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Table of Contents

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 SEPTEMBER 30, 2019.

OR

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

FOR THE TRANSITION PERIOD FROM                               TO                                .

Commission File Number: 0-26176

DISH Network Corporation

(Exact name of registrant as specified in its charter)

Nevada

88-0336997

(State or other jurisdiction of incorporation or organization)

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

9601 South Meridian Boulevard

Englewood, Colorado

80112

(Address of principal executive offices)

(Zip code)

(303) 723-1000

(Registrant’s telephone number, including area code)

Not Applicable

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

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Class A common stock, $0.01 par value

DISH

The Nasdaq Stock Market L.L.C.

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

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

As of October 31, 2019, the registrant’s outstanding common stock consisted of 254,623,280 shares of Class A common stock and 238,435,208 shares of Class B common stock.

Table of Contents

TABLE OF CONTENTS

PART I — FINANCIAL INFORMATION

Disclosure Regarding Forward-Looking Statements

i

Item 1.

Financial Statements

Condensed Consolidated Balance Sheets —
September 30, 2019 and December 31, 2018 (Unaudited)

1

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)
For the Three and Nine Months Ended September 30, 2019 and 2018 (Unaudited)

2

Condensed Consolidated Statements of Changes in Stockholders’ Equity (Deficit)
For the Three and Nine Months Ended September 30, 2019 and 2018 (Unaudited)

3

Condensed Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 2019 and 2018 (Unaudited)

5

Notes to Condensed Consolidated Financial Statements (Unaudited)

6

Item 2.

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

73

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

105

Item 4.

Controls and Procedures

105

PART II — OTHER INFORMATION

Item 1.

Legal Proceedings

105

Item 1A.

Risk Factors

105

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

105

Item 3.

Defaults Upon Senior Securities

None

Item 4.

Mine Safety Disclosures

None

Item 5.

Other Information

None

Item 6.

Exhibits

106

Signatures

107

Table of Contents

PART I — FINANCIAL INFORMATION

DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

Unless otherwise required by the context, in this report, the words “DISH Network,” the “Company,” “we,” “our” and “us” refer to DISH Network Corporation and its subsidiaries, “EchoStar” refers to EchoStar Corporation and its subsidiaries, and “DISH DBS” refers to DISH DBS Corporation, a wholly-owned, indirect subsidiary of DISH Network, and its subsidiaries.

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

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.

i

Table of Contents

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.

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

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 certain 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 or those of third parties that we use in our operations, including, without limitation, those caused by cyber-attacks or other malicious activities, could disrupt or harm our business.

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 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.

Satellite anomalies or technological failures could adversely affect the value of a particular satellite or result in a complete loss. Some of the satellites acquired pursuant to the Master Transaction Agreement have experienced anomalies that may affect their useful lives or prohibit us from operating them to their currently expected capacity, and one or more of the satellites may suffer a technological failure, either of which could have an adverse effect on our business, financial condition and results of operations.

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We generally do not carry commercial in-orbit insurance on any of the satellites that we use and could face significant impairment charges if any of our owned satellites fail.

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

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

Acquisition and Capital Structure Risks

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

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

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

Our wireless spectrum licenses are subject to certain interim and final build-out requirements, as well as certain renewal requirements. The failure to meet such build-out and/or renewal requirements may have a material adverse effect on our business, results of operations and financial condition.

We rely on highly skilled personnel for our wireless business, including without limitation our ability to meet build-out requirements, and if we are unable to hire and retain key personnel or hire qualified personnel then our wireless business may be adversely affected.

The Prepaid Business Sale may not be completed on the terms or timeline currently contemplated, or at all, as we and the Sellers may be unable to satisfy the conditions or obtain the approvals required to complete the Prepaid Business Sale or such approvals may contain material restrictions or conditions.
We may fail to realize all of the anticipated benefits of the Prepaid Business Sale.

The integration of the BSS Business may not be as successful as anticipated.

We may fail to realize all of the anticipated benefits of the Master Transaction Agreement.

Despite the acquisition of additional satellites acquired pursuant to the Master Transaction Agreement, we continue to have limited satellite capacity, and failures or reduced capacity could adversely affect our DISH TV services.

Current DISH Network stockholders have reduced ownership and voting interest in and exercise less influence over management of DISH Network following the closing of the Master Transaction Agreement.

If we were to take certain actions that could cause the Distribution to become taxable to EchoStar, we may be required to indemnify EchoStar for any resulting tax liability, and the indemnity amounts could be substantial.

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.

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We have substantial debt outstanding and may incur additional debt.

The conditional conversion features of our 3 3/8% Convertible Notes due 2026 (the “Convertible Notes due 2026”) and our 2 3/8% Convertible Notes due 2024 (the “Convertible Notes due 2024,” and collectively with the Convertible Notes due 2026, the “Convertible Notes”), if triggered, may adversely affect our financial condition.

