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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 

Form 10-K/A

(Amendment No. 1)

 

(Mark One)

 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 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)

 

Registrant’s telephone number, including area code: (303) 723-1000

 

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

 

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

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes ☐ No ☒

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes ☐ No ☒

 

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

 

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

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ☒

 

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

 

 

 

 

 

 

 

 

Large accelerated filer ☐

 

Accelerated filer ☐

 

Non-accelerated filer ☒

 

Smaller reporting company ☐

 

 

 

 

 

 

 

Emerging growth company ☐

 

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

 

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

 

The aggregate market value of the registrant’s voting interests held by non-affiliates on June 30, 2018 was $0.

 

As of March 1, 2019, the registrant’s outstanding common stock consisted of 1,015 shares of common stock, $0.01 par value per share.

 

The registrant meets the conditions set forth in General Instructions (I)(1)(a) and (b) of Form 10-K and is therefore filing this Amendment No. 1 to the

Annual Report on Form 10-K with the reduced disclosure format.

 

DOCUMENTS INCORPORATED BY REFERENCE

 

The following documents are incorporated into this Form 10-K by reference: None

 

 

 

 

Table of Contents

 

EXPLANATORY NOTE

 

This Amendment No. 1 on Form 10-K/A (“Amendment No. 1”) hereby amends the Annual Report on Form 10-K of DISH DBS Corporation (the “Company”) for the fiscal year ended December 31, 2018, as filed with the Securities and Exchange Commission (“SEC”) on March 7, 2019 (the “Original 10-K”). The sole purpose of this Amendment No. 1 is to provide a revised version of KPMG LLP”s (“KPMG”) opinion included in Part IV, Item 15 of the Original 10-K that includes a statement inadvertently omitted by KPMG from the previously filed version that confirms KPMG did not audit the Company’s internal control over financial reporting. In accordance with rules adopted by the SEC, the Company is not required to have an audit of its internal control over financial reporting. The changes made to KPMG’s opinion do not in any way change the conclusions expressed by KPMG in the opinion included in the Original 10-K.  

 

As required by Rule 12b-15 under the Securities Exchange Act of 1934, as amended, this Amendment No. 1 includes new certifications from the Company’s Principal Executive Officer and Principal Financial Officer dated as of the date of filing this Amendment No. 1.

 

This Amendment No. 1 consists solely of the preceding cover page, this explanatory note, Part IV., Item 15., “Exhibits and Financial Statement Schedules,” in its entirety, the signature page, and the new certifications from the Company’s Principal Executive Officer and Principal Financial Officer.

 

This Amendment No. 1 speaks as of the date of the Original 10-K, does not reflect events that may have occurred after the date of the Original 10-K and does not modify or update in any way the disclosures made in the Original 10-K, except as described above. This Amendment No. 1 should be read in conjunction with the Original 10-K and with the Company’s subsequent filings with the SEC.

 

1

 

Table of Contents

 

 

TABLE OF CONTENTS

 

 

 

 

 

 

 

 

 

 

PART II

 

 

 

 

 

 

Item 8. 

Financial Statements and Supplementary Data

 

3

 

 

 

 

 

PART IV

 

 

 

 

 

 

Item 15. 

Exhibits, Financial Statement Schedules

 

4

 

 

 

 

 

Signatures

 

 

 

 

 

 

2

 

Table of Contents

 

 

PART II

 

Item 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

The financial statements required to be filed pursuant to this Item 8 are appended to this report beginning on page F-1.  An index of those financial statements is included in Part IV, Item 15 below.

 

 

 

 

3

 

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PART IV

 

Item 15.EXHIBITS, FINANCIAL STATEMENT SCHEDULES

 

(a)The following financial statements are presented in response to Part II, Item 8, under the heading “Financial Statements and Supplementary Data”:

 

(1)Financial Statements

 

 

 

 

 

Page

Report of KPMG LLP, Independent Registered Public Accounting Firm 

 

F-2

Consolidated Balance Sheets at December 31, 2018 and 2017 

 

F-3

Consolidated Statements of Operations and Comprehensive Income (Loss) for the years ended December 31, 2018, 2017 and 2016 

 

F-4

Consolidated Statements of Changes in Stockholder’s Equity (Deficit) for the years ended December 31, 2016, 2017 and 2018 

 

F-5

Consolidated Statements of Cash Flows for the years ended December 31, 2018, 2017 and 2016 

 

F-6

Notes to Consolidated Financial Statements 

 

F-7

 

(2)Financial Statement Schedules

 

None.  All schedules have been included in the consolidated financial statements or notes thereto.

 

(3)Exhibits

 

 

 

 

Exhibit No.

 

Description

 

 

 

3.1(a)*

 

Articles of Incorporation of DISH DBS Corporation (incorporated by reference to Exhibit 3.4(a) to the Registration Statement on Form S-4 of DISH DBS Corporation, Registration No. 333-31929), as amended by the Certificate of Amendment of the Articles of Incorporation of DISH DBS Corporation, dated as of August 25, 2003 (incorporated by reference to Exhibit 3.1(b) to the Annual Report on Form 10-K of DISH DBS Corporation for the year ended December 31, 2003, Commission File No. 333-31929), and as further amended by the Amendment of the Articles of Incorporation of DISH DBS Corporation, effective December 12, 2008 (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K of DISH DBS Corporation filed December 12, 2008, Registration No. 333-31929).

 

 

 

3.1(b)*

 

Bylaws of DISH DBS Corporation (incorporated by reference to Exhibit 3.4(b) to the Registration Statement on Form S-4 of DISH DBS Corporation, Registration No. 333-31929).

 

 

 

 

 

 

 

4.1*

 

Indenture, relating to the 7 7/8% Senior Notes due 2019, dated as of August 17, 2009 between DISH DBS Corporation and U.S. Bank National Association, as Trustee (incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K of DISH Network Corporation filed August 18, 2009, Commission File No. 0-26176).

 

 

 

4.2*

 

Indenture, relating to the 5 1/8% Senior Notes due 2020, dated as of April 5, 2013, among DISH DBS Corporation, the guarantors named on the signature pages thereto and Wells Fargo Bank, National Association, as Trustee (incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K of DISH DBS Corporation filed April 5, 2013, Commission File No. 333-31929).

