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sats:ReceiverAgreement2012Member 2016-11-01 2016-11-30 0001415404 sats:DISHNetworkMember sats:EchoStarXVIMember 2017-01-01 2017-03-31 0001415404 sats:TelesatCanadaMember sats:TeleSatTransponderAgreementMember 2009-09-01 2009-09-30 0001415404 sats:SESLatinAmericaMember sats:QuetzSat1AgreementMember 2008-11-01 2008-11-30 0001415404 sats:DISHNetworkMember sats:DISHRemoteAccessServicesAgreementMember 2017-02-01 2017-02-28 0001415404 sats:DISHNetworkMember sats:SetTopBoxApplicationDevelopmentAgreementMember 2017-02-01 2017-02-28 0001415404 sats:DISHNetworkMember sats:EchoStarXVIMember 2009-01-01 2009-12-31 0001415404 sats:DISHNetworkMember sats:DISHOnline.ComServicesAgreementMember 2010-01-01 2010-01-31 0001415404 sats:CielSatelliteHoldingsIncMember sats:DISHNetworkMember sats:DISH103ServiceAgreementMember 2012-05-01 2012-05-31 0001415404 sats:DISHNetworkMember sats:SlingServiceServicesAgreementMember 2017-02-01 2017-02-28 0001415404 us-gaap:CorporateJointVentureMember 2012-07-31 0001415404 sats:DishMexicoMember 2016-12-31 0001415404 us-gaap:CorporateJointVentureMember sats:DISHNetworkMember 2012-07-31 0001415404 sats:DeluxeEchoStarLLCMember 2016-12-31 iso4217:USD sats:satellite xbrli:pure sats:segment xbrli:shares iso4217:USD xbrli:shares utreg:mi sats:parcel sats:subsidiary sats:term sats:installment sats:transponder
Table of Contents


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.  20549
 
FORM 10-Q
 
(Mark One)
 
ý    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2017.
 
OR

o    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:  001-33807
 
EchoStar Corporation
(Exact Name of Registrant as Specified in Its Charter)
 
Nevada
 
26-1232727
(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) 706-4000
(Registrant’s Telephone Number, Including Area Code)
 
Not Applicable
(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  ý  No  o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes  ý  No  o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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 filer ý
 
Accelerated filer  o
Non-accelerated filer o
(Do not check is a smaller reporting company)
Smaller reporting company o
 
 
Emerging growth company o
 
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. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  o  No  ý
 
As of May 1, 2017, the registrant’s outstanding common stock consisted of 47,804,925 shares of Class A common stock and 47,687,039 shares of Class B common stock, each $0.001 par value.


Table of Contents


TABLE OF CONTENTS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



Table of Contents


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, and 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: 

our reliance on DISH Network Corporation and its subsidiaries (“DISH Network”), for a significant portion of our revenue;
our ability to implement our strategic initiatives;
significant risks related to the construction, launch and operation of our satellites, such as the risk of material malfunction on one or more of our satellites, risks resulting from delays or failures of launches of our satellites and potentially missing our regulatory milestones, changes in the space weather environment that could interfere with the operation of our satellites, and our general lack of commercial insurance coverage on our satellites;
our failure to adequately anticipate the need for satellite capacity or the inability to obtain satellite capacity for our Hughes segment;
the failure of third-party providers of components, manufacturing, installation services and customer support services to appropriately deliver the contracted goods or services;
our ability to bring advanced technologies to market to keep pace with our customers and competitors; and
risk 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 dollar, economic instability and political disturbances.
 
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 Discussion and Analysis of Financial Condition and Results of Operations” herein and in 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 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.

i

Table of Contents


PART I — FINANCIAL INFORMATION

Item 1.    FINANCIAL STATEMENTS

ECHOSTAR CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
(Unaudited)
 
 
As of
 
 
March 31, 2017
 
December 31, 2016
Assets
 
 

 
 

Current Assets:
 
 

 
 

Cash and cash equivalents
 
$
2,799,545

 
$
2,570,365

Marketable investment securities, at fair value
 
383,015

 
522,516

Trade accounts receivable, net of allowance for doubtful accounts of $11,371 and $12,956, respectively
 
167,860

 
182,527

Trade accounts receivable - DISH Network, net of allowance for doubtful accounts of zero
 
50,284

 
19,417

Inventory
 
79,422

 
62,620

Prepaids and deposits
 
45,604

 
43,456

Other current assets
 
12,495

 
10,862

Current assets of discontinued operations
 
213,191

 
311,524

Total current assets
 
3,751,416

 
3,723,287

Noncurrent Assets:
 
 

 
 

Restricted cash and marketable investment securities
 
8,343

 
12,926

Property and equipment, net of accumulated depreciation of $2,724,049 and $2,598,492, respectively
 
3,425,548

 
3,398,195

Regulatory authorizations, net
 
545,620

 
544,633

Goodwill
 
504,173

 
504,173

Other intangible assets, net
 
73,006

 
80,734

Investments in unconsolidated entities
 
165,992

 
171,016

Other receivable - DISH Network
 
91,029

 
90,586

Other noncurrent assets, net
 
181,899

 
166,385

Noncurrent assets of discontinued operations
 

 
316,924

Total noncurrent assets
 
4,995,610

 
5,285,572

Total assets
 
$
8,747,026

 
$
9,008,859

Liabilities and Stockholders’ Equity
 
 

