SEC Filing | Dish

View:

Download DOC

Download PDF

Download XLS

Download XBRL

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, 2022.


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

Commission File Number: 333-31929

DISH DBS Corporation

(Exact name of registrant as specified in its charter)


Colorado	84-1328967
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

9601 South Meridian Boulevard
Englewood, Colorado	80112
(Address of principal executive offices)	(Zip code)

(303) 723-1000

(Registrant’s telephone number, including area code)

Not Applicable

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

Securities registered pursuant to Section 12(b) 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 November 1, 2022, the registrant’s outstanding common stock consisted of 1,015 shares of common stock, $0.01 par value.

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

Table of Contents

TABLE OF CONTENTS


PART I — FINANCIAL INFORMATION

	Disclosure Regarding Forward-Looking Statements	i

Item 1.	Financial Statements

	Condensed Consolidated Balance Sheets	1

	Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)	2

	Condensed Consolidated Statements of Changes in Stockholder’s Equity (Deficit)	3

	Condensed Consolidated Statements of Cash Flows	4

	Notes to Condensed Consolidated Financial Statements	5

Item 2.	Management’s Narrative Analysis of Results of Operations	39

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	*

Item 4.	Controls and Procedures	53

PART II — OTHER INFORMATION

Item 1.	Legal Proceedings	53

Item 1A.	Risk Factors	53

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	*

Item 3.	Defaults Upon Senior Securities	*

Item 4.	Mine Safety Disclosures	None

Item 5.	Other Information	None

Item 6.	Exhibits	54

	Signatures	55

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

Table of Contents

PART I — FINANCIAL INFORMATION

DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

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

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

SUMMARY OF RISK FACTORS

COVID-19 Pandemic

●

The COVID-19 pandemic and its impact on the economic environment generally, and on us specifically, have adversely impacted our business. Furthermore, any continuation or worsening of the pandemic and economic environment could have a material adverse effect on our business, financial condition and results of operations.

Competition and Economic Risks

●

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 new technologies in our Pay-TV business 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.

●

Our pay-TV 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.

●

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

●

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

Operational and Service Delivery Risks

●

Any deterioration in our operational performance and subscriber satisfaction could adversely affect our business, financial condition and results of operations.

●

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.

●

Our programming expenses are increasing, which may adversely affect our future financial condition and results of operations.

●

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

Table of Contents

●

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

●

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.

●

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

●

Our failure to effectively invest in, introduce, and implement new competitive products and services 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, and the inability of these key vendors to meet our needs could have a material adverse effect on our business.

●

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

●

We have limited satellite capacity and failures or reduced capacity could adversely affect our business, financial condition and results of operations.

●

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

●

We rely on highly skilled personnel for our business, and any inability to hire and retain key personnel or hire qualified personnel may negatively affect our business, financial condition and results of operations.

Acquisition and Capital Structure Risks

●

Our parent, DISH Network, has made substantial investments to acquire certain wireless spectrum licenses and other related assets and we have made and may continue to make funds available to DISH Network in the form of cash distributions or loans in connection with the development of DISH Network’s wireless business.

●

Our parent, DISH Network, has made substantial non-controlling investments in the Northstar Entities and the SNR Entities related to AWS-3 wireless spectrum licenses and we have made and may make additional cash distributions or loans to DISH Network so that DISH Network may fund the Northstar Entities and the SNR Entities including their obligations to purchase Northstar Manager’s and SNR Management’s ownership interests.

●

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 have substantial debt outstanding and may incur additional debt.

●

Our Senior Secured Notes (defined herein) are subordinated to our existing unsecured notes and certain future unsecured notes with respect to certain realizations under the Intercompany Loan (defined herein) and any collateral pledged as security therefor.

●

We may need additional capital, which may not be available on favorable terms, to pay debt maturities, continue investing in our business, finance acquisitions and other strategic transactions, and potentially make additional cash distributions or loans to DISH Network.

●

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

Legal and Regulatory Risks

●

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.

Table of Contents

●

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

●

If our internal controls are not effective, our business, DISH Network’s stock price and investor confidence in our financial results may be adversely affected.

