FORM 10-K
(Mark One)
2017
Iridium Communications Inc.
Delaware (State or other jurisdiction of | ||
incorporation or organization) | 26-1344998 (I.R.S. Employer Identification No.) |
Securities Registered Pursuant to Section 12(b) of the Act:
Title of Each Class | Name of Each Exchange on Which Registered | |||
Common Stock, $0.001 par value | NASDAQ Global Select Market | |||
6.75% Series B Cumulative Perpetual Convertible Preferred Stock, $0.0001 par value | NASDAQ Global Select Market | |||
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ý No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨☐ No xý
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. xý
Large accelerated filer | Accelerated filer | ||
☐ | |||
Non-accelerated filer | Smaller Reporting Company | ||
Emerging Growth Company | ☐ |
98,211,433.
IRIDIUM COMMUNICATIONS INC.
2017
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PART II | ||
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Item 9A. | ||
Item 9B. | ||
PART III | ||
Item 10. | ||
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Item 13. | ||
Item 14. | ||
PART IV | ||
Item 15. | ||
Item 16. | ||
or DTCS. the second largest provider by revenue of mobile voice and data communications services via satellite, and the only commercial provider of communications services offering true global coverage.coverage, connecting people, organizations and assets to and from anywhere, in real time. Our unique L-band satellite network provides reliable communications services to regions of the world where existingterrestrial wireless or wireline networks do not exist or are limited, including remote land areas, open ocean, airways, the polar regions and regions where the telecommunications infrastructure has been affected by political conflicts or natural disasters.in-orbitoperational satellites with in-orbit spares and related ground infrastructure. We utilize an interlinked mesh architecture to route traffic across our satellite constellation using radio frequency crosslinks between satellites. This unique architecture minimizes the need for local ground facilities to support the constellation, which facilitates the global reach of our services and allows us to offer services in countries and regions where we have no physical presence. Commercial enterprises use our services to track assets in remote areas and provide telematics information such as location and engine diagnostics.$84.5$106.1 million in service and engineering and support service revenue, or 21%24% of our total revenue, for the year ended December 31, 2014.2017. This does not include revenue from the sale of equipment that may be ultimately purchased by U.S. or non-U.S. government agencies through third-party distributors, or airtime services purchased by U.S. or non-U.S. government agencies that are provided through our commercial gateway, as we lack specific visibility into these activities and the related revenue. We have a multi-year, fixed-price contract with the U.S. government to provide satellite airtime services for an unlimited number of U.S. Department of Defense, or DoD, and other federal government subscribers, with a total contract value of $400 million over its five-year term through October 2018.gateway, thus providing additional levels of protection. Since our network was launched in the 1990s, thegateway. The DoD has made, and continues to make, significant investments to build and upgrade its dedicated gateway for Iridium NEXT and to purchase our voice and data devices, all of which are only compatible with our satellite network. In addition, the DoD continues to invest directly and indirectly in additional services on our network such as Distributed Tactical Communications Services, which we refer to as Netted Iridium®.more than 70approximately 140 service providers, more than 190approximately 220 value-added resellers, or VARs, and more than 40approximately 85 value-added manufacturers, or VAMs, which create and sell technology that uses the Iridium®network either directly to the end user or indirectly through other service providers, VARs or dealers. These distributors often integrate our products and services with other complementary hardware and software and have developed a broad suite of applications using our products and services to target specific lines of business. We expect that demand for our services will increase as more applications are developed and deployed that utilize our technology.2014,2017, we had approximately 739,000969,000 billable subscribers worldwide, representing an 11%a 14% increase compared to December 31, 2013.2016. Total revenue increased from $382.6$433.6 million in 20132016 to $408.6$448.0 million in 2014.In the second half of 2015, we expect to begin launching our new satellite constellation, Iridium NEXT. Iridium NEXT will maintain the architecture of our current constellation, with 66 in-orbit satellites, as well as six in-orbit spares, and we are building nine ground spares. We have contracted with Thales Alenia Space France, or Thales, to construct the Iridium NEXT satellites, which are designed to be compatible with our current constellation and current end-user equipment, so that as the Iridium NEXT satellites are launched, they will replace satellites in the current constellation without affecting the service to our end users. We plan to deploy the first two satellites on a Dnepr rocket launched by International Space Company Kosmotras, or Kosmotras, with the remaining 70 satellites to be deployed on seven Falcon 9 rockets launched by Space Exploration Technologies Corporation, or SpaceX. We expect to complete the deployment of the Iridium NEXT constellation in 2017. We estimate the costs associated with the design, build and launch of Iridium NEXT and related ground infrastructure upgrades through 2017 to be approximately $3 billion. Our funding plan for these costs includes the substantial majority of the funds available under our $1.8 billion credit facility, or the Credit Facility, together with cash on hand and internally generated cash flows, including potential cash flows from hosted payloads and Iridium PRIMESM; we anticipate that Harris will also pay us data service fees on behalf of these customers.The Iridium NEXT constellation will also host the AireonSM system to provide a global air traffic surveillance service through a series of automatic dependent surveillance-broadcast, or ADS-B, receivers on the Iridium NEXT satellites. Aireon LLC, our joint venture with the air navigation service providers, or ANSPs, of Canada, Italy, Denmark and Ireland, has contracted to provide the Aireon service to our co-investors in Aireon and NATS (En Route) PLC, the ANSP of the United Kingdom. Aireon also plans to offer the service to other ANSPs worldwide including the U.S. Federal Aviation Administration, or FAA. Aireon will pay us a fee to host the ADS-B receivers on Iridium NEXT, as well as data services fees for the delivery of the air traffic surveillance data over the Iridium NEXT system. In addition, we have entered into an agreement with Harris Corporation, the manufacturer of the Aireon hosted payload, pursuant to which Harris pays us fees to allocate the remaining hosted payload capacity to its customers. existing terrestrial wireline and wireless communications networks do not exist, do not provide sufficient coverage, or are impaired. Further, many regions of the world benefit from satellite networks, such as rural and developing areas that lack adequate wireless or wireline networks, airways, ocean and polar regions where few alternatives exist, and regions where the telecommunications infrastructure has been affected by political conflicts or natural disasters.will provide a significant market opportunitycreates additional demand for the mobile satellite services industry. According to a 2014 report produced2017 study by A.T. Kearney for the GSM Association, total mobile connections reached 6.97.9 billion throughout the world as of the end of 2013. 2016 and are projected to reach 9.7 billion by 2020.located or in transit.located. By offering mobile communications services with global voice and data coverage, mobile satellite service providers address the demand from businesses, governments and individuals for connectivity and reliability in locations not consistently served by wireline and wireless terrestrial networks.services.services, including the continued advancement of the Internet of Things, or IoT. We believe that growth in demand for mobile satellite services is driven in large part by the declining cost of these services, the diminishing size and lower costs of voice, data and machine-to-machine, or M2M,IoT devices, the rollout of new applications tailored to the specific needs of customers across a variety of markets, and a more favorable regulatory environment in international markets.
• | Iridium NEXT. We expect to complete our |
•Leverage our largely fixed-cost infrastructure by growing our service revenue. Our business model is characterized by high capital costs, primarily incurred every 10 to 15 years, in connection with designing, building and launching new generations of our satellite constellation, but the incremental cost of providing service to additional end users is relatively low. We believe that service revenue will be our largest source of future growth and profits, and we intend to focus on growing both our commercial and government service revenue in order to leverage our largely fixed-cost infrastructure. In particular, we believe that M2M services, where we are engaging large, global enterprises as long-term customers for telematics solutions, represent an opportunity for service revenue growth.
• | Accelerate the development of personal communications capabilities. |
Two10degrees Limited. We have begun discussions with the U.S. government on a new EMSS contract, and we expect that we will be successful in renewing this agreement. In addition, it may be unilaterally extended by the government for a period of six months. We have begun discussions with the U.S. government on a new GMSS contract and we expect that we will be successful in renewing this agreement. period. Currently the DoD is working under a continuing statement of work. We expect our planned 2018 introduction of Iridium Certus to impact our opportunities in each of our lines of business by providing end users an additional competitive broadband communication solution. We believe the increased need for monitoring climate and environmental data associated with global climate change and human impact on the planet will increase demand for these services. addressable market for our maritime services. operation. 2017. world. , an off-the-shelf, environmentally sealed, rugged device that complements existing cellular solutions to create dual-mode connectivity for the most remote and inaccessible areas of the world. Iridium Edge reduces the cost and complications associated with hardware The design of our space and ground control system also facilitates the real-time monitoring and management of the satellite constellation and facilitates service upgrades via software enhancements. All our ground infrastructure, including gateway and teleport technology and satellite control systems, was upgraded in advance of the launch of Iridium NEXT. functions and route commercial services. our satellites on a Dnepr rocket. 2018. As described in this report, we also expect to raise additional capital through the issuance of debt securities as part of our funding plan. 2018. payloads. In service. equity, including to us. a potential debt issuance. rights and information security standards. revenue could be harmed. We are dependent on third parties to market and sell our products and services. performance. circumstances. a commercially acceptable level of service. a commercially acceptable level of service. country, or we may need to make substantial additional expenditures to bring our systems, products and services into compliance with the requirements. NEXT system and to pursue additional growth opportunities may be impaired. Our liquidity and the ability to fund our liquidity requirements also depend on our future financial performance, which is subject to general economic, financial, regulatory and other factors that are beyond our control. the hosting fees due to us from Aireon during this timeframe. would no longer use bills of exchange to pay milestones under the FSD. from GFZ. 2017. in February 2017. described above. hosting fees from Aireon by September 30, 2018. 2017. network. straight-line method over their respective estimated useful lives. 2018. enter into later in 2018 or in 2019. handsets and L-band transceivers. 2017. 2018. increased professional fees associated with government regulatory requirements and other services. Tax Benefit 2015 increased unit sales of Iridium Pilot adapt the Iridium Extreme lower supplier transition expenses and lower non-income taxes. analysis of the first-generation satellites’ remaining useful lives throughout 2016. We will continue to evaluate the useful lives of our first-generation satellites through the full deployment of Iridium NEXT as the satellites are placed into service. Tax Expense As described in more detail below, we also anticipate incurring additional debt in order to raise additional capital for these purposes. additional debt. June 15, 2017. Holders of Series A Preferred Stock hosting fees from Aireon by September 30, 2018. 2017. Facility and $54.9 million of net debt related to our Thales bills of exchange. 2016 payloads. 2017. 2015 certain product inventory during 2016 as a result of improved inventory management. These changes were offset by payments for the in-orbit portion of insurance to support the Iridium NEXT launch campaign. NEXT. The exchange rate changes were primarily due to a modest strengthening of the Russian ruble against the U.S. dollar throughout 2016. period. Page : We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. 22, 2018 2017 All fixed-income securities are included in marketable securities on the accompanying consolidated balance sheets. 2016. As of December 31, discussed above. 2016 were primarily related to certain handset parts and accessories, and the expenses for the year ended December 31, 2015 were primarily related to Iridium Pilot equipment. was presented below: 2018. The Company’s next-generation satellites will be depreciated on a straight-line basis over the estimated useful life, which is currently estimated to be 12.5 years. 2017. December 31, 2017 and 2016. following estimated useful lives: Effective October 22, 2013, the Company executed a new five-year EMSS 2015, respectively. 2016, 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 $102.4 million and $113.1 million, respectively. securities: Treasury notes: 2017. Company. Company's common stock in connection with any liquidation event. Company. repayments. For the years ended December 31, No deemed loans were utilized for interest incurred during the year ended December 31, 2017. Interest payable as of December 31, 2017 and 2016 was $15.0 million and $14.1 million, respectively. 2017. Company’s future financial performance, which is subject to general economic, financial, regulatory and other factors that are beyond the Company’s control. O&M Agreement, the Company recognized a $14.2 million gain from the derecognition of a purchase accounting liability created from GHL’s acquisition of Iridium in 2009 related to the fair value of the contractual arrangement with Boeing as of that date and the remainder of a credit from Boeing in the July 2010 Boeing O&M contract negotiations. following: following: 2015, respectively. See Note 6 for further details on the Boeing assembled workforce, added in 2017. at signing (which was recorded as original issue discount) plus 1.62%. 2017. Obligations 2018 is $9.2 million. 2026. The Company is not aware of any services of our employees, directors and consultants, and to provide long-term incentives that align the interests of our employees, directors and consultants with the interests of our stockholders. our calculations of fair value: remaining 54,000 will vest in March 2018. expected to be recognized over a weighted-average period of 1.25 years. The Company recognized follows: currencies. 2016, respectively, and increased by approximately $0.1 million for the year ended December 31, 2015. a net deferred tax liability of $246.2 million. 2017, which is unchanged from December 31, 2016. Denominator for basic net income per share - weighted anti-dilutive. results: criteria We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.more than 70approximately 140 service providers, more than 190approximately 220 VARs and more than 40approximately 85 VAMs. These distributors sell our products and services to end users, either directly or indirectly through service providers, VARs or dealers. Of these distributors, 3334 sell primarily to U.S. and international government customers. Our distributors often integrate our products and services with other complementary hardware and software and have developed individual solutions targeting specific lines of business. We also sell airtime services directly to the U.S. government, including the DoD, for resale to other government agencies. The U.S. government and international government agencies may purchase additional services as well as our products and related applications through our network of distributors.support service program to provide portside service for Iridium OpenPort®our maritime customers at major ports worldwide. In addition, we maintain various online management tools that allow us to communicate efficiently with our distributors, and allow them to manage their customers’ Iridium devices from anywhere in the world. By relying on our distributors to manage end user sales, we believe that we reduce some of the risks and costs related to our business, such as consumer relationship risks and sales and marketing costs, while providing a broad and expanding distribution network for our products and services with access to diverse and geographically dispersed niche markets. We are also able to benefit from the specialized expertise of our distributors, who continue to develop innovative and improved solutions and applications integrating our product and service offerings, providing us with an attractive platform to support our growth. M2M, aviation and government markets, where high-use customers with specialized needs are concentrated. These VARs integrate our handsets, transceivers, high-speed data devices and short-burst dataShort-Burst Data®, or SBD®, modems with other hardware and software to create packaged solutions for end users. Examples of these applications include cockpit voice and data solutions for use by the aviation sector and voice, data and tracking applications for industrial customers, such as Caterpillar Inc., the DoD and other U.S. and internationalforeign government agencies. Our service providers include dedicated satellite service providers such as Airbus DefenseMarlink SAS, Applied Satellite Technology Limited and Space and Inmarsat,Network Innovations, as well as some of the largest telecommunications companies in the world, including Telstra Corporation Limited, KDDI Corporation and Singapore Telecommunications Limited. Our VARs include Gogo Business Aviation LLC, ARINC Incorporated, Blue Sky Network, LLC, DeLorme Publishing CompanyCaterpillar Inc., Garmin Ltd., General Dynamics Corporation, Joubeh Technologies Inc.,Gogo Business Aviation LLC, Komatsu Limited, Kore Telematics Inc., MetOcean Telematics Limited, Mix Telematics International (Pty) Ltd., NAL Research Corporation, OnixSat Rastreamento de Veículos Ltda. and Zunibal S.A.propriety hardware and software.proprietary hardware. These VAMs produce specialized end-user equipment, including integrated ship, vehicular and aviation communications systems, and global asset tracking devices, and secure satellite handsets, such as our Iridium 9505A handset coupled with U.S. National Security Agency Type I encryption capability, which they offer to end users in IoT, maritime, aviation government and M2Mgovernment markets. As with our service providers and VARs, VAMs sell their products either directly or through other distributors, including some of our service providers and VARs. Our VAMs include Applied Satellite Engineering, Inc., Beam Communications Pty Ltd., Honeywell, EMS, Calamp Wireless Networks Corporation, International Communications Group, Inc.Cobham plc, Garmin Ltd., ITT Exelis,Gilat Satcom Ltd., Honeywell and Quake Global, Inc. and Cobham plc.more than 35approximately 45 value-added developers, or VADs. We typically provide technical information to these companies on our products and services, which they then use to develop software and hardware that complements our products and services in line with the specifications of our VARs and VAMs. These products include handset docking stations, airline tracking and flight management applications and crew e-mail applications for the maritime industry. We believe that working with VADs allows us to create new platforms for our products and services and increases our market opportunity while reducing our overall research and development, marketing and support Two10degrees Limited, Global Marine Networks, LLC, Hirschmann Automation and Controls, Inc., Maxtena, Inc. and Maxtena, Inc. consistent wholesale rate structure. Under our distribution agreements, we charge our distributors wholesale rates for commercial products and services, subject to discount and promotional arrangements and geographic pricing. We also charge fixed monthly access fees per subscriber for some of our services. Our distributors are in turn responsible for setting their own pricing to their customers. Our agreements with distributors typically have terms of one year and are automatically renewable for additional one-year terms, subject to termination rights. We believe this business model provides incentives for distributors to focus on selling our commercial product and service portfolio and developing additional applications. An additional benefit of this model is simplicity. This model reduces back-office complexities and costs and allows distributors to remain focused on revenue generation.9505A9575A satellite handset is the only commercial, mobile handheld satellite phone that is capable of Type I encryption accredited by the U.S. National Security Agency for Top Secret voice communications. In addition, the DoD has madecontinues to make significant investments in a dedicated gateway that provides operational security and allows users of encrypted DoD handsets to communicate securely with other U.S. government communications equipment. These investments include upgrading the gateway to take advantage of the enhanced capabilities of Iridium NEXT.NEXT, including new products. This gateway is only compatible with our satellite network. Iridium airtime and airtime support to U.S. government and other authorized customers pursuant to our five-year EMSS contract, which is effective asthrough October 21, 2018, but can be unilaterally extended by the government for a period of October 22, 2013.six months. Under the terms of this agreement, authorized customers utilize Iridiumour airtime services provided through the DoD’s dedicated gateway. These services include unlimited global secure and unsecure voice, low and high-speed data, paging, broadcast, and distributed tactical communications system, or DTCS services for an unlimited number of DoD and other federal subscribers. Other services may be purchased at an additional cost. The fixed-price rates in each ofrate for the five contract years, which run from October 22 through the following October 21 of each year, are $64 million and $72 million in years one and two, respectively, andis $88 million in each of the years three through five.per year. While we sell airtime directly to the U.S. government for resale to end users, our hardware products are sold to U.S. government customers through our network of distributors, which typically integrate them with other products and technologies. Pursuant to federal acquisition regulations, the U.S. government may terminate the EMSS contract, in whole or in part, at any time.exercisable at the election of the U.S. government, the firstall of which hashave been exercised. If the U.S. government elects to exercise all available one-year options, theexercised, for a total value of the contract to us would beof approximately $38.0$38 million. ThePursuant to federal acquisition regulations, the U.S. government may terminate the GMSS contract, in whole or in part, at any time.the first twoall of which have been exercised, and has a maximum potential value of $47 million to us over the full five-year period, if all options are exercised.21%24% of our total revenue for the year ended December 31, 2014.2017. Our reported U.S. government revenue includes airtime revenue derived from the EMSS contract and services provided through the GMSS contract and other engineering and support contracts with the U.S. government. This revenue does not include airtime services purchased by U.S. or non-U.S. government agencies that are provided through our commercial gateway, which we report as commercial service revenue, or equipment purchased by government customers from third-party distributors. We are unable to determine the specific amount of U.S. government revenue derived from these commercial sources.6land-based handset, M2M,land mobile, IoT, maritime, aviation and government.Land-based Handsetland-based handsetland mobile sector, providing handset services to areas not served or inconsistently served by existing terrestrial communications networks. In a 20132017 report, Euroconsult estimated that there were approximately 675,000645,000 active satellite handsets in the market in 2012.2016. Mining, forestry, construction, oil and gas, utilities, heavy industry and transport companies as well as the military, public safety and disaster relief agencies constitute the largest portion of our land-based handsetland mobile end users. We also include sales of Iridium GO! and Iridium push-to-talk, or PTT, services in the land mobile sector. We believe that demand for mobile communications devices operating outside the coverage of terrestrial networks, combined with our small, lightweight, durable handsets with true global coverage, will allow us to capitalize on growth opportunities among these users.land-based handsetland mobile end users utilize our satellite communications services for:• data:data: Multinational corporations in various sectors use our services for business telephony, e-mail and data transfer services, location-based services, and to provide pay telephony services for employees in areas inadequately served by terrestrial networks. Oil and gas and mining companies, for example, provide their personnel with our equipment solutions while surveying new drilling and mining opportunities and while conducting routine operations in remote areas that are not served by terrestrial wireless communications networks. In addition, a number of recreational, scientific and other outdoor segments rely on our mobile handheld satellite phones and services for use when beyond terrestrial wireless coverage.•Mobile In addition, Iridium PTT offers military, first responder, oil and remote office connectivity: A variety of enterprises use our services to make and receive voice calls and to establish data, e-mail, internet and corporate network connections.•Public safety and disaster relief: Relief agencies, such as FEMA,gas, civil government and other agencies, such asusers the Department of Homeland Security, use our productsability to hold group calls using the Iridium Extreme® PTT handset. Our VAMs and services inVARs can also develop their emergency response plans, particularly inown land mobile, fixed, aviation or maritime Iridium PTT devices using the aftermath of natural disasters such as Hurricane Sandy, the Haitian and Chilean earthquakes, the Japanese earthquake and tsunami and Typhoon Haiyan. These agencies generate significant demand for both our voice and data products, especially in advance of the hurricane season in North America.Iridium 9523 PTT core transceiver.•Public telephone infrastructure: Telecommunications service providers use our services to satisfy regulatory mandates and government expectations regarding the availability of communications services for rural populations currently not served by terrestrial infrastructure. Telstra Corporation, for example, uses our services to provide communications services in some of Australia’s most remote locations.Machine-to-MachineM2MIoT services. We believe the early stage of this market and its low penetration present opportunities for future growth. As with land-based handsets,land mobile, our largest M2MIoT users include mining, construction, oil and gas, utilities, heavy industry, maritime, forestry and transport companies, as well as the military, public safety and disaster relief agencies. We believe increasing demand for automated data collection processes from mobile and remote assets operating outside the coverage of terrestrial wireline and wireless networks, as well as the continued need to integrate the operation of such assets into enterprise management and information technology systems, will likewise increase demand for our M2MIoT applications. For example, our M2MIoT devices have been adopted as standard equipment and as factory options by heavy equipment manufacturers such as Caterpillar Inc., to provide telematics solutions for end users.M2MIoT services are used for:•Fleet management: Our global coverage permits our products and services to be used to monitor the location of vehicle fleets, hours of service and engine telemetry data, as well as to conduct two-way communications with drivers around the world. Long distance drivers need reliable communication with both dispatchers and their destinations to coordinate changing business needs, and our satellite network provides continuous communications coverage while they are in transit. We expect that the need for more efficient, cost-effective and safer fleet operations as well as the imposition of regulatory mandates related to driver safety, such as drive-time monitoring, will increase demand for our services in this area.•Fixed-asset monitoring: Multinational corporations, such as oil-field service companies like Schlumberger Limited and ConocoPhillips Company, use our services to run applications that allow remote monitoring and operation of equipment and facilities around the globe, such as oil pipelines and offshore drilling platforms.•Asset tracking: Leveraging M2M applications developed by several of our distributors, companies use our services and related devices to track assets, including personnel, for logistics, theft-prevention and safety purposes. Companies and organizations that have fleets of vehicles use M2M solutions from Iridium distributors to improve the efficiency of their operations. For example, Halliburton uses inthinc's waySmart M2M solution to reduce accidents and increase vehicle uptime, and the Department of Homeland Security Office of Enforcement and Removal uses Fleet Management Solutions’ M2M solution to transmit position, direction, speed and other data for management of its vehicle fleet.•Resource management: Our global coverage and data throughput capabilities support natural resource management applications, such as fisheries management systems. CLS and FW Telematics, two of our VARs, have developed applications for the fishing industry that enable regulatory compliance of fishing practices in a number of countries around the world.•Scientific data monitoring: The global coverage of our network supports many scientific data collection applications such as the Argo float program of the National Oceanographic and Atmospheric Administration, or NOAA. This program relies on our M2MWe believe the increased need for monitoring climate and environmental data associated with global climate change and human impact on the planet will increase demand for these services.•Personal Tracking Devices and Location-Based Services: Several of our VAMs and VARs, such as DeLorme, Global Satellite Engineering, NAL Research, Track24 and Solara Remote Data Delivery Incorporated, have introduced small, portable personal tracking devices that will provide personal tracking and data communications services to commercial end users. In addition, Iridium GO! and the Iridium Extreme® handset offer personal tracking and location-based services. These devices use M2M data services to send location information and other data to web-based portals for tracking of and messaging with users.Maritimeis onewith a variety of products including broadband terminals, embedded devices and handsets. This market space includes merchant shipping, fishing, research vessels and specialized watercraft. The majority of our most significantrevenue in this segment is derived from shipboard data terminals including the Iridium Pilot®. While some Iridium Pilot equipment serves the terrestrial market, opportunities. End users of our services in the maritime sector include companies engaged in merchant shipping, passenger transport, fishing, energy and recreation. Merchant shipping accounts for a significant portion of our maritime revenue, as those ships spend thevast majority of their time at sea awayIridium Pilot service revenue comes from coastal areas and out of reach of terrestrial communications services.the commercial maritime market. Our products and services targeting the maritime market typically have high average revenue per subscriber, with multiple users on a single subscriber account.subscriber. Once a system is installed on a vessel, it often generates a multi-year recurring revenue stream from the customer. As a consequence, from time to time we may offer promotions or rebates to accelerate new customer acquisitions and asolidify this expected long-term revenue stream. increased regulatory mandates and increased demand for higher-speed, low-cost data services will allow us to capitalize on growth opportunities in this market. We believe Iridium Pilot,®, which uses our Iridium OpenPort® service to offer uncompressed data speeds of up to 134 kilobits per second, or kbps, and three independent voice lines, presents a competitive broadband communication alternativesolution at this speed to end users in the maritime market. In 2012Iridium Certus, which we expect to introduce this year, will provide increased throughput using our Iridium NEXT constellation, along with a portfolio of voice and 2013, Iridium Pilot users experienced higher than expected hardware failure rates primarily duedata services that we expect to failures ofincrease the power amplifier component. The problems were addressed and Iridium Pilot units now operate as expected.•Data and information applications: Ship operators and crew use our services to send and receive e-mail and data files and to receive other information services such as electronic media, weather reports, emergency bulletins and electronic charts. We believe Iridium Pilot provides an attractive alternative for shipping operators and fishing fleets seeking increased functionality at competitive prices, as well as for yachts, work boats and other vessels for which traditional marine satellite systems have typically been costly and underperforming.•Voice services: Maritime global voice services are used for both vessel operations and communications for crew welfare. Merchant shipping operators use prepaid phone cards for crew use at preferential around-the-clock flat rates.•Vessel management, procurement and asset tracking: Shipping operators, such as China Ocean Shipping Company (COSCO) and Zodiac Shipping Ltd., use our services to manage operations on ships and to transmit data, such as course, speed and fuel stock. Our services can be integrated with GPS to provide a position reporting capability. Many fishing vessels are required by law to carry terminals using approved mobile satellite services for tracking purposes as well as to monitor catches and to ensure compliance with geographic fishing restrictions. European Union regulations, for example, require EU-registered fishing vessels of over 15 meters to carry terminals for the purpose of positional reporting of those vessels. Furthermore, new security regulations in some jurisdictions are expected to require tracking of merchant vessels in territorial waters, which would provide an additional growth opportunity for us.•Safety applications: Ships in distress, including as a result of potential piracy, hijack or terrorist activity, rely on mobile satellite voice and data services. The Ship Security and Alert Systems regulations were adopted by the International Maritime Organization, or IMO, to enhance maritime security in response to the threat from terrorism and piracy. Most deep-sea passenger and cargo ships must be fitted with a device that can send an alert message containing the ship’s ID and position whenever the ship is under threat or has been compromised. We and our distribution partners have developed several product solutions to meet this requirement for merchant vessels. The Global Maritime Distress and Safety System, or GMDSS, is a maritime service built to alert a maritime rescue coordination center of each vessel’s situation and position, information that can then be used to coordinate search and rescue efforts among ships in the area. The IMO requires all vessels flagged by signatories to the International Convention for the Safety of Life at Sea (SOLAS) over 300 gross tons and certain passenger vessels, irrespective of size, that travel in international waters to carry distress and safety terminals that use GMDSS applications. Although our products and services are currently not certified to be used in GMDSS applications, we are working through the authorization process with the IMO for inclusion in the GMDSS, which we currently anticipate receiving in late 2016.cockpitflight deck voice and data link services for aircraft operational and safety communications. As a result of authorizations by the 2011 FAA announcement that it will approve Iridium for flight safety data communications and the U.S. Federal Communications Commission’s,Commissions, or FCC’s, approval of IridiumFCC, for flight safetyus to provide air traffic datalink communications, commercial operators are installing avionics that use the Iridium network on the flight deck to comply with international air navigation communications requirements to operate in oceanic and remote airspace. Our voiceVoice and data devicesavionics platforms from our VAMs and VARs haveairframe manufacturersairframes in business aviation and air transport, such as Gulfstream Aerospace Corporation, Bombardier Inc., Cessna Aircraft Company, Boeing and Airbus. Our devicesAvionics platforms that utilize our network are also installedretrofitted on thousands of corporate and commercial aircraft already in the aftermarket on large volume and a variety of other types of aircraft.•Aviation operational communications: Aircraft crew and ground operations use our services for air-to-ground telephony and data communications. This includes the automatic reporting of an aircraft’s position and mission-critical condition data to the ground and controller-pilot data link communication for clearance and information services. We provide critical communications applications for airlines and air transport customers such as Hawaiian Airlines, United Airlines, UPS, Lufthansa, Cathay Pacific Airways and El Al Airlines. These operators rely on our services because other forms of communication may be unaffordable or unreliable in areas such as the polar regions. ARINC Incorporated and SITA, SC, the two leading providers of voice and data link communications services and applications to the airline industry, integrate our products and services into their offerings.•Aviation passenger communications: Corporate and private fleet aircraft passengers use our services for air-to-ground telephony and data communications. Operators are currently using our services to enable passengers to e-mail using their own Wi-Fi-enabled mobile devices, including smartphones, without causing interference with aircraft operation. We believe our distributors’ small, lightweight, cost-effective solutions offer an attractive alternative for aircraft operators, particularly small fleet operators.•Rotary and general aviation applications: We are also a major supplier for rotary aviation applications to end users in a number of markets, including medevac, law enforcement, oil and gas, and corporate work fleets. Companies such as Air Logistics, EagleMed and Air Evac Lifeteam rely on applications from our distributors for traditional voice communications, fleet tracking and management, and real-time flight diagnostics. VARs and VAMs such as Avidyne Corporation, Flightcell International Ltd., Garmin International, Inc., Honeywell International, Inc., SkyTrac and Spider Tracks Limited incorporate Iridium products and services into applications for this market.•Air traffic control communications and safety applications: The International Civil Aviation Organization, or ICAO, has approved standards and recommended practices allowing us to provide Aeronautical Mobile Satellite (Route) Services to commercial aircraft on long-haul routes. This allows member states to evaluate and approve our services for safety communications on flights in oceanic and remote airspace. After several years of working with the Performance Based Aviation Rules Making Committee, or PARC, and illustrating a successful operational evaluation using Iridium data services, in 2011 the FAA announced that it would approve Iridium for use in the Future Air Navigation Services (FANS) and Automatic Dependent Surveillance – Contract (ADS-C) datalink communications with Air Traffic Control, or ATC. We are currently coordinating with PARC on an operational evaluation of our voice communications services for ATC. As our services become approved by regulatory organizations and member states, aircraft crew and air traffic controllers will be able to use our services for data and voice communications between the flight deck and ground-based air traffic control facilities. We are the only satellite provider capable of offering such critical flight safety applications around the entire globe, including the polar regions. We believe this particular sector of the market will present us with significant growth opportunities, as our services and applications will serve as a cost-effective alternative to systems currently in operation.M2MIoT usage have been less subject to seasonal changes.2014,2017, we had approximately 739,000969,000 billable subscribers worldwide. Our principal services are mobile satellite services, including mobile voice and data services, M2MIoT services and high-speed data.data services and engineering services. Sales of our commercial services collectively accounted for approximately 60%59% of our total revenue for the year ended December 31, 2014.2017. We also sell related voice and data equipment to our customers, which accounted for approximately 19%17% of our total revenue for the year ended December 31, 2014.2017. In addition, we offer services to U.S. government customers, including the DoD. U.S. government services, including engineering services, accounted for approximately 21%24% of our total revenue for the year ended December 31, 2014.minutes usedresources consumed by their respective subscribers.which is currently offered to maritime users through our Iridium Pilot terminals, offers maritime, aviation and aviation endterrestrial users speeds of up to 134 kbps and three independent voice lines that can be used simultaneously. We believelines. For our Iridium OpenPort offers a competitive alternative to other satellite broadband services that offer fewer features at higher costs. Data rates on this service, can be adjusted up or down without making hardware or software changes, givingwe typically charge service providers usage fees for airtime consumed by the respective subscribers options that allow them to balance needs for voice and data transmission speeds against cost considerations.communications. In conjunction with our distributors, we also offer additional services that permit service providers and VARs to offer complete integrated solutions for prepaid calling, e-mail and IP-based data communications. For example, in January 2012, KVH Industries, Inc.,we offer a product with one of our distribution partners, began offering a productKVH Industries, Inc., that integrates Iridium Pilot with its mini-VSATSM broadband service to provide backup connectivity when the mini-VSAT terminal is out of its coverage area or out of service. For ourOpenPort service, we typically charge service providers usage fees for airtime consumedCertus, with enhanced capabilities that will be enabled by the respective subscribersmore powerful Iridium NEXT satellites. Iridium Certus, which we expect to commercially introduce during 2018, will support a variety of data speeds, antenna types, and cost points ranging from 22kbps to 704 kbps, and eventually up to 1.4Mbps. We have licensed the Iridium Certus technology to an initial group of terminal manufacturers who are developing products for voicethe maritime, aviation and data communications.
