EX-99.1 2 d52892exv99w1.htm PRO FORMA FINANCIAL INFORMATION OF ECC exv99w1
 

EXHIBIT 99.1
ECHOSTAR COMMUNICATIONS CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Effective January 1, 2008, EchoStar Communications Corporation (“ECC,” “we,” “us” and/or “our”) completed its separation into two companies: ECC, which retains its pay-TV business, DISH Network, and EchoStar Holding Corporation, or EHC, which holds the digital set-top box business, certain satellites, uplink and satellite transmission assets, real estate and other assets and related liabilities formerly held by ECC. Effective on or after January 20, 2008, ECC will change its name to “DISH Network Corporation.” In connection with the separation, each shareholder of ECC received for each share of common stock held, 0.20 of a share of the same class of common stock of EHC. Also, in connection with the separation, ECC contributed $1.0 billion in cash to EHC. EHC’s Class A shares began trading on the Nasdaq Global Select Market on January 2, 2008.
The unaudited pro forma condensed consolidated financial statements reported below consist of unaudited pro forma condensed consolidated statements of operations for the nine months ended September 30, 2007 and for the year ended December 31, 2006 and an unaudited pro forma condensed consolidated balance sheet as of September 30, 2007. The unaudited pro forma condensed consolidated financial statements were derived from our historical consolidated financial statements and give effect to the separation of ECC and EHC. The unaudited pro forma condensed consolidated financial statements and accompanying notes should be read together with our Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2007 and our Annual Report on Form 10-K/A for the year ended December 31, 2006.
The unaudited pro forma condensed consolidated statements of operations for the nine months ended September 30, 2007 and the year ended December 31, 2006 present our results of operations assuming the separation had been completed as of January 1, 2006. The unaudited pro forma condensed consolidated balance sheet as of September 30, 2007 presents our consolidated financial position assuming that the separation had been completed on that date. The unaudited pro forma condensed consolidated financial statements give effect to the following:
    the distribution of the digital set-top box business, certain satellites, uplink and satellite transmission assets, real estate and other assets and related liabilities to EHC;
 
    the results of operations and other expenses, including depreciation expenses, related to the digital set-top box business, certain satellites, uplink and satellite transmission assets, real estate and other assets and related liabilities contributed to EHC;
 
    the impact of the transition services and commercial agreements between ECC and EHC;
 
    the distribution of shares of EHC common stock to our stockholders, on a pro rata basis and other adjustments resulting from the separation; and
 
    the impact of the $1.0 billion in cash that we distributed to EHC.
ECC believes the assumptions used and pro forma adjustments derived from such assumptions, are reasonable under the circumstances and are based upon currently available information.
These unaudited pro forma condensed consolidated financial statements are not necessarily indicative of our results of operations or financial condition had the separation been completed on the dates assumed. Additionally, these statements are not necessarily indicative of our future results of operations or financial condition.

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ECHOSTAR COMMUNICATIONS CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the Year Ended December 31, 2006

(In thousands, except per share data)
(Unaudited)
                                 
            Pro Forma Adjustments        
            Activity of              
            Businesses              
    ECC     and Assets     Other     ECC  
    Historical     Distributed     Adjustments     Pro Forma  
Revenue:
                               
Subscriber-related revenue
  $ 9,375,519     $     $     $ 9,375,519  
Other
    442,967       (245,186 )(a)     65,318 (h)     263,099  
 
                       
Total revenue
    9,818,486       (245,186 )     65,318       9,638,618  
 
                       
 
                               
Costs and Expenses:
                               
Subscriber-related expenses (exclusive of depreciation (b))
    4,807,872             11,094 (i)     4,818,966  
Satellite and transmission expenses (exclusive of depreciation (b))
    147,450             185,108 (j)     332,558  
Cost of sales — other
    289,680       (154,363 )(c)     66,039 (k)     201,356  
Subscriber acquisition costs
    1,596,303             18,265 (l)     1,614,568  
General and administrative
    551,547       (132,723 )(d)     16,111 (m)     434,935  
Litigation expense
    93,969                   93,969  
Depreciation and amortization (b)
    1,114,294       (237,855 )(e)     17,725 (n)     894,164  
 
