and amortization
Total costs and expenses
Operating income
Other income (expense):
Interest expense
Equity in earnings (losses) of unconsolidated affiliates, net
Other, net
Total income (expense), net
Income from discontinued operations before income taxes
Income tax provision
10,344
153,462
118,654
1,246,264
121,967
1,010,421
5,439
4,635
11,659
143,700
9,762
(15)
(1,159)
(57)
(1,231)
8,531
(22)
60,590
44,854
62,164
1,178,029
68,235
(144)
2,508
(381)
1,983
70,218
(25,898)
44,320
Net income from discontinued operations
$
8,509 $
Expenditures for property and equipment from our discontinued operations totaled $12 million and $70 million for
the years ended December 31, 2017 and 2016, respectively.
Total assets and total liabilities of the discontinued operations were $0.1 million and $1 million, respectively, as of
December 31, 2017.
F-25
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE 5. EARNINGS PER SHARE
We present basic earnings or losses per share (“EPS”) and diluted EPS for our Class A and Class B common stock.
Basic EPS for our Class A and Class B common stock excludes potential dilution and is computed by dividing Net
income (loss) attributable to EchoStar Corporation common stock by the weighted-average number of common shares
outstanding for the period. Diluted EPS reflects the potential dilution that could occur if shares of common stock were
issued pursuant to our stock-based compensation awards. 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 1 million and 4 million shares for the years
ended December 31, 2017 and 2016, respectively.
The following table presents basic and diluted EPS amounts for all periods and the corresponding weighted-average
shares outstanding used in the calculations.
Amounts attributable to EchoStar Corporation common stock:
Net income from continuing operations
Net income from discontinued operations
Net income (loss) attributable to EchoStar Corporation common
stock
Weighted-average common shares outstanding:
Basic
Dilutive impact of stock awards outstanding
Diluted
Earnings per share:
Basic:
Continuing operations
Discontinued operations
Total basic earnings (loss) per share
Diluted:
Continuing operations
Discontinued operations
Total diluted earnings (loss) per share
For the years ended December 31,
2016
2017
2018
(In thousands, except per share amounts)
$
$
$
$
$
$
(40,475) $
385,261 $
137,353
—
8,509
44,320
(40,475) $
393,770 $
181,673
96,250
—
96,250
95,425
1,316
96,741
93,795
615
94,410
(0.42) $
4.04 $
—
0.09
(0.42) $
4.13 $
(0.42) $
3.98 $
—
0.09
(0.42) $
4.07 $
1.46
0.48
1.94
1.45
0.47
1.92
F-26
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE 6. OTHER COMPREHENSIVE INCOME (LOSS) AND RELATED TAX EFFECTS
The changes in the balances of Accumulated other comprehensive loss by component were as follows:
Cumulative
Foreign
Currency
Translation
Losses
Unrealized
Gain (Loss)
On Available-
For-Sale
Securities
Accumulated
Other
Comprehensive
Loss
Other
(In thousands)
Balance, December 31, 2016
$
(135,434) $
10,646 $
(15) $
(124,803)
Other comprehensive income before
reclassifications
Amounts reclassified to net income
Other comprehensive income
(loss)
Balance, December 31, 2017
Cumulative effect of adoption of the
New Investment Standard
Balance, January 1, 2018
Other comprehensive loss before
reclassifications
Amounts reclassified to net income
Other comprehensive loss
16,004
—
16,004
(119,430)
—
(119,430)
(34,399)
32,136
(2,263)
Balance, December 31, 2018
$
(121,693) $
(21,987)
540
(21,447)
(10,801)
10,467
(334)
(962)
(278)
(1,240)
(1,574) $
92
—
92
77
—
77
(1,910)
—
(1,910)
(5,891)
540
(5,351)
(130,154)
10,467
(119,687)
(37,271)
31,858
(5,413)
(1,833) $
(125,100)
The amounts reclassified to net income related to unrealized gain or loss on available-for-sale securities in the table
above are included in Gains (losses) on investments, net in our Consolidated Statements of Operations.
Except in unusual circumstances, we do not recognize tax effects on foreign currency translation adjustments because
they are not expected to result in future taxable income or deductions.
Other comprehensive income includes deferred tax benefits for foreign currency translation losses related to assets
that were transferred from a foreign subsidiary to a domestic subsidiary of $7 million for year ended December 31,
2017. There were no similar transactions in 2018 or 2016.
F-27
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE 7. MARKETABLE INVESTMENT SECURITIES
Overview
Our marketable investment securities portfolio consists of various debt and equity instruments summarized in the table
below. Certain of our investments in debt and equity instruments have historically experienced and are likely to continue
experiencing volatility.
Marketable investment securities:
Debt securities:
Corporate bonds
Other debt securities
Total debt securities
Equity securities
Total marketable investment securities
Less: Restricted marketable investment securities
Total marketable investment securities - current
Debt Securities
As of December 31,
2017
2018
(In thousands)
$ 1,735,653 $
542,573
464,997
2,200,650
90,976
2,291,626
9,474
142,036
684,609
139,571
824,180
10,019
$ 2,282,152 $
814,161
Our corporate bond portfolio includes debt instruments issued by individual corporations, primarily in the industrial and
financial services industries. Our other debt securities portfolio includes investments in various debt instruments,
including U.S. government bonds, commercial paper and mutual funds.
A summary of our available-for-sale debt securities, exclusive of securities where we have elected the fair value option,
is presented in the table below.
Amortized
Cost
Unrealized
Gains
Losses
(In thousands)
Estimated
Fair Value
As of December 31, 2018
Corporate bonds
Other debt securities
Total available-for-sale debt securities
As of December 31, 2017
Corporate bonds
Other debt securities
Total available-for-sale debt securities
$
$
$
$
1,689,093 $
318 $
(1,896) $
1,687,515
464,993
7
(3)
464,997
2,154,086 $
325 $
(1,899) $
2,152,512
542,861 $
142,082
684,943 $
— $
—
— $
(288) $
(46)
(334) $
542,573
142,036
684,609
As of December 31, 2018, corporate bonds where we have elected the fair value option have a fair value of $48 million.
We recognized gains of $4 million on these securities for the year ended December 31, 2018. We had no debt securities
that were accounted for using the fair value option during the year ended December 31, 2017.
As of December 31, 2018, we have $1.6 billion of available-for-sale debt securities with contractual maturities of one
year or less and $512 million with contractual maturities greater than one year.
F-28
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Equity Securities
Our marketable equity securities consist primarily of shares of common stock of public companies. Prior to January 1,
2018, we classified our marketable equity securities as available-for-sale or trading securities, depending on our
investment strategy for the securities. As of December 31, 2017, our marketable equity securities consisted of available-
for-sale securities with a fair value of $87 million and trading securities with a fair value of $53 million. Our available-
for-sale securities as of December 31, 2017 reflected an adjusted cost basis of $97 million and unrealized gains and
losses of $8 million and $18 million, respectively. Substantially all unrealized losses on our available-for-sale securities
related to securities that were in a continuous loss position for less than 12 months. We recognized a $3 million other-
than-temporary impairment for the year ended December 31, 2017 on one of our available-for-sale securities which
had experienced a decline in market value as a result of adverse developments during the year ended December 31,
2017.
For the years ended December 31, 2017 and 2016, Gains (losses) on investments, net in our Consolidated Statements
of Operations included gains of $43 million and $1 million, respectively, related to trading securities that we held as of
December 31, 2017 and 2016, respectively. The fair values of our trading securities were $47 million and $7 million
as of December 31, 2017 and 2016, respectively.
Upon adoption of the New Investment Standard as of January 1, 2018 (see Note 2), we account for investments in
equity securities at their fair value and we recognize unrealized gains and losses in Gains (losses) on investments,
net in our Consolidated Statements of Operations. For the year ended December 31, 2018, Gains (losses) on
investments, net in our Consolidated Statements of Operations included net losses of $17 million related to equity
securities that we held as of December 31, 2018. The fair value of our equity securities was $91 million as of December
31, 2018.
Sales of Available-for-Sale Securities
Proceeds from sales of our available-for-sale securities, including securities accounted for using the fair value option,
were $151 million, $31 million and $80 million for the years ended December 31, 2018, 2017 and 2016, respectively.
We recognized gains as a result of such sales of nil, $3 million and $6 million for the years ended December 31, 2018,
2017 and 2016, respectively. Sales of securities accounted for using the fair value option do not result in gains or
losses because we recognize unrealized gains and losses on such securities prior to the time of sale.
Fair Value Measurements
Our marketable investment securities are measured at fair value on a recurring basis as summarized in the table below.
As of December 31, 2018 and 2017, we did not have investments that were categorized within Level 3 of the fair value
hierarchy.
Level 1
2018
Level 2
As of December 31,
Total
Level 1
(In thousands)
2017
Level 2
Total
$
— $1,735,653 $1,735,653 $
— $ 542,573 $ 542,573
9,474
9,474
85,298
455,523
464,997
2,191,176
2,200,650
13,311
13,311
5,678
90,976
133,736
128,725
671,298
5,835
142,036
684,609
139,571
$
94,772 $2,196,854 $2,291,626 $ 147,047 $ 677,133 $ 824,180
Debt securities:
Corporate bonds
Other debt securities
Total debt securities
Equity securities
Total marketable
investment securities
F-29
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE 8.
INVENTORY
Our inventory consisted of the following:
Raw materials
Work-in-process
Finished goods
Total inventory
NOTE 9. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
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
As of December 31,
2017
2018
(In thousands)
4,856 $
13,901
56,622
75,379 $
5,484
7,442
70,669
83,595
$
$
Depreciable
Life In Years
As of December 31,
2017
2018
(In thousands)
—
1 to 40
1 to 12
2 to 4
2 to 15
10 to 15
—
$
33,606 $
174,227
812,566
1,159,977
2,816,628
1,051,110
307,026
6,355,140
33,713
185,148
736,533
929,775
3,064,391
916,820
260,220
6,126,600
(2,940,232)
(2,661,129)
$
3,414,908 $
3,465,471
As of December 31, 2018 and 2017, accumulated depreciation included amounts for satellites acquired under capital
leases of $468 million and $394 million, respectively.
Construction in progress consisted of the following:
Progress amounts for satellite construction, including prepayments under
capital leases and launch services costs
Satellite related equipment
Other
Construction in progress
As of December 31,
2017
2018
(In thousands)
$
$
277,583 $
211,765
13,001
16,442
28,358
20,097
307,026 $
260,220
Construction in progress as of December 31, 2018 included our EchoStar XXIV satellite, which is expected to launch
in 2021. In August 2017, we entered into a contract for the design and construction of the EchoStar XXIV, a new,
next-generation, high throughput geostationary satellite, with a planned 2021 launch. The EchoStar XXIV satellite is
primarily intended to provide additional capacity for our HughesNet service in North, Central and South America as
well as aeronautical and enterprise broadband services. The Federal Communications Commission (“FCC”) granted
authorization to construct, deploy and operate the EchoStar XXIV satellite. In the second half of 2018, Maxar
F-30
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Technologies Inc. (“Maxar”), the parent company of Space Systems/Loral (“SSL”), the manufacturer of our EchoStar
XXIV satellite, announced that it was reviewing strategic alternatives for its geostationary communications satellite
business to improve its financial performance and that it was in active discussions with potential buyers of the business.
SSL has indicated to us that it intends to meet its contractual obligations regarding the timely manufacture and delivery
of the EchoStar XXIV satellite. However, if SSL or any potential successor fails to meet or is delayed in meeting these
obligations for any reason, including if Maxar decides to discontinue, wind down or otherwise significantly modify its
geostationary communications satellite business, such failure could have a material adverse impact on our business
operations, future revenues, financial position and prospects, completing the manufacture of the EchoStar XXIV satellite
and our planned expansion of satellite broadband services throughout North, South and Central America.
We recorded capitalized interest related to our satellites, satellite payloads and related ground facilities under
construction of $18 million, $52 million and $94 million for the years ended December 31, 2018, 2017 and 2016,
respectively.
Depreciation expense associated with our property and equipment consisted of the following:
2018
For the years ended December 31,
2017
(In thousands)
2016
Buildings and improvements
Furniture, fixtures, equipment and other
Customer rental equipment
Satellites
Total depreciation expense
$
11,596 $
17,285 $
83,746
174,749
285,206
72,387
146,562
239,072
$
555,297 $
475,306 $
7,505
64,767
114,568
191,729
378,569
Satellites depreciation expense includes amortization of satellites under capital lease agreements of $76 million,
$66 million and $56 million for the years ended December 31, 2018, 2017 and 2016, respectively.
Satellites
As of December 31, 2018, our satellite fleet consisted of 18 satellites, 13 of which are owned and five of which are
leased. They are all 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. We depreciate our leased
satellites on a straight-line basis over their respective lease terms.
F-31
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,
2018.
