Attached files
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| 8-K/A - EchoStar CORP | sats8-k8x5x11.htm |
Exhibit 99.1
The pro forma information has been prepared in accordance with the rules and regulations of the Securities and Exchange Commission. The following unaudited pro forma condensed combined balance sheet gives effect to the acquisition (the “Acquisition”) by EchoStar Corporation (“EchoStar”) of Hughes Communications, Inc. (“Hughes Communications”), as well as the other transactions contemplated by the merger agreement governing the Acquisition and the issuance by EH Holding Corporation of $1.1 billion of its 6 1/2% Senior Secured Notes due 2019 (the “Secured Notes”) and $900 million of its 7 5/8% Senior Notes due 2021 (the “Unsecured Notes” and together with the Secured Notes, the “Related Financing Transactions”), including a repayment of the debt under the COFACE facility of Hughes Network Systems, LLC, as of March 31, 2011. The unaudited pro forma condensed combined statements of operations give effect to the Acquisition and Related Financing Transactions, as if the Acquisition and Related Financing Transactions had been completed January 1, 2010.
The unaudited pro forma adjustments are based on currently available information and certain assumptions that we believe are reasonable. The unaudited pro forma condensed combined financial information is for informational purposes only and does not purport to reflect the financial position or results of operations that would have occurred if the Acquisition and Related Financing Transactions had been consummated on the dates indicated above; nor does it purport to represent or be indicative of the financial position or results of operations of EchoStar for any future dates or periods.
The allocation of the Acquisition's purchase price used in the unaudited pro forma condensed combined financial information is based on a preliminary estimate derived from an independent appraisal. The assumptions and estimates used to determine the preliminary fair values will be revised as additional information becomes available. The final fair value allocated to the various Hughes Communications' assets and liabilities acquired as a result of the Acquisition may be significantly different from what is presented in the unaudited pro forma condensed combined financial information.
EchoStar Corporation | |||||||||||||||||||
Unaudited Pro Forma Condensed Combined Balance Sheet | As of March 31, 2011 | ||||||||||||||||||
Hughes | |||||||||||||||||||
EchoStar | Communications | Pro Forma | Reclassification | ||||||||||||||||
Historical | Historical | Adjustments | Adjustments | Total | |||||||||||||||
Assets | (In thousands, except share data) | ||||||||||||||||||
Current Assets: | |||||||||||||||||||
Cash and cash equivalents | $ | 121,596 | $ | 116,914 | $ | 1,941,000 | (a) | $ | — | $ | 100,000 | ||||||||
(2,200,042 | ) | (c) | — | ||||||||||||||||
120,532 | (b) | — | |||||||||||||||||
Marketable investment securities | 1,018,140 | 23,672 | (120,532 | ) | (b) | — | 921,280 | ||||||||||||
Trade accounts receivable - DISH Network, | |||||||||||||||||||
net of allowance for doubtful accounts of zero | 250,050 | — | — | — | 250,050 | ||||||||||||||
Other current assets | 190,902 | 269,778 | (3,121 | ) | (c) | (176 | ) | (d) | 457,383 | ||||||||||
Total current assets | 1,580,688 | 410,364 | (262,163 | ) | (176 | ) | 1,728,713 | ||||||||||||
Noncurrent Assets: | |||||||||||||||||||
Restricted cash and marketable investment securities | 17,426 | — | 4,554 | (c) | 334 | (d) | 22,314 | ||||||||||||
Property and equipment, net | 1,276,352 | 837,601 | 67,645 | (c) | — | 2,181,598 | |||||||||||||