 

 

 

4.3*

 

Indenture, relating to the 6 3/4% Senior Notes due 2021, dated as of May 5, 2011, among DISH DBS Corporation, the guarantors named on the signature pages thereto and Wells Fargo Bank, National Association, as Trustee (incorporated by reference from Exhibit 4.1 to the Current Report on Form 8-K of DISH Network Corporation filed May 5, 2011, Commission File No. 0-26176).

 

 

 

4

 

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4.4*

 

Indenture, relating to the 5 7/8% Senior Notes due 2022, dated as of May 16, 2012 among DISH DBS Corporation, the guarantors named on the signature pages thereto and Wells Fargo Bank, National Association, as Trustee (incorporated by reference to Exhibit 4.2 to the Current Report on Form 8-K of DISH DBS Corporation filed May 16, 2012, Commission File No. 333-31929).

 

 

 

4.5*

 

Indenture, relating to the 5% Senior Notes due 2023, dated as of December 27, 2012 among DISH DBS Corporation, the guarantors named on the signature pages thereto and Wells Fargo Bank, National Association, as Trustee (incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K of DISH DBS Corporation filed December 27, 2012, Commission File No. 333-31929).

 

4.6*

 

Indenture, relating to the 5 7/8% Senior Notes due 2024, dated as of November 20, 2014 among DISH DBS Corporation, the guarantors named on the signature pages thereto and U.S. Bank National Association, as Trustee (incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K of DISH DBS Corporation filed November 21, 2014, Commission File No. 333-31929).

 

 

 

4.7*

 

Indenture, relating to the 7 3/4% Senior Notes due 2026, dated as of June 13, 2016 among DISH DBS Corporation, the guarantors named on the signature pages thereto and U.S. Bank National Association, as Trustee (incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K of DISH DBS Corporation filed June 13, 2016, Commission File No. 333-31929).

 

 

 

4.8*

 

Supplemental Indenture relating to the 7 7/8% Senior Notes due 2019 (incorporated by reference to Exhibit 4.10 to the Annual Report on Form 10-K of DISH DBS Corporation filed March 29, 2018, Commission File No. 333-31929). 

 

 

 

4.9*

 

Supplemental Indenture relating to the 5 1/8% Senior Notes due 2020 (incorporated by reference to Exhibit 4.11 to the Annual Report on Form 10-K of DISH DBS Corporation filed March 29, 2018, Commission File No. 333-31929).

 

 

 

4.10*

 

Supplemental Indenture relating to the 6 3/4% Senior Notes due 2021 (incorporated by reference to Exhibit 4.12 to the Annual Report on Form 10-K of DISH DBS Corporation filed March 29, 2018, Commission File No. 333-31929).

 

 

 

4.11*

 

Supplemental Indenture relating to the 5 7/8% Senior Notes due 2022 (incorporated by reference to Exhibit 4.13 to the Annual Report on Form 10-K of DISH DBS Corporation filed March 29, 2018, Commission File No. 333-31929).

 

 

 

4.12*

 

Supplemental Indenture relating to the 5% Senior Notes due 2023 (incorporated by reference to Exhibit 4.14 to the Annual Report on Form 10-K of DISH DBS Corporation filed March 29, 2018, Commission File No. 333-31929).

 

 

 

4.13*

 

Supplemental Indenture relating to the 5 7/8% Senior Notes due 2024 (incorporated by reference to Exhibit 4.15 to the Annual Report on Form 10-K of DISH DBS Corporation filed March 29, 2018, Commission File No. 333-31929).

 

 

 

4.14*

 

Supplemental Indenture relating to the 7 3/4% Senior Notes due 2026 (incorporated by reference to Exhibit 4.16 to the Annual Report on Form 10-K of DISH DBS Corporation filed March 29, 2018, Commission File No. 333-31929).

 

 

 

10.1*

 

2002 Class B CEO Stock Option Plan (incorporated by reference to Appendix A to DISH Network Corporation’s Definitive Proxy Statement on Schedule 14A dated April 9, 2002).**

 

 

 

5

 

Table of Contents

10.2*

 

Satellite Service Agreement, dated February 19, 2004, between SES Americom, Inc. and DISH Network Corporation (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q of DISH Network Corporation for the quarter ended March 31, 2004, Commission File No. 0-26176).***

 

 

 

10.3*

 

Amendment No. 1 to Satellite Service Agreement, dated March 10, 2004, between SES Americom, Inc. and DISH Network Corporation (incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q of DISH Network Corporation for the quarter ended March 31, 2004, Commission File No. 0-26176).***

 

 

 

10.4*

 

Whole RF Channel Service Agreement, dated February 4, 2004, between Telesat Canada and DISH Network Corporation (incorporated by reference to Exhibit 10.4 to the Quarterly Report on Form 10-Q of DISH Network Corporation for the quarter ended March 31, 2004, Commission File No. 0-26176).***

 

 

 

10.5*

 

Letter Amendment to Whole RF Channel Service Agreement, dated March 25, 2004, between Telesat Canada and DISH Network Corporation (incorporated by reference to Exhibit 10.5 to the Quarterly Report on Form 10-Q of DISH Network Corporation for the quarter ended March 31, 2004, Commission File No. 0-26176).***

 

10.6*

 

Amendment No. 2 to Satellite Service Agreement, dated April 30, 2004, between SES Americom, Inc. and DISH Network Corporation (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q of DISH Network Corporation for the quarter ended June 30, 2004, Commission File No. 0-26176).***

 

 

 

10.7*

 

Second Amendment to Whole RF Channel Service Agreement, dated May 5, 2004, between Telesat Canada and DISH Network Corporation (incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q of DISH Network Corporation for the quarter ended June 30, 2004, Commission File No. 0-26176).***

 

 

 

10.8*

 

Third Amendment to Whole RF Channel Service Agreement, dated October 12, 2004, between Telesat Canada and DISH Network Corporation (incorporated by reference to Exhibit 10.22 to the Annual Report on Form 10-K of DISH Network Corporation for the year ended December 31, 2004, Commission File No. 0-26176).***

 

 

 

10.9*

 

Amendment No. 3 to Satellite Service Agreement, dated November 19, 2004 between SES Americom, Inc. and DISH Network Corporation (incorporated by reference to Exhibit 10.24 to the Annual Report on Form 10-K of DISH Network Corporation for the year ended December 31, 2004, Commission File No. 0-26176).***

