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



ý	~~QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934~~

FOR THE QUARTERLY PERIOD ENDED MARCH 31, ~~2019.~~2020.



o	~~TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934~~

☐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: 333-179121

Hughes Satellite Systems Corporation

(Exact name of registrant as specified in its charter)



Colorado				45-0897865
(State or other jurisdiction of incorporation or organization)				(I.R.S. Employer Identification No.)



100 Inverness Terrace East,	Englewood,	Colorado	80112-5308
(Address of principal executive offices)			(Zip Code)

(303)	706-4000		Not Applicable
(Registrant’s telephone number, including area code)			(Former name, former address and former fiscal year, if changed since last report)

~~(303) 706-4000~~

~~(Registrant’s telephone number, including area code)~~

~~Not Applicable~~

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

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☐ oNo Noý☒

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~~ Yesý No☒ No o☐

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. (Check one):



Large accelerated filero	☐	Accelerated filer o	☐	Emerging growth company	☐
Non-accelerated filerý	☒	Smaller reporting companyo
☐		~~Emerging growth company~~ o

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. o☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o☐ No ý☒

As of April 30, ~~2019,~~2020, the registrant’s outstanding common stock consisted of 1,078 shares of common stock, $0.01 par value per share.

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.

* The registrant currently is not subject to the filing requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934 and is filing this Quarterly Report on Form 10-Q on a voluntary basis. The registrant 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 as if it were subject to such filing requirements during the entirety of such period.

TABLE OF CONTENTS



Disclosure Regarding Forward-Looking Statements		i

PART I - FINANCIAL INFORMATION

Item 1.	Financial Statements	1
	Condensed Consolidated Balance Sheets as of March 31, ~~2019~~2020 (unaudited) and December 31, ~~2018~~2019 (audited)	1
	Condensed Consolidated Statements of Operations ~~and Comprehensive Income (Loss)~~ for the three months ended March 31, ~~2019~~2020 and ~~2018~~2019 (unaudited)	2
	Condensed Consolidated Statements of Comprehensive Income (Loss) for the three months ended March 31, 2020 and 2019 (unaudited)	3
	Condensed Consolidated Statements of Changes in ~~Shareholders’~~Shareholder’s Equity for the three months ended March 31, ~~2019~~2020 and ~~2018~~2019 (unaudited)	34
	Condensed Consolidated Statements of Cash Flows for the three months ended March 31, ~~2019~~2020 and ~~2018~~2019 (unaudited)	45
	Notes to Condensed Consolidated Financial Statements (unaudited)	56
Item 2.	Management’s Narrative Analysis of Results of Operations	4247
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	*
Item 4.	Controls and Procedures	5358

PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	5459
Item 1A.	Risk Factors	5459
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	*
Item 3.	Defaults Upon Senior Securities	*
Item 4.	Mine Safety Disclosures	5460
Item 5.	Other Information	5461
Item 6.	Exhibits	5461
	Signatures	5562

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


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

DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (“Form 10-Q”) contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including but not limited to statements about our estimates, expectations, plans, objectives, strategies, ~~and~~ financial condition, expected impact of regulatory developments and legal proceedings, opportunities in our industries and businesses and other trends and projections for the next fiscal quarter and beyond. All statements, other than statements of historical facts, may be forward-looking statements. Forward-looking statements may also be identified by words such as “anticipate,” “intend,” “plan,” “goal,” “seek,” “believe,” “estimate,” “expect,” “predict,” “continue,” “future,” “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 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 potential known and unknown risks, uncertainties and other factors, many of which may be beyond our control and may pose a risk to our operating and financial condition. 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:

significant risks related to the construction and operation of our satellites, such as the risk of not being able to timely complete the construction of or material malfunction on one or more of our satellites, ~~risks resulting from potentially missing our regulatory milestones,~~ changes in the space weather environment that could interfere with the operation of our satellites and our general lack of commercial insurance coverage on our satellites;

our ~~reliance on DISH Network Corporation~~ability and ~~its subsidiaries for~~the ability of third parties with whom we engage in order to operate our business, including customers, suppliers, vendors, financing sources, governmental entities and others, to successfully or fully operate as a ~~significant portion~~result of ~~our revenue;~~

~~our ability to realize~~outbreaks of viruses or widespread illness, including existing, continuing and future impacts and consequences of the ~~anticipated benefits of our current satellites and any future satellite we may construct or acquire;~~COVID-19 pandemic caused by the novel coronavirus;

our ability to implement and/or realize benefits of our domestic and/or international investments, commercial alliances, partnerships, joint ventures, acquisitions, dispositions and other strategic initiatives and transactions;

lawsuits relating to the BSS Transaction or AGR matter (each as defined herein), which could result in substantial costs and, for the AGR matter, material adverse effects on our business, results of operation, financial condition and prospects in India;

our ability to realize the anticipated benefits of our current satellites and any future satellite we may construct or acquire;

risks related to our foreign operations and other uncertainties associated with doing business internationally, including changes in foreign exchange rates between foreign currencies and the United States (“U.S.”) dollar, economic instability, political disturbances and ~~political disturbances;~~the consequences of being subject to foreign regulation and foreign legal proceedings, including increased operations costs and potential fines and penalties for violations, which may be substantial;

the failure of third-party providers of components, manufacturing, installation services and customer support services to appropriately deliver the contracted goods or services; and

our ability to bring advanced technologies to market to keep pace with our customers and competitors.

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 II, Item 1A of this Form 10-Q and in Part I, Item 1A of our most recent Annual Report on Form 10-K (“Form 10-K”) filed with the Securities and Exchange Commission (“SEC”~~) as amended by Amendment No. 1 to Form 10-K on Form 10-K/A filed with the SEC (collectively referred to as our “Form 10-K”~~), those discussed in Management’s Narrative Analysis of Results of Operations in Part I, Item 2 of this Form 10-Q and in Part II, Item 7 of our Form 10-K and those discussed in other documents we file with the SEC.

All cautionary statements made herein should be read as being applicable to all forward-looking statements wherever they appear. Investors should consider the risks and uncertainties described herein and should not place undue reliance on any forward-looking statements. We do not undertake, and specifically disclaim, any obligation to publicly release the results of any revisions that may be made to any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

Although we believe that the expectations reflected in any forward-looking statements are reasonable, we cannot guarantee future results, events, levels of activity, performance or achievements. We do not assume responsibility for

Table of Contents

the accuracy and completeness of any forward-looking statements. We assume no responsibility for updating forward-looking information contained or incorporated by reference herein or in any documents we file with the SEC, except as required by law.

Should one or more of the risks or uncertainties described herein or in any documents we file with the SEC occur, or should underlying assumptions prove incorrect, our actual results and plans could differ materially from those expressed in any forward-looking statements.

iii

Table of Contents

PART I — FINANCIAL INFORMATION

~~Item~~ITEM 1.FINANCIAL STATEMENTS

HUGHES SATELLITE SYSTEMS CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(InAmounts in thousands, except share and per share amounts)

(Unaudited)

As of
March 31, 2019 December 31, 2018
Assets (Unaudited) (Audited)
Current assets:
Cash and cash equivalents $ 1,138,711
$ 847,823
Marketable investment securities, at fair value 1,382,029
1,609,196
Trade accounts receivable and contract assets, net (Note 3) 216,557
201,096
Trade accounts receivable - DISH Network 18,598
13,550
Inventory 76,114
75,379
Prepaids and deposits 55,221
48,681
Advances to affiliates, net 80,911
103,550
Other current assets 19,051
18,539
Total current assets 2,987,192
2,917,814
Noncurrent assets:
Property and equipment, net 2,516,137
2,582,181
Operating lease right-of-use assets 112,974
—
Regulatory authorizations 465,658
465,658
Goodwill 504,173
504,173
Other intangible assets, net 40,294
43,952
Investments in unconsolidated entities 125,384
126,369
Advances to affiliates 19,957
—
Other noncurrent assets, net 247,967
253,025
Total noncurrent assets 4,032,544
3,975,358
Total assets $ 7,019,736
$ 6,893,172
Liabilities and Shareholders’ Equity
Current liabilities:
Trade accounts payable $ 112,820
$ 104,751
Trade accounts payable - DISH Network 1,698
752
Current portion of long-term debt and finance lease obligations 953,636
959,577
Advances from affiliates, net 782
868
Contract liabilities 90,180
72,249
Accrued interest 54,664
46,703
Accrued compensation 26,114
42,796
Accrued taxes 8,228
7,609
Accrued expenses and other 68,933
68,854
Total current liabilities 1,317,055
1,304,159
Noncurrent liabilities:
Long-term debt and finance lease obligations, net 2,563,429
2,573,204
Deferred tax liabilities, net 501,539
488,736
Operating lease liabilities 95,073
—
Advances from affiliates, net 33,283
33,438
Other noncurrent liabilities 98,870
101,140
Total noncurrent liabilities 3,292,194
3,196,518
Total liabilities 4,609,249
4,500,677
Commitments and contingencies (Note 13)

Shareholders’ equity:
Preferred stock, $0.001 par value, 1,000,000 shares authorized, none issued and outstanding at each of March 31, 2019 and December 31, 2018 —
—
Common stock, $0.01 par value; 1,000,000 shares authorized, 1,078 shares issued and outstanding at each of March 31, 2019 and December 31, 2018 —
—
Additional paid-in capital 1,765,481
1,767,037
Accumulated other comprehensive loss (82,611 ) (83,774 )
Accumulated earnings 716,183
693,957
Total HSS shareholders’ equity 2,399,053
2,377,220
Noncontrolling interests 11,434
15,275
Total shareholders’ equity 2,410,487
2,392,495
Total liabilities and shareholders’ equity $ 7,019,736
$ 6,893,172



	As of
	March 31, 2020			December 31, 2019
Assets
Current assets:
Cash and cash equivalents	$	1,228,361		$	1,139,435
Marketable investment securities	524,941			652,835
Trade accounts receivable and contract assets, net	187,812			196,520
Other current assets, net	315,371			301,652
Total current assets	2,256,485			2,290,442
Non-current assets:
Property and equipment, net	1,750,561			1,857,581
Operating lease right-of-use assets	119,711			113,399
Goodwill	509,315			506,953
Regulatory authorizations, net	411,243			412,363
Other intangible assets, net	25,663			29,321
Other investments, net	108,952			110,040
Other non-current assets, net	256,775			251,936
Total non-current assets	3,182,220			3,281,593
Total assets	$	5,438,705		$	5,572,035
Liabilities and Shareholder's Equity
Current liabilities:
Trade accounts payable	$	106,339		$	121,552
Contract liabilities	99,266			101,060
Accrued expenses and other current liabilities	231,890			258,417
Total current liabilities	437,495			481,029
Non-current liabilities:
Long-term debt	2,390,218			2,389,168
Deferred tax liabilities, net	381,221			380,316
Operating lease liabilities	105,457			96,879
Other non-current liabilities	88,596			90,480
Total non-current liabilities	2,965,492			2,956,843
Total liabilities	3,402,987			3,437,872
Commitments and contingencies
Shareholder's equity:
Preferred stock, $0.001 par value, 1,000,000 shares authorized, none issued and outstanding at both March 31, 2020 and December 31, 2019	—			—
Common stock, $0.01 par value, 1,000,000 shares authorized, 1,078 shares issued and outstanding at both March 31, 2020 and December 31, 2019	—			—
Additional paid-in capital	1,483,747			1,478,636
Accumulated other comprehensive income (loss)	(154,033		)	(84,636		)
Accumulated earnings (losses)	647,775			664,415
Total Hughes Satellite Systems Corporation shareholder's equity	1,977,489			2,058,415
Non-controlling interests	58,229			75,748
Total shareholder's equity	2,035,718			2,134,163
Total liabilities and shareholder's equity	$	5,438,705		$	5,572,035

The accompanying notes are an integral part of these ~~condensed consolidated financial statements.~~Condensed Consolidated Financial Statements.

HUGHES SATELLITE SYSTEMS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

~~AND COMPREHENSIVE INCOME (LOSS)~~

(InAmounts in thousands)

(Unaudited)

For the three months ended March 31,
2019 2018
Revenue:

Services and other revenue - DISH Network $ 82,371
$ 100,614
Services and other revenue - other 398,340
359,334
Equipment revenue 51,714
42,947
Total revenue 532,425
502,895

Costs and expenses:

Cost of sales - services and other (exclusive of depreciation and amortization) 152,303
147,655
Cost of sales - equipment (exclusive of depreciation and amortization) 45,007
39,071
Selling, general and administrative expenses 102,358
94,650
Research and development expenses 6,888
7,137
Depreciation and amortization 143,530
133,718
Total costs and expenses 450,086
422,231
Operating income 82,339
80,664

Other income (expense):

Interest income 17,997
11,379
Interest expense, net of amounts capitalized (64,413 ) (64,413 )
Gains (losses) on investments, net (346 ) (392 )
Equity in earnings (losses) of unconsolidated affiliates, net (1,072 ) 1,492
Other, net 45
(613 )
Total other expense, net (47,789 ) (52,547 )
Income before income taxes 34,550
28,117
Income tax provision (11,518 ) (7,736 )
Net income 23,032
20,381
Less: Net income attributable to noncontrolling interests 806
380
Net income attributable to HSS $ 22,226
$ 20,001

Comprehensive income:

Net income $ 23,032
$ 20,381
Other comprehensive income, net of tax:

Foreign currency translation adjustments (838 ) 1,900
Unrealized gains (losses) on available-for-sale securities and other 2,386
(411 )
Amounts reclassified to net income:
Realized gains on available-for-sale securities (385 )
—
Total other comprehensive income, net of tax 1,163
1,489
Comprehensive income 24,195
21,870
Less: Comprehensive income attributable to noncontrolling interests 806
166
Comprehensive income attributable to HSS $ 23,389
$ 21,704



	For the three months ended March 31,
	2020			2019
Revenue:
Services and other revenue	$	410,238		$	403,485
Equipment revenue	57,309			51,714
Total revenue	467,547			455,199
Costs and expenses:
Cost of sales - services and other (exclusive of depreciation and amortization)	143,885			142,086
Cost of sales - equipment (exclusive of depreciation and amortization)	45,908			45,007
Selling, general and administrative expenses	115,860			102,337
Research and development expenses	6,254			6,888
Depreciation and amortization	125,965			112,411
Total costs and expenses	437,872			408,729
Operating income (loss)	29,675			46,470
Other income (expense):
Interest income, net	8,892			17,997
Interest expense, net of amounts capitalized	(42,192		)	(57,915		)
Gains (losses) on investments, net	(164		)	(346		)
Equity in earnings (losses) of unconsolidated affiliates, net	(1,087		)	(1,072		)
Foreign currency transaction gains (losses), net	(7,528		)	211
Other, net	(278		)	(165		)
Total other income (expense), net	(42,357		)	(41,290		)
Income (loss) from continuing operations before income taxes	(12,682		)	5,180
Income tax benefit (provision), net	(5,231		)	(4,872		)
Net income (loss) from continuing operations	(17,913		)	308
Net income (loss) from discontinued operations	—			22,724
Net income (loss)	(17,913		)	23,032
Less: Net loss (income) attributable to non-controlling interests	3,442			(806		)
Net income (loss) attributable to Hughes Satellite Systems Corporation	$	(14,471	)	$	22,226

The accompanying notes are an integral part of these ~~condensed consolidated financial statements.~~Condensed Consolidated Financial Statements.

HUGHES SATELLITE SYSTEMS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF ~~CHANGES IN SHAREHOLDERS’ EQUITY~~

~~FOR THE THREE MONTHS ENDED MARCH 31, 2019 AND 2018~~COMPREHENSIVE INCOME (LOSS)

(InAmounts in thousands)

(Unaudited)

Additional
Paid-In
Capital Accumulated
Other
Comprehensive
Loss Accumulated
Earnings Noncontrolling
Interests Total
Balance, December 31, 2017 $ 1,754,561
$ (52,822 ) $ 582,683
$ 14,822
$ 2,299,244
Cumulative effect of accounting changes as of January 1, 2018 —
433
17,775
—
18,208
Balance, January 1, 2018 1,754,561
(52,389 ) 600,458
14,822
2,317,452
Stock-based compensation 1,299
—
—
—
1,299
Capital contributions from EchoStar Corporation 7,125
—
—
—
7,125
Other comprehensive income (loss) —
1,803
—
(214 ) 1,589
Net income —
—
20,001
380
20,381
Other (58 ) (100 ) —
—
(158 )
Balance, March 31, 2018 $ 1,762,927
$ (50,686 ) $ 620,459
$ 14,988
$ 2,347,688

Balance, December 31, 2018 $ 1,767,037
$ (83,774 ) $ 693,957
$ 15,275
$ 2,392,495
Stock-based compensation 1,433
—
—
—
1,433
Noncontrolling interest repurchase (2,666 ) —
—
(4,647 ) (7,313 )
Other comprehensive income —
1,163
—
—
1,163
Net income —
—
22,226
806
23,032
Other (323 ) —
—
—
(323 )
Balance, March 31, 2019 $ 1,765,481
$ (82,611 ) $ 716,183
$ 11,434
$ 2,410,487



	For the three months ended March 31,
	2020			2019
Net income (loss)	$	(17,913	)	$	23,032
Other comprehensive income (loss), net of tax:
Foreign currency translation	(82,836		)	(838		)
Unrealized gains (losses) on available-for-sale debt securities	(2,479		)	2,353
Other	(405		)	33
Amounts reclassified to net income (loss):
Realized losses (gains) on available-for-sale debt securities	—			(385		)
Total other comprehensive income (loss), net of tax	(85,720		)	1,163
Comprehensive income (loss)	(103,633		)	24,195
Less: Comprehensive loss (income) attributable to non-controlling interests	19,765			(806		)
Comprehensive income (loss) attributable to Hughes Satellite Systems Corporation	$	(83,868	)	$	23,389

The accompanying notes are an integral part of these ~~condensed consolidated financial statements.~~Condensed Consolidated Financial Statements.

HUGHES SATELLITE SYSTEMS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF ~~CASH FLOWS~~CHANGES IN SHAREHOLDER’S EQUITY

FOR THE THREE MONTHS ENDED MARCH 31, 2020 AND 2019

(InAmounts in thousands)

(Unaudited)

For the three months ended March 31,
2019 2018
Cash flows from operating activities:
Net income $ 23,032
$ 20,381
Adjustments to reconcile net income to net cash flows from operating activities:
Depreciation and amortization 143,530
133,718
Equity in (earnings) losses of unconsolidated affiliates, net 1,072
(1,492 )
Amortization of debt issuance costs 2,010
1,936
(Gains) losses on investments, net 346
395
Stock-based compensation 1,433
1,299
Deferred tax provision 9,936
6,813
Changes in current assets and current liabilities, net:
Trade accounts receivable, net (19,228 ) 23,148
Advances to and from affiliates, net 1,811
4,921
Trade accounts receivable - DISH Network (5,048 ) (14,957 )
Inventory (1,036 ) (2,297 )
Other current assets (6,825 ) (11,063 )
Trade accounts payable 8,122
(1,460 )
Trade accounts payable - DISH Network 946
(943 )
Accrued expenses and other 3,535
(7,600 )
Changes in noncurrent assets and noncurrent liabilities, net 6,170
(13,348 )
Other, net 1,159
2,952
Net cash flows from operating activities 170,965
142,403
Cash flows from investing activities:
Purchases of marketable investment securities (240,188 ) (358,543 )
Sales and maturities of marketable investment securities 468,745
197,686
Expenditures for property and equipment (73,929 ) (87,777 )
Refunds and other receipts related to property and equipment —
77,524
Expenditures for externally marketed software (7,600 ) (7,148 )
Payment for satellite launch services —
(7,125 )
Net cash flows from investing activities 147,028
(185,383 )
Cash flows from financing activities:
Repurchase of debt (8,046 ) —
Repayment of debt and finance lease obligations (9,882 ) (9,368 )
Noncontrolling interest purchase (7,312 ) —
Capital contribution from EchoStar Corporation —
7,125
Repayment of in-orbit incentive obligations (1,573 ) (1,265 )
Net cash flows from financing activities (26,813 ) (3,508 )
Effect of exchange rates on cash and cash equivalents (117 ) (249 )
Net increase (decrease) in cash and cash equivalents, including restricted amounts 291,063
(46,737 )
Cash and cash equivalents, including restricted amounts, beginning of period 848,619
1,823,354
Cash and cash equivalents, including restricted amounts, end of period $ 1,139,682
$ 1,776,617

Supplemental disclosure of cash flow information:
Cash paid for interest, net of amounts capitalized $ 54,277
$ 52,623
Cash paid for income taxes $ 652
$ 839



	Additional Paid-In Capital			Accumulated Other Comprehensive Income (Loss)			Accumulated Earnings (Losses)			Non-controlling Interests			Total
Balance, December 31, 2018	$	1,767,037		$	(83,774	)	$	693,957		$	15,275		$	2,392,495
Stock-based compensation	1,433			—			—			—			1,433
Purchase of non-controlling interest	(2,666		)	—			—			(4,647		)	(7,313		)
Other comprehensive income (loss)	—			1,163			—			—			1,163
Net income (loss)	—			—			22,226			806			23,032
Other, net	(323		)	—			—			—			(323		)
Balance, March 31, 2019	$	1,765,481		$	(82,611	)	$	716,183		$	11,434		$	2,410,487

Balance, December 31, 2019	$	1,478,636		$	(84,636	)	$	664,415		$	75,748		$	2,134,163
Cumulative effect of accounting changes	—			—			(2,169		)	(240		)	(2,409		)
Balance, January 1, 2020	1,478,636			(84,636		)	662,246			75,508			2,131,754
Stock-based compensation	1,457			—			—			—			1,457
Issuance of equity and contribution of assets pursuant to the Yahsat JV formation	4,338			—			—			(1,514		)	2,824
Contribution by non-controlling interest holder	—			—			—			4,000			4,000
Other comprehensive income (loss)	—			(69,397		)	—			(16,323		)	(85,720		)
Net income (loss)	—			—			(14,471		)	(3,442		)	(17,913		)
Other, net	(684		)	—			—			—			(684		)
Balance, March 31, 2020	$	1,483,747		$	(154,033	)	$	647,775		$	58,229		$	2,035,718

The accompanying notes are an integral part of these ~~condensed consolidated financial statements.~~Condensed Consolidated Financial Statements.

