What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2022-02-17 compared with 2021-02-11 · 125 added, 263 removed, 202 unchanged (66% of the section changed)

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

A discussion regarding our financial condition and results of operations for the year ended December 31, 2020 compared to the year ended December 31, 2019 can be found in Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2020, as filed with the SEC on February 11, 2021.

We were initially formed in 2007 as GHL Acquisition Corp., a special purpose acquisition company.

5 unchanged sentences

We provide voice and data communications services to businesses, the U.S.

and foreign governments, non-governmental organizations and consumers via our upgraded satellite network, which has an architecture of 66 operational satellites with in-orbit and ground spares and related ground infrastructure.

and foreign governments, non-governmental organizations and consumers via our satellite network, which has an architecture of 66 operational satellites with in-orbit and ground spares and related ground infrastructure.

We utilize an interlinked mesh architecture to route traffic across the satellite constellation using radio frequency crosslinks between satellites.

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.

Our upgraded satellite constellation is compatible with all of our end-user equipment and supports more bandwidth and higher data speeds for our new products, including our recently introduced Iridium Certus broadband service.

We sell our products and services to commercial end users through a wholesale distribution network, encompassing approximately 100 service providers, 285 value-added resellers, or VARs, and 85 value-added manufacturers, or VAMs, who either sell directly to the end user or indirectly through other service providers, VARs or dealers.

11 unchanged sentences

Final payments under this contract were made during the second quarter of 2019.

These costs were capitalized as construction in progress within property and equipment, net in the accompanying condensed consolidated balance sheets.

These costs were capitalized as construction in progress within property and equipment, net in the accompanying consolidated balance sheets.

To complete the upgraded constellation, we launched a total of 75 satellites into low earth orbit using eight Falcon 9 rockets under two contracts with Space Exploration Technologies Corp., or SpaceX, with a total price of $510.8 million.

Final payments to SpaceX for these launches were made during the second quarter of 2019.

These costs were capitalized as construction in progress within property and equipment, net in the accompanying consolidated balance sheets.

These costs were capitalized as

construction in progress within property and equipment, net in the accompanying consolidated balance sheets.

We shared one launch with GFZ German Research Centre for Geosciences for which we received $29.8 million from them.

On November 4, 2019, pursuant to a new loan agreement, or the Credit Agreement, we entered into a $1,450.0 million term loan, or the Term Loan, and an accompanying $100.0 million revolving loan, or the Revolving Facility.

We used the proceeds of the Term Loan along with our debt service reserve account, or DSRA, and cash on hand to repay in full all of the indebtedness outstanding under the credit facility with a syndicate of bank lenders guaranteed by Bpifrance Assurance Export S.A.S., or the BPIAE Facility, as well as related expenses.

The Term Loan was issued at a price equal to 99.5% of its face value and initially bore interest at an annual rate of LIBOR plus 3.75%, with a 1.0% LIBOR floor, and has a seven-year maturity.

On February 7, 2020, we closed on an additional $200.0 million under the Term Loan.

On February 13, 2020, we used these proceeds, together with cash on hand, to prepay and retire all of the indebtedness outstanding under our senior unsecured notes, or the Notes, including premiums for early prepayment.

The additional amount is fungible with the original $1,450.0 million, having the same maturity date, interest rate and other terms, but was issued at a 1.0% premium to face value.

To prepay the Notes, we paid a call price equal to the present value at the redemption date of (i) 105.125% of the $360.0 million principal amount of the Notes plus (ii) all interest due through the first call date in April 2020, representing a total call premium of $23.5 million, plus all accrued and unpaid interest to the redemption date.

In January 2021, we repriced the Term Loan in order to reduce the annual interest rate to LIBOR plus 2.75%, with a 1.0% LIBOR floor, with no other material changes to the terms.

The Revolving Facility bears interest at LIBOR plus 3.75% (but without a LIBOR floor) if and as drawn, with no original issue discount, a commitment fee of 0.5% per year on the undrawn amount, and a five-year maturity.

See Note 7 for further discussion of our Term Loan.

The Credit Agreement, as amended to date, restricts our ability to incur liens, engage in mergers or asset sales, pay dividends, repay subordinated indebtedness, incur indebtedness, make investments and loans, and engage in other transactions as specified in the Credit Agreement, and also contains a mechanism to sweep a portion of our excess cash flow (as defined in the Credit Agreement).

The Credit Agreement provides for specified exceptions, baskets measured as a percentage of trailing twelve months of earnings before interest, taxes, depreciation and amortization, or EBITDA, and unlimited exceptions in the case of incurring indebtedness and liens and making investments, dividend payments, and payments of subordinated indebtedness, as well as a phase-out of the excess cash flow sweep, based on achievement and maintenance of specified leverage ratios.

The Credit Agreement permits repayment, prepayment, and repricing transactions, subject to a 1% penalty in the event the facility is prepaid or repriced within six months after the repricing action noted above.

The Credit Agreement contains no financial maintenance covenants with respect to the Term Loan.

With respect to the Revolving Facility, the Credit Agreement requires the maintenance of a consolidated first lien net leverage ratio (as defined in the Credit Agreement) of no greater than 6.25 to 1 if more than 35% of the Revolving Facility has been drawn.

The Credit Agreement also contains other customary representations and warranties, affirmative and negative covenants, and events of default.

In November 2019, we borrowed our $1,450.0 million Term Loan with an accompanying $100.0 million revolving loan available to us, or the Revolving Facility.

Both facilities are under a credit agreement with the lenders, or the Credit Agreement.

We used the proceeds of the Term Loan, along with our debt service reserve account and cash on hand to repay in full all of the indebtedness outstanding under a previous credit facility with a syndicate of bank lenders guaranteed by Bpifrance Assurance Export S.A.S., or the BPIAE Facility, as well as related expenses.

In February 2020, we borrowed an additional $200.0 million under our Term Loan and used the proceeds and approximately $183.5 million of cash on hand to repay in full all of the indebtedness outstanding under senior unsecured promissory notes, or the Notes, including premiums for early repayment.

In January 2021 and July 2021, we repriced all borrowings outstanding under our Term Loan and incurred third-party financing costs of $3.6 million and $1.3 million, respectively.

As repriced, the Term Loan bears interest at an annual rate of LIBOR plus 2.50%, with a 0.75% LIBOR floor.