 

 

 

10.10*

 

Amendment No. 4 to Satellite Service Agreement, dated April 6, 2005, between SES Americom, Inc. and DISH Network Corporation (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q of DISH Network Corporation for the quarter ended June 30, 2005, Commission File No. 0-26176).***

 

 

 

10.11*

 

Amendment No. 5 to Satellite Service Agreement, dated June 20, 2005, between SES Americom, Inc. and DISH Network Corporation (incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q of DISH Network Corporation for the quarter ended June 30, 2005, Commission File No. 0-26176).***

 

 

 

10.12*

 

Incentive Stock Option Agreement (Form A) (incorporated by reference to Exhibit 99.1 to the Current Report on Form 8-K of DISH Network Corporation filed July 7, 2005, Commission File No. 0-26176).**

 

 

 

10.13*

 

Incentive Stock Option Agreement (Form B) (incorporated by reference to Exhibit 99.2 to the Current Report on Form 8-K of DISH Network Corporation filed July 7, 2005, Commission File No. 0-26176).**

 

 

 

10.14*

 

Restricted Stock Unit Agreement (Form A) (incorporated by reference to Exhibit 99.3 to the Current Report on Form 8-K of DISH Network Corporation filed July 7, 2005, Commission File No. 0-26176).**

 

 

 

6

 

Table of Contents

10.15*

 

Restricted Stock Unit Agreement (Form B) (incorporated by reference to Exhibit 99.4 to the Current Report on Form 8-K of DISH Network Corporation filed July 7, 2005, Commission File No. 0-26176).**

 

 

 

10.16*

 

Nonemployee Director Stock Option Agreement (incorporated by reference to Exhibit 99.6 to the Current Report on Form 8-K of DISH Network Corporation filed July 7, 2005, Commission File No. 0-26176).**

 

 

 

10.17*

 

Separation Agreement between EchoStar Corporation and DISH Network Corporation (incorporated by reference from Exhibit 2.1 to the Amendment No. 1 to the Form 10 of EchoStar Corporation filed December 12, 2007, Commission File No. 001-33807).

 

 

 

10.18*

 

Tax Sharing Agreement between EchoStar Corporation and DISH Network Corporation (incorporated by reference from Exhibit 10.2 to the Amendment No. 1 to the Form 10 of EchoStar Corporation filed December 12, 2007, Commission File No. 001-33807).

 

 

 

10.19*

 

Employee Matters Agreement between EchoStar Corporation and DISH Network Corporation (incorporated by reference from Exhibit 10.3 to the Amendment No. 1 to the Form 10 of EchoStar Corporation filed December 12, 2007, Commission File No. 001-33807).

 

 

 

10.20*

 

Intellectual Property Matters Agreement between EchoStar Corporation, EchoStar Acquisition L.L.C., Echosphere L.L.C., DISH DBS Corporation, EIC Spain SL, EchoStar Technologies L.L.C. and DISH Network Corporation (incorporated by reference from Exhibit 10.4 to the Amendment No. 1 to the Form 10 of EchoStar Corporation filed December 12, 2007, Commission File No. 001-33807).

 

 

 

10.21*

 

Form of Satellite Capacity Agreement between EchoStar Corporation and DISH Network L.L.C. (incorporated by reference from Exhibit 10.28 to the Amendment No. 2 to Form 10 of EchoStar Corporation filed December 26, 2007, Commission File No. 001-33807).

 

 

 

10.22*

 

Description of the 2008 Long-Term Incentive Plan dated December 22, 2008 (incorporated by reference to Exhibit 10.42 to the Annual Report on Form 10-K of DISH Network Corporation for the year ended December 31, 2008, Commission File No. 0-26176).**

 

 

 

10.23*

 

DISH Network Corporation 2009 Stock Incentive Plan (incorporated by reference to Appendix A to DISH Network Corporation’s Definitive Proxy Statement on Form 14A filed September 19, 2014, Commission File No. 0-26176).**

 

 

 

10.24*

 

Amended and Restated DISH Network Corporation 2001 Nonemployee Director Stock Option Plan (incorporated by reference to Appendix B to DISH Network Corporation’s Definitive Proxy Statement on Form 14A filed March 31, 2009, Commission File No. 0-26176).**

 

 

 

10.25*

 

Amended and Restated DISH Network Corporation 1999 Stock Incentive Plan (incorporated by reference to Appendix C to DISH Network Corporation’s Definitive Proxy Statement on Form 14A filed March 31, 2009, Commission File No. 0-26176).**

 

 

 

10.26*

 

NIMIQ 5 Whole RF Channel Service Agreement, dated September 15, 2009, between Telesat Canada and EchoStar Corporation (incorporated by reference from Exhibit 10.30 to the Annual Report on Form 10-K of EchoStar Corporation for the year ended December 31, 2009, Commission File No. 001-33807).***

 

 

 

10.27*

 

NIMIQ 5 Whole RF Channel Service Agreement, dated September 15, 2009, between EchoStar Corporation and DISH Network L.L.C. (incorporated by reference from Exhibit 10.31 to the Annual Report on Form 10-K of EchoStar Corporation for the year ended December 31, 2009, Commission File No. 001-33807).***

 

 

 

7

 

Table of Contents

10.28*

 

Professional Services Agreement, dated August 4, 2009, between EchoStar Corporation and DISH Network Corporation (incorporated by reference from Exhibit 10.3 to the Quarterly Report on Form 10-Q of EchoStar Corporation for the quarter ended September 30, 2009, Commission File No. 001-33807).***

 

 

 

10.29*

 

Allocation Agreement, dated August 4, 2009, between EchoStar Corporation and DISH Network Corporation (incorporated by reference from Exhibit 10.4 to the Quarterly Report on Form 10-Q of EchoStar Corporation for the quarter ended September 30, 2009, Commission File No. 001-33807).

 

10.30*

 

Amendment to Form of Satellite Capacity Agreement (Form A) between EchoStar Corporation and DISH Network L.L.C. (incorporated by reference from Exhibit 10.34 to the Annual Report on Form 10-K of EchoStar Corporation for the year ended December 31, 2009, Commission File No. 001-33807).

