UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
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ý | ☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE QUARTERLY PERIOD ENDED SEPTEMBERJUNE 30, 2017.
2022.
OR
☐
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o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934FOR THE TRANSITION PERIOD FROM TO .
Commission File Number: 333-179121
Hughes Satellite Systems Corporation
(Exact Namename of Registrantregistrant as Specifiedspecified in Its Charter)
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| Colorado | | 45-0897865 |
(State or Other Jurisdictionother jurisdiction of Incorporationincorporation or Organization)organization) | | (I.R.S. Employer Identification No.) |
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| 100 Inverness Terrace East, Englewood, Colorado | | 80112-5308 |
(Address of Principal Executive Offices)principal executive offices) | | (Zip Code) |
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| (303) 706-4000 | | Not Applicable |
| (Registrant’s telephone number, including area code) | | (Former name, former address and former fiscal year, if changed since last report) |
(303) 706-4000
(Registrant’s Telephone Number, Including Area Code)
Not Applicable
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes o☐ No ý☒*
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý☒ No o☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filero | ☐ | Accelerated filer | ☐ | oEmerging growth company | ☐ |
Non-accelerated filerý | (Do not check is a smaller reporting company)☒ | Smaller reporting companyo |
| ☐ | Emerging growth company o
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o☐ No ý☒
As of October 31, 2017,July 28, 2022, the registrant’s outstanding common stock consisted of 1,078 shares of common stock, $0.01 par value per share.
The registrantRegistrant meets the conditions set forth in General Instructions (H)(1)(a) and (b) of Form 10-Q and is therefore filing this Quarterly Report on Form 10-Q with the reduced disclosure format.
* The registrantRegistrant currently is not subject to the filing requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934 and is filing this Quarterly Report on Form 10-Q on a voluntary basis. The registrantRegistrant has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months as if it were subject to such filing requirements during the entiretysuch period.
TABLE OF CONTENTS
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| Item 3. | Quantitative and Qualitative Disclosures about Market Risk | * |
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| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | * |
| Item 3. | Defaults Upon SeniorMajor Securities | * |
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*This item has been omitted pursuant to the reduced disclosure format as set forth in General Instructions (H)(2) of Form 10-Q10-Q.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (“Form 10-Q”) contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including but not limited to statements about our estimates, expectations, future developments, plans, objectives, strategies, and financial condition, expected impact of regulatory developments and legal proceedings, opportunities in our industries and businesses and other trends and projections for the next fiscal quarter and beyond. All statements, other than statements of historical facts, may be forward-looking statements. Forward-looking statements may also be identified by words such as “anticipate,” “intend,” “plan,” “goal,” “seek,” “believe,” “estimate,” “expect,” “predict,” “project,” “continue,” “future,” “will,” “would,” “could,” “can,” “may” and similar terms. These forward-looking statements are based on information available to us as of the date of this Form 10-Q and represent management’s current views and assumptions.assumptions based on past experience and trends, current economic and industry conditions, expected future developments and other relevant factors. Forward-looking statements are not guarantees of future performance, events or results and involve potential known and unknown risks, uncertainties, including the impact of the coronavirus pandemic (COVID-19), and other factors, many of which may be beyond our control and may pose a risk to our operating and financial condition.condition both the near- and long-term. Accordingly, actual performance, events or results could differ materially from those expressed or implied in the forward-looking statements due to a number of factors including, but not limited to:
our reliance on DISH Network Corporation and its subsidiaries (“DISH Network”) for a significant portion of our revenue;
•significant risks related to the construction, launch and operation of our satellites, such as the risk of material malfunction on one or more of our satellites, risks resulting from delays or failures of launches of our satellites and potentially missing our regulatory milestones, changes in the space weather environment that could interfere with the operation of our satellites, and our general lack of commercial insurance coverage on our satellites;
our ability to realize the anticipated benefits ofoperate and control our currentsatellites, operational and environmental risks related to our owned and leased satellites, and any future satelliterisks related to our satellites under construction;
•our ability and the ability of third parties with whom we may construct or acquire;engage to operate our business as a result of the COVID-19 pandemic, including regulatory and competitive considerations;
•our ability to implement and/or realize benefits of our investments and other strategic initiatives;
•legal proceedings relating to the failure of third-party providers of components, manufacturing, installation servicesBSS Transaction or other matters that could result in substantial costs and customer support servicesmaterial adverse effects to appropriately deliver the contracted goods or services;our business;
our ability to bring advanced technologies to market to keep pace with our customers and competitors; and
risk•risks related to our foreign operations and other uncertainties associated with doing business internationally, including changes in foreign exchange rates between foreign currenciesinternationally;
•risks related to our dependency upon third-party providers; and the United States dollar, economic instability and political disturbances.
•risks related to our human capital resources.
Other factors that could cause or contribute to such differences include, but are not limited to, those discussed under the caption “Risk Factors”Risk Factors in Part II, Item 1A of this Form 10-Q and in Part I, Item 1A of our most recent Annual Report on Form 10-K (“Form 10-K”) filed with the Securities and Exchange Commission (“SEC”), those discussed in “Management’sManagement’s Narrative Analysis of Results of Operations” hereinOperations in Part I, Item 2 of this Form 10-Q and in Part II, Item 7 of our Form 10-K and those discussed in other documents we file with the SEC.
All cautionary statements made herein should be read as being applicable to all forward-looking statements wherever they appear. Investors should consider the risks and uncertainties described herein and should not place undue reliance on any forward-looking statements. We do not undertake, and specifically disclaim, any obligation to publicly release the results of any revisions that may be made to any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
Although we believe that the expectations reflected in any forward-looking statements are reasonable, we cannot guarantee future results, events, levels of activity, performance or achievements. We do not assume responsibility for the accuracy and completeness of any forward‑lookingforward-looking statements. We assume no responsibility for updating forward‑lookingforward-looking information contained or incorporated by reference herein or in any documents we file with the SEC, except as required by law.
Should one or more of the risks or uncertainties described herein or in any documents we file with the SEC occur, or should underlying assumptions prove incorrect, our actual results and plans could differ materially from those expressed in any forward-looking statements.
PART I —- FINANCIAL INFORMATION
ItemITEM 1.FINANCIAL STATEMENTS
HUGHES SATELLITE SYSTEMS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(InAmounts in thousands, except share and per share amounts)
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| | | | | | | | |
| | | As of |
| | | September 30, 2017 | | December 31, 2016 |
| Assets | | (Unaudited) | | (Audited) |
| Current Assets: | | | | |
| Cash and cash equivalents | | $ | 2,075,908 |
| | $ | 2,070,964 |
|
| Marketable investment securities, at fair value | | 195,906 |
| | 187,923 |
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| Trade accounts receivable, net of allowance for doubtful accounts of $13,211 and $12,752, respectively | | 192,387 |
| | 182,512 |
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| Trade accounts receivable - DISH Network, net of allowance for doubtful accounts of zero | | 45,968 |
| | 19,323 |
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| Inventory | | 91,232 |
| | 62,638 |
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| Prepaids and deposits | | 36,156 |
| | 34,505 |
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| Advances to affiliates, net | | 102,574 |
| | 110,452 |
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| Other current assets | | 12,730 |
| | 11,809 |
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| Total current assets | | 2,752,861 |
| | 2,680,126 |
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| Noncurrent Assets: | | | | |
| Restricted cash and cash equivalents | | 13,154 |
| | 11,820 |
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| Property and equipment, net of accumulated depreciation of $2,433,297 and $2,503,187, respectively | | 2,853,791 |
| | 2,294,726 |
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| Regulatory authorizations, net | | 471,658 |
| | 471,658 |
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| Goodwill | | 504,173 |
| | 504,173 |
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| Other intangible assets, net | | 62,240 |
| | 80,734 |
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| Investments in unconsolidated entities | | 32,858 |
| | 42,560 |
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| Other noncurrent assets, net | | 204,687 |
| | 295,737 |
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| Total noncurrent assets | | 4,142,561 |
| | 3,701,408 |
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| Total assets | | $ | 6,895,422 |
| | $ | 6,381,534 |
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| Liabilities and Shareholders’ Equity | | | | |
| Current Liabilities: | | | | |
| Trade accounts payable | | $ | 117,615 |
| | $ | 106,410 |
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| Trade accounts payable - DISH Network | | 5,470 |
| | 6 |
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| Current portion of long-term debt and capital lease obligations | | 38,407 |
| | 32,984 |
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| Advances from affiliates, net | | 327 |
| | 598 |
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| Deferred revenue and prepayments | | 56,285 |
| | 59,989 |
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| Accrued interest | | 57,246 |
| | 46,255 |
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| Accrued compensation | | 28,298 |
| | 33,457 |
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| Accrued expenses and other | | 99,624 |
| | 80,612 |
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| Total current liabilities | | 403,272 |
| | 360,311 |
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| Noncurrent Liabilities: | | | | |
| Long-term debt and capital lease obligations, net of unamortized debt issuance costs | | 3,605,715 |
| | 3,622,463 |
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| Deferred tax liabilities, net | | 693,055 |
| | 528,462 |
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| Advances from affiliates | | 33,475 |
| | 31,968 |
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| Other noncurrent liabilities | | 110,873 |
| | 83,307 |
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| Total noncurrent liabilities | | 4,443,118 |
| | 4,266,200 |
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| Total liabilities | | 4,846,390 |
| | 4,626,511 |
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| Commitments and Contingencies (Note 11) | |
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| Shareholders’ Equity: | | | | |
| Preferred stock, $.001 par value, 1,000,000 shares authorized: | | | | |
| Hughes Retail Preferred Tracking Stock, $.001 par value, zero authorized, issued and outstanding at September 30, 2017 and 300 shares authorized, 81.128 issued and outstanding at December 31, 2016 | | — |
| | — |
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| Common stock, $0.01 par value; 1,000,000 shares authorized, 1,078 shares issued and outstanding at September 30, 2017 and 1,000 shares issued and outstanding December 31, 2016 | | — |
| | — |
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| Additional paid-in capital | | 1,773,319 |
| | 1,516,199 |
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| Accumulated other comprehensive loss | | (45,042 | ) | | (60,719 | ) |
| Accumulated earnings | | 306,919 |
| | 286,713 |
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| Total HSS shareholders’ equity | | 2,035,196 |
| | 1,742,193 |
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| Noncontrolling interests | | 13,836 |
| | 12,830 |
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| Total shareholders’ equity | | 2,049,032 |
| | 1,755,023 |
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| Total liabilities and shareholders’ equity | | $ | 6,895,422 |
| | $ | 6,381,534 |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
HUGHES SATELLITE SYSTEMS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
(In thousands) | | | | | | | | | | | | | | |
| | As of |
| | June 30, 2022 | | December 31, 2021 |
| Assets | | | | |
| Current assets: | | | | |
| Cash and cash equivalents | | $ | 924,912 | | | $ | 429,168 | |
| Marketable investment securities | | 360,648 | | | 854,502 | |
| Trade accounts receivable and contract assets, net | | 224,015 | | | 182,063 | |
| Other current assets, net | | 272,684 | | | 276,844 | |
| Total current assets | | 1,782,259 | | | 1,742,577 | |
| Non-current assets: | | | | |
| Property and equipment, net | | 1,452,462 | | | 1,523,447 | |
| Operating lease right-of-use assets | | 151,036 | | | 148,221 | |
| Goodwill | | 533,505 | | | 511,086 | |
| Regulatory authorizations, net | | 408,824 | | | 408,959 | |
| Other intangible assets, net | | 17,018 | | | 13,984 | |
| Other investments, net | | 86,210 | | | 91,226 | |
| Other non-current assets, net | | 289,147 | | | 302,840 | |
| Total non-current assets | | 2,938,202 | | | 2,999,763 | |
| Total assets | | $ | 4,720,461 | | | $ | 4,742,340 | |
| | | | |
| Liabilities and Shareholder's Equity | | | | |
| Current liabilities: | | | | |
| Trade accounts payable | | $ | 101,128 | | | $ | 105,477 | |
| Contract liabilities | | 134,856 | | | 141,343 | |
| Accrued expenses and other current liabilities | | 299,302 | | | 308,879 | |
| Total current liabilities | | 535,286 | | | 555,699 | |
| Non-current liabilities: | | | | |
| Long-term debt, net | | 1,496,379 | | | 1,495,994 | |
| Deferred tax liabilities, net | | 349,762 | | | 334,406 | |
| Operating lease liabilities | | 136,592 | | | 134,001 | |
| Other non-current liabilities | | 138,289 | | | 153,251 | |
| Total non-current liabilities | | 2,121,022 | | | 2,117,652 | |
| Total liabilities | | 2,656,308 | | | 2,673,351 | |
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| Commitments and contingencies | | 0 | | 0 |
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| | | | | | | | | | | | | | | | |
| | | For the Three Months Ended September 30, | | For the Nine Months Ended September 30, |
| | | 2017 | | 2016 | | 2017 | | 2016 |
| Revenue: | | | | | | |
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| Services and other revenue - DISH Network | | $ | 108,264 |
| | $ | 111,750 |
| | $ | 330,675 |
| | $ | 337,353 |
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| Services and other revenue - other | | 310,973 |
| | 276,877 |
| | 866,251 |
| | 821,863 |
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| Equipment revenue - DISH Network | | 126 |
| | 2,138 |
| | 175 |
| | 7,008 |
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| Equipment revenue - other | | 58,999 |
| | 66,501 |
| | 173,644 |
| | 160,886 |
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| Total revenue | | 478,362 |
| | 457,266 |
| | 1,370,745 |
| | 1,327,110 |
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| Costs and Expenses: | | | | | | |
| | |
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| Cost of sales - services and other (exclusive of depreciation and amortization) | | 137,663 |
| | 130,587 |
| | 401,633 |
| | 381,964 |
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| Cost of sales - equipment (exclusive of depreciation and amortization) | | 52,051 |
| | 53,601 |
| | 154,142 |
| | 144,029 |
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| Selling, general and administrative expenses | | 83,512 |
| | 67,874 |
| | 244,005 |
| | 207,974 |
|
| Research and development expenses | | 8,302 |
| | 9,030 |
| | 23,444 |
| | 23,524 |
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| Depreciation and amortization | | 127,915 |
| | 104,774 |
| | 364,878 |
| | 309,448 |
|
| Total costs and expenses | | 409,443 |
| | 365,866 |
| | 1,188,102 |
| | 1,066,939 |
|
| Operating income | | 68,919 |
| | 91,400 |
| | 182,643 |
| | 260,171 |
|
| | | | | | | | | |
| Other Income (Expense): | | | | | | |
| | |
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| Interest income | | 8,321 |
| | 4,006 |
| | 21,248 |
| | 7,427 |
|
| Interest expense, net of amounts capitalized | | (60,783 | ) | | (53,536 | ) | | (181,996 | ) | | (127,626 | ) |
| Gains on marketable investment securities, net | | — |
| | 5 |
| | 1,723 |
| | 5,300 |
|
| Other-than-temporary impairment loss on available-for-sale securities | | — |
| | — |
| | (3,298 | ) | | — |
|
| Equity in earnings of unconsolidated affiliate | | 1,948 |
| | 2,654 |
| | 5,298 |
| | 6,758 |
|
| Other, net | | 1,804 |
| | (24 | ) | | 229 |
| | 5,365 |
|
| Total other expense, net | | (48,710 | ) | | (46,895 | ) | | (156,796 | ) | | (102,776 | ) |
| Income before income taxes | | 20,209 |
| | 44,505 |
| | 25,847 |
| | 157,395 |
|
| Income tax provision | | (8,726 | ) | | (16,416 | ) | | (4,635 | ) | | (57,277 | ) |
| Net income | | 11,483 |
| | 28,089 |
| | 21,212 |
| | 100,118 |
|
| Less: Net income attributable to noncontrolling interests | | 532 |
| | 524 |
| | 1,006 |
| | 946 |
|
| Net income attributable to HSS | | $ | 10,951 |
| | $ | 27,565 |
| | $ | 20,206 |
| | $ | 99,172 |
|
| | | | | | | | | |
| Comprehensive Income (Loss): | | | | | | |
| | |
|
| Net income | | $ | 11,483 |
| | $ | 28,089 |
| | $ | 21,212 |
| | $ | 100,118 |
|
| Other comprehensive income (loss), net of tax: | | | | | | |
| | |
| Foreign currency translation adjustments | | 8,571 |
| | 1,255 |
| | 13,956 |
| | 10,607 |
|
| Unrealized gains (losses) on available-for-sale securities and other | | (66 | ) | | 750 |
| | (1,577 | ) | | 2,543 |
|
| Recognition of other-than-temporary impairment loss on available-for-sale securities in net income | | — |
| | — |
| | 3,298 |
| | — |
|
| Recognition of realized gains on available-for-sale securities in net income | | — |
| | (4 | ) | | — |
| | (2,989 | ) |
| Total other comprehensive income (loss), net of tax | | 8,505 |
| | 2,001 |
| | 15,677 |
| | 10,161 |
|
| Comprehensive income (loss) | | 19,988 |
| | 30,090 |
| | 36,889 |
| | 110,279 |
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| Less: Comprehensive income attributable to noncontrolling interests | | 532 |
| | 524 |
| | 1,006 |
| | 760 |
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| Comprehensive income (loss) attributable to HSS | | $ | 19,456 |
| | $ | 29,566 |
| | $ | 35,883 |
| | $ | 109,519 |
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The accompanying notes are an integral part of these condensed consolidated financial statements.Consolidated Financial Statements.
1
HUGHES SATELLITE SYSTEMS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITYBALANCE SHEETS
(In thousands)Amounts in thousands, except share and per share amounts)
(Unaudited)
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| | | Additional
Paid-In
Capital | | Accumulated
Other
Comprehensive
Loss | | Accumulated
Earnings | | Noncontrolling
Interests | | Total |
| Balance, January 1, 2016 | | $ | 1,417,748 |
| | $ | (54,116 | ) | | $ | 166,698 |
| | $ | 11,310 |
| | $ | 1,541,640 |
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| Stock-based compensation | | 3,696 |
| | — |
| | — |
| | — |
| | 3,696 |
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| Transfer of EchoStar XXIII launch service contract from EchoStar | | 70,300 |
| | — |
| | — |
| | — |
| | 70,300 |
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| Contribution to fund launch service contract payment | | 11,875 |
| | — |
| | — |
| | — |
| | 11,875 |
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| Other | | (396 | ) | | — |
| | — |
| | — |
| | (396 | ) |
| Comprehensive income (loss): | | | | | | | | | | |
| Net income | | — |
| | — |
| | 99,172 |
| | 946 |
| | 100,118 |
|
| Foreign currency translation adjustment | | (1 | ) | | 10,794 |
| | — |
| | (186 | ) | | 10,607 |
|
| Unrealized losses on available-for-sale securities, net and other | | — |
| | (446 | ) | | — |
| | — |
| | (446 | ) |
| Balance, September 30, 2016 | | $ | 1,503,222 |
| | $ | (43,768 | ) | | $ | 265,870 |
| | $ | 12,070 |
| | $ | 1,737,394 |
|
| | | | | | | | | | | |
| Balance, January 1, 2017 | | $ | 1,516,199 |
| | $ | (60,719 | ) | | $ | 286,713 |
| | $ | 12,830 |
| | $ | 1,755,023 |
|
| Stock-based compensation | | 3,839 |
| | — |
| | — |
| | — |
| | 3,839 |
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| Transfer of launch service contracts to EchoStar | | (145,114 | ) | | — |
| | — |
| | — |
| | (145,114 | ) |
| Contribution of EchoStar XIX satellite, net of deferred tax | | 369,263 |
| | — |
| | — |
| | — |
| | 369,263 |
|
| Contribution of net assets pursuant to Share Exchange Agreement | | 219,662 |
| | — |
| | — |
| | — |
| | 219,662 |
|
| Exchange of uplinking business net assets for HSS Tracking Stock | | (190,221 | ) | | — |
| | — |
| | — |
| | (190,221 | ) |
| Other | | (309 | ) | | — |
| | — |
| | — |
| | (309 | ) |
| Comprehensive income (loss): | | | | | | | | | | |
| Net income | | — |
| | — |
| | 20,206 |
| | 1,006 |
| | 21,212 |
|
| Foreign currency translation adjustment | | — |
| | 13,956 |
| | — |
| | — |
| | 13,956 |
|
| Unrealized gains and other-than-temporary impairment loss on marketable investment securities, net and other | | — |
| | 1,721 |
| | — |
| | — |
| | 1,721 |
|
| Balance, September 30, 2017 | | $ | 1,773,319 |
| | $ | (45,042 | ) | | $ | 306,919 |
| | $ | 13,836 |
| | $ | 2,049,032 |
|
| | | | | | | | | | | | | | |
| Shareholder's equity: | | | | |
| Preferred stock, $0.001 par value,1,000,000 shares authorized, none issued and outstanding at both June 30, 2022 and December 31, 2021 | | — | | | — | |
| Common stock, $0.01 par value, 1,000,000 shares authorized, 1,078 shares issued and outstanding at both June 30, 2022 and December 31, 2021 | | — | | | — | |
| Additional paid-in capital | | 1,477,604 | | | 1,489,776 | |
| Accumulated other comprehensive income (loss) | | (168,914) | | | (173,381) | |
| Accumulated earnings (losses) | | 654,136 | | | 692,341 | |
| Total Hughes Satellite Systems Corporation shareholder's equity | | 1,962,826 | | | 2,008,736 | |
| Non-controlling interests | | 101,327 | | | 60,253 | |
| Total shareholder's equity | | 2,064,153 | | | 2,068,989 | |
| Total liabilities and shareholder's equity | | $ | 4,720,461 | | | $ | 4,742,340 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.Consolidated Financial Statements.
2
HUGHES SATELLITE SYSTEMS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWSOPERATIONS
(InAmounts in thousands)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the three months ended June 30, | | For the six months ended June 30, |
| | 2022 | | 2021 | | 2022 | | 2021 | | |
| Revenue: | | | | | | | | | | |
| Services and other revenue | | $ | 416,463 | | | $ | 433,317 | | | $ | 837,404 | | | $ | 866,308 | | | |
| Equipment revenue | | 84,620 | | | 68,556 | | | 167,337 | | | 120,795 | | | |
| Total revenue | | 501,083 | | | 501,873 | | | 1,004,741 | | | 987,103 | | | |
| Costs and expenses: | | | | | | | | | | |
| Cost of sales - services and other (exclusive of depreciation and amortization) | | 142,616 | | | 137,550 | | | 281,970 | | | 268,962 | | | |
| Cost of sales - equipment (exclusive of depreciation and amortization) | | 70,048 | | | 54,502 | | | 139,153 | | | 99,642 | | | |
| Selling, general and administrative expenses | | 106,825 | | | 104,016 | | | 218,443 | | | 208,386 | | | |
| Research and development expenses | | 8,765 | | | 7,441 | | | 16,381 | | | 14,986 | | | |
| Depreciation and amortization | | 109,864 | | | 112,303 | | | 223,542 | | | 234,967 | | | |
| Impairment of long-lived assets | | — | | | — | | | — | | | 210 | | | |
| Total costs and expenses | | 438,118 | | | 415,812 | | | 879,489 | | | 827,153 | | | |
| Operating income (loss) | | 62,965 | | | 86,061 | | | 125,252 | | | 159,950 | | | |
| Other income (expense): | | | | | | | | | | |
| Interest income, net | | 4,279 | | | 1,682 | | | 6,559 | | | 4,076 | | | |
| Interest expense, net of amounts capitalized | | (23,096) | | | (37,083) | | | (46,474) | | | (79,005) | | | |
| Gains (losses) on investments, net | | 214 | | | 2,094 | | | 214 | | | 2,094 | | | |
| Equity in earnings (losses) of unconsolidated affiliates, net | | (1,301) | | | (1,269) | | | (3,015) | | | (3,030) | | | |
| Foreign currency transaction gains (losses), net | | (2,878) | | | 535 | | | 3,777 | | | (2,825) | | | |
| Other, net | | (239) | | | 1,989 | | | (428) | | | 1,016 | | | |
| Total other income (expense), net | | (23,021) | | | (32,052) | | | (39,367) | | | (77,674) | | | |
| Income (loss) before income taxes | | 39,944 | | | 54,009 | | | 85,885 | | | 82,276 | | | |
| Income tax benefit (provision), net | | (14,844) | | | (18,349) | | | (29,972) | | | (28,986) | | | |
| Net income (loss) | | 25,100 | | | 35,660 | | | 55,913 | | | 53,290 | | | |
| Less: Net loss (income) attributable to non-controlling interests | | 3,394 | | | 2,280 | | | 5,882 | | | 3,227 | | | |
| Net income (loss) attributable to HSSC | | $ | 28,494 | | | $ | 37,940 | | | $ | 61,795 | | | $ | 56,517 | | | |
|
| | | | | | | | |
| | | For the Nine Months Ended September 30, |
| | | 2017 | | 2016 |
| Cash Flows from Operating Activities: | | | | |
| Net income | | $ | 21,212 |
| | $ | 100,118 |
|
| Adjustments to reconcile net income to net cash flows from operating activities: | | | | |
| Depreciation and amortization | | 364,878 |
| | 309,448 |
|
| Equity in earnings of unconsolidated affiliate | | (5,298 | ) | | (6,758 | ) |
| Amortization of debt issuance costs | | 5,479 |
| | 4,793 |
|
| Losses (gains) and impairment on marketable investment securities, net | | 1,575 |
| | (5,300 | ) |
| Stock-based compensation | | 3,839 |
| | 3,696 |
|
| Deferred tax provision | | 2,202 |
| | 54,731 |
|
| Dividends received from unconsolidated entity | | 15,000 |
| | 10,000 |
|
| Proceeds from sale of trading securities | | 8,922 |
| | 7,140 |
|
| Changes in current assets and current liabilities, net | | (30,168 | ) | | (43,377 | ) |
| Changes in noncurrent assets and noncurrent liabilities, net | | (18,747 | ) | | 7,600 |
|
| Other, net | | 952 |
| | 4,725 |
|
| Net cash flows from operating activities | | 369,846 |
| | 446,816 |
|
| Cash Flows from Investing Activities: | | | | |
| Purchases of marketable investment securities | | (170,158 | ) | | (396,730 | ) |
| Sales and maturities of marketable investment securities | | 152,423 |
| | 265,680 |
|
| Expenditures for property and equipment | | (291,975 | ) | | (312,003 | ) |
| Expenditures for externally marketed software | | (25,447 | ) | | (17,991 | ) |
| Changes in restricted cash and cash equivalents | | (1,334 | ) | | 7,614 |
|
| Investment in unconsolidated entity | | — |
| | (1,636 | ) |
| Payment for EchoStar XXI launch services | | — |
| | (11,875 | ) |
| Net cash flows from investing activities | | (336,491 | ) | | (466,941 | ) |
| Cash Flows from Financing Activities: | | | | |
| Proceeds from issuance of long-term debt | | — |
| | 1,500,000 |
|
| Payments of debt issuance costs | | (414 | ) | | (6,275 | ) |
| Repayment of debt and capital lease obligations | | (25,787 | ) | | (24,052 | ) |
| Advances from (to) affiliates, net | | (36 | ) | | 5,481 |
|
| Capital contribution from EchoStar | | — |
| | 11,875 |
|
| Other, net | | (3,097 | ) | | (2,967 | ) |
| Net cash flows from financing activities | | (29,334 | ) | | 1,484,062 |
|
| Effect of exchange rates on cash and cash equivalents | | 923 |
| | 660 |
|
| Net increase in cash and cash equivalents | | 4,944 |
| | 1,464,597 |
|
| Cash and cash equivalents, beginning of period | | 2,070,964 |
| | 382,990 |
|
| Cash and cash equivalents, end of period | | $ | 2,075,908 |
| | $ | 1,847,587 |
|
| | | | | |
| Supplemental Disclosure of Cash Flow Information: | | | | |
| Cash paid for interest (including capitalized interest) | | $ | 183,073 |
| | $ | 96,418 |
|
| Capitalized interest | | $ | 19,412 |
| | $ | 22,811 |
|
| Cash paid for income taxes | | $ | 2,814 |
| | $ | 3,856 |
|
| Property and equipment financed under capital lease obligations | | $ | 8,423 |
| | $ | 650 |
|
| Decrease in capital expenditures included in accounts payable, net | | $ | (2,257 | ) | | $ | (8,587 | ) |
| Transfer of launch service contracts from (to) EchoStar | | $ | (145,114 | ) | | $ | 70,300 |
|
| Contribution of net assets pursuant to Share Exchange Agreement | | $ | 219,662 |
| | $ | — |
|
| Exchange of uplinking business net assets for HSS Tracking Stock | | $ | (190,221 | ) | | $ | — |
|
| Capitalized in-orbit incentive obligations | | $ | 31,000 |
| | $ | — |
|
| Contribution of EchoStar XIX satellite | | $ | 514,448 |
| | $ | — |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.Consolidated Financial Statements.
3
HUGHES SATELLITE SYSTEMS CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Amounts in thousands)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the three months ended June 30, | | For the six months ended June 30, |
| | | 2022 | | 2021 | | 2022 | | 2021 | | |
| Net income (loss) | | $ | 25,100 | | | $ | 35,660 | | | $ | 55,913 | | | $ | 53,290 | | | |
| Other comprehensive income (loss), net of tax: | | | | | | | | | | |
| Foreign currency translation adjustments | | (39,143) | | | 42,060 | | | 7,543 | | | 8,318 | | | |
| Unrealized gains (losses) on available-for-sale securities | | (46) | | | 118 | | | (516) | | | 30 | | | |
| Amounts reclassified to net income (loss): | | | | | | | | | | |
| Realized losses (gains) on available-for-sale debt securities | | 3 | | | — | | | 3 | | | — | | | |
| Total other comprehensive income (loss), net of tax | | (39,186) | | | 42,178 | | | 7,030 | | | 8,348 | | | |
| Comprehensive income (loss) | | (14,086) | | | 77,838 | | | 62,943 | | | 61,638 | | | |
| Less: Comprehensive loss (income) attributable to non-controlling interests | | 10,387 | | | (6,060) | | | 3,319 | | | 497 | | | |
| Comprehensive income (loss) attributable to HSSC | | $ | (3,699) | | | $ | 71,778 | | | $ | 66,262 | | | $ | 62,135 | | | |
The accompanying notes are an integral part of these Consolidated Financial Statements.
4
HUGHES SATELLITE SYSTEMS CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDER’S EQUITY
FOR THE THREE MONTHS ENDED JUNE 30, 2022 AND 2021
(Amounts in thousands)
(Unaudited) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Additional
Paid-In
Capital | | Accumulated
Other
Comprehensive
Income (Loss) | | Accumulated
Earnings (Losses) | | Non-controlling
Interests | | Total |
| Balance, March 31, 2021 | | $ | 1,487,590 | | | $ | (175,060) | | | $ | 690,147 | | | $ | 63,759 | | | $ | 2,066,436 | |
| Stock-based compensation | | 724 | | | — | | | — | | | — | | | 724 | |
| Contribution by non-controlling interest holder | | — | | | — | | | — | | | 4,480 | | | 4,480 | |
| Other comprehensive income (loss) | | — | | | 33,838 | | | — | | | 8,340 | | | 42,178 | |
| Net income (loss) | | — | | | — | | | 37,940 | | | (2,280) | | | 35,660 | |
| Balance, June 30, 2021 | | $ | 1,488,314 | | | $ | (141,222) | | | $ | 728,087 | | | $ | 74,299 | | | $ | 2,149,478 | |
| | | | | | | | | | |
| Balance, March 31, 2022 | | $ | 1,476,465 | | | $ | (136,721) | | | $ | 625,642 | | | $ | 111,714 | | | $ | 2,077,100 | |
| Stock-based compensation | | 1,139 | | | — | | | — | | | — | | | 1,139 | |
| | | | | | | | | | |
| | | | | | | | | | |
| Other comprehensive income (loss) | | — | | | (32,193) | | | — | | | (6,993) | | | (39,186) | |
| Net income (loss) | | — | | | — | | | 28,494 | | | (3,394) | | | 25,100 | |
| Balance, June 30, 2022 | | $ | 1,477,604 | | | $ | (168,914) | | | $ | 654,136 | | | $ | 101,327 | | | $ | 2,064,153 | |
The accompanying notes are an integral part of these Consolidated Financial Statements.
5
HUGHES SATELLITE SYSTEMS CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDER’S EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2022 AND 2021
(Amounts in thousands)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Additional
Paid-In
Capital | | Accumulated
Other
Comprehensive
Income (Loss) | | Accumulated
Earnings (Losses) | | Non-controlling
Interests | | Total |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| Balance, December 31, 2020 | | $ | 1,486,730 | | | $ | (146,840) | | | $ | 671,570 | | | $ | 64,916 | | | $ | 2,076,376 | |
| Stock-based compensation | | 1,584 | | | — | | | — | | | — | | | 1,584 | |
| Contribution by non-controlling interest holder | | — | | | — | | | — | | | 9,880 | | | 9,880 | |
| Other comprehensive income (loss) | | — | | | 5,618 | | | — | | | 2,730 | | | 8,348 | |
| Net income (loss) | | — | | | — | | | 56,517 | | | (3,227) | | | 53,290 | |
| Balance, June 30, 2021 | | $ | 1,488,314 | | | $ | (141,222) | | | $ | 728,087 | | | $ | 74,299 | | | $ | 2,149,478 | |
| | | | | | | | | | |
| Balance, December 31, 2021 | | $ | 1,489,776 | | | $ | (173,381) | | | $ | 692,341 | | | $ | 60,253 | | | $ | 2,068,989 | |
| Stock-based compensation | | 1,918 | | | — | | | — | | | — | | | 1,918 | |
| Issuance of equity and contribution of assets pursuant to the India JV formation | | (14,090) | | | — | | | — | | | 44,393 | | | 30,303 | |
| Dividend paid to EchoStar | | — | | | — | | | (100,000) | | | — | | | (100,000) | |
| Other comprehensive income (loss) | | — | | | 4,467 | | | — | | | 2,563 | | | 7,030 | |
| Net income (loss) | | — | | | — | | | 61,795 | | | (5,882) | | | 55,913 | |
| Balance, June 30, 2022 | | $ | 1,477,604 | | | $ | (168,914) | | | $ | 654,136 | | | $ | 101,327 | | | $ | 2,064,153 | |
The accompanying notes are an integral part of these Consolidated Financial Statements.
6
HUGHES SATELLITE SYSTEMS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
| | | | | | | | | | | | | | | | |
| | For the six months ended June 30, |
| | 2022 | | 2021 | | |
| Cash flows from operating activities: | | | | | | |
| Net income (loss) | | $ | 55,913 | | | $ | 53,290 | | | |
| Adjustments to reconcile net income (loss) to cash flows provided by (used for) operating activities: | | | | | | |
| Depreciation and amortization | | 223,542 | | | 234,967 | | | |
| Impairment of long-lived assets | | — | | | 210 | | | |
| Losses (gains) on investments, net | | (214) | | | (2,094) | | | |
| Equity in losses (earnings) of unconsolidated affiliates, net | | 3,015 | | | 3,030 | | | |
| Foreign currency transaction losses (gains), net | | (3,777) | | | 2,825 | | | |
| Deferred tax provision (benefit), net | | 14,214 | | | 20,229 | | | |
| Stock-based compensation | | 1,918 | | | 1,584 | | | |
| Amortization of debt issuance costs | | 385 | | | 2,008 | | | |
| Other, net | | 20,172 | | | 8,528 | | | |
| Changes in assets and liabilities, net: | | | | | | |
| Trade accounts receivable and contract assets, net | | (39,178) | | | (3,360) | | | |
| Other current assets, net | | 7,858 | | | 6,379 | | | |
| Trade accounts payable | | 4,146 | | | (8,406) | | | |
| Contract liabilities | | (6,487) | | | 23,251 | | | |
| Accrued expenses and other current liabilities | | (12,752) | | | (19,808) | | | |
| Non-current assets and non-current liabilities, net | | (16,845) | | | (3,248) | | | |
| Net cash provided by (used for) operating activities | | 251,910 | | | 319,385 | | | |
| | | | | | |
| Cash flows from investing activities: | | | | | | |
| Purchases of marketable investment securities | | (171,005) | | | (816,386) | | | |
| Sales and maturities of marketable investment securities | | 662,347 | | | 1,409,820 | | | |
| Expenditures for property and equipment | | (125,882) | | | (154,382) | | | |
| Expenditures for externally marketed software | | (11,967) | | | (16,835) | | | |
| Sales of other investments | | — | | | 9,016 | | | |
| India JV formation | | (7,892) | | | — | | | |
| Dividend received from unconsolidated affiliate | | 2,000 | | | — | | | |
| Net cash provided by (used for) investing activities | | 347,601 | | | 431,233 | | | |
| | | | | | |
| Cash flows from financing activities: | | | | | | |
| Repurchase and maturity of the 2021 Senior Unsecured Notes | | — | | | (901,818) | | | |
| Payment of finance lease obligations | | (114) | | | (476) | | | |
| Payment of in-orbit incentive obligations | | (1,908) | | | (1,431) | | | |
| Contribution by non-controlling interest holder | | — | | | 9,880 | | | |
| Dividend paid to EchoStar | | (100,000) | | | — | | | |
| Other, net | | — | | | (966) | | | |
| Net cash provided by (used for) financing activities | | (102,022) | | | (894,811) | | | |
| | | | | | |
| Effect of exchange rates on cash and cash equivalents | | (672) | | | (348) | | | |
| Net increase (decrease) in cash and cash equivalents | | 496,817 | | | (144,541) | | | |
| Cash and cash equivalents, including restricted amounts, beginning of period | | 430,148 | | | 741,297 | | | |
| Cash and cash equivalents, including restricted amounts, end of period | | $ | 926,965 | | | $ | 596,756 | | | |
The accompanying notes are an integral part of these Consolidated Financial Statements.
7
HUGHES SATELLITE SYSTEMS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1.NOTE 1. Organization and Business ActivitiesORGANIZATION AND BUSINESS ACTIVITIES
Principal Business
Hughes Satellite Systems Corporation (which, together with its subsidiaries, is referred to as “HSS,“HSSC,” the “Company,” “we,” “us” and/orand “our”) is a holding company and a subsidiary of EchoStar Corporation (“EchoStar” and “parent”). We are an industry leader in both networking technologies and services, innovating to deliver the global solutions that power a global provider of satellite service operations, video delivery solutions,connected future for people, enterprises and things everywhere. We provide broadband satellite technologies, and broadband internet services for consumer customers, which include home and small office customers.to medium-sized businesses, and satellite services. We also deliver innovative network technologies, managed services and various communications solutions for enterprise customers, which include aeronautical and government customers.
In February 2014, HSS and EchoStar entered into agreements with certain subsidiaries of DISH Network Corporation (“DISH”) pursuant to which, effective March 1, 2014, (i) EchoStar and HSS issued Tracking Stock (as defined below) to subsidiaries of DISH in exchange for five satellites (EchoStar I, EchoStar VII, EchoStar X, EchoStar XI, and EchoStar XIV), including the assumption of related in-orbit incentive obligations, and $11.4 million in cash and (ii) DISH and certain of its subsidiaries began receiving certain satellite services on these five satellites from us (the “Satellite and Tracking Stock Transaction”). The Tracking Stock tracked the economic performance of the residential retail satellite broadband business of our Hughes segment, including certain operations, assets and liabilities attributed to such business (collectively, the “Hughes Retail Group” or “HRG”), and represented an aggregate 80.0% economic interest in HRG (the Hughes Retail Tracking Stock issued by us (the “HSS Tracking Stock”) represented a 28.11% economic interest in HRG and the Hughes Retail Tracking Stock issued by EchoStar (the “EchoStar Tracking Stock”, together with the HSS Tracking Stock, the “Tracking Stock) represented a 51.89% economic interest in HRG). In addition to the remaining 20.0% economic interest in HRG, HSS retained all economic interest in the wholesale satellite broadband business and other businesses of HSS.
On January 31, 2017, EchoStar and certain of its and our subsidiaries entered into a Share Exchange Agreement (the “Share Exchange Agreement”) with DISH and certain of its subsidiaries. Pursuant to the Share Exchange Agreement, on February 28, 2017, among other things, EchoStar and certain of its and our subsidiaries received all of the shares of the Tracking Stock in exchange for 100% of the equity interests of certain EchoStar subsidiaries that held substantially all of EchoStar’s EchoStar Technologies businesses and certain other assets (collectively, the “Share Exchange”). Following consummation of the Share Exchange, EchoStar no longer operates the EchoStar Technologies business segment and the EchoStar Tracking Stock and HSS Tracking Stock were retired and are no longer outstanding and all agreements, arrangements and policy statements with respect to such tracking stock terminated and are of no further effect.
enterprises. We currently operate in the following two2 business segments:
| |
• | •Hughes segment — which provides broadband satellite technologies and broadband internet services to domestic and international consumer customers and broadband network technologies, managed services, equipment, hardware, satellite services and communication solutions to service providers and enterprise customers. The Hughes segment also designs, provides and installs gateway and terminal equipment to customers for other satellite systems. In addition, our Hughes segment designs, develops, constructs and provides telecommunication networks comprising satellite ground segment systems and terminals to mobile system operators and our enterprise customers. •Echostar Satellite Services segment (“ESS segment”) — which uses certain of our owned and leased in-orbit satellites and related licenses to provide satellite services on a full-time and/or occasional-use basis to U.S. government service providers, internet service providers, broadcast news organizations, content providers and private enterprise customers.
