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

FOR THE QUARTERLY PERIOD ENDED ~~SEPTEMBER 30, 2019~~MARCH 31, 2020.

☐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)

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 ☐ No ☒

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 ☒ No ☐

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 filer	☐	Accelerated filer	☐	Emerging growth company	☐
Non-accelerated filer	☒	Smaller reporting company	☐

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. ☐

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

As of ~~October 29, 2019,~~April 30, 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.

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Disclosure Regarding Forward-Looking Statements		i

PART I - FINANCIAL INFORMATION

Item 1.	Financial Statements	1
	Condensed Consolidated Balance Sheets as of ~~September 30, 2019~~March 31, 2020 (unaudited) and December 31, ~~2018 (unaudited)~~2019 (audited)	1
	Condensed Consolidated Statements of Operations for the three months ended March 31, 2020 and 2019 (unaudited)	2
	Condensed Consolidated Statements of Comprehensive Income (Loss) for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~ (unaudited)	3
	Condensed Consolidated Statements of Changes in ~~Shareholders’~~Shareholder’s Equity for the three months ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~ (unaudited)	5
	~~Condensed Consolidated Statements of Changes in Shareholders’ Equity for the nine months ended September 30, 2019 and 2018 (unaudited)~~	64
	Condensed Consolidated Statements of Cash Flows for the ~~nine~~three months ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~ (unaudited)	75
	Notes to Condensed Consolidated Financial Statements (unaudited)	86
Item 2.	Management’s Narrative Analysis of Results of Operations	5447
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	*
Item 4.	Controls and Procedures	6658

PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	6759
Item 1A.	Risk Factors	6759
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	*
Item 3.	Defaults Upon Senior Securities	*
Item 4.	Mine Safety Disclosures	6960
Item 5.	Other Information	7061
Item 6.	Exhibits	7061
	Signatures	7162

* ~~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, 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 ability and 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 result of outbreaks of viruses or widespread illness, including existing, continuing and future impacts and consequences of the 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 including, without limitation, the BSS Transaction (as defined herein);~~transactions;

lawsuits relating to the BSS Transaction or AGR matter (each as defined herein), which could result in substantial ~~costs;~~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

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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

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PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

HUGHES SATELLITE SYSTEMS CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

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

(Unaudited)

As of
September 30, 2019 December 31, 2018
Assets
Current assets:
Cash and cash equivalents $ 1,076,271
$ 847,823
Marketable investment securities, at fair value 695,596
1,609,196
Trade accounts receivable and contract assets, net (Note 3) 200,779
201,096
Trade accounts receivable - DISH Network 13,182
13,550
Inventory 82,677
75,379
Prepaids and deposits 52,678
45,198
Advances to affiliates, net 73,836
103,550
Other current assets 17,379
18,539
Current assets of discontinued operations 5,866
3,483
Total current assets 2,218,264
2,917,814
Noncurrent assets:
Property and equipment, net 1,786,236
1,921,911
Operating lease right-of-use assets 111,011
—
Goodwill 504,173
504,173
Regulatory authorizations 400,000
400,043
Other intangible assets, net 32,979
43,952
Investments in unconsolidated entities 118,574
126,369
Advances to affiliates 19,284
—
Other noncurrent assets, net 229,003
236,449
Noncurrent assets of discontinued operations —
742,461
Total noncurrent assets 3,201,260
3,975,358
Total assets $ 5,419,524
$ 6,893,172
Liabilities and Shareholders’ Equity
Current liabilities:
Trade accounts payable $ 119,252
$ 104,751
Trade accounts payable - DISH Network 87
752
Current portion of long-term debt and finance lease obligations 407
919,582
Advances from affiliates, net 852
868
Contract liabilities 109,557
72,249
Accrued interest 36,849
45,131
Accrued compensation 35,701
42,796
Accrued taxes 9,278
7,609
Accrued expenses and other 119,930
61,366
Current liabilities of discontinued operations 3,492
49,055
Total current liabilities 435,405
1,304,159



	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

Noncurrent liabilities:
Long-term debt and finance lease obligations, net 2,388,931
2,386,202
Deferred tax liabilities, net 341,426
355,356
Operating lease liabilities 94,232
—
Advances from affiliates, net 33,139
33,438
Other noncurrent liabilities 68,865
71,647
Noncurrent liabilities of discontinued operations —
349,875
Total noncurrent liabilities 2,926,593
3,196,518
Total liabilities 3,361,998
4,500,677
Commitments and contingencies (Note 14)

Shareholders’ equity:
Preferred stock, $0.001 par value, 1,000,000 shares authorized, none issued and outstanding at both September 30, 2019 and December 31, 2018 —
—
Common stock, $0.01 par value; 1,000,000 shares authorized, 1,078 shares issued and outstanding at both September 30, 2019 and December 31, 2018 —
—
Additional paid-in capital 1,426,978
1,767,037
Accumulated other comprehensive loss (95,913 ) (83,774 )
Accumulated earnings 717,267
693,957
Total HSS shareholders’ equity 2,048,332
2,377,220
Noncontrolling interests 9,194
15,275
Total shareholders’ equity 2,057,526
2,392,495
Total liabilities and shareholders’ equity $ 5,419,524
$ 6,893,172

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

(Amounts in thousands)

(Unaudited)


	For the three months ended September 30,						For the nine months ended September 30,						For the three months ended March 31,
	2019			2018			2019			2018			2020			2019
Revenue:
Services and other revenue - DISH Network	9,747			$	13,984		$	32,021		$	48,118
Services and other revenue - other	397,649			386,820			1,182,455			1,113,471
Services and other revenue													$	410,238		$	403,485
Equipment revenue	65,725			56,846			175,084			150,134			57,309			51,714
Total revenue	473,121			457,650			1,389,560			1,311,723			467,547			455,199

Costs and expenses:
Cost of sales - services and other (exclusive of depreciation and amortization)	142,429			141,333			425,896			418,651			143,885			142,086
Cost of sales - equipment (exclusive of depreciation and amortization)	51,188			46,318			142,744			127,254			45,908			45,007
Selling, general and administrative expenses	111,987			97,653			353,559			285,662			115,860			102,337
Research and development expenses	6,136			6,544			19,411			20,328			6,254			6,888
Depreciation and amortization	115,948			107,846			342,086			315,930			125,965			112,411
Total costs and expenses	427,688			399,694			1,283,696			1,167,825			437,872			408,729
Operating income	45,433			57,956			105,864			143,898

Operating income (loss)													29,675			46,470
Other income (expense):
Interest income	12,300			15,697			47,341			41,362
Interest income, net													8,892			17,997
Interest expense, net of amounts capitalized	(55,608		)	(58,067		)	(172,502		)	(171,835		)	(42,192		)	(57,915		)
Gains (losses) on investments, net	70			145			(290		)	262			(164		)	(346		)
Equity in earnings (losses) of unconsolidated affiliates, net	(894		)	992			(2,882		)	3,722			(1,087		)	(1,072		)
Foreign currency transaction gains (losses), net													(7,528		)	211
Other, net	(13,197		)	(3,618		)	(12,129		)	(3,764		)	(278		)	(165		)
Total other expense, net	(57,329		)	(44,851		)	(140,462		)	(130,253		)
Total other income (expense), net													(42,357		)	(41,290		)
Income (loss) from continuing operations before income taxes	(11,896		)	13,105			(34,598		)	13,645			(12,682		)	5,180
Income tax provision, net	(5,176		)	(10,967		)	(1,185		)	(13,756		)
Income tax benefit (provision), net													(5,231		)	(4,872		)
Net income (loss) from continuing operations	(17,072		)	2,138			(35,783		)	(111		)	(17,913		)	308
Net income from discontinued operations	14,382			26,782			57,734			90,105
Net income (loss) from discontinued operations													—			22,724
Net income (loss)	(2,690		)	28,920			21,951			89,994			(17,913		)	23,032
Less: Net income (loss) attributable to noncontrolling interests	(2,797		)	450			(1,359		)	1,292
Net income attributable to HSS	$	107		$	28,470		$	23,310		$	88,702
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

~~103 Degree Orbital Location/SES-3~~.

•

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.

~~Telesat Obligation Agreement~~. In September 2009, we entered into an 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”). We transferred the Telesat Transponder Agreement to DISH Network as part of the BSS Transaction; however, we retained certain obligations related to DISH Network’s performance under that agreement. In September 2019, we and DISH Network entered into an agreement whereby DISH Network compensates us for retaining such obligations.

TerreStar ~~Agreement~~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 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

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~~HUGHES SATELLITE SYSTEMS CORPORATION~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

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 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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HUGHES SATELLITE SYSTEMS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

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 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.

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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~~HUGHES SATELLITE SYSTEMS CORPORATION~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

~~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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HUGHES SATELLITE SYSTEMS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

“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 (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 ~~subleased 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 ~~sublease~~agreement to, among other things, terminate this ~~sublease~~agreement in March 2019. The rent on a per square foot basis for the lease was comparable to per square foot rental rates of similar commercial property in the same geographic area at the time of the lease, and we 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

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no later than October 2020, with 4four 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.

~~Other Agreements — DISH Network~~

~~Master Transaction Agreement.~~ In 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) EchoStar ~~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. See Note 1 for further information.

~~Satellite and Tracking Stock Transaction.~~ In February 2014, we and EchoStar entered into agreements with DISH Network to implement a transaction pursuant to which, among other things: (i) in March 2014, EchoStar and Hughes Satellite Systems Corporation issued the Tracking Stock to DISH Network in exchange for 5 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 $11.4 million in cash; and (ii) in March 2014, DISH Network began receiving certain satellite services from us as discussed above on these 5 satellites (collectively, the “Satellite and Tracking Stock 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.~~ On January 31, 2017, EchoStar and certain of its and our subsidiaries entered into a share exchange agreement (the “Share Exchange Agreement”) with DISH and certain of its subsidiaries, pursuant to which, on 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 of EchoStar’s subsidiaries that held substantially all of EchoStar’s EchoStar Technologies businesses and certain other assets. Following consummation of the Share Exchange, 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 term of five years ~~until~~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 ~~of the Hughes Broadband MSA. We incurred sales incentives and other costs under the Hughes Broadband MSA~~

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of the Hughes Broadband MSA. We incurred sales incentives and other costs under the Hughes Broadband MSA totaling ~~$3.7~~$4.6 million and ~~$6.4~~$4.8 million for the three months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018, respectively, and $13.2 million and $26.3 million for the nine months ended September 30, 2019 and 2018,~~ respectively.