HUGHES SATELLITE SYSTEMS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

(Unaudited)



	For the three months ended March 31,
	2020			2019
Cash flows from operating activities:
Net income (loss)	$	(17,913	)	$	23,032
Adjustments to reconcile net income (loss) to net cash flows from operating activities:
Depreciation and amortization	125,965			143,530
Losses (gains) on investments, net	164			346
Equity in losses (earnings) of unconsolidated affiliates, net	1,087			1,072
Foreign currency transaction losses (gains), net	7,528			(211		)
Deferred tax provision (benefit), net	1,526			9,936
Stock-based compensation	1,457			1,433
Amortization of debt issuance costs	1,050			2,010
Other, net	(810		)	1,370
Changes in assets and liabilities, net:
Trade accounts receivable and contract assets, net	(8,162		)	(19,228		)
Other current assets, net	(21,268		)	(11,098		)
Trade accounts payable	(10,984		)	8,122
Contract liabilities	(3,213		)	17,931
Accrued expenses and other current liabilities	(5,007		)	(13,450		)
Non-current assets and non-current liabilities, net	(6,196		)	6,170
Net cash flows from operating activities	65,224			170,965

Cash flows from investing activities:
Purchases of marketable investment securities	(365,877		)	(240,188		)
Sales and maturities of marketable investment securities	490,020			468,745
Expenditures for property and equipment	(91,517		)	(73,929		)
Expenditures for externally marketed software	(8,638		)	(7,600		)
Net cash flows from investing activities	23,988			147,028

Cash flows from financing activities:
Repurchase of the 2019 Senior Secured Notes	—			(8,046		)
Payment of finance lease obligations	(215		)	(9,882		)
Payment of in-orbit incentive obligations	(203		)	(1,573		)
Contribution by non-controlling interest holder	4,000			—
Purchase of non-controlling interest	—			(7,312		)
Other, net	979			—
Net cash flows from financing activities	4,561			(26,813		)

Effect of exchange rates on cash and cash equivalents	(4,618		)	(117		)
Net increase (decrease) in cash and cash equivalents	89,155			291,063
Cash and cash equivalents, including restricted amounts, beginning of period	1,140,322			848,619
Cash and cash equivalents, including restricted amounts, end of period	$	1,229,477		$	1,139,682

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

HUGHES SATELLITE SYSTEMS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1. ORGANIZATION AND BUSINESS ACTIVITIES

Principal Business

Hughes Satellite Systems Corporation (which, together with its subsidiaries, is referred to as ~~“HSS,~~“HSSC,” the “Company,” “we,” “us” ~~and/or~~and “our”) is a holding company and a subsidiary of EchoStar Corporation (“EchoStar”). We are a global provider of broadband satellite technologies, broadband internet services for consumer customers, which include home and small ~~office customers, satellite operations~~to medium-sized businesses, and satellite services. We also deliver innovative network technologies, managed services and ~~various~~ communications solutions for enterprise customers, which include aeronautical ~~enterprise~~ and government ~~customers.~~

enterprises. We ~~primarily~~ operate in the following ~~two~~2 business segments:

•

Hughes — which provides broadband satellite technologies and broadband internet services to domestic and international ~~home and small office~~consumer customers and broadband network technologies, managed services, equipment, hardware, satellite services and communication solutions to ~~domestic~~service providers and ~~international consumers and aeronautical,~~ enterprise ~~and government~~ customers. The Hughes segment also designs, provides and installs gateway and terminal equipment to customers for other satellite systems. In addition, our Hughes segment designs, develops, constructs and provides telecommunication networks comprising satellite ground segment systems and terminals to mobile system operators and our enterprise customers.

•

~~EchoStar Satellite Services (“ESS”)~~ESS — which uses certain of our owned and leased in-orbit satellites and related licenses to provide satellite ~~operations and satellite~~ services on a full-time and/or occasional-use basis ~~primarily~~ to ~~DISH~~ ~~Network Corporation and its subsidiaries (“DISH Network”), Dish Mexico, S. de R.L. de C.V., a joint venture EchoStar entered into in 2008 (“Dish Mexico”), United States (“~~U.S.”) government service providers, internet service providers, broadcast news organizations, content providers and private enterprise customers.

Our operations also include various corporate departments (primarily Executive, Treasury, Strategic Development, Human Resources, IT, Finance, Accounting, Real Estate ~~Accounting~~ and Legal) and other activities that have not been assigned to our ~~operating~~business segments such as costs incurred in certain satellite development programs and other business development activities, and gains or losses from certain of our investments. These activities, costs and income, as well as eliminations of intersegment transactions, are accounted for in Corporate and Other in. We also divide our ~~segment reporting.~~operations by primary geographic market as follows: (i) North America (the U.S. and its territories, Mexico, and Canada); (ii) South and Central America and; (iii) All other (Asia, Africa, Australia, Europe, India, and the Middle East). Refer to Note 13. Segment Reporting for further detail.

~~During 2017, EchoStar and certain of its and our subsidiaries entered into~~In September 2019, pursuant to a ~~share exchange~~master transaction agreement (the ~~“Share Exchange~~“Master Transaction Agreement”) with DISH Network Corporation (“DISH”) and ~~certain~~a wholly-owned subsidiary of ~~its subsidiaries.~~DISH (“Merger Sub”), (i) EchoStar and ~~certain of~~ its subsidiaries and we and our subsidiaries ~~received all~~transferred certain real property and the various businesses, products, licenses, technology, revenues, billings, operating activities, assets and liabilities primarily related to the former portion of our ESS segment that managed, marketed and provided (1) broadcast satellite services primarily to DISH and its subsidiaries (together with DISH, “DISH Network”) and EchoStar’s joint venture Dish Mexico, S. de R.L. de C.V. (“Dish Mexico”) and its subsidiaries, and (2) telemetry, tracking and control (“TT&C”) services for satellites owned by DISH Network and a portion of EchoStar’s and our other businesses (collectively, the “BSS Business”) to one of our former subsidiaries, EchoStar BSS Corporation (“BSS Corp.”), (ii) EchoStar distributed to each holder of shares of EchoStar’s Class A or Class B common stock entitled to receive consideration in the ~~Hughes Retail Preferred Tracking~~transaction an amount of shares of common stock of BSS Corp., par value $0.001 per share (“BSS Common Stock”), equal to one share of BSS Common Stock ~~previously~~for each share of EchoStar’s Class A or Class B common stock owned by such EchoStar stockholder (the “Distribution”); and (iii) immediately after the Distribution, (1) Merger Sub merged with and into BSS Corp. (the “Merger”), such that BSS Corp. became a wholly-owned subsidiary of DISH and with DISH then owning and operating the BSS Business, and (2) each issued and outstanding share of BSS Common Stock owned by EchoStar ~~and us (together,~~stockholders was converted into the ~~“Tracking~~right to receive 0.23523769 shares of DISH Class A common stock, par value $0.001 per share (“DISH Common Stock”) ~~in exchange for 100% of~~((i) - (iii) collectively, the equity interests of certain of EchoStar subsidiaries that held substantially all of EchoStar’s former EchoStar Technologies businesses and certain other assets (collectively, the “Share Exchange”“BSS Transaction”).

Following the consummation of the ~~Share Exchange, EchoStar~~BSS Transaction, we no longer operate ~~its former EchoStar Technologies businesses,~~ the ~~Tracking Stock~~BSS Business, which was ~~retired~~a substantial portion of our ESS segment. As a result of the BSS Transaction, the financial results of the BSS Business, except for certain real estate that transferred in the transaction, are presented as discontinued operations and, ~~is no longer outstanding,~~as such, excluded from continuing operations and ~~all agreements, arrangements~~segment results for the three months ended March 31, 2019, as presented in these

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

unaudited Condensed Consolidated Financial Statements and ~~policy statements with respect~~the accompanying notes (collectively, the “Condensed Consolidated Financial Statements”).

All amounts in the following footnotes reference results from continuing operations unless otherwise noted. Refer to ~~the Tracking Stock terminated~~ Note 4. Discontinued Operations for further detail.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

~~The accompanying unaudited condensed consolidated financial statements have been~~These Condensed Consolidated Financial Statements are prepared in conformity with ~~accounting principles~~U.S. generally accepted ~~in the U.S.~~accounting principles (“U.S. GAAP”) and ~~with~~ the instructions to Form 10-Q and Article 10 of Regulation S-X for interim financial information. Accordingly, ~~these financial statements~~they do not include all of the information and notes required for complete financial statements prepared in conformity with U.S. GAAP. In our opinion, all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation have been

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~~HUGHES SATELLITE SYSTEMS CORPORATION~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued~~

~~(Unaudited)~~

included. However, 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~~

All amounts presented in these Condensed Consolidated Financial Statements are expressed in thousands of U.S. dollars, except share and per share amounts and unless otherwise noted.

Refer to Note 2. Summary of Significant Accounting Policies to the consolidated financial statements ~~and notes thereto included~~ in our Form 10-K for a summary and discussion of our significant accounting policies, except as updated below.

Use of Estimates

We are required to make certain estimates and assumptions that affect the ~~year ended December 31, 2018.~~amounts reported in these Condensed Consolidated Financial Statements. The most significant estimates and assumptions are used in determining: (i) inputs used to recognize revenue over time, including amortization periods for deferred contract acquisition costs; (ii) allowances for doubtful accounts; (iii) deferred taxes and related valuation allowances, including uncertain tax positions; (iv) loss contingencies; (v) fair value of financial instruments; (vi) fair value of assets and liabilities acquired in business combinations; and (vii) asset impairment testing.

We base our estimates and assumptions on historical experience, observable market inputs and on various other factors that we believe to be relevant under the circumstances. Due to the inherent uncertainty involved in making estimates, actual results may differ from previously estimated amounts and such differences may be material to our consolidated financial statements. Additionally, changing economic and other conditions may increase the inherent uncertainty in the estimates and assumptions indicated above. We review our estimates and assumptions periodically and the effects of revisions thereto are reflected in the period they occur or prospectively if the revised estimates or assumptions affect future periods.

Principles of Consolidation

We consolidate all entities in which we have a controlling financial interest. We are deemed to have a controlling financial interest in variable interest entities ~~where~~in which we are the primary ~~beneficiary. We are deemed to have a controlling financial interest~~beneficiary and in other entities ~~when~~in which we own more than 50% of the outstanding voting shares and other shareholders do not have substantive rights to participate in management. For entities we control but do not wholly own, we record a ~~noncontrolling~~non-controlling interest within ~~shareholders’~~shareholder’s equity for the portion of the entity’s equity attributed to the ~~noncontrolling~~non-controlling ownership interests. All significant intercompany balances and transactions have been eliminated in consolidation.

Reclassification

Certain prior period amounts have been reclassified to conform with the current period presentation.

~~Recently Adopted Accounting Pronouncements~~

~~Leases~~

~~We adopted ASU No. 2016-02-Leases (Topic 842)~~, as amended, or ASC 842, as of January 1, 2019. The primary impact of ASC 842 on our consolidated financial statements is the recognition of right-of-use assets and related liabilities on our consolidated balance sheet for operating leases where we are the lessee. We have elected to initially apply the requirements of the new standard on January 1, 2019 and we have not restated our consolidated financial statements for prior periods. Consequently, certain amounts reported in our Condensed Consolidated Balance Sheet as of March 31, 2019 are not comparable to those reported as of December 31, 2018 or earlier dates. Our adoption of ASC 842 did not have a material impact on the results of our operations or on our cash flows for the three months ended March 31, 2019.

Under ASC 842, leases are classified either as operating leases or finance leases. The lease classification affects the recognition of lease expense by lessees in the statement of operations. Consistent with prior accounting standards, operating lease expense is included in operating expenses, while finance lease expense is split between depreciation expense and interest expense. ASC 842 does not fundamentally change the lessor accounting model, which requires leases to be classified as operating leases or sales-type leases. Operating lease revenue generally is recognized over the lease term, while sales-type lease revenue is recognized primarily upon lease commencement, except for amounts representing interest on related accounts receivable.

Except for the new requirement to recognize assets and liabilities on the balance sheet for operating leases where we are the lessee, under our ASC 842 transition method we continue to apply prior accounting standards to leases that commenced prior to 2019. We fully apply ASC 842 requirements only to leases that commenced or were modified on or after January 1, 2019. We elected certain practical expedients under our transition method, including elections to not reassess (i) whether a contract is or contains a lease and (ii) the classification of existing leases. We also elected not to apply hindsight in determining whether optional renewal periods should be included in the lease term, which in some instances may impact the initial measurement of the lease liability and the calculation of straight-line expense over the lease term for operating leases. As a result of our transition elections, there was no change in our recognition of revenue and expense for leases that commenced prior to 2019. In addition, the application of ASC 842 requirements to new and modified leases did not materially affect our recognition of revenue or expenses for the three months ended March 31, 2019.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - ~~Continued~~CONTINUED

(Unaudited)

~~Our adoption of ASC 842 resulted in the following adjustments to our Condensed Consolidated Balance Sheet as of December 31, 2018.~~

As Reported December 31,2018 Adoption of ASC 842 Increase (Decrease) Balance January 1, 2019
(in thousands)
Prepaids and deposits $ 48,681
$ (28 ) $ 48,653
Operating lease right-of-use assets $ —
$ 117,006
$ 117,006
Other noncurrent assets, net $ 253,025
$ (7,272 ) $ 245,753
Total assets $ 6,893,172
$ 109,706
$ 7,002,878
Accrued expenses and other $ 68,854
$ 14,444
$ 83,298
Operating lease liabilities —
$ 99,133
$ 99,133
Other noncurrent liabilities $ 101,140
$ (3,871 ) $ 97,269
Total liabilities $ 4,500,677
$ 109,706
$ 4,610,383
Total liabilities and shareholders’ equity $ 6,893,172
$ 109,706
$ 7,002,878

~~Our accounting policies under ASC 842 are summarized below. Additional disclosures required by the new standard are included in Note 4.~~

~~Lessee Accounting~~

We lease real estate, satellite capacity and equipment in the conduct of our business operations. For contracts entered into on or after January 1, 2019, we assess at contract inception whether the contract is, or contains a lease. Generally, we determine that a lease exists when (i) the contract involves the use of a distinct identified asset, (ii) we obtain the right to substantially all economic benefits from use of the asset and (iii) we have the right to direct the use of the asset. A lease is classified as a finance lease when one or more of the following criteria are met: (i) the lease transfers ownership of the asset by the end of the lease term, (ii) the lease contains an option to purchase the asset that is reasonably certain to be exercised, (iii) the lease term is for a major part of the remaining useful life of the asset, (iv) the present value of the lease payments equals or exceeds substantially all of the fair value of the asset or (v) the asset is of a specialized nature and there is not expected to an alternative use to the lessor at the end of the lease term. A lease is classified as an operating lease if it does not meet any of these criteria.

At the lease commencement date, we recognize a right-of-use asset and a lease liability for all leases, except short-term leases with an original term of 12 months or less. The right-of-use asset represents the right to use the leased asset for the lease term. The lease liability represents the present value of the lease payments under the lease. The right-of-use asset is initially measured at cost, which primarily comprises the initial amount of the lease liability, plus any prepayments to the lessor and initial direct costs such as brokerage commissions, less any lease incentives received. All right-of-use assets are periodically reviewed for impairment in accordance with standards that apply to long-lived assets. The lease liability is initially measured at the present value of the lease payments, discounted using an estimate of our incremental borrowing rate for a collateralized loan with the same term as the underlying lease. The incremental borrowing rates used for the initial measurement of lease liabilities as of January 1, 2019 were based on the original lease terms.

Lease payments included in the measurement of lease liabilities consist of (i) fixed lease payments for the noncancelable lease term, (ii) fixed lease payments for optional renewal periods where it is reasonably certain the renewal option will be exercised, and (iii) variable lease payments that depend on an underlying index or rate, based on the index or rate in effect at lease commencement. Certain of our real estate lease agreements require payments for non-lease costs such as utilities and common area maintenance. We have elected an accounting policy, as permitted by ASC 842, not to account for such payments separately from the related lease payments. Our policy election results in a higher initial measurement of lease liabilities when such non-lease payments are fixed amounts. Certain of our real estate lease agreements require variable lease payments that do not depend on an underlying index or rate, such as sales

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and value-added taxes and our proportionate share of actual property taxes, insurance and utilities. Such payments and changes in payments based on a rate or index are recognized in operating expenses when incurred.

Lease expense for operating leases consists of the fixed lease payments recognized on a straight-line basis over the lease term plus variable lease payments as incurred. Lease expense for finance leases consists of the amortization of the right-of-use asset on a straight-line basis over the lease term and interest expense on the lease liability based on the discount rate at lease commencement. For both operating and finance leases, lease payments are allocated between a reduction of the lease liability and interest expense. Amortization of the right-of-use asset for operating leases reflects amortization of the lease liability, any differences between straight-line expense and related lease payments during the accounting period, and any impairments.

~~Lessor Accounting~~

We lease satellite capacity, communications equipment and real estate to certain of our customers, including DISH Network. We identify and determine the classification of such leases as operating leases or sales-type leases based on the criteria discussed above for lessees. A lease is classified as a sales-type lease if it meets the above criteria for a finance lease; otherwise it is classified as an operating lease. Some of our leases are embedded in contracts with customers that include non-lease performance obligations. For such contracts, except where we have elected otherwise as discussed below, we allocate consideration in the contract between lease and non-lease components based on their relative standalone selling prices. We have elected an accounting policy, as permitted by ASC 842, to not separate the lease of equipment from related services in our HughesNet broadband internet service contracts with consumers. We account for all revenue from such contracts as non-lease service revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers.

Our accounting for revenue from operating leases and sales-type leases was not substantially changed by our adoption of ASC 842. However, we anticipate that certain leases that would have been classified as operating leases under prior accounting standards may be classified as sales-type leases under ASC 842. Operating lease revenue generally is recognized on a straight-line basis over the lease term. Sales-type lease revenue and a corresponding receivable generally are recognized at lease commencement based on the present value of the future lease payments and related interest income on the receivable is recognized over the lease term. Payments under sales-type leases generally are discounted at the interest rate implicit in the lease.

Recently ~~Issued~~Adopted Accounting Pronouncements ~~Not Yet Adopted~~

Credit Losses

~~In June 2016, the FASB issued~~ ~~ASU~~On January 1, 2020, we adopted Accounting Standards Update (“ASU”) No. 2016-13 ~~Measurement of~~- Financial Instruments - Credit Losses ~~on Financial Instruments~~(Topic 326), ~~which~~as amended, and codified in Accounting Standards Codification Topic 326 (“ASC 326”). ASC 326 introduces a new approach to ~~estimate~~the periodic estimation of credit losses onfor certain ~~types of~~ financial ~~instruments~~assets based on expected losses instead of incurred losses. It also modifies the impairment model for available-for-sale debt securities and provides a simplified accounting model for purchased financial assets ~~with~~that have experienced credit deterioration since their ~~origination.~~original purchase. We have elected to apply the requirements of the new standard prospectively and we recognized a cumulative effect of adoption of $2.2 million to Accumulated earnings (losses) as of January 1, 2020. Based on this election, we did not restate our comparative Condensed Consolidated Financial Statements and they continue to be reported under the accounting standards in effect for the periods before January 1, 2020.

The following describes the accounting impacts, by major balance sheet line item, of our adoption of this new standard based on the relevant types of losses that we and our equity method investees may be subject to:

•

Trade Accounts Receivable and Contract Assets, Net —Our trade accounts receivables and contract assets consist of amounts due from both our consumer and enterprise customers. Our receivables and related credit losses for our consumer customers are limited due to policies that require advance payment for services, predominant use of credit card and ACH payment processes, and our ability to promptly terminate service when timely payments are not received. However, for our enterprise customers, we estimate expected credit losses on a collective basis based on our historical loss experience, as adjusted to reflect changes in relevant factors, such as macroeconomic conditions and customer mix, that can significantly impact collectability.

We apply our collective estimation processes separately to several pools of receivables that share common risk characteristics, generally based on the customers’ geographical location. Customers with significant past-due balances or other atypical characteristics are excluded from our collective analysis and evaluated on a case-by-case basis. Our estimates of expected credit losses for such receivables reflect significant judgments that consider customer-specific matters such as the customer’s financial condition, payment history, and recent developments in the customer’s business and industry. Due to the short-term nature of our trade receivables and contract assets, forecasts about the future have limited relevance to our expected credit loss estimates.

We record our customer related estimated credit losses as a component of our bad debt expense as reported in Selling, general and administrative expenses.

•

Other Current Assets, Net, and Other Non-current Assets, Net —We estimate expected credit losses for receivables with payment terms longer than one year separately by borrower, due to the unique risk characteristics of such receivables. We generally use discounted cash flow techniques to estimate such credit losses. In applying such techniques, we may estimate principal and interest cash flows under probability-weighted scenarios that consider entity-specific matters and forecasted economic conditions. The majority of our other non-current receivables are from entities in the telecommunications industry. The collection of contractual principal and interest on these receivables is highly dependent on the future business operations of those entities. Our estimation of expected credit losses for such receivables requires significant judgment about matters specific to the borrower and their industry. Accordingly, our actual collection experience may differ from the assumptions reflected in our expected credit loss estimates.

We record our estimated credit losses as a component of our bad debt expense as reported in Selling, general and administrative expenses.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

Financial Impact of Adoption. Our adoption of this new standard resulted in the following adjustments to our Condensed Consolidated Balance Sheet:



	Balance at December 31, 2019		Adoption of ASC 326 Increase (Decrease)			Balance at January 1, 2020
Trade accounts receivable and contract assets, net	$	196,520	$	(13,672	)	$	182,848
Other current assets, net	$	301,652	$	6,723		$	308,375
Other non-current assets, net	$	251,936	$	4,050		$	255,986
Total assets	$	5,572,035	$	(2,899	)	$	5,569,136
Deferred tax liabilities, net	$	380,316	$	(490	)	$	379,826
Accumulated earnings (losses)	$	664,415	$	(2,169	)	$	662,246
Non-controlling interests	$	75,748	$	(240	)	$	75,508
Total shareholder's equity	$	2,134,163	$	(2,409	)	$	2,131,754
Total liabilities and shareholder's equity	$	5,572,035	$	(2,899	)	$	5,569,136

The application of ASC 326 requirements did not materially affect our Condensed Consolidated Statements of Operations for the three months ended March 31, 2020.

