-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AmOp59htgSXpm9zRJxXixE8mOMoiUa8CivkJi5oKTzxqG2WnvX9m+SqUEzLmvHIx 0zFLqitBqzMpZXuQqMciWA== 0000912057-96-009909.txt : 19960517 0000912057-96-009909.hdr.sgml : 19960517 ACCESSION NUMBER: 0000912057-96-009909 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960515 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ECHOSTAR SATELLITE BROADCASTING CORP CENTRAL INDEX KEY: 0001012690 STANDARD INDUSTRIAL CLASSIFICATION: RADIO & TV BROADCASTING & COMMUNICATIONS EQUIPMENT [3663] IRS NUMBER: 841337871 STATE OF INCORPORATION: CO FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 333-03980 FILM NUMBER: 96566589 BUSINESS ADDRESS: STREET 1: 90 INVERNESS CIRCLE EAST CITY: ENGLEWOOD STATE: CO ZIP: 80112 BUSINESS PHONE: 3037998222 MAIL ADDRESS: STREET 1: 90 INVERNESS CIRCLE EAST CITY: ENGELWOOD STATE: CA ZIP: 80112 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (MARK ONE) /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NUMBER 333-3980 ECHOSTAR SATELLITE BROADCASTING CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) COLORADO 84-1337871 (STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 90 INVERNESS CIRCLE EAST ENGLEWOOD, COLORADO 80112 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) (303) 799-8222 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) NOT APPLICABLE (FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE LAST REPORT) INDICATE BY CHECK MARK WHETHER THE REGISTRANT 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 HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO ON MAY 13, 1996, REGISTRANT'S OUTSTANDING VOTING STOCK CONSISTED OF 1,000 SHARES OF COMMON STOCK, $0.01 PAR VALUE. THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTIONS (H)(1)(A) AND (B) OF FORM 10-Q AND IS THEREFORE FILING THIS FORM 10-Q WITH THE REDUCED DISCLOSURE FORMAT. ECHOSTAR SATELLITE BROADCASTING CORPORATION AND SUBSIDIARIES FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996 TABLE OF CONTENTS PART I. FINANCIAL INFORMATION PAGE Item 1. Consolidated Financial Statements: Balance Sheets as of December 31, 1995 and March 31, 1996 (Unaudited) . . . . . . . 1 Statements of Income for the three months ended March 31, 1995 and 1996 (Unaudited) . 2 Statements of Cash Flows for the three months ended March 31, 1995 and 1996 (Unaudited) . 3 Condensed Notes to Financial Statements (Unaudited). . . . . . . . . . . . . . . . . 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . . . . . 14 PART II. OTHER INFORMATION Item 1. Legal Proceedings . . . . . . . . . . . . . . . 20 Item 6. Exhibits and Reports on Form 8-K . . . . . . . 21 ECHOSTAR SATELLITE BROADCASTING CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS) ASSETS DECEMBER 31, MARCH 31, 1995 1996 ------------ --------- (UNAUDITED) CURRENT ASSETS: Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 13,949 $162,651 Marketable investment securities . . . . . . . . . . . . . . . . . . . . . . . . . . 210 212 Trade accounts receivable, net . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,435 20,629 Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38,769 27,298 Income tax receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,870 4,504 Deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,834 4,600 Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,791 12,599 ------- ------- Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . 81,858 232,493 RESTRICTED CASH AND MARKETABLE SECURITIES: 1994 Notes escrow . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73,291 63,617 1996 Notes escrow . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 169,970 Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,400 41,900 PROPERTY AND EQUIPMENT, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 333,199 333,231 OTHER NONCURRENT ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44,547 58,146 -------- -------- Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $559,295 $899,357 -------- -------- -------- -------- LIABILITIES AND STOCKHOLDER'S EQUITY CURRENT LIABILITIES: Trade accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 19,063 $ 12,280 Deferred programming revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,563 7,416 Accrued expenses and other current liabilities . . . . . . . . . . . . . . . . . . . 21,335 7,437 Notes payable and current portion of long-term debt . . . . . . . . . . . . . . . . 4,782 4,783 -------- -------- Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . 50,743 31,916 LONG-TERM DEFERRED PROGRAMMING REVENUE . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 3,790 1994 NOTES, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 382,218 395,333 1996 NOTES, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 350,890 LONG-TERM MORTGAGE DEBT AND NOTE PAYABLE, excluding current portion . . . . . . . . . . . . . 33,444 32,421 -------- -------- Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . 466,405 814,350 -------- -------- COMMITMENTS AND CONTINGENCIES (Note 6) STOCKHOLDER'S EQUITY (Note 1): Preferred Stock, 20,000,000 and no shares authorized, 1,616,681 and no shares of Series A Cumulative Preferred Stock issued and outstanding, including accrued dividends of $1,555,000 and $0, respectively . . . 16,607 -- Class A Common Stock, $.01 par value, 200,000,000 and no shares authorized, 6,470,599 and no shares issued and outstanding, respectively . . . . . 65 -- Class B Common Stock, $.01 par value, 100,000,000 and no shares authorized, 29,804,401 and no shares issued and outstanding, respectively . . . . 298 -- Common Stock, $.01 par value, none and 1,000 shares authorized, issued and outstanding, respectively . . . . . . . . . . . . . . . . . . . . . . -- -- Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89,495 106,466 Unrealized holding gains on available-for-sale securities, net of deferred taxes . . 251 21 Retained earning (deficit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (13,826) (21,480) -------- -------- Total stockholder's equity . . . . . . . . . . . . . . . . . . . . . . 92,890 85,007 -------- -------- Total liabilities and stockholder's equity . . . . . . . . . . . . . . $559,295 $899,357 -------- -------- -------- --------
The accompanying notes to consolidated financial statements are an integral part of these balance sheets. 1 ECHOSTAR SATELLITE BROADCASTING CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED) THREE MONTHS ENDED MARCH 31, ------------------ 1995 1996 ---- ---- REVENUE: DTH products and technical services . . . . . . . $ 36,277 $ 36,741 Programming . . . . . . . . . . . . . . . . . . 3,871 3,913 Loan origination and participation income . . . 265 372 -------- -------- Total revenue . . . . . . . . . . . . . . 40,413 41,026 -------- -------- EXPENSES: DTH products and technical services . . . . . . 29,445 32,750 Programming . . . . . . . . . . . . . . . . . . 3,432 3,283 Selling, general and administrative . . . . . . 7,871 10,571 Depreciation . . . . . . . . . . . . . . . . . .. 363 3,330 -------- -------- Total expenses . . . . . . . . . . . . .. 41,111 49,934 -------- -------- OPERATING LOSS . . . . . . . . . . . . . . . . . . (698) (8,908) -------- -------- OTHER INCOME (EXPENSE): Interest income . . . . . . . . . . . . . . . . 3,638 1,974 Interest expense, net of amounts capitalized . . (6,563) (5,784) Other, net . . . . . . . . . . . . . . . . . . . 28 (1) -------- ------- Total other income (expense) . . . . . . (2,897) (3,811) -------- ------- NET LOSS BEFORE INCOME TAXES . . . . . . . . . . . (3,595) (12,719) BENEFIT FOR INCOME TAXES . . . . . . . . . . . . . 1,355 5,065 -------- ------- NET LOSS . . . . . . . . . . . . . . . . . . . . $ (2,240) $ (7,654) -------- ------- -------- ------- The accompanying notes to consolidated financial statements are an integral part of these statements. 2 ECHOSTAR SATELLITE BROADCASTING CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED) THREE MONTHS ENDED MARCH 31, ------------------ 1995 1996 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (2,240) $ (7,654) Adjustments to reconcile net loss to net cash flows from operating activities -- Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 363 3,330 Provision for doubtful accounts . . . . . . . . . . . . . . . . . . . 111 610 Benefit for deferred taxes . . . . . . . . . . . . . . . . . . . . . . (2,493) (3,013) Amortization of deferred debt issuance costs on 1994 Notes . . . . . . 315 315 Amortization of discount on 1994 Notes, net of amounts capitalized . . 6,131 4,189 Amortization of discount on 1996 Notes, net of amounts capitalized . . -- 843 Equity in earnings of joint venture . . . . . . . . . . . . . . . . . (15) -- Change in reserve for excess and obsolete inventory . . . . . . . . . 233 227 Long-term deferred programming revenue . . . . . . . . . . . . . . . . -- 3,790 Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 (170) Changes in working capital items -- Trade accounts receivable . . . . . . . . . . . . . . . . . . . . . (728) (9,579) Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,238) 11,244 Income tax receivable . . . . . . . . . . . . . . . . . . . . . . . -- (634) Other current assets . . . . . . . . . . . . . . . . . . . . . . . . (730) 192 Liability under cash management program . . . . . . . . . . . . . . (57) -- Trade accounts payable . . . . . . . . . . . . . . . . . . . . . . . (1,061) (6,783) Deferred programming revenue . . . . . . . . . . . . . . . . . . . . (657) 1,853 Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 1,221 858 Other current liabilities . . . . . . . . . . . . . . . . . . . . . 38 244 ------ ------ Net cash flows from operating activities . . . . . . . . . . . . . (3,781) (138) ------ ------ CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of marketable investment securities . . . . . . . . . . . . . . (15,211) (2) Sales of marketable investment securities . . . . . . . . . . . . . . . . 27,777 -- Purchases of restricted marketable investment securities . . . . . . . . . -- (15,500) Purchases of property and equipment . . . . . . . . . . . . . . . . . . . (538) (2,715) Offering proceeds and investment earnings placed in escrow . . . . . . . . (2,714) (178,452) Funds released from escrow accounts . . . . . . . . . . . . . . . . . . . 16,257 17,785 Expenditures for satellite systems under construction . . . . . . . . . . (19,621) (7,928) Expenditures for FCC authorizations . . . . . . . . . . . . . . . . . . . -- (370) ------ ------- Net cash flows from investing activities . . . . . . . . . . . . 5,950 (187,182) ------ -------