~~Share Exchange Intellectual Property and Technology License Agreement.~~2019 TT&C Agreement ~~Effective March 2017~~. In September 2019, in connection with the ~~Share Exchange,~~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 ~~one of~~ 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 Receivables - DISH Network

Tax Sharing Agreement.Effective December 2007, EchoStar and DISH Network entered into ~~an intellectual property~~a tax sharing agreement (the “Tax Sharing Agreement”) in connection with the Spin-off. This agreement governs EchoStar and ~~technology license agreement (“IPTLA”) pursuant~~DISH and their respective subsidiaries’ respective rights, responsibilities and obligations after the Spin-off with respect to ~~which we,~~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 ~~subsidiaries~~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 ~~license~~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 ~~each other~~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 ~~intellectual property~~past and ~~technology. The IPTLA will continue in perpetuity, unless mutually terminated~~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 May 2019, EchoStar and BSS Corp. entered into the ~~parties.~~Master Transaction Agreement with DISH and Merger Sub with respect to the BSS Transaction. Pursuant to the ~~IPTLA, we,~~terms of the Master Transaction Agreement, on September 10, 2019: (i) EchoStar and its ~~other~~ subsidiaries ~~granted~~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 ~~Network~~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 ~~license~~substantial portion of our ESS segment. The Master Transaction Agreement contained customary representations and warranties by the parties, including EchoStar’s representations relating to ~~our~~the assets, liabilities and ~~their intellectual property~~financial condition of the BSS Business, and ~~technology for use~~representations by DISH Network ~~among other things, in connection with~~relating to 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.~~financial condition and liabilities. EchoStar ~~retains full ownership of the “ECHOSTAR” trademark. In addition,~~and DISH Network ~~granted a license back~~have agreed to ~~us, EchoStar~~indemnify each other against certain losses with respect to breaches of certain representations and ~~its other subsidiaries, among other things, for the continued use of all intellectual property~~covenants and ~~technology that is used in our, EchoStar~~certain retained and ~~its other subsidiaries’ retained businesses but the ownership of which was transferred to DISH Network pursuant to the Share Exchange.~~assumed liabilities, respectively.

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BSS Transaction Intellectual Property and Technology License ~~Agreement~~Agreement.. Effective September 2019, in connection with the BSS Transaction, we, EchoStar and DISH Network entered into 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, in 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 its other subsidiaries, among other things, for the 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.

~~TT&C Agreement~~BSS Transaction Tax Matters Agreement.~~. In~~ Effective September 2019, in connection with the BSS Transaction, weEchoStar, BSS Corp. and DISH entered into a ~~subsidiary~~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 connection with the BSS Transaction.

Share Exchange Agreement. In January 2017, EchoStar and certain of its and our subsidiaries entered into the Share Exchange Agreement with DISH and certain of its subsidiaries pursuant to which, in February 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, 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 ~~provides TT&C services~~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.

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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 and 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 ~~a period ending~~the continued use of all intellectual property and technology that is used in ~~September 2021, with~~our, EchoStar and one of its other subsidiaries’ retained businesses but the ~~option for EchoStar~~ownership of which was transferred to ~~renew for a one-year period upon written notice at least 90 days prior~~DISH Network pursuant to the initial expiration (the “TT&C Agreement”). 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. Any party is able to terminate the TT&C Agreement for any reason upon 12 months’ notice.Share Exchange.

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.

~~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

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NOTE 16. RELATED PARTY TRANSACTIONS - OTHER

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. The tax matters agreement supplements the Share Exchange Tax Matters Agreement outlined above and the Tax Sharing Agreement outlined below, which continue 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 (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~~

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

We contract with Hughes Systique Corporation (“Hughes Systique”) for software development services. In addition to our approximately ~~43.3%~~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 ~~25.4%~~25%, on an undiluted basis, of Hughes Systique’s outstanding shares as of ~~September 30, 2019.~~March 31, 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.

~~Deluxe/EchoStar LLC~~

TerreStar Solutions, Inc.

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~~We own 50.0% of Deluxe, a joint venture that~~TerreStar Solutions, Inc. (“TSI”). 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 and the sale~~ of ~~broadband equipment of $0.9~~$2.2 million and ~~$1.1~~$5.1 million for the three months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018, respectively, and $2.6 million and $3.3 million for the nine months ended September 30, 2019 and 2018,~~ respectively. As of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, we had trade accounts receivable from ~~Deluxe~~TSI of ~~$0.6~~$2.3 million and ~~$0.8~~$2.7 million, ~~respectively. See Note 11 for additional information about our investments in unconsolidated entities.~~

~~Broadband Connectivity Solutions~~

In August 2018, we entered into an agreement with Yahsat to establish a new entity, 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 $100.0 million in cash in exchange for a 20.0% 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 $1.7 million and $6.2 million for the three and nine months ended September 30, 2019, respectively. As of September 30, 2019 and December 31, 2018, we had trade accounts receivable from BCS of $2.4 million and $3.4 million, respectively. See Note 11 for additional information about our investments in unconsolidated entities.

~~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 EchoStar’s 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 NaN for both the three and nine months ended September 30, 2019 and 2018, 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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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 ~~NaN~~0 for ~~both~~each of the three ~~and nine~~ months ended ~~September 30, 2019, respectively,~~March 31, 2020 and ~~$5.9 million and $6.5 million for the three and nine months ended September 30, 2018, respectively.~~2019. As of both ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, we ~~are~~were owed $7.5 million from Global IP.

~~TerreStar Solutions~~

DISH Network owns more than 15.0% 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 $2.0 million and $2.7 million for the three months ended September 30, 2019 and 2018, respectively, and $10.2 million and $3.0 million for the nine months ended September 30, 2019 and 2018, respectively. As of both September 30, 2019 and December 31, 2018, we had trade accounts receivable from TSI of $2.3 million.

Maxar Technologies Inc.

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~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

Mr. Jeffrey Tarr, who joined EchoStar’s board of directors in March 2019, 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 payable to Maxar Tech under these agreements of ~~$12.1~~$3.5 million and ~~$78.9~~$4.9 million for the three ~~and nine~~ months ended March 31, 2020 and 2019, respectively. At both March 31, 2020 and December 31, 2019, we had 0 trade accounts payable to Maxar Tech.

NOTE 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

~~September 30, 2019, respectively.~~

~~Discontinued Operations~~

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

Cash and Cash Equivalents and Restricted Cash

The following ~~agreements were terminated or transferred~~table reconciles Cash and cash equivalents and restricted cash, as presented in the Condensed Consolidated Balance Sheets, to ~~DISH Network as part~~the total of the ~~BSS Transaction and we, EchoStar and its other subsidiaries have no further obligations and have earned no additional revenue or incurred no additional expense,~~same as ~~applicable, under these agreements or investments after~~presented in the ~~consummation of the BSS Transaction on September 10, 2019. Historical transactions under this agreement are reported in~~ ~~Net income from discontinued operations~~ ~~in our~~ Condensed Consolidated Statements of ~~Operations (see Note 5).~~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

~~DBS Transponder Lease~~. EchoStar leased satellite capacity from us on 8 DBS transponders on the QuetzSat-1 satellite through November 2021, after which EchoStar had certain options to renew the agreement on a year-to year basis through the end of life of the QuetzSat-1 satellite. We transferred this agreement to DISH Network in connection with the BSS Transaction,

Other Current Assets, Net and ~~as a result we no longer provide and EchoStar no longer receives these services.~~Other Non-Current Assets, Net

~~Satellite Capacity Leased to DISH Network.~~The following table presents the components of We entered into certain agreements to lease satellite capacity pursuant to which we provided satellite services to DISH Network on certain satellites owned or leased by us. The fees for the services provided under these agreements depended, among other things, upon the orbital location of the applicable satellite, the number of transponders that provided services on the applicable satelliteOther current assets, net, and ~~the length of the service arrangements.~~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

~~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, EchoStar X, EchoStar XI and EchoStar XIV satellites.~~

~~EchoStar XII. DISH Network leased satellite capacity from us on the EchoStar XII 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 since January 2013.

~~Nimiq 5 Agreement. In addition to the Telesat Transponder Agreement, in September 2009, we entered into an agreement with DISH Network, pursuant to which DISH Network leased satellite capacity from us on all~~ 32 of the DBS transponders covered by the Telesat Transponder Agreement (the “DISH Nimiq 5 Agreement”). Under the terms of the DISH Nimiq 5 Agreement, DISH Network made certain monthly payments to us that commenced in September 2009, when the Nimiq 5 satellite was placed into service.

~~QuetzSat-1 Agreement.~~ In November 2008, we entered into an agreement to lease satellite capacity from SES Latin America, which provided, 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 leased 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 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, we and DISH Network entered into an agreement pursuant to which we leased back from DISH Network certain satellite capacity on five DBS transponders on the QuetzSat-1 satellite.

4238

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

~~TT&C Agreement~~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. Effective January 2012, we entered into a TT&C agreement pursuant to which we provided TT&C services to DISH Network, which we subsequently amended (the “TT&C Agreement”). The fees for services provided under the TT&C Agreement were calculated at either: (i) a fixed fee or (ii) cost plus a fixed margin, which varied depending on the nature of the services provided.

