|
6. Property and Equipment
Property and equipment consist of the following:
|
|
|
Depreciable |
|
As of |
|
|
|
|
Life |
|
September 30, |
|
December 31, |
|
|
|
|
(In Years) |
|
2011 |
|
2010 |
|
|
|
|
|
|
(In thousands) |
|
|
Land |
|
— |
|
$ |
41,530 |
|
$ |
28,240 |
|
|
Buildings and improvements |
|
1-40 |
|
309,541 |
|
232,208 |
|
|
Furniture, fixtures, equipment and other |
|
1-10 |
|
920,465 |
|
791,247 |
|
|
Consumer rental equipment |
|
2-4 |
|
142,264 |
|
— |
|
|
Satellites: |
|
|
|
|
|
|
|
|
EchoStar III - fully depreciated |
|
N/A |
|
234,083 |
|
234,083 |
|
|
EchoStar IV - fully depreciated |
|
N/A |
|
78,511 |
|
78,511 |
|
|
EchoStar VI |
|
12 |
|
244,305 |
|
244,305 |
|
|
EchoStar VIII |
|
12 |
|
175,801 |
|
175,801 |
|
|
EchoStar IX |
|
12 |
|
127,376 |
|
127,376 |
|
|
EchoStar XII |
|
10 |
|
190,051 |
|
190,051 |
|
|
SPACEWAY 3 |
|
15 |
|
286,707 |
|
— |
|
|
Satellites acquired under capital leases |
|
10-15 |
|
566,817 |
|
534,673 |
|
|
Construction in process |
|
— |
|
919,579 |
|
393,098 |
|
|
Total property and equipment |
|
|
|
4,237,030 |
|
3,029,593 |
|
|
Accumulated depreciation |
|
|
|
(1,931,957 |
) |
(1,766,290 |
) |
|
Property and equipment, net |
|
|
|
$ |
2,305,073 |
|
$ |
1,263,303 |
|
“Construction in process” consists of the following:
|
|
|
As of |
|
|
|
|
September 30, |
|
December 31, |
|
|
|
|
2011 |
|
2010 |
|
|
|
|
(In thousands) |
|
|
Progress amounts for satellite construction, including certain amounts prepaid under satellite service agreements and launch costs: |
|
|
|
|
|
|
QuetzSat-1 |
|
$ |
180,759 |
|
$ |
162,947 |
|
|
EchoStar XVI |
|
209,552 |
|
100,312 |
|
|
Jupiter |
|
338,580 |
|
— |
|
|
Other |
|
75,238 |
|
93,958 |
|
|
Buildings and improvements |
|
35,854 |
|
19,291 |
|
|
Uplink equipment |
|
58,265 |
|
11,933 |
|
|
Other |
|
21,331 |
|
4,657 |
|
|
Construction in process |
|
$ |
919,579 |
|
$ |
393,098 |
|
For the three and nine months ended September 30, 2011, we recorded $14 million and $32 million, respectively, of capitalized interest related to our satellites under construction. For the three and nine months ended September 30, 2010, we recorded $20 million and $20 million, respectively, of capitalized interest related to our satellites under construction.
Depreciation and amortization expense consists of the following:
|
|
|
For the Three Months |
|
For the Nine Months |
|
|
|
|
Ended September 30, |
|
Ended September 30, |
|
|
|
|
2011 |
|
2010 |
|
2011 |
|
2010 |
|
|
|
|
(In thousands) |
|
|
Satellites |
|
$ |
29,455 |
|
$ |
22,562 |
|
$ |
77,172 |
|
$ |
70,000 |
|
|
Furniture, fixtures, equipment and other |
|
49,838 |
|
25,632 |
|
106,982 |
|
73,120 |
|
|
Identifiable intangible assets subject to amortization |
|
45,975 |
|
8,266 |
|
65,699 |
|
24,796 |
|
|
Buildings and improvements |
|
2,852 |
|
1,731 |
|
6,340 |
|
4,950 |
|
|
Total depreciation and amortization |
|
$ |
128,120 |
|
$ |
58,191 |
|
$ |
256,193 |
|
$ |
172,866 |
|
Cost of sales and other expense categories included in our Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) do not include depreciation expense.
Satellites
We currently utilize 11 satellites in geostationary orbit approximately 22,300 miles above the equator, including the SPACEWAYTM 3 satellite, which was added to our satellite fleet as a result of the Hughes Acquisition. Five of these satellites are leased, and four of our leased satellites are accounted for as capital leases and are depreciated over the terms of the satellite service agreements. We also lease capacity on one satellite from DISH Network that is accounted for as an operating lease. See Note 13 for further discussion of our satellite leases with DISH Network. We depreciate our owned satellites over the useful life of each satellite.
