Property and Equipment and Intangible Assets

12 Months Ended

Dec. 31, 2019

Property and Equipment and Intangible Assets

Property and Equipment and Intangible Assets

8.     Property and Equipment and Intangible Assets

Property and Equipment

Property and equipment consisted of the following:

	Depreciable
	Life			As of December 31,
	(In Years)			2019		2018
				(In thousands)
Equipment leased to customers	2	-	5	$	1,861,668	$	2,016,965
Satellites (1) (2)	2	-	15		1,855,096		843,913
Satellites acquired under finance lease agreements (1) (3)	10	-	15		888,940		499,819
Furniture, fixtures, equipment and other	2	-	20		2,010,094		1,923,585
Buildings and improvements (1)	5	-	40		349,347		290,650
Land (1)		-			17,810		13,186
Construction in progress		-			278,083		100,560
Total property and equipment					7,261,038		5,688,678
Accumulated depreciation (1)					(4,554,856)		(3,760,498)
Property and equipment, net				$	2,706,182	$	1,928,180

(1) See Note 1 for further information on the Master Transaction Agreement pursuant to which certain assets were transferred to us.

(2) See Note 6 for further information on the transaction with TSI.

(3) The Ciel II satellite was previously classified as a finance lease, however, as a result of an amendment, which was effective during the first quarter 2019, Ciel II is now accounted for as an operating lease.

Construction in progress consisted of the following:

	As of December 31,
	2019		2018
	(In thousands)
Software	$	51,493	$	34,533
Wireless		207,814		53,466
Other		18,776		12,561
Total construction in progress	$	278,083	$	100,560

Depreciation and amortization expense consisted of the following:

	For the Years Ended December 31,
	2019		2018		2017
	(In thousands)
Equipment leased to customers	$	371,292	$	444,928	$	554,272
Satellites		115,100		100,343		114,821
Buildings, furniture, fixtures, equipment and other		144,185		166,753		148,471
Total depreciation and amortization	$	630,577	$	712,024	$	817,564

Cost of sales and operating expense categories included in our accompanying Consolidated Statements of Operations and Comprehensive Income (Loss) do not include depreciation expense related to satellites or equipment leased to customers.

Satellites

Pay-TV Satellites. We currently utilize 13 satellites in geostationary orbit approximately 22,300 miles above the equator, eight of which we own and depreciate over their estimated useful life. We currently utilize certain capacity on one satellite that we lease from EchoStar, which is accounted for as an operating lease. We also lease four satellites from third parties: Ciel II, which is now accounted for as an operating lease, and Anik F3, Nimiq 5 and QuetzSat-1, which are accounted for as financing leases and are depreciated over their economic life.

As of December 31, 2019, our pay-TV satellite fleet consisted of the following:

		Degree	Lease
	Launch	Orbital	Termination
Satellites	Date	Location	Date
Owned:
EchoStar VII (1)	February 2002	119	N/A
EchoStar X (1)	February 2006	110	N/A
EchoStar XI (1)	July 2008	110	N/A
EchoStar XIV (1)	March 2010	119	N/A
EchoStar XV	July 2010	61.5	N/A
EchoStar XVI (1)	November 2012	61.5	N/A
EchoStar XVIII	June 2016	61.5	N/A
EchoStar XXIII (1)	March 2017	67.9	N/A
Leased from EchoStar (2):
EchoStar IX	August 2003	121	Month to month
Leased from Other Third Party:
Anik F3	April 2007	118.7	April 2022
Ciel II	December 2008	129	January 2021
Nimiq 5 (1)	September 2009	72.7	September 2024
QuetzSat-1 (1)	September 2011	77	November 2021

(1) Pursuant to the Master Transaction Agreement, on September 10, 2019 these satellites and satellite service agreements were transferred to us. See Note 1 for further information.

(2) See Note 19 for further information on our Related Party Transactions with EchoStar.

Effective September 10, 2019, pursuant to the Master Transaction Agreement, the EchoStar XII satellite was transferred to us. During October 2019, the EchoStar XII satellite was de-orbited.

AWS-4 Satellites. On March 2, 2012, the FCC approved the transfer of 40 MHz of wireless spectrum licenses held by DBSD North America, Inc. (“DBSD North America”) and TerreStar Networks, Inc. (“TerreStar”) to us. On March 9, 2012, we completed the acquisitions of 100% of the equity of reorganized DBSD North America and substantially all of the assets of TerreStar, pursuant to which we acquired, among other things, certain satellite assets and 40 MHz of spectrum licenses held by DBSD North America (the “DBSD Transaction”) and TerreStar (the “TerreStar Transaction”), which licenses the FCC modified in March 2013 to add AWS-4 authority (“AWS-4”). See Note 15 for further information. As a result of the DBSD Transaction and the TerreStar Transaction, we acquired three AWS-4 satellites, including two in-orbit satellites (D1 and T1) and one satellite under construction (T2). During the fourth quarter 2014, EchoStar purchased our rights to the T2 satellite for $55 million.