land mobile markets, and we are in the process of designating distribution partners for the Iridium Certus service in each of these vertical markets. We believe Iridium Certus will provide a competitive, cost-effective and reliable range of narrowband and broadband services to the market, in standalone applications or as a complement to other wireless technologies.10Machine-to-MachineM2MIoT services are designed to address the market need for a small and cost-effective solution for sending and receiving data, such as location, from fixed and mobile assets in remote locations to a central monitoring station. This service operates through a two-way short-burstSBD transmission or circuit-switched data, transmission between our network and a transceiver, which may be located, for example, on a container in transit or a buoy monitoring oceanographic conditions. The small size of our units makesdevices and their low-cost, omnidirectional antennas make them attractive for use in applications such as tracking asset shipments, monitoring unattended remote assets including oil and gas assets, vehicle tracking, and mobile security. We sell our M2MIoT services to our distributors, who incorporate them and in turn provide a solution package to commercial and government customers such as Schlumberger Limited, ConocoPhillips and NOAA.customers. Increasingly, our M2MIoT transceivers are being built into products for consumer markets, such as personal location devices that provide two-way messaging. As with our mobile voice and data offerings, we typically charge service providers and VARs a monthly access fee per subscriber as well as usage fees for data used by their respective subscribers.offerings, such asofferings. In conjunction with Satelles, Inc., we offer Satellite Timing and Location services which helps augment GPS and provides reliable location, timing and positioning data. We provide inbound connections from the public switched telephone network, or PSTN, short message services, or SMS, subscriber identity module, or SIM, activation, customer reactivation, and other peripheral services. We also provide research and development services to assist customers in developing new technologies compatible with our system, which we may leverage for use in service and product offerings in the future. We charge our distributors fees for these services.or netted, services. Additional services, such as future broadband capabilities utilizing Iridium Certus technology, would be provided at an additional fee. To comply with U.S. government regulations,requirements, we ensure handsets sold for use by the U.S. government are manufactured in the United States. U.S. government customers procure our voice and data productsdevices through specific, approved distributors from our network of distributors.VARs and service providers. Our VARs and VAMs typically integrate our products with other products, which they then offer to U.S. government customers as customized products. They are typically provisioned then by DISA. Our voice and data solutions for the U.S. government include:InFor example, in conjunction with DISA, we and ourselect distribution partners offer NettedDTCS, which provides critical, secure, PTT, netted communications using lightweight, handheld tactical radios, or add-ons to existing government tactical radios. In addition, in 2017 we introduced a next-generation secure satellite phone based on the Iridium Extreme, which uses a line of radio-only devices that permit beyond-line-of-sight push-to-talk group calling services for a user-defined group,we have also developed with funding support from the DoD which was accredited by the National Security Agency, or net. We expect Netted IridiumNSA, to provide us withType-1 encryption, enabling communications up to Top Secret from anywhere in the potential for future new commercial applications in public safety, fishing and field worker communications.handset phones,handsets, which are similar in functionality to ordinary cellular phones but with the solid, durable feel that many satellite phone users demand. We believe our reputation for industrial-strength products is critical for customers, many of whom are located in the most inhospitable spots on the planet and require rugged and reliable communications equipment.11Extreme.Extreme. The Iridium Extreme adds to the Iridium 9555’s capabilities by providing a rugged exterior that meets DoD Military Standard 810F for durability, a dedicated, two-way emergency SOS button, and fully integrated GPS and location-based services. These extra features are provided in a handset that is even smaller than the Iridium 9555, weighing 8.7 ounces and offering up to four hours of talk time. An emergency response service provided by GEOS Travel Safety Group, or GEOS, is included with the purchase of the phone and airtime usage. The two-way emergency SOS button initiates a phone call and an emergency message via SMS to GEOS, which then coordinates with local emergency responders.the Iridium 9505A handset, and variants of the Iridium 9555 handset and the Iridium Extreme handsets, whichhandset that are qualified for sale to U.S. government customers.In July 2014, we began offeringtheof optimized mobile web.websites. Iridium GO! also has an emergency SOS button and GPS and location-based services. Smartphone or tablet access is provided through special applications downloaded for free from the Apple App Store or through Google Play for Android smartphones or tablets. A software development kit is available to enable the creation of additional applications or integrate Iridium GO! connectivity into existing applications, targeted to specific customer segments.Wi-Fi AccessoriesOur suite of Iridium AxcessPoint products and services, including the Iridium AxcessPoint Wi-Fi hotspot accessory, the free Iridium Mail & Web optimization software and the Iridium AxcessPoint Connect downloadable application, complements our handset offerings. AxcessPoint products and services enable the connection of smartphones, tablets and personal computers to the Iridium network via a Wi-Fi hotspot linked to an Iridium Extreme, Iridium 9555 or Iridium 9505A.M2MIoT applications that require largermore efficient data packets.Wethroughput through circuit switched data transmission. The Iridium 9523 PTT adds PTT capability, allowing development partners to design and build land mobile, fixed, aviation and maritime devices with Iridium PTT. We also offer the 9522B L-Band transceiver, which utilizes the same transceiver core that is used in our Iridium 9555 satellite handset to provide voice and circuit-switched data services.Ourservices. Our principal customers for our L-Band transceivers are VAMs and VARs, who integrate them into specialized devices that access our network.speeds from 32communications of up to 134 kbps over134kbps, using our Iridium OpenPort service. All voice and data capabilities can be used simultaneously. Our principal customers for Iridium Pilot are service providers who integrate the device with their own hardware and software products to provide a suite of customer-focused voice and IP-based data packages for ship business,operation, crew calling and e-mail. We believe the low cost of our Iridium Pilot terminal, combined with our highits higher bandwidth and flexible service options, will allow usprovides an excellent low-cost option to grow our share of the existing maritime market, while opening up newincluding market sectors such as luxury yachts, tug boats, and other fishing and cruising vessels for which traditional marine satellite systems have typically been too costly. We also believevessels. Iridium Pilot will increasingly be adoptedalso offers a low-cost solution as a complement to maritime Ku- and Ka- Band Very Small Aperture Terminal, or VSAT, systems providing broadband and data services for ships, where Iridium Pilot can fill in coverage gaps and operate during significant rain fade events that impair K-band service, provide services where the VSAT terminal is not licensed to operate, and provide an alternate channel for VSAT maintenance and configuration. In February 2014, we introducedWe also offer Iridium Pilot Land Station, which allows remote individuals and businesses from off-the-grid terrestrial locations to obtain reliable internet connections and voice calling no matter where they are located.12Machine-to-MachineM2MIoT devices are the Iridium 9602 and 9603 full-duplex short-burst dataSBD transceivers. The Iridium 9602 is a small data device with two-way transmission, capable of sending packet data to and from any point in the world with low latency. The principal customers for our Iridium 9602 data modems are VARs and VAMs, who embed the Iridium 9602device into their tracking, sensor, and data applications and systems, such as asset tracking systems. Our partners often combine the Iridium 9602 with a GPS receiver to provide location information to customer applications. We also offer the Iridium 9603, an even smaller transceiver that is functionally identical to the Iridium 9602. In addition, an increasinga number of VARs and VAMs are includinginclude a cellular modem as part of their Iridium applications to provide low-cost cellular data transmission when available. These types of multimode applications are adopted by end users who require the ability to regularly transfer data but operate in areas with inconsistent cellular coverage. We provide gap-filler coverage for these applications, allowing users to operate anywhere on the globe.continue to invest in research and development to develop smaller, lighter products in this market. In February 2014, we introducedalso offer Iridium BurstIridiumBurst®, our one-to-many global data broadcast service, which enables enterprises to send data to an unlimited number of devices anywhere in the world, even inside buildings, vehicles or aircraft, and Iridium Edge.®two contract manufacturers,Benchmark Electronics Inc., or Benchmark, to manufacture our devices in facilities in Thailand Malaysia, and Singapore.the U.S. Pursuant to our contractscontract with these manufacturers,Benchmark, we may be required to purchase excess materials at cost plus a contractual markup if the materials are not used in production within the periods specified in the agreement. The manufacturersBenchmark generally repurchaserepurchases the materials from us at the same price we paid, as required for the production of the devices. Our agreementsagreement with these manufacturers areBenchmark is automatically renewable for additional one-year terms unless terminated by either party. In December 2014, we notified one of our contract manufacturers that we will be terminating our contract with them effective in August 2015. Following this termination, Benchmark Electronics (Thailand) PCL, part of Benchmark Electronics, Inc., a global contract manufacturing company, will be our sole manufacturer of devices. In February 2013, we filed an application with the FCC for an additional 1.775 MHz of L-band spectrum to increase our total amount to 10.5 MHz of contiguous spectrum. Our products and services are offered in over 100 countries, and we and our distributors continue to seek authorizations in additional countries.currentfirst-generation constellation were made on our behalf by the United States.13 Year Ended December 31, 2014 2013 2012 United States 47 % 46 % 46 % Canada 11 % 13 % 14 % United Kingdom 12 % 10 % 11 % Other Countries (1) 30 % 31 % 29 % Year Ended December 31, 2017 2016 2015 United States 51 % 52 % 50 % Canada 10 % 10 % 10 % United Kingdom 10 % 11 % 11 % 29 % 27 % 29 % No other single country in this group represented more than 10% of our revenue for any of the periods indicated. Year Ended December 31, 2014 2013 2012 Commercial voice traffic (minutes) 90 % 90 % 90 % Commercial data traffic (kilobytes) 69 % 67 % 69 % Year Ended December 31, 2017 2016 2015 Commercial voice traffic (minutes) 88 % 88 % 88 % Commercial data traffic (kilobytes) 75 % 72 % 67 % CurrentOurhasand our next-generation satellite constellation, Iridium NEXT, have an architecture of 66 in-orbitoperational LEO satellites operating in six orbital planes of eleven vehicles each in nearly circular polar orbits, in addition to in-orbit spares. Our operational satellites orbit at an altitude of approximately 483 miles (778 kilometers) above the earth and travel at approximately 16,689 mph, resulting in a complete orbit of the earth approximately every 100 minutes. The design of our constellation ensures that generally at least one satellite is visible to subscribers from any point on the earth’s surface, covering all of the world’s population. While our constellation offers true global coverage, most of our devices and antennas must have a direct line of sight to a satellite to transmit or receive a signal, and services on those devices are not available in locations where a satellite signal cannot be transmitted or received, or when the device or antenna does not have a direct line of sight to a satellite, such aswhich for some devices includes inside a building.isand Iridium NEXT are unique among commercial constellations in itsthe usage of radio frequency crosslinks between our satellites.satellites, which eliminates the need for local ground infrastructure. These crosslinks enable each satellite to communicate with up to four other satellites in space, two in the same orbital plane and two in adjacent planes. Our traffic is generally routed automaticallyon a preplanned route between satellites which minimizes the ground infrastructure necessary to support the constellation by allowing thea predetermined satellite that is in contact with one of the Iridium teleport network, or TPN, locations. The TPN sites then passing overtransmit the ground station to transmit all traffic to and from the rest ofgateways which provide the satellite constellationPSTN. This interlinked architecture enables our primary ground station gateway to support most commercial traffic globally. We have also deployedPSTN or the internet. The use of a teleport network, or TPN to allowallows grounding traffic at multiple locations within our ground network infrastructure. This added flexibility allows for rapid reconfiguration of grounding traffic from the satellites in the event of a space, antenna or ground routing anomaly and results in greater reliability of our network.path.path to the ground. In addition, the small number of ground stations increases the security of our constellation, a factor that makes our network particularly attractive to government institutions and large enterprises. The low orbit of our constellation also allows our network to operate with low latency and with smaller antennas due to the proximity of our satellites to the earth.providesis designed to provide significant coverage overlap for mitigation of service gaps from individual satellite outages, particularly at higher northern and southern latitudes. Each satellite, both in our first-generation constellation and our Iridium NEXT system, was designed with a high degree of on-board subsystem robustness, an on-board fault detection system, and isolation and recovery capabilities for safe and quick risk mitigation. Our ability to reposition our satellites provides us with operating flexibility and enhances our ability to maintain a commercially acceptable level of service. Historically, ifIf a satellite should fail or become unusable, in most cases we werewill be able to reposition one of our in-orbit spare satellites to take over its functions. Today, if a failure occurs in an orbital plane in which we have an in-orbit spare, we may be able to reposition the sparefunctions within days, with minimal impact on our services. If there is no in-orbit spare located in the relevant orbital plane, redeploying an in-orbit spare into the affected plane would take at least one year, or we maywill replace it with a newly launched Iridium NEXT satellite, ifwhen available. The design of our space and ground control system facilitates the real-time intervention and management of the satellite constellation and service upgrades via software enhancements. In addition, we also completed the upgrades in 2014 to all our ground systems, including gateway and teleport technology and satellite control systems.Arizona.Arizona, with a second dedicated gateway located in Russia. A gateway processes and terminates calls and generates and controls user information pertaining to registered users, such as geo-location and call detail records. The DoD owns and operates a dedicated gateway for U.S. government users, which provides an interface between voice and data devices and the Defense Information Systems Network and other terrestrial infrastructure, providing DoD users with secure communications capabilities. Our network has multiple antennas, located at the gateway and TPN facilities, including the Tempe gateway, that communicate with our satellites and pass calls between the gateway and the satellites as the satellites traverse our antennas, thereby connecting signals from the terminals of end users to our gateway.gateways. This system, together with our satellite crosslinks, enables communications that are not dependent on a ground station in the region where the end user is using our services. A gateway can also generate and control all user information pertaining to our registered users, such as geo-location and call detail records. The DoD owns and operates a dedicated gateway for U.S. government users to take advantage of this capability. This gateway provides an interface between voice and data devices and the Defense Information Systems Network and other terrestrial infrastructure, providing DoD users with secure communications capabilities.In 2013, we commenced the provision of Iridium voice and data satellite communications services in Russia to commercial and government subscribers through a local subsidiary and its authorized Russian service providers. In addition to procuring and implementing local billing and operation support services infrastructure, we also secured a site and commenced construction on dedicated earth station facilities in Russia. We have also had discussions to build or reactivate additional gateways in other countries, such as China and India, that require gateways in their jurisdictions. These gateways would connect the commercial traffic coming to and from their territory to the constellation.Chandler,Tempe, Arizona in the United States, and in northern Canada and Norway that perform telemetry, tracking and control functions. Three of our northern ground stations also provide supplemental earth terminal capability for the Tempe gateway.onboardon board each satellite instead of on the ground. We believe this provides us with significant flexibility and has contributed to the longevity of the system by enabling engineers to develop additional functionality and software-based solutions to occasional faults and anomalies in the system.We have experienced twelve satellite losses since we reintroduced commercial satellite services in 2001 that have resulted in the complete loss of the affected satellites or the loss of the ability of the satellite to carry traffic on the network, most recently in August 2014. Eleven of these losses were from satellites that failed in orbit, and one satellite was lost as a result of a 2009 collision with a non-operational Russian satellite. To date, each time we have lost a satellite we have had an in-orbit spare available to replace it.currentfirst-generation constellation will provide a commercially acceptable level of service through the transition tocompletion of Iridium NEXT.NEXT, which we expect during 2018. We expect to be able to mitigate most satellite failures through the useplacement of our remaining in-orbit spare or Iridium NEXT satellites, if available, the implementation of software solutions, and by landing communications traffic using the sites within the TPN infrastructure and backhauling traffic to the Tempe gateway for processing and termination. Accordingly, we believe our constellation can provide a commercially acceptable level of service with fewer than 66 satellites.We also own spare parts for some of the equipment in our gateway and TPN facilities. In 2010, we entered into an amended and restated long-term operations and maintenance agreement with Boeing, which we refer to as the O&M Agreement. Boeing operated and maintained our satellite constellation under this O&M Agreement through the end of 2014. Although the term of the O&M Agreement runs concurrently with the operational life of the current constellation, the O&M Agreement also provides for transition to a hybrid operations mode involving network elements from both the original Iridium system and the Iridium NEXT system. In 2014, we elected to make this transition to hybrid operations as of January 1, 2015, to be provided by Boeing under the terms of the Iridium NEXT support services agreement as further described below. Through 2014, the O&M Agreement represented a time-and-materials fee with an annual limit on amounts paid.In 2010, we also entered into an Iridium NEXT support services agreement with Boeing pursuant to which Boeing provides personnel services in support of the development of Iridium NEXT and will operate and maintain Iridium NEXT, including a transitional period that began on January 1, 2015, during which Boeing supports a hybrid operations mode involving network elements from both the original Iridium system and the Iridium NEXT system. Boeing provides these services on a time-and-materials fee basis. The term of the agreement runs concurrently with the operational life of the Iridium NEXT constellation. We are entitled to terminate the agreement for convenience and without cause commencing in 2019.Boeing, Motorola, and the U.S. government and Boeing, which previously operated and maintained our satellite constellation, we are required to maintain an in-orbit liability insurance policy, which also covers planned or unplanned de-orbits of individual first-generation satellites, with a de-orbiting endorsement to cover the mass de-orbit of our first-generation satellite constellation in the amount of $500.0 million per occurrence, and $1.0 billion in the aggregate. The current policy together with the de-orbiting endorsement covers amounts that we and other specified parties may become liable to pay for bodily injury or property damage to third parties related to processing, maintaining and operating our first-generation satellite constellation, including individualan unlimited number of satellite de-orbits, and, in the case of the de-orbiting endorsement, a mass de-orbit of the first-generation satellite constellation, although it contains exceptions for third-party damages which may result from the 2009an in-orbit satellite collision.collision that occurred in 2009. The policy covers us, the U.S. government, Boeing, as the former operator of our system, Motorola Solutions, Inc., or Motorola Solutions, as successor to Motorola, and other named beneficiaries. The policy has been renewed annually since the expiration of the original policy’s three-year term in 2003 and currently expires on December 8, 2015. 2018. We expect to continue to renew this policy annually through the life of our first-generation constellation. We will continue to de-orbit satellites as Iridium NEXT satellites replace those in our first-generation constellation. and in-orbit spares, we do not maintain in-orbit insurance covering losses from satellite failures or other operational problems affecting our currentfirst-generation constellation, although the terms of our Credit Facility will require us to do so for a period of time with respect to our Iridium NEXT satellites. See -““—Iridium NEXT” below.currentfirst-generation satellite constellation license from the FCC has been extended until JanuaryJuly 31, 2018.2019, and we also hold a space station license for the launch and operation of our Iridium NEXT constellation. Our U.S. gateway earth station licenses expire between 2018 and 2026, and our U.S. government customer’s and commercial subscribers’ earth station licenses for end user devices will expire in 2021. We must file renewal applications for earth station licenses between 30 and 90 days prior to expiration.Our satellites continue to perform well, but they have exceeded their original design lives, and wecurrently developingin the process of replacing our next-generationfirst-generation constellation with our Iridium NEXT satellite constellation, Iridium NEXT, which will support new services and higher data speeds for new products. To date, we expect to commence launching in the second halfhave deployed a total of 2015. Iridium NEXT will maintain the architecture of our current constellation, with 66 in-orbit satellites, as well as six in-orbit spares and nine ground spares. We have contracted with Thales Alenia Space France, or Thales, to construct the40 Iridium NEXT satellites on four Falcon 9 rockets launched by SpaceX, carrying ten satellites each, and we plan to launch an additional 30 satellites on three dedicated Falcon 9 rockets. We have also contracted separately with SpaceX for an eighth Falcon 9 launch, which are designedwe will share with the GFZ German Research Centre for Geosciences, or GFZ, to be compatible with our current constellation and end-user equipment. As we launch each batch offive Iridium NEXT satellites and NASA’s two Gravity Recovery and Climate Experiment (GRACE) Follow-On satellites. Additionally, we expecthad contracted to use them to replace satellites in our current constellation, minimizing any disruption to our end users.We plan to deploy the firstlaunch two satellites on a Dnepr rocket launched by Kosmotras, withbut we do not believe that Kosmotras will be successful in obtaining the remaining 70 satellites to be deployed on seven Falcon 9 rockets launched by SpaceX. We expect to complete the deployment of the Iridium NEXT constellation in 2017. The current constellation is expected to provide a commercially acceptable level of service through the transition to Iridium NEXT. In December 2013, we filed an application with the FCC to modify our space station license to give us authoritypermits or authorizations to launch and operate Iridium NEXT. The application remains pending.will also hosthosts the Aireon system. The Aireon system is being developed by Aireon LLC, our joint venturewhich we formed in 2011, with subsequent investments from the ANSPs of Canada, Italy, Denmark and Ireland, to provide a global air traffic surveillance service through a series of ADS-B receivers on the Iridium NEXT satellites.satellites, which are activated on an individual basis as the Iridium NEXT satellite begins carrying traffic in our constellation. Aireon has contracted to offer this service to our co-investors in Aireon, as well as NATS and NATSother ANSPs, and plans to offer the service to other ANSPscustomers worldwide, including the FAA. These ANSPs wouldwill use the service to provide improved air traffic control services over the oceans, as well as polar and remote regions. Aireon also plans to market the data to airlines and other users. Under our agreements with Aireon, Aireon will pay us a feefees of $200$234 million to host the ADS-B receivers on Iridium NEXT, as well as data services fees of up to approximately $20 million per year, once the system is fully operational, for the delivery of the air traffic surveillance data over the Iridium NEXT system.Corporation, the manufacturer of the Aireon hosted payload,for it to permit Harris to allocateutilize the remaining hosted payload capacity tospace for payloads it has constructed for its customers. We expect this agreement to result in an additional $55$76 million in hosting and data service fees. In addition, in September 2013, we announced Iridium PRIME to address the traditional challenges of hosted payload missions, which include inflexible launch schedules, “one-off” mission control systems and ground connectivity challenges, by providing customers access to the Iridium NEXT satellite constellation with flexibility as to the number of payloads they can deploy, the number of planes they occupy, and independent mission control, at substantial cost savings compared to current stand-alone solutions.20172018 to be approximately $3 billion. We believe the Credit Facility, as described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Credit Facility,” together with cash on hand, and internally generated cash flows, including potential cash flows from hosted payloads and Iridium PRIME, will be sufficient to fully fund the aggregate costs associated with the design, build and launch2017.are in the process offinished placing this insurance. The amount of coverage we are seeking to place is large, our coverage requirements are complex, and the market for launch and in-orbit insurance is limited. We have placed only a portion of coverage for the full launch program to date, and we are currently in discussions with prospective insurers and with our lenders regarding the structure of our planned coverage. If we are unable to place the launch and in-orbitduring 2017.on the terms required by the Credit Facility, we would be required to seek a waiver or amendment of those requirements.We expect topolicies use our nine ground spares and a prepaid relaunch right with SpaceX to self-insure a portion of our launch and in-orbit risks, as permitted under the Credit Facility. While we believe this will enableenabled us to obtain insurance at a substantially lower cost than would behave been possible without the ground spares and relaunch right, if we use our ground spares to replace lost satellites, we will likely choose to purchase additional satellites to maintain a backup supply of ground spares. The cost of such additional ground spares is not included in the $3 billion estimated cost for the design, build and launch of Iridium NEXT and related infrastructure upgrades through 2017. Thales Alenia Space France, or Thales for the design and manufacture of satellites for Iridium NEXT. The total price under the FSD will be approximately $2.3 billion, and we expect our payment obligations under the FSD to extend into the first quarter ofthrough 2018. As of December 31, 2014,2017, we had made total payments of $1,331.1 million$1.9 billion to Thales, of which $1,129.8 million$1.5 billion were from borrowings under the Credit Facility. We currently useused the Credit Facility to pay 85% of each invoice received from Thales under the FSD with the remaining 15% funded from cash on hand. Oncehand until the Credit Facility iswas fully drawn in February 2017. As previously reported, during 2017 we entered into an amendment to the FSD providing for the deferral of approximately $100.0 million in payments due by us under the FSD for specified milestones that were completed in 2017 or that we expect to be completed in 2018. We make these milestone payments using bills of exchange due in March 2019. With the exception of the invoices to be paid with these bills of exchange, we expect to pay 100% of each remaining invoice received from Thales from cash and marketable securities on hand, as well asproceeds from a potential debt issuance and internally generated cash flows, including potential cash flows from hosted payloads and Iridium PRIME. Space Exploration Technologies Corp., or SpaceX, to secure SpaceX as the primary launch services provider for Iridium NEXT. The maximumcontract price under the SpaceX agreement is $453.1 million. Asmillion, which includes the exercise of December 31, 2014, we had made total payments of $155.6 million to SpaceX, including a $3.0 million refundable deposit for the reservation of additional future launches, which is not includedour reflight option in the total contract price.event of launch failure. The SpaceX Falcon 9 rocket is configured to carry ten Iridium NEXT satellites to orbit with each launch.June 2011,November 2016, we entered into an additional agreement with International Space Company Kosmotras, or Kosmotras, asSpaceX for an eighth Falcon 9 launch for a supplementalcontract price of $67.9 million. Although we are the customer of record with SpaceX, we have contracted separately with GFZ for $31.8 million to share the launch service provider for Iridium NEXT. The Kosmotras agreement originally provided forof NASA’s two Gravity Recovery and Climate Experiment Follow-On satellites on a specially designed dispenser on the purchase of up to six launches with options to purchase additional launches. Each launch can carry two satellites. In June 2013, we exercised an option for one launch to carry the first two Iridium NEXT satellites. If we do not exercise any additional options, the total cost under the contract including this single launch will be $51.8 million.Falcon 9 rocket. As of December 31, 2014,2017, we had made aggregate payments of $28.8$463.9 million to Kosmotras. The option to purchase two dedicated launches expired as of December 31, 2013. We have agreed with Kosmotras to extend the option to purchase the remaining three dedicated launches through a date to be determined.Harris AgreementIn June 2012, Aireon entered into an agreement with Harris Corporation for the design, developmentSpaceX, and production of the Aireon payload for each of the planned Iridium NEXT satellites. The Harris agreement does not provide for any guarantee of payment by us or Iridium Satellite LLC, but we may make available up to $10received $28.6 million worth of airtime for Aireon to satisfy a portion of its payments under the Harris agreement in the event that Aireon cannot make such payments. We do not currently expect Aireon to require these airtime credits.
from GFZ.17maywill acquire up to a 51% interest in Aireon and the other ANSP investors or their subsidiaries maywill acquire up to a 24.5% interest, collectively, with Iridium retaining a 24.5% interest. The Aireon LLC Agreement provides for the purchase by these investors of preferred membership interests in multiple tranches for an aggregate purchase price of $270 million, all of which $195 million has already been invested through January 2015. Each tranche is subject to the satisfaction of various operational, commercial, regulatory and financial conditions. NAV CANADA’s subsidiary made its first tranche investment of $15 million in November 2012, its second tranche investment of $40 million in July 2013, and its third tranche investment of an aggregate of $65 million in June 2014 and January 2015, and has scheduled tranches of an additional $15 million in 2015 and $15 million in 2017. The other ANSP investors made their first tranche investment of an aggregate of $50 million in February 2014 and their second tranche investment of an aggregate of $25 million in July 2014 and January 2015, with scheduled tranches of an additional $33 million in 2015 and $12 million in 2017.invested. Following the completion of the investments by the new investors and NAV CANADA’s subsidiary, Aireon will beis required, if and when funds are available, to redeem a portion of our ownership interest for a payment of $120 million. We expect this redemption of our ownership interest to occur in 2018.an eleven-membera board of directors.directors consisting of 11 members. Currently, Iridium Satellite may nominate fourtwo directors, NAV CANADA may nominate foursix directors, Enav may nominate one director and the other two investors may together nominate one director. The chief executive officer of Aireon serves as the eleventh director. Following the final investment tranche, expected in 2017, NAV CANADA will be able to nominate six directors and Iridium Satellite will be able to nominate two directors, with the remaining nomination rights unchanged. The Aireon LLC Agreement also provides the minority-interest holders with several protective provisions.currentfirst-generation constellation, and to provide for the U.S. government’s obligation to indemnify Motorola pursuant to the Indemnification Agreement described below. As a result, Iridium Satellite, Boeing, Motorola and the U.S. government entered into the Indemnification Agreement, as subsequently amended in September 2010, giving the U.S. government the right, in its sole discretion, to require us to de-orbit our first-generation constellation in the event of: (a) Iridium Satellite’s failure to maintain certain insurance and pay certain insurance premiums; (b) Iridium Satellite’s bankruptcy; (c) Iridium Satellite’s sale or the sale of any major asset in our satellite system; (d) Boeing’s replacement as the operator of our satellite system; (e) Iridium Satellite’s failure to provide certain notices as contemplated by the Indemnification Agreement; or (f) at any time after January 1, 2015. Prior to the September 2010 amendment of the Indemnification Agreement, the U.S. government had the right to require us to de-orbit our first-generation constellation at any time after June 5, 2009. Pursuant to the September 2010 amendment, the U.S. government may withdraw its agreement to postpone the exercise of its de-orbit right: (i) on or after January 1, 2015; (ii) if Iridium Satellite violates any terms of the Indemnification Agreement or fails to comply with any terms of the September 2010 amendment; (iii) if more than four satellites have insufficient fuel to execute a 12-month de-orbit; (iv) if Iridium Satellite fails to comply with the de-boost plans; (v) upon a finding by the FCC, not remedied by Iridium Satellite in the time set forth by the FCC, that Iridium Satellite has failed to comply with the terms of the Iridium Orbital Debris Mitigation Plan filed with the FCC and then in effect; (vi) upon the cancellation, non-renewal or refusal to provide any insurance required by the Indemnification Agreement; or (vii) upon the termination or completion of the current or any successor agreement between Iridium Satellite and the DoD pursuant to which Iridium Satellite provides mobile satellite services to the DoD. Because it is after January 1, 2015, and because more than four of our satellites currently have insufficient fuel to execute a 12-month de-orbit and due to the Boeing insourcing transaction described above in “Our Network”, the U.S. government currently has the right to require us to de-orbit our first-generation constellation. In addition, the U.S. government also has the right to require us to de-orbit any of our individual functioning first-generation constellation satellites, including in-orbit spares that have been in orbit for more than seven years, unless the U.S. government grants a postponement.years. All of our functioning first-generation constellation satellites have been in orbit for more than seven years. We believe the probability that the U.S. government will exercise these rights is remote.theour previous operations and maintenance agreement, or O&M Agreement.Agreement, with Boeing. Under these agreements, Motorola Solutions may require the de-orbit of our first-generation constellation upon the occurrence of any of the following: (a) the bankruptcy of our company, Iridium Holdings, Iridium Constellation LLC or Iridium Satellite; (b) Iridium Satellite’s breach of the TSA; (c) Boeing’s breach of the O&M Agreement or a related agreement between Boeing and Motorola Solutions; (d) an order from the U.S. government requiring the de-orbiting of our satellites; (e) Motorola Solutions’ determination that changes in law or regulation may require it to incur specified costs relating to the operation, maintenance, re-orbiting or de-orbiting of our first-generation constellation; or (f) our failure to obtain, on commercially reasonable terms, product liability insurance to cover Motorola Solutions’ position as manufacturer of the first-generation constellation satellites, provided the U.S. government has not agreed to cover what would have otherwise been paid by such policy.Pursuant to the O&M Agreement, Boeing similarly has the unilateral right to de-orbit our constellation upon the occurrence of any of the following events: (a) Iridium Constellation’s failure to pay Boeing in accordance with the terms of the O&M Agreement; (b) Iridium Constellation’s or Iridium Satellite’s bankruptcy; (c) Iridium Constellation’s failure to maintain certain insurance policies; (d) a default by Iridium Constellation under the O&M Agreement; or (e) changes in law or regulation that may increase the risks or costs associated with the operation or de-orbit process or the cost of operation or de-orbit of the constellation.has indicated that satellite failures and other problems affecting its constellation are currently limiting its ability to provide two-way services. Globalstar completed its most recent launch campaign in February 2013. It has currently arranged to replace only 24 of its original 48 satellites.M2MIoT services, where it directly competes with our M2MIoT offerings. Because a ground station may not be within view of a satellite, ORBCOMM’s services may have a significant amount of latency, which may limit their use in some mission-critical applications. It does not offer voice service or high-speed data services. ORBCOMM is developing its second-generation satellite constellation, which began launching in 2014.19 and Iridium Pilot Land Station each introduced in February 2014,and Iridium GO!, introduced in July 2014, and the planning and development of the Iridium NEXT constellation, ground infrastructure and chipsets.chipsets, as well as new products and services to be offered on Iridium NEXT, such as Iridium Certus. We also develop product and service enhancements and new applications for our existing products and services. Our research and development expenses were $17.6$15.2 million, $11.1$16.1 million and $15.5$16.1 million for the years ended December 31, 2014, 20132017, 2016 and 2012,2015, respectively.2014,2017, we had 233414 full-time employees and 6 part-time employees, none of whom isare subject to any collective bargaining agreement. We consider our employee relations to be good.2014,2017, we held eight21 U.S. patents and one foreign patent. These patents cover several aspects of our satellite system, our global network, our communication services, and our devices.handsets.devices. We also have licensed technology from Motorola Solutions relating to the development and operation of Iridium NEXT and related ground infrastructure, products and services. We maintain our licenses with Motorola Solutions pursuant to several agreements, which can be terminated by Motorola Solutions upon the commencement by or against us of any bankruptcy proceeding or other specified liquidation proceedings or upon our material failure to perform or comply with any provision of the agreements. If Motorola Solutions were to terminate any such agreement, it may be difficult or, under certain circumstances, impossible to obtain the technology from alternative vendors. Motorola Solutions has assigned to a third party a portion of the patents that are covered by some of these licenses.currentfirst-generation network, products and services and with the development and operation of Iridium NEXT and related ground infrastructure, products and services. If any such third party were to terminate its agreement with us or cease to support and service this technology, or if we are unable to renew such licenses on commercially reasonable terms or at all, it may be difficult, more expensive or impossible to obtain those servicessubstitute technology from alternative vendors. Any substitute technology may also have lower quality or performance standards, which would adversely affect the quality of our products and services. For more information, see “Risk Factors—We are dependent on intellectual property licensed from third parties to operate our constellation and sell our devices and for the enhancement of our existing products and services.”ITEM 1A.Risk Factors·our ability to maintain the health, capacity and control of our existing satellite constellation;·our ability to complete the design, build and launch of Iridium NEXT and related ground infrastructure, products and services, and, once launched, our ability to maintain the health, capacity and control of the new satellite constellation;·the level of market acceptance and demand for our products and services;·our ability to introduce innovative new products and services that satisfy market demand, including new service offerings on Iridium NEXT;·our ability to expand our business using our existing spectrum resources both in the United States and internationally;·our ability to sell our products and services in additional countries;·our ability to maintain our relationship with U.S. government customers, particularly the DoD;·the ability of our distributors to market and distribute our products, services and applications effectively and their continued development of innovative and improved solutions and applications for our products and services;·the effectiveness of our competitors in developing and offering similar services and products; and·our ability to maintain competitive prices for our products and services and to control our costs.our subsidiary, Aireon LLC, which is our primary hosted payload customer.our subsidiary, Aireon LLC as our primary hosted payload on Iridium NEXT. We currently expect to rely onuse the cash flows generated from this hosted-payload arrangement with Aireon to satisfy a portion of our capital requirements for the development and deployment of Iridium NEXT. Aireon’s payload will beis a satellite-based automatic dependent surveillance-broadcast, or ADS-B, system for global air traffic monitoring, and Aireon’s success will depend on its ability to successfully develop and manufacturedeploy this system. Deploying an ADS-B system on satellites is a new and unproven method for providing this service and will require significant technological development. Aireon will need to complete the development and manufacture of its ADS-B payloads in time to include them on our Iridium NEXT satellites, which we expect to begin launching in the second half of 2015.make timely payment topay us of its hosting fees will depend on the development of the market for a space-based ADS-B service among air navigation service providers, or ANSPs, particularly the U.S. Federal Aviation Administration, or FAA. Aireon does not have a contract withto provide commercial, operational ADS-B services to the FAA, to provide ADS-B services, and there can be no assurance that it will be successful in securing such a contract. The FAA’s financial commitment to Aireonactivities to date hashave been limited to a $10 million contract for assistance in its analysis ofpreparing to use space-based ADS-B, and no funds have been allocated by the FAA for a larger Aireon commitment.commercial, operational commitment to Aireon. If Aireon is not successful in entering into a with the FAA for the provision of operational ADS-B services to the FAA, it may not be able to make its hosting reimbursement payments to us when we currently anticipate or at all.development, deployment and operation of its system. The Aireon LLC Agreement providesprovided for the purchase by NAV CANADA Satellite and three other ANSP investors of additional membership interests in multiple tranches through late 2017 for an aggregate investment of up to $270 million, all of which $195 million has been funded through January 2015. Each tranche, however,funded. Further, Aireon is subjectin the process of raising additional operating capital. If Aireon issues equity to the satisfaction of various operational, commercial, regulatory and financial conditions, some of which will be outraise such capital, we may experience dilution of our control,ownership interest in Aireon, and if Aireon raises debt, the investors have significant discretionterms of the debt may limit Aireon's ability to pay distributions in the determinationrespect of whether those conditions have been met.a minoritytwo of the 11 members of the Aireon board of directors, as well as significant veto rights and other protective provisions provided to NAV CANADA and the other investors. As a result, we may not be able to cause Aireon to take actions that we believe are necessary for its ultimate success.design, buildcomplete Iridium NEXT, develop and launch Iridium NEXT and related ground infrastructure,new products and services, and to pursue additional growth opportunities. If we fail to maintain access to sufficient capital, our liquidity could be compromised and we will not be able to successfully implement our business plan.developmentcontinued deployment of Iridium NEXT, the development of new product and service offerings, upgrades to our current services, hardware and software upgrades to maintain our ground infrastructure and upgrades to our business systems. We estimate the costs associated with the design, build and launch of Iridium NEXT and related ground infrastructure upgrades through 20172018 to be approximately $3 billion. Our funding plan for these costs includes the substantial majority of the funds available under our $1.8 billion Credit Facility which was fully drawn as of February 2017, together with cash on hand, and internally generated cash flows, including potential cash flows from hosted payloads, and Iridium PRIME. Our ability to continue to make draws under the Credit Facility will depend upon our satisfaction of the borrowing conditions provided for in the Credit Facility at the time of the borrowing, some of which will be outside of our control. For more information, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Credit Facility”. also be no assurance that our internally generated cash flows will meet our current expectations, or that we will not encounter increased costs. For example, Aireon may be unable to pay its hosting reimbursement costs, and the market for Iridium PRIME may not develop as we expect.costs. If internally generated cash flows, including potential cash from Aireon, or Iridium PRIME, are less than we expect, we might need to finance the remaining cost of Iridium NEXT by raising additional debt or equity financing. In addition, we may need additional capital to design and launch new products and services on Iridium NEXT. Such additionalWe would have to seek the permission of the lenders under the Credit Facility in order to obtain many alternative sources of financing, may notincluding a potential debt issuance, and there can be availableno assurance that we would obtain such lenders' consent and, even if obtained, that we would have access to other sources of financing on favorableacceptable terms, or at all.design, build and launchcomplete Iridium NEXT, and related ground infrastructure, develop new products and services, and pursue additional growth opportunities will be impaired, which would significantly limit the development of our business and impair our ability to provide a commercially acceptable level of service. We may experienceexpect our overall liquidity levels in the coming years to be lower than our recent liquidity levels.levels, as we have fully drawn our Credit Facility and expect to begin principal repayments in early 2018. Inadequate liquidity could compromise our ability to pursue our business plans and growth opportunities, and make borrowings under the Credit Facility, delay the ultimatecontinued deployment of Iridium NEXT, or otherwise impair our business and financial position.Ifposition, or we failmight need to satisfy the ongoing borrowing conditions of the Credit Facility, we may be unable to fund Iridium NEXT.We plan to use borrowings under the Credit Facility to partially fund the construction of our Iridium NEXT satellites, including borrowing to capitalize interest otherwise due under the Credit Facility. Our ability to continue to draw funds under the Credit Facility over time will depend on the satisfaction of borrowing conditions at the time of each draw, including:·compliance with the covenants under the Credit Facility, including financial covenants and covenants relating to hosted payloads and launch and in-orbit insurance;·accuracy of the representations we make under the Credit Facility;·compliance with the other terms of the Credit Facility, including the absence of events of default; and·maintenance of the insurance policy with COFACE.Some of these borrowing conditions may be outside of our controlliquidity needs by raising additional debt or otherwise difficult to satisfy. If we do not continue to satisfy those and other borrowing conditions under the Credit Facility and cannot obtain a waiver from the lenders, we would need to find other sources ofequity financing. We would have to seek the permission of the lenders under the Credit Facility in order to obtain many alternative sources of financing, and there can be no assurance that we would have access to other sources of financing on acceptable terms, or at all.payloads and launch and in-orbit insurance;payloads;COFACEBPIAE insurance policy;current satellite constellationfirst-generation satellites or complete Iridium NEXT by a specified time;date; and22develop and deploy Iridium NEXT before our current satellite constellation ceasesfirst-generation satellites cease to provide a commercially acceptable level of service, our business will suffer.developinglaunching Iridium NEXT, which we expect to commence launching in the second half of 2015.NEXT. While we expect our current satellite constellationfirst-generation satellites to provide a commercially acceptable level of service through the completion of the transition to Iridium NEXT, we cannot guarantee it will do so. If we are unable to effectively deploycomplete the deployment of Iridium NEXT for any reason, whether as a result of insufficient funds, manufacturing or launch delays, launch failures, in-orbit satellite failures, inability to achieve or maintain orbital placement, failure of thedelays in receiving regulatory approvals or otherwise, before our current constellation ceasesfirst-generation satellites cease to provide a commercially acceptable level of service, or if we experience backward compatibility problems with our new constellation, once deployed, we would likely lose customers and business opportunities to our competitors, resulting in a potentially material decline in revenue and profitability and the inability to service our debt.20172018 will be approximately $3 billion, although our actual costs could substantially exceed this estimate. We may not complete Iridium NEXT and related ground infrastructure on time, on budget or at all. We have delayed ourOur first launch, originally scheduled for the first quarter of 2015, to the second half of 2015was delayed until January 2017 because of delays in software development by our satellite manufacturer, the failure of one of our launch providers, Kosmotras, to obtain the permits or authorizations for launch, and delays by our other launch provider, SpaceX, and we may experience further delays. The design, manufacture and launch of satellite systems are highly complex and historically have been subject to delays and cost overruns. DevelopmentDeployment of Iridium NEXT may suffer from additional delays, interruptions or increased costs due to many factors, some of which may be beyond our control, including:·lower than anticipated internally generated cash flows, including from Aireon and other hosted payloads;·the failure to maintain our ability to make draws under the Credit Facility, including by reason of our failure to satisfy any ongoing financial or other condition to making draws;·operating and other requirements imposed by the lenders under the Credit Facility;·our and Thales’s ability to design and manufacture the Iridium NEXT satellites on time and on budget, including issues that might be found late in the process, for example during systems-level testing and final satellite qualification;·interference between any hosted payload and our network;·complex integration of our ground segment with the Iridium NEXT satellites and the transition from our current constellation;·denial or delays in receipt of regulatory approvals or non-compliance with conditions imposed by regulatory authorities;·the breakdown or failure of equipment or systems;·non-performance by third-party contractors, including the prime system contractor;·the inability to license necessary technology on commercially reasonable terms or at all;·use of the SpaceX launch vehicle, which has a limited operating history, or the failure of SpaceX to sustain its business;·launch delays or failures or in-orbit satellite failures once launched or the decision to manufacture additional replacement satellites for future launches;·labor disputes or disruptions in labor productivity or the unavailability of skilled labor;·increases in the costs of materials;·changes in project scope;·additional requirements imposed by changes in laws; or·severe weather or catastrophic events, such as fires, earthquakes or storms. design, manufacture and deployment of Iridium NEXT costs more or takes longer than we anticipate, our ability to continue to develop Iridium NEXT and related ground infrastructure could be compromised.Our Iridium NEXT launch strategy includes an initial launch using a Russian launch services provider, which could be jeopardized by instability in the region or diplomatic sanctions, and in turn could result in a delay to our initial launch and additional launch and insurance costs.Our strategy to launch our 72 Iridium NEXT satellites includes a planned first launch in the second half of 2015 of two satellites on a Dnepr rocket under contract with International Space Company Kosmotras, or Kosmotras, a Russian launch services provider, with the remaining 70 satellites to be launched on seven Falcon 9 rockets under contract with Space Exploration Technologies Corporation, or SpaceX. Many of Kosmotras’ operations are in Ukraine, a country that has recently experienced significant political instability. If we cannot launch the first two satellites as planned, our first launch would likely be of ten satellites on the first of our SpaceX launches, which launch out of the United States and would be unaffected by the delay. The loss of the ability to launch two satellites and test them before launching the next ten satellites would increase our insurance costs, and any alternative launch strategy for the first two satellites would likely increase our launch costs.launchfuture launches of our Iridium NEXT satellites will be subject to the inherent risk of launch failures, which could result in the loss or destruction of one or more satellites. We have entered into ourtwo launch services agreementagreements with SpaceX, pursuant to which SpaceX will provide launch services to us in connection with our deployment of Iridium NEXT. The SpaceX agreement contemplatesagreements contemplate seven launches of ten satellites, four of which have been completed, and one shared launch of five satellites, each on SpaceX’s Falcon 9 rocket, over a two-year period. SpaceX is a rapidly growing company in a technically complicated industry, and is working to meet an aggressive launch manifest.manifest and has experienced failures leading to launch delays in the past. In the event of a launch failure resulting in the destruction of our satellites, we may not be able to have enough replacement satellites manufactured in time to conduct all contracted launches. A failure by SpaceX to maintain its launch schedule could expose us to delay or the need to utilize an alternate launch services provider, which could substantially increase our launch costs. We have also entered into aservices agreement with Kosmotras pursuant to which Kosmotras will provide supplemental or alternative launch services for Iridium NEXT. We have exercised an option to have Kosmotras launchinsurance contains significant elements of self-insurance and some variability in premiums and only covers the first twotwelve months of operations of our Iridium NEXT satellites. The usesatellites, as a result of Kosmotras to replace one or more of the contemplated SpaceX launches would increase our launch costs.We do not maintain in-orbit insurance covering our losses from satellite failures or other operational problems affecting our current constellation, andwhich we may not be ablesubject to obtain theincreased costs.for Iridium NEXT required bywe have obtained contains, consistent with the Credit Facility.We do not maintain in-orbit insurance covering losses that might arise as a result of a satellite failure or other operational problems affecting our constellation. The terms of the Credit Facility, however, require us to obtainelements of self-insurance and maintain such insurance for the Iridium NEXT satellites for a period of 12 months after launch, as well as launch insurance. The amount of coverage we are seeking to place is large, our coverage requirements are complex, and the market for launch and in-orbit insurance is limited. We have placed only a portion of coverage for the full launch program to date, and we are currently in discussions with prospective insurers and with our lenders regarding the structure of our planned coverage. If we are not able to obtain launch and in-orbit insurance on the terms required by the Credit Facility or at an acceptable price, we would be required to obtain a waiver under the Credit Facility. Our lenders may be unwilling to grant such a waiver, which would trigger an event of default under the Credit Facility, giving our lenders the right to accelerate repayment of all outstanding borrowings. Even if we obtain the required launch and in-orbit insurance, the coverage may not be sufficient to compensate us for satellite failures and other operational problems affecting our satellites, as it may either contain large deductible amounts or providedeductibles, providing reimbursement only after a specified number of satellite failures. Further, some policies covering launches three through seven require the payment of additional premiums if there are losses on the first two launches. Further, our insurance only covers in-orbit failures of our satellites for a period of twelve months from the date of launch. As a result, a failure of one or more of our satellites, or the occurrence of equipment failures and other related problems, could constitute an uninsured loss or require the payment of additional premiums and could harm our financial condition. Furthermore, launch and in-orbit insurance does not cover lost revenue. For more information onlaunchfirst-generation and in-orbit insurance plans, see “Our Network –our Iridium NEXT” above.Our satellites have a limited life and may fail prematurely, which would cause our network to be compromised and materially and adversely affect our business, prospects and profitability.Since we introduced commercial services in 2001, we have experienced twelve satellite losses, most recently in August 2014. Eleven of our failed in orbit, which has resulted in either the complete loss of the affected satellites or the loss of the ability of the satellite to carry traffic on the network, and one satellite was lost as a result of a collision with a non-operational Russian satellite. Also, our satellites have already exceeded their original design lives. While actual useful life typically exceeds original design life, the useful lives of our satellites may be shorter than we expect, and additional satellites may fail or collide with space debris or other satellites in the future. Although to dateSimilarly, we have had anmay experience in-orbit spare available to replace each lost satellite, ifmalfunctions of Iridium NEXT satellites, which could adversely affect the reliability of their service or result in total failure of the satellite. If we experience a failure in an orbital plane other than a plane in which we have a spare, we do not expect to replace the failure until we have an Iridium NEXT satellite available to do so. As a result, while we expect our current constellation to provide a commercially acceptable level of service through the completion of the transition to Iridium NEXT, we cannot guarantee it will be able to do so.constellation hasfirst-generation satellites have aged, some of our satellites have experienced individual component failures affecting their coverage or transmission capacity, and other satellites may experience such failures in the future, which could adversely affect the reliability of their service or result in total failure of the satellite. As a result, fewer than 66 of our current in-orbit satellites are fully functioning at any time. Although we do not incur any direct cash costs related to the failure of a satellite, if a satellite fails, we record an impairment charge in our statement of operations to reduce the remaining net book value of that satellite to zero, and any such impairment charges could significantly depress our net income for the period in which the failure occurs. Federal Communications Commission, or FCC approval, and the FCC may subject the approval to other conditions that could be unfavorable to our business. In addition, from time to time we may reposition our satellites within the constellation in order to optimize our service, which could result in degraded service during the repositioning period. Although we have some ability to remedy some types of problems affecting the performance of our satellites remotely from the ground, the physical repair of our satellites in space is not feasible.21% and 19%24% of our revenue for each of the years ended December 31, 20142017 and 2013, respectively.2016. We provide the majority of our services to the U.S. government pursuant to our Gateway Maintenance and Support Services, or GMSS, and EMSS contracts. We entered into these contracts in September 2013 and October 2013, respectively. The GMSS contract provides for a one-year base term and up to four additional one-year options exercisable at the election of the U.S. government, oneall of which hashave been exercised so far, and the EMSS contract provides for a five-year term. TheThese agreements expire in the second half of 2018, although based on federal acquisition regulations, the government has the ability to extend each agreement for an additional six months. We are currently negotiating renewals of these contracts, but we can provide no assurance that we will be able to do so on favorable terms, or at all. Further, the U.S. government may terminate these agreements, in whole or in part, at any time for its convenience. Our relationship with the U.S. government is also subject to the overall U.S. government budget and appropriation decisions and processes. U.S. government budget decisions, including with respect to defense spending, are based on changing government priorities and objectives, which are driven by numerous factors, including geopolitical events and macroeconomic conditions, and are beyond our control. If the U.S. government terminates or fails to renew either of the agreements, or decides not to exercise options under the GMSS agreement, we would lose a significant portion of our revenue.handsets and data devices. In addition, we are dependent on third parties to develop enhancements to our current products and services even in circumstances where we own the intellectual property. If any third-party owner of such intellectual property were to terminate any license agreement with us or cease to support and service this technology or perform development on our behalf, or if we are unable to renew such licenses on commercially reasonable terms or at all, it may be difficult, more expensive or impossible to obtain such technology or services from alternative vendors. Any substitute technology may also be costly to develop and integrate, or could have lower quality or performance standards, which would adversely affect the quality of our products and services. In connection with the design, manufacture and operation of Iridium NEXT and related ground infrastructure and the development of new products and services to be offered on Iridium NEXT, we may be required to obtain additional intellectual property rights from third parties. We can offer no assurance that we will be able to obtain such intellectual property rights on commercially reasonable terms or at all. If we are unable to obtain such intellectual property rights on commercially reasonable terms, we may not be able to complete Iridium NEXT and related ground infrastructure on budget or at all or may not be able to develop new products and services to be offered on Iridium NEXT.As expands, our failure to manage growth effectively could impede our ability to execute our business plan, and we may experience increased costs or disruption in our operations.expandincrease our margins as we expect.
