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(H) Filed herewith. (I) Furnished herewith. * Incorporated by reference. ** Constitutes a management contract or compensatory plan or arrangement. *** Certain portions of the exhibit have been omitted in accordance with the Securities and Exchange Commission’s rules and regulations regarding confidential treatment. **** Schedules and exhibits have been omitted pursuant to Item 601(a)(5) 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.
ITEM 16. FORM 10-K SUMMARY
None.
SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. | | | | | | | | | | ECHOSTAR CORPORATION | | | | | By: | /s/ David J. RaynerHamid Akhavan | | | David J. Rayner | | | Executive Vice President, | | | Chief Financial Officer,Hamid Akhavan | | | Chief OperatingExecutive Officer and President | | | | Treasurer(Principal Executive Officer and Principal Financial Officer) |
Date: February 23, 202122, 2023 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. | | | | | | | | | | | | | | | Signature | | Title | | Date | | | | | | /s/ Michael T. DuganHamid Akhavan | | Chief Executive Officer President and DirectorPresident | | February 23, 202122, 2023 | Michael T. DuganHamid Akhavan | | (Principal Executive Officer and Principal Financial Officer) | | | | | | | | /s/ David J. RaynerJeffrey S. Boggs | | Executive Vice President, Chief FinancialInterim Principal Accounting Officer | | February 22, 2023 | David J. RaynerJeffrey S. Boggs | | Chief Operating Officer and Treasurer | | February 23, 2021 | | | (Principal Financial and Accounting Officer) | | | | | | | | * | | Chairman | | February 23, 202122, 2023 | Charles W. Ergen | | | | | | | | | | * | | Vice Chair | | February 22, 2023 | Pradman P. Kaul | | | | | | | | | | * | | Director | | February 23, 202122, 2023 | R. Stanton Dodge | | | | | | | | | | * | | Director | | February 23, 202122, 2023 | Anthony M. FedericoMichael T. Dugan | | | | | | | | | | * | | Director | | February 22, 2023 | Lisa W. Hershman | | | | | | | | | | * | | Director | | February 23, 2021 | Pradman P. Kaul | | | | | | | | | | * | | Director | | February 23, 202122, 2023 | Jeffrey R. Tarr | | | | | | | | | | * | | Director | | February 23, 202122, 2023 | C. Michael Schroeder | | | | | | | | | | * | | Director | | February 23, 202122, 2023 | William David Wade | | | | |
| | | | | | | | | | | | * By: | /s/ Dean A. Manson | | | | Dean A. Manson | | | | Attorney-in-Fact | | |
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Consolidated Financial Statements:
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors EchoStar Corporation:
Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting
We have audited the accompanying consolidated balance sheets of EchoStar Corporation and subsidiaries (the Company) as of December 31, 20202022 and 2019,2021, the related consolidated statements of operations, comprehensive income (loss), changes in stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2020,2022, and the related notes (collectively, the consolidated financial statements). We also have audited the Company’s internal control over financial reporting as of December 31, 2020,2022, based on criteria established in Internal Control -– Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 20202022 and 2019,2021 and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2020,2022, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020,2022 based on criteria established in Internal Control -– Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Change in Accounting Principle
As discussed in Note 2 to the consolidated financial statements, in 2019, the Company changed its method of accounting for leases as of January 1, 2019 due to the adoption of Accounting Standards Update No. 2016-02, Leases.
Basis for Opinions
The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
IdentificationSufficiency of related party transactions with DISH Network Corporationaudit evidence over certain Hughes segment revenue
As discussed in Note 222 and Note 3 to the consolidated financial statements, a substantial majority of the voting power of the shares of both the Company reported $1,966,587,000 in total revenue for the Hughes segment for the year ended December 31, 2022, of which $1,592,438,000 and DISH Network Corporation$374,149,000 was related to total services and subsidiaries (DISH) is owned beneficially by the Chairman of the Company.other revenue and certain equipment related revenue, respectively. The Company has engaged,Hughes segment provides broadband satellite technologies and continuesbroadband internet services to engage, in related party transactions with DISH.consumer customers, and broadband network technologies, managed services, equipment, hardware, satellite services, and communications solutions to consumer and enterprise customers.
We identified the evaluation of the identificationsufficiency of related party transactions with DISHaudit evidence over certain Hughes segment revenue as a critical audit matter. SubjectiveSpecifically, a high degree of auditor judgment was required in assessingto evaluate the sufficiencynature and extent of audit evidence obtained related to the total services and other revenue and certain equipment related revenue of the results ofHughes segment. IT professionals with specialized skills and knowledge were required to assess the multiple information technology (IT) applications, data interfaces, and procedures performedused to determine such transactions were identified by the Company.initiate, process, and record transactions.
The following are the primary procedures we performed to address this critical audit matter. We applied auditor judgment to determine the nature and extent of procedures to be performed. We evaluated the design and tested the operating effectiveness of certain internal controls, related to the Company’s related party process, including controls related to the identification ofmultiple IT applications, data interfaces, and procedures used to initiate, process, and record transactions. We assessed the Company’s related partyrecorded amounts by sampling transactions and comparing the amounts recognized for consistency with DISH.underlying documentation, including contracts or payment and transaction support. We evaluated the identification of related party transactionsinvolved IT professionals with DISH by: –confirming related party amounts between DISHspecialized skills and knowledge, who assisted in testing IT applications used by the Company with DISH;
–reading public filings fromin its revenue recognition process, and configuration and interface controls over the Company, DISH, and external news for information related to transactionstransfer of relevant data between systems used in the Company and DISH;
–reading the Company’s minutes from meetings of the Board of Directors;
–performing a keyword search on the Company’s customer and vendor databases for new relationships with DISH;
–reading new agreements and contracts with DISH;
–inquiring of executive officers, key members of the Company, and the Board of Directors; and
–reading the transcripts to quarterly earnings conference calls for the Company and DISH.
revenue recognition processes. We evaluated the sufficiency of audit evidence obtained by assessing the results of the procedures performed, overincluding the identificationappropriateness of related party transactions with DISH.the nature and extent of such evidence.
/s/ KPMG LLP
We have served as the Company’s auditor since 2007.
Denver, Colorado February 23, 202122, 2023
ECHOSTAR CORPORATION CONSOLIDATED BALANCE SHEETS (Amounts in thousands, except share and per share amounts) | | | | | | | | | | | | | | | | | As of December 31, | | | 2020 | | 2019 | Assets | | | | | Current assets: | | | | | Cash and cash equivalents | | $ | 896,005 | | | $ | 1,519,431 | | Marketable investment securities | | 1,638,271 | | | 940,623 | | Trade accounts receivable and contract assets, net | | 183,989 | | | 196,629 | | Other current assets, net | | 189,821 | | | 179,531 | | Total current assets | | 2,908,086 | | | 2,836,214 | | Non-current assets: | | | | | Property and equipment, net | | 2,390,313 | | | 2,528,738 | | Operating lease right-of-use assets | | 128,303 | | | 114,042 | | Goodwill | | 511,597 | | | 506,953 | | Regulatory authorizations, net | | 478,762 | | | 478,598 | | Other intangible assets, net | | 18,433 | | | 29,507 | | Other investments, net | | 284,937 | | | 325,405 | | Other non-current assets, net | | 352,921 | | | 334,841 | | Total non-current assets | | 4,165,266 | | | 4,318,084 | | Total assets | | $ | 7,073,352 | | | $ | 7,154,298 | | | | | | | Liabilities and Stockholders' Equity | | | | | Current liabilities: | | | | | Trade accounts payable | | $ | 122,366 | | | $ | 124,080 | | Current portion of long-term debt, net | | 898,237 | | | 0 | | Contract liabilities | | 104,569 | | | 101,060 | | Accrued expenses and other current liabilities | | 299,999 | | | 270,879 | | Total current liabilities | | 1,425,171 | | | 496,019 | | Non-current liabilities: | | | | | Long-term debt, net | | 1,495,256 | | | 2,389,168 | | Deferred tax liabilities, net | | 359,896 | | | 351,692 | | Operating lease liabilities | | 114,886 | | | 96,941 | | Other non-current liabilities | | 70,893 | | | 74,925 | | Total non-current liabilities | | 2,040,931 | | | 2,912,726 | | Total liabilities | | 3,466,102 | | | 3,408,745 | | | | | | | Commitments and contingencies | | 0 | | 0 | | | | | |
| | | | | | | | | | | | | | | Stockholders' equity: | | | | | Preferred stock, $0.001 par value, 20,000,000 shares authorized, NaN issued and outstanding at both December 31, 2020 and 2019 | | 0 | | | 0 | | Common stock, $0.001 par value, 4,000,000,000 shares authorized: | | | | | Class A common stock, $0.001 par value, 1,600,000,000 shares authorized, 57,254,201 shares issued and 48,863,374 shares outstanding at December 31, 2020 and 56,592,251 shares issued and 50,107,330 shares outstanding at December 31, 2019 | | 57 | | | 57 | | Class B convertible common stock, $0.001 par value, 800,000,000 shares authorized, 47,687,039 shares issued and outstanding at both December 31, 2020 and 2019 | | 48 | | | 48 | | Class C convertible common stock, $0.001 par value, 800,000,000 shares authorized, NaN issued and outstanding at both December 31, 2020 and 2019 | | 0 | | | 0 | | Class D common stock, $0.001 par value, 800,000,000 shares authorized, NaN issued and outstanding at both December 31, 2020 and 2019 | | 0 | | | 0 | | Additional paid-in capital | | 3,321,426 | | | 3,290,483 | | Accumulated other comprehensive income (loss) | | (187,876) | | | (122,138) | | Accumulated earnings (losses) | | 583,591 | | | 632,809 | | Treasury stock, at cost | | (174,912) | | | (131,454) | | Total EchoStar Corporation stockholders' equity | | 3,542,334 | | | 3,669,805 | | Non-controlling interests | | 64,916 | | | 75,748 | | Total stockholders' equity | | 3,607,250 | | | 3,745,553 | | Total liabilities and stockholders' equity | | $ | 7,073,352 | | | $ | 7,154,298 | |
| | | | | | | | | | | | | | | | | As of December 31, | | | 2022 | | 2021 | Assets | | | | | Current assets: | | | | | Cash and cash equivalents | | $ | 704,541 | | | $ | 535,894 | | Marketable investment securities | | 973,915 | | | 1,010,496 | | Trade accounts receivable and contract assets, net | | 236,479 | | | 182,063 | | Other current assets, net | | 210,446 | | | 198,444 | | Total current assets | | 2,125,381 | | | 1,926,897 | | Non-current assets: | | | | | Property and equipment, net | | 2,237,617 | | | 2,338,285 | | Operating lease right-of-use assets | | 151,518 | | | 149,198 | | Goodwill | | 532,491 | | | 511,086 | | Regulatory authorizations, net | | 462,531 | | | 469,766 | | Other intangible assets, net | | 15,698 | | | 13,984 | | Other investments, net | | 356,705 | | | 297,747 | | Other non-current assets, net | | 317,062 | | | 338,241 | | Total non-current assets | | 4,073,622 | | | 4,118,307 | | Total assets | | $ | 6,199,003 | | | $ | 6,045,204 | | | | | | | Liabilities and Stockholders' Equity | | | | | Current liabilities: | | | | | Trade accounts payable | | $ | 101,239 | | | $ | 109,338 | | Contract liabilities | | 121,739 | | | 141,343 | | Accrued expenses and other current liabilities | | 199,853 | | | 209,442 | | Total current liabilities | | 422,831 | | | 460,123 | | Non-current liabilities: | | | | | Long-term debt, net | | 1,496,777 | | | 1,495,994 | | Deferred tax liabilities, net | | 424,621 | | | 403,684 | | Operating lease liabilities | | 135,932 | | | 134,897 | | Other non-current liabilities | | 119,787 | | | 136,426 | | Total non-current liabilities | | 2,177,117 | | | 2,171,001 | | Total liabilities | | 2,599,948 | | | 2,631,124 | | | | | | | Commitments and contingencies | | | | |
The accompanying notes are an integral part of these Consolidated Financial Statements. F-4
ECHOSTAR CORPORATION CONSOLIDATED BALANCE SHEETS (Amounts in thousands, except share and per share amounts)
| | | | | | | | | | | | | | | Stockholders' equity: | | | | | Preferred stock, $0.001 par value, 20,000,000 shares authorized, none issued and outstanding at both December 31, 2022 and 2021 | | — | | | — | | Common stock, $0.001 par value, 4,000,000,000 shares authorized: | | | | | Class A common stock, $0.001 par value, 1,600,000,000 shares authorized, 58,604,927 shares issued and 35,291,616 shares outstanding at December 31, 2022 and 58,059,622 shares issued and 38,726,923 shares outstanding at December 31, 2021 | | 59 | | | 58 | | Class B convertible common stock, $0.001 par value, 800,000,000 shares authorized, 47,687,039 shares issued and outstanding at both December 31, 2022 and 2021 | | 48 | | | 48 | | Class C convertible common stock, $0.001 par value, 800,000,000 shares authorized, none issued and outstanding at both December 31, 2022 and 2021 | | — | | | — | | Class D common stock, $0.001 par value, 800,000,000 shares authorized, none issued and outstanding at both December 31, 2022 and 2021 | | — | | | — | | Additional paid-in capital | | 3,367,058 | | | 3,345,878 | | Accumulated other comprehensive income (loss) | | (172,239) | | | (212,102) | | Accumulated earnings (losses) | | 833,517 | | | 656,466 | | Treasury shares, at cost, 23,313,311 and 19,332,699 shares at December 31, 2022 and 2021, respectively | | (525,824) | | | (436,521) | | Total EchoStar Corporation stockholders' equity | | 3,502,619 | | | 3,353,827 | | Non-controlling interests | | 96,436 | | | 60,253 | | Total stockholders' equity | | 3,599,055 | | | 3,414,080 | | Total liabilities and stockholders' equity | | $ | 6,199,003 | | | $ | 6,045,204 | |
The accompanying notes are an integral part of these Consolidated Financial Statements. F-5
ECHOSTAR CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (Amounts in thousands, except per share amounts) | | | | | | | | | | | | | | | | | | | | | | | For the years ended December 31, | | | 2020 | | 2019 | | 2018 | Revenue: | | | | | | | Services and other revenue | | $ | 1,682,304 | | | $ | 1,619,271 | | | $ | 1,557,228 | | Equipment revenue | | 205,603 | | | 266,810 | | | 205,410 | | Total revenue | | 1,887,907 | | | 1,886,081 | | | 1,762,638 | | Costs and expenses: | | | | | | | Cost of sales - services and other (exclusive of depreciation and amortization) | | 577,943 | | | 561,353 | | | 563,907 | | Cost of sales - equipment (exclusive of depreciation and amortization) | | 166,435 | | | 226,002 | | | 176,600 | | Selling, general and administrative expenses | | 474,912 | | | 509,145 | | | 436,088 | | Research and development expenses | | 29,448 | | | 25,739 | | | 27,570 | | Depreciation and amortization | | 525,011 | | | 490,765 | | | 457,116 | | Impairment of long-lived assets | | 1,685 | | | 0 | | | 65,220 | | Total costs and expenses | | 1,775,434 | | | 1,813,004 | | | 1,726,501 | | Operating income (loss) | | 112,473 | | | 73,077 | | | 36,137 | | Other income (expense): | | | | | | | Interest income, net | | 39,982 | | | 82,352 | | | 80,275 | | Interest expense, net of amounts capitalized | | (147,927) | | | (251,016) | | | (219,288) | | Gains (losses) on investments, net | | (31,306) | | | 28,912 | | | (12,622) | | Equity in earnings (losses) of unconsolidated affiliates, net | | (7,267) | | | (14,734) | | | (5,954) | | Foreign currency transaction gains (losses), net | | 6,015 | | | (11,590) | | | (15,583) | | Other, net | | 195 | | | (166) | | | 11,249 | | Total other income (expense), net | | (140,308) | | | (166,242) | | | (161,923) | | Income (loss) from continuing operations before income taxes | | (27,835) | | | (93,165) | | | (125,786) | | Income tax benefit (provision), net | | (24,069) | | | (20,488) | | | (6,576) | | Net income (loss) from continuing operations | | (51,904) | | | (113,653) | | | (132,362) | | Net income (loss) from discontinued operations | | 0 | | | 39,401 | | | 93,729 | | Net income (loss) | | (51,904) | | | (74,252) | | | (38,633) | | Less: Net loss (income) attributable to non-controlling interests | | 11,754 | | | 11,335 | | | (1,842) | | Net income (loss) attributable to EchoStar Corporation common stock | | $ | (40,150) | | | $ | (62,917) | | | $ | (40,475) | | | | | | | | | Earnings (losses) per share - Class A and B common stock: | | | | | | | Basic and diluted earnings (losses) from continuing operations per share | | $ | (0.41) | | | $ | (1.06) | | | $ | (1.39) | | Total basic and diluted earnings (losses) per share | | $ | (0.41) | | | $ | (0.65) | | | $ | (0.42) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | For the years ended December 31, | | | | | | | 2022 | | 2021 | | 2020 | Revenue: | | | | | | | | | | | Services and other revenue | | | | | | $ | 1,623,931 | | | $ | 1,715,287 | | | $ | 1,682,304 | | Equipment revenue | | | | | | 374,162 | | | 270,433 | | | 205,603 | | Total revenue | | | | | | 1,998,093 | | | 1,985,720 | | | 1,887,907 | | Costs and expenses: | | | | | | | | | | | Cost of sales - services and other (exclusive of depreciation and amortization) | | | | | | 569,755 | | | 551,679 | | | 577,943 | | Cost of sales - equipment (exclusive of depreciation and amortization) | | | | | | 292,318 | | | 231,975 | | | 166,435 | | Selling, general and administrative expenses | | | | | | 455,234 | | | 461,705 | | | 474,912 | | Research and development expenses | | | | | | 32,810 | | | 31,777 | | | 29,448 | | Depreciation and amortization | | | | | | 457,621 | | | 491,329 | | | 525,011 | | Impairment of long-lived assets | | | | | | 711 | | | 245 | | | 1,685 | | Total costs and expenses | | | | | | 1,808,449 | | | 1,768,710 | | | 1,775,434 | | Operating income (loss) | | | | | | 189,644 | | | 217,010 | | | 112,473 | | Other income (expense): | | | | | | | | | | | Interest income, net | | | | | | 50,900 | | | 22,801 | | | 39,982 | | Interest expense, net of amounts capitalized | | | | | | (57,170) | | | (95,512) | | | (147,927) | | Gains (losses) on investments, net | | | | | | 47,107 | | | 69,531 | | | (31,306) | | Equity in earnings (losses) of unconsolidated affiliates, net | | | | | | (5,703) | | | (5,170) | | | (7,267) | | Foreign currency transaction gains (losses), net | | | | | | 5,235 | | | (12,613) | | | 6,015 | | Other-than-temporary impairment losses on equity method investments | | | | | | — | | | (55,266) | | | — | | Other, net | | | | | | 3,210 | | | (12,434) | | | 195 | | Total other income (expense), net | | | | | | 43,579 | | | (88,663) | | | (140,308) | | Income (loss) before income taxes | | | | | | 233,223 | | | 128,347 | | | (27,835) | | Income tax benefit (provision), net | | | | | | (66,675) | | | (65,626) | | | (24,069) | | Net income (loss) | | | | | | 166,548 | | | 62,721 | | | (51,904) | | Less: Net loss (income) attributable to non-controlling interests | | | | | | 10,503 | | | 10,154 | | | 11,754 | | Net income (loss) attributable to EchoStar Corporation common stock | | | | | | $ | 177,051 | | | $ | 72,875 | | | $ | (40,150) | | | | | | | | | | | | | Earnings (losses) per share - Class A and B common stock: | | | | | | | | | | | Basic | | | | | | $ | 2.10 | | | $ | 0.81 | | | $ | (0.41) | | Diluted | | | | | | $ | 2.10 | | | $ | 0.81 | | | $ | (0.41) | |
The accompanying notes are an integral part of these Consolidated Financial Statements. F-6
ECHOSTAR CORPORATION CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Amounts in thousands) | | | | | | | | | | | | | | | | | | | | | | | For the years ended December 31, | | | 2020 | | 2019 | | 2018 | Net income (loss) | | $ | (51,904) | | | $ | (74,252) | | | $ | (38,633) | | Other comprehensive income (loss), net of tax: | | | | | | | Foreign currency translation adjustments | | (83,736) | | | 2,845 | | | (34,399) | | Unrealized gains (losses) on available-for-sale securities | | (253) | | | 2,571 | | | (962) | | Other | | 2,614 | | | 1,466 | | | (1,910) | | Amounts reclassified to net income (loss): | | | | | | | Foreign currency translation realized on impairment of long lived assets | | 0 | | | 0 | | | 32,136 | | Realized losses (gains) on available-for-sale debt securities | | (2) | | | (592) | | | 0 | | Other-than-temporary impairment loss on available-for-sale securities | | 0 | | | 0 | | | (278) | | Total other comprehensive income (loss), net of tax | | (81,377) | | | 6,290 | | | (5,413) | | Comprehensive income (loss) | | (133,281) | | | (67,962) | | | (44,046) | | Less: Comprehensive income (loss) attributable to non-controlling interests | | 27,392 | | | (8,007) | | | 453 | | Comprehensive income (loss) attributable to EchoStar Corporation | | $ | (160,673) | | | $ | (59,955) | | | $ | (44,499) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | For the years ended December 31, | | | | | | | 2022 | | 2021 | | 2020 | Net income (loss) | | | | | | $ | 166,548 | | | $ | 62,721 | | | $ | (51,904) | | Other comprehensive income (loss), net of tax: | | | | | | | | | | | Foreign currency translation adjustments | | | | | | 39,608 | | | (24,061) | | | (83,736) | | Unrealized gains (losses) on available-for-sale securities | | | | | | (680) | | | 463 | | | (253) | | Other | | | | | | 2,660 | | | (5,005) | | | 2,614 | | Amounts reclassified to net income (loss): | | | | | | | | | | | Realized losses (gains) on available-for-sale debt securities | | | | | | (18) | | | (12) | | | (2) | | Total other comprehensive income (loss), net of tax | | | | | | 41,570 | | | (28,615) | | | (81,377) | | Comprehensive income (loss) | | | | | | 208,118 | | | 34,106 | | | (133,281) | | Less: Comprehensive loss (income) attributable to non-controlling interests | | | | | | 8,796 | | | 14,543 | | | 27,392 | | Comprehensive income (loss) attributable to EchoStar Corporation | | | | | | $ | 216,914 | | | $ | 48,649 | | | $ | (105,889) | |
The accompanying notes are an integral part of these Consolidated Financial Statements. F-7
ECHOSTAR CORPORATION CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (Amounts in thousands) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Common Stock | | Additional Paid-In Capital | | Accumulated Other Comprehensive Income (Loss) | | Accumulated Earnings (Losses) | | Treasury Stock, at cost | | Non-controlling Interests | | Total | Balance, December 31, 2017 | | $ | 102 | | | $ | 3,669,461 | | | $ | (130,154) | | | $ | 721,316 | | | $ | (98,162) | | | $ | 14,822 | | | $ | 4,177,385 | | Cumulative effect of accounting changes | | — | | | — | | | 10,467 | | | 12,656 | | | — | | | — | | | 23,123 | | Balance, January 1, 2018 | | 102 | | | 3,669,461 | | | (119,687) | | | 733,972 | | | (98,162) | | | 14,822 | | | 4,200,508 | | Issuances of Class A common stock: | | | | | | | | | | | | | | | Exercise of stock options | | — | | | 4,404 | | | — | | | — | | | — | | | — | | | 4,404 | | Employee benefits | | — | | | 7,605 | | | — | | | — | | | — | | | — | | | 7,605 | | Employee Stock Purchase Plan | | — | | | 9,368 | | | — | | | — | | | — | | | — | | | 9,368 | | Stock-based compensation | | — | | | 9,990 | | | — | | | — | | | — | | | — | | | 9,990 | | Other comprehensive income (loss) | | — | | | — | | | (3,462) | | | — | | | — | | | (1,389) | | | (4,851) | | Net income (loss) | | — | | | — | | | — | | | (40,475) | | | — | | | 1,842 | | | (38,633) | | Treasury share repurchase | | — | | | — | | | — | | | — | | | (33,292) | | | — | | | (33,292) | | Other, net | | — | | | 1,694 | | | (1,951) | | | 632 | | | — | | | — | | | 375 | | Balance, December 31, 2018 | | 102 | | | 3,702,522 | | | (125,100) | | | 694,129 | | | (131,454) | | | 15,275 | | | 4,155,474 | | Issuances of Class A common stock: | | | | | | | | | | | | | | | Exercise of stock options | | 3 | | | 67,307 | | | — | | | — | | | — | | | — | | | 67,310 | | Employee benefits | | — | | | 6,654 | | | — | | | — | | | — | | | — | | | 6,654 | | Employee Stock Purchase Plan | | — | | | 9,778 | | | — | | | — | | | — | | | — | | | 9,778 | | Stock-based compensation | | — | | | 9,353 | | | — | | | — | | | — | | | — | | | 9,353 | | Purchase of non-controlling interest | | — | | | (833) | | | — | | | — | | | — | | | (6,480) | | | (7,313) | | Net assets distributed pursuant to the BSS Transaction | | — | | | (532,747) | | | — | | | — | | | — | | | — | | | (532,747) | | Issuance of equity and contribution of assets pursuant to the Yahsat JV formation | | — | | | 29,576 | | | — | | | — | | | — | | | 73,199 | | | 102,775 | | Other comprehensive income (loss) | | — | | | — | | | 2,962 | | | — | | | — | | | 3,328 | | | 6,290 | | Net income (loss) | | — | | | — | | | — | | | (62,917) | | | — | | | (11,335) | | | (74,252) | | Other, net | | — | | | (1,127) | | | — | | | 1,597 | | | — | | | 1,761 | | | 2,231 | | Balance, December 31, 2019 | | 105 | | | 3,290,483 | | | (122,138) | | | 632,809 | | | (131,454) | | | 75,748 | | | 3,745,553 | | Cumulative effect of accounting changes | | | | | | | | (9,068) | | | | | (240) | | | (9,308) | | Balance, January 1, 2020 | | 105 | | | 3,290,483 | | | (122,138) | | | 623,741 | | | (131,454) | | | 75,508 | | | 3,736,245 | | Issuances of Class A common stock: | | | | | | | | | | | | | | | Exercise of stock options | | — | | | 855 | | | — | | | — | | | — | | | — | | | 855 | | Employee benefits | | — | | | 6,921 | | | — | | | — | | | — | | | — | | | 6,921 | | Employee Stock Purchase Plan | | — | | | 10,109 | | | — | | | — | | | — | | | — | | | 10,109 | | Stock-based compensation | | — | | | 8,887 | | | — | | | — | | | — | | | — | | | 8,887 | | Issuance of equity and contribution of assets pursuant to the Yahsat JV formation | | — | | | 4,338 | | | | | — | | | — | | | (1,580) | | | 2,758 | | Contribution by non-controlling interest holder | | — | | | — | | | — | | | — | | | — | | | 18,241 | | | 18,241 | | Other comprehensive income (loss) | | — | | | — | | | (65,738) | | | — | | | — | | | (15,631) | | | (81,369) | | Net income (loss) | | — | | | — | | | — | | | (40,150) | | | — | | | (11,754) | | | (51,904) | | Treasury share repurchase | | — | | | — | | | — | | | — | | | (43,458) | | | — | | | (43,458) | | Other, net | | — | | | (167) | | | | | — | | | — | | | 132 | | | (35) | | Balance, December 31, 2020 | | $ | 105 | | | $ | 3,321,426 | | | $ | (187,876) | | | $ | 583,591 | | | $ | (174,912) | | | $ | 64,916 | | | $ | 3,607,250 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Common Stock | | Additional Paid-In Capital | | Accumulated Other Comprehensive Income (Loss) | | Accumulated Earnings (Losses) | | Treasury Shares, at cost | | Non-controlling Interests | | Total | Balance, December 31, 2019 | | $ | 105 | | | $ | 3,290,483 | | | $ | (122,138) | | | $ | 632,809 | | | $ | (131,454) | | | $ | 75,748 | | | $ | 3,745,553 | | Cumulative effect of accounting changes | | — | | | — | | | — | | | (9,068) | | | — | | | (240) | | | (9,308) | | Balance, January 1, 2020 | | 105 | | | 3,290,483 | | | (122,138) | | | 623,741 | | | (131,454) | | | 75,508 | | | 3,736,245 | | Issuances of Class A common stock: | | | | | | | | | | | | | | | Exercise of stock options | | — | | | 855 | | | — | | | — | | | — | | | — | | | 855 | | Employee benefits | | — | | | 6,921 | | | — | | | — | | | — | | | — | | | 6,921 | | Employee Stock Purchase Plan | | — | | | 10,109 | | | — | | | — | | | — | | | — | | | 10,109 | | Stock-based compensation | | — | | | 8,887 | | | — | | | — | | | — | | | — | | | 8,887 | | Issuance of equity and contribution of assets pursuant to the Yahsat JV formation | | — | | | 4,338 | | | — | | | — | | | — | | | (1,580) | | | 2,758 | | Contribution by non-controlling interest holder | | — | | | — | | | — | | | — | | | — | | | 18,241 | | | 18,241 | | Other comprehensive income (loss) | | — | | | — | | | (65,738) | | | — | | | — | | | (15,631) | | | (81,369) | | Net income (loss) | | — | | | — | | | — | | | (40,150) | | | — | | | (11,754) | | | (51,904) | | Treasury share repurchase | | — | | | — | | | — | | | — | | | (43,458) | | | — | | | (43,458) | | Other, net | | — | | | (167) | | | — | | | — | | | — | | | 132 | | | (35) | | Balance, December 31, 2020 | | 105 | | | 3,321,426 | | | (187,876) | | | 583,591 | | | (174,912) | | | 64,916 | | | 3,607,250 | | Issuances of Class A common stock: | | | | | | | | | | | | | | | Exercise of stock options | | — | | | 408 | | | — | | | — | | | — | | | — | | | 408 | | Employee benefits | | 1 | | | 7,124 | | | — | | | — | | | — | | | — | | | 7,125 | | Employee Stock Purchase Plan | | — | | | 9,471 | | | — | | | — | | | — | | | — | | | 9,471 | | Stock-based compensation | | — | | | 7,699 | | | — | | | — | | | — | | | — | | | 7,699 | | Contribution by non-controlling interest holder | | — | | | — | | | — | | | — | | | — | | | 9,880 | | | 9,880 | | Other comprehensive income (loss) | | — | | | — | | | (24,226) | | | — | | | — | | | (4,389) | | | (28,615) | | Net income (loss) | | — | | | — | | | — | | | 72,875 | | | — | | | (10,154) | | | 62,721 | | Treasury share repurchase | | — | | | — | | | — | | | — | | | (261,609) | | | — | | | (261,609) | | Other | | — | | | (250) | | | — | | | — | | | — | | | — | | | (250) | | Balance, December 31, 2021 | | 106 | | | 3,345,878 | | | (212,102) | | | 656,466 | | | (436,521) | | | 60,253 | | | 3,414,080 | | Issuances of Class A common stock: | | | | | | | | | | | | | | | Employee benefits | | — | | | 7,041 | | | — | | | — | | | — | | | — | | | 7,041 | | Employee Stock Purchase Plan | | 1 | | | 9,306 | | | — | | | — | | | — | | | — | | | 9,307 | | Stock-based compensation | | — | | | 11,546 | | | — | | | — | | | — | | | — | | | 11,546 | | Issuance of equity and contribution of assets pursuant to the India JV formation | | — | | | (14,237) | | | — | | | — | | | — | | | 44,540 | | | 30,303 | | Other comprehensive income (loss) | | — | | | — | | | 39,863 | | | — | | | — | | | 1,707 | | | 41,570 | | Net income (loss) | | — | | | — | | | — | | | 177,051 | | | — | | | (10,503) | | | 166,548 | | Treasury share repurchase | | — | | | — | | | — | | | — | | | (89,303) | | | — | | | (89,303) | | Consideration received from DISH Network for R&D tax credits utilized | | — | | | 6,315 | | | — | | | — | | | — | | | — | | | 6,315 | | Other | | — | | | 1,209 | | | — | | | — | | | — | | | 439 | | | 1,648 | | Balance, December 31, 2022 | | $ | 107 | | | $ | 3,367,058 | | | $ | (172,239) | | | $ | 833,517 | | | $ | (525,824) | | | $ | 96,436 | | | $ | 3,599,055 | |
The accompanying notes are an integral part of these Consolidated Financial Statements. F-8
ECHOSTAR CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (Amounts in thousands) | | | | | | | | | | | | | | | | | | | | | | | For the years ended December 31, | | | 2020 | | 2019 | | 2018 | Cash flows from operating activities: | | | | | | | Net income (loss) | | $ | (51,904) | | | $ | (74,252) | | | $ | (38,633) | | Adjustments to reconcile net income (loss) to net cash flows from operating activities: | | | | | | | Depreciation and amortization | | 525,011 | | | 588,200 | | | 598,178 | | Impairment of long-lived assets | | 1,685 | | | 0 | | | 65,220 | | Losses (gains) on investments, net | | 31,306 | | | (28,912) | | | 12,109 | | Equity in losses (earnings) of unconsolidated affiliates, net | | 7,267 | | | 14,734 | | | 6,037 | | Foreign currency transaction losses (gains), net | | (6,015) | | | 11,590 | | | 15,583 | | Deferred tax provision (benefit), net | | 18,147 | | | 32,542 | | | 26,327 | | Stock-based compensation | | 8,887 | | | 9,353 | | | 9,990 | | Amortization of debt issuance costs | | 4,324 | | | 5,912 | | | 7,923 | | Dividends received from unconsolidated affiliates | | 0 | | | 2,716 | | | 10,000 | | Other, net | | (12,501) | | | 6,297 | | | (3,489) | | Changes in assets and current liabilities, net: | | | | | | | Trade accounts receivable and contract assets, net | | 2,237 | | | 8,289 | | | (17,842) | | Other current assets, net | | (12,984) | | | (39,190) | | | 18,577 | | Trade accounts payable | | (12,339) | | | 13,149 | | | 9,562 | | Contract liabilities | | 3,509 | | | 26,376 | | | 7,867 | | Accrued expenses and other current liabilities | | 42,822 | | | 66,352 | | | 12,183 | | Non-current assets and non-current liabilities, net | | (15,064) | | | 13,166 | | | (5,070) | | Net cash flows from operating activities | | 534,388 | | | 656,322 | | | 734,522 | | | | | | | | | Cash flows from investing activities: | | | | | | | Purchases of marketable investment securities | | (2,799,838) | | | (993,369) | | | (2,973,254) | | Sales and maturities of marketable investment securities | | 2,110,336 | | | 2,391,220 | | | 1,498,463 | | Expenditures for property and equipment | | (408,798) | | | (418,584) | | | (555,141) | | Expenditures for externally marketed software | | (38,655) | | | (29,310) | | | (31,639) | | Purchase of other investments | | (5,500) | | | (93,687) | | | 0 | | Investments in unconsolidated affiliates | | 0 | | | (2,149) | | | (115,991) | | Purchases of regulatory authorizations | | 0 | | | (34,447) | | | 0 | | Refunds and other receipts related to property and equipment | | 0 | | | 0 | | | 77,524 | | Dividend received from unconsolidated affiliate | | 0 | | | 2,284 | | | 0 | | Sale of investment in unconsolidated affiliates | | 0 | | | 0 | | | 1,558 | | Net cash flows from investing activities | | (1,142,455) | | | 821,958 | | | (2,098,480) | |
| | | | | | | | | | | | | | | | | | | | | Cash flows from financing activities: | | | | | | | Repurchase and maturity of the 2019 Senior Secured Notes | | 0 | | | (920,923) | | | (70,173) | | Repayment of other long-term debt and finance lease obligations | | (811) | | | (29,347) | | | (41,019) | | Payment of in-orbit incentive obligations | | (1,554) | | | (5,447) | | | (5,350) | | Net proceeds from Class A common stock options exercised | | 855 | | | 67,337 | | | 4,424 | | Net proceeds from Class A common stock issued under the Employee Stock Purchase Plan | | 10,109 | | | 9,779 | | | 9,368 | | Treasury share purchase | | (43,458) | | | 0 | | | (33,292) | | Contribution by non-controlling interest holder | | 18,241 | | | 0 | | | 0 | | Purchase of non-controlling interest | | 0 | | | (7,313) | | | 0 | | Other, net | | 998 | | | 603 | | | (521) | | Net cash flows from financing activities | | (15,620) | | | (885,311) | | | (136,563) | | | | | | | | | Effect of exchange rates on cash and cash equivalents | | (1,390) | | | (575) | | | (2,233) | | Net increase (decrease) in cash and cash equivalents | | (625,077) | | | 592,394 | | | (1,502,754) | | Cash and cash equivalents, including restricted amounts, beginning of period | | 1,521,889 | | | 929,495 | | | 2,432,249 | | Cash and cash equivalents, including restricted amounts, end of period | | $ | 896,812 | | | $ | 1,521,889 | | | $ | 929,495 | |
| | | | | | | | | | | | | | | | | | | | | | | | | For the years ended December 31, | | | 2022 | | 2021 | | 2020 | | | Cash flows from operating activities: | | | | | | | | | Net income (loss) | | $ | 166,548 | | | $ | 62,721 | | | $ | (51,904) | | | | Adjustments to reconcile net income (loss) to cash flows provided by (used for) operating activities: | | | | | | | | | Depreciation and amortization | | 457,621 | | | 491,329 | | | 525,011 | | | | Impairment of long-lived assets | | 711 | | | 245 | | | 1,685 | | | | Losses (gains) on investments, net | | (47,107) | | | (69,531) | | | 31,306 | | | | Equity in losses (earnings) of unconsolidated affiliates, net | | 5,703 | | | 5,170 | | | 7,267 | | | | Foreign currency transaction losses (gains), net | | (5,235) | | | 12,613 | | | (6,015) | | | | Deferred tax provision (benefit), net | | 21,430 | | | 37,664 | | | 18,147 | | | | Stock-based compensation | | 11,546 | | | 7,699 | | | 8,887 | | | | Amortization of debt issuance costs | | 783 | | | 2,381 | | | 4,324 | | | | Other-than-temporary impairment losses on equity method investments | | — | | | 55,266 | | | — | | | | Other, net | | (3,711) | | | 19,740 | | | (12,501) | | | | Changes in assets and liabilities, net: | | | | | | | | | Trade accounts receivable and contract assets, net | | (50,959) | | | (2,334) | | | 2,237 | | | | Other current assets, net | | (6,456) | | | (7,303) | | | (12,984) | | | | Trade accounts payable | | 8,825 | | | (15,599) | | | (12,339) | | | | Contract liabilities | | (19,604) | | | 36,774 | | | 3,509 | | | | Accrued expenses and other current liabilities | | (3,649) | | | (84,621) | | | 42,822 | | | | Non-current assets and non-current liabilities, net | | (6,841) | | | 80,012 | | | (15,064) | | | | Net cash provided by (used for) operating activities | | 529,605 | | | 632,226 | | | 534,388 | | | | | | | | | | | | | Cash flows from investing activities: | | | | | | | | | Purchases of marketable investment securities | | (1,067,461) | | | (1,651,608) | | | (2,799,838) | | | | Sales and maturities of marketable investment securities | | 1,136,594 | | | 2,321,560 | | | 2,110,336 | | | | Expenditures for property and equipment | | (325,891) | | | (438,430) | | | (408,798) | | | | Expenditures for externally marketed software | | (23,105) | | | (33,543) | | | (38,655) | | | | India JV formation | | (7,892) | | | — | | | — | | | | Dividend received from unconsolidated affiliate | | 2,000 | | | — | | | — | | | | Sale of unconsolidated affiliate | | 7,500 | | | — | | | — | | | | Purchase of other investments | | — | | | (50,000) | | | (5,500) | | | | Sales of other investments | | 3,070 | | | 10,951 | | | — | | | | Net cash provided by (used for) investing activities | | (275,185) | | | 158,930 | | | (1,142,455) | | | | | | | | | | | | |
The accompanying notes are an integral part of these Consolidated Financial Statements. F-9
ECHOSTAR CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (Amounts in thousands)
| | | | | | | | | | | | | | | | | | | | | Cash flows from financing activities: | | | | | | | Repurchase and maturity of the 2021 Senior Unsecured Notes | | — | | | (901,818) | | | — | | Payment of finance lease obligations | | (120) | | | (670) | | | (811) | | Payment of in-orbit incentive obligations | | (2,988) | | | (2,214) | | | (1,554) | | Proceeds from Class A common stock options exercised | | — | | | 408 | | | 855 | | Proceeds from Class A common stock issued under the Employee Stock Purchase Plan | | 9,306 | | | 9,471 | | | 10,109 | | Treasury share repurchase | | (89,303) | | | (261,436) | | | (43,458) | | Contribution by non-controlling interest holder | | — | | | 9,880 | | | 18,241 | | Other, net | | — | | | (966) | | | 998 | | Net cash provided by (used for) financing activities | | (83,105) | | | (1,147,345) | | | (15,620) | | | | | | | | | Effect of exchange rates on cash and cash equivalents | | (2,306) | | | (3,749) | | | (1,390) | | Net increase (decrease) in cash and cash equivalents | | 169,009 | | | (359,938) | | | (625,077) | | Cash and cash equivalents, including restricted amounts, beginning of period | | 536,874 | | | 896,812 | | | 1,521,889 | | Cash and cash equivalents, including restricted amounts, end of period | | $ | 705,883 | | | $ | 536,874 | | | $ | 896,812 | |
The accompanying notes are an integral part of these Consolidated Financial Statements. F-10
ECHOSTAR CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION AND BUSINESS ACTIVITIES
Principal Business EchoStar Corporation (which, together with its subsidiaries, is referred to as “EchoStar,” the “Company,” “we,” “us” and “our”) is a holding company that was organized in October 2007 as a corporation under the laws of the State of Nevada and has operated as a separately traded public company from DISH Network Corporation (“DISH”) since 2008.Nevada. Our Class A common stock is publicly traded on the NASDAQ Global Select Market (“NASDAQ”) under the symbol “SATS.”
