2019 Q1 Form 10-Q Financial Statement

#000136686819000040 Filed on May 02, 2019

View on sec.gov

Income Statement

Concept 2019 Q1 2018 Q1
Revenue $30.08M $28.75M
YoY Change 4.62% 16.62%
Cost Of Revenue $13.00M $9.029M
YoY Change 44.0% 0.61%
Gross Profit $17.08M $19.72M
YoY Change -13.41% 25.78%
Gross Profit Margin 56.77% 68.59%
Selling, General & Admin $11.61M $11.28M
YoY Change 2.94% 19.7%
% of Gross Profit 67.97% 57.18%
Research & Development
YoY Change
% of Gross Profit
Depreciation & Amortization $23.80M $19.23M
YoY Change 23.77% -0.02%
% of Gross Profit 139.38% 97.52%
Operating Expenses $11.61M $11.28M
YoY Change 2.94% 19.7%
Operating Profit -$18.33M -$12.96M
YoY Change 41.46% -14.36%
Interest Expense -$12.87M -$7.353M
YoY Change 75.03% -16.71%
% of Operating Profit
Other Income/Expense, Net $44.13M $100.9M
YoY Change -56.28% -2121.01%
Pretax Income $25.80M $87.97M
YoY Change -70.67% -537.12%
Income Tax $27.00K $41.00K
% Of Pretax Income 0.1% 0.05%
Net Earnings $25.77M $87.93M
YoY Change -70.69% -536.14%
Net Earnings / Revenue 85.68% 305.85%
Basic Earnings Per Share $0.02 $0.07
Diluted Earnings Per Share -$0.02 -$0.01
COMMON SHARES
Basic Shares Outstanding 1.448B shares 1.262B shares
Diluted Shares Outstanding 1.632B shares 1.437B shares

Balance Sheet

Concept 2019 Q1 2018 Q1
SHORT-TERM ASSETS
Cash & Short-Term Investments $13.77M $48.80M
YoY Change -71.78% 107.66%
Cash & Equivalents $13.77M $48.81M
Short-Term Investments
Other Short-Term Assets $84.98M $70.40M
YoY Change 20.71% 1366.67%
Inventory $14.42M $7.671M
Prepaid Expenses
Receivables $20.04M $19.33M
Other Receivables $0.00 $0.00
Total Short-Term Assets $133.2M $144.1M
YoY Change -7.54% 187.36%
LONG-TERM ASSETS
Property, Plant & Equipment $864.2M $958.1M
YoY Change -9.8% -6.74%
Goodwill
YoY Change
Intangibles
YoY Change
Long-Term Investments
YoY Change
Other Assets
YoY Change
Total Long-Term Assets $911.7M $982.7M
YoY Change -7.22% -9.33%
TOTAL ASSETS
Total Short-Term Assets $133.2M $144.1M
Total Long-Term Assets $911.7M $982.7M
Total Assets $1.045B $1.127B
YoY Change -7.26% -0.63%
SHORT-TERM LIABILITIES
YoY Change
Accounts Payable $6.206M $5.625M
YoY Change 10.33% -9.39%
Accrued Expenses $34.59M $27.89M
YoY Change 24.03% 1.35%
Deferred Revenue $31.49M
YoY Change
Short-Term Debt $0.00 $0.00
YoY Change
Long-Term Debt Due $96.25M $79.22M
YoY Change 21.5% 4.57%
Total Short-Term Liabilities $169.3M $166.5M
YoY Change 1.71% -5.48%
LONG-TERM LIABILITIES
Long-Term Debt $374.0M $441.3M
YoY Change -15.24% -13.04%
Other Long-Term Liabilities $3.261M $5.586M
YoY Change -41.62% -9.77%
Total Long-Term Liabilities $490.2M $576.3M
YoY Change -14.93% -28.18%
TOTAL LIABILITIES
Total Short-Term Liabilities $169.3M $166.5M
Total Long-Term Liabilities $490.2M $576.3M
Total Liabilities $659.5M $742.8M
YoY Change -11.2% -24.09%
SHAREHOLDERS EQUITY
Retained Earnings -$1.549B -$1.480B
YoY Change 4.64% -1.47%
Common Stock
YoY Change
Preferred Stock
YoY Change
Treasury Stock (at cost)
YoY Change
Treasury Stock Shares
Shareholders Equity $385.4M $384.0M
YoY Change
Total Liabilities & Shareholders Equity $1.045B $1.127B
YoY Change -7.26% -0.63%

Cashflow Statement

Concept 2019 Q1 2018 Q1
OPERATING ACTIVITIES
Net Income $25.77M $87.93M
YoY Change -70.69% -536.14%
Depreciation, Depletion And Amortization $23.80M $19.23M
YoY Change 23.77% -0.02%
Cash From Operating Activities $1.325M $9.832M
YoY Change -86.52% 85.16%
INVESTING ACTIVITIES
Capital Expenditures $1.013M $1.397M
YoY Change -27.49% 39.14%
Acquisitions
YoY Change
Other Investing Activities
YoY Change
Cash From Investing Activities -$2.261M -$2.386M
YoY Change -5.24% -41.63%
FINANCING ACTIVITIES
Cash Dividend Paid
YoY Change
Common Stock Issuance & Retirement, Net $0.00
YoY Change -100.0%
Debt Paid & Issued, Net
YoY Change
Cash From Financing Activities -$193.0K $0.00
YoY Change -100.0%
NET CHANGE
Cash From Operating Activities $1.325M $9.832M
Cash From Investing Activities -$2.261M -$2.386M
Cash From Financing Activities -$193.0K $0.00
Net Change In Cash -$1.143M $7.424M
YoY Change -115.4% -43.91%
FREE CASH FLOW
Cash From Operating Activities $1.325M $9.832M
Capital Expenditures $1.013M $1.397M
Free Cash Flow $312.0K $8.435M
YoY Change -96.3% 95.89%

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<div style="font-family:Times New Roman;font-size:10pt;"><div style="line-height:120%;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-weight:bold;">1. BASIS OF PRESENTATION</font><font style="font-family:inherit;font-size:10pt;font-weight:bold;"> </font></div><div style="line-height:120%;text-align:justify;text-indent:18px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;text-align:justify;text-indent:18px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">Globalstar, Inc. (&#8220;Globalstar&#8221; or the &#8220;Company&#8221;) provides Mobile Satellite Services (&#8220;MSS&#8221;) including voice and data communications services through its global satellite network. Thermo Capital Partners LLC, through its affiliates (collectively, &#8220;Thermo&#8221;), is the principal owner and largest stockholder of Globalstar. The Company&#8217;s Executive Chairman of the Board controls Thermo. Two other members of the Company's Board of Directors are also directors, officers or minority equity owners of various Thermo entities.