profitability.26 our network of distributors, we offer several products and services aimed at individual consumers, and we and our distributors continue to introduce additional products and services. These products and services, such as satellite handsets, personal locator devices and location-based services, may be used in isolated and dangerous locations, including emergency response situations, and users who suffer property damage, personal injury or death while using the product or service may seek to assert claims or bring lawsuits against us. Further, it is possible that our products would become the subject of consumer protection litigation, including class actions. We seek to limit our exposure to suchall of these claims through appropriate disclosures, indemnification provisions and disclaimers, but these steps may not be effective. We also maintain product liability insurance, but this insurance may not cover any particular claim or litigation, or the amount of insurance may be inadequate to cover the claims brought against us. Product liability insurance could become more expensive and difficult to maintain and might not be available on acceptable terms or at all. In addition, it is possible that our products would become the subject of a product recall as a result of a product defect. We do not maintain recall insurance, so any recall could have a significant effect on our financial results. In addition to the direct expenses of product liability claims, recalls and litigation, a claim, recall or litigation might cause us adverse publicity, which could harm our reputation and compromise our ability to sell our products in the future.rights.personalpersonally identifiable information. In jurisdictions around the world, the transmission and storage of personalpersonally identifiable information is becoming increasingly subject to legislation and regulations intended to protect consumers’ privacy and security.the security of their personal information. The standardsis unclear and evolving.remains unclear. These laws may be interpreted, applied and enforced in conflicting ways from country to country and in a manner that is not consistent with our current data protection practices. Complying with these varying international requirements could cause us to incur additional costs and change our business practices. Because our services are accessible in many foreign jurisdictions, some of these jurisdictions may claim that we are required to comply with their laws, even where we have no local entity, employees or infrastructure. We could face a variety of enforcement actions or government inquiries or be forced to incur significant expenses if we were required to modify our products, our services, or our existing security and privacy procedures in order to comply with new or expanded regulations.gatewaygateways or operations center, we may not be able to provide service to our customers.a gatewaygateways in Tempe, Arizona, and Izhevsk, Russia, for traffic within Russian boundaries, and we operate our satellite constellation from our satellite network operations center in Leesburg, Virginia. Currently, we do not have a backup facility for our primary gateway in Arizona, and bothour facilities are subject to the risk of significant malfunctions or catastrophic loss due to unanticipated events and would be difficult to replace or repair and could require substantial lead-time to do so. Material changes in the operation of these facilities may be subject to prior FCC approval, and the FCC might not give such approval or may subject the approval to other conditions that could be unfavorable to our business. Our gatewaygateways and operations center may also experience service shutdowns or periods of reduced service in the future as a result of equipment failure, delays in deliveries or regulatory issues. Any such failure would impede our ability to provide service to our customers.We may be negatively affected by current global economic conditions.Our operations and performance depend significantly on worldwide economic conditions. Uncertainty about current global economic conditions poses a risk as individual consumers, businesses and governments may postpone spending in response to tighter credit, negative financial news, declines in income or asset values or budgetary constraints. Reduced demand would cause a decline in our revenue and make it more difficult for us to operate profitably, potentially compromising our ability to pursue our business plan. While we expect the number of our subscribers and revenue to continue to grow, we expect the future growth rate will be slower than our historical growth and may not continue in every quarter of every year. We expect our future growth rate will be affected by the sluggish global economy, increased competition, maturation of the satellite communications industry and the difficulty in sustaining high growth rates as we increase in size. Any substantial appreciation of the U.S. dollar may also negatively affect our growth by increasing the cost of our products and services in foreign countries.If we fail to maintain proper and effective internal controls, our ability to produce accurate financial statements on a timely basis could be impaired.We are subject to the reporting requirements of the Securities Exchange Act of 1934, the Sarbanes-Oxley Act of 2002, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and the rules and regulations of the SEC and The NASDAQ Global Select Market. The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal controls over financial reporting. We perform system and process evaluation and testing of our internal controls over financial reporting to allow management to report on the effectiveness of our internal controls over financial reporting in our Annual Reports on Form 10-K, as required by Section 404 of the Sarbanes-Oxley Act. If we are not able to comply with the requirements of Section 404 of the Sarbanes-Oxley Act in a timely manner, or if we are unable to maintain proper and effective internal controls, we may not be able to produce timely and accurate financial statements, and we may conclude that our internal controls over financial reporting are not effective. If that were to happen, the market price of our stock could decline and we could be subject to sanctions or investigations by The NASDAQ Global Select Market, the SEC or other regulatory authorities.Maintaining effective internal controls over financial reporting is necessary for us to produce reliable financial statements. In connection with the preparation of our quarterly report for the three months ended September 30, 2012, management discovered an error caused by a previously existing material weakness in internal controls over financial reporting relating to accounting for income taxes. This material weakness led to the need for the restatement of our financial statements for the years ended December 31, 2009, 2010 and 2011 and for the quarters ended December 31, 2009 through December 31, 2011. If we fail to maintain effective controls over financial reporting in the future, it could result in a material misstatement of our financial statements that would not be prevented or detected on a timely basis and which could cause investors and other users to lose confidence in our financial statements.equipment.equipment, including proposed new LEO constellations. For example, we may face competition for our land-based services in the United States from incipient ancillary terrestrial component, or ATC, service providers who are designing a satellite operating business and a terrestrial component around their spectrum holdings. In addition, some of our competitors have announced plans for the launch of additional satellites. As a result of competition, we may not be able to successfully retain our existing customers and attract new customers.gateway was designedgateways is significantly customized and manufactured over ten years ago,tailored to meet our requirements and portions are becoming morespecifications and could be difficult and expensive to service, upgrade or replace.gateway was designedgateways is significantly customized and manufactured over ten years ago,tailored to meet our requirements and portions are becoming obsolete. As they continue to age, they may become less reliablespecifications and willcould be more difficult and expensive to service, upgrade or replace. Although we maintain inventories of some spare parts, it nonetheless may be difficult, expensive or impossible to obtain all necessary replacement parts for the hardware. Ourhardware due to a limited number of those parts being manufactured to our requirements and specifications. In addition, our business plan contemplates updating or replacing some of the hardware and software in our network as technology advances, but the agecomplexity of our existing hardwarerequirements and softwarespecifications may present us with technical and operational challenges that complicate or otherwise make it expensive or infeasible to carry out our plannedsuch upgrades and replacements, and the expenditure of resources, both from a monetary and human capital perspective, may exceed our estimates.replacements. If we are not able to suitably service, upgrade andor replace our equipment, obsolescence of the technologies that we use could hurt our ability to provide our services and therefore to generate revenue.current constellationfirst-generation satellites or Iridium NEXT, as well as continuing improvements in terrestrial wireless technologies. For us to keep up with technological changes and remain competitive, we may need to make significant capital expenditures, including capital to design and launch new products and services on Iridium NEXT. Customer acceptance of the products and services that we offer will continually be affected by technology-based differences in our product and service offerings compared to those of our competitors. New technologies may also be protected by patents or other intellectual property laws and therefore may not be available to us. Any failure on our part to implement new technology within our system may compromise our ability to compete.November 2012, Globalstar, Inc. filed2011, Lightsquared (now known as Ligado Networks) was granted a petition for rulemaking, askingwaiver at the FCC to permit itprovide terrestrial use including a 10 MHz band close to the spectrum that we use for all of our services. That waiver was subsequently suspended in 2012 due to concerns about potential interference to GPS operations. Ligado Networks sought another waiver in 2015 to modify the ATC of its L-band mobile satellite service network with a new proposal to address GPS industry concerns. We oppose this waiver out of concern for the interference that Ligado Network’s proposed operations would cause to our operations in L-band spectrum and to eliminate the requirements for primary satellite operations, which we are opposing. L-band.gigahertzGHz band, which we use to provide our services, and such competition may make it difficult for us to obtain or retain the spectrum resources we require for our existing and future services. In addition, the FCC’s decision to permit ATC services was based on assumptions relating to the level of interference that the provision of ATC services would likely cause to other satellite service providers that use the L-band spectrum. If the FCC’s assumptions prove inaccurate, or the level of ATC services provided exceeds those estimated by the FCC, such as the proposed use by Ligado Networks, ATC services could substantially interfere with our satellites and devices, which maywould adversely affect our services. Outside the United States, other countries have implemented, or are considering implementing, regulations to facilitate ATC-like services.onusing our network. We may be required to expend significant resources to protect against the threat of security breaches or to remediate harm caused by a breach, including compliance with applicable data breach notification laws, and to alleviate problems, including reputational harm and litigation, caused by any breaches. In addition, our customer contracts may not adequately protect us against liability to third parties with whom our customers conduct business. Although we have implemented and intend to continue to implement industry-standard and other security measures, these measures may prove to be inadequate and result in incidents, including system failures and delays, that could lowerlimit network availability, which could harm our business and our reputation.
reputation and result in substantial liability.29third-party distributorsthem to market and sell our products and services to end users and to determine the prices end users pay.pay, in some cases on an exclusive basis. We also depend on our distributors to develop innovative and improved solutions and applications integrating our product and service offerings. As a result of these arrangements, we are dependent on the performance of our distributors to generate most of our revenue. Our distributors operate independently of us, and we have limited control over their operations, which exposes us to significant risks. Distributors may not commit the necessary resources to market and sell our products and services and may also market and sell competitive products and services. In addition, our distributors may not comply with the laws and regulatory requirements in their local jurisdictions, which could limit their ability to market or sell our products and services. If our distributors develop faulty or poorly performing products using our technology or services, we may be subject to claims, and our reputation could be harmed. If current or future distributors do not perform adequately, or if we are unable to locate competent distributors in particular countries and secure their services on favorable terms, we may be unable to increase or maintain our revenue in these markets or enter new markets, we may not realize our expected growth, and our brand image and reputation could be hurt.Inmarsat,Network Innovation, represented a total of 15%12% of our revenue for the year ended December 31, 20142017, and our ten largest distributors represented, in the aggregate, 42%37% of our revenue for the year ended December 31, 2014.2017. The loss of any of these distributors, or a decrease in the level of efforttwo single-source contracts forBenchmark Electronics Inc., or Benchmark, as the manufactureexclusive manufacturer of our current devices, including our mobile handsets, L-Band transceivers, SBD devices and short-burst data devices. We have notified one of these manufacturers of our intent to terminate our agreement with them, and as a result we expect to solely rely on Benchmark Electronics (Thailand) PCL, or Benchmark, starting in August 2015.Iridium Pilot terminals. Benchmark may choose to terminate its business relationship with us when its current contractual obligations are completed, or at such earlier time as contemplated byif we default under our current agreement. We also utilize sole source suppliers for some of the component parts of our devices. If Benchmark terminatesor any of our other suppliers were to terminate its relationship with us, we may not be able to find a replacement supplier in a timely manner, at an acceptable price or at all. We are highly dependent on these manufacturers’ performance as the sole suppliers of our devices. We also utilize sole source suppliers for some of the component parts of our devices.These manufacturersmightmay be able to replace sole source suppliers, there could be a substantial period of time in which our products would not be available; any new relationship may involve higher costs and delays in development and delivery, and we mightmay encounter technical challenges in successfully replicating the manufacturing processes. If our manufacturers or suppliers terminate their relationships with us, fail to provide equipment or services to us on a timely basis, or fail to meet our performance expectations, we mightmay be unable to provide products or services to our customers in a competitive manner, which could in turn negatively affect our financial results and our reputation.addition,November 2016, we depend onentered into a development services contract with Boeing, which will dedicate key Boeing personnel to provide operationscontinue the design and maintenancegrowth required for bringing new services with respectand capabilities to our satellite network, including engineering, systems analysis, integration and testing of new equipment and operations and maintenance services, from our technical support center in Chandler, Arizona and our satellite network operations center in Leesburg, Virginia.the Iridium NEXT network. Technological competence is critical to our business and depends, to a significant degree, on the work of technically skilled personnel, such as ourthese Boeing contractors. If Boeing’s performance falls below expected levels or if Boeing has difficulties retaining the personnel servicing our network development, the operationsdevelopment of our satellite networknew products and services on Iridium NEXT could be compromised. In addition, if Boeing terminates its agreement with us, we may not be able to find a replacement provider on favorable terms or at all, which could impair theour operations and performance of our network. Replacing Boeing as the operator of our current satellite system could also trigger de-orbit rights held by the U.S. government, which, if exercised, would eliminate our ability to offer satellite communications services altogether.or Iridium OpenPort®, traffic, accounted for 69%75% and 67%72% of total commercial data traffic for the years ended December 31, 20142017 and 2013,2016, respectively, while commercial voice traffic originating outside the United States, excluding Iridium OpenPort traffic, accounted for 90%88% of total commercial voice traffic for each of the years ended December 31, 20142017 and 2013.2016. We cannot provide the precise geographical distribution of revenue from end users because we do not contract directly with them. Instead, we determine the country in which we earn our revenue based on where we invoice our distributors. These distributors sell services directly or indirectly to end users, who may be located or use our products and services elsewhere. We and our distributors are also seeking authorization to sell our services in additional countries.secured a site and commenced construction ofsubsequently constructed a dedicated gateway in Russia. The U.S. government has recently imposed economic and diplomatic sanctions on certain Russian corporations, banks, and citizens and might impose additional sanctions in the future. If such sanctions, or any Russian response to such sanctions, affects our operations in Russia, it could limit our growth in Russia or prevent us from continuing to operate there at all, which would reduce our revenues.jurisdictions;jurisdictions, including the United Kingdom’s proposed exit from the European Union; andcontrols.controls; andcircumstances, including as a result of changes in the nature of the conflicts in Afghanistan and Iraq, or continued reductions in U.S. and foreign personnel in those countries. recently experienced significant currency depreciation against the U.S. dollar. and Boeing may unilaterally require us to de-orbit our current constellationfirst-generation satellites upon the occurrence of specified events. Boeing, Motorola and the U.S. government required specified de-orbit rights as a way to control potential liability exposure arising from future operation of theour first-generation constellation. As a result, Iridium Satellite, Boeing, which then operated our constellation, Motorola and the U.S. government entered into an agreement giving the U.S. government the right, in its sole discretion, to require us to de-orbit our constellationfirst-generation satellites upon the occurrence of specified events, including any time on or after January 1, 2015 or if more than four of our first-generation satellites have insufficient fuel to execute a 12-month de-orbit, both of which have already occurred. In addition, the U.S. government has the right to require us to de-orbit any of our individual functioning first-generation satellites, including in-orbit spares, that have been in orbit for more than seven years, unless the U.S. government grants a postponement.years. All of our functioning first-generation satellites have been in orbit for more than seven years.and Boeing each also havehas the right to require us to de-orbit our constellationfirst-generation satellites pursuant to our agreements with themand upon the occurrence of specified events. or Boeing will not unilaterally exercise their de-orbiting rights upon the occurrence of any of the specified events. If we were required to de-orbit our constellation,first-generation satellites prior to the deployment of an adequate number of Iridium NEXT satellites, we wouldmay be unable to continue to provide mobile satellite communications services.satellite constellationfirst-generation satellites and, in the case of the de-orbiting endorsement, a mass de-orbit of our current satellite constellation.first-generation satellites. Our current policy has a one-year term, which expires on December 8, 2015,2018, and excludes coverage for all third-party damages relating to the 2009 collision of our satellite with a non-operational Russian satellite. The price, terms and availability of insurance have fluctuated significantly since we began offering commercial satellite services. The cost of obtaining insurance can vary as a result of either satellite failures or general conditions in the insurance industry. Higher premiums on insurance policies would increase our cost. In-orbit liability insurance policies on satellites may not continue to be available on commercially reasonable terms or at all. In addition to higher premiums, insurance policies may provide for higher deductibles, shorter coverage periods and additional policy exclusions. For example, our current de-orbit insurance covers only twelve months from attachment and therefore would not cover losses arising outside that timeframe. Our failure to renew our current in-orbit liability insurance policy or obtain a replacement policy would trigger de-orbit rights with respect to our first-generation satellites held by the U.S. government and Boeing described in the immediately preceding risk factor, which, if exercised prior to the deployment of an adequate number of Iridium NEXT satellites, would eliminateharm our ability to provide mobile satellite communications services.a commercially acceptable level of service. In addition, even if we continue to maintain an in-orbit liability insurance policy, the coverage may not protect us against all third-party losses, which could be material.the satellites in our current constellation.first-generation satellites. We may not in the future be able to renew this product liability coverage on reasonable terms and conditions, or at all. Our failure to maintain this insurance could increase our exposure to third-party damages that may be caused by any of our satellites. If we are unable to obtain such insurance on commercially reasonable terms and the U.S. government has not agreed to cover the amounts that would have otherwise been paid by such insurance, Motorola Solutions could invoke its de-orbit rights which, if exercised prior to the deployment of an adequate number of Iridium NEXT satellites, would eliminateharm our ability to provide mobile satellite communications services.phonesdevices poses a health risk, courts or governmental agencies could determine otherwise. Any such finding could reduce our revenue and profitability and expose us and other wirelesscommunications service providers or device sellers to litigation, which, even if frivolous or unsuccessful, could be costly to defend.country.or amend our licenses, or fails to grant a new license or modification, our ability to operate will be harmed or eliminated.currentfirst-generation satellite constellation, a license for the Iridium NEXT constellation, licenses for our U.S. gateway and other ground facilities, and blanket earth station licenses for U.S. government customers and commercial subscribers, that are subject to revocation if we fail to satisfy specified conditions or to meet prescribed milestones.conditions. The FCC licenses are also subject to modification by the FCC. Our currentfirst-generation satellite constellation license from the FCC has been extended until JanuaryJuly 31, 2018.2019. Our Iridium NEXT license expires on February 23, 2032. Our U.S. gateway earth station and the U.S. government customer and commercial subscriber earth station licenses expire between September 2018 and the year 2026. There can be no assurance that the FCC will renew the FCC licenses we hold.hold or grant new ones or modifications. If the FCC revokes, modifies or fails to renew or amend the FCC licenses we hold, or fails to grant a new license or modification, or if we fail to satisfy any of the conditions of our respective FCC licenses, we may not be able to continue to provide mobile satellite communications services.time.time, such as the Boeing insourcing transaction. We may face costs and risks arising from any such transactions, including integrating a new business into our business or managing a joint venture. These risks may include adverse legal, organizational and financial consequences, loss of key customers and distributors and diversion of management’s time.currentfirst-generation or future satellites or a delaysatellites;failure to maintain our ability to make draws under the Credit Facility;options;options and other equity awards;dividends.dividends, and we have currently suspended the payment ofItem 1B.Unresolved Staff CommentsItem 2.PropertiesLocation Country Facilities Owned/Leased McLean, Virginia USA 21,60030,600 Corporate Headquarters Leased Chandler, Arizona USA 197,000 Technical Support Center, Distribution Center, Warehouse and Satellite Teleport Network Facility Leased Leesburg, Virginia USA 40,000 Satellite Network Operations Center Owned Lansdowne, Virginia USA 1,884 Satellite Network Operations Center - Annex Leased Tempe, Arizona USA 31,000 System Gateway and Satellite Teleport Network Facility Owned Building on Leased Land Tempe, Arizona USA 25,000 Operations and Finance Office Space Leased Fairbanks, Alaska USA 4,000 Satellite Teleport Network Facility Owned Svalbard Norway 1,800 Satellite Teleport Network Facility Owned Building on Leased Land Yellowknife, Northwest Territories Canada 1,800 Satellite Teleport Network Facility Owned Building on Leased Land Iqaluit, Nunavut Canada 1,800 Satellite Teleport Network Facility Owned Building on Leased Land Izhevsk, Udmurtia Russia 11,7368,785 Office SpaceSystem Gateway and Satellite Teleport Network Facility Leased Moscow Russia 2,158 Sales and Administration Offices Leased Item 3.Legal ProceedingsOn October 7, 2014, Kappa Digital, LLC filed a complaint for patent infringementin the United States District Court for the Eastern Districtor any of Texas - Marshall Division. In this action, Kappa Digital alleges that our products, services and/or systems infringe its U.S. Patent No. 6,349,135, entitled “Method And System For A Wireless Digital Message Service.” Kappa Digital is seeking a judgment that we have infringed on its patent and is seeking a permanent injunction enjoining us from further infringement, as well as damages, costs, expenses, interest and attorneys’ fees. On February 25, 2015, the parties filed a joint motion to dismiss the case without prejudice, which we expect to be granted. Kappa Digital would retain the right to file a new complaint with the same allegations.subsidiaries.Item 4.Mine Safety Disclosures36Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Common Stock High Low Quarter Ended March 31, 2013 $ 7.34 $ 5.90 Quarter Ended June 30, 2013 7.85 5.98 Quarter Ended September 30, 2013 9.22 6.35 Quarter Ended December 31, 2013 6.91 5.37 Quarter Ended March 31, 2014 7.95 5.95 Quarter Ended June 30, 2014 8.49 6.12 Quarter Ended September 30, 2014 9.54 7.85 Quarter Ended December 31, 2014 10.50 8.15 Common Stock High Low Quarter Ended March 31, 2016 $ 8.53 $ 6.14 Quarter Ended June 30, 2016 $ 8.88 $ 7.15 Quarter Ended September 30, 2016 $ 9.37 $ 6.80 Quarter Ended December 31, 2016 $ 11.15 $ 7.50 Quarter Ended March 31, 2017 $ 11.54 $ 7.80 Quarter Ended June 30, 2017 $ 11.58 $ 9.40 Quarter Ended September 30, 2017 $ 11.50 $ 9.68 Quarter Ended December 31, 2017 $ 12.90 $ 9.95 23, 2015,16, 2018, the closing price of our common stock was $9.67.$12.55. As of February 23, 201519, 2018 there were 6587 holders of record of our common stock.20092012 through December 31, 20142017 with the comparable cumulative return of three indices, the S&P 500 Index, the Dow Jones Industrial Average Index and the NASDAQ Telecommunications Index. The graph plots the growth in value of an initial investment of $100 in each of our common stock, the S&P 500 Index, the Dow Jones Industrial Average Index and the NASDAQ Telecommunications Index over the indicated time periods. The stock price performance shown on the graph is not necessarily indicative of future price performance. The following stock price performance graph shall not be deemed to be "filed" for purposes of Section 18 of the Exchange Act, nor shall this information be incorporated by reference into any future filing under the Securities Act or the Exchange Act or any other document, except to the extent that we specifically incorporate it by reference into such filing or document. 12/31/09 12/31/10 12/31/11 12/31/12 12/31/13 12/31/14 Iridium Communications Inc. $ 100.00 $ 102.74 $ 96.01 $ 83.69 $ 77.83 $ 121.42 S&P 500 Index $ 100.00 $ 112.78 $ 112.78 $ 127.90 $ 165.76 $ 184.64 Dow Jones Industrial Average Index $ 100.00 $ 111.02 $ 117.16 $ 125.66 $ 158.96 $ 170.91 NASDAQ Telecommunications Index $ 100.00 $ 103.92 $ 90.81 $ 92.63 $ 114.88 $ 125.11 12/31/2012 12/31/2013 12/31/2014 12/31/2015 12/31/2016 12/31/2017 Iridium Communications Inc. $ 100.00 $ 93.01 $ 145.09 $ 125.15 $ 142.86 $ 175.60 S&P 500 Index $ 100.00 $ 129.60 $ 144.36 $ 143.31 $ 156.98 $ 187.47 Dow Jones Industrial Average Index $ 100.00 $ 126.50 $ 136.01 $ 132.97 $ 150.81 $ 188.64 NASDAQ Telecommunications Index $ 100.00 $ 124.02 $ 135.07 $ 124.94 $ 143.52 $ 168.54 2013, 2012, 2011 and 20102013 was derived from our audited financial statements. The selected financial data below should be read in conjunction with our financial statements and related notes, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this Form 10-K. The selected financial data is historical data and is not necessarily indicative of our future results of operations. For the Year Ended December 31, Statement of Operations Data 2014 2013 2012 2011 2010 (In thousands, except per share amounts) Revenue: Services $ 309,424 $ 292,092 $ 273,491 $ 262,322 $ 236,351 Subscriber equipment 78,152 73,303 93,866 94,709 90,184 Engineering and support services 20,981 17,254 16,163 27,276 21,638 Total revenue $ 408,557 $ 382,649 $ 383,520 $ 384,307 $ 348,173 Total operating expenses $ 285,646 $ 272,755 $ 278,446 $ 307,306 $ 310,813 Operating income $ 122,911 $ 109,894 $ 105,074 $ 77,001 $ 37,360 Net income $ 74,989 $ 62,517 $ 64,631 $ 41,035 $ 19,941 Comprehensive income $ 72,758 $ 62,185 $ 64,499 $ 40,720 $ 20,009 Weighted average shares outstanding - basic 88,080 76,909 74,239 72,164 70,289 Weighted average shares outstanding - diluted 109,400 87,511 78,182 73,559 72,956 Net income per share - basic $ 0.71 $ 0.72 $ 0.85 $ 0.57 $ 0.28 Net income per share - diluted $ 0.69 $ 0.71 $ 0.83 $ 0.56 $ 0.27 As of December 31, Balance Sheet Data 2014 2013 2012 2011 2010 (In thousands) Total current assets $ 573,113 $ 369,558 $ 367,166 $ 227,242 $ 208,729 Total assets $ 2,909,681 $ 2,309,796 $ 1,916,341 $ 1,374,186 $ 1,047,449 Total long-term liabilities $ 1,575,467 $ 1,268,802 $ 951,131 $ 576,278 $ 258,692 Total stockholders' equity $ 1,231,864 $ 939,495 $ 876,558 $ 702,018 $ 654,916 For the Year Ended December 31, Other Data 2014 2013 2012 2011 2010 (In thousands) Cash provided by (used in): Operating activities $ 214,872 $ 183,048 $ 174,023 $ 183,461 $ 151,438 Investing activities $ (626,254 ) $ (485,836 ) $ (443,542 ) $ (359,337 ) $ (242,086 ) Financing activities $ 438,844 $ 234,712 $ 387,571 $ 192,310 $ 63,402 For the Year Ended December 31, Statement of Operations Data 2017 2016 2015 2014 2013 (In thousands, except per share amounts) Revenue: Services $ 349,735 $ 334,822 $ 317,022 $ 309,424 $ 292,092 Subscriber equipment 77,119 74,211 73,615 78,152 73,303 Engineering and support services 21,192 24,607 20,741 20,981 17,254 Total revenue $ 448,046 $ 433,640 $ 411,378 $ 408,557 $ 382,649 $ 346,759 $ 257,269 $ 337,575 $ 285,646 $ 272,755 $ 115,476 $ 176,371 $ 73,803 $ 122,911 $ 109,894 $ 233,856 $ 111,032 $ 7,123 $ 74,989 $ 62,517 Comprehensive income $ 235,506 $ 114,649 $ 980 $ 72,758 $ 62,185 Weighted average shares outstanding - basic 97,934 95,967 95,097 88,080 76,909 Weighted average shares outstanding - diluted 128,130 124,875 95,097 109,400 87,511 Net income (loss) per share - basic $ 2.23 $ 1.00 $ (0.09 ) $ 0.71 $ 0.72 Net income (loss) per share - diluted $ 1.82 $ 0.89 $ (0.09 ) $ 0.69 $ 0.71 As of December 31, Balance Sheet Data 2017 2016 2015 2014 2013 (In thousands) Total current assets $ 411,072 $ 516,770 $ 481,718 $ 573,113 $ 369,558 $ 3,782,051 $ 3,499,625 $ 3,071,174 $ 2,773,237 $ 2,179,760 $ 1,971,356 $ 2,072,673 $ 1,740,839 $ 1,439,023 $ 1,138,766 Total stockholders' equity $ 1,596,469 $ 1,343,758 $ 1,228,721 $ 1,231,864 $ 939,495 Includes accelerated depreciation of $36.8 million in the fourth quarter of 2017 associated with the write-off of the full amount previously paid to Kosmotras and a goodwill impairment charge of $87.0 million in the fourth quarter of 2015, both of which decreased operating income and total assets by those amounts. Includes the impact of $14.2 million related to the gain on the transaction with Boeing, effective January 3, 2017. Includes the impact of provisional estimates related to deferred tax assets and liabilities resulting from the Tax Cuts and Jobs Act implemented in December 2017. For the Year Ended December 31, Other Cash Flow Data 2017 2016 2015 2014 2013 (In thousands) Cash provided by (used in): Operating activities $ 259,621 $ 225,199 $ 217,479 $ 214,872 $ 183,048 Investing activities $ (372,680 ) $ (242,360 ) $ (439,374 ) $ (626,254 ) $ (485,836 ) Financing activities $ 16,866 $ 202,151 $ 197,066 $ 438,844 $ 234,712 second largest provider of satellite-based mobile voice and data communications services based on revenue, and the only commercial provider of communications services offering true global coverage.coverage, connecting people, organizations and assets to and from anywhere, in real time. Our unique L-band satellite network provides reliable communications services to regions of the world where telecommunicationsterrestrial wireless or wireline networks do not exist or are impaired,limited, including extremely remote or rural land areas, open ocean, airways, open-ocean, the polar regions and regions where the telecommunications infrastructure has been affected by political conflicts or natural disasters.usingvia our constellationsatellite network, which has an architecture of 66 operational satellites with in-orbit satellitesspares and related ground infrastructure. We utilize an interlinked mesh architecture to route traffic across the satellite constellation using radio frequency crosslinks. This unique architecture minimizes the need for ground facilities to support the constellation, which facilitates the global reach of our services and allows us to offer services in countries and regions where we have no physical presence.more than 70approximately 140 service providers, more than 190approximately 220 value-added resellers, or VARs, and more than 40approximately 85 value-added manufacturers, or VAMs, who either sell directly to the end user or indirectly through other service providers, VARs or dealers. These distributors often integrate our products and services with other complementary hardware and software and have developed a broad suite of applications for our products and services targeting specific lines of business.2014,2017, we had approximately 739,000969,000 billable subscribers worldwide, an increase of 75,000,119,000, or 11%14%, from approximately 664,000850,000 billable subscribers at December 31, 2013.2016. We have a diverse customer base, including end users in the following lines of business: land-based handset; machine-to-machine,land mobile; Internet of Things, or M2M;IoT; maritime; aviation; and government.76%78% and 77% of total revenue for the years ended December 31, 20142017 and 2013.2016, respectively. Voice and data and M2MIoT data service revenue have historically generated higher gross margins than subscriber equipment revenue.infrastructure and upgrades to our business systems.infrastructure. We estimate the aggregate costs associated with the design, build and launch of Iridium NEXT and related ground infrastructure upgrades through 20172018 to be approximately $3 billion. We expect to fund the costs of Iridium NEXT with the substantial majority of the funds from our $1.8 billion loan facility, or the Credit Facility, which was fully drawn in February 2017, as well as cash on hand and internally generated cash flows, including potential cash flows from hosted payloadspayloads. We may also raise additional funds through the incurrence of indebtedness, as discussed below.PRIME.for us to meet our liquidity requirements for at least the next twelve months. For more information about12 months, provided we execute the proposed adjustments to our sourcesfunding plan described above or receive a substantial portion of funding, see “Credit Facility” and “Liquidity and Capital Resources.” Thales Alenia Space France, or Thales for the design and manufacture of satellites for Iridium NEXT. The total price under the FSD will be approximately $2.3 billion, and we expect our payment obligations under the FSD to extend into the first quarter ofthrough 2018. As of December 31, 2014,2017, we had made total payments of $1,331.1 million$1.9 billion to Thales, of which $1,129.8$1.5 billion million were from borrowings under the Credit Facility, which are classified within property and equipment, net, in our consolidated balance sheet included in this report. We currently useused the Credit Facility to pay 85% of each invoice received from Thales under the FSD with the remaining 15% funded from cash on hand. Oncehand until the Credit Facility iswas fully drawn in February 2017. With the exception of the invoices to be paid with bills of exchange as described below, we expect to pay 100% of each invoice received from Thales from cash and marketable securities on hand as well as internally generated cash flows, including potentialflows.flows from hosted payloadspayments due to delays by either party.Iridium PRIME.to secure SpaceX as the primary launch services provider for Iridium NEXT. The totalcontract price under the SpaceX agreement for seven launches is $453.1 million, which includes the exercise of our reflight option in the event of launch failure. The SpaceX Falcon 9 rocket is configured to carry ten Iridium NEXT satellites to orbit with each launch. In November 2016, we entered into an additional agreement with SpaceX for an eighth Falcon 9 launch for a contract price of $67.9 million. Although we are the customer of record with SpaceX, we have2014,2017, we had made aggregate payments of $152.6$463.9 million to SpaceX, which were capitalized as construction in progress within property and equipment, net. In addition, we made a $3.0received $28.6 million refundable deposit to SpaceX in the first quarter of 2014 for the reservation of additional future launches, which amount is not included in the total contract price.Kosmotras agreement originally provided for the purchase of up to six launches with options to purchase additional launches. Each launch can carry two satellites. In June 2013, we exercised an option for one launch to carry the first two Iridium NEXT satellites. If we do not exercise any additional options, the total cost under the Kosmotras agreement including this single launch will beis $51.8 million. As of December 31, 2014,Kosmotras to date has been unable to obtain the permits or authorizations to launch our satellites on a Dnepr rocket as planned, and Kosmotras has proposed no satisfactory alternative launch plan. Because we had made aggregate payments of $28.8 millionnow believe the construction-in-progress associated with the Kosmotras launch services will no longer be used or further developed, we wrote-off the full amount previously paid to Kosmotras, which were capitalized as constructionby recording accelerated depreciation expense of $36.8 million, in process within property and equipment, net. The option to purchase twothe fourth quarter of the dedicated launches expired as of December 31, 2013. We have agreed with Kosmotras to extend the option to purchase the remaining three dedicated launches through a date to be determined.On 4, 2010, we entered into the Credit Facilitya credit facility with a syndicate of bank lenders.lenders, which we amended and restated in May 2014. We refer to this amended and restated credit facility, as further amended to date, as the Credit Facility. Ninety-five percent of our obligations under the Credit Facility are insured by Compagnie Française d’Assurance pour le Commerce Extérieur, or COFACE.BPIAE. The Credit Facility consists of two tranches, with draws and repayments applied pro rata in respect of each tranche:the London Interbank Offer Rate, or LIBOR, plus 1.95%.borrowborrowed an additional amount equal to 6.49% of such draw to cover the premium for the COFACEBPIAE insurance. We also paypaid a commitment fee of 0.80% per year, in semi-annual installments, on any undrawn portion of the Credit Facility. The semi-annual commitment fee on the undrawn portion of the Credit Facility for the year ended December 31, 2014 was $5.8 million and is included in other income (expense) in our consolidated statement of operations. Funds drawn under the Credit Facility arewere used to pay 85% of each invoice issued by Thales under the FSD until the Credit Facility iswas fully drawn the premium for the COFACE insurance and the payment of a portion of interest during a portion of the construction and launch phase of Iridium NEXT.six monthsApril 3, 2018. The Credit Facility will mature seven years after the earlierstart of (i) the successful deployment of a specified number of Iridium NEXT satellites or (ii) September 30, 2017.principal repayment period. During this repayment period, we will pay interest on the same date as the principal repayments.repayments in cash. Prior to the repayment period, interest payments arewere due on a semi-annual basis in April and October. Interest incurred during the year ended December 31, 20142017 was $50.8 million. We capitalize$114.4 million, including amortization of deferred financing fees, all interest costs incurred related to the Credit Facility during the construction period of the assets; accordingly we capitalized $50.8 million related to interest incurred in 2014. We pay interest on each semi-annual due date through a combination of a cash payment and a deemed additional loan. The $50.8 million in interest incurred during the year ended December 31, 2014 consisted of $15.5 million payable in cash, of which $12.6 million was paid during the yearcapitalized and $2.9 million was accrued at year end, and $35.3 million payable by deemed loans, of which $28.6 million was paid during the year and $6.7$15.0 million was accrued at year end. The Credit Facility will mature seven years after the start of the principal repayment period.We may not prepay any borrowings prior to December 31, 2015. If, on that date, a specified number of Iridium NEXT satellites have been successfully launched and we have adequate time and resources to complete the Iridium NEXT constellation on schedule, we may prepay the borrowings without penalty. In addition, followingwithout penalty.subject to the payment of interest makeup costs. We may not subsequently borrow any amounts that we repay. We must repay the loans in full upon a delisting of our common stock, a change in control of our company or our ceasing to own 100% of any of the other obligors, or the sale of all or substantially all of our assets. We must apply all or a portion of specified capital raise proceeds, insurance proceeds, condemnation proceeds and proceeds from the disposal of any interests in Aireon to the prepayment of the loans. The Credit Facility includes customary representations, events of default, covenants and conditions precedent to our drawing of funds.As of December 31, 2014, we had borrowed a total of $1,291.4 million under the Credit Facility. The unused portion of the Credit Facility as of December 31, 2014 was $508.6 million. wereare required to maintain a DSRA, and the minimum cash reserve for debt service of $86.0amount required to be in the DSRA was $102.0 million as of December 31, 2014,2017, which is classified as restricted cash on our consolidated balance sheet. This minimum DSRA cash reserve requirement will increase over the term of the Credit Facility to $189.0 million atin 2019, subject to reduction as permitted by the beginning of the repayment period, which is expected to be in 2017. We expect to have utilized the full $1.8 billion from theanticipated agreement with our Credit Facility by early 2016.Minimum debt service reserve levels are estimatedlenders as follows:At December 31, Amount (in millions) 2015 $ 91 2016 113 2017 189 amendedthe ratio of total net debt to the aggregate of total net debt and restatedtotal stockholders’ equity, of no more than 0.7 to 1, measured each June 30 and December 31;May 2014, include:·an available cash balance of at least $25 million;·a debt-to-equity ratio, which is calculated as the ratio of total net debt to the aggregate of total net debt and total stockholders’ equity, of no more than 0.7 to 1, measured each June 30 and December 31;·specified maximum levels of annual capital expenditures (excluding expenditures on the construction of Iridium NEXT satellites) through the year ending December 31, 2024;·specified minimum levels of consolidated operational earnings before interest, taxes, depreciation and amortization, or operational EBITDA, for the 12-month periods ending each December 31 and June 30 through December 31, 2017;·specified minimum cumulative cash flow requirements from customers who have hosted payloads on our satellites measured each December 31 and June 30 from June 30, 2016 through December 31, 2017;·a debt service coverage ratio, measured during the repayment period, of not less than 1 to 1.5; and·specified maximum leverage levels during the repayment period that decline from a ratio of 4.73 to 1 for the twelve months ending June 30, 2018 to a ratio of 2.36 to 1 for the twelve months ending December 31, 2024.