UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
(Mark One)
FOR THE QUARTERLY PERIOD ENDED
OR
FOR THE TRANSITION PERIOD FROM TO .
Commission File Number:
(Exact name of registrant as specified in its charter)
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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 | ||
The |
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.
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).
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.
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
As of April 19, 2021, the registrant’s outstanding common stock consisted of
TABLE OF CONTENTS
i | ||
Condensed Consolidated Balance Sheets — | 1 | |
2 | ||
3 | ||
4 | ||
Notes to Condensed Consolidated Financial Statements (Unaudited) | 5 | |
Management’s Discussion and Analysis of Financial Condition and Results of Operations | 68 | |
94 | ||
94 | ||
94 | ||
94 | ||
95 | ||
Item 3. | Defaults Upon Senior Securities | None |
Item 4. | Mine Safety Disclosures | None |
Item 5. | Other Information | None |
95 | ||
96 |
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:
SUMMARY OF RISK FACTORS
COVID-19 Pandemic
● | The COVID-19 pandemic and its impact on the economic environment generally, and on us specifically, have adversely impacted our business. Furthermore, any continuation or worsening of the pandemic and economic environment could have a material adverse effect on our business, financial condition and results of operations. |
Competition and Economic Risks
● | 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 new technologies in our Pay-TV business 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. |
● | We face certain risks competing in the wireless services industry and operating a facilities-based wireless services business. |
● | Our pay-TV 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. |
● | Through the MNSA, we depend primarily on T-Mobile in providing services to our retail wireless subscribers, and any system failure related to T-Mobile’s wireless network, interruption in the services provided by T-Mobile, including the shutdown of its CDMA Network on or around January 1, 2022 and/or the termination of the MNSA could negatively impact our subscriber activations, our subscriber churn rate and our subscriber base, which in turn could have a material adverse effect our business, financial condition and results of operations. |
● | Changes in how network operators handle and charge for access to data that travels across their networks could adversely impact our Pay-TV business. |
● | Economic weakness and uncertainty may adversely affect our ability to grow or maintain our business. |
i
Operational and Service Delivery Risks
● | Any deterioration in our operational performance and subscriber satisfaction could adversely affect our business, financial condition and results of operations. |
● | 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. |
● | With respect to our Pay-TV business, programming expenses are increasing, which may adversely affect our future financial condition and results of operations. |
● | We depend on others to provide the programming that we offer to our Pay-TV subscribers and, if we fail to obtain or lose access to certain programming, our Pay-TV 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. |
● | 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. |
● | Our failure to effectively invest in, introduce, and implement new competitive products and services 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, and the inability of these key vendors to meet our needs could have a material adverse effect on our business. |
● | We depend on independent third parties to solicit orders for our services that represent a meaningful percentage of our total gross new subscriber activations. |
● | We have limited satellite capacity and failures or reduced capacity could adversely affect our business, financial condition and results of operations. |
● | We may have potential conflicts of interest with EchoStar due to our common ownership and management. |
● | We rely on highly skilled personnel for our business, and any inability to hire and retain key personnel or hire qualified personnel may negatively affect our business, financial condition and results of operations. |
Acquisition and Capital Structure Risks
● | We have made substantial investments to acquire certain wireless spectrum licenses and other related assets, and we may be unable to realize a return on these assets. |
● | We have made substantial non-controlling investments in the Northstar Entities and the SNR Entities related to AWS-3 wireless spectrum licenses, and we may be unable to obtain a profitable return on these investments. |
● | 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 have substantial debt outstanding and may incur additional debt. |
● | 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. |
● | The conditional conversion features of our 3 3/8% Convertible Notes due 2026 (the “Convertible Notes due 2026”), our 2 3/8% Convertible Notes due 2024 (the “Convertible Notes due 2024”) and 0% Convertible Notes due 2025 (the “Convertible Notes due 2025,” and collectively with the Convertible Notes due 2026 and the Convertible Notes due 2024, the “Convertible Notes”), if triggered, may adversely affect our financial condition. |
ii
● | 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. |
● | We are controlled by one principal stockholder who is also our Chairman. |
● | 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. |
Legal and Regulatory Risks
● | 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 services depend on FCC licenses that can expire or be revoked or modified and applications for FCC licenses that may not be granted. |
● | If our internal controls are not effective, our business, stock price and investor confidence in our financial results may be adversely affected. |
● | 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.