Segment
Launch Date
Nominal Degree
Orbital Location
(Longitude)
Depreciable
Life In Years
Satellites
Owned:
SPACEWAY 3 (1)
EchoStar XVII
EchoStar XIX
EchoStar VII (2)(3)(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)
EchoStar XXI
EchoStar XXIII
EUTELSAT 10A (“W2A”) (6)
Capital Leases:
Eutelsat 65 West A
Telesat T19V
Nimiq 5 (2)
QuetzSat-1 (2)
EchoStar 105/SES-11
Hughes
Hughes
Hughes
ESS
ESS
ESS
ESS
ESS
ESS
ESS
Corporate and
Other
Corporate and
Other
Corporate and
Other
August 2007
July 2012
December 2016
February 2002
August 2003
February 2006
July 2008
July 2003
March 2010
November 2012
95 W
107 W
97.1 W
119 W
121 W
110 W
110 W
86.4 W
119 W
61.5 W
June 2017
10.25 E
March 2017
April 2009
Hughes
Hughes
ESS
ESS
ESS
March 2016
July 2018
September 2009
September 2011
October 2017
45 W
10 E
65 W
63 W
72.7 W
77 W
105 W
12
15
15
3
12
7
9
2
11
15
15
15
—
15
15
15
10
15
(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 (the “Hughes Acquisition”).
(2) See Note 20 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 20).
(4) Fully depreciated assets as of December 31, 2018.
(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.
Recent Developments
EchoStar I and EchoStar VI. The EchoStar I and EchoStar VI satellites were removed from their orbital locations
and retired from commercial service in January 2018 and May 2018, respectively. The retirement of these satellites
has not had, and is not expected to have, a material impact on our results of operations or financial position.
EchoStar 105/SES-11. The EchoStar 105/SES-11 satellite was launched in October 2017 and was placed into service
in November 2017 at the 105 degree west longitude orbital location. Pursuant to agreements that we entered into in
August 2014, we funded substantially all construction, launch and other costs associated with the EchoStar 105/SES-11
satellite and transferred the C-, Ku- and Ka-band payloads to two affiliates of SES Americom, Inc. (“SES”) after the
launch date, while retaining the right to use the entire Ku-band payload on the satellite for an initial ten-year term, with
an option for us to renew the agreement on a year-to-year basis. In October 2017, we recorded a $77 million receivable
from SES in Other current assets in the Consolidated Balance Sheets, representing capitalized costs allocable to
F-32
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
certain satellite payloads controlled by SES, and we reduced our carrying amount of the satellite by such amount. In
January 2018, we received payment from SES for the receivable plus accrued interest. Our leased Ku-band payload
on the EchoStar 105/SES-11 satellite has replaced the capacity we had on the AMC-15 satellite.
Telesat T19V. In September 2015, we entered into agreements pursuant to which affiliates of Telesat Canada will
provide to us Ka-band capacity on the Telesat T19V satellite at the 63 degree west longitude orbital location for a 15-
year term. The Telesat T19V satellite was launched in July 2018 and placed into service in October 2018. This satellite
augments the capacity being provided by the EUTELSAT 65 West A and EchoStar XIX satellites in Central and South
America.
Satellite Anomalies and Impairments
Our satellites may experience anomalies from time to time, some of which may have a significant adverse effect on
their remaining useful lives, the commercial operation of the satellites or our operating results or financial position. We
are not aware of any anomalies with respect to our owned or leased satellites that have had any such significant
adverse effect during the year ended December 31, 2018. There can be no assurance, however, that anomalies will
not have any such adverse effects 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 satellites were to fail.
The EchoStar X satellite experienced anomalies in the past which affected seven solar array circuits. In December
2017, the satellite experienced anomalies which affected one additional solar array circuit reducing the number of
functional solar array circuits to 16. As a result of these anomalies, we had a reduction in revenue of $4 million for the
year ended December 31, 2018.
We historically have not carried in-orbit insurance on our satellites because we have assessed that the cost of insurance
is not economical relative to the risk of failures. Therefore, we generally bear the risk of any 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 in-orbit insurance for our SPACEWAY 3, EchoStar XVI and EchoStar XVII satellites.
Our other satellites, either in orbit or under construction, are not covered by launch or in-orbit insurance. We will
continue to assess circumstances going forward and make insurance decisions on a case-by-case basis.
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.
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 the reporting units within 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.
As of December 31, 2018 and 2017, all 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 impairment testing in the second quarter
of 2018, our goodwill is considered to be not impaired.
F-33
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Regulatory Authorizations
Regulatory Authorizations included amounts with both finite and indefinite useful lives, as follows:
Finite useful lives:
Cost
Accumulated amortization
Net
Indefinite lives
Total regulatory
authorizations, net
As of
December 31,
2017
Additions
Impairment
(In thousands)
Currency
Translation
Adjustment
As of
December 31,
2018
$
92,621 $
— $
(37,476) $
(8,358) $
(21,342)
71,279
465,657
(5,190)
(5,190)
—
7,848
(29,628)
—
1,894
(6,464)
—
46,787
(16,790)
29,997
465,657
$
536,936 $
(5,190) $
(29,628) $
(6,464) $
495,654
Amortization expense for the Regulatory Authorizations with finite lives was $5 million for each of the years ended
December 31, 2018, 2017 and 2016, respectively.
Prior to the fourth quarter of 2017, our Regulatory Authorizations with indefinite lives included $6 million for contractual
rights to utilize certain frequencies, in addition to those specified in the Brazilian license, at the 45 degree west longitude
orbital location. We acquired such contractual rights in 2012 and have evaluated potential opportunities to utilize the
frequencies in conjunction with our Brazilian license. We determined in the fourth quarter of 2017 that certain actions
required to utilize the frequencies had become impractical with the passage of time. As a result of these circumstances,
we determined that the fair value of such contractual rights was de minimis and we recognized a $6 million impairment
loss in our ESS segment in the fourth quarter of 2017.
In January 2019, we determined that we are not able to develop a business using our 45 degree west longitude
regulatory authorization. We determined that the fair value of this authorization and certain related ground infrastructure
have a fair value that is de minimus and we have recognized a loss on those assets of $33 million. In addition we
have included a loss related to foreign currency of $32 million as a result of the in-substance liquidation of our business
related to the 45 degree west longitude regulatory authorization.
Other Intangible Assets
Our other intangible assets, which are subject to amortization, consisted of the following:
Weighted
Average
Useful Life
(in Years)
2018
Cost
Accumulated
Amortization
As of December 31,
Carrying
Amount
Cost
(In thousands)
2017
Accumulated
Amortization
Carrying
Amount
8
6
20
$ 270,300
$
(244,787) $ 25,513
$ 270,300
$
(231,642) $ 38,658
61,283
29,700
(61,004)
(11,261)
279
18,439
61,300
29,700
(60,927)
373
(9,776)
19,924
$ 361,283
$
(317,052) $ 44,231
$ 361,300
$
(302,345) $ 58,955
Customer relationships
Technology-based
Trademark portfolio
Total other intangible
assets
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. Intangible asset amortization expense, including amortization of
regulatory authorizations with finite lives and externally marketed capitalized software, was $43 million, $47 million
and $54 million for the years ended December 31, 2018, 2017 and 2016, respectively.
F-34
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Future Amortization
As of December 31, 2018, our estimated future amortization of intangible assets, including regulatory authorizations
with finite lives, was as follows:
For the years ending December 31,
2019
2020
2021
2022
2023
Thereafter
Total
Amount
(In thousands)
$
$
18,304
14,663
8,029
5,065
5,065
23,102
74,228
NOTE 11.
INVESTMENTS IN UNCONSOLIDATED ENTITIES
We have strategic investments in certain non-publicly traded equity securities that do not have a readily determinable
fair value. We account for most of these investments using the equity method. We accounted for other investments
in such equity securities using the cost method of accounting prior to January 1, 2018. In connection with our adoption
of the New Investment Standard effective January 1, 2018 (see Note 2), we elected to measure our equity securities
without a readily determinable fair value, other than those accounted for using the equity method, at cost adjusted for
changes resulting from impairments, if any, and observable price changes in orderly transactions for the identical or
similar securities of the same issuer. For the year ended December 31, 2018, we did not identify any observable price
changes requiring an adjustment to our investments.
Our investments in unconsolidated entities consisted of the following:
As of December 31,
2018
2017
(In thousands)
Investments in unconsolidated entities:
Equity method
Other equity investments without a readily determinable fair value
Total investments in unconsolidated entities
$
$
182,035 $
80,438
262,473 $
91,702
69,725
161,427
As of December 31, 2018, our aggregate investment in our equity method investees exceeded our proportionate share
of the net assets of the investees by $24 million. This difference is attributable to goodwill recorded at acquisition and
certain adjustments related to intra-entity transactions subsequent to acquisition.
We recorded cash distributions from our investments accounted for using the equity method of $10 million, $19 million
and $10 million for the years ended December 31, 2018, 2017 and 2016, respectively. These cash distributions were
determined to be a return on investment and reported in cash flows from operating activities in our consolidated
statements of cash flows.
F-35
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
A summary of financial information for Dish Mexico and our equity method investees in the aggregate is as follows:
As of December 31,
2018
2017
Dish Mexico
Aggregate
Dish Mexico
Aggregate
(In thousands)
$
$
$
$
147,140 $
187,130
334,270 $
162,593 $
146,851 $
188,077
185,345
350,670 $
332,196 $
128,708 $
109,643
238,351 $
129,837 $
129,087 $
110,460
109,428
240,297 $
238,515 $
172,234
187,067
359,301
130,443
110,472
240,915
Balance sheet data:
Current assets
Noncurrent assets
Total assets
Current liabilities
Noncurrent liabilities
Total liabilities
As of December 31,
2018
2017
2016
Dish
Mexico
Aggregate
Dish
Mexico
Aggregate
Dish
Mexico
Aggregate
(In thousands)
Income statement data:
Revenue
Operating income (loss)
Income (loss) before
income taxes
Net income (loss)
Net income (loss)
attributable to EchoStar
$ 444,264 $ 475,559 $ 497,096 $ 535,153 $ 498,069 $ 541,066
52,656
$
(55,062) $
(43,553) $
15,094 $
31,919 $
32,280 $
$
$
(33,449) $
(23,701) $
18,267 $
32,739 $
10,195 $
(20,126) $
(10,378) $
15,658 $
30,130 $
6,374 $
29,083
25,262
$
(10,828) $
(5,954) $
9,946 $
16,973 $
1,358 $
10,802
In January 2017, we sold our investment in Invidi Technologies Corporation (“Invidi”) to an entity owned in part by DISH
Network for $19 million. Our investment was accounted for using the cost method and had a carrying amount of
$11 million on the date of sale and as a result we recognized a gain of $9 million in connection with this transaction
for the year ended December 31, 2017. See Note 20 for additional information about this transaction.
In connection with the Share Exchange (see Notes 4 and 20) our equity interests in NagraStar L.L.C. (“NagraStar”)
and SmarDTV SA (“SmarDTV”), which we accounted for using the equity method, and our equity interest in Sling TV
Holding L.L.C. (“Sling TV Holding”), which we accounted for using the cost method, were transferred to DISH Network
as of February 28, 2017.
F-36
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE 12. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
As of December 31, 2018, our debt primarily consisted of the 2019 Senior Secured Notes, the 2021 Senior Unsecured
Notes, the 2026 Senior Secured Notes and the 2026 Senior Unsecured Notes, each as defined below, and our capital
lease obligations.
The following table summarizes the carrying amounts and fair values of our long-term debt and capital lease obligations.
Effective
Interest
Rate
As of December 31,
2018
2017
Carrying
Amount
Fair
Value
Carrying
Amount
Fair
Value
(In thousands)
Senior Secured Notes:
6 1/2% Senior Secured Notes due 2019
6.959% $ 920,836 $ 932,696 $ 990,000 $1,042,609
5 1/4% Senior Secured Notes due 2026
5.320%
750,000
695,865
750,000
769,305
Senior Unsecured Notes:
7 5/8% Senior Unsecured Notes due 2021
6 5/8% Senior Unsecured Notes due 2026
8.062%
6.688%
Less: Unamortized debt issuance costs
Subtotal
Capital lease obligations
Total debt and capital lease obligations
Less: Current portion
Long-term debt and capital lease
obligations, net
900,000
750,000
(16,757)
934,902
696,353
900,000
750,000
—
(24,857)
992,745
791,865
—
3,304,079 $3,259,816
3,365,143 $3,596,524
228,702
3,532,781
(959,577)
269,701
3,634,844
(40,631)
$2,573,204
$3,594,213
2019 Senior Secured Notes and 2021 Senior Unsecured Notes
On June 1, 2011, HSS issued $1.1 billion aggregate principal amount of 6 1/2% Senior Secured Notes due 2019 (the
“2019 Senior Secured Notes”) at an issue price of 100.0%, pursuant to a Secured Indenture dated June 1, 2011, (as
amended the “2011 Secured Indenture”). The 2019 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, 2018 and 2017, the outstanding principal balance on the 2019 Senior Secured Notes was
$921 million and $990 million, respectively. The decrease in the principal outstanding was due to our repurchase of
$69 million in the open market during 2018. We recorded a loss on the repurchase of $1 million.
