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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.  20549
 
FORM 10-Q
(Mark One)

    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2020.
 
OR 

    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM                                       TO                                       .
 
Commission File Number:  333-179121
 
Hughes Satellite Systems Corporation
(Exact name of registrant as specified in its charter)
Colorado 45-0897865
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
100 Inverness Terrace East,Englewood,Colorado 80112-5308
(Address of principal executive offices) (Zip Code)
(303)706-4000Not Applicable
(Registrant’s telephone number, including area code)(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.  Yes   No
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes    No 
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.  (Check one):
Large accelerated filerAccelerated filer Emerging growth company
Non-accelerated filerSmaller reporting company
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  No
 
As of October 29, 2020, 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 (H)(1)(a) and (b) of Form 10-Q and is therefore filing this Form 10-Q with the reduced disclosure format.
 
*       The registrant currently is not subject to the filing requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934 and is filing this Quarterly Report on Form 10-Q on a voluntary basis.  The registrant has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months as if it were subject to such filing requirements during the entirety of such period.


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

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


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

significant risks related to the construction and operation of our satellites, such as the risk of not being able to timely complete the construction, or a material malfunction on one or more, of our satellites and our general lack of commercial insurance coverage on our satellites;
our ability and the ability of third parties with whom we engage in order to operate our business, including customers, suppliers, vendors, financing sources, governmental entities and others, to successfully or fully operate as a result of outbreaks of viruses or widespread illness, including existing, continuing and future impacts and consequences of the COVID-19 pandemic caused by the novel coronavirus;
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;
legal proceedings relating to the BSS Transaction or AGR (each as defined herein) matter, which could result in substantial costs and material adverse effects on our business, results of operations, financial condition and prospects;
our ability to realize the anticipated benefits of our current satellites and any future satellite we may construct or acquire;
risks related to our foreign operations and other uncertainties associated with doing business internationally, including changes in foreign exchange rates between foreign currencies and the United States (“U.S.”) dollar, economic instability, political disturbances and the consequences of being subject to foreign regulation and foreign legal proceedings, including increased operations costs and potential fines and penalties for violations, which may be substantial;
the failure of third-party providers of components, manufacturing, installation services and customer support services to appropriately deliver the contracted goods or services; and
our ability to bring advanced technologies to market to keep pace with our customers and competitors.

Other factors that could cause or contribute to such differences include, but are not limited to, those discussed under the caption Risk Factors in Part II, Item 1A of this Form 10-Q and in Part I, Item 1A of our most recent Annual Report on Form 10-K (“Form 10-K”) filed with the Securities and Exchange Commission (“SEC”), those discussed in Management’s Narrative Analysis of Results of Operations in Part I, Item 2 of this Form 10-Q and in Part II, Item 7 of our Form 10-K and those discussed in other documents we file with the SEC.
 
All cautionary statements made herein should be read as being applicable to all forward-looking statements wherever they appear. Investors should consider the risks and uncertainties described herein and should not place undue reliance on any forward-looking statements. We do not undertake, and specifically disclaim, any obligation to publicly release the results of any revisions that may be made to any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

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
i

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for the accuracy and completeness of any forward-looking statements. We assume no responsibility for updating forward-looking information contained or incorporated by reference herein or in any documents we file with the SEC, except as required by law.

Should one or more of the risks or uncertainties described herein or in any documents we file with the SEC occur, or should underlying assumptions prove incorrect, our actual results and plans could differ materially from those expressed in any forward-looking statements.
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PART I — FINANCIAL INFORMATION
 
