Supplemental Guarantor and Non-Guarantor Financial Information | Supplemental Guarantor and Non-Guarantor Financial Information Certain of our wholly-owned subsidiaries (together, the “Guarantor Subsidiaries”) have fully and unconditionally guaranteed, on a joint and several basis, the obligations of our 2019 Senior Secured Notes and 2021 Senior Unsecured Notes, which were issued on June 1, 2011, and our 2026 Notes, which were issued on July 27, 2016. See Note 10 for further information on the 2019 Senior Secured Notes, the 2021 Senior Unsecured Notes and the 2026 Notes. In lieu of separate financial statements of the Guarantor Subsidiaries, condensed consolidating financial information prepared in accordance with Rule 3-10(f) of Regulation S-X is presented below, including the condensed balance sheet information, the condensed statement of operations and comprehensive income (loss) information and the condensed statement of cash flows information of HSS, the Guarantor Subsidiaries on a combined basis and the non-guarantor subsidiaries of HSS on a combined basis and the eliminations necessary to arrive at the corresponding information of HSS on a consolidated basis. The indentures governing the 2019 Senior Secured Notes, the 2021 Senior Unsecured Notes and the 2026 Notes contain restrictive covenants that, among other things, impose limitations on our ability and the ability of certain of our subsidiaries to pay dividends or make distributions, incur additional debt, make certain investments, create liens or enter into sale and leaseback transactions, merge or consolidate with another company, transfer and sell assets, enter into transactions with affiliates or allow to exist certain restrictions on the ability of certain of our subsidiaries to pay dividends, make distributions, make other payments, or transfer assets to us. The condensed consolidating financial information presented below should be read in conjunction with our consolidated financial statements and notes thereto included herein. Consolidating Balance Sheet as of December 31, 2016 (In thousands) HSS Guarantor Subsidiaries Non-Guarantor Subsidiaries Eliminations Total Assets Cash and cash equivalents $ 1,991,949 $ 53,905 $ 25,110 $ — $ 2,070,964 Marketable investment securities, at fair value 177,614 10,309 — — 187,923 Trade accounts receivable, net — 138,861 43,651 — 182,512 Trade accounts receivable - DISH Network, net — 19,323 — — 19,323 Inventory — 45,623 17,015 — 62,638 Advances to affiliates, net 10 999,340 4,968 (893,866 ) 110,452 Other current assets 48 19,183 27,083 — 46,314 Total current assets 2,169,621 1,286,544 117,827 (893,866 ) 2,680,126 Restricted cash and cash equivalents 11,097 — 723 — 11,820 Property and equipment, net — 2,061,831 232,895 — 2,294,726 Regulatory authorizations — 471,658 — — 471,658 Goodwill — 504,173 — — 504,173 Other intangible assets, net — 80,734 — — 80,734 Investments in unconsolidated entities — 42,560 — — 42,560 Investment in subsidiaries 3,721,688 314,643 — (4,036,331 ) — Advances to affiliates 700 60,761 — (61,461 ) — Other noncurrent assets, net 92,727 142,091 153,646 (92,727 ) 295,737 Total assets $ 5,995,833 $ 4,964,995 $ 505,091 $ (5,084,385 ) $ 6,381,534 Liabilities and Shareholders’ Equity (Deficit) Trade accounts payable $ — $ 94,095 $ 12,321 $ — $ 106,416 Current portion of long-term debt and capital lease obligations — 32,177 807 — 32,984 Advances