                       
Total costs and expenses
    8,601,115       (524,941 )     314,342       8,390,516  
 
                       
 
                               
Operating income (loss)
    1,217,371       279,755       (249,024 )     1,248,102  
 
                       
 
                               
Other Income (Expense):
                               
Interest income
    126,401       (53,090 )(f)           73,311  
Interest expense, net of amounts capitalized
    (458,150 )     37,736 (g)           (420,414 )
Other
    37,393       (4,428 )           32,965  
 
                       
Total other income (expense)
    (294,356 )     (19,782 )           (314,138 )
 
                       
 
                               
Income (loss) before income taxes
    923,015       259,973       (249,024 )     933,964  
Income tax (provision) benefit, net
    (314,743 )     (o)     (17,219 )(o)     (331,962 )
 
                       
Net income (loss)
  $ 608,272     $ 259,973     $ (266,243 )   $ 602,002  
 
                       
 
                               
Pro forma earnings per share:
                               
Basic
  $ 1.37                     $ 1.29  
Diluted
  $ 1.37                     $ 1.29  
Pro forma shares outstanding:
                               
Basic
    444,743                       444,743  
Diluted
    452,685                       445,819 (p)
See accompanying notes to pro forma condensed consolidated financial statements.

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ECHOSTAR COMMUNICATIONS CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the Nine Months Ended September 30, 2007

(In thousands, except per share data)
(Unaudited)
                                 
            Pro Forma Adjustments        
            Activity of              
            Businesses              
    ECC     and Assets     Other     ECC  
    Historical     Distributed     Adjustments     Pro Forma  
Revenue:
                               
Subscriber-related revenue
  $ 7,927,311     $     $     $ 7,927,311  
Other
    272,009       (177,910) (a)     60,170 (h)     154,269  
 
                       
Total revenue
    8,199,320       (177,910 )     60,170       8,081,580  
 
                       
 
                               
Costs and Expenses:
                               
Subscriber-related expenses (exclusive of depreciation (b))
    4,067,518             7,764 (i)     4,075,282  
Satellite and transmission expenses (exclusive of depreciation (b))
    125,931             118,568 (j)     244,499  
Cost of sales — other
    189,576       (103,348) (c)     60,625 (k)     146,853  
Subscriber acquisition costs
    1,178,117             11,858 (l)     1,189,975  
General and administrative
    451,611       (110,969) (d)     12,417 (m)     353,059  
Depreciation and amortization (b)
    1,008,201       (175,400) (e)     39,336 (n)     872,137  
 
                       
Total costs and expenses
    7,020,954       (389,717 )     250,568       6,881,805  
 
                       
Operating income (loss)
    1,178,366       211,807       (190,398 )     1,199,775  
 
                       
 
                               
Other Income (Expense):
                               
Interest income
    98,917       (45,842) (f)           53,075  
Interest expense, net of amounts capitalized
    (312,413 )     26,342 (g)           (286,071 )
Other
    (24,099 )     (744 )           (24,843 )
 
                       
Total other income (expense)
    (237,595 )     (20,244 )           (257,839 )
 
                       
 
                               
Income (loss) before income taxes
    940,771       191,563       (190,398 )     941,936  
Income tax (provision) benefit, net
    (359,752 )     (o)     (6,641) (o)     (366,393 )
 
                       
Net income (loss)
  $ 581,019     $ 191,563     $ (197,039 )   $ 575,543  
 
                       
 
                               
Pro forma earnings per share:
                               
Basic
  $ 1.30                     $ 1.28  
Diluted
  $ 1.29                     $ 1.27  
Pro forma shares outstanding:
                               
Basic
    447,001                       447,001  
Diluted
    456,048                       456,048  
See accompanying notes to pro forma condensed consolidated financial statements.

