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EXCEL - IDEA: XBRL DOCUMENT - EchoStar CORPFinancial_Report.xls
EX-32.1 - EX-32.1 - EchoStar CORPa15-7510_1ex32d1.htm
EX-31.1 - EX-31.1 - EchoStar CORPa15-7510_1ex31d1.htm
10-Q - 10-Q - EchoStar CORPa15-7510_110q.htm
EX-31.2 - EX-31.2 - EchoStar CORPa15-7510_1ex31d2.htm

EXHIBIT 99.1

 

Unaudited Condensed Attributed Financial Information for Hughes Retail Group

 

On March 1, 2014, EchoStar Corporation (the terms “we,” “us,” “EchoStar,” and “our” refer to EchoStar Corporation and its subsidiaries) issued shares of its newly authorized Hughes Retail Preferred Tracking Stock (the “EchoStar Tracking Stock”) and Hughes Satellite Systems Corporation (“HSS”), a subsidiary of EchoStar, also issued shares of its newly authorized Hughes Retail Preferred Tracking Stock (the “HSS Tracking Stock” and together with the EchoStar Tracking Stock, the “Tracking Stock”) to certain subsidiaries of DISH Network Corporation.

 

The Tracking Stock is intended to reflect the separate performance of the Hughes Retail Group, which is comprised primarily of our business of providing satellite broadband internet services to residential retail subscribers, including the assets and liabilities primarily associated with the operation of the business; and the business operations, revenue, billings, operating and other direct and indirect support activities to provide services to the business and Hughes retail subscribers.  The Hughes Retail Group also includes any proceeds associated with a sale or transfer of the Hughes Retail Group or any assets of the Hughes Retail Group, and any other assets acquired by or for the account of the Hughes Retail Group or otherwise attributed, contributed, allocated or transferred to the Hughes Retail Group from time to time.  The EchoStar Group is comprised of all existing and future businesses of EchoStar and its subsidiaries, excluding the Hughes Retail Group.

 

Holders of the Tracking Stock are holders of capital stock of the issuer (EchoStar or HSS) and are subject to risks associated with an investment in the issuer and all of its businesses, assets and liabilities.  The issuance of the Tracking Stock does not affect the rights of our creditors or the creditors of our subsidiaries.

 

Notwithstanding the following attribution of assets, liabilities, revenue, expenses and cash flows to the Hughes Retail Group and the EchoStar Group, our tracking stock structure does not affect the ownership or the legal title to our assets or responsibility for our liabilities.

 

The accompanying condensed attributed financial information as of, and for, the three months ended March 31, 2015 and 2014 and the year ended December 31, 2014 are unaudited.  The Company’s management is solely responsible for this financial information and believes that it has been prepared in conformity with accounting principles generally accepted in the United States.

 

The following tables present our consolidated assets and liabilities as of March 31, 2015 and December 31, 2014 and our consolidated revenue, expenses and cash flows for the three months ended March 31, 2015 and 2014.  The tables further present our assets, liabilities, revenue, expenses and cash flows that are attributed to the Hughes Retail Group as if that business and its assets had been attributed to that group at the beginning of each period.  As a result of our Policy Statement adopted as of March 1, 2014, we used different attribution methods for certain items in periods prior to March 1, 2014.  Therefore, the attributed financial position, results of operations and cash flows of the Hughes Retail Group and all other operations are not directly comparable to the corresponding attributed financial information for periods after March 1, 2014.  The financial information in this Exhibit should be read in conjunction with our unaudited condensed consolidated financial statements for the period ended March 31, 2015 included in our Quarterly Report on Form 10-Q.