On June 1, 2011, HSS also issued $900 million aggregate principal amount of 7 5/8% Senior Unsecured Notes due
2021 (the “2021 Senior Unsecured Notes,”) at an issue price of 100.0%, pursuant to an Unsecured Indenture dated
June 1, 2011 (together with the “2011 Secured Indenture”, the “2011 Indentures”). The 2021 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, 2018 and 2017, the outstanding principal balance
on the 2021 Senior Unsecured Notes was $900 million.
F-37
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
2026 Senior Secured Notes and 2026 Senior Unsecured Notes
On July 27, 2016, HSS issued $750 million aggregate principal amount of 5 1/4% Senior Secured Notes due 2026
(the “2026 Senior Secured Notes” and, together with the 2019 Senior Secured Notes, the “Secured Notes”) at an issue
price of 100.0%, pursuant to an indenture dated July 27, 2016 (the “2016 Secured Indenture”) and $750 million aggregate
principal amount of 6 5/8% Senior Unsecured Notes due 2026 (the “2026 Senior Unsecured Notes” and, together with
the 2021 Senior Unsecured Notes, the “Unsecured Notes”) at an issue price of 100.0%, pursuant to an indenture dated
July 27, 2016 (together with the 2011 Indentures and the 2016 Secured Indenture, the “Indentures”). The 2019 Senior
Secured Notes, the 2021 Senior Unsecured Notes, the 2026 Senior Secured Notes and the 2026 Senior Unsecured
Notes are referred to collectively as the “Notes” and individually as a series of the Notes. The 2026 Senior Secured
Notes and the 2026 Senior Unsecured Notes (collectively, the “2026 Notes”) mature on August 1, 2026. Interest on
the 2026 Senior Secured Notes accrues at an annual rate of 5 1/4% and interest on the 2026 Senior Unsecured Notes
accrues at an annual rate of 6 5/8%. Interest on the 2026 Notes is payable semi-annually in cash, in arrears on
February 1 and August 1 of each year commencing February 1, 2017. At each of December 31, 2018 and 2017, the
outstanding principal balance on each of the 2026 Senior Secured Notes and the 2026 Senior Unsecured Notes was
$750 million, respectively.
Additional Information Relating to the Notes
Each series of the Notes is 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 applicable Indenture, together with accrued
and unpaid interest, if any, to the date of redemption. HSS may also redeem up to 10% of the outstanding 2026 Senior
Secured Notes per year prior to August 1, 2020 at a redemption price equal to 103% of the principal amount thereof
plus accrued and unpaid interest to the date of redemption. In addition, HSS may, at any time prior to August 1, 2019,
with the net cash proceeds from certain equity offerings or capital contributions, redeem up to 35% of the 2026 Senior
Secured Notes, at 105.250% of the principal amount, and up to 35% of the 2026 Senior Unsecured Notes, at a
redemption price equal to 106.625% of the principal amount plus, in each case, accrued and unpaid interest on the
2026 Notes being redeemed to the date of redemption.
The Secured Notes are:
•
•
•
•
•
•
•
•
secured obligations of HSS;
secured by security interests in substantially all existing and future tangible and intangible assets of HSS and
certain of its subsidiaries on a first priority basis, subject to certain exceptions;
ranked equally and ratably as between the 2019 Senior Secured Notes and the 2026 Senior Secured Notes;
effectively junior to HSS’ obligations that are secured by assets that are not part of the collateral that secures
the respective 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 respective Secured Notes, after giving effect to permitted liens as provided in the Indenture
governing the respective Secured Notes;
senior in right of payment to all existing and future obligations of HSS that are expressly subordinated to the
respective Secured Notes;
structurally junior to any existing and future obligations of any of HSS’ subsidiaries that do not guarantee the
respective Secured Notes; and
unconditionally guaranteed, jointly and severally, on a general senior secured basis by certain of our HSS’
subsidiaries, which guarantees rank equally with all of the guarantors’ existing and future unsubordinated
indebtedness and effectively senior to such guarantors’ existing and future obligations to the extent of the
value of the assets securing the respective Secured Notes.
F-38
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
The Unsecured Notes are:
•
•
•
•
•
•
unsecured senior obligations of HSS;
ranked equally with all existing and future unsubordinated indebtedness (including as between the 2021 Senior
Unsecured Notes and the 2026 Senior Unsecured Notes) and effectively junior to any secured indebtedness
up to the value of the assets securing such indebtedness;
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
respective Unsecured Notes;
structurally junior to any existing and future obligations of any of HSS’ subsidiaries that do not guarantee the
respective Unsecured Notes; and
unconditionally guaranteed, jointly and severally, on a general senior secured basis by certain of HSS’
subsidiaries, which guarantees rank equally with all of the guarantors’ existing and future unsubordinated
indebtedness, and effectively junior to any secured indebtedness of the guarantors up to the value of the assets
securing such indebtedness.
Subject to certain exceptions, the Indentures contain restrictive covenants that, among other things, impose limitations
on HSS’ ability and, in certain instances, the ability of certain of HSS’ subsidiaries to:
•
•
incur additional debt;
pay dividends or make distributions on HSS’ capital stock or repurchase HSS’ capital stock;
• make certain investments;
•
•
create liens or enter into sale and leaseback transactions;
enter into transactions with affiliates;
• merge or consolidate with another company;
•
•
transfer and sell assets; and
allow to exist certain restrictions on the ability of certain of HSS’ subsidiaries to pay dividends, make distributions,
make other payments, or transfer assets to HSS or its subsidiaries.
In the event of a Change of Control, as defined in the respective 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 to the date of repurchase.
The Indentures provide for customary events of default for each series of the Notes, including, among other things,
nonpayment, breach of the covenants in the applicable Indentures, payment defaults or acceleration of other
indebtedness, a failure to pay certain judgments and certain events of bankruptcy, insolvency and reorganization. If
any event of default occurs and is continuing with respect to any series of the Notes, the trustee or the holders of at
least 25% in principal amount of the then outstanding Notes of such series may declare all the Notes of such series
to be due and payable immediately, together with any accrued and unpaid interest.
Pursuant to the terms of a registration rights agreement, HSS registered notes having substantially identical terms as
the 2026 Notes with the Securities and Exchange Commission as part of an offer to exchange registered notes for the
2026 Notes. This exchange offer expired May 11, 2017 with 99.98% of the 2026 Notes being tendered for exchange.
Debt Issuance Costs
In connection with the issuance of the 2026 Notes, we incurred $8 million of debt issuance costs. For the years ended
December 31, 2018, 2017 and 2016, we amortized $8 million, $7 million and $7 million of debt issuance costs incurred
for all debt issuances, respectively, which are included in Interest expense, net of amounts capitalized in our
Consolidated Statements of Operations.
F-39
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
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 10.7% as of December 31, 2018.
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 20, we have subleased transponders on these satellites to DISH Network.
Future minimum lease payments under our capital lease obligations, together with the present value of the net minimum
lease payments as of December 31, 2018, are as follows:
For the Years Ending December 31,
2019
2020
2021
2022
2023
Thereafter
Total minimum lease payments
Less: Amount representing use of the orbital location and estimated executory costs 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)
$
88,615
88,395
84,248
63,484
63,360
47,520
435,622
(136,799)
298,823
(70,121)
228,702
(40,662)
$
188,040
We received rental income from the sublease of our capital lease satellites of approximately $132 million for each of
the years ended December 31, 2018, 2017 and 2016. As of December 31, 2018, our future minimum sublease rental
income was $216 million relating to such satellites. The subleases have a remaining weighted average term of two
years.
F-40
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE 13.
INCOME TAXES
The components of Income (loss) from continuing operations before income taxes in our Consolidated Statements of
Operations are as follows:
2018
For the years ended December 31,
2017
(In thousands)
2016
Domestic
Foreign
Income from continuing operations before income taxes
$
$
151,002 $
146,383 $
(158,962)
(45,689)
(7,960) $
100,694 $
236,200
(19,574)
216,626
The components of Income tax benefit (provision), net, in our Consolidated Statements of Operations are as follows:
Current benefit (provision):
Federal
State
Foreign
Total current benefit (provision)
Deferred benefit (provision):
Federal
State
Foreign
Total deferred benefit (provision)
2018
For the years ended December 31,
2017
(In thousands)
2016
$
(1,472) $
(8,652) $
(19,385)
(184)
(2,690)
(4,346)
(19,189)
(7,365)
227
(26,327)
(1,237)
(2,335)
(12,224)
299,693
2,356
(5,539)
296,510
267
(2,481)
(21,599)
(58,250)
(6,232)
5,827
(58,655)
(80,254)
Total income tax benefit (provision), net
$
(30,673) $
284,286 $
The actual tax provisions for the years ended December 31, 2018, 2017 and 2016 reconcile to the amounts computed
by applying the statutory federal tax rate to Income (loss) from continuing operations before income taxes in our
Consolidated Statements of Operations as shown below:
For the years ended December 31,
2017
2018
2016
Statutory rate
State income taxes, net of Federal benefit
Permanent differences
Tax credits
Valuation allowance
Enactment of Tax Cuts and Job Act of 2017
Rates different than statutory
Other
Total effective tax rate
21.0 %
(94.4)%
(16.9)%
68.6 %
(491.9)%
— %
116.6 %
11.6 %
(385.4)%
35.0 %
(12.2)%
(0.3)%
(8.1)%
4.6 %
(301.4)%
— %
0.1 %
(282.3)%
35.0 %
5.0 %
1.4 %
(4.2)%
(0.3)%
— %
— %
0.1 %
37.0 %
F-41
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
The components of our deferred tax assets and liabilities are as follows:
Deferred tax assets:
Net operating losses, credit and other carryforwards
$
284,300 $
278,540
As of December 31,
2018
2017
(In thousands)
Unrealized losses on investments, net
Accrued expenses
Stock-based compensation
Other assets
Total deferred tax assets
Valuation allowance
Deferred tax assets after valuation allowance
Deferred tax liabilities:
Depreciation and amortization
Other liabilities
Total deferred tax liabilities
Total net deferred tax liabilities
41,852
22,148
10,210
22,366
380,876
(109,762)
271,114
(731,447)
(1,290)
(732,737)
$
(461,623) $
22,260
23,583
9,148
11,890
345,421
(66,886)
278,535
(708,599)
(1,509)
(710,108)
(431,573)
Deferred tax assets and liabilities reflect the effects of tax losses, credits, and the future income tax effects of temporary
differences between the accompanying 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 $110 million and $67 million as of December 31, 2018 and 2017, respectively. The change in the valuation
allowance primarily relates to an increase in the net operating loss carryforwards of certain foreign subsidiaries and a
decrease associated with unrealized gains that are capital in nature.
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, 2018, we had net operating loss carryforwards of $797 million, including $237 million of foreign net
operating loss carryforwards. A substantial portion of these net operating loss carryforwards will begin to expire in
2029. As of December 31, 2018, we have tax credit carryforwards of $133 million and $98 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 2018.
As of December 31, 2018, 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. However, due to the one-time transition tax on the deemed repatriation of post-1986 undistributed
foreign subsidiary earnings, the majority of previously unremitted earnings have now been subjected to U.S. federal
income tax.
Accounting for the U.S. Tax Cuts and Jobs Act
The Tax Cuts and Jobs Act of 2017 (the “2017 Tax Act”) was enacted in December 2017 and has significantly impacted
our effective tax rate and the tax benefit calculated for the year ended December 31, 2017. For the year ended
December 31, 2017, we recorded a benefit of $304 million to reflect the change in the value of our deferred tax assets
F-42
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
and liabilities resulting from the change in the federal corporate tax rate from 35% to 21%. For the year ended December
31, 2018, we recorded an additional tax benefit of $1 million upon the completion of our analysis. This amount included
an estimate of zero related to valuation allowances on foreign tax credit carryforwards. We account for the effects, if
any, of the global intangible low-taxed income provisions (“GILTI”) of the 2017 Tax Act as incurred. We also recorded
a tax provision of nil related to the tax on deemed mandatory repatriation of our unrepatriated foreign earnings.
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, 2018, we are not currently under a U.S. federal income tax examination, however, the IRS can
perform tax examination as early as tax year 2008. We are also subject to frequent state income tax audits and have
open state examinations in years as early as 2008. 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, 2018, 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
For the years ended December 31,
2017
2016
2018
(In thousands)
Balance as of beginning of period
$
63,296 $
63,502 $
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
Reductions based on expirations of statute of limitations
4,361
2,539
(656)
—
—
1,116
258
(852)
—
(728)
62,366
2,132
3
(734)
(265)
—
Balance as of end of period
$
69,540 $
63,296 $
63,502
As of December 31, 2018, we had $70 million of unrecognized income tax benefits, all of which, if recognized, would
affect our effective tax rate. As of December 31, 2017, we had $63 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, 2018, 2017 and 2016, our income tax provision 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-43
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE 14. 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 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. Following the consummation
of the Share Exchange, we no longer operate our former EchoStar Technologies businesses, the Tracking Stock was
retired and is no longer outstanding, and all agreements, arrangements and policy statements with respect to the
Tracking Stock terminated. See Note 20 for additional information about the Share Exchange.