Hughes — which provides broadband satellite technologies and broadband services to home and small office customers and network technologies, managed services, equipment, hardware, satellite services and communication solutions to domestic and international consumers and aeronautical, enterprise and government customers. The Hughes segment also designs, provides and installs gateway and terminal equipment to customers for other satellite systems. In addition, our Hughes segment provides satellite ground segment systems and terminals to mobile system operators.
|
| |
• | EchoStar Satellite Services (“ESS”) — which uses certain of our owned and leased in-orbit satellites and related licenses to provide satellite service operations and video delivery solutions on a full-time and occasional-use basis primarily to DISH Network Corporation and its subsidiaries (“DISH Network”), Dish Mexico, S. de R.L. de C.V., a joint venture that EchoStar entered into in 2008 (“Dish Mexico”), United States (“U.S.”) government service providers, internet service providers, broadcast news organizations, programmers, and private enterprise customers. We also manage satellite operations for certain satellites owned by DISH Network.
|
Our operations also include various corporate departmentsfunctions (primarily Executive, Treasury, Strategic Development, Human Resources, IT,Information Technology, Finance, Accounting, Real Estate and Legal) as well asand other activities, that have not been assigned to our operating segments, includingsuch as costs incurred in certain satellite development programs and other business development activities, our centralized treasury operations, and gains (losses)or losses from certain of our investments.investments, that have not been assigned to our business segments. These activities, costs and income, as well as eliminations of intersegment transactions, are accounted for in “CorporateCorporate and Other.”
HUGHES SATELLITE SYSTEMS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
Other segment in our segment reporting. We were formedalso divide our operations by primary geographic market as a Colorado corporation in March 2011 to facilitate the acquisition by EchoStarfollows: (i) North America (the “Hughes Acquisition”) of Hughes Communications, Inc.U.S. and its subsidiaries (“Hughes Communications”)territories, Mexico, and related financing transactions. In connection with our formation, EchoStar contributedCanada); (ii) South and Central America and (iii) Other (Asia, Africa, Australia, Europe, India, and the assets and liabilities of its satellite services businessMiddle East). Refer to us, including the principal operating subsidiary of its satellite services business, EchoStar Satellite Services L.L.C. 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 trusts established by Mr. Ergen Note 15. Segment Reporting for the benefit of his family.
Note 2.Summaryof Significant Accounting Policies
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
TheThese unaudited Consolidated Financial Statements and the accompanying unaudited condensed consolidated financial statements have beennotes (collectively, the “Consolidated Financial Statements”) are prepared in conformity with U.S. generally accepted accounting principles generally accepted in the (“U.S. (“GAAP”) and with the instructions to Form 10-Q and Article 10 of Regulation S-X for interim financial information. Accordingly, these financial statementsthey do not include all of the information and notes required for complete financial statements prepared in conformity with U.S. GAAP. In our opinion, all adjustments, (consistingconsisting of normal recurring adjustments)adjustments, considered necessary for a fair presentation have been included. OurHowever, our results of operations for the interim periods presented are not necessarily indicative of the results that may be expected for the full year. For further information, refer
All amounts presented in these Consolidated Financial Statements are expressed in thousands of U.S. dollars, except share and per share amounts and unless otherwise noted.
Refer to Note 2. Summary of Significant Accounting Policies to the consolidated financial statements and notes thereto includedConsolidated Financial Statements in our Form 10-K for the year ended December 31, 2016.a summary and discussion of our significant accounting policies, except as updated below.
HUGHES SATELLITE SYSTEMS CORPORATION
We consolidate all entities in which we have a controlling financial interest. We are deemed to have a controlling financial interest in variable interest entities where we are the primary beneficiary. We are deemed to have a controlling financial interest in other entities when we own more than 50 percent of the outstanding voting shares and other shareholders do not have substantive rights to participate in management. For entities we control but do not wholly own, we record a noncontrolling interest within shareholders’ equity for the portion of the entity’s equity attributed to the noncontrolling ownership interests. All significant intercompany balances and transactions have been eliminated in consolidation.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
Use of Estimates
The preparation of financial statements in conformity with GAAP requires usWe are required to make certain estimates and assumptions that affect the amounts reported amounts of assetsin these Consolidated Financial Statements. The most significant estimates and liabilities at the date of the balance sheets, the reported amounts of revenue and expense for each reporting period, and certain information disclosed in the notes to our condensed consolidated financial statements. Estimatesassumptions are used in accounting for, among other things,determining: (i) inputs used to recognize revenue over time, including amortization periods for deferred subscribercontract acquisition costs, revenue recognition using the percentage-of-completion method,costs; (ii) allowances for doubtful accounts, allowances for sales returns and rebates, warranty obligations, self-insurance obligations,accounts; (iii) deferred taxes and related valuation allowances, including uncertain tax positions,positions; (iv) loss contingencies,contingencies; (v) fair value of financial instruments, fair value of EchoStar’s stock-based compensation awards,instruments; (vi) fair value of assets and liabilities acquired in business combinations, lease classifications,combinations; and (vii) asset impairment testing, useful lives and methods for depreciation and amortization of long-lived assets, and certain royalty obligations. 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 condensed consolidated financial statements. ChangingAdditionally, 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.
Fair Value MeasurementsPrinciples of Consolidation
We determineconsolidate all entities in which we have a controlling financial interest. We are deemed to have a controlling financial interest in variable interest entities in which we are the primary beneficiary and in other entities in which we own more than 50% of the outstanding voting shares and other shareholders do not have substantive rights to participate in management. For entities we control but do not wholly own, we record a non-controlling interest within shareholder’s equity for the portion of the entity’s equity attributed to the non-controlling ownership interests. All significant intercompany balances and transactions have been eliminated in consolidation.
Recently Adopted Accounting Pronouncements
On January 1, 2021, we adopted Accounting Standard Update (“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.
In November 2021, the FASB issued ASU 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.
Recently Issued Accounting Pronouncements Not Yet Adopted
In March 2020, the FASB issued ASU No. 2020-04 - Reference Rate Reform (Topic 848), codified as ASC 848 (“ASC 848”). The purpose of ASC 848 is to provide optional guidance to ease the potential effects on financial reporting of the market-wide migration away from Interbank Offered Rates to alternative reference rates. ASC 848 applies only to contracts, hedging relationships, and other transactions that reference a reference rate expected to be discontinued because of reference rate reform. The guidance may be applied upon issuance of ASC 848 through December 31, 2022. We expect to utilize the optional expedients provided by the guidance for contracts amended solely to use an alternative reference rate. We have evaluated the impact of adopting this new guidance and do not expect it to have a material impact on our Consolidated Financial Statements.
In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which provides an exception to fair value based on the exchange price that would be receivedmeasurement for an asset or paidcontract assets and contract liabilities related to transferrevenue contracts acquired in 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;
HUGHES SATELLITE SYSTEMS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - ContinuedCONTINUED
(Unaudited)
Level 2, defined as observable inputs other than quoted prices included in Level 1, including quoted prices for similarcombination. The ASU requires an entity (acquirer) to recognize and measure contract assets and contract 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 participantsacquired in a transaction to purchase or sellbusiness combination in accordance with Topic 606. At the asset or liability.
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 for each of the nine months ended September 30, 2017 or 2016.
As of September 30, 2017 and December 31, 2016, the carrying amounts of our cash and cash equivalents, trade accounts receivable, net of allowance for doubtful accounts, accounts payable and accrued liabilities were equal to or approximated fair value due to their short-term nature or proximity to current market rates.
Fair values of our marketable investment securities are 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 a Level 1 measurement that reflects quoted prices for identical securities in active markets. Fair values of our investments in other marketable debt securities generally are based on Level 2 measurements, as the markets for such debt securities are less active. Trades of identical debt securities on or near the measurementacquisition date, are considered a strong indication of fair value. Matrix pricing techniques that consider par value, coupon rate, credit quality, maturity and other relevant features also may be used to determine fair value of our investments in marketable debt securities.
Fair values for our 6 1/2% Senior Secured Notes due 2019 (the “2019 Senior Secured Notes”), 7 5/8% Senior Unsecured Notes due 2021 (the “2021 Senior Unsecured Notes”), 5.250% Senior Secured Notes due 2026 (the “2026 Senior Secured Notes”) and 6.625% Senior Unsecured Notes due 2026 (the “2026 Senior Unsecured Notes” and together with the 2026 Senior Secured Notes, the “2026 Notes”) (see Note 9) are based on quoted market prices in less active markets and are categorized as Level 2 measurements. The fair values of our other debt are Level 2 measurements and are estimated to approximate their carrying amounts based on the proximity of their interest rates to current market rates. As of September 30, 2017 and December 31, 2016, the fair values of our in-orbit incentive obligations, based on measurements categorized within Level 2 of the fair value hierarchy, approximated their carrying amounts of $100.6 million and $74.1 million, respectively. We use fair value measurements from time to time in connection with 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.
Research and Development
Costs incurred in research and development activities generally are expensed as incurred. A significant portion of our 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 included in cost of sales.
Cost of sales includes research and development costs incurred in connection with customers’ orders of approximately $7.0 million and $11.1 millionan acquirer should account for the three months ended September 30, 2017 and 2016, respectively, and $20.7 million and $17.2 millionrelated revenue contracts in accordance with Topic 606 as if it had originated the contracts. The ASU is effective for the nine months ended September 30, 2017Company for annual and 2016, respectively. In addition, we incurred other research and development expenses of approximately $8.3 million and $9.0 million for the three months ended September 30, 2017 and 2016, respectively, and $23.4 million and $23.5 million for the nine months ended September 30, 2017 and 2016, respectively.
Capitalized Software Costs
Costs related to the procurement and development of software for internal-use and 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 internal-use software are included in “Property and equipment, net” and capitalized costs of externally marketed software are included in “Other noncurrent assets, net” in our condensed consolidated balance sheets. Externally marketed software generally is installed in the equipment we sell 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
HUGHES SATELLITE SYSTEMS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
no longer generating revenue are expensed. As of September 30, 2017 and December 31, 2016, the net carrying amount of externally marketed software was $87.7 million and $76.3 million, respectively, of which $16.7 million and $50.1 million, respectively, was under development and not yet placed in service. We capitalized costs related to the development of externally marketed software of $8.3 million and $6.2 million for the three months ended September 30, 2017 and 2016, respectively, and $25.4 million and $18.5 million for the nine months ended September 30, 2017 and 2016, respectively. We recorded amortization expense relating to the development of externally marketed software of $5.5 million and $2.5 million for the three months ended September 30, 2017 and 2016, respectively, and $14.1 million and $7.2 million for the nine months ended September 30, 2017 and 2016, respectively. The weighted average useful life of our externally marketed software was approximately four years as of September 30, 2017.
New Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”) and has modified the standard thereafter. It outlines a single comprehensive model, codified in Topic 606 of the FASB Accounting Standards Codification, for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The core principle of the revenue model is that “an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.” Public entities are required to adopt the new revenue standardinterim periods in fiscal years beginning after December 15, 2017 and in interim periods within those fiscal years. The standard may be applied either retrospectively to prior periods or as a cumulative-effect adjustment as of the date of adoption.2022. Early adoption is permitted, but not before fiscal years beginningpermitted. The ASU is applied to business combinations occurring on or after December 15, 2016. We plan to adopt the new revenue standard as of January 1, 2018 using the “modified retrospective method.” Under this method, we will apply the rules only to contracts that are not substantially completed as of January 1, 2018, recognizing in retained earnings an adjustment for the cumulative effect of the change and providing additional disclosures comparing results to previous accounting standards.
Upon initial evaluation, we do not expect the adoption of ASU 2014-09 to have a material impact on the timing or amount of revenue recognition. However, we do believe the new standard will impact our financial statements as it relates to the deferral of sales commissions. We generally expense sales commissions as incurred under the current standard with the exception of the consumer business in our Hughes segment. The requirement to defer incremental contract acquisition costs and recognize them over the contract period or expected customer life will result in the recognition of a deferred charge on our consolidated balance sheets and corresponding impact to the consolidated statement of operations and comprehensive income (loss). In addition, we currently amortize our sales acquisition costs related to our consumer business in our Hughes segment over the contract term. We believe, under the new guidance, the amortization period for these contract acquisition costs will be over the estimated customer life which is a longer period of time.
We continue to evaluate the impact of the new standard on our consolidated financial statements and related disclosures. We are not able to reasonably estimate the impact of the new standard on our consolidated financial statements at this time.
In January 2016,March 2022, the FASB issued Accounting Standards Update No. 2016-01, RecognitionASU 2022-02, Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Measurement of Financial Assets and Financial Liabilities (“ASU 2016-01”). ThisVintage Disclosures. The amendments in this update substantially revises standardseliminate the accounting guidance for the recognition, measurement and presentation of financial instruments, including requiring all equity investments, except for investments in consolidated subsidiaries and investments accounted for using the equity method, to be measured at fair value with changes in the fair value recognized through net income. The update permits an entity to elect to measure an equity security without a readily determinable fair value at its cost, adjusted for changes resulting from impairments and observable price changes in orderly transactions for identical or similar securities of the same issuer. It also amends certaintroubled debt restructurings by creditors while enhancing disclosure requirements associated with equity investmentsfor certain loan refinancing and the fair valuerestructurings by creditors made to borrowers experiencing financial difficulty. The amendments also require disclosure of financial instruments. ASU 2016-01 iscurrent-period gross write-offs by year of origination for financing receivables. The amendments in this update are effective for fiscal years beginning after December 15, 2017,2023, including interim periods within those fiscal years, with early adoption permitted for certain requirements. We plan to adopt all applicable requirements of this update as of January 1, 2018. Upon adoption, we will adjust accumulated earnings to include unrealized gains or losses on any marketable equity securities then designated as available for sale, which historically have been recorded in accumulated other comprehensive loss except when an other-than-temporary impairment has occurred. Following adoption, all periodic changes in fair value of such securities will be recognized in net income or loss. As of September 30, 2017, we had recognized $0.1 million in net unrealized gains on such securities in accumulated other comprehensive loss. For our equity investments without a readily determinable fair value that we now account for using the cost method, we expect to elect to measure such securities at cost, adjusted for impairments and observable price changes. We expect our future net income or loss to be more volatile as a result of these changes in accounting for our investments in
HUGHES SATELLITE SYSTEMS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
available-for-sale and cost method equity securities. We continue to assess the impact on our consolidated financial statements of certain requirements of ASU 2016-01 related to measurement of fair value of financial instruments, deferred tax assets related to available-for-sale debt securities, and financial statement presentation and disclosure.
In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases (“ASU 2016-02”). This standard requires lessees to recognize assets and liabilities for all leases with lease terms more than 12 months, including leases classified as operating leases. The standard also modifies the definition of a lease and the criteria for classifying leases as operating leases or financing leases. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years. Early adoption is permitted. We are assessingevaluating the impact of adopting this new accounting standard on our consolidated financial statementsguidance and related disclosures.
In June 2016, the FASB issued Accounting Standards Update No. 2016-13, Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which introduces an approach based on expected losseswe do not expect it to estimate credit losses on certain types of financial instruments rather than incurred losses. It also modifies the impairment model for available-for-sale debt securities and provides for a simplified accounting model for purchased financial assets with credit deterioration since their origination. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years. Early adoption is permitted. We are assessing the impact of adopting this new accounting standard on our consolidated financial statements and related disclosures.
In October 2016, the FASB issued Accounting Standards Update No. 2016-16, Intra-Entity Transfers of Assets Other Than Inventory (“ASU 2016-16”), which improves the accounting for the income tax consequences of intra-entity transfers of assets other than inventory. ASU 2016-16 is effective for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years. We early adopted ASU 2016-16 as of January 1, 2017. Our adoption of this update did not have a material impact on our condensed consolidated financial statements and related disclosures.Consolidated Financial Statements.
In November 2016,
NOTE 3. REVENUE RECOGNITION
Contract Balances
The following table presents the FASB issued Accounting Standards Update No. 2016-18, Statementcomponents of Cash Flows (Topic 230): Restricted Cash (“ASU 2016-18”). This standard requires restricted cash and restricted cash equivalents to be included with cash and cash equivalentsour contract balances:
| | | | | | | | | | | | | | |
| | | As of |
| | June 30, 2022 | | December 31, 2021 |
| Trade accounts receivable and contract assets, net: | | | | |
| Sales and services | | $ | 178,114 | | | $ | 154,676 | |
| Leasing | | 5,592 | | | 5,668 | |
| Total trade accounts receivable | | 183,706 | | | 160,344 | |
| Contract assets | | 57,413 | | | 36,307 | |
| Allowance for doubtful accounts | | (17,104) | | | (14,588) | |
| Total trade accounts receivable and contract assets, net | | $ | 224,015 | | | $ | 182,063 | |
| | | | |
| Contract liabilities: | | | | |
| Current | | $ | 134,856 | | | $ | 141,343 | |
| Non-current | | 9,922 | | | 10,669 | |
| Total contract liabilities | | $ | 144,778 | | | $ | 152,012 | |
The following table presents the revenue recognized in the statementConsolidated Statements of cash flows. ASU 2016-18 is effective for fiscal years beginning after December 15, 2017 and interim periodsOperations that was previously included within those fiscal years. Early adoption is permitted and the standard must be applied retrospectively to all periods presented. We expect to adopt ASU 2016-18 as of January 1, 2018. Following our adoption of this standard, the beginning and ending balances of cash and cash equivalents presented in our consolidated statements of cash flows will include amounts for restricted cash and cash equivalents, which currently are not included in such balances. Changes in restricted cash and cash equivalents, which we have historically reported in cash flows from investing activities, will not be reported in our consolidated statements of cash flows. contract liabilities:
In January 2017, the FASB issued Accounting Standards Update No. 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (“ASU 2017-04”). This standard simplifies the accounting for goodwill impairment by removing Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit’s carrying amount, including goodwill, exceeds its fair value, not to exceed the carrying amount of goodwill. ASU 2017-04 is effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019 and is to be applied on a prospective basis. We early adopted ASU 2017-04 as of January 1, 2017. Our adoption of this update did not have a material impact on our condensed consolidated financial statements and related disclosures, but it may impact the recognition and measurement of a goodwill impairment loss in future periods if we determine that the carrying amount of any reporting units including goodwill exceeds fair value of the reporting unit. | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the three months ended June 30, | | For the six months ended June 30, |
| | 2022 | | 2021 | | 2022 | | 2021 | | |
| Revenue | | $ | 20,852 | | | $ | 1,941 | | | $ | 109,799 | | | $ | 65,022 | | | |
In March 2017, the FASB issued Accounting Standards Update No. 2017-08, Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities (“ASU 2017-08”). This update shortens the amortization period of premiums on certain purchased callable debt securities to the earliest call date, effectively reducing interest income on such securities prior to the earliest call date. ASU 2017-08 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted. We are assessing the impact of adopting this new accounting standard on our consolidated financial statements and related disclosures.
HUGHES SATELLITE SYSTEMS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - ContinuedCONTINUED
(Unaudited)
Note 3.
Contract Acquisition Costs
Other Comprehensive Income (Loss) and Related Tax Effects
The following table presents the activity in our contract acquisition costs, net:
Except in unusual circumstances, we do not recognize tax effects on foreign currency translation adjustments because they are not expected
| | | | | | | | | | | | | | | | |
| | For the six months ended June 30, |
| | 2022 | | 2021 | | |
| Balance at beginning of period | | $ | 82,986 | | | $ | 99,837 | | | |
| Additions | | 30,645 | | | 37,408 | | | |
| Amortization expense | | (39,653) | | | (45,200) | | | |
| Foreign currency translation | | 724 | | | 678 | | | |
| Balance at end of period | | $ | 74,702 | | | $ | 92,723 | | | |
We recognized amortization expenses related to result in future taxable income or deductions. We have not recognized any tax effects on unrealized gains or losses on available-for-sale securities because such gains or losses would affect the amountcontract acquisition costs of unrealized capital losses for which the related deferred tax asset has been fully offset by a valuation allowance.
Accumulated other comprehensive loss includes net cumulative foreign currency translation losses of $45.1$19.5 million and $59.0$22.4 million as of September 30, 2017 and December 31, 2016, respectively.
Reclassifications out of accumulated other comprehensive loss for the three and nine months ended SeptemberJune 30, 20172022 and 2016 were as follows:2021, respectively.
|
| | | | | | | | | | | | | | | | | | |
| Accumulated Other Comprehensive Loss Components | | Affected Line Item in our Condensed Consolidated Statements of Operations | | For the Three Months Ended September 30, | | For the Nine Months Ended September 30, |
| | | 2017 | | 2016 | | 2017 | | 2016 |
| | | | | (In thousands) |
| Recognition of realized gains on available-for-sale securities in net income (1) | | Gains on marketable investment securities | | $ | — |
| | $ | (4 | ) | | $ | — |
| | $ | (2,989 | ) |
| Recognition of other-than-temporary impairment loss on available-for-sale securities in net income (2) | | Other-than-temporary impairment loss on available-for-sale securities | | — |
| | — |
| | 3,298 |
| | — |
|
| Total reclassifications, net of tax and noncontrolling interests | | | | $ | — |
| | $ | (4 | ) | | $ | 3,298 |
| | $ | (2,989 | ) |
| |
(1) | When available-for-sale securities are sold, the related unrealized gains and losses that were previously recognized in other comprehensive income (loss) are reclassified and recognized as “Gains on marketable investment securities, net” in our condensed consolidated statements of operations and comprehensive income (loss). |
| |
(2) | We recorded an other-than-temporary impairment loss on shares of certain common stock included in our strategic equity securities. |
Note 4.Investment Securities
Marketable Investment Securities
Our marketable investment securities consisted of the following:
|
| | | | | | | | |
| | | As of |
| | | September 30, 2017 | | December 31, 2016 |
| | | (In thousands) |
| Marketable investment securities—current, at fair value: | | | | |
| Corporate bonds | | $ | 132,986 |
| | $ | 164,619 |
|
| Strategic equity securities | | 1,646 |
| | 10,309 |
|
| Other | | 61,274 |
| | 12,995 |
|
| Total marketable investment securities—current | | $ | 195,906 |
| | $ | 187,923 |
|
Our marketable investment securities portfolio consistsPerformance Obligations
As of various debtJune 30, 2022, the remaining performance obligations for our customer contracts with original expected durations of more than one year was $1.1 billion. Performance obligations expected to be satisfied within one year and equity instruments,greater than one year are 40.0% and 60.0%, respectively. This amount and percentages exclude agreements with consumer customers in our Hughes segment, our leasing arrangements and agreements with certain customers under which generally are classified as available-for-sale or trading securities depending on our investment strategy for those securities. The valuecollectability of our investment portfolio depends onall amounts due through the valueterm of such securities and other instruments comprising the portfolio.contracts is uncertain.
Corporate Bonds
Our corporate bond portfolio includes debt instruments issued by individual corporations, primarily in the industrial and financial services industries.
HUGHES SATELLITE SYSTEMS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - ContinuedCONTINUED
(Unaudited)
Strategic EquityDisaggregation of Revenue
Geographic Information
The following tables present our revenue from customer contracts disaggregated by primary geographic market and by segment:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Hughes | | ESS | | Corporate and Other | | Consolidated
Total |
| For the three months ended June 30, 2022 | | | | | | | | |
| North America | | $ | 398,698 | | | $ | 4,850 | | | $ | (348) | | | $ | 403,200 | |
| South and Central America | | 42,094 | | | — | | | — | | | 42,094 | |
| Other | | 51,049 | | | — | | | 4,740 | | | 55,789 | |
| Total revenue | | $ | 491,841 | | | $ | 4,850 | | | $ | 4,392 | | | $ | 501,083 | |
| | | | | | | | |
| For the three months ended June 30, 2021 | | | | | | | | |
| North America | | $ | 405,101 | | | $ | 4,283 | | | $ | (88) | | | $ | 409,296 | |
| South and Central America | | 46,996 | | | — | | | — | | | 46,996 | |
| Other | | 40,179 | | | — | | | 5,402 | | | 45,581 | |
| Total revenue | | $ | 492,276 | | | $ | 4,283 | | | $ | 5,314 | | | $ | 501,873 | |
| | | | | | | | |
| For the six months ended June 30, 2022 | | | | | | | | |
| North America | | $ | 798,120 | | | $ | 9,324 | | | $ | (546) | | | $ | 806,898 | |
| South and Central America | | 84,966 | | | — | | | — | | | 84,966 | |
| Other | | 102,861 | | | — | | | 10,016 | | | 112,877 | |
| Total revenue | | $ | 985,947 | | | $ | 9,324 | | | $ | 9,470 | | | $ | 1,004,741 | |
| | | | | | | | |
| For the six months ended June 30, 2021 | | | | | | | | |
| North America | | $ | 803,860 | | | $ | 8,372 | | | $ | (176) | | | $ | 812,056 | |
| South and Central America | | 90,026 | | | — | | | — | | | 90,026 | |
| Other | | 74,250 | | | — | | | 10,771 | | | 85,021 | |
| Total revenue | | $ | 968,136 | | | $ | 8,372 | | | $ | 10,595 | | | $ | 987,103 | |
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| | | | | | | | |
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HUGHES SATELLITE SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
Nature of Products and Services
The following tables present our revenue disaggregated by the nature of products and services and by segment:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Hughes | | ESS | | Corporate and Other | | Consolidated
Total |
| For the three months ended June 30, 2022 | | | | | | | | |
| Services and other revenue: | | | | | | | | |
| Services | | $ | 397,320 | | | $ | 3,161 | | | $ | — | | | $ | 400,481 | |
| Lease revenue | | 9,902 | | | 1,689 | | | 4,391 | | | 15,982 | |
| Total services and other revenue | | 407,222 | | | 4,850 | | | 4,391 | | | 416,463 | |
| Equipment revenue: | | | | | | | | |
| Equipment | | 27,408 | | | — | | | 1 | | | 27,409 | |
| Design, development and construction services | | 56,311 | | | — | | | — | | | 56,311 | |
| Lease revenue | | 900 | | | — | | | — | | | 900 | |
| Total equipment revenue | | 84,619 | | | — | | | 1 | | | 84,620 | |
| Total revenue | | $ | 491,841 | | | $ | 4,850 | | | $ | 4,392 | | | $ | 501,083 | |
| | | | | | | | | |
| For the three months ended June 30, 2021 | | | | | | | | |
| Services and other revenue: | | | | | | | | |
| Services | | $ | 413,925 | | | $ | 2,884 | | | $ | — | | | $ | 416,809 | |
| Lease revenue | | 9,796 | | | 1,399 | | | 5,313 | | | 16,508 | |
| Total services and other revenue | | 423,721 | | | 4,283 | | | 5,313 | | | 433,317 | |
| Equipment revenue: | | | | | | | | |
| Equipment | | 31,101 | | | — | | | 1 | | | 31,102 | |
| Design, development and construction services | | 35,057 | | | — | | | — | | | 35,057 | |
| Lease revenue | | 2,397 | | | — | | | — | | | 2,397 | |
| Total equipment revenue | | 68,555 | | | — | | | 1 | | | 68,556 | |
| Total revenue | | $ | 492,276 | | | $ | 4,283 | | | $ | 5,314 | | | $ | 501,873 | |
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| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
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HUGHES SATELLITE SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Hughes | | ESS | | Corporate and Other | | Consolidated
Total |
| For the six months ended June 30, 2022 | | | | | | | | |
| Services and other revenue: | | | | | | | | |
| Services | | $ | 797,722 | | | $ | 6,096 | | | $ | — | | | $ | 803,818 | |
| Lease revenue | | 20,889 | | | 3,228 | | | 9,469 | | | 33,586 | |
| Total services and other revenue | | 818,611 | | | 9,324 | | | 9,469 | | | 837,404 | |
| Equipment revenue: | | | | | | | | |
| Equipment | | 53,293 | | | — | | | 1 | | | 53,294 | |
| Design, development and construction services | | 112,216 | | | — | | | — | | | 112,216 | |
| Lease revenue | | 1,827 | | | — | | | — | | | 1,827 | |
| Total equipment revenue | | 167,336 | | | — | | | 1 | | | 167,337 | |
| Total revenue | | $ | 985,947 | | | $ | 9,324 | | | $ | 9,470 | | | $ | 1,004,741 | |
| | | | | | | | | |
| For the six months ended June 30, 2021 | | | | | | | | |
| Services and other revenue: | | | | | | | | |
| Services | | $ | 827,517 | | | $ | 5,574 | | | $ | — | | | $ | 833,091 | |
| Lease revenue | | 19,824 | | | 2,798 | | | 10,595 | | | 33,217 | |
| Total services and other revenue | | 847,341 | | | 8,372 | | | 10,595 | | | 866,308 | |
| Equipment revenue: | | | | | | | | |
| Equipment | | 59,550 | | | — | | | — | | | 59,550 | |
| Design, development and construction services | | 56,693 | | | — | | | — | | | 56,693 | |
| Lease revenue | | 4,552 | | | — | | | — | | | 4,552 | |
| Total equipment revenue | | 120,795 | | | — | | | — | | | 120,795 | |
| Total revenue | | $ | 968,136 | | | $ | 8,372 | | | $ | 10,595 | | | $ | 987,103 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Lease Revenue
The following table presents our lease revenue by type of lease:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the three months ended June 30, | | For the six months ended June 30, |
| | 2022 | | 2021 | | 2022 | | 2021 | | |
| Sales-type lease revenue: | | | | | | | | | | |
| Revenue at lease commencement | | $ | 583 | | | $ | 2,295 | | | $ | 1,221 | | | $ | 4,377 | | | |
| Interest income | | 317 | | | 102 | | | 606 | | | 175 | | | |
| Total sales-type lease revenue | | 900 | | | 2,397 | | | 1,827 | | | 4,552 | | | |
| Operating lease revenue | | 15,982 | | | 16,508 | | | 33,586 | | | 33,217 | | | |
| Total lease revenue | | $ | 16,882 | | | $ | 18,905 | | | $ | 35,413 | | | $ | 37,769 | | | |
HUGHES SATELLITE SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
NOTE 4. BUSINESS COMBINATIONS
In May 2019, we entered into an agreement with Bharti Airtel Limited (“BAL”) and its subsidiary, Bharti Airtel Services Limited (together with BAL, “Bharti”), pursuant to which Bharti agreed to contribute its very small aperture terminal (“VSAT”) telecommunications services and hardware business in India to Hughes 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 the India JV, we hold a 67% ownership interest and Bharti holds a 33% ownership interest in HCIPL. The India JV combines 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 India. The results of operations related to the India JV have been included in these Consolidated Financial Statements from the date of formation. The costs associated with the closing of the India JV were not material and were expensed as incurred.
The 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.
All assets and liabilities acquired in the India JV formation have been recorded at fair value. The following table presents our preliminary allocation of the purchase price:
| | | | | | | | |
| | Amounts |
| Assets: | | |
| Trade accounts receivable and contract assets, net | | $ | 6,160 | |
| Other current assets | | 2,085 | |
| Property and equipment | | 4,669 | |
| Goodwill | | 23,086 | |
| Other intangible assets | | 4,428 | |
| Total assets | | $ | 40,428 | |
| | |
| Liabilities: | | |
| Trade accounts payable | | $ | 133 | |
| Accrued expenses and other current liabilities | | 986 | |
| Deferred tax liabilities | | 1,114 | |
| Total liabilities | | $ | 2,233 | |
| | |
| Total purchase price | | $ | 38,195 | |
The preliminary valuation of assets acquired and liabilities assumed in the India JV were derived using primarily unobservable Level 3 inputs, which require significant management judgment and 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.
Goodwill 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.
HUGHES SATELLITE SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
NOTE 5. MARKETABLE INVESTMENT SECURITIES
The following table presents our Marketable investment securities:
| | | | | | | | | | | | | | |
| | As of |
| | June 30, 2022 | | December 31, 2021 |
| Marketable investment securities: | | | | |
| Available-for-sale debt securities: | | | | |
| Corporate bonds | | $ | 162,923 | | | $ | 284,787 | |
| Commercial paper | | 153,023 | | | 491,360 | |
| Other debt securities | | 44,702 | | | 78,355 | |
| Total available-for-sale debt securities | | 360,648 | | | 854,502 | |
| Equity securities | | — | | | — | |
| Total marketable investment securities | | $ | 360,648 | | | $ | 854,502 | |
Debt Securities
Our strategic investment portfolio consists of investments in shares of common stock of public companies, which are highly speculative and have experienced and continue to experience volatility. We did not receive any dividend income for the three and nine months ended September 30, 2017 or 2016. We recognized a $3.3 million other-than-temporary impairment for the nine months ended September 30, 2017 on one of our investments. This investment had been in a continuous loss position for more than 12 months and experienced a decline in market value as a result of adverse developments during the three months ended March 31, 2017.Available-for-Sale
For each of the three months ended September 30, 2017 and 2016, we did not recognize any gain and loss related to trading securities that we held as of September 30, 2017 and 2016. For the nine months ended September 30, 2017 and 2016, “Gains on marketable investment securities, net” included gains of zero and losses of $1.0 million, respectively, related to trading securities that we held as of September 30, 2017 and 2016, respectively. The fair values of our trading securities were zero and $7.2 million as of September 30, 2017 and December 31, 2016, respectively.
Other
Our other current marketable investment securities portfolio includes investments in various debt instruments, including U.S. government bonds and commercial paper.
Unrealized Gains (Losses) on Available-for-Sale Securities
The following table presents the components of our available-for-sale securities are summarized in the table below.debt securities:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Amortized | | Unrealized | | Estimated |
| | Cost | | Gains | | Losses | | Fair Value |
| As of June 30, 2022 | | | | | | | | |
| Corporate bonds | | $ | 163,830 | | | $ | 2 | | | $ | (909) | | | $ | 162,923 | |
| Commercial paper | | 153,023 | | | — | | | — | | | 153,023 | |
| Other debt securities | | 44,730 | | | — | | | (28) | | | 44,702 | |
| Total available-for-sale debt securities | | $ | 361,583 | | | $ | 2 | | | $ | (937) | | | $ | 360,648 | |
| As of December 31, 2021 | | | | | | | | |
| Corporate bonds | | $ | 285,169 | | | $ | — | | | $ | (382) | | | $ | 284,787 | |
| Commercial paper | | 491,360 | | | — | | | — | | | 491,360 | |
| Other debt securities | | 78,395 | | | — | | | (40) | | | 78,355 | |
| Total available-for-sale debt securities | | $ | 854,924 | | | $ | — | | | $ | (422) | | | $ | 854,502 | |
|
| | | | | | | | | | | | | | | | |
| | | Amortized | | Unrealized | | Estimated |
| | | Cost | | Gains | | Losses | | Fair Value |
| | | (In thousands) |
| As of September 30, 2017 | | | | | | | | |
| Debt securities: | | | | | | | | |
| Corporate bonds | | $ | 132,994 |
| | $ | 19 |
| | $ | (27 | ) | | $ | 132,986 |
|
| Other | | 61,276 |
| | — |
| | (2 | ) | | 61,274 |
|
| Equity securities - strategic | | 1,536 |
| | 110 |
| | — |
| | 1,646 |
|
| Total available-for-sale securities | | $ | 195,806 |
| | $ | 129 |
| | $ | (29 | ) | | $ | 195,906 |
|
| As of December 31, 2016 | | | | | | | | |
| Debt securities: | | | | | | | | |
| Corporate bonds | | $ | 164,563 |
| | $ | 94 |
| | $ | (38 | ) | | $ | 164,619 |
|
| Other | | 12,994 |
| | 1 |
| | — |
| | 12,995 |
|
| Equity securities - strategic | | 4,834 |
| | — |
| | (1,724 | ) | | 3,110 |
|
| Total available-for-sale securities | | $ | 182,391 |
| | $ | 95 |
| | $ | (1,762 | ) | | $ | 180,724 |
|
The following table presents the activity on our available-for-sale debt securities:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the three months ended June 30, | | For the six months ended June 30, |
| | 2022 | | 2021 | | 2022 | | 2021 | | |
| Proceeds from sales | | $ | 8,886 | | | $ | 55,500 | | | $ | 37,904 | | | $ | 151,265 | | | |
As of SeptemberJune 30, 2017, restricted and non-restricted2022, we have $360.6 million of available-for-sale securities included debt securities of $194.3 million with contractual maturities of one year or less and zero with contractual maturities greater than one year. We may realize proceeds from certain investments prior to their contractual maturity as a result of our ability to sell these securities prior to their contractual maturity.
HUGHES SATELLITE SYSTEMS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - ContinuedCONTINUED
(Unaudited)
Available-for-Sale Securities in a Loss PositionFair Value Measurements
The following table reflects the length of time thatpresents our available-for-sale securities have been in an unrealized loss position. We do not intend to sell these securities before they recover or mature, and it is more likely than not that we will hold these securities until they recover or mature. We believe that changes in the estimated fair values of these securities are primarily related to temporary market conditions
|
| | | | | | | | | | | | | | | | |
| | | As of |
| | | September 30, 2017 | | December 31, 2016 |
| | | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses |
| | | (In thousands) |
| Less than 12 months | | $ | 112,110 |
| | $ | (27 | ) | | $ | 62,473 |
| | $ | (1,760 | ) |
| 12 months or more | | 9,399 |
| | (2 | ) | | 1,571 |
| | (2 | ) |
| Total | | $ | 121,509 |
| | $ | (29 | ) | | $ | 64,044 |
| | $ | (1,762 | ) |
Sales of Available-for-Sale Securities
We recognized zero gains and losses from the sales of our available-for-sale securities for each of the three and nine months ended September 30, 2017. We recognized gains from the sales of our available-for-sale securities of de minimis and $3.0 million for the three and nine months ended September 30, 2016, respectively. We recognized de minimis losses from the sales of our available-for-sale securities for each of the three and nine months ended September 30, 2016.
Proceeds from sales of our available-for-sale securities totaled zero for each of the three months ended September 30, 2017 and 2016, respectively, and $8.9 million and $17.6 million for the nine months ended September 30, 2017 and 2016, respectively.
Fair Value Measurements
Our current marketable investment securities are measured atcategorized by the fair value on a recurring basis as summarized in the table below. hierarchy, certain of which have historically experienced volatility:
| | | | | | | | | | | | | | | | | | | | |
| | Level 1 | | Level 2 | | Total |
| As of June 30, 2022 | | | | | | |
| Cash equivalents (including restricted) | | $ | 198 | | | $ | 838,668 | | | $ | 838,866 | |
| Available-for-sale debt securities: | | | | | | |
| Corporate bonds | | $ | — | | | $ | 162,923 | | | $ | 162,923 | |
| Commercial paper | | — | | | 153,023 | | | 153,023 | |
| Other debt securities | | — | | | 44,702 | | | 44,702 | |
| Total available-for-sale debt securities | | — | | | 360,648 | | | 360,648 | |
| Equity securities | | — | | | — | | | — | |
| Total marketable investment securities | | $ | — | | | $ | 360,648 | | | $ | 360,648 | |
| | | | | | |
| As of December 31, 2021 | | | | | | |
| Cash equivalents (including restricted) | | $ | 4,032 | | | $ | 320,732 | | | $ | 324,764 | |
| Available-for-sale debt securities: | | | | | | |
| Corporate bonds | | $ | — | | | $ | 284,787 | | | $ | 284,787 | |
| Commercial paper | | — | | | 491,360 | | | 491,360 | |
| Other debt securities | | — | | | 78,355 | | | 78,355 | |
| Total available-for-sale debt securities | | — | | | 854,502 | | | 854,502 | |
| Equity securities | | — | | | — | | | — | |
| Total marketable investment securities | | $ | — | | | $ | 854,502 | | | $ | 854,502 | |
As of SeptemberJune 30, 20172022 and December 31, 2016,2021, we did not have any investments that were categorized within Level 3 of the fair value hierarchy.
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | As of |
| | | September 30, 2017 | | December 31, 2016 |
| | | Total | | Level 1 | | Level 2 | | Total | | Level 1 | | Level 2 |
| | | (In thousands) |
| Cash equivalents | | $ | 2,016,027 |
| | $ | 12,821 |
| | $ | 2,003,206 |
| | $ | 1,991,949 |
| | $ | 14,011 |
| | $ | 1,977,938 |
|
| Debt securities: | | | | | | | | | | | | |
| Corporate bonds | | $ | 132,986 |
| | $ | — |
| | $ | 132,986 |
| | $ | 164,619 |
| | $ | — |
| | $ | 164,619 |
|
| Other | | 61,274 |
| | — |
| | 61,274 |
| | 12,995 |
| | — |
| | 12,995 |
|
| Equity securities - strategic | | 1,646 |
| | 1,646 |
| | — |
| | 10,309 |
| | 10,309 |
| | — |
|
| Total marketable investment securities | | $ | 195,906 |
| | $ | 1,646 |
| | $ | 194,260 |
| | $ | 187,923 |
| | $ | 10,309 |
| | $ | 177,614 |
|
Investments in Unconsolidated Entities —Noncurrent
We have strategic investments in certain non-publicly traded equity securities that are accounted for using either the equity or the cost method of accounting. Our ability to realize value from our strategic investments in companies that are not publicly traded depends on the success of those companies’ businesses and their ability to obtain sufficient capital to execute their business plans. Because private markets are not as liquid as public markets, there is also increased risk that we will not be able to sell these investments, or that when we desire to sell them we will not be able to obtain fair value for them.
HUGHES SATELLITE SYSTEMS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
Our investments in unconsolidated entities consisted of the following:
|
| | | | | | | | |
| | | As of |
| | | September 30, 2017 | | December 31, 2016 |
| | | (In thousands) |
| Investments in unconsolidated entities—noncurrent: | | |
| | |
|
| Cost method | | $ | 15,438 |
| | $ | 15,438 |
|
| Equity method | | 17,420 |
| | 27,122 |
|
| Total investments in unconsolidated entities—noncurrent | | $ | 32,858 |
| | $ | 42,560 |
|
We recorded cash distributions from our investments accounted for using the equity method of $7.5 million and zero for the three months ended September 30, 2017 and 2016, respectively. For the nine months ended September 30, 2017 and 2016, we recorded cash distributions from one of these investments accounted for using the equity method of $15.0 million and $10.0 million, respectively. These cash distributions were determined to be a return on investment and reported in cash flows from operating activities in our condensed consolidated statements of cash flows.