The accompanying notes to consolidated financial statements are an integral part of these statements. 3 ECHOSTAR SATELLITE BROADCASTING CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED) THREE MONTHS ENDED MARCH 31, ------------------ 1995 1996 ---- ---- CASH FLOWS FROM FINANCING ACTIVITIES: Repayments of mortgage indebtedness and note payable . . . . . . . . . . $ (57) $ (1,022) Proceeds from issuance of Common Stock . . . . . . . . . . . . . . . . . -- 1 Net proceeds from issuance of 1996 Notes . . . . . . . . . . . . . . . . -- 337,043 -------- --------- Net cash flows from financing activities . . . . . . . . . . . (57) 336,022 -------- --------- NET INCREASE IN CASH AND CASH EQUIVALENTS . . . . . . . . . . . . . . . . . 2,112 148,702 CASH AND CASH EQUIVALENTS, beginning of period . . . . . . . . . . . . . . 17,506 13,949 -------- --------- CASH AND CASH EQUIVALENTS, end of period . . . . . . . . . . . . . . . . . $ 19,618 $ 162,651 -------- --------- -------- --------- SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid for interest, net of amounts capitalized . . . . . . . . . . . $ 106 $ 354 Cash paid for income taxes . . . . . . . . . . . . . . . . . . . . . . . 39 -- Cumulative Series A Preferred Stock dividends . . . . . . . . . . . . . 301 -- Satellite launch payment for EchoStar II applied to EchoStar I launch . . -- 15,000
The accompanying notes to consolidated financial statements are an integral part of these statements. 4 ECHOSTAR SATELLITE BROADCASTING CORPORATION AND SUBSIDIARIES CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995 AND MARCH 31, 1996 (1) ORGANIZATION AND PRESENTATION OF FINANCIAL STATEMENTS EchoStar Satellite Broadcasting Corporation ("ESB") is a wholly owned subsidiary of EchoStar Communications Corporation ("EchoStar"). ESB was formed in January 1996 for the purpose of completing a private offering (the "1996 Notes Offering"), pursuant to Rule 144A of the Securities Act of 1933, as amended (the "Securities Act"), of 13 1/8% Senior Secured Discount Notes due 2004 (the "1996 Notes"), resulting in net proceeds of approximately $337.0 million. The 1996 Notes Offering was consummated in March 1996. In connection with the 1996 Notes Offering, EchoStar contributed all of the outstanding capital stock of its wholly owned subsidiary, Dish, Ltd., to ESB. This transaction has been accounted for as a reorganization of entities under common control. Accordingly, Dish, Ltd. has been treated as the predecessor to ESB and the historical financial statements of ESB are those of Dish, Ltd. ESB is subject to all, and EchoStar is subject to certain of, the terms and conditions of the Indenture related to the 1996 Notes (the "1996 Notes Indenture"). On April 24, 1996, ESB filed a Registration Statement on Form S-1 under the Securities Act to exchange the 1996 Notes for publicly registered notes. ESB successfully launched its first direct broadcast satellite ("DBS"), EchoStar I, in December 1995 and, on March 4, 1996, began broadcasting its DBS programming (the "Dish Network-SM-") to the entire continental United States. The Dish NetworkSM currently includes over 100 channels of high quality digital video and audio programming and will expand to approximately 200 digital video and audio channels following the successful launch of a second DBS satellite, DirectSat I ("EchoStar II"), currently scheduled in the fall of 1996. In addition to its DBS business, ESB is engaged in the design, manufacture, distribution and installation of satellite direct to home ("DTH") products, domestic distribution of DTH programming and consumer financing of ESB's domestic DTH products and services. In the first quarter of 1996, EchoStar formed a wholly owned subsidiary, Dish Network Credit Corporation ("DNCC"), for the purpose of providing consumer financing for EchoStar's domestic DTH products and services. At that time, ESB's subsidiary that previously provided these services ceased new loan origination activities. In future periods ESB's revenue from loan origination and participation income will decline. Proceeds from the 1996 Notes Offering will be used for: (i) continued development, marketing and distribution of the Dish Network-SM-; (ii) EchoStar's purchase of DBS frequencies at 148DEG. WL; (iii) construction, launch and insurance of EchoStar III and EchoStar IV; (iv) additional launch costs of EchoStar II; and (v) other general corporate purposes. The additional frequencies were acquired by EchoStar at a public auction held by the Federal Communications Commission ("FCC") in January 1996 (the "FCC Auction"). In June 1995, EchoStar completed an offering of its Class A Common Stock, resulting in net proceeds of approximately $63.0 million (the "Equity Offering"). In June 1994, Dish, Ltd. completed an offering of 12 7/8% Senior Secured Discount Notes due 2004 (the "1994 Notes") and Warrants (collectively, the "1994 Notes Offering"), resulting in net proceeds of approximately $323.3 million. Dish Ltd. and most of its subsidiaries are subject to the terms and conditions of the Indenture related to the 1994 Notes (the "1994 Notes Indenture"). EchoStar presently owns approximately 40% of the outstanding common stock of Direct Broadcasting Satellite Corporation ("DBSC"). DBSC's principal assets include an FCC conditional satellite construction permit and specific orbital slot assignments for eleven DBS frequencies at 61.5DEG. WL and eleven DBS frequencies at 175DEG. WL (the "DBS Rights"). EchoStar intends to merge DBSC with Direct Broadcasting Satellite Corporation ("New DBSC"), a wholly owned subsidiary of EchoStar (the "DBSC Merger"). The DBSC Merger has been approved by DBSC shareholders but will not be consummated until the FCC has approved the DBSC Merger. Although no assurances can be given, EchoStar expects the FCC to issue an order with respect to the DBSC Merger in the near future. Assuming FCC approval of the DBSC Merger, EchoStar will hold, through New DBSC, DBSC's DBS Rights. On April 16, 1996, EchoStar filed a Registration Statement on Form S-4 under the Securities Act covering 658,000 shares of EchoStar Class A Common Stock that are intended to be issued in connection with the DBSC Merger. 5 ECHOSTAR SATELLITE BROADCASTING CORPORATION AND SUBSIDIARIES CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) The accompanying consolidated financial statements include only the accounts of ESB and its subsidiaries and exclude all accounts of ESB's parent, EchoStar. Unless otherwise stated herein, or the context otherwise requires, references herein to ESB shall include ESB and all of its direct and indirect subsidiaries, and EchoStar shall include EchoStar, ESB and all of their direct and indirect wholly owned subsidiaries. The accompanying unaudited condensed Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three month period ended March 31, 1996 are not necessarily indicative of the results that may be expected for the year ended December 31, 1996. For further information, refer to the Combined and Consolidated Financial Statements and footnotes thereto included in Dish, Ltd.'s Annual Report on Form 10-K for the year ended December 31, 1995. Certain prior year amounts have been reclassified to conform with the current year presentation. SIGNIFICANT RISKS AND UNCERTAINTIES Execution of EchoStar's business strategy to launch and operate DBS satellites has dramatically changed its operating results and financial position. As of March 31, 1996, EchoStar expects to expend approximately an additional $520 million through 1999 to build, launch and support its first four satellites (Note 6), assuming receipt of all required FCC licenses and permits. EchoStar consummated the 1994 Notes Offering, the 1996 Notes Offering and the Equity Offering to satisfy these capital requirements. Annual interest expense on the 1994 and 1996 Notes and depreciation of the investment in the satellites and related assets will each be of a magnitude that exceeds historical levels of income before taxes. Beginning in 1995 EchoStar reported significant net losses and expects net losses to continue for the foreseeable future. EchoStar's plans also include the construction and launch of two fixed service satellites, additional DBS satellites and marketing campaigns (including receiver subsidization if market conditions warrant) to promote its DBS products and services. EchoStar may need to raise significant additional funds for construction and launch of additional satellites and there can be no assurance that necessary funds will be available or, if available, that they will be available on terms favorable to EchoStar. However, management believes, but can give no assurance, that demand for its DBS products and services will result in sufficient cash flow which, together with other sources of capital, will be sufficient to satisfy future planned expenditures. Significant delays or launch failures in EchoStar's satellite launch program may have significant adverse consequences to EchoStar's operating results and financial condition. The preparation of financial statements in conformity with generally accepted accounting