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 5 1/4% Senior Secured Notes due August 1, 2026, 7 5/8% Senior Unsecured Notes due 2021 and 6 5/8% Senior Unsecured Notes due August 1, 2026 (collectively, the “Notes”). The indentures governing the 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. In lieu of separate financial statements of the Guarantor Subsidiaries, we have prepared the accompanying condensed consolidating financial information in accordance with Rule 3-10(f) of Regulation S-X. This includes: • the accompanying condensed balance sheet; • the accompanying condensed statement of operations and comprehensive income (loss); and • the accompanying condensed statement of cash flows. This also includes consolidating financial information as follows: • the Guarantor Subsidiaries on a combined basis; • the non-guarantor subsidiaries of HSSC on a combined basis; and • the eliminations necessary to arrive at the corresponding information of HSSC on a consolidated basis. This accompanying condensed consolidating financial information should be read in conjunction with these Condensed Consolidated Financial Statements. Condensed Consolidating Balance Sheet as of June 30, 2020 HSSC Guarantor Non-Guarantor Eliminations Total Assets Current assets: Cash and cash equivalents $ 1,395,824 $ 28,728 $ 44,778 $ — $ 1,469,330 Marketable investment securities 355,570 91 — — 355,661 Trade accounts receivable and contract assets, net — 128,948 54,385 — 183,333 Other current assets 93,602 742,609 90,705 (635,472) 291,444 Total current assets 1,844,996 900,376 189,868 (635,472) 2,299,768 Non-current assets: Property and equipment, net — 1,384,547 334,656 — 1,719,203 Operating lease right-of-use assets — 99,436 26,492 — 125,928 Goodwill — 504,173 4,881 — 509,054 Regulatory authorizations, net — 400,000 10,750 — 410,750 Other intangible assets, net — 22,527 — — 22,527 Other investments, net — 107,583 — — 107,583 Investment in subsidiaries 2,847,922 208,205 — (3,056,127) — Other non-current assets, net 26,455 288,406 68,740 (100,866) 282,735 Total non-current assets 2,874,377 3,014,877 445,519 (3,156,993) 3,177,780 Total assets $ 4,719,373 $ 3,915,253 $ 635,387 $ (3,792,465) $ 5,477,548 Liabilities and Shareholder's Equity Current liabilities: Trade accounts payable $ — $ 89,567 $ 21,053 $ — $ 110,620 Current portion of long-term debt, net 896,386 — — — 896,386 Contract liabilities — 84,571 5,260 — 89,831 Accrued expenses and other current liabilities 351,596 319,827 220,174 (635,472) 256,125 Total current liabilities 1,247,982 493,965 246,487 (635,472) 1,352,962 Non-current liabilities: Long-term debt, net 1,494,902 — — — 1,494,902 Deferred tax liabilities, net — 419,682 — (25,841) 393,841 Operating lease liabilities — 89,251 21,632 — 110,883 Other non-current liabilities — 65,025 100,046 (75,025) 90,046 Total non-current liabilities 1,494,902 573,958 121,678 (100,866) 2,089,672 Total liabilities 2,742,884 1,067,923 368,165 (736,338) 3,442,634 Shareholder's equity: Total Hughes Satellite Systems Corporation shareholder's equity 1,976,489 2,847,330 208,797 (3,056,127) 1,976,489 Non-controlling interests — — 58,425 — 58,425 Total shareholder's equity 1,976,489 2,847,330 267,222 (3,056,127) 2,034,914 Total liabilities and shareholder's equity $ 4,719,373 $ 3,915,253 $ 635,387 $ (3,792,465) $ 5,477,548 Condensed Consolidating Balance Sheet as of December 31, 2019 HSSC Guarantor Non-Guarantor Eliminations Total Assets Current assets: Cash and cash equivalents $ 1,057,903 $ 32,338 $ 49,194 $ — $ 1,139,435 Marketable investment securities 652,594 241 — — 652,835 Trade accounts receivable and contract