Recently Issued Accounting Pronouncements Not Yet Adopted

In December 2019, the Financial Accounting Standards Board (“FASB”) issued ASU No. ~~2016-13~~2019-12 - Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”). ASU 2019-12 is part of the FASB’s overall simplification initiative and seeks to simplify the accounting for income taxes by updating certain guidance and removing certain exceptions. The updated guidance is effective for fiscal years beginning after December 15, ~~2019~~2020 and interim periods within those fiscal years. Early adoption is permitted. We are currently assessing the impact of adopting this new ~~accounting standard~~guidance.

In March 2020, the FASB issued ASU No. 2020-04 - Reference Rate Reform (Topic 848), codified as ASC 848 (“ASC 848”). The purpose of ASC 848 is to provide optional guidance to ease the potential effects on financial reporting of the market-wide migration away from Interbank Offered Rates (“IBORs”) to alternative reference rates. ASC 848 applies only to contracts, hedging relationships, and other transactions that reference a reference rate expected to be discontinued because of reference rate reform. The guidance may be applied upon issuance of ASC 848 through December 31, 2022. We are currently assessing the impact of adopting this new guidance, but do not expect it to have a material impact on our ~~Consolidated Financial Statements and related disclosures.~~consolidated financial statements.

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(Unaudited)

NOTE 3. REVENUE RECOGNITION

~~Information About~~ Contract Balances

The following table ~~provides information about~~presents the components of our contract ~~balances with customers, including amounts for certain embedded leases.~~balances:


	As of						As of
	March 31, 2019			December 31, 2018			March 31, 2020			December 31, 2019
	(In thousands)
Trade accounts receivable:
Trade accounts receivable and contract assets, net:
Sales and services	$	164,310		$	154,415		$	147,288		$	152,632
Leasing	7,775			7,990			4,194			4,016
Total	172,085			162,405
Total trade accounts receivable							151,482			156,648
Contract assets	58,500			55,295			46,938			63,649
Allowance for doubtful accounts	(14,028		)	(16,604		)	(10,608		)	(23,777		)
Total trade accounts receivable and contract assets, net	$	216,557		$	201,096		$	187,812		$	196,520

Trade accounts receivable - DISH Network:
Sales and services	$	17,252		$	12,274
Leasing	1,346			1,276
Total trade accounts receivable - DISH Network, net	$	18,598		$	13,550

Contract liabilities:
Current	$	90,180		$	72,249		$	99,266		$	101,060
Noncurrent	10,778			10,133
Non-current							9,426			10,572
Total contract liabilities	$	100,958		$	82,382		$	108,692		$	111,632

~~Nimiq 5 Agreement.~~

•

EchoStar IX — Effective January 2008, DISH Network began leasing satellite capacity from us on the EchoStar IX satellite. Subject to availability, DISH Network generally has the right to continue leasing satellite capacity from us on the EchoStar IX satellite on a month-to-month basis. In September 2009, we entered into a fifteen-year agreement with Telesat Canada to lease satellite capacity from Telesat Canada on all 32 direct broadcast satellite (“DBS”) transponders on the Nimiq 5 satellite at the 72.7 degree west longitude orbital location (the “Telesat Transponder Agreement”). In September 2009, we also entered into an agreement with DISH Network, pursuant to which DISH Network leases satellite capacity from us on all 32 of the DBS transponders covered by the Telesat Transponder Agreement (the “DISH Nimiq 5 Agreement”).

•

103 Degree Orbital Location/SES-3 — In May 2012, we entered into a spectrum development agreement (the “103 Spectrum Development Agreement”) with Ciel Satellite Holdings Inc. (“Ciel”) to develop certain spectrum rights at the 103 degree west longitude orbital location (the “103 Spectrum Rights”). In June 2013, we and DISH Network entered into a spectrum development agreement (the “DISH 103 Spectrum Development Agreement”) pursuant to which DISH Network may use and develop the 103 Spectrum Rights. Effective in March 2018, DISH Network exercised its right to terminate the DISH 103 Spectrum Development Agreement and we exercised our right to terminate the 103 Spectrum Development Agreement.

Under the terms of the DISH Nimiq 5 Agreement, DISH Network makes certain monthly payments to us that commenced in September 2009, when the Nimiq 5 satellite was placed into service, and continue through the service term. Unless earlier terminated under the terms and conditions of the DISH Nimiq 5 Agreement, the service term will expire in October 2019. Upon expiration of the initial term, DISH Network has the option to renew the DISH Nimiq 5 Agreement on a year-to-year basis through the end of life of the Nimiq 5 satellite. Upon in-orbit failure or end of life of the Nimiq 5 satellite, and in certain other circumstances, DISH Network has certain rights to lease satellite capacity from us on a replacement satellite. There can be no assurance that any options to renew the DISH Nimiq 5 Agreement will be exercised or that DISH Network will exercise its option to lease satellite capacity on a replacement satellite.

~~QuetzSat-1 Agreement.~~ In November 2008, we entered into a ten-year agreement to lease satellite capacity from SES Latin America, which provides, among other things, for the provision by SES Latin America to us of leased satellite capacity on 32 DBS transponders on the QuetzSat-1 satellite. Concurrently, in 2008, we entered into an agreement pursuant to which DISH Network leases from us satellite capacity on 24 of the DBS transponders on the QuetzSat-1 satellite. The QuetzSat-1 satellite was launched in September 2011 and was placed into service

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in November 2011 at the 67.1 degree west longitude orbital location. In January 2013, the QuetzSat-1 satellite was moved to the 77 degree west longitude orbital location. In February 2013, EchoStar and DISH Network entered into an agreement pursuant to which EchoStar leases back from DISH Network certain satellite capacity on five DBS transponders on the QuetzSat-1 satellite through November 2021, unless extended or earlier terminated under the terms and conditions of our agreement.

Under the terms of our contractual arrangements with DISH Network, we began leasing satellite capacity to DISH Network on the QuetzSat-1 satellite in February 2013 and will continue leasing such capacity through November 2021, unless extended or earlier terminated under the terms and conditions of our agreement with DISH Network for the QuetzSat-1 satellite. Upon expiration of the initial service term, DISH Network has the option to renew the agreement for the QuetzSat-1 satellite on a year-to-year basis through the end of life of the QuetzSat-1 satellite. Upon an in-orbit failure or end of life of the QuetzSat-1 satellite, and in certain other circumstances, DISH Network has certain rights to lease satellite capacity from us on a replacement satellite. There can be no assurance that any options to renew this agreement will be exercised or that DISH Network will exercise its option to lease satellite capacity on a replacement satellite.

~~103 Degree Orbital Location/SES-3~~. In May 2012, we entered into a spectrum development agreement (the “103 Spectrum Development Agreement”) with Ciel Satellite Holdings Inc. (“Ciel”) to develop certain spectrum rights at the 103 degree west longitude orbital location (the “103 Spectrum Rights”). In June 2013, we and DISH Network entered into a spectrum development agreement (the “DISH 103 Spectrum Development Agreement”) pursuant to which DISH Network may use and develop the 103 Spectrum Rights. Effective in March 2018, DISH Network exercised its right to terminate the DISH 103 Spectrum Development Agreement and we exercised our right to terminate the 103 Spectrum Development Agreement.

In connection with the 103 Spectrum Development Agreement, in May 2012, we also entered into a ten-year agreement with Ciel pursuant to which we leased certain satellite capacity from Ciel on the SES-3 satellite at the 103 degree west longitude orbital location (the “Ciel 103 Agreement”). In June 2013, we and DISH Network entered into an agreement pursuant to which DISH Network leased certain satellite capacity from us on the SES-3 satellite (the “DISH 103 Agreement”). Under the terms of the DISH 103 Agreement, DISH Network made certain monthly payments to us through the service term. Effective in March 2018, DISH Network exercised its right to terminate the DISH 103 Agreement and we exercised our right to terminate the Ciel 103 Agreement.

~~TT&C Agreement.~~ Effective January 2012, we entered into a TT&C agreement pursuant to which we provided TT&C services to DISH Network for a period ending in December 2016 (the “TT&C Agreement”). We and DISH Network have amended the TT&C Agreement over time to, among other things, extend the term through February 2023. The fees for services provided under the TT&C Agreement are calculated at either: (i) a fixed fee or (ii) cost plus a fixed margin, which will vary depending on the nature of the services provided. DISH Network is able to terminate the TT&C Agreement for any reason upon 12 months’ notice.

Effective March 2014, we provide TT&C services for the D-1 and EchoStar XV satellites; however, for the period that we received satellite services on the EchoStar XV satellite from DISH Network, we waived the fees for the TT&C services on the EchoStar XV satellite. Effective August 2016, we provide TT&C services to DISH Network for the EchoStar XVIII satellite.

~~Real Estate Lease.~~ Prior to the Share Exchange, EchoStar leased to DISH Network certain space at 530 EchoStar Drive, Cheyenne, Wyoming. In connection with the Share Exchange, EchoStar transferred ownership of a portion of this property to DISH Network and contributed a portion to us and we amended the agreement to (i) terminate the lease for the transferred space and (ii) provide for a continued lease to DISH Network of the portion of the property contributed to us for a period ending in December 2031. The rent on a per square foot basis for the lease is comparable to per square foot rental rates of similar commercial property in the same geographic area at the time of the lease, and DISH Network is responsible for its portion of the taxes, insurance, utilities and maintenance of the premises. After December 2031, this agreement may be converted by mutual consent to a month-to-month lease agreement with either party having the right to terminate upon 30 days’ notice.

TerreStar Agreement.In March 2012, DISH Network completed its acquisition of substantially all the assets of TerreStar Networks Inc. (“TerreStar”). Prior to DISH Network’s acquisition of substantially all the assets of TerreStar and

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~~and~~ EchoStar’s completion of the ~~acquisition of~~ Hughes ~~Communications, Inc. and its subsidiaries (the ”Hughes Acquisition”),~~Acquisition, TerreStar and HNS entered into various agreements pursuant to which we provide, among other things, warranty, operations and maintenance and hosting services for TerreStar’s ground-based communications ~~equipment.~~equipment (the “TerreStar Agreements”). In December 2017, we and DISH Network amended these agreements, effective as of January 1, 2018, to reduce certain pricing terms through December 31, 2023 and to modify certain termination provisions. DISH Network generally has the right to continue to receive warranty services from us for our products on a month-to-month basis unless terminated by DISH Network upon at least 21 days’ written notice to us. DISH Network generally has the right to continue to receive operations and maintenance services from us on a quarter-to-quarter basis unless operations and maintenance services are terminated by DISH Network upon at least 90 days’ written notice to us. The provision of hosting services will continue until May 2022. In addition, DISH Network generally may terminate any and all services for convenience subject to providing us with prior notice and/or payment of termination charges. In March 2020, we entered into an agreement with DISH Network pursuant to which we perform certain work and provide certain credits to amounts owed to us under the TerreStar Agreements in exchange for DISH Network’s granting us rights to use certain satellite capacity under the Amended and Restated Professional Services Agreement (as defined below).

Hughes Broadband Distribution ~~Agreement~~Agreement. . Effective October 2012, we and DISH Network, entered into a distribution agreement (the “Distribution Agreement”) pursuant to which DISH Network has the right, but not the obligation, to market, sell and distribute our HughesNet ~~satellite internet service (the “HughesNet service”).~~service. DISH Network pays us a monthly per subscriber wholesale service fee for the HughesNet service based upon a subscriber’s service level and based upon certain volume subscription thresholds. The Distribution Agreement also provides that DISH Network has the right, but not the obligation, to purchase certain broadband equipment from us to support the sale of the HughesNet service. The Distribution Agreement had an initial term of five years with automatic renewal for successive one year terms unless terminated by either party with a written notice at least 180 ~~days~~days’ before the expiration of the then-current term. In February 2014, we and DISH Network entered into an amendment to the Distribution Agreement which, among other things, extended the initial term of the Distribution Agreement until March 2024. Upon expiration or termination of the

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Distribution Agreement, we and DISH Network will continue to provide our HughesNet service to the then-current DISH Network subscribers pursuant to the terms and conditions of the Distribution Agreement.

DBSD North America ~~Agreement~~Agreement. . In March 2012, DISH Network completed its acquisition of ~~100%~~all of the equity of reorganized DBSD North America, Inc. (“DBSD North America”). Prior to DISH Network’s acquisition of DBSD North America and EchoStar’s completion of the Hughes Acquisition, DBSD North America and HNS entered into various agreements pursuant to which we provide, among other things, warranty, operations and maintenance and hosting services of DBSD North America’s gateway and ground-based communications equipment. In December 2017, we and DBSD North America amended these agreements, effective as of January 1, 2018, to reduce certain pricing terms through December 31, 2023 and to modify certain termination provisions. DBSD North America has the right to continue to receive operations and maintenance services from us on a quarter-to-quarter basis, unless terminated by DBSD North America upon at least 120 days’ written notice to us. In February 2019, we further amended these agreements to provide DBSD North America with the right to continue to receive warranty services from us on a month-to-month basis until December 2023, unless terminated by DBSD North America upon at least 21 days’ written notice to us. The provision of hosting services will continue until February 2022 and will automatically renew for an additional five-year period until February 2027 unless terminated by DBSD North America upon at least 180 days’ written notice to us. In addition, DBSD North America generally may terminate any and all such services for convenience, subject to providing us with prior notice and/or payment of termination charges.

~~RUS Implementation Agreement. In September 2010, DISH Network was selected by the Rural Utilities Service (“RUS”) of the U.S. Department of Agriculture to receive up to~~ $14 million in broadband stimulus grant funds. Effective November 2011, we and DISH Network entered into a RUS Implementation Agreement (the “RUS Agreement”) pursuant to which we provided certain portions of the equipment and broadband service used to implement DISH Network’s RUS program. While the RUS Agreement expired in June 2013 when the broadband stimulus grant funds were exhausted, we are required to continue providing services to DISH Network’s customers activated prior to the expiration of the RUS Agreement in accordance with the terms and conditions of the RUS Agreement.

Hughes Equipment and Services ~~Agreement.~~Agreement. In February 2019, we and DISH Network entered into an agreement pursuant to which we will sell to DISH Network our HughesNet Service and HughesNet equipment that has been modified to meet DISH Network’s internet-of-things specifications for the transfer of data to DISH Network’s network operations centers. This agreement has an initial term of five years expiring February 2024 with automatic renewal for successive one-year terms unless terminated by DISH Network with at least 180 ~~days’~~days‘ written notice to us or by us with at least 365 days’ written notice to DISH Network.

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~~General and Administrative~~Operating Expenses — DISH Network

The following table presents our operating expenses related to DISH Network:



	For the three months ended March 31,
	2020		2019
Operating expenses - DISH Network	$	1,137	$	714

The following table presents the related trade accounts payable:



	As of
	March 31, 2020		December 31, 2019
Trade accounts payable - DISH Network	$	610	$	502

Amended and Restated Professional Services ~~Agreement.~~Agreement. In connection with the Spin-off, EchoStar entered into various agreements with DISH Network including a transition services agreement, satellite procurement agreement and services agreement, all of which ~~all~~ expired in January 2010 and were replaced by a professional services agreement (the “Professional Services Agreement”). In January 2010, EchoStar and DISH Network agreed that EchoStar and its subsidiaries shall continue to have the right, but not the obligation, to receive the following services from DISH Network, among others, certain of which were previously provided under a transition services agreement: information technology, travel and event coordination, internal audit, legal, accounting and tax, benefits administration, program acquisition services and other support services. Additionally, EchoStar and DISH Network agreed that DISH Network would continue to have the right, but not the obligation, to engage EchoStar and its subsidiaries to manage the process of procuring new satellite capacity for DISH Network (previously provided under a satellite procurement agreement), receive logistics, procurement and quality assurance services from EchoStar and its subsidiaries (previously provided under a services agreement) and provide other support services. In connection with the consummation of the Share Exchange, EchoStar and DISH amended and restated the Professional Services Agreement ~~(the “Amended~~(as amended to date, the

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“Amended and Restated Professional Services Agreement”) to provide that EchoStar and its subsidiaries and DISH Network shall have the right to receive additional services that either EchoStar and its subsidiaries or DISH Network may require as a result of the Share Exchange, including access to antennas owned by DISH Network for our use in performing TT&C services and maintenance and support services for our ~~antennas.~~antennas (collectively, the “TT&C Antennas”). In September 2019, in connection with the BSS Transaction, EchoStar and DISH further amended the Amended and Restated Professional Services Agreement to provide that EchoStar and its subsidiaries and DISH Network shall have the right to receive additional services that either EchoStar and its subsidiaries or DISH Network may require as a result of the BSS Transaction and to remove our access to and the maintenance and support services for the TT&C Antennas. A portion of these costs and expenses have been allocated to us in the manner described ~~above under the caption “EchoStar.”~~ in Note 14. Related Party Transactions - EchoStar. The term of the Amended and Restated Professional Services Agreement is through January ~~2020~~2021 and renews automatically for successive one-year periods thereafter, unless the agreement is terminated earlier by either party upon at least 60 days’ notice. However, either party may generally terminate the Amended and Restated Professional Services Agreement in part with respect to any particular service it receives for any reason upon at least 30 days’ notice, unless the statement of work for particular services states otherwise. Certain services being provided for under the Amended and Restated Professional Services Agreement may survive the termination of the agreement.

Real Estate Lease from DISH ~~Network.~~Network. Effective March 2017, we ~~sublease from~~entered into an agreement with DISH Network for certain space at 796 East Utah Valley Drive in American Fork, Utah for a period ending in August 2017. We exercised our option to renew this ~~sublease~~agreement for a five-year period ending in August 2022. We and DISH Network amended this agreement to, among other things, terminate this agreement in March 2019. The rent on a per square foot basis for the lease iswas comparable to per square foot rental rates of similar commercial property in the same geographic area at the time of the lease, and we ~~are~~were responsible for our portion of the taxes, insurance, utilities and maintenance of the premises.

Collocation and Antenna Space Agreements. We and DISH Network have entered into an agreement pursuant to which DISH Network provides us with collocation space in El Paso, Texas. This agreement was for an initial period ending in August 2015, and provides us with renewal options for four consecutive years. Effective August 2015, we exercised our first renewal option for a period ending in August 2018 and in April 2018 we exercised our second renewal option for a period ending in August 2021. In connection with the Share Exchange, effective March 2017, we also entered into certain agreements pursuant to which DISH Network provides collocation and antenna space to EchoStar through February 2022 at the following locations: Cheyenne, Wyoming; Gilbert, Arizona; New Braunfels, Texas; Monee, Illinois; Spokane, Washington; and Englewood, Colorado. In October 2019, we provided a termination notice for our New Braunfels, Texas agreement to be effective May 2020. In August 2017, we and DISH Network also entered into certain other agreements pursuant to which DISH Network provides additional collocation and antenna space to ~~EchoStar~~us in Monee, Illinois and Spokane, Washington through August 2022. ~~We generally~~Generally, we may renew our collocation and antenna space agreements for three-year periods by providing DISH Network with prior written notice no more than 120 days but no less than 90 days prior to the end of the then-current term. We may terminate certain of these agreements with 180 days’ prior written notice. The fees for the services provided under these agreements depend on the number of racks ~~leased~~located at the location.

In connection with the BSS Transaction, in September 2019, we entered into an agreement pursuant to which DISH Network will provide us with antenna space and power in Cheyenne, Wyoming for a period of five years commencing no later than October 2020, with four three-year renewal terms, with prior written notice no more than 120 days but no less than 90 days prior to the end of the then-current term.

Hughes Broadband Master Services Agreement. In March 2017, we and DISH Network entered into a master service agreement (the “Hughes Broadband MSA”) pursuant to which DISH Network, among other things: (i) has the right, but not the obligation, to market, promote and solicit orders and upgrades for our HughesNet service and related equipment and other telecommunication services and (ii) installs HughesNet service equipment with respect to activations generated by DISH Network. Under the Hughes Broadband MSA, we and DISH Network make certain payments to each other relating to sales, upgrades, purchases and installation services. The Hughes Broadband MSA has an initial term of five years through March 2022 with automatic renewal for successive one-year terms. Either party has the ability to terminate the Hughes Broadband MSA, in whole or in part, for any reason upon at least 90 days’ notice to the other party. Upon expiration or termination of the Hughes Broadband MSA, we will continue to provide our HughesNet service to subscribers and make certain payments to DISH Network pursuant to the terms and conditions

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of the Hughes Broadband MSA. We incurred sales incentives and other costs under the Hughes Broadband MSA totaling $4.6 million and $4.8 million for the three months ended March 31, 2020 and 2019, respectively.

2019 TT&C Agreement. In September 2019, in connection with the BSS Transaction, we and a subsidiary of EchoStar entered into an agreement pursuant to which DISH Network provides TT&C services to us and EchoStar and its other subsidiaries for a period ending in September 2021, with the option for a subsidiary of EchoStar to renew for a one-year period upon written notice at least 90 days prior to the initial expiration (the “2019 TT&C Agreement”). The fees for services provided under the 2019 TT&C Agreement are calculated at either: (i) a fixed fee or (ii) cost plus a fixed margin, which will vary depending on the nature of the services provided. Any party is able to terminate the 2019 TT&C Agreement for any reason upon 12 months’ notice.