from affiliates, net 850,807 12,228 31,429 (893,866 ) 598 Accrued expenses and other 44,654 136,921 38,738 — 220,313 Total current liabilities 895,461 275,421 83,295 (893,866 ) 360,311 Long-term debt and capital lease obligations, net of unamortized debt issuance costs 3,358,179 262,883 1,401 — 3,622,463 Deferred tax liabilities, net — 621,061 128 (92,727 ) 528,462 Advances from affiliates — — 93,429 (61,461 ) 31,968 Other non-current liabilities — 80,532 2,775 — 83,307 Total HSS shareholders’ equity (deficit) 1,742,193 3,725,098 311,233 (4,036,331 ) 1,742,193 Noncontrolling interests — — 12,830 — 12,830 Total liabilities and shareholders’ equity (deficit) $ 5,995,833 $ 4,964,995 $ 505,091 $ (5,084,385 ) $ 6,381,534 Consolidating Balance Sheet as of December 31, 2015 (In thousands) HSS Guarantor Subsidiaries Non-Guarantor Subsidiaries Eliminations Total Assets Cash and cash equivalents $ 300,634 $ 55,767 $ 26,589 $ — $ 382,990 Marketable investment securities, at fair value 238,249 15,094 — — 253,343 Trade accounts receivable, net — 101,923 37,587 — 139,510 Trade accounts receivable - DISH Network, net — 21,258 — — 21,258 Inventory — 39,948 8,849 — 48,797 Advances to affiliates, net 10 807,341 6,244 (766,208 ) 47,387 Other current assets 40 24,565 26,890 — 51,495 Total current assets 538,933 1,065,896 106,159 (766,208 ) 944,780 Restricted cash and cash equivalents 11,985 7,500 655 — 20,140 Property and equipment, net — 2,181,495 83,907 — 2,265,402 Regulatory authorizations — 471,658 — — 471,658 Goodwill — 504,173 — — 504,173 Other intangible assets, net — 115,420 — — 115,420 Investments in unconsolidated entities — 41,481 — — 41,481 Investment in subsidiaries 3,350,914 166,739 — (3,517,653 ) — Advances to affiliates 700 678 — (1,378 ) — Other noncurrent assets, net 254,486 135,970 72,255 (254,486 ) 208,225 Total assets $ 4,157,018 $ 4,691,010 $ 262,976 $ (4,539,725 ) $ 4,571,279 Liabilities and Shareholders’ Equity (Deficit) Trade accounts payable $ — $ 86,496 $ 11,171 $ — $ 97,667 Current portion of long-term debt and capital lease obligations — 28,829 1,455 — 30,284 Advances from affiliates, net 739,810 5,307 24,863 (766,207 ) 3,773 Accrued expenses and other 28,154 130,532 22,550 — 181,236 Total current liabilities 767,964 251,164 60,039 (766,207 ) 312,960 Long-term debt and capital lease obligations, net of unamortized debt issuance costs 1,858,724 295,060 1,204 — 2,154,988 Deferred tax liabilities, net — 706,837 — (254,487 ) 452,350 Advances from affiliates — — 26,661 (1,378 ) 25,283 Other non-current liabilities — 84,006 52 — 84,058 Total HSS shareholders’ equity (deficit) 1,530,330 3,353,943 163,710 (3,517,653 ) 1,530,330 Noncontrolling interests — — 11,310 — 11,310 Total liabilities and shareholders’ equity (deficit) $ 4,157,018 $ 4,691,010 $ 262,976 $ (4,539,725 ) $ 4,571,279 Consolidating Statement of Operations and Comprehensive Income (Loss) For the Year Ended December 31, 2016 (In thousands) HSS Guarantor Subsidiaries Non-Guarantor Subsidiaries Eliminations Total Revenue: Services and other revenue - DISH Network $ — $ 449,547 $ — $ — $ 449,547 Services and other revenue - other — 992,480 133,508 (22,861 ) 1,103,127 Equipment revenue - DISH Network — 8,840 — — 8,840 Equipment revenue - other — 256,361 24,859 (42,941 ) 238,279 Total revenue — 1,707,228 158,367 (65,802 ) 1,799,793 Costs and Expenses: Costs of sales - services and other (exclusive of