Iridium Communications Inc.
Iridium Communications Inc. (Form: 10-Q, Received: 10/27/2016 07:05:02)

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended September 30, 2016

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 001-33963

 

Iridium Communications Inc.

(Exact name of registrant as specified in its charter)

 

 

DELAWARE

 

26-1344998

(State of incorporation)

 

(I.R.S. Employer

Identification No.)

 

 

 

1750 Tysons Boulevard, Suite 1400, McLean, Virginia

 

22102

(Address of principal executive offices)

 

(Zip code)

703-287-7400

(Registrant’s telephone number, including area code)

 

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, and (2) has been subject to such filing requirements for the past 90 days.    Yes       No  

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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes       No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer

 

 

Accelerated filer

Non-accelerated filer

(Do not check if a smaller reporting company)

 

Smaller reporting company

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes       No  

The number of shares of the registrant’s common stock, par value $0.001 per share, outstanding as of October 24, 2016 was 95,771,083.

 

 

 


IRIDIUM COMMUNICATIONS INC.

TABLE OF CONTENTS

 

Item No.

  

 

  

Page

 

 

 

 

Part I. Financial Information

 

 

 

 

 

 

 

 

 

Financial Statements

 

 

 

 

 

 

 

 

 

Condensed Consolidated Balance Sheets

 

3

 

 

 

 

 

 

 

Condensed Consolidated Statements of Operations and Comprehensive Income

 

4

 

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows

 

5

 

 

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements

 

6

 

 

 

 

 

ITEM  2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

15

 

 

 

 

 

ITEM  3.

 

Quantitative and Qualitative Disclosures About Market Risk.

 

27

 

 

 

 

 

ITEM  4.

 

Controls and Procedures.

 

27

 

 

 

 

Part II. Other Information

 

 

 

 

 

 

 

ITEM  1.

 

Legal Proceedings.

 

28

 

 

 

 

 

ITEM  1A.

 

Risk Factors.

 

28

 

 

 

 

 

ITEM  2.

 

Unregistered Sales of Equity Securities and Use of Proceeds.

 

28

 

 

 

 

 

ITEM  3.

 

Defaults Upon Senior Securities

 

28

 

 

 

 

 

ITEM  4.

 

Mine Safety Disclosures

 

28

 

 

 

 

 

ITEM  5.

 

Other Information

 

28

 

 

 

 

 

ITEM  6.

 

Exhibits

 

28

 

 

 

 

 

 

 

Signatures

 

29

2


PART I.

Iridium Communications Inc.

Condensed Consolidated Balance Sheets

(In thousands, except per share data)

 

 

September 30, 2016

 

 

December 31, 2015

 

 

(Unaudited)

 

 

 

 

 

Assets

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

$

374,006

 

 

$

185,665

 

Marketable securities

 

52,368

 

 

 

203,329

 

Accounts receivable, net

 

61,608

 

 

 

51,668

 

Inventory

 

21,419

 

 

 

27,926

 

Prepaid expenses and other current assets

 

21,798

 

 

 

13,130

 

Total current assets

 

531,199

 

 

 

481,718

 

Property and equipment, net

 

2,696,208

 

 

 

2,443,567

 

Restricted cash

 

113,101

 

 

 

91,112

 

Other assets

 

11,720

 

 

 

8,188

 

Intangible assets, net

 

45,992

 

 

 

46,589

 

Total assets

$

3,398,220

 

 

$

3,071,174

 

 

 

 

 

 

 

 

 

Liabilities and stockholders' equity

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

$

37,661

 

 

$

31,525

 

Accrued expenses and other current liabilities

 

29,391

 

 

 

29,402

 

Interest payable

 

9,954

 

 

 

3,720

 

Deferred revenue

 

37,682

 

 

 

36,967

 

Total current liabilities

 

114,688

 

 

 

101,614

 

Accrued satellite operations and maintenance expense, net

 

 

 

 

 

 

 

of current portion

 

13,401

 

 

 

14,182

 

Credit facility, net

 

1,546,777

 

 

 

1,388,766

 

Deferred income tax liabilities, net

 

344,676

 

 

 

296,832

 

Deferred revenue, net of current portion

 

32,254

 

 

 

28,567

 

Other long-term liabilities

 

27,540

 

 

 

12,492

 

Total liabilities

 

2,079,336

 

 

 

1,842,453

 

 

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

Series A Preferred Stock, $0.0001 par value, 1,000 shares authorized,

 

 

 

 

 

 

 

issued and outstanding

 

-

 

 

 

-

 

Series B Preferred Stock, $0.0001 par value, 500 shares

 

 

 

 

 

 

 

authorized, issued and outstanding

 

-

 

 

 

-

 

Common stock, $0.001 par value, 300,000 shares authorized, 95,763

 

 

 

 

 

 

 

and 95,126 shares issued and outstanding, respectively

 

96

 

 

 

95

 

Additional paid-in capital

 

1,055,982

 

 

 

1,044,488

 

Retained earnings

 

268,553

 

 

 

193,201

 

Accumulated other comprehensive loss, net of tax

 

(5,747

)

 

 

(9,063

)

Total stockholders' equity

 

1,318,884

 

 

 

1,228,721

 

Total liabilities and stockholders' equity

$

3,398,220

 

 

$

3,071,174

 

 

See notes to unaudited condensed consolidated financial statements.

 

3


Iridium Communications Inc.

