EXHIBIT 99.3
QUARTERLY REPORT FOR THE PERIOD ENDED
MARCH 31, 1998
DIRECT BROADCASTING SATELLITE CORPORATION
COLORADO 84-1328967
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5701 S. SANTA FE DRIVE
LITTLETON, COLORADO 80120
(Address of principal executive offices) (Zip code)
(303) 723-1000
(Telephone number, including area code)
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets -
December 31, 1997 and March 31, 1998 (Unaudited)................. 1
Condensed Statements of Operations for the
three months ended March 31, 1997 and 1998 (Unaudited)........... 2
Condensed Statements of Cash Flows for the
three months ended March 31, 1997 and 1998 (Unaudited)........... 3
Notes to Condensed Financial Statements (Unaudited)................ 4
Item 2. Management's Narrative Analysis of Results of Operations........... 6
Item 3. Quantitative and Qualitative Disclosures About Market Risk......... None
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.................................................. *
Item 2. Changes in Securities and Use of Proceeds.......................... *
Item 3. Defaults Upon Senior Securities.................................... *
Item 4. Submission of Matters to a Vote of Security Holders................ *
Item 5. Other Information.................................................. None
Item 6. Exhibits and Reports on Form 8-K................................... N/A
DISH NETWORK-SM- IS A SERVICE MARK OF ECHOSTAR COMMUNICATIONS CORPORATION.
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(*) This item has been omitted pursuant to the reduced disclosure format as
set forth in General Instructions (H)(1)(a) and (b) of Form 10-Q.
DIRECT BROADCASTING SATELLITE CORPORATION
CONDENSED BALANCE SHEETS
(Dollars in thousands)
DECEMBER 31, MARCH 31,
1997 1998
----------------------------
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents.................................... $ - $ -
Other current assets......................................... 7 7
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Total current assets........................................... 7 7
EchoStar III................................................... 92,408 90,483
FCC authorizations............................................. 18,504 18,387
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Total assets.............................................. $110,919 $108,877
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LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Trade accounts payable and accrued expenses.................. $ 545 $ 643
Advances from affiliates, net................................ 30,601 31,503
Current portion of notes payable............................. 2,961 3,012
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Total current liabilities...................................... 34,107 35,158
Other notes payable, net of current portion.................... 11,351 10,699
Notes payable to ECC and accumulated interest.................. 54,597 55,883
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Total liabilities......................................... 100,055 101,740
Commitments and Contingencies
Stockholder's Equity:
Common Stock, $0.01 par value, 1,000 shares authorized,
issued and outstanding..................................... - -
Additional paid-in capital................................... 16,324 16,324
Accumulated deficit.......................................... (5,460) (9,187)
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Total stockholder's equity..................................... 10,864 7,137
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Total liabilities and stockholder's equity................ $110,919 $108,877
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See accompanying Notes to Condensed Financial Statements.
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DIRECT BROADCASTING SATELLITE CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
(In thousands)
(Unaudited)
THREE MONTHS ENDED MARCH 31,
---------------------------------
1997 1998
---------------------------------
Revenue $ - $ -
Expenses:
Depreciation and amortization - 2,042
Interest expense 1,353 1,685
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Total expenses (1,353) (3,727)
---------------------------------
Loss before income taxes (1,353) (3,727)
Income tax provision - -
---------------------------------
Net loss $(1,353) $(3,727)
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---------------------------------
See accompanying Notes to Condensed Financial Statements.
2
DIRECT BROADCASTING SATELLITE CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
THREE MONTHS ENDED MARCH 31,
--------------------------------
1997 1998
--------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.............................................................. $(1,353) $(3,727)
Adjustments to reconcile net loss to net cash flows from
operating activities:
Depreciation and amortization....................................... - 2,042
Interest on notes payable to ECC added to principal................. 1,337 1,286
Changes in current assets and current liabilities:
Other current assets.............................................. (7) -
Accounts payable and accrued expenses............................. (1,342) 98
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Net cash flows from operating activities.............................. (1,365) (301)
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for satellite systems under construction and other....... (5,001) -
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Net cash flows from investing activities.............................. (5,001) -
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances from affiliates, net......................................... 6,365 902
Repayment of other notes payable...................................... - (601)
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Net cash flows from financing activities.............................. 6,365 301
Net decrease in cash and cash equivalents............................. (1) -
Cash and cash equivalents, beginning of period........................ 1 -
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Cash and cash equivalents, end of period.............................. $ - $ -
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest................................................ $ - $ 281
Cash paid for income taxes............................................ - -
Capitalized interest, including amounts due to affiliates............. 2,612 -
The purchase price of DBSC was pushed-down by EchoStar Communications
Corporation to DBSC as follows in the related purchase accounting:
Satellite construction costs...................................... 51,244 -
FCC authorization................................................. 16,648 -
Notes payable to EchoStar, including accrued interest of $3,382... (49,382) -
Trade accounts payable and accrued expenses....................... (1,687) -
Other notes payable............................................... (500) -
Additional paid in capital........................................ (16,323) -
See accompanying Notes to Condensed Financial Statements.
