10-Q 1 dish-20160331x10q.htm 10-Q dish_Current folio_10Q_Taxonomy2015

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 


 

Form 10-Q

 

(Mark One)

 

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

 

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2016.

 

OR

 

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

 

FOR THE TRANSITION PERIOD FROM                               TO                                .

 

Commission File Number:  0-26176

 

DISH Network Corporation

(Exact name of registrant as specified in its charter)

 

Nevada

 

88-0336997

(State or other jurisdiction of incorporation or organization)

 

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

 

 

 

9601 South Meridian Boulevard

 

 

Englewood, Colorado

 

80112

(Address of principal executive offices)

 

(Zip code)

 

(303) 723-1000

(Registrant’s telephone number, including area code)

 

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes   No 

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes   No 

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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

 

Accelerated filer

 

 

 

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

 

Smaller reporting company

 

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

 

As of April 12, 2016, the registrant’s outstanding common stock consisted of 226,278,046 shares of Class A common stock and 238,435,208 shares of Class B common stock.

 

 

 

 


 

TABLE OF CONTENTS

 

PART I — FINANCIAL INFORMATION 

 

 

 

 

Disclosure Regarding Forward-Looking Statements

i

 

 

 

Item 1. 

Financial Statements

 

 

 

 

 

Condensed Consolidated Balance Sheets —
March 31, 2016 and December 31, 2015 (Unaudited)

 

 

 

 

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)
For the Three Months Ended March 31, 2016 and 2015 (Unaudited)

 

 

 

 

Condensed Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 2016 and 2015 (Unaudited)

 

 

 

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

 

 

Item 2. 

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

52 

 

 

 

Item 3. 

Quantitative and Qualitative Disclosures About Market Risk

70 

 

 

 

Item 4. 

Controls and Procedures

70 

 

 

 

PART II — OTHER INFORMATION 

 

 

 

Item 1. 

Legal Proceedings

70 

 

 

 

Item 1A. 

Risk Factors

70 

 

 

 

Item 2. 

Unregistered Sales of Equity Securities and Use of Proceeds

71 

 

 

 

Item 3.

Defaults Upon Senior Securities

None

 

 

 

Item 4.

Mine Safety Disclosures

None

 

 

 

Item 5.

Other Information

None

 

 

 

Item 6. 

Exhibits

71 

 

 

 

 

Signatures

72 

 

 

 

 


 

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

 

·

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

 

·

Changing consumer behavior and competition from digital media companies that provide or facilitate the delivery of video content via the Internet may reduce our 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.

 

·

Our over-the-top (“OTT”) Sling TV 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

 

·

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.

 

i


 

·

We depend on others to provide the programming that we offer to our subscribers and, if we fail to obtain or lose access to this programming, our 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.

 

·

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

 

·

We currently depend on EchoStar Corporation and its subsidiaries, or EchoStar, to design, develop and manufacture substantially all of our new DISH branded pay-TV 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 streaming delivery technology and infrastructure for our Sling TV 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.

 

·

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

 

·

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

 

·

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 independent 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 DISH branded pay-TV 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 launch or in-orbit insurance on any of the satellites that we use, other than certain satellites leased from third parties, and could face significant impairment charges if any of our owned satellites fail.

 

·

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

 

·

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

 

ii


 

Acquisition and Capital Structure Risks

 

·

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

 

·

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

 

·

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

 

·

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

 

·

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

 

·

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 and Chief Executive Officer.

 

Legal and Regulatory Risks

 

·

A ruling in the Do Not Call litigation requiring us to pay substantial civil penalties and/or damages and/or enjoining us, whether acting directly or indirectly through authorized telemarketers or independent third-party retailers, from certain activities could have a material adverse effect on our results of operations, financial condition and cash flow.

 

·

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 Sling TV services, involves regulatory risk.

 

·

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

 

·

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

 

·

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

 

iii


 

·

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.

 

 

 

iv


 

Item 1.  FINANCIAL STATEMENTS

DISH NETWORK CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except share amounts)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

As of  

 

 

 

March 31,

 

December 31,

 

 

 

2016

    

2015

 

    

Assets

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 

Cash and cash equivalents

$

708,972

 

$

1,053,158

 

    

Marketable investment securities

 

161,634

 

 

557,911

 

 

Trade accounts receivable, net of allowance for doubtful accounts of $15,608 and $22,167, respectively

 

806,091

 

 

864,028

 

 

Inventory

 

455,257

 

 

390,328

 

 

Derivative financial instruments (Note 2)

 

324,285

 

 

556,828

 

 

Other current assets

 

101,262

 

 

120,990

 

 

Total current assets

 

2,557,501

 