</font></div><div style="line-height:120%;text-align:justify;text-indent:18px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;text-align:justify;text-indent:18px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">The Company has prepared the accompanying unaudited interim condensed consolidated financial statements in accordance with generally accepted accounting principles in the United States of America (&#8220;U.S. GAAP&#8221;) for interim financial information. Certain information and footnote disclosures normally in financial statements have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (the &#8220;SEC&#8221;); however, management believes the disclosures made are adequate to make the information presented not misleading. These financial statements and notes should be read in conjunction with the consolidated financial statements and notes thereto included in the Globalstar Annual Report on Form 10-K for the year ended </font><font style="font-family:inherit;font-size:10pt;">December&#160;31, 2018</font><font style="font-family:inherit;font-size:10pt;">, as filed with the SEC on </font><font style="font-family:inherit;font-size:10pt;">February&#160;28, 2019</font><font style="font-family:inherit;font-size:10pt;"> (the &#8220;</font><font style="font-family:inherit;font-size:10pt;">2018</font><font style="font-family:inherit;font-size:10pt;"> Annual Report&#8221;), and Management's Discussion and Analysis of Financial Condition and Results of Operations herein.&#160;</font></div><div style="line-height:120%;text-align:justify;text-indent:18px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;text-align:justify;text-indent:18px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from estimates. The Company evaluates estimates on an ongoing basis. Significant estimates include the value of derivative instruments, the allowance for doubtful accounts, the net realizable value of inventory, the useful life and value of property and equipment, the value of stock-based compensation and income taxes.</font></div><div style="line-height:120%;text-align:justify;text-indent:18px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;text-align:justify;text-indent:18px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">These unaudited interim condensed consolidated financial statements include the accounts of Globalstar and all its subsidiaries. All significant intercompany transactions and balances have been eliminated in the consolidation. In the opinion of management, the information included herein includes all adjustments, consisting of normal recurring adjustments, that are necessary for a fair presentation of the Company&#8217;s condensed consolidated statements of operations, condensed consolidated balance sheets, condensed consolidated statements of stockholders' equity and condensed consolidated statements of cash flows for the periods presented. The results of operations for the </font><font style="font-family:inherit;font-size:10pt;">three</font><font style="font-family:inherit;font-size:10pt;"> months ended </font><font style="font-family:inherit;font-size:10pt;">March&#160;31, 2019</font><font style="font-family:inherit;font-size:10pt;"> are not necessarily indicative of the results that may be expected for the full year or any future period.</font></div><div style="line-height:120%;text-align:justify;text-indent:18px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-style:italic;font-weight:bold;">Recently Issued Accounting Pronouncements</font><font style="font-family:inherit;font-size:10pt;font-weight:bold;">&#160;</font></div><div style="line-height:120%;text-align:justify;text-indent:18px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;text-align:justify;text-indent:18px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">In June 2016, the Financial Accounting Standards Board (&#8220;FASB&#8221;) issued Accounting Standards Updates (&#8220;ASU&#8221;) No. 2016-13, </font><font style="font-family:inherit;font-size:10pt;font-style:italic;">Credit Losses, Measurement of Credit Losses on Financial Instruments</font><font style="font-family:inherit;font-size:10pt;">. ASU No. 2016-13 significantly changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The standard will replace today&#8217;s incurred loss approach with an expected loss model for instruments measured at amortized cost. Entities will apply the standard&#8217;s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. This ASU is effective for public entities for annual and interim periods beginning after December&#160;15, 2019. Early adoption is permitted for all entities for annual periods beginning after December 15, 2018, and interim periods therein. The Company has not yet determined the impact this standard will have on its financial statements and related disclosures.