●

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

Other factors that could cause or contribute to such differences include, but are not limited to, those discussed under the caption “Risk Factors” in Part I, Item 1A of our most recent Annual Report on Form 10-K (the “10-K”) filed with the SEC, those discussed in “Management’s Narrative Analysis of Results of Operations” herein and in the 10-K and those discussed in other documents we file with the SEC. All cautionary statements made or referred to herein should be read as being applicable to all forward-looking statements wherever they appear. Investors should consider the risks and uncertainties described or referred to herein and should not place undue reliance on any forward-looking statements. The forward-looking statements speak only as of the date made, and we expressly disclaim any obligation to update these forward-looking statements.

iii

Table of Contents

Item 1. FINANCIAL STATEMENTS

DISH DBS CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except share amounts)

(Unaudited)


	As of
	September 30,		December 31,
	2022		2021
Assets
Current Assets:
Cash and cash equivalents	$	495,539	$	1,373,591
Marketable investment securities		59,960		1,670,739
Trade accounts receivable, net of allowance for credit losses of $30,890 and $32,861, respectively		621,350		601,553
Inventory		305,173		292,099
Other current assets		167,257		270,417
Total current assets		1,649,279		4,208,399

Noncurrent Assets:
Restricted cash, cash equivalents and marketable investment securities		53,142		55,027
Property and equipment, net		1,041,140		1,233,180
FCC authorizations		611,794		611,794
Other investment securities		91,438		99,606
Operating lease assets		166,059		220,089
Note receivable - DISH Network (Note 13)		6,945,299		5,250,000
Interest receivable - DISH Network (Note 13)		143,212		31,840
Other noncurrent assets, net		124,946		152,747
Total noncurrent assets		9,177,030		7,654,283
Total assets	$	10,826,309	$	11,862,682

Liabilities and Stockholder's Equity (Deficit)
Current Liabilities:
Trade accounts payable	$	421,808	$	522,523
Deferred revenue and other		534,892		602,521
Accrued programming		1,296,468		1,376,770
Accrued interest		227,106		239,571
Other accrued expenses		567,068		588,201
Current portion of long-term debt and finance lease obligations (Note 8)		1,539,858		2,042,641
Total current liabilities		4,587,200		5,372,227

Long-Term Obligations, Net of Current Portion:
Long-term debt and finance lease obligations, net of current portion (Note 8)		11,772,237		13,294,988
Deferred tax liabilities		380,159		469,418
Operating lease liabilities		82,298		83,725
Long-term deferred revenue and other long-term liabilities		191,465		197,147
Total long-term obligations, net of current portion		12,426,159		14,045,278
Total liabilities		17,013,359		19,417,505

Commitments and Contingencies (Note 9)

Stockholder’s Equity (Deficit):
Common stock, $.01 par value, 1,000,000 shares authorized, 1,015 shares issued and outstanding		—		—
Additional paid-in capital		1,525,108		1,492,174
Accumulated other comprehensive income (loss)		(2,351)		(1,262)
Accumulated earnings (deficit)		(7,709,807)		(9,045,735)
Total stockholder’s equity (deficit)		(6,187,050)		(7,554,823)
Total liabilities and stockholder’s equity (deficit)	$	10,826,309	$	11,862,682

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

Table of Contents

DISH DBS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE INCOME (LOSS)

(In thousands)

(Unaudited)


	For the Three Months Ended				For the Nine Months Ended
	September 30,				September 30,
	2022		2021		2022		2021
Revenue:
Service revenue	$	3,018,484	$	3,151,144	$	9,220,562	$	9,465,241
Equipment sales and other revenue		29,831		25,145		82,178		85,455
Total revenue		3,048,315		3,176,289		9,302,740		9,550,696

Costs and Expenses (exclusive of depreciation):
Cost of services		1,896,104		1,984,349		5,674,014		5,892,809
Cost of sales - equipment and other		22,018		23,982		64,812		65,159
Selling, general and administrative expenses		420,100		392,605		1,185,998		1,057,739
Depreciation and amortization		87,312		109,919		272,646		336,552
Total costs and expenses		2,425,534		2,510,855		7,197,470		7,352,259

Operating income (loss)		622,781		665,434		2,105,270		2,198,437

Other Income (Expense):
Interest income		112,919		943		323,320		2,751
Interest expense, net of amounts capitalized		(205,633)		(159,783)		(668,212)		(495,971)
Other, net		493		331		1,738		(1,464)
Total other income (expense)		(92,221)		(158,509)		(343,154)		(494,684)

Income (loss) before income taxes		530,560		506,925		1,762,116		1,703,753
Income tax (provision) benefit, net		(122,223)		(120,296)		(426,188)		(415,854)
Net income (loss)	$	408,337	$	386,629	$	1,335,928	$	1,287,899