We are an industry leader in both networking technologies and services, innovating to deliver the global solutions that power a global provider of broadband satellite technologies, broadbandconnected future for people, enterprises and things everywhere. We provide internet services forto consumer customers, which include home and small to medium-sized businesses, and satellite services. We also deliver innovativeand multi-transport technologies and managed network technologies, managed services and communications solutions forto enterprise customers, which includetelecommunications providers, aeronautical service providers and government enterprises.entities, including the U.S. Department of Defense. We operate in the following 2two business segments: •Hughes segment — which provides broadband satellite technologies and broadband internet products and services to domestic and international consumer customers andcustomers. We provide broadband network technologies, managed services, equipment, hardware, satellite services and communicationcommunications solutions to service providersgovernment and enterprise customers. The Hughes segmentWe also designs, providesdesign, provide and installsinstall gateway and terminal equipment to customers for other satellite systems. In addition, our Hughes segment designs, develops, constructswe design, develop, construct and providesprovide telecommunication networks comprising satellite ground segment systems and terminals to mobile system operators and our enterprise customers. •Echostar Satellite Services segment (“ESS segment”) — which uses certain of our owned and leased in-orbit satellites and related licenses to provideprovides 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. 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 operations also include various corporate departmentsfunctions (primarily Executive, Treasury, Strategic Development, Human Resources, IT,Information Technology, Finance, Accounting, Real Estate and Legal) and other activities, such as costs incurred in certain satellite development programs and other business development activities, and gains or losses from certain of our 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.Other segment 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) Other (Asia, Africa, Australia, Europe, India, and the Middle East). Refer to Note 20.22. Segment Reporting for further detail.
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 (together with DISH, “DISH Network”) and our 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 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”).
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
In connection with the BSS Transaction, we and DISH Network agreed to indemnify each other against certain losses with respect to breaches of certain representations and covenants and certain retained and assumed liabilities, respectively. Additionally, we and DISH and certain of our and their subsidiaries (i) entered into certain customary agreements covering, among other things, matters relating to taxes, employees, intellectual property and the provision of transitional services; (ii) terminated certain previously existing agreements; and (iii) amended certain existing agreements and entered into certain new agreements pursuant to which we and DISH Network will obtain and provide certain products, services and rights from and to each other.
The BSS Transaction was structured in a manner intended to be tax-free to us and our stockholders for U.S. federal income tax purposes and was accounted for as a spin-off to our shareholders as we did not receive any consideration. 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 years ended December 31, 2019 and 2018, as presented in these Consolidated Financial Statements and the accompanying notes (collectively, the “Consolidated Financial Statements’).
Refer to Note 5. Discontinued Operations for further detail. Additionally, all amounts in the following footnotes reference results from continuing operations unless otherwise noted.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation and Basis of Presentation
These Consolidated Financial Statements and the accompanying notes (collectively, the “Consolidated Financial Statements”) are prepared in conformity with U.S. generally accepted accounting principles in the United States (“U.S. GAAP”). 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 stockholders’ 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.
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All amounts presented in these Consolidated Financial Statements and their accompanying notes are expressed in thousands of U.S. dollars, except share and per share amounts and unless otherwise noted.
Reclassification
Certain prior period amounts have been reclassified to conform with the current period presentation.
Use of Estimates We are required to make certain estimates and assumptions that affect the amounts reported in these Consolidated Financial Statements. The most significant estimates and assumptions are used in determining: (i) inputs used to recognize revenue over time, including amortization periods for deferred contract acquisition costs; (ii) allowances for doubtful accounts; (iii) deferred taxes and related valuation allowances, including uncertain tax positions; (iv) loss contingencies; (v) fair value of financial instruments; (vi) fair value of assets and liabilities acquired in business combinations; and (vii) assetassets and goodwill 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 financial statements. Additionally, changing economic 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 estimate affects future periods.
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Fair Value Measurements We determine fair value based on the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. Market or observable inputs are the preferred source of values, followed by unobservable inputs or assumptions based on hypothetical transactions in the absence of market inputs. We utilize the highest level of inputs available according to the following hierarchy in determining fair value: •Level 1 - Defined as observable inputs being quoted prices in active markets for identical assets; •Level 2 - Defined as observable inputs other than quoted prices included in Level 1, including quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar instruments in markets that are not active and model-derived valuations in which significant inputs and significant value drivers are observable in active markets; and •Level 3 - Defined as unobservable inputs for which little or no market data exists, consistent with characteristics of the asset or liability that would be considered by market participants in a transaction to purchase or sell the asset or liability. Fair values of our marketable investment securities are measured on a recurring basis based on a variety of observable market inputs. For our investments in publicly traded equity securities and U.S. government securities, fair value ordinarily is determined based on Level 1 measurements that reflect quoted prices for identical securities in active markets. Fair values of our investments in other marketable debt securities are generally based on Level 2 measurements as the markets for such debt securities are less active. We consider trades of identical debt securities on or near the measurement date as a strong indication of fair value and matrix pricing techniques that consider par value, coupon rate, credit quality, maturity and other relevant features may also be used to determine fair value of our investments in marketable debt securities. Fair values for our outstanding debt are based on quoted market prices in less active markets and are categorized as Level 2 measurements. Additionally, we use fair value measurements from time to time in connection with other investments, asset impairment testing and the assignment of purchase consideration to assets and liabilities of acquired companies. Those fair value measurements typically include significant unobservable inputs and are categorized within Level 3 of the fair value hierarchy. Transfers between levels in the fair value hierarchy are considered to occur at the beginning of the quarterly accounting period. There were no transfers between levels during the years ended December 31, 20202022 and 2019.2021.
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As of December 31, 20202022 and 2019,2021, the carrying amounts of our cash and cash equivalents, trade accounts receivable and contract assets, net, trade accounts payable, and accrued expenses and other current liabilities were equal to or approximated their fair value due to their short-term nature or proximity to current market rates.
Revenue Recognition
Overview Revenue is recognized upon transfer of control of the promised goods or our performance of the services to our customers in an amount that reflects the consideration we expect to receive in exchange for those goods or services. We enter into contracts that may include various combinations of products and services, which are generally distinct and accounted for as separate performance obligations.
We also recognize lease revenue which is derived from leases of property and equipment which, for operating leases, is reported in Services and other revenue in the Consolidated Statements of Operations and, for sales-type leases, is reported in Equipment revenue in the Consolidated Statements of Operations. Certain of our customer contracts contain embedded equipment leases, which we separate from non-lease components of the contract based on the relative standalone selling prices of the lease and non-lease components.
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Hughes Segment
Our Hughes segment service contracts typically obligate us to provide substantially the same services on a recurring basis in exchange for fixed recurring fees over the term of the contract. We satisfy such performance obligations over time and recognize revenue ratably as services are rendered over the service period. Certain of our contracts with service obligations provide for fees based on usage, capacity or volume. We satisfy these performance obligations and recognize the related revenue at the point in time, or over the period, when the services are rendered. Our Hughes segment also sells and leases communications equipment to its customers. Revenue from equipment sales generally is recognized based upon shipment terms. Our equipment sales contracts typically include standard product warranties, but generally do not provide for returns or refunds. Revenue for extended warranties is recognized ratably over the extended warranty period. For contracts with multiple performance obligations, we typically allocate the contract’s transaction price to each performance obligation based on their relative standalone selling prices. When the standalone selling price is not observable, our primary method used to estimate standalone selling price is the expected cost plus a margin. Our contracts generally require customer payments to be made at or shortly after the time we transfer control of goods or perform the services. In addition to equipment and service offerings, our Hughes segment also enters into long-term contracts to design, develop, construct and install complex telecommunication networks for mobile system operators and enterprise customers. Revenue from such contracts is generally recognized over time as a measure of progress that depicts the transfer of control of the goods or services to the customer. Depending on the nature of the arrangement, we measure progress toward contract completion using an appropriate input method or output method. Under the input method, we recognize the transaction price as revenue based on the ratio of costs incurred to estimated total costs at completion. Under the output method, revenue and cost of sales are recognized as products are delivered based on the expected profit for the entire agreement. Profit margins on long-term contracts generally are based on estimates of revenue and costs at completion. We review and revise our estimates periodically and recognize related adjustments in the period in which the revisions are made. Estimated losses on contracts are recorded in the period in which they are identified. We generally receive interim payments as work progresses, although for some contracts, we may be entitled to receive an advance payment. ESS Segment
Generally, our ESS segment service contracts with customers contain a single performance obligation and, therefore, there is no need to allocate the transaction price. We transfer control and recognize revenue for satellite services at the point in time or over the period when the services are rendered.
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Lease Revenue
We lease satellite capacity, communications equipment and real estate to certain of our customers. We identify and determine the classification of such leases as operating leases or sales-type leases. A lease is classified as a sales-type lease if it meets the criteria for a finance lease; otherwise it is classified as an operating lease. Some of our leases are embedded in contracts with customers that include non-lease performance obligations. For such contracts, except where we have elected otherwise, we allocate consideration in the contract between lease and non-lease components based on their relative standalone selling prices. We elected an accounting policy to not separate the lease of equipment from related services in our HughesNet satellite internet service (the “HughesNet service”) contracts with customers and account for all revenue from such contracts as non-lease service revenue. Assets subject to operating leases remain in Property and equipment, net and continue to be depreciated. Assets subject to sales-type leases are derecognized from Property and equipment, net at lease commencement and a net investment in the lease asset is recognized in Trade accounts receivable and contract assets, net and Other non-current assets, net.
Operating lease revenue is generally recognized on a straight-line basis over the lease term. Sales-type lease revenue and a corresponding receivable generally are recognized at lease commencement based on the present value of the future lease payments and related interest income on the receivable is recognized over the lease term. Payments under sales-type leases are discounted using the interest rate implicit in the lease or our incremental borrowing rate if the interest rate implicit in the lease cannot be reasonably determined. We report revenue from
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sales-type leases at the commencement date in Equipment revenue and periodic interest income in Services and other revenue. We report operating lease revenue in Services and other revenue.
Other
Sales and Value Added Taxes, Universal Service Fees and other taxes that we collect concurrent with revenue producing activities are excluded from revenue and included in Accrued expenses and other current liabilities in the Consolidated Balance Sheets.
Shipping and handling costs associated with outbound freight are accounted for as a fulfillment cost after control over a product has transferred to the customer and are included in Cost of sales - equipment in the Consolidated Statements of Operations at the time of shipment.
Cost of Sales - Services and Other Cost of sales - services and other in the Consolidated Statements of Operations primarily consists of costs of satellite capacity and services, hub infrastructure, customer care, wireline and wireless capacity and direct labor costs associated with the services provided and is generally charged to expense as incurred.
Cost of Sales - Equipment Cost of sales - equipment in the Consolidated Statements of Operations primarily consists of inventory costs, including freight and royalties, and is generally recognized at the point in time control of the equipment is passed to the customer and related revenue is recognized.
Additionally, customer-related research and development costs are incurred in connection with the specific requirements of a customer’s order; in such instances, the amounts for these customer funded development efforts are also included in Cost of sales - equipment in the Consolidated Statements of Operations.
Stock-based Compensation Expense Stock-based compensation expense is recognized based on the fair value of stock awards ultimately expected to vest. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Compensation expense for awards with service conditions only is recognized on a straight-line basis over the requisite service period for the entire award. Compensation expense for
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awards subject to performance conditions is recognized only when satisfaction of the performance condition is probable.
Advertising Costs
Advertising costs are expensed as incurred and are included in Selling, general and administrative expenses in the Consolidated Statements of Operations.
Research and Development
Research and development costs, not incurred in connection with customer requirements, are generally expensed when incurred.
Debt Issuance Costs Costs of issuing debt generally are deferred and amortized utilizing the effective interest method, with amortization included in Interest expense, net of amounts capitalized in the Consolidated Statements of Operations. We report unamortized debt issuance costs as a reduction of the related long-term debt in the Consolidated Balance Sheets.
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Foreign Currency
The functional currency for certain of our foreign operations is determined to be the local currency. Accordingly, we translate assets and liabilities of these foreign entities from their local currencies to U.S. dollars using period-end exchange rates and translate income and expense accounts at monthly average rates. The resulting translation adjustments are reported as Foreign currency translation adjustments in the Consolidated Statements of Comprehensive Income (Loss). Except in certain uncommon circumstances, we have not recorded deferred income taxes related to our foreign currency translation adjustments.
Gains and losses resulting from the re-measurement of transactions denominated in foreign currencies are recognized in Foreign currency transaction gains (losses), net in the Consolidated Statements of Operations.
Income Taxes We recognize a provision or benefit for income taxes currently payable or receivable and for income tax amounts deferred to future periods. Deferred tax assets and liabilities reflect the effects of tax losses, credits, and the future income tax effects of temporary differences between U.S. GAAP carrying amounts of existing assets and liabilities and their respective tax bases and are measured using enacted tax rates that apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets are offset by valuation allowances when we determine it is more likely than not that such deferred tax assets will not be realized in the foreseeable future. We determine deferred tax assets and liabilities separately for each taxing jurisdiction and report the net amount for each jurisdiction as a non-current asset or liability in the Consolidated Balance Sheets. From time to time, we engage in transactions where the income tax consequences are uncertain. We recognize tax benefits when, in management’s judgment, a tax filing position is more likely than not to be sustained if challenged by the tax authorities. For tax positions that meet the more-likely-than-not threshold, we may not recognize a portion of a tax benefit depending on management’s assessment of how the tax position will ultimately be settled. Unrecognized tax benefits generally are netted against the deferred tax assets associated with our net operating loss and tax credit carryforwards. We adjust our estimates periodically based on ongoing examinations by, and settlements with, various taxing authorities, as well as changes in tax laws, regulations and precedent. Estimates of our uncertain tax positions are made based upon prior experience and are updated in light of changes in facts and circumstances. However, due to the uncertain and complex application of tax regulations, it is possible that the ultimate resolution of audits may result in liabilities which could be materially different from these estimates. In such an event, we will record additional income tax provision or benefit in the period in which such resolution occurs. We classify interest and penalties, if any, associated with our unrecognized tax benefits as a component of income tax provision or benefit.
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Lessee Accounting
We lease real estate, satellite capacity and equipment inAt the conductinception of our business operations. For contracts entered into on or after January 1, 2019, ata contract, inception, we assess whether the contract is, or contains, a lease. Generally, we determine that a lease exists whenThe assessment is based on (i) whether the contract involves the use of a distinct identified asset, (ii) whether we obtain the right to substantially all the economic benefitsbenefit from the use of the asset throughout the period, and (iii) whether we have the right to direct the use of the asset. Our operating leases consist primarily of leases for office space, data centers and satellite-related ground infrastructure.
A lease is classified as a finance lease when one or more of the following criteria are met: (i) the lease transfers ownership of the asset by the end of the lease term, (ii) the lease contains an option to purchase the asset that is reasonably certain to be exercised, (iii) the lease term is for a major part of the remaining useful life of the asset, (iv) the present value of the lease payments equals or exceeds substantially all of the fair value of the asset or (v) the asset is of a specialized nature and there is not expected to be an alternative use to the lessor at the end of the lease term. A lease is classified as an operating lease if it does not meet any of these criteria. Our operating leases consist primarily of leases for office space, data centers and satellite-related ground infrastructure. Our finance leases consist primarily of leases for satellite capacity.
At theAll significant lease commencement date, we recognize aarrangements are generally recognized at lease commencement. Operating lease right-of-use (“ROU”) assets and lease liabilities are recognized at commencement. An ROU asset and acorresponding lease liability are not recorded for all leases, except short-term leases with an originalinitial term of 12 months or less. The right-of-use asset representsless (short-term leases), and we recognize lease expense for these leases as incurred over the lease term. ROU assets represent our right to use an underlying asset during the leased asset forreasonably certain lease term, and lease liabilities represent our obligation to make lease payments arising from the lease. Our lease terms may include options to extend or terminate the lease term including any renewal options we arewhen it is reasonably certain to exercise. that we will exercise that option.
The lease liability represents the present value of the lease payments under the lease. The right-of-useROU asset is initially measured at
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cost, which primarily comprises the initial amount of the lease liability, plus any prepayments to the lessor and initial direct costs such as brokerage commissions, less any lease incentives received. All right-of-use assets are periodically reviewed for impairment in accordance with standards that apply to long-lived assets. The lease liability is initially measured at the present value of the minimum lease payments, discounted using an estimate of our incremental borrowing rate for a collateralized loan with the same term as the underlying lease. The incremental borrowing rates used for the initial measurement of lease liabilities are based on the original lease terms. In determining our incremental borrowing rate, we consider the lease term, secured incremental borrowing rate, and for leases denominated in a currency different than U.S. dollar, the collateralized borrowing rate in the foreign currency using the U.S. dollar and foreign currency swap spread, when available.
We report operating lease right-of-useROU assets in Operating lease right-of-use assets and operating lease liabilities in Accrued expenses and other current liabilities and Operating lease liabilities. We report finance lease right-of-useROU assets in Property and equipment, net and finance lease liabilities in Current portion of long-term debt, net and Long-term debt, net.
Minimum lease payments included in the measurement of lease liabilities consist of (i) fixed lease payments for the non-cancelable lease term, (ii) fixed lease payments for optional renewal periods where it is reasonably certain the renewal option will be exercised and (iii) variable lease payments that depend on an underlying index or rate, based on the index or rate in effect at lease commencement. Certain of our real estate lease agreements require payments for non-lease costs such as utilities and common area maintenance. We elected an accounting policy to not account for such payments separately from the related lease payments. Our policy election results in a higher initial measurement of lease liabilities when such non-lease payments are fixed amounts. Certain of our real estate lease agreements require variable lease payments that do not depend on an underlying index or rate, such as sales and value-added taxes and our proportionate share of actual property taxes, insurance and utilities, which are recognized in operating expenses as incurred.
Lease expense for operating leases consists of the fixed lease payments recognized on a straight-line basis over the lease term plus variable lease payments as incurred. Lease expense for finance leases consists of the amortization of the right-of-use asset on a straight-line basis over the lease term and interest expense on the lease liability based on the discount rate at lease commencement. For both operating and finance leases, lease payments are allocated between a reduction of the lease liability and interest expense. Amortization of the right-of-use asset for operating leases reflects amortization of the lease liability, any differences between straight-line expense and related lease payments during the accounting period, and any impairments.
Business Combinations
We account for all business combinations that result in our control over another entity by using the acquisition method of accounting, which requires us to allocate the purchase price of the acquired business to the identifiable tangible and intangible assets acquired and liabilities assumed, including contingent consideration, and non-controlling interests, based upon their estimated fair values at the date of acquisition. The difference between the purchase price and the excess of the aggregate estimated fair values of assets acquired and liabilities assumed is recorded as goodwill. In determining the estimated fair values of assets acquired and liabilities assumed in a business combination, we use various recognized valuation methods including present value modeling, referenced market values, where available and cost-based approaches. Valuations are performed by management or independent valuation specialists under management’s supervision, where appropriate.
Accounting for business combinations requires us to make significant estimates and assumptions, especially at the acquisition date, including our estimates for intangible assets, contractual obligations assumed and contingent consideration, where applicable. While we believe the assumptions and estimates we have made are reasonable and appropriate, they are based in part on historical experience and information obtained from management of the acquired business and are inherently uncertain and subject to refinement.
We believe that the estimated fair values assigned to the assets we have acquired and liabilities we have assumed are based on reasonable and appropriate assumptions. While we believe our estimates and assumptions are reasonable and appropriate, they are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, we may record adjustments to the assets we have acquired and liabilities we have assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the estimated fair values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments would be recorded in the Consolidated
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Statements of Operations. In addition, results of operations of the acquired company are included in our results from the date of the acquisition forward and include amortization expense arising from acquired intangible assets. We expense all costs as incurred related to or involved with an acquisition in Other, net, in the Consolidated Statements of Operations.
Earnings Per Share
We present basic and diluted earnings or losses per share (“EPS”) for our Class A and Class B common stock. Basic EPS for our Class A and Class B common stock excludes potential dilution and is computed by dividing Net income (loss) attributable to EchoStar Corporation common stock by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if shares of common stock were issued pursuant to our stock-based compensation awards. The potential dilution from common stock awards is computed using the treasury stock method based on the average market value of our Class A common stock during the period. The calculation of our diluted weighted-average common shares outstanding excluded options to purchase shares of our Class A common stock, the effect of which would be anti-dilutive.
Other Comprehensive Income (Loss)
The amounts reclassified to net income (loss) related to unrealized gain (loss) on available-for-sale securities in are included in Gains (losses) on investments, net in the Consolidated Statements of Operations.
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Cash and Cash Equivalents We consider all liquid investments purchased with an original maturity of less than 90 days to be cash equivalents. Cash equivalents as of December 31, 20202022 and 20192021 primarily consisted of commercial paper, government bonds, corporate notes and money market funds. The amortized cost of these investments approximates their fair value.
Marketable Investment Securities
Debt Securities
Our corporate bond portfolio includes debt instruments issued by individual corporations, primarily in the industrial and financial services industries. Our commercial paper portfolio includes instruments issued by individual corporations, primarily in the industrial, financial services and utilities industries. Our other debt securities portfolio includes investments in various debt instruments, including U.S. government bonds and mutual funds. We consider all liquid investments purchased with an original maturity of 90 days or less to be cash equivalents.
We account for our debt securities as available-for-sale or using the fair value option based on our investment strategy for the securities. For available-for-sale debt securities, we recognize periodic changes in the difference between fair value and amortized cost in Unrealized gains (losses) on available-for-sale securities in the Consolidated Statements of Comprehensive Income (Loss). Gains and losses realized upon sales of available-for-sale debt securities are reclassified from other comprehensive income (loss) and recognized on the trade date in Gains (losses) on investments, net in the Consolidated Statements of Operations. We use the first-in, first-out (“FIFO”) method to determine the cost basis on sales of available-for-sale debt securities. Interest income from available-for-sale debt securities is reported in Interest income, net in the Consolidated Statements of Operations.
We periodically evaluate our available-for-sale debt securities portfolio to determine whether any declines in the fair value of these securities are other-than-temporary. Our evaluation considers, among other things, (i) the length of time and extent to which the fair value of such security has been lower than amortized cost, (ii) market and company-specific factors related to the security and (iii) our intent and ability to hold the investment to maturity or when it recovers its value. We generally consider a decline to be other-than-temporary when (i) we intend to sell the security, (ii) it is more likely than not that we will be required to sell the security before maturity or when it recovers its value or (iii) we do not expect to recover the amortized cost of the security at maturity. Declines in the fair value of available-for-sale debt securities that are determined to be other-than-temporary are reclassified from other comprehensive income (loss) and recognized in Net income (loss) in the Consolidated Statements of Operations, thus establishing a new cost basis for the investment.
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From time to time we make strategic investments in marketable corporate debt securities. Generally, we elect to account for these debt securities using the fair value option because it results in consistency in accounting for unrealized gains and losses for all securities in our portfolio of strategic investments. When we elect the fair value option for investments in debt securities, we recognize periodic changes in fair value of these securities in Gains (losses) on investments, net in the Consolidated Statements of Operations. Interest income from these securities is reported in Interest income, net in the Consolidated Statements of Operations.
Equity Securities
We account for our equity securities with readily determinable fair values at fair value and recognize periodic changes in the fair value in Gains (losses) on investments, net in the Consolidated Statements of Operations. We recognize dividend income on equity securities on the ex-dividend date and report such income in Other, net in the Consolidated Statements of Operations.
Restricted Marketable Investment Securities
Restricted marketable investment securities that are pledged as collateral for our letters of credit and surety bonds are included in Other non-current assets, net in the Consolidated Balance Sheets. Restricted marketable securities are accounted for in the same manner as marketable securities that are not restricted, but are presented differently in the Consolidated Balance Sheets due to the restrictions.
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Trade Accounts Receivable
Trade accounts receivable includes amounts billed and currently due from customers and represents our unconditional rights to consideration arising from our performance under our customer contracts. Trade accounts receivable also includes amounts due from customers under our leasing arrangements. We make ongoing estimates relating to the collectability of our trade accounts receivable and maintain an allowance for estimated losses resulting from the inability of our customers to make the required payments. In determining the amount of the allowance, we consider historical levels of credit losses and make judgments about the creditworthiness of our customers based on ongoing credit evaluations. Past due trade accounts receivable balances are written off when our internal collection efforts have been unsuccessful. Bad debt expense related to our trade accounts receivable and other contract assets is included in Selling, general and administrative expenses in the Consolidated Statements of Operations.
Contract Assets
Contract assets represent revenue that we have recognized in advance of billing the customer and are included in Trade accounts receivable and contract assets, net or Other non-current assets, net in the Consolidated Balance Sheets based on the expected timing of customer payment. Our contract assets typically relate to our long-term contracts where we recognize revenue using the cost-based input method and the revenue recognized exceeds the amount billed to the customer. Our contract assets also include receivables related to sales-type leases recognized over the lease term as the customer is billed.
Contract Acquisition Costs
Our contract acquisition costs represent incremental direct costs of obtaining a contract and consist primarily of sales incentives paid to employees and third-party representatives. When we determine that our contract acquisition costs are recoverable, we defer and amortize the costs over the contract term, or over the estimated life of the customer relationship if anticipated renewals are expected and the incentives payable upon renewal are not commensurate with the initial incentive. We amortize contract acquisition costs in proportion to the revenue to which the costs relate. We expense sales incentives as incurred if the expected amortization period is one year or less. Unamortized contract acquisition costs are included in Other non-current assets, net in the Consolidated Balance Sheets and related amortization expense is included in Selling, general and administrative expenses in the Consolidated Statements of Operations.