 

1



 

CONDENSED ATTRIBUTED BALANCE SHEETS

(In thousands)

(Unaudited)

 

 

 

Attributed

 

Attributed

 

 

 

As of March 31, 2015

 

As of December 31, 2014

 

 

 

Hughes

 

 

 

 

 

 

 

Hughes

 

 

 

 

 

 

 

 

 

Retail

 

EchoStar

 

Inter-Group

 

EchoStar

 

Retail

 

EchoStar

 

Inter-Group

 

EchoStar

 

 

 

Group

 

Group

 

Eliminations

 

Consolidated

 

Group

 

Group

 

Eliminations

 

Consolidated

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash, cash equivalents and marketable investment securities

 

$

 

$

1,715,593

 

$

 

$

1,715,593

 

$

 

$

1,688,156

 

$

 

$

1,688,156

 

Trade accounts receivable, net

 

27,994

 

125,416

 

 

153,410

 

29,086

 

134,146

 

 

163,232

 

Trade accounts receivable - DISH Network, net

 

 

275,209

 

 

275,209

 

 

251,669

 

 

251,669

 

Inventory

 

9,073

 

64,095

 

(2,099

)

71,069

 

8,282

 

56,580

 

(1,899

)

62,963

 

Deferred tax assets

 

4,982

 

73,521

 

 

78,503

 

4,982

 

82,226

 

 

87,208

 

Prepaid expenses

 

642

 

68,172

 

 

68,814

 

592

 

66,572

 

 

67,164

 

Inter-group advances

 

 

39,680

 

(39,680

)

 

 

27,449

 

(27,449

)

 

Other current assets

 

 

7,542

 

 

7,542

 

 

7,699

 

 

7,699

 

Total current assets

 

42,691

 

2,369,228

 

(41,779

)

2,370,140

 

42,942

 

2,314,497

 

(29,348

)

2,328,091

 

Noncurrent Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Restricted cash and marketable investment securities

 

 

19,991

 

 

19,991

 

 

18,945

 

 

18,945

 

Property and equipment, net

 

168,217

 

3,092,024

 

(11,160

)

3,249,081

 

166,145

 

3,037,002

 

(8,354

)

3,194,793

 

Regulatory authorizations, net

 

 

553,858

 

 

553,858

 

 

568,378

 

 

568,378

 

Goodwill

 

260,000

 

250,630

 

 

510,630

 

260,000

 

250,630

 

 

510,630

 

Other intangible assets, net

 

46,188

 

132,503

 

 

178,691

 

51,088

 

144,574

 

 

195,662

 

Economic interest in Hughes Retail Group

 

 

91,583

 

(91,583

)

 

 

93,126

 

(93,126

)

 

Other investments

 

 

158,213

 

 

158,213

 

 

159,962

 

 

159,962

 

Other receivable - DISH Network

 

 

90,449

 

 

90,449

 

 

90,241

 

 

90,241

 

Other noncurrent assets, net

 

38,588

 

147,764

 

(774

)

185,578

 

40,997

 

146,946

 

(647

)

187,296

 

Total noncurrent assets

 

512,993

 

4,537,015

 

(103,517

)

4,946,491

 

518,230

 

4,509,804

 

(102,127

)

4,925,907

 

Total assets

 

$

555,684

 

$

6,906,243

 

$

(145,296

)

$

7,316,631

 

$

561,172

 

$

6,824,301

 

$

(131,475

)

$

7,253,998

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trade accounts payable

 

$

12,084

 

$

207,212

 

$

 

$

219,296

 

$

12,613

 

$

175,669

 

$

 

$

188,282

 

Trade accounts payable - DISH Network

 

 

36,283

 

 

36,283

 

 

32,474

 

 

32,474

 

Current portion of long-term debt and capital lease obligations

 

 

31,475

 

 

31,475

 

 

41,912

 

 

41,912

 

Deferred revenue and prepayments

 

24,139

 

40,534

 

 

64,673

 

26,504

 

45,204

 

 

71,708

 

Accrued compensation

 

 

32,913

 

 

32,913

 

 

32,117

 

 

32,117

 

Accrued royalties

 

 

22,683

 

 

22,683

 

 

27,590

 

 

27,590

 

Accrued interest

 

 

44,065

 

 

44,065

 

 

8,905

 

 

8,905

 

Inter-group advances

 

39,680

 

 

(39,680

)

 

27,449

 

 

(27,449

)

 

Accrued expenses and other

 

14,368

 

89,514

 

 

103,882

 

15,167

 

99,578

 

 

114,745

 

Total current liabilities

 

90,271

 

504,679

 

(39,680

)

555,270

 

81,733

 

463,449

 