depreciation and amortization) — 438,837 101,288 (22,168 ) 517,957 Cost of sales - equipment (exclusive of depreciation and amortization) — 225,787 19,512 (40,546 ) 204,753 Selling, general and administrative expenses — 246,399 37,737 (3,088 ) 281,048 Research and development expenses — 31,170 — — 31,170 Depreciation and amortization — 401,688 12,445 — 414,133 Total costs and expenses — 1,343,881 170,982 (65,802 ) 1,449,061 Operating income — 363,347 (12,615 ) — 350,732 Other Income (Expense): Interest income 10,826 199 1,649 (76 ) 12,598 Interest expense, net of amounts capitalized (177,625 ) (14,538 ) 4,889 76 (187,198 ) Gains (losses) on marketable investment securities, net — 6,995 — — 6,995 Equity in earnings of unconsolidated affiliate — 9,444 — — 9,444 Equity in earnings (losses) of subsidiaries, net 218,125 (4,906 ) — (213,219 ) — Other, net 9,749 (6,956 ) 116 — 2,909 Total other income (expense), net 61,075 (9,762 ) 6,654 (213,219 ) (155,252 ) Income (loss) before income taxes 61,075 353,585 (5,961 ) (213,219 ) 195,480 Income tax benefit (provision), net 58,940 (135,081 ) 2,382 — (73,759 ) Net income (loss) 120,015 218,504 (3,579 ) (213,219 ) 121,721 Less: Net income attributable to noncontrolling interests — — 1,706 — 1,706 Net income (loss) attributable to HSS $ 120,015 $ 218,504 $ (5,285 ) $ (213,219 ) $ 120,015 Comprehensive Income (Loss): Net income (loss) $ 120,015 $ 218,504 $ (3,579 ) $ (213,219 ) $ 121,721 Other comprehensive income (loss), net of tax: Foreign currency translation adjustments — — (5,377 ) — (5,377 ) Unrealized (gains) losses on available-for-sale securities and other 3,290 (1,642 ) (64 ) — 1,584 Recognition of realized gains on available-for-sale securities included in net income (loss) (2,996 ) — — — (2,996 ) Equity in other comprehensive income (loss) of subsidiaries, net (6,897 ) (5,255 ) — 12,152 — Total other comprehensive income (loss), net of tax (6,603 ) (6,897 ) (5,441 ) 12,152 (6,789 ) Comprehensive income (loss) 113,412 211,607 (9,020 ) (201,067 ) 114,932 Less: Comprehensive income attributable to noncontrolling interests — — 1,520 — 1,520 Comprehensive income (loss) attributable to HSS $ 113,412 $ 211,607 $ (10,540 ) $ (201,067 ) $ 113,412 Consolidating Statement of Operations and Comprehensive Income (Loss) For the Year Ended December 31, 2015 (In thousands) HSS Guarantor Subsidiaries Non-Guarantor Subsidiaries Eliminations Total Revenue: Services and other revenue - DISH Network $ — $ 518,734 $ 119 $ — $ 518,853 Services and other revenue - other — 976,507 140,619 (21,877 ) 1,095,249 Equipment revenue - DISH Network — 10,752 — — 10,752 Equipment revenue - other — 200,605 30,678 (19,005 ) 212,278 Total revenue — 1,706,598 171,416 (40,882 ) 1,837,132 Costs and Expenses: Costs of sales - services and other (exclusive of depreciation and amortization) — 447,106 99,513 (21,148 ) 525,471 Cost of sales - equipment (exclusive of depreciation and amortization) — 190,200 22,581 (17,244 ) 195,537 Selling, general and administrative expenses — 245,725 33,381 (2,490 ) 276,616 Research and development expenses — 26,377 — — 26,377 Depreciation and amortization — 423,923 6,204 — 430,127 Total costs and expenses — 1,333,331 161,679 (40,882 ) 1,454,128 Operating income — 373,267 9,737 — 383,004 Other Income (Expense): Interest income 3,339 171 1,013 (107 ) 4,416 Interest expense, net of amounts capitalized (142,215 ) (29,093 ) 2,051 