10-Q 1 a15-12058_110q.htm 10-Q

Table of Contents

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


 

Form 10-Q

 

(Mark One)

 

x      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2015.

 

OR

 

o         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 x  No o

 

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 x  No o

 

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

 

Large accelerated filer x

 

Accelerated filer o

 

 

 

Non-accelerated filer o

(Do not check if a smaller reporting company)

 

Smaller reporting company o

 

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

 

As of July 30, 2015, the registrant’s outstanding common stock consisted of 224,718,602 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 —
June 30, 2015 and December 31, 2014 (Unaudited)

1

 

 

 

 

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)
For the Three and Six Months Ended June 30, 2015 and 2014 (Unaudited)

2

 

 

 

 

Condensed Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 2015 and 2014 (Unaudited)

3

 

 

 

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

4

 

 

 

Item 2.

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

48

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

68

 

 

 

Item 4.

Controls and Procedures

69

 

 

 

PART II — OTHER INFORMATION

 

 

 

Item 1.

Legal Proceedings

69

 

 

 

Item 1A.

Risk Factors

69

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

69

 

 

 

Item 3.

Defaults Upon Senior Securities

None

 

 

 

Item 4.

Mine Safety Disclosures

None

 

 

 

Item 5.

Other Information

70

 

 

 

Item 6.

Exhibits

70

 

 

 

 

Signatures

71

 



Table of Contents

 

PART I — FINANCIAL INFORMATION

 

DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

 

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 Affecting our Business

 

·                  We face intense and increasing competition from satellite television providers, cable companies and telecommunications companies, especially as the pay-TV industry has matured, which may require us to further increase subscriber acquisition and retention spending or accept lower subscriber activations and higher subscriber churn.

 

·                  Competition from digital media companies that provide or facilitate the delivery of video content via the Internet may reduce our gross new 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 offer exclusive content that will place them at a competitive advantage to us.

 

·                  As a new service offering, our over-the-top or OTT Internet-based services face certain risks, including, among others, significant competition.

 

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

 

Operational and Service Delivery Risks Affecting our Business

 

·                  If we do not continue improving our operational performance and customer satisfaction, our gross new subscriber activations may decrease and our subscriber churn may increase.

 

·                  If our gross new subscriber activations decrease, or if our subscriber churn, subscriber acquisition costs or retention costs increase, our financial performance will be adversely affected.

 

·                  Programming expenses are increasing and could 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 lose access to this programming, our gross new subscriber activations may decline and our subscriber churn may increase.

 

·                  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.

 

i



Table of Contents

 

·                  Any failure or inadequacy of our information technology infrastructure and communications systems could disrupt or harm our business.

 

·                  We currently depend on EchoStar Corporation and its subsidiaries, or EchoStar, to design, develop and manufacture substantially all of our new set-top boxes and certain related components, to provide the vast majority of our transponder capacity, to provide digital broadcast operations and other services to us, and to provide the IPTV streaming technology for our OTT services.  Our business would be adversely affected if EchoStar ceases to provide these products and services to us and we are unable to obtain suitable replacement products and services from third parties.

 

·                  We operate in an extremely competitive environment and our success may depend in part on our timely introduction and implementation of, and effective investment in, new competitive products and services, the failure of which could negatively impact our business.

 

·                  Technology in our industry changes rapidly and our inability to offer new subscribers and upgrade existing subscribers with more advanced equipment could cause our products and services to become obsolete.

 

·                  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.

 

·                  Our primary supplier of new set-top boxes, EchoStar, relies 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 third parties to solicit orders for our services that represent a significant percentage of our total gross new subscriber activations.

 

·                  We have limited satellite capacity and failures or reduced capacity could adversely affect our business.

 

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

 

·                  We generally do not carry commercial insurance for any of the in-orbit 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 businesses.

 

Acquisition and Capital Structure Risks Affecting our Business

 

·                  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 the AWS-3 Auction.

 

·                  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.

 

·                  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.

 

·                  We may pursue acquisitions and other strategic transactions to complement or expand our businesses 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 businesses and to finance acquisitions and other strategic transactions.

 

ii



Table of Contents

 

·                  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.

 

·                  We have substantial debt outstanding and may incur additional debt.

 

·                  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, President and Chief Executive Officer.

 

Legal and Regulatory Risks Affecting our Business

 

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

 

·                  We are 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 OTT 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, or 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.

 

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 and its subsidiaries, a wholly-owned, indirect subsidiary of DISH Network.

 

iii



Table of Contents

 

Item 1.  FINANCIAL STATEMENTS

 

DISH NETWORK CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except share amounts)

(Unaudited)

 

 

 

As of

 

 

 

June 30,

 

December 31,

 

 

 

2015

 

2014

 

Assets

 

 

 

 

 

Current Assets:

 

 

 

 

 

Cash and cash equivalents

 

$

694,249

 

$

7,104,496

 

Marketable investment securities

 

401,261

 

2,131,745

 

Trade accounts receivable - other, net of allowance for doubtful accounts of $15,833 and $23,603, respectively

 

968,472

 

920,103

 

Trade accounts receivable - EchoStar, net of allowance for doubtful accounts of zero

 

50,237

 

31,390

 

Inventory

 

466,200

 

493,754

 

Deferred tax assets

 

25,667

 

25,667

 

Derivative financial instruments (Note 2)

 

551,847

 

383,460

 

FCC auction deposits

 

9,995,567

 

1,320,000

 

Other current assets

 

124,783

 

167,119

 

Total current assets

 

13,278,283

 

12,577,734

 

 

 

 

 

 

 

Noncurrent Assets:

 

 

 

 

 

Restricted cash and marketable investment securities

 

86,984

 

86,984

 

Property and equipment, net

 

3,770,469

 

3,773,539

 

FCC authorizations

 

4,968,171

 

4,968,171

 

Other investment securities

 

327,250

 

327,250

 

Other noncurrent assets, net

 

331,531

 

337,530

 

Total noncurrent assets

 

9,484,405

 

9,493,474

 

Total assets

 

$

22,762,688

 

$

22,071,208

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity (Deficit)

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

Trade accounts payable - other

 

$

205,618

 

$

165,324

 

Trade accounts payable - EchoStar

 

241,523

 

251,669

 

Deferred revenue and other

 

931,555

 

891,373

 

Accrued programming

 

1,515,581

 

1,376,130

 

Accrued interest

 

224,981

 

227,158

 

Other accrued expenses

 

657,421

 

519,404

 

Current portion of long-term debt and capital lease obligations

 

1,532,556

 

681,467

 

Total current liabilities

 

5,309,235

 

4,112,525

 

 

 

 

 

 

 

Long-Term Obligations, Net of Current Portion:

 

 

 

 

 

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

 

12,235,118

 

13,746,059

 

Deferred tax liabilities

 

2,000,991

 

1,882,711

 

Long-term deferred revenue, distribution and carriage payments and other long-term liabilities

 

294,910

 

276,281

 

Total long-term obligations, net of current portion

 

14,531,019

 

15,905,051

 

Total liabilities

 

19,840,254

 

20,017,576

 

 

 

 

 

 

 

Commitments and Contingencies (Note 10)

 

 

 

 

 

 

 

 

 

 

 

Redeemable noncontrolling interests (Note 2)

 

255,754

 

41,498

 

 

 

 

 

 

 

Stockholders’ Equity (Deficit):

 

 

 

 

 

Class A common stock, $.01 par value, 1,600,000,000 shares authorized, 280,817,347 and 279,406,646 shares issued, 224,699,087 and 223,288,386 shares outstanding, respectively

 

2,808

 

2,794

 

