SEC Filing | Dish

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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 SEPTEMBER 30, 2019.

☐ 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)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Class A common stock, $0.01 par value	DISH	The Nasdaq Stock Market L.L.C.

Securities registered pursuant to Section 12(g) of the Act: None

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 every Interactive Data File required to be submitted 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 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 ☐		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 October 31, 2019, the registrant’s outstanding common stock consisted of 254,623,280 shares of Class A common stock and 238,435,208 shares of Class B common stock.

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TABLE OF CONTENTS

PART I — FINANCIAL INFORMATION

	Disclosure Regarding Forward-Looking Statements	i

Item 1.	Financial Statements

	Condensed Consolidated Balance Sheets — September 30, 2019 and December 31, 2018 (Unaudited)	1

	Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) For the Three and Nine Months Ended September 30, 2019 and 2018 (Unaudited)	2

	Condensed Consolidated Statements of Changes in Stockholders’ Equity (Deficit) For the Three and Nine Months Ended September 30, 2019 and 2018 (Unaudited)	3

	Condensed Consolidated Statements of Cash Flows For the Nine Months Ended September 30, 2019 and 2018 (Unaudited)	5

	Notes to Condensed Consolidated Financial Statements (Unaudited)	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	73

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	105

Item 4.	Controls and Procedures	105

PART II — OTHER INFORMATION

Item 1.	Legal Proceedings	105

Item 1A.	Risk Factors	105

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	105

Item 3.	Defaults Upon Senior Securities	None

Item 4.	Mine Safety Disclosures	None

Item 5.	Other Information	None

Item 6.	Exhibits	106

	Signatures	107

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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 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 certain 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 or those of third parties that we use in our operations, including, without limitation, those caused by cyber-attacks or other malicious activities, could disrupt or harm our business.

●

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 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.

●

Satellite anomalies or technological failures could adversely affect the value of a particular satellite or result in a complete loss. Some of the satellites acquired pursuant to the Master Transaction Agreement have experienced anomalies that may affect their useful lives or prohibit us from operating them to their currently expected capacity, and one or more of the satellites may suffer a technological failure, either of which could have an adverse effect on our business, financial condition and results of operations.

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●

We generally do not carry commercial in-orbit insurance on any of the satellites that we use 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, as well as certain renewal requirements. The failure to meet such build-out and/or renewal 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, including without limitation our ability to meet build-out requirements, and if we are unable to hire and retain key personnel or hire qualified personnel then our wireless business may be adversely affected.

●

The Prepaid Business Sale may not be completed on the terms or timeline currently contemplated, or at all, as we and the Sellers may be unable to satisfy the conditions or obtain the approvals required to complete the Prepaid Business Sale or such approvals may contain material restrictions or conditions.

●

We may fail to realize all of the anticipated benefits of the Prepaid Business Sale.

●

The integration of the BSS Business may not be as successful as anticipated.

●

We may fail to realize all of the anticipated benefits of the Master Transaction Agreement.

●

Despite the acquisition of additional satellites acquired pursuant to the Master Transaction Agreement, we continue to have limited satellite capacity, and failures or reduced capacity could adversely affect our DISH TV services.

●

Current DISH Network stockholders have reduced ownership and voting interest in and exercise less influence over management of DISH Network following the closing of the Master Transaction Agreement.

●

If we were to take certain actions that could cause the Distribution to become taxable to EchoStar, we may be required to indemnify EchoStar for any resulting tax liability, and the indemnity amounts could be substantial.

●

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.

iii

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●

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.

●

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 $280 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 DISH TV services depend on FCC licenses that can expire or be revoked or modified and applications for FCC licenses that may not be granted.

