T quarterly report pursuant to section 13 or 15(d) of the securities exchange act of 1934




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Table of Contents

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 

 

Form 10-Q

 

(Mark One)

 

T         QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Quarterly Period Ended June 30, 2012

 

OR

 

£         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

FOR THE TRANSITION PERIOD FROM                               TO                                .

 

Commission File Number:  001-33807

 

EchoStar Corporation

(Exact Name of Registrant as Specified in Its Charter)

 

Nevada

 

26-1232727

(State or Other Jurisdiction of Incorporation or Organization)

 

(I.R.S. Employer Identification No.)

 

 

 

100 Inverness Terrace East

 

 

Englewood, Colorado

 

80112-5308

(Address of Principal Executive Offices)

 

(Zip Code)

 

(303) 706-4000

(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 (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  x   No  o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes  x   No  o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filerx

 

Accelerated filero

 

 

 

Non-accelerated filero

 

Smaller reporting companyo

(Do not check if a smaller reporting company)

 

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  o   No  x

 

As of August 2, 2012, the registrant’s outstanding common stock consisted of 39,538,822 shares of Class A common stock and 47,687,039 shares of Class B common stock.

 

 

 

Table of Contents

 

TABLE OF CONTENTS

 

Disclosure Regarding Forward-Looking Statements

i

 

 

PART I—FINANCIAL INFORMATION

 

 

 

 

Item 1.

Financial Statements

 

 

Condensed Consolidated Balance Sheets as of June 30, 2012 (Unaudited) and December 31, 2011

1

 

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the Three and Six Months Ended June 30, 2012 and 2011 (Unaudited)

2

 

Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2012 and 2011 (Unaudited)

3

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

4

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

38

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

54

Item 4.

Controls and Procedures

56

 

 

 

PART II—OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

56

Item 1A.

Risk Factors

60

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

61

Item 3.

Defaults upon Senior Securities

None

Item 4.

Mine Safety Disclosures

None

Item 5.

Other Information

None

Item 6.

Exhibits

61

 

Table of Contents

 

DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

 

We make “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 throughout this report.  Whenever you read a statement that is not simply a statement of historical fact (such as when we describe what we “believe,” “intend,” “plan,” “estimate,” “expect” or “anticipate” will occur and other similar statements), you must remember that our expectations may not be achieved, even though we believe they are reasonable.  We do not guarantee that any future transactions or events described herein will happen as described or that they will happen at all.  You should read this report completely and with the understanding that actual future results may be materially different from what we expect.  Whether actual events or results will conform with our expectations and predictions is subject to a number of risks and uncertainties.

 

The risks and uncertainties include, but are not limited to, the following:

 

General Risks Affecting Our Business

 

·                 We currently derive a substantial portion of our revenue from our two primary customers, DISH Network and Bell TV.  The loss of, or a significant reduction in, orders from, or a decrease in selling prices of digital set-top boxes, transponder leasing, provision of digital broadcast services, and/or other products or services to DISH Network or Bell TV would significantly reduce our revenue and adversely impact our results of operations.

·                 Economic weakness, including high unemployment and reduced consumer spending, may adversely affect our ability to grow or maintain our business.

·                 If we are unable to properly respond to technological changes, our business could be significantly harmed.

·                 Certain of our sales to DISH Network could be terminated or substantially curtailed on short notice, which would have a detrimental effect on us.

·                 We may be required to raise and refinance indebtedness during unfavorable market conditions.

·                 We may experience significant financial losses on our existing investments.

·                 We may pursue acquisitions and other strategic transactions to complement or expand our business, which may not be successful and we may lose up to the entire value of our investment in these acquisitions and transactions.

·                 We may not be aware of certain foreign government laws or regulations or changes to them which could have a significant adverse impact on our business.

·                 Our international sales and operations are subject to applicable laws relating to trade, export controls and foreign corrupt practices, the violation of which could adversely affect our operations.

·                 Our business depends on certain intellectual property rights and on not infringing the intellectual property rights of others.  The loss of or infringement of our intellectual property rights could have a significant adverse impact on our business.

·                 Any failure or inadequacy of our information technology infrastructure or those of our third-party service providers could harm our business.

·                 We are party to various lawsuits which, if adversely decided, could have a significant adverse impact on our business, particularly lawsuits regarding intellectual property.

·                 We have not been an independent company for a significant amount of time and we may be unable to make, on a timely or cost-effective basis, the changes necessary to operate as an independent company.

·                 We rely on key personnel and the loss of theirservices may negatively affect our businesses.

·                 We have substantial debt outstanding and may incur additional debt.

 

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Risks Affecting Our EchoStar Technologies Segment

 

·                 We depend on sales of digital set-top boxes for a substantial portion of our revenue and a decline in sales of our digital set-top boxes would have a material adverse effect on our financial position and results of operations.

·                 Our business may suffer if our customer base does not compete successfully with existing and emerging competition.

·                 Our future financial performance depends in part on our ability to penetrate new markets for digital set-top boxes.