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

~~Real Estate Lease.~~The following table presents the components of Accrued expenses and other current liabilities ~~Prior to~~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 ~~Share Exchange, a subsidiary~~components of ~~EchoStar leased to DISH Network certain space at 530 EchoStar Drive, Cheyenne, Wyoming. In connection with~~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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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

Supplemental and Non-cash Investing and Financing Activities

The following table presents the ~~Share Exchange, EchoStar transferred ownership of a portion of this property to DISH Network~~supplemental and ~~contributed a portion to us~~non-cash investing and we and DISH Network amended this agreement to, among other things, provide for a continued lease to DISH Network of the portion of the property we retained (the “Cheyenne Data Center”). The rent on a per square foot basis for the lease was 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 was responsible for its portion of the taxes, insurance, utilities and maintenance of the premises. In connection with the BSS Transaction, we transferred the Cheyenne Data Center to DISH Network.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 ~~17.~~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 (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~~these Condensed Consolidated Financial Statements.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

Condensed Consolidating Balance Sheet as of March 31, 2020



	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

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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

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

Condensed Consolidating Statement of Operations and ~~notes thereto included herein. This financial information reflects~~Comprehensive Income (Loss)

For the ~~addition of a new Guarantor Subsidiary and the transfer of several former Guarantor Subsidiaries to DISH Network in connection with the BSS Transaction.~~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	)

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

Condensed Consolidating ~~Balance Sheet as~~Statement of ~~September 30,~~Operations and Comprehensive Income (Loss)

For the Three Months Ended March 31, 2019

~~(Amounts in thousands)~~

HSS
Guarantor
Subsidiaries

Non-Guarantor
Subsidiaries
Eliminations Total
Assets
Cash and cash equivalents $ 1,013,313
$ 35,837
$ 27,121
$ —
$ 1,076,271
Marketable investment securities, at fair value 695,249
347
—
—
695,596
Trade accounts receivable and contract assets —
132,556
68,223
—
200,779
Trade accounts receivable - DISH Network —
12,516
666
—
13,182
Inventory —
57,852
24,825
—
82,677
Advances to affiliates, net 202,074
614,875
12,769
(755,882 ) 73,836
Other current assets 79
20,635
49,343
—
70,057
Current assets of discontinued operations —
5,866
—
—
5,866
Total current assets 1,910,715
880,484
182,947
(755,882 ) 2,218,264
Property and equipment, net —
1,490,723
295,513
—
1,786,236
Operating lease right-of-use assets —
86,249
24,762
—
111,011
Goodwill —
504,173
—
—
504,173
Regulatory authorizations —
400,000
—
—
400,000
Other intangible assets, net —
32,979
—
—
32,979
Investments in unconsolidated entities —
118,574
—
—
118,574
Investment in subsidiaries 2,854,009
152,078
—
(3,006,087 ) —
Advances to affiliates 700
570,842
16,686
(568,944 ) 19,284
Deferred tax asset 79,228
—
5,425
(79,228 ) 5,425
Other noncurrent assets, net —
207,340
16,238
—
223,578
Total assets $ 4,844,652
$ 4,443,442
$ 541,571
$ (4,410,141 ) $ 5,419,524
Liabilities and Shareholders’ Equity
Trade accounts payable $ —
$ 104,251
$ 15,001
$ —
$ 119,252
Trade accounts payable - DISH Network —
87
—
—
87
Current portion of long-term debt and finance lease obligations —
—
407
—
407
Advances from affiliates, net 369,651
228,368
158,715
(755,882 ) 852
Accrued expenses and other 38,531
200,019
72,765
—
311,315
Current liabilities of discontinued operations —
3,492
—
—
3,492
Total current liabilities 408,182
536,217
246,888
(755,882 ) 435,405
Long-term debt and finance lease obligations, net 2,388,138
—
793
—
2,388,931
Deferred tax liabilities, net —
420,545
109
(79,228 ) 341,426
Operating lease liabilities —
74,564
19,668
—
94,232
Advances from affiliates, net —
493,918
108,165
(568,944 ) 33,139
Other noncurrent liabilities —
65,058
3,807
—
68,865
Total HSS shareholders’ equity 2,048,332
2,853,140
152,947
(3,006,087 ) 2,048,332
Noncontrolling interests —
—
9,194
—
9,194
Total liabilities and shareholders’ equity $ 4,844,652
$ 4,443,442
$ 541,571
$ (4,410,141 ) $ 5,419,524



	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 ~~Balance Sheet as~~Statement of ~~December~~Cash Flows

For the Three Months Ended March 31, ~~2018~~2020

~~(Amounts 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 —
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
22,848
41,378
(561 ) 63,737
Current assets of discontinued operations —
3,483
—
—
3,483
Total current assets 2,489,346
811,035
187,651
(570,218 ) 2,917,814
Property and equipment, net —
1,620,534
301,377
—
1,921,911
Goodwill —
504,173
—
—
504,173
Regulatory authorizations —
400,043
—
—
400,043
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 —
220,099
12,769
—
232,868
Noncurrent assets of discontinued operations —
742,461
—
—
742,461
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 finance lease obligations 918,916
—
666
—
919,582
Advances from affiliates, net 181,926
282,268
106,331
(569,657 ) 868
Accrued expenses and other 43,410
137,995
48,307
(561 ) 229,151
Current liabilities of discontinued operations —
49,055
—
—
49,055
Total current liabilities 1,144,252
558,412
171,713
(570,218 ) 1,304,159
Long-term debt and finance lease obligations, net 2,385,164
—
1,038
—
2,386,202
Deferred tax liabilities, net —
408,523
834
(54,001 ) 355,356
Advances from affiliates, net —
—
120,418
(86,980 ) 33,438
Other noncurrent liabilities —
69,168
2,479
—
71,647
Noncurrent liabilities of discontinued operations —
349,875
—
—
349,875
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



	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

~~(Unaudited)~~

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

~~For the Three Months Ended September 30, 2019~~

~~(Amounts in thousands)~~

HSS
Guarantor
Subsidiaries

Non-Guarantor
Subsidiaries
Eliminations Total
Revenue:
Services and other revenue - DISH Network $ —
$ 9,057
$ 690
$ —
$ 9,747
Services and other revenue - other —
347,625
58,879
(8,855 ) 397,649
Equipment revenue —
76,905
4,246
(15,426 ) 65,725
Total revenue —
433,587
63,815
(24,281 ) 473,121
Costs and expenses:
Cost of sales - services and other (exclusive of depreciation and amortization) —
110,388
40,428
(8,387 ) 142,429
Cost of sales - equipment (exclusive of depreciation and amortization) —
63,437
3,177
(15,426 ) 51,188
Selling, general and administrative expenses —
88,853
23,602
(468 ) 111,987
Research and development expenses —
5,953
183
—
6,136
Depreciation and amortization —
99,099
16,849
—
115,948
Total costs and expenses —
367,730
84,239
(24,281 ) 427,688
Operating income (loss) —
65,857
(20,424 ) —
45,433
Other income (expense):
Interest income 10,968
1,466
1,106
(1,240 ) 12,300
Interest expense, net of amounts capitalized (40,433 ) (1,016 ) (15,399 ) 1,240
(55,608 )
Gains (losses) on investments, net 37
33
—
—
70
Equity in earnings (losses) of unconsolidated affiliates, net —
(894 ) —
—
(894 )
Equity in earnings (losses) of subsidiaries, net 26,054
(44,409 ) —
18,355
—
Other, net —
(9 ) (13,188 ) —
(13,197 )
Total other income (expense), net (3,374 ) (44,829 ) (27,481 ) 18,355
(57,329 )
Income (loss) from continuing operations before income taxes (3,374 ) 21,028
(47,905 ) 18,355
(11,896 )
Income tax benefit (provision) 7,590
(13,375 ) 609
—
(5,176 )
Net income (loss) from continuing operations 4,216
7,653
(47,296 ) 18,355
(17,072 )
Net income (loss) from discontinued operations (4,109 ) 18,491
—
—
14,382
Net income (loss) 107
26,144
(47,296 ) 18,355
(2,690 )
Less: Net loss attributable to noncontrolling interests —
—
(2,797 ) —
(2,797 )
Net income (loss) attributable to HSS $ 107
$ 26,144
$ (44,499 ) $ 18,355
$ 107
Comprehensive income (loss):
Net income (loss) $ 107
$ 26,144
$ (47,296 ) $ 18,355
$ (2,690 )
Other comprehensive income (loss), net of tax:

Foreign currency translation adjustments —
—
(16,247 ) —
(16,247 )
Unrealized gains (losses) on available-for-sale securities and other 15
—
(132 ) —
(117 )
Equity in other comprehensive income (loss) of subsidiaries, net (16,379 ) (16,379 ) —
32,758
—
Total other comprehensive income (loss), net of tax (16,364 ) (16,379 ) (16,379 ) 32,758
(16,364 )
Comprehensive income (loss) (16,257 ) 9,765
(63,675 ) 51,113
(19,054 )
Less: Comprehensive loss attributable to noncontrolling interests —
—
(2,797 ) —
(2,797 )
Comprehensive income (loss) attributable to HSS $ (16,257 ) $ 9,765
$ (60,878 ) $ 51,113
$ (16,257 )

~~Table of Contents~~

~~HUGHES SATELLITE SYSTEMS CORPORATION~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