Note 5.Trade Accounts Receivable
Our trade accounts receivable consisted of the following: |
| | | | | | | | |
| | | As of |
| | | September 30, 2017 | | December 31, 2016 |
| | | (In thousands) |
| Trade accounts receivable | | $ | 181,555 |
| | $ | 159,094 |
|
| Contracts in process, net | | 24,043 |
| | 36,170 |
|
| Total trade accounts receivable | | 205,598 |
| | 195,264 |
|
| Allowance for doubtful accounts | | (13,211 | ) | | (12,752 | ) |
| Trade accounts receivable - DISH Network | | 45,968 |
| | 19,323 |
|
| Total trade accounts receivable, net | | $ | 238,355 |
| | $ | 201,835 |
|
As of September 30, 2017 and December 31, 2016, progress billings offset against contracts in process amounted to $17.4 million and $14.6 million, respectively.
Note 6.Inventory
Our inventory consisted of the following:
|
| | | | | | | | |
| | | As of |
| | | September 30, 2017 | | December 31, 2016 |
| | | (In thousands) |
| Finished goods | | $ | 74,693 |
| | $ | 49,773 |
|
| Raw materials | | 6,901 |
| | 6,678 |
|
| Work-in-process | | 9,638 |
| | 6,187 |
|
| Total inventory | | $ | 91,232 |
| | $ | 62,638 |
|
HUGHES SATELLITE SYSTEMS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
Note 7.NOTE 6.PROPERTY AND EQUIPMENT
The following table presents the components of Property and Equipmentequipment, net:
| | | | | | | | | | | | | | |
| | As of |
| | June 30, 2022 | | December 31, 2021 |
| Property and equipment, net: | | | | |
| Satellites, net | | $ | 803,535 | | | $ | 847,613 | |
| Other property and equipment, net | | 648,927 | | | 675,834 | |
| Total property and equipment, net | | $ | 1,452,462 | | | $ | 1,523,447 | |
Property and equipment consisted of the following:
|
| | | | | | | | | | |
| | | Depreciable Life (In Years) | | As of |
| | | | September 30, 2017 | | December 31, 2016 |
| | | | | (In thousands) |
| Land | | — | | $ | 13,443 |
| | $ | 13,273 |
|
| Buildings and improvements | | 1 - 30 | | 127,652 |
| | 79,765 |
|
| Furniture, fixtures, equipment and other | | 1 - 12 | | 576,423 |
| | 430,078 |
|
| Customer rental equipment | | 2 - 4 | | 859,596 |
| | 689,579 |
|
| Satellites - owned | | 2 - 15 | | 2,516,684 |
| | 2,381,120 |
|
| Satellites acquired under capital leases | | 10 - 15 | | 794,705 |
| | 781,761 |
|
| Construction in progress | | — | | 398,585 |
| | 422,337 |
|
| Total property and equipment | | | | 5,287,088 |
| | 4,797,913 |
|
| Accumulated depreciation | | | | (2,433,297 | ) | | (2,503,187 | ) |
| Property and equipment, net | | | | $ | 2,853,791 |
| | $ | 2,294,726 |
|
Construction in progress consisted of the following: |
| | | | | | | | |
| | | As of |
| | | September 30, 2017 | | December 31, 2016 |
| | | (In thousands) |
| Progress amounts for satellite construction, including prepayments under capital leases and launch services costs | | $ | 296,358 |
| | $ | 244,234 |
|
| Satellite related equipment | | 83,907 |
| | 152,683 |
|
| Other | | 18,320 |
| | 25,420 |
|
| Construction in progress | | $ | 398,585 |
| | $ | 422,337 |
|
Construction in progress included the following owned and leased satellites under construction or undergoing in-orbit testing as of September 30, 2017.
|
| | | | |
Satellites | | Segment | | Expected Launch Date |
EchoStar 105/SES-11 | | ESS | | October 2017 (1) |
Telesat T19V (“63 West”) (2) | | Hughes | | Second quarter of 2018 |
| |
(1) | This satellite was launched in October 2017 and is expected to be placed in service during the fourth quarter of 2017. |
| |
(2) | We entered into a satellite services agreement for certain capacity on this satellite once launched, but are not party to the construction contract. |
Depreciation expense associated with our property and equipment consisted of the following:
|
| | | | | | | | | | | | | | | | |
| | | For the Three Months Ended September 30, | | For the Nine Months Ended September 30, |
| | | 2017 | | 2016 | | 2017 | | 2016 |
| | | (In thousands) |
| Satellites | | $ | 56,953 |
| | $ | 46,965 |
| | $ | 166,419 |
| | $ | 140,895 |
|
| Furniture, fixtures, equipment and other | | 21,428 |
| | 16,739 |
| | 58,078 |
| | 44,883 |
|
| Customer rental equipment | | 39,104 |
| | 28,652 |
| | 103,781 |
| | 86,789 |
|
| Buildings and improvements | | 1,306 |
| | 1,042 |
| | 3,972 |
| | 3,151 |
|
| Total depreciation expense | | $ | 118,791 |
| | $ | 93,398 |
| | $ | 332,250 |
| | $ | 275,718 |
|
HUGHES SATELLITE SYSTEMS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
Satellites
As of SeptemberJune 30, 2017,2022, our satellite fleet consisted of 168 geosynchronous (“GEO”) satellites, 5 of ourwhich are owned and leased satellites3 of which are leased. They are all in geosynchronous orbit, approximately 22,300 miles above the equator. We have not included the EchoStar 105/SES-11 satellite in
HUGHES SATELLITE SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
The following table presents our GEO satellite fleet as of SeptemberJune 30, 2017 since it had not been placed into service2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| 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 |
| | | | | | | | |
| 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 the acquisition of Hughes Communications, Inc. (“Hughes Communications”) and its subsidiaries (the “Hughes Acquisition”).
(2) Upon consummation of our joint venture with Al Yah Satellite Communications Company PrJSC (“Yahsat”) in Brazil in November 2019, we acquired the Brazilian Ka-band payload on this date. We depreciate our owned satellites on a straight-line basis oversatellite. Depreciable life represents the estimatedremaining useful life of each satellite. As of September 30, 2017, three of our satellites are accounted for as capital leases and are depreciated on a straight-line basis over their respective lease terms. We accounted for one satellite as an operating lease that is not included in property and equipment as of September 30, 2017.November 2019.
Recent Developments
(4) EchoStar III. In July 2017, the EchoStar III satellite experienced an anomaly that caused communications withIX is approaching its end of station-kept life. The Company expects to place the satellite to be interrupted resulting in a loss of control. We regained communications with and control of the EchoStar III satellite and retired it in August 2017. The EchoStar III satellite was a fully depreciated, non-revenue generating asset.
EchoStar VIII. During the second quarter of 2017, the EchoStar VIII satellite was removed from its orbital location and retired from commercial service. This retirement has not had, and is not expected to have, a material impact on our results of operations or financial position.
EchoStar XIX. The EchoStar XIX satellite was launched in December 2016 and was placed into service in March 2017 at the 97.1 degree west longitude orbital location. The EchoStar XIX satellite provides additional capacity for the Hughes broadband services to our customers in North America and added capacity in certain Central and South American countries and has added capability for aeronautical, enterprise and international broadband services. EchoStar contributed the EchoStar XIX satellite to us in February 2017.
EchoStar 105/SES-11. The EchoStar 105/SES-11 satellite was launched in October 2017 and is anticipated to be placed into servicean inclined-orbit in the fourth quarter of 20172022 or first quarter of 2023, but this ability is dependent upon events beyond our control and may not occur on schedule if at the 105 degree west longitude orbital location. Our Ku-band payload on the EchoStar 105/SES-11 satelliteall. Inclined-orbit will replace our current capacity on the AMC-15 satellite.extend its life but impact revenue generating capabilities.
Satellite AnomaliesThe following table presents the components of our satellites, net:
| | | | | | | | | | | | | | | | | | | | |
| | | Depreciable Life (In Years) | | As of |
| | | | June 30, 2022 | | December 31, 2021 |
| Satellites, net: | | | | | | |
| Satellites - owned | | 7 to 15 | | $ | 1,503,279 | | | $ | 1,500,836 | |
| Satellites - acquired under finance leases | | 15 | | 360,257 | | | 354,170 | |
| Total satellites | | | | 1,863,536 | | | 1,855,006 | |
| Accumulated depreciation: | | | | | | |
| Satellites - owned | | | | (950,273) | | | (911,722) | |
| Satellites - acquired under finance leases | | | | (109,728) | | | (95,671) | |
| Total accumulated depreciation | | | | (1,060,001) | | | (1,007,393) | |
| Total satellites, net | | | | $ | 803,535 | | | $ | 847,613 | |
The following table presents the depreciation expense associated with our satellites, net:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | For the three months ended June 30, | | For the six months ended June 30, | | |
| | | 2022 | | 2021 | | 2022 | | 2021 | | |
| Depreciation expense: | | | | | | | | | | |
| Satellites - owned | | $ | 19,005 | | | $ | 17,490 | | | $ | 37,920 | | | $ | 44,558 | | | |
| Satellites - acquired under finance leases | | 6,137 | | | 7,396 | | | 12,124 | | | 14,597 | | | |
| Total depreciation expense | | $ | 25,142 | | | $ | 24,886 | | | $ | 50,044 | | | $ | 59,155 | | | |
HUGHES SATELLITE SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
The following table presents capitalized interest associated with our satellites and satellite-related ground infrastructure:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the three months ended June 30, | | For the six months ended June 30, | | |
| | 2022 | | 2021 | | 2022 | | 2021 | | |
| Capitalized interest | | $ | 2,095 | | | $ | 1,467 | | | $ | 4,058 | | | $ | 2,713 | | | |
Satellite-Related Commitments
OurAs of June 30, 2022 and December 31, 2021 our satellite-related commitments were $160.2 million and $179.7 million, respectively. These primarily include payments pursuant to regulatory authorizations, non-lease costs associated with our finance lease satellites, may experience anomalies from timein-orbit incentives relating to time, some ofcertain satellites and commitments for satellite service arrangements.
In certain circumstances, the dates on which may have a significant adverse impact on their remaining useful lives, the commercial operation of the satellites orwe are obligated to pay our operating results or financial position. 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 such materialsignificant adverse effect duringon their remaining useful lives, the ninecommercial operation of the satellites or payloads or our operating results or financial position as of and for the three and six months ended SeptemberJune 30, 2017. There can be no assurance, however, that anomalies will not have any such adverse impacts in2022.
Fair Value of In-Orbit Incentives
As of June 30, 2022 and December 31, 2021, the future. In addition, there can be no assurance that we can recover critical transmission capacity in the event one or morefair values of our in-orbit satellites were to fail.incentive obligations approximated their carrying amounts of $51.3 million and $53.2 million, respectively.
We historically have not carried in-orbit insurance on
NOTE 7. REGULATORY AUTHORIZATIONS
The following table presents our satellites because we assessed that the cost of insurance was uneconomical 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 indebtedness, we are required, subject to certain limitations on coverage, to maintain in-orbit insurance for our SPACEWAY 3, EchoStar XVI, and EchoStar XVII satellites. Based on economic analysis of the current insurance market we obtained launch plus one year in-orbit insurance, subject to certain limitations, for the EchoStar XIX satellite. Additionally, we obtained certain launch and in-orbit insurance for our interest in the EchoStar 105/SES-11 satellite. All other satellites, either in orbit or under construction, are not covered by launch or in-orbit insurance. We will continue to assess circumstances going forward and make insurance decisions on a case by case basis.Regulatory authorizations, net:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Finite lived | | | | |
| | Cost | | Accumulated Amortization | | Total | | Indefinite lived | | Total |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| Balance, December 31, 2020 | | 11,505 | | | (1,054) | | | 10,451 | | | 400,000 | | | 410,451 | |
| Amortization expense | | — | | | (405) | | | (405) | | | — | | | (405) | |
| Currency translation adjustments | | (157) | | | (6) | | | (163) | | | — | | | (163) | |
| Balance, June 30, 2021 | | 11,348 | | | (1,465) | | | 9,883 | | | 400,000 | | | 409,883 | |
| | | | | | | | | | |
| Balance, December 31, 2021 | | 10,733 | | | (1,774) | | | 8,959 | | | 400,000 | | | 408,959 | |
| Amortization expense | | — | | | (413) | | | (413) | | | — | | | (413) | |
| Currency translation adjustments | | 335 | | | (57) | | | 278 | | | — | | | 278 | |
| Balance, June 30, 2022 | | $ | 11,068 | | | $ | (2,244) | | | $ | 8,824 | | | $ | 400,000 | | | $ | 408,824 | |
| | | | | | | | | | |
| Weighted-average useful life (in years) | | | | 14 | | | | | | |
HUGHES SATELLITE SYSTEMS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - ContinuedCONTINUED
(Unaudited)
Note 8.Goodwill and Other Intangible Assets
Goodwill
The excess of the cost of an acquired business over the fair values of net tangible and identifiable intangible assets at the time of the acquisition is recorded as goodwill. Goodwill is assigned to the reporting units within our operating segments and is subject to impairment testing annually, or more frequently when events or changes in circumstances indicate the fair value of a reporting unit is more likely than not less than its carrying amount.
As of September 30, 2017 and December 31, 2016, all of our goodwill was assigned to reporting units of our Hughes segment. We test this goodwill for impairment annually in the second quarter. Based on our qualitative assessment of impairment in the second quarter of 2017, we determined that it was not more likely than not that the fair values of the Hughes segment reporting units were less than the corresponding carrying amounts.
Other Intangible Assets
Our other intangible assets, which are subject to amortization, consisted of the following: |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Weighted Average Useful Life (in Years) | | As of |
| | | | September 30, 2017 | | December 31, 2016 |
| | | | Cost | | Accumulated Amortization | | Carrying Amount | | Cost | | Accumulated Amortization | | Carrying Amount |
| | | | | (In thousands) |
| Customer relationships | | 8 | | $ | 270,300 |
| | $ | (228,355 | ) | | $ | 41,945 |
| | $ | 270,300 |
| | $ | (214,544 | ) | | $ | 55,756 |
|
| Technology-based | | 6 | | 51,417 |
| | (51,417 | ) | | — |
| | 51,417 |
| | (47,848 | ) | | 3,569 |
|
| Trademark portfolio | | 20 | | 29,700 |
| | (9,405 | ) | | 20,295 |
| | 29,700 |
| | (8,291 | ) | | 21,409 |
|
| Total other intangible assets | | | | $ | 351,417 |
| | $ | (289,177 | ) | | $ | 62,240 |
| | $ | 351,417 |
| | $ | (270,683 | ) | | $ | 80,734 |
|
Customer relationships are amortized predominantlyNOTE 8. OTHER INVESTMENTS
The following table presents our Other investments, net:
| | | | | | | | | | | | | | |
| | As of |
| | June 30, 2022 | | December 31, 2021 |
| Other investments, net: | | | | |
| Equity method investments | | $ | 86,210 | | | $ | 91,226 | |
| Total other investments, net | | $ | 86,210 | | | $ | 91,226 | |
Equity Method Investments
Deluxe/EchoStar LLC
We own 50% of Deluxe/EchoStar LLC (“Deluxe”), a joint venture that we entered into in relation2010 to build an advanced digital cinema satellite distribution network targeting delivery to digitally equipped theaters in the expected contributionU.S. and Canada.
Broadband Connectivity Solutions (Restricted) Limited
We own 20% of cash flowBroadband 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 businessMiddle East and southwest Asia operating over the life of the intangible asset. Other intangible assets are amortized on a straight-line basis over the periods the assets are expected to contribute to our cash flows. Intangible asset amortization expense, including amortization of externally marketed capitalized software, was $9.1 millionYahsat's Al Yah 2 and $11.4 millionAl Yah 3 Ka-band satellites.
Financial Information for the three months ended September 30, 2017 and 2016, respectively, and $32.6 million and $33.7 million for the nine months ended September 30, 2017 and 2016, respectively.Our Equity Method Investments
The following table presents revenue recognized:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the three months ended June 30, | | For the six months ended June 30, | | |
| | 2022 | | 2021 | | 2022 | | 2021 | | |
| Deluxe | | $ | 1,335 | | | $ | 1,229 | | | $ | 2,658 | | | $ | 2,860 | | | |
| BCS | | $ | 1,950 | | | $ | 2,766 | | | $ | 3,721 | | | $ | 4,114 | | | |
The following table presents trade accounts receivable:
| | | | | | | | | | | | | | |
| | As of |
| | June 30, 2022 | | December 31, 2021 |
| Deluxe | | $ | 1,769 | | | $ | 934 | |
| BCS | | $ | 7,507 | | | $ | 5,544 | |
HUGHES SATELLITE SYSTEMS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - ContinuedCONTINUED
(Unaudited)
Note 9
NOTE 9. LONG-TERM DEBT
.Debt and Capital Lease Obligations
The following table summarizespresents the carrying amountsamount and fair values of our debt:Long-term debt, net:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Effective Interest Rate | | As of |
| | | June 30, 2022 | | December 31, 2021 |
| | | Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value |
| Senior Secured Notes: | | | | | | | | | | |
| 5 1/4% Senior Secured Notes due 2026 | | 5.320% | | $ | 750,000 | | | $ | 700,170 | | | $ | 750,000 | | | $ | 825,555 | |
| Senior Unsecured Notes: | | | | | | | | | | |
| 6 5/8% Senior Unsecured Notes due 2026 | | 6.688% | | 750,000 | | | 673,238 | | | 750,000 | | | 838,740 | |
| Less: Unamortized debt issuance costs | | | | (3,621) | | | — | | | (4,006) | | | — | |
| Total long-term debt, net | | | | $ | 1,496,379 | | | $ | 1,373,408 | | | $ | 1,495,994 | | | $ | 1,664,295 | |
|
| | | | | | | | | | | | | | | | | | |
| | | Effective Interest Rate | | As of |
| | | | September 30, 2017 | | December 31, 2016 |
| | | | Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value |
| | | | | (In thousands) |
| Senior Secured Notes: | | | | | | | | | | |
| 6 1/2% Senior Secured Notes due 2019 | | 6.959% | | $ | 990,000 |
| | $ | 1,056,825 |
| | $ | 990,000 |
| | $ | 1,084,050 |
|
| 5 1/4% Senior Secured Notes due 2026 | | 5.320% | | 750,000 |
| | 783,038 |
| | 750,000 |
| | 739,688 |
|
| Senior Unsecured Notes: | | | | | | | |
|
| |
|
|
| 7 5/8% Senior Unsecured Notes due 2021 | | 8.062% | | 900,000 |
| | 1,023,408 |
| | 900,000 |
| | 990,189 |
|
| 6 5/8% Senior Unsecured Notes due 2026 | | 6.688% | | 750,000 |
| | 806,910 |
| | 750,000 |
| | 760,245 |
|
| Less: Unamortized debt issuance costs | | | | (26,756 | ) | | — |
| | (31,821 | ) | | — |
|
| Subtotal | | | | 3,363,244 |
| | $ | 3,670,181 |
| | 3,358,179 |
| | $ | 3,574,172 |
|
| Capital lease obligations | | | | 280,878 |
| | | | 297,268 |
| | |
| Total debt and capital lease obligations | | | | 3,644,122 |
| | | | 3,655,447 |
| | |
| Less: Current portion | | | | (38,407 | ) | | | | (32,984 | ) | | |
| Long-term debt and capital lease obligations, net of unamortized debt issuance costs | | | | $ | 3,605,715 |
| | | | $ | 3,622,463 |
| | |
NOTE 10. INCOME TAXES
The fair values of our debt are estimates categorized within Level 2 of the fair value hierarchy.
Pursuant to the terms of a registration rights agreement, we registered notes having substantially identical terms as the 2026 Notes with the SEC as part of an offer to exchange registered notes for the 2026 Notes. This exchange offer expired May 11, 2017 with 99.98% of the 2026 Notes being tendered for exchange.
Note 10.Income Taxes
Our income tax provision for interim periods is determined using an estimate of our annual effective tax rate, adjusted for discrete items, if any, that are taken into account in the relevant period. Each quarter we update our estimate of the annual effective tax rate, and if our estimated tax rate changes, we make a cumulative adjustment.
Our quarterlyinterim income tax provision and our quarterlyinterim estimate of our annual effective tax rate is subject to significant volatility due toare influenced by several factors, including incomeforeign losses and capital gains and losses from investments for which we haverelated deferred tax assets are partially offset by a full valuation allowance, changes in tax laws and relative changes in unrecognized tax benefits. Additionally, our effective tax rate can be more or less volatile based onaffected by the amount of pre-tax income.income or loss. For example, the impact of discrete items and non-deductible expenses on our effective tax rate is greater when our pre-tax income or loss is lower.
IncomeOur income tax expenseprovision was $8.7$14.8 million for the three months ended SeptemberJune 30, 20172022 compared to anour income tax expenseprovision of approximately $16.4$18.3 million for the three months ended SeptemberJune 30, 2016.2021. Our estimated effective income tax rate was 43.2%37.2% and 36.9%34.0% for the three months ended SeptemberJune 30, 20172022 and 2016,2021, respectively. The variations in our current year effective tax rate from the U.S. federal statutory rate for the three months ended September 30, 2017 was primarily due to various permanent tax differences. The variations in our effective tax rate from the U.S. federal statutory rate for the three months ended SeptemberJune 30, 2016 was2022 were primarily due to researchexcluded foreign losses where the Company carries a full valuation allowance and experimentation credits, partially offset bythe impact of state and local taxes. The variations in our effective tax rate from the U.S. federal statutory rate for the three months ended June 30, 2021 were primarily due to excluded foreign losses where the Company carries a full valuation allowance and the impact of state and local taxes.
Income
Our income tax expenseprovision was approximately $4.6$30.0 million for the ninesix months ended SeptemberJune 30, 20172022 compared to anour income tax expenseprovision of approximately $57.3$29.0 million for the ninesix months ended SeptemberJune 30, 2016.2021. Our estimated effective income tax rate was 17.9%34.9% and 36.4%35.2% for the ninesix months ended SeptemberJune 30, 20172022 and 2016,2021, respectively. The variations in our effective tax rate from the U.S. federal statutory rate for the ninesix months ended SeptemberJune 30, 2017 was2022 were primarily due to excluded foreign losses where the
HUGHES SATELLITE SYSTEMS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
recognition of a one-time tax benefit for the revaluation of our deferred tax assetsstate and liabilities due to a change in our state effective tax rate as a result of the Share Exchange. For the nine months ended September 30, 2016, the variationlocal taxes. The variations in our effective tax rate from the U.S. federal statutory rate wasfor the six months ended June 30, 2021 were primarily due to excluded foreign losses where the Company carries a full valuation allowance and the impact of state and local taxes.
NOTE 11. RELATED PARTY TRANSACTIONS - ECHOSTAR
Note 11
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.
HUGHES SATELLITE SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
Shared Corporate Services. We and EchoStar, including EchoStar’s other subsidiaries, have agreed that we shall
each have the right, but not the obligation, to receive from the other certain shared corporate services, including among other things: treasury, tax, accounting and reporting, risk management, cybersecurity, legal, internal audit, human resources, and information technology. These shared corporate services are generally provided at cost. Effective March 2017, and as a result of the Share Exchange (as defined below), we implemented a new methodology for determining the cost of these shared corporate services. We and EchoStar, including EchoStar’s other subsidiaries, may each terminate a particular shared corporate service for any reason upon at least 30 days’ notice. We recorded these expenses within Operating expenses - EchoStar for shared corporate services received from EchoStar and its other subsidiaries of $1.9 million and $0.6 million for the three months ended June 30, 2022 and 2021, respectively, and $4.5 million and $0.2 million for the six months ended June 30, 2022 and 2021, respectively.
Services and Other Revenue — EchoStar
The following table presents our Services and other revenue from EchoStar:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the three months ended June 30, | | For the six months ended June 30, | | |
| | 2022 | | 2021 | | 2022 | | 2021 | | |
| Services and other revenue - EchoStar | | $ | 4,739 | | | $ | 5,401 | | | $ | 10,016 | | | $ | 10,772 | | | |
The following table presents the corresponding related party receivables:
| | | | | | | | | | | | | | |
| | As of |
| | June 30, 2022 | | December 31, 2021 |
| Related party receivables - EchoStar - current | | $ | 120,258 | | | $ | 122,619 | |
| Related party receivables - EchoStar - non-current | | 52,118 | | | 56,055 | |
| Total related party receivables - EchoStar | | $ | 172,376 | | | $ | 178,674 | |
Receivables. EchoStar and its other subsidiaries reimburse us from time to time for amounts paid by us for costs and expenses attributable to EchoStar and its other subsidiaries. We report receivables under these arrangements within Related party receivables - EchoStar - current. No repayment schedule for these receivables has been determined.
Operating Expenses — EchoStar
The following table presents our operating expensesfrom EchoStar:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the three months ended June 30, | | For the six months ended June 30, | | |
| | 2022 | | 2021 | | 2022 | | 2021 | | |
| Operating expenses - EchoStar | | $ | 17,829 | | | $ | 15,798 | | | $ | 35,359 | | | $ | 31,185 | | | |
The following table presents the corresponding related party payables:
| | | | | | | | | | | | | | |
| | As of |
| | June 30, 2022 | | December 31, 2021 |
| Related party payables - EchoStar - current | | $ | 124,382 | | | $ | 124,578 | |
| Related party payables - EchoStar - non-current | | 23,154 | | | 24,118 | |
| Total related party payables - EchoStar | | $ | 147,536 | | | $ | 148,696 | |
HUGHES SATELLITE SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
Payables. We reimburse EchoStar and its other subsidiaries from time to time for amounts paid by EchoStar and its other subsidiaries for costs and expenses attributable to us. We report payables under these arrangements within Related party payables - EchoStar - current. No repayment schedule for these payables has been determined.
Real Estate. We occupy certain office space in buildings owned or leased by EchoStar and its other subsidiaries and pay a portion of the taxes, insurance, utilities and maintenance of the premises in accordance with the percentage of the space we occupy.
Cash Advances. EchoStar and certain of its other subsidiaries have also provided cash advances to certain of our
foreign subsidiaries to fund certain expenditures pursuant to loan agreements that mature in 2022. Advances under these agreements bear interest at annual rates ranging from 1 to 3 percent, subject to periodic adjustment based on the one-year U.S. LIBOR rate. We report amounts payable under these agreements within Related party payables - EchoStar - non-current.
BSS Transaction. Pursuant to the pre-closing restructuring contemplated by the Master Transaction Agreement (as defined below), and as part of the BSS Transaction (as defined below), we and our subsidiaries transferred certain of the BSS Business (as defined below) to BSS Corp. (as defined below), and we distributed all of the shares of BSS Corp. to EchoStar as a dividend.
Share Exchange Agreement. Prior to consummation of the Share Exchange, EchoStar was required to complete steps necessary for the transferring of certain assets and liabilities to DISH Network Corporation (“DISH”) and its subsidiaries (together with DISH, “DISH Network”). As part of these steps, subsidiaries of EchoStar that, prior to the consummation of the Share Exchange, owned EchoStar’s business of providing online video delivery and satellite video delivery for broadcasters and pay-TV operators, including satellite uplinking/downlinking, transmission services, signal processing and conditional access management, and other services and related assets and liabilities were contributed to one of our subsidiaries in consideration for additional shares of HSSC’s common stock that were then issued to a subsidiary of EchoStar.
EchoStar Mobile Limited Service Agreements. We provide services and lease equipment to support the business of EchoStar Mobile Limited, a subsidiary of EchoStar that is licensed by the EU to provide mobile satellite services and complementary ground component services covering the entire EU using S-band spectrum. Generally, the amounts EchoStar’s other subsidiaries pay for these services are based on cost plus a fixed margin. We recorded revenue in Services and other revenue of $4.7 million and $5.4 million for the three months ended June 30, 2022 and 2021, respectively, and $10.0 million and $10.8 million for the six months ended June 30, 2022 and 2021, respectively, related to these services. Additionally, we have converted the receivables for certain of these services into loans, bearing an annual interest rate of 5%, that mature in 2023. We report these loans within Related party receivables - EchoStar - non-current.
Construction Management Services for EchoStar XXIV satellite. In August 2017, a subsidiary of EchoStar entered into a contract with Maxar Space, LLC (formerly Space Systems/Loral, LLC), for the design and construction of the EchoStar XXIV satellite, a new, next-generation, high throughput geostationary satellite, with an expected launch in the first half of 2023. We provide construction management services to EchoStar’s subsidiary for the construction of the EchoStar XXIV satellite. We charged EchoStar’s subsidiary and reduced our operating expenses by the costs of such services of $0.4 million and $0.5 million for the three months ended June 30, 2022 and 2021, respectively, and $0.7 million and $0.9 million for the six months ended June 30, 2022 and 2021, respectively.
Dividends. On March 17, 2022, our Board of Directors declared and approved payment of a cash dividend on our outstanding common stock to our shareholder and parent, EchoStar, in the amount of $100.0 million. Payment of this dividend was made in the first quarter of 2022.
HUGHES SATELLITE SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
NOTE 12. RELATED PARTY TRANSACTIONS - DISH NETWORK
Overview
EchoStar Corporation 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 Corporation 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, EchoStar and certain of its subsidiaries entered into a share exchange agreement (the “Share Exchange Agreement”) with DISH and certain of its subsidiaries pursuant to 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”). CommitmentsThe Tracking Stock was retired in March 2017.
In September 2019, pursuant to a master transaction agreement (the “Master Transaction Agreement”) with DISH and Contingenciesa 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 joint venture Dish Mexico, S. de R.L. de C.V. and its subsidiaries (“Dish Mexico”), and (2) telemetry, tracking and control (“TT&C”) services for satellites owned by DISH Network and a portion of our other businesses (collectively, the “BSS Business”) to one of our former subsidiaries, EchoStar BSS Corporation (“BSS Corp.”), (ii) we distributed to each holder of shares of our Class A or Class B common stock entitled to receive consideration in the transaction an amount of shares of common stock of BSS Corp., par value $0.001 per share (“BSS Common Stock”), equal to 1 share of BSS Common Stock for each share of our Class A or Class B common stock owned by such stockholder (the “Distribution”); and (iii) immediately after the Distribution, (1) Merger Sub merged with and into BSS Corp. (the “Merger”), such that BSS Corp. became a wholly-owned subsidiary of DISH and with DISH then owning and operating the BSS Business, and (2) each issued and outstanding share of BSS Common Stock owned by EchoStar stockholders was converted into the right to receive 0.23523769 shares of DISH Class A common stock, par value $0.001 per share (“DISH Common Stock”) ((i) - (iii) collectively, the “BSS Transaction”).
Commitments
AsIn connection with and following the Spin-off, the Share Exchange and the BSS Transaction, EchoStar, we and certain other of September 30, 2017, our satellite-related obligations were approximately $581.3 million. Our satellite-related obligations primarily include paymentsEchoStar’s subsidiaries and DISH Network entered into certain agreements pursuant to launchwhich we, EchoStar and certain of its other subsidiaries, on the one hand, obtain certain products, services contracts and regulatory authorizations; executory costsrights from DISH Network, on the other hand; DISH Network, on the one hand, obtains certain products, services and rights from us, EchoStar and certain of its other subsidiaries, on the other hand; and such entities indemnify each other against certain liabilities arising from their respective businesses. Generally, the amounts we and/or EchoStar and its other subsidiaries or DISH Network pay for products and services provided under the agreements are based on cost plus a fixed margin (unless noted differently below), which varies depending on the nature of the products and services provided. We and/or EchoStar and its other subsidiaries may also enter into additional agreements with DISH Network in the future.
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 three months ended June 30, | | For the six months ended June 30, | | |
| | 2022 | | 2021 | | 2022 | | 2021 | | |
| Services and other revenue - DISH Network | | $ | 4,519 | | | $ | 5,667 | | | $ | 9,331 | | | $ | 11,394 | | | |
HUGHES SATELLITE SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
The following table presents the related trade accounts receivable:
| | | | | | | | | | | | | | |
| | As of |
| | June 30, 2022 | | December 31, 2021 |
| Trade accounts receivable - DISH Network | | $ | 4,072 | | | $ | 3,457 | |
Satellite Capacity Leased to DISH Network. Effective January 2008, DISH Network began leasing satellite capacity from us on the EchoStar IX satellite. Subject to availability, DISH Network generally has the right to continue leasing satellite capacity from us on the EchoStar IX satellite on a month-to-month basis.
Telesat Obligation Agreement. 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.
TerreStar Agreement. In March 2012, DISH Network completed its acquisition of substantially all the assets of TerreStar Networks Inc. (“TerreStar”). Prior to DISH Network’s acquisition of substantially all the assets of TerreStar and EchoStar’s completion of the Hughes Acquisition, TerreStar and HNS entered into various agreements pursuant to which we provide, among other things, warranty, operations and maintenance and hosting services for TerreStar’s ground-based communications equipment (the “TerreStar Agreements”). In December 2017, we and DISH Network amended these agreements, effective as of January 1, 2018, to reduce certain pricing terms through December 31, 2023 and to modify certain termination provisions. DISH Network generally has the right to continue to receive warranty services from us for our capital lease satellites;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 SATELLITE SYSTEMS CORPORATION
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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 EchoStar’s completion of the Hughes Acquisition, DBSD North America and HNS entered into various agreements pursuant to which we provide, among other things, warranty, operations and maintenance and hosting services of DBSD North America’s gateway and ground-based communications equipment. In December 2017, we and DBSD North America amended these agreements, effective as of January 1, 2018, to reduce certain pricing terms through December 31, 2023 and to modify certain termination provisions. DBSD North America has the right to continue to receive operations and maintenance services from us on a quarter-to-quarter basis, unless terminated by DBSD North America upon at least 120 days’ written notice to us. In February 2019, we further amended these agreements to provide DBSD North America with the right to continue to receive warranty services from us on a month-to-month basis until December 2023, unless terminated by DBSD North America upon at least 21 days’ written notice to us. The provision of hosting services will continue until February 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 three months ended June 30, | | For the six months ended June 30, | | |
| | 2022 | | 2021 | | 2022 | | 2021 | | |
| Operating expenses - DISH Network | | $ | 1,110 | | | $ | 1,467 | | | $ | 2,204 | | | $ | 2,566 | | | |
The following table presents the related trade accounts payable:
| | | | | | | | | | | | | | |
| | As of |
| | June 30, 2022 | | December 31, 2021 |
| Trade accounts payable - DISH Network | | $ | 570 | | | $ | 587 | |
HUGHES SATELLITE SYSTEMS CORPORATION
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Amended and Restated Professional Services Agreement. In connection with the Spin-off, EchoStar entered into various agreements with DISH Network including a transition services agreement, satellite procurement agreement and services agreement, all of which expired in January 2010 and were replaced by a professional services agreement (the “Professional Services Agreement”). In January 2010, EchoStar and DISH Network agreed that EchoStar and its subsidiaries shall continue to have the right, but not the obligation, to receive the following services from DISH Network, among others, certain of which were previously provided under a transition services agreement: information technology, travel and event coordination, internal audit, legal, accounting and tax, benefits administration, program acquisition services and other support services. Additionally, EchoStar and DISH Network agreed that DISH Network would continue to have the right, but not the obligation, to engage EchoStar and its subsidiaries to manage the process of procuring new satellite capacity for DISH Network (previously provided under a satellite procurement agreement), receive logistics, procurement and quality assurance services from EchoStar and its subsidiaries (previously provided under a services agreement) and provide other support services. In connection with the consummation of the Share Exchange, EchoStar and DISH amended and restated the Professional Services Agreement to provide that EchoStar and its subsidiaries and DISH Network shall have the right to receive additional services that either EchoStar and its subsidiaries or DISH Network may require as a result of the Share Exchange, including access to antennas owned by DISH Network for our use in performing TT&C services and maintenance and support services for our antennas (collectively, the “TT&C Antennas”). In September 2019, in connection with the BSS Transaction, EchoStar and DISH further amended the Professional Services Agreement (the “Amended and Restated Professional Services Agreement”) to provide that EchoStar and its subsidiaries and DISH Network shall have the right to receive additional services that either EchoStar and its subsidiaries or DISH Network may require as a result of the BSS Transaction and to remove our access to and the maintenance and support services for the TT&C Antennas. A portion of these costs and expenses have been allocated to us in the manner described in Note 11. Related Party Transactions - EchoStar. 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. However, either party may generally terminate the Amended and Restated Professional Services Agreement in part with respect to any particular service it receives for any reason upon at least 30 days’ notice, unless the statement of work for particular services states otherwise. Certain services provided under the Amended and Restated Professional Services Agreement may survive the termination of the agreement.
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 4 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 4 three-year renewal terms, with prior written notice of renewal required no
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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 4 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 satellite internet service (the “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 satellite service agreements;the Hughes Broadband MSA totaling $1.9 million and in-orbit incentives relating$1.9 million for the three months ended June 30, 2022 and 2021, respectively, and $3.6 million and $3.8 million for the six months ended June 30, 2022 and 2021, respectively.
2019 TT&C Agreement. In September 2019, in connection with the BSS Transaction, we and a subsidiary of EchoStar entered into an agreement pursuant to which DISH Network provides TT&C services to us and EchoStar and its other subsidiaries for a period ending in September 2021, with the option for a subsidiary of EchoStar to renew for a one-year period upon written notice at least 90 days prior to the initial expiration (the “2019 TT&C Agreement”). 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. 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.
HUGHES SATELLITE SYSTEMS CORPORATION
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Other Receivables - DISH Network
Tax Sharing Agreement. Effective December 2007, EchoStar and DISH Network entered into a tax sharing agreement (the “Tax Sharing Agreement”) in connection with the Spin-off. This agreement governs EchoStar and DISH and their respective subsidiaries’ respective rights, responsibilities and obligations after the Spin-off with respect to taxes for the periods ending on or before the Spin-off. Generally, all pre-Spin-off taxes, including any taxes that are incurred as a result of restructuring activities undertaken to implement the Spin-off, are borne by DISH Network and DISH Network indemnifies EchoStar and its subsidiaries for such taxes. However, DISH Network is not liable for and does not indemnify EchoStar or its subsidiaries for any taxes that are incurred as a result of the Spin-off or certain satellites;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 EchoStar’s stock, stock options or assets; (ii) any action that EchoStar or its subsidiaries take or fail to take or (iii) any action that EchoStar or its subsidiaries take that is inconsistent with the information and representations furnished to the IRS in connection with the request for the private letter ruling, or to counsel in connection with any opinion being delivered by counsel with respect to the Spin-off or certain related transactions. In such case, EchoStar and its subsidiaries will be solely liable for, and will indemnify DISH Network for any resulting taxes, as well as commitmentsany losses, claims and expenses. The Tax Sharing Agreement will terminate after the later of the full period of all applicable statutes of limitations, including extensions, or once all rights and obligations are fully effectuated or performed.
In light of the Tax Sharing Agreement, among other things, and in connection with EchoStar’s consolidated federal income tax returns for long-term satellite operating leasescertain tax years prior to and satellite service arrangements.for the year of the Spin-off, in September 2013, EchoStar and DISH Network agreed upon a supplemental allocation of the tax benefits arising from certain tax items resolved in the course of the IRS’s examination of EchoStar’s consolidated tax returns. As a result, DISH Network agreed to pay EchoStar an amount that includes the federal tax benefit DISH received as a result of our operations.
ContingenciesIn August 2018, EchoStar and DISH Network amended the Tax Sharing Agreement and the 2013 agreements (the “Tax Sharing Amendment”). Under the Tax Sharing Amendment, DISH Network is required to compensate EchoStar for certain past and future excess California research and development tax credits generated by EchoStar and its subsidiaries and used by DISH Network.
Other Agreements
Master Transaction Agreement. In May 2019, EchoStar and BSS Corp. entered into the Master Transaction Agreement with DISH and Merger Sub with respect to the BSS Transaction. Pursuant to the terms of the Master Transaction Agreement, on September 10, 2019: (i) EchoStar and its subsidiaries and we and our subsidiaries transferred the BSS Business to BSS Corp.; (ii) EchoStar completed the Distribution; and (iii) immediately after the Distribution, (1) BSS Corp. became a wholly-owned subsidiary of DISH such that DISH owns and operates the BSS Business and (2) each issued and outstanding share of BSS Common Stock owned by EchoStar stockholders was converted into the right to receive 0.23523769 shares of DISH Common Stock. Following the consummation of the BSS Transaction, we no longer operate the BSS Business, which was a substantial portion of our ESS segment. The Master Transaction Agreement contained customary representations and warranties by the parties, including EchoStar’s representations relating to the assets, liabilities and financial condition of the BSS Business, and representations by DISH Network relating to its financial condition and liabilities. EchoStar and DISH Network have agreed to indemnify each other against certain losses with respect to breaches of certain representations and covenants and certain retained and assumed liabilities, respectively.
HUGHES SATELLITE SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
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BSS Transaction Intellectual Property and Technology License Agreement. Effective September 2019, in connection with the BSS Transaction, we, EchoStar and DISH Network entered into an intellectual property and technology license agreement (the “BSS IPTLA”) pursuant to which we, EchoStar and its other subsidiaries and DISH Network license to each other certain intellectual property and technology. The BSS IPTLA will continue in perpetuity, unless mutually terminated by the parties. Pursuant to the BSS IPTLA, we, EchoStar and its other subsidiaries granted to DISH Network a license to our and their intellectual property and technology for use by DISH Network, among other things, in connection with its continued operation of the BSS Business acquired pursuant to the BSS Transaction, including a limited license to use the “ESS” and “ECHOSTAR SATELLITE SERVICES” trademarks during a transition period. EchoStar retains full ownership of the “ESS” and “ECHOSTAR SATELLITE SERVICES” trademarks. In addition, DISH Network granted a license back to us, EchoStar and its other subsidiaries, among other things, for the continued use of all intellectual property and technology that is used in our, EchoStar and its other subsidiaries’ retained businesses but the ownership of which was transferred to DISH Network pursuant to the BSS Transaction.