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

 

2,750,060

 

2,678,791

 

Accumulated other comprehensive income (loss)

 

82,165

 

174,507

 

Accumulated earnings (deficit)

 

1,399,900

 

723,992

 

Treasury stock, at cost

 

(1,569,459

)

(1,569,459

)

Total DISH Network stockholders’ equity (deficit)

 

2,667,858

 

2,013,009

 

Noncontrolling interests

 

(1,178

)

(875

)

Total stockholders’ equity (deficit)

 

2,666,680

 

2,012,134

 

Total liabilities and stockholders’ equity (deficit)

 

$

22,762,688

 

$

22,071,208

 

 

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

 

For the Six Months

 

 

 

Ended June 30,

 

Ended June 30,

 

 

 

2015

 

2014

 

2015

 

2014

 

Revenue:

 

 

 

 

 

 

 

 

 

Subscriber-related revenue

 

$

3,801,416

 

$

3,645,101

 

$

7,494,946

 

$

7,201,288

 

Equipment sales and other revenue

 

17,558

 

26,279

 

35,415

 

48,518

 

Equipment sales, services and other revenue - EchoStar

 

13,451

 

16,739

 

26,292

 

32,511

 

Total revenue

 

3,832,425

 

3,688,119

 

7,556,653

 

7,282,317

 

 

 

 

 

 

 

 

 

 

 

Costs and Expenses (exclusive of depreciation shown separately below - Note 8):

 

 

 

 

 

 

 

 

 

Subscriber-related expenses

 

2,235,536

 

2,104,236

 

4,407,255

 

4,173,368

 

Satellite and transmission expenses

 

194,444

 

180,957

 

381,284

 

330,453

 

Cost of sales - equipment, services and other

 

23,805

 

30,165

 

54,300

 

57,958

 

Subscriber acquisition costs:

 

 

 

 

 

 

 

 

 

Cost of sales - subscriber promotion subsidies

 

55,464

 

68,310

 

108,389

 

131,185

 

Other subscriber acquisition costs

 

218,396

 

253,823

 

427,572

 

506,287

 

Subscriber acquisition advertising

 

131,841

 

134,329

 

275,431

 

268,136

 

Total subscriber acquisition costs

 

405,701

 

456,462

 

811,392

 

905,608

 

General and administrative expenses

 

176,066

 

189,660

 

375,474

 

392,773

 

Depreciation and amortization (Note 8)

 

262,886

 

271,895

 

509,098

 

521,115

 

Total costs and expenses

 

3,298,438

 

3,233,375

 

6,538,803

 

6,381,275

 

 

 

 

 

 

 

 

 

 

 

Operating income (loss)

 

533,987

 

454,744

 

1,017,850

 

901,042

 

 

 

 

 

 

 

 

 

 

 

Other Income (Expense):

 

 

 

 

 

 

 

 

 

Interest income

 

3,616

 

18,212

 

12,110

 

32,376

 

Interest expense, net of amounts capitalized

 

(152,751

)

(152,769

)

(309,064

)

(328,763

)

Other, net

 

135,478

 

8,834

 

255,767

 

3,645

 

Total other income (expense)

 

(13,657

)

(125,723

)

(41,187

)

(292,742

)

 

 

 

 

 

 

 

 

 

 

Income (loss) before income taxes

 

520,330

 

329,021

 

976,663

 

608,300

 

Income tax (provision) benefit, net

 

(188,004

)

(121,892

)

(291,085

)

(230,354

)

Net income (loss)

 

332,326

 

207,129

 

685,578

 

377,946

 

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

 

7,903

 

(6,184

)

9,670

 

(11,298

)

Net income (loss) attributable to DISH Network

 

$

324,423

 

$

213,313

 

$

675,908

 

$

389,244

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

Basic

 

462,929

 

459,863

 

462,512

 

459,147

 

Diluted

 

464,635

 

462,607

 

464,400

 

461,941

 

 

 

 

 

 

 

 

 

 

 

Earnings per share - Class A and B common stock:

 

 

 

 

 

 

 

 

 

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

 

$

0.70

 

$

0.46

 

$

1.46

 

$

0.85

 

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

 

$

0.70

 

$

0.46

 

$

1.46

 

$

0.84

 

 

 

 

 

 

 

 

 

 

 

Comprehensive Income (Loss):

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

332,326

 

$

207,129

 

$

685,578

 

$

377,946

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

 

 

3,878

 

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

 

39,405

 

9,586

 

46,827

 

19,569

 

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

 

(34,310

)

(555

)

(93,797

)

(62

)

Deferred income tax (expense) benefit, net

 

(1,961

)

(3,299

)

(45,372

)

(7,128

)

Total other comprehensive income (loss), net of tax

 

3,134

 

5,732

 

(92,342

)

16,257

 

Comprehensive income (loss)

 

335,460

 

212,861

 

593,236

 

394,203

 

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

 

7,903

 

(6,184

)

9,670

 

(11,298

)

Comprehensive income (loss) attributable to DISH Network

 

$

327,557

 

$

219,045

 

$

583,566

 

$

405,501

 

 

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

 

2



Table of Contents

 

DISH NETWORK CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

 

For the Six Months

 

 

 

Ended June 30,

 

 

 

2015

 

2014

 

Cash Flows From Operating Activities:

 

 

 

 

 

Net income (loss)

 

$

685,578

 

$

377,946

 

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

 

 

 

 

 

Depreciation and amortization

 

509,098

 

521,115

 

Realized and unrealized losses (gains) on investments

 

(262,727

)

(6,906

)

Non-cash, stock-based compensation

 

14,823

 

20,644

 

Deferred tax expense (benefit)

 

72,427

 

58,118

 

Other, net

 

27,161

 

49,358

 

Changes in current assets and current liabilities, net

 

402,796

 

130,881

 

Net cash flows from operating activities from continuing operations

 

1,449,156

 

1,151,156

 

Net cash flows from operating activities from discontinued operations, net

 

 

(30,007

)

 

 

 

 

 

 

Cash Flows From Investing Activities:

 

 

 

 

 

Purchases of marketable investment securities

 

(112,864

)

(2,679,365

)

Sales and maturities of marketable investment securities

 

1,892,987

 

2,925,112

 

Purchases of property and equipment

 

(534,746

)

(600,610

)

Purchases of FCC authorizations - H Block wireless spectrum licenses (Note 10)

 

 

(1,343,372

)

AWS-3 FCC license deposits (Note 10)

 

(9,075,567

)

 

AWS-3 FCC deposit refund (Note 10)

 

400,000

 

 

Other, net

 

(38

)

41,548

 

Net cash flows from investing activities from continuing operations

 

(7,430,228

)

(1,656,687

)

Net cash flows from investing activities from discontinued operations, net, including $0 and $0 of purchases of property and equipment, respectively

 

 

20,847

 

 

 

 

 

 

 

Cash Flows From Financing Activities:

 

 

 

 

 

Redemption and repurchases of long-term debt

 

(650,001

)

(101,208

)

Capital contributions from Northstar Manager and SNR Management (Note 10)

 

204,200

 

 

Repayment of long-term debt and capital lease obligations

 

(15,053

)

(15,606

)

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

 

18,001

 

29,696

 

Other, net

 

13,678

 

19,986

 

Net cash flows from financing activities from continuing operations

 

(429,175

)

(67,132

)

 

 

 

 

 

 

Net increase (decrease) in cash and cash equivalents from continuing operations

 

(6,410,247

)

(572,663

)

Cash and cash equivalents, beginning of period from continuing operations

 

7,104,496

 

4,700,022

 

Cash and cash equivalents, end of period from continuing operations

 

$

694,249

 

$

4,127,359

 

 

 

 

 

 

 

Net increase (decrease) in cash and cash equivalents from discontinued operations

 

 

(9,160

)

Cash and cash equivalents, beginning of period from discontinued operations

 

 

9,160

 

Cash and cash equivalents, end of period from discontinued operations

 

$

 

$

 

 

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.