assets, net — 129,722 66,798 — 196,520 Other current assets 93,536 602,337 107,959 (502,180) 301,652 Total current assets 1,804,033 764,638 223,951 (502,180) 2,290,442 Non-current assets: Property and equipment, net — 1,459,151 398,430 — 1,857,581 Operating lease right-of-use assets — 89,106 24,293 — 113,399 Goodwill — 504,173 2,780 — 506,953 Regulatory authorizations, net — 400,000 12,363 — 412,363 Other intangible assets, net — 29,321 — — 29,321 Other investments, net — 110,040 — — 110,040 Investment in subsidiaries 2,876,572 282,163 — (3,158,735) — Other non-current assets, net 10,672 772,193 42,557 (573,486) 251,936 Total non-current assets 2,887,244 3,646,147 480,423 (3,732,221) 3,281,593 Total assets $ 4,691,277 $ 4,410,785 $ 704,374 $ (4,234,401) $ 5,572,035 Liabilities and Shareholder's Equity Current liabilities: Trade accounts payable $ — $ 102,744 $ 18,808 $ — $ 121,552 Contract liabilities — 96,485 4,575 — 101,060 Accrued expenses and other current liabilities 243,694 314,583 202,320 (502,180) 258,417 Total current liabilities 243,694 513,812 225,703 (502,180) 481,029 Non-current liabilities: Long-term debt, net 2,389,168 — — — 2,389,168 Deferred tax liabilities, net — 390,288 — (9,972) 380,316 Operating lease liabilities — 77,366 19,513 — 96,879 Other non-current liabilities — 553,518 100,476 (563,514) 90,480 Total non-current liabilities 2,389,168 1,021,172 119,989 (573,486) 2,956,843 Total liabilities 2,632,862 1,534,984 345,692 (1,075,666) 3,437,872 Shareholder's equity: Total Hughes Satellite Systems Corporation shareholder's equity 2,058,415 2,875,801 282,934 (3,158,735) 2,058,415 Non-controlling interests — — 75,748 — 75,748 Total shareholder's equity 2,058,415 2,875,801 358,682 (3,158,735) 2,134,163 Total liabilities and shareholder's equity $ 4,691,277 $ 4,410,785 $ 704,374 $ (4,234,401) $ 5,572,035 Condensed Consolidating Statement of Operations and Comprehensive Income (Loss) For the Three Months Ended June 30, 2020 HSSC Guarantor Non-Guarantor Eliminations Total Revenue: Services and other revenue $ — $ 365,846 $ 62,213 $ (8,837) $ 419,222 Equipment revenue — 58,585 6,266 (22,428) 42,423 Total revenue — 424,431 68,479 (31,265) 461,645 Costs and expenses: Cost of sales - services and other (exclusive of depreciation and amortization) — 110,650 37,531 (8,228) 139,953 Cost of sales - equipment (exclusive of depreciation and amortization) — 47,115 7,855 (22,428) 32,542 Selling, general and administrative expenses — 83,252 20,588 (609) 103,231 Research and development expenses — 7,306 142 — 7,448 Depreciation and amortization — 98,664 24,814 — 123,478 Total costs and expenses — 346,987 90,930 (31,265) 406,652 Operating income (loss) — 77,444 (22,451) — 54,993 Other income (expense): Interest income 4,252 1,003 897 (948) 5,204 Interest expense, net of amounts capitalized (40,493) (468) (4,262) 948 (44,275) Gains (losses) on investments, net 2 14 — — 16 Equity in earnings (losses) of unconsolidated affiliates, net — (1,369) — — (1,369) Equity in earnings (losses) of subsidiaries, net 31,767 (23,153) — (8,614) — Foreign currency transaction gains (losses), net — (244) 104 — (140) Other, net — (275) (112) — (387) Total other income (expense), net (4,472) (24,492) (3,373) (8,614) (40,951) Income (loss) from continuing operations before income taxes (4,472) 52,952 (25,824) (8,614) 14,042 Income tax benefit (provision), net 8,277 (21,096) (849) — (13,668) Net income (loss) 3,805 31,856 (26,673) (8,614) 374 Less: Net loss (income) attributable to non-controlling interests — — 3,431 — 3,431 Net income (loss) attributable to Hughes Satellite Systems Corporation $ 3,805 $ 31,856 $ (23,242) $ (8,614) $ 3,805 Comprehensive income (loss): Net income (loss) $ 3,805 $ 31,856 $ (26,673) $ (8,614) $ 374 Other comprehensive income (loss), net of tax: Foreign currency translation adjustments — — (10,345) — (10,345) Unrealized gains (losses) on available-for-sale securities 2,269 — — — 2,269 Other — — 285 — 285 Equity in other comprehensive income (loss) (7,687) (7,687) — 15,374 — Total other comprehensive income (loss), net of tax (5,418) (7,687) (10,060) 15,374 (7,791) Comprehensive income (loss) (1,613) 24,169 (36,733) 6,760 (7,417) Less: Comprehensive loss (income) attributable to non-controlling interests — — 5,804 — 5,804 Comprehensive income (loss) attributable to Hughes Satellite Systems Corporation $ (1,613) $ 24,169 $ (30,929) $ 6,760 $ (1,613) Condensed Consolidating Statement of Operations and Comprehensive Income (Loss) For the Three Months Ended June 30, 2019 HSS Guarantor Non-Guarantor Eliminations Total Revenue: Services and other revenue $ — $ 353,302 $ 59,260 $ (8,966) $ 403,596 Equipment revenue — 60,840 8,300 (11,495) 57,645 Total revenue — 414,142 67,560 (20,461) 461,241 Costs and expenses: Cost of sales - services and other (exclusive of depreciation and amortization) — 109,385 40,300 (8,303) 141,382 Cost of sales - equipment (exclusive of depreciation and amortization) — 52,091 5,953 (11,495) 46,549 Selling, general and administrative expenses 2,687 112,637 24,572 (663) 139,233 Research and development expenses — 6,198 190 — 6,388 Depreciation and amortization — 97,716 16,011 — 113,727 Total costs and expenses 2,687 378,027 87,026 (20,461) 447,279 Operating income (loss) (2,687) 36,115 (19,466) — 13,962 Other income (expense): Interest income 16,316 1,011 533 (816) 17,044 Interest expense, net of amounts capitalized (53,440) (5,151) (1,203) 816 (58,978) Gains (losses) on investments, net 400 (414) — — (14) Equity in earnings (losses) of unconsolidated affiliates, net — (916) — — (916) Equity in earnings (losses) of subsidiaries, net 31,864 (24,007) — (7,857) — Foreign currency transaction gains (losses), net — (16) 1,094 — 1,078 Other, net (409) 385 (32) — (56) Total other income (expense), net (5,269) (29,108) 392 (7,857) (41,842) Income (loss) from continuing operations before income taxes (7,956) 7,007 (19,074) (7,857) (27,880) Income tax benefit (provision), net 8,933 4,286 (4,357) — 8,862 Net income (loss) from continuing operations 977 11,293 (23,431) (7,857) (19,018) Net income (loss) from discontinued operations — 20,627 — — 20,627 Net income (loss) 977 31,920 (23,431) (7,857) 1,609 Less: Net loss (income) attributable to non-controlling interests — — (632) — (632) Net income (loss) attributable to Hughes Satellite Systems Corporation $ 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 (losses) on available-for-sale securities (35) — — — (35) Other — — (46) — (46) Equity in other comprehensive income (loss) 3,112 3,112 — (6,224) — Amounts reclassified to net income (loss): Realized losses (gains) on available-for-sale debt securities (15) — — — (15) Total other comprehensive income (loss), net of tax 3,062 3,112 3,112 (6,224) 3,062 Comprehensive income (loss) 4,039 35,032 (20,319) (14,081) 4,671 Less: Comprehensive loss (income) attributable to non-controlling interests — — (632) — (632) Comprehensive income (loss) attributable to Hughes Satellite Systems Corporation $ 4,039 $ 35,032 $ (20,951) $ (14,081) $ 4,039 Condensed Consolidating Statement of Operations and Comprehensive Income (Loss) For the Six Months Ended June 30, 2020 HSSC Guarantor Non-Guarantor Eliminations Total Revenue: Services and other revenue $ — $ 720,245 $ 127,141 $ (17,926) $ 829,460 