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Inventory
Inventory is stated at the lower of cost or net realizable value. Cost of inventory is determined using the FIFO method and consists primarily of materials, direct labor and indirect overhead incurred in the procurement and manufacturing of our products. We use standard costing methodologies in determining the cost of certain of our finished goods and work-in-process inventories. We determine net realizable value using our best estimates of future use or recovery, considering the aging and composition of inventory balances, the effects of technological and/or design changes, forecasted future product demand based on firm or near-firm customer orders and alternative means of disposition of excess or obsolete items. We recognize losses within Cost of sales - equipment in the Consolidated Statements of Operations when we determine that the cost of inventory and commitments to purchase inventory exceed net realizable value.
Property and Equipment
Satellites
Satellites are stated at cost, less accumulated depreciation. Depreciation is recorded on a straight-line basis over their estimated useful lives. The cost of our satellites includes construction costs, including the present value of in-orbit incentives payable to the satellite manufacturer, launch costs, capitalized interest and related insurance premiums. We depreciate our owned satellites on a straight-line basis over the estimated useful life of each satellite.
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We have satellites acquired under finance leases. The recorded costs of those satellites are the present values of all lease payments. We amortize our finance lease right-of-useROU satellites over their respective lease terms.
Our satellites may experience anomalies from time to time, some of which may have a significant adverse effect on their remaining useful lives, the commercial operation of the satellites or our operating results or financial position.
We evaluate our satellites for impairment and test for recoverability whenever events or changes in circumstances indicate that their carrying value may not be recoverable. Certain anomalies may be considered a significant adverse change in the physical condition of a particular satellite. However, based on redundancies designed within each satellite, certain of these anomalies may not be considered to be significant events requiring a test of recoverability.
We generally do not carry in-orbit insurance on our satellites and 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. However, we may be required to carry insurance on specific satellites and payloads per the terms of certain agreements. We will continue to assess circumstances going forward and make insurance-related decisions on a case-by-case basis.
Other Property and Equipment Other property and equipment are stated at cost, less accumulated depreciation. Depreciation is recorded on a straight-line basis over their estimated useful lives. Other property and equipment includes: land; buildings and improvements; furniture, fixtures, equipment and internal-use software; customer premises equipment; and construction in process. Costs related to the procurement and development of software for internal-use are capitalized and amortized using the straight-line method over the estimated useful life of the software, not in excess of five years. Repair and maintenance costs are charged to expense when incurred.
Goodwill
Goodwill representsWe account for acquired businesses using the acquisition method of accounting which requires that the assets acquired and liabilities assumed be recorded at the date of acquisition at their respective fair values. Any excess of the cost of acquired businessespurchase price over the estimated fair values assigned toof the identifiablenet assets acquired and liabilities assumed. We test goodwill for impairment annually in our second fiscal quarter, or more frequently if indicators of impairment may exist.is recorded as goodwill. All of our goodwill is assigned to our Hughes segment, as it was generated through the acquisition of Hughes Communications, Inc. (“Hughes Communications”) and its subsidiaries in 2011 (the “Hughes Acquisition”), and the agreement with Al Yah Satellite Communications
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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”).segment.
We considerevaluate goodwill for impairment on an annual basis in our second fiscal quarter or whenever events and changes in circumstances indicate the carrying amounts may not be recoverable. Impairments may result from, among other things, deterioration in financial and operational performance, declines in stock price, increased attrition, adverse market conditions, adverse changes in applicable laws and/or regulations, deterioration of general macroeconomic conditions, fluctuations in foreign exchange rates, increased competitive markets in which we operate in, declining financial performance over a sustained period, changes in key personnel and/or strategy, and a variety of other factors. Our impairment assessment typically begins with a qualitative factorsassessment to assess ifdetermine whether it is more likely than not that the fair value for goodwillof the reporting unit is below theless than its carrying amount. We may also elect to bypass theThe qualitative assessment and perform a quantitative assessment.includes comparing the overall financial performance against the planned results. In conducting athe performance of the qualitative assessment, we analyze a variety of events or factors that may influence the fair value of the reporting unit, that could include, but are not limited to: macroeconomic conditions, industry and market considerations, cost factors, and other relevant entity-specific events which requires significant judgment. If we determine in the qualitative assessment that it is more likely than not that the fair value is less than its carrying value, then we perform a quantitative assessment to determine the estimated fair value of the indefinite lived asset or reporting unit. We could also choose the option to bypass the qualitative assessment for any reporting unit in any period and proceed directly to the quantitative impairment test. In the quantitative assessment, fair value is usually estimated using two valuation approaches: the discounted cash flows method and the market comparable method. In the performance of the quantitative assessment, we use a variety of inputs, some of which may require significant judgment, that influence the fair value of the reporting unit, that could include, but are not limited to: discount rate, revenue growth rate, amount and timing of future cash flows, guideline public company metrics, and comparable market transactions. In addition, we also perform a market capitalization reconciliation to compare the estimated fair value, determined using the discounted cash flows method and the market comparable method, to the
ECHOSTAR CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Company’s market capitalization as of the date of the test. If the carrying value exceeds the estimated fair value, then an impairment is recognized for the difference.
There has been no impairment to date.
Regulatory Authorizations
Finite Lived
We have regulatory authorizations that are not related to the Federal Communications Commission (“FCC”) and have determined that they have finite lives due to uncertainties about the ability to extend or renew their terms. Finite lived regulatory authorizations are amortized over their estimated useful lives on a straight-line basis. Renewal costs are usually capitalized when they are incurred.
Indefinite Lived
We also have indefinite lived regulatory authorizations that primarily consist of FCC authorizations and certain other contractual or regulatory rights to use spectrum at specified orbital locations. We have determined that our FCC authorizations generally have indefinite useful lives based on the following: •FCC authorizations are non-depleting assets; •Renewal satellite applications generally are authorized by the FCC subject to certain conditions, without substantial cost under a stable regulatory, legislative and legal environment; •Expenditures required to maintain the authorization are not significant; and •We intend to use these authorizations indefinitely.
Costs incurred to maintain or renew indefinite-lived regulatory authorizations are expensed as incurred.
Other Intangible Assets Our other intangible assets consist of customer relationships, patents, trademarks and licenses which are amortized using the straight-line method over their estimated useful lives. We evaluate the recoverability of intangible assets periodically by taking into account events or circumstances that indicate that the carrying amount of the assets may not be recoverable.
Impairment of Long-lived Assets We review our long-lived assets for recoverability whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. The evaluation is performed at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. For assets held and used in operations, the asset is not recoverable if the carrying amount of the asset exceeds its undiscounted estimated future net cash flows. When an asset is not recoverable, we adjust the carrying amount of such asset to its estimated fair value and recognize the impairment loss in Impairment of long-lived assets in the Consolidated Statements of Operations.
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Other Investments
Equity Method Investments
We use the equity method to account for investments when we have the ability to exercise significant influence on the operating decisions of the affiliate. Such investments are initially recorded at cost and subsequently adjusted for our proportionate share of the net earnings or loss of the investee, which is reported in Equity in earnings (losses) of unconsolidated affiliates, net in the Consolidated Statements of Operations. During the fourth quarter of 2019, we changed our accounting policy to record our share of the net earnings or losses of these affiliates on a three-month lag. This change was immaterial to these Consolidated Financial Statements. Additionally, the carrying amount of such investments includes a component of goodwill when the cost of our investment exceeds the fair value of the
ECHOSTAR CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
underlying identifiable assets and liabilities of the affiliate. Lastly, dividends received from these affiliates reduces the carrying amount of our investment.
Other Equity Investments
We generally measure investments in non-publicly traded equity instruments without a readily determinable fair value at cost adjusted for observable price changes in orderly transactions for the identical or similar securities of the same issuer and changes resulting from impairments, if any. Other equity instruments are measured to determine their value based on observable market information. When we adjust the carrying amount of an investment to its estimated fair value, the gain or loss is recorded in Gains (losses) on investments, net in the Consolidated Statements of Operations.
Other Debt Investments
We generally record our investments in non-publicly traded debt instruments without a readily determinable fair value at amortized cost. We recognize any discounts over the term of the loan in Interest income in the Consolidated Statements of Operations. In addition, some of our debt instruments have interest income that is paid-in-kind, which is added to the principal balance to determine the then current interest income. When we adjust the carrying amount of an investment, the gain or loss is recorded in Gains (losses) on investments, net in the Consolidated Statements of Operations.
Impairment Considerations
We periodically evaluate all of our other investments to determine whether (i) events or changes in circumstances have occurred that may have a significant adverse effect on the fair value of the investment and (ii) if there has been observable price changes in orderly transactions for identical or similar securities of the same issuer.investment. We consider information if provided to us by our investees such as current financial statements, business plans, investment documentation, capitalization tables, liquidation waterfalls, and board materials; and we may make additional inquiries of investee management.
Indicators of impairment may include, but are not limited to, unprofitable operations, material loss contingencies, changes in business strategy, changes in market trends or market conditions, changes in the investees’ enterprise value and changes in the investees’ investment pricing. When we determine that one of our other investments is impaired we reduce its carrying value to its estimated fair value and recognize the impairment loss in Other-than-temporary impairment losses on equity method investments or Gains (losses) on investments, net in the Consolidated Statements of Operations. Additionally, when there has been an observable price change to a cost method investment, we adjust the carrying amount of the investment to its then estimated fair value and recognize the investment gain or loss in Gains (losses) on investments, net in the Consolidated Statements of Operations. Externally Marketed Software
Costs related to the procurement and development of externally marketed software are capitalized and amortized using the straight-line method over the estimated useful life of the software, not in excess of five years. Capitalized costs of externally marketed software are included in Other non-current assets, net in the Consolidated Balance Sheets. Externally marketed software generally is installed in the equipment we sell or lease to customers. We conduct software program reviews for externally marketed capitalized software costs at least annually, or as events and circumstances warrant such a review, to determine if capitalized software development costs are recoverable and to ensure that costs associated with programs that are no longer generating revenue are expensed.
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Contract Liabilities
Contract liabilities consist of advance payments and billings in excess of revenue recognized under customer contracts and are included in Contract liabilities or Other non-current liabilities in the Consolidated Balance Sheets based on the timing of when we expect to recognize revenue. We recognize contract liabilities as revenue after all revenue recognition criteria have been met.
Recently Adopted Accounting Pronouncements
Government Assistance
On January 1, 2022 we adopted Accounting Standards Update (“ASU”) No. 2021-10 - Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance, which requires business entities (except for not-for-profit entities and employee benefit plans) to disclose information about certain government assistance they receive. The Topic 832 disclosure requirements include: (i) the nature of the transactions and the related accounting policy used; (ii) the line items on the balance sheet and income statement that are affected and the amounts applicable to each financial statement line item; and (iii) significant terms and conditions of the transactions. Our adoption of this ASU did not have a material impact on our Consolidated Financial Statements.
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Income Taxes
On January 1, 2021, we adopted ASU No. 2019-12 - Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”). ASU 2019-12 is part of the 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. Our adoption of this ASU did not have a material impact on our Consolidated Financial Statements.
Credit Losses
On January 1, 2020, we adopted Accounting Standards Update (“ASU”)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 $9.1 million to Accumulated earnings (losses) as of January 1, 2020. Based on this election, we did not restate our comparative 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.
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We record our estimated credit losses as a component of our bad debt expense as reported in Selling, general and administrative expenses.
•Other Investments, Net — We estimate expected credit losses on our other debt investments with payment terms longer than one year separately by debtor, due to the unique risk characteristics of such debt investments. 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 debt investments are with entities in the telecommunications industry. The collection of contractual principal and interest on these debt investments are highly dependent on the future business operations of those entities. Our estimation of expected credit losses for such debt investments require significant judgment about matters specific to the debtor and their industry. Accordingly, our actual collection experience may differ from the assumptions reflected in our expected credit loss estimates.
We record our other debt investments related estimated credit losses as a reduction ofInterest income, net.
Financial Impact of Adoption. The following table presents our adoption of this new standard resulting in adjustments to our Consolidated Balance Sheet effective January 1, 2020:
| | | | | | | | | | | | | | | | | | | | | | | Balance December 31, 2019 | | Adoption of ASC 326 Increase (Decrease) | | Balance January 1, 2020 | Trade accounts receivable and contract assets, net | | $ | 196,629 | | | $ | (13,672) | | | $ | 182,957 | | Other current assets, net | | $ | 179,531 | | | $ | 6,723 | | | $ | 186,254 | | Other investments, net | | $ | 325,405 | | | $ | (7,381) | | | $ | 318,024 | | Other non-current assets, net | | $ | 334,841 | | | $ | 4,050 | | | $ | 338,891 | | Total assets | | $ | 7,154,298 | | | $ | (10,280) | | | $ | 7,144,018 | | Deferred tax liabilities, net | | $ | 351,692 | | | $ | (972) | | | $ | 350,720 | | Accumulated earnings (losses) | | $ | 632,809 | | | $ | (9,068) | | | $ | 623,741 | | Non-controlling interests | | $ | 75,748 | | | $ | (240) | | | $ | 75,508 | | Total stockholders’ equity | | $ | 3,745,553 | | | $ | (9,308) | | | $ | 3,736,245 | | Total liabilities and stockholders’ equity | | $ | 7,154,298 | | | $ | (10,280) | | | $ | 7,144,018 | |
The application of ASC 326 requirements did not materially affect our Consolidated Statements of Operations for the year ended December 31, 2020.
Leases
Recently Issued Accounting Pronouncements Not Yet Adopted
We adopted ASU No. 2016-02 - Leases (Topic 842) Leases (Topic 842), as amended, codified as Accounting Standard Codification (“ASC 842”), as of January 1, 2019. The primary impact of ASC 842 on these Consolidated Financial Statements is the recognition of right-of-use assets and related liabilities in the Consolidated Balance Sheet for leases where we are the lessee. We elected to apply the requirements of the new standard prospectively on January 1, 2019 and did not restate these Consolidated Financial Statements for prior periods. Our adoption of ASC 842 did not have a material impact on our results of operations or cash flows for the year ended December 31, 2019.
Business Combinations
ExceptIn October 2021, the FASB issued ASU No. 2021-08 - Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which provides an exception to fair value measurement for contract assets and contract liabilities related to revenue contracts acquired in a business combination. The ASU requires an entity (acquirer) to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606. At the acquisition date, an acquirer should account for the new requirementrelated revenue contracts in accordance with Topic 606 as if it had originated the contracts. The ASU is effective for the Company for annual and interim periods in fiscal years beginning after December 15, 2022. The ASU is applied to recognize assets and liabilities on the balance sheet for operating leases where we are the lessee, under our ASC 842 transition method, we continue to apply prior accounting standards to leases that commenced prior to 2019. We fully apply ASC 842 requirements only to leases that commenced or were modifiedbusiness combinations occurring on or after January 1, 2019. We elected certain practical expedients under our transition method, including elections to not reassess (i) whether a contract is or contains a lease and (ii) the classification of existing leases. We also elected not to apply hindsight in determining whether optional renewal periods should be included in the leaseeffective date.
ECHOSTAR CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED term, which in some instances may impact the initial measurement of the lease liability and the calculation of straight-line expense over the lease term for operating leases. As a result of our transition elections, there was no change in our recognition of revenue and expense for leases that commenced prior to 2019. In addition, the application of ASC 842 requirements to new and modified leases did not materially affect our recognition of revenue or expenses for the year ended December 31, 2019.
Financial Impact of Adoption. The following table presents our adoption of this standard resulting in adjustments to our Consolidated Balance Sheet effective January 1, 2019:
| | | | | | | | | | | | | | | | | | | | | | | Balance December 31, 2018 | | Adoption of ASC 842 Increase (Decrease) | | Balance January 1, 2019 | Other current assets, net | | $ | 165,809 | | | $ | (28) | | | $ | 165,781 | | Operating lease right-of-use assets | | $ | 0 | | | $ | 120,358 | | | $ | 120,358 | | Other non-current assets, net | | $ | 338,390 | | | $ | (7,272) | | | $ | 331,118 | | Total assets | | $ | 8,661,294 | | | $ | 113,058 | | | $ | 8,774,352 | | Accrued expenses and other current liabilities | | $ | 181,698 | | | $ | 17,453 | | | $ | 199,151 | | Operating lease liabilities | | $ | 0 | | | $ | 100,085 | | | $ | 100,085 | | Other non-current liabilities | | $ | 80,304 | | | $ | (3,871) | | | $ | 76,433 | | Total liabilities | | $ | 4,505,820 | | | $ | 113,667 | | | $ | 4,619,487 | | Accumulated earnings (losses) | | $ | 694,129 | | | $ | (609) | | | $ | 693,520 | | Total stockholders’ equity | | $ | 4,155,474 | | | $ | (609) | | | $ | 4,154,865 | | Total liabilities and stockholders’ equity | | $ | 8,661,294 | | | $ | 113,058 | | | $ | 8,774,352 | |
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 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 adoption is permitted. We have assessed the impact of adopting this new guidance and it will not have a material impact on our consolidated financial statements.Reference Rate Reform
In March 2020, the FASB issued ASU No. 2020-04 - Reference Rate Reform (Topic 848),, and all subsequent amendments to the initial guidance, 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 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, 2022.2024. We expect to utilize the optional expedients provided by the guidance for contracts amended solely to use an alternative reference rate. We have evaluated the impactnew guidance and we are in the process of adoptingimplementing this new guidanceASU, and all subsequent amendments, and do not expect itthem to have a material impact on our consolidated financial statements.Consolidated Financial Statements.
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NOTE 3. REVENUE RECOGNITION
Contract Balances
The following table presents the components of our contract balances: | | | | As of December 31, | | | As of December 31, | | | 2020 | | 2019 | | 2022 | | 2021 | 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 | | $ | 149,513 | | | $ | 152,632 | | Sales and services | | $ | 170,466 | | | $ | 154,676 | | Leasing | Leasing | | 4,554 | | | 4,016 | | Leasing | | 7,936 | | | 5,668 | | Total trade accounts receivable | Total trade accounts receivable | | 154,067 | | | 156,648 | | Total trade accounts receivable | | 178,402 | | | 160,344 | | Contract assets | Contract assets | | 45,308 | | | 63,758 | | Contract assets | | 73,435 | | | 36,307 | | Allowance for doubtful accounts | Allowance for doubtful accounts | | (15,386) | | | (23,777) | | Allowance for doubtful accounts | | (15,358) | | | (14,588) | | Total trade accounts receivable and contract assets, net | Total trade accounts receivable and contract assets, net | | $ | 183,989 | | | $ | 196,629 | | Total trade accounts receivable and contract assets, net | | $ | 236,479 | | | $ | 182,063 | | | Contract liabilities: | Contract liabilities: | | Contract liabilities: | | Current | Current | | $ | 104,569 | | | $ | 101,060 | | Current | | $ | 121,739 | | | $ | 141,343 | | Non-current | Non-current | | 10,519 | | | 10,572 | | Non-current | | 8,326 | | | 10,669 | | Total contract liabilities | Total contract liabilities | | $ | 115,088 | | | $ | 111,632 | | Total contract liabilities | | $ | 130,065 | | | $ | 152,012 | |
The following table presents the revenue recognized in the Consolidated StatementStatements of Operations that was previously included within contract liabilities:
| | | | | | | | | | | | | | | | | | | | | | | For the years ended December 31, | | | 2020 | | 2019 | | 2018 | Revenue | | $ | 72,877 | | | $ | 65,417 | | | $ | 52,000 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | For the years ended December 31, | | | | | | | 2022 | | 2021 | | 2020 | Revenue | | | | | | $ | 120,867 | | | $ | 82,633 | | | $ | 72,877 | |
The following table presents the activity in our allowance for doubtful accounts:
| | | For the years ended December 31, | | For the years ended December 31, | | | 2020 | | 2019 | | 2018 | | 2022 | | 2021 | | 2020 | Balance at beginning of period | Balance at beginning of period | | $ | 23,777 | | | $ | 16,604 | | | $ | 12,027 | | Balance at beginning of period | | $ | 14,588 | | | $ | 15,386 | | | $ | 23,777 | | Credit losses (1) | Credit losses (1) | | 18,582 | | | 30,027 | | | 24,984 | | Credit losses (1) | | 32,910 | | | 22,591 | | | 18,582 | | Deductions | Deductions | | (26,031) | | | (21,832) | | | (16,888) | | Deductions | | (36,011) | | | (23,543) | | | (26,031) | | Foreign currency translation | Foreign currency translation | | (942) | | | (1,022) | | | (3,519) | | Foreign currency translation | | 3,871 | | | 154 | | | (942) | | Balance at end of period | Balance at end of period | | $ | 15,386 | | | $ | 23,777 | | | $ | 16,604 | | Balance at end of period | | $ | 15,358 | | | $ | 14,588 | | | $ | 15,386 | |
ECHOSTAR CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(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).
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Contract Acquisition Costs
The following table presents the activity in our contract acquisition costs, net:
| | | For the years ended December 31, | | For the years ended December 31, | | | 2020 | | 2019 | | 2018 | | 2022 | | 2021 | | 2020 | Balance at beginning of period | Balance at beginning of period | | $ | 113,592 | | | $ | 114,306 | | | $ | 90,899 | | Balance at beginning of period | | $ | 82,986 | | | $ | 99,837 | | | $ | 113,592 | | Additions | Additions | | 91,143 | | | 97,457 | | | 113,265 | | Additions | | 57,627 | | | 72,503 | | | 91,143 | | Amortization expense | Amortization expense | | (101,278) | | | (97,650) | | | (88,949) | | Amortization expense | | (76,760) | | | (88,178) | | | (101,278) | | Foreign currency translation | Foreign currency translation | | (3,620) | | | (521) | | | (909) | | Foreign currency translation | | 594 | | | (1,176) | | | (3,620) | | Balance at end of period | Balance at end of period | | $ | 99,837 | | | $ | 113,592 | | | $ | 114,306 | | Balance at end of period | | $ | 64,447 | | | $ | 82,986 | | | $ | 99,837 | |
Transaction Price Allocated to Remaining Performance Obligations
As of December 31, 2020,2022, the remaining performance obligations for our customer contracts with original expected durations of more than one year was $942.3 million. We expect$1.1 billion. Performance obligations expected to recognize 38.2% 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 34.0% and 66.0%, respectively. This amount excludesand percentages exclude agreements with consumer customers in our Hughes segment, our leasing arrangements and agreements with certain customers under which collectibilitycollectability of all amounts due through the term of contracts is uncertain.
Disaggregation of Revenue
Geographic Information
The following table presentstables present our revenue from customer contracts disaggregated by primary geographic market and by segment: | | | | Hughes | | ESS | | Corporate and Other | | Consolidated Total | | For the year ended December 31, 2022 | | For the year ended December 31, 2022 | | | | | | | | | North America | | North America | | $ | 1,576,773 | | | $ | 20,533 | | | $ | 10,958 | | | $ | 1,608,264 | | South and Central America | | South and Central America | | 171,318 | | | — | | | — | | | 171,318 | | Other | | Other | | 218,496 | | | — | | | 15 | | | 218,511 | | Total revenue | | Total revenue | | $ | 1,966,587 | | | $ | 20,533 | | | $ | 10,973 | | | $ | 1,998,093 | | | For the year ended December 31, 2021 | | For the year ended December 31, 2021 | | North America | | North America | | $ | 1,617,229 | | | $ | 17,679 | | | $ | 11,782 | | | $ | 1,646,690 | | South and Central America | | South and Central America | | 176,515 | | | — | | | — | | | 176,515 | | Other | | Other | | 162,482 | | | — | | | 33 | | | 162,515 | | Total revenue | | Total revenue | | $ | 1,956,226 | | | $ | 17,679 | | | $ | 11,815 | | | $ | 1,985,720 | | | | Hughes | | ESS | | Corporate and Other | | Consolidated Total | | | | | | | | | For the year ended December 31, 2020 | For the year ended December 31, 2020 | | | | | | | | | For the year ended December 31, 2020 | | North America | North America | | $ | 1,556,961 | | | $ | 17,398 | | | $ | 9,443 | | | $ | 1,583,802 | | North America | | $ | 1,556,961 | | | $ | 17,398 | | | $ | 9,443 | | | $ | 1,583,802 | | South and Central America | South and Central America | | 151,194 | | | 0 | | | 232 | | | 151,426 | | South and Central America | | 151,194 | | | — | | | 232 | | | 151,426 | | Other | Other | | 152,679 | | | 0 | | | 0 | | | 152,679 | | Other | | 152,679 | | | — | | | — | | | 152,679 | | Total revenue | Total revenue | | $ | 1,860,834 | | | $ | 17,398 | | | $ | 9,675 | | | $ | 1,887,907 | | Total revenue | | $ | 1,860,834 | | | $ | 17,398 | | | $ | 9,675 | | | $ | 1,887,907 | | | For the year ended December 31, 2019 | | | North America | | $ | 1,527,823 | | | $ | 16,257 | | | $ | 16,526 | | | $ | 1,560,606 | | | South and Central America | | 125,458 | | | 0 | | | 448 | | | 125,906 | | | Other | | 199,461 | | | 0 | | | 108 | | | 199,569 | | | Total revenue | | $ | 1,852,742 | | | $ | 16,257 | | | $ | 17,082 | | | $ | 1,886,081 | | | | For the year ended December 31, 2018 | | | North America | | $ | 1,444,628 | | | $ | 27,231 | | | $ | 18,495 | | | $ | 1,490,354 | | | South and Central America | | 101,632 | | | 0 | | | 384 | | | 102,016 | | | Other | | 170,268 | | | 0 | | | 0 | | | 170,268 | | | Total revenue | | $ | 1,716,528 | | | $ | 27,231 | | | $ | 18,879 | | | $ | 1,762,638 | | |
ECHOSTAR CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Nature of Products and Services
The following table presentstables present our revenue disaggregated by the nature of products and services and by segment: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Hughes | | ESS | | Corporate and Other | | Consolidated Total | For the year ended December 31, 2020 | | | | | | | | | Services and other revenue: | | | | | | | | | Services | | $ | 1,614,730 | | | $ | 10,785 | | | $ | 4,631 | | | $ | 1,630,146 | | Lease revenue | | 40,503 | | | 6,613 | | | 5,042 | | | 52,158 | | Total services and other revenue | | 1,655,233 | | | 17,398 | | | 9,673 | | | 1,682,304 | | Equipment revenue: | | | | | | | | | Equipment | | 110,108 | | | 0 | | | 2 | | | 110,110 | | Design, development and construction services | | 88,511 | | | 0 | | | 0 | | | 88,511 | | Lease revenue | | 6,982 | | | 0 | | | 0 | | | 6,982 | | Total equipment revenue | | 205,601 | | | 0 | | | 2 | | | 205,603 | | Total revenue | | $ | 1,860,834 | | | $ | 17,398 | | | $ | 9,675 | | | $ | 1,887,907 | | | | | | | | | | | For the year ended December 31, 2019 | | | | | | | | | Services and other revenue: | | | | | | | | | Services | | $ | 1,535,966 | | | $ | 10,464 | | | $ | 6,493 | | | $ | 1,552,924 | | Lease revenue | | 50,073 | | | 5,793 | | | 10,481 | | | 66,347 | | Total services and other revenue | | 1,586,039 | | | 16,257 | | | 16,974 | | | 1,619,271 | | Equipment revenue: | | | | | | | | | Equipment | | 115,052 | | | 0 | | | 107 | | | 115,159 | | Design, development and construction services | | 145,646 | | | 0 | | | 0 | | | 145,646 | | Lease revenue | | 6,005 | | | 0 | | 0 | | 6,005 | | Total equipment revenue | | 266,703 | | | 0 | | | 107 | | | 266,810 | | Total revenue | | $ | 1,852,742 | | | $ | 16,257 | | | $ | 17,082 | | | $ | 1,886,081 | | | | | | | | | | | For the year ended December 31, 2018 | | | | | | | | | Services and other revenue: | | | | | | | | | Services | | $ | 1,313,059 | | | $ | 21,044 | | | $ | 5,821 | | | $ | 1,339,924 | | Lease revenue | | 198,059 | | | 6,187 | | | 13,058 | | | 217,304 | | Total services and other revenue | | 1,511,118 | | | 27,231 | | | 18,879 | | | 1,557,228 | | Equipment revenue: | | | | | | | | | Equipment | | 119,657 | | | 0 | | | 0 | | | 119,657 | | Design, development and construction services | | 85,753 | | | 0 | | | 0 | | | 85,753 | | Total equipment revenue | | 205,410 | | | 0 | | | 0 | | | 205,410 | | Total revenue | | $ | 1,716,528 | | | $ | 27,231 | | | $ | 18,879 | | | $ | 1,762,638 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | Hughes | | ESS | | Corporate and Other | | Consolidated Total | For the year ended December 31, 2022 | | | | | | | | | Services and other revenue: | | | | | | | | | Services | | $ | 1,551,613 | | | $ | 13,206 | | | $ | 5,859 | | | $ | 1,570,678 | | Lease revenue | | 40,825 | | | 7,327 | | | 5,101 | | | 53,253 | | Total services and other revenue | | 1,592,438 | | | 20,533 | | | 10,960 | | | 1,623,931 | | Equipment revenue: | | | | | | | | | Equipment | | 119,107 | | | — | | | 13 | | | 119,120 | | Design, development and construction services | | 246,265 | | | — | | | — | | | 246,265 | | Lease revenue | | 8,777 | | | — | | | — | | | 8,777 | | Total equipment revenue | | 374,149 | | | — | | | 13 | | | 374,162 | | Total revenue | | $ | 1,966,587 | | | $ | 20,533 | | | $ | 10,973 | | | $ | 1,998,093 | | | | | | | | | | | For the year ended December 31, 2021 | | | | | | | | | Services and other revenue: | | | | | | | | | Services | | $ | 1,646,778 | | | $ | 11,961 | | | $ | 5,691 | | | $ | 1,664,430 | | Lease revenue | | 39,021 | | | 5,718 | | | 6,118 | | | 50,857 | | Total services and other revenue | | 1,685,799 | | | 17,679 | | | 11,809 | | | 1,715,287 | | Equipment revenue: | | | | | | | | | Equipment | | 108,767 | | | — | | | 6 | | | 108,773 | | Design, development and construction services | | 152,934 | | | — | | | — | | | 152,934 | | Lease revenue | | 8,726 | | | — | | | — | | | 8,726 | | Total equipment revenue | | 270,427 | | | — | | | 6 | | | 270,433 | | Total revenue | | $ | 1,956,226 | | | $ | 17,679 | | | $ | 11,815 | | | $ | 1,985,720 | | | | | | | | | | | For the year ended December 31, 2020 | | | | | | | | | Services and other revenue: | | | | | | | | | Services | | $ | 1,614,730 | | | $ | 10,785 | | | $ | 4,631 | | | $ | 1,630,146 | | Lease revenue | | 40,503 | | | 6,613 | | | 5,042 | | | 52,158 | | Total services and other revenue | | 1,655,233 | | | 17,398 | | | 9,673 | | | 1,682,304 | | Equipment revenue: | | | | | | | | | Equipment | | 110,108 | | | — | | | 2 | | | 110,110 | | Design, development and construction services | | 88,511 | | | — | | | — | | | 88,511 | | Lease revenue | | 6,982 | | | — | | | — | | | 6,982 | | Total equipment revenue | | 205,601 | | | — | | | 2 | | | 205,603 | | Total revenue | | $ | 1,860,834 | | | $ | 17,398 | | | $ | 9,675 | | | $ | 1,887,907 | |
ECHOSTAR CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Lease Revenue
We elected to apply the requirements of ASC Topic 842, Leases, prospectively on January 1, 2019. As a result, the following disclosures required by the new guidance are not presented for periods prior to that date.
The following table presents our lease revenue by type of lease: | | | For the years ended December 31, | | | For the years ended December 31, | | | 2020 | | 2019 | | | 2022 | | 2021 | | 2020 | Sales-type lease revenue: | Sales-type lease revenue: | | | | | Sales-type lease revenue: | | | | | | | | Revenue at lease commencement | Revenue at lease commencement | | $ | 6,982 | | | $ | 6,005 | | Revenue at lease commencement | | | $ | 7,557 | | | $ | 7,998 | | | $ | 6,982 | | Interest income | Interest income | | 393 | | | 784 | | Interest income | | | 1,220 | | | 728 | | | 393 | | Total sales-type lease revenue | Total sales-type lease revenue | | 7,375 | | | 6,789 | | Total sales-type lease revenue | | | 8,777 | | | 8,726 | | | 7,375 | | Operating lease revenue | Operating lease revenue | | 51,765 | | | 65,563 | | Operating lease revenue | | | 53,253 | | | 50,857 | | | 51,765 | | Total lease revenue | Total lease revenue | | $ | 59,140 | | | $ | 72,352 | | Total lease revenue | | | $ | 62,030 | | | $ | 59,583 | | | $ | 59,140 | |
Substantially all of our net investment in sales-type leases consisted of lease receivables totaling $13.0$21.9 million and $6.5$17.1 million as of December 31, 20202022 and 2019,2021, respectively.