The convertible note hedge and warrant transactions that we entered into in connection with the offering of the Convertible Notes due 2026 may affect the value of the Convertible Notes due 2026 and our Class A common stock.

We are subject to counterparty risk with respect to the convertible note hedge transactions.

From time to time a portion of our investment portfolio may be invested in securities that have limited liquidity and may not be immediately accessible to support our financing needs, including investments in public companies that are highly speculative and have experienced and continue to experience volatility.

It may be difficult for a third party to acquire us, even if doing so may be beneficial to our shareholders, because of our ownership structure.

We are controlled by one principal stockholder who is also our Chairman.

Legal and Regulatory Risks

The rulings in the Telemarketing litigation requiring us to pay up to an aggregate amount of $280 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.

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 DISH TV services depend on FCC licenses that can expire or be revoked or modified and applications for FCC licenses that may not be granted.

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We are subject to digital high-definition (“HD”) “carry-one, carry-all” requirements that cause capacity constraints.

Our business, investor confidence in our financial results and stock price may be adversely affected if our internal controls are not effective.

We may face other risks described from time to time in periodic and current reports we file with the Securities and Exchange Commission (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”) and in Part II, Item 1A of our Quarterly Report on Form 10-Q for the quarter ended June 30, 2019, filed with the SEC, those discussed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” herein and in the 10-K and those discussed in other documents we file with the SEC. All cautionary statements made or referred to herein should be read as being applicable to all forward-looking statements wherever they appear. Investors should consider the risks and uncertainties described or referred to herein and should not place undue reliance on any forward-looking statements. The forward-looking statements speak only as of the date made, and we expressly disclaim any obligation to update these forward-looking statements.

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Item 1. FINANCIAL STATEMENTS

DISH NETWORK CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except share amounts)

(Unaudited)

As of  

September 30,

December 31,

2019

    

2018

 

Assets

Current Assets:

Cash and cash equivalents

$

1,403,358

$

887,346

Marketable investment securities

191,034

1,181,471

Trade accounts receivable, net of allowance for doubtful accounts of $23,121 and $16,966, respectively

577,797

639,855

Inventory

314,620

290,733

Other current assets

244,583

289,800

Total current assets

2,731,392

3,289,205

Noncurrent Assets:

Restricted cash, cash equivalents and marketable investment securities

60,851

67,597

Property and equipment, net

2,758,024

1,928,180

FCC authorizations

25,544,863

24,736,961

Other investment securities

159,590

118,992

Operating lease assets

152,178

Other noncurrent assets, net

364,542

446,077

Total noncurrent assets

29,040,048

27,297,807

Total assets

$

31,771,440

$

30,587,012

Liabilities and Stockholders' Equity (Deficit)

Current Liabilities:

Trade accounts payable

$

317,690

$

233,753

Deferred revenue and other

690,315

655,312

Accrued programming

1,412,196

1,474,207

Accrued interest

195,161

268,479

Other accrued expenses

777,865

802,388

Current portion of long-term debt and finance lease obligations

1,173,427

1,341,993

Total current liabilities

4,566,654

4,776,132

Long-Term Obligations, Net of Current Portion:

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

12,960,779

13,810,784

Deferred tax liabilities

2,817,260

2,474,907

Operating lease liabilities

92,796

Long-term deferred revenue and other long-term liabilities

636,718

470,932

Total long-term obligations, net of current portion

16,507,553

16,756,623

Total liabilities

21,074,207

21,532,755

Commitments and Contingencies (Note 10)

Redeemable noncontrolling interests (Note 2)

528,205

460,068

Stockholders’ Equity (Deficit):

Class A common stock, $.01 par value, 1,600,000,000 shares authorized, 254,623,250 and 229,448,857 shares issued and outstanding, respectively

2,546

2,295

Class B common stock, $.01 par value, 800,000,000 shares authorized, 238,435,208 shares issued and outstanding

2,384

2,384

Additional paid-in capital

3,942,174

3,379,093

Accumulated other comprehensive income (loss)

(252)

(874)

Accumulated earnings (deficit)

6,222,898

5,212,790

Total DISH Network stockholders’ equity (deficit)

10,169,750

8,595,688

Noncontrolling interests

(722)

(1,499)

Total stockholders’ equity (deficit)

10,169,028

8,594,189

Total liabilities and stockholders’ equity (deficit)

$

31,771,440

$

30,587,012

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

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DISH NETWORK CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE INCOME (LOSS)

(Dollars in thousands, except per share amounts)

(Unaudited)

For the Three Months Ended 

For the Nine Months Ended 

September 30,

September 30,

2019

    

2018

    

2019

    

2018

 

Revenue:

    