Intangible assets, net | 160,579 | 56,009 | 345,798 | (c) | — | 562,386 | |||||||||||||
Goodwill and non-amortizable intangibles | 69,810 | 5,093 | 904,368 | (c) | — | 979,271 | |||||||||||||
Marketable and other investment securities | 752,836 | — | 10,500 | (c) | 16,475 | (d) | 779,811 | ||||||||||||
Other noncurrent assets, net | 64,330 | 74,980 | 54,010 | (a) | (16,633 | ) | (d) | 153,825 | |||||||||||
(22,862 | ) | (c) | |||||||||||||||||
Total noncurrent assets | 2,341,333 | 973,683 | 1,364,013 | 176 | 4,679,205 | ||||||||||||||
Total assets | $ | 3,922,021 | $ | 1,384,047 | $ | 1,101,850 | $ | — | $ | 6,407,918 | |||||||||
Liabilities and Stockholder's Equity (Deficit) | |||||||||||||||||||
Current Liabilities: | |||||||||||||||||||
Trade accounts payable, accrued expenses and other | $ | 280,556 | $ | 249,319 | $ | (15,082 | ) | (c) | $ | — | $ | 514,793 | |||||||
Deferred tax liabilities | 63,890 | — | (11,228 | ) | (c) | — | 52,662 | ||||||||||||
Current portion of long-term debt and capital lease obligations | 54,675 | 4,700 | (1,766 | ) | (c) | — | 57,609 | ||||||||||||
Total current liabilities | 399,121 | 254,019 | (28,076 | ) | — | 625,064 | |||||||||||||
Long-Term Obligations, Net of Current Portion: | |||||||||||||||||||
Long-term debt and capital lease obligations, net of current portion | 354,534 | 756,450 | 2,000,000 | (a) | — | 2,356,673 | |||||||||||||
(754,311 | ) | (c) | |||||||||||||||||
Deferred tax liabilities | 79,031 | — | 258,323 | (g) | 337,354 | ||||||||||||||
Other long-term liabilities | 35,316 | 26,764 | (18,623 | ) | (c) | — | 43,457 | ||||||||||||
Total long-term obligations, net of current portion | 468,881 | 783,214 | 1,485,389 | — | 2,737,484 | ||||||||||||||
Total liabilities | 868,002 | 1,037,233 | 1,457,313 | — | 3,362,548 | ||||||||||||||
Stockholder's Equity (Deficit) | |||||||||||||||||||
Common stock | 92 | 22 | (22 | ) | (c) | — | 92 | ||||||||||||
Additional paid-in capital | 3,329,160 | 736,993 | (736,993 | ) | (c) | — | 3,329,160 | ||||||||||||
Accumulated other comprehensive income (loss) | 194,896 | (14,132 | ) | 14,132 | (c) | — | 194,896 | ||||||||||||
Accumulated earnings (deficit) | (371,962 | ) | (386,918 | ) | 386,918 | (c) | — | (391,460 | ) | ||||||||||
(4,102 | ) | (a) | — | ||||||||||||||||
(15,396 | ) | (c) | — | ||||||||||||||||
Treasury stock, at cost | (98,162 | ) | — | — | — | (98,162 | ) | ||||||||||||
Total stockholder's equity (deficit) | 3,054,024 | 335,965 | (355,463 | ) | — | 3,034,526 | |||||||||||||
Noncontrolling interests | (5 | ) | 10,849 | — | — | 10,844 | |||||||||||||
Total stockholder's equity (deficit), including noncontrolling interest | 3,054,019 | 346,814 | (355,463 | ) | — | 3,045,370 | |||||||||||||
Total liabilities and stockholder's equity (deficit) | $ | 3,922,021 | $ | 1,384,047 | $ | 1,101,850 | $ | — | $ | 6,407,918 | |||||||||
The accompanying notes are an integral part of the Unaudited Pro Forma Condensed Combined Financial Information. | |||||||||||||||||||
EchoStar Corporation | ||||||||||||||||||||
Unaudited Pro Forma Condensed Combined Statements of Operations | ||||||||||||||||||||
For the Year Ended December 31, 2010 | ||||||||||||||||||||
Hughes | ||||||||||||||||||||
EchoStar | Communications | Pro Forma | Reclassification | |||||||||||||||||
Historical | Historical | Adjustments | Adjustments | Total | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
Revenue: | ||||||||||||||||||||
Equipment revenue - DISH Network | $ | 1,470,173 | $ | — | $ | — | $ | — | $ | 1,470,173 | ||||||||||
Equipment revenue - other | 347,765 | 252,003 | — | — | 599,768 | |||||||||||||||