Equipment revenue — 124,171 11,676 (36,115) 99,732 Total revenue — 844,416 138,817 (54,041) 929,192 Costs and expenses: Cost of sales - services and other (exclusive of depreciation and amortization) — 221,121 79,594 (16,877) 283,838 Cost of sales - equipment (exclusive of depreciation and amortization) — 102,489 12,076 (36,115) 78,450 Selling, general and administrative expenses — 179,070 41,070 (1,049) 219,091 Research and development expenses — 13,415 287 — 13,702 Depreciation and amortization — 198,023 51,420 — 249,443 Total costs and expenses — 714,118 184,447 (54,041) 844,524 Operating income (loss) — 130,298 (45,630) — 84,668 Other income (expense): Interest income 12,205 1,974 1,788 (1,871) 14,096 Interest expense, net of amounts capitalized (80,965) (1,081) (6,292) 1,871 (86,467) Gains (losses) on investments, net 2 (150) — — (148) Equity in earnings (losses) of unconsolidated affiliates, net — (2,456) — — (2,456) Equity in earnings (losses) of subsidiaries, net 42,397 (52,320) — 9,923 — Foreign currency transaction gains (losses), net — (246) (7,422) — (7,668) Other, net — (550) (115) — (665) Total other income (expense), net (26,361) (54,829) (12,041) 9,923 (83,308) Income (loss) from continuing operations before income taxes (26,361) 75,469 (57,671) 9,923 1,360 Income tax benefit (provision), net 15,695 (32,900) (1,694) — (18,899) Net income (loss) (10,666) 42,569 (59,365) 9,923 (17,539) Less: Net loss (income) attributable to non-controlling interests — — 6,873 — 6,873 Net income (loss) attributable to Hughes Satellite Systems Corporation $ (10,666) $ 42,569 $ (52,492) $ 9,923 $ (10,666) Comprehensive income (loss): Net income (loss) $ (10,666) $ 42,569 $ (59,365) $ 9,923 $ (17,539) Other comprehensive income (loss), net of tax: Foreign currency translation adjustments — — (93,181) — (93,181) Unrealized gains (losses) on available-for-sale securities (210) — — — (210) Other — — (120) — (120) Equity in other comprehensive income (loss) (74,605) (74,605) — 149,210 — Total other comprehensive income (loss), net of tax (74,815) (74,605) (93,301) 149,210 (93,511) Comprehensive income (loss) (85,481) (32,036) (152,666) 159,133 (111,050) Less: Comprehensive loss (income) attributable to non-controlling interests — — 25,569 — 25,569 Comprehensive income (loss) attributable to Hughes Satellite Systems Corporation $ (85,481) $ (32,036) $ (127,097) $ 159,133 $ (85,481) Condensed Consolidating Statement of Operations and Comprehensive Income (Loss) For the Six Months Ended June 30, 2019 HSSC Guarantor Non-Guarantor Eliminations Total Revenue: Services and other revenue $ — $ 705,893 $ 118,956 $ (17,768) $ 807,081 Equipment revenue — 113,489 17,715 (21,845) 109,359 Total revenue — 819,382 136,671 (39,613) 916,440 Costs and expenses: Cost of sales - services and other (exclusive of depreciation and amortization) — 220,247 79,633 (16,412) 283,468 Cost of sales - equipment (exclusive of depreciation and amortization) — 100,590 12,811 (21,845) 91,556 Selling, general and administrative expenses 2,687 199,102 41,137 (1,356) 241,570 Research and development expenses — 12,941 335 — 13,276 Depreciation and amortization — 194,420 31,718 — 226,138 Total costs and expenses 2,687 727,300 165,634 (39,613) 856,008 Operating income (loss) (2,687) 92,082 (28,963) — 60,432 Other income (expense): Interest income 33,725 1,937 1,092 (1,713) 35,041 Interest expense, net of amounts capitalized (109,801) (6,285) (2,520) 1,713 (116,893) Gains (losses) on investments, net 400 (760) — — (360) Equity in earnings (losses) of unconsolidated affiliates, net — (1,988) — — (1,988) Equity in earnings (losses) of subsidiaries, net 