Document
false--12-31FY20182018-12-310001533758NofalseNon-accelerated FilerHughes Satellite Systems CorpfalsefalseYesNo0.250.250.251.011.011.01001400000011617P1YP1YP5YP1YP5YP3YP10YP15YP10YP10YP4YP1YP5YP5YP5YP21DP180DP365DP120DP1Y0000.010.011000000100000010781078107810787500000007500000009000000007500000000.05250.0650.066250.076251110P1Y0P10Y30000003000000210000002900000041320000001320000000.0010.0010.0010.00101000000010000000000P4YP12YP15YP15YP40YP1YP2YP1YP2YP10YP1Y2300000023000000P3M 0001533758 2018-01-01 2018-12-31 0001533758 2018-06-30 0001533758 2019-02-11 0001533758 2018-12-31 0001533758 2017-12-31 0001533758 us-gaap:PreferredStockMember 2018-12-31 0001533758 us-gaap:PreferredStockMember 2017-12-31 0001533758 2017-01-01 2017-12-31 0001533758 2016-01-01 2016-12-31 0001533758 hssc:ServicesAndOtherRevenueMember 2016-01-01 2016-12-31 0001533758 us-gaap:ProductMember 2018-01-01 2018-12-31 0001533758 us-gaap:ProductMember 2016-01-01 2016-12-31 0001533758 hssc:ServicesAndOtherRevenueMember hssc:DISHNetworkMember 2017-01-01 2017-12-31 0001533758 hssc:ServicesAndOtherRevenueMember 2018-01-01 2018-12-31 0001533758 us-gaap:ProductMember 2017-01-01 2017-12-31 0001533758 hssc:ServicesAndOtherRevenueMember hssc:DISHNetworkMember 2018-01-01 2018-12-31 0001533758 hssc:ServicesAndOtherRevenueMember 2017-01-01 2017-12-31 0001533758 hssc:ServicesAndOtherRevenueMember hssc:DISHNetworkMember 2016-01-01 2016-12-31 0001533758 us-gaap:RetainedEarningsMember 2018-12-31 0001533758 us-gaap:NoncontrollingInterestMember 2017-12-31 0001533758 us-gaap:AdditionalPaidInCapitalMember 2016-12-31 0001533758 us-gaap:NoncontrollingInterestMember 2018-01-01 2018-12-31 0001533758 us-gaap:RetainedEarningsMember 2018-01-01 2018-12-31 0001533758 us-gaap:NoncontrollingInterestMember 2016-01-01 2016-12-31 0001533758 us-gaap:NoncontrollingInterestMember 2016-12-31 0001533758 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-01-01 0001533758 us-gaap:NoncontrollingInterestMember 2015-12-31 0001533758 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-01-01 2018-12-31 0001533758 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2017-01-01 2017-12-31 0001533758 2015-12-31 0001533758 us-gaap:AdditionalPaidInCapitalMember 2018-01-01 2018-12-31 0001533758 2018-01-01 0001533758 us-gaap:RetainedEarningsMember 2016-12-31 0001533758 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2016-01-01 2016-12-31 0001533758 us-gaap:AdditionalPaidInCapitalMember 2018-01-01 0001533758 us-gaap:AdditionalPaidInCapitalMember 2018-12-31 0001533758 us-gaap:NoncontrollingInterestMember 2017-01-01 2017-12-31 0001533758 us-gaap:RetainedEarningsMember 2018-01-01 0001533758 us-gaap:AdditionalPaidInCapitalMember 2017-01-01 2017-12-31 0001533758 us-gaap:RetainedEarningsMember 2015-12-31 0001533758 us-gaap:RetainedEarningsMember 2017-01-01 2017-12-31 0001533758 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2016-12-31 0001533758 us-gaap:AdditionalPaidInCapitalMember 2016-01-01 2016-12-31 0001533758 2016-12-31 0001533758 us-gaap:NoncontrollingInterestMember 2018-01-01 0001533758 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2017-12-31 0001533758 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2015-12-31 0001533758 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-12-31 0001533758 us-gaap:AdditionalPaidInCapitalMember 2015-12-31 0001533758 us-gaap:RetainedEarningsMember 2016-01-01 2016-12-31 0001533758 us-gaap:AdditionalPaidInCapitalMember 2017-12-31 0001533758 us-gaap:RetainedEarningsMember 2017-12-31 0001533758 us-gaap:NoncontrollingInterestMember 2018-12-31 0001533758 hssc:DISHNetworkMember hssc:EchoStarTechnologiesBusinessMember hssc:ShareExchangeAgreementMember 2017-02-28 0001533758 us-gaap:CalculatedUnderRevenueGuidanceInEffectBeforeTopic606Member 2017-12-31 0001533758 us-gaap:AccountingStandardsUpdate201409Member us-gaap:DifferenceBetweenRevenueGuidanceInEffectBeforeAndAfterTopic606Member 2018-01-01 0001533758 us-gaap:AccountingStandardsUpdate201601Member 2018-01-01 0001533758 hssc:CalculatedUnderRevenueGuidanceInEffectBeforeTopic606AndAccountingStandardsUpdate201601Member 2017-12-31 0001533758 srt:MaximumMember us-gaap:SoftwareDevelopmentMember 2018-01-01 2018-12-31 0001533758 srt:MaximumMember 2018-01-01 2018-12-31 0001533758 srt:MaximumMember us-gaap:ComputerSoftwareIntangibleAssetMember 2018-01-01 2018-12-31 0001533758 us-gaap:AccountingStandardsUpdate201409Member us-gaap:DifferenceBetweenRevenueGuidanceInEffectBeforeAndAfterTopic606Member 2018-12-31 0001533758 hssc:AccountingStandardsUpdate201409And201601Member hssc:CalculatedUnderRevenueGuidanceInEffectBeforeTopic606AndAccountingStandardsUpdate201601Member 2018-12-31 0001533758 us-gaap:AccountingStandardsUpdate201409Member us-gaap:CalculatedUnderRevenueGuidanceInEffectBeforeTopic606Member 2018-12-31 0001533758 us-gaap:AccountingStandardsUpdate201601Member 2018-12-31 0001533758 us-gaap:AccountingStandardsUpdate201409Member us-gaap:CalculatedUnderRevenueGuidanceInEffectBeforeTopic606Member 2018-01-01 2018-12-31 0001533758 hssc:ServicesAndOtherRevenueMember us-gaap:AccountingStandardsUpdate201409Member us-gaap:DifferenceBetweenRevenueGuidanceInEffectBeforeAndAfterTopic606Member 2018-01-01 2018-12-31 0001533758 us-gaap:AccountingStandardsUpdate201409Member us-gaap:DifferenceBetweenRevenueGuidanceInEffectBeforeAndAfterTopic606Member 2018-01-01 2018-12-31 0001533758 hssc:AccountingStandardsUpdate201409And201601Member hssc:CalculatedUnderRevenueGuidanceInEffectBeforeTopic606AndAccountingStandardsUpdate201601Member 2018-01-01 2018-12-31 0001533758 hssc:ServicesAndOtherRevenueMember us-gaap:AccountingStandardsUpdate201409Member us-gaap:CalculatedUnderRevenueGuidanceInEffectBeforeTopic606Member 2018-01-01 2018-12-31 0001533758 us-gaap:AccountingStandardsUpdate201601Member 2018-01-01 2018-12-31 0001533758 srt:MinimumMember 2018-01-01 2018-12-31 0001533758 us-gaap:MaterialReconcilingItemsMember hssc:LeaseReceivableMember 2018-01-01 2018-12-31 0001533758 us-gaap:OperatingSegmentsMember hssc:SalesAndServicesMember hssc:HughesBusinessSegmentMember 2018-01-01 2018-12-31 0001533758 us-gaap:MaterialReconcilingItemsMember hssc:ServicesDesignDevelopmentAndConstructionMember 2018-01-01 2018-12-31 0001533758 us-gaap:OperatingSegmentsMember hssc:EquipmentOtherMember hssc:EchoStarSatelliteServicesBusinessMember 2018-01-01 2018-12-31 0001533758 hssc:SalesAndServicesMember 2018-01-01 2018-12-31 0001533758 us-gaap:OperatingSegmentsMember us-gaap:ServiceMember hssc:EchoStarSatelliteServicesBusinessMember 2018-01-01 2018-12-31 0001533758 us-gaap:OperatingSegmentsMember hssc:SalesAndServicesMember hssc:EchoStarSatelliteServicesBusinessMember 2018-01-01 2018-12-31 0001533758 us-gaap:OperatingSegmentsMember hssc:ServicesDesignDevelopmentAndConstructionMember hssc:HughesBusinessSegmentMember 2018-01-01 2018-12-31 0001533758 us-gaap:MaterialReconcilingItemsMember 2018-01-01 2018-12-31 0001533758 us-gaap:OperatingSegmentsMember hssc:ServicesDesignDevelopmentAndConstructionMember hssc:EchoStarSatelliteServicesBusinessMember 2018-01-01 2018-12-31 0001533758 us-gaap:ServiceMember 2018-01-01 2018-12-31 0001533758 us-gaap:OperatingSegmentsMember hssc:EquipmentOtherMember hssc:HughesBusinessSegmentMember 2018-01-01 2018-12-31 0001533758 us-gaap:OperatingSegmentsMember hssc:LeaseReceivableMember hssc:HughesBusinessSegmentMember 2018-01-01 2018-12-31 0001533758 us-gaap:OperatingSegmentsMember hssc:LeaseReceivableMember hssc:EchoStarSatelliteServicesBusinessMember 2018-01-01 2018-12-31 0001533758 us-gaap:MaterialReconcilingItemsMember us-gaap:ServiceMember 2018-01-01 2018-12-31 0001533758 hssc:LeaseReceivableMember 2018-01-01 2018-12-31 0001533758 us-gaap:OperatingSegmentsMember hssc:HughesBusinessSegmentMember 2018-01-01 2018-12-31 0001533758 hssc:ServicesDesignDevelopmentAndConstructionMember 2018-01-01 2018-12-31 0001533758 hssc:EquipmentOtherMember 2018-01-01 2018-12-31 0001533758 us-gaap:MaterialReconcilingItemsMember hssc:EquipmentOtherMember 2018-01-01 2018-12-31 0001533758 us-gaap:OperatingSegmentsMember us-gaap:ServiceMember hssc:HughesBusinessSegmentMember 2018-01-01 2018-12-31 0001533758 us-gaap:MaterialReconcilingItemsMember hssc:SalesAndServicesMember 2018-01-01 2018-12-31 0001533758 us-gaap:OperatingSegmentsMember hssc:EchoStarSatelliteServicesBusinessMember 2018-01-01 2018-12-31 0001533758 us-gaap:TradeAccountsReceivableMember 2018-01-01 0001533758 us-gaap:TradeAccountsReceivableMember 2018-12-31 0001533758 hssc:LeaseReceivableMember 2018-12-31 0001533758 hssc:LeaseReceivableMember 2018-01-01 0001533758 us-gaap:OperatingSegmentsMember hssc:AllOtherGeographicSegmentsMember hssc:HughesBusinessSegmentMember 2018-01-01 2018-12-31 0001533758 us-gaap:OperatingSegmentsMember srt:NorthAmericaMember hssc:HughesBusinessSegmentMember 2018-01-01 2018-12-31 0001533758 hssc:AllOtherGeographicSegmentsMember 2018-01-01 2018-12-31 0001533758 srt:NorthAmericaMember 2018-01-01 2018-12-31 0001533758 us-gaap:OperatingSegmentsMember hssc:SouthAndCentralAmericaMember hssc:HughesBusinessSegmentMember 2018-01-01 2018-12-31 0001533758 us-gaap:OperatingSegmentsMember hssc:SouthAndCentralAmericaMember hssc:EchoStarSatelliteServicesBusinessMember 2018-01-01 2018-12-31 0001533758 us-gaap:MaterialReconcilingItemsMember hssc:SouthAndCentralAmericaMember 2018-01-01 2018-12-31 0001533758 us-gaap:MaterialReconcilingItemsMember srt:NorthAmericaMember 2018-01-01 2018-12-31 0001533758 hssc:SouthAndCentralAmericaMember 2018-01-01 2018-12-31 0001533758 us-gaap:MaterialReconcilingItemsMember hssc:AllOtherGeographicSegmentsMember 2018-01-01 2018-12-31 0001533758 us-gaap:OperatingSegmentsMember hssc:AllOtherGeographicSegmentsMember hssc:EchoStarSatelliteServicesBusinessMember 2018-01-01 2018-12-31 0001533758 us-gaap:OperatingSegmentsMember srt:NorthAmericaMember hssc:EchoStarSatelliteServicesBusinessMember 2018-01-01 2018-12-31 0001533758 hssc:AOCIAttributableToParentOtherMember 2017-01-01 2017-12-31 0001533758 us-gaap:AccumulatedNetUnrealizedInvestmentGainLossMember 2018-01-01 2018-12-31 0001533758 hssc:AOCIAttributableToParentOtherMember 2017-12-31 0001533758 us-gaap:AccumulatedTranslationAdjustmentMember 2017-01-01 2017-12-31 0001533758 us-gaap:AccumulatedNetUnrealizedInvestmentGainLossMember 2018-01-01 0001533758 us-gaap:AccumulatedTranslationAdjustmentMember 2017-12-31 0001533758 hssc:AOCIAttributableToParentOtherMember 2018-01-01 2018-12-31 0001533758 us-gaap:AccumulatedTranslationAdjustmentMember 2016-12-31 0001533758 hssc:AOCIAttributableToParentOtherMember 2018-12-31 0001533758 us-gaap:AccumulatedTranslationAdjustmentMember 2018-12-31 0001533758 us-gaap:AccumulatedTranslationAdjustmentMember 2018-01-01 2018-12-31 0001533758 hssc:AOCIAttributableToParentOtherMember 2018-01-01 0001533758 us-gaap:AccumulatedNetUnrealizedInvestmentGainLossMember 2018-12-31 0001533758 us-gaap:AccumulatedNetUnrealizedInvestmentGainLossMember 2017-01-01 2017-12-31 0001533758 us-gaap:AccumulatedNetUnrealizedInvestmentGainLossMember 2016-12-31 0001533758 us-gaap:AccumulatedNetUnrealizedInvestmentGainLossMember 2017-12-31 0001533758 hssc:AOCIAttributableToParentOtherMember 2016-12-31 0001533758 us-gaap:AccumulatedTranslationAdjustmentMember 2018-01-01 0001533758 us-gaap:CorporateBondSecuritiesMember 2017-12-31 0001533758 us-gaap:OtherDebtSecuritiesMember 2018-12-31 0001533758 hssc:CorporateBondSecuritiesExcludingFairValueOptionMember 2018-12-31 0001533758 us-gaap:OtherDebtSecuritiesMember 2017-12-31 0001533758 hssc:DebtSecuritiesExcludingFairValueOptionMember 2018-12-31 0001533758 us-gaap:FairValueInputsLevel2Member us-gaap:CorporateBondSecuritiesMember 2018-12-31 0001533758 us-gaap:FairValueInputsLevel2Member us-gaap:CorporateBondSecuritiesMember 2017-12-31 0001533758 us-gaap:FairValueInputsLevel1Member us-gaap:CorporateBondSecuritiesMember 2017-12-31 0001533758 us-gaap:FairValueInputsLevel1Member us-gaap:CorporateBondSecuritiesMember 2018-12-31 0001533758 us-gaap:FairValueInputsLevel1Member us-gaap:OtherDebtSecuritiesMember 2018-12-31 0001533758 us-gaap:FairValueInputsLevel2Member us-gaap:OtherDebtSecuritiesMember 2017-12-31 0001533758 us-gaap:FairValueInputsLevel2Member 2017-12-31 0001533758 us-gaap:FairValueInputsLevel1Member 2018-12-31 0001533758 us-gaap:FairValueInputsLevel2Member 2018-12-31 0001533758 us-gaap:FairValueInputsLevel1Member 2017-12-31 0001533758 us-gaap:FairValueInputsLevel1Member us-gaap:OtherDebtSecuritiesMember 2017-12-31 0001533758 us-gaap:FairValueInputsLevel2Member us-gaap:OtherDebtSecuritiesMember 2018-12-31 0001533758 us-gaap:CorporateBondSecuritiesMember 2018-12-31 0001533758 us-gaap:EquitySecuritiesMember 2017-12-31 0001533758 hssc:ConstructionInProgressOtherMember 2018-12-31 0001533758 hssc:SatelliteRelatedEquipmentMember 2018-12-31 0001533758 hssc:SatelliteRelatedEquipmentMember 2017-12-31 0001533758 hssc:ProgressAmountsForSatelliteConstructionIncludingPrepaymentsUnderCapitalLeasesAndLaunchCostsMember 2017-12-31 0001533758 hssc:ProgressAmountsForSatelliteConstructionIncludingPrepaymentsUnderCapitalLeasesAndLaunchCostsMember 2018-12-31 0001533758 hssc:ConstructionInProgressOtherMember 2017-12-31 0001533758 hssc:FurnitureFixturesEquipmentAndOtherMember 2018-01-01 2018-12-31 0001533758 hssc:FurnitureFixturesEquipmentAndOtherMember 2017-01-01 2017-12-31 0001533758 us-gaap:BuildingAndBuildingImprovementsMember 2016-01-01 2016-12-31 0001533758 hssc:CustomerRentalEquipmentMember 2016-01-01 2016-12-31 0001533758 hssc:CustomerRentalEquipmentMember 2017-01-01 2017-12-31 0001533758 hssc:FurnitureFixturesEquipmentAndOtherMember 2016-01-01 2016-12-31 0001533758 us-gaap:BuildingAndBuildingImprovementsMember 2017-01-01 2017-12-31 0001533758 hssc:SatellitesMember 2018-01-01 2018-12-31 0001533758 hssc:SatellitesMember 2017-01-01 2017-12-31 0001533758 hssc:CustomerRentalEquipmentMember 2018-01-01 2018-12-31 0001533758 hssc:SatellitesMember 2016-01-01 2016-12-31 0001533758 us-gaap:BuildingAndBuildingImprovementsMember 2018-01-01 2018-12-31 0001533758 hssc:EchoStar105SES11Member 2018-01-01 2018-12-31 0001533758 hssc:EchoStarVIIMember 2018-01-01 2018-12-31 0001533758 hssc:Telesat19VsatelliteMember 2018-01-01 2018-12-31 0001533758 hssc:QuetzSat1Member 2018-01-01 2018-12-31 0001533758 hssc:EchoStarXIMember 2018-01-01 2018-12-31 0001533758 hssc:SPACEWAY3Member 2018-01-01 2018-12-31 0001533758 hssc:EchoStarXIXMember 2018-01-01 2018-12-31 0001533758 hssc:Nimiq5Member 2018-01-01 2018-12-31 0001533758 hssc:EchoStarXVIMember 2018-01-01 2018-12-31 0001533758 hssc:EchoStarXIVMember 2018-01-01 2018-12-31 0001533758 hssc:EchoStarXVIIMember 2018-01-01 2018-12-31 0001533758 hssc:Eutelsat65WestAMember 2018-01-01 2018-12-31 0001533758 hssc:EchoStarXMember 2018-01-01 2018-12-31 0001533758 hssc:EchoStarXIIMember 2018-01-01 2018-12-31 0001533758 hssc:EchoStarIXMember 2018-01-01 2018-12-31 0001533758 us-gaap:AssetsHeldUnderCapitalLeasesMember 2017-12-31 0001533758 us-gaap:LandMember 2018-12-31 0001533758 hssc:CustomerRentalEquipmentMember 2017-12-31 0001533758 hssc:CustomerRentalEquipmentMember 2018-12-31 0001533758 us-gaap:BuildingAndBuildingImprovementsMember 2018-12-31 0001533758 us-gaap:LandMember 2017-12-31 0001533758 hssc:SatellitesMember 2018-12-31 0001533758 hssc:FurnitureFixturesEquipmentAndOtherMember 2017-12-31 0001533758 hssc:FurnitureFixturesEquipmentAndOtherMember 2018-12-31 0001533758 us-gaap:BuildingAndBuildingImprovementsMember 2017-12-31 0001533758 us-gaap:ConstructionInProgressMember 2017-12-31 0001533758 us-gaap:ConstructionInProgressMember 2018-12-31 0001533758 us-gaap:AssetsHeldUnderCapitalLeasesMember 2018-12-31 0001533758 hssc:SatellitesMember 2017-12-31 0001533758 hssc:SatellitesOwnedMember 2018-01-01 2018-12-31 0001533758 us-gaap:OtherCurrentAssetsMember hssc:EchoStar105SES11Member 2017-10-01 2017-10-31 0001533758 hssc:EchoStarXMember 2017-12-01 2017-12-31 0001533758 hssc:EchoStarXMember 2018-12-31 0001533758 hssc:EchoStar105SES11Member 2018-12-31 0001533758 srt:MaximumMember us-gaap:BuildingAndBuildingImprovementsMember 2018-01-01 2018-12-31 0001533758 srt:MaximumMember us-gaap:AssetsHeldUnderCapitalLeasesMember 2018-01-01 2018-12-31 0001533758 srt:MinimumMember hssc:FurnitureFixturesEquipmentAndOtherMember 2018-01-01 2018-12-31 0001533758 srt:MaximumMember hssc:CustomerRentalEquipmentMember 2018-01-01 2018-12-31 0001533758 srt:MaximumMember hssc:SatellitesMember 2018-01-01 2018-12-31 0001533758 srt:MinimumMember hssc:CustomerRentalEquipmentMember 2018-01-01 2018-12-31 0001533758 srt:MaximumMember hssc:FurnitureFixturesEquipmentAndOtherMember 2018-01-01 2018-12-31 0001533758 srt:MinimumMember us-gaap:BuildingAndBuildingImprovementsMember 2018-01-01 2018-12-31 0001533758 srt:MinimumMember hssc:SatellitesMember 2018-01-01 2018-12-31 0001533758 srt:MinimumMember us-gaap:AssetsHeldUnderCapitalLeasesMember 2018-01-01 2018-12-31 0001533758 us-gaap:CustomerRelationshipsMember 2017-12-31 0001533758 us-gaap:TrademarksMember 2017-12-31 0001533758 us-gaap:DevelopedTechnologyRightsMember 2017-12-31 0001533758 us-gaap:CustomerRelationshipsMember 2018-12-31 0001533758 srt:WeightedAverageMember us-gaap:CustomerRelationshipsMember 2018-01-01 2018-12-31 0001533758 us-gaap:DevelopedTechnologyRightsMember 2018-12-31 0001533758 us-gaap:TrademarksMember 2018-12-31 0001533758 srt:WeightedAverageMember us-gaap:DevelopedTechnologyRightsMember 2018-01-01 2018-12-31 0001533758 srt:WeightedAverageMember us-gaap:TrademarksMember 2018-01-01 2018-12-31 0001533758 srt:MaximumMember us-gaap:CapitalLeaseObligationsMember 2018-01-01 2018-12-31 0001533758 hssc:SeniorSecuredNotes5.250PercentDue2026Member us-gaap:SecuredDebtMember 2018-01-01 2018-12-31 0001533758 hssc:TwoThousandTwentySixNotesMember 2018-01-01 2018-12-31 0001533758 hssc:SeniorSecuredNotes5.250PercentDue2026Member us-gaap:DebtInstrumentRedemptionPeriodOneMember us-gaap:SecuredDebtMember 2018-01-01 2018-12-31 0001533758 hssc:SeniorUnsecuredNotes7.625PercentDue2021Member us-gaap:UnsecuredDebtMember 2011-06-01 0001533758 hssc:SeniorUnsecuredNotes6.625PercentDue2026Member us-gaap:UnsecuredDebtMember 2016-07-27 0001533758 srt:MinimumMember us-gaap:CapitalLeaseObligationsMember 2018-01-01 2018-12-31 0001533758 hssc:SeniorUnsecuredNotes6.625PercentDue2026Member us-gaap:DebtInstrumentRedemptionPeriodTwoMember us-gaap:UnsecuredDebtMember 2018-01-01 2018-12-31 0001533758 hssc:SeniorUnsecuredNotes7.625PercentDue2021Member us-gaap:UnsecuredDebtMember 2018-12-31 0001533758 hssc:SeniorSecuredNotes6.50PercentDue2019Member us-gaap:SecuredDebtMember 2011-06-01 0001533758 hssc:TwoThousandTwentySixNotesMember 2017-05-11 2017-05-11 0001533758 hssc:SeniorSecuredNotes5.250PercentDue2026Member us-gaap:SecuredDebtMember 2016-07-27 0001533758 hssc:SeniorSecuredNotes6.50PercentDue2019Member us-gaap:SecuredDebtMember 2018-01-01 2018-12-31 0001533758 hssc:SeniorSecuredNotes6.50PercentDue2019Member us-gaap:SecuredDebtMember 2017-12-31 0001533758 srt:WeightedAverageMember us-gaap:CapitalLeaseObligationsMember 2018-01-01 2018-12-31 0001533758 hssc:SeniorSecuredNotes5.250PercentDue2026Member us-gaap:SecuredDebtMember 2018-12-31 0001533758 hssc:SeniorSecuredNotes5.250PercentDue2026Member us-gaap:DebtInstrumentRedemptionPeriodTwoMember us-gaap:SecuredDebtMember 2018-01-01 2018-12-31 0001533758 hssc:SeniorSecuredNotes6.50PercentDue2019Member us-gaap:SecuredDebtMember 2018-12-31 0001533758 srt:WeightedAverageMember 2018-12-31 0001533758 hssc:UnamortizedDebtIssuanceCostsMember 2017-12-31 0001533758 hssc:SeniorSecuredNotes5.250PercentDue2026Member us-gaap:SecuredDebtMember 2017-12-31 0001533758 hssc:SeniorUnsecuredNotes6.625PercentDue2026Member us-gaap:UnsecuredDebtMember 2018-12-31 0001533758 hssc:SeniorUnsecuredNotes7.625PercentDue2021Member us-gaap:UnsecuredDebtMember 2017-12-31 0001533758 hssc:SeniorUnsecuredNotes6.625PercentDue2026Member us-gaap:UnsecuredDebtMember 2017-12-31 0001533758 hssc:UnamortizedDebtIssuanceCostsMember 2018-12-31 0001533758 hssc:SeniorUnsecuredNotes6.625PercentDue2026Member us-gaap:UnsecuredDebtMember 2018-01-01 2018-12-31 0001533758 hssc:SeniorUnsecuredNotes7.625PercentDue2021Member us-gaap:UnsecuredDebtMember 2018-01-01 2018-12-31 0001533758 hssc:SeniorUnsecuredNotes6.625PercentDue2026Member us-gaap:SecuredDebtMember 2018-12-31 0001533758 hssc:SeniorUnsecuredNotes6.625PercentDue2026Member us-gaap:SecuredDebtMember 2017-12-31 0001533758 hssc:SeniorUnsecuredNotes7.625PercentDue2021Member 2017-12-31 0001533758 us-gaap:DomesticCountryMember 2018-12-31 0001533758 us-gaap:StateAndLocalJurisdictionMember 2018-12-31 0001533758 us-gaap:ForeignCountryMember 2018-12-31 0001533758 hssc:DefinedContributionPlanEchoStar401KPlanMember 2016-01-01 2016-12-31 0001533758 hssc:DefinedContributionPlanEchoStar401KPlanMember 2018-01-01 2018-12-31 0001533758 us-gaap:EmployeeStockMember us-gaap:CommonClassAMember 