All other terms of the Term Loan remain the same as before the repricing, including maturity in November 2026.

The Revolving Facility bears interest at an annual rate of LIBOR plus 3.75% (but without a LIBOR floor) if and as drawn, with no original issue discount, a commitment fee of 0.5% per year on the undrawn amount, and a five-year maturity.

See Note 7 to the consolidated financial statements included in this annual report for further discussion of our Term Loan.

As of December 31, 2021, we reported an aggregate balance of $1,621.1 million in borrowings under the Term Loan, before $23.1 million of net deferred financing costs, for a net principal balance of $1,598.0 million outstanding in our consolidated balance sheet.

We have not drawn on our Revolving Facility.

Our Term Loan contains no financial maintenance covenants.

With respect to the Revolving Facility, we are required to maintain a consolidated first lien net leverage ratio of no greater than 6.25 to 1 if more than 35% of the Revolving Facility has been drawn.

The Credit Agreement contains other customary representations and warranties, affirmative and negative covenants, and events of default.

We were in compliance with all covenants under the Credit Agreement as of December 31, 2021.

The Credit Agreement restricts our ability to incur liens, engage in mergers or asset sales, pay dividends, repay subordinated indebtedness, incur indebtedness, make investments and loans, and engage in other transactions as specified in the Credit Agreement.

The Credit Agreement provides for specified exceptions, including baskets measured as a percentage of trailing twelve months of earnings before interest, taxes, depreciation and amortization, or EBITDA, and unlimited exceptions based on achievement and maintenance of specified leverage ratios, for, among other things, incurring indebtedness and liens and making investments, restricted payments for dividends and share repurchases, and payments of subordinated indebtedness.

The Credit Agreement permits repayment, prepayment, and repricing transactions and requires quarterly principal payments of 0.25% of the $1.65 billion principal amount as of February 2020.

The Credit Agreement also contains a mandatory prepayment sweep mechanism with respect to a portion of our excess cash flow (as defined in the Credit Agreement), which is phased out based on achievement and maintenance of specified leverage ratios.

As of December 31, 2021, our leverage ratio was below the specified level, and we were not required to make a mandatory prepayment with respect to 2021 cash flows.

As of December 31, 2020, our mandatory excess cash flow prepayment, as specified in the Credit Agreement, was calculated to be $12.7 million.

Lenders have the right to decline payment.

As such, we paid $4.7 million to lenders who did not decline payment in May 2021 with respect to the 2020 cash flows.

This amount counted towards our required quarterly principal payments through December 31, 2021.

Derivative Financial Instruments

On November 27, 2019, we executed a long-term interest rate swap, or the Swap, effective through November 2021 to mitigate variability in forecasted interest payments on a portion of our borrowings under our Term Loan.

We receive variable interest payments based on one-month LIBOR from the counterparty.

We also entered into an interest rate swaption agreement, or the Swaption, that, if executed on November 22, 2021, would extend our Swap through November 2026.

We pay a fixed annual rate of 0.50% for the Swaption, and a fixed rate of 1.565% on the Swap.

Both the Swap and the Swaption derivative instruments carry a notional amount of $1,000.0 million.

We designated both the Swap and Swaption as qualifying hedging instruments and accounted for these derivatives as cash flow hedges.

Gains and losses resulting from fair value adjustments to the Swap and Swaption are recorded within accumulated other comprehensive loss within our consolidated balance sheets and reclassified to interest expense on the dates that interest payments become due.

Cash flows related to the interest rate swaps are included in cash flows from operating activities on the consolidated statements of cash flows.

On November 27, 2019, we executed a two-year interest rate swap (the “Swap”) to mitigate variability in forecasted interest payments on a portion of our borrowings under the Term Loan.

We paid a fixed rate of 1.565% per annum on the $1.0 billion notional amount of the Swap, which expired in November 2021.

We also entered into an interest rate swaption agreement (the “Swaption”), for which we paid a fixed rate of 0.50% per annum on the $1.0 billion notional amount.

We sold the Swaption in May 2021 for $0.7 million but continued to pay the fixed rate through the expiration of the Swaption in November 2021.

At inception, the Swap and Swaption (collectively, the "swap contracts") were designated as cash flow hedges for hedge accounting.

The unrealized changes in market value were recorded in accumulated other comprehensive income (loss) and any remaining balance will be reclassified into earnings during the period in which the hedged transaction affects earnings.

As a result of the repricing of the Term Loan in July 2021, we elected to de-designate the Swap as a cash flow hedge.

Accordingly, as the related interest payments were still probable, the accumulated balance within other comprehensive income (loss) as of the de-designation date was amortized into earnings through the remaining term, and subsequent to de-designation, the changes in the valuation of the Swap were recorded directly into earnings.

On July 21, 2021, we entered into an interest rate cap agreement (the "Cap") that began in December 2021 upon the expiration of the Swap.

The Cap manages our exposure to interest rate movements on a portion of the Term Loan now that the Swap has expired.

The Cap provides the right for us to receive payment if one-month LIBOR exceeds 1.5%.

Beginning in December 2021, we began to pay a fixed monthly premium based on an annual rate of 0.31% for the Cap.

The Cap carried a notional amount of $1.0 billion as of December 31, 2021.

The Cap is designed to mirror the terms of the Term Loan and to offset the cash flows being hedged.

We designated the Cap as a cash flow hedge of the variability of the LIBOR-based interest payments on the Term Loan.

The effective portion of the Cap's change in fair value will be recorded in accumulated other comprehensive income (loss) and will be reclassified into earnings during the period in which the hedged transaction affects earnings.

See Note 8 to our consolidated financial statements included in this report for further discussion of our derivative financial instruments.

3 unchanged sentences

Interest was payable semi-annually on April 15 and October 15, beginning on October 15, 2018, and principal would have been repaid in full upon maturity.

As noted above, the notes were redeemed on February 13, 2020.

As described above, the Notes were redeemed in full on February 13, 2020.

Total Interest on Debt and Loss on Extinguishment

Total interest incurred includes amortization of deferred financing fees and capitalized interest.

To reprice the Term Loan in January 2021 and July 2021, we incurred third-party financing costs of $3.6 million and $1.3 million, respectively.

These costs were expensed and are included within interest expense on the consolidated statements of operations and comprehensive income (loss) for the year ended December 31, 2021.

