10-Q 1 ddbs-20180630x10q.htm 10-Q ddbs_Current folio_10Q_Taxonomy2017

 

 

 

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 JUNE 30, 2018.

 

OR

 

 

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______ TO______.

 

Commission File Number: 333-31929

 

DISH DBS Corporation

(Exact name of registrant as specified in its charter)

 

 

 

Colorado

84-1328967

(State or other jurisdiction of incorporation or organization)

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

 

 

9601 South Meridian Boulevard

 

Englewood, Colorado

80112

(Address of principal executive offices)

(Zip code)

 

(303) 723-1000

(Registrant’s telephone number, including area code)

 

Not Applicable

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

 

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

 

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

 

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

 

 

 

 

 

Large accelerated filer

 

Accelerated filer

 

 

 

 

 

Non-accelerated filer ☒

 

Smaller reporting company

 

(Do not check if a smaller reporting company)

 

 

 

 

 

Emerging growth company  

 

 

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

 

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

 

As of August 3, 2018, the registrant’s outstanding common stock consisted of 1,015 shares of common stock, $0.01 par value.

 

The registrant meets the conditions set forth in General Instruction (H)(1)(a) and (b) of Form 10‑Q and is therefore filing this Form 10‑Q with the reduced disclosure format.

 

 

 


 

 

TABLE OF CONTENTS

 

 

 

 

 

PART I — FINANCIAL INFORMATION 

 

 

 

 

 

Disclosure Regarding Forward-Looking Statements

 

i

 

 

 

 

Item 1. 

Financial Statements

 

 

 

 

 

 

 

Condensed Consolidated Balance Sheets — June 30, 2018 and December 31, 2017 (Unaudited)

 

1

 

 

 

 

 

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) For the Three and Six Months Ended June 30, 2018 and 2017 (Unaudited)

 

2

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows For the Six Months Ended June 30, 2018 and 2017 (Unaudited)

 

3

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

4

 

 

 

 

Item 2. 

Management’s Narrative Analysis of Results of Operations

 

42

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

*

 

 

 

 

Item 4. 

Controls and Procedures

 

61

 

 

 

 

PART II — OTHER INFORMATION 

 

 

 

 

Item 1. 

Legal Proceedings

 

62

 

 

 

 

Item 1A. 

Risk Factors

 

62

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

*

 

 

 

 

Item 3.

Defaults Upon Senior Securities

 

*

 

 

 

 

Item 4.

Mine Safety Disclosures

 

None

 

 

 

 

Item 5.

Other Information

 

None

 

 

 

 

Item 6. 

Exhibits

 

62

 

 

 

 

 

Signatures

 

63

 

 

*This item has been omitted pursuant to the reduced disclosure format as set forth in General Instruction (H)(2) of Form 10-Q.

 

 


 

 

PART I — FINANCIAL INFORMATION

 

DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

 

Unless otherwise required by the context, in this report, the words “DISH DBS,” the “Company,” “we,” “our” and “us” refer to DISH DBS Corporation and its subsidiaries, “DISH Network” refers to DISH Network Corporation, our parent company, and its subsidiaries, including us, and “EchoStar” refers to EchoStar Corporation and its subsidiaries.

 

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

 

Competition and Economic Risks

 

·

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

 

·

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

 

·

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

 

·

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

 

·

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

 

·

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

 

·

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

 

·

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

 

Operational and Service Delivery Risks

 

·

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

i


 

 

·

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

 

·

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

 

·

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

 

·

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

 

·

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

 

·

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

 

·

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

 

·

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

 

·

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

 

·

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

 

·

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

 

·

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

 

·

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

 

·

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

 

·

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.

 

ii


 

·

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

 

·

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

 

Acquisition and Capital Structure Risks

 

·

Our parent, DISH Network, has made substantial investments to acquire certain wireless spectrum licenses and other related assets.  In addition, DISH Network has made substantial non-controlling investments in the Northstar Entities and the SNR Entities related to AWS-3 wireless spectrum licenses.

 

·

Our parent, DISH Network, faces certain risks related to its non-controlling investments in the Northstar Entities and the SNR Entities.

 

·

To the extent that our parent, DISH Network, commercializes its wireless spectrum licenses, it 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.