2018-01-01 2018-12-31 0001533758 hssc:DefinedContributionPlanRoth401kPlanMember 2018-01-01 2018-12-31 0001533758 hssc:EchoStarCorporationMember us-gaap:EmployeeStockMember us-gaap:CommonClassAMember 2018-12-31 0001533758 hssc:EchoStarCorporationMember us-gaap:EmployeeStockMember us-gaap:CommonClassAMember 2018-01-01 2018-12-31 0001533758 us-gaap:EmployeeStockMember us-gaap:CommonClassAMember 2017-01-01 2017-12-31 0001533758 hssc:DefinedContributionPlanEchoStar401KPlanMember 2017-01-01 2017-12-31 0001533758 us-gaap:EmployeeStockMember us-gaap:CommonClassAMember 2016-01-01 2016-12-31 0001533758 hssc:SatelliteRelatedObligationMember 2018-12-31 0001533758 hssc:OperatingLeaseObligationsMember 2018-12-31 0001533758 us-gaap:InterestExpenseMember 2018-12-31 0001533758 us-gaap:LongTermDebtMember 2018-12-31 0001533758 us-gaap:CapitalLeaseObligationsMember 2018-12-31 0001533758 hssc:HughesNetworkSystemsMember srt:SubsidiariesMember hssc:ElbitMember 2017-12-31 0001533758 hssc:HughesNetworkSystemsMember srt:SubsidiariesMember hssc:ElbitMember 2017-11-01 2017-11-30 0001533758 hssc:RealtimeDataLLCMember 2017-02-14 2017-02-14 0001533758 hssc:HughesNetworkSystemsMember srt:SubsidiariesMember hssc:ElbitMember 2017-08-07 2017-08-07 0001533758 hssc:RealtimeDataLLCMember 2018-02-13 2018-02-13 0001533758 hssc:HughesNetworkSystemsMember srt:SubsidiariesMember hssc:ElbitMember 2018-12-31 0001533758 hssc:SouthAndCentralAmericaMember 2017-12-31 0001533758 hssc:AllOtherGeographicSegmentsMember 2018-12-31 0001533758 hssc:SouthAndCentralAmericaMember 2018-12-31 0001533758 hssc:AllOtherGeographicSegmentsMember 2017-12-31 0001533758 srt:NorthAmericaMember 2017-12-31 0001533758 srt:NorthAmericaMember 2018-12-31 0001533758 us-gaap:MaterialReconcilingItemsMember hssc:DISHNetworkMember 2018-01-01 2018-12-31 0001533758 hssc:DISHNetworkMember us-gaap:SalesMember 2018-01-01 2018-12-31 0001533758 hssc:OtherMajorCustomersMember us-gaap:SalesMember 2016-01-01 2016-12-31 0001533758 us-gaap:OperatingSegmentsMember hssc:DISHNetworkMember hssc:HughesBusinessSegmentMember 2016-01-01 2016-12-31 0001533758 hssc:OtherMajorCustomersMember 2018-01-01 2018-12-31 0001533758 us-gaap:OperatingSegmentsMember hssc:DISHNetworkMember hssc:EchoStarSatelliteServicesBusinessMember 2016-01-01 2016-12-31 0001533758 hssc:OtherMajorCustomersMember 2016-01-01 2016-12-31 0001533758 hssc:OtherMajorCustomersMember 2017-01-01 2017-12-31 0001533758 us-gaap:OperatingSegmentsMember hssc:DISHNetworkMember hssc:EchoStarSatelliteServicesBusinessMember 2017-01-01 2017-12-31 0001533758 hssc:OtherMajorCustomersMember us-gaap:SalesMember 2017-01-01 2017-12-31 0001533758 hssc:DISHNetworkMember 2018-01-01 2018-12-31 0001533758 us-gaap:OperatingSegmentsMember hssc:DISHNetworkMember hssc:HughesBusinessSegmentMember 2018-01-01 2018-12-31 0001533758 us-gaap:MaterialReconcilingItemsMember hssc:DISHNetworkMember 2017-01-01 2017-12-31 0001533758 hssc:DISHNetworkMember us-gaap:SalesMember 2017-01-01 2017-12-31 0001533758 hssc:DISHNetworkMember 2017-01-01 2017-12-31 0001533758 hssc:OtherMajorCustomersMember us-gaap:SalesMember 2018-01-01 2018-12-31 0001533758 us-gaap:OperatingSegmentsMember hssc:DISHNetworkMember hssc:HughesBusinessSegmentMember 2017-01-01 2017-12-31 0001533758 us-gaap:OperatingSegmentsMember hssc:DISHNetworkMember hssc:EchoStarSatelliteServicesBusinessMember 2018-01-01 2018-12-31 0001533758 hssc:DISHNetworkMember 2016-01-01 2016-12-31 0001533758 us-gaap:MaterialReconcilingItemsMember hssc:DISHNetworkMember 2016-01-01 2016-12-31 0001533758 hssc:DISHNetworkMember us-gaap:SalesMember 2016-01-01 2016-12-31 0001533758 us-gaap:IntersegmentEliminationMember hssc:HughesBusinessSegmentMember 2016-01-01 2016-12-31 0001533758 hssc:HughesBusinessSegmentMember 2018-01-01 2018-12-31 0001533758 us-gaap:IntersegmentEliminationMember hssc:HughesBusinessSegmentMember 2018-01-01 2018-12-31 0001533758 us-gaap:MaterialReconcilingItemsMember us-gaap:CorporateAndOtherMember 2016-01-01 2016-12-31 0001533758 us-gaap:IntersegmentEliminationMember us-gaap:CorporateAndOtherMember 2016-01-01 2016-12-31 0001533758 us-gaap:IntersegmentEliminationMember hssc:HughesBusinessSegmentMember 2017-01-01 2017-12-31 0001533758 us-gaap:OperatingSegmentsMember hssc:EchoStarSatelliteServicesBusinessMember 2016-01-01 2016-12-31 0001533758 hssc:EchoStarSatelliteServicesBusinessMember 2018-01-01 2018-12-31 0001533758 us-gaap:OperatingSegmentsMember hssc:HughesBusinessSegmentMember 2017-01-01 2017-12-31 0001533758 hssc:HughesBusinessSegmentMember 2017-01-01 2017-12-31 0001533758 us-gaap:OperatingSegmentsMember hssc:HughesBusinessSegmentMember 2016-01-01 2016-12-31 0001533758 us-gaap:OperatingSegmentsMember hssc:EchoStarSatelliteServicesBusinessMember 2017-01-01 2017-12-31 0001533758 us-gaap:CorporateAndOtherMember 2018-01-01 2018-12-31 0001533758 hssc:HughesBusinessSegmentMember 2016-01-01 2016-12-31 0001533758 us-gaap:CorporateAndOtherMember 2016-01-01 2016-12-31 0001533758 us-gaap:MaterialReconcilingItemsMember us-gaap:CorporateAndOtherMember 2018-01-01 2018-12-31 0001533758 us-gaap:MaterialReconcilingItemsMember us-gaap:CorporateAndOtherMember 2017-01-01 2017-12-31 0001533758 us-gaap:IntersegmentEliminationMember us-gaap:CorporateAndOtherMember 2018-01-01 2018-12-31 0001533758 hssc:EchoStarSatelliteServicesBusinessMember 2016-01-01 2016-12-31 0001533758 us-gaap:IntersegmentEliminationMember hssc:EchoStarSatelliteServicesBusinessMember 2017-01-01 2017-12-31 0001533758 us-gaap:IntersegmentEliminationMember hssc:EchoStarSatelliteServicesBusinessMember 2018-01-01 2018-12-31 0001533758 us-gaap:IntersegmentEliminationMember us-gaap:CorporateAndOtherMember 2017-01-01 2017-12-31 0001533758 us-gaap:IntersegmentEliminationMember hssc:EchoStarSatelliteServicesBusinessMember 2016-01-01 2016-12-31 0001533758 us-gaap:CorporateAndOtherMember 2017-01-01 2017-12-31 0001533758 hssc:EchoStarSatelliteServicesBusinessMember 2017-01-01 2017-12-31 0001533758 hssc:SouthAndCentralAmericaMember 2016-01-01 2016-12-31 0001533758 hssc:SouthAndCentralAmericaMember 2017-01-01 2017-12-31 0001533758 hssc:AllOtherGeographicSegmentsMember 2016-01-01 2016-12-31 0001533758 srt:NorthAmericaMember 2016-01-01 2016-12-31 0001533758 hssc:AllOtherGeographicSegmentsMember 2017-01-01 2017-12-31 0001533758 srt:NorthAmericaMember 2017-01-01 2017-12-31 0001533758 2018-01-01 2018-03-31 0001533758 2017-10-01 2017-12-31 0001533758 2018-04-01 2018-06-30 0001533758 2018-10-01 2018-12-31 0001533758 2017-01-01 2017-03-31 0001533758 2017-04-01 2017-06-30 0001533758 2018-07-01 2018-09-30 0001533758 2017-07-01 2017-09-30 0001533758 hssc:DISHNetworkMember hssc:CollocationandAntennaSpaceAgreementsMember 2017-08-01 2017-08-31 0001533758 hssc:DISHNetworkMember hssc:DISHNimiq5AgreementMember 2009-09-30 0001533758 hssc:DISHNetworkMember hssc:HughesBroadbandMasterServicesAgreementMember 2018-01-01 2018-12-31 0001533758 hssc:EchoStarXIXMember us-gaap:MajorityShareholderMember us-gaap:AdditionalPaidInCapitalMember 2017-02-01 2017-02-01 0001533758 srt:MinimumMember hssc:DISHNetworkMember hssc:CollocationandAntennaSpaceAgreementsMember 2017-08-01 2017-08-31 0001533758 hssc:DISHNetworkMember hssc:TerreStarAgreementMember 2017-12-01 2017-12-31 0001533758 hssc:TerreStarSolutionsInc.Member 2018-12-31 0001533758 srt:MaximumMember hssc:DISHNetworkMember hssc:CollocationandAntennaSpaceAgreementsMember 2017-08-01 2017-08-31 0001533758 hssc:DeluxeEchoStarLLCMember 2016-01-01 2016-12-31 0001533758 hssc:DeluxeEchoStarLLCMember 2017-01-01 2017-12-31 0001533758 hssc:DISHNetworkMember hssc:EchoStarAmendedandRestatedProfessionalServicesAgreementMember 2010-01-01 2010-01-31 0001533758 hssc:EchoStarAndHughesSatelliteSystemsCorporationMember hssc:DISHNetworkMember hssc:SatelliteAndTrackingStockTransactionMember 2014-03-01 2014-03-02 0001533758 hssc:DISHNetworkMember us-gaap:SubsequentEventMember hssc:DBSDNorthAmericaAgreementMember 2022-02-01 2022-02-28 0001533758 hssc:BroadbandConnectivitySolutionsMember 2018-12-01 2018-12-31 0001533758 hssc:DISHNetworkMember hssc:HughesBroadbandMasterServicesAgreementMember 2017-03-01 2017-03-31 0001533758 hssc:ConstructionManagementServicesMember hssc:EchoStarOperatingL.L.C.Member 2018-01-01 2018-12-31 0001533758 hssc:DeluxeEchoStarLLCMember 2018-12-31 0001533758 hssc:QuetzSat1Member hssc:DISHNetworkMember hssc:SatelliteServicesAgreementMember 2008-12-31 0001533758 hssc:EchoStarXVIMember hssc:DISHNetworkMember hssc:SatelliteCapacityLeaseAgreementMember 2012-12-01 2012-12-31 0001533758 us-gaap:OtherNoncurrentAssetsMember hssc:EchoStarXXIIIMember hssc:EchoStarOperatingL.L.C.Member 2017-03-01 2017-03-31 0001533758 hssc:AsiaSatMember 2017-12-31 0001533758 hssc:DishMexicoMember 2017-12-31 0001533758 hssc:EchoStarMobileLimitedMemberMember 2018-01-01 2018-12-31 0001533758 us-gaap:MajorityShareholderMember 2017-01-01 2017-12-31 0001533758 hssc:EchoStarXIXMember us-gaap:MajorityShareholderMember 2017-02-01 0001533758 hssc:HughesBroadbandDistributionAgreementMember 2012-10-01 2012-10-31 0001533758 hssc:HughesSystiqueCorporationMember 2018-01-01 2018-12-31 0001533758 hssc:DishMexicoMember 2018-01-01 2018-12-31 0001533758 hssc:DISHNetworkMember hssc:EchoStarTechnologiesBusinessMember hssc:ShareExchangeAgreementMember 2017-01-31 0001533758 hssc:RelatedPartyTransactionsLessorOperatingLeaseRealEstateMember hssc:DISHNetworkMember hssc:CheyenneLeaseAgreementMember 2018-01-01 2018-12-31 0001533758 hssc:DISHNetworkMember hssc:HughesBroadbandMasterServicesAgreementMember 2017-01-01 2017-12-31 0001533758 hssc:DeluxeEchoStarLLCMember 2017-12-31 0001533758 hssc:BroadbandConnectivitySolutionsMember 2018-12-31 0001533758 srt:MinimumMember hssc:RelatedPartyAdvancesMember hssc:OneYearLondonInterbankOfferedRateMember 2018-01-01 2018-12-31 0001533758 hssc:TerreStarSolutionsInc.Member 2018-01-01 2018-12-31 0001533758 srt:MaximumMember hssc:RelatedPartyAdvancesMember hssc:OneYearLondonInterbankOfferedRateMember 2018-01-01 2018-12-31 0001533758 hssc:QuetzSat1Member hssc:SESLatinAmericaMember hssc:SatelliteServicesAgreementMember 2008-11-30 0001533758 hssc:DISHNetworkMember hssc:PreferredTrackingStockMember hssc:HughesRetailGroupMember hssc:SatelliteAndTrackingStockTransactionMember 2017-02-27 2017-02-27 0001533758 us-gaap:MajorityShareholderMember 2016-01-01 2016-12-31 0001533758 hssc:DISHNetworkMember hssc:RUSServiceImplementationAgreementMember 2010-09-30 0001533758 hssc:EchoStarMobileLimitedMemberMember 2017-01-01 2017-12-31 0001533758 hssc:ConstructionManagementServicesMember hssc:EchoStarOperatingL.L.C.Member 2017-01-01 2017-12-31 0001533758 us-gaap:MajorityShareholderMember 2018-01-01 2018-12-31 0001533758 hssc:DISHNetworkMember hssc:TelemetryTrackingAndControlAgreementMember 2018-01-01 2018-12-31 0001533758 hssc:QuetzSat1Member hssc:DISHNetworkMember hssc:SatelliteServicesAgreementMember 2013-02-28 0001533758 hssc:TelesatCanadaMember hssc:TeleSatTransponderAgreementMember 2009-09-30 0001533758 hssc:DishMexicoMember 2018-12-31 0001533758 hssc:DISHNetworkMember hssc:DBSDNorthAmericaAgreementMember 2012-03-31 0001533758 hssc:BroadbandConnectivitySolutionsMember 2018-12-31 0001533758 hssc:DeluxeEchoStarLLCMember 2018-01-01 2018-12-31 0001533758 hssc:GlobalIPRevenueMember 2018-12-31 0001533758 us-gaap:OtherNoncurrentAssetsMember hssc:EchoStarXXIMember hssc:EchoStarOperatingL.L.C.Member us-gaap:AdditionalPaidInCapitalMember 2017-06-01 2017-06-30 0001533758 hssc:BroadbandConnectivitySolutionsMember 2018-01-01 2018-12-31 0001533758 hssc:EchoStarXIXMember us-gaap:MajorityShareholderMember 2017-02-01 2017-02-01 0001533758 hssc:GlobalIPRevenueMember 2018-01-01 2018-12-31 0001533758 hssc:GlobalIPRevenueMember 2017-01-01 2017-12-31 0001533758 hssc:DISHNetworkMember us-gaap:SubsequentEventMember hssc:DBSDNorthAmericaAgreementMember 2019-02-01 2019-02-28 0001533758 us-gaap:SubsequentEventMember hssc:HughesEquipmentAndServiceAgreementMember 2019-02-01 2019-02-28 0001533758 hssc:QuetzSat1Member hssc:SESLatinAmericaMember hssc:SatelliteServicesAgreementMember 2008-11-01 2008-11-30 0001533758 hssc:EchoStarXVIMember hssc:DISHNetworkMember hssc:SatelliteCapacityLeaseAgreementMember 2016-07-01 2016-07-31 0001533758 hssc:RelatedPartyTransactionsLesseeOperatingLeaseRealEstateMember hssc:DISHNetworkMember hssc:AmericanForkOccupancyLicenseAgreementMember 2017-08-01 2017-08-31 0001533758 hssc:DISHNetworkMember hssc:DBSDNorthAmericaAgreementMember 2017-12-01 2017-12-31 0001533758 hssc:CielSatelliteHoldingsIncMember hssc:DISHNetworkMember hssc:A103SpectrumDevelopmentAgreementMember 2012-05-01 2012-05-31 0001533758 hssc:DISHNetworkMember us-gaap:SubsequentEventMember hssc:HughesEquipmentAndServiceAgreementMember 2019-02-01 2019-02-28 0001533758 hssc:DISHNetworkMember us-gaap:ScenarioForecastMember hssc:DBSDNorthAmericaAgreementMember 2022-02-01 2022-02-28 0001533758 hssc:EchoStarXVIMember hssc:DISHNetworkMember hssc:SatelliteCapacityLeaseAgreementMember 2009-12-01 2009-12-31 0001533758 hssc:TelesatCanadaMember hssc:TeleSatTransponderAgreementMember 2009-09-01 2009-09-30 0001533758 hssc:DISHNetworkMember hssc:CollocationandAntennaSpaceAgreementsMember 2015-08-01 2015-08-31 0001533758 hssc:EchoStarXVIMember hssc:DISHNetworkMember hssc:SatelliteServicesAgreementMember 2017-05-01 2017-05-31 0001533758 hssc:EchoStarXVIMember hssc:DISHNetworkMember hssc:SatelliteServicesAgreementMember 2018-01-01 2018-12-31 0001533758 hssc:GlobalIPRevenueMember 2017-12-31 0001533758 hssc:DishMexicoMember 2016-01-01 2016-12-31 0001533758 hssc:DishMexicoMember 2017-01-01 2017-12-31 0001533758 srt:ConsolidationEliminationsMember 2018-12-31 0001533758 srt:NonGuarantorSubsidiariesMember 2018-12-31 0001533758 srt:ParentCompanyMember 2018-12-31 0001533758 srt:GuarantorSubsidiariesMember 2018-12-31 0001533758 srt:GuarantorSubsidiariesMember 2017-12-31 0001533758 srt:ConsolidationEliminationsMember 2017-12-31 0001533758 srt:NonGuarantorSubsidiariesMember 2017-12-31 0001533758 srt:ParentCompanyMember 2017-12-31 0001533758 srt:NonGuarantorSubsidiariesMember 2016-01-01 2016-12-31 0001533758 srt:ParentCompanyMember 2016-01-01 2016-12-31 0001533758 srt:ConsolidationEliminationsMember us-gaap:ProductMember 2016-01-01 2016-12-31 0001533758 srt:GuarantorSubsidiariesMember 2016-01-01 2016-12-31 0001533758 srt:ConsolidationEliminationsMember hssc:ServicesAndOtherRevenueMember 2016-01-01 2016-12-31 0001533758 srt:GuarantorSubsidiariesMember us-gaap:ProductMember 2016-01-01 2016-12-31 0001533758 srt:ConsolidationEliminationsMember 2016-01-01 2016-12-31 0001533758 srt:NonGuarantorSubsidiariesMember us-gaap:ProductMember 2016-01-01 2016-12-31 0001533758 srt:GuarantorSubsidiariesMember hssc:ServicesAndOtherRevenueMember 2016-01-01 2016-12-31 0001533758 srt:NonGuarantorSubsidiariesMember hssc:ServicesAndOtherRevenueMember hssc:DISHNetworkMember 2016-01-01 2016-12-31 0001533758 srt:ParentCompanyMember hssc:ServicesAndOtherRevenueMember 2016-01-01 2016-12-31 0001533758 srt:NonGuarantorSubsidiariesMember hssc:ServicesAndOtherRevenueMember 2016-01-01 2016-12-31 0001533758 srt:GuarantorSubsidiariesMember hssc:ServicesAndOtherRevenueMember hssc:DISHNetworkMember 2016-01-01 2016-12-31 0001533758 srt:ConsolidationEliminationsMember hssc:ServicesAndOtherRevenueMember hssc:DISHNetworkMember 2016-01-01 2016-12-31 0001533758 srt:ParentCompanyMember us-gaap:ProductMember 2016-01-01 2016-12-31 0001533758 srt:ParentCompanyMember hssc:ServicesAndOtherRevenueMember hssc:DISHNetworkMember 2016-01-01 2016-12-31 0001533758 srt:ConsolidationEliminationsMember 2018-01-01 2018-12-31 0001533758 srt:ParentCompanyMember 2018-01-01 2018-12-31 0001533758 srt:GuarantorSubsidiariesMember 2018-01-01 2018-12-31 0001533758 srt:NonGuarantorSubsidiariesMember 2018-01-01 2018-12-31 0001533758 srt:ConsolidationEliminationsMember us-gaap:ProductMember 2018-01-01 2018-12-31 0001533758 srt:ConsolidationEliminationsMember hssc:ServicesAndOtherRevenueMember hssc:DISHNetworkMember 2018-01-01 2018-12-31 0001533758 srt:GuarantorSubsidiariesMember hssc:ServicesAndOtherRevenueMember 2018-01-01 2018-12-31 0001533758 srt:ParentCompanyMember hssc:ServicesAndOtherRevenueMember hssc:DISHNetworkMember 2018-01-01 2018-12-31 0001533758 srt:ParentCompanyMember us-gaap:ProductMember 2018-01-01 2018-12-31 0001533758 srt:GuarantorSubsidiariesMember hssc:ServicesAndOtherRevenueMember hssc:DISHNetworkMember 2018-01-01 2018-12-31 0001533758 srt:NonGuarantorSubsidiariesMember hssc:ServicesAndOtherRevenueMember 2018-01-01 2018-12-31 0001533758 srt:ConsolidationEliminationsMember hssc:ServicesAndOtherRevenueMember 2018-01-01 2018-12-31 0001533758 srt:ParentCompanyMember hssc:ServicesAndOtherRevenueMember 2018-01-01 2018-12-31 0001533758 srt:NonGuarantorSubsidiariesMember hssc:ServicesAndOtherRevenueMember hssc:DISHNetworkMember 2018-01-01 2018-12-31 0001533758 srt:GuarantorSubsidiariesMember us-gaap:ProductMember 2018-01-01 2018-12-31 0001533758 srt:NonGuarantorSubsidiariesMember us-gaap:ProductMember 2018-01-01 2018-12-31 0001533758 srt:ParentCompanyMember 2017-01-01 2017-12-31 0001533758 srt:NonGuarantorSubsidiariesMember 2017-01-01 2017-12-31 0001533758 srt:ConsolidationEliminationsMember 2017-01-01 2017-12-31 0001533758 srt:GuarantorSubsidiariesMember 2017-01-01 2017-12-31 0001533758 srt:GuarantorSubsidiariesMember hssc:ServicesAndOtherRevenueMember 2017-01-01 2017-12-31 0001533758 srt:NonGuarantorSubsidiariesMember us-gaap:ProductMember 2017-01-01 2017-12-31 0001533758 srt:ParentCompanyMember hssc:ServicesAndOtherRevenueMember hssc:DISHNetworkMember 2017-01-01 2017-12-31 0001533758 srt:ConsolidationEliminationsMember hssc:ServicesAndOtherRevenueMember 2017-01-01 2017-12-31 0001533758 srt:GuarantorSubsidiariesMember hssc:ServicesAndOtherRevenueMember hssc:DISHNetworkMember 2017-01-01 2017-12-31 0001533758 srt:ConsolidationEliminationsMember us-gaap:ProductMember 2017-01-01 2017-12-31 0001533758 srt:NonGuarantorSubsidiariesMember hssc:ServicesAndOtherRevenueMember hssc:DISHNetworkMember 2017-01-01 2017-12-31 0001533758 srt:ConsolidationEliminationsMember hssc:ServicesAndOtherRevenueMember hssc:DISHNetworkMember 2017-01-01 2017-12-31 0001533758 srt:ParentCompanyMember hssc:ServicesAndOtherRevenueMember 2017-01-01 2017-12-31 0001533758 srt:NonGuarantorSubsidiariesMember hssc:ServicesAndOtherRevenueMember 2017-01-01 2017-12-31 0001533758 srt:ParentCompanyMember us-gaap:ProductMember 2017-01-01 2017-12-31 0001533758 srt:GuarantorSubsidiariesMember us-gaap:ProductMember 2017-01-01 2017-12-31 0001533758 srt:ConsolidationEliminationsMember 2015-12-31 0001533758 srt:ParentCompanyMember 2015-12-31 0001533758 srt:GuarantorSubsidiariesMember 2016-12-31 0001533758 srt:ConsolidationEliminationsMember 2016-12-31 0001533758 srt:ParentCompanyMember 2016-12-31 0001533758 srt:GuarantorSubsidiariesMember 2015-12-31 0001533758 srt:NonGuarantorSubsidiariesMember 2015-12-31 0001533758 srt:NonGuarantorSubsidiariesMember 2016-12-31 0001533758 us-gaap:CostOfSalesMember 2016-01-01 2016-12-31 0001533758 us-gaap:CostOfSalesMember 2017-01-01 2017-12-31 0001533758 us-gaap:ResearchAndDevelopmentExpenseMember 2018-01-01 2018-12-31 0001533758 us-gaap:CostOfSalesMember 2018-01-01 2018-12-31 0001533758 us-gaap:ResearchAndDevelopmentExpenseMember 2016-01-01 2016-12-31 0001533758 us-gaap:ResearchAndDevelopmentExpenseMember 2017-01-01 2017-12-31 0001533758 us-gaap:OtherNoncurrentAssetsMember 2017-01-01 2017-12-31 0001533758 us-gaap:SellingGeneralAndAdministrativeExpensesMember 2018-01-01 2018-12-31 0001533758 us-gaap:OtherNoncurrentAssetsMember 2016-01-01 2016-12-31 0001533758 srt:WeightedAverageMember us-gaap:SoftwareAndSoftwareDevelopmentCostsMember 2018-01-01 2018-12-31 0001533758 us-gaap:OtherNoncurrentAssetsMember 2018-12-31 0001533758 hssc:ContractFulfillmentCostsMember 2018-12-31 0001533758 hssc:ContractAcquisitionCostsMember 2018-12-31 0001533758 us-gaap:SellingGeneralAndAdministrativeExpensesMember 2016-01-01 2016-12-31 0001533758 us-gaap:SellingGeneralAndAdministrativeExpensesMember 2017-01-01 2017-12-31 0001533758 us-gaap:OtherNoncurrentAssetsMember 2018-01-01 2018-12-31 0001533758 hssc:ContractAcquisitionCostsMember 2018-01-01 2018-12-31 0001533758 us-gaap:OtherNoncurrentAssetsMember 2017-12-31 0001533758 us-gaap:AllowanceForCreditLossMember 2017-01-01 2017-12-31 0001533758 us-gaap:AllowanceForCreditLossMember 2016-12-31 0001533758 us-gaap:AllowanceForCreditLossMember 2016-01-01 2016-12-31 0001533758 us-gaap:AllowanceForCreditLossMember 2018-12-31 0001533758 us-gaap:AllowanceForCreditLossMember 2017-12-31 0001533758 us-gaap:AllowanceForCreditLossMember 2015-12-31 0001533758 us-gaap:AllowanceForCreditLossMember 2018-01-01 2018-12-31 iso4217:USD iso4217:USD xbrli:shares hssc:segment xbrli:shares xbrli:pure hssc:patent hssc:transponder hssc:claim hssc:satellite hssc:solar_array_circuit
Table of Contents