 

3,543,243

 

 

 

 

 

 

 

 

 

 

Noncurrent Assets:

 

 

 

 

 

 

 

Restricted cash, cash equivalents and marketable investment securities

 

82,374

 

 

82,374

 

 

Property and equipment, net

 

2,845,840

 

 

2,924,180

 

 

FCC authorizations

 

15,854,769

 

 

15,667,604

 

 

Other investment securities

 

324,371

 

 

327,250

 

 

Other noncurrent assets, net

 

344,519

 

 

342,059

 

 

Total noncurrent assets

 

19,451,873

 

 

19,343,467

 

 

Total assets

$

22,009,374

 

$

22,886,710

 

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders' Equity (Deficit)

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

Trade accounts payable

$

561,347

 

$

470,226

 

 

Deferred revenue and other

 

869,367

 

 

869,659

 

 

Accrued programming

 

1,587,399

 

 

1,532,809

 

 

Accrued interest

 

184,072

 

 

224,513

 

 

Other accrued expenses

 

607,589

 

 

531,733

 

 

Current portion of long-term debt and capital lease obligations

 

35,199

 

 

1,534,000

 

 

Total current liabilities

 

3,844,973

 

 

5,162,940

 

 

 

 

 

 

 

 

 

 

Long-Term Obligations, Net of Current Portion:

 

 

 

 

 

 

 

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

 

12,215,940

 

 

12,221,925

 

 

Deferred tax liabilities

 

2,137,747

 

 

2,084,789

 

 

Long-term deferred revenue and other long-term liabilities

 

390,375

 

 

385,026

 

 

Total long-term obligations, net of current portion

 

14,744,062

 

 

14,691,740

 

 

Total liabilities

 

18,589,035

 

 

19,854,680

 

 

 

 

 

 

 

 

 

 

Commitments and Contingencies (Note 10)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Redeemable noncontrolling interests (Note 2)

 

298,760

 

 

284,243

 

 

 

 

 

 

 

 

 

 

Stockholders’ Equity (Deficit):

 

 

 

 

 

 

 

Class A common stock, $.01 par value, 1,600,000,000 shares authorized, 226,276,806 and 281,866,884 shares issued, 226,276,806 and 225,748,624 shares outstanding, respectively

 

2,263

 

 

2,819

 

 

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

 

2,807,303

 

 

2,779,978

 

 

Accumulated other comprehensive income (loss)

 

19,607

 

 

61,981

 

 

Accumulated earnings (deficit) (Note 2)

 

291,477

 

 

1,471,084

 

 

Treasury stock, at cost (Note 2)

 

 —

 

 

(1,569,459)

 

 

Total DISH Network stockholders’ equity (deficit)

 

3,123,034

 

 

2,748,787

 

 

Noncontrolling interests

 

(1,455)

 

 

(1,000)

 

 

Total stockholders’ equity (deficit)

 

3,121,579

 

 

2,747,787

 

 

Total liabilities and stockholders’ equity (deficit)

$

22,009,374

 

$

22,886,710

 

 

 

 

 

 

 

 

 

 

 

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

1


 

DISH NETWORK CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE INCOME (LOSS)

(Dollars in thousands, except per share amounts)

(Unaudited)

 

 

 

 

 

 

 

 

 

For the Three Months

 

 

Ended March 31,

 

 

2016

    

2015

    

Revenue:

 

 

 

 

 

 

Subscriber-related revenue

$

3,775,478

 

$

3,693,530

 

Equipment sales and other revenue

 

11,757

 

 

30,698

 

Total revenue

 

3,787,235

 

 

3,724,228

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

Subscriber-related expenses

 

2,221,320

 

 

2,171,719

 

Satellite and transmission expenses

 

175,645

 

 

186,840

 

Cost of sales - equipment, services and other

 

11,987

 

 

30,495

 

Subscriber acquisition costs:

 

 

 

 

 

 

Cost of sales - subscriber promotion subsidies

 

62,478

 

 

52,925

 

Other subscriber acquisition costs

 

192,504

 

 

209,176

 

Subscriber acquisition advertising

 

128,363

 

 

143,590

 

Total subscriber acquisition costs

 

383,345

 

 

405,691

 

General and administrative expenses

 

201,169

 

 

199,408

 

Depreciation and amortization (Note 8)

 

233,627

 

 

246,212

 

Total costs and expenses

 

3,227,093

 

 

3,240,365

 

 

 

 

 

 

 

 

Operating income (loss)

 

560,142

 

 

483,863

 

 

 

 

 

 

 

 

Other Income (Expense):

 

 

 

 

 

 

Interest income

 

3,953

 

 