(27,449

)

517,733

 

Noncurrent Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term debt and capital lease obligations, net of current portion

 

 

2,320,078

 

 

2,320,078

 

 

2,325,775

 

 

2,325,775

 

Deferred tax liabilities

 

4,404

 

680,305

 

 

684,709

 

9,457

 

670,067

 

 

679,524

 

Other noncurrent liabilities

 

3,094

 

101,667

 

 

104,761

 

4,351

 

102,977

 

 

107,328

 

Total noncurrent liabilities

 

7,498

 

3,102,050

 

 

3,109,548

 

13,808

 

3,098,819

 

 

3,112,627

 

Total liabilities

 

97,769

 

3,606,729

 

(39,680

)

3,664,818

 

95,541

 

3,562,268

 

(27,449

)

3,630,360

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ Equity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity/Attributed net assets (liabilities)

 

457,915

 

3,210,844

 

(105,616

)

3,563,143

 

465,631

 

3,171,563

 

(104,026

)

3,533,168

 

Noncontrolling interest in HSS Tracking Stock

 

 

78,288

 

 

78,288

 

 

80,457

 

 

80,457

 

Other noncontrolling interests

 

 

10,382

 

 

10,382

 

 

10,013

 

 

10,013

 

Equity/Attributed net assets (liabilities)

 

457,915

 

3,299,514

 

(105,616

)

3,651,813

 

465,631

 

3,262,033

 

(104,026

)

3,623,638

 

Total liabilities and equity/attributed net assets (liabilities)

 

$

555,684

 

$

6,906,243

 

$

(145,296

)

$

7,316,631

 

$

561,172

 

$

6,824,301

 

$

(131,475

)

$

7,253,998

 

 

2



 

CONDENSED ATTRIBUTED STATEMENTS OF OPERATIONS

(In thousands)

(Unaudited)

 

 

 

Attributed

 

Attributed

 

 

 

For the Three Months Ended March 31, 2015

 

For the Three Months Ended March 31, 2014

 

 

 

Hughes

 

 

 

 

 

 

 

Hughes

 

 

 

 

 

 

 

 

 

Retail

 

EchoStar

 

Inter-Group

 

EchoStar

 

Retail

 

EchoStar

 

Inter-Group

 

EchoStar

 

 

 

Group

 

Group

 

Eliminations

 

Consolidated

 

Group

 

Group

 

Eliminations

 

Consolidated

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Services and equipment revenue - other

 

$

146,161

 

$

287,860

 

$

(82,131

)

$

351,890

 

$

136,731

 

$

226,280

 

$

(27,234

)

$

335,777

 

Services and equipment revenue - DISH Network

 

 

446,763

 

 

446,763

 

 

490,246

 

 

490,246

 

Total revenue

 

146,161

 

734,623

 

(82,131

)

798,653

 

136,731

 

716,526

 

(27,234

)

826,023

 

Costs and Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of sales (exclusive of depreciation and amortization)

 

86,008

 

460,454

 

(77,999

)

468,463

 

68,224

 

488,149

 

(25,610

)

530,763

 

Selling, general and administrative expenses

 

38,634

 

59,294

 

 

97,928

 

35,550

 

52,082

 

 

87,632

 

Research and development expenses

 

 

17,872

 

 

17,872

 

878

 

13,704

 

 

14,582

 

Depreciation and amortization

 

34,251

 

99,934

 

(1,000

)

133,185

 

31,956

 

101,270

 

 

133,226

 

Total costs and expenses

 

158,893

 

637,554

 

(78,999

)

717,448

 

136,608

 

655,205

 

(25,610

)

766,203

 

Operating income (loss)

 

(12,732

)

97,069

 

(3,132

)

81,205

 

123

 

61,321

 

(1,624

)

59,820

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Income (Expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

2,649

 

(38

)

2,611

 

1

 

2,598

 

(1

)

2,598

 

Interest expense, net of amounts capitalized

 

(38

)

(35,308

)

38

 

(35,308

)

 

(46,045

)

1

 

(46,044

)

Realized gains on marketable investment securities and other investments, net

 

 

9

 

 

9

 

 

28

 

 

28

 