Condensed Consolidated Statements of Operations and Comprehensive Income

(In thousands, except per share amounts)

(Unaudited)

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

September 30,

 

 

September 30,

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Services

$

87,316

 

 

$

81,200

 

 

$

250,625

 

 

$

234,640

 

Subscriber equipment

 

19,900

 

 

 

21,180

 

 

 

57,822

 

 

 

56,488

 

Engineering and support services

 

5,578

 

 

 

3,654

 

 

 

17,744

 

 

 

13,832

 

Total revenue

 

112,794

 

 

 

106,034

 

 

 

326,191

 

 

 

304,960

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of services (exclusive of depreciation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

and amortization)

 

15,936

 

 

 

13,990

 

 

 

48,287

 

 

 

43,192

 

Cost of subscriber equipment

 

11,476

 

 

 

11,559

 

 

 

33,798

 

 

 

31,487

 

Research and development

 

5,038

 

 

 

3,480

 

 

 

11,610

 

 

 

12,028

 

Selling, general and administrative

 

18,767

 

 

 

17,534

 

 

 

60,133

 

 

 

56,800

 

Depreciation and amortization

 

11,809

 

 

 

12,932

 

 

 

37,588

 

 

 

39,107

 

Total operating expenses

 

63,026

 

 

 

59,495

 

 

 

191,416

 

 

 

182,614

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

49,768

 

 

 

46,539

 

 

 

134,775

 

 

 

122,346

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income, net

 

700

 

 

 

263

 

 

 

2,258

 

 

 

2,292

 

Undrawn credit facility fees

 

(305

)

 

 

(774

)

 

 

(1,176

)

 

 

(2,621

)

Other income (expense), net

 

39

 

 

 

(112

)

 

 

359

 

 

 

(111

)

Total other income (expense), net

 

434

 

 

 

(623

)

 

 

1,441

 

 

 

(440

)

Income before income taxes

 

50,202

 

 

 

45,916

 

 

 

136,216

 

 

 

121,906

 

Provision for income taxes

 

(18,647

)

 

 

(16,369

)

 

 

(49,287

)

 

 

(45,352

)

Net income

 

31,555

 

 

 

29,547

 

 

 

86,929

 

 

 

76,554

 

Series A Preferred Stock dividends

 

1,750

 

 

 

1,750

 

 

 

5,250

 

 

 

5,250

 

Series B Preferred Stock dividends

 

2,109

 

 

 

2,109

 

 

 

6,327

 

 

 

6,327

 

Net income attributable to common stockholders

$

27,696

 

 

$

25,688

 

 

$

75,352

 

 

$

64,977

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding - basic

 

96,067

 

 

 

95,317

 

 

 

95,890

 

 

 

94,972

 

Weighted average shares outstanding - diluted

 

123,690

 

 

 

122,696

 

 

 

123,408

 

 

 

122,655

 

Net income attributable to common stockholders per share - basic

$

0.29

 

 

$

0.27

 

 

$

0.79

 

 

$

0.68

 

Net income attributable to common stockholders per share - diluted

$

0.26

 

 

$

0.24

 

 

$

0.70

 

 

$

0.62

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

$

31,555

 

 

$

29,547

 

 

$

86,929

 

 

$

76,554

 

Foreign currency translation adjustments, net of tax

 

222

 

 

 

(2,797

)

 

 

3,157

 

 

 

(4,176

)

Unrealized gain (loss) on marketable securities, net of tax

 

(108

)

 

 

(160

)

 

 

159

 

 

 

(72

)

Comprehensive income

$

31,669

 

 

$

26,590

 

 

$

90,245

 

 

$

72,306

 

 

See notes to unaudited condensed consolidated financial statements.

 

 

4


Iridium Communications Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

 

 

Nine Months Ended September 30,

 

 

2016

 

 

2015

 

 

 

 

 

 

 

 

 

Cash flows from operating activities:

 

 

 

 

 

 

 

Net cash provided by operating activities

$

164,559

 

 

$

162,938

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

Capital expenditures

 

(231,791

)

 

 

(251,797

)

Purchases of marketable securities

 

(19,865

)

 

 

(173,712

)

Sales and maturities of marketable securities

 

170,290

 

 

 

212,178

 

Net cash used in investing activities

 

(81,366

)

 

 

(213,331

)

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

Borrowings under the Credit Facility

 

148,050

 

 

 

152,637

 

Payment of deferred financing fees

 

(9,608

)

 

 

(9,832

)

Restricted cash deposits

 

(21,989

)

 

 

(2,527

)

Proceeds from exercise of stock options

 

390

 

 

 

2,074

 

Tax payment upon settlement of stock awards

 

(606

)

 

 

(829

)

Excess tax benefits from stock-based compensation

 

-

 

 

 

742

 

Payment of Series A Preferred Stock dividends

 

(5,250

)

 

 

(5,250

)

Payment of Series B Preferred Stock dividends

 

(6,327

)

 

 

(6,327

)

Net cash provided by financing activities

 

104,660

 

 

 

130,688

 

 

 

 

 

 

 

 

 

Effect of exchange rate changes on cash and cash equivalents

 

488

 

 

 

(862

)

 

 

 

 

 

 

 

 

Net increase in cash and cash equivalents

 

188,341

 

 

 

79,433

 

Cash and cash equivalents, beginning of period

 

185,665

 

 

 

211,249

 

Cash and cash equivalents, end of period

$

374,006

 

 

$

290,682

 

 

 

 

 

 

 

 

 

Supplemental cash flow information:

 

 

 

 

 

 

 

Interest paid

$

10,985

 

 

$

8,911

 

Income taxes paid, net

$

1,002

 

 

$

1,819

 

 

 

 

 

 

 

 

 

Supplemental disclosure of non-cash investing activities:

 

 

 

 

 

 

 

Property and equipment received but not paid for yet

$

31,018

 

 

$

30,818

 

Interest capitalized but not paid

$

33,110

 

 

$

27,640

 

Capitalized amortization of deferred financing costs

$

19,569

 

 

$

13,752

 

Capitalized paid-in-kind interest

$

25,136

 

 

$

20,282

 

Capitalized stock-based compensation

$

1,926

 

 

$

623

 

 

 

 

 

 

 

 

 

Supplemental disclosure of non-cash financing activities:

 

 

 

 

 

 

 

Dividends accrued on Series A Preferred Stock

$

292

 

 

$

292

 

Dividends accrued on Series B Preferred Stock

$

352

 

 

$

352

 

 

See notes to unaudited condensed consolidated financial statements.