 

·

We have substantial debt outstanding and may incur additional debt.

 

·

Our parent, DISH Network, is controlled by one principal stockholder who is also our Chairman.

 

Legal and Regulatory Risks

 

·

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

 

·

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

 

·

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

 

·

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

 

·

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

 

·

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

 

·

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

 

iii


 

·

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 DISH Network’s stock price may be adversely affected if our internal controls are not effective.

 

·

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

 

Other factors that could cause or contribute to such differences include, but are not limited to, those discussed under the caption “Risk Factors” in Part I, Item 1A of our most recent Annual Report on Form 10-K (the “10-K”) filed with the SEC, those discussed in “Management’s Narrative Analysis of 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.

 

 

iv


 

Item 1. FINANCIAL STATEMENTS

 

DISH DBS CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except share amounts)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

As of

 

    

June 30,

    

December 31,

 

 

2018

 

2017

Assets

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

16,525

 

$

364,673

Marketable investment securities

 

 

71,943

 

 

185,513

Trade accounts receivable, net of allowance for doubtful accounts of $11,546 and $15,056, respectively

 

 

621,516

 

 

628,278

Inventory

 

 

329,395

 

 

320,899

Other current assets

 

 

128,206

 

 

189,480

Total current assets

 

 

1,167,585

 

 

1,688,843

 

 

 

 

 

 

 

Noncurrent Assets:

 

 

 

 

 

 

Restricted cash, cash equivalents and marketable investment securities

 

 

72,972

 

 

72,407

Property and equipment, net

 

 

1,510,750

 

 

1,632,161

FCC authorizations

 

 

636,817

 

 

636,275

Other investment securities

 

 

115,870

 

 

113,460

Other noncurrent assets, net

 

 

272,776

 

 

236,041

Total noncurrent assets

 

 

2,609,185

 

 

2,690,344

Total assets

 

$

3,776,770

 

$

4,379,187

 

 

 

 

 

 

 

Liabilities and Stockholder's Equity (Deficit)

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

Trade accounts payable

 

$

258,582

 

$

361,759

Advances from affiliates

 

 

155,283

 

 

 —

Deferred revenue and other

 

 

696,307

 

 

693,595

Accrued programming

 

 

1,554,525

 

 

1,571,273

Accrued interest

 

 

224,309

 

 

236,509

Other accrued expenses (Note 8)

 

 

745,398

 

 

759,639

Current portion of long-term debt and capital lease obligations

 

 

30,930

 

 

1,064,474

Total current liabilities

 

 

3,665,334

 

 

4,687,249

 

 

 

 

 

 

 

Long-Term Obligations, Net of Current Portion:

 

 

 

 

 

 

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

 

 

11,976,985

 

 

12,046,173

Deferred tax liabilities

 

 

473,227

 

 

485,099

Long-term deferred revenue and other long-term liabilities

 

 

195,914

 

 

207,329

Total long-term obligations, net of current portion

 

 

12,646,126

 

 

12,738,601

Total liabilities

 

 

16,311,460

 

 

17,425,850

 

 

 

 

 

 

 

Commitments and Contingencies (Note 8)

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholder’s Equity (Deficit):

 

 

 

 

 

 

Common stock, $.01 par value, 1,000,000 shares authorized, 1,015 shares issued and outstanding

 

 

 —

 

 

 —

Additional paid-in capital

 

 

1,135,553

 

 

1,116,848

Accumulated other comprehensive income (loss)

 

 

725

 

 

935

Accumulated earnings (deficit)

 

 

(13,675,844)

 

 

(14,168,047)

Total DISH DBS stockholder's equity (deficit)

 

 

(12,539,566)

 

 

(13,050,264)

Noncontrolling interests

 

 

4,876

 

 

3,601

Total stockholder’s equity (deficit)

 

 

(12,534,690)

 

 

(13,046,663)

Total liabilities and stockholder’s equity (deficit)

 

$

3,776,770

 

$

4,379,187

 

 

 

 

 

 

 

 

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

1


 

DISH DBS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE INCOME (LOSS)

(In thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended

 

For the Six Months Ended

 

 

June 30,

 