The following table presents future operating lease payments to be received as of December 31, 2020:2022: | | | Amounts | | Amounts | December 31, | December 31, | | | December 31, | | | 2021 | | $ | 45,332 | | | 2022 | | 34,137 | | | 2023 | 2023 | | 31,907 | | 2023 | | $ | 45,107 | | 2024 | 2024 | | 29,666 | | 2024 | | 40,485 | | 2025 | 2025 | | 28,035 | | 2025 | | 30,802 | | 2026 and beyond | | 99,692 | | | Total lease payments | | $ | 268,769 | | | 2026 | | 2026 | | 28,828 | | 2027 | | 2027 | | 23,860 | | 2028 and beyond | | 2028 and beyond | | 46,070 | | Total lease payments to be received | | Total lease payments to be received | | $ | 215,152 | |
The following table presents amounts for assets subject to operating leases, which are included in Property and equipment, net: | | | As of December 31, | | As of December 31, | | | 2020 | | 2019 | | 2022 | | 2021 | | | Cost | | Accumulated Depreciation | | Net | | Cost | | Accumulated Depreciation | | Net | | Cost | | Accumulated Depreciation | | Net | | Cost | | Accumulated Depreciation | | Net | Customer premises equipment | Customer premises equipment | | $ | 1,617,053 | | | $ | (1,265,129) | | | $ | 351,924 | | | $ | 1,377,914 | | | $ | (1,043,431) | | | $ | 334,483 | | Customer premises equipment | | $ | 855,621 | | | $ | (629,592) | | | $ | 226,029 | | | $ | 1,778,061 | | | $ | (1,485,525) | | | $ | 292,536 | | Satellites | Satellites | | 104,620 | | | (38,335) | | | 66,285 | | | 104,620 | | | (31,360) | | | 73,260 | | Satellites | | 104,620 | | | (52,284) | | | 52,336 | | | 104,620 | | | (45,309) | | | 59,311 | | Real estate | Real estate | | 48,275 | | | (17,094) | | | 31,181 | | | 46,930 | | | (16,048) | | | 30,882 | | Real estate | | 48,275 | | | (19,034) | | | 29,241 | | | 48,275 | | | (18,064) | | | 30,211 | | Total | Total | | $ | 1,769,948 | | | $ | (1,320,558) | | | $ | 449,390 | | | $ | 1,529,464 | | | $ | (1,090,839) | | | $ | 438,625 | | Total | | $ | 1,008,516 | | | $ | (700,910) | | | $ | 307,606 | | | $ | 1,930,956 | | | $ | (1,548,898) | | | $ | 382,058 | | |
During 2022, the Company identified fully depreciated assets that were no longer in use, mostly related to our customer premises equipment assets. Cost and accumulated depreciation were reduced by $1.1 billion. There was no impact to Other property and equipment, net.
ECHOSTAR CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
The following table presents depreciation expense for assets subject to operating leases, which is included in Depreciation and amortization:
| | | | | | | | | | | | | | | | | For the years ended December 31, | | | 2020 | | 2019 | Customer premises equipment | | $ | 230,079 | | | $ | 182,523 | | Satellites | | 6,975 | | | 7,495 | | Real estate | | 942 | | | 923 | | Total | | $ | 237,996 | | | $ | 190,941 | |
| | | | | | | | | | | | | | | | | | | | | | | For the years ended December 31, | | | 2022 | | 2021 | | 2020 | Customer premises equipment | | $ | 208,704 | | | $ | 230,609 | | | $ | 230,079 | | Satellites | | 6,975 | | | 6,975 | | | 6,975 | | Real estate | | 970 | | | 970 | | | 942 | | Total | | $ | 216,649 | | | $ | 238,554 | | | $ | 237,996 | |
NOTE 4. LESSEE ACCOUNTING
We elected to apply the requirements of ASC Topic 842, Leases, prospectively on January 1, 2019. As a result, the following disclosures required by the new guidance are not presented for periods prior to that date.
The following table presents the amounts for right-of-useROU assets and lease liabilities: | | | As of December 31, | | As of December 31, | | | 2020 | | 2019 | | 2022 | | 2021 | Right-of-use assets: | Right-of-use assets: | | | | | Right-of-use assets: | | | | | Operating | Operating | | $ | 128,303 | | | $ | 114,042 | | Operating | | $ | 151,518 | | | $ | 149,198 | | Finance | Finance | | 278,237 | | | 325,826 | | Finance | | 238,748 | | | 258,498 | | Total right-of-use assets | Total right-of-use assets | | $ | 406,540 | | | $ | 439,868 | | Total right-of-use assets | | $ | 390,266 | | | $ | 407,696 | | | Lease liabilities: | Lease liabilities: | | Lease liabilities: | | Current: | Current: | | Current: | | Operating | Operating | | $ | 14,699 | | | $ | 14,651 | | Operating | | $ | 17,854 | | | $ | 16,781 | | Finance | Finance | | 423 | | | 486 | | Finance | | — | | | 123 | | Total current | Total current | | 15,122 | | | 15,137 | | Total current | | 17,854 | | | 16,904 | | Non-current: | Non-current: | | | | | Non-current: | | | | | Operating | Operating | | 114,886 | | | 96,941 | | Operating | | 135,932 | | | 134,897 | | Finance | Finance | | 129 | | | 565 | | Finance | | — | | | — | | Total non-current | Total non-current | | 115,015 | | | 97,506 | | Total non-current | | 135,932 | | | 134,897 | | Total lease liabilities | Total lease liabilities | | $ | 130,137 | | | $ | 112,643 | | Total lease liabilities | | $ | 153,786 | | | $ | 151,801 | |
As of December 31, 2020,2022, we have prepaid our obligations regarding most of our finance right-of-useROU assets. Finance lease assets are reported net of accumulated amortization of $74.0$121.9 million and $57.3$95.7 million as of December 31, 20202022 and 2019,2021, respectively.
ECHOSTAR CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
The following table presents the components of lease cost and weighted averageweighted-average lease terms and discount rates for operating and finance leases: | | | For the years ended December 31, | | For the years ended December 31, | | | 2020 | | 2019 | | 2022 | | 2021 | | 2020 | Lease cost: | Lease cost: | | | | | Lease cost: | | | | | | | Operating lease cost | Operating lease cost | | $ | 24,000 | | | $ | 24,342 | | Operating lease cost | | $ | 25,345 | | | $ | 23,379 | | | $ | 24,000 | | Finance lease cost: | Finance lease cost: | | Finance lease cost: | | Amortization of right-of-use assets | Amortization of right-of-use assets | | 27,611 | | | 26,489 | | Amortization of right-of-use assets | | 29,906 | | | 29,270 | | | 27,611 | | Interest on lease liabilities | Interest on lease liabilities | | 106 | | | 173 | | Interest on lease liabilities | | 7 | | | 49 | | | 106 | | Total finance lease cost | Total finance lease cost | | 27,717 | | | 26,662 | | Total finance lease cost | | 29,913 | | | 29,319 | | | 27,717 | | Short-term lease cost | Short-term lease cost | | 376 | | | 434 | | Short-term lease cost | | 258 | | | — | | | 376 | | Variable lease cost | Variable lease cost | | 3,853 | | | 8,837 | | Variable lease cost | | 2,753 | | | 2,625 | | | 3,853 | | Total lease cost | Total lease cost | | $ | 55,946 | | | $ | 60,275 | | Total lease cost | | $ | 58,269 | | | $ | 55,323 | | | $ | 55,946 | |
| | | As of December 31, | | As of December 31, | | | 2020 | | 2019 | | 2022 | | 2021 | Lease term and discount rate: | Lease term and discount rate: | | | | | Lease term and discount rate: | | | | | Weighted average remaining lease term: | | | Weighted-average remaining lease term: | | Weighted-average remaining lease term: | | Finance leases | Finance leases | | 1.2 years | | 2.1 years | Finance leases | | 0.0 years | | 0.3 years | Operating leases | Operating leases | | 10.6 years | | 10.3 years | Operating leases | | 8.0 years | | 10.8 years | | Weighted average discount rate: | | | Weighted-average discount rate: | | Weighted-average discount rate: | | Finance leases | Finance leases | | 12.2 | % | | 11.9 | % | Finance leases | | — | % | | 12.8 | % | Operating leases | Operating leases | | 6.0 | % | | 6.1 | % | Operating leases | | 5.9 | % | | 5.6 | % |
The following table presents the detailed cash flows from operating and finance leases: | | | For the years ended December 31, | | For the years ended December 31, | | | 2020 | | 2019 | | 2022 | | 2021 | | 2020 | Cash paid for amounts included in the measurement of lease liabilities: | Cash paid for amounts included in the measurement of lease liabilities: | | | | | Cash paid for amounts included in the measurement of lease liabilities: | | | | | | | Operating cash flows from operating leases | Operating cash flows from operating leases | | $ | 21,834 | | | $ | 22,618 | | Operating cash flows from operating leases | | $ | 24,769 | | | $ | 21,861 | | | $ | 21,834 | | Operating cash flows from finance leases | Operating cash flows from finance leases | | 106 | | | 173 | | Operating cash flows from finance leases | | 7 | | | 49 | | | 106 | | Financing cash flows from finance leases | Financing cash flows from finance leases | | 499 | | | 654 | | Financing cash flows from finance leases | | 124 | | | 430 | | | 499 | |
We obtained right-of-useROU assets in exchange for lease liabilities of $22.6$4.3 million, $26.1 million and $8.5$22.6 million upon commencement of operating leases during the year ended December 31, 20202022, 2021 and 2019,2020, respectively.
ECHOSTAR CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
The following table presents future minimum lease payments of our lease liabilities as of December 31, 2020:2022: | | | | | | | | | | | | | | | | | | | | | | | Operating Leases | | Finance Leases | | Total | Year ending December 31, | | | | | | | 2021 | | $ | 21,051 | | | $ | 472 | | | $ | 21,523 | | 2022 | | 20,409 | | | 136 | | | 20,545 | | 2023 | | 19,628 | | | 0 | | | 19,628 | | 2024 | | 16,364 | | | 0 | | | 16,364 | | 2025 | | 12,355 | | | 0 | | | 12,355 | | 2026 and beyond | | 86,194 | | | 0 | | | 86,194 | | Total future minimum lease payments | | 176,001 | | | 608 | | | 176,609 | | Less: Interest | | (46,416) | | | (56) | | | (46,472) | | Total lease liabilities | | $ | 129,585 | | | $ | 552 | | | $ | 130,137 | |
NOTE 5. DISCONTINUED OPERATIONS
BSS Business
The following table presents the financial results of our discontinued operations of the BSS Business:
| | | | | | | | | | | | | | | | | For the years ended December 31, | | | 2019 | | 2018 | Revenue: | | | | | Services and other revenue - DISH Network | | $ | 195,942 | | | $ | 305,229 | | Services and other revenue - other | | 16,260 | | | 23,496 | | Total revenue | | 212,202 | | | 328,725 | | Costs and expenses: | | | | | Cost of sales - services and other (exclusive of depreciation and amortization) | | 28,057 | | | 40,398 | | Selling, general and administrative expenses | | 8,946 | | | 159 | | Depreciation and amortization | | 97,435 | | | 141,062 | | Total costs and expenses | | 134,438 | | | 181,619 | | Operating income (loss) | | 77,764 | | | 147,106 | | Other income (expense): | | | | | Interest expense | | (17,865) | | | (29,280) | | Total other income (expense), net | | (17,865) | | | (29,280) | | Income (loss) from discontinued operations before income taxes | | 59,899 | | | 117,826 | | Income tax benefit (provision), net | | (20,498) | | | (24,097) | | Net income (loss) from discontinued operations | | $ | 39,401 | | | $ | 93,729 | |
No assets or liabilities attributable to our discontinued operations were held by us as of December 31, 2020 or December 31, 2019.
| | | | | | | | | | | Operating Leases | Year ending December 31, | | | 2023 | | $ | 25,101 | | 2024 | | 23,180 | | 2025 | | 19,578 | | 2026 | | 18,770 | | 2027 | | 17,256 | | 2028 and beyond | | 97,738 | | Total future minimum lease payments | | 201,623 | | Less: Interest | | (47,837) | | Total lease liabilities | | $ | 153,786 | |
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
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 years ended December 31, | | | 2019 | | 2018 | Operating activities: | | | | | Net income (loss) from discontinued operations | | $ | 39,401 | | | $ | 93,729 | | Depreciation and amortization | | $ | 97,435 | | | $ | 141,062 | | | | | | | Investing activities: | | | | | Expenditures for property and equipment | | $ | 510 | | | $ | 175 | | | | | | | Financing activities: | | | | | Payment of finance lease obligations | | $ | 27,203 | | | $ | 35,886 | | Payment of in-orbit incentive obligations | | $ | 4,474 | | | $ | 4,883 | |
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.
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
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
entered into an agreement pursuant to which DISH Network leased from us satellite capacity on 24 of the DBS transponders on the QuetzSat-1 satellite. The QuetzSat-1 satellite was launched in September 2011 and was placed into service in November 2011 at the 67.1 degree west longitude orbital location. In January 2013, the QuetzSat-1 satellite was moved to the 77 degree west longitude orbital location. In February 2013, we and DISH Network entered into an agreement pursuant to which we leased back from DISH Network certain satellite capacity on 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 Leases to DISH Network. We entered into lease agreements pursuant to which DISH Network leased certain real estate from us. The rent on a per square foot basis each of the leases or subsequent amendments was comparable to per square foot rental rates of similar commercial property in the same geographic area at the time of the leases or subsequent amendments and DISH Network was responsible for its portion of the taxes, insurance, utilities and maintenance of the premises.These components of the BSS Transaction do not qualify for discontinued operations treatment, and therefore the revenue from these lease agreements has not been treated as discontinued operations. The terms of each of the leases are set forth below:
•Santa Fe Lease Agreement— DISH Network leased from us all of 5701 S. Santa Fe Dr., Littleton, Colorado. In connection with the BSS Transaction, we transferred this property to DISH Network.
•Cheyenne Lease Agreement— During 2017, we and certain of our subsidiaries entered into a share exchange agreement (the “Share Exchange Agreement”) with DISH and certain of its subsidiaries whereby we and certain of our subsidiaries received all the shares of preferred tracking stock previously issued by us and one of our subsidiaries (the “Tracking Stock”) in exchange for 100% of the equity interests of certain of our subsidiaries that held substantially all of our former EchoStar Technologies businesses and certain other assets (collectively, the “Share Exchange”). Prior to the Share Exchange, we leased to DISH Network certain space at 530 EchoStar Drive, Cheyenne, Wyoming. In connection with the Share Exchange, we transferred ownership of a portion of this property to DISH Network 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”). In connection with the BSS Transaction, we transferred the Cheyenne Data Center to DISH Network.
Real Estate Leases from DISH Network. We entered into a lease agreement pursuant to which we leased from DISH Network certain space at 801 N. DISH Dr. in Gilbert, Arizona for the Satellite Operations Center and Satellite Access Center. The rent on a per square foot basis was comparable to per square foot rental rates of similar commercial property in the same geographic area at the time of the leases or subsequent amendments and included our portion of the taxes, insurance, utilities and certain maintenance of the premises. In connection with the BSS Transaction, we terminated this lease and transferred the Gilbert Satellite Operations Center, including any and all equipment, software, processes, software licenses, hardware licenses, furniture and technical documentation located within, to DISH Network.
NOTE 6.5. BUSINESS COMBINATIONS
In May 2019, we entered into an agreement with Al Yah Satellite Communications Company PrJSCBharti Airtel Limited (“Yahsat”BAL”) and its subsidiary, Bharti Airtel Services Limited (together with BAL, “Bharti”), pursuant to which in November 2019, Yahsat contributedBharti agreed to contribute its satellite communicationsvery small aperture terminal (“VSAT”) telecommunications services and hardware business in BrazilIndia to oneHughes Communications India Private Limited (“HCIPL”) and its subsidiaries, our less than wholly owned Indian subsidiaries, that conduct our VSAT services and hardware business in India. On January 4, 2022, this joint venture was formed (the “India JV”) and subsequent to the formation of our Brazilian subsidiaries in exchange forthe India JV, we hold a 20% equity67% ownership interest and Bharti holds a 33% ownership interest in that subsidiary (the “Yahsat BrazilHCIPL. The India JV Transaction”). The combined business provides broadband internet servicescombines the VSAT businesses of both companies to offer flexible and scalable enterprise networking solutions using satellite connectivity for primary transport, back-up and hybrid implementation in Brazil using the Telesat T19V satellite, the Eutelsat 65W satellite and Yahsat’s Al Yah 3 satellite.India. The results of operations related to the business we acquired from YahsatIndia JV have been included in these Consolidated Financial Statements from the date of acquisition. As of December 31, 2020, we incurred $1.6 million offormation. The costs associated with the closing of the Yahsat BrazilIndia JV Transaction.were not material and were expensed as incurred.
F-34The fair value of the consideration transferred was $38.2 million. Net cash paid was $7.9 million, inclusive of amounts paid for the acquisition of, or of HCIPL shares from, entities that were shareholders of HCIPL prior to closing the India JV.
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
All assets and liabilities acquired from Yahsat in the Yahsat BrazilIndia JV Transactionformation have been recorded at fair value. The following table presents our allocation of the purchase price: | | | | | | | | | | | Amounts | Assets: | | | CashTrade accounts receivable and cash equivalentscontract assets, net | | $ | 8,1106,160 | | Other current assets net | | 5,8762,085 | | Property and equipment | | 86,983 | | Regulatory authorization | | 4,4984,669 | | Goodwill | | 9,18623,086 | | Other non-currentintangible assets net | | 1,5024,428 | | Total assets | | $ | 116,15540,428 | | | | | Liabilities: | | | Trade accounts payable | | $ | 3,879133 | | Accrued expenses and other current liabilities | | 6,676986 | | Deferred tax liabilities | | 1,114 | | Total liabilities | | $ | 10,5552,233 | | | | | Total purchase price(1) | | $ | 105,60038,195 | |
(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 valuation of assets acquired and liabilities assumed in the acquired assets wasIndia JV were derived using primarily unobservable Level 3 inputs, which require significant management judgment and estimation:estimation, and resulted in a customer relationship intangible of $4.4 million with an estimated life of 5 years and is reported in Other intangible assets, net. | | | | | | | | | | | Amounts | Satellite payload | | $ | 49,363 | | Regulatory authorization | | 4,498 | | Total | | $ | 53,861 | |
The satellite payload asset and regulatory authorization were valued using an income approach and will be being amortized over seven and 11 years, respectively.
The goodwill we recognized was allocated entirely to our Hughes segment and attributedGoodwill associated with the India JV is attributable to expected synergies, the projected long-term business growth in current and new markets and an assembled workforce.
Goodwill has been allocated entirely to our Hughes segment.
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 7.6. EARNINGS PER SHARE
The following table presents the calculation of basic and diluted EPS:EPS for our Class A and B common stock: | | | | | | | | | | | | | | | | | | | | | | | For the years ended December 31, | | | 2020 | | 2019 | | 2018 | Net income (loss) attributable to EchoStar Corporation common stock: | | | | | | | Net income (loss) from continuing operations | | $ | (40,150) | | | $ | (102,318) | | | $ | (134,204) | | Net income (loss) from discontinued operations | | 0 | | | 39,401 | | | 93,729 | | Net income (loss) attributable to EchoStar Corporation common stock | | $ | (40,150) | | | $ | (62,917) | | | $ | (40,475) | | | | | | | | | Weighted-average common shares outstanding: | | | | | | | Class A and B common stock: | | | | | | | Basic and diluted | | 97,920 | | | 96,738 | | | 96,250 | | | | | | | | | Earnings (losses) per share: | | | | | | | Class A and B common stock: | | | | | | | Basic and diluted: | | | | | | | Continuing operations | | $ | (0.41) | | | $ | (1.06) | | | $ | (1.39) | | Discontinued operations | | 0 | | | 0.41 | | | 0.97 | | Total basic and diluted earnings (losses) per share | | $ | (0.41) | | | $ | (0.65) | | | $ | (0.42) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | For the years ended December 31, | | | | | | | 2022 | | 2021 | | 2020 | Net income (loss) attributable to EchoStar Corporation common stock | | | | | | $ | 177,051 | | | $ | 72,875 | | | $ | (40,150) | | | | | | | | | | | | | Weighted-average common shares outstanding: | | | | | | | | | | | Basic | | | | | | 84,098 | | | 89,908 | | | 97,920 | | Dilutive impact of stock awards outstanding | | | | | | 25 | | | 33 | | | — | | Diluted | | | | | | 84,123 | | | 89,941 | | | 97,920 | | | | | | | | | | | | | Earnings (losses) per share: | | | | | | | | | | | Basic | | | | | | $ | 2.10 | | | $ | 0.81 | | | $ | (0.41) | | Diluted | | | | | | $ | 2.10 | | | $ | 0.81 | | | $ | (0.41) | |
The following table presents the number of anti-dilutive options to purchase shares of our Class A common stock which have been excluded from the calculation of our weighted-average common shares outstanding:
| | | | | | | | | | | | | | | | | | | | | | | For the years ended December 31, | | | 2020 | | 2019 | | 2018 | Number of shares | | 4,374 | | 4,813 | | 5,013 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | For the years ended December 31, | | | | | | | 2022 | | 2021 | | 2020 | Number of shares | | | | | | 6,368 | | 4,766 | | 4,374 |
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 8.7. OTHER COMPREHENSIVE INCOME (LOSS)
The following table presents the changes in the balances of Accumulated other comprehensive income (loss) by component: | | | Cumulative Foreign Currency Translation Adjustments | | Unrealized Gain (Loss) On Available-For-Sale Securities | | Other | | Accumulated Other Comprehensive Income (Loss) | | Cumulative Foreign Currency Translation Adjustments | | Unrealized Gain (Loss) On Available-For-Sale Securities | | Other | | Accumulated Other Comprehensive Income (Loss) | Balance, December 31, 2018 | | $ | (121,693) | | | $ | (1,574) | | | $ | (1,833) | | | $ | (125,100) | | | Balance, December 31, 2020 | | Balance, December 31, 2020 | | $ | (190,273) | | | $ | 150 | | | $ | 2,247 | | | $ | (187,876) | | Other comprehensive income (loss) before reclassifications | Other comprehensive income (loss) before reclassifications | | (483) | | | 2,571 | | | 1,466 | | | 3,554 | | Other comprehensive income (loss) before reclassifications | | (19,672) | | | 463 | | | (5,005) | | | (24,214) | | Amounts reclassified to net income (loss) | Amounts reclassified to net income (loss) | | 0 | | | (592) | | | 0 | | | (592) | | Amounts reclassified to net income (loss) | | — | | | (12) | | | — | | | (12) | | Other comprehensive income (loss) | Other comprehensive income (loss) | | (483) | | | 1,979 | | | 1,466 | | | 2,962 | | Other comprehensive income (loss) | | (19,672) | | | 451 | | | (5,005) | | | (24,226) | | Balance, December 31, 2019 | | (122,176) | | | 405 | | | (367) | | | (122,138) | | | Balance, December 31, 2021 | | Balance, December 31, 2021 | | (209,945) | | | 601 | | | (2,758) | | | (212,102) | | Other comprehensive income (loss) before reclassifications | Other comprehensive income (loss) before reclassifications | | (68,097) | | | (253) | | | 2,614 | | | (65,736) | | Other comprehensive income (loss) before reclassifications | | 37,901 | | | (680) | | | 2,660 | | | 39,881 | | Amounts reclassified to net income (loss) | Amounts reclassified to net income (loss) | | 0 | | | (2) | | | 0 | | | (2) | | Amounts reclassified to net income (loss) | | — | | | (18) | | | — | | | (18) | | Other comprehensive income (loss) | Other comprehensive income (loss) | | (68,097) | | | (255) | | | 2,614 | | | (65,738) | | Other comprehensive income (loss) | | 37,901 | | | (698) | | | 2,660 | | | 39,863 | | Balance, December 31, 2020 | | $ | (190,273) | | | $ | 150 | | | $ | 2,247 | | | $ | (187,876) | | | Balance, December 31, 2022 | | Balance, December 31, 2022 | | $ | (172,044) | | | $ | (97) | | | $ | (98) | | | $ | (172,239) | |
NOTE 9.8. MARKETABLE INVESTMENT SECURITIES The following table presents our Marketable investment securities: | | | | As of December 31, | | | As of December 31, | | | | 2020 | | 2019 | | | 2022 | | 2021 | 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 | | $ | 372,746 | | | $ | 568,442 | | Corporate bonds | | $ | 160,559 | | | $ | 289,784 | | Commercial paper | Commercial paper | | 1,101,888 | | | 321,706 | | Commercial paper | | 687,927 | | | 498,358 | | Other debt securities | Other debt securities | | 148,292 | | | 13,874 | | Other debt securities | | 17,695 | | | 92,673 | | Total available-for-sale debt securities | Total available-for-sale debt securities | | 1,622,926 | | | 904,022 | | Total available-for-sale debt securities | | 866,181 | | | 880,815 | | Fair value option - corporate bonds | | 0 | | | 9,128 | | | Total debt securities | | 1,622,926 | | | 913,150 | | | Equity securities | Equity securities | | 24,435 | | | 35,566 | | Equity securities | | 118,790 | | | 142,943 | | Total marketable investment securities, including restricted amounts | Total marketable investment securities, including restricted amounts | | 1,647,361 | | | 948,716 | | Total marketable investment securities, including restricted amounts | | 984,971 | | | 1,023,758 | | Less: Restricted marketable investment securities | Less: Restricted marketable investment securities | | (9,090) | | | (8,093) | | Less: Restricted marketable investment securities | | (11,056) | | | (13,262) | | Total marketable investment securities | Total marketable investment securities | | $ | 1,638,271 | | | $ | 940,623 | | Total marketable investment securities | | $ | 973,915 | | | $ | 1,010,496 | |
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Debt Securities 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 December 31, 2020 | | | | | | | | | | As of December 31, 2022 | | As of December 31, 2022 | | | | | | | | | Corporate bonds | Corporate bonds | | $ | 372,702 | | | $ | 78 | | | $ | (34) | | | $ | 372,746 | | Corporate bonds | | $ | 160,494 | | | $ | 125 | | | $ | (60) | | | $ | 160,559 | | Commercial paper | Commercial paper | | 1,101,888 | | | 0 | | | 0 | | | 1,101,888 | | Commercial paper | | 687,956 | | | — | | | (29) | | | 687,927 | | Other debt securities | Other debt securities | | 148,292 | | | 6 | | | (6) | | | 148,292 | | Other debt securities | | 17,785 | | | — | | | (90) | | | 17,695 | | Total available-for-sale debt securities | Total available-for-sale debt securities | | $ | 1,622,882 | | | $ | 84 | | | $ | (40) | | | $ | 1,622,926 | | Total available-for-sale debt securities | | $ | 866,235 | | | $ | 125 | | | $ | (179) | | | $ | 866,181 | | As of December 31, 2019 | | | | | | | | | | As of December 31, 2021 | | As of December 31, 2021 | | | | | | | | | Corporate bonds | Corporate bonds | | $ | 567,926 | | | $ | 518 | | | $ | (2) | | | $ | 568,442 | | Corporate bonds | | $ | 290,169 | | | $ | — | | | $ | (385) | | | $ | 289,784 | | Commercial paper | Commercial paper | | 321,705 | | | 1 | | | 0 | | | 321,706 | | Commercial paper | | 498,358 | | | — | | | — | | | 498,358 | | Other debt securities | Other debt securities | | 13,867 | | | 7 | | | 0 | | | 13,874 | | Other debt securities | | 92,742 | | | — | | | (69) | | | 92,673 | | Total available-for-sale debt securities | Total available-for-sale debt securities | | $ | 903,498 | | | $ | 526 | | | $ | (2) | | | $ | 904,022 | | Total available-for-sale debt securities | | $ | 881,269 | | | $ | — | | | $ | (454) | | | $ | 880,815 | |
The following table presents the activity on our available-for-sale debt securities:
| | | | | | | | | | | | | | | | | | | | | | | For the years ended December 31, | | | 2020 | | 2019 | | 2018 | Proceeds from sales | | $ | 160,494 | | | $ | 435,978 | | | $ | 75,000 | | Gains (losses) on sales, net | | $ | 2 | | | $ | 549 | | | $ | 0 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | For the years ended December 31, | | | | | | | 2022 | | 2021 | | 2020 | Proceeds from sales | | | | | | $ | 37,904 | | | $ | 410,918 | | | $ | 160,494 | |
As of December 31, 2020,2022, we have $1.6 billion$847.3 million of available-for-sale debt securities with contractual maturities of one year or less and 0$18.9 million with contractual maturities greater than one year.
Fair Value Option
The following table presents the activity on our fair value option corporate bonds:
| | | For the years ended December 31, | | For the years ended December 31, | | | 2020 | | 2019 | | 2018 | | 2022 | | 2021 | | 2020 | Proceeds from sales | Proceeds from sales | | $ | 32,054 | | | $ | 46,717 | | | $ | 75,877 | | Proceeds from sales | | $ | — | | | $ | — | | | $ | 32,054 | | Gains (losses) on sales, net | | $ | 14,980 | | | $ | 6,746 | | | $ | 4,212 | | | Gains (losses) on investments, net | | Gains (losses) on investments, net | | $ | — | | | $ | — | | | $ | 14,980 | |
Equity Securities
The following table presents the activity of our equity securities:
| | | For the years ended December 31, | | | For the years ended December 31, | | | 2020 | | 2019 | | 2018 | | | 2022 | | 2021 | | 2020 | Proceeds from sales | Proceeds from sales | | $ | 14,401 | | | $ | 104,729 | | | $ | 62,111 | | Proceeds from sales | | | $ | 63,294 | | | $ | 832 | | | $ | 14,401 | | Gains (losses) on sales, net | | $ | (3,241) | | | $ | 53,873 | | | $ | (16,599) | | | Gains (losses) on investments, net | | Gains (losses) on investments, net | | | $ | 25,539 | | | $ | 49,391 | | | $ | (3,241) | |
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
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 December 31, | | Level 1 | | Level 2 | | Total | | 2020 | | 2019 | | | Level 1 | | Level 2 | | Total | | Level 1 | | Level 2 | | Total | | As of December 31, 2022 | | As of December 31, 2022 | | | | | | | Cash equivalents (including restricted) | Cash equivalents (including restricted) | | $ | 416 | | | $ | 809,698 | | | $ | 810,114 | | | $ | 31,451 | | | $ | 1,408,043 | | | $ | 1,439,494 | | Cash equivalents (including restricted) | | $ | 657 | | | $ | 595,814 | | | $ | 596,471 | | Debt securities: | | | | | | | | | | | | | | Available-for-sale: | | | Available-for-sale debt securities: | | Available-for-sale debt securities: | | | | | | | Corporate bonds | Corporate bonds | | $ | 0 | | | $ | 372,746 | | | $ | 372,746 | | | $ | 0 | | | $ | 568,442 | | | $ | 568,442 | | Corporate bonds | | $ | — | | | $ | 160,559 | | | $ | 160,559 | | Commercial paper | Commercial paper | | 0 | | | 1,101,888 | | | 1,101,888 | | | 0 | | | 321,706 | | | 321,706 | | Commercial paper | | — | | | 687,927 | | | 687,927 | | Other debt securities | Other debt securities | | 139,486 | | | 8,806 | | | 148,292 | | | 8,093 | | | 5,781 | | | 13,874 | | Other debt securities | | 15,968 | | | 1,727 | | | 17,695 | | Total available-for-sale debt securities | Total available-for-sale debt securities | | 139,486 | | | 1,483,440 | | | 1,622,926 | | | 8,093 | | | 895,929 | | | 904,022 | | Total available-for-sale debt securities | | 15,968 | | | 850,213 | | | 866,181 | | Fair value option - corporate bonds | | 0 | | | 0 | | | 0 | | | 0 | | | 9,128 | | | 9,128 | | | Total debt securities | | 139,486 | | | 1,483,440 | | | 1,622,926 | | | 8,093 | | | 905,057 | | | 913,150 | | | Equity securities | Equity securities | | 14,441 | | | 9,994 | | | 24,435 | | | 27,933 | | | 7,633 | | | 35,566 | | Equity securities | | 109,002 | | | 9,788 | | | 118,790 | | Total marketable investment securities, including restricted amounts | Total marketable investment securities, including restricted amounts | | 153,927 | | | 1,493,434 | | | 1,647,361 | | | 36,026 | | | 912,690 | | | 948,716 | | Total marketable investment securities, including restricted amounts | | 124,970 | | | 860,001 | | | 984,971 | | Less: Restricted marketable investment securities | Less: Restricted marketable investment securities | | (9,090) | | | 0 | | | (9,090) | | | (8,093) | | | 0 | | | (8,093) | | Less: Restricted marketable investment securities | | (11,056) | | | — | | | (11,056) | | Total marketable investment securities | Total marketable investment securities | | $ | 144,837 | | | $ | 1,493,434 | | | $ | 1,638,271 | | | $ | 27,933 | | | $ | 912,690 | | | $ | 940,623 | | Total marketable investment securities | | $ | 113,914 | | | $ | 860,001 | | | $ | 973,915 | | | As of December 31, 2021 | | As of December 31, 2021 | | Cash equivalents (including restricted) | | Cash equivalents (including restricted) | | $ | 7,872 | | | $ | 423,123 | | | $ | 430,995 | | Available-for-sale debt securities: | | Available-for-sale debt securities: | | | | | | | Corporate bonds | | Corporate bonds | | $ | — | | | $ | 289,784 | | | $ | 289,784 | | Commercial paper | | Commercial paper | | — | | | 498,358 | | | 498,358 | | Other debt securities | | Other debt securities | | 14,274 | | | 78,399 | | | 92,673 | | Total available-for-sale debt securities | | Total available-for-sale debt securities | | 14,274 | | | 866,541 | | | 880,815 | | Equity securities | | Equity securities | | 131,413 | | | 11,530 | | | 142,943 | | Total marketable investment securities, including restricted amounts | | Total marketable investment securities, including restricted amounts | | 145,687 | | | 878,071 | | | 1,023,758 | | Less: Restricted marketable investment securities | | Less: Restricted marketable investment securities | | (13,262) | | | — | | | (13,262) | | Total marketable investment securities | | Total marketable investment securities | | $ | 132,425 | | | $ | 878,071 | | | $ | 1,010,496 | |
As of December 31, 20202022 and 2019,December 31, 2021, we did not have any investments that were categorized within Level 3 of the fair value hierarchy.
NOTE 10.9. PROPERTY AND EQUIPMENT
The following table presents the components of Property and equipment, net: | | | | | | | | | | | | | | | | | As of December 31, | | | 2020 | | 2019 | Property and equipment, net: | | | | | Satellites, net | | $ | 1,602,076 | | | $ | 1,749,576 | | Other property and equipment, net | | 788,237 | | | 779,162 | | Total property and equipment, net | | $ | 2,390,313 | | | $ | 2,528,738 | |
| | | | | | | | | | | | | | | | | As of December 31, | | | 2022 | | 2021 | Property and equipment, net: | | | | | Satellites, net | | $ | 1,563,033 | | | $ | 1,610,623 | | Other property and equipment, net | | 674,584 | | | 727,662 | | Total property and equipment, net | | $ | 2,237,617 | | | $ | 2,338,285 | |
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Satellites As of December 31, 2020,2022, our operating satellite fleet consisted of 10ten geosynchronous (“GEO”) satellites, 7seven of which are owned and 3three of which are leased. They are all in geosynchronous orbit, approximately 22,300 miles above the equator. Our owned S-band LEO nano-satellites are not included in the table below.
