10-Q
Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.  20549
 
FORM 10-Q
 
(Mark One) 
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2016.
 
OR 
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM                                       TO                                       .
 
Commission File Number:  333-179121
 
Hughes Satellite Systems Corporation
(Exact Name of Registrant as Specified in Its Charter)
Colorado
 
45-0897865
(State or Other Jurisdiction of Incorporation or Organization)
 
(I.R.S. Employer Identification No.)
 
100 Inverness Terrace East, Englewood, Colorado
 
80112-5308
(Address of Principal Executive Offices)
 
(Zip Code)
 
(303) 706-4000
(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, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  (Check one): 
Large accelerated filer o
Accelerated filer o
Non-accelerated filer x
Smaller reporting company o
 
 
(Do not check if a smaller
 
 
 
reporting company)
 
 
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 May 3, 2016, the registrant’s outstanding common stock consisted of 1,000 shares of common stock, $0.01 par value per share.
 
The registrant meets the conditions set forth in General Instructions (H)(1)(a) and (b) of Form 10-Q and is therefore filing this Form 10-Q with the reduced disclosure format.
 
*       The registrant currently is not subject to the filing requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934 and is filing this Quarterly Report on Form 10-Q on a voluntary basis.  The registrant has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months as if it were subject to such filing requirements during the entirety of such period.




TABLE OF CONTENTS
 
 
 
 
 
 
 
 
 
 
 
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
*
 
 
 
 
 
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
*
Item 3.
Defaults Upon Senior Securities
*
 

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


Table of Contents

DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
 
This Quarterly Report on Form 10-Q (“Form 10-Q”) contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including but not limited to statements about our estimates, expectations, plans, objectives, strategies, and financial condition, expected impact of regulatory developments and legal proceedings, opportunities in our industries and businesses and other trends and projections for the next fiscal quarter and beyond.  All statements, other than statements of historical facts, may be forward-looking statements.  Forward-looking statements may also be identified by words such as “anticipate,” “intend,” “plan,” “goal,” “seek,” “believe,” “estimate,” “expect,” “predict,” “continue,” “future,” “will,” “would,” “could,” “can,” “may” and similar terms.  These forward-looking statements are based on information available to us as of the date of this Form 10-Q and represent management’s current views and assumptions.  Forward-looking statements are not guarantees of future performance, events or results and involve potential known and unknown risks, uncertainties and other factors, many of which may be beyond our control and may pose a risk to our operating and financial condition.  Accordingly, actual performance, events or results could differ materially from those expressed or implied in the forward-looking statements due to a number of factors including, but not limited to:
 
our reliance on our primary customer, DISH Network Corporation and its subsidiaries (“DISH Network”), for a significant portion of our revenue;

our ability to implement our strategic initiatives;
 
our ability to bring advanced technologies to market to keep pace with our customers and competitors;

risk related to our foreign operations and other uncertainties associated with doing business internationally, including changes in foreign exchange rates between foreign currencies and the United States dollar, economic instability and political disturbances;
 
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, 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 failure to adequately anticipate the need for satellite capacity or the inability to obtain satellite capacity for our Hughes segment; and
 
 the failure of third-party providers of components, manufacturing, installation services and customer support services to appropriately deliver the contracted goods or services.
 
Other factors that could cause or contribute to such differences include, but are not limited to, those discussed under the caption “Risk Factors” in Part II, Item 1A of this Form 10-Q and in Part I, Item 1A of our most recent Annual Report on Form 10-K (“Form 10-K”) filed with the Securities and Exchange Commission (“SEC”), those discussed in “Management’s Narrative Analysis of Results of Operations” herein and in 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.
 


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PART I — FINANCIAL INFORMATION
 
Item 1.         FINANCIAL STATEMENTS
 
HUGHES SATELLITE SYSTEMS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
(Unaudited)
 
 
As of
 
 
March 31, 2016
 
December 31, 2015
Assets
 
 
 
 
Current Assets:
 
 
 
 
Cash and cash equivalents
 
$
420,928

 
$
382,990

Marketable investment securities, at fair value
 
235,661

 
253,343

Trade accounts receivable, net of allowance for doubtful accounts of $12,974 and $11,447, respectively
 
128,954

 
139,510

Trade accounts receivable - DISH Network, net of allowance for doubtful accounts of zero
 
19,706

 
21,258

Inventory
 
53,358

 
48,797

Prepaids and deposits
 
34,367

 
38,222

Advances to affiliates, net
 
62,416

 
47,387

Other current assets
 
12,336

 
13,273

Total current assets
 
967,726

 
944,780

Noncurrent Assets:
 
 
 
 
Restricted cash and cash equivalents
 
20,802

 
20,140

Property and equipment, net of accumulated depreciation of $2,229,836 and $2,138,642, respectively
 
2,310,837

 
2,265,402

Regulatory authorizations
 
471,658

 
471,658

Goodwill
 
504,173

 
504,173

Other intangible assets, net
 
106,748

 
115,420

Investments in unconsolidated entities
 
43,340

 
41,481

Other noncurrent assets, net
 
293,788

 
208,225

Total noncurrent assets
 
3,751,346

 
3,626,499

Total assets
 
$
4,719,072

 
$
4,571,279

Liabilities and Shareholders’ Equity
 
 
 
 
Current Liabilities:
 
 
 
 
Trade accounts payable
 
$
97,854

 
$
97,648

Trade accounts payable - DISH Network
 
6

 
19

Current portion of long-term debt and capital lease obligations, net of unamortized debt issuance costs
 
1,891,286

 
30,284

Advances from affiliates, net
 
3,629

 
3,773

Deferred revenue and prepayments
 
58,819

 
57,493

Accrued interest
 
41,349

 
8,310

Accrued compensation
 
16,507

 
18,932

Accrued expenses and other
 
71,533

 
96,501

Total current liabilities
 
2,180,983

 
312,960

Noncurrent Liabilities:
 
 
 
 
Long-term debt and capital lease obligations, net of unamortized debt issuance costs
 
288,465

 
2,154,988

Deferred tax liabilities, net
 
471,696

 
452,350

Advances from affiliates
 
28,098

 
25,283

Other noncurrent liabilities
 
83,621

 
84,058

Total noncurrent liabilities
 
871,880

 
2,716,679

Total liabilities
 
3,052,863

 
3,029,639

Commitments and Contingencies (Note 12)
 
 
 
 
 
 
 
 
 
Shareholders’ Equity:
 
 
 
 
Preferred Stock, $0.001 par value; 1,000,000 shares authorized:
 
 
 
 
Hughes Retail Preferred Tracking Stock, $0.001 par value; 300 shares authorized, 81.128 shares issued and outstanding at each of March 31, 2016 and December 31, 2015
 

 

Common stock, $0.01 par value; 1,000,000 shares authorized, 1,000 shares issued and outstanding at each of March 31, 2016 and December 31, 2015
 

 

Additional paid-in capital
 
1,500,952

 
1,417,748

Accumulated other comprehensive loss
 
(46,781
)
 
(54,116
)
Accumulated earnings
 
200,617

 
166,698

Total HSS shareholders’ equity
 
1,654,788

 
1,530,330

Noncontrolling interests
 
11,421

 
11,310

Total shareholders’ equity
 
1,666,209

 
1,541,640

Total liabilities and shareholders’ equity
 
$
4,719,072

 
$
4,571,279

 
 
 
 
 
 The accompanying notes are an integral part of these condensed consolidated financial statements.