$290.2$291.9 million as of December 31, 2014.2017. Our debt-to-equity ratio was 0.470.5 to 1 as of December 31, 2014.2017. We were also in compliance with the operational EBITDA covenant, and the annual capital expenditure covenant and the cumulative cash flow requirements from customers who have hosted payloads covenant, which were the only other applicable covenants, as of December 31, 2014.2014,2017, we had an amount of $8.1 million in available cure, although it was not necessary for us to apply any available cure amount of $7.5 million, though none was required to maintain compliance with the covenants. The available cure amount has fluctuated significantly from one measurement period to the next, and we expect that it will continue to do so. fund payments under the full scale development contract, or FSD, with Thales from our own resources, incur additional indebtedness, or make loans, guarantees or indemnities. If we are not in compliance with the financial covenants under the Credit Facility, after any opportunity to cure such non-compliance, or we otherwise experience an event of default under the Credit Facility, the lenders may require repayment in full of all principal and interest outstanding under the Credit Facility. It is unlikely we would have adequate funds to repay such amounts prior to the scheduled maturity of the Credit Facility. If we fail to repay such amounts, the lenders may foreclose on the assets we have pledged under the Credit Facility, which include substantially all of our assets and those of our domestic subsidiaries.May 2014,November 2016, we restructured our relationship with Boeing. We entered into an insourcing agreement, pursuant to which we hired, as of January 3, 2017, the majority of the Boeing team that performed the operations and maintenance on our system. We now are able to directly manage our network and optimize operational expenses. As part of this arrangement, we agreed to pay Boeing a fee of $5.5 million, of which one-half was paid in December 2016 and the remainder was paid in December 2017. In addition, we entered into a supplemental agreement, orseparate development services contract with Boeing, which will dedicate key Boeing personnel to continue the Supplemental Agreement, with the lenders under the Credit Facility,design and additional support required for bringing new services and capabilities to amend and restate the Credit Facility. The Supplemental Agreement includes revised financial covenant levels. The Supplemental Agreement also delays, until 2017, a portion of the contributions that we had been scheduled to make during 2014, 2015 and 2016 to the debt service reserve account that we are required to maintain under the Credit Facility. The Credit Facility delays $22 million of our 2014 contributions, $22 million of our 2015 contributions and $32 million of our 2016 contributions, for a total of $76 million. As of March 31, 2014, prior to the execution of the Supplemental Agreement, the minimum required cash reserve balance was $94.5 million. As of June 30, 2014, after the execution of the Supplemental Agreement, the minimum required cash reserve balance was reduced to $83.5 million. As a result of this reduction, $11.0 million was released from restricted cash during the three months ended June 30, 2014. In accordance with the Supplemental Agreement, as of December 31, 2014, the minimum cash reserve for debt service was $86.0 million and was maintained and classified as restricted cash on our consolidated balance sheet.The Supplemental Agreement required us to raise at least $217.5 million through the sale of equity securities by July 31, 2014, with net proceeds of at least $200.0 million, in order for the amendment to become effective. The Supplemental Agreement allowed us to raise up to $150.0 million of the total in convertible preferred equity, with the remainder to be raised through sales of our common equity. There were no other conditions to the effectiveness of the Supplemental Agreement. We satisfied the capital raise requirement on May 14, 2014 upon the closing of the sales of our common stock and our 6.75% Series B Cumulative Perpetual Convertible Preferred Stock, or Series B Preferred Stock, described below.As of February 26, 2015, we have borrowed a total of $1,303.3 million under the Credit Facility.41Common Stock OfferingsIn May 2014, we issued 7,692,308 shares of our common stock in a registered direct offering to certain investment funds affiliated with Baron Capital Group Inc., or Baron, at a price of $6.50 per share for aggregate gross proceeds of $50.0 million. We received proceeds of $49.9 million from the sale of the common stock to Baron, net of offering costs of $0.1 million.Under the stock purchase agreement entered into with Baron, Baron was entitled to receive additional shares if, during the 90-day period following the date of the stock purchase agreement, we issued or sold securities below specified prices. As a result of our public offering of common stock and our public offering of Series B Preferred Stock, described below, we were obligated to deliver 504,413 additional shares of common stock to Baron. The additional shares were issued on August 6, 2014.In May 2014, we issued an additional 8,483,608 shares of our common stock in an underwritten public offering, including 1,106,558 shares of common stock upon the underwriters’ election to exercise their overallotment option in full. We received proceeds of $49.0 million, which were net of an aggregate $2.6 million underwriting discount and $0.2 million of offering costs.Series B Cumulative Perpetual Convertible Preferred Stock OfferingIn May 2014, we issued 500,000 shares of our Series B Preferred Stock in an underwritten public offering at a price to the public of $250 per share. We received proceeds of $120.8 million from the sale of the Series B Preferred Stock, which were net of an aggregate $3.8 million underwriting discount and $0.4 million of offering costs.Holders of Series B Preferred Stock are entitled to receive cumulative cash dividends when, as and if declared from, and including, the date of original issue 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 on our Series B Preferred Stock are payable quarterly in arrears, beginning on September 15, 2014. 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 our common stock and pari passu with respect to our Series A Preferred Stock with respect to dividend rights and rights upon our 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 we fail to pay dividends for six or more quarterly periods (whether or not consecutive) and in other specified circumstances.Holders of Series B Preferred Stock may convert some or all of their outstanding Series B Preferred Stock initially at a conversion rate of 33.456 shares of common stock per $250 liquidation preference, which is equivalent to an initial conversion price of approximately $7.47 per share of common stock, subject to adjustment in certain events.On or after May 15, 2019, we may, at our 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 our common stock as subject to adjustment plus the make-whole premium, if any, and (ii) a number of shares of our common stock equal to the lesser of (a) the liquidation preference divided by the market value of the our common stock on the effective date of such fundamental change and (b) 81.9672 (subject to adjustment). In certain circumstances, we may elect to cash settle any conversions in connection with a fundamental change.We intend to use the proceeds from the common stock and Series B Preferred Stock offerings for general corporate purposes, which may include capital expenditures, such as costs for the development and deployment of the Iridium NEXT system, and may also include working capital and general and administrative expenses.Iridium NEXT and related ground infrastructure, and to developlaunch new and innovative products and services for Iridium NEXT;our ability to access the Credit Facility to meet our future capital requirements for the design, build and launch of the Iridium NEXT satellites;potential cash flows from hosted payloads, and Iridium PRIME, to fund a portion of the remaining costs associated with Iridium NEXT and to support our ongoing business;developdeploy and market its space-based automatic dependent surveillance-broadcast, or ADS-B, global aviation monitoring service to be carried as a hosted payload on the Iridium NEXT system;existing satellite networkfirst-generation satellites through the transition tocompletion of Iridium NEXT;asset retirement obligations, income taxes, stock-based compensation, warranty expenses, loss contingencies, and other estimates. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.the estimatedour estimate of selling price when neither vendor-specific evidence nor third-party evidence is available. We determine vendor-specific objective evidence of selling price by assessing sales prices of subscriber equipment, airtime and other services when they are sold to customers on a stand-alone basis. Our determination of best estimate of selling price is consistent with our determination of vendor-specific objective evidence of selling price and we assess qualitative and quantitative market factors and entity-specific factors when estimating the selling price. We recognize revenue for each element based on the specific characteristics of that element.customer;customer or, if unused, upon the expiration of the right to access the prepaid service. In September 2012, we communicated a new expiration policy with respect to prepaid e-vouchers, effective December 2013. While the terms of prepaid e-vouchers can be extended by the purchase of additional e-vouchers, prepaid e-vouchers may not be extended beyond the new limits of three or four years, dependent on the initial expiry period when purchased. We do not offer refunds for unused prepaid services.partialproportional performance method of accounting based on our estimate of total costs expected to complete the contract, and the related costs are expensed as incurred. We recognize revenue on cost-plus-fixed-fee arrangements to the extent of actual costs incurred plus an estimate of the applicable fees earned, where such estimated fees are determined using a partial performance method calculation. If actual results are not consistent with our estimates or assumptions, we may be exposed to changes to earned and unearned revenue that could be material to our results of operations.likelihoodprobability that we achieve the defined performance goals. The level of achievement of performance goals, if any, is determined by theour compensation committee. In the case of stock options, grant date fair value is calculated using the Black-Scholes option pricing model. We recognize stock-based compensation on a straight-line basis over the requisite service period. The Black-Scholes option pricing model requires us to make several assumptions, including expected volatility and expected term of the options. If any of the assumptions we use in the Black-Scholes option pricing model were to change significantly, stock-based compensation expenseWarranty ExpensesWe estimate a provision for product returns under our standard warranty policies when it is probable that a loss has been incurred. A warranty liability is maintained based on historical experience of warranty costs and expected occurrences of warranty claims on equipment. If actual results are not consistent with our estimates or assumptions, we may be exposed to changes to cost of subscriber equipment sales that could be material to our results of operations.impactaffect our tax provision in a given period. Significant judgment is required in determining our ability to realize our deferred tax assets related to federal, state and foreign tax attributes within their carryforward periods including estimating the amount and timing of the future reversal of deferred tax items in our projections of future taxable income. A valuation allowance is established to reduce deferred tax assets to the amounts we expect to realize in the future. We also recognize tax benefits related to uncertain tax positions only when we estimate that it is “more likely than not” that the position will be sustainable based on its technical merits. If actual results are not consistent with our estimates and assumptions, this may result in material changes to our income tax provision.Long-Lived AssetsWe assessrecoverability of long-lived assets when indicators of impairment exist. We assessTax Act, introduces significant changes to U.S. income tax law that have a meaningful impact on our provision for income taxes. Due to the possibility of impairment by comparing the carrying amountstiming of the assetsenactment and the complexity involved in applying the provisions of the Tax Act, we made reasonable estimates of the effects and recorded provisional amounts in our financial statements for the year ended December 31, 2017. Accounting for the income tax effects of the Tax Act requires significant judgments and estimates in the interpretation and calculations of the provisions of the Tax Act. The U.S. Treasury Department, the Internal Revenue Service (IRS), and other standard-setting bodies may issue guidance on how the provisions of the Tax Act will be applied or otherwise administered that is different from our interpretation. As we collect and prepare necessary data, and interpret the Tax Act and any additional guidance issued by the IRS or other standard-setting bodies, we may make adjustments to the estimated undiscounted future cash flows expected to be generated by those assets. If we determine that an asset is impaired, we estimateprovisional amounts, which could materially affect our financial statements in the impairment loss by determiningperiod in which the excess of the asset’s carrying amount over its estimated fair value. Estimated fair value is based on market prices, when available, or various other valuation techniques. These techniques often include estimates and assumptions with respect to future cash flows and incremental borrowing rates. If actual resultsadjustments are not consistent with our estimates and assumptions, we may be exposed to impairment losses that could be material to our results of operations.
made.44equipment and intangible assets with finite livesequipment are depreciated or amortized over their estimated useful lives. We apply judgment in determining the useful lives based on factors such as engineering data, our long-term strategy for using the assets, contractual terms related to the assets, laws and regulations that could impact the useful lives of the assets and other economic factors. In evaluating the useful lives of our satellites, we assess the current estimated operational life of the satellites, including the potential impact of environmental factors on the satellites, ongoing operational enhancements and software upgrades. Additionally, we review engineering data relating to the operation and performance of our satellite network.assessment.assessment. Our currentfirst-generation satellites are depreciated on a straight-line basis through the earlier of their estimated remaining useful life or the date they are expected to be replaced by Iridium NEXT satellites, which defines the period of their expected use, because we expect this will occur before the end of their operational lives.In September 2014, we updated our analysis of the current satellites’ remaining useful lives based on the refinement of the launch schedule and deployment plan for 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.Based on the current launch schedule, we expect Iridium NEXT satellites to begin deployment inwhich have already been placed into service are depreciated using the second half of 2015, with the final launch expected to occur in 2017. If our actual operational results are not consistent with our estimates and assumptions, we may experience changes in depreciation and amortization expense that could be material to our results of operations. In the event there are changes to the launch schedule of Iridium NEXT satellites, the period of intended use for our current satellites could be impacted, also resulting in changes to depreciation and amortization expense that could be material to our results of operations. Goodwill and Intangible Assets with Indefinite LivesGoodwillWe assess the recoverability of goodwill on an annual basis or when indicators of impairment exist such as significant changes in the business climate of our industry, operating performance indicators or competition. Goodwill impairment is determined using a two-step process. The first step involves a comparison of the estimated fair value of a reporting unit to its carrying amount, including goodwill. If the estimated fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is not impaired and the second step of the impairment test is not necessary. If the carrying amount of a reporting unit exceeds its estimated fair value, then the second step of the goodwill impairment test must be performed. To measure the amount of impairment loss, if any, we determine the implied fair value of goodwill in the same manner as the amount of goodwill recognized in a business combination. Specifically, the estimated fair value of the reporting unit is allocated to all of the assets and liabilities of that unit (including any unrecognized intangible assets) as if the reporting unit had been acquired in a business combination and the fair value of the reporting unit was the price paid to acquire the reporting unit. If the carrying amount of the reporting unit’s goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess.We operate in a single reporting unit, and we assess the possibility of impairment by comparing the carrying amount of the reporting unit to its estimated fair value. Our most recent annual assessment of goodwill and indefinite-lived intangible assets, which we refer to as the 2014 Analysis, was performed on October 1, 2014. We determined the estimated fair value of our reporting unit based on a combination of a market approach using comparable public companies (guideline company method) and the income approach using discounted cash flows, consistent with the approach we utilized in our analysis performed in 2013. These valuation techniques involve the use of estimates and assumptions. We believe that the assumptions and estimates used to determine the estimated fair value of our reporting unit are reasonable. However, these estimates are inherently subjective and there are a number of factors, including factors outside of our control, that could cause actual results to differ from our estimates. Changes in estimates and assumptions could have a significant impact on whether or not an impairment charge is recognized and also the magnitude of any such charge. Any changes to our key assumptions about our businesses and our prospects, timing or amounts of projected cash flows, or changes in market conditions, could cause the fair value of our reporting unit to fall below its carrying value, resulting in a potential impairment charge.The key assumptions used in the 2014 Analysis included: (i) cash flow projections through 2025, which include assumptions relative to forecasted service revenue, equipment revenue, engineering and support service revenue, hosted payload revenue, operating expenses and Iridium NEXT capital expenditures; (ii) a discount rate of 12.0% applied to the cash flow projections, which was based on the weighted average cost of capital adjusted for the risks associated with the business; (iii) selection of comparable companies used in the market approach; (iv) assumptions in weighting the results of the income approach and the market approach valuation techniques; and (v) expected distributions from Aireon. Based on the results of the first step of the 2014 Analysis, the estimated fair value of the reporting unit exceeded the carrying value. As such, the second step of the goodwill impairment test was not required and no impairment charge was recorded during the period. In future periods, if actual results are not consistent with our estimates and assumptions, we may be exposed to impairment losses that could be material to our results of operations.Intangible Assets Not Subject to AmortizationWe assessHistorically, we have assessed the possibility of impairment by comparing the carrying amount of the asset to its estimated fair value. If the estimated fair value of the indefinite-lived asset is less than the carrying amount, an impairment loss is recognized. We makemade assumptions and applyapplied judgment in estimating the fair value based on quoted market prices and various other valuation techniques, including replacement costs, discounted cash flows methods and other market multiple analyses. The various valuation techniques require significant assumptions about future cash flows, replacement cost, revenue growth, capital expenditures, working capital fluctuations, asset life and incremental borrowing rates. In our annual analysis performed in 2017, we chose the optional qualitative assessment to test indefinite-lived intangible assets for impairment. The qualitative assessment permits companies to assess whether it is more likely than not that an indefinite-lived intangible asset is impaired. If actual results area company concludes based on the qualitative assessment that it is not consistent with our estimates and assumptions, we may be exposedmore likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying amount, it would not have to impairment losses that could be material to our results of operations.quantitatively determine the assets’ fair value. Based on the results of this analysis, it was not more likely than not that the 2014 Analysis, the fair value of the indefinite-livedintangible assets not subject to amortization were impaired. Therefore, a quantitative analysis was greater than their carrying value. As such,not necessary, and no impairment charge was recorded during the period.Internally Developed SoftwareWe capitalize the costs of acquiring, developing and testing software to meet our internal needs. Capitalization of costs associated with software obtained or developed for internal use commences when the preliminary project stage is complete and it is probable that the project will be completed and used to perform the function intended. Capitalized costs include external direct cost of materials and services consumed in developing or obtaining internal-use software as well as payroll and payroll-related costs for employees who are directly associated with, and devote time to, the internal-use software project. Capitalization of these costs ceases no later than the point in time at which the project is substantially complete and ready for its intended use. Internal use software costs are amortized once the software is placed in service using the straight-line method over periods ranging from three to seven years. Judgments and estimates are required in the calculation of capitalized development costs. We evaluate and estimate, based on engineering data, when the preliminary project stage is completed and the point when the project is substantially complete and ready for use.be material toimpact our property and equipment, net balance (since we are capitalizing interest expense as part of the cost of Iridium NEXT), deferred financing costs balance, depreciation expense, interest expense, income from operations and net income.4620142017 and the Year Ended December 31, 2013 Year Ended December 31, % of Total % of Total Change ($ in thousands) 2014 Revenue 2013 Revenue Dollars Percent Revenue: Service revenue Commercial $ 243,875 60 % $ 232,928 61 % $ 10,947 5 % Government 65,549 16 % 59,164 15 % 6,385 11 % Total service revenue 309,424 76 % 292,092 76 % 17,332 6 % Subscriber equipment 78,152 19 % 73,303 19 % 4,849 7 % Engineering and support services 20,981 5 % 17,254 5 % 3,727 22 % Total revenue 408,557 100 % 382,649 100 % 25,908 7 % Operating expenses: Cost of services (exclusive of depreciation and amortization) 62,085 15 % 59,346 16 % 2,739 5 % Cost of subscriber equipment 54,569 14 % 52,062 14 % 2,507 5 % Research and development 17,587 4 % 11,149 3 % 6,438 58 % Selling, general and administrative 78,636 19 % 75,218 19 % 3,418 5 % Depreciation and amortization 72,769 18 % 74,980 19 % (2,211 ) (3 )% Total operating expenses 285,646 70 % 272,755 71 % 12,891 5 % Operating income 122,911 30 % 109,894 29 % 13,017 12 % Other income (expense): Interest income, net 3,640 1 % 2,276 1 % 1,364 60 % Undrawn credit facility fees (5,825 ) (2 )% (7,708 ) (2 )% 1,883 (24 )% Other income (expense), net (4,274 ) (1 )% 6,003 1 % (10,277 ) (171 )% Total other income (expense) (6,459 ) (2 )% 571 0 % (7,030 ) (1,231 )% Income before income taxes 116,452 28 % 110,465 29 % 5,987 5 % Provision for income taxes (41,463 ) (10 )% (47,948 ) (13 )% 6,485 (14 )% Net income $ 74,989 18 % $ 62,517 16 % $ 12,472 20 % RevenueTotal revenue increased to $408.6 million for the year ended December 31, 2014 compared to $382.6 million for the prior year. This increase in total revenue was primarily due to a $17.3 million increase in service revenue, driven by an 11% year-over-year increase in billable commercial subscribers and a $6.4 million increase in government service revenue. Also contributing to the increase was a $4.8 million increase in subscriber equipment revenue, primarily related to increased unit sales of L-Band transceivers, handsets, which include Iridium GO!, and short-burst data devices. In addition, engineering and support service revenue increased by $3.7 million primarily due to the increased scope of work on government-sponsored contracts.
201647 Year Ended December 31, Change ($ In thousands) 2017 2016 Dollars Percent Revenue: Service revenue Commercial $ 261,735 58 % $ 246,822 57 % $ 14,913 6 % Government 88,000 20 % 88,000 20 % — 0 % Total service revenue 349,735 78 % 334,822 77 % 14,913 4 % Subscriber equipment 77,119 17 % 74,211 17 % 2,908 4 % Engineering and support services 21,192 5 % 24,607 6 % (3,415 ) (14 )% Total revenue 448,046 100 % 433,640 100 % 14,406 3 % Operating expenses: Cost of services (exclusive of depreciation and amortization) 80,396 18 % 64,958 15 % 15,438 24 % Cost of subscriber equipment 44,445 10 % 44,286 10 % 159 0 % Research and development 15,247 3 % 16,079 4 % (832 ) (5 )% Selling, general and administrative 84,405 19 % 82,552 19 % 1,853 2 % Depreciation and amortization 122,266 27 % 49,394 11 % 72,872 148 % Total operating expenses 346,759 77 % 257,269 59 % 89,490 35 % Gain on Boeing transaction 14,189 3 % — — % 14,189 100 % Operating income 115,476 26 % 176,371 41 % (60,895 ) (35 )% Other income (expense): Interest income, net 4,328 1 % 2,934 1 % 1,394 48 % Undrawn credit facility fees (25 ) 0 % (1,346 ) 0 % 1,321 (98 )% Other income (expense), net (207 ) 0 % 206 (1 )% (413 ) (200 )% Total other income (expense) 4,096 1 % 1,794 0 % 2,302 128 % Income before income taxes 119,572 27 % 178,165 41 % (58,593 ) (33 )% Income tax benefit (expense) 114,284 25 % (67,133 ) (15 )% 181,417 (270 )% Net income $ 233,856 52 % $ 111,032 26 % $ 122,824 111 % Year Ended December 31, 2014 December 31, 2013 Change (Revenue in millions and subscribers in thousands) Billable Billable Billable Revenue Subscribers(1) ARPU(2) Revenue Subscribers(1) ARPU(2) Revenue Subscribers ARPU Commercial voice and data $ 185.5 354 $ 45 $ 184.0 340 $ 46 $ 1.5 14 $ (1 ) Commercial M2M data 58.4 325 16 48.9 273 16 9.5 52 - Total Commercial $ 243.9 679 $ 232.9 613 $ 11.0 66 Year Ended December 31, 2017 2016 Change Revenue Revenue Revenue ARPU (Revenue in millions and subscribers in thousands) Commercial voice and data $ 177.7 359 $ 42 $ 177.7 353 $ 42 $ — 6 $ — Commercial IoT data 74.1 510 13 65.5 413 14 8.6 97 (1.0 ) 9.9 N/A 3.6 N/A 6.3 N/A Total Commercial $ 261.7 869 $ 246.8 766 $ 14.9 103 Billable subscriber numbers are shown are atas of the end of the respective period.Average monthly revenue per unit, or ARPU, is calculated by dividing revenue in the respective period by the average of the number of billable subscribers at the beginning of the period and the number of billable subscribers at the end of the period and then dividing the result by the number of months in the period. Billable subscriber and ARPU data is not applicable for hosted payload and other data service revenue items. commercial voice and data revenue was principallyIoT is primarily due to the increased number of Iridium OpenPorta 23% increase in commercial IoT data billable subscribers, partially offset by decreasesa decline in voicethe related ARPU due to the growth in subscribers using lower data usage plans. Hosted payload and other data usage.Commercial M2M dataservice revenue increased by $9.5$6.3 million, or 19%175%, for the year ended December 31, 2014 compared tofrom the prior year primarily due to a 19%the commencement of hosting and data services. We anticipate revenue from our hosting and data services to increase as more Iridium NEXT satellites are placed into service over the launch campaign, which is expected to be completed in commercial M2M billable subscribers. Year Ended December 31, 2014 December 31, 2013 Change (Revenue in millions and subscribers in thousands) Billable Billable Billable Revenue Subscribers(1) Revenue Subscribers(1) Revenue Subscribers Government service revenue $ 65.6 60 $ 59.2 51 $ 6.4 9 Year Ended December 31, 2017 2016 Change Revenue Revenue Revenue (Revenue in millions and subscribers in thousands) Government service revenue $ 88 100 $ 88 84 $ — 16 (1)Billable subscriber numbers shown are at the end of the respective period. Enhanced Mobile Satellite Services, or EMSS contract executed in October 2013 and managed by the Defense Information Systems Agency. The EMSS contract replaced our previous EMSS contract which we originally entered into in April 2008.DISA. Under the terms of this agreement, authorized customers utilize Iridiumairtime services provided through the U.S. Department of Defense’s, or DoD’s, dedicated gateway. These services include unlimited global secure and unsecure voice, low and high-speed data, paging, broadcast, and Distributed Tactical Communications System, or DTCS, services for an unlimited number of DoD and other federal subscribers. DTCSThe service fee under the EMSS contract is a service that provides beyond-line-of-sight, push-to-talk tactical radio servicefixed at $88 million per year for user-defined groups. The fixed-price rates in eachthe remainder of the five contract years, which run from October 22 through the following October 21, are $64 million and $72 million in years one and two, respectively, and $88 million in each of the years three through five.Government service revenues for the year ended December 31, 2014 increased to $65.6 million from $59.2 million in the prior year as a result of the current EMSS contract. Under this contract, revenue is a fixed monthly amountterm, and is not based on subscribers or usage, allowing an unlimited number of users access to existing services. As we continue to innovate and better meet the needs of our customers, additional services not contemplated under the currentThe EMSS contract may be providedexpires in future periods atOctober 2018, although based on federal acquisition regulations, the government has the ability to unilaterally extend for an amount mutually agreed upon by both parties. Basedadditional six months. We have begun discussions with the U.S. government on the fixed-pricea new EMSS contract, which we expect government service revenue for 2015 to exceed 2014.by $4.8$2.9 million, or 7%4%, to $78.2$77.1 million for the year ended December 31, 20142017 compared to the prior year. This increase was primarily due to increases of $2.9 million and $0.8 million in subscriber equipment revenue related to L-Band transceivers and M2M devices, respectively. The increases in subscriber equipment revenue for L-Band transceivers and M2M devices were due to increased unit sales partially offset by targeted lower pricing on these products designed to promote the higher volumes we ultimately achieved. In addition, handset revenue increased $1.4 million primarily related to the launch of Iridium GO!, which contributed $4.0 million for the full year 2014. Year Ended December 31, 2014 December 31, 2013 Change (In millions) Government $ 18.9 $ 15.5 $ 3.4 Commercial 2.1 1.8 0.3 Total $ 21.0 $ 17.3 $ 3.7 Year Ended December 31, 2017 2016 Change (In millions) Commercial $ 3.1 $ 2.2 $ 0.9 Government 18.1 22.4 (4.3 ) Total $ 21.2 $ 24.6 $ (3.4 ) increaseddecreased by $3.7$3.4 million, or 22%14%, for the year ended December 31, 20142017 compared to the prior year primarily dueas a result of decreased revenue under a contract with the DoD to our entering into new government-sponsored contractsadapt the Iridium Extreme® handset for DoD applications, which was completed during the second half of 2013 related to gateway modernization efforts as we transition to Iridium NEXT capabilities. We anticipate an increase in the scope of work for government contracts in 2015 resulting in overall growth in engineering and support service revenue compared to 2014.$2.7$15.4 million, or 5%24%, for the year ended December 31, 20142017 compared to the prior year, primarily dueas a result of insurance costs from Iridium NEXT satellites placed into service during 2017. We expect our insurance expenses to an increase as we place Iridium NEXT satellites into service throughout the launch campaign, which we expect to complete in costs related to government contracts and satellite operations, partially offset by decreased costs related to network maintenance and product support.by $2.5$0.2 million, or 5%,which was substantially the same for the year ended December 31, 2014 compared to2017 as in the prior year primarily due to higher unit sales, corresponding to the increase in subscriber equipment revenue discussed above. In addition to increased unit sales, cost of subscriber equipment increased proportionally more than subscriber equipment revenue due to an increase in the average cost per unit of our handsets and Iridium Pilot units. Iridium Pilot costs increased $1.0 million compared to the prior year as we implemented product quality improvements. Partially offsetting these increases was a $5.3 million decline in the warranty provision and a $0.5 million decrease in expense for excess and obsolete inventory primarily related to the Iridium 9505 handset accessories. The warranty provision decrease was primarily related to fewer expected returns of the Iridium Pilot sold in 2014 and a decrease in the average repair costs compared to the prior year. The decrease in the warranty provision included a $1.8 million warranty initiative to replace older Iridium OpenPort units.Research and DevelopmentResearch and development expenses increased by $6.4 million, or 58%, for the year ended December 31, 2014 compared to the prior year primarily due to Iridium NEXT projects including development costs associated with enabling faster data speeds on our network and subscriber equipment.$3.4$1.9 million, or 5%2%, for the year ended December 31, 20142017 compared to the prior year, primarily due to an increase in employee-related costs including stock-based compensation expense.decreasedincreased by $2.2$72.9 million, or 3%148%, for the year ended December 31, 2014 compared to the prior year.During the third quarter of 2014, we updated our analysis of the current satellites’ remaining useful lives. Based on the results of this analysis and the refinement of the Iridium NEXT launch schedule and deployment plan, the estimated useful lives of the satellites within our current constellation were extended and are consistent with the expected deployment of Iridium NEXT. This change in estimated useful life was effective in September 2014, resulting in a $3.8 million decrease in depreciation expense for the year ended December 31, 2014 when compared to the prior year. We will continue to evaluate the useful lives of our current satellites through the full deployment of Iridium NEXT as the satellites are placed into service. In addition, amortization expense decreased by $3.0 million for the year ended December 31, 2014 compared to the prior year due to the completion of amortization of certain definite-lived intangibles in 2014. These certain definite-lived intangibles include customer relationships, intellectual property and software which were assigned fair value as a result of our 2009 acquisition of Iridium Holdings LLC and were fully amortized over useful lives of five years.The decreases described above were partially offset by increases in depreciation expense resulting from additions to property and equipment for ground infrastructure compatible with Iridium NEXT in addition to a $2.2 million impairment charge that we recorded during 2014 as a result of having lost communication with three of our in-orbit satellites. We believe the loss of these satellites will not have a material impact on the useful life of our current satellite constellation. We had in-orbit spare satellites available to replace the lost satellites. We did not lose any satellites in 2013.Other ExpenseInterest Income, NetInterest income, net, increased by $1.4 million, or 60%, to $3.6 million for the year ended December 31, 20142017 compared to the prior year, primarily due to a $1.0the write-off of $36.8 million increase in financing fees recognized on customer receivables and a $0.4 million increase on interest earned, net of related expenses, on our investments in marketable securities.Undrawn Credit Facility FeesThe commitment fee on the undrawn portion of the Credit Facility was $5.8 millionconstruction-in-progress associated with the Kosmotras launch services in 2017 and the addition of new assets, including Iridium NEXT satellites placed into service during 2017. Excluding the impact of Kosmotras, we expect our depreciation expense to increase as we place Iridium NEXT satellites into service throughout the launch campaign, which we expect to complete in 2018.year ended December 31, 2014 comparedoperations and maintenance of our satellite constellation and ground infrastructure. As a result, we and Boeing terminated our previous Operations and Maintenance Agreement, or O&M Agreement, and our previous Iridium NEXT Support Service Agreement and entered into a new Development Services Agreement, or DSA, with a $6.0 million annual take-or-pay commitment through 2021.$7.7 million for the prior year. The decreasefair value of the commitment fee oncontractual arrangement with Boeing as of that date and (2) the undrawn portion directly relates to the increase in the amounts borrowed under the Credit Facility as we finance the development of Iridium NEXT. As we continue to draw additional amounts under the Credit Facility, the undrawn portion and related fees will decrease.Other Income (Expense), netOther income (expense), net was $4.3 million of other expense, net for the year ended December 31, 2014 compared to $6.0 million of other income, net for the prior year. This change primarily resulted from a favorable litigation result, which resulted in the 2013 recognitionremainder of a previously deferred $10credit, $3.2 million, hosted payload customer deposit. We did not recognize any incomeresulting from this litigation result or similar itemsan O&M Agreement amendment in 2014.Provision for July 2010.Taxes2014,2017, our income tax provisionbenefit was $41.5$114.3 million compared to $47.9an income tax expense of $67.1 million for the prior year. Our effective tax rate was approximately 35.6%-95.6% for the year ended December 31, 20142017 compared to 43.4%37.7% for the prior year. The changedecrease in the income tax provision and effective tax rate was primarily related to the impact ofnet tax benefit on remeasuring our ending deferred tax balances at 21%, from 35%, for years beginning after December 31, 2017, to reflect the benefit of the Arizona tax law changes (bothnew tax rate and apportionment method) combined with a decrease in tax expense related tounder the valuation allowance on our Arizona net operating losses compared to the prior year.Tax Act. As our current estimates change in future periods, the impact on the deferred tax assets and liabilities may change correspondingly.$75.0$233.9 million for the year ended December 31, 2014,2017, an increase of $12.5$122.8 million or 20%, from the prior year. This increase in net income was primarily driven by a $17.3 million increase in service revenue due to increased billable commercial subscribers and the favorable impact of the current EMSS contract, a $3.8 million increase in engineering and support service revenue due to new government-sponsored contracts, a $2.2 million decrease in depreciation and amortization primarily due to the change in our current satellites’ estimated remaining useful lives, a $6.5 million decrease in our provision for income taxes and a $1.9 million decreaseincrease in commitment fees on the undrawn portion of the Credit Facility. These increases to net income were partiallyrevenue, offset by a $10.3 million increaseincreases in other expenses, net primarilydepreciation expense, including the accelerated depreciation related to the 2013 recognitionwrite-off of a previously deferred $10.0 million hosted payload customer deposit which did not recur in 2014, a $6.4 million increase in research and development costs primarily for Iridium NEXT development projects, and a $2.7 million increase in cost ofKosmotras launch services, related to the increase in scope of work for government-sponsored contracts.
