Dish Network 2015 Annual Report Download - page 183

DISH NETWORK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
F-79
revenues of us and EchoStar, we and EchoStar agreed to allocate our respective payments to such third party based
on our respective percentage of combined total revenue.
Amended and Restated T2 Development Agreement. On August 29, 2013, we and EchoStar entered into a
development agreement (the “T2 Development Agreement”) with respect to the T2 satellite, by which EchoStar
reimbursed us for amounts we paid pursuant to an authorization to proceed (the “T2 ATP”) with SS/L related to the
T2 satellite construction contract. In exchange, we granted EchoStar a right of first refusal and right of first offer to
purchase our rights in T2 during the term of the T2 Development Agreement.
During the fourth quarter 2013, we and EchoStar amended and restated the T2 Development Agreement (the
“Amended and Restated T2 Development Agreement”), which superseded and replaced the T2 Development
Agreement. Under the Amended and Restated T2 Development Agreement, EchoStar reimbursed us for amounts
we paid pursuant to the T2 ATP with SS/L. During the years ended December 31, 2014 and 2013, we received
payments from EchoStar of approximately $13 million and $35 million, respectively, under the Amended and
Restated T2 Development Agreement to reimburse us for amounts paid to SS/L. In exchange, we granted EchoStar
the right and option to purchase our rights in the T2 satellite for the sum of $55 million, exercisable at any time
during the term of the Amended and Restated T2 Development Agreement. During the fourth quarter 2014,
EchoStar purchased our rights to the T2 satellite for $55 million. In accordance with accounting principles that
apply to transfers of assets between companies under common control, we recorded the difference between our
historical cost basis of the satellite and the fair value of the satellite transferred to EchoStar as a $9 million, net of
deferred taxes, capital contribution in “Additional paid-in capital” on our Consolidated Balance Sheets.
Satellite and Tracking Stock Transaction with EchoStar. To improve our position in the growing consumer satellite
broadband market, among other reasons, on February 20, 2014, we entered into the Satellite and Tracking Stock
Transaction with EchoStar pursuant to which, among other things: (i) on March 1, 2014, we transferred to EchoStar
and HSSC the Transferred Satellites, including related in-orbit incentive obligations and cash interest payments of
approximately $59 million and approximately $11 million in cash in exchange for the Tracking Stock; and (ii)
beginning on March 1, 2014, we lease back all available satellite capacity on the Transferred Satellites. The
Satellite and Tracking Stock Transaction is further described below:
x Transaction Agreement. On February 20, 2014, DOLLC, DNLLC and EchoStar XI Holding L.L.C., all
indirect wholly-owned subsidiaries of us, entered into the Transaction Agreement with EchoStar, HSSC
and Alpha Company LLC, a wholly-owned subsidiary of EchoStar, pursuant to which, on March 1, 2014,
we, among other things, transferred to EchoStar and HSSC the Transferred Satellites in exchange for the
Tracking Stock. The Tracking Stock generally tracks the Hughes Retail Group. The shares of the Tracking
Stock issued to us represent an aggregate 80% economic interest in the Hughes Retail Group. Since the
Satellite and Tracking Stock Transaction is among entities under common control, we recorded the
Tracking Stock at EchoStar’s and HSSC’s historical cost basis for these instruments of $229 million and
$87 million, respectively. The difference between the historical cost basis of the Tracking Stock received
and the net carrying value of the Transferred Satellites of $356 million (including debt obligations, net of
deferred taxes), plus the $11 million in cash, resulted in a $51 million capital transaction recorded in
“Additional paid-in capital” on our Consolidated Balance Sheets. Although our investment in the Tracking
Stock represents an aggregate 80% economic interest in the Hughes Retail Group, we have no operational
control or significant influence over the Hughes Retail Group business, and currently there is no public
market for the Tracking Stock. As such, the Tracking Stock is accounted for under the cost method of
accounting. The Transaction Agreement includes, among other things, customary mutual provisions for
representations, warranties and indemnification.
x Satellite Capacity Leased from EchoStar. On February 20, 2014, we entered into satellite capacity
agreements with certain subsidiaries of EchoStar pursuant to which, beginning March 1, 2014, we, among
other things, lease all available satellite capacity on the Transferred Satellites. The satellite capacity
agreement for EchoStar I expired on November 30, 2015. See further information under “Satellite and
transmission expenses – Satellite Capacity Leased from EchoStar.”