iii
Item 1. FINANCIAL STATEMENTS
DISH NETWORK CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share amounts)
(Unaudited)
As of | |||||||
March 31, | December 31, | ||||||
2021 |
| 2020 |
| ||||
Assets | |||||||
Current Assets: | |||||||
Cash and cash equivalents | $ | | $ | | |||
Marketable investment securities | | | |||||
Trade accounts receivable, net of allowance for credit losses of $ | | | |||||
Inventory | | | |||||
Other current assets | | | |||||
Total current assets | | | |||||
Noncurrent Assets: | |||||||
Restricted cash, cash equivalents and marketable investment securities | | | |||||
Property and equipment, net | | | |||||
FCC authorizations | | | |||||
Other investment securities | | | |||||
Operating lease assets | | | |||||
Other noncurrent assets | | | |||||
Intangible assets, net | | | |||||
Total noncurrent assets | | | |||||
Total assets | $ | | $ | | |||
Liabilities and Stockholders' Equity (Deficit) | |||||||
Current Liabilities: | |||||||
Trade accounts payable | $ | | $ | | |||
Deferred revenue and other | | | |||||
Accrued programming | | | |||||
Accrued interest | | | |||||
Other accrued expenses | | | |||||
Current portion of long-term debt and finance lease obligations | | | |||||
Total current liabilities | | | |||||
Long-Term Obligations, Net of Current Portion: | |||||||
Long-term debt and finance lease obligations, net of current portion (Note 10) | | | |||||
Deferred tax liabilities | | | |||||
Operating lease liabilities | | | |||||
Long-term deferred revenue and other long-term liabilities | | | |||||
Total long-term obligations, net of current portion | | | |||||
Total liabilities | | | |||||
Commitments and Contingencies (Note 11) | |||||||
Redeemable noncontrolling interests (Note 2) | | | |||||
Stockholders’ Equity (Deficit): | |||||||
Class A common stock, $ | | | |||||
Class B common stock, $ | | | |||||
Additional paid-in capital | | | |||||
Accumulated other comprehensive income (loss) | | ( | |||||
Accumulated earnings (deficit) | | | |||||
Total DISH Network stockholders’ equity (deficit) | | | |||||
Noncontrolling interests | | | |||||
Total stockholders’ equity (deficit) | | | |||||
Total liabilities and stockholders’ equity (deficit) | $ | | $ | | |||
The accompanying notes are an integral part of these condensed consolidated financial statements.
1
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, | |||||
2021 |
| 2020 | |||
Revenue: | |||||
Service revenue | $ | | $ | | |
Equipment sales and other revenue | | | |||
Total revenue | | | |||
Costs and Expenses (exclusive of depreciation): | |||||
Cost of services | | | |||
Cost of sales - equipment and other | | | |||
Selling, general and administrative expenses | | | |||
Impairment of long-lived assets (Note 2) | — | | |||
Depreciation and amortization | | | |||
Total costs and expenses | | | |||
Operating income (loss) | | | |||
Other Income (Expense): | |||||
Interest income | | | |||
Interest expense, net of amounts capitalized | ( | ( | |||
Other, net | ( | | |||
Total other income (expense) | ( | | |||
Income (loss) before income taxes | | | |||
Income tax (provision) benefit, net | ( | ( | |||
Net income (loss) | | | |||
Less: Net income (loss) attributable to noncontrolling interests, net of tax | | | |||
Net income (loss) attributable to DISH Network | $ | | $ | | |
Weighted-average common shares outstanding - Class A and B common stock: | |||||
Basic | | | |||
Diluted | | | |||
Earnings per share - Class A and B common stock: | |||||
Basic net income (loss) per share attributable to DISH Network | $ | | $ | | |
Diluted net income (loss) per share attributable to DISH Network | $ | | $ | | |
Comprehensive Income (Loss): | |||||
Net income (loss) | $ | | $ | | |
Other comprehensive income (loss): | |||||
Foreign currency translation adjustments | | | |||
Unrealized holding gains (losses) on available-for-sale debt securities | ( | ( | |||
Recognition of previously unrealized (gains) losses on available-for-sale securities included in net income (loss) | ( | — | |||
Deferred income tax (expense) benefit, net | ( | | |||
Total other comprehensive income (loss), net of tax | | | |||
Comprehensive income (loss) | | | |||
Less: Comprehensive income (loss) attributable to noncontrolling interests, net of tax | | | |||
Comprehensive income (loss) attributable to DISH Network | $ | | $ | | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
2
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, 2019 | $ | | $ | | $ | ( | $ | | $ | ( | $ | | $ | | ||||||||
Issuance of Class A common stock: | ||||||||||||||||||||||
Exercise of stock awards | — | | — | — | — | | — | |||||||||||||||
Employee Stock Purchase Plan | | | — | — | — | | — | |||||||||||||||