ITEM 1.    FINANCIAL STATEMENTS
 
HUGHES SATELLITE SYSTEMS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share and per share amounts)
(Unaudited)
As of
September 30,
2020
December 31, 2019
Assets
Current assets:
Cash and cash equivalents$443,727 $1,139,435 
Marketable investment securities1,418,436 652,835 
Trade accounts receivable and contract assets, net190,902 196,520 
Other current assets, net293,379 301,652 
Total current assets2,346,444 2,290,442 
Non-current assets:
Property and equipment, net1,688,324 1,857,581 
Operating lease right-of-use assets129,021 113,399 
Goodwill508,660 506,953 
Regulatory authorizations, net410,558 412,363 
Other intangible assets, net20,433 29,321 
Other investments, net105,161 110,040 
Other non-current assets, net296,633 251,936 
Total non-current assets3,158,790 3,281,593 
Total assets$5,505,234 $5,572,035 
Liabilities and Shareholder's Equity
Current liabilities:
Trade accounts payable$108,918 $121,552 
Current portion of long-term debt, net897,303  
Contract liabilities89,622 101,060 
Accrued expenses and other current liabilities267,805 258,417 
Total current liabilities1,363,648 481,029 
Non-current liabilities:
Long-term debt, net1,495,078 2,389,168 
Deferred tax liabilities, net398,579 380,316 
Operating lease liabilities115,366 96,879 
Other non-current liabilities90,704 90,480 
Total non-current liabilities2,099,727 2,956,843 
Total liabilities3,463,375 3,437,872 
Commitments and contingencies

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Shareholder's equity:
Preferred stock, $0.001 par value, 1,000,000 shares authorized, none issued and outstanding at both September 30, 2020 and December 31, 2019
  
Common stock, $0.01 par value, 1,000,000 shares authorized, 1,078 shares issued and outstanding at both September 30, 2020 and December 31, 2019
  
Additional paid-in capital1,485,225 1,478,636 
Accumulated other comprehensive income (loss)(167,169)(84,636)
Accumulated earnings (losses)665,229 664,415 
Total Hughes Satellite Systems Corporation shareholder's equity1,983,285 2,058,415 
Non-controlling interests58,574 75,748 
Total shareholder's equity2,041,859 2,134,163 
Total liabilities and shareholder's equity$5,505,234 $5,572,035 

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
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HUGHES SATELLITE SYSTEMS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands)
(Unaudited)
For the three months ended September 30,For the nine months ended September 30,
2020201920202019
Revenue:  
Services and other revenue$428,890 $407,396 $1,258,350 $1,214,476 
Equipment revenue46,970 65,725 146,702 175,084 
Total revenue475,860 473,121 1,405,052 1,389,560 
Costs and expenses:  
Cost of sales - services and other (exclusive of depreciation and amortization)145,408 142,429 429,246 425,896 
Cost of sales - equipment (exclusive of depreciation and amortization)37,074 51,188 115,524 142,744 
Selling, general and administrative expenses105,309 111,987 324,400 353,559 
Research and development expenses7,676 6,136 21,378 19,411 
Depreciation and amortization123,145 115,948 372,588 342,086 
Total costs and expenses418,612 427,688 1,263,136 1,283,696 
Operating income (loss)57,248 45,433 141,916 105,864 
Other income (expense):  
Interest income, net2,839 12,300 16,935 47,341 
Interest expense, net of amounts capitalized(44,177)(55,608)(130,644)(172,502)
Gains (losses) on investments, net(74)70 (222)(290)
Equity in earnings (losses) of unconsolidated affiliates, net(2,422)(894)(4,878)(2,882)
Foreign currency transaction gains (losses), net3,072 (11,638)(4,596)(10,349)
Other, net195 (1,559)(470)(1,780)
Total other income (expense), net(40,567)(57,329)(123,875)(140,462)
Income (loss) from continuing operations before income taxes16,681 (11,896)18,041 (34,598)
Income tax benefit (provision), net(5,199)(5,176)(24,098)(1,185)
Net income (loss) from continuing operations11,482 (17,072)(6,057)(35,783)
Net income (loss) from discontinued operations 14,382  57,734 
Net income (loss)11,482 (2,690)(6,057)21,951 
Less: Net loss (income) attributable to non-controlling interests2,167 2,797 9,040 1,359 
Net income (loss) attributable to HSSC$13,649 $107 $2,983 $23,310 