Total interest incurred during the years ended December 31, 2021, 2020 and 2019 was $72.8 million, $99.2 million and $140.5 million, respectively.

Interest incurred includes amortization of deferred financing fees of $4.3 million, $3.8 million and $21.3 million for the years ended December 31, 2021, 2020 and 2019, respectively.

Interest capitalized during the year ended December 31, 2020 and 2019 was $3.2 million and $15.1 million, respectively.

Interest accrued for the years ended December 31, 2020 and 2019 was $0.2 million and $7.8 million, respectively.

As part of the repayment of the BPIAE Facility in November 2019, noted above, we incurred a loss of approximately $111.7 million for the early extinguishment which was recorded within other income (expense) on our consolidated statements of operations and comprehensive loss.

Similarly, in February 2020, we incurred a loss of approximately $30.2 million for the early extinguishment of the Notes, also recorded within other income (expense) on our consolidated statements of operations and comprehensive loss.

Interest capitalized during the year ended December 31, 2021, 2020 and 2019 was $2.1 million, $3.2 million and $15.1 million, respectively.

As of December 31, 2021 and 2020, accrued interest on the Term Loan was $0.1 million and $0.2 million, respectively.

As part of the repayment of our previous debt facility in November 2019, we incurred a loss of approximately $111.7 million for the early extinguishment.

In February 2020, we incurred a loss of approximately $30.2 million for the early extinguishment of the Notes.

In July 2021, certain lenders did not participate in the repricing of the Term Loan, described above.

Those portions of the Term Loan were replaced by new or existing lenders.

This resulted in a loss of approximately $0.9 million.

These losses were recorded within other income (expense) on our consolidated statements of operations and comprehensive income (loss).

Material Trends and Uncertainties

19 unchanged sentences

• reliance on our wholesale distribution network to market and sell our products, services and applications effectively;

• reliance on single-source suppliers for the manufacture of most of our subscriber equipment and for some of the components required in the manufacture of our end-user subscriber equipment and our ability to purchase parts that are periodically subject to shortages resulting from surges in demand, natural disasters or other events;

• reliance on a global supply chain, including single-source suppliers for the manufacture of most of our subscriber equipment and for some of the components required in the manufacture of our end-user subscriber equipment and our ability to purchase component parts that are periodically subject to shortages resulting from surges in demand, natural disasters or other events, including the COVID-19 pandemic;

• reliance on a few significant customers, particularly agencies of the U.S.

3 unchanged sentences

The preparation of these financial statements requires the use of estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities.

On an ongoing

basis, we evaluate our estimates, including those related to revenue recognition, income taxes, useful lives of property and equipment, loss contingencies, and other estimates.

On an ongoing basis, we evaluate our estimates, including those related to revenue recognition, income taxes, useful lives of property and equipment, 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.

1 unchanged sentence

The accounting policies we believe to be most critical to understanding our financial results and condition and that require complex and subjective management judgments are discussed below.

Our accounting policies are more fully described in Note 2 in Item 8 “Financial Statements and Supplementary Data” included in this report.

Please see the notes to our consolidated financial statements for a full discussion of these significant accounting policies.

Our accounting policies are more fully described in Note 2 to the consolidated financial statements included in this report.

Revenue Recognition

We sell services and equipment through contracts with our customers.

We evaluate whether a contract exists as it relates to collectibility of the contract.

We evaluate whether a contract exists as it relates to collectability of the contract.

Once a contract is deemed to exist, we evaluate the transaction price including both fixed and variable consideration.

1 unchanged sentence

When a contract includes variable consideration, we evaluate the estimate of the variable consideration to determine whether the estimate needs to be constrained.

Therefore, we include constrained consideration in the transaction price only to the extent that it is probable that a significant reversal of the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration or collectibility is subsequently resolved.

Variable consideration estimates are updated at the end of each quarter and collectibility assessments are evaluated with new customers, or on an ongoing basis if initially deemed not probable, and updated as facts and circumstances change.

Variable consideration estimates are updated at the end of each quarter and collectability assessments are evaluated with new customers, or on an ongoing basis if initially deemed not probable, and updated as facts and circumstances change.

We sell prepaid services in the form of e-vouchers and prepaid cards.

1 unchanged sentence

We recognize revenue from (i) the prepaid services upon the use of the e-voucher or prepaid card by the customer and (ii) the estimated pattern of use.

We continually monitor the pattern of use for prepaid services.

A change in the estimated pattern of use may impact our revenue recognition.

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 three or four years, dependent on the initial term when purchased.

12 unchanged sentences

If actual results are not consistent with our estimates and assumptions, this may result in material changes to our income tax provision.

The Tax Cuts and Jobs Act of 2017, enacted in December of 2017, or the Tax Act, introduced significant changes to U.S.

income tax law that have a meaningful impact on our provision for income taxes.

Due to the complexity involved in applying the provisions of the Tax Act, we made reasonable estimates of the effects and recorded these estimates in our financial statements.

Accounting for the income tax effects of the Tax Act requires significant judgments and estimates in the interpretation and calculations of the various provisions.

During 2019 and 2020, the U.S.

Treasury Department, as well as the Internal Revenue Service, or IRS, and other standard-setting bodies issued guidance related to certain provisions in the Tax Act.

These same standard-setting bodies may issue additional 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, interpret the Tax Act

and analyze any additional guidance issued by the IRS or other standard-setting bodies, we may need to make adjustments to prior estimates, which could materially impact our financial statements in the period in which the adjustments are made.

Property and Equipment

7 unchanged sentences

The upgraded satellites that have been placed into service are depreciated using the straight-line method over their respective estimated useful lives.

If the estimated useful lives of our upgraded satellites change, it could have a material impact on the timing of the recognition of depreciation expense.

If the estimated useful lives of our upgraded satellites change, it could have a material impact on the timing of the recognition of depreciation expense and hosted payload revenue.

During the construction period for our upgraded satellite constellation, assets under construction primarily consisted of costs incurred associated with the design, development and launch of the upgraded satellites, upgrades to our current infrastructure and ground systems and internal software development costs.

3 unchanged sentences

During each year end, we evaluate the useful lives of all assets under construction.

