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 Secured Notes, 7 5/8% Senior Unsecured Notes due 2021 and 6 5/8% Senior Unsecured Notes due August 1, 2026 (collectively, the “Notes”). In lieu of separate financial statements of the Guarantor Subsidiaries, accompanying condensed consolidating financial information prepared in accordance with Rule 3-10(f) of Regulation S-X is presented below, including the accompanying condensed balance sheet information, the accompanying condensed statement of operations and comprehensive income (loss) information and the accompanying 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 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 accompanying condensed consolidating financial information presented below should be read in conjunction with our accompanying condensed consolidated financial statements and notes thereto included herein. Condensed Consolidating Balance Sheet as of June 30, 2019 (Amounts in thousands) HSS Guarantor Subsidiaries Non-Guarantor Subsidiaries Eliminations Total Assets Cash and cash equivalents $ 802,350 $ 46,691 $ 27,347 $ — $ 876,388 Marketable investment securities, at fair value 833,707 313 — — 834,020 Trade accounts receivable and contract assets — 131,770 69,791 — 201,561 Trade accounts receivable - DISH Network — 12,577 605 — 13,182 Inventory — 54,267 19,078 — 73,345 Advances to affiliates, net 109,433 827,008 10,895 (858,465 ) 88,871 Other current assets 121 28,873 46,925 — 75,919 Total current assets 1,745,611 1,101,499 174,641 (858,465 ) 2,163,286 Property and equipment, net — 2,151,156 308,428 — 2,459,584 Operating lease right-of-use assets — 88,290 23,388 — 111,678 Goodwill — 504,173 — — 504,173 Regulatory authorizations — 465,615 — — 465,615 Other intangible assets, net — 36,636 — — 36,636 Investments in unconsolidated entities — 124,468 — — 124,468 Investment in subsidiaries 3,461,661 196,798 — (3,658,459 ) — Advances to affiliates 700 76,924 17,370 (75,026 ) 19,968 Deferred tax asset 71,604 — 3,881 (71,604 ) 3,881 Other noncurrent assets, net — 227,217 16,062 — 243,279 Total assets $ 5,279,576 $ 4,972,776 $ 543,770 $ (4,663,554 ) $ 6,132,568 Liabilities and Shareholders’ Equity Trade accounts payable $ — $ 86,911 $ 17,605 $ — $ 104,516 Trade accounts payable - DISH Network — 784 — — 784 Current portion of long-term debt and finance lease obligations — 42,214 468 — 42,682 Advances from affiliates, net 445,889 279,640 133,826 (858,465 ) 890 Accrued expenses and other 42,307 203,135 51,321 — 296,763 Total current liabilities 488,196 612,684 203,220 (858,465 ) 445,635 Long-term debt and finance lease obligations, net 2,387,127 165,326 899 — 2,553,352 Deferred tax liabilities, net — 565,887 111 (71,604 ) 494,394 Operating lease liabilities — 76,118 18,750 — 94,868 Advances from affiliates, net — — 108,563 (75,026 ) 33,537 Other noncurrent liabilities — 92,059 2,404 — 94,463 Total HSS shareholders’ equity 2,404,253 3,460,702 197,757 (3,658,459 ) 2,404,253 Noncontrolling interests — — 12,066 — 12,066 Total liabilities and shareholders’ equity $ 5,279,576 $ 4,972,776 $ 543,770 $ (4,663,554 ) $ 6,132,568 Condensed Consolidating Balance Sheet as of December 31, 2018 (Amounts in thousands) HSS Guarantor Subsidiaries Non-Guarantor Subsidiaries Eliminations Total Assets Cash and cash equivalents $ 771,718 $ 46,353 $ 