June 30,

 

    

2018

    

2017

    

2018

    

2017

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

Subscriber-related revenue

 

$

3,352,354

 

$

3,512,900

 

$

6,699,951

 

$

7,049,362

Equipment sales and other revenue

 

 

40,953

 

 

30,912

 

 

76,578

 

 

65,409

Total revenue

 

 

3,393,307

 

 

3,543,812

 

 

6,776,529

 

 

7,114,771

 

 

 

 

 

 

 

 

 

 

 

 

 

Costs and Expenses (exclusive of depreciation shown separately below - Note 6):

 

 

 

 

 

 

 

 

 

 

 

 

Subscriber-related expenses

 

 

2,119,812

 

 

2,183,057

 

 

4,259,605

 

 

4,360,987

Satellite and transmission expenses

 

 

161,207

 

 

179,059

 

 

329,992

 

 

369,721

Cost of sales - equipment and other

 

 

35,697

 

 

24,050

 

 

66,006

 

 

50,109

Subscriber acquisition costs:

 

 

 

 

 

 

 

 

 

 

 

 

   Cost of sales - subscriber promotion subsidies

 

 

9,108

 

 

22,211

 

 

25,038

 

 

42,484

   Other subscriber acquisition costs

 

 

68,734

 

 

131,501

 

 

145,806

 

 

265,558

   Subscriber acquisition advertising

 

 

105,420

 

 

117,907

 

 

208,429

 

 

243,754

Total subscriber acquisition costs

 

 

183,262

 

 

271,619

 

 

379,273

 

 

551,796

General and administrative expenses

 

 

183,594

 

 

179,298

 

 

345,278

 

 

304,608

Litigation expense (Note 8)

 

 

 —

 

 

295,695

 

 

 —

 

 

295,695

Depreciation and amortization (Note 6)

 

 

160,233

 

 

191,314

 

 

338,752

 

 

373,342

Total costs and expenses

 

 

2,843,805

 

 

3,324,092

 

 

5,718,906

 

 

6,306,258

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income (loss)

 

 

549,502

 

 

219,720

 

 

1,057,623

 

 

808,513

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Income (Expense):

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

2,899

 

 

3,409

 

 

5,291

 

 

5,696

Interest expense, net of amounts capitalized

 

 

(194,777)

 

 

(221,943)

 

 

(401,872)

 

 

(443,234)

Other, net

 

 

21,415

 

 

2,477

 

 

(13,382)

 

 

3,425

Total other income (expense)

 

 

(170,463)

 

 

(216,057)

 

 

(409,963)

 

 

(434,113)

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) before income taxes

 

 

379,039

 

 

3,663

 

 

647,660

 

 

374,400

Income tax (provision) benefit, net

 

 

(91,497)

 

 

(97,120)

 

 

(156,310)

 

 

(226,899)

Net income (loss)

 

 

287,542

 

 

(93,457)

 

 

491,350

 

 

147,501

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

 

 

1,851

 

 

2,199

 

 

1,467

 

 

1,442

Net income (loss) attributable to DISH DBS

 

$

285,691

 

$

(95,656)

 

$

489,883

 

$

146,059

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive Income (Loss):

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

287,542

 

$

(93,457)

 

$

491,350

 

$

147,501

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

   Foreign currency translation adjustments

 

 

(657)

 

 

639

 

 

(257)

 

 

846

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

 

 

65

 

 

(22)

 

 

90

 

 

(65)

   Deferred income tax (expense) benefit, net

 

 

(4)

 

 

51

 

 

(43)

 

 

67

Total other comprehensive income (loss), net of tax

 

 

(596)

 

 

668

 

 

(210)

 

 

848

Comprehensive income (loss)

 

 

286,946

 

 

(92,789)

 

 

491,140

 

 

148,349

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

 

 

1,851

 

 

2,199

 

 

1,467

 

 

1,442

Comprehensive income (loss) attributable to DISH DBS

 

$

285,095

 

$

(94,988)

 

$

489,673

 

$

146,907

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

2


 

DISH DBS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

For the Six Months Ended

 

 

June 30,

 

 

2018

    

2017

Cash Flows From Operating Activities:

 

 

 

 

 