</font></div><div style="line-height:120%;text-align:justify;text-indent:18px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;text-align:justify;text-indent:18px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">In August 2018, the FASB issued ASU No. 2018-13, </font><font style="font-family:inherit;font-size:10pt;font-style:italic;">Fair Value Measurement Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement</font><font style="font-family:inherit;font-size:10pt;">. As part of the FASB's disclosure framework project, it has eliminated, amended and added disclosure requirements for fair value measurements. Entities will no longer be required to disclose the amount of, and reasons for, transfers between Level 1 and Level 2 of the fair value hierarchy, the policy of timing of transfers between levels of the fair value hierarchy and the valuation processes for Level 3 fair value measurements. Public companies will be required to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. This ASU is effective for public entities for annual and interim periods beginning after December 15, 2019. Early adoption is permitted as of the beginning of any interim or annual reporting period. This ASU will have an impact on the Company's disclosures.</font></div><div style="line-height:120%;text-align:justify;text-indent:18px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;text-align:justify;text-indent:18px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">In August 2018, the FASB issued ASU No. 2018-14, </font><font style="font-family:inherit;font-size:10pt;font-style:italic;">Compensation - Retirement Benefits - Defined Benefit Plans - General Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans</font><font style="font-family:inherit;font-size:10pt;">. As part of the FASB's disclosure framework project, it has changed the disclosure requirements for defined pension and other post-retirement benefit plans. The FASB eliminated disclosure requirements related to the amounts in accumulated other comprehensive income expected to be recognized as components of net periodic benefit cost over the next fiscal year, the amount and timing of plan assets expected to be returned to the employer, if any, information related to Japanese Welfare Pension Insurance Law, information about the amount of future annual benefits covered by insurance contracts and significant transactions between the employer or related parties and the plan, and the disclosure of the effects of a one-percentage-point change in the assumed health care cost trend rates on the (1) aggregate of the service and interest cost components of net periodic benefit costs and the (2) benefit obligation for postretirement health care benefits. Entities will be required to disclose the weighted-average interest crediting rate for cash balance plans and other plans with promised interest crediting rates as well as an explanation of the reasons for significant gains and losses related to changes in the benefit obligation for the period. This ASU is effective for public entities for annual periods beginning after December 15, 2020. Early adoption is permitted as of the beginning of any annual reporting period. This ASU will have an impact on the Company's disclosures.</font></div><div style="line-height:120%;text-align:justify;text-indent:18px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;text-align:justify;text-indent:18px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">In August 2018, the FASB issued ASU No. 2018-15, </font><font style="font-family:inherit;font-size:10pt;font-style:italic;">Intangibles - Goodwill and Other - Internal-Use Software Customer&#8217;s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract</font><font style="font-family:inherit;font-size:10pt;">. This ASU requires companies to defer specified implementation costs in a cloud computing arrangement that are often expensed under current US GAAP and recognize these costs to expense over the noncancellable term of the arrangement. This ASU is effective for public entities for annual and interim periods beginning after December 15, 2019. Early adoption is permitted as of the beginning of any interim or annual reporting period. The Company does not expect it to have a material effect on the Company's financial statements and related disclosures.</font></div><div style="line-height:120%;text-align:justify;text-indent:24px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-style:italic;font-weight:bold;">Recently Issued Financial Reporting Rules</font></div><div style="line-height:120%;text-align:justify;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;text-align:justify;text-indent:24px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">In April 2019, the SEC adopted the final rules under SEC Releases 33-10618 and 34-85381, </font><font style="font-family:inherit;font-size:10pt;font-style:italic;">FAST Act Modernization and Simplification of Regulation S-K.