·                 Component pricing may remain stable or be negatively affected by inflation, increased demand, decreased supply, or other factors, which could have a material adverse effect on our results of operations.

·                 The average selling price and gross margins of our digital set-top boxes has been decreasing and may decrease even further, which could negatively impact our financial position and results of operations.

·                 Our ability to sell our digital set-top boxes toother operators depends on our ability to obtain licenses to use the conditional access systems utilized by these other operators.

·                 Growth in our EchoStar Technologiessegment likely requires expansion of our sales to international customers, and we may be unsuccessful in expanding international sales.

·                 If we are successful in growing sales of our digital set-top boxes to international customers, we may be subject to additional risks including, among other things, trade barriers and political instability abroad.

·                 The digital set-top box industry is extremely competitive.

·                 We expect to continue to face competition from new market entrants, principally located in Asia, that offer low cost set-top boxes.

·                 Our digital set-top boxes are highly complex and may experience quality or supply problems.

·                 If significant numbers of television viewers are unwilling to pay for pay-TV services that utilize digital set-top boxes, we may not be able to sustain our current revenue level.

·                 Our reliance on a single supplier or a limited number of suppliers for several components used in our digital set-top boxes could restrict production, result in higher digital set-top box costs and delay deliveries to customers.

·                 Our future growth depends on growing demand for advanced technologies.

·                 If the encryption and related security technology used in our digital set-top boxes is compromised, sales of our digital set-top boxes may decline.

 

Risks Affecting Our EchoStar Satellite Services and Hughes Segments

 

·                 We currently face competition from established competitors in the satellite service business and may face competition from others in the future.

·                 Our owned and leased satellites in orbit are subject to significant operational and environmental risks that could limit our ability to utilize these satellites.

·                 Our satellites have minimum design livesranging from 12 to 15 years, but could fail or suffer reduced capacity before then.

·                 Our satellites under construction are subject to risks related to construction and launch that could limit our ability to utilize these satellites.

·                 Our business is subject to risks of adverse government regulation.

·                 Our business depends on Federal Communications Commission (“FCC”) licenses that can expire or be revoked or modified and applications for FCC licenses that may not be granted.

·                 Our use of certain satellites is often dependent on satellite coordination agreements, which may be difficult to obtain.

·                 Our dependence on outside contractors could result in delays related to the design, manufacture and launch of our new satellites, which could in turn adversely affect our operating results.

 

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·                 We generally do not have commercial insurance coverage on the satellites we use and could face significant impairment charges if one of our uninsured satellites fails.

·                 We currently have unused satellite capacity in our EchoStar Satellite Services segment, and our results of operations may be materially adversely affected if we are not able to lease more of this capacity to third parties.

·                 The enterprise network communications industry is highly competitive.  We may be unsuccessful in competing effectively against other terrestrial and satellite-based network providers in our enterprise groups.

·                 The consumer network communications market is highly competitive.  We may be unsuccessful in competing effectively against fiber, Digital Subscriber Line (“DSL”), cable service providers and other satellite broadband providers in the consumer market.

·                 We are dependent upon third-party providers for components, manufacturing, installation services, and customer support services, and our results of operations may be materially adversely affected if any of these third-party providers fail to appropriately deliver the contracted goods or services.

·                 The failure to adequately anticipate the need for transponder capacity or the inability to obtain transponder capacity for our Hughes segment could harm our results of operations.

·                 If our products contain defects, we could be subject to significant costs to correct such defects and our product and network service contracts could be delayed or cancelled, which could adversely affect our revenues.

·                 We may face difficulties in accurately assessing and collecting contributions towards the Universal Service Fund.

·                 Our foreign operations expose us to regulatory risks and restrictions not present in our domestic operations.

·                 Although we expect that the Hughes Acquisition (as defined below) will benefit us, those expected benefits may not occur because of the complexity of integration and other challenges.

 

Other Risks

 

·                 We may have potential conflicts of interest with DISH Network due to our common ownership and management.

·                 We cannot assure you that there will not be deficiencies leading to material weaknesses in our internal control over financial reporting.

·                 It may be difficult for a third party to acquire us, even if doing so may be beneficial to our shareholders, because of our capital structure.

·                 We are controlled by one principal stockholder who is our Chairman.

·                 We may face other risks described from time-to-time in periodic and current reports we file with the Securities and Exchange Commission (“SEC”).

 

All cautionary statements made herein should be read as being applicable to all forward-looking statements wherever they appear.  Investors should consider the risks described herein and should not place undue reliance on any forward-looking statements.  We assume no responsibility for updating forward-looking information contained or incorporated by reference herein or in other reports we file with the SEC.

 

In this report, the words “EchoStar,” the “Company,” “we,” “our” and “us” refer to EchoStar Corporation and its subsidiaries, unless the context otherwise requires.  “DISH Network” refers to DISH Network Corporation and its subsidiaries, unless the context otherwise requires.

 

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