		Degree	Estimated
	Launch	Orbital	Useful Life
Satellites	Date	Location	(Years)
Owned:
T1	July 2009	111.1	14.25
D1	April 2008	92.85	N/A

GAAP requires that a long-lived asset be reviewed for impairment when circumstances indicate that the carrying amount of the asset might not be recoverable. As of December 31, 2019 and 2018, management concluded that no triggering event occurred for either year for the AWS-4 satellites.

As of December 31, 2017, we concluded that a triggering event occurred for the T1 satellite. In our assessment, we concluded that the carrying amount of the T1 satellite exceeded its estimated fair value based on undiscounted cash flows utilizing the income approach.  To arrive at fair value, management estimated the potential future discounted cash flows from a market participant’s perspective associated with the satellite. As a result of this assessment, we wrote down the net book value of the T1 satellite from $246 million to $100 million and recorded an impairment charge of $146 million in “Impairment of long-lived assets” on our Consolidated Statements of Operations and Comprehensive Income (Loss) for the year ended December 31, 2017. As of December 31, 2019 and 2018, we do not believe that any triggering events have occurred which would indicate impairment for the D1 satellite. The estimates used in our fair value analysis are considered Level 3 in the fair value hierarchy.

Satellite Anomalies

Operation of our DISH TV services requires that we have adequate satellite transmission capacity for the programming that we offer. While we generally have had in-orbit satellite capacity sufficient to transmit our existing channels and some backup capacity to recover the transmission of certain critical programming, our backup capacity is limited.

In the event of a failure or loss of any of our owned or leased satellites, we may need to acquire or lease additional satellite capacity or relocate one of our other owned or leased satellites and use it as a replacement for the failed or lost satellite. Such a failure could result in a prolonged loss of critical programming or a significant delay in our plans to expand programming as necessary to remain competitive and thus may have a material adverse effect on our business, financial condition and results of operations.

In the past, certain of our owned and leased satellites have experienced anomalies, some of which have had a significant adverse impact on their remaining useful life and/or commercial operation. There can be no assurance that future anomalies will not impact the remaining useful life and/or commercial operation of any of the owned and leased satellites in our fleet. See Note 2 “Impairment of Long-Lived Assets” for further information on evaluation of impairment. There can be no assurance that we can recover critical transmission capacity in the event one or more of our owned or leased in-orbit satellites were to fail. We generally do not carry commercial launch or in-orbit insurance on any of the satellites that we own and therefore, we will bear the risk associated with any uninsured launch or in-orbit satellite failures.

Intangible Assets

As of December 31, 2019 and 2018, our identifiable intangibles subject to amortization consisted of the following:

	As of
	December 31, 2019				December 31, 2018
	Intangible		Accumulated		Intangible		Accumulated
	Assets		Amortization		Assets		Amortization
	(In thousands)
Technology-based	$	63,077	$	(57,414)	$	63,077	$	(53,998)
Trademarks		37,010		(32,619)		37,010		(28,634)
Contract-based		4,500		(4,500)		13,149		(13,149)
Customer relationships		23,633		(23,633)		26,533		(26,533)
Total	$	128,220	$	(118,166)	$	139,769	$	(122,314)

These identifiable intangibles are included in “Other noncurrent assets, net” on our Consolidated Balance Sheets. Amortization of these intangible assets is recorded on a straight-line basis over an average finite useful life primarily ranging from approximately five to 20 years. Amortization was $7 million, $10 million and $8 million for the years ended December 31, 2019, 2018 and 2017, respectively.

Estimated future amortization of our identifiable intangible assets as of December 31, 2019 is as follows (in thousands):

For the Years Ended December 31,
2020	$	3,816
2021		1,288
2022		666
2023		654
2024		654
Thereafter		2,976
Total	$	10,054

Goodwill

The excess of our investments in consolidated subsidiaries over net tangible and identifiable intangible asset value at the time of the investment is recorded as goodwill and is not subject to amortization but is subject to impairment testing annually or whenever indicators of impairment arise. As of December 31, 2019 and 2018, our goodwill was $126 million, which primarily relates to our wireless segment. In conducting our annual impairment test for 2019, we performed a qualitative assessment, which considered several factors, including, among others, macroeconomic conditions, industry and market conditions, and relevant company specific events and perception of the market.  In contemplating all factors in their totality, we determined that the fair value of our wireless segment, which consists of a single reporting unit, was in excess of the carrying amount. 

FCC Authorizations

As of December 31, 2019 and 2018, our FCC Authorizations consisted of the following:

	As of December 31,
	2019		2018
	(In thousands)
DBS Licenses (1)	$	677,409	$	611,794
700 MHz Licenses		711,871		711,871
MVDDS Licenses		24,000		24,000
AWS-4 Licenses		1,940,000		1,949,000
H Block Licenses		1,671,506		1,671,506
AWS-3 Licenses		9,890,389		9,890,389
600 MHz Licenses		6,211,154		6,211,154
28 GHz Licenses		2,883		—
24 GHz Licenses		11,772		—
Capitalized Interest (2)		4,638,519		3,667,247
Total	$	25,779,503	$	24,736,961

(1) See Note 1 for further information on the Master Transaction Agreement pursuant to which certain FCC authorizations were transferred to us.

(2) See Note 2 for further information.