8,494

 

Interest expense, net of amounts capitalized

 

(667)

 

 

(156,313)

 

Other, net

 

67,065

 

 

120,289

 

Total other income (expense)

 

70,351

 

 

(27,530)

 

 

 

 

 

 

 

 

Income (loss) before income taxes

 

630,493

 

 

456,333

 

Income tax (provision) benefit, net

 

(235,533)

 

 

(103,081)

 

Net income (loss)

 

394,960

 

 

353,252

 

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

 

5,670

 

 

1,767

 

Net income (loss) attributable to DISH Network

$

389,290

 

$

351,485

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

Basic

 

464,375

 

 

462,090

 

Diluted

 

465,219

 

 

464,046

 

 

 

 

 

 

 

 

Earnings per share - Class A and B common stock:

 

 

 

 

 

 

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

$

0.84

 

$

0.76

 

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

$

0.84

 

$

0.76

 

 

 

 

 

 

 

 

Comprehensive Income (Loss):

 

 

 

 

 

 

Net income (loss)

$

394,960

 

$

353,252

 

Other comprehensive income (loss):

 

 

 

 

 

 

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

 

(2,601)

 

 

7,422

 

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

 

(64,690)

 

 

(59,487)

 

Deferred income tax (expense) benefit, net

 

24,917

 

 

(43,411)

 

Total other comprehensive income (loss), net of tax

 

(42,374)

 

 

(95,476)

 

Comprehensive income (loss)

 

352,586

 

 

257,776

 

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

 

5,670

 

 

1,767

 

Comprehensive income (loss) attributable to DISH Network

$

346,916

 

$

256,009

 

 

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

 

2


 

DISH NETWORK CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

For the Three Months

 

 

 

Ended March 31,

 

 

    

2016

    

2015

 

Cash Flows From Operating Activities:

 

 

 

 

 

 

 

Net income (loss)

    

$

394,960

 

$

353,252

    

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

 

 

 

 

 

 

 

Depreciation and amortization

 

 

233,627

 

 

246,212

 

Realized and unrealized losses (gains) on investments

 

 

(66,980)

 

 

(127,024)

 

Non-cash, stock-based compensation

 

 

4,477

 

 

7,709

 

Deferred tax expense (benefit)

 

 

80,967

 

 

12,477

 

Other, net

 

 

8,978

 

 

20,753

 

Changes in current assets and current liabilities, net

 

 

247,169

 

 

378,218

 

Net cash flows from operating activities

 

 

903,198

 

 

891,597

 

 

 

 

 

 

 

 

 

Cash Flows From Investing Activities:

 

 

 

 

 

 

 

Purchases of marketable investment securities

 

 

(23,059)

 

 

(13,507)

 

Sales and maturities of marketable investment securities

 

 

440,669

 

 

1,802,460

 

Settlement of derivative financial instruments

 

 

220,871

 

 

 —

 

Purchases of property and equipment

 

 

(169,169)

 

 

(212,110)

 

Capitalized interest related to FCC authorizations (Note 2)

 

 

(225,360)

 

 

(62,150)

 

AWS-3 FCC license refunds (deposits), net (Note 10)

 

 

 —

 

 

(8,675,567)

 

Other, net

 

 

13,559

 

 

3,282

 

Net cash flows from investing activities

 

 

257,511

 

 

(7,157,592)

 

 

 

 

 

 

 

 

 

Cash Flows From Financing Activities:

 

 

 

 

 

 

 

Redemption and repurchases of senior notes (Note 9)

 

 

(1,500,000)

 

 

 —

 

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

 

 

 —

 

 

204,200

 

Repayment of long-term debt and capital lease obligations

 

 

(8,020)

 

 

(7,116)

 

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

 

 

3,057

 

 

6,345

 

Other, net

 

 

68

 

 

7,967

 

Net cash flows from financing activities

 

 

(1,504,895)

 

 

211,396

 

 

 

 

 

 

 

 

 

Net increase (decrease) in cash and cash equivalents

 

 

(344,186)

 

 

(6,054,599)

 

Cash and cash equivalents, beginning of period

 

 

1,053,158

 

 

7,104,496

 

Cash and cash equivalents, end of period

 

$

708,972

 

$

1,049,897

 

 

 

 

 

 

 

 

 

 

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

 

 

 

3


 

Table of Contents

DISH NETWORK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.Organization and Business Activities

 

Principal Business

 

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

 

Pay-TV and Broadband

 

We offer pay-TV services under the DISH®  brand and the Sling® brand (collectively “Pay-TV” services).  The DISH branded pay-TV service consists of, among other things, Federal Communications Commission (“FCC”) licenses authorizing us to use direct broadcast satellite (“DBS”) and Fixed Satellite Service (“FSS”) spectrum, our owned and leased satellites, receiver systems, 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), which historically represented a small percentage of our Pay-TV subscribers.  During February and June 2015, we launched our Sling domestic and Sling Latino services, respectivelyIn addition to these Sling TV services that may only be streamed on one device at a time (single-stream services), on April 13, 2016, we launched a live beta multi-stream Sling domestic service, which includes, among other things, the ability to stream on up to three devices simultaneously.  All Sling TV subscribers are included in our Pay-TV subscriber count.  As of March 31, 2016, we had 13.874 million Pay-TV subscribers in the United States. 