Economic interest in earnings (loss) of Hughes Retail Group

 

 

(1,543

)

1,543

 

 

 

998

 

(998

)

 

Other, net

 

 

(2,518

)

 

(2,518

)

 

(1,215

)

 

(1,215

)

Total other income (expense), net

 

(38

)

(36,711

)

1,543

 

(35,206

)

1

 

(43,636

)

(998

)

(44,633

)

Income (loss) before income taxes

 

(12,770

)

60,358

 

(1,589

)

 45,999

 

124

 

17,685

 

(2,622

)

15,187

 

Income tax benefit (provision), net

 

5,054

 

(23,455

)

 

(18,401

)

(48

)

(3,109

)

 

(3,157

)

Net income (loss)

 

(7,716

)

36,903

 

(1,589

)

27,598

 

76

 

14,576

 

(2,622

)

12,030

 

Less: Net loss attributable to noncontrolling interests in HSS Tracking Stock

 

 

(2,169

)

 

(2,169

)

 

(324

)

 

(324

)

Less: Net income attributable to noncontrolling interests

 

 

369

 

 

369

 

 

299

 

 

299

 

Net income (loss) attributable to EchoStar

 

$

(7,716

)

$

38,703

 

$

(1,589

)

$

29,398

 

$

76

 

$

14,601

 

$

(2,622

)

$

12,055

 

 

3



 

CONDENSED ATTRIBUTED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

 

Attributed

 

Attributed

 

 

 

For the Three Months Ended March 31, 2015

 

For the Three Months Ended March 31, 2014

 

 

 

Hughes

 

 

 

 

 

 

 

Hughes

 

 

 

 

 

 

 

 

 

Retail

 

EchoStar

 

Inter-Group

 

EchoStar

 

Retail

 

EchoStar

 

Inter-Group

 

EchoStar

 

 

 

Group

 

Group

 

Eliminations

 

Consolidated

 

Group

 

Group

 

Eliminations

 

Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash Flows from Operating Activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

(7,716

)

$

36,903

 

$

(1,589

)

$

27,598

 

$

76

 

$

14,576

 

$

(2,622

)

$

12,030

 

Adjustments to reconcile net income (loss) to net cash flows from operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

34,251

 

99,934

 

(1,000

)

133,185

 

31,956

 

101,270

 

 

133,226

 

Equity in losses of unconsolidated affiliates, net

 

 

53

 

 

53

 

 

1,851

 

 

1,851

 

Economic interest in loss (earnings) of Hughes Retail Group

 

 

1,543

 

(1,543

)

 

 

(998

)

998

 

 

Realized gains on marketable investment securities and other investments, net

 

 

(9

)

 

(9

)

 

(28

)

 

(28

)

Stock-based compensation

 

 

4,175

 

 

4,175

 

 

3,557

 

 

3,557

 

Deferred tax provision (benefit)

 

(5,054

)

22,925

 

 

17,871

 

 

22

 

 

22

 

Changes in current assets and current liabilities, net

 

(1,076

)

32,607

 

199

 

31,730

 

6,100

 

40,100

 

1,624

 

47,824

 

Changes in noncurrent assets and noncurrent liabilities, net

 

(1,213

)

2,497

 

127

 

1,411

 

(5,182

)

(1,952

)

 

(7,134

)

Other, net

 

 

5,548

 

 

5,548

 

 

10,124

 

 

10,124

 

Net cash flows from operating activities

 

19,192

 

206,176

 

(3,806

)

221,562

 

32,950

 

168,522

 

 

201,472

 

Cash Flows from Investing Activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchases of marketable investment securities

 

 

(250,861

)

 

(250,861

)

 

(299,563

)

 

(299,563

)

Sales and maturities of marketable investment securities

 

 

269,588

 

 

269,588

 

 

285,985

 

 

285,985

 

Purchases of property and equipment

 

(31,423

)

(150,185

)

3,806

 

(177,802

)

(30,060

)

(83,565

)

 

(113,625

)

Change in restricted cash and cash equivalents

 

 

(1,046

)

 

(1,046

)

 

(2,967

)

 

(2,967

)

Acquisition of regulatory authorization

 

