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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549


 

Form 10-Q

(Mark One)

 

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

 

FOR THE QUARTERLY PERIOD ENDED MARCH  31, 2018.

 

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:  0-26176

 

DISH Network Corporation

(Exact name of registrant as specified in its charter)

 

Nevada

 

88-0336997

(State or other jurisdiction of incorporation or organization)

 

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

 

 

 

9601 South Meridian Boulevard

 

 

Englewood, Colorado

 

80112

(Address of principal executive offices)

 

(Zip code)

 

(303) 723-1000

(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 ☒   No  ☐

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, 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 ☒   No  ☐

 

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

 

Large accelerated filer ☒

 

Accelerated filer ☐

 

 

 

Non-accelerated filer ☐
(Do not check if a smaller reporting company)

 

Smaller reporting company ☐

 

Emerging growth company ☐     

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

 

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

 

As of May 1, 2018, the registrant’s outstanding common stock consisted of 228,944,932  shares of Class A common stock and 238,435,208 shares of Class B common stock.

 

 


 

Table of Contents

 

 

TABLE OF CONTENTS

 

PART I — FINANCIAL INFORMATION 

 

 

 

 

Disclosure Regarding Forward-Looking Statements

i

 

 

 

Item 1. 

Financial Statements

 

 

 

 

 

Condensed Consolidated Balance Sheets —
March  31, 2018 and December 31, 2017 (Unaudited)

1

 

 

 

 

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)
For the Three Months Ended March 31, 2018 and 2017 (Unaudited)

2

 

 

 

 

Condensed Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 2018 and 2017 (Unaudited)

3

 

 

 

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

4

 

 

 

Item 2. 

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

51

 

 

 

Item 3. 

Quantitative and Qualitative Disclosures About Market Risk

71

 

 

 

Item 4. 

Controls and Procedures

71

 

 

 

PART II — OTHER INFORMATION 

 

 

 

Item 1. 

Legal Proceedings

71

 

 

 

Item 1A. 

Risk Factors

71

 

 

 

Item 2. 

Unregistered Sales of Equity Securities and Use of Proceeds

72

 

 

 

Item 3.

Defaults Upon Senior Securities

None

 

 

 

Item 4.

Mine Safety Disclosures

None

 

 

 

Item 5. 

Other Information

None

 

 

 

Item 6. 

Exhibits

73

 

 

 

 

Signatures

74

 

 

 

 


 

Table of Contents

PART I — FINANCIAL INFORMATION

 

DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

 

Unless otherwise required by the context, in this report, the words “DISH Network,” the “Company,” “we,” “our” and “us” refer to DISH Network Corporation and its subsidiaries, “EchoStar” refers to EchoStar Corporation and its subsidiaries, and “DISH DBS” refers to DISH DBS Corporation, a wholly-owned, indirect subsidiary of DISH Network, and its subsidiaries.

 

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, including, in particular, statements about our plans, objectives and strategies, growth opportunities in our industries and businesses, our expectations regarding future results, financial condition, liquidity and capital requirements, our estimates regarding the impact of regulatory developments and legal proceedings, and other trends and projections.  Forward-looking statements are not historical facts and may be identified by words such as “future,” “anticipate,” “intend,” “plan,” “goal,” “seek,” “believe,” “estimate,” “expect,” “predict,” “will,” “would,” “could,” “can,” “may,” and similar terms.  These forward-looking statements are based on information available to us as of the date of this Quarterly Report on Form 10-Q and represent management’s current views and assumptions.  Forward-looking statements are not guarantees of future performance, events or results and involve known and unknown risks, uncertainties and other factors, which may be beyond our control.  Accordingly, actual performance, events or results could differ materially from those expressed or implied in the forward-looking statements due to a number of factors, including, but not limited to, the following:

 

Competition and Economic Risks

 

·

As the pay-TV industry has matured and bundled offers combining video, broadband and/or wireless services have become more prevalent and competitive, we face intense and increasing competition from providers of video, broadband and/or wireless services, which may require us to further increase subscriber acquisition and retention spending or accept lower subscriber activations and higher subscriber churn.

 

·

Changing consumer behavior and competition from digital media companies that provide or facilitate the delivery of video content via the Internet may reduce our subscriber activations and may cause our subscribers to purchase fewer services from us or to cancel our services altogether, resulting in less revenue to us.

 

·

Economic weakness and uncertainty may adversely affect our ability to grow or maintain our business.

 

·

Our competitors may be able to leverage their relationships with programmers to reduce their programming costs and/or offer exclusive content that will place them at a competitive advantage to us.

 

·

Our over-the-top (“OTT”) Sling TV Internet-based services face certain risks, including, among others, significant competition.

 

·

If government regulations relating to the Internet change, we may need to alter the manner in which we conduct our Sling TV business, and/or incur greater operating expenses to comply with those regulations.

 

·

Changes in how network operators handle and charge for access to data that travels across their networks could adversely impact our business.

 

·

We face increasing competition from other distributors of unique programming services such as foreign language, sports programming, and original content that may limit our ability to maintain subscribers that desire these unique programming services.

 

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Operational and Service Delivery Risks

 

·

If our operational performance and customer satisfaction were to deteriorate, our subscriber activations and our subscriber churn rate may be negatively impacted, which could in turn adversely affect our revenue.

 

·

If our subscriber activations continue to decrease, or if our subscriber churn rate, subscriber acquisition costs or retention costs increase, our financial performance will be adversely affected.

 

·

Programming expenses are increasing and may adversely affect our future financial condition and results of operations.

 

·

We depend on others to provide the programming that we offer to our subscribers and, if we fail to obtain or lose access to this programming, our subscriber activations and our subscriber churn rate may be negatively impacted.

 

·

We may not be able to obtain necessary retransmission consent agreements at acceptable rates, or at all, from local network stations.

 

·

We may be required to make substantial additional investments to maintain competitive programming offerings.

 

·

Any failure or inadequacy of our information technology infrastructure and communications systems, including without limitation those caused by cyber-attacks or other malicious activities, could disrupt or harm our business.

 

·

We currently depend on EchoStar to provide the vast majority of our satellite transponder capacity and other related services to us.  Our business would be adversely affected if EchoStar ceases to provide these services to us and we are unable to obtain suitable replacement services from third parties.

 

·

Technology in the pay-TV industry changes rapidly, and our success may depend in part on our timely introduction and implementation of, and effective investment in, new competitive products and services and more advanced equipment, and our failure to do so could cause our products and services to become obsolete and could negatively impact our business.

 

·

We rely on a single vendor or a limited number of vendors to provide certain key products or services to us such as information technology support, billing systems, and security access devices, and the inability of these key vendors to meet our needs could have a material adverse effect on our business.

 

·

We rely on a few suppliers and in some cases a single supplier for many components of our new set-top boxes, and any reduction or interruption in supplies or significant increase in the price of supplies could have a negative impact on our business.

 

·

Our programming signals are subject to theft, and we are vulnerable to other forms of fraud that could require us to make significant expenditures to remedy.

 

·

We depend on independent third parties to solicit orders for our DISH TV services that represent a meaningful percentage of our total gross new DISH TV subscriber activations.

 

·

We have limited satellite capacity and failures or reduced capacity could adversely affect our DISH TV services.

 

·

Our owned and leased satellites are subject to construction, launch, operational and environmental risks that could limit our ability to utilize these satellites.

 

ii


 

Table of Contents

·

We generally do not carry commercial launch or in-orbit insurance on any of the satellites that we use, other than certain satellites leased from third parties, and could face significant impairment charges if any of our owned satellites fail.

 

·

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

 

·

We rely on key personnel and the loss of their services may negatively affect our business.