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

~~For the Three Months Ended September 30, 2018~~

~~(Amounts in thousands)~~

HSS
Guarantor
Subsidiaries

Non-Guarantor
Subsidiaries
Eliminations Total
Revenue:
Services and other revenue - DISH Network
$ —
$ 13,493
$ 491
$ —
$ 13,984
Services and other revenue - other
—
339,066
57,312
(9,558 ) 386,820
Equipment revenue —
57,138
7,625
(7,917 ) 56,846
Total revenue —
409,697
65,428
(17,475 ) 457,650
Costs and expenses:
Cost of sales - services and other (exclusive of depreciation and amortization) —
113,982
36,206
(8,855 ) 141,333
Cost of sales - equipment (exclusive of depreciation and amortization) —
47,736
6,499
(7,917 ) 46,318
Selling, general and administrative expenses —
85,200
13,156
(703 ) 97,653
Research and development expenses —
6,544
—
—
6,544
Depreciation and amortization —
94,643
13,203
—
107,846
Total costs and expenses —
348,105
69,064
(17,475 ) 399,694
Operating income (loss) —
61,592
(3,636 ) —
57,956
Other income (expense):
Interest income 15,019
930
670
(922 ) 15,697
Interest expense, net of amounts capitalized (57,514 ) (254 ) (1,221 ) 922
(58,067 )
Gains (losses) on investments, net —
145
—
—
145
Equity in earnings of unconsolidated affiliates, net —
992
—
—
992
Equity in earnings (losses) of subsidiaries, net 61,476
(6,701 ) —
(54,775 ) —
Other, net 1
(15 ) (3,604 ) —
(3,618 )
Total other income (expense), net 18,982
(4,903 ) (4,155 ) (54,775 ) (44,851 )
Income (loss) from continuing operations before income taxes 18,982
56,689
(7,791 ) (54,775 ) 13,105
Income tax benefit (provision) 9,488
(21,904 ) 1,449
—
(10,967 )
Net income (loss) from continuing operations 28,470
34,785
(6,342 ) (54,775 ) 2,138
Net income from discontinued operations —
26,782
—
—
26,782
Net income (loss) 28,470
61,567
(6,342 ) (54,775 ) 28,920
Less: Net income (loss) attributable to noncontrolling interests —
—
450
—
450
Net income (loss) attributable to HSS $ 28,470
$ 61,567
$ (6,792 ) $ (54,775 ) $ 28,470
Comprehensive income (loss):

Net income (loss) $ 28,470
$ 61,567
$ (6,342 ) $ (54,775 ) $ 28,920
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments —
—
(9,460 ) —
(9,460 )
Unrealized gains (losses) on available-for-sale securities and other 27
—
(144 ) —
(117 )
Equity in other comprehensive income (loss) of subsidiaries, net (9,014 ) (9,014 ) —
18,028
—
Amounts reclassified to net income (loss):
Realized gains on available-for-sale securities (1 ) —
—
—
(1 )
Total other comprehensive income (loss), net of tax (8,988 ) (9,014 ) (9,604 ) 18,028
(9,578 )
Comprehensive income (loss) 19,482
52,553
(15,946 ) (36,747 ) 19,342
Less: Comprehensive loss attributable to noncontrolling interests —
—
(140 ) —
(140 )
Comprehensive income (loss) attributable to HSS $ 19,482
$ 52,553
$ (15,806 ) $ (36,747 ) $ 19,482

~~Table of Contents~~

~~HUGHES SATELLITE SYSTEMS CORPORATION~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

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

~~For the Nine Months Ended September 30, 2019~~

~~(Amounts in thousands)~~

HSS
Guarantor
Subsidiaries

Non-Guarantor
Subsidiaries
Eliminations Total
Revenue:
Services and other revenue - DISH Network
$ —
$ 30,213
$ 1,808
$ —
$ 32,021
Services and other revenue - other
—
1,032,361
176,717
(26,623 ) 1,182,455
Equipment revenue —
190,394
21,961
(37,271 ) 175,084
Total revenue —
1,252,968
200,486
(63,894 ) 1,389,560
Costs and expenses:
Cost of sales - services and other (exclusive of depreciation and amortization) —
330,634
120,061
(24,799 ) 425,896
Cost of sales - equipment (exclusive of depreciation and amortization) —
164,027
15,988
(37,271 ) 142,744
Selling, general and administrative expenses 88
290,556
64,739
(1,824 ) 353,559
Research and development expenses —
18,893
518
—
19,411
Depreciation and amortization —
293,519
48,567
—
342,086
Total costs and expenses 88
1,097,629
249,873
(63,894 ) 1,283,696
Operating income (loss) (88 ) 155,339
(49,387 ) —
105,864
Other income (expense):
Interest income 44,693
3,403
2,198
(2,953 ) 47,341
Interest expense, net of amounts capitalized (150,234 ) (7,302 ) (17,919 ) 2,953
(172,502 )
Gains (losses) on investments, net 437
(727 ) —
—
(290 )
Equity in earnings (losses) of unconsolidated affiliates, net —
(2,882 ) —
—
(2,882 )
Equity in earnings (losses) of subsidiaries, net 110,118
(77,204 ) —
(32,914 ) —
Other, net (100 ) (57 ) (11,972 ) —
(12,129 )
Total other income (expense), net 4,914
(84,769 ) (27,693 ) (32,914 ) (140,462 )
Income (loss) from continuing operations before income taxes 4,826
70,570
(77,080 ) (32,914 ) (34,598 )
Income tax benefit (provision) 25,193
(24,656 ) (1,722 ) —
(1,185 )
Net income (loss) from continuing operations 30,019
45,914
(78,802 ) (32,914 ) (35,783 )
Net income (loss) from discontinued operations (6,709 ) 64,443
—
—
57,734
Net income (loss) 23,310

110,357

(78,802 )
(32,914 ) 21,951
Less: Net loss attributable to noncontrolling interests —
—
(1,359 ) —
(1,359 )
Net income (loss) attributable to HSS $ 23,310
$ 110,357
$ (77,443 ) $ (32,914 ) $ 23,310
Comprehensive income (loss):
Net income (loss) $ 23,310
$ 110,357
$ (78,802 ) $ (32,914 ) $ 21,951
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments —
—
(13,927 ) —
(13,927 )
Unrealized gains (losses) on available-for-sale securities and other 2,333
—
(145 ) —
2,188
Equity in other comprehensive income (loss) of subsidiaries, net (14,072 ) (14,072 ) —
28,144
—
Amounts reclassified to net income (loss):
Realized gains on available-for-sale securities (400 ) —
—
—
(400 )
Total other comprehensive income (loss), net of tax (12,139 ) (14,072 ) (14,072 ) 28,144
(12,139 )
Comprehensive income (loss) 11,171
96,285
(92,874 ) (4,770 ) 9,812
Less: Comprehensive loss attributable to noncontrolling interests —
—
(1,359 ) —
(1,359 )
Comprehensive income (loss) attributable to HSS $ 11,171
$ 96,285
$ (91,515 ) $ (4,770 ) $ 11,171

~~Table of Contents~~

~~HUGHES SATELLITE SYSTEMS CORPORATION~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

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

~~For the Nine Months Ended September 30, 2018~~

~~(Amounts in thousands)~~

HSS
Guarantor
Subsidiaries

Non-Guarantor
Subsidiaries
Eliminations Total
Revenue:
Services and other revenue - DISH Network $ —
$ 46,613
$ 1,505
$ —
$ 48,118
Services and other revenue - other —
970,251
171,767
(28,547 ) 1,113,471
Equipment revenue —
157,190
16,789
(23,845 ) 150,134
Total revenue —
1,174,054
190,061
(52,392 ) 1,311,723
Costs and expenses:
Cost of sales - services and other (exclusive of depreciation and amortization) —
335,007
110,441
(26,797 ) 418,651
Cost of sales - equipment (exclusive of depreciation and amortization) —
137,596
13,503
(23,845 ) 127,254
Selling, general and administrative expenses —
251,053
36,359
(1,750 ) 285,662
Research and development expenses —
20,328
—
—
20,328
Depreciation and amortization —
277,889
38,041
—
315,930
Total costs and expenses —
1,021,873
198,344
(52,392 ) 1,167,825
Operating income (loss) —
152,181
(8,283 ) —
143,898
Other income (expense):
Interest income 39,548
2,855
1,679
(2,720 ) 41,362
Interest expense, net of amounts capitalized (172,438 ) 983
(3,100 ) 2,720
(171,835 )
Gains (losses) on investments, net —
262
—
—
262
Equity in earnings of unconsolidated affiliates, net —
3,722
—
—
3,722
Equity in earnings (losses) of subsidiaries, net 191,915
(18,559 ) —
(173,356 ) —
Other, net 7
9,377
(13,148 ) —
(3,764 )
Total other income (expense), net 59,032
(1,360 ) (14,569 ) (173,356 ) (130,253 )
Income (loss) from continuing operations before income taxes 59,032
150,821
(22,852 ) (173,356 ) 13,645
Income tax benefit (provision) 29,670
(48,681 ) 5,255
—
(13,756 )
Net income (loss) from continuing operations 88,702
102,140
(17,597 ) (173,356 ) (111 )
Net income from discontinued operations —
90,105
—
—
90,105
Net income (loss) 88,702
192,245
(17,597 ) (173,356 ) 89,994
Less: Net income (loss) attributable to noncontrolling interests —
—
1,292
—
1,292
Net income (loss) attributable to HSS $ 88,702
$ 192,245
$ (18,889 ) $ (173,356 ) $ 88,702
Comprehensive income (loss):

Net income (loss) $ 88,702
$ 192,245
$ (17,597 ) $ (173,356 ) $ 89,994
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments —
—
(39,874 ) —
(39,874 )
Unrealized gains (losses) on available-for-sale securities and other 186
—
(385 ) —
(199 )
Equity in other comprehensive income (loss) of subsidiaries, net (38,870 ) (38,870 ) —
77,740
—
Amounts reclassified to net income (loss):
Realized gains on available-for-sale securities (4 ) —
—
—
(4 )
Total other comprehensive income (loss), net of tax (38,688 ) (38,870 ) (40,259 ) 77,740
(40,077 )
Comprehensive income (loss) 50,014
153,375
(57,856 ) (95,616 ) 49,917
Less: Comprehensive income attributable to noncontrolling interests —
—
(97 ) —
(97 )
Comprehensive income (loss) attributable to HSS $ 50,014
$ 153,375
$ (57,759 ) $ (95,616 ) $ 50,014

~~Table of Contents~~

~~HUGHES SATELLITE SYSTEMS CORPORATION~~

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

(Unaudited)