principles requires the use of management estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses for each reporting period. Actual results could differ from those estimates. (2) SUPPLEMENTAL ANALYSIS CASH AND CASH EQUIVALENTS ESB considers all liquid investments purchased with an original maturity of ninety days or less to be cash equivalents. Cash equivalents as of December 31, 1995, and March 31, 1996 consist of money market funds, corporate notes and commercial paper stated at cost which equates to market value. RESTRICTED CASH AND MARKETABLE SECURITIES ESB classifies all marketable investment securities as available-for-sale. Accordingly, these investments are reflected at market value based on quoted market prices. Related unrealized gains and losses are reported as a 6 ECHOSTAR SATELLITE BROADCASTING CORPORATION AND SUBSIDIARIES CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) separate component of stockholder's equity, net of related deferred income taxes. The specific identification method is used to determine cost in computing realized gains and losses. Restricted Cash and Marketable Securities in Escrow Accounts as reflected on the accompanying balance sheets represent the remaining net proceeds received from the 1994 Notes Offering and a portion of the proceeds from the 1996 Notes Offering, plus interest earned, less amounts expended to date in connection with the development, construction and launch of the Dish Network-SM-. These proceeds are held in separate escrow accounts (the "1994 Escrow Account" and the "1996 Escrow Account", respectively) for the benefit of the holders of the 1994 and 1996 Notes and are invested in certain debt and other marketable securities, as permitted by the respective Indentures, until disbursed for the express purposes identified in the 1994 Notes Offering Prospectus or the 1996 Notes Offering Memorandum, as the case may be. Other Restricted Cash includes $11.4 million to satisfy certain covenants regarding launch insurance required by the 1994 Notes Indenture. ESB is required to maintain launch insurance and Restricted Cash totalling $225.0 million for each of EchoStar I and EchoStar II. ESB has obtained $219.3 million of launch insurance on each satellite, and, together with the cash segregated and reserved on the accompanying balance sheets, has satisfied its insurance obligations under the 1994 Notes Indenture. In addition, as of March 31, 1996, $15.0 million was in an escrow account established pursuant to a DBS satellite receiver manufacturing contract for payment to the manufacturer as certain milestones are reached and $15.5 million was in an escrow account for the purpose of cash collateralizing certain standby letters of credit (Note 4). The major components of Restricted Cash and Marketable Securities are as follows (in thousands): DECEMBER 31, 1995 MARCH 31, 1996 -------------------------------- -------------------------------- UNREALIZED UNREALIZED AMORTIZED HOLDING MARKET AMORTIZED HOLDING MARKET COST GAIN VALUE COST GAIN VALUE ---- ---- ----- ---- ---- ----- Commercial paper . . . . . $ 66,214 $ -- $ 66,214 $ 70,600 $ -- $ 70,600 Government bonds . . . . . 32,904 420 33,324 204,411 49 204,460 Accrued interest . . . . . 153 -- 153 427 -- 427 -------- ------ -------- -------- ------ -------- $ 99,271 $ 420 $ 99,691 $275,438 $ 49 $275,487 -------- ------ -------- -------- ------ -------- -------- ------ -------- -------- ------ --------
INVENTORIES Inventories are stated at the lower of cost or market value. Cost is determined using the first-in, first-out ("FIFO") method. Proprietary products are manufactured by outside suppliers to ESB's specifications. ESB also distributes non-proprietary products purchased from other manufacturers. Manufactured inventories include materials, labor and manufacturing overhead. Cost of other inventories includes parts, contract manufacturers' delivered price, assembly and testing labor, and related overhead, including handling and storage costs. The major components of inventory were as follows (in thousands). 7 ECHOSTAR SATELLITE BROADCASTING CORPORATION AND SUBSIDIARIES CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) DECEMBER 31, MARCH 31, 1995 1996 ------------ --------- Finished goods . . . . . . . . . . . . . . . $ 20,458 $ 17,957 DBS receiver components . . . . . . . . . . . 9,615 9,728 Competitor DBS Receivers . . . . . . . . . . 9,404 559 Spare parts . . . . . . . . . . . . . . . . . 2,089 2,078 Reserve for excess and obsolete inventory . . (2,797) (3,024) -------- -------- $ 38,769 $ 27,298 -------- -------- -------- -------- ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES The composition of accrued expenses and other current liabilities is as follows (in thousands): DECEMBER 31, MARCH 31, 1995 1996 ------------ --------- Accrued EchoStar I launch costs . . . . . . . $ 15,000 $ -- Accrued expenses . . . . . . . . . . . . . . 3,850 4,708 Reserve for warranty costs . . . . . . . . . 1,013 1,013 Other . . . . . . . . . . . . . . . . . . . 1,472 1,716 -------- ------- $ 21,335 $ 7,437 -------- ------- -------- ------- PROPERTY AND EQUIPMENT Property and equipment are stated at cost less accumulated depreciation. Cost includes interest capitalized on the EchoStar DBS System during construction at ESB's effective borrowing rate. The major components of property and equipment were as follows (in thousands): ESTIMATED USEFUL LIFE DECEMBER 31, MARCH 31, (IN YEARS) 1995 1996 ----------- ------------ --------- Construction in progress . . . . . . . . . -- $ 282,373 $ 81,322 EchoStar I satellite . . . . . . . . . . . 10 -- 198,143 Furniture, fixtures and equipment . . . . . 2-12 17,163 21,329 Buildings and improvements . . . . . . . . 7-40 21,006 21,109 Tooling and other . . . . . . . . . . . . . 2 2,039 3,470 Land . . . . . . . . . . . . . . . . . . . -- 1,613 1,613 Vehicles . . . . . . . . . . . . . . . . . 7 1,310 1,325 Furniture and equipment held for sale . . . 17,062 17,614 Computer equipment held for sale . . . . . 902 885 -------- -------- Total property and equipment . 343,468 346,810 Less-Accumulated depreciation . . . . . . . (10,269) (13,579) -------- -------- Net property and equipment . . $ 333,199 $ 333,231 -------- -------- -------- --------
8 ECHOSTAR SATELLITE BROADCASTING CORPORATION AND SUBSIDIARIES CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Construction in progress principally includes capitalized costs related to EchoStar II, which is scheduled for launch in the fall of 1996. Construction in progress consisted of the following (in thousands): DECEMBER 31, MARCH 31, 1995 1996 ------------ --------- Progress amounts for satellite construction, launch, launch insurance, capitalized interest, launch and in-orbit tracking, telemetry and control services: EchoStar I . . . . . . . . . . . . $ 193,629 $ -- EchoStar II . . . . . . . . . . . . 88,634 81,133 Other . . . . . . . . . . . . . . . 110 189 --------- -------- $ 282,373 $ 81,322 --------- -------- --------- -------- OTHER NONCURRENT ASSETS The major components of other noncurrent assets were as follows (in thousands): DECEMBER 31, MARCH 31, 1995 1996 ------------ --------- Deferred tax assets, net . . . . . . . . . . . . . $12,109 $12,497 FCC authorizations, net of amortization . . . . . . 11,309 11,681 1996 Notes deferred debt issuance costs . . . . . . -- 13,004 1994 Notes deferred debt issuance costs, net of amortization . . . . . . . . . . . . . . . 10,622 10,307 SSET convertible subordinated debentures and accrued interest . . . . . . . . . . . . . . . . 9,610 9,758 Other, net . . . . . . . . . . . . . . . . . . . . 897 899 ------- ------- $44,547 $58,146 ------- ------- ------- ------- (3) LONG-TERM DEBT 1994 NOTES On June 7, 1994, Dish, Ltd. completed the 1994 Notes Offering of 624,000 units consisting of $624.0 million aggregate principal amount of the 1994 Notes and 3,744,000 Warrants. The 1994 Notes Offering resulted in net proceeds to Dish, Ltd. of approximately $323.3 million. Interest on the 1994 Notes currently is not payable in cash but accrues through June 1, 1999, with the 1994 Notes accreting to $624.0 million by that date. Thereafter, interest on the 1994 Notes will be payable in cash semi-annually on June 1 and December 1 of each year, commencing December 1, 1999. At March 31, 1996, the 1994 Notes were reflected in the accompanying financial statements at $395.3 million, net of unamortized discount of $228.7 million. 9 ECHOSTAR SATELLITE BROADCASTING CORPORATION AND SUBSIDIARIES CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 1996 NOTES On March 25, 1996, ESB completed the 1996 Notes Offering consisting of $580.0 million aggregate principal amount of the 1996 Notes. The 1996 Notes Offering resulted in net proceeds to ESB of approximately $337.0 million. Interest on the 1996 Notes currently is not payable in cash but accrues through March 15, 2000, with the 1996 Notes accreting to $580.0 million by that date. Thereafter, interest on the 1996 Notes will be payable in cash semi-annually on March 15 and September 15 of each year, commencing September 15, 2000. At March 31, 1996, the 1996 Notes were reflected in the accompanying financial statements at $350.9 million, net of unamortized discount of $229.1 million. (4) BANK CREDIT FACILITY AND LETTERS OF CREDIT On May 6, 1994, the principal subsidiaries of EchoStar, except EchoStar Satellite Corporation ("ESC") (the "Borrowers"), entered into an agreement with Bank of America Illinois, to provide a revolving credit facility (the "Credit Facility") for working capital advances and for letters of credit necessary for inventory purchases and satellite construction payments. The Credit Facility expired in May 1996 and EchoStar does not currently intend to arrange a new credit facility. Instead, EchoStar is using available cash to collateralize its letter of credit obligations, which have historically been the only significant use of the Credit Facility. At March 31, 1996, EchoStar had cash collateralized $15.5 million of certain standby letters of credit for trade purchases which is included in restricted cash and marketable securities in the accompanying financial statements (Note 2). (5) INCOME TAXES The components of the benefit for income taxes were as follows (in thousands): THREE MONTHS ENDED MARCH 31, ------------------ 1995 1996 ---- ---- Current (provision) benefit Federal . . . . . . . . . . . . . $ (767) $1,971 State . . . . . . . . . . . . . (194) 203 Foreign . . . . . . . . . . . . . (177) (122) ------ ------ (1,138) 2,052 ------ ------ Deferred benefit Federal . . . . . . . . . . . . . 