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HUGHES SATELLITE SYSTEMS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
(In thousands)
(Unaudited)
 
 
For the Three Months Ended March 31,
 
 
 
2016
 
2015
 
Revenue:
 
 
 
 
 
Services and other revenue - other
 
$
270,423

 
$
269,679

 
Services and other revenue - DISH Network
 
113,075

 
131,441

 
Equipment revenue - other
 
42,859

 
48,051

 
Equipment revenue - DISH Network
 
2,769

 
1,063

 
Total revenue
 
429,126

 
450,234

 
Costs and Expenses:
 
 
 
 
 
Cost of sales - services and other (exclusive of depreciation and amortization)
 
124,577

 
129,918

 
Cost of sales - equipment (exclusive of depreciation and amortization)
 
43,108

 
45,211

 
Selling, general and administrative expenses
 
70,915

 
70,545

 
Research and development expenses
 
6,932

 
5,554

 
Depreciation and amortization
 
102,369

 
108,014

 
Total costs and expenses
 
347,901

 
359,242

 
Operating income
 
81,225

 
90,992

 
 
 
 
 
 
 
Other Income (Expense):
 
 
 
 
 
Interest income
 
1,914

 
1,099

 
Interest expense, net of amounts capitalized
 
(38,031
)
 
(45,086
)
 
Gains on marketable investment securities
 
215

 

 
Equity in earnings of unconsolidated affiliate
 
1,859

 
1,397

 
Other, net
 
6,889

 
(1,053
)
 
Total other expense, net
 
(27,154
)
 
(43,643
)
 
Income before income taxes
 
54,071

 
47,349

 
Income tax provision, net
 
(20,041
)
 
(17,973
)
 
Net income
 
34,030

 
29,376

 
Less: Net income attributable to noncontrolling interests
 
111

 
369

 
Net income attributable to HSS
 
$
33,919

 
$
29,007

 
 
 
 
 
 
 
Comprehensive Income:
 
 
 
 
 
Net income
 
$
34,030

 
$
29,376

 
Other comprehensive income (loss), net of tax:
 
 
 
 
 
Foreign currency translation adjustments
 
7,709

 
(10,234
)
 
Unrealized gains (losses) on available-for-sale securities and other
 
(374
)
 
1,557

 
Total other comprehensive income (loss), net of tax
 
7,335

 
(8,677
)
 
Comprehensive income
 
41,365

 
20,699

 
Less: Comprehensive income attributable to noncontrolling interests
 
111

 
369

 
Comprehensive income attributable to HSS
 
$
41,254

 
$
20,330

 
 
 
 
 
 
 









 
The accompanying notes are an integral part of these condensed consolidated financial statements

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HUGHES SATELLITE SYSTEMS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited) 
 
 
For the Three Months Ended March 31,
 
 
2016
 
2015
Cash Flows from Operating Activities:
 
 
 
 
Net income
 
$
34,030

 
$
29,376

Adjustments to reconcile net income to net cash flows from operating activities:
 
 
 
 
Depreciation and amortization
 
102,369

 
108,014

Equity in earnings of unconsolidated affiliate
 
(1,859
)
 
(1,397
)
Amortization of debt issuance costs
 
1,538

 
1,521

Gains on marketable investment securities
 
(215
)
 

Stock-based compensation
 
1,208

 
1,220

Deferred tax provision
 
19,231

 
17,035

Changes in current assets and current liabilities, net
 
6,956

 
(9,568
)
Changes in noncurrent assets and noncurrent liabilities, net
 
4,078

 
2,504

Other, net
 
(608
)
 
(1,824
)
Net cash flows from operating activities
 
166,728

 
146,881

Cash Flows from Investing Activities:
 
 
 
 
Purchases of marketable investment securities
 
(134,572
)
 
(90,594
)
Sales and maturities of marketable investment securities
 
146,814

 
52,683

Purchases of property and equipment
 
(128,957
)
 
(92,310
)
Expenditures for externally marketed software
 
(5,959
)
 
(4,944
)
Changes in restricted cash and cash equivalents
 
(662
)
 
(1,046
)
Payment for EchoStar XXI launch services
 
(11,875
)
 

Other, net
 

 
(9
)
Net cash flows from investing activities
 
(135,211
)
 
(136,220
)
Cash Flows from Financing Activities:
 
 
 
 
Repayment of other debt and capital lease obligations
 
(8,214
)
 
(15,038
)
Advances from affiliates
 
2,504

 

Capital contribution from EchoStar
 
11,875

 

Other, net
 
213

 
779

Net cash flows from financing activities
 
6,378

 
(14,259
)
Effect of exchange rates on cash and cash equivalents
 
43

 
(2,566
)
Net increase (decrease) in cash and cash equivalents
 
37,938

 
(6,164
)
Cash and cash equivalents, beginning of period
 
382,990

 
225,557

Cash and cash equivalents, end of period
 
$
420,928

 
$
219,393

 
 
 
 
 
Supplemental Disclosure of Cash Flow Information:
 
 
 
 
Cash paid for interest (including capitalized interest)
 
$
10,182

 
$
10,820

Capitalized interest
 
$
7,033

 
$
2,355

Cash paid for income taxes
 
$
1,561

 
$
975

Satellites and other assets financed under capital lease obligations
 
$
77

 
$
160

Reduction of capital lease obligation for AMC-15 and AMC-16 satellites
 
$

 
$
4,500

Increase (decrease) in capital expenditures included in accounts payable, net
 
$
(874
)
 
$
4,414

Transfer of EchoStar XXIII launch contract from EchoStar to HNS
 
$
70,300

 
$

 
 
 
 
 








The accompanying notes are an integral part of these condensed consolidated financial statements.

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HUGHES SATELLITE SYSTEMS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
Note 1.                   Organization and Business Activities
 
Principal Business
 
Hughes Satellite Systems Corporation (which, together with its subsidiaries, is referred to as “HSS,” the “Company,” “we,” “us” and/or “our”) is a holding company and a direct subsidiary of EchoStar Corporation (“EchoStar”).  We are a global provider of satellite operations, video delivery solutions, and broadband satellite technologies and services for home and office, delivering innovative network technologies, managed services, and solutions for enterprises and governments.
 
We currently operate in the following two business segments:
 
Hugheswhich provides satellite broadband internet access to North American consumers and broadband network services and equipment to domestic and international enterprise markets.  The Hughes segment also provides managed services to large enterprises and solutions to customers for mobile satellite systems.
 
EchoStar Satellite Services (“ESS”) — which uses certain of our owned and leased in-orbit satellites and related licenses to provide satellite services 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. (“Dish Mexico”), a joint venture that EchoStar entered into in 2008, United States (“U.S.”) government service providers, internet service providers, broadcast news organizations, programmers, and private enterprise customers.
 
We were formed as a Colorado corporation in March 2011 to facilitate the acquisition (the “Hughes Acquisition”) of Hughes Communications, Inc. and its subsidiaries (“Hughes Communications”) and related financing transactions.  In connection with our formation, EchoStar contributed the assets and liabilities of its satellite services business, including its principal operating subsidiary of its satellite services business, EchoStar Satellite Services L.L.C., to us.  In addition, as a result of the Satellite and Tracking Stock Transaction described in Note 3 below and in our most recent Annual Report on Form 10-K, DISH Network owns shares of our preferred tracking stock representing a 28.11% economic interest in the residential retail satellite broadband business of our Hughes segment including certain operations, assets and liabilities attributed to such business.
 
Note 2.                   Summary of Significant Accounting Policies
 
Basis of Presentation
 
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with 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 statements do not include all of the information and notes required for complete financial statements prepared in accordance with GAAP.  In our opinion, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included.  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 to the consolidated financial statements and notes thereto included in our Form 10-K for the year ended December 31, 2015.
 
Principles of Consolidation
 
We consolidate all entities in which we have a controlling financial interest. We are deemed to have a controlling financial interest in variable interest entities where 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.
 

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HUGHES SATELLITE SYSTEMS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)

Use of Estimates
 
The preparation of financial statements in conformity with GAAP requires us to make certain estimates and assumptions that affect the reported amounts of assets 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.  Estimates are used in accounting for, among other things, amortization periods for deferred subscriber acquisition costs, revenue recognition using the percentage-of-completion method, allowances for doubtful accounts, allowances for sales returns and rebates, warranty obligations, self-insurance obligations, deferred taxes and related valuation allowances, uncertain tax positions, loss contingencies, fair value of financial instruments, fair value of EchoStar’s stock-based compensation awards, fair value of assets and liabilities acquired in business combinations, lease classifications, asset impairment testing, useful lives and methods for depreciation and amortization of long-lived assets, and certain royalty obligations. 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.  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 are reflected in the period they occur or prospectively if the revised estimate affects future periods.
 
Fair Value Measurements
 
We determine fair value based on the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants.  Market or observable inputs are the preferred source of values, followed by unobservable inputs or assumptions based on hypothetical transactions in the absence of market inputs. We utilize the highest level of inputs available according to the following hierarchy in determining fair value:
 
Level 1, defined as observable inputs being quoted prices in active markets for identical assets;
 
Level 2, defined as observable inputs other than quoted prices included in Level 1, including quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which significant inputs and significant value drivers are observable in active markets; and
 
Level 3, defined as unobservable inputs for which little or no market data exists, consistent with characteristics of the asset or liability that would be considered by market participants in a transaction to purchase or sell the asset or liability.
 
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 three months ended March 31, 2016 or 2015.
 
As of March 31, 2016 and December 31, 2015, 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 current 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 measurement 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 publicly traded debt are based on quoted market prices in less active markets and are categorized as Level 2 measurements.  The fair values of our privately held 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 March 31, 2016 and December 31, 2015, 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 $78.5 million and $79.3 million, respectively.  We use fair value

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HUGHES SATELLITE SYSTEMS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)

measurements from time to time in connection with 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 of approximately $2.8 million and $5.7 million for the three months ended March 31, 2016 and 2015, respectively. In addition, we incurred $6.9 million and $5.6 million for the three months ended March 31, 2016 and 2015, respectively, for other research and development expenses.
 