QuetzSat-1. QuetzSat-1 was launched on September 29, 2011. During 2008, we entered into a ten-year satellite service agreement with SES Latin America S.A. (“SES”) to lease all of the capacity on QuetzSat-1. This lease will be accounted for as a capital lease. Upon expiration of the initial term, we have the option to renew the transponder service agreement on a year-to-year basis through the end-of-life of the QuetzSat-1 satellite. DISH Network has agreed to lease 24 of the 32 direct broadcast satellite (“DBS”) transponders on this satellite from us.
In addition, we have two owned satellites that are currently under construction, as follows:
EchoStar XVI. In November 2009, we entered into a contract for the construction of EchoStar XVI, a DBS satellite, which is expected to be launched during the second half of 2012 and will operate at the 61.5 degree orbital location. DISH Network has agreed to lease all of the capacity on this satellite from us for a portion of its useful life.
Jupiter. In June 2009, Hughes Communications entered into an agreement with Space Systems/Loral, Inc. (“SS/L”) for the design and manufacture of our next-generation, high throughput geostationary satellite (“Jupiter”). Jupiter will employ a multi-spot beam, bent pipe Ka-band architecture and will provide additional capacity for our HughesNet service to the consumer market in North America. Jupiter is expected to be launched during the first half of 2012.
Satellite Anomalies
Prior to 2011, certain satellites in our fleet experienced anomalies, some of which have had a significant adverse impact on their remaining useful life and/or commercial operation. There can be no assurance that future anomalies will not further impact the remaining useful life and commercial operation of any of these satellites. See “Long-Lived Satellite Assets” below for further discussion of evaluation of impairment. In addition, there can be no assurance that we can recover critical transmission capacity in the event one or more of our in-orbit satellites were to fail. We generally do not carry insurance for any of the in-orbit satellites that we use, and therefore we will bear the risk of any uninsured in-orbit failures. Recent developments with respect to certain of our satellites are discussed below.
Owned Satellites
EchoStar IV. During the third quarter of 2011, EchoStar IV was removed from the 77 degree orbital location and retired from commercial service. This retirement did not have a material impact on our results of operations or financial position.
EchoStar VIII. EchoStar VIII was designed to operate 32 DBS transponders in the continental United States at approximately 120 watts per channel, switchable to 16 DBS transponders operating at approximately 240 watts per channel. EchoStar VIII was also designed with spot-beam technology. This satellite has experienced several anomalies prior to and during 2011. In January 2011, the satellite experienced an anomaly which temporarily disrupted electrical power to some components, causing an interruption of broadcast service. In addition, it has now been determined one of the two on-board computers used to control the satellite failed in connection with this anomaly. None of these anomalies has impacted the commercial operation or estimated useful life of the satellite. However, there can be no assurance that this anomaly or any future anomalies will not reduce its useful life or impact its commercial operation.
Leased Satellites
AMC-15. AMC-15, a fixed satellite services (“FSS”) satellite, commenced commercial operation during January 2005 and currently operates at the 105 degree orbital location. This SES World Skies satellite is equipped with 24 Ku FSS transponders that operate at approximately 120 watts per channel and a Ka FSS payload consisting of 12 spot beams. During 2011, AMC-15 experienced solar-power anomalies, which caused a power loss that reduced its capacity. Pursuant to the satellite services agreement, we are negotiating a reduction of our monthly recurring payment, which could impact the carrying value of the satellite and the related capital lease obligation.
AMC-16. AMC-16, an FSS satellite, commenced commercial operation during February 2005 and currently operates at the 85 degree orbital location. This SES World Skies satellite is equipped with 24 Ku-band FSS transponders that operate at approximately 120 watts per channel and a Ka-band payload consisting of 12 spot beams. During the first quarter of 2010, SES World Skies notified us that AMC-16 had experienced a solar-power anomaly, which caused a power loss that reduced its capacity. Pursuant to the satellite services agreement, we are entitled to a reduction of our monthly recurring payment in the event of a partial loss of satellite capacity. Effective in March and July 2010, the monthly recurring payment was reduced and as a result our capital lease obligation and the corresponding asset value was lowered by a total of $39 million. In addition, beginning in May 2011, the monthly recurring payment was reduced again due to the March 2010 anomaly and as a result our capital lease obligation was lowered by approximately $7 million and a gain was recorded in “Other, net” on our Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).
Long-Lived Satellite Assets
We evaluate our satellites for impairment and test for recoverability whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. This evaluation is performed at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. Certain of the anomalies discussed above, and previously disclosed, may be considered to represent a significant adverse change in the physical condition of a particular satellite. However, based on the redundancy designed within each satellite, these anomalies are not considered to be significant events that would require evaluation for impairment recognition because the projected cash flows have not been significantly affected by these anomalies. |