 

 

5


Iridium Communications Inc.

Notes to Condensed Consolidated Financial Statements

 

 

1. Basis of Presentation and Principles of Consolidation

Iridium Communications Inc. (the “Company”) has prepared its condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). The accompanying condensed consolidated financial statements include the accounts of (i) the Company, (ii) its wholly owned subsidiaries, and (iii) all less than wholly owned subsidiaries that the Company controls. All material intercompany transactions and balances have been eliminated.

In the opinion of management, the condensed consolidated financial statements reflect all normal recurring adjustments that the Company considers necessary for the fair presentation of its results of operations and cash flows for the interim periods covered, and of the financial position of the Company at the date of the interim condensed consolidated balance sheet. The operating results for interim periods are not necessarily indicative of the operating results for the entire year. Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to instructions, rules and regulations prescribed by the U.S. Securities and Exchange Commission (“SEC”). These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2015, as filed with the SEC on February 25, 2016.

 

2. Significant Accounting Policies

Adopted Accounting Pronouncements

In April 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2015-03,  Interest Imputation of Interest (Subtopic 835-30), Simplifying the Presentation of Debt Issuance Costs . The amendment requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts.  The recognition and measurement guidance for debt issuance costs is not affected by the amendment.  Effective January 1, 2016, the Company applied the new guidance retrospectively to all prior periods presented in the accompanying financial statements. The adoption had no effect on the Company’s condensed consolidated statements of operations and comprehensive income, and condensed consolidated statements of cash flows for each of the three and nine months ended September 30, 2016 and 2015.  The implementation of this accounting standard resulted in a reduction of $123.1 million and $133.1 million in the deferred financing costs asset and in the credit facility as of September 30, 2016 and December 31, 2015, respectively, as shown below.

 

 

September 30, 2016

 

 

December 31, 2015

 

 

 

(in thousands)

 

Credit facility

 

$

1,669,872

 

 

$

1,521,822

 

Deferred financing costs

 

 

(123,095

)

 

 

(133,056

)

Credit facility, net

 

$

1,546,777

 

 

$

1,388,766

 

6


Recent Accounting Developments 

In March 2016, the FASB issued ASU No. 2016-09, Compensation—Stock Compensation, Improvements to Employee Share-Based Payment Accounting .  The amendment addresses multiple changes.  The amendment requires all income tax effects of awards to be recognized in the income statement when the awards vest or are settled. It also will allow an employer to repurchase more of an employee’s shares for tax withholding purposes without triggering liability accounting and to make a policy election to account for forfeitures as they occur.  This ASU is effective for public business entities for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years.  The Company will be required to make the disclosures about a change in accounting principle, but will not have to quantify the income statement effect of the change in the period of adoption. Early adoption is permitted, but all of the guidance must be adopted in the same period. The Company is currently evaluating the effect ASU 2016-09 may have on its condensed consolidated financial statements and related disclosures.

In February 2016, the FASB issued ASU No. 2016-02, Leases .  The amendment requires lessees to put most leases on their balance sheets but recognize expenses on their income statements in a manner similar to current accounting.  This ASU is effective for public business entities in fiscal years beginning after December 15, 2018, including interim periods within those years. Early adoption is permitted and reporting organizations are required to use a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements. The Company is currently evaluating the effect ASU 2016-02 may have on its condensed consolidated financial statements and related disclosures , but recognizing the lease liability and related right-of-use asset will impact its balance sheet.

In July 2015, the FASB issued ASU No. 2015-11,  Simplifying the Measurement of Inventory . The amendment requires that inventory within the scope of the guidance be measured at the lower of cost and net realizable value. Inventory measured using last-in, first-out and retail inventory method are excluded from this new guidance. This ASU replaces the concept of market with the single measurement of net realizable value and is intended to create efficiencies for preparers and more closely aligns U.S. GAAP with International Financial Reporting Standards (IFRS). This ASU is effective for public business entities in fiscal years beginning after December 15, 2016, including interim periods within those years. Prospective application is required and early adoption is permitted as of the beginning of an interim or annual reporting period. The Company is currently evaluating the effect ASU 2015-11 may have on its condensed consolidated financial statements and related disclosures.

In May 2014, the FASB and the International Accounting Standards Board jointly issued a comprehensive new revenue recognition standard, ASU No. 2014-09,  Revenue from Contracts with Customers , that will supersede nearly all existing revenue recognition guidance under U.S. GAAP. The amendment requires a company to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. In July 2015, the FASB voted to defer the effective date of ASU 2014-09 for public entities to be effective for annual and interim periods beginning after December 15, 2017. Early adoption would be permitted no earlier than the original effective date beginning after December 15, 2016. ASU 2014-09 becomes effective for the Company in the first quarter of fiscal 2018. The Company has not yet selected a transition method and is currently evaluating the effect ASU 2014-09 may have on its condensed consolidated financial statements and related disclosures.