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 is generally 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 no longer generating revenue are expensed.  As of March 31, 2016 and December 31, 2015, the net carrying amount of externally marketed software was $66.4 million and $62.8 million, respectively.  We capitalized costs related to the development of externally marketed software of $5.9 million and $5.0 million for the three months ended March 31, 2016 and 2015, respectively.  We recorded amortization expense relating to the development of externally marketed software of $2.3 million and $1.9 million for the three months ended March 31, 2016 and 2015, respectively.  The weighted average useful life of our externally marketed software was approximately three years as of March 31, 2016.
 
New Accounting Pronouncements
 
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”).  It outlines a single comprehensive model 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.”  In August 2015, the FASB issued Accounting Standards Update No. 2015-14, which deferred by one year the mandatory effective date of ASU 2014-09.  As a result, public entities are required to adopt the new revenue standard in annual periods beginning after December 15, 2017 and in interim periods within those annual periods.  The standard may be applied either retrospectively to prior periods or as a cumulative-effect adjustment as of the date of adoption.  Early adoption is permitted, but not before annual periods beginning after December 15, 2016.  In March 2016, the FASB issued Accounting Standards Update No. 2016-08, Principal versus Agent Considerations, which clarifies the implementation guidance on principal versus agent considerations. In April 2016, the FASB issued Accounting Standards Update No. 2016-10, Identifying Performance Obligations and Licensing, which amends guidance on identifying performance obligations and accounting for licenses of intellectual property. We have not determined when we will adopt the new revenue standard or selected the transition method that we will apply upon adoption.  We are assessing the impact of adopting this new accounting standard on our consolidated financial statements and related disclosures.
 
In February 2015, the FASB issued Accounting Standards Update No. 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis (“ASU 2015-02”).  This standard amends the consolidation guidance for variable interest entities and general partners’ investments in limited partnerships and similar entities.  ASU 2015-02 is effective for annual periods beginning after December 15, 2015 and interim periods within those annual periods, and requires either a retrospective or a modified retrospective approach as of the beginning of the fiscal year of adoption.  We adopted ASU 2015-02 in the first quarter of 2016. The adoption of the standard did not impact our consolidated financial statements.
 

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HUGHES SATELLITE SYSTEMS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)

In April 2015, the FASB issued Accounting Standards Update No. 2015-03, Simplifying the Presentation of Debt Issuance Costs (“ASU 2015-03”). This standard requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of debt liability, consistent with debt discounts or premiums. ASU 2015-03 is effective for annual periods beginning after December 15, 2015 and interim periods within those annual periods, and requires a retrospective approach to adoption. Early adoption is permitted. We adopted ASU 2015-03 in the first quarter of 2016. Upon adoption, we presented unamortized debt issuance cost previously reported in “Other noncurrent assets, net” with a carrying amount of $31.3 million as of December 31, 2015, as a reduction of our “Long-term debt and capital lease obligations, net of unamortized debt issuance costs” (see Note 10 for further discussion).
In January 2016, the FASB issued Accounting Standards Update No. 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016-01”). This update substantially revises standards for the recognition, measurement and presentation of financial instruments, including requiring all equity investments to be measured at fair value with changes in the fair value recognized through net income. It also amends certain disclosure requirements associated with the fair value of financial instruments. ASU 2016-01 is effective for annual periods beginning after December 15, 2017, including interim periods within those annual periods, with early adoption permitted for certain requirements. We are assessing the impact of adopting this new accounting standard on our consolidated financial statements and related disclosures.

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 annual periods beginning after December 15, 2018 and interim periods within those periods. Early adoption is permitted. We are assessing the impact of adopting this new accounting standard on our consolidated financial statements and related disclosures.
 
In March 2016, the FASB issued Accounting Standards Update No. 2016-09, Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”), which simplifies the accounting for share-based payment awards. This update requires all excess tax benefits and deficiencies to be recognized as income tax expense or benefit and permits an entity to make an entity-wide policy election to either estimate forfeitures or recognize forfeitures as they occur. ASU 2016-09 is effective for annual periods beginning after December 15, 2016 and interim periods within those periods. The update specifies requirements for retrospective, modified retrospective or prospective application for the various amendments contained in the update. We are assessing the impact of adopting this new accounting standard on our consolidated financial statements and related disclosures.

Note 3.                   Hughes Retail Preferred Tracking Stock
 
Satellite and Tracking Stock Transaction
 
In February 2014, HSS and EchoStar entered into agreements with certain subsidiaries of DISH Network pursuant to which, effective March 1, 2014, (i) EchoStar issued shares of its newly authorized Hughes Retail Preferred Tracking Stock (the “EchoStar Tracking Stock”) and HSS issued shares of its newly authorized Hughes Retail Preferred Tracking Stock (the “HSS Tracking Stock” and together with the EchoStar Tracking Stock, the “Tracking Stock”) to DISH Network 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 Network began receiving certain satellite services on these five satellites from us (the “Satellite and Tracking Stock Transaction”).  Immediately upon receipt of net assets (consisting of two of the five satellites and related in-orbit incentive obligations) from DISH Network in exchange for EchoStar Tracking Stock, EchoStar transferred such net assets to us.  The Tracking Stock tracks 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”).  The shares of the Tracking Stock issued to DISH Network represent an aggregate 80.0% economic interest in the Hughes Retail Group (the shares issued as HSS Tracking Stock represent a 28.11% economic interest in the Hughes Retail Group and the shares issued as EchoStar Tracking Stock represent a 51.89% economic interest in the Hughes Retail Group).  In addition to the remaining 20.0% economic interest in the Hughes Retail Group, HSS retains all economic interest in the wholesale satellite broadband business and other businesses of HSS.  The Satellite and Tracking Stock Transaction was consistent with the long-term strategy of the Company to increase the scale of its satellite services business, which provides high-margin revenues, while continuing to benefit from the growth of the satellite broadband business.  As a result of the additional satellites received in the Satellite and Tracking Stock Transaction, HSS has increased short-term cash flow that it believes will better position it to achieve its strategic objectives.


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HUGHES SATELLITE SYSTEMS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)

HSS has adopted a policy statement (the “Policy Statement”) setting forth management and allocation policies for purposes of attributing all of the business and operations of HSS to either the Hughes Retail Group or the “HSSC Group,” which is defined as all other operations of HSS, including all existing and future businesses, other than the Hughes Retail Group.  Among other things, the Policy Statement governs how assets, liabilities, revenue and expenses are attributed or allocated between HRG and the HSSC Group.  Such attributions and allocations generally do not affect the amounts reported in our consolidated financial statements, except for the attribution of shareholders’ equity and net income or loss between the holders of Tracking Stock and common stock.  The Policy Statement also does not significantly affect the way that management assesses operating performance and allocates resources within our Hughes segment.
 
We provide unaudited attributed financial information for HRG and the HSSC Group in an exhibit to our periodic reports on Form 10-Q and Form 10-K.  For a description of the Tracking Stock and the initial recording of the Satellite and Tracking Stock Transaction in our consolidated financial statements, as well as the purpose and effect of the transaction on the Company and holders of shares of HSS common stock, see Note 3 to the consolidated financial statements in our most recent Annual Report on Form 10-K. 

Note 4.                   Other Comprehensive Income (Loss) and Related Tax Effects
 
We have not recognized any tax effects on foreign currency translation adjustments because they are not expected 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 amount of existing capital loss carryforwards for which the related deferred tax asset has been fully offset by a valuation allowance.
 
Accumulated other comprehensive loss includes cumulative foreign currency translation losses of $46.1 million and $53.8 million as of March 31, 2016 and December 31, 2015, respectively.

Note 5.                   Investment Securities
 
Our marketable investment securities and investments in unconsolidated entities consisted of the following:
 
 
 
As of
 
 
March 31, 2016
 
December 31, 2015
 
 
(In thousands)
Marketable investment securities—current, at fair value:
 
 
 
 
Corporate bonds
 
$
205,960

 
$
228,770

Strategic equity securities
 
17,929

 
18,297

Other
 
11,772

 
6,276

Total marketable investment securities—current
 
235,661

 
253,343

Investments in unconsolidated entities—noncurrent:
 
 
 
 
Cost method
 
15,438

 
15,438

Equity method
 
27,902

 
26,043

Total investments in unconsolidated entities—noncurrent
 
43,340

 
41,481

Total marketable investment securities and investments in unconsolidated entities
 
$
279,001

 
$
294,824


Marketable Investment Securities
 
Our marketable investment securities portfolio consists of various debt and equity instruments, which generally are classified as available-for-sale or trading securities depending on our investment strategy for those securities.  The value of our investment portfolio depends on the value of such securities and other instruments comprising the portfolio.
 