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ECHOSTAR COMMUNICATIONS CORPORATION
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
As of September 30, 2007

(In thousands, except per share data)
(Unaudited)
                                 
            Pro Forma Adjustments        
            Businesses              
    ECC     and Assets     Other     ECC  
    Historical     Distributed (q)     Adjustments     Pro Forma  
ASSETS
                               
Current Assets:
                               
Cash and cash equivalents
  $ 1,605,841     $ (1,033,734 )   $     $ 572,107  
Marketable investment securities
    1,195,927       (497,019 )           698,908  
Trade accounts receivable net of allowance for doubtful accounts
    700,499       (41,203 )           659,296  
Inventories, net
    341,406       (13,055 )           328,351  
Current deferred tax assets
    261,867       (5,962 )     (26,516 )(r)     229,389  
Other current assets
    164,694       (16,240 )           148,454  
 
                       
Total current assets
    4,270,234       (1,607,213 )     (26,516 )     2,636,505  
Restricted cash and marketable investment securities
    167,623       (3,150 )           164,473  
Property and equipment, net
    4,020,705       (1,468,899 )           2,551,806  
FCC authorizations
    748,101       (125,994 )           622,107  
Intangible assets, net
    167,073       (158,411 )           8,662  
Other noncurrent assets, net
    372,227       (107,217 )           265,010  
 
                       
Total assets
  $ 9,745,963     $ (3,470,884 )   $ (26,516 )   $ 6,248,563  
 
                       
 
                               
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
                               
Current Liabilities:
                               
Trade accounts payable
  $ 351,597     $ (2,818 )   $     $ 348,779  
Deferred revenue and other
    840,288                   840,288  
Accrued programming
    930,550                   930,550  
Other accrued expenses
    554,209       (27,774 )           526,435  
Current portion of capital lease obligations, mortgages and other notes payable
    47,896       (38,167 )           9,729  
 
                       
Total current liabilities
    2,724,540       (68,759 )           2,655,781  
 
                       
 
                               
Long-term obligations, net of current portion:
                               
Long-term debt
    5,525,000                   5,525,000  
Capital lease obligations, mortgages and other notes payable, net of current portion
    560,809       (349,590 )           211,219  
Deferred tax liabilities
    216,210       (178,913 )     (17,606 )(r)     19,691  
Long-term deferred revenue, distribution and carriage payments and long-term liabilities
    259,582                   259,582  
 
                       
Total long-term obligations, net of current portion
    6,561,601       (528,503 )     (17,606 )     6,015,492  
 
                       
Total liabilities
    9,286,141       (597,262 )     (17,606 )     8,671,273  
 
                       
 
                               
Stockholders’ Equity (Deficit):
                               
Class A common stock, $.01 par value, 1,600,000,000 shares authorized, 254,100,831 and 252,481,907 shares issued, 209,088,031 and 207,469,107 shares outstanding, respectively
    2,541                   2,541  
Class B common stock, $.01 par value, 800,000,000 shares authorized, 238,435,208 shares issued and outstanding
    2,384                   2,384  
Class C common stock, $.01 par value, 800,000,000 shares authorized, none issued and outstanding
                       
Additional paid-in capital
    1,993,793                   1,993,793  
Accumulated other comprehensive income (loss)
    81,648       (103,863 )           (22,215 )
Accumulated earnings (deficit)
    (259,491 )     (2,769,759 )     (8,910 )(r)     (3,038,160 )
Treasury stock, at cost
    (1,361,053 )                 (1,361,053 )
 
                       
Total stockholders’ equity (deficit)
    459,822       (2,873,622 )     (8,910 )     (2,422,710 )
 
                       
Total liabilities and stockholders’ equity (deficit)
  $ 9,745,963     $ (3,470,884 )   $ (26,516 )   $ 6,248,563  
 
                       
See accompanying notes to pro forma condensed consolidated financial statements.

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ECHOSTAR COMMUNICATIONS CORPORATION
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)
Adjustments to Unaudited Pro Forma Condensed Consolidated Statements of Operations:
The pro forma adjustments on the condensed consolidated statements of operations for the spin-off represent the following:
  (a)   Represents revenue on digital set-top boxes and accessories and fixed satellite services sold to third-parties related to the activities of the businesses and assets distributed.
 
