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 ~~JUNE 30, 2020.~~

MARCH 31, 2021.

☐ 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 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 ~~July 30, 2020,~~April 29, 2021, the registrant’s outstanding common stock consisted of 1,078 shares of common stock, $0.01 par value per share.

The ~~registrant~~Registrant meets the conditions set forth in General Instructions (H)(1)(a) and (b) of Form 10-Q and is therefore filing this Quarterly Report on Form 10-Q with the reduced disclosure format.

* The ~~registrant~~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~~Registrant has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months as if it were subject to such filing requirements during ~~the entirety of~~ such period.

Table of Contents

TABLE OF CONTENTS


Disclosure Regarding ~~Forward-Looking~~Forward Looking Statements			i

PART I - FINANCIAL INFORMATION


Item 1.	Financial Statements	1
	~~Condensed~~ Consolidated Balance Sheets as of ~~June 30, 2020~~March 31, 2021 (unaudited) and December 31, ~~2019~~2020 (audited)	1
	~~Condensed~~ Consolidated Statements of Operations for the three ~~and six~~ months ended ~~June 30,~~March 31, 2021 and 2020 ~~and 2019~~ (unaudited)	3
	~~Condensed~~ Consolidated Statements of Comprehensive Income (Loss) for the three ~~and six~~ months ended ~~June 30,~~March 31, 2021 and 2020 ~~and 2019~~ (unaudited)	4
	~~Condensed~~ Consolidated Statements of ~~Changes in Shareholder’s~~S hareh older ’s Equity for the three months ended ~~June 30,~~March 31, 2021 and 2020 ~~and 2019~~ (unaudited)	5
	~~Condensed~~ Consolidated Statements of ~~Changes in Shareholders’ Equity~~Cash Flows for the ~~six~~three months ended ~~June 30,~~March 31, 2021 and 2020 ~~and 2019~~ (unaudited)	6
	~~Condensed~~ Notes to the Consolidated Financial Statements ~~of Cash Flows for the six months ended June 30, 2020 and 2019~~ (unaudited)	7
	~~Notes to Condensed Consolidated Financial Statements (unaudited)~~	8
Item 2.2 .	Management’s Narrative Analysis of Results of Operations	5441
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	*
Item 4.4 .	Controls and Procedures	6651

PART II - OTHER INFORMATION


Item 1.1 .	Legal Proceedings	6752
Item 1A.	Risk Factors	6752
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	*
Item 3.	Defaults Upon ~~Senior~~Major Securities	*
Item 4.	Mine Safety Disclosures	6852
Item 5.5 .	Other Information	6952
Item 6.6 .	Exhibits	6952
	Signatures	7053

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

Table of Contents

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, future developments, plans, objectives, strategies, 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,” ”project,” “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.~~assumptions based on past experience and trends, current economic and industry conditions, expected future developments and other relevant factors. Forward-looking statements are not guarantees of future performance, events or results and involve potential known and unknown risks, uncertainties, including the impact of the coronavirus pandemic (COVID-19), and other factors, many of which may be beyond our control and may pose a risk to our operating and financial ~~condition.~~condition both the near- and long-term. 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~~our ability to operate and ~~operation of~~control our satellites, ~~such as the risk of not being able~~operational and environmental risks related to ~~timely complete the construction, or a material malfunction on one or more, of~~our owned and leased satellites, and risks related to 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;~~under construction;

•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;~~including regulatory and competitive considerations;

•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;~~initiatives;

•legal proceedings relating to the BSS Transaction or ~~AGR matter (each as defined herein), which~~other matters that could result in substantial costs and material adverse effects onto our ~~business, results of operations, financial condition and prospects;~~

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

•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 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;internationally;

•~~the failure of~~risks related to our dependency upon third-party ~~providers of components, manufacturing, installation services and customer support services to appropriately deliver the contracted goods or services;~~providers; and

•risks related to our ~~ability to bring advanced technologies to market to keep pace with our customers and competitors.~~human capital resources.

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”), 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.

~~Table of Contents~~

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 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.

Table of Contents

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
June 30,
2020 December 31, 2019
Assets
Current assets:
Cash and cash equivalents $ 1,469,330 $ 1,139,435
Marketable investment securities 355,661 652,835
Trade accounts receivable and contract assets, net 183,333 196,520
Other current assets, net 291,444 301,652
Total current assets 2,299,768 2,290,442
Non-current assets:
Property and equipment, net 1,719,203 1,857,581
Operating lease right-of-use assets 125,928 113,399
Goodwill 509,054 506,953
Regulatory authorizations, net 410,750 412,363
Other intangible assets, net 22,527 29,321
Other investments, net 107,583 110,040
Other non-current assets, net 282,735 251,936
Total non-current assets 3,177,780 3,281,593
Total assets $ 5,477,548 $ 5,572,035
Liabilities and Shareholder's Equity
Current liabilities:
Trade accounts payable $ 110,620 $ 121,552
Current portion of long-term debt, net 896,386 —
Contract liabilities 89,831 101,060
Accrued expenses and other current liabilities 256,125 258,417
Total current liabilities 1,352,962 481,029
Non-current liabilities:
Long-term debt, net 1,494,902 2,389,168
Deferred tax liabilities, net 393,841 380,316
Operating lease liabilities 110,883 96,879
Other non-current liabilities 90,046 90,480
Total non-current liabilities 2,089,672 2,956,843
Total liabilities 3,442,634 3,437,872
Commitments and contingencies

~~Table of Contents~~

Shareholder's equity:
Preferred stock, $0.001 par value, 1,000,000 shares authorized, none issued and outstanding at both June 30, 2020 and December 31, 2019 — —
Common stock, $0.01 par value, 1,000,000 shares authorized, 1,078 shares issued and outstanding at both June 30, 2020 and December 31, 2019 — —
Additional paid-in capital 1,484,359 1,478,636
Accumulated other comprehensive income (loss) (159,450) (84,636)
Accumulated earnings (losses) 651,580 664,415
Total Hughes Satellite Systems Corporation shareholder's equity 1,976,489 2,058,415
Non-controlling interests 58,425 75,748
Total shareholder's equity 2,034,914 2,134,163
Total liabilities and shareholder's equity $ 5,477,548 $ 5,572,035


	As of
	March 31, 2021		December 31, 2020
Assets
Current assets:
Cash and cash equivalents	$	1,403,926	$	740,490
Marketable investment securities	515,306		1,203,296
Trade accounts receivable and contract assets, net	187,272		183,988
Other current assets, net	286,689		291,815
Total current assets	2,393,193		2,419,589
Non-current assets:
Property and equipment, net	1,631,221		1,691,523
Operating lease right-of-use assets	131,452		128,266
Goodwill	510,945		511,597
Regulatory authorizations, net	409,960		410,451
Other intangible assets, net	16,246		18,340
Other investments, net	102,163		103,924
Other non-current assets, net	302,416		307,677
Total non-current assets	3,104,403		3,171,778
Total assets	$	5,497,596	$	5,591,367
Liabilities and Shareholder's Equity
Current liabilities:
Trade accounts payable	$	104,683	$	118,568
Current portion of long-term debt, net	808,758		898,237
Contract liabilities	112,507		104,569
Accrued expenses and other current liabilities	328,316		325,587
Total current liabilities	1,354,264		1,446,961
Non-current liabilities:
Long-term debt, net	1,495,436		1,495,256
Deferred tax liabilities, net	376,366		369,940
Operating lease liabilities	118,452		114,877
Other non-current liabilities	86,642		87,957
Total non-current liabilities	2,076,896		2,068,030
Total liabilities	3,431,160		3,514,991

Commitments and contingencies	0		0

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

Table of Contents

HUGHES SATELLITE SYSTEMS CORPORATION

~~CONDENSED~~ CONSOLIDATED ~~STATEMENTS OF OPERATIONS~~BALANCE SHEETS

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

(Unaudited)

For the three months ended June 30, For the six months ended June 30,
2020 2019 2020 2019
Revenue:
Services and other revenue $ 419,222 $ 403,596 $ 829,460 $ 807,081
Equipment revenue 42,423 57,645 99,732 109,359
Total revenue 461,645 461,241 929,192 916,440
Costs and expenses:
Cost of sales - services and other (exclusive of depreciation and amortization) 139,953 141,382 283,838 283,468
Cost of sales - equipment (exclusive of depreciation and amortization) 32,542 46,549 78,450 91,556
Selling, general and administrative expenses 103,231 139,233 219,091 241,570
Research and development expenses 7,448 6,388 13,702 13,276
Depreciation and amortization 123,478 113,727 249,443 226,138
Total costs and expenses 406,652 447,279 844,524 856,008
Operating income (loss) 54,993 13,962 84,668 60,432
Other income (expense):
Interest income, net 5,204 17,044 14,096 35,041
Interest expense, net of amounts capitalized (44,275) (58,978) (86,467) (116,893)
Gains (losses) on investments, net 16 (14) (148) (360)
Equity in earnings (losses) of unconsolidated affiliates, net (1,369) (916) (2,456) (1,988)
Foreign currency transaction gains (losses), net (140) 1,078 (7,668) 1,289
Other, net (387) (56) (665) (221)
Total other income (expense), net (40,951) (41,842) (83,308) (83,132)
Income (loss) from continuing operations before income taxes 14,042 (27,880) 1,360 (22,700)
Income tax benefit (provision), net (13,668) 8,862 (18,899) 3,990
Net income (loss) from continuing operations 374 (19,018) (17,539) (18,710)
Net income (loss) from discontinued operations — 20,627 — 43,351
Net income (loss) 374 1,609 (17,539) 24,641
Less: Net loss (income) attributable to non-controlling interests 3,431 (632) 6,873 (1,438)
Net income (loss) attributable to Hughes Satellite Systems Corporation $ 3,805 $ 977 $ (10,666) $ 23,203


Shareholder's equity:
Preferred stock, $0.001 par value,1,000,000 shares authorized, NaN issued and outstanding at both March 31, 2021 and December 31, 2020	0		0
Common stock, $0.01 par value, 1,000,000 shares authorized, 1,078 shares issued and outstanding at both March 31, 2021 and December 31, 2020	0		0
Additional paid-in capital	1,487,590		1,486,730
Accumulated other comprehensive income (loss)	(175,060)		(146,840)
Accumulated earnings (losses)	690,147		671,570
Total Hughes Satellite Systems Corporation shareholder's equity	2,002,677		2,011,460
Non-controlling interests	63,759		64,916
Total shareholder's equity	2,066,436		2,076,376
Total liabilities and shareholder's equity	$	5,497,596	$	5,591,367

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

Table of Contents

HUGHES SATELLITE SYSTEMS CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(Amounts in thousands)

(Unaudited)


	For the three months ended March 31,
	2021		2020
Revenue:
Services and other revenue	$	432,991	$	410,238
Equipment revenue	52,239		57,309
Total revenue	485,230		467,547
Costs and expenses:
Cost of sales - services and other (exclusive of depreciation and amortization)	131,412		143,885
Cost of sales - equipment (exclusive of depreciation and amortization)	45,140		45,908
Selling, general and administrative expenses	104,370		115,860
Research and development expenses	7,545		6,254
Depreciation and amortization	122,664		125,965
Impairment of long-lived assets	210		0
Total costs and expenses	411,341		437,872
Operating income (loss)	73,889		29,675
Other income (expense):
Interest income	2,394		8,892
Interest expense, net of amounts capitalized	(41,922)		(42,192)
Gains (losses) on investments, net	0		(164)
Equity in earnings (losses) of unconsolidated affiliates, net	(1,761)		(1,087)
Foreign currency transaction gains (losses), net	(3,360)		(7,528)
Other, net	(973)		(278)
Total other income (expense), net	(45,622)		(42,357)
Income (loss) before income taxes	28,267		(12,682)
Income tax benefit (provision), net	(10,637)		(5,231)
Net income (loss)	17,630		(17,913)
Less: Net loss (income) attributable to non-controlling interests	947		3,442
Net income (loss) attributable to HSSC	$	18,577	$	(14,471)

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

Table of Contents

HUGHES SATELLITE SYSTEMS CORPORATION

~~CONDENSED~~ CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Amounts in thousands)

(Unaudited)


		For the three months ended June 30,						For the six months ended June 30,							For the three months ended March 31,
		2020		2019		2020		2019			2021		2020
Net income (loss)	Net income (loss)	$	374	$	1,609	$	(17,539)	$	24,641	Net income (loss)	$	17,630	$	(17,913)
Other comprehensive income (loss), net of tax:	Other comprehensive income (loss), net of tax:									Other comprehensive income (loss), net of tax:
Foreign currency translation		(10,345)		3,158		(93,181)		2,320
Unrealized gains (losses) on available-for-sale debt securities		2,269		(35)		(210)		2,318
Foreign currency translation adjustments										Foreign currency translation adjustments	(33,742)		(82,836)
Unrealized gains (losses) on available-for-sale securities										Unrealized gains (losses) on available-for-sale securities	(88)		(2,479)
Other	Other	285		(46)		(120)		(13)		Other	0		(405)
Amounts reclassified to net income (loss):
Realized losses (gains) on available-for-sale debt securities		—		(15)		—		(400)

Total other comprehensive income (loss), net of tax	Total other comprehensive income (loss), net of tax	(7,791)		3,062		(93,511)		4,225		Total other comprehensive income (loss), net of tax	(33,830)		(85,720)
Comprehensive income (loss)	Comprehensive income (loss)	(7,417)		4,671		(111,050)		28,866		Comprehensive income (loss)	(16,200)		(103,633)
Less: Comprehensive loss (income) attributable to non-controlling interests	Less: Comprehensive loss (income) attributable to non-controlling interests	5,804		(632)		25,569		(1,438)		Less: Comprehensive loss (income) attributable to non-controlling interests	6,557		19,765
Comprehensive income (loss) attributable to Hughes Satellite Systems Corporation		$	(1,613)	$	4,039	$	(85,481)	$	27,428
Comprehensive income (loss) attributable to HSSC										Comprehensive income (loss) attributable to HSSC	$	(9,643)	$	(83,868)

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

Table of Contents

HUGHES SATELLITE SYSTEMS CORPORATION

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

~~FOR THE THREE MONTHS ENDED JUNE 30, 2020 AND 2019~~

(Amounts in thousands)

(Unaudited)


		Additional Paid-In Capital		Accumulated Other Comprehensive Income (Loss)		Accumulated Earnings (Losses)		Non-controlling Interests		Total			Additional Paid-In Capital		Accumulated Other Comprehensive Income (Loss)		Accumulated Earnings (Losses)		Non-controlling Interests		Total
Balance, March 31, 2019		$	1,765,481	$	(82,611)	$	716,183	$	11,434	$	2,410,487
Balance, December 31, 2019												Balance, December 31, 2019	$	1,478,636	$	(84,636)	$	664,415	$	75,748	$	2,134,163
Cumulative effect of accounting changes												Cumulative effect of accounting changes	—		—		(2,169)		(240)		(2,409)
Balance, January 1, 2020												Balance, January 1, 2020	1,478,636		(84,636)		662,246		75,508		2,131,754
Stock-based compensation	Stock-based compensation	1,423		—		—		—		1,423		Stock-based compensation	1,457		—		—		—		1,457
Other comprehensive income (loss)		—		3,062		—		—		3,062
Net income (loss)		—		—		977		632		1,609
Other, net		(262)		—		—		—		(262)
Balance, June 30, 2019		$	1,766,642	$	(79,549)	$	717,160	$	12,066	$	2,416,319

Balance, March 31, 2020		$	1,483,747	$	(154,033)	$	647,775	$	58,229	$	2,035,718
Stock-based compensation		479		—		—		—		479

Issuance of equity and contribution of assets pursuant to the Yahsat JV formation												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	Contribution by non-controlling interest holder	—		—		—		6,000		6,000		Contribution by non-controlling interest holder	—		—		—		4,000		4,000
Other comprehensive income (loss)	Other comprehensive income (loss)	—		(5,417)		—		(2,373)		(7,790)		Other comprehensive income (loss)	—		(69,397)		—		(16,323)		(85,720)
Net income (loss)	Net income (loss)	—		—		3,805		(3,431)		374		Net income (loss)	—		—		(14,471)		(3,442)		(17,913)
Other, net	Other, net	133		—		—		—		133		Other, net	(684)		—		—		—		(684)
Balance, June 30, 2020		$	1,484,359	$	(159,450)	$	651,580	$	58,425	$	2,034,914
Balance, March 31, 2020												Balance, March 31, 2020	$	1,483,747	$	(154,033)	$	647,775	$	58,229	$	2,035,718

Balance, December 31, 2020												Balance, December 31, 2020	$	1,486,730	$	(146,840)	$	671,570	$	64,916	$	2,076,376
Stock-based compensation												Stock-based compensation	860		—		—		—		860
Contribution by non-controlling interest holder												Contribution by non-controlling interest holder	—		—		—		5,400		5,400
Other comprehensive income (loss)												Other comprehensive income (loss)	—		(28,220)		—		(5,610)		(33,830)
Net income (loss)												Net income (loss)	—		—		18,577		(947)		17,630
Balance, March 31, 2021												Balance, March 31, 2021	$	1,487,590	$	(175,060)	$	690,147	$	63,759	$	2,066,436

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

Table of Contents

HUGHES SATELLITE SYSTEMS CORPORATION

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

~~FOR THE SIX MONTHS ENDED JUNE 30, 2020 AND 2019~~CASH FLOWS

(Amounts in thousands)

(Unaudited)

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 2,856 — — — 2,856
Purchase of non-controlling interest (2,666) — — (4,647) (7,313)
Other comprehensive income (loss) — 4,225 — — 4,225
Net income (loss) — — 23,203 1,438 24,641
Other, net (585) — — — (585)
Balance, June 30, 2019 $ 1,766,642 $ (79,549) $ 717,160 $ 12,066 $ 2,416,319
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 1,936 — — — 1,936
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 — — — 10,000 10,000
Other comprehensive income (loss) — (74,814) — (18,696) (93,510)
Net income (loss) — — (10,666) (6,873) (17,539)
Other, net (551) — — — (551)
Balance, June 30, 2020 $ 1,484,359 $ (159,450) $ 651,580 $ 58,425 $ 2,034,914


	For the three months ended March 31,
	2021		2020
Cash flows from operating activities:
Net income (loss)	$	17,630	$	(17,913)
Adjustments to reconcile net income (loss) to cash flows provided by (used for) operating activities:
Depreciation and amortization	122,664		125,965
Impairment of long-lived assets	210		0
Losses (gains) on investments, net	0		164
Equity in losses (earnings) of unconsolidated affiliates, net	1,761		1,087
Foreign currency transaction losses (gains), net	3,360		7,528
Deferred tax provision (benefit), net	6,584		1,526
Stock-based compensation	860		1,457
Amortization of debt issuance costs	1,118		1,050
Other, net	10,981		(810)
Changes in assets and liabilities, net:
Trade accounts receivable and contract assets, net	(6,078)		(8,162)
Other current assets, net	1,826		(21,268)
Trade accounts payable	(15,484)		(10,984)
Contract liabilities	7,938		(3,213)
Accrued expenses and other current liabilities	(33,091)		(5,007)
Non-current assets and non-current liabilities, net	1,170		(6,196)
Net cash provided by (used for) operating activities	121,449		65,224

Cash flows from investing activities:
Purchases of marketable investment securities	(310,528)		(365,877)
Sales and maturities of marketable investment securities	1,003,198		490,020
Expenditures for property and equipment	(82,196)		(91,517)
Expenditures for externally marketed software	(7,846)		(8,638)
Net cash provided by (used for) investing activities	602,628		23,988

Cash flows from financing activities:
Repurchase of the 2021 Senior Unsecured Notes	(62,588)		0
Payment of finance lease obligations	(329)		(215)
Payment of in-orbit incentive obligations	(1,104)		(203)
Contribution by non-controlling interest holder	5,400		4,000
Other, net	(292)		979
Net cash provided by (used for) financing activities	(58,913)		4,561

Effect of exchange rates on cash and cash equivalents	(1,700)		(4,618)
Net increase (decrease) in cash and cash equivalents	663,464		89,155
Cash and cash equivalents, including restricted amounts, beginning of period	741,297		1,140,322
Cash and cash equivalents, including restricted amounts, end of period	$	1,404,761	$	1,229,477

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

~~Table of Contents~~

~~HUGHES SATELLITE SYSTEMS CORPORATION~~

~~CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS~~

~~(Amounts in thousands)~~

~~(Unaudited)~~

For the six months ended June 30,
2020 2019
Cash flows from operating activities:
Net income (loss) $ (17,539) $ 24,641
Adjustments to reconcile net income (loss) to net cash flows from operating activities:
Depreciation and amortization 249,443 288,276
Losses (gains) on investments, net 148 360
Equity in losses (earnings) of unconsolidated affiliates, net 2,456 1,988
Foreign currency transaction losses (gains), net 7,668 (1,289)
Deferred tax provision (benefit), net 12,026 6,292
Stock-based compensation 2,779 2,856
Amortization of debt issuance costs 2,120 3,872
Other, net (895) (384)
Changes in assets and liabilities, net:
Trade accounts receivable and contract assets, net (5,324) 167
Other current assets, net 2,515 (22,521)
Trade accounts payable (13,244) 1,357
Contract liabilities (11,229) 34,059
Accrued expenses and other current liabilities 15,998 25,305
Non-current assets and non-current liabilities, net (18,725) 3,148
Net cash flows from operating activities 228,197 368,127
Cash flows from investing activities:
Purchases of marketable investment securities (365,877) (351,843)
Sales and maturities of marketable investment securities 660,513 1,127,877
Expenditures for property and equipment (174,996) (148,155)
Expenditures for externally marketed software (19,237) (15,329)
Net cash flows from investing activities 100,403 612,550
Cash flows from financing activities:
Repurchase and maturity of the 2019 Senior Secured Notes — (920,923)
Payment of finance lease obligations (421) (20,008)
Payment of in-orbit incentive obligations (1,021) (3,778)
Contribution by non-controlling interest holder 10,000 —
Purchase of non-controlling interest — (7,313)
Other, net 1,002 —
Net cash flows from financing activities 9,560 (952,022)
Effect of exchange rates on cash and cash equivalents (8,148) 121
Net increase (decrease) in cash and cash equivalents 330,012 28,776
Cash and cash equivalents, including restricted amounts, beginning of period 1,140,322 848,619
Cash and cash equivalents, including restricted amounts, end of period $ 1,470,334 $ 877,395

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

Table of Contents

HUGHES SATELLITE SYSTEMS CORPORATION

NOTES TO ~~CONDENSED~~ CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1.ORGANIZATION AND BUSINESS ACTIVITIES

Principal Business

Hughes Satellite Systems Corporation (which, together with its subsidiaries, is referred to as “HSSC,” the “Company,” “we,” “us” and “our”) is a holding company and a subsidiary of EchoStar Corporation (“EchoStar”). We are a global provider of broadband satellite technologies, broadband internet services for consumer customers, which include home and small to medium-sized businesses, and satellite services. We also deliver innovative network technologies, managed services and communications solutions for enterprise customers, which include aeronautical and government enterprises. We operate in the following 2 business segments:

•Hughes — which provides broadband satellite technologies and broadband internet services to domestic and international consumer customers and broadband network technologies, managed services, equipment, hardware, satellite services and communication solutions to service providers and enterprise 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.

•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.

Our operations also include various corporate departments (primarily Executive, Treasury, Strategic Development, Human Resources, ~~IT,~~Information Technology, Finance, Accounting, Real Estate and Legal) and other activities, ~~that have not been assigned to our business segments~~ such as costs incurred in certain satellite development programs and other business development activities, and gains or losses from certain of our ~~investments.~~investments, that have not been assigned to our business segments. These activities, costs and income, as well as eliminations of intersegment transactions, are accounted for in Corporate and Other. in our segment reporting. We also divide our operations by primary geographic market as follows: (i) North America (the U.S. and its territories, Mexico, and Canada); (ii) South and Central America ~~and;~~and (iii) ~~All other~~Other (Asia, Africa, Australia, Europe, India, and the Middle East). Refer to to Note ~~13.~~14. Segment Reporting for further detail.

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

Following the consummation of the BSS Transaction, we no longer operate the BSS Business, which was a substantial portion of our ESS segment. As a result of the BSS Transaction, the financial results of the BSS Business, except for certain real estate that transferred in the transaction, are presented as discontinued operations and, as such, excluded from continuing operations and segment results for the three and six months ended June 30, 2019, as presented in these unaudited Condensed Consolidated Financial Statements and the accompanying notes (collectively, the “Condensed Consolidated Financial Statements”).

~~Table of Contents~~

~~HUGHES SATELLITE SYSTEMS CORPORATION~~

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

~~(Unaudited)~~

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

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

These ~~Condensed~~unaudited Consolidated Financial Statements and the accompanying notes (collectively, the “Consolidated Financial Statements”) are prepared in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) and the instructions to Form 10-Q and Article 10 of Regulation S-X for interim financial information. Accordingly, they do not include all of the information and notes required for complete financial statements prepared in conformity with U.S. GAAP. In our opinion, all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation have been included. However, our results of operations for the interim periods presented are not necessarily indicative of the results that may be expected for the full year.

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

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

Use of Estimates

We are required to make certain estimates and assumptions that affect the amounts reported in these ~~Condensed~~ Consolidated Financial Statements. The most significant estimates and assumptions are used in determining: (i) inputs used to recognize revenue over time, including amortization periods for deferred contract acquisition costs; (ii) allowances

Table of Contents

HUGHES SATELLITE SYSTEMS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

for doubtful accounts; (iii) deferred taxes and related valuation allowances, including uncertain tax positions; (iv) loss contingencies; (v) fair value of financial instruments; (vi) fair value of assets and liabilities acquired in business combinations; and (vii) asset impairment testing.

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

Principles of Consolidation

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

~~Reclassification~~

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

~~Table of Contents~~

~~HUGHES SATELLITE SYSTEMS CORPORATION~~

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

~~(Unaudited)~~

Recently Adopted Accounting Pronouncements

~~Credit Losses~~

On January 1, ~~2020,~~2021, we adopted Accounting ~~Standards~~Standard Update (“ASU”) ~~No. 2016-13 -~~ ~~Financial Instruments - Credit Losses (Topic 326)~~, as amended, and codified in Accounting Standards Codification Topic 326 (“ASC 326”). ASC 326 introduces a new approach to the periodic estimation of credit losses for certain financial assets based on expected losses instead of incurred losses. It also modifies the impairment model for available-for-sale debt securities and provides a simplified accounting model for purchased financial assets that have experienced credit deterioration since their original purchase. We have elected to apply the requirements of the new standard prospectively and we recognized a cumulative effect of adoption of $2.2 million to ~~Accumulated earnings (losses)~~ as of January 1, 2020. Based on this election, we did not restate our comparative Condensed Consolidated Financial Statements and they continue to be reported under the accounting standards in effect for the periods before January 1, 2020.