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.  20549 
FORM 10-K
(Mark One) 
ý
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2018
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)
Registrant’s telephone number, including area code:  (303) 706-4000 
Securities registered pursuant to Section 12(b) of the Act:  None 
Securities registered pursuant to Section 12(g) of the Act:  None 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes o No ý 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes ý No o
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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes ý No o 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ý 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.  (Check one):
Large accelerated filer o
 
Accelerated filer o
Non-accelerated filer x
(Do not check if a smaller reporting company)
 
Smaller reporting company o
 
 
Emerging growth company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o No ý 
The aggregate market value of the registrant’s voting interests held by non-affiliates on June 30, 2018 was $0
As of February 11, 2019, the registrant’s outstanding common stock consisted of 1,078 shares of common stock, $0.01 par value per share. 
The Registrant meets the conditions set forth in General Instructions (I)(1)(a) and (b) of Form 10-K and is therefore filing this Annual Report on Form 10-K 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 Annual Report on Form 10-K 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 such period. 

DOCUMENTS INCORPORATED BY REFERENCE 
None


Table of Contents


TABLE OF CONTENTS
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 6.
Selected Financial Data
*
 
 
 
 
 
 
Item 10.
Directors, Executive Officers and Corporate Governance
*
Item 11.
Executive Compensation
*
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
*
Item 13.
Certain Relationships and Related Transactions, and Director Independence
*
 
 
 
 
 
 
 
 
 







*     This item has been omitted pursuant to the reduced disclosure format as set forth in General Instructions (I) (2) (a) and (c) of Form 10-K.



Table of Contents


DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS
 
This Annual Report on Form 10-K (“Form 10-K”) 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-K and represent management’s current views and assumptions.  Forward-looking statements are not guarantees of future performance, events or results and involve potential known and unknown risks, uncertainties and other factors, many of which may be beyond our control and may pose a risk to our operating and financial condition.  Accordingly, actual performance, events or results could differ materially from those expressed or implied in the forward-looking statements due to a number of factors including, but not limited to:
 
significant risks related to the construction and operation of our satellites, such as the risk of not being able to timely complete the construction of or material malfunction on one or more of our satellites, risks resulting from potentially missing our regulatory milestones, changes in the space weather environment that could interfere with the operation of our satellites and our general lack of commercial insurance coverage on our satellites;
our reliance on DISH Network Corporation and its subsidiaries for a significant portion of our revenue;
our ability to realize the anticipated benefits of our current satellites and any future satellite we may construct or acquire;
our ability to implement and/or realize benefits of our domestic and/or international investments, commercial alliances, partnerships, joint ventures, acquisitions, dispositions and other strategic initiatives and transactions;
the failure of third-party providers of components, manufacturing, installation services and customer support services to appropriately deliver the contracted goods or services;
our ability to bring advanced technologies to market to keep pace with our customers and competitors; and
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.

Other factors that could cause or contribute to such differences include, but are not limited to, those discussed in Part I, Item 1A. — Risk Factors and Item 7. — Management’s Narrative Analysis of Results of Operations of this Form 10-K and Results of Operations of this Form 10-K and those discussed in other documents we file with the Securities and Exchange Commission (“SEC”).
 
All cautionary statements made herein should be read as being applicable to all forward-looking statements wherever they appear. Investors should consider the risks and uncertainties described herein and should not place undue reliance on any forward-looking statements. We do not undertake, and specifically disclaim, any obligation to publicly release the results of any revisions that may be made to any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

Although we believe that the expectations reflected in any forward-looking statements are reasonable, we cannot guarantee future results, events, levels of activity, performance or achievements. We do not assume responsibility for the accuracy and completeness of any forward-looking statements. We assume no responsibility for updating forward-looking information contained or incorporated by reference herein or in any documents we file with the SEC, except as required by law.


i

Table of Contents


Should one or more of the risks or uncertainties described herein or in any documents we file with the SEC occur, or should underlying assumptions prove incorrect, our actual results and plans could differ materially from those expressed in any forward-looking statements.


ii

Table of Contents


PART I
 
ITEM 1.    BUSINESS
 
OVERVIEW
 
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 subsidiary of EchoStar Corporation (“EchoStar”).  We were formed as a Colorado corporation in March 2011 to facilitate the acquisition by EchoStar (the “Hughes Acquisition”) of Hughes Communications, Inc. and its subsidiaries and related financing transactions.  In connection with our formation, EchoStar contributed the assets and liabilities of its satellite services business to us, including the principal operating subsidiary of its satellite services business, EchoStar Satellite Services L.L.C. A substantial majority of the voting power of the shares of each of EchoStar and DISH Network Corporation (“DISH”) is owned beneficially by Charles W. Ergen, our Chairman, and by certain entities established by Mr. Ergen for the benefit of his family.

We are a global provider of broadband satellite technologies, broadband internet services for home and small office customers, satellite operations and satellite services. We also deliver innovative network technologies, managed services and various communications solutions for aeronautical, enterprise and government customers.

Our industry continues to evolve with the increasing worldwide demand for broadband internet access for information, entertainment and commerce. In addition to fiber and wireless systems, other technologies such as geostationary high throughput satellites, low-earth orbit (“LEO”) networks, medium-earth orbit (“MEO”) systems, balloons and High Altitude Platform Systems are playing significant roles in enabling global broadband access, networks and services. We intend to use our expertise, technologies, capital, investments, global presence, relationships and other capabilities to continue to provide broadband internet systems, equipment, networks and services for information, the internet-of-things, entertainment and commerce in North America and internationally for consumers as well as aeronautical, enterprise and government customers. We are closely tracking the developments in next-generation satellite businesses, and we are seeking to utilize our services, technologies and expertise to find new commercial opportunities for our business.

We currently operate in two business segments: Hughes and EchoStar Satellite Services (“ESS”), as discussed below. Our corporate department operations as well as activities that have not been assigned to our operating segments and eliminations of intersegment transactions are all accounted for in Corporate and Other in our segment reporting.
 
During 2017, EchoStar and certain of its and our subsidiaries entered into a share exchange agreement with DISH and certain of its subsidiaries. EchoStar and certain of its and our subsidiaries received all of the shares of the Hughes Retail Preferred Tracking Stock previously issued by EchoStar and us (together, the “Tracking Stock”) in exchange for 100% of the equity interests of certain EchoStar subsidiaries that held substantially all of EchoStar’s former EchoStar Technologies businesses and certain other assets (collectively, the “Share Exchange”). Following the consummation of the Share Exchange, EchoStar no longer operates its former EchoStar Technologies businesses, the Tracking Stock was retired and is no longer outstanding, and all agreements, arrangements and policy statements with respect to the Tracking Stock terminated.


1

Table of Contents


WHERE YOU CAN FIND MORE INFORMATION
 
We are subject to the informational requirements of the Securities Exchange Act of 1934, as amended, with respect to the annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements, and other information that we file with the SEC.  Our public filings are maintained on the SEC’s internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.  The address of that website is http://www.sec.gov.
 
WEBSITE ACCESS
 
Our Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, may also be accessed free of charge through the website of our parent company, EchoStar, as soon as reasonably practicable after we have electronically filed such material with, or furnished it to, the SEC.  The address of that website is http://www.echostar.com.
 
EchoStar has adopted a written code of ethics that applies to all of our directors, officers, and employees, including our principal executive officer, principal financial officer, principal accounting officer and controller, in accordance with the Sarbanes-Oxley Act of 2002 and the rules of the SEC promulgated thereunder.  This code of ethics is available on EchoStar’s corporate website at http://www.echostar.com.  In the event that EchoStar makes changes in, or provides waivers of, the provisions of this code of ethics that the SEC requires EchoStar to disclose, it intends to disclose these events on its website.

ITEM 1A.    RISK FACTORS
 
The risks and uncertainties described below are not the only ones facing us.  If any of the following events occur, our business, financial condition, results of operation, prospects or ability to fund a debt repurchase program, invest capital in or otherwise run our business or execute on our strategic plans could be materially and adversely affected.
 
GENERAL RISKS AFFECTING OUR BUSINESS
 
We currently derive a significant portion of our revenue from DISH Network.  The loss of, or a significant reduction in, orders from, or a decrease in selling prices of satellite services, broadband equipment and/or other services or products to DISH Network would significantly reduce our revenue and materially adversely impact our results of operations.
 
DISH Network Corporation and its subsidiaries (“DISH Network”) accounted for 17.5%, 23.1% and 25.5% of our total revenue for the years ended December 31, 2018, 2017 and 2016, respectively. 
 
DISH Network is the primary customer of the satellite services provided by our ESS segment. For the years ended December 31, 2018, 2017 and 2016 DISH Network accounted for 86.5%, 87.9% and 85.7% of our total ESS segment revenue, and we expect that DISH Network will continue to be the primary source of revenue for our ESS segment as we have entered into certain commercial agreements with DISH Network pursuant to which we provide DISH Network with satellite services at fixed prices for varying lengths of time depending on the satellite.  See Note 16 in the notes to consolidated financial statements in Item 15 of this report for further discussion of our related party transactions with DISH Network. The results of operations of our ESS segment are linked to changes in DISH Network’s satellite capacity requirements, which historically have been driven by the addition of new channels and migration of programming to high-definition TV and video on demand services. DISH Network’s future satellite capacity requirements may change for a variety of reasons, including its ability to construct and launch or acquire its own satellites, to continue to add new channels and/or to migrate to the provision of such channels and other video on demand services through streaming and other alternative technologies. There is no assurance that we will continue to provide satellite services to DISH Network beyond the terms of our agreements. Any termination or reduction in the satellite services we provide to DISH Network or the prices that DISH Network pays us for such services would cause us to have unused capacity on our satellites, require us to aggressively pursue alternative sources of revenue for this business and have a material adverse effect on our business, results of operation and financial position.

If we lose DISH Network as a customer of the satellite services provided by our ESS segment, it may be difficult for us to replace, in whole or in part, our historical revenue from DISH Network because there are a relatively small number of potential customers for our specialized services, and we have had limited success in attracting such potential new

2

Table of Contents


customers in the past.  Historically, many potential customers of our ESS segment have perceived us as a competitor due to our affiliation with DISH Network. There can be no assurance that we will be successful in entering into any commercial relationships with potential new customers who are competitors of DISH Network (particularly if we continue to be perceived as affiliated with DISH Network as a result of common ownership and certain shared services).  If we do not develop relationships with new customers, we may not be able to expand our customer base or maintain or increase our revenue.

Furthermore, DISH Network has transitioned from being a wholesale distributor of the satellite internet service of our Hughes segment to being a sales agent for such services. DISH Network (i) has the right, but not the obligation, to market, promote and solicit orders and upgrades for our HughesNet service and related equipment and other telecommunications services and (ii) installs HughesNet service equipment with respect to activations generated by DISH Network. For the years ended December 31, 2018, 2017 and 2016, DISH Network accounted for 2.9%, 5.6% and 7.7% of our total Hughes segment revenue. Any material reduction in or termination of sales generated by DISH Network in its capacity as our sale agent could have a material adverse effect on our business, results of operations, and financial position.
 