 

In addition, we market broadband services under the dishNET™ brand, which had 0.628 million subscribers in the United States as of March 31, 2016.  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 primarily 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 Network 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 consider 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.  For example, on February 10, 2016, we filed an application with the FCC to potentially participate as a bidder in the forward auction phase of the broadcast television spectrum incentive auction (“Auction 1000”).  Auction 1000 will take place in two phases.  In the first phase or reverse auction phase, participating television broadcasters will “sell” their rights to use certain broadcast television spectrum in the 600 MHz frequency range to the FCC.  In the second phase or forward auction phase, the FCC will “resell” that spectrum to various auction participants, including wireless service providers and other potential bidders.  The first phase of Auction 1000 began on March 29, 2016.  The FCC determined that bidding in Auction 1000 will be “anonymous,” which means that prior to and during the course of the auction, the FCC will not make public any information about a specific applicant’s upfront deposits or its bids.  In addition, FCC rules restrict information that bidders may disclose about their participation in Auction 1000.  See Note 10 for further information.

 

4


 

Table of Contents

DISH NETWORK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Unaudited)

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

 

Through our wholly-owned subsidiaries American AWS-3 Wireless II L.L.C. (“American II”) and American AWS-3 Wireless III L.L.C. (“American III”), we have made over $10.0 billion in certain non-controlling investments in Northstar Spectrum, LLC (“Northstar Spectrum”), the parent company of Northstar Wireless, LLC (“Northstar Wireless,” and collectively with Northstar Spectrum, the “Northstar Entities”), and in SNR Wireless HoldCo, LLC (“SNR HoldCo”), the parent company of SNR Wireless LicenseCo, LLC (“SNR Wireless,” and collectively with SNR HoldCo, the “SNR Entities”), respectively.  On October 27, 2015, the FCC granted certain AWS-3 wireless spectrum licenses (the “AWS-3 Licenses”) to Northstar Wireless and to SNR Wireless, respectively, which are recorded in “FCC authorizations” on our Condensed Consolidated Balance Sheets.  Under the applicable accounting guidance in Accounting Standards Codification 810, Consolidation (“ASC 810”), Northstar Spectrum and SNR HoldCo are considered variable interest entities and, based on the characteristics of the structure of these entities and in accordance with the applicable accounting guidance, we have consolidated these entities into our financial statements beginning in the fourth quarter 2014.  See Note 2 for further information.

 

The AWS-3 Licenses are subject to certain interim and final build-out requirements.  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 these AWS-3 Licenses, and comply with regulations applicable to such AWS-3 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.    See Note 10 for further information.

 

2.Summary of Significant Accounting Policies

 

Basis of Presentation

 

The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and with the instructions to Form 10-Q and Article 10 of Regulation S-X for interim financial information.  Accordingly, these statements do not include all of the information and notes required for complete financial statements prepared under GAAP.  In our opinion, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included.  Our results of operations for the interim periods presented are not necessarily indicative of the results that may be expected for the full year.  For further information, refer to the Consolidated Financial Statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2015.  Certain prior period amounts have been reclassified to conform to the current period presentation.

 

Principles of Consolidation

 

We consolidate all majority owned subsidiaries, investments in entities in which we have controlling influence and variable interest entities where we have been determined to be the primary beneficiary.  Minority interests are recorded as noncontrolling interests or redeemable noncontrolling interests.  See below for further information.  Non-consolidated investments are accounted for using the equity method when we have the ability to significantly influence the operating decisions of the investee.  When we do not have the ability to significantly influence the operating decisions of an investee, the cost method is used.  All significant intercompany accounts and transactions have been eliminated in consolidation. 

 

5


 

Table of Contents

DISH NETWORK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Unaudited)

Redeemable Noncontrolling Interests 

 

Sling TV.    Sling TV Holding L.L.C. (“Sling TV Holding,” formerly known as DISH Digital Holding L.L.C.) has been consolidated into our financial statements since July 1, 2012.  Effective August 1, 2014, EchoStar Corporation (“EchoStar”) and Sling TV Holding entered into an exchange agreement (the “Exchange Agreement”) pursuant to which, among other things, Sling TV Holding distributed certain assets to EchoStar and EchoStar reduced its interest in Sling TV Holding to a ten percent non-voting interest.