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

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

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

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

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

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

~~Table of Contents~~

~~HUGHES SATELLITE SYSTEMS CORPORATION~~

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

~~(Unaudited)~~

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

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

~~The application of ASC 326 requirements did not materially affect our Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2020.~~

~~Recently Issued Accounting Pronouncements Not Yet Adopted~~

~~In December 2019, the Financial Accounting Standards Board (“FASB”) issued ASU~~ No. 2019-12 - Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”). ASU 2019-12 is part of the ~~FASB’s~~Financial Accounting Standards Board (“FASB”) overall simplification initiative and seeks to simplify the accounting for income taxes by updating certain guidance and removing certain exceptions. ~~The updated guidance is effective for fiscal years beginning after December 15, 2020 and interim periods within those fiscal years. Early~~Our adoption ~~is permitted. We are currently assessing the impact~~ of ~~adopting~~ this ~~new guidance, but do~~ASU did not ~~expect it to~~ have a material impact on our ~~consolidated financial statements.~~Consolidated Financial Statements.

Recently Issued Accounting Pronouncements Not Yet Adopted

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

118

Table of Contents

HUGHES SATELLITE SYSTEMS CORPORATION

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

(Unaudited)

NOTE 3. REVENUE RECOGNITION

Contract Balances

The following table presents the components of our contract balances:


		As of							As of
		June 30, 2020		December 31, 2019			March 31, 2021		December 31, 2020
Trade accounts receivable and contract assets, net:	Trade accounts receivable and contract assets, net:					Trade accounts receivable and contract assets, net:
Sales and services	Sales and services	$	157,459	$	152,632	Sales and services	$	150,021	$	149,513
Leasing	Leasing	4,064		4,016		Leasing	4,648		4,553
Total trade accounts receivable	Total trade accounts receivable	161,523		156,648		Total trade accounts receivable	154,669		154,066
Contract assets	Contract assets	38,223		63,649		Contract assets	46,267		45,308
Allowance for doubtful accounts	Allowance for doubtful accounts	(16,413)		(23,777)		Allowance for doubtful accounts	(13,664)		(15,386)
Total trade accounts receivable and contract assets, net	Total trade accounts receivable and contract assets, net	$	183,333	$	196,520	Total trade accounts receivable and contract assets, net	$	187,272	$	183,988

Contract liabilities:	Contract liabilities:					Contract liabilities:
Current	Current	$	89,831	$	101,060	Current	$	112,507	$	104,569
Non-current	Non-current	11,048		10,572		Non-current	10,357		10,519
Total contract liabilities	Total contract liabilities	$	100,879	$	111,632	Total contract liabilities	$	122,864	$	115,088

The following table presents the revenue recognized in the ~~Condensed~~ Consolidated ~~Statements~~Statement of Operations that was previously included within contract liabilities:

For the three months ended June 30, For the six months ended June 30,
2020 2019 2020 2019
Revenue $ 7,614 $ 8,290 $ 59,786 $ 47,773


	For the three months ended March 31,
	2021		2020
Revenue	$	63,081	$	52,172

~~The following table presents the activity in our allowance for doubtful accounts:~~

For the six months ended June 30,
2020 2019
Balance at beginning of period $ 23,777 $ 16,604
Credit losses ⁽¹⁾
4,393 18,862
Deductions (10,546) (10,053)
Foreign currency translation (1,211) 173
Balance at end of period $ 16,413 $ 25,586

⁽¹⁾The impact of adopting ASC 326 on January 1, 2020 was a net decrease to our allowance for doubtful accounts largely driven by a $13.4 million reclassification to Other current assets, net and Other non-current assets, net, offset by a $2.9 million adjustment to Accumulated earnings (losses).

~~Table of Contents~~

~~HUGHES SATELLITE SYSTEMS CORPORATION~~

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

~~(Unaudited)~~

Contract Acquisition Costs

The following table presents the activity in our contract acquisition costs, net:

For the six months ended June 30,
2020 2019
Balance at beginning of period $ 113,592 $ 114,306
Additions 49,366 47,277
Amortization expense (51,265) (47,762)
Foreign currency translation (4,607) 97
Balance at end of period $ 107,086 $ 113,918

~~We recognized amortization expenses related to contract acquisition costs of $25.6 million and $24.3 million for the three months ended June 30, 2020 and 2019, respectively.~~


	For the three months ended March 31,
	2021		2020
Balance at beginning of period	$	99,837	$	113,592
Additions	18,400		26,474
Amortization expense	(22,769)		(25,675)
Foreign currency translation	(875)		(3,994)
Balance at end of period	$	94,593	$	110,397

~~Transaction Price Allocated to Remaining~~ Performance Obligations

As of ~~June 30, 2020,~~March 31, 2021, the remaining performance obligations for our customer contracts with original expected durations of more than one year was ~~$691.0~~$939.7 million. ~~We expect~~Performance obligations expected to ~~recognize 40.2% of our remaining performance obligations of these contracts as revenue in the next twelve months.~~be satisfied within one year and greater than one year are 37% and 63%, respectively. This amount e~~xcludes~~and percentages exclude agreements with consumer customers in our Hughes segment, our leasing arrangements and agreements with certain customers under which collectability of all amounts due through the term of contracts is uncertain.

139

Table of Contents

HUGHES SATELLITE SYSTEMS CORPORATION

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

(Unaudited)

Disaggregation of Revenue

Geographic Information

The following table presents our revenue from customer contracts disaggregated by primary geographic market and by segment:


		Hughes		ESS		Corporate and Other		Consolidated Total			Hughes		ESS		Corporate and Other		Consolidated Total
For the three months ended June 30, 2020
For the three months ended March 31, 2021										For the three months ended March 31, 2021
North America	North America	$	384,623	$	4,179	$	(393)	$	388,409	North America	$	398,759	$	4,089	$	(88)	$	402,760
South and Central America	South and Central America	33,961		—		—		33,961		South and Central America	43,030		0		0		43,030
Other	Other	34,588		—		4,687		39,275		Other	34,070		0		5,370		39,440
Total revenue	Total revenue	$	453,172	$	4,179	$	4,294	$	461,645	Total revenue	$	475,859	$	4,089	$	5,282	$	485,230

For the three months ended June 30, 2019
For the three months ended March 31, 2020										For the three months ended March 31, 2020
North America	North America	$	372,398	$	3,742	$	879	$	377,019	North America	$	382,715	$	4,652	$	(285)	$	387,082
South and Central America	South and Central America	30,395		—		—		30,395		South and Central America	33,956		0		0		33,956
Other	Other	49,054		—		4,773		53,827		Other	41,811		0		4,698		46,509
Total revenue	Total revenue	$	451,847	$	3,742	$	5,652	$	461,241	Total revenue	$	458,482	$	4,652	$	4,413	$	467,547

For the six months ended June 30, 2020
North America		$	767,338	$	8,831	$	(678)	$	775,491
South and Central America		67,917		—		—		67,917
Other		76,399		—		9,385		85,784
Total revenue		$	911,654	$	8,831	$	8,707	$	929,192

For the six months ended June 30, 2019
North America		$	740,227	$	7,775	$	1,884	$	749,886
South and Central America		57,258		—		—		57,258
Other		99,699		—		9,597		109,296
Total revenue		$	897,184	$	7,775	$	11,481	$	916,440

1410

Table of Contents

HUGHES SATELLITE SYSTEMS CORPORATION

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

(Unaudited)

Nature of Products and Services

The following ~~tables~~table presents our revenue disaggregated by the nature of products and services and by ~~segment for the three and six months ended June 30, 2020 and 2019:~~segment:

Hughes ESS Corporate and Other Consolidated
Total
For the three months ended June 30, 2020
Services and other revenue:
Services $ 399,697 $ 2,564 $ — $ 402,261
Lease revenue 11,052 1,615 4,294 16,961
Total services and other revenue 410,749 4,179 4,294 419,222
Equipment revenue:
Equipment 18,518 — — 18,518
Design, development and construction services 22,668 — — 22,668
Lease revenue 1,237 — — 1,237
Total equipment revenue 42,423 — — 42,423
Total revenue $ 453,172 $ 4,179 $ 4,294 $ 461,645
For the three months ended June 30, 2019
Services and other revenue:
Services $ 381,608 $ 2,400 $ 323 $ 384,331
Lease revenue 12,594 1,342 5,329 19,265
Total services and other revenue 394,202 3,742 5,652 403,596
Equipment revenue:
Equipment 30,597 — — 30,597
Design, development and construction services 25,860 — — 25,860
Lease revenue 1,188 — — 1,188
Total equipment revenue 57,645 — — 57,645
Total revenue $ 451,847 $ 3,742 $ 5,652 $ 461,241

~~Table of Contents~~

~~HUGHES SATELLITE SYSTEMS CORPORATION~~

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

~~(Unaudited)~~


		Hughes		ESS		Corporate and Other		Consolidated Total			Hughes		ESS		Corporate and Other		Consolidated Total
For the six months ended June 30, 2020
For the three months ended March 31, 2021										For the three months ended March 31, 2021
Services and other revenue:	Services and other revenue:									Services and other revenue:
Services	Services	$	789,697	$	5,329	$	—	$	795,026	Services	$	413,519	$	2,690	$	0	$	416,209
Lease revenue	Lease revenue	22,225		3,502		8,707		34,434		Lease revenue	10,101		1,399		5,282		16,782
Total services and other revenue	Total services and other revenue	811,922		8,831		8,707		829,460		Total services and other revenue	423,620		4,089		5,282		432,991
Equipment revenue:	Equipment revenue:									Equipment revenue:
Equipment	Equipment	43,357		—		—		43,357		Equipment	28,521		0		0		28,521
Design, development and construction services	Design, development and construction services	54,225		—		—		54,225		Design, development and construction services	21,636		0		0		21,636
Lease revenue	Lease revenue	2,150		—		—		2,150		Lease revenue	2,082		0		0		2,082
Total equipment revenue	Total equipment revenue	99,732		—		—		99,732		Total equipment revenue	52,239		0		0		52,239
Total revenue	Total revenue	$	911,654	$	8,831	$	8,707	$	929,192	Total revenue	$	475,859	$	4,089	$	5,282	$	485,230

For the six months ended June 30, 2019
For the three months ended March 31, 2020										For the three months ended March 31, 2020
Services and other revenue:	Services and other revenue:									Services and other revenue:
Services	Services	$	762,391	$	5,217	$	645	$	768,253	Services	$	390,000	$	2,765	$	0	$	392,765
Lease revenue	Lease revenue	25,434		2,558		10,836		38,828		Lease revenue	11,173		1,887		4,413		17,473
Total services and other revenue	Total services and other revenue	787,825		7,775		11,481		807,081		Total services and other revenue	401,173		4,652		4,413		410,238
Equipment revenue:	Equipment revenue:									Equipment revenue:
Equipment	Equipment	56,557		—		—		56,557		Equipment	24,839		0		0		24,839
Design, development and construction services	Design, development and construction services	50,926		—		—		50,926		Design, development and construction services	31,557		0		0		31,557
Lease revenue	Lease revenue	1,876		—		—		1,876		Lease revenue	913		0		0		913
Total equipment revenue	Total equipment revenue	109,359		—		—		109,359		Total equipment revenue	57,309		0		0		57,309
Total revenue	Total revenue	$	897,184	$	7,775	$	11,481	$	916,440	Total revenue	$	458,482	$	4,652	$	4,413	$	467,547

Lease Revenue

The following table presents our lease revenue by type of lease:

For the three months ended June 30, For the six months ended June 30,
2020 2019 2020 2019
Sales-type lease revenue:
Revenue at lease commencement $ 1,237 $ 1,188 $ 2,150 $ 1,876
Interest income 95 258 164 510
Total sales-type lease revenue 1,332 1,446 2,314 2,386
Operating lease revenue 16,866 19,007 34,270 38,318
Total lease revenue $ 18,198 $ 20,453 $ 36,584 $ 40,704


	For the three months ended March 31,
	2021		2020
Sales-type lease revenue:
Revenue at lease commencement	$	2,082	$	913
Interest income	73		69
Total sales-type lease revenue	2,155		982
Operating lease revenue	16,709		17,404
Total lease revenue	$	18,864	$	18,386

Substantially all of our net investment in sales-type leases consisted of lease receivables totaling ~~$9.4~~$13.4 million and ~~$6.5~~$13.0 million as of ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, respectively.

1611

Table of Contents

HUGHES SATELLITE SYSTEMS CORPORATION

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

(Unaudited)

The following table presents future operating lease payments to be received as of ~~June 30, 2020:~~March 31, 2021:


		Amounts			Amounts
Year ending December 31,	Year ending December 31,			Year ending December 31,
2020 (remainder)		$	21,970
2021		36,045
2021 (remainder)				2021 (remainder)	$	30,433
2022	2022	34,126		2022	34,082
2023	2023	32,127		2023	32,000
2024	2024	29,733		2024	29,740
2025 and beyond		127,816
2025				2025	28,482
2026 and beyond				2026 and beyond	47,562
Total lease payments	Total lease payments	$	281,817	Total lease payments	$	202,299

The following table presents amounts for assets subject to operating leases, which are included in Property and equipment, ~~net~~:net:


		As of																							As of
		June 30, 2020										December 31, 2019											March 31, 2021				December 31, 2020
		Cost		Accumulated Depreciation		Net		Cost		Accumulated Depreciation		Net			Cost		Accumulated Depreciation		Net		Cost		Accumulated Depreciation		Net
Customer premises equipment	Customer premises equipment	$	1,552,146	$	(1,183,549)	$	368,597	$	1,458,298	$	(1,074,968)	$	383,330	Customer premises equipment	$	1,737,049	$	(1,370,538)	$	366,511	$	1,706,328	$	(1,317,210)	$	389,118
Satellites	Satellites	104,620		(34,847)		69,773		104,620		(31,360)		73,260		Satellites	104,620		(40,078)		64,542		104,620		(38,335)		66,285
Total	Total	$	1,656,766	$	(1,218,396)	$	438,370	$	1,562,918	$	(1,106,328)	$	456,590	Total	$	1,841,669	$	(1,410,616)	$	431,053	$	1,810,948	$	(1,355,545)	$	455,403

The following table presents depreciation expense for assets subject to operating leases, which is included in Depreciation and amortization:

For the three months ended June 30, For the six months ended June 30,
2020 2019 2020 2019
Customer premises equipment $ 58,117 $ 50,698 $ 107,621 $ 100,410
Satellites 1,743 1,738 3,487 3,475
Real estate — 217 — 434
Total $ 59,860 $ 52,653 $ 111,108 $ 104,319

~~Table of Contents~~

~~HUGHES SATELLITE SYSTEMS CORPORATION~~

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

~~(Unaudited)~~

~~NOTE 4. DISCONTINUED OPERATIONS~~

~~BSS Business~~

~~The following table presents the financial results of our discontinued operations for the BSS Business:~~

For the three months ended June 30, 2019 For the six months ended June 30, 2019
Revenue:
Services and other revenue - DISH Network $ 70,819 $ 141,645
Services and other revenue - other 6,399 12,799
Total revenue 77,218 154,444
Costs and expenses:
Cost of sales - services and other (exclusive of depreciation and amortization) 10,509 20,726
Selling, general and administrative expenses 2,622 2,642
Depreciation and amortization 31,019 62,138
Total costs and expenses 44,150 85,506
Operating income (loss) 33,068 68,938
Other income (expense):
Interest expense (6,235) (12,733)
Total other income (expense), net (6,235) (12,733)
Income (loss) from discontinued operations before income taxes 26,833 56,205
Income tax benefit (provision), net (6,206) (12,854)
Net income (loss) from discontinued operations $ 20,627 $ 43,351

~~No assets or liabilities attributable to our discontinued operations of the BSS Business were held by us as of June 30, 2020 or December 31, 2019.~~

The following table presents the significant supplemental cash flow information and adjustments to reconcile net income to net cash flow from operating activities for discontinued operations of the BSS Business for the six months ended June 30, 2019:


	~~Amounts~~
~~Operating activities:~~
~~Net income (loss) from discontinued operations~~	$	~~43,351~~
~~Depreciation and amortization~~	$	~~62,138~~

~~Investing activities:~~
~~Expenditures for property and equipment~~	$	~~244~~

~~Financing activities:~~
~~Payment of finance lease obligations~~	$	~~19,457~~
~~Payment of in-orbit incentive obligations~~	$	~~2,540~~

~~Table of Contents~~

~~HUGHES SATELLITE SYSTEMS CORPORATION~~

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

~~(Unaudited)~~

~~Terminated or Transferred Related Party Agreements~~

Effective September 10, 2019, the following agreements were terminated or transferred to DISH Network as part of the BSS Transaction. Unless noted differently below, we have no further obligations and have neither earned additional revenue nor incurred additional expense, as applicable, under or in connection with these agreements after the consummation of the BSS Transaction.

~~DBS Transponder Lease.~~ EchoStar leased satellite capacity from us on 8 direct broadcast satellite (“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.

~~EchoStar XXIII Launch Facilitation and Operational Control Agreement.~~ As part of applying for the launch license for the EchoStar XXIII satellite through the UK Space Agency, we and a subsidiary of EchoStar, EchoStar Operating L.L.C. (“EOC”), entered into an agreement in March 2016 to transfer to us EOC’s launch service contracts for the EchoStar XXIII satellite and to grant us certain rights to control its in-orbit operations. EOC retained ownership of the satellite and agreed to make additional payments to us for amounts that we were required to pay under the launch service contract. In 2016, we recorded additions to ~~Other non-current assets, net~~ ~~and corresponding increases in~~ ~~Additional paid-in capital~~ in the Condensed Consolidated Balance Sheet to reflect EOC’s cumulative payments under the launch service contract prior to the transfer date and to reflect EOC’s funding of additional cash payments to the launch service provider. The EchoStar XXIII satellite was successfully launched in March 2017. We recorded decreases in ~~Other non-current assets, net~~ ~~and~~ ~~Additional paid-in capital~~ ~~of $62.0 million, representing the carrying amount of the launch service contract at the time of launch to reflect the consumption of the contract’s economic benefits by EOC.~~

~~Satellite Capacity Leased to DISH Network.~~ We entered into certain agreements to lease satellite capacity pursuant to which we provided satellite services to DISH Network on certain satellites, as listed below, 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 satellite and the length of the service arrangements. The terms of each of the agreements are set forth below:

•~~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 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 beginning in January 2013.

•~~Nimiq 5 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”). 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. Following the consummation of the BSS Transaction, we retained certain obligations related to DISH Network’s performance under the Telesat Transponder Agreement.

•~~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

~~Table of Contents~~

~~HUGHES SATELLITE SYSTEMS CORPORATION~~

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

~~(Unaudited)~~

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 5 DBS transponders on the QuetzSat-1 satellite.

~~TT&C Agreement.~~ 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 “2012 TT&C Agreement”). The fees for services provided under the 2012 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.

~~Real Estate Lease.~~ During 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 whereby EchoStar and certain of its and our subsidiaries received all the shares of preferred tracking stock previously issued by EchoStar and Hughes Satellite Systems Corporation (the “Tracking Stock”) in exchange for 100% of the equity interests of certain of EchoStar’s subsidiaries that held substantially all of the former EchoStar Technologies businesses and certain other assets (collectively, the “Share Exchange”). Prior to the Share Exchange, a subsidiary of EchoStar leased to DISH Network certain space at 530 EchoStar Drive, Cheyenne, Wyoming. In connection with the Share Exchange, EchoStar transferred ownership of a portion of this property to DISH Network and contributed a portion to us and we 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 or subsequent amendments, 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. This lease does not qualify for discontinued operations treatment, and therefore the revenue from it has not been treated as discontinued operations.


	For the three months ended March 31,
	2021		2020
Customer premises equipment	$	60,967	$	49,504
Satellites	1,744		1,744
Total	$	62,711	$	51,248

~~NOTE5. BUSINESS COMBINATIONS~~

In May 2019, we entered into an agreement with Al Yah Satellite Communications Company PrJSC (“Yahsat”) pursuant to which, in November 2019, Yahsat contributed its satellite communications services business in Brazil to one of our Brazilian subsidiaries in exchange for a 20% equity ownership interest in that subsidiary (the “Yahsat Brazil JV Transaction”). The combined business provides broadband internet services and enterprise solutions in Brazil using the Telesat T19V satellite, the Eutelsat 65W satellite and Yahsat’s Al Yah 3 satellite. The results of operations related to the business we acquired from Yahsat have been included in these Condensed Consolidated Financial Statements from the date of acquisition. Through June 30, 2020, we have incurred $1.6 million of costs associated with the closing of the Yahsat Brazil JV Transaction.

~~Table of Contents~~

~~HUGHES SATELLITE SYSTEMS CORPORATION~~

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

~~(Unaudited)~~

~~All assets and liabilities acquired from Yahsat have been recorded at fair value. The following table presents our updated preliminary allocation of the purchase price:~~


	~~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~~

⁽¹⁾ ~~Based on the value determined for the equity ownership interest issued by our Brazilian subsidiary as consideration for the business acquired by us in the Yahsat Brazil JV Transaction.~~

~~The following preliminary valuation of the acquired assets was derived using primarily unobservable Level 3 inputs, which require significant management judgment and estimation:~~


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

~~The satellite payload and regulatory authorization were valued using an income approach and are being amortized over~~ ~~seven~~ ~~and 11 years, respectively.~~

~~The goodwill we recognized was allocated entirely to our Hughes segment and attributed to expected synergies, projected long-term business growth in current and new markets and an assembled workforce.~~

~~Table of Contents~~

~~HUGHES SATELLITE SYSTEMS CORPORATION~~

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

~~(Unaudited)~~

NOTE 6.4. MARKETABLE INVESTMENT SECURITIES

The following table presents our Marketable investment securities:


		As of							As of
		June 30, 2020		December 31, 2019			March 31, 2021		December 31, 2020
Marketable investment securities:	Marketable investment securities:					Marketable investment securities:
Debt securities:
Available-for-sale:
Available-for-sale debt securities:						Available-for-sale debt securities:
Corporate bonds	Corporate bonds	$	292,257	$	411,706	Corporate bonds	$	109,598	$	276,361
Commercial paper						Commercial paper	327,648		823,173
Other debt securities	Other debt securities	63,313		240,888		Other debt securities	78,054		103,756
Total available-for-sale debt securities	Total available-for-sale debt securities	355,570		652,594		Total available-for-sale debt securities	515,300		1,203,290
Equity securities	Equity securities	91		241		Equity securities	6		6
Total marketable investment securities	Total marketable investment securities	$	355,661	$	652,835	Total marketable investment securities	$	515,306	$	1,203,296

Table of Contents

HUGHES SATELLITE SYSTEMS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

Debt Securities

Our corporate bond portfolio includes debt instruments issued by individual corporations, primarily in the industrial and financial services industries. Our other debt securities portfolio includes investments in various debt instruments, including U.S. government bonds and commercial paper.

Available-for-Sale

The following table presents the components of our available-for-sale debt securities:


		Amortized		Unrealized							Estimated			Amortized		Unrealized				Estimated
		Cost		Gains		Losses		Fair Value				Cost		Gains		Losses		Fair Value
As of June 30, 2020
As of March 31, 2021										As of March 31, 2021
Corporate bonds	Corporate bonds	$	292,160	$	99	$	(2)	$	292,257	Corporate bonds		$	109,600	$	10	$	(12)	$	109,598
Commercial paper										Commercial paper		327,648		0		0		327,648
Other debt securities	Other debt securities	63,313		—		—		63,313		Other debt securities		78,108		2		(56)		78,054
Total available-for-sale debt securities	Total available-for-sale debt securities	$	355,473	$	99	$	(2)	$	355,570	Total available-for-sale debt securities		$	515,356	$	12	$	(68)	$	515,300

As of December 31, 2019
As of December 31, 2020										As of December 31, 2020
Corporate bonds	Corporate bonds	$	411,312	$	395	$	(1)	$	411,706	Corporate bonds		$	276,327	$	59	$	(25)	$	276,361
Commercial paper										Commercial paper		823,173		0		0		823,173
Other debt securities	Other debt securities	240,887		1		—		240,888		Other debt securities		103,758		3		(5)		103,756
Total available-for-sale debt securities	Total available-for-sale debt securities	$	652,199	$	396	$	(1)	$	652,594	Total available-for-sale debt securities		$	1,203,258	$	62	$	(30)	$	1,203,290

The following table presents the activity on our available-for-sale debt securities:

For the three months ended June 30, For the six months ended June 30,
2020 2019 2020 2019
Proceeds from sales $ — $ — $ 10,000 $ 311,823
Gains (losses) on sales, net $ — $ — $ — $ 385


	For the three months ended March 31,
	2021		2020
Proceeds from sales	$	95,765	$	10,000

As of ~~June 30, 2020, all $355.6~~March 31, 2021, we have $491.2 million of ~~our~~ available-for-sale debt securities ~~had~~with contractual maturities of one year or ~~less.~~less and $24.1 million with contractual maturities greater than one year.

Equity Securities

The following table presents the activity of our equity securities:


	For the three months ended March 31,
	2021		2020
Gains (losses) on investments, net	$	0	$	(164)

Table of Contents

HUGHES SATELLITE SYSTEMS CORPORATION

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

(Unaudited)

~~Equity Securities~~

~~The following table presents the activity of our equity securities:~~

For the three months ended June 30, For the six months ended June 30,
2020 2019 2020 2019
Gains (losses) on investments, net $ 14 $ (29) $ (149) $ (761)

~~For the three and six months ended June 30, 2020 and 2019, we did not have any sales of equity securities.~~

Fair Value Measurements

The following table presents our marketable investment securities categorized by the fair value hierarchy, certain of which have historically experienced volatility:


		As of																			Level 1	Level 2	Total
		June 30, 2020										December 31, 2019
		Level 1		Level 2		Total		Level 1		Level 2		Total
Debt securities:
Available-for-sale:
As of March 31, 2021														As of March 31, 2021
Cash equivalents (including restricted)														Cash equivalents (including restricted)	$	508	$	1,317,529	$	1,318,037
Available-for-sale debt securities:														Available-for-sale debt securities:
Corporate bonds	Corporate bonds	$	—	$	292,257	$	292,257	$	—	$	411,706	$	411,706	Corporate bonds	$	0	$	109,598	$	109,598
Commercial paper														Commercial paper	0		327,648		327,648
Other debt securities	Other debt securities	—		63,313		63,313		—		240,888		240,888		Other debt securities	32,498		45,556		78,054
Total available-for-sale debt securities	Total available-for-sale debt securities	—		355,570		355,570		—		652,594		652,594		Total available-for-sale debt securities	32,498		482,802		515,300
Equity securities	Equity securities	91		—		91		241		—		241		Equity securities	6		0		6
Total marketable investment securities	Total marketable investment securities	$	91	$	355,570	$	355,661	$	241	$	652,594	$	652,835	Total marketable investment securities	$	32,504	$	482,802	$	515,306

As of December 31, 2020														As of December 31, 2020
Cash equivalents (including restricted)														Cash equivalents (including restricted)	$	128	$	654,853	$	654,981
Available-for-sale debt securities:														Available-for-sale debt securities:
Corporate bonds														Corporate bonds	$	0	$	276,361	$	276,361
Commercial paper														Commercial paper	0		823,173		823,173
Other debt securities														Other debt securities	95,497		8,259		103,756
Total available-for-sale debt securities														Total available-for-sale debt securities	95,497		1,107,793		1,203,290
Equity securities														Equity securities	6		0		6
Total marketable investment securities														Total marketable investment securities	$	95,503	$	1,107,793	$	1,203,296

As of ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, we did not have any investments that were categorized within Level 3 of the fair value hierarchy.