 

·            DISH.  We offer pay-TV services under the DISH® brand (“DISH”) and the Sling® brand (“Sling”) (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, third-party 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.  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”).  Prior to 2015, we launched our Sling International video programming service (formerly known as DishWorld).  Sling International subscribers have historically been included in our Pay-TV subscriber count and represented a small percentage of our Pay-TV subscribers.  During 2015, we launched our Sling domestic and Sling Latino services.  For the three and six months ended June 30, 2015, we have included all Sling TV subscribers in our Pay-TV subscriber count.  As of June 30, 2015, we had 13.932 million Pay-TV subscribers in the United States.

 

In addition, we market broadband services under the dishNET™ brand, which had 0.595 million subscribers in the United States as of June 30, 2015.  Our satellite broadband service utilizes advanced technology and high-powered satellites launched by Hughes Communications, Inc. (“Hughes”) and ViaSat, Inc. (“ViaSat”) to provide broadband coverage nationwide.  This service primarily targets rural residents that are underserved, or unserved, by wireline broadband.  In addition to the dishNET branded satellite broadband service, we also offer wireline voice and broadband services under the dishNET brand as a competitive local exchange carrier to consumers living in a 14-state region in the western United States.  We primarily bundle our dishNET branded services with our DISH branded pay-TV service.

 

·                  Wireless

 

·                  DISH Spectrum.  We have invested over $5.0 billion since 2008 to acquire certain wireless spectrum licenses and related assets.  These wireless spectrum licenses are subject to certain interim and final build-out requirements.  As we review our options for the commercialization of our wireless spectrum, we may incur significant additional expenses and may have to make significant investments related to, among other things, research and development, wireless testing and wireless network infrastructure, as well as the acquisition of additional wireless spectrum.

 

·                  AWS-3 Auction.  On February 13, 2015, Northstar Wireless, LLC (“Northstar Wireless”) and SNR Wireless LicenseCo, LLC (“SNR Wireless”) each filed applications with the FCC to acquire certain AWS-3 wireless spectrum licenses (the “AWS-3 Licenses”) that were made available in the auction designated by the FCC as Auction 97 (the “AWS-3 Auction”) for which it was named as winning bidder and had made the required down payments.  Each of Northstar Wireless and SNR Wireless had applied to receive a bidding credit of 25% as designated entities under applicable FCC rules.  We own an 85% non-controlling interest in each of Northstar Spectrum, LLC (“Northstar Spectrum,” and collectively with Northstar Wireless, the “Northstar Entities”) and SNR Wireless Holdco, LLC (“SNR Holdco,” and collectively with SNR Wireless, the “SNR Entities”), the parent companies of Northstar Wireless and SNR Wireless, respectively.  After Northstar Wireless and SNR Wireless made their respective final payments to the FCC on March 2, 2015 for the AWS-3 Licenses (which payments

 

4



Table of Contents

 

DISH NETWORK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Unaudited)

 

were net of a bidding credit of 25%), our total non-controlling equity and debt investments in these entities and their parent companies, respectively, were approximately $9.778 billion.  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 have consolidated these entities into our financial statements beginning in the fourth quarter 2014.  See Note 2 for further discussion.

 

On April 29, 2015, the FCC issued a public notice that, among other things, found the applications filed by Northstar Wireless and SNR Wireless, upon initial review, to be acceptable for filing.  The FCC’s public notice also set the following filing deadlines related to the applications: (i) petitions to deny the applications must have been filed no later than May 11, 2015; (ii) oppositions to a petition to deny the applications must have been filed no later than May 18, 2015; and (iii) replies to oppositions must have been filed no later than May 26, 2015.  In addition, on April 29, 2015, we received a letter from the United States Senate Committee on Commerce, Science and Transportation (the “Senate Committee”), requesting certain information related to our relationship with Northstar Wireless and SNR Wireless and our participation in the AWS-3 Auction.  We cannot predict the timing or the outcome of the Senate Committee’s inquiry.

 

On July 22, 2015, we, Northstar Wireless, SNR Wireless and certain other parties attended a meeting with staff of the Wireless Telecommunications Bureau of the FCC to discuss a draft order that has been circulated by the Chairman’s office for approval by the other Commissioners relating to Northstar Wireless’ and SNR Wireless’ respective pending applications for the AWS-3 Licenses.  At the meeting and as subsequently confirmed by a summary of the meeting released by the FCC, we were informed that the draft order, if approved, would find that: (i) DISH Network has a controlling interest in Northstar Wireless and SNR Wireless, therefore DISH Network’s revenues should be attributed to them, which in turn makes Northstar Wireless and SNR Wireless ineligible to receive the 25% bidding credits (approximately $1.961 billion for Northstar Wireless and $1.370 billion for SNR Wireless) for which each had applied to receive as designated entities under applicable FCC rules; (ii) Northstar Wireless and SNR Wireless are qualified to hold the AWS-3 Licenses; (iii) the FCC will not designate the matter for a hearing, or refer the matter to the FCC enforcement bureau or the Department of Justice; and (iv) all other relief sought by the parties that filed Petitions to Deny will be denied.  The draft order remains subject to change, and must be approved by a majority of the Commissioners to become effective.

 

In the event that the FCC grants the AWS-3 Licenses to Northstar Wireless (the “Northstar Licenses”) and to SNR Wireless (the “SNR Licenses”), we may need to make significant additional loans to the Northstar Entities and to the SNR Entities, or they may need to partner with others, so that the Northstar Entities and the SNR Entities may commercialize, build-out and integrate the Northstar Licenses and the SNR Licenses, and comply with regulations applicable to the Northstar Licenses and the SNR Licenses.  Depending upon the nature and scope of such commercialization, build-out, integration efforts, and regulatory compliance, any such loans 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.

 

As a result of, among other things, our non-controlling debt and equity investments in the Northstar Entities and the SNR Entities, we may need to raise significant additional capital in the future, which may not be available on acceptable terms or at all, to among other things, make further investments in the Northstar Entities and the SNR Entities, continue investing in our businesses and to pursue acquisitions and other strategic transactions.  In addition, economic weakness or weak results of operations may limit our ability to generate sufficient internal cash to fund such non-controlling debt and equity

 

5



Table of Contents

 

DISH NETWORK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Unaudited)

 

investments, investments in our businesses, acquisitions and other strategic transactions, as well as to fund ongoing operations and service our debt.  As a result, these conditions make it difficult for us to accurately forecast and plan future business activities because we may not have access to funding sources necessary for us to pursue organic and strategic business development opportunities.

 

See Note 10 for further discussion.

 

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, 2014.  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 discussion.  Non-majority owned 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, the cost method is used.  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 have consolidated Northstar Spectrum into our financial statements beginning in the fourth quarter 2014.  After the five-year anniversary of the grant of the Northstar Licenses, 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.  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 interest” 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 interest” in our Condensed Consolidated Balance Sheets, with the offset recorded in “Income (loss) attributable to noncontrolling interest, 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

 

6



Table of Contents

 

DISH NETWORK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Unaudited)

 

recorded as “Redeemable noncontrolling interest” in our Condensed Consolidated Balance Sheets, with the offset recorded in “Income (loss) attributable to noncontrolling interests, net of tax” on our Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).  See Note 10 for further discussion on Northstar Wireless and the AWS-3 Auction.