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 and
certain entities established by him for the benefit of his family own all outstanding Class B 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 on October 30, 2018, we are authorized
to repurchase up to $500 million of our outstanding shares of Class A common stock through and including
December 31, 2019. For the year ended December 31, 2018, we repurchased 952,603 shares of our common stock
at an average price per share of $34.95 for a total purchase price of $33 million. For the year ended December 31,
2017, we did not repurchase any common stock under this program.
NOTE 15. EMPLOYEE BENEFIT PLANS
Employee Stock Purchase Plan
We have an employee stock purchase plan (the “ESPP”), under which we are authorized to issue 5.0 million shares
of Class A common stock. As of December 31, 2018, we had approximately 2.5 million shares of Class A common
stock which remain available for issuance under the ESPP. Generally, all full-time employees who have been employed
by EchoStar for at least one calendar quarter are eligible to participate in the ESPP. Employee stock purchases are
made through payroll deductions. Under the terms of the ESPP, each employee’s deductions are limited so that the
maximum they may purchase under the ESPP is $25,000 in fair value of Class A common stock per year. Stock
purchases are made on the last business day of each calendar quarter at 85.0% of the closing price of the Class A
common stock on that date. For the years ended December 31, 2018, 2017 and 2016, employee purchases of Class A
common stock through the ESPP totaled approximately 245,000 shares, 176,000 shares and 227,000 shares,
respectively.
F-44
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
401(k) Employee Savings Plans
Under the EchoStar 401(k) Plan (“the Plan”), eligible employees are entitled to contribute up to 75.0% of their eligible
compensation subject to the maximum contribution limit provided by the Internal Revenue Code of 1986, as amended
(the “Code”). Eligible employees have the option to contribute up to 75% of their eligible compensation on a pre-tax
and/or after-tax basis subject to the Code limits. All employee contributions to the Plan are immediately vested. We
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. Our match is calculated each pay period there is an
employee contribution. In addition, we may make an annual discretionary contribution to the Plan to be made in cash
or our stock. Our contributions under the Plan vest at 20.0% per year and are 100.0% vested after an eligible employee
has completed five years of employment. Forfeitures of unvested participant balances may be used to fund matching
and discretionary contributions.
During the years ended December 31, 2018, 2017 and 2016, we recognized matching contributions, net of forfeitures,
of $5 million, $5 million and $6 million, respectively, and made discretionary contributions of shares of our Class A
common stock, net of forfeitures, with a fair value of $8 million, $7 million and $8 million, respectively (approximately
127,000, 130,000 and 210,500 shares, respectively), to the Plan.
NOTE 16. STOCK-BASED COMPENSATION
Stock Incentive Plans
We maintain stock incentive plans to attract and retain officers, directors and employees. Stock awards under these
plans may include both performance-based and non-performance based stock incentives. As of December 31, 2018,
we had outstanding under these plans stock options to acquire approximately 5.0 million shares of our Class A common
stock. Stock options granted prior to December 31, 2018 were granted with exercise prices equal to or greater than
the market value of our Class A common stock at the date of grant or the last trading day prior to the date of grant (if
the grant date is not a trading day) and generally with a maximum term of ten years for our officers and employees
and five years for our non-employee directors. While generally we issue stock awards subject to vesting, typically over
five years, some stock awards have been granted with immediate or longer vesting and other stock awards vest also
or only upon the achievement of certain performance objectives. Under these plans, we grant to certain of our employees
awards of fully vested shares of Class A common stock under our Employee Innovator Recognition Program, which
is available to all of our eligible employees. As of December 31, 2018, we had approximately 8 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, 2018 are as follows:
Options Outstanding
Options Exercisable
Price Range
$0.00 - $20.00
$20.01 - $25.00
$25.01 - $30.00
$30.01 - $35.00
$35.01 - $40.00
$40.01 - $45.00
$45.01 - $50.00
$50.01 - $55.00
$55.01 - $60.00
$60.01 and over
Number
Outstanding
as of
December 31,
2018
51,359
429,306
3,300
352,500
1,985,200
277,000
766,973
487,400
600,000
60,000
5,013,038
Weighted-
Average
Remaining
Contractual Term
(In Years)
2
1
3
4
4
7
6
7
8
7
5
Weighted-
Average
Exercise
Price
$
$
$
$
$
$
$
$
$
$
$
18.74
20.18
26.42
34.22
38.19
43.98
47.58
52.24
56.97
60.70
41.80
Number
Exercisable
as of
December 31,
2018
51,359
Weighted-
Average
Remaining
Contractual Term
(In Years)
2
429,306
3,300
352,500
1,832,500
111,400
577,473
197,300
127,000
28,000
3,710,138
1
3
4
3
7
5
6
8
5
4
Weighted-
Average
Exercise
Price
$
$
$
$
$
$
$
$
$
$
$
18.74
20.18
26.42
34.22
38.09
44.04
47.64
51.99
56.95
60.70
38.59
F-45
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Stock Award Activity
Our stock option activity was as follows:
For the years ended December 31,
2018
2017
2016
Weighted-
Average
Exercise
Price
Options
Weighted-
Average
Exercise
Price
Weighted-
Average
Exercise
Price
Options
Options
4,951,256 $
215,500 $
(108,318) $
(45,400) $
41.42
51.71
40.67
50.21
5,968,763 $
1,262,500 $
(1,018,507) $
39.30
57.12
35.84
5,893,241 $
732,000 $
(453,182) $
38.38
41.86
28.83
(1,261,500) $
51.63
(203,296) $
45.15
5,013,038 $
3,710,138 $
41.80
38.59
4,951,256 $
41.42
5,968,763 $
39.30
3,143,656 $
36.98
3,551,063 $
35.40
Total options outstanding, beginning
of period
Granted
Exercised
Forfeited and canceled
Total options outstanding, end of
period
Exercisable at end of period
On April 1, 2017, we granted to Mr. Ergen, our Chairman, an option to purchase 1,100,000 shares of Class A common
stock. On April 24, 2017, Mr. Ergen voluntarily forfeited a portion of the option covering 600,000 shares and we canceled
such forfeited portion of the option.
We realized total tax benefits from stock options exercised of $0.4 million, $3 million and $2 million for the years ended
December 31, 2018, 2017 and 2016, respectively. The aggregate intrinsic value of our stock options exercised was
$2 million, $20 million and $8 million for the years ended December 31, 2018, 2017 and 2016, respectively.
Our restricted stock unit activity was as follows:
For the years ended December 31,
2018
2017
2016
Restricted
Stock
Units
Weighted-
Average
Grant Date
Fair Value
Restricted
Stock
Units
Weighted-
Average
Grant Date
Fair Value
Restricted
Stock
Units
Weighted-
Average
Grant Date
Fair Value
— $
— $
— $
—
—
—
6,667 $
(6,667) $
34.22
34.22
57,328 $
(50,661) $
42.31
43.38
— $
—
6,667 $
34.22
Total restricted stock units
outstanding, beginning of
period
Vested
Total restricted stock units
outstanding, end of period
The total fair value of restricted stock units vested was nil, $0.2 million and $2 million for the years ended December 31,
2018, 2017 and 2016, respectively.
F-46
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Stock-Based Compensation
Total noncash, stock-based compensation expense for all of our employees is shown in the following table for the years
ended December 31, 2018, 2017 and 2016, respectively, and was assigned to the same expense categories as the
base compensation for such employees:
For the years ended December 31,
2017
(In thousands)
2018
2016
Research and development expenses
Selling, general and administrative expenses
Total stock-based compensation
$
$
634 $
1,010 $
9,356
10,630
1,046
9,865
9,990 $
11,640 $
10,911
The income tax benefits related to stock-based compensation expense was $2 million, $4 million and $4 million for
the years ended December 31, 2018, 2017 and 2016, respectively. As of December 31, 2018, total unrecognized
stock-based compensation cost, net of estimated forfeitures, related to our unvested stock awards was $14 million.
This amount 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, 2018, 2017 and 2016 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
For the years ended December 31,
2017
1.98% - 2.05%
2016
1.10% - 1.87%
2018
2.25% - 2.99%
22.77% - 23.28% 24.20% - 26.69% 27.22% - 27.37%
Expected term of options in years
5.7 - 5.8
5.7 - 5.8
5.7 - 5.8
Weighted-average grant-date fair value
$12.38 - $16.23
$15.25 - $16.49
$11.15 - $12.49
We do not currently intend to pay dividends on our common stock and accordingly, the dividend yield 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 that determined using 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, 2018, the aggregate intrinsic value
of our stock options was $9 million for options outstanding and $9 million for options exercisable as of December 31,
2018.
F-47
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE 17. COMMITMENTS AND CONTINGENCIES
Commitments
The following table summarizes our contractual obligations at December 31, 2018:
Total
2019
2020
Long-term debt
$ 3,320,836
$
920,836
$
2021
(In thousands)
900,000
— $
2022
2023
Thereafter
$
— $
— $ 1,500,000
Payments Due in the Year Ending December 31,
Capital lease obligations
Interest on long-term debt
and capital lease
obligations
Satellite-related obligations
Operating lease obligations
Service commitments
228,702
40,662
45,031
46,353
31,857
35,476
29,323
983,824
731,684
93,918
866
209,989
207,403
21,146
176
175,808
166,601
18,081
181
136,662
60,852
13,873
186
98,265
47,996
10,118
192
94,529
47,907
8,814
131
268,571
200,925
21,886
—
Total
$ 5,359,830
$ 1,400,212
$ 405,702
$ 1,157,926
$ 188,428
$ 186,857
$ 2,020,705
Our satellite-related obligations primarily include payments pursuant to agreements for the construction of the EchoStar
XXIV satellite; payments pursuant to Regulatory Authorizations; executory costs for our capital lease satellites; and
in-orbit incentives relating to certain satellites; as well as commitments for satellite service arrangements. We incurred
satellite-related expenses of $101 million, $140 million and $144 million for the years ended December 31, 2018, 2017
and 2016, respectively.
Our operating lease obligations consist of minimum rental payments under noncancelable leases. Certain of our lease
agreements require us to pay additional amounts for utilities, common area maintenance, property taxes, and other
executory costs.
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, 2018, 2017 and 2016, we recorded $27 million, $30 million and $21 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 have in the future 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 tripled. 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 our products and services. We cannot be certain that these parties 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 obtain licenses from these parties 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.
F-48
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Separation Agreement and Share Exchange
In connection with our spin-off from DISH in 2008 (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 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, we will generally 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. Additionally,
in connection with the Share Exchange, we entered into a share exchange agreement and other agreements which
provide, among other things, for the division of certain liabilities, including liabilities relating to taxes, intellectual property
and employees and liabilities resulting from litigation and the assumption of certain liabilities that relate to the transferred
businesses and assets. These agreements also contain additional indemnification provisions between us and DISH
Network for certain pre-existing liabilities and legal proceedings.
Litigation
We are involved in a number of legal proceedings 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 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, 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 trials, 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). Except as described
below, however, management does not believe, based on currently available information, that the outcomes of these
proceedings will have a material 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 or jury 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.
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 Hughes Network Systems, L.L.C. (“HNS”), as well as against Black Elk
Energy Offshore Operations, LLC, Bluetide Communications, Inc. and Helm Hotels Group, in the U.S. District Court
for the Eastern District of Texas, alleging infringement of U.S. 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
F-49
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Hotels Group as a defendant, but making similar allegations against a new defendant, Country Home Investments, Inc.
On November 3 and 4, 2015 and January 22, 2016, the defendants filed petitions before the United States Patent and
Trademark Office (“USPTO”) challenging the validity of the patents in suit, which the USPTO subsequently declined
to institute. On April 13, 2016, the defendants answered Elbit’s complaint. At Elbit’s request, on June 26, 2017, the
court dismissed Elbit’s claims of infringement against all parties other than HNS. Trial commenced on July 31, 2017.
On August 7, 2017, the jury returned a verdict that the 073 patent was valid and infringed, and awarded Elbit
approximately $21 million. The jury also found that such infringement of the 073 patent was not willful and that the
874 patent was not infringed. On March 30, 2018, the court ruled on post-trial motions, upholding the jury’s findings
and awarding Elbit attorneys’ fees in an amount that has not yet been specified. As a result of pre-judgment interest,
costs and unit sales through the 073 patent’s expiration in November 2017, the jury verdict would result in a payment
of approximately $29 million plus post-judgment interest if not overturned or modified on appeal. Elbit has requested
an award of approximately $14 million of attorneys’ fees. HNS is contesting Elbit’s claims as inappropriate and
unreasonable in light of the court’s decision and prevailing law. On April 27, 2018, HNS filed a notice of appeal to the
U.S. Court of Appeals for the Federal Circuit. The parties have briefed the appeal and are awaiting a date for oral
arguments. We cannot predict with certainty the outcome of the appeal. As of December 31, 2018 and 2017, we have
recorded an accrual of approximately $3 million and $3 million, respectively, with respect to this liability. Any eventual
payments made with respect to the ultimate outcome of this matter may be different from our accruals and such
differences could be significant.