 
 

Current Liabilities:
 
 

 
 

Trade accounts payable
 
$
134,461

 
$
170,297

Trade accounts payable - DISH Network
 
3,691

 
1,072

Current portion of long-term debt and capital lease obligations
 
37,270

 
32,984

Deferred revenue and prepayments
 
54,596

 
59,989

Accrued interest
 
57,012

 
46,487

Accrued compensation
 
30,013

 
53,454

Accrued expenses and other
 
106,391

 
95,726

Current liabilities of discontinued operations
 
311

 
71,429

Total current liabilities
 
423,745

 
531,438

Noncurrent Liabilities:
 
 

 
 

Long-term debt and capital lease obligations, net of unamortized debt issuance costs
 
3,620,044

 
3,622,463

Deferred tax liabilities, net
 
736,186

 
746,667

Other noncurrent liabilities
 
121,341

 
90,785

Noncurrent liabilities of discontinued operations
 

 
10,701

Total noncurrent liabilities
 
4,477,571

 
4,470,616

Total liabilities
 
4,901,316

 
5,002,054

Commitments and Contingencies (Note 14)
 


 


Stockholders’ Equity:
 
 

 
 

Preferred Stock, $.001 par value, 20,000,000 shares authorized:
 
 

 
 

Hughes Retail Preferred Tracking Stock, $.001 par value, zero authorized, issued and outstanding at March 31, 2017 and 13,000,000 shares authorized and 6,290,499 issued and outstanding at December 31, 2016
 

 
6

Common stock, $.001 par value, 4,000,000,000 shares authorized:
 
 

 
 

Class A common stock, $.001 par value, 1,600,000,000 shares authorized, 53,320,812 shares issued and 47,788,494 shares outstanding at March 31, 2017 and 52,243,465 shares issued and 46,711,147 shares outstanding at December 31, 2016
 
53

 
52

Class B common stock, $.001 par value, 800,000,000 shares authorized, 47,687,039 shares issued and outstanding at each of March 31, 2017 and December 31, 2016
 
48

 
48

Class C common stock, $.001 par value, 800,000,000 shares authorized, none issued and outstanding at each of March 31, 2017 and December 31, 2016
 

 

Class D common stock, $.001 par value, 800,000,000 shares authorized, none issued and outstanding at each of March 31, 2017 and December 31, 2016
 

 

Additional paid-in capital
 
3,644,370

 
3,828,677

Accumulated other comprehensive loss
 
(80,191
)
 
(124,803
)
Accumulated earnings
 
366,470

 
314,247

Treasury stock, at cost
 
(98,162
)
 
(98,162
)
Total EchoStar stockholders’ equity
 
3,832,588

 
3,920,065

Noncontrolling interest in HSS Tracking Stock
 

 
73,910

Other noncontrolling interests
 
13,122

 
12,830

Total stockholders’ equity
 
3,845,710

 
4,006,805

Total liabilities and stockholders’ equity
 
$
8,747,026

 
$
9,008,859



The accompanying notes are an integral part of these condensed consolidated financial statements.

1

Table of Contents


ECHOSTAR CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
 
 
For the Three Months Ended March 31,
 
 
2017
 
2016
Revenue:
 
 

 
 

Services and other revenue - DISH Network
 
$
114,955

 
$
116,449

Services and other revenue - other
 
269,791

 
269,897

Equipment revenue - DISH Network
 
31

 
2,769

Equipment revenue - other
 
48,374

 
42,859

Total revenue
 
433,151

 
431,974

Costs and Expenses:
 
 

 
 

Cost of sales - services and other (exclusive of depreciation and amortization)
 
131,783

 
125,582

Cost of sales - equipment (exclusive of depreciation and amortization)
 
43,938

 
43,108

Selling, general and administrative expenses
 
82,991

 
80,545

Research and development expenses
 
7,705

 
6,932

Depreciation and amortization
 
115,083

 
110,077

Total costs and expenses
 
381,500

 
366,244

Operating income
 
51,651

 
65,730

 
 
 
 
 
Other Income (Expense):
 
 

 
 

Interest income
 
8,291

 
3,965

Interest expense, net of amounts capitalized
 
(45,396
)
 
(23,171
)
Gains on investments, net
 
12,035

 
2,462

Other-than-temporary impairment loss on available-for-sale securities
 
(3,298
)
 

Equity in earnings (losses) of unconsolidated affiliates, net
 
6,408

 
(808
)
Other, net
 
1,072

 
7,379

Total other expense, net
 
(20,888
)
 
(10,173
)
Income from continuing operations before income taxes
 
30,763

 
55,557

Income tax benefit (provision)
 
12

 
(20,172
)
Net income from continuing operations
 
30,775

 
35,385

Net income from discontinued operations
 
6,577

 
13,058

Net income
 
37,352

 
48,443

Less: Net loss attributable to noncontrolling interest in HSS Tracking Stock
 
(655
)
 
(823
)
Less: Net income attributable to other noncontrolling interests
 
292

 
111

Net income attributable to EchoStar
 
37,715

 
49,155

Less: Net loss attributable to Hughes Retail Preferred Tracking Stock
 
(1,209
)
 