BSS Transaction Tax Matters Agreement. Effective September 2019, in connection with the BSS Transaction, EchoStar, BSS Corp. and DISH entered into a tax matters agreement. This agreement governs certain rights, responsibilities and obligations of EchoStar and its subsidiaries’ with respect to taxes of the BSS Business transferred pursuant to the BSS Transaction. Generally, EchoStar is responsible for all tax returns and tax liabilities for the BSS Business for periods prior to the BSS Transaction and DISH is responsible for all tax returns and tax liabilities for the BSS Business from and after the BSS Transaction.
Both EchoStar and DISH made certain tax-related representations and are subject to various tax-related covenants after the consummation of the BSS Transaction. Both EchoStar and DISH Network have agreed to indemnify each other for certain losses if there is a breach of any the tax representations or violation of any of the tax covenants in the tax matters agreement and that breach or violation results in the failure of the BSS Transaction being treated as a transaction that is tax-free for EchoStar or its stockholders for U.S. federal income tax purposes. In addition, DISH Network has agreed to indemnify EchoStar if the BSS Business is acquired, either directly or indirectly (e.g., via an acquisition of DISH Network), by one or more persons, where either it took an action, or knowingly facilitated, consented to or assisted with an action by its stockholders, that resulted in the failure of the BSS Transaction being treated as a transaction that is tax-free for EchoStar and its stockholders for U.S. federal income tax purposes. This tax matters agreement supplements the Tax Sharing Agreement outlined above and the Share Exchange Tax Matters Agreement outlined below, both of which continue in full force and effect.
BSS Transaction Employee Matters Agreement. Effective September 2019, in connection with the BSS Transaction, EchoStar and DISH Network entered into an employee matters agreement that addressed the transfer of employees from us to DISH Network, including certain benefit and compensation matters and the allocation of responsibility for employee related liabilities relating to current and past employees of the BSS Business. DISH Network assumed employee-related liabilities relating to the BSS Business as part of the BSS Transaction, except that EchoStar is responsible for certain pre-BSS Transaction compensation and benefits for employees who transferred to DISH Network in connection with the BSS Transaction.
Share Exchange Agreement. In February 2017 EchoStar consummated the Share Exchange, following which EchoStar and certain of its and our subsidiaries 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, EchoStar and certain of its and our subsidiaries transferred certain assets, investments in joint ventures, spectrum licenses and real estate properties and DISH Network assumed certain liabilities relating to the transferred assets and businesses. The Share Exchange Agreement contained customary representations and warranties by the parties, including representations by EchoStar related to the transferred assets, assumed liabilities and the financial condition of the transferred businesses. EchoStar and DISH Network also agreed to customary indemnification provisions whereby each party indemnifies the other against certain losses with respect to breaches of representations, warranties or covenants and certain liabilities and if certain actions undertaken by EchoStar or DISH causes the transaction to be taxable to the other party after closing.
HUGHES SATELLITE SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
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Share Exchange Intellectual Property and Technology License Agreement. Effective March 2017, in connection with the Share Exchange, EchoStar and one of its other subsidiaries and DISH Network entered into an intellectual property and technology license agreement (“IPTLA”) pursuant to which we, EchoStar and its other subsidiaries and DISH Network license to each other certain intellectual property and technology. The IPTLA will continue in perpetuity, unless mutually terminated by the parties. Pursuant to the IPTLA, we, EchoStar and its other subsidiaries granted to DISH Network a license to our and their intellectual property and technology for use by DISH Network, among other things, in connection with its continued operation of the businesses acquired pursuant to the Share Exchange, including a limited license to use the “ECHOSTAR” trademark during a transition period. EchoStar retains full ownership of the “ECHOSTAR” trademark. In addition, DISH Network granted a license back to us, EchoStar and its other subsidiaries, among other things, for the continued use of all intellectual property and technology that is used in our, EchoStar and its other subsidiaries’ retained businesses but the ownership of which was transferred to DISH Network pursuant to the Share Exchange.
Share Exchange Tax Matters Agreement. Effective March 2017, in connection with the Share Exchange, EchoStar and DISH entered into a tax matters agreement. This agreement governs certain rights, responsibilities and obligations of EchoStar and its subsidiaries with respect to taxes of the transferred businesses pursuant to the Share Exchange. Generally, EchoStar is responsible for all tax returns and tax liabilities for the transferred businesses and assets for periods prior to the Share Exchange and DISH Network is responsible for all tax returns and tax liabilities for the transferred businesses and assets from and after the Share Exchange. Both EchoStar and DISH Network made certain tax-related representations and are subject to various tax-related covenants after the consummation of the Share Exchange. Both EchoStar and DISH Network have agreed to indemnify each other if there is a breach of any such tax representation or violation of any such tax covenant and that breach or violation results in the Share Exchange not qualifying for tax free treatment for the other party. In addition, DISH Network has agreed to indemnify EchoStar if the transferred businesses are acquired, either directly or indirectly (e.g., via an acquisition of DISH Network), by one or more persons and such acquisition results in the Share Exchange not qualifying for tax free treatment. The tax matters agreement supplements the Tax Sharing Agreement outlined above which continues in full force and effect.
NOTE 13. RELATED PARTY TRANSACTIONS - OTHER
Hughes Systique Corporation
We contract with Hughes Systique Corporation (“Hughes Systique”) for software development services. In addition to our approximately 42% ownership in Hughes Systique, Mr. Pradman Kaul, the President of our subsidiary Hughes Communications and a member of our board of directors, and his brother, who is the Chief Executive Officer and President of Hughes Systique, own in the aggregate approximately 25%, on an undiluted basis, of Hughes Systique’s outstanding shares as of June 30, 2022. 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.
TerreStar Solutions
DISH Network owns more than 15% of TerreStar Solutions, Inc. (“TSI”). In May 2018, we and TSI entered into an equipment and services agreement pursuant to which we design, manufacture and install upgraded ground communications network equipment for TSI’s network and provide, among other things, warranty and support services. We recognized revenue of $0.5 million and $0.5 million for the three months ended June 30, 2022 and 2021, respectively, and $1.0 million and $0.9 million for the six months ended June 30, 2022 and 2021, respectively. As of June 30, 2022 we had $0.5 million of trade accounts receivable from TSI.
HUGHES SATELLITE SYSTEMS CORPORATION
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NOTE 14. CONTINGENCIES
Patents and Intellectual Property
Many entities, including some of our competitors, have, or may have in the future, obtain 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 trebled.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 personsparties 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 personsparties 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.
Separation Agreement; Share Exchange
In 2008,Certain Arrangements with DISH Network contributed its digital set-top box business and certain infrastructure and other assets, including certain of its satellites, uplink and satellite transmission assets, real estate, and other assets and related liabilities to EchoStar (the “Spin-off”).
In connection with the Spin-off,EchoStar’s spin-off from DISH in 2008, EchoStar entered into a separation agreement with DISH Network that provides, among other things, for the division of certain liabilities, including liabilities resulting from litigation. Under the terms of the separation agreement, EchoStar assumed certain liabilities that relate to its and our business, including certain designated liabilities for acts or omissions that occurred prior to the Spin-off. Certain specific provisions govern intellectual property related claims under which generally, EchoStar will generally only be liable for its and its subsidiaries’ acts or omissions following the Spin-off and DISH Network will indemnify EchoStar for any liabilities or damages resulting from intellectual property claims relating to the period prior to the Spin-off as well as DISH Network’s acts or omissions following the Spin-off. Additionally, inIn connection with the Share Exchange and BSS Transaction, EchoStar and certain of its and our subsidiaries entered into the Share Exchange Agreement and the Master Transaction Agreement, respectively, and other agreements which provide, among other things, for the division of certain liabilities, including liabilities relating to taxes, intellectual property and employees and liabilities resulting from litigation and the assumption of certain liabilities that relate to the transferred businesses and assets. These agreements also contain additional indemnification provisions between EchoStar and us and DISH Network for, in the case of the Share Exchange, certain pre-existing liabilities and legal proceedings.proceedings and, in the case of the BSS Transaction, certain losses with respect to breaches of certain representations and covenants and certain liabilities.
Litigation
We are involved in a number of legal proceedings (including those described below) 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 or there is a reasonable possibility that a loss or an additional loss may have been incurred 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 litigationlegal proceedings are charged to expense as incurred.
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For certain cases described below,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,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 motions;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, for these cases, 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
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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 LandJuly 2, 2019, the City of Hallandale Beach Police Officers’ and C4I LTD and Elbit SystemsFirefighters’ Personnel Retirement Trust, purporting to sue on behalf of America Ltd. (together referred to as “Elbit”)a class of EchoStar Corporation’s stockholders, filed a complaint against our subsidiary Hughes Network Systems, L.L.C. (“HNS”), as well as against Black Elk Energy Offshore Operations, LLC, Bluetide Communications, Inc. and Helm Hotels Group, in the United States District Court forof Clark County, Nevada against EchoStar’s directors, Charles W. Ergen, R. Stanton Dodge, Anthony M. Federico, Pradman P. Kaul, C. Michael Schroeder, Jeffrey R. Tarr, William D. Wade, and Michael T. Dugan; our chief financial officer, David J. Rayner; EchoStar; HSSC; our former subsidiary BSS Corp.; and DISH and its subsidiary Merger Sub. On September 5, 2019, the Eastern District of Texas, alleging infringement of United States Patent Nos. 6,240,073 (the “073 patent”) and 7,245,874 (“874 patent”). The 073 patent is entitled “Reverse Link for a Satellite Communication Network” anddefendants filed motions to dismiss. On October 11, 2019, the 874 patent is entitled “Infrastructure for Telephony Network.” Elbit alleges that the 073 patent is infringed by broadband satellite systems that practice the Internet Protocol Over Satellite standard. Elbit alleges that the 874 patent is infringed by the manufacture and sale of broadband satellite systems that provide cellular backhaul service via connections to E1 or T1 interfaces at cellular backhaul base stations. On April 2, 2015, Elbitplaintiffs filed an amended complaint removing Helm Hotels GroupMessrs. Dodge, Federico, Kaul, Schroeder, Tarr and Wade as defendants. The amended complaint alleges that Mr. Ergen, as our controlling stockholder, breached fiduciary duties to EchoStar’s minority stockholders by structuring the BSS Transaction with inadequate consideration and improperly influencing our and EchoStar’s boards of directors to approve the BSS Transaction. The amended complaint also alleges that the other defendants aided and abetted such alleged breaches. The plaintiffs seek equitable and monetary relief, including the issuance of additional DISH Common Stock, and other costs and disbursements, including attorneys’ fees on behalf of the purported class. On November 11, 2019, we and the other defendants filed separate motions to dismiss plaintiff’s amended complaint and during a defendant, but making similar allegations againsthearing 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. The case is expected to be dismissed once the Court approves a class distribution order.
HUGHES SATELLITE SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
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 defendant, Country Home Investments, Inc.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 323, 2019, HCIPL and 4, 2015, andother 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, 2016,2020, HCIPL and other telecommunication service providers filed an application requesting that the defendants filed petitionsSupreme 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 United States PatentOctober 2019 Order must be paid, including interest, penalties and Trademark Office challenginginterest on the validitypenalties. 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 patents in suit, whichamounts owed and for HCIPL and the Patent and Trademark Office subsequently declinedother telecommunication providers to institute.provide security for such payments. On April 13, 2016,September 1, 2020, the defendants answered Elbit’s complaint. At Elbit’s request, on June 26, 2017, the court dismissed Elbit’s claims of infringement against all parties other than HNS. Trial commenced on July 31, 2017. On August 7, 2017, the jury returned a verdict that the 073 patent was valid and infringed, and awarded Elbit approximately $21.1 million. As a result of interest, costs and unit sales through the 073 patent’s expiration in November 2017, we estimate the jury verdict could result inSupreme 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 approximately $27 million if not overturned or modified by post-trial motions or appeals. 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 jury also found that such infringementfollowing table presents the components of the 073 patent was not willful and that the 874 patent was not infringed. HNS intends to vigorously pursue its post-trial rights, including appeals. We cannot predict with certainty the outcome of any post-trial motions or appeals. For the nine months ended September 30, 2017, we have recorded a charge of $2.5 million with respect to this matter. accrual:
| | | | | | | | | | | | | | |
| | As of |
| | June 30, 2022 | | December 31, 2021 |
| Additional license fees | | $ | 3,596 | | | $ | 3,812 | |
| Penalties | | 3,691 | | | 3,912 | |
| Interest and interest on penalties | | 79,555 | | | 81,389 | |
| Less: Payments | | (18,671) | | | (8,451) | |
| Total accrual | | $ | 68,171 | | | $ | 80,662 | |
Any eventual payments made with respect to the ultimate outcome of this matter may be different from our accrualsaccrual and such differences could be significant.
Realtime Data LLC
On May 8, 2015, Realtime Data LLC (“Realtime”) filed suit against EchoStar Corporation and our subsidiary HNS in the United States District Court for the Eastern District of Texas alleging infringement of United States Patent Nos. 7,378,992 (the “992 patent”), entitled “Content Independent Data Compression Method and System”; 7,415,530 (the “530 patent”), entitled “System and Methods for Accelerated Data Storage and Retrieval”; and 8,643,513 (the “513 patent”), entitled “Data Compression System and Methods.” On September 14, 2015, Realtime amended its complaint, additionally alleging infringement of United States Patent No. 9,116,908 (the “908 patent”), entitled “System and Methods for Accelerated Data Storage and Retrieval.” Realtime generally alleges that the asserted patents are infringed by certain HNS data compression products and services. Over April 29, 2016 and May 5, 2016, the defendants filed petitions before the United States Patent and Trademark Office (“USPTO”) challenging the validity of the asserted patents. The USPTO instituted proceedings on each of those petitions. The USPTO invalidated the asserted claims of the 513 patent, but Realtime is still asserting this patent against us and may appeal this ruling. Realtime is no longer asserting the 992 patent against us and additionally the USPTO invalidated the claims of the 992 patent that had been asserted against us. The USPTO is still reviewing the 530 patent; however, two of the four claims asserted against us were invalidated in a separate litigation between Realtime and a third party,
HUGHES SATELLITE SYSTEMS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - ContinuedCONTINUED
(Unaudited)
which Realtime may appeal. The USPTO did not invalidate the asserted claims of the 908 patent, but a third party has challenged these claims in a separate proceeding before the USPTO. On February 14, 2017, Realtime filed a second suit against EchoStar Corporation and our subsidiary HNS in the same District Court, alleging infringement of four additional United States Patents, Nos. 7,358,867, entitled “Content Independent Data Compression Method and System;” 8,502,707, entitled “Data Compression Systems and Methods;” 8,717,204, entitled “Methods for Encoding and Decoding Data;” and 9,054,728, entitled “Data Compression System and Methods.” On June 6, 2017, Realtime filed an amended complaint, adding claims of infringement against EchoStar Technologies, L.L.C., a wholly-owned subsidiary of DISH, DISH, DISH Network L.L.C., Sling TV L.L.C., Sling Media L.L.C., and Arris Group, Inc., as well as additionally alleging infringement of United States Patent No. 8,553,759 (the “759 patent”), entitled “Bandwidth Sensitive Data Compression and Decompression.” The cases were consolidated and no trial date has been set. On July 20, 2017, the claims against the newly added parties, with the exception of EchoStar Technologies, L.L.C., were severed into a separate case. On September 1, 2017, EchoStar Technologies, L.L.C. was dismissed from the case. On October 10, 2017, Realtime informed us that it is not pursuing the 759 patent against us. Trial is scheduled for January 21, 2019. Realtime is an entity that seeks to license an acquired patent portfolio without itself practicing any of the claims recited therein.
Other
In addition to the above actions, we are subject to various other legal proceedings and claims, which arise in the ordinary course of our business. As part of our ongoing operations, the Company iswe 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 the Companywe 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, the Companywe from time to time receivesreceive 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.
The Company indemnifies itsWe also indemnify our directors, officers and employees for certain liabilities that might arise from the performance of their responsibilities for the Company.us. Additionally, in the normal course of its business, the Company enterswe enter into contracts pursuant to which the Companywe may make a variety of representations and warranties and indemnify the counterparty for certain losses. The Company’sOur 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 the Companyus or itsour officers, directors or employees, the outcomes of which are unknown and not currently predictable or estimable.
Note 12.NOTE 15. Segment ReportingSEGMENT REPORTING
OperatingBusiness segments are business components of an enterprise for which separate financial information is available and regularly evaluated by theour chief operating decision maker (“CODM”), who for HSS, is the Company’sour Chief Executive Officer. We operate in two primary2 business segments, Hughes segment and ESS as described in Note 1 of these condensed consolidated financial statements.segment.
The primary measure of segment profitability that is reported regularly to our CODM is earnings before interest, taxes, depreciation and amortization, or EBITDA. Effective in March 2017, we also changed our overhead allocation methodologyand net income (loss) attributable to reflect how the CODM evaluates our segments. Historically, the costs of all corporate functions were included on an allocated basis in each of the business segments’ EBITDA. Under the revised allocation methodology, these costs are now reported and analyzed as part of “Corporate and Other” (previously “All Other and Eliminations”non-controlling interests (“EBITDA”). Our prior period segment EBITDA disclosures have been restated to reflect this change.
HUGHES SATELLITE SYSTEMS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
Our operations also include various corporate departments (primarily Executive, Strategic Development, Human Resources, IT, Finance, Real Estate and Legal) as well as other activities that have not been assigned to our operating segments, including costs incurred in certain satellite development programs and other business development activities, our centralized treasury operations, and gains (losses) from certain of our investments. Costs and income associated with these departments and activities are accounted for in the “Corporate and Other” column in the table below or in the reconciliation of EBITDA below.
Transactions between segments were not significant for the three and nine months ended September 30, 2017 or 2016, respectively. Total assets by segment have not been reported herein because the information is not provided to our CODM on a regular basis.
The following table presents revenue, EBITDA, and capital expenditures for each of our operating segments:
|
| | | | | | | | | | | | | | | | |
| | | Hughes | | EchoStar Satellite Services | | Corporate and Other | | Consolidated Total |
| | | (In thousands) |
| For the Three Months Ended September 30, 2017 | | | | | | | | |
| External revenue | | $ | 379,702 |
| | $ | 96,743 |
| | $ | 1,917 |
| | $ | 478,362 |
|
| Intersegment revenue | | $ | 359 |
| | $ | 350 |
| | $ | (709 | ) | | $ | — |
|
| Total revenue | | $ | 380,061 |
| | $ | 97,093 |
| | $ | 1,208 |
| | $ | 478,362 |
|
| EBITDA | | $ | 131,817 |
| | $ | 78,345 |
| | $ | (10,108 | ) | | $ | 200,054 |
|
| Capital expenditures | | $ | 108,428 |
| | $ | 8,203 |
| | $ | — |
| | $ | 116,631 |
|
| For the Three Months Ended September 30, 2016 | | | | | | | | |
| External revenue | | $ | 355,090 |
| | $ | 101,308 |
| | $ | 868 |
| | $ | 457,266 |
|
| Intersegment revenue | | $ | 786 |
| | $ | 172 |
| | $ | (958 | ) | | $ | — |
|
| Total revenue | | $ | 355,876 |
| | $ | 101,480 |
| | $ | (90 | ) | | $ | 457,266 |
|
| EBITDA | | $ | 125,522 |
| | $ | 84,257 |
| | $ | (11,494 | ) | | $ | 198,285 |
|
| Capital expenditures | | $ | 75,682 |
| | $ | 15,730 |
| | $ | — |
| | $ | 91,412 |
|
| For the Nine Months Ended September 30, 2017 | | | | | | | | |
| External revenue | | $ | 1,070,715 |
| | $ | 294,839 |
| | $ | 5,191 |
| | $ | 1,370,745 |
|
| Intersegment revenue | | $ | 1,428 |
| | $ | 946 |
| | $ | (2,374 | ) | | $ | — |
|
| Total revenue | | $ | 1,072,143 |
| | $ | 295,785 |
| | $ | 2,817 |
| | $ | 1,370,745 |
|
| EBITDA | | $ | 342,693 |
| | $ | 241,873 |
| | $ | (34,099 | ) | | $ | 550,467 |
|
| Capital expenditures | | $ | 270,624 |
| | $ | 21,351 |
| | $ | — |
| | $ | 291,975 |
|
| For the Nine Months Ended September 30, 2016 | | | | | | | | |
| External revenue | | $ | 1,019,203 |
| | $ | 305,401 |
| | $ | 2,506 |
| | $ | 1,327,110 |
|
| Intersegment revenue | | $ | 2,248 |
| | $ | 518 |
| | $ | (2,766 | ) | | $ | — |
|
| Total revenue | | $ | 1,021,451 |
| | $ | 305,919 |
| | $ | (260 | ) | | $ | 1,327,110 |
|
| EBITDA | | $ | 353,505 |
| | $ | 257,181 |
| | $ | (24,590 | ) | | $ | 586,096 |
|
| Capital expenditures | | $ | 261,241 |
| | $ | 50,762 |
| | $ | — |
| | $ | 312,003 |
|
HUGHES SATELLITE SYSTEMS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - ContinuedCONTINUED
(Unaudited)
The following table presents total revenue, capital expenditures and EBITDA for each of our business segments:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Hughes | | ESS | | Corporate
and Other | | Consolidated
Total |
| For the three months ended June 30, 2022 | | | | | | | | |
| External revenue | | $ | 491,841 | | | $ | 4,502 | | | $ | 4,740 | | | $ | 501,083 | |
| Intersegment revenue | | — | | | 348 | | | (348) | | | — | |
| Total revenue | | $ | 491,841 | | | $ | 4,850 | | | $ | 4,392 | | | $ | 501,083 | |
| | | | | | | | |
| Capital expenditures | | $ | 64,861 | | | $ | — | | | $ | — | | | $ | 64,861 | |
| EBITDA | | $ | 179,928 | | | $ | 3,521 | | | $ | (11,430) | | | $ | 172,019 | |
| | | | | | | | |
| For the three months ended June 30, 2021 | | | | | | | | |
| External revenue | | $ | 492,276 | | | $ | 4,195 | | | $ | 5,402 | | | $ | 501,873 | |
| Intersegment revenue | | — | | | 88 | | | (88) | | | — | |
| Total revenue | | $ | 492,276 | | | $ | 4,283 | | | $ | 5,314 | | | $ | 501,873 | |
| | | | | | | | |
| Capital expenditures | | $ | 72,187 | | | $ | — | | | $ | — | | | $ | 72,187 | |
| EBITDA | | $ | 210,194 | | | $ | 2,243 | | | $ | (8,444) | | | $ | 203,993 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Hughes | | ESS | | Corporate
and Other | | Consolidated
Total |
| For the six months ended June 30, 2022 | | | | | | | | |
| External revenue | | $ | 985,947 | | | $ | 8,778 | | | $ | 10,016 | | | $ | 1,004,741 | |
| Intersegment revenue | | — | | | 546 | | | (546) | | | — | |
| Total revenue | | $ | 985,947 | | | $ | 9,324 | | | $ | 9,470 | | | $ | 1,004,741 | |
| | | | | | | | |
| Capital expenditures | | $ | 125,882 | | | $ | — | | | $ | — | | | $ | 125,882 | |
| EBITDA | | $ | 371,098 | | | $ | 6,212 | | | $ | (22,086) | | | $ | 355,224 | |
| | | | | | | | |
| For the six months ended June 30, 2021 | | | | | | | | |
| External revenue | | $ | 968,136 | | | $ | 8,196 | | | $ | 10,771 | | | $ | 987,103 | |
| Intersegment revenue | | — | | | 176 | | | (176) | | | — | |
| Total revenue | | $ | 968,136 | | | $ | 8,372 | | | $ | 10,595 | | | $ | 987,103 | |
| | | | | | | | |
| Capital expenditures | | $ | 154,382 | | | $ | — | | | $ | — | | | $ | 154,382 | |
| EBITDA | | $ | 408,772 | | | $ | 4,162 | | | $ | (17,535) | | | $ | 395,399 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
The following table reconciles total consolidated EBITDA to reported “IncomeIncome (loss) before income taxes”taxes in our condensed consolidated statementsthe Consolidated Statements of operations and comprehensive income (loss):Operations to EBITDA:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the three months ended June 30, | | For the six months ended June 30, |
| | 2022 | | 2021 | | 2022 | | 2021 | | |
| Income (loss) before income taxes | | $ | 39,944 | | | $ | 54,009 | | | $ | 85,885 | | | $ | 82,276 | | | |
| Interest income, net | | (4,279) | | | (1,682) | | | (6,559) | | | (4,076) | | | |
| Interest expense, net of amounts capitalized | | 23,096 | | | 37,083 | | | 46,474 | | | 79,005 | | | |
| Depreciation and amortization | | 109,864 | | | 112,303 | | | 223,542 | | | 234,967 | | | |
| Net loss (income) attributable to non-controlling interests | | 3,394 | | | 2,280 | | | 5,882 | | | 3,227 | | | |
| EBITDA | | $ | 172,019 | | | $ | 203,993 | | | $ | 355,224 | | | $ | 395,399 | | | |
|
| | | | | | | | | | | | | | | | |
| | | For the Three Months
Ended September 30, | | For the Nine Months Ended September 30, |
| | | 2017 | | 2016 | | 2017 | | 2016 |
| | | (In thousands) |
| EBITDA | | $ | 200,054 |
| | $ | 198,285 |
| | $ | 550,467 |
| | $ | 586,096 |
|
| Interest income and expense, net | | (52,462 | ) | | (49,530 | ) | | (160,748 | ) | | (120,199 | ) |
| Depreciation and amortization | | (127,915 | ) | | (104,774 | ) | | (364,878 | ) | | (309,448 | ) |
| Net income attributable to noncontrolling interests | | 532 |
| | 524 |
| | 1,006 |
| | 946 |
|
| Income before income taxes | | $ | 20,209 |
| | $ | 44,505 |
| | $ | 25,847 |
| | $ | 157,395 |
|
Note 13.Related Party Transactions
EchoStar
We and EchoStar have agreed that we shall have the right, but not the obligation, to receive from EchoStar certain corporate services, including among other things: treasury, tax, accounting and reporting, risk management, legal, internal audit, human resources, and information technology. These services are intended to be provided at cost. Effective March 2017, and as a result of the Share Exchange Agreement, we implemented a new methodology for determining the cost of these services. We may terminate a particular service we receive from EchoStar for any reason upon at least 30 days’ notice. We recorded expenses for services received from EchoStar of $5.7 million and $5.2 million for the three months ended September 30, 2017 and 2016, respectively, and $17.2 million and $10.8 million for the nine months ended September 30, 2017 and 2016, respectively. In addition, we occupy certain office space in buildings owned or leased by EchoStar and pay a portion of the taxes, insurance, utilities and maintenance of the premises in accordance with the percentage of the space we occupy.
We participate in certain of EchoStar’s shared services arrangements for its subsidiaries in the ordinary course of business, including arrangements for payroll, accounts payable and cash management. From time to time in connection with the processing of transactions under these arrangements, we may pay or receive amounts attributable to other domestic subsidiaries of EchoStar. We report net payments on behalf of other subsidiaries in “Advances to affiliates, net” within current assets and we report net receipts on behalf of other subsidiaries in “Advances from affiliates, net” within current liabilities in our condensed consolidated balance sheets. No repayment schedule for these net advances has been determined.
EchoStar and certain of its subsidiaries have provided cash advances to certain of our foreign subsidiaries to fund certain expenditures pursuant to loan agreements that mature in 2021 and 2022. Advances under these agreements bear interest at annual rates ranging from one to three percent, subject to periodic adjustment based on the one-year U.S. LIBOR rate. We report amounts payable under these agreements in “Advances from affiliates” within noncurrent liabilities in our condensed consolidated balance sheets.
Contribution of EchoStar XIX Satellite. On February 1, 2017, EchoStar contributed the EchoStar XIX satellite and assigned the related construction contract with the satellite manufacturer to us. We recorded a $369.3 million increase in “Additional paid-in capital,” reflecting EchoStar’s $514.4 million carrying amount of the satellite, including capitalized interest that was previously charged to expense in our consolidated financial statements, less related deferred taxes of $145.1 million. See Note 7 for additional information about the EchoStar XIX satellite.
EchoStar XXI and EchoStar XXIII Launch Facilitation and Operational Control Agreements. As part of applying for launch licenses for the EchoStar XXI and XXIII satellites through the UK Space Agency, our subsidiary, Hughes Network Systems, Ltd. (“HNS Ltd.”) and a subsidiary of EchoStar, EchoStar Operating L.L.C. (“EOC”), entered into agreements in June 2015 and March 2016 to transfer to HNS Ltd. EOC’s launch service contracts for the EchoStar XXI and EchoStar XXIII satellites, respectively, and to grant HNS Ltd. certain rights to control the in-orbit operations of these satellites. EOC retained ownership of the satellites and agreed to make additional payments to HNS Ltd. for amounts that HNS Ltd. is required to pay under both launch service contracts. In 2015 and 2016, we recorded additions to “Other noncurrent assets, net” and corresponding increases in “Additional paid-in capital” in our condensed consolidated balance sheet to reflect EOC’s
HUGHES SATELLITE SYSTEMS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - ContinuedCONTINUED
(Unaudited)
cumulative payments under the launch service contracts prior to the transfer dates
NOTE 16. SUPPLEMENTAL FINANCIAL INFORMATION
Other Current Assets, Net and to reflect EOC’s funding of additional cash payments to the launch service provider. The EchoStar XXIII and the EchoStar XXI satellites were successfully launched in March 2017 and June 2017, respectively. We recorded decreases in “Other noncurrent assets, net” and “Additional paid-in capital” of $61.8 million and $83.3 million, respectively, representing the carrying amounts of the launch service contracts at the time of launch to reflect the consumption of the contracts’ economic benefits by EOC, the owner of the satellites. HNS Ltd.’s future payment obligations under the launch service contracts are included in our disclosure of satellite-related obligations in Other Non-current Assets, Net
Note 11.
Share Exchange Agreement. Prior to consummation of the Share Exchange, EchoStar was required to complete steps necessary for the transferring of certain assets and liabilities to DISH and certain of its subsidiaries. As part of these steps, subsidiaries of EchoStar that, prior to the consummation of the Share Exchange, owned EchoStar’s business of providing online video delivery and satellite video delivery for broadcasters and pay-TV operators, including satellite uplinking/downlinking, transmission services, signal processing, conditional access management and other services and related assets and liabilities were contributed to one of our subsidiaries in consideration for additional shares of HSS’ common stock that were then issued to a subsidiary of EchoStar. Certain data center assets that were included in the contribution of certain assets and liabilities to one of our subsidiaries were not included in the Share Exchange and continue to be owned by one of our subsidiaries and have been pledged as collateral to support our obligations under the indentures relating to the 2019 Senior Secured Notes and the 2026 Senior Secured Notes.
DISH Network
Following the Spin-off, EchoStar and DISH have operated as separate publicly-traded companies. However, prior to the consummation of the Share Exchange on February 28, 2017, DISH Network owned the Tracking Stock representing an aggregate 80.0% economic interest in the residential retail satellite broadband business of our Hughes segment. Following the consummation of the Share Exchange, the Tracking Stock was retired. In addition, 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 trusts established by Mr. Ergen for the benefit of his family.
In connection with and following both the Spin-off and the Share Exchange, EchoStar and certain of its subsidiaries and DISH and certain of its subsidiaries have entered into certain agreements pursuant to which we and EchoStar obtain certain products, services and rights from DISH Network; DISH Network obtains certain products, services and rights from us and EchoStar; and we and DISH Network indemnify each other against certain liabilities arising from our respective businesses. We and/or EchoStar also may enter into additional agreements with DISH Network in the future. 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 or in our most recent Annual Report on Form 10-K), which varies depending on the nature of the products and services provided.
The following is a summarytable presents the components of the terms of our principal agreements with DISH Network that may have an impact on our financial condition Other current assets, net and results of operations.Other non-current assets, net:
“Services and other revenue — DISH Network”
| | | | | | | | | | | | | | |
| | As of |
| | June 30, 2022 | | December 31, 2021 |
| Other current assets, net: | | | | |
| Related party receivables - EchoStar | | 120,258 | | | 122,619 | |
| Inventory | | 110,399 | | | 102,907 | |
| Prepaids and deposits | | 21,637 | | | 27,737 | |
| Trade accounts receivable - DISH Network | | $ | 4,072 | | | $ | 3,457 | |
| Other, net | | 16,318 | | | 20,124 | |
| Total other current assets | | $ | 272,684 | | | $ | 276,844 | |
| | | | |
| Other non-current assets, net: | | | | |
| Capitalized software, net | | $ | 120,421 | | | $ | 124,701 | |
| Contract acquisition costs, net | | 74,702 | | | 82,986 | |
| Related party receivables - EchoStar | | 52,118 | | | 56,055 | |
| Deferred tax assets, net | | 5,302 | | | 5,411 | |
| Restricted cash | | 2,053 | | | 980 | |
| Contract fulfillment costs, net | | 1,589 | | | 1,721 | |
| Other, net | | 32,962 | | | 30,986 | |
| Total other non-current assets, net | | $ | 289,147 | | | $ | 302,840 | |
Satellite Services Provided to DISH Network. Since the Spin-off, we have entered into certain satellite service agreements pursuant to which DISH Network receives satellite services on certain satellites owned or leased by us. The fees for the services provided under these satellite service agreements depend, among other things, upon the orbital location of the applicable satellite, the number of transponders that are providing services on the applicable satellite, and the length of the service arrangements. The terms of each service arrangement is set forth below:
EchoStar VII, EchoStar X, EchoStar XI and EchoStar XIV. As part of the Satellite and Tracking Stock Transaction, described below, in March 2014, we began providing certain satellite services to DISH Network on the EchoStar VII, EchoStar X, EchoStar XI and EchoStar XIV satellites. The term of each satellite services agreement generally terminates upon the earlier of: (i) the end of life of the satellite; (ii) the date the satellite fails; or (iii) a certain date, which depends upon, among other things, the estimated useful life of the satellite. DISH Network generally has the option to renew each satellite service agreement on a year-to-year basis through the end of the respective satellite’s life. There can be no assurance that any options to renew such agreements will be exercised. In December 2016, DISH Network renewed the satellite services agreement relative to the EchoStar VII satellite for one year to June 2018.
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EchoStar IX
. Effective January 2008, DISH Network began receiving satellite services from us on the EchoStar IX satellite. Subject to availability, DISH Network generally has the right to continue to receive satellite services from us on the EchoStar IX satellite on a month-to-month basis.
EchoStar XII. DISH Network received satellite services from us on the EchoStar XII satellite. The term of the satellite services agreement terminated at the end of September 2017.
EchoStar XVI. In December 2009, we entered into an initial ten-year transponder service agreement with DISH Network, pursuant to which DISH Network has received satellite services from us on the EchoStar XVI satellite since January 2013. Effective December 2012, weAccrued Expenses and DISH Network amended the transponder service agreement to, among other things, change the initial term to generally expire upon the earlier of: (i) the end-of-life or replacement of the satellite; (ii) the date the satellite fails; (iii) the date the transponder(s) on which service is being provided under the agreement fails; or (iv) four years following the actual service commencement date. In July 2016, weOther Current Liabilities and DISH Network further amended the transponder service agreement to, among other things, extend the initial term by one additional year through January 2018 and to reduce the term of the first renewal option by one year. In May 2017, DISH Network renewed the satellite services agreement relative to the EchoStar XVI satellite for five-years to January 2023. DISH Network has the option to renew for an additional five-year period prior to expiration of the term. There can be no assurance that such option to renew this agreement will be exercised. In the event that DISH Network does not exercise its five-year renewal option, DISH Network has the option to purchase the EchoStar XVI satellite for a certain price. If DISH Network does not elect to purchase the EchoStar XVI satellite at that time, we may sell the EchoStar XVI satellite to a third party and DISH Network is required to pay us a certain amount in the event we are not able to sell the EchoStar XVI satellite for more than a certain amount.Other Non-Current Liabilities
Nimiq 5 AgreementThe following table presents the components of . In September 2009, we entered into a fifteen-year satellite service agreement with Telesat Canada (“Telesat”) to receive service on all 32 DBS transponders on the Nimiq 5 satellite at the 72.7 degree west longitude orbital location (the “Telesat Transponder Agreement”). In September 2009, we also entered into a satellite service agreement (the “DISH Nimiq 5 Agreement”) with DISH Network, pursuant to which DISH Network receives satellite services from us on all 32 of the DBS transponders covered by the Telesat Transponder Agreement.Accrued expenses and other current liabilities and Other non-current liabilities:
Under the terms of the DISH Nimiq 5 Agreement, DISH Network makes certain monthly payments to us that commenced in September 2009, when the Nimiq 5 satellite was placed into service, and continue through the service term. Unless earlier terminated under the terms and conditions of the DISH Nimiq 5 Agreement, the service term will expire in October 2019. Upon expiration of the initial term, DISH Network has the option to renew the DISH Nimiq 5 Agreement on a year-to-year basis through the end of life of the Nimiq 5 satellite. Upon in-orbit failure or end of life of the Nimiq 5 satellite, and in certain other circumstances, DISH Network has certain rights to receive service from us on a replacement satellite. There can be no assurance that any options to renew the DISH Nimiq 5 Agreement will be exercised or that DISH Network will exercise its option to receive service on a replacement satellite.
| | | | | | | | | | | | | | |
| | As of |
| | June 30, 2022 | | December 31, 2021 |
| Accrued expenses and other current liabilities: | | | | |
| Related party payables - EchoStar | | $ | 124,382 | | | $ | 124,578 | |
| Accrued compensation | | 38,336 | | | 45,630 | |
| Operating lease obligation | | 17,236 | | | 16,697 | |
| Accrued interest | | 38,334 | | | 39,289 | |
| Accrued taxes | | 10,959 | | | 9,790 | |
| Accrual for license fee dispute | | 10,699 | | | 11,178 | |
| Trade accounts payable - DISH Network | | 570 | | | 587 | |
| Other | | 58,786 | | | 61,130 | |
| Total accrued expenses and other current liabilities | | $ | 299,302 | | | $ | 308,879 | |
| | | | |
| Other non-current liabilities: | | | | |
| Accrual for license fee dispute | | 57,472 | | | 69,484 | |
| Related party payables - EchoStar | | $ | 23,154 | | | $ | 24,118 | |
| Contract liabilities | | 9,922 | | | 10,669 | |
| Other | | 47,741 | | | 48,980 | |
| Total other non-current liabilities | | $ | 138,289 | | | $ | 153,251 | |
QuetzSat-1 Agreement.
Inventory
In November 2008, we entered into a ten-year satellite service agreement with SES Latin America, which provides, among other things, for
The following table presents the provision by SES Latin America to uscomponents of service on 32 DBS transponders on the QuetzSat-1 satellite. Concurrently, in 2008, we entered into a transponder service agreement with DISH Network, pursuant to which DISH Network receives satellite services 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 February 2013, we and DISH Network entered into an agreement pursuant to which we receive certain satellite services from DISH Network on five DBS transponders on the QuetzSat-1 satellite. In January 2013, the QuetzSat-1 satellite was moved to the 77 degree west longitude orbital location and DISH Network commenced commercial operations at such location in February 2013.inventory:
| | | | | | | | | | | | | | |
| | As of |
| | June 30, 2022 | | December 31, 2021 |
| Raw materials | | $ | 21,495 | | | $ | 13,778 | |
| Work-in-process | | 15,078 | | | 11,705 | |
| Finished goods | | 73,826 | | | 77,424 | |
| Total inventory | | $ | 110,399 | | | $ | 102,907 | |
Under the terms of our contractual arrangements with DISH Network, we began to provide service to DISH Network on the QuetzSat-1 satellite in February 2013 and will continue to provide service through the remainder of the service term. Unless extended or earlier terminated under the terms and conditions of our agreement with DISH Network for the QuetzSat-1 satellite, the initial service term will expire in November 2021. Upon expiration of the initial service term, DISH Network has the option to renew the agreement for the QuetzSat-1 satellite on a year-to-year basis through the end of life of the QuetzSat-1 satellite. Upon an in-orbit failure or end of life of the QuetzSat-1 satellite, and in certain other circumstances, DISH Network has certain rights to receive service from us on a replacement satellite. There can be no
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assurance that any options to renew this agreement will be exercised or that DISH Network will exercise its option to receive service on a replacement satellite.
103 Degree Orbital Location/SES-3.
In May 2012, we entered into a spectrum development agreement (the “103 Spectrum Development Agreement”) with Ciel Satellite Holdings Inc. (“Ciel”) to develop certain spectrum rights at
Supplemental and Non-cash Investing and Financing Activities
The following table presents the 103 degree west longitude orbital location (the “103 Spectrum Rights”). In June 2013, wesupplemental and DISH Network entered into a spectrum development agreement (the “DISH 103 Spectrum Development Agreement”) pursuant to which DISH Network may usenon-cash investing and develop the 103 Spectrum Rights. Unless earlier terminated under the terms and conditions of the DISH 103 Spectrum Development Agreement, the term generally will continue for the duration of the 103 Spectrum Rights.