NOTE 7. 5.PROPERTY AND EQUIPMENT

The following ~~tables~~table presents the components of Property and equipment, net:


		As of							As of
		June 30, 2020		December 31, 2019			March 31, 2021		December 31, 2020
Property and equipment, net:	Property and equipment, net:					Property and equipment, net:
Satellites, net	Satellites, net	$	1,017,534	$	1,127,521	Satellites, net	$	919,813	$	954,559
Other property and equipment, net	Other property and equipment, net	701,669		730,060		Other property and equipment, net	711,408		736,964
Total property and equipment, net	Total property and equipment, net	$	1,719,203	$	1,857,581	Total property and equipment, net	$	1,631,221	$	1,691,523

~~Table of Contents~~

~~HUGHES SATELLITE SYSTEMS CORPORATION~~

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

~~(Unaudited)~~

Satellites

As of ~~June 30, 2020,~~March 31, 2021, our operating satellite fleet consisted of 8 satellites, 5 of which are owned and 3 of which are leased. They are all in geosynchronous orbit, approximately 22,300 miles above the equator.

Table of Contents

HUGHES SATELLITE SYSTEMS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

The following table presents our operating satellite fleet as of ~~June 30, 2020~~March 31, 2021 which consists of both owned and leased satellites:

Satellite

Segment

Launch Date

Nominal Degree Orbital Location (Longitude)

Depreciable Life (In Years)

Owned:

SPACEWAY 3 ⁽¹⁾

Hughes

August 2007

95 W

EchoStar XVII

Hughes

July 2012

107 W

EchoStar XIX

Hughes

December 2016

97.1 W

Al Yah 3 ⁽²⁾

Hughes

January 2018

20 W

EchoStar IX ⁽³⁾

ESS

August 2003

121 W

Finance leases:

Eutelsat 65 West A

Hughes

March 2016

65 W

Telesat T19V

Hughes

July 2018

63 W

EchoStar 105/SES-11

ESS

October 2017

105 W

⁽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⁾ Upon consummation of our joint venture with Yahsat in Brazil in November 2019, we acquired the Brazilian Ka-band payload on this satellite. Depreciable life represents the remaining useful life as of November 2019.

⁽³⁾ We own the Ka-band and Ku-band payloads on this satellite.

The following table presents the components of our satellites, net:


		Depreciable Life (In Years)	As of								Depreciable Life (In Years)			As of
					June 30, 2020			December 31, 2019		Depreciable Life (In Years)			March 31, 2021			December 31, 2020
Satellites, net:	Satellites, net:							Satellites, net:
Satellites - owned	Satellites - owned	7 to 15	$	1,501,549		$	1,516,006	Satellites - owned	7 to 15		$	1,500,070		$	1,503,596
Satellites - acquired under finance leases	Satellites - acquired under finance leases	15	347,146			381,162		Satellites - acquired under finance leases	15		352,261			352,245
Total satellites	Total satellites		1,848,695			1,897,168		Total satellites			1,852,331			1,855,841
Accumulated depreciation:	Accumulated depreciation:							Accumulated depreciation:
Satellites - owned	Satellites - owned		(770,101)			(713,259)		Satellites - owned			(855,104)			(827,274)
Satellites - acquired under finance leases	Satellites - acquired under finance leases		(61,060)			(56,388)		Satellites - acquired under finance leases			(77,414)			(74,008)
Total accumulated depreciation	Total accumulated depreciation		(831,161)			(769,647)		Total accumulated depreciation			(932,518)			(901,282)
Total satellites, net	Total satellites, net		$	1,017,534		$	1,127,521	Total satellites, net			$	919,813		$	954,559

The following table presents the depreciation expense associated with our satellites, net:


	For the three months ended March 31,
	2021		2020
Depreciation expense:
Satellites - owned	$	27,068	$	27,068
Satellites - acquired under finance leases	7,201		6,013
Total depreciation expense	$	34,269	$	33,081

2415

Table of Contents

HUGHES SATELLITE SYSTEMS CORPORATION

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

(Unaudited)

The following table presents ~~the depreciation expense and~~ capitalized interest associated with our satellites ~~net:~~

For the three months ended June 30, For the six months ended June 30,
2020 2019 2020 2019
Depreciation expense:
Satellites - owned $ 27,068 $ 27,010 $ 54,137 $ 54,019
Satellites acquired under finance leases 7,205 6,402 13,218 12,892
Total depreciation expense $ 34,273 $ 33,412 $ 67,355 $ 66,911
Capitalized interest $ 787 $ 194 $ 1,424 $ 341
and satellite-related ground infrastructure:


	For the three months ended March 31,
	2021		2020
Capitalized interest	$	1,246	$	637

~~Satellite~~

Satellite-Related Commitments

As of ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020 our satellite-related ~~obligations~~commitments were ~~$228.1~~$215.1 million and ~~$256.9~~$224.4 million, respectively. These primarily include payments pursuant to regulatory authorizations, non-lease costs associated with our finance lease satellites, in-orbit incentives relating to certain satellites and commitments for satellite service arrangements.

In certain circumstances, the dates on which we are obligated to pay our contractual obligations could change.

Satellite Anomalies and Impairments

We are not aware of any anomalies with respect to our owned or leased satellites or payloads that have had any significant adverse effect on their remaining useful lives, the commercial operation of the satellites or payloads or our operating results or financial position as of and for the three ~~and six~~ months ended ~~June 30, 2020.~~

~~Satellite Insurance~~

We generally do not carry in-orbit insurance on our satellites or payloads because we have assessed that the cost of insurance is not economical relative to the risk of failures. Therefore, we generally bear the risk of any in-orbit failures. Pursuant to the terms of the agreements governing certain portions of our long-term debt and our joint venture agreements with Yahsat, we are required, subject to certain limitations on coverage, to maintain only for the SPACEWAY 3 satellite, the EchoStar XVII satellite and the Al Yah 3 Brazilian payload, insurance or other contractual arrangements during the commercial in-orbit service of such satellite or payload. Our other satellites and payloads, either in orbit or under construction, are not covered by launch or in-orbit insurance or other contractual arrangements. We will continue to assess circumstances going forward and make insurance-related decisions on a case-by-case basis.March 31, 2021.

Fair Value of In-Orbit Incentives

As of ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, the fair values of our in-orbit incentive obligations ~~from our continuing operations, based on measurements categorized within Level 2 of the fair value hierarchy,~~ approximated their carrying amounts of ~~$55.9~~$54.3 million and ~~$57.0~~$55.4 million, respectively.

~~Table of Contents~~

~~HUGHES SATELLITE SYSTEMS CORPORATION~~

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

~~(Unaudited)~~

NOTE 8.6. REGULATORY AUTHORIZATIONS

The following table presents ~~the components of~~ our Regulatory authorizations, net:

Finite lived
Cost Accumulated Amortization Total Indefinite lived Total
Balance, December 31, 2018 $ — $ — $ — $ 400,043 $ 400,043
Disposals — — — (43) (43)
Balance, June 30, 2019 $ — $ — $ — $ 400,000 $ 400,000
Balance, December 31, 2019 $ 12,524 $ (161) $ 12,363 $ 400,000 $ 412,363
Amortization expense — (408) (408) — (408)
Foreign currency translation (1,205) — (1,205) — (1,205)
Balance, June 30, 2020 $ 11,319 $ (569) $ 10,750 $ 400,000 $ 410,750
Weighted average useful life 14 years


	Finite lived
	Cost		Accumulated Amortization		Total		Indefinite lived		Total
Balance, December 31, 2019	$	12,524	$	(161)	$	12,363	$	400,000	$	412,363
Amortization expense	—		(100)		(100)		—		(100)
Currency translation adjustments	(1,020)		0		(1,020)		0		(1,020)
Balance, March 31, 2020	$	11,504	$	(261)	$	11,243	$	400,000	$	411,243

Balance, December 31, 2020	$	11,505	$	(1,054)	$	10,451	$	400,000	$	410,451
Amortization expense	—		(208)		(208)		—		(208)
Currency translation adjustments	(321)		38		(283)		0		(283)
Balance, March 31, 2021	$	11,184	$	(1,224)	$	9,960	$	400,000	$	409,960

Weighted-average useful life (in years)			14

~~Finite Lived Assets~~

Table of Contents

HUGHES SATELLITE SYSTEMS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

~~In November 2019, we were granted an S-Band spectrum license for terrestrial rights in Mexico for $7.9 million. The acquired asset is subject to amortization over a period of 15 years.~~

~~In November 2019, we also acquired Ka-band spectrum rights for $4.5 million, upon consummation of the Yahsat Brazil JV Transaction, which are subject to amortization over a period of 11 years.~~

NOTE 9.7. OTHER INVESTMENTS

The following table presents ~~the components of~~our Other investments, net:


		As of							As of
		June 30, 2020		December 31, 2019			March 31, 2021		December 31, 2020
Other investments, net:	Other investments, net:					Other investments, net:
Equity method investments	Equity method investments	$	100,232	$	102,689	Equity method investments	$	94,812	$	96,573
Other equity investments	Other equity investments	7,351		7,351		Other equity investments	7,351		7,351
Total other investments, net	Total other investments, net	$	107,583	$	110,040	Total other investments, net	$	102,163	$	103,924

Equity Method Investments

Deluxe/EchoStar LLC

We own 50% of Deluxe/EchoStar LLC (“Deluxe”), a joint venture that we entered into in 2010 to build an advanced digital cinema satellite distribution network targeting delivery to digitally equipped theaters in the U.S. and Canada.

Broadband Connectivity Solutions (Restricted) Limited

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

~~Table of Contents~~

~~HUGHES SATELLITE SYSTEMS CORPORATION~~

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

~~(Unaudited)~~

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.

Financial Information for Our Equity Method Investments

The following table presents revenue recognized:

For the three months ended June 30, For the six months ended June 30,
2020 2019 2020 2019
Deluxe $ 1,026 $ 877 $ 2,281 $ 1,754
BCS $ 2,784 $ 2,262 $ 4,453 $ 4,546


	For the three months ended March 31,
	2021		2020
Deluxe	$	1,631	$	1,255
BCS	$	1,348	$	1,669

The following table presents trade accounts receivable:


		As of							As of
		June 30, 2020		December 31, 2019			March 31, 2021		December 31, 2020
Deluxe	Deluxe	$	680	$	631	Deluxe	$	1,318	$	716
BCS	BCS	$	5,725	$	5,171	BCS	$	5,043	$	9,347

Other Equity Investments

During the three ~~and six~~ months ended ~~June 30,~~March 31, 2021 and 2020, ~~and 2019,~~ we did 0tnot identify any observable price changes requiring an adjustment to our investments.

Table of Contents

HUGHES SATELLITE SYSTEMS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

NOTE ~~10.~~8. LONG-TERM DEBT

The following table presents the carrying ~~amounts~~amount and fair values of our Current portion of long-term debt, net and Long-term debt, ~~net~~:net:


		Effective interest rates	As of																				Effective Interest Rate			As of
					June 30, 2020									December 31, 2019								Effective Interest Rate			March 31, 2021				December 31, 2020
					Carrying Amount			Fair Value			Carrying Amount			Fair Value		Effective Interest Rate			Carrying Amount						Carrying Amount			Fair Value
Senior Secured Notes:	Senior Secured Notes:													Senior Secured Notes:
5 1/4% Senior Secured Notes due 2026	5 1/4% Senior Secured Notes due 2026	5.320%	$	750,000		$	776,625		$	750,000		$	825,308	5 1/4% Senior Secured Notes due 2026	5.320%		$	750,000		$	830,933		$	750,000		$	834,045
Senior Unsecured Notes:	Senior Unsecured Notes:													Senior Unsecured Notes:
7 5/8% Senior Unsecured Notes due 2021	7 5/8% Senior Unsecured Notes due 2021	8.062%	900,000			928,485			900,000			963,783		7 5/8% Senior Unsecured Notes due 2021	8.062%				809,486			821,555			900,000			924,003
6 5/8% Senior Unsecured Notes due 2026	6 5/8% Senior Unsecured Notes due 2026	6.688%	750,000			785,985			750,000			833,903		6 5/8% Senior Unsecured Notes due 2026	6.688%		750,000			834,383			750,000			852,810
Less: Unamortized debt issuance costs	Less: Unamortized debt issuance costs		(8,712)			—			(10,832)			—		Less: Unamortized debt issuance costs			(5,292)			—			(6,507)			—
Total long-term debt	Total long-term debt		2,391,288			2,491,095			2,389,168			2,622,994		Total long-term debt			2,304,194			2,486,871			2,393,493			2,610,858
Less: Current portion, net	Less: Current portion, net		(896,386)			(928,485)			—			—		Less: Current portion, net			(808,758)			(821,555)			(898,237)			(924,003)
Long-term debt, net	Long-term debt, net		$	1,494,902		$	1,562,610		$	2,389,168		$	2,622,994	Long-term debt, net			$	1,495,436		$	1,665,316		$	1,495,256		$	1,686,855

As of March 31, 2021, we have repurchased a total of $90.5 million in principal of the 2021 Senior Unsecured Notes in open market trades.

NOTE ~~11.~~9. INCOME TAXES

Our income tax provision for interim periods is determined using an estimate of our annual effective tax rate, adjusted for discrete items, if any, ~~that are taken into account~~ in the relevant period. Each quarter we update our estimate of the annual effective tax rate, and if our estimated tax rate changes, we make a cumulative adjustment.

Our interim income tax provision and our interim estimate of our annual effective tax rate are influenced by several factors, including foreign losses and capital gains and losses for which related deferred tax assets are partially offset by a valuation allowance, changes in tax laws and relative changes in unrecognized tax benefits. Additionally,

~~Table of Contents~~

~~HUGHES SATELLITE SYSTEMS CORPORATION~~

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

~~(Unaudited)~~

our effective tax rate can be affected by the amount of pre-tax income or loss. For example, the impact of discrete items and non-deductible expenses on our effective tax rate is greater when our pre-tax income or loss is lower.

Our income tax provision was ~~$13.7~~$10.6 million for the three months ended ~~June 30, 2020~~March 31, 2021 compared to ~~$8.9~~$5.2 million ~~of income tax benefit~~ for the three months ended ~~June 30, 2019.~~March 31, 2020. Our estimated effective income tax rate was ~~97.3%~~37.6% and ~~31.8%~~(41.2)% for the three months ended ~~June 30,~~March 31, 2021 and 2020, ~~and 2019,~~ respectively. The variations in our effective tax rate from the U.S. federal statutory rate for the three months ended ~~June 30, 2020~~March 31, 2021 were primarily due to ~~the increase in our valuation allowance associated with certain~~excluded foreign losses ~~and~~where the ~~impact of state and local taxes, partially offset by research and experimentation credits.~~company carries a full valuation allowance. The variations in our effective tax rate from the U.S. federal statutory rate for the three months ended June 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.

Our income tax provision was $18.9 million for the six months ended June 30, 2020 compared to $4.0 million of income tax benefit for the six months ended June 30, 2019. Our estimated effective income tax rate was 1,389.6% and 17.6% for the six months ended June 30, 2020 and 2019, respectively. The variations in our effective tax rate from the U.S. federal statutory rate for the six months ended June 30,March 31, 2020 were primarily due to the increase in our valuation allowance associated with certain foreign losses and the impact of state and local taxes, partially offset by the change in net unrealized losses that are capital in nature ~~permanent book tax differences~~ and research and experimentation credits. The variations in our effective tax rate from the U.S. federal statutory rate for the six months ended June 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 Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted in March 2020. The CARES Act features significant tax provisions and other measures to assist individuals and businesses impacted by the economic effects of the COVID-19 pandemic, including a five-year carryback of net operating losses, relaxation of Section 163(j) interest deduction limitations, acceleration of Alternative Minimum Tax refunds, relief for payroll tax and tax credits for employers who retain employees. These provisions did not affect our income tax provision for the three and six months ended June 30, 2020.

~~NOTE 12. CONTINGENCIES~~

~~Patents and Intellectual Property~~

Many entities, including some of our competitors, have or may have in the future patents and other intellectual property rights that cover or affect products or services directly or indirectly related to those that we offer. We may not be aware of all patents and other intellectual property rights that our products and services may potentially infringe. Damages in patent infringement cases can be substantial, and in certain circumstances can be tripled. Further, we cannot estimate the extent to which we may be required in the future to obtain licenses with respect to intellectual property rights held by others and the availability and cost of any such licenses. Various parties have asserted patent and other intellectual property rights with respect to our products and services. We cannot be certain that these parties do not own the rights they claim, that these rights are not valid or that our products and services do not infringe on these rights. Further, we cannot be certain that we would be able to obtain licenses from these parties on commercially reasonable terms or, if we were unable to obtain such licenses, that we would be able to redesign our products and services to avoid infringement.

~~Certain Arrangements with DISH Network~~

In connection with EchoStar’s spin-off from DISH in 2008 (the “Spin-off”), EchoStar entered into a separation agreement with DISH Network that provides, among other things, for the division of certain liabilities, including liabilities resulting from litigation. Under the terms of the separation agreement, EchoStar assumed certain liabilities that relate to its and our business, including certain designated liabilities for acts or omissions that occurred prior to the Spin-off. Certain specific provisions govern intellectual property related claims under which EchoStar will generally only be liable for its and its subsidiaries’ acts or omissions following the Spin-off and DISH Network will indemnify EchoStar for any liabilities or damages resulting from intellectual property claims relating to the period prior to the Spin-off as well as DISH Network’s acts or omissions following the Spin-off. In connection with the

~~Table of Contents~~

~~HUGHES SATELLITE SYSTEMS CORPORATION~~

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

~~(Unaudited)~~

Share Exchange and the BSS Transaction, EchoStar and certain of its and our subsidiaries entered into the Share Exchange Agreement and the Master Transaction Agreement, respectively, and other agreements which provide, among other things, for the division of certain liabilities, including liabilities relating to taxes, intellectual property and employees and liabilities resulting from litigation and the assumption of certain liabilities that relate to the transferred businesses and assets. These agreements also contain additional indemnification provisions between EchoStar and us and DISH Network for, in the case of the Share Exchange, certain pre-existing liabilities and legal proceedings and, in the case of the BSS Transaction, certain losses with respect to breaches of certain representations and covenants and certain liabilities.

~~Litigation~~

We are involved in a number of legal proceedings against us concerning matters arising in connection with the conduct of our business activities. Many of these proceedings are at preliminary stages and/or seek an indeterminate amount of damages. We regularly evaluate the status of the legal proceedings in which we are involved to assess whether a loss is probable and to determine if accruals are appropriate. We record an accrual for litigation and other loss contingencies when we determine that a loss is probable and the amount of the loss can be reasonably estimated. If accruals are not appropriate, we further evaluate each legal proceeding to assess whether an estimate of possible loss or range of loss can be made. There can be no assurance that legal proceedings against us will be resolved in amounts that will not differ from the amounts of our recorded accruals. Legal fees and other costs of defending legal proceedings are charged to expense as incurred.

For certain proceedings, management is unable to predict with any degree of certainty the outcome or provide a meaningful estimate of the possible loss or range of possible loss because, among other reasons: (i) the proceedings are in various stages; (ii) damages have not been sought or specified; (iii) damages are unsupported, indeterminate and/or exaggerated in management’s opinion; (iv) there is uncertainty as to the outcome of pending trials, appeals, motions or other proceedings; (v) there are significant factual issues to be resolved; and/or (vi) there are novel legal issues or unsettled legal theories to be presented or a large number of parties are involved (as with many patent-related cases). Except as described below, however, management does not believe, based on currently available information, that the outcomes of these proceedings will have a material effect on our financial condition, operating results or cash flows, though there is no assurance that the resolution and outcomes of these proceedings, individually or in the aggregate, will not be material to our financial condition, operating results or cash flows for any particular period, depending, in part, upon the operating results for such period.

We intend to vigorously defend the proceedings against us. In the event that a court, tribunal, other body or jury ultimately rules against us, we may be subject to adverse consequences, including, without limitation, substantial damages, which may include treble damages, fines, penalties, compensatory damages and/or other equitable or injunctive relief that could require us to materially modify our business operations or certain products or services that we offer to our consumers.

~~Elbit~~

On January 23, 2015, Elbit Systems Land and C4I LTD and Elbit Systems of America Ltd. (together referred to as “Elbit”) filed a complaint against our subsidiary Hughes Network Systems, L.L.C. (“HNS”), as well as against Black Elk Energy Offshore Operations, LLC, Bluetide Communications, Inc. and Helm Hotels Group, in the U.S. District Court for the Eastern District of Texas, alleging infringement of U.S. Patent Nos. 6,240,073 (the “073 patent”) and 7,245,874 (“874 patent”). In December 2019, we entered into a comprehensive settlement agreement with Elbit pursuant to which we paid a total of $33.0 million in satisfaction of all amounts relating to these matters and all open proceedings, including appeals, were dismissed with prejudice.

~~Shareholder Litigation~~

On July 2, 2019, the City of Hallandale Beach Police Officers’ and Firefighters’ Personnel Retirement Trust, purporting to sue on behalf of a class of EchoStar’s stockholders, filed a complaint in the District Court of Clark County, Nevada against EchoStar’s directors, Charles W. Ergen, R. Stanton Dodge, Anthony M. Federico, Pradman P. Kaul, C. Michael Schroeder, Jeffrey R. Tarr, William D. Wade, and Michael T. Dugan; our and EchoStar’s officer, David J. Rayner; EchoStar; Hughes Satellite Systems Corporation; our former subsidiary BSS Corp.; and DISH and

~~Table of Contents~~

~~HUGHES SATELLITE SYSTEMS CORPORATION~~

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

~~(Unaudited)~~

its subsidiary Merger Sub. On September 5, 2019, the defendants filed motions to dismiss. On October 11, 2019, the plaintiffs filed an amended complaint removing Messrs. Dodge, Federico, Kaul, Schroeder, Tarr and Wade as defendants. The amended complaint alleges that Mr. Ergen, as EchoStar’s controlling stockholder, breached fiduciary duties to EchoStar’s minority stockholders by structuring the BSS Transaction with inadequate consideration and improperly influencing EchoStar’s and Hughes Satellite Systems Corporation’s boards of directors to approve the BSS Transaction. The amended complaint also alleges that the other defendants aided and abetted such alleged breaches. The plaintiffs seek equitable and monetary relief, including the issuance of additional DISH Common Stock, and other costs and disbursements, including attorneys’ fees on behalf of the purported class. On November 11, 2019, we and the other defendants filed separate motions to dismiss plaintiff’s amended complaint and during a hearing on January 13, 2020 the court denied these motions. On February 10, 2020, we and the other defendants filed answers to the amended complaint. We intend to vigorously defend this case. We cannot predict its outcome with any degree of certainty.

~~License Fee Dispute with Government of India, Department of Telecommunications~~

In 1994, the Government of India promulgated a “National Telecommunications Policy” under which the government liberalized the telecommunications sector and required telecommunications service providers to pay fixed license fees. Pursuant to this policy, our subsidiary Hughes Communications India Private Limited (“HCIPL”), formerly known as Hughes Escorts Communications Limited, obtained a license to operate a data network over satellite using VSAT systems. In 1999, HCIPL’s license was amended pursuant to a new government policy that eliminated the fixed license fees and instead required each telecommunications service provider to pay license fees based on its adjusted gross revenue (“AGR”). In March 2005, the Indian Department of Telecommunications (“DOT”) notified HCIPL that, based on its review of HCIPL’s audited accounts and AGR statements, HCIPL must pay additional license fees, interest on such fees and penalties and interest on the penalties. HCIPL responded that the DOT had improperly calculated its AGR by including revenue from licensed and unlicensed activities. The DOT rejected this explanation and in 2006, HCIPL filed a petition with an administrative tribunal (the “Tribunal”), challenging the DOT’s calculation of its AGR. The DOT also issued license fee assessments to other telecommunications service providers and a number of similar petitions were filed by several other such providers with the Tribunal. These petitions were amended, consolidated, remanded and re-appealed several times. On April 23, 2015, the Tribunal issued a judgment affirming the DOT’s calculation of AGR for the telecommunications service providers but reversing the DOT’s imposition of interest, penalties and interest on such penalties as excessive. Over subsequent years, the DOT and HCIPL and other telecommunications service providers, respectively, filed several appeals of the Tribunal’s ruling. On October 24, 2019, the Supreme Court of India (“Supreme Court”) issued an order (the “October 2019 Order”) affirming the license fee assessments imposed by the DOT, including its imposition of interest, penalties and interest on the penalties, but without indicating the amount HCPIL is required to pay the DOT, and ordering payment by January 23, 2020. On November 23, 2019, HCIPL and other telecommunication service providers filed a petition asking the Supreme Court to reconsider the October 2019 Order. The petition was denied on January 20, 2020. On January 22, 2020, HCIPL and other telecommunication service providers filed an application requesting that the Supreme Court modify the October 2019 Order to permit the DOT to calculate the final amount due and extend HCPIL’s and the other telecommunication service providers’ payment deadline. On February 14, 2020, the Supreme Court directed HCIPL and the other telecommunication service providers to explain why the Supreme Court should not initiate contempt proceedings for failure to pay the amounts due. During a hearing on March 18, 2020, the Supreme Court ordered that all amounts that were due before the October 2019 Order must be paid, including interest, penalties and interest on the penalties. The Supreme Court also ordered that the parties appear for a further hearing addressing, potentially among other things, a proposal by the DOT to allow for extended or deferred payments of amounts due. On June 11, 2020, the Supreme Court ordered HCIPL and the other telecommunication service providers to submit affidavits addressing the proposal made by the DOT to extend the time frame for payment of the amounts owed and for HCIPL and the other telecommunication providers to provide security for such payments. On July 17, 2020, the Supreme Court reaffirmed its March 18, 2020, order and reserved judgment on the DOT proposal to allow for extended or deferred payments. To date, HCIPL has paid the DOT $2.9 million with respect to this matter. As a result of the Supreme Court’s orders, HCIPL’s payments to date and the impact of foreign exchange rates, we have recorded an accrual of $79.6 million as of June 30, 2020, comprised of $3.8 million for additional license fees, $3.9 million for penalties and $72.0 million for interest and interest on penalties. We had recorded an accrual of $80.2 million as of December 31, 2019. Any eventual payments made with respect to the ultimate outcome of this matter may be different from our accrual and such differences could be significant.

~~Table of Contents~~

~~HUGHES SATELLITE SYSTEMS CORPORATION~~

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

~~(Unaudited)~~

~~Other~~

In addition to the above actions, we are subject to various other legal proceedings and claims, which arise in the ordinary course of business. As part of our ongoing operations, we are subject to various inspections, audits, inquiries, investigations and similar actions by third parties, as well as by governmental/regulatory authorities responsible for enforcing the laws and regulations to which we may be subject. Further, under the federal False Claims Act, private parties have the right to bring qui tam, or “whistleblower,” suits against companies that submit false claims for payments to, or improperly retain overpayments from, the federal government. Some states have adopted similar state whistleblower and false claims provisions. In addition, we from time to time receive inquiries from federal, state and foreign agencies regarding compliance with various laws and regulations.