The following table presents our operatingGEO satellite fleet as of December 31, 2020 which consists of both owned and leased satellites:2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | GEO Satellite | | Segment | | Launch Date | | Nominal Degree Orbital Location (Longitude) | | Depreciable Life (In Years) | Owned: | | | | | | | | | SPACEWAY 3 (1) | | Hughes | | August 2007 | | 95 W | | 10 | EchoStar XVII | | Hughes | | July 2012 | | 107 W | | 15 | EchoStar XIX | | Hughes | | December 2016 | | 97.1 W | | 15 | Al Yah 3 (2) | | Hughes | | January 2018 | | 20 W | | 7 | EchoStar IX (3) (4) | | ESS | | August 2003 | | 121 W | | 12 | EUTELSAT 10A (“W2A”) (4)(5) | | Corporate and Other | | April 2009 | | 10 E | | - | EchoStar XXI | | Corporate and Other | | June 2017 | | 10.25 E | | 15 | | | | | | | | | | Finance leases: | | | | | | | | | Eutelsat 65 West A | | Hughes | | March 2016 | | 65 W | | 15 | Telesat T19V | | Hughes | | July 2018 | | 63 W | | 15 | EchoStar 105/SES-11 | | ESS | | October 2017 | | 105 W | | 15 |
(1) Depreciable life represents the remaining useful life as of June 8, 2011, the date EchoStar completed itsthe acquisition of Hughes Communications, Inc. (“Hughes Communications”) and its subsidiaries in 2011 (the “Hughes Acquisition”). (2) Upon consummation of our joint venture with YahsatAl Yah Satellite Communications Company PrJSC (“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. (4) EchoStar IX is approaching its end of station-kept life. The Company placed the satellite in an inclined-orbit in the first quarter of 2023. Inclined-orbit will extend its life to enable further revenue generating opportunities. (5) We acquired the S-band payload on this satellite in December 2013. Prior to acquisition, the S-band payload experienced an anomaly at the time of launch and, as a result, is not fully operational.
The following table presents the components of our satellites, net: | | | | | | | | | | | | | | | | | | | | | | | Depreciable Life (In Years) | | As of December 31, | | | | 2020 | | 2019 | Satellites, net: | | | | | | | Satellites - owned | | 7 to 15 | | $ | 1,805,590 | | | $ | 1,816,303 | | Satellites - acquired under finance leases | | 15 | | 352,245 | | | 381,163 | | Construction in progress | | — | | 409,032 | | | 365,133 | | Total satellites | | | | 2,566,867 | | | 2,562,599 | | Accumulated depreciation | | | | | | | Satellites - owned | | | | (890,783) | | | (756,635) | | Satellites - acquired under finance leases | | | | (74,008) | | | (56,388) | | Total accumulated depreciation | | | | (964,791) | | | (813,023) | | Total satellites, net | | | | $ | 1,602,076 | | | $ | 1,749,576 | |
| | | | | | | | | | | | | | | | | | | | | | | Depreciable Life (In Years) | | As of December 31, | | | | 2022 | | 2021 | Satellites, net: | | | | | | | Satellites - owned | | 7 to 15 | | $ | 1,808,924 | | | $ | 1,806,664 | | Satellites - acquired under finance leases | | 15 | | 360,642 | | | 354,170 | | Construction in progress | | — | | 608,773 | | | 541,422 | | Total satellites | | | | 2,778,339 | | | 2,702,256 | | Accumulated depreciation: | | | | | | | Satellites - owned | | | | (1,093,412) | | | (995,962) | | Satellites - acquired under finance leases | | | | (121,894) | | | (95,671) | | Total accumulated depreciation | | | | (1,215,306) | | | (1,091,633) | | Total satellites, net | | | | $ | 1,563,033 | | | $ | 1,610,623 | |
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
The following table presents the depreciation expense associated with our satellites, net: | | | | For the years ended December 31, | | | | For the years ended December 31, | | | | 2020 | | 2019 | | 2018 | | | | 2022 | | 2021 | | 2020 | Depreciation expense: | Depreciation expense: | | | | | | | Depreciation expense: | | | | | | | | Satellites - owned | Satellites - owned | | 128,404 | | | 130,705 | | | 124,987 | | Satellites - owned | | | $ | 96,816 | | | $ | 105,819 | | | $ | 128,404 | | Satellites - acquired under finance leases | Satellites - acquired under finance leases | | 27,611 | | | 25,755 | | | 20,269 | | Satellites - acquired under finance leases | | | 24,127 | | | 23,740 | | | 27,611 | | Total depreciation expense | Total depreciation expense | | $ | 156,015 | | | $ | 156,460 | | | $ | 145,256 | | Total depreciation expense | | | $ | 120,943 | | | $ | 129,559 | | | $ | 156,015 | |
The following table presents capitalized interest associated with our satellites and satellite-related ground infrastructure:
| | | | | | | | | | | | | | | | | | | | | | | For the years ended December 31, | | | 2020 | | 2019 | | 2018 | Capitalized interest | | $ | 27,369 | | | $ | 22,576 | | | $ | 18,285 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | For the years ended December 31, | | | | | | | 2022 | | 2021 | | 2020 | Capitalized interest | | | | | | $ | 43,908 | | | $ | 37,150 | | | $ | 27,369 | |
Construction in Progress
In August 2017, we entered into a 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. Maxar Space, LLC (formerly Space Systems/Loral, LLC), the manufacturer of our EchoStar XXIV satellite has notified us of a delay in completion of the satellite. Capital expenditures associated with the construction and launch of the EchoStar XXIV satellite are included in Corporate and Other segment in our segment reporting. We launched 2 nano-satellites in the third quarter of 2020. Following launch, both nano-satellites experienced technical anomalies that precluded them from fulfilling their intended regulatory milestone missions. We recorded an impairment of $1.7 million for the year ended December 31, 2020, related to these nano-satellites.
Satellite-Related Commitments
As of December 31, 20202022 and 20192021, our satellite-related commitments were $487.7$169.3 million and $419.0$342.2 million, respectively. These include payments pursuant to agreements for the construction of the EchoStar XXIV satellite, payments pursuant toto: the EchoStar XXIV launch contract, 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 year ended December 31, 2020.2022.
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
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 agreementsagreement with Yahsat, we are required subject to certain limitations on coverage, to maintain onlyinsurance 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 payload, subject to certain limitations on coverage. We have obtained certain insurance for our EchoStar XXIV satellite or payload. Our other satellites and payloads, either in orbit or under construction, are not covered bycovering launch or in-orbit insurance or other contractual arrangements.plus the first year of operations. We will continue to assess circumstances going forward and make insurance-related decisions on a case-by-case basis.
Fair Value of In-Orbit Incentives
As of December 31, 20202022 and 2019,2021, the fair values of our in-orbit incentive obligations from our continuing operations approximated their carrying amounts of $55.4$50.2 million and $57.0$53.2 million, respectively.
Other Property and Equipment, Net
The following table presents Other property and equipment, net: | | | | Depreciable Life (In Years) | | As of December 31, | | | Depreciable Life (In Years) | | As of December 31, | | | | 2020 | | 2019 | | | 2022 | | 2021 | Other property and equipment, net: | Other property and equipment, net: | | | | | | | Other property and equipment, net: | | | | | | | Land | Land | | — | | $ | 29,055 | | | $ | 28,943 | | Land | | — | | $ | 29,125 | | | $ | 28,938 | | Buildings and improvements | Buildings and improvements | | 1 to 40 | | 115,335 | | | 113,938 | | Buildings and improvements | | 1 to 40 | | 116,867 | | | 115,537 | | Furniture, fixtures, equipment and other | Furniture, fixtures, equipment and other | | 1 to 12 | | 887,086 | | | 855,274 | | Furniture, fixtures, equipment and other | | 1 to 12 | | 935,559 | | | 911,474 | | Customer premises equipment | Customer premises equipment | | 2 to 4 | | 1,617,053 | | | 1,377,914 | | Customer premises equipment | | 2 to 4 | | 855,621 | | | 1,778,061 | | Construction in progress | Construction in progress | | 99,716 | | | 52,986 | | Construction in progress | | 199,749 | | | 158,559 | | Total other property and equipment | Total other property and equipment | | $ | 2,748,245 | | | $ | 2,429,055 | | Total other property and equipment | | 2,136,921 | | | 2,992,569 | | Accumulated depreciation | Accumulated depreciation | | (1,960,008) | | | (1,649,893) | | Accumulated depreciation | | (1,462,337) | | | (2,264,907) | | Other property and equipment, net | Other property and equipment, net | | $ | 788,237 | | | $ | 779,162 | | Other property and equipment, net | | $ | 674,584 | | | $ | 727,662 | |
During 2022, the Company identified fully depreciated assets that were no longer in use, mostly related to our customer premises equipment assets. Cost and accumulated depreciation were reduced by $1.1 billion. There was no impact to Other property and equipment, net.
The following table presents the depreciation expense associated with our other property and equipment: | | | | For the years ended December 31, | | | For the years ended December 31, | | | | 2020 | | 2019 | | 2018 | | | 2022 | | 2021 | | 2020 | Other property and equipment depreciation expense: | Other property and equipment depreciation expense: | | | | | | | Other property and equipment depreciation expense: | | | | | | | Buildings and improvements | Buildings and improvements | | $ | 5,394 | | | $ | 5,791 | | | $ | 11,285 | | Buildings and improvements | | $ | 4,780 | | | $ | 6,036 | | | $ | 5,394 | | Furniture, fixtures, equipment and other | Furniture, fixtures, equipment and other | | 94,389 | | | 90,885 | | | 82,945 | | Furniture, fixtures, equipment and other | | 85,777 | | | 90,895 | | | 94,389 | | Customer premises equipment | Customer premises equipment | | 230,079 | | | 194,906 | | | 174,749 | | Customer premises equipment | | 208,704 | | | 230,609 | | | 230,079 | | Total depreciation expense | Total depreciation expense | | $ | 329,862 | | | $ | 291,582 | | | $ | 268,979 | | Total depreciation expense | | $ | 299,261 | | | $ | 327,540 | | | $ | 329,862 | |
NOTE 10. GOODWILL
All of Contentsour goodwill is assigned to our Hughes segment, as it was generated through: i) the Hughes Acquisition; ii) the agreement with 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”); and iii) the India JV formation.
ECHOSTAR CORPORATIONDuring the quarter ended December 31, 2022, we conducted a quantitative interim test of goodwill for all of our reporting units due to the sustained decline in our stock price during that period.We estimated the reporting unit's fair value using the discounted cash flow method and the market comparable method. The discounted cash flow method used the reporting unit's projections of estimated operating results and cash flows that were discounted using a weighted-average cost of capital based on a reasonable market participant’s point of view. The main assumptions supporting the cash flow projections include, but are not limited to, revenue growth, margins, discount rate, and terminal growth rate. The financial projections reflect management's best estimate of economic and market conditions over the projected period, including forecasted revenue growth, margins, capital expenditures, depreciation, and amortization. Under the market comparable method, we used the guideline company method to develop valuation multiples and compare the single reporting unit to similar publicly traded companies. Additionally, we performed a reconciliation of our estimated fair value, determined using the discounted cash flows method and the market comparable method, to the Company’s market capitalization. As a result of this interim test, no goodwill impairment was identified.The fair value of the Hughes reporting unit exceeded the carrying value by more than 20%.We concluded that there were no other indicators of impairment for the quarter ended December 31, 2022.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
The following table presents our goodwill:
| | | | | | | | | | | | | | | | | | | For the years ended December 31, | | 2022 | | 2021 | | 2020 | Balance at beginning of period | $ | 511,086 | | | $ | 511,597 | | | $ | 506,953 | | India JV formation | 23,086 | | | — | | | — | | Foreign currency translation | (1,681) | | | (511) | | | 4,644 | | Balance at end of period | $ | 532,491 | | | $ | 511,086 | | | $ | 511,597 | |
NOTE 11. REGULATORY AUTHORIZATIONS
The following table presents our Regulatory authorizations, net: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Finite lived | | | | | | | Cost | | Accumulated Amortization | | Total | | Indefinite lived | | Total | Balance, December 31, 2017 | | $ | 92,621 | | | $ | (21,342) | | | $ | 71,279 | | | $ | 400,042 | | | $ | 471,321 | | Impairment | | (37,476) | | | 7,848 | | | (29,628) | | | 0 | | | (29,628) | | Amortization expense | | — | | | (5,190) | | | (5,190) | | | — | | | (5,190) | | Currency translation adjustments | | (8,358) | | | 1,894 | | | (6,464) | | | 0 | | | (6,464) | | Balance, December 31, 2018 | | 46,787 | | | (16,790) | | | 29,997 | | | 400,042 | | | 430,039 | | Additions | | 12,833 | | | — | | | 12,833 | | | 39,491 | | | 52,324 | | Amortization expense | | — | | | (3,672) | | | (3,672) | | | — | | | (3,672) | | Currency translation adjustments | | (1,169) | | | 318 | | | (851) | | | 758 | | | (93) | | Balance, December 31, 2019 | | 58,451 | | | (20,144) | | | 38,307 | | | 440,291 | | | 478,598 | | Amortization expense | | — | | | (4,483) | | | (4,483) | | | — | | | (4,483) | | Currency translation adjustments | | 2,930 | | | (2,012) | | | 918 | | | 3,729 | | | 4,647 | | Balance, December 31, 2020 | | $ | 61,381 | | | $ | (26,639) | | | $ | 34,742 | | | $ | 444,020 | | | $ | 478,762 | | | | | | | | | | | | | Weighted average useful life (in years) | | 13 | | | | | | |
Finite Lived Assets
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 $4.5 million, upon consummation of the Yahsat Brazil JV Transaction, which are subject to amortization over a period of 11 years.
During the year ended December 31, 2018, impairment of long-lived assets was $65.2 million, which was primarily attributable to the determination that the fair value of the 45 degree west longitude regulatory authorization was de minimis. Our recognition of a loss on the assets and the in-substance liquidation of the business related to this regulatory authorization are as follows: (i) $29.6 million related to the regulatory authorization; (ii) $3.5 million related to other assets; and (iii) $32.1 million of foreign currency translation adjustment. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Finite lived | | | | | | | Cost | | Accumulated Amortization | | Total | | Indefinite lived | | Total | Balance, December 31, 2019 | | $ | 58,451 | | | $ | (20,144) | | | $ | 38,307 | | | $ | 440,291 | | | $ | 478,598 | | Amortization expense | | — | | | (4,483) | | | (4,483) | | | — | | | (4,483) | | Currency translation adjustments | | 2,930 | | | (2,012) | | | 918 | | | 3,729 | | | 4,647 | | Balance, December 31, 2020 | | 61,381 | | | (26,639) | | | 34,742 | | | 444,020 | | | 478,762 | | Amortization expense | | — | | | (4,495) | | | (4,495) | | | — | | | (4,495) | | Currency translation adjustments | | (4,244) | | | 2,046 | | | (2,198) | | | (2,303) | | | (4,501) | | Balance, December 31, 2021 | | 57,137 | | | (29,088) | | | 28,049 | | | 441,717 | | | 469,766 | | Amortization expense | | — | | | (4,150) | | | (4,150) | | | — | | | (4,150) | | Currency translation adjustments | | (1,821) | | | 1,292 | | | (529) | | | (2,556) | | | (3,085) | | Balance, December 31, 2022 | | $ | 55,316 | | | $ | (31,946) | | | $ | 23,370 | | | $ | 439,161 | | | $ | 462,531 | | | | | | | | | | | | | Weighted-average useful life (in years) | | 13 | | | | | | |
Future Amortization
The following table presents our estimated future amortization of our regulatory authorizations with finite lives as of December 31, 2020:2022: | | | | | | | Amount | For the years ending December 31, | | 2021 | $ | 4,610 | | 2022 | 4,658 | | 2023 | 4,658 | | 2024 | 4,668 | | 2025 | 4,658 | | 2026 and beyond | 11,490 | | Total | $ | 34,742 | |
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
| | | | | | | Amount | For the years ending December 31, | | 2023 | $ | 4,208 | | 2024 | 4,216 | | 2025 | 4,208 | | 2026 | 4,208 | | 2027 | 2,092 | | 2028 and beyond | 4,438 | | Total | $ | 23,370 | |
Indefinite Lived Assets
In October 2019, we acquired Sirion Global Pty Ltd., which we have renamed EchoStar Global Australia Pty Ltd (“EchoStar Global”), which holds global S-band non-geostationary stationary satellite spectrum rights for mobile satellite services. We acquired the global S-band non-geostationary satellite spectrum rights for $39.5 million, of which $26.5 million were made in cash payments and the remainder relate to deferred tax liabilities. The acquired spectrum rights are not subject to amortization.
NOTE 12. OTHER INTANGIBLE ASSETS
The following table presents our other intangible assets: | | | Customer Relationships | | Patents | | Trademarks and Licenses | | Total | | Customer Relationships | | Patents | | Trademarks and Licenses | | Total | Cost: | Cost: | | | | | | | | | Cost: | | | | | | | | | As of December 31, 2017 | | $ | 270,300 | | | $ | 61,300 | | | $ | 29,700 | | | $ | 361,300 | | | Write-off | | — | | | (17) | | | — | | | (17) | | | As of December 31, 2018 | | 270,300 | | | 61,283 | | | 29,700 | | | 361,283 | | | As of December 31, 2019 | As of December 31, 2019 | | 270,300 | | | 61,283 | | | 29,700 | | | 361,283 | | As of December 31, 2019 | | $ | 270,300 | | | $ | 61,283 | | | $ | 29,700 | | | $ | 361,283 | | As of December 31, 2020 | As of December 31, 2020 | | $ | 270,300 | | | $ | 61,283 | | | $ | 29,700 | | | $ | 361,283 | | As of December 31, 2020 | | 270,300 | | | 61,283 | | | 29,700 | | | 361,283 | | As of December 31, 2021 | | As of December 31, 2021 | | 270,300 | | | 61,283 | | | 29,700 | | | 361,283 | | Additions | | Additions | | 4,312 | | | — | | | — | | | 4,312 | | Foreign currency translation | | Foreign currency translation | | (328) | | | — | | | — | | | (328) | | Retirements | | Retirements | | — | | | (9,883) | | | — | | | (9,883) | | As of December 31, 2022 | | As of December 31, 2022 | | $ | 274,284 | | | $ | 51,400 | | | $ | 29,700 | | | $ | 355,384 | | | Accumulated amortization: | Accumulated amortization: | | Accumulated amortization: | | As of December 31, 2017 | | $ | (231,642) | | | $ | (60,927) | | | $ | (9,776) | | | $ | (302,345) | | | Amortization expense | | (13,145) | | | (94) | | | (1,485) | | | (14,724) | | | Write-off | | — | | | 17 | | | — | | | 17 | | | As of December 31, 2018 | | (244,787) | | | (61,004) | | | (11,261) | | | (317,052) | | | Amortization expense | | (13,146) | | | (93) | | | (1,485) | | | (14,724) | | | As of December 31, 2019 | As of December 31, 2019 | | (257,933) | | | (61,097) | | | (12,746) | | | (331,776) | | As of December 31, 2019 | | $ | (257,933) | | | $ | (61,097) | | | $ | (12,746) | | | $ | (331,776) | | Amortization expense | Amortization expense | | (9,496) | | | (93) | | | (1,485) | | | (11,074) | | Amortization expense | | (9,496) | | | (93) | | | (1,485) | | | (11,074) | | As of December 31, 2020 | As of December 31, 2020 | | $ | (267,429) | | | $ | (61,190) | | | $ | (14,231) | | | $ | (342,850) | | As of December 31, 2020 | | (267,429) | | | (61,190) | | | (14,231) | | | (342,850) | | Amortization expense | | Amortization expense | | (2,871) | | | (93) | | | (1,485) | | | (4,449) | | As of December 31, 2021 | | As of December 31, 2021 | | (270,300) | | | (61,283) | | | (15,716) | | | (347,299) | | Amortization expense | | Amortization expense | | (785) | | | — | | | (1,485) | | | (2,270) | | Retirements | | Retirements | | — | | | 9,883 | | | — | | | 9,883 | | As of December 31, 2022 | | As of December 31, 2022 | | $ | (271,085) | | | $ | (51,400) | | | $ | (17,201) | | | $ | (339,686) | | | Carrying amount: | Carrying amount: | | Carrying amount: | | As of December 31, 2017 | | $ | 38,658 | | | $ | 373 | | | $ | 19,924 | | | $ | 58,955 | | | As of December 31, 2018 | | $ | 25,513 | | | $ | 279 | | | $ | 18,439 | | | $ | 44,231 | | | As of December 31, 2019 | | $ | 12,367 | | | $ | 186 | | | $ | 16,954 | | | $ | 29,507 | | | As of December 31, 2020 | | $ | 2,871 | | | $ | 93 | | | $ | 15,469 | | | $ | 18,433 | | | As of December 31, 2021 | | As of December 31, 2021 | | $ | — | | | $ | — | | | $ | 13,984 | | | $ | 13,984 | | As of December 31, 2022 | | As of December 31, 2022 | | $ | 3,199 | | | $ | — | | | $ | 12,499 | | | $ | 15,698 | | | Weighted average useful life (in years) | | 8 | | 6 | | 20 | | | Weighted-average useful life (in years) | | Weighted-average useful life (in years) | | 8 | | 6 | | 20 | |
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Future Amortization The following table presents our estimated future amortization of other intangible assets as of December 31, 2020:2022: | | | Amount | | Amount | For the years ending December 31, | For the years ending December 31, | | For the years ending December 31, | | 2021 | $ | 4,449 | | | 2022 | 1,485 | | | 2023 | 2023 | 1,485 | | 2023 | $ | 2,282 | | 2024 | 2024 | 1,485 | | 2024 | 2,282 | | 2025 | 2025 | 1,485 | | 2025 | 2,282 | | 2026 and beyond | 8,044 | | | 2026 | | 2026 | 2,282 | | 2027 | | 2027 | 1,496 | | 2028 and beyond | | 2028 and beyond | 5,074 | | Total | Total | $ | 18,433 | | Total | $ | 15,698 | |
NOTE 13. OTHER INVESTMENTS
The following table presents our Other investments, net: | | | As of December 31, | | As of December 31, | | | 2020 | | 2019 | | 2022 | | 2021 | Other investments, net: | Other investments, net: | | | | | Other investments, net: | | | | | Equity method investments | Equity method investments | | $ | 151,070 | | | $ | 166,209 | | Equity method investments | | $ | 83,523 | | | $ | 91,226 | | Other equity investments | Other equity investments | | 31,662 | | | 66,627 | | Other equity investments | | 141,307 | | | 91,636 | | Other debt investments, net | Other debt investments, net | | 102,205 | | | 92,569 | | Other debt investments, net | | 131,875 | | | 114,885 | | Total other investments, net | Total other investments, net | | $ | 284,937 | | | $ | 325,405 | | Total other investments, net | | $ | 356,705 | | | $ | 297,747 | |
Equity Method Investments
Dish Mexico
We ownDuring the fourth quarter of 2021, we concluded that our 49% investment in DISH Mexico, S. de R.L. de C.V. and its subsidiaries (“Dish Mexico”), was not recoverable. Subsequently, in August 2022, we effected our exit from this investment. Therefore, in the third quarter of Dish Mexico,2022, in conjunction with our exit, we recognized a joint venture that we entered intonet loss of $28.3 million, primarily due to the reclassification of accumulated foreign currency translation adjustment losses from Accumulated Other Comprehensive Income (Loss) to Gains (losses) on investments, net in 2008 to provide direct-to-home satellite services in Mexico. Historically, we provided certain satellite services to Dish Mexico. However, following the consummationStatement of the BSS Transaction, we no longer provide these services.Operations.
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,We own 20% of Broadband Connectivity Solutions (Restricted) Limited (together with its subsidiaries, “BCS”), a joint venture that we entered into in 2018 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.
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Financial Information for Our Equity Method Investments
The following table presents revenue recognized:
| | | For the years ended December 31, | | | For the years ended December 31, | | | 2020 | | 2019 | | 2018 | | | 2022 | | 2021 | | 2020 | Deluxe | Deluxe | | $ | 4,393 | | | $ | 4,377 | | | $ | 4,433 | | Deluxe | | | $ | 5,334 | | | $ | 5,480 | | | $ | 4,393 | | BCS | BCS | | $ | 9,080 | | | $ | 8,979 | | | $ | 695 | | BCS | | | $ | 7,933 | | | $ | 8,278 | | | $ | 9,080 | |
The following table presents trade accounts receivable:
| | | As of December 31, | | As of December 31, | | | 2020 | | 2019 | | 2022 | | 2021 | Deluxe | Deluxe | | $ | 716 | | | $ | 631 | | Deluxe | | $ | 3,026 | | | $ | 934 | | BCS | BCS | | $ | 9,347 | | | $ | 5,171 | | BCS | | $ | 5,062 | | | $ | 5,544 | |
There were 0 cash distributions from our investments for the year ended December 31, 2020.
We recorded cash distributions received from our investments of $2.7 million and $10.0 million, respectively, for the years ended December 31, 2019 and 2018. These cash distributions were determined to be a return on investment and reported in Net cash flows from operating activities in the Consolidated Statements of Cash Flows. Additionally, we recorded an additional dividend from our investments of $2.3$2.0 million for the year ended December 31, 20192022 that was considered a return of investment and reported in Net cash flows fromprovided by (used for) investing activities in the Consolidated Statements of Cash Flows. There were 0no returns of investment during the years ended December 31, 20202021 and 2018.2020.
Other Equity Investments
The following table presents reductions to the carrying amount ofactivity on our investments based on circumstances that indicated the fair value of the investments was less than their carry amount:investments:
| | | | | | | | | | | | | | | | | | | | | | | For the years ended December 31, | | | 2020 | | 2019 | | 2018 | Loss (gain) on investments, net | | $ | 29,833 | | | $ | 36,700 | | | $ | 0 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | For the years ended December 31, | | | | | | | 2022 | | 2021 | | 2020 | Gain (loss) on investments, net | | | | | | $ | 49,888 | | | $ | 21,256 | | | $ | (29,833) | |
Other Debt Investments, Net
The following table presents our other debt investments, net: | | | As of December 31, | | As of December 31, | | | 2020 | | 2019 | | 2022 | | 2021 | Other debt investments, net: | Other debt investments, net: | | | | | Other debt investments, net: | | | | | Cost basis | Cost basis | | $ | 114,903 | | | $ | 102,878 | | Cost basis | | $ | 143,267 | | | $ | 127,433 | | Discount | Discount | | (10,185) | | | (10,309) | | Discount | | (8,010) | | | (9,602) | | Allowance for credit losses | Allowance for credit losses | | (2,513) | | | 0 | | Allowance for credit losses | | (3,382) | | | (2,946) | | Total other debt investments, net | Total other debt investments, net | | $ | 102,205 | | | $ | 92,569 | | Total other debt investments, net | | $ | 131,875 | | | $ | 114,885 | |
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
The following table presents the activity in our allowance for credit losses for these investments:
| | | | | | | | | | | For the year ended December 31, 2020 | Balance at the beginning of the period | | $ | — | | Credit Losses (1)
| | 2,513 | | Deductions | | 0 | | Balance at end of period | | $ | 2,513 | |
| | | | | | | | | | | | | | | | | | | | | | | For the years ended December 31, | | | 2022 | | 2021 | | 2020 | Balance at the beginning of the period | | $ | 2,946 | | | $ | 2,513 | | | $ | — | | Credit Losses (1) | | 436 | | | 433 | | | 2,513 | | Balance at end of period | | $ | 3,382 | | | $ | 2,946 | | | $ | 2,513 | |
(1) The impact of adopting ASC 326 on January 1, 2020 was a $2.1 million adjustment to Accumulated earnings (losses).
The following table presents the interest income, net related to our debt investments, net:
| | | For the years ended December 31, | | For the years ended December 31, | | | 2020 | | 2019 | | 2022 | | 2021 | | 2020 | Interest income, net | Interest income, net | | | | | Interest income, net | | | | | | | Interest income | Interest income | | $ | 14,736 | | | $ | 2,500 | | Interest income | | $ | 20,496 | | | $ | 17,191 | | | $ | 14,736 | | Credit losses | Credit losses | | (367) | | | 0 | | Credit losses | | (436) | | | (433) | | | (367) | | Total interest income, net | Total interest income, net | | $ | 14,369 | | | $ | 2,500 | | Total interest income, net | | $ | 20,060 | | | $ | 16,758 | | | $ | 14,369 | |
NOTE 14. LONG-TERM DEBT
The following table presents the carrying amount and fair values of ourCurrent portion of long-term debt, net and Long-term debt, net: | | | | Effective Interest Rate | | As of December 31, | | | Effective Interest Rate | | As of December 31, | | | | 2020 | | 2019 | | | 2022 | | 2021 | | | Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value | | 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 | | 5.301% | | $ | 750,000 | | | $ | 834,045 | | | $ | 750,000 | | | $ | 825,308 | | 5 1/4% Senior Secured Notes due 2026 | | 5.320% | | $ | 750,000 | | | $ | 727,763 | | | $ | 750,000 | | | $ | 825,555 | | Senior Unsecured Notes: | Senior Unsecured Notes: | | Senior Unsecured Notes: | | 7 5/8% Senior Unsecured Notes due 2021 | | 8.028% | | 900,000 | | | 924,003 | | | 900,000 | | | 963,783 | | | 6 5/8% Senior Unsecured Notes due 2026 | 6 5/8% Senior Unsecured Notes due 2026 | | 6.667% | | 750,000 | | | 852,810 | | | 750,000 | | | 833,903 | | 6 5/8% Senior Unsecured Notes due 2026 | | 6.688% | | 750,000 | | | 707,490 | | | 750,000 | | | 838,740 | | Less: Unamortized debt issuance costs | Less: Unamortized debt issuance costs | | (6,507) | | | — | | | (10,832) | | | — | | Less: Unamortized debt issuance costs | | (3,223) | | | — | | | (4,006) | | | — | | Total long-term debt | | 2,393,493 | | | 2,610,858 | | | 2,389,168 | | | 2,622,994 | | | Less: Current portion, net | | (898,237) | | | (924,003) | | | 0 | | | 0 | | | Long-term debt, net | | $ | 1,495,256 | | | $ | 1,686,855 | | | $ | 2,389,168 | | | $ | 2,622,994 | | | Total long-term debt, net | | Total long-term debt, net | | $ | 1,496,777 | | | $ | 1,435,253 | | | $ | 1,495,994 | | | $ | 1,664,295 | |
2021 Senior Unsecured Notes
On June 1, 2011, HSSC issued $900.0 million aggregate principal amount of 7 5/8% Senior Unsecured Notes due 2021 (the “2021 Senior Unsecured Notes,”) at an issue price of 100.0%, pursuant to an Unsecured Indenture dated June 1, 2011 (the “2011 Indenture”). The 2021 Senior Unsecured Notes mature on June 15, 2021. Interest accrues at an annual rate of 7 5/8% and is payable semi-annually in cash, in arrears on June 15 and December 15 of each year.
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
2026 Senior Secured Notes and 2026 Senior Unsecured Notes
On July 27, 2016, HSSCour subsidiary Hughes Satellite Systems Corporation (“HSSC”) issued $750.0 million aggregate principal amount of 5 1/4% Senior Secured Notes due 2026 (the “2026 Senior Secured Notes”) at an issue price of 100.0%, pursuant to an indenture dated July 27, 2016 (the “2016 Secured Indenture”) and $750.0 million aggregate principal amount of 6 5/8% Senior Unsecured Notes due 2026 (the “2026 Senior Unsecured Notes” and, together with the 2021 Senior Unsecured Notes, the “Unsecured Notes”) at an issue price of 100.0%, pursuant to an indenture dated July 27, 2016 (together with the 2011 Indenture and the 2016 Secured Indenture, the “Indentures”). The 2021 Senior Unsecured Notes, the 2026 Senior Secured Notes and the 2026 Senior Unsecured Notes are referred to collectively as the “Notes” and individually as a series of the Notes. The 2026 Senior Secured Notes and the 2026 Senior Unsecured Notes (collectively, the “2026 Notes”) mature on August 1, 2026. Interest on the 2026 Senior Secured Notes accrueaccrues at an annual rate of 5 1/4% and interest on the 2026 Senior Unsecured Notes accrues at an annual rate of 6 5/8%. Interest on the 2026 Notes areis payable semi-annually in cash, in arrears, on February 1 and August 1 of each year.
Additional Information Relating to the Notes
Each series of the Notes is redeemable, in whole or in part, at any time at a redemption price equal to 100.0% of the principal amount thereof plus a “make-whole” premium, as defined in the applicable Indenture, together with accrued and unpaid interest, if any, to the date of redemption.
The 2026 Senior Secured Notes are:
•secured obligations of HSSC; •secured by security interests in substantially all existing and future tangible and intangible assets of HSSC and certain of its subsidiaries on a first priority basis, subject to certain exceptions; •effectively junior to HSSC’s obligations that are secured by assets that are not part of the collateral that secures the 2026 Senior Secured Notes in each case, to the extent of the value of the collateral securing such obligations; •effectively senior to HSSC’s existing and future unsecured obligations to the extent of the value of the collateral securing the 2026 Senior Secured Notes, after giving effect to permitted liens as provided in the 2016 Secured Indenture; •senior in right of payment to all existing and future obligations of HSSC that are expressly subordinated to the 2026 Senior Secured Notes; •structurally junior to any existing and future obligations of any of HSSC’s subsidiaries that do not guarantee the 2026 Senior Secured Notes; and •unconditionally guaranteed, jointly and severally, on a general senior secured basis by certain of our HSSC’s subsidiaries, which guarantees rank equally with all of the guarantors’ existing and future
unsubordinated indebtedness and effectively senior to such guarantors’ existing and future obligations to the extent of the value of the assets securing the 2026 Senior Secured Notes.