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
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HUGHES SATELLITE SYSTEMS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Amounts in thousands)
(Unaudited)
For the three months ended September 30,For the nine months ended September 30,
2020201920202019
Net income (loss)$11,482 $(2,690)$(6,057)$21,951 
Other comprehensive income (loss), net of tax:
Foreign currency translation(10,170)(16,247)(103,351)(13,927)
Unrealized gains (losses) on available-for-sale debt securities20 (130)(189)2,188 
Other500 13 380  
Amounts reclassified to net income (loss):
Realized losses (gains) on available-for-sale debt securities   (400)
Total other comprehensive income (loss), net of tax(9,650)(16,364)(103,160)(12,139)
Comprehensive income (loss)1,832 (19,054)(109,217)9,812 
Less: Comprehensive loss (income) attributable to non-controlling interests4,098 2,797 29,667 1,359 
Comprehensive income (loss) attributable to HSSC$5,930 $(16,257)$(79,550)$11,171 

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
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HUGHES SATELLITE SYSTEMS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDER’S EQUITY
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019
(Amounts in thousands)
(Unaudited)
Additional
Paid-In
Capital
Accumulated
Other
Comprehensive Income (Loss)
Accumulated
Earnings (Losses)
Non-controlling
Interests
Total
Balance, June 30, 2019$1,766,642 $(79,549)$717,160 $12,066 $2,416,319 
Stock-based compensation1,260 — — — 1,260 
BSS Transaction (Note 5)(342,823)(342,823)
Purchase of non-controlling interest1,833 — — (1,833) 
Other comprehensive income (loss)— (16,364)— — (16,364)
Net income (loss)— — 107 (2,797)(2,690)
Other, net66 — — 1,758 1,824 
Balance, September 30, 2019$1,426,978 $(95,913)$717,267 $9,194 $2,057,526 
Balance, June 30, 20201,484,359 (159,450)651,580 58,425 2,034,914 
Stock-based compensation983 — — — 983 
Contribution by non-controlling interest holder— — — 4,268 4,268 
Other comprehensive income (loss)— (7,719)— (1,931)(9,650)
Net income (loss)— — 13,649 (2,167)11,482 
Other, net(117)— — (21)(138)
Balance, September 30, 2020$1,485,225 $(167,169)$665,229 $58,574 $2,041,859 

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
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HUGHES SATELLITE SYSTEMS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDER’S EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019
(Amounts in thousands)
(Unaudited)
Additional
Paid-In
Capital
Accumulated
Other
Comprehensive Income (Loss)
Accumulated
Earnings (Losses)
Non-controlling
Interests
Total
Balance, December 31, 2018$1,767,037 $(83,774)$693,957 $15,275 $2,392,495 
Stock-based compensation4,116 — — — 4,116 
BSS Transaction (Note 5)(342,823)(342,823)
Purchase of non-controlling interest(833)— — (6,480)(7,313)
Other comprehensive income (loss)— (12,139)—  (12,139)
Net income (loss)— — 23,310 (1,359)21,951 
Other, net(519)— — 1,758 1,239 
Balance, September 30, 2019$1,426,978 $(95,913)$717,267 $9,194 $2,057,526 
Balance, December 31, 2019$1,478,636 $(84,636)$664,415 $75,748 $2,134,163 
Cumulative effect of accounting changes— — (2,169)(240)(2,409)
Balance, January 1, 20201,478,636 (84,636)662,246 75,508 2,131,754 
Stock-based compensation2,919 — — — 2,919 
Issuance of equity and contribution of assets pursuant to the Yahsat JV formation4,338 — — (1,514)2,824 
Contribution by non-controlling interest holder— — 14,268 14,268 
Other comprehensive income (loss)— (82,533)— (20,627)(103,160)
Net income (loss)— — 2,983 (9,040)(6,057)
Other, net(668)— — (21)(689)
Balance, September 30, 2020$1,485,225 $(167,169)$665,229 $58,574 $2,041,859 