 

 

 

10.31*

 

Amendment to Form of Satellite Capacity Agreement (Form B) between EchoStar Corporation and DISH Network L.L.C. (incorporated by reference from Exhibit 10.35 to the Annual Report on Form 10-K of EchoStar Corporation for the year ended December 31, 2009, Commission File No. 001-33807).

 

 

 

10.32*

 

EchoStar XVI Satellite Capacity Agreement between EchoStar Satellite Services L.L.C. and DISH Network L.L.C. (incorporated by reference from Exhibit 10.36 to the Annual Report on Form 10-K of EchoStar Corporation for the year ended December 31, 2009, Commission File No. 001-33807).***

 

 

 

10.33*

 

Cost Allocation Agreement, dated April 29, 2011, between EchoStar Corporation and DISH Network Corporation (incorporated by reference from Exhibit 10.2 to the Quarterly Report on Form 10-Q of EchoStar Corporation for the quarter ended June 30, 2011, Commission File No. 001-33807).

 

 

 

10.34*

 

Settlement and Patent License between TiVo Inc. and DISH Network Corporation and EchoStar Corporation, dated as of April 29, 2011 (incorporated by reference to Exhibit 10.9 to the Quarterly Report on Form 10-Q/A of EchoStar Corporation filed February 21, 2012, Commission File No. 001-33807).***

 

 

 

10.35*

 

QuetzSat-1 Transponder Service Agreement, dated November 24, 2008, between EchoStar 77 Corporation, a direct wholly-owned subsidiary of EchoStar Corporation, and DISH Network L.L.C. (incorporated by reference to Exhibit 10.25 to the Annual Report on Form 10-K of EchoStar Corporation for the year ended December 31, 2009, Commission File No. 001-33807).***

 

 

 

10.36*

 

Receiver Agreement dated January 1, 2012 between Echosphere L.L.C. and EchoStar Technologies L.L.C. (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q of DISH Network Corporation for the quarter ended March 31, 2012, Commission File No. 0-26176) ***

 

 

 

10.37*

 

Broadcast Agreement dated January 1, 2012 between EchoStar Broadcasting Corporation and DISH Network L.L.C. (incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q of DISH Network Corporation for the quarter ended March 31, 2012, Commission File No. 0-26176) ***

 

 

 

10.38*

 

Confidential Settlement Agreement and Release dated as of October 21, 2012 by and between Voom HD Holdings LLC and CSC Holdings, LLC, on the one hand, and DISH Network L.L.C., on the other hand, and for certain limited purposes, DISH Media Holdings Corporation, MSG Holdings, L.P., The Madison Square Garden Company and EchoStar Corporation (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q of DISH Network Corporation for the quarter ended September 30, 2012, Commission File No. 0-26176).***

 

 

 

10.39*

 

Description of the 2013 Long-Term Incentive Plan dated November 30, 2012 (incorporated by reference to the Current Report on Form 8-K of DISH Network Corporation filed December 6, 2012, Commission File No. 0-26176).**

 

 

 

8

 

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10.40*

 

Amendment to EchoStar XVI Satellite Capacity Agreement between EchoStar Satellite Services L.L.C. and DISH Network L.L.C. dated December 21, 2012 (incorporated by reference to Exhibit 10.62 to the Annual Report on Form 10-K of DISH Network Corporation for the year ended December 31, 2012, Commission File No. 0-26176).***

 

 

 

10.41*

 

Form of Satellite Capacity Agreement between EchoStar Satellite Operating Corporation and DISH Operating L.L.C. (incorporated by reference to Exhibit 10.3 to the Quarterly Report on Form 10-Q of DISH Network Corporation for the quarter ended March 31, 2014, Commission File No. 0-26176).***

 

 

 

 

 

 

10.42*

 

Share Exchange Agreement dated January 31, 2017, between DISH Network Corporation, DISH Network L.L.C., DISH Operating L.L.C., EchoStar Corporation, EchoStar Broadcasting Holding Parent L.L.C., EchoStar Broadcasting Holding Corporation, EchoStar Technologies Holding Corporation, and EchoStar Technologies L.L.C. (incorporated by reference in Exhibit 10.1 to the Quarterly Report on Form 10-Q of DISH Network Corporation for the quarter ended March 31, 2017, Commission File No. 0-26176).***

 

 

 

10.43*

 

Description of the 2017 Long-Term Incentive Plan dated December 2, 2016 (incorporated by reference to the Current Report on Form 8-K of DISH Network Corporation filed December 8, 2016, Commission File No. 0-26176).**

 

 

 

10.44*

 

Description of the 2019 Long-Term Incentive Plan dated August 17, 2018 (incorporated by reference to the Current Report on Form 8-K of DISH Network Corporation filed August 23, 2018, Commission File No. 0-26176).**

 

 

 

31.1☐

 

Section 302 Certification of Chief Executive Officer.

 

 

 

31.2☐

 

Section 302 Certification of Principal Financial Officer.

 

 

 

32.1☐

 

Section 906 Certification of Chief Executive Officer.

 

 

 

32.2☐

 

Section 906 Certification of Principal Financial Officer.

 

 

 

101^

 

The following materials from the Annual Report on Form 10-K of DISH DBS Corporation for the year ended December 31, 2018, filed on March 7, 2019, formatted in eXtensible Business Reporting Language (“XBRL”):  (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations and Comprehensive Income (Loss), (iii) Consolidated Statement of Changes in Stockholder’s Equity (Deficit), (iv) Consolidated Statements of Cash Flows, and (v) related notes to these financial statements.

 


Filed herewith.

*

Incorporated by reference.

**

Constitutes a management contract or compensatory plan or arrangement.

***

Certain portions of the exhibit have been omitted and separately filed with the Securities and Exchange Commission with a request for confidential treatment.

^

Previously filed with the Registrant’s Annual Report on Form 10-K filed on March 7, 2019 (File No. 333-31929).