2,050 2,764 State . . . . . . . . . . . . . . 443 249 ------- ------ 2,493 3,013 ------- ------ Total benefit . . . . . . . . $ 1,355 $5,065 ------- ------ ------- ------ ESB's deferred tax assets (approximately $17.1 million at March 31, 1996) relate principally to temporary differences for amortization of original issue discount on the 1994 and 1996 Notes and various accrued expenses which are not deductible until paid. No valuation allowance has been provided because ESB currently believes it is more likely than not that these deferred assets will ultimately be realized. If future operating results differ materially and adversely from ESB's current expectations, its judgment regarding the need for a valuation allowance may change. 10 ECHOSTAR SATELLITE BROADCASTING CORPORATION AND SUBSIDIARIES CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (6) OTHER COMMITMENTS AND CONTINGENCIES SATELLITE CONTRACTS EchoStar has contracted with Martin Marietta Corporation ("Martin Marietta") for the construction and delivery of high powered DBS satellites and for related services. Penalties are payable by Martin Marietta as a result of delays in the delivery of EchoStar I by Martin Marietta and may be payable with respect to EchoStar II or EchoStar III. As of November 19, 1995, the date that EchoStar I was delivered by Martin Marietta to China, those penalties totaled approximately $3.2 million with respect to EchoStar I. Penalties of $2.0 million are payable by Martin Marietta in the event that EchoStar II is not delivered by May 15, 1996. Thereafter, delays in the delivery of EchoStar II would result in PER DIEM additional penalties up to a maximum of $5.0 million in the aggregate. Beginning August 1, 1997, a PER DIEM penalty of $3,333, to a maximum of $100,000, is payable if EchoStar III is not delivered by July 31, 1997. Beginning September 1, 1997, additional delays in the delivery of EchoStar III would result in additional PER DIEM penalties of $33,333, up to a maximum of $5.0 million in the aggregate. EchoStar has entered into a contract with Arianespace, Inc. ("Arianespace") to launch EchoStar II from Korou, French Guiana in the fall of 1996 (the "Arianespace Contract"). The launch is scheduled to be performed on a dedicated Ariane 42P launch vehicle. The Arianespace Contract provides the potential for the EchoStar launch to occur before the fall of 1996 if earlier scheduled launches are accelerated or delayed. The Arianespace Contract contains provisions entitling either party to delay the launch in limited circumstances, subject to the payment of penalties in some cases. As of March 31, 1996, EchoStar has paid Arianespace approximately $4.4 pursuant to the Arianespace Contract. All remaining payments are payable monthly and will be due prior to the launch. EchoStar II was previously scheduled to be launched by the same launch provider as EchoStar I, China Great Wall Industry Corporation ("Great Wall"). EchoStar I was successfully launched by Great Wall in December 1995. EchoStar notified Great Wall of its decision to terminate the launch of EchoStar II with Great Wall. EchoStar applied $15.0 million previously paid Great Wall in connection with this launch to the final $15.0 million owed Great Wall related to the launch of EchoStar I. In May 1996, EchoStar received a refund of the remaining $4.5 million previously paid Great Wall in connection with the second launch. EchoStar has entered into a contract for launch services with Lockheed Martin Commercial Launch Services, Inc. ("Lockheed") for the launch of EchoStar III from Cape Canaveral Air Station, Florida during the fall of 1997, subject to delay or acceleration in certain circumstances (the "Lockheed Contract"). The Lockheed Contract provides for launch of the satellite utilizing an Atlas IIAS launch vehicle. EchoStar has made an initial payment to Lockheed of $5.0 million and the remaining cost is payable in installments in accordance with the payment schedule set forth in the Lockheed Contract, which requires that substantially all payments be make to Lockheed prior to launch. EchoStar has contracted with Lockheed-Khrunichev-Energia-International, Inc. ("LKE") for the launch of EchoStar IV during 1998 from the Kazakh Republic, a territory of the former Soviet Union, utilizing a Proton launch vehicle (the "LKE Contract"). Either party may request a delay in the relevant launch period, subject to the payment of penalties based on the length of the delay and the proximity of the request to the launch date. EchoStar has paid LKE $20.0 million pursuant to the LKE Contract. No additional payments are currently required to be made to LKE until 1997. 11 ECHOSTAR SATELLITE BROADCASTING CORPORATION AND SUBSIDIARIES CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) PURCHASE COMMITMENTS ESB has entered into agreements with various manufacturers to purchase DBS satellite receivers and related components manufactured based on ESB's supplied specifications. As of March 31, 1996 the remaining commitments total as much as $622.2 million. At March 31, 1996, the total of all outstanding purchase order commitments with domestic and foreign suppliers was as much as $641.3 million. All but approximately $85.9 million of the purchases related to these commitments are expected to be made during 1996 and the remainder is expected to be made during 1997. EchoStar expects to finance these purchases from available cash, marketable investment securities and sales of inventory, including the sale of EchoStar Receiver Systems and related products. OTHER RISKS AND CONTINGENCIES EchoStar is subject to legal proceedings and claims which arise in the ordinary course of its business. In the opinion of management, the amount of ultimate liability with respect to these actions will not materially affect the financial position or results of operations of EchoStar. (7) SUMMARY FINANCIAL INFORMATION FOR SUBSIDIARY GUARANTORS The 1994 Notes are fully, unconditionally and jointly and severally guaranteed by all subsidiaries of Dish, Ltd., except for certain de minimis domestic and foreign subsidiaries. The 1996 Notes are initially guaranteed by EchoStar on a subordinated basis. On and after the Dish Guarantee Date (as defined in the 1996 Notes Indenture), the 1996 Notes will be guaranteed by Dish, Ltd., which guarantee will rank PARI PASSU with all senior unsecured indebtedness of Dish, Ltd. On and after the date upon which the DBSC Merger is consummated, the 1996 Notes will be guaranteed by New DBSC, which guarantee will rank PARI PASSU with all senior unsecured indebtedness of New DBSC. If the DBSC Merger is not consummated, New DBSC will not be required to guarantee the 1996 Notes. There can be no assurance that the DBSC Merger will be approved by the FCC or that it will be consummated. The net assets of Dish, Ltd. exceed the net assets of the 1994 Notes Guarantors by approximately $277,000 and $223,000 as of December 31, 1995 and March 31, 1996, respectively. Summarized consolidated financial information for Dish, Ltd. is as follows (in thousands): THREE MONTHS ENDED MARCH 31, ------------------ 1995 1996 ---- ---- Income Statement Data -- Revenue . . . . . . . . . . . . . . . . $ 40,413 $ 41,026 Expenses . . . . . . . . . . . . . . . . 41,111 49,934 -------- -------- Operating loss . . . . . . . . . . . . . (698) (8,908) Other income (expense), net . . . . . . (2,897) (3,234) -------- -------- Net loss before income taxes . . . . . . (3,595) (12,142) Benefit for income taxes . . . . . . . . 1,355 4,852 -------- -------- Net loss . . . . . . . . . . . . . $ (2,240) $ (7,290) -------- -------- -------- -------- 12 ECHOSTAR SATELLITE BROADCASTING CORPORATION AND SUBSIDIARIES CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) DECEMBER 31, MARCH 31, 1995 1996 ----------- --------- Balance Sheet Data -- Current assets . . . . . . . . . . . . . . . . . . $ 81,858 $ 64,144 Property and equipment, net . . . . . . . . . . . 333,199 333,231 Other noncurrent assets . . . . . . . . . . . . . 144,238 150,659 -------- -------- Total assets . . . . . . . . . . . . . . . . . $559,295 $548,034 -------- -------- -------- -------- Current liabilities . . . . . . . . . . . . . . . $ 50,743 $ 31,167 Long-term liabilities . . . . . . . . . . . . . . 415,662 431,544 Stockholder's equity . . . . . . . . . . . . . . . 