 

Acquisition and Capital Structure Risks

 

·

We have made substantial investments to acquire certain wireless spectrum licenses and other related assets.  In addition, we have made substantial non-controlling investments in the Northstar Entities and the SNR Entities related to AWS-3 wireless spectrum licenses.

 

·

We face certain risks related to our non-controlling investments in the Northstar Entities and the SNR Entities, which may have a material adverse effect on our business, results of operations and financial condition.

 

·

To the extent that we commercialize our wireless spectrum licenses, we will face certain risks entering and competing in the wireless services industry and operating a wireless services business.

 

·

Our wireless spectrum licenses are subject to certain interim and final build-out requirements and the failure to meet such build-out requirements may have a material adverse effect on our business, results of operations and financial condition.

 

·

We rely on highly skilled personnel for our wireless business and, if we are unable to hire and retain key personnel or hire qualified personnel then our wireless business may be adversely affected.

 

·

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

 

·

We may need additional capital, which may not be available on acceptable terms or at all, to continue investing in our business and to finance acquisitions and other strategic transactions.

 

·

We have substantial debt outstanding and may incur additional debt.

 

·

The conditional conversion features of our 3 3/8% Convertible Notes due 2026 (the “Convertible Notes due 2026”) and our 2 3/8% Convertible Notes due 2024 (the “Convertible Notes due 2024,” and collectively with the Convertible Notes due 2026, the “Convertible Notes”), if triggered, may adversely affect our financial condition.

 

·

The convertible note hedge and warrant transactions that we entered into in connection with the offering of the Convertible Notes due 2026 may affect the value of the Convertible Notes due 2026 and our Class A common stock.

 

·

We are subject to counterparty risk with respect to the convertible note hedge transactions.

 

·

From time to time a portion of our investment portfolio may be invested in securities that have limited liquidity and may not be immediately accessible to support our financing needs, including investments in public companies that are highly speculative and have experienced and continue to experience volatility.

 

·

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

 

iii


 

Table of Contents

·

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

 

Legal and Regulatory Risks

 

·

The rulings in the Telemarketing litigation requiring us to pay up to an aggregate amount of $341 million and imposing certain injunctive relief against us, if upheld, would have a material adverse effect on our cash, cash equivalents and marketable investment securities balances and our business operations.

 

·

Our business may be materially affected by the Tax Cuts and Jobs Act of 2017 (the “Tax Reform Act”).  Negative or unexpected tax consequences could adversely affect our business, financial condition and results of operations.

 

·

Our business depends on certain intellectual property rights and on not infringing the intellectual property rights of others.

 

·

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

 

·

Our ability to distribute video content via the Internet, including our Sling TV services, involves regulatory risk.

 

·

Changes in the Cable Act of 1992 (“Cable Act”), and/or the rules of the Federal Communications Commission (“FCC”) that implement the Cable Act, may limit our ability to access programming from cable-affiliated programmers at nondiscriminatory rates.

 

·

The injunction against our retransmission of distant networks, which is currently waived, may be reinstated.

 

·

We are subject to significant regulatory oversight, and changes in applicable regulatory requirements, including any adoption or modification of laws or regulations relating to the Internet, could adversely affect our business.

 

·

Our business depends on FCC licenses that can expire or be revoked or modified and applications for FCC licenses that may not be granted.

 

·

We are subject to digital high-definition (“HD”) “carry-one, carry-all” requirements that cause capacity constraints.

 

·

Our business, investor confidence in our financial results and stock price may be adversely affected if our internal controls are not effective.

 

·

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

 

Other factors that could cause or contribute to such differences include, but are not limited to, those discussed under the caption “Risk Factors” in Part I, Item 1A of our most recent Annual Report on Form 10-K (the “10-K”) filed with the SEC, those discussed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” herein and in the 10-K and those discussed in other documents we file with the SEC.  All cautionary statements made or referred to herein should be read as being applicable to all forward-looking statements wherever they appear.  Investors should consider the risks and uncertainties described or referred to herein and should not place undue reliance on any forward-looking statements.  The forward-looking statements speak only as of the date made, and we expressly disclaim any obligation to update these forward-looking statements.

 

 

 

 

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Table of Contents

Item 1.  FINANCIAL STATEMENTS

DISH NETWORK CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except share amounts)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

As of  

 

 

March 31,

 

December 31,

 

 

2018

    

2017

Assets

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

2,115,349

 

$

1,479,508

Marketable investment securities

 

 

163,714

 

 

501,165

Trade accounts receivable, net of allowance for doubtful accounts of $12,739 and $15,511, respectively

 

 

601,673

 

 

653,948

Inventory

 

 

347,746

 

 

321,008

Other current assets

 

 

237,079

 

 

329,394

Total current assets

 

 

3,465,561

 

 

3,285,023

 

 

 

 

 

 

 

Noncurrent Assets:

 

 

 

 

 

 

Restricted cash, cash equivalents and marketable investment securities

 

 

72,638

 

 

72,407

Property and equipment, net

 

 

2,106,931

 

 

2,183,661

FCC authorizations

 

 

23,987,355

 

 

23,725,789

Other investment securities

 

 

115,429

 

 

113,460

Other noncurrent assets, net

 

 

407,019

 

 

393,426

Total noncurrent assets

 

 

26,689,372

 

 

26,488,743

Total assets

 

$

30,154,933

 

$

29,773,766

 

 

 

 

 

 

 

Liabilities and Stockholders' Equity (Deficit)

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

Trade accounts payable

 

$

331,388

 

$

393,305

Deferred revenue and other

 

 

742,838

 

 

709,074

Accrued programming

 

 

1,595,619

 

 

1,571,273

Accrued interest

 

 

223,590

 

 

282,006

Other accrued expenses (Note 9)

 

 

790,000

 

 

803,822

Current portion of long-term debt and capital lease obligations

 

 

1,008,902

 

 

1,068,524

Total current liabilities

 

 

4,692,337

 

 

4,828,004

 

 

 

 

 

 

 

Long-Term Obligations, Net of Current Portion:

 

 

 

 

 

 

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

 

 

15,152,076

 

 

15,134,441

Deferred tax liabilities

 

 

2,112,421

 

 

2,019,538

Long-term deferred revenue and other long-term liabilities

 

 

471,634

 

 

470,487

Total long-term obligations, net of current portion

 

 

17,736,131

 

 

17,624,466

Total liabilities

 

 

22,428,468

 

 

22,452,470

 

 

 

 

 

 

 

Commitments and Contingencies (Note 9)

 

 

 

 

 

 

 

 

 

 

 

 

 

Redeemable noncontrolling interests (Note 2)

 

 

401,202

 

 

383,390

 

 

 

 

 

 

 

Stockholders’ Equity (Deficit):

 

 

 

 

 

 

Class A common stock, $.01 par value, 1,600,000,000 shares authorized, 228,363,705 and 228,033,671 shares issued and outstanding, respectively

 

 

2,284

 

 

2,280

Class B common stock, $.01 par value, 800,000,000 shares authorized, 238,435,208 shares issued and outstanding

 

 

2,384

 

 

2,384

Additional paid-in capital

 

 

3,313,535

 

 

3,296,488

Accumulated other comprehensive income (loss)

 

 

1,359

 

 

882

Accumulated earnings (deficit)

 

 

4,005,260

 

 

3,635,380

Total DISH Network stockholders’ equity (deficit)

 

 

7,324,822

 

 

6,937,414

Noncontrolling interests

 

 

441

 

 

492

Total stockholders’ equity (deficit)

 

 

7,325,263

 

 

6,937,906

Total liabilities and stockholders’ equity (deficit)

 

$

30,154,933

 

$

29,773,766

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

1


 

Table of Contents

DISH NETWORK CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE INCOME (LOSS)

(Dollars in thousands, except per share amounts)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended 

 

 

March 31,

 

 

2018

    