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
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HUGHES SATELLITE SYSTEMS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited) 
For the nine months ended
September 30,
20202019
Cash flows from operating activities:
Net income (loss)$(6,057)$21,951 
Adjustments to reconcile net income (loss) to net cash flows from operating activities:
Depreciation and amortization372,588 428,012 
Losses (gains) on investments, net222 290 
Equity in losses (earnings) of unconsolidated affiliates, net4,878 2,882 
Foreign currency transaction losses (gains), net4,596 10,349 
Deferred tax provision (benefit), net16,608 (34,092)
Stock-based compensation4,203 4,116 
Amortization of debt issuance costs3,212 4,882 
Other, net376 2,188 
Changes in assets and liabilities, net:
Trade accounts receivable and contract assets, net(14,097)(5,435)
Other current assets, net(363)(19,067)
Trade accounts payable(11,557)15,192 
Contract liabilities(11,438)37,308 
Accrued expenses and other current liabilities25,300 46,535 
Non-current assets and non-current liabilities, net(33,652)6,129 
Net cash flows from operating activities354,819 521,240 
Cash flows from investing activities:
Purchases of marketable investment securities(1,611,870)(462,625)
Sales and maturities of marketable investment securities843,294 1,375,242 
Expenditures for property and equipment(263,884)(224,994)
Expenditures for externally marketed software(27,824)(21,364)
Dividend received from unconsolidated affiliate 2,284 
Net cash flows from investing activities(1,060,284)668,543 
Cash flows from financing activities:
Repurchase and maturity of the 2019 Senior Secured Notes (920,923)
Payment of finance lease obligations(606)(29,135)
Payment of in-orbit incentive obligations(1,268)(5,269)
Contribution by non-controlling interest holder14,268  
Purchase of non-controlling interest (7,313)
Other, net998 1,172 
Net cash flows from financing activities13,392 (961,468)
Effect of exchange rates on cash and cash equivalents(3,727)310 
Net increase (decrease) in cash and cash equivalents(695,800)228,625 
Cash and cash equivalents, including restricted amounts, beginning of period1,140,322 848,619 
Cash and cash equivalents, including restricted amounts, end of period$444,522 $1,077,244 
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
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HUGHES SATELLITE SYSTEMS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1.    ORGANIZATION AND BUSINESS ACTIVITIES
 
Principal Business
 
Hughes Satellite Systems Corporation (which, together with its subsidiaries, is referred to as “HSSC,” the “Company,” “we,” “us” and “our”) is a holding company and a subsidiary of EchoStar Corporation (“EchoStar”).  We are a global provider of broadband satellite technologies, broadband internet services for consumer customers, which include home and small to medium-sized businesses, and satellite services. We also deliver innovative network technologies, managed services and communications solutions for enterprise customers, which include aeronautical and government enterprises. We operate in the following two business segments:
 
Hughes — which provides broadband satellite technologies and broadband internet services to domestic and international consumer customers and broadband network technologies, managed services, equipment, hardware, satellite services and communication solutions to service providers and enterprise customers. The Hughes segment also designs, provides and installs gateway and terminal equipment to customers for other satellite systems. In addition, our Hughes segment designs, develops, constructs and provides telecommunication networks comprising satellite ground segment systems and terminals to mobile system operators and our enterprise customers.
ESS — which uses certain of our owned and leased in-orbit satellites and related licenses to provide satellite services on a full-time and/or occasional-use basis to U.S. government service providers, internet service providers, broadcast news organizations, content providers and private enterprise customers.
 
Our operations also include various corporate departments (primarily Executive, Treasury, Strategic Development, Human Resources, IT, Finance, Accounting, Real Estate and Legal) and other activities, such as costs incurred in certain satellite development programs and other business development activities, and gains or losses from certain of our investments, that have not been assigned to our business segments. These activities, costs and income, as well as eliminations of intersegment transactions, are accounted for in Corporate and Other. We also divide our operations by primary geographic market as follows: (i) North America (the U.S. and its territories, Mexico, and Canada); (ii) South and Central America; and (iii) Other (Asia, Africa, Australia, Europe, India, and the Middle East). Refer to Note 13. Segment Reporting for further detail.

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

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

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HUGHES SATELLITE SYSTEMS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
All amounts in the following footnotes reference results from continuing operations unless otherwise noted. Refer to Note 4. Discontinued Operations for further detail.

NOTE 2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

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

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

Use of Estimates

We are required to make certain estimates and assumptions that affect the amounts reported in these Condensed Consolidated Financial Statements. The most significant estimates and assumptions are used in determining: (i) inputs used to recognize revenue over time, including amortization periods for deferred contract acquisition costs; (ii) allowances for doubtful accounts; (iii) deferred taxes and related valuation allowances, including uncertain tax positions; (iv) loss contingencies; (v) fair value of financial instruments; (vi) fair value of assets and liabilities acquired in business combinations; and (vii) asset impairment testing.