 

EchoStar’s ten percent non-voting interest is redeemable contingent on a certain performance goal being achieved by Sling TV Holding.  In addition, subject to certain conditions, the interest is redeemable at fair value within sixty days following the fifth anniversary of the Exchange Agreement.  This interest is considered temporary equity and is recorded as “Redeemable noncontrolling interests” in the mezzanine section of our Condensed Consolidated Balance Sheets.  EchoStar’s redeemable noncontrolling interest in Sling TV Holding was initially accounted for at fair value.  The performance goal has been determined to be probable of achievement.  Accordingly, the value of EchoStar’s redeemable noncontrolling interest in Sling TV Holding is adjusted each reporting period for any change in redemption value above the initial fair value (adjusted for the operating results of Sling TV Holding attributable to EchoStar subsequent to August 1, 2014), with the offset recorded in “Additional paid-in capital,” net of deferred taxes, on our Condensed Consolidated Balance Sheets.  The operating results of Sling TV Holding attributable to EchoStar are recorded as “Redeemable noncontrolling interests” in our Condensed Consolidated Balance Sheets effective August 1, 2014, with the offset recorded in “Net income (loss) attributable to noncontrolling interests, net of tax” on our Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).  See Note 12 for further information on Sling TV Holding and the Exchange Agreement.

 

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 AWS-3 Licenses to Northstar Wireless (and in certain circumstances, prior to the five-year anniversary of the grant of the AWS-3 Licenses to Northstar Wireless), Northstar Manager has the ability, but not the obligation, to require Northstar Spectrum to purchase Northstar Manager’s ownership interests in Northstar Spectrum (the “Northstar Put Right”) for a purchase price that generally equals its equity contribution to Northstar Spectrum plus a fixed annual rate of return.  In the event that the Northstar Put Right is exercised by Northstar Manager, the consummation of the sale will be subject to FCC approval.  Northstar Spectrum does not have a call right with respect to Northstar Manager’s ownership interests in Northstar Spectrum.  Although Northstar Manager is the sole manager of Northstar Spectrum, Northstar Manager’s ownership interest is considered temporary equity under the applicable accounting guidance and is thus recorded as part of “Redeemable noncontrolling interests” in the mezzanine section of our Condensed Consolidated Balance Sheets.  Northstar Manager’s ownership interest in Northstar Spectrum was initially accounted for at fair value.  Subsequently, Northstar Manager’s ownership interest in Northstar Spectrum is increased by the fixed annual rate of return through “Redeemable noncontrolling interests” in our Condensed Consolidated Balance Sheets, with the offset recorded in “Net income (loss) attributable to noncontrolling 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 recorded as “Redeemable noncontrolling interests” in our Condensed Consolidated Balance Sheets, with the offset recorded in “Net income (loss) attributable to noncontrolling interests, net of tax” on our Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).  See Note 10 for further information. 

 

6


 

Table of Contents

DISH NETWORK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Unaudited)

SNR Wireless.  SNR Wireless is a wholly-owned subsidiary of SNR HoldCo, which is an entity owned by SNR Wireless Management, LLC (“SNR Management”) and us.  Under the applicable accounting guidance in ASC 810, SNR HoldCo is considered a variable interest entity and, based on the characteristics of the structure of this entity and in accordance with the applicable accounting guidance, we have consolidated SNR HoldCo into our financial statements beginning in the fourth quarter 2014.  After the five-year anniversary of the grant of the AWS-3 Licenses to SNR Wireless (and in certain circumstances, prior to the five-year anniversary of the grant of the AWS-3 Licenses to SNR Wireless), SNR Management has the ability, but not the obligation, to require SNR HoldCo to purchase SNR Management’s ownership interests in SNR HoldCo (the “SNR Put Right”) for a purchase price that generally equals its equity contribution to SNR HoldCo plus a fixed annual rate of return.  In the event that the SNR Put Right is exercised by SNR Management, the consummation of the sale will be subject to FCC approval.  SNR HoldCo does not have a call right with respect to SNR Management’s ownership interests in SNR HoldCo.  Although SNR Management is the sole manager of SNR HoldCo, SNR Management’s ownership interest is considered temporary equity under the applicable accounting guidance and is thus recorded as part of “Redeemable noncontrolling interests” in the mezzanine section of our Condensed Consolidated Balance Sheets.  SNR Management’s ownership interest in SNR HoldCo was initially accounted for at fair value.  Subsequently, SNR Management’s ownership interest in SNR HoldCo is increased by the fixed annual rate of return through “Redeemable noncontrolling interests” in our Condensed Consolidated Balance Sheets, with the offset recorded in “Net income (loss) attributable to noncontrolling interest, net of tax” on our Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).  The operating results of SNR HoldCo attributable to SNR Management are recorded as “Redeemable noncontrolling interests” in our Condensed Consolidated Balance Sheets, with the offset recorded in “Net income (loss) attributable to noncontrolling interests, net of tax” on our Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).  See Note 10 for further information.