In connection with the 103 Spectrum Development Agreement, in May 2012, we also entered into a ten-year service agreement with Ciel pursuant to which we receive certain satellite services from Ciel on the SES-3 satellite at the 103 degree orbital location. In June 2013, we and DISH Network entered into an agreement pursuant to which DISH Network receives certain satellite services from us on the SES-3 satellite (the “DISH 103 Service Agreement”). Under the terms of the DISH 103 Service Agreement, DISH Network makes certain monthly payments to us through the service term. Unless earlier terminated under the terms and conditions of the DISH 103 Service Agreement, the initial service term will expire on the earlier of: (i) the date the SES-3 satellite fails; (ii) the date the transponder(s) on which service was being provided under the agreement fails; or (iii) June 2023. Upon in-orbit failure or end of life of the SES-3 satellite, and in certain other circumstances, DISH Network has certain rights to receive service from us on a replacement satellite. There can be no assurance that DISH Network will exercise its option to receive service on a replacement satellite.
financing activities:
TT&C Agreement. Effective January 2012, we entered into a telemetry, tracking and control (“TT&C”) agreement pursuant to which we provide TT&C services to DISH Network for a period ending in December 2016 (the “2012 TT&C Agreement”). In November 2016, we and DISH Network amended the 2012 TT&C Agreement to extend the term for one year through December 2017. The 2012 TT&C Agreement replaced the TT&C agreement we entered into with DISH Network in connection with the Spin-off. The fees for services provided under the 2012 TT&C Agreement are calculated at either: (i) a fixed fee or (ii) cost plus a fixed margin, which will vary depending on the nature of the services provided. DISH Network is able to terminate the 2012 TT&C Agreement for any reason upon 60 days’ notice.
In connection with the Satellite and Tracking Stock Transaction, in February 2014, we amended the TT&C Agreement to cease the provision of TT&C services to DISH Network for the EchoStar I, EchoStar VII, EchoStar X, EchoStar XI and EchoStar XIV satellites. Effective March 2014, we provide TT&C services for the D-1 and EchoStar XV satellites; however, for the period that we received satellite services on the EchoStar XV satellite from DISH Network, we waived the fees for the TT&C services on the EchoStar XV satellite. Effective August 2016, we provide TT&C services to DISH Network for the EchoStar XVIII satellite.
| | | | | | | | | | | | | | | | |
| | For the six months ended June 30, | | |
| | | 2022 | | 2021 | | |
| Supplemental disclosure of cash flow information: | | | | | | |
| Cash paid for interest, net of amounts capitalized | | $ | 49,845 | | | $ | 75,947 | | | |
| Cash paid for income taxes | | $ | 6,173 | | | $ | 3,741 | | | |
| | | | | | |
| Non-cash investing and financing activities: | | | | | | |
| Increase (decrease) in capital expenditures included in accounts payable, net | | $ | (8,563) | | | $ | 8,333 | | | |
| Non-cash net assets received as part of the India JV formation | | $ | 36,701 | | | $ | — | | | |
Real Estate Lease. Prior to the Share Exchange, EchoStar leased to DISH Network certain space at 530 EchoStar Drive, Cheyenne, Wyoming. In connection with the Share Exchange, EchoStar transferred ownership of a portion of this property to DISH Network and contributed a portion to us and we amended the agreement to (i) terminate the lease for the transferred space and (ii) provide for a continued lease to DISH Network of the portion of the property contributed to us for a period ending in December 2031. The rent on a per square foot basis for the lease is comparable to per square foot rental rates of similar commercial property in the same geographic area at the time of the lease, and DISH Network is responsible for its portion of the taxes, insurance, utilities and maintenance of the premises. This agreement may be extended by mutual consent, in which case this agreement will be converted to a month-to-month lease agreement. Upon extension, either party has the right to terminate this agreement upon 30 days’ notice.
TerreStar Agreement one-year period, unless terminated by TerreStar upon at least 60 days’ written notice to us prior to the end of the term. The provision of operations and maintenance services will continue until April 2018 and will automatically renew in April 2018 for an additional one-year period, unless terminated by TerreStar or us upon at least 90 days’ written notice prior to the end of the term. The provision of hosting services will continue until May 2022 and will not renew beyond May 2022 unless the parties enter into a new agreement or amend the existing agreement. In addition, TerreStar generally may terminate such services for convenience subject to providing us with prior notice and/or payment of termination charges. . 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 our Hughes segment provides, among other things, warranty, operations and maintenance and hosting services for TerreStar’s ground-based communications equipment. TerreStar generally has the right to continue to receive warranty services from us for one of our products on a month-to-month basis. The provision of warranty services for our other product will continue until March 2018 and will automatically renew in March 2018 for an additional one-year period, unless terminated by TerreStar upon at least 60 days’ written notice to us prior to the end of the term. The provision of operations and maintenance services will continue until April 2018 and will automatically renew in April 2018 for an additional one-year period, unless terminated by TerreStar or us upon at least 90 da
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ys’ written notice prior to the end of the term. The provision of hosting services will continue until May 2022 and will not renew beyond May 2022 unless the parties enter into a new agreement or amend the existing agreement. In addition, TerreStar generally may terminate such services for convenience subject to providing us with prior notice and/or payment of termination charges.
Hughes Broadband Distribution Agreement. Effective October 2012, HNS and dishNET Satellite Broadband L.L.C. (“dishNET”), a wholly-owned subsidiary of DISH, entered into a distribution agreement (the “Distribution Agreement”) pursuant to which dishNET has the right, but not the obligation, to market, sell and distribute the Hughes satellite internet service (the “Hughes service”). dishNET pays HNS a monthly per subscriber wholesale service fee for the Hughes service based upon a subscriber’s service level, and based upon certain volume subscription thresholds. The Distribution Agreement also provides that dishNET has the right, but not the obligation, to purchase certain broadband equipment from us to support the sale of the Hughes 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, HNS and dishNET 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, the parties will continue to provide the Hughes service to the then-current dishNET subscribers pursuant to the terms and conditions of the Distribution Agreement.
DBSD North America Agreement. In March 2012, DISH Network completed its acquisition of 100% of the equity of reorganized DBSD North America, Inc. (“DBSD North America”). Prior to DISH Network’s acquisition of DBSD North America and completion of the Hughes Acquisition, DBSD North America and HNS entered into various agreements pursuant to which our Hughes segment provides, among other things, warranty, operations and maintenance and hosting services of DBSD North America’s gateway and ground-based communications equipment. DBSD North America generally has the right to continue to receive warranty services from us on a month-to-month basis until February 2019. The provision of operations and maintenance services will continue until April 2018 and will automatically renew in April 2018 for an additional one-year period, unless terminated by DBSD North America upon at least 120 days’ written notice to us prior to the end of the term. 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 prior to the end of the term. In addition, DBSD North America generally may terminate such services for convenience, subject to providing us with prior notice and/or payment of termination charges.
RUS Implementation Agreement. In September 2010, DISH Broadband L.L.C. (“DISH Broadband”), DISH’s indirect, wholly-owned subsidiary, was selected by the Rural Utilities Service (“RUS”) of the United States Department of Agriculture to receive up to approximately $14.1 million in broadband stimulus grant funds (the “Grant Funds”). Effective November 2011, HNS and DISH Broadband entered into a RUS Implementation Agreement (the “RUS Agreement”) pursuant to which HNS provided certain portions of the equipment and broadband service used to implement DISH Broadband’s RUS program. While the RUS Agreement expired in June 2013 when the Grant Funds were exhausted, HNS is required to continue providing services to DISH Broadband’s customers activated prior to the expiration of the RUS Agreement in accordance with the terms and conditions of the RUS Agreement.
General and administrative expenses — DISH Network
Amended and Restated Professional Services Agreement. In connection with the Spin-off, EchoStar entered into various agreements with DISH including the Transition Services Agreement, Satellite Procurement Agreement and Services Agreement, which all expired in January 2010 and were replaced by a Professional Services Agreement. In January 2010, EchoStar and DISH agreed that EchoStar and its subsidiaries shall continue to have the right, but not the obligation, to receive the following services from DISH Network, among others, certain of which were previously provided under the Transition Services Agreement: information technology, travel and event coordination, internal audit, legal, accounting and tax, benefits administration, program acquisition services and other support services. Additionally, EchoStar and DISH 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 the Satellite Procurement Agreement), receive logistics, procurement and quality assurance services from EchoStar and its subsidiaries (previously provided under the Services Agreement) and other support services. In connection with the consummation of the Share Exchange, EchoStar and DISH amended and restated the Professional Services Agreement to provide that EchoStar and its subsidiaries and DISH Network shall have the right to receive additional services that either EchoStar and its subsidiaries or DISH Network may require as a result of the Share Exchange. A portion of these costs and expenses have been allocated to us in the manner described above under the caption “EchoStar.” The
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term of the Amended and Restated Professional Services Agreement is through January 2019 and renews automatically for successive one-year periods thereafter, unless the agreement is terminated earlier by either party upon at least 60 days’ notice. However, either party may generally terminate the Amended and Restated Professional Services Agreement in part with respect to any particular service it receives for any reason upon at least 30 days’ notice.
Real Estate Lease from DISH Network. In connection with the Share Exchange, effective March 2017, we sublease from DISH Network certain space at 796 East Utah Valley Drive in American Fork, Utah for a period ending in August 2017. We have exercised our option to renew this sublease for a five-year period ending in August 2022. The rent on a per square foot basis for the lease is comparable to per square foot rental rates of similar commercial property in the same geographic area at the time of the lease, and we are responsible for our portion of the taxes, insurance, utilities and maintenance of the premises.
Collocation and Antenna Space Agreements. In connection with the Share Exchange, effective March 2017, we entered into certain agreements pursuant to which DISH Network will provide collocation and antenna space to EchoStar through March 2022 at the following locations: Cheyenne, Wyoming; Gilbert, Arizona; New Braunfels, Texas; Monee, Illinois; Spokane, Washington; and Englewood, Colorado. In August 2017, we and DISH Network entered into certain other agreements pursuant to which DISH Network will provide additional collocation and antenna space to EchoStar in Monee, Illinois and Spokane, Washington through August 2022. EchoStar may renew each of these agreements for four three-year periods by providing DISH Network with prior written notice no more than 120 days but no less than 90 days prior to the end of the then-current term. We may terminate certain of these agreements with 180 days’ prior written notice. The fees for the services provided under these agreements depend on the number of racks leased at the location.
Other agreements — DISH Network
Satellite and Tracking Stock Transaction. In February 2014, we and EchoStar entered into agreements with DISH Network to implement a transaction pursuant to which, among other things: (i) in March 2014, EchoStar and HSS issued shares of the Tracking Stock to DISH Network in exchange for five satellites owned by DISH Network (EchoStar I, EchoStar VII, EchoStar X, EchoStar XI and EchoStar XIV) (including assumption of related in-orbit incentive obligations) and approximately $11.4 million in cash; and (ii) in March 2014, DISH Network began receiving certain satellite services as discussed above on these five satellites from us (collectively, the “Satellite and Tracking Stock Transaction.”) The Tracking Stock was retired in March 2017 and is no longer outstanding and all agreements, arrangements and policy statements with respect to such Tracking Stock terminated and are of no further effect. See Note 3 for further information.
Share Exchange Agreement. On January 31, 2017, EchoStar and certain of its subsidiaries entered into the Share Exchange Agreement with DISH and certain of its subsidiaries, pursuant to which on February 28, 2017, EchoStar and its subsidiaries received all of the shares of the Tracking Stock in exchange for 100% of the equity interests of certain EchoStar subsidiaries that held substantially all of EchoStar’s EchoStar Technologies businesses and certain other assets. Following consummation of the Share Exchange on February 28, 2017, EchoStar no longer operates the transferred EchoStar Technologies businesses and the Tracking Stock was retired and is no longer outstanding and all agreements, arrangements and policy statements with respect to such Tracking Stock terminated and are of no further effect. Pursuant to the Share Exchange Agreement, EchoStar transferred certain assets, investments in joint ventures, spectrum licenses and real estate properties and DISH Network assumed certain liabilities relating to the transferred assets and businesses. The Share Exchange Agreement contains customary representations and warranties by the parties, including representations by EchoStar related to the transferred assets, assumed liabilities and the financial condition of the transferred businesses. EchoStar and DISH Network have 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 it causes the transaction to be taxable to the other party after closing.
Hughes Broadband Master Services Agreement five years until March 2022 with automatic renewal for successive one-year terms. After the first anniversary, either party has the ability to terminate the 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 MSA, HNS will continue to provide the Hughes service to subscribers and make certain payments to DNLLC pursuant to the terms and conditions of the MSA. . In March 2017, HNS and DISH Network L.L.C. (“DNLLC”), a wholly-owned subsidiary of DISH, entered into a master service agreement (the “MSA”) pursuant to which DNLLC, among other things: (i) has the right, but not the obligation, to market, promote and solicit orders and upgrades for the Hughes service and related equipment and other telecommunication services and (ii) installs Hughes service equipment with respect to activations generated by DNLLC. Under the MSA, HNS and DNLLC will make certain payments to each other relating to sales, upgrades, purchases and installation services. The MSA has an initial term of five years until March 2022 with automatic renewal for successive one-year terms. After the first anniversary, either party has the ability to terminate the 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 MSA, HNS will continue to provide the Hughes service to subscribers
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and make certain payments to DNLLC pursuant to the terms and conditions of the MSA.
Intellectual Property and Technology License Agreement. Effective March 2017 in connection with the Share Exchange, EchoStar and DISH Network entered into an Intellectual Property and Technology License Agreement (“IPTLA”) pursuant to which EchoStar and DISH and their respective subsidiaries 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, EchoStar granted to DISH Network a license to EchoStar and its subsidiaries’ 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 EchoStar and its subsidiaries, among other things, for the continued use of all intellectual property and technology that is used in EchoStar and its subsidiaries’ retained businesses but the ownership of which was transferred to DISH Network pursuant to the Share Exchange.
Tax Matters Agreement. Effective March 2017, in connection with the Share Exchange, EchoStar and DISH entered into a tax matters agreement. This agreement governs certain rights, responsibilities and obligations of EchoStar and DISH and their respective subsidiaries with respect to taxes of the transferred businesses pursuant to the Share Exchange. Generally, EchoStar is responsible for all tax returns and tax liabilities for the transferred businesses and assets for periods prior to the Share Exchange and DISH Network is responsible for all tax returns and tax liabilities for the transferred businesses and assets from and after the Share Exchange. Both EchoStar and DISH Network have made certain tax-related representations and are subject to various tax-related covenants after the consummation of the Share Exchange. Both EchoStar and DISH Network have agreed to indemnify each other if there is a breach of any such tax representation or violation of any such tax covenant and that breach or violation results in the Share Exchange not qualifying for tax free treatment for the other party. In addition, DISH Network has agreed to indemnify EchoStar if the transferred businesses are acquired, either directly or indirectly (e.g., via an acquisition of DISH Network), by one or more persons and such acquisition results in the Share Exchange not qualifying for tax free treatment. The tax matters agreement supplements the Tax Sharing Agreement outlined below, which continues in full force and effect.
Tax Sharing Agreement. Effective December 2007, EchoStar and DISH Network entered into a tax sharing agreement (the “Tax Sharing Agreement”) in connection with the Spin-off. This agreement governs EchoStar and DISH and their respective subsidiaries’ respective rights, responsibilities and obligations after the Spin-off with respect to taxes for the periods ending on or before the Spin-off. Generally, all pre-Spin-off taxes, including any taxes that are incurred as a result of restructuring activities undertaken to implement the Spin-off, are borne by DISH Network, and DISH Network indemnifies EchoStar for such taxes. However, DISH Network is not liable for and will not indemnify EchoStar or its subsidiaries for any taxes that are incurred as a result of the Spin-off or certain related transactions failing to qualify as tax-free distributions pursuant to any provision of Section 355 or Section 361 of the Internal Revenue Code of 1986, as amended, because of: (i) a direct or indirect acquisition of any of EchoStar’s stock, stock options or assets; (ii) any action that EchoStar takes or fails to take; or (iii) any action that EchoStar takes that is inconsistent with the information and representations furnished to the IRS in connection with the request for the private letter ruling, or to counsel in connection with any opinion being delivered by counsel with respect to the Spin-off or certain related transactions. In such case, EchoStar and its subsidiaries will be solely liable for, and will indemnify DISH Network for, any resulting taxes, as well as any losses, claims and expenses. The Tax Sharing Agreement will only terminate after the later of the full period of all applicable statutes of limitations, including extensions, or once all rights and obligations are fully effectuated or performed.
In light of the Tax Sharing Agreement, among other things, and in connection with EchoStar’s consolidated federal income tax returns for certain tax years prior to and for the year of the Spin-off, in September 2013, EchoStar and DISH Network agreed upon a supplemental allocation of the tax benefits arising from certain tax items resolved in the course of the IRS’s examination of EchoStar’s consolidated tax returns. As a result, DISH Network agreed to pay EchoStar an aggregate amount of $93.1 million that includes the federal tax benefit they received as a result of our operations.
Caltech. On October 1, 2013, Caltech Institute of Technology (“Caltech”) filed complaints against two of our subsidiaries, Hughes Communications, Inc. and HNS, as well as against DISH and certain of its subsidiaries, in the United States District Court for the Central District of California alleging infringement of United States Patent Nos. 7,116,710; 7,421,032; 7,916,781; and 8,284,833, each of which is entitled “Serial Concatenation of Interleaved Convolutional Codes forming Turbo-Like Codes.” Caltech asserted that encoding data as specified by the DVB-S2 standard infringed each of the asserted patents. Caltech claimed that certain of our Hughes segment’s satellite broadband products and services, infringed the asserted patents by implementing the DVB-S2 standard. Pursuant to a settlement agreement among us, DISH and Caltech, in May 2016, Caltech dismissed with prejudice all of its claims in these actions.
HUGHES SATELLITE SYSTEMS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
Other Agreements
Hughes Systique Corporation (“Hughes Systique”)
We contract with Hughes Systique for software development services. In 2008, Hughes Communications loaned $1.5 million to Hughes Systique pursuant to a term loan facility. The initial interest rate on the outstanding loans was 6%, payable annually, and the accrued and unpaid interest was added to the principal amount outstanding under the loan facility in certain circumstances. The loans were convertible into shares of Hughes Systique upon non-payment or an event of default. In May 2014, we amended the term loan facility to increase the interest rate from 6% to 8%, payable annually, to reflect then-current market conditions and extend the maturity date of the loans to May 1, 2015, and in April 2015, we extended the maturity date of the loans to May 1, 2016 on the same terms. In 2015, Hughes Systique repaid $1.5 million of the outstanding principal of the loan facility. In 2016, Hughes Systique repaid $0.6 million of the outstanding principal of the loan facility. As of September 30, 2017, the principal amount outstanding of the loan facility was zero. In addition to our 43.7% ownership in Hughes Systique, Mr. Pradman Kaul, the President of Hughes Communications and a member of EchoStar’s board of directors, and his brother, who is the CEO and President of Hughes Systique, in the aggregate, own approximately 25.7%, on an undiluted basis, of Hughes Systique’s outstanding shares as of September 30, 2017. Furthermore, Mr. Pradman Kaul serves on the board of directors of Hughes Systique. Hughes Systique is a variable interest entity and we are considered the primary beneficiary of Hughes Systique due to, among other factors, our ability to direct the activities that most significantly impact the economic performance of Hughes Systique. As a result, we consolidate Hughes Systique’s financial statements in our condensed consolidated financial statements.
Dish Mexico
EchoStar owns 49.0% of an entity that provides direct-to-home satellite services in Mexico known as Dish Mexico, and we provide certain satellite services to Dish Mexico. We recognized revenue from sales of services we provided to Dish Mexico of approximately $5.8 million for each of the three months ended September 30, 2017 and 2016 and $17.5 million for each of the nine months ended September 30, 2017 and 2016. As of September 30, 2017 and December 31, 2016, we had trade accounts receivable from Dish Mexico of approximately $7.6 million and $10.7 million, respectively.
Deluxe/EchoStar LLC
We own 50.0% 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. We account for our investment in Deluxe using the equity method. Summarized income statement information for Deluxe for the nine months ended September 30, 2017 and 2016 are as follows:
|
| | | | | | | | |
| | | For the Nine Months Ended September 30, |
| | | 2017 | | 2016 |
| | | (In thousands) |
| Revenue | | $ | 28,752 |
| | $ | 32,018 |
|
| Gross profit | | $ | 12,920 |
| | $ | 15,872 |
|
| Income before income taxes | | $ | 10,596 |
| | $ | 13,516 |
|
| Net income attributable to EchoStar | | $ | 5,298 |
| | $ | 6,758 |
|
We recognized revenue from Deluxe for transponder services and the sale of broadband equipment of approximately $1.3 million and $0.7 million for the three months ended September 30, 2017 and 2016, respectively, and $3.6 million and $2.1 million for the nine months ended September 30, 2017 and 2016, respectively. As of September 30, 2017 and December 31, 2016, we had trade accounts receivable from Deluxe of approximately $1.3 million and $0.7 million, respectively.
HUGHES SATELLITE SYSTEMS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
AsiaSat
We contract with AsiaSat Telecommunications Inc. (“AsiaSat”) for the use of transponder capacity on one of AsiaSat's satellites. Mr. William David Wade, a member of EchoStar’s board of directors, served as the Chief Executive Officer of AsiaSat in 2016 and as a senior advisor to the CEO of AsiaSat through March 2017. We incurred expenses payable to AsiaSat under this agreement of approximately zero and $0.4 million for the three months ended September 30, 2017 and 2016, respectively, and $0.1 million and $1.1 million for the nine months ended September 30, 2017 and 2016, respectively.
Note 14.NOTE 17. Supplemental Guarantor and Non-Guarantor Financial InformationSUPPLEMENTAL GUARANTOR AND NON-GUARANTOR FINANCIAL INFORMATION
Certain of our wholly-owned subsidiaries (together, the “Guarantor Subsidiaries”) have fully and unconditionally guaranteed, on a joint and several basis, the obligations of our 20195 1/4% Senior Secured Notes due August 1, 2026 and 20216 5/8% Senior Unsecured Notes which were issued on Junedue August 1, 2011, and our 2026 Notes, which were issued on July 27, 2016. See Note 9 for further information on(collectively, the 2019 Senior Secured Notes, the 2021 Senior Unsecured Notes and the 2026 Notes.“Notes”).
In lieu of separate financial statements of the Guarantor Subsidiaries, condensed consolidating financial information prepared in accordance with Rule 3-10(f) of Regulation S-X is presented below, including the condensed balance sheet information, the condensed statement of operations and comprehensive income (loss) information and the condensed statement of cash flows information of HSS, the Guarantor Subsidiaries on a combined basis and the non-guarantor subsidiaries of HSS on a combined basis and the eliminations necessary to arrive at the corresponding information of HSS on a consolidated basis.
The indentures governing the 2019 Senior Secured Notes, the 2021 Senior Unsecured Notes and the 2026 Notes contain restrictive covenants that, among other things, impose limitations on our ability and the ability of certain of our subsidiaries to pay dividends or make distributions, incur additional debt, make certain investments, create liens or enter into sale and leaseback transactions, merge or consolidate with another company, transfer and sell assets, enter into transactions with affiliates or allow to exist certain restrictions on the ability of certain of our subsidiaries to pay dividends, make distributions, make other payments, or transfer assets to us.
The condensedIn lieu of separate financial statements of the Guarantor Subsidiaries, we have prepared the accompanying consolidating financial information presented belowin accordance with Rule 3-10(f) of Regulation S-X. This includes:
•the accompanying balance sheet;
•the accompanying statement of operations and comprehensive income (loss); and
•the accompanying statement of cash flows.
This also includes consolidating financial information as follows:
•the Guarantor Subsidiaries on a combined basis;
•the non-guarantor subsidiaries of HSSC on a combined basis; and
•the eliminations necessary to arrive at the corresponding information of HSSC on a consolidated basis.
This accompanying consolidating financial information should be read in conjunction with our condensed consolidated financial statements and notes thereto included herein.these Consolidated Financial Statements.
HUGHES SATELLITE SYSTEMS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - ContinuedCONTINUED
(Unaudited)
Condensed
Consolidating Balance Sheet as of SeptemberJune 30, 20172022
(In thousands)
|
| | | | | | | | | | | | | | | | | | | | |
| | | HSS | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Total |
| Assets | | | | | | | | | | |
| Cash and cash equivalents | | $ | 2,016,026 |
| | $ | 32,178 |
| | $ | 27,704 |
| | $ | — |
| | $ | 2,075,908 |
|
| Marketable investment securities, at fair value | | 194,260 |
| | 1,646 |
| | — |
| | — |
| | 195,906 |
|
| Trade accounts receivable, net | | — |
| | 138,268 |
| | 54,119 |
| | — |
| | 192,387 |
|
| Trade accounts receivable - DISH Network, net | | — |
| | 45,626 |
| | 342 |
| | — |
| | 45,968 |
|
| Inventory | | — |
| | 66,569 |
| | 24,663 |
| | — |
| | 91,232 |
|
| Advances to affiliates, net | | 102,149 |
| | 45,927 |
| | 4,907 |
| | (50,409 | ) | | 102,574 |
|
| Other current assets | | 103 |
| | 17,652 |
| | 31,177 |
| | (46 | ) | | 48,886 |
|
| Total current assets | | 2,312,538 |
| | 347,866 |
| | 142,912 |
| | (50,455 | ) | | 2,752,861 |
|
| Restricted cash and cash equivalents | | 12,379 |
| | — |
| | 775 |
| | — |
| | 13,154 |
|
| Property and equipment, net | | — |
| | 2,559,974 |
| | 293,817 |
| | — |
| | 2,853,791 |
|
| Regulatory authorizations, net | | — |
| | 471,658 |
| | — |
| | — |
| | 471,658 |
|
| Goodwill | | — |
| | 504,173 |
| | — |
| | — |
| | 504,173 |
|
| Other intangible assets, net | | — |
| | 62,240 |
| | — |
| | — |
| | 62,240 |
|
| Investments in unconsolidated entities | | — |
| | 32,858 |
| | — |
| | — |
| | 32,858 |
|
| Investment in subsidiaries | | 2,980,162 |
| | 217,543 |
| | — |
| | (3,197,705 | ) | | — |
|
| Advances to affiliates | | 700 |
| | 74,701 |
| | — |
| | (75,401 | ) | | — |
|
| Deferred tax asset | | 147,283 |
| | — |
| | 18,716 |
| | (147,283 | ) | | 18,716 |
|
| Other noncurrent assets, net | | — |
| | 173,262 |
| | 12,709 |
| | — |
| | 185,971 |
|
| Total assets | | $ | 5,453,062 |
| | $ | 4,444,275 |
| | $ | 468,929 |
| | $ | (3,470,844 | ) | | $ | 6,895,422 |
|
| Liabilities and Shareholders’ Equity (Deficit) | | | | | | | | | | |
| Trade accounts payable | | $ | — |
| | $ | 95,446 |
| | $ | 22,169 |
| | $ | — |
| | $ | 117,615 |
|
| Trade accounts payable - DISH Network | | — |
| | 5,470 |
| | — |
| | — |
| | 5,470 |
|
| Current portion of long-term debt and capital lease obligations | | — |
| | 34,923 |
| | 3,484 |
| | — |
| | 38,407 |
|
| Advances from affiliates, net | | — |
| | 4,532 |
| | 46,204 |
| | (50,409 | ) | | 327 |
|
| Accrued expenses and other | | 54,622 |
| | 140,345 |
| | 46,532 |
| | (46 | ) | | 241,453 |
|
| Total current liabilities | | 54,622 |
| | 280,716 |
| | 118,389 |
| | (50,455 | ) | | 403,272 |
|
| Long-term debt and capital lease obligations, net of unamortized debt issuance costs | | 3,363,244 |
| | 236,337 |
| | 6,134 |
| | — |
| | 3,605,715 |
|
| Deferred tax liabilities, net | | — |
| | 840,194 |
| | 144 |
| | (147,283 | ) | | 693,055 |
|
| Advances from affiliates | | — |
| | — |
| | 108,876 |
| | (75,401 | ) | | 33,475 |
|
| Other non-current liabilities | | — |
| | 107,608 |
| | 3,265 |
| | — |
| | 110,873 |
|
| Total HSS shareholders’ equity (deficit) | | 2,035,196 |
| | 2,979,420 |
| | 218,285 |
| | (3,197,705 | ) | | 2,035,196 |
|
| Noncontrolling interests | | — |
| | — |
| | 13,836 |
| | — |
| | 13,836 |
|
| Total liabilities and shareholders’ equity (deficit) | | $ | 5,453,062 |
| | $ | 4,444,275 |
| | $ | 468,929 |
| | $ | (3,470,844 | ) | | $ | 6,895,422 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Hughes Satellite Systems Corporation | | Guarantor
Subsidiaries | | Non-Guarantor
Subsidiaries | | Eliminations | | Total |
| Assets | | | | | | | | | | |
| Current assets: | | | | | | | | | | |
| Cash and cash equivalents | | $ | 837,441 | | | $ | 19,791 | | | $ | 67,680 | | | $ | — | | | $ | 924,912 | |
| Marketable investment securities | | 354,184 | | | — | | | 6,464 | | | — | | | 360,648 | |
| Trade accounts receivable and contract assets, net | | — | | | 158,861 | | | 65,154 | | | — | | | 224,015 | |
| Other current assets, net | | 65,548 | | | 1,204,000 | | | 217,557 | | | (1,214,421) | | | 272,684 | |
| Total current assets | | 1,257,173 | | | 1,382,652 | | | 356,855 | | | (1,214,421) | | | 1,782,259 | |
| Non-current assets: | | | | | | | | | | |
| Property and equipment, net | | — | | | 1,164,939 | | | 287,523 | | | — | | | 1,452,462 | |
| Operating lease right-of-use assets | | — | | | 122,655 | | | 28,381 | | | — | | | 151,036 | |
| Goodwill | | — | | | 504,173 | | | 29,332 | | | — | | | 533,505 | |
| Regulatory authorizations, net | | — | | | 400,000 | | | 8,824 | | | — | | | 408,824 | |
| Other intangible assets, net | | — | | | 13,241 | | | 3,777 | | | — | | | 17,018 | |
| Other investments, net | | — | | | 8,039 | | | 78,171 | | | — | | | 86,210 | |
| Investment in subsidiaries | | 3,212,854 | | | 336,417 | | | — | | | (3,549,271) | | | — | |
| Other non-current assets, net | | 1,180 | | | 285,181 | | | 158,565 | | | (155,779) | | | 289,147 | |
| Total non-current assets | | 3,214,034 | | | 2,834,645 | | | 594,573 | | | (3,705,050) | | | 2,938,202 | |
| Total assets | | $ | 4,471,207 | | | $ | 4,217,297 | | | $ | 951,428 | | | $ | (4,919,471) | | | $ | 4,720,461 | |
| Liabilities and Shareholder's Equity | | | | | | | | | | |
| Current liabilities: | | | | | | | | | | |
| Trade accounts payable | | $ | — | | | $ | 89,909 | | | $ | 11,219 | | | $ | — | | | $ | 101,128 | |
| Contract liabilities | | — | | | 130,241 | | | 4,615 | | | — | | | 134,856 | |
| Accrued expenses and other current liabilities | | 1,012,002 | | | 216,435 | | | 285,286 | | | (1,214,421) | | | 299,302 | |
| Total current liabilities | | 1,012,002 | | | 436,585 | | | 301,120 | | | (1,214,421) | | | 535,286 | |
| Non-current liabilities: | | | | | | | | | | |
| Long-term debt, net | | 1,496,379 | | | — | | | 0 | | — | | | 1,496,379 | |
| Deferred tax liabilities, net | | — | | | 337,589 | | | 12,822 | | | (649) | | | 349,762 | |
| Operating lease liabilities | | — | | | 112,850 | | | 23,742 | | | — | | | 136,592 | |
| Other non-current liabilities | | — | | | 117,980 | | | 175,439 | | | (155,130) | | | 138,289 | |
| Total non-current liabilities | | 1,496,379 | | | 568,419 | | | 212,003 | | | (155,779) | | | 2,121,022 | |
| Total liabilities | | 2,508,381 | | | 1,005,004 | | | 513,123 | | | (1,370,200) | | | 2,656,308 | |
| Shareholder's equity: | | | | | | | | | | |
| Total Hughes Satellite Systems Corporation shareholder's equity | | 1,962,826 | | | 3,212,293 | | | 336,978 | | | (3,549,271) | | | 1,962,826 | |
| Non-controlling interests | | — | | | — | | | 101,327 | | | — | | | 101,327 | |
| Total shareholder's equity | | 1,962,826 | | | 3,212,293 | | | 438,305 | | | (3,549,271) | | | 2,064,153 | |
| Total liabilities and shareholder's equity | | $ | 4,471,207 | | | $ | 4,217,297 | | | $ | 951,428 | | | $ | (4,919,471) | | | $ | 4,720,461 | |
HUGHES SATELLITE SYSTEMS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - ContinuedCONTINUED
(Unaudited)
Condensed
Consolidating Balance Sheet as of December 31, 20162021
(In thousands) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Hughes Satellite Systems Corporation | | Guarantor
Subsidiaries | | Non-Guarantor
Subsidiaries | | Eliminations | | Total |
| Assets | | | | | | | | | | |
| Current assets: | | | | | | | | | | |
| Cash and cash equivalents | | $ | 324,764 | | | $ | 42,550 | | | $ | 61,854 | | | $ | — | | | $ | 429,168 | |
| Marketable investment securities | | 854,502 | | | — | | | — | | | — | | | 854,502 | |
| Trade accounts receivable and contract assets, net | | — | | | 127,350 | | | 54,713 | | | — | | | 182,063 | |
| Other current assets, net | | 170,283 | | | 1,056,871 | | | 94,185 | | | (1,044,495) | | | 276,844 | |
| Total current assets | | 1,349,549 | | | 1,226,771 | | | 210,752 | | | (1,044,495) | | | 1,742,577 | |
| Non-current assets: | | | | | | | | | | |
| Property and equipment, net | | — | | | 1,209,859 | | | 313,588 | | | — | | | 1,523,447 | |
| Operating lease right-of-use assets | | — | | | 117,912 | | | 30,309 | | | — | | | 148,221 | |
| Goodwill | | — | | | 504,173 | | | 6,913 | | | — | | | 511,086 | |
| Regulatory authorizations, net | | — | | | 400,000 | | | 8,959 | | | — | | | 408,959 | |
| Other intangible assets, net | | — | | | 13,984 | | | — | | | — | | | 13,984 | |
| Other investments, net | | — | | | 9,600 | | | 81,626 | | | — | | | 91,226 | |
| Investment in subsidiaries | | 3,126,926 | | | 292,211 | | | — | | | (3,419,137) | | | — | |
| Other non-current assets, net | | 1,191 | | | 299,149 | | | 97,305 | | | (94,805) | | | 302,840 | |
| Total non-current assets | | 3,128,117 | | | 2,846,888 | | | 538,700 | | | (3,513,942) | | | 2,999,763 | |
| Total assets | | $ | 4,477,666 | | | $ | 4,073,659 | | | $ | 749,452 | | | $ | (4,558,437) | | | $ | 4,742,340 | |
| Liabilities and Shareholder's Equity | | | | | | | | | | |
| Current liabilities: | | | | | | | | | | |
| Trade accounts payable | | $ | — | | | $ | 92,156 | | | $ | 13,321 | | | $ | — | | | $ | 105,477 | |
| Contract liabilities | | — | | | 134,474 | | | 6,869 | | | — | | | 141,343 | |
| Accrued expenses and other current liabilities | | 972,936 | | | 218,463 | | | 161,975 | | | (1,044,495) | | | 308,879 | |
| Total current liabilities | | 972,936 | | | 445,093 | | | 182,165 | | | (1,044,495) | | | 555,699 | |
| Non-current liabilities: | | | | | | | | | | |
| Long-term debt, net | | 1,495,994 | | | — | | | — | | | — | | | 1,495,994 | |
| Deferred tax liabilities, net | | — | | | 334,148 | | | 258 | | | — | | | 334,406 | |
| Operating lease liabilities | | — | | | 108,431 | | | 25,570 | | | — | | | 134,001 | |
| Other non-current liabilities | | — | | | 59,623 | | | 188,432 | | | (94,804) | | | 153,251 | |
| Total non-current liabilities | | 1,495,994 | | | 502,202 | | | 214,260 | | | (94,804) | | | 2,117,652 | |
| Total liabilities | | 2,468,930 | | | 947,295 | | | 396,425 | | | (1,139,299) | | | 2,673,351 | |
| Shareholder's equity: | | | | | | | | | | |
| Total Hughes Satellite Systems Corporation shareholder's equity | | 2,008,736 | | | 3,126,364 | | | 292,774 | | | (3,419,138) | | | 2,008,736 | |
| Non-controlling interests | | — | | | — | | | 60,253 | | | — | | | 60,253 | |
| Total shareholder's equity | | 2,008,736 | | | 3,126,364 | | | 353,027 | | | (3,419,138) | | | 2,068,989 | |
| Total liabilities and shareholder's equity | | $ | 4,477,666 | | | $ | 4,073,659 | | | $ | 749,452 | | | $ | (4,558,437) | | | $ | 4,742,340 | |
|
| | | | | | | | | | | | | | | | | | | | |
| | | HSS | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Total |
| Assets | | | | | | | | | | |
| Cash and cash equivalents | | $ | 1,991,949 |
| | $ | 53,905 |
| | $ | 25,110 |
| | $ | — |
| | $ | 2,070,964 |
|
| Marketable investment securities, at fair value | | 177,614 |
| | 10,309 |
| | — |
| | — |
| | 187,923 |
|
| Trade accounts receivable, net | | — |
| | 138,861 |
| | 43,651 |
| | — |
| | 182,512 |
|
| Trade accounts receivable - DISH Network, net | | — |
| | 19,323 |
| | — |
| | — |
| | 19,323 |
|
| Inventory | | — |
| | 45,623 |
| | 17,015 |
| | — |
| | 62,638 |
|
| Advances to affiliates, net | | 10 |
| | 999,340 |
| | 4,968 |
| | (893,866 | ) | | 110,452 |
|
| Other current assets | | 48 |
| | 19,183 |
| | 27,083 |
| | — |
| | 46,314 |
|
| Total current assets | | 2,169,621 |
| | 1,286,544 |
| | 117,827 |
| | (893,866 | ) | | 2,680,126 |
|
| Restricted cash and cash equivalents | | 11,097 |
| | — |
| | 723 |
| | — |
| | 11,820 |
|
| Property and equipment, net | | — |
| | 2,061,831 |
| | 232,895 |
| | — |
| | 2,294,726 |
|
| Regulatory authorizations, net | | — |
| | 471,658 |
| | — |
| | — |
| | 471,658 |
|
| Goodwill | | — |
| | 504,173 |
| | — |
| | — |
| | 504,173 |
|
| Other intangible assets, net | | — |
| | 80,734 |
| | — |
| | — |
| | 80,734 |
|
| Investments in unconsolidated entities | | — |
| | 42,560 |
| | — |
| | — |
| | 42,560 |
|
| Investment in subsidiaries | | 3,721,688 |
| | 314,643 |
| | — |
| | (4,036,331 | ) | | — |
|
| Advances to affiliates | | 700 |
| | 60,761 |
| | — |
| | (61,461 | ) | | — |
|
| Deferred tax asset | | 92,727 |
| | — |
| | 9,150 |
| | (92,727 | ) | | 9,150 |
|
| Other noncurrent assets, net | | — |
| | 142,091 |
| | 144,496 |
| | — |
| | 286,587 |
|
| Total assets | | $ | 5,995,833 |
| | $ | 4,964,995 |
| | $ | 505,091 |
| | $ | (5,084,385 | ) | | $ | 6,381,534 |
|
| Liabilities and Shareholders’ Equity (Deficit) | | | | | | | | | | |
| Trade accounts payable | | $ | — |
| | $ | 94,089 |
| | $ | 12,321 |
| | $ | — |
| | $ | 106,410 |
|
| Trade accounts payable - DISH Network | | — |
| | 6 |
| | — |
| | — |
| | 6 |
|
| Current portion of long-term debt and capital lease obligations | | — |
| | 32,177 |
| | 807 |
| | — |
| | 32,984 |
|
| Advances from affiliates, net | | 850,807 |
| | 12,228 |
| | 31,429 |
| | (893,866 | ) | | 598 |
|
| Accrued expenses and other | | 44,654 |
| | 136,921 |
| | 38,738 |
| | — |
| | 220,313 |
|
| Total current liabilities | | 895,461 |
| | 275,421 |
| | 83,295 |
| | (893,866 | ) | | 360,311 |
|
| Long-term debt and capital lease obligations, net of unamortized debt issuance costs | | 3,358,179 |
| | 262,883 |
| | 1,401 |
| | — |
| | 3,622,463 |
|
| Deferred tax liabilities, net | | — |
| | 621,061 |
| | 128 |
| | (92,727 | ) | | 528,462 |
|
| Advances from affiliates | | — |
| | — |
| | 93,429 |
| | (61,461 | ) | | 31,968 |
|
| Other non-current liabilities | | — |
| | 80,532 |
| | 2,775 |
| | — |
| | 83,307 |
|
| Total HSS shareholders’ equity (deficit) | | 1,742,193 |
| | 3,725,098 |
| | 311,233 |
| | (4,036,331 | ) | | 1,742,193 |
|
| Noncontrolling interests | | — |
| | — |
| | 12,830 |
| | — |
| | 12,830 |
|
| Total liabilities and shareholders’ equity (deficit) | | $ | 5,995,833 |
| | $ | 4,964,995 |
| | $ | 505,091 |
| | $ | (5,084,385 | ) | | $ | 6,381,534 |
|
HUGHES SATELLITE SYSTEMS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - ContinuedCONTINUED
(Unaudited)
Condensed Consolidating Statement of Operations and Comprehensive Income (Loss)
For the Three Months Ended June 30, 2022
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Hughes Satellite Systems Corporation | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Total |
| Revenue: | | | | | | | | | | |
| Services and other revenue | | $ | — | | | $ | 340,844 | | | $ | 81,718 | | | $ | (6,099) | | | $ | 416,463 | |
| Equipment revenue | | — | | | 83,557 | | | 5,247 | | | (4,184) | | | 84,620 | |
| Total revenue | | — | | | 424,401 | | | 86,965 | | | (10,283) | | | 501,083 | |
| Costs and expenses: | | | | | | | | | | |
| Cost of sales - services and other (exclusive of depreciation and amortization) | | — | | | 106,689 | | | 42,687 | | | (6,760) | | | 142,616 | |
| Cost of sales - equipment (exclusive of depreciation and amortization) | | — | | | 69,716 | | | 3,408 | | | (3,076) | | | 70,048 | |
| Selling, general and administrative expenses | | — | | | 84,969 | | | 22,303 | | | (447) | | | 106,825 | |