107 (169,150 ) Loss from partial redemption of debt (5,044 ) — — — (5,044 ) Other-than-temporary impairment loss on available-for-sale securities (6,139 ) — — — (6,139 ) Gains (losses) on marketable investment securities, net 15 (6,478 ) — — (6,463 ) Equity in earnings of unconsolidated affiliate — 8,502 — — 8,502 Equity in earnings (losses) of subsidiaries, net 239,199 4,705 — (243,904 ) — Other, net (5,468 ) 11,054 (3,364 ) — 2,222 Total other income (expense), net 83,687 (11,139 ) (300 ) (243,904 ) (171,656 ) Income (loss) before income taxes 83,687 362,128 9,437 (243,904 ) 211,348 Income tax benefit (provision), net 53,680 (122,564 ) (3,480 ) — (72,364 ) Net income (loss) 137,367 239,564 5,957 (243,904 ) 138,984 Less: Net income attributable to noncontrolling interests — — 1,617 — 1,617 Net income (loss) attributable to HSS $ 137,367 $ 239,564 $ 4,340 $ (243,904 ) $ 137,367 Comprehensive Income (Loss): Net income (loss) $ 137,367 $ 239,564 $ 5,957 $ (243,904 ) $ 138,984 Other comprehensive income (loss), net of tax: Foreign currency translation adjustments — — (25,012 ) — (25,012 ) Unrealized gains (losses) on available-for-sale securities and other (2,478 ) (1,800 ) 76 — (4,202 ) Recognition of other-than-temporary loss on available-for-sale securities in net income (loss) 6,139 — — — 6,139 Recognition of realized gains on available-for-sale securities included in net income (loss) (15 ) — — — (15 ) Equity in other comprehensive income (loss) of subsidiaries, net (26,416 ) (24,616 ) — 51,032 — Total other comprehensive income (loss), net of tax (22,770 ) (26,416 ) (24,936 ) 51,032 (23,090 ) Comprehensive income (loss) 114,597 213,148 (18,979 ) (192,872 ) 115,894 Less: Comprehensive income attributable to noncontrolling interests — — 1,297 — 1,297 Comprehensive income (loss) attributable to HSS $ 114,597 $ 213,148 $ (20,276 ) $ (192,872 ) $ 114,597 Consolidating Statement of Operations and Comprehensive Income (Loss) For the Year Ended December 31, 2014 (In thousands) HSS Guarantor Subsidiaries Non-Guarantor Subsidiaries Eliminations Total Revenue: Services and other revenue - DISH Network $ — $ 487,286 $ 699 $ — $ 487,985 Services and other revenue - other — 938,382 162,400 (23,681 ) 1,077,101 Equipment revenue - DISH Network — 31,943 — — 31,943 Equipment revenue - other — 196,921 31,907 (17,880 ) 210,948 Total revenue — 1,654,532 195,006 (41,561 ) 1,807,977 Costs and Expenses: Costs of sales - services and other (exclusive of depreciation and amortization) — 441,777 117,822 (23,681 ) 535,918 Cost of sales - equipment (exclusive of depreciation and amortization) — 201,890 23,331 (16,199 ) 209,022 Selling, general and administrative expenses — 233,392 32,899 (1,681 ) 264,610 Research and development expenses — 20,192 — — 20,192 Depreciation and amortization — 443,946 8,192 — 452,138 Total costs and expenses — 1,341,197 182,244 (41,561 ) 1,481,880 Operating income — 313,335 12,762 — 326,097 Other Income (Expense): Interest income 197,610 344 1,454 (196,174 ) 3,234 Interest expense, net of amounts capitalized (145,938 ) (240,057 ) (1,437 ) 196,174 (191,258 ) Gains (losses) on marketable investment securities, net 25 (57 ) — — (32 ) Equity in earnings of unconsolidated affiliate — 5,121 — — 5,121 Equity in earnings (losses) of subsidiaries, net 68,212 5,779 — (73,991 ) — Other, net — 822 (1,307 ) — (485 ) Total other income (expense), net 119,909 (228,048 ) (1,290 ) (73,991 ) (183,420 ) Income (loss) before income taxes 119,909 85,287 11,472 (73,991 ) 142,677 Income tax provision, net (18,716 ) (16,705 ) (4,674 ) — (40,095 ) Net income (loss) 101,193 68,582 6,798 (73,991 ) 102,582 Less: Net income attributable to noncontrolling interests — — 1,389 — 1,389 Net income (loss) attributable to HSS $ 101,193 $ 68,582 $ 5,409 $ (73,991 ) $ 101,193 Comprehensive Income (Loss): Net income (loss) $ 101,193 $ 68,582 $ 6,798 $ (73,991 ) $ 102,582 Other comprehensive income (loss), net of tax: Foreign currency translation adjustments — — (8,789 ) — (8,789 ) Unrealized losses on available-for-sale securities and other (4,150 ) — (32 ) — (4,182 ) Recognition of realized losses on available-for-sale securities included in net income (loss) 32 — — — 32 Equity in other comprehensive income (loss) of subsidiaries, net (8,584 ) (8,584 ) — 17,168 — Total other comprehensive income (loss), net of tax (12,702 ) (8,584 ) (8,821 ) 17,168 (12,939 ) Comprehensive income (loss) 88,491 59,998 (2,023 ) (56,823 ) 89,643 Less: Comprehensive income attributable to noncontrolling interests — — 1,152 — 1,152 Comprehensive income (loss) attributable to HSS $ 88,491 $ 59,998 $ (3,175 ) $ (56,823 ) $ 88,491 Consolidating Statement of Cash Flows for the Year Ended December 31, 2016 (In thousands) HSS Guarantor Subsidiaries Non-Guarantor Subsidiaries Eliminations Total Cash Flows from Operating Activities: Net income (loss) $ 120,015 $ 218,504 $ (3,579 ) $ (213,219 ) $ 121,721 Adjustments to reconcile net income (loss) to net cash flows from operating activities 78,875 127,462 24,594 213,219 444,150 Net cash flows from operating activities 198,890 345,966 21,015 — 565,871 Cash Flows from Investing Activities: Purchases of marketable investment securities (396,730 ) — — — (396,730 ) Sales and maturities of marketable investment securities 452,446 — — — 452,446 Expenditures for property and equipment — (292,427 ) (88,860 ) — (381,287 ) Changes in restricted cash and cash equivalents 888 7,500 (68 ) — 8,320 Investment in subsidiary (80,846 ) (84,871 ) — 165,717 — Payment for EchoStar XXI launch services — — (23,750 ) — (23,750 ) Expenditures for externally marketed software — (23,252 ) — — (23,252 ) Other, net — (1,296 ) — (340 ) (1,636 ) Net cash flows from investing activities (24,242 ) (394,346 ) (112,678 ) 165,377 (365,889 ) Cash Flows from Financing Activities: Proceeds from issuance of long-term debt 1,500,000 — — — 1,500,000 Payments of debt issuance costs (7,097 ) — — — (7,097 ) Proceeds from capital contribution from parent — 80,846 84,871 (165,717 ) — Capital contribution from EchoStar 23,750 — — — 23,750 Repayment of debt and capital lease obligations — (28,829 ) (2,840 ) — (31,669 ) Advances from affiliates — 6,982 — 6,982 Other, net 14 (5,499 ) 988 340 (4,157 ) Net cash flows from financing activities 1,516,667 46,518 90,001 (165,377 ) 1,487,809 Effect of exchange rates on cash and cash equivalents — — 183 — 183 Net increase (decrease) in cash and cash equivalents 1,691,315 (1,862 ) (1,479 ) — 1,687,974 Cash and cash equivalents, at beginning of year 300,634 55,767 26,589 — 382,990 Cash and cash equivalents, at end of year $ 1,991,949 $ 53,905 $ 25,110 $ — $ 2,070,964 Consolidating Statement of Cash Flows for the Year Ended December 31, 2015 (In thousands) HSS Guarantor Subsidiaries Non-Guarantor Subsidiaries Eliminations Total Cash Flows from