Condensed Consolidating Statement of Cash Flows

For the ~~Nine~~Three Months Ended ~~September 30,~~March 31, 2019

~~(Amounts in thousands)~~


	HSS			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Total			HSSC			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Total
Cash flows from operating activities:
Net income (loss)	$	23,310		$	110,357		$	(78,802	)	$	(32,914	)	$	21,951		$	22,226		$	52,292		$	(8,075	)	$	(43,411	)	$	23,032
Adjustments to reconcile net income (loss) to net cash flows from operating activities	(132,557		)	493,418			105,514			32,914			499,289			(48,467		)	163,032			(10,043		)	43,411			147,933
Net cash flows from operating activities	(109,247		)	603,775			26,712			—			521,240			(26,241		)	215,324			(18,118		)	—			170,965

Cash flows from investing activities:
Purchases of marketable investment securities	(462,625		)	—			—			—			(462,625		)	(240,188		)	—			—			—			(240,188		)
Sales and maturities of marketable investment securities	1,375,245			(3		)	—			—			1,375,242			468,748			(3		)	—			—			468,745
Expenditures for property and equipment	—			(162,643		)	(62,351		)	—			(224,994		)	—			(54,207		)	(19,722		)	—			(73,929		)
Expenditures for externally marketed software	—			(21,364		)	—			—			(21,364		)	—			(7,600		)	—			—			(7,600		)
Dividend received from unconsolidated entity	—			2,284			—			—			2,284
Distributions (contributions) and advances from (to) subsidiaries, net	359,145			(38,282		)	—			(320,863		)	—			111,020			(32,949		)	—			(78,071		)	—
Net cash flows from investing activities	1,271,765			(220,008		)	(62,351		)	(320,863		)	668,543			339,580			(94,759		)	(19,722		)	(78,071		)	147,028

Cash flows from financing activities:
Repayment of debt and finance lease obligations	—			(27,203		)	(1,932		)	—			(29,135		)
Repurchase and maturity of debt	(920,923		)	—			—			—			(920,923		)
Purchase of noncontrolling interest	—			(2,666		)	(4,647		)	—			(7,313		)
Repayment of in-orbit incentive obligations	—			(5,269		)	—			—			(5,269		)
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	—			(359,145		)	38,282			320,863			—			—			(111,020		)	32,949			78,071			—
Proceeds from issuance of debt	—			—			1,172			—			1,172
Net cash flows from financing activities	(920,923		)	(394,283		)	32,875			320,863			(961,468		)	(15,358		)	(122,190		)	32,664			78,071			(26,813		)

Effect of exchange rates on cash and cash equivalents	—			—			310			—			310			—			—			(117		)	—			(117		)
Net increase (decrease) in cash and cash equivalents, including restricted amounts	241,595			(10,516		)	(2,454		)	—			228,625
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			771,718			46,353			30,548			—			848,619
Cash and cash equivalents, including restricted amounts, end of period	$	1,013,313		$	35,837		$	28,094		$	—		$	1,077,244		$	1,069,699		$	44,728		$	25,255		$	—		$	1,139,682

~~Operating income of $105.9~~


•	Operating income (loss) of $29.7 million


•	Net income (loss) from continuing operations of ~~$22.0~~$17.9 million

~~Net income attributable to HSS of $23.3~~


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


•	Earnings before interest, taxes, de~~preciation~~depreciation and amortization, net income (loss) from discontinued operations and net income (loss) attributable to non-controlling interests (“EBITDA”) of~~$434.0~~ $150.0 million ~~(see~~(refer to the reconciliation of this non-GAAP measure ~~on page62)~~in Results of Operations)

Consolidated Financial Condition as of ~~September 30, 2019~~March 31, 2020:


•	Total assets of ~~$5.3~~$5.4 billion

~~Total liabilities of $3.4 billion~~


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


•	Total shareholder’s equity of ~~$2.1~~$2.0 billion


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

Hughes Segment

Our Hughes segment is a global provider of broadband satellite technologies and broadband internet services to ~~home and small to medium-sized business~~consumer customers and broadband network technologies, managed services, equipment, hardware, satellite services and communications solutions to ~~service providers, 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

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

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 third-party providers to provide services to our customers. Growth of our consumer subscriber base 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 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 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 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 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

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

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, we and DISH Network 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 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.~~Network.

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.

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 A satellite.~~ 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 quarter of 2018 and augmented the capacity being provided by the EUTELSAT 65 West A and EchoStar XIX satellites 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 numbers as of September 30, 2019, June 30, 2019 and December 31, 2018 are approximately as follows:~~

As of
September 30, 2019 June 30, 2019 December 31, 2018

Broadband subscribers 1,437,000
1,415,000
1,361,000

For the three months ended
September 30, 2019 June 30, 2019

Net additions 22,000
26,000

Our broadband subscribers include customers that subscribe to our HughesNet services in North, Central and South America through retail, wholesale and small/medium enterprise service channels. During the third quarter of 2019, we had net additions of approximately 22,000 new subscribers. Our gross subscriber additions increased by approximately 10,000 compared to the second quarter of 2019. Our net subscriber additions for the quarter ended September 30, 2019 decreased by 4,000 compared to the quarter ended June 30, 2019 reflecting higher churn in the third quarter compared to the second quarter of 2019.

As of both September 30, 2019 and December 31, 2018, our Hughes segment had $1.4 billion, respectively, of contracted revenue backlog. We define Hughes contracted revenue backlog as our expected future revenue, including lease revenue, under customer contracts that are non-cancelable, excluding agreements with customers in our consumer market.

5749

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

quarter of 2018 and augmented the capacity being provided by the EUTELSAT 65 West A satellite and the EchoStar XIX satellite in South America.

Our broadband subscribers include customers that subscribe to our HughesNet service in North and 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 2020, our net subscriber additions increased by approximately 19,000 compared to the fourth quarter of 2019, reflecting increased gross subscriber additions compared to the fourth quarter of 2019.

As of March 31, 2020 and December 31, 2019, our Hughes segment had $1.2 billion and $1.4 billion of contracted revenue backlog, respectively. We define Hughes contracted revenue backlog as our expected future revenue under enterprise customer contracts that are non-cancelable, 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 some of our enterprise customers.

ESS Segment

Our ESS segment provides satellite services on a full-time and/or occasional-use basis to U.S. government service providers, internet service providers, broadcast news organizations, content providers and private enterprise customers. We operate our ESS business using primarily the EchoStar IX satellite and the EchoStar 105/SES-11 ~~satellites~~satellite and related 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.

As of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, our ESS segment had contracted revenue backlog of ~~$12.2~~$9.5 million and ~~$5.8~~$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 ~~and nine~~ months ended ~~September 30, 2019.~~March 31, 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

~~Nine~~Three Months Ended ~~September 30, 2019~~March 31, 2020 Compared to the ~~Nine~~Three Months Ended ~~September 30, 2018~~March 31, 2019

The following table presents our consolidated results of operations for the ~~nine~~three months ended ~~September 30, 2019~~March 31, 2020 compared to the ~~nine~~three months ended ~~September 30, 2018 (amounts in thousands):~~March 31, 2019:


	For the nine months ended September 30,						Variance					For the three months ended March 31,						Variance
Statements of Operations Data (1)	2019			2018			Amount			%

Statements of Operations Data												2020			2019			Amounts			%
Revenue:
Services and other revenue - DISH Network	$	32,021		$	48,118		$	(16,097	)	(33.5	)
Services and other revenue - other	1,182,455			1,113,471			68,984			6.2
Services and other revenue												$	410,238		$	403,485		$	6,753		1.7
Equipment revenue	175,084			150,134			24,950			16.6		57,309			51,714			5,595			10.8
Total revenue	1,389,560			1,311,723			77,837			5.9		467,547			455,199			12,348			2.7
Costs and expenses:
Cost of sales - services and other	425,896			418,651			7,245			1.7		143,885			142,086			1,799			1.3
% of total services and other revenue	35.1		%	36.0		%						35.1		%	35.2		%
Cost of sales - equipment	142,744			127,254			15,490			12.2		45,908			45,007			901			2.0
% of total equipment revenue	81.5		%	84.8		%						80.1		%	87.0		%
Selling, general and administrative expenses	353,559			285,662			67,897			23.8		115,860			102,337			13,523			13.2
% of total revenue	25.4		%	21.8		%						24.8		%	22.5		%
Research and development expenses	19,411			20,328			(917		)	(4.5	)	6,254			6,888			(634		)	(9.2	)
% of total revenue	1.4		%	1.5		%						1.3		%	1.5		%
Depreciation and amortization	342,086			315,930			26,156			8.3		125,965			112,411			13,554			12.1
Total costs and expenses	1,283,696			1,167,825			115,871			9.9		437,872			408,729			29,143			7.1
Operating income	105,864			143,898			(38,034		)	(26.4	)

Operating income (loss)												29,675			46,470			(16,795		)	(36.1	)
Other income (expense):
Interest income	47,341			41,362			5,979			14.5
Interest income, net												8,892			17,997			(9,105		)	(50.6	)
Interest expense, net of amounts capitalized	(172,502		)	(171,835		)	667			0.4		(42,192		)	(57,915		)	15,723			27.1
Gains (losses) on investments, net	(290		)	262			(552		)	*		(164		)	(346		)	182			(52.6	)
Equity in earnings (losses) of unconsolidated affiliates, net	(2,882		)	3,722			(6,604		)	*		(1,087		)	(1,072		)	(15		)	1.4
Foreign currency transaction gains (losses), net												(7,528		)	211			(7,739		)	*
Other, net	(12,129		)	(3,764		)	(8,365		)	*		(278		)	(165		)	(113		)	68.5
Total other expense, net	(140,462		)	(130,253		)	(10,209		)	7.8
Total other income (expense), net												(42,357		)	(41,290		)	(1,067		)	2.6
Income (loss) from continuing operations before income taxes	(34,598		)	13,645			(48,243		)	*		(12,682		)	5,180			(17,862		)	*
Income tax provision, net	(1,185		)	(13,756		)	12,571			(91.4	)
Income tax benefit (provision), net												(5,231		)	(4,872		)	(359		)	7.4
Net income (loss) from continuing operations	(35,783		)	(111		)	(35,672		)	*		(17,913		)	308			(18,221		)	*
Net income from discontinued operations	57,734			90,105			(32,371		)	(35.9	)
Net income (loss) from discontinued operations												—			22,724			(22,724		)	(100.0	)
Net income (loss)	21,951			89,994			(68,043		)	(75.6	)	(17,913		)	23,032			(40,945		)	*
Less: Net income (loss) attributable to noncontrolling interests	(1,359		)	1,292			(2,651		)	*
Net income attributable to HSS	$	23,310		$	88,702		$	(65,392	)	(73.7	)
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)	$	434,008		$	458,756		$	(24,748	)	(5.4	)
EBITDA ⁽¹⁾												$	150,025		$	156,703		$	(6,678	)	(4.3	)
Subscribers, end of period	1,437,000			1,332,000			105,000			7.9		1,516,000			1,332,000			184,000			13.8

* Percentage is not meaningful.