Comprehensive Income (Loss):
Net income (loss)	$	408,337	$	386,629	$	1,335,928	$	1,287,899
Other comprehensive income (loss):
Foreign currency translation adjustments		(412)		(24)		(1,106)		(363)
Unrealized holding gains (losses) on available-for-sale debt securities		86		(42)		16		(50)
Deferred income tax (expense) benefit, net		(13)		—		1		—
Total other comprehensive income (loss), net of tax		(339)		(66)		(1,089)		(413)
Comprehensive income (loss)	$	407,998	$	386,563	$	1,334,839	$	1,287,486

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

Table of Contents

DISH DBS CORPORATION

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

(In thousands)

(Unaudited)


					Accumulated
			Additional		Other		Accumulated
	Common		Paid-In		Comprehensive		Earnings
	Stock		Capital		Income (Loss)		(Deficit)		Total
Balance, December 31, 2020	$	—	$	1,463,407	$	(805)	$	(10,782,607)	$	(9,320,005)
Non-cash, stock-based compensation		—		7,676		—		—		7,676
Change in unrealized holding gains (losses) on available-for-sale debt securities, net		—		—		(2)		—		(2)
Foreign currency translation		—		—		(195)		—		(195)
Net income (loss)		—		—		—		424,527		424,527
Balance, March 31, 2021	$	—	$	1,471,083	$	(1,002)	$	(10,358,080)	$	(8,887,999)
Non-cash, stock-based compensation		—		(8,344)		—		—		(8,344)
Change in unrealized holding gains (losses) on available-for-sale debt securities, net		—		—		(6)		—		(6)
Foreign currency translation		—		—		(144)		—		(144)
Net income (loss)		—		—		—		476,743		476,743
Balance, June 30, 2021	$	—	$	1,462,739	$	(1,152)	$	(9,881,337)	$	(8,419,750)
Non-cash, stock-based compensation		—		6,743		—		—		6,743
Change in unrealized holding gains (losses) on available-for-sale securities, net		—		—		(42)		—		(42)
Foreign currency translation		—		—		(24)		—		(24)
Net income (loss)		—		—		—		386,629		386,629
Balance, September 30, 2021	$	—	$	1,469,482	$	(1,218)	$	(9,494,708)	$	(8,026,444)

Balance, December 31, 2021	$	—	$	1,492,174	$	(1,262)	$	(9,045,735)	$	(7,554,823)
Non-cash, stock-based compensation		—		8,383		—		—		8,383
Change in unrealized holding gains (losses) on available-for-sale debt securities, net		—		—		(76)		—		(76)
Deferred income tax (expense) benefit attributable to other comprehensive income (loss)		—		—		21		—		21
Foreign currency translation		—		—		(187)		—		(187)
Net income (loss)		—		—		—		444,411		444,411
Other		—		13		—		—		13
Balance, March 31, 2022	$	—	$	1,500,570	$	(1,504)	$	(8,601,324)	$	(7,102,258)
Non-cash, stock-based compensation		—		7,888		—		—		7,888
Change in unrealized holding gains (losses) on available-for-sale debt securities, net		—		—		6		—		6
Deferred income tax (expense) benefit attributable to other comprehensive income (loss)		—		—		(7)		—		(7)
Foreign currency translation		—		—		(507)		—		(507)
Net income (loss)		—		—		—		483,180		483,180
Other		—		(13)		—		—		(13)
Balance, June 30, 2022	$	—	$	1,508,445	$	(2,012)	$	(8,118,144)	$	(6,611,711)
Non-cash, stock-based compensation		—		16,663		—		—		16,663
Change in unrealized holding gains (losses) on available-for-sale securities, net		—		—		86		—		86
Deferred income tax (expense) benefit attributable to other comprehensive income (loss)		—		—		(13)		—		(13)
Foreign currency translation		—		—		(412)		—		(412)
Net income (loss)		—		—		—		408,337		408,337
Balance, September 30, 2022	$	—	$	1,525,108	$	(2,351)	$	(7,709,807)	$	(6,187,050)

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

Table of Contents

DISH DBS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


	For the Nine Months Ended
	September 30,
	2022			2021
Cash Flows From Operating Activities:
Net income (loss)	$	1,335,928	$	1,287,899
Adjustments to reconcile net income (loss) to net cash flows from operating activities:
Depreciation and amortization		272,646		336,552
Realized and unrealized losses (gains) on investments and other		1,149		3,587
Non-cash, stock-based compensation expense (benefit)		32,934		6,075
Deferred tax expense (benefit)		(89,258)		(18,664)
Changes in allowance for credit losses		(1,971)		(7,233)
Other, net		36,492		25,657
Non-cash interest income - DISH Network		(306,671)		—
Changes in current assets and current liabilities, net		(156,593)		96,750
Net cash flows from operating activities		1,124,656		1,730,623