Subscriber-related revenue

$

3,117,191

$

3,349,356

$

9,427,533

$

10,191,820

Equipment sales and other revenue

51,172

45,785

139,286

122,653

Total revenue

3,168,363

3,395,141

9,566,819

10,314,473

Costs and Expenses (exclusive of depreciation shown separately below - Note 7):

Subscriber-related expenses

1,934,806

2,123,798

5,940,774

6,468,176

Satellite and transmission expenses

92,295

136,869

369,804

436,565

Cost of sales - equipment and other

55,753

40,309

147,210

108,052

Subscriber acquisition costs:

Cost of sales - subscriber promotion subsidies

7,692

7,914

17,216

32,952

Other subscriber acquisition costs

136,950

73,614

325,714

219,420

Subscriber acquisition advertising

141,159

105,350

374,848

313,779

Total subscriber acquisition costs

285,801

186,878

717,778

566,151

General and administrative expenses

176,635

169,299

578,307

529,701

Depreciation and amortization (Note 7)

154,181

175,285

457,022

540,959

Total costs and expenses

2,699,471

2,832,438

8,210,895

8,649,604

Operating income (loss)

468,892

562,703

1,355,924

1,664,869

Other Income (Expense):

Interest income

32,301

10,525

65,944

30,461

Interest expense, net of amounts capitalized

(6,027)

(5,413)

(17,598)

(11,235)

Other, net

(1,796)

25,473

10,124

12,097

Total other income (expense)

24,478

30,585

58,470

31,323

Income (loss) before income taxes

493,370

593,288

1,414,394

1,696,192

Income tax (provision) benefit, net

(116,213)

(140,690)

(335,372)

(397,987)

Net income (loss)

377,157

452,598

1,079,022

1,298,205

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

23,853

20,864

68,914

60,194

Net income (loss) attributable to DISH Network

$

353,304

$

431,734

$

1,010,108

$

1,238,011

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

Basic

477,495

467,570

471,736

467,216

Diluted

535,746

525,995

530,041

525,752

Earnings per share - Class A and B common stock:

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

$

0.74

$

0.92

$

2.14

$

2.65

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

$

0.66

$

0.82

$

1.91

$

2.35

Comprehensive Income (Loss):

Net income (loss)

$

377,157

$

452,598

$

1,079,022

$

1,298,205

Other comprehensive income (loss):

Foreign currency translation adjustments

(237)

(1,372)

(52)

(1,629)

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

(211)

134

1,180

288

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

(2)

(2)

(298)

(7)

Deferred income tax (expense) benefit, net

49

(32)

(208)

(71)

Total other comprehensive income (loss), net of tax

(401)

(1,272)

622

(1,419)

Comprehensive income (loss)

376,756

451,326

1,079,644

1,296,786

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

23,853

20,864

68,914

60,194

Comprehensive income (loss) attributable to DISH Network

$

352,903

$

430,462

$

1,010,730

$

1,236,592

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

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DISH NETWORK CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)

(In thousands)

(Unaudited)

 

Accumulated

Class A and B

Additional

Other 

Accumulated

 

Redeemable

Common

Paid-In

Comprehensive

Earnings

Noncontrolling

Noncontrolling

    

Stock

    

Capital

    

Income (Loss)

    

(Deficit)

    

Interests

    

Total

    

Interests

 

Balance, December 31, 2017

$

4,664

$

3,296,488

$

882

$

3,635,380

$

492

$

6,937,906

$

383,390

Issuance of Class A common stock:

Exercise of stock awards

2

3,535

3,537

Employee Stock Purchase Plan

2

4,452

4,454

Non-cash, stock-based compensation

9,060

9,060

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

103

103

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

(26)

(26)

Foreign currency translation

400

400

ASU 2014-09 cumulative catch-up adjustment

2,320

2,320

Net income (loss) attributable to noncontrolling interests

(51)

(51)

17,812

Net income (loss) attributable to DISH Network

367,560

367,560

Balance, March 31, 2018

$

4,668

$

3,313,535

$

1,359

$

4,005,260

$

441

$

7,325,263

$

401,202

Issuance of Class A common stock:

Exercise of stock awards

(107)

(107)

Employee benefits

6

27,315

27,321

Employee Stock Purchase Plan

1

3,845

3,846

Non-cash, stock-based compensation

9,712

9,712

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

46

46

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

(13)

(13)

Foreign currency translation

(657)

(657)

Net income (loss) attributable to noncontrolling interests

2,191

2,191

19,378

Net income (loss) attributable to DISH Network

438,717

438,717

Other

(192)

(192)

Balance, June 30, 2018

$

4,675

$

3,354,300

$

735

$

4,443,977

$

2,440

$

7,806,127

$

420,580

Issuance of Class A common stock:

Exercise of stock awards

438

438

Employee benefits

1

1

Employee Stock Purchase Plan

1

4,131

4,132

Non-cash, stock-based compensation

6,125

6,125

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