</font><font style="font-family:inherit;font-size:10pt;"> Among other things, the amendments 1) allow registrants who present financial statements covering three years in their periodic reports to omit discussion of the earliest year from management's discussion and analysis if the discussion was included in a prior filing, 2) allow registrants to omit certain information and exhibits from their periodic reports without submitting confidential treatment requests to the Commission, 3) clarify and streamline certain risk factor and property disclosure requirements, 4) require all filings to include hyperlinks to information that is incorporated by reference in current filings to the information available on EDGAR, as applicable, and 5) require registrants to apply XBRL tags to certain information on cover pages of SEC filings. The amended rules will become effective May 2, 2019 and will be applied to any filings after that date, except for the confidential treatment amendments, which became effective on April 2, 2019 and the XBRL tagging requirement, which is effective for large accelerated and accelerated filers for fiscal reports ending on or after June 15, 2019 and 2020, respectively. The Company does not expect these final rules to have a material impact on its disclosures and financial statements.</font></div><div style="line-height:120%;text-align:justify;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;text-align:justify;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-style:italic;font-weight:bold;">Recently Adopted Accounting Pronouncements </font></div><div style="line-height:120%;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;text-align:justify;text-indent:18px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">In February 2016, the FASB issued ASU No. 2016-02, </font><font style="font-family:inherit;font-size:10pt;font-style:italic;">Leases</font><font style="font-family:inherit;font-size:10pt;">. ASU 2016-02 became effective for annual reporting periods beginning after December 15, 2018. ASU 2016-02 amended the FASB Accounting Standards Codification (&#8220;ASC&#8221;) and created a new ASC Topic 842, &#8220;Leases&#8221; (&#8220;ASC 842&#8221;). The Company adopted this standard on January 1, 2019. See </font><font style="font-family:inherit;font-size:10pt;">Note 3: Leases</font><font style="font-family:inherit;font-size:10pt;"> for further discussion, including the impact on the Company's condensed consolidated financial statements and required disclosures.</font></div><div style="line-height:120%;text-align:justify;text-indent:24px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;text-align:justify;text-indent:25px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">In February 2018, the FASB issued ASU No. 2018-02,</font><font style="font-family:inherit;font-size:10pt;font-style:italic;"> Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income</font><font style="font-family:inherit;font-size:10pt;">. This guidance allows companies to reclassify items in accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the H.R.1, &#8220;An Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018&#8221; (the &#8220;Tax Act&#8221;) (previously known as &#8220;The Tax Cuts and Jobs Act&#8221;). This ASU is effective for all entities for annual and interim periods beginning after December 15, 2018. The Company adopted this standard on January 1, 2019. The adoption of this standard did not have a material effect on the Company's financial statements or related disclosures.</font></div><div style="line-height:120%;text-align:justify;text-indent:25px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;text-align:justify;text-indent:18px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">In June 2018, the FASB issued ASU No. 2018-07, </font><font style="font-family:inherit;font-size:10pt;font-style:italic;">Compensation - Stock Compensation: Improvements to Nonemployee Share-Based Payment Accounting</font><font style="font-family:inherit;font-size:10pt;">. ASU 2018-07 aligns the accounting for share-based payment awards issued to employees and nonemployees. Measurement of equity-classified nonemployee awards will now be valued on the grant date and will no longer be remeasured through the performance completion date. This amendment also changes the accounting for nonemployee awards with performance conditions to recognize compensation cost when achievement of the performance condition is probable, rather than upon achievement of the performance condition, as well as eliminating the requirement to reassess the equity or liability classification for nonemployee awards upon vesting, except for certain award types. This ASU is effective for public entities for annual and interim periods beginning after December 15, 2018. The Company adopted this standard on January 1, 2019. The adoption of this standard did not have a material effect on the Company's financial statements or related disclosures.</font></div></div>