Non-cash, stock-based compensation | — | | — | — | — | | — | |||||||||||||||
Change in unrealized holding gains (losses) on available-for-sale debt securities, net | — | — | ( | — | — | ( | — | |||||||||||||||
Deferred income tax (expense) benefit attributable to other comprehensive income (loss) | — | — | | — | — | | — | |||||||||||||||
Foreign currency translation | — | — | | — | — | | — | |||||||||||||||
Net income (loss) attributable to noncontrolling interests | — | — | — | — | | | — | |||||||||||||||
Net income (loss) attributable to DISH Network | — | — | — | | — | | | |||||||||||||||
Balance, March 31, 2020 | $ | | $ | | $ | | $ | | $ | ( | $ | | $ | | ||||||||
Balance, December 31, 2020 | $ | | $ | | $ | ( | $ | | $ | | $ | | $ | | ||||||||
Issuance of Class A common stock: | ||||||||||||||||||||||
Exercise of stock awards | | | — | — | — | | — | |||||||||||||||
Employee benefits | | | — | — | — | | — | |||||||||||||||
Employee Stock Purchase Plan | | | — | — | — | | — | |||||||||||||||
Non-cash, stock-based compensation | — | | — | — | — | | — | |||||||||||||||
Change in unrealized holding gains (losses) on available-for-sale debt securities, net | — | — | ( | — | — | ( | — | |||||||||||||||
Deferred income tax (expense) benefit attributable to other comprehensive income (loss) | — | — | ( | — | — | ( | — | |||||||||||||||
Foreign currency translation | — | — | | — | — | | — | |||||||||||||||
Convertible debt reclassified per ASU 2020-06, net of deferred taxes of $ | — | ( | — | — | — | ( | — | |||||||||||||||
Net income (loss) attributable to noncontrolling interests | — | — | — | — | | | — | |||||||||||||||
Net income (loss) attributable to DISH Network | — | — | — | | — | | | |||||||||||||||
Balance, March 31, 2021 | $ | | $ | | $ | | $ | | $ | | $ | | $ | | ||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
DISH NETWORK CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
For the Three Months Ended | |||||||
March 31, | |||||||
| 2021 |
| 2020 |
| |||
Cash Flows From Operating Activities: | |||||||
Net income (loss) |
| $ | | $ | | ||
Adjustments to reconcile net income (loss) to net cash flows from operating activities: | |||||||
Depreciation and amortization | | | |||||
Impairment of long-lived assets (Note 2) | — | | |||||
Realized and unrealized losses (gains) on investments and derivatives | | ( | |||||
Non-cash, stock-based compensation | | | |||||
Deferred tax expense (benefit) | | | |||||
Allowance for credit losses | ( | | |||||
Other, net | | | |||||
Changes in current assets and current liabilities, net | | | |||||
Net cash flows from operating activities | | | |||||
Cash Flows From Investing Activities: | |||||||
Purchases of marketable investment securities | ( | ( | |||||
Sales and maturities of marketable investment securities | | | |||||
Purchases of property and equipment | ( | ( | |||||
Capitalized interest related to FCC authorizations (Note 2) | ( | ( | |||||
Refund of FCC authorization deposit (Note 11) | | — | |||||
Other, net | | | |||||
Net cash flows from investing activities | | ( | |||||
Cash Flows From Financing Activities: | |||||||
Repayment of long-term debt and finance lease obligations | ( | ( | |||||
Repurchases of senior notes | ( | — | |||||
Early debt extinguishment | ( | — | |||||
Net proceeds from Class A common stock options exercised and stock issued under the Employee Stock Purchase Plan | | | |||||
Other, net | ( | | |||||
Net cash flows from financing activities | ( | ( | |||||
Net increase (decrease) in cash, cash equivalents, restricted cash and cash equivalents | | | |||||
Cash, cash equivalents, restricted cash and cash equivalents, beginning of period (Note 6) | | | |||||
Cash, cash equivalents, restricted cash and cash equivalents, end of period (Note 6) | $ | | $ | | |||
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
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
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, 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, a leased fiber optic network, in-home service and call center operations, and certain other assets utilized in our operations (“DISH TV”). 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. The SLING branded pay-TV services consist of, among other things, multichannel, live-linear streaming over-the-top (“OTT”) Internet-based domestic, international and Latino video programming services (“SLING TV”). As of March 31, 2021, we had
Wireless – Retail Wireless