Corporate Bonds
 
Our corporate bond portfolio includes debt instruments issued by individual corporations, primarily in the industrial and financial services industries.
 

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HUGHES SATELLITE SYSTEMS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)

Strategic Equity 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 months ended March 31, 2016 or 2015.
 
As of March 31, 2016 and December 31, 2015, our strategic equity securities included shares of common stock of one of our customers that we received in satisfaction of certain milestone payments that were required to be paid to us under an existing long-term contract.  For the three months ended March 31, 2016 and 2015, “Gains on marketable investment securities” includes $0.2 million and zero on such common stock in our trading securities portfolio, respectively, which had a fair value of $10.6 million as of March 31, 2016.
 
Other
 
Our other current marketable investment securities portfolio includes investments in various debt instruments, including U.S. government bonds.

Unrealized Gains (Losses) on Marketable Investment Securities
 
The components of our available-for-sale investments are summarized in the table below.
 
 
 
Amortized
 
Unrealized
 
Estimated
 
 
Cost
 
Gains
 
Losses
 
Fair Value
 
 
(In thousands)
As of March 31, 2016
 
 
 
 
 
 
 
 
Debt securities:
 
 
 
 
 
 
 
 
Corporate bonds
 
$
206,028

 
$
140

 
$
(208
)
 
$
205,960

Other
 
11,764

 
8

 

 
11,772

Equity securities - strategic
 
8,037

 
67

 
(732
)
 
7,372

Total marketable investment securities
 
$
225,829

 
$
215

 
$
(940
)
 
$
225,104

As of December 31, 2015
 
 
 
 
 
 
 
 
Debt securities:
 
 
 
 
 
 
 
 
Corporate bonds
 
$
229,004

 
$
2

 
$
(236
)
 
$
228,770

Other
 
6,279

 

 
(3
)
 
6,276

Equity securities - strategic
 
8,037

 

 
(82
)
 
7,955

Total marketable investment securities
 
$
243,320

 
$
2

 
$
(321
)
 
$
243,001


As of March 31, 2016, restricted and non-restricted marketable investment securities included debt securities of $185.9 million with contractual maturities of one year or less and $31.8 million 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.
 

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HUGHES SATELLITE SYSTEMS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)

Available-for-Sale Securities in a Loss Position
 
The following table reflects the length of time that 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 March 31, 2016.
 
 
 
As of
 
 
March 31, 2016
 
December 31, 2015
 
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
 
(In thousands)
Less than 12 months
 
$
82,950

 
$
(940
)
 
$
148,629

 
$
(268
)
12 months or more
 
2,500

 

 
67,751

 
(53
)
Total
 
$
85,450

 
$
(940
)
 
$
216,380

 
$
(321
)

Sales of Marketable Investment Securities
 
We recognized de minimis gains and losses from the sales of our available-for-sale securities for each of the three months ended March 31, 2016 and 2015
 
Proceeds from sales of our available-for-sale securities totaled $2.3 million and $7.5 million for the three months ended March 31, 2016 and 2015, respectively.
 
Fair Value Measurements
 
Our current marketable investment securities are measured at fair value on a recurring basis as summarized in the table below.  As of March 31, 2016 and December 31, 2015, we did not have investments that were categorized within Level 3 of the fair value hierarchy.
 
 
 
As of
 
 
March 31, 2016
 
December 31, 2015
 
 
Total
 
Level 1
 
Level 2
 
Total
 
Level 1
 
Level 2
 
 
(In thousands)
Cash equivalents
 
$
357,376

 
$
190

 
$
357,186

 
$
303,152

 
$
213

 
$
302,939

Debt securities:
 
 
 
 
 
 
 
 
 
 
 
 
Corporate bonds
 
$
205,960

 
$

 
$
205,960

 
$
228,770

 
$

 
$
228,770

Other
 
11,772

 

 
11,772

 
6,276

 

 
6,276

Equity securities - strategic
 
17,929

 
17,929

 

 
18,297

 
18,297

 

Total marketable investment securities
 
$
235,661

 
$
17,929

 
$
217,732

 
$
253,343

 
$
18,297

 
$
235,046


Investments in Unconsolidated Entities Noncurrent
 
We have several 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.


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HUGHES SATELLITE SYSTEMS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)

Note 6.                   Trade Accounts Receivable
 
Our trade accounts receivable consisted of the following:

 
 
As of
 
 
March 31, 2016
 
December 31, 2015
 
 
(In thousands)
Trade accounts receivable
 
$
124,152

 
$
127,946

Contracts in process, net
 
17,776

 
23,011

Total trade accounts receivable
 
141,928

 
150,957

Allowance for doubtful accounts
 
(12,974
)
 
(11,447
)
Trade accounts receivable - DISH Network
 
19,706

 
21,258

Total trade accounts receivable, net
 
$
148,660

 
$
160,768


As of March 31, 2016 and December 31, 2015, progress billings offset against contracts in process amounted to $4.9 million and $2.9 million, respectively.

Note 7.                   Inventory
 
Our inventory consisted of the following: 
 
 
As of
 
 
March 31, 2016
 
December 31, 2015
 
 
(In thousands)
Finished goods
 
$
39,056

 
$
39,642

Raw materials
 
6,866

 
5,280

Work-in process
 
7,436

 
3,875

Total inventory
 
$
53,358

 
$
48,797


Note 8.                   Property and Equipment
 
Property and equipment consisted of the following:
 
 
 
 
 
As of
 
 
Depreciable Life
(In Years)
 
March 31, 2016
 
December 31, 2015
 
 
 
 
(In thousands)
Land
 
 
$
13,377

 
$
12,055

Buildings and improvements
 
1 - 30
 
79,152

 
73,949

Furniture, fixtures, equipment and other
 
1 - 12
 
379,123

 
371,889

Customer rental equipment
 
2 - 4
 
611,939

 
588,430

Satellites - owned
 
2 - 15
 
2,381,120

 
2,381,120

Satellites acquired under capital leases
 
10 - 15
 
665,518

 
665,518

Construction in progress
 
 
410,444

 
311,083

Total property and equipment
 
 
 
4,540,673

 
4,404,044

Accumulated depreciation
 
 
 
(2,229,836
)
 
(2,138,642
)
Property and equipment, net
 
 
 
$
2,310,837

 
$
2,265,402


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HUGHES SATELLITE SYSTEMS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)

Construction in progress consisted of the following:
 
 
As of
 
 
March 31,
2016
 
December 31,
2015
 
 
(In thousands)
Progress amounts for satellite construction, including prepayments under capital leases and launch services costs
 
$
265,265

 
$
187,253

Satellite related equipment
 
121,164

 
104,566

Other
 
24,015

 
19,264

Construction in progress
 
$
410,444

 
$
311,083


Construction in progress includes the following owned and leased satellites under construction or undergoing in orbit testing as of March 31, 2016.
 
Satellites
 
Segment
 
Expected Launch Date
 
Eutelsat 65 West A (2)
 
Hughes
 
March 2016 (1)
 
EchoStar 105/SES-11
 
ESS
 
Fourth quarter of 2016
 
Telesat T19V (“63 West”) (2)
 
Hughes
 
Second quarter of 2018
 
 
 
 
 
 
 
(1)
This satellite was launched in March 2016 and is expected to be placed into service during the second quarter of 2016.
(2)
We entered into a satellite services agreement and made prepayments for certain capacity on this satellite once launched, but are not a party to the construction contract.

Depreciation expense associated with our property and equipment consisted of the following:
 
 
For the Three Months Ended March 31,
 
 
 
2016
 
2015
 
 
 
(In thousands)
Satellites
 
$
46,965

 
$
49,087

 
Furniture, fixtures, equipment and other
 
14,042

 
12,217

 
Customer rental equipment
 
29,137

 
30,187

 
Buildings and improvements
 
1,061

 
1,292

 
Total depreciation expense
 
$
91,205

 
$
92,783

 
 
 
 
 
 
 
Satellites
 
As of March 31, 2016, we utilized in support of our operations, 16 of our owned and leased satellites in geosynchronous orbit, approximately 22,300 miles above the equator.  We depreciate our owned satellites on a straight-line basis over the estimated useful life of each satellite.  Two of our satellites are accounted for as capital leases and are depreciated on a straight-line basis over their respective lease terms. We utilized one satellite that is accounted for as an operating lease and not included in property and equipment as of March 31, 2016.