In our opinion, the amount of ultimate liability with respect to any of these other actions is unlikely to materially affect our financial position, results of operations or cash flows, though the resolutions and outcomes, individually or in the aggregate, could be material to our financial position, operating results or cash flows for any particular period, depending, in part, upon the operating results for such period.

We also indemnify our directors, officers and employees for certain liabilities that might arise from the performance of their responsibilities for us. Additionally, in the normal course of its business, we enter into contracts pursuant to which we may make a variety of representations and warranties and indemnify the counterparty for certain losses. Our possible exposure under these arrangements cannot be reasonably estimated as this involves the resolution of claims made, or future claims that may be made, against us or our officers, directors or employees, the outcomes of which are unknown and not currently predictable or estimable.

~~NOTE 13. SEGMENT REPORTING~~

Business segments are components of an enterprise for which separate financial information is available and regularly evaluated by our chief operating decision maker (“CODM”), who is our Chief Executive Officer. We operate in 2 ~~business segments, Hughes and ESS, as described in~~ ~~Note 1.~~ ~~Organization and Business Activities~~.

The primary measure of segment profitability that is reported regularly to our CODM is earnings before interest, taxes, depreciation and amortization, net income (loss) from discontinued operations and net income (loss) attributable to non-controlling interests (“EBITDA”).

~~Total assets by segment have not been reported herein because the information is not provided to our CODM on a regular basis.~~

3118

Table of Contents

HUGHES SATELLITE SYSTEMS CORPORATION

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

(Unaudited)

NOTE 10. RELATED PARTY TRANSACTIONS - ECHOSTAR

The following is a summary of the transactions and the terms of the underlying principal agreements that have had or may have an impact on our consolidated financial condition and results of operations.

Services and Other Revenue — EchoStar

The following table presents our Services and other revenue from EchoStar:


	For the three months ended March 31,
	2021		2020
Services and other revenue - EchoStar	$	5,371	$	4,699

The following table presents the corresponding related party receivables:


	As of
	March 31, 2021		December 31, 2020
Related party receivables - EchoStar - current	$	114,225	$	116,220
Related party receivables - EchoStar - non-current	54,970		57,136
Total related party receivables - EchoStar	$	169,195	$	173,356

Receivables. EchoStar and its other subsidiaries reimburse us from time to time for amounts paid by us for costs and expenses attributable to EchoStar and its other subsidiaries. We report receivables under these arrangements within Related party receivables - EchoStar - current. No repayment schedule for these receivables has been determined.

EchoStar Mobile Limited Service Agreements. We provide services and lease equipment to support the business of EchoStar Mobile Limited, a subsidiary of EchoStar that is licensed by the European Union and its member states (“EU”) to provide mobile satellite services and complementary ground component services covering the entire EU using S-band spectrum. Generally, the amounts EchoStar’s other subsidiaries pay for these services are based on cost plus a fixed margin. We recorded revenue ~~EBITDA and capital expenditures for each of our business segments. Capital expenditures are net of refunds~~in Services and other ~~receipts~~revenue of $5.4 million and $4.7 million for the three months ended March 31, 2021 and 2020, respectively, related to these services. Additionally, we have converted the receivables for certain of these services into loans, bearing an annual interest rate of 5%, that mature in 2023. We report these loans within Related party receivables - EchoStar - non-current.

Operating Expenses — EchoStar

The following table presents our ~~property and equipment.~~operating expensesfrom EchoStar:

Hughes ESS Corporate and Other Consolidated
Total
For the three months ended June 30, 2020
External revenue $ 453,172 $ 3,786 $ 4,687 $ 461,645
Intersegment revenue — 393 (393) —
Total revenue $ 453,172 $ 4,179 $ 4,294 $ 461,645
EBITDA $ 186,619 $ 1,543 $ (8,140) $ 180,022
Capital expenditures $ 83,479 $ — $ — $ 83,479
For the three months ended June 30, 2019
External revenue $ 451,847 $ 3,434 $ 5,960 $ 461,241
Intersegment revenue — 308 (308) —
Total revenue $ 451,847 $ 3,742 $ 5,652 $ 461,241
EBITDA $ 131,765 $ 1,486 $ (6,102) $ 127,149
Capital expenditures $ 74,090 $ — $ — $ 74,090
For the six months ended June 30, 2020
External revenue $ 911,654 $ 8,153 $ 9,385 $ 929,192
Intersegment revenue — 678 (678) —
Total revenue $ 911,654 $ 8,831 $ 8,707 $ 929,192
EBITDA $ 341,260 $ 3,573 $ (14,786) $ 330,047
Capital expenditures $ 174,996 $ — $ — $ 174,996
For the six months ended June 30, 2019
External revenue $ 897,184 $ 7,286 $ 11,970 $ 916,440
Intersegment revenue — 489 (489) —
Total revenue $ 897,184 $ 7,775 $ 11,481 $ 916,440
EBITDA $ 292,897 $ 3,215 $ (12,260) $ 283,852
Capital expenditures $ 147,911 $ — $ — $ 147,911


	For the three months ended March 31,
	2021		2020
Operating expenses - EchoStar	$	15,387	$	12,642

3219

Table of Contents

HUGHES SATELLITE SYSTEMS CORPORATION

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

(Unaudited)

The following table ~~reconciles~~presents the corresponding related party payables:


	As of
	March 31, 2021		December 31, 2020
Related party payables - EchoStar - current	$	51,396	$	51,420
Related party payables - EchoStar - non-current	24,533		25,114
Total related party payables - EchoStar	$	75,929	$	76,534

Payables. ~~Income (loss)~~We reimburse EchoStar and its other subsidiaries from ~~continuing operations before income taxes~~ ~~in the Condensed Consolidated Statements of Operations~~time to ~~EBITDA:~~time for amounts paid by EchoStar and its other subsidiaries for costs and expenses attributable to us. We report payables under these arrangements within Related party payables - EchoStar - current. No repayment schedule for these payables has been determined.

For the three months ended June 30, For the six months ended June 30,
2020 2019 2020 2019
Income (loss) from continuing operations before income taxes $ 14,042 $ (27,880) $ 1,360 $ (22,700)
Interest income, net (5,204) (17,044) (14,096) (35,041)
Interest expense, net of amounts capitalized 44,275 58,978 86,467 116,893
Depreciation and amortization 123,478 113,727 249,443 226,138
Net loss (income) attributable to non-controlling interests 3,431 (632) 6,873 (1,438)
EBITDA $ 180,022 $ 127,149 $ 330,047 $ 283,852

Shared Corporate Services. We and EchoStar, including EchoStar’s other subsidiaries, have agreed that we shall

each have the right, but not the obligation, to receive from the other certain shared corporate services, including among other things: treasury, tax, accounting and reporting, risk management, cybersecurity, legal, internal audit, human resources, and information technology. These shared corporate services are generally provided at cost. Effective March 2017, and as a result of the Share Exchange (as defined below), we implemented a new methodology for determining the cost of these shared corporate services. We and EchoStar, including EchoStar’s other subsidiaries, may each terminate a particular shared corporate service for any reason upon at least 30 days’ notice. We recorded these expenses within Operating expenses - EchoStar for shared corporate services received from EchoStar and its other subsidiaries of $0.4 million and $4.4 million for the three months ended March 31, 2021 and 2020, respectively.

Real Estate. We occupy certain office space in buildings owned or leased by EchoStar and its other subsidiaries and pay a portion of the taxes, insurance, utilities and maintenance of the premises in accordance with the percentage of the space we occupy.

Cash Advances. EchoStar and certain of its other subsidiaries have also provided cash advances to certain of our

foreign subsidiaries to fund certain expenditures pursuant to loan agreements that mature in 2021 and 2022. Advances under these agreements bear interest at annual rates ranging from 1 to 3 percent, subject to periodic adjustment based on the one-year U.S. LIBOR rate. We report amounts payable under these agreements within Related party payables - EchoStar - non-current.

Construction Management Services for EchoStar XXIV satellite. In August 2017, a subsidiary of EchoStar entered into a contract with Maxar Space, LLC (formerly Space Systems/Loral, LLC), for the design and construction of the EchoStar XXIV satellite, a new, next-generation, high throughput geostationary satellite, with an expected launch in the second half of 2022. We provide construction management services to EchoStar’s subsidiary for the construction of the EchoStar XXIV satellite. We charged EchoStar’s subsidiary and reduced our operating expenses by the costs of such services of $0.3 million and $0.3 million for the three months ended March 31, 2021 and 2020, respectively.

Other Agreements

BSS Transaction. Pursuant to the pre-closing restructuring contemplated by the Master Transaction Agreement (as defined below), and as part of the BSS Transaction (as defined below), we and our subsidiaries transferred certain of the BSS Business (as defined below) to BSS Corp. (as defined below), and we distributed all of the shares of BSS Corp. to EchoStar as a dividend. See Note 1. Organization and Business Activities for further information.

Share Exchange Agreement. Prior to consummation of the Share Exchange, EchoStar was required to complete steps necessary for the transferring of certain assets and liabilities to DISH and certain of its subsidiaries. As part of these steps, subsidiaries of EchoStar that, prior to the consummation of the Share Exchange, owned EchoStar’s business of providing online video delivery and satellite video delivery for broadcasters and pay-TV operators, including satellite uplinking/downlinking, transmission services, signal processing and conditional access

Table of Contents

HUGHES SATELLITE SYSTEMS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

management, and other services and related assets and liabilities were contributed to one of our subsidiaries in consideration for additional shares of HSSC’s common stock that were then issued to a subsidiary of EchoStar.

NOTE ~~14. RELATED PARTY TRANSACTIONS - ECHOSTAR~~

~~Services and Other Revenue - EchoStar~~

~~The following table presents our~~ ~~Services and other revenue~~ ~~from EchoStar:~~

For the three months ended June 30, For the six months ended June 30,
2020 2019 2020 2019
Services and other revenue - EchoStar $ 4,688 $ 4,423 $ 9,387 $ 8,897

~~The following table presents the corresponding related party receivables:~~

As of
June 30,
2020 December 31, 2019
Related party receivables - EchoStar - current $ 113,910 $ 131,892
Related party receivables - EchoStar - non-current 44,345 19,759
Total related party receivables - EchoStar $ 158,255 $ 151,651

~~Receivables~~. EchoStar and its other subsidiaries reimburse us from time to time for amounts paid by us for costs and expenses attributable to EchoStar and its other subsidiaries. We report receivables under these arrangements within Related party receivables - EchoStar - current. No repayment schedule for these receivables has been determined.

~~EchoStar Mobile Limited Service Agreements.~~ We provide services and lease equipment to support the business of EchoStar Mobile Limited, a subsidiary of EchoStar that is licensed by the European Union and its member states (“EU”) to provide mobile satellite services and complementary ground component services covering the entire EU using S-band spectrum. Generally, the amounts EchoStar’s other subsidiaries pay for these services are based on cost plus a fixed margin. We recorded the revenue related to these services within Services and other revenue - EchoStar of $4.7 million and $4.8 million for the three months ended June 30, 2020 and 2019, respectively, and $9.4 million and $9.6 million for the six months ended June 30, 2020 and 2019, respectively. Additionally, we have converted the receivables for certain of these services into loans, bearing an annual interest rate of 5%, that mature in 2023 and 2025 We report these loans within Related party receivables - EchoStar - non-current.

~~Table of Contents~~

~~HUGHES SATELLITE SYSTEMS CORPORATION~~

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

~~(Unaudited)~~

~~Operating Expenses - EchoStar~~

~~The following table presents our operating expenses related to EchoStar:~~

For the three months ended June 30, For the six months ended June 30,
2020 2019 2020 2019
Operating expenses - EchoStar $ 13,862 $ 14,423 $ 26,502 $ 27,729

~~The following table presents the corresponding related party payables:~~

As of
June 30,
2020 December 31, 2019
Related party payables - EchoStar - current $ 13,895 $ 11,132
Related party payables - EchoStar - non-current 23,994 23,980
Total related party payables - EchoStar $ 37,889 $ 35,112

~~Payables~~. We reimburse EchoStar and its other subsidiaries from time to time for amounts paid by EchoStar and its other subsidiaries for costs and expenses attributable to us. We report payables under these arrangements within Related party payables - EchoStar - current. No repayment schedule for these payables has been determined.

~~Shared Corporate Services~~. We and EchoStar, including EchoStar’s other subsidiaries, have agreed that we shall each have the right, but not the obligation, to receive from the other certain shared corporate services, including among other things: treasury, tax, accounting and reporting, risk management, cybersecurity, legal, internal audit, human resources, and information technology. These shared corporate services are generally provided at cost. Effective March 2017, and as a result of the Share Exchange, we implemented a new methodology for determining the cost of these shared corporate services. We and EchoStar, including EchoStar’s other subsidiaries, may each terminate a particular shared corporate service for any reason upon at least 30 days’ notice. We recorded these expenses within Operating expenses - EchoStar for shared corporate services received from EchoStar and its other subsidiaries of $2.3 million and $2.1 million for the three months ended June 30, 2020 and 2019, respectively, and $6.6 million and $4.9 million for the six months ended June 30, 2020 and 2019, respectively.

~~Real Estate~~. We occupy certain office space in buildings owned or leased by EchoStar and its other subsidiaries and pay a portion of the taxes, insurance, utilities and maintenance of the premises in accordance with the percentage of the space we occupy.

~~Cash Advances~~. EchoStar and certain of its other subsidiaries have also provided cash advances to certain of our foreign subsidiaries to fund certain expenditures pursuant to loan agreements that mature in 2021 and 2022. Advances under these agreements bear interest at annual rates ranging from 1 to 3 percent, subject to periodic adjustment based on the one-year U.S. LIBOR rate. We report amounts payable under these agreements within Related party payables - EchoStar - non-current.

~~Construction Management Services for EchoStar XXIV Satellite~~. In August 2017, a subsidiary of EchoStar entered into a contract with Space Systems Loral, LLC for the design and construction of the EchoStar XXIV satellite, a new, next-generation, high throughput geostationary satellite. We provide construction management services to EchoStar’s subsidiary for the construction of the EchoStar XXIV satellite. We charged EchoStar’s subsidiary and reduced our operating expenses by the costs of such services of $0.4 million and $0.5 million for the three months ended June 30, 2020 and 2019, respectively, and $0.8 million and $0.8 million for the six months ended June 30, 2020 and 2019, respectively.

~~Table of Contents~~

~~HUGHES SATELLITE SYSTEMS CORPORATION~~

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

~~(Unaudited)~~

~~Other Agreements~~

~~BSS Transaction~~. Pursuant to the pre-closing restructuring contemplated by the Master Transaction Agreement, and as part of the BSS Transaction, we and our subsidiaries transferred certain of the BSS Business to BSS Corp., and we distributed all of the shares of BSS Corp. to EchoStar as a dividend. See ~~Note 1.~~ ~~Organization and Business Activities~~ ~~for further information.~~

~~Share Exchange Agreement~~. Prior to consummation of the Share Exchange, EchoStar was required to complete steps necessary for the transferring of certain assets and liabilities to DISH and certain of its subsidiaries. As part of these steps, subsidiaries of EchoStar that, prior to the consummation of the Share Exchange, owned EchoStar’s business of providing online video delivery and satellite video delivery for broadcasters and pay-TV operators, including satellite uplinking/downlinking, transmission services, signal processing, conditional access management and other services and related assets and liabilities were contributed to one of our subsidiaries in consideration for additional shares of HSSC’s common stock that were then issued to a subsidiary of EchoStar.

~~NOTE 15.~~11. RELATED PARTY TRANSACTIONS - DISH NETWORK

Overview

EchoStar Corporation and DISH have operated as separate publicly-traded companies since ~~2008.~~2008 (the “Spin-off”). A substantial majority of the voting power of the shares of each of EchoStar Corporation and DISH is owned beneficially by Charles W. Ergen, our Chairman, and by certain entities established for the benefit of his family.

In ~~addition, prior~~January 2017, EchoStar and certain of its subsidiaries entered into a share exchange agreement (the “Share Exchange Agreement”) with DISH and certain of its subsidiaries pursuant to ~~March 2017, DISH Network owned the Tracking Stock,~~ which, in February 2017, we received all of the ~~aggregate represented~~shares of preferred tracking stock previously issued by us and one of our subsidiaries (the “Tracking Stock”), representing an 80% economic interest in the residential retail satellite broadband business of our Hughes ~~segment.~~ segment, in exchange for 100% of the equity interests of certain EchoStar subsidiaries that held substantially all of our EchoStar Technologies businesses and certain other assets (collectively, the “Share Exchange”).The Tracking Stock was retired in March 2017.

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

In connection with and following the Spin-off, the Share Exchange and the BSS Transaction, EchoStar, we and certain other of EchoStar’s subsidiaries and DISH Network entered into certain agreements pursuant to which we, EchoStar and certain of its other subsidiaries, on the one hand, obtain certain products, services and rights from DISH Network, on the other hand; DISH Network, on the one hand, obtains certain products, services and rights from us, EchoStar and certain of its other subsidiaries, on the other hand; and such entities indemnify each other against certain liabilities arising from their respective businesses. Generally, the amounts we and/or EchoStar and its other subsidiaries or DISH Network pay for products and services provided under the agreements are based on cost plus a fixed margin (unless noted differently below), which varies depending on the nature of the products and services provided. We and/or EchoStar and its other subsidiaries may also enter into additional agreements with DISH Network in the future.

Table of Contents

HUGHES SATELLITE SYSTEMS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

Services and Other Revenue — DISH Network

The following table presents our Services and other revenue - DISH Network ~~from DISH Network:~~:

For the three months ended June 30, For the six months ended June 30,
2020 2019 2020 2019
Services and other revenue - DISH Network $ 6,620 $ 10,729 $ 14,207 $ 22,274


	For the three months ended March 31,
	2021		2020
Services and other revenue - DISH Network	$	5,727	$	7,587

The following table presents the related trade accounts receivable:

As of
June 30,
2020 December 31, 2019
Trade accounts receivable - DISH Network $ 10,950 $ 8,876


	As of
	March 31, 2021		December 31, 2020
Trade accounts receivable - DISH Network	$	4,449	$	4,706

~~Table of Contents~~

~~HUGHES SATELLITE SYSTEMS CORPORATION~~

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

~~(Unaudited)~~

Satellite Capacity Leased to DISH Network. We have entered into an agreement and have previously entered into a now terminated agreement to lease satellite capacity pursuant to which we have provided satellite services to DISH Network on certain satellites owned or leased by us. The fees for the services provided under these agreements may depend upon, among other things, the orbital location of the applicable satellite, the number of transponders that are providing services on the applicable satellite, the length of the service arrangements and any third-party costs associated with the satellite capacity. The terms of these agreements are set forth below:

•~~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.

•Telesat Obligation Agreement. ~~103 Degree Orbital Location/SES-3~~ — In ~~May 2012,~~September 2009, we entered into ~~a spectrum development~~an agreement ~~(the “103 Spectrum Development Agreement”~~with Telesat Canada to lease satellite capacity from Telesat Canada on all 32 direct broadcast satellite (“DBS”) ~~with Ciel Satellite Holdings Inc. (“Ciel”) to develop certain spectrum rights~~transponders on the Nimiq 5 satellite at the ~~103~~72.7 degree west longitude orbital location (the ~~“103 Spectrum Rights”~~“Telesat Transponder Agreement”). 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,~~September 2009, 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 with DISH Network, pursuant to which DISH Network leased ~~certain~~ satellite capacity from us on all 32 of the ~~SES-3 satellite~~DBS transponders covered by the Telesat Transponder Agreement (the “DISH ~~103~~Nimiq 5 Agreement”).Under the terms of the DISH ~~103~~Nimiq 5 Agreement, DISH Network made certain monthly payments to us ~~through~~that commenced in September 2009, when the ~~service term. Effective in March 2018,~~Nimiq 5 satellite was placed into service. We transferred the Telesat Transponder Agreement to DISH Network ~~exercised its right~~in September 2019 as part of the BSS Transaction; however, we retained certain obligations related to ~~terminate the~~ DISH ~~103 Agreement~~Network’s performance under that agreement and we ~~exercised our right to terminate the Ciel 103 Agreement.~~entered into an agreement with DISH Network whereby DISH Network compensates us for retaining such obligations.

TerreStar Agreement. In March 2012, DISH Network completed its acquisition of substantially all the assets of TerreStar Networks Inc. (“TerreStar”). Prior to DISH Network’s acquisition of substantially all the assets of TerreStar and EchoStar’s completion of the Hughes 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 (the “TerreStar Agreements”). In December 2017, we and DISH Network amended these agreements, effective as of January 1, 2018, to reduce certain pricing terms through December 31, 2023 and to modify certain termination provisions. DISH Network generally has the right to continue to receive warranty services from us for our products on a month-to-month basis unless terminated by DISH Network upon at least 21 days’ written notice to us. DISH Network generally has the right to continue to receive operations and maintenance services from us on a quarter-to-quarter basis unless ~~operations and maintenance~~these 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). As a result, we and DISH Network amended the TerreStar Agreements to suspend our provision of warranty services to DISH Network from April 2020 through December 2020. Following the expiration of this suspension, we ~~will continue to provide~~have recommenced providing warranty services to DISH Network.

Hughes Broadband Distribution 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 Gen 4 HughesNet service. DISH Network pays us a monthly per subscriber wholesale service fee for ~~the~~our Gen 4 HughesNet service based upon a subscriber’s service level and

Table of Contents

HUGHES SATELLITE SYSTEMS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

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 Gen 4 HughesNet service. The Distribution Agreement had an initial term of five years with automatic renewal for successive ~~one year~~one-year terms unless

~~Table of Contents~~

~~HUGHES SATELLITE SYSTEMS CORPORATION~~

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

~~(Unaudited)~~

terminated by either party with a written notice at least 180 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 Distribution Agreement, we and DISH Network will continue to provide our Gen 4 HughesNet service to the then-current DISH Network subscribers pursuant to the terms and conditions of the Distribution Agreement.

DBSD North America 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~~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. 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~~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.

Operating Expenses — DISH Network

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

For the three months ended June 30, For the six months ended June 30,
2020 2019 2020 2019
Operating expenses - DISH Network $ 1,223 $ 1,052 $ 2,360 $ 1,766


	For the three months ended March 31,
	2021		2020
Operating expenses - DISH Network	$	1,099	$	1,137

The following table presents the related trade accounts payable:

As of
June 30,
2020 December 31, 2019
Trade accounts payable - DISH Network $ 1,311 $ 502


	As of
	March 31, 2021		December 31, 2020
Trade accounts payable - DISH Network	$	417	$	477

Table of Contents

HUGHES SATELLITE SYSTEMS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

Amended and Restated Professional Services 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 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

~~Table of Contents~~

~~HUGHES SATELLITE SYSTEMS CORPORATION~~

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

~~(Unaudited)~~

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 ~~(as amended to date, 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 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~~Professional Services Agreement (the “Amended and Restated Professional Services ~~Agreement~~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 inNote ~~14.~~10. Related Party Transactions - ~~EchoStar.~~ EchoStar. The term of the Amended and Restated Professional Services Agreement is through January ~~2021~~1, 2022 and renews automatically for successive ~~one-year~~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~~. Effective March 2017, we 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 agreement for a ~~five~~-year period ending in August 2022. We and DISH Network amended this agreement to, among other things, terminate this agreement in March 2019. The rent on a per square foot basis for the lease 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~~provided us with collocation space in El Paso, Texas. This agreement was for an initial period ending in August 2015, and ~~provides~~provided us with renewal options for ~~four~~2 consecutive ~~years.~~three-year terms. 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 us in Monee, Illinois and Spokane, Washington through August 2022. 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. In September 2019, in connection with the BSS Transaction, we entered into an agreement pursuant to which DISH Network provided us with certain additional collocation space in Cheyenne, Wyoming for a period that ended in September 2020. The fees for the services provided under these agreements depend on the number of racks located at the location.

Also in connection with the BSS Transaction, in September 2019, we entered into an agreement pursuant to which DISH Network ~~will provide~~provides us with antenna space and power in Cheyenne, Wyoming for a period of five years commencing ~~no later than October~~in August 2020, with 4 ~~three-year~~three-year renewal terms, with prior written notice of renewal required no more than 120 days but no less than 90 days prior to the end of the then-current term. In March 2021, we entered into additional agreements pursuant to which DISH Network provides us with a gateway, including antenna space in Cheyenne, Wyoming and Gilbert, Arizona. Both agreements are for a period of five years with 4 three-year

Table of Contents

HUGHES SATELLITE SYSTEMS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

renewal terms, with prior written notice of renewal required no more than 120 days but no less than 90 days prior to the end of the then-current term.

Hughes Broadband Master Services Agreement. In conjunction with the launch of our EchoStar XIX satellite, 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 Gen 5 HughesNet service and related equipment and other telecommunication services and (ii) installs Gen 5 HughesNet service equipment with respect to activations generated by DISH Network. Under the Hughes Broadband MSA, we and DISH Network make

~~Table of Contents~~

~~HUGHES SATELLITE SYSTEMS CORPORATION~~

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

~~(Unaudited)~~

certain payments to each other relating to sales, upgrades, purchases and installation services. The Hughes Broadband MSA has an initial term of five years through March 2022 with automatic renewal for successive ~~one-year~~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 Gen 5 HughesNet service to subscribers and make certain payments to DISH Network pursuant to the terms and conditions of the Hughes Broadband MSA. We incurred sales incentives and other costs under the Hughes Broadband MSA totaling ~~$4.4~~$1.9 million and ~~$4.8~~$4.6 million for the three months ended ~~June 30,~~March 31, 2021 and 2020, ~~and 2019, respectively, and $9.0 million and $9.5 million for the six months ended June 30, 2020 and 2019,~~ respectively.

2019 TT&C Agreement. In September 2019, in connection with the BSS Transaction, we and a subsidiary of EchoStar entered into an agreement pursuant to which DISH Network provides TT&C services to us and EchoStar and its other subsidiaries for a period ending in September 2021, with the option for a subsidiary of EchoStar to renew for a ~~one-year~~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 a tax sharing agreement (the “Tax Sharing Agreement”) in connection with the Spin-off. This agreement governs EchoStar and DISH and their respective subsidiaries’ respective rights, responsibilities and obligations after the Spin-off with respect to taxes for the periods ending on or before the Spin-off. Generally, all pre-Spin-off taxes, including any taxes that are incurred as a result of restructuring activities undertaken to implement the Spin-off, are borne by DISH Network and DISH Network indemnifies EchoStar and its subsidiaries for such taxes. However, DISH Network is not liable for and does not indemnify EchoStar or its subsidiaries for any taxes that are incurred as a result of the Spin-off or certain related transactions failing to qualify as tax-free distributions pursuant to any provision of Section 355 or Section 361 of the Code, because of: (i) a direct or indirect acquisition of any of EchoStar’s stock, stock options or assets; (ii) any action that EchoStar or its subsidiaries take or fail to take or (iii) any action that EchoStar or its subsidiaries take that is inconsistent with the information and representations furnished to the IRS in connection with the request for the private letter ruling, or to counsel in connection with any opinion being delivered by counsel with respect to the Spin-off or certain related transactions. In such case, EchoStar and its subsidiaries will be solely liable for, and will indemnify DISH Network for any resulting taxes, as well as any losses, claims and expenses. The Tax Sharing Agreement will terminate after the later of the full period of all applicable statutes of limitations, including extensions, or once all rights and obligations are fully effectuated or performed.