Realtime Data LLC
On May 8, 2015, Realtime Data LLC (“Realtime”) filed suit against EchoStar Corporation and our subsidiary HNS in
the U.S. District Court for the Eastern District of Texas alleging infringement of U.S. Patent Nos. 7,378,992 (the “992
patent”), entitled “Content Independent Data Compression Method and System;” 7,415,530 (the “530 patent”), entitled
“System and Methods for Accelerated Data Storage and Retrieval,” and 8,643,513 (the “513 patent”), entitled “Data
Compression System and Methods.” On September 14, 2015, Realtime amended its complaint, additionally alleging
infringement of U.S. Patent No. 9,116,908 (the “908 patent”), entitled “System and Methods for Accelerated Data
Storage and Retrieval.” On February 14, 2017, Realtime filed a second suit against EchoStar Corporation and our
subsidiary HNS in the same District Court, alleging infringement of four additional U.S. Patents, Nos. 7,358,867 (the
“867 patent”), entitled “Content Independent Data Compression Method and System;” 8,502,707 (the “707 patent”),
entitled “Data Compression Systems and Methods;” 8,717,204 (the “204 patent”), entitled “Methods for Encoding and
Decoding Data;” and 9,054,728 (the “728 patent”), entitled “Data Compression System and Methods.” On February
13, 2018, we filed petitions before the USPTO challenging the validity of all claims asserted against us from the 707
patent, as well as one of the asserted claims of the 728 patent. On September 5, 2018, the USPTO declined to institute
proceedings for the petition that we had filed against the 728 patent. On September 12, 2018, the USPTO instituted
proceedings to review the validity of the asserted claims of the 707 patent. In a stipulation filed on October 24, 2018,
Realtime voluntarily elected not to pursue any previously asserted claims from the 992, 530, 513, 908, 867 and 204
patents. Realtime is an entity that seeks to license an acquired patent portfolio without itself practicing any of the
claims recited therein. In February 2019, we entered into a settlement agreement with Realtime and the case was
dismissed with prejudice.
Other
In addition to the above actions, we are subject to various other legal proceedings and claims, which arise in the
ordinary course of business. As part of our ongoing operations, we are 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 we may be 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, we from time to time receive 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 other 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.
F-50
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
We also indemnify our directors, officers and employees for certain liabilities that might arise from the performance of
their responsibilities for us. Additionally, in the normal course of its business, we enter into contracts pursuant to which
we may make a variety of representations and warranties and indemnify the counterparty for certain losses. Our
possible exposure under these arrangements cannot be reasonably estimated as this involves the resolution of claims
made, or future claims that may be made, against us or our officers, directors or employees, the outcomes of which
are unknown and not currently predictable or estimable.
NOTE 18. SEGMENT REPORTING
Operating segments are business components of an enterprise for which separate financial information is available
and regularly evaluated by our chief operating decision maker (“CODM”), who is our Chief Executive Officer. We
primarily operate in two business segments, Hughes and ESS, as described in Note 1.
The primary measure of segment profitability that is reported regularly to our CODM is earnings before interest, taxes,
depreciation and amortization, or EBITDA. Our operations also include various corporate departments (primarily
Executive, Treasury, Strategic Development, Human Resources, IT, Finance, Real Estate, Accounting and Legal) and
other activities that have not been assigned to our operating segments such as costs incurred in certain satellite
development programs and other business development activities, and gains or losses from certain of our investments.
These activities, costs and income, as well as eliminations of intersegment transactions, are accounted for in Corporate
and Other in the tables below or in the reconciliation of EBITDA below.
Total assets by segment have not been reported herein because the information is not provided to our CODM on a
regular basis.
F-51
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
The following table presents revenue, EBITDA and capital expenditures for each of our operating segments. Capital
expenditures are net of refunds and other receipts related to property and equipment and exclude capital expenditures
from discontinued operations of $12 million and $70 million for the years ended December 31, 2017 and 2016,
respectively.
For the year ended December 31, 2018
External revenue
Intersegment revenue
Total revenue
EBITDA
Capital expenditures
For the year ended December 31, 2017
External revenue
Intersegment revenue
Total revenue
EBITDA
Capital expenditures
For the year ended December 31, 2016
External revenue
Intersegment revenue
Total revenue
EBITDA
Capital expenditures
Hughes
ESS
Corporate
and Other
Consolidated
Total
(In thousands)
$ 1,716,169 $
355,734 $
19,460 $
2,091,363
$
359 $
2,324 $
(2,683) $
—
$ 1,716,528 $
358,058 $
16,777 $
2,091,363
$
$
601,319 $
308,058 $
(152,708) $
390,108 $
(76,582) $
164,091 $
756,669
477,617
$ 1,476,131 $
1,787 $
$ 1,477,918 $
$
390,831 $
18,546 $
1,885,508
1,413 $
(3,200) $
—
392,244 $
15,346 $
1,885,508
$
$
475,222 $
315,285 $
4,070 $
376,502 $
20,725 $
169,157 $
794,577
566,384
$ 1,389,152 $
3,209 $
$ 1,392,361 $
$
406,970 $
14,344 $
1,810,466
690 $
(3,899) $
—
407,660 $
10,445 $
1,810,466
$
$
477,165 $
341,516 $
(67,676) $
322,362 $
58,925 $
247,223 $
751,005
628,510
The following table reconciles total consolidated EBITDA to reported Income (loss) from continuing operations before
income taxes in our Consolidated Statements of Operations:
2018
For the Years Ended December 31,
2017
(In thousands)
2016
EBITDA
Interest income and expense, net
Depreciation and amortization
Net income attributable to noncontrolling interests
Income (loss) from continuing operations before income
taxes
$
756,669 $
794,577 $
751,005
(168,293)
(598,178)
1,842
(172,621)
(522,190)
928
(102,237)
(432,904)
762
$
(7,960) $
100,694 $
216,626
F-52
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 customers in the U.S. and its territories,
Mexico and Canada. Central and South America revenue includes transactions with customers in Brazil, Colombia,
Peru, Ecuador and other countries in this region. All other revenue includes transactions with customers in Asia, Africa,
Australia, Europe, and the Middle East. The following table summarizes total long-lived assets and revenue attributed
to the North America, South and Central America and other foreign locations.
Long-lived assets:
North America
Central and South America
All other
Total long-lived assets
Revenue:
North America
Central and South America
All other
Total revenue
As of December 31,
2018
2017
(In thousands)
$
$
4,114,087 $
226,232
118,647
4,458,966 $
4,221,793
213,890
129,852
4,565,535
2018
For the Years Ended December 31,
2017
(In thousands)
2016
$
$
1,819,463 $
1,612,349 $
1,566,576
101,632
170,268
90,000
183,159
50,952
192,938
2,091,363 $
1,885,508 $
1,810,466
Transactions with Major Customers
For the years ended December 31, 2018, 2017 and 2016, our revenue included sales to one major customer. The
following table summarizes sales to this customer and its percentage of total revenue.
Total revenue:
DISH Network:
Hughes segment
EchoStar Satellite Services segment
Corporate and Other
Total DISH Network
All other
Total revenue
Percentage of total revenue:
DISH Network
All other
For the Years Ended December 31,
2018
2017
(In thousands)
2016
$
50,275
$
82,625
$
309,815
19,075
379,165
344,841
18,522
445,988
107,300
349,549
15,433
472,282
1,712,198
1,439,520
1,338,184
$
2,091,363
$
1,885,508
$
1,810,466
18.1%
81.9%
23.7%
76.3%
26.1%
73.9%
F-53
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE 19. QUARTERLY FINANCIAL DATA (UNAUDITED)
Our quarterly results of operations are summarized as follows:
Year Ended December 31, 2018
Total revenue
Operating income
Net income (loss)
Net income (loss) attributable to EchoStar
common stock
Basic earnings (loss) per share
Diluted earnings (loss) per share
Year Ended December 31, 2017
Total revenue (1)
Operating income (1)
Net income
Net income attributable to EchoStar
common stock
Basic earnings per share
Diluted earnings per share
$
$
$
$
$
$
$
$
$
$
$
$
March 31
For the Three Months Ended
June 30
September 30 December 31 (2)
(In thousands, except per share amounts)
501,792 $
58,010 $
(21,171) $
525,957 $
532,953 $
74,765 $
77,684 $
70,035 $
16,502 $
530,661
(19,567)
(111,648)
(21,551) $
77,222 $
16,052 $
(112,198)
(0.22) $
(0.22) $
0.80 $
0.80 $
0.17 $
0.17 $
(1.17)
(1.17)
433,151 $
51,651 $
37,352 $
465,076 $
481,233 $
45,890 $
7,122 $
56,414 $
35,201 $
506,048
42,352
313,814
38,924 $
0.41 $
0.41 $
6,940 $
34,669 $
313,237
0.07 $
0.07 $
0.36 $
0.36 $
3.29
3.23
(1) As a result of the Share Exchange, the consolidated financial statements of the EchoStar Technologies businesses have been presented as
discontinued operations and, as such, have been excluded from the quarterly financial data presented above for all periods presented. See
Note 4 in the notes to our accompanying Consolidated Financial Statements for further discussion of our discontinued operations.
(2) Net income and related per share amounts for the three months ended December 31, 2018 include an impairment charge of $65 million related
to certain long-lived assets in Brazil. See Note 10 for additional information related to the impairment charge. Net income and related per
share amounts for the three months ended December 31, 2017 include a discrete income tax benefit of $304 million related to the enactment
of federal tax legislation in December 2017, a gain of $23 on our trading securities, and an impairment loss of $11 million relating to our
regulatory authorizations with indefinite lives and certain projects in construction in progress. See Note 13 for additional information relating
to the income tax benefit.
NOTE 20. RELATED PARTY TRANSACTIONS
DISH Network
EchoStar Corporation and DISH have operated as separate publicly-traded companies since 2008. In addition, prior
to the consummation of the Share Exchange in February 2017, DISH Network owned the Tracking Stock, which
represented an aggregate 80.0% economic interest in the residential retail satellite broadband business of our Hughes
segment. Following the consummation of the Share Exchange, the Tracking Stock was retired. A substantial majority
of the voting power of the shares of each of EchoStar Corporation and DISH is owned beneficially by Charles W. Ergen,
our Chairman, and by certain entities established by Mr. Ergen for the benefit of his family.
In connection with and following both the Spin-off and the Share Exchange, we and DISH Network 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 indemnify 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 we or DISH Network pay for products and services provided under the agreements
are based on cost plus a fixed margin (unless noted differently below), which varies depending on the nature of the
products and services provided.
F-54
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
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.
Services and Other Revenue — DISH Network
Satellite Capacity Leased to DISH Network. We have entered into certain agreements to lease satellite capacity
pursuant to which we provide satellite services to DISH Network on certain satellites owned or leased by us. The
fees for the services provided under these 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 VII, EchoStar X, EchoStar XI and EchoStar XIV. In March 2014, as part of the Satellite and Tracking
Stock Transaction, described below in Other Agreements - DISH Network, we began leasing certain satellite
capacity to DISH Network on the EchoStar VII, EchoStar X, EchoStar XI and EchoStar XIV satellites. These
agreements to lease satellite capacity generally terminate 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 agreement to lease satellite capacity on
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. The agreement to lease satellite capacity on the EchoStar VII satellite
expired at the end of June 2018.
EchoStar IX. Effective January 2008, DISH Network began leasing satellite capacity from us on the EchoStar IX
satellite. Subject to availability, DISH Network generally has the right to continue leasing satellite capacity from
us on the EchoStar IX satellite on a month-to-month basis.
EchoStar XII. DISH Network leased satellite capacity from us on the EchoStar XII satellite. The agreement to
lease satellite capacity expired at the end of September 2017.
EchoStar XVI. In December 2009, we entered into an initial ten-year agreement to lease satellite capacity to DISH
Network, pursuant to which DISH Network has leased satellite capacity from us on the EchoStar XVI satellite since
January 2013. Effective December 2012, we and DISH Network amended the 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. In July 2016, we and DISH Network
further amended the agreement to, among other things, extend the initial term by one additional year through
January 2018 and to reduce the term of the first renewal option by one year. In May 2017, DISH Network renewed
the agreement through January 2023. DISH Network has the option to renew for an additional five-year period
prior to expiration of the current term. There can be no assurance that such option to renew this agreement will
be exercised. In the event that DISH Network does not exercise its five-year renewal option, 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. We and DISH Network have amended the agreement to allow DISH Network to place and use
certain satellites at the 61.5 degree west longitude orbital location.
Nimiq 5 Agreement. In September 2009, we entered into a fifteen-year agreement with Telesat Canada to lease
satellite capacity from Telesat Canada on all 32 direct broadcast satellite (“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 an agreement with DISH Network, pursuant to which DISH Network leases
satellite capacity from us on all 32 of the DBS transponders covered by the Telesat Transponder Agreement (the
“DISH Nimiq 5 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 in October 2019. Upon expiration of the initial term, DISH Network has the option to renew the
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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 lease satellite capacity 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 lease satellite capacity
on a replacement satellite.