CY2019Q1 us-gaap Derivatives Embedded Derivatives
DerivativesEmbeddedDerivatives
<div style="font-family:Times New Roman;font-size:10pt;"><div style="line-height:120%;text-align:justify;text-indent:20px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">The Company has identified various embedded derivatives resulting from certain features in the Company&#8217;s debt instruments, including the conversion option and the contingent put feature within both the 2013 </font><font style="font-family:inherit;font-size:10pt;">8.00%</font><font style="font-family:inherit;font-size:10pt;"> Notes and the Loan Agreement with Thermo. The fair value of each embedded derivative liability is marked-to-market at the end of each reporting period, or more frequently as deemed necessary, with any changes in value reported in its condensed consolidated statements of operations and its condensed consolidated statements of cash flows as an operating activity. The Company determined the fair value of its compound embedded derivative liabilities using a Monte Carlo simulation model.</font></div></div>
CY2019Q1 us-gaap Loss Contingency Disclosures
LossContingencyDisclosures
<div style="font-family:Times New Roman;font-size:10pt;"><div style="line-height:120%;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-weight:bold;">8. CONTINGENCIES</font><font style="font-family:inherit;font-size:10pt;">&#160;</font></div><div style="line-height:120%;text-align:justify;text-indent:20px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;text-align:justify;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-style:italic;font-weight:bold;">Securities Claim</font></div><div style="line-height:120%;text-align:justify;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;text-align:justify;text-indent:18px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">As previously disclosed, on September 25, 2018, a shareholder action was filed against Globalstar, Inc. (the "Company: or "Globalstar"), members of the Board of Directors, Thermo Companies, Inc., and certain members of Globalstar management in the Court of Chancery of the State of Delaware (the "Court"), captioned </font><font style="font-family:inherit;font-size:10pt;font-style:italic;">Mudrick Capital Management, LP, et al. v. Monroe, et al.</font><font style="font-family:inherit;font-size:10pt;">, C.A. No. 2018-0699-TMR (the "Action").&#160;As previously disclosed, on December 14, 2018, all parties to the Action, including plaintiffs Mudrick Capital Management, L.P. (&#8220;Mudrick Capital&#8221;) and Warlander Asset Management (&#8220;Warlander&#8221;, and, together with Mudrick Capital, the &#8220;Plaintiffs&#8221;), entered into a stipulation and agreement of settlement, compromise and release of stockholder derivative action (the &#8220;Settlement Agreement&#8221;) to settle all claims asserted against all defendants in the Action. </font></div><div style="line-height:120%;text-align:justify;text-indent:18px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;text-align:justify;text-indent:17px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">The Settlement Agreement is subject to approval by the Court of Chancery of the State of Delaware which held a hearing on April 1, 2019.&#160;The Company expects the Court to approve the Settlement Agreement and is currently awaiting its decision. </font></div><div style="line-height:120%;text-align:justify;text-indent:18px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;text-align:justify;text-indent:18px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">In connection with the Action described above, the Plaintiffs' claims for monetary relief from the Company are now limited to attorneys' fees and expenses incurred in connection with and related to pursuing the Action, as well as in connection with and related to a shareholder demand to inspect certain of the Company's books and records and a lawsuit seeking to enforce that demand. The Company evaluated the facts and circumstances under applicable accounting guidance and determined that a loss with respect to such Plaintiffs' attorneys' fees and costs is probable and reasonably estimable. In accordance with ASC 450, as of March 31, 2019, the Company estimated a range of loss and recorded a reserve based on the low end of the range, as there were no facts and circumstances to support a different point in the range. The Company accrued the total estimated loss of </font><font style="font-family:inherit;font-size:10pt;">$3.0 million</font><font style="font-family:inherit;font-size:10pt;">, which is recorded as a current liability on the Company's condensed consolidated