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

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

Table of Contents

HUGHES SATELLITE SYSTEMS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

Other Agreements

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) weEchoStar 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

~~Table of Contents~~

~~HUGHES SATELLITE SYSTEMS CORPORATION~~

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

~~(Unaudited)~~

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.

BSS Transaction Intellectual Property and Technology License 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.

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~~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~~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

Table of Contents

HUGHES SATELLITE SYSTEMS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

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.~~Agreement. In ~~January~~February 2017 EchoStar consummated the Share Exchange, following which 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~~operate 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

~~Table of Contents~~

~~HUGHES SATELLITE SYSTEMS CORPORATION~~

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

~~(Unaudited)~~

terminated and are of no further effect. Pursuant to the Share Exchange Agreement, EchoStar and certain of its and our subsidiaries 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.

Share Exchange Intellectual Property and Technology License ~~Agreement.~~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 the continued use of all intellectual property and technology that is used in our, EchoStar and ~~one of~~ its other subsidiaries’ retained businesses but the ownership of which was transferred to DISH Network pursuant to the Share Exchange.

Share Exchange Tax Matters ~~Agreement.~~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 above which continues in full force and effect.

NOTE 12. RELATED PARTY TRANSACTIONS - OTHER

Hughes Systique Corporation

We contract with Hughes Systique Corporation (“Hughes Systique”) for software development services. In addition to our approximately 43% ownership in Hughes Systique, Mr. Pradman Kaul, the President of our subsidiary Hughes Communications, Inc. and a member of our board of directors, and his brother, who is the Chief Executive Officer and President of Hughes Systique, own in the aggregate approximately 25%, on an undiluted basis, of Hughes Systique’s outstanding shares as of March 31, 2021. 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

Table of Contents

HUGHES SATELLITE SYSTEMS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

statements in these Consolidated Financial Statements.

TerreStar Solutions

DISH Network owns more than 15% of TerreStar Solutions, Inc. (“TSI”). In May 2018, we and TSI entered into an equipment and services agreement pursuant to which we design, manufacture and install upgraded ground communications network equipment for TSI’s network and provide, among other things, warranty and support services. We recognized revenue of $0.4 million and $2.2 million for the three months ended March 31, 2021 and 2020, respectively. As of March 31, 2021 and December 31, 2020, we had $1.5 million and $0.4 million trade accounts receivable from TSI.

NOTE 13. CONTINGENCIES

Patents and Intellectual Property

Many entities, including some of our competitors, have, or may have in the future, patents and other intellectual property rights that cover or affect products or services directly or indirectly related to those that we offer. We may not be aware of all patents and other intellectual property rights that our products and services may potentially infringe. Damages in patent infringement cases can be substantial, and in certain circumstances can be tripled. Further, we cannot estimate the extent to which we may be required in the future to obtain licenses with respect to intellectual property rights held by others and the availability and cost of any such licenses. Various parties have asserted patent and other intellectual property rights with respect to our products and services. We cannot be certain that these parties do not own the rights they claim, that these rights are not valid or that our products and services do not infringe on these rights. Further, we cannot be certain that we would be able to obtain licenses from these parties on commercially reasonable terms or, if we were unable to obtain such licenses, that we would be able to redesign our products and services to avoid infringement.

Certain Arrangements with DISH Network

In connection with EchoStar’s spin-off from DISH in 2008, EchoStar entered into a separation agreement with DISH Network that provides, among other things, for the division of certain liabilities, including liabilities resulting from litigation. Under the terms of the separation agreement, EchoStar assumed certain liabilities that relate to its and our business, including certain designated liabilities for acts or omissions that occurred prior to the Spin-off. Certain specific provisions govern intellectual property related claims under which EchoStar will generally only be liable for its and its subsidiaries’ acts or omissions following the Spin-off and DISH Network will indemnify EchoStar for any liabilities or damages resulting from intellectual property claims relating to the period prior to the Spin-off as well as DISH Network’s acts or omissions following the Spin-off. In connection with the Share Exchange and BSS Transaction, EchoStar and certain of its and our subsidiaries entered into the Share Exchange Agreement and the Master Transaction Agreement, respectively, and other agreements which provide, among other things, for the division of certain liabilities, including liabilities relating to taxes, intellectual property and employees and liabilities resulting from litigation and the assumption of certain liabilities that relate to the transferred businesses and assets. These agreements also contain additional indemnification provisions between EchoStar and us and DISH Network for, in the case of the Share Exchange, certain pre-existing liabilities and legal proceedings and, in the case of the BSS Transaction, certain losses with respect to breaches of certain representations and covenants and certain liabilities.

Litigation

We are involved in a number of legal proceedings concerning matters arising in connection with the conduct of our business activities. Many of these proceedings are at preliminary stages and/or seek an indeterminate amount of damages. We regularly evaluate the status of the legal proceedings in which we are involved to assess whether a loss is probable and to determine if accruals are appropriate. We record an accrual for litigation and other loss contingencies when we determine that a loss is probable, and the amount of the loss can be reasonably estimated. If accruals are not appropriate, we further evaluate each legal proceeding to assess whether an estimate of possible loss or range of loss can be made. There can be no assurance that legal proceedings against us will be resolved in

Table of Contents

HUGHES SATELLITE SYSTEMS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

amounts that will not differ from the amounts of our recorded accruals. Legal fees and other costs of defending legal proceedings are charged to expense as incurred.

Shareholder Litigation

On July 2, 2019, the City of Hallandale Beach Police Officers’ and Firefighters’ Personnel Retirement Trust, purporting to sue on behalf of a class of EchoStar Corporation’s stockholders, filed a complaint in the District Court of Clark County, Nevada against EchoStar’s directors, Charles W. Ergen, R. Stanton Dodge, Anthony M. Federico, Pradman P. Kaul, C. Michael Schroeder, Jeffrey R. Tarr, William D. Wade, and Michael T. Dugan; our chief financial officer, David J. Rayner; EchoStar ; HSSC; our former subsidiary BSS Corp.; and DISH and its subsidiary Merger Sub. On September 5, 2019, the defendants filed motions to dismiss. On October 11, 2019, the plaintiffs filed an amended complaint removing Messrs. Dodge, Federico, Kaul, Schroeder, Tarr and Wade as defendants. The amended complaint alleges that Mr. Ergen, as our controlling stockholder, breached fiduciary duties to EchoStar’s minority stockholders by structuring the BSS Transaction with inadequate consideration and improperly influencing our and EchoStar’s boards of directors to approve the BSS Transaction. The amended complaint also alleges that the other defendants aided and abetted such alleged breaches. The plaintiffs seek equitable and monetary relief, including the issuance of additional DISH Common Stock, and other costs and disbursements, including attorneys’ fees on behalf of the purported class. On November 11, 2019, we and the other defendants filed separate motions to dismiss plaintiff’s amended complaint and during a hearing on January 13, 2020 the court denied these motions. On February 10, 2020, we and the other defendants filed answers to the amended complaint. The Court certified plaintiff’s class on January 11, 2021. We intend to vigorously defend this case. We cannot predict its outcome with any degree of certainty.

License Fee Dispute with Government of India, Department of Telecommunications

Table of Contents

HUGHES SATELLITE SYSTEMS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

other such providers with the Tribunal. These petitions were amended, consolidated, remanded and re-appealed several times. On April 23, 2015, the Tribunal issued a judgment affirming the DOT’s calculation of AGR for the telecommunications service providers but reversing the DOT’s imposition of interest, penalties and interest on such penalties as excessive. Over subsequent years, the DOT and HCIPL and other telecommunications service providers, respectively, filed several appeals of the Tribunal’s ruling. On October 24, 2019, the Supreme Court of India (“Supreme Court”) issued an order (the “October 2019 Order”) affirming the license fee assessments imposed by the DOT, including its imposition of interest, penalties and interest on the penalties, but without indicating the amount HCIPL is required to pay the DOT, and ordering payment by January 23, 2020. On November 23, 2019, HCIPL and other telecommunication service providers filed a petition asking the Supreme Court to reconsider the October 2019 Order. The petition was denied on January 20, 2020. On January 22, 2020, HCIPL and other telecommunication service providers filed an application requesting that the Supreme Court modify the October 2019 Order to permit the DOT to calculate the final amount due and extend HCIPL’s and the other telecommunication service providers’ payment deadline. On February 14, 2020, the Supreme Court directed HCIPL and the other telecommunication service providers to explain why the Supreme Court should not initiate contempt proceedings for failure to pay the amounts due. During a hearing on March 18, 2020, the Supreme Court ordered that all amounts that were due before the October 2019 Order must be paid, including interest, penalties and interest on the penalties. The Supreme Court also ordered that the parties appear for a further hearing addressing, potentially among other things, a proposal by the DOT to allow for extended or deferred payments of amounts due. On June 11, 2020, the Supreme Court ordered HCIPL and the other telecommunication service providers to submit affidavits addressing the proposal made by the DOT to extend the time frame for payment of the amounts owed and for HCIPL and the other telecommunication providers to provide security for such payments. On September 1, 2020, the Supreme Court issued a judgment permitting a 10-year payment schedule. Under this payment schedule, HCIPL is required to make an annual payment every March 31, through 2031. Following the Supreme Court of India’s October 2019 judgment, HCIPL made payments during the first quarter of 2020, and an additional payment on March 31, 2021.

The following table presents the components of the accrual:


	As of
	March 31, 2021		December 31, 2020
Additional license fees	$	3,867	$	3,890
Penalties	3,969		3,992
Interest and interest on penalties	77,774		76,871
Less: Payments	(8,574)		(2,975)
Total accrual	$	77,036	$	81,778

Any eventual payments made with respect to the ultimate outcome of this matter may be different from our accrual and such differences could be significant.

Other

Table of Contents

HUGHES SATELLITE SYSTEMS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

NOTE ~~16. RELATED PARTY TRANSACTIONS - OTHER~~14.SEGMENT REPORTING

Business segments are components of an enterprise for which separate financial information is available and regularly evaluated by our chief operating decision maker (“CODM”), who is our Chief Executive Officer. We operate in 2 business segments, Hughes and ESS, as described in Note 1. Organization and Business Activities.

The primary measure of segment profitability that is reported regularly to our CODM is earnings before interest, taxes, depreciation and amortization, and net income (loss) attributable to non-controlling interests (“EBITDA”).

Total assets by segment have not been reported herein because the information is not provided to our CODM on a regular basis.

~~Hughes Systique Corporation~~

~~We contract with Hughes Systique Corporation (“Hughes Systique”)~~The following table presents revenue, EBITDA and capital expenditures for ~~software development services. In addition to our approximately 43% ownership in Hughes Systique, Mr. Pradman Kaul, the President~~each of our subsidiary Hughes Communications, Inc. and a member of EchoStar’s board of directors, and his brother, who is the Chief Executive Officer and President of Hughes Systique, in the aggregate, own approximately 25%, on an undiluted basis, of Hughes Systique’s outstanding shares as of June 30, 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 these Condensed Consolidated Financial Statements.business segments:


	Hughes		ESS		Corporate and Other		Consolidated Total
For the three months ended March 31, 2021
External revenue	$	475,859	$	4,001	$	5,370	$	485,230
Intersegment revenue	0		88		(88)		—
Total revenue	$	475,859	$	4,089	$	5,282	$	485,230

EBITDA	$	198,578	$	1,919	$	(9,091)	$	191,406
Capital expenditures	$	82,196	$	0	$	0	$	82,196

For the three months ended March 31, 2020
External revenue	$	458,482	$	4,367	$	4,698	$	467,547
Intersegment revenue	0		285		(285)		—
Total revenue	$	458,482	$	4,652	$	4,413	$	467,547

EBITDA	$	154,641	$	2,030	$	(6,646)	$	150,025
Capital expenditures	$	91,517	$	0	$	0	$	91,517

4131

Table of Contents

HUGHES SATELLITE SYSTEMS CORPORATION

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

(Unaudited)

~~TerreStar Solutions, Inc.~~

~~DISH Network owns more than 15%~~

The following table reconciles Net income (loss) in the Consolidated Statements of ~~TerreStar Solutions, Inc. (“TSI”). In May 2018, we and TSI entered into an equipment and services agreement pursuant~~Operations 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 $0.9 million and $3.1 million for the three months ended June 30, 2020 and 2019, respectively, and $3.1 million and $8.2 million for the six months ended June 30, 2020 and 2019, respectively. As of June 30, 2020 and December 31, 2019, we had trade accounts receivable from TSI of $0.0 million and $2.7 million, respectively.EBITDA:


	For the three months ended March 31,
	2021		2020
Net income (loss)	$	17,630	$	(17,913)
Interest income, net	(2,394)		(8,892)
Interest expense, net of amounts capitalized	41,922		42,192
Income tax benefit (provision), net	10,637		5,231
Depreciation and amortization	122,664		125,965
Net loss (income) attributable to non-controlling interests	947		3,442
EBITDA	$	191,406	$	150,025

~~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 and as an executive advisor to the Chief Executive Officer of Global IP from September 2017 until April 2019 and from September 2017 until December 2019, respectively. In August 2018, we and Global IP amended the agreement to: (i) change certain of the equipment and services to be provided to Global IP, (ii) modify certain payment terms, (iii) provide Global IP an option to use one of our test lab facilities and (iv) effectuate the assignment of the agreement from Global IP to one of its wholly-owned subsidiaries. In February 2019, we terminated this agreement as a result of Global IP’s defaults resulting from its failure to make payments to us as required under the terms of this agreement. We have reserved our rights and remedies against Global IP under this agreement. We have not recognized any revenue since the termination of this agreement. As of June 30, 2020, we were owed $7.5 million from Global IP.

~~Maxar Technologies Inc.~~

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 and certain other services of the EchoStar IX satellite, the EchoStar XVII satellite, the EchoStar XIX satellite and the EchoStar XXI satellite and our former EchoStar XI satellite, 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 $0.9 million and $1.1 million for the three months ended June 30, 2020 and 2019, respectively, and $4.4 million and $4.1 million for the six months ended June 30, 2020 and 2019, respectively. At both June 30, 2020 and December 31, 2019, we had 0 trade accounts payable to Maxar Tech.

NOTE ~~17.~~15. SUPPLEMENTAL FINANCIAL INFORMATION

~~Research~~Other Current Assets, Net and ~~Development~~Other Non-current Assets, Net

The following table presents the ~~research~~components of Other current assets, net, and ~~development costs incurred in connection with customers’ orders:~~Other non-current assets, net:

For the three months ended June 30, For the six months ended June 30,
2020 2019 2020 2019
Cost of sales - equipment (exclusive of depreciation and amortization) $ 3,913 $ 6,316 $ 10,605 $ 11,711
Research and development expenses $ 7,448 $ 6,388 $ 13,702 $ 13,276


	As of
	March 31, 2021		December 31, 2020
Other current assets, net:
Trade accounts receivable - DISH Network	$	4,449	$	4,706
Inventory	95,439		97,831
Prepaids and deposits	43,812		42,243
Related party receivables - EchoStar	114,225		116,220
Other, net	28,764		30,815
Total other current assets	$	286,689	$	291,815

Other non-current assets, net:
Restricted cash	$	835	$	807
Deferred tax assets, net	1,520		1,679
Capitalized software, net	118,953		116,661
Contract acquisition costs, net	94,593		99,837
Contract fulfillment costs, net	1,916		2,580
Related party receivables - EchoStar	54,970		57,136
Other, net	29,629		28,977
Total other non-current assets, net	$	302,416	$	307,677

4232

Table of Contents

HUGHES SATELLITE SYSTEMS CORPORATION

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

(Unaudited)

~~Cash and Cash Equivalents and Restricted Cash~~

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

For the six months ended June 30,
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 $ 1,469,330 $ 876,388
Restricted cash 1,004 1,007
Total cash and cash equivalents, included restricted amounts, end of period $ 1,470,334 $ 877,395

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

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

As of
June 30,
2020 December 31, 2019
Other current assets, net:
Trade accounts receivable - DISH Network $ 10,950 $ 8,876
Inventory 83,412 79,474
Prepaids and deposits 42,172 42,324
Contract acquisition costs, net 16,380 16,869
Related party receivables - EchoStar 113,910 131,892
Other, net 24,620 22,217
Total other current assets, net $ 291,444 $ 301,652
Other non-current assets, net:
Restricted cash $ 1,004 $ 887
Deferred tax assets, net 9,293 7,215
Capitalized software, net 109,091 101,786
Contract acquisition costs, net 90,706 96,723
Contract fulfillment costs, net 2,677 3,010
Related party receivables - EchoStar 44,345 19,759
Other, net 25,619 22,556
Total other non-current assets, net $ 282,735 $ 251,936

~~Table of Contents~~

~~HUGHES SATELLITE SYSTEMS CORPORATION~~

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

~~(Unaudited)~~

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

For the six months ended June 30, 2020
Other current assets, net Other non-current assets, net
Balance at beginning of period $ — $ —
Credit losses ⁽¹⁾
1,595 13,378
Foreign currency translation 152 (572)
Balance at end of period $ 1,747 $ 12,806

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

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

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

As of
June 30,
2020 December 31, 2019
Accrued expenses and other current liabilities:
Trade accounts payable - DISH Network $ 1,311 $ 502
Accrued interest 41,462 32,184
Accrued compensation 41,144 42,846
Accrued taxes 10,062 18,493
Operating lease obligation 14,197 14,112
Related party payables - EchoStar 13,895 11,132
Other 134,054 139,148
Total accrued expenses and other current liabilities $ 256,125 $ 258,417
Other non-current liabilities:
Related party payables - EchoStar $ 23,994 $ 23,980
Other 66,052 66,500
Total other non-current liabilities $ 90,046 $ 90,480


	As of
	March 31, 2021		December 31, 2020
Accrued expenses and other current liabilities:
Related party payables - EchoStar	$	51,396	$	51,421
Trade accounts payable - DISH Network	417		477
Accrued interest	34,514		42,388
Accrued compensation	44,489		52,231
Accrued taxes	11,937		11,780
Operating lease obligation	14,986		14,670
Other	170,577		152,620
Total accrued expenses and other current liabilities	$	328,316	$	325,587

Other non-current liabilities:
Related party payables - EchoStar	$	24,533	$	25,114
Other	62,109		62,843
Total other non-current liabilities	$	86,642	$	87,957

Inventory

The following table presents the components of inventory:

As of
June 30,
2020 December 31, 2019
Raw materials $ 6,508 $ 4,240
Work-in-process 7,553 6,979
Finished goods 69,351 68,255
Total inventory $ 83,412 $ 79,474


	As of
	March 31, 2021		December 31, 2020
Raw materials	$	5,308	$	4,564
Work-in-process	7,054		8,280
Finished goods	83,077		84,987
Total inventory	$	95,439	$	97,831

4433

Table of Contents

HUGHES SATELLITE SYSTEMS CORPORATION

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

(Unaudited)

Supplemental and Non-cash Investing and Financing Activities

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

For the six months ended June 30,
2020 2019
Supplemental disclosure of cash flow information:
Cash paid for interest, net of amounts capitalized $ 84,000 $ 130,175
Cash paid for income taxes $ 2,200 $ 1,049
Non-cash investing and financing activities:
Increase (decrease) in capital expenditures included in accounts payable, net $ 2,519 $ (2,639)


	For the three months ended March 31,
	2021		2020
Supplemental disclosure of cash flow information:
Cash paid for interest, net of amounts capitalized	$	45,329	$	49,563
Cash paid for income taxes	$	276	$	716

Non-cash investing and financing activities:
Increase (decrease) in capital expenditures included in accounts payable, net	$	(973)	$	(5,359)

NOTE ~~18.~~ 16.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”).

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.

In lieu of separate financial statements of the Guarantor Subsidiaries, we have prepared the accompanying ~~condensed~~ consolidating financial information 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 these ~~Condensed~~ Consolidated Financial Statements.

4534

Table of Contents

HUGHES SATELLITE SYSTEMS CORPORATION

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

(Unaudited)

~~Condensed~~

Consolidating Balance Sheet as of ~~June 30,~~March 31, 2021


	Hughes Satellite Systems Corporation		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Eliminations		Total
Assets
Current assets:
Cash and cash equivalents	$	1,313,882	$	36,207	$	53,837	$	0	$	1,403,926
Marketable investment securities	515,306		0		0		0		515,306
Trade accounts receivable and contract assets, net	0		130,895		56,377		0		187,272
Other current assets, net	148,125		922,870		93,812		(878,118)		286,689
Total current assets	1,977,313		1,089,972		204,026		(878,118)		2,393,193
Non-current assets:
Property and equipment, net	0		1,277,785		353,436		0		1,631,221
Operating lease right-of-use assets	0		104,304		27,148		0		131,452
Goodwill	0		504,173		6,772		0		510,945
Regulatory authorizations, net	0		400,000		9,960		0		409,960
Other intangible assets, net	0		16,246		0		0		16,246
Other investments, net	0		15,455		86,708		0		102,163
Investment in subsidiaries	2,965,049		322,434		0		(3,287,483)		0
Other non-current assets, net	700		304,863		91,659		(94,806)		302,416
Total non-current assets	2,965,749		2,945,260		575,683		(3,382,289)		3,104,403
Total assets	$	4,943,062	$	4,035,232	$	779,709	$	(4,260,407)	$	5,497,596
Liabilities and Shareholder's Equity
Current liabilities:
Trade accounts payable	$	0	$	89,812	$	14,871	$	0	$	104,683
Current portion of long-term debt, net	808,758		0		0		0		808,758
Contract liabilities	0		107,467		5,040		0		112,507
Accrued expenses and other current liabilities	635,846		341,850		228,738		(878,118)		328,316
Total current liabilities	1,444,604		539,129		248,649		(878,118)		1,354,264
Non-current liabilities:
Long-term debt, net	1,495,436		0		0		0		1,495,436
Deferred tax liabilities, net	345		373,485		2,536		0		376,366
Operating lease liabilities	0		96,042		22,410		0		118,452
Other non-current liabilities	0		62,089		119,359		(94,806)		86,642
Total non-current liabilities	1,495,781		531,616		144,305		(94,806)		2,076,896
Total liabilities	2,940,385		1,070,745		392,954		(972,924)		3,431,160
Shareholder's equity:
Total Hughes Satellite Systems Corporation shareholder's equity	2,002,677		2,964,487		322,996		(3,287,483)		2,002,677
Non-controlling interests	0		0		63,759		0		63,759
Total shareholder's equity	2,002,677		2,964,487		386,755		(3,287,483)		2,066,436
Total liabilities and shareholder's equity	$	4,943,062	$	4,035,232	$	779,709	$	(4,260,407)	$	5,497,596

Table of Contents

HUGHES SATELLITE SYSTEMS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

Consolidating Balance Sheet as of December 31, 2020


		HSSC		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Eliminations		Total			Hughes Satellite Systems Corporation		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Eliminations		Total
Assets	Assets											Assets
Current assets:	Current assets:											Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	1,395,824	$	28,728	$	44,778	$	—	$	1,469,330	Cash and cash equivalents	$	649,851	$	46,055	$	44,584	$	0	$	740,490
Marketable investment securities	Marketable investment securities	355,570		91		—		—		355,661		Marketable investment securities	1,203,296		0		0		0		1,203,296
Trade accounts receivable and contract assets, net	Trade accounts receivable and contract assets, net	—		128,948		54,385		—		183,333		Trade accounts receivable and contract assets, net	0		129,572		54,416		0		183,988

Other current assets		93,602		742,609		90,705		(635,472)		291,444
Other current assets, net												Other current assets, net	148,158		830,912		171,676		(858,931)		291,815
Total current assets	Total current assets	1,844,996		900,376		189,868		(635,472)		2,299,768		Total current assets	2,001,305		1,006,539		270,676		(858,931)		2,419,589
Non-current assets:	Non-current assets:											Non-current assets:
Property and equipment, net	Property and equipment, net	—		1,384,547		334,656		—		1,719,203		Property and equipment, net	0		1,312,673		378,850		0		1,691,523
Operating lease right-of-use assets	Operating lease right-of-use assets	—		99,436		26,492		—		125,928		Operating lease right-of-use assets	0		99,578		28,688		0		128,266
Goodwill	Goodwill	—		504,173		4,881		—		509,054		Goodwill	0		504,173		7,424		0		511,597
Regulatory authorizations, net	Regulatory authorizations, net	—		400,000		10,750		—		410,750		Regulatory authorizations, net	0		400,000		10,451		0		410,451
Other intangible assets, net	Other intangible assets, net	—		22,527		—		—		22,527		Other intangible assets, net	0		18,340		0		0		18,340
Other investments, net	Other investments, net	—		107,583		—		—		107,583		Other investments, net	0		103,924		0		0		103,924
Investment in subsidiaries	Investment in subsidiaries	2,847,922		208,205		—		(3,056,127)		—		Investment in subsidiaries	2,942,178		251,394		0		(3,193,572)		0

Other non-current assets, net	Other non-current assets, net	26,455		288,406		68,740		(100,866)		282,735		Other non-current assets, net	700		307,661		94,031		(94,715)		307,677
Total non-current assets	Total non-current assets	2,874,377		3,014,877		445,519		(3,156,993)		3,177,780		Total non-current assets	2,942,878		2,997,743		519,444		(3,288,287)		3,171,778
Total assets	Total assets	$	4,719,373	$	3,915,253	$	635,387	$	(3,792,465)	$	5,477,548	Total assets	$	4,944,183	$	4,004,282	$	790,120	$	(4,147,218)	$	5,591,367
Liabilities and Shareholder's Equity	Liabilities and Shareholder's Equity											Liabilities and Shareholder's Equity
Current liabilities:	Current liabilities:											Current liabilities:
Trade accounts payable	Trade accounts payable	$	—	$	89,567	$	21,053	$	—	$	110,620	Trade accounts payable	$	0	$	98,914	$	19,654	$	0	$	118,568
Current portion of long-term debt, net	Current portion of long-term debt, net	896,386		—		—		—		896,386		Current portion of long-term debt, net	898,237		0		0		0		898,237
Contract liabilities	Contract liabilities	—		84,571		5,260		—		89,831		Contract liabilities	0		99,838		4,731		0		104,569
Accrued expenses and other current liabilities	Accrued expenses and other current liabilities	351,596		319,827		220,174		(635,472)		256,125		Accrued expenses and other current liabilities	529,661		352,121		302,736		(858,931)		325,587
Total current liabilities	Total current liabilities	1,247,982		493,965		246,487		(635,472)		1,352,962		Total current liabilities	1,427,898		550,873		327,121		(858,931)		1,446,961
Non-current liabilities:	Non-current liabilities:											Non-current liabilities:
Long-term debt, net	Long-term debt, net	1,494,902		—		—		—		1,494,902		Long-term debt, net	1,495,256		0		0		0		1,495,256
Deferred tax liabilities, net	Deferred tax liabilities, net	—		419,682		—		(25,841)		393,841		Deferred tax liabilities, net	9,569		357,835		2,536		0		369,940
Operating lease liabilities	Operating lease liabilities	—		89,251		21,632		—		110,883		Operating lease liabilities	0		91,241		23,636		0		114,877

