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Globalstar 10-Q 2015
GSAT-2015.03.31-10Q


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
(Mark One) 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended March 31, 2015 
or
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from                  to                

Commission file number 001-33117 
GLOBALSTAR, INC.
(Exact Name of Registrant as Specified in Its Charter) 
Delaware
 
41-2116508
(State or Other Jurisdiction of
 
(I.R.S. Employer Identification No.)
Incorporation or Organization)
 
 
 
300 Holiday Square Blvd.
Covington, Louisiana 70433
(Address of principal executive offices and zip code)
Registrant's Telephone Number, Including Area Code: (985) 335-1500
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  x  No ¨
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  x  No ¨
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. 
Large accelerated filer x
 
Accelerated filer ¨
 
 
 
Non-accelerated filer ¨
 
Smaller reporting company  ¨
(Do not check if a smaller reporting company)
 
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨  No x
 
As of April 30, 2015, 871,238,089 shares of voting common stock and 134,008,656 shares of nonvoting common stock were outstanding. Unless the context otherwise requires, references to common stock in this Report mean the Registrant’s voting common stock. 




FORM 10-Q

GLOBALSTAR, INC.
TABLE OF CONTENTS
 
 
Page
PART I -  FINANCIAL INFORMATION
 
 
 
 
Item 1.
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
PART II -  OTHER INFORMATION
 
 
 
 
Item 1.
Legal Proceedings.
 
 
 
 
Item 1A. 
 
 
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds.
 
 
 
Item 3.
Defaults Upon Senior Securities.
 
 
 
Item 4.
Mine Safety Disclosures.
 
 
 
Item 5.
Other Information.
 
 
 
Item 6.
 
 
 
 





PART I - FINANCIAL INFORMATION
 
Item 1. Financial Statements.
 
GLOBALSTAR, INC.  
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(In thousands, except per share data)
(Unaudited) 
 
Three Months Ended
 
March 31,
2015
 
March 31,
2014
Revenue:
 
 
 
Service revenues
$
17,107

 
$
16,249

Subscriber equipment sales
3,915

 
4,287

Total revenue
21,022

 
20,536

Operating expenses:
 
 
 
Cost of services (exclusive of depreciation, amortization and accretion shown separately below)
7,434

 
6,938

Cost of subscriber equipment sales
3,131

 
3,072

Marketing, general and administrative
8,596

 
7,769

Depreciation, amortization and accretion
19,046

 
23,332

Total operating expenses
38,207

 
41,111

Loss from operations
(17,185
)
 
(20,575
)
Other income (expense):
 
 
 
Loss on extinguishment of debt
(65
)
 
(10,195
)
Interest income and expense, net of amounts capitalized
(8,517
)
 
(10,921
)
Derivative loss
(107,865
)
 
(209,370
)
Other
4,133

 
713

Total other income (expense)
(112,314
)
 
(229,773
)
Loss before income taxes
(129,499
)
 
(250,348
)
Income tax expense
228

 
193

Net loss
$
(129,727
)
 
$
(250,541
)
 
 
 
 
Other comprehensive loss:
 
 
 
Foreign currency translation
(1,290
)
 
(1,235
)
Total comprehensive loss
$
(131,017
)
 
$
(251,776
)
 
 
 
 
Net loss per common share:
 
 
 
Basic
$
(0.13
)
 
$
(0.29
)
Diluted
(0.13
)
 
(0.29
)
Weighted-average shares outstanding:
 
 
 
Basic
1,000,845

 
849,321

Diluted
1,000,845

 
849,321

 
See accompanying notes to unaudited interim condensed consolidated financial statements.
 


1



GLOBALSTAR, INC.  
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except par value and share data)  
(Unaudited) 
 
March 31,
2015
 
December 31, 2014
ASSETS
 

 
 

Current assets:
 

 
 

Cash and cash equivalents
$
13,655

 
$
7,121

Accounts receivable, net of allowance of $4,727 and $4,788, respectively
15,300

 
15,015

Inventory
13,584

 
14,734

Prepaid expenses and other current assets
7,283

 
7,944

Total current assets
49,822

 
44,814

Property and equipment, net
1,100,504

 
1,113,560

Restricted cash
37,918

 
37,918

Deferred financing costs, net
60,989

 
63,862

Intangible and other assets, net of accumulated amortization of $6,138 and $5,669, respectively
9,436

 
8,266

Total assets
$
1,258,669

 
$
1,268,420

LIABILITIES AND STOCKHOLDERS’ EQUITY
 

 
 

Current liabilities:
 

 
 

Current portion of long-term debt
$
6,450

 
$
6,450

Accounts payable, including contractor payables of $0 and $1,180, respectively
5,010

 
6,922

Accrued contract termination charge
19,023

 
21,308

Accrued expenses
26,705

 
22,342

Payables to affiliates
376

 
481

Deferred revenue
21,481

 
21,740

Total current liabilities
79,045

 
79,243

Long-term debt, less current portion
626,653

 
623,640

Employee benefit obligations
5,478

 
5,499

Derivative liabilities
548,526

 
441,550

Deferred revenue
6,517

 
6,572

Debt restructuring fees
20,795

 
20,795

Other non-current liabilities
11,233

 
12,205

Total non-current liabilities
1,219,202

 
1,110,261

Commitments and contingent liabilities (Notes 7 and 8)


 


Stockholders’ (deficit) equity:
 

 
 

Preferred Stock of $0.0001 par value; 100,000,000 shares authorized and none issued and outstanding at March 31, 2015 and December 31, 2014

 

Series A Preferred Convertible Stock of $0.0001 par value; one share authorized and none issued and outstanding at March 31, 2015 and December 31, 2014

 

Voting Common Stock of $0.0001 par value; 1,200,000,000 shares authorized; 869,594,366 and 864,378,563 shares issued and outstanding at March 31, 2015 and December 31, 2014, respectively
87

 
86

Nonvoting Common Stock of $0.0001 par value; 400,000,000 shares authorized; 134,008,656 shares issued and outstanding at March 31, 2015 and December 31, 2014
13

 
13

Additional paid-in capital
1,516,141

 
1,503,619

Accumulated other comprehensive loss
(4,188
)
 
(2,898
)
Retained deficit
(1,551,631
)
 
(1,421,904
)
Total stockholders’ (deficit) equity
(39,578
)
 
78,916

Total liabilities and stockholders’ equity
$
1,258,669

 
$
1,268,420

 
See accompanying notes to unaudited interim condensed consolidated financial statements.  