84,063 (32,795) — (51,268) — Foreign currency transaction gains (losses), net — (35) 1,324 — 1,289 Other, net (100) (13) (108) — (221) Total other income (expense), net 8,287 (39,939) (212) (51,268) (83,132) Income (loss) from continuing operations before income taxes 5,600 52,143 (29,175) (51,268) (22,700) Income tax benefit (provision), net 17,603 (11,282) (2,331) — 3,990 Net income (loss) from continuing operations 23,203 40,861 (31,506) (51,268) (18,710) Net income (loss) from discontinued operations — 43,351 — — 43,351 Net income (loss) 23,203 84,212 (31,506) (51,268) 24,641 Less: Net loss (income) attributable to non-controlling interests — — (1,438) — (1,438) Net income (loss) attributable to Hughes Satellite Systems Corporation $ 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 2,318 — — — 2,318 Other — — (13) — (13) Equity in other comprehensive income (loss) 2,307 2,307 — (4,614) — Amounts reclassified to net income (loss): Realized losses (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 loss (income) attributable to non-controlling interests — — (1,438) — (1,438) Comprehensive income (loss) attributable to Hughes Satellite Systems Corporation $ 27,428 $ 86,519 $ (30,637) $ (55,882) $ 27,428 Condensed Consolidating Statement of Cash Flows For the Six Months Ended June 30, 2020 HSSC Guarantor Non-Guarantor Eliminations Total Cash flows from operating activities: Net income (loss) $ (10,666) $ 42,569 $ (59,365) $ 9,923 $ (17,539) Adjustments to reconcile net income (loss) to net cash flows from operating activities (54,571) 233,112 77,118 (9,923) 245,736 Net cash flows from operating activities (65,237) 275,681 17,753 — 228,197 Cash flows from investing activities: Purchases of marketable investment securities (365,877) — — — (365,877) Sales and maturities of marketable investment securities 660,513 — — — 660,513 Expenditures for property and equipment — (101,237) (73,759) — (174,996) Expenditures for externally marketed software — (19,237) — — (19,237) Distributions (contributions) and advances 108,522 (49,274) — (59,248) — Net cash flows from investing activities 403,158 (169,748) (73,759) (59,248) 100,403 Cash flows from financing activities: Payment of finance lease obligations — — (421) — (421) Payment of in-orbit incentive obligations — (1,021) — — (1,021) Contribution by non-controlling interest holder — — 10,000 — 10,000 Other, net — — 1,002 — 1,002 Contributions (distributions) and advances — (108,522) 49,274 59,248 — Net cash flows from financing activities — (109,543) 59,855 59,248 9,560 Effect of exchange rates on cash and cash equivalents — — (8,148) — (8,148) Net increase (decrease) in cash and cash equivalents 337,921 (3,610) (4,299) — 330,012 Cash and cash equivalents, including restricted amounts, beginning of period 1,057,903 32,338 50,081 — 1,140,322 Cash and cash equivalents, including restricted amounts, end of period $ 1,395,824 $ 28,728 $ 45,782 $ — $ 1,470,334 Condensed Consolidating Statement of Cash Flows For the Six Months Ended June 30, 2019 HSSC Guarantor Non-Guarantor 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 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: Repurchase and maturity of the 2019 Senior Secured Notes (920,923) — — — (920,923) Payment of finance lease obligations — (19,457) (551) — (20,008) Payment of in-orbit incentive obligations — (3,778) — — (3,778) Purchase of non-controlling interest — (2,666) (4,647) — (7,313) Other, net — — — — — Contributions (distributions) and advances — (250,863) 21,587 229,276 — 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 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 |