Other non-current liabilities	Other non-current liabilities	—		65,025		100,046		(75,025)		90,046		Other non-current liabilities	0		62,717		119,955		(94,715)		87,957
Total non-current liabilities	Total non-current liabilities	1,494,902		573,958		121,678		(100,866)		2,089,672		Total non-current liabilities	1,504,825		511,793		146,127		(94,715)		2,068,030
Total liabilities	Total liabilities	2,742,884		1,067,923		368,165		(736,338)		3,442,634		Total liabilities	2,932,723		1,062,666		473,248		(953,646)		3,514,991
Shareholder's equity:	Shareholder's equity:											Shareholder's equity:
Total Hughes Satellite Systems Corporation shareholder's equity	Total Hughes Satellite Systems Corporation shareholder's equity	1,976,489		2,847,330		208,797		(3,056,127)		1,976,489		Total Hughes Satellite Systems Corporation shareholder's equity	2,011,460		2,941,616		251,956		(3,193,572)		2,011,460
Non-controlling interests	Non-controlling interests	—		—		58,425		—		58,425		Non-controlling interests	0		0		64,916		0		64,916
Total shareholder's equity	Total shareholder's equity	1,976,489		2,847,330		267,222		(3,056,127)		2,034,914		Total shareholder's equity	2,011,460		2,941,616		316,872		(3,193,572)		2,076,376
Total liabilities and shareholder's equity	Total liabilities and shareholder's equity	$	4,719,373	$	3,915,253	$	635,387	$	(3,792,465)	$	5,477,548	Total liabilities and shareholder's equity	$	4,944,183	$	4,004,282	$	790,120	$	(4,147,218)	$	5,591,367

4636

Table of Contents

HUGHES SATELLITE SYSTEMS CORPORATION

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

(Unaudited)

~~Condensed~~

Consolidating ~~Balance Sheet as~~Statement of ~~December~~Operations and Comprehensive Income (Loss)

For the Three Months Ended March 31, ~~2019~~2021

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, net 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


	Hughes Satellite Systems Corporation		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Eliminations		Total
Revenue:
Services and other revenue	$	0	$	363,697	$	77,703	$	(8,409)	$	432,991
Equipment revenue	0		61,037		8,046		(16,844)		52,239
Total revenue	0		424,734		85,749		(25,253)		485,230
Costs and expenses:
Cost of sales - services and other (exclusive of depreciation and amortization)	0		103,207		36,229		(8,024)		131,412
Cost of sales - equipment (exclusive of depreciation and amortization)	0		56,430		5,369		(16,659)		45,140
Selling, general and administrative expenses	0		83,543		21,397		(570)		104,370
Research and development expenses	0		7,358		187		0		7,545
Depreciation and amortization	0		94,252		28,412		0		122,664
Impairment of long-lived assets	0		210		0		0		210
Total costs and expenses	0		345,000		91,594		(25,253)		411,341
Operating income (loss)	0		79,734		(5,845)		0		73,889
Other income (expense):
Interest income	1,036		1,287		1,281		(1,210)		2,394
Interest expense, net of amounts capitalized	(40,244)		45		(2,933)		1,210		(41,922)
Equity in earnings (losses) of unconsolidated affiliates, net	0		219		(1,980)		0		(1,761)
Equity in earnings (losses) of subsidiaries, net	50,143		(12,617)		0		(37,526)		0
Foreign currency transaction gains (losses), net	0		(3)		(3,357)		0		(3,360)
Other, net	(1,582)		744		(135)		0		(973)
Total other income (expense), net	9,353		(10,325)		(7,124)		(37,526)		(45,622)
Income (loss) before income taxes	9,353		69,409		(12,969)		(37,526)		28,267
Income tax benefit (provision), net	9,224		(19,266)		(595)		0		(10,637)
Net income (loss)	18,577		50,143		(13,564)		(37,526)		17,630
Less: Net loss (income) attributable to non-controlling interests	0		0		947		0		947
Net income (loss) attributable to HSSC	$	18,577	$	50,143	$	(12,617)	$	(37,526)	$	18,577
Comprehensive income (loss):
Net income (loss)	$	18,577	$	50,143	$	(13,564)	$	(37,526)	$	17,630
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments	0		0		(33,742)		0		(33,742)
Unrealized gains (losses) on available-for-sale securities	(88)		0		0		0		(88)
Amounts reclassified to net income (loss):
Equity in other comprehensive income (loss) of subsidiaries, net	(28,132)		(28,132)		0		56,264		0
Total other comprehensive income (loss), net of tax	(28,220)		(28,132)		(33,742)		56,264		(33,830)
Comprehensive income (loss)	(9,643)		22,011		(47,306)		18,738		(16,200)
Less: Comprehensive loss (income) attributable to non-controlling interests	0		0		6,557		0		6,557
Comprehensive income (loss) attributable to HSSC	$	(9,643)	$	22,011	$	(40,749)	$	18,738	$	(9,643)

4737

Table of Contents

HUGHES SATELLITE SYSTEMS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

Consolidating Statement of Operations and Comprehensive Income (Loss)

For the Three Months Ended March 31, 2020


	Hughes Satellite Systems Corporation		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Eliminations		Total
Revenue:
Services and other revenue	$	0	$	354,399	$	64,928	$	(9,089)	$	410,238
Equipment revenue	0		65,586		5,410		(13,687)		57,309
Total revenue	0		419,985		70,338		(22,776)		467,547
Costs and expenses:
Cost of sales - services and other (exclusive of depreciation and amortization)	0		110,471		42,063		(8,649)		143,885
Cost of sales - equipment (exclusive of depreciation and amortization)	0		55,374		4,221		(13,687)		45,908
Selling, general and administrative expenses	0		95,818		20,482		(440)		115,860
Research and development expenses	0		6,109		145		0		6,254
Depreciation and amortization	0		99,359		26,606		0		125,965
Total costs and expenses	0		367,131		93,517		(22,776)		437,872
Operating income (loss)	0		52,854		(23,179)		0		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	0		(164)		0		0		(164)
Equity in earnings (losses) of unconsolidated affiliates, net	0		(1,087)		0		0		(1,087)
Equity in earnings (losses) of subsidiaries, net	10,630		(29,167)		0		18,537		0
Foreign currency transaction gains (losses), net	0		(2)		(7,526)		0		(7,528)
Other, net	0		(275)		(3)		0		(278)
Total other income (expense), net	(21,889)		(30,337)		(8,668)		18,537		(42,357)
Income (loss) before income taxes	(21,889)		22,517		(31,847)		18,537		(12,682)
Income tax benefit (provision), net	7,418		(11,804)		(845)		0		(5,231)
Net income (loss)	(14,471)		10,713		(32,692)		18,537		(17,913)
Less: Net loss (income) attributable to non-controlling interests	0		0		3,442		0		3,442
Net income (loss) attributable to HSSC	$	(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	0		0		(82,836)		0		(82,836)
Unrealized gains (losses) on available-for-sale securities	(2,479)		0		0		0		(2,479)
Other	0		0		(405)		0		(405)
Equity in other comprehensive income (loss) of subsidiaries, net	(66,918)		(66,918)		0		133,836		0
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	0		0		19,765		0		19,765
Comprehensive income (loss) attributable to HSSC	$	(83,868)	$	(56,205)	$	(96,168)	$	152,373	$	(83,868)

Table of Contents

HUGHES SATELLITE SYSTEMS CORPORATION

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

(Unaudited)

~~Condensed~~

Consolidating Statement of ~~Operations and Comprehensive Income (Loss)~~Cash Flows

For the Three Months Ended ~~June 30, 2020~~March 31, 2021

HSSC Guarantor
Subsidiaries Non-Guarantor
Subsidiaries Eliminations Total
Revenue:
Services and other revenue $ — $ 365,846 $ 62,213 $ (8,837) $ 419,222
Equipment revenue — 58,585 6,266 (22,428) 42,423
Total revenue — 424,431 68,479 (31,265) 461,645
Costs and expenses:
Cost of sales - services and other (exclusive of depreciation and amortization) — 110,650 37,531 (8,228) 139,953
Cost of sales - equipment (exclusive of depreciation and amortization) — 47,115 7,855 (22,428) 32,542
Selling, general and administrative expenses — 83,252 20,588 (609) 103,231
Research and development expenses — 7,306 142 — 7,448
Depreciation and amortization — 98,664 24,814 — 123,478
Total costs and expenses — 346,987 90,930 (31,265) 406,652
Operating income (loss) — 77,444 (22,451) — 54,993
Other income (expense):
Interest income 4,252 1,003 897 (948) 5,204
Interest expense, net of amounts capitalized (40,493) (468) (4,262) 948 (44,275)
Gains (losses) on investments, net 2 14 — — 16
Equity in earnings (losses) of unconsolidated affiliates, net — (1,369) — — (1,369)
Equity in earnings (losses) of subsidiaries, net 31,767 (23,153) — (8,614) —
Foreign currency transaction gains (losses), net — (244) 104 — (140)
Other, net — (275) (112) — (387)
Total other income (expense), net (4,472) (24,492) (3,373) (8,614) (40,951)
Income (loss) from continuing operations before income taxes (4,472) 52,952 (25,824) (8,614) 14,042
Income tax benefit (provision), net 8,277 (21,096) (849) — (13,668)
Net income (loss) 3,805 31,856 (26,673) (8,614) 374
Less: Net loss (income) attributable to non-controlling interests — — 3,431 — 3,431
Net income (loss) attributable to Hughes Satellite Systems Corporation $ 3,805 $ 31,856 $ (23,242) $ (8,614) $ 3,805
Comprehensive income (loss):
Net income (loss) $ 3,805 $ 31,856 $ (26,673) $ (8,614) $ 374
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments — — (10,345) — (10,345)
Unrealized gains (losses) on available-for-sale securities 2,269 — — — 2,269
Other — — 285 — 285
Equity in other comprehensive income (loss)
of subsidiaries, net (7,687) (7,687) — 15,374 —
Total other comprehensive income (loss), net of tax (5,418) (7,687) (10,060) 15,374 (7,791)
Comprehensive income (loss) (1,613) 24,169 (36,733) 6,760 (7,417)
Less: Comprehensive loss (income) attributable to non-controlling interests — — 5,804 — 5,804
Comprehensive income (loss) attributable to Hughes Satellite Systems Corporation $ (1,613) $ 24,169 $ (30,929) $ 6,760 $ (1,613)


	Hughes Satellite Systems Corporation		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Eliminations		Total
Cash flows from operating activities:
Net income (loss)	$	18,577	$	50,143	$	(13,564)	$	(37,526)	$	17,630
Adjustments to reconcile net income (loss) to net cash flows from operating activities	(61,725)		102,402		25,616		37,526		103,819
Net cash provided by (used for) operating activities	(43,148)		152,545		12,052		0		121,449

Cash flows from investing activities:
Purchases of marketable investment securities	(310,528)		0		0		0		(310,528)
Sales and maturities of marketable investment securities	1,003,198		0		0		0		1,003,198


Expenditures for property and equipment	0		(52,246)		(29,950)		0		(82,196)

Expenditures for externally marketed software	0		(7,846)		0		0		(7,846)


Distributions (contributions) and advances from (to) subsidiaries, net	77,097		(24,100)		0		(52,997)		0
Net cash provided by (used for) investing activities	769,767		(84,192)		(29,950)		(52,997)		602,628

Cash flows from financing activities:
Repurchase of the 2021 Senior Unsecured Notes	(62,588)		0		0		0		(62,588)
Payment of finance lease obligations	0		0		(329)		0		(329)
Payment of in-orbit incentive obligations	0		(1,104)		0		0		(1,104)
Contribution by non-controlling interest holder	0		0		5,400		0		5,400
Other, net	0		0		(292)		0		(292)
Contribution (distributions) and advances (to) from parent, net	0		(77,097)		24,100		52,997		0
Net cash provided by (used for) financing activities	(62,588)		(78,201)		28,879		52,997		(58,913)

Effect of exchange rates on cash and cash equivalents	0		0		(1,700)		0		(1,700)
Net increase (decrease) in cash and cash equivalents	664,031		(9,848)		9,281		0		663,464
Cash and cash equivalents, including restricted amounts, beginning of period	649,851		46,055		45,391		0		741,297
Cash and cash equivalents, including restricted amounts, end of period	$	1,313,882	$	36,207	$	54,672	$	0	$	1,404,761

4839

Table of Contents

HUGHES SATELLITE SYSTEMS CORPORATION

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

(Unaudited)

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

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

HSS Guarantor
Subsidiaries Non-Guarantor
Subsidiaries Eliminations Total
Revenue:
Services and other revenue $ — $ 353,302 $ 59,260 $ (8,966) $ 403,596
Equipment revenue — 60,840 8,300 (11,495) 57,645
Total revenue — 414,142 67,560 (20,461) 461,241
Costs and expenses:
Cost of sales - services and other (exclusive of depreciation and amortization) — 109,385 40,300 (8,303) 141,382
Cost of sales - equipment (exclusive of depreciation and amortization) — 52,091 5,953 (11,495) 46,549
Selling, general and administrative expenses 2,687 112,637 24,572 (663) 139,233
Research and development expenses — 6,198 190 — 6,388
Depreciation and amortization — 97,716 16,011 — 113,727
Total costs and expenses 2,687 378,027 87,026 (20,461) 447,279
Operating income (loss) (2,687) 36,115 (19,466) — 13,962
Other income (expense):
Interest income 16,316 1,011 533 (816) 17,044
Interest expense, net of amounts capitalized (53,440) (5,151) (1,203) 816 (58,978)
Gains (losses) on investments, net 400 (414) — — (14)
Equity in earnings (losses) of unconsolidated affiliates, net — (916) — — (916)
Equity in earnings (losses) of subsidiaries, net 31,864 (24,007) — (7,857) —
Foreign currency transaction gains (losses), net — (16) 1,094 — 1,078
Other, net (409) 385 (32) — (56)
Total other income (expense), net (5,269) (29,108) 392 (7,857) (41,842)
Income (loss) from continuing operations before income taxes (7,956) 7,007 (19,074) (7,857) (27,880)
Income tax benefit (provision), net 8,933 4,286 (4,357) — 8,862
Net income (loss) from continuing operations 977 11,293 (23,431) (7,857) (19,018)
Net income (loss) from discontinued operations — 20,627 — — 20,627
Net income (loss) 977 31,920 (23,431) (7,857) 1,609
Less: Net loss (income) attributable to non-controlling interests — — (632) — (632)
Net income (loss) attributable to Hughes Satellite Systems Corporation $ 977 $ 31,920 $ (24,063) $ (7,857) $ 977
Comprehensive income (loss):
Net income (loss) $ 977 $ 31,920 $ (23,431) $ (7,857) $ 1,609
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments — — 3,158 — 3,158
Unrealized gains (losses) on available-for-sale securities (35) — — — (35)
Other — — (46) — (46)
Equity in other comprehensive income (loss)
of subsidiaries, net 3,112 3,112 — (6,224) —
Amounts reclassified to net income (loss):
Realized losses (gains) on available-for-sale debt securities (15) — — — (15)
Total other comprehensive income (loss), net of tax 3,062 3,112 3,112 (6,224) 3,062
Comprehensive income (loss) 4,039 35,032 (20,319) (14,081) 4,671
Less: Comprehensive loss (income) attributable to non-controlling interests — — (632) — (632)
Comprehensive income (loss) attributable to Hughes Satellite Systems Corporation $ 4,039 $ 35,032 $ (20,951) $ (14,081) $ 4,039

~~Table of Contents~~

~~HUGHES SATELLITE SYSTEMS CORPORATION~~

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

~~(Unaudited)~~

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

~~For the Six Months Ended June 30, 2020~~

HSSC Guarantor
Subsidiaries Non-Guarantor
Subsidiaries Eliminations Total
Revenue:
Services and other revenue $ — $ 720,245 $ 127,141 $ (17,926) $ 829,460
Equipment revenue — 124,171 11,676 (36,115) 99,732
Total revenue — 844,416 138,817 (54,041) 929,192
Costs and expenses:
Cost of sales - services and other (exclusive of depreciation and amortization) — 221,121 79,594 (16,877) 283,838
Cost of sales - equipment (exclusive of depreciation and amortization) — 102,489 12,076 (36,115) 78,450
Selling, general and administrative expenses — 179,070 41,070 (1,049) 219,091
Research and development expenses — 13,415 287 — 13,702
Depreciation and amortization — 198,023 51,420 — 249,443
Total costs and expenses — 714,118 184,447 (54,041) 844,524
Operating income (loss) — 130,298 (45,630) — 84,668
Other income (expense):
Interest income 12,205 1,974 1,788 (1,871) 14,096
Interest expense, net of amounts capitalized (80,965) (1,081) (6,292) 1,871 (86,467)
Gains (losses) on investments, net 2 (150) — — (148)
Equity in earnings (losses) of unconsolidated affiliates, net — (2,456) — — (2,456)
Equity in earnings (losses) of subsidiaries, net 42,397 (52,320) — 9,923 —
Foreign currency transaction gains (losses), net — (246) (7,422) — (7,668)
Other, net — (550) (115) — (665)
Total other income (expense), net (26,361) (54,829) (12,041) 9,923 (83,308)
Income (loss) from continuing operations before income taxes (26,361) 75,469 (57,671) 9,923 1,360
Income tax benefit (provision), net 15,695 (32,900) (1,694) — (18,899)
Net income (loss) (10,666) 42,569 (59,365) 9,923 (17,539)
Less: Net loss (income) attributable to non-controlling interests — — 6,873 — 6,873
Net income (loss) attributable to Hughes Satellite Systems Corporation $ (10,666) $ 42,569 $ (52,492) $ 9,923 $ (10,666)
Comprehensive income (loss):
Net income (loss) $ (10,666) $ 42,569 $ (59,365) $ 9,923 $ (17,539)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments — — (93,181) — (93,181)
Unrealized gains (losses) on available-for-sale securities (210) — — — (210)
Other — — (120) — (120)
Equity in other comprehensive income (loss)
of subsidiaries, net (74,605) (74,605) — 149,210 —
Total other comprehensive income (loss), net of tax (74,815) (74,605) (93,301) 149,210 (93,511)
Comprehensive income (loss) (85,481) (32,036) (152,666) 159,133 (111,050)
Less: Comprehensive loss (income) attributable to non-controlling interests — — 25,569 — 25,569
Comprehensive income (loss) attributable to Hughes Satellite Systems Corporation $ (85,481) $ (32,036) $ (127,097) $ 159,133 $ (85,481)

~~Table of Contents~~

~~HUGHES SATELLITE SYSTEMS CORPORATION~~

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

~~(Unaudited)~~

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

~~For the Six Months Ended June 30, 2019~~

HSSC Guarantor
Subsidiaries Non-Guarantor
Subsidiaries Eliminations Total
Revenue:
Services and other revenue $ — $ 705,893 $ 118,956 $ (17,768) $ 807,081
Equipment revenue — 113,489 17,715 (21,845) 109,359
Total revenue — 819,382 136,671 (39,613) 916,440
Costs and expenses:
Cost of sales - services and other (exclusive of depreciation and amortization) — 220,247 79,633 (16,412) 283,468
Cost of sales - equipment (exclusive of depreciation and amortization) — 100,590 12,811 (21,845) 91,556
Selling, general and administrative expenses 2,687 199,102 41,137 (1,356) 241,570
Research and development expenses — 12,941 335 — 13,276
Depreciation and amortization — 194,420 31,718 — 226,138
Total costs and expenses 2,687 727,300 165,634 (39,613) 856,008
Operating income (loss) (2,687) 92,082 (28,963) — 60,432
Other income (expense):
Interest income 33,725 1,937 1,092 (1,713) 35,041
Interest expense, net of amounts capitalized (109,801) (6,285) (2,520) 1,713 (116,893)
Gains (losses) on investments, net 400 (760) — — (360)
Equity in earnings (losses) of unconsolidated affiliates, net — (1,988) — — (1,988)
Equity in earnings (losses) of subsidiaries, net 84,063 (32,795) — (51,268) —
Foreign currency transaction gains (losses), net — (35) 1,324 — 1,289
Other, net (100) (13) (108) — (221)
Total other income (expense), net 8,287 (39,939) (212) (51,268) (83,132)
Income (loss) from continuing operations before income taxes 5,600 52,143 (29,175) (51,268) (22,700)
Income tax benefit (provision), net 17,603 (11,282) (2,331) — 3,990
Net income (loss) from continuing operations 23,203 40,861 (31,506) (51,268) (18,710)
Net income (loss) from discontinued operations — 43,351 — — 43,351
Net income (loss) 23,203 84,212 (31,506) (51,268) 24,641
Less: Net loss (income) attributable to non-controlling interests — — (1,438) — (1,438)
Net income (loss) attributable to Hughes Satellite Systems Corporation $ 23,203 $ 84,212 $ (32,944) $ (51,268) $ 23,203
Comprehensive income (loss):
Net income (loss) $ 23,203 $ 84,212 $ (31,506) $ (51,268) $ 24,641
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments — — 2,320 — 2,320
Unrealized gains (losses) on available-for-sale securities 2,318 — — — 2,318
Other — — (13) — (13)
Equity in other comprehensive income (loss)
of subsidiaries, net 2,307 2,307 — (4,614) —
Amounts reclassified to net income (loss):
Realized losses (gains) on available-for-sale securities (400) — — — (400)
Total other comprehensive income (loss), net of tax 4,225 2,307 2,307 (4,614) 4,225
Comprehensive income (loss) 27,428 86,519 (29,199) (55,882) 28,866
Less: Comprehensive loss (income) attributable to non-controlling interests — — (1,438) — (1,438)
Comprehensive income (loss) attributable to Hughes Satellite Systems Corporation $ 27,428 $ 86,519 $ (30,637) $ (55,882) $ 27,428

~~Table of Contents~~

~~HUGHES SATELLITE SYSTEMS CORPORATION~~

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

~~(Unaudited)~~

~~Condensed~~ Consolidating Statement of Cash Flows

For the ~~Six~~Three Months Ended ~~June 30,~~March 31, 2020


		HSSC		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Eliminations		Total			Hughes Satellite Systems Corporation		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Eliminations		Total
Cash flows from operating activities:	Cash flows from operating activities:											Cash flows from operating activities:
Net income (loss)	Net income (loss)	$	(10,666)	$	42,569	$	(59,365)	$	9,923	$	(17,539)	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	Adjustments to reconcile net income (loss) to net cash flows from operating activities	(54,571)		233,112		77,118		(9,923)		245,736		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		(65,237)		275,681		17,753		—		228,197
Net cash provided by (used for) operating activities												Net cash provided by (used for) operating activities	(36,686)		105,744		(3,834)		0		65,224

Cash flows from investing activities:	Cash flows from investing activities:											Cash flows from investing activities:
Purchases of marketable investment securities	Purchases of marketable investment securities	(365,877)		—		—		—		(365,877)		Purchases of marketable investment securities	(365,877)		0		0		0		(365,877)
Sales and maturities of marketable investment securities	Sales and maturities of marketable investment securities	660,513		—		—		—		660,513		Sales and maturities of marketable investment securities	490,020		0		0		0		490,020

Expenditures for property and equipment	Expenditures for property and equipment	—		(101,237)		(73,759)		—		(174,996)		Expenditures for property and equipment	0		(61,134)		(30,383)		0		(91,517)
Expenditures for externally marketed software	Expenditures for externally marketed software	—		(19,237)		—		—		(19,237)		Expenditures for externally marketed software	0		(8,638)		0		0		(8,638)
Distributions (contributions) and advances from (to) subsidiaries, net	Distributions (contributions) and advances from (to) subsidiaries, net	108,522		(49,274)		—		(59,248)		—		Distributions (contributions) and advances from (to) subsidiaries, net	29,290		(18,939)		0		(10,351)		0
Net cash flows from investing activities		403,158		(169,748)		(73,759)		(59,248)		100,403
Net cash provided by (used for) investing activities												Net cash provided by (used for) investing activities	153,433		(88,711)		(30,383)		(10,351)		23,988

Cash flows from financing activities:	Cash flows from financing activities:											Cash flows from financing activities:

Payment of finance lease obligations	Payment of finance lease obligations	—		—		(421)		—		(421)		Payment of finance lease obligations	0		0		(215)		0		(215)
Payment of in-orbit incentive obligations	Payment of in-orbit incentive obligations	—		(1,021)		—		—		(1,021)		Payment of in-orbit incentive obligations	0		(203)		0		0		(203)
Contribution by non-controlling interest holder	Contribution by non-controlling interest holder	—		—		10,000		—		10,000		Contribution by non-controlling interest holder	0		0		4,000		0		4,000
Other, net	Other, net	—		—		1,002		—		1,002		Other, net	0		0		979		0		979
Contributions (distributions) and advances (to) from parent, net		—		(108,522)		49,274		59,248		—
Net cash flows from financing activities		—		(109,543)		59,855		59,248		9,560
Contribution (distributions) and advances (to) from parent, net												Contribution (distributions) and advances (to) from parent, net	0		(29,290)		18,939		10,351		0
Net cash provided by (used for) financing activities												Net cash provided by (used for) financing activities	0		(29,493)		23,703		10,351		4,561

Effect of exchange rates on cash and cash equivalents	Effect of exchange rates on cash and cash equivalents	—		—		(8,148)		—		(8,148)		Effect of exchange rates on cash and cash equivalents	0		0		(4,618)		0		(4,618)
Net increase (decrease) in cash and cash equivalents	Net increase (decrease) in cash and cash equivalents	337,921		(3,610)		(4,299)		—		330,012		Net increase (decrease) in cash and cash equivalents	116,747		(12,460)		(15,132)		0		89,155
Cash and cash equivalents, including restricted amounts, beginning of period	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, beginning of period	1,057,903		32,338		50,081		0		1,140,322
Cash and cash equivalents, including restricted amounts, end of period	Cash and cash equivalents, including restricted amounts, end of period	$	1,395,824	$	28,728	$	45,782	$	—	$	1,470,334	Cash and cash equivalents, including restricted amounts, end of period	$	1,174,650	$	19,878	$	34,949	$	0	$	1,229,477

~~Table of Contents~~

~~HUGHES SATELLITE SYSTEMS CORPORATION~~

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

~~(Unaudited)~~

~~Condensed Consolidating Statement of Cash Flows~~

~~For the Six Months Ended June 30, 2019~~

HSSC Guarantor
Subsidiaries Non-Guarantor
Subsidiaries Eliminations Total
Cash flows from operating activities:
Net income (loss) $ 23,203 $ 84,212 $ (31,506) $ (51,268) $ 24,641
Adjustments to reconcile net income (loss) to net cash flows from operating activities (98,548) 338,912 51,854 51,268 343,486
Net cash flows from operating activities (75,345) 423,124 20,348 — 368,127
Cash flows from investing activities:
Purchases of marketable investment securities (351,843) — — — (351,843)
Sales and maturities of marketable investment securities 1,127,880 (3) — — 1,127,877
Expenditures for property and equipment — (109,103) (39,052) — (148,155)
Expenditures for externally marketed software — (15,329) — — (15,329)
Distributions (contributions) and advances
from (to) subsidiaries, net 250,863 (21,587) — (229,276) —
Net cash flows from investing activities 1,026,900 (146,022) (39,052) (229,276) 612,550
Cash flows from financing activities:
Repurchase and maturity of the 2019 Senior Secured Notes (920,923) — — — (920,923)
Payment of finance lease obligations — (19,457) (551) — (20,008)
Payment of in-orbit incentive obligations — (3,778) — — (3,778)
Purchase of non-controlling interest — (2,666) (4,647) — (7,313)
Other, net — — — — —
Contributions (distributions) and advances
(to) from parent, net — (250,863) 21,587 229,276 —
Net cash flows from financing activities (920,923) (276,764) 16,389 229,276 (952,022)
Effect of exchange rates on cash and cash equivalents — — 121 — 121
Net increase (decrease) in cash and cash equivalents 30,632 338 (2,194) — 28,776
Cash and cash equivalents, including restricted amounts, beginning of period 771,718 46,353 30,548 — 848,619
Cash and cash equivalents, including restricted amounts, end of period $ 802,350 $ 46,691 $ 28,354 $ — $ 877,395

5340

Table of Contents

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

Unless the context indicates otherwise, the terms “we,” “us,” “HSSC,” the “Company” and “our” refer to Hughes Satellite Systems Corporation and its subsidiaries. The following Management’s Narrative Analysis of Results of Operations (“Management’s Narrative Analysis”) should be read in conjunction with our accompanying ~~Condensed~~ Consolidated Financial Statements and notes thereto (“Accompanying ~~Condensed~~ Consolidated Financial Statements”) in Item 1 of this Quarterly Report on Form 10-Q (“Form 10-Q”). This Management’s Narrative Analysis is intended to help provide an understanding of our financial condition, changes in our financial condition and our results of operations. Many of the statements in this Management’s Narrative Analysis are forward-looking statements that involve assumptions and are subject to risks and uncertainties that are often difficult to predict and beyond our control. Actual results could differ materially from those expressed or implied by such forward-looking statements. Refer to the Disclosure Regarding Forward-Looking Statements in this Form 10-Q for further discussion. For a discussion of additional risks, uncertainties and other factors that could impact our results of operations or financial condition, refer to the 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”). Further, such forward-looking statements speak only as of the date of this Form 10-Q and we undertake no obligation to update them.