as described above. 5020132016 and Combined Results of Operations for the Year Ended December 31, 2012 Year Ended December 31, % of Total % of Total Change ($ in thousands) 2013 Revenue 2012 Revenue Dollars Percent Revenue: Service revenue Commercial $ 232,928 61 % $ 211,741 55 % $ 21,187 10 % Government 59,164 15 % 61,750 16 % (2,586 ) (4 )% Total service revenue 292,092 76 % 273,491 71 % 18,601 7 % Subscriber equipment 73,303 19 % 93,866 25 % (20,563 ) (22 )% Engineering and support services 17,254 5 % 16,163 4 % 1,091 7 % Total revenue 382,649 100 % 383,520 100 % (871 ) 0 % Operating expenses: Cost of services (exclusive of depreciation and amortization) 59,346 16 % 60,937 16 % (1,591 ) (3 )% Cost of subscriber equipment 52,062 14 % 53,285 14 % (1,223 ) (2 )% Research and development 11,149 3 % 15,525 4 % (4,376 ) (28 )% Selling, general and administrative 75,218 19 % 67,589 18 % 7,629 11 % Depreciation and amortization 74,980 19 % 81,110 21 % (6,130 ) (8 )% Total operating expenses 272,755 71 % 278,446 73 % (5,691 ) (2 )% Operating income 109,894 29 % 105,074 27 % 4,820 5 % Other income (expense): Interest income, net 2,276 1 % 1,072 0 % 1,204 112 % Undrawn credit facility fees (7,708 ) (2 )% (10,232 ) (2 )% 2,524 (25 )% Other expense, net 6,003 1 % (896 ) 0 % 6,899 (770 )% Total other expense 571 0 % (10,056 ) (2 )% 10,627 (106 )% Income before income taxes 110,465 29 % 95,018 25 % 15,447 16 % Provision for income taxes (47,948 ) (13 )% (30,387 ) (8 )% (17,561 ) 58 % Net income $ 62,517 16 % $ 64,631 17 % $ (2,114 ) (3 )% RevenueTotal revenue remained relatively flat at $382.6 million for the year ended December 31, 2013 compared to $383.5 million for the prior year. This slight decrease in total revenue was primarily due to a large decrease in subscriber equipment sales. This decrease was largely offset by increases in commercial service revenue, due to an increase in access fee revenue resulting from targeted price increases, an increase in revenue from prepaid e-vouchers resulting from the change in our prepaid airtime policy effective in 2013 and an increase in billable subscribers. Year Ended December 31, Change ($ In thousands) 2016 2015 Dollars Percent Revenue: Service revenue Commercial $ 246,822 57 % $ 241,925 59 % $ 4,897 2 % Government 88,000 20 % 75,097 18 % 12,903 17 % Total service revenue 334,822 77 % 317,022 77 % 17,800 6 % Subscriber equipment 74,211 17 % 73,615 18 % 596 1 % Engineering and support services 24,607 6 % 20,741 5 % 3,866 19 % Total revenue 433,640 100 % 411,378 100 % 22,262 5 % Operating expenses: 64,958 15 % 60,306 15 % 4,652 8 % Cost of subscriber equipment 44,286 10 % 40,807 10 % 3,479 9 % Research and development 16,079 4 % 16,144 4 % (65 ) 0 % Selling, general and administrative 82,552 19 % 81,445 20 % 1,107 1 % Depreciation and amortization 49,394 11 % 51,834 13 % (2,440 ) (5 )% Impairment of goodwill — 0 % 87,039 21 % (87,039 ) (100 )% Total operating expenses 257,269 59 % 337,575 82 % (80,306 ) (24 )% Operating income 176,371 41 % 73,803 18 % 102,568 139 % Other income (expense): Interest income, net 2,934 1 % 3,069 1 % (135 ) (4 )% Undrawn credit facility fees (1,346 ) 0 % (3,289 ) (1 )% 1,943 (59 )% Other expense, net 206 (1 )% (468 ) (1 )% 674 (144 )% Total other expense 1,794 0 % (688 ) (1 )% 2,482 (361 )% Income before income taxes 178,165 41 % 73,115 17 % 105,050 144 % Income tax expense (67,133 ) (15 )% (65,992 ) (16 )% $ (1,141 ) 2 % Net income $ 111,032 26 % $ 7,123 1 % $ 103,909 1,459 % Year Ended December 31, 2013 December 31, 2012 Change (Revenue in millions and subscribers in thousands) Billable Billable Billable Revenue Subscribers(1) ARPU(2) Revenue Subscribers(1) ARPU(2) Revenue Subscribers ARPU Commercial voice and data $ 184.0 340 $ 46 $ 170.9 332 $ 45 $ 13.1 8 $ 1 Commercial M2M data 48.9 273 16 40.8 228 17 8.1 45 (1 ) Total Commercial $ 232.9 613 $ 211.7 560 $ 21.2 53 Year Ended December 31, 2016 2015 Change Revenue Revenue Revenue ARPU (Revenue in millions and subscribers in thousands) Commercial voice and data $ 177.7 353 $ 42 $ 178.4 351 $ 42 $ (0.7 ) 2 $ — Commercial IoT data 65.5 413 $ 14 61.3 359 $ 15 4.2 54 $ (1 ) $ 3.6 N/A $ 2.2 N/A $ 1.4 N/A Total Commercial $ 246.8 766 $ 241.9 710 $ 4.9 56 Billable subscriber numbers shown are at the end of the respective period. Average monthly revenue per unit, or ARPU, is calculated by dividing revenue in the respective period by the average of the number of billable subscribers at the beginning of the period and the number of billable subscribers at the end of the period and then dividing the result by the number of months in the period. TheBillable subscriber and ARPU data is not applicable for hosted payload and other data service revenue items. commercial voice and data revenue was principally due to an increase in access fee revenue resulting from targeted price increases, an increase in revenue from prepaid e-vouchers resulting from the change in our prepaid airtime policy effective in 2013 and an increase in billable subscribers. These increases were partially offset by declines in telephony usage.Commercial M2M data revenue growth was driven principally by an increase in the billable subscriber base. Commercial M2M data ARPU decreased by $1IoT of $4.2 million, or 7%, compared to the prior year due to the growthyear. The increase in subscribers using plans that generate lower revenue per user.Government Service Revenue Year Ended December 31, 2013 December 31, 2012 Change (Revenue in millions and subscribers in thousands) Billable Billable Billable Revenue Subscribers(1) Revenue Subscribers(1) Revenue Subscribers Government service revenue $ 59.2 51 $ 61.8 51 $ (2.6 ) - (1) Billable subscriber numbers shown are at the end of the respective period.Government service revenue decreased from $61.8 million to $59.2 million principally due to a $3.0 million decline in revenue during the first nine months of 2013. This $3.0 million decline wasIoT is primarily due to a reduction15% increase in commercial IoT billable subscribers, offset by slightly lower ARPU. Commercial voice and data remained relatively flat due to continued declines in telephony billable subscribers. airtime usage substantially offset by increases in Iridium OpenPort services and push-to-talk, or PTT, services. Year Ended December 31, 2016 2015 Change Revenue Revenue Revenue (Revenue in millions and subscribers in thousands) Government service revenue $ 88.0 84 $ 75.1 72 $ 12.9 12 Billable subscriber numbers shown are at the end of the respective period. fourth quarter of 2013year ended December 31, 2016 increased to $15.6$88 million from $15.2$75.1 million in the prior year period as a result of a scheduled price increase under the execution of the new EMSS contract. Under this contract, revenue is a fixed monthly amount and is no longer based on subscribers or ARPU.decreased 22%increased by $0.6 million, or 1%, to $73.3$74.2 million for the year ended December 31, 20132016 compared to $93.9 million for the year ended December 31, 2012. The decrease in subscriber equipment revenueprior year. This increase was primarily due to lower handset sales. Year Ended December 31, 2013 December 31, 2012 Change (In millions) Government $ 15.5 $ 15.0 $ 0.5 Commercial 1.8 1.2 0.6 Total $ 17.3 $ 16.2 $ 1.1 Year Ended December 31, 2016 2015 Change (In millions) Commercial $ 2.2 $ 2.0 $ 0.2 Government 22.4 18.7 3.7 Total $ 24.6 $ 20.7 $ 3.9 $1.1$3.9 million, or 7%19%, from the prior year primarily due to the execution of new government-sponsored contracts during the second half of 2013 related to gateway modernization efforts as we transition to Iridium NEXT capabilities.Operating ExpensesTotal operating expenses decreased by 2% to $272.8 million for the year ended December 31, 2013 from $278.5 million for2016 compared to the prior year. This decrease wasyear primarily dueas a result of a DoD contract entered into in late 2015 to decreased research and development expenses as well as decreased depreciation and amortization partially offset by increased selling, general and administrative expenses.decreasedincreased by 3% to $59.3$4.7 million, or 8%, for the year ended December 31, 2013 from $60.9 million for the year ended December 31, 2012 primarily due2016 compared to a decline in operations and maintenance costs related to our existing constellation as we continue to focus on Iridium NEXT development efforts.Cost of Subscriber EquipmentCost of subscriber equipment decreased by 2% to $52.1 million for the year ended December 31, 2013 from $53.3 million for the prior year primarily due to the decrease in unit sales, corresponding to the decline in subscriber equipment revenue discussed above. This decrease was partially offset by a $6.9 million increase in warranty expense recorded during 2013 related to higher warranty claims and other warranty-related initiatives for the Iridium Pilot terminals. In addition, during the year ended December 31, 2013, we recorded a $1.5 million expense for excess and obsolete inventory primarily related to Iridium 9505 handset accessories. No similar charge was incurred during 2012.52Research and DevelopmentResearch and development expenses decreased by 28% to $11.1 million for the year ended December 31, 2013 from $15.5 million for the prior year primarily due to decreases in research and development projects associated with Iridium NEXT.Selling, General and AdministrativeSelling, general and administrative expenses increased by 11% to $75.2 million for the year ended December 31, 2013 from $67.6 million for the prior year, primarily due to an increase in scope of work for government sponsored contracts, partially offset by lower costs incurred to manage the first-generation satellites.costsexpenses and professional fees, partially offset by the reversal of $0.7 million of bad debt expense originally recorded in 2012.expensesexpense decreased by 8% to $75.0$2.4 million, or 5%, for the year ended December 31, 2013 from $81.1 million for the prior year. During the second quarter of 2012, we updated our analysis of the current satellite constellation’s health and the remaining useful life. Based on the results of this analysis, we estimated that our current constellation of satellites would be operational for longer than previously expected. As a result, the estimated useful life of the current constellation was extended and was consistent with the expected deployment of Iridium NEXT. This change in estimated useful life was only effective for three quarters in 2012 but was effective for all four quarters of 2013, which resulted in a decrease in depreciation expense for the year ended December 31, 2013 when2016 compared to the prior year. Additionally, the year-over-year decrease was due to a $2.0 million impairment charge within depreciation expense related to the impairment of an in-orbit satellite with which we lost communication during 2012. No such impairment occurred in 2013.Other ExpenseInterest Income, NetInterest income, net, increased to $2.3 million for the year ended December 31, 2013 from $1.1 million for the prior year, primarily due to our investment of excess cash in marketable securities beginningcontinued changes in the firstestimated useful lives of the first-generation satellites, partially offset by the addition of new assets and the impairment charges that we recorded during the second quarter of 2013. Our marketable securities yielded higher interest income than2016 as a result of two satellites having ceased operations. We updated our operating cash accounts.$7.7$1.3 million for the year ended December 31, 20132016 compared to $10.2$3.3 million for the prior year. The decrease of the commitment fee on the undrawn portion directly relates to the increase in the amounts borrowed under the Credit Facility as we continue to finance the development of Iridium NEXT.Other Income (Expense), netOther income (expense), net increased As we were fully drawn on the Credit Facility in February 2017, the undrawn portion and related fees decreased to $6.0 million of income for the year ended December 31, 2013 from $0.9 million of expense for the prior year. This increase was primarily due to a favorable litigation result, which resultedzero beginning in the recognitionsecond quarter of a previously deferred $10 million hosted payload customer deposit. This increase was partially offset by our share of the loss from our equity method investment in Aireon, which increased compared to the prior year. Following NAV CANADA’s purchase of Aireon preferred membership interests on November 19, 2012, Aireon is now accounted for as an equity method investment within our financial statements,2017 and our investment is included within other assets on the consolidated balance sheet. Prior to November 19, 2012, we consolidated Aireon’s results with our results as a wholly owned subsidiary.Provision for continuing thereafter.Taxes2013,2016, our income tax provisionexpense was $47.9$67.1 million compared to $30.4$66.0 million for the prior year. Our effective tax rate was approximately 43.4%37.7% for the year ended December 31, 20132016 compared to 32.0%90.3% for the prior year. The changedecrease in the income tax provision and effective tax rate was primarily related to the decreaseimpact of a one-time non-cash impairment of goodwill in the impact ofprior year as well as an increased benefit related to the benefitimpact of the Arizona tax law changes recognized(both tax rate and apportionment method) and state apportionment changes in 2012, an increase in the valuation allowance on our Arizona net operating losses, an increase in our overall state tax expense, and an increase in our income before income taxesother jurisdictions compared to the prior year. As our current estimates change in future periods, the impact on the deferred tax assets and liabilities may change correspondingly.$62.5$111.0 million for the year ended December 31, 2013, a decrease2016, an increase of 3%, or $2.1$103.9 million from the prior year. This declineincrease in net income was primarily driven by a $17.6an $87.0 million non-cash goodwill impairment charge taken in 2015 and the $22.3 million increase in the provision for income taxes. The change in the income tax provisiontotal revenue, which was primarily duerelated to the decrease in$12.9 million increase from the impact of the benefit of the Arizona tax law changes recognized in 2012, anEMSS contract. The increase in the valuation allowance on our Arizona net operating losses, an increase in our overall state tax expense and an increase in our income before tax compared to the prior year. Also contributing to the decline in net income was partially offset by a $7.6$5.0 million increase in selling general and administrative costs primarily for employee related costs and professional fees. These year-over-year decreases to net income were partially offset by the recognition of a previously deferred $10 million hosted payload customer deposit, a $6.1 million decrease in depreciation and amortization expense primarily resulting from the change in the estimated useful lives of our satellites, and a $4.4 million decrease in research and development due to decreases in research and development projects associated with Iridium NEXT.
services as described above.532014,2017, our total cash and cash equivalents balance was $211.2$285.9 million, and our marketable securities balance was $261.1$11.8 million. Our principal sources of liquidity are cash, cash equivalents and marketable securities, and internally generated cash flows, and the Credit Facility.flows. Our principal liquidity requirements over the next twelve months are to meet capital expenditure needs, principally the design, build and launchcontinued deployment of Iridium NEXT, as well as for working capital, interest, DSRA contributions, principal payments on the Credit Facility, and dividends payable on our Series A Preferred Stock and Series B Preferred Stock.20172018 to be approximately $3 billion. Our funding plan for these costs includes the substantial majority of the funds available under theour $1.8 billion Credit Facility which was fully drawn as of February 2017, together with cash and marketable securities on hand and internally generated cash flows, including potential cash flows from hosted payloads and Iridium PRIME. We currently use the Credit Facility to pay 85% of each invoice we receive from Thales Alenia Space France, or Thales, under their contract for the development and construction ofpayloads. Now that our Iridium NEXT satellites, with the remaining 15% funded from cash, cash equivalents and marketable securities on hand. We also utilize the Credit Facility to fund the COFACE insurance premiums and a portion of the interest under the Credit Facility. Once the Credit Facility is fully drawn, with the exception of the invoices to be paid with bills of exchange, we expect to pay 100% of each remaining invoice we receivereceived from Thales and all principal, interest onand DSRA contributions under the Credit Facility from cash, cash equivalents and marketable securities on hand, and internally generated cash flows, including potential cash flows from hosted payloads, and Iridium PRIME.contains borrowing restrictions, including financial performance covenantsalso provides for a refund of an additional $11.0 million in DSRA contributions we have made to date in the event that our projected Available Cash (as defined in the Credit Facility) falls below $35.0 million on a three-month forward-looking basis through March 2019. The delay and covenants relatingrefunds are effective through the end of March 2019, at which time the DSRA must be fully funded to hosted payloads, and there can be no assurancethe previously agreed amount of $189.0 million. The Credit Facility also requires that we willestablish a new restricted account to receive payments of hosting fees from Aireon. Hosting fees of up to $50.0 million would be ablekept in the account and could be drawn by us based on the same $35.0 million three-month forward-looking Available Cash threshold described above. Aireon hosting fees in excess of the first $50.0 million would be distributed pro rata to continuereplenish the DSRA and to borrow funds undersecure the payment of the bills of exchange to Thales described below.Facility. There can also be no assuranceFacility does not include any requirements that our internally generated cash flows, including those from Iridium PRIME and hosted payloadswe raise additional equity but required that we suspend the payment of dividends on our Iridium NEXT satellites, will meet our current expectations. If we do not generate sufficient cash flows, or if the cost of implementing Iridium NEXT or the other elements of our business plan are higher than anticipated, we may need further external funding. Our ability to obtain additional funding may be adversely affected by a number of factors, including global economic conditions, and we cannot assure you that we will be able to obtain such funding on reasonable terms or at all. If we are not able to secure such funding in a timely manner, our ability to maintain our network, to design, build and launch Iridium NEXT and related ground infrastructure, products and services, and to pursue additional growth opportunities will be impaired, and we would likely need to delay some elements of our Iridium NEXT development. Our liquidity7% Series A Cumulative Perpetual Convertible Preferred Stock and our ability to fund our liquidity requirements are also dependent6.75% Series B Cumulative Perpetual Convertible Preferred Stock for five quarters. As previously announced, in anticipation of thisour future financial performance, which is subject to general economic, financial, regulatory and other factors that are beyond our control.are entitled to receive cumulative cash dividends at 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, beginning September 15, 2014. For each full quarter that the Series A Preferred Stock is outstanding, and assuming that no shares of Series A Preferred Stock have been converted into shares of our common stock, we would be required to pay cash dividends of $1.75 million. We expect that we will satisfy dividend requirements, if and when declared, from internally generated cash flows.Holders of Series B Preferred Stock are entitled to receive cumulative cash dividends at an annual rate of $7.00 and $16.875 per share.share, respectively. Dividends are payable quarterly in arrears on each March 15, June 15, September 15 and December 15. For each full quarter that the Series A Preferred Stock or Series B Preferred Stock, as applicable, is outstanding, and assuming that no shares of Series B Preferred Stock have been converted into shares of our common stock, we would beare required to pay cash dividends of approximately $1.8 million and $2.1 million. Wemillion, respectively. If and when we resume payment of the dividends following the five-quarter suspension described above, we expect that we will satisfy dividend requirements, if and when declared, from internally generated cash flows.2014,2017, we had borrowed a totalreported $1,703.6 million in borrowings under the Credit Facility in our consolidated balance sheet, net of $1,291.4$96.4 million of deferred financing costs, for an aggregate balance of $1,800.0 million outstanding under the Credit Facility. The unused portion ofPursuant to the Credit Facility, aswe maintain the DSRA. As of December 31, 20142017, the DSRA balance was $508.6 million. Under the terms of the Credit Facility, a minimum cash reserve for debt service of $86.0$102.4 million, as of December 31, 2014 was maintained andwhich is classified as restricted cash. This minimum cash reservein our condensed consolidated balance sheet. The DSRA requirement willis scheduled to increase over the term of the Credit Facility to $189.0 million in 2017.2019. In addition to the minimum debt service levels, financial covenants under the Credit Facility, as amended to date, include:restatedtotal stockholders’ equity, of no more than 0.7 to 1, measured each June 30 and December 31;May 2014, include:·an available cash balance of at least $25 million;·a debt-to-equity ratio, which is calculated as the ratio of total net debt to the aggregate of total net debt and total stockholders’ equity, of no more than 0.7 to 1, measured each June 30 and December 31;·specified maximum levels of annual capital expenditures (excluding expenditures on the construction of Iridium NEXT satellites) through the year ending December 31, 2024;·specified minimum levels of consolidated operational earnings before interest, taxes, depreciation and amortization, or operational EBITDA, for the 12-month periods ending each December 31 and June 30 through December 31, 2017;·specified minimum cumulative cash flow requirements from customers who have hosted payloads on our satellites, measured each December 31 and June 30, from June 30, 2016 through December 31, 2017;·a debt service coverage ratio, measured during the repayment period, of not less than 1 to 1.5; and·specified maximum leverage levels during the repayment period that decline from a ratio of 4.73 to 1 for the twelve months ending June 30, 2018 to a ratio of 2.36 to 1 for the twelve months ending December 31, 2024.$290.2$291.9 million as of December 31, 2014.2017. Our debt-to-equity ratio was 0.470.5 to 1 as of December 31, 2014.2017. We were also in compliance with the operational EBITDA covenantand hosted payload cash flow covenants and the annual capital expenditure covenant, which were the only other applicable covenants, as of December 31, 2014.2014,2017, we had an amount of $8.1 million in available cure, amount of $7.5 million, thoughalthough it was not requirednecessary for us to apply any available cure amount to maintain compliance with the covenants. The available cure amount has fluctuated significantly from one measurement period to the next, and we expect that it will continue to do so. fund payments under the full scale development contract, or FSD, with Thales from our own resources, incur additional indebtedness, or make loans, guarantees or indemnities. If we are not in compliance with the financial covenants under the Credit Facility, after any opportunity to cure such non-compliance, or we otherwise experience an event of default under the Credit Facility, the lenders may require repayment in full of all principal and interest outstanding under the Credit Facility. It is unlikely we would have adequate funds to repay such amounts prior to the scheduled maturity of the Credit Facility. If we fail to repay such amounts, the lenders may foreclose on the assets we have pledged under the Credit Facility, which include substantially all of our assets and those of our domestic subsidiaries.We believe that our liquidity sources will provide sufficient funds for us to meet our liquidity requirements for at least the next 12 months2014,2017, our total cash and cash equivalents balance was $211.2$285.9 million and our total marketable securities balance was $261.1 million, and we$11.8 million. We also had an aggregate of $1,291.4$1,703.6 million of net external indebtedness related to borrowings under the Credit Facility.20142017 and the Year Ended December 31, 2013Statement of Cash Flows 2014 2013 Change Net cash provided by operating activities $ 214.9 $ 183.0 $ 31.9 Net cash used in investing activities $ (626.3 ) $ (485.8 ) $ (140.5 ) Net cash provided by financing activities $ 438.8 $ 234.7 $ 204.1 Statement of Cash Flows 2017 2016 Change Net cash provided by operating activities $ 259.6 $ 225.2 $ 34.4 Net cash used in investing activities $ (372.7 ) $ (242.4 ) $ (130.3 ) Net cash provided by financing activities $ 16.9 $ 224.2 $ (207.3 ) 20142017 increased by $31.9$34.4 million from the prior year. This increase was primarily due to a $28.6$33.0 million increasedecrease in working capital related to timing of cash collections from customersflows provided by prepaid and other current assets, accrued expenses and deferred revenues. Working capital provided by operations is primarily duedriven by launch related activities, including utilization of prepaid expenses related to the increase in total revenue. Also contributinglaunch services and receipt of payments for milestones related to this increase was a $5.0 million increase in hosted payload customer deposits compared to the prior year.20142017 increased by $140.5$130.3 million primarily due to fewer available-for-sale securities held in the increasecurrent period, resulting in net purchases of marketable securitieslower proceeds from investment maturities, offset by $107.9a $5.6 million and a $37.5 million increasedecrease in capital expenditures. We expect capital expenditures related to continue to decline as we complete the construction and launch of the Iridium NEXT including payments related to the purchase of equipment and software for our satellite, network and gateway operations.
constellation in 2018.552014 increased2017 decreased by $204.1$207.3 million primarily due to the receipt of $120.8 million and $98.9 million of net proceeds from the issuance of our Series B Preferred Stock and common stock, respectively, during 2014; no similar proceeds were received in 2013. This increase was partially offset by a $35.2 million decrease in borrowings and related fees under theour Credit Facility forin 2017, as it was fully drawn in February 2017, offset by the year ended December 31, 2014 compareddecrease in payments of preferred stock dividends related to the prior year.Effectfive-quarter deferral of exchange rate changes on cash and cash equivalentsThe effect of exchange rate changes on cash and cash equivalents was a decrease of $2.6 million for the year ended December 31, 2014. The decreasepreferred dividends that began in the effect on cash held from exchange rate changes is primarily due to the strengtheningsecond quarter of the U.S. dollar against the Russian ruble throughout 2014.20132016 and the Year Ended December 31, 2012Statement of Cash Flows 2013 2012 Change Net cash provided by operating activities $ 183.0 $ 174.0 $ 9.0 Net cash used in investing activities $ (485.8 ) $ (443.5 ) $ (42.3 ) Net cash provided by financing activities $ 234.7 $ 387.6 $ (152.9 ) Statement of Cash Flows 2016 2015 Change Net cash provided by operating activities $ 225.2 $ 217.5 $ 7.7 Net cash used in investing activities $ (242.4 ) $ (439.4 ) $ 197.0 Net cash provided by financing activities $ 224.2 $ 202.1 $ 22.1 20132016 increased by $9.0$7.7 million from the prior year. This increase was primarily due to improvements in net income, excluding the receipt of $7.0 million in hosted payload customer deposits during 20132015 non-cash goodwill impairment, and a $3.1 million income tax refund receiveddecrease in 2013.2013 increased2016 decreased by $42.3$197.0 million primarily due to the increase in net purchasesales of marketable securities for $77.3of $107.9 million and our $5.0the $89.1 million investment in Aireon in 2013. These uses of cash were partially offset by a $38.1 million declinedecrease in capital expenditures related to the construction of Iridium NEXT, including payments related to the purchase of equipment and software for our satellite, network and gateway operations.2013 decreased2016 increased by $152.9$22.1 million primarily due to the receipt of $96.5$21.1 million of net proceeds from the issuance of our Series A Preferred Stock during 2012; no similar proceeds were receivedincrease in 2013. In addition, borrowings under the Credit Facilitycredit facility.2013 were $47.2 million less than borrowings for2016 compared to the prior year.20142017 (in millions): Less than More than Contractual Obligations 1 year 1-3 Years 3-5 years 5 years Total Payment obligations: Thales (1) $ 554.2 $ 302.7 $ 64.7 $ - $ 921.6 SpaceX 150.0 150.5 - - 300.5 Kosmotras (2) 23.0 - - - 23.0 Boeing (3) 33.3 - - - 33.3 Debt obligations (4) 10.9 12.9 290.6 987.9 1,302.3 Operating lease obligations (5) 3.1 5.7 6.0 6.8 21.6 Uncertain tax positions (6) 0.3 - - - 1.2 Unconditional purchase obligations (7) 19.0 0.1 - - 19.1 Total $ 793.8 $ 471.9 $ 361.3 $ 994.7 $ 2,622.6 Contractual Obligations 1-3 Years 3-5 years Total Payment obligations: $ 216.8 $ 100.0 $ — $ — $ 316.8 — 3.6 — — 3.6 46.9 10.2 — — 57.1 43.2 — — — 43.2 6.0 12.0 6.0 — 24.0 Principal 85.5 490.5 612.0 612.0 1,800.0 Contractual interest 79.6 154.4 98.6 37.5 370.1 Debt service reserve account — 87.0 — — 87.0 3.7 7.5 7.2 8.8 27.2 — — — — 1.0 17.0 3.4 1.0 — 21.4 Total $ 498.7 $ 868.6 $ 724.8 $ 658.3 $ 2,751.4 Thales obligations consist of commitments under the FSD for the design and manufacture of satellites for Iridium NEXT. We currently use theThe 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 iswas fully drawn in February 2017, and, as a result, we expect to pay 100% of each invoice received from Thales from cash and marketable securities on hand as well as internally generated cash flow, including potential cash flows from hosted payloadsor the issuance of up to $45.4 million in remaining bills of exchange due in March 2019. As of December 31, 2017, we had made aggregate payments of $1.9 billion to Thales. The timing of a portion of the contractual obligation payments to Thales shown in the table above is based on current expectations regarding the Thales manufacturing schedule and Iridium PRIME.SpaceX’s targeted launch schedule.KosmotrasSpaceX obligations consist of remaining payments to purchase onesecure SpaceX as the primary launch services provider for Iridium NEXT. The total price for seven launches and a reflight option in the event of launch failure is $453.1 million. In November 2016, we entered into an agreement for an eighth launch with SpaceX to launch five spare satellites and share the services with GFZ. The total price under the existing Kosmotras agreement. The KosmotrasSpaceX agreement as amended, provided for the purchase of up to six launches with options to purchase additional launches. Eacheighth launch can carry two satellites. In June 2013, we exercised an option for one launch to carry the first two Iridium NEXT satellites. If we do not exercise any additional options, the total cost under the contract including this single launch will be $51.8is $67.9 million. As of December 31, 2014,2017, we had made aggregate payments of $28.8$463.9 million to Kosmotras.SpaceX. The optiontiming of a portion of the contractual obligation payments to purchase two dedicated launches expiredSpaceX shown in the table above is based on SpaceX’s targeted launch schedule.The total premium is $121.0 million, and as of December 31, 2013. We have agreed with Kosmotras2017, we had made aggregate payments of $77.8 million. The timing of the majority of the contractual obligation payments are based on SpaceX’s targeted launch schedule to extend the option to purchase the remaining three dedicated launches through a date to be determined.(3)In 2014, we elected to make a transition from the O&M Agreement tocomplete the Iridium NEXT Supportconstellation in 2018.Represents a five-year take-or-pay commitment under the Development Services Agreement with Boeing. As of January 1, 2015, Boeing supports a hybrid operations mode involving network elements from both the original Iridium system and the Iridium NEXT system. The Boeing obligations represent the not to exceed, or NTE, price for operations and maintenance, or O&M, services for 2015 under our Iridium NEXT Support Services Agreement with Boeing. Boeing is the exclusive provider for the majority of O&M services through the end of the Iridium NEXT useful life, subject to our right to issue work to a third partyentered into in accordance with certain provisions in the agreement. Annually, we and Boeing will agree upon the NTE price for each year.November 2016.(4)Debt obligations include amounts drawn underrepayment of the Credit Facility as of December 31, 2014, which include $1,291.4 million2017. We have included interest payments to be made on our fixed and variable rate tranches of outstandingthe Credit Facility. Interest payments for variable rate debt obligations, $1.3 million of accrued commitment feeshave been estimated based on the undrawn portionsix-month LIBOR forward contracts. We have included the increase to the DSRA of $87 million, as required under the terms of the Credit Facility, and $9.6from $102.0 million, as of accrued interest through December 31, 2014. We have not included future debt obligations or future2017, to $189.0 million in 2019. The DSRA is classified as restricted cash on the consolidated balance sheet. The repayment schedule excludes $120.0 million that we expect to receive upon the Aireon redemption of our equity interest costs in the table because the timingAireon and Aireon dividends, when and if declared. Upon receipt of the payments is unknown and there is a variable component of the interest. We have also excluded futurethese amounts, for the commitment fee, which is 0.80% per year on any undrawn portion ofthey will be used to prepay the Credit Facility, as the timing of additional borrowings is unknown.which may result in an earlier repayment.(5)Operating lease obligations do not include payments to landlords covering real estate taxes, common area maintenance and other charges, as such fees are not determinable based upon the provisions of our lease agreements. (6)As of December 31, 2014,2017, we estimated our uncertain tax positions to be $1.2$1.0 million, including penalties and interest. We estimate that $0.3 million of our uncertain tax position will expire or be realized within the next 12 months. However, we are unable to reasonably estimate the period of the possible future payments for the remaining balance, and therefore the remaining balance has not been reflected in a specified period.(7)Unconditional purchase obligations include our agreement with a supplier for the manufacturing of our devices and various commitments with other vendors that are enforceable, legally binding and have specified terms, including fixed or minimum quantities, minimum or variable price provisions, and a fixed timeline. Unconditional purchase obligations do not include agreements that are cancelable by us without penalty. As of December 31, 2017, contractually obligated purchase commitments for manufacturing supplies increased $5.8 million from the prior year ended December 31, 2016. year.year, although we have temporarily suspended dividend payments as noted above. Neither the Series A Preferred Stock nor the Series B Preferred stock has a stated maturity date. Holders of Series A Preferred Stock and Series B Preferred Stock may convert some or all of their outstanding shares to common stock at the stated conversion rate. On or after October 3, 2017, weWe may at our option cause some or all of the shares of Series A Preferred Stock to be automatically converted into shares of common stock at the then prevailing conversion rate if specified conditions, principally, a daily volume-weighted average stock price of $12.26 over a period of 20 trading days in a 30-day period and payment of the accrued dividends, are satisfied. On or after May 15, 2019, we may, at our 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. We cannot forecast the conversions, if any, of Series A Preferred Stock or Series B Preferred Stock to common stock and thus cannot forecast with certainty the amounts of future dividend payments on outstanding Series A Preferred Stock. As of December 31, 2014,2017, there were 1,000,000 shares of Series A Preferred Stock and 500,000499,955 shares of Series B Preferred Stock outstanding.M2MIoT revenue have been less subject to seasonal usage changes.Recent Accounting DevelopmentsIn May 2014, the Financial Accounting Standards Board, or FASB, and the International Accounting Standards Board jointly issued a comprehensive new revenue recognition standard, Accounting Standards Update No. 2014-09,Revenue from Contracts with Customers,or ASU 2014-09, that will supersede nearly all existing revenue recognition guidance under U.S. GAAP. ASU 2014-09 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. ASU 2014-09 is effective for public entities for annual and interim periods beginning after December 15, 2016. Early adoption is not permitted. ASU 2014-09 becomes effective for us in the first quarter of fiscal 2017. We have not yet selected a transition method, and we are currently evaluating the effect, if any, that ASU 2014-09 will have on our consolidated financial statements and related disclosures.In August 2014, the FASB issued Accounting Standards Update No. 2014-15,Presentation of Financial Statements—Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, orASU 2014-15, which provides guidance on determining when and how to disclose going-concern uncertainties in the financial statements. The new standard requires management to perform interim and annual assessments of an entity’s ability to continue as a going concern within one year after the date the financial statements are issued. An entity must provide certain disclosures if conditions or events raise substantial doubt about the entity’s ability to continue as a going concern. ASU 2014-15 applies to all entities and is effective for annual periods ending after December 15, 2016, and interim periods thereafter, with early adoption permitted. We are currently evaluating the effect, if any, that ASU 2014-15 will have on our consolidated financial statements and related disclosures.Interest income earned on our cash, cash equivalent and marketable securities balances is subject to interest rate fluctuations. For the year ended December 31, 2014, a one-half percentage point increase or decrease in interest rates would not have had a material effect on our interest income. entered into the Credit Facility in October 2010 and have borrowed $1,291.4 millionan aggregate of $1.8 billion under the Credit Facility as of December 31, 2014.2017. A portion of the borrowingsdraws we made under the Credit Facility bearsbear interest at a floating rate equal to the London Interbank Offered Rate, or LIBOR, plus 1.95% and will, accordingly, subject us to interest rate fluctuations in future periods. Had the currently outstanding borrowings under the Credit Facility been outstanding throughout the year ended December 31, 2014,2017, a one-half percentage point increase or decrease in the LIBOR would not have changedhad a material impact on our interest cost by less than $0.1 million for the year.2014,2017, a 100 basis point change in interest rates would not have had a material impact on the fair value of our marketable securities.59 Iridium Communications Inc.: 616263646567Theand Stockholders of Iridium Communications Inc.20142017 and 2013,2016, and the related consolidated statements of operations and comprehensive income, changes in stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2014. 2017 and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017, in conformity with U.S. generally accepted accounting principles.thesethe Company’s financial statements based on our audits.Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includesmisstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures include examining, on a test basis, evidence supportingregarding the amounts and disclosures in the financial statements. An auditOur audits also includes assessingincluded evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Iridium Communications Inc. at December 31, 2014 and 2013, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2014, in conformity with U.S. generally accepted accounting principles.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Iridium Communications Inc.’s internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 26, 2015, expressed an unqualified opinion thereon.McLean,26, 2015 December 31, December 31, 2014 2013 Assets Current assets: Cash and cash equivalents $ 211,249 $ 186,342 Marketable securities 261,136 76,647 Accounts receivable, net 50,672 54,758 Inventory 28,433 29,532 Deferred income tax assets, net 11,009 9,076 Prepaid expenses and other current assets 10,614 13,203 Total current assets 573,113 369,558 Property and equipment, net 1,971,839 1,575,579 Restricted cash 86,104 81,223 Other assets 7,726 8,909 Intangible assets, net 47,416 57,452 Deferred financing costs 136,444 130,036 Goodwill 87,039 87,039 Total assets $ 2,909,681 $ 2,309,796 Liabilities and stockholders' equity Current liabilities: Accounts payable $ 17,677 $ 12,934 Accrued expenses and other current liabilities 38,419 39,209 Interest payable 9,589 7,989 Deferred revenue 36,665 41,367 Total current liabilities 102,350 101,499 Accrued satellite operations and maintenance expense, net of current portion 15,051 16,389 Credit facility 1,291,401 1,039,203 Deferred income tax liabilities, net 245,042 202,825 Deferred revenue, net of current portion 20,689 7,000 Other long-term liabilities 3,284 3,385 Total liabilities 1,677,817 1,370,301 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 and zero shares authorized, issued and outstanding, respectively - - Common stock, $0.001 par value, 300,000 shares authorized and 93,905 and 76,690 shares issued and outstanding, respectively 94 77 Additional paid-in capital 1,033,176 801,262 Retained earnings 201,514 138,845 Accumulated other comprehensive loss, net of tax (2,920 ) (689 ) Total stockholders' equity 1,231,864 939,495 Total liabilities and stockholders' equity $ 2,909,681 $ 2,309,796 December 31, 2017 December 31, 2016 Assets Current assets: Cash and cash equivalents $ 285,873 $ 371,167 Marketable securities 11,753 39,328 Accounts receivable, net 68,031 57,373 Inventory 20,068 18,204 Prepaid expenses and other current assets 25,347 30,698 Total current assets 411,072 516,770 Property and equipment, net 3,210,162 2,813,084 Restricted cash 102,384 113,139 Other assets 8,414 10,836 Intangible assets, net 50,019 45,796 Total assets $ 3,782,051 $ 3,499,625 Liabilities and stockholders' equity Current liabilities: Short-term credit facility $ 85,500 $ — Accounts payable 43,100 11,131 Accrued expenses and other current liabilities 32,215 23,840 Interest payable 15,021 14,136 Deferred revenue 38,390 34,087 Total current liabilities 214,226 83,194 Accrued satellite operations and maintenance expense, net of current portion — 13,138 Long-term credit facility, net 1,618,055 1,657,145 Deferred income tax liabilities, net 246,170 361,656 Deferred revenue, net of current portion 47,612 36,417 Other long-term liabilities 59,519 4,317 Total liabilities 2,185,582 2,155,867 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, 98,203 and 95,879 shares issued and outstanding 98 96 Additional paid-in capital 1,081,373 1,060,311 Retained earnings 518,794 288,797 Accumulated other comprehensive loss, net of tax (3,796 ) (5,446 ) Total stockholders' equity 1,596,469 1,343,758 Total liabilities and stockholders' equity $ 3,782,051 $ 3,499,625 Year Ended Year Ended Year Ended December 31, 2014 December 31, 2013 December 31, 2012 Revenue: Services $ 309,424 $ 292,092 $ 273,491 Subscriber equipment 78,152 73,303 93,866 Engineering and support services 20,981 17,254 16,163 Total revenue 408,557 382,649 383,520 Operating expenses: Cost of services (exclusive of depreciation and amortization) 62,085 59,346 60,937 Cost of subscriber equipment 54,569 52,062 53,285 Research and development 17,587 11,149 15,525 Selling, general and administrative 78,636 75,218 67,589 Depreciation and amortization 72,769 74,980 81,110 Total operating expenses 285,646 272,755 278,446 Operating income 122,911 109,894 105,074 Other income (expense): Interest income, net 3,640 2,276 1,072 Undrawn credit facility fees (5,825 ) (7,708 ) (10,232 ) Other income (expense), net (4,274 ) 6,003 (896 ) Total other income (expense) (6,459 ) 571 (10,056 ) Income before income taxes 116,452 110,465 95,018 Provision for income taxes (41,463 ) (47,948 ) (30,387 ) Net income 74,989 62,517 64,631 Series A Preferred Stock dividends 7,000 7,000 1,692 Series B Preferred Stock dividends 5,320 - - Net income attributable to common stockholders $ 62,669 $ 55,517 $ 62,939 Weighted average shares outstanding - basic 88,080 76,909 74,239 Weighted average shares outstanding - diluted 109,400 87,511 78,182 Net income attributable to common stockholders per share - basic $ 0.71 $ 0.72 $ 0.85 Net income attributable to common stockholders per share - diluted $ 0.69 $ 0.71 $ 0.83 Comprehensive income: Net income $ 74,989 $ 62,517 $ 64,631 Foreign currency translation adjustments, net of tax (2,325 ) (322 ) (132 ) Unrealized gain (loss) on marketable securities, net of tax 94 (10 ) - Comprehensive income $ 72,758 $ 62,185 $ 64,499 Year Ended December 31, 2017 2016 2015 Revenue: Services $ 349,735 $ 334,822 $ 317,022 Subscriber equipment 77,119 74,211 73,615 Engineering and support services 21,192 24,607 20,741 Total revenue 448,046 433,640 411,378 Operating expenses: Cost of services (exclusive of depreciation and amortization) 80,396 64,958 60,306 Cost of subscriber equipment 44,445 44,286 40,807 Research and development 15,247 16,079 16,144 Selling, general and administrative 84,405 82,552 81,445 Depreciation and amortization 122,266 49,394 51,834 Impairment of goodwill — — 87,039 Total operating expenses 346,759 257,269 337,575 Gain on Boeing transaction 14,189 — — Operating income 115,476 176,371 73,803 Other income (expense): Interest income, net 4,328 2,934 3,069 Undrawn credit facility fees (25 ) (1,346 ) (3,289 ) Other income (expense), net (207 ) 206 (468 ) Total other income (expense) 4,096 1,794 (688 ) Income before income taxes 119,572 178,165 73,115 Income tax benefit (expense) 114,284 (67,133 ) (65,992 ) Net income 233,856 111,032 7,123 Series A preferred stock dividends, declared and paid 1,750 7,000 7,000 Series B preferred stock dividends, declared and paid 2,109 8,436 8,436 Series A preferred stock dividends, undeclared 5,250 — — Series B preferred stock dividends, undeclared 6,327 — — Net income (loss) attributable to common stockholders $ 218,420 $ 95,596 $ (8,313 ) Weighted average shares outstanding - basic 97,934 95,967 95,097 Weighted average shares outstanding - diluted 128,130 124,875 95,097 Net income (loss) attributable to common stockholders per share - basic $ 2.23 $ 1.00 $ (0.09 ) Net income (loss) attributable to common stockholders per share - diluted $ 1.82 $ 0.89 $ (0.09 ) Comprehensive income: Net income $ 233,856 $ 111,032 $ 7,123 Foreign currency translation adjustments 1,664 3,487 (5,777 ) Unrealized gain (loss) on marketable securities, net of tax (14 ) 130 (366 ) Comprehensive income $ 235,506 $ 114,649 $ 980 63 Series A Series B Accumulated Convertible Convertible Additional Other Accumulated Total Preferred Stock Preferred Stock Common Stock Paid-In Comprehensive Retained Stockholders' Shares Amount Shares Amount Shares Amount Capital Income (Loss) Earnings Equity Balance at December 31, 2011 - $ - - $ - 73,205 $ 73 $ 681,781 $ (225 ) $ 20,389 $ 702,018 Stock-based compensation - - - - - - 8,150 - - 8,150 Issuance of Series A Convertible Preferred Stock 1,000 - - - - - 96,499 - - 96,499 Stock issued upon exercise of stock warrants - - - - 1,302 1 9,113 - - 9,114 Stock issued upon exchange of warrants and related transaction costs - - - - 1,949 2 (2,075 ) - - (2,073 ) Stock issued in connection with employee stock plan - - - - 5 - 43 - - 43 Net income - - - - - - - - 64,631 64,631 Dividends on Series A Preferred Stock - - - - - - - - (1,692 ) (1,692 ) Cumulative translation adjustments - - - - - - - (132 ) - (132 ) Balance at December 31, 2012 1,000 - - - 76,461 76 793,511 (357 ) 83,328 876,558 Stock-based compensation - - - - - - 7,749 - - 7,749 Stock issued upon exercise of stock warrants - - - - 1 - 4 - - 4 Stock issued in connection with employee stock plan - - - - 228 1 24 - - 25 Stock withheld to cover employee taxes - - - - - - (26 ) - - (26 ) Net income - - - - - - - - 62,517 62,517 Dividends on Series A Preferred Stock - - - - - - - - (7,000 ) (7,000 ) Cumulative translation adjustments - - - - - - - (322 ) - (322 ) Unrealized loss on marketable securities, net of tax - - - - - - - (10 ) - (10 ) Balance at December 31, 2013 1,000 - - - 76,690 77 801,262 (689 ) 138,845 939,495 Stock-based compensation - - - - - - 10,860 - - 10,860 Stock issued in connection with employee stock plan - - - - 535 1 1,507 - - 1,508 Stock withheld to cover employee taxes - - - - - - (87 ) - - (87 ) Issuance of Series B Preferred Stock, net of issuance costs - - 500 - - - 120,753 - - 120,753 Issuance of common stock, net of issuance costs - - - - 16,680 16 98,881 - - 98,897 Net income - - - - - - - - 74,989 74,989 Dividends on Series A Preferred Stock - - - - - - - - (7,000 ) (7,000 ) Dividends on Series B Preferred Stock - - - - - - - - (5,320 ) (5,320 ) Cumulative translation adjustments - - - - - - - (2,325 ) - (2,325 ) Unrealized gain on marketable securities, net of tax - - - - - - - 94 - 94 Balance at December 31, 2014 1,000 $ - 500 $ - 93,905 $ 94 $ 1,033,176 $ (2,920 ) $ 201,514 $ 1,231,864 Additional Paid-In Capital Total Stockholders' Equity Preferred Stock Preferred Stock Common Stock Shares Amount Shares Amount Shares Amount Balance at December 31, 2014 1,000 $ — 500 $ — 93,905 $ 94 $ 1,033,176 $ (2,920 ) $ 201,514 $ 1,231,864 Stock-based compensation — — — — — — 9,649 — — 9,649 Stock options exercised and awards vested — — — — 1,221 1 2,154 — — 2,155 Stock withheld to cover employee taxes — — — — — — (886 ) — — (886 ) Excess tax benefit from exercise of stock-based compensation — — — — — — 395 — — 395 Net income — — — — — — — — 7,123 7,123 Dividends on Series A preferred stock — — — — — — — — (7,000 ) (7,000 ) Dividends on Series B preferred stock — — — — — — — — (8,436 ) (8,436 ) Cumulative translation adjustments, net of tax — — — — — — — (5,777 ) — (5,777 ) Unrealized gain on marketable securities, net of tax — — — — — — — (366 ) — (366 ) Balance at December 31, 2015 1,000 — 500 — 95,126 95 1,044,488 (9,063 ) 193,201 1,228,721 Stock-based compensation — — — — — — 15,973 — — 15,973 Stock options exercised and awards vested — — — — 753 1 548 — — 549 Stock withheld to cover employee taxes — — — — — — (627 ) — — (627 ) Excess tax benefit from exercise of stock-based compensation — — — — — — (71 ) — — (71 ) Net income — — — — — — — — 111,032 111,032 Dividends on Series A preferred stock — — — — — — — — (7,000 ) (7,000 ) Dividends on Series B preferred stock — — — — — — — — (8,436 ) (8,436 ) Cumulative translation adjustments, net of tax — — — — — — — 3,487 — 3,487 Unrealized loss on marketable securities, net of tax — — — — — — — 130 — 130 Balance at December 31, 2016 1,000 — 500 — 95,879 96 1,060,311 (5,446 ) 288,797 1,343,758 Stock-based compensation — — — — — — 18,694 — — 18,694 Stock options exercised and awards vested — — — — 2,537 2 4,233 — — 4,235 Stock withheld to cover employee taxes — — — — (213 ) — (1,865 ) — — (1,865 ) Net income — — — — — — — — 233,856 233,856 Dividends on Series A preferred stock — — — — — — — — (1,750 ) (1,750 ) Dividends on Series B preferred stock — — — — — — — — (2,109 ) (2,109 ) Cumulative translation adjustments, net of tax — — — — — — — 1,664 — 1,664 Unrealized loss on marketable securities, net of tax — — — — — — — (14 ) — (14 ) Balance at December 31, 2017 1,000 $ — 500 $ — 98,203 $ 98 $ 1,081,373 $ (3,796 ) $ 518,794 $ 1,596,469 64 Year Ended Year Ended Year Ended December 31, 2014 December 31, 2013 December 31, 2012 Cash flows from operating activities: Net income $ 74,989 $ 62,517 $ 64,631 Adjustments to reconcile net income to net cash provided by operating activities: Non-cash items included in net income: Deferred income taxes 40,226 47,095 29,549 Depreciation and amortization 72,769 74,980 81,110 Stock-based compensation 9,601 6,715 7,332 Provision for doubtful accounts 13 (525 ) 722 Provision for obsolete inventory 931 1,479 - Loss on equity method investment 4,130 3,332 826 Amortization of premiums on marketable securities 709 546 - Non-cash foreign currency losses, net 962 - - Realized loss on sale of marketable securities - 82 - Changes in operating assets and liabilities: Accounts receivable 3,855 1,901 561 Inventory 251 (4,633 ) (11,199 ) Prepaid expenses and other current assets 1,520 (7,684 ) (200 ) Income tax receivable 679 3,617 28 Other assets (2,926 ) (4,328 ) 364 Accounts payable (2,636 ) (5,603 ) 464 Accrued expenses and other current liabilities 634 9,694 (6,400 ) Deferred revenue 10,603 5,612 7,310 Accrued satellite and network operation expense, net of current portion (1,338 ) (1,338 ) (1,338 ) Other long-term liabilities (100 ) (10,411 ) 263 Net cash provided by operating activities 214,872 183,048 174,023 Cash flows from investing activities: Capital expenditures (441,065 ) (403,547 ) (441,654 ) Purchases of marketable securities (275,819 ) (126,408 ) - Sales and maturities of marketable securities 90,630 49,119 - Investment in equity method affiliate - (5,000 ) (1,888 ) Net cash used in investing activities (626,254 ) (485,836 ) (443,542 ) Cash flows from financing activities: Borrowings under the Credit Facility 252,198 287,416 334,654 Payment of deferred financing fees (17,580 ) (18,716 ) (22,168 ) Restricted cash deposits (15,889 ) (26,990 ) (27,079 ) Releases from restricted cash 11,009 - - Proceeds from exercise of warrants - 3 9,114 Proceeds from exercise of stock options 1,508 25 43 Tax payment upon settlement of stock awards (83 ) (26 ) - Payment of warrant exchange transaction costs - - (2,073 ) Proceeds from issuance of Series A Preferred Stock, net of issuance costs - - 96,499 Proceeds from issuance of Series B Preferred Stock, net of issuance costs 120,753 - - Proceeds from issuance of common stock, net of issuance costs 98,897 - - Payment of Series A Preferred Stock dividends (7,000 ) (7,000 ) (1,419 ) Payment of Series B Preferred Stock dividends (4,969 ) - - Net cash provided by financing activities 438,844 234,712 387,571 Effect of exchange rate changes on cash and cash equivalents (2,555 ) - - Net increase (decrease) in cash and cash equivalents 24,907 (68,076 ) 118,052 Cash and cash equivalents, beginning of period 186,342 254,418 136,366 Cash and cash equivalents, end of period $ 211,249 $ 186,342 $ 254,418 Year Ended December 31, 2017 2016 2015 Cash flows from operating activities: Net income $ 233,856 $ 111,032 $ 7,123 Adjustments to reconcile net income to net cash provided by operating activities: Deferred income taxes (115,812 ) 63,808 63,376 Depreciation and amortization 122,266 49,394 51,834 Impairment of goodwill — — 87,039 Stock-based compensation (net of amounts capitalized) 15,958 13,708 8,603 Excess tax benefit from stock-based compensation — — (806 ) Gain from contract liability write-off (14,189 ) — — Provision for doubtful accounts (277 ) 703 252 Provision for obsolete inventory 361 1,053 723 Amortization of premiums on marketable securities 124 888 2,030 Non-cash foreign currency losses, net (163 ) 166 196 Changes in operating assets and liabilities: Accounts receivable (10,343 ) (6,037 ) (1,843 ) Inventory (1,946 ) 9,029 (169 ) Prepaid expenses and other current assets 2,875 (16,613 ) (3,788 ) Other assets 2,823 (2,128 ) (1,253 ) Accounts payable 896 3,209 3,110 Accrued expenses and other current liabilities 8,166 (6,416 ) (7,815 ) Deferred revenue 15,129 4,115 9,038 Accrued satellite and network operation expense, net of current portion — (1,045 ) (869 ) Other long-term liabilities (103 ) 333 698 Net cash provided by operating activities 259,621 225,199 217,479 Cash flows from investing activities: Capital expenditures (400,107 ) (405,687 ) (494,810 ) Purchases of marketable securities (7,013 ) (19,865 ) (204,672 ) Sales and maturities of marketable securities 34,440 183,192 260,108 Net cash used in investing activities (372,680 ) (242,360 ) (439,374 ) Cash flows from financing activities: Borrowings under the Credit Facility 22,207 251,498 230,421 Payment of deferred financing fees (3,852 ) (11,806 ) (14,984 ) Proceeds from exercise of stock options 4,235 549 2,154 Tax payment upon settlement of stock awards (1,865 ) (627 ) (886 ) Excess tax benefits from stock-based compensation — — 806 Payment of Series A preferred stock dividends (1,750 ) (7,000 ) (7,000 ) Payment of Series B preferred stock dividends (2,109 ) (8,436 ) (8,436 ) Net cash provided by financing activities 16,866 224,178 202,075 Effect of exchange rate changes on cash and cash equivalents 144 512 (755 ) Net increase (decrease) in cash and cash equivalents (96,049 ) 207,529 (20,575 ) Cash, cash equivalents, and restricted cash, beginning of period 484,306 276,777 297,352 Cash, cash equivalents, and restricted cash, end of period $ 388,257 $ 484,306 $ 276,777 Year Ended Year Ended Year Ended December 31, 2014 December 31, 2013 December 31, 2012 Supplemental cash flow information: Interest paid $ 15,009 $ 11,255 $ 6,971 Income taxes paid (refunded), net $ 184 $ (2,920 ) $ 348 Supplemental disclosure of non-cash investing activities: Property and equipment received but not paid for yet $ 16,566 $ 10,690 $ 3,516 Interest capitalized but not paid $ 9,589 $ 7,989 $ 5,359 Capitalized paid-in-kind interest $ 34,147 $ 25,715 $ 16,059 Capitalized amortization of deferred financing costs $ 11,174 $ 12,475 $ 3,896 Capitalized stock-based compensation $ 1,259 $ 1,034 $ 819 Contribution of fixed assets to equity method investment $ - $ - $ 1,353 Supplemental disclosure of non-cash financing activities: Dividends accrued on Series A Preferred Stock $ 292 $ 292 $ 273 Dividends accrued on Series B Preferred Stock $ 351 $ - $ - Year Ended December 31, 2017 2016 2015 Supplemental cash flow information: Interest paid $ 85,261 $ 22,910 $ 18,878 Income taxes paid, net $ 1,660 $ 1,391 $ 3,429 Supplemental disclosure of non-cash investing activities: Property and equipment received but not paid for yet $ 90,748 $ 2,753 $ 26,770 Interest capitalized but not paid $ 15,021 $ 14,136 $ 12,232 Capitalized amortization of deferred financing costs $ 27,304 $ 28,688 $ 18,372 Capitalized paid-in-kind interest $ — $ 52,873 $ 43,073 Capitalized stock-based compensation $ 2,736 $ 2,265 $ 1,046 662014 Year Ended December 31, 2017 2016 Cash and cash equivalents $ 285,873 $ 371,167 Restricted cash 102,384 113,139 Cash, cash equivalents and restricted cash shown in the consolidated statements of cash flows $ 388,257 $ 484,306 2 and are included in marketable securities on the accompanying consolidated balance sheets.2. 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.(FDIC) limits. The Company’s marketable securities are highly-rated corporate and foreign fixed-income debt securities and commercial paper with an original maturity in excess of ninety days. The Company performs credit evaluations of its customers’ financial condition and records reserves to provide for estimated credit losses. Accounts receivable are due from both domestic and international customers.loancredit facility (the(as amended to date, the “Credit Facility”). As of December 31, 2014 and 2013, 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 $86.1 million and $81.2 million, respectively. For further discussion on the cash reserve for debt service related to the Credit Facility, see the Commitments and Contingenciesfootnote below.20142017 and 2013.2016. The Company regularly monitors and evaluates the fair value of its investments to identify other-than-temporary declines in value. The Company determined that theany decline in fair value of these investments is temporary 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.$0.9 million and $0.5 millionnot material as of December 31, 20142017 and 2013, respectively.weighted averageweighted-average exchange rates prevailing during the reporting period. Translation adjustments are accumulated in a separate component of stockholders’ equity. Transaction gains or losses are classified as other income (expense), net in the accompanying consolidated statements of operations and comprehensive income.Internally Developed SoftwareThe Company capitalizes the costs of acquiring, developing and testing software to meet its internal needs. Capitalization of costs associated with software obtained or developed for internal use commences when the preliminary project stage is complete and it is probable that the project will be completed and used to perform the function intended. Capitalized costs include only (i) external direct cost of materials and services consumed in developing or obtaining internal-use software and (ii) payroll and payroll-related costs for employees who are directly associated with, and devote time to, the internal-use software project. Capitalization of such costs ceases no later than the point at which the project is substantially complete and ready for its intended use. Internal use software costs are amortized once the software is placed in service using the straight-line method over periods ranging from three to seven years.20142017 and 2013,2016, the Company had deferred approximately $136.4$97.2 million and $130.0$120.6 million, respectively, of direct and incremental financing costs, net of amortization, associated with securing debt financing for Iridium NEXT, the Company’s next-generation satellite constellation.interest expense2015 were $114.4 million, $106.4 million and $83.1 million, respectively, which include amortization of deferred financing costs as follows: Year Ended December 31, 2014 2013 2012 (In thousands) Capitalized interest $ 62,019 $ 52,136 $ 29,305 Interest expense 954 583 114 Total interest $ 62,973 $ 52,719 $ 29,419 manufacturersmanufacturer and purchases accessories from third-party suppliers. The Company’s cost of inventory includes an allocation of overhead, (includingincluding payroll and payroll-related costs of employees directly involved in bringing inventory to its existing condition, and freight).freight. Inventories are valued using the average cost method and are carried at the lower of cost or market.net realizable value. Accordingly, the Company recorded a $0.9expenses of $0.4 million, $1.1 million and $1.5$0.7 million, expensefor the years ended December 31, 2017, 2016 and 2015, respectively, included within the cost of subscriber equipment for excess and obsolete inventory primarily related to Iridium 9505 handset accessoriesinventory. The expenses for the years ended December 31, 20142017 and 2013, respectively. No similar charge was incurred during 2012.agreementsagreement with two suppliersBenchmark Electronics Inc. (“Benchmark”) to manufacture subscriber equipment, one of which contains minimum monthly purchase requirements. The Company’s purchases have exceeded the monthly minimum requirements since inception.equipment. Pursuant to anthe agreement, with the suppliers, the Company may be required to purchase excess materials if the materials are not used in production within the periods specified in the agreement. The suppliersBenchmark will then repurchase such materials from the Company at the same price paid by the Company, as required for the production of the subscriber equipment.likelihoodprobability that the Company achieves the defined performance goals. The level of achievement of performance goals, if any, is determined by the compensation committee. 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 consolidated statements of operations and comprehensive income. Classification of stock-based compensation for the years ended December 31, 2014 and 2013 is as follows: 2014 2013 (In thousands) Property and equipment, net $ 1,176 $ 991 Inventory 83 43 Cost of subscriber equipment 152 32 Cost of services (exclusive of depreciation and amortization) 824 550 Research and development 312 132 Selling, general and administrative 8,313 6,001 Total stock-based compensation $ 10,860 $ 7,749 Year Ended December 31, 2017 2016 (In thousands) Property and equipment, net $ 2,458 $ 1,906 Inventory 280 359 Cost of subscriber equipment 30 56 Cost of services (exclusive of depreciation and amortization) 4,366 1,655 Research and development 349 457 Selling, general and administrative 11,211 11,540 Total stock-based compensation $ 18,694 $ 15,973 Satellites15-18First-generation satellites 15-21 years Next-generation satellites 12.5 years Ground system 5-7 years Equipment 3-5 years Internally developed software and purchased software 3-7 years Building 39 years Building improvements 5-39 years Leasehold improvements shorter of useful life or remaining lease term current constellation offirst-generation satellites reflect the remaining period of expected use for each satellite. Satellites are depreciated on a straight-line basis through the date they will be replaced by next-generation satellites. The Company began deployment of its next-generation satellite constellation (“Iridium NEXT satellites. BasedNEXT”) in January 2017, and, based on the current launch schedule, the Company expects Iridium NEXT satellites to begin deployment in the second half of 2015, with the final launch expected to occur in 2017.During 2012, the Company updated its analysis of the current satellite constellation’s health and remaining useful life. Based on the results of this analysis, the Company estimated that its current constellation of satellites would be operational for longer than previously expected. As a result, the estimated useful life of the current constellation was extended and was consistent with the expected deployment of Iridium NEXT. In September 2014, the Company further updated its analysis of the current satellites’ remaining useful lives based on the refinement of the launch schedule and deployment plan for 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. These changes in estimated useful life resulted in a decrease in depreciation expense compared to the prior year. The change in accounting estimate reduced depreciation expense in 2014 and 2012 by $3.8 million and $19.6 million, respectively. For the year ended December 31, 2014, the reduction in depreciation expense increased each of basic and diluted net income per share by $0.03 and $0.02, respectively. For the year ended December 31, 2012, the reduction in depreciation expense increased basic and diluted net income per share by $0.17 and $0.16, respectively.During the period covered by this report,lost communicationentered into an agreement with four of its in-orbitInternational Space Company Kosmotras, or Kosmotras, as a supplemental launch services provider for Iridium NEXT. The total cost under the Kosmotras agreement is $51.8 million. Kosmotras to date has been unable to obtain the permits or authorizations to launch the Company's satellites one in 2012on a Dnepr rocket as planned, and three in 2014. As a result, impairment charges of $2.0 million and $2.2 million were recorded withinKosmotras has proposed no satisfactory alternative launch plan. Because the Company now believes the construction-in-progress associated with the Kosmotras launch services will no longer be used or further developed, the Company wrote-off the full amount previously paid to Kosmotras, by recording accelerated depreciation expense during 2012 and 2014, respectively. The Company had in-orbit spare satellites available to replaceof $36.8 million, in the lost satellites. No similar satellite loss occurred during 2013. The Company does not believe the lossfourth quarter of these satellites is an indicator of impairment of the remaining individual satellites or the constellation as of December 31, 2014.Company determines the estimated fair value of the reporting unit based on a combination of the market approach using comparable public companies (guideline company method) and the income approach using discounted cash flows. These valuation techniques involve the use of estimates and assumptions.The most recent annual assessment of goodwill and indefinite-lived assets was performed on October 1, 20142015 (the “2014“2015 Analysis”). The key assumptions used in the 2014 Analysis included: (i) cash flow projections through 2025, which include assumptions relative to forecasted service revenue, equipment revenue, engineering and support service revenue, hosted payload revenue, operating expenses and Iridium NEXT capital expenditures; (ii) a discount rate of 12.0% applied to the cash flow projections, which was based on the weighted average cost of capital adjusted for the risks associated for the business; (iii) selection of comparable companies used in the market approach; (iv) assumptions in weighting the results of the income approach, and the market approach valuation techniques; and (v) expected distributions from Aireon. Based onCompany determined that the results of the first step of the 2014 Analysis, the estimated faircurrent value of the reporting unit exceeded the carryingits fair value. As such,a result, the second step of theCompany recorded a non-cash goodwill impairment test was not required and no impairment charge was recordedof $87.0 million during the period. In future periods, if actual results are not consistent with our estimates and assumptions, the Company may be exposed to impairment losses that could be material to our results of operations.Intangible Assets Not Subject to AmortizationA portion of the Company’s intangible assets are spectrum, regulatory authorizations, and trade names, which are indefinite-lived intangible assets. The Company reevaluates the useful life determination for these assets each reporting period to determine whether events and circumstances continue to support an indefinite useful life. The Company tests its indefinite-lived intangible assets for potential impairment annually in the fourth quarter or more frequently if indicators of impairment exist. If the fair value2015. The Company had no goodwill as of the indefinite-lived asset is less than the carrying amount, an impairment loss is recognized. Based on the results of the 2014 Analysis, the fair value of the indefinite-lived intangible assets was greater than the carrying value. As such, no impairment charge was recorded during the period.that do havewith finite lives, (customer relationships – government and commercial, core developed technology, intellectual property and software) are amortized over their useful lives and reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. If any indicators were present, the Company would test for recoverability by comparing the carrying amount of the asset to the net undiscounted cash flows expected to be generated from the asset. If those net undiscounted cash flows do not exceed the carrying amount (i.e., the asset is not recoverable), the Company would perform the next step, which is to determine the fair value of the asset and record an impairment loss, if any. The Company also reevaluatesevaluates the useful lives for these intangible assets each reporting period to determine whether events and circumstances warrant a revision in their remaining useful lives.Asset Retirement ObligationsLiabilities arising from legal obligations associated withretirement of long-lived assets are required to be measured at fair value and recorded as a liability. Upon initial recognition of a liability for retirement obligations, a company must record an asset, which is depreciatedstraight-line method over the life of the asset to be retired.Under certain circumstances, each of the U.S. government, The Boeing Company (“Boeing”), and Motorola Solutions, Inc. (“Motorola Solutions”) has the right to require the de-orbit of the Company’s satellite constellation. One such right the U.S. government holds is to require the Company to de-orbit the satellite constellation if more than four satellites have insufficient fuel to execute a 12-month de-orbit, as is currently the case. In the event the Company was required to effect a mass de-orbit, pursuant to the amended and restated operations and maintenance agreement (the “O&M Agreement”) by and between the Company and Boeing, the Company would be required to pay Boeing $18.0 million, plus an amount equivalent to the premium for mass de-orbit insurance coverage ($2.5 million as of December 31, 2014). The Company has concluded that each of the foregoing de-orbit rights meets the definition of an asset retirement obligation. However, the Company currently does not believe the U.S. government, Boeing or Motorola Solutions will exercise their respective de-orbit rights. As a result, the Company believes the likelihood of any future cash outflows associated with the mass de-orbit obligation is remote and has recorded an asset retirement obligation with respect to the potential mass de-orbit of approximately $0.2 million at December 31, 2014, which is included in other long-term liabilities on the accompanying consolidated balance sheet.There are other circumstances in which the Company could be required, either by the U.S. government or for technical reasons, to de-orbit an individual satellite; however, the Company believes that such costs would not be significant relative to the costs associated with the ordinary operations of the satellite constellation.Intellectual property 20 years Assembled workforce 7 years Patents 14 - 20 years probable,reasonably assured, as follows:In September 2012, the Company communicated a new expiration policy with respect to prepaid e-vouchers, effective December 2013. While the terms of prepaid e-vouchers can be extended by the purchase of additional e-vouchers, prepaid e-vouchers may not be extended beyond the new limits of three or four years, dependent on the initial expiry period when purchased. The Company does not offer refunds for unused prepaid services.The EMSS contract, entered into in April 2008, provided for a one-year base term and four additional one-year options which were exercised at the election of the U.S. government. Under the terms of this contract, the Company provided airtime to U.S. government subscribers through (i) fixed monthly fees on a per-user basis for unlimited voice services, (ii) fixed monthly fees per user for unlimited paging services, (iii) a tiered pricing plan (based on usage) per device for data services, (iv) fixed monthly fees on a per-user basis for unlimited beyond-line-of-sight push-to-talk voice services to user-defined groups (“Netted Iridium”), and (v) a monthly fee for active user-defined groups using Netted Iridium. Revenue related to these services was recognized ratably over the periods in which the services were provided, and the related costs were expensed as incurred.After the exercise of all available optional contract extensions, the EMSS contract as signed in April 2008 expired in October 2013.contract.contract, managed by DISA. Under the terms of this new agreement, authorized customers continue to utilize airtime services, provided through theU.S.the U.S. Department of Defense’s (“DoD”) dedicated gateway. These services include unlimited global secure and unsecure voice, low and high-speed data, paging, broadcast and Netted IridiumDistributed Tactical Communications Services (“DTCS”) services for an unlimited number of DoD and other federal subscribers. The fixed-price rates in each ofrate for the fiveremaining contract years,year, which run from October 22runs through the following October 21, of each year, are $64 million and $72 million in years one and two, respectively, and2018, is $88 million in each of the years three through five.per year. Under this contract, revenue is based on the annual fee for the fixed-price contract with unlimited subscribers, and is recognized on a straight-line basis over each contractual year.partialproportional performance method of accounting based on the Company’s estimate of total costs expected to complete the contract, and the related costs are expensed as incurred. Revenue on cost-plus-fixed-fee contracts is recognized to the extent of estimated costs incurred plus the applicable fees earned. The Company considers fixed fees under cost-plus-fixed-fee contracts to be earned in proportion to the allowable costs incurred in performance of the contract. The portion of revenue on research and development arrangements that is contingent upon the achievement of substantive milestone events is recognized in the period in which the milestone is achieved.Warranty ExpenseThe 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 consolidated statements of operations and comprehensive income. The Company experienced a $5.3 million decrease in its warranty provision for the year ended December 31, 2014 compared to the prior year. This decrease is primarily the result of fewer expected returns for the Iridium Pilot® sold in 2014 and decreased average repair costs, partially offset by $1.8 million in warranty-related initiatives for the Iridium OpenPort models sold in prior years.Changes in the warranty reserve for the years ended December 31, 2014 and 2013 were as follows: 2014 2013 (In thousands) Balance at beginning of the period $ 8,853 $ 4,050 Provision 6,390 11,690 Utilization (7,862 ) (6,887 ) Balance at end of the period $ 7,381 $ 8,853 2014, 2013December 31, 2017, 2016 and 2012.available(loss) attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period. Diluted net income (loss) 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, and stock purchase warrants, is computed using the treasury stock method. The effect of potential dilutive common shares from the conversion of the outstanding convertible preferred securities is computed using the as-if converted method at the stated conversion rate. The Company’s unvested RSUsrestricted stock units ("RSUs") awarded to the 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 (loss) per share excludes net income attributable to thethese unvested RSUs from the numerator and excludes the impact of these unvested RSUs from the denominator.equivalents asequivalents: Year Ended December 31, 2017 2016 (In thousands) Cash and cash equivalents: Cash $ 24,092 $ 102,194 Money market funds 251,950 266,478 Level 1 Commercial paper 9,831 2,495 Level 2 Total cash and cash equivalents $ 285,873 $ 371,167 20142017 and 2013: Recurring Fair 2014 2013 Value Measurement (in thousands) Cash and cash equivalents: Cash $ 86,792 $ 86,074 Money market funds 105,497 88,769 Level 1 Commercial paper 18,960 11,499 Level 2 Total Cash and cash equivalents $ 211,249 $ 186,342 table summarizestables summarize the Company’s marketable securities as of December 31, 2014 and 2013: As of December 31, 2014 Amortized Gross Gross Estimated Recurring Fair Cost Unrealized Gains Unrealized Losses Fair Value Value Measurement (in thousands) Fixed-income debt securities $ 168,960 $ 397 $ (314 ) $ 169,043 Level 2 Commercial paper 78,915 - - 78,915 Level 2 U.S. Treasury Notes 13,127 53 (2 ) 13,178 Level 2 Total Marketable Securities $ 261,002 $ 450 $ (316 ) $ 261,136 As of December 31, 2013 Amortized Gross Gross Estimated Recurring Fair Cost Unrealized Gains Unrealized Losses Fair Value Value Measurement (in thousands) Fixed-income debt securities $ 57,048 $ 45 $ (61 ) $ 57,032 Level 2 Commercial paper 19,615 - - 19,615 Level 2 Total Marketable Securities $ 76,663 $ 45 $ (61 ) $ 76,647 December 31, 2017 (In thousands) Fixed-income debt securities $ 9,520 $ 2 $ (15 ) $ 9,507 Level 2 U.S. Treasury notes 2,249 — (3 ) 2,246 Level 2 Total marketable securities $ 11,769 $ 2 $ (18 ) $ 11,753 December 31, 2016 (In thousands) Fixed-income debt securities $ 30,037 $ 14 $ (11 ) $ 30,040 Level 2 U.S. Treasury notes 9,283 7 (2 ) 9,288 Level 2 Total marketable securities $ 39,320 $ 21 $ (13 ) $ 39,328 treasury notes held as of December 31, 2014 and 2013: As of December 31, 2014 As of December 31, 2013 Amortized Fair Amortized Fair Cost Value Cost Value (in thousands) Mature within one year $ 177,011 $ 177,145 $ 25,527 $ 25,527 Mature after one year and within three years 83,991 83,991 51,136 51,120 Total $ 261,002 $ 261,136 $ 76,663 $ 76,647 December 31, 2017 December 31, 2016 (In thousands) (In thousands) Mature within one year $ 11,519 $ 11,504 $ 32,776 $ 32,788 Mature after one year and within three years 250 249 6,544 6,540 Total $ 11,769 $ 11,753 $ 39,320 $ 39,328 increasedecrease in marketable securities from December 31, 20132016 to December 31, 20142017 is due to the investmentCompany selling some of its investments during 2017 and utilizing the proceeds fromto support the saleconstruction of the Company’s common stock and 6.75% Series B Cumulative Perpetual Convertible Preferred Stock (the “Series B Preferred Stock”). For further discussion of the Company’s equity transactions, see the Equity Transactions and Instruments footnote below.