Our strategic initiatives may not be successfully implemented, may not elicit the expected customer response in the market and may result in competitive reactions.

We intend to continue to selectively explore opportunities to pursue investments, commercial alliances, partnerships, joint ventures, acquisitions, dispositions and other strategic initiatives and transactions, domestically and internationally, that we believe may allow us to increase our existing market share, increase our satellite capacity, expand into new markets, obtain new customers, broaden our portfolio of services, products and intellectual property, make our business more valuable, align us for future growth and expansion, maximize the return on our investments and strengthen our business and relationships with our customers. We may allocate significant resources for long-term initiatives that may not have a short or medium-term or any positive impact on our revenue, results of operations, or cash flow.

The successful implementation of our strategic initiatives requires an investment of time, talent and money and is dependent upon a number of factors some of which are not within our control.  Those factors include the ability to execute such initiatives in new and existing markets, the response of existing and potential new customers, and the actions or reactions of competitors.  If we fail to properly execute or deliver products or services that address customers’ expectations, it may have an adverse effect on our ability to retain and attract customers and may increase our costs and reduce our revenue.  Similarly, competitive actions or reactions to our initiatives or advancements in technology or competitive products or services could impair our ability to execute those strategic initiatives or advancements.  In addition, new strategic initiatives may face barriers to entering new or existing markets with established or new competitors.  There can be no assurance that we will successfully implement these strategic initiatives or that, if successfully pursued, they will have the desired effect on our business or results of operations.

We could face decreased demand and increased pricing pressure to our products and services due to competition.
 
Our business operates in an intensely competitive, consumer-driven and rapidly changing environment and competes with a growing number of companies that provide products and services to consumers.  There can be no assurance that we will be able to effectively compete against our competitors due to their significant resources and operating history. Risks to our business from competition include, but are not limited to, the following:
 
Our ESS segment competes against larger, well-established satellite service companies.  Because the satellite services industry is relatively mature, our strategy depends largely on our ability to displace current incumbent providers, which often have the benefit of long-term contracts with customers.  These long-term contracts and other factors result in relatively high costs for customers to change service providers, making it more difficult for us to displace customers from their current relationships with our competitors.  In addition, the supply of satellite capacity available in the market has increased in recent years, which makes it more difficult for us to sell our services in certain markets and to price our capacity at acceptable levels.  Competition may cause downward pressure on prices and further reduce the utilization of our capacity, both of which could have an adverse effect on our financial performance.  Our ESS segment also competes with both fiber optic cable and terrestrial delivery systems, which may have a cost advantage, particularly in point-to-point applications where such delivery systems have been installed, and with new delivery systems being developed, which may have lower latency and other advantages.

3

Table of Contents


In our consumer market, our Hughes segment faces competition primarily from digital subscriber line (“DSL”), fiber and cable internet service providers.  Also, other telecommunications, satellite and wireless broadband companies have launched or are planning the launch of consumer internet access services in competition with our service offerings in North, Central and South America.  Some of these competitors offer consumer services and hardware at lower prices than ours.  In addition, terrestrial alternatives do not require our external dish, which may limit customer acceptance of our products.  We may be unsuccessful in competing effectively against DSL, fiber and cable internet service providers and other satellite broadband providers, which could harm our business, operating results and financial condition.
In our enterprise network communications market, our Hughes segment faces competition from providers of terrestrial-based networks, such as fiber, DSL, cable modem service, multiprotocol label switching and internet protocol-based virtual private networks, which may have advantages over satellite networks for certain customer applications.  Although we also sell terrestrial services to this market, we may not be as cost competitive and it may become more difficult for us to compete.  The network communications industry is characterized by competitive pressures to provide enhanced functionality for the same or lower price with each new generation of technology.  Terrestrial-based networks are offered by telecommunications carriers and other large companies, many of which have substantially greater financial resources and greater name recognition than us.  As the prices of our products decrease, we will need to sell more products and/or reduce the per-unit costs to improve or maintain our results of operations.  The costs of a satellite network may exceed those of a terrestrial-based network or other networks, especially in areas that have experienced significant DSL and cable internet build-out.  It may become more difficult for us to compete with terrestrial and other providers as the number of these areas continues to increase and the cost of their network and hardware services continues to decline.  Terrestrial networks also have a competitive edge because of lower latency for data transmission.
 
To the extent we have available satellite capacity in our ESS segment, our results of operations may be materially adversely affected if we are not able to provide satellite services on this capacity to third parties, including DISH Network.
 
While we are currently evaluating various opportunities to make profitable use of our available satellite capacity (including, but not limited to, supplying satellite capacity for new domestic and international ventures), there can be no assurance that we can successfully develop these business opportunities.  If we are unable to utilize our available satellite capacity for providing satellite services to third parties, including DISH Network, our margins could be negatively impacted, and we may be required to record impairments related to our satellites.
 
The failure to adequately anticipate the need for satellite capacity or the inability to obtain satellite capacity for our Hughes segment could harm our results of operations.
 
Our Hughes segment has made substantial contractual commitments for satellite capacity based on our existing customer contracts and backlog.  If our existing customer contracts were to be terminated prior to their respective expiration dates, we may be committed to maintaining excess satellite capacity for which we will have insufficient revenue to cover our costs, which would have a negative impact on our margins and results of operations.  Alternatively, we may not have sufficient satellite capacity available from our satellites or purchased from third parties to meet demand and we may not be able to quickly or easily adjust our capacity to changes in demand.  As capacity becomes full on our existing satellites, significant delays in the construction or launch of new satellites and/or satellite anomalies or failures could materially and adversely affect our ability to provide services to customers. We generally only purchase satellite capacity based on existing contracts and bookings.  Therefore, capacity for certain types of coverage in the future may not be readily available to us, and we may not be able to satisfy certain needs of our customers, which could result in a loss of possible new business and could negatively impact the margins for those services.  In addition, the fixed satellite service (“FSS”) industry has seen consolidation in the past decade, and today, the main FSS providers in North America and a number of smaller regional providers own and operate the current satellites that are available for our capacity needs.  The failure of any of these FSS providers to replace existing satellite assets at the end of their useful lives or a downturn in their industry as a whole could reduce the satellite capacity available to us.  Our business and results of operations could be adversely affected if we are not able to renew our capacity leases at economically viable rates, or if capacity is not available due to problems experienced by these FSS provider. Our ability to provide additional capacity for subscriber growth in our North American consumer market could also be adversely affected by regulations and/or legislation in the U.S. that enable or propose to enable the use of a portion of the frequency bands, we currently use or in the future intend to use for satellite services, 5G mobile terrestrial services or other uses. These bands include the Ka-band, where we operate our broadband gateway earth stations, and other bands in which we

4

Table of Contents


may operate in the future. Such regulation or legislation could limit our ability to use the Ka-band and/or other bands, limit our flexibility to change the way in which we use the Ka-band and/or adversely impact our ability to use additional bands in the future. Other countries in which we currently, or may in the future, operate are also considering regulations that could similarly limit access to the Ka-band or other frequency bands
 
We are dependent upon third-party providers for components, manufacturing, installation services, and customer support services, and our results of operations may be materially adversely affected if any of these third-party providers fail to appropriately deliver the contracted goods or services.
 
We are dependent upon third-party services and products provided to us, including the following:
 
Components.  A limited number of suppliers manufacture, and in some cases a single supplier manufactures, some of the key components required to build our products. These key components may not be continually available and we may not be able to forecast our component requirements sufficiently in advance, which may have a detrimental effect on supply.  If we are required to change suppliers for any reason, we would experience a delay in manufacturing our products if another supplier is not able to meet our requirements on a timely basis.  In addition, if we are unable to obtain the necessary volumes of components on favorable terms or prices on a timely basis, we may be unable to produce our products at competitive prices and we may be unable to satisfy demand from our customers.  Our reliance on a single or limited group of suppliers, particularly foreign suppliers, and our reliance on subcontractors, involves several risks.  These risks include a potential inability to obtain an adequate supply of required components, reduced control over pricing, quality, and timely delivery of these components, and the potential bankruptcy, lack of liquidity or operational failure of our suppliers.  We do not generally maintain long-term agreements with any of our suppliers or subcontractors for our products.  An inability to obtain adequate deliveries or any other circumstances requiring us to seek alternative sources of supply could affect our ability to ship our products on a timely basis, which could damage our relationships with current and prospective customers and harm our business, resulting in a loss of market share, and reduced revenue and income.
Commodity Price Risk.  Fluctuations in pricing of raw materials can affect our product costs.  To the extent that component pricing does not decline or increases, whether due to inflation, increased demand, decreased supply or other factors, we may not be able to pass on the impact of increasing raw materials prices, component prices or labor and other costs, to our customers, and we may not be able to operate profitably.  Such changes could have an adverse impact on our product costs.
Manufacturing.  While we develop and manufacture prototypes for certain of our products, we use contract manufacturers to produce a significant portion of our hardware.  If these contract manufacturers fail to provide products that meet our specifications in a timely manner, then our customer relationships and revenue may be harmed.
Installation and customer support services.  Some of our products and services, such as our North American and international operations, utilize a network of third-party installers to deploy our hardware.  In addition, a portion of our customer support and management is provided by third-party call centers.  A decline in levels of service or attention to the needs of our customers could adversely affect our reputation, renewal rates and ability to win new business.
Other services.  Some of our products rely on third parties to provide services necessary for the operation of functionalities of the products, such as third-party cloud computing services and satellite uplink hosting services.  The failure of these services could disrupt the operation of certain functionalities of our products, which could harm our customer relationship and result in a loss of sales.  In addition, if the agreements for the provision of these services are terminated or not renewed, we could face difficulties replacing these service providers, which would adversely affect our ability to obtain and retain customers and result in reduced revenue and income.
 
Our foreign operations and investments expose us to risks and restrictions not present in our domestic operations.
 
Our sales outside the U.S. accounted for approximately 13.9%, 19.5% and 18.3% of our revenue for the years ended December 31, 2018, 2017 and 2016, respectively.  We expect our foreign operations to continue to represent a significant and growing portion of our business.  Over the last 10 years, we sold products in over 100 countries and began offering broadband internet services to consumers in in several Central and South American countries.  Our

5

Table of Contents


foreign operations involve varying degrees of risk and uncertainties inherent in doing business abroad.  Such risks include:
 
Complications in complying with restrictions on foreign ownership and investment and limitations on repatriation.  We may not be permitted to own our operations in some countries and may have to enter into partnership or joint venture relationships.  Many foreign legal regimes restrict our repatriation of earnings to the U.S. from our subsidiaries and joint venture entities.  Applicable law in such foreign countries may also limit our ability to distribute or access our assets or offer our products and services in certain circumstances.  In such event, we will not have access to the cash flow and assets of our subsidiaries and joint ventures.
Difficulties in following a variety of laws and regulations related to foreign operations.  Our international operations are subject to the laws and regulations of many different jurisdictions that may differ significantly from U.S. laws and regulations.  For example, local privacy or intellectual property laws may hold us responsible for the data that is transmitted over our network by our customers.  In addition, we are subject to the Foreign Corrupt Practices Act and similar anti-bribery laws in other jurisdictions that generally prohibit companies and their intermediaries from making improper payments or giving or promising to give anything of value to foreign officials and other individuals for the purpose of obtaining or retaining business or gaining a competitive advantage.  Our policies mandate compliance with these laws.  However, we operate in many parts of the world that have experienced corruption to some degree.  Compliance with these laws may lead to increased operations costs or loss of business opportunities.  Violations of these laws could result in fines or other penalties or sanctions, which could have a material adverse impact on our business, financial condition, and results of operations.
Restrictions on space station landing/terrestrial rights.  Satellite market access and landing rights and terrestrial wireless rights are dependent on the national regulations established by foreign governments, including, but not limited to obtaining national authorizations or approvals and meeting other regulatory, coordination and registration requirements for satellites.  Because regulatory schemes vary by country, we may be subject to laws or regulations in foreign countries of which we are not presently aware.  Non-compliance with these requirements may result in the loss of the authorizations and licenses to conduct business in these countries, as well as fines or other financial and non-financial penalties for non-compliance with regulations.  If that were to be the case, we could be subject to sanctions, penalties and/or other actions by a foreign government that could materially and adversely affect our ability to operate in that country.  There is no assurance that any current regulatory approvals held by us are, or will remain, sufficient in the view of foreign regulatory authorities, or that any additional necessary approvals will be granted on a timely basis or at all, in all jurisdictions in which we wish to operate new satellites, or that applicable restrictions in those jurisdictions will not be unduly burdensome.  Violations of laws or regulations may result in various sanctions including fines, loss of authorizations and the denial of applications for new authorizations or for the renewal of existing authorizations, and the failure to obtain or comply with the authorizations and regulations governing our international operations could have a material adverse effect on our ability to generate revenue and our overall competitive position.
Financial and legal constraints and obligations.  Operating pursuant to foreign licenses subjects us to certain financial constraints and obligations, including, but not limited to: (a) tax liabilities that may or may not be dependent on revenue; (b) the burden of creating and maintaining additional entities, branches, facilities and/or staffing in foreign jurisdictions; and (c) legal regulations requiring that we make certain satellite capacity available for “free,” which may impact our revenue.  In addition, if we need to pursue legal remedies against our customers or our business partners located outside of the U.S., it may be difficult for us to enforce our rights against them.
Compliance with applicable export control laws and regulations in the U.S. and other countries.  We must comply with all applicable export control and trade sanctions laws and regulations of the U.S. and other countries.  U.S. laws and regulations applicable to us include the Arms Export Control Act,, the International Traffic in Arms Regulations (“ITAR”), the Export Administration Regulations (“EAR”), and trade sanctions laws and regulations administered by the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”).  The export of certain hardware, technical data and services relating to satellites is regulated by the U.S. Department of Commerce’s Bureau of Industry and Security (“BIS”) under the EAR.  Other items are controlled for export by the U.S. Department of State’s Directorate of Defense Trade Controls under ITAR.  We cannot provide equipment or services to certain countries subject to U.S. trade sanctions unless we first obtain the necessary authorizations from OFAC.  Violations of these laws or regulations could result in significant sanctions including fines, more onerous compliance requirements, debarments from export privileges, or loss of authorizations needed to conduct aspects of our international business.  A violation of

6

Table of Contents


ITAR or the other regulations enumerated above could materially adversely affect our business, financial condition and results of operations.
Changes in exchange rates between foreign currencies and the U.S. dollar.  We conduct our business and incur cost in the local currency of a number of the countries in which we operate.  Accordingly, our applicable results of operations are reported in the relevant local currency and then translated to U.S. dollars at the applicable currency exchange rate for inclusion in our financial statements.  In addition, we sell our products and services and acquire supplies and components from countries that historically have been, and may continue to be, susceptible to recessions, instability or currency devaluation.  These fluctuations in currency exchange rates, recessions and currency devaluations have affected, and may in the future affect, revenue, profits and cash earned on international sales.
Greater exposure to the possibility of economic instability, the disruption of operations from labor and political disturbances, expropriation or war.  As we conduct operations throughout the world, we could be subject to regional or national economic downturns or instability, acts of terrorism, labor or political disturbances or conflicts of various sizes, including wars.  Any of these disruptions could detrimentally affect our sales in the affected region or country or lead to damage to, or expropriation of, our property or danger to our personnel.
Competition with large or state-owned enterprises and/or regulations that effectively limit our operations and favor local competitors.  Many of the countries in which we conduct business have traditionally had state owned or state granted monopolies on telecommunications services that favor an incumbent service provider.  We face competition from these favored and entrenched companies in countries that have not deregulated.  The slower pace of deregulation in these countries, including in Asia, Latin America, Middle East, Africa and Eastern Europe, has adversely affected, and is likely to continue to adversely affect, the development and growth of our business in these regions.
Customer credit risks.  Customer credit risks are exacerbated in foreign operations because there is often little information available about the credit histories of customers in certain of the foreign countries in which we operate.
 
We may experience loss from some of our customer contracts.
 
We provide access to our telecommunications networks to customers that use a variety of platforms such as satellite, wireless 3G, 4G, cable, fiber optic and DSL.  These customer contracts may require us to provide services at a fixed price for the term of the contract.  To facilitate the provision of this access, we may enter into contracts with terrestrial platform providers.  Our agreements with these subcontractors may allow for prices to be changed during the term of the contracts.  We assume greater financial risk on these customer contracts than on other types of contracts because if we do not estimate costs accurately and there is an increase in our subcontractors’ prices, our net profit may be significantly reduced or there may be a loss on the contracts.
 
We may experience significant financial losses on our existing investments.
 
We have entered into certain strategic transactions and investments.  These investments involve a high degree of risk and could diminish our financial condition or our ability to fund a debt repurchase program, invest capital in our businessThe overall sustained economic uncertainty, as well as financial, operational and other difficulties encountered by certain companies in which we have invested increases the risk that the actual amounts realized in the future on our debt and equity investments will differ significantly from the fair values currently assigned to them.  In addition, the companies in which we invest or with whom we partner may not be able to compete effectively or there may be insufficient demand for the services and products offered by these companies.  These investments could also expose us to significant financial losses and may restrict our ability to make other investments or limit alternative uses of our capital resources.  If our investments suffer losses, our financial condition could be materially adversely affected.
 
We may pursue acquisitions, dispositions, capital expenditures, the development, acquisition and launch of new satellites and other strategic transactions to complement or expand our business, which may not be successful and we may lose a portion or all of our investment in these acquisitions and transactions.
 
Our future success may depend on the existence of, and our ability to capitalize on, opportunities to acquire or develop other businesses or technologies or partner with other companies that could complement, enhance or expand our current business, services or products or that may otherwise offer us growth opportunities.  We may pursue investments, commercial alliances, partnerships, joint ventures, acquisitions, dispositions or other strategic initiatives and

7

Table of Contents


transactions or development activities, including, without limitation, the design, development, construction, acquisition and launch of new satellites, to complement or expand our business and satellite fleet.  Any such acquisitions, dispositions, activities, transactions or investments that we are able to identify and complete which may become substantial over time, involve a high degree of risk, including, but not limited to, the following:
 
the diversion of our management’s attention from our existing business to integrate or divide the operations and personnel of the acquired, disposed or combined business, technology or joint venture and/or to engage in such investments, dispositions and/or other activities;
the ability and capacity of our management team to carry out all of our business plans, including with respect to our existing businesses and any businesses we acquire or embark on in the future;
possible adverse effects on our and our targets’ and partners’ business, financial condition or operating results during the integration process;
exposure to significant financial losses if the transactions, activities, investments, dispositions and/or the underlying ventures are not successful and/or we are unable to achieve the intended objectives of the transaction, disposition or investment;
the inability to obtain in the anticipated time frame, or at all, any regulatory approvals required to complete proposed acquisitions, dispositions, activities, transactions or investments;
the risks associated with complying with regulations applicable to the acquired or developed business or technologies which may cause us to incur substantial expenses;
the inability to realize anticipated benefits or synergies from acquisitions, dispositions, investments, alliances and/or the development and launch of new satellites;
the disruption of relationships with employees, vendors or customers;
the risks associated with foreign and international operations and/or investments or dispositions; and
the risks associated with developing and constructing new satellites.

New investments, commercial alliances, partnerships, joint ventures, acquisitions, dispositions, development activities, including, without limitation, the design, development, construction and launch of new satellites, and other strategic initiatives may require the commitment of significant capital that may otherwise be directed to investments in our existing businessesCommitment of this capital may cause us to defer or suspend any debt repurchase or capital expenditures that we otherwise may have made.

We may not be able to generate cash to meet our debt service needs or fund our operations.

As of December 31, 2018, our total indebtedness was approximately $3.5 billionOur ability to make payments on or to refinance our indebtedness and to fund our operations will depend on our ability to generate cash in the future, which is subject in part to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control.  We may need to raise additional capital in order to fund ongoing operations or to capitalize on business opportunities.  We may not be able to generate sufficient cash flow from operations and future borrowings or equity may not be available in amounts sufficient to enable us to service our indebtedness or to fund our operations or other liquidity needs.  If we are unable to generate sufficient cash, we may be forced to take actions such as revising or delaying our strategic plans, reducing or delaying capital expenditures and/or the development, design, acquisition and construction of new satellites, selling assets, restructuring or refinancing our debt or seeking additional equity capital.  We may not be able to implement any of these actions on satisfactory terms, or at all.  The indentures governing our indebtedness limit our ability to dispose of assets and use the proceeds from such dispositions.  Therefore, we may not be able to consummate those dispositions on satisfactory terms, or at all, or to use those proceeds in a manner we may otherwise prefer. The Tax Cuts and Jobs Act of 2017 enacted in December 2017 (the “2017 Tax Act”) limits the deductibility of interest expense for U.S. federal income tax purposes.  While the 2017 Tax Act generally is likely to reduce our federal income tax obligations, if these limitations or other newly enacted provisions become applicable to us, they could minimize such reductions or otherwise require us to pay additional federal income taxes, which in turn could result in additional liquidity needs.
 
In addition, conditions in the financial markets could make it difficult for us to access equity or debt markets at acceptable terms or at all.  Instability or other conditions in the equity markets could make it difficult for us to raise equity financing without incurring substantial dilution to our existing shareholders.  In addition, sustained or increased economic weaknesses or pressures or new economic conditions may limit our ability to generate sufficient internal cash to fund

8

Table of Contents


investments, capital expenditures, acquisitions, and other strategic transactions and/or the development, design, acquisition and construction of new satellites.  We cannot predict with any certainty whether or not we will be impacted by economic conditions.  As a result, these conditions make it difficult for us to accurately forecast and plan future business activities because we may not have access to funding sources necessary for us to pursue organic and strategic business development opportunities.
 
Covenants in our indentures restrict our business in many ways.
 
The indentures governing our 6 1/2% Senior Secured Notes due 2019, 7 5/8% Senior Notes due 2021, 5.250% Senior Secured Notes due August 1, 2026 and 6.625% Senior Unsecured Notes due August 1, 2026 contain various covenants, subject to certain exceptions, that limit our ability and/or certain of our subsidiaries’ ability to, among other things:
 
incur additional debt;
pay dividends or make distributions on our capital stock or repurchase our capital stock;
make certain investments;
create liens or enter into sale and leaseback transactions;
enter into transactions with affiliates;
merge or consolidate with another company;
transfer and sell assets; and
allow to exist certain restrictions on our or their ability to pay dividends, make distributions, make other payments, or transfer assets.
 