Other ~~Agreements —~~Receivables - DISH Network

~~Satellite~~Tax Sharing Agreement.Effective December 2007, EchoStar and ~~Tracking Stock Transaction.~~DISH Network entered into a tax sharing agreement (the “Tax Sharing Agreement”) in connection with the Spin-off. This agreement governs EchoStar and DISH and their respective subsidiaries’ respective rights, responsibilities and obligations after the Spin-off with respect to taxes for the periods ending on or before the Spin-off. Generally, all pre-Spin-off taxes, including any taxes that are incurred as a result of restructuring activities undertaken to implement the Spin-off, are borne by DISH Network and DISH Network indemnifies EchoStar and its subsidiaries for such taxes. However, DISH Network is not liable for and does not indemnify EchoStar or its subsidiaries for any taxes that are incurred as a result of the Spin-off or certain related transactions failing to qualify as tax-free distributions pursuant to any provision of Section 355 or Section 361 of the Code, because of: (i) a direct or indirect acquisition of any of EchoStar’s stock, stock options or assets; (ii) any action that EchoStar or its subsidiaries take or fail to take or (iii) any action that EchoStar or its subsidiaries take that is inconsistent with the information and representations furnished to the IRS in connection with the request for the private letter ruling, or to counsel in connection with any opinion being delivered by counsel with respect to the Spin-off or certain related transactions. In such case, EchoStar and its subsidiaries will be solely liable for, and will indemnify DISH Network for any resulting taxes, as well as any losses, claims and expenses. The Tax Sharing Agreement will terminate after the later of the full period of all applicable statutes of limitations, including extensions, or once all rights and obligations are fully effectuated or performed.

In light of the Tax Sharing Agreement, among other things, and in connection with EchoStar’s consolidated federal income tax returns for certain tax years prior to and for the year of the Spin-off, in September 2013, EchoStar and DISH Network agreed upon a supplemental allocation of the tax benefits arising from certain tax items resolved in the course of the IRS’s examination of EchoStar’s consolidated tax returns. As a result, DISH Network agreed to pay EchoStar an amount of that includes the federal tax benefit DISH received as a result of our operations.

In August 2018, EchoStar and DISH Network amended the Tax Sharing Agreement and the 2013 agreements (the “Tax Sharing Amendment”). Under the Tax Sharing Amendment, DISH Network is required to compensate EchoStar for certain past and future excess California research and development tax credits generated by EchoStar and its subsidiaries and used by DISH Network.

Other Agreements

Master Transaction Agreement. In ~~February 2014,~~May 2019, EchoStar and BSS Corp. entered into the Master Transaction Agreement with DISH and Merger Sub with respect to the BSS Transaction. Pursuant to the terms of the Master Transaction Agreement, on September 10, 2019: (i) EchoStar and its subsidiaries and we and our subsidiaries transferred the BSS Business to BSS Corp.; (ii) we completed the Distribution; and (iii) immediately after the Distribution, (1) BSS Corp. became a wholly-owned subsidiary of DISH such that DISH owns and operates the BSS Business and (2) each issued and outstanding share of BSS Common Stock owned by EchoStar stockholders was converted into the right to receive 0.23523769 shares of DISH Common Stock. Following the consummation of the BSS Transaction, we no longer operate the BSS Business, which was a substantial portion of our ESS segment. The Master Transaction Agreement contained customary representations and warranties by the parties, including EchoStar’s representations relating to the assets, liabilities and financial condition of the BSS Business, and representations by DISH Network relating to its financial condition and liabilities. EchoStar and DISH Network have agreed to indemnify each other against certain losses with respect to breaches of certain representations and covenants and certain retained and assumed liabilities, respectively.

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BSS Transaction Intellectual Property and Technology License Agreement. Effective September 2019, in connection with the BSS Transaction, we, EchoStar and DISH Network entered into ~~agreements with DISH Network to implement a transaction~~an intellectual property and technology license agreement (the “BSS IPTLA”) pursuant to which we, EchoStar and its other subsidiaries and DISH Network license to each other certain intellectual property and technology. The BSS IPTLA will continue in perpetuity, unless mutually terminated by the parties. Pursuant to the BSS IPTLA, we, EchoStar and its other subsidiaries granted to DISH Network a license to our and their intellectual property and technology for use by DISH Network, among other ~~things: (i)~~things, in ~~March 2014,~~connection with its continued operation of the BSS Business acquired pursuant to the BSS Transaction, including a limited license to use the “ESS” and “ECHOSTAR SATELLITE SERVICES” trademarks during a transition period. EchoStar retains full ownership of the “ESS” and “ECHOSTAR SATELLITE SERVICES” trademarks. In addition, DISH Network granted a license back to us, EchoStar and ~~HSS, issued~~its other subsidiaries, among other things, for the ~~Tracking Stock~~continued use of all intellectual property and technology that is used in our, EchoStar and its other subsidiaries’ retained businesses but the ownership of which was transferred to DISH Network pursuant to the BSS Transaction.

BSS Transaction Tax Matters Agreement. Effective September 2019, in connection with the BSS Transaction, EchoStar, BSS Corp. and DISH entered into a tax matters agreement. This agreement governs certain rights, responsibilities and obligations of EchoStar and its subsidiaries with respect to taxes of the BSS Business transferred pursuant to the BSS Transaction. Generally, EchoStar is responsible for all tax returns and tax liabilities for the BSS Business for periods prior to the BSS Transaction and DISH is responsible for all tax returns and tax liabilities for the BSS Business from and after the BSS Transaction. Both EchoStar and DISH made certain tax-related representations and are subject to various tax-related covenants after the consummation of the BSS Transaction. Both EchoStar and DISH Network have agreed to indemnify each other for certain losses if there is a breach of any the tax representations or violation of any of the tax covenants in the tax matters agreement and that breach or violation results in the failure of the BSS Transaction being treated as a transaction that is tax-free for EchoStar or its stockholders for U.S. federal income tax purposes. In addition, DISH Network has agreed to indemnify EchoStar if the BSS Business is acquired, either directly or indirectly (e.g., via an acquisition of DISH Network), by one or more persons, where either it took an action, or knowingly facilitated, consented to or assisted with an action by its stockholders, that resulted in the failure of the BSS Transaction being treated as a transaction that is tax-free for EchoStar and its stockholders for U.S. federal income tax purposes. This tax matters agreement supplements the Tax Sharing Agreement outlined above and the Share Exchange Tax Matters Agreement outlined below, both of which continue in full force and effect.

BSS Transaction Employee Matters Agreement . Effective September 2019, in connection with the BSS Transaction, EchoStar and DISH Network entered into an employee matters agreement that addressed the transfer of employees from us to DISH Network, including certain benefit and compensation matters and the allocation of responsibility for employee related liabilities relating to current and past employees of the BSS Business. DISH Network assumed employee-related liabilities relating to the BSS Business as part of the BSS Transaction, except that EchoStar is responsible for certain pre-BSS Transaction compensation and benefits for employees who transferred to DISH Network in ~~exchange for five satellites owned by DISH Network (EchoStar I, EchoStar VII, EchoStar X, EchoStar XI and EchoStar XIV) (including assumption of related in-orbit incentive obligations) and~~ ~~$11 million in cash; and (ii) in March 2014, DISH Network began receiving certain satellite services from us as discussed above on these five satellites (collectively,~~connection with the ~~“Satellite and Tracking Stock~~BSS Transaction.”) The Tracking Stock was retired in March 2017 and is no longer outstanding and all agreements, arrangements and policy statements with respect to such Tracking Stock terminated and are of no further effect.

Share Exchange Agreement. OnIn January ~~31,~~ 2017, EchoStar and certain of its and our subsidiaries entered into ~~a share exchange agreement (the “Share~~the Share Exchange ~~Agreement”)~~Agreement with DISH and certain of its subsidiaries pursuant to which, onin February ~~28,~~ 2017, EchoStar and certain of its and our subsidiaries received all of the shares of the Tracking Stock in exchange for 100% of the equity interests of certain EchoStar subsidiaries that held substantially all of EchoStar’s EchoStar Technologies businesses and certain other assets. Following consummation of the Share Exchange, ~~on February 28, 2017,~~ EchoStar no longer operates the transferred EchoStar Technologies businesses and the Tracking Stock was retired and is no longer outstanding and all agreements, arrangements and policy statements with respect to such Tracking Stock terminated and are of no further effect. Pursuant to the Share Exchange Agreement, EchoStar transferred certain assets, investments in joint ventures, spectrum licenses and real estate properties and DISH Network assumed certain liabilities relating to the transferred assets and businesses. The Share Exchange Agreement contained customary representations and warranties by the parties, including representations by EchoStar related to the transferred assets, assumed liabilities and the financial condition of the transferred businesses. EchoStar and DISH Network also agreed to customary indemnification provisions whereby each party indemnifies the other against certain losses with respect to breaches of representations, warranties or covenants and certain liabilities and if certain actions undertaken by EchoStar or DISH causes the transaction to be taxable to the other party after closing. ~~See Note 1 for further information.~~

~~Hughes Broadband Master Services Agreement~~. In March 2017, we and DISH Network entered into a master service agreement (the “Hughes Broadband MSA”) pursuant to which DISH Network, among other things: (i) has the right, but not the obligation, to market, promote and solicit orders and upgrades for our HughesNet service and related equipment and other telecommunication services and (ii) installs HughesNet service equipment with respect to activations generated by DISH Network. Under the Hughes Broadband MSA, we and DISH Network make certain payments to each other relating to sales, upgrades, purchases and installation services. The Hughes Broadband MSA has an initial termTable of five years until March 2022 with automatic renewal for successive one-year terms. Either party has the ability to terminate the Hughes Broadband MSA, in whole or in part, for any reason upon at least 90 days’ notice to the other party. Upon expiration or termination of the Hughes Broadband MSA, we will continue to provide our HughesNet service to subscribers and make certain payments to DISH Network pursuant to the terms and conditions of the Hughes Broadband MSA. We incurred sales incentives and other costs under the Hughes Broadband MSA totaling $5 million and $9 million for the three months ended March 31, 2019 and 2018, respectively.Contents

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Share Exchange Intellectual Property and Technology License Agreement. Effective March 2017, in connection with the Share Exchange, EchoStar and one of its other subsidiaries and DISH Network entered into an ~~Intellectual Property~~intellectual property and ~~Technology License Agreement~~technology license agreement (“IPTLA”) pursuant to which we, EchoStar and one of its other subsidiaries and DISH Network license to each other certain intellectual property and technology. The IPTLA will continue in perpetuity, unless mutually terminated by the parties. Pursuant to the IPTLA, we, EchoStar and one of its other subsidiaries granted to DISH Network a license to our and their intellectual property and technology for use by DISH Network, among other things, in connection with its continued operation of the businesses acquired pursuant to the Share Exchange, including a limited license to use the “ECHOSTAR” trademark during a transition period. EchoStar retains full ownership of the “ECHOSTAR” trademark. In addition, DISH Network granted a license back to us, EchoStar and one of its other subsidiaries, among other things, for the continued use of all intellectual property and technology that is used in our, EchoStar and one of its other subsidiaries’ retained businesses but the ownership of which was transferred to DISH Network pursuant to the Share Exchange.

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Share Exchange Tax Matters Agreement. Effective March 2017, in connection with the Share Exchange, EchoStar and DISH entered into a tax matters agreement. This agreement governs certain rights, responsibilities and obligations of EchoStar and its subsidiaries with respect to taxes of the transferred businesses pursuant to the Share Exchange. Generally, EchoStar is responsible for all tax returns and tax liabilities for the transferred businesses and assets for periods prior to the Share Exchange and DISH Network is responsible for all tax returns and tax liabilities for the transferred businesses and assets from and after the Share Exchange. Both EchoStar and DISH Network made certain tax-related representations and are subject to various tax-related covenants after the consummation of the Share Exchange. Both EchoStar and DISH Network have agreed to indemnify each other if there is a breach of any such tax representation or violation of any such tax covenant and that breach or violation results in the Share Exchange not qualifying for tax free treatment for the other party. In addition, DISH Network has agreed to indemnify EchoStar if the transferred businesses are acquired, either directly or indirectly (e.g., via an acquisition of DISH Network), by one or more persons and such acquisition results in the Share Exchange not qualifying for tax free treatment. The tax matters agreement supplements the Tax Sharing Agreement outlined ~~below,~~above, which continues in full force and effect.

~~Tax Sharing Agreement.~~ Effective December 2007, EchoStar and DISH Network entered into a tax sharing agreement (the “Tax Sharing Agreement”) in connection with the Spin-off. This agreement governs EchoStar and DISH and their respective subsidiaries’ respective rights, responsibilities and obligations after the Spin-off with respect to taxes for the periods ending on or before the Spin-off. Generally, all pre-Spin-off taxes, including any taxes that are incurred as a result of restructuring activities undertaken to implement the Spin-off, are borne by DISH Network, and DISH Network indemnifies EchoStar and its subsidiaries for such taxes. However, DISH Network is not liable for and does not indemnify EchoStar or its subsidiaries for any taxes that are incurred as a result of the Spin-off or certain related transactions failing to qualify as tax-free distributions pursuant to any provision of Section 355 or Section 361 of the Internal Revenue Code of 1986, as amended, because of: (i) a direct or indirect acquisition of any of EchoStar’s stock, stock options or assets; (ii) any action that EchoStar or its subsidiaries take or fail to take; or (iii) any action that EchoStar or its subsidiaries take that is inconsistent with the information and representations furnished to the IRS in connection with the request for the private letter ruling, or to counsel in connection with any opinion being delivered by counsel with respect to the Spin-off or certain related transactions. In such case, EchoStar and its subsidiaries will be solely liable for, and will indemnify DISH Network for, any resulting taxes, as well as any losses, claims and expenses. The Tax Sharing Agreement will terminate after the later of the full period of all applicable statutes of limitations, including extensions, or once all rights and obligations are fully effectuated or performed.

~~Other Agreements~~

Hughes Systique Corporation ~~(“Hughes Systique”)~~

We contract with Hughes Systique Corporation (“Hughes Systique”) for software development services. In addition to our approximately 43% ownership in Hughes Systique, Mr. Pradman Kaul, the President of our subsidiary Hughes Communications, Inc. and a member of EchoStar’s board of directors, and his brother, who is the Chief Executive Officer and President of Hughes Systique, in the aggregate, own approximately 25%, on an undiluted basis, of Hughes Systique’s outstanding shares as of March 31, ~~2019.~~2020. Furthermore, Mr. Pradman Kaul serves on the board of directors of Hughes Systique. Hughes Systique is a variable interest entity and we are considered the primary beneficiary of Hughes Systique due to, among other factors, our ability to direct the activities that most significantly impact the economic performance of Hughes Systique. As a result, we consolidate Hughes Systique’s financial statements in ~~our accompanying~~these Condensed Consolidated Financial Statements.

TerreStar Solutions, Inc.

~~Table~~DISH Network owns more than 15% of ~~Contents~~

~~HUGHES SATELLITE SYSTEMS CORPORATION~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued~~

~~(Unaudited)~~

~~Deluxe/EchoStar LLC~~

~~We own 50.0% of Deluxe/EchoStar LLC~~TerreStar Solutions, Inc. (“~~Deluxe”~~TSI”)~~, a joint venture that~~. In May 2018, we and TSI entered into ~~in 2010~~an equipment and services agreement pursuant to ~~build an advanced digital cinema satellite distribution~~which we design, manufacture and install upgraded ground communications network ~~targeting delivery to digitally equipped theaters in the U.S.~~equipment for TSI’s network and ~~Canada. We account for our investment in Deluxe using the equity method.~~provide, among other things, warranty and support services. We recognized revenue ~~from Deluxe for transponder services~~of $2.2 million and ~~the sale of broadband equipment of $1~~$5.1 million ~~for each of the three months ended March 31, 2019 and 2018. As of each of March 31, 2019 and December 31, 2018, we had trade accounts receivable from Deluxe of $1 million.~~

~~AsiaSat~~

We contract with AsiaSat Telecommunications Inc. (“AsiaSat”) for the use of transponder capacity on one of AsiaSat's satellites. Mr. William David Wade, who joined our board of directors in February 2017, served as the Chief Executive Officer of AsiaSat in 2016 and as a senior advisor to the Chief Executive Officer of AsiaSat through March 2017. We incurred expenses payable to AsiaSat under this agreement of zero for the three months ended March 31, ~~2019.~~2020 and 2019, respectively. As of March 31, 2020 and December 31, 2019, we had trade accounts receivable from TSI of $2.3 million and $2.7 million, respectively.

~~Global IP~~

Global-IP Cayman

In May 2017, we entered into an agreement with Global-IP Cayman (“Global IP”) providing for the sale of certain equipment and services to Global IP. Mr. William David Wade, a member of EchoStar’s board of directors, served as a member of the board of directors of Global IP ~~from September 2017 until April 2019~~ and ~~continues to serve~~ as an executive advisor to the Chief Executive Officer of Global ~~IP.~~IP from September 2017 until April 2019 and from September 2017 until December 2019, respectively. In August 2018,

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HUGHES SATELLITE SYSTEMS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

we and Global IP amended the agreement toto: (i) change certain of the equipment and services to be provided to Global ~~IP;~~IP, (ii) modify certain payment ~~terms;~~terms, (iii) provide Global IP an option to use one of our test lab ~~facilities;~~facilities and (iv) effectuate the assignment of the agreement from Global IP to one of its wholly-owned subsidiaries. In February 2019, we terminated the agreement as a result of Global IP’s defaults resulting from its failure to make payments to us as required under the terms of the agreement and we reserved our rights and remedies against Global IP under the agreement. We recognized revenue under this agreement of ~~zero and $0.4 million~~0 for each of the three months ended March ~~31,2019~~31, 2020 and ~~2018, respectively.~~2019. As of ~~each of~~both March 31, ~~2019~~2020 and December 31, ~~2018,~~2019, we ~~are~~were owed $7.5 million from Global IP.

~~TerreStar Solutions~~

DISH Network owns more than 15% of TerreStar Solutions, Inc. (“TSI”). In May 2018, we and TSI entered into an equipment and services agreement pursuant to which we design, manufacture and install upgraded ground communications network equipment for TSI’s network and provide, among other things, warranty and support services. We recognized revenue of $5 million for the three months ended March 31, 2019. As of each of March 31, 2019 and December 31, 2018, we had trade accounts receivable from TSI of $2 million.

~~Broadband Connectivity Solutions~~

In August 2018, we entered into an agreement with Al Yah Satellite Communications Company PrJSC (“Yahsat”) to establish a new entity, Broadband Connectivity Solutions (Restricted) Limited (together with its subsidiaries, “BCS”), to provide commercial Ka-band satellite broadband services across Africa, the Middle East and southwest Asia operating over Yahsat's Al Yah 2 and Al Yah 3 Ka-band satellites. The transaction was consummated in December 2018 when we invested $100 million in cash in exchange for a 20% interest in BCS. Under the terms of the agreement, we may also acquire, for further cash investments, additional ownership interests in BCS in the future provided certain conditions are met. We supply network operations and management services and equipment to BCS. We recognized revenue from BCS for such services and equipment of $2 million for the three months ended March 31, 2019. As of each of March 31, 2019 and December 31, 2018, we had $3 million trade accounts receivable from BCS.

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~~HUGHES SATELLITE SYSTEMS CORPORATION~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued~~

~~(Unaudited)~~

Maxar Technologies Inc.

Mr. Jeffrey Tarr, who joined ~~our~~EchoStar’s board of directors in March 2019, ~~serves~~served as a consultant and advisor to Maxar Technologies Inc. and its subsidiaries (“Maxar Tech”). through May 2019. We previously entered into agreements with Maxar Tech for the manufacture ~~of our EchoStar IX, EchoStar XI, EchoStar XIV, EchoStar XVI, EchoStar XVII, EchoStar XIX, EchoStar XXI and EchoStar XXIII satellites and for the timely manufacture and delivery~~ and certain other services ~~for~~of the EchoStar IX satellite, the EchoStar XVII satellite, the EchoStar XIX satellite and the EchoStar XXI satellite and our former EchoStar ~~XXIV~~XI satellite, ~~with an expected launch date in 2021.~~EchoStar XIV satellite, EchoStar XVI satellite and EchoStar XXIII satellite. Maxar Tech provides us with anomaly support for these satellites once launched pursuant to the terms of the agreements. Maxar Tech also provides a warranty on one of these satellites and may be required to pay us certain amounts should the satellite not operate according to certain performance specifications. Our obligations to pay Maxar Tech under these agreements during the design life of the applicable satellites may be reduced if the applicable satellites do not operate according to certain performance specifications. We incurred aggregate costs ~~of $36 million~~ payable to Maxar Tech under these agreements of $3.5 million and $4.9 million for the three months ended March 31, ~~2019.~~2020 and 2019, respectively. At both March 31, 2020 and December 31, 2019, we had 0 trade accounts payable to Maxar Tech.

NOTE ~~16.~~17. SUPPLEMENTAL FINANCIAL INFORMATION

Research and Development

The following table presents the research and development costs incurred in connection with customers’ orders:



	For the three months ended March 31,
	2020		2019
Cost of sales - equipment (exclusive of depreciation and amortization)	$	6,692	$	5,395
Research and development expenses	$	6,254	$	6,888

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

Cash and Cash Equivalents and Restricted Cash

The following table reconciles Cash and cash equivalents and restricted cash, as presented in the Condensed Consolidated Balance Sheets, to the total of the same as presented in the Condensed Consolidated Statements of Cash Flows:



	For the three months ended March 31,
	2020		2019
Cash and cash equivalents, including restricted amounts, beginning of period:
Cash and cash equivalents	$	1,139,435	$	847,823
Restricted cash	887		796
Total cash and cash equivalents, included restricted amounts, beginning of period	$	1,140,322	$	848,619

Cash and cash equivalents, including restricted amounts, end of period:
Cash and cash equivalents	$	1,228,361	$	1,138,711
Restricted cash	1,116		971
Total cash and cash equivalents, included restricted amounts, end of period	$	1,229,477	$	1,139,682

Other Current Assets, Net and Other Non-Current Assets, Net

The following table presents the components of Other current assets, net, and Other non-current assets, net:



	As of
	March 31, 2020		December 31, 2019
Other current assets, net:
Trade accounts receivable - DISH Network	$	9,955	$	8,876
Inventory	88,302		79,474
Prepaids and deposits	47,055		42,324
Contract acquisition costs, net	14,290		16,869
Related party receivables - EchoStar	131,948		131,892
Other, net	23,821		22,217
Total other current assets, net	$	315,371	$	301,652

Other non-current assets, net:
Restricted cash	$	1,116	$	887
Deferred tax assets, net	7,098		7,215
Capitalized software, net	104,401		101,786
Contract acquisition costs, net	96,107		96,723
Contract fulfillment costs, net	2,782		3,010
Related party receivables - EchoStar	19,412		19,759
Other, net	25,859		22,556
Total other non-current assets, net	$	256,775	$	251,936

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

The following table presents the activity in our allowance for doubtful accounts, which is included within Other, net in each of Other current assets, net and Other non-current assets, net in the table above:



	Balance at Beginning of Period		Credit Losses ⁽¹⁾		Deductions		Foreign Currency Translation			Balance at End of Period
For the three months ended March 31, 2020
Other current assets, net	$	—	$	1,595	$	—	$	—		$	1,595
Other non-current assets, net	$	—	$	13,379	$	—	$	(358	)	$	13,021

⁽¹⁾ The impact of adopting ASC 326 on January 1, 2020 was a net increase to our allowance for doubtful accounts largely driven by a $13.4 million reclassification from Trade accounts receivables and contracts assets, net.