(1,519
)
Net income attributable to EchoStar common stock
 
$
38,924

 
$
50,674

 
 
 
 
 
Amounts attributable to EchoStar common stock:
 
 
 
 
Net income from continuing operations
 
$
32,347

 
$
37,616

Net income from discontinued operations
 
6,577

 
13,058

Net income attributable to EchoStar common stock
 
$
38,924

 
$
50,674

 
 
 
 
 
Weighted-average common shares outstanding - Class A and B common stock:
 
 

 
 

Basic
 
94,745

 
93,331

Diluted
 
95,893

 
93,852

 
 
 
 
 
Earnings per share - Class A and B common stock:
 
 

 
 

Basic:
 
 
 
 
Continuing operations
 
$
0.34

 
$
0.40

Discontinued operations
 
0.07

 
0.14

Total basic earnings per share
 
$
0.41

 
$
0.54

 
 
 
 
 
Diluted:
 
 
 
 
Continuing operations
 
$
0.34

 
$
0.40

Discontinued operations
 
0.07

 
0.14

Total diluted earnings per share
 
$
0.41

 
$
0.54



The accompanying notes are an integral part of these condensed consolidated financial statements.

2

Table of Contents


ECHOSTAR CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands, except per share amounts)
(Unaudited)
 
 
For the Three Months Ended March 31,
 
 
2017
 
2016
Comprehensive Income:
 
 

 
 

Net income
 
$
37,352

 
$
48,443

Other comprehensive income (loss), net of tax:
 
 

 
 

Foreign currency translation adjustments
 
24,038

 
11,624

Unrealized gains on available-for-sale securities and other
 
20,032

 
1,503

Recognition of realized gains on available-for-sale securities in net income
 
(2,756
)
 
(2,247
)
Recognition of other-than-temporary impairment loss on available-for-sale securities in net income
 
3,298

 

Total other comprehensive income, net of tax
 
44,612

 
10,880

Comprehensive income
 
81,964

 
59,323

Less: Comprehensive loss attributable to noncontrolling interest in HSS Tracking Stock
 
(655
)
 
(823
)
Less: Comprehensive income attributable to other noncontrolling interests
 
292

 
111

Comprehensive income attributable to EchoStar
 
$
82,327

 
$
60,035



































The accompanying notes are an integral part of these condensed consolidated financial statements.

3

Table of Contents


ECHOSTAR CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(In thousands)
(Unaudited)
 
 
Class
A and B
Common
Stock
 
Hughes Retail
Preferred
Tracking
Stock
 
Additional
Paid-In
Capital
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Accumulated
Earnings
 
Treasury
Stock
 
Noncontrolling
Interest in
HSS Tracking
Stock
 
Other
Noncontrolling
Interests
 
Total
Balance, December 31, 2015
 
$
99

 
$
6

 
$
3,776,451

 
$
(117,233
)
 
$
134,317

 
$
(98,162
)
 
$
74,854

 
$
11,310

 
$
3,781,642

Issuances of Class A common stock:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Exercise of stock options
 
1

 

 
2,314

 

 

 

 

 

 
2,315

Employee benefits
 

 

 
11,126

 

 

 

 

 

 
11,126

Employee Stock Purchase Plan
 

 

 
4,020

 

 

 

 

 

 
4,020

Stock-based compensation
 

 

 
4,384

 

 

 

 

 

 
4,384

R&D tax credits utilized by DISH Network
 

 

 
(691
)
 

 

 

 

 

 
(691
)
Other, net
 

 

 
(451
)
 

 

 

 

 

 
(451
)
Net income (loss)
 

 

 

 

 
49,155

 

 
(823
)
 
111

 
48,443

Foreign currency translation adjustment
 
 
 
 
 
 
 
11,624

 

 

 

 

 
11,624

Unrealized losses on available-for-sale securities, net and other
 

 

 

 
(744
)
 

 

 

 

 
(744
)
Balance, March 31, 2016
 
$
100

 
$
6

 
$
3,797,153

 
$
(106,353
)
 
$
183,472

 
$
(98,162
)
 
$
74,031

 
$
11,421

 
$
3,861,668

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, December 31, 2016
 
$
100

 
$
6

 
$
3,828,677

 
$
(124,803
)
 
$
314,247

 
$
(98,162
)
 
$
73,910

 
$
12,830

 
$
4,006,805

Issuances of Class A common stock:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Exercise of stock options
 
1

 

 
28,037

 

 

 

 

 

 
28,038

Employee benefits
 

 

 
11,199

 

 

 

 

 

 
11,199

Employee Stock Purchase Plan
 

 

 
2,409

 

 

 

 

 

 
2,409

Stock-based compensation
 

 

 
956

 

 

 

 

 

 
956

Cumulative effect of adoption of ASU 2016-09 as of January 1, 2017
 

 

 

 

 
14,508

 

 

 

 
14,508

Reacquisition and retirement of Tracking Stock pursuant to Share Exchange Agreement
 

 
(6
)
 
(226,815
)
 

 

 

 
(73,255
)
 

 
(300,076
)
R&D tax credits utilized by DISH Network
 

 

 
(93
)
 

 

 

 

 

 
(93
)
Net income (loss)
 

 

 

 

 
37,715

 

 
(655
)
 
292

 
37,352

Foreign currency translation adjustment
 
 
 
 
 
 
 
24,038

 

 

 

 

 
24,038

Unrealized losses and impairment on available-for-sale securities, net and other
 

 

 

 
20,574

 

 

 

 

 
20,574

Balance, March 31, 2017
 
$
101

 
$

 
$
3,644,370

 
$
(80,191
)
 
$
366,470

 
$
(98,162
)
 
$

 
$
13,122

 
$
3,845,710


The accompanying notes are an integral part of these condensed consolidated financial statements.