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DIRECT BROADCASTING SATELLITE CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. ORGANIZATION AND BUSINESS ACTIVITIES
PRINCIPAL BUSINESS
During 1994, EchoStar Communications Corporation ("ECC," and together
with its subsidiaries, "EchoStar") acquired approximately 40% of the
outstanding common stock of Direct Broadcasting Satellite Corporation ("Old
DBSC"), a Delaware corporation. Old DBSC's principal assets included a
Federal Communications Commission ("FCC") conditional satellite permit and
specific orbital slot assignments for a total of 22 DBS frequencies. Through
December 1996, EchoStar advanced Old DBSC a total of $46 million in the form
of notes receivable to enable Old DBSC to make required payments under the
EchoStar III construction contract. During January 1997, EchoStar
consummated the merger of Old DBSC with a wholly-owned subsidiary of ECC
("DBSC" or the "Company"). This transaction was accounted for as a purchase
and the excess of the purchase price over the fair value of Old DBSC's
tangible assets was allocated to Old DBSC's FCC authorizations. Upon
consummation of the Merger, Old DBSC ceased to exist.
EchoStar is a publicly-traded company on the Nasdaq National Market and
its operations include three interrelated business units:
- THE DISH NETWORK - a DBS subscription television service in the United
States. As of March 31, 1998, EchoStar had approximately 1.2 million
DISH Network subscribers.
- TECHNOLOGY - the design, manufacture, distribution and sale of DBS
set-top boxes, antennae and other digital equipment for the DISH
Network ("EchoStar Receiver Systems"), and the design, manufacture and
distribution of similar equipment for direct-to-home ("DTH") projects
of others internationally, together with the provision of uplink
center design, construction oversight and other project integration
services for international DTH ventures.
- SATELLITE SERVICES - the turn-key delivery of video, audio and data
services to business television customers and other satellite users.
These services include satellite uplink services, satellite
transponder space usage, and other services.
Since 1994, EchoStar has deployed substantial resources to develop the
"EchoStar DBS System." The EchoStar DBS System consists of EchoStar's
FCC-allocated DBS spectrum, DBS satellites ("EchoStar I," "EchoStar II,"
"EchoStar III," and "EchoStar IV"), digital satellite receivers, digital
broadcast operations center, customer service facilities, and other assets
utilized in its operations. EchoStar's principal business strategy is to
continue developing its subscription television service in the U.S. to
provide consumers with a fully competitive alternative to cable television
service.
2. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles and with
the instructions to Form 10-Q and Article 10 of Regulation S-X for interim
financial information. Accordingly, these statements 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 adjustments) considered
necessary for a fair presentation have been included. Operating results for
the three months ended March 31, 1998 are not necessarily indicative of the
results that may be expected for the year ending December 31, 1998. For
further information, refer to the financial statements and footnotes thereto
included in the Company's Annual Report filed as Exhibit 99.3 to EchoStar
Satellite Broadcasting Corporation's Annual Report on Form 10-K for the year
ended December 31, 1997. Certain prior year amounts have been reclassified to
conform with the current year presentation.
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DIRECT BROADCASTING SATELLITE CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS--CONTINUED
(Unaudited)
PURPOSE OF FINANCIAL STATEMENTS
DBSC is not currently subject to the reporting requirements of Section
13 or 15(d) of the Securities and Exchange Act of 1934 (the "Exchange Act").
However, pursuant to the terms of an indenture between ESBC and First Trust
National Association dated March 25, 1996 (the "Indenture"), DBSC is required
to provide quarterly and annual reports comparable to that which would have
been required if DBSC were subject to the requirements of Section 13 or 15(d)
of the Exchange Act. Since DBSC does not have a separate Commission File
Number with the Securities and Exchange Commission, DBSC has made these
financial statements, complete with Management's Narrative Analysis of
Results of Operations, publicly available. These financial statements were
prepared solely to comply with the reporting requirements under the
Indenture. For further information, refer to the consolidated financial
statements and footnotes thereto included in EchoStar's Annual Report on Form
10-K filed with the Securities and Exchange Commission for the year ended
December 31, 1997.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make 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.
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ITEM 2. MANAGEMENT'S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THE THREE MONTHS ENDED MARCH 31,
1997.
DBSC is the FCC licensee and owner of EchoStar III but has no operations
as a stand-alone entity. EchoStar III is an integral part of the DISH
Network and DBSC is dependent on ECC and ECC's other subsidiaries for all
necessary funding and all management and administrative functions. Interest
expense totaled $2 million and $1 million for the three months ended March
31, 1998 and 1997, respectively. Interest expense represents interest
incurred on the notes payable to ECC.
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