Accrued Expenses and Other Current Liabilities and Other Non-Current Liabilities

The following table presents the components of Accrued expenses and other current liabilities and Other non-current liabilities:



	As of
	March 31, 2020		December 31, 2019
Accrued expenses and other current liabilities:
Trade accounts payable - DISH Network	$	610	$	502
Accrued interest	35,905		32,184
Accrued compensation	31,707		42,846
Accrued taxes	7,534		18,493
Operating lease obligation	13,393		14,112
Related party payables - EchoStar	13,793		11,132
Other	128,948		139,148
Total accrued expenses and other current liabilities	$	231,890	$	258,417

Other non-current liabilities:
Related party payables - EchoStar	$	23,748	$	23,980
Other	64,848		66,500
Total other non-current liabilities	$	88,596	$	90,480

Inventory

The following table presents the components of inventory:



	As of
	March 31, 2020		December 31, 2019
Raw materials	$	8,399	$	4,240
Work-in-process	9,421		6,979
Finished goods	70,482		68,255
Total inventory	$	88,302	$	79,474

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HUGHES SATELLITE SYSTEMS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

Supplemental and Non-cash Investing and Financing Activities

The following table presents the supplemental and non-cash investing and financing activities:



	For the three months ended March 31,
	2020			2019
Supplemental disclosure of cash flow information:
Cash paid for interest, net of amounts capitalized	$	49,563		$	54,277
Cash paid for income taxes	$	716		$	652

Non-cash investing and financing activities:
Increase (decrease) in capital expenditures included in accounts payable, net	$	(5,359	)	$	(2,163	)

NOTE 18. SUPPLEMENTAL GUARANTOR AND NON-GUARANTOR FINANCIAL INFORMATION

Certain of our wholly-owned subsidiaries (together, the “Guarantor Subsidiaries”) have fully and unconditionally guaranteed, on a joint and several basis, the obligations of our 5 1/4% Senior Secured Notes due August 1, 2026, 7 5/8% Senior Unsecured Notes due 2021 and 6 5/8% Senior Unsecured Notes due August 1, 2026 ~~(the~~(collectively, the “Notes”).

In lieu of separate financial statements of the Guarantor Subsidiaries, accompanying condensed consolidating financial information prepared in accordance with Rule 3-10(f) of Regulation S-X is presented below, including the accompanying condensed balance sheet information, the accompanying condensed statement of operations and comprehensive income (loss) information and the accompanying condensed statement of cash flows information of HSS, the Guarantor Subsidiaries on a combined basis and the non-guarantor subsidiaries of HSS on a combined basis and the eliminations necessary to arrive at the corresponding information of HSS on a consolidated basis.

The indentures governing the Notes contain restrictive covenants that, among other things, impose limitations on our ability and the ability of certain of our subsidiaries to pay dividends or make distributions, incur additional debt, make certain investments, create liens or enter into sale and leaseback transactions, merge or consolidate with another company, transfer and sell assets, enter into transactions with affiliates or allow to exist certain restrictions on the ability of certain of our subsidiaries to pay dividends, make distributions, make other payments, or transfer assets to us.

~~The~~In lieu of separate financial statements of the Guarantor Subsidiaries, we have prepared the accompanying condensed consolidating financial information ~~presented below~~in accordance with Rule 3-10(f) of Regulation S-X. This includes:

the accompanying condensed balance sheet;

the accompanying condensed statement of operations and comprehensive income (loss); and

the accompanying condensed statement of cash flows.

This also includes consolidating financial information as follows:

the Guarantor Subsidiaries on a combined basis;

the non-guarantor subsidiaries of HSSC on a combined basis; and

the eliminations necessary to arrive at the corresponding information of HSSC on a consolidated basis.

This accompanying condensed consolidating financial information should be read in conjunction with ~~our accompanying condensed consolidated financial statements and notes thereto included herein.~~

~~Table of Contents~~

~~HUGHES SATELLITE SYSTEMS CORPORATION~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued~~

~~(Unaudited)~~

~~Condensed Consolidating Balance Sheet as of March 31, 2019~~

~~(In thousands)~~

HSS
Guarantor
Subsidiaries

Non-Guarantor
Subsidiaries
Eliminations Total
Assets
Cash and cash equivalents $ 1,069,699
$ 44,728
$ 24,284
$ —
$ 1,138,711
Marketable investment securities, at fair value 1,381,688
341
—
—
1,382,029
Trade accounts receivable and contract assets —
139,445
77,112
—
216,557
Trade accounts receivable - DISH Network, net —
18,085
513
—
18,598
Inventory —
56,205
19,909
—
76,114
Advances to affiliates, net 109,433
652,379
10,318
(691,219 ) 80,911
Other current assets 42
28,048
46,182
—
74,272
Total current assets 2,560,862
939,231
178,318
(691,219 ) 2,987,192
Property and equipment, net —
2,214,920
301,217
—
2,516,137
Regulatory authorizations —
465,658
—
—
465,658
Goodwill —
504,173
—
—
504,173
Other intangible assets, net —
40,294
—
—
40,294
Investments in unconsolidated entities —
125,384
—
—
125,384
Investment in subsidiaries 3,420,127
212,662
—
(3,632,789 ) —
Advances to affiliates 700
76,923
19,221
(76,887 ) 19,957
Operating lease assets —
89,628
23,346
—
112,974
Deferred tax asset 62,671
—
7,274
(62,671 ) 7,274
Other noncurrent assets, net —
227,944
12,749
—
240,693
Total assets $ 6,044,360
$ 4,896,817
$ 542,125
$ (4,463,566 ) $ 7,019,736
Liabilities and Shareholders’ Equity
Trade accounts payable $ —
$ 94,036
$ 18,784
$ —
$ 112,820
Trade accounts payable - DISH Network —
1,698
—
—
1,698
Current portion of long-term debt and capital lease obligations 911,985
41,090
561
—
953,636
Advances from affiliates, net 293,657
279,732
118,612
(691,219 ) 782
Accrued expenses and other 53,529
147,106
47,484
—
248,119
Total current liabilities 1,259,171
563,662
185,441
(691,219 ) 1,317,055
Long-term debt and capital lease obligations, net 2,386,136
176,309
984
—
2,563,429
Deferred tax liabilities, net —
564,100
110
(62,671 ) 501,539
Operating lease liability —
76,682
18,391
—
95,073
Advances from affiliates —
1,862
108,308
(76,887 ) 33,283
Other noncurrent liabilities —
95,232
3,638
—
98,870
Total HSS shareholders’ equity 2,399,053
3,418,970
213,819
(3,632,789 ) 2,399,053
Noncontrolling interests —
—
11,434
—
11,434
Total liabilities and shareholders’ equity $ 6,044,360
$ 4,896,817
$ 542,125
$ (4,463,566 ) $ 7,019,736

~~Table of Contents~~

~~HUGHES SATELLITE SYSTEMS CORPORATION~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued~~

~~(Unaudited)~~

~~Condensed Consolidating Balance Sheet as of December 31, 2018~~

~~(In thousands)~~

HSS
Guarantor
Subsidiaries

Non-Guarantor
Subsidiaries
Eliminations Total
Assets
Cash and cash equivalents $ 771,718
$ 46,353
$ 29,752
$ —
$ 847,823
Marketable investment securities, at fair value 1,608,123
1,073
—
—
1,609,196
Trade accounts receivable and contract assets, net —
128,831
72,265
—
201,096
Trade accounts receivable - DISH Network —
13,240
310
—
13,550
Inventory —
58,607
16,772
—
75,379
Advances to affiliates, net 109,433
536,600
27,174
(569,657 ) 103,550
Other current assets 72
26,331
41,378
(561 ) 67,220
Total current assets 2,489,346
811,035
187,651
(570,218 ) 2,917,814
Property and equipment, net —
2,280,804
301,377
—
2,582,181
Regulatory authorizations —
465,658
—
—
465,658
Goodwill —
504,173
—
—
504,173
Other intangible assets, net —
43,952
—
—
43,952
Investments in unconsolidated entities —
126,369
—
—
126,369
Investment in subsidiaries 3,362,589
192,370
—
(3,554,959 ) —
Advances to affiliates 700
86,280
—
(86,980 ) —
Deferred tax asset 54,001
—
3,581
(54,001 ) 3,581
Other noncurrent assets, net —
236,675
12,769
—
249,444
Total assets $ 5,906,636
$ 4,747,316
$ 505,378
$ (4,266,158 ) $ 6,893,172
Liabilities and Shareholders’ Equity
Trade accounts payable $ —
$ 88,342
$ 16,409
$ —
$ 104,751
Trade accounts payable - DISH Network —
752
—
—
752
Current portion of long-term debt and capital lease obligations 918,916
39,995
666
—
959,577
Advances from affiliates, net 181,926
282,268
106,331
(569,657 ) 868
Accrued expenses and other 43,410
147,055
48,307
(561 ) 238,211
Total current liabilities 1,144,252
558,412
171,713
(570,218 ) 1,304,159
Long-term debt and capital lease obligations, net 2,385,164
187,002
1,038
—
2,573,204
Deferred tax liabilities, net —
541,903
834
(54,001 ) 488,736
Advances from affiliates —
—
120,418
(86,980 ) 33,438
Other noncurrent liabilities —
98,661
2,479
—
101,140
Total HSS shareholders’ equity 2,377,220
3,361,338
193,621
(3,554,959 ) 2,377,220
Noncontrolling interests —
—
15,275
—
15,275
Total liabilities and shareholders’ equity $ 5,906,636
$ 4,747,316
$ 505,378
$ (4,266,158 ) $ 6,893,172

~~Table of Contents~~

~~HUGHES SATELLITE SYSTEMS CORPORATION~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued~~

~~(Unaudited)~~

~~Condensed Consolidating Statement of Operations and Comprehensive Income (Loss)~~

~~For the Three Months Ended March 31, 2019~~

~~(In thousands)~~

HSS
Guarantor
Subsidiaries

Non-Guarantor
Subsidiaries
Eliminations Total
Revenue:
Services and other revenue - DISH Network $ —
$ 81,858
$ 513
$ —
$ 82,371
Services and other revenue - other —
347,959
59,183
(8,802 ) 398,340
Equipment revenue —
52,649
9,415
(10,350 ) 51,714
Total revenue —
482,466
69,111
(19,152 ) 532,425
Costs and expenses:
Costs of sales - services and other (exclusive of depreciation and amortization) —
121,079
39,333
(8,109 ) 152,303
Cost of sales - equipment (exclusive of depreciation and amortization) —
48,499
6,858
(10,350 ) 45,007
Selling, general and administrative expenses —
86,486
16,565
(693 ) 102,358
Research and development expenses —
6,743
145
—
6,888
Depreciation and amortization —
127,823
15,707
—
143,530
Total costs and expenses —
390,630
78,608
(19,152 ) 450,086
Operating income —
91,836
(9,497 ) —
82,339
Other income (expense):
Interest income 17,409
926
559
(897 ) 17,997
Interest expense, net of amounts capitalized (56,361 ) (7,632 ) (1,317 ) 897
(64,413 )
Gains (losses) on investments, net —
(346 ) —
—
(346 )
Equity in earnings (losses) of unconsolidated affiliates, net —
(1,072 ) —
—
(1,072 )
Equity in earnings (losses) of subsidiaries, net 52,199
(8,788 ) —
(43,411 ) —
Other, net 309
(418 ) 154
—
45
Total other income (expense), net 13,556
(17,330 ) (604 ) (43,411 ) (47,789 )
Income (loss) before income taxes 13,556
74,506
(10,101 ) (43,411 ) 34,550
Income tax benefit (provision) 8,670
(22,214 ) 2,026
—
(11,518 )
Net income (loss) 22,226

52,292

(8,075 )
(43,411 ) 23,032
Less: Net income attributable to noncontrolling interests —
—
806
—
806
Net income (loss) attributable to HSS $ 22,226
$ 52,292
$ (8,881 ) $ (43,411 ) $ 22,226
Comprehensive income (loss):
Net income (loss) $ 22,226
$ 52,292
$ (8,075 ) $ (43,411 ) $ 23,032
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments —
—
(838 ) —
(838 )
Unrealized gains (losses) on available-for-sale securities and other 2,354
—
32
—
2,386
Recognition of realized gains on available-for-sale securities in net income (385 ) —
—
—
(385 )
Equity in other comprehensive income (loss) of subsidiaries, net (806 ) (806 ) —
1,612
—
Total other comprehensive income (loss), net of tax 1,163
(806 ) (806 ) 1,612
1,163
Comprehensive income (loss) 23,389
51,486
(8,881 ) (41,799 ) 24,195
Less: Comprehensive income attributable to noncontrolling interests —
—
806
—
806
Comprehensive income (loss) attributable to HSS $ 23,389
$ 51,486
$ (9,687 ) $ (41,799 ) $ 23,389

~~Table of Contents~~

~~HUGHES SATELLITE SYSTEMS CORPORATION~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued~~

~~(Unaudited)~~

~~Condensed Consolidating Statement of Operations and Comprehensive Income (Loss)~~

~~For the Three Months Ended March 31, 2018~~

~~(In thousands)~~

HSS
Guarantor
Subsidiaries

Non-Guarantor
Subsidiaries
Eliminations Total
Revenue:
Services and other revenue - DISH Network $ —
$ 100,087
$ 527
$ —
$ 100,614
Services and other revenue - other —
312,108
57,076
(9,850 ) 359,334
Equipment revenue —
46,409
4,607
(8,069 ) 42,947
Total revenue —
458,604
62,210
(17,919 ) 502,895
Costs and expenses:
Costs of sales - services and other (exclusive of depreciation and amortization) —
119,326
37,726
(9,397 ) 147,655
Cost of sales - equipment (exclusive of depreciation and amortization) —
43,643
3,465
(8,037 ) 39,071
Selling, general and administrative expenses —
83,392
11,743
(485 ) 94,650
Research and development expenses —
7,137
—
—
7,137
Depreciation and amortization —
121,339
12,379
—
133,718
Total costs and expenses —
374,837
65,313
(17,919 ) 422,231
Operating income —
83,767
(3,103 ) —
80,664
Other income (expense):
Interest income 10,761
316
501
(199 ) 11,379
Interest expense, net of amounts capitalized (57,445 ) (6,956 ) (211 ) 199
(64,413 )
Gains (losses) on investments, net —
(392 ) —
—
(392 )
Equity in earnings of unconsolidated affiliate —
1,492
—
—
1,492
Equity in earnings (losses) of subsidiaries, net 56,259
(3,697 ) —
(52,562 ) —
Other, net 3
(97 ) (519 ) —
(613 )
Total other income (expense), net 9,578
(9,334 ) (229 ) (52,562 ) (52,547 )
Income (loss) before income taxes 9,578
74,433
(3,332 ) (52,562 ) 28,117
Income tax benefit (provision) 10,423
(18,084 ) (75 ) —
(7,736 )
Net income (loss) 20,001
56,349
(3,407 ) (52,562 ) 20,381
Less: Net income attributable to noncontrolling interests —
—
380
—
380
Net income (loss) attributable to HSS $ 20,001
$ 56,349
$ (3,787 ) $ (52,562 ) $ 20,001
Comprehensive income (loss):

Net income (loss) $ 20,001
$ 56,349
$ (3,407 ) $ (52,562 ) $ 20,381
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments —
—
1,900
—
1,900
Unrealized losses on available-for-sale securities and other (311 ) —
(100 ) —
(411 )
Equity in other comprehensive income (loss) of subsidiaries, net 2,014
2,014
—
(4,028 ) —
Total other comprehensive income (loss), net of tax 1,703
2,014
1,800
(4,028 ) 1,489
Comprehensive income (loss) 21,704
58,363
(1,607 ) (56,590 ) 21,870
Less: Comprehensive income attributable to noncontrolling interests —
—
166
—
166
Comprehensive income (loss) attributable to HSS $ 21,704
$ 58,363
$ (1,773 ) $ (56,590 ) $ 21,704

~~Table of Contents~~

~~HUGHES SATELLITE SYSTEMS CORPORATION~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued~~

~~(Unaudited)~~

~~Condensed Consolidating Statement of Cash Flows~~

~~For the Three Months Ended March 31, 2019~~

~~(In thousands)~~

HSS
Guarantor
Subsidiaries

Non-Guarantor
Subsidiaries
Eliminations Total
Cash flows from operating activities:
Net income (loss) $ 22,226
$ 52,292
$ (8,075 ) $ (43,411 ) $ 23,032
Adjustments to reconcile net income (loss) to net cash flows from operating activities (48,467 ) 163,032
(10,043 ) 43,411
147,933
Net cash flows from operating activities (26,241 ) 215,324
(18,118 ) —
170,965
Cash flows from investing activities:
Purchases of marketable investment securities (240,188 ) —
—
—
(240,188 )
Sales and maturities of marketable investment securities 468,748
(3 ) —
—
468,745
Expenditures for property and equipment —
(54,207 ) (19,722 ) —
(73,929 )
Expenditures for externally marketed software —
(7,600 ) —
—
(7,600 )
Distributions (contributions) and advances from (to) subsidiaries, net 111,020
(32,949 ) —
(78,071 ) —
Net cash flows from investing activities 339,580
(94,759 ) (19,722 ) (78,071 ) 147,028
Cash flows from financing activities:
Contributions (distributions) and advances (to) from parent, net —
(111,020 ) 32,949
78,071
—
Repayment of debt and finance lease obligations —
(9,597 ) (285 ) —
(9,882 )
Noncontrolling interest purchase (7,312 ) —
—

—
(7,312 )
Repurchase of the 2019 Senior Secured Notes (8,046 ) —
—
—
(8,046 )
Repayment of in-orbit incentive obligations —
(1,573 ) —
—
(1,573 )
Net cash flows from financing activities (15,358 ) (122,190 ) 32,664
78,071
(26,813 )
Effect of exchange rates on cash and cash equivalents —
—
(117 ) —
(117 )
Net increase (decrease) in cash and cash equivalents, including restricted amounts 297,981
(1,625 ) (5,293 ) —
291,063
Cash and cash equivalents, including restricted amounts, beginning of period 771,718
46,353
30,548
—
848,619
Cash and cash equivalents, including restricted amounts, end of period $ 1,069,699
$ 44,728
$ 25,255
$ —
$ 1,139,682

~~Table of Contents~~

~~HUGHES SATELLITE SYSTEMS CORPORATION~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued~~

~~(Unaudited)~~

~~Condensed Consolidating Statement of Cash Flows~~

~~For the Three Months Ended March 31, 2018~~

~~(In thousands)~~

HSS
Guarantor
Subsidiaries

Non-Guarantor
Subsidiaries
Eliminations Total
Cash flows from operating activities:
Net income (loss) $ 20,001
$ 56,349
$ (3,407 ) $ (52,562 ) $ 20,381
Adjustments to reconcile net income (loss) to net cash flows from operating activities (57,327 ) 127,889
(1,102 ) 52,562
122,022
Net cash flows from operating activities (37,326 ) 184,238
(4,509 ) —
142,403
Cash flows from investing activities:
Purchases of marketable investment securities (358,543 ) —
—
—
(358,543 )
Sales and maturities of marketable investment securities 197,686
—
—
—
197,686
Expenditures for property and equipment —
(76,974 ) (10,803 ) —
(87,777 )
Refunds and other receipts related to capital expenditures —
77,524
—
—
77,524
Expenditures for externally marketed software —
(7,148 ) —
—
(7,148 )
Payment for satellite launch services —
—
(7,125 ) —
(7,125 )
Distributions (contributions) and advances from (to) subsidiaries, net 144,984
(18,425 ) —
(126,559 ) —
Net cash flows from investing activities (15,873 ) (25,023 ) (17,928 ) (126,559 ) (185,383 )
Cash flows from financing activities:
Contributions (distributions) and advances (to) from parent, net —
(144,984 ) 18,425
126,559
—
Repayment of debt and capital lease obligations —
(8,608 ) (760 ) —
(9,368 )
Capital contribution from EchoStar 7,125
—
—
—
7,125
Payment of in-orbit incentive obligations —
(1,265 ) —
—
(1,265 )
Net cash flows from financing activities 7,125
(154,857 ) 17,665
126,559
(3,508 )
Effect of exchange rates on cash and cash equivalents —
—
(249 ) —
(249 )
Net increase (decrease) in cash and cash equivalents, including restricted amounts (46,074 ) 4,358
(5,021 ) —
(46,737 )
Cash and cash equivalents, including restricted amounts, beginning of period 1,746,878
42,373
34,103
—
1,823,354
Cash and cash equivalents, including restricted amounts, end of period $ 1,700,804
$ 46,731
$ 29,082
$ —
$ 1,776,617

~~Table of Contents~~

~~HUGHES SATELLITE SYSTEMS CORPORATION~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued~~

~~(Unaudited)~~

~~NOTE 17. SUPPLEMENTAL FINANCIAL INFORMATION~~

~~Noncash Investing and Financing Activities~~

For the three months ended March 31,
2019 2018
(In thousands)
Increase (decrease) in capital expenditures included in accounts payable, net $ (2,163 ) $ 7,883

~~Restricted Cash and Cash Equivalents~~

~~The beginning and ending balances of cash and cash equivalents presented in our~~these Condensed Consolidated ~~Statements of Cash Flows included restricted cash and cash equivalents of $1 million for each of the three months ended March 31, 2019 and 2018. These amounts are included in~~ ~~Other noncurrent assets, net~~ ~~in our Condensed Consolidated Balance Sheets.~~

~~Fair Value of In-Orbit Incentives~~

As of March 31, 2019 and December 31, 2018, the fair values of our in-orbit incentive obligations, based on measurements categorized within Level 2 of the fair value hierarchy, approximated their carrying amounts of $93 million and $95 million, respectively.