4

Table of Contents


ECHOSTAR CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 
 
For the Three Months Ended March 31,
 
 
2017
 
2016
Cash Flows from Operating Activities:
 
 

 
 

Net income
 
$
37,352

 
$
48,443

Adjustments to reconcile net income to net cash flows from operating activities:
 
 

 
 

Depreciation and amortization
 
126,742

 
126,734

Equity in losses (earnings) of unconsolidated affiliates, net
 
(5,249
)
 
963

Gain and impairment on investments, net
 
(8,737
)
 
(2,462
)
Stock-based compensation
 
956

 
4,384

Deferred tax provision
 
343

 
25,684

Dividends received from unconsolidated entity
 
7,500

 

Changes in current assets and current liabilities, net
 
(13,857
)
 
(18,184
)
Changes in noncurrent assets and noncurrent liabilities, net
 
(6,003
)
 
3,388

Other, net
 
2,308

 
3,899

Net cash flows from operating activities
 
141,355

 
192,849

Cash Flows from Investing Activities:
 
 

 
 

Purchases of marketable investment securities
 
(45,905
)
 
(321,892
)
Sales and maturities of marketable investment securities
 
205,296

 
323,889

Expenditures for property and equipment
 
(102,463
)
 
(235,223
)
Refunds and other receipts related to capital expenditures
 

 
24,087

Changes in restricted cash and marketable investment securities
 
4,583

 
(662
)
Sale of investment in unconsolidated entity
 
17,781

 

Expenditures for externally marketed software
 
(10,832
)
 
(5,959
)
Other, net
 

 
1,460

Net cash flows from investing activities
 
68,460

 
(214,300
)
Cash Flows from Financing Activities:
 
 

 
 

Repayment of debt and capital lease obligations
 
(8,736
)
 
(10,542
)
Net proceeds from Class A common stock options exercised
 
26,325

 
2,315

Net proceeds from Class A common stock issued under the Employee Stock Purchase Plan
 
2,409

 
4,020

Cash exchanged for Tracking Stock
 
(651
)
 

Other, net
 
(1,475
)
 
(302
)
Net cash flows from financing activities
 
17,872

 
(4,509
)
Effect of exchange rates on cash and cash equivalents
 
715

 
536

Net increase (decrease) in cash and cash equivalents
 
228,402

 
(25,424
)
Cash and cash equivalents, beginning of period
 
2,571,143

 
924,240

Cash and cash equivalents, end of period
 
$
2,799,545

 
$
898,816

 
 
 
 
 
Supplemental Disclosure of Cash Flow Information:
 
 

 
 

Cash paid for interest (including capitalized interest)
 
$
54,053

 
$
10,476

Capitalized interest
 
$
21,824

 
$
22,021

Cash paid for income taxes
 
$
1,035

 
$
2,586

Employee benefits paid in Class A common stock
 
$
11,199

 
$
11,126

Property and equipment financed under capital lease obligations
 
$
7,485

 
$
2,351

Increase (decrease) in capital expenditures included in accounts payable, net
 
$
(6,315
)
 
$
3,670

Capitalized in-orbit incentive obligations
 
$
31,000

 
$

Noncash net assets exchanged for Tracking Stock
 
$
299,425

 
$



The accompanying notes are an integral part of these condensed consolidated financial statements.

5

Table of Contents


ECHOSTAR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 1.    Organization and Business Activities
 
Principal Business
 
EchoStar Corporation (which, together with its subsidiaries, is referred to as “EchoStar,” the “Company,” “we,” “us” and/or “our”) is a holding company that was organized in October 2007 as a corporation under the laws of the State of Nevada. We are a global provider of satellite service operations, video delivery solutions, broadband satellite technologies and broadband services for home and small office customers. We deliver innovative network technologies, managed services, and various communications solutions for enterprise and government customers. Our Class A common stock is publicly traded on the Nasdaq Global Select Market (“Nasdaq”) under the symbol “SATS.”

In February 2014, EchoStar entered into agreements with certain subsidiaries of DISH Network Corporation (“DISH”) pursuant to which, effective March 1, 2014, (i) EchoStar and our subsidiary Hughes Satellite Systems Corporation (“HSS”) issued the Tracking Stock (as defined below) to subsidiaries of DISH in exchange for five satellites (EchoStar I, EchoStar VII, EchoStar X, EchoStar XI, and EchoStar XIV), including the assumption of related in-orbit incentive obligations, and $11.4 million in cash and (ii) DISH and certain of its subsidiaries began receiving certain satellite services on these five satellites from us (the “Satellite and Tracking Stock Transaction”). The Tracking Stock tracked the economic performance of the residential retail satellite broadband business of our Hughes segment, including certain operations, assets and liabilities attributed to such business (collectively, the “Hughes Retail Group” or “HRG”), and represented an aggregate 80.0% economic interest in HRG (the shares issued as EchoStar Tracking Stock represented a 51.89% economic interest in HRG and the shares issued as HSS Tracking Stock represented a 28.11% economic interest in the Hughes Retail Group). In addition to the remaining 20.0% economic interest in the HRG, EchoStar retained all economic interest in the wholesale satellite broadband business and other businesses of EchoStar.
 