Cash Flows From Investing Activities:
(Purchases) Sales and maturities of marketable investment securities, net		1,610,795		(1,243,527)
Purchases of property and equipment		(87,045)		(119,435)
Notes receivable - DISH Network		(1,500,000)		—
Other, net		3,817		11,079
Net cash flows from investing activities		27,567		(1,351,883)

Cash Flows From Financing Activities:
Repayment of long-term debt and finance lease obligations		(31,022)		(38,188)
Redemption and repurchases of senior notes		(2,000,000)		(2,000,000)
Proceeds from issuance of senior notes		—		1,500,000
Early debt extinguishment costs		(1,138)		(3,368)
Debt issuance costs		—		(9,819)
Net cash flows from financing activities		(2,032,160)		(551,375)

Net increase (decrease) in cash, cash equivalents, restricted cash and cash equivalents		(879,937)		(172,635)
Cash, cash equivalents, restricted cash and cash equivalents, beginning of period (Note 4)		1,428,618		1,296,732
Cash, cash equivalents, restricted cash and cash equivalents, end of period (Note 4)	$	548,681	$	1,124,097

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

Table of Contents

DISH DBS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.	Organization and Business Activities

Principal Business

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

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, 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. The SLING branded pay-TV services consist of, among other things, multichannel, live-linear and on-demand streaming over-the-top (“OTT”) Internet-based domestic, international and Latino video programming services (“SLING TV”). As of September 30, 2022, we had 10.018 million Pay-TV subscribers in the United States, including 7.607 million DISH TV subscribers and 2.411 million SLING TV subscribers.

2.	Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and with the instructions to Form 10-Q and Article 10 of Regulation S-X for interim financial information. Accordingly, these statements do not include all of the information and notes required for complete financial statements prepared under GAAP. In our opinion, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Our results of operations for the interim periods presented are not necessarily indicative of the results that may be expected for the full year. For further information, refer to the Consolidated Financial Statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2021. Certain prior period amounts have been reclassified to conform to the current period presentation.

Principles of Consolidation

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

Table of Contents

DISH DBS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Unaudited)

Use of Estimates

The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expense for each reporting period. Estimates are used in accounting for, among other things, allowances for credit losses, 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 DISH Network’s stock-based compensation plans, fair value of assets and liabilities acquired in business combinations, relative standalone selling prices of performance obligations, finance leases, asset impairments, estimates of future cash flows used to evaluate and recognize impairments, useful lives of property, equipment and intangible assets, incremental borrowing rate (“IBR”) on lease right of use assets, nonrefundable upfront fees, independent third-party retailer incentives, programming expenses and subscriber lives. Economic conditions may increase the inherent uncertainty in the estimates and assumptions indicated above. Actual results may differ from previously estimated amounts, and such differences may be material to our condensed consolidated financial statements. Estimates and assumptions are reviewed periodically, and the effects of revisions are reflected prospectively in the period they occur.

Fair Value Measurements

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

●

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

●

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

●

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

As of September 30, 2022 and December 31, 2021, the carrying amount for cash and cash equivalents, trade accounts receivable (net of allowance for credit losses) and current liabilities (excluding the “Current portion of long-term debt and finance lease obligations”) was equal to or approximated fair value due to their short-term nature or proximity to current market rates. See Note 4 for the fair value of our marketable investment securities.

Fair values for our publicly traded debt securities are based on quoted market prices, when available. The fair values of private debt are based on, among other things, available trade information, and/or an analysis in which we evaluate market conditions, related securities, various public and private offerings, and other publicly available information. In performing this analysis, we make various assumptions regarding, among other things, credit spreads, and the impact of these factors on the value of the debt securities. See Note 8 for the fair value of our long-term debt.

Table of Contents

DISH DBS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Unaudited)

Assets Recognized Related to the Costs to Obtain a Contract with a Subscriber

We recognize an asset for the incremental costs of obtaining a contract with a subscriber if we expect the benefit of those costs to be longer than one year. We have determined that certain sales incentive programs, including those with our independent third-party retailers, meet the requirements to be capitalized, and payments made under these programs are capitalized and amortized to expense over the estimated subscriber life exceeding one year. During the three months ended September 30, 2022 and 2021, we capitalized $24 million and $32 million, respectively, under these programs. The amortization expense related to these programs was $37 million and $41 million for the three months ended September 30, 2022 and 2021, respectively. During the nine months ended September 30, 2022 and 2021, we capitalized $68 million and $93 million, respectively, under these programs. The amortization expense related to these programs was $118 million and $116 million for the nine months ended September 30, 2022 and 2021, respectively. As of September 30, 2022 and December 31, 2021, we had a total of $248 million and $298 million, respectively, capitalized, net of amortization, on our Condensed Consolidated Balance Sheets. These amounts are capitalized in “Other current assets” and “Other noncurrent assets, net” on our Condensed Consolidated Balance Sheets, and then amortized in “Selling, general and administrative expenses” on our Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).