92,890 85,323 -------- -------- Total liabilities and stockholder's equity . . $559,295 $548,034 -------- -------- -------- -------- 13 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW ESB currently operates four related businesses: (i) operation of the Dish Network-SM- and continued development of the EchoStar DBS System; (ii) design, manufacture, marketing, installation and distribution of DTH products worldwide; (iii) domestic distribution of DTH programming; and (iv) consumer financing of ESB's domestic products and services. The growth of DBS service and equipment sales has had and will continue to have a material negative impact on ESB's domestic sales of C-band DTH products. On March 4, 1996 ESB began broadcasting and selling programming packages available on the Dish Network-SM- service. ESB expects to derive its revenue principally from monthly fees from subscribers for Dish Network-SM- programming and, to a lesser extent, from the sale of EchoStar Receiver Systems. As sales of EchoStar DBS programming and receivers increase, ESB expects the decline in its sales of domestic C-band DTH products to continue at an accelerated rate. ESB will generally bill for Dish Network-SM- programming periodically in advance and will recognize revenue as service is provided. Revenue will be a function of the number of subscribers, the mix of programming packages selected and the rates charged, and transaction fees for ancillary programming and transponder leasing activities. From time to time ESB may engage in promotional activities that include discounted rates for limited periods, which will result in lower average revenue per subscriber for the applicable periods. DBS programming costs will generally be based upon the number of subscribers to each programming offering. Since the Dish Network-SM- did not commence operations until March 1996, its operating activities had a minimal effect on ESB's results of operations for the three month period ended March 31, 1996. RESULTS OF OPERATIONS THREE MONTH PERIOD ENDED MARCH 31, 1996 COMPARED TO THREE MONTH PERIOD ENDED MARCH 31, 1995 REVENUE. Total revenue for the three month period ended March 31, 1996 was $41.0 million, an increase of $613,000 million, or 2%, as compared to the same period in 1995 of $40.4 million. Revenue from domestic sales of DTH products for the three month period ended March 31, 1996 was $24.0 million, an increase of $3.4 million, or 17%, as compared to the same period in 1995. The increase in domestic revenue was primarily due to $8.2 million in revenue from the sale of EchoStar Receiver Systems during the three month period ended March 31, 1996. There were no EchoStar Receiver System sales during the comparable period in 1995. Approximately $922,000 of the increase in domestic revenue for the three month period ended March 31, 1996 was due to an increase in the number of satellite receivers sold for a competitor's DBS system ("Competitor DBS Receivers"). Revenue from Competitor DBS Receiver sales was $7.7 million for the three month period ended March 31, 1996, as compared to $6.8 million for the same period in 1995. The increases in domestic revenue were principally offset by a decrease of $4.7 million, or 47%, in revenue from sales of C-band satellite receivers and related accessories, during the three month period ended March 31, 1996, as compared to the same period in 1995. The increases in domestic revenue were also partially offset by a decrease of $1.2 million, or 42%, in revenue from sales of non-proprietary descrambler modules, during the three month period ended March 31, 1996, as compared to the same period in 1995. The domestic market for C-band DTH products continued to decline during the three month period ended March 31, 1996, and this decline will continue with the growth of DBS service and equipment sales. This decline had been expected by ESB as described below. Domestically, ESB sold approximately 45,000 satellite receivers in the three month period ended March 31, 1996, an increase of 67% as compared to approximately 27,000 receivers for the same period in 1995. Although there was an increase in the number of satellite receivers sold in 1996 as compared to 1995, overall revenue did not increase proportionately as a result of a substantial shift in product mix to lower priced DBS receivers and related accessories, and an approximate 23% reduction in the average selling price of C-band receivers. Included in the number of satellite receivers sold for the three month period ended March 31, 1996 are approximately 17,000 14 EchoStar Receiver Systems. EchoStar Receiver System revenue represented approximately 20% of total revenue for the three month period ended March 31, 1996. Also included in the number of satellite receivers sold for the three month period ended March 31, 1996 are approximately 18,000 Competitor DBS Receivers as compared to 11,000 for the same period in 1995. During the three month period ended March 31, 1996, the Competitor DBS Receivers were sold at an approximate 30% reduction in the average selling price as compared to the same period in 1995. Competitor DBS Receiver revenue was 19% of total revenue for the three month period ended March 31, 1996. ESB's agreement to distribute Competitor DBS Receiver systems terminated on December 31, 1995 and during the first quarter of 1996, ESB sold the majority of its existing inventory of Competitor DBS Receivers. The elimination of Competitor DBS Receiver inventory will be offset by a substantial increase in inventory of EchoStar Receiver Systems and related components, the sale of which is expected to offset the elimination of revenue derived from the sale of Competitor DBS Receivers. ESB markets its current C-band DTH products by offering competitive pricing and consumer financing in order to minimize the decline in domestic C-band DTH sales resulting from the increased popularity of DBS equipment and programming. Additionally, during all of 1995 and through the first quarter of 1996, ESB sold Competitor DBS Receivers which partially offset the decline in domestic C-band sales in 1995. During the three month period ended March 31, 1996 the decline in sales of C-band DTH products was more than offset by sales of Competitor DBS Receiver and EchoStar Receiver Systems. With the elimination of Competitor DBS Receiver inventory, domestic DTH product revenue in subsequent quarters will be substantially derived from the sale of EchoStar Receiver Systems which, although no assurances can be given, should accelerate in the second quarter as demand for Dish Network-SM- programming increases as a result of heightened advertising and marketing efforts. Loan origination and participation income for the three month period ended March 31, 1996 was $372,000, an increase of $107,000, or 40%, compared to the same period in 1995. The increase in loan origination and participation income for the three month period ended March 31, 1996 was primarily due to increased finance volume, including the financing of EchoStar Receiver Systems. In the first quarter of 1996, EchoStar formed a wholly owned subsidiary, DNCC, for the purpose of providing consumer financing for EchoStar's domestic DTH products and services. At that time, ESB's subsidiary that previously provided these services ceased new loan origination activities. In future periods, revenue from loan origination and participation income will decline. Programming revenue for the three month period ended March 31, 1996 was $3.9 million, an increase of $42,000, or 1%, as compared to the same period in 1995. The increase was primarily due to Dish Network-SM- consumer and commercial programming revenue of $464,000 generated during the three month period ended March 31, 1996. The increase in revenue derived from the sale of Dish Network-SM- programming was offset by a decrease in C-band DTH programming revenue. The industry-wide decline in domestic C-band equipment sales has resulted, and is expected to continue to result in a decline in C-band DTH programming revenue. ESB believes that the expected decline in C-band DTH programming revenue in 1996 will be more than offset by sales of Dish Network-SM- programming. Revenue from international sales of DTH products for the three month period ended March 31, 1996 was $12.8 million, a decrease of $3.0 million, or 19%, as compared to the same period in 1995. This decrease during the three month period ended March 31, 1996, resulted principally from reduced sales to the Middle East where ESB's largest international DTH customer is based, and an approximate 20% reduction in the average selling price of analog satellite receivers. This decline was partially offset by increased sales in Africa. Revenue from sales of DTH products in the Middle East suffered beginning in August 1995 as a result of restrictions against imports, and may not return to historic analog levels even as import restrictions are eased. Historic analog sales levels may not be reached because of new digital service planned for the Middle East which is currently expected to begin in the third quarter of 1996. Overall, ESB's international markets for analog DTH products declined during the three month period ended March 31, 1996 as anticipation for new digital services increased. Also, the decrease discussed above was partially offset by an increase in other DTH product revenue. Internationally, ESB sold approximately 76,000 analog satellite receivers during the three month period ended March 31, 1996, a decrease of 11%, compared to approximately 85,000 units sold during the same period in 1995. The decrease was principally due to international 15 anticipation of new digital services as discussed above. ESB is currently negotiating with digital service providers to distribute their proprietary receivers in ESB's international markets. OPERATING EXPENSES. Costs of DTH products sold were $32.8 million for the three month period ended March 31, 1996, an increase of $3.3 million, or 11%, as compared to the same period in 1995. The increase in DTH operating expenses for 1996 resulted primarily from the increase in sales of DTH products. Operating expenses for DTH products as a percentage of DTH product revenue were 89% and 81% for the three month period ended March 31, 1996 and 1995, respectively. The increase was principally the result of declining sales prices of C-band DTH products and Competitor DBS Receivers as described above, during the three month period ended March 31, 1996 as compared to the same period in 1995. Operating expenses for programming were $3.3 million for the three month period ended March 31, 1996, a decrease of $149,000, or 4%, as compared to the same period in 1995. Operating expenses for programming as a percentage of programming revenue for the three month period ended March 31, 1996 were 84% as compared to 89% for the same period in 1995. The decrease in operating expenses for programming as a percentage of programming revenue for the three month period ended March 31, 1996 was primarily a result of higher margins earned on Dish Network-SM- programming partially offset by declining margins on C-band programming. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses were $10.6 million for the three month period ended March 31, 1996, an increase of $2.7 million, or 34%, as compared to the same period in 1995. Selling, general and administrative expenses as a percentage of total revenue increased to 26% for the three month period ended March 31, 1996 as compared to 19% for the same period in 1995. This increase was principally due to: (i) marketing and advertising prior to and in conjunction with the introduction of Dish Network-SM- service; (ii) increased personnel in all areas of the organization to support the Dish Network-SM-; and (iii) costs related to the Digital Broadcast Center, which commenced operations in the third quarter of 1995. Research and development costs totaled $1.2 million for the three month period ended March 31, 1996, as compared to $1.3 million for the same period in 1995. The decrease was principally due to the reduction in research necessary to provide C-band receivers to domestic and international markets, partially offset by increased research and development costs related to digital DBS satellite receivers. EBITDA. EBITDA for the three month period ended March 31, 1996 was a negative $5.6 million, a decrease of $5.3 million compared to the same period in 1995. The decrease resulted from the factors affecting revenue and expenses discussed above. EBITDA represents earnings before interest income, interest expense net of other income, income taxes, depreciation and amortization. EBITDA is commonly used in the telecommunications industry to analyze companies on the basis of operating performance, leverage and liquidity. EBITDA is not intended to represent cash flows for the period, nor has it been presented as an alternative to operating income as an indicator of operating performance and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with generally accepted accounting principles. DEPRECIATION. Depreciation for the three month period ended March 31, 1996 was $3.3 million, an increase of $3.0 million, or 817%, as compared to the same period in 1995. The overall increase primarily resulted from depreciation on the Digital Broadcast Center and EchoStar I which were placed in service during the fourth quarter of 1995 and the first quarter of 1996, respectively. OTHER INCOME AND EXPENSE. Other expense for the three month period ended March 31, 1996 was $3.8 million, an increase of $914,000 or 32% as compared to the same period in 1995. The increase in other expense for the three month period ending March 31, 1996 resulted primarily from a reduction in interest income due to an overall decrease for the period in the 1994 Notes Escrow Account, cash and marketable investment securities. This was partially offset by a decrease in interest expense resulting from additional interest capitalized in 1996 as compared to the same period in 1995. PROVISION FOR INCOME TAXES. Income tax benefit for the three month period ended March 31, 1996 was $5.1 million compared to $1.4 million during the same period in 1995. This increase is principally the result of changes 16 in components of income and expenses discussed above during the three month period ended March 31, 1996. ESB's deferred tax assets (approximately $17.1 million at March 31, 1996) relate principally to temporary differences for amortization of original issue discount on the 1994 and 1996 Notes and various accrued expenses which are not deductible until paid. No valuation allowance has been provided because ESB currently believes it is more likely than not that these deferred assets will ultimately be realized. If future operating results differ materially and adversely from ESB's current expectations, its judgment regarding the need for a valuation allowance may change. LIQUIDITY AND CAPITAL RESOURCES Cash flows used by operations were $138,000 for the three month period ended March 31, 1996 as compared to $3.8 million used by operations for the same period in 1995. Cash used by operations for the three month period ended March 31, 1996 was mainly a result of advances to affiliates for construction and launch of EchoStar III partially offset by deferred programming revenue received related to the Dish Network-SM- and the sale of the majority of Competitor DBS Receiver inventory. ESB expects any declines in inventory to be offset by substantial increases in EchoStar Receiver System inventory and related components. The anticipated increase in inventory is expected to negatively affect cash flow in the short term. However, as EchoStar builds its Dish Network-SM- subscriber base, the negative affect on cash flow should be offset by an increase in revenue attributable to sales of EchoStar Receiver Systems and Dish Network-SM- programming. In the event subscriptions to Dish Network-SM- programming do not meet anticipated levels, the negative affect on cash flow will continue. Certain subsidiaries of EchoStar are parties to a credit facility (the "Credit Facility") with Bank of America Illinois. The Credit Facility expired in May 1996 and EchoStar does not currently intend to arrange a replacement credit facility. Instead, EchoStar is using available cash to collateralize its letter of credit obligations, which historically was the only significant use of the Credit Facility. At March 31, 1996, EchoStar had cash collateralized $15.5 million of certain standby letters of credit for trade purchases which is included in restricted cash and marketable securities in the accompanying balance sheet. During June 1994, Dish, Ltd. issued 624,000 units consisting of $624.0 million principal amount of the 1994 Notes and 3,744,000 Warrants (representing 2,808,000 shares of EchoStar Class A Common Stock) for aggregate net proceeds of approximately $323.3 million, which were placed in the 1994 Escrow Account. Through March 31, 1996, $276.8 million had been withdrawn from the 1994 Escrow Account. Of that amount, $28.3 million was to reimburse ESB for monies expended for the construction and launch of EchoStar I and EchoStar II prior to June 7, 1994, and will be reinvested in development of the EchoStar DBS System. At March 31, 1996, approximately $251.9 million of these proceeds had been applied to development and construction of the EchoStar DBS System and approximately $24.9 million had been applied to other permitted uses. As of March 31, 1996, approximately $63.6 million remained in the 1994 Escrow Account, which included investment earnings. In March 1996, ESB consummated a private placement of the 1996 Notes. ESB was formed in January 1996 for the purpose of the 1996 Notes Offering. EchoStar has contributed all of the outstanding capital stock of its wholly owned subsidiary, Dish, Ltd., to ESB. ESB issued 580,000 notes consisting of $580.0 million principal amount of the 1996 Notes for aggregate net proceeds of approximately $337.0 million of which $177.3 million was placed in the 1996 Escrow Account and the remaining $159.7 million is included in cash and cash equivalents in the accompanying balance sheet at March 31, 1996. Through March 31, 1996, $7.5 million had been withdrawn from the 1996 Escrow Account for development and construction of the EchoStar DBS System. As of March 31, 1996, approximately $170.0 million remained in the 1996 Escrow Account, which included investment earnings. Total cash on hand and marketable investment securities at March 31, 1996 were approximately $162.9 million. Based upon existing cash resources and expected revenue and expenses, exclusive of Dish Network-SM- marketing expenses, EchoStar anticipates requiring an additional $40.0 million in working capital in 1996 related to operations and the development of the EchoStar DBS System. This cash requirement could increase if subscribers are not added as planned or expenses, including subsidization of EchoStar Receiver Systems, exceed present estimates. Additionally, in 1996, EchoStar has expended or expects to expend: (i) approximately $125.3 million 17 in connection with the launch of EchoStar II and EchoStar III; (ii) approximately $46.7 million for launch insurance on EchoStar II and EchoStar III; (iii) approximately $52.5 million for construction of EchoStar III and EchoStar IV; (iv) approximately $8.0 million for in-orbit payments to Martin Marietta on EchoStar I and EchoStar II; (v) approximately $52.3 million for the purchase of DBS frequencies at 148 WL; (vi) $10.4 million for other 1994 Escrow related expenditures related to development of the EchoStar DBS System; and (vii) up to $95.0 million for the introduction, product marketing and other operating expenses for the Dish Network-SM-. Funds for these expenditures, as well as proposed expenditures beyond 1996 related to costs expected to be incurred in connection with the construction and launch of EchoStar's first four satellites, in an approximate amount of $235.0 million, are expected to come from the 1996 Notes Escrow Account, the 1994 Notes Escrow Account and available cash and marketable investment securities. However, in order to continue development of the third and fourth satellites beyond the third quarter in 1997, additional capital will be required. There are no assurances that additional capital will be available, or, if available, that it will be available