Satellite Anomalies
 
Our satellites may experience anomalies from time to time, some of which may have a significant adverse impact on their remaining useful lives, the commercial operation of the satellites or our operating results. We are not aware of any anomalies with respect to our owned or leased satellites that have had any such material adverse effect during the three months ended March 31, 2016.  There can be no assurance, however, that anomalies will not have any such adverse impacts in the future.  In addition, there can be no assurance that we can recover critical transmission capacity in the event one or more of our in-orbit satellites were to fail. 


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Table of Contents
HUGHES SATELLITE SYSTEMS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)

Note 9.                   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 our reporting units of 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 March 31, 2016 and December 31, 2015, all of our goodwill was assigned to reporting units of our Hughes segment.  We test this goodwill for impairment annually in the second quarter. 

Other Intangible Assets
 
Our other intangible assets, which are subject to amortization, consisted of the following:
 
 
 
Weighted Average Useful Life (in Years)
 
As of
 
 
 
March 31, 2016
 
December 31, 2015
 
 
 
Cost
 
Accumulated
Amortization
 
Carrying
Amount
 
Cost
 
Accumulated
Amortization
 
Carrying
Amount
 
 
 
 
(In thousands)
Customer relationships
 
8
 
$
270,300

 
$
(196,068
)
 
$
74,232

 
$
270,300

 
$
(189,910
)
 
$
80,390

Contract-based
 
4
 
64,800

 
(64,800
)
 

 
64,800

 
(64,800
)
 

Technology-based
 
6
 
51,417

 
(41,423
)
 
9,994

 
51,417

 
(39,281
)
 
12,136

Trademark portfolio
 
20
 
29,700

 
(7,178
)
 
22,522

 
29,700

 
(6,806
)
 
22,894

Favorable leases
 
4
 
4,707

 
(4,707
)
 

 
4,707

 
(4,707
)
 

Total other intangible assets
 
 
 
$
420,924

 
$
(314,176
)
 
$
106,748

 
$
420,924

 
$
(305,504
)
 
$
115,420


Customer relationships are amortized predominantly in relation to the expected contribution of cash flow to the business 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 regulatory authorizations with finite lives and externally marketed capitalized software, was $11.2 million and $15.2 million for the three months ended March 31, 2016 and 2015, respectively.
 

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Note 10.            Debt and Capital Lease Obligations
 
The following table summarizes the carrying amounts and fair values of our debt:
 
 
 
 
 
As of
 
 
 
 
March 31, 2016
 
December 31, 2015
 
 
 
Effective Interest Rates
 
Carrying
Amount
 
Fair
Value
 
Carrying
Amount
 
Fair
Value
 
 
 
 
 
(In thousands)
6 1/2% Senior Secured Notes due 2019
 
6.959%
 
$
990,000

 
$
1,093,950

 
$
990,000

 
$
1,071,675

 
7 5/8% Senior Notes due 2021
 
8.062%
 
900,000

 
1,001,250

 
900,000

 
954,000

 
Other
 
12.1% - 14.3%
 
778

 
778

 
803

 
803

 
Less: Unamortized debt issuance costs
 
 
 
(29,738
)
 

 
(31,276
)
 

 
Subtotal
 
 
 
1,861,040

 
$
2,095,978

 
1,859,527

 
$
2,026,478

 
Capital lease obligations
 
 
 
318,711

 
 
 
325,745

 
 
 
Total debt and capital lease obligations
 
 
 
2,179,751

 
 
 
2,185,272

 
 
 
Less: Current portion
 
 
 
(1,891,286
)
 
 
 
(30,284
)
 
 
 
Long-term debt and capital lease obligations, net of unamortized debt issuance costs
 
 
 
$
288,465

 
 
 
$
2,154,988

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The fair values of our debt are estimates categorized within Level 2 of the fair value hierarchy.

Prior to our adoption of ASU 2015-03 in the first quarter of 2016 (see Note 2), we presented unamortized debt issuance costs in “Other noncurrent assets, net.”

On May 6, 2016, we announced that we are offering to repurchase for cash all or any part of our outstanding 6 1/2% Senior Secured Notes due 2019 (the “Senior Secured Notes”) and our outstanding 7 5/8% Senior Notes due 2021 (the “Unsecured Notes” and, together with the “Senior Secured Notes,” the “Notes”) at a purchase price equal to 101% of the aggregate principal amount thereof, together with accrued and unpaid interest thereon to the date of repurchase.

As previously disclosed and as discussed in Note 3 herein and in our most recently filed Annual Report on Form 10-K, we and EchoStar, entered into the Satellite and Tracking Stock Transaction and issued the HSS Tracking Stock to DISH Network.

We recently became aware of a possible interpretation under which the Satellite and Tracking Stock Transaction may be considered to have constituted a Change of Control as defined under the respective indentures governing the Notes (the “Indentures”). Under the Indentures, a Change of Control occurs when EchoStar shall cease to beneficially own 100% of the Equity Interests (as defined in the respective Indentures) of HSS. The Indentures provide that, upon the occurrence of a Change of Control, we are required, within 30 days, to make an offer to each Holder (as defined in the respective Indentures) of the respective Notes to repurchase all or any part (equal to $2,000 or an integral multiple of $1,000 in excess thereof) of such Holder’s Notes at a purchase price equal to 101% of the aggregate principal amount thereof, together with accrued and unpaid interest thereon to the date of repurchase.

The Notes have traded at prices well above 101% of their respective principal amounts at all times since the issuance of the HSS Tracking Stock. In addition, both prior to and following the Satellite and Tracking Stock Transaction, Mr. Charles W. Ergen held and exercised, and continues to hold and exercise, voting control over both DISH Network and EchoStar and therefore, the ultimate voting control as to all matters regarding the Equity Interests of HSS was not affected by the Satellite and Tracking Stock Transaction. Although we believe that a Change of Control or related default may not have occurred, we have nevertheless determined that it was prudent for us to make a Change of Control Offer as defined under each of the Indentures. Upon commencement of the Change of Control Offers on May 6, 2016, we do not believe there was any such continuing default under the Indentures.

Under the Change of Control Offers, we will repurchase any Notes surrendered by the Holders thereof at a purchase price of 101% of the principal amount of the Notes plus accrued and unpaid interest, notwithstanding that the Notes have traded at a significantly higher price during the entire period since the issuance of the HSS Tracking Stock as part of the Satellite and Tracking Stock Transaction. Following the launch of the Change of Control Offers, in accordance with GAAP, the Notes are reported in “Current portion of long-term debt and capital lease obligations, net of unamortized debt issuance costs” on our consolidated balance sheets as of March 31, 2016 as the Holders may require us to repurchase the Notes under the Change of Control Offers. Following the completion of the Change of Control Offers, which is currently expected to occur on or about

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Table of Contents

June 8, 2016, but which we may extend to a date no later than July 5, 2016, any outstanding Notes are expected to again be reported in “Long-term debt and capital lease obligations, net of unamortized debt issuance costs” on our consolidated balance sheets. We expect that the Senior Secured Notes and the Unsecured Notes will remain outstanding until their maturity in 2019 and 2021, respectively.

If any Notes are tendered for purchase in the Change of Control Offers, we expect to fund such purchases with available cash and external sources of financing that we believe are available to us.  Any such financing is subject to prevailing market conditions.  

Note 11.            Income Taxes
 
Our 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 quarterly tax provision, and our quarterly estimate of our annual effective tax rate, is subject to significant volatility due to several factors, including income and losses from investments for which we have 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 on the amount of pre-tax income.  For example, the impact of discrete items and non-deductible expenses on our effective tax rate is greater when our pre-tax income is lower.
 
Income tax expense was approximately $20.0 million and $18.0 million for the three months ended March 31, 2016 and 2015, respectively.  Our estimated effective income tax rate was 37.1% and 38.0% for the three months ended March 31, 2016 and 2015, respectively.  The variations in our effective tax rate from the U.S. federal statutory rate for the three months ended March 31, 2016 and 2015 was primarily due to state taxes.
 
Note 12.            Commitments and Contingencies
 
Commitments
 
As of March 31, 2016, our satellite-related obligations were approximately $922.8 million.  Our satellite-related obligations primarily include payments pursuant to agreements for the construction of the EchoStar XIX, EchoStar XXI, EchoStar XXIII, EchoStar 105/SES-11, and 63 West satellites, payments pursuant to launch services contracts and regulatory authorizations, executory costs for our capital lease satellites, costs under satellite service agreements and in-orbit incentives relating to certain satellites, as well as commitments for long-term satellite operating leases and satellite service arrangements.
 