Warranty Expense

The Company provides the first end-user purchaser of its subscriber equipment a warranty for one to five years from the date of purchase by such first end-user, depending on the product. The Company maintains a warranty reserve based on historical experience of warranty costs and expected occurrences of warranty claims on equipment. Costs associated with warranties, including equipment replacements, repairs, freight, and program administration, are recorded as cost of subscriber equipment in the accompanying condensed consolidated statements of operations and comprehensive income. Changes in the warranty reserve during the nine months ended September 30, 2016 were as follows:

 

 

Nine Months Ended

 

 

September 30, 2016

 

 

(in thousands)

 

Balance at beginning of the period

$

3,320

 

Provision

 

413

 

Utilization

 

(1,080

)

Balance at end of the period

$

2,653

 

 

Fair Value Measurements

The Company evaluates assets and liabilities subject to fair value measurements on a recurring and non-recurring basis to determine the appropriate level to classify them for each reporting period. This determination requires significant judgments to be made by management of the Company. The instruments identified as subject to fair value measurements on a recurring basis are cash and cash equivalents, marketable securities, prepaid expenses and other current assets, accounts receivable, accounts payable and accrued

7


expenses and other current liabilities. Fair value is the price that would be received from the sale of an asset or paid to transfer a liability assuming an orderly transaction in the most advantageous market at the measurement date. U.S. GAAP es tablishes a hierarchical disclosure framework which prioritizes and ranks the level of observability of inputs used in measuring fair value. The fair value hierarchy consists of the following tiers:

 

Level 1, defined as observable inputs such as quoted prices in active markets for identical assets or liabilities;

 

Level 2, defined as observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and

 

Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

The carrying values of short-term financial instruments (primarily cash and cash equivalents, prepaid expenses and other current assets, accounts receivable, accounts payable, and accrued expenses and other current liabilities) approximate their fair values because of their short-term nature. The fair value of the Company’s investments in money market funds approximates its carrying value; such instruments are classified as Level 1 and are included in cash and cash equivalents in the accompanying condensed consolidated balance sheets. The fair value of the Company’s investments in commercial paper and short-term U.S. agency securities with original maturities of less than ninety days approximates their carrying value; such instruments are classified as Level 2 and are included in cash and cash equivalents in the accompanying condensed consolidated balance sheets.

The fair value of the Company’s investments in fixed-income debt securities and commercial paper with original maturities of greater than ninety days are obtained using similar investments traded on active securities exchanges and are classified as Level 2 and are included in marketable securities in the accompanying condensed consolidated balance sheets. For fixed income securities that do not have quoted prices in active markets, the Company uses third-party vendors to price its debt securities resulting in classification as Level 2.

Depreciation and Amortization

The Company calculates depreciation expense using the straight line method and evaluates the appropriateness of the useful life used on a quarterly basis or as events occur that require additional assessment. In addition to the changes made in prior quarters, in the third quarter of 2016, the Company updated its estimate of the current satellites’ remaining useful lives based on the continued refinement of the launch schedule, health of the existing constellation, and deployment plan for the Company’s next-generation satellite constellation (“Iridium NEXT”). As a result, the estimated useful lives of the satellites within the current constellation have been extended and are consistent with the expected deployment of Iridium NEXT. The $1.5 million decrease in depreciation expense for the nine months ended September 30, 2016 compared to the prior year is primarily related to the continued refinement in the estimated useful lives, partially offset by the addition of new assets and the impairment of two lost satellites during the second quarter of 2016. No satellite losses occurred during 2015. The Company will continue to evaluate the useful lives of its current satellites on an ongoing basis through the full deployment of Iridium NEXT as the satellites are placed into service. The Company does not believe the loss of these satellites in 2016 is an indicator of impairment of the remaining individual satellites or the constellation as of September 30, 2016. The changes in estimate will also have an effect on future periods through the deployment of Iridium NEXT.

 

3. Cash and Cash Equivalents, Restricted Cash and Marketable Securities

Cash and Cash Equivalents

The Company considers all highly liquid investments with original maturities of ninety days or less to be cash equivalents. These investments, along with cash deposited in institutional money market funds, commercial paper, regular interest bearing and non-interest bearing depository accounts, are classified as cash and cash equivalents in the accompanying condensed consolidated balance sheet. The following table summarizes the Company’s cash and cash equivalents:

 

 

September 30,

 

 

December 31,

 

 

Recurring Fair

 

2016

 

 

2015

 

 

Value   Measurement

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents:

 

 

 

 

 

 

 

 

 

Cash

$

114,237

 

 

$

67,005

 

 

 

Money market funds

 

254,530

 

 

 

118,660

 

 

Level 1

Commercial paper

 

5,239

 

 

 

-

 

 

Level 2

Total cash and cash equivalents

$

374,006

 

 

$

185,665

 

 

 

 

8


Restricted Cash

The Company is required to maintain a minimum cash reserve for debt service related to its $1.8 billion loan facility (the “Credit Facility”) (see Note 4). As of September 30, 2016 and December 31, 2015, the Company’s restricted cash balance, which includes a minimum cash reserve for debt service related to the Credit Facility and the interest earned on these amounts, was $113.1 million and $91.1 million, respectively.

Marketable Securities

Marketable securities consist of fixed-income debt securities and commercial paper with an original maturity in excess of ninety days. These investments are classified as available-for-sale and are included in marketable securities within current assets in the accompanying condensed consolidated balance sheets. All investments are carried at fair value. Unrealized gains and losses, net of taxes, are reported as a component of other comprehensive income or loss. The specific identification method is used to determine the cost basis of the marketable securities sold. There were no material realized gains or losses on the sale of marketable securities for the three and nine months ended September 30, 2016 and 2015. The Company regularly monitors and evaluates the fair value of its investments to identify other-than-temporary declines in value. The Company determined that the decline in fair value of its investments is temporary at September 30, 2016 as the Company does not intend to sell these securities, and it is not likely that the Company will be required to sell the securities before the recovery of their amortized cost basis.