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

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

Reclassification

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

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HUGHES SATELLITE SYSTEMS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
Recently Adopted Accounting Pronouncements

Credit Losses

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

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

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

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

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

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

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

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HUGHES SATELLITE SYSTEMS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
Financial Impact of Adoption. Our adoption of this new standard resulted in the following adjustments to our Condensed Consolidated Balance Sheet:
Balance at December 31, 2019Adoption of
ASC 326 Increase (Decrease)
Balance at
January 1, 2020
Trade accounts receivable and contract assets, net$196,520 $(13,672)$182,848 
Other current assets, net$301,652 $6,723 $308,375 
Other non-current assets, net$251,936 $4,050 $255,986 
Total assets$5,572,035 $(2,899)$5,569,136 
Deferred tax liabilities, net$380,316 $(490)$379,826 
Accumulated earnings (losses)$664,415 $(2,169)$662,246 
Non-controlling interests$75,748 $(240)$75,508 
Total shareholder's equity$2,134,163 $(2,409)$2,131,754 
Total liabilities and shareholder's equity$5,572,035 $(2,899)$5,569,136 
The application of ASC 326 requirements did not materially affect our Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2020.

Recently Issued Accounting Pronouncements Not Yet Adopted

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

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

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HUGHES SATELLITE SYSTEMS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
NOTE 3.     REVENUE RECOGNITION

Contract Balances

The following table presents the components of our contract balances:
 As of
September 30,
2020
December 31, 2019
Trade accounts receivable and contract assets, net:
Sales and services$162,390 $152,632 
Leasing4,017 4,016 
Total trade accounts receivable166,407 156,648 
Contract assets43,896 63,649 
Allowance for doubtful accounts(19,401)(23,777)
Total trade accounts receivable and contract assets, net$190,902 $196,520 
Contract liabilities:
Current$89,622 $101,060 
Non-current11,663 10,572 
Total contract liabilities$101,285 $111,632 

The following table presents the revenue recognized in the Condensed Consolidated Statements of Operations that was previously included within contract liabilities:
For the three months ended September 30,For the nine months ended September 30,
2020201920202019
Revenue$3,794 $19,490 $63,581 $67,263 

The following table presents the activity in our allowance for doubtful accounts:
For the nine months ended September 30,
20202019
Balance at beginning of period$23,777 $16,604 
Credit losses (1)
12,253 22,031 
Deductions(15,367)(13,979)
Foreign currency translation(1,262)596 
Balance at end of period$19,401 $25,252 
(1)The impact of adopting ASC 326 on January 1, 2020 was a net decrease to our allowance for doubtful accounts largely driven by a $13.4 million reclassification to Other current assets, net and Other non-current assets, net, offset by a $2.9 million adjustment to Accumulated earnings (losses).

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HUGHES SATELLITE SYSTEMS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
Contract Acquisition Costs

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

For the nine months ended September 30,
20202019
Balance at beginning of period$113,592 $114,306 
Additions68,589 71,651 
Amortization expense(75,429)(72,412)
Foreign currency translation(2,984)(1,012)
Balance at end of period$103,768 $112,533 

We recognized amortization expenses related to contract acquisition costs of $25.7 million and $24.7 million for the three months ended September 30, 2020 and 2019, respectively.

Transaction Price Allocated to Remaining Performance Obligations

As of September 30, 2020, the remaining performance obligations for our customer contracts with original expected durations of more than one year was $677.9 million. We expect to recognize 38.9% of our remaining performance obligations of these contracts as revenue in the next twelve months. This amount excludes agreements with consumer customers in our Hughes segment, our leasing arrangements and agreements with certain customers under which collectability of all amounts due through the term of contracts is uncertain.

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HUGHES SATELLITE SYSTEMS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
Disaggregation of Revenue

Geographic Information

The following table presents our revenue from customer contracts disaggregated by primary geographic market and by segment:
HughesESSCorporate and OtherConsolidated
Total
For the three months ended September 30, 2020
North America$392,950 $4,402 $(281)$397,071 
South and Central America38,578