Failure to comply with these and certain other financial covenants, if not cured or waived, may result in an event of default under the indentures, which could have a material adverse effect on our business, financial condition, results of operations or prospects.  If an event of default occurs and is continuing under the respective indenture, the trustee under that indenture or the requisite holders of the notes under that indenture may declare all such notes to be immediately due and payable and, in the case of the indentures governing any of our secured notes, could proceed against the collateral that secures the applicable secured notes. We and certain of our subsidiaries have pledged a significant portion of our assets as collateral to secure the 6 1/2% Senior Secured Notes due 2019 and the 5.250% Senior Secured Notes due August 1, 2026.  If we do not have enough cash to service our debt or fund other liquidity needs, we may be required to take actions such as requesting a waiver from the holders of the notes, reducing or delaying capital expenditures, selling assets, restructuring or refinancing all or part of the existing debt, or seeking additional equity capital.  We cannot assure you that any of these remedies can be implemented on commercially reasonable terms or at all, which could result in the trustee declaring the notes to be immediately due and payable and/or foreclosing on the collateral.

We rely on key personnel and the loss of their services may negatively affect our businesses.
 
We believe that our future success depends to a significant extent upon the performance of Mr. Charles W. Ergen, our Chairman, and certain other key executives.  The loss of Mr. Ergen or of certain other key executives or of the ability of Mr. Ergen or certain other key executives to devote sufficient time and effort to our business could have a material adverse effect on our business, financial condition and results of operations.  Although some of our key executives may have agreements relating to their equity compensation that limit their ability to work for or consult with competitors, under certain circumstances, we generally do not have employment agreements with them.  To the extent Mr. Ergen or other officers are performing services for both DISH Network and us, their attention may be diverted away from our business and therefore adversely affect our business.
 
We may be subject to risks relating to the referendum of the United Kingdom’s membership of the EU.

The formal two-year process governing the United Kingdom’s (the “U.K.”) departure from the EU, commonly referred to as the “Brexit,” began on March 29, 2017. Discussions between the U.K. and the EU focused on finalizing withdrawal issues and transition agreements are ongoing. However, given the limited progress to date in these negotiations and ongoing uncertainty within the U.K. Government and Parliament, it is possible that the U.K. will leave the EU on March 29, 2019 without a withdrawal agreement and associated transition period in place, which is likely to cause significant market and economic disruption.  Further, it is possible that there will be greater restrictions on imports and exports between the U.K. and EU countries.  Brexit may also cause our customers to closely monitor their costs and reduce

9

Table of Contents


their spending budgets. The effects of Brexit, the uncertainty regarding the ultimate terms of Brexit and the perceptions as to the impact of the withdrawal of the U.K. from the EU have affected, and may continue to affect, business activity, political stability and economic and market conditions in the U.K., the Eurozone, the EU and elsewhere and could contribute to instability in global financial and foreign exchange markets, including volatility in the value of the Euro and the British Pound. Additionally, with the U.K. no longer being a part of the EU, there may be certain regulatory changes that may impact the regulatory regime under which we operate in both the U.K. and the EU.  Given that a portion of our business is conducted in the EU, including the U.K., any of these and other changes, implications and consequences may adversely affect our business and results of operations.

A natural disaster could diminish our ability to provide service to our customers.

Natural disasters could damage or destroy our ground stations and/or other infrastructure, equipment and facilities, resulting in a disruption of service to our customers.  We currently have backup systems and technology in place to safeguard our antennas and protect our ground stations during natural disasters such as tornadoes, but the possibility still exists that our ground facilities and/or other infrastructure, equipment and facilities could be impacted during a major natural disaster.  If a future natural disaster impairs or destroys any of our ground facilities and/or other infrastructure, equipment and facilities, we may be unable to provide service to our customers in the affected area for a period of time which may adversely affect our business and results of operations.

We may have additional tax liabilities and changes in tax laws or regulations may have a material adverse effect on our business, cash flow, financial condition or results of operations.

We are subject to income taxes in the U.S. and foreign jurisdictions.  Significant judgments are required in determining our provisions for income taxes.  In the course of preparing our tax provisions and returns, we must make calculations where the ultimate tax determination may be uncertain.  Our tax returns are subject to examination by the Internal Revenue Service (“IRS”), state, and foreign tax authorities.  There can be no assurance as to the outcome of these examinations.  If the ultimate determination of taxes owed is for an amount in excess of amounts previously accrued, our operating results, cash flows, and financial condition could be adversely affected.

Additionally, new or modified income, sales, use or other tax laws, statutes, rules, regulations or ordinances could be enacted at any time, which, like the 2017 Tax Act, could affect the tax treatment of our domestic and foreign earnings. Any new taxes could adversely affect our domestic and international business operations and our business and financial performance. Further, existing tax laws, statutes, rules, regulations or ordinances could be interpreted, changed, modified or applied adversely to us. The 2017 Tax Act contains many significant changes to U.S. tax laws, including changes in corporate tax rates, the availability of net deferred tax assets relating to our U.S. operations, the taxation and repatriation of foreign earnings, and the deductibility of expenses. The 2017 Tax Act or other tax reform legislation has had and could have a material impact on the value of our deferred tax assets, has and could result in significant charges, and could increase our future U.S. tax expense. Furthermore, changes to the taxation of undistributed foreign earnings could change our future intentions regarding reinvestment of such earnings. The foregoing items could have a material adverse effect on our business, cash flow, financial condition or results of operations.

We earn a portion of our operating income from outside the U.S., and any repatriation of funds currently held in foreign jurisdictions may result in higher effective tax rates for us. In addition, recent changes to U.S. tax laws significantly impacts how U.S. multinational corporations are taxed on foreign earnings. Numerous countries are evaluating their existing tax laws due in part, to recommendations made by the Organization for Economic Co-operation and Development’s Base Erosion and Profit Shifting project. Although we cannot predict whether or in what form any legislation based on such proposals may be adopted by the countries in which we do business, future tax reform based on such proposals or otherwise may increase the amount of taxes we pay and adversely affect our operating results and cash flows.

Recent developments with respect to trade policies, trade agreements, tariffs and related government regulations could increase our costs, limit the amount of components we can import, decrease demand for certain of our products and have a material adverse impact on our business, financial condition and results of operations.

We source certain parts, components and items used in our products from manufacturers located outside of the U.S. and we sell certain of our products to customers located outside of the U.S.  Concerns have been raised about certain countries potentially engaging in unfair trade practices and, as a result, tariffs have been increased on certain goods imported into the U.S. from those countries, including China and other countries from which we import

10

Table of Contents


components or raw materials, and there is the possibility of additional tariff increases. The announcement of tariffs on imported products by the U.S. has triggered actions from certain foreign governments, including China, and may trigger additional actions by those and other foreign governments, potentially resulting in a “trade war”.  A trade war of this nature or other governmental action related to tariffs, government regulations, or international trade agreements or policies could materially increase the cost of certain products we import, impact or limit the availability of such products, require us to change our manufacturers, and/or decrease demand for certain of our products, any or all of which could have a material adverse impact on our business, financial condition and results of operations.

RISKS RELATED TO OUR SATELLITES
 
Our owned and leased satellites in orbit are subject to significant operational and environmental risks that could limit our ability to utilize these satellites.
 
Satellites are subject to significant operational risks while in orbit.  These risks include malfunctions, commonly referred to as anomalies, which have occurred and may occur in the future in our satellites and the satellites of other operators as a result of various factors, such as satellite design and manufacturing defects, problems with the power systems or control systems of the satellites, general failures resulting from operating satellites in the harsh environment of space and cyber-attacks on our satellites.
 
Although we work closely with the satellite manufacturers to determine and eliminate the cause of anomalies in new satellites and provide for redundancies of many critical components in the satellites, we may not be able to prevent anomalies or outages from occurring and may experience anomalies and outages in the future, whether of the types described above or arising from the failure of other systems or components. The failure to perform of any of our manufacturers which provide in-orbit anomaly support for our satellites could result in our inability to determine, eliminate or manage anomalies for our satellites. Even if alternate in-orbit anomaly support services are available, we may have difficulty identifying them in a timely manner or we may incur significant additional expense in changing suppliers.  Maxar, through its subsidiary SSL, provides in-orbit anomaly support for several of our satellites. In the second half of 2018, Maxar announced that it is reviewing strategic alternatives for its geostationary communications satellite business to improve its financial performance and that it is in active discussions with potential buyers of the business. A decision by Maxar to discontinue, wind down or otherwise significantly modify its geostationary communications satellite business could have a material adverse impact on the operation of several of our satellites, including our ability to remedy any anomalies or outages.
 
Any single anomaly or outage or series of anomalies or outages could materially and adversely affect our ability to utilize the satellite, our operations, services and revenue as well as our relationships with current customers and our ability to attract new customers.  In particular, future anomalies or outages may result in, among other things, the loss of individual transponders/beams and/or functional solar array circuits on a satellite, a group of transponders/beams on that satellite or the entire satellite, depending on the nature of the anomaly or outage. Anomalies or outages may also reduce the expected capacity, commercial operation and/or useful life of a satellite, thereby reducing the revenue that could be generated by that satellite, or create additional expenses due to the need to provide replacement or back-up satellites or satellite capacity earlier than planned and could have a material adverse effect on our business, financial condition and results of operations.
 
The loss of a satellite or other satellite malfunctions or anomalies or outages could have a material adverse effect on our financial performance, which we may not be able to mitigate by using available capacity on other satellites.  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.  In addition, the loss of a satellite or other satellite malfunctions or anomalies or outages could affect our ability to comply with FCC and other regulatory obligations and our ability to fund the construction or acquisition of replacement satellites for our in-orbit fleet in a timely fashion, or at all.  There can be no assurance that anomalies or outages will not impact the remaining useful life and/or the commercial operation of any of the satellites in our fleet.  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.
 
Meteoroid events pose a potential threat to all in-orbit satellites.  The probability that meteoroids will damage those satellites increases significantly when the Earth passes through the particulate stream left behind by comets.  Occasionally, increased solar activity also poses a potential threat to all in-orbit satellites.
 
Some decommissioned satellites are in uncontrolled orbits, which pass through the geostationary belt at various points and present hazards to operational satellites, including our satellites.  We may be required to perform maneuvers to

11

Table of Contents


avoid collisions and these maneuvers may prove unsuccessful or could reduce the useful life of the satellite through the expenditure of fuel to perform these maneuvers.  The loss, damage or destruction of any of our satellites as a result of an electrostatic storm, collision with space debris, malfunction or other event could have a material adverse effect on our business, financial condition and results of operations.
 
We historically have not carried in-orbit insurance on many of our satellites because we have assessed that the cost of such insurance is uneconomical relative to the risk of failures. If one or more of our in-orbit uninsured satellites fail, we could be required to record significant impairment charges for the satellite.
 
Our satellites have minimum design lives of 15 years, but could fail or suffer reduced capacity before then.
 
Generally, the minimum design life of each of our satellites is 15 years.  We can provide no assurance, however, as to the actual operational lives of our satellites, which may be shorter or longer than their design lives.  Our ability to earn revenue depends on the continued operation of our satellites, each of which has a limited useful life.  Several factors affect the useful lives of the satellites, including, among other things, the quality of their design and construction, the durability of their component parts, the ability to continue to maintain proper orbit and control over the satellite’s functions, the efficiency of the launch vehicle used, and the remaining on-board fuel following orbit insertion. In addition, continued improvements in satellite technology may make obsolete our existing satellites, or any satellites we may acquire in the future, prior to the end of their design lives.
 
In the event of a failure or loss of any of our satellites, we may relocate another satellite and use it as a replacement for the failed or lost satellite, which could have a material adverse effect on our business, financial condition and results of operations.  Additionally, such relocation would require governmental approval.  We cannot be certain that we could obtain such governmental approval.  In addition, we cannot guarantee that another satellite will be available for use as a replacement for a failed or lost satellite, or that such relocation can be accomplished without a substantial utilization of fuel.  Any such utilization of fuel would reduce the operational life of the replacement satellite.

Our satellites under construction are subject to risks related to construction, technology, regulations and launch that could limit our ability to utilize these satellites and adversely affect our business and financial condition.
 
Satellite construction and launch are subject to significant risks, including delays, anomalies, launch failure and incorrect orbital placement.  The technologies in our satellite designs are very complex and difficulties in constructing our designs could result in delays in the deployment of our satellites or increased or unanticipated costs. There also can be no assurance that the technologies in our existing satellites or in new satellites that we design, acquire and build will work as we expect and/or will not become obsolete, that we will realize any or all of the anticipated benefits of our satellite designs or our new satellites, or that we will obtain all regulatory approvals required to operate our new or acquired satellites. In addition, certain launch vehicles that may be used by us have either unproven track records or have experienced launch failures in the past.  The risks of launch delay, launch anomalies and launch failure are usually greater when the launch vehicle does not have a track record of previous successful flights.  Launch anomalies and failures can result in significant delays in the deployment of satellites because of the need both to construct replacement satellites, which can take more than three years, and to obtain other launch opportunities.  Such significant delays could materially and adversely affect our business, expenses and results of operations, our ability to meet regulatory or contractual required milestones, the availability and our use of other or replacement satellite resources and our ability to provide services to customers as capacity becomes full on existing satellites.  In addition, significant delays in a satellite program could give customers who have purchased or reserved capacity on that satellite a right to terminate their service contracts relating to the satellite.  We may not be able to accommodate affected customers on other satellites until a replacement satellite is available.  A customer’s termination of its service contracts with us as a result of a launch delay or failure would reduce our contracted backlog and our ability to generate revenue.  One of our launch services providers is a Russian Federation state-owned company.  Certain ongoing political events have created uncertainty as to the stability of U.S. and Russian Federation relations.  This could add to risks relative to scheduling uncertainties and timing.  If a launch delay, anomaly or failure were to occur, it could result in the revocation of the applicable license to operate the satellite, undermine our ability to implement our business strategy or develop or pursue existing or future business opportunities with applicable licenses and otherwise have a material adverse effect on our business, expenses, assets, revenue, results of operations and ability to fund future satellite procurement and launch opportunities.  Historically, we have not always carried launch insurance for the launch of our satellites and the occurrence of launch anomalies and failures, whether on our satellites or those of others, may significantly reduce our ability to place launch insurance for our satellites or make launch insurance uneconomical.


12

Table of Contents


Our use of certain satellites is often dependent on satellite coordination agreements, which may be difficult to obtain.
 
Satellite transmissions and the use of frequencies often are dependent on coordination with other satellite systems operated by U.S. or foreign satellite operators, including governments, and it can be difficult to determine the outcome of these coordination agreements with these other entities and governments.  The impact of a coordination agreement may result in the loss of rights to the use of certain frequencies or access to certain markets.  The significance of such a loss would vary and it can therefore be difficult to determine which portion of our revenue will be impacted.
 
In the event the international coordination process that is triggered by ITU filings under applicable rules is not successfully completed, or that the requests for modification of the broadcast satellite services plan regarding the allocation of orbital locations and frequencies are not granted by the ITU, we will have to operate the applicable satellite(s) on a non-interference basis, which could have an adverse impact on our business operations.  If we cannot do so, we may have to cease operating such satellite(s) at the affected orbital locations, which could have a material adverse effect on our business, results of operations and financial position.

Furthermore, the satellite coordination process is conducted under the guidance of the ITU radio regulations and the national regulations of the satellites involved in the coordination process.  These rules and regulations could be amended and could therefore materially adversely affect our business, financial condition and results of operations.

We may face interference from other services sharing satellite spectrum.
 
The FCC and other regulators have adopted rules or may adopt rules in the future that allow non-geostationary orbit satellite services to operate on a co-primary basis in the same frequency band as DBS and FSS.  The FCC has also authorized the use of multichannel video and data distribution service in the DBS band.  Several multichannel video and data distribution service systems are now being commercially deployed.  Despite regulatory provisions designed to protect DBS and FSS operations from harmful interference, there can be no assurance that operations by other satellites or terrestrial communication services in the DBS and FSS bands will not interfere with our DBS and FSS operations and adversely affect our business.
 
Our dependence on outside contractors could result in delays related to the design, manufacture and launch of our new satellites, which could in turn adversely affect our operating results.
 
There are a limited number of manufacturers that are able to design and build satellites according to the technical specifications and standards of quality we require, including Airbus Defence and Space, Boeing Satellite Systems, Lockheed Martin, SSL and Thales Alenia Space.  There are also a limited number of launch service providers that are able to launch such satellites, including International Launch Services, Arianespace, Lockheed Martin Commercial Launch Services and Space Exploration.  The failure to perform of any of our manufacturers or launch service providers could increase the cost and result in the delay of the design, construction or launch of our satellites.  Even if alternate suppliers for such services are available, we may have difficulty identifying them in a timely manner or we may incur significant additional expense in changing suppliers, and this could result in difficulties or delays in the design, construction or launch of our satellites.  For example, in the second half of 2018, Maxar announced that it is reviewing strategic alternatives for its geostationary communications satellite business to improve its financial performance and that it is in active discussions with potential buyers of the business. SSL has indicated to us that it intends to meet its contractual obligations regarding the timely manufacture and delivery of the EchoStar XXIV satellite. However, if SSL or any potential successor fails to meet or is delayed in meeting these obligations for any reason, including if Maxar decides to discontinue, wind down or otherwise significantly modify its geostationary communications satellite business, such failure could have a material adverse effect on completing the manufacture of the EchoStar XXIV satellite and, like any other delays in the design, construction or launch of our other satellites, could have a material adverse impact on our business operations, future revenues, financial position and prospects.

13

Table of Contents



RISKS RELATED TO OUR PRODUCTS AND TECHNOLOGY
 
If we are unable to properly respond to technological changes, our business could be significantly harmed.
 
Our business and the markets in which we operate are characterized by rapid technological changes, evolving industry standards and frequent product and service introductions and enhancements.  If we or our suppliers are unable to properly respond to or keep pace with technological developments, fail to develop new technologies, or if our competitors obtain or develop proprietary technologies that are perceived by the market as being superior to ours, our existing products and services may become obsolete and demand for our products and services may decline.  Even if we keep up with technological innovation, we may not meet the demands of the markets we serve.  Furthermore, after we have incurred substantial research and development costs, one or more of the technologies under our development, or under development by one or more of our strategic partners, could become obsolete prior to its introduction.  If we are unable to respond to or keep pace with technological advances on a cost-effective and timely basis, or if our products, applications or services are not accepted by the market, then our business, financial condition and results of operations could be adversely affected.
 
Our response to technological developments depends, to a significant degree, on the work of technically skilled employees.  Competition for the services of such employees has become more intense as demand for these types of employees grows.  We compete with other companies for these employees and although we strive to attract and retain these employees, we may not succeed in these respects. Additionally, if we were to lose certain key technically skilled employees, the loss of knowledge and intellectual capital might have an adverse impact on business, financial condition and results of operations.
 
We have made and will continue to make significant investments in research, development, and marketing for new products, services, satellites and related technologies, as well as entry into new business areas.  Investments in new technologies, satellites and business areas are inherently speculative and commercial success thereof depends on numerous factors including innovativeness, quality of service and support, and effectiveness of sales and marketing.  We may not achieve revenue or profitability from such investments for a number of years, if at all.  Moreover, even if such products, services, satellites, technologies and business areas become profitable, their operating margins may be minimal.

Our future growth depends on growing demand for advanced technologies.

Future demand and effective delivery for our products will depend significantly on the growing demand for advanced technologies, such as broadband internet connectivity.  If the deployment of, or demand for, advanced technologies is not as widespread or as rapid as we or our customers expect, our revenue growth will be negatively impacted.

Our business depends on certain intellectual property rights and on not infringing the intellectual property rights of others.  The loss of our intellectual property rights or our infringement of the intellectual property rights of others could have a significant adverse impact on our business.
 
We rely on our patents, copyrights, trademarks and trade secrets, as well as licenses and other agreements with our vendors and other parties, to use our technologies, conduct our operations and sell our products and services.  Legal challenges to our intellectual property rights and claims by third parties of intellectual property infringement could require that we enter into royalty or licensing agreements on unfavorable terms, incur substantial monetary liability or be enjoined preliminarily or permanently from further use of the intellectual property in question or from the continuation of our businesses as currently conducted or as we plan to conduct it, which could require us to change our business practices or limit our ability to compete effectively or could otherwise have an adverse effect on our business, financial condition, results of operations or prospects.  Even if any such challenges or claims prove to be without merit, they can be time-consuming and costly to defend and may divert management’s attention and resources away from our business.
 
Moreover, due to the rapid pace of technological change, we rely in part on technologies developed or licensed by third parties, and if we are unable to obtain or continue to obtain licenses or other required intellectual property rights from these third parties on reasonable terms, our business, financial position and results of operations could be adversely affected.  Technology licensed from third parties or developed by us may have undetected errors that impair the functionality or prevent the successful integration of our products or services.  As a result of any such changes or

14

Table of Contents


loss, we may need to incur additional development costs to ensure continued performance of our products or suffer delays until replacement technology, if available, can be obtained and integrated.
 
In addition, we work with third parties such as vendors, contractors and suppliers for the development and manufacture of components that are integrated into our products and our products may contain technologies provided to us by these third parties.  We may have little or no ability to determine in advance whether any such technology infringes the intellectual property rights of others.  Our vendors, contractors and suppliers may not be required to indemnify us in the event that a claim of infringement is asserted against us, or they may be required to indemnify us only up to a maximum amount, above which we would be responsible for any further costs or damages.  Legal challenges to these intellectual property rights may impair our ability to use the products and technologies that we need in order to operate our business and may materially and adversely affect our business, financial condition and results of operations.

We are, and may become, party to various lawsuits which, if adversely decided, could have a significant adverse impact on our business, particularly lawsuits regarding intellectual property.
 