Contingencies
 
Patents and Intellectual Property

Many entities, including some of our competitors, have or may 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. 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 components within our direct broadcast satellite (“DBS”) products and services. We cannot be certain that these persons 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 persons 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
 
In 2008, DISH Network Corporation 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 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 has assumed certain liabilities that relate to its business, including certain designated liabilities for acts or omissions that occurred prior to the Spin-off.  Certain specific provisions govern intellectual

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property related claims under which, generally, EchoStar will only be liable for its 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.
 
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 litigation are charged to expense as incurred.
 
For certain cases described below, management is unable to predict with any degree of certainty the outcome or provide a meaningful estimate of the possible loss or range of possible loss because, among other reasons, (i) the proceedings are in various stages; (ii) damages have not been sought or specified; (iii) damages are unsupported, indeterminate and/or exaggerated in management’s opinion; (iv) there is uncertainty as to the outcome of pending appeals or motions; (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).  For these cases, however, management does not believe, based on currently available information, that the outcomes of these proceedings will have a material adverse effect on our financial condition, operating results or cash flows, though there is no assurance that the resolution and outcomes of these proceedings, individually or in the aggregate, will not be material to our financial condition, operating results or cash flows for any particular period, depending, in part, upon the operating results for such period.
 
We intend to vigorously defend the proceedings against us. In the event that a court 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. In addition, adverse decisions against DISH Network in the proceedings described below could decrease the number of products and components we sell to DISH Network, which could have a material adverse effect on our business operations and our financial condition, results of operation and cash flows.

California Institute of Technology
 
On October 1, 2013, the California Institute of Technology (“Caltech”) filed suit against two of our subsidiaries, Hughes Communications, Inc. and Hughes Network Systems, LLC (“HNS”), as well as against DISH Network, DISH Network L.L.C., and dishNET Satellite Broadband L.L.C., 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 infringes each of the asserted patents.  In the operative Amended Complaint, served on March 6, 2014, Caltech claims that the HopperTM set-top box that we design and sell to DISH Network, as well as certain of our Hughes segment’s satellite broadband products and services, infringe the asserted patents by implementing the DVB-S2 standard.  On September 26, 2014, Caltech requested leave to amend its Amended Complaint to add EchoStar Corporation and EchoStar Technologies L.L.C. as defendants, as well as to allege that a number of additional set-top boxes infringe the asserted patents.  On November 7, 2014, the Court rejected that request.  Additionally, on November 4, 2014, the Court ruled that the patent claims at issue in the suit are directed to patentable subject matter.  On February 17, 2015, Caltech filed a second complaint in the same district against the same defendants alleging that HNS’ Gen4 HT1000 and HT1100 products infringe the same patents asserted in the first case.  We answered that second complaint on March 24, 2015.  The trial for the first case which was scheduled to commence on April 20, 2015, was vacated by the Court on March 16, 2015 and a new trial date has yet to be set.  On May 5, 2015, the Court granted summary judgment for us on a number of issues, finding that Caltech’s damages theory improperly apportioned alleged damages, that allegations of infringement against DISH Network, DISH Network L.L.C., and dishNET Satellite Broadband L.L.C. should be dismissed from the case, and affirming that Caltech could not assert infringement under the doctrine of equivalents.  The Court also granted motions by Caltech seeking findings that certain of its

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patents were not indefinite or subject to equitable estoppel.  The Court otherwise denied motions for summary judgment, including a motion by Caltech seeking summary judgment of infringement.  On May 14, 2015, the judge assigned to the case passed away.  A new judge has not yet been formally assigned. The parties are discussing resolving these cases without further litigation.  There can be no assurance that a settlement agreement will be reached.  If a settlement agreement is not reached, we cannot predict with any degree of certainty the outcome of the suit or determine the extent of any potential liability or damages and we intend to vigorously defend these cases. 
 
Elbit
 
On January 23, 2015, Elbit Systems Land and C4I LTD and Elbit Systems of America Ltd. (together referred to as “Elbit”) filed a complaint against our subsidiary HNS, as well as against Black Elk Energy Offshore Operations, LLC, Bluetide Communications, Inc. and Helm Hotels Group, in the United States District Court for 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” and 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, Elbit filed an amended complaint removing Helm Hotels Group as a defendant, but making similar allegations against a new defendant, Country Home Investments, Inc.  Over November 3 and 4, 2015, and January 22, 2016, the defendants filed petitions before the United States Patent and Trademark Office challenging the validity of the patents in suit and on April 13, 2016, the defendants answered Elbit’s complaint. By April 29, 2016, three of the four petitions were denied, with a decision regarding one petition still pending.
 
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, entitled “Content Independent Data Compression Method and System”; 7,415,530, entitled “System and Methods for Accelerated Data Storage and Retrieval”; and 8,643,513, 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, 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 challenging the validity of the asserted patents. Realtime is an entity that seeks to license an acquired patent portfolio without itself practicing any of the claims recited therein.

TQ Beta LLC
 
On June 30, 2014, TQ Beta LLC (“TQ Beta”) filed suit against DISH Network, DISH DBS Corporation, DISH Network L.L.C., as well as HSS, EchoStar Corporation, EchoStar Technologies, L.L.C, and Sling Media, Inc., a subsidiary of EchoStar, in the United States District Court for the District of Delaware, alleging infringement of United States Patent No. 7,203,456 (the “456 patent”), which is entitled “Method and Apparatus for Time and Space Domain Shifting of Broadcast Signals.”  TQ Beta alleges that the Hopper, Hopper with Sling, ViP 722 and ViP 722k DVR devices, as well as the DISH Anywhere service and DISH Anywhere mobile application, infringe the 456 patent, but has not specified the amount of damages that it seeks.  TQ Beta is an entity that seeks to license an acquired patent portfolio without itself practicing any of the claims recited therein.  During August 2015, EchoStar Corporation and DISH Network L.L.C. filed petitions before the United States Patent and Trademark Office challenging the validity of the 456 patent, and in February 2016, the United States Patent and Trademark Office agreed to institute proceedings on our petitions. On February 25, 2016, the case was stayed pending resolution of these proceedings before the United States Patent and Trademark Office, and the Court vacated all pending court dates and deadlines.
 

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Two-Way Media Ltd

On February 17, 2016, Two-Way Media Ltd (“TWM”) filed a complaint against EchoStar Corporation and its subsidiaries, EchoStar Technologies L.L.C., EchoStar Satellite Services L.L.C., and Sling Media, Inc., as well as against DISH Network Corporation, DISH DBS Corporation, DISH Network L.L.C., DISH Network Service L.L.C., Sling TV Holding L.L.C., Sling TV L.L.C., and Sling TV Purchasing L.L.C. TWM brought the suit in the United States District Court for the District of Colorado, alleging infringement of United States Patent Nos. 5,778,187; 5,983,005; 6,434,622; and 7,266,686, each entitled “Multicasting Method and Apparatus”; and 9,124,607, entitled “Methods and Systems for Playing Media.” TWM alleges that the SlingTV, Sling International, DISH Anywhere, and DISHWorld services, as well as the Slingbox units and DISH DVRs incorporating Slingbox technology, infringe the asserted patents. TWM is an entity that seeks to license a 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 is 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 Company 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 Company from time to time receives 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 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 its directors, officers and employees for certain liabilities that might arise from the performance of their responsibilities for the Company. Additionally, in the normal course of its business, the Company enters into contracts pursuant to which the Company may make a variety of representations and warranties and indemnify the counterparty for certain losses. The Company’s 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 Company or its officers, directors or employees, the outcomes of which are unknown and not currently predictable or estimable.
 
Note 13.            Segment Reporting
 
Operating segments are business components of an enterprise for which separate financial information is available and regularly evaluated by the chief operating decision maker (“CODM”), who for HSS, is the Company’s Chief Executive Officer.  Under this definition, we operate in two primary business segments, Hughes and EchoStar Satellite Services as described in Note 1 of these condensed consolidated financial statements.
 
The primary measure of segment profitability that is reported regularly to our CODM is earnings before interest, taxes, depreciation and amortization, or EBITDA.  Our segment operating results do not include real estate and other activities, costs incurred in certain satellite development programs and other business development activities, expenses of various corporate departments and our centralized treasury operations, including income from our investment portfolio and interest expense on our debt.  These activities are accounted for in the “All Other and Eliminations” column in the table below.  Total assets by segment have not been reported herein because the information is not provided to our CODM on a regular basis.  The Hughes Retail Group is included in our Hughes segment and our CODM reviews separate HRG financial information only to the extent such information is included in our periodic filings with the SEC.  Therefore, we do not consider HRG to be a separate operating segment.
 