Comparison of Our Results of Operations for the Year Ended December 31, 2020 and the Year Ended December 31, 2019

Comparison of Our Results of Operations for the Years Ended December 31, 2021 and 2020

Year Ended December 31,

44 unchanged sentences

(1) Billable subscriber numbers are shown as of the end of the respective period.

(2) 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.

(3) Commercial broadband consists of Iridium OpenPort and Iridium Certus broadband services, which were previously reported in commercial voice and data revenue.

Prior year periods have been conformed to this presentation.

For the year ended December 31, 2020, total commercial revenue increased $12.2 million, or 3%, due to increased hosted payload and other data services revenue and increased commercial broadband revenue.

Hosted payload and other data service revenue increased $10.6 million, or 21%, primarily due to increased Aireon data service fees related to a contractual step-up and increased Aireon power fees.

Commercial broadband revenue increased $5.5 million, or 18%, from the prior year period, principally due to sales of Iridium Certus broadband services, which were commercially introduced in January 2019.

Commercial IoT data revenue also increased slightly, up $0.6 million, or 1%, over the prior year period.

This primarily reflects a 20% increase in commercial IoT data billable subscribers, primarily from continued strength in consumer personal communications devices, offset in part by a decrease in ARPU, driven by the decrease in usage revenue related to COVID-19, particularly with aviation customers, and an increase in the proportion of consumer personal communications device users comprising IoT subscribers, as users of these devices typically utilize lower ARPU plans.

The increases in revenue were partially offset by a $4.5 million, or 3%, decline in commercial voice and data revenue from the prior year resulting from a decrease in subscribers and decreased usage following mobility restrictions associated with the COVID-19 pandemic.

(3) Commercial broadband consists of Iridium OpenPort and Iridium Certus broadband services.

For the year ended December 31, 2021, total commercial revenue increased $25.9 million, or 7%, primarily as a result of increases in IoT, broadband, and voice and data revenue mainly driven by increases in billable subscribers.

Commercial IoT revenue increased $13.9 million, or 14%, from the prior year.

The increase in IoT revenue was driven by a 24% increase in IoT billable subscribers due to continued strength in personal communications devices, as well as the lifting of mobility restrictions that had been imposed due to COVID-19.

The subscriber increase effect on revenue was partially offset by a 6% reduction in IoT ARPU, primarily due to the increased proportion of personal communication subscribers using lower ARPU plans, countered in part by an increase in usage and ARPU by aviation subscribers due to increases in air travel from the prior year.

Commercial broadband revenue increased $7.0 million, or 20%, from the prior year, primarily due to the increase in broadband billable subscribers and an increase in ARPU associated with the increase in the mix of subscribers utilizing higher ARPU Iridium Certus broadband plans.

Commercial voice and data revenue increased $7.0 million, or 4%, from the prior year, primarily due to an increase in volume across all voice and data services.

These increases were offset in part by a decrease in hosted payload and other service revenue of $2.0 million, or 3%, compared to the prior year.

This decrease was primarily due to a one-time data billing settlement that resulted in recognition of $1.3 million in the prior year period, plus the recognition of an additional $1.4 million of hosting data service revenue in the prior year due to an updated estimate of data service usage that did not recur in 2021.

Government Service Revenue

10 unchanged sentences

We provide airtime and airtime support to U.S.

government and other authorized customers pursuant to our Enhanced Mobile Satellite Services contract, or the EMSS Contract.

Under the terms of this agreement, authorized customers utilize specified Iridium airtime services provided through the U.S.

government and other authorized customers pursuant to our EMSS contract entered into in September 2019.

Under this agreement, authorized customers utilize specified Iridium airtime services provided through the U.S.

government’s dedicated gateway.

The fee is not based on subscribers or usage, allowing an unlimited number of users access to the services.

For the year ended December 31, 2020, government service revenue increased $3.8 million from the prior year period as a result of the higher pricing in the new EMSS Contract.

The fee is not based on subscribers or usage, allowing an unlimited number of users access to these services.

The annual rate under the EMSS contract increased from $103.0 million in the prior year to $106.0 million during the third quarter of 2021.

Subscriber Equipment Revenue

Subscriber equipment revenue increased $3.3 million, or 4%, to $86.1 million for the year ended December 31, 2020 compared to the prior year, primarily due to an increase in the volume and higher average selling price of L-band transceivers and an increase in volume of IoT device sales, partially offset by a decrease in the volume of handset sales.

Subscriber equipment revenue increased $6.0 million, or 7%, to $92.1 million for the year ended December 31, 2021 compared to the prior year, primarily due to an increase in the volume of handset and IoT device sales, partially offset by a decrease in the volume of Iridium Pilot and L-band transceiver device sales.

Engineering and Support Service Revenue

5 unchanged sentences

Total $ 30.4 $ 34.2 $ (3.8)

Engineering and support service revenue increased by $3.8 million, or 12%, for the year ended December 31, 2020 compared to the prior year primarily as a result of an increase in the volume of contracted work to enable services for the U.S.

government and an increase in the volume of work for commercial customers, primarily related to the Aireon hosted payload operations center.

Engineering and support service revenue decreased by $3.8 million, or 11%, for the year ended December 31, 2021 compared to the prior year primarily due to the episodic nature of contract work under certain government contracts.

Operating Expenses

1 unchanged sentence

Cost of services (exclusive of depreciation and amortization) includes the cost of network engineering and operations staff, including contractors, software maintenance, product support services, and cost of services for government and commercial engineering and support service revenue.

Cost of services (exclusive of depreciation and amortization) decreased by $3.9 million, or 4%, for the year ended December 31, 2020 compared to the prior year, primarily as a result of a decrease in in-orbit insurance costs, which were amortized over a one-year period from the in-service date, as we completed the placement of upgraded satellites in-orbit in February 2019.

This decrease was offset in part by higher costs to support the new EMSS Contract and an increase in the volume of contracted engineering and support services, as noted above.

Cost of services (exclusive of depreciation and amortization) increased by $5.9 million, or 7%, for the year ended December 31, 2021 compared to the prior year, primarily as a result of higher product support and network and satellite operation costs.

These costs were higher in the current year primarily due to increased management incentive costs.

This increase was partially offset by the decrease in work under certain government engineering contracts, as noted above.

Cost of Subscriber Equipment

Cost of subscriber equipment includes the direct costs of equipment sold, which consist of manufacturing costs, allocation of overhead, and warranty costs.