As a result of the Boost Mobile Acquisition and the Ting Mobile Acquisition (as defined below), we have entered the retail wireless business. See Note 5 for further information. We offer nationwide prepaid and postpaid retail wireless services to subscribers under our Boost Mobile and Ting Mobile brands, as well as a competitive portfolio of wireless devices. Prepaid wireless subscribers generally pay in advance for monthly access to wireless talk, text, and data services. Postpaid wireless subscribers generally are qualified to pay after receiving wireless talk, text, and data services. We are currently operating our retail wireless business unit as a mobile virtual network operator (“MVNO”) while we build our 5G broadband network. As an MVNO, we depend primarily on T-Mobile US, Inc., (“T-Mobile”) to provide us with network services under the MNSA (as defined below). We acquired over
Wireless – 5G Network Deployment
We have directly invested over $
5
DISH NETWORK CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
DISH Network Spectrum
We have directly invested over $
Prior to starting our 5G Network Deployment, we notified the FCC in March 2017 that we planned to deploy a narrowband IoT network on certain of these wireless licenses, which we expected to complete by March 2020, with subsequent phases to be completed thereafter. In light of, among other things, certain developments related to the Sprint-T-Mobile merger, during the first quarter 2020, we determined that the revision of certain of our build-out deadlines was probable and, therefore, we no longer intended to complete our narrowband IoT deployment. The FCC issued an Order effectuating the build-out deadline changes contemplated above on September 11, 2020. During the first quarter 2020, we impaired certain assets that would not be utilized in our 5G Network Deployment, resulting in a $
We will need to make significant additional investments or partner with others to, among other things, complete our 5G Network Deployment and further commercialize, build-out and integrate these licenses and related assets and any additional acquired licenses and related assets, as well as to comply with regulations applicable to such licenses. Depending on the nature and scope of such activities, any such investments or partnerships could vary significantly. In addition, as we complete our 5G Network Deployment 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. We may also determine that additional wireless spectrum licenses may be required to complete our 5G Network Deployment and to compete with other wireless service providers. See Note 2 and Note 11 for further information.
DISH Network Non-Controlling Investments in the Northstar Entities and the SNR Entities Related to AWS-3 Wireless Spectrum Licenses
During 2015, 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 initially made over $
6
DISH NETWORK CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
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, as well as certain renewal 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 Northstar Re-Auction Payment and SNR Re-Auction Payment for the AWS-3 licenses retained by the FCC. Depending upon the nature and scope of such commercialization, build-out and 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 11 for further information.
Recent Developments
Boost Mobile Acquisition
Asset Purchase Agreement
On July 26, 2019, we entered into an Asset Purchase Agreement (the “APA”) with T-Mobile and Sprint Corporation (“Sprint” and together with T-Mobile, the “Sellers” and given the consummation of the Sprint- T-Mobile merger, sometimes referred to as “NTM”) to acquire from NTM certain assets and liabilities associated with Sprint’s Boost Mobile and Sprint-branded prepaid mobile services businesses (the “Prepaid Business”) for an aggregate purchase price of $
In connection with the Boost Mobile Acquisition and the consummation of the Sprint- T-Mobile merger, we, T-Mobile, Sprint, Deutsche Telekom AG (“DT”) and SoftBank Group Corporation (“SoftBank”) came to an agreement with the United States Department of Justice (the “DOJ”) on key terms and approval of the Transaction Agreements (as defined below) and our wireless service business and spectrum. On July 26, 2019, we, T-Mobile, Sprint, DT and SoftBank (collectively, the “Defendants”) entered into a Stipulation and Order (the “Stipulation and Order”) with the DOJ binding the Defendants to a Proposed Final Judgment (the “Proposed Final Judgment”) which memorialized the agreement between the DOJ and the Defendants. The Stipulation and Order and the Proposed Final Judgment were filed in the United States District Court for the District of Columbia (the “District Court”) on July 26, 2019 and on April 1, 2020, the Proposed Final Judgment was entered with the District Court (the Proposed Final Judgment as so entered with the District Court, the “Final Judgment”) and the Sellers consummated the Sprint- T-Mobile merger.