Services and other revenue - DISH Network | 468,399 | — | — | — | 468,399 | |||||||||||||||
Services and other revenue - other | 64,032 | 791,324 | (5,718 | ) | (c) | — | 849,638 | |||||||||||||
Total revenue | 2,350,369 | 1,043,327 | (5,718 | ) | — | 3,387,978 | ||||||||||||||
Costs and Expenses: | ||||||||||||||||||||
Cost of sales - equipment | 1,553,129 | 234,805 | (11,643 | ) | (c) | (4,752 | ) | (d) | 1,771,539 | |||||||||||
Cost of sales - services and other (exclusive of depreciation shown below) | 236,356 | 493,023 | — | (100,909 | ) | (d) | 628,470 | |||||||||||||
Research and development expenses | 46,093 | 20,279 | — | (3,296 | ) | (d) | 63,076 | |||||||||||||
Selling, general and administrative expenses | 128,366 | 206,512 | (13,354 | ) | (c) | (2,330 | ) | (d) | 319,194 | |||||||||||
General and administrative expenses - DISH Network | 15,189 | — | — | — | 15,189 | |||||||||||||||
Depreciation and amortization | 228,911 | 3,084 | 81,198 | (e) | 111,287 | (d) | 424,480 | |||||||||||||
Total costs and expenses | 2,208,044 | 957,703 | 56,201 | — | 3,221,948 | |||||||||||||||
Operating income (loss) | 142,325 | 85,624 | (61,919 | ) | — | 166,030 | ||||||||||||||
Other Income (Expense): | ||||||||||||||||||||
Interest income | 14,472 | 2,043 | — | — | 16,515 | |||||||||||||||
Interest expense, net of amounts capitalized | (14,560 | ) | (59,345 | ) | (94,112 | ) | (f) | — | (168,017 | ) | ||||||||||
Unrealized and realized gains (losses) on marketable | ||||||||||||||||||||
investment securities and other investments | 2,923 | — | — | — | 2,923 | |||||||||||||||
Unrealized gains (losses) on investments | ||||||||||||||||||||
accounted for at fair value, net | 144,473 | — | — | — | 144,473 | |||||||||||||||
Other, net | (860 | ) | 374 | — | — | (486 | ) | |||||||||||||
Total other income (expense) | 146,448 | (56,928 | ) | (94,112 | ) | — | (4,592 | ) | ||||||||||||
Income (loss) before income taxes | 288,773 | 28,696 | (156,031 | ) | — | 161,438 | ||||||||||||||
Income tax (provision) benefit, net | (84,415 | ) | (5,716 | ) | 59,354 | (g) | — | (30,777 | ) | |||||||||||
Net income (loss) | 204,358 | 22,980 | (96,677 | ) | — | 130,661 | ||||||||||||||
Net (income) attributable to the noncontrolling interests | — | (193 | ) | — | — | (193 | ) | |||||||||||||
Net income (loss) attributable to EchoStar common shareholders | $ | 204,358 | $ | 22,787 | $ | (96,677 | ) | $ | — | $ | 130,468 | |||||||||
Weighted-average common shares outstanding | ||||||||||||||||||||
Basic | 85,084 | 21,606 | (21,606 | ) | 85,084 | |||||||||||||||
Diluted | 85,203 | 22,738 | (22,738 | ) | 85,203 | |||||||||||||||
Earnings per share - common stock: | ||||||||||||||||||||
Basic net income (loss) per share | $ | 2.40 | $ | 1.05 | $ | 1.53 | ||||||||||||||
Diluted net income (loss) per share | $ | 2.40 | $ | 1.00 | $ | 1.53 | ||||||||||||||
The accompanying notes are an integral part of the Unaudited Pro Forma Condensed Combined Financial Information. | ||||||||||||||||||||
EchoStar Corporation | ||||||||||||||||||||
Unaudited Pro Forma Condensed Combined Statements of Operations | ||||||||||||||||||||
For the Three Months Ended March 31, 2011 | ||||||||||||||||||||
Hughes | ||||||||||||||||||||
EchoStar | Communications | Pro Forma | Reclassification | |||||||||||||||||
Historical | Historical | Adjustments | Adjustments | Total | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
Revenue: | ||||||||||||||||||||
Equipment revenue - DISH Network | $ | 272,126 | $ | — | $ | — | $ | — | $ | 272,126 | ||||||||||
Equipment revenue - other | 65,909 | 48,422 | — | — | 114,331 | |||||||||||||||
