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 9 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. December 31, 2017 (In thousands) HSS Guarantor Subsidiaries Non-Guarantor Subsidiaries Eliminations Total Assets Cash and cash equivalents $ 1,746,878 $ 42,373 $ 33,310 $ — $ 1,822,561 Marketable investment securities, at fair value 454,500 1,102 — — 455,602 Trade accounts receivable, net — 133,735 63,105 — 196,840 Trade accounts receivable - DISH Network, net — 38,286 355 — 38,641 Inventory — 59,711 23,884 — 83,595 Advances to affiliates, net 119,605 229,488 7,313 (241,548 ) 114,858 Other current assets 64 98,890 31,788 (401 ) 130,341 Total current assets 2,321,047 603,585 159,755 (241,949 ) 2,842,438 Property and equipment, net — 2,459,703 293,395 — 2,753,098 Regulatory authorizations — 465,658 — — 465,658 Goodwill — 504,173 — — 504,173 Other intangible assets, net — 58,582 — — 58,582 Investments in unconsolidated entities — 30,587 — — 30,587 Investment in subsidiaries 3,260,790 204,208 — (3,464,998 ) — Advances to affiliates 700 80,744 — (81,444 ) — Deferred tax asset 110,546 — 3,700 (110,546 ) 3,700 Other noncurrent assets, net — 185,839 13,275 — 199,114 Total assets $ 5,693,083 $ 4,593,079 $ 470,125 $ (3,898,937 ) $ 6,857,350 Liabilities and Shareholders’ Equity (Deficit) Trade accounts payable $ — $ 82,300 $ 20,516 $ — $ 102,816 Trade accounts payable - DISH Network — 3,769 — — 3,769 Current portion of long-term debt and capital lease obligations — 35,886 4,745 — 40,631 Advances from affiliates, net — 185,161 56,864 (241,548 ) 477 Accrued expenses and other 43,518 145,362 46,748 (401 ) 235,227 Total current liabilities 43,518 452,478 128,873 (241,949 ) 382,920 Long-term debt and capital lease obligations, net of unamortized debt issuance costs 3,365,143 226,997 2,073 — 3,594,213 Deferred tax liabilities, net — 549,217 960 (110,546 ) 439,631 Advances from affiliates — — 115,159 (81,444 ) 33,715 Other non-current liabilities — 104,249 3,378 — 107,627 Total HSS shareholders’ equity (deficit) 2,284,422 3,260,138 204,860 (3,464,998 ) 2,284,422 Noncontrolling interests — — 14,822 — 14,822 Total liabilities and shareholders’ equity (deficit) $ 5,693,083 $ 4,593,079 $ 470,125 $ (3,898,937 ) $ 6,857,350 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 Property and equipment, net — 2,061,831 232,895 — 2,294,726 Regulatory authorizations, net — 471,658 — — 471,658 Goodwill — 504,173 — — 504,173 Other intangible assets, net — 80,734 — — 80,734 Investments in unconsolidated entities — 42,560 — — 42,560 Investment in subsidiaries 3,721,688 314,643 — (4,036,331 ) — Advances to affiliates 700 60,761 — (61,461 ) — Deferred tax asset 92,727 — 9,150 (92,727 ) 9,150 Other noncurrent assets, net 11,097 142,091 145,219 — 298,407 Total assets $ 5,995,833 $ 4,964,995 $ 505,091 $ (5,084,385 ) $ 6,381,534 Liabilities and Shareholders’ Equity (Deficit) Trade accounts payable $ — $ 94,089 $ 12,321 $ — $ 106,410 Trade accounts payable - DISH Network — 6 — — 6 Current portion of long-term debt and capital lease obligations — 32,177 807 — 32,984 Advances from affiliates, net 850,807 12,228 31,429 (893,866 ) 598 Accrued expenses and other 44,654 136,921 38,738 — 220,313 Total current liabilities 895,461 275,421 83,295 (893,866 ) 360,311 Long-term debt and capital lease obligations, net of unamortized debt issuance costs 3,358,179 262,883 1,401 — 3,622,463 Deferred tax liabilities, net — 621,061 128 (92,727 ) 528,462 Advances from affiliates — — 93,429 (61,461 ) 31,968 Other non-current liabilities — 80,532 2,775 — 83,307 Total HSS shareholders’ equity (deficit) 1,742,193 3,725,098 311,233 (4,036,331 ) 1,742,193 Noncontrolling interests — — 12,830 — 12,830 Total liabilities and shareholders’ equity (deficit) $ 5,995,833 $ 4,964,995 $ 505,091 $ (5,084,385 ) $ 6,381,534 December 31, 2017 (In thousands) HSS Guarantor Subsidiaries Non-Guarantor Subsidiaries Eliminations Total Revenue: Services and other revenue - other $ — $ 1,056,914 $ 178,857 $ (32,220 ) $ 1,203,551 Services and other revenue - DISH Network — 432,090 1,739 — 433,829 Equipment revenue - other — 255,320 27,205 (43,326 ) 239,199 Equipment revenue - DISH Network — 290 — — 290 Total revenue — 1,744,614 207,801 (75,546 ) 1,876,869 Costs and Expenses: Costs of sales - services and other (exclusive of depreciation and amortization) — 441,120 131,177 (29,632 ) 542,665 Cost of sales - equipment (exclusive of depreciation and amortization) — 235,318 20,318 (43,178 ) 212,458 Selling, general and administrative expenses — 293,810 46,517 (2,736 ) 337,591 Research and development expenses — 31,745 — — 31,745 Depreciation and amortization — 458,483 38,315 — 496,798 Impairment of assets — 6,000 — — 6,000 