29,752 $ — $ 847,823 Marketable investment securities, at fair value 1,608,123 1,073 — — 1,609,196 Trade accounts receivable and contract assets — 128,831 72,265 — 201,096 Trade accounts receivable - DISH Network — 13,240 310 — 13,550 Inventory — 58,607 16,772 — 75,379 Advances to affiliates, net 109,433 536,600 27,174 (569,657 ) 103,550 Other current assets 72 26,331 41,378 (561 ) 67,220 Total current assets 2,489,346 811,035 187,651 (570,218 ) 2,917,814 Property and equipment, net — 2,280,804 301,377 — 2,582,181 Goodwill — 504,173 — — 504,173 Regulatory authorizations — 465,658 — — 465,658 Other intangible assets, net — 43,952 — — 43,952 Investments in unconsolidated entities — 126,369 — — 126,369 Investment in subsidiaries 3,362,589 192,370 — (3,554,959 ) — Advances to affiliates 700 86,280 — (86,980 ) — Deferred tax asset 54,001 — 3,581 (54,001 ) 3,581 Other noncurrent assets, net — 236,675 12,769 — 249,444 Total assets $ 5,906,636 $ 4,747,316 $ 505,378 $ (4,266,158 ) $ 6,893,172 Liabilities and Shareholders’ Equity Trade accounts payable $ — $ 88,342 $ 16,409 $ — $ 104,751 Trade accounts payable - DISH Network — 752 — — 752 Current portion of long-term debt and finance lease obligations 918,916 39,995 666 — 959,577 Advances from affiliates, net 181,926 282,268 106,331 (569,657 ) 868 Accrued expenses and other 43,410 147,055 48,307 (561 ) 238,211 Total current liabilities 1,144,252 558,412 171,713 (570,218 ) 1,304,159 Long-term debt and finance lease obligations, net 2,385,164 187,002 1,038 — 2,573,204 Deferred tax liabilities, net — 541,903 834 (54,001 ) 488,736 Advances from affiliates, net — — 120,418 (86,980 ) 33,438 Other noncurrent liabilities — 98,661 2,479 — 101,140 Total HSS shareholders’ equity 2,377,220 3,361,338 193,621 (3,554,959 ) 2,377,220 Noncontrolling interests — — 15,275 — 15,275 Total liabilities and shareholders’ equity $ 5,906,636 $ 4,747,316 $ 505,378 $ (4,266,158 ) $ 6,893,172 Condensed Consolidating Statement of Operations and Comprehensive Income (Loss) For the Three Months Ended June 30, 2019 (Amounts in thousands) HSS Guarantor Subsidiaries Non-Guarantor Subsidiaries Eliminations Total Revenue: Services and other revenue - DISH Network $ — $ 80,943 $ 605 $ — $ 81,548 Services and other revenue - other — 349,577 58,655 (8,966 ) 399,266 Equipment revenue — 60,840 8,300 (11,495 ) 57,645 Total revenue — 491,360 67,560 (20,461 ) 538,459 Costs and expenses: Cost of sales - services and other (exclusive of depreciation and amortization) — 119,894 40,300 (8,303 ) 151,891 Cost of sales - equipment (exclusive of depreciation and amortization) — 52,091 5,953 (11,495 ) 46,549 Selling, general and administrative expenses 2,687 115,258 24,572 (663 ) 141,854 Research and development expenses — 6,198 190 — 6,388 Depreciation and amortization — 128,735 16,011 — 144,746 Total costs and expenses 2,687 422,176 87,026 (20,461 ) 491,428 Operating income (loss) (2,687 ) 69,184 (19,466 ) — 47,031 Other income (expense): Interest income 16,316 1,011 533 (816 ) 17,044 Interest expense, net of amounts capitalized (53,440 ) (11,386 ) (1,203 ) 816 (65,213 ) Gains (losses) on investments, net 400 (414 ) — — (14 ) Equity in losses of unconsolidated affiliates, net — (916 ) — — (916 ) Equity in earnings (losses) of subsidiaries, net 31,864 (24,007 ) — (7,857 ) — Other, net (409 ) 370 1,062 — 1,023 Total other income (expense), net (5,269 ) (35,342 ) 392 (7,857 ) (48,076 ) Income (loss) before income taxes (7,956 ) 33,842 (19,074 ) (7,857 ) (1,045 ) Income tax benefit (provision) 8,933 (1,922 ) (4,357 ) — 2,654 Net income (loss) 977 31,920 (23,431 ) (7,857 ) 1,609 Less: Net income attributable to noncontrolling interests — — 632 — 632 Net income (loss) attributable to HSS $ 977 $ 31,920 $ (24,063 ) $ (7,857 ) $ 977 Comprehensive income (loss): Net income (loss) $ 977 $ 31,920 $ (23,431 ) $ (7,857 ) $ 1,609 Other comprehensive income (loss), net of tax: Foreign currency translation adjustments — — 3,158 — 3,158 Unrealized gains on available-for-sale securities and other (36 ) — (45 ) — (81 ) Equity in other comprehensive income (loss) of subsidiaries, net 3,113 3,113 — (6,226 ) — Amounts reclassified to net income (loss): Realized gains on available-for-sale securities (15 ) — — — (15 ) Total other comprehensive income (loss), net of tax 3,062 3,113 3,113 (6,226 ) 3,062 Comprehensive income (loss) 4,039 35,033 (20,318 ) (14,083 ) 4,671 Less: Comprehensive income attributable to noncontrolling interests — — 632 — 632 Comprehensive income (loss) attributable to HSS $ 4,039 $ 35,033 $ (20,950 ) $ (14,083 ) $ 4,039 Condensed Consolidating Statement of Operations and Comprehensive Income (Loss) For the Three Months Ended June 30, 2018 (Amounts in thousands) HSS Guarantor Subsidiaries Non-Guarantor Subsidiaries Eliminations Total Revenue: Services and other revenue - DISH Network $ — $ 96,653 $ 487 $ — $ 97,140 Services and other revenue - other — 331,875 57,379 (9,139 ) 380,115 Equipment revenue — 53,643 4,557 (7,859 ) 50,341 Total revenue — 482,171 62,423 (16,998 ) 527,596 Costs and expenses: Cost of sales - services and other (exclusive of depreciation and amortization) — 122,259 36,509 (8,545 ) 150,223 Cost of sales - equipment (exclusive of depreciation and amortization) — 46,217 3,539 (7,891 ) 41,865 Selling, general and administrative expenses — 82,477 11,460 (562 ) 93,375 Research and development expenses — 6,647 — — 6,647 Depreciation and amortization — 124,249 12,459 — 136,708 Total costs and expenses — 381,849 63,967 (16,998 ) 428,818 Operating income (loss) — 100,322 (1,544 ) — 98,778 Other income (expense): Interest income 13,768 1,609 508 (1,599 ) 14,286 Interest expense, net of amounts capitalized (57,479 ) (6,574 ) (1,668 ) 1,599 (64,122 ) Gains (losses) on investments, net — 509 — — 509 Equity in earnings of unconsolidated affiliates, net — 1,238 — — 1,238 Equity in earnings (losses) of subsidiaries, net 74,180 (8,161 ) — (66,019 ) — Other, net 3 9,489 (9,025 ) — 467 Total other income (expense), net 30,472 (1,890 ) (10,185 ) (66,019 ) (47,622 ) Income (loss) before income taxes 30,472 98,432 (11,729 ) (66,019 ) 51,156 Income tax benefit (provision) 9,759 (24,103 ) 3,881 — (10,463 ) Net income (loss) 40,231 74,329 (7,848 ) (66,019 ) 40,693 Less: Net income attributable to noncontrolling interests — — 462 — 462 Net income (loss) attributable to HSS $ 40,231 $ 74,329 $ (8,310 ) $ (66,019 ) $ 40,231 Comprehensive income (loss): Net income (loss) $ 40,231 $ 74,329 $ (7,848 ) $ (66,019 ) $ 40,693 Other comprehensive income (loss), net of tax: Foreign currency translation adjustments — — (32,314 ) — (32,314 ) Unrealized gains on available-for-sale securities and other 470 — (141 ) — 329 Equity in other comprehensive income (loss) of subsidiaries, net (31,870 ) (31,870 ) — 63,740 — Amounts reclassified to net income (loss): Realized gains on available-for-sale securities (3 ) — — — (3 ) Total other comprehensive income (loss), net of tax (31,403 ) (31,870 ) (32,455 ) 63,740 (31,988 ) Comprehensive income (loss) 8,828 42,459 (40,303 ) (2,279 ) 8,705 Less: Comprehensive loss attributable to noncontrolling interests — — (123 ) — (123 ) Comprehensive income (loss) attributable to HSS $ 8,828 $ 42,459 $ (40,180 ) $ (2,279 ) $ 8,828 Condensed Consolidating Statement of Operations and Comprehensive Income (Loss) For the Six Months Ended June 30, 2019 (Amounts in thousands) HSS Guarantor Subsidiaries Non-Guarantor Subsidiaries Eliminations Total Revenue: Services and other revenue - DISH Network $ — $ 162,801 $ 1,118 $ — $ 163,919 Services and other revenue - other — 697,536 117,838 (17,768 ) 797,606 Equipment revenue — 113,489 17,715 (21,845 ) 109,359 Total revenue — 973,826 136,671 (39,613 ) 1,070,884 Costs and expenses: Cost of sales - services and other (exclusive of depreciation and amortization) — 240,973 79,633 (16,412 ) 304,194 Cost of sales - equipment (exclusive of depreciation and amortization) — 100,590 12,811 (21,845 ) 91,556 Selling, general and administrative expenses 2,687 201,744 41,137 (1,356 ) 244,212 Research and development expenses — 12,941 335 — 13,276 Depreciation and amortization — 256,558 31,718 — 288,276 Total costs and expenses 2,687 812,806 165,634 (39,613 ) 941,514 Operating income (loss) (2,687 ) 161,020 (28,963 ) — 129,370 Other income (expense): Interest income 33,725 1,937 1,092 (1,713 ) 35,041 Interest expense, net of amounts capitalized (109,801 ) (19,018 ) (2,520 ) 1,713 (129,626 ) Gains (losses) on investments, net 400 (760 ) — — (360 ) Equity in losses of unconsolidated affiliates, net — (1,988 ) — — (1,988 ) Equity in earnings (losses) of subsidiaries, net 84,063 (32,795 ) — (51,268 ) — Other, net (100 ) (48 ) 1,216 — 1,068 Total other income (expense), net 8,287 (52,672 ) (212 ) (51,268 ) (95,865 ) Income (loss) before income taxes 5,600 108,348 (29,175 ) (51,268 ) 33,505 Income tax benefit (provision) 17,603 (24,136 ) (2,331 ) — (8,864 ) Net income (loss) 23,203 84,212 (31,506 ) (51,268 ) 24,641 Less: Net income attributable to noncontrolling interests — — 1,438 — 1,438 Net income (loss) attributable to HSS $ 23,203 $ 84,212 $ (32,944 ) $ (51,268 ) $ 23,203 Comprehensive income (loss): Net income (loss) $ 23,203 $ 84,212 $ (31,506 ) $ (51,268 ) $ 24,641 Other comprehensive income (loss), net of tax: Foreign currency translation adjustments — — 2,320 — 2,320 Unrealized gains (losses) on available-for-sale securities and other 2,318 — (13 ) — 2,305 Equity in other comprehensive income (loss) of subsidiaries, net 2,307 2,307 — (4,614 ) — Amounts reclassified to net income (loss): Realized gains on available-for-sale securities (400 ) — — — (400 ) Total other comprehensive income (loss), net of tax 4,225 2,307 2,307 (4,614 ) 4,225 Comprehensive income (loss) 27,428 86,519 (29,199 ) (55,882 ) 28,866 Less: Comprehensive income attributable to noncontrolling interests — — 1,438 — 1,438 Comprehensive income (loss) attributable to HSS $ 27,428 $ 86,519 $ (30,637 ) $ (55,882 ) $ 27,428 Condensed Consolidating Statement of Operations