Services and other revenue - DISH Network | 121,207 | — | — | — | 121,207 | |||||||||||||||
Services and other revenue - other | 20,584 | 215,670 | (809 | ) | (c) | — | 235,445 | |||||||||||||
Total revenue | 479,826 | 264,092 | (809 | ) | — | 743,109 | ||||||||||||||
Costs and Expenses: | ||||||||||||||||||||
Cost of sales - equipment | 293,384 | 49,574 | (1,151 | ) | (c) | (1,102 | ) | (d) | 340,705 | |||||||||||
Cost of sales - services and other (exclusive of depreciation shown below) | 61,460 | 132,710 | — | (30,976 | ) | (d) | 163,194 | |||||||||||||
Research and development expenses | 8,859 | 5,154 | — | (712 | ) | (d) | 13,301 | |||||||||||||
Selling, general and administrative expenses | 44,772 | 60,977 | (1,320 | ) | (c) | (499 | ) | (d) | 103,930 | |||||||||||
General and administrative expenses - DISH Network | 3,489 | — | — | — | 3,489 | |||||||||||||||
Depreciation and amortization | 57,014 | 757 | 19,088 | (e) | 33,289 | (d) | 110,148 | |||||||||||||
Total costs and expenses | 468,978 | 249,172 | 16,617 | — | 734,767 | |||||||||||||||
Operating income (loss) | 10,848 | 14,920 | (17,426 | ) | — | 8,342 | ||||||||||||||
Other Income (Expense): | ||||||||||||||||||||
Interest income | 2,677 | 419 | — | — | 3,096 | |||||||||||||||
Interest expense, net of amounts capitalized | 462 | (12,505 | ) | (26,317 | ) | (f) | — | (38,360 | ) | |||||||||||
Unrealized and realized gains (losses) on marketable | ||||||||||||||||||||
investment securities and other investments | 665 | — | — | — | 665 | |||||||||||||||
Unrealized gains (losses) on investments | ||||||||||||||||||||
accounted for at fair value, net | 3,304 | — | — | — | 3,304 | |||||||||||||||
Other, net | 6,991 | (248 | ) | — | — | 6,743 | ||||||||||||||
Total other income (expense) | 14,099 | (12,334 | ) | (26,317 | ) | — | (24,552 | ) | ||||||||||||
Income (loss) before income taxes | 24,947 | 2,586 | (43,743 | ) | — | (16,210 | ) | |||||||||||||
Income tax (provision) benefit, net | (7,788 | ) | (1,901 | ) | 16,609 | (g) | — | 6,920 | ||||||||||||
Net income (loss) | 17,159 | 685 | (27,134 | ) | — | (9,290 | ) | |||||||||||||
Net loss attributable to the noncontrolling interests | 5 | 153 | — | — | 158 | |||||||||||||||
Net income (loss) attributable to EchoStar common shareholders | $ | 17,164 | $ | 838 | $ | (27,134 | ) | $ | — | $ | (9,132 | ) | ||||||||
Weighted-average common shares outstanding | ||||||||||||||||||||
Basic | 85,466 | 21,766 | (21,766 | ) | 85,466 | |||||||||||||||
Diluted | 92,331 | 23,361 | (23,361 | ) | 85,466 | |||||||||||||||
Earnings per share - common stock: | ||||||||||||||||||||
Basic net income (loss) per share | $ | 0.20 | $ | 0.04 | $ | (0.11 | ) | |||||||||||||
Diluted net income (loss) per share | $ | 0.19 | $ | 0.04 | $ | (0.11 | ) | |||||||||||||
The accompanying notes are an integral part of the Unaudited Pro Forma Condensed Combined Financial Information. | ||||||||||||||||||||
Notes to Unaudited Pro Forma Condensed Combined Financial Information
(a) | Represents the pro forma adjustments necessary to reflect the financing of the Acquisition inclusive of transaction costs. The components of the cash received from the financing are composed of the following: |
(In thousands) | |||||
Secured Notes | $ | 1,100,000 | |||
Unsecured Notes | 900,000 | ||||
2,000,000 | |||||
Debt issuance costs | (52,500 | ) | |||
Acquisition costs | (6,500 | ) | |||
Total | $ | 1,941,000 | |||
We estimated direct acquisition costs of $6.5 million (reflected as an increase to accumulated deficit and net of tax effects of $2.4 million on the unaudited pro forma condensed combined balance sheet as of March 31, 2011).