 

(3,428

)

 

(3,428

)

 

 

 

 

Purchase of strategic investments

 

 

(9

)

 

(9

)

 

(16

)

 

(16

)

Inter-group advances

 

 

(12,231

)

12,231

 

 

(2,326

)

 

2,326

 

 

Other, net

 

 

(4,929

)

 

(4,929

)

 

(2,818

)

 

(2,818

)

Net cash flows from investing activities

 

(31,423

)

(153,101

)

16,037

 

(168,487

)

(32,386

)

(102,944

)

2,326

 

(133,004

)

Cash Flows from Financing Activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Repayment of long-term debt and capital lease obligations

 

 

(16,508

)

 

(16,508

)

 

(18,528

)

 

(18,528

)

Net proceeds from Class A common stock options exercised and stock issued under the Employee Stock Purchase Plan

 

 

8,039

 

 

8,039

 

 

5,588

 

 

5,588

 

Net proceeds from issuance of Tracking Stock

 

 

 

 

 

 

10,720

 

 

10,720

 

Inter-group advances

 

12,231

 

 

(12,231

)

 

 

2,326

 

(2,326

)

 

Inter-group equity contributions (distributions), net

 

 

 

 

 

(564

)

564

 

 

 

Other, net

 

 

3,521

 

 

3,521

 

 

514

 

 

514

 

Net cash flows from financing activities

 

12,231

 

(4,948

)

(12,231

)

(4,948

)

(564

)

1,184

 

(2,326

)

(1,706

)

Effect of exchange rates on cash and cash equivalents

 

 

(5,674

)

 

(5,674

)

 

1,126

 

 

1,126

 

Net increase in cash and cash equivalents

 

 

42,453

 

 

42,453

 

 

67,888

 

 

67,888

 

Cash and cash equivalents, beginning of period

 

 

549,053

 

 

549,053

 

 

634,119

 

 

634,119

 

Cash and cash equivalents, end of period

 

$

 

$

591,506

 

$

 

$

591,506

 

$

 

$

702,007

 

$

 

$

702,007

 

 

4



 

NOTES TO CONDENSED ATTRIBUTED FINANCIAL INFORMATION

(Unaudited)

 

Note 1.         Business Description

 

The Hughes Retail Group is generally comprised of our business of providing satellite broadband internet services to residential retail subscribers, including the assets and liabilities primarily associated with the operation of the business; and the business operations, revenue, billings, operating and other direct and indirect support activities to provide services to the business and Hughes retail subscribers.  The Hughes Retail Group also includes any proceeds associated with a sale or transfer of the Hughes Retail Group or any assets of the Hughes Retail Group, and any other assets acquired by or for the account of the Hughes Retail Group or otherwise attributed, contributed, allocated or transferred to the Hughes Retail Group from time to time.  The EchoStar Group consists of all other operations of EchoStar, including all existing and future businesses other than the Hughes Retail Group.  EchoStar has adopted a policy statement (the “Policy Statement”) as described in Note 2 below, which sets forth management and allocation policies for purposes of attributing all of the business and operations of EchoStar to either the Hughes Retail Group or the EchoStar Group (each as fully defined in the Policy Statement and collectively, the “Groups”).

 

Note 2.         Basis of Presentation

 

The overall objective of the attributed financial information is to present the amounts reported in EchoStar’s condensed consolidated financial statements attributed to the Hughes Retail Group and the EchoStar Group.  The Policy Statement contains specific provisions that determine how certain assets, liabilities, revenue and expenses are attributed to the Groups, effective March 1, 2014.  The Policy Statement does not explicitly address the attribution of all amounts reported in our condensed consolidated financial statements; accordingly, management applies judgment in attributing certain amounts based on its assessment of the activities of the Groups and the guiding principles set forth in the Policy Statement.  In addition, because the Policy Statement was not effective in periods prior to March 1, 2014, it has limited applicability to the attributed financial information for such periods.

 

Set forth below is an overview of the Policy Statement and additional discussion about how we have attributed amounts in our condensed consolidated financial statements to the Groups.