The following tables summarize the Company’s marketable securities:

 

 

As of September 30, 2016

 

 

 

 

Amortized

 

 

Gross

 

 

Gross

 

 

Estimated

 

 

Recurring Fair

 

Cost

 

 

Unrealized   Gains

 

 

Unrealized Losses

 

 

Fair Value

 

 

Value Measurement

 

(in thousands)

Fixed-income debt securities

$

39,977

 

 

$

37

 

 

$

(4

)

 

$

40,010

 

 

Level 2

U.S. treasury notes

 

12,336

 

 

 

22

 

 

 

-

 

 

 

12,358

 

 

Level 2

Total marketable securities

$

52,313

 

 

$

59

 

 

$

(4

)

 

$

52,368

 

 

 

 

 

As of December 31, 2015

 

 

 

 

Amortized

 

 

Gross

 

 

Gross

 

 

Estimated

 

 

Recurring Fair

 

Cost

 

 

Unrealized Gains

 

 

Unrealized Losses

 

 

Fair Value

 

 

Value Measurement

 

(in thousands)

Fixed-income debt securities

$

181,636

 

 

$

4

 

 

$

(200

)

 

$

181,440

 

 

Level 2

Commercial paper

 

9,821

 

 

 

-

 

 

 

(1

)

 

 

9,820

 

 

Level 2

U.S. treasury notes

 

12,079

 

 

 

-

 

 

 

(10

)

 

 

12,069

 

 

Level 2

Total marketable securities

$

203,536

 

 

$

4

 

 

$

(211

)

 

$

203,329

 

 

 

 

The following table presents the contractual maturities of the Company’s marketable securities:

 

 

As of September 30, 2016

 

 

As of December 31, 2015

 

 

Amortized

 

 

Fair

 

 

Amortized

 

 

Fair

 

 

Cost

 

 

Value

 

 

Cost

 

 

Value

 

 

(in thousands)

 

Mature within one year

$

35,954

 

 

$

35,981

 

 

$

169,728

 

 

$

169,619

 

Mature after one year and within three years

 

16,359

 

 

 

16,387

 

 

 

33,808

 

 

 

33,710

 

Total

$

52,313

 

 

$

52,368

 

 

$

203,536

 

 

$

203,329

 

 

 

4. Commitments and Contingencies

Commitments

Thales

In June 2010, the Company executed a primarily fixed-price full-scale development contract (the “FSD”) with Thales Alenia Space France (“Thales”) for the design and build of satellites for Iridium NEXT. The total price under the FSD is $2.3 billion, and the Company expects payment obligations under the FSD to extend through 2018. As of September 30, 2016, the Company had made aggregate payments of $1,671.7 million to Thales, of which $1,417.0 million were from borrowings under the Credit Facility, and which were capitalized as construction in progress within property and equipment, net in the accompanying condensed consolidated balance sheet. The Company currently uses the Credit Facility to pay 85% of each invoice received from Thales under the FSD, with the remaining 15% funded from cash on hand. Once the Credit Facility is fully drawn, the Company expects to pay 100% of each

9


invoice received from Thales from cash and marketable securities on hand as well as internally generated cash flows, including contracted cash flows from hosted payloads and potential cash flows from Iridium PRIME SM .

SpaceX

In March 2010, the Company entered into an agreement with Space Exploration Technologies Corp. (“SpaceX”) to secure SpaceX as the primary launch services provider for Iridium NEXT (as amended to date, the “SpaceX Agreement”). The total price under the SpaceX Agreement for seven launches and a reflight option in the event of a launch failure is $468.1 million. As of September 30, 2016, the Company had made aggregate payments of $338.7 million to SpaceX, which were capitalized as construction in progress within property and equipment, net in the accompanying condensed consolidated balance sheet. In addition, the Company made a $3.0 million refundable deposit to SpaceX in the first quarter of 2014 for the reservation of additional future launches, which is not included in the total contract price.

Kosmotras

In June 2011, the Company entered into an agreement with International Space Company Kosmotras (“Kosmotras”) as a supplemental launch service provider for Iridium NEXT (the “Kosmotras Agreement”). In June 2013, the Company exercised an option for one launch to carry two Iridium NEXT satellites. If the Company does not exercise any additional options, the total cost under the contract including this single launch will be $51.8 million. As of September 30, 2016, the Company had made aggregate payments of $36.8 million to Kosmotras, which were capitalized as construction in progress within property and equipment, net in the accompanying condensed consolidated balance sheet. In June 2015, the Company agreed with Kosmotras to replace the remaining options with a new set of options to purchase up to six dedicated launches. Kosmotras has to date been unable to obtain permission to launch the Company’s satellites, and the Company is exploring other options to launch additional satellites. The Company may also be unable to recover the amounts already paid to Kosmotras.

Credit Facility

In October 2010, the Company entered into a $1.8 billion credit facility with a syndicate of bank lenders, which was amended and restated in May 2014 (as further amended to date, the “Credit Facility”). As of September 30, 2016, the Company reported $1,546.8 million in borrowings from the credit facility in the accompanying condensed consolidated balance sheet, net of $123.1 million of deferred financing costs, for an aggregate total of $1,669.9 million in borrowings. The unused portion of the Credit Facility as of September 30, 2016 was $130.1 million. Pursuant to the Credit Facility, the Company maintains a minimum cash reserve for debt repayment. As of September 30, 2016, the minimum required cash reserve balance was $113.0 million, which is classified as restricted cash in the accompanying condensed consolidated balance sheet. The minimum cash reserve requirement will increase to $189.0 million in 2017.

Interest costs incurred under the Credit Facility were $19.8 million and $57.0 million for the three and nine months ended September 30, 2016, respectively, and $16.7 million and $47.2 million for the three and nine months ended September 30, 2015, respectively.  All interest costs incurred related to the Credit Facility have been capitalized during the construction period of the Iridium NEXT assets. The Company pays interest on a semi-annual basis in April and October through a combination of a cash payment and a deemed additional loan.