The 2026 Senior Unsecured Notes are:
•unsecured senior obligations of HSSC; •ranked equally with all existing and future unsubordinated indebtedness (including as between the 2021 Senior Unsecured Notes and the 2026 Senior Unsecured Notes) and effectively junior to any secured indebtedness up to the value of the assets securing such indebtedness; •effectively junior to HSSC’s obligations that are secured to the extent of the value of the collateral securing such obligations; •senior in right of payment to all existing and future obligations of HSSC that are expressly subordinated to the respective2026 Senior Unsecured Notes; •structurally junior to any existing and future obligations of any of HSSC’s subsidiaries that do not guarantee the respective2026 Senior Unsecured Notes; and
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
•unconditionally guaranteed, jointly and severally, on a general senior secured basis by certain of HSSC’s subsidiaries, which guarantees rank equally with all of the guarantors’ existing and future unsubordinated indebtedness, and effectively junior to any secured indebtedness of the guarantors up to the value of the assets securing such indebtedness.
Subject to certain exceptions, the Indentures contain restrictive covenants that, among other things, impose limitations on HSSC’s ability and, in certain instances, the ability of certain of HSSC’s subsidiaries to:
•incur additional debt; •pay dividends or make distributions on HSSC’s or their capital stock or repurchase HSSC’s or their capital stock; •make certain investments; •create liens or enter into sale and leaseback transactions; •enter into transactions with affiliates; •merge or consolidate with another company; •transfer and sell assets; and •allow to exist certain restrictions on its or their ability to pay dividends, make distributions, make other payments, or transfer assets.
In the event of a Change of Control, as defined in the respective Indentures, HSSC would be required to make an offer to repurchase all or any part of a holder’s Notes at a purchase price equal to 101.0% of the aggregate principal amount thereof, together with accrued and unpaid interest to the date of repurchase.
The Indentures provide for customary events of default for each series of the Notes, including, among other things, non-payment, breach of the covenants in the applicable Indentures, payment defaults or acceleration of other indebtedness, a failure to pay certain judgments and certain events of bankruptcy, insolvency and reorganization. If any event of default occurs and is continuing with respect to any series of the Notes, the trustee or the holders of at least 25.0% in principal amount of the then outstanding Notes of such series may declare all the Notes of such series to be due and payable immediately, together with any accrued and unpaid interest.
Debt Issuance Costs For the years ended December 31, 2020, 20192022, 2021 and 2018,2020, we amortized $4.3$0.8 million, $5.9$2.4 million and $7.9$4.3 million, respectively, of debt issuance costs incurred for all debt issuances, which are included in Interest expense, net of amounts capitalized in the Consolidated Statements of Operations.
NOTE 15. INCOME TAXES
The following table presents the components of Income (loss) from continuing operations before income taxes in the Consolidated Statements of Operations: | | | | For the years ended December 31, | | | For the years ended December 31, | | | | 2020 | | 2019 | | 2018 | | | 2022 | | 2021 | | 2020 | Domestic | Domestic | | $ | 108,078 | | | $ | 120,295 | | | $ | 33,176 | | Domestic | | $ | 354,234 | | | $ | 269,400 | | | $ | 108,078 | | Foreign | Foreign | | (135,913) | | | (213,460) | | | (158,962) | | Foreign | | (121,011) | | | (141,053) | | | (135,913) | | Income (loss) from continuing operations before income taxes | | $ | (27,835) | | | $ | (93,165) | | | $ | (125,786) | | | Income (loss) before income taxes | | Income (loss) before income taxes | | $ | 233,223 | | | $ | 128,347 | | | $ | (27,835) | |
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
The following table presents the components of Income tax benefit (provision), net, in the Consolidated Statements of Operations: | | | | For the years ended December 31, | | | For the years ended December 31, | | | | 2020 | | 2019 | | 2018 | | | 2022 | | 2021 | | 2020 | Current benefit (provision), net: | Current benefit (provision), net: | | | | | | | Current benefit (provision), net: | | | | | | | Federal | Federal | | $ | (2,750) | | | $ | (5,089) | | | $ | (1,476) | | Federal | | $ | (29,703) | | | $ | (9,324) | | | $ | (2,750) | | State | State | | (4,868) | | | 286 | | | 4,881 | | State | | (11,017) | | | (15,171) | | | (4,868) | | Foreign | Foreign | | (2,116) | | | (633) | | | (2,690) | | Foreign | | (4,525) | | | (3,467) | | | (2,116) | | Total current benefit (provision), net | Total current benefit (provision), net | | $ | (9,734) | | | $ | (5,436) | | | $ | 715 | | Total current benefit (provision), net | | $ | (45,245) | | | $ | (27,962) | | | $ | (9,734) | | | Deferred benefit (provision), net: | Deferred benefit (provision), net: | | | | | | | Deferred benefit (provision), net: | | | | | | | Federal | Federal | | $ | (9,707) | | | $ | (7,511) | | | $ | 6,857 | | Federal | | $ | (17,509) | | | $ | (41,665) | | | $ | (9,707) | | State | State | | 3,497 | | | (10,964) | | | (14,375) | | State | | (7,051) | | | (2,155) | | | 3,497 | | Foreign | Foreign | | (8,125) | | | 3,423 | | | 227 | | Foreign | | 3,130 | | | 6,156 | | | (8,125) | | Total deferred benefit (provision), net | Total deferred benefit (provision), net | | (14,335) | | | (15,052) | | | (7,291) | | Total deferred benefit (provision), net | | (21,430) | | | (37,664) | | | (14,335) | | Total income tax benefit (provision), net | Total income tax benefit (provision), net | | $ | (24,069) | | | $ | (20,488) | | | $ | (6,576) | | Total income tax benefit (provision), net | | $ | (66,675) | | | $ | (65,626) | | | $ | (24,069) | |
The following table presents our actual tax provisions reconciled to the amounts computed by applying the statutory federal tax rate to Income (loss) from continuing operations before income taxes in the Consolidated Statements of Operations :Operations: | | | | For the years ended December 31, | | | For the years ended December 31, | | | | 2020 | | 2019 | | 2018 | | | 2022 | | 2021 | | 2020 | Statutory rate | Statutory rate | | $ | 5,845 | | | $ | 19,565 | | | $ | 26,415 | | Statutory rate | | $ | (48,977) | | | $ | (26,953) | | | $ | 5,845 | | State income taxes, net of federal provision (benefit) | | (349) | | | (8,137) | | | (10,519) | | | State income taxes, net of federal benefit (provision) | | State income taxes, net of federal benefit (provision) | | (15,754) | | | (14,140) | | | (349) | | Permanent differences | Permanent differences | | (2,209) | | | (6,531) | | | (1,367) | | Permanent differences | | (2,871) | | | (5,804) | | | (2,209) | | Tax credits | | 1,353 | | | 12,453 | | | 7,825 | | | Tax credits, including withholding tax | | Tax credits, including withholding tax | | 8,907 | | | 6,268 | | | 587 | | Valuation allowance | Valuation allowance | | (44,212) | | | (54,251) | | | (50,118) | | Valuation allowance | | (18,012) | | | (40,743) | | | (44,212) | | Rates different than statutory | Rates different than statutory | | 17,180 | | | 18,786 | | | 20,254 | | Rates different than statutory | | 17,404 | | | 18,137 | | | 17,180 | | Withholding tax | | (766) | | | (2,171) | | | (80) | | | Other | Other | | (911) | | | (202) | | | 1,014 | | Other | | (7,372) | | | (2,391) | | | (911) | | Total income tax benefit (provision), net | Total income tax benefit (provision), net | | $ | (24,069) | | | $ | (20,488) | | | $ | (6,576) | | Total income tax benefit (provision), net | | $ | (66,675) | | | $ | (65,626) | | | $ | (24,069) | |
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
The following table presents the components of our deferred tax assets and liabilities: | | | | As of December 31, | | | As of December 31, | | | | 2020 | | 2019 | | | 2022 | | 2021 | Deferred tax assets: | Deferred tax assets: | | | | | Deferred tax assets: | | | | | Net operating losses, credit and other carryforwards | Net operating losses, credit and other carryforwards | | $ | 274,894 | | | $ | 289,353 | | Net operating losses, credit and other carryforwards | | $ | 220,675 | | | $ | 253,767 | | Unrealized losses on investments, net | | 43,693 | | | 39,018 | | | Other investments | | Other investments | | 3,556 | | | 44,651 | | Accrued expenses | Accrued expenses | | 21,787 | | | 19,660 | | Accrued expenses | | 54,076 | | | 31,996 | | Stock-based compensation | Stock-based compensation | | 6,723 | | | 5,772 | | Stock-based compensation | | 5,645 | | | 7,067 | | Other assets | Other assets | | 35,689 | | | 28,163 | | Other assets | | 10,495 | | | 19,776 | | Total deferred tax assets | Total deferred tax assets | | 382,786 | | | 381,966 | | Total deferred tax assets | | 294,447 | | | 357,257 | | Valuation allowance | Valuation allowance | | (225,593) | | | (181,032) | | Valuation allowance | | (224,731) | | | (234,571) | | Deferred tax assets after valuation allowance | Deferred tax assets after valuation allowance | | $ | 157,193 | | | $ | 200,934 | | Deferred tax assets after valuation allowance | | $ | 69,716 | | | $ | 122,686 | | | Deferred tax liabilities: | Deferred tax liabilities: | | | | | Deferred tax liabilities: | | | | | Depreciation and amortization | | $ | (514,091) | | | $ | (544,158) | | | Property and equipment, regulatory authorizations, and other intangibles | | Property and equipment, regulatory authorizations, and other intangibles | | $ | (467,486) | | | $ | (493,093) | | Other liabilities | Other liabilities | | (1,217) | | | (1,217) | | Other liabilities | | (18,840) | | | (27,860) | | Total deferred tax liabilities | Total deferred tax liabilities | | (515,308) | | | (545,375) | | Total deferred tax liabilities | | (486,326) | | | (520,953) | | Total net deferred tax liabilities | Total net deferred tax liabilities | | $ | (358,115) | | | $ | (344,441) | | Total net deferred tax liabilities | | $ | (416,610) | | | $ | (398,267) | | | Net deferred tax asset foreign jurisdiction | | $ | 1,781 | | | $ | 7,251 | | | Net deferred tax liability domestic | | (359,896) | | | (351,692) | | | Total net deferred tax liabilities | | $ | (358,115) | | | $ | (344,441) | | | Net deferred tax assets (liabilities) foreign jurisdiction | | Net deferred tax assets (liabilities) foreign jurisdiction | | $ | (5,310) | | | $ | (7,242) | | Net deferred tax assets (liabilities) domestic | | Net deferred tax assets (liabilities) domestic | | (411,300) | | | (391,025) | | Total net deferred tax assets (liabilities) | | Total net deferred tax assets (liabilities) | | $ | (416,610) | | | $ | (398,267) | |
Overall, our net deferred tax assets were offset by a valuation allowance of $225.6$224.7 million and $181.0$234.6 million as of December 31, 20202022 and 2019,2021, respectively. The change invaluation allowance decreased due to the removal of the valuation allowance primarily relates toon a disposed investment and on the net operating loss carryforwards of a foreign subsidiary. The decrease was partially offset by an increase in the net operating loss carryforwards of certain foreign subsidiaries and a decrease associated with unrealized gains that are capital in nature.management does not believe will be realized. Tax benefits of net operating loss and tax credit carryforwards are evaluated on an ongoing basis, including a review of historical and projected future operating results, the eligible carryforward period, and other circumstances. As of December 31, 2020,2022, we had net operating loss carryforwards of $657.5$732.0 million, including $521.2$721.2 million of foreign net operating loss carryforwards. A substantial portion of theseThe net operating loss carryforwards associated with India will begin to expire in 2037.2027. As of December 31, 2020,2022, we have tax credit carryforwards of $148.0$75.7 million and $103.4$83.2 million for federal and state income tax purposes, respectively. If not utilized, the federal tax credit carryforwards will begin to expire in 2024 and the state tax credit carryforwards begin to expire in 2020.2035. As of December 31, 2020,2022, we had undistributed earnings attributable to foreign subsidiaries for which 0no provision for U.S. income taxes or foreign withholding taxes has been made because it is expected that such earnings will be reinvested outside the U.S. indefinitely. It is not practicable to determine the amount of the unrecognized deferred tax liability at this time. However, due to the one-time transition tax on the deemed repatriation of post-1986 undistributed foreign subsidiary earnings, the majority of previously unremitted earnings have now been subjected to U.S. federal income tax. As of December 31, 20202022 and 2019,2021, we had net deferred tax assets related to our foreign subsidiaries of $1.8$8.0 million and $7.3$5.4 million, respectively, which were recorded in Other non-current assets, net in the Consolidated Balance Sheets.
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Accounting for Uncertainty in Income Taxes In addition to filing U.S. federal income tax returns, we file income tax returns in all states that impose an income tax. As of December 31, 2020,2022, we are not currently under a U.S. federal income tax examination. However, the IRS could perform tax examinations on years as early as tax year 2008. We are also subject to frequent state income tax audits and have open state examinations on years as early as tax year 2008. We also file income tax returns in the United Kingdom, Germany, Brazil, India and a number of other foreign jurisdictions. We generally are open to income tax examination in these foreign jurisdictions for taxable years beginning in 2003.2004. As of December 31, 2020,2022, we are currently being audited by the Indian tax authorities for fiscal years 20032004 through 2018.2021 and the German tax authority for calendar years 2016 through 2019. We have no other on-going significant income tax examinations in process in our foreign jurisdictions. The following table presents the reconciliation of the beginning and ending amount of unrecognized income tax benefits: | | | | For the years ended December 31, | | | For the years ended December 31, | | | 2020 | | 2019 | | 2018 | | 2022 | | 2021 | | 2020 | Unrecognized tax benefit balance as of beginning of period: | Unrecognized tax benefit balance as of beginning of period: | | $ | 70,401 | | | $ | 69,540 | | | $ | 63,296 | | Unrecognized tax benefit balance as of beginning of period: | | $ | 150,276 | | | $ | 150,060 | | | $ | 70,401 | | Additions based on tax positions related to the current year | Additions based on tax positions related to the current year | | 3,349 | | | 861 | | | 4,361 | | Additions based on tax positions related to the current year | | 1,407 | | | 193 | | | 3,349 | | Additions based on tax positions related to prior years | Additions based on tax positions related to prior years | | 76,882 | | | 0 | | | 2,539 | | Additions based on tax positions related to prior years | | 1,646 | | | 105 | | | 76,882 | | Reductions based on tax positions related to prior years | Reductions based on tax positions related to prior years | | (572) | | | 0 | | | (656) | | Reductions based on tax positions related to prior years | | (14,441) | | | (82) | | | (572) | | Reductions based on expirations of statute of limitations | | Reductions based on expirations of statute of limitations | | (927) | | | — | | | — | | Balance as of end of period | Balance as of end of period | | $ | 150,060 | | | $ | 70,401 | | | $ | 69,540 | | Balance as of end of period | | $ | 137,961 | | | $ | 150,276 | | | $ | 150,060 | |
As of December 31, 20202022 and 2019,2021, we had $150.1$138.0 million and $70.4$150.3 million, respectively, of unrecognized income tax benefits, all of which, if recognized, would affect our effective tax rate. Additions based on tax positions related to prior years in 2020 include amounts in our deferred tax assets previously considered contingent liabilities related to combined state filings with DISH Network.Network Corporation (“DISH”) and its subsidiaries (together with DISH, “Dish Network”). During 2020, we and DISH Network concluded that combined state filings were no longer required. The amounts on this schedule have been added to this schedulereduced by $14.3 million without tax effect to reflect the change in filing status.
For the years ended December 31, 2020, 20192022, 2021 and 2018,2020, our income tax provision included an insignificant amount of interest and penalties.
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 year ended December 31, 2020.
NOTE 16. STOCKHOLDERS’ EQUITY Preferred Stock Our board of directors is authorized to issue preferred stock and may divide such preferred stock into series and, with respect to each series, to determine the preferences and rights and the qualifications, limitations or restrictions of the series, including the dividend rights, conversion rights, voting rights, redemption rights and terms, liquidation preferences, sinking fund provisions, the number of shares constituting the series and the designation of such series. Our board of directors may, without stockholder approval, issue additional preferred stock of existing or new series with voting and other rights that could adversely affect the voting power of the holders of common stock and could have certain anti-takeover effects.
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Common Stock Our Class A, Class B, and Class C common stock are equivalent except for voting rights. Holders of Class A and Class C common stock are entitled to 1one vote per share and holders of Class B common stock are entitled to 10 votes per share. Upon a change in control of the Company, each holder of outstanding shares of Class C common stock is entitled to 10 votes for each share of Class C common stock held. Each share of Class B and Class C common stock is convertible, at the option of the holder, into 1one share of Class A common stock. Charles W. Ergen, our Chairman, and certain entities established for the benefit of his family beneficially own all outstanding Class B common stock. There are 0no shares of Class C common stock outstanding. Any holder of Class D common stock is not entitled to a vote on any matter or to convert the shares of Class D common stock into any other class of common stock. There are 0no shares of Class D common stock outstanding. Each share of common stock is entitled to receive its pro rata share, based upon the number of shares of common stock held, of dividends and distributions upon liquidation.
Common Stock Repurchase Program
Pursuant to a stock repurchase programsprogram approved by our board of directors, we were authorized to repurchase up to $500.0 million of our outstanding shares of Class A common stock through and including December 31, 2020.2022. The following table presents information with respect to purchases made by the Company:
| Period | Period | | Total Number of Shares (or Units) Purchased | | Average Price Paid Per Share (or Unit) | | Total Number of Shares (or Units) Purchased as Part of Publicly Disclosed Plans or Program | | Maximum Number (or Approximate Dollar Value) of Shares (or Units) That May Yet Be Purchased under the Plans or Program | Period | | Total Number of Shares (or Units) Purchased | | Average Price Paid Per Share (or Unit) | | Total Number of Shares (or Units) Purchased as Part of Publicly Disclosed Plans or Program | | Maximum Number (or Approximate Dollar Value) of Shares (or Units) That May Yet Be Purchased under the Plans or Program (1) | Beginning Balance | Beginning Balance | | | | | | | | $ | 500,000 | | Beginning Balance | | | | | | | | $ | 500,000 | | Year ended December 31, 2018 | | 952,603 | | | $ | 34.95 | | | 952,603 | | | 466,708 | | Q4 Repurchase Authorization (1) | | 500,000 | | Year ended December 31, 2019 | | 0 | | | 0 | | | 0 | | | 500,000 | | Year ended December 31, 2020 | Year ended December 31, 2020 | | 1,905,906 | | | 22.79 | | | 1,905,906 | | | 456,542 | Year ended December 31, 2020 | | 1,905,906 | | $ | 22.79 | | | 1,905,906 | | 456,542 | Year ended December 31, 2021 | | Year ended December 31, 2021 | | 10,941,872 | | 23.90 | | 10,941,872 | | 194,933 | Year ended December 31, 2022 | | Year ended December 31, 2022 | | 3,980,612 | | 22.42 | | 3,980,612 | | 410,736 | Total | Total | | 2,858,509 | | | $ | 26.85 | | | 2,858,509 | | | $ | 456,542 | | Total | | 16,828,390 | | $ | 23.43 | | | 16,828,390 | | $ | 410,736 | |
(1) On October 29, 2019,November 2, 2021, our Board of Directors authorized us to repurchase up to $500.0 million of our Class A common stock commencing January 1, 2022 through and including December 31, 2020. Purchases under our repurchase authorization may be made through privately negotiated transactions, open market repurchases, one or more trading plans in accordance with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended, or otherwise, subject to market conditions and other factors. We may elect to purchase some or all, or not to purchase the maximum amount or any of, the remaining shares allowable under this program and we may also enter into additional share repurchase programs authorized by2022. In addition, on October 20, 2022, our Board of Directors.Directors authorized us to repurchase up to $500.0 million of our Class A common stock commencing January 1, 2023 through and including December 31, 2023. All shares repurchased reflected in the table above have been converted to treasury shares.
NOTE 17. EMPLOYEE BENEFIT PLANS Employee Stock Purchase Plan We have an employee stock purchase plan (the “ESPP”), under which we are authorized to issue 5.0 million shares of Class A common stock. As of December 31, 2020,2022, we had approximately 1.70.7 million shares of Class A common stock which remain available for issuance under the ESPP. Generally, all full-time employees who have been employed by EchoStar for at least one calendar quarter are eligible to participate in the ESPP. Employee stock purchases are made through payroll deductions. Under the terms of the ESPP, each employee’s deductions are limited so that the maximum they may purchase under the ESPP is $25,000 in fair value of Class A common stock per year. Stock purchases are made on the last business day of each calendar quarter at 85.0% of the closing price of the Class A common stock on that date. For the years ended December 31, 2020, 20192022, 2021 and 2018,2020, employee purchases of Class A common stock through the ESPP totaled approximately 580,000 shares, 446,000 shares and 452,000 shares, 285,000 shares and 245,000 shares, respectively.
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
401(k) Employee Savings Plans Under the EchoStar 401(k) Plan (“the Plan”), eligible employees are entitled to contribute up to 75.0% of their eligible compensation, on a pre-tax and/or after-tax basis, subject to the maximum contribution limit provided by the Internal Revenue Code of 1986, as amended (the “Code”). All employee contributions to the Plan are immediately vested. We match 50 cents on the dollar for the first 6.0% of each employee’s salary contributions to the Plan for a total of 3.0% match on a pre-tax basis up to a maximum of $7,500 annually. Our match is calculated each pay period there is an employee contribution. In addition, we may make an annual discretionary contribution to the Plan to be made in cash or our stock. Our contributions under the Plan vest at 20.0% per year and are 100.0% vested after an eligible employee has completed five years of employment. Forfeitures of unvested participant balances may be used to fund matching and discretionary contributions. The following table presents our matching contributions, discretionary contributions and shares:
| | | | For the years ended December 31, | | | For the years ended December 31, | | | | 2020 | | 2019 | | 2018 | | | 2022 | | 2021 | | 2020 | Matching contributions | Matching contributions | | $ | 5,239 | | | $ | 5,095 | | | $ | 5,007 | | Matching contributions | | $ | 5,475 | | | $ | 5,434 | | | $ | 5,239 | | Fair value of discretionary contributions of our Class A common stock, net of forfeitures, under 401(k) plan | Fair value of discretionary contributions of our Class A common stock, net of forfeitures, under 401(k) plan | | $ | 6,921 | | | $ | 6,654 | | | $ | 7,605 | | Fair value of discretionary contributions of our Class A common stock, net of forfeitures, under 401(k) plan | | $ | 7,042 | | | $ | 7,125 | | | $ | 6,921 | | Approximate number of shares | Approximate number of shares | | 160,000 | | | 181,000 | | | 127,000 | | Approximate number of shares | | 267,000 | | | 336,000 | | | 160,000 | |
NOTE 18. STOCK-BASED COMPENSATION Stock Incentive Plans We maintain stock incentive plans to attract and retain officers, directors, employees, consultants and advisors. Stock awards under these plans may include both performance-based and non-performance-based stock incentives. As of December 31, 2020,2022, we had outstanding stock options to acquire approximately 4.86.4 million shares of our Class A common stock under these plans. Stock options granted prior to December 31, 20202022 were granted with exercise prices equal to or greater than the market value of our Class A common stock at the date of grant or the last trading day prior to the date of grant (if the grant date is not a trading day) and generally with a maximum term of ten years for our officers and employees and five years for our non-employee directors. While we generally issue stock awards subject to vesting, typically over five years, some stock awards have been granted with immediate or longer vesting periods or that vest only upon the achievement of certain performance objectives. Under these plans, we grant to certain of our employees awards of fully vested shares of Class A common stock under our Employee Innovator Recognition Program, which is available to all of our eligible employees. As of December 31, 2020,2022, we had approximately 6.34.2 million shares of our Class A common stock available for future grant under our stock incentive plans.
In connection with the BSS Transaction, we adjusted stock options that were unexercised and outstanding as of the date of the Distribution, which resulted in an increase in the number of such options and a reduction in the exercise price of such options.
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
The following table presents our exercise prices for stock options outstanding and exercisable as of December 31, 2020:2022: | | | | Options Outstanding | | Options Exercisable | | | Options Outstanding | | Options Exercisable | Exercise Price Range | Exercise Price Range | | Number Outstanding as of December 31, 2020 | | Weighted- Average Remaining Contractual Term (In Years) | | Weighted- Average Exercise Price | | Number Exercisable as of December 31, 2020 | | Weighted- Average Remaining Contractual Term (In Years) | | Weighted- Average Exercise Price | Exercise Price Range | | Number Outstanding as of December 31, 2022 | | Weighted- Average Remaining Contractual Term (In Years) | | Weighted- Average Exercise Price | | Number Exercisable as of December 31, 2022 | | Weighted- Average Remaining Contractual Term (In Years) | | Weighted- Average Exercise Price | $0.00 - $20.00 | $0.00 - $20.00 | | 21,864 | | | 1 | | $ | 18.20 | | | 21,864 | | | 1 | | $ | 18.20 | | $0.00 - $20.00 | | 42,500 | | | 7 | | $ | 18.80 | | | 25,000 | | | 5 | | $ | 19.61 | | $20.01 - $25.00 | $20.01 - $25.00 | | 5,221 | | | 5 | | 23.65 | | | 3,221 | | | 1 | | 22.96 | | $20.01 - $25.00 | | 290,000 | | | 8 | | 24.45 | | | 82,000 | | | 7 | | 24.46 | | $25.01 - $30.00 | $25.01 - $30.00 | | 430,635 | | | 2 | | 29.60 | | | 430,635 | | | 2 | | 29.60 | | $25.01 - $30.00 | | 2,651,867 | | | 8 | | 25.88 | | | 400,267 | | | 0 | | 29.58 | | $30.01 - $35.00 | $30.01 - $35.00 | | 810,361 | | | 5 | | 32.57 | | | 488,397 | | | 3 | | 33.13 | | $30.01 - $35.00 | | 414,914 | | | 5 | | 32.27 | | | 280,269 | | | 5 | | 32.81 | | $35.01 - $40.00 | $35.01 - $40.00 | | 1,572,812 | | | 8 | | 38.77 | | | 506,582 | | | 7 | | 38.59 | | $35.01 - $40.00 | | 1,274,771 | | | 6 | | 38.78 | | | 885,056 | | | 5 | | 38.73 | | $40.01 - $45.00 | $40.01 - $45.00 | | 1,025,386 | | | 4 | | 42.19 | | | 1,019,235 | | | 4 | | 42.19 | | $40.01 - $45.00 | | 861,303 | | | 2 | | 42.11 | | | 858,303 | | | 2 | | 42.10 | | $45.01 - $50.00 | $45.01 - $50.00 | | 875,335 | | | 6 | | 48.51 | | | 531,357 | | | 6 | | 48.50 | | $45.01 - $50.00 | | 814,925 | | | 4 | | 48.67 | | | 786,110 | | | 4 | | 48.77 | | $50.01 - $55.00 | $50.01 - $55.00 | | 63,277 | | | 5 | | 52.69 | | | 43,709 | | | 5 | | 52.71 | | $50.01 - $55.00 | | 43,142 | | | 5 | | 52.66 | | | 41,989 | | | 5 | | 52.67 | | | | | 4,804,891 | | | 6 | | 39.48 | | | 3,045,000 | | | 4 | | 39.42 | | | | 6,393,422 | | | 6 | | 34.03 | | | 3,358,994 | | | 3 | | 40.04 | |
Stock Award Activity The following table presents our stock option activity: | | | | For the years ended December 31, | | | For the years ended December 31, | | | | 2020 | | 2019 | | 2018 | | | 2022 | | 2021 | | 2020 | | | | Options | | Weighted- Average Exercise Price | | Options | | Weighted- Average Exercise Price | | Options | | Weighted- Average Exercise Price | | | Options | | Weighted- Average Exercise Price | | Options | | Weighted- Average Exercise Price | | Options | | Weighted- Average Exercise Price | Total options outstanding, beginning of period | Total options outstanding, beginning of period | | 4,812,644 | | | $ | 43.40 | | | 5,013,038 | | | $ | 41.80 | | | 4,951,256 | | | $ | 41.42 | | Total options outstanding, beginning of period | | 4,799,255 | | | $ | 38.86 | | | 4,804,891 | | | $ | 39.48 | | | 4,812,644 | | | $ | 43.40 | | Granted | Granted | | 180,500 | | | 30.39 | | | 1,959,597 | | | 38.12 | | | 215,500 | | | 51.71 | | Granted | | 2,412,253 | | | 25.14 | | | 325,500 | | | 24.49 | | | 180,500 | | | 30.39 | | Exercised | Exercised | | (45,170) | | | 18.93 | | | (1,986,937) | | | 33.89 | | | (108,318) | | | 40.67 | | Exercised | | — | | | — | | | (22,264) | | | 18.32 | | | (45,170) | | | 18.93 | | Forfeited and canceled | Forfeited and canceled | | (143,083) | | | 41.58 | | | (173,054) | | | 48.99 | | | (45,400) | | | 50.21 | | Forfeited and canceled | | (818,086) | | | 36.29 | | | (308,872) | | | 34.79 | | | (143,083) | | | 41.58 | | Total options outstanding, end of period | Total options outstanding, end of period | | 4,804,891 | | | 39.48 | | | 4,812,644 | | | 43.40 | | | 5,013,038 | | | 41.80 | | Total options outstanding, end of period | | 6,393,422 | | | 34.03 | | | 4,799,255 | | | 38.86 | | | 4,804,891 | | | 39.48 | | Exercisable at end of period | Exercisable at end of period | | 3,045,000 | | | 39.42 | | | 2,510,947 | | | 38.76 | | | 3,710,138 | | | 38.59 | | Exercisable at end of period | | 3,358,994 | | | 40.04 | | | 3,386,174 | | | 39.99 | | | 3,045,000 | | | 39.42 | |
The following table presents our additional share-based compensation disclosures:
| | | | For the years ended December 31, | | | For the years ended December 31, | | | | 2020 | | 2019 | | 2018 | | | 2022 | | 2021 | | 2020 | Tax benefits from stock options exercised | Tax benefits from stock options exercised | | $ | 173 | | | $ | 6,989 | | | $ | 364 | | Tax benefits from stock options exercised | | $ | — | | | $ | 304 | | | $ | 173 | | Aggregate intrinsic value of our stock options exercised | Aggregate intrinsic value of our stock options exercised | | $ | 603 | | | $ | 17,101 | | | $ | 1,774 | | Aggregate intrinsic value of our stock options exercised | | $ | — | | | $ | 238 | | | $ | 603 | |
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Stock-Based Compensation The following table presents our total non-cash, stock-based compensation expense: | | | | For the years ended December 31, | | | For the years ended December 31, | | | | 2020 | | 2019 | | 2018 | | | 2022 | | 2021 | | 2020 | Stock-based compensation expense: | Stock-based compensation expense: | | | | | | | Stock-based compensation expense: | | | | | | | Research and development expenses | Research and development expenses | | $ | 551 | | | $ | 465 | | | $ | 634 | | Research and development expenses | | $ | 832 | | | $ | 530 | | | $ | 551 | | Selling, general and administrative expenses | Selling, general and administrative expenses | | 8,327 | | | 8,860 | | | 9,442 | | Selling, general and administrative expenses | | 10,714 | | | 7,169 | | | 8,327 | | Total stock-based compensation expense | Total stock-based compensation expense | | $ | 8,878 | | | $ | 9,325 | | | $ | 10,076 | | Total stock-based compensation expense | | $ | 11,546 | | | $ | 7,699 | | | $ | 8,878 | |
The income tax benefits related to stock-based compensation expense was $1.7$0.8 million, $1.9$1.5 million and $2.0$1.7 million for the years ended December 31, 2020, 20192022, 2021 and 2018,2020, respectively. As of December 31, 2020,2022, total unrecognized stock-based compensation cost, net of estimated forfeitures, related to our unvested stock awards was $15.0$27.9 million. This amount is based on an estimated future forfeiture rate of 2.0% per year and will be recognized over a weighted-average period of approximately two years.
Valuation of Stock Options The fair value of each stock option granted for the years ended December 31, 2020, 20192022, 2021 and 20182020 was estimated at the date of the grant using a Black-Scholes option valuation model. The following table presents the estimated grant-date fair values and related assumptions: | | | | For the years ended December 31, | | | For the years ended December 31, | | | 2020 | | 2019 | | 2018 | | 2022 | | 2021 | | 2020 | Assumptions: | Assumptions: | | | | | | | Assumptions: | | | | | | | Risk-free interest rate | Risk-free interest rate | | 0.25% - 1.72% | | 1.83% - 2.54% | | 2.25% - 2.99% | Risk-free interest rate | | 1.35% - 4.02% | | 0.48% - 1.11% | | 0.25% - 1.72% | Volatility | Volatility | | 24.32% - 30.07% | | 23.58% - 30.95% | | 22.77% - 23.28% | Volatility | | 32.67% - 34.84% | | 29.91% - 34.51% | | 24.32% - 30.07% | Expected term of options (in years) | Expected term of options (in years) | | 4.0 - 5.9 | | 5.7 - 5.8 | | 5.7 - 5.8 | Expected term of options (in years) | | 4.1 - 6.0 | | 4.0 - 5.9 | | 4.0 - 5.9 | Weighted-average grant-date fair value | Weighted-average grant-date fair value | | $6.56 - $11.63 | | $10.22 - $14.49 | | $12.38 - $16.23 | Weighted-average grant-date fair value | | $5.97 - $9.27 | | $6.20 - $8.32 | | $6.56 - $11.63 |
We do not currently intend to pay dividends on our common stock and accordingly, the dividend yield used in the Black-Scholes option valuation model was assumed to be zero for all periods. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded stock options which have no vesting restrictions and are fully transferable. Consequently, our estimate of fair value may differ from that determined using other valuation models. Further, the Black-Scholes option valuation model requires the input of subjective assumptions. Changes in the subjective input assumptions can materially affect the fair value estimate. Based on the closing market price of our Class A common stock on December 31, 2020,2022, the aggregate intrinsic value of our stock options was $0.1$0.0 million for options outstanding and $0.1$0.0 million for options exercisable as of December 31, 2022.