2017

Revenue:

    

 

 

 

 

 

Subscriber-related revenue

 

$

3,422,704

 

$

3,644,086

Equipment sales and other revenue

 

 

35,783

 

 

36,275

Total revenue

 

 

3,458,487

 

 

3,680,361

 

 

 

 

 

 

 

Costs and Expenses (exclusive of depreciation shown separately below - Note 7):

 

 

 

 

 

 

Subscriber-related expenses

 

 

2,184,951

 

 

2,243,187

Satellite and transmission expenses

 

 

153,644

 

 

176,182

Cost of sales - equipment and other

 

 

31,626

 

 

27,973

Subscriber acquisition costs:

 

 

 

 

 

 

Cost of sales - subscriber promotion subsidies

 

 

15,930

 

 

21,011

Other subscriber acquisition costs

 

 

77,072

 

 

141,944

Subscriber acquisition advertising

 

 

103,009

 

 

127,079

Total subscriber acquisition costs

 

 

196,011

 

 

290,034

General and administrative expenses

 

 

169,777

 

 

131,035

Depreciation and amortization (Note 7)

 

 

192,972

 

 

204,630

Total costs and expenses

 

 

2,928,981

 

 

3,073,041

 

 

 

 

 

 

 

Operating income (loss)

 

 

529,506

 

 

607,320

 

 

 

 

 

 

 

Other Income (Expense):

 

 

 

 

 

 

Interest income

 

 

9,317

 

 

14,292

Interest expense, net of amounts capitalized

 

 

(2,957)

 

 

(29,170)

Other, net

 

 

(34,808)

 

 

4,745

Total other income (expense)

 

 

(28,448)

 

 

(10,133)

 

 

 

 

 

 

 

Income (loss) before income taxes

 

 

501,058

 

 

597,187

Income tax (provision) benefit, net

 

 

(115,737)

 

 

(207,112)

Net income (loss)

 

 

385,321

 

 

390,075

Less: Net income (loss) attributable to noncontrolling interests, net of tax

 

 

17,761

 

 

14,360

Net income (loss) attributable to DISH Network

 

$

367,560

 

$

375,715

 

 

 

 

 

 

 

Weighted-average common shares outstanding - Class A and B common stock:

 

 

 

 

 

 

Basic

 

 

466,642

 

 

465,412

Diluted

 

 

525,309

 

 

514,443

 

 

 

 

 

 

 

Earnings per share - Class A and B common stock:

 

 

 

 

 

 

Basic net income (loss) per share attributable to DISH Network

 

$

0.79

 

$

0.81

Diluted net income (loss) per share attributable to DISH Network

 

$

0.70

 

$

0.76

 

 

 

 

 

 

 

Comprehensive Income (Loss):

 

 

 

 

 

 

Net income (loss)

 

$

385,321

 

$

390,075

Other comprehensive income (loss):

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

400

 

 

207

Unrealized holding gains (losses) on available-for-sale securities

 

 

105

 

 

6,164

Recognition of previously unrealized (gains) losses on available-for-sale securities included in net income (loss)

 

 

(2)

 

 

(4)

Deferred income tax (expense) benefit, net

 

 

(26)

 

 

(2,264)

Total other comprehensive income (loss), net of tax

 

 

477

 

 

4,103

Comprehensive income (loss)

 

 

385,798

 

 

394,178

Less: Comprehensive income (loss) attributable to noncontrolling interests, net of tax

 

 

17,761

 

 

14,360

Comprehensive income (loss) attributable to DISH Network

 

$

368,037

 

$

379,818

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

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DISH NETWORK CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended 

 

 

March 31,

 

    

2018

    

2017

Cash Flows From Operating Activities:

 

 

 

 

 

 

Net income (loss)

    

$

385,321

 

$

390,075

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

 

 

 

 

 

 

Depreciation and amortization

 

 

192,972

 

 

204,630

Realized and unrealized losses (gains) on investments

 

 

36,722

 

 

(2,272)

Non-cash, stock-based compensation

 

 

9,060

 

 

6,774

Deferred tax expense (benefit)

 

 

92,064

 

 

150,006

Other, net

 

 

(32,426)

 

 

6,752

Changes in current assets and current liabilities, net

 

 

67,838

 

 

180,802

Net cash flows from operating activities

 

 

751,551

 

 

936,767

 

 

 

 

 

 

 

Cash Flows From Investing Activities:

 

 

 

 

 

 

Purchases of marketable investment securities

 

 

(9,253)

 

 

(58,876)

Sales and maturities of marketable investment securities

 

 

313,567

 

 

78,703

Purchases of property and equipment

 

 

(70,521)

 

 

(114,899)

Capitalized interest related to FCC authorizations (Note 2)

 

 

(294,003)

 

 

(282,597)

Purchases of strategic investments

 

 

 —

 

 

(90,921)

Other, net

 

 

3,613

 

 

13,564

Net cash flows from investing activities

 

 

(56,597)

 

 

(455,026)

 

 

 

 

 

 

 

Cash Flows From Financing Activities:

 

 

 

 

 

 

Proceeds from issuance of convertible notes (Note 8)

 

 

 —

 

 

1,000,000

Redemption and repurchases of senior notes

 

 

(56,473)

 

 

 —

Repayment of long-term debt and capital lease obligations

 

 

(10,458)

 

 

(9,162)

Payments made to parent of transferred businesses

 

 

 —

 

 

(7,098)

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

 

 

7,991

 

 

6,374

Debt issuance costs

 

 

 —

 

 

(6,158)

Other, net

 

 

(159)

 

 

 —

Net cash flows from financing activities

 

 

(59,099)

 

 

983,956

 

 

 

 

 

 

 

Net increase (decrease) in cash, cash equivalents, restricted cash and cash equivalents

 

 

635,855

 

 

1,465,697

Cash, cash equivalents, restricted cash and cash equivalents, beginning of period (Note 5)

 

 

1,479,901

 

 

5,325,184

Cash, cash equivalents, restricted cash and cash equivalents, end of period (Note 5)

 

$

2,115,756

 

$

6,790,881

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

 

3


 

Table of Contents

DISH NETWORK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

1.Organization and Business Activities

 

Principal Business

 

DISH Network Corporation is a holding company.  Its subsidiaries (which together with DISH Network Corporation are referred to as “DISH Network,” the “Company,” “we,” “us” and/or “our,” unless otherwise required by the context) operate two primary business segments.

 

Pay-TV

 

We offer pay-TV services under the DISH® brand and the Sling® brand (collectively “Pay-TV” services).  The DISH branded pay-TV service consists of, among other things, Federal Communications Commission (“FCC”) licenses authorizing us to use direct broadcast satellite (“DBS”) and Fixed Satellite Service (“FSS”) spectrum, our owned and leased satellites, receiver systems, broadcast operations, customer service facilities, a leased fiber optic network, in-home service and call center operations, and certain other assets utilized in our operations (“DISH TV”).  The Sling branded pay-TV services consist of, among other things, live, linear streaming over-the-top (“OTT”) Internet-based domestic, international and Latino video programming services (“Sling TV”).  As of March 31, 2018, we had 13.148 million Pay-TV subscribers in the United States, including 10.845 million DISH TV subscribers and 2.303 million Sling TV subscribers.

 

In addition, we have historically offered broadband services under the dishNET™ brand, which includes satellite broadband services that utilize advanced technology and high-powered satellites launched by Hughes Communications, Inc. (“Hughes”) and ViaSat, Inc. (“ViaSat”) and wireline broadband services.  However, as of March 2018, we have transitioned our broadband business focus from wholesale to authorized representative arrangements, and we are no longer marketing dishNET broadband services.  Our existing broadband subscribers will decline through customer attrition.  Generally, under these authorized representative arrangements, we will receive certain payments for each broadband service activation generated and installation performed, and we will not incur subscriber acquisition costs for these activations.  For example, during the first quarter 2017, we transitioned our wholesale arrangement with Hughes to an authorized representative arrangement and entered into a master service agreement (the “MSA”) with Hughes Network Systems, LLC (“HNS”), a wholly-owned subsidiary of Hughes.  See “Hughes Broadband Master Services Agreement” in Note 12 under Related Party Transactions with EchoStar for further information. 