Total costs and expenses — 1,466,476 236,327 (75,546 ) 1,627,257 Operating income — 278,138 (28,526 ) — 249,612 Other Income (Expense): Interest income 28,146 96,992 1,986 (95,172 ) 31,952 Interest expense, net of amounts capitalized (229,415 ) (112,855 ) 1,620 95,172 (245,478 ) Other-than-temporary impairment loss on available-for-sale securities — — (3,298 ) — (3,298 ) Gains (losses) on marketable investment securities, net — — 1,724 — 1,724 Equity in earnings of unconsolidated affiliate — — 7,027 — 7,027 Equity in earnings (losses) of subsidiaries, net 471,602 (35,142 ) — (436,460 ) — Other, net — 4,497 (6,685 ) — (2,188 ) Total other income (expense), net 270,333 (46,508 ) 2,374 (436,460 ) (210,261 ) Income (loss) before income taxes 270,333 231,630 (26,152 ) (436,460 ) 39,351 Income tax benefit (provision), net 25,637 240,392 (7,827 ) — 258,202 Net income (loss) 295,970 472,022 (33,979 ) (436,460 ) 297,553 Less: Net income attributable to noncontrolling interests — — 1,583 — 1,583 Net income (loss) attributable to HSS $ 295,970 $ 472,022 $ (35,562 ) $ (436,460 ) $ 295,970 Comprehensive Income (Loss): Net income (loss) $ 295,970 $ 472,022 $ (33,979 ) $ (436,460 ) $ 297,553 Other comprehensive income (loss), net of tax: Foreign currency translation adjustments — — 7,196 — 7,196 Unrealized gains (losses) on available-for-sale securities and other (273 ) (2,007 ) 92 — (2,188 ) Recognition of other-than-temporary loss on available-for-sale securities in net income (loss) — 3,298 — — 3,298 Equity in other comprehensive income (loss) of subsidiaries, net 8,170 6,879 — (15,049 ) — Total other comprehensive income (loss), net of tax 7,897 8,170 7,288 (15,049 ) 8,306 Comprehensive income (loss) 303,867 480,192 (26,691 ) (451,509 ) 305,859 Less: Comprehensive income attributable to noncontrolling interests — — 1,992 — 1,992 Comprehensive income (loss) attributable to HSS $ 303,867 $ 480,192 $ (28,683 ) $ (451,509 ) $ 303,867 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 - other $ — $ 992,480 $ 133,508 $ (22,861 ) $ 1,103,127 Services and other revenue - DISH Network — 449,547 — — 449,547 Equipment revenue - other — 256,361 24,859 (42,941 ) 238,279 Equipment revenue - DISH Network — 8,840 — — 8,840 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 loss 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 - other $ — $ 976,507 $ 140,619 $ (21,877 ) $ 1,095,249 Services and other revenue - DISH Network — 518,734 119 — 518,853 Equipment revenue - other — 200,605 30,678 (19,005 ) 212,278 Equipment revenue - DISH Network — 10,752 — — 10,752 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 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 loss 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 December 31, 2017 (In thousands) HSS Guarantor Subsidiaries Non-Guarantor Subsidiaries Eliminations Total Cash Flows from Operating Activities: Net income (loss) $ 295,970 $ 472,022 $ (33,979 ) $ (436,460 ) $ 297,553 Adjustments to reconcile net income (loss) to net cash flows from operating activities (206,014 ) (74,310 ) 43,340 436,460 199,476 Net cash flows from operating activities 89,956 397,712 9,361 — 497,029 Cash Flows from Investing Activities: Purchases of marketable investment securities (535,476 ) — — — (535,476 ) Sales and maturities of marketable investment securities 259,263 — — — 259,263 Expenditures for property and equipment — (340,197 ) (61,341 ) — (401,538 ) Refund and other receipts related to capital expenditures — 4,311 — — 4,311 Changes in restricted cash and cash equivalents — — (70 ) — (70 ) Investment in subsidiary (59,000 ) (63,000 ) — 122,000 — Expenditures for externally marketed software — (31,331 ) — — (31,331 ) Net cash flows from investing activities $ (335,213 ) $ (430,217 ) $ (61,411 ) $ 122,000 $ (704,841 ) Cash Flows from Financing Activities: Proceeds from capital contribution from parent — 59,000 63,000 (122,000 ) — Payments of debt issuance costs (414 ) — — — (414 ) Repayment of debt and capital lease obligations — (32,177 ) (4,886 ) — (37,063 ) Advances to affiliates — (36 ) — (36 ) Other, net 600 (5,850 ) 886 — (4,364 ) Net cash flows from financing activities 186 20,973 58,964 (122,000 ) (41,877 ) Effect of exchange rates on cash and cash equivalents — — 1,286 — 1,286 Net increase (decrease) in cash and cash equivalents (245,071 ) (11,532 ) 8,200 — (248,403 ) Cash and cash equivalents, at beginning of year 1,991,949 53,905 25,110 — 2,070,964 Cash and cash equivalents, at end of year $ 1,746,878 $ 42,373 $ 33,310 $ — $ 1,822,561 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 of 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 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 |