 

 

 

9

 

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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

 

 

Page

Consolidated Financial Statements:

 

 

 

Report of KPMG LLP, Independent Registered Public Accounting Firm 

F–2

Consolidated Balance Sheets at December 31, 2018 and 2017 

F–3

Consolidated Statements of Operations and Comprehensive Income (Loss) for the years ended December 31, 2018, 2017 and 2016 

F–4

Consolidated Statements of Changes in Stockholder’s Equity (Deficit) for the years ended December 31, 2016, 2017 and 2018 

F–5

Consolidated Statements of Cash Flows for the years ended December 31, 2018, 2017 and 2016 

F–6

Notes to Consolidated Financial Statements 

F–7

 

F-1

Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Stockholder and Board of Directors 

DISH DBS Corporation:

 

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of DISH DBS Corporation and subsidiaries (the Company) as of December 31, 2018 and 2017, the related consolidated statements of operations and comprehensive income (loss), changes in stockholder’s equity (deficit), and cash flows for each of the years in the three‑year period ended December 31, 2018, and the related notes (collectively, the “consolidated financial statements”).  In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the years in the three‑year period ended December 31, 2018, in conformity with U.S. generally accepted accounting principles.

Change in Accounting Principle

As discussed in Note 2 to the consolidated financial statements, the Company has changed its method of accounting for revenue contracts with customers in 2018 due to the adoption of Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers, as amended.

Transaction Between Entities Under Common Control

As discussed in Note 2 to the consolidated financial statements, the 2016 consolidated financial statements have been retrospectively revised for the effects of consolidating entities acquired under common control.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinion on these consolidated financial statements based on our audits.  We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.  The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.  Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.  Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.  We believe that our audits provide a reasonable basis for our opinion.

 

 

 

 

/s/ KPMG LLP

 

 

We have served as the Company’s auditor since 2002.

Denver, Colorado

March 7, 2019

F-2

Table of Contents

DISH DBS CORPORATION

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except share amounts)

 

 

 

 

 

 

 

 

 

 

As of December 31,

 

    

2018

    

2017

Assets

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

129,498

 

$

364,673

Marketable investment securities

 

 

149,740

 

 

185,513

Trade accounts receivable, net of allowance for doubtful accounts of $16,956 and $15,056, respectively

 

 

623,602

 

 

628,278

Inventory

 

 

290,697

 

 

320,899

Other current assets

 

 

234,054

 

 

189,480

Total current assets

 

 

1,427,591

 

 

1,688,843

 

 

 

 

 

 

 

Noncurrent Assets:

 

 

 

 

 

 

Restricted cash, cash equivalents and marketable investment securities

 

 

67,597

 

 

72,407

Property and equipment, net

 

 

1,377,949

 

 

1,632,161

FCC authorizations

 

 

637,346

 

 

636,275

Other investment securities

 

 

108,308

 

 

113,460

Other noncurrent assets, net

 

 

286,753

 

 

236,041

Total noncurrent assets

 

 

2,477,953

 

 

2,690,344

Total assets

 

$

3,905,544

 

$

4,379,187

 

 

 

 

 

 

 

Liabilities and Stockholder's Equity (Deficit)

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

Trade accounts payable

 

$

217,268

 

$

361,759

Deferred revenue and other

 

 

644,920

 

 

693,595

Accrued programming

 

 

1,474,207

 

 

1,571,273

Accrued interest

 

 

222,996

 

 

236,509

Other accrued expenses

 

 

756,534

 

 

759,639

Current portion of long-term debt and capital lease obligations

 

 

1,338,527

 

 

1,064,474

Total current liabilities

 

 

4,654,452

 

 

4,687,249

 

 

 

 

 

 

 

Long-Term Obligations, Net of Current Portion:

 

 

 

 

 

 

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

 

 

10,632,960

 

 

12,046,173

Deferred tax liabilities

 

 

461,452

 

 

485,099

Long-term deferred revenue and other long-term liabilities

 

 

198,840

 

 

207,329

Total long-term obligations, net of current portion

 

 

11,293,252

 

 

12,738,601

Total liabilities

 

 

15,947,704

 

 

17,425,850

 

 

 

 

 

 

 

Commitments and Contingencies (Note 11)

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholder’s Equity (Deficit):

 

 

 

 

 

 

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

 

 

 —

 

 

 —

Additional paid-in capital

 

 

1,152,369

 

 

1,116,848

Accumulated other comprehensive income (loss)

 

 

(376)

 

 

935

Accumulated earnings (deficit)

 

 

(13,194,440)

 

 

(14,168,047)

Total DISH DBS stockholder's equity (deficit)

 

 

(12,042,447)

 

 

(13,050,264)

Noncontrolling interests

 

 

287

 

 

3,601

Total stockholder’s equity (deficit)

 

 

(12,042,160)

 

 

(13,046,663)

Total liabilities and stockholder’s equity (deficit)

 

$

3,905,544

 

$

4,379,187

 

 

 

 

 

 

 

 

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

 

 

 

F-3

Table of Contents

DISH DBS CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Years Ended December 31, 

 

    

2018

    

2017

    

2016

Revenue:

 

 

 

 

 

 

 

 

 

Subscriber-related revenue

 

$

13,197,994

 

$

13,877,196

 

$

14,578,414

Equipment sales and other revenue

 

 

164,145

 

 

130,315

 

 

177,525

Total revenue

 

 

13,362,139

 

 

14,007,511

 

 

14,755,939

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

Subscriber-related expenses

 

 

8,392,150

 

 

8,692,676

 

 

8,639,893

Satellite and transmission expenses

 

 

637,160

 

 

717,231

 

 

725,307

Cost of sales - equipment and other

 

 

143,671

 

 

95,116

 

 

135,321

Subscriber acquisition costs:

 

 

 

 

 

 

 

 

 

   Cost of sales - subscriber promotion subsidies

 

 

50,253

 

 

72,955

 

 

131,492

   Other subscriber acquisition costs

 

 

292,824

 

 

563,952

 

 

666,482

   Subscriber acquisition advertising

 

 

426,230

 

 

548,304

 

 

588,805

Total subscriber acquisition costs

 

 

769,307

 

 

1,185,211

 

 

1,386,779

General and administrative expenses

 

 

692,881

 

 

669,934

 

 

705,935

Litigation expense (Note 11)

 

 

 —

 

 

295,695

 

 

21,148

Depreciation and amortization (Note 6)

 

 

660,460

 

 

741,772

 

 

832,435

Total costs and expenses

 

 

11,295,629

 

 

12,397,635

 

 

12,446,818

 

 

 

 

 

 

 

 