We are, and may become, subject to various legal proceedings and claims, which arise both in and out of the ordinary course of our business.  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 related to those that we offer.  In general, if a court determines that one or more of our products or services infringes valid intellectual property rights held by others, we may be required to cease developing or marketing those products or services, to obtain licenses from the holders of the intellectual property at a material cost, to pay damages or to redesign those products or services in such a way as to avoid infringement.  If those intellectual property rights are held by a competitor, we may be unable to license the necessary intellectual property rights at any price, which could adversely affect our competitive position.
 
We may not be aware of all patents and other intellectual property rights that our products and services may potentially infringe.  In addition, patent applications in the U.S. and foreign countries are confidential until the Patent and Trademark Office either publishes the application or issues a patent (whichever arises first) and, accordingly, our products may infringe claims contained in pending patent applications of which we are not aware.  Further, the process of determining definitively whether a patent claim is valid and whether a particular product infringes a valid patent claim often involves expensive and protracted litigation, even if we are ultimately successful on the merits.
 
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.  Those costs, and their impact on our results of operations, could be material.  Damages in patent infringement cases can be substantial, and in certain circumstances, can be trebled.  To the extent that we are required to pay unanticipated royalties to third parties, these increased costs of doing business could negatively affect our liquidity and operating results.  We from time to time may defend patent infringement actions and may from time to time assert our own actions against parties we suspect of infringing our patents and trademarks.  We cannot be certain the courts will conclude these companies 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.  We also cannot be certain that we will 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.  The legal costs associated with defending patent suits and pursuing patent claims against others may be borne by us if we are not awarded reimbursement through the legal process.  See further discussion under Item 3. — Legal Proceedings of this Annual Report on Form 10-K.
 
Future litigation or governmental proceedings could result in material adverse consequences, including judgments or settlements.
 
We may become involved in lawsuits, regulatory inquiries, audits, consumer claims and governmental and other legal proceedings arising from of our business, including new products and services that we may offer.  Some of these proceedings may raise difficult and complicated factual and legal issues and can be subject to uncertainties and complexities.  The timing of the final resolutions to lawsuits, regulatory inquiries, audits, and governmental and other legal proceedings is typically uncertain.  Additionally, the possible outcomes of, or resolutions to, these proceedings could include adverse judgments, settlements, injunctions or liabilities, any of which could require substantial payments or have other adverse impacts on our revenue, results of operations or cash flow.

If the encryption and related security technology used in our products is compromised, sales of our products may decline.


15

Table of Contents


Our customers use encryption and related security technology obtained from us or our suppliers in the products that they purchase from us to protect their data and products from unauthorized access to the features or functionalities of such products. Such encryption and related security technology has been compromised in the past and may be compromised in the future even though we continue to respond with significant investment in security measures, such as updates in security software, that are intended to make data theft more difficult. It has been our prior experience that security measures may only be effective for short periods of time or not at all. We cannot ensure that we will be successful in reducing or controlling theft of our customers’ data. As a result, sales of our products may decline, our reputation and customer relationship could be damaged and we may incur additional costs or financial liability in the future if security of our customers’ system is compromised.
 
We may be exposed to financial and reputational damage to our business by cybersecurity incidents.
 
We and third parties with whom we work face a constantly developing landscape of cybersecurity threats in which hackers and other parties use a complex assortment of techniques and methods to execute cyber-attacks, including but not limited to the use of stolen access credentials, social engineering, malware, ransomware, phishing, insider threats (which may be malicious or erroneous), structured query language injection attacks and distributed denial-of-service attacks. Cybersecurity incidents such as these have increased significantly in quantity and severity and are expected to continue to increase. Additionally, the risk of cyber-attacks and compromises will likely increase as we expand our business into other areas of the world outside of North America, some of which are still developing their cybersecurity infrastructure maturity. Should we be affected by such an incident, we may incur substantial costs and suffer other negative consequences, which may include:

remediation costs, such as liability for stolen assets or information, repairs of system damage and/or incentives to customers or business partners in an effort to maintain relationships after an attack;
increased cybersecurity protection costs, which may include the costs of making organizational changes, deploying additional personnel and protection technologies, training employees and engaging third party experts and consultants;
increased liability due to financial or other harm inflicted on our partners;
lost revenues resulting from attacks on our satellites or technology, the unauthorized use of proprietary information or the failure to retain or attract customers following an attack;
litigation and legal risks, including regulatory actions by state, federal and international regulators; and
loss of or damage to reputation.

Our business is subject to varying degrees of regulation that include programs designed to review our protections against cybersecurity threats and risks. If it is determined that our systems do not reasonably protect our partners’ assets and data and/or that we have violated these regulations, we could be subject to enforcement activity and sanctions.

We regularly review and revise our internal cybersecurity policies and procedures, invest in and maintain internal and external cybersecurity teams and systems and software to detect, deter, prevent and/or mitigate cyber-attacks and review, modify and supplement our defenses through the use of various services, programs and outside vendors. It is impossible, however, for us to know when or if any particular cyber-attack may arise or the impact on our business and operations of any such incident. We expect to continue to incur increasing costs in preparing our infrastructure and maintaining it to resist any such attacks. There can be no assurance that we can successfully detect, deter, prevent or mitigate the effects of cyber-attacks, any of which could have a material adverse effect on our business, costs, operations, prospects, results of operation or financial position. Furthermore, the amount and scope of insurance that we maintain against losses resulting from these events may not be sufficient to compensate us adequately for any disruptions to our business or otherwise cover our losses, including reputational harm and negative publicity as well as any litigation liability. 

If our products contain defects, we could be subject to significant costs to correct such defects and our product and network service contracts could be delayed or cancelled, which could adversely affect our revenue.
 
The products and the networks we deploy are highly complex, and some may contain defects when first introduced or when new versions or enhancements are released, despite testing and our quality control procedures.  For example, our products may contain software “bugs” that can unexpectedly interfere with their operation.  Defects may also occur in components and products that we purchase from third parties.  In addition, many of our products and network services are designed to interface with our customers’ existing networks, each of which has different specifications

16

Table of Contents


and utilize multiple protocol standards.  Our products and services must interoperate with the other products and services within our customers’ networks, as well as with future products and services that might be added to these networks, to meet our customers’ requirements.  There can be no assurance that we will be able to detect and fix all defects in the products and networks we sell.  The occurrence of any defects, errors or failures in our products or network services could result in: (i) additional costs to correct such defects; (ii) cancellation of orders and lost revenue; (iii) a reduction in revenue backlog; (iv) product returns or recalls; (v) diversion of our resources; (vi) the issuance of credits to customers and other losses to us, our customers or end-users; (vii) liability for harm to persons and property caused by defects in or failures of our products or services; and (viii) harm to our reputation if we fail to detect or effectively address such issues through design, testing or warranty repairs.  Any of these occurrences could also result in the loss of or delay in market acceptance of our products and services and loss of sales, which would harm our reputation and our business and materially adversely affect our revenue and profitability.

RISKS RELATED TO THE REGULATION OF OUR BUSINESS
 
Our business is subject to risks of adverse government regulation.
 
Our business is subject to varying degrees of regulation in the U.S. by the FCC, and other federal, state and local entities, and in foreign countries by similar entities and internationally by the ITU.  These regulations are subject to the administrative and political process and do change, for political and other reasons, from time to time and may limit or constrain and/or have other adverse effects on and implications for our business and operations.  The U.S. and foreign countries in which we currently, or may in the future, operate may not authorize us access to all of the spectrum that we need to provide service in a particular country. Moreover, the U.S. and a substantial number of foreign countries in which we have, or may in the future make, an investment, regulate, in varying degrees, the ownership of satellites and other telecommunication facilities/networks and foreign investment in telecommunications companies.  Violations of laws or regulations may result in various sanctions including fines, loss of authorizations and the denial of applications for new authorizations or for the renewal of existing authorizations.  Further material changes in law and regulatory requirements may also occur, and there can be no assurance that our business and the business of our subsidiaries and affiliates will not be adversely affected by future legislation, new regulation or deregulation.  The failure to obtain or comply with the authorizations and regulations governing our operations could have a material adverse effect on our ability to generate revenue and our overall competitive position and could result in our suffering serious harm to our reputation.

Our business depends on regulatory authorizations issued by the FCC and state and foreign regulators that can expire, be revoked or modified, and applications for licenses and other authorizations that may not be granted.
 
Generally all satellite, earth stations and other licenses granted by the FCC and most other countries are subject to expiration unless renewed by the regulatory agency.  Our satellite licenses are currently set to expire at various times.  In addition, we occasionally receive special temporary authorizations that are granted for limited periods of time (e.g., 180 days or less) and subject to possible renewal.  Generally, our licenses and special temporary authorizations have been renewed on a routine basis, but there can be no assurance that this will continue.  In addition, we must obtain new licenses from the FCC and other countries’ regulators for the operation of new satellites that we may build and/or acquire. There can be no assurance that the FCC or other regulators will continue granting applications for new licenses or for the renewal of existing ones.  If the FCC or other regulators were to cancel, revoke, suspend, or fail to renew any of our licenses or authorizations, fail to grant or impose conditions on our applications for FCC or other licenses, it could have a material adverse effect on our business, financial condition and results of operations.  Specifically, loss of a frequency authorization or limitations on our ability to use the frequencies we currently use and/or intend to use in the future would reduce the amount of spectrum available to us, potentially reducing the amount of services we provide to our customers.  The significance of such a loss of authorizations would vary based upon, among other things, the orbital location, the frequency band and the availability of replacement spectrum.  In addition, the legislative and executive branches of the U.S. government and foreign governments often consider legislation and regulatory requirements that could affect us, as could the actions that the FCC and foreign regulatory bodies take.  We cannot predict the outcomes of these legislative or regulatory proceedings or their effect on our business.
 
In addition, third parties have or may oppose some of our license applications and pending and future requests for extensions, modifications, waivers and approvals of our licenses.  Even if we have fully complied with all of the required reporting, filing and other requirements in connection with our authorizations, it is possible a regulator could decline to grant certain of our applications or requests for authority, or could revoke, terminate, condition or decline to modify, extend or renew certain of our authorizations or licenses.

17

Table of Contents



We may face difficulties in accurately assessing and collecting contributions towards the USF.
 
Because our customer contracts often include both telecommunications services, which create obligations to contribute to the USF, and other goods and services, which do not, it can be difficult to determine what portion of our revenue forms the basis for our required contribution to the USF and the amount that we can recover from our customers.  If the FCC, which oversees the USF, or a court or other governmental entity were to determine that we computed our USF contribution obligation incorrectly or passed the wrong amount onto our customers, we could become subject to additional assessments, liabilities, or other financial penalties.  In addition, the FCC is considering substantial changes to its USF contribution and distribution rules.  These changes could impact our future contribution obligations and those of third parties that provide communication services to our business.  Any such change to the USF contribution rules could adversely affect our costs of providing service to our customers.  In addition, changes to the USF distribution rules could intensify the competition we face by offering subsidies to competing firms and/or technologies.

Restrictions on immigration or increased enforcement of immigration laws could limit our access to qualified and skilled professionals, increase our cost of doing business or otherwise disrupt our operations.

The success of our business is dependent on our ability to recruit engineers and other professionals. Immigration laws in the U.S. and other countries in which we operate are subject to legislative changes, as well as variations in the standards of application and enforcement due to political forces and economic conditions. It is difficult to predict the political and economic events that could affect immigration laws, or the restrictive impact they could have on obtaining or renewing work visas for our professionals. If immigration laws are changed or if new more restrictive government regulations are enacted or increased, our access to qualified and skilled professionals may be limited, the costs of doing business may increase and our operations may be disrupted.

RISKS RELATED TO THE SHARE EXCHANGE

We might not be able to engage in certain strategic transactions because we have agreed to certain restrictions to comply with U.S. federal income tax requirements for a tax-free split-off.

To preserve the intended tax-free treatment of the Share Exchange, EchoStar must comply with certain restrictions under current U.S. federal income tax laws for split-offs, including (i) refraining from engaging in certain transactions that would result in a fifty percent or greater change by vote or by value in EchoStar’s stock ownership, (ii) continuing to own and manage EchoStar’s historic businesses, and (iii) limiting sales or redemptions of EchoStar’s and our common stock. If these restrictions, among others, are not followed, the Share Exchange could be taxable to us, EchoStar and possibly EchoStar’s stockholders.

OTHER RISKS
 
Our parent, EchoStar, is controlled by one principal stockholder who is our Chairman.
 
Charles W. Ergen, our Chairman, beneficially owns approximately 50.9% of EchoStar’s total equity securities (assuming conversion of only the Class B common stock beneficially owned by Mr. Ergen into Class A common stock and giving effect to the exercise of options held by Mr. Ergen that are either currently exercisable as of, or may become exercisable within 60 days after, February 11, 2019) and beneficially owns approximately 88.3% of the total voting power of all classes of shares of EchoStar (assuming no conversion of any Class B common stock and giving effect to the exercise of options held by Mr. Ergen that are either currently exercisable as of, or may become exercisable within 60 days after, February 11, 2019). Through his beneficial ownership of EchoStar’s equity securities, Mr. Ergen has the ability to elect a majority of EchoStar’s directors and to control all other matters requiring the approval of EchoStar’s stockholders.  As a result of Mr. Ergen’s voting power, EchoStar is a “controlled company” as defined in the Nasdaq listing rules and, therefore, is not subject to Nasdaq requirements that would otherwise require EchoStar to have (i) a majority of independent directors; (ii) a nominating committee composed solely of independent directors; (iii) compensation of our executive officers determined by a majority of the independent directors or a compensation committee composed solely of independent directors; (iv) a compensation committee charter which provides the compensation committee with the authority and funding to retain compensation consultants and other advisors and/or (v) director nominees selected, or recommended for the Board’s selection, either by a majority of the independent directors or a nominating committee composed solely of independent directors.


18

Table of Contents


We have potential conflicts of interest with DISH Network due to EchoStar and DISH Network’s common ownership.
 
Questions relating to conflicts of interest may arise between DISH Network and us in a number of areas relating to our past and ongoing relationships.  Areas in which conflicts of interest between DISH Network and us could arise include, but are not limited to, the following:
 
Cross directorships and stock ownership.  We have overlap in our Chairman position with DISH, which may lead to conflicting interests.  EchoStar’s board of directors includes persons who are members of the board of directors of DISH, including Charles W. Ergen, who serves as the Chairman of these companies and of us and is employed by both EchoStar and DISH.  Our Chairman and the other members of EchoStar’s board of directors who overlap with DISH also have fiduciary duties to DISH’s shareholders.  Therefore, these individuals may have actual or apparent conflicts of interest with respect to matters involving or affecting each company.  For example, there is potential for a conflict of interest when we or DISH Network look at acquisitions and other corporate opportunities that may be suitable for both companies.  In addition, our Chairman and certain other EchoStar directors and certain of our officers own DISH stock and options to purchase DISH stock, certain of which they acquired or were granted prior to our spin-off from DISH in 2008 (the “Spin-off”), including Mr. Ergen. These ownership interests could create actual, apparent or potential conflicts of interest when these individuals are faced with decisions that could have different implications for our company and DISH Network.  
Intercompany agreements with DISH Network We and EchoStar have entered into various agreements with DISH Network.  Pursuant to certain agreements, 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 EchoStar and DISH Network, respectively, indemnify each other against certain liabilities arising from our respective businesses. Generally, the amounts paid for products and services provided under the agreements are based on cost plus a fixed margin, which varies depending on the nature of the products and services provided.  Certain other intercompany agreements cover matters such as tax sharing and EchoStar’s responsibility for certain liabilities previously undertaken by DISH Network for certain of EchoStar’s businesses.  We and EchoStar have also entered into certain commercial agreements with DISH Network.  The terms of certain of these agreements were established while EchoStar was a wholly-owned subsidiary of DISH Network and were not the result of arm’s length negotiations.  The allocation of assets, liabilities, rights, indemnifications and other obligations between DISH Network and EchoStar under the separation and ancillary agreements entered into with DISH Network in connection with the Spin-Off and the Share Exchange did not necessarily reflect what two unaffiliated parties might have agreed to.  Had these agreements been negotiated with unaffiliated third parties, their terms may have been more favorable, or less favorable, to us or EchoStar.  In addition, DISH Network or its affiliates will likely continue to enter into transactions, including joint ventures, acquisitions, dispositions and other strategic initiatives and transactions, with EchoStar or its subsidiaries, us or our subsidiaries, or other affiliates.  Although the terms of any such transactions will be established based upon negotiations between DISH Network and us and, when appropriate, subject to approval by a committee of EchoStar’s non-interlocking directors or in certain instances non-interlocking management, there can be no assurance that the terms of any such transactions will be as favorable to us or our subsidiaries or affiliates as may otherwise be obtained in negotiations between unaffiliated third parties.
Competition for business opportunities.  DISH Network may have interests in various companies that have subsidiaries or controlled affiliates that own or operate domestic or foreign services that may compete with services offered by our businesses.  DISH Network also has a distribution agreement with ViaSat, a competitor of our Hughes segment, to sell services similar to those offered by our Hughes segment.  We and EchoStar may also compete with DISH Network when we participate in auctions for spectrum or orbital slots for our satellites.

We may not be able to resolve any potential conflicts of interest with DISH Network and, even if we do so, the resolution may be less favorable to us than if we were dealing with an unaffiliated party. We do not have any agreements not to compete with DISH Network.  However, many of our potential customers who compete with DISH Network have historically perceived us as a competitor due to our affiliation with DISH Network.  There can be no assurance that we will be successful in entering into any commercial relationships with potential customers who are competitors of DISH Network (particularly if we continue to be perceived as affiliated with DISH Network as a result of common ownership, certain shared management services and other arrangements with DISH Network).
 

19

Table of Contents


We are a wholly owned subsidiary of EchoStar and do not operate as an independent company.
 
We rely on EchoStar for a substantial portion of our administrative and management functions and services including human resources-related functions, accounting, tax administration, legal, external reporting, treasury administration, internal audit and insurance functions, information technology and telecommunications services and other support services.  We do not have systems and resources in place to perform all of these functions or services. Instead, we generally receive these services pursuant to arrangements between us and EchoStar.  EchoStar in turn receives certain of these services from DISH Network pursuant to a professional services agreement entered into between them.  If our intercompany arrangements with EchoStar were to terminate, or if EchoStar no longer receives certain services from DISH Network, we would need to obtain agreements with third-party service providers or obtain additional internal resources, neither of which may be available on acceptable terms or at all.
 
It may be difficult for a third party to acquire us, even if doing so may be beneficial to our shareholders, because of our capital structure.
 
Certain provisions of EchoStar and our respective articles of incorporation and bylaws, such as a provision that authorizes the issuance of “blank check” preferred stock, which could be issued by our or EchoStar’s boards of directors to increase the number of outstanding shares and thwart a takeover attempt and EchoStar’s capital structure with multiple classes of common stock some of which entitle the holders to multiple votes per share, may discourage delay or prevent a change in control of our company that a shareholder may consider favorable. Both we and EchoStar also have a significant amount of authorized and unissued stock under our respective articles of incorporation that would allow our respective boards of directors to issue shares to persons friendly to current management, thereby protecting the continuity of management, or which could be used to dilute the stock ownership of persons seeking to obtain control of us. In addition, Charles W. Ergen, our Chairman, has the power to elect all of EchoStar’s directors and control shareholder decisions of EchoStar on matters on which all classes of EchoStar’s common stock vote together, and as our parent, EchoStar in turn holds all of our issued and outstanding equity and has the power to elect all of our directors and control shareholder decision on all matters.

We may face other risks described from time to time in periodic and current reports we file with the SEC.
 
ITEM 1B.    UNRESOLVED STAFF COMMENTS
 
None.


20

Table of Contents


ITEM 2.    PROPERTIES

Our principal executive offices are located at 100 Inverness Terrace East, Englewood, Colorado 80112-5308 and our telephone number is (303) 706-4000.  The following table sets forth certain information concerning our principal properties related to our Hughes segment (“Hughes”) and EchoStar Satellite Services segment (“ESS”) and to our other operations and administrative functions (“Other”) as of December 31, 2018We operate various facilities in the United States and abroad.  We believe that our facilities are well maintained and are sufficient to meet our current and projected needs. 
Location (4) 
 
Segment(s)
 
Leased/
Owned
 
Function
San Diego, California
 
Hughes
 
Leased
 
Engineering and sales offices
Englewood, Colorado (1)(4)
 
Hughes
 
Leased
 
Gateways
Gaithersburg, Maryland
 
Hughes
 
Leased
 
Manufacturing and testing facilities, engineering and logistics and administrative offices
Southfield, Michigan (1)
 
Hughes
 
Leased
 
Shared hub and regional network management center
Las Vegas, Nevada (1)
 
Hughes
 
Leased
 
Shared hub, antennae yards, gateway, backup network operation and control center for Hughes corporate headquarters
American Fork, Utah
 
Hughes
 
Leased
 
Office space, engineering offices
Sao Paulo, Brazil
 
Hughes
 
Leased
 
Hughes Brazil corporate headquarters, sales offices, and warehouse
Bangalore, India (2)
 
Hughes
 
Leased
 
Engineering office and office space
Gurgaon, India (1)(2)
 
Hughes
 
Leased
 
Administrative offices, shared hub, operations, warehouse, and development center
New Delhi, India
 
Hughes
 
Leased
 
Hughes India corporate headquarters
Milton Keynes, United Kingdom
 
Hughes
 
Leased
 
Hughes Europe corporate headquarters and operations
Germantown, Maryland (1)
 
Hughes
 
Owned
 
Hughes corporate headquarters, engineering offices, network operations and shared hubs
Griesheim, Germany (1)
 
Hughes
 
Owned
 
Shared hub, operations, administrative offices and warehouse
Cheyenne, Wyoming (1)
 
Hughes/ESS
 
Leased
 
Spacecraft operations center, satellite access center and gateway
Gilbert, Arizona (1)
 
Hughes/ESS
 
Leased
 
Spacecraft operations center, satellite access center and gateway
Barueri, Brazil (1)
 
Hughes/Other
 
Leased
 
Shared hub, warehouse, operations center and spacecraft operations center
Black Hawk, South Dakota (1)(3)
 
ESS
 
Owned
 
Spacecraft auto-track operations center
Englewood, Colorado (3)
 
ESS/Other
 
Owned
 
Corporate headquarters, engineering offices
Campinas, Brazil
 
Other
 
Leased
 
Uplink facility
Cheyenne, Wyoming
 
Other
 
Owned
 
Data Center
(1)
We perform network services and customer support functions 24 hours a day, 365 days a year at these locations.
(2)
These properties are used by subsidiaries that are less than wholly-owned by the Company.
(3)
These properties are owned by EchoStar Corporation or its subsidiaries.
(4)
We also have multiple gateways throughout the Western part of the U.S., Mexico and Canada that support the SPACEWAY 3, EchoStar XVII, and EchoStar XIX satellites.