On January 31, 2017, EchoStar Corporation and certain of its subsidiaries entered into a Share Exchange Agreement (the “Share Exchange Agreement”) with DISH and certain of its subsidiaries. Pursuant to the Share Exchange Agreement, on February 28, 2017, among other things, EchoStar Corporation and certain of its subsidiaries received all of the shares of the Hughes Retail Preferred Tracking Stock issued by EchoStar Corporation (the “EchoStar Tracking Stock”) and the Hughes Retail Preferred Tracking Stock issued by HSS (the “HSS Tracking Stock”, together with the EchoStar Tracking Stock, the “Tracking Stock”) in exchange for 100% of the equity interests of certain EchoStar subsidiaries that held substantially all of our EchoStar Technologies businesses and certain other assets (collectively, the “Share Exchange”). Following consummation of the Share Exchange, EchoStar no longer operates the EchoStar Technologies business segment and the EchoStar Tracking Stock and HSS Tracking Stock were retired and are no longer outstanding and all agreements, arrangements and policy statements with respect to such tracking stock terminated and are of no further effect. As a result of the Share Exchange, the condensed consolidated financial statements of the EchoStar Technologies businesses have been presented as discontinued operations and, as such, have been excluded from continuing operations and segment results for all periods presented. See Note 3 for further discussion of our discontinued operations.

We currently operate in the following two business segments:
 
Hughes — which provides broadband satellite technologies and broadband services to home and small office customers and network technologies, managed services and communication solutions to domestic and international consumers and enterprise and government customers. The Hughes segment also provides managed services, hardware, and satellite services to large enterprises and government customers, and designs, provides and installs gateway and terminal equipment to customers for other satellite systems. In addition, our Hughes segment provides satellite ground segment systems and terminals to mobile system operators.
EchoStar Satellite Services (“ESS”) — which uses certain of our owned and leased in-orbit satellites and related licenses to provide satellite service operations and video delivery solutions on a full-time and occasional-use basis primarily to DISH Network Corporation and its subsidiaries (“DISH Network”), Dish Mexico, S. de R.L. de C.V., a joint venture we entered into in 2008 (“Dish Mexico”), United States (“U.S.”) government service providers, internet service providers, broadcast news organizations, programmers, and private enterprise customers. We also manage satellite operations for certain satellites owned by DISH Network.
 

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ECHOSTAR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)

Our operations also include various corporate departments (primarily Executive, Strategic Development, Human Resources, IT, Finance, Real Estate and Legal) as well as other activities that have not been assigned to our operating segments, including costs incurred in certain satellite development programs and other business development activities, our centralized treasury operations, and gains (losses) from certain of our investments. These activities, costs and income are accounted for in “Corporate and Other.”
 
In 2008, DISH Network completed its distribution to us of its digital set-top box business, certain infrastructure, and other assets and related liabilities, including certain of its satellites, uplink and satellite transmission assets, and real estate (the “Spin-off”).  Since the Spin-off, EchoStar and DISH have operated as separate publicly-traded companies.  Prior to the consummation of the Share Exchange on February 28, 2017, DISH Network held the Tracking Stock discussed above. A substantial majority of the voting power of the shares of EchoStar and DISH is owned beneficially by Charles W. Ergen, our Chairman, and by certain trusts established by Mr. Ergen for the benefit of his family.

Note 2.    Summary of Significant Accounting Policies
 
Basis of Presentation
 
The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the U.S. (“GAAP”) and with the instructions to Form 10-Q and Article 10 of Regulation S-X for interim financial information. Accordingly, these financial statements do not include all of the information and notes required for complete financial statements prepared in conformity with GAAP. In our opinion, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Our results of operations for the interim periods presented are not necessarily indicative of the results that may be expected for the full year. For further information, refer to the consolidated financial statements and notes thereto included in our Form 10-K for the year ended December 31, 2016.

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 where we are the primary beneficiary. We are deemed to have a controlling financial interest in other entities when we own more than 50 percent 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 noncontrolling interest within stockholders’ equity for the portion of the entity’s equity attributed to the noncontrolling ownership interests.
As of December 31, 2016, noncontrolling interests consisted primarily of HSS Tracking Stock previously owned by DISH Network. As a result of the Share Exchange, the noncontrolling interest in HSS Tracking Stock was extinguished as of February 28, 2017. All significant intercompany balances and transactions have been eliminated in consolidation.
 