Cost of subscriber equipment increased $1.4 million, or 3%, for the year ended December 31, 2020 compared to the prior year period primarily due to the increase in the volume of L-band transceivers and IoT device sales, as described above.

Cost of subscriber equipment increased $1.8 million, or 3%, for the year ended December 31, 2021 compared to the prior year period primarily due to an increase in volume of higher margin handsets and an increase in IoT device sales, partially offset by a decrease in the volume of Iridium Pilot and L-band transceiver device sales, as described above.

Research and Development

Research and development expenses decreased by $2.3 million, or 16%, for the year ended December 31, 2020 compared to the prior year period primarily due to decreased spend on devices for our upgraded network.

Research and development expenses decreased by $0.2 million, or 1%, for the year ended December 31, 2021 compared to the prior year period based on consistent spending on device-related features for our network.

Selling, General and Administrative

Selling, general and administrative expenses that are not directly attributable to the sale of services or products include sales and marketing costs as well as employee-related expenses (such as salaries, wages, and benefits), legal, finance, information technology, facilities, billing and customer care expenses.

Selling, general and administrative expenses decreased by $3.1 million, or 3%, for the year ended December 31, 2020 compared to the prior year, primarily due to a decrease in management incentive compensation and decreased spend on travel and marketing related events as a result of COVID-19.

These decreases were offset by an increase in wages and equity compensation associated with an increase in headcount.

Selling, general and administrative expenses increased by $10.4 million, or 12%, for the year ended December 31, 2021, primarily due to higher management incentive costs incurred in the current year.

Management incentive costs were higher in the current year based on improved results and were lower in the prior year due to the impacts of the COVID-19 pandemic.

The increase was partially offset by a decrease in stock appreciation rights expense in the current year resulting from changes in our stock valuation between the years.

The increase was also offset by a decrease in bad debt expense and favorable settlements including social contribution tax credit received in the current year.

Depreciation and Amortization

Depreciation and amortization expense increased by $5.5 million, or 2%, for the year ended December 31, 2020 compared to the prior year, primarily due to the increased number of upgraded satellites in service during the current period as we completed the replacement of our first-generation satellites in February 2019.

As the upgraded satellites are the largest proportion of our asset base, we anticipate depreciation and amortization to remain relatively consistent over the next several years.

Depreciation and amortization expense increased by $2.3 million, or 1%, for the year ended December 31, 2021 compared to the prior year.

The increase was primarily due to software enhancements related to our Iridium Certus service line that were placed into service during July 2021.

We anticipate depreciation and amortization to remain relatively consistent over the next several years.

Other Income (Expense)

Interest Expense, net

Interest expense, net, for the year ended December 31, 2020 was $94.3 million, compared to $115.4 million for the prior year period.

The decrease was primarily related to the impact of the refinancing of our debt including a decrease in the weighted average effective interest rate and lower average outstanding borrowings under our total debt obligations.

The decrease was offset in part by less interest being capitalized as the average balance of satellites in construction decreased in 2020 as upgraded satellites were completed in the prior year and less interest income.

Interest expense, net, for the year ended December 31, 2021 was $73.9 million, compared to $94.3 million for the prior year.

The decrease resulted primarily from a decrease in the annual interest rate on our Term Loan to LIBOR plus 2.5%, with a 0.75% LIBOR floor, from an annual interest rate of LIBOR plus 3.75%, with a 1.0% LIBOR floor, as a result of the repricing of our Term Loan in January 2021 and July 2021.

The decrease in interest expense was offset in part by $4.9 million of third-party financing costs paid in 2021, which were expensed as incurred, in connection with the repricing transactions.

Loss on Extinguishment of Debt

Loss on extinguishment of debt was $30.2 million for the year ended December 31, 2020, compared to $111.7 million for the prior year period.

During November 2019, we issued our Term Loan, and used the proceeds of the Term Loan, along with our DSRA and cash on hand to repay in full all of the indebtedness outstanding under the BPIAE Facility, including premiums for early prepayment.

During February 2020, we closed on an additional $200.0 million under our Term Loan and used these proceeds, together with cash on hand, to prepay all of the indebtedness outstanding under the Notes, including premiums for early prepayment.

In each case, we wrote off the remaining unamortized debt issuance costs, resulting in the loss on extinguishment of debt.

Loss on extinguishment of debt was $0.9 million for the year ended December 31, 2021, compared to $30.2 million for the prior year.

During July 2021, we repriced our Term Loan and wrote off unamortized debt issuance costs related to several lenders who did not participate in the repricing and whose portions of the Term Loan were replaced by new or existing lenders.

The loss on extinguishment of debt in 2020 resulted from the write off of unamortized debt issuance costs when we closed on an additional $200.0 million under our Term Loan in February 2020 and used the proceeds, together with cash on hand, to prepay all of the indebtedness outstanding under the Notes, including premiums for early prepayment.

Income Tax Benefit

For the year ended December 31, 2020, our income tax benefit was $32.9 million, compared to an income tax benefit of $56.1 million for the prior year.

For the year ended December 31, 2021, our income tax benefit was $19.6 million, compared to income tax benefit of $32.9 million for the prior year.

Our effective tax rate was approximately 67.7% for the year ended December 31, 2021 compared to 37.0% for the prior year.

3 unchanged sentences

Net loss was $9.3 million for the year ended December 31, 2021, compared to net loss of $56.1 million during the prior year.

This decrease in net loss was primarily the result of the $81.5 million decrease in loss on extinguishment of debt, the $23.0 million increase in total revenues, and the $21.1 million decrease in interest expense, net, as described above, partially offset by the $23.2 million decrease in income tax benefit, as described above.