ITEM 3.    LEGAL PROCEEDINGS
 
For a discussion of legal proceedings, see Note 13 in the notes to our accompanying Consolidated Financial Statements in Item 15 of this Annual Report on Form 10-K.


21

Table of Contents


ITEM 4.    MINE SAFETY DISCLOSURES
 
Not applicable.


22

Table of Contents


PART II
 
ITEM 5.    MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
 
Market Information.  As of February 11, 2019, all of our 1,078 issued and outstanding shares of common stock were held by EchoStar.  There is currently no established trading market for our common stock. Our Articles of Incorporation authorize the issuance of 1,000,000 shares of preferred stock and as of February 11, 2019, no shares of our preferred stock were issued and outstanding.
 
Dividends.  We have not paid any cash dividends on our common stock in the past two years.  Payment of any future dividends will depend upon our earnings, capital requirements, contractual restrictions, and other factors the board of directors considers appropriate.  We currently intend to retain our earnings, if any, to support operations, future growth and expansion.  Our ability to declare dividends is affected by covenants in our indentures.
 
ITEM 7.    MANAGEMENT’S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS
 
Unless the context indicates otherwise, as used herein, the terms “we,” “us,” “HSS,” the “Company” and “our” refer to Hughes Satellite Systems Corporation and its subsidiaries.  References to “$” are to United States (“U.S.”) dollars.  The following management’s narrative analysis of results of operations should be read in conjunction with our accompanying Consolidated Financial Statements and notes thereto included elsewhere in this Annual Report on Form 10-K (“Form 10-K”).  This management’s narrative analysis is intended to help provide an understanding of our financial condition, changes in our financial condition and our results of operations.  Many of the statements in this management’s narrative analysis are forward-looking statements that involve assumptions and are subject to risks and uncertainties that are often difficult to predict and beyond our control.  Actual results could differ materially from those expressed or implied by such forward-looking statements.  See Disclosure Regarding Forward-Looking Statements in this Form 10-K for further discussion.  For a discussion of additional risks, uncertainties and other factors that could impact our results of operations or financial condition, see the caption Risk Factors in Item 1A of this Form 10-K.  Further, such forward-looking statements speak only as of the date of this Form 10-K and we undertake no obligation to update them.
 
EXECUTIVE SUMMARY
 
We are a holding company and a subsidiary of EchoStar Corporation (“EchoStar”).  We were formed as a Colorado corporation in March 2011.  We are a global provider of broadband satellite technologies, broadband internet services for home and small office customers, satellite operations and satellite services. We also deliver innovative network technologies, managed services and various communications solutions for aeronautical, enterprise and government customers. We currently operate in two business segments:  Hughes and EchoStar Satellite Services (“ESS”). These segments are consistent with the way we make decisions regarding the allocation of resources, as well as how operating results are reviewed by our chief operating decision maker, who is the Company’s Chief Executive Officer.

During 2017, EchoStar and certain of its and our subsidiaries entered into a share exchange agreement with DISH and certain of its subsidiaries. EchoStar and certain of its and our subsidiaries received all of the shares of the Hughes Retail Preferred Tracking Stock previously issued by EchoStar and us (together, the “Tracking Stock”) in exchange for 100% of the equity interests of certain EchoStar subsidiaries that held substantially all of EchoStar’s former EchoStar Technologies businesses and certain other assets (collectively, the “Share Exchange”). Following the consummation of the Share Exchange, EchoStar no longer operates its former EchoStar Technologies businesses, the Tracking Stock was retired and is no longer outstanding, and all agreements, arrangements and policy statements with respect to the Tracking Stock terminated.


Our operations also include various corporate departments (primarily Executive, Treasury, Strategic Development, Human Resources, IT, Finance, Real Estate, Accounting and Legal) and other activities that have not been assigned to our operating segments such as costs incurred in certain satellite development programs and other business development activities, and gains or losses from certain of our investments. These activities, costs and income, as well as eliminations of intersegment transactions, are accounted for in Corporate and Other in our segment reporting.


23

Table of Contents

Item 7. MANAGEMENT’S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS - Continued


Highlights from our financial results are as follows:
 
Consolidated Results of Operations for the Year Ended December 31, 2018

Revenue of $2.1 billion
Operating income of $344 million
Net income of $97 million
Net income attributable to HSS of $96 million
EBITDA of $894 million (see reconciliation of this non-GAAP measure on page 32)

Consolidated Financial Condition as of December 31, 2018

Total assets of $6.9 billion
Total liabilities of $4.5 billion
Total shareholders’ equity of $2.4 billion
Cash, cash equivalents and current marketable investment securities of $2.5 billion
 
Hughes Segment
 
Our Hughes segment is a global provider of broadband satellite technologies and broadband internet services to home and small office customers and broadband network technologies, managed services, equipment, hardware, satellite services and communications solutions to consumers, aeronautical, enterprise and government customers. The Hughes segment also designs, provides and installs gateway and terminal equipment to customers for other satellite systems. In addition, our Hughes segment designs, develops, constructs and provides telecommunication networks comprising satellite ground segment systems and terminals to mobile system operators and our enterprise customers.

We incorporate advances in technology to reduce costs and to increase the functionality and reliability of our products and services.  Through advanced and proprietary methodologies, technologies, software and techniques, we continue to improve the efficiency of our networks.  We invest in technologies to enhance our system and network management capabilities, specifically our managed services for enterprises.  We also continue to invest in next generation technologies that can be applied to our future products and services.
 
We continue to focus our efforts on growing our consumer revenue by maximizing utilization of our existing satellites while planning for new satellites to be launched or acquired. Our consumer revenue growth depends on our success in adding new and retaining existing subscribers in our domestic and international markets across wholesale and retail channels. The growth of our enterprise businesses, including aeronautical, relies heavily on global economic conditions and the competitive landscape for pricing relative to competitors and alternative technologies. Service costs related to ongoing support for our direct and indirect customers and partners are typically impacted most significantly by our growth.

Our Hughes segment currently uses capacity from three of our satellites (the SPACEWAY 3 satellite, the EchoStar XVII satellite and the EchoStar XIX satellite) and additional satellite capacity acquired from multiple third-party providers to provide services to our customers. In December 2016, EchoStar launched the EchoStar XIX satellite, a high throughput geostationary satellite employing a multi-spot beam, bent pipe Ka-band architecture. EchoStar contributed the EchoStar XIX satellite to us in February 2017. The EchoStar XIX satellite provides capacity for the Hughes broadband services to our current and future customers in North America and certain Central and South American countries and our aeronautical and enterprise broadband services. Until new satellite launches or acquisitions provide additional capacity for subscriber growth, we manage subscriber growth across our existing satellite platform.

In August 2018, we entered into an agreement with Al Yah Satellite Communications Company PrJSC (“Yahsat”) to establish a new entity, Broadband Connectivity Solutions (Restricted) Limited (together with its subsidiaries, “BCS”), to provide commercial Ka-band satellite broadband services across Africa, the Middle East and southwest Asia operating over Yahsat's Al Yah 2 and Al Yah 3 Ka-band satellites. The transaction was consummated in December 2018 when we invested $100 million in cash in exchange for a 20% interest in BCS. Under the terms of the agreement,

24

Table of Contents

Item 7. MANAGEMENT’S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS - Continued


we may also acquire, for further cash investments, additional ownership interests in BCS in the future provided certain conditions are met. We supply network operations and management services and equipment to BCS.

In August 2017, a subsidiary of EchoStar entered into a contract for the design and construction of the EchoStar XXIV, a new, next-generation, high throughput geostationary satellite, with a planned 2021 launch. The EchoStar XXIV satellite is primarily intended to provide additional capacity for our Hughes satellite internet (“HughesNet”) service in North, Central and South America as well as aeronautical and enterprise broadband services. In March 2018, the Federal Communications Commission (“FCC”) granted authorization to construct, deploy and operate the EchoStar XXIV satellite. In the second half of 2018, Maxar Technologies Inc. (“Maxar”), the parent company of Space Systems/Loral (“SSL”), the manufacturer of our EchoStar XXIV satellite, announced that it was reviewing strategic alternatives for its geostationary communications satellite business to improve its financial performance and that it was in active discussions with potential buyers of the business. SSL has indicated to us that it intends to meet its contractual obligations regarding the timely manufacture and delivery of the EchoStar XXIV satellite. However, if SSL or any potential successor fails to meet or is delayed in meeting these obligations for any reason, including if Maxar decides to discontinue, wind down or otherwise significantly modify its geostationary communications satellite business, such failure could have a material adverse impact on our business operations, future revenues, financial position and prospects, completing the manufacture of the EchoStar XXIV satellite and our planned expansion of satellite broadband services throughout North, South and Central America. Capital expenditures associated with the construction and launch of this satellite are included in EchoStar’s Corporate and Other in its segment reporting.

In March 2017, we and a wholly-owned subsidiary of DISH entered into a master service agreement (the “Hughes Broadband MSA”). Pursuant to the Hughes Broadband MSA, DISH’s subsidiary, among other things: (i) has the right, but not the obligation, to market, promote and solicit orders and upgrades for the HughesNet service and related equipment and other telecommunication services and (ii) installs HughesNet service equipment with respect to activations generated by DNLLC.  As a result of the Hughes Broadband MSA, we have not earned and do not expect to earn in the future, significant equipment revenue from our distribution agreement with another wholly-owned subsidiary of DISH. We expect churn in the existing wholesale subscribers to continue to reduce Services and other revenue – DISH Network in the future.

Developments toward the launch of next-generation satellite systems including low-earth orbit (“LEO”), medium-earth orbit (“MEO”) and geostationary systems could provide additional opportunities to drive the demand for our equipment, hardware, technology and services. In June 2015, a subsidiary of EchoStar made an equity investment in WorldVu Satellites Limited (“OneWeb”), a global LEO satellite service company, In addition, we have an agreement with OneWeb to provide certain equipment and services in connection with the ground network system for OneWeb’s LEO satellites. We expect to continue delivering additional equipment and services to OneWeb.

We continue our efforts to expand our consumer satellite services business outside of the U.S. In April 2014, we entered into a 15-year agreement with Eutelsat do Brasil for Ka-band capacity into Brazil on the EUTELSAT 65 West A satellite, which was launched in March 2016. We began delivering high-speed consumer satellite broadband services in Brazil in July 2016. Additionally, in September 2015, we entered into 15-year agreements pursuant to which affiliates of Telesat Canada will provide to us Ka-band capacity on a satellite to be located at the 63 degree west longitude orbital location. This satellite was launched in July 2018, placed in service during the fourth quarter of 2018 and augmented the capacity being provided by the EUTELSAT 65 West A and EchoStar XIX satellites in Central and South America. We currently provide satellite broadband internet service in several Central and South American countries, and expect to continue to launch similar services in other Central and South American countries.


25

Table of Contents

Item 7. MANAGEMENT’S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS - Continued


Our subscriber metrics as of December 31, 2018 and for the quarter then ended are as follows were:

 
 
As of December 31,
 
 
2018
 
2017
 
2016
Total broadband subscribers
 
1,361,000

 
1,208,000

 
1,036,000


 
 
For the three months ended
 
 
December 31, 2018
 
September 30, 2018
Net additions
 
29,000

 
33,000


These broadband subscribers include customers that subscribe to our HughesNet services in North, Central and South America through retail, wholesale and small/medium enterprise service channels. Our total gross subscriber additions for the fourth quarter of 2018 decreased by approximately 7,000 compared to the third quarter of 2018 primarily due to reduced satellite capacity available for sale. Our total net subscriber additions for the quarter ended December 31, 2018 decreased by approximately 4,000 compared to the quarter ended September 30, 2018 primarily due to lower gross consumer subscriber additions, partially offset by a lower average monthly subscriber churn percentage.
 
As of December 31, 2018 and 2017, our Hughes segment had approximately $1.4 billion and $1.6 billion, respectively, of contracted revenue backlog.  We define Hughes contracted revenue backlog as our expected future revenue, including lease revenue, under customer contracts that are non-cancelable, excluding agreements with customers in our consumer market. The decrease in our contracted revenue backlog reflects our recognition of revenue in excess of additions to backlog resulting from new orders from our customers. Of the total contracted revenue backlog as of December 31, 2018, we expect to recognize approximately $430 million of revenue in 2019.
 
ESS Segment
 
Our ESS segment is a global provider of satellite operations and satellite services. We operate our business using our owned and leased in-orbit satellites and related licenses. Revenue in our ESS segment depends largely on our ability to continuously make use of our available satellite capacity with existing customers and our ability to enter into commercial relationships with new customers. Our ESS segment, like others in the fixed satellite services industry, has encountered, and may continue to encounter, negative pressure on transponder rates and demand. We are also pursuing other opportunities such as providing value added services such as telemetry, tracking and control (“TT&C”) services to third parties, which leverage the ground monitoring networks and personnel currently within our ESS segment.

We provide satellite operations and satellite services on a full-time and/or occasional-use basis primarily to DISH Network Corporation and its subsidiaries (“DISH Network”), Dish Mexico, S. de R.L. de C.V., a joint venture EchoStar entered into in 2008 (“Dish Mexico”), U.S. government service providers, internet service providers, broadcast news organizations, content providers and private enterprise customers.
 
We depend on DISH Network for a significant portion of the revenue for our ESS segment, and we expect that DISH Network will continue to be the primary source of revenue for our ESS segment as we have entered into certain commercial agreements with DISH Network pursuant to which we provide DISH Network with satellite services at fixed prices for varying lengths of time depending on the satellite.  Therefore, the results of operations of our ESS segment are linked to changes in DISH Network’s satellite capacity requirements, which historically have been driven by the addition of new channels and migration of programming to high-definition television and video on demand services. DISH Network’s future satellite capacity requirements may change for a variety of reasons, including its ability to construct and launch or acquire its own satellites, to continue to add new channels and/or to migrate to the provision of such channels and other video on demand services through streaming and other alternative technologies. There is no assurance that we will continue to provide satellite services to DISH Network beyond the terms of our agreements. Any termination or reduction in the satellite services we provide to DISH Network would cause us to have unused capacity on our satellites and require that we aggressively pursue alternative sources of revenue for this business. The agreement with DISH Network to lease satellite capacity on the EchoStar VII satellite expired in June 2018. As

26

Table of Contents

Item 7. MANAGEMENT’S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS - Continued


a result, we expect a $43 million annualized decrease in our revenue. We are exploring other opportunities to utilize this satellite in the future. 
 
In August 2014, we entered into: (i) a contract with Airbus Defence and Space SAS for the construction of the EchoStar 105/SES-11 satellite with C-, Ku- and Ka-band payloads; (ii) an agreement with SES Satellite Leasing Limited for the procurement of the related launch services; and (iii) an agreement with SES Americom Inc. pursuant to which we transferred the title to the payloads to two affiliates of SES Americom Inc. We retained the right to use the entire Ku-band payload on the satellite for an initial ten-year term, with an option for us to renew the agreement on a year-to-year basis. The EchoStar 105/SES-11 satellite was launched in October 2017 and placed into service in November 2017 at the 105 degree west longitude orbital location. Our Ku-band payload on the EchoStar 105/SES-11 satellite replaced and augments the capacity we had on the AMC-15 satellite. We transferred activities from the AMC-15 satellite to the EchoStar 105/SES-11 satellite in the fourth quarter of 2017 and our agreement for satellite services on certain transponders on the AMC-15 satellite terminated according to its terms in December 2017.

As of December 31, 2018 and 2017, our ESS segment had contracted revenue backlog of approximately $832 million and $1.2 billion, respectively. We define contracted revenue backlog for our ESS segment as contracted future satellite lease revenue.  The decrease is primarily driven by the fixed-term nature of the satellite services agreements with DISH Network and Dish Mexico.  Of the total contracted revenue backlog as of December 31, 2018, we expect to recognize approximately $288 million of revenue in 2019.
 
New Business Opportunities
 
Our industry continues to evolve with the increasing worldwide demand for broadband internet access for information, entertainment and commerce. In addition to fiber and wireless systems, other technologies such as geostationary high throughput satellites, low-earth orbit (“LEO”) networks, medium-earth orbit (“MEO”) systems, balloons and High Altitude Platform Systems are playing significant roles in enabling global broadband access, networks and services. We intend to use our expertise, technologies, capital, investments, global presence, relationships and other capabilities to continue to provide broadband internet systems, equipment, networks and services for information, the internet-of-things, entertainment and commerce in North America and internationally for consumers as well as aeronautical, enterprise and government customers. We are closely tracking the developments in next-generation satellite businesses, and we are seeking to utilize our services, technologies and expertise to find new commercial opportunities for our business.
 
We intend to continue to selectively explore opportunities to pursue investments, commercial alliances, partnerships, joint ventures, acquisitions, dispositions and other strategic initiatives and transactions, domestically and internationally, that we believe may allow us to increase our existing market share, increase our satellite capacity, expand into new markets and new customers, broaden our portfolio of services, products and intellectual property, make our business more valuable, align us for future growth and expansion, maximize the return on our investments and strengthen our business and relationships with our customers. We may allocate or dispose of significant resources for long-term value that may not have a short or medium-term or any positive impact on our revenue, results of operations, or cash flow.

Cybersecurity

As a global provider of satellite technologies and services, internet services and communications equipment and networks, we may be prone to more targeted and persistent levels of cyber-attacks than other businesses. These risks may be more prevalent as we continue to expand and grow our business into other areas of the world outside of North America, some of which are still developing their cybersecurity infrastructure maturity. Detecting, deterring, preventing and mitigating incidents caused by hackers and other parties may result in significant costs to us and may expose our customers to financial or other harm that have the potential to significantly increase our liability.

We treat cybersecurity risk seriously and are focused on maintaining the security of our and our partners’ systems, networks, technologies and data. We regularly review and revise our relevant policies and procedures, invest in and maintain internal resources, personnel and systems and review, modify and supplement our defenses through the use of various services, programs and outside vendors. EchoStar also maintains agreements with third party vendors and experts to assist in our remediation and mitigation efforts if we experience or identify a material incident or threat. In addition, senior management and the Audit Committee of EchoStar’s Board of Directors are regularly briefed on cybersecurity matters.

27

Table of Contents

Item 7. MANAGEMENT’S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS - Continued



We are not aware of any cyber-incidents with respect to our owned or leased satellites or other networks, equipment or systems that have had a material adverse effect on our business, costs, operations, prospects, results of operation or financial position during the year ended December 31, 2018. There can be no assurance, however, that any such incident can be detected or thwarted or will not have such a material adverse effect in the future.


28

Table of Contents

Item 7. MANAGEMENT’S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS - Continued


RESULTS OF OPERATIONS
 
Basis of Presentation
 
The following discussion and analysis of our consolidated results of operations is presented on a historical basis.
 
Year Ended December 31, 2018 Compared to the Year Ended December 31, 2017
 
 
For the years ended December 31,
 
Variance
Statements of Operations Data (1) 
 
2018
 
2017
 
Amount
 
%
 
 
(Dollars in thousands)
Revenue:
 
 
 
 
 
 
 
 
Services and other revenue - DISH Network
 
$
366,155

 
$
433,829

 
(67,674
)
 
(15.6
)
Services and other revenue - other
 
1,526,098

 
1,203,551

 
322,547

 
26.8

Equipment revenue
 
205,410

 
239,489

 
(34,079
)
 
(14.2
)
Total revenue
 
2,097,663

 
1,876,869

 
220,794

 
11.8

Costs and expenses:
 
 
 
 
 


 


Cost of sales - services and other
 
600,213

 
559,684

 
40,529

 
7.2

% of total services and other revenue
 
31.7
%
 
34.2
%
 


 


Cost of sales - equipment
 
176,600

 
195,439

 
(18,839
)
 
(9.6
)
% of total equipment revenue
 
86.0
%
 
81.6
%
 


 


Selling, general and administrative expenses
 
398,153

 
337,591

 
60,562

 
17.9

% of total revenue
 
19.0
%
 
18.0
%
 


 


Research and development expenses
 
27,570

 
31,745

 
(4,175
)
 
(13.2
)
% of total revenue
 
1.3
%
 
1.7
%
 


 


Depreciation and amortization
 
551,416

 
496,798

 
54,618

 
11.0

Impairment of long-lived assets
 

 
6,000

 
(6,000
)
 
(100.0
)
Total costs and expenses
 
1,753,952

 
1,627,257

 
126,695

 
7.8

Operating income
 
343,711

 
249,612

 
94,099

 
37.7

 
 
 
 
 
 
 
 
 
Other income (expense):
 
 
 
 
 


 


Interest income
 
59,104

 
31,952

 
27,152

 
85.0

Interest expense, net of amounts capitalized
 
(259,721
)
 
(245,478
)
 
(14,243
)
 
5.8

Gains (losses) on investments, net
 
187

 
(1,574
)
 
1,761

 
*

Other, net
 
431

 
4,839

 
(4,408
)
 
(91.1
)
Total other expense, net
 
(199,999
)
 
(210,261
)
 
10,262

 
(4.9
)
Income before income taxes
 
143,712

 
39,351

 
104,361

 
*

Income tax benefit (provision), net
 
(46,369
)
 
258,202

 
(304,571
)
 
*

Net income
 
97,343

 
297,553

 
(200,210
)
 
(67.3
)
Less: Net income attributable to noncontrolling interests
 
1,842

 
1,583

 
259

 
16.4

Net income attributable to HSS
 
$
95,501

 
$
295,970

 
$
(200,469
)
 
(67.7
)
 
 
 
 
 
 
 
 
 
Other data:
 
 
 
 
 


 


EBITDA (2)
 
$
893,903

 
$
748,092

 
$
145,811

 
19.5

Subscribers, end of period
 
1,361,000

 
1,208,000

 
153,000

 
12.7

*    Percentage is not meaningful.
(1)    An explanation of our key metrics is included on pages 34 and 35 under the heading “Explanation of Key Metrics and Other Items.”
(2)
A reconciliation of EBITDA to “Net income,” the most directly comparable generally accepted accounting principles (“U.S. GAAP) measure in the accompanying financial statements, is included on page 32. For further information on our use of EBITDA, see “Explanation of Key Metrics and Other Items” on page 35.