| Research and development expenses | | — | | | 8,680 | | | 85 | | | — | | | 8,765 | |
| Depreciation and amortization | | — | | | 72,661 | | | 37,203 | | | — | | | 109,864 | |
| Total costs and expenses | | — | | | 342,715 | | | 105,686 | | | (10,283) | | | 438,118 | |
| Operating income (loss) | | — | | | 81,686 | | | (18,721) | | | — | | | 62,965 | |
| Other income (expense): | | | | | | | | | | |
| Interest income, net | | 3,185 | | | 1,357 | | | 1,014 | | | (1,277) | | | 4,279 | |
| Interest expense, net of amounts capitalized | | (22,460) | | | 955 | | | (2,868) | | | 1,277 | | | (23,096) | |
| Gains (losses) on investments, net | | (3) | | | 217 | | | — | | | — | | | 214 | |
| Equity in earnings (losses) of unconsolidated affiliates, net | | — | | | 338 | | | (1,639) | | | — | | | (1,301) | |
| Equity in earnings (losses) of subsidiaries, net | | 43,364 | | | (25,206) | | | — | | | (18,158) | | | — | |
| Foreign currency transaction gains (losses), net | | — | | | 2,910 | | | (5,788) | | | — | | | (2,878) | |
| Other, net | | — | | | (216) | | | (23) | | | — | | | (239) | |
| Total other income (expense), net | | 24,086 | | | (19,645) | | | (9,304) | | | (18,158) | | | (23,021) | |
| Income (loss) before income taxes | | 24,086 | | | 62,041 | | | (28,025) | | | (18,158) | | | 39,944 | |
| Income tax benefit (provision), net | | 4,408 | | | (18,677) | | | (575) | | | — | | | (14,844) | |
| Net income (loss) | | 28,494 | | | 43,364 | | | (28,600) | | | (18,158) | | | 25,100 | |
| Less: Net loss (income) attributable to non-controlling interests | | — | | | — | | | 3,394 | | | — | | | 3,394 | |
| Net income (loss) attributable to HSSC | | $ | 28,494 | | | $ | 43,364 | | | $ | (25,206) | | | $ | (18,158) | | | $ | 28,494 | |
| Comprehensive income (loss): | | | | | | | | | | |
| Net income (loss) from continuing operations | | $ | 28,494 | | | $ | 43,364 | | | $ | (28,600) | | | $ | (18,158) | | | $ | 25,100 | |
| Other comprehensive income (loss), net of tax: | | | | | | | | | | |
| Foreign currency translation adjustments | | — | | | — | | | (39,143) | | | — | | | (39,143) | |
| Unrealized gains (losses) on available-for-sale securities | | (46) | | | — | | | — | | | — | | | (46) | |
| Amounts reclassified to net income (loss): | | | | | | | | | | |
| Realized losses (gains) on available-for-sale securities | | 3 | | | — | | | — | | | — | | | 3 | |
| Equity in other comprehensive income (loss) of subsidiaries, net | | (32,150) | | | (32,150) | | | — | | | 64,300 | | | — | |
| Total other comprehensive income (loss), net of tax | | (32,193) | | | (32,150) | | | (39,143) | | | 64,300 | | | (39,186) | |
| Comprehensive income (loss) | | (3,699) | | | 11,214 | | | (67,743) | | | 46,142 | | | (14,086) | |
| Less: Comprehensive loss (income) attributable to non-controlling interests | | — | | | — | | | 10,387 | | | — | | | 10,387 | |
| Comprehensive income (loss) attributable to HSSC | | $ | (3,699) | | | $ | 11,214 | | | $ | (57,356) | | | $ | 46,142 | | | $ | (3,699) | |
HUGHES SATELLITE SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
Consolidating Statement of Operations and Comprehensive Income (Loss)
For the Three Months Ended June 30, 2021
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Hughes Satellite Systems Corporation | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Total |
| Revenue: | | | | | | | | | | |
| Services and other revenue | | $ | — | | | $ | 361,700 | | | $ | 79,919 | | | $ | (8,302) | | | $ | 433,317 | |
| Equipment revenue | | — | | | 78,619 | | | 6,148 | | | (16,211) | | | 68,556 | |
| Total revenue | | — | | | 440,319 | | | 86,067 | | | (24,513) | | | 501,873 | |
| Costs and expenses: | | | | | | | | | | |
| Cost of sales - services and other (exclusive of depreciation and amortization) | | — | | | 105,836 | | | 41,278 | | | (9,564) | | | 137,550 | |
| Cost of sales - equipment (exclusive of depreciation and amortization) | | — | | | 64,342 | | | 4,694 | | | (14,534) | | | 54,502 | |
| Selling, general and administrative expenses | | — | | | 81,512 | | | 22,919 | | | (415) | | | 104,016 | |
| Research and development expenses | | — | | | 7,276 | | | 165 | | | — | | | 7,441 | |
| Depreciation and amortization | | — | | | 82,443 | | | 29,860 | | | — | | | 112,303 | |
| Total costs and expenses | | — | | | 341,409 | | | 98,916 | | | (24,513) | | | 415,812 | |
| Operating income (loss) | | — | | | 98,910 | | | (12,849) | | | — | | | 86,061 | |
| Other income (expense): | | | | | | | | | | |
| Interest income, net | | 876 | | | 1,306 | | | 729 | | | (1,229) | | | 1,682 | |
| Interest expense, net of amounts capitalized | | (35,484) | | | 261 | | | (3,089) | | | 1,229 | | | (37,083) | |
| Gains (losses) on investments, net | | (6) | | | 2,100 | | | — | | | — | | | 2,094 | |
| Equity in earnings (losses) of unconsolidated affiliates, net | | — | | | 406 | | | (1,675) | | | — | | | (1,269) | |
| Equity in earnings (losses) of subsidiaries, net | | 65,004 | | | (14,747) | | | — | | | (50,257) | | | — | |
| Foreign currency transaction gains (losses), net | | — | | | (16) | | | 551 | | | — | | | 535 | |
| Other, net | | (357) | | | 2,410 | | | (64) | | | — | | | 1,989 | |
| Total other income (expense), net | | 30,033 | | | (8,280) | | | (3,548) | | | (50,257) | | | (32,052) | |
| Income (loss) before income taxes | | 30,033 | | | 90,630 | | | (16,397) | | | (50,257) | | | 54,009 | |
| Income tax benefit (provision), net | | 7,907 | | | (25,626) | | | (630) | | | — | | | (18,349) | |
| Net income (loss) | | 37,940 | | | 65,004 | | | (17,027) | | | (50,257) | | | 35,660 | |
| Less: Net loss (income) attributable to non-controlling interests | | — | | | — | | | 2,280 | | | — | | | 2,280 | |
| Net income (loss) attributable to HSSC | | $ | 37,940 | | | $ | 65,004 | | | $ | (14,747) | | | $ | (50,257) | | | $ | 37,940 | |
| Comprehensive income (loss): | | | | | | | | | | |
| Net income (loss) from continuing operations | | $ | 37,940 | | | $ | 65,004 | | | $ | (17,027) | | | $ | (50,257) | | | $ | 35,660 | |
| Other comprehensive income (loss), net of tax: | | | | | | | | | | |
| Foreign currency translation adjustments | | — | | | — | | | 42,060 | | | — | | | 42,060 | |
| Unrealized gains (losses) on available-for-sale securities | | 118 | | | — | | | — | | | — | | | 118 | |
| Equity in other comprehensive income (loss) of subsidiaries, net | | 33,720 | | | 33,720 | | | — | | | (67,440) | | | — | |
| Total other comprehensive income (loss), net of tax | | 33,838 | | | 33,720 | | | 42,060 | | | (67,440) | | | 42,178 | |
| Comprehensive income (loss) | | 71,778 | | | 98,724 | | | 25,033 | | | (117,697) | | | 77,838 | |
| Less: Comprehensive loss (income) attributable to non-controlling interests | | — | | | — | | | (6,060) | | | — | | | (6,060) | |
| Comprehensive income (loss) attributable to HSSC | | $ | 71,778 | | | $ | 98,724 | | | $ | 18,973 | | | $ | (117,697) | | | $ | 71,778 | |
HUGHES SATELLITE SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
Consolidating Statement of Operations and Comprehensive Income (Loss)
For the ThreeSix Months Ended SeptemberJune 30, 20172022
(In thousands)
|
| | | | | | | | | | | | | | | | | | | | |
| | | HSS | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Total |
| Revenue: | | | | | | | | | | |
| Services and other revenue - DISH Network | | $ | — |
| | $ | 107,765 |
| | $ | 499 |
| | $ | — |
| | $ | 108,264 |
|
| Services and other revenue - other | | — |
| | 273,821 |
| | 47,333 |
| | (10,181 | ) | | 310,973 |
|
| Equipment revenue - DISH Network | | — |
| | 126 |
| | — |
| | — |
| | 126 |
|
| Equipment revenue - other | | — |
| | 59,519 |
| | 6,242 |
| | (6,762 | ) | | 58,999 |
|
| Total revenue | | — |
| | 441,231 |
| | 54,074 |
| | (16,943 | ) | | 478,362 |
|
| Costs and Expenses: | | | | | | | | | | |
| Costs of sales - services and other (exclusive of depreciation and amortization) | | — |
| | 111,662 |
| | 35,625 |
| | (9,624 | ) | | 137,663 |
|
| Cost of sales - equipment (exclusive of depreciation and amortization) | | — |
| | 54,137 |
| | 4,623 |
| | (6,709 | ) | | 52,051 |
|
| Selling, general and administrative expenses | | — |
| | 72,492 |
| | 11,630 |
| | (610 | ) | | 83,512 |
|
| Research and development expenses | | — |
| | 8,302 |
| | — |
| | — |
| | 8,302 |
|
| Depreciation and amortization | | — |
| | 117,702 |
| | 10,213 |
| | — |
| | 127,915 |
|
| Total costs and expenses | | — |
| | 364,295 |
| | 62,091 |
| | (16,943 | ) | | 409,443 |
|
| Operating income | | — |
| | 76,936 |
| | (8,017 | ) | | — |
| | 68,919 |
|
| Other Income (Expense): | | | | | | | | | | |
| Interest income | | 7,667 |
| | 200 |
| | 653 |
| | (199 | ) | | 8,321 |
|
| Interest expense, net of amounts capitalized | | (57,372 | ) | | (4,282 | ) | | 672 |
| | 199 |
| | (60,783 | ) |
| Equity in earnings of unconsolidated affiliate | | — |
| | 1,948 |
| | — |
| | — |
| | 1,948 |
|
| Equity in earnings (losses) of subsidiaries, net | | 42,830 |
| | (2,705 | ) | | — |
| | (40,125 | ) | | — |
|
| Other, net | | — |
| | (85 | ) | | 1,889 |
| | — |
| | 1,804 |
|
| Total other income (expense), net | | (6,875 | ) | | (4,924 | ) | | 3,214 |
| | (40,125 | ) | | (48,710 | ) |
| Income (loss) before income taxes | | (6,875 | ) | | 72,012 |
| | (4,803 | ) | | (40,125 | ) | | 20,209 |
|
| Income tax benefit (provision) | | 17,826 |
| | (29,092 | ) | | 2,540 |
| | — |
| | (8,726 | ) |
| Net income (loss) | | 10,951 |
| | 42,920 |
| | (2,263 | ) | | (40,125 | ) | | 11,483 |
|
| Less: Net income attributable to noncontrolling interests | | — |
| | — |
| | 532 |
| | — |
| | 532 |
|
| Net income (loss) attributable to HSS | | $ | 10,951 |
| | $ | 42,920 |
| | $ | (2,795 | ) | | $ | (40,125 | ) | | $ | 10,951 |
|
| Comprehensive Income (Loss): | | | | | | | | | | |
| Net income (loss) | | $ | 10,951 |
| | $ | 42,920 |
| | $ | (2,263 | ) | | $ | (40,125 | ) | | $ | 11,483 |
|
| Other comprehensive income (loss), net of tax: | | | | | | | | | | |
| Foreign currency translation adjustments | | — |
| | — |
| | 8,571 |
| | — |
| | 8,571 |
|
| Unrealized gains (losses) on available-for-sale securities and other | | (20 | ) | | 24 |
| | (70 | ) | | — |
| | (66 | ) |
| Equity in other comprehensive income (loss) of subsidiaries, net | | 8,525 |
| | 8,501 |
| | — |
| | (17,026 | ) | | — |
|
| Total other comprehensive income (loss), net of tax | | 8,505 |
| | 8,525 |
| | 8,501 |
| | (17,026 | ) | | 8,505 |
|
| Comprehensive income (loss) | | 19,456 |
| | 51,445 |
| | 6,238 |
| | (57,151 | ) | | 19,988 |
|
| Less: Comprehensive income attributable to noncontrolling interests | | — |
| | — |
| | 532 |
| | — |
| | 532 |
|
| Comprehensive income (loss) attributable to HSS | | $ | 19,456 |
| | $ | 51,445 |
| | $ | 5,706 |
| | $ | (57,151 | ) | | $ | 19,456 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Hughes Satellite Systems Corporation | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Total |
| Revenue: | | | | | | | | | | |
| Services and other revenue | | $ | — | | | $ | 685,122 | | | $ | 164,401 | | | $ | (12,119) | | | $ | 837,404 | |
| Equipment revenue | | — | | | 166,542 | | | 11,280 | | | (10,485) | | | 167,337 | |
| Total revenue | | — | | | 851,664 | | | 175,681 | | | (22,604) | | | 1,004,741 | |
| Costs and expenses: | | | | | | | | | | |
| Cost of sales - services and other (exclusive of depreciation and amortization) | | — | | | 212,310 | | | 84,544 | | | (14,884) | | | 281,970 | |
| Cost of sales - equipment (exclusive of depreciation and amortization) | | — | | | 139,134 | | | 6,841 | | | (6,822) | | | 139,153 | |
| Selling, general and administrative expenses | | — | | | 175,603 | | | 43,738 | | | (898) | | | 218,443 | |
| Research and development expenses | | — | | | 16,216 | | | 165 | | | — | | | 16,381 | |
| Depreciation and amortization | | — | | | 150,967 | | | 72,575 | | | — | | | 223,542 | |
| Total costs and expenses | | — | | | 694,230 | | | 207,863 | | | (22,604) | | | 879,489 | |
| Operating income (loss) | | — | | | 157,434 | | | (32,182) | | | — | | | 125,252 | |
| Other income (expense): | | | | | | | | | | |
| Interest income | | 4,311 | | | 2,702 | | | 2,087 | | | (2,541) | | | 6,559 | |
| Interest expense, net of amounts capitalized | | (44,917) | | | 1,779 | | | (5,877) | | | 2,541 | | | (46,474) | |
| Gains (losses) on investments, net | | (3) | | | 217 | | | — | | | — | | | 214 | |
| Equity in earnings (losses) of unconsolidated affiliates, net | | — | | | 440 | | | (3,455) | | | — | | | (3,015) | |
| Equity in earnings (losses) of subsidiaries, net | | 93,120 | | | (35,048) | | | — | | | (58,072) | | | — | |
| Foreign currency transaction gains (losses), net | | — | | | 3,807 | | | (30) | | | — | | | 3,777 | |
| Other, net | | — | | | (271) | | | (157) | | | — | | | (428) | |
| Total other income (expense), net | | 52,511 | | | (26,374) | | | (7,432) | | | (58,072) | | | (39,367) | |
| Income (loss) before income taxes | | 52,511 | | | 131,060 | | | (39,614) | | | (58,072) | | | 85,885 | |
| Income tax benefit (provision), net | | 9,284 | | | (37,940) | | | (1,316) | | | — | | | (29,972) | |
| Net income (loss) | | 61,795 | | | 93,120 | | | (40,930) | | | (58,072) | | | 55,913 | |
| Less: Net loss (income) attributable to non-controlling interests | | — | | | — | | | 5,882 | | | — | | | 5,882 | |
| Net income (loss) attributable to HSSC | | $ | 61,795 | | | $ | 93,120 | | | $ | (35,048) | | | $ | (58,072) | | | $ | 61,795 | |
| Comprehensive income (loss): | | | | | | | | | | |
| Net income (loss) | | $ | 61,795 | | | $ | 93,120 | | | $ | (40,930) | | | $ | (58,072) | | | $ | 55,913 | |
| Other comprehensive income (loss), net of tax: | | | | | | | | | | |
| Foreign currency translation adjustments | | — | | | — | | | 7,543 | | | — | | | 7,543 | |
| Unrealized gains (losses) on available-for-sale securities | | (516) | | | — | | | — | | | — | | | (516) | |
| Amounts reclassified to net income (loss): | | | | | | | | | | |
| Realized losses (gains) on available-for-sale debt securities | | 3 | | | — | | | — | | | — | | | 3 | |
| Equity in other comprehensive income (loss) of subsidiaries, net | | 4,980 | | | 4,980 | | | — | | | (9,960) | | | — | |
| Total other comprehensive income (loss), net of tax | | 4,467 | | | 4,980 | | | 7,543 | | | (9,960) | | | 7,030 | |
| Comprehensive income (loss) | | 66,262 | | | 98,100 | | | (33,387) | | | (68,032) | | | 62,943 | |
| Less: Comprehensive loss (income) attributable to non-controlling interests | | — | | | — | | | 3,319 | | | — | | | 3,319 | |
| Comprehensive income (loss) attributable to HSSC | | $ | 66,262 | | | $ | 98,100 | | | $ | (30,068) | | | $ | (68,032) | | | $ | 66,262 | |
HUGHES SATELLITE SYSTEMS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - ContinuedCONTINUED
(Unaudited)
Condensed Consolidating Statement of Operations and Comprehensive Income (Loss)
For the ThreeSix Months Ended SeptemberJune 30, 20162021 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Hughes Satellite Systems Corporation | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Total |
| Revenue: | | | | | | | | | | |
| Services and other revenue | | $ | — | | | $ | 725,397 | | | $ | 157,622 | | | $ | (16,711) | | | $ | 866,308 | |
| Equipment revenue | | — | | | 139,656 | | | 14,194 | | | (33,055) | | | 120,795 | |
| Total revenue | | — | | | 865,053 | | | 171,816 | | | (49,766) | | | 987,103 | |
| Costs and expenses: | | | | | | | | | | |
| Cost of sales - services and other (exclusive of depreciation and amortization) | | — | | | 209,043 | | | 77,507 | | | (17,588) | | | 268,962 | |
| Cost of sales - equipment (exclusive of depreciation and amortization) | | — | | | 120,772 | | | 10,063 | | | (31,193) | | | 99,642 | |
| Selling, general and administrative expenses | | — | | | 165,055 | | | 44,316 | | | (985) | | | 208,386 | |
| Research and development expenses | | — | | | 14,634 | | | 352 | | | — | | | 14,986 | |
| Depreciation and amortization | | — | | | 176,695 | | | 58,272 | | | — | | | 234,967 | |
| Impairment of long-lived assets | | — | | | 210 | | | — | | | — | | | 210 | |
| Total costs and expenses | | — | | | 686,409 | | | 190,510 | | | (49,766) | | | 827,153 | |
| Operating income (loss) | | — | | | 178,644 | | | (18,694) | | | — | | | 159,950 | |
| Other income (expense): | | | | | | | | | | |
| Interest income, net | | 1,912 | | | 2,593 | | | 2,010 | | | (2,439) | | | 4,076 | |
| Interest expense, net of amounts capitalized | | (75,728) | | | 306 | | | (6,022) | | | 2,439 | | | (79,005) | |
| Gains (losses) on investments, net | | (6) | | | 2,100 | | | — | | | — | | | 2,094 | |
| Equity in earnings (losses) of unconsolidated affiliates, net | | — | | | 625 | | | (3,655) | | | — | | | (3,030) | |
| Equity in earnings (losses) of subsidiaries, net | | 115,147 | | | (27,364) | | | — | | | (87,783) | | | — | |
| Foreign currency transaction gains (losses), net | | — | | | (19) | | | (2,806) | | | — | | | (2,825) | |
| Other, net | | (1,939) | | | 3,154 | | | (199) | | | — | | | 1,016 | |
| Total other income (expense), net | | 39,386 | | | (18,605) | | | (10,672) | | | (87,783) | | | (77,674) | |
| Income (loss) before income taxes | | 39,386 | | | 160,039 | | | (29,366) | | | (87,783) | | | 82,276 | |
| Income tax benefit (provision), net | | 17,131 | | | (44,892) | | | (1,225) | | | — | | | (28,986) | |
| Net income (loss) | | 56,517 | | | 115,147 | | | (30,591) | | | (87,783) | | | 53,290 | |
| Less: Net loss (income) attributable to non-controlling interests | | — | | | — | | | 3,227 | | | — | | | 3,227 | |
| Net income (loss) attributable to HSSC | | $ | 56,517 | | | $ | 115,147 | | | $ | (27,364) | | | $ | (87,783) | | | $ | 56,517 | |
| Comprehensive income (loss): | | | | | | | | | | |
| Net income (loss) | | $ | 56,517 | | | $ | 115,147 | | | $ | (30,591) | | | $ | (87,783) | | | $ | 53,290 | |
| Other comprehensive income (loss), net of tax: | | | | | | | | | | |
| Foreign currency translation adjustments | | — | | | — | | | 8,318 | | | — | | | 8,318 | |
| Unrealized gains (losses) on available-for-sale securities | | 30 | | | — | | | — | | | — | | | 30 | |
| Amounts reclassified to net income (loss): | | | | | | | | | | |
| Equity in other comprehensive income (loss) of subsidiaries, net | | 5,588 | | | 5,588 | | | — | | | (11,176) | | | — | |
| Total other comprehensive income (loss), net of tax | | 5,618 | | | 5,588 | | | 8,318 | | | (11,176) | | | 8,348 | |
| Comprehensive income (loss) | | 62,135 | | | 120,735 | | | (22,273) | | | (98,959) | | | 61,638 | |
| Less: Comprehensive loss (income) attributable to non-controlling interests | | — | | | — | | | 497 | | | — | | | 497 | |
| Comprehensive income (loss) attributable to HSSC | | $ | 62,135 | | | $ | 120,735 | | | $ | (21,776) | | | $ | (98,959) | | | $ | 62,135 | |
(In thousands)
|
| | | | | | | | | | | | | | | | | | | | |
| | | HSS | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Total |
| Revenue: | | | | | | | | | | |
| Services and other revenue - DISH Network | | $ | — |
| | $ | 111,750 |
| | $ | — |
| | $ | — |
| | $ | 111,750 |
|
| Services and other revenue - other | | — |
| | 249,571 |
| | 32,945 |
| | (5,639 | ) | | 276,877 |
|
| Equipment revenue - DISH Network | | — |
| | 2,138 |
| | — |
| | — |
| | 2,138 |
|
| Equipment revenue - other | | — |
| | 83,843 |
| | 5,471 |
| | (22,813 | ) | | 66,501 |
|
| Total revenue | | — |
| | 447,302 |
| | 38,416 |
| | (28,452 | ) | | 457,266 |
|
| Costs and Expenses: | | | | | | | | | | |
| Costs of sales - services and other (exclusive of depreciation and amortization) | | — |
| | 111,241 |
| | 24,832 |
| | (5,486 | ) | | 130,587 |
|
| Cost of sales - equipment (exclusive of depreciation and amortization) | | — |
| | 71,728 |
| | 4,039 |
| | (22,166 | ) | | 53,601 |
|
| Selling, general and administrative expenses | | — |
| | 59,574 |
| | 9,100 |
| | (800 | ) | | 67,874 |
|
| Research and development expenses | | — |
| | 9,030 |
| | — |
| | — |
| | 9,030 |
|
| Depreciation and amortization | | — |
| | 100,375 |
| | 4,399 |
| | — |
| | 104,774 |
|
| Total costs and expenses | | — |
| | 351,948 |
| | 42,370 |
| | (28,452 | ) | | 365,866 |
|
| Operating income | | — |
| | 95,354 |
| | (3,954 | ) | | — |
| | 91,400 |
|
| Other Income (Expense): | | | | | | | | | | |
| Interest income | | 3,502 |
| | 9 |
| | 495 |
| | — |
| | 4,006 |
|
| Interest expense, net of amounts capitalized | | (50,766 | ) | | (3,491 | ) | | 721 |
| | — |
| | (53,536 | ) |
| Gains on marketable investment securities, net | | 5 |
| | — |
| | — |
| | — |
| | 5 |
|
| Equity in earnings of unconsolidated affiliate | | — |
| | 2,654 |
| | — |
| | — |
| | 2,654 |
|
| Equity in earnings (losses) of subsidiaries, net | | 57,324 |
| | (1,801 | ) | | — |
| | (55,523 | ) | | — |
|
| Other, net | | (1 | ) | | (40 | ) | | 17 |
| | — |
| | (24 | ) |
| Total other income (expense), net | | 10,064 |
| | (2,669 | ) | | 1,233 |
| | (55,523 | ) | | (46,895 | ) |
| Income (loss) before income taxes | | 10,064 |
| | 92,685 |
| | (2,721 | ) | | (55,523 | ) | | 44,505 |
|
| Income tax benefit (provision) | | 17,501 |
| | (35,257 | ) | | 1,340 |
| | — |
| | (16,416 | ) |
| Net income (loss) | | 27,565 |
| | 57,428 |
| | (1,381 | ) | | (55,523 | ) | | 28,089 |
|
| Less: Net income attributable to noncontrolling interests | | — |
| | — |
| | 524 |
| | — |
| | 524 |
|
| Net income (loss) attributable to HSS | | $ | 27,565 |
| | $ | 57,428 |
| | $ | (1,905 | ) | | $ | (55,523 | ) | | $ | 27,565 |
|
| Comprehensive Income (Loss): | | |
| | |
| | |
| | |
| | |
|
| Net income (loss) | | $ | 27,565 |
| | $ | 57,428 |
| | $ | (1,381 | ) | | $ | (55,523 | ) | | $ | 28,089 |
|
| Other comprehensive income (loss), net of tax: | | | | | | | | | | |
| Foreign currency translation adjustments | | — |
| | — |
| | 1,255 |
| | — |
| | 1,255 |
|
| Unrealized gains (losses) on available-for-sale securities and other | | (38 | ) | | 804 |
| | (16 | ) | | — |
| | 750 |
|
| Recognition of realized gains on available-for-sale securities in net income (loss) | | (4 | ) | | — |
| | — |
| | — |
| | (4 | ) |
| Equity in other comprehensive income (loss) of subsidiaries, net | | 2,043 |
| | 1,239 |
| | — |
| | (3,282 | ) | | — |
|
| Total other comprehensive income (loss), net of tax | | 2,001 |
| | 2,043 |
| | 1,239 |
| | (3,282 | ) | | 2,001 |
|
| Comprehensive income (loss) | | 29,566 |
| | 59,471 |
| | (142 | ) | | (58,805 | ) | | 30,090 |
|
| Less: Comprehensive income attributable to noncontrolling interests | | — |
| | — |
| | 524 |
| | — |
| | 524 |
|
| Comprehensive income (loss) attributable to HSS | | $ | 29,566 |
| | $ | 59,471 |
| | $ | (666 | ) | | $ | (58,805 | ) | | $ | 29,566 |
|
HUGHES SATELLITE SYSTEMS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - ContinuedCONTINUED
(Unaudited)
Condensed Consolidating Statement of Operations and Comprehensive Income (Loss)Cash Flows
For the Nine Months Ended SeptemberSix months ended June 30, 20172022
(In thousands) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Hughes Satellite Systems Corporation | | Guarantor
Subsidiaries | | Non-Guarantor
Subsidiaries | | Eliminations | | Total |
| Cash flows from operating activities: | | | | | | | | | | |
| Net income (loss) | | $ | 61,795 | | | $ | 93,120 | | | $ | (40,930) | | | $ | (58,072) | | | $ | 55,913 | |
| Adjustments to reconcile net income (loss) to net cash flows from operating activities | | (90,384) | | | 142,006 | | | 86,303 | | | 58,072 | | | 195,997 | |
| Net cash provided by (used for) operating activities | | (28,589) | | | 235,126 | | | 45,373 | | | — | | | 251,910 | |
| | | | | | | | | | |
| Cash flows from investing activities: | | | | | | | | | | |
| Purchases of marketable investment securities | | (164,541) | | | — | | | (6,464) | | | — | | | (171,005) | |
| Sales and maturities of marketable investment securities | | 662,347 | | | — | | | — | | | — | | | 662,347 | |
| | | | | | | | | | |
| Expenditures for property and equipment | | — | | | (94,658) | | | (31,224) | | | — | | | (125,882) | |
| | | | | | | | | | |
| Expenditures for externally marketed software | | — | | | (11,967) | | | — | | | — | | | (11,967) | |
| | | | | | | | | | |
| | | | | | | | | | |
| Distributions (contributions) and advances from (to) subsidiaries, net | | 143,460 | | | — | | | — | | | (143,460) | | | — | |
| | | | | | | | | | |
| India JV formation | | — | | | (7,892) | | | — | | | — | | | (7,892) | |
| Dividend received from unconsolidated affiliate | | — | | | 2,000 | | | — | | | — | | | 2,000 | |
| Net cash provided by (used for) investing activities | | 641,266 | | | (112,517) | | | (37,688) | | | (143,460) | | | 347,601 | |
| | | | | | | | | | |
| Cash flows from financing activities: | | | | | | | | | | |
| | | | | | | | | | |
| Payment of finance lease obligations | | — | | | — | | | (114) | | | — | | | (114) | |
| Payment of in-orbit incentive obligations | | — | | | (1,908) | | | — | | | — | | | (1,908) | |
| | | | | | | | | | |
| Dividend paid to EchoStar | | (100,000) | | | — | | | — | | | — | | | (100,000) | |
| | | | | | | | | | |
| Contribution (distributions) and advances (to) from parent, net | | — | | | (143,460) | | | — | | | 143,460 | | | — | |
| Net cash provided by (used for) financing activities | | (100,000) | | | (145,368) | | | (114) | | | 143,460 | | | (102,022) | |
| | | | | | | | | | |
| Effect of exchange rates on cash and cash equivalents | | — | | | — | | | (672) | | | — | | | (672) | |
| Net increase (decrease) in cash and cash equivalents | | 512,677 | | | (22,759) | | | 6,899 | | | — | | | 496,817 | |
| Cash and cash equivalents, including restricted amounts, beginning of period | | 324,764 | | | 42,550 | | | 62,834 | | | — | | | 430,148 | |
| Cash and cash equivalents, including restricted amounts, end of period | | $ | 837,441 | | | $ | 19,791 | | | $ | 69,733 | | | $ | — | | | $ | 926,965 | |
|
| | | | | | | | | | | | | | | | | | | | |
| | | HSS | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Total |
| Revenue: | | | | | | | | | | |
| Services and other revenue - DISH Network | | $ | — |
| | $ | 329,457 |
| | $ | 1,218 |
| | $ | — |
| | $ | 330,675 |
|
| Services and other revenue - other | | — |
| | 763,554 |
| | 125,307 |
| | (22,610 | ) | | 866,251 |
|
| Equipment revenue - DISH Network | | — |
| | 175 |
| | — |
| | — |
| | 175 |
|
| Equipment revenue - other | | — |
| | 192,536 |
| | 15,952 |
| | (34,844 | ) | | 173,644 |
|
| Total revenue | | — |
| | 1,285,722 |
| | 142,477 |
| | (57,454 | ) | | 1,370,745 |
|
| Costs and Expenses: | | | | | | | | | | |
| Costs of sales - services and other (exclusive of depreciation and amortization) | | — |
| | 326,992 |
| | 95,276 |
| | (20,635 | ) | | 401,633 |
|
| Cost of sales - equipment (exclusive of depreciation and amortization) | | — |
| | 176,449 |
| | 12,429 |
| | (34,736 | ) | | 154,142 |
|
| Selling, general and administrative expenses | | — |
| | 213,212 |
| | 32,876 |
| | (2,083 | ) | | 244,005 |
|
| Research and development expenses | | — |
| | 23,444 |
| | — |
| | — |
| | 23,444 |
|
| Depreciation and amortization | | — |
| | 339,342 |
| | 25,536 |
| | — |
| | 364,878 |
|
| Total costs and expenses | | — |
| | 1,079,439 |
| | 166,117 |
| | (57,454 | ) | | 1,188,102 |
|
| Operating income | | — |
| | 206,283 |
| | (23,640 | ) | | — |
| | 182,643 |
|
| Other Income (Expense): | | | | | | | | | | |
| Interest income | | 19,890 |
| | 633 |
| | 1,322 |
| | (597 | ) | | 21,248 |
|
| Interest expense, net of amounts capitalized | | (172,007 | ) | | (12,301 | ) | | 1,715 |
| | 597 |
| | (181,996 | ) |
| Gains (losses) on marketable investment securities, net | | — |
| | 1,723 |
| | — |
| | — |
| | 1,723 |
|
| Other-than-temporary impairment loss on available-for-sale securities | | — |
| | (3,298 | ) | | — |
| | — |
| | (3,298 | ) |
| Equity in earnings of unconsolidated affiliate | | — |
| | 5,298 |
| | — |
| | — |
| | 5,298 |
|
| Equity in earnings (losses) of subsidiaries, net | | 117,767 |
| | (13,344 | ) | | — |
| | (104,423 | ) | | — |
|
| Other, net | | — |
| | (925 | ) | | 1,154 |
| | — |
| | 229 |
|
| Total other income (expense), net | | (34,350 | ) | | (22,214 | ) | | 4,191 |
| | (104,423 | ) | | (156,796 | ) |
| Income (loss) before income taxes | | (34,350 | ) | | 184,069 |
| | (19,449 | ) | | (104,423 | ) | | 25,847 |
|
| Income tax benefit (provision) | | 54,556 |
| | (65,974 | ) | | 6,783 |
| | — |
| | (4,635 | ) |
| Net income (loss) | | 20,206 |
|
| 118,095 |
|
| (12,666 | ) |
| (104,423 | ) | | 21,212 |
|
| Less: Net income attributable to noncontrolling interests | | — |
| | — |
| | 1,006 |
| | — |
| | 1,006 |
|
| Net income (loss) attributable to HSS | | $ | 20,206 |
| | $ | 118,095 |
| | $ | (13,672 | ) | | $ | (104,423 | ) | | $ | 20,206 |
|
| Comprehensive Income (Loss): | | | | | | | | | | |
| Net income (loss) | | $ | 20,206 |
| | $ | 118,095 |
| | $ | (12,666 | ) | | $ | (104,423 | ) | | $ | 21,212 |
|
| Other comprehensive income (loss), net of tax: | | | | | | | | | | |
| Foreign currency translation adjustments | | — |
| | — |
| | 13,956 |
| | — |
| | 13,956 |
|
| Unrealized gains (losses) on available-for-sale securities and other | | (68 | ) | | (1,464 | ) | | (45 | ) | | — |
| | (1,577 | ) |
| Recognition of other-than-temporary loss on available-for-sale securities in net income (loss) | | — |
| | 3,298 |
| | — |
| | — |
| | 3,298 |
|
| Equity in other comprehensive income (loss) of subsidiaries, net | | 15,745 |
| | 13,911 |
| | — |
| | (29,656 | ) | | — |
|
| Total other comprehensive income (loss), net of tax | | 15,677 |
| | 15,745 |
| | 13,911 |
| | (29,656 | ) | | 15,677 |
|
| Comprehensive income (loss) | | 35,883 |
| | 133,840 |
| | 1,245 |
| | (134,079 | ) | | 36,889 |
|
| Less: Comprehensive income attributable to noncontrolling interests | | — |
| | — |
| | 1,006 |
| | — |
| | 1,006 |
|
| Comprehensive income (loss) attributable to HSS | | $ | 35,883 |
| | $ | 133,840 |
| | $ | 239 |
| | $ | (134,079 | ) | | $ | 35,883 |
|
HUGHES SATELLITE SYSTEMS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - ContinuedCONTINUED
(Unaudited)
Condensed Consolidating Statement of Operations and Comprehensive Income (Loss)
For the Nine Months Ended September 30, 2016
(In thousands)
|
| | | | | | | | | | | | | | | | | | | | |
| | | HSS | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Total |
| Revenue: | | | | | | | | | | |
| Services and other revenue - DISH Network | | $ | — |
| | $ | 337,353 |
| | $ | — |
| | $ | — |
| | $ | 337,353 |
|
| Services and other revenue - other | | — |
| | 743,654 |
| | 94,962 |
| | (16,753 | ) | | 821,863 |
|
| Equipment revenue - DISH Network | | — |
| | 7,008 |
| | — |
| | — |
| | 7,008 |
|
| Equipment revenue - other | | — |
| | 178,376 |
| | 12,296 |
| | (29,786 | ) | | 160,886 |
|
| Total revenue | | — |
| | 1,266,391 |
| | 107,258 |
| | (46,539 | ) | | 1,327,110 |
|
| Costs and Expenses: | | | | | | | | | | |
| Costs of sales - services and other (exclusive of depreciation and amortization) | | — |
| | 328,113 |
| | 70,064 |
| | (16,213 | ) | | 381,964 |
|
| Cost of sales - equipment (exclusive of depreciation and amortization) | | — |
| | 162,644 |
| | 9,649 |
| | (28,264 | ) | | 144,029 |
|
| Selling, general and administrative expenses | | — |
| | 182,110 |
| | 27,926 |
| | (2,062 | ) | | 207,974 |
|
| Research and development expenses | | — |
| | 23,524 |
| | — |
| | — |
| | 23,524 |
|
| Depreciation and amortization | | — |
| | 301,896 |
| | 7,552 |
| | — |
| | 309,448 |
|
| Total costs and expenses | | — |
| | 998,287 |
| | 115,191 |
| | (46,539 | ) | | 1,066,939 |
|
| Operating income | | — |
| | 268,104 |
| | (7,933 | ) | | — |
| | 260,171 |
|
| Other Income (Expense): | | | | | | | | | | |
| Interest income | | 6,135 |
| | 88 |
| | 1,214 |
| | (10 | ) | | 7,427 |
|
| Interest expense, net of amounts capitalized | | (120,357 | ) | | (11,589 | ) | | 4,310 |
| | 10 |
| | (127,626 | ) |
| Gains on marketable investment securities, net | | 2,989 |
| | 2,311 |
| | — |
| | — |
| | 5,300 |
|
| Equity in earnings of unconsolidated affiliate | | — |
| | 6,758 |
| | — |
| | — |
| | 6,758 |
|
| Equity in earnings (losses) of subsidiaries, net | | 164,592 |
| | (1,627 | ) | | — |
| | (162,965 | ) | | — |
|
| Other, net | | 6,750 |
| | (2,317 | ) | | 932 |
| | — |
| | 5,365 |
|
| Total other income (expense), net | | 60,109 |
| | (6,376 | ) | | 6,456 |
| | (162,965 | ) | | (102,776 | ) |
| Income (loss) before income taxes | | 60,109 |
| | 261,728 |
| | (1,477 | ) | | (162,965 | ) | | 157,395 |
|
| Income tax benefit (provision) | | 39,063 |
| | (96,854 | ) | | 514 |
| | — |
| | (57,277 | ) |
| Net income (loss) | | 99,172 |
| | 164,874 |
| | (963 | ) | | (162,965 | ) | | 100,118 |
|
| Less: Net income attributable to noncontrolling interests | | — |
| | — |
| | 946 |
| | — |
| | 946 |
|
| Net income (loss) attributable to HSS | | $ | 99,172 |
| | $ | 164,874 |
| | $ | (1,909 | ) | | $ | (162,965 | ) | | $ | 99,172 |
|
| Comprehensive Income (Loss): | | |
| | |
| | |
| | |
| | |
|
| Net income (loss) | | $ | 99,172 |
| | $ | 164,874 |
| | $ | (963 | ) | | $ | (162,965 | ) | | $ | 100,118 |
|
| Other comprehensive income (loss), net of tax: | | | | | | | | | | |
| Foreign currency translation adjustments | | — |
| | — |
| | 10,607 |
| | — |
| | 10,607 |
|
| Unrealized gains (losses) on available-for-sale securities and other | | 3,322 |
| | (751 | ) | | (28 | ) | | — |
| | 2,543 |
|
| Recognition of realized gains on available-for-sale securities in net income (loss) | | (2,989 | ) | | — |
| | — |
| | — |
| | (2,989 | ) |
| Equity in other comprehensive income (loss) of subsidiaries, net | | 10,014 |
| | 10,765 |
| | — |
| | (20,779 | ) | | — |
|
| Total other comprehensive income (loss), net of tax | | 10,347 |
| | 10,014 |
| | 10,579 |
| | (20,779 | ) | | 10,161 |
|
| Comprehensive income (loss) | | 109,519 |
| | 174,888 |
| | 9,616 |
| | (183,744 | ) | | 110,279 |
|
| Less: Comprehensive income attributable to noncontrolling interests | | — |
| | — |
| | 760 |
| | — |
| | 760 |
|
| Comprehensive income (loss) attributable to HSS | | $ | 109,519 |
| | $ | 174,888 |
| | $ | 8,856 |
| | $ | (183,744 | ) | | $ | 109,519 |
|
HUGHES SATELLITE SYSTEMS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
Condensed Consolidating Statement of Cash Flows
For the Nine Months Ended SeptemberSix months ended June 30, 20172021
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Hughes Satellite Systems Corporation | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Total |
| Cash flows from operating activities: | | | | | | | | | | |
| Net income (loss) | | $ | 56,517 | | | $ | 115,147 | | | $ | (30,591) | | | $ | (87,783) | | | $ | 53,290 | |
| Adjustments to reconcile net income (loss) to net cash flows from operating activities | | (129,770) | | | 244,556 | | | 63,527 | | | 87,782 | | | 266,095 | |
| Net cash provided by (used for) operating activities | | (73,253) | | | 359,703 | | | 32,936 | | | (1) | | | 319,385 | |
| | | | | | | | | | |
| Cash flows from investing activities: | | | | | | | | | | |
| Purchases of marketable investment securities | | (816,386) | | | — | | | — | | | — | | | (816,386) | |
| Sales and maturities of marketable investment securities | | 1,409,820 | | | — | | | — | | | — | | | 1,409,820 | |
| Expenditures for property and equipment | | — | | | (91,630) | | | (62,752) | | | — | | | (154,382) | |
| Expenditures for externally marketed software | | — | | | (16,835) | | | — | | | — | | | (16,835) | |
| Distributions (contributions) and advances from (to) subsidiaries, net | | 189,828 | | | (43,591) | | | — | | | (146,237) | | | — | |
| Sales of other investments | | — | | | 9,016 | | | — | | | — | | | 9,016 | |
| Net cash provided by (used for) investing activities | | 783,262 | | | (143,040) | | | (62,752) | | | (146,237) | | | 431,233 | |
| | | | | | | | | | |
| Cash flows from financing activities: | | | | | | | | | | |
| Repurchase and maturity of the 2021 Senior Unsecured Notes | | (901,818) | | | — | | | — | | | — | | | (901,818) | |
| Payment of finance lease obligations | | — | | | — | | | (476) | | | — | | | (476) | |
| Payment of in-orbit incentive obligations | | — | | | (1,431) | | | — | | | — | | | (1,431) | |
| Contribution by non-controlling interest holder | | — | | | — | | | 9,880 | | | — | | | 9,880 | |
| Other, net | | — | | | — | | | (966) | | | — | | | (966) | |
| Contribution (distributions) and advances (to) from parent, net | | — | | | (189,828) | | | 43,591 | | | 146,237 | | | — | |
| Net cash provided by (used for) financing activities | | (901,818) | | | (191,259) | | | 52,029 | | | 146,237 | | | (894,811) | |
| | | | | | | | | | |
| Effect of exchange rates on cash and cash equivalents | | — | | | — | | | (348) | | | — | | | (348) | |
| Net increase (decrease) in cash and cash equivalents | | (191,809) | | | 25,404 | | | 21,865 | | | (1) | | | (144,541) | |
| Cash and cash equivalents, including restricted amounts, beginning of period | | 649,851 | | | 46,055 | | | 45,391 | | | — | | | 741,297 | |
| Cash and cash equivalents, including restricted amounts, end of period | | $ | 458,042 | | | $ | 71,459 | | | $ | 67,256 | | | $ | (1) | | | $ | 596,756 | |
(In thousands)
|
| | | | | | | | | | | | | | | | | | | | |
| | | HSS | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Total |
| Cash Flows from Operating Activities: | | | | | | | | | | |
| Net income (loss) | | $ | 20,206 |
| | $ | 118,095 |
| | $ | (12,666 | ) | | $ | (104,423 | ) | | $ | 21,212 |
|
| Adjustments to reconcile net income (loss) to net cash flows from operating activities | | 66,702 |
| | 160,917 |
| | 16,592 |
| | 104,423 |
| | 348,634 |
|
| Net cash flows from operating activities | | 86,908 |
| | 279,012 |
| | 3,926 |
| | — |
| | 369,846 |
|
| Cash Flows from Investing Activities: | | | | | | | | | | |
| Purchases of marketable investment securities | | (170,158 | ) | | — |
| | — |
| | — |
| | (170,158 | ) |
| Sales and maturities of marketable investment securities | | 152,423 |
| | — |
| | — |
| | — |
| | 152,423 |
|
| Expenditures for property and equipment | | — |
| | (243,409 | ) | | (48,566 | ) | | — |
| | (291,975 | ) |
| Changes in restricted cash and cash equivalents | | (1,282 | ) | | — |
| | (52 | ) | | — |
| | (1,334 | ) |
| Investment in subsidiary | | (44,000 | ) | | (47,500 | ) | | — |
| | 91,500 |
| | — |
|
| Expenditures for externally marketed software | | — |
| | (25,447 | ) | | — |
| | — |
| | (25,447 | ) |
| Net cash flows from investing activities | | (63,017 | ) | | (316,356 | ) | | (48,618 | ) | | 91,500 |
| | (336,491 | ) |
| Cash Flows from Financing Activities: | | | | | | | | | | |
| Payments of debt issuance costs | | (414 | ) | | — |
| | — |
| | — |
| | (414 | ) |
| Proceeds from capital contribution from parent | | — |
| | 44,000 |
| | 47,500 |
| | (91,500 | ) | | — |
|
| Repayment of debt and capital lease obligations | | — |
| | (23,800 | ) | | (1,987 | ) | | — |
| | (25,787 | ) |
| Advances from affiliates | | — |
| | — |
| | (36 | ) | | — |
| | (36 | ) |
| Other, net | | 600 |
| | (4,583 | ) | | 886 |
| | — |
| | (3,097 | ) |
| Net cash flows from financing activities | | 186 |
| | 15,617 |
| | 46,363 |
| | (91,500 | ) | | (29,334 | ) |
| Effect of exchange rates on cash and cash equivalents | | — |
| | — |
| | 923 |
| | — |
| | 923 |
|
| Net increase (decrease) in cash and cash equivalents | | 24,077 |
| | (21,727 | ) | | 2,594 |
| | — |
| | 4,944 |
|
| Cash and cash equivalents, at beginning of period | | 1,991,949 |
| | 53,905 |
| | 25,110 |
| | — |
| | 2,070,964 |
|
| Cash and cash equivalents, at end of period | | $ | 2,016,026 |
| | $ | 32,178 |
| | $ | 27,704 |
| | $ | — |
| | $ | 2,075,908 |
|
HUGHES SATELLITE SYSTEMS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
Condensed Consolidating Statement of Cash Flows
For the Nine Months Ended September 30, 2016
(In thousands)
|
| | | | | | | | | | | | | | | | | | | | |
| | | HSS | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Total |
| Cash Flows from Operating Activities: | | | | | | | | | | |
| Net income (loss) | | $ | 99,172 |
| | $ | 164,874 |
| | $ | (963 | ) | | $ | (162,965 | ) | | $ | 100,118 |
|
| Adjustments to reconcile net income (loss) to net cash flows from operating activities | | 63,754 |
| | 96,870 |
| | 23,109 |
| | 162,965 |
| | 346,698 |
|
| Net cash flows from operating activities | | 162,926 |
| | 261,744 |
| | 22,146 |
| | — |
| | 446,816 |
|
| Cash Flows from Investing Activities: | | | | | | | | | | |
| Purchases of marketable investment securities | | (396,730 | ) | | — |
| | — |
| | — |
| | (396,730 | ) |
| Sales and maturities of marketable investment securities | | 265,680 |
| | — |
| | — |
| | — |
| | 265,680 |
|
| Expenditures for property and equipment | | — |
| | (235,462 | ) | | (76,541 | ) | | — |
| | (312,003 | ) |
| Expenditures for externally marketed software | | — |
| | (17,991 | ) | | — |
| | — |
| | (17,991 | ) |
| Changes in restricted cash and cash equivalents | | 203 |
| | 7,500 |
| | (89 | ) | | — |
| | 7,614 |
|
| Investment in unconsolidated entity | | — |
| | (1,636 | ) | | — |
| | — |
| | (1,636 | ) |
| Investment in subsidiary | | (58,647 | ) | | (58,672 | ) | | — |
| | 117,319 |
| | — |
|
| Payment for EchoStar XXI launch services | | — |
| | — |
| | (11,875 | ) | | — |
| | (11,875 | ) |
| Other, net | | — |
| | 340 |
| | — |
| | (340 | ) | | — |
|
| Net cash flows from investing activities | | (189,494 | ) | | (305,921 | ) | | (88,505 | ) | | 116,979 |
| | (466,941 | ) |
| Cash Flows from Financing Activities: | | | | | | | | | | |
| Proceeds from issuance of long-term debt | | 1,500,000 |
| | — |
| | — |
| | — |
| | 1,500,000 |
|
| Payments of debt issuance costs | | (6,275 | ) | | — |
| | — |
| | — |
| | (6,275 | ) |
| Proceeds from capital contributions from parent | | — |
| | 58,647 |
| | 58,672 |
| | (117,319 | ) | | — |
|
| Capital contribution from EchoStar | | 11,875 |
| | — |
| | — |
| | — |
| | 11,875 |
|
| Repayment of debt and capital lease obligations | | — |
| | (21,321 | ) | | (2,731 | ) | | — |
| | (24,052 | ) |
| Advances from affiliates | | — |
| | — |
| | 5,481 |
| | — |
| | 5,481 |
|
| Other, net | | 9 |
| | (4,304 | ) | | 988 |
| | 340 |
| | (2,967 | ) |
| Net cash flows from financing activities | | 1,505,609 |
| | 33,022 |
| | 62,410 |
| | (116,979 | ) | | 1,484,062 |
|
| Effect of exchange rates on cash and cash equivalents | | — |
| | — |
| | 660 |
| | — |
| | 660 |
|
| Net increase (decrease) in cash and cash equivalents | | 1,479,041 |
| | (11,155 | ) | | (3,289 | ) | | — |
| | 1,464,597 |
|
| Cash and cash equivalents, at beginning of period | | 300,634 |
| | 55,767 |
| | 26,589 |
| | — |
| | 382,990 |
|
| Cash and cash equivalents, at end of period | | $ | 1,779,675 |
| | $ | 44,612 |
| | $ | 23,300 |
| | $ | — |
| | $ | 1,847,587 |
|
ItemITEM 2. MANAGEMENT’S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS
Unless the context indicates otherwise, as used herein, the terms “we,” “us,” “HSS,“HSSC,” the “Company” and “our” refer to Hughes Satellite Systems Corporation and its subsidiaries. References to “$” are to United States dollars. The following management’s narrative analysisManagement’s Narrative Analysis of resultsResults of operationsOperations (“Management’s Narrative Analysis”) should be read in conjunction with the condensed consolidated financial statementsour accompanying Consolidated Financial Statements and notes to our financial statements included elsewherethereto (“Consolidated Financial Statements”) in Item 1 of this Quarterly Report on Form 10-Q.10-Q (“Form 10-Q”). This management’snarrative analysisManagement’s Narrative Analysis is intended to help provide an understanding of our financial condition, changes in our financial condition and our results of operations. Many of the statements in this management’s narrative analysisManagement’s Narrative Analysis are forward-looking statements that involve assumptions and are subject to risks and uncertainties that are often difficult to predict and beyond our control. Actual results could differ materially from those expressed or implied by such forward-looking statements. See “DisclosureRefer to the Disclosure Regarding Forward-Looking Statements”Statements in this Quarterly Report on Form 10-Q for further discussion. For a discussion of additional risks, uncertainties and other factors that could impact our results of operations or financial condition, seerefer to the caption “Risk Factors”Risk Factors in Part II, Item 1A of this Quarterly Report on Form 10-Q and in Part I, Item 1A of our most recent Annual Report on Form 10-K for(“Form 10-K”) filed with the year ended December 31, 2016.Securities and Exchange Commission (“SEC”). Further, such forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q and we undertake no obligation to update them.