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●

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”) and in Part II, Item 1A of our Quarterly Report on Form 10-Q for the quarter ended June 30, 2019, 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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Item 1. FINANCIAL STATEMENTS

DISH NETWORK CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except share amounts)

(Unaudited)


	As of
	September 30,		December 31,
	2019		2018
Assets
Current Assets:
Cash and cash equivalents	$	1,403,358	$	887,346
Marketable investment securities		191,034		1,181,471
Trade accounts receivable, net of allowance for doubtful accounts of $23,121 and $16,966, respectively		577,797		639,855
Inventory		314,620		290,733
Other current assets		244,583		289,800
Total current assets		2,731,392		3,289,205

Noncurrent Assets:
Restricted cash, cash equivalents and marketable investment securities		60,851		67,597
Property and equipment, net		2,758,024		1,928,180
FCC authorizations		25,544,863		24,736,961
Other investment securities		159,590		118,992
Operating lease assets		152,178		—
Other noncurrent assets, net		364,542		446,077
Total noncurrent assets		29,040,048		27,297,807
Total assets	$	31,771,440	$	30,587,012

Liabilities and Stockholders' Equity (Deficit)
Current Liabilities:
Trade accounts payable	$	317,690	$	233,753
Deferred revenue and other		690,315		655,312
Accrued programming		1,412,196		1,474,207
Accrued interest		195,161		268,479
Other accrued expenses		777,865		802,388
Current portion of long-term debt and finance lease obligations		1,173,427		1,341,993
Total current liabilities		4,566,654		4,776,132

Long-Term Obligations, Net of Current Portion:
Long-term debt and finance lease obligations, net of current portion		12,960,779		13,810,784
Deferred tax liabilities		2,817,260		2,474,907
Operating lease liabilities		92,796		—
Long-term deferred revenue and other long-term liabilities		636,718		470,932
Total long-term obligations, net of current portion		16,507,553		16,756,623
Total liabilities		21,074,207		21,532,755

Commitments and Contingencies (Note 10)

Redeemable noncontrolling interests (Note 2)		528,205		460,068

Stockholders’ Equity (Deficit):
Class A common stock, $.01 par value, 1,600,000,000 shares authorized, 254,623,250 and 229,448,857 shares issued and outstanding, respectively		2,546		2,295
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		3,942,174		3,379,093
Accumulated other comprehensive income (loss)		(252)		(874)
Accumulated earnings (deficit)		6,222,898		5,212,790
Total DISH Network stockholders’ equity (deficit)		10,169,750		8,595,688
Noncontrolling interests		(722)		(1,499)
Total stockholders’ equity (deficit)		10,169,028		8,594,189
Total liabilities and stockholders’ equity (deficit)	$	31,771,440	$	30,587,012

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

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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				For the Nine Months Ended
	September 30,				September 30,
	2019		2018		2019		2018
Revenue:
Subscriber-related revenue	$	3,117,191	$	3,349,356	$	9,427,533	$	10,191,820
Equipment sales and other revenue		51,172		45,785		139,286		122,653
Total revenue		3,168,363		3,395,141		9,566,819		10,314,473

Costs and Expenses (exclusive of depreciation shown separately below - Note 7):
Subscriber-related expenses		1,934,806		2,123,798		5,940,774		6,468,176
Satellite and transmission expenses		92,295		136,869		369,804		436,565
Cost of sales - equipment and other		55,753		40,309		147,210		108,052
Subscriber acquisition costs:
Cost of sales - subscriber promotion subsidies		7,692		7,914		17,216		32,952
Other subscriber acquisition costs		136,950		73,614		325,714		219,420
Subscriber acquisition advertising		141,159		105,350		374,848		313,779
Total subscriber acquisition costs		285,801		186,878		717,778		566,151
General and administrative expenses		176,635		169,299		578,307		529,701
Depreciation and amortization (Note 7)		154,181		175,285		457,022		540,959
Total costs and expenses		2,699,471		2,832,438		8,210,895		8,649,604

Operating income (loss)		468,892		562,703		1,355,924		1,664,869

Other Income (Expense):
Interest income		32,301		10,525		65,944		30,461
Interest expense, net of amounts capitalized		(6,027)		(5,413)		(17,598)		(11,235)
Other, net		(1,796)		25,473		10,124		12,097
Total other income (expense)		24,478		30,585		58,470		31,323

Income (loss) before income taxes		493,370		593,288		1,414,394		1,696,192
Income tax (provision) benefit, net		(116,213)		(140,690)		(335,372)		(397,987)
Net income (loss)		377,157		452,598		1,079,022		1,298,205
Less: Net income (loss) attributable to noncontrolling interests, net of tax		23,853		20,864		68,914		60,194
Net income (loss) attributable to DISH Network	$	353,304	$	431,734	$	1,010,108	$	1,238,011