The term of the Final Judgment is
7
DISH NETWORK CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
Also in connection with the closing of the Boost Mobile Acquisition, we and T-Mobile entered into a transition services agreement under which we will receive certain transitional services (the “TSA”), a master network services agreement for the provision of network services by T-Mobile to us (the “MNSA”), an option agreement entitling us to acquire certain decommissioned cell sites and retail stores of T-Mobile (the “Option Agreement”) and an agreement under which we would purchase all of Sprint’s 800 MHz spectrum licenses, totaling approximately 13.5 MHz of nationwide wireless spectrum for an additional approximately $
Ting Mobile Acquisition
On August 1, 2020, we completed an asset purchase agreement with Tucows Inc. (“Tucows”) pursuant to which we purchased the assets of Ting Mobile, including over
Republic Wireless Acquisition
On March 8, 2021, we entered into an asset purchase agreement with Republic Wireless Inc. (“Republic Wireless”) pursuant to which certain assets and liabilities of Republic Wireless, including approximately
We accounted for the Boost Mobile Acquisition and Ting Mobile Acquisition as business combinations. The identifiable assets acquired and liabilities assumed were recorded at their preliminary fair values as of the acquisition date and are consolidated into our financial statements. See Note 5 for further information.
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, 2020. Certain prior period amounts have been reclassified to conform to the current period presentation.
8
DISH NETWORK CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
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.
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. The Northstar Operative Agreements, as amended, provide for, among other things, that 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 equals its equity contribution to Northstar Spectrum plus a fixed annual rate of return. The First Northstar Put Window began in the fourth quarter 2020 and the Second Northstar Put Window will begin in the fourth quarter 2021.
Northstar Purchase Agreement. On December 30, 2020, through our wholly owned subsidiary American II, we entered into a Purchase Agreement (the “Northstar Purchase Agreement”) with Northstar Manager and Northstar Spectrum, pursuant to which American II purchased
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” 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 Northstar Spectrum attributable to Northstar Manager 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 11 for further information.
9
DISH NETWORK CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
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. The SNR Operative Agreements, as amended, provide for, among other things, that 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 equals its equity contribution to SNR HoldCo plus a fixed annual rate of return. The First SNR Put Window began in the fourth quarter 2020, was not exercised and expired in January 2021. The Second SNR Put Window will begin in the fourth quarter 2021.
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 11 for further information.
As of March 31, 2021 and December 31, 2020, Northstar Manager’s ownership interest in Northstar Spectrum and SNR Management’s ownership interest in SNR HoldCo was $
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 credit losses (including those related to our installment billing programs), 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, the fair value of our option to purchase T-Mobile’s 800 MHz spectrum, relative standalone selling prices of performance obligations, finance leases, asset impairments, estimates of future cash flows used to evaluate and recognize 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.
10
DISH NETWORK CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
Impairment of Long-Lived Assets
We review our long-lived assets and identifiable finite-lived intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. For assets which are held and used in operations, the asset would be impaired if the carrying amount of the asset (or asset group) exceeded its undiscounted future net cash flows. Once an impairment is determined, the actual impairment recognized is the difference between the carrying amount and the fair value as estimated using one of the following approaches: income, cost and/or market. Assets which are to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. The carrying amount of a long-lived asset or asset group is considered impaired when the anticipated undiscounted cash flows from such asset or asset group is less than its carrying amount. In that event, a loss is recorded in “Impairment of long-lived assets” on our Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) based on the amount by which the carrying amount exceeds the fair value of the long-lived asset or asset group. Fair value, using the income approach, is determined primarily using a discounted cash flow model that uses the estimated cash flows associated with the asset or asset group under review, discounted at a rate commensurate with the risk involved. Fair value, utilizing the cost approach, is determined based on the replacement cost of the asset reduced for, among other things, depreciation and obsolescence. Fair value, utilizing the market approach, benchmarks the fair value against the carrying amount.
DBS Satellites. We currently evaluate our DBS satellite fleet for impairment as one asset group whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. We do not believe any triggering event has occurred which would indicate impairment as of March 31, 2021 or December 31, 2020. We will continue to monitor the DBS satellite fleet for indicators of impairment, including monitoring the impact of the COVID-19 pandemic on all aspects of our business.