QuetzSat-1 Agreement. In November 2008, we entered into a ten-year agreement to lease satellite capacity from
SES Latin America, which provides, among other things, for the provision by SES Latin America to us of leased
satellite capacity on 32 DBS transponders on the QuetzSat-1 satellite. Concurrently, in 2008, we entered into an
agreement pursuant to which DISH Network leases from us satellite capacity 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
in November 2011 at the 67.1 degree west longitude orbital location. In January 2013, the QuetzSat-1 satellite
was moved to the 77 degree west longitude orbital location. In February 2013, we and DISH Network entered into
an agreement pursuant to which we lease back from DISH Network certain satellite capacity on five DBS
transponders on the QuetzSat-1 satellite through November 2021, unless extended or earlier terminated under
the terms and conditions of our agreement.
Under the terms of our contractual arrangements with DISH Network, we began leasing satellite capacity to DISH
Network on the QuetzSat-1 satellite in February 2013 and will continue leasing such capacity through November
2021, unless extended or earlier terminated under the terms and conditions of our agreement with DISH Network
for the QuetzSat-1 satellite. 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 lease satellite capacity 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 lease satellite
capacity 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. Effective in March 2018, DISH
Network exercised its right to terminate the DISH 103 Spectrum Development Agreement and we exercised our
right to terminate the 103 Spectrum Development Agreement.
In connection with the 103 Spectrum Development Agreement, in May 2012, we also entered into a ten-year
agreement with Ciel pursuant to which we leased certain satellite capacity from Ciel on the SES-3 satellite at the
103 degree west longitude orbital location (the “Ciel 103 Agreement”). In June 2013, we and DISH Network entered
into an agreement pursuant to which DISH Network leased certain satellite capacity from us on the SES-3 satellite
(the “DISH 103 Agreement”). Under the terms of the DISH 103 Agreement, DISH Network made certain monthly
payments to us through the service term. Effective in March 2018, DISH Network exercised its right to terminate
the DISH 103 Agreement and we exercised our right to terminate the Ciel 103 Agreement.
TT&C Agreement. Effective January 2012, we entered into a TT&C agreement pursuant to which we provided TT&C
services to DISH Network for a period ending in December 2016 (the “TT&C Agreement”). We and DISH Network
have amended the TT&C Agreement over time to, among other things, extend the term through February 2023. The
fees for services provided under the 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 TT&C
Agreement for any reason upon 12 months’ notice.
Effective March 2014, we provide TT&C services for the D-1 and EchoStar XV satellites; however, for the period that
we received satellite services on the EchoStar XV satellite from DISH Network, we waived the fees for the TT&C
services on the EchoStar XV satellite. Effective August 2016, we provide TT&C services to DISH Network for the
EchoStar XVIII satellite.
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Real Estate Leases to DISH Network. 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:
100 Inverness Agreement. Effective March 2017, DISH Network is licensed to use certain of our space at 100
Inverness Terrace East, Englewood, Colorado for a period ending in December 2020. This agreement may be
terminated by either party upon 180 days’ 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 extension, either party
has the right to terminate this agreement upon 30 days’ notice.
90 Inverness Lease Agreement. The lease for certain space at 90 Inverness Circle East, Englewood, Colorado
was for a period ending in December 2016. In February 2016, DISH Network terminated this lease effective in
August 2016.
Meridian Lease Agreement. The lease for all of 9601 S. Meridian Blvd., Englewood, Colorado was for a period
ending in December 2016. We and DISH Network have amended this lease over time to, among other things,
extend the term through December 2019. After December 2019, this agreement may be converted by mutual
consent to a month-to-month lease agreement with either party having the right to terminate upon 30 days’ notice.
Santa Fe Lease Agreement. The lease for all of 5701 S. Santa Fe Dr., Littleton, Colorado was for a period ending
in December 2016. We and DISH Network have amended this lease over time to, among other things, extend the
term through December 2019. After December 2019, this agreement may be converted by mutual consent to a
month-to-month lease agreement with either party having the right to terminate upon 30 days’ notice.
Atlanta Sublease Agreement. The sublease for certain space at 211 Perimeter Center, Atlanta, Georgia terminated
in October 2016.
Cheyenne Lease Agreement. Prior to the Share Exchange, we leased to DISH Network certain space at 530
EchoStar Drive, Cheyenne, Wyoming. In connection with the Share Exchange, we transferred ownership of a
portion of this property to DISH Network and we and DISH Network amended this agreement to (i) terminate the
lease for the transferred space and (ii) provide for a continued lease to DISH Network of the portion of the property
we retained for a period ending in December 2031. After December 2031, this agreement may be converted by
mutual consent to a month-to-month lease agreement with either party having the right to terminate upon 30 days’
notice.
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
we provide, among other things, warranty, operations and maintenance and hosting services for TerreStar’s ground-
based communications equipment. In December 2017, we and DISH Network amended these agreements, effective
as of January 1, 2018, to reduce certain pricing terms through December 31, 2023 and to modify certain termination
provisions. DISH Network generally has the right to continue to receive warranty services from us for our products on
a month-to-month basis unless terminated by DISH Network upon at least 21 days’ written notice to us. DISH Network
generally has the right to continue to receive operations and maintenance services from us on a quarter-to-quarter
basis unless operations and maintenance services are terminated by DISH Network upon at least 90 days’ written
notice to us. The provision of hosting services will continue until May 2022. In addition, DISH Network generally may
terminate any and all services for convenience subject to providing us with prior notice and/or payment of termination
charges.
Hughes Broadband Distribution Agreement. Effective October 2012, we and DISH Network, entered into a
distribution agreement (the “Distribution Agreement”) pursuant to which DISH Network has the right, but not the
obligation, to market, sell and distribute our HughesNet satellite internet service (the “HughesNet service”). DISH
Network pays us a monthly per subscriber wholesale service fee for the HughesNet service based upon a subscriber’s
service level and based upon certain volume subscription thresholds. The Distribution Agreement also provides that
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DISH Network has the right, but not the obligation, to purchase certain broadband equipment from us to support the
sale of the HughesNet 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 expiration
of the then-current term. In February 2014, we and DISH Network entered into an amendment to the Distribution
Agreement which, among other things, extended the initial term of the Distribution Agreement until March 2024. Upon
expiration or termination of the Distribution Agreement, we and DISH Network will continue to provide our HughesNet
service to the then-current DISH Network subscribers pursuant to the terms and conditions of the Distribution
Agreement.
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 various agreements
pursuant to which we provide, among other things, warranty, operations and maintenance and hosting services of
DBSD North America’s gateway and ground-based communications equipment. In December 2017, we and DBSD
North America amended these agreements, effective as of January 1, 2018, to reduce certain pricing terms through
December 31, 2023 and to modify certain termination provisions. DBSD North America has the right to continue to
receive operations and maintenance services from us on a quarter-to-quarter basis, unless terminated by DBSD North
America upon at least 120 days’ written notice to us. In February 2019, we further amended these agreements to
provide DBSD North America with the right to continue to receive warranty services from us on a month-to-month basis
until December 2023, unless terminated by DBSD North America upon at least 21 days’ written notice to us. The
provision of hosting services will continue until February 2022 and will automatically renew for an additional five-year
period until February 2027 unless terminated by DBSD North America upon at least 180 days’ written notice to us. In
addition, DBSD North America generally may terminate any and all such services for convenience, subject to providing
us with prior notice and/or payment of termination charges.
RUS Implementation Agreement. In September 2010, DISH Network was selected by the Rural Utilities Service
(“RUS”) of the U.S. Department of Agriculture to receive up to approximately $14 million in broadband stimulus grant
funds. Effective November 2011, we and DISH Network entered into a RUS Implementation Agreement (the “RUS
Agreement”) pursuant to which we provided certain portions of the equipment and broadband service used to implement
DISH Network’s RUS program. While the RUS Agreement expired in June 2013 when the broadband stimulus grant
funds were exhausted, we are required to continue providing services to DISH Network’s customers activated prior to
the expiration of the RUS Agreement in accordance with the terms and conditions of the RUS Agreement.
Hughes Equipment and Services Agreement. In February 2019, we and DISH Network entered into an agreement
pursuant to which we will sell to DISH Network our HughesNet Service and HughesNet equipment that has been
modified to meet DISH Network’s internet-of-things specifications for the transfer of data to DISH Network’s network
operations centers. This agreement has an initial term of five years expiring February 2024 with automatic renewal
for successive one-year terms unless terminated by DISH Network with at least 180 days’ written notice to us or by
us with at least 365 days’ written notice to DISH Network.
General and Administrative Expenses — DISH Network
Amended and Restated Professional Services Agreement. In connection with the Spin-off, we entered into various
agreements with DISH Network including a transition services agreement, satellite procurement agreement and
services agreement, which all expired in January 2010 and were replaced by a professional services agreement (the
“Professional Services Agreement”). In January 2010, we and DISH Network agreed that we 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 a transition services agreement: information technology, travel and event coordination,
internal audit, legal, accounting and tax, benefits administration, program acquisition services and other support
services. Mr. Vivek Khemka, who was then employed as DISH Network’s Executive Vice President and Chief
Technology Officer, provided services to us during portions of 2016 and through February 2017 pursuant to the
Professional Services Agreement as President -- EchoStar Technologies L.L.C. 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 a satellite procurement agreement),
receive logistics, procurement and quality assurance services from us (previously provided under a services agreement)
and provide other support services. In connection with the consummation of the Share Exchange, we and DISH
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amended and restated the Professional Services Agreement (the “Amended and Restated Professional Services
Agreement”) to provide that we and DISH Network shall have the right to receive additional services that either we or
DISH Network may require as a result of the Share Exchange, including access to antennas owned by DISH Network
for our use in performing TT&C services and maintenance and support services for our antennas. The term of the
Amended and Restated Professional Services Agreement is through January 2020 and renews automatically for
successive one-year periods thereafter, unless the agreement is terminated earlier by either party upon at least 60
days’ notice. We or DISH Network may generally terminate the Amended and Restated Professional Services
Agreement in part with respect to any particular service it receives for any reason upon at least 30 days’ notice, unless
the statement of work for particular services states otherwise. Certain services being provided for under the Amended
and Restated Professional Services Agreement may survive the termination of the agreement.
Real Estate Leases from DISH Network. 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 is comparable to per square foot rental rates of
similar commercial property in the same geographic area at the time of the leases, and for certain properties, we are
responsible for our portion of the taxes, insurance, utilities and maintenance of the premises.
Cheyenne Lease Agreement. Effective March 2017 we lease from DISH Network certain space at 530 EchoStar
Drive in Cheyenne, Wyoming for a period ending in February 2019. In August 2018, we exercised our option
to renew this lease for a one year period ending in February 2020. We have the option to renew this lease
for twelve one-year periods.
Gilbert Lease Agreement. Effective March 2017 we lease from DISH Network certain space at 801 N. DISH
Dr. in Gilbert, Arizona for a period ending in February 2019. In August 2018, we exercised our option to renew
this lease for a one year period ending in February 2020. We have the option to renew this lease for twelve
one-year periods.
American Fork Occupancy License Agreement. In connection with the Share Exchange, effective March 2017,
we subleased from DISH Network certain space at 796 East Utah Valley Drive in American Fork, Utah for a
period ending in August 2017. We exercised our option to renew this sublease for a five-year period ending
in August 2022.
Employee Matters Agreement. Effective March 2017 in connection with the Share Exchange, we and DISH Network
entered into an employee matters agreement that addressed the transfer of employees from EchoStar to DISH Network,
including certain benefit and compensation matters and the allocation of responsibility for employee related liabilities
relating to current and past employees of the transferred businesses. DISH Network assumed employee-related
liabilities relating to the transferred businesses as part of the Share Exchange, except that we are responsible for
certain existing employee related litigation as well as certain pre-Share Exchange compensation and benefits for
employees transferring to DISH Network in connection with the Share Exchange.
Collocation and Antenna Space Agreements. We and DISH Network have entered into an agreement pursuant to
which DISH Network provides us with collocation space in El Paso, Texas. This agreement was for an initial period
ending in August 2015, and provides us with renewal options for four consecutive years. Effective August 2015, we
exercised our first renewal option for a period ending in August 2018, and in April 2018 we exercised our second
renewal option for a period ending in August 2021. In connection with the Share Exchange, effective March 2017, we
also entered into certain agreements pursuant to which DISH Network provides collocation and antenna space to
EchoStar through February 2022 at the following locations: Cheyenne, Wyoming; Gilbert, Arizona; New Braunfels,
Texas; Monee, Illinois; Spokane, Washington; and Englewood, Colorado. In August 2017, we and DISH Network also
entered into certain other agreements pursuant to which DISH Network provides additional collocation and antenna
space to EchoStar in Monee, Illinois and Spokane, Washington through August 2022. We generally may renew our
collocation and antenna space agreements for three-year periods by providing DISH Network with prior written notice
no more than 120 days but no less than 90 days prior to the end of the then-current term. We may terminate certain
of these agreements with 180 days’ prior written notice. The fees for the services provided under these agreements
depend on the number of racks leased at the location.
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Other Agreements — DISH Network
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 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 million in cash; and (ii) in March 2014, DISH Network began receiving certain satellite services from
us as discussed above on these five satellites (collectively, the “Satellite and Tracking Stock Transaction.”) The Tracking
Stock was retired in March 2017 and is no longer outstanding and all agreements, arrangements and policy statements
with respect to such Tracking Stock terminated and are of no further effect.