Weighted-average common shares outstanding - Class A and B common stock:
Basic		477,495		467,570		471,736		467,216
Diluted		535,746		525,995		530,041		525,752

Earnings per share - Class A and B common stock:
Basic net income (loss) per share attributable to DISH Network	$	0.74	$	0.92	$	2.14	$	2.65
Diluted net income (loss) per share attributable to DISH Network	$	0.66	$	0.82	$	1.91	$	2.35

Comprehensive Income (Loss):
Net income (loss)	$	377,157	$	452,598	$	1,079,022	$	1,298,205
Other comprehensive income (loss):
Foreign currency translation adjustments		(237)		(1,372)		(52)		(1,629)
Unrealized holding gains (losses) on available-for-sale securities		(211)		134		1,180		288
Recognition of previously unrealized (gains) losses on available-for-sale securities included in net income (loss)		(2)		(2)		(298)		(7)
Deferred income tax (expense) benefit, net		49		(32)		(208)		(71)
Total other comprehensive income (loss), net of tax		(401)		(1,272)		622		(1,419)
Comprehensive income (loss)		376,756		451,326		1,079,644		1,296,786
Less: Comprehensive income (loss) attributable to noncontrolling interests, net of tax		23,853		20,864		68,914		60,194
Comprehensive income (loss) attributable to DISH Network	$	352,903	$	430,462	$	1,010,730	$	1,236,592

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

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DISH NETWORK CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)

(In thousands)

(Unaudited)


					Accumulated
	Class A and B		Additional		Other		Accumulated						Redeemable
	Common		Paid-In		Comprehensive		Earnings		Noncontrolling				Noncontrolling
	Stock		Capital		Income (Loss)		(Deficit)		Interests		Total		Interests
Balance, December 31, 2017	$	4,664	$	3,296,488	$	882	$	3,635,380	$	492	$	6,937,906	$	383,390
Issuance of Class A common stock:
Exercise of stock awards		2		3,535		—		—		—		3,537		—
Employee Stock Purchase Plan		2		4,452		—		—		—		4,454		—
Non-cash, stock-based compensation		—		9,060		—		—		—		9,060		—
Change in unrealized holding gains (losses) on available-for-sale securities, net		—		—		103		—		—		103		—
Deferred income tax (expense) benefit attributable to unrealized gains (losses) on available-for-sale securities		—		—		(26)		—		—		(26)		—
Foreign currency translation		—		—		400		—		—		400		—
ASU 2014-09 cumulative catch-up adjustment		—		—		—		2,320		—		2,320		—
Net income (loss) attributable to noncontrolling interests		—		—		—		—		(51)		(51)		17,812
Net income (loss) attributable to DISH Network		—		—		—		367,560		—		367,560		—
Balance, March 31, 2018	$	4,668	$	3,313,535	$	1,359	$	4,005,260	$	441	$	7,325,263	$	401,202
Issuance of Class A common stock:
Exercise of stock awards		—		(107)		—		—		—		(107)		—
Employee benefits		6		27,315		—		—		—		27,321		—
Employee Stock Purchase Plan		1		3,845		—		—		—		3,846		—
Non-cash, stock-based compensation		—		9,712		—		—		—		9,712		—
Change in unrealized holding gains (losses) on available-for-sale securities, net		—		—		46		—		—		46		—
Deferred income tax (expense) benefit attributable to unrealized gains (losses) on available-for-sale securities		—		—		(13)		—		—		(13)		—
Foreign currency translation		—		—		(657)		—		—		(657)		—
Net income (loss) attributable to noncontrolling interests		—		—		—		—		2,191		2,191		19,378
Net income (loss) attributable to DISH Network		—		—		—		438,717		—		438,717		—
Other		—		—		—		—		(192)		(192)		—
Balance, June 30, 2018	$	4,675	$	3,354,300	$	735	$	4,443,977	$	2,440	$	7,806,127	$	420,580
Issuance of Class A common stock:
Exercise of stock awards		—		438		—		—