 

 

Operating income (loss)

 

 

2,066,510

 

 

1,609,876

 

 

2,309,121

 

 

 

 

 

 

 

 

 

 

Other Income (Expense):

 

 

 

 

 

 

 

 

 

Interest income

 

 

8,923

 

 

9,855

 

 

6,537

Interest expense, net of amounts capitalized

 

 

(792,436)

 

 

(865,181)

 

 

(825,765)

Other, net

 

 

8,994

 

 

88,511

 

 

32,805

Total other income (expense)

 

 

(774,519)

 

 

(766,815)

 

 

(786,423)

 

 

 

 

 

 

 

 

 

 

Income (loss) before income taxes

 

 

1,291,991

 

 

843,061

 

 

1,522,698

Income tax (provision) benefit, net

 

 

(318,305)

 

 

(117,616)

 

 

(557,586)

Net income (loss)

 

 

973,686

 

 

725,445

 

 

965,112

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

 

 

2,399

 

 

1,919

 

 

498

Net income (loss) attributable to DISH DBS

 

$

971,287

 

$

723,526

 

$

964,614

 

 

 

 

 

 

 

 

 

 

Comprehensive Income (Loss):

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

973,686

 

$

725,445

 

$

965,112

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

   Foreign currency translation adjustments

 

 

(1,343)

 

 

1,027

 

 

 —

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

 

 

69

 

 

(33)

 

 

(1,488)

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

 

 

 —

 

 

 —

 

 

(18,357)

   Deferred income tax (expense) benefit, net

 

 

(37)

 

 

57

 

 

7,690

Total other comprehensive income (loss), net of tax

 

 

(1,311)

 

 

1,051

 

 

(12,155)

Comprehensive income (loss)

 

 

972,375

 

 

726,496

 

 

952,957

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

 

 

2,399

 

 

1,919

 

 

498

Comprehensive income (loss) attributable to DISH DBS

 

$

969,976

 

$

724,577

 

$

952,459

 

 

 

 

 

 

 

 

 

 

 

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

 

 

F-4

Table of Contents

DISH DBS CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER’S EQUITY (DEFICIT)

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

Other

 

Accumulated

 

 

 

 

 

 

 

 

 

Common

 

Paid-In

 

Comprehensive

 

Earnings

 

Noncontrolling

 

 

 

 

 

    

Stock

    

Capital

    

Income (Loss)

    

(Deficit)

    

Interests

    

Total

 

Balance, December 31, 2015

 

$

 —

 

$

1,118,947

 

$

12,039

 

$

(14,356,187)

 

$

2,109

 

$

(13,223,092)

 

Dividends to DISH Orbital Corporation (Note 16)

 

 

 —

 

 

 —

 

 

 —

 

 

(1,500,000)

 

 

 —

 

 

(1,500,000)

 

Non-cash, stock-based compensation

 

 

 —

 

 

13,037

 

 

 —

 

 

 —

 

 

 —

 

 

13,037

 

Change in unrealized holding gains (losses) on available-for-sale securities, net

 

 

 —

 

 

 —

 

 

(19,845)

 

 

 —

 

 

 —

 

 

(19,845)

 

Deferred income tax (expense) benefit attributable to unrealized gains (losses) on available-for-sale securities

 

 

 —

 

 

 —

 

 

7,690

 

 

 —

 

 

 —

 

 

7,690

 

Payments made to parent of transferred businesses

 

 

 —

 

 

(34,372)

 

 

 —

 

 

 —

 

 

(74)

 

 

(34,446)

 

Net income (loss) attributable to noncontrolling interests

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

498

 

 

498

 

Net income (loss) attributable to DISH DBS

 

 

 —

 

 

 —

 

 

 —

 

 

964,614

 

 

 —

 

 

964,614

 

Other

 

 

 —

 

 

(6)

 

 

 —

 

 

 —

 

 

(600)

 

 

(606)

 

Balance, December 31, 2016

 

$

 —

 

$

1,097,606

 

$

(116)

 

$

(14,891,573)

 

$

1,933

 

$

(13,792,150)

 

Non-cash, stock-based compensation

 

 

 —

 

 

29,941

 

 

 —

 

 

 —

 

 

 —

 

 

29,941

 

Change in unrealized holding gains (losses) on available-for-sale securities, net

 

 

 —

 

 

 —

 

 

(33)

 

 

 —

 

 

 —

 

 

(33)

 

Deferred income tax (expense) benefit attributable to unrealized gains (losses) on available-for-sale securities

 

 

 —

 

 

 —

 

 

57

 

 

 —

 

 

 —

 

 

57

 

Foreign currency translation

 

 

 —

 

 

 —

 

 

1,027

 

 

 —

 

 

 —

 

 

1,027

 

Payments made to parent of transferred businesses

 

 

 —

 

 

(7,372)

 

 

 —

 

 

 —

 

 

274

 

 

(7,098)

 

Net income (loss) attributable to noncontrolling interests

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

1,919

 

 

1,919

 

Net income (loss) attributable to DISH DBS

 

 

 —

 

 

 —

 

 

 —

 

 

723,526

 

 

 —

 

 

723,526

 

Other

 

 

 —

 

 

(3,327)

 

 

 —

 

 

 —

 

 

(525)

 

 

(3,852)

 

Balance, December 31, 2017

 

$

 —

 

$

1,116,848

 

$

935

 

$

(14,168,047)

 

$

3,601

 

$

(13,046,663)

 

Non-cash, stock-based compensation

 

 

 —

 

 

35,521

 

 

 —

 

 

 —

 

 

 —

 

 

35,521

 

Change in unrealized holding gains (losses) on available-for-sale securities, net

 

 

 —

 

 

 —

 

 

69

 

 

 —

 

 

 —

 

 

69

 

Deferred income tax (expense) benefit attributable to unrealized gains (losses) on available-for-sale securities

 

 

 —

 

 

 —

 

 

(37)

 

 

 —

 

 

 —

 

 

(37)

 

Foreign currency translation

 

 

 —

 

 

 —

 

 

(1,343)

 

 

 —

 

 

 —

 

 

(1,343)

 

ASU 2014-09 cumulative catch-up adjustment

 

 

 —

 

 

 —

 

 

 —

 

 

2,320

 

 

 —

 

 

2,320

 

Net income (loss) attributable to noncontrolling interests

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

2,399

 

 

2,399

 

Net income (loss) attributable to DISH DBS

 

 

 —

 

 

 —

 

 

 —

 

 

971,287

 

 

 —

 

 

971,287

 

Other

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(5,713)

 

 

(5,713)

 

Balance, December 31, 2018

 

$

 —

 

$

1,152,369

 

$

(376)

 

$

(13,194,440)

 

$

287

 

$

(12,042,160)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

F-5

Table of Contents

DISH DBS CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Years Ended December 31, 

 

 

2018

    

2017

    

2016

Cash Flows From Operating Activities:

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

973,686

 

$

725,445

 

$

965,112

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

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

660,460

 

 

741,772

 

 

832,435

Realized and unrealized losses (gains) on investments

 

 

(9,056)

 

 

(85,550)

 

 

(32,509)

Non-cash, stock-based compensation

 

 

35,521

 

 

29,941

 

 

13,037

Deferred tax expense (benefit)

 

 

(24,477)

 

 

(297,012)

 

 

(84,970)

Other, net

 

 

(67,672)

 

 

(3,431)

 

 

67,366

Changes in current assets and current liabilities:

 

 

 

 

 

 

 

 

 

Trade accounts receivable

 

 

2,137

 

 

114,962

 

 

104,869

Allowance for doubtful accounts

 

 

1,900

 

 

(2,384)

 

 

(4,329)

Inventory

 

 

15,754

 

 

37,028

 

 

(41,694)

Other current assets

 

 

(39,822)

 

 

(76,735)

 

 

12,323

Trade accounts payable

 

 

(145,891)

 

 

(142,803)

 

 

50,497

Deferred revenue and other

 

 

(93,093)

 

 

(57,802)

 

 

(94,584)

Accrued programming and other accrued expenses

 

 

(111,987)

 

 

303,901

 

 

46,815

Net cash flows from operating activities

 

 

1,197,460

 

 

1,287,332

 

 

1,834,368

 

 

 

 

 

 

 

 

 

 

Cash Flows From Investing Activities:

 

 

 

 

 

 

 

 

 

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

 

 

41,155

 

 

(88,346)

 

 

136,014

Purchases of property and equipment

 

 

(348,023)

 

 

(419,445)

 

 

(544,413)

Purchases of strategic investments

 

 

 —

 

 

(90,381)

 

 

 —

Other, net

 

 

24,816

 

 

19,996

 

 

15,621

Net cash flows from investing activities

 

 

(282,052)

 

 

(578,176)

 

 

(392,778)

 

 

 

 

 

 

 

 

 

 

Cash Flows From Financing Activities:

 

 

 

 

 

 

 

 

 

Proceeds from issuance of senior notes

 

 

 —

 

 

 —

 

 

2,000,000

Dividend to DISH Orbital Corporation

 

 

 —

 

 

 —

 

 

(1,500,000)

Redemption and repurchases of senior notes

 

 

(1,108,489)

 

 

(1,074,139)

 

 

(1,500,000)

Payments made to parent of transferred businesses

 

 

 —

 

 

(7,098)

 

 

(34,446)

Repayment of long-term debt and capital lease obligations

 

 

(38,639)

 

 

(39,118)

 

 

(41,449)

Debt issuance costs

 

 

 —

 

 

 —

 

 

(7,676)

Other, net

 

 

(3,270)

 

 

(1,994)

 

 

(606)

Net cash flows from financing activities

 

 

(1,150,398)

 

 

(1,122,349)

 

 

(1,084,177)

 

 

 

 

 

 

 

 

 

 

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

 

 

(234,990)

 

 

(413,193)

 

 

357,413

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

 

 

365,066

 

 

778,259

 

 

420,846

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

 

$

130,076

 

$

365,066

 

$

778,259

 

 

 

 

 

 

 

 

 

 

 

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

 

 

F-6

Table of Contents

DISH DBS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

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”).  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 16 for further information.  The Sling branded pay-TV services consist of, among other things, multichannel, live-linear streaming over-the-top (“OTT”) Internet-based domestic, international and Latino video programming services (“Sling TV”).  As of December 31, 2018, we had 12.322 million Pay-TV subscribers in the United States, including 9.905 million DISH TV subscribers and 2.417 million Sling TV subscribers.

 

2.Summary of Significant Accounting Policies

 

Principles of Consolidation and Basis of Presentation

 

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 Consolidated Statements of Operations and Comprehensive Income (Loss).    All significant intercompany accounts and transactions have been eliminated in consolidation.  Certain prior period amounts have been reclassified to conform to the current period presentation.

 

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, L.L.C. (“HNS”), a wholly-owned subsidiary of Hughes. 

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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 16 for further information.

 

As the Share Exchange was a transaction between entities that are under common control, accounting rules require that our 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 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.  Our financial statements include the results of the Transferred Businesses as described above for all periods presented, including periods prior to the completion of the Share Exchange.   

 

Use of Estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“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 consolidated financial statements.  Estimates and assumptions are reviewed periodically, and the effects of revisions are reflected prospectively in the period they occur.

 

Cash and Cash Equivalents

 

We consider all liquid investments purchased with a remaining maturity of 90 days or less at the date of acquisition to be cash equivalents.  Cash equivalents as of December 31, 2018 and 2017 may consist of money market funds, government bonds, corporate notes and commercial paper.  The cost of these investments approximates their fair value.

 

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 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 Consolidated Statements of Operations and Comprehensive Income (Loss).

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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 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 Consolidated Balance Sheets.  Declines in the fair value of a marketable debt security which are determined to be “other-than-temporary” are recognized on our Consolidated Statements of Operations and Comprehensive Income (Loss), thus establishing a new cost basis for such investment.

 

We evaluate our debt investment portfolio on a quarterly basis to determine whether declines in the fair value of these securities are other-than-temporary.  This quarterly evaluation consists of reviewing, among other things:

·

the fair value of our debt investments compared to the carrying amount,

·

the historical volatility of the price of each security, and

·

any market and company specific factors related to each security.

Declines in the fair value of debt investments below cost basis are generally accounted for as follows:

 

 

 

 

Length of Time Investment

    

 

Has Been In a Continuous

 

Treatment of the Decline in Value

Loss Position

 

(absent specific factors to the contrary)

Less than six months

 

Generally, considered temporary.

Six to nine months

 

Evaluated on a case by case basis to determine whether any company or market-specific factors exist indicating that such decline is other-than-temporary.

Greater than nine months

 

Generally, considered other-than-temporary. The decline in value is recorded as a charge to earnings.

 

Additionally, in situations where the fair value of a debt security is below its carrying amount, we consider the decline to be other-than-temporary and record a charge to earnings if any of the following factors apply:

·

we have the intent to sell the security,

·

it is more likely than not that we will be required to sell the security before maturity or recovery, or

·

we do not expect to recover the security’s entire amortized cost basis, even if there is no intent to sell the security.

In general, we use the first in, first out method to determine the cost basis on sales of marketable investment securities.

 

Trade Accounts Receivable

 

Management estimates the amount of required allowances for the potential non-collectability of accounts receivable based upon past collection experience and consideration of other relevant factors.  However, past experience may not be indicative of future collections and therefore additional charges could be incurred in the future to reflect differences between estimated and actual collections.

 

Inventory

 

Inventory is stated at the lower of cost or net realizable value.  Cost is determined using the first-in, first-out method.  The cost of manufactured inventory includes the cost of materials, labor, freight-in, royalties and manufacturing overhead.  Net realizable value is calculated as the estimated selling price less reasonable costs necessary to complete, sell, transport and dispose of the inventory.

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Property and Equipment

 

Property and equipment are stated at amortized cost less impairment losses, if any.  Our set-top boxes are generally capitalized when they are installed in customers’ homes.  The costs of satellites under construction, including interest and certain amounts prepaid under our satellite service agreements, are capitalized during the construction phase, assuming the eventual successful launch and in-orbit operation of the satellite.  If a satellite were to fail during launch or while in-orbit, the resultant loss would be charged to expense in the period such loss was incurred.  The amount of any such loss would be reduced to the extent of insurance proceeds estimated to be received, if any.  Depreciation is recorded on a straight-line basis over useful lives ranging from two to 40 years.  Repair and maintenance costs are charged to expense when incurred.  Renewals and improvements that add value or extend the asset’s useful life are capitalized.  Costs related to the procurement and development of software for internal-use are capitalized and amortized using the straight-line method over the estimated useful life of the software.

 

Impairment of Long-Lived Assets

 

We review our long-lived assets and identifiable finite-lived intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.  For assets which are held and used in operations, the asset would be impaired if the carrying amount of the asset (or asset group) exceeded its undiscounted future net cash flows.  Once an impairment is determined, the actual impairment recognized is the difference between the carrying amount and the fair value as estimated using one of the following approaches:  income, cost and/or market.  Assets which are to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.  The carrying amount of a long-lived asset or asset group is considered impaired when the anticipated undiscounted cash flows from such asset or asset group is less than its carrying amount.  In that event, a loss is recorded in “Impairment of long-lived assets” on our Consolidated Statements of Operations and Comprehensive Income (Loss) based on the amount by which the carrying amount exceeds the fair value of the long-lived asset or asset group.  Fair value, using the income approach, is determined primarily using a discounted cash flow model that uses the estimated cash flows associated with the asset or asset group under review, discounted at a rate commensurate with the risk involved.  Fair value, utilizing the cost approach, is determined based on the replacement cost of the asset reduced for, among other things, depreciation and obsolescence.  Fair value, utilizing the market approach, benchmarks the fair value against the carrying amount.  See Note 6 for further information.

 

DBS Satellites.  We currently evaluate our DBS satellite fleet for impairment as one asset group whenever events or changes in circumstances indicate that its carrying amount may not be recoverable.  We do not believe any triggering event has occurred which would indicate impairment as of December 31, 2018.

 

Indefinite-Lived Intangible Assets and Goodwill

 

We do not amortize indefinite lived intangible assets and goodwill but test these assets for impairment annually during the fourth quarter or more often if indicators of impairment arise.  We have the option to first perform a qualitative assessment to determine whether it is necessary to perform a quantitative impairment test.  However, we may elect to bypass the qualitative assessment in any period and proceed directly to performing the quantitative impairment test. Intangible assets that have finite lives are amortized over their estimated useful lives and tested for impairment as described above for long-lived assets.  Our intangible assets with indefinite lives primarily consist of FCC licenses.  Generally, we have determined that our DBS licenses have indefinite useful lives due to the following:

 

·

FCC licenses are a non-depleting asset;

·

existing FCC licenses are integral to our business segments and will contribute to cash flows indefinitely;

·

replacement DBS satellite applications are generally authorized by the FCC subject to certain conditions, without substantial cost under a stable regulatory, legislative and legal environment;

·

maintenance expenditures to obtain future cash flows are not significant;

·

FCC licenses are not technologically dependent; and

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·

we intend to use these assets indefinitely.

 

DBS Licenses.  We combine all of our indefinite-lived DBS licenses that we currently utilize or plan to utilize in the future into a single unit of accounting.  For 2018, 2017 and 2016, management performed a qualitative assessment to determine whether it is more likely than not that the fair value of the DBS licenses exceeds its carrying amount.  In our assessment, we considered several qualitative factors, including, among others, overall financial performance, industry and market considerations, and relevant company specific events.  In contemplating all factors in their totality, we concluded that it is more likely than not that the fair value of the DBS licenses exceeds its carrying amount.  As such, no further analysis was required.

 

MVDDS Licenses.  During 2018, 2017, and 2016, our multichannel video distribution and data service (“MVDDS”) wireless spectrum licenses were assessed as a single unit of accounting.  For 2018, 2017, and 2016, management assessed these licenses quantitatively.  Our quantitative assessment in each year for the MVDDS wireless spectrum licenses consisted of a market approach.  The market approach uses prior transactions including auctions to estimate the fair value of the licenses.  In conducting these quantitative assessments, we determined that the fair value of our MVDDS wireless spectrum licenses exceeded their carrying amount. 

 

Business Combinations

 

When we acquire a business, we allocate the purchase price to the various components of the acquisition based upon the fair value of each component using various valuation techniques, including the market approach, income approach and/or cost approach.  The accounting standard for business combinations requires most identifiable assets, liabilities, noncontrolling interests and goodwill