Dish Network 2015 Annual Report Download - page 179

DISH NETWORK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
F-75
and EchoStar, respectively. Since this was a formation of an entity under common control and a step-up in basis
was not allowed, each party’s contributions were recorded at historical book value for accounting purposes.
Effective August 1, 2014, EchoStar and Sling TV Holding entered into the Exchange Agreement pursuant to which,
among other things, Sling TV Holding distributed certain assets to EchoStar and EchoStar reduced its interest in
Sling TV Holding to a ten percent non-voting interest. We now have a ninety percent equity interest and a 100%
voting interest in Sling TV Holding. In addition, we, EchoStar and Sling TV Holding amended and restated the
Operating Agreement, primarily to reflect the changes implemented by the Exchange Agreement. Finally, we,
EchoStar and Sling TV Holding amended and restated the Commercial Agreement, pursuant to which, among other
things, Sling TV Holding: (1) continues to have certain rights and corresponding obligations with respect to its
business; (2) continues to have the right, but not the obligation, to receive certain services from us and EchoStar; and
(3) has a license from EchoStar to use certain of the assets distributed to EchoStar as part of the Exchange
Agreement. Sling TV Holding operates, through its subsidiary Sling TV L.L.C., the Sling TV services.
Since the Exchange Agreement is among entities under common control, we recorded the difference between the
historical cost basis of the assets transferred to EchoStar and our historical cost basis in EchoStar’s one-third
noncontrolling interest in Sling TV Holding as a $6 million, net of deferred taxes, capital distribution in “Additional
paid-in capital” on our Consolidated Balance Sheets. In addition, we recorded the initial fair value of EchoStar’s ten
percent non-voting interest as a $14 million, net of deferred taxes, deemed distribution in “Additional paid-in
capital” on our Consolidated Balance Sheets.
EchoStar’s ten percent non-voting interest is redeemable contingent on a certain performance goal being achieved
by Sling TV Holding. In addition, subject to certain conditions, the interest is redeemable at fair value within sixty
days following the fifth anniversary of the Exchange Agreement. This interest is considered temporary equity and is
recorded as “Redeemable noncontrolling interests” in the mezzanine section of our Consolidated Balance Sheets.
EchoStar’s redeemable noncontrolling interest in Sling TV Holding was initially accounted for at fair value. The
performance goal was determined to be probable during the third quarter 2015. Accordingly, the value of
EchoStar’s redeemable noncontrolling interest in Sling TV Holding is adjusted each reporting period for any change
in redemption value above the initial fair value (adjusted for the operating results of Sling TV Holding attributable
to EchoStar subsequent to August 1, 2014), with the offset recorded in “Additional paid-in capital,” net of deferred
taxes, on our Consolidated Balance Sheets. As of December 31, 2015, this difference was $10 million, net of
deferred taxes. Subsequent to the Exchange Agreement, the operating results of Sling TV Holding attributable to
EchoStar are recorded as “Redeemable noncontrolling interests” in our Consolidated Balance Sheets, with the offset
recorded in “Net income (loss) attributable to noncontrolling interests, net of tax” on our Consolidated Statements of
Operations and Comprehensive Income (Loss).
“General and administrative expenses”
During the years ended December 31, 2015, 2014 and 2013, we incurred $92 million, $108 million and $90 million,
respectively, for general and administrative expenses from EchoStar. These amounts are recorded in “General and
administrative expenses” on our Consolidated Statements of Operations and Comprehensive Income (Loss). The
agreements pertaining to these expenses are discussed below.
Product Support Agreement. In connection with the Spin-off, we entered into a product support agreement pursuant
to which we have the right, but not the obligation, to receive product support from EchoStar (including certain
engineering and technical support services) for all set-top boxes and related accessories that EchoStar has previously
sold and in the future may sell to us. The fees for the services provided under the product support agreement are
calculated at cost plus a fixed margin, which varies depending on the nature of the services provided. The term of
the product support agreement is the economic life of such receivers and related accessories, unless terminated
earlier. We may terminate the product support agreement for any reason upon at least 60 days notice. In the event
of an early termination of this agreement, we are entitled to a refund of any unearned fees paid to EchoStar for the
services.