 

Policy Statement

 

In accordance with the Policy Statement, all existing and future retail subscribers, including related customer contracts, are attributed to the Hughes Retail Group.  Assets and liabilities that are directly related to the Hughes Retail Group are attributed to the Hughes Retail Group, including certain accounts receivable, inventory, property and equipment, deferred subscriber acquisition costs, intangible assets and tax related assets and liabilities.  To the extent practicable, costs and expenses are attributed without markup to the Hughes Retail Group or the EchoStar Group based on specific identification.  Common or shared costs, including corporate overhead, are allocated between the Hughes Retail Group and the EchoStar Group using objective methods and criteria that reflect the relative usage of the corresponding functions or services.  Where resources are shared by the Groups and determinations based on use alone are not practicable, we use other methods and criteria that we believe are fair and result in a reasonable estimate of the costs associated with operation, utilization, and maintenance of such resources to each Group.  Such methods and criteria may include allocations based on revenue, operating costs, square footage, headcount or management estimates.  Under the documents governing the Tracking Stock, any change in our management’s allocation methodologies requires the consent of the holders of a majority of the outstanding shares of the Tracking Stock, but does not require the consent of our common stockholders.

 

The Hughes Retail Group utilizes broadband satellite capacity that is operated and maintained by the EchoStar Group.  The Policy Statement provides for a monthly charge to the Hughes Retail Group for its utilization of such capacity based on the number of retail subscribers and revenue per month.  In addition, the Policy Statement establishes pricing for the Hughes Retail Group purchases of customer rental equipment from the EchoStar Group based on cost plus a fixed margin percentage.  Income taxes incurred by EchoStar and its subsidiaries that include operations of the Hughes Retail Group are allocated between the EchoStar Group and the Hughes Retail Group based primarily on the relative amounts of earnings or loss attributable to each Group.

 

5



 

NOTES TO CONDENSED ATTRIBUTED FINANCIAL INFORMATION — Continued

(Unaudited)

 

The various attributions, allocations and inter-group charges provided for in the Policy Statement generally do not affect the amounts reported in EchoStar’s condensed consolidated financial statements, except for effects on the attribution of equity and net income or loss between the holders of Tracking Stock and EchoStar’s common stockholders.  The Policy Statement also does not significantly affect the way that the Hughes segment management assesses operating performance and allocates resources.  In addition, our chief operating decision maker reviews the Hughes Retail Group financial information only to the extent such information is included in our periodic filings with the SEC.  Therefore we do not consider the Hughes Retail Group to be a separate operating segment.

 

Balance Sheet Attributions

 

Assets attributed to the Hughes Retail Group based on specific identification consist primarily of trade accounts receivable from retail broadband subscribers, property and equipment (primarily customer rental equipment) used solely in the retail business, and deferred subscriber acquisition costs included in other noncurrent assets.  Goodwill and other intangible assets (primarily customer relationships, developed technology and trademarks), which were recognized in connection with our acquisition of Hughes Communications, Inc. in June 2011, were attributed to the Hughes Retail Group based on an analysis of information for the retail business that was available at the acquisition date.

 

No attribution to the Hughes Retail Group has been made for certain significant assets that it shares with the EchoStar Group, including regulatory authorizations and property and equipment (such as satellites and related terrestrial facilities), because those assets are operated and maintained by the EchoStar Group and it is not practicable to allocate the asset carrying amounts between the Groups.  However, the Hughes Retail Group has the right to use such assets and is charged for its use of such assets in accordance with the Policy Statement.

 

Liabilities attributed to the Hughes Retail Group based on specific identification consist primarily of customer prepayments and deferred revenue related to retail subscribers and deferred tax liabilities related to assets and liabilities that have been attributed to the Hughes Retail Group.  Except to a limited extent, it is not practicable to attribute accounts payable and accrued liabilities to the Hughes Retail Group because those amounts arise from centralized processes managed by the EchoStar Group.  The Hughes Retail Group generally incurs inter-group payables to all other operations in connection with such centralized processes.  As provided in the Policy Statement, none of our long-term debt is attributed to the Hughes Retail Group; however, interest is charged on all inter-group payables.