EXECUTIVE SUMMARY

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

Following the consummation of the BSS Transaction, we no longer operate the BSS Business, which was a substantial portion of our ESS segment. As a result of the BSS Transaction, the financial results of the BSS Business, except for certain real estate that transferred in the transaction, are presented as discontinued operations and, as such, excluded from continuing operations and segment results for the three and six months ended June 30, 2019 in our Accompanying Condensed Consolidated Financial Statements. Refer to ~~Note 4. Discontinued Operations~~ ~~in our Accompanying Condensed Consolidated Financial Statements in Item 1 of this Form 10-Q.~~

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

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

Highlights from our financial results are as follows:

Consolidated Results of Operations for the Three Months Ended March 31, 2021:

•Revenue of $485.2 million

•Operating income (loss) of $73.9 million

•Net income (loss) of $17.6 million

•Net income (loss) attributable to HSSC of $18.6 million

•Earnings before interest, taxes, depreciation and amortization, and net income (loss) attributable to non-controlling interests (“EBITDA”) of $191.4 million (see reconciliation of this non-GAAP measure in Results of Operations)

Consolidated Financial Condition as of March 31, 2021:

•Total assets of $5.5 billion

•Total liabilities of $3.4 billion

•Total shareholder’s equity of $2.1 billion

5441

Table of Contents

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

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

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

~~Highlights from our financial results are as follows:~~

~~Consolidated Results of Operations for the Six Months Ended June 30, 2020:~~

•~~Revenue of $929.2 million~~

•~~Operating income (loss) of $84.7 million~~

•~~Net income (loss) from continuing operations of $17.5 million~~

•~~Net income (loss) attributable to HSSC of $10.7 million~~

•Earnings before interest, taxes, depreciation and amortization, net income (loss) from discontinued operations and net income (loss) attributable to non-controlling interests (“EBITDA”) of $330.0 million (refer to the reconciliation of this non-GAAP measure in Results of Operations)

~~Consolidated Financial Condition as of June 30, 2020:~~

•~~Total assets of $5.5 billion~~

•~~Total liabilities of $3.4 billion~~

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

•Cash and cash equivalents and marketable investment securities of ~~$1.8~~$1.9 billion

Hughes Segment

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

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

We continue to focus our efforts on growing our consumer revenue by maximizing utilization of our existing satellites while planning for new satellites to be launched or acquired. Our consumer revenue growth depends on our success in adding new and retaining existing subscribers ~~in our domestic and international markets~~ across wholesale and retail ~~channels.~~channels, as well as increasing our Average Revenue Per User/subscriber (“ARPU”). 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. AsWe have seen a ~~result of the COVID-19 pandemic, in accordance with instructions received from some~~limited number of our enterprise customers wefile for bankruptcy protection. We have ~~deferred or canceled~~reserved an amount related to pre-petition receivables and are working closely with these customers on providing post-petition services and products, as well as working with the ~~delivery~~customer regarding collection of ~~some products or services. We expect to recognize revenue for those deferred products and services in the second half of 2020 and in 2021.~~ pre-petition amounts.

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

~~Table of Contents~~

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

acquired from third-party providers to provide services to our customers.Growth of our consumer subscriber base ~~in certain areas~~ in the U.S. continues to be constrained where we are nearing or have reached maximum ~~capacity.~~capacity in most areas. While these constraints are not expected to be resolved until 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 contributed its satellite communications services business in Brazil to us in exchange for a 20% ownership interest in our existing Brazilian subsidiary that conducts our satellite communications services business in Brazil (the “Yahsat Brazil JV Transaction”). The combined business provides broadband internet services and enterprise solutions in Brazil using the Telesat T19V satellite, the Eutelsat 65W 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.

~~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 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 $100.0 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 long-term contract for the design and construction of the EchoStar XXIV satellite, a new, next-generation, high throughput geostationary 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 enterprise broadband services. ~~In the first quarter of 2020, Space Systems/Loral, LLC (“SS/L”), the manufacturer of our~~The EchoStar XXIV satellite invoked the “force majeure” clause of our contract and notified us of a possible delay in completion of the satellite due to “shelter-in-place” orders affecting personnel at SS/L and its subcontractors, and other potential impacts of the COVID-19 pandemic. Since that time, we have continued to work with SS/L to monitor the impact of COVID-19 on the anticipated delivery schedule for our EchoStar XXIV satellite. ~~We currently expect the EchoStar XXIV satellite~~is expected to be launched ~~no earlier than~~in the second half of ~~2021. This or other~~2022. Further delays or impediments ~~to SS/L’s meeting its obligations 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 manufacture of the EchoStar XXIV satellite and our planned expansion of satellite broadband services throughout North, South and Central America. In December 2020, we entered into an agreement with a launch provider for the launch of EchoStar XXIV. 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.

Table of Contents

In March 2017, we and DISH Network entered into a master service agreement (the “Hughes Broadband MSA”). Pursuant to the Hughes Broadband MSA, 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. 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 DISH Network.Item 2. MANAGEMENT’S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS - CONTINUED

We continue our efforts to expand our consumer satellite services business outside of the U.S. We have been delivering high-speed consumer satellite broadband services in Brazil since July 2016 and are also providing satellite broadband internet service in several other Latin American countries. ~~Additionally, in~~In September 2015, we

~~Table of Contents~~

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

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 satellite and the EchoStar XIX satellite in South America. In March 2021, we entered into an agreement for additional capacity on the Telesat T19V satellite over Puerto Rico.

Our broadband subscribers include customers that subscribe to our HughesNet ~~service~~services in ~~North~~the U.S. and Latin America through retail, wholesale and small/medium enterprise service channels. In connection with the COVID-19 pandemic, we voluntarily signed on to the Federal Communications Commissions’ (“FCC”) Keep Americans Connected Pledge (the “Pledge”), promising not to terminate residential or small business customers because of their inability to pay their bills due to the disruptions caused by the COVID-19 pandemic. As a result, we have provided HughesNet service to consumers who may not have the ability to pay for such services, but have excluded any subscribers whose HughesNet service would have ordinarily been terminated in the absence of the Pledge from our subscriber numbers as of March 31, 2020 and June 30, 2020.

The following table presents our approximate number of broadband subscribers:

As of
June 30,
2020 March 31,
2020 December 31,
2019
Broadband subscribers in the United States 1,221,000 1,249,000 1,239,000
Broadband subscribers in Latin America 321,000 267,000 238,000
Total broadband subscribers 1,542,000 1,516,000 1,477,000


	As of
	March 31, 2021	December 31, 2020
United States	1,164,000	1,189,000
Latin America	389,000	375,000
Total broadband subscribers	1,553,000	1,564,000

~~During~~

The following table presents the ~~second~~approximate number of net subscriber additions:


	For the three months ended
	March 31, 2021	December 31, 2020
United States	(25,000)	(27,000)
Latin America	14,000	11,000
Total net subscriber additions	(11,000)	(16,000)

Our U.S. consumer subscriber base in certain areas continues to be capacity constrained and we are managing the available capacity to maintain service quality to our existing subscribers. While the balancing of total subscribers relative to capacity utilization in the first quarter resulted in lower total subscribers, ARPU increased.

In Latin America, we continued to see growth in our subscriber base and net subscriber additions compared to the fourth quarter of 2020, ~~our~~mainly due to higher gross subscriber additions increased by approximately 1,000 compared to the first quarter of 2020. Our net subscriber additions for the second quarter decreased by 13,000 compared to the first quarter of 2020, reflecting higher churn in the second quarter as compared to the first quarter of 2020. Multiple factors explain this higher churn. First, as more of our beams are operated at or near capacity particularly with the many customers working and attending class at home due to the COVID19 pandemic, the increased network congestion affects HughesNet customer satisfaction in some cases. In addition, we count a number of HughesNet subscribers as having churned even though we continue to provide service to them as a result of the Pledge.additions.

As of ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, our Hughes segment had ~~$1.1~~$1.4 billion and ~~$1.4~~$1.3 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 June 30, 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 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.

Table of Contents

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

As of ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, our ESS segment had contracted revenue backlog of ~~$7.4~~$9.2 million and ~~$11.4~~$6.7 million, respectively. We define contracted revenue backlog for our ESS segment as contracted future satellite lease revenue.

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

~~Table of Contents~~

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

community and workplace. In addition to fiber and wireless systems, technologies such as geostationary high throughput satellites, low-earth orbit (“LEO”) networks, 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~~globally for consumer and enterprise 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 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 we expect certain portions of our workforce to continue to do so from time to 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 continues to be a significant amount of COVID-19 related cyber-fraud and phishing attacks that continue to target our employees, vendors, suppliers, customers and others. Accordingly, we continue to focus our efforts and resources on improving cybersecurity as a result of the COVID-19 pandemic.

On December 8, 2020, the cyber security company FireEye announced that they detected a sophisticated nation state level cyber campaign that targeted FireEye, other public and private companies, and government organizations. FireEye reported that the attack against them was facilitated through the Orion IT management software owned by a company called SolarWinds. Based on information from FireEye, we reviewed all instances of SolarWinds software in use at the Company and have determined that the version we are using is not susceptible to the malware within the version that is compromised.

The SolarWinds hack continues to evolve. Specifically, there have been many reports of intrusions into Microsoft Exchange on-premise systems possibly due to the SolarWinds issue and other unrelated matters. While we are customers of Microsoft, to date, our investigations into the announced issues indicate that we were not detrimentally affected by the vulnerabilities due to our security controls and other proactive measures which include security patching. We ~~treat cybersecurity risk seriously~~continue to receive information about these breaches from the U.S. government and ~~are focused on maintaining the~~private security offirms, and we use this data to update 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~~defense systems and ~~review, modify and supplement~~to investigate our ~~defenses through the use of various services, programs and outside vendors. Additionally, we provide resources~~own networks for compromise. We will continue to ~~assist employees~~update our systems as more information comes to light in ~~better securing their home networks and remote connections. EchoStar also maintains agreements with third party vendors and experts~~reference 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.these issues.

We are not aware of any additional 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 six~~ months ended ~~June 30, 2020~~March 31, 2021 and through ~~August~~May 6, ~~2020.~~2021. There can be no assurance, however, that any such incident can be detected or thwarted or will not have such a material adverse effect in the future.

Table of Contents

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

RESULTS OF OPERATIONS

~~Six~~

Three Months Ended ~~June 30, 2020~~March 31, 2021 Compared to the ~~Six~~Three Months Ended ~~June 30, 2019~~March 31, 2020

The following table presents our consolidated results of operations for the ~~six~~three months ended ~~June 30, 2020~~March 31, 2021 compared to the ~~six~~three months ended ~~June 30, 2019:~~March 31, 2020:


		For the six months ended June 30,								Variance									For the three months ended March 31,			Variance
Statements of Operations Data	Statements of Operations Data	2020			2019			Amounts			%	Statements of Operations Data	2021			2020			Amount		%
Revenue:	Revenue:											Revenue:
Services and other revenue	Services and other revenue	$	829,460		$	807,081		$	22,379		2.8	Services and other revenue	$	432,991		$	410,238		$	22,753	5.5
Equipment revenue	Equipment revenue	99,732			109,359			(9,627)			(8.8)	Equipment revenue	52,239			57,309			(5,070)		(8.8)
Total revenue	Total revenue	929,192			916,440			12,752			1.4	Total revenue	485,230			467,547			17,683		3.8
Costs and expenses:	Costs and expenses:											Costs and expenses:
Cost of sales - services and other	Cost of sales - services and other	283,838			283,468			370			0.1	Cost of sales - services and other	131,412			143,885			(12,473)		(8.7)
% of total services and other revenue	% of total services and other revenue	34.2		%	35.1		%					% of total services and other revenue	30.3		%	35.1		%
Cost of sales - equipment	Cost of sales - equipment	78,450			91,556			(13,106)			(14.3)	Cost of sales - equipment	45,140			45,908			(768)		(1.7)
% of total equipment revenue	% of total equipment revenue	78.7		%	83.7		%					% of total equipment revenue	86.4		%	80.1		%
Selling, general and administrative expenses	Selling, general and administrative expenses	219,091			241,570			(22,479)			(9.3)	Selling, general and administrative expenses	104,370			115,860			(11,490)		(9.9)
% of total revenue	% of total revenue	23.6		%	26.4		%					% of total revenue	21.5		%	24.8		%
Research and development expenses	Research and development expenses	13,702			13,276			426			3.2	Research and development expenses	7,545			6,254			1,291		20.6
% of total revenue	% of total revenue	1.5		%	1.4		%					% of total revenue	1.6		%	1.3		%
Depreciation and amortization	Depreciation and amortization	249,443			226,138			23,305			10.3	Depreciation and amortization	122,664			125,965			(3,301)		(2.6)
Impairment of long-lived assets												Impairment of long-lived assets	210			—			210		*
Total costs and expenses	Total costs and expenses	844,524			856,008			(11,484)			(1.3)	Total costs and expenses	411,341			437,872			(26,531)		(6.1)
Operating income (loss)	Operating income (loss)	84,668			60,432			24,236			40.1	Operating income (loss)	73,889			29,675			44,214		*
Other income (expense):	Other income (expense):											Other income (expense):
Interest income, net	Interest income, net	14,096			35,041			(20,945)			(59.8)	Interest income, net	2,394			8,892			(6,498)		(73.1)
Interest expense, net of amounts capitalized	Interest expense, net of amounts capitalized	(86,467)			(116,893)			30,426			26.0	Interest expense, net of amounts capitalized	(41,922)			(42,192)			270		(0.6)
Gains (losses) on investments, net	Gains (losses) on investments, net	(148)			(360)			212			(58.9)	Gains (losses) on investments, net	—			(164)			164		(100.0)
Equity in earnings (losses) of unconsolidated affiliates, net	Equity in earnings (losses) of unconsolidated affiliates, net	(2,456)			(1,988)			(468)			23.5	Equity in earnings (losses) of unconsolidated affiliates, net	(1,761)			(1,087)			(674)		62.0
Foreign currency transaction gains (losses), net	Foreign currency transaction gains (losses), net	(7,668)			1,289			(8,957)			*	Foreign currency transaction gains (losses), net	(3,360)			(7,528)			4,168		(55.4)
Other, net	Other, net	(665)			(221)			(444)			*	Other, net	(973)			(278)			(695)		*
Total other income (expense), net	Total other income (expense), net	(83,308)			(83,132)			(176)			0.2	Total other income (expense), net	(45,622)			(42,357)			(3,265)		7.7
Income (loss) from continuing operations before income taxes		1,360			(22,700)			24,060			*
Income (loss) before income taxes												Income (loss) before income taxes	28,267			(12,682)			40,949		*
Income tax benefit (provision), net	Income tax benefit (provision), net	(18,899)			3,990			(22,889)			*	Income tax benefit (provision), net	(10,637)			(5,231)			(5,406)		*
Net income (loss) from continuing operations		(17,539)			(18,710)			1,171			(6.3)
Net income (loss) from discontinued operations		—			43,351			(43,351)			(100.0)
Net income (loss)	Net income (loss)	(17,539)			24,641			(42,180)			*	Net income (loss)	17,630			(17,913)			35,543		*
Less: Net loss (income) attributable to non-controlling interests		6,873			(1,438)			8,311			*
Net income (loss) attributable to Hughes Satellite Systems Corporation		$	(10,666)		$	23,203		$	(33,869)		*
Less: Net income (loss) attributable to non-controlling interests												Less: Net income (loss) attributable to non-controlling interests	947			3,442			(2,495)		(72.5)
Net income (loss) attributable to HSSC												Net income (loss) attributable to HSSC	$	18,577		$	(14,471)		$	33,048	*

Other data:	Other data:											Other data:
EBITDA ⁽¹⁾	EBITDA ⁽¹⁾	$	330,047		$	283,852		$	46,195		16.3	EBITDA (1)	$	191,406		$	150,025		$	41,381	27.6
Subscribers, end of period	Subscribers, end of period	1,542,000			1,415,000			127,000			9.0	Subscribers, end of period	1,553,000			1,516,000			37,000		2.4

* Percentage is not ~~meaningful.~~meaningful

⁽¹⁾ A reconciliation of EBITDA to Net income (loss), the most directly comparable ~~generally accepted accounting principles in the~~ U.S. ~~(“U.S. GAAP”)~~GAAP measure in our Accompanying ~~Condensed~~ Consolidated Financial Statements, is included in Results of Operations. For further information on our use of EBITDA, ~~refer to the~~see Explanation of Key Metrics and Other Items.

5945

Table of Contents

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

The following discussion relates to our ~~continuing~~results of operations for the ~~six~~three months ended ~~June 30, 2020~~March 31, 2021 and ~~2019 unless otherwise stated.~~2020.

Services and other revenue. Services and other revenue totaled ~~$829.5~~$433.0 million for the ~~six~~three months ended ~~June 30, 2020,~~March 31, 2021, an increase of ~~$22.4~~$22.8 million, or ~~2.8%~~5.5%, as compared to ~~2019.~~2020. The increase ~~was from our Hughes segment and~~ was primarily attributable to increases in sales of broadband services to our consumer customers of ~~$46.6~~$27.0 million, partially offset by a decrease in sales of ~~broadband~~ services to our enterprise customers of ~~$22.0~~$3.1 million. ~~Both of these~~These variances reflect the negative impact of exchange rate ~~fluctuations.~~fluctuations of $5.4 million, primarily attributable to our consumer customers.

Equipment revenue. Equipment revenue totaled ~~$99.7~~$52.2 million for the ~~six~~three months ended ~~June 30, 2020,~~March 31, 2021, a decrease of ~~$9.6~~$5.1 million, or 8.8%, as compared to ~~2019.~~2020. The decrease was primarily attributable to ~~decreased~~decreases in hardware sales of $4.8 million to our ~~international enterprise customers of $15.8 million and the bankruptcy of a certain customer, partially offset by increased sales to our domestic enterprise customers of $7.7 million.~~mobile satellite systems customers.

Cost of sales - services and other. Cost of sales - services and other totaled ~~$283.8~~$131.4 million for the ~~six~~three months ended ~~June 30, 2020, an increase~~March 31, 2021, a decrease of ~~$0.4~~$12.5 million, or ~~0.1%~~8.7%, as compared to ~~2019.~~2020. The ~~increase~~decrease was ~~primarily~~ attributable to ~~our Hughes segment due to an increase in sales~~lower costs of ~~broadband~~ services provided to our consumer and enterprise customers ~~partially offset by~~primarily associated with field services and leased satellite capacity as well as a non-recurring decrease in ~~sales~~a certain international regulatory fee of ~~broadband services to our enterprise customers.~~ $4.5 million.

Cost of sales - ~~equipment~~equipment. . Cost of sales - equipment totaled ~~$78.5~~$45.1 million for the ~~six~~three months ended ~~June 30, 2020,~~March 31, 2021, a decrease of ~~$13.1~~$0.8 million, or ~~14.3%~~1.7%, as compared to ~~2019.~~2020.

Selling, general and administrative expenses. Selling, general and administrative expenses totaled $104.4 million for the three months ended March 31, 2021, a decrease of $11.5 million, or 9.9%, as compared to 2020. The decrease was primarily attributable to ~~the corresponding reduction in equipment revenue.~~

~~Selling, general~~decreased sales and ~~administrative expenses.~~ ~~Selling, general and administrative~~marketing expenses ~~totaled $219.1~~of $9.6 million for the six months ended June 30, 2020, a decrease of $22.5 million, or 9.3%, compared to 2019. The decrease was primarily attributable to expenses related to certain legal proceedings of $24.5 million in 2019from our Hughes segment mainly associated with our consumer customers and decreases in bad debt expense of $2.7 million in 2020, partially offset by increased selling, general and administrative expenses of $2.2 million attributable to the Yahsat Brazil JV and increased promotional expenses of $1.6 million mainly associated with our consumer business in Latin America.$2.4 million.

Depreciation and amortization. Depreciation and amortization expenses totaled ~~$249.4~~$122.7 million for the ~~six~~three months ended ~~June 30, 2020, an increase~~March 31, 2021, a decrease of ~~$23.3~~$3.3 million, or ~~10.3%~~2.6%, as compared to ~~2019.~~2020. The ~~increase~~decrease was primarily ~~from our Hughes segment~~attributable to decreases in other property and ~~due to increases in~~equipment depreciation expense of ~~$14.3~~$2.0 million ~~relating to our customer premises equipment~~ and ~~$6.6 million relating to the depreciation~~decreases in amortization of ~~assets acquired in the Yahsat Brazil JV Transaction.~~intangibles of $1.5 million.

Interest income, net. Interest income, net totaled ~~$14.1~~$2.4 million for the ~~six~~three months ended ~~June 30, 2020,~~March 31, 2021, a decrease of ~~$20.9~~$6.5 million, or ~~59.8%~~73.1%, as compared to ~~2019~~2020, primarily attributable to decreases in the yield on our marketable investment ~~securities and a decrease in our marketable investment securities balance.~~

~~Interest expense, net of amounts capitalized~~. Interest expense, net of amounts capitalized totaled $86.5 million for the six months ended June 30, 2020, a decrease of $30.4 million, or 26.0%, compared to 2019. The decrease was primarily due to a decrease of $29.0 million in interest expense and in amortization of deferred financing cost as a result of the repurchase and maturity in June 2019 of our 6 1/2% Senior Secured Notes due 2019.securities.

Foreign currency transaction gains (losses), net. Foreign currency transaction gains (losses), net totaled ~~$7.7~~$3.4 million in losses for the ~~six~~three months ended ~~June 30, 2020, an increase~~March 31, 2021, as compared to $7.5 million in losses for the three months ended March 31, 2020, a positive change of ~~$9.0 million compared to 2019.~~$4.2 million. The change was due to the net ~~strengthening~~impact of ~~the U.S. dollar against~~foreign exchange rate fluctuations of certain foreign currencies ~~in 2020 compared to 2019.~~during the quarter.

Income tax benefit (provision), net. Income tax benefit (provision), net was ~~$(18.9)~~$(10.6) million in provision for the three months ended March 31, 2021, as compared to $(5.2) million for the ~~six~~three months ended ~~June 30, 2020 compared to $4.0 million for the six months ended June 30, 2019.~~March 31, 2020. Our effective income tax rate was ~~1,389.6% and 17.6%~~37.6% for the ~~six~~three months ended ~~June 30, 2020 and 2019, respectively.~~March 31, 2021, compared to (41.2)% for the same period in 2020. The variations in our effective tax rate from the U.S. federal statutory rate for the ~~six~~three months ended ~~June 30, 2020~~March 31, 2021 were primarily due to ~~the increase in our valuation allowance associated with certain~~excluded foreign losses ~~and~~where the ~~impact of state and local taxes, partially offset by~~company carries a full valuation allowance. For the ~~change in net unrealized losses that are capital in nature, permanent book tax differences and research and experimentation credits. The~~three months ended March 31, 2020, the variations in our effective tax rate from the U.S. federal statutory rate ~~for~~

~~Table of Contents~~

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

~~the six months ended June 30, 2019~~ were primarily due to the change in net unrealized ~~gains~~losses 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.