 

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.

 

Capitalized Interest 

 

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

 

7


 

Table of Contents

DISH NETWORK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Unaudited)

We are currently preparing for the commercialization of our AWS-4 and H Block wireless spectrum licenses, and interest expense related to their carrying amount is being capitalized.  In addition, on October 27, 2015, the FCC granted certain AWS-3 Licenses to Northstar Wireless and to SNR Wireless, respectively, in which we have made certain non-controlling investments.  Northstar Wireless and SNR Wireless are preparing for the commercialization of their AWS-3 Licenses, and began capitalizing interest related to these AWS-3 Licenses as of October 27, 2015.  As the carrying amount of these licenses is more than the amount of long-term debt and capital lease obligations on our Condensed Consolidated Balance Sheets as of March 31, 2016, materially all of our interest expense is capitalized.

 

Fair Value Measurements

 

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

 

·

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

·

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

·

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

 

As of March 31, 2016 and December 31, 2015, the carrying amount for cash and cash equivalents, trade accounts receivable (net of allowance for doubtful accounts) and current liabilities (excluding the “Current portion of long-term debt and capital lease obligations”) 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 March 31, 2016 and December 31, 2015, we held derivative financial instruments indexed to the trading price of common equity securities with a fair value of $324 million and $557 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)

 

Treasury Stock

 

During the first quarter 2016, our Board of Directors approved the retirement of all 56,118,260 shares of our treasury stock.  As a result, the following amounts were recorded on our Condensed Consolidated Balance Sheets during the three months ended March 31, 2016:  (i) a $1.569 billion reduction of “Treasury stock, at cost”; (ii) a $0.6 million reduction of “Class A common stock” related to the par value of the treasury stock; and (iii) a $1.568 billion reduction of “Accumulated earnings (deficit)” for the remaining amount.  The retirement also reduced the number of issued shares of Class A common stock by 56,118,260 shares.

 

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 to create common revenue recognition guidance for GAAP and International Financial Reporting StandardsASU 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 condensed 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.  The new standard could impact revenue and cost recognition for a significant number of our contracts, as well as our business processes and information technology systems.  As a result, our evaluation of the effect of the new standard will likely extend over several future periods.  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.

 

Recognition and Measurement of Financial Assets and Financial Liabilities.  On January 6, 2016, the FASB issued ASU 2016-01 (“ASU 2016-01”), Recognition and Measurement of Financial Assets and Financial Liabilities, which amends certain aspects of recognition, measurement, presentation and disclosure of financial instruments. This amendment requires all equity investments to be measured at fair value with changes in the fair value recognized through net income (other than those accounted for under equity method of accounting or those that result in consolidation of the investee).  This standard will be effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years.  We are evaluating the impact the adoption of ASU 2016-01 will have on our condensed consolidated financial statements.

 

Leases.    On February 25, 2016, the FASB issued ASU 2016-02 (“ASU 2016-02”), Leases, which relates to the accounting of leasing transactions.  This standard requires a lessee to record on the balance sheet the assets and liabilities for the rights and obligations created by leases with lease terms of more than 12 months.  In addition, this standard requires both lessees and lessors to disclose certain key information about lease transactions.  This standard will be effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years.  We are evaluating the impact the adoption of ASU 2016-02 will have on our condensed consolidated financial statements.

 

Compensation – Stock Compensation.  On March 30, 2016, the FASB issued ASU 2016-09 (“ASU 2016-09”), Compensation – Stock Compensation:  Improvements to Employee Share-Based Payment Accounting, which relates to the accounting for employee share-based payments.  This standard addresses  several aspects of the accounting for share-based payment award transactions, including:  (a) income tax consequences; (b) classification of awards as either equity or liabilities; and (c) classification on the statement of cash flows.  This standard will be effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years.  We are evaluating the impact the adoption of ASU 2016-09 will have on our condensed consolidated financial statements.