 

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 have consolidated SNR Holdco into our financial statements beginning in the fourth quarter 2014.  After the five-year anniversary of the grant of the SNR Licenses, 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.  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 interest” 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 interest” in our Condensed Consolidated Balance Sheets, with the offset recorded in “Income (loss) attributable to noncontrolling interest, net of tax” on our Statements of Operations and Comprehensive Income (Loss).  The operating results of SNR Holdco attributable to SNR Management are recorded as “Redeemable noncontrolling interest” in our Condensed Consolidated Balance Sheets, with the offset recorded in “Income (loss) attributable to noncontrolling interests, net of tax” on our Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).  See Note 10 for further discussion on SNR Wireless and the AWS-3 Auction.

 

Discontinued Operations

 

On April 26, 2011, we completed the acquisition of most of the assets of Blockbuster, Inc.  As of December 31, 2013, Blockbuster had ceased material operations.  The results of Blockbuster are presented for all periods as discontinued operations in our condensed consolidated financial statements.  On January 14, 2014, we completed the sale of our Blockbuster operations in Mexico.

 

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, 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.

 

7



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 June 30, 2015 and December 31, 2014, the carrying value 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”) is equal to or approximates 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 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 estimated based on 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 9 for the fair value of our long-term debt.

 

Derivative Financial Instruments

 

We may purchase and hold derivative financial instruments for, among other reasons, strategic or speculative purposes.  We record all derivative financial instruments on our Condensed Consolidated Balance Sheets at fair value as either assets or liabilities.  Changes in the fair values of derivative financial instruments are recognized in our results of operations and included in “Other, net” within “Other Income (Expense)” on our Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).  We currently have not designated any derivative financial instrument for hedge accounting.

 

As of June 30, 2015 and December 31, 2014, we held derivative financial instruments indexed to the trading price of common equity securities with a fair value of $552 million and $383 million, respectively.  The fair value of the derivative financial instruments is dependent on the trading price of the indexed common equity securities, which may be volatile and vary depending on, among other things, the issuer’s financial and operational performance and market conditions.

 

8



Table of Contents

 

DISH NETWORK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Unaudited)

 

New Accounting Pronouncements

 

Revenue from Contracts with Customers.  On May 28, 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update 2014-09 (“ASU 2014-09”), Revenue from Contracts with Customers.  This converged standard on revenue recognition was issued jointly with the International Accounting Standards Board (“IASB”) to improve financial reporting by creating common revenue recognition guidance for GAAP and International Financial Reporting Standards (“IFRS”).  ASU 2014-09 provides a framework for revenue recognition that replaces most existing GAAP revenue recognition guidance when it becomes effective.  ASU 2014-09 allows for either a full retrospective or modified retrospective adoption.  We are evaluating the effect that ASU 2014-09 will have on our consolidated financial statements and related disclosures.  We have not yet selected an adoption method nor have we determined the effect of the standard on our ongoing financial reporting.  On July 9, 2015, the FASB approved a one year deferral on the effective date for implementation of this standard, which changed the effective date for us to January 1, 2018.

 

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.  The potential dilution from stock awards was computed using the treasury stock method based on the average market value of our Class A common stock.  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

 

For the Six Months

 

 

 

Ended June 30,

 

Ended June 30,

 

 

 

2015

 

2014

 

2015

 

2014

 

 

 

(In thousands, except per share amounts)

 

Net income (loss)

 

$

332,326

 

$

207,129

 

$

685,578

 

$

377,946

 

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

 

7,903

 

(6,184

)

9,670

 

(11,298

)

Net income (loss) attributable to DISH Network

 

$

324,423

 

$

213,313

 

$

675,908

 

$

389,244

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

Basic

 

462,929

 

459,863

 

462,512

 

459,147

 

Dilutive impact of stock awards outstanding

 

1,706

 

2,744

 

1,888

 

2,794

 

Diluted

 

464,635

 

462,607

 

464,400

 

461,941

 

 

 

 

 

 

 

 

 

 

 

Earnings per share - Class A and B common stock:

 

 

 

 

 

 

 

 

 

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

 

$

0.70

 

$

0.46

 

$

1.46

 

$

0.85

 

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

 

$

0.70

 

$

0.46

 

$

1.46

 

$

0.84

 

 

As of June 30, 2015 and 2014, there were stock awards to acquire 0.6 million and 0.3 million shares, respectively, of Class A common stock outstanding, not included in the weighted-average common shares outstanding above, as their effect is anti-dilutive.

 

9



Table of Contents

 

DISH NETWORK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Unaudited)

 

Vesting of options and rights to acquire shares of our Class A common stock granted pursuant to our performance based stock incentive plans (“Restricted Performance Units”) is contingent upon meeting certain goals, some of which are not yet probable of being achieved.  As a consequence, the following are also not included in the diluted EPS calculation.

 

 

 

As of June 30,

 

 

 

2015

 

2014

 

 

 

(In thousands)

 

Performance based options (1)

 

3,949

 

7,339

 

Restricted Performance Units (1)

 

1,389

 

1,834

 

Total (1)

 

5,338

 

9,173

 

 


(1)         The decrease in performance based options and Restricted Performance Units primarily resulted from the expiration of the 2005 LTIP.

 

4.                                      Supplemental Data — Statements of Cash Flows

 

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

 

 

 

For the Six Months

 

 

 

Ended June 30,

 

 

 

2015

 

2014

 

 

 

(In thousands)

 

Cash paid for interest (including capitalized interest)

 

$

438,592

 

$

422,744

 

Cash received for interest

 

16,083

 

78,691

 

Cash paid for income taxes

 

14,501

 

156,337

 

Capitalized interest

 

133,102

 

94,414

 

Employee benefits paid in Class A common stock

 

26,026

 

25,775

 

Unsettled trades related to repurchases of long-term debt

 

 

12,673

 

Satellite and Tracking Stock Transaction with EchoStar:

 

 

 

 

 

Transfer of property and equipment, net

 

 

432,080

 

Investment in EchoStar and HSSC preferred tracking stock - cost method

 

 

316,204

 

Transfer of liabilities and other

 

 

44,540

 

Capital distribution to EchoStar, net of deferred taxes of $31,274

 

 

51,466

 

 

10



Table of Contents

 

DISH NETWORK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Unaudited)

 

5.             Other Comprehensive Income (Loss)

 

The following tables present the tax effect on each component of “Other comprehensive income (loss).”

 

 

 

For the Three Months Ended June 30,

 

 

 

2015

 

2014

 

 

 

Before

 

Tax

 

Net

 

Before

 

Tax

 

Net

 

 

 

Tax

 

(Expense)

 

of Tax

 

Tax

 

(Expense)

 

of Tax

 

 

 

Amount

 

Benefit

 

Amount

 

Amount

 

Benefit

 

Amount

 

 

 

(In thousands)

 

Foreign currency translation adjustments

 

$

 

$

 

$

 

$

 

$

 

$

 

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

 

39,405

 

(14,490

)

24,915

 

9,586

 

(3,502

)

6,084

 

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

 

(34,310

)

12,529

 

(21,781

)

(555

)

203

 

(352

)

Other comprehensive income (loss)

 

$

5,095

 

$

(1,961

)

$

3,134

 

$

9,031

 

$

(3,299

)

$

5,732

 

 

 

 

For the Six Months Ended June 30,

 

 

 

2015

 

2014

 

 

 

Before

 

Tax

 

Net

 

Before

 

Tax

 

Net

 

 

 

Tax

 

(Expense)

 

of Tax

 

Tax

 