Use of Estimates
 
The preparation of financial statements in conformity with GAAP requires us to make certain estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the balance sheets, the reported amounts of revenue and expense for each reporting period, and certain information disclosed in the notes to our condensed consolidated financial statements. Estimates are used in accounting for, among other things, amortization periods for deferred subscriber acquisition costs, revenue recognition using the percentage-of-completion method, allowances for doubtful accounts, allowances for sales returns and rebates, warranty obligations, self-insurance obligations, deferred taxes and related valuation allowances, uncertain tax positions, loss contingencies, fair value of financial instruments, fair value of stock-based compensation awards, fair value of assets and liabilities acquired in business combinations, lease classifications, asset impairment testing, useful lives and methods for depreciation and amortization of long-lived assets, and certain royalty obligations. 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 condensed consolidated financial statements. Changing economic 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 are reflected in the period they occur or prospectively if the revised estimate affects future periods.
 

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ECHOSTAR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)

Fair Value Measurements
 
We determine fair value based on the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. Market or observable inputs are the preferred source of values, followed by unobservable inputs or assumptions based on hypothetical transactions in the absence of market inputs. We utilize the highest level of inputs available according to the following hierarchy in determining fair value:
 
Level 1, defined as observable inputs being quoted prices in active markets for identical assets;
Level 2, defined as observable inputs other than quoted prices included in Level 1, including quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which significant inputs and significant value drivers are observable in active markets; and
Level 3, defined as unobservable inputs for which little or no market data exists, consistent with characteristics of the asset or liability that would be considered by market participants in a transaction to purchase or sell the asset or liability.
 
Transfers between levels in the fair value hierarchy are considered to occur at the beginning of the quarterly accounting period. There were no transfers between levels for each of the three months ended March 31, 2017 or 2016.
 
As of March 31, 2017 and December 31, 2016, the carrying amounts of our cash and cash equivalents, trade accounts receivable, net of allowance for doubtful accounts, accounts payable and accrued liabilities were equal to or approximated fair value due to their short-term nature or proximity to current market rates.
 
Fair values of our marketable investment securities are based on a variety of observable market inputs. For our investments in publicly traded equity securities and U.S. government securities, fair value ordinarily is determined based on a Level 1 measurement that reflects quoted prices for identical securities in active markets. Fair values of our investments in other marketable debt securities generally are based on Level 2 measurements, as the markets for such debt securities are less active. Trades of identical debt securities on or near the measurement date are considered a strong indication of fair value. Matrix pricing techniques that consider par value, coupon rate, credit quality, maturity and other relevant features also may be used to determine fair value of our investments in marketable debt securities.
 
Fair values for HSS’ 6 1/2% Senior Secured Notes due 2019 (the “2019 Senior Secured Notes”), 7 5/8% Senior Unsecured Notes due 2021 (the “2021 Senior Unsecured Notes”), 5.250% Senior Secured Notes due August 1, 2026 (the “2026 Senior Secured Notes”) and 6.625% Senior Unsecured Notes due August 1, 2026 (the “2026 Senior Unsecured Notes” and together with the 2026 Senior Secured Notes, the “2026 Notes”) (see Note 11) are based on quoted market prices in less active markets and are categorized as Level 2 measurements. The fair values of our other debt are Level 2 measurements and are estimated to approximate their carrying amounts based on the proximity of their interest rates to current market rates. As of March 31, 2017 and December 31, 2016, the fair values of our in-orbit incentive obligations, based on measurements categorized within Level 2 of the fair value hierarchy, approximated their carrying amounts of $103.6 million and $74.1 million, respectively. We use fair value measurements from time to time in connection with asset impairment testing and the assignment of purchase consideration to assets and liabilities of acquired companies. Those fair value measurements typically include significant unobservable inputs and are categorized within Level 3 of the fair value hierarchy.
 
Research and Development
 
Costs incurred in research and development activities generally are expensed as incurred. A significant portion of our research and development costs are incurred in connection with the specific requirements of a customer’s order. In such instances, the amounts for these customer funded development efforts are included in cost of sales.

Cost of sales includes research and development costs incurred in connection with customers’ orders of approximately $6.9 million and $2.8 million for the three months ended March 31, 2017 and 2016, respectively. In addition, we incurred other research and development expenses of approximately $7.7 million and $6.9 million for the three months ended March 31, 2017 and 2016, respectively.
 

8

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ECHOSTAR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)

Capitalized Software Costs
 
Costs related to the procurement and development of software for internal-use and externally marketed software are capitalized and amortized using the straight-line method over the estimated useful life of the software, not in excess of five years. Capitalized costs of internal-use software are included in “Property and equipment, net” and capitalized costs of externally marketed software are included in “Other noncurrent assets, net” in our condensed consolidated balance sheets. Externally marketed software generally is installed in the equipment we sell to customers. We conduct software program reviews for externally marketed capitalized software costs at least annually, or as events and circumstances warrant such a review, to determine if capitalized software development costs are recoverable and to ensure that costs associated with programs that are no longer generating revenue are expensed. As of March 31, 2017 and December 31, 2016, the net carrying amount of externally marketed software was $83.8 million and $76.3 million, respectively, of which $13.5 million and $50.1 million, respectively, is under development and not yet placed in service. We capitalized costs related to the development of externally marketed software of $10.8 million and $5.9 million for the three months ended March 31, 2017 and 2016, respectively. We recorded amortization expense relating to the development of externally marketed software of $3.4 million and $2.3 million for the three months ended March 31, 2017 and 2016, respectively. The weighted average useful life of our externally marketed software was approximately four years as of March 31, 2017.
 