Services and other revenue - DISH Network.  Services and other revenue — DISH Network totaled $366 million for the year ended December 31, 2018, a decrease of $68 million, or 15.6%, compared to the same period in 2017.
 

29

Table of Contents

Item 7. MANAGEMENT’S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS - Continued


Services and other revenue — DISH Network from our Hughes segment for the year ended December 31, 2018 decreased by $33 million, or 39.5%, to $50 million compared to the same period in 2017The decrease was primarily attributable to a continued decrease in residential wholesale broadband services.
 
Services and other revenue — DISH Network from our ESS segment for the year ended December 31, 2018 decreased by $35 million, or 10.2%, to $310 million compared to the same period in 2017.  The decrease was primarily attributable to the revenue reduction of (i) $21 million resulting from the expiration of DISH Network’s agreement to lease satellite capacity from us on the EchoStar VII satellite at the end of June 2018, (ii) $7 million resulting from DISH Network’s termination of its agreement to lease satellite capacity from us on the EchoStar XII satellite at the end of September 2017,(iii) $4 million as a result of the satellite anomaly experienced by the EchoStar X satellite in December 2017 which reduced the satellite capacity leased to DISH Network and (iv) $3 million as a result of a decrease in satellite capacity leased to DISH Network on the EchoStar IX satellite.

Services and other revenue — other.  Services and other revenue — other totaled $1.5 billion for the year ended December 31, 2018, an increase of $323 million, or 26.8%, compared to the same period in 2017.
 
Services and other revenue — other from our Hughes segment for the year ended December 31, 2018 increased by $305 million, or 26.4%, to $1.5 billion compared to the same period in 2017The increase was primarily attributable to increases in sales of broadband services to our consumer and enterprise customers of $271 million and $28 million, respectively.
 
Services and other revenue — other from our ESS segment for the year ended December 31, 2018 increased by $1 million, or 1.8%, to $48 million compared to the same period in 2017. The increase was due to a net increase in transponder services provided.

Services and other revenue — other from our Corporate and other segment for the year ended December 31, 2018 increased by $17 million compared to the same period in 2017. The increase was primarily due to the services and lease equipment we provide to support EchoStar Mobile Limited, a subsidiary of EchoStar that provides mobile satellite services and complementary ground component services covering the entire European Union using S-band spectrum.

Equipment revenue Equipment revenue totaled $205 million for the year ended December 31, 2018, a decrease of $34 million, or 14.2%, compared to the same period in 2017The decrease was primarily due to a decrease in hardware sales in our Hughes segment of $23 million to our domestic enterprise customers, $8 million to our mobile satellite systems customers and $6 million to our consumer customers. The decrease was partially offset by an increase in hardware sales in our Hughes segment of $3 million to our international enterprise customers.

Cost of sales — services and other.  Cost of sales — services and other totaled $600 million for the year ended December 31, 2018, an increase of $41 million, or 7.2%, compared to the same period in 2017

Cost of sales — services and other from our Hughes segment for the year ended December 31, 2018 increased by $60 million, or 12.0%, to $555 million compared to the same period in 2017The increase was primarily attributable to an increase in the costs of broadband services provided to our consumer and enterprise customers.

Cost of sales — services and other from our ESS segment for the year ended December 31, 2018 decreased by $20 million, or 31.7%, to $44 million compared to the same period in 2017The decrease was primarily attributable to the termination of our agreement for satellite capacity on the AMC-15 satellite in December 2017.
 
Cost of sales — equipment.  Cost of sales — equipment totaled $177 million for the year ended December 31, 2018, a decrease of $19 million, or 9.6%, compared to the same period in 2017The decrease was primarily attributable to a decrease in hardware sales in our Hughes segment provided to our consumer customers, domestic enterprise customers and mobile satellite systems customers, partially offset by an increase in hardware sales in our Hughes segment to our international enterprise customers.
 

30

Table of Contents

Item 7. MANAGEMENT’S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS - Continued


Selling, general and administrative expenses.  Selling, general and administrative expenses totaled $398 million for the year ended December 31, 2018, an increase of $61 million, or 17.9%, compared to the same period in 2017.  Selling expenses increased $37 million primarily attributable to the amortization of contract acquisition and fulfillment costs from our Hughes segment and an increase in marketing and promotional costs from our Hughes segment mainly associated with our consumer business. General and administration expenses increased $24 million primarily attributable to increases in bad debt expense, costs associated with beginning operations in certain Central and South American countries and other administrative costs from our Hughes segment.
 
Depreciation and amortization.  Depreciation and amortization expenses totaled $551 million for the year ended December 31, 2018, an increase of $55 million, or 11.0%, compared to the same period in 2017.  The increase was primarily due to an increase in depreciation expense of: (i) $28 million relating to our customer rental equipment, (ii) $17 million relating to the EchoStar XIX and EchoStar 105/SES-11 satellites that were placed into service in the first and fourth quarters of 2017, respectively and the Telesat T19V satellite that was placed into service in the fourth quarter of 2018, (iii) $9 million relating to the decrease in depreciable life of the SPACEWAY 3 satellite (iv) $12 million relating to machinery and equipment and (v) an increase of $3 million in amortization expense relating to the development of externally marketed software. The increases were partially offset by a decrease of $8 million in amortization expense from certain fully amortized other intangible assets in our Hughes segment

Impairment of long-lived assets. Impairment of long-lived assets totaled nil for the year ended December 31, 2018, a decrease of $6 million compared to the same period in 2017. The decrease was attributable to an impairment loss of $6 million relating to our regulatory authorizations with indefinite lives from our ESS segment in 2017.

Interest income.  Interest income totaled $59 million for the year ended December 31, 2018, an increase of $27 million, or 85%, compared to the same period in 2017.  The increase was primarily attributable to an increase in yield percentage in 2018 compared to 2017.

Interest expense, net of amounts capitalized.  Interest expense, net of amounts capitalized totaled $260 million for the year ended December 31, 2018, an increase of $14 million, or 5.8%, compared to the same period in 2017.  The increase was primarily due to a decrease of $17 million in capitalized interest relating to the EchoStar XIX, EchoStar XXI and EchoStar 105/SES-11 satellites that were placed into service in the first and fourth quarters of 2017, respectively. The increase was partially offset by a decrease of $3 million in interest expense relating to lower principal balances on certain capital lease obligations.

Gains (losses) on investments, net Gains (losses) and impairment on marketable investment securities, net totaled nil for the year ended December 31, 2018 compared to $2 million in gains for the same period in 2017.  The change was primarily due to an other-than-temporary impairment loss of $3 million on one of our available-for-sale securities in 2017 and a $2 million gain on our trading securities in 2017.

Other, net.  Other, net totaled $0.4 million in income for the year ended December 31, 2018, a decrease of $4 million, or 91.1%, compared to the same period in 2017.  The decrease was primarily related to an unfavorable foreign exchange impact of $11 million and $2 million decrease in equity in earnings of our unconsolidated affiliates. The decreases were partially offset by a net gain of $10 million due to the settlement of certain amounts due to and from a third party vendor in the second quarter of 2018.

Income tax benefit (provision).  Income tax provision was $46 million for the year ended December 31, 2018, an increase of $305 million, compared to the same period in 2017.  Our effective income tax rate was 32.3% for the year ended December 31, 2018, compared to (656.2)% for the same period in 2017.  The variations in our effective tax rate from the U.S. federal statutory rate for the year ended December 31, 2018 were primarily due to various permanent tax differences, the impact of state and local taxes, increase in our valuation allowance associated with certain foreign losses, and the change in our valuation allowance associated with net unrealized losses that are capital in nature. For the year ended December 31, 2017, the variations in our effective tax rate from the U.S. federal statutory rate were primarily due to the Tax Cuts and Jobs Act of 2017, recognition of a one-time tax benefit for the revaluation of our deferred tax assets and liabilities due to a change in our state effective tax rate as a result of the Share Exchange. The tax benefit recognized from the change in our effective tax rate was partially offset by the increase in our valuation allowance associated with certain state and foreign losses.
 

31

Table of Contents

Item 7. MANAGEMENT’S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS - Continued


Net income attributable to HSS.  Net income attributable to HSS was $96 million for the year ended December 31, 2018, a decrease of $200 million compared to the same period in 2017 as set forth in the following table. 

 
 
Amounts
 
 
(In thousands)
Net income attributable to HSS for the year ended December 31, 2017
 
$
295,970

Increase in tax provision
 
(304,571
)
Increase in interest expense
 
(14,243
)
Increase in other net
 
(4,408
)
Increase in operating income, including depreciation and amortization
 
94,099

Increase in interest income
 
27,152

Decrease in losses on investments, net
 
1,761

Increase in net income attributable to noncontrolling interests
 
(259
)
Net income attributable to HSS for the year ended December 31, 2018
 
$
95,501


EBITDA.  EBITDA is a non-GAAP financial measure and is described under Explanation of Key Metrics and Other Items below. The following table reconciles EBITDA to Net income (loss), the most directly comparable U.S. GAAP measure in the accompanying financial statements.

 
 
For the years ended December 31,
 
Variance
 
 
2018
 
2017
 
Amount
 
%
 
 
(Dollars in thousands)
Net income
 
$
97,343

 
$
297,553

 
$
(200,210
)
 
(67.3
)
 
 
 
 
 
 
 
 
 
Interest income and expense, net
 
200,617

 
213,526

 
(12,909
)
 
(6.0
)
Income tax (benefit) provision
 
46,369

 
(258,202
)
 
304,571

 
*

Depreciation and amortization
 
551,416

 
496,798

 
54,618

 
11.0

Net income attributable to noncontrolling interests
 
(1,842
)
 
(1,583
)
 
(259
)
 
16.4

EBITDA
 
$
893,903

 
$
748,092

 
$
145,811

 
19.5


EBITDA was $894 million for the year ended December 31, 2018, an increase of $146 million, or 19.5%, compared to the same period in 2017.  The increase was primarily due to an increase in operating income, excluding depreciation and amortization, of $149 million. 

Segment Operating Results and Capital Expenditures
 
 
Hughes
 
ESS
 
Corporate and Other
 
Consolidated Total
 
 
(In thousands)
For the year ended December 31, 2018
 
 
 
 
 
 
 
 
Total revenue
 
$
1,716,528

 
$
358,058

 
$
23,077

 
$
2,097,663

Capital expenditures
 
$
390,108

 
$
(76,582
)
 
$
15

 
$
313,541

EBITDA
 
$
601,319

 
$
308,058

 
$
(15,474
)
 
$
893,903

 
 
 
 
 
 
 
 
 
For the year ended December 31, 2017
 
 
 
 
 
 
 
 
Total revenue
 
$
1,477,918

 
$
392,244

 
$
6,707

 
$
1,876,869

Capital expenditures
 
$
376,502

 
$
20,725

 
$

 
$
397,227

EBITDA
 
$
475,222

 
$
315,285

 
$
(42,415
)
 
$
748,092


32

Table of Contents

Item 7. MANAGEMENT’S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS - Continued


 
Hughes Segment 
 
 
For the years
ended December 31,
 
Variance
 
 
2018
 
2017
 
Amount
 
%
 
 
(Dollars in thousands)
Total revenue
 
$
1,716,528

 
$
1,477,918

 
$
238,610

 
16.1
Capital expenditures
 
$
390,108

 
$
376,502

 
$
13,606

 
3.6
EBITDA
 
$
601,319

 
$
475,222

 
$
126,097

 
26.5
 
Total revenue for the year ended December 31, 2018 increased by $239 million, or 16.1%, compared to the same period in 2017The increase was primarily due to an increase in sales of broadband services to our consumer and enterprise customers of $271 million and $28 million, respectively, and an increase in hardware sales of $3 million to our international enterprise customers. The increase was partially offset by (i) a decrease of $33 million in residential wholesale broadband services and a decrease in hardware sales of (ii) $23 million to our domestic enterprise customers, (iii) $8 million to our mobile satellite systems customers and (iv) $6 million to our consumer customers.
 
Capital expenditures for the year ended December 31, 2018 increased by $14 million, or 3.6%, compared to the same period in 2017, primarily due to increases in capital expenditures relating to our Telesat T19V satellite and our enterprise business of $31 million.  The increases were partially offset by a decrease of $17 million in capital expenditures mainly associated with satellite ground facilities.

EBITDA for the year ended December 31, 2018 increased by $126 million, or 26.5%, compared to the same period in 2017The increase was primarily due to an increase of $196 million in gross margin and an other-than-temporary impairment loss of $3 million on one of our available-for-sale securities in the first quarter of 2017. The increase was partially offset by (i) an increase of $66 million in selling, general and administrative expenses due to bad debt expense, the amortization of contract acquisition and fulfillment costs and an increase in marketing and promotional costs mainly associated with our consumer business and (ii) an unfavorable foreign exchange impact of $11 million in 2018 compared to the same period in 2017.
 
ESS Segment
 
 
For the years
ended December 31,
 
Variance
 
 
2018
 
2017
 
Amount
 
%
 
 
(Dollars in thousands)
Total revenue
 
$
358,058

 
$
392,244

 
$
(34,186
)
 
(8.7
)
Capital expenditures
 
$
(76,582
)
 
$
20,725

 
$
(97,307
)
 
*

EBITDA
 
$
308,058

 
$
315,285

 
$
(7,227
)
 
(2.3
)
 *    Percentage is not meaningful.

Total revenue for the year ended December 31, 2018 decreased by $34 million, or 8.7%, compared to the same period in 2017. The decrease was primarily attributable to revenue reduction of (i) $21 million resulting from the expiration of DISH Network’s agreement to lease satellite capacity from us on the EchoStar VII satellite at the end of June 2018, (ii) $7 million resulting from DISH Network’s termination of its agreement to lease satellite capacity from us on the EchoStar XII satellite at the end of September 2017, (iii) $4 million as a result of the satellite anomaly experienced by the EchoStar X satellite in December 2017 which reduced the satellite capacity leased to DISH Network and (iv) $3 million as a result of a decrease in satellite capacity leased to DISH Network on the EchoStar IX satellite.
 
Capital expenditures for the year ended December 31, 2018 decreased by $97 million, compared to the same period in 2017, primarily reflect a reimbursement of $77 million and a decrease in satellite expenditure as a result of the EchoStar 105/SES-11 satellite that was placed into service in the fourth quarter of 2017.


33

Table of Contents

Item 7. MANAGEMENT’S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS - Continued


EBITDA for the year ended December 31, 2018 decreased by $7 million, or 2.3%, compared to the same period in 2017The decrease was primarily due to the decrease in ESS segment total revenue of $34 million in 2018 compared to the same period in 2017. The decrease was partially offset by a decrease in satellite services costs of $19 million mainly associated with the termination of our agreement for satellite capacity on the AMC-15 satellite in December 2017 and an impairment loss of $6 million relating to our regulatory authorizations with indefinite lives in 2017.

Corporate and Other
 
 
 
For the years
ended December 31,
 
Variance
 
 
2018
 
2017
 
Amount
 
%
 
 
(Dollars in thousands)
Total revenue
 
$
23,077

 
$
6,707

 
$
16,370

 
*

Capital expenditures
 
$
15

 
$

 
$
15

 
*

EBITDA
 
$
(15,474
)
 
$
(42,415
)
 
$
26,941

 
(63.5
)
*    Percentage is not meaningful.

EBITDA for the year ended December 31, 2018 was a loss of $15 million, an increase of $27 million, or 63.5%, compared to a loss of $42 million during same period in 2017.  The change in EBITDA was primarily due to an increase in operating income, excluding depreciation and amortization, of $21 million and a net gain of $10 million due to the settlement of certain amounts due to and from a third party vendor in the second quarter of 2018.


EXPLANATION OF KEY METRICS AND OTHER ITEMS
 
Services and other revenue - DISH NetworkServices and other revenue - DISH Network primarily includes revenue associated with satellite and transponder leases and services, TT&C, professional services, facilities rental revenue and other services provided to DISH Network.  “Services and other revenue — DISH Network” also includes subscriber wholesale service fees for the HughesNet satellite internet service (the “HughesNet service”) sold to DISH Network.

Services and other revenue - otherServices and other revenue - other primarily includes the sales of enterprise and consumer broadband services, as well as maintenance and other contracted services.  “Services and other revenue other” also includes revenue associated with satellite and transponder leases and services, satellite uplinking/downlinking and other services provided to customers other than DISH Network.

Equipment revenue Equipment revenue primarily includes broadband equipment and networks sold to customers in our enterprise and consumer markets and sales of satellite broadband equipment and related equipment, related to the HughesNet service, to DISH Network.

Cost of sales - services and otherCost of sales - services and other primarily includes the cost of broadband services provided to our enterprise and consumer customers, and to DISH Network, as well as the cost of providing maintenance and other contracted services.  “Cost of sales — services and other” also includes the costs associated with satellite and transponder leases and services, TT&C, professional services, facilities rental costs, and other services provided to our customers, including DISH Network.
 
Cost of sales - equipmentCost of sales - equipment consists primarily of the cost of broadband equipment and networks sold to customers in our enterprise and consumer markets and to DISH Network. Cost of sales - equipment also includes certain other costs associated with the deployment of equipment to our customers.
 
Selling, general and administrative expensesSelling, general and administrative expenses primarily includes selling and marketing costs and employee-related costs associated with administrative services (e.g., information systems, human resources and other services), including stock-based compensation expense.  It also includes professional fees (e.g. legal, information systems and accounting services) and other items associated with facilities and administrative services provided by EchoStar, DISH Network and other third parties.
 

34

Table of Contents

Item 7. MANAGEMENT’S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS - Continued


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

Impairment of long-lived assets. Impairment of long-lived assets includes our impairment losses related to our property and equipment, goodwill and other intangible assets.
 
Interest incomeInterest income primarily includes interest earned on our cash, cash equivalents and marketable investment securities, including premium amortization and discount accretion on debt securities.

Interest expense, net of amounts capitalizedInterest expense, net of amounts capitalized primarily includes interest expense associated with our debt and capital lease obligations (net of capitalized interest), and amortization of debt issuance costs.
 
Gains (losses) on investments, netGains (losses) on investments, net primarily includes changes in fair value of our marketable equity securities and other investments for which we have elected the fair value option. It may also include realized gains and losses on the sale or exchange of our available-for-sale debt securities, other-than-temporary impairment losses on our available-for-sale securities, realized gains and losses on the sale or exchange of our investments in unconsolidated entities and adjustments to the carrying amount of investments in unconsolidated entities resulting from impairments and observable price changes.

Other, net. Other, net primarily includes foreign exchange gains and losses, dividends received from our marketable investment securities, equity in earnings of unconsolidated affiliate, and other non-operating income or expense items that are not appropriately classified elsewhere in our Consolidated Statements of Operations and Comprehensive Income (Loss).
 
Earnings before interest, taxes, depreciation and amortization (“EBITDA”). EBITDA is defined as Net income” excluding “Interest income and expense, net, Income tax benefit (provision), net, and Depreciation and amortization.  EBITDA is not a measure determined in accordance with U.S. GAAP. This non-GAAP measure is reconciled to “Net incomein our discussion of Results of Operations above. EBITDA should not be considered in isolation or as a substitute for operating income, net income or any other measure determined in accordance with U.S. GAAP. EBITDA is used by our management as a measure of operating efficiency and overall financial performance for benchmarking against our peers and competitors. Management believes EBITDA provides meaningful supplemental information regarding the underlying operating performance of our business and is appropriate to enhance an overall understanding of our financial performance. Management also believes that EBITDA is useful to investors because it is frequently used by securities analysts, investors and other interested parties to evaluate the performance of companies in our industry.
 
Subscribers. Subscribers include customers that subscribe to our HughesNet service, through retail, wholesale and small/medium enterprise service channels.


35

Table of Contents


ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
Market Risks Associated with Financial Instruments and Foreign Currency
 
Our investments and debt are exposed to market risks, discussed below.
 
Cash, Cash Equivalents and Current Marketable Investment Securities
 
As of December 31, 2018, our cash, cash equivalents and current marketable investment securities had a fair value of $2.5 billion. Of this amount, a total of $2.5 billion was invested in: (a) cash; (b) commercial paper and corporate notes with an overall average maturity of less than one year and rated in one of the four highest rating categories by at least two nationally recognized statistical rating organizations; (c) debt instruments of the United States (“U.S.”) government and its agencies; and/or (d) instruments with similar risk, duration and credit quality characteristics to the commercial paper and corporate obligations described above. The primary purpose of these investing activities has been to preserve principal until the cash is required to, among other things, fund operations, make strategic investments and expand the business. Consequently, the size of this portfolio fluctuates significantly as cash is received and used in our business. The value of this portfolio may be negatively impacted by credit losses; however, this risk is mitigated through diversification that limits our exposure to any one issuer.
 
Interest Rate Risk
 
A change in interest rates would not affect the fair value of our cash, or materially affect the fair value of our cash equivalents due to their maturities of less than 90 days. A change in interest rates would affect the fair value of our current marketable debt securities portfolio; however, we normally hold these investments to maturity. Based on our cash, cash equivalents and current marketable debt securities investment portfolio of $2.5 billion as of December 31, 2018, a hypothetical 10% change in average interest rates during 2018 would not have had a material impact on the fair value of our cash, cash equivalents and debt securities portfolio due to the limited duration of our investments.
 
Our cash, cash equivalents and current marketable debt securities had an average annual rate of return for the year ended December 31, 2018 of 2.4%A change in interest rates would affect our future annual interest income from this portfolio, since funds would be re-invested at different rates as the instruments mature. A hypothetical 10% decrease in average interest rates during </