(1)

~~An explanation~~A reconciliation of EBITDA to Net income (loss), the most directly comparable generally accepted accounting principles in the U.S. (“U.S. GAAP”) measure in our ~~key metrics~~Accompanying Condensed Consolidated Financial Statements, is included in Results of Operations. For further information on ~~pages 64 and 65 under~~our use of EBITDA, refer to the ~~heading~~ Explanation of Key Metrics and Other Items.


~~(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 62. For further information on our use of EBITDA, see Explanation of Key Metrics and Other Items on page 65.

5952

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

The following discussion relates to our continuing operations for the ~~nine~~three months ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~ unless otherwise stated.

Services and other revenue ~~- DISH Network~~. Services and other revenue ~~- DISH Network~~totaled ~~$32.0~~$410.2 million for the ~~nine~~three months ended ~~September 30, 2019, a decrease~~March 31, 2020, an increase of ~~$16.1~~$6.8 million, or ~~33.5%~~1.7%, compared to ~~the same period in 2018.~~

~~Services and other revenue - DISH Network~~2019. The increase was from our Hughes segment for the nine months ended September 30, 2019 decreased by $13.7 million, or 34.9%, to $25.6 million compared to the same period in 2018. The decrease was primarily attributable to a continued decrease in our residential wholesale broadband services.

~~Services~~ and ~~other revenue - DISH Network~~ from our ESS segment for the nine months ended September 30, 2019 decreased by $1.6 million, or 41.4%, to $2.2 million compared to the same period in 2018. The decrease was primarily due to a decrease of $1.6 million in satellite capacity leased to DISH Network on the EchoStar IX satellite.

~~Services and other revenue - other~~. ~~Services and other revenue - other~~ ~~totaled $1.2 billion for the nine months ended September 30, 2019, an increase of $69.0 million or 6.2%, compared to the same period in 2018.~~

~~Services and other revenue - other~~ ~~from our Hughes segment for the nine months ended September 30, 2019 increased by $77.8 million, or 7.2%, to $1.2 billion compared to the same period in 2018. The increase~~ was primarily attributable to increases in sales of broadband services to our consumer customers of ~~$95.4~~$19.5 million, partially offset by a decrease in sales of broadband services to our enterprise customers of ~~$20.5~~$12.6 million.

~~Services and other revenue - other~~ ~~from our ESS segment for~~Both of these variances include the nine months ended September 30, 2019 decreased by $9.7 million, or 48.5%, to $9.7 million compared to the same period in 2018. The decrease was due to a net decrease in transponder services provided to third parties.negative impact of exchange rate fluctuations.

Equipment ~~revenue~~.revenue. Equipment revenue totaled ~~$175.1~~$57.3 million for the ~~nine~~three months ended ~~September 30, 2019,~~March 31, 2020, an increase of ~~$25.0~~$5.6 million, or ~~16.6%~~10.8%, compared to ~~the same period in 2018.~~2019. The increase was ~~from~~primarily attributable to our Hughes segment ~~and mainly~~ due to increases in hardware sales ~~of $15.0 million~~ to our international enterprise customers and $11.9 million to our mobile satellite systems customers. The increase was partially offset by a decrease in hardware sales of $2.6 million to our domestic consumer and enterprise customers.

Cost of sales - services and other. Cost of sales - services and other totaled ~~$425.9~~$143.9 million for the ~~nine~~three months ended ~~September 30, 2019,~~March 31, 2020, an increase of ~~$7.2~~$1.8 million, or ~~1.7%~~1.3%, compared to ~~the same period in 2018.~~2019. The increase was ~~from~~primarily attributable to our Hughes segment ~~primarily attributable~~due to an increase in the costs of broadband services provided to our consumer customers supporting the increase in number of subscribers and revenue in both the domestic and international markets, partially offset by a decrease in the costs of broadband services provided to our enterprise customers.

Cost of sales - equipment. Cost of sales - equipment totaled ~~$142.7~~$45.9 million for the ~~nine~~three months ended ~~September 30, 2019,~~March 31, 2020, an increase of ~~$15.5~~$0.9 million, or ~~12.2%~~2.0%, compared to ~~the same period in 2018.~~2019. The increase was ~~from~~primarily attributable to our Hughes segment ~~and primarily attributable~~due to an increase in hardware sales to our ~~international enterprise customers and our mobile satellite systems customers. The increase was partially offset by a decrease in hardware sales to our domestic consumer and~~ enterprise customers.

Selling, general and administrative ~~expenses~~.expenses. Selling, general and administrative expenses totaled ~~$353.6~~$115.9 million for the ~~nine~~three months ended ~~September 30, 2019,~~March 31, 2020, an increase of ~~$67.9~~$13.5 million, or ~~23.8%~~13.2%, compared to ~~the same period in 2018.~~2019. The increase was primarily attributable to (i) increases in ~~(i) expense of $32.9 million related to certain legal proceedings, (ii)~~ marketing and promotional expenses of ~~$18.4~~$8.3 million from our Hughes segment mainly associated with our consumer business ~~(iii)~~in Latin America, (ii) increases in bad debt expense of ~~$6.6~~$1.9 million and ~~(iv)~~(iii) increases in other general and administrative expenses of ~~$10.0~~$3.0 million.

Depreciation and amortization. Depreciation and amortization expenses totaled $126.0 million for the three months ended March 31, 2020, an increase of $13.6 million, or 12.1%, compared to 2019. The increase was primarily from our Hughes segment and due to increases in depreciation expense of $6.4 million relating to our customer premises equipment and $6.1 million relating to the depreciation of assets acquired in the Yahsat Brazil JV Transaction.

Interest income, net. Interest income, net totaled $8.9 million for the three months ended March 31, 2020, a decrease of $9.1 million, or 50.6%, compared to 2019 primarily attributable to the decrease in our marketable investment securities.

Interest expense, net of amounts capitalized. Interest expense, net of amounts capitalized totaled $42.2 million for the three months ended March 31, 2020, a decrease of $15.7 million, or 27.1%, compared to 2019. The decrease was primarily due to a decrease of $16.0 million in interest expense and in amortization of deferred financing cost as a result of the repurchase and maturity of our 6 1/2% Senior Secured Notes due 2019.

Foreign currency transaction gains (losses), net. Foreign currency transaction gains (losses), nettotaled $7.5 million in losses for the three months ended March 31, 2020 compared to $0.2 million in gains for the three months ended March 31, 2019. The change was due to the net strengthening of the U.S. dollar against certain foreign currencies in 2020 compared to 2019.

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

~~Depreciation and amortization~~.~~Depreciation and amortization~~ expenses totaled $342.1 million for the nine months ended September 30, 2019, an increase of $26.2 million or 8.3%, compared to the same period in 2018. The increase was primarily due to increases in depreciation expense of (i) $12.6 million relating to our customer premises equipment, (ii) $5.0 million relating to our machinery and equipment, (iii) $4.8 million relating the Telesat T19V satellite that was placed into service in the fourth quarter of 2018 and (iv) $3.1 million relating to the decrease in depreciable life of the SPACEWAY 3 satellite.

~~Interest income~~. ~~Interest income~~ totaled $47.3 million for the nine months ended September 30, 2019, an increase of $6.0 million or 14.5%, compared to the same period in 2018 primarily attributable to an increase in yield percentage in 2019 compared to 2018, partially offset by a decrease in interest income as a result of the decrease in cash and cash equivalents and current marketable investment securities in 2019.

~~Interest expense, net of amounts capitalized~~. ~~Interest expense, net of amounts capitalized~~ totaled $172.5 million for the nine months ended September 30, 2019, an increase of $0.7 million or 0.4%, compared to the same period in 2018. The decrease was primarily due to a decrease of $22.4 million in interest expense and the amortization of deferred financing cost as a result of the repurchase and maturity of the 6 1/2% Senior Secured Notes due 2019 and a net increase of $5.2 million in capitalized interest relating to the construction of the EchoStar XXIV satellite. The decrease was partially offset by an increase of $18.2 million in interest expense associated with certain legal proceedings.

~~Equity in earnings (losses) of unconsolidated affiliates, net~~. ~~Equity in earnings (losses) of unconsolidated affiliates, net~~ ~~totaled $2.9 million for the nine months ended September 30, 2019, an increase in loss of $6.6 million compared to the same period in 2018.~~

~~Other, net~~.~~Other, net~~ totaled $12.1 million in loss for the nine months ended September 30, 2019, an increase in loss of $8.4 million compared to the same period in 2018. For the nine months ended September 30, 2019, the $12.1 million in loss was primarily related to an unfavorable foreign exchange impact. For the nine months ended September 30, 2018, the $3.8 million in loss was related to an unfavorable foreign exchange impact of $13.0 million and a net gain of $9.6 million due to the settlement of certain amounts due to and from a third party vendor.