Share Exchange Agreement. On January 31, 2017, EchoStar Corporation and certain of our subsidiaries entered
into a share exchange agreement (the “Share Exchange Agreement”) with DISH and certain of its subsidiaries pursuant
to which, on February 28, 2017, we received all of the shares of the Tracking Stock in exchange for 100% of the equity
interests of certain EchoStar subsidiaries that held substantially all of our EchoStar Technologies businesses and
certain other assets. Following consummation of the Share Exchange on February 28, 2017, we no longer operate
the transferred EchoStar Technologies businesses and the Tracking Stock was retired and is no longer outstanding
and all agreements, arrangements and policy statements with respect to such Tracking Stock terminated and are of
no further effect. Pursuant to the Share Exchange Agreement, we transferred certain assets, investments in joint
ventures, spectrum licenses and real estate properties and DISH Network assumed certain liabilities relating to the
transferred assets and businesses. The Share Exchange Agreement contained customary representations and
warranties by the parties, including representations by us related to the transferred assets, assumed liabilities and the
financial condition of the transferred businesses. We and DISH Network also agreed to customary indemnification
provisions whereby each party indemnifies the other against certain losses with respect to breaches of representations,
warranties or covenants and certain liabilities and if certain actions undertaken by us or DISH causes the transaction
to be taxable to the other party after closing. See Notes 1 and 4 for further information.
Hughes Broadband Master Services Agreement. In March 2017, we and DISH Network entered into a master
service agreement (the “Hughes Broadband MSA”) pursuant to which DISH Network, among other things: (i) has the
right, but not the obligation, to market, promote and solicit orders and upgrades for our HughesNet service and related
equipment and other telecommunication services and (ii) installs HughesNet service equipment with respect to
activations generated by DISH Network. Under the Hughes Broadband MSA, we and DISH Network make certain
payments to each other relating to sales, upgrades, purchases and installation services. The Hughes Broadband MSA
has an initial term of five years until March 2022 with automatic renewal for successive one-year terms. Upon expiration
or termination of the Hughes Broadband MSA, we will continue to provide our HughesNet service to subscribers and
make certain payments to DISH Network pursuant to the terms and conditions of the Hughes Broadband MSA. We
incurred sales incentives and other costs under the Hughes Broadband MSA totaling $33 million and $29 million for
the year ended December 31, 2018 and 2017, respectively.
Intellectual Property and Technology License Agreement. Effective March 2017 in connection with the Share
Exchange, we and DISH Network entered into an Intellectual Property and Technology License Agreement (“IPTLA”)
pursuant to which we and DISH Network license to each other certain intellectual property and technology. The IPTLA
will continue in perpetuity, unless mutually terminated by the parties. Pursuant to the IPTLA, we granted to DISH
Network a license to our intellectual property and technology for use by DISH Network, among other things, in connection
with its continued operation of the businesses acquired pursuant to the Share Exchange, including a limited license
to use the “ECHOSTAR” trademark during a transition period. EchoStar retains full ownership of the “ECHOSTAR”
trademark. In addition, DISH Network granted a license back to us, among other things, for the continued use of all
intellectual property and technology that is used in our retained businesses but the ownership of which was transferred
to DISH Network pursuant to the Share Exchange.
Tax Matters Agreement. Effective March 2017, in connection with the Share Exchange, we and DISH entered into
a tax matters agreement. This agreement governs certain of our rights, responsibilities and obligations with respect
to taxes of the transferred businesses pursuant to the Share Exchange. Generally, we are responsible for all tax returns
and tax liabilities for the transferred businesses and assets for periods prior to the Share Exchange and DISH Network
is responsible for all tax returns and tax liabilities for the transferred businesses and assets from and after the Share
Exchange. Both we and DISH Network made certain tax-related representations and are subject to various tax-related
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covenants after the consummation of the Share Exchange. Both we and DISH Network have agreed to indemnify
each other if there is a breach of any such tax representation or violation of any such tax covenant and that breach or
violation results in the Share Exchange not qualifying for tax free treatment for the other party. In addition, DISH
Network has agreed to indemnify us if the transferred businesses are acquired, either directly or indirectly (e.g., via
an acquisition of DISH Network), by one or more persons and such acquisition results in the Share Exchange not
qualifying for tax free treatment. The tax matters agreement supplements the Tax Sharing Agreement outlined below,
which continues in full force and effect.
Tax Sharing Agreement. Effective December 2007, we and DISH Network entered into a tax sharing agreement (the
“Tax Sharing Agreement”) in connection with the Spin-off. This agreement governs our and DISH Network’s 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 indemnifies us for such taxes.
However, DISH Network is not liable for and does 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 Code, 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 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 in 2013, the federal tax benefits
were reflected as a deferred tax asset for depreciation and amortization, which was netted in our noncurrent deferred
tax liabilities. The agreement with DISH Network in 2013 requires DISH Network to pay us the federal tax benefit it
receives at such time as we would have otherwise been able to realize such tax benefit. We recorded a noncurrent
receivable from DISH Network in Other receivables - DISH Network and a corresponding increase in our Deferred tax
liabilities, net 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 (the “State Tax Arrangement”).
In August 2018, we and DISH Network amended the Tax Sharing Agreement and the 2013 agreements (the “Tax
Sharing Amendment”). Under the Tax Sharing Amendment, to the extent permitted by applicable tax law, DISH Network
is entitled to apply the benefit of our 2009 net operating losses (the “SATS 2009 NOLs”) to DISH Network’s federal tax
return for the year ended December 31, 2008, in exchange for DISH Network paying us over time the value of the net
annual federal income taxes paid by us that would have been otherwise offset by the SATS 2009 NOLs. The Tax
Sharing Amendment also requires us and DISH Network to pay the other for the benefits of certain past and future
federal research and development tax credits that we or DISH Network receive or received as a result of being part of
a controlled group under the Code, and requires DISH Network to compensate us for certain past tax losses utilized
by DISH Network and for certain past and future excess California research and development tax credits generated
by us and used by DISH Network. In addition, the Tax Sharing Amendment extends the term of the State Tax
Arrangement to the earlier to occur of termination of the Tax Sharing Agreement, a change in control of either us or
DISH Network or, for any particular state, if we and DISH Network no longer file a combined tax return for such state.
We and DISH Network file combined income tax returns in certain states. We have earned and recognized tax benefits
for certain state income tax credits that we would be unable to utilize currently if we had filed separately from DISH
Network. We have charged Additional paid-in capital in prior periods when DISH Network has utilized such tax benefits.
We expect to increase Additional paid-in capital upon receipt of any consideration that DISH Network pays to us in
exchange for these tax credits.
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gTLD Bidding Agreement. In April 2015, we and DISH Network entered into a generic top level domain (“gTLD”)
Bidding Agreement whereby, among other things: (i) DISH Network obtained rights from us to participate in a gTLD
auction, assuming all rights and obligations from us related to our application with the Internet Corporation for Assigned
Names and Numbers for a particular gTLD; (ii) DISH Network agreed to reimburse us for our Internet Corporation for
Assigned Names and Numbers 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 were less than $10 million. Each Cross-License Agreement contained an option to extend each
Cross-License Agreement to include patents acquired by the respective party prior to January 2022. In December
2016, both we and DISH Network exercised our respective renewal options, resulting in aggregate additional payments
to such third party totaling less than $3 million. 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.
Caltech. On October 1, 2013, Caltech Institute of Technology (“Caltech”) filed complaints against us and DISH Network,
in the U.S. District Court for the Central District of California alleging infringement of U.S. 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 infringed
each of the asserted patents. Caltech claimed that certain of our satellite broadband products and services, infringed
the asserted patents by implementing the DVB-S2 standard. Pursuant to a settlement agreement among us, DISH
Network and Caltech, Caltech dismissed with prejudice all of its claims in these actions in May 2016.
Orange, NJ. In October 2016, we and DISH Network sold two parcels of real estate owned separately by us and DISH
Network in Orange, NJ to a third party pursuant to a purchase and sale agreement. Pursuant to the agreement, we
and DISH Network separately received our respective payments from the buyer.
Invidi. In November 2010 and April 2011, we made investments in Invidi in exchange for shares of Invidi’s Series D
Preferred Stock. In November 2016, DIRECTV, LLC, a wholly owned indirect subsidiary of AT&T Inc., DISH Network
and Cavendish Square Holding B.V., an affiliate of WPP plc, entered into a series of agreements to acquire Invidi. As
a result of the transaction, we sold our ownership interest in Invidi on the same terms offered to the other shareholders
of Invidi. The transaction closed in January 2017.
Other Agreements
Hughes Systique Corporation (“Hughes Systique”)
We contract with Hughes Systique for software development services. In addition to our approximately 43.4% 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 Chief Executive Officer and President of Hughes Systique, in the aggregate, own
approximately 25.5%, on an undiluted basis, of Hughes Systique’s outstanding shares as of December 31, 2018.
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 accompanying Consolidated Financial Statements.
F-62
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Dish Mexico
We own 49.0% of Dish Mexico, an entity that provides direct-to-home satellite services in Mexico. We provide certain
satellite services to Dish Mexico. We recognized revenue from sales of services we provided to Dish Mexico of
approximately $23 million for each of the years ended December 31, 2018, 2017 and 2016. As of December 31, 2018
and 2017, we had trade accounts receivable from Dish Mexico of approximately $6 million and $8 million, respectively.
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. We recognized revenue from Deluxe for transponder
services and the sale of broadband equipment of approximately $4 million, $5 million and $3 million for the years ended
December 31, 2018, 2017 and 2016, respectively. As of December 31, 2018 and 2017, we had trade accounts
receivable from Deluxe of approximately $1 million and $1 million, respectively.
AsiaSat
We contract with AsiaSat Telecommunications Inc. (“AsiaSat”) for the use of transponder capacity on one of AsiaSat's
satellites. Mr. William David Wade, who joined our board of directors in February 2017, served as the Chief Executive
Officer of AsiaSat in 2016 and as a senior advisor to the Chief Executive Officer of AsiaSat through March 2017. We
incurred expenses payable to AsiaSat under this agreement of approximately $0.1 million for the year ended December
31, 2017.
Global IP
In May 2017, we entered into an agreement with Global-IP Cayman (“Global IP”) providing for the sale of certain
equipment and services to Global IP. Mr. William David Wade, a member of our board of directors, serves as a member
of the board of directors of Global IP and as an executive advisor to the Chief Executive Officer of Global IP. In August
2018, we and Global IP amended the agreement to (i) change certain of the equipment and services to be provided
to Global IP; (ii) modify certain payment terms; (iii) provide Global IP an option to use one of our test lab facilities; and
(iv) effectuate the assignment of the agreement from Global IP to one of its wholly-owned subsidiaries. In February
2019, we terminated the agreement as a result of Global IP’s defaults resulting from its failure to make payments to
us as required under the terms of the agreement and we reserved our rights and remedies against Global IP under
the agreement. We recognized revenue under this agreement of approximately $9 million and $0.3 million for the
years ended December 31, 2018 and 2017, respectively. As of December 31, 2018 and 2017, we had trade accounts
receivable from Global IP of approximately $7.5 million and nil, respectively.
TerreStar Solutions
DISH Network owns more than 15% of TerreStar Solutions, Inc. (“TSI”). In May 2018, we and TSI entered into an
equipment and services agreement pursuant to which we design, manufacture and install upgraded ground
communications network equipment for TSI’s network and provides, among other things, warranty and support services.
We recognized revenue of approximately $6 million for the year ended December 31, 2018. As of December 31, 2018,
we had $2 million trade accounts receivable from TSI.
F-63
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Broadband Connectivity Solutions
In August 2018, we entered into an agreement with Al Yah Satellite Communications Company PrJSC (“Yahsat”) to
establish a new entity, Broadband Connectivity Solutions (Restricted) Limited (together with its subsidiaries, “BCS”),
to provide commercial Ka-band satellite broadband services across Africa, the Middle East and southwest Asia
operating over Yahsat's Al Yah 2 and Al Yah 3 Ka-band satellites. The transaction was consummated in December
2018 when we invested $100 million in cash in exchange for a 20% interest in BCS. Under the terms of the agreement,
we may also acquire, for further cash investments, additional ownership interests in BCS in the future provided certain
conditions are met. We supply network operations and management services and equipment to BCS. We recognized
revenue from BCS for such services and equipment of approximately $0.7 million for the year ended December 31,
2018. As of December 31, 2018, we had $3 million trade accounts receivable from BCS.
Discontinued Operations
The following agreements or investments were terminated or transferred to DISH Network as part of the Share
Exchange. We have no further obligations, have earned no additional revenue and incurred no additional expense,
as applicable, under such agreements and investments after February 2017. Historical transactions under such
agreements and investments are reported in Net income from discontinued operations in our Consolidated Statements
of Operations (see Notes 1 and 4).
Set-Top Box Application Development Agreement. In November 2012, one of our former subsidiaries and DISH
Network entered into a set-top box application development agreement (the “Application Development Agreement”)
pursuant to which we provided DISH Network with certain services relating to the development of web-based
applications for set-top boxes. The fees for services provided under the Application Development Agreement were
calculated at our cost of providing the relevant service plus a fixed margin, which depended on the nature of the services
provided.