 

 

 

Nine Months Ended

 

 

 

September 30, 2016

 

 

 

Cash

 

 

Deemed Loan

 

 

Total

 

 

 

(in thousands)

 

Beginning interest payable

 

$

3,720

 

 

$

8,514

 

 

$

12,234

 

Interest incurred

 

 

17,219

 

 

 

39,778

 

 

 

56,997

 

Interest payments

 

 

(10,985

)

 

 

(25,136

)

 

 

(36,121

)

Ending interest payable

 

$

9,954

 

 

$

23,156

 

 

$

33,110

 

 

 

 

Nine Months Ended

 

 

 

September 30, 2015

 

 

 

Cash

 

 

Deemed Loan

 

 

Total

 

 

 

(in thousands)

 

Beginning interest payable

 

$

2,936

 

 

$

6,653

 

 

$

9,589

 

Interest incurred

 

 

14,416

 

 

 

32,827

 

 

 

47,243

 

Interest payments

 

 

(8,911

)

 

 

(20,282

)

 

 

(29,193

)

Ending interest payable

 

$

8,441

 

 

$

19,198

 

 

$

27,639

 

10



The Company is obligated to pay a cash commitment fee of 0.80% per year, in semi-annual installments, on any undrawn portion of the Credit Facility. In April 2016, the Company paid $1.2 million as a semi-annual installment of t he commitment fee. The commitment fee payable on the undrawn portion of the Credit Facility as of September 30, 2016 was $0.7 million and is included in accrued expenses and other current liabilities in the accompanying condensed consolidated balance sheet .

Contingencies

From time to time, in the normal course of business, the Company is party to various pending claims and lawsuits. The Company is not aware of any such actions that it would expect to have a material adverse impact on its business, financial results or financial condition.

 

5. Stock-Based Compensation

The Company accounts for stock-based compensation at fair value. The fair value of stock options is determined at the grant date using the Black-Scholes option pricing model. The fair value of restricted stock units (“RSUs”) is equal to the closing price of the underlying common stock on the grant date. The fair value of an award that is ultimately expected to vest is recognized on a straight-line basis over the requisite service or performance period and is classified in the condensed consolidated statements of operations and comprehensive income in a manner consistent with the classification of the recipient’s compensation. The expected vesting of the Company’s performance-based RSUs is based upon the likelihood that the Company achieves the defined performance goals. The level of achievement of performance goals, if any, is determined by the compensation committee of the Company’s Board of Directors. Stock-based awards to non-employee consultants are expensed at their fair value as services are provided according to the terms of their agreements and are classified in selling, general and administrative expenses in the accompanying condensed consolidated statements of operations and comprehensive income.

In May 2015, the Company’s stockholders approved the 2015 Equity Incentive Plan (the “2015 Plan”) to provide stock-based awards, including nonqualified stock options, incentive stock options, restricted stock and other equity securities, as incentives and rewards for employees, consultants and non-employee directors. Members of the Company’s board of directors received a portion of their annual compensation in the form of equity awards under the 2015 Plan. An aggregate amount of approximately 126,000 RSUs were granted in January 2016, which will vest in full on the first anniversary of the grant date. The estimated aggregate grant date fair value of the RSUs granted to the directors in January 2016 was $1.0 million. In January 2015, an aggregate amount of approximately 103,000 stock options and 62,000 RSUs were granted to the board of directors, with 25% vesting on the last day of each calendar quarter in 2015. The estimated aggregate grant date fair value of the stock options and RSUs granted to the directors in January 2015 was $0.4 million and $0.6 million, respectively.

During the nine months ended September 30, 2016 and 2015, the Company granted approximately 249,000 and 742,000 stock options, respectively, to its employees, with an estimated aggregate grant date fair value of $0.9 million and $2.9 million, respectively. Additionally, during the nine months ended September 30, 2016 and 2015, the Company granted 573,000 and 596,000 service-based RSUs, respectively, to its employees, with an estimated aggregate grant date fair value of $4.0 million and $5.6 million , respectively. Employee stock options and service-based RSUs generally vest over a four-year service period, with 25% vesting on the first anniversary of the grant date and the remainder vesting ratably on a quarterly basis thereafter.

In March 2016, the Company awarded approximately 1,335,000 performance-based RSUs to the Company’s executives and employees (the “Bonus RSUs”). The Company records stock-based compensation expense related to performance-based RSUs when it is considered probable that the performance conditions will be met. Vesting of the March 2016 Bonus RSUs is dependent upon the Company’s achievement of defined performance goals for the 2016 fiscal year. Management believes it is probable that certain RSUs will vest. The level of achievement, if any, of performance goals will be determined by the compensation committee of the Company’s Board of Directors and, if such goals are achieved, the March 2016 Bonus RSUs will vest, subject to continued employment, in March 2017. The estimated aggregate grant date fair value of the March 2016 Bonus RSUs was $9.4 million.

Additionally, in March 2016 and March 2015, the Company awarded approximately 119,000 and 161,000 performance-based RSUs, respectively, to the Company’s executives (the “March Performance RSUs”).  Vesting of the 2016 and 2015 March Performance RSUs is dependent upon the Company’s achievement of defined performance goals over a two-year period (fiscal years 2016 and 2017 for the March Performance RSUs granted in 2016 and fiscal years 2015 and 2016 for the March Performance RSUs granted in 2015). Management believes it is probable that certain RSUs will vest. The number of March Performance RSUs that will ultimately vest may range from 0% to 150% of the original grant based on the level of achievement of the performance goals. If the Company achieves the performance goals, 50% of the March Performance RSUs will vest in March of the second year after grant and the remaining 50% will vest in March of the third year after grant, in each case subject to the executive’s continued service as of the vesting date. The estimated aggregate grant date fair value of the March Performance RSUs was $0.8 million for the 2016 grants and $1.5 million for the 2015 grants .

 

11


In June 2016 and June 2015, the Company granted approximately 35,000 RSUs and 30,000 stock options, respectively, to non-employee consultants. The RSUs and stock options are generally subject to service-based vesting. The R SUs vest 50% in June 2017 and quarterly thereafter through June 2018. The stock options vest quarterly through June 2017. The estimated aggregate grant date fair value of the RSUs granted to non-employee consultants in June 2016 was $0.3 million. The fair value of the consultant options is the then-current fair value attributable to the vesting portions of the awards, calculated using the Black-Scholes option pricing model. The estimated aggregate grant date fair value of the stock options granted to non-em ployee consultants in June 2015 was $0.2 million.

 

6. Equity Transactions and Instruments

Preferred Stock

The Company is authorized to issue 2.0 million shares of preferred stock with a par value of $0.0001 per share. As described below, the Company issued 1.0 million shares of preferred stock in the fourth quarter of 2012 and 0.5 million shares of preferred stock in the second quarter of 2014. The remaining 0.5 million authorized shares of preferred stock remain undesignated and unissued as of September 30, 2016.

Series A Cumulative Perpetual Convertible Preferred Stock

In the fourth quarter of 2012, the Company issued 1.0 million shares of its 7.00% Series A Cumulative Perpetual Convertible Preferred Stock (the “Series A Preferred Stock”) in a private offering. The Company received proceeds of $96.5 million from the sale of the Series A Preferred Stock, net of the aggregate $3.5 million in initial purchaser discount and offering costs. The net proceeds of this offering were used to partially fund the construction and deployment of Iridium NEXT and for other general corporate purposes.

Holders of Series A Preferred Stock are entitled to receive cumulative cash dividends at a rate of 7.00% per annum of the $100 liquidation preference per share (equivalent to an annual rate of $7.00 per share). Dividends are payable quarterly in arrears on each March 15, June 15, September 15 and December 15. The Series A Preferred Stock does not have a stated maturity date and is not subject to any sinking fund or mandatory redemption provisions. The Series A Preferred Stock ranks senior to the Company’s common stock and pari passu with the Company’s 6.75% Series B Cumulative Perpetual Convertible Preferred Stock (the “Series B Preferred Stock”) with respect to dividend rights and rights upon the Company’s liquidation, dissolution or winding-up. Holders of Series A Preferred Stock generally have no voting rights except for limited voting rights if the Company fails to pay dividends for six or more quarterly periods (whether or not consecutive) and in other specified circumstances. Holders of Series A Preferred Stock may convert some or all of their outstanding Series A Preferred Stock at an initial conversion rate of 10.6022 shares of common stock per $100 liquidation preference, which is equivalent to an initial conversion price of approximately $9.43 per share of common stock (subject to adjustment in certain events).

During each of the three and nine months ended September 30, 2016 and 2015, the Company paid cash dividends of $1.8 million and $5.3 million, respectively, to holders of the Series A Preferred Stock. As of September 30, 2016 and December 31, 2015, the Company had accrued $0.3 million in cash dividends for the holders of the Series A Preferred Stock, which is included within accrued expenses and other current liabilities in the accompanying condensed consolidated balance sheets.

On or after October 3, 2017, the Company may, at its option, convert some or all of the Series A Preferred Stock into the number of shares of common stock that are issuable at the then-applicable conversion rate, subject to specified conditions. On or prior to October 3, 2017, the holders of Series A Preferred Stock will have a special right to convert some or all of the Series A Preferred Stock into shares of common stock in the event of fundamental changes described in the Certificate of Designations for the Series A Preferred Stock, subject to specified conditions and limitations. In certain circumstances, the Company may also elect to settle conversions in cash as a result of these fundamental changes.

Series B Cumulative Perpetual Convertible Preferred Stock

In May 2014, the Company issued 500,000 shares of its Series B Preferred Stock in an underwritten public offering at a price to the public of $250 per share. The purchase price received by the Company, equal to $242.50 per share, reflected an underwriting discount of $7.50 per share. The Company received proceeds of $120.8 million from the sale of the Series B Preferred Stock, net of the $3.8 million underwriter discount and $0.4 million of offering costs. The net proceeds of this offering are being used to partially fund the construction and deployment of Iridium NEXT and for other general corporate purposes.

Holders of Series B Preferred Stock are entitled to receive cumulative cash dividends at a rate of 6.75% per annum of the $250 liquidation preference per share (equivalent to an annual rate of $16.875 per share). Dividends are payable quarterly in arrears on each March 15, June 15, September 15 and December 15. The Series B Preferred Stock does not have a stated maturity date and is not subject to any sinking fund or mandatory redemption provisions. The Series B Preferred Stock ranks senior to the Company’s common stock and pari passu with respect to the Company’s Series A Preferred Stock with respect to dividend rights and rights upon the Company’s voluntary or involuntary liquidation, dissolution or winding-up. Holders of Series B Preferred Stock generally have no voting rights except for limited voting rights if the Company fails to pay dividends for six or more quarterly periods (whether or not

12


consecutive) and in other specified circumsta nces. Holders of Series B Preferred Stock may convert some or all of their outstanding Series B Preferred Stock at an initial conversion rate of 33.456 shares of common stock per $250 liquidation preference, which is equivalent to an initial conversion pri ce of approximately $7.47 per share of common stock (subject to adjustment in certain events).

During each of the three and nine months ended September 30, 2016 and 2015, the Company paid cash dividends of $2.1 million and $6.3 million, respectively, to holders of the Series B Preferred Stock. As of September 30, 2016 and December 31, 2015, the Company had accrued $0.4 million in cash dividends for the holders of the Series B Preferred Stock, which is included within accrued expenses and other current liabilities in the accompanying condensed consolidated balance sheet.

On or after May 15, 2019, the Company may, at its option, convert some or all of the Series B Preferred Stock into the number of shares of common stock that are issuable at the then-applicable conversion rate, subject to specified conditions. On or prior to May 15, 2019, in the event of certain specified fundamental changes, holders of the Series B Preferred Stock will have the right to convert some or all of their shares of Series B Preferred Stock into the greater of (i) a number of shares of the Company’s common stock as subject to adjustment plus the make-whole premium, if any, and (ii) a number of shares of the Company’s common stock equal to the lesser of (a) the liquidation preference divided by the market value of the Company’s common stock on the effective date of such fundamental change and (b) 81.9672 (subject to adjustment). In certain circumstances, the Company may elect to cash settle any conversions in connection with a fundamental change.