 

Revenue and Expense Attributions

 

The Hughes Retail Group revenue relates to services and equipment provided to retail broadband subscribers and is readily identifiable based on specific identification.

 

Expenses attributed to the Hughes Retail Group based on specific identification include depreciation of property and equipment and amortization of intangible assets that are attributed to the Hughes Retail Group.  Certain other operating expenses, such as compensation of employees that work exclusively in the retail business, are also attributed to the Hughes Retail Group based on specific identification.  A substantial portion of the Hughes Retail Group cost of sales is based on specific inter-group pricing provisions of the Policy Statement, including a monthly charge per retail subscriber and charges for customer rental equipment at cost plus a fixed margin percentage.  The Hughes Retail Group operating expenses also reflect allocations of corporate overhead and other expenses incurred by EchoStar.

 

Cash Flow Attributions

 

The Hughes Retail Group participates in EchoStar’s centralized cash management system and does not maintain separate cash accounts.  Under the centralized cash management system, net advances of cash to or from the Hughes Retail Group are reflected in an inter-group receivable or payable account, which bears interest at the same rate earned by EchoStar on its cash and marketable investment securities portfolio.  There is no allocation of EchoStar’s long-term debt or related interest costs to the Hughes Retail Group.

 

6



 

NOTES TO CONDENSED ATTRIBUTED FINANCIAL INFORMATION — Continued

(Unaudited)

 

Cash receipts from retail broadband subscribers and payments of certain expenses attributed to the Hughes Retail Group on a specific identification basis generally are reflected in the attributed statements of cash flows in the period the cash is received or paid.  It is not practicable to determine the timing of related cash disbursements under the centralized cash management system for other costs and expenses attributed to the Hughes Retail Group.  The accompanying statements of cash flows generally presents cash flows related to such transactions when they are recognized on an accrual basis in an inter-group receivable or payable account.  Periodic changes in inter-group receivables or payables generally are indicative of amounts received or paid by the EchoStar Group on behalf of the Hughes Retail Group and are reported in the accompanying attributed statements of cash flows as investing activity for the Group with a net receivable balance or as financing activity for the Group with a net payable balance.

 

Attributions for Periods Prior to Adoption of the Policy Statement

 

Except as discussed below, attributions of assets, liabilities, revenue, expenses and cash flows to the Hughes Retail Group in periods prior to the adoption of the Policy Statement effective March 1, 2014 are substantially as described above.  However, because the Policy Statement was not effective, the attributed financial information for periods prior to March 1, 2014 do not reflect retrospective application of specific pricing terms in the Policy Statement, such as the monthly charge per subscriber or the cost-plus-fixed-margin pricing for equipment transfers.  In lieu of charges based on such specific terms, the attributed financial information for periods prior to March 1, 2014 reflect actual costs incurred for specifically identified items or are based on allocations of actual costs incurred for shared resources.  In addition, because no arrangement for interest-bearing inter-group receivables or payables existed prior to March 1, 2014, no such accounts or related interest are reflected in the attributed financial information for periods prior to March 1, 2014.  In such periods, EchoStar’s equity in the net assets of the Hughes Retail Group is presented as “Equity/Attributed net assets” and periodic changes in such equity are presented as “Inter-group equity contributions (distributions), net” within financing activities in the attributed statements of cash flows.  As a result of our use of different attribution methods for certain items in periods prior to March 1, 2014, the attributed financial position, results of operations and cash flows of the Groups are not directly comparable to the corresponding attributed financial information for periods after March 1, 2014.  Accordingly, the attributed financial information for periods prior to March 1, 2014 does not purport to present the attributed financial information that would have resulted if the Policy Statement had been adopted in such periods.

 

Note 3.         Property and Equipment

 

Property and equipment for the Hughes Retail Group consisted of the following:

 

 

 

Depreciable

 

As of

 

 

 

Life

 

March 31,

 

December 31,

 

 

 

(In Years)

 

2015

 

2014

 

 

 

 

 

(In thousands)

 

Customer rental equipment

 

2-4

 

$

514,357

 

$

482,934

 

Accumulated depreciation

 

 

 

(346,140

)

(316,789

)

Property and equipment, net

 

 

 

$

168,217

 

$

166,145

 

 

Depreciation expense associated with the Hughes Retail Group property and equipment, net of retirements, was $29.4 million and $25.9 million for the three months ended March 31, 2015 and 2014, respectively.