2



GLOBALSTAR, INC. 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited) 
 
Three Months Ended
 
March 31,
2015
 
March 31,
2014
Cash flows provided by (used in) operating activities:
 

 
 

Net loss
$
(129,727
)
 
$
(250,541
)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
 

 
 

Depreciation, amortization and accretion
19,046

 
23,332

Change in fair value of derivative assets and liabilities
107,865

 
209,370

Stock-based compensation expense
818

 
628

Amortization of deferred financing costs
2,336

 
2,541

Provision for bad debts
690

 
597

Noncash interest and accretion expense
2,578

 
4,078

Loss on extinguishment of debt
65

 
10,195

Other, net
304

 
864

Unrealized foreign currency (gain) loss
(4,030
)
 
(1,090
)
Changes in operating assets and liabilities:
 

 
 

Accounts receivable
(1,309
)
 
(865
)
Inventory
794

 
2,087

Prepaid expenses and other current assets
201

 
(695
)
Other assets
(476
)
 
(629
)
Accounts payable and accrued expenses
3,641

 
2,897

Payables to affiliates
(105
)
 
30

Other non-current liabilities
(163
)
 
(119
)
Deferred revenue
(7
)
 
1,119

Net cash provided by operating activities
2,521

 
3,799

Cash flows provided by (used in) investing activities:
 

 
 

Second-generation ground-related costs (including interest)
(4,018
)
 
(1,366
)
Property and equipment additions
(1,790
)
 
(428
)
Net cash used in investing activities
(5,808
)
 
(1,794
)
Cash flows provided by (used in) financing activities
 

 
 

Proceeds from issuance of stock to Terrapin
10,000

 

Payments of deferred financing costs

 
(164
)
Proceeds from issuance of common stock and exercise of warrants
61

 
310

Net cash provided by financing activities
10,061

 
146

Effect of exchange rate changes on cash
(240
)
 
36

Net increase in cash and cash equivalents
6,534

 
2,187

Cash and cash equivalents, beginning of period
7,121

 
17,408

Cash and cash equivalents, end of period
$
13,655

 
$
19,595

Supplemental disclosure of cash flow information:
 

 
 

Cash paid for:
 

 
 

Interest
$

 
$

Income taxes

 
29

 
 
 
 
Supplemental disclosure of non-cash financing and investing activities:
 

 
 

 


 


Increase in non-cash capitalized accrued interest for second-generation ground-related costs
474

 
445

Capitalization of the accretion of debt discount and amortization of prepaid financing costs
761

 
642

Payments made in convertible notes and common stock
427

 
813

Principal amount of debt converted into common stock
237

 
15,856

Reduction of debt discount and deferred financing costs due to conversion of debt
84

 
7,351

Fair value of common stock issued upon conversion of debt
1,086

 
59,064

Reduction in derivative liability due to conversion of debt
868

 
40,173

 See accompanying notes to unaudited interim condensed consolidated financial statements.

3



GLOBALSTAR, INC.  
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
1. BASIS OF PRESENTATION 
Globalstar, Inc. (“Globalstar” or “the Company”) provides Mobile Satellite Services (“MSS”) including voice and data communications services through its global satellite network. Thermo Capital Partners LLC, through its affiliates, (“Thermo”) is Globalstar’s principal owner and largest stockholder. Globalstar’s Executive Chairman and Chief Executive Officer controls Thermo and its affiliates. Two other members of Globalstar’s Board of Directors are also directors, officers or minority equity owners of various Thermo entities.
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 (“GAAP”) 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; 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 Globalstar, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2014, as filed with the Securities and Exchange Commission (the "SEC") on March 2, 2015 (the "2014 Annual Report"), and Management's Discussion and Analysis of Financial Condition and Results of Operations herein. 
The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the 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. 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, income taxes and the value of stock-based compensation. Actual results could differ from these estimates. 
These unaudited interim condensed consolidated financial statements include the accounts of Globalstar and its majority owned or otherwise controlled 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’s condensed consolidated statements of operations, condensed consolidated balance sheets, and condensed consolidated statements of cash flows for the periods presented. The results of operations for the three months ended March 31, 2015 are not necessarily indicative of the results that may be expected for the full year or any future period.
The Company evaluates events that occur after the balance sheet date but before the financial statements are issued for potential recognition or disclosure. Based on this evaluation, the Company determined that there were no material subsequent events for recognition or disclosure other than those disclosed herein. 
Recently Issued Accounting Pronouncements 
In February 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2015-02, Consolidation - Amendments to the Consolidation Analysis. ASU 2015-02 was issued in response to concerns that current GAAP might require a reporting entity to consolidate another legal entity in situations in which the reporting entity’s contractual rights do not give it the ability to act primarily on its own behalf, the reporting entity does not hold a majority of the legal entity’s voting rights, or the reporting entity is not exposed to a majority of the legal entity’s economic benefits or obligations. The amendments included in ASU 2015-02 are intended to improve targeted areas in the consolidation guidance, which includes legal entities such as limited partnerships and limited liability companies and the evaluation of fees paid to a decision maker. This ASU is effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. The Company is currently evaluating the impact this standard will have on its consolidated financial statements and related disclosures. The Company has not yet determined the effect of the standard on its ongoing reporting.
In April 2015, the FASB issued ASU No. 2015-03, Interest - Imputation of Interest - Simplifying the Presentation of Debt Issue Costs. ASU 2015-03 requires that debt issuance costs related to a recognized debt liability be presented in the consolidated balance sheet as a reduction in the carrying amount of the related debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by this ASU. This ASU is effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Upon adoption, if applicable, this ASU will be applied on a retrospective basis, wherein the consolidated balance sheet of each period presented will be adjusted to reflect the effects of applying the new guidance. The Company would be required to comply with the applicable disclosures for a change in an accounting principle, including the nature of and reason for the change in accounting principle, the transition method, a description of the prior-period information that has been retrospectively adjusted, and the effect of the change on the financial statement line items (that is, the previously reported debt issuance cost asset and the adjusted debt liability). The Company

4



is currently evaluating the impact this standard will have on its consolidated financial statements and related disclosures. The Company has not yet determined the effect of the standard on its ongoing reporting. 
2. PROPERTY AND EQUIPMENT
 Property and equipment consists of the following (in thousands): 
 
March 31,
2015
 
December 31,
2014
Globalstar System:
 

 
 

Space component
 

 
 

Second-generation satellites in service
$
1,211,904

 
$
1,211,904

Prepaid long-lead items
17,040

 
17,040

Second-generation satellite, on-ground spare
32,481

 
32,481

Ground component
46,646

 
47,595

Construction in progress:
 

 
 

Space component
58

 
30

Ground component
146,876

 
141,789

Other
3,216

 
2,458

Total Globalstar System
1,458,221

 
1,453,297

Internally developed and purchased software
15,039

 
15,392

Equipment
12,686

 
12,647

Land and buildings
3,371

 
3,590

Leasehold improvements
1,677

 
1,620

Total property and equipment
1,490,994

 
1,486,546

Accumulated depreciation
(390,490
)
 