New Accounting Pronouncements
 
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”). It outlines a single comprehensive model, codified in Topic 606 of the FASB Accounting Standards Codification, for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The core principle of the revenue model is that “an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.” In August 2015, the FASB issued ASU No. 2015-14, which deferred the mandatory effective date of ASU 2014-09 by one year. As a result, public entities are required to adopt the new revenue standard in annual periods beginning after December 15, 2017 and in interim periods within those annual periods. The standard may be applied either retrospectively to prior periods or as a cumulative-effect adjustment as of the date of adoption. Early adoption is permitted, but not before annual periods beginning after December 15, 2016. In March 2016, the FASB issued ASU No. 2016-08, Principal versus Agent Considerations, which clarifies the implementation guidance on principal versus agent considerations. In April 2016, the FASB issued ASU No. 2016-10, Identifying Performance Obligations and Licensing, which amends guidance on identifying performance obligations and accounting for licenses of intellectual property. In May 2016, the FASB issued ASU No. 2016-12, Narrow-Scope Improvements and Practical Expedients, which addresses collectibility, noncash consideration, completed contracts at transition, a practical expedient for contract modifications at transition, and an accounting policy election related to the presentation of sales taxes and other similar taxes collected from customers. In January 2017, the FASB issued ASU No. 2016-20, Technical Corrections to Topic 606, which clarifies, but does not fundamentally change, certain aspects of the new revenue standard. We plan to adopt the new revenue standard as of January 1, 2018, but have not selected the transition method that we will apply upon adoption. We continue to evaluate the impact of the new standard and available adoption methods on our consolidated financial statements. We are in the process of evaluating arrangements with customers and identifying differences in accounting between new and existing standards.
 
In January 2016, the FASB issued Accounting Standards Update No. 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016-01”). This update substantially revises standards for the recognition, measurement and presentation of financial instruments, including requiring all equity investments to be measured at fair value with changes in the fair value recognized through net income. It also amends certain disclosure requirements associated with the fair value of financial instruments. ASU 2016-01 is effective for annual periods beginning after December 15, 2017, including interim periods within those annual periods, with early adoption permitted for certain requirements. We are assessing the impact of adopting this new accounting standard on our consolidated financial statements and related disclosures.

In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases (“ASU 2016-02”). This standard requires lessees to recognize assets and liabilities for all leases with lease terms more than 12 months, including leases classified as operating leases. The standard also modifies the definition of a lease and the criteria for classifying leases as operating leases or financing leases. ASU 2016-02 is effective for annual periods beginning after December 15, 2018 and interim periods within those periods. Early adoption is permitted. We are assessing the impact of adopting this new accounting standard on our consolidated financial statements and related disclosures.

9

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ECHOSTAR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)


In March 2016, the FASB issued Accounting Standards Update No. 2016-09, Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”), which simplifies the accounting for share-based payment awards. This update requires all excess tax benefits and deficiencies to be recognized as income tax expense or benefit and permits an entity to make an entity-wide policy election to either estimate forfeitures or recognize forfeitures as they occur. ASU 2016-09 is effective for annual periods beginning after December 15, 2016 and interim periods within those periods. The update specifies requirements for retrospective, modified retrospective or prospective application for the various amendments contained in the update. Upon adoption of this standard as of January 1, 2017, we recorded a $14.5 million deferred tax asset and a corresponding credit to accumulated earnings for excess tax benefits that had not previously been recognized because the related tax deductions had not reduced taxes payable. We did not change our accounting policy to estimate forfeitures in determining compensation cost. We prospectively adopted amendments requiring presentation of excess tax benefits in operating activities in the statement of cash flows and dealing with the treatment of excess tax benefits in the calculation of diluted earnings per share. Our adoption of this update did not have a material impact on our financial statements.

In June 2016, the FASB issued Accounting Standards Update No. 2016-13, Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which introduces an approach based on expected losses to estimate credit losses on certain types of financial instruments rather than incurred losses. It also modifies the impairment model for available-for-sale debt securities and provides for a simplified accounting model for purchased financial assets with credit deterioration since their origination. ASU 2016-13 is effective for annual periods beginning after December 15, 2019 and interim periods within those periods. Early adoption is permitted. We are assessing the impact of adopting this new accounting standard on our consolidated financial statements and related disclosures.

In October 2016, the FASB issued Accounting Standards Update No. 2016-16, Intra-Entity Transfers of Assets Other Than Inventory (“ASU 2016-16”), which improves the accounting for the income tax consequences of intra-entity transfers of assets other than inventory. ASU 2016-16 is effective for annual periods beginning after December 15, 2017 and interim periods within those periods. We early adopted ASU 2016-16 as of January 1, 2017. Our adoption of this update did not have a material impact on our financial statements.

In November 2016, the FASB issued Accounting Standards Update No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (“ASU 2016-18”). This standard requires restricted cash and restricted cash equivalents to be included with cash and cash equivalents in the statement of cash flows. ASU 2016-18 is effective for annual periods beginning after December 15, 2017 and interim periods within those periods. Early adoption is permitted, which must apply the guidance retrospectively to all periods presented. We are assessing the impact of adopting this new accounting standard on our consolidated financial statements and related disclosures.