Comparison of Our Results of Operations for the Year Ended December 31, 2019 and the Year Ended December 31, 2018

Year Ended December 31,

Revenue % of Total

Revenue Change

($ In thousands) 2019 2018 Dollars Percent

Service revenue

Commercial $ 350,026 63 % $ 318,757 61 % $ 31,269 10 %

Government 97,132 17 % 88,000 17 % 9,132 10 %

Total service revenue 447,158 80 % 406,757 78 % 40,401 10 %

Subscriber equipment 82,856 15 % 97,848 19 % (14,992) (15) %

Engineering and support services 30,430 5 % 18,403 3 % 12,027 65 %

Total revenue 560,444 100 % 523,008 100 % 37,436 7 %

Operating expenses:

Cost of services (exclusive of depreciation

and amortization) 94,958 17 % 86,016 16 % 8,942 10 %

Cost of subscriber equipment 50,186 9 % 56,857 11 % (6,671) (12) %

Research and development 14,310 2 % 22,429 4 % (8,119) (36) %

Selling, general and administrative 93,165 17 % 97,846 19 % (4,681) (5) %

Depreciation and amortization 297,705 53 % 218,207 42 % 79,498 36 %

Total operating expenses 550,324 98 % 481,355 92 % 68,969 14 %

Operating income 10,120 2 % 41,653 8 % (31,533) (76) %

Other income (expense):

Interest expense, net (115,396) (21) % (55,149) (11) % (60,247) 109 %

Loss on extinguishment of debt (111,710) (20) % (7,292) (1) % (104,418) 1,432 %

Other income (expense), net (1,133) 0 % 139 0 % (1,272) (915) %

Total other expense (228,239) (41) % (62,302) (12) % (165,937) 266 %

Loss before income taxes (218,119) (39) % (20,649) (4) % (197,470) 956 %

Income tax benefit 56,120 10 % 7,265 1 % 48,855 672 %

Net loss $ (161,999) (29) % $ (13,384) (3) % $ (148,615) 1,110 %

Commercial Service Revenue

Year Ended December 31,

2019 2018 Change

Revenue Billable

Subscribers (1)

Revenue Billable

Subscribers (1)

Revenue Billable

Subscribers ARPU

(Revenue in millions and subscribers in thousands)

Commercial services:

Voice and data $ 203.6 363 $ 47 $ 193.2 361 $ 45 $ 10.4 2 $ 2

IoT data 96.4 802 $ 11.10 85.1 647 $ 12.26 11.3 155 $ (1.16)

Hosted payload and other data 50.0 N/A 40.4 N/A 9.6 N/A

Total Commercial $ 350.0 1,165 $ 318.7 1,008 $ 31.3 157

(1) Billable subscriber numbers are shown as of the end of the respective period.

Billable subscriber and ARPU data is not applicable for hosted payload and other data service revenue items.

For the year ended December 31, 2019, total commercial revenue increased $31.3 million, or 10%, due to increased revenue across all commercial services compared to the prior period.

Commercial IoT data revenue increased $11.3 million, or 13%, from the prior year period primarily due to a 24% increase in commercial IoT data billable subscribers primarily from continued strength in consumer personal communications devices.

This higher volume of new personal communication subscribers caused overall IoT ARPU to be lower.

Commercial voice and data revenue increased $10.4 million, or 5%, from the prior year period.

This increase was principally due to price increases in access and roaming fees that were implemented during the second quarter of 2018.

The increase in commercial voice and data revenue was also due to increased broadband subscribers.

Hosted payload and other data service revenue increased $9.6 million, or 24%, primarily due to revenue recognition from hosting services and increased data services due to an increase in the number of upgraded satellites in service, both related to Aireon and L3Harris.

Government Service Revenue

Year Ended December 31,

2019 2018 Change

Revenue Billable

Subscribers (1)

Revenue Billable

Subscribers (1)

Revenue Billable

(Revenue in millions and subscribers in thousands)

Government service revenue $ 97.1 135 $ 88.0 113 $ 9.1 22

(1) Billable subscriber numbers shown are at the end of the respective period.

We provide airtime and airtime support to U.S.

government and other authorized customers pursuant to our EMSS Contract.

Under the terms of this agreement, authorized customers utilize certain Iridium airtime services provided through the U.S.

government's dedicated gateway.

The fee is not based on subscribers or usage, allowing an unlimited number of users access to the services.

Immediately prior to entering into the EMSS Contract in September 2019, we were providing airtime service at varying monthly rates to the U.S.

government under month-to-month extensions of our previous EMSS contract, following the expiration of a six-month extension on April 21, 2019.

For the year ended December 31, 2019, government service revenue increased $9.1 million from the prior year period as a result of the month-to-month extensions we agreed to with the U.S.

government while the EMSS Contract was being negotiated and the higher monthly rate once the EMSS Contract was executed and became effective on September 15, 2019.

Subscriber Equipment Revenue

Subscriber equipment revenue decreased $15.0 million, or 15%, to $82.9 million for the year ended December 31, 2019 compared to the prior year.

This decrease was primarily due to a decrease in volume of handset sales and Iridium Pilot unit sales, partially offset by an increase in the volume of Short Burst Data devices and Iridium Certus devices.

Handset sales in 2018 were abnormally strong.

Engineering and Support Service Revenue

Year Ended December 31,

2019 2018 Change

(In millions)

Commercial $ 2.8 $ 0.7 $ 2.1

Government 27.6 17.7 9.9

Total $ 30.4 $ 18.4 $ 12.0

Engineering and support service revenue increased by $12.0 million, or 65%, for the year ended December 31, 2019 compared to the prior year primarily as a result of an increase in the volume of contracted work to enable services for the U.S.

Operating Expenses

Cost of Services (exclusive of depreciation and amortization)

Cost of services (exclusive of depreciation and amortization) increased by $8.9 million, or 10%, for the year ended December 31, 2019 compared to the prior year, primarily as a result of an increase in the volume of contracted engineering and support services as noted above.

This increase was also driven by higher satellite operations support associated with a greater number of upgraded satellites in service during the current period, corresponding with higher levels of activity directed towards operating the completed system.

These increases were partially offset by a decrease in in-orbit insurance costs, which are amortized over a one-year period from the launch date, as we have completed the placement of new satellites in-orbit.

Cost of Subscriber Equipment

Cost of subscriber equipment decreased $6.7 million, or 12%, for the year ended December 31, 2019 compared to the prior year period primarily due to the decreased volume of handset and Iridium Pilot unit sales, partially offset by an increase in the volume of Short Burst Data devices and Iridium Certus devices.

Research and Development

Research and development expenses decreased by $8.1 million, or 36%, for the year ended December 31, 2019 compared to the prior year period primarily due to decreased spend on devices for our upgraded network.