 

As a result of the completion of the Share Exchange with EchoStar, described below, we also design, develop and distribute receiver systems and provide digital broadcast operations, including satellite uplinking/downlinking, transmission and other services to third-party pay-TV providers.  See Note 2 and Note 12 for further information.

4

 


 

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DISH NETWORK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Unaudited)

 

Wireless

 

Since 2008, we have directly invested over $11 billion to acquire certain wireless spectrum licenses and related assets and made over $10 billion in non-controlling investments in certain entities, for a total of over $21 billion, as described further below.

 

DISH Network Spectrum

 

We have directly invested over $11 billion to acquire certain wireless spectrum licenses and related assets.  These wireless spectrum licenses are subject to certain interim and final build-out requirements.  We will need to make significant additional investments or partner with others to, among other things, commercialize, build-out, and integrate these licenses and related assets, and any additional acquired licenses and related assets; and comply with regulations applicable to such licenses.  Depending on the nature and scope of such commercialization, build-out, integration efforts, and regulatory compliance, any such investments or partnerships could vary significantly.  In addition, as we consider our options for the commercialization of our wireless spectrum, we will incur significant additional expenses and will have to make significant investments related to, among other things, research and development, wireless testing and wireless network infrastructure.  In March 2017, we notified the FCC that we plan to deploy a next-generation 5G-capable network, focused on supporting narrowband Internet of Things (“IoT”).  The first phase of our network deployment will be completed by March 2020, with subsequent phases to be completed thereafter.  We may also determine that additional wireless spectrum licenses may be required to commercialize our wireless business and to compete with other wireless service providers.  See Note 9 for further information.

 

DISH Network Non-Controlling Investments in the Northstar Entities and the SNR Entities Related to AWS-3 Wireless Spectrum Licenses

 

Through our wholly-owned subsidiaries American AWS-3 Wireless II L.L.C. (“American II”) and American AWS-3 Wireless III L.L.C. (“American III”), we have made over $10 billion in certain non-controlling investments in Northstar Spectrum, LLC (“Northstar Spectrum”), the parent company of Northstar Wireless, LLC (“Northstar Wireless,” and collectively with Northstar Spectrum, the “Northstar Entities”), and in SNR Wireless HoldCo, LLC (“SNR HoldCo”), the parent company of SNR Wireless LicenseCo, LLC (“SNR Wireless,” and collectively with SNR HoldCo, the “SNR Entities”), respectively.  On October 27, 2015, the FCC granted certain AWS-3 wireless spectrum licenses (the “AWS-3 Licenses”) to Northstar Wireless and to SNR Wireless, respectively, which are recorded in “FCC authorizations” on our Condensed Consolidated Balance Sheets.  Under the applicable accounting guidance in Accounting Standards Codification 810, Consolidation (“ASC 810”), Northstar Spectrum and SNR HoldCo are considered variable interest entities and, based on the characteristics of the structure of these entities and in accordance with the applicable accounting guidance, we consolidate these entities into our financial statements.  See Note 2 for further information.

 

The AWS-3 Licenses are subject to certain interim and final build-out requirements.  The Northstar Entities and/or the SNR Entities may need to raise significant additional capital in the future, which may be obtained from third party sources or from us, so that the Northstar Entities and the SNR Entities may commercialize, build-out and integrate these AWS-3 Licenses, comply with regulations applicable to such AWS-3 Licenses, and make any potential payments related to the Northstar Re-Auction Payment and the SNR Re-Auction Payment for the AWS-3 licenses retained by the FCC.  Depending upon the nature and scope of such commercialization, build-out, integration efforts, regulatory compliance, and potential Northstar Re-Auction Payment and SNR Re-Auction Payment, any loans, equity contributions or partnerships could vary significantly.  There can be no assurance that we will be able to obtain a profitable return on our non-controlling investments in the Northstar Entities and the SNR Entities. See Note 9 for further information.

5


 

Table of Contents

DISH NETWORK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Unaudited)

 

2.Summary of Significant Accounting Policies

 

Basis of Presentation

 

The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) 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 notes required for complete financial statements prepared under GAAP.  In our opinion, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included.  Our results of operations for the interim periods presented are not necessarily indicative of the results that may be expected for the full year.  For further information, refer to the Consolidated Financial Statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2017.  Certain prior period amounts have been reclassified to conform to the current period presentation.

 

Principles of Consolidation

 

We consolidate all majority owned subsidiaries, investments in entities in which we have controlling influence and variable interest entities where we have been determined to be the primary beneficiary.  Minority interests are recorded as noncontrolling interests or redeemable noncontrolling interests.  See below for further information.  Non-consolidated investments are accounted for using the equity method when we have the ability to significantly influence the operating decisions of the investee.  When we do not have the ability to significantly influence the operating decisions of an investee, these equity securities are classified as either marketable investment securities or other investments and recorded at fair value with changes recognized in “Other, net” within “Other Income (Expense)” on our Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).  All significant intercompany accounts and transactions have been eliminated in consolidation. 

 

On February 28, 2017, we and EchoStar and certain of our respective subsidiaries completed the transactions contemplated by the Share Exchange Agreement (the “Share Exchange Agreement”) that was previously entered into on January 31, 2017 (the “Share Exchange”).  Pursuant to the Share Exchange Agreement, among other things, EchoStar transferred to us certain assets and liabilities of the EchoStar technologies and EchoStar broadcasting businesses, consisting primarily of the businesses that design, develop and distribute digital set-top boxes, provide satellite uplinking services and develop and support streaming video technology, as well as certain investments in joint ventures, spectrum licenses, real estate properties and EchoStar’s ten percent non-voting interest in Sling TV Holding L.L.C. (the “Transferred Businesses”), and in exchange, we transferred to EchoStar the 6,290,499 shares of preferred tracking stock issued by EchoStar (the “EchoStar Tracking Stock”) and 81.128 shares of preferred tracking stock issued by Hughes Satellite Systems Corporation, a subsidiary of EchoStar (the “HSSC Tracking Stock,” and together with the EchoStar Tracking Stock, collectively, the “Tracking Stock”), that tracked the residential retail satellite broadband business of HNS.  In connection with the Share Exchange, we and EchoStar and certain of their subsidiaries entered into certain agreements covering, among other things, tax matters, employee matters, intellectual property matters and the provision of transitional services.  See Note 12 for further information.

 

As the Share Exchange was a transaction between entities that are under common control, accounting rules require that our Condensed Consolidated Financial Statements include the results of the Transferred Businesses for all periods presented, including periods prior to the completion of the Share Exchange.  We initially recorded the Transferred Businesses at EchoStar’s historical cost basis.  The difference between the historical cost basis of the Transferred Businesses and the net carrying value of the Tracking Stock was recorded in “Additional paid-in capital” on our Condensed Consolidated Balance Sheets. 

6


 

Table of Contents

DISH NETWORK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Unaudited)

The results of the Transferred Businesses were prepared from separate records maintained by EchoStar for the periods prior to March 1, 2017, and may not necessarily be indicative of the conditions that would have existed, or the results of operations, if the Transferred Businesses had been operated on a combined basis with our subsidiaries. 

 

Redeemable Noncontrolling Interests 

 

Northstar Wireless.  Northstar Wireless is a wholly-owned subsidiary of Northstar Spectrum, which is an entity owned by Northstar Manager, LLC (“Northstar Manager”) and us.  Under the applicable accounting guidance in ASC 810, Northstar Spectrum is considered a variable interest entity and, based on the characteristics of the structure of this entity and in accordance with the applicable accounting guidance, we consolidate Northstar Spectrum into our financial statements.  After the five-year anniversary of the grant of the AWS-3 Licenses to Northstar Wireless (and in certain circumstances, prior to the five-year anniversary of the grant of the AWS-3 Licenses to Northstar Wireless), Northstar Manager has the ability, but not the obligation, to require Northstar Spectrum to purchase Northstar Manager’s ownership interests in Northstar Spectrum (the “Northstar Put Right”) for a purchase price that generally equals its equity contribution to Northstar Spectrum plus a fixed annual rate of return.  In the event that the Northstar Put Right is exercised by Northstar Manager, the consummation of the sale will be subject to FCC approval.  Northstar Spectrum does not have a call right with respect to Northstar Manager’s ownership interests in Northstar Spectrum.  Although Northstar Manager is the sole manager of Northstar Spectrum, Northstar Manager’s ownership interest is considered temporary equity under the applicable accounting guidance and is thus recorded as part of “Redeemable noncontrolling interests” in the mezzanine section of our Condensed Consolidated Balance Sheets.  Northstar Manager’s ownership interest in Northstar Spectrum was initially accounted for at fair value.  Subsequently, Northstar Manager’s ownership interest in Northstar Spectrum is increased by the fixed annual rate of return through “Redeemable noncontrolling interests” in our Condensed Consolidated Balance Sheets, with the offset recorded in “Net income (loss) attributable to noncontrolling interests, net of tax” on our Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).  The operating results of Northstar Spectrum attributable to Northstar Manager are recorded as “Redeemable noncontrolling interests” in our Condensed Consolidated Balance Sheets, with the offset recorded in “Net income (loss) attributable to noncontrolling interests, net of tax” on our Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).  See Note 9 for further information.

 

SNR Wireless.  SNR Wireless is a wholly-owned subsidiary of SNR HoldCo, which is an entity owned by SNR Wireless Management, LLC (“SNR Management”) and us.  Under the applicable accounting guidance in ASC 810, SNR HoldCo is considered a variable interest entity and, based on the characteristics of the structure of this entity and in accordance with the applicable accounting guidance, we consolidate SNR HoldCo into our financial statements.  After the five-year anniversary of the grant of the AWS-3 Licenses to SNR Wireless (and in certain circumstances, prior to the five-year anniversary of the grant of the AWS-3 Licenses to SNR Wireless), SNR Management has the ability, but not the obligation, to require SNR HoldCo to purchase SNR Management’s ownership interests in SNR HoldCo (the “SNR Put Right”) for a purchase price that generally equals its equity contribution to SNR HoldCo plus a fixed annual rate of return.  In the event that the SNR Put Right is exercised by SNR Management, the consummation of the sale will be subject to FCC approval.  SNR HoldCo does not have a call right with respect to SNR Management’s ownership interests in SNR HoldCo.  Although SNR Management is the sole manager of SNR HoldCo, SNR Management’s ownership interest is considered temporary equity under the applicable accounting guidance and is thus recorded as part of “Redeemable noncontrolling interests” in the mezzanine section of our Condensed Consolidated Balance Sheets.  SNR Management’s ownership interest in SNR HoldCo was initially accounted for at fair value.  Subsequently, SNR Management’s ownership interest in SNR HoldCo is increased by the fixed annual rate of return through “Redeemable noncontrolling interests” on our Condensed Consolidated Balance Sheets, with the offset recorded in “Net income (loss) attributable to noncontrolling interests, net of tax” on our Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).  The operating results of SNR HoldCo attributable to SNR Management are recorded as “Redeemable noncontrolling interests” on our Condensed Consolidated Balance Sheets, with the offset recorded in “Net income (loss) attributable to noncontrolling interests, net of tax” on our Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).  See Note 9 for further information.

7


 

Table of Contents

DISH NETWORK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Unaudited)

 

Use of Estimates

 

The preparation of financial statements in conformity with GAAP requires us 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 revenue and expense for each reporting period.  Estimates are used in accounting for, among other things, allowances for doubtful accounts, self-insurance obligations, deferred taxes and related valuation allowances, uncertain tax positions, loss contingencies, fair value of financial instruments, fair value of options granted under our stock-based compensation plans, fair value of assets and liabilities acquired in business combinations, fair value of multi-element arrangements, capital leases, asset impairments, estimates of future cash flows used to evaluate impairments, useful lives of property, equipment and intangible assets, independent third-party retailer incentives, programming expenses and subscriber lives.  Economic conditions may increase the inherent uncertainty in the estimates and assumptions indicated above.  Actual results may differ from previously estimated amounts, and such differences may be material to our condensed consolidated financial statements.  Estimates and assumptions are reviewed periodically, and the effects of revisions are reflected prospectively in the period they occur.

 

Marketable Investment Securities 

 

Historically, we classified all marketable investment securities as available-for-sale, except for investments which were accounted for as trading securities, and adjusted the carrying amount of our available-for-sale securities to fair value and reported the related temporary unrealized gains and losses as a separate component of “Accumulated other comprehensive income (loss)” within “Total stockholders’ equity (deficit),” net of related deferred income tax on our Condensed Consolidated Balance Sheets.  Our trading securities were carried at fair value, with changes in fair value recognized in “Other, net” within “Other Income (Expense)” on our Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).

 

Subsequent to the adoption of ASU 2016-01 during the first quarter 2018, all equity securities are carried at fair value, with changes in fair value recognized in “Other, net” within “Other Income (Expense)” on our Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).  All debt securities are classified as available-for-sale.  We adjust the carrying amount of our debt securities to fair value and report the related temporary unrealized gains and losses as a separate component of “Accumulated other comprehensive income (loss)” within “Total stockholders’ equity (deficit),” net of related deferred income tax on our Condensed Consolidated Balance Sheets.  Declines in the fair value of a marketable debt security which are determined to be “other-than-temporary” are recognized in the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss), thus establishing a new cost basis for such investment.   

 

Capitalized Interest 

 

We capitalize interest associated with the acquisition or construction of certain assets, including, among other things, satellites and wireless spectrum licenses.  Capitalization of interest begins when, among other things, steps are taken to prepare the asset for its intended use and ceases when the asset is ready for its intended use or when these activities are substantially suspended.

 

We are currently preparing for the commercialization of our AWS-4, H Block, 700 MHz, 600 MHz and MVDDS wireless spectrum licenses, and interest expense related to their carrying amount is being capitalized.  In addition, the FCC has granted certain AWS-3 Licenses to Northstar Wireless and to SNR Wireless, respectively, in which we have made certain non-controlling investments.  Northstar Wireless and SNR Wireless are preparing for the commercialization of their AWS-3 Licenses and interest expense related to their carrying amount is also being capitalized.  On June 14, 2017, the FCC issued an order granting our application to acquire the 600 MHz Licenses, and we began preparing for the commercialization of our 600 MHz Licenses and began capitalizing interest related to these licenses on June 14, 2017.  As the carrying amount of the licenses discussed above exceeded the carrying value of our long-term debt beginning on June 14, 2017, materially all of our interest expense is now being capitalized.

8


 

Table of Contents

DISH NETWORK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Unaudited)

 

Fair Value Measurements

 

We determine fair value based on the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants.  Market or observable inputs are the preferred source of values, followed by unobservable inputs or assumptions based on hypothetical transactions in the absence of market inputs.  We apply the following hierarchy in determining fair value:

 

·

Level 1, defined as observable inputs being quoted prices in active markets for identical assets;

·

Level 2, defined as observable inputs other than quoted prices included in Level 1, including quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar instruments in markets that are not active; and derivative financial instruments indexed to marketable investment securities; and

·

Level 3, defined as unobservable inputs for which little or no market data exists, consistent with reasonably available assumptions made by other participants therefore requiring assumptions based on the best information available.

 

As of March 31, 2018 and December 31, 2017, the carrying amount for cash and cash equivalents, trade accounts receivable (net of allowance for doubtful accounts) and current liabilities (excluding the “Current portion of long-term debt and capital lease obligations”) was equal to or approximated fair value due to their short-term nature or proximity to current market rates.  See Note 5 for the fair value of our marketable investment securities and derivative financial instruments.

 

Fair values for our publicly traded debt securities are based on quoted market prices, when available.  The fair values of private debt are based on, among other things, available trade information, and/or an analysis in which we evaluate market conditions, related securities, various public and private offerings, and other publicly available information.  In performing this analysis, we make various assumptions regarding, among other things, credit spreads, and the impact of these factors on the value of the debt securities.  See Note 8 for the fair value of our long-term debt.

 

Revenue Recognition 

 

Our revenue is primarily derived from Pay-TV programming services that we provide to our subscribers.  We also generate revenue from broadband services, equipment rental fees and other hardware related fees, including DVRs, broadband equipment, and fees from subscribers with multiple receivers; advertising services; fees earned from our in-home service operations; warranty services; and sales of digital receivers and related equipment to third-party pay-TV providers.  See Note 10 for further information, including revenue disaggregated by major source.

 

Our residential video subscribers contract for individual services or combinations of services, as discussed above, the majority of which are generally capable of being distinct and are accounted for as separate performance obligations.  We consider our installations for first time DISH TV subscribers to be a service.  However, since we provide a significant integration service combining the installation with programming services we have concluded that the installation is not distinct from programming and thus the installation and programming services are accounted for as a single performance obligation.  We generally satisfy these performance obligations and recognize revenue as the services are provided, for example as the programming is broadcast to subscribers, as this best represents the transfer of control of the services to the subscriber. 

 

In cases where a subscriber is charged certain nonrefundable upfront fees, those fees are generally considered to be material rights to the subscriber related to the subscriber’s option to renew without having to pay an additional fee upon renewal.  These fees will therefore be deferred and recognized over the estimated period of time during which the fee remains material to the customer, which we estimate to be less than one year.  Revenues arising from our in-home service operations that are separate from the initial installation, such as mounting a TV on a subscriber’s wall, are generally recognized when these services are performed. 

 

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Table of Contents

DISH NETWORK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Unaudited)

For our residential video subscribers, we have concluded that the contract term under ASC 606 is one month and as a result the revenue recognized for these subscribers for a given month is equal to the amount billed in that month, except for certain nonrefundable upfront fees that are accounted for as material rights, as discussed above. 

 

Revenues from our advertising services are typically recognized as the advertisements are broadcast.  Sales of equipment to subscribers or other third parties are recognized when control is transferred under the contract.  Revenue from our commercial video subscribers typically follows the residential model described above, with the exception that the contract term for most of our commercial subscribers exceeds one month and can be multiple years in length.  However, commercial subscribers typically do not receive time-limited discounts or free service periods and accordingly, while they may have multiple performance obligations, revenue is equal to the amount billed in a given month. 

 

Contract Balances

 

The timing of revenue recognition generally differs from the timing of invoicing to customers.  When revenue is recognized prior to invoicing, we record a receivable.  When revenue is recognized subsequent to invoicing, we record deferred revenue.  Our residential video subscribers are typically billed monthly, and the contract balances for those customers arise from the timing of the monthly billing cycle.  We do not adjust the amount of consideration for financing impacts as we apply a practical expedient when we anticipate that the period between transfer of goods and services and eventual payment for those goods and services will be less than one year.  See Note 11 for further information, including balance and activity detail about our allowance for doubtful accounts and deferred revenue. 

 

Assets recognized related to the Costs to Obtain a Contract with a Subscriber

 

We recognize an asset for the incremental costs of obtaining a contract with a subscriber if we expect the benefit of those costs to be longer than one year.  We have determined that certain sales incentive programs, including those with our independent third-party retailers, meet the requirements to be capitalized, and payments made under these programs are capitalized and amortized to expense over the estimated subscriber life.  During the three months ended March 31, 2018, we capitalized $41 million under these programs.  The amortization expense related to these programs was $3 million for the three months ended March 31, 2018.  As of March 31, 2018, we had a total of $52 million capitalized on our Condensed Consolidated Balance Sheets.  These amounts are capitalized in “Other currents assets” and “Other noncurrent assets, net” on our Condensed Consolidated Balance Sheets, and then amortized in “Other subscriber acquisition costs” on our Condensed Consolidated Statements of Operations.

 

Impact of Adoption of ASU 2014-09

 

On May 28, 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update 2014-09 Revenue from Contracts with Customers (“ASU 2014-09”) and has modified the standard thereafter.  We adopted ASU 2014-09, as modified, and now codified as Accounting Standard Codification Topic 606 (“ASC 606”) and Accounting Standard Codification Topic 340-40 (“ASC 340-40”) on January 1, 2018, using the modified retrospective method.  Under that method, we applied the new guidance to all open contracts existing as of January 1, 2018, recognizing in beginning retained earnings an adjustment for the cumulative effect of the change, which was $2 million, net of deferred taxes of $1 million.    

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Table of Contents

DISH NETWORK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Unaudited)

 

In addition, we are providing additional disclosures comparing the results under previous guidance to those as follows:

 

 

 

 

 

 

 

 

 

 

 

Condensed Consolidated Statements of Operations

 

DISH Network (as would have been reported under previous standards)

    

Impact of adopting ASU 2014-09

 

DISH Network (as currently reported)

 

 

(In thousands)

For the Three Months Ended March 31, 2018

 

 

 

 

 

 

 

 

 

Subscriber-related revenue

 

$

3,431,632

 

$

(8,928)

 

$

3,422,704

Subscriber-related expenses

 

$

2,189,378

 

$

(4,427)

 

$

2,184,951

Total subscriber acquisition costs

 

$

236,309

 

$

(40,298)

 

$

196,011

Operating income (loss)

 

$

493,709

 

$

35,797

 

$

529,506

Income (loss) before income taxes

 

$

465,261

 

$

35,797

 

$

501,058

Income tax (provision) benefit, net

 

$

(107,146)

 

$

(8,591)

 

$

(115,737)

Net income (loss) attributable to DISH Network

 

$

340,354

 

$

27,206

 

$

367,560

Diluted net income (loss) per share attributable to DISH Network

 

$

0.65

 

$

0.05

 

$

0.70

 

 

 

 

 

 

 

 

 

 

Condensed Consolidated Balance Sheets

 

DISH Network (as would have been reported under previous standards)

    

Impact of adopting ASU 2014-09

 

DISH Network (as currently reported)

 

 

(In thousands)

As of March 31, 2018

 

 

 

 

 

 

 

 

 

Inventory

 

$

310,641

 

$

37,105

 

$

347,746

Other current assets

 

$

223,287

 

$

13,792

 

$

237,079

Other noncurrent assets, net

 

$

368,501

 

$

38,518

 

$

407,019

Total assets

 

$

30,065,518

 

$

89,415

 

$

30,154,933

Deferred revenue and other

 

$

694,757

 

$

48,081

 

$

742,838

Deferred tax liabilities

 

$

2,103,037

 

$

9,384

 

$

2,112,421

Long-term deferred revenue and other long-term liabilities

 

$

469,210

 

$

2,424

 

$

471,634

Total liabilities

 

$

22,368,579

 

$

59,889

 

$

22,428,468

Total stockholders' equity (deficit)

 

$

7,295,737

 

$

29,526

 

$

7,325,263

Total liabilities and stockholders' equity (deficit)

 

$

30,065,518

 

$

89,415

 

$

30,154,933

 

 

 

 

 

 

 

 

 

 

The adoption of ASU 2014-09 had no impact to cash flows from operating, investing, and financing activities on our Condensed Consolidated Statements of Cash Flows.

 

Research and Development

 

Research and development costs are expensed as incurred.  Research and development costs totaled $6 million and $7 million for the three months ended March 31, 2018 and 2017, respectively. 

 

New Accounting Pronouncements

 

Leases.  In February 2016, the FASB issued new guidance on the accounting for leases, ASU 2016-02 Leases (“ASU 2016-02”).  The guidance amends the existing accounting standards for lease accounting, including the requirement that lessees recognize right of use assets and lease liabilities initially measured at the present value of the lease payments for all leases with a term of greater than twelve months.  The accounting guidance for lessors remains largely unchanged.  The effective date of this standard for us will be January 1, 2019.  While we have not determined the effect of the standard on our ongoing financial reporting, we currently believe the most significant change will be the recognition of right of use assets and lease liabilities on our Condensed Consolidated Balance Sheets.  We have established a multidisciplinary team to assess the implementation of this guidance and are currently in the process of identifying and implementing changes to our systems, process, and internal controls to meet the requirements of the standard.

 

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DISH NETWORK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Unaudited)

Financial Instruments – Credit Losses.    On June 16, 2016, the FASB issued ASU 2016-13 Financial Instruments – Credit Losses, Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which changes the way entities measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net earnings.  This standard will be effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years.  Early adoption is permitted.  We are evaluating the impact the adoption of ASU 2016-13 will have on our Condensed Consolidated Financial Statements and related disclosures.

 

3.Basic and Diluted Net Income (Loss) Per Share

 

We present both basic earnings per share (“EPS”) and diluted EPS.  Basic EPS excludes potential dilution and is computed by dividing “Net income (loss) attributable to DISH Network” by the weighted-average number of common shares outstanding for the period.  Diluted EPS reflects the potential dilution that could occur if stock awards were exercised and if our 3 3/8% Convertible Notes due 2026 issued August 8, 2016 (the “Convertible Notes due 2026”) and our 2 3/8% Convertible Notes due 2024 issued March 17, 2017 (the “Convertible Notes due 2024,” and collectively with the Convertible Notes due 2026, the “Convertible Notes”) were converted.  The potential dilution from stock awards is accounted for using the treasury stock method based on the average market value of our Class A common stock.  The potential dilution from conversion of the Convertible Notes is accounted for using the if-converted method, which requires that all of the shares of our Class A common stock issuable upon conversion of the Convertible Notes will be included in the calculation of diluted EPS assuming conversion of the Convertible Notes at the beginning of the reporting period (or at time of issuance, if later).  The following table presents EPS amounts for all periods and the basic and diluted weighted-average shares outstanding used in the calculation.

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended 

 

 

March 31,

 

    

2018

    

2017

 

 

(In thousands, except per share amounts)

Net income (loss)

 

$

385,321

 

$

390,075

Less: Net income (loss) attributable to noncontrolling interests, net of tax

 

 

17,761

 

 

14,360

Net income (loss) attributable to DISH Network - Basic

 

 

367,560

 

 

375,715

Interest on dilutive Convertible Notes, net of tax (1)

 

 

 —

 

 

17,119

Net income (loss) attributable to DISH Network - Diluted

 

$

367,560

 

$

392,834

 

 

 

 

 

 

 

Weighted-average common shares outstanding - Class A and B common stock:

 

 

 

 

 

 

Basic

 

 

466,642

 

 

465,412

Dilutive impact of Convertible Notes

 

 

58,192

 

 

48,056

Dilutive impact of stock awards outstanding

 

 

475

 

 

975

Diluted

 

 

525,309

 

 

514,443

 

 

 

 

 

 

 

Earnings per share - Class A and B common stock:

 

 

 

 

 

 

Basic net income (loss) per share attributable to DISH Network

 

$

0.79

 

$

0.81

Diluted net income (loss) per share attributable to DISH Network

 

$

0.70

 

$

0.76

 

 

 

 

 

 

 

(1)

For the three months ended March 31, 2018, materially all of our interest expense was capitalized.  See Note 2 for further information.

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DISH NETWORK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Unaudited)

 

Certain stock awards to acquire our Class A common stock are not included in the weighted-average common shares outstanding above, as their effect is anti-dilutive.  In addition, vesting of performance based options and rights to acquire shares of our Class A common stock granted pursuant to our performance based stock incentive plans (“Restricted Performance Units”) are both contingent upon meeting certain goals, some of which are not yet probable of being achieved.  Furthermore, the warrants that we issued to certain option counterparties in connection with the Convertible Notes due 2026 are only exercisable at their expiration if the market price per share of our Class A common stock is greater than the strike price of the warrants, which is approximately $86.08 per share, subject to adjustments.  As a consequence, the following are not included in the diluted EPS calculation.

 

 

 

 

 

 

 

 

As of March 31,

 

    

2018

    

2017

 

 

(In thousands)

Anti-dilutive stock awards

 

3,572

 

1,491

Performance based options

    

4,804

 

6,489

Restricted Performance Units/Awards

 

2,061

 

1,318

Common stock warrants

 

46,029

 

46,029

Total

 

56,466

 

55,327

 

 

 

 

 

 

 

 

 

 

4.Supplemental Data - Statements of Cash Flows

 

The following table presents our supplemental cash flow and other non-cash data.

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended 

 

 

March 31,

 

    

2018

    

2017

 

 

(In thousands)

Cash paid for interest (including capitalized interest)

    

$

294,122

 

$

313,396

Cash received for interest

 

 

2,878

 

 

3,406

Cash paid for income taxes (1)

 

 

1,758

 

 

1,001

Capitalized interest (2)

 

 

261,680

 

 

236,570

Initial equity component of the 2 3/8% Convertible Notes due 2024, net of deferred taxes of $92,512

 

 

 —

 

 

159,869

Assets financed under capital lease obligations

 

 

142

 

 

 —

 

 

 

 

 

 

 

 

 

(1)

Certain changes resulting from the Tax Cuts and Jobs Act of 2017 (the “Tax Reform Act”), including, among other things, limitations on the deductibility of interest, may increase cash paid for income taxes in 2018. 

(2)

See Note 2 for further information.

 

 

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DISH NETWORK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Unaudited)

 

5.Marketable Investment Securities, Restricted Cash and Cash Equivalents, and Other Investment Securities

 

Our marketable investment securities, restricted cash and cash equivalents, and other investment securities consisted of the following:

 

 

 

 

 

 

 

 

 

As of

 

 

March 31,

 

December 31,

 

    

2018

    

2017

 

 

(In thousands)

Marketable investment securities:

 

 

 

 

 

 

Current marketable investment securities:

 

 

 

 

 

 

   Strategic - available-for-sale

 

$

195

 

$

195

   Strategic - trading/equity (Note 2)

 

 

56,078

 

 

93,367

   Other

 

 

107,441

 

 

407,603

Total current marketable investment securities

 

 

163,714

 

 

501,165

Restricted marketable investment securities (1)

 

 

72,231

 

 

72,014

Total marketable investment securities

 

 

235,945

 

 

573,179

 

 

 

 

 

 

 

Restricted cash and cash equivalents (1)

 

 

407

 

 

393

 

 

 

 

 

 

 

Other investment securities:

 

 

 

 

 

 

Other investment securities - equity method

 

 

115,429

 

 

113,460

Total other investment securities

 

 

115,429

 

 

113,460

 

 

 

 

 

 

 

Total marketable investment securities, restricted cash and cash equivalents, and other investment securities

 

$

351,781

 

$

687,032

 

 

 

 

 

 

 

(1)

Restricted marketable investment securities and restricted cash and cash equivalents are included in “Restricted cash, cash equivalents and marketable investment securities” on our Condensed Consolidated Balance Sheets.