~~Contract Acquisition and Fulfillment Costs~~

Unamortized contract acquisition costs totaled $102 million and $104 million as of March 31, 2019 and December 31, 2018, respectively, and related amortization expense totaled $21 million and $20 million for the three months ended March 31, 2019 and 2018, respectively.

Unamortized contract fulfillment costs totaled $3 million as of March 31, 2019 and December 31, 2018 and related amortization expense was de minimis for the three months ended March 31, 2019 and 2018, respectively.

~~Research and Development~~

~~The table below summarizes the research and development costs incurred in connection with customers’ orders included in cost of sales and other expenses we incurred for research and development.~~

For the three months
ended March 31,
2019 2018
(In thousands)
Cost of sales $ 5,395
$ 6,598
Research and development $ 6,888
$ 7,137

~~Capitalized Software Costs~~

As of March 31, 2019 and December 31, 2018, the net carrying amount of externally marketed software was $99 million and $97 million, respectively, of which $34 million and $29 million, respectively, is under development and not yet placed in service. We capitalized costs related to the development of externally marketed software of $8 million and $7 million for the three months ended March 31, 2019 and 2018, respectively. We recorded amortization expense relating to the development of externally marketed software of $6 million for each of the three months ended March 31, 2019 and 2018. The weighted average useful life of our externally marketed software was three years as of March 31, 2019.Financial Statements.

Table of Contents

HUGHES SATELLITE SYSTEMS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - ~~Continued~~CONTINUED

(Unaudited)

~~NOTE 18. SUBSEQUENT EVENTS~~Condensed Consolidating Balance Sheet as of March 31, 2020

In May 2019, we entered into an agreement with Yahsat pursuant to which Yahsat will contribute its current satellite communications services business in Brazil to us in exchange for a 20% ownership interest in our existing Brazilian subsidiary that conducts our current satellite communications services business in Brazil. The combined business will provide broadband internet services and enterprise solutions in Brazil using the Telesat T19V and Eutelsat 65W satellites and Yahsat’s Al Yah 3 satellite. Under the terms of the agreement, Yahsat may also acquire, for further cash investments, additional minority ownership interests in the business in the future provided certain conditions are met. The completion of the transaction is subject to customary regulatory approvals and closing conditions. No assurance can be given that the transaction will be consummated on the terms agreed to or at all.



	HSSC		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Eliminations			Total
Assets
Current assets:
Cash and cash equivalents	$	1,174,650	$	19,878	$	33,833	$	—		$	1,228,361
Marketable investment securities	524,864		77		—		—			524,941
Trade accounts receivable and contract assets, net	—		131,579		56,233		—			187,812
Other current assets	93,526		655,191		109,288		(542,634		)	315,371
Total current assets	1,793,040		806,725		199,354		(542,634		)	2,256,485
Non-current assets:
Property and equipment, net	—		1,425,670		324,891		—			1,750,561
Operating lease right-of-use assets	—		96,944		22,767		—			119,711
Goodwill	—		504,173		5,142		—			509,315
Regulatory authorizations, net	—		400,000		11,243		—			411,243
Other intangible assets, net	—		25,663		—		—			25,663
Other investments, net	—		108,952		—		—			108,952
Investment in subsidiaries	2,823,219		207,664		—		(3,030,883		)	—
Other non-current assets, net	18,179		288,132		43,055		(92,591		)	256,775
Total non-current assets	2,841,398		3,057,198		407,098		(3,123,474		)	3,182,220
Total assets	$	4,634,438	$	3,863,923	$	606,452	$	(3,666,108	)	$	5,438,705
Liabilities and Shareholder's Equity
Current liabilities:
Trade accounts payable	$	—	$	87,132	$	19,207	$	—		$	106,339
Contract liabilities	—		93,741		5,525		—			99,266
Accrued expenses and other current liabilities	266,731		311,723		196,070		(542,634		)	231,890
Total current liabilities	266,731		492,596		220,802		(542,634		)	437,495
Non-current liabilities:
Long-term debt	2,390,218		—		—		—			2,390,218
Deferred tax liabilities, net	—		398,786		—		(17,565		)	381,221
Operating lease liabilities	—		86,603		18,854		—			105,457
Other non-current liabilities	—		63,401		100,221		(75,026		)	88,596
Total non-current liabilities	2,390,218		548,790		119,075		(92,591		)	2,965,492
Total liabilities	2,656,949		1,041,386		339,877		(635,225		)	3,402,987
Shareholder's equity:
Total Hughes Satellite Systems Corporation shareholder's equity	1,977,489		2,822,537		208,346		(3,030,883		)	1,977,489
Non-controlling interests	—		—		58,229		—			58,229
Total shareholder's equity	1,977,489		2,822,537		266,575		(3,030,883		)	2,035,718
Total liabilities and shareholder's equity	$	4,634,438	$	3,863,923	$	606,452	$	(3,666,108	)	$	5,438,705

In May 2019, we entered into an agreement with Bharti Airtel Limited (“BAL”) and its subsidiary, Bharti Airtel Services Limited (together with BAL, “Bharti”), pursuant to which Bharti will contribute its very small aperture terminal (“VSAT”) telecommunications services and hardware business in India to our two existing Indian subsidiaries that conduct our VSAT services and hardware business. The combined entities will provide broadband satellite and hybrid solutions for enterprise and government networks. Upon consummation of the transaction, Bharti will have a 33% ownership interest in the combined business. The completion of the transaction is subject to customary regulatory approvals and closing conditions. No assurance can be given that the transaction will be consummated on the terms agreed to or at all.

Table of Contents

HUGHES SATELLITE SYSTEMS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

Condensed Consolidating Balance Sheet as of December 31, 2019



	HSSC		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Eliminations			Total
Assets
Current assets:
Cash and cash equivalents	$	1,057,903	$	32,338	$	49,194	$	—		$	1,139,435
Marketable investment securities	652,594		241		—		—			652,835
Trade accounts receivable and contract assets, net	—		129,722		66,798		—			196,520
Other current assets	93,536		602,337		107,959		(502,180		)	301,652
Total current assets	1,804,033		764,638		223,951		(502,180		)	2,290,442
Non-current assets:
Property and equipment, net	—		1,459,151		398,430		—			1,857,581
Operating lease right-of-use assets	—		89,106		24,293		—			113,399
Goodwill	—		504,173		2,780		—			506,953
Regulatory authorizations, net	—		400,000		12,363		—			412,363
Other intangible assets, net	—		29,321		—		—			29,321
Other investments, net	—		110,040		—		—			110,040
Investment in subsidiaries	2,876,572		282,163		—		(3,158,735		)	—
Other non-current assets, net	10,672		772,193		42,557		(573,486		)	251,936
Total non-current assets	2,887,244		3,646,147		480,423		(3,732,221		)	3,281,593
Total assets	$	4,691,277	$	4,410,785	$	704,374	$	(4,234,401	)	$	5,572,035
Liabilities and Shareholder's Equity
Current liabilities:
Trade accounts payable	$	—	$	102,744	$	18,808	$	—		$	121,552
Contract liabilities	—		96,485		4,575		—			101,060
Accrued expenses and other current liabilities	243,694		314,583		202,320		(502,180		)	258,417
Total current liabilities	243,694		513,812		225,703		(502,180		)	481,029
Non-current liabilities:
Long-term debt	2,389,168		—		—		—			2,389,168
Deferred tax liabilities, net	—		390,288		—		(9,972		)	380,316
Operating lease liabilities	—		77,366		19,513		—			96,879
Other non-current liabilities	—		553,518		100,476		(563,514		)	90,480
Total non-current liabilities	2,389,168		1,021,172		119,989		(573,486		)	2,956,843
Total liabilities	2,632,862		1,534,984		345,692		(1,075,666		)	3,437,872
Shareholder's equity:
Total Hughes Satellite Systems Corporation shareholder's equity	2,058,415		2,875,801		282,934		(3,158,735		)	2,058,415
Non-controlling interests	—		—		75,748		—			75,748
Total shareholder's equity	2,058,415		2,875,801		358,682		(3,158,735		)	2,134,163
Total liabilities and shareholder's equity	$	4,691,277	$	4,410,785	$	704,374	$	(4,234,401	)	$	5,572,035

Table of Contents

HUGHES SATELLITE SYSTEMS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

Condensed Consolidating Statement of Operations and Comprehensive Income (Loss)

For the Three Months Ended March 31, 2020



	HSSC			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Total
Revenue:
Services and other revenue	$	—		$	354,399		$	64,928		$	(9,089	)	$	410,238
Equipment revenue	—			65,586			5,410			(13,687		)	57,309
Total revenue	—			419,985			70,338			(22,776		)	467,547
Costs and expenses:
Cost of sales - services and other (exclusive of depreciation and amortization)	—			110,471			42,063			(8,649		)	143,885
Cost of sales - equipment (exclusive of depreciation and amortization)	—			55,374			4,221			(13,687		)	45,908
Selling, general and administrative expenses	—			95,818			20,482			(440		)	115,860
Research and development expenses	—			6,109			145			—			6,254
Depreciation and amortization	—			99,359			26,606			—			125,965
Total costs and expenses	—			367,131			93,517			(22,776		)	437,872
Operating income (loss)	—			52,854			(23,179		)	—			29,675
Other income (expense):
Interest income	7,953			971			891			(923		)	8,892
Interest expense, net of amounts capitalized	(40,472		)	(613		)	(2,030		)	923			(42,192		)
Gains (losses) on investments, net	—			(164		)	—			—			(164		)
Equity in earnings (losses) of unconsolidated affiliates, net	—			(1,087		)	—			—			(1,087		)
Equity in earnings (losses) of subsidiaries, net	10,630			(29,167		)	—			18,537			—
Foreign currency transaction gains (losses), net	—			(2		)	(7,526		)	—			(7,528		)
Other, net	—			(275		)	(3		)	—			(278		)
Total other income (expense), net	(21,889		)	(30,337		)	(8,668		)	18,537			(42,357		)
Income (loss) from continuing operations before income taxes	(21,889		)	22,517			(31,847		)	18,537			(12,682		)
Income tax benefit (provision), net	7,418			(11,804		)	(845		)	—			(5,231		)
Net income (loss)	(14,471		)	10,713			(32,692		)	18,537			(17,913		)
Less: Net loss (income) attributable to non-controlling interests	—			—			3,442			—			3,442
Net income (loss) attributable to Hughes Satellite Systems Corporation	$	(14,471	)	$	10,713		$	(29,250	)	$	18,537		$	(14,471	)
Comprehensive income (loss):
Net income (loss)	$	(14,471	)	$	10,713		$	(32,692	)	$	18,537		$	(17,913	)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments	—			—			(82,836		)	—			(82,836		)
Unrealized gains (losses) on available-for-sale securities	(2,479		)	—			—			—			(2,479		)
Other	—			—			(405		)	—			(405		)
Equity in other comprehensive income (loss) of subsidiaries, net	(66,918		)	(66,918		)	—			133,836			—
Total other comprehensive income (loss), net of tax	(69,397		)	(66,918		)	(83,241		)	133,836			(85,720		)
Comprehensive income (loss)	(83,868		)	(56,205		)	(115,933		)	152,373			(103,633		)
Less: Comprehensive loss (income) attributable to non-controlling interests	—			—			19,765			—			19,765
Comprehensive income (loss) attributable to Hughes Satellite Systems Corporation	$	(83,868	)	$	(56,205	)	$	(96,168	)	$	152,373		$	(83,868	)

Table of Contents

HUGHES SATELLITE SYSTEMS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

Condensed Consolidating Statement of Operations and Comprehensive Income (Loss)

For the Three Months Ended March 31, 2019



	HSSC			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Total
Revenue:
Services and other revenue	$	—		$	352,591		$	59,696		$	(8,802	)	$	403,485
Equipment revenue	—			52,649			9,415			(10,350		)	51,714
Total revenue	—			405,240			69,111			(19,152		)	455,199
Costs and expenses:
Cost of sales - services and other (exclusive of depreciation and amortization)	—			110,862			39,333			(8,109		)	142,086
Cost of sales - equipment (exclusive of depreciation and amortization)	—			48,499			6,858			(10,350		)	45,007
Selling, general and administrative expenses	—			86,465			16,565			(693		)	102,337
Research and development expenses	—			6,743			145			—			6,888
Depreciation and amortization	—			96,704			15,707			—			112,411
Total costs and expenses	—			349,273			78,608			(19,152		)	408,729
Operating income (loss)	—			55,967			(9,497		)	—			46,470
Other income (expense):
Interest income	17,409			926			559			(897		)	17,997
Interest expense, net of amounts capitalized	(56,361		)	(1,134		)	(1,317		)	897			(57,915		)
Gains (losses) on investments, net	—			(346		)	—			—			(346		)
Equity in earnings (losses) of unconsolidated affiliates, net	—			(1,072		)	—			—			(1,072		)
Equity in earnings (losses) of subsidiaries, net	52,199			(8,788		)	—			(43,411		)	—
Foreign currency transaction gains (losses), net	—			(19		)	230			—			211
Other, net	309			(398		)	(76		)	—			(165		)
Total other income (expense), net	13,556			(10,831		)	(604		)	(43,411		)	(41,290		)
Income (loss) from continuing operations before income taxes	13,556			45,136			(10,101		)	(43,411		)	5,180
Income tax benefit (provision), net	8,670			(15,568		)	2,026			—			(4,872		)
Net income (loss) from continuing operations	22,226			29,568			(8,075		)	(43,411		)	308
Net income (loss) from discontinued operations	—			22,724			—			—			22,724
Net income (loss)	22,226			52,292			(8,075		)	(43,411		)	23,032
Less: Net loss (income) attributable to non-controlling interests	—			—			(806		)	—			(806		)
Net income (loss) attributable to Hughes Satellite Systems Corporation	$	22,226		$	52,292		$	(8,881	)	$	(43,411	)	$	22,226
Comprehensive income (loss):
Net income (loss)	$	22,226		$	52,292		$	(8,075	)	$	(43,411	)	$	23,032
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments	—			—			(838		)	—			(838		)
Unrealized gains (losses) on available-for-sale securities	2,353			—			—			—			2,353
Other	—			—			33			—			33
Equity in other comprehensive income (loss) of subsidiaries, net	(805		)	(805		)	—			1,610			—
Amounts reclassified to net income (loss):
Realized losses (gains) on available-for-sale securities	(385		)	—			—			—			(385		)
Total other comprehensive income (loss), net of tax	1,163			(805		)	(805		)	1,610			1,163
Comprehensive income (loss)	23,389			51,487			(8,880		)	(41,801		)	24,195
Less: Comprehensive loss (income) attributable to non-controlling interests	—			—			(806		)	—			(806		)
Comprehensive income (loss) attributable to Hughes Satellite Systems Corporation	$	23,389		$	51,487		$	(9,686	)	$	(41,801	)	$	23,389

Table of Contents

HUGHES SATELLITE SYSTEMS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

Condensed Consolidating Statement of Cash Flows

For the Three Months Ended March 31, 2020



	HSSC			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Total
Cash flows from operating activities:
Net income (loss)	$	(14,471	)	$	10,713		$	(32,692	)	$	18,537		$	(17,913	)
Adjustments to reconcile net income (loss) to net cash flows from operating activities	(22,215		)	95,031			28,858			(18,537		)	83,137
Net cash flows from operating activities	(36,686		)	105,744			(3,834		)	—			65,224

Cash flows from investing activities:
Purchases of marketable investment securities	(365,877		)	—			—			—			(365,877		)
Sales and maturities of marketable investment securities	490,020			—			—			—			490,020
Expenditures for property and equipment	—			(61,134		)	(30,383		)	—			(91,517		)
Expenditures for externally marketed software	—			(8,638		)	—			—			(8,638		)
Distributions (contributions) and advances from (to) subsidiaries, net	29,290			(18,939		)	—			(10,351		)	—
Net cash flows from investing activities	153,433			(88,711		)	(30,383		)	(10,351		)	23,988

Cash flows from financing activities:
Payment of finance lease obligations	—			—			(215		)	—			(215		)
Payment of in-orbit incentive obligations	—			(203		)	—			—			(203		)
Contribution by non-controlling interest holder	—			—			4,000			—			4,000
Other, net	—			—			979			—			979
Contributions (distributions) and advances (to) from parent, net	—			(29,290		)	18,939			10,351			—
Net cash flows from financing activities	—			(29,493		)	23,703			10,351			4,561

Effect of exchange rates on cash and cash equivalents	—			—			(4,618		)	—			(4,618		)
Net increase (decrease) in cash and cash equivalents	116,747			(12,460		)	(15,132		)	—			89,155
Cash and cash equivalents, including restricted amounts, beginning of period	1,057,903			32,338			50,081			—			1,140,322
Cash and cash equivalents, including restricted amounts, end of period	$	1,174,650		$	19,878		$	34,949		$	—		$	1,229,477

Table of Contents

HUGHES SATELLITE SYSTEMS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

Condensed Consolidating Statement of Cash Flows

For the Three Months Ended March 31, 2019



	HSSC			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Total
Cash flows from operating activities:
Net income (loss)	$	22,226		$	52,292		$	(8,075	)	$	(43,411	)	$	23,032
Adjustments to reconcile net income (loss) to net cash flows from operating activities	(48,467		)	163,032			(10,043		)	43,411			147,933
Net cash flows from operating activities	(26,241		)	215,324			(18,118		)	—			170,965

Cash flows from investing activities:
Purchases of marketable investment securities	(240,188		)	—			—			—			(240,188		)
Sales and maturities of marketable investment securities	468,748			(3		)	—			—			468,745
Expenditures for property and equipment	—			(54,207		)	(19,722		)	—			(73,929		)
Expenditures for externally marketed software	—			(7,600		)	—			—			(7,600		)
Distributions (contributions) and advances from (to) subsidiaries, net	111,020			(32,949		)	—			(78,071		)	—
Net cash flows from investing activities	339,580			(94,759		)	(19,722		)	(78,071		)	147,028

Cash flows from financing activities:
Repurchase of the 2019 Senior Secured Notes	(8,046		)	—			—			—			(8,046		)
Payment of finance lease obligations	—			(9,597		)	(285		)	—			(9,882		)
Payment of in-orbit incentive obligations	—			(1,573		)	—			—			(1,573		)
Purchase of non-controlling interest	(7,312		)	—			—			—			(7,312		)
Contributions (distributions) and advances (to) from parent, net	—			(111,020		)	32,949			78,071			—
Net cash flows from financing activities	(15,358		)	(122,190		)	32,664			78,071			(26,813		)

Effect of exchange rates on cash and cash equivalents	—			—			(117		)	—			(117		)
Net increase (decrease) in cash and cash equivalents	297,981			(1,625		)	(5,293		)	—			291,063
Cash and cash equivalents, including restricted amounts, beginning of period	771,718			46,353			30,548			—			848,619
Cash and cash equivalents, including restricted amounts, end of period	$	1,069,699		$	44,728		$	25,255		$	—		$	1,139,682

~~Item~~ITEM 2.MANAGEMENT’S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS

Unless the context indicates otherwise, ~~as used herein,~~ the terms “we,” “us,” ~~“HSS,~~“HSSC,” the “Company” and “our” refer to Hughes Satellite Systems Corporation and its subsidiaries. ~~References to “$” are to United States (“U.S.”) dollars.~~ The following ~~management’s narrative analysis~~Management’s Narrative Analysis of ~~results~~Results of ~~operations~~Operations (“Management’s Narrative Analysis”) should be read in conjunction with our accompanying ~~condensed consolidated financial statements~~Condensed Consolidated Financial Statements and notes thereto ~~included elsewhere~~(“Accompanying Condensed Consolidated Financial Statements”) in Item 1 of this Quarterly Report on Form 10-Q (“Form 10-Q”). This ~~management’snarrative analysis~~Management’s Narrative Analysis is intended to help provide an understanding of our financial condition, changes in our financial condition and our results of operations. Many of the statements in this ~~management’s narrative analysis~~Management’s Narrative Analysis are forward-looking statements that involve assumptions and are subject to risks and uncertainties that are often difficult to predict and beyond our control. Actual results could differ materially from those expressed or implied by such forward-looking statements. ~~See~~Refer to the Disclosure Regarding Forward-Looking Statements in this Form 10-Q for further discussion. For a discussion of additional risks, uncertainties and other factors that could impact our results of operations or financial condition, ~~see~~refer to the ~~caption~~ Risk Factors in Part II, Item 1A of this Form 10-Q and in Part I, Item 1A of our most recent Annual Report on Form 10-K ~~for the year ended December 31, 2018~~(“Form 10-K”) filed with the Securities and Exchange Commission (“SEC”~~) as amended by Amendment No. 1 to Form 10-K on Form 10-K/A filed with the SEC (collectively referred to as our “Form 10-K”~~). Further, such forward-looking statements speak only as of the date of this Form 10-Q and we undertake no obligation to update them.

EXECUTIVE SUMMARY

We are a holding company and a subsidiary of EchoStar Corporation (“EchoStar”). We were formed as a Colorado corporation in March 2011. We are a global provider of broadband satellite technologies, broadband internet services for consumer customers, which include home and small ~~office customers, satellite operations~~to medium-sized businesses, and satellite services. We also deliver innovative network technologies, managed services and ~~various~~ communications solutions for enterprise customers, which include aeronautical ~~enterprise~~ and government ~~customers. We currently~~enterprises.