AWS-4 Satellites. We historically have evaluated our AWS-4 satellite fleet for impairment whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. In light of, among other things, certain developments related to the Sprint-T-Mobile merger, during the first quarter 2020, we determined that revisions to the AWS-4 build-out deadlines were probable, which we determined to be a triggering event. Accordingly, we quantitatively assessed the value of the AWS-4 satellites (T1 and D1) and wrote down the fair value of the satellites to their estimated fair value of
Narrowband IoT network. As discussed in Note 11, in March 2017 we notified the FCC that we planned to deploy a narrowband IoT network. In October 2019, we paused work on the narrowband IoT deployment. In light of, among other things, certain developments related to the Sprint-T-Mobile merger, during the first quarter 2020, we determined that the revision of certain of our build-out deadlines were probable. Based on this, we no longer intended to complete our narrowband IoT deployment, which we considered a triggering event. As such, during the first quarter 2020, we reviewed the capitalized costs of equipment, labor and other assets related to the narrowband IoT deployment, including our operating lease assets, and impaired those items that would not be utilized in our ongoing 5G Network Deployment, resulting in a $
11
DISH NETWORK CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
Impairment of long-lived assets recorded during the three months ended March 31, 2020 consisted of the following:
For the Three Months Ended | ||||
| March 31, 2020 | |||
| (In thousands) | |||
T1 satellite | $ | | ||
D1 satellite | | |||
Construction in progress related to narrowband IoT deployment | | |||
Operating lease assets related to narrowband IoT deployment | | |||
Impairment of long-lived assets | $ | | ||
Capitalized Interest
We capitalize interest associated with the acquisition or construction of certain assets, including, among other things, our wireless spectrum licenses, build-out costs associated with our 5G Network Deployment and satellites. 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 wireless spectrum licenses, and Northstar Wireless and SNR Wireless are also preparing for the commercialization of their AWS-3 Licenses. As a result, the interest expense related to the carrying amount of these wireless spectrum licenses is being capitalized. As the carrying amount of these wireless spectrum licenses exceeds the carrying value of our long-term debt and finance lease obligations, materially all of our interest expense is being capitalized.
Business Combinations
When we acquire a business, we allocate the purchase price to the various components of the acquisition based upon the fair value of each component using various valuation techniques, including the market approach, income approach and/or cost approach. The accounting standard for business combinations requires identifiable assets, liabilities, noncontrolling interests and goodwill acquired to be recorded at acquisition date fair values. Transaction costs related to the acquisition of the business are expensed as incurred. Costs associated with the issuance of debt associated with a business combination are capitalized and included as a yield adjustment to the underlying debt’s stated rate.
Acquired intangible assets other than goodwill are amortized over their estimated useful lives unless the lives are determined to be indefinite. Amortization of these intangible assets in general are recognized on a straight-line basis over an average finite useful life primarily ranging from approximately to
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:
12
DISH NETWORK CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
● | 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, 2021 and December 31, 2020, the carrying amount for cash and cash equivalents, trade accounts receivable (net of allowance for credit losses) and current liabilities (excluding the “Current portion of long-term debt and finance lease obligations”) was equal to or approximated fair value due to their short-term nature or proximity to current market rates. See Note 6 for the fair value of our marketable investment securities and derivative 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 10 for the fair value of our long-term debt.
Convertible Long-Term Debt
Historically, for embedded conversion features, we have valued and bifurcated the conversion option associated with convertible notes (the “equity component”) from the host debt instrument. The initial value of the equity component on the convertible notes was recorded in “Additional paid-in capital” within “Stockholders’ equity (deficit)” on our Condensed Consolidated Balance Sheets with the offset recorded as the debt discount. In accordance with ASU 2020-06 Debt – Debt with Conversion and Other Options and Derivatives and Hedging – Contracts in Entity’s Own Equity (“ASU 2020-06”), which we adopted during the first quarter of 2021, the equity component related to our convertible notes of $
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 in both our Pay-TV and Wireless segments, 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, 2021 and 2020, we capitalized $
13
DISH NETWORK CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
Advertising Costs
We recognize advertising expense when incurred as a component of selling, general and administrative expense. Advertising expenses totaled $
Research and Development
Research and development costs are expensed as incurred and are included in “Selling, general and administrative expenses” on our Condensed Consolidated Statements of Operations and Comprehensive Income (Loss). Research and development costs totaled $
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 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, | |||||||
| 2021 |
| 2020 |