 

9


 

Table of Contents

DISH NETWORK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Unaudited)

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

 

 

 

Ended March 31,

 

 

    

2016

    

2015

    

 

 

(In thousands, except per share amounts)

Net income (loss)

 

$

394,960

 

$

353,252

 

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

 

 

5,670

 

 

1,767

 

Net income (loss) attributable to DISH Network

 

$

389,290

 

$

351,485

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

Basic

 

 

464,375

 

 

462,090

 

Dilutive impact of stock awards outstanding

 

 

844

 

 

1,956

 

Diluted

 

 

465,219

 

 

464,046

 

 

 

 

 

 

 

 

 

Earnings per share - Class A and B common stock:

 

 

 

 

 

 

 

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

 

$

0.84

 

$

0.76

 

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

 

$

0.84

 

$

0.76

 

 

As of March 31, 2016 and 2015, there were stock awards to acquire 1.4 million and 0.4 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.

 

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 March 31,

 

 

    

2016

    

2015

 

 

 

(In thousands)

 

Performance based options

    

4,459

 

4,018

 

Restricted Performance Units

 

1,409

 

1,394

 

Total

 

5,868

 

5,412

 

 

 

 

 

 

 

 

 

 

 

10


 

Table of Contents

DISH NETWORK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Unaudited)

4.Supplemental Data - Statements of Cash Flows

 

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

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended March 31,

 

 

    

2016

    

2015

 

 

 

(In thousands)

Cash paid for interest (including capitalized interest)

    

$

230,277

 

$

230,382

 

Cash received for interest

 

 

4,153

 

 

11,488

 

Cash paid for income taxes

 

 

46,438

 

 

944

 

Capitalized interest (1)

 

 

191,651

 

 

65,999

 

Employee benefits paid in Class A common stock

 

 

24,984

 

 

 —

 

Satellites and other assets financed under capital lease obligations

 

 

988

 

 

 —

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

See Note 2 for further information.

 

 

 

 

 

 

 

5.Other Comprehensive Income (Loss)

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended March 31,

 

 

 

2016

 

2015

 

 

 

Before

 

Tax

 

Net

 

Before

 

Tax

 

Net

 

 

 

Tax

 

(Expense)

 

of Tax

 

Tax

 

(Expense)

 

of Tax

 

 

    

Amount

    

Benefit

    

Amount

    

Amount

    

Benefit (1)

    

Amount

 

 

 

(In thousands) 

 

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

 

$

(2,601)

 

$

963

 

$

(1,638)

 

$

7,422

 

$

(2,744)

 

$

4,678

 

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

 

 

(64,690)

 

 

23,954

 

 

(40,736)

 

 

(59,487)

 

 

(40,667)

 

 

(100,154)

 

Other comprehensive income (loss)

 

$

(67,291)

 

$

24,917

 

$

(42,374)

 

$

(52,065)

 

$

(43,411)

 

$

(95,476)

 

 

 

(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” on our Condensed Consolidated Statements 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” 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, 2015

 

$

61,981

 

Other comprehensive income (loss) before reclassification

 

 

(1,638)

 

Amounts reclassified from accumulated other comprehensive income (loss)

 

 

(40,736)

 

Balance as of March 31, 2016

 

$

19,607

 

 

 

 

 

 

 

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

 

 

 

March 31,

 

December 31,

 

 

    

2016

    

2015

 

 

 

(In thousands)

 

Marketable investment securities:

 

 

 

 

 

 

 

Current marketable investment securities - strategic

 

$

119,734

 

$

259,145

 

Current marketable investment securities - other

 

 

41,900

 

 

298,766

 

Total current marketable investment securities

 

 

161,634

 

 

557,911

 

Restricted marketable investment securities (1)

 

 

82,307

 

 

82,280

 

Total marketable investment securities

 

 

243,941

 

 

640,191

 

 

 

 

 

 

 

 

 

Restricted cash and cash equivalents (1)

 

 

67

 

 

94

 

 

 

 

 

 

 

 

 

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

 

 

8,167

 

 

11,046

 

Total other investment securities

 

 

324,371

 

 

327,250

 

 

 

 

 

 

 

 

 

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

 

$

568,379

 

$

967,535

 

 

 

 

 

 

 

 

 

(1)

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

 

Marketable Investment Securities

 

Our marketable investment securities portfolio consists of various debt and equity instruments, all 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 portfolio includes strategic and financial debt and equity investments in public companies that are highly speculative and have experienced and continue to experience volatility.  As of March 31, 2016,  this portfolio consisted of securities of a small number of issuers, and as a result the value of that portfolio depends, among other things, on the performance of those issuers.  The fair value of certain of the debt and equity securities in this portfolio can be adversely impacted by, among other things, the issuers’ respective performance and ability to obtain any necessary additional financing on acceptable terms, or at all.

 

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/or agency securities.

 

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

 

Restricted Cash, Cash Equivalents and Marketable Investment Securities

 

As of March 31, 2016 and December 31, 2015, 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.

 

13


 

Table of Contents

DISH NETWORK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Unaudited)

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 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”).  As of November 30, 2015, we no longer lease satellite capacity on the EchoStar I satellite.  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 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.

 

14


 

Table of Contents

DISH NETWORK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Unaudited)

Unrealized Gains (Losses) on Marketable Investment Securities

 

As of March 31, 2016 and December 31, 2015, we had accumulated net unrealized gains of $30 million and $98 million, respectively.  These amounts, net of related tax effect, were $20 million and $62 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  March 31, 2016

 

As of  December 31, 2015

 

 

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

$

82,144

 

$

45

 

$

(6)

 

$

39

 

$

82,124

 

$

2

 

$

(135)

 

 

(133)

 

Corporate securities

 

136,100

 

 

27,501

 

 

(7)

 

 

27,494

 

 

349,897

 

 

29,370

 

 

(480)

 

 

28,890

 

Other

 

3,170

 

 

71

 

 

(11)

 

 

60

 

 

47,847

 

 

73

 

 

(17)

 

 

56

 

Equity securities

 

22,527

 

 

4,185

 

 

(1,546)

 

 

2,639

 

 

160,323

 

 

68,751

 

 

(41)

 

 

68,710

 

Total

$

243,941

 

$

31,802

 

$

(1,570)

 

$

30,232

 

$

640,191

 

$

98,196

 

$

(673)

 

$

97,523

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of March 31, 2016, restricted and non-restricted marketable investment securities included debt securities of $102 million with contractual maturities within one year, $28 million with contractual maturities extending longer than one year through and including five years and $91 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.

 

Marketable Investment Securities in a Loss Position

 

The following table reflects the length of time that the individual securities, accounted for as available-for-sale, have been in an unrealized loss position, aggregated by investment category.  As of March 31, 2016, the unrealized losses on our investments in equity securities represented investments in broad-based indices.  We are not aware of any factors that indicate the unrealized losses in these investments are due to factors other than temporary market fluctuations.  As of March 31, 2016, the unrealized losses related to our investments in debt securities primarily represented investments in U.S. Treasury and agency securities, corporate securities and other.  We have the ability to hold and do not intend to sell our investments in these debt securities before they recover or mature, and it is more likely than not that we will hold these investments until that time.  In addition, we are not aware of any specific factors indicating that the underlying issuers of these debt securities would not be able to pay interest as it becomes due or repay the principal at maturity. 

15


 

Table of Contents

DISH NETWORK CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Unaudited)

Therefore, we believe that these changes in the estimated fair values of these marketable investment securities are related to temporary market fluctuations.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of

 

 

 

March 31, 2016

 

December 31, 2015

 

 

 

Fair 

 

Unrealized

 

Fair 

 

Unrealized

 

 

    

Value

    

Loss

    

Value

    

Loss

 

 

 

(In thousands)

 

Debt Securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Less than 12 months

 

$

27,682

 

$

(13)

 

$

303,194

 

$

(612)

 

12 months or more

 

 

127

 

 

(11)

 

 

7,512

 

 

(20)

 

Equity Securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Less than 12 months

 

 

12,572

 

 

(1,546)

 

 

6,133

 

 

(41)

 

12 months or more

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

Total

 

$

40,381

 

$

(1,570)

 

$

316,839

 

$

(673)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value Measurements

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of

 

 

March 31, 2016

 

December 31, 2015

 

 

Total  

    

Level 1

    

Level 2

    

Level 3

    

Total  

    

Level 1

    

Level 2

    

Level 3

 

 

(In thousands)

 

Cash equivalents (including restricted)

$

574,712

 

$

34,901

 

$

539,811

 

$

 —

 

$

920,689

 

$

82,675

 

$

838,014

 

$

 —

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt securities (including restricted):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U. S. Treasury and agency securities

$

82,144

 

$

77,375

 

$

4,769

 

$

 —

 

$

82,124

 

$

77,328

 

$

4,796

 

$

 —

 

Corporate securities

 

136,100

 

 

 —

 

 

129,937

 

 

6,163

 

 

349,897

 

 

 —

 

 

343,733

 

 

6,164

 

Other

 

3,170

 

 

 —

 

 

2,972

 

 

198

 

 

47,847

 

 

 —

 

 

47,648

 

 

199

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity securities

 

22,527

 

 

22,527

 

 

 —

 

 

 —

 

 

160,323

 

 

160,323