Receiver Agreement. Effective January 2012, one of our former subsidiaries and DISH Network entered into a receiver
agreement (the “2012 Receiver Agreement”), pursuant to which DISH Network had the right, but not the obligation, to
purchase digital set-top boxes, related accessories, and other equipment from us. The 2012 Receiver Agreement
replaced the receiver agreement one of our former subsidiaries entered into with DISH Network in connection with the
Spin-off. The 2012 Receiver Agreement allowed DISH Network to purchase digital set-top boxes, related accessories,
and other equipment from us either: (i) at cost (decreasing as we reduced costs and increasing as costs increased)
plus a dollar mark-up which depended upon the cost of the product subject to a collar on our mark-up; or (ii) at cost
plus a fixed margin, which depended on the nature of the equipment purchased. Under the 2012 Receiver Agreement,
our margins would have increased if we were able to reduce the costs of our digital set-top boxes and our margins
would have reduced if these costs increased. One of our former subsidiaries provided DISH Network with standard
manufacturer warranties for the goods sold under the 2012 Receiver Agreement. Additionally, the 2012 Receiver
Agreement included an indemnification provision, whereby the parties agreed to indemnify each other for certain
intellectual property matters.
Broadcast Agreement. Effective January 2012, one of our former subsidiaries and DISH Network entered into a
broadcast agreement (the “2012 Broadcast Agreement”), pursuant to which we provided certain broadcast services
to DISH Network, including teleport services such as transmission and downlinking, channel origination services, and
channel management services. The fees for the services provided under the 2012 Broadcast Agreement were
calculated at either: (a) our cost of providing the relevant service plus a fixed dollar fee, which was subject to certain
adjustments; or (b) our cost of providing the relevant service plus a fixed margin, depending on the nature of the
services provided.
Broadcast Agreement for Certain Sports Related Programming. In May 2010, one of our former subsidiaries and
DISH Network entered into a broadcast agreement pursuant to which we provided certain broadcast services to DISH
Network in connection with its carriage of certain sports related programming. The fees for the broadcast services
provided under this agreement depended, among other things, upon the cost to develop and provide such services.
Gilbert Lease Agreement. DISH Network leased certain space from us at 801 N. DISH Drive, Gilbert, Arizona. The
rent on a per square foot basis for this lease was comparable to per square foot rental rates of similar commercial
F-64
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
property in the same geographic area at the time of the lease, and DISH Network was responsible for its portion of the
taxes, insurance, utilities and maintenance of the premises.
Product Support Agreement. In connection with the Spin-off, one of our former subsidiaries entered into a product
support agreement pursuant to which DISH Network had 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 had previously sold to DISH Network. The fees for the services provided under the product support agreement
were calculated at cost plus a fixed margin, which varied depending on the nature of the services provided. The term
of the product support agreement was the economic life of such set-top boxes and related accessories, unless
terminated earlier.
DISHOnline.com Services Agreement. Effective January 2010, DISH Network entered into a two-year agreement
with one of our former subsidiaries pursuant to which DISH Network received certain services associated with an online
video portal. The fees for the services provided under this services agreement depended, among other things, upon
the cost to develop and operate such services.
DISH Remote Access Services Agreement. Effective February 2010, one of our former subsidiaries entered into
an agreement with DISH Network pursuant to which DISH Network received, among other things, certain remote digital
video recorder (“DVR”) management services. The fees for the services provided under this services agreement
depended, among other things, upon the cost to develop and operate such services.
SlingService Services Agreement. Effective February 2010, one of our former subsidiaries entered into an agreement
with DISH Network pursuant to which DISH Network received certain services related to placeshifting. The fees for
the services provided under this services agreement depended, among other things, upon the cost to develop and
operate such services.
XiP Encryption Agreement. In July 2012, we entered into an encryption agreement with DISH Network for our whole-
home high definition (“HD”) DVR line of set-top boxes (the “XiP Encryption Agreement”) pursuant to which we provided
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
ended on the same day as the 2012 Receiver Agreement. The fees for the services provided under the XiP Encryption
Agreement were calculated on a monthly basis based on the number of receivers utilizing such security measures
each month.
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 provided 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. Additionally, the spouse of Mr. Vivek Khemka, who was the President
- EchoStar Technologies L.L.C. during portions of 2016 and through February 2017, was employed during 2016 as
Vice President of Business Development and Operations of Sling TV Holding.
Effective August 2014, we and Sling TV Holding entered into an exchange agreement (“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 had 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) had certain rights and corresponding obligations with respect to its business; (2) had the right, but not the
obligation, to receive certain services from us and DISH Network; and (3) had a license from us to use certain of the
assets distributed to us as part of the Exchange Agreement.
F-65
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Remanufactured Receiver and Services Agreement. In connection with the Spin-off, one of our former subsidiaries
entered into a remanufactured receiver and services agreement with DISH Network pursuant to which we had the
right, but not the obligation, to purchase remanufactured receivers and related components from DISH Network at cost
plus a fixed margin, which varied depending on the nature of the equipment purchased.
Intellectual Property Matters Agreement. We entered into an intellectual property matters agreement (the “Intellectual
Property Matters Agreement”) with DISH Network in connection with the Spin-off. The Intellectual Property Matters
Agreement governed our relationship with DISH Network with respect to patents, trademarks and other intellectual
property. Pursuant to the Intellectual Property Matters Agreement, DISH Network irrevocably assigned to us all right,
title and interest in certain patents, trademarks and other intellectual property necessary for the operation of our set-
top box business. In addition, the agreement permitted us to use, in the operation of our set-top box business, certain
other intellectual property currently owned or licensed by DISH Network. In addition, DISH Network was prohibited
from using the “EchoStar” name as a trademark, except in certain limited circumstances. Similarly, the Intellectual
Property Matters Agreement provided that we would not make any use of the name or trademark “DISH Network” or
any other trademark owned by DISH Network, except in certain circumstances.
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 were jointly responsible for making payments
to TiVo in the aggregate amount of $500 million, including an initial payment of $300 million and the remaining
$200 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 million, representing an allocation of liability relating to
our sales of DVR-enabled receivers to an international customer. Subsequent payments were 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, Sling TV Holding entered into an agreement with Sling
Media, Inc., our former subsidiary, pursuant to which Sling TV Holding had the right, for a fixed fee, to use certain
trademarks, domain names and other intellectual property related to the “Sling” trademark.
NagraStar L.L.C. Prior to March 2017, we owned 50.0% of NagraStar, a joint venture that was the primary provider
of encryption and related security technology used in the set-top boxes produced by our former EchoStar Technologies
segment. We accounted for our investment in NagraStar using the equity method.
SmarDTV. Prior to March 2017, we owned a 22.5% interest in SmarDTV, which we accounted for using the equity
method. Pursuant to our agreements with SmarDTV and its subsidiaries, our former EchoStar Technologies segment
purchased engineering services from and paid royalties to SmarDTV and its subsidiaries.
F-66
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE 21. SUPPLEMENTAL FINANCIAL INFORMATION
Noncash Investing and Financing Activities
2018
For the years ended December 31,
2017
(In thousands)
2016
Employee benefits paid in Class A common stock
Property and equipment financed under capital lease
obligations
Increase (decrease) in capital expenditures included in
accounts payable, net
Capitalized in-orbit incentive obligations
Noncash net assets exchanged for Tracking Stock (Note 1)
$
$
$
$
$
7,605 $
11,200 $
11,126
364 $
8,484 $
7,652
7,318 $
— $
— $
(3,831) $
43,890 $
299,888 $
3,054
—
—
Restricted Cash and Cash Equivalents
The beginning and ending balances of cash and cash equivalents presented in our Consolidated Statements of Cash
Flows included restricted cash and cash equivalents of $1 million and $1 million, respectively, for the year ended
December 31, 2018, and $1 million and $1 million, respectively, for the year ended December 31, 2017. These amounts
are included in Other noncurrent assets, net in our Consolidated Balance Sheets.
Foreign Currency
We recognized net foreign currency transaction losses of $16 million, gains of $1 million and losses of $0.5 million for
the years ended December 31, 2018, 2017 and 2016, respectively.
Fair Value of In-Orbit Incentives
As of December 31, 2018 and 2017, 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 $107 million and
$112 million, respectively.
Contract Acquisition and Fulfillment Costs
Unamortized contract acquisition costs totaled $104 million as of December 31, 2018 and related amortization expense
totaled $83 million for the year ended December 31, 2018, respectively.
Unamortized contract fulfillment costs totaled $3 million as of December 31, 2018 and related amortization expense
was de minimis for the year ended December 31, 2018.
Research and Development
The table below summarizes the research and development costs incurred in connection with customers’ orders
included in cost of sales and other expenses we incurred for research and development.
For the years ended December 31,
2018
2017
(In thousands)
2016
Cost of sales
Research and development
$
$
23,422 $
27,570 $
27,899 $
31,745 $
23,663
31,170
F-67
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Capitalized Software Costs
As of December 31, 2018 and 2017, the net carrying amount of externally marketed software was $97 million and
$88 million, respectively, of which $29 million and $20 million, respectively, is under development and not yet placed
in service. We capitalized costs related to the development of externally marketed software of $32 million, $31 million
and $23 million for the years ended December 31, 2018, 2017 and 2016, respectively. We recorded amortization
expense relating to the development of externally marketed software of $23 million, $20 million and $10 million for the
years ended December 31, 2018, 2017 and 2016, respectively. The weighted average useful life of our externally
marketed software was approximately three years as of December 31, 2018.
Advertising Costs
We incurred advertising expense of $76 million, $64 million and $44 million for the years ended December 31, 2018,
2017 and 2016, respectively.
F-68
ECHOSTAR CORPORATION
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
Our valuation and qualifying accounts as of December 31, 2018, 2017 and 2016 were as follows:
Allowance for doubtful accounts
For the years ended:
December 31, 2018
December 31, 2017
December 31, 2016
Balance at
Beginning
of Year
Charged to
Costs and
Expenses
Deductions
Balance at
End of Year
(In thousands)
$
$
$
12,027 $
12,955 $
11,687 $
22,184 $
9,551 $
14,393 $
(17,607) $
(10,479) $
(13,125) $
16,604
12,027
12,955
F-69
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COMPARATIVE PERFORMANCE
The following graph sets forth the cumulative total stockholder return on EchoStar Corporation’s Class A Shares
during the period from December 31, 2013 to December 31, 2018. The graph assumes the investment on
December 31, 2013 of $100 in (i) our Class A Shares, (ii) the NASDAQ Stock Market Index (US Companies), and
(iii) our chosen industry peer group for the year ended December 31, 2018 (the “Peer Group Index”). The graph
reflects reinvestment of dividends and market capitalization weighting.
The Peer Group Index is comprised of the following publicly traded companies: Gilat Satellite Networks Ltd.,
ViaSat, Inc., Intelsat S.A., SES S.A., Eutelsat Communications S.A., Inmarsat plc and Asia Satellite
Telecommunications Company Limited. Although the companies included in the 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 Peer Group Index. The stock price performance shown on this graph
is not necessarily indicative of future price performance of our Class A Shares.
Comparison of 5 Year Cumulative Total Return
Assumes Initial Investment of $100
December 2018
200.00
150.00
100.00
50.00
-
12/31/2013
12/31/2014
12/31/2015
12/31/2016
12/31/2017
12/31/2018
EchoStar Corp.
NASDAQ Stock Market
Peer Group Index
Total Return Analysis
12/31/2013
12/31/2014
12/31/2015
12/31/2016
12/31/2017
12/31/2018
EchoStar Corp.
$ 100.00
$ 105.59
$ 78.66
$ 103.36
$ 120.47
$ 73.85
NASDAQ Stock Market
Index (U.S. Companies)
$ 100.00
$ 113.40
$ 119.89
$ 128.89
$ 165.29
$ 158.87
Peer Group Index
$ 100.00
$ 104.84
$ 91.33
$ 67.32
$ 60.29
$ 97.42
[This page intentionally left blank]
CORPORATE PROFILE
ANNUAL MEETING
The 2019 Annual Meeting of
Shareholders will be held on
April 30, 2019.
For additional information,
contact:
Investor Relations Department
EchoStar Corporation
100 Inverness Terrace East
Englewood, Colorado 80112
echostar.com
EXECUTIVE OFFICERS
Charles W. Ergen
Chairman
Michael T. Dugan
Chief Executive Officer
and President
Pradman P. Kaul
President,
Hughes Communications, Inc.
Anders N. Johnson
Chief Strategy Officer and President,
EchoStar Satellite Services L.L.C.
Dean A. Manson
Executive Vice President,
General Counsel and Secretary
David J. Rayner
Executive Vice President,
Chief Financial Officer, Chief
Operating Officer and Treasurer
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
Jeffrey R. Tarr
Director
William D. Wade
Director
TRANSFER AGENT
Computershare
Investor Services
462 South 4th Street, Suite 1600
Louisville, KY 40202
NASDAQ: SATS | 100 Inverness Terrace East Englewood, CO 80112 | 303.706.4000 | echostar.com