Advertising Costs

We recognize advertising expense when incurred as a component of “Selling, general and administrative expenses” on our Condensed Consolidated Statements of Operations and Comprehensive Income (Loss). Advertising expenses totaled $137 million and $129 million for the three months ended September 30, 2022 and 2021, respectively. Advertising expenses totaled $355 million and $308 million for the nine months ended September 30, 2022 and 2021, respectively.

Research and Development

Research and development costs are expensed as incurred and are included as a component of “Selling, general and administrative expenses” on our Condensed Consolidated Statements of Operations and Comprehensive Income (Loss). Research and development costs totaled $12 million and $7 million for the three months ended September 30, 2022 and 2021, respectively. Research and development costs totaled $34 million and $21 million for the nine months ended September 30, 2022 and 2021, respectively.

New Accounting Pronouncements

We do not expect that any recently issued accounting pronouncements will have a material effect on our condensed consolidated financial statements.

Table of Contents

DISH DBS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Unaudited)

3.	Supplemental Data - Statements of Cash Flows

The following table presents certain supplemental cash flow and other non-cash data. See Note 7 for supplemental cash flow and non-cash data related to leases.


	For the Nine Months Ended
	September 30,
	2022		2021

	(In thousands)
Cash paid for interest	$	657,039	$	538,050
Cash received for interest		13,456		2,751
Cash paid for income taxes		27,395		33,287
Cash paid for income taxes to DISH Network		489,819		409,364

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

4.	Marketable Investment Securities, Restricted Cash and Cash Equivalents, and Other Investment Securities

Our marketable investment securities, restricted cash and cash equivalents, and other investment securities consisted of the following:



	As of
	September 30,		December 31,
	2022		2021

	(In thousands)
Marketable investment securities:
Current marketable investment securities	$	59,960	$	1,670,739

Restricted cash and cash equivalents (1)		53,142		55,027

Other investment securities:
Other investment securities		91,438		99,606

Total marketable investment securities, restricted cash and cash equivalents, and other investment securities	$	204,540	$	1,825,372

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

Table of Contents

DISH DBS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Unaudited)

Marketable Investment Securities

Our marketable investment securities portfolio may consist of debt and equity instruments. All equity securities are carried at fair value, with changes in fair value recognized in “Other, net” within “Other Income (Expense)” on our Condensed Consolidated Statements of Operations and Comprehensive Income (Loss). All debt securities are classified as available-for-sale and are recorded at fair value. We report the temporary unrealized gains and losses related to changes in market conditions of marketable debt securities as a separate component of “Accumulated other comprehensive income (loss)” within “Total stockholder’s equity (deficit),” net of related deferred income tax on our Condensed Consolidated Balance Sheets. The corresponding changes in the fair value of marketable debt securities, which are determined to be company specific credit losses are recorded in “Other, net” within “Other Income (Expense)” on our Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).

Current Marketable Investment Securities

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

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

Restricted Cash, Cash Equivalents and Marketable Investment Securities

As of September 30, 2022 and December 31, 2021, our restricted marketable investment securities, together with our restricted cash and cash equivalents, included amounts required as collateral for our letters of credit and trusts.

Other Investment Securities

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

NagraStar L.L.C. We own a 50% interest in NagraStar L.L.C. (“NagraStar”), a joint venture that is our primary provider of encryption and related security systems intended to assure that only authorized customers have access to our programming.

Invidi Technologies Corporation. In November 2016, we, AT&T Inc., and Cavendish Square Holding B.V., an affiliate of WPP plc, entered into a series of agreements to acquire Invidi Technologies Corporation (“Invidi”), an entity that provides proprietary software for the addressable advertising market.

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

Table of Contents

DISH DBS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued

(Unaudited)

Fair Value Measurements

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


	As of
	September 30, 2022								December 31, 2021
	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3

	(In thousands)
Cash equivalents (including restricted)	$	518,286	$	88,670	$	429,616	$	—	$	1,404,505	$	60,085	$	1,344,420	$	—

Debt securities (including restricted):
Commercial paper	$	20,236	$	—	$	20,236	$	—	$	1,413,134	$	—	$	1,413,134	$	—
Corporate securities		39,425		—		39,425		—