and Comprehensive Income (Loss) For the Six Months Ended June 30, 2018 (Amounts in thousands) HSS Guarantor Subsidiaries Non-Guarantor Subsidiaries Eliminations Total Revenue: Services and other revenue - DISH Network $ — $ 196,740 $ 1,014 $ — $ 197,754 Services and other revenue - other — 643,983 114,455 (18,989 ) 739,449 Equipment revenue — 100,052 9,164 (15,928 ) 93,288 Total revenue — 940,775 124,633 (34,917 ) 1,030,491 Costs and expenses: Cost of sales - services and other (exclusive of depreciation and amortization) — 241,585 74,235 (17,942 ) 297,878 Cost of sales - equipment (exclusive of depreciation and amortization) — 89,860 7,004 (15,928 ) 80,936 Selling, general and administrative expenses — 165,869 23,203 (1,047 ) 188,025 Research and development expenses — 13,784 — — 13,784 Depreciation and amortization — 245,588 24,838 — 270,426 Total costs and expenses — 756,686 129,280 (34,917 ) 851,049 Operating income (loss) — 184,089 (4,647 ) — 179,442 Other income (expense): Interest income 24,529 1,925 1,009 (1,798 ) 25,665 Interest expense, net of amounts capitalized (114,924 ) (13,530 ) (1,879 ) 1,798 (128,535 ) Gains (losses) on investments, net — 117 — — 117 Equity in earnings of unconsolidated affiliates, net — 2,730 — — 2,730 Equity in earnings (losses) of subsidiaries, net 130,439 (11,858 ) — (118,581 ) — Other, net 6 9,392 (9,544 ) — (146 ) Total other income (expense), net 40,050 (11,224 ) (10,414 ) (118,581 ) (100,169 ) Income (loss) before income taxes 40,050 172,865 (15,061 ) (118,581 ) 79,273 Income tax benefit (provision) 20,182 (42,187 ) 3,806 — (18,199 ) Net income (loss) 60,232 130,678 (11,255 ) (118,581 ) 61,074 Less: Net income attributable to noncontrolling interests — — 842 — 842 Net income (loss) attributable to HSS $ 60,232 $ 130,678 $ (12,097 ) $ (118,581 ) $ 60,232 Comprehensive income (loss): Net income (loss) $ 60,232 $ 130,678 $ (11,255 ) $ (118,581 ) $ 61,074 Other comprehensive income (loss), net of tax: Foreign currency translation adjustments — — (30,414 ) — (30,414 ) Unrealized gains (losses) on available-for-sale securities and other 159 — (241 ) — (82 ) Equity in other comprehensive income (loss) of subsidiaries, net (29,856 ) (29,856 ) — 59,712 — Amounts reclassified to net income (loss): Realized gains on available-for-sale securities (3 ) — — — (3 ) Total other comprehensive income (loss), net of tax (29,700 ) (29,856 ) (30,655 ) 59,712 (30,499 ) Comprehensive income (loss) 30,532 100,822 (41,910 ) (58,869 ) 30,575 Less: Comprehensive income attributable to noncontrolling interests — — 43 — 43 Comprehensive income (loss) attributable to HSS $ 30,532 $ 100,822 $ (41,953 ) $ (58,869 ) $ 30,532 Condensed Consolidating Statement of Cash Flows For the Six Months Ended June 30, 2019 (Amounts in thousands) HSS Guarantor Subsidiaries Non-Guarantor Subsidiaries Eliminations Total Cash flows from operating activities: Net income (loss) $ 23,203 $ 84,212 $ (31,506 ) $ (51,268 ) $ 24,641 Adjustments to reconcile net income (loss) to net cash flows from operating activities (98,548 ) 338,912 51,854 51,268 343,486 Net cash flows from operating activities (75,345 ) 423,124 20,348 — 368,127 Cash flows from investing activities: Purchases of marketable investment securities (351,843 ) — — — (351,843 ) Sales and maturities of marketable investment securities 1,127,880 (3 ) — — 1,127,877 Expenditures for property and equipment — (109,103 ) (39,052 ) — (148,155 ) Expenditures for externally marketed software — (15,329 ) — — (15,329 ) Distributions (contributions) and advances from (to) subsidiaries, net 250,863 (21,587 ) — (229,276 ) — Net cash flows from investing activities 1,026,900 (146,022 ) (39,052 ) (229,276 ) 612,550 Cash flows from financing activities: Repayment of debt and finance lease obligations — (19,457 ) (1,723 ) — (21,180 ) Repurchase and maturity of debt (920,923 ) — — — (920,923 ) Purchase of noncontrolling interest — (2,666 ) (4,647 ) — (7,313 ) Repayment of in-orbit incentive obligations — (3,778 ) — — (3,778 ) Contributions (distributions) and advances (to) from parent, net — (250,863 ) 21,587 229,276 — Proceeds from issuance of debt — — 1,172 — 1,172 Net cash flows from financing activities (920,923 ) (276,764 ) 16,389 229,276 (952,022 ) Effect of exchange rates on cash and cash equivalents — — 121 — 121 Net increase (decrease) in cash and cash equivalents, including restricted amounts 30,632 338 (2,194 ) — 28,776 Cash and cash equivalents, including restricted amounts, beginning of period 771,718 46,353 30,548 — 848,619 Cash and cash equivalents, including restricted amounts, end of period $ 802,350 $ 46,691 $ 28,354 $ — $ 877,395 Condensed Consolidating Statement of Cash Flows For the Six Months Ended June 30, 2018 (Amounts in thousands) HSS Guarantor Subsidiaries Non-Guarantor Subsidiaries Eliminations Total Cash flows from operating activities: Net income (loss) $ 60,232 $ 130,678 $ (11,255 ) $ (118,581 ) $ 61,074 Adjustments to reconcile net income (loss) to net cash flows from operating activities (143,241 ) 305,364 19,347 118,581 300,051 Net cash flows from operating activities (83,009 ) 436,042 8,092 — 361,125 Cash flows from investing activities: Purchases of marketable investment securities (1,098,527 ) — — — (1,098,527 ) Sales and maturities of marketable investment securities 560,194 — — 560,194 Expenditures for property and equipment — (148,208 ) (27,436 ) — (175,644 ) Refunds and other receipts related to property and equipment — 77,524 — — 77,524 Expenditures for externally marketed software — (15,000 ) — — (15,000 ) Payment for satellite launch services — — (7,125 ) — (7,125 ) Distributions (contributions) and advances from (to) subsidiaries, net 306,958 (23,215 ) — (283,743 ) — Net cash flows from investing activities (231,375 ) (108,899 ) (34,561 ) (283,743 ) (658,578 ) Cash flows from financing activities: Repayment of debt and finance lease obligations — (17,455 ) (962 ) — (18,417 ) Repayment of in-orbit incentive obligations — (2,718 ) — — (2,718 ) Capital contribution from EchoStar Corporation 7,125 — — — 7,125 Contributions (distributions) and advances (to) from parent, net — (306,958 ) 23,215 283,743 — Net cash flows from financing activities 7,125 (327,131 ) 22,253 283,743 (14,010 ) Effect of exchange rates on cash and cash equivalents — — (1,865 ) — (1,865 ) Net increase (decrease) in cash and cash equivalents, including restricted amounts (307,259 ) 12 (6,081 ) — (313,328 ) Cash and cash equivalents, including restricted amounts, beginning of period 1,746,878 42,373 34,103 — 1,823,354 Cash and cash equivalents, including restricted amounts, end of period $ 1,439,619 $ 42,385 $ 28,022 $ — $ 1,510,026 |