~~Income tax provision.~~ Income tax provision was $1.2 million for the nine months ended September 30, 2019 compared to an income tax provision of $13.8 million for the nine months ended September 30, 2018. Our effective income tax rate was (3.4)% and 100.8% for the nine months ended September 30, 2019 and 2018, respectively. The variations in our effective tax rate from the U.S. federal statutory rate for the nine months ended September 30, 2019 were primarily due to the change in net unrealized gains that are capital in nature, various permanent tax differences, the impact of state and local taxes, and increase in our valuation allowance associated with certain foreign losses. The variations in our effective tax rate from the U.S. federal statutory rate for the nine months ended September 30, 2018 were primarily due to various permanent tax differences, the impact of state and local taxes, the increase in our valuation allowance associated with certain foreign losses and the change in our valuation allowance associated with net unrealized losses that are capital in nature.

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

Net income (loss) attributable to ~~HSS.~~Hughes Satellite Services Corporation. Net loss attributable to Hughes Satellite Services Corporation totaled $14.5 million for the three months ended March 31, 2020, compared to net income attributable to ~~HSS was $23.3~~Hughes Satellite Services Corporation of $22.2 million for the ~~nine~~three months ended ~~September 30,~~March 31, 2019, a decrease of ~~$65.4~~$36.7 million, ~~or 73.7%, compared to the same period in 2018~~ as set forth in the following ~~table (amounts in thousands):~~table:

Amounts

Net income attributable to HSS for the nine months ended September 30, 2018 $ 88,702
Decrease in operating income, including depreciation and amortization (38,034 )
Increase in interest income 5,979
Increase in interest expense, net of amounts capitalized (667 )
Decrease in gains on investments, net (552 )
Decrease in equity in earnings of unconsolidated affiliates, net (6,604 )
Decrease in other income (8,365 )
Decrease in income tax provision 12,571
Decrease in net income from discontinued operations (32,371 )
Decrease in net income attributable to noncontrolling interests 2,651
Net income attributable to HSS for the nine months ended September 30, 2019 $ 23,310



	Amounts
Net income (loss) attributable to Hughes Satellite Services Corporation for the three months ended March 31, 2019	$	22,226
Decrease (increase) in interest expense, net of amounts capitalized	15,723
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		)
Decrease (increase) in income tax provision, net	(359		)
Increase (decrease) in foreign currency transaction gains, net	(7,739		)
Increase (decrease) in interest income, net	(9,105		)
Increase (decrease) in operating income, including depreciation and amortization	(16,795		)
Increase (decrease) in net income from discontinued operations	(22,724		)
Net income (loss) attributable to Hughes Satellite Services Corporation for the three months ended March 31, 2020	$	(14,471	)

EBITDA. EBITDA is a non-GAAP financial measure and is described under Explanation of Key Metrics and Other Items below. The following table reconciles ~~EBITDA to~~ Net income (loss), the most directly comparable U.S. GAAP measure in ~~the accompanying condensed consolidating financial statements (amounts in thousands):~~our Accompanying Condensed Consolidated Financial Statements, to EBITDA:

For the nine months ended September 30, Variance
2019 2018 Amount %

Net income (loss) $ 21,951
$ 89,994
$ (68,043 ) (75.6 )
Interest income and expense, net 125,161
130,473
(5,312 ) (4.1 )
Income tax provision, net 1,185
13,756
(12,571 ) (91.4 )
Depreciation and amortization 342,086
315,930
26,156
8.3
Net income from discontinued operations (57,734 ) (90,105 ) 32,371
(35.9 )
Net (income) loss attributable to noncontrolling interests 1,359
(1,292 )
2,651

*
EBITDA $ 434,008
$ 458,756
$ (24,748 ) (5.4 )



	For the three months ended March 31,						Variance
	2020			2019			Amounts			%
Net income (loss)	$	(17,913	)	$	23,032		$	(40,945	)	*
Interest income, net	(8,892		)	(17,997		)	9,105			(50.6	)
Interest expense, net of amounts capitalized	42,192			57,915			(15,723		)	(27.1	)
Income tax provision (benefit), net	5,231			4,872			359			7.4
Depreciation and amortization	125,965			112,411			13,554			12.1
Net loss (income) from discontinued operations	—			(22,724		)	22,724			(100.0	)
Net loss (income) attributable to non-controlling interests	3,442			(806		)	4,248			*
EBITDA	$	150,025		$	156,703		$	(6,678	)	(4.3	)

EBITDA was $434.0 million for the nine months ended September 30, 2019, a decrease of $24.7 million or 5.4%, compared to the same period in 2018. The decrease was primarily due to decreases of (i) $11.9 million in operating income, excluding depreciation and amortization, (ii) $8.4 million in other income and (iii) $6.6 million in equity in earnings of unconsolidated affiliates.* Percentage is not meaningful.

6254

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

EBITDA was $150.0 million for the three months ended March 31, 2020, a decrease of $6.7 million, or 4.3%, compared to 2019 as set forth in the following table:



	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

Segment Operating Results and Capital Expenditures

The following tables present our operating results, capital expenditures and EBITDA by segment for the ~~nine~~three months ended ~~September 30, 2019~~March 31, 2020 compared to the ~~nine~~three months ended ~~September 30, 2018 (amounts~~March 31, 2019. Capital expenditures in ~~thousands). Capital expenditures~~the table below are net of refunds and other receipts related to our property and ~~equipment and exclude capital expenditures from discontinued operations of $0.5 million and $0.1 million for the nine months ended September 30, 2019 and 2018, respectively.~~equipment.


	Hughes		ESS			Corporate and Other			Consolidated Total		Hughes		ESS		Corporate and Other			Consolidated Total

For the nine months ended September 30, 2019
For the three months ended March 31, 2020
Total revenue	$	1,360,919	$	11,873		$	16,768		$	1,389,560	$	458,482	$	4,652	$	4,413		$	467,547
Capital expenditures	$	224,483	$	—		$	—		$	224,483	91,517		—		—			91,517
EBITDA	$	448,837	$	5,006		$	(19,835	)	$	434,008	154,641		2,030		(6,646		)	150,025

For the nine months ended September 30, 2018
For the three months ended March 31, 2019
Total revenue	$	1,271,886	$	22,562		$	17,275		$	1,311,723	$	445,337	$	4,033	$	5,829		$	455,199
Capital expenditures	$	285,352	$	(76,757	)	$	—		$	208,595	73,821		—		—			73,821
EBITDA	$	452,982	$	15,478		$	(9,704	)	$	458,756	161,132		1,729		(6,158		)	156,703



	Balance December 31,2018		Adoption of ASC 842 Increase (Decrease)			Balance January 1, 2019

Prepaids and deposits	$	45,198	$	(28	)	$	45,170
Operating lease right-of-use assets	$	—	$	117,006		$	117,006
Other noncurrent assets, net	$	236,449	$	(7,272	)	$	229,177
Total assets	$	6,893,172	$	109,706		$	7,002,878
Accrued expenses and other	$	61,366	$	14,444		$	75,810
Operating lease liabilities	$	—	$	99,133		$	99,133
Other noncurrent liabilities	$	71,647	$	(3,871	)	$	67,776
Total liabilities	$	4,500,677	$	109,706		$	4,610,383
Total liabilities and shareholders’ equity	$	6,893,172	$	109,706		$	7,002,878



	As of
	March 31, 2020			December 31, 2019
Trade accounts receivable and contract assets, net:
Sales and services	$	147,288		$	152,632
Leasing	4,194			4,016
Total trade accounts receivable	151,482			156,648
Contract assets	46,938			63,649
Allowance for doubtful accounts	(10,608		)	(23,777		)
Total trade accounts receivable and contract assets, net	$	187,812		$	196,520

Contract liabilities:
Current	$	99,266		$	101,060
Non-current	9,426			10,572
Total contract liabilities	$	108,692		$	111,632



	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	$	23,777	$	(5,754	)	$	(6,325	)	$	(1,090	)	$	10,608
March 31, 2019	$	16,604	$	4,177		$	(6,738	)	$	(15	)	$	14,028



	As of
	September 30, 2019			December 31, 2018

Trade accounts receivable:
Sales and services	$	163,006		$	154,415
Leasing	3,013			7,990
Total	166,019			162,405
Contract assets	60,012			55,295
Allowance for doubtful accounts	(25,252		)	(16,604		)
Total trade accounts receivable and contract assets, net	$	200,779		$	201,096

Trade accounts receivable - DISH Network:
Sales and services	$	12,272		$	12,274
Leasing	910			1,276
Total trade accounts receivable - DISH Network, net	$	13,182		$	13,550

Contract liabilities:
Current	$	109,557		$	72,249
Noncurrent	10,730			10,133
Total contract liabilities	$	120,287		$	82,382



	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



Noncurrent liabilities:
Long-term debt and finance lease obligations, net	2,388,931			2,386,202
Deferred tax liabilities, net	341,426			355,356
Operating lease liabilities	94,232			—
Advances from affiliates, net	33,139			33,438
Other noncurrent liabilities	68,865			71,647
Noncurrent liabilities of discontinued operations	—			349,875
Total noncurrent liabilities	2,926,593			3,196,518
Total liabilities	3,361,998			4,500,677
Commitments and contingencies (Note 14)

Shareholders’ equity:
Preferred stock, $0.001 par value, 1,000,000 shares authorized, none issued and outstanding at both September 30, 2019 and December 31, 2018	—			—
Common stock, $0.01 par value; 1,000,000 shares authorized, 1,078 shares issued and outstanding at both September 30, 2019 and December 31, 2018	—			—
Additional paid-in capital	1,426,978			1,767,037
Accumulated other comprehensive loss	(95,913		)	(83,774		)
Accumulated earnings	717,267			693,957
Total HSS shareholders’ equity	2,048,332			2,377,220
Noncontrolling interests	9,194			15,275
Total shareholders’ equity	2,057,526			2,392,495
Total liabilities and shareholders’ equity	$	5,419,524		$	6,893,172