Table of Contents

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

Net income (loss) attributable to ~~Hughes Satellite Services Corporation.~~HSSC. The following table reconciles the change in Net ~~loss~~income (loss) attributable to Hughes Satellite Services Corporation totaled $10.7 million for the six months ended June 30, 2020, compared to net income attributable to Hughes Satellite Services Corporation of $23.2 million for the six months ended June 30, 2019, a change of $33.9 million, as set forth in the following table:HSSC:


	Amounts
Net income (loss) attributable to ~~Hughes Satellite Services Corporation~~HSSC for the ~~six~~three months ended ~~June 30, 2019~~March 31, 2020	$	~~23,203~~ (14,471)
Increase (decrease) in interest income, net	(6,498)
Decrease (increase) in income tax benefit (provision), net	(5,406)
Decrease (increase) in net income (loss) attributable to non-controlling interests	(2,495)
Increase (decrease) in other, net	(695)
Increase (decrease) in gains (losses) on investments, net	164
Decrease (increase) in equity in earnings (losses) of unconsolidated affiliates, net	(674)
Decrease (increase) in interest expense, net of amounts capitalized	~~30,426~~270
~~Increase (decrease) in operating income, including depreciation and amortization~~	~~24,236~~
~~Decrease (increase) in net income attributable to non-controlling interests~~	~~8,311~~
~~Increase (decrease) in gains on investments, net~~	~~212~~
~~Increase (decrease) in other, net~~	~~(444)~~
~~Decrease (increase) in equity in losses of unconsolidated affiliates, net~~	~~(468)~~
Increase (decrease) in foreign currency transaction gains (losses), net	~~(8,957)~~4,168
Increase (decrease) in ~~interest~~operating income ~~net~~(loss), including depreciation and amortization	~~(20,945)~~44,214
~~Decrease (increase) in income tax provision, net~~	~~(22,889)~~
~~Increase (decrease) in net income from discontinued operations~~	~~(43,351)~~
Net income (loss) attributable to ~~Hughes Satellite Services Corporation~~HSSC for the ~~six~~three months ended ~~June 30, 2020~~March 31, 2021	$	~~(10,666)~~18,577

~~EBITDA.~~ 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 our Accompanying ~~Condensed~~ Consolidated Financial ~~Statements, to EBITDA:~~Statements:


		For the six months ended June 30,						Variance						For the three months ended March 31,			Variance
		2020		2019		Amounts		%		2021		2020		Amount		%
Net income (loss)	Net income (loss)	$	(17,539)	$	24,641	$	(42,180)	*	Net income (loss)	$	17,630	$	(17,913)	$	35,543	*
Interest income, net	Interest income, net	(14,096)		(35,041)		20,945		(59.8)	Interest income, net	(2,394)		(8,892)		6,498		(73.1)
Interest expense, net of amounts capitalized	Interest expense, net of amounts capitalized	86,467		116,893		(30,426)		(26.0)	Interest expense, net of amounts capitalized	41,922		42,192		(270)		(0.6)
Income tax provision (benefit), net	Income tax provision (benefit), net	18,899		(3,990)		22,889		*	Income tax provision (benefit), net	10,637		5,231		5,406		*
Depreciation and amortization	Depreciation and amortization	249,443		226,138		23,305		10.3	Depreciation and amortization	122,664		125,965		(3,301)		(2.6)
Net loss (income) from discontinued operations		—		(43,351)		43,351		(100.0)
Net loss (income) attributable to non-controlling interests	Net loss (income) attributable to non-controlling interests	6,873		(1,438)		8,311		*	Net loss (income) attributable to non-controlling interests	947		3,442		(2,495)		(72.5)
EBITDA	EBITDA	$	330,047	$	283,852	$	46,195	16.3	EBITDA	$	191,406	$	150,025	$	41,381	27.6

* Percentage is not meaningful.

~~Table of Contents~~

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

~~EBITDA was $330.0 million for~~The following table reconciles the ~~six months ended June 30, 2020, an increase of $46.2 million, or 16.3%, compared to 2019 as set forth~~change in ~~the following table:~~EBITDA:


	Amounts
EBITDA for the ~~six~~three months ended ~~June 30, 2019~~March 31, 2020	$	~~283,852~~150,025
Increase (decrease) in operating income (loss), excluding depreciation and amortization	40,913		~~47,541~~
~~Decrease (increase)~~Increase (decrease) in foreign currency transaction gains (losses), net ~~income attributable to non-controlling interests~~	~~8,311~~4,168
Increase (decrease) in gains (losses) on investments, net	~~212~~164
Decrease (increase) in equity in earnings (losses) of unconsolidated affiliates, net	(674)
Increase (decrease) in other, net	~~(444)~~(695)
Decrease (increase) in ~~equity in losses of unconsolidated affiliates,~~ net	~~(468)~~
~~Increase (decrease) in foreign currency transaction gains, net~~ loss (income) attributable to non-controlling interests	~~(8,957)~~(2,495)
EBITDA for the ~~six~~three months ended ~~June 30, 2020~~March 31, 2021	$	~~330,047~~191,406

Table of Contents

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

Segment Operating Results and Capital Expenditures

The following tables present our operating results, capital expenditures and EBITDA by segment for the ~~six~~three months ended ~~June 30, 2020~~March 31, 2021, as compared to the ~~six~~three months ended ~~June 30, 2019. Capital expenditures in the table below are net of refunds and other receipts related to our property and equipment.~~March 31, 2020:


		Hughes		ESS		Corporate and Other		Consolidated Total			Hughes		ESS		Corporate and Other		Consolidated Total
For the six months ended June 30, 2020
For the three months ended March 31, 2021										For the three months ended March 31, 2021
Total revenue	Total revenue	$	911,654	$	8,831	$	8,707	$	929,192	Total revenue	$	475,859	$	4,089	$	5,282	$	485,230
Capital expenditures	Capital expenditures	174,996		—		—		174,996		Capital expenditures	82,196		—		—		82,196
EBITDA	EBITDA	341,260		3,573		(14,786)		330,047		EBITDA	198,578		1,919		(9,091)		191,406

For the six months ended June 30, 2019
For the three months ended March 31, 2020										For the three months ended March 31, 2020
Total revenue	Total revenue	$	897,184	$	7,775	$	11,481	$	916,440	Total revenue	$	458,482	$	4,652	$	4,413	$	467,547
Capital expenditures	Capital expenditures	147,911		—		—		147,911		Capital expenditures	91,517		—		—		91,517
EBITDA	EBITDA	292,897		3,215		(12,260)		283,852		EBITDA	154,641		2,030		(6,646)		150,025

Hughes Segment


		For the six months ended June 30,						Variance						For the three months ended March 31,			Variance
		2020		2019		Amounts		%		2021		2020		Amount		%
Total revenue	Total revenue	$	911,654	$	897,184	$	14,470	1.6	Total revenue	$	475,859	$	458,482	$	17,377	3.8
Capital expenditures	Capital expenditures	174,996		147,911		27,085		18.3	Capital expenditures	82,196		91,517		(9,321)		(10.2)
EBITDA	EBITDA	341,260		292,897		48,363		16.5	EBITDA	198,578		154,641		43,937		28.4

Total revenue was ~~$911.7~~$475.9 million for the ~~six~~three months ended ~~June 30, 2020~~March 31, 2021, an increase of ~~$14.5~~$17.4 million, or ~~1.6%~~3.8%, as compared to ~~2019. The increase was~~2020. Services and other revenue increased primarily due to increases ~~of $46.6 million~~ in sales of broadband services to our consumer customers of $27.0 million, partially offset by ~~decreased hardware~~a decrease in sales of ~~$9.6 million and decreased sales of broadband~~ services to our enterprise customers of ~~$22.0~~$3.1 million. Equipment revenue decreased primarily due to decreases in hardware sales of $4.8 million to our mobile satellite systems customers. These variances reflect the negative impact of exchange rate ~~fluctuations.~~fluctuations of $5.9 million.

Capital expenditures were ~~$175.0~~$82.2 million for the ~~six~~three months ended ~~June 30, 2020, an increase~~March 31, 2021, a decrease of ~~$27.1~~$9.3 million, or ~~18.3%~~10.2%, as compared to ~~2019,~~2020, primarily due to ~~net increases~~decreases in expenditures associated with our consumer ~~business.~~business, partially offset by increased expenditures related to construction of our satellite-related ground infrastructure.

~~Table of Contents~~

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

~~EBITDA was $341.3 million for~~The following table reconciles the ~~six months ended June 30, 2020, an increase of $48.4 million, or 16.5%, compared to 2019 as set forth~~change in the ~~following table:~~


	~~Amounts~~
~~EBITDA for the six months ended June 30, 2019~~	$	~~292,897~~
~~Increase (decrease) in operating income, excluding depreciation and amortization~~	~~49,139~~
~~Decrease (increase) in net income attributable to non-controlling interests~~	~~8,311~~
~~Increase (decrease) in gains on investments, net~~	~~612~~
~~Increase (decrease) in other, net~~	~~(547)~~
~~Decrease (increase) in equity in losses of unconsolidated affiliates, net~~	~~(194)~~
~~Increase (decrease) in foreign currency transaction gains, net~~	~~(8,958)~~
~~EBITDA for the six months ended June 30, 2020~~	$	~~341,260~~

~~ESS~~Hughes Segment

For the six months ended June 30, Variance
2020 2019 Amounts %
Total revenue $ 8,831 $ 7,775 $ 1,056 13.6
EBITDA 3,573 3,215 358 11.1

Total revenue was $8.8 million for the six months ended June 30, 2020, an increase of $1.1 million, or 13.6%, compared to 2019, primarily due to an increase in transponder services provided to third parties.

~~EBITDA was $3.6 million for the six months ended June 30, 2020, an increase of $0.4 million, or 11.1%, compared to 2019, primarily due to the increase in revenue.~~

~~Corporate and Other~~

For the six months ended June 30, Variance
2020 2019 Amounts %
Total revenue $ 8,707 $ 11,481 $ (2,774) (24.2)
EBITDA (14,786) (12,260) (2,526) 20.6

Total revenue was $8.7 million for the six months ended June 30, 2020, a decrease of $2.8 million, or 24.2%, compared to 2019 primarily attributable to a decrease in income from certain real estate previously leased to DISH Network and transferred as part of the BSS Transaction.

~~EBITDA for the six months ended June 30, 2020 was a loss of $14.8 million, an increase in loss of $2.5 million, or 20.6%, compared to 2019 as set forth in the following table:~~ EBITDA:


	Amounts
EBITDA for the ~~six~~three months ended ~~June 30, 2019~~March 31, 2020	$	~~(12,260)~~154,641
Increase (decrease) in operating income (loss), excluding depreciation and amortization	41,297
Increase (decrease) in foreign currency transaction gains (losses), net	4,165
Increase (decrease) in other, net	~~101~~887
Increase (decrease) in gains (losses) on investments, net	164
Decrease (increase) in equity in ~~losses~~earnings (losses) of unconsolidated affiliates, net	(81)
Decrease (increase) in net loss (income) attributable to non-controlling interests	(2,495)
EBITDA for the three months ended March 31, 2021	$	~~(275)~~198,578

Table of Contents

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

ESS Segment


	For the three months ended March 31,				Variance
	2021		2020		Amount		%
Total revenue	$	4,089	$	4,652	$	(563)	(12.1)
EBITDA	1,919		2,030		(111)		(5.5)

Total revenue was $4.1 million for the three months ended March 31, 2021, a decrease of $0.6 million, or 12.1%, as compared to 2020, primarily due to a decrease in transponder services provided to third parties.

EBITDA was $1.9 million for the three months ended March 31, 2021, a decrease of $0.1 million, or 5.5%, as compared to 2020, primarily due to the decrease in overall ESS revenue.

Corporate and Other


	For the three months ended March 31,				Variance
	2021		2020		Amount		%
Total revenue	$	5,282	$	4,413	$	869	19.7

EBITDA	(9,091)		(6,646)		(2,445)		36.8

The following table reconciles the change in the Corporate and Other Segment EBITDA:


	Amounts
EBITDA for the three months ended March 31, 2020	$	(6,646)
Increase (decrease) in ~~gains on investments,~~other, net	~~(398)~~(1,583)
Decrease (increase) in equity in earnings (losses) of unconsolidated affiliates, net	(592)
Increase (decrease) in operating income (loss), excluding depreciation and amortization	~~(1,954)~~(273)
Increase (decrease) in foreign currency transaction gains (losses), net	3
EBITDA for the ~~six~~three months ended ~~June 30, 2020~~March 31, 2021	$	~~(14,786)~~(9,091)

6349

Table of Contents

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

EXPLANATION OF KEY METRICS AND OTHER ITEMS

Services and other revenue. Services and other revenue primarily includes the sales of consumer and enterprise broadband services, maintenance and other contracted services, revenue associated with satellite and transponder leases and services, satellite uplinking/downlinking, subscriber wholesale service fees for the HughesNet service professional services and facilities rental revenue.

Equipment revenue. Equipment revenue primarily includes broadband equipment and networks sold to customers in our consumer and enterprise markets.

Cost of sales - services and other. Cost of sales - services and other primarily includes the cost of broadband services provided to our consumer and enterprise customers, maintenance and other contracted services, costs associated with satellite and transponder leases and services, professional services and facilities rental.

Cost of sales - equipment. Cost of sales - equipment consists primarily of the cost of broadband equipment and networks sold to customers in our consumer and enterprise markets. It also includes certain other costs associated with the deployment of equipment to our customers.

Selling, general and administrative expenses.Selling, general and administrative expenses primarily ~~includes~~include selling and marketing costs and employee-related costs associated with administrative services (e.g., information systems, human resources and other ~~services and~~services), including stock-based compensation ~~expense).~~expense. It also includes professional fees (e.g. legal, information systems and accounting services), and other expenses associated with facilities and administrative ~~services and credit losses, which include customer related estimated credit losses and estimated credit losses on non-current receivables.~~services.

Research and development expenses. Research and development expenses primarily ~~includes~~include costs associated with the design and development of products to support future growth and provide new technology and innovation to our customers.

Impairment of long-lived assets. Impairment of long-lived assets includes our impairment losses related to our property and equipment, goodwill, regulatory authorizations and other intangible assets.

Interest income, net. Interest income, net primarily includes interest earned on our cash, cash equivalents and marketable investment securities, and other investments including premium amortization and discount accretion on debt ~~securities, offset by estimated credit losses on our other debt investments.~~securities.

Interest expense, net of amounts capitalized. Interest expense, net of amounts capitalized primarily includes interest expense associated with our debt and finance lease obligations (net of capitalized interest), amortization of debt issuance costs and interest expense related to certain legal proceedings.

Gains (losses) on investments, net. Gains (losses) on investments, net primarily includes changes in fair value of our marketable equity ~~securities.~~securities and other investments for which we have elected the fair value option. It may also include realized gains and losses on the sale or exchange of our available-for-sale debt securities, other-than-temporary impairment losses on our available-for-sale ~~debt~~ securities, realized gains and losses on the sale or exchange of ~~other~~ equity ~~investments~~securities and ~~other~~ debt ~~investments~~securities without readily determinable fair value and adjustments to the carrying amount of investments in unconsolidated affiliates and marketable equity securities resulting from impairments and observable price ~~changes and estimated credit losses.~~changes.

Equity in earnings (losses) of unconsolidated affiliates, net. Equity in earnings (losses) of unconsolidated affiliates, net includes earnings or losses from our investments accounted for using the equity method.

Foreign currency transaction gains (losses), net. Foreign currency transaction gains (losses), net include gains and losses resulting from the re-measurement of transactions denominated in foreign currencies.

Other, net. Other, net primarily includes dividends received from our marketable investment securities and other non-operating income and expense items that are not appropriately classified elsewhere in the ~~Condensed~~ Consolidated Statements of Operations in our Accompanying ~~Condensed~~ Consolidated Financial Statements.

~~Net income (loss) from discontinued operations~~. Net income (loss) from discontinued operations includes the financial results of the BSS Business transferred in the BSS Transaction, except for certain real estate that transferred in the transaction.

6450

Table of Contents

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

~~EBITDA~~Earnings before interest, taxes, depreciation and amortization (“EBITDA”). EBITDA is defined as Net income (loss) excluding Interest income ~~net, Interest~~and expense, net, ~~of amounts capitalized,~~ Income tax benefit (provision), net, Depreciation and amortization, ~~Net income (loss) from discontinued operations~~ and Net income (loss) attributable to non-controlling interests. EBITDA is not a measure determined in accordance with U.S. GAAP. This non-GAAP measure is reconciled to Net income (loss) in our discussion of Results of Operations above. EBITDA should not be considered in isolation or as a substitute for operating income, net income or any other measure determined in accordance with U.S. GAAP. EBITDA is used by our management as a measure of operating efficiency and overall financial performance for benchmarking against our peers and competitors. Management believes EBITDA provides meaningful supplemental information regarding the underlying operating performance of our business and is appropriate to enhance an overall understanding of our financial performance. Management also believes that EBITDA is useful to investors because it is frequently used by securities analysts, investors and other interested parties to evaluate the performance of companies in our industry.

~~Subscribers~~Subscribers. . Subscribers include customers that subscribe to our HughesNet service, through retail, wholesale and small/medium enterprise service channels.

~~Table of Contents~~

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this Form 10-Q. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this Form 10-Q such that the information required to be disclosed in our Securities and Exchange Commission reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms, and is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

In November 2019, we consummated the Yahsat Brazil JV Transaction. As a result, we are reviewing the internal controls of the business we acquired from Yahsat in the Yahsat Brazil JV Transaction and we may make appropriate changes as deemed necessary.

Changes in Internal Control Over Financial Reporting

~~Except as noted above, there~~There has been no change in our internal control over financial reporting (as defined in Rule 15d-15(f) under the Exchange Act) that occurred during the ~~six~~three months ended ~~June 30, 2020~~March 31, 2021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. We continue to review our internal control over financial reporting and may from time to time make changes aimed at enhancing its effectiveness and to ensure that our systems evolve with our business.

Table of Contents

PART II — OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

For a discussion of legal proceedings, refer to Part I, Item 1. Financial Statements —- Note ~~12.~~13. Contingencies —- Litigation in this Form 10-Q.

ITEM 1A. RISK FACTORS

~~The following information updates, and should be read in conjunction with, the information in Part I,~~ Item 1A, Risk Factors, of our Form ~~10-K.~~

~~RISKS RELATED TO THE COVID-19 PANDEMIC~~

The COVID-19 pandemic, its economic impacts and related government and private sector responsive actions could have a material adverse effect our business operations. As a result of the COVID-19 pandemic, many countries, including the U.S., and other governmental authorities have imposed restrictions on travel, as well as general movement and gathering restrictions, business closures and other measures imposed to slow the spread of COVID-19.

We have set forth below key risks from the COVID-19 pandemic that we have identified to date. The situation continues to develop, however, and it is impossible to predict the effect and ultimate impact of the COVID-19 pandemic on our business, financial condition or results of operations. We cannot estimate or determine the duration of the quarantine, social distancing and other regulatory measures instituted or recommended in response to the COVID-19 pandemic, whether they will recur or the duration or degree of the business disruptions, and related financial impact. The COVID-19 pandemic has evolved into a worldwide health crisis that may continue for an extended period of time and that has adversely affected economies and financial markets throughout the world, resulting in a significant economic downturn and changes in global economic policy that is expected to continue10-K for the ~~foreseeable future and could have~~year ended December 31, 2020 includes a ~~material adverse effect on our business, financial condition or results of operations.~~

~~Our operations and those~~detailed discussion of our customers and other third parties with whom we conduct business are located in areas impacted by the COVID‑19 pandemic, and those operations have been, and may continue to be, adversely affected by the COVID‑19 pandemic.

We conduct our product development, manufacturing, installation and customer support and services in areas where, in order to attempt to mitigate the COVID-19 pandemic, (a) states of emergency related to the spread of COVID-19 have been declared and (b) various levels of “shelter-in-place” or “safer-at-home” orders have been issued, which (i) direct individuals living in those locations to shelter at their places of residence (subject to limited exceptions), (ii) direct businesses and governmental agencies to cease or limit non-essential operations at physical locations, (iii) limit the number of employees that may be present in a particular location; (iv) prohibit or limit non-essential gatherings of various number of individuals, and (v) order cessation of non-essential travel. The effects of the COVID-19 pandemic and the actions from applicable governmental authorities has negatively impacted productivity, increased cybersecurity risks as a large portion of our workforce has been working remotely, disrupted our and our customers’, suppliers’, vendors’ and other business partners’ and investees’ businesses and finances, delayed regulatory and other timelines, and delayed the manufacture and deployment of our satellites. Additionally, some regulatory bodies have furloughed employees, reduced activities and temporarily closed their offices. Such measures may materially delay the review and/or approval of licenses or authorizations we need to operate our business. The magnitude of these impacts will depend, in part, on the length and severity of the pandemic, associated restrictions and resulting economic and financial consequences and other limitations and impediments on the conduct of business in the ordinary course.

Extended periods of interruption to our corporate, development or manufacturing facilities due to the COVID-19 pandemic could cause us to lose revenue, which would depress our financial performance and could be difficult to recapture. Our business may also be harmed if travel continues to be restricted or inadvisable or if members of management and other employees are unable to work because they contract COVID-19, they elect not to come to work due to the illness affecting others in our office or other facilities, or they are subject to quarantines or other governmentally imposed restrictions. Additionally, many of our subscribers are working remotely or

~~Table of Contents~~

engaging in distance learning. These activities have increased the usage on our HughesNet service so that there is little or no capacity remaining for subscriber growth in our most popular geographic areas. In addition, the limitation on capacity may result in our subscribers experiencing slower speeds. This, in turn, could result in higher churn and may negatively affect our financial results.

A portion of the expected sales of our products or services have been, and additional sales may be, delayed or canceled as a result of effects of the COVID-19 pandemic on the operations of our customers.

Our customers’ business operations have been, and are continuing to be, subject to business interruptions arising from the COVID-19 pandemic. Due to the downturn in financial markets arising from the COVID-19 pandemic, a number of our current enterprise customers are facing uncertain futures. In the event any of these enterprise customers fail or seek reorganization under the bankruptcy laws, we may be obliged to pay for satellite capacity for which we are not being paid. Further, the COVID-19 pandemic has resulted in increased unemployment, which could result in reduced demand and increased inability to pay from our consumer customers. Any resulting financial impact cannot be reasonably estimated at this time but may materially affect our subscriber numbers, business, financial condition, results of operations, and cash flows. We are diligently working to ensure that we can operate with minimal disruption and address potential business interruptions on ourselves and our customers. However, the full extent to which the COVID-19 pandemic could affect the global economy and our business will depend on future developments and factors that cannot be predicted and there can be no assurance that the COVID-19 pandemic will not result in further delays, or possibly reductions, in our recognition of revenue.

~~Our supply chain may be materially adversely impacted due to the COVID-19 pandemic.~~

We rely upon the facilities of our domestic and foreign suppliers to support our business. The COVID-19 pandemic has resulted in significant governmental measures in many countries being implemented to control the spread of COVID-19, including restrictions on manufacturing and the movement of employees. As a result, our suppliers may not have the materials, capacity, or capability to supply our components according to our schedule and specifications. Further, there may be logistics issues, including our ability and our supply chain’s ability to quickly ramp up production, and transportation demands that may cause further delays. If our suppliers’ operations are curtailed, we may need to seek alternate sources of supply, which may be more expensive. Alternate sources may not be available or may result in delays in shipments to us from our supply chain and subsequently to our customers, each of which would affect our results of operations. The duration of the disruptions and restrictions on the ability to travel, quarantines and temporary closures of the facilities of our suppliers, as well as general limitations on movement in the region, are unknown and they may recur and the duration of the production and supply chain disruption, and related financial impact, cannot be estimated at this time. Should the production and distribution closures continue for an extended period of time or recur, the impact on our supply chain could have a material adverse effect on our results of operations and cash flows. Business disruptions could also negatively affect the sources and availability of components and materials that are essential to the operation of our business.

~~The COVID-19 pandemic could negatively impact our planned or potential strategic initiatives.~~

Our strategy includes a number of plans to support the growth of our core businesses, including continuing to selectively explore opportunities to pursue investments, commercial alliances, partnerships, joint ventures, acquisitions, dispositions and other strategic initiatives and transactions, domestically and internationally. The extent to which the COVID-19 pandemic impacts these potential strategic initiatives will depend on future developments that are highly uncertain. If the disruptions posed by the COVID-19 pandemic and related government measures, economic downturns or other matters of global concern continue for an extensive period of time or recur, our ability to pursue and consummate planned or potential strategic initiatives could be materially adversely affected.risk factors.

ITEM 4. MINE SAFETY DISCLOSURES

Not ~~applicable~~applicable.

~~Table of Contents~~

ITEM 5. OTHER INFORMATION

Financial Results

On ~~August~~May 6, ~~2020,~~2021, EchoStar issued a press release (the “Press Release”) announcing its financial results for the quarter ended ~~June 30, 2020.~~March 31, 2021. A copy of the Press Release is furnished herewith as Exhibit 99.1. The foregoing information, including the ~~exhibits~~exhibit related thereto, ~~are~~is furnished in response to Item 2.02 of Form 8-K and shall not be deemed ~~filed~~“filed” for the purposes of Section 18 of the ~~Securities~~ Exchange Act, ~~of 1934, as amended (the “Exchange Act”),~~ or otherwise, and shall not be incorporated by reference into any registration statement or other document pursuant to the Securities Act of 1933, as amended, or into any filing or other document pursuant to the Exchange Act, except as otherwise expressly stated in any such filing.

ITEM 6.EXHIBITS


Exhibit No.						Description
~~31.1(H)~~31.1 (H)						Section 302 Certification of Chief Executive Officer.
~~31.2(H)~~31.2 (H)						Section 302 Certification of Chief Financial Officer.
~~32.1(I)~~32.1 (H)						Section 906 Certifications of Chief Executive Officer and Chief Financial Officer.
~~99.1(I)~~99.1 (I)						Press release dated ~~August~~May 6, ~~2020~~2021 issued by EchoStar Corporation regarding financial results for the period ended ~~June 30, 2020.~~March 31, 2021 .
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.

(H) Filed herewith.


~~(H)~~			~~Filed~~(I) Furnished herewith.
~~(I)~~			~~Furnished herewith~~
*			~~Incorporated by reference.~~
**			~~Constitutes a management contract or compensatory plan or arrangement.~~
~~***~~			Schedules and exhibits have been omitted pursuant to Item 601(b)(2) of Regulation S-K. We agree to furnish supplementally to the Securities and Exchange Commission a copy of any omitted schedule or exhibit upon request, subject to our right to request confidential treatment of any requested schedule or exhibit.

6952

Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Form 10-Q to be signed on its behalf by the undersigned thereunto duly authorized.


		HUGHES SATELLITE SYSTEMS CORPORATION


Date: ~~August~~May 6, ~~2020~~2021	By:	/s/ Michael T. Dugan
		Michael T. Dugan
		Chief Executive Officer, President and Director
		(Principal Executive Officer)


Date: ~~August~~May 6, ~~2020~~2021	By:	/s/ David J. Rayner
		David J. Rayner
		Executive Vice President, Chief Financial Officer, Chief Operating Officer and Treasurer
		(Principal Financial and Accounting Officer)

7053


Shareholder's equity:
Preferred stock, $0.001 par value, 1,000,000 shares authorized, none issued and outstanding at both June 30, 2020 and December 31, 2019	—		—
Common stock, $0.01 par value, 1,000,000 shares authorized, 1,078 shares issued and outstanding at both June 30, 2020 and December 31, 2019	—		—
Additional paid-in capital	1,484,359		1,478,636
Accumulated other comprehensive income (loss)	(159,450)		(84,636)
Accumulated earnings (losses)	651,580		664,415
Total Hughes Satellite Systems Corporation shareholder's equity	1,976,489		2,058,415
Non-controlling interests	58,425		75,748
Total shareholder's equity	2,034,914		2,134,163
Total liabilities and shareholder's equity	$	5,477,548	$	5,572,035


	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


	As of
	June 30, 2020	March 31, 2020	December 31, 2019
Broadband subscribers in the United States	1,221,000	1,249,000	1,239,000
Broadband subscribers in Latin America	321,000	267,000	238,000
Total broadband subscribers	1,542,000	1,516,000	1,477,000