EXECUTIVE SUMMARY
We are a holding company and a subsidiary of EchoStar Corporation (“EchoStar” and “parent”). We were formed as a Colorado corporation in March 2011. We are an industry leader in both networking technologies and services, innovating to deliver the global solutions that power a global provider of satellite service operations, video delivery solutions,connected future for people, enterprises and things everywhere. We provide broadband satellite technologies and broadband internet products and services for consumer customers, which include home and small office customers. We deliver innovative network technologies, managedto medium-sized businesses, satellite services and various communications solutions for enterprise customers, which include aeronautical and government customers. enterprises.
We currently operate in two business segments, which are differentiated primarily by their operational focus:segments: Hughes segment and EchoStar Satellite Services segment (“ESS”ESS segment”). These segments are consistent with the way we make decisions regarding the allocation of resources, are made, as well as how operating results are reviewed by our chief operating decision maker, (“CODM”), who for HSS, is the Company’s Chief Executive Officer.
On January 31, 2017, EchoStar and certain of its and our subsidiaries, entered into a Share Exchange Agreement (the “Share Exchange Agreement”) with DISH Network Corporation (“DISH”) and certain of its subsidiaries. Pursuant to the Share Exchange Agreement, on February 28, 2017, among other things, EchoStar and certain of its and our subsidiaries received all of the shares of the Hughes Retail Preferred Tracking Stock issued by EchoStar Corporation (the “EchoStar Tracking Stock”) and the Hughes Retail Preferred Tracking Stock issued by us (the “HSS Tracking Stock”, together with the EchoStar Tracking Stock, the “Tracking Stock”) in exchange for 100% of the equity interests of certain EchoStar subsidiaries that held substantially all of EchoStar’s EchoStar Technologies businesses and certain other assets (collectively, the “Share Exchange”). Following consummation of the Share Exchange, EchoStar no longer operates the EchoStar Technologies business segment and the Tracking Stock was retired and is no longer outstanding and all agreements, arrangements and policy statements with respect to the Tracking Stock terminated and are of no further effect.
Effective in March of 2017, we changed our overhead allocation methodology used in our segment disclosures to reflect how the CODM evaluates our segments. Historically, the costs of all corporate functions were included on an allocated basis in each of the business segments’ EBITDA. Under the revised allocation methodology, these costs are now reported and analyzed as part of “Corporate and Other” (previously “All Other and Eliminations”). Our prior period segment EBITDA disclosures have been restated to reflect this change.
Our operations also include various corporate departmentsfunctions (primarily Executive, Treasury, Strategic Development, Human Resources, IT,Information Technology, Finance, Accounting, Real Estate and Legal) as well asand other activities, that have not been assigned to our operating segments, includingsuch as costs incurred in certain satellite development programs and other business development activities, our centralized treasury operations, and gains (losses)or losses from certain of our investments.investments, that have not been assigned to our business segments. These activities, costs and income, as well as eliminations of intersegment transactions, are accounted for in “Corporateour Corporate and Other.”Other segment in our segment reporting.
All amounts presented in this Management’s Narrative Analysis, unless otherwise noted, are expressed in thousands of U.S. dollars, except share and per share amounts and unless otherwise noted.
Highlights from our financial results are as follows:
Consolidated Results of Operations for the NineSix Months Ended SeptemberJune 30, 20172022:
| |
•Revenue of $1.0 billion • | Revenue of $1.37 billion
|
Operating income of $182.6$125.3 million
| |
• | Net income of $21.2•Net income of $55.9 million •Net income attributable to HSSC of $61.8 million •Earnings before interest, taxes, depreciation and amortization, and net income (loss) attributable to non-controlling interests (“EBITDA”) of $355.2 million (see reconciliation of this non-GAAP measure in Results of Operations)
Consolidated Financial Condition as of June 30, 2022:
•Total assets of $4.7 billion |
| |
• | Net income attributable to HSS of $20.2 million
|
Item 2. MANAGEMENT’S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS - ContinuedCONTINUED
EBITDA of $550.5 million (see reconciliation of this non-GAAP measure on pages 46)
Consolidated Financial Condition as of September 30, 2017•
| |
• | Total assets of $6.90 billion
|
Total liabilities of $4.85$2.7 billion
| |
• | Total shareholders’ equity of $2.05 billion
|
| |
• | Cash, cash equivalents and current marketable investment securities of $2.27 billion
|
•Total shareholder’s equity of $2.1 billion •Cash and cash equivalents and marketable investment securities of $1.3 billion
Hughes Segment
Our Hughes segment is an industry leader in both networking technologies and services, innovating to deliver the global solutions that power a global provider ofconnected future for people, enterprises and things everywhere. We provide broadband satellite technologies and broadband internet products and services for home and small officeto consumer customers. We deliverprovide broadband network technologies, managed services, equipment, hardware, satellite services and communications solutions to domesticgovernment and international consumersenterprise customers. We also design, provide and aeronautical, enterprise and government customers. In addition, our Hughes segment designs, provides and installsinstall gateway and terminal equipment to customers for other satellite systemssystems. In addition, we design, develop, construct and providesprovide telecommunication networks comprising satellite ground segment systems and terminals for other satellite systems, includingto mobile system operators.operators and our enterprise customers.
WeOur Hughes segment incorporates advances in technology to reduce costs and to increase the functionality and reliability of our products and services. Through advanced and proprietary methodologies, technologies, software and techniques, we continue to improve the efficiency of our networks. We invest in technologies to enhance our system and network management capabilities, specifically our managed services for enterprises. We also continue to invest in next generation technologies that can be applied to our future products and services.
Our Hughes segment continues to focus ourits efforts on growing our Hughes segment consumer revenue by maximizing utilizationoptimizing financial returns of our existing satellites while planning for new satellitessatellite capacity to be launched.launched, leased or acquired. In addition, we are also providing wireline and wireless capacity to utilize in markets that include residential, community WiFi, backhaul, and other enterprise broadband and multi-transport services. Our consumer revenue growth depends on our success in adding new subscribers and driving higher average revenue per subscriber across our wholesale and retail channels.
Our Hughes segment currently uses three satellites, the SPACEWAY 3 satellite, the EchoStar XVII satellite, and the EchoStar XIX satellite, and additional satellite capacity acquired from multiple third-party providers, to provide satellite broadband internet access and communications services to our customers. In December 2016, EchoStar launched the EchoStar XIX satellite, a next-generation, high throughput geostationary satellite, which provides significant capacity for continued subscriber growth. The EchoStar XIX satellite employs a multi-spot beam, bent pipe Ka-band architecture and provides additional capacity for the Hughes broadband services to our customers in North America and added capacity in certain Central and South American countries and has added capability for aeronautical, enterprise and international broadband services. EchoStar contributed the EchoStar XIX satellite to us in February 2017.
In August 2017, a subsidiary of EchoStar entered into a contract for the design and construction of a new, next-generation, high throughput geostationary satellite, with a planned 2021 launch, that is primarily intended to provide additional capacity for our HughesNet service in North, Central and South Americaretaining existing subscribers, as well as aeronauticalincreasing our Average Revenue Per User/subscriber (“ARPU”). Service and enterprise services. Capital expenditures associated with the construction and launch of this satellite will be included in “Corporate and Other” in EchoStar’s segment reporting.
Our wholly-owned subsidiary, Hughes Network Systems, L.L.C. and DISH Network L.L.C. (“DNLLC”), a wholly-owned subsidiary of DISH, have entered into a master service agreement (the “MSA”) pursuant to which DNLLC, among other things: (i) has the right, but not the obligation, to market, promote and solicit orders and upgrades for the Hughes satellite internet service and related equipment and other telecommunication services and (ii) will install Hughes service equipment with respect to activations generated by DNLLC. As a result of the MSA we do not expect to earn significant equipment revenue from our Distribution Agreement with dishNET Satellite Broadband L.L.C. (“dishNET”) in the future and we expect our subscriber acquisition costs related to increase in future periods.
In addition to our broadband consumer service offerings, our Hughes segment also provides network technologies, managed services, hardware, equipment and satellite services to large enterprise and government customers globally. Examples of such customers include lottery agencies, gas station operators and companies with multi-branch networks that rely on satellite or terrestrial networks for critical communication across wide geographies. Most of our enterprise customers have contracts with us for the services they purchase.
Developments toward the launch of next-generation satellite systems including low-earth orbit (“LEO”) and geostationary systems could provide additional opportunities to drive the demandongoing support for our network equipmentdirect and services.indirect customers and partners are typically impacted most significantly by our growth. The growth of our enterprise and equipmentconsumer businesses relies heavily on global economic conditions and the competitive landscape for pricing relative to competitors and alternative technologies.
To date, we have not experienced a material adverse impact from the Russia-Ukraine conflict and the associated sanctions.
In May 2019, we entered into an agreement with Bharti Airtel Limited (“BAL”) and its subsidiary, Bharti Airtel Services Limited (together with BAL, “Bharti”), pursuant to which Bharti agreed to contribute its very small aperture terminal (“VSAT”) telecommunications services and hardware business in India to Hughes 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 the India JV, we hold a 67% ownership interest and Bharti holds a 33% ownership interest in HCIPL. The India JV combines 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 India.
In August 2017, a subsidiary of EchoStar entered into a long-term contract for the design and construction of the EchoStar XXIV satellite, a new, next-generation, high throughput geostationary satellite. The EchoStar XXIV satellite is primarily intended to provide additional capacity for our HughesNet satellite internet service (the “HughesNet service”) in North, Central and South America as well as enterprise broadband services. The EchoStar
Item 2. MANAGEMENT’S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS - ContinuedCONTINUED
We continue to expand our efforts to grow our consumerXXIV satellite services business outside of the U.S. In April 2014, we entered into a satellite services agreement pursuant to which Eutelsat do Brasil provides us Ka-band capacity into Brazil on the EUTELSAT 65 West A satellite for a 15-year term. That satellite was launched in March 2016 and we began delivering high-speed consumer satellite broadband services in Brazil in July 2016. In September 2015, we entered into satellite services agreements pursuant to which affiliates of Telesat Canada (“Telesat”) will provide to us the Ka-band capacity on a satellite to be located at the 63 degree west longitude orbital location (“63 West”) for a 15-year term. We expect the satelliteis expected to be launched in the second quarterfirst half of 20182023. Further delays or impediments could have a material adverse impact on our business operations, future revenues, financial position and to augment the capacity being provided by the EUTELSAT 65 West Aprospects, and EchoStar XIX satellites. We launched our consumerplanned expansion of satellite broadband service in Colombia in the third quarter of 2017services throughout North, South and Central America. In December 2020, we expect to launch similar services in various other Central and South American countries in 2018.
We are tracking closely the developments in next-generation satellite businesses, and we are seeking to utilize our services, technologies and expertise to find new commercial opportunities for our business. In June 2015, EchoStar made an equity investment in WorldVu Satellites Limited (“OneWeb”), a global LEO satellite service company. We haveentered into an agreement with OneWeb to provide certain equipment and services in connectiona launch provider for the launch of EchoStar XXIV. Capital expenditures associated with the ground network system for OneWeb’s LEO satellites. In November 2017, we beganconstruction and launch of the production of OneWeb’s ground network system equipmentEchoStar XXIV satellite are included in EchoStar’s Corporate and expect to begin delivering this equipmentOther segment in mid-2018.its segment reporting.
As of September 30, 2017 and December 31, 2016, our Hughes segment had approximately 1,140,000 and 1,036,000 broadband subscribers, respectively. TheseOur broadband subscribers include customers that subscribe to our HughesNet broadband services in the U.S. and Latin America through retail, wholesale and small/medium enterprise service channels. Gross
The following table presents our approximate number of broadband subscribers:
| | | | | | | | | | | | | | | | |
| | As of |
| | June 30, 2022 | | March 31, 2022 | | |
| United States | | 1,019,000 | | | 1,055,000 | | | |
| Latin America | | 327,000 | | | 351,000 | | | |
| Total broadband subscribers | | 1,346,000 | | | 1,406,000 | | | |
The following table presents the approximate number of net subscriber additions:
| | | | | | | | | | | | | | | | | | |
| | For the Three Months Ended |
| | June 30, 2022 | | March 31, 2022 | | | | |
| United States | | (35,000) | | | (35,000) | | | | | |
| Latin America | | (25,000) | | | (21,000) | | | | | |
| Total net subscriber additions | | (60,000) | | | (56,000) | | | | | |
Our current capacity limitations have resulted in constraints in adding new subscribers in certain areas. Our ability to retain existing customers is being impacted by our capacity limitations as well as competitive pressure from competitors and other technologies. Challenges in meeting demand for the three months ended June 30, 2022, resulted in higher churn and lower total subscribers despite higher new subscriber additions increased by approximately 9,000 in the third quarter of 2017as compared to the second quarterthree months ended March 31, 2022.
Our Latin America consumer subscriber base in certain areas, similar to the U.S., continues to be capacity constrained. Our ability to retain existing customers is being impacted by adverse economic conditions in many areas of 2017Latin America and capacity constraints limit our ability to add new subscribers. For the three months ended June 30, 2022, the lower net subscribers were due to lower gross additions primarily from more selective customer screening and continued high churn as compared to the three months ended March 31, 2022.
We continued to execute our strategy of maximizing financial returns by utilizing capacity for applications other than consumer subscribers, such as community WiFi, and for other enterprise and government opportunities in Latin America.Continued success of this strategy will further reduce the available capacity for consumer subscribers.
As of June 30, 2022, our Hughes segment had $1.6 billion of contracted revenue backlog, an increase of 15.3%, as compared to December 31, 2021, primarily due to an increase in new additions incontracts from our domestic retail channel as a result of the launch of the EchoStar XIX satellite, which was placed into service in March 2017. The increase was partially offset by a decrease in new subscribers additions in ourand international retail channel. Our average monthly subscriber churn percentage for the third quarter of 2017 decreased compared to the second quarter of 2017. As a result of higher gross subscriber additions and lower churn, total net subscriber additions were approximately 53,000 for the quarter ended September 30, 2017 compared to approximately 41,000 for the second quarter of 2017. Subscriber additions and churn include only subscribers through our retail and wholesale channels.
As of September 30, 2017 and December 31, 2016, our Hughes segment had approximately $1.74 billion and $1.52 billion, respectively, of contracted revenue backlog.customers. We define Hughes segment contracted revenue backlog as our expected future revenue under enterprise customer contracts that are non-cancelable, excluding agreements with customers in our consumer market.including lease revenue.
EchoStar Satellite Services
Item 2. MANAGEMENT’S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS - CONTINUED
ESS Segment
Our ESS segment isprovides satellite services on a global provider of satellitefull-time and/or occasional-use basis to U.S. government service operationsproviders, internet service providers, broadcast news organizations, content providers and video delivery solutions.private enterprise customers. We operate our ESS business using our ownedprimarily the EchoStar IX satellite and leased in-orbit satellitesthe EchoStar 105/SES-11 satellite and related licenses.infrastructure. Revenue growth in our ESS segment depends largely on our ability to continuously make use of our available satellite capacity available for sale. We providewith existing customers and our ability to enter into commercial relationships with new customers.
As of June 30, 2022, our ESS segment had $16.8 million of contracted revenue backlog, an increase of 61.7%, as compared to December 31, 2021, primarily due to an increase in satellite services on a full-timeservice contracts with new and occasional-use basis primarily to DISH Network Corporation and its subsidiaries (“DISH Network”), Dish Mexico, S. de R.L. de C.V., a joint venture that EchoStar entered into in 2008 (“Dish Mexico”), United States (“U.S.”) government service providers, internet service providers, broadcast news organizations, programmers, and private enterpriseexisting customers. We also manage satellite operations for certain satellites owned by DISH Network.
We depend on DISH Network for a significant portion of thedefine contracted revenue backlog for our ESS segment and we expect that DISH Network will continue to be the primary source of revenue for our ESS segment. Therefore, the results of operations of our ESS segment are linked to changes in DISH Network’sas contracted future satellite capacity requirements. DISH Network’s capacity requirements have been driven by the addition of new channels and migration of programming to high-definition TV and video on demand services. The services that we provide to DISH Network are critical to its nationwide delivery of content to its customers across the U.S. While we expect to continue to provide satellite services to DISH Network, its satellite capacity requirements may change for a variety of reasons, including its ability to construct and launch its own satellites. Any termination or reduction in the services we provide to DISH Network may cause us to have unused capacity on our satellites and require that we aggressively pursue alternative sources of revenue for this business.lease revenue.
We entered into: (i) a construction contract with Airbus Defence and Space SAS for the construction of the EchoStar 105/SES-11 satellite with C-band, Ku-band and Ka-band payloads; (ii) an agreement with SES Satellite Leasing Limited for the procurement of the related launch services; and (iii) an agreement with SES Americom Inc. (“SES”) pursuant to which we will transfer the title to the Ku-band payload to an affiliate of SES following in-orbit testing of the satellite and the title to the C-band and Ka-band payloads to an affiliate of SES and SES, respectively, by early 2018. SES will provide to us satellite service
Item 2. MANAGEMENT’S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS - Continued
on the entire Ku-band payload on the EchoStar 105/SES-11 satellite for an initial ten-year term, with an option for us to renew the agreement on a year-to-year basis. The EchoStar 105/SES-11 satellite was launched in October 2017 and is expected to be placed into service in the fourth quarter of 2017. Our Ku-band payload on the EchoStar 105/SES-11 satellite will replace and augment our current capacity on the AMC-15 satellite, resulting in additional sales capacity. We expect to transfer activities from the AMC-15 satellite to the EchoStar 105/SES-11 satellite in the fourth quarter of 2017, which we expect will result in reduced operating costs associated with the lease of the AMC-15 satellite.
We continue to pursue expanding our business offerings by providing value added services such as telemetry, tracking, and control services to third parties, which leverages the ground monitoring networks and personnel currently within our ESS segment.
As of September 30, 2017 and December 31, 2016, our ESS segment had contracted revenue backlog attributable to satellites currently in orbit of approximately $1.26 billion and $1.16 billion, respectively.
NewOther Business Opportunities
Our industry is evolvingcontinues to evolve with the increase inincreasing worldwide demand for broadband internet access for information, entertainment and commerce. In addition to fiber and wireless systems, other technologies such as geostationary high throughput satellites, LEOlow-earth orbit (“LEO”) networks, balloons,medium-earth orbit (“MEO”) systems and High Altitude Platform Systems have begunmulti-transport networks using combinations of technologies are expected to continue to play significant roles in enabling global broadband access, networks and services. We intend to use our expertise, technologies, capital, investments, global presence, relationships and other capabilities to continue to provide broadband internet systems, equipment, networks and services for information, the internet-of-things, entertainment, education, remote-connectivity and commerce across industries and communities globally for consumer and enterprise customers. We are closely tracking the developments in North Americanext-generation satellite businesses, and internationallywe are seeking to utilize our services, technologies, licenses and expertise to find new commercial opportunities for consumers, enterprises and governments.our business.
We intend to continue to selectively explore opportunities to pursue investments, commercial alliances, partnerships, joint ventures, acquisitions, dispositions and other strategic acquisitions,initiatives and transactions, domestically and internationally, that we believe may allow us to increase our existing market share, increase our satellite capacity, expand into new satellite and other technologies, markets and new customers, broaden our portfolio of services, products and intellectual property, make our business more valuable, align us for future growth and expansion, maximize the return on our investments and strengthen our business and relationships with our customers. We may allocate or dispose of significant resources for long-term initiativesvalue that may not have a short or medium-term or any positive impact on our revenue, results of operations, or cash flow.
Item 2. MANAGEMENT’S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS - ContinuedCONTINUED
RESULTS OF OPERATIONS
Cybersecurity
Nine Months Ended September 30, 2017 Compared
We and the third parties with whom we do business face a constantly evolving and increasingly complex landscape of systemic cybersecurity risk in which hackers and other parties use multifaceted tactics, techniques, and procedures to execute cyberattacks and leverage security breaches and vulnerabilities. Our efforts in mitigating these risks through our cybersecurity program cannot eliminate all cybersecurity risk, including the risk of events that cascade through multiple internal networks or systems, or to one or more suppliers or customers. Disturbances in our systems caused by cyberattacks, including attacks on our third-party contractors and suppliers, could materially harm our ability to conduct our operations and may result in losses that could have a material adverse effect on our financial position. This may also create adverse consequences for our suppliers, third-party service providers, customers, and other third parties that we interact with on a regular basis. In addition, these types of security events could be widely publicized and could materially and adversely affect our reputation with our customers, vendors and shareholders and could harm our competitive position. Such incidents could also result in the release of confidential information about our operations, financial position and performance or about our customers or other third parties which could result in legal claims, fines, or liabilities that may not be covered by our insurance policies and could be material. Additionally, a security compromise or ransomware incident could require us to allocate significant management resources to recovery and mitigation and compel us to expend substantial additional resources to upgrade security measures to continue to protect our confidential information against cyberattacks.
In addition to our efforts to mitigate cybersecurity risk within our business, we are making investments to alleviate potential cybersecurity risk to our products. As a result of these efforts, we could discover new vulnerabilities within our products and systems. We may not discover all such vulnerabilities due to the Nine Months Ended Septemberscale of activities on our platforms, or due to other factors, including factors outside our control.
We are not aware of any cyber-incidents with respect to our owned or leased satellites or other networks, equipment or systems that have had a material adverse effect on our business, costs, operations, prospects, results of operation or financial position during the three and six months ended June 30, 20162022. There can be no assurance, however, that any such incident can be detected or thwarted or will not have such a material adverse effect in the future.
|
| | | | | | | | | | | | | | | |
| | | For the Nine Months Ended September 30, | | Variance |
| Statements of Operations Data (1) | | 2017 | | 2016 | | Amount | | % |
| | | (Dollars in thousands) |
| Revenue: | | | | | | | | |
| Services and other revenue - DISH Network | | $ | 330,675 |
| | $ | 337,353 |
| | $ | (6,678 | ) | | (2.0 | ) |
| Services and other revenue - other | | 866,251 |
| | 821,863 |
| | 44,388 |
| | 5.4 |
|
| Equipment revenue - DISH Network | | 175 |
| | 7,008 |
| | (6,833 | ) | | (97.5 | ) |
| Equipment revenue - other | | 173,644 |
| | 160,886 |
| | 12,758 |
| | 7.9 |
|
| Total revenue | | 1,370,745 |
| | 1,327,110 |
| | 43,635 |
| | 3.3 |
|
| Costs and Expenses: | | | | | | | | |
| Cost of sales - services and other | | 401,633 |
| | 381,964 |
| | 19,669 |
| | 5.1 |
|
| % of Total services and other revenue | | 33.6 | % | | 33.0 | % | | | | |
| Cost of sales - equipment | | 154,142 |
| | 144,029 |
| | 10,113 |
| | 7.0 |
|
| % of Total equipment revenue | | 88.7 | % | | 85.8 | % | | | | |
| Selling, general and administrative expenses | | 244,005 |
| | 207,974 |
| | 36,031 |
| | 17.3 |
|
| % of Total revenue | | 17.8 | % | | 15.7 | % | | | | |
| Research and development expenses | | 23,444 |
| | 23,524 |
| | (80 | ) | | (0.3 | ) |
| % of Total revenue | | 1.7 | % | | 1.8 | % | | | | |
| Depreciation and amortization | | 364,878 |
| | 309,448 |
| | 55,430 |
| | 17.9 |
|
| Total costs and expenses | | 1,188,102 |
| | 1,066,939 |
| | 121,163 |
| | 11.4 |
|
| Operating income | | 182,643 |
| | 260,171 |
| | (77,528 | ) | | (29.8 | ) |
| | | | | | | | | |
| Other Income (Expense): | | | | | | | | |
| Interest income | | 21,248 |
| | 7,427 |
| | 13,821 |
| | * |
|
| Interest expense, net of amounts capitalized | | (181,996 | ) | | (127,626 | ) | | (54,370 | ) | | 42.6 |
|
| Gains (losses) and impairment on marketable investment securities, net | | (1,575 | ) | | 5,300 |
| | (6,875 | ) | | * |
|
| Other, net | | 5,527 |
| | 12,123 |
| | (6,596 | ) | | (54.4 | ) |
| Total other expense, net | | (156,796 | ) | | (102,776 | ) | | (54,020 | ) | | 52.6 |
|
| Income before income taxes | | 25,847 |
| | 157,395 |
| | (131,548 | ) | | (83.6 | ) |
| Income tax provision | | (4,635 | ) | | (57,277 | ) | | 52,642 |
| | (91.9 | ) |
| Net income | | 21,212 |
| | 100,118 |
| | (78,906 | ) | | (78.8 | ) |
| Less: Net income attributable to noncontrolling interests | | 1,006 |
| | 946 |
| | 60 |
| | 6.3 |
|
| Net income attributable to HSS | | $ | 20,206 |
| | $ | 99,172 |
| | $ | (78,966 | ) | | (79.6 | ) |
| | | | | | | | | |
| Other Data: | | | | | | | | |
| EBITDA (2) | | $ | 550,467 |
| | $ | 586,096 |
| | $ | (35,629 | ) | | (6.1 | ) |
| Subscribers, end of period | | 1,140,000 |
| | 1,018,000 |
| | 122,000 |
| | 12.0 |
|
| ___________________________ | | | | | | | | |
* Percentage is not meaningful.
| |
(1) | An explanation of our key metrics is included on pages 48 and 49 under the heading “Explanation of Key Metrics and Other Items.” |
| |
(2) | A reconciliation of EBITDA to “Net income,” the most directly comparable GAAP measure in the accompanying financial statements, is included on page 46. For further information on our use of EBITDA see “Explanation of Key Metrics and Other Items” on page 49. |
Services and other revenue — DISH Network. “Services and other revenue — DISH Network” totaled $330.7 million for the nine months ended September 30, 2017, a decrease of $6.7 million or 2.0%, compared to the same period in 2016.
Services and other revenue - DISH Network from our Hughes segment for the nine months ended September 30, 2017 decreased by $9.2 million, or 12.4%, to $65.4 million compared to the same period in 2016. The decrease was primarily attributable to a decrease in wholesale subscribers.
Item 2. MANAGEMENT’S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS - ContinuedCONTINUED
Services and other revenue - DISH Network from Corporate and Other
Six Months Ended June 30, 2022 Compared to the Six Months Ended June 30, 2021
The following table presents our consolidated results of operations for the ninesix months ended SeptemberJune 30, 2017 increased by $3.6 million to $4.7 million2022 compared to the same period in 2016. The increase was primarily attributable to an increase in rental income relating to certain lease agreements pursuant to which DISH Network leases certain real estate from us.
Services and other revenue — other. “Services and other revenue — other” totaled $866.3 million for the ninesix months ended SeptemberJune 30, 2017, an increase2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the six months ended June 30, | | Variance |
Statements of Operations Data (1) | | 2022 | | 2021 | | Amount | | % |
| Revenue: | | | | | | | | |
| Services and other revenue | | $ | 837,404 | | | $ | 866,308 | | | $ | (28,904) | | | (3.3) | |
| Equipment revenue | | 167,337 | | | 120,795 | | | 46,542 | | | 38.5 | |
| Total revenue | | 1,004,741 | | | 987,103 | | | 17,638 | | | 1.8 | |
| Costs and expenses: | | | | | | | | |
| Cost of sales - services and other | | 281,970 | | | 268,962 | | | 13,008 | | | 4.8 | |
| % of total services and other revenue | | 33.7 | % | | 31.0 | % | | | | |
| Cost of sales - equipment | | 139,153 | | | 99,642 | | | 39,511 | | | 39.7 | |
| % of total equipment revenue | | 83.2 | % | | 82.5 | % | | | | |
| Selling, general and administrative expenses | | 218,443 | | | 208,386 | | | 10,057 | | | 4.8 | |
| % of total revenue | | 21.7 | % | | 21.1 | % | | | | |
| Research and development expenses | | 16,381 | | | 14,986 | | | 1,395 | | | 9.3 | |
| % of total revenue | | 1.6 | % | | 1.5 | % | | | | |
| Depreciation and amortization | | 223,542 | | | 234,967 | | | (11,425) | | | (4.9) | |
| Impairment of long-lived assets | | — | | | 210 | | | (210) | | | (100.0) | |
| Total costs and expenses | | 879,489 | | | 827,153 | | | 52,336 | | | 6.3 | |
| Operating income (loss) | | 125,252 | | | 159,950 | | | (34,698) | | | (21.7) | |
| Other income (expense): | | | | | | | | |
| Interest income, net | | 6,559 | | | 4,076 | | | 2,483 | | | 60.9 | |
| Interest expense, net of amounts capitalized | | (46,474) | | | (79,005) | | | 32,531 | | | (41.2) | |
| Gains (losses) on investments, net | | 214 | | | 2,094 | | | (1,880) | | | (89.8) | |
| Equity in earnings (losses) of unconsolidated affiliates, net | | (3,015) | | | (3,030) | | | 15 | | | (0.5) | |
| Foreign currency transaction gains (losses), net | | 3,777 | | | (2,825) | | | 6,602 | | | * |
| Other, net | | (428) | | | 1,016 | | | (1,444) | | | * |
| Total other income (expense), net | | (39,367) | | | (77,674) | | | 38,307 | | | (49.3) | |
| Income (loss) before income taxes | | 85,885 | | | 82,276 | | | 3,609 | | | 4.4 | |
| Income tax benefit (provision), net | | (29,972) | | | (28,986) | | | (986) | | | 3.4 | |
| Net income (loss) | | 55,913 | | | 53,290 | | | 2,623 | | | 4.9 | |
| Less: Net loss (income) attributable to non-controlling interests | | 5,882 | | | 3,227 | | | 2,655 | | | 82.3 | |
| Net income (loss) attributable to HSSC | | $ | 61,795 | | | $ | 56,517 | | | $ | 5,278 | | | 9.3 | |
| | | | | | | | |
| Other data: | | | | | | | | |
EBITDA (2) | | $ | 355,224 | | | $ | 395,399 | | | $ | (40,175) | | | (10.2) | |
| Subscribers, end of period | | 1,346,000 | | | 1,542,000 | | | (196,000) | | | (12.7) | |
* Percentage is not meaningful.