 

Marketable Investment Securities

 

Our marketable investment securities portfolio consists of various debt and equity instruments.   All debt securities are classified as available-for-sale.  Subsequent to the adoption of ASU 2016-01 during the first quarter 2018, all equity securities are carried at fair value, with changes in fair value recognized in “Other, net” within “Other Income (Expense)” on our Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).  See Note 2 for further information. 

 

Current Marketable Investment Securities –  Strategic

 

Our current strategic marketable investment securities portfolio includes and may include strategic and financial debt and equity investments in private and public companies that are highly speculative and have experienced and continue to experience volatility.  As of March  31, 2018, this portfolio consisted of securities of a small number of issuers, and as a result the value of that portfolio depends, among other things, on the performance of those issuers.  The fair value of certain of the debt and equity securities in this portfolio can be adversely impacted by, among other things, the issuers’ respective performance and ability to obtain any necessary additional financing on acceptable terms, or at all.

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DISH NETWORK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Unaudited)

 

We had an investment in non-marketable preferred shares of a non-public company, which was previously accounted for as a cost method investment and included in “Other investment securities” on our Condensed Consolidated Balance Sheets.  During the third quarter 2017, our non-marketable preferred shares converted into common shares in conjunction with the issuer’s initial public offering, and accordingly we classified the new equity securities as “Marketable investment securities” on our Condensed Consolidated Balance Sheets.  We previously elected to account for these common shares as trading securities with changes in fair value reported each period as unrealized gains or losses in “Other, net” within “Other Income (Expense)” on our Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).  Subsequent to the adoption of ASU 2016-01 during the first quarter 2018, all equity securities are carried at fair value, with changes in fair value recognized in “Other, net” within “Other Income (Expense)” on our Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).  See Note 2 for further information. 

 

Current Marketable Investment Securities - Other

 

Our current marketable investment securities portfolio includes investments in various debt instruments including, among others, commercial paper, corporate securities and United States treasury and/or agency securities.

 

Commercial paper consists mainly of unsecured short-term, promissory notes issued primarily by corporations with maturities ranging up to 365 days.  Corporate securities consist of debt instruments issued by corporations with various maturities normally less than 18 months.  U.S. Treasury and agency securities consist of debt instruments issued by the federal government and other government agencies. 

 

Restricted Cash, Cash Equivalents and Marketable Investment Securities

 

As of March 31, 2018 and December 31, 2017, our restricted marketable investment securities, together with our restricted cash and cash equivalents, included amounts required as collateral for our letters of credit.

 

Other Investment Securities

 

We have strategic investments in certain debt and/or equity securities that are included in noncurrent “Other investment securities” on our Condensed Consolidated Balance Sheets.  Our debt securities are classified as available-for-sale and our equity securities are accounted for using the equity method of accounting or recorded at fair value.  Certain of our equity method investments are detailed below.

 

NagraStar L.L.C.  As a result of the completion of the Share Exchange on February 28, 2017, we own a 50% interest in NagraStar L.L.C. (“NagraStar”), a joint venture that is our primary provider of encryption and related security systems intended to assure that only authorized customers have access to our programming. 

 

Invidi Technologies Corporation.  In November 2016, we, DIRECTV, LLC, a wholly-owned indirect subsidiary of AT&T Inc., and Cavendish Square Holding B.V., an affiliate of WPP plc, entered into a series of agreements to acquire Invidi Technologies Corporation (“Invidi”), an entity that provides proprietary software for the addressable advertising market.  The transaction closed in January 2017. 

 

Our ability to realize value from our strategic investments in securities that are not publicly traded depends on the success of the issuers’ businesses and their ability to obtain sufficient capital, on acceptable terms or at all, and to execute their business plans.  Because private markets are not as liquid as public markets, there is also increased risk that we will not be able to sell these investments, or that when we desire to sell them we will not be able to obtain fair value for them.

 

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DISH NETWORK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Unaudited)

Unrealized Gains (Losses) on Marketable Investment Securities

 

As of March 31, 2018 and December 31, 2017, we had accumulated net unrealized losses  of less than $1 million.  These amounts, net of related tax effect, were accumulated net unrealized losses of less than $1 million.  All of these amounts are included in “Accumulated other comprehensive income (loss)” within “Total stockholders’ equity (deficit).”  The components of our available-for-sale investments are summarized in the table below.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of March 31, 2018

 

As of December 31, 2017

 

Marketable

 

 

 

 

 

 

 

 

 

 

Marketable

 

 

 

 

 

 

 

 

 

 

Investment

 

Unrealized

 

Investment

 

Unrealized

 

Securities

    

Gains

    

Losses

    

Net

    

Securities

    

Gains

    

Losses

    

Net

 

(In thousands)

Debt securities (including restricted):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury and agency securities

$

71,866

 

$

 —

 

$

(113)

 

$

(113)

 

$

84,286

 

$

22

 

$

(141)

 

$

(119)

Commercial paper

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

107,962

 

 

 —

 

 

(10)

 

 

(10)

Corporate securities

 

105,074

 

 

 —

 

 

(37)

 

 

(37)

 

 

282,256

 

 

 —

 

 

(124)

 

 

(124)

Other

 

2,927

 

 

58

 

 

(1)

 

 

57

 

 

5,308

 

 

58

 

 

(1)

 

 

57

Total

$

179,867

 

$

58

 

$

(151)

 

$

(93)

 

$

479,812

 

$

80

 

$

(276)

 

$

(196)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of March 31, 2018, restricted and non-restricted marketable investment securities included debt securities of $175 million with contractual maturities within one year and $5 million with contractual maturities extending longer than one year through and including five years.  Actual maturities may differ from contractual maturities as a result of our ability to sell these securities prior to maturity.

 

Marketable Investment Securities in a Loss Position

 

The following table reflects the length of time that the individual securities, accounted for as available-for-sale, have been in an unrealized loss position, aggregated by investment category.  As of March 31, 2018, the unrealized losses related to our investments in debt securities primarily represented investments in United States treasury and agency securities, corporate securities and other.  We have the ability to hold and do not intend to sell our investments in these debt securities before they recover or mature, and it is more likely than not that we will hold these investments until that time.  In addition, we are not aware of any specific factors indicating that the underlying issuers of these debt securities would not be able to pay interest as it becomes due or repay the principal at maturity.  Therefore, we believe that these changes in the estimated fair values of these marketable investment securities are related to temporary market fluctuations.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of

 

 

March 31, 2018

 

December 31, 2017

 

 

Fair 

 

Unrealized

 

Fair 

 

Unrealized

 

    

Value

    

Loss

    

Value

    

Loss

 

 

(In thousands)

Debt Securities:

 

 

 

 

 

 

 

 

 

 

 

 

Less than 12 months

 

$

111,505

 

$

(68)

 

$

410,145

 

$

(156)

12 months or more

 

 

24,093

 

 

(83)

 

 

34,340

 

 

(120)

Total

 

$

135,598

 

$

(151)

 

$

444,485

 

$

(276)

 

 

 

 

 

 

 

 

 

 

 

 

 

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DISH NETWORK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Unaudited)

Fair Value Measurements

 

Our investments measured at fair value on a recurring basis were as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of

 

 

March 31, 2018

 

December 31, 2017

 

    

Total  

    

Level 1

    

Level 2

    

Level 3

    

Total  

    

Level 1

    

Level 2

    

Level 3

 

 

(In thousands)

Cash equivalents (including restricted)

 

$

2,012,886

 

$

1,226,608

 

$

786,278