(Expense)

 

of Tax

 

 

 

Amount

 

Benefit (1)

 

Amount

 

Amount

 

Benefit

 

Amount

 

 

 

(In thousands)

 

Foreign currency translation adjustments

 

$

 

$

 

$

 

$

3,878

 

$

 

$

3,878

 

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

 

46,827

 

(17,234

)

29,593

 

19,569

 

(7,151

)

12,418

 

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

 

(93,797

)

(28,138

)

(121,935

)

(62

)

23

 

(39

)

Other comprehensive income (loss)

 

$

(46,970

)

$

(45,372

)

$

(92,342

)

$

23,385

 

$

(7,128

)

$

16,257

 

 


(1)         Prior to December 31, 2012, we had established a valuation allowance against all deferred tax assets that were capital in nature.  At December 31, 2012, it was determined that these deferred tax assets were realizable and the valuation allowance was released, including the valuation allowance related to a specific portfolio of available-for-sale securities for which changes in fair value had historically been recognized as a separate component of “Accumulated other comprehensive income (loss).”  Under the intra-period tax allocation rules, a credit of $63 million was recorded in “Accumulated other comprehensive income (loss)” on our Condensed Consolidated Balance Sheets related to the release of this valuation allowance.

 

We elected to use the aggregate portfolio method to determine when the $63 million would be released from “Accumulated other comprehensive income (loss)” to “Income tax (provision) benefit, net” in the Condensed Consolidated Statement of Operations and Comprehensive Income (Loss).  Under the aggregate portfolio approach, the intra-period tax allocation remaining in “Accumulated other comprehensive income (loss)” is not released to “Income tax (provision) benefit, net” until such time that the specific portfolio of available-for-sale securities that generated the original intra-period allocation is liquidated.  During the first quarter 2015, this specific available-for-sale security portfolio was liquidated and the $63 million credit that was previously recorded in “Accumulated other comprehensive income (loss)” was released to “Income tax (provision) benefit, net.”  This adjustment has no net effect on “Net cash flows from operating activities from continuing operations” or “Total stockholders’ equity (deficit).”

 

11



Table of Contents

 

DISH NETWORK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Unaudited)

 

The “Accumulated other comprehensive income (loss)” is detailed in the following table, net of tax.

 

 

 

Unrealized/

 

 

 

Recognized

 

 

 

Gains

 

Accumulated Other Comprehensive Income (Loss)

 

(Losses)

 

 

 

(In thousands)

 

Balance as of December 31, 2014

 

$

174,507

 

Other comprehensive income (loss) before reclassification

 

29,593

 

Amounts reclassified from accumulated other comprehensive income (loss)

 

(121,935

)

Balance as of June 30, 2015

 

$

82,165

 

 

6.                                      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

 

 

 

June 30,

 

December 31,

 

 

 

2015

 

2014

 

 

 

(In thousands)

 

Marketable investment securities:

 

 

 

 

 

Current marketable investment securities - strategic

 

$

296,480

 

$

711,213

 

Current marketable investment securities - other

 

104,781

 

1,420,532

 

Total current marketable investment securities

 

401,261

 

2,131,745

 

Restricted marketable investment securities (1)

 

81,795

 

76,970

 

Total marketable investment securities

 

483,056

 

2,208,715

 

 

 

 

 

 

 

Restricted cash and cash equivalents (1)

 

5,189

 

10,014

 

 

 

 

 

 

 

Other investment securities:

 

 

 

 

 

Investment in EchoStar preferred tracking stock - cost method

 

228,795

 

228,795

 

Investment in HSSC preferred tracking stock - cost method

 

87,409

 

87,409

 

Other investment securities - cost method

 

11,046

 

11,046

 

Total other investment securities

 

327,250

 

327,250

 

 

 

 

 

 

 

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

 

$

815,495

 

$

2,545,979

 

 


(1)         Restricted marketable investment securities and restricted cash and cash equivalents are included in “Restricted cash 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 of which are classified as available-for-sale, except as specified below.

 

12



Table of Contents

 

DISH NETWORK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Unaudited)

 

Current Marketable Investment Securities — Strategic

 

Our current strategic marketable investment securities include strategic and financial debt and equity investments in public companies that are highly speculative and have experienced and continue to experience volatility.  As of June 30, 2015, our strategic investment 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 our investment 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.

 

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 U.S. treasury and 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 and Marketable Investment Securities

 

As of June 30, 2015 and December 31, 2014, our restricted marketable investment securities, together with our restricted cash, included amounts required as collateral for our letters of credit.

 

Other Investment Securities

 

We have strategic investments in certain debt and equity securities that are included in noncurrent “Other investment securities” on our Condensed Consolidated Balance Sheets and accounted for using the cost, equity and/or available-for-sale methods of accounting.

 

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.

 

Investment in Tracking Stock

 

To improve our position in the growing consumer satellite broadband market, among other reasons, on February 20, 2014, we entered into agreements with EchoStar Corporation (“EchoStar”) to implement a transaction pursuant to which, among other things:  (i) on March 1, 2014, we transferred to EchoStar and Hughes Satellite Systems Corporation (“HSSC”), a subsidiary of EchoStar, five satellites (EchoStar I, EchoStar VII, EchoStar X, EchoStar XI and EchoStar XIV (collectively the “Transferred Satellites”), including related in-orbit incentive obligations and cash interest payments of approximately $59 million), and approximately $11 million in cash in exchange for an aggregate of 6,290,499 shares of a series of preferred tracking stock issued by EchoStar and an aggregate of 81.128 shares of a series of preferred tracking stock issued by HSSC (collectively, the “Tracking Stock”); and (ii) beginning on March 1, 2014, we lease back certain satellite capacity on the Transferred Satellites (collectively, the “Satellite and Tracking Stock Transaction”).  The Tracking Stock generally tracks the residential retail satellite broadband business of Hughes Network Systems, LLC (“HNS”), a wholly-owned subsidiary of HSSC, including without

 

13



Table of Contents

 

DISH NETWORK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Unaudited)

 

limitation the operations, assets and liabilities attributed to the Hughes residential retail satellite broadband business (collectively, the “Hughes Retail Group”).  The shares of the Tracking Stock issued to us represent an aggregate 80% economic interest in the Hughes Retail Group.

 

Since the Satellite and Tracking Stock Transaction is among entities under common control, we recorded the Tracking Stock at EchoStar’s and HSSC’s historical cost basis for these instruments of $229 million and $87 million, respectively.  The difference between the historical cost basis of the Tracking Stock received and the net carrying value of the Transferred Satellites of $356 million (including debt obligations, net of deferred taxes), plus the $11 million in cash, resulted in a $51 million capital transaction recorded in “Additional paid-in capital” on our Condensed Consolidated Balance Sheets.  Although our investment in the Tracking Stock represents an aggregate 80% economic interest in the Hughes Retail Group, we have no operational control or significant influence over the Hughes Retail Group business, and currently there is no public market for the Tracking Stock.  As such, the Tracking Stock is accounted for under the cost method of accounting.