	Additional Paid-In Capital			Accumulated Other Comprehensive Loss			Accumulated Earnings		Noncontrolling Interests			Total
Balance, June 30, 2018	$	1,764,131		$	(82,089	)	$	660,690	$	14,865		$	2,357,597
Stock-based compensation	1,425			—			—		—			1,425
Other comprehensive loss	—			(8,988		)	—		(590		)	(9,578		)
Net income	—			—			28,470		450			28,920
Other, net	(220		)	—			—		—			(220		)
Balance, September 30, 2018	$	1,765,336		$	(91,077	)	$	689,160	$	14,725		$	2,378,144

Balance, June 30, 2019	$	1,766,642		$	(79,549	)	$	717,160	$	12,066		$	2,416,319
Stock-based compensation	1,260			—			—		—			1,260
BSS Transaction (Note 5)	(342,823		)	—			—		—			(342,823		)
Purchase of noncontrolling interest	1,833			—			—		(1,833		)	—
Other comprehensive loss	—			(16,364		)	—		—			(16,364		)
Net income (loss)	—			—			107		(2,797		)	(2,690		)
Other, net	66			—			—		1,758			1,824
Balance, September 30, 2019	$	1,426,978		$	(95,913	)	$	717,267	$	9,194		$	2,057,526



	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


•	~~EchoStar Satellite Services (“ESS”)~~ESS — which uses certain of our owned and leased in-orbit satellites and related licenses to provide satellite services on a full-time and/or occasional-use basis to ~~United States (“~~U.S.”) government service providers, internet service providers, broadcast news organizations, content providers and private enterprise customers.



	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



	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



	As of September 30, 2019

Right-of-use assets:
Operating	$	111,011
Finance	328,519
Total right-of-use assets	$	439,530

Lease liabilities:
Current:
Operating	$	14,204
Finance	407
Noncurrent:
Operating	94,232
Finance	793
Total lease liabilities	$	109,636



	For the three months ended September 30, 2019		For the nine months ended September 30, 2019

Lease cost:
Operating lease cost	$	5,400	$	15,957
Finance lease cost:
Amortization of right-of-use assets	6,506		19,656
Interest on lease liabilities	46		135
Short-term lease cost	105		381
Variable lease cost	2,690		6,253
Total lease cost	$	14,747	$	42,382



	As of September 30, 2019

~~Lease term and discount rate:~~
~~Weighted average remaining lease term (in years):~~
~~Finance leases~~	~~1.90~~
~~Operating leases~~	~~10.08~~

~~Weighted average discount rate:~~
~~Finance leases~~	~~11.47~~	%
~~Operating leases~~	~~6.12~~	%



	For the three months ended September 30, 2019		For the nine months ended September 30, 2019

Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	5,025	$	14,731
Operating cash flows from finance leases	$	46	$	135
Financing cash flows from finance leases	$	168	$	505



	As of
	March 31, 2020							December 31, 2019
	Cost		Accumulated Depreciation			Net		Cost		Accumulated Depreciation			Net
Customer premises equipment	$	1,488,031	$	(1,123,861	)	$	364,170	$	1,458,298	$	(1,074,968	)	$	383,330
Satellites	104,620		(33,104		)	71,516		104,620		(31,360		)	73,260
Total	$	1,592,651	$	(1,156,965	)	$	435,686	$	1,562,918	$	(1,106,328	)	$	456,590



	Operating Leases			Finance Leases			Total

Year ending December 31,
2019 (remainder)	$	5,195		$	174		$	5,369
2020	19,761			636			20,397
2021	17,272			493			17,765
2022	14,988			96			15,084
2023	14,069			—			14,069
After 2023	80,795			—			80,795
Total lease payments	152,080			1,399			153,479
Less: Interest	(43,644		)	(199		)	(43,843		)
Present value of lease liabilities	$	108,436		$	1,200		$	109,636



	For the three months ended September 30,						For the nine months ended September 30,
	2019			2018			2019			2018

Revenue:
Services and other revenue - DISH Network	$	54,297		$	70,805		$	195,942		$	234,425
Services and other revenue - other	4,915			6,400			17,715			19,198
Total revenue	59,212			77,205			213,657			253,623
Costs and Expenses:
Cost of equipment, services and other	7,307			9,714			28,033			30,274
Selling, general and administrative expenses	4,107			22			6,749			38
Depreciation and amortization	23,788			31,105			85,926			93,447
Total costs and expenses	35,202			40,841			120,708			123,759
Operating income	24,010			36,364			92,949			129,864
Other Income (Expense):
Interest expense	(4,632		)	(7,023		)	(17,365		)	(21,790		)
Total other income (expense), net	(4,632		)	(7,023		)	(17,365		)	(21,790		)
Income from discontinued operations before income taxes	19,378			29,341			75,584			108,074
Income tax benefit (provision), net	(4,996		)	(2,559		)	(17,850		)	(17,969		)
Net income (loss) from discontinued operations	$	14,382		$	26,782		$	57,734		$	90,105



	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


•	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



	Cumulative Foreign Currency Translation Losses			Unrealized Gain (Loss) On Available-For-Sale Securities			Other			Accumulated Other Comprehensive Loss

Balance, December 31, 2017	$	(52,251	)	$	(648	)	$	77		$	(52,822	)
Cumulative effect of accounting changes as of January 1, 2018	—			433			—			433
Balance, January 1, 2018	(52,251		)	(215		)	77			(52,389		)
Other comprehensive income (loss) before reclassifications	(38,485		)	(199		)	—			(38,684		)
Amounts reclassified to net income	—			(4		)	—			(4		)
Other comprehensive income (loss)	(38,485		)	(203		)	—			(38,688		)
Balance, September 30, 2018	$	(90,736	)	$	(418	)	$	77		$	(91,077	)

Balance, December 31, 2018	$	(82,800	)	$	(1,092	)	$	118		$	(83,774	)
Other comprehensive income (loss) before reclassifications	(13,927		)	2,333			(145		)	(11,739		)
Amounts reclassified to net income	—			(400		)	—			(400		)
Other comprehensive income (loss)	(13,927		)	1,933			(145		)	(12,139		)
Balance, September 30, 2019	$	(96,727	)	$	841		$	(27	)	$	(95,913	)



	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	September 30, 2019			December 31, 2018

Land	—	$	13,298		$	13,366
Buildings and improvements	1 to 40	73,387			114,153
Furniture, fixtures, equipment and other	1 to 12	736,792			725,924
Customer premises equipment	2 to 4	1,322,084			1,159,977
Satellites - owned	2 to 15	1,463,472			1,459,955
Satellites - acquired under finance leases	10 to 15	376,321			385,592
Construction in progress	—	38,897			28,087
Total property and equipment		4,024,251			3,887,054
Accumulated depreciation		(2,238,015		)	(1,965,143		)
Property and equipment, net		$	1,786,236		$	1,921,911



~~Satellites~~Satellite	Segment	Launch Date	Nominal Degree Orbital Location (Longitude)	Depreciable Life ~~In Years~~(In Years)
Owned:
SPACEWAY 3 ⁽¹⁾	Hughes	August 2007	95 W	1210
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 ~~(2)~~⁽³⁾	ESS	August 2003	121 W	12

~~Capital Leases:~~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


~~(1)~~	Depreciable life represents the remaining useful life as of June 8, 2011, the date EchoStar completed its acquisition of Hughes Communications, Inc. and its subsidiaries (the “Hughes Acquisition”).


~~(2)~~	~~See Note 16 for discussion of related party transactions with DISH Network.~~


~~(3)~~	~~Fully depreciated assets as of December 31, 2015.~~



	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
		September 30, 2019								December 31, 2018								Effective interest rates		As of
		Carrying Amount				Fair Value				Carrying Amount				Fair Value					March 31, 2020							December 31, 2019
																					Carrying Amount			Fair Value			Carrying Amount			Fair Value
Senior Secured Notes:
6 1/2% Senior Secured Notes due 2019		6.959%		$	—			$	—			$	920,836			$	932,696
5 1/4% Senior Secured Notes due 2026		5.320%		750,000				806,295				750,000				695,865				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				973,908				900,000				934,902				8.062%		900,000			922,527			900,000			963,783
6 5/8% Senior Unsecured Notes due 2026	6.688%		750,000				815,273				750,000				696,353				6.688%		750,000			770,715			750,000			833,903
Less: Unamortized debt issuance costs			(11,862		)		—				(16,757		)		—						(9,782		)				(10,832		)
Subtotal			2,388,138				$	2,595,476			3,304,079				$	3,259,816
Finance lease obligations			1,200								1,705
Total debt and finance lease obligations			2,389,338								3,305,784
Less: Current portion			(407		)						(919,582		)
Long-term debt and finance lease obligations, net			$	2,388,931							$	2,386,202
Total long-term debt																					$	2,390,218		$	2,441,375		$	2,389,168		$	2,622,994


•	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.



	As of
	September 30, 2019	June 30, 2019	December 31, 2018

Broadband subscribers	1,437,000	1,415,000	1,361,000



	Amounts

Net income attributable to HSS for the nine months ended September 30, 2018	$	88,702
Decrease in operating income, including depreciation and amortization	(38,034		)
Increase in interest income	5,979
Increase in interest expense, net of amounts capitalized	(667		)
Decrease in gains on investments, net	(552		)
Decrease in equity in earnings of unconsolidated affiliates, net	(6,604		)
Decrease in other income	(8,365		)
Decrease in income tax provision	12,571
Decrease in net income from discontinued operations	(32,371		)
Decrease in net income attributable to noncontrolling interests	2,651
Net income attributable to HSS for the nine months ended September 30, 2019	$	23,310



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 ~~November~~May 7, ~~2019~~2020 issued by EchoStar Corporation regarding financial results for the period ended ~~September 30, 2019.~~
~~99.2(I)~~		~~Presentation dated November 7, 2019 issued by EchoStar Corporation regarding preliminary unaudited pro forma financial information~~March 31, 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.

March 31, 2020

December 31, 2019

Broadband subscribers