balance sheet and recorded in marketing, general and administrative expenses on the Company&#8217;s condensed consolidated statement of operations. </font></div><div style="line-height:120%;text-align:justify;text-indent:18px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;text-align:justify;text-indent:18px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">These estimated losses, as well as other costs incurred by the Company directly associated with the Action, exceeded the Company's retention limit of </font><font style="font-family:inherit;font-size:10pt;">$1.5 million</font><font style="font-family:inherit;font-size:10pt;"> for a "securities claim" under its directors and officers insurance policy. According to ASC 450, a recovery related to a contingent loss (e.g., insurance recovery) is a contingent gain. Recovery of a recorded contingent loss shall be recognized only when realization of the recovery is deemed probable and reasonably estimable. The Company believes it is probable that any losses in excess of the Company's retention limit will be covered under the terms of its insurance policy. Accordingly, the Company has recorded a receivable of </font><font style="font-family:inherit;font-size:10pt;">$3.1 million</font><font style="font-family:inherit;font-size:10pt;"> with an offsetting reduction to marketing, general and administrative expenses during the quarter ended March 31, 2019.</font></div><div style="line-height:120%;text-align:justify;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;text-align:justify;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-style:italic;font-weight:bold;">Business Economic Loss Claim</font></div><div style="line-height:120%;text-align:justify;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;text-align:justify;text-indent:24px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">In May 2018, the Company concluded the settlement of a business economic loss claim in which it was an absent member in a tort class action lawsuit. The Company is due proceeds of </font><font style="font-family:inherit;font-size:10pt;">$7.4 million</font><font style="font-family:inherit;font-size:10pt;">, net of legal fees, related to this settlement. The Company received the first installment of </font><font style="font-family:inherit;font-size:10pt;">$3.7 million</font><font style="font-family:inherit;font-size:10pt;"> in January 2019. The second and final installment of </font><font style="font-family:inherit;font-size:10pt;">$3.7 million</font><font style="font-family:inherit;font-size:10pt;"> is expected to be received in January 2020 and is recorded in prepaid expenses and other current assets on the Company's condensed consolidated balance sheet at March 31, 2019. During the second quarter of 2018, the Company recorded the present value of the proceeds of </font><font style="font-family:inherit;font-size:10pt;">$6.8 million</font><font style="font-family:inherit;font-size:10pt;"> and a discount of </font><font style="font-family:inherit;font-size:10pt;">$0.6 million</font><font style="font-family:inherit;font-size:10pt;">. The present value of the net proceeds of </font><font style="font-family:inherit;font-size:10pt;">$6.8 million</font><font style="font-family:inherit;font-size:10pt;"> was recorded in other income on the Company's condensed consolidated statement of operations. The discount of </font><font style="font-family:inherit;font-size:10pt;">$0.6 million</font><font style="font-family:inherit;font-size:10pt;"> was recorded on the Company's condensed consolidated balance sheet and is being accreted to interest income over the term of the receivable using the effective interest method.</font></div><div style="line-height:120%;text-align:justify;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;text-align:justify;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;font-style:italic;font-weight:bold;">Other Litigation</font></div><div style="line-height:120%;text-align:justify;text-indent:20px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;text-align:justify;text-indent:20px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">Due to the nature of the Company's business, the Company is involved, from time to time, in various litigation matters or subject to disputes or routine claims regarding its business activities. Legal costs related to these matters are expensed as incurred. </font></div><div style="line-height:120%;text-align:justify;text-indent:20px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;text-align:justify;text-indent:20px;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">In management's opinion, there is no pending litigation, dispute or claim, other than those described in this report, which could be expected to have a material adverse effect on the Company's financial condition, results of operations or liquidity.</font></div></div>

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