 

On February 20, 2014, DISH Operating L.L.C. (“DOLLC”) and DISH Network L.L.C. (“DNLLC”), each indirect wholly-owned subsidiaries of us, entered into an Investor Rights Agreement with EchoStar and HSSC with respect to the Tracking Stock (the “Investor Rights Agreement”).  The Investor Rights Agreement provides, among other things, certain information and consultation rights for us; certain transfer restrictions on the Tracking Stock and certain rights and obligations to offer and sell under certain circumstances (including a prohibition on transfers of the Tracking Stock for one year, with continuing transfer restrictions (including a right of first offer in favor of EchoStar) thereafter, an obligation to sell the Tracking Stock to EchoStar in connection with a change of control of us and a right to require EchoStar to repurchase the Tracking Stock in connection with a change of control of EchoStar, in each case subject to certain terms and conditions); certain registration rights; certain obligations to provide conversion and exchange rights of the Tracking Stock under certain circumstances; and certain protective covenants afforded to holders of the Tracking Stock.  The Investor Rights Agreement generally will terminate with respect to our interest should we no longer hold any shares of the HSSC-issued Tracking Stock and any registrable securities under the Investor Rights Agreement.

 

Unrealized Gains (Losses) on Marketable Investment Securities

 

As of June 30, 2015 and December 31, 2014, we had accumulated net unrealized gains of $130 million and $177 million, respectively.  These amounts, net of related tax effect, were $82 million and $175 million, respectively.  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 June 30, 2015

 

As of December 31, 2014

 

 

 

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

 

$

56,754

 

$

66

 

$

(1

)

$

65

 

$

58,254

 

$

7

 

$

(11

)

$

(4

)

Commercial paper

 

11,792

 

 

 

 

68,556

 

 

 

 

Corporate securities

 

169,526

 

39,856

 

(78

)

39,778

 

1,496,044

 

72,918

 

(153

)

72,765

 

Other

 

57,330

 

81

 

(14

)

67

 

192,607

 

1,293

 

 

1,293

 

Equity securities

 

187,654

 

89,799

 

 

89,799

 

393,254

 

106,971

 

(4,346

)

102,625

 

Total

 

$

483,056

 

$

129,802

 

$

(93

)

$

129,709

 

$

2,208,715

 

$

181,189

 

$

(4,510

)

$

176,679

 

 

As of June 30, 2015, restricted and non-restricted marketable investment securities included debt securities of $134 million with contractual maturities within one year, $60 million with contractual maturities extending longer than one year through and including five years and $101 million with contractual maturities longer than ten years.  Actual maturities may differ from contractual maturities as a result of our ability to sell these securities prior to maturity.

 

14



Table of Contents

 

DISH NETWORK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Unaudited)

 

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 June 30, 2015, the unrealized losses related to our investments in debt securities primarily represented investments in corporate securities.  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

 

 

 

June 30, 2015

 

December 31, 2014

 

 

 

Fair

 

Unrealized

 

Fair

 

Unrealized

 

 

 

Value

 

Loss

 

Value

 

Loss

 

 

 

(In thousands)

 

Debt Securities:

 

 

 

 

 

 

 

 

 

Less than 12 months

 

$

56,244

 

$

(82

)

$

280,738

 

$

(105

)

12 months or more

 

127

 

(11

)

135,853

 

(59

)

Equity Securities:

 

 

 

 

 

 

 

 

 

Less than 12 months

 

 

 

15,338

 

(4,346

)

12 months or more

 

 

 

 

 

Total

 

$

56,371

 

$

(93

)

$

431,929

 

$

(4,510

)

 

Fair Value Measurements

 

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

 

 

 

As of

 

 

 

June 30, 2015

 

December 31, 2014

 

 

 

Total

 

Level 1

 

Level 2

 

Level 3

 

Total

 

Level 1

 

Level 2

 

Level 3

 

 

 

(In thousands)

 

Cash Equivalents (including restricted)

 

$

608,160

 

$

64,852

 

$

543,308

 

$

 

$

7,009,897

 

$

274,123

 

$

6,735,774

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt securities (including restricted):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U. S. Treasury and agency securities

 

$

56,754

 

$

51,870

 

$

4,884

 

$

 

$

58,254

 

$

42,710

 

$

15,544

 

$

 

Commercial paper

 

11,792

 

 

11,792

 

 

68,556

 

 

68,556

 

 

Corporate securities

 

169,526

 

 

161,668

 

7,858

 

1,496,044

 

 

1,488,340

 

7,704

 

Other

 

57,330

 

 

57,123

 

207

 

192,607

 

 

58,171

 

134,436

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity securities

 

187,654

 

187,654

 

 

 

393,254

 

393,254

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Subtotal

 

483,056

 

239,524

 

235,467

 

8,065

 

2,208,715

 

435,964

 

1,630,611

 

142,140

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative financial instruments

 

551,847

 

 

551,847

 

 

383,460

 

 

383,460

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

1,034,903

 

$

239,524

 

$

787,314

 

$

8,065

 

$

2,592,175

 

$

435,964

 

$

2,014,071

 

$

142,140

 

 

As of June 30, 2015 and December 31, 2014, our Level 3 investments consisted predominately of corporate securities.  On a quarterly basis we evaluate the reasonableness of significant unobservable inputs used in those measurements.  For our Level 3 investments, we evaluate, among other things, the terms of the underlying instruments, the credit ratings of the issuers, current market conditions, and other relevant factors.  Based on these factors, we assess the risk of realizing expected cash flows and we apply an observable discount rate that reflects

 

15



Table of Contents

 

DISH NETWORK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Unaudited)

 

this risk.  We may also reduce our valuations to reflect a liquidity discount based on the lack of an active market for these securities.

 

Changes in Level 3 instruments were as follows:

 

 

 

Level 3
Investment
Securities

 

 

 

(In thousands)

 

Balance as of December 31, 2014

 

$

142,140

 

Net realized and unrealized gains (losses) included in earnings

 

1,089

 

Net realized and unrealized gains (losses) included in other comprehensive income (loss)

 

(693

)

Purchases

 

 

Settlements

 

(134,471

)

Issuances

 

 

Transfers into or out of Level 3

 

 

Balance as of June 30, 2015

 

$

8,065

 

 

During the six months ended June 30, 2015, we had no transfers in or out of Level 1 and Level 2 fair value measurements.

 

Gains and Losses on Sales and Changes in Carrying Values of Investments

 

“Other, net” within “Other Income (Expense)” included on our Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) is as follows:

 

 

 

For the Three Months

 

For the Six Months

 

 

 

Ended June 30,

 

Ended June 30,

 

Other Income (Expense):

 

2015

 

2014

 

2015

 

2014

 

 

 

(In thousands)

 

Marketable investment securities - gains (losses) on sales/exchanges

 

$

34,927

 

$

555

 

$

99,907

 

$

6,192

 

Marketable investment securities - unrealized gains (losses) on investments accounted for using the Fair Value Option

 

 

2,742

 

 

7,018

 

Derivative financial instruments - net realized and/or unrealized gains (losses)

 

100,776

 

5,130

 

168,387

 

(174

)

Marketable investment securities - other-than-temporary impairments

 

 

 

(5,567

)

(6,130

)

Other

 

(225

)

407

 

(6,960

)

(3,261

)

Total

 

$

135,478

 

$

8,834

 

$

255,767

 

$

3,645

 

 

7.             Inventory

 

Inventory consisted of the following:

 

 

 

As of

 

 

 

June 30,

 

December 31,

 

 

 

2015

 

2014

 

 

 

(In thousands)

 

Finished goods

 

$

233,650

 

$

252,238

 

Raw materials

 

126,155

 

159,095

 

Work-in-process

 

106,395

 

82,421

 

Total inventory

 

$

466,200

 

$

493,754

 

 

16



Table of Contents

 

DISH NETWORK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Unaudited)

 

8.             Property and Equipment

 

Property and equipment consisted of the following:

 

 

 

Depreciable

 

As of

 

 

 

Life

 

June 30,

 

December 31,

 

 

 

(In Years)

 

2015

 

2014

 

 

 

 

 

(In thousands)

 

Equipment leased to customers

 

2-5

 