NOTE 19. RELATED PARTY TRANSACTIONS - DISH NETWORK
Overview
EchoStar and DISH have operated as separate publicly-traded companies since 2008 (the “Spin-off”). A substantial majority of the voting power of the shares of each of EchoStar and DISH is owned beneficially by Charles W. Ergen, our Chairman, and by certain entities established for the benefit of his family.
In January 2017, we and certain of our subsidiaries entered into a share exchange agreement (the “Share Exchange Agreement”) with DISH and certain of its subsidiaries pursuant to which, in February 2017, we received all of the 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, 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 Network and our former 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 one 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, we and DISH Network entered into certain agreements pursuant to which we obtain certain products, services and rights from DISH Network; DISH Network obtains certain products, services and rights from us; and we and DISH Network indemnify each other against certain liabilities arising from our respective businesses. Generally, the amounts we 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 may also enter into additional agreements with DISH Network in the future.
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 — DISH Network
The following table presents our Services and other revenue - DISH Network: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | For the years ended December 31, | | | | | | | 2022 | | 2021 | | 2020 | Services and other revenue - DISH Network | | | | | | $ | 30,191 | | | $ | 33,884 | | | $ | 36,531 | |
The following table presents the related trade accounts receivable: | | | | | | | | | | | | | | | | | As of December 31, | | | 2022 | | 2021 | Trade accounts receivable - DISH Network | | $ | 3,492 | | | $ | 4,244 | |
Satellite Capacity Leased to DISH Network. Effective January 2008, DISH Network began leasing satellite capacity from us on the EchoStar IX satellite. We terminated the provision of this satellite capacity in December 2022.
Telesat Obligation Agreement. In September 2009, we entered into an agreement with Telesat Canada to lease satellite capacity from Telesat Canada on all 32 direct broadcast satellite (“DBS”) transponders on the Nimiq 5 satellite at the 72.7 degree west longitude orbital location (the “Telesat Transponder Agreement”).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. We transferred the Telesat Transponder Agreement to DISH Network in September 2019 as part of the BSS Transaction; however, we retained certain obligations related to DISH Network’s performance under that agreement and we entered into an agreement with DISH Network whereby DISH Network compensates us for retaining such obligations.
Real Estate Leases to DISH Network. We have entered into lease agreements pursuant to which DISH Network leases certain real estate from us. The rent on a per square foot basis for each of the leases is comparable to per square foot rental rates of similar commercial property in the same geographic area at the time of the leases or subsequent amendments. Additionally, DISH Network compensates us for its portion of the taxes, insurance, utilities and/or maintenance of the premises. The terms of each of the leases are set forth below: •100 Inverness Occupancy License Agreement— In March 2017, we and DISH Network entered into a license agreement for DISH Network to use certain of our space at 100 Inverness Terrace East, Englewood, Colorado for an initial period ending in December 2020. We and DISH Network have amended this lease over time to, among other things, extend the term through December 2023. This agreement may be terminated by either party upon 180 days’ prior notice. In connection with the BSS Transaction, we transferred to DISH Network the Englewood Satellite Operations Center located at 100 Inverness Terrace East, including any and all equipment, hardware licenses, software, processes, software licenses, furniture and technical documentation associated with the satellites transferred in the BSS Transaction.
•Meridian Lease Agreement —The lease for all of 9601 S. Meridian Blvd., Englewood, Colorado was originally for a period ending in December 2016. We and DISH Network have amended this lease over time to, among other things, extend the term through December 2023. 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 our 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 these services are terminated by DISH Network upon at least 90 days’ written notice to us. 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 have recommenced providing warranty services to DISH Network. In May 2022, we and DISH Network amended the agreement for the provision of hosting services to extend the term until May 2027.
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 our Gen 4 HughesNet service based upon a subscriber’s service level and based upon certain volume subscription thresholds. The Distribution Agreement also provides that DISH Network has the right, but not the obligation, to purchase certain broadband equipment from us to support the sale of the Gen 4 HughesNet service. The Distribution Agreement had an initial term of five years with automatic renewal for successive one-year terms unless terminated by either party with a written notice at least 180 days’ 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 DBSD North America, Inc. (“DBSD North America”). Prior to DISH Network’s acquisition of DBSD North America and our 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 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 terms unless terminated by DISH Network with at least 180 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 years ended December 31, | | | | | | | 2022 | | 2021 | | 2020 | Operating expenses - DISH Network | | | | | | $ | 5,533 | | | $ | 5,935 | | | $ | 5,793 | |
The following table presents the related trade accounts payable: | | | | | | | | | | | | | | | | | As of December 31, | | | 2022 | | 2021 | Trade accounts payable - DISH Network | | $ | 669 | | | $ | 503 | |
Amended and Restated Professional Services Agreement. In connection with the Spin-off, we 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, we and DISH Network agreed that we 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, we and DISH Network agreed that DISH Network would continue to have the right, but not the obligation, to engage us 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 us (previously provided under a services agreement) and provide other support services. In connection with the consummation of the Share Exchange, we and DISH amended and restated the Professional Services Agreement (as amended to date, the “Amended and Restated Professional Services Agreement”) to provide that we and DISH Network shall have the right to receive additional services that either we 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, we and DISH further amended the Amended and Restated Professional Services Agreement to provide that we and DISH Network shall have the right to receive additional services that either we 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. The term of the Amended and Restated Professional Services Agreement is through January 1, 2023 and renews automatically for successive one-year periods thereafter, unless the agreement is terminated earlier by either party upon at least 60 days’ notice. We or DISH Network 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 provided under the Amended and Restated Professional Services Agreement may survive the termination of the agreement.
Real Estate Leases from DISH Network. Effective March 2017, we entered into a lease with DISH Network for certain space at 530 EchoStar Drive in Cheyenne, Wyoming for an initial period ending in February 2019. In August 2018, we exercised our option to renew this lease for a one-year period ending in February 2020. In connection with the BSS Transaction, we transferred the Cheyenne Satellite Operations Center, including any equipment, software licenses, and furniture located within, to DISH Network and amended this lease to reduce the space provided to us for the Cheyenne Satellite Access Center for a period ending in September 2021.In March 2021, we exercised our option to renew this lease for a one-year period ending September 2022 and amended the lease to provide us the option to renew this lease for up to three additional years. In November 2021, we exercised our option to renew this lease for a one-year period ending September 2023.
Collocation and Antenna Space Agreements. We and DISH Network entered into an agreement pursuant to which DISH Network provided us with collocation space in El Paso, Texas. This agreement was for an initial period ending in July 2015, and provided us with renewal options for four consecutive three-year terms. We exercised our first renewal option for a period commencing in August 2015 and ending in July 2018, in April 2018 we exercised our second renewal option for a period ending in July 2021, and in May 2021 we exercised our third renewal option for a period ending in July 2024. 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 effective May 2020. In November 2020, we provided a termination notice for one of our Englewood, Colorado agreements effective May 2021. In November 2021, we exercised our right to renew the collocation agreements at Gilbert, Arizona, Cheyenne, Wyoming, Spokane, Washington, Englewood, Colorado and Monee, Illinois for a period ending in February 2025. 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. In May 2022, we exercised our right to renew such other agreements at Monee, Illinois and Spokane, Washington through August 2025. 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 provides us with antenna space and power in Cheyenne, Wyoming for a period of five years commencing in August 2020, with four 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 withantenna space and power in Cheyenne, Wyoming, and the right to use an antenna and certain space in Gilbert, Arizona. Both agreements are for a period of five years with four 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.
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 certain payments to each other relating to sales, upgrades, purchases and installation services. The current term of the Hughes Broadband MSA is through March 2023 with automatic renewal for successive one-year terms. Either party has the ability to terminate the Hughes Broadband MSA, in whole or in part, for any reason upon at least 90 days’ notice to the other party. Upon expiration or termination of the Hughes Broadband MSA, we will continue to provide our 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 $6.8 million, $8.4 million and $16.6 million for the years ended December 31, 2022, 2021 and 2020, respectively.
2019 TT&C Agreement. In September 2019, in connection with the BSS Transaction, we entered into an agreement pursuant to which DISH Network provides TT&C services to us for a period ending in September 2021, with the option for us to renew for a one-year period upon written notice at least 90 days prior to the initial expiration (the “2019 TT&C Agreement”). In June 2021, we amended the 2019 TT&C Agreement to extend the term until September 2022 and added the option for us to renew the 2019 TT&C Agreement up to an additional three years. In September 2022, we exercised the option to renew the 2019 TT&C Agreement until September 2023. 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.
Referral Marketing Agreement. In June 2021, we and DISH Network entered into an agreement pursuant to which we will pre-qualify prospects contacting Hughes call centers and transfer those prospects to DISH Network for introduction to DISH Network’s video services, for prospects that convert Hughes will receive a commission. This agreement has an indefinite term and may be terminated by either party upon 90 days’ prior written notice. Whidbey Island 5G Network Test Bed Subcontract. In June 2022, we and DISH Wireless entered into a subcontract (“DISH Subcontract”) pursuant to which DISH will provide access and use of a DISH lab, technical support and integration and testing support for the 5G network test bed to be delivered by Hughes to its customer.
Other Receivables - DISH Network
The following table presents our other receivables owed from DISH Network: | | | | | | | | | | | | | | | | | As of December 31, | | | 2022 | | 2021 | Other receivables - DISH Network, current | | $ | — | | | $ | 12,705 | | Other receivables - DISH Network, noncurrent | | $ | 74,923 | | | $ | 77,920 | |
Tax Sharing Agreement. Effective December 2007, we and DISH Network entered into a tax sharing agreement (the “Tax Sharing Agreement”) in connection with the Spin-off. This agreement governs our and DISH Network’s 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 Contentsrestructuring activities undertaken to implement the Spin-off, are borne by DISH Network and DISH Network indemnifies us for such taxes. However, DISH Network is not liable for and does not indemnify us for any taxes that are incurred as a result of the Spin-off or certain related transactions failing to qualify as tax-free distributions pursuant to any provision of Section 355 or Section 361 of the Internal Revenue Code of 1986, as amended (the “Code”), because of: (i) a direct or indirect acquisition of any of our stock, stock options or assets; (ii) any action that we take or fail to take or (iii) any action that we 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, we 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. ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn light of the Tax Sharing Agreement, among other things, and in connection with our consolidated federal income tax returns for certain tax years prior to and for the year of the Spin-off, in September 2013, we 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 our consolidated tax returns. Prior to the agreement with DISH Network in 2013, the federal tax benefits were reflected as a deferred tax asset for depreciation and amortization, which was netted in our non-current deferred tax liabilities. Under the agreement with DISH Network from 2013, DISH Network is paying us the federal tax benefit it receives at such time as we would have otherwise been able to realize such tax benefit. We recorded a current receivable from DISH Network in Other receivables - CONTINUED DISH Network, current and a non-current receivable from DISH Network in Other receivables - DISH Network, noncurrent and a corresponding increase in our Deferred tax liabilities, net to reflect the effects of this agreement. In addition, in September 2013, we and DISH Network agreed upon a tax sharing arrangement for filing certain combined state income tax returns and a method of allocating the respective tax liabilities between us and DISH Network for such combined returns, through the taxable period ending on December 31, 2017 (the “State Tax Arrangement”).NOTE 19. COMMITMENTS AND CONTINGENCIES
In August 2018, we and DISH Network amended the Tax Sharing Agreement and the 2013 agreements (the “Tax Sharing Amendment”). Under the Tax Sharing Amendment, to the extent permitted by applicable tax law, DISH Network is entitled to apply the benefit of our 2009 net operating losses (the “SATS 2009 NOLs”) to DISH Network’s federal tax return for the year ended December 31, 2008, in exchange for DISH Network paying us over time the value of the net annual federal income taxes paid by us that would have been otherwise offset by the SATS 2009 NOLs. The Tax Sharing Amendment also requires us and DISH Network to pay the other for the benefits of certain past and future federal research and development tax credits that we or DISH Network receive or received as a result of being part of a controlled group under the Code, and requires DISH Network to compensate us for certain past tax losses utilized by DISH Network and for certain past and future excess California research and development tax credits generated by us and used by DISH Network. In addition, the Tax Sharing Amendment extends the term of the State Tax Arrangement to the earlier of termination of the Tax Sharing Agreement, a change in control of either us or DISH Network or, for any particular state, if we and DISH Network no longer file a combined tax return for such state.
We and DISH Network filed combined income tax returns in certain states from 2008 through 2019. We have earned and recognized tax benefits for certain state income tax credits that we would be unable to fully utilize currently if we had filed separately from DISH Network. We have charged Additional paid-in capital in prior periods when DISH Network has utilized such tax benefits. We expect to increase Additional paid-in capital upon receipt of any consideration that DISH Network pays to us in exchange for these tax credits. For the year ended December 31, 2022, we have recorded a decrease to Additional paid-in capital for $6.3 million for payments received from DISH Network.
Commitments
The following table summarizes our contractual obligations from our continuing operations as of December 31, 2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Payments Due in the Years Ending December 31, | | | Total | | 2021 | | 2022 | | 2023 | | 2024 | | 2025 | | Thereafter | Long-term debt | | $ | 2,400,000 | | | $ | 900,000 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 1,500,000 | | Interest on long-term debt | | 568,711 | | | 123,396 | | | 89,063 | | | 89,063 | | | 89,063 | | | 89,063 | | | 89,063 | | Satellite-related commitments | | 487,665 | | | 223,528 | | | 73,412 | | | 22,778 | | | 20,743 | | | 21,487 | | | 125,717 | | Operating lease obligations | | 176,001 | | | 21,051 | | | 20,409 | | | 19,628 | | | 16,364 | | | 12,355 | | | 86,194 | | Finance lease obligations | | 608 | | | 472 | | | 136 | | | 0 | | | 0 | | | 0 | | | 0 | | Total | | $ | 3,632,985 | | | $ | 1,268,447 | | | $ | 183,020 | | | $ | 131,469 | | | $ | 126,170 | | | $ | 122,905 | | | $ | 1,800,974 | |
The table above does not include amounts related to deferred tax liabilities, unrecognized tax positions and certain other amounts recorded in our non-current liabilities as the timing of any payments is uncertain. The table also excludes long-term deferred revenue and other long-term liabilities that do not require future cash payments. Additionally, our satellite-related commitments include payments pursuant to agreements for the construction of the EchoStar XXIV satellite, payments pursuant to the EchoStar XXIV launch contract, 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.Other Agreements
Contingencies
Master Transaction Agreement.
PatentsIn May 2019, we and Intellectual Property
Many entities, including some of our competitors, have, or may have inBSS Corp. entered into the future, patentsMaster Transaction Agreement with DISH 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 licensesMerger Sub 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 respectBSS Transaction. Pursuant 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 our spin-off from DISH in 2008 (the “Spin-off”), we 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, we assumed certain liabilities that relate to 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 we will generally only be liable for our acts or omissions following the Spin-off and DISH Network will indemnify us 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, we 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
Agreement, on September 10, 2019: (i) we transferred the BSS Business to BSS Corp.; (ii) we completed the Distribution; and (iii) immediately after the Distribution, (1) BSS Corp. became a wholly-owned subsidiary of Contents ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DISH such that DISH owns and operates the transferred businessesBSS Business and assets. These agreements also contain additional indemnification provisions between(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 us and DISH Network, for, inincluding our representations relating to the case of the Share Exchange, certain pre-existingassets, liabilities and legal proceedings and, in the casefinancial condition of the BSS Transaction,Business, and representations by DISH Network relating to its financial condition and liabilities. We and DISH Network have agreed to indemnify each other against certain losses with respect to breaches of certain representations and covenants and certain liabilities.retained and assumed liabilities, respectively.
Litigation
BSS Transaction Intellectual Property and Technology License Agreement.
We are involved in a number of legal proceedings concerning matters arisingEffective September 2019, 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 whichBSS Transaction, 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 HughesDISH 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 settlementan intellectual property and technology license agreement with Elbit(the “BSS IPTLA”) 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.
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
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 our 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 officer, David J. Rayner; EchoStar Corporation; our subsidiary Hughes Satellite Systems Corporation (“HSSC”); our former subsidiary BSS Corp.; 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 granted to DISH Network a license to our intellectual property and technology for use by DISH Network, among other things, in connection with its subsidiary Merger Sub. On September 5, 2019,continued operation of the defendants filed motionsBSS Business acquired pursuant 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 Corporation’s minority stockholders by structuring the BSS Transaction, with inadequate considerationincluding a limited license to use the “ESS” and improperly influencing“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, among other things, for the continued use of all intellectual property and technology that is used in our and HSSC’s boardsretained businesses but the ownership of directorswhich was transferred to approveDISH Network pursuant to 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
BSS Transaction Tax Matters Agreement.
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 andEffective September 2019, 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 providersconnection with the Tribunal. These petitions were amended, consolidated, remandedBSS Transaction, we, BSS Corp. and re-appealed several times. On April 23, 2015, the Tribunal issuedDISH entered into a judgment affirming the DOT’s calculationtax matters agreement. This agreement governs certain of AGR for the telecommunications service providers but reversing the DOT’s imposition of interest, penaltiesour rights, responsibilities 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
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
10-year payment schedule. Under the payment schedule, HCIPL is required to make a payment of 10% of the legally payable dues by March 31, 2021, and thereafter make payments in yearly installments through 2031. To date, HCIPL has paid the DOT $2.9 millionobligations with respect to this matter. As a resulttaxes of the Supreme Court’s orders, HCIPL’s paymentsBSS Business transferred pursuant to datethe BSS Transaction. Generally, we are 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 we and DISH made certain tax-related representations and are subject to various tax-related covenants after the consummation of the BSS Transaction. Both we 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 us 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 impactShare Exchange Tax Matters Agreement outlined below, both of foreign exchange rates, we have recorded an accrual of $81.7 million as of December 31, 2020, comprised of $3.9 million for additional license fees, $4.0 million for penaltieswhich continue in full force and $73.8 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.effect.
OtherBSS Transaction Employee Matters Agreement. Effective September 2019, in connection with the BSS Transaction, we and DISH Network entered into an employee matters agreement that addressed the transfer of employees from us to DISH Network, including certain benefit and compensation matters and the allocation of responsibility for employee related liabilities relating to current and past employees of the BSS Business. DISH Network assumed employee-related liabilities relating to the BSS Business as part of the BSS Transaction, except that we are responsible for certain pre-BSS Transaction compensation and benefits for employees who transferred to DISH Network in connection with the BSS Transaction.
Share Exchange Agreement. In February 2017 we consummated the Share Exchange, following which we no longer 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 terminated and are of no further effect. Pursuant to the Share Exchange Agreement, we 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 us related to the transferred assets,
assumed liabilities and the financial condition of the transferred businesses. We 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 us or DISH causes the transaction to be taxable to the other party after closing.
Share Exchange Intellectual Property and Technology License Agreement. Effective March 2017, in connection with the Share Exchange, we and DISH Network entered into an intellectual property and technology license agreement (“IPTLA”) pursuant to which we 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 granted to DISH Network a license to our 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, among other things, for the continued use of all intellectual property and technology that is used in our retained businesses but the ownership of which was transferred to DISH Network pursuant to the above actions,Share Exchange.
Share Exchange Tax Matters Agreement. Effective March 2017, in connection with the Share Exchange, we and DISH entered into a tax matters agreement. This agreement governs certain of our rights, responsibilities and obligations with respect to taxes of the transferred businesses pursuant to the Share Exchange. Generally, we are 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 we and DISH Network made certain tax-related representations and are subject to various tax-related covenants after the consummation of the Share Exchange. Both we and DISH Network have agreed to indemnify each other legal proceedingsif there is a breach of any such tax representation or violation of any such tax covenant and claims, which arisethat breach or violation results 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 responsibleShare Exchange not qualifying for enforcingtax free treatment for 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.other party. In addition, we from timeDISH Network has agreed to time receive inquiries from federal, stateindemnify us if the transferred businesses are acquired, either directly or indirectly (e.g., via an acquisition of DISH Network), by one or more persons 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,such acquisition 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 flowsShare Exchange not qualifying for any particular period, depending,tax free treatment. The tax matters agreement supplements the Tax Sharing Agreement outlined above which continues in part, upon the operating results for such period.
We also indemnify our directors, officersfull force 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.effect.
Share Exchange Employee Matters Agreement. Effective March 2017, in connection with the Share Exchange, we 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 transferred businesses. DISH Network assumed employee-related liabilities relating to the transferred businesses as part of the Share Exchange, except that we are responsible for certain pre-Share Exchange employee related litigation, and compensation and benefits for employees who transferred to DISH Network in connection with the Share Exchange.
NOTE 20. 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.RELATED PARTY TRANSACTIONS - OTHER
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”).
Hughes Systique Corporation
Total assets by segment have not been reported herein because the information is not providedWe contract with Hughes Systique Corporation (“Hughes Systique”) for software development services. In addition to our CODMapproximately 42% ownership in Hughes Systique, Mr. Pradman Kaul, the former President of our subsidiary Hughes Communications and Vice-Chair of our board of directors (effective January 1, 2023), 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 December 31, 2022. Furthermore, Mr. Pradman Kaul serves on the board of directors of Hughes Systique. Hughes Systique is a regular basis. 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 Consolidated Financial Statements.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
The following table presents revenue, EBITDA and capital expenditures for each of our business segments. Capital expenditures are net of refunds and other receipts related to our property and equipment.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | Hughes | | ESS | | Corporate and Other | | Consolidated Total | For the year ended December 31, 2020 | | | | | | | | | External revenue | | $ | 1,860,834 | | | $ | 16,237 | | | $ | 10,836 | | | $ | 1,887,907 | | Intersegment revenue | | 0 | | | 1,161 | | | (1,161) | | | — | | Total revenue | | $ | 1,860,834 | | | $ | 17,398 | | | $ | 9,675 | | | $ | 1,887,907 | | | | | | | | | | | EBITDA | | $ | 727,608 | | | $ | 7,873 | | | $ | (118,606) | | | $ | 616,875 | | Capital expenditures | | $ | 355,197 | | | $ | 41 | | | $ | 53,560 | | | $ | 408,798 | | | | | | | | | | | For the year ended December 31, 2019 | | | | | | | | | External revenue | | $ | 1,852,742 | | | $ | 15,131 | | | $ | 18,208 | | | $ | 1,886,081 | | Intersegment revenue | | 0 | | | 1,126 | | | (1,126) | | | — | | Total revenue | | $ | 1,852,742 | | | $ | 16,257 | | | $ | 17,082 | | | $ | 1,886,081 | | | | | | | | | | | EBITDA | | $ | 625,660 | | | $ | 6,994 | | | $ | (55,055) | | | $ | 577,599 | | Capital expenditures | | $ | 308,781 | | | $ | 0 | | | $ | 109,293 | | | $ | 418,074 | | | | | | | | | | | For the year ended December 31, 2018 | | | | | | | | | External revenue | | $ | 1,716,169 | | | $ | 27,009 | | | $ | 19,460 | | | $ | 1,762,638 | | Intersegment revenue | | 359 | | | 222 | | | (581) | | | — | | Total revenue | | $ | 1,716,528 | | | $ | 27,231 | | | $ | 18,879 | | | $ | 1,762,638 | | | | | | | | | | | EBITDA | | $ | 601,319 | | | $ | 17,764 | | | $ | (150,582) | | | $ | 468,501 | | Capital expenditures | | $ | 390,108 | | | $ | (76,757) | | | $ | 164,091 | | | $ | 477,442 | |
TerreStar Solutions
The following table reconciles Income (loss) from continuing operations before income taxes in the Consolidated Statements of Operations to EBITDA:
| | | | | | | | | | | | | | | | | | | | | | | For the Years Ended December 31, | | | 2020 | | 2019 | | 2018 | Income (loss) from continuing operations before income taxes | | $ | (27,835) | | | $ | (93,165) | | | $ | (125,786) | | Interest income, net | | (39,982) | | | (82,352) | | | (80,275) | | Interest expense, net of amounts capitalized | | 147,927 | | | 251,016 | | | 219,288 | | Depreciation and amortization | | 525,011 | | | 490,765 | | | 457,116 | | Net loss (income) attributable to non-controlling interests | | 11,754 | | | 11,335 | | | (1,842) | | EBITDA | | $ | 616,875 | | | $ | 577,599 | | | $ | 468,501 | |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Geographic Information
The following table summarizes total long-lived assets attributed to the North America, South and Central America and other foreign locations:
| | | | | | | | | | | | | | | | | As of December 31, | | | 2020 | | 2019 | Long-lived assets: | | | | | North America | | $ | 2,954,421 | | | $ | 3,092,773 | | South and Central America | | 311,063 | | | 310,226 | | Other | | 133,621 | | | 140,797 | | Total long-lived assets | | $ | 3,399,105 | | | $ | 3,543,796 | |
NOTE 21. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table presents our quarterly results of operations:
| | | | | | | | | | | | | | | | | | | | | | | | | For the Three Months Ended | | December 31 | | September 30 | | June 30 | | March 31 | Year Ended December 31, 2020 | | | | | | | | Total revenue | $ | 489,273 | | | $ | 473,502 | | | $ | 459,466 | | | $ | 465,666 | | Operating income (loss) | 30,108 | | | 36,990 | | | 34,772 | | | 10,603 | | Net income (loss) | (2,597) | | | 23,273 | | | (14,843) | | | (57,737) | | Net income (loss) from continuing operations attributable to EchoStar common stock | 117 | | | 25,440 | | | (11,412) | | | (54,295) | | Net income (loss) attributable to EchoStar Corporation common stock | 117 | | | 25,440 | | | (11,412) | | | (54,295) | | Basic and diluted income (loss) from continuing operations per share | 0.01 | | | 0.26 | | | (0.12) | | | (0.56) | | Total basic and diluted earnings (losses) per share | 0.01 | | | 0.26 | | | (0.12) | | | (0.56) | | | | | | | | | | Year Ended December 31, 2019 | | | | | | | | Total revenue | $ | 499,006 | | | $ | 472,262 | | | $ | 460,431 | | | $ | 454,382 | | Operating income (loss) | 23,597 | | | 26,093 | | | (4,661) | | | 28,048 | | Net income (loss) | (63,094) | | | (21,106) | | | (5,060) | | | 15,008 | | Net income (loss) from continuing operations attributable to EchoStar common stock | (46,297) | | | (20,317) | | | (30,660) | | | (5,044) | | Net income (loss) attributable to EchoStar common stock | (53,118) | | | (18,309) | | | (5,692) | | | 14,202 | | Basic and diluted income (loss) from continuing operations per share | (0.48) | | | (0.21) | | | (0.32) | | | (0.05) | | Total basic and diluted earnings (losses) per share | (0.55) | | | (0.19) | | | (0.06) | | | 0.15 | |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 22. RELATED PARTY TRANSACTIONS - DISH NETWORK
Overview
EchoStar Corporation and DISH have operated as separate publicly-traded companies since 2008. 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 to March 2017, DISH Network owned the Trading Stock, which in the aggregate represented an 80% economic interest in the residential retail satellite broadband businessowns more than 15% of our Hughes segment. The Trading Stock was retired in March 2017.
TerreStar Solutions, Inc. (“TSI”). In connection with and following the Spin-off, the Share Exchange and the BSS Transaction,May 2018, we and DISH NetworkTSI entered into certain agreementsan equipment and services agreement pursuant to which we obtain certain products, servicesdesign, manufacture and rights from DISH Network; DISH Network obtains certain products, servicesinstall upgraded ground communications network equipment for TSI’s network and rights from us; and we and DISH Network indemnify each other against certain liabilities arising from our respective businesses. Generally, the amounts we 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 may also enter into additional agreements with DISH Network in the future.
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 — DISH Network
The following table presents our Services and other revenue - DISH Network:
| | | | | | | | | | | | | | | | | | | | | | | For the years ended December 31, | | | 2020 | | 2019 | | 2018 | Services and other revenue - DISH Network | | $ | 36,531 | | | $ | 53,429 | | | $ | 73,465 | |
The following table presents the related trade accounts receivable:
| | | | | | | | | | | | | | | | | As of December 31, | | | 2020 | | 2019 | Trade accounts receivable - DISH Network | | $ | 5,612 | | | $ | 10,683 | |
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 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.
•103 Degree Orbital Location/SES-3—In May 2012, we entered into a spectrum development agreement (the “103 Spectrum Development Agreement”) with Ciel Satellite Holdings Inc. (“Ciel”) to develop certain spectrum rights at the 103 degree west longitude orbital location (the “103 Spectrum Rights”). In June 2013, we and DISH Network entered into a spectrum development agreement (the “DISH 103 Spectrum Development Agreement”) pursuant to which DISH Network may use and develop the 103 Spectrum Rights. Effective in March 2018, DISH Network exercised its right to terminate the DISH 103 Spectrum Development Agreement and we exercised our right to terminate the 103 Spectrum Development Agreement.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
In connection with the 103 Spectrum Development Agreement, in May 2012, we also entered into a ten-year agreement with Ciel pursuant to which we leased certain satellite capacity from Ciel on the SES-3 satellite at the 103 degree west longitude orbital location (the “Ciel 103 Agreement”). In June 2013, we and DISH Network entered into an agreement pursuant to which DISH Network leased certain satellite capacity from us on the SES-3 satellite (the “DISH 103 Agreement”). Under the terms of the DISH 103 Agreement, DISH Network made certain monthly payments to us through the service term. Effective in March 2018, DISH Network exercised its right to terminate the DISH 103 Agreement and we exercised our right to terminate the Ciel 103 Agreement.
Telesat Obligation Agreement. We transferred the Telesat Transponder Agreement to DISH Network as part of the BSS Transaction; however, we retained certain obligations related to DISH Network’s performance under that agreement. In September 2019, we and DISH Network entered into an agreement whereby DISH Network compensates us for retaining such obligations.
Real Estate Leases to DISH Network. We have entered into lease agreements pursuant to which DISH Network leases certain real estate from us. The rent on a per square foot basis for each of the leases is comparable to per square foot rental rates of similar commercial property in the same geographic area at the time of the leases or subsequent amendments. Additionally, DISH Network compensates us for its portion of the taxes, insurance, utilities and/or maintenance of the premises. The terms of each of the leases are set forth below:
•100 Inverness Occupancy License Agreement— Effective March 2017, DISH Network is licensed to use certain of our space at 100 Inverness Terrace East, Englewood, Colorado for a period ending in December 2020. Effective December 2020, we amended this agreement to extend the license until December 2021. This agreement may be terminated by either party upon 180 days’ prior notice. This agreement will be converted to a month-to-month lease agreement unless extended by mutual consent or terminated by one of the parties upon 30 days’ notice. In connection with the BSS Transaction, we transferred to DISH Network the Englewood Satellite Operations Center located at 100 Inverness Terrace East, including any and all equipment, hardware licenses, software, processes, software licenses, furniture and technical documentation associated with the satellites transferred in the BSS Transaction.
•Meridian Lease Agreement —The lease for all of 9601 S. Meridian Blvd., Englewood, Colorado was originally for a period ending in December 2016. We and DISH Network have amended this lease over time to, among other things, extend the term through December 2021. After December 2021, this agreement may be converted by mutual consent to a month-to-month lease agreement with either party having the right to terminate upon 30 days’ notice.
TerreStar Agreement. In March 2012, DISH Network completed its acquisition of substantially all the assets of TerreStar Networks Inc. (“TerreStar”). Prior to DISH Network’s acquisition of substantially all the assets of TerreStar and our 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 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 warranty services to DISH Network.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
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 our Gen 4 HughesNet service based upon a subscriber’s service level and based upon certain volume subscription thresholds. The Distribution Agreement also provides that DISH Network has the right, but not the obligation, to purchase certain broadband equipment from us to support the sale of the Gen 4 HughesNet service. The Distribution Agreement had an initial term of five years with automatic renewal for successive one year terms unless terminated by either party with a written notice at least 180 days’ 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 our completion of the Hughes Acquisition, DBSD North America and HNS entered into various agreements pursuant to which we provide, among other things, warranty, operations and maintenance and hosting services of DBSD North America’s gateway and ground-based communications equipment. In December 2017, we and DBSD North America amended these agreements, effective as of January 1, 2018, to reduce certain pricing terms through December 31, 2023 and to modify certain termination provisions. DBSD North America has the right to continue to receive operations and maintenance services from us on a quarter-to-quarter basis, unless terminated by DBSD North America upon at least 120 days’ written notice to us. In February 2019, we further amended these agreements to provide DBSD North America with the right to continue to receive warranty services from us on a month-to-month basis until December 2023, unless terminated by DBSD North America upon at least 21 days’ written notice to us. The provision of hosting services will continue until February 2022 and will automatically renew for an additional five-year period until February 2027 unless terminated by DBSD North America upon at least 180 days’ written notice to us. In addition, DBSD North America generally may terminate any and all such services for convenience, subject to providing us with prior notice and/or payment of termination charges.