(372,986
)
Total property and equipment, net
$
1,100,504

 
$
1,113,560

 Amounts in the above table consist primarily of costs incurred related to the construction of the Company’s second-generation constellation and ground upgrades. Amounts included in the Company’s second-generation satellite, on-ground spare balance as of March 31, 2015, consist primarily of costs related to a spare second-generation satellite that has not been placed in orbit, but is capable of being included in a future launch of satellites. As of March 31, 2015, this satellite and the prepaid long-lead items ("LLI") have not been placed into service, and therefore the Company has not yet recorded depreciation expense for these items.
Pursuant to the Amended and Restated Contract for the construction of the Globalstar Satellite for the Second Generation Constellation between Globalstar and Thales Alenia Space France ("Thales"), dated and executed in June 2009 ("2009 Contract"), Globalstar paid €12 million in purchase price plus an additional €3.1 million in procurement costs for the LLI to be procured by Thales on Globalstar's behalf. The LLI were to be used in the construction of the Phase 3 satellites for Globalstar. As reflected on the Company's condensed consolidated balance sheet and in the above table, Globalstar believes that it owns the LLI and that the title transferred upon procurement. Recently, Globalstar asked Thales to turn over the LLI. Despite historical statements to the contrary, Thales currently disputes Globalstar's ownership of the LLI and has recently asserted that Globalstar released its title to the LLI pursuant to that certain Release Agreement, dated as of June 24, 2012, which is described more fully below. Thales further asserts that the LLI belong to Thales and that Thales has no obligation to turn over possession of such LLI to Globalstar. Globalstar disputes Thales' assertions and is currently considering its rights and remedies to recover the LLI. At this time, Globalstar cannot predict the outcome related to this dispute, including, without limitation, the likelihood of any settlement or the probability of success with respect to any litigation which Globalstar may determine to commence with respect to the LLI.
Capitalized Interest and Depreciation Expense 
The following tables summarize capitalized interest (in thousands):   
 
Three Months Ended March 31,
 
2015
 
2014
Interest cost eligible to be capitalized
$
10,116

 
$
12,254

Interest cost recorded in interest expense, net
(7,925
)
 
(10,413
)
Net interest capitalized
$
2,191

 
$
1,841


5



 
The following table summarizes depreciation expense (in thousands): 
 
Three Months Ended March 31,
 
2015
 
2014
Depreciation expense
$
18,903

 
$
23,009

  
3. LONG-TERM DEBT AND OTHER FINANCING ARRANGEMENTS 
Long-term debt consists of the following (in thousands): 
 
 
March 31, 2015
 
December 31, 2014
 
Principal
Amount
 
Carrying
Value
 
Principal
Amount
 
Carrying
Value
Facility Agreement
$
582,296

 
$
582,296

 
$
582,296

 
$
582,296

Thermo Loan Agreement
70,219

 
35,656

 
68,154

 
32,971

8.00% Convertible Senior Notes Issued in 2013
22,561

 
15,151

 
22,799

 
14,823

Total Debt
675,076

 
633,103

 
673,249

 
630,090

Less: Current Portion
6,450

 
6,450

 
6,450

 
6,450

Long-Term Debt
$
668,626

 
$
626,653

 
$
666,799

 
$
623,640

 The principal amounts shown above include payment of in-kind interest, as applicable. The carrying value is net of any discounts to the loan amounts at issuance, including accretion, as further described below. The current portion of long-term debt represents the scheduled principal repayments under the Facility Agreement due within one year of the balance sheet date. 
Facility Agreement 
The Company’s senior secured credit facility agreement, as amended and restated in August 2013 (the “Facility Agreement”), is scheduled to mature in December 2022. As of March 31, 2015, the Facility Agreement was fully drawn. Semi-annual principal repayments began in December 2014. The facility bears interest at a floating rate of LIBOR plus 2.75% through June 2017, increasing by an additional 0.5% each year thereafter to a maximum rate of LIBOR plus 5.75%Ninety-five percent of the Company’s obligations under the Facility Agreement are guaranteed by COFACE, the French export credit agency. The Company’s obligations under the Facility Agreement are guaranteed on a senior secured basis by all of its domestic subsidiaries and are secured by a first priority lien on substantially all of the assets of the Company and its domestic subsidiaries (other than their FCC licenses), including patents and trademarks, 100% of the equity of the Company’s domestic subsidiaries and 65% of the equity of certain foreign subsidiaries.  
The Facility Agreement contains customary events of default and requires that the Company satisfy various financial and non-financial covenants. Pursuant to the terms of the Facility Agreement, the Company has the ability to cure noncompliance with certain financial covenants with equity contributions through June 2017. If the Company violates any of these covenants and is unable to make a sufficient equity contribution or obtain a waiver, it would be in default under the agreement and payment of the indebtedness could be accelerated.  The acceleration of the Company's indebtedness under one agreement may permit acceleration of indebtedness under other agreements that contain cross-acceleration provisions. The covenants under the Facility Agreement limit the Company's ability to, among other things, incur or guarantee additional indebtedness; make certain investments, acquisitions or capital expenditures above certain agreed levels; pay dividends or repurchase or redeem capital stock or subordinated indebtedness; grant liens on its assets; incur restrictions on the ability of its subsidiaries to pay dividends or to make other payments to the Company; enter into transactions with its affiliates; merge or consolidate with other entities or transfer all or substantially all of its assets; and transfer or sell assets.
The compliance calculations of the financial covenants of the Facility Agreement permit inclusion of certain cash funds contributed to the Company from the issuance of the Company's common stock and/or Subordinated Indebtedness. These funds are referred to as "Equity Cure Contributions" and may be funded in order to achieve compliance with the covenants described above, subject to the conditions set forth in the Facility Agreement. Each Equity Cure Contribution must be made in a minimum amount of $10 million with no maximum amount for each measurement period or in the aggregate for all periods until the date that such funding is no longer allowed by the Facility Agreement. In February 2015, the Company drew $10 million under its agreement with Terrapin (described below). These funds were deemed an Equity Cure Contribution under the Facility Agreement and were used in the Company's calculation of compliance with certain financial covenants under the Facility Agreement. The Company believes it was in compliance with its financial and non-financial covenants as of December 31, 2014 and March 31, 2015. The agent for the lenders recently notified the Company that, according to its interpretation of a formula in the Facility

6



Agreement, the Company was not in compliance with one financial covenant for the period ended December 31, 2014. The Company has notified the agent that its advisors and the Company disagree with the agent's interpretation based on the language set forth in the covenant. The Company is currently in discussions with the agent regarding covenant calculations for past and future measurement periods.
The Facility Agreement requires the Company to maintain a total of $37.9 million in a debt service reserve account, which is pledged to secure all of the Company's obligations under the Facility Agreement. The use of these funds is restricted to making principal and interest payments under the Facility Agreement. As of March 31, 2015, the balance in the debt service reserve account, which was established with the proceeds of the loan agreement with Thermo discussed below, was $37.9 million and classified as restricted cash. 
Thermo Loan Agreement 
In connection with the amendment and restatement of the Facility Agreement in 2013, the Company amended and restated its loan agreement with Thermo (as amended and restated, the “Loan Agreement”). This loan is subordinated to all of the Company’s obligations under the Facility Agreement. 
The Loan Agreement accrues interest at 12% per annum, which is capitalized and added to the outstanding principal in lieu of cash payments. The Company will make payments to Thermo only when permitted by the Facility Agreement. The Loan Agreement becomes due and payable six months after the obligations under the Facility Agreement have been paid in full, or earlier if the Company has a change in control or any acceleration of the maturity of the loans under the Facility Agreement occur. As of March 31, 2015, $32.7 million of interest was accrued on the Loan Agreement; the Thermo loan is included in long-term debt on the Company’s condensed consolidated balance sheet.  
The Company evaluated the various embedded derivatives within the Loan Agreement (See Note 5: Fair Value Measurements for additional information about the embedded derivative in the Loan Agreement). The Company determined that the conversion option and the contingent put feature upon a fundamental change required bifurcation from the Loan Agreement. The conversion option and the contingent put feature were not deemed clearly and closely related to the Loan Agreement and were separately accounted for as a standalone derivative. The Company recorded this compound embedded derivative liability as a non-current liability on its condensed consolidated balance sheet with a corresponding debt discount, which is netted against the face value of the Loan Agreement. 
The Company is accreting the debt discount associated with the compound embedded derivative liability to interest expense through the maturity of the Loan Agreement using an effective interest rate method. The fair value of the compound embedded derivative liability is marked-to-market at the end of each reporting period, with any changes in value reported in the condensed consolidated statements of operations. The Company determined the fair value of the compound embedded derivative using a blend of a Monte Carlo simulation model and market prices.
8.00% Convertible Senior Notes Issued in 2013 
The 8.00% Convertible Senior Notes Issued in 2013 (the "8.00% Notes Issued in 2013") initially were convertible into shares of common stock at a conversion price of $0.80 per share of common stock, or 1,250 shares of the Company’s common stock per $1,000 principal amount of the 8.00% Notes Issued in 2013, subject to adjustment. The conversion price of the 8.00% Notes Issued in 2013 will be adjusted in the event of certain stock splits or extraordinary share distributions, or as a reset of the base conversion and exercise price pursuant to the terms of the Fourth Supplemental Indenture between us and U.S. Bank National Association, as Trustee, dated May 20, 2013 (the "New Indenture"). Due to common stock issuances by the Company since May 20, 2013 at prices below the then effective conversion rate, the base conversion price (rounded to the nearest cent) was reduced to $0.73 per share of common stock as is the current conversion price as of March 31, 2015
The 8.00% Notes Issued in 2013 are senior unsecured debt obligations of the Company, with no sinking fund. The 8.00% Notes Issued in 2013 will mature on April 1, 2028, subject to various call and put features, and bear interest at a rate of 8.00% per annum. Interest on the 8.00% Notes Issued in 2013 is payable semi-annually in arrears on April 1 and October 1 of each year. Interest is paid in cash at a rate of 5.75% per annum and additional notes at a rate of 2.25% per annum. The New Indenture for the new 8.00% Notes Issued in 2013 provides for customary events of default. As of March 31, 2015, the Company was in compliance with respect to the 8.00% Notes Issued in 2013 and the New Indenture. 
Subject to certain conditions set forth in the New Indenture, the Company may redeem the 8.00% Notes Issued in 2013, with the prior approval of the Majority Lenders under the Facility Agreement, in whole or in part, at any time on or after April 1, 2018, at a price equal to the principal amount of the 8.00% Notes Issued in 2013 to be redeemed plus all accrued and unpaid interest thereon. 
A holder of 8.00% Notes Issued in 2013 has the right, at the Holder’s option, to require the Company to purchase some or all of the 8.00% Notes Issued in 2013 held by it on each of April 1, 2018 and April 1, 2023 at a price equal to the principal amount of the 8.00% Notes Issued in 2013 to be purchased plus accrued and unpaid interest. 

7



Subject to the procedures for conversion and other terms and conditions of the New Indenture, a holder may convert its 8.00% Notes Issued in 2013 at its option at any time prior to the close of business on the business day immediately preceding April 1, 2028, into shares of common stock (or, at the option of the Company, cash in lieu of all or a portion thereof, provided that, under the Facility Agreement, the Company may pay cash only with the consent of the Majority Lenders). 
During April 2015, the Company received notices of conversion for approximately $6.3 million principal amount of 8.00% Notes Issued in 2013. During the quarter ended March 31, 2015, $0.2 million principal amount of 8.00% Notes Issued in 2013 were converted, resulting in a loss on extinguishment of debt of $0.1 million on the issuance of 0.5 million shares of voting common stock.
Through March 31, 2015, a total of $33.1 million principal amount of 8.00% Notes Issued in 2013 had been converted, resulting in the issuance of approximately 60.7 million shares of voting common stock. The Company recorded a loss on extinguishment of debt of less than $0.1 million and $10.5 million during the three months ended March 31, 2015 and 2014, respectively, related to conversions. Holders receive conversion shares over a 40-consecutive trading day settlement period. As a result of this feature, the portion of converted debt is extinguished on an incremental basis over the 40-day settlement period, reducing the Company's debt balance outstanding. As of March 31, 2015, there were no conversions that had been initiated but not yet fully settled.   
The Company evaluated the various embedded derivatives within the New Indenture for the 8.00% Notes Issued in 2013. The Company determined that the conversion option and the contingent put feature within the New Indenture required bifurcation from the 8.00% Notes Issued in 2013. The conversion option and the contingent put feature were not deemed clearly and closely related to the 8.00% Notes Issued in 2013 and were separately accounted for as a standalone derivative. The Company recorded this compound embedded derivative liability as a non-current liability on its condensed consolidated balance sheet with a corresponding debt discount which is netted against the face value of the 8.00% Notes Issued in 2013. 
The Company is accreting the debt discount associated with the compound embedded derivative liability to interest expense through the first put date of the 8.00% Notes Issued in 2013 (April 1, 2018) using an effective interest rate method. The fair value of the compound embedded derivative liability is being marked-to-market at the end of each reporting period, with any changes in value reported in the condensed consolidated statements of operations. The Company determined the fair value of the compound embedded derivative using a blend of a Monte Carlo simulation model and market prices. 
Warrants Outstanding
Warrants are outstanding to purchase shares of common stock as shown in the table below: 
 
Outstanding Warrants
 
Strike Price
 
March 31,
2015
 
December 31,
2014
 
March 31,
2015
 
December 31,
2014
Contingent Equity Agreement (1)
30,191,866

 
30,191,866

 
$
0.01

 
$
0.01

5.0% Warrants (2)
8,000,000

 
8,000,000

 
0.32

 
0.32

 
38,191,866

 
38,191,866

 
 

 
 

(1)
Pursuant to the terms of a Contingent Equity Agreement with Thermo (See Note 3: Long-Term Debt and Other Financing Arrangements in the Consolidated Financial Statements in the 2014 Annual Report for a complete description of the Contingent Equity Agreement), the Company issued to Thermo warrants to purchase shares of common stock pursuant to the annual availability fee and subsequent reset provisions in the Contingent Equity Agreement. These warrants have a five-year exercise period from issuance. These warrants were issued between June 2009 and June 2012, and the exercise periods expire through June 2017. As of March 31, 2015, Thermo had exercised warrants to purchase approximately 11.3 million of these shares prior to the expiration of the associated warrants.
(2)
In June 2011, the Company issued warrants (the “5.0% Warrants”) to purchase 15.2 million shares of its voting common stock in connection with the issuance of its 5.0% Convertible Senior Unsecured Notes. During 2013, a portion of the 5.0% Warrants were exercised to purchase 7.2 million shares of common stock. The remaining 5.0% Warrants are exercisable until June 2016, which is five years after their issuance. See 5.0% Convertible Senior Notes in Note 3: Long-Term Debt and Other Financing Arrangements in the Consolidated Financial Statements in the 2014 Annual Report for a complete description of the 5.0% Warrants.

8



Terrapin Opportunity, L.P. Common Stock Purchase Agreement 
On December 28, 2012 the Company entered into a Common Stock Purchase Agreement with Terrapin pursuant to which the Company may, subject to certain conditions, require Terrapin to purchase up to $30.0 million of shares of voting common stock over the 24-month term following the effectiveness of a resale registration statement, which became effective on August 2, 2013. This type of arrangement is sometimes referred to as a committed equity line financing facility. From time to time over the 24-month term following the effectiveness of the registration statement, and in the Company’s sole discretion, the Company may present Terrapin with up to 36 draw down notices requiring Terrapin to purchase a specified dollar amount of shares of voting common stock, based on the price per share per day over ten consecutive trading days (a "Draw Down Period"). The per share purchase price for these shares will equal the daily volume weighted average price of common stock on each date during the Draw Down Period on which shares are purchased, less a discount ranging from 3.5% to 8% based on a minimum price that the Company specifies. In addition, in the Company’s sole discretion, but subject to certain limitations, the Company may require Terrapin to purchase a percentage of the daily trading volume of its common stock for each trading day during the Draw Down Period. The Company has agreed not to sell to Terrapin a number of shares of voting common stock which, when aggregated with all other shares of voting common stock then beneficially owned by Terrapin and its affiliates, would result in the beneficial ownership by Terrapin or any of its affiliates of more than 9.9% of the then issued and outstanding shares of voting common stock. 
When the Company makes a draw under the Terrapin equity line agreement, it issues Terrapin shares of common stock at a price per share calculated as specified in the agreement. As of March 31, 2015, Terrapin had purchased a total of 10.6 million shares of voting common stock at a total purchase price of $16.0 million pursuant to the terms of the agreement. As of March 31, 2015, $14.0 million remained available under this agreement. In February 2015, the Company drew $10.0 million under the agreement with Terrapin, which amount was used as an Equity Cure Contribution under the terms of the Facility Agreement, and issued 4.5 million shares of voting common stock to Terrapin at an average price of $2.22 per share. The Company anticipates that it will make additional draws under the Terrapin Agreement during 2015, which may be used as Equity Cure Contributions under the Facility Agreement, or for liquidity purposes.

4. DERIVATIVES 
In connection with certain existing and past borrowing arrangements, the Company was required to record derivative instruments on its condensed consolidated balance sheets. None of these derivative instruments are designated as hedges. The following tables disclose the fair values of the derivative instruments on the Company’s condensed consolidated balance sheets (in thousands):
 
March 31,
2015
 
December 31, 2014
 
 

 
 

Intangible and other assets - Interest rate cap
$
24

 
$
46

 
 
 
 
Compound embedded derivative with 8.00% Notes Issued in 2013
$
(97,208
)
 
$
(79,040
)
Compound embedded derivative with the Amended and Restated Thermo Loan Agreement
(451,318
)
 
(362,510
)
Total derivative liabilities
$
(548,526
)
 
$
(441,550
)
 The following table discloses the changes in value recorded as derivative gain (loss) in the Company’s condensed consolidated statement of operations (in thousands): 

9



 
Three Months Ended
 
March 31, 2015
 
March 31, 2014
Interest rate cap
$
(22
)
 
$
(48
)
Warrants issued with 8.00% Notes Issued in 2009

 
(35,797
)
Compound embedded derivative with 8.00% Notes Issued in 2009

 
(23,087
)
Compound embedded derivative with 8.00% Notes Issued in 2013
(19,035
)
 
(47,957
)
Compound embedded derivative with the Amended and Restated Thermo Loan Agreement
(88,808
)
 
(102,481
)
Total derivative loss
$
(107,865
)
 
$
(209,370
)
 
 
 
 
Intangible and Other Assets 
Interest Rate Cap 
In June 2009, in connection with entering into the Facility Agreement, which accrues interest at a variable rate, the Company entered into five ten-year interest rate cap agreements. The interest rate cap agreements reflect a variable notional amount ranging from $586.3 million to $14.8 million at interest rates that provide coverage to the Company for exposure resulting from escalating interest rates over the term of the Facility Agreement. The interest rate cap provides limits on the six-month Libor rate (“Base Rate”) used to calculate the coupon interest on outstanding amounts on the Facility Agreement and is capped at 5.50% should the Base Rate not exceed 6.5%. Should the Base Rate exceed 6.5%, the Company’s Base Rate will be 1% less than the then six-month Libor rate. The Company paid an approximately $12.4 million upfront fee for the interest rate cap agreements. The interest rate cap did not qualify for hedge accounting treatment, and changes in the fair value of the agreements are included in the condensed consolidated statements of operations. 
Derivative Liabilities 
The Company has identified various embedded derivatives resulting from certain features in the Company’s debt instruments. These embedded derivatives required bifurcation from the debt host instrument. All embedded derivatives that required bifurcation are recorded as a derivative liability on the Company’s condensed consolidated balance sheet with a corresponding debt discount netted against the principal amount of the related debt instrument. The Company accretes the debt discount associated with each derivative liability to interest expense over the term of the related debt instrument using an effective interest rate method. The fair value of each embedded derivative liability is marked-to-market at the end of each reporting period with any changes in value reported in its condensed consolidated statements of operations. Each liability and the features embedded in the debt instrument which required the Company to account for the instrument as a derivative are described below.  
Compound Embedded Derivative with 8.00% Notes Issued in 2013 
As a result of the conversion option and the contingent put feature within the 8.00% Notes Issued in 2013, the Company recorded a compound embedded derivative liability on its condensed consolidated balance sheet with a corresponding debt discount that is netted against the face value of the 8.00% Notes Issued in 2013. The Company determined the fair value of the compound embedded derivative liability using a blend of a Monte Carlo simulation model and market prices. 
Compound Embedded Derivative with the Amended and Restated Thermo Loan Agreement 
As a result of the conversion option and the contingent put feature within the Loan Agreement with Thermo as amended and restated in July 2013, the Company recorded a compound embedded derivative liability on its condensed consolidated balance sheet with a corresponding debt discount that is netted against the face value of the Amended and Restated Loan Agreement. The Company determined the fair value of the compound embedded derivative liability using a blend of a Monte Carlo simulation model and market prices.  
Compound Embedded Derivative with 8.00% Notes Issued in 2009 
As a result of the conversion rights and features and the contingent put feature embedded within the 8.00% Notes Issued in 2009, the Company recorded a compound embedded derivative liability on its condensed consolidated balance sheet with a corresponding debt discount that is netted against the principal amount of the 8.00% Notes Issued in 2009. The Company determined the fair value of the compound embedded derivative using a blend of a Monte Carlo simulation model and market prices. On April 15, 2014, the remaining principal amount of 8.00% Notes Issued in 2009 was converted into common stock; accordingly, the derivative liability embedded in the 8.00% Notes Issued in 2009 is no longer outstanding. See 8.00% Convertible Senior Unsecured Notes Issued in 2009 in Note 3: Long-Term Debt and Other Financing Arrangements in the Consolidated Financial Statements in the 2014 Annual Report for a complete description of the 8.00% Notes Issued in 2009 and the 8.00% Warrants.

10



Warrants Issued with 8.00% Notes Issued in 2009 
Due to the cash settlement provisions and reset features in the 8.00% Warrants issued with the 8.00% Notes Issued in 2009, the Company recorded the 8.00% Warrants as an embedded derivative liability on its condensed consolidated balance sheet with a corresponding debt discount that is netted against the principal amount of the 8.00% Notes Issued in 2009. The Company determined the fair value of the warrant derivative using a Monte Carlo simulation model. The exercise period for the 8.00% Warrants expired in June 2014; accordingly, the derivative liability for the 8.00% Warrants is no longer outstanding.
5. FAIR VALUE MEASUREMENTS 
The Company follows the authoritative guidance for fair value measurements relating to financial and non-financial assets and liabilities, including presentation of required disclosures herein.  This guidance establishes a fair value framework requiring the categorization of assets and liabilities into three levels based upon the assumptions (inputs) used to price the assets and liabilities.  Level 1 provides the most reliable measure of fair value, whereas Level 3 generally requires significant management judgment.  The three levels are defined as follows:
Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical assets or liabilities.
 Level 2: Quoted prices in markets that are not active or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability. 
Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).
Recurring Fair Value Measurements 
The following table provides a summary of the financial assets and liabilities measured at fair value on a recurring basis (in thousands): 
 
March 31, 2015
 
(Level 1)
 
(Level 2)
 
(Level 3)
 
Total
 Balance
Assets:
 

 
 

 
 

 
 

Interest rate cap
$

 
$
24

 
$

 
$
24

Total assets measured at fair value
$

 
$
24

 
$

 
$
24

 
 
 
 
 
 
 
 
Liabilities:
 

 
 

 
 

 
 

Compound embedded derivative with 8.00% Notes Issued in 2013
$

 
$

 
$
(97,208
)
 
$
(97,208
)
Compound embedded derivative with the  Amended and Restated Thermo Loan Agreement

 

 
(451,318
)
 
(451,318
)
Total liabilities measured at fair value
$

 
$

 
$
(548,526
)
 
$
(548,526
)
 
 
December 31, 2014
 
(Level 1)
 
(Level 2)
 
(Level 3)
 
Total
 Balance
Assets:
 

 
 

 
 

 
 

Interest rate cap
$

 
$
46

 
$

 
$
46

Total assets measured at fair value
$

 
$
46

 
$

 
$
46

 
 
 
 
 
 
 
 
Liabilities:
 

 
 

 
 

 
 

Compound embedded derivative with 8.00% Notes Issued in 2013
$

 
$

 
$
(79,040
)
 
$
(79,040
)
Compound embedded derivative with the Amended and Restated Thermo Loan Agreement

 

 
(362,510
)
 
(362,510
)
Total liabilities measured at fair value
$

 
$

 
$
(441,550
)
 
$
(441,550
)
 

Assets 

11



Interest Rate Cap 
The fair value of the interest rate cap is determined using observable pricing inputs including benchmark yields, reported trades, and broker/dealer quotes at the reporting date. See Note 4: Derivatives for further discussion.
Liabilities 
The Company has two derivative liabilities in Level 3. The Company marks-to-market these liabilities at each reporting date with the changes in fair value recognized in the Company’s condensed consolidated statements of operations. See Note 4: Derivatives for further discussion. 
The significant quantitative Level 3 inputs utilized in the valuation models are shown in the tables below: 
 
March 31, 2015
 
Stock Price
Volatility
 
Risk-Free
Interest
Rate
 
Note
Conversion
Price
 
 
Market Price of Common Stock
Compound embedded derivative with 8.00% Notes Issued in 2013
70% - 95%
 
0.9
%
 
$
0.73

 
 
$
3.33

Compound embedded derivative with the Amended and Restated Thermo Loan Agreement
50% - 100%
 
1.8
%
 
$
0.73

 
 
$
3.33

 
 
December 31, 2014
 
Stock Price
Volatility
 
Risk-Free
Interest
Rate
 
Note
Conversion
Price
 
 
Market Price of Common Stock
Compound embedded derivative with 8.00% Notes Issued in 2013
70% - 100%
 
1.2
%
 
$
0.73

 
 
$
2.75

Compound embedded derivative with the Amended and Restated Thermo Loan Agreement
50% - 100%
 
2.1
%
 
$
0.73

 
 
$
2.75

 Fluctuations in the Company’s stock price are a primary driver for the changes in the derivative valuations during each reporting period. As the stock price increases above the current conversion price for each of the related derivative instruments, the value to the holder of the instrument generally increases, thereby increasing the liability on the Company’s condensed consolidated balance sheet. As previously discussed, the Company uses a blend of a Monte Carlo simulation model and market prices to determine the fair value of the derivative valuations. These valuations are sensitive to the weighting applied to each of the simulated values. Additionally, stock price volatility is one of the significant unobservable inputs used in the fair value measurement of each of the Company’s derivative instruments. The simulated fair value of these liabilities is sensitive to changes in the expected volatility of the Company's stock price. Decreases in expected volatility would generally result in a lower fair value measurement. 
Probability of a change of control is another significant unobservable input used in the fair value measurement of the Company’s derivative instruments. Subject to certain restrictions in each indenture, the Company’s debt instruments contain certain provisions whereby holders may require the Company to purchase all or any portion of the convertible debt instrument upon a change of control. A change of control will occur upon certain changes in the ownership of the Company or certain events relating to the trading of the Company’s common stock. The simulated fair value of the derivative liabilities above is sensitive to changes in the assumed probabilities of a change of control. Decreases in the assumed probability of a change of control would generally result in a lower fair value measurement. 
In addition to the Level 3 inputs described above, the indentures governing the related debt instrument for each of the derivative liabilities included in the Company’s Level 3 fair value measurements have specific features that impact the valuation of each liability at reporting periods. These features are further described below for each of the Company’s derivative liabilities.  
Compound Embedded Derivative with 8.00% Notes Issued in 2013 
In addition to the inputs described above, the valuation model used to calculate the fair value measurement of the compound embedded derivative within the Company’s 8.00% Notes Issued in 2013 includes payment in kind interest payments, make whole premiums, a 40-day stock issuance settlement period upon conversion and automatic conversions. Pursuant to the terms of the New Indenture governing the 8.00% Notes Issued in 2013, there are also certain put and call features within the notes that impact the valuation model. The trading activity in the market provides the Company with additional valuation support. The Company

12



uses a weight factor to calculate the fair value of the embedded derivative to align the fair value produced from the valuation model to the fair value of the notes traded in the market.  
Compound Embedded Derivative with Amended and Restated Thermo Loan Agreement 
In addition to the inputs described above, the valuation model used to calculate the fair value measurement of the compound embedded derivative within the Thermo Loan Agreement includes payment in kind interest payments, make whole premiums, a 40-day stock issuance settlement period upon conversion and automatic conversions. The compound embedded derivative in the Loan Agreement with Thermo contains similar features to the 8.00% Notes Issued in 2013. As stated in the previous section, the Company uses a weight factor to calculate the fair value of the embedded derivative in the 8.00% Notes Issued in 2013 to align the fair value produced from the valuation model to the fair value of the notes traded in the market. Due to the similarities in the debt instruments, a similar weight factor was applied to the embedded derivative in the Thermo Loan Agreement.
The following table presents a rollforward for all liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three months ended March 31, 2015 (in thousands):
Balance at December 31, 2014
$
(441,550
)
   Derivative adjustment related to conversions and exercises
867

   Unrealized loss, included in derivative gain (loss)
(107,843
)
Balance at March 31, 2015
$
(548,526
)



13



6. ACCRUED EXPENSES AND OTHER NON-CURRENT LIABILITIES  
Accrued expenses consist of the following (in thousands): 
 
March 31,
2015
 
December 31,
2014
Accrued interest
$
5,244

 
$
827

Accrued compensation and benefits
2,355

 
2,597

Accrued property and other taxes
6,142

 
6,727

Accrued customer liabilities and deposits
3,547

 
3,358

Accrued professional and other service provider fees
2,370

 
1,925

Accrued liability for contingent consideration
54

 
481

Accrued commissions
857

 
686

Accrued telecommunications expenses
1,392

 
1,135

Accrued second-generation constellation costs
1,901

 
1,531

Accrued inventory in transit
953

 
1,189

Other accrued expenses
1,890

 
1,886

   Total accrued expenses
$
26,705

 
$
22,342

Other accrued expenses include primarily outsourced logistics services, storage, warranty reserve, maintenance, rent and payments to IGOs. 
Other non-current liabilities consist of the following (in thousands):   
 
March 31,
2015
 
December 31,
2014
Long-term accrued interest
$
254

 
$
131

Asset retirement obligation
1,213

 
1,184

Deferred rent and capital lease obligations
375

 
404

Liabilities related to the Cooperative Endeavor Agreement with the State of Louisiana
1,268

 
1,391

Uncertain income tax positions
5,658

 
6,061

Foreign tax contingencies
2,465

 
3,034

   Total other non-current liabilities
$
11,233

 
$
12,205

 
7. COMMITMENTS 
Contractual Obligations - Next-Generation Gateways and Other Ground Facilities 
As of March 31, 2015, the Company had purchase commitments with Hughes Network Systems, LLC (“Hughes”) and Ericsson Inc. (“Ericsson”) related to the procurement, deployment and maintenance of the second-generation ground network.  
  In May 2008, the Company entered into a contract with Hughes under which Hughes will design, supply and implement the Radio Access Network (RAN) ground network equipment and software upgrades for installation at a number of the Company’s satellite gateway ground stations and satellite interface chips to be used in various next-generation Globalstar devices.
In March 2015, the Company entered into an agreement with Hughes for the design, development, build, testing and delivery of four custom test equipment units for a total of $1.9 million to be delivered by the end of 2015. In April 2015, the Company extended the scope of work for delivery of two additional RANs for a total of $4.0 million with an estimated delivery date of February 2016. In April 2015, the Company also signed a letter agreement with Hughes wherein the Company granted Hughes the option to accept pre-payment of its remaining contract payments, including those related to the 2015 work mentioned above, in Globalstar common stock at a 7% discount in lieu of cash. $15.5 million of the $16.3 million total remaining under the Hughes contract will be paid in common stock per this agreement. The common stock will be issued pursuant to the agreement within 60 days of the date of the letter agreement. The Company will record a loss equal to the value of the discount in the period the common stock is issued.