Selling, General and Administrative

Selling, general and administrative expenses decreased by $4.7 million, or 5%, for the year ended December 31, 2019 compared to the prior year, primarily due to a decrease in professional fees, including lower consulting and regulatory fees, as well as a decrease in sales and marketing costs.

Depreciation and Amortization

Depreciation and amortization expense increased by $79.5 million, or 36%, for the year ended December 31, 2019 compared to the prior year, primarily due to the increased number of new satellites in service during the current period as we completed the replacement of our first-generation satellites.

Other Income (Expense)

Interest Expense, net

Interest expense, net, for the year ended December 31, 2019 was $115.4 million, compared to $55.1 million for the prior year period.

The increase in interest expense is primarily related to a decrease in interest being capitalized as the average balance of satellites in construction decreased as upgraded satellites were completed.

In addition, during the years ended December 31, 2019 and 2018, we incurred approximately $34.1 million and $26.3 million, respectively, in interest on the Notes that were issued in March 2018, resulting in only nine months of interest in 2018.

Loss on Extinguishment of Debt

During November 2019, we issued our Term Loan, and used the proceeds of the Term Loan, along with the our DSRA and cash on hand to repay in full all of the indebtedness outstanding under the BPIAE Facility, including premiums for early prepayment.

In conjunction with the prepayment of the BPIAE Facility, we wrote off the remaining unamortized debt issuance costs.

We also used proceeds received from Aireon and our Notes to extinguish debt.

These prepayments resulted in a loss on extinguishment of debt of $111.7 million and $7.3 million for the years ended December 31, 2019 and 2018, respectively.

The 2018 amount was previously included within interest expense.

Income Tax Benefit

For the year ended December 31, 2019, our income tax benefit was $56.1 million, compared to an income tax benefit of $7.3 million for the prior year.

Our effective tax rate was approximately 25.7% for the year ended December 31, 2019 compared to 35.4% for the prior year.

The increase in income tax benefit was primarily related to an increase in loss before income taxes compared to the prior year, stock compensation, tax credits as well as nonrecurring adjustments to our deferred tax assets and liabilities related to state law changes.

If our current estimates change in future periods, the impact on the deferred tax assets and liabilities may change correspondingly.

See Note 1 2 to our consolidated financial statements for more detail on the individual items impacting our effective tax rate for the years.

Net loss was $162.0 million for the year ended December 31, 2019, compared to net loss of $13.4 million during the prior year period.

This increase in net loss was primarily the result of the $104.4 million increase in loss on extinguishment of debt, the $79.5 million increase in depreciation and amortization expense and the $60.2 million increase in interest expense, net, as described above, partially offset by the $37.4 million increase in total revenues and the $48.9 million increase in income tax benefit, as described above.

The improvement primarily resulted from the $29.3 million decrease in loss on extinguishment of debt, the $20.4 million decrease in interest expense, net, and the $10.8 million increase in total operating income partially offset by the $13.3 million decrease in income tax benefit.

Liquidity and Capital Resources

In November 2019, we issued our Term Loan totaling $1,450.0 million, with an accompanying $100.0 million Revolving Facility.

We used the proceeds of the Term Loan, cash in our DSRA and cash on hand to repay in full all of the indebtedness outstanding under the BPIAE Facility, including premiums for early prepayment.

In February 2020, we issued an additional $200.0 million under our Term Loan and used the proceeds and approximately $183.5 million of cash on hand to repay in full all of the indebtedness outstanding under our Notes, including premiums for early repayment.

These additional funds have all of the same terms as the initial borrowing under the Term Loan and were issued at a premium of 1.0% to face value.

On January 20, 2021, we repriced our Term Loan.

The Term Loan now bears interest at an annual rate of LIBOR plus 2.75%, with a 1.00% LIBOR floor.

All other terms remain the same.

To reprice the Term Loan, we incurred additional financing costs of $3.4 million.

As of December 31, 2020, we reported an aggregate balance of $1,637.6 million in borrowings under the Term Loan in our consolidated balance sheet, net of $24.0 million of deferred financing costs for a net balance of $1,613.6 million outstanding.

We have not drawn on our Revolving Facility.

Our Term Loan contains no financial maintenance covenants.

The Credit Agreement contains other customary representations and warranties, affirmative and negative covenants, and events of default.

The Credit Agreement contains a mandatory prepayment mechanism with respect to a portion of our excess cash flow (as defined in the Credit Agreement).

It provides for specified exceptions, baskets measured as a percentage of trailing twelve months of earnings before interest, taxes, depreciation and amortization, and unlimited exceptions in the case of incurring indebtedness and liens and making investments, dividend payments, and payments of subordinated indebtedness, as well as a phase-out of the mandatory excess cash flow prepayments, based on achievement and maintenance of specified leverage ratios.

The Credit Agreement permits repayment, prepayment, and repricing transactions.

Our mandatory excess cash flow prepayment, as specified in the Credit Agreement, was $12.6 million as of December 31, 2020.

This amount will be paid in 2021 and counts towards our required quarterly principal payments under the Term Loan.

We were in compliance with all other covenants under the Credit Agreement as of December 31, 2020.

As of December 31, 2020, our total cash and cash equivalents balance was $237.2 million, our marketable securities balance was $7.5 million, and we had $100.0 million of borrowing availability under our Revolving Facility.

Our principal sources of liquidity are cash, cash equivalents, marketable securities and internally generated cash flows.

Our principal liquidity requirements over the next twelve months are primarily principal and interest on the Term Loan and share repurchases under the share repurchase program described in Note 10 .

Our current indebtedness consists exclusively of amounts outstanding under the Term Loan, the terms of which are described above under the section captioned “Term Loan.”

As of December 31, 2021, we held non-cancelable purchase obligations of approximately $32.0 million for inventory purchases with Benchmark Electronics, Inc., or Benchmark, our primary third-party vendor.

Our purchase obligations, all of which are due during 2022, increased $18.5 million from 2020 primarily due to increased demand and recovery from supply-chain constraints experienced during 2021.

As of December 31, 2021, our total cash and cash equivalents balance was $320.9 million, and we had $100.0 million of borrowing availability under our Revolving Facility.

In addition to the Revolving Facility, our principal sources of liquidity are cash, cash equivalents and internally generated cash flows.