 

Note 4.         Goodwill and Other Intangible Assets

 

Goodwill

 

Goodwill is assigned to reporting units of our operating segments.  A portion of the Hughes segment goodwill was attributed to the Hughes Retail Group as if the Hughes Retail Group had been a separate reporting unit at June 8, 2011, the date EchoStar completed the acquisition of Hughes Communications, Inc.  Approximately $260.0 million of the $504.2 million Hughes segment goodwill was attributed to the Hughes Retail Group.

 

7



 

NOTES TO CONDENSED ATTRIBUTED FINANCIAL INFORMATION — Continued

(Unaudited)

 

Other Intangible Assets

 

Other intangible assets for the Hughes Retail Group consisted of the following:

 

 

 

As of

 

 

 

March 31, 2015

 

December 31, 2014

 

 

 

 

 

Accumulated

 

Carrying

 

 

 

Accumulated

 

Carrying

 

 

 

Cost

 

Amortization

 

Amount

 

Cost

 

Amortization

 

Amount

 

 

 

(In thousands)

 

Customer relationships

 

$

145,100

 

$

(118,407

)

$

26,693

 

$

145,100

 

$

(114,657

)

$

30,443

 

Technology-based

 

23,500

 

(15,014

)

8,486

 

23,500

 

(14,035

)

9,465

 

Trademark portfolio

 

13,620

 

(2,611

)

11,009

 

13,620

 

(2,440

)

11,180

 

Total other intangible assets

 

$

182,220

 

$

(136,032

)

$

46,188

 

$

182,220

 

$

(131,132

)

$

51,088

 

 

Customer relationships are amortized predominantly in relation to the expected contribution of cash flow to the business over the life of the intangible asset.  Other intangible assets are amortized on a straight-line basis over the periods the assets are expected to contribute to our cash flows.  Amortization expense was $4.9 million and $6.0 million for the three months ended March 31, 2015 and 2014, respectively.

 

Note 5.         Income Taxes

 

We establish a provision for income taxes currently payable or receivable and for income tax amounts deferred to future periods based upon a separate return allocation method which results in income tax expense that approximates the expense that would result if the Hughes Retail Group was a stand-alone entity.  Deferred tax assets and liabilities are recorded for the estimated future tax effects of differences that exist between the financial reporting carrying amount and tax bases of assets and liabilities.  Deferred tax assets are offset by valuation allowances when we determine it is more likely than not that such deferred tax assets will not be realized in the foreseeable future.

 

In accordance with the Policy Statement, all income tax obligations and benefits that arose prior to March 1, 2014, except for deferred income taxes related to differences between the financial reporting carrying amounts and tax bases of the Hughes Retail Group assets and liabilities, are attributable to the EchoStar Group.  Because no arrangements for inter-group settlement of income taxes existed prior to March 1, 2014, no inter-group receivables or payables were recognized for attributed income tax expenses or benefits related to operations for periods prior to March 1, 2014.

 

Note 6.         Equity/Attributed Net Assets

 

The reported amounts of equity/attributed net assets for the Hughes Retail Group and EchoStar Group represent the excess of attributed assets over attributed liabilities for the respective groups.  EchoStar Group equity includes the 20.0% retained economic interest of EchoStar common stockholders in the net assets of the Hughes Retail Group.

 

The Hughes Retail Group equity/attributed net assets consisted of attributed paid-in capital and accumulated earnings as follows:

 

 

 

As of

 

 

 

March 31,

 

December 31,

 

 

 

2015

 

2014

 

 

 

(In thousands)

 

Attributed paid-in capital

 

$

456,122

 

$

456,122

 

Attributed accumulated earnings (deficit):

 

 

 

 

 

Periods prior to March 1, 2014

 

33,395

 

33,395

 

Periods beginning March 1, 2014

 

(31,602

)

(23,886

)

Total

 

1,793

 

9,509

 

Total equity/attributed net assets

 

$

457,915

 

$

465,631

 

 

8