Transactions between segments were not significant for the three months ended March 31, 2016 or 2015.
 

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The following table presents revenue, capital expenditures, and EBITDA for each of our operating segments:
 
 
 
Hughes
 
EchoStar
Satellite
Services
 
All
Other and
Eliminations
 
Consolidated
Total
 
 
(In thousands)
For the Three Months Ended March 31, 2016
 
 
 
 
 
 
 
 
External revenue
 
$
325,539

 
$
102,815

 
$
772

 
$
429,126

Intersegment revenue
 
$
699

 
$
174

 
$
(873
)
 
$

Total revenue
 
$
326,238

 
$
102,989

 
$
(101
)
 
$
429,126

Capital expenditures
 
$
104,237

 
$
24,720

 
$

 
$
128,957

EBITDA
 
$
99,468

 
$
88,186

 
$
4,792

 
$
192,446

For the Three Months Ended March 31, 2015
 
 
 
 
 
 
 
 
External revenue
 
$
324,950

 
$
125,198

 
$
86

 
$
450,234

Intersegment revenue
 
$
330

 
$
200

 
$
(530
)
 
$

Total revenue
 
$
325,280

 
$
125,398

 
$
(444
)
 
$
450,234

Capital expenditures
 
$
64,527

 
$
27,783

 
$

 
$
92,310

EBITDA
 
$
91,273

 
$
106,419

 
$
1,289

 
$
198,981

 
 
 
 
 
 
 
 
 
The following table reconciles total consolidated EBITDA to reported “Income before income taxes” in our condensed consolidated statements of operations and comprehensive income (loss):
 
 
 
For the Three Months Ended March 31,
 
 
 
2016
 
2015
 
 
 
(In thousands)
EBITDA
 
$
192,446

 
$
198,981

 
Interest income and expense, net
 
(36,117
)
 
(43,987
)
 
Depreciation and amortization
 
(102,369
)
 
(108,014
)
 
Net income attributable to noncontrolling interests
 
111

 
369

 
Income before income taxes
 
$
54,071

 
$
47,349

 

Note 14.            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 provided at cost.  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 $2.5 million and $3.4 million for the three months ended March 31, 2016 and 2015, 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 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 2017 and 2018. Advances under these agreements bear interest at

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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 consolidated balance sheets.

EchoStar XXI and EchoStar XXIII Launch Facilitation and Operational Control Agreement.  As part of applying for our launch license for EchoStar XXI and XXIII 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 contract 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, which are currently under construction and scheduled to be launched later in 2016.  In March 2016, we recorded a $70.3 million addition to “Other noncurrent assets, net” and a corresponding increase in “Additional paid-in capital” in our consolidated balance sheet to reflect EOC’s cumulative payments under the EchoStar XXIII launch service contract prior to the transfer date. EOC also contracted to make future payments to HNS Ltd. for amounts that HNS Ltd. is required to pay under both launch service contracts.  In March 2016, HNS Ltd. received $11.9 million in cash from EOC to fund a required payment under the EchoStar XXI launch service contract.  We recorded the cash receipt as an increase in “Additional paid-in capital.” HNS Ltd.’s future payments under the launch service contract are included in our disclosure of satellite-related obligations in Note 12.

DISH Network
 
Following the Spin-off, EchoStar and DISH Network have operated as separate publicly-traded companies.  However, pursuant to the Satellite and Tracking Stock Transaction, described in Note 3 and below, DISH Network owns Hughes Retail Preferred Tracking Stock representing an aggregate 80.0% economic interest in the residential retail satellite broadband business of our Hughes segment, including certain operations, assets and liabilities attributed to such business.  In addition, a substantial majority of the voting power of the shares of EchoStar and DISH Network 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 the Spin-off, EchoStar and DISH Network 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 have indemnified 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 DISH Network pays for products and services provided under the agreements are based on our cost plus a fixed margin (unless noted differently below), which varies depending on the nature of the products and services provided.
 
The following is a summary of the terms of our principal agreements with DISH Network that may have an impact on our financial condition and results of operations.
 
“Services and other revenue — DISH Network”
 
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 I, EchoStar VII, EchoStar X, EchoStar XI and EchoStar XIV.  As part of the Satellite and Tracking Stock Transaction discussed in Note 3, in March 2014, we began providing certain satellite services to DISH Network on the EchoStar I, 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.  DISH Network elected not to renew the satellite services agreement relative to the EchoStar I satellite.  The agreement for the EchoStar I satellite expired pursuant to its terms effective November 2015. In December 2015, DISH Network renewed the satellite services agreement relative to the EchoStar VII satellite for one year to June 2017.

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EchoStar VIII.  In May 2013, DISH Network began receiving satellite services from us on the EchoStar VIII satellite as an in-orbit spare.  Effective March 2014, this satellite services arrangement converted to a month-to-month service agreement with both parties having the right to terminate upon 30 days’ notice.  The agreement terminated in accordance with its terms effective November 2015.
 
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 receives satellite services from us on the EchoStar XII satellite.  The term of the satellite services agreement terminates upon the earlier of: (i) the end of life of the satellite; (ii) the date the satellite fails or the date the transponder(s) on which the service was being provided under the agreement fails; or (iii) September 2017.  DISH Network generally has the option to renew the agreement on a year-to-year basis through the end of the satellite’s life.  There can be no assurance that any options to renew this agreement will be exercised.
 
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, we 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.  Prior to expiration of the initial term, we, upon certain conditions, and DISH Network have the option to renew for an additional six-year period.  If either we or DISH Network exercise our respective six-year renewal options, DISH Network has the option to renew for an additional five-year period prior to expiration of the then-current term.  There can be no assurance that any option to renew this agreement will be exercised. In the event that we or DISH Network does not exercise the six-year renewal option or DISH Network does not exercise the 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.
 
Nimiq 5 Agreement. 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.
 
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 ten years following the date the Nimiq 5 satellite was placed into service.  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.
 
QuetzSat-1 Agreement.  In November 2008, we entered into a ten-year satellite service agreement with SES Latin America, which provides, among other things, for the provision by SES Latin America to us 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. 


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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 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 the 103 degree west longitude orbital location (the “103 Spectrum Rights”).  In June 2013, we and DISH Network entered into a spectrum development agreement (the “DISH 103 Spectrum Development Agreement”) pursuant to which DISH Network may use and develop the 103 Spectrum Rights.  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.
 
Satellite and Tracking Stock Transaction.  In February  2014, we 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 on these five satellites from us.  See Note 3 herein and in our most recent Form 10-K for further information.
 
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”).  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 DISH Network’s D-1 satellite.

TerreStar Agreement.  In March 2012, DISH Network completed its acquisition of substantially all the assets of TerreStar Networks Inc. (“TerreStar”).  Prior to DISH Network’s acquisition of substantially all the assets of TerreStar and our completion of the Hughes Acquisition, TerreStar and HNS entered into various agreements pursuant to which our Hughes segment provides, among other things, hosting, operations and maintenance services for TerreStar’s satellite gateway and associated ground infrastructure.  These agreements generally may be terminated by DISH Network at any time for convenience.
 

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HUGHES SATELLITE SYSTEMS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)

Hughes Broadband Distribution Agreement.  Effective October 2012, HNS and dishNET Satellite Broadband L.L.C. (“dishNET”), a wholly-owned subsidiary of DISH Network, 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 our completion of the Hughes Acquisition, DBSD North America and HNS entered into an agreement pursuant to which our Hughes segment provides, among other things, hosting, operations and maintenance services of DBSD North America’s satellite gateway and associated ground infrastructure.  This agreement will expire in February 2017.

RUS Implementation Agreement. In September 2010, DISH Broadband L.L.C. (“DISH Broadband”), DISH Network’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”
 
Professional Services Agreement.  In connection with the Spin-off, EchoStar entered into various agreements with DISH Network 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 Network agreed that EchoStar 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 Network agreed that DISH Network would continue to have the right, but not the obligation, to engage us to manage the process of procuring new satellite capacity for DISH Network (previously provided under the Satellite Procurement Agreement), receive logistics, procurement and quality assurance services from EchoStar (previously provided under the Services Agreement) and other support services. A portion of these costs and expenses have been allocated to us in the manner described above under the caption “EchoStar.” The Professional Services Agreement automatically renewed in January 2016 for an additional one-year period until January 2017 and renews automatically for successive one-year periods thereafter, unless terminated earlier by either party upon at least 60 days’ notice. However, either party may terminate the Professional Services Agreement in part with respect to any particular service it receives for any reason upon at least 30 days’ notice.