  (b)   The amounts do not include depreciation and amortization expense“ECC Pro Forma” depreciation and amortization expense consists of the following:
                 
    For the Nine     For the  
    Months Ended     Year Ended  
    September 30,     December 31,  
    2007     2006  
    (In thousands)  
Equipment leased to customers
  $ 691,558     $ 703,850  
Satellites
    80,129       92,550  
Furniture, fixtures, equipment and other
    83,922       76,965  
Identifiable intangible assets subject to amortization
    13,029       18,005  
Buildings and improvements
    3,499       2,794  
 
           
Total depreciation and amortization
  $ 872,137     $ 894,164  
 
           
  (c)   Represents the cost of digital set-top boxes and accessories and fixed satellite services sold to third-parties related to the activities of the businesses and assets distributed.
 
  (d)   Represents the general and administrative expenses primarily related to research and development, corporate overhead expenses and related employee benefits associated with the businesses and assets distributed.
 
  (e)   Represents depreciation and amortization expense primarily associated with the set-top box business, satellites, uplink and satellite transmission assets and certain other real estate assets associated with the businesses and assets distributed.
 
  (f)   Represents interest income primarily related to the $1.0 billion of cash distribution to EHC. The amount of interest income was calculated assuming that the $1.0 billion was distributed on January 1, 2006 and earned approximately 5.1% and 5.3%, the weighted-average interest rate earned by ECC’s marketable investment securities portfolio, for the year ended December 31, 2006 and for the nine months ended September 30, 2007, respectively.
 
  (g)   Primarily represents the interest expense on leased satellites accounted for as capital leases which were assumed by EHC.
 
  (h)   Primarily represents revenue for general and administrative services provided to EHC. These services are billed at cost plus an additional amount that is equal to an agreed percentage of our cost, which will vary depending on the services provided. In addition, this amount includes revenue from the sale of remanufactured receivers to EHC. This amount is equal to cost plus an additional amount that is equal to an agreed percentage of our cost, which will vary depending on the nature of the equipment purchased.
 
  (i)   Represents the incremental cost of set-top boxes and accessories, for existing subscribers, purchased from EHC. This incremental cost is equal to an agreed percentage of EHC’s cost, which will vary depending on the nature of the equipment purchased.

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ECHOSTAR COMMUNICATIONS CORPORATION
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)
  (j)   Represents the incremental cost of satellite and transmission services purchased from EHC primarily including the leasing of satellite capacity at fees based on spot market prices for similar satellite capacity, and uplink, telemetry, tracking and control services.
 
  (k)   Represents the cost of sales for general and administrative services provided to EHC and the cost of remanufactured receivers sold to EHC. In addition, this amount includes the incremental cost of DBS accessories purchased from EHC that were sold to third-parties. This incremental cost is equal to an agreed percentage of EHC’s cost, which will vary depending on the nature of the equipment purchased.
 
  (l)   Represents the incremental cost of set-top boxes and accessories, for new subscribers, purchased from EHC. This incremental cost is equal to an agreed percentage of EHC’s cost, which will vary depending on the nature of the equipment purchased.
 
  (m)   Primarily represents rental expense related to buildings distributed to EHC and leased back to us at per square foot rental rates comparable to rates of similar commercial property in the same geographic areas, including taxes, insurance and maintenance of the premises.
 
  (n)   Represents additional depreciation expense primarily associated with the incremental cost of the equipment purchased from EHC for our equipment lease programs.
 
  (o)   Represents the tax effect of pro forma adjustments using our blended Federal and state statutory income tax rate adjusted for permanent differences.
 
  (p)   Represents the effect of the pro forma adjustments on ECC’s diluted shares outstanding. On a pro forma basis, fewer shares associated with ECC’s convertible debt are dilutive for the year ending December 31, 2006.
Adjustments to Unaudited Pro Forma Condensed Consolidated Balance Sheet:
The pro forma condensed consolidated balance sheet adjustments for the spin-off represent the following:
  (q)   Represents the distribution of the digital set-top box business, certain satellites, uplink and satellite transmission assets, real estate and other assets and related liabilities to EHC, including $1.0 billion in cash.
 
  (r)   Represents the tax effect of pro forma adjustments using ECC’s pro forma blended Federal and state statutory income tax rate.

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