on terms favorable to EchoStar. In addition to the commitments described above, ESB has entered into agreements to purchase DBS satellite receivers and related components for the EchoStar DBS System. As of March 31, 1996 those purchase order commitments totaled as much as $622.2 million. At March 31, 1996, the total of all outstanding purchase order commitments with domestic and foreign suppliers was as much as $641.3 million. All but approximately $85.9 million of the purchases related to these commitments are expected to be made during 1996 and the remainder is expected to be made during 1997. EchoStar expects to finance these commitments from available cash, marketable investment securities and sales of inventory, including the sale of EchoStar Receiver Systems and related products. In the event price and marketing competition intensifies among DBS and other "small dish" operators, EchoStar may be at a competitive disadvantage as a result of its limited financial resources, and would be required to raise additional capital during 1996 if DBS hardware subsidizations increase significantly. EchoStar had outstanding $415.7 million and $778.6 million of long-term debt (including the 1994 and 1996 Notes, deferred satellite contract payments on EchoStar I and mortgage debt) as of December 31, 1995 and March 31, 1996, respectively. In addition, because interest on the 1994 Notes is not payable currently in cash but accretes through June 1, 1999, the 1994 Notes will increase by $241.8 million through that date. Also, because interest on the 1996 Notes is not payable in cash but accretes through March 15, 2000, the 1996 Notes will increase by $230.0 million through that date. Contractor financing of $28.0 million is available for EchoStar II. Interest on the contractor financing is at the prime rate and principal payments are payable in equal monthly installments over five years following the launch of the satellite. AVAILABILITY OF OPERATING CASH FLOW TO ECHOSTAR The 1994 and 1996 Notes Indentures impose various restrictions on the transfer of funds among EchoStar and its subsidiaries. Although the 1996 Notes are collateralized by the stock of Dish, Ltd., various assets expected to form an integral part of the EchoStar DBS System (and not otherwise encumbered by the 1994 Notes Indenture), and guarantees of EchoStar and certain of its other subsidiaries, ESB's ability to fund interest and principal payments on the 1996 Notes will depend on successful operation of the Dish Network-SM- and ESB having access to available cash flows generated by the Dish Network-SM-. If cash available to ESB is not sufficient to service the 1996 Notes, EchoStar would be required to obtain cash from other sources such as assetsales, issuance of equity securities, or new borrowings. There can be no assurance that those alternative sources would be available, or available on favorable terms, or sufficient to meet debt service requirements on the 1996 Notes. ASSETS OF PRINCIPAL GUARANTORS EchoStar guarantees the 1996 Notes on a subordinated basis. EchoStar's Equity Offering resulted in net proceeds of approximately $63.0 million. EchoStar's assets at March 31, 1996 included assets purchased with those proceeds and cash remaining from the Equity Offering. Substantially all of the proceeds from the Equity Offering were used: (i) to secure launches for a third and fourth satellite; (ii) to support, through loans to DBSC, construction of a third satellite; (iii) to purchase, for $4.0 million, convertible subordinated secured debentures from DBS 18 Industries, Inc.; and (iv) for general corporate purposes, including the down payment, for DBS frequencies purchased at 148DEG. WL at the FCC Auction in January 1996, which will be reimbursed with the proceeds of the 1996 Notes Offering. OTHER 1994 AND 1996 NOTES EchoStar I was successfully launched by Great Wall in December 1995. In the event of a launch failure of EchoStar II, Dish, Ltd. would first be required under the 1994 Notes Indenture to make an offer to repurchase one-half of the then accreted value of the 1994 Notes. In the event that EchoStar does not have the right to use orbital slot authorizations granted by the FCC covering a minimum of 21 transponders at a single full CONUS orbital slot, ESB and Dish, Ltd. will be required to make an offer to repurchase all or a portion of the outstanding 1996Notes and 1994 Notes, respectively. Additionally, in the event that EchoStar DBS Corporation, a wholly owned subsidiary of EchoStar, fails to obtain authorization from the FCC for frequencies purchased at the FCC Auction in January 1996, or in the event that such authorization is revoked or rescinded, ESB will be required under the 1996 Notes Indenture to repurchase the maximum principal amount of the 1996 Notes that may be purchased with the proceeds of any refund received from the FCC. If the DBSC Merger or similar transaction does not occur on or before March 1, 1997, ESB will be required to repurchase at least $83.0 million principal amount of the 1996 Notes. Further, in the event that EchoStar incurs more than $7.8 million in expenses (as defined in the 1996 Notes Indenture) in connection with the DBSC Merger, ESB will be required to apply an amount equal to such expenses minus $7.8 million to an offer to repurchase the maximum principal amount of the 1996 Notes that may be purchased out of such proceeds. If any of the above described events were to occur, EchoStar's plan of operations, including its liquidity, would be adversely affected and its current business plan could not be fully implemented. Further, EchoStar's short-term liquidity would be adversely affected in the event of: (i) significant delay in the delivery of certain products and equipment necessary for operation of the EchoStar DBS System; (ii) shortfalls in estimated levels of operating cash flows; or (iii) unanticipated expenses in connection with development of the EchoStar DBS System. RECEIVER MANUFACTURERS ESB has agreements with two manufacturers to supply the receiver component of EchoStar Receiver Systems. To date, only one of the manufacturers has produced a receiver acceptable to ESB, and that manufacturer is presently manufacturing receivers in quantities sufficient to meet expected demand. No assurances can be given that ESB's other manufacturer will be able to produce an acceptable receiver in the future. In the event the other manufacturer is unable to produce a receiver to ESB, ESB could be dependent on one manufacturing source for its receivers. To date, ESB has paid this manufacturer $10.0 million and has an additional $15.0 million in an escrow account as security for ESB's payment obligations under the contract. 19 EFFECTS OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS The Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 121, "Accounting for Impairment Of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" ("SFAS No. 121"). EchoStar has adopted SFAS No. 121 in the first quarter of 1996 and its adoption has not had a material impact on EchoStar's financial position, results of operations or cash flows. Statement of Financial Accounting Standards No. 123 "Accounting for Stock-Based Compensation" ("SFAS No. 123"), issued by FASB in October 1995 and effective for fiscal years beginning after December 15, 1995, encourages, but does not require, a fair value based method of accounting for employee stock options or similar equity instruments. It also allows an entity to elect to continue to measure compensation cost under Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB No. 25"), but requires pro forma disclosures of net income and earnings per share as if the fair value based method of accounting had been applied. EchoStar has adopted SFAS No. 123 in the first quarter of 1996 and has elected to continue to measure compensation cost under APB No. 25 and to comply with the pro forma disclosure requirements. Therefore, this statement has had no impact on EchoStar's results of operations. IMPACT OF INFLATION; BACKLOG Inflation has not materially affected EchoStar's operations during the past three years. EchoStar believes that its ability to increase charges for products and services in future periods will depend primarily on competitive pressures. EchoStar does not have any material backlog of its products. PART II ITEM 1. LEGAL PROCEEDINGS EchoStar is a party to certain legal proceedings arising in the ordinary course of its business. EchoStar does not believe that any of these proceedings will have a material adverse affect on EchoStar's financial position or results of operations. 20 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) EXHIBITS Exhibit No. Description 2.1* Amended and Restated Agreement for Exchange of Stock and Merger, dated as of May 31, 1995, by and among EchoStar Communications Corporation, a Nevada corporation formed in April 1995 ("EchoStar"), Charles W. Ergen and EchoStar (incorporated herein by reference to Exhibit 2.2 to the Registration Statement Form S-1, Registration No. 33-91276). 2.2* Agreement regarding purchase of debentures between Dish, Ltd. (formerly EchoStar Communications Corporation, a Nevada corporation formed in December 1993 ("Dish")), SSE Telecom, Inc. ("SET"), dated March 14, 1994, including Plan and Agreement of Merger, by and among Dish, DirectSat Merger Corporation, DirectSat Corporation and SET (incorporated herein by reference to Exhibit 2.2 to the Registration Statement on Form S-1, Registration No. 33-76450). 3.1(a)* Articles of Incorporation of EchoStar Satellite Broadcasting Corporation ("ESB") (incorporated herein by reference to Exhibit 3.1(a) to the Registration Statement Form S-1, Registration No. 333-3980). 3.1(b)* Bylaws of ESB (incorporated herein by reference to Exhibit 3.1(f) to the Registration Statement on Form S-1, Registration No. 333-3980). 