In January 2017, the FASB issued Accounting Standards Update No. 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (“ASU 2017-04”). This standard simplifies the accounting for goodwill impairment by removing Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit’s carrying amount, including goodwill, exceeds its fair value, not to exceed the carrying amount of goodwill. ASU 2017-04 is effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019 and is to be applied on a prospective basis. We early adopted ASU 2017-04 as of January 1, 2017. Our adoption of this update did not have any impact on our condensed consolidated financial statements, but it may impact the recognition and measurement of a goodwill impairment loss in future periods if we determine that the carrying amount of any reporting units including goodwill exceeds fair value of the reporting unit.

In March 2017, the FASB issued Accounting Standards Update No. 2017-08, Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities (“ASU 2017-08”). This update shortens the amortization period of premiums on certain purchased callable debt securities to the earliest call date, effectively reducing interest income on such securities prior to the earliest call date. ASU 2017-08 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted. We are assessing the impact of adopting this new accounting standard on our consolidated financial statements and related disclosures.


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Table of Contents
ECHOSTAR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)

Note 3.    Discontinued Operations

On January 31, 2017, we and certain of our subsidiaries entered into the Share Exchange Agreement. Pursuant to the Share Exchange Agreement, on February 28, 2017, among other things, EchoStar Corporation and certain of its subsidiaries received all of the shares of the Tracking Stock in exchange for 100% of the equity interests of certain EchoStar subsidiaries that held substantially all of our EchoStar Technologies businesses and certain other assets. Following consummation of the Share Exchange, EchoStar no longer operates the EchoStar Technologies business segment and the EchoStar Tracking Stock and HSS Tracking Stock were retired and are no longer outstanding and all agreements, arrangements and policy statements with respect to such tracking stock terminated and are of no further effect.

As a result of the Share Exchange, the historical financial results of our EchoStar Technologies segment prior to the closing of the Share Exchange are reflected in our condensed consolidated financial statements as discontinued operations and, as such, have been excluded from continuing operations and segment results for all periods presented. The noncontrolling interest in HSS Tracking Stock, as reflected in our stockholders equity, was extinguished as of February 28, 2017 as a result of the Share Exchange.

The following table presents the operating results of our discontinued operations:
 
 
For the Three Months Ended March 31,
 
 
2017
 
2016
 
 
(In thousands)
Revenue:
 
 
 
 
Equipment, services and other revenue - DISH Network
 
$
143,063

 
$
344,122

Equipment, services and other revenue - other
 
10,164

 
40,263

Total revenue
 
153,227

 
384,385

Costs and Expenses:
 
 
 
 
Cost of equipment, services and other
 
121,843

 
315,335

Selling, general and administrative expenses
 
5,853

 
18,148

Research and development expenses
 
4,635

 
13,510

Depreciation and amortization
 
11,659

 
16,657

Total costs and expenses
 
143,990

 
363,650

Operating income
 
9,237

 
20,735

Other Income (Expense):
 
 
 
 
Interest expense
 
(15
)
 
(38
)
Equity in losses of unconsolidated affiliates, net
 
(1,159
)
 
(155
)
Other, net
 
(65
)
 
7

Total income (expense), net
 
(1,239
)
 
(186
)
Income from discontinued operations before income taxes
 
7,998

 
20,549

Income tax provision
 
(1,421
)
 
(7,491
)
Net income from discontinued operations
 
$
6,577

 
$
13,058



Expenditures for property and equipment of our discontinued operations totaled $12.5 million and $5.3 million for the three months ended March 31, 2017 and 2016, respectively.


11

Table of Contents
ECHOSTAR CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)

The following table presents the aggregate carrying amounts of assets and liabilities of our discontinued operations:
 
 
As of
 
 
March 31, 2017
 
December 31, 2016
 
 
(In thousands)
Assets:
 
 
 
 
Cash and cash equivalents
 
$

 
$
778

Trade accounts receivable, net
 
44

 
27,261

Trade accounts receivable - DISH Network
 
213,147

 
259,198

Inventory
 

 
9,824

Prepaids and deposits
 

 
14,463

Current assets of discontinued operations
 
213,191

 
311,524

Property and equipment, net
 

 
271,108

Goodwill
 

 
6,457

Other intangible assets, net
 

 
7,720

Investments in unconsolidated entities
 

 
26,203

Other noncurrent assets, net
 

 
5,436

Noncurrent assets of discontinued operations
 

 
316,924

Total assets of discontinued operations
 
$
213,191

 
$
628,448

 
 
 
 
 
Liabilities:
 
 
 
 
Trade accounts payable
 
$
309

 
$
19,518

Trade accounts payable - DISH Network
 

 
3,960

Current portion of capital lease obligations
 

 
4,323

Deferred revenue and prepayments
 

 
2,967

Accrued compensation
 

 
4,652

Accrued royalties
 

 
23,199

Accrued expenses and other
 
2

 
12,810

Current liabilities of discontinued operations
 
311

 
71,429

Capital lease obligations
 

 
416

Deferred tax liabilities, net
 

 
7,353

Other noncurrent liabilities
 

 
2,932

Noncurrent liabilities of discontinued operations