In September 2019, pursuant to a master transaction agreement (the “Master Transaction Agreement”) with DISH Network Corporation (“DISH”) and a wholly-owned subsidiary of DISH (“Merger Sub”), (i) EchoStar and its subsidiaries and we and our subsidiaries transferred certain real property and the various businesses, products, licenses, technology, revenues, billings, operating activities, assets and liabilities primarily related to the former portion of our ESS segment that managed, marketed and provided (1) broadcast satellite services primarily to DISH and its subsidiaries (together with DISH, “DISH Network”) and EchoStar’s joint venture Dish Mexico, S. de R.L. de C.V. (“Dish Mexico”) and its subsidiaries, and (2) telemetry, tracking and control (“TT&C”) services for satellites owned by DISH Network and a portion of EchoStar’s and our other businesses (collectively, the “BSS Business”) to one of our former subsidiaries, EchoStar BSS Corporation (“BSS Corp.”), (ii) EchoStar distributed to each holder of shares of EchoStar’s Class A or Class B common stock entitled to receive consideration in the transaction an amount of shares of common stock of BSS Corp., par value $0.001 per share (“BSS Common Stock”), equal to one share of BSS Common Stock for each share of EchoStar’s Class A or Class B common stock owned by such EchoStar stockholder (the “Distribution”); and (iii) immediately after the Distribution, (1) Merger Sub merged with and into BSS Corp. (the “Merger”), such that BSS Corp. became a wholly-owned subsidiary of DISH and with DISH then owning and operating the BSS Business, and (2) each issued and outstanding share of BSS Common Stock owned by EchoStar stockholders was converted into the right to receive 0.23523769 shares of DISH Class A common stock, par value $0.001 per share (“DISH Common Stock”) ((i) - (iii) collectively, the “BSS Transaction”).

Following the consummation of the BSS Transaction, we no longer operate the BSS Business, which was a substantial portion of our ESS segment. As a result of the BSS Transaction, the financial results of the BSS Business, except for certain real estate that transferred in ~~two business segments, Hughes~~the transaction, are presented as discontinued operations and, ~~EchoStar Satellite Services (“ESS”).~~as such, excluded from continuing operations and segment results for the three months ended March 31, 2019 in our Accompanying Condensed Consolidated Financial Statements. Refer to Note 4. Discontinued Operations in our Accompanying Condensed Consolidated Financial Statements in Item 1 of this Form 10-Q.

We currently operate in two business segments: Hughes and ESS. These segments are consistent with the way we make decisions regarding the allocation of resources, as well as how operating results are reviewed by our chief operating decision maker, who is the Company’s Chief Executive Officer.

During 2017, EchoStar and certain of its and our subsidiaries entered into a share exchange agreement with DISH and certain of its subsidiaries. EchoStar and certain of its and our subsidiaries received all of the shares of the Hughes Retail Preferred Tracking Stock previously issued by EchoStar and us (together, the “Tracking Stock”) in exchange for 100% of the equity interests of certain EchoStar subsidiaries that held substantially all of EchoStar’s former EchoStar Technologies businesses and certain other assets (collectively, the “Share Exchange”). Following the consummation of the Share Exchange, EchoStar no longer operates its former EchoStar Technologies businesses, the Tracking Stock was retired and is no longer outstanding, and all agreements, arrangements and policy statements with respect to the Tracking Stock terminated.

ITEM 2. MANAGEMENT’S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS - CONTINUED

development activities, and gains or losses from certain of our investments. These activities, costs and income, as well as eliminations of intersegment transactions, are accounted for in Corporate and Other ~~in our segment reporting.~~.

~~Item 2. MANAGEMENT’S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS - Continued~~

All amounts presented in this Management’s Discussion and Analysis reference results from continuing operations unless otherwise noted and are expressed in thousands of United States (“U.S.”) dollars, except share and per share amounts and unless otherwise noted.

Highlights from our financial results are as follows:

Consolidated Results of Operations for the ~~three months ended~~Three Months Ended March 31, ~~2019~~2020:


•	Revenue of ~~$532 million~~

~~Operating income of $82 million~~


•	~~Net income of $23~~$467.5 million


•	Operating income (loss) of $29.7 million


•	Net income (loss) from continuing operations of $17.9 million


•	Net income (loss) attributable to ~~HSS~~HSSC of ~~$22~~$14.5 million


•	Earnings before interest, taxes, depreciation and amortization, net income (loss) from discontinued operations and net income (loss) attributable to non-controlling interests (“EBITDA”) of $150.0 million (refer to the reconciliation of this non-GAAP measure in Results of Operations)

~~Earnings before interest, taxes, depreciation and amortization (“EBITDA”) of $224 million (see reconciliation of this non-GAAP measure on page 49)~~

Consolidated Financial Condition as of March 31, ~~2019~~2020:


•	Total assets of ~~$7.0~~$5.4 billion

~~Total liabilities of $4.6 billion~~


•	Total ~~shareholders’~~liabilities of $3.4 billion


•	Total shareholder’s equity of ~~$2.4~~$2.0 billion


•	Cash, cash equivalents and current marketable investment securities of ~~$2.5~~$1.8 billion

Hughes Segment

Our Hughes segment is a global provider of broadband satellite technologies and broadband internet services to ~~home and small office~~consumer customers and broadband network technologies, managed services, equipment, hardware, satellite services and communications solutions to ~~consumers, aeronautical,~~consumer and enterprise ~~and government~~ customers. The Hughes segment also designs, provides and installs gateway and terminal equipment to customers for other satellite systems. In addition, our Hughes segment designs, develops, constructs and provides telecommunication networks comprising satellite ground segment systems and terminals to mobile system operators and our enterprise customers.

We incorporate advances in technology to reduce costs and to increase the functionality and reliability of our products and services. Through advanced and proprietary methodologies, technologies, software and techniques, we continue to improve the efficiency of our networks. We invest in technologies to enhance our system and network management capabilities, specifically our managed services for enterprises. We also continue to invest in next generation technologies that can be applied to our future products and services.

We continue to focus our efforts on growing our consumer revenue by maximizing utilization of our existing satellites while planning for new satellites to be launched or acquired. Our consumer revenue growth depends on our success in adding new and retaining existing subscribers in our domestic and international markets across wholesale and retail channels. The growth of our enterprise businesses, including aeronautical, relies heavily on global economic conditions and the competitive landscape for pricing relative to competitors and alternative technologies. Service costs related to ongoing support for our direct and indirect customers and partners are typically impacted most significantly by our growth. The growth of our enterprise businesses relies heavily on global economic conditions and the competitive landscape for pricing relative to competitors and alternative technologies. As a result of the COVID-19 pandemic, in accordance with orders received from our enterprise customers, we have deferred or canceled the delivery of some products or services and we, thus, may not be able to recognize revenue for such products or services.

Our Hughes segment currently uses capacity from three of our satellites (the SPACEWAY 3 satellite, the EchoStar XVII satellite and the EchoStar XIX satellite), our Al Yah 3 Brazilian payload and additional satellite capacity acquired

ITEM 2. MANAGEMENT’S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS - CONTINUED

from ~~multiple~~ third-party providers to provide services to our customers. Growth of our consumer subscriber base ~~becomes~~continues to be constrained in areas where we are nearing or have reached maximum capacity. While these constraints are expected to be resolved when we launch new satellites, we continue to focus on revenue growth in all areas and consumer subscriber growth in the areas where we have ~~remaining~~available capacity.

In May 2019, we entered into an agreement with Al Yah Satellite Communications Company PrJSC (“Yahsat”) pursuant to which, in November 2019, Yahsat ~~will contribute~~contributed its ~~current~~ satellite communications services business in Brazil to us in exchange for a 20% ownership interest in our existing Brazilian subsidiary that conducts our ~~current~~ satellite communications services business in ~~Brazil.~~Brazil (the “Yahsat Brazil JV Transaction”). The combined business ~~will provide~~provides broadband internet services and enterprise solutions in Brazil using the Telesat T19V ~~and~~satellite, the Eutelsat 65W ~~satellites~~satellite and Yahsat’s Al Yah 3 satellite. Under the terms of the agreement, Yahsat may also acquire, for further cash investments, additional minority ownership interests in the business in the future provided certain conditions are met. ~~The completion of the transaction is subject to customary regulatory approvals~~

~~Item 2. MANAGEMENT’S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS - Continued~~

~~and closing conditions. No assurance can be given that the transaction will be consummated on the terms agreed to or at all.~~

In May 2019, we also entered into an agreement with Bharti Airtel Limited (“BAL”) and its subsidiary, Bharti Airtel Services Limited (together with BAL, “Bharti”), pursuant to which Bharti will contribute its very small aperture terminal (“VSAT”) telecommunications services and hardware business in India to our two existing Indian subsidiaries that conduct our VSAT services and hardware business. The combined entities will provide broadband satellite and hybrid solutions for enterprise ~~and government~~ networks. Upon consummation of the transaction, Bharti will have a 33% ownership interest in the combined business. The completion of the transaction is subject to customary regulatory approvals and closing conditions. No assurance can be given that the transaction will be consummated on the terms agreed to or at all.

In August 2018, we entered into an agreement with Yahsat to establish a new entity, Broadband Connectivity Solutions (Restricted) Limited (together with its subsidiaries, “BCS”), to provide commercial Ka-band satellite broadband services across Africa, the Middle East and southwest Asia operating over ~~Yahsat's~~Yahsat’s Al Yah 2 and Al Yah 3 Ka-band satellites. The transaction was consummated in December 2018 when we invested ~~$100~~$100.0 million in cash in exchange for a 20% interest in BCS. Under the terms of the agreement, we may also acquire, for further cash investments, additional ownership interests in BCS in the future provided certain conditions are met. We supply network operations and management services and equipment to BCS.

In August 2017, a subsidiary of EchoStar entered into a contract for the design and construction of the EchoStar XXIV satellite, a new, next-generation, high throughput geostationary ~~satellite, with a planned 2021 launch.~~satellite. The EchoStar XXIV satellite is primarily intended to provide additional capacity for our HughesNet satellite internet service (“HughesNet service”) in North, Central and South America as well as ~~aeronautical and~~ enterprise broadband services. ~~In March 2018, the Federal Communications Commission granted authorization to construct, deploy and operate the EchoStar XXIV satellite.~~ In the first quarter of ~~2019, Maxar Technologies Inc. (“Maxar”), the parent company of~~2020, Space Systems/Loral, LLC (“~~SSL”~~SS/L”), the manufacturer of our EchoStar XXIV satellite, ~~announced that, although it will continue~~invoked the “force majeure” clause of our contract and notified us of a possible delay in completion of the satellite due to ~~operate~~“shelter-in-place” orders affecting personnel at SS/L and its geostationary communications satellite business, it intends to adjust its organization to better align costs with revenue. SSL has indicated to us that it intends to meet its contractual obligations regardingsubcontractors, and other potential impacts of the ~~timely manufacture and delivery of~~COVID-19 pandemic. We currently expect the EchoStar XXIV ~~satellite. However, if SSL fails~~satellite to ~~meet~~be launched no earlier than the second half of 2021. This or ~~is delayed in~~other delays or impediments to SS/L’s meeting ~~these~~its obligations ~~for any reason, including if Maxar decides to significantly modify its geostationary communications satellite business, such failure~~as a result of the COVID-19 pandemic and various economic and other consequences or otherwise could have a material adverse impact on our business operations, future revenues, financial position and prospects, the completion of ~~the~~ manufacture of the EchoStar XXIV satellite and our planned expansion of satellite broadband services throughout North, South and Central America. Capital expenditures associated with the construction and launch of the EchoStar XXIV satellite are included in EchoStar’s Corporate and Other in its segment reporting.

In March 2017, ~~our wholly-owned subsidiary, Hughes Network Systems, L.L.C.,~~we and DISH Network ~~L.L.C. (“DNLLC”), a wholly-owned subsidiary of DISH,~~ entered into a master service agreement (the “Hughes Broadband MSA”). Pursuant to the Hughes Broadband MSA, ~~DISH’s subsidiary,~~DISH Network, among other things: (i) has the right, but not the obligation, to market, promote and solicit orders and upgrades for ~~the~~our HughesNet service and related equipment and other telecommunication ~~services~~services; and (ii) installs HughesNet service equipment with respect to activations generated by ~~the~~ DISH ~~subsidiary.~~Network. As a result of the Hughes Broadband MSA, we have not earned, and do not expect to earn in the future, significant equipment revenue from our distribution agreement with ~~another wholly-owned subsidiary of DISH. We expect churn in the existing wholesale subscribers to continue to reduce~~ ~~Services and other revenue –~~ DISH ~~Network~~ ~~in the future.~~

Developments toward the launch of next-generation satellite systems including low-earth orbit (“LEO”), medium-earth orbit (“MEO”) and geostationary systems could provide additional opportunities to drive the demand for our equipment, hardware, technology and services. In June 2015, a subsidiary of EchoStar made an equity investment in OneWeb Global Limited (the successor in interest to WorldVue Satellite Limited) (“OneWeb”), a global LEO satellite service company. In addition, we have an agreement with OneWeb to provide certain equipment and services in connection with the ground network system for OneWeb’s LEO satellites. We expect to continue delivering additional equipment and services to OneWeb.Network.

We continue our efforts to expand our consumer satellite services business outside of the U.S. ~~In April 2014, we entered into a 15-year agreement with Eutelsat do Brasil for Ka-band capacity into Brazil on the EUTELSAT 65 West.~~

~~Item 2. MANAGEMENT’S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS - Continued~~

We ~~began~~have been delivering high-speed consumer satellite broadband services in Brazil since July 2016 and are also providing satellite broadband internet service in ~~July 2016.~~several other Latin American countries. Additionally, in September 2015, we entered into 15-year agreements with affiliates of Telesat Canada for Ka-band capacity on the Telesat T19V satellite located at the 63 degree west longitude orbital location, which was launched in July 2018. Telesat T19V was placed in service during the fourth

ITEM 2. MANAGEMENT’S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS - CONTINUED

quarter of 2018 and augmented the capacity being provided by the EUTELSAT 65 West A satellite and the EchoStar XIX ~~satellites~~satellite in ~~Central and~~ South America. ~~We currently provide satellite broadband internet service in several Central and South American countries, and expect to launch similar services in other Central and South American countries.~~

~~Our subscriber metrics as of March 31, 2019 and December 31, 2018 and for the quarter then ended are as follows were:~~

As of
March 31, 2019
December 31, 2018
Broadband subscribers 1,388,000
1,361,000

For the three months ended
March 31, 2019 December 31, 2018
Net additions 28,000
29,000

Our broadband subscribers include customers that subscribe to our HughesNet ~~services~~service in North ~~Central~~ and ~~South~~Latin America through retail, wholesale and small/medium enterprise service channels. In connection with the COVID-19 pandemic, in March 2020, we voluntarily signed on to the Federal Communications Commissions’ (“FCC”) Keep Americans Connected Pledge (the “Pledge”), promising not to terminate HughesNet service for certain consumer customers for 60 days even if they are unable to pay. We have removed from our subscriber numbers as of March 31, 2020 any subscribers whose HughesNet service would have ordinarily been terminated in the absence of the Pledge. In April 2020, we voluntarily agreed with the FCC’s request to extend the Pledge through June 30, 2020. As a result, we may be required to provide HughesNet service to consumers who do not have the ability to pay for such services.

The following table presents our approximate subscriber numbers:

As of March 31, 2020 and December 31, 2019, approximately 267,000 and 238,000 of our subscribers, respectively, were in Latin America.

The following table presents our approximate subscriber net additions:

During the first quarter of ~~2019,~~2020, our ~~gross~~net subscriber additions ~~decreased~~increased by ~~3,000~~approximately 19,000 compared to the fourth quarter of ~~2018. Our net~~2019, reflecting increased gross subscriber additions ~~for the quarter ended March 31, 2019 decreased by 1,000~~ compared to the fourth quarter ended December 31, 2018, primarily due to capacity constraint on our satellites servicing North America. The decrease in net subscriber additions was partially offset by the growth in our consumer business in Central and South America. of 2019.

As of March 31, ~~2019~~2020 and December 31, ~~2018,~~2019, our Hughes segment had ~~$1.65~~$1.2 billion and ~~$1.45~~$1.4 billion ~~respectively,~~ of contracted revenue ~~backlog.~~backlog, respectively. We define Hughes contracted revenue backlog as our expected future revenue ~~including lease revenue,~~ under enterprise customer contracts that are non-cancelable, ~~excluding agreements~~including lease revenue. Our contracted revenue backlog as of March 31, 2020 decreased primarily due to the bankruptcy of a certain customer and the effects of the COVID-19 pandemic, including lengthened or delayed sales cycles with ~~customers in~~some of our ~~consumer market.~~enterprise customers.

ESS Segment

Our ESS segment isprovides satellite services on a ~~global provider of satellite operations~~full-time and/or occasional-use basis to U.S. government service providers, internet service providers, broadcast news organizations, content providers and ~~satellite services.~~private enterprise customers. We operate our ESS business using ~~our owned~~primarily the EchoStar IX satellite and ~~leased in-orbit satellites~~the EchoStar 105/SES-11 satellite and related ~~licenses.~~infrastructure. Revenue in our ESS segment depends largely on our ability to continuously make use of our available satellite capacity with existing customers and our ability to enter into commercial relationships with new customers. Our ESS segment, like others in the fixed satellite services industry, has encountered, and may continue to encounter, negative pressure on transponder rates and demand. We are also pursuing other opportunities such as providing value added services such as telemetry, tracking and control (“TT&C”) services to third parties, which leverage the ground monitoring networks and personnel currently within our ESS segment.

We provide satellite operations and satellite services on a full-time and/or occasional-use basis primarily to DISH Network Corporation and its subsidiaries (“DISH Network”), our joint venture Dish Mexico, S. de R.L. de C.V., (“Dish Mexico”), U.S. government service providers, internet service providers, broadcast news organizations, content providers and private enterprise customers.

We depend on DISH Network for a significant portion of the revenue for our ESS segment, and we expect that DISH Network will continue to be the primary source of revenue for our ESS segment as we have entered into certain commercial agreements with DISH Network pursuant to which we provide DISH Network with satellite services at fixed prices for varying lengths of time depending on the satellite. Therefore, the results of operations of our ESS segment are linked to changes in DISH Network’s satellite capacity requirements, which historically have been driven by the addition of new channels and migration of programming to high-definition television and video on demand services. DISH Network’s future satellite capacity requirements may change for a variety of reasons, including its ability to

~~Item 2. MANAGEMENT’S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS - Continued~~

construct and launch or acquire its own satellites, to continue to add new channels and/or to migrate to the provision of such channels and other video on demand services through streaming and other alternative technologies. There is no assurance that we will continue to provide satellite services to DISH Network beyond the terms of our agreements. Any termination or reduction in the satellite services we provide to DISH Network would cause us to have unused capacity on our satellites and require that we aggressively pursue alternative sources of revenue for this business. The agreement with DISH Network to lease satellite capacity on the EchoStar VII satellite expired in June 2018. As a result, we expect a $43 million annualized decrease in our revenue.

As of March 31, ~~2019~~2020 and December 31, ~~2018,~~2019, our ESS segment had contracted revenue backlog of ~~$756~~$9.5 million and ~~$832~~$11.4 million respectively. We define contracted revenue backlog for our ESS segment as contracted future satellite lease revenue.

ITEM 2. MANAGEMENT’S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS - CONTINUED

Other Business Opportunities

Our industry continues to evolve with the increasing worldwide demand for broadband internet access for information, entertainment and commerce. The current COVID-19 pandemic has made even more evident the worldwide need and demand for connectivity and communications to facilitate an ever-increasing virtual global community and workplace. In addition to fiber and wireless systems, ~~other~~ technologies such as geostationary high throughput satellites, ~~LEO~~low-earth orbit (“LEO”) networks, ~~MEO~~medium-earth orbit (“MEO”) systems, balloons and High Altitude Platform Systems are expected to continue to play significant roles in enabling global broadband access, networks and services. We intend to use our expertise, technologies, capital, investments, global presence, relationships and other capabilities to continue to provide broadband internet systems, equipment, networks and services for information, the internet-of-things, entertainment, education, remote-connectivity and commerce across many industries and communities in North America and internationally for ~~consumers, as well as aeronautical,~~consumer and enterprise ~~and government~~ customers. We are closely tracking the developments in next-generation satellite businesses, and we are seeking to utilize our services, technologies, licenses and expertise to find new commercial opportunities for our business.

We intend to continue to selectively explore opportunities to pursue investments, commercial alliances, partnerships, joint ventures, acquisitions, dispositions and other strategic initiatives and transactions, domestically and internationally, that we believe may allow us to increase our existing market share, increase our satellite capacity, expand into new satellite and other technologies, markets and ~~new~~ customers, broaden our portfolio of services, products and intellectual property, make our business more valuable, align us for future growth and expansion, maximize the return on our investments and strengthen our business and relationships with our customers. We may allocate or dispose of significant resources for long-term value that may not have a short or medium-term or any positive impact on our revenue, results of operations, or cash flow.

Cybersecurity

As a global provider of satellite technologies and services, internet services and communications equipment and networks, we may be prone to more targeted and persistent levels of cyber-attacks than other businesses. These risks may be more prevalent as we continue to expand and grow our business into other areas of the world outside of North America, some of which are still developing their cybersecurity infrastructure maturity. Detecting, deterring, preventing and mitigating incidents caused by hackers and other parties may result in significant costs to us and may expose our customers to financial or other harm that have the potential to significantly increase our liability.

Due to the COVID-19 pandemic, a large portion of our workforce has been working remotely and is likely to continue to do so for some time. While we have cybersecurity risk management tools to help protect our technology, information and networks that our employees access remotely, we cannot guarantee the security of the network that they will be using, the security status of the other non-company managed devices that might be on the network to which they are connected or the devices or networks used by third parties with whom our employees conduct business, such as customers, suppliers, vendors and other persons. Additionally, there has been a major global increase in COVID-19 related cyber-fraud and phishing attacks that continue to target our employees, vendors, suppliers, customers and others. Accordingly, we have increased our efforts and resources relating to cybersecurity as a result of the COVID-19 pandemic

We treat cybersecurity risk seriously and are focused on maintaining the security of our and our partners’ systems, networks, technologies and data. We regularly review and revise our relevant policies and procedures, invest in and maintain internal resources, personnel and systems and review, modify and supplement our defenses through the use of various services, programs and outside vendors. Additionally, we provide resources to assist employees in better securing their home networks and remote connections. EchoStar also maintains agreements with third party vendors and experts to assist in our remediation and mitigation efforts if we experience or identify a material incident or threat. In addition, senior management and the Audit Committee of EchoStar’s Board of Directors are regularly briefed on cybersecurity matters.