(b) | Represents an estimate of the necessary working capital that will be provided by the sale of marketable investment securities. Although we have assumed a $100 million ending cash balance, the ultimate balance of cash and consequently the amount of marketable investment securities sold to fund this cash balance may materially differ from this estimate. |
(c) | Represents pro forma adjustments necessary to reflect the Acquisition and related financing transactions, including (i) cash consideration of $2.2 billion for (a) the acquisition of Hughes Communications common shares of approximately $1.4 billion (determined as approximately 21.8 million issued and outstanding Hughes Communications common shares as well 0.8 million vested and outstanding common equity rights, all being acquired for $60.70 per share), and (b) settlement and adjustment of pre-acquisition Hughes Communications debt and associated interest rate swaps of approximately $782 million (inclusive of obligatory call premiums) that is required or was repaid as part of the Acquisition and an additional $27 million of interest related to the repayment of Hughes Communications debt on these extinguished instruments; (ii) preliminary allocation of the $2.2 billion of purchase consideration to the assets and liabilities acquired; (iii) elimination of certain Hughes Communications' assets and liabilities, such as historical deferred financing costs, subscriber acquisition costs (“SAC”), deferred revenue and other, in connection with acquisition accounting and the related elimination of Hughes Communications' historical equity; (iv) the reduction of revenue and the associated expenses on the pro forma condensed combined statements of operations to reflect elimination of deferred revenue and SAC in the preliminary purchase price allocation; and (v) reflects other direct transaction costs of approximately $24.4 million (reflected as an increase to accumulated deficit and net of tax effects of $9 million on the unaudited pro forma condensed combined balance sheet as of March 31, 2011.) |
(d) | Represents the pro forma classification adjustments to conform Hughes Communications' accounting policy to those of EchoStar, including but not limited to, depreciation expense which will no longer be recorded as a component of cost of sales, research and development, or selling general and administrative expenses based on the nature of the underlying long-lived asset but will prospectively be presented in the caption depreciation and amortization. |
(e) | Represents net incremental depreciation and amortization expense of $81 million and $19 million for the year ended December 31, 2010 and the three months ended March 31, 2011, respectively, as a result of the allocation of purchase price to certain amortizable assets with useful lives ranging from 1 year to 11 years. As indicated above, the allocation of purchase price is preliminary. To the extent that the final purchase price allocation increases or decreases depreciable or amortizable assets, and therefore decreases or increases goodwill, our operating costs, in the form of depreciation or amortization, will be impacted. For example, if an additional $50 million of the excess consideration were to be allocated to property and equipment or amortizable intangible assets (thus, reducing goodwill) and assuming an estimated life of 10 years using straight line depreciation or amortization, the accompanying unaudited pro forma condensed combined statement of operations for the year ended December 31, 2010 would reflect additional pre-tax expense of approximately $5 million. |
(f) | Represents the estimated net increase in interest expense based on a weighted average rate of 7.01% for the Secured Notes and the Unsecured Notes. EchoStar has issued $2.0 billion in unregistered secured and unsecured notes in connection with the Acquisition. |
For the Year Ended | For the Three Months | |||||||
December 31, 2010 | Ended March 31, 2011 | |||||||
(In thousands) | ||||||||
Interest on new debt instruments | $ | (140,125 | ) | $ | (35,031 | ) | ||
Hughes Communications historical interest expense elimination | 59,345 | 12,505 | ||||||
Amortization of deferred financing costs and changes in capitalized interest | (13,332 | ) | (3,791 | ) | ||||
Total | $ | (94,112 | ) | $ | (26,317 | ) | ||
(g) | Represents the tax effect of pro forma adjustments using the EchoStar blended federal, state and international statutory tax rates adjusted for permanent differences. As indicated in Note (b) the allocation of the purchase price is preliminary. For each additional $50 million of excess consideration allocated to non-amortizable assets, such as Federal Communications Commission licenses, the corresponding increase in deferred tax liability would be approximately $19 million (assuming a tax rate of 37%), which, in turn, would increase the estimated amount of goodwill. |