 

Net income (loss)

 

$

491,350

 

$

147,501

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

 

 

 

 

 

 

Depreciation and amortization

 

 

338,752

 

 

373,342

Realized and unrealized losses (gains) on investments

 

 

17,443

 

 

(1,803)

Non-cash, stock-based compensation

 

 

18,705

 

 

11,863

Deferred tax expense (benefit)

 

 

(12,703)

 

 

(22,854)

Other, net

 

 

(66,827)

 

 

12,797

Changes in current assets and current liabilities, net

 

 

(126,440)

 

 

194,876

Net cash flows from operating activities

 

 

660,280

 

 

715,722

 

 

 

 

 

 

 

Cash Flows From Investing Activities:

 

 

 

 

 

 

(Purchases) Sales and maturities of marketable investment securities, net

 

 

98,085

 

 

247

Purchases of property and equipment

 

 

(157,593)

 

 

(210,030)

Purchases of strategic investments

 

 

 —

 

 

(90,381)

Other, net

 

 

5,543

 

 

7,044

Net cash flows from investing activities

 

 

(53,965)

 

 

(293,120)

 

 

 

 

 

 

 

Cash Flows From Financing Activities:

 

 

 

 

 

 

Redemption and repurchases of senior notes

 

 

(1,088,392)

 

 

 —

Payments made to parent of transferred businesses

 

 

 —

 

 

(7,098)

Advances from affiliates

 

 

155,283

 

 

 —

Repayment of long-term debt and capital lease obligations

 

 

(18,569)

 

 

(19,052)

Other, net

 

 

(2,760)

 

 

 —

Net cash flows from financing activities

 

 

(954,438)

 

 

(26,150)

 

 

 

 

 

 

 

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

 

 

(348,123)

 

 

396,452

Cash, cash equivalents, restricted cash and cash equivalents, beginning of period (Note 4)

 

 

365,066

 

 

778,259

Cash, cash equivalents, restricted cash and cash equivalents, end of period (Note 4)

 

$

16,943

 

$

1,174,711

 

 

 

 

 

 

 

 

 

 

 

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

 

 

3


 

 

DISH DBS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

1.Organization and Business Activities

 

Principal Business

 

DISH DBS Corporation (which together with its subsidiaries is referred to as “DISH DBS,” the “Company,” “we,” “us” and/or “our,” unless otherwise required by the context) is a holding company and an indirect, wholly-owned subsidiary of DISH Network Corporation (“DISH Network”).  DISH DBS was formed under Colorado law in January 1996 and its common stock is held by DISH Orbital Corporation (“DOC”), a direct subsidiary of DISH Network.  Our subsidiaries operate one business segment.

 

Pay-TV

 

We offer pay-TV services under the DISH® brand and the Sling® brand (collectively “Pay-TV” services).  The DISH branded pay-TV service consists of, among other things, Federal Communications Commission (“FCC”) licenses authorizing us to use direct broadcast satellite (“DBS”) and Fixed Satellite Service (“FSS”) spectrum, our owned and leased satellites, receiver systems, broadcast operations, customer service facilities, a leased fiber optic network, in-home service and call center operations, and certain other assets utilized in our operations (“DISH TV”).  The Sling branded pay-TV services consist of, among other things, live, linear streaming over-the-top (“OTT”) Internet-based domestic, international and Latino video programming services (“Sling TV”).  As of June 30, 2018, we had 12.997 million Pay-TV subscribers in the United States, including 10.653 million DISH TV subscribers and 2.344 million Sling TV subscribers.

 

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

 

2.Summary of Significant Accounting Policies

 

Basis of Presentation

 

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

 

Principles of Consolidation

 

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

 

4


 

Table of Contents

 

DISH DBS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Unaudited)

 

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

 

As the Share Exchange was a transaction between entities that are under common control, accounting rules require that our Condensed Consolidated Financial Statements include the results of the Transferred Businesses for all periods presented, including periods prior to the completion of the Share Exchange.  We initially recorded the Transferred Businesses at EchoStar’s historical cost basis.  The difference between the historical cost basis of the Transferred Businesses and the net carrying value of the Tracking Stock was recorded in “Additional paid-in capital” on our Condensed Consolidated Balance Sheets.  The results of the Transferred Businesses were prepared from separate records maintained by EchoStar for the periods prior to March 1, 2017, and may not necessarily be indicative of the conditions that would have existed, or the results of operations, if the Transferred Businesses had been operated on a combined basis with our subsidiaries.

 

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, relative standalone selling prices of performance obligations, capital leases, asset impairments, estimates of future cash flows used to evaluate impairments, useful lives of property, equipment and intangible assets, independent third-party retailer incentives, programming expenses and subscriber lives.  Economic conditions may increase the inherent uncertainty in the estimates and assumptions indicated above.  Actual results may differ from previously estimated amounts, and such differences may be material to our condensed consolidated financial statements.  Estimates and assumptions are reviewed periodically, and the effects of revisions are reflected prospectively in the period they occur.

 

Marketable Investment Securities

 

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

5


 

Table of Contents

 

DISH DBS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Unaudited)

 

 

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

 

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; and quoted prices for identical or similar instruments in markets that are not active; 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, 2018 and December 31, 2017, the carrying amount for cash and cash equivalents, trade accounts receivable (net of allowance for doubtful accounts) and current liabilities (excluding the “Current portion of long-term debt and capital lease obligations”) was equal to or approximated fair value due to their short-term nature or proximity to current market rates.  See Note 4 for the fair value of our marketable investment securities.

 

Fair values for our publicly traded debt securities are based on quoted market prices, when available.  The fair values of private debt are based on, among other things, available trade information, and/or an analysis in which we evaluate market conditions, related securities, various public and private offerings, and other publicly available information.  In performing this analysis, we make various assumptions regarding, among other things, credit spreads, and the impact of these factors on the value of the debt securities.  See Note 7 for the fair value of our long-term debt.

 

Revenue Recognition

 

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

 

6


 

Table of Contents

 

DISH DBS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Unaudited)

 

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

 

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

 

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

 

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

 

Contract Balances

 

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

 

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

 

We recognize an asset for the incremental costs of obtaining a contract with a subscriber if we expect the benefit of those costs to be longer than one year.  We have determined that certain sales incentive programs, including those with our independent third-party retailers, meet the requirements to be capitalized, and payments made under these programs are capitalized and amortized to expense over the estimated subscriber life.  During the three and six months ended June 30, 2018, we capitalized $49 million and $90 million, respectively, under these programs.  The amortization expense related to these programs was $5 million and $8 million, respectively, for the three and six months ended June 30, 2018.  As of June 30, 2018, we had a total of $96 million capitalized on our Condensed Consolidated Balance Sheets.  These amounts are capitalized in “Other currents assets” and “Other noncurrent assets, net” on our Condensed Consolidated Balance Sheets, and then amortized in “Other subscriber acquisition costs” on our Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).

7


 

Table of Contents

 

DISH DBS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Unaudited)

 

Impact of Adoption of ASU 2014-09

 

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

 

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

 

 

 

 

 

 

 

 

 

 

 

Condensed Consolidated Statements of Operations

 

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

    

Impact of adopting ASU 2014-09

 

DISH DBS (as currently reported)

 

 

(In thousands)

For the Three Months Ended June 30, 2018

 

 

 

 

 

 

 

 

 

Subscriber-related revenue

 

$

3,355,068

 

$

(2,714)

 

$

3,352,354

Subscriber-related expenses

 

$

2,122,637

 

$

(2,825)

 

$

2,119,812

Total subscriber acquisition costs

 

$

227,221

 

$

(43,959)

 

$

183,262

Operating income (loss)

 

$

505,432

 

$

44,070

 

$

549,502

Income (loss) before income taxes

 

$

334,969

 

$

44,070

 

$

379,039

Income tax (provision) benefit, net

 

$

(80,425)

 

$

(11,072)

 

$

(91,497)

Net income (loss) attributable to DISH DBS

 

$

252,693

 

$

32,998

 

$

285,691

 

 

 

 

 

 

 

 

 

 

For the Six Months Ended June 30, 2018

 

 

 

 

 

 

 

 

 

Subscriber-related revenue

 

$

6,711,593

 

$

(11,642)

 

$

6,699,951

Subscriber-related expenses

 

$

4,266,857

 

$

(7,252)

 

$

4,259,605

Total subscriber acquisition costs

 

$

463,530

 

$

(84,257)

 

$

379,273

Operating income (loss)

 

$

977,756

 

$

79,867

 

$

1,057,623

Income (loss) before income taxes

 

$

567,793

 

$

79,867

 

$

647,660

Income tax (provision) benefit, net

 

$

(136,647)

 

$

(19,663)

 

$

(156,310)

Net income (loss) attributable to DISH DBS

 

$

429,679

 

$

60,204

 

$

489,883

 

 

 

 

 

 

 

 

 

 

Condensed Consolidated Balance Sheets

 

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

    

Impact of adopting ASU 2014-09

 

DISH DBS (as currently reported)

 

 

(In thousands)

As of June 30, 2018

 

 

 

 

 

 

 

 

 

Inventory

 

$

292,871

 

$

36,524

 

$

329,395

Other current assets

 

$

102,099

 

$

26,107

 

$

128,206

Other noncurrent assets, net

 

$

202,698

 

$

70,078

 

$

272,776

Total assets

 

$

3,644,061

 

$

132,709

 

$

3,776,770

Deferred revenue and other

 

$

648,896

 

$

47,411

 

$

696,307

Deferred tax liabilities

 

$

452,772

 

$

20,455

 

$

473,227

Long-term deferred revenue and other long-term liabilities

 

$

193,596

 

$

2,318

 

$

195,914

Total liabilities

 

$

16,241,276

 

$

70,184

 

$

16,311,460

Total stockholder's equity (deficit)

 

$

(12,597,215)

 

$

62,525

 

$

(12,534,690)

Total liabilities and stockholder's equity (deficit)

 

$

3,644,061

 

$

132,709

 

$

3,776,770

 

 

 

 

 

 

 

 

 

 

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

 

8


 

Table of Contents

 

DISH DBS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Unaudited)

 

Research and Development

 

Research and development costs are expensed as incurred.  Research and development costs totaled $6 million and $9 million for the three months ended June 30, 2018 and 2017, respectively.  Research and development costs totaled $12 million and $16 million for the six months ended June 30, 2018 and 2017, respectively.

 

New Accounting Pronouncements

 

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

 

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

 

3.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,

 

    

2018

    

2017

 

 

(In thousands)

Cash paid for interest

 

$

408,284

 

$

443,283

Cash received for interest

 

 

2,411

 

 

5,696

Cash paid for income taxes

 

 

8,388

 

 

10,583

Cash paid for income taxes to DISH Network

 

 

161,128

 

 

242,541

Capitalized interest

 

 

542

 

 

 —

Assets financed under capital lease obligations

 

 

142

 

 

 —

 

 

 

 

 

 

 

Our parent, DISH Network, provides a centralized system for the management of our cash and marketable investment securities as it does for all of its subsidiaries, among other reasons, to maximize yield of the portfolio.  As a result, the cash and marketable investment securities included on our Condensed Consolidated Balance Sheets is a component or portion of the overall cash and marketable investment securities portfolio included on DISH Network’s Condensed Consolidated Balance Sheets and managed by DISH Network.  We are reflecting the purchases and sales of marketable investment securities on a net basis for each period presented on our Condensed Consolidated Statements of Cash Flows as we believe the net presentation is more meaningful to our cash flows from investing activities.

 

 

 

 

 

 

9


 

Table of Contents

 

DISH DBS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Unaudited)

 

4.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,

 

 

2018

 

2017

 

 

(In thousands)

Marketable investment securities:

 

 

 

 

 

 

Current marketable investment securities:

 

 

 

 

 

 

Trading/equity (Note 2)

 

$

71,943

 

$

93,367

Other

 

 

 —

 

 

92,146

Total current marketable investment securities

 

 

71,943

 

 

185,513

Restricted marketable investment securities (1)

 

 

72,554

 

 

72,014

Total marketable investment securities

 

 

144,497

 

 

257,527

 

 

 

 

 

 

 

Restricted cash and cash equivalents (1)

 

 

418

 

 

393

 

 

 

 

 

 

 

Other investment securities:

 

 

 

 

 

 

Other investment securities - equity method

 

 

115,870

 

 

113,460

Total other investment securities

 

 

115,870

 

 

113,460

 

 

 

 

 

 

 

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

 

$

260,785

 

$

371,380

 

 

 

 

 

 

 

(1)

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

 

Marketable Investment Securities

 

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

 

Current Marketable Investment Securities - Trading/Equity 

 

We had an investment in non-marketable preferred shares of a non-public company, which was received for no cash consideration and was previously accounted for as a cost method investment and included in “Other investment securities” on our Condensed Consolidated Balance Sheets.  During the third quarter 2017, our non-marketable preferred shares converted into common shares in conjunction with the issuer’s initial public offering, and accordingly we classified the new equity securities as “Marketable investment securities” on our Condensed Consolidated Balance Sheets.  Subsequent to the adoption of ASU 2016-01 during the first quarter 2018, all equity securities are carried at fair value, with changes in fair value recognized in “Other, net” within “Other Income (Expense)” on our Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).  See Note 2 for further information.

 

10


 

Table of Contents

 

DISH DBS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Unaudited)

 

Current Marketable Investment Securities – Other

 

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

 

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

 

Restricted Cash, Cash Equivalents and Marketable Investment Securities

 

As of June 30, 2018 and December 31, 2017, our restricted marketable investment securities, together with our restricted cash and cash equivalents, included amounts required as collateral for our letters of credit.

 

Other Investment Securities

 

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

 

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

 

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

 

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

11


 

Table of Contents

 

DISH DBS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Unaudited)

 

Unrealized Gains (Losses) on Marketable Investment Securities

 

As of June 30, 2018 and December 31, 2017, we had accumulated net unrealized losses of less than $1 million.  These amounts, net of related tax effect, were accumulated net unrealized losses of less than $1 million.  All of these amounts are included in “Accumulated other comprehensive income (loss)” within “Total stockholder’s equity (deficit).”  The components of our available-for-sale investments are summarized in the table below.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of June 30, 2018

 

As of December 31, 2017

 

 

Marketable

 

 

 

 

 

 

 

 

 

 

Marketable

 

 

 

 

 

 

 

 

 

 

 

Investment

 

Unrealized

 

Investment

 

Unrealized

 

    

Securities

    

Gains

    

Losses

    

Net

    

Securities

    

Gains

    

Losses

    

Net

 

 

(In thousands)

Debt securities (including restricted):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury and agency securities

 

$

72,301

 

$

 —

 

$

(59)

 

$

(59)

 

$

74,788

 

$

22

 

$

(141)

 

$

(119)

Commercial paper

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

24,407

 

 

 —

 

 

(2)

 

 

(2)

Corporate securities

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

63,809

 

 

 —

 

 

(29)

 

 

(29)

Other

 

 

253

 

 

 —

 

 

 —

 

 

 —

 

 

1,156

 

 

 —

 

 

 —

 

 

 —

Total

 

$

72,554

 

$

 —

 

$

(59)

 

$

(59)

 

$

164,160

 

$

22

 

$

(172)

 

$

(150)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of June 30, 2018, restricted and non-restricted marketable investment securities included debt securities of $73 million with contractual maturities within one year.  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 June 30, 2018, the unrealized losses related to our investments in debt securities primarily represented investments in United States treasury and agency 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, 2018

 

December 31, 2017

 

 

Fair

 

Unrealized

 

Fair

 

Unrealized

 

    

Value

    

Loss

    

Value

    

Loss

 

 

(In thousands)

Debt securities:

 

 

 

 

 

 

 

 

 

 

 

 

Less than 12 months

 

$

57,530

 

$

(23)

 

$

109,853

 

$

(53)

12 months or more

 

 

14,771

 

 

(36)

 

 

34,203

 

 

(119)

Total

 

$

72,301

 

$

(59)

 

$

144,056

 

$

(172)

 

 

 

 

 

 

 

 

 

 

 

 

 

12


 

Table of Contents

 

DISH DBS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Unaudited)

 

Fair Value Measurements

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of 

 

 

June 30, 2018

 

December 31, 2017

 

    

Total

    

Level 1