Other than the purchase obligation noted above, our principal liquidity requirements over the next twelve months are primarily required principal and interest on the Term Loan, which we expect to be $16.5 million and, based on the current interest rate, approximately $60.0 million, respectively, as well as capital

expenditures of $45.0 million, working capital and potential share repurchases under the share repurchase program described in Note 10 to our consolidated financial statements included in this report.

We believe our liquidity sources will provide sufficient funds for us to meet our liquidity requirements for at least the next 12 months.

Cash Flows - Comparison of the Year Ended December 31, 2020 and the Year Ended December 31, 2019

Our material long-term cash requirement is the repayment of the remaining principal amount under the Term Loan upon its maturity in 2026, which is expected to be $1,555.1 million.

We expect to refinance this amount at or prior to maturity.

Cash Flows - Comparison of the Years Ended December 31, 2021 and 2020

The following table shows our consolidated cash flows:

6 unchanged sentences

Cash Flows from Operating Activities

Net cash provided by operating activities for the year ended December 31, 2020 increased $51.6 million from the prior year period.

Net loss, as adjusted for non-cash activities, improved by $36.6 million over the prior year, primarily due to the $105.9 million increase in net income, partially offset by the non-cash $81.5 million decrease in the loss on extinguishment of debt.

Net cash from operating activities also increased as a result of working capital changes by approximately $15.0 million.

This increase was primarily the result of timing of accounts receivable collections, as well as lower purchases of inventory in 2020, compared to the prior year.

In 2019, there was an increase in inventory primarily associated with last-time purchases of manufacturers' discontinued parts that did not recur in 2020.

These improvements in cash were offset in part by a decrease in interest payable compared to the prior year.

In November 2019 and February 2020, we replaced our Credit Facility and Notes, respectively, with the Term Loan, resulting in monthly interest payments and an increase in cash used compared to previous semi-annual interest payments.

As a result, there was minimal interest payable in the 2020 working capital balance for the Term Loan.

Net cash provided by operating activities for the year ended December 31, 2021 increased $53.1 million from the prior year.

Net loss, as adjusted for non-cash activities, improved by $41.3 million over the prior year, primarily as a result of improved profitability.

Net cash from operating activities also increased related to working capital changes of approximately $11.7 million.

Cash flows from working capital increased primarily as a result of a decreased payout on management incentives in 2021 due to the COVID-19 impact on our 2020 financial results as compared to our expectations at the time the management incentives were originally established.

Cash flows from working capital also increased as a result of lower interest payments associated with the completed retirement of the Notes in 2020 and the subsequent Term Loan repricing transactions in 2021.

These increases were offset by net cash outflows resulting from the timing of customer collections and payments to vendors.

Cash Flows from Investing Activities

Net cash used in investing activities for the year ended December 31, 2020 decreased $81.3 million from the prior year period primarily due to a decrease in capital expenditures as we completed payments for the construction of our upgraded constellation in 2019.

We estimate our capital expenditures will average approximately $40.0 million per year until 2029.

Net cash used in investing activities for the year ended December 31, 2021 decreased $10.1 million from the prior year period due primarily to maturities of marketable securities in the current year and purchases of marketable securities in the prior year.

The movement in marketable securities was offset in part by a $3.5 million increase in capital expenditures.

We continue to expect our capital expenditures to average approximately $40.0 million per year until 2029.

Cash Flows from Financing Activities

Net cash used in financing activities for the year ended December 31, 2020 decreased $125.1 million compared to the prior year period primarily due to utilizing our cash to pay down debt.

This resulted in principal payments and related costs, net of borrowings of $196.4 million for 2020, compared to $313.8 million for 2019.

Net cash used in financing activities for the year ended December 31, 2021 decreased $5.7 million compared to the prior year period primarily due to lower net principal payments as we utilized our cash to pay down additional debt in 2020, offset by share repurchases we made in 2021.

We repurchased and subsequently retired 4.3 million shares of our common stock during the year ended December 31, 2021, for a total purchase price of $163.4 million.

The combination of full repayment of the Notes and additional borrowings under the Term Loan resulted in net payments of $193.8 million for the year ended December 31, 2020 compared to net payments of $16.5 million for 2021.

See Note 7 to our consolidated financial statements included in this report for further discussion of our indebtedness.

Cash Flows - Comparison of the Year Ended December 31, 2019 and the Year Ended December 31, 2018

The following table shows our consolidated cash flows:

Year Ended December 31,

Statement of Cash Flows 2019 2018 Change

(in thousands)

Net cash provided by operating activities $ 198,143 $ 263,709 $ (65,566)

Net cash used in investing activities $ (127,819) $ (378,912) $ 251,093

Net cash (used in) provided by financing activities $ (313,280) $ 193,503 $ (506,783)

Cash Flows from Operating Activities

Net cash provided by operating activities for the year ended December 31, 2019 decreased $65.6 million from the prior year period primarily due to a decrease in working capital of approximately $65.5 million.

This is primarily the result of less interest from the Credit Facility being capitalized as the average balance of satellites under construction decreased as satellites were launched and placed into service, which would have been recorded as an investing activity and is now recorded as an operating activity.

Additionally, in November of 2019, we refinanced our Credit Facility resulting in monthly interest payments compared to previous semi-annual payments.

As such, there is no interest payable in the 2019 working capital balance for the new Term Loan.

Cash Flows from Investing Activities

Net cash used in investing activities for the year ended December 31, 2019 decreased $251.1 million from the prior year period primarily due to a decrease in capital expenditures as we completed payments for the construction of our upgraded constellation.

Cash Flows from Financing Activities

Net cash used in financing activities was $313.3 million for the year ended December 31, 2019, compared to net cash provided by financing activities of $193.5 million for the year ended December 31, 2018.

The increase in cash used in financing activities is a direct result of our deleveraging of our outstanding debt.

In 2019, the combination of scheduled principal payments and the refinancing resulted in net payments of $313.8 million.

In 2018, the issuance of the Notes and scheduled principal payments resulted in net borrowings of $198.5 million.

See Note 7 to our condensed consolidated financial statements included in this report for further discussion of our indebtedness.

Off-Balance Sheet Arrangements

We do not currently have, nor have we had in the last three years, any relationships with unconsolidated entities or financial partnerships, such as entities referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

Our results of operations have been subject to seasonal usage changes for commercial customers, and our results will be affected by similar seasonality going forward.

2 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis