DISH Network (DISH) - 2019 Q4 - Annual Report

Part I Item 1. Business DISH Network operates Pay-TV and Wireless segments, serving 11.986 million Pay-TV subscribers and investing heavily in 5G network deployment, while facing intense competition and significant FCC regulation - The company's wireless strategy involves significant investment, totaling over $21 billion since 2008 for spectrum licenses and related assets, with plans to deploy a nationwide 5G network[55][86] - DISH entered into an Asset Purchase Agreement with T-Mobile and Sprint to acquire Sprint's prepaid mobile businesses (Boost Mobile, Virgin Mobile) for $1.4 billion, contingent on the Sprint-T-Mobile merger[52][72] - The company has committed to the FCC to deploy a nationwide 5G broadband network with specific population coverage targets by 2023 and 2025 across its various spectrum bands. Failure to meet these commitments could result in voluntary contributions up to $2.2 billion[79][83] Subscriber Count as of December 31, 2019 | Subscriber Type | Count (in millions) | | :--- | :--- | | Total Pay-TV | 11.986 | | DISH TV | 9.394 | | Sling TV | 2.592 | Overview DISH Network Corporation operates two main business segments: Pay-TV (DISH and Sling brands) and Wireless, focused on 5G network deployment, with recent strategic moves including acquiring EchoStar's BSS Business and Sprint's prepaid mobile business - The company operates two primary business segments: Pay-TV (DISH and Sling brands) and Wireless[43][44] - In September 2019, DISH completed the acquisition of EchoStar's BSS (broadcast satellite operations and services) Business through a tax-free spin-off and merger[45][46][47] - An agreement was made in July 2019 to acquire Sprint's prepaid mobile businesses (Boost Mobile, Virgin Mobile) for $1.4 billion, contingent upon the T-Mobile/Sprint merger[51][52] - Total investment in wireless spectrum licenses and related assets has exceeded $21 billion since 2008, with an additional $5 billion in capitalized interest[55] Business Strategy DISH's Pay-TV strategy focuses on technology and value, while its wireless strategy involves acquiring Sprint's prepaid business and deploying a nationwide 5G network with significant build-out commitments and potential penalties - The Pay-TV strategy is to be the best video provider through superior technology (e.g., Hopper DVR), customer service, and value (e.g., price guarantees, low-cost Sling services)[58][59][62] - The wireless strategy involves acquiring Sprint's prepaid business for $1.4 billion and its 800 MHz spectrum for an additional $3.59 billion, positioning DISH as a new national wireless competitor[72][73] - As part of the Sprint deal, DISH has made binding commitments to the DOJ and FCC to deploy a nationwide 5G network, covering at least 70% of the U.S. population by June 2023[77][79][83] - Failure to meet the 5G build-out commitments could result in voluntary contributions to the FCC totaling up to $2.2 billion and potential forfeiture of certain spectrum licenses[79] - The company paused its narrowband IoT deployment in October 2019 and now expects total expenditures for its 5G Network Deployment to be approximately $10 billion, excluding capitalized interest[85][88] Competition DISH faces intense competition in the mature pay-TV market from traditional providers and growing OTT services, exacerbated by industry consolidation and changing consumer behavior - The company faces substantial competition from traditional pay-TV providers (AT&T, Comcast, Charter) and a rapidly growing number of internet-based video providers (Netflix, Hulu, Apple, Amazon, Disney+)[103][104][108] - Industry consolidation, such as AT&T's acquisition of DirecTV and Time Warner, has created competitors with greater scale and leverage, making it more difficult for DISH to obtain programming on non-discriminatory terms[104] - A programming dispute with AT&T led to the removal of HBO and Cinemax channels from DISH TV and Sling TV in October 2018, as AT&T now offers this content directly to consumers[104][106] - Changing consumer behavior, including "cord-cutting" and a preference for on-demand, mobile viewing, poses a significant threat to the traditional DISH TV subscriber base[107][262] Government Regulations DISH's operations are heavily regulated by the FCC, covering satellite licensing, retransmission consent, program access rules, and strict build-out requirements for its extensive wireless spectrum holdings - The FCC has broad authority over DISH's DBS operations, including the assignment of satellite radio frequencies, orbital locations, and licensing[139] - The company must obtain retransmission consent from local broadcast stations to carry their signals, and the rates for this consent have been increasing substantially, leading to more frequent negotiating impasses[157] - The expiration of the FCC's prohibition on exclusive contracts with cable-affiliated programmers may limit DISH's ability to access certain programming on non-discriminatory terms[165][166] - All of DISH's wireless spectrum licenses are subject to specific FCC build-out requirements and renewal conditions. Failure to meet these requirements can result in the termination of licenses[138][192][195] Item 1A. Risk Factors The company faces significant risks from intense competition, rising operational costs, substantial capital requirements for wireless expansion, and ongoing legal and regulatory challenges - Competition/Economic: Intense competition from bundled service providers and OTT services is causing subscriber churn and pressure on pricing. Changing consumer behavior towards streaming is a major threat[246][260] - Operational: Increasing programming expenses, particularly for local and sports content, pressure margins. The business is dependent on third-party programming, key technology vendors, and the operational integrity of its satellite fleet[287][291][315] - Acquisition/Capital: The company has made substantial investments in wireless spectrum and faces significant risks and capital requirements to build out a 5G network and compete in the wireless industry. The pending acquisition of Sprint's prepaid business also carries integration risks[351][426][441] - Legal/Regulatory: Ongoing telemarketing litigation could result in a $280 million payment and injunctive relief. The business is also subject to extensive FCC regulation, including strict build-out requirements for its wireless licenses, which if not met, could lead to license revocation[479][434] Item 1B. Unresolved Staff Comments The company reports that it has no unresolved staff comments from the Securities and Exchange Commission - There are no unresolved staff comments[519] Item 2. Properties DISH Network's principal properties include its corporate headquarters, customer call centers, digital broadcast operations centers, and a fleet of 13 satellites - Key owned and leased properties include the corporate headquarters in Englewood, CO, and major digital broadcast centers in Cheyenne, WY, and Gilbert, AZ[522] - The company operates a network of customer call centers, warehouses, and service centers across the country, in locations such as Texas, Virginia, and Arizona[522] - A major component of the company's property is its fleet of 13 owned or leased satellites used for its DISH TV services[523] Item 3. Legal Proceedings This section refers to Note 15 of the Consolidated Financial Statements for information regarding the company's legal proceedings - Information regarding legal proceedings is detailed in Note 15 of the Consolidated Financial Statements[525] Item 4. Mine Safety Disclosures This section is not applicable to the company's operations - Not applicable[526] Part II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities DISH Network's Class A common stock trades on Nasdaq, with a $1.0 billion stock repurchase program authorized through December 2020, though no shares were repurchased in Q4 2019 - The company's Class A common stock is traded on the Nasdaq under the symbol "DISH"[527] - A stock repurchase program for up to $1.0 billion of Class A common stock is authorized through December 31, 2020[530] - No shares of Class A common stock were repurchased during the fourth quarter of 2019[532] Item 6. Selected Financial Data Selected financial data shows declining revenue and Pay-TV subscribers from 2015-2019, with volatile net income and growing total assets driven by wireless spectrum investments Selected Financial Data (2015-2019) | Metric (in millions, except per share) | 2019 | 2018 | 2017 | 2016 | 2015 | | :--- | :--- | :--- | :--- | :--- | :--- | | Total Revenue | $12,808 | $13,621 | $14,391 | $15,212 | $15,225 | | Net Income | $1,400 | $1,575 | $2,099 | $1,498 | $802 | | Total Assets | $33,231 | $30,587 | $29,774 | $27,914 | $22,665 | | Long-Term Debt | $14,140 | $15,153 | $16,203 | $16,484 | $13,763 | | Diluted EPS | $2.60 | $3.00 | $4.07 | $3.15 | $1.73 | Selected Operating Data (2015-2019) | Metric (subscribers in millions) | 2019 | 2018 | 2017 | 2016 | 2015 | | :--- | :--- | :--- | :--- | :--- | :--- | | Pay-TV Subscribers (End of Period) | 11.986 | 12.322 | 13.242 | 13.671 | 13.897 | | DISH TV Subscribers | 9.394 | 9.905 | 11.030 | 12.170 | 13.274 | | Sling TV Subscribers | 2.592 | 2.417 | 2.212 | 1.501 | 0.623 | | Pay-TV ARPU | $85.92 | $85.46 | $86.43 | $88.66 | $86.79 | | DISH TV Churn Rate | 1.62% | 1.78% | 1.78% | 1.97% | 1.75% | | DISH TV SAC | $822 | $759 | $751 | $832 | $822 | Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations DISH Network's 2019 revenue and net income declined due to Pay-TV subscriber losses, while the company focuses on wireless investments and maintains solid liquidity for future capital requirements 2019 Financial and Operational Highlights | Metric | 2019 Value | | :--- | :--- | | Revenue | $12.808 billion | | Net Income | $1.400 billion | | Diluted EPS | $2.60 | | Net Pay-TV Subscriber Change | (336,000) | | Pay-TV ARPU | $85.92 | | DISH TV Churn Rate | 1.62% | | DISH TV SAC | $822 | | Cash and Marketable Securities | $2.860 billion | - The decline in the DISH TV subscriber base continues to be a primary challenge, driven by a mature market and intense competition from both traditional and OTT providers[545][597] - The company's liquidity remains solid, with $2.86 billion in cash and marketable securities at year-end, supported by $2.7 billion in cash from operations and a $1.0 billion rights offering[651][659][665] - Future capital requirements are substantial, driven by the planned $10 billion 5G network deployment and the $1.4 billion acquisition of Sprint's prepaid business[687][694] Item 7A. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate exposure, affecting its short-duration investment portfolio and the fair value of its fixed-rate long-term debt - The company's main market risk is interest rate risk affecting its investment portfolio and the fair value of its debt[737] - The $2.86 billion cash and marketable securities portfolio is primarily in short-term instruments, mitigating fair value risk from interest rate changes[738][739] - All of the company's $14.67 billion in long-term debt is fixed-rate, protecting it from increased interest expense due to rising rates, although the fair value of the debt is sensitive to rate changes[743] Item 8. Financial Statements and Supplementary Data This section indicates that the company's consolidated financial statements and selected quarterly financial data are included in the report, beginning on page F-1 - The company's consolidated financial statements are included in the report starting on page F-1[745] Item 9A. Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2019, with no material changes during the quarter - Management concluded that disclosure controls and procedures were effective as of December 31, 2019[747] - There were no material changes in internal control over financial reporting during the fourth quarter of 2019[749] - The company's internal control over financial reporting was deemed effective as of December 31, 2019, based on the COSO framework, and this assessment was audited by KPMG LLP[753][754] Part III Item 10. Directors, Executive Officers and Corporate Governance Information regarding directors, executive officers, and corporate governance is incorporated by reference from the company's 2020 Proxy Statement - This information is incorporated by reference from the company's 2020 Proxy Statement[755] Item 11. Executive Compensation Information regarding executive compensation is incorporated by reference from the company's 2020 Proxy Statement - This information is incorporated by reference from the company's 2020 Proxy Statement[757] Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information regarding security ownership and related stockholder matters is incorporated by reference from the company's 2020 Proxy Statement - This information is incorporated by reference from the company's 2020 Proxy Statement[758] Item 13. Certain Relationships and Related Transactions, and Director Independence Information regarding certain relationships, related transactions, and director independence is incorporated by reference from the company's 2020 Proxy Statement - This information is incorporated by reference from the company's 2020 Proxy Statement[759] Item 14. Principal Accounting Fees and Services Information regarding principal accounting fees and services is incorporated by reference from the company's 2020 Proxy Statement - This information is incorporated by reference from the company's 2020 Proxy Statement[760] Part IV Item 15. Exhibits, Financial Statement Schedules This section lists the financial statements, schedules, and exhibits filed with the Form 10-K, including key agreements and debt indentures - This section contains the index to the Consolidated Financial Statements and a list of all exhibits filed with the 10-K[761][762] Item 16. Form 10-K Summary The company has not provided a summary for its Form 10-K - None provided[792] Financial Statements and Notes Consolidated Financial Statements DISH Network reported declining revenues and net income in 2019, with growing assets due to wireless investments, and maintained strong operating cash flow Consolidated Statement of Operations Highlights (2019 vs. 2018) | Line Item (in billions) | 2019 | 2018 | | :--- | :--- | :--- | | Total Revenue | $12.81 | $13.62 | | Operating Income | $1.88 | $2.15 | | Net Income (attributable to DISH) | $1.40 | $1.58 | | Diluted EPS | $2.60 | $3.00 | Consolidated Balance Sheet Highlights (as of Dec 31) | Line Item (in billions) | 2019 | 2018 | | :--- | :--- | :--- | | Cash, Cash Equivalents & Marketable Securities | $2.86 | $2.07 | | FCC Authorizations | $25.78 | $24.74 | | Total Assets | $33.23 | $30.59 | | Long-Term Debt & Finance Lease Obligations | $14.14 | $15.15 | | Total Stockholders' Equity | $11.56 | $8.59 | Consolidated Cash Flow Highlights (2019 vs. 2018) | Line Item (in billions) | 2019 | 2018 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $2.66 | $2.52 | | Net Cash from Investing Activities | ($0.72) | ($1.98) | | Net Cash from Financing Activities | ($0.33) | ($1.13) | Notes to Consolidated Financial Statements These notes detail accounting policies, strategic acquisitions, wireless spectrum commitments, debt instruments, significant litigation, and extensive related-party transactions with EchoStar - Note 1: Details the acquisition of EchoStar's BSS Business and the pending $1.4 billion acquisition of Sprint's prepaid business, which are central to the company's strategy[830][837] - Note 2 & 8: Explains the accounting for significant assets, including the capitalization of interest on wireless spectrum licenses and the impairment testing of satellites and other long-lived assets[894][983][984] - Note 10: Provides a detailed breakdown of the company's $14.14 billion in long-term debt and finance lease obligations, including terms for its various senior and convertible notes[1006] - Note 15: Outlines major commitments and contingencies, including contractual obligations, extensive details on wireless build-out requirements, and significant litigation like the FTC Action ($280 million accrual) and the Krakauer Action ($61 million judgment paid in 2019)[1103][1258][1261] - Note 19: Details the extensive related-party transactions with EchoStar, governed by various agreements for satellite capacity, real estate leases, and professional services, reflecting the common control by Chairman Charles W. Ergen[1296][1297]