(1) An explanation of $44.4 million, or 5.4%our key metrics is included in Explanation of Key Metrics and Other Items.
(2) A reconciliation of EBITDA to Net income (loss), compared to the same period in 2016.
Services and other revenue - other from our Hughes segment for the nine months ended September 30, 2017 increased by $53.9 million, or 6.9%, to $833.1 million compared to the same period in 2016. The increase was primarily attributable to increases in sales of broadband services of $51.5 million to our domestic and international consumers, $8.2 million to our domestic enterprise customers and $3.8 million to our telecom systems customers, partially offset by a decrease of $9.8 million to our international enterprise customers.
Services and other revenue - other from our ESS segment for the nine months ended September 30, 2017 decreased by $9.1 million, or 20.6%, to $35.2 million compared to the same period in 2016. The decrease was primarily attributable to decreases in sales of transponder services due to expired service contracts.
Equipment revenue - DISH Network. “Equipment revenue — DISH Network” totaled $0.2 million for the nine months ended September 30, 2017, a decrease of $6.8 million or 97.5%, compared to the same period in 2016 primarily from our Hughes segment. The decrease in revenue was primarily due to the decrease in unit sales of broadband equipment to dishNET as a result of the MSA. See Note 13 in the notes to condensed consolidated financial statements in Item 1 of this report for additional information about the MSA.
Equipment revenue — other. “Equipment revenue — other” totaled $173.6 million for the nine months ended September 30, 2017, an increase of $12.8 million or 7.9%, compared to the same period in 2016 primarily from our Hughes segment. The increase was mainly due to an increase of $23.7 million in sales of broadband equipment to our domestic enterprise customers and an increase of $6.1 million to our domestic and international consumers. The increase was partially offset by a decrease in sales of broadband equipment to our telecom systems customers of $11.3 million, our international enterprise customers of $2.9 million, and our government customers of $2.8 million.
Cost of sales — services and other. “Cost of sales — services and other” totaled $401.6 million for the nine months ended September 30, 2017, an increase of $19.7 million or 5.1%, compared to the same period in 2016.
Cost of sales - services and other from our Hughes segment for the nine months ended September 30, 2017 increased by $18.5 million, or 5.5%, to $352.9 million compared to the same period in 2016. The increase was primarily attributable to an increase in the costs of broadband services provided to our domestic and international consumers, domestic enterprise customers, and telecom systems customers primarily due to the increase in sales of broadband services.
Cost of sales - services and other from our ESS segment for the nine months ended September 30, 2017 increased by $0.8 million, or 1.7%, to $48.9 million compared to the same period in 2016. The increase was primarily due to rental expenses for the lease of certain real estate and collocation and antenna space from DISH Network in 2017.
Cost of sales — equipment. “Cost of sales — equipment” totaled $154.1 million for the nine months ended September 30, 2017, an increase of $10.1 million or 7.0%, compared to the same period in 2016 primarily from our Hughes segment. The increase was primarily attributable to an increase of $20.8 million in equipment costs related to the increase in sales to our domestic and international consumers and enterprise customers, partially offset by a decrease of $10.7 million in equipment costs related to the decrease in sales to dishNET and our telecom systems customers.
Selling, general and administrative expenses. “Selling, general and administrative expenses” totaled $244.0 million for the nine months ended September 30, 2017, an increase of $36.0 million or 17.3%, compared to the same period in 2016. The increase was primarily related to an increase of $28.9 million in marketing and promotional costs primarily attributable to our domestic and international consumer broadband salesmost directly comparable U.S. generally accepted accounting principles (“U.S. GAAP”) measure in our Hughes segment, an increaseConsolidated Financial Statements, is included in Results of $8.5 million as a resultOperations. For further information on our use of our revised corporate structure,EBITDA, see Explanation of Key Metrics and an increase of $2.5 million in litigation expense in 2017, partially offset by a decrease of $3.9 million in general and administrative expenses.Other Items.
Item 2. MANAGEMENT’S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS - ContinuedCONTINUED
Research
Services and developmentother revenue. Services and other revenue totaled $837.4 million for the six months ended June 30, 2022, a decrease of $28.9 million, or 3.3%, as compared to 2021. The decrease was primarily attributable to our Hughes segment related to lower sales of broadband services to our consumer customers of $38.1 million due to lower broadband consumer customers, partially offset by higher sales of broadband services to our enterprise customers of $7.0 million and to our mobile satellite system and other customers of $2.4 million. These variances reflect the negative impact of exchange rate fluctuations of $1.3 million, primarily attributable to our enterprise customers, partially offset by our consumer customers.
Equipment revenue. Equipment revenue totaled $167.3 million for the six months ended June 30, 2022, an increase of $46.5 million, or 38.5%, as compared to 2021. The increase was primarily attributable to increases in hardware sales to our enterprise customers of $47.0 million mainly associated with a certain customer in North America and to international customers, partially offset by decreases in hardware sales of $3.1 million to our consumer customers.
Cost of sales - services and other. Cost of sales - services and other totaled $282.0 million for the six months ended June 30, 2022, an increase of $13.0 million, or 4.8%, as compared to 2021. The increase was attributable to a non-recurring decrease in a certain international regulatory fee of $4.5 million in 2021 and increases in costs provided to our consumer and enterprise customers, mainly related to service delivery expenses.
Cost of sales - equipment. Cost of sales - equipment totaled $139.2 million for the six months ended June 30, 2022, an increase of $39.5 million, or 39.7%, as compared to 2021. The increase was primarily attributable to the corresponding increase in equipment revenue, an increase in hardware and installation support costs and change in product mix.
Selling, general and administrative expenses. “ResearchSelling, general and development expenses”administrative expenses totaled $23.4$218.4 million for the ninesix months ended SeptemberJune 30, 2017, a decrease2022, an increase of $0.1$10.1 million, or 0.3%4.8%, as compared to 2021. The increase was primarily attributable to increases in: i) bad debt expense of $6.3 million primarily due to the same periodrecovery of bad debt reserves in 2016. Our research2021 and development activities vary based on the activity levelii) other general and scopeadministrative expenses of other engineering$5.3 million, offset by decreases in: i) legal expenses of $0.8 million and customer related development contracts.ii) sales and marketing expenses of $0.7 million.
Depreciation and amortization. “DepreciationDepreciation and amortization”amortization expenses totaled $364.9$223.5 million for the ninesix months ended SeptemberJune 30, 2017, an increase of $55.4 million or 17.9%, compared to the same period in 2016. The increase was primarily related to an increase of $27.5 million in depreciation expense of the EUTELSAT 65 West A satellite that was placed into service in the third quarter of 2016 and the contribution of the EchoStar XIX satellite from EchoStar to us in February 2017, an increase of $17.0 million in depreciation expense relating to domestic and international customer rental equipment, an increase of $13.2 million in depreciation expense relating to machinery and equipment and an increase of $6.9 million in amortization expense relating to the development of externally marketed software, partially offset by2022, a decrease of $7.5$11.4 million, in amortization expense from certain fully amortized other intangible assets in our Hughes segment.
Interest income. “Interest income” totaled $21.2 million for the nine months ended September 30, 2017, an increase of $13.8 millionor 4.9%, as compared to the same period in 2016.2021. The increasedecrease was primarily attributable to the increase(i) decreases in our marketable investmentssatellite depreciation of $9.1 million, mainly related to our SPACEWAY 3 satellite which was fully depreciated at the end of the first quarter of 2021, (ii) decreases in amortization of intangibles of $2.1 million, and (iii) decreases in other property and equipment depreciation expense of $5.9 million. These decreases were partially offset by increases in amortization of our capitalized software of $4.8 million.
Interest income, net. Interest income, net totaled $6.6 million for the six months ended June 30, 2022, an increase in yield percentage in 2017 whenof $2.5 million, or 60.9%, as compared to 2016.2021, primarily attributable to increases in the yield on our marketable investment securities.
Interest expense, net of amounts capitalized. “InterestInterest expense, net of amounts capitalized”capitalized, totaled $182.0$46.5 million for the ninesix months ended SeptemberJune 30, 2017, an increase2022, a decrease of $54.4$32.5 million, or 42.6%41.2%, as compared to the same period in 2016.2021. The increasedecrease was primarily dueattributable to an increasea decrease of $30.8 million in interest expense and the amortization of $51.0 million relating todeferred financing cost as a result of the issuancerepurchases and maturity of 5.250% Senior Secured Notes due 2026 (the “2026 Senior Secured Notes”) and 6.625%our 7 5/8% Senior Unsecured Notes due 2026 (the “2026 Senior Unsecured Notes”2021 and together with 2026 Senior Secured Notes, the “2026 Notes”) in the third quarteran increase of 2016 and a decrease of $3.4$1.3 million in capitalized interest relating to the EchoStar XIXXXIV satellite that was placed into service in the first quarter of 2017.program.
Gains (losses) and impairmenton investments, net.Gains (losses) on investments, net totaled $0.2 million in gains for the six months ended June 30, 2022, as compared to $2.1 million in gains for the six months ended June 30, 2021, a negative change of $1.9 million. The change was related to net increased losses on marketable investment securities and other equity securities of $1.9 million.
Foreign currency transaction gains (losses), net. “GainsForeign currency transaction gains (losses) and impairment on marketable investment securities, net” , nettotaled $1.6$3.8 million in gains for the six months ended June 30, 2022, as compared to $2.8 million in losses for the nine six
Item 2. MANAGEMENT’S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS - CONTINUED
months ended SeptemberJune 30, 2017 compared to $5.3 million in gains for the same period in 2016.2021, a positive change of $6.6 million. The change of $6.9 million was primarily due to an other than temporary impairment lossthe net impact of $3.3 million onforeign exchange rate fluctuations of certain strategic equity securities in our marketable investment securities in 2017 and $3.0 million in realized gains on our securities classified as available-for-sale in 2016 .
Other, net.
“Other, net” totaled $5.5 million in income for the nine months ended September 30, 2017, a decrease of $6.6 million or 54.4%, compared to the same period in 2016. The decrease was primarily related to $6.8 million for a provision recorded in the first half of 2015 in connection with Federal Communications Commission (“FCC”) regulatory fees, which was reversed in the first quarter of 2016 and $1.5 million decrease in equity in earnings of our unconsolidated affiliates, partially offset by $1.5 million in a protective put associated with our trading securities in 2016.
Income tax benefit (provision), net. Income tax expensebenefit (provision), net was $4.6$(30.0) million for the ninesix months ended SeptemberJune 30, 20172022, as compared to an income tax expense of $57.3$(29.0) million for the ninesix months ended SeptemberJune 30, 2016.2021. Our effective income tax rate was 17.9%34.9% and 36.4%35.2% for the ninesix months ended SeptemberJune 30, 20172022 and 2016,2021, respectively. The variations in our current year effective tax rate from the U.S. federal statutory rate for the ninesix months ended SeptemberJune 30, 20172022 were primarily due to excluded foreign losses where the recognitionCompany carries a full valuation allowance and the impact of a one-time tax benefit for the revaluation of our deferred tax assetsstate and liabilities due to a change in our state effective tax rate as a result of the Share Exchange. For the nine months ended September 30, 2016, the variationlocal taxes. The variations in our effective tax rate from the U.S. federal statutory rate wasfor the six months ended June 30, 2021, were primarily due to excluded foreign losses where the Company carries a full valuation allowance and the impact of state and local taxes.
Net income (loss) attributable to HSSHSSC.. “Net The following table reconciles the change in Net income (loss) attributable to HSS” was $20.2 million for the nine months ended September 30, 2017, a decrease of $79.0 million or 79.6%, compared to the same period in 2016. The decrease was primarily due to (i) a decrease in operating income, including depreciation and amortization, of $77.5 million, (ii) an increase of $54.4 million in interest expense, net of amounts capitalized, (iii) a decrease in gains on investments of $6.9 million and (iv) a decrease in other income of $6.6 million. These decreases were partially offset by a decrease of $52.6 million in income tax expense and an increase of 13.8 million in interest income.HSSC:
| | | | | | | | |
| | Amounts |
| Net income (loss) attributable to HSSC for the six months ended June 30, 2021 | | $ | 56,517 | |
| Decrease (increase) in interest expense, net of amounts capitalized | | 32,531 | |
| Increase (decrease) in foreign currency transaction gains (losses), net | | 6,602 | |
| Decrease (increase) in net income (loss) attributable to non-controlling interests | | 2,655 | |
| Increase (decrease) in interest income, net | | 2,483 | |
| Decrease (increase) in equity in earnings (losses) of unconsolidated affiliates, net | | 15 | |
| Decrease (increase) in income tax benefit (provision), net | | (986) | |
| Increase (decrease) in other, net | | (1,444) | |
| Increase (decrease) in gains (losses) on investments, net | | (1,880) | |
| Increase (decrease) in operating income (loss), including depreciation and amortization | | (34,698) | |
| Net income (loss) attributable to HSSC for the six months ended June 30, 2022 | | $ | 61,795 | |
Earnings before interest, taxes, depreciation and amortization (
“
EBITDA”). EBITDA was $550.5 million for the nine months ended September 30, 2017, a decrease of $35.6 million or 6.1%, compared to the same period in 2016. The decrease was primarily due to (i) a decrease in operating income, excluding depreciation and amortization, of $22.1 million, (ii) a decrease in gains on investments of $6.9 million and (iii) a decrease in other income of $6.6 million. EBITDA is a non-GAAP financial measure and is described under Explanation of Key Metrics and Other Items below. The following table reconciles EBITDA to Net income (loss), the most directly comparable U.S. GAAP measure in our Consolidated Financial Statements:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the six months ended June 30, | | Variance |
| | 2022 | | 2021 | | Amount | | % |
| Net income (loss) | | $ | 55,913 | | | $ | 53,290 | | | $ | 2,623 | | | 4.9 | |
| Interest income, net | | (6,559) | | | (4,076) | | | (2,483) | | | 60.9 | |
| Interest expense, net of amounts capitalized | | 46,474 | | | 79,005 | | | (32,531) | | | (41.2) | |
| Income tax provision (benefit), net | | 29,972 | | | 28,986 | | | 986 | | | 3.4 | |
| Depreciation and amortization | | 223,542 | | | 234,967 | | | (11,425) | | | (4.9) | |
| Net loss (income) attributable to non-controlling interests | | 5,882 | | | 3,227 | | | 2,655 | | | 82.3 | |
| EBITDA | | $ | 355,224 | | | $ | 395,399 | | | $ | (40,175) | | | (10.2) | |
* Percentage is not meaningful.
Item 2. MANAGEMENT’S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS - ContinuedCONTINUED
The following table reconciles EBITDA to Net income, the most directly comparable GAAP measurechange in the accompanying financial statements.EBITDA:
| | | | | | | | |
| | Amounts |
| EBITDA for the six months ended June 30, 2021 | | $ | 395,399 | |
| Increase (decrease) in foreign currency transaction gains (losses), net | | 6,602 | |
| Decrease (increase) in net loss (income) attributable to non-controlling interests | | 2,655 | |
| Decrease (increase) in equity in earnings (losses) of unconsolidated affiliates, net | | 15 | |
| Increase (decrease) in other, net | | (1,444) | |
| Increase (decrease) in gains (losses) on investments, net | | (1,880) | |
| Increase (decrease) in operating income (loss), excluding depreciation and amortization | | (46,123) | |
| EBITDA for the six months ended June 30, 2022 | | $ | 355,224 | |
|
| | | | | | | | | | | | | | | |
| | | For the Nine Months Ended September 30, | | Variance |
| | | 2017 | | 2016 | | Amount | | % |
| | | (Dollars in thousands) |
| Net income | | $ | 21,212 |
| | $ | 100,118 |
| | $ | (78,906 | ) | | (78.8 | ) |
| | | | | | | | | |
| Interest income and expense, net | | 160,748 |
| | 120,199 |
| | 40,549 |
| | 33.7 |
|
| Income tax provision | | 4,635 |
| | 57,277 |
| | (52,642 | ) | | (91.9 | ) |
| Depreciation and amortization | | 364,878 |
| | 309,448 |
| | 55,430 |
| | 17.9 |
|
| Net income attributable to noncontrolling interests | | (1,006 | ) | | (946 | ) | | (60 | ) | | 6.3 |
|
| EBITDA | | $ | 550,467 |
| | $ | 586,096 |
| | $ | (35,629 | ) | | (6.1 | ) |
Segment Operating Results and Capital Expenditures
Nine Months Ended SeptemberThe following tables present our total revenue, capital expenditures and EBITDA by segment for the six months ended June 30, 2017 Compared2022, as compared to the Nine Months Ended Septembersix months ended June 30, 20162021:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Hughes | | ESS | | Corporate and Other | | Consolidated Total |
| For the six months ended June 30, 2022 | | | | | | | | |
| Total revenue | | $ | 985,947 | | | $ | 9,324 | | | $ | 9,470 | | | $ | 1,004,741 | |
| Capital expenditures | | 125,882 | | | — | | | — | | | 125,882 | |
| EBITDA | | 371,098 | | | 6,212 | | | (22,086) | | | 355,224 | |
| | | | | | | | |
| For the six months ended June 30, 2021 | | | | | | | | |
| Total revenue | | $ | 968,136 | | | $ | 8,372 | | | $ | 10,595 | | | $ | 987,103 | |
| Capital expenditures | | 154,382 | | | — | | | — | | | 154,382 | |
| EBITDA | | 408,772 | | | 4,162 | | | (17,535) | | | 395,399 | |
|
| | | | | | | | | | | | | | | | |
| | | Hughes | | EchoStar Satellite Services | | Corporate and Other | | Consolidated Total |
| | | (In thousands) |
| For the Nine Months Ended September 30, 2017 | | | | | | | | |
| Total revenue | | $ | 1,072,143 |
| | $ | 295,785 |
| | $ | 2,817 |
| | $ | 1,370,745 |
|
| Capital expenditures | | $ | 270,624 |
| | $ | 21,351 |
| | $ | — |
| | $ | 291,975 |
|
| EBITDA | | $ | 342,693 |
| | $ | 241,873 |
| | $ | (34,099 | ) | | $ | 550,467 |
|
| For the Nine Months Ended September 30, 2016 | | | | | | | | |
| Total revenue | | $ | 1,021,451 |
| | $ | 305,919 |
| | $ | (260 | ) | | $ | 1,327,110 |
|
| Capital expenditures | | $ | 261,241 |
| | $ | 50,762 |
| | $ | — |
| | $ | 312,003 |
|
| EBITDA | | $ | 353,505 |
| | $ | 257,181 |
| | $ | (24,590 | ) | | $ | 586,096 |
|
Hughes Segment
|
| | | | | | | | | | | | | | | |
| | | For the Nine Months Ended September 30, | | Variance |
| | | 2017 | | 2016 | | Amount | | % |
| | | (Dollars in thousands) |
| Total revenue | | $ | 1,072,143 |
| | $ | 1,021,451 |
| | $ | 50,692 |
| | 5.0 |
|
| Capital expenditures | | $ | 270,624 |
| | $ | 261,241 |
| | $ | 9,383 |
| | 3.6 |
|
| EBITDA | | $ | 342,693 |
| | $ | 353,505 |
| | $ | (10,812 | ) | | (3.1 | ) |
Revenue | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the six months ended June 30, | | Variance |
| | 2022 | | 2021 | | Amount | | | % |
| Total revenue | | $ | 985,947 | | | $ | 968,136 | | | $ | 17,811 | | | | 1.8 | |
| Capital expenditures | | 125,882 | | | 154,382 | | | (28,500) | | | | (18.5) | |
| EBITDA | | 371,098 | | | 408,772 | | | (37,674) | | | | (9.2) | |
Hughes segment totalTotal revenue was $985.9 million for the ninesix months ended SeptemberJune 30, 2017 increased by $50.72022, an increase of $17.8 million, or 5.0%1.8%, as compared to the same period in 2016. The increase was2021. Services and other revenue decreased primarily due to an increase of $57.6 million inlower sales of broadband equipment and services to our domestic and international consumers, an increaseconsumer customers of $31.9$38.1 million indue to lower broadband consumer customers, partially offset by higher sales of broadband equipment and services to our domestic enterprise customers and an increase of $3.8$7.0 million in sales of servicesand to our telecom systems customers. The increase wasmobile satellite system and other customers of $2.4 million. Equipment revenue increased primarily due to increases in hardware sales to our enterprise customers of $47.0 million mainly associated with a certain customer in North America and to international customers, partially offset by a decrease of $16.1 milliondecreases in hardware sales of broadband equipment and services to DISH Network, a decrease of $14.1$3.1 million in sales of broadband equipment to our telecom systems customers and government customers, and a decreaseconsumer customers. These variances reflect the negative impact of $12.7exchange rate fluctuations of $1.4 million, in sales of broadband equipment and servicesprimarily attributable to our international enterprise customers.
Item 2. MANAGEMENT’S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS - ContinuedCONTINUED
Capital ExpendituresThe following table reconciles the change in the Hughes Segment EBITDA:
| | | | | | | | |
| | Amounts |
| EBITDA for the six months ended June 30, 2021 | | $ | 408,772 | |
| Increase (decrease) in foreign currency transaction gains (losses), net | | 6,545 | |
| Decrease (increase) in net loss (income) attributable to non-controlling interests | | 2,655 | |
| Decrease (increase) in equity in earnings (losses) of unconsolidated affiliates, net | | 199 | |
| Increase (decrease) in gains (losses) on investments, net | | (1,883) | |
| Increase (decrease) in other, net | | (3,382) | |
| Increase (decrease) in operating income (loss), excluding depreciation and amortization | | (41,808) | |
| EBITDA for the six months ended June 30, 2022 | | $ | 371,098 | |
Hughes segment capital expenditures
ESS Segment
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the six months ended June 30, | | Variance |
| | 2022 | | 2021 | | Amount | | | % |
| Total revenue | | $ | 9,324 | | | $ | 8,372 | | | $ | 952 | | | | 11.4 | |
| EBITDA | | 6,212 | | | 4,162 | | | 2,050 | | | | 49.3 | |
Total revenue was $9.3 million for the ninesix months ended SeptemberJune 30, 2017 increased by $9.42022, an increase of $1.0 million, or 3.6%11.4%, compared to the same period in 2016, primarily as a result of an increase of $95.4 million in expenditures in our domestic and international businesses. The increase was mainly associated with customer rental equipment for consumer services provided on the EUTELSAT 65 West A and EchoStar XIX satellites that were placed into service in the third quarter of 2016 and the first quarter of 2017, respectively. The increase was partially offset by a decrease of $84.6 million in expenditures on other satellites and related ground infrastructure, primarily resulted from the launch of service on EUTELSAT 65 West A and EchoStar XIX satellites.
EBITDA
Hughes segment EBITDA for the nine months ended September 30, 2017 was $342.7 million, a decrease of $10.8 million, or 3.1%, compared to the same period in 2016. The decrease was2021, primarily due to an increase of $28.9in transponder services provided to third parties.
EBITDA was $6.2 million in marketing and promotional costs mainly attributable our domestic and international consumer broadband sales and an other than temporary impairment loss of $3.3 million on certain strategic equity securities in our marketable investment securities in 2017. The decrease was partially offset byfor the six months ended June 30, 2022, an increase of $22.1 million in gross margin which we define as revenue less cost of sales.
EchoStar Satellite Services Segment
|
| | | | | | | | | | | | | | | |
| | | For the Nine Months Ended September 30, | | Variance |
| | | 2017 | | 2016 | | Amount | | % |
| | | (Dollars in thousands) |
| Total revenue | | $ | 295,785 |
| | $ | 305,919 |
| | $ | (10,134 | ) | | (3.3 | ) |
| Capital expenditures | | $ | 21,351 |
| | $ | 50,762 |
| | $ | (29,411 | ) | | (57.9 | ) |
| EBITDA | | $ | 241,873 |
| | $ | 257,181 |
| | $ | (15,308 | ) | | (6.0 | ) |
Revenue
ESS segment total revenue for the nine months ended September 30, 2017 decreased by $10.1$2.1 million, or 3.3%49.3%, as compared to the same period in 2016, primarily attributable to decreases in sales of transponder services due to expired service contracts.
Capital Expenditures
ESS segment capital expenditures for the nine months ended September 30, 2017 decreased by $29.4 million, or 57.9%, compared to the same period in 2016, primarily related to a decrease in expenditures on the EchoStar 105/SES-11 satellite.
EBITDA
ESS segment EBITDA for the nine months ended September 30, 2017 was $241.9 million, a decrease of $15.3 million, or 6.0%, compared to the same period in 2016. The decrease in EBITDA for our ESS segment was2021, primarily due to a decrease of $10.9 millionthe increase in gross marginoverall ESS segment revenue and a decrease of $3.8 million due to a provision recordedlower expenses.
Corporate and Other Segment
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the six months ended June 30, | | Variance |
| | 2022 | | 2021 | | Amount | | | % |
| Total revenue | | $ | 9,470 | | | $ | 10,595 | | | $ | (1,125) | | | | (10.6) | |
| | | | | | | | | |
| EBITDA | | (22,086) | | | (17,535) | | | (4,551) | | | | 26.0 | |
The following table reconciles the change in the first half of 2015 in connection with FCC regulatory fees, which was reversed in the first quarter of 2016.Corporate and Other Segment EBITDA:
| | | | | | | | |
| | Amounts |
| EBITDA for the six months ended June 30, 2021 | | $ | (17,535) | |
| Increase (decrease) in operating income (loss), excluding depreciation and amortization | | (6,364) | |
| Decrease (increase) in equity in earnings (losses) of unconsolidated affiliates, net | | (185) | |
| Increase (decrease) in gains (losses) on investments, net | | 3 | |
| Increase (decrease) in foreign currency transaction gains (losses), net | | 58 | |
| Increase (decrease) in other, net | | 1,937 | |
| EBITDA for the six months ended June 30, 2022 | | $ | (22,086) | |
Item 2. MANAGEMENT’S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS - ContinuedCONTINUED
Corporate and Other
Corporate and Other is comprised of various corporate departments (primarily Executive, Strategic Development, Human Resources, IT, Finance, Real Estate, and Legal) as well as other activities that have not been assigned to our operating segments, including costs incurred in certain satellite development programs and other business development activities, our centralized treasury activities and gains (losses) from certain of our investments.
|
| | | | | | | | | | | | | | |
| | | For the Nine Months Ended September 30, | | Variance |
| | | 2017 | | 2016 | | Amount | | % |
| | | (Dollars in thousands) |
| Total revenue | | $ | 2,817 |
| | $ | (260 | ) | | $ | 3,077 |
| | * |
| Capital expenditures | | $ | — |
| | $ | — |
| | $ | — |
| | * |
| EBITDA | | $ | (34,099 | ) | | $ | (24,590 | ) | | $ | (9,509 | ) | | 38.7 |
* Percentage is not meaningful.
EBITDA
For the nine months ended September 30, 2017, Corporate and Other EBITDA was a loss of $34.1 million, an increase in losses of $9.5 million, or 38.7%, compared to the same period in 2016. The change in EBITDA was primarily related to an increase of $4.8 million in general and administrative expense, $3.0 million attributable to a provision recorded in the first half of 2015 in connection with FCC regulatory fees, which was reversed in the first quarter of 2016, $3.0 million in realized gains on our securities classified as available-for-sale in 2016 and a decrease of $1.5 million in equity in earnings of unconsolidated affiliate. The decrease was partially offset by an increase of $2.7 million in gross margin.
EXPLANATION OF KEY METRICS AND OTHER ITEMS
Services and other revenue — DISH Network. “ServicesServices and other revenue — DISH Network” primarily includes the sales of consumer and enterprise broadband services, maintenance and other contracted services, revenue associated with satellite and transponder leases and services, telemetry, tracking and control, professional services, facilities rental revenue and other services provided to DISH Network. “Services and other revenue — DISH Network” also includessatellite uplinking/downlinking, subscriber wholesale service fees for the HughesHughesNet service sold to dishNET.professional services and facilities rental revenue.
Services and other revenue — other. “Services and other revenue— other” primarily includes the sales of enterprise and consumer broadband services, as well as maintenance and other contracted services. “Services and other revenue — other” also includes revenue associated with satellite and transponder services, satellite uplinking/downlinking and other services provided to customers other than DISH Network.
Equipment revenue — DISH Network. “Equipment revenue — DISH Network” primarily includes sales of satellite broadband equipment and related equipment, related to the Hughes service, to DISH Network.
Equipment revenue — other. “Equipment revenue — other” primarily includes broadband equipment and networks sold to customers in our enterpriseconsumer and consumerenterprise markets.
Cost of sales —- services and other. “CostCost of sales —- services and other”other primarily includes the cost of broadband services provided to our consumer and enterprise and consumer customers, and to DISH Network, as well as the cost of providing maintenance and other contracted services. “Cost of sales — services, and other” also includes the costs associated with satellite and transponder services, telemetry, trackingleases and control,services, professional services and facilities rental costs, and other services provided to our customers, including DISH Network.rental.
Cost of sales —- equipment. “CostCost of sales — equipment”- equipment consists primarily of the cost of broadband equipment and networks soldprovided to customers in our consumer and enterprise and consumer markets, andmarkets. It also includes certain other costs associated with the deployment of equipment to DISH Network.our customers.
Selling, general and administrative expenses. “Selling,Selling, general and administrative expenses”expenses primarily includesinclude selling and marketing costs and employee-related costs associated with administrative services (e.g., information systems, human resources and other services), including stock-based compensation expense. It also includes professional fees (e.g. legal, information
Item 2. MANAGEMENT’S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS - Continued
systems and accounting services) and other itemsexpenses associated with facilities and administrative services provided by EchoStar, DISH Network and other third parties.services.
Research and development expenses. “ResearchResearch and development expenses”expenses primarily includesinclude costs associated with the design and development of products to support future growth and provide new technology and innovation to our customers.
Impairment of long-lived assets. Impairment of long-lived assets includes our impairment losses related to our property and equipment, goodwill, regulatory authorizations and other intangible assets.
Interest income, net. “Interest income”Interest income, net primarily includes interest earned on our cash, cash equivalents and marketable investment securities, and other investments including premium amortization and discount accretion on debt securities.
Interest expense, net of amounts capitalized. “InterestInterest expense, net of amounts capitalized”capitalized primarily includes interest expense associated with our debt and capitalfinance lease obligations (net of capitalized interest), and amortization of debt issuance costs.costs and interest expense related to certain legal proceedings.
Gains (losses) and impairment on marketable investment securities, net. investments, net“. Gains (losses) and impairment on marketable investment securities, net”investments, net primarily includes changes in fair value of our marketable equity securities and other investments for which we have elected the fair value option. It may also include realized gains net of anyand losses on the sale or exchange of investments,our available-for-sale debt securities, other-than-temporary impairment losses on certainour available-for-sale securities, realized gains and losses on the sale or exchange of our marketable investmentequity securities and unrealizeddebt securities without readily determinable fair value and adjustments to the carrying amount of investments in unconsolidated affiliates and marketable equity securities resulting from impairments and observable price changes.
Equity in earnings (losses) of unconsolidated affiliates, net. Equity in earnings (losses) of unconsolidated affiliates, net includes earnings or losses from our investments accounted for using the equity method.
Foreign currency transaction gains on our trading securities.(losses), net. Foreign currency transaction gains (losses), net include gains and losses resulting from the re-measurement of transactions denominated in foreign currencies.
Other, net. “Other, net”Other, net primarily includes foreign exchange gains and losses, dividends received from our marketable investment securities equity in earnings of unconsolidated affiliate, and other non-operating income orand expense items that are not appropriately classified elsewhere in the Consolidated Statements of Operations in our condensed consolidated statements of operations and comprehensive income (loss).Consolidated Financial Statements.
Item 2. MANAGEMENT’S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS - CONTINUED
Earnings before interest, taxes, depreciation and amortization, and Net income (loss) attributable to non-controlling interests (“EBITDA”).. EBITDA is defined as “Net income”Net income (loss) excluding “InterestInterest income and expense, net, of amounts capitalized,” “InterestIncome tax benefit (provision), net, Depreciation and amortization, and Net income” “Income tax provision,” and “Depreciation and amortization.” (loss) attributable to non-controlling interests. EBITDA is not a measure determined in accordance with U.S. GAAP. This non-GAAP measure is reconciled to “Net income”Net income (loss) in our discussion of “ResultsResults of Operations”Operations above. EBITDA should not be considered in isolation or as a substitute for operating income, net income or any other measure determined in accordance with U.S. GAAP. EBITDA is used by our management as a measure of operating efficiency and overall financial performance for benchmarking against our peers and competitors. Management believes EBITDA provides meaningful supplemental information regarding the underlying operating performance of our business.business and is appropriate to enhance an overall understanding of our financial performance. Management also believes that EBITDA is useful to investors because it is frequently used by securities analysts, investors and other interested parties to evaluate the performance of companies in our industry.
SubscribersSubscribers. . “Subscribers”Subscribers include customers that subscribe to our Hughes segment’s HughesNet broadband services,service, through retail, wholesale and small/medium enterprise service channels.
Item 2. MANAGEMENT’S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS - CONTINUED
ItemITEM 4.CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report.Form 10-Q. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this reportForm 10-Q such that the information required to be disclosed in our SECSecurities and Exchange Commission reports is recorded, processed, summarized and reported within the time periods specified in the SECSecurities and Exchange Commission rules and forms, and is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control overOver Financial Reporting
There has been no change in our internal control over financial reporting (as defined in Rule 15d-15(f) under the Securities Exchange Act of 1934, as amended) that occurred during the third quarter of 2017three months ended June 30, 2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. We continue to review our internal control over financial reporting and may from time to time make changes aimed at enhancing its effectiveness and to ensure that our systems evolve with our business.
PART II —- OTHER INFORMATION
ItemITEM 1.LEGAL PROCEEDINGS
For a discussion of legal proceedings, seerefer to Part I, Item 1. Financial Statements —- Note 1114. Contingencies “Commitments and Contingencies — Litigation”- Litigation in this Form 10-Q.
ItemITEM 1A. RISK FACTORS
Item 1A, “RiskRisk Factors,” of our Form 10-K for the year ended December 31, 20162021 includes a detailed discussion of our risk factors. Except as provided below, for the nine months ended September 30, 2017, there were no material changes in our risk factors as previously disclosed.
The failure to adequately anticipate the need for satellite capacity or the inability to obtain satellite capacity for our Hughes segment could harm our results of operations.
Our Hughes segment has made substantial contractual commitments for satellite capacity based on our existing customer contracts and backlog. If our existing customer contracts were to be terminated prior to their respective expiration dates, we may be committed to maintaining excess satellite capacity for which we will have insufficient revenue to cover our costs, which would have a negative impact on our margins and results of operations. Alternatively, we may not have sufficient satellite capacity to meet demand. We generally only purchase satellite capacity based on existing contracts and bookings. Therefore, capacity for certain types of coverage in the future may not be readily available to us, and we may not be able to satisfy certain needs of our customers, which could result in a loss of possible new business and could negatively impact the margins for those services. Our ability to provide capacity for subscriber growth in our North American consumer market could also be adversely affected by regulations and/or legislation in the U.S. that enable or propose to enable the use of a portion of the frequency bands we currently use or in the future intend to use for satellite services, 5G mobile terrestrial services or other uses. These bands include the Ka-band, where we operate our broadband gateway earth stations, and other bands in which we may operate in the future. Such regulation or legislation could limit our ability to use the Ka-band and/or other bands, limit our flexibility to change the way in which we use the Ka-band and/or adversely impact our ability to use additional bands in the future. Other countries in which we currently, or may in the future, operate are also considering regulations that could similarly limit access to the Ka-band or other frequency bands. In addition, the fixed satellite services (“FSS”) industry has seen consolidation in the past decade, and today, the main FSS providers in North America and a number of smaller regional providers own and operate the current satellites that are available for our capacity needs. The failure of any of these FSS providers to replace existing satellite assets at the end of their useful lives or a downturn in their industry as a whole could reduce or interrupt the satellite capacity available to us. Our business and results of operations could be adversely affected if we are not able to renew our capacity leases at economically viable rates, if capacity is not available due to problems experienced by these FSS providers or if frequencies are not available to us.
Our business is subject to risks of adverse government regulation.
Our business is subject to varying degrees of regulation in the U.S. by the FCC, and other federal, state and local entities, and in foreign countries by similar entities, and internationally by the ITU. These regulations are subject to the administrative and political process and do change, for political and other reasons, from time to time. For example, the FCC recently adopted an order in its “Spectrum Frontiers” proceeding under which a portion of the Ka-band, in which we operate our broadband gateway earth stations, has been enabled for 5G mobile terrestrial services, which could limit our flexibility to change the way in which we use Ka-band in the future and/or limit our access to and ability to use the Ka-band and/or other bands in the future. Other countries in which we currently, or may in the future, operate are also considering regulations that could limit access to the Ka-band or other frequency bands. The FCC has also opened a proceeding on non-geostationary satellites, which may adversely impact our ability to use certain spectrum for user terminals. Moreover, a substantial number of foreign countries in which we have, or may in the future make, an investment, regulate, in varying degrees, the ownership of satellites and other telecommunication facilities/networks and foreign investment in telecommunications companies. Violations of laws or regulations may result in various sanctions including fines, loss of authorizations and the denial of applications for new authorizations or for the renewal of existing authorizations. Further material changes in law and regulatory requirements may also occur, and there can be no assurance that our business and the business of our subsidiaries and affiliates will not be adversely affected by future legislation, new regulation or deregulation. The failure to obtain or comply with the authorizations and regulations governing our operations could have a material adverse effect on our ability to generate revenue and our overall competitive position and could result in our suffering serious harm to our reputation.
Our business depends on regulatory authorizations issued by the FCC and state and foreign regulators that can expire, be revoked or modified, and applications for licenses and other authorizations that may not be granted.
Generally all satellite, earth stations and other licenses granted by the FCC and most other countries are subject to expiration unless renewed by the regulatory agency. Our satellite licenses are currently set to expire at various times. In addition, we occasionally receive special temporary authorizations that are granted for limited periods of time (e.g., 180 days or less) and subject to possible renewal. Generally, our licenses and special temporary authorizations have been renewed on a routine basis, but there can be no assurance that this will continue. In addition, we must obtain new licenses from the FCC and other countries’ regulators for the operation of new satellites that we may build and/or acquire. There can be no assurance that the FCC or other regulators will continue granting applications for new licenses or for the renewal of existing ones. If the FCC or other regulators were to cancel, revoke, suspend, or fail to renew any of our licenses or authorizations, or fail to grant our applications for FCC or other licenses, it could have a material adverse effect on our business, financial condition and results of operations. Specifically, loss of a frequency authorization or limitations on our ability to use the frequencies we currently use and/or intend to use in the future would reduce the amount of spectrum available to us, potentially reducing the amount of services we provide to our customers. The significance of such a loss of authorizations would vary based upon, among other things, the orbital location, the frequency band and the availability of replacement spectrum. In addition, the legislative and executive branches of the U.S. government and foreign governments often consider legislation and regulatory requirements that could affect us, as could the actions that the FCC and foreign regulatory bodies take. We cannot predict the outcomes of these legislative or regulatory proceedings or their effect on our business.
In addition, third parties have or may oppose some of our license applications and pending and future requests for extensions, modifications, waivers and approvals of our licenses. Even if we have fully complied with all of the required reporting, filing and other requirements in connection with our authorizations, it is possible a regulator could decline to grant certain of our applications or requests for authority, or could revoke, terminate, condition or decline to modify, extend or renew certain of our authorizations or licenses.
ItemITEM 4.MINE SAFETY DISCLOSURES
Not applicableapplicable.
ItemITEM 5.OTHER INFORMATION
None
ItemITEM 6. EXHIBITS
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| Exhibit No. | | Description |
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101.INS | | |
| 101.INS | | XBRL Instance Document. The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
| 101.SCH | | XBRL Taxonomy Extension Schema. |
| 101.CAL | | XBRL Taxonomy Extension Calculation Linkbase. |
| 101.DEF | | XBRL Taxonomy Extension Definition Linkbase. |
| 101.LAB | | XBRL Taxonomy Extension Label Linkbase. |
| 101.PRE | | XBRL Taxonomy Extension Presentation Linkbase. |
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(H) Filed herewith.
(I) Furnished herewith.
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* | Incorporated by reference. |
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** | Constitutes a management contract or compensatory plan or arrangement. |
* Incorporated by reference.
** Constitutes a management contract or compensatory plan or arrangement.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this reportForm 10-Q to be signed on its behalf by the undersigned thereunto duly authorized.
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| | HUGHES SATELLITE SYSTEMS CORPORATION |
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| Date: August 3, 2022 | By: | HUGHES SATELLITE SYSTEMS CORPORATION/s/ Hamid Akhavan |
| | Hamid Akhavan |
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Date: November 8, 2017 | By: | /s/ Michael T. Dugan
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| | Michael T. Dugan |
| | Chief Executive Officer President and DirectorPresident |
| | (Principal Executive Officer) |
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Date: November 8, 2017August 3, 2022 | By: | /s/ David J. Rayner |
| | David J. Rayner |
| | Executive Vice President, Chief Financial Officer, Chief Operating Officer and Treasurer |
| | (Principal Financial and Accounting Officer) |