Operating Activities: Net income (loss) $ 137,367 $ 239,564 $ 5,957 $ (243,904 ) $ 138,984 Adjustments to reconcile net income (loss) to net cash flows from operating activities 32,816 156,301 3,485 243,904 436,506 Net cash flows from operating activities 170,183 395,865 9,442 — 575,490 Cash Flows from Investing Activities: Purchases of marketable investment securities (208,821 ) — — — (208,821 ) Sales and maturities of marketable investment securities 355,202 — — — 355,202 Expenditures for property and equipment — (325,405 ) (61,309 ) — (386,714 ) Changes in restricted cash and cash equivalents (2,432 ) — (56 ) — (2,488 ) Investment in subsidiary (43,000 ) (48,043 ) — 91,043 — Payment for EchoStar XXI launch services — (11,875 ) — (11,875 ) Expenditures for externally marketed software — (22,327 ) — — (22,327 ) Other, net — 1,490 — (1,500 ) (10 ) Net cash flows from investing activities 100,949 (394,285 ) (73,240 ) 89,543 (277,033 ) Cash Flows from Financing Activities: Proceeds from capital contribution from parent — 43,000 48,043 (91,043 ) — Repayment of 6 1/2% Senior Secured Notes Due 2019 and related premium (113,300 ) — — — (113,300 ) Repayment of debt and capital lease obligations — (33,478 ) (5,963 ) — (39,441 ) Advances from affiliates — — 20,002 — 20,002 Other, net 40 (6,927 ) 233 1,500 (5,154 ) Net cash flows from financing activities (113,260 ) 2,595 62,315 (89,543 ) (137,893 ) Effect of exchange rates on cash and cash equivalents — — (3,131 ) — (3,131 ) Net increase (decrease) in cash and cash equivalents 157,872 4,175 (4,614 ) — 157,433 Cash and cash equivalents, at beginning of year 142,762 51,592 31,203 — 225,557 Cash and cash equivalents, at end of year $ 300,634 $ 55,767 $ 26,589 $ — $ 382,990 Consolidating Statement of Cash Flows for the Year Ended December 31, 2014 (In thousands) HSS Guarantor Subsidiaries Non-Guarantor Subsidiaries Eliminations Total Cash Flows from Operating Activities: Net income (loss) $ 101,193 $ 68,582 $ 6,798 $ (73,991 ) $ 102,582 Adjustments to reconcile net income (loss) to net cash flows from operating activities 221,288 240,466 15,245 73,991 550,990 Net cash flows from operating activities 322,481 309,048 22,043 — 653,572 Cash Flows from Investing Activities: Purchases of marketable investment securities (509,814 ) — — — (509,814 ) Sales and maturities of marketable investment securities 234,970 — — — 234,970 Purchases of property and equipment — (220,664 ) (26,677 ) — (247,341 ) Changes in restricted cash and cash equivalents (2,549 ) — 11 — (2,538 ) Expenditures for externally marketed software — (22,955 ) — — (22,955 ) Other, net (10,601 ) (35 ) — 10,601 (35 ) Net cash flows from investing activities (287,994 ) (243,654 ) (26,666 ) 10,601 (547,713 ) Cash Flows from Financing Activities: Hughes Retail Preferred Tracking Stock (Note 3) 10,601 10,601 — (10,601 ) 10,601 Repayment of long-term debt and capital lease obligations — (53,467 ) (6,368 ) — (59,835 ) Contributions from parent — — — — — Other — (5,276 ) 5,383 — 107 Net cash flows from financing activities 10,601 (48,142 ) (985 ) (10,601 ) (49,127 ) Effect of exchange rates on cash and cash equivalents — — 5,116 — 5,116 Net increase (decrease) in cash and cash equivalents 45,088 17,252 (492 ) — 61,848 Cash and cash equivalents, at beginning of year 97,674 34,340 31,695 — 163,709 Cash and cash equivalents, at end of year $ 142,762 $ 51,592 $ 31,203 $ — $ 225,557 |