$

3,525,007

 

$

3,639,607

 

EchoStar XV

 

15

 

277,658

 

277,658

 

D1

 

15

 

150,000

 

150,000

 

T1

 

15

 

401,721

 

401,721

 

Satellites acquired under capital lease agreements

 

10-15

 

499,819

 

499,819

 

Furniture, fixtures, equipment and other

 

1-10

 

761,688

 

747,139

 

Buildings and improvements

 

1-40

 

87,018

 

85,509

 

Land

 

 

5,504

 

5,504

 

Construction in progress

 

 

972,596

 

774,567

 

Total property and equipment

 

 

 

6,681,011

 

6,581,524

 

Accumulated depreciation

 

 

 

(2,910,542

)

(2,807,985

)

Property and equipment, net

 

 

 

$

3,770,469

 

$

3,773,539

 

 

Construction in progress consisted of the following:

 

 

 

As of

 

 

 

June 30,

 

December 31,

 

 

 

2015

 

2014

 

 

 

(In thousands)

 

Wireless ground equipment and build-out, including capitalized interest

 

$

609,560

 

$

484,668

 

EchoStar XVIII, including capitalized interest

 

333,150

 

271,497

 

Other

 

29,886

 

18,402

 

Total construction in progress

 

$

972,596

 

$

774,567

 

 

As we prepare for commercialization of our AWS-4 and H Block wireless spectrum licenses, which are recorded in “FCC authorizations” on our Condensed Consolidated Balance Sheets, interest expense related to their carrying value is being capitalized within “Property and equipment, net” on our Condensed Consolidated Balance Sheets based on our weighted-average borrowing rate for our debt.  We began capitalizing interest on the H Block licenses in April 2014 concurrent with the FCC order granting our application to acquire these licenses.  See Note 10 for further discussion.

 

Depreciation and amortization expense consisted of the following:

 

 

 

For the Three Months

 

For the Six Months

 

 

 

Ended June 30,

 

Ended June 30,

 

 

 

2015

 

2014

 

2015

 

2014

 

 

 

(In thousands)

 

Equipment leased to customers

 

$

217,235

 

$

224,470

 

$

419,419

 

$

419,684

 

Satellites

 

21,957

 

21,957

 

43,913

 

51,853

 

Buildings, furniture, fixtures, equipment and other

 

23,694

 

25,468

 

45,766

 

49,578

 

Total depreciation and amortization

 

$

262,886

 

$

271,895

 

$

509,098

 

$

521,115

 

 

17



Table of Contents

 

DISH NETWORK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Unaudited)

 

Cost of sales and operating expense categories included in our accompanying Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) do not include depreciation expense related to satellites or equipment leased to customers.

 

Pay-TV Satellites.  We currently utilize 14 satellites in geostationary orbit approximately 22,300 miles above the equator, one of which we own and depreciate over its useful life.  We currently utilize certain capacity on 11 satellites that we lease from EchoStar, which are accounted for as operating leases.  We also lease two satellites from third parties, which are accounted for as capital leases and are depreciated over the shorter of the economic life or the term of the satellite agreement.

 

As of June 30, 2015, our pay-TV satellite fleet consisted of the following:

 

 

 

 

 

 

 

Estimated

 

 

 

 

 

 

 

Useful Life

 

 

 

 

 

 

 

(Years) /

 

 

 

 

 

Degree

 

Lease

 

 

 

Launch

 

Orbital

 

Termination

 

Satellites

 

Date

 

Location

 

Date

 

Owned:

 

 

 

 

 

 

 

EchoStar XV (1)

 

July 2010

 

45

 

15

 

 

 

 

 

 

 

 

 

Under Construction:

 

 

 

 

 

 

 

EchoStar XVIII (2)

 

2016

 

110

 

15

 

 

 

 

 

 

 

 

 

Leased from EchoStar (1):

 

 

 

 

 

 

 

EchoStar I (3)(4)(5)

 

December 1995

 

77

 

November 2015

 

EchoStar VII (3)(4)

 

February 2002

 

119

 

June 2016

 

EchoStar VIII

 

August 2002

 

77

 

Month to month

 

EchoStar IX

 

August 2003

 

121

 

Month to month

 

EchoStar X (3)(4)

 

February 2006

 

110

 

February 2021

 

EchoStar XI (3)(4)

 

July 2008

 

110

 

September 2021

 

EchoStar XII (3)

 

July 2003

 

61.5

 

September 2017

 

EchoStar XIV (3)(4)

 

March 2010

 

119

 

February 2023

 

EchoStar XVI (6)

 

November 2012

 

61.5

 

January 2017

 

Nimiq 5

 

September 2009

 

72.7

 

September 2019

 

QuetzSat-1

 

September 2011

 

77

 

November 2021

 

 

 

 

 

 

 

 

 

Leased from Other Third Party:

 

 

 

 

 

 

 

Anik F3

 

April 2007

 

118.7

 

April 2022

 

Ciel II

 

December 2008

 

129

 

January 2019

 

 


(1)         See Note 12 for further discussion of our Related Party Transactions with EchoStar.

(2)         EchoStar XVIII is expected to launch during 2016.

(3)         We generally have the option to renew each lease on a year-to-year basis through the end of the respective satellite’s useful life.

(4)         On February 20, 2014, we entered into the Satellite and Tracking Stock Transaction with EchoStar pursuant to which, among other things, we transferred these satellites to EchoStar and lease back all available capacity on these satellites.  See Note 6 and Note 12 for further discussion.

(5)         We did not exercise our option to renew the satellite capacity agreement for EchoStar I.

(6)         We have the option to renew this lease for an additional six-year period.  If we exercise our six-year renewal option, we have the option to renew this lease for an additional five years.

 

18



Table of Contents

 

DISH NETWORK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Unaudited)

 

9.             Long-Term Debt

 

Fair Value of our Long-Term Debt

 

The following table summarizes the carrying and fair values of our debt facilities as of June 30, 2015 and December 31, 2014:

 

 

 

As of

 

 

 

June 30, 2015

 

December 31, 2014

 

 

 

Carrying
Value

 

Fair Value

 

Carrying
Value

 

Fair Value

 

 

 

(In thousands)

 

7 3/4% Senior Notes due 2015 (1)

 

$

 

$

 

$

650,001

 

$

664,321

 

7 1/8% Senior Notes due 2016 (2)

 

1,500,000

 

1,540,680

 

1,500,000

 

1,580,625

 

4 5/8% Senior Notes due 2017

 

900,000

 

926,298

 

900,000

 

933,750

 

4 1/4% Senior Notes due 2018

 

1,200,000

 

1,221,000

 

1,200,000

 

1,245,600

 

7 7/8% Senior Notes due 2019

 

1,400,000

 

1,554,140

 

1,400,000

 

1,589,700

 

5 1/8% Senior Notes due 2020

 

1,100,000

 

1,136,498

 

1,100,000

 

1,100,000

 

6 3/4% Senior Notes due 2021

 

2,000,000

 

2,090,000

 

2,000,000

 

2,157,500

 

5 7/8% Senior Notes due 2022

 

2,000,000

 

2,000,000

 

2,000,000

 

2,055,000

 

5% Senior Notes due 2023

 

1,500,000

 

1,407,045

 

1,500,000

 

1,470,000

 

5 7/8% Senior Notes due 2024

 

2,000,000

 

1,920,000

 

2,000,000

 

2,019,800

 

Other notes payable

 

33,049

 

33,049

 

34,084

 

34,084

 

Subtotal

 

13,633,049

 

$

13,828,710

 

14,284,085

 

$

14,850,380

 

Unamortized deferred financing costs and debt discounts, net

 

(46,286

)

 

 

(51,473

)

 

 

Capital lease obligations (3)

 

180,911

 

 

 

194,914

 

 

 

Total long-term debt and capital lease obligations (including current portion)

 

$

13,767,674

 

 

 

$

14,427,526

 

 

 

 


(1)               On June 1, 2015, we redeemed the principal balance of our 7 3/4% Senior Notes due 2015.