We are not aware of any cyber-incidents with respect to our owned or leased satellites or other networks, equipment or systems that have had a material adverse effect on our business, costs, operations, prospects, results of operation or financial position during the three months ended March 31, ~~2019.~~2020 and through May 6, 2020. There can be no

ITEM 2. MANAGEMENT’S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS - CONTINUED

assurance, however, that any such incident can be detected or thwarted or will not have such a material adverse effect in the future.

~~Item 2. MANAGEMENT’S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS - Continued~~

RESULTS OF OPERATIONS

Three Months Ended March 31, ~~2019~~2020 Compared to the Three Months Ended March 31, ~~2018~~2019

The following table presents our consolidated results of operations for the three months ended March 31, 2020 compared to the three months ended March 31, 2019:


	For the three months ended March 31,						Variance					For the three months ended March 31,						Variance
Statements of Operations Data (1)	2019			2018			Amount			%
	(Dollars in thousands)
Statements of Operations Data												2020			2019			Amounts			%
Revenue:
Services and other revenue - DISH Network	$	82,371		$	100,614		$	(18,243	)	(18.1	)
Services and other revenue - other	398,340			359,334			39,006			10.9
Services and other revenue												$	410,238		$	403,485		$	6,753		1.7
Equipment revenue	51,714			42,947			8,767			20.4		57,309			51,714			5,595			10.8
Total revenue	532,425			502,895			29,530			5.9		467,547			455,199			12,348			2.7
Costs and expenses:
Cost of sales - services and other	152,303			147,655			4,648			3.1		143,885			142,086			1,799			1.3
% of total services and other revenue	31.7		%	32.1		%						35.1		%	35.2		%
Cost of sales - equipment	45,007			39,071			5,936			15.2		45,908			45,007			901			2.0
% of total equipment revenue	87.0		%	91.0		%						80.1		%	87.0		%
Selling, general and administrative expenses	102,358			94,650			7,708			8.1		115,860			102,337			13,523			13.2
% of total revenue	19.2		%	18.8		%						24.8		%	22.5		%
Research and development expenses	6,888			7,137			(249		)	(3.5	)	6,254			6,888			(634		)	(9.2	)
% of total revenue	1.3		%	1.4		%						1.3		%	1.5		%
Depreciation and amortization	143,530			133,718			9,812			7.3		125,965			112,411			13,554			12.1
Total costs and expenses	450,086			422,231			27,855			6.6		437,872			408,729			29,143			7.1
Operating income	82,339			80,664			1,675			2.1

Operating income (loss)												29,675			46,470			(16,795		)	(36.1	)
Other income (expense):
Interest income	17,997			11,379			6,618			58.2
Interest income, net												8,892			17,997			(9,105		)	(50.6	)
Interest expense, net of amounts capitalized	(64,413		)	(64,413		)	—			—		(42,192		)	(57,915		)	15,723			27.1
Gains (losses) on investments, net	(346		)	(392		)	46			(11.7	)	(164		)	(346		)	182			(52.6	)
Equity in earnings (losses) of unconsolidated affiliates, net												(1,087		)	(1,072		)	(15		)	1.4
Foreign currency transaction gains (losses), net												(7,528		)	211			(7,739		)	*
Other, net	(1,027		)	879			(1,906		)	*		(278		)	(165		)	(113		)	68.5
Total other expense, net	(47,789		)	(52,547		)	4,758			(9.1	)
Income before income taxes	34,550			28,117			6,433			22.9
Income tax provision	(11,518		)	(7,736		)	(3,782		)	48.9
Net income	23,032			20,381			2,651			13.0
Less: Net income attributable to noncontrolling interests	806			380			426			*
Net income attributable to HSS	$	22,226		$	20,001		$	2,225		11.1
Total other income (expense), net												(42,357		)	(41,290		)	(1,067		)	2.6
Income (loss) from continuing operations before income taxes												(12,682		)	5,180			(17,862		)	*
Income tax benefit (provision), net												(5,231		)	(4,872		)	(359		)	7.4
Net income (loss) from continuing operations												(17,913		)	308			(18,221		)	*
Net income (loss) from discontinued operations												—			22,724			(22,724		)	(100.0	)
Net income (loss)												(17,913		)	23,032			(40,945		)	*
Less: Net loss (income) attributable to non-controlling interests												3,442			(806		)	4,248			*
Net income (loss) attributable to Hughes Satellite Systems Corporation												$	(14,471	)	$	22,226		$	(36,697	)	*

Other data:
EBITDA (2)	$	223,690		$	214,489		$	9,201		4.3
EBITDA ⁽¹⁾												$	150,025		$	156,703		$	(6,678	)	(4.3	)
Subscribers, end of period	1,388,000			1,267,000			121,000			9.6		1,516,000			1,332,000			184,000			13.8
___________________________



	Hughes		ESS		Corporate and Other		Consolidated Total
	(In thousands)
For the three months ended March 31, 2019

North America	$	367,829	$	81,084	$	1,005	$	449,918
South and Central America	26,863		—		—		26,863
All other	50,645		175		4,824		55,644
Total revenue	$	445,337	$	81,259	$	5,829	$	532,425

For the three months ended March 31, 2018

North America	$	336,020	$	96,578	$	1,206	$	433,804
South and Central America	24,488		—		—		24,488
All other	40,310		175		4,118		44,603
Total revenue	$	400,818	$	96,753	$	5,324	$	502,895



	Hughes		ESS		Corporate and Other		Consolidated Total
	(In thousands)
For the three months ended March 31, 2019
Equipment	$	25,960	$	—	$	—	$	25,960
Services	380,783		3,740		322		384,845
Design, development and construction services	25,066		—		—		25,066
Revenue from sales and services	431,809		3,740		322		435,871
Lease revenue	13,528		77,519		5,507		96,554
Total revenue	$	445,337	$	81,259	$	5,829	$	532,425

For the three months ended March 31, 2018
Equipment	$	26,771	$	—	$	—	$	26,771
Services	313,961		7,403		375		321,739
Design, development and construction services	16,176		—		—		16,176
Revenue from sales and services	356,908		7,403		375		364,686
Lease revenue	43,910		89,350		4,949		138,209
Total revenue	$	400,818	$	96,753	$	5,324	$	502,895



	For the three months ended March 31,
	2020		2019
Sales-type lease revenue:
Revenue at lease commencement	$	913	$	688
Interest income	69		252
Total sales-type lease revenue	982		940
Operating lease revenue	17,404		19,311
Total lease revenue	$	18,386	$	20,251



	For the three months ended March 31, 2019
	(In thousands)
Lease cost
Operating lease cost	$	5,123
Finance lease cost
Amortization of right-of-use assets	20,666
Interest on lease liabilities	6,018
Short-term lease cost	120
Variable lease cost	1,918
Total lease cost	$	33,845



	~~As of~~
	~~March 31, 2019~~
	~~(In thousands)~~
~~Lease term and discount rate~~
~~Weighted average remaining lease term (in years):~~
~~Finance leases~~	~~4.82~~
~~Operating leases~~	~~10.54~~

~~Weighted average discount rate:~~
~~Finance leases~~	~~10.75~~	%
~~Operating leases~~	~~6.19~~	%



	Additional Paid-In Capital			Accumulated Other Comprehensive Loss			Accumulated Earnings		Noncontrolling Interests			Total
Balance, December 31, 2017	$	1,754,561		$	(52,822	)	$	582,683	$	14,822		$	2,299,244
Cumulative effect of accounting changes as of January 1, 2018	—			433			17,775		—			18,208
Balance, January 1, 2018	1,754,561			(52,389		)	600,458		14,822			2,317,452
Stock-based compensation	1,299			—			—		—			1,299
Capital contributions from EchoStar Corporation	7,125			—			—		—			7,125
Other comprehensive income (loss)	—			1,803			—		(214		)	1,589
Net income	—			—			20,001		380			20,381
Other	(58		)	(100		)	—		—			(158		)
Balance, March 31, 2018	$	1,762,927		$	(50,686	)	$	620,459	$	14,988		$	2,347,688

Balance, December 31, 2018	$	1,767,037		$	(83,774	)	$	693,957	$	15,275		$	2,392,495
Stock-based compensation	1,433			—			—		—			1,433
Noncontrolling interest repurchase	(2,666		)	—			—		(4,647		)	(7,313		)
Other comprehensive income	—			1,163			—		—			1,163
Net income	—			—			22,226		806			23,032
Other	(323		)	—			—		—			(323		)
Balance, March 31, 2019	$	1,765,481		$	(82,611	)	$	716,183	$	11,434		$	2,410,487



	As Reported December 31,2018		Adoption of ASC 842 Increase (Decrease)			Balance January 1, 2019
	(in thousands)
Prepaids and deposits	$	48,681	$	(28	)	$	48,653
Operating lease right-of-use assets	$	—	$	117,006		$	117,006
Other noncurrent assets, net	$	253,025	$	(7,272	)	$	245,753
Total assets	$	6,893,172	$	109,706		$	7,002,878
Accrued expenses and other	$	68,854	$	14,444		$	83,298
Operating lease liabilities	—		$	99,133		$	99,133
Other noncurrent liabilities	$	101,140	$	(3,871	)	$	97,269
Total liabilities	$	4,500,677	$	109,706		$	4,610,383
Total liabilities and shareholders’ equity	$	6,893,172	$	109,706		$	7,002,878



Right-of-use assets
Operating	$	112,974
Finance	563,350
Total right-of-use assets	$	676,324

Lease liabilities
Current
Operating	$	14,444
Finance	41,651
Noncurrent
Operating	95,073
Finance	177,294
Total lease liabilities	$	328,462



	For the three months ended March 31, 2019
	(In thousands)
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	4,516
Operating cash flows from finance leases	$	6,018
Financing cash flows from finance leases	$	9,758



Maturity of lease liabilities	Operating leases			Finance leases			Total
	(In thousands)
Year ending December 31,
2019 (remainder)	$	14,757		$	47,400		$	62,157
2020	18,339			63,266			81,605
2021	15,781			59,692			75,473
2022	13,918			41,040			54,958
2023	13,337			40,942			54,279
After 2023	75,274			30,707			105,981
Total lease payments	151,406			283,047			434,453
Less interest	(41,889		)	(64,102		)	(105,991		)
Present value of lease liabilities	$	109,517		$	218,945		$	328,462



	Amounts
Year ending December 31,
2020 (remainder)	$	27,691
2021	34,910
2022	32,052
2023	30,285
2024	28,219
2025 and beyond	123,520
Total lease payments	$	276,677



			Accumulated		Depreciation
	Cost		depreciation		expense
	(in thousands)
Customer premises equipment	$	1,291,237	$	925,721	$	49,712
Satellites	1,552,245		847,160		32,601
Real estate	31,477		6,460		217
Total	$	2,874,959	$	1,779,341	$	82,530



	Amounts
Operating activities:
Net income (loss) from discontinued operations	$	22,724
Depreciation and amortization	$	31,119

Investing activities:
Expenditures for property and equipment	$	108

Financing activities:
Payment of finance lease obligations	$	9,597
Payment of in-orbit incentive obligations	$	1,035



	Cumulative Foreign Currency Translation Losses			Unrealized Gain (Loss) On Available-For-Sale Securities			Other			Accumulated Other Comprehensive Loss
	(In thousands)
Balance, December 31, 2017	$	(52,251	)	$	(648	)	$	77		$	(52,822	)
Cumulative effect of adoption of the Accounting Standards Update No. 2016-01	—			433			—			433
Balance, January 1, 2018	(52,251		)	(215		)	77			(52,389		)
Other comprehensive income (loss) before reclassifications	2,114			(311		)	(100		)	1,703
Other comprehensive income (loss)	2,114			(311		)	(100		)	1,703
Balance, March 31, 2018	$	(50,137	)	$	(526	)	$	(23	)	$	(50,686	)

Balance, December 31, 2018	$	(82,800	)	$	(1,092	)	$	118		$	(83,774	)
Other comprehensive income (loss) before reclassifications	(838		)	2,353			33			1,548
Amounts reclassified to net income	—			(385		)	—			(385		)
Other comprehensive income (loss)	(838		)	1,968			33			1,163
Balance, March 31, 2019	$	(83,638	)	$	876		$	151		$	(82,611	)


•	EchoStar VII, EchoStar X, EchoStar XI and EchoStar XIV — In March 2014, we began leasing certain satellite capacity to DISH Network on the EchoStar VII satellite, the EchoStar X satellite, the EchoStar XI satellite and the EchoStar XIV satellite.


•	EchoStar XVI — In December 2009, we entered into an agreement to lease satellite capacity to DISH Network, pursuant to which DISH Network leased satellite capacity from us on the EchoStar XVI satellite beginning in January 2013.



	Amounts
Assets:
Cash and cash equivalents	$	7,858
Other current assets, net	7,106
Property and equipment	86,983
Regulatory authorization	4,498
Goodwill	6,328
Other non-current assets, net	1,502
Total assets	$	114,275

Liabilities:
Trade accounts payable	$	3,879
Accrued expenses and other current liabilities	4,796
Total liabilities	$	8,675

Total purchase price ⁽¹⁾	$	105,600



	Amounts
Satellite payload	$	49,363
Regulatory authorization	4,498
Total	$	53,861



	Amortized		Unrealized					Estimated
	Cost		Gains		Losses			Fair Value
As of March 31, 2020
Corporate bonds	$	321,466	$	—	$	(2,171	)	$	319,295
Other debt securities	205,569		—		—			205,569
Total available-for-sale debt securities	$	527,035	$	—	$	(2,171	)	$	524,864

As of December 31, 2019
Corporate bonds	$	411,312	$	395	$	(1	)	$	411,706
Other debt securities	240,887		1		—			240,888
Total available-for-sale debt securities	$	652,199	$	396	$	(1	)	$	652,594



	Depreciable Life In Years	As of
	Depreciable Life In Years	March 31, 2019			December 31, 2018
		(In thousands)
Land	—	$	13,375		$	13,401
Buildings and improvements	1 to 40	117,270			117,564
Furniture, fixtures, equipment and other	1 to 12	754,902			741,429
Customer premises equipment	2 to 4	1,210,850			1,159,977
Satellites - owned	2 to 15	2,268,862			2,268,862
Satellites - acquired under finance leases	10 to 15	1,050,360			1,051,110
Construction in progress	—	30,013			28,087
Total property and equipment		5,445,632			5,380,430
Accumulated depreciation		(2,929,495		)	(2,798,249		)
Property and equipment, net		$	2,516,137		$	2,582,181



Satellite	Segment	Launch Date	Nominal Degree Orbital Location (Longitude)	Depreciable Life (In Years)
Owned:
SPACEWAY 3 ⁽¹⁾	Hughes	August 2007	95 W	10
EchoStar XVII	Hughes	July 2012	107 W	15
EchoStar XIX	Hughes	December 2016	97.1 W	15
Al Yah 3 ⁽²⁾	Hughes	January 2018	20 W	7
EchoStar IX ⁽³⁾	ESS	August 2003	121 W	12

Finance leases:
Eutelsat 65 West A	Hughes	March 2016	65 W	15
Telesat T19V	Hughes	July 2018	63 W	15
EchoStar 105/SES-11	ESS	October 2017	105 W	15



	Depreciable Life (In Years)	As of
	Depreciable Life (In Years)	March 31, 2020			December 31, 2019
Satellites, net:
Satellites - owned	7 to 15	$	1,503,580		$	1,516,006
Satellites - acquired under finance leases	15	352,206			381,162
Total satellites		1,855,786			1,897,168
Accumulated depreciation:
Satellites - owned		(739,859		)	(713,259		)
Satellites - acquired under finance leases		(56,385		)	(56,388		)
Total accumulated depreciation		(796,244		)	(769,647		)
Total satellites, net		$	1,059,542		$	1,127,521



	Finite lived
	Cost			Accumulated Amortization			Total			Indefinite lived		Total
Balance, December 31, 2018	$	—		$	—		$	—		$	400,043	$	400,043
Balance, March 31, 2019	$	—		$	—		$	—		$	400,043	$	400,043

Balance, December 31, 2019	$	12,524		$	(161	)	$	12,363		$	400,000	$	412,363
Amortization expense	—			(100		)	(100		)	—		(100		)
Foreign currency translation	(1,020		)	—			(1,020		)	—		(1,020		)
Balance, March 31, 2020	$	11,504		$	(261	)	$	11,243		$	400,000	$	411,243

Weighted average useful life				14 years



	Effective Interest Rate	As of
		March 31, 2019					December 31, 2018
		Carrying Amount			Fair Value		Carrying Amount			Fair Value
		(In thousands)
Senior Secured Notes:
6 1/2% Senior Secured Notes due 2019	6.959%	$	912,857		$	919,119	$	920,836		$	932,696
5 1/4% Senior Secured Notes due 2026	5.320%	750,000			749,903		750,000			695,865
Senior Unsecured Notes:
7 5/8% Senior Unsecured Notes due 2021	8.062%	900,000			969,417		900,000			934,902
6 5/8% Senior Unsecured Notes due 2026	6.688%	750,000			741,368		750,000			696,353
Less: Unamortized debt issuance costs		(14,737		)	—		(16,757		)	—
Subtotal		3,298,120			$	3,379,807	3,304,079			$	3,259,816
Finance lease obligations		218,945					228,702
Total debt and finance lease obligations		3,517,065					3,532,781
Less: Current portion		(953,636		)			(959,577		)
Long-term debt and finance lease obligations, net		$	2,563,429				$	2,573,204



	Effective interest rates	As of
		March 31, 2020					December 31, 2019
		Carrying Amount			Fair Value		Carrying Amount			Fair Value
Senior Secured Notes:
5 1/4% Senior Secured Notes due 2026	5.320%	$	750,000		$	748,133	$	750,000		$	825,308
Senior Unsecured Notes:
7 5/8% Senior Unsecured Notes due 2021	8.062%	900,000			922,527		900,000			963,783
6 5/8% Senior Unsecured Notes due 2026	6.688%	750,000			770,715		750,000			833,903
Less: Unamortized debt issuance costs		(9,782		)			(10,832		)
Total long-term debt		$	2,390,218		$	2,441,375	$	2,389,168		$	2,622,994


~~(2)~~	A reconciliation of EBITDA to Net income, the most directly comparable generally accepted accounting principles (“U.S. GAAP”) measure in the accompanying financial statements, is included on page 49. For further information on our use of EBITDA, see Explanation of Key Metrics and Other Items on page 52.



	Amounts
	(In thousands)
Net income attributable to HSS for the three months ended March 31, 2018	$	20,001
Increase in income tax provision	(3,782		)
Increase in interest expense	—
Increase in other, net	(1,906		)
Increase in net income attributable to noncontrolling interests	(426		)
Increase in interest income	6,618
Increase in operating income, including depreciation and amortization	1,675
Decrease in losses on investments, net	46
Net income attributable to HSS for the three months ended March 31, 2019	$	22,226



	Amounts
EBITDA for the three months ended March 31, 2019	$	156,703
Decrease (increase) in net income attributable to non-controlling interests	4,248
Increase (decrease) in gains on investments, net	182
Decrease (increase) in equity in losses of unconsolidated affiliates, net	(15		)
Increase (decrease) in other, net	(113		)
Increase (decrease) in operating income, excluding depreciation and amortization	(3,241		)
Increase (decrease) in foreign currency transaction gains, net	(7,739		)
EBITDA for the three months ended March 31, 2020	$	150,025



	Amounts
EBITDA for the three months ended March 31, 2019	$	161,132
Decrease (increase) in net income attributable to non-controlling interests	4,248
Increase (decrease) in gains on investments, net	568
Increase (decrease) in other, net	(191		)
Decrease (increase) in equity in losses of unconsolidated affiliates, net	(373		)
Increase (decrease) in operating income, excluding depreciation and amortization	(2,997		)
Increase (decrease) in foreign currency transaction gains, net	(7,746		)
EBITDA for the three months ended March 31, 2020	$	154,641



	Amounts
EBITDA for the three months ended March 31, 2019	$	(6,158	)
Decrease (increase) in equity in losses of unconsolidated affiliates, net	357
Increase (decrease) in other, net	81
Increase (decrease) in foreign currency transaction gains, net	7
Increase (decrease) in gains on investments, net	(385		)
Increase (decrease) in operating income, excluding depreciation and amortization	(548		)
EBITDA for the three months ended March 31, 2020	$	(6,646	)



Exhibit No.		Description
31.1(H)		Section 302 Certification of Chief Executive Officer.
31.2(H)		Section 302 Certification of Chief Financial Officer.
32.1(I)		Section 906 Certifications of Chief Executive Officer and Chief Financial Officer.
99.1(I)		Press release dated May ~~8, 2019~~7, 2020 issued by EchoStar Corporation regarding financial results for the period ended March 31, ~~2019.~~2020.
101.INS		XBRL Instance Document. The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH		XBRL Taxonomy Extension Schema.
101.CAL		XBRL Taxonomy Extension Calculation Linkbase.
101.DEF		XBRL Taxonomy Extension Definition Linkbase.
101.LAB		XBRL Taxonomy Extension Label Linkbase.
101.PRE		XBRL Taxonomy Extension Presentation Linkbase.


**	Constitutes a management contract or compensatory plan or arrangement.



		HUGHES SATELLITE SYSTEMS CORPORATION


Date: May ~~8, 2019~~7, 2020	By:	/s/ Michael T. Dugan
		Michael T. Dugan
		Chief Executive Officer, President and Director
		(Principal Executive Officer)


Date: May ~~8, 2019~~7, 2020	By:	/s/ David J. Rayner
		David J. Rayner
		Executive Vice President, Chief Financial Officer, Chief Operating Officer and Treasurer
		(Principal Financial and Accounting Officer)

March 31, 2020

December 31, 2019

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