 

 

7. Net Income Per Share

The Company calculates basic net income per share by dividing net income attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period. Diluted net income per share takes into account the effect of potential dilutive common shares when the effect is dilutive. The effect of potential dilutive common shares, including common stock issuable upon exercise of outstanding stock options, is computed using the treasury stock method. The effect of potential dilutive common shares from the conversion of outstanding convertible preferred securities is computed using the as-if converted method at the stated conversion rate. The RSUs granted to members of the Company’s board of directors contain non-forfeitable rights to dividends and therefore are considered to be participating securities in periods of net income. The calculation of basic and diluted net income per share excludes net income attributable to the unvested RSUs from the numerator and excludes the impact of unvested RSUs from the denominator.

The computations of basic and diluted net income per share are as follows:

 

 

Three Months Ended September 30,

 

 

2016

 

 

2015

 

 

(in thousands, except per share data)

 

Numerator:

 

 

 

 

 

 

 

Net income attributable to common stockholders

(numerator for basic net income per share)

$

27,696

 

 

$

25,688

 

Dividends on Series A Preferred Stock

 

1,750

 

 

 

1,750

 

Dividends on Series B Preferred Stock

 

2,109

 

 

 

2,109

 

Numerator for diluted net income per share

$

31,555

 

 

$

29,547

 

 

 

 

 

 

 

 

 

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Denominator for basic net income per share - weighted

   average outstanding common shares

 

96,067

 

 

 

95,317

 

Dilutive effect of stock options

 

293

 

 

 

31

 

Dilutive effect of contingently issuable shares

 

-

 

 

 

18

 

Dilutive effect of Series A Preferred Stock

 

10,602

 

 

 

10,602

 

Dilutive effect of Series B Preferred Stock

 

16,728

 

 

 

16,728

 

Denominator for diluted net income per share

 

123,690

 

 

 

122,696

 

 

 

 

 

 

 

 

 

Net income per share attributable to common

   stockholders - basic

$

0.29

 

 

$

0.27

 

Net income per share attributable to common

   stockholders - diluted

$

0.26

 

 

$

0.24

 

 

For the three months ended September 30, 2016, options to purchase 2.8 million shares of common stock were not included in the computation of diluted net income per share, as the effect would be anti-dilutive. For the three months ended September 30, 2016, 1.4

13


million unvested non-performance-based RSUs were excluded from the computation of basic net income per share and not included in the computation of diluted net income per share, as the effect would be anti-dilutive, and 1.7 million unvested performance-based RSUs were not included in the computation of basic and diluted net income per share, as certain performance criteria have not been satisfied.

 

For the three months ended September 30, 2015, options to purchase 4.9 million shares of common stock were not included in the computation of diluted net income per share, as the effect would be anti-dilutive. For the three months ended September 30, 2016, 1.4 million unvested non-performance based RSUs were excluded from the computation of basic net income per share and not included in the computation of diluted net income per share, as the effect would be anti-dilutive, and 0.4 million unvested performance-based RSUs were not included in the computation of basic and diluted net income per share, as certain performance criteria have not been satisfied.

 

Nine Months Ended September 30,

 

 

2016

 

 

2015

 

 

(in thousands, except per share data)

 

Numerator:

 

 

 

 

 

 

 

Net income attributable to common stockholders

(numerator for basic net income per share)

$

75,352

 

 

$

64,977

 

Dividends on Series A Preferred Stock

 

5,250

 

 

 

5,250

 

Dividends on Series B Preferred Stock

 

6,327

 

 

 

6,327

 

Numerator for diluted net income per share

$

86,929

 

 

$

76,554

 

 

 

 

 

 

 

 

 

Denominator:

 

 

 

 

 

 

 

Denominator for basic net income per share - weighted

   average outstanding common shares

 

95,890

 

 

 

94,972

 

Dilutive effect of stock options

 

188

 

 

 

316

 

Dilutive effect of contingently issuable shares

 

-

 

 

 

37

 

Dilutive effect of Series A Preferred Stock

 

10,602

 

 

 

10,602

 

Dilutive effect of Series B Preferred Stock

 

16,728

 

 

 

16,728

 

Denominator for diluted net income per share

 

123,408

 

 

 

122,655

 

 

 

 

 

 

 

 

 

Net income per share attributable to common

   stockholders - basic

$

0.79

 

 

$

0.68

 

Net income per share attributable to common

   stockholders - diluted

$

0.70

 

 

$

0.62

 

 

For the nine months ended September 30, 2016, options to purchase 4.0 million shares of common stock were not included in the computation of diluted net income per share, as the effect would be anti-dilutive. For the nine months ended September 30, 2016, 1.4 million unvested non-performance-based RSUs were excluded from the computation of basic net income per share and not included in the computation of diluted net income per share, as the effect would be anti-dilutive, and 1.5 million unvested performance-based RSUs were not included in the computation of basic and diluted net income per share, as certain performance criteria has not been satisfied.

For the nine months ended September 30, 2015, options to purchase 1.8 million shares of common stock were not included in the computation of diluted net income per share, as the effect would be anti-dilutive. For the nine months ended September 30, 2015, 1.4 million unvested non-performance-based RSUs were excluded from the computation of basic net income per share and not included in the computation of diluted net income per share, as the effect would be anti-dilutive, and 0.5 million unvested performance-based RSUs were not included in the computation of basic and diluted net income per share, as certain performance criteria have not been satisfied.

 


14


ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

You should read the following discussion along with our Annual Report on Form 10-K for the fiscal year ended December 31, 2015, filed on February 25, 2016 with the Securities and Exchange Commission, or the SEC, as well as our condensed consolidated financial statements included in this Form 10-Q.