4.1* Indenture of Trust between Dish and First Trust National Association ("First Trust"), as Trustee (incorporated herein by reference to the Registration Statement on Form S-1 of Dish, Registration No. 33-76450). 4.2* Warrant Agreement between EchoStar and First Trust, as Warrant Agent (incorporated herein by reference to the Registration Statement on Form S-1 of Dish, Registration No. 33-76450). 4.3* Security Agreement in favor of First Trust, as Trustee under the Indenture filed as Exhibit 4.1 (incorporated herein by reference to the Registration Statement on Form S-1 of Dish, Registration No. 33-76450). 4.4* Escrow and Disbursement Agreement between Dish and First Trust (incorporated herein by reference to the Registration Statement on Form S-1 of Dish, Registration No. 33-76450). 4.5* Pledge Agreement in favor of First Trust, as Trustee under the Indenture filed as Exhibit 4.1 herein (incorporated herein by reference to the Registration Statement on Form S-1 of Dish, Registration No. 33-76450). 4.6* Intercreditor Agreement among First Trust, Continental Bank, N.A. and Martin Marietta Corporation ("Martin Marietta") (incorporated herein by reference to the Registration Statement on Form S-1 of Dish, Registration No. 33-76450). 4.7* Series A Preferred Stock Certificate of Designation of EchoStar (incorporated herein by reference to Exhibit 4.7 to the Registration Statement on Form S-1 of EchoStar, Registration No. 33-91276). 4.8* Registration Rights Agreement by and between EchoStar and Charles W. Ergen (incorporated herein by reference to Exhibit 4.8 to the Registration Statement on Form S-1 of EchoStar, Registration No. 33-91276). 21 Exhibit No. Description - ----------- ------------ 4.9* Indenture of Trust between ESB and First Trust, as Trustee (incorporated herein by reference to Exhibit 4.9 to the Annual Report on Form 10-K of EchoStar, Commission File No. 0-26176). 4.10* Security Agreement of ESB in favor of First Trust, as Trustee under the Indenture filed as Exhibit 4.9 (incorporated herein by reference to Exhibit 4.10 to the Annual Report on Form 10-K of Echostar. Commission File No. 0-26176). 4.11* Escrow and Disbursement Agreement between ESB and First Trust (incorporated herein by reference to Exhibit 4.11 to the Annual Report on Form 10-K of EchoStar. Commission File No. 0-26176). 4.12* Pledge Agreement of ESB in favor of First Trust, as Trustee under the Indenture filed as Exhibit 4.9 (incorporated herein by reference to Exhibit 4.12 to the Annual Report on Form 10-K of EchoStar, Commission File No. 0-26176). 4.13* Pledge Agreement of EchoStar in favor of First Trust, as Trustee under the Indenture filed as Exhibit 4.9 (incorporated herein by reference to Exhibit 4.13 to the Annual Report on Form 10-K of EchoStar, Commission File No. 0-26176). 4.15* Registration Rights Agreement by and between ESB, EchoStar, Dish, Ltd., New DBSC and Donald, Lufkin & Jenrette Securities Corporation (incorporated herein by reference to Exhibit 4.14 to the Annual Report on Form 10-K of EchoStar, Commission File No. 0-26176). 10.1(a)* Satellite Construction Contract, dated as of February 6, 1990, between EchoStar Satellite Corporation ("ESC") and Martin Marietta Corporation as successor to General Electric EchoStar, Astro-Space Division ("General Electric") (incorporated herein by reference to the Registration Statement on Form S-1 of Dish, Ltd. Registration No. 33-76450). 10.1(b)* First Amendment to the Satellite Construction Contract, dated as of October 2, 1992, between ESC and Martin Marietta as successor to General Electric (incorporated herein by reference to the Registration Statement on Form S-1 of Dish, Ltd. Registration No. 33-76450). 10.1(c)* Second Amendment to the Satellite Construction Contract, dated as of October 30, 1992, between ESC and Martin Marietta as successor to General Electric (incorporated herein by reference to the Registration Statement on Form S-1 of Dish, Ltd. Registration No. 33-76450). 10.1(d)* Third Amendment to the Satellite Construction Contract, dated as of April 1, 1993, between ESC and Martin Marietta (incorporated herein by reference to the Registration Statement on Form S-1 of Dish, Ltd. Registration No. 33-76450). 10.1(e)* Fourth Amendment to the Satellite Construction Contract, dated as of August 19, 1993, between ESC and Martin Marietta (incorporated herein by reference to the Registration Statement on Form S-1 of Dish, Ltd. Registration No. 33-76450). 10.1(f)* Form of Fifth Amendment to the Satellite Construction Contract, between ESC and Martin Marietta (incorporated herein by reference to the Registration Statement on Form S-8 of EchoStar, Registration No. 33-81234). 10.1(g)* Sixth Amendment to the Satellite Construction Contract, dated as of June 7, 1994, between ESC and Martin Marietta (incorporated herein by reference to the Registration Statement on Form S-8 of EchoStar, Registration No. 33-81234). 22 Exhibit No. Description - ----------- ------------ 10.2* Satellite Launch Contract, dated as of September 27, 1993, between ESC and the China Great Wall Industry Corporation (incorporated herein by reference to the Registration Statement on Form S-1 of Dish, Ltd. Registration No. 33-76450). 10.3* Distributor Agreement, dated as of July 30, 1993, between Echosphere Corporation ("Echosphere") and Thomson Consumer Electronics, Inc. (incorporated herein by reference to the Registration Statement on Form S-1 of Dish, Ltd. Registration No. 33-76450). 10.4* Master Purchase and License Agreement, dated as of August 12, 1986, between Houston Tracker Systems, Inc. ("HTS") and Cable/Home Communications Corp. (a subsidiary of General Instruments Corporation) (incorporated herein by reference to the Registration Statement on Form S-1 of Dish, Ltd. Registration No. 33-76450). 10.5* Master Purchase and License Agreement, dated as of June 18, 1986, between Echosphere and Cable/Home Communications Corp. (a subsidiary of General Instruments Corporation) (incorporated herein by reference to the Registration Statement on Form S-1 of Dish, Ltd. Registration No. 33-76450). 10.6* Merchandising Financing Agreement, dated as of June 29, 1989, between Echo Acceptance Corporation ("EAC") and Household Retail Services, Inc. (incorporated herein by reference to the Registration Statement on Form S-1 of Dish, Ltd. Registration No. 33-76450). 10.7* Key Employee Bonus Plan, dated as of January 1, 1994 (incorporated herein by reference to the Registration Statement on Form S-1 of Dish, Ltd. Registration No. 33-76450). 10.8* Consulting Agreement, dated as of February 17, 1994, between ESC and Telesat Canada (incorporated herein by reference to the Registration Statement on Form S-1 of Dish, Ltd. Registration No. 33-76450). 10.9* Form of Satellite Launch Insurance Declarations (incorporated herein by reference to the Registration Statement on Form S-1 of Dish, Ltd. Registration No. 33-76450). 10.10* Dish 1994 Stock Incentive Plan (incorporated herein by reference to the Registration Statement on Form S-1 of Dish, Ltd. Registration No. 33-76450). 10.11* Form of Tracking, Telemetry and Control Contract between AT&T Corp. and ESC (incorporated herein by reference to the Registration Statement on Form S-8 of EchoStar, Registration No. 33-81234). 10.12* Manufacturing Agreement, dated as of March 22, 1995, between HTS and SCI Technology (incorporated herein by reference to Exhibit 10.12 to the Registration Statement as Form S-1 of Dish, Ltd. Commission File No. 33-81234). 10.13* Manufacturing Agreement dated as of April 14, 1995 by and between ESC and Sagem Group (incorporated herein by reference to Exhibit 10.13 to the Registration Statement on Form S-1 of EchoStar, Registration No. 33-91276). 10.14* Statement of Work, dated January 31, 1995 from EchoStar Satellite Corporation Inc. to Divicom Inc. (incorporated herein by reference to Exhibit 10.14 to the Registration Statement on Form S-1, Registration No. 33-91276). 23 Exhibit No. Description - ----------- ----------- 10.15* Launch Services Contract, dated as of June 2, 1995, by and between EchoStar Satellite Corporation and Lockheed-Khrunichev-Energia International, Inc. (incorporated herein by reference to Exhibit 10.15 to the Registration Statement on Form S-1, Registration No. 33-91276). 10.16* EchoStar 1995 Stock Incentive Plan (incorporated herein by reference to Exhibit 10.16 to the Registration Statement on Form S-1, Registration No. 33-91276). 27 Financial Data Schedule ______________________ * Incorporated by reference pursuant to Rule 12D-32 under the Securities and Exchange Act of 1934, as amended. (b) REPORTS ON FORM 8-K. No current reports on Form 8-K were filed by EchoStar during the period covered by this Quarterly Report on Form 10-Q. 24 SIGNATURES Pursuant to the requirement 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. EchoStar Satellite Broadcasting Corporation Date: May 13, 1996 /s/ Steven B. Schaver ---------------------------------------------- Steven B. Schaver Vice President, and Chief Financial Officer /s/ Steven B. Schaver ----------------------------------------------- Steven B. Schaver Principal Financial Officer 25 EX-27 2 FINANCIAL DATA SCHEDULE
5 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ACCOMPANYING CONSOLIDATED BALANCE SHEET OF ECHOSTAR SATELLITE BROADCASTING CORPORATION AND SUBSIDIARIES AS OF MARCH 31, 1996 AND THE RELATED CONSOLIDATED STATEMENTS OF INCOME AND CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THOSE FINANCIAL STATEMENTS. 3-MOS DEC-31-1996 MAR-31-1996 162,651 212 22,245 (1,616) 27,298 232,493 346,810 (13,579) 899,357 31,916 783,427 0 0 0 85,007 899,357 40,654 41,026 36,033 49,934 3,811 610 5,784 (12,719) 5,065 (7,654) 0 0 0 (7,654) (7,654) (7,654) INCLUDES SALES OF PROGRAMMING. INCLUDES THE COST OF PROVIDING PROGRAMMING.
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