“Other agreements — DISH Network”

Tax Sharing Agreement.  As a subsidiary of EchoStar, we are an indirect party to EchoStar’s tax sharing agreement with DISH Network that was entered into in connection with the Spin-off.  This agreement governs EchoStar and DISH Network’s respective rights, responsibilities and obligations after the Spin-off with respect to taxes for the periods ending on or before the Spin-off.  Generally, all pre-Spin-off taxes, including any taxes that are incurred as a result of restructuring activities undertaken to implement the Spin-off, are borne by DISH Network, and DISH Network will indemnify EchoStar for such taxes.  However, DISH Network is not liable for and will not indemnify EchoStar 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

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HUGHES SATELLITE SYSTEMS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)

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 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 amount that includes $93.1 million of the federal tax benefit they received as a result of our operations.
 
Other Agreements
 
Hughes Systique Corporation (“Hughes Systique”)
 
We contract with Hughes Systique for software development services. In 2008, Hughes Communications agreed to make available to Hughes Systique a term loan facility of up to $1.5 million and it funded an initial $0.5 million to Hughes Systique pursuant to the term loan facility.  In 2009, Hughes Communications funded the remaining $1.0 million of its $1.5 million commitment under the term loan facility.  The initial interest rate on the outstanding loans was 6%, payable annually, and the accrued and unpaid interest is added to the principal amount outstanding under the loan facility in certain circumstances. The loans are 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 February 2016, Hughes Systique repaid $0.3 million of the outstanding principal of the loan facility. As of March 31, 2016, the principal outstanding amount of the loan facility was $0.3 million. In April 2016, Hughes Systique repaid in full the outstanding principal of the loan facility. In addition to our 44.0% 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 25.8%, on an undiluted basis, of Hughes Systique’s outstanding shares as of March 31, 2016. 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 satellite services revenue from Dish Mexico of approximately $5.8 million for each of the three months ended March 31, 2016 and 2015.  As of March 31, 2016 and December 31, 2015, we had trade accounts receivable from Dish Mexico of approximately $10.7 million and $10.6 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.  We recognized revenue from Deluxe for transponder services and the sale of broadband equipment of approximately $0.7 million for each of the three months ended March 31, 2016 and 2015.  As of March 31, 2016 and December 31, 2015, we had trade accounts receivable from Deluxe of approximately $0.3 million and $0.1 million, respectively.


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HUGHES SATELLITE SYSTEMS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)

Note 15.            Supplemental Guarantor and Non-Guarantor Financial Information
 
Certain of our wholly-owned subsidiaries (together, the “Guarantor Subsidiaries”) have fully and unconditionally guaranteed, on a joint and several basis, the obligations of our 6 1/2% Senior Secured Notes due 2019 and 7 5/8 % Senior Unsecured Notes due 2021 (collectively, the “Notes”), which were issued on June 1, 2011.  See Note 10 for further information on the 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 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, or enter into transactions with affiliates.
 
The condensed consolidating financial information presented below should be read in conjunction with our condensed consolidated financial statements and notes thereto included herein.

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HUGHES SATELLITE SYSTEMS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)

Condensed Consolidating Balance Sheet as of March 31, 2016
(In thousands)
 
 
 
HSS
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Total
Assets
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
354,565

 
$
50,577

 
$
15,786

 
$

 
$
420,928

Marketable investment securities, at fair value
 
221,002

 
14,659

 

 

 
235,661

Trade accounts receivable, net
 

 
97,420

 
31,534

 

 
128,954

Trade accounts receivable - DISH Network, net
 

 
19,706

 

 

 
19,706

Inventory
 

 
42,330

 
11,028

 

 
53,358

Advances to affiliates, net
 
10

 
879,821

 
6,244

 
(823,659
)
 
62,416

Other current assets
 
11

 
24,818

 
21,874

 

 
46,703

Total current assets
 
575,588

 
1,129,331

 
86,466

 
(823,659
)
 
967,726

Restricted cash and cash equivalents
 
12,603

 
7,500

 
699

 

 
20,802

Property and equipment, net
 

 
2,180,818

 
130,019

 

 
2,310,837

Regulatory authorizations
 

 
471,658

 

 

 
471,658

Goodwill
 

 
504,173

 

 

 
504,173

Other intangible assets, net
 

 
106,748

 

 

 
106,748

Investments in unconsolidated entities
 

 
43,340

 

 


43,340

Investment in subsidiaries
 
3,508,611

 
272,544

 

 
(3,781,155
)
 

Advances to affiliates
 
700

 
344

 

 
(1,044
)
 

Other noncurrent assets, net
 
264,129

 
136,238

 
157,550

 
(264,129
)
 
293,788

Total assets
 
$
4,361,631

 
$
4,852,694

 
$
374,734

 
$
(4,869,987
)
 
$
4,719,072

Liabilities and Shareholders’ Equity (Deficit)
 
 
 
 
 
 
 
 
 
 
Trade accounts payable
 
$

 
$
85,323

 
$
12,531

 
$

 
$
97,854

Trade accounts payable - DISH Network
 

 
6

 

 

 
6

Current portion of long-term debt and capital lease obligations, net of debt issuance costs
 
1,860,262

 
29,634

 
1,390

 

 
1,891,286

Advances from affiliates, net
 
795,625

 
5,108

 
26,555

 
(823,659
)
 
3,629

Accrued expenses and other
 
50,956

 
114,158

 
23,094

 

 
188,208

Total current liabilities
 
2,706,843

 
234,229

 
63,570

 
(823,659
)
 
2,180,983

Long-term debt and capital lease obligations, net of unamortized debt issuance costs
 

 
287,343

 
1,122

 

 
288,465

Advances from affiliates
 

 

 
29,142

 
(1,044
)
 
28,098

Other non-current liabilities
 

 
819,393

 
53

 
(264,129
)
 
555,317

Total HSS shareholders’ equity (deficit)
 
1,654,788

 
3,511,729

 
269,426

 
(3,781,155
)
 
1,654,788

Noncontrolling interests
 

 

 
11,421

 

 
11,421

Total liabilities and shareholders’ equity (deficit)
 
$
4,361,631

 
$
4,852,694

 
$
374,734

 
$
(4,869,987
)
 
$
4,719,072

 

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HUGHES SATELLITE SYSTEMS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)

Condensed Consolidating Balance Sheet as of December 31, 2015
(In thousands)
 
 
 
HSS
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Total
Assets
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
300,634

 
$
55,767

 
$
26,589

 
$

 
$
382,990

Marketable investment securities, at fair value
 
238,249

 
15,094

 

 

 
253,343

Trade accounts receivable, net
 

 
101,923

 
37,587

 

 
139,510

Trade accounts receivable - DISH Network, net
 

 
21,258

 

 

 
21,258

Advances to affiliates, net
 
10

 
807,341

 
6,244

 
(766,208
)
 
47,387

Inventory
 

 
39,948

 
8,849

 

 
48,797

Other current assets
 
40

 
24,565

 
26,890

 

 
51,495

Total current assets
 
538,933

 
1,065,896

 
106,159

 
(766,208
)
 
944,780

Restricted cash and cash equivalents
 
11,985

 
7,500

 
655

 

 
20,140

Property and equipment, net
 

 
2,181,495

 
83,907

 

 
2,265,402

Regulatory authorizations
 

 
471,658

 

 

 
471,658

Goodwill
 

 
504,173

 

 

 
504,173

Other intangible assets, net
 

 
115,420

 

 

 
115,420

Investments in unconsolidated entities
 

 
41,481

 

 

 
41,481

Investment in subsidiaries
 
3,350,914

 
166,739

 

 
(3,517,653
)
 

Advances to affiliates
 
700

 
678

 

 
(1,378
)
 

Other noncurrent assets, net
 
254,486

 
135,970

 
72,255

 
(254,486
)
 
208,225

Total assets
 
$
4,157,018

 
$
4,691,010

 
$
262,976

 
$
(4,539,725
)
 
$
4,571,279

Liabilities and Shareholders’ Equity (Deficit)
 
 
 
 
 
 
 
 
 
 
Trade accounts payable
 
$

 
$
86,477

 
$
11,171

 
$

 
$
97,648

Trade accounts payable - DISH Network
 

 
19

 

 

 
19

Current portion of long-term debt and capital lease obligations
 

 
28,829

 
1,455

 

 
30,284

Advances from affiliates, net
 
739,810

 
5,307

 
24,863

 
(766,207
)
 
3,773

Accrued expenses and other
 
28,154

 
130,532

 
22,550

 

 
181,236

Total current liabilities
 
767,964

 
251,164

 
60,039

 
(766,207
)
 
312,960

Long-term debt and capital lease obligations, net of unamortized debt issuance costs
 
1,858,724

 
295,060

 
1,204