Hughes Equipment and Services Agreement. In February 2019, we and DISH Network entered into an agreement pursuant to which we will sell to DISH Network our HughesNet Service and HughesNet equipment that has been modified to meet DISH Network’s internet-of-things specifications for the transfer of data to DISH Network’s network operations centers. This agreement has an initial term of five years expiring February 2024 with automatic renewal for successive one-year terms unless terminated by DISH Network with at least 180 days‘ 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 years ended December 31, | | | 2020 | | 2019 | | 2018 | Operating expenses - DISH Network | | $ | 5,793 | | | $ | 5,198 | | | $ | 3,889 | |
The following table presents the related trade accounts payable:
| | | | | | | | | | | | | | | | | As of December 31, | | | 2020 | | 2019 | Trade accounts payable - DISH Network | | $ | 752 | | | $ | 1,923 | |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Amended and Restated Professional Services Agreement. In connection with the Spin-off, we 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, we and DISH Network agreed that we 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, we and DISH Network agreed that DISH Network would continue to have the right, but not the obligation, to engage us to manage the processWe recognized revenue of procuring new satellite capacity for DISH Network (previously provided under a satellite procurement agreement), receive logistics, procurement and quality assurance services from us (previously provided under a services agreement) and provide other support services. In connection with the consummation of the Share Exchange, we and DISH amended and restated the Professional Services Agreement (as amended to date, the “Amended and Restated Professional Services Agreement”) to provide that we and DISH Network shall have the right to receive additional services that either we 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, we and DISH further amended the Amended and Restated Professional Services Agreement to provide that we and DISH Network shall have the right to receive additional services that either we 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. The term of the Amended and Restated Professional Services Agreement is through January 2021 and renews automatically for successive one-year periods thereafter, unless the agreement is terminated earlier by either party upon at least 60 days‘ notice. We or DISH Network 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 Leases from DISH Network. We have entered into lease agreements pursuant to which we lease certain real estate from DISH Network. The rent on a per square foot basis is comparable to per square foot rental rates of similar commercial property in the same geographic area at the time of the leases or subsequent amendments and, includes our portion of the taxes, insurance, utilities and/or maintenance of the premises. The terms of each of the leases are set forth below:
•Cheyenne Lease Agreement— Effective March 2017, we entered into a lease with DISH Network for certain space at 530 EchoStar Drive in Cheyenne, Wyoming for a period ending in February 2019. In August 2018, we exercised our option to renew this lease for a one year period ending in February 2020. In connection with the BSS Transaction, we transferred the Cheyenne Satellite Operations Center, including any equipment, software licenses, and furniture located within, to DISH Network and amended this lease to reduce the space provided to us for the Cheyenne Satellite Access Center for a period ending in September 2021, with the option for us to renew for a one year period upon 180 days’ written notice prior to the end of the term.
•American Fork Occupancy License Agreement — 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.
Collocation and Antenna Space Agreements. We and DISH Network have entered into an agreement pursuant to which DISH Network provides us with collocation space in El Paso, Texas. This agreement was for an initial period ending in August 2015, and provides us with renewal options for four consecutive years. Effective August 2015, we exercised our first renewal option for a period ending in August 2018 and in April 2018 we exercised our second renewal option for a period ending in August 2021. In connection with the Share Exchange, effective March 2017, we also entered into certain agreements pursuant to which DISH Network provides collocation and antenna space to EchoStar through February 2022 at the following locations: Cheyenne, Wyoming; Gilbert, Arizona; New
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
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 ending 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 provides us with antenna space and power in Cheyenne, Wyoming for a period of five years commencing in August 2020, with 4 three-year renewal terms, with prior written notice no more than 120 days but no less than 90 days prior to the end of the then-current term.
Hughes Broadband Master Services Agreement. In 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 certain payments to each other relating to sales, upgrades, purchases and installation services. The Hughes Broadband MSA has an initial term of five years through March 2022 with automatic renewal for successive one-year terms. Either party has the ability to terminate the Hughes Broadband MSA, in whole or in part, for any reason upon at least 90 days’ notice to the other party. Upon expiration or termination of the Hughes Broadband MSA, we will continue to provide our 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 $16.6$2.0 million, $17.1$1.9 million and $33.2$4.4 million for the years ended December 31, 2022, 2021 and 2020, 2019 and 2018, respectively. As of December 31, 2022 we had $0.5 million of trade accounts receivable from TSI.
NOTE 21. COMMITMENTS AND CONTINGENCIES 2019 TT&C Agreement
Commitments The following table summarizes our contractual obligations as of December 31, 2022: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Payments Due in the Years Ending December 31, | | | Total (4)(5) | | 2023 | | 2024 | | 2025 | | 2026 | | 2027 | | Thereafter | Long-term debt (1) | | $ | 1,500,000 | | | $ | — | | | $ | — | | | $ | — | | | $ | 1,500,000 | | | $ | — | | | $ | — | | Interest on long-term debt | | 356,252 | | | 89,063 | | | 89,063 | | | 89,063 | | | 89,063 | | | — | | | — | | Satellite-related commitments (2) | | 169,252 | | | 60,822 | | | 19,105 | | | 18,618 | | | 17,156 | | | 15,460 | | | 38,091 | | Operating lease obligations (3) | | 201,625 | | | 25,101 | | | 23,180 | | | 19,578 | | | 18,770 | | | 17,256 | | | 97,740 | | Total | | $ | 2,227,129 | | | $ | 174,986 | | | $ | 131,348 | | | $ | 127,259 | | | $ | 1,624,989 | | | $ | 32,716 | | | $ | 135,831 | |
(1) Assumes all long-term debt is outstanding until scheduled maturity. (2) Includes payments pursuant to: i) the EchoStar XXIV launch contract, ii) regulatory authorizations, iii) non-lease costs associated with our finance lease satellites, iv) in-orbit incentives relating to certain satellites and v) commitments for satellite service arrangements. (3) Operating leases consist primarily of leases for office space, data centers and satellite-related ground infrastructure. (4) The table excludes amounts related to deferred tax liabilities, unrecognized tax positions and certain other amounts recorded in our non-current liabilities as the timing of any payments is uncertain. (5) The table excludes long-term deferred revenue and other long-term liabilities that do not require future cash payments. .
In September 2019,certain circumstances, the dates on which we are obligated to pay our contractual obligations could change.
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 our spin-off from DISH in 2008, we 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, we assumed certain liabilities that relate to 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 we will generally only be liable for our acts or omissions following the Spin-off and DISH Network will indemnify us 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, we entered into an agreement pursuant tothe Share Exchange Agreement and the Master Transaction Agreement, respectively, and other agreements which DISH Network provides TT&C services to us for a period ending in September 2021, with the option for us to renew for a one-year period upon written notice at least 90 days prior to the initial expiration (the “2019 TT&C Agreement”). The fees for services provided under the 2019 TT&C Agreement are calculated at either: (i) a fixed fee or (ii) cost plus a fixed margin, which will vary depending on the nature of the services provided. Any party is able to terminate the 2019 TT&C Agreement for any reason upon 12 months’ notice.
Other Receivables - DISH Network
The following table presents our other receivables owed from DISH Network:
| | | | | | | | | | | | | | | | | As of December 31, | | | 2020 | | 2019 | Other receivables - DISH Network | | $ | 92,680 | | | $ | 92,892 | |
Tax Sharing Agreement. Effective December 2007, we and DISH Network entered into a tax sharing agreement (the “Tax Sharing Agreement”) in connection with the Spin-off. This agreement governs our and DISH Network’s 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 us for such taxes. However, DISH Network is not liable for and does not indemnify us 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 our stock, stock options or assets; (ii) any action that we take or fail to take or (iii) any action that we take that
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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, we 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,provide, among other things, and in connection with our consolidated federal income tax returns for certain tax years prior to and for the yeardivision of certain liabilities, including liabilities relating to taxes, intellectual property and employees and liabilities resulting from litigation and the Spin-off, in September 2013, we and DISH Network agreed upon a supplemental allocationassumption of the tax benefits arising from certain tax items resolved in the course of the IRS’s examination of our consolidated tax returns. Priorliabilities that relate to the agreement with DISH Network in 2013, the federal tax benefits were reflected as a deferred tax asset for depreciationtransferred businesses and amortization, which was netted in our non-current deferred tax liabilities. The agreement with DISH Network in 2013 requires DISH Network to pay us the federal tax benefit it receives at such time as we would have otherwise been able to realize such tax benefit. We recorded a non-current receivable from DISH Network in Other receivables - DISH Network and a corresponding increase in our Deferred tax liabilities, net to reflect the effects of this agreement in September 2013. In addition, in September 2013, we and DISH Network agreed upon a tax sharing arrangement for filing certain combined state income tax returns and a method of allocating the respective tax liabilitiesassets. These agreements also contain additional indemnification provisions between us and DISH Network for, such combined returns, throughin the taxable period ending on December 31, 2017 (the “State Tax Arrangement”).
In August 2018, we and DISH Network amended the Tax Sharing Agreement and the 2013 agreements (the “Tax Sharing Amendment”). Under the Tax Sharing Amendment, to the extent permitted by applicable tax law, DISH Network is entitled to apply the benefit of our 2009 net operating losses (the “SATS 2009 NOLs”) to DISH Network’s federal tax return for the year ended December 31, 2008, in exchange for DISH Network paying us over time the valuecase of the net annual federal income taxes paid by us that would have been otherwise offset byShare Exchange, certain pre-existing liabilities and legal proceedings and, in the SATS 2009 NOLs. The Tax Sharing Amendment also requires us and DISH Network to pay the other for the benefits of certain past and future federal research and development tax credits that we or DISH Network receive or received as a result of being part of a controlled group under the Code, and requires DISH Network to compensate us for certain past tax losses utilized by DISH Network and for certain past and future excess California research and development tax credits generated by us and used by DISH Network. In addition, the Tax Sharing Amendment extends the term of the State Tax Arrangement to the earlier to occur of termination of the Tax Sharing Agreement, a change in control of either us or DISH Network or, for any particular state, if we and DISH Network no longer file a combined tax return for such state.
We and DISH Network file combined income tax returns in certain states from 2008 through 2019. We have earned and recognized tax benefits for certain state income tax credits that we would be unable to fully utilize currently if we had filed separately from DISH Network. We have charged Additional paid-in capital in prior periods when DISH Network has utilized such tax benefits. We expect to increase Additional paid-in capital upon receipt of any consideration that DISH Network pays to us in exchange for these tax credits. For the years ended December 31, 2020, 2019 and 2018, DISH Network has utilized tax benefits of $2.2 million, tax provisions of $1.6 million and tax benefits of $1.8 million, respectively.
Other Agreements
Master Transaction Agreement. In May 2019, we 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) we transferred the BSS Business to BSS Corp.; (ii) we completed the Distribution; and (iii) immediately after the Distribution, (1) BSS Corp. became a wholly-owned subsidiary of DISH such that DISH owns and operates the BSS Business and (2) each issued and outstanding share of BSS Common Stock owned by EchoStar stockholders was converted into the right to receive 0.23523769 shares of DISH Common Stock. Following the consummationcase 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 us and DISH Network, including our 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. We and DISH Network have agreed to indemnify each other against certain losses with
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respect to breaches of certain representations and covenants and certain retained and assumed liabilities, respectively.liabilities.
Litigation BSS Transaction Intellectual Property and Technology License Agreement.
Effective September 2019,
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 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.
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 our 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; our subsidiary 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 HSSC’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 DISH Network enteredthe 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. On June 18, 2021, the parties executed a settlement agreement to resolve all
claims in this case. On the same day, the parties filed a joint motion for preliminary approval of the settlement agreement. The motion was granted by an order dated July 30, 2021. On December 9, 2021, the Court held a final settlement hearing. On December 10, 2021, the Court issued an Order granting final approval of the settlement agreement. In an order dated October 24, 2022, the Court granted plaintiff’s unopposed motion to approve the class distribution plan.
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 2002, HCIPL’s license was amended pursuant to a new government policy that was first established in 1999. The new policy 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 and penalties and interest on such fees and 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 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 additional payments on March 31, 2021 and March 31, 2022.
The following table presents the components of the accrual:
| | | | | | | | | | | | | | | | | As of December 31, | | | 2022 | | 2021 | Additional license fees | | $ | 3,425 | | | $ | 3,812 | | Penalties | | 3,516 | | | 3,912 | | Interest and interest on penalties | | 78,327 | | | 81,389 | | Less: Payments | | (17,785) | | | (8,451) | | Total accrual | | 67,483 | | | 80,662 | | Less: Current portion | | 10,191 | | | 11,178 | | Total long-term accrual | | $ | 57,292 | | | $ | 69,484 | |
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
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 an intellectual property and technology license agreement (the “BSS IPTLA”)contracts pursuant to which we 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 granted to DISH Networkmay make a license to our intellectual property and technology for use by DISH Network, among other things, in connection with its continued operationvariety 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, among other things, for the continued use of all intellectual property and technology that is used in our 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, we, BSS Corp. and DISH entered into a tax matters agreement. This agreement governs certain of our rights, responsibilities and obligations with respect to taxes of the BSS Business transferred pursuant to the BSS Transaction. Generally, we are 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 we and DISH made certain tax-related representations and are subject to various tax-related covenants after the consummation of the BSS Transaction. Both we 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 us if the BSS Business is acquired, either directly or indirectly (e.g., via an acquisition of DISH Network), by one or more persons, where either it took an action, or knowingly facilitated, consented to or assisted with an action by its stockholders, that resulted in the failure of the BSS Transaction being treated as a transaction that is tax-free for EchoStar and its stockholders for U.S. federal income tax purposes. This tax matters agreement supplements the Tax Sharing Agreement outlined above and the Share Exchange Tax Matters Agreement outlined below, both of which continue in full force and effect.
BSS Transaction Employee Matters Agreement. Effective September 2019, in connection with the BSS Transaction, we and DISH Network entered into an employee matters agreement that addressed the transfer of employees from us to DISH Network, including certain benefit and compensation matters and the allocation of responsibility for employee related liabilities relating to current and past employees of the BSS Business. DISH Network assumed employee-related liabilities relating to the BSS Business as part of the BSS Transaction, except that we are responsible for certain pre-BSS Transaction compensation and benefits for employees who transferred to DISH Network in connection with the BSS Transaction.
Share Exchange Agreement. In January 2017, we and certain of our subsidiaries entered into the Share Exchange Agreement with DISH and certain of its subsidiaries pursuant to which, in February 2017, we 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 our EchoStar Technologies businesses and certain other assets. Following consummation of the Share Exchange, we no longer 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 terminated and are of no further effect. Pursuant to the Share Exchange Agreement, we 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 byand indemnify the parties, including representations by us related tocounterparty for certain losses. Our possible exposure under these arrangements cannot be reasonably estimated as this involves the transferred assets, assumed liabilities and the financial conditionresolution of the transferred businesses. We and DISH Network also agreed to customary indemnification provisions whereby each party indemnifies the otherclaims made, or future claims that may be made, against certain losses with respect to breaches of representations, warranties or covenants and certain liabilities and if certain actions undertaken by us or DISH causesour officers, directors or employees, the transaction to be taxable to the other party after closing.outcomes of which are unknown and not currently predictable or estimable.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Share Exchange Intellectual Property and Technology License Agreement. Effective March 2017, in connection with the Share Exchange, we and DISH Network entered into an intellectual property and technology license agreement (“IPTLA”) pursuant to which we 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 granted to DISH Network a license to our 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, among other things, for the continued use of all intellectual property and technology that is used in our retained businesses but the ownership of which was transferred to DISH Network pursuant to the Share Exchange.
Share Exchange Tax Matters Agreement. Effective March 2017, in connection with the Share Exchange, we and DISH entered into a tax matters agreement. This agreement governs certain of our rights, responsibilities and obligations with respect to taxes of the transferred businesses pursuant to the Share Exchange. Generally, we are 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 we and DISH Network made certain tax-related representations and are subject to various tax-related covenants after the consummation of the Share Exchange. Both we 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 us 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.
Share Exchange Employee Matters Agreement. Effective March 2017, in connection with the Share Exchange, we 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 transferred businesses. DISH Network assumed employee-related liabilities relating to the transferred businesses as part of the Share Exchange, except that we are responsible for certain pre-Share Exchange employee related litigation, and compensation and benefits for employees who transferred to DISH Network in connection with the Share Exchange.
NOTE 23. RELATED PARTY TRANSACTIONS - OTHER22. 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 two business segments, Hughes segment and ESS segment.
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 CorporationThe following table presents total revenue, capital expenditures and EBITDA for each of our business segments:
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, in the aggregate, own approximately 25%, on an undiluted basis, of Hughes Systique’s outstanding shares as of December 31, 2020. Furthermore, Mr. Pradman Kaul serves on the board of directors of Hughes Systique. Hughes Systique is a variable interest entity and we are considered the primary beneficiary of Hughes Systique due to, among other factors, our ability to direct the activities that most significantly impact the economic performance of Hughes Systique. As a result, we consolidate Hughes Systique’s financial statements in these Consolidated Financial Statements. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Hughes | | ESS | | Corporate and Other | | Consolidated Total | For the year ended December 31, 2022 | | | | | | | | | External revenue | | $ | 1,966,587 | | | $ | 19,132 | | | $ | 12,374 | | | $ | 1,998,093 | | Intersegment revenue | | — | | | 1,401 | | | (1,401) | | | — | | Total revenue | | $ | 1,966,587 | | | $ | 20,533 | | | $ | 10,973 | | | $ | 1,998,093 | | | | | | | | | | | Capital expenditures | | $ | 239,403 | | | $ | — | | | $ | 86,488 | | | $ | 325,891 | | EBITDA | | $ | 732,929 | | | $ | 14,416 | | | $ | (39,728) | | | $ | 707,617 | | | | | | | | | | | For the year ended December 31, 2021 | | | | | | | | | External revenue | | $ | 1,956,226 | | | $ | 17,295 | | | $ | 12,199 | | | $ | 1,985,720 | | Intersegment revenue | | — | | | 384 | | | (384) | | | — | | Total revenue | | $ | 1,956,226 | | | $ | 17,679 | | | $ | 11,815 | | | $ | 1,985,720 | | | | | | | | | | | Capital expenditures | | $ | 296,303 | | | $ | — | | | $ | 142,127 | | | $ | 438,430 | | EBITDA | | $ | 781,824 | | | $ | 9,185 | | | $ | (88,468) | | | $ | 702,541 | | | | | | | | | | | For the year ended December 31, 2020 | | | | | | | | | External revenue | | $ | 1,860,834 | | | $ | 16,237 | | | $ | 10,836 | | | $ | 1,887,907 | | Intersegment revenue | | — | | | 1,161 | | | (1,161) | | | — | | Total revenue | | $ | 1,860,834 | | | $ | 17,398 | | | $ | 9,675 | | | $ | 1,887,907 | | | | | | | | | | | Capital expenditures | | $ | 355,197 | | | $ | 41 | | | $ | 53,560 | | | $ | 408,798 | | EBITDA | | $ | 727,608 | | | $ | 7,873 | | | $ | (118,606) | | | $ | 616,875 | |
TerreStar SolutionsThe following table reconciles Income (loss) before income taxes in the Consolidated Statements of Operations to EBITDA:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | For the years ended December 31, | | | | | | | 2022 | | 2021 | | 2020 | Income (loss) before income taxes | | | | | | $ | 233,223 | | | $ | 128,347 | | | $ | (27,835) | | Interest income, net | | | | | | (50,900) | | | (22,801) | | | (39,982) | | Interest expense, net of amounts capitalized | | | | | | 57,170 | | | 95,512 | | | 147,927 | | Depreciation and amortization | | | | | | 457,621 | | | 491,329 | | | 525,011 | | Net loss (income) attributable to non-controlling interests | | | | | | 10,503 | | | 10,154 | | | 11,754 | | EBITDA | | | | | | $ | 707,617 | | | $ | 702,541 | | | $ | 616,875 | |
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 $4.4 million, $12.5 million, and $6.0 million for the years ended December 31, 2020, 2019 and 2018, respectively. As of December 31, 2020 and 2019, we had $0.4 million and $2.7 million trade accounts receivable from TSI.
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Global IP
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 our 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 the agreement as a result of Global IP’s defaults resulting from its failure to make payments to us as required under the terms of the agreement and we reserved our rights and remedies against Global IP under the agreement. We recognized revenue under this agreement of $9.0 million for the year ended December 31, 2018. We have not recognized any revenue since the termination of this agreement. As of December 31, 2020 and 2019, we were owed $7.5 million from Global IP.
Maxar Technologies Inc.Geographic Information
Mr. Jeffrey Tarr, who joined our 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, the EchoStar XXI satellite and the EchoStar XXIV 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 pursuantThe following table summarizes total long-lived assets attributed to the terms of the agreements. Maxar Tech also provides a warranty on one of these satellitesNorth America, South 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 $23.9 millionCentral America and $90.3 million for the years ended December 31, 2020 and 2019, respectively. At both December 31, 2020 and 2019, we had no trade payable to Maxar Tech.other foreign locations:
| | | | | | | | | | | | | | | | | As of December 31, | | | 2022 | | 2021 | Long-lived assets: | | | | | North America | | $ | 2,933,559 | | | $ | 2,959,316 | | South and Central America | | 206,556 | | | 267,429 | | Other | | 108,222 | | | 106,376 | | Total long-lived assets | | $ | 3,248,337 | | | $ | 3,333,121 | |
.NOTE 24.NOTE 23. SUPPLEMENTAL FINANCIAL INFORMATION
Research and Development
The following table presents the research and development costs incurred in connection with customers’ orders: | | | For the years ended December 31, | | For the years ended December 31, | | | 2020 | | 2019 | | 2018 | | 2022 | | 2021 | | 2020 | Cost of sales - equipment | Cost of sales - equipment | | $ | 19,788 | | | $ | 24,495 | | | $ | 23,422 | | Cost of sales - equipment | | $ | 31,781 | | | $ | 29,636 | | | $ | 19,788 | | Research and development expenses | Research and development expenses | | $ | 29,448 | | | $ | 25,739 | | | $ | 27,570 | | Research and development expenses | | $ | 32,810 | | | $ | 31,777 | | | $ | 29,448 | |
Advertising Costs
We incurred advertising expense of $65.1$69.0 million, $88.2$82.4 million and $75.8$65.1 million for the years ended December 31, 2020, 20192022, 2021 and 2018,2020, respectively.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Cash and Cash Equivalents and Restricted Cash
The following table reconciles cash and cash equivalents and restricted cash, as presented in the Consolidated Balance Sheets to the total of the same as presented in the Consolidated Statements of Cash Flows: | | | For the years ended December 31, | | For the years ended December 31, | | | 2020 | | 2019 | | 2018 | | 2022 | | 2021 | | 2020 | Cash and cash equivalents, including restricted amounts, beginning of period: | Cash and cash equivalents, including restricted amounts, beginning of period: | | | | | | | Cash and cash equivalents, including restricted amounts, beginning of period: | | | | | | | Cash and cash equivalents | Cash and cash equivalents | | $ | 1,519,431 | | | $ | 928,306 | | | $ | 2,431,456 | | Cash and cash equivalents | | $ | 535,894 | | | $ | 896,005 | | | $ | 1,519,431 | | Restricted cash | Restricted cash | | 2,458 | | | 1,189 | | | 793 | | Restricted cash | | 980 | | | 807 | | | 2,458 | | Total cash and cash equivalents, included restricted amounts, beginning of period | Total cash and cash equivalents, included restricted amounts, beginning of period | | $ | 1,521,889 | | | $ | 929,495 | | | $ | 2,432,249 | | Total cash and cash equivalents, included restricted amounts, beginning of period | | $ | 536,874 | | | $ | 896,812 | | | $ | 1,521,889 | | | Cash and cash equivalents, including restricted amounts, end of period: | Cash and cash equivalents, including restricted amounts, end of period: | | Cash and cash equivalents, including restricted amounts, end of period: | | Cash and cash equivalents | Cash and cash equivalents | | $ | 896,005 | | | $ | 1,519,431 | | | $ | 928,306 | | Cash and cash equivalents | | $ | 704,541 | | | $ | 535,894 | | | $ | 896,005 | | Restricted cash | Restricted cash | | 807 | | | 2,458 | | | 1,189 | | Restricted cash | | 1,342 | | | 980 | | | 807 | | Total cash and cash equivalents, included restricted amounts, end of period | Total cash and cash equivalents, included restricted amounts, end of period | | $ | 896,812 | | | $ | 1,521,889 | | | $ | 929,495 | | Total cash and cash equivalents, included restricted amounts, end of period | | $ | 705,883 | | | $ | 536,874 | | | $ | 896,812 | |
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 December 31, | | As of December 31, | | | 2020 | | 2019 | | 2022 | | 2021 | Other current assets, net: | Other current assets, net: | | | | | Other current assets, net: | | | | | Trade accounts receivable - DISH Network | | $ | 5,612 | | | $ | 10,683 | | | Inventory | Inventory | | 97,992 | | | 79,621 | | Inventory | | $ | 123,606 | | | $ | 103,084 | | Prepaids and deposits | Prepaids and deposits | | 55,381 | | | 67,014 | | Prepaids and deposits | | 61,877 | | | 57,287 | | Trade accounts receivable - DISH Network | | Trade accounts receivable - DISH Network | | 3,492 | | | 4,244 | | Other receivables - DISH Network | | Other receivables - DISH Network | | — | | | 12,705 | | Other, net | Other, net | | 30,836 | | | 22,213 | | Other, net | | 21,471 | | | 21,124 | | Total other current assets | Total other current assets | | $ | 189,821 | | | $ | 179,531 | | Total other current assets | | $ | 210,446 | | | $ | 198,444 | | | Other non-current assets, net: | Other non-current assets, net: | | Other non-current assets, net: | | Capitalized software, net | | Capitalized software, net | | $ | 116,841 | | | $ | 124,701 | | Contract acquisition costs, net | | Contract acquisition costs, net | | 64,447 | | | 82,986 | | Other receivables - DISH Network | Other receivables - DISH Network | | $ | 92,680 | | | $ | 92,892 | | Other receivables - DISH Network | | 74,923 | | | 77,920 | | Restricted marketable investment securities | Restricted marketable investment securities | | 9,090 | | | 8,093 | | Restricted marketable investment securities | | 11,056 | | | 13,262 | | Deferred tax assets, net | | Deferred tax assets, net | | 8,011 | | | 5,417 | | Restricted cash | Restricted cash | | 807 | | | 2,458 | | Restricted cash | | 1,342 | | | 980 | | Deferred tax assets, net | | 1,781 | | | 7,251 | | | Capitalized software, net | | 116,661 | | | 101,786 | | | Contract acquisition costs, net | | 99,837 | | | 96,723 | | | Contract fulfillment costs, net | Contract fulfillment costs, net | | 2,580 | | | 3,010 | | Contract fulfillment costs, net | | 1,931 | | | 1,721 | | Other, net | Other, net | | 29,485 | | | 22,628 | | Other, net | | 38,511 | | | 31,254 | | Total other non-current assets, net | Total other non-current assets, net | | $ | 352,921 | | | $ | 334,841 | | Total other non-current assets, net | | $ | 317,062 | | | $ | 338,241 | |
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
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 years ended December 31, | | | For the years ended December 31, | | 2022 | | 2021 | | 2020 | | | Other current assets, net | | Other non-current assets, net | | Other current assets, net | | Other non-current assets, net | | Other current assets, net | | Other non-current assets, net | | Other current assets, net | | Other non-current assets, net | Balance at beginning of period | Balance at beginning of period | | $ | 0 | | | $ | 0 | | Balance at beginning of period | | $ | — | | | $ | 16,709 | | | $ | 1,747 | | | $ | 12,869 | | | $ | — | | | $ | — | | Credit losses (1) | Credit losses (1) | | 1,595 | | | 13,378 | | Credit losses (1) | | — | | | — | | | — | | | 3,328 | | | 1,595 | | | 13,378 | | | Foreign currency translation | Foreign currency translation | | 152 | | | (509) | | Foreign currency translation | | — | | | — | | | (1,747) | | | 1,159 | | | 152 | | | (509) | | Deductions | | Deductions | | — | | | — | | | — | | | (647) | | | — | | | — | | Balance at end of period | Balance at end of period | | $ | 1,747 | | | $ | 12,869 | | Balance at end of period | | $ | — | | | $ | 16,709 | | | $ | — | | | $ | 16,709 | | | $ | 1,747 | | | $ | 12,869 | |
(1)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 December 31, | | As of December 31, | | | 2020 | | 2019 | | 2022 | | 2021 | Accrued expenses and other current liabilities: | Accrued expenses and other current liabilities: | | | | | Accrued expenses and other current liabilities: | | | | | Accrued compensation | | Accrued compensation | | $ | 56,337 | | | $ | 63,935 | | Operating lease obligation | | Operating lease obligation | | 17,854 | | | 16,781 | | Accrued interest | | Accrued interest | | 39,245 | | | 39,395 | | Accrued taxes | | Accrued taxes | | 12,603 | | | 11,738 | | Accrual for license fee dispute | | Accrual for license fee dispute | | 10,191 | | | 11,178 | | Trade accounts payable - DISH Network | Trade accounts payable - DISH Network | | $ | 752 | | | $ | 1,923 | | Trade accounts payable - DISH Network | | 669 | | | 503 | | Accrued interest | | 42,388 | | | 42,622 | | | Accrued compensation | | 62,299 | | | 50,787 | | | Accrued taxes | | 20,297 | | | 18,525 | | | Operating lease obligation | | 14,699 | | | 14,651 | | | Other | Other | | 159,564 | | | 142,371 | | Other | | 62,954 | | | 65,912 | | Total accrued expenses and other current liabilities | Total accrued expenses and other current liabilities | | $ | 299,999 | | | $ | 270,879 | | Total accrued expenses and other current liabilities | | $ | 199,853 | | | $ | 209,442 | | | Other non-current liabilities: | | Other non-current liabilities: | | Accrual for license fee dispute | | Accrual for license fee dispute | | $ | 57,292 | | | $ | 69,484 | | Contract liabilities | | Contract liabilities | | 8,326 | | | 10,669 | | Other | | Other | | 54,169 | | | 56,273 | | Total other non-current liabilities | | Total other non-current liabilities | | $ | 119,787 | | | $ | 136,426 | |
Inventory
The following table presents the components of inventory: | | | | | | | | | | | | | | | | | As of December 31, | | | 2020 | | 2019 | Raw materials | | $ | 4,564 | | | $ | 4,240 | | Work-in-process | | 8,280 | | | 6,979 | | Finished goods | | 85,148 | | | 68,402 | | Total inventory | | $ | 97,992 | | | $ | 79,621 | |
ECHOSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
| | | | | | | | | | | | | | | | | As of December 31, | | | 2022 | | 2021 | Raw materials | | $ | 32,920 | | | $ | 13,778 | | Work-in-process | | 16,408 | | | 11,705 | | Finished goods | | 74,278 | | | 77,601 | | Total inventory | | $ | 123,606 | | | $ | 103,084 | |
Capitalized Software Costs
The following tables present the activity related to our capitalized software cost:
| | | As of December 31, | | As of December 31, | | | 2020 | | 2019 | | 2022 | | 2021 | Net carrying amount of externally marketed software | Net carrying amount of externally marketed software | | $ | 116,661 | | | $ | 101,786 | | Net carrying amount of externally marketed software | | $ | 116,841 | | | $ | 124,701 | | Externally marketed software under development and not yet placed into service | Externally marketed software under development and not yet placed into service | | $ | 72,047 | | | $ | 38,766 | | Externally marketed software under development and not yet placed into service | | $ | 26,924 | | | $ | 57,357 | |
| | | | | | | | | | | | | | | | | | | | | | | For the years ended December 31, | | | 2020 | | 2019 | | 2018 | Capitalized costs related to development of externally marketed software | | $ | 38,655 | | | $ | 29,310 | | | $ | 31,639 | | Amortization expense relating to externally marketed software | | $ | 23,780 | | | $ | 24,284 | | | $ | 22,966 | | Weighted average useful life (in years) | | 2 | | | | |
| | | | | | | | | | | | | | | | | | | | | | | For the years ended December 31, | | | 2022 | | 2021 | | 2020 | Capitalized costs related to development of externally marketed software | | $ | 23,105 | | | $ | 33,543 | | | $ | 38,655 | | Amortization expense relating to externally marketed software | | $ | 30,965 | | | $ | 25,288 | | | $ | 23,780 | | Weighted-average useful life (in years) | | 4 | | | | |
Supplemental and Non-cash Investing and Financing Activities
The following table presents the supplemental and non-cash investing and financing activities: | | | For the years ended December 31, | | For the years ended December 31, | | | | 2020 | | 2019 | | 2018 | | | 2022 | | 2021 | | 2020 | Supplemental disclosure of cash flow information: | Supplemental disclosure of cash flow information: | | | | | | | Supplemental disclosure of cash flow information: | | | | | | | Cash paid for interest, net of amounts capitalized | Cash paid for interest, net of amounts capitalized | | $ | 139,280 | | | $ | 195,331 | | | $ | 240,596 | | Cash paid for interest, net of amounts capitalized | | $ | 56,731 | | | $ | 87,901 | | | $ | 139,280 | | Cash paid for income taxes | Cash paid for income taxes | | $ | 15,254 | | | $ | 3,575 | | | $ | 5,209 | | Cash paid for income taxes | | $ | 46,636 | | | $ | 29,420 | | | $ | 15,254 | | | Non-cash investing and financing activities: | Non-cash investing and financing activities: | | Non-cash investing and financing activities: | | Employee benefits paid in Class A common stock | Employee benefits paid in Class A common stock | | $ | 6,921 | | | $ | 6,654 | | | $ | 7,605 | | Employee benefits paid in Class A common stock | | $ | 7,041 | | | $ | 7,125 | | | $ | 6,921 | | Increase (decrease) in capital expenditures included in accounts payable, net | Increase (decrease) in capital expenditures included in accounts payable, net | | $ | (6,935) | | | $ | (11,111) | | | $ | 7,318 | | Increase (decrease) in capital expenditures included in accounts payable, net | | $ | 18,074 | | | $ | 381 | | | $ | (6,935) | | Non-cash assets exchanged for BSS Transaction | | $ | 0 | | | $ | 532,855 | | | $ | 0 | | | Non-cash net assets received in exchange for a 20% ownership interest in our existing Brazilian subsidiary | | $ | 0 | | | $ | 94,918 | | | $ | 0 | | | Non-cash net assets received as part of the India JV formation | | Non-cash net assets received as part of the India JV formation | | $ | 36,701 | | | $ | — | | | $ | — | |
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