(2)               Our 7 1/8% Senior Notes due 2016 mature on February 1, 2016 and have been reclassified to “Current portion of long-term debt and capital lease obligations” on our Condensed Consolidated Balance Sheets as of June 30, 2015.

(3)               Disclosure regarding fair value of capital leases is not required.

 

We estimated the fair value of our publicly traded long-term debt using market prices in less active markets (Level 2).

 

19



Table of Contents

 

DISH NETWORK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Unaudited)

 

10.          Commitments and Contingencies

 

Commitments

 

DISH Spectrum

 

We have invested over $5.0 billion since 2008 to acquire certain wireless spectrum licenses and related assets.

 

700 MHz Licenses.  In 2008, we paid $712 million to acquire certain 700 MHz E Block (“700 MHz”) wireless spectrum licenses, which were granted to us by the FCC in February 2009.  At the time they were granted, these licenses were subject to certain interim and final build-out requirements.  On October 29, 2013, the FCC issued an order approving a voluntary industry solution to resolve certain interoperability issues affecting the lower 700 MHz spectrum band (the “Interoperability Solution Order”), which requires us to reduce power emissions on our 700 MHz licenses.  As part of the Interoperability Solution Order, the FCC, among other things, approved our request to modify the original interim and final build-out requirements associated with our 700 MHz licenses so that by March 2017, we must provide signal coverage and offer service to at least 40% of our total E Block population (the “Modified 700 MHz Interim Build-Out Requirement”).  The FCC also approved our request to modify the 700 MHz Final Build-Out Requirement so that by March 2021, we must provide signal coverage and offer service to at least 70% of the population in each of our E Block license areas (the “Modified 700 MHz Final Build-Out Requirement”).  While the modifications to our 700 MHz licenses provide us additional time to complete the build-out requirements, the reduction in power emissions could have an adverse impact on our ability to fully utilize our 700 MHz licenses.  If we fail to meet the Modified 700 MHz Interim Build-Out Requirement, the Modified 700 MHz Final Build-Out Requirement may be accelerated by one year, from March 2021 to March 2020, and we could face the reduction of license area(s).  If we fail to meet the Modified 700 MHz Final Build-Out Requirement, our authorization may terminate for the geographic portion of each license in which we are not providing service.

 

AWS-4 Licenses.  On March 2, 2012, the FCC approved the transfer of 40 MHz of wireless spectrum licenses held by DBSD North America, Inc. (“DBSD North America”) and TerreStar Networks, Inc. (“TerreStar”) to us.  On March 9, 2012, we completed the acquisition of 100% of the equity of reorganized DBSD North America (the “DBSD Transaction”) and substantially all of the assets of TerreStar (the “TerreStar Transaction”), pursuant to which we acquired, among other things, certain satellite assets and wireless spectrum licenses held by DBSD North America and TerreStar.  The total consideration to acquire the DBSD North America and TerreStar assets was approximately $2.860 billion.

 

On February 15, 2013, the FCC issued an order, which became effective on March 7, 2013, modifying our licenses to expand our terrestrial operating authority with AWS-4 authority (“AWS-4”).  That order imposed certain limitations on the use of a portion of this spectrum, including interference protections for other spectrum users and power and emission limits that we presently believe could render 5 MHz of our uplink spectrum (2000-2005 MHz) effectively unusable for terrestrial services and limit our ability to fully utilize the remaining 15 MHz of our uplink spectrum (2005-2020 MHz) for terrestrial services.  These limitations could, among other things, impact the ongoing development of technical standards associated with our wireless business, and may have a material adverse effect on our ability to commercialize our AWS-4 licenses.  That order also mandated certain interim and final build-out requirements for the licenses.  By March 2017, we must provide terrestrial signal coverage and offer terrestrial service to at least 40% of the aggregate population represented by all of the areas covered by the licenses (the “AWS-4 Interim Build-Out Requirement”).  By March 2020, we were required to provide terrestrial signal coverage and offer terrestrial service to at least 70% of the population in each area covered by an individual license (the “AWS-4 Final Build-Out Requirement”).

 

On December 20, 2013, the FCC issued a further order that, among other things, extended the AWS-4 Final Build-Out Requirement by one year to March 2021 (the “Modified AWS-4 Final Build-Out Requirement”).  If we fail to

 

20



Table of Contents

 

DISH NETWORK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Unaudited)

 

meet the AWS-4 Interim Build-Out Requirement, the Modified AWS-4 Final Build-Out Requirement may be accelerated by one year, from March 2021 to March 2020.  If we fail to meet the Modified AWS-4 Final Build-Out Requirement, our terrestrial authorization for each license area in which we fail to meet the requirement may terminate.  The FCC’s December 20, 2013 order also conditionally waived certain FCC rules for our AWS-4 licenses to allow us to repurpose all 20 MHz of our uplink spectrum (2000-2020 MHz) for downlink (the “AWS-4 Downlink Waiver”).  If we fail to notify the FCC that we intend to use our uplink spectrum for downlink by June 20, 2016, the AWS-4 Downlink Waiver will terminate, and the Modified AWS-4 Final Build-Out Requirement will revert back to the AWS-4 Final Build-Out Requirement.

 

H Block Licenses.  On April 29, 2014, the FCC issued an order granting our application to acquire all 176 wireless spectrum licenses in the H Block auction.  We paid approximately $1.672 billion to acquire these H Block licenses, including clearance costs associated with the lower H Block spectrum.  The H Block licenses are subject to certain interim and final build-out requirements.  By April 2018, we must provide reliable signal coverage and offer service to at least 40% of the population in each area covered by an individual H Block license (the “H Block Interim Build-Out Requirement”).  By April 2024, we must provide reliable signal coverage and offer service to at least 75% of the population in each area covered by an individual H Block license (the “H Block Final Build-Out Requirement”).  If we fail to meet the H Block Interim Build-Out Requirement, the H Block license term and the H Block Final Build-Out Requirement may be accelerated by two years (from April 2024 to April 2022) for each H Block license area in which we fail to meet the requirement.  If we fail to meet the H Block Final Build-Out Requirement, our authorization for each H Block license area in which we fail to meet the requirement may terminate.  The FCC has adopted rules for the H Block spectrum band that is adjacent to our AWS-4 licenses.  Depending on the outcome of the standard-setting process for the H Block and our ultimate decision regarding the AWS-4 Downlink Waiver, the rules that the FCC adopted for the H Block could further impact 15 MHz of our AWS-4 uplink spectrum (2005-2020 MHz), which may have a material adverse effect on our ability to commercialize the AWS-4 licenses.

 

Commercialization of Our Wireless Spectrum Licenses and Related Assets.  We have made substantial investments to acquire certain wireless spectrum licenses and related assets.  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.  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.  We may need to raise significant additional capital in the future to fund these efforts, which may not be available on acceptable terms or at all.  There can be no assurance that we will be able to develop and implement a business model that will realize a return on these wireless spectrum licenses or that we will be able to profitably deploy the assets represented by these wireless spectrum licenses, which may affect the carrying value of these assets and our future financial condition or results of operations.

 

AWS-3 Auction

 

The AWS-3 Auction commenced on November 13, 2014 and concluded on Janu