Iridium NEXT.74 and Instruments$7.00 WarrantsIn connection with the Company’s initial public offering in February 2008, the Company sold 40.0 million units at a price of $10.00 per unit. Each unit consisted of one share of common stock and one common stock purchase warrant (a “$7.00 Warrant”). Each $7.00 Warrant entitled the holder to purchase from the Company one share of common stock at a price of $7.00 per share. On February 14, 2013, the remaining 655,499 outstanding and unexercised $7.00 Warrants expired in accordance with their terms.$11.50 WarrantsOn September 29, 2009, in connection with the Company’s acquisition of Iridium Holdings LLC, holders of approximately 14.4 million $7.00 Warrants exchanged their existing warrants for new warrants to purchase the Company’s common stock at an exercise price of $11.50 per share (the “$11.50 Warrants”). Each $11.50 Warrant entitled the holder to purchase from the Company one share of common stock at a price of $11.50 per share. As of December 31, 2014, 277,021 of the $11.50 Warrants were outstanding. On February 14, 2015, the remaining 277,021 outstanding and unexercised $11.50 Warrants expired in accordance with their terms.remainwere undesignated and unissued as of December 31, 2014. (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 are beingwere used to partially fund the construction and deployment of Iridium NEXT and for other general corporate purposes.In 2014 and 2013,paid $7.0 million in cashfrom paying dividends to the holders of the Company's preferred stock, including the Company's Series A Preferred Stock, if the Company is unable to certify that it anticipates being able to comply with the financial covenants of the Credit Facility for the next twelve months each time the Company declares a dividend. During the second quarter of 2017, the Company began a five-quarter deferral of dividends on the Series A Preferred Stock. AsCash dividends of $1.8 million were declared and paid to holders of the Series A Preferred Stock during the first quarter of 2017. No other dividends were declared, paid or accrued. During the year ended December 31, 2014,2016, the Company has accrued $0.3 million inpaid cash dividends of $7.0 million to holders of the Series A Preferred Stock.which is included withinand Series B Preferred Stock collectively will have the power to elect two members of the Company's board of directors. The interests of the holders of the Company's preferred stock may differ from those of its other stockholders. In addition, any dividend the Company fails to pay will accrue, and the holders of the Company's Series A Preferred Stock and Series B Preferred Stock will be entitled to a preferential distribution of the original purchase price per share plus all accrued expenses and other current liabilities onunpaid dividends before any distribution may be made to holders of the accompanying consolidated balance sheet.On or afterCompany's common stock in connection with any liquidation event.conditions. On or prior to October 3, 2017,conditions, including a daily volume-weighted average stock price of at least $12.26 per share over a period of 20 trading days in a 30-day period and payment of the accrued dividends. The holders of Series A Preferred Stock will havehad a special right to convert some or all of the Series A Preferred Stock into shares of common stock, inwhich expired on October 3, 2017. Any suspended dividends are required to be paid prior to conversion by 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.15, beginning September 15, 2014.15. 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 consecutive) and in other specified circumstances. 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 price of approximately $7.47 per share of common stock (subject to adjustment in certain events).During 2014,paid cashfrom paying dividends of $5.0 million to the holders of the Company's preferred stock, including the Company's Series B Preferred Stock, if the Company is unable to certify that it anticipates being able to comply with the financial covenants of the Credit Facility for the next twelve months each time the Company declares a dividend. During the second quarter of 2017, the Company began a five-quarter deferral of dividends on the Series B Preferred Stock. AsCash dividends of December 31, 2014, the Company has accrued $0.4$2.1 million in cash dividends for thewere declared and paid to holders of the Series B Preferred Stock which is included withinduring the first quarter of 2017. No other dividends were declared, paid or accrued. During the year ended December 31, 2016, the Company paid cash dividends of $8.4 million to holders of the Series B Preferred Stock.expenses and other current liabilities onunpaid dividends before any distribution may be made to holders of the accompanying consolidated balance sheet.On or prior to May 15, 2019, inIn 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.Common StockRegistered Direct Public OfferingIn May 2014, Any suspended dividends are required to be paid prior to conversion by the Company issued 7,692,308 shares of its common stock in a registered direct public offering to certain investment funds affiliated with Baron Capital Group Inc. (“Baron”) at a price of $6.50 per share for aggregate gross proceeds of $50.0 million. The Company received proceeds of $49.9 million from the sale of the common stock to Baron, net of offering costs of $0.1 million.Under the stock purchase agreement entered into with Baron, Baron was entitled to receive additional shares if, during the 90-day period following the date of the stock purchase agreement, the Company issued or sold securities below specified prices. As a result of the Company’s public offering of common stock, described below, and its public offering of Series B Preferred Stock, described above, the Company delivered 504,413 additional shares of common stock to Baron on August 6, 2014.Underwritten Public OfferingConcurrently with its public offering of Series B Preferred Stock in May 2014, the Company issued 8,483,608 shares of its common stock in an underwritten public offering, including 1,106,558 shares upon the underwriters’ exercise of their overallotment option in full, at a price to the public of $6.10 per share. The Company received proceeds of $49.0 million, net of $2.6 million of underwriting discount and $0.2 million of offering costs.The net proceeds of these common stock offerings and the Series B Preferred Stock offering are being used to partially fund the construction and deployment of Iridium NEXT and for other general corporate purposes.thea $1.8 billion Credit Facilitycredit facility with a syndicate of bank lenders, (the “Lenders”). The Credit Facilitywhich was subsequently amended and restated in August 2012. In May 2014, the Company entered intoJuly 2017 by a supplemental agreement (the “Supplemental Agreement”) with the Lenders under the Credit Facility to further amend and restate the Credit Facility.agreement. Ninety-five percent of the Company’sCompany's obligations under the Credit Facility are insured by Compagnie Française d’Assurance pour le Commerce Extérieur (“COFACE”Bpifrance Assurance Export S.A.S. ("BPIAE"),. Under the French export credit agency.terms of the Credit Facility, the Company was required to maintain a minimum cash reserve for debt service ("DSRA") of $102.0 million as of December 31, 2017, which increases to $189.0 million in 2019, and is classified as restricted cash on the accompanying consolidated balance sheet. The Credit Facility is comprisedwill mature in 2024.two tranches, with drawsthe contributions to the DSRA that the Company has made to date. In addition, in the event that the Company's projected Available Cash (as defined in the Credit Facility) falls below $35.0 million on a three-month forward-looking basis between now and repayments appliedMarch 2019, the Company will receive a refund of an additional $11.0 million in contributions made to date. The Credit Facility also requires that the Company establish a new restricted account to receive hosting fees from Aireon. The first $50.0 million in hosting fees from Aireon would be kept in the restricted account and the Company could access these funds in the event thatin respectto replenish the DSRA and to secure the payment of each tranche:Tranche A – $1,537,500,000 at a fixed ratethe bills of 4.96%; andexchange to Thales.Tranche B – $262,500,000 at a floating rate equalLondon Interbank Offer Rate (“LIBOR”) plus 1.95%.Credit Facility do not require the Company to raise additional equity but requires that the Company suspend the payment of dividends on the Company's 7% Series A Cumulative Perpetual Convertible Preferred Stock and the Company's 6.75% Series B Cumulative Perpetual Convertible Preferred Stock for five quarters. As previously announced, in anticipation of this requirement, the Company began this suspension with the dividend payments payable on June 15, 2017. The Credit Facility also includes revised financial covenant levels to reflect changing business conditions.Interest is payableeach year. Prior to thea cash payment and a deemed additional loan. The Credit Facility was fully drawn in February 2017, and as of April 2017, interest was being paid in cash. Scheduled semi-annual principal repayments will begin on April 3, 2018. During this repayment period, described below, a portion of interest will be paid via a deemed loan and added toon the related tranchesame date as the principal and the remainder is payable in cash. The amount of interest paid via a deemed loan for each tranche is as follows:Tranche A – fixed rate of 3.56%; andTranche B – LIBOR plus 0.55%.2014, 20132017, 2016 and 2012,2015, the Company incurred total interest of $50.8$86.7 million, $39.6$77.7 million and $25.5$64.6 million, respectively. All interest costs incurred related to the Credit Facility have been capitalized during the construction period of the Iridium NEXT assets. During the years ended December 31, 2016 and 2015, interest was payable via deemed loans of $44.4 million and $44.9 million, respectively, of which $35.3 million, $27.5 million and $17.8 million, respectively, is payable via a deemed loan andwith the remainder is payable in cash on the scheduled semi-annual payment dates.makesmade under the Credit Facility, the Company also borrowsborrowed an amount equal to 6.49% of such draw to cover the premium for the COFACEBPIAE insurance policy. The Company also payspaid a commitment fee of 0.80% per year, in semi-annual installments, on any undrawn portion of the Credit Facility.FundsFacility through February 2017, when the Credit Facility was fully drawn.will bewere used to pay for (i) 85% of the costs under a fixed price full scale development ("FSD") contract (the “FSD”) with Thales Alenia Space France (“Thales”("Thales") for the design and manufacture of satellites for Iridium NEXT, until the Credit Facility is fully drawn (ii) the premium for the COFACEBPI policy, and (iii) the payment of a portion of interest during a part of the construction and launch phase of Iridium NEXT.Scheduled semi-annual principal repayments will begin six months after the earlier of (i) the successful deployment of a specified number of Iridium NEXT satellites or (ii) September 30, 2017. During this repayment period, interest will be paid on the same date as the principal repayments. All interest costs incurred related to the Credit Facility have been capitalized during the construction period of the assets. The Company pays interest on each semi-annual due date through a combination of a cash payment and a deemed additional loan. The following table presents interest activity for the Credit Facility for the years ended December 31, 2014 and 2013 payable via cash or deemed loan: 2014 Cash Deemed Loan Total (in thousands) Beginning interest payable $ 2,446 $ 5,543 $ 7,989 Interest incurred 15,499 35,257 50,756 Interest payments (15,009 ) (34,147 ) (49,156 ) Ending interest payable $ 2,936 $ 6,653 $ 9,589 2013 Cash Deemed Loan Total (in thousands) Beginning interest payable $ 1,630 $ 3,735 $ 5,365 Interest incurred 12,071 27,523 39,594 Interest payments (11,255 ) (25,715 ) (36,970 ) Ending interest payable $ 2,446 $ 5,543 $ 7,989 2014,2017, the Company had borrowed a total of $1,291.4 million$1.8 billion under the Credit Facility. The unused portionrepayment schedule below excludes $120.0 million that the Company expects to receive upon the Aireon redemption of Iridium's equity interest in Aireon and Aireon dividends, when and if declared. Upon receipt of these amounts, they will be used to prepay the Credit Facility which may result in an earlier repayment. Future principal repayments with respect to the Credit Facility balance existing at December 31, 2017 by year and in the aggregate, are as follows:Year ending December 31, Amount (In thousands) 2018 $ 85,500 2019 202,500 2020 288,000 2021 306,000 2022 306,000 Thereafter 612,000 Total debt commitments $ 1,800,000 Original issuance discount 96,445 Total short-term debt 85,500 Total long-term debt, net $ 1,618,055 as of December 31, 2014 was $508.6 million. Under the terms of the Credit Facility, the Company is required to maintain a minimum cash reserve for debt service of $86.0 million as of December 31, 2014, which is classified as restricted cash on the accompanying consolidated balance sheet. The Company recognized the semi-annual commitment fee on the undrawn portion of the Credit Facility of $5.8 million, $7.7 million and $10.2 million forduring the years ended December 31, 2014, 20132017, 2016 and 2012,2015 were 6.64%, 6.65% and 6.57%, respectively.The Credit Facility will mature seven years after the start of the repayment period. In addition, the Company is required to maintain minimum debt service reserve levels, which are estimated as follows:At December 31, Amount (in millions) 2015 $ 91 2016 113 2017 189 These levels may be higher once the Company begins repayment under the Credit Facility. debt service reserveDSRA levels, financial covenants under the Credit Facility include:·an available cash balance of at least $25 million;·a debt-to-equity ratio, which is calculated as the ratio of total net debt to the aggregate of total net debt and total stockholders’ equity, of no more than 0.7 to 1, measured each June 30 and December 31;·specified maximum levels of annual capital expenditures (excluding expenditures on the construction of Iridium NEXT satellites) through the year ending December 31, 2024;·specified minimum levels of consolidated operational earnings before interest, taxes, depreciation and amortization, or operational EBITDA, for the 12-month periods ending each December 31 and June 30 through December 31, 2017;·specified minimum cumulative cash flow requirements from customers who have hosted payloads on our satellites, measured each December 31 and June 30, from June 30, 2016 through December 31, 2017;·a debt service coverage ratio, measured during the repayment period, of not less than 1 to 1.5; and·specified maximum leverage levels during the repayment period that decline from a ratio of 4.73 to 1 for the twelve months ending June 30, 2018 to a ratio of 2.36 to 1 for the twelve months ending December 31, 2024.$290.2$291.9 million as of December 31, 2014.2017. The Company’s debt-to-equity ratio was 0.470.5 to 1 as of December 31, 2014.2017. The Company was in compliance with the operational EBITDA covenant, and the annual capital expenditure covenant and the cumulative cash flow requirements from customers who have hosted payloads covenant, which were the only other applicable covenants, as of December 31, 2014.2014,2017, the Company had an amount of $8.1 million in available cure, amount of $7.5 million, thoughalthough it was not requirednecessary to apply any available cure amount to maintain compliance with the covenants. The available cure amount has fluctuated significantly from one measurement period to the next, and the Company expects that it will continue to do so. fund payments under the FSD with Thales from its own resources, incur additional indebtedness, or make loans, guarantees or indemnities. If the Company is not in compliance with the financial covenants under the Credit Facility, after any opportunity to cure such non-compliance, or the Company otherwise experiences an event of default under the Credit Facility, the lenders may require repayment in full of all principal and interest outstanding under the Credit Facility. It is unlikely the Company would have adequate funds to repay such amounts prior to the scheduled maturity of the Credit Facility. If the Company fails to repay such amounts, the lenders may foreclose on the assets the Company has pledged under the Credit Facility, which include substantially all of its assets and those of its domestic subsidiaries.Supplemental Agreement includes revised financial covenant levels. Company expects those hosted payload payments to continue to be delayed. Aireon is working to secure additional contracts with air navigation service providers, or ANSPs, including the FAA, for the sale of Aireon’s space-based automatic dependent surveillance-broadcast, or ADS-B, services. Aireon is currently seeking to raise the capital it will need to fund its continued operations and its hosted payload payments to the Company. Aireon’s ability to fund its hosted payload payments to the Company in the previously anticipated timeframe has been adversely affected by delays in its completion of sales to these ANSPs.Supplemental Agreement also delays, until 2017,Company continues to expect partial payments of Aireon’s hosting fee upon successful completion of its financing, and further payments based on success-based milestones. However, the expected timing of these payments does not support the Company’s ability to make principal and interest payments under its Credit Facility due in late 2018 and early 2019, as well as payment of deferred payments to Thales and deferred contributions to the DSRA, both due March 31, 2019. Further, if Aireon is unable to complete its financing and make a partial hosting payment to the Company in the timeframe it currently expects, the Company may be unable to make its principal and interest payments under its Credit Facility due in late 2018. To provide for these obligations and further solidify the Company’s liquidity position, the Company has been actively discussing alternative funding options with its Credit Facility lenders and believes it has reached an agreement in principle with its Credit Facility lenders pursuant to which the Company would be required to raise additional capital in the form of debt securities by July 2018. The proceeds of these debt securities would be used to fund the deferred payments to Thales and replenish the DSRA under the Credit Facility, as well as to provide the Company with sufficient cash to meet its needs, including principal and interest payments under its Credit Facility. In addition, the Credit Facility lenders would agree to delay a portion of the contributions thatprincipal repayments under the Credit Facility, allow the Company had been scheduled to make during 2014, 2015access up to $87 million from the DSRA in the future if the Company’s projected cash level falls below $75 million, and 2016adjust the Company's financial covenants, including eliminating further covenants that require it to the debt service reserve account thatreceive cash flows from hosted payloads. Under this anticipated agreement, the Company iswould be required to maintain underuse hosting fee payments received from Aireon to prepay the Credit Facility. The Supplemental Agreement delays $22 millionCompany’s ability to successfully execute these plans may be adversely affected by a number of factors, including global economic conditions, the state of the Company’s 2014 contributions, $22 million ofcapital markets when the Company’s 2015 contributionsCompany is ready to issue the debt, and $32 million of the Company’s 2016 contributions, for a total of $76 million. As of March 31, 2014, priorinability to the execution of the Supplemental Agreement, the minimum required cash reserve balance was $94.5 million. As of June 30, 2014 after the execution of the Supplemental Agreement, the minimum required cash reserve balance was reduced to $83.5 million. As a result of this reduction, $11.0 million was released from restricted cashissue debt securities on terms acceptable to the Company duringor at all. Any inability to successfully execute these plans may in turn materially affect the three months ended June 30, 2014. In accordance withCompany's liquidity, and its ability to complete the Supplemental Agreement, as of December 31, 2014,Iridium NEXT system and to pursue additional growth opportunities may be impaired. The Company’s liquidity and the minimum cash reserve for debt service was $86.0 million and was maintained and classified as restricted cashability to fund its liquidity requirements also depend on the accompanying consolidated balance sheet.thatits liquidity sources will provide sufficient funds for the Companyit to meet its liquidity requirements for at least the next twelve months.
12 months, provided the Company executes the proposed adjustments to its funding plan or receives a substantial portion of the hosting fees due to the Company from Aireon.78Agreement,Agreement"), pursuant to which Boeing agreed to provide transition services and continuing steady-state operations and maintenance services with respect to the satellite network operations center, telemetry, tracking and control stations and the on-orbitfirst-generation satellites (including engineering, systems analysis, and operations and maintenance services). Pursuant to the O&M Agreement, each of Boeing, Motorola Solutions and the U.S. government has the unilateral right to commence the de-orbit of the constellation upon the occurrence of certain enumerated events.The O&M Agreement incorporates a de-orbit plan, which, if exercised, would cost approximately $18.0 million plus an amount equivalent to the premium of the mass de-orbit insurance coverage to be paid to Boeing in the event of a mass de-orbit of the satellite constellation. Onwillwould operate and maintain Iridium NEXT (the “Iridium NEXT Support Services Agreement”). Boeing will provide these services on a time-and-materials fee basis. The term of the NEXT Support Services Agreement runs concurrently with the estimated useful life of the Iridium NEXT constellation. The Company is entitled to terminate the agreement for convenience and without cause commencing in 2019.As ofOn January 1, 2015, Boeing supportssupported a hybrid operations mode involving network elements from both the original Iridium systemfirst-generation satellites and the Iridium NEXT system. Boeing provided those services on a time-and-materials fee basis. Obligations to Boeing representrepresented the not to exceed (the “NTE)(“NTE”) price for O&M services for 2015 under the Company’s Iridium NEXT Support Services Agreement.Boeing. Boeing isfor the exclusive provider forCompany to hire, effective January 3, 2017, the majority of O&M services through the endBoeing employees and third-party contractors who were responsible for the operations and maintenance of the Iridium NEXT useful life, subjectCompany’s satellite constellation and ground infrastructure. Pursuant to the Company’s rightInsourcing Agreement, the Company was obligated to issue work to a third party in accordancepay Boeing $5.5 million, half of which was paid during each of the years ended December 31, 2016 and 2017. Concurrent with certain provisions in the agreement. Annually,hiring of the assembled workforce on January 3, 2017, the Company and Boeing terminated both the O&M Agreement and the Iridium NEXT Support Service Agreement and entered into a new Development Services Agreement ("DSA") with a $6.0 million annual take-or-pay commitment through 2021. As a result of the termination of certain Boeing agreements under the Insourcing Agreement, Boeing no longer has a unilateral right to commence the de-orbit of the Company’s first-generation satellites. The assembled workforce was recorded as a finite-lived intangible asset in the first quarter of 2017 and will agree uponbe amortized over an estimated useful life of 7 years. Additionally, by terminating the NTE price for each year.$30.7$30.5 million, $30.1$29.0 million and $31.9$30.7 million relating to satellite operations and maintenance costs, which include internal costs and amounts paid to Boeing, for the years ended December 31, 2014, 20132017, 2016 and 2012,2015, respectively, included in cost of services (exclusive of depreciation and amortization) in the consolidated statements of operations and comprehensive income.following at December 31: 2014 2013 (In thousands) Satellite system $ 323,607 $ 337,677 Ground system 41,365 41,247 Equipment 26,961 25,019 Internally developed software and purchased software 95,406 68,141 Building and leasehold improvements 29,980 28,063 517,319 500,147 Less: accumulated depreciation (339,155 ) (296,716 ) 178,164 203,431 Land 8,037 8,037 Construction in process: Iridium NEXT systems under construction 1,755,974 1,341,148 Other construction in process 29,664 22,963 Total property and equipment, net of accumulated depreciation $ 1,971,839 $ 1,575,579 December 31, 2017 2016 (In thousands) Satellite system $ 1,199,794 $ 314,228 Ground system 67,576 63,519 Equipment 35,616 34,139 Internally developed software and purchased software 191,089 127,498 Building and leasehold improvements 32,130 32,099 1,526,205 571,483 Less: accumulated depreciation (432,833 ) (422,098 ) 1,093,372 149,385 Land 8,037 8,037 Construction in process: Iridium NEXT systems under construction 2,088,380 2,639,824 Other construction in process 20,373 15,838 Total property and equipment, net of accumulated depreciation $ 3,210,162 $ 2,813,084 following at December 31: 2014 2013 (In thousands) Internally developed software $ 20,779 $ 17,582 Equipment 859 3,684 Ground system 7,862 1,177 Building and leasehold improvements 164 520 Total other construction in process $ 29,664 $ 22,963 December 31, 2017 2016 (In thousands) Internally developed software $ 14,782 $ 14,218 Equipment 4,241 1,546 Ground system 1,350 74 Total other construction in process $ 20,373 $ 15,838 2014, 20132017, 2016 and 20122015 was $62.7$120.7 million, $62.0$48.6 million and $68.1$51.0 million, respectively.
The increase in depreciation from 2016 to 2017 partially results from the write-off of $36.8 million previously paid to Kosmotras, and the addition of new assets, including Iridium NEXT satellites placed into service during 2017. See Note 9 for further details on Kosmotras.79hashad identifiable intangible assets as follows: December 31, 2014 Useful Gross Accumulated Net Lives Carrying Value Amortization Carrying Value (In thousands) Indefinite life intangible assets: Trade names Indefinite $ 21,195 $ - $ 21,195 Spectrum and licenses Indefinite 14,030 - 14,030 Total 35,225 - 35,225 Definite life intangible assets: Customer relationships - government 5 years 20,355 (20,355 ) - Customer relationships - commercial 5 years 33,052 (33,052 ) - Core developed technology 5 years 4,842 (4,842 ) - Intellectual property 16.5 years(1) 16,439 (4,248 ) 12,191 Software 5 years 2,025 (2,025 ) - Total 76,713 (64,522 ) 12,191 Total intangible assets $ 111,938 $ (64,522 ) $ 47,416 December 31, 2013 Useful Gross Accumulated Net Lives Carrying Value Amortization Carrying Value (In thousands) Indefinite life intangible assets: Trade names Indefinite $ 21,195 $ - $ 21,195 Spectrum and licenses Indefinite 14,030 - 14,030 Total 35,225 - 35,225 Definite life intangible assets: Customer relationships - government 5 years 20,355 (17,301 ) 3,054 Customer relationships - commercial 5 years 33,052 (28,094 ) 4,958 Core developed technology 5 years 4,842 (4,116 ) 726 Intellectual property 16.5 years(1) 16,439 (3,253 ) 13,186 Software 5 years 2,025 (1,722 ) 303 Total 76,713 (54,486 ) 22,227 Total intangible assets $ 111,938 $ (54,486 ) $ 57,452 (1)Intellectual property is amortized over the estimated useful life of the existing satellite systems and Iridium NEXT, which averages to 16.5 years.The weighted average amortization period of intangible assets is 7.5 years. December 31, 2017 (In thousands) Indefinite life intangible assets: Trade names Indefinite $ 21,195 $ — $ 21,195 Spectrum and licenses Indefinite 14,030 — 14,030 Total 35,225 — 35,225 Definite life intangible assets: Intellectual property 20 years 16,439 (6,651 ) 9,788 Assembled workforce 7 years 5,678 (812 ) 4,866 Patents 14 - 20 146 (6 ) 140 Total 22,263 (7,469 ) 14,794 Total intangible assets $ 57,488 $ (7,469 ) $ 50,019 December 31, 2016 (In thousands) Indefinite life intangible assets: Trade names Indefinite $ 21,195 $ — $ 21,195 Spectrum and licenses Indefinite 14,030 — 14,030 Total 35,225 — 35,225 Definite life intangible assets: Intellectual property 20 years 16,439 (5,868 ) 10,571 Total 16,439 (5,868 ) 10,571 Total intangible assets $ 51,664 $ (5,868 ) $ 45,796 $10.0$1.6 million, for the year ended December 31, 2014$0.8 million and $13.0$0.8 million for each of the years ended December 31, 20132017, 2016 and 2012.2014,2017, by year and in the aggregate, is as follows:Year ending December 31, Amount (In thousands) 2015 $ 995 2016 995 2017 995 2018 995 2019 995 Thereafter 7,216 Total estimated future amortization expense $ 12,191 Year ending December 31, Amount (In thousands) 2018 $ 1,604 2019 1,604 2020 1,604 2021 1,604 Thereafter 8,378 Total estimated future amortization expense $ 14,794 full-scale development contract (the “FSD”)FSD with Thales Alenia Space France (“Thales”) for the design and build of satellites for Iridium NEXT, the Company’s next-generation satellite constellation.NEXT. The total price under the FSD is $2.3 billion, and the Company expects payment obligations under the FSD to extend into the first quarter ofthrough 2018. As of December 31, 2014,2017, the Company had made aggregate payments of $1,331.1 million$1.9 billion to Thales, of which $1,129.8 million$1.5 billion were financed from borrowings under the Credit Facility and which were capitalized as construction in progress within property and equipment, net in the accompanying consolidated balance sheet. The Company’s obligations to Thales that are currently scheduled for the years ending December 31, 2015, 2016, 2017 and 2018, are in the amounts of $554.2 million, $136.0 million, $166.7 million and $64.7 million, respectively. The Company currently uses the Credit Facility was fully drawn in February 2017. With the exception of the invoices to pay 85% of each invoice received from Thales under the FSD,be paid with the remaining 15% funded from cash on hand. Once the Credit Facility is fully drawn,bills of exchange described below, the Company expects to pay 100% of each invoice received from Thales from cash and marketable securities on handhand.welllong-term debt within other long-term liabilities in the accompanying condensed consolidated balance sheet as internally generatedof December 31, 2017. Amendment 29 also requires that the Company pay Thales for the BPIAE premium on the guarantee in the amount of $1.0 million in cash flow, including potential cash flows from hosted payloads and Iridium PRIME.seven7 launches and a reflight option in the event of launch failure is $453.1 million. The SpaceX Falcon 9 rocket is configured to carry ten Iridium NEXT satellites to orbit for each of the initial seven launches. In November 2016, the Company entered into an agreement for an eighth launch with SpaceX to launch five spare satellites and share the launch services with GFZ German Research Centre for Geosciences (“GFZ”). The total price under the SpaceX Agreement for the eighth launch is $67.9 million. GFZ will pay Iridium $31.8 million to share the launch services to launch NASA’s two Gravity Recovery and Climate Experiment Follow-On satellites. As of December 31, 2014,2017, the Company had made aggregate payments of $152.6$463.9 million to SpaceX, which were capitalized as construction in progress within property and equipment, net in the accompanying consolidated balance sheet. In addition,Additionally, the Company made a $3.0received $28.6 million refundable deposit to SpaceX in the first quarterfrom GFZ as of 2014 for the reservation of additional future launches, which is not included in the total contract price. The Company's obligations to SpaceX under the SpaceX Amendment that are currently scheduled for the years ending December 31, 2015, 2016 and 2017 are in the amounts of $150.0 million, $126.0 million and $24.5 million, respectively.International Space Company Kosmotras (“Kosmotras”) as a supplemental launch serviceservices provider for Iridium NEXT (the “Kosmotras Agreement”).NEXT. The Kosmotras Agreement originally provided for the purchase of up to six launches with options to purchase additional launches. Each launch can carry two satellites. In June 2013, the Company exercised an option for one launch to carry the first two Iridium NEXT satellites. If the Company does not exercise any additional options, the total cost under the contract including this single launch will beKosmotras agreement is $51.8 million. Kosmotras to date has been unable to obtain the permits or authorizations to launch the Company's satellites on a Dnepr rocket as planned, and Kosmotras has proposed no satisfactory alternative launch plan. Because the Company now believes the construction-in-progress associated with the Kosmotras launch services will no longer be used or further developed, the Company wrote-off the full amount previously paid to Kosmotras, by recording accelerated depreciation expense of $36.8 million, in the fourth quarter of 2017. 2014,2017, the Company had made aggregate premium payments of $28.8 million to Kosmotras, which were capitalized within property and equipment, net in the accompanying consolidated balance sheet. The option to purchase two dedicated launches expired as of December 31, 2013. The Company has agreed with Kosmotras to extend the option to purchase the remaining three dedicated launches through a date to be determined. The Company’s obligation to Kosmotras for the single launch purchased under the Kosmotras Agreement for the year ending December 31, 2015 is $23.0$77.8 million.SupplierCommitmentstwo suppliers to manufacture subscriber equipment, one of which contains minimum monthly purchase requirements. The Company’s purchases have exceeded the monthly minimum requirement since inception.Benchmark. Pursuant to the agreement, the Company may be required to purchase certain materials if the materials are not used in production within the periods specified in the agreement. The supplierBenchmark will then repurchase such materials from the Company at the same price paid by the Company, as required for the production of the devices. As of December 31, 20142017 and 2013,2016, the Company had $1.7$4.0 million and $2.4$0.5 million, respectively, of such materials, and the amounts were included in inventory on the accompanying consolidated balance sheets.2014,2017, the aggregate unconditional purchase obligations were $52.4$45.4 million, which includeincludes the Company’s commitments with Boeing.Boeing and Benchmark. The Boeing obligations (see Note 6) represent the not to exceed (NTE) price for operationsnew take-or-pay commitment with the execution of the DSA, which was met as of December 31, 2017 and maintenance (O&M) services for 2015 under the Company’s Iridium NEXT Support Services Agreement with Boeing. Boeing is the exclusive providerfinal payment for the majority of O&M services through the endacquisition of the Iridium NEXT useful life subjectassembled workforce. The Company's obligation to the Company’s right to issue work to a third party in accordance with certain provisions in the agreement. Annually, Boeing and the Company will agree upon the NTE price for that year.Unconditional purchase obligations scheduledBenchmark for the yearsyear ending December 31, 2015 and 2016 are in the amounts of $52.3 million and $0.1 million, respectively.constellation.constellation or individual satellites. The policy covers the Company, Boeing as former operator, Motorola Solutions (the original system architect and prior owner), contractors and subcontractors of the insured, the U.S. government and certain other sovereign nations.2015.2018. The policy coverage is separated into Sections A, B, and C.20142017 is included in prepaid expenses and other current assets in the accompanying consolidated balance sheet. The deductible for claims under Section B is $250,000 per occurrence.satellite system.first-generation satellites. Liability limits for claims under Section C are $500 million and $1.0 billion per occurrence and in the aggregate, respectively. The term of the coverage under Section C is 12 months from the Attachment Date. The premium for Section C coverage is $2.5 million and is payable on or before the Attachment Date. As of December 31, 2014,2017, the Company had not requested Section C coverage since no mass decommissioning activities are currently anticipated. The deductible for claims under Section C is $250,000 per occurrence.2024.2014,2017, are as follows: Operating Year ending December 31, Leases (In thousands) 2015 $ 3,051 2016 2,782 2017 2,890 2018 2,972 2019 3,055 Thereafter 6,814 Total $ 21,564 Year ending December 31, Operating Leases (In thousands) 2018 $ 3,741 2019 3,692 2020 3,734 2021 3,827 2022 3,402 Thereafter 8,849 Total $ 27,245 2014, 20132017, 2016 and 20122015 was $3.3 million, $3.2 million, $3.1 million and $3.2$3.4 million, respectively.On October 7, 2014, Kappa Digital, LLC filed a complaint for patent infringement against the Company in the United States District Court for the Eastern District of Texas - Marshall Division. In this action, Kappa Digital alleges that the Company’s products, services and/or systems infringe on Kappa’s U.S. Patent entitled “Method And System For A Wireless Digital Message Service.” Kappa Digital is seeking a judgment that the Company has infringed on its patent and is seeking a permanent injunction enjoining the Company from further infringement, as well as damages, costs, expenses, interest and attorneys’ fees. On February 25, 2015, the parties filed a joint motion to dismiss the case without prejudice, which the Company expects to be granted. Kappa Digital would retain the right to file a new complaint with the same allegations. Given the early stage of this matter, the Company cannot provide a reasonable estimate of the possibility of loss, or of any potential amount of loss, at this time.other actions that it would expectexpects to have a material adverse impact on its business, financial results or financial condition.During 2012,athe amendment and restatement of the Company's 2015 Equity Incentive Plan (as so amended and restated, the “Amended 2015 Plan”), primarily to increase the number of shares available under the plan. As such, the Company registered an additional 5,199,239 shares of common stock incentive plan (the “2012 Stock Incentive Plan”)made available for issuance pursuant to providethe Amended 2015 Plan, bringing the total to 28,402,248 shares. Through December 31, 2017, the remaining aggregate number of shares of our common stock available for future grants under the Amended 2015 Plan was 15,012,331. The Amended 2015 Plan provides for the grant of stock-based awards, including nonqualified stock options, incentive stock options, restricted stock awards and other equity securities, as incentives and rewards for employees, consultants and non-employee directors. Asdirectors of December 31, 2014, 13,416,019 sharesthe Company and its affiliated entities. The Amended 2015 Plan allows us to utilize a broad array of common stock were authorized for issuance as awards underequity incentives and performance cash incentives in order to secure and retain the 2012 Stock Incentive Plan. Theeach option is estimatedour awards on the date of grant usinggrant. We will reconsider the Black-Scholesuse of the Black-Scholes-Merton model if additional information becomes available in the future that indicates another model would be more appropriate or if grants issued in future periods have characteristics that cannot be reasonably estimated under this model.pricing model. Expectedgrants during the years ended December 31, 2017, 2016 and 2015:forof the options granted was estimated based on the actualupon historical volatility of our share price through daily observations of our trading history.Company’s stock price.simplified method.award was calculated using the simplified methodunderlying grants.the Company currently does not have sufficient experience of its own option exercise patterns.an input. The Company does not anticipate paying dividends during the expected term of the grants; therefore, the dividend rate wasis assumed to be zero. The risk-free interest rate assumed is based upon U.S. Treasury Bond interest rates with similar terms at similar dates. Toextent the Company’s actual forfeiture rate is different from its estimate of forfeitures, the stock-based compensation may differCompany granted stock options to newly hired and promoted employees only. In 2015, in future periods.Theaddition to stock options granted to newly hired and promoted employees, non-employee consultants are generally subject to service vesting and vest quarterly over a two-year service period. 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.Assumptions used in determining the fair value of the Company’s options were as follows: Year Ended December 31, 2014 2013 2012 Expected volatility 41% - 43% 41% - 42% 42% - 45% Expected term (years) 5.25 - 10.00 3.00 - 6.25 5.50 - 6.25 Expected dividends 0% 0% 0% Risk free interest rate 1.10% - 2.35% 0.58% - 1.93% 0.78% - 1.17% During 2014, the Company granted approximately 987,000 and 45,000 stock options to its employees and non-employee consultants, respectively. The estimated aggregate grant-date fair values of the stock options granted to employees and non-employee consultants during 2014 was $3.0 million and $0.2 million, respectively.In January 2014, certain members of the Company’s board of directors elected to receive a portion of their 2014 annual compensation in the form of stock options in an aggregate amount ofoptions.112,000 stock options. These options were granted in January 2014209,000, 249,000 and vested through the end of 2014, with 25% vesting on the last day of each calendar quarter. The estimated aggregate grant-date fair value of these options granted to directors in January 2014 was $0.3 million. In July 2014, a new member of the Company’s board of directors elected to receive a portion of his 2014 annual compensation in the form of744,000 stock options, inrespectively, to its employees, with an aggregate amount of approximately 20,000 stock options which vested through the end of 2014, with 33% vesting immediately upon grant and 33% and 34% vesting on September 30, 2014 and December 31, 2014, respectively. The estimated aggregate grant date fair value of these$0.9 million, $0.9 million and $2.9 million, respectively.grantedto its non-employee directors and consultants, respectively, with an estimated aggregate grant-date fair value of $0.4 million and $0.2 million, respectively.July 2014 was $0.1 million. Year Ended December 31, 2017 2016 2015 Expected volatility 40% - 41% 40% - 42% 39% - 42% Expected term (years) 6.25 6.25 6.25 Expected dividends —% —% —% Risk free interest rate 1.86% - 2.14% 1.15% - 2.45% 1.50% - 2.35% as of December 31, 2014 is as follows: Weighted- Weighted- Average Average Remaining Aggregate Exercise Price Contractual Intrinsic Shares Per Share Term (Years) Value (In thousands, except years and per share data) Options outstanding at January 1, 2014 6,183 $ 7.89 Granted 1,163 $ 6.85 Cancelled or expired (414 ) $ 8.36 Exercised (189 ) $ 7.98 Forfeited (72 ) $ 7.11 Options outstanding at December 31, 2014 6,671 $ 7.68 6.90 $ 13,783 Options vested and exercisable at December 31, 2014 4,626 $ 8.05 6.21 $ 7,856 Options exercisable and expected to vest at December 31, 2014 6,634 $ 7.69 6.84 $ 13,674 Shares (In thousands, except years and per share data) Options outstanding at January 1, 2015 6,671 $ 7.68 Granted 885 9.25 Cancelled or expired (92 ) 8.66 Exercised (287 ) 7.87 Forfeited (57 ) 7.81 Options outstanding at December 31, 2015 7,120 7.86 6.33 $ 3,937 Granted 249 8.13 Cancelled or expired (39 ) 8.92 Exercised (73 ) 7.33 Forfeited (55 ) 7.62 Options outstanding at December 31, 2016 7,202 7.87 5.45 $ 12,473 Granted 209 10.50 Cancelled or expired (2 ) 7.24 Exercised (534 ) 7.93 Forfeited (19 ) 9.13 Options outstanding at December 31, 2017 6,856 $ 7.94 4.63 $ 26,459 Options exercisable at December 31, 2017 6,212 $ 7.81 4.27 $ 24,760 Options exercisable and expected to vest at December 31, 2017 6,842 $ 7.94 4.63 $ 26,425 $4.3$1.8 million, $6.0$2.5 million and $6.0$3.4 million of stock-based compensation expense related to stock options in the years ended December 31, 2014, 20132017, 2016 and 2012,2015, respectively.grant-dategrant date fair value of options granted during the years ended December 31, 2014, 20132017, 2016 and 20122015 was $2.97, $2.60$4.51, $3.47 and $3.31$3.95 per share, respectively.As of December 31, 2014, the total unrecognized cost related to non-vested options was approximately $5.1 million. This cost is expected to be recognized over a weighted average period of 2.4 years. The total fair value of the shares vested during the years ended December 31, 2014, 20132017, 2016 and 20122015 was $2.0 million, $2.9 million and $3.6 million, respectively.$4.6 million, $6.3 million and $6.7 million, respectively.
$2.2 million. This cost is expected to be recognized over a weighted-average period of 2.1 years.84Unit AwardsIn 2014, the CompanyUnitsapproximately 786,000 service-based RSUs to its employees. Employee service-based RSUs generallyemployees for service 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 addition,The RSUs granted to non-employee directors generally vest in full on the first anniversary of the grant date. The RSUs granted to non-employee consultants generally vest 50% on the first anniversary of the grant date and ratably on a quarterly basis through the second anniversary of the grant date. Performance-based RSUs vest upon the completion of defined performance goals, subject to continued employment. The Company’s RSUs are generally classified as equity awards because the RSUs will be paid in the Company's common stock upon vesting. The related compensation expense is recognized over the service period and is based on the grant date fair value of the Company's common stock and the number of shares expected to vest. The awards are not remeasured at the end of each reporting period. The awards do not carry voting rights until they are vested and released in accordance with the specified vesting terms of each award as stated in the grant notifications for each RSU.performance-basedapproximately 964,000, 573,000 and 596,000 service-based RSUs, respectively, to its employees, with an estimated grant date fair value of $8.5 million, $4.0 million and $5.6 million, respectively.2014.the form of RSUs. An aggregate amount of approximately 96,000, 126,000 and 15,000 service-based RSUs were granted to its directors as a result of these elections during the years ended December 31, 2017, 2016 and 2015, respectively, with an estimated grant date fair value of $1.0 million, $1.0 million and $0.1 million, respectively.InManagement believes it is probable that certain of the March 2014,2017 Bonus 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 2017 Bonus RSUs will vest, subject to continued employment, in March 2018. A portion of the March 2016 Bonus RSUs vested in March 2017 upon the determination of the level of achievement of the performance goals.207,000173,000, 119,000 and 161,000 performance-based RSUs, respectively, to the Company’s executives (the “March 2014“Performance RSUs”). The estimated aggregate grant date fair values of the Performance RSUs granted in 2017, 2016 and 2015 was $1.5 million, $0.8 million and $1.5 million, respectively. Vesting of these March 2014 RSUseach Performance RSU award is and was dependent upon the Company’s achievement of defined performance goals over fiscal years 2014 and 2015.a two-year period. Management believes it is probable that the Performance RSUs will vest at least in part. The numbervesting of March 2014Performance RSUs that will ultimately vest may range from 0% to 150% of the originalnumber of shares underlying the Performance RSU grant based on the level of achievement of the performance goals. If the Company achieves the performance goals, 50% of the March 2014Performance RSUs will vest aton the endsecond anniversary of two yearsthe grant date and the remaining 50% will vest aton the endthird anniversary of the third year,grant date, in each case, subject to the executives continued service. In June 2014, the Company awarded approximately 323,000 performance-based RSUs to its executives and employees (the “June 2014 RSUs”). Vestingservice as of the June 2014 RSUs is dependent upon the Company’s achievement of defined performance goals for the 2014 fiscal year. The level of achievement, if any, of performance goals in connection with the June 2014 RSUs will be determined by the compensation committee. The Company expects this determination to occur in the first quarter of 2015. The estimated aggregate grant date fair valuesvesting date. Approximately 54,000 of the March 20142015 Performance RSUs vested and June 2014 RSUs granted during 2014 were $1.3 million and $2.6 million, respectively.Certain members of the Company’s board of directors elected to receive a portion of their 2014 annual compensationreleased in the form of RSUs. During 2014, the Company granted approximately 108,000 RSUs to its directors as a result of these elections. These RSUs were granted in January 2014 and vested through the end of 2014, with 25% vesting on the last day of each calendar quarter. TheMarch 2017 at an estimated aggregate grant-date fair value of $0.5 million, and the RSUs granted to directors during 2013 was $0.7 million.the year ended December 31, 2014 for outstanding RSUs is as follows: Weighted- Average Grant Date Fair Value RSUs Per RSU (In thousands) Outstanding at January 1, 2014 1,306 $ 6.76 Granted 1,430 $ 6.80 Forfeited (78 ) $ 5.87 Released (376 ) $ 6.72 Outstanding at December 31, 2014 2,282 $ 6.80 Vested at December 31, 2014 398 A summary RSUs (In thousands) Outstanding at January 1, 2015 2,282 $ 6.80 Granted 834 9.42 Forfeited (193 ) 7.18 Released (979 ) 7.06 Outstanding at December 31, 2015 1,944 7.76 Granted 2,297 7.09 Forfeited (152 ) 7.44 Released (766 ) 7.36 Outstanding at December 31, 2016 3,323 7.40 Granted 2,431 8.89 Forfeited (203 ) 8.42 Released (2,003 ) 7.16 Outstanding at December 31, 2017 3,548 8.50 521 These RSUs were granted to the Company's board of directors as a part of their compensation for board and committee service and had vested but had not yet been issued and released. the Company’s activity for the year ended December 31, 2014 for unvested2017, the total unrecognized cost related to non-vested RSUs was approximately $8.3 million. This cost is as follows: Weighted- Average Grant Date Fair Value RSUs Per RSU (In thousands) Non-vested at January 1, 2014 960 $ 6.50 Granted 1,430 $ 6.80 Vested (428 ) $ 6.51 Forfeited (78 ) $ 5.87 Non-vested at December 31, 2014 1,884 $ 6.72 $6.5$17.0 million, $1.7$13.5 million and $2.1$6.3 million of stock-based compensation expense related to RSUs in the years ended December 31, 2014, 20132017, 2016 and 2012,2015, respectively.21%24%, 20%25% and 20%23% of the Company’s total revenue in the years ended December 31, 2014, 20132017, 2016 and 2012,2015, respectively, from prime contracts or subcontracts with agencies of the U.S. government. For the years ended December 31, 20142017, 2016 and 2013,2015, no single commercial customer accounted for more than 10% of the Company’s total revenue. For the year ended December 31, 2012, two large commercial customers each accounted for approximately 10% total revenue.The Company derived approximately 30% and 34% of its accounts receivable balance at December 31, 20142017 and 2013,2016, respectively, was due from prime contracts or subcontracts with agencies of the U.S. government. As of December 31, 20142017 and 2013, one2016, no single commercial customer represented 12% and 14%, respectively, of the Company’s total accounts receivable balance. As of December 31, 2014, no other single customer accounted for more than 10% of the Company’s total accounts receivable balance. As of December 31, 2013, another customer accounted for 11% of the Company’s total accounts receivable balance.two manufacturersone manufacturer and utilizes other sole source suppliers for certain component parts of its devices. Should events or circumstances prevent the manufacturersmanufacturer or the suppliers from producing the equipment or component parts, the Company’s business could be adversely affected until the Company is able to move production to other facilities of the manufacturer or secure a replacement manufacturer or an alternative supplier for such component parts.A significant portion of the Company’s satellite operations and maintenance service is provided by Boeing. Should events or circumstances prevent Boeing from providing these services, the Company’s business could be adversely affected until the Company is able to assume operations and maintenance responsibilities or secure a replacement service provider.follows as of December 31:follows: 2014 2013 (In thousands) United States $ 137,185 $ 118,011 Satellites in orbit 57,494 96,231 Iridium NEXT systems under construction 1,755,973 1,341,148 All others (1) 21,187 20,189 Total $ 1,971,839 $ 1,575,579 December 31, 2017 2016 (In thousands) United States $ 165,337 $ 124,483 Satellites in orbit 926,090 13,405 Iridium NEXT systems under construction 2,088,380 2,639,824 30,355 35,372 Total $ 3,210,162 $ 2,813,084 No one othersingle country in this group represented more than 10% of property and equipment, net.follows for the years ended December 31: 2014 2013 2012 (In thousands) United States $ 194,060 $ 175,054 $ 178,145 Canada 44,933 49,541 53,279 United Kingdom 47,093 37,421 42,706 Other countries (1) 122,471 120,633 109,390 Total $ 408,557 $ 382,649 $ 383,520 (1) No one other country represented more than 10% of revenue. Year Ended December 31, 2017 2016 2015 (In thousands) United States $ 229,741 $ 226,190 $ 204,777 Canada 44,107 42,373 42,063 United Kingdom 46,245 47,135 44,012 127,953 117,942 120,526 Total $ 448,046 $ 433,640 $ 411,378 No single country in this group represented more than 10% of revenue. currencies.compensation.eligible compensation each pay period. Company-matching contributions to the Plan were $2.5 million, $1.3 million $1.2 million and $1.2$1.5 million for the years ended December 31, 2014, 20132017, 2016 and 2012,2015, respectively. The Company pays all administrative fees related to the Plan.86 Year Ended December 31, 2014 2013 2012 (In thousands) U.S. income $ 115,858 $ 111,685 $ 94,719 Foreign income (loss) 594 (1,220 ) 299 Total income before income taxes $ 116,452 $ 110,465 $ 95,018 Year Ended December 31, 2017 2016 2015 (In thousands) U.S. income $ 120,281 $ 176,448 $ 75,431 Foreign income (loss) (709 ) 1,717 (2,316 ) Total income before income taxes $ 119,572 $ 178,165 $ 73,115 arewere as follows: Year Ended December 31, 2014 2013 2012 (In thousands) Current taxes: Federal provision (benefit) $ 50 $ (12 ) $ (47 ) State provision (benefit) (90 ) 7 96 Foreign provision 1,260 723 849 Total current tax provision 1,220 718 898 Deferred taxes: Federal provision 40,155 39,041 30,014 State provision (benefit) (77 ) 8,240 (610 ) Foreign provision (benefit) 165 (51 ) 85 Total deferred tax provision 40,243 47,230 29,489 Total income tax provision $ 41,463 $ 47,948 $ 30,387 Year Ended December 31, 2017 2016 2015 (In thousands) Current taxes: Federal tax expense $ 13 $ 1,206 $ 1,700 State tax expense 422 978 266 Foreign tax expense 863 1,141 650 Total current tax expense 1,298 3,325 2,616 Deferred taxes: Federal tax expense (benefit) (110,811 ) 60,295 54,906 State tax expense (benefit) (4,851 ) 3,454 8,803 Foreign tax expense (benefit) 80 59 (333 ) Total deferred tax expense (benefit) (115,582 ) 63,808 63,376 Total income tax expense (benefit) $ (114,284 ) $ 67,133 $ 65,992 $5.5$10.2 million $4.0 million and $9.52014, 20132017 and 2012, respectively. Year Ended December 31, 2014 2013 2012 (In thousands) U.S. federal statutory tax rate $ 40,766 $ 38,668 $ 33,256 State taxes, net of federal benefit 4,991 9,048 3,837 State tax valuation allowance 380 3,151 1,943 Arizona tax law change (5,525 ) (3,975 ) (9,524 ) Other nondeductible expenses 903 1,185 414 Liability for uncertain tax positions - (146 ) (45 ) Tax credits and other adjustments (994 ) (849 ) 223 Foreign taxes and other items 942 866 283 Total income tax provision $ 41,463 $ 47,948 $ 30,387 Year Ended December 31, 2017 2016 2015 (In thousands) Expected tax expense at U.S. federal statutory tax rate $ 41,850 $ 62,309 $ 25,590 State taxes, net of federal benefit 5,133 9,757 11,663 State tax valuation allowance 582 (2,710 ) (2,763 ) Deferred impact of Arizona tax law changes and elections (10,217 ) (2,962 ) 99 Tax Act - deferred tax effects (150,903 ) — — Impairment of goodwill — — 30,464 Other nondeductible expenses (841 ) 596 557 Tax credits (528 ) (442 ) (97 ) Foreign taxes and other items 640 585 479 Total income tax expense (benefit) $ (114,284 ) $ 67,133 $ 65,992 atare as follows: As of December 31, 2017 2016 (In thousands) Deferred tax assets Long-term contracts $ 61,358 $ 74,720 Federal, state and foreign net operating loss carryforwards and tax credits 107,566 60,667 Other 22,680 34,330 Total deferred tax assets 191,604 169,717 Valuation allowance (3,815 ) (2,825 ) Net deferred tax assets 187,789 166,892 Deferred tax liabilities Fixed assets, intangibles and research and development expenditures (403,545 ) (513,905 ) Investment in joint venture (27,796 ) (14,643 ) Other (2,276 ) — Total deferred tax liabilities (433,617 ) (528,548 ) Net deferred income tax liabilities $ (245,828 ) $ (361,656 ) 20142017, the Company had a net deferred tax asset of $0.3 million that is included in other assets on the balance sheet and 2013 are as follows: As of December 31, 2014 2013 (In thousands) Deferred tax assets Long-term contracts $ 49,207 $ 33,988 Deferred revenue 6,357 4,086 Federal, state and foreign net operating loss carryforwards and tax credits 133,021 133,190 Other 24,571 21,571 Total deferred tax assets 213,156 192,835 Valuation allowance (6,806 ) (6,567 ) Net deferred tax assets $ 206,350 $ 186,268 Deferred tax liabilities Fixed assets and intangibles $ (95,797 ) $ (58,220 ) Research and development expenditures (335,833 ) (318,340 ) Other (8,753 ) (3,457 ) Total deferred tax liabilities $ (440,383 ) $ (380,017 ) Net deferred income tax liabilities $ (234,033 ) $ (193,749 ) As of December 31, 2014, theand statefederal net operating loss carryforwards of approximately $323.6 million.$80.5 million, and $42.9 million as of December 31, 2017 and 2016, respectively. These net operating loss carryforwards, if unutilized, will expire in various amounts from 20152031 through 2033.2037. The Company believes that the U.S. federal net operating losses will be utilized before the expiration dates and, as such, no valuation allowance has been established for these deferredperiods. Asperiods and as such the Company has increased its state net operating lossreflects a partial valuation allowance by $0.4of $0.7 million for the year ended December 31, 2014. Asas of December 31, 2014, the2017 against these deferred tax assets on its consolidated balance sheet. The Company had deferred tax assets related to the foreign net operating loss carryforwards of approximately $0.1$1.3 million in various jurisdictionsand $1.2 million as of December 31, 2017 and 2016, respectively, that begin to expire in 2016.2022. The Company does not expect to fully utilize all of its foreign net operating losses within the respective carryforward periods and as such reflects a partial valuation allowance against these deferred tax assets on its consolidated balance sheet. The timing and manner in which the Company will utilize the net operating loss carryforwards in any year, or in total, may be limited in the future as a result of alternative minimum taxes, changes in the Company’s ownership and any limitations imposed by the jurisdictions in which the Company operates.As of December 31, 2014, thehadhas approximately $4.4$6.1 million and $5.0 million of deferred tax assets related to research and development tax credits as of December 31, 2017 and 2016, respectively, that expire in various amounts from 20282027 through 2034, $2.32037. The Company has approximately $4.7 million and $3.5 million of deferred tax assets related to foreign tax credits whichas of December 31, 2017 and 2016, respectively, that expire in various amounts from 2020 through 2024,2027. The Company has $3.8 million and $1.3$3.4 million of deferred tax assets related to Alternative Minimum Tax credits as of December 31, 2017 and 2016, respectively which do not expire. Under the Tax Act, the Alternative Minimum Tax credits will convert to refunds if not used as a credit. The Company believes that the research and development credits will be fully utilized within the carryforward period. However, the Company does not expect to utilize all of its foreign tax credits within the respective carryforward periods. As such, the Company has a partial valuation allowance of $0.7$1.1 million for the year endedas of December 31, 2014.uncertainunrecognized tax positions if recognized at December 31, 2014benefits was $1.2$1.0 million as compared to $1.3and $0.9 million at December 31, 2013. It is reasonably possible that $0.3 million of the unrecognized tax benefit reflected at December 31, 2014 may reverse2017 and 2016, respectively. Any changes in the next 12twelve months as the Company reassesses its filing positions in various foreign jurisdictions. Any changes are not anticipated to have significant impact on the results of operations, financial position or cash flows of the Company. All of the Company’s uncertain tax positions, if recognized, would affect its income tax expense.20142017 and 2013,2016, potential interest and penalties on unrecognized tax benefits were not significant.20092010 to 20132016 remain subject to examination by tax authorities and the Company’s foreign tax returns from 20072009 to 20132016 remain subject to examination by tax authorities. 2014 2013 (In thousands) Balance at January 1, $ 1,259 $ 1,405 Change attributable to tax positions taken in a prior period (51 ) 54 Change attributable to tax positions taken in the current period 8 7 Decrease attributable to lapse of statute of limitations (66 ) (207 ) Balance at December 31, $ 1,150 $ 1,259 2017 2016 (In thousands) Balance at January 1, $ 920 $ 916 Change attributable to tax positions taken in a prior period 146 25 Change attributable to final assessment (27 ) — Change attributable to tax positions taken in the current period 10 8 Decrease attributable to lapse of statute of limitations (3 ) (29 ) Balance at December 31, $ 1,046 $ 920 Year Ended December 31, 2014 2013 2012 (In thousands, except per share data) Numerator: Net income attributable to common stockholders $ 62,669 $ 55,517 $ 62,939 Net income allocated to participating securities (43 ) (46 ) (54 ) Numerator for basic net income per share 62,626 55,471 62,885 Dividends on Series A Preferred Stock 7,000 7,000 1,692 Dividends on Series B Preferred Stock 5,320 - - Numerator for diluted net income per share $ 74,946 $ 62,471 $ 64,577 Denominator:
average outstanding common shares 88,080 76,909 74,239 Dilutive effect of warrants - - 1,272 Dilutive effect of stock options 85 - 6 Dilutive effect of contingently issuable shares - - - Dilutive effect of Series A Preferred Stock 10,602 10,602 2,665 Dilutive effect of Series B Preferred Stock 10,633 - - Denominator for diluted net income per share 109,400 87,511 78,182 Net income per share attributable to common stockholders - basic $ 0.71 $ 0.72 $ 0.85 Net income per share attributable to common stockholders - diluted $ 0.69 $ 0.71 $ 0.83 Year Ended December 31, 2017 2016 2015 (In thousands, except per share data) Numerator: Net income (loss) attributable to common stockholders (numerator for basic net income per share) $ 218,420 $ 95,596 $ (8,313 ) Net (income) loss allocated to participating securities (215 ) (123 ) 3 Numerator for basic net income (loss) per share 218,205 95,473 (8,310 ) Dividends on Series A preferred stock, declared and undeclared 7,000 7,000 — Dividends on Series B preferred stock, declared and undeclared 8,436 8,436 — Numerator for diluted net income (loss) per share $ 233,641 $ 110,909 $ (8,310 ) 97,934 95,967 95,097 Dilutive effect of stock options 1,558 250 — Dilutive effect of Performance RSUs 1,308 1,328 — 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 (loss) per share 128,130 124,875 95,097 Net income (loss) per share attributable to common stockholders - basic $ 2.23 $ 1.00 $ (0.09 ) Net income (loss) per share attributable to common stockholders - diluted $ 1.82 $ 0.89 $ (0.09 ) 2014, warrants2017, $5.3 million and $6.3 million in cumulative unpaid dividends to purchase 0.3holders of the Series A Preferred Stock and Series B Preferred Stock, respectively, were not declared as a result of all cash dividends being suspended in connection with the amendments to the Credit Facility described in Note 5, but such amounts were deducted to arrive at net income attributable to common stockholders. For the year ended December 31, 2017, 2.1 million sharesunvested service-based RSUs were excluded from the computation of common stockbasic net income per share and not included in the computation of diluted net income per share, as the effect would be anti-dilutive, and 0.2 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.3.63.2 million shares of common stock were not included in the computation of diluted net income per share, as the effect would be anti-dilutive. Additionally, for the year ended December 31, 2014, 1.3anti-dilutive, and 1.4 million unvested service-based RSUs were excluded from the computation of basic and diluted net income per share. In January 2015, the Company granted approximately 0.2 million stock options and 0.1 million RSUs to employees and members of the Company’s board of directors. These grants could have dilutive effects on net income per share in future periods.For the year ended December 31, 2013, warrants to purchase 0.4 million shares of common stock and options to purchase 5.2 million shares of common stock were not included in the computation of diluted net income per share, as the effect would be anti-dilutive. Additionally, for the year ended December 31, 2013, 0.9 million unvested RSUs were excluded from the computation of basic and diluted net income per share.2012, warrants to purchase 0.32015, 1.3 million shares of common stock, options to purchase 4.3 million shares of common stockunvested service-based RSUs were not included in the computation of dilutedbasic net incomeloss per share asshare. Due to the effect would be anti-dilutive. Additionally,Company’s net loss for the year ended December 31, 2012, 0.5 million unvested RSUs2015, all potential common stock equivalents were excluded from the computation of basic and diluted net income per share.results for the years ended December 31, 2014 and 2013: Quarter Ended March 31, June 30, September 30, December 31, 2014 2014 2014 2014 (In thousands, except per share data) Revenue $ 98,032 $ 102,521 $ 107,493 $ 100,511 Operating income $ 28,344 $ 29,713 $ 33,013 $ 31,841 Net income $ 16,543 $ 15,019 $ 20,388 $ 23,039 Net income per common share - basic $ 0.19 $ 0.14 $ 0.18 $ 0.20 Net income per common share -diluted $ 0.19 $ 0.14 $ 0.17 $ 0.19 Quarter Ended March 31, June 30, September 30, December 31, 2013 2013 2013 2013 (In thousands, except per share data) Revenue $ 89,189 $ 94,684 $ 100,569 $ 98,207 Operating income $ 25,338 $ 28,848 $ 29,451 $ 26,257 Net income $ 14,934 $ 15,413 $ 16,585 $ 15,585 Net income per common share - basic $ 0.17 $ 0.18 $ 0.19 $ 0.18 Net income per common share -diluted $ 0.17 $ 0.18 $ 0.19 $ 0.18 Quarter Ended March 31, 2017 June 30, 2017 September 30, 2017 December 31, 2017 (In thousands, except per share data) Revenue $ 104,426 $ 111,604 $ 116,547 $ 115,469 $ 55,602 $ 35,742 $ 38,082 $ (13,950 ) $ 37,948 $ 24,778 $ 29,253 $ 141,877 Net income per common share - basic $ 0.35 $ 0.21 $ 0.26 $ 1.40 Net income per common share -diluted $ 0.30 $ 0.20 $ 0.23 $ 1.10 Includes accelerated depreciation of $36.8 million in the fourth quarter of 2017 associated with the write-off of the full amount previously paid to Kosmotras which decreased operating income. Also includes the impact of $14.2 million related to the gain on the transaction with Boeing, effective January 3, 2017. Includes the impact of provisional estimates related to deferred tax assets and liabilities resulting from the Tax Act implemented in December 2017. Quarter Ended March 31, 2016 June 30, 2016 September 30, 2016 December 31, 2016 (In thousands, except per share data) Revenue $ 104,202 $ 109,195 $ 112,794 $ 107,449 Operating income $ 43,278 $ 41,729 $ 49,768 $ 41,596 Net income $ 28,520 $ 26,854 $ 31,555 $ 24,103 Net income per common share - basic $ 0.26 $ 0.24 $ 0.29 $ 0.21 Net income per common share -diluted $ 0.23 $ 0.22 $ 0.26 $ 0.19 weighted averageweighted-average number of common shares outstanding during the year.902014.2017. In making this assessment, our management used the criteria set forth inInternal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework). Based on its assessment, our management has determined that, as of December 31, 2014,2017, our internal control over financial reporting was effective based on those criteria.20142017 financial statements. Ernst & Young LLP was given unrestricted access to all financial records and related data, including minutes of all meetings of stockholders, the Board of Directors and committees of the Board. Ernst & Young LLP has issued an unqualified report on our 20142017 financial statements as a result of the audit and also has issued an unqualified report on our internal controls over financial reporting which is attached hereto.912014,2017, there were no changes in our internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.922014,2017, based on criteria established in Internal Control—IntegratedControl-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Iridium Communications Inc.’s (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on the COSO criteria.Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.In our opinion, Iridium Communications Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2014, based on the COSO criteria.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Iridium Communications Inc. as of December 31, 2014 and 2013, and the related consolidated statements of operations and comprehensive income, changes in stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2014 and our report dated 26, 2015 expressed an unqualified opinion thereon.
22, 2018/s/ Ernst & Young LLPMcLean, VirginiaFebruary 26, 201520152018 Annual Meeting of Stockholders (the “2015“2018 Proxy Statement”) with the SEC, pursuant to Regulation 14A, not later than 120 days after the end of our fiscal year. Accordingly, certain information required by Part III has been omitted as permitted by General Instruction G(3)G (3) to Form 10-K. Only those sections of the 20152018 Proxy Statement that specifically address the items set forth herein are incorporated by reference.20152018 Proxy Statement entitled “Board of Directors and Committees,” “Election of Directors,” “Management” and “Section 16(a) Beneficial Ownership Reporting Compliance.”20152018 Proxy Statement entitled “Compensation Discussion and Analysis,” “Executive Compensation” and “Director Compensation.”20152018 Proxy Statement entitled “Security Ownership of Certain Beneficial Owners and Management” and “Securities Authorized for Issuance under Equity Compensation Plans.”20152018 Proxy Statement entitled “Transactions with Related Parties” and “Director Independence.”20152018 Proxy Statement entitled “Independent Registered Public Accounting Firm Fees.”Iridium Communications Inc.: 94(3) ExhibitsThe exhibits that are filed or furnished with this report or that are incorporated by reference herein are set forth in the Exhibit Index on page 97, which is incorporated by reference herein.95Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.IRIDIUM COMMUNICATIONS INC.Date: February 26, 2015By:/s/ Thomas J. FitzpatrickExhibit No. Thomas J. Fitzpatrick Chief Financial OfficerPursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:NameTitleDate/S/ MatthewJ. DeschChief Executive Officer and DirectorFebruary 26, 2015Matthew J. Desch (Principal Executive Officer)/s/ Thomas J. FitzpatrickChief Financial Officer, Chief Administrative Officer and DirectorFebruary 26, 2015Thomas J. Fitzpatrick (Principal Financial Officer)/s/ Richard P. NyrenVice President and Corporate ControllerFebruary 26, 2015Richard P. Nyren (Principal Accounting Officer)/s/ RobertH. NiehausDirector and Chairman of the BoardFebruary 26, 2015Robert H. Niehaus/s/ ThomasC. CanfieldDirectorFebruary 26, 2015Thomas C. Canfield/s/ PeterM. DawkinsDirectorFebruary 26, 2015Peter M. Dawkins/s/ AlvinB. KrongardDirectorFebruary 26, 2015Alvin B. Krongard/s/ Eric T. OlsonDirectorFebruary 26, 2015Eric T. Olson/s/ StevenB. PfeifferDirectorFebruary 26, 2015Steven B. Pfeiffer/s/ ParkerW. RushDirectorFebruary 26, 2015Parker W. Rush/s/ S. ScottSmithDirectorFebruary 26, 2015S. Scott Smith/s/ BarrY J.WestDirectorFebruary 26, 2015Barry J. WestEXHIBIT INDEXExhibitNo.Document 3.1 3.2 3.3 3.4 3.5 May 15, 2015. 4.1 4.2Amended and Restated Warrant Agreement between the Registrant and American Stock Transfer & Trust Company, incorporated herein by reference to Exhibit 4.3 of the Registrant’s Current Report on Form 8-K filed on February 26, 2008.4.3Warrant Agreement for $11.50 Warrants between the Company and American Stock Transfer & Trust Company, incorporated herein by reference to Exhibit 4.4 of the Registrant’s Current Report on Form 8-K filed with the SEC on September 29, 2009.4.4Specimen Warrant Certificate for $11.50 Warrants, incorporated herein by reference to Exhibit 4.5 of the Registrant’s Current Report on Form 8-K filed with the SEC on September 29, 2009.10.1† Exhibit No. Document 10.2 10.3 10.4 10.5† ExhibitNo.Document10.6 Subscription10.7† 10.7Subscription10.8† 10.810.9 Subscription10.10 10.910.11 10.10†10.12† 10.13† 10.11†10.14 10.1210.15 10.1310.16 10.14Exhibit No. Document 10.15†10.17† 10.18 10.1610.19† 10.17†10.20† 10.18†10.21† 10.19†10.22† 10.20†10.23† 10.21†10.24† 10.22†ExhibitNo.10.25† Document10.23†10.26† 10.24†10.27† 10.25†10.28† 10.26†10.29† 10.27†10.30† 10.28†10.31† 10.29†Exhibit No. Document 10.30†10.32† 10.33† 10.31†10.34† 10.32†10.35† 10.33†10.36† 10.34†10.37† 10.35†10.38† 10.36†10.39† 10.37†10.40† 10.38†ExhibitNo.10.41† Document10.39†10.42† 10.40†10.43† 10.44† 10.45† 10.46† Exhibit No. Document 10.47† 10.48†† 10.49†† 10.50† 10.51† 10.41†10.52† 10.42†10.53† 10.43†10.54 10.4410.55† 10.45†10.56† 10.46†10.47†Amendment No. 1 to Contract for Launch Services No. IS-11-032 between Iridium Satellite LLC and International Space Company Kosmotras, dated as of September 25, 2012 and effective as of June 13, 2013,November 2, 2015, incorporated herein by reference to Exhibit 10.210.53 of the Registrant’s QuarterlyAnnual Report Form 10-Q10-K filed with the SEC on August 1, 2013.February 25, 2016.10.57†† 10.48†10.49†Amendment No. 3 to Contract for Launch Services No. IS-11-032 between Iridium Satellite LLC and International Space Company Kosmotras, dated as of June 13, 2013, incorporated herein by reference to Exhibit 10.4 of the Registrant’s Quarterly Report Form 10-Q filed with the SEC on August 1, 2013.10.50†Amendment No. 4 to Contract for Launch Services No. IS-11-032 between Iridium Satellite LLC and International Space Company Kosmotras, dated as of April 21, 2014, incorporated herein by reference to Exhibit 10.2 of the Registrant’s Quarterly Report Form 10-Q filed with the SEC on July 31, 2014.10.51†Amendment No. 5 to Contract for Launch Services No. IS-11-032 between Iridium Satellite LLC and International Space Company Kosmotras, dated as of June 20, 2014, incorporated herein by reference to Exhibit 10.3 of the Registrant’s Quarterly Report Form 10-Q filed with the SEC on July 31, 2014.10.52†Products and Services Agreement No. AIR-12-001 between Aireon LLC and Harris Corporation Government Communications Systems Division, dated as of June 19, 2012, incorporated by reference to Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q/A filed with the SEC on September 12, 2012.10.53†Amendment No. 1 to the Products and Services Agreement No. AIR-12-001 between Aireon LLC and Harris Corporation Government Communications Systems Division, dated as of July 31, 2012, incorporated by reference to Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q filed with the SEC on November 2, 2012.ExhibitNo.Document10.54†Amendment No. 2 to the Products and Services Agreement No. AIR-12-001 between Aireon LLC and Harris Corporation Government Communications Systems Division, dated as of September 4, 2012, incorporated by reference to Exhibit 10.4 to the Registrant’s Quarterly Report on Form 10-Q filed with the SEC on November 2, 2012.10.55Amendment No. 3 to the Products and Services Agreement No. AIR-12-001 between Aireon LLC and Harris Corporation Government Communications Systems Division, dated as of March 18, 2013, incorporated herein by reference to Exhibit 10.3 of the Registrant’s Current Report on Form 10-Q filed with the SEC on May 2, 2013.10.56††Amendment No. 14 to the Products and Services Agreement No. AIR-12-001 between Aireon LLC and Harris Corporation Government Communications Systems Division,Exploration Technologies Corp., dated as of November 12, 2014.10.57††Amendment No. 15 to the Products and Services Agreement No. AIR-12-001 between Aireon LLC and Harris Corporation Government Communications Systems Division, dated as of December 18, 2014.2, 2015. 10.58† Iridium NEXT Support Services10.59 10.59††Amendment No. 5 to Iridium NEXT Support Services Agreement No. IS-10-019, by and between Iridium Satellite LLC and The Boeing Company for Support Services for Iridium NEXT, effective as of January 1, 2015.10.6010.60† 10.61†10.61 10.6210.62 10.6310.63 10.6410.64† 10.65†Amended and Restated Contract Boeing No. BSC-2000-001 between Iridium Constellation LLC and The Boeing Company for Transition, Operations and Maintenance, Engineering Services, and Re-Orbit of the Iridium Communications System, dated as of May 28, 2010, incorporated herein by reference to Exhibit 10.8 of the Registrant’s Quarterly Report on Form 10-Q/A filed with the SEC on March 29, 2011.10.66†10.65† 10.6710.66 Exhibit No. Document 10.68†10.67† 10.68* 10.69*10.69* 10.70*ExhibitNo.10.70* Document10.71*10.71* 10.72*10.72* 10.73*10.73* 10.74*10.74* 10.75*10.75* 10.76*10.76 10.7710.77* 10.78*10.78* 10.79*10.79* 10.80*10.80* 10.81*10.81* 10.82*10.82* 10.83*10.83* 10.84*10.84* 10.85*10.85* 10.86*10.86* 10.87*Exhibit
No. Document 10.87* 10.88* Non-Employee Director Compensation Plan, incorporated herein by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed with the SEC on December 22, 2009.10.89*10.89* 10.90*Performance Share Program established under the 10.90* 10.91*Form10.91* 10.92* 10.93* 10.94* 10.95* 10.96* 10.97* 10.98* 21.1 23.1 31.1 31.2 32.1 101.INS XBRL Instance Document 101.SCH XBRL Taxonomy Extension Schema 101.CAL XBRL Taxonomy Extension Calculation Linkbase 101.DEF XBRL Taxonomy Extension Definition Linkbase 101.LAB XBRL Taxonomy Extension Label Linkbase 101.PRE XBRL Taxonomy Extension Presentation Linkbase † Confidential treatment has been granted for certain portions omitted from this exhibit pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. Confidential portions of this exhibit have been separately filed with the Securities and Exchange Commission. †† Confidential treatment has been requested for certain portions omitted from this exhibit pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. Confidential portions of this exhibit have been separately filed with the Securities and Exchange Commission. * Denotes compensatory plan, contract or arrangement. 103IRIDIUM COMMUNICATIONS INC. Date: February 22, 2018 By: /s/ Thomas J. Fitzpatrick Thomas J. Fitzpatrick Chief Financial Officer Name Title Date /s/ Matthew J. Desch Chief Executive Officer and Director February 22, 2018 Matthew J. Desch (Principal Executive Officer) /s/ Thomas J. Fitzpatrick Chief Financial Officer, Chief Administrative Officer and Director February 22, 2018 Thomas J. Fitzpatrick (Principal Financial Officer) /s/ Timothy P. Kapalka Vice President and Corporate Controller, Iridium Satellite LLC February 22, 2018 Timothy P. Kapalka (Principal Accounting Officer) /s/Robert H. Niehaus Director and Chairman of the Board February 22, 2018 Robert H. Niehaus /s/ Thomas C. Canfield Director February 22, 2018 Thomas C. Canfield /s/ Jane L. Harman Director February 22, 2018 Jane L. Harman /s/ Alvin B. Krongard Director February 22, 2018 Alvin B. Krongard /s/ Eric T. Olson Director February 22, 2018 Eric T. Olson /s/ Steven B. Pfeiffer Director February 22, 2018 Steven B. Pfeiffer /s/ Parker W. Rush Director February 22, 2018 Parker W. Rush /s/ Henrik O. Schliemann Director February 22, 2018 Henrik O. Schliemann /s/ S. Scott Smith Director February 22, 2018 S. Scott Smith /s/ Barry J. West Director February 22, 2018 Barry J. West