14



The Company has an agreement with Ericsson to develop, implement and maintain a ground interface, or core network system that will be installed at a number of the Company’s satellite gateway ground stations. The remaining amount due under the contract is $20.7 million. In September 2013, the Company entered into an agreement with Ericsson that deferred certain milestone payments previously due under the contract to 2014 and beyond. The deferred payments were incurring interest at a rate of 6.5% per annum. In April 2015, the Company signed a new letter agreement whereby Ericsson agreed to waive the remaining $1.0 million in deferred milestone payments and $.4 million in interest accrued on the milestone payments. In the first quarter of 2015, the Company reversed these amounts from accounts payable, accrued expenses and construction in progress on the Company's condensed consolidated balance sheet.  
8. CONTINGENCIES 
Arbitration 
On June 3, 2011, Globalstar filed a demand for arbitration against Thales before the American Arbitration Association to enforce certain rights to order additional satellites under the 2009 Contract. Globalstar did not include within its demand any claims that it had against Thales for work previously performed under the contract to design, manufacture and timely deliver the first 25 second-generation satellites. On May 10, 2012, the arbitration tribunal issued its award in which it determined that Globalstar materially breached the contract by failing to pay to Thales termination charges in the amount of €51.3 million by October 9, 2011, and that absent further agreement between the parties, Thales had no further obligation to manufacture or deliver satellites under Phase 3 of the 2009 Contract. The award required Globalstar to pay Thales approximately €53 million in termination charges and interest by June 9, 2012. On May 23, 2012, Thales commenced an action in the United States District Court for the Southern District of New York by filing a petition to confirm the arbitration award (the “New York Proceeding”). Thales and the Company entered into a tolling agreement as of June 13, 2013, under which Thales dismissed the New York Proceeding without prejudice. Thales may refile the petition at a later date and pursue the confirmation of the arbitration award, which Globalstar will oppose. Should Thales be successful in confirming the arbitration award, this would have a material adverse effect on the Company's financial condition, results of operations and liquidity.
On June 24, 2012, the Company and Thales agreed to settle their prior commercial disputes, including those disputes that were the subject of the arbitration award. In order to effectuate this settlement, the Company and Thales entered into a Release Agreement, a Settlement Agreement and a Submission Agreement. Under the terms of the Release Agreement, Thales agreed unconditionally and irrevocably to release and forever discharge the Company from any and all claims and obligations (with the exception of those items payable under the Settlement Agreement or in connection with a new contract for the purchase of any additional second-generation satellites), including, without limitation, a full release from paying €35.6 million of the termination charges awarded in the arbitration together with all interest on the award amount effective upon the earlier of December 31, 2012, and the effective date of the financing for the purchase of any additional second-generation satellites. Under the terms of the Release Agreement, Globalstar agreed unconditionally and irrevocably to release and forever discharge Thales from any and all claims (with limited exceptions), including, without limitation, claims related to Thales’ work under the 2009 satellite construction contract, including any obligation to pay liquidated damages, effective upon the earlier of December 31, 2012, and the effective date of the financing for the purchase of any additional second-generation satellites. In connection with the Release Agreement and the Settlement Agreement, the Company recorded a contract termination charge of approximately €17.5 million which is recorded in the Company’s condensed consolidated balance sheet as of March 31, 2015. The releases became effective on December 31, 2012.
Under the terms of the Settlement Agreement, the parties agreed, among other things, to stay the New York Proceeding, and Globalstar agreed to pay €17.5 million to Thales, representing one-third of the termination charges awarded to Thales in the arbitration, subject to certain conditions, on the later of the effective date of the new contract for the purchase of any additional second-generation satellites and the effective date of the financing for the purchase of these satellites. As of March 31, 2015, such condition had not yet been satisfied. Because the effective date of the new contract for the purchase of additional second-generation satellites did not occur on or prior to February 28, 2013, any party may terminate the Settlement Agreement. If any party terminates the Settlement Agreement, all parties’ rights and obligations under the Settlement Agreement (with limited exceptions related to tolling) shall terminate. The Release Agreement is a separate and independent agreement from the Settlement Agreement, and therefore it would survive any termination of the Settlement Agreement. As of March 31, 2015, no party had terminated the Settlement Agreement. Each of the Settlement Agreement and the Release Agreement provides that it supersedes all prior understandings, commitments and representations between the parties with respect to the subject matter thereof.
Litigation
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. In management's opinion, there is no pending litigation, dispute or claim, other than those described in this report, that may have a material adverse effect on the Company's financial condition, results of operations or liquidity. 


15



9. RELATED PARTY TRANSACTIONS  
Payables to Thermo and other affiliates relate to normal purchase transactions and were $0.4 million and $0.5 million at March 31, 2015 and December 31, 2014, respectively. 
Transactions with Thermo 
The following table summarizes expenses Thermo incurred on behalf of the Company (in thousands):
 
 
Three Months Ended
 
March 31,
 
2015
 
2014
General and administrative expenses
$
164

 
$
30

Non-cash expenses
137

 
137

Total
$
301

 
$
167

  
General and administrative expenses are related to expenses incurred by Thermo on the Company’s behalf which are charged to the Company. Non-cash expenses are related to services provided by two executive officers of Thermo (who are also directors of the Company) who receive no cash compensation from the Company; these expenses are treated as a contribution to capital. The Thermo expenses are based on actual amounts (with no mark-up) incurred or upon allocated employee time. 
Since June 2009, Thermo and its affiliates have also deposited $60.0 million into a contingent equity account to fulfill a condition precedent for borrowing under the Facility Agreement, purchased $20.0 million of the Company’s 5.0% Notes, purchased $11.4 million of the Company's 8.00% Notes Issued in 2009, provided a $2.3 million short-term loan to the Company (which was subsequently converted into nonvoting common stock), and loaned $37.5 million to the Company to fund the debt service reserve account, and funded $65 million in exchange for the Company's common stock in accordance with the Consent Agreement, the Common Stock Purchase Agreement, and the Common Stock Purchase and Option Agreement entered into in May 2013. See the sections The Consent Agreement, The Common Stock Purchase Agreement, and The Common Stock Purchase and Option Agreement in Note 3: Long-Term Debt and Other Financing Arrangements in the Consolidated Financial Statements in the 2014 Annual Report for a complete description of these agreements between the Company and Thermo.
During 2014, Thermo exercised warrants that were scheduled to expire in June 2014. The warrants that were exercised during 2014 included warrants for 4.2 million shares issued as partial consideration for the Amended and Restated Thermo Loan Agreement, resulting in the issuance of 4.2 million shares of Globalstar common stock; warrants for 11.3 million shares issued in connection with the annual availability fee for the Contingent Equity Agreement in 2009, resulting in the issuance of 11.3 million shares of Globalstar common stock; and 8.00% Warrants issued in 2009 to purchase 16.3 million shares of Globalstar common stock, resulting in the issuance of 14.7 million shares of Globalstar common stock. As of March 31, 2015, warrants to purchase approximately 30.2 million shares issued under the Contingent Equity Agreement and 8.0 million 5.0% Warrants remain outstanding, all of which are held by Thermo and are scheduled to expire between June 2016 and June 2017.
Thermo is required to maintain minimum and maximum ownership levels in the Company's common stock as defined in the Facility Agreement. As needed, Thermo may convert shares of nonvoting common stock into shares of voting common stock to ensure compliance with these ownership limitations. During 2014, Thermo converted 175 million shares of nonvoting common stock into shares of voting common stock to ensure compliance with these covenants.  
See Note 3: Long-Term Debt and Other Financing Arrangements for further discussion of the Company's debt and financing transactions with Thermo. 
10. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) 
Accumulated other comprehensive income (loss) includes all changes in equity during a period from non-owner sources.
The components of accumulated other comprehensive income (loss) were as follows (in thousands): 
 
Three Months Ended March 31,
 
2015
 
2014
Accumulated other comprehensive income (loss), beginning of period
$
(2,898
)
 
$
871

Other comprehensive income (loss) :
 

 
 

Foreign currency translation adjustments
(1,290
)
 
(1,235
)
Accumulated other comprehensive loss, end of period
$
(4,188
)
 
$
(364
)
 

16



No amounts were reclassified out of accumulated other comprehensive income (loss) for the periods shown above.
 
11. STOCK COMPENSATION 
The Company’s 2006 Equity Incentive Plan (“Equity Plan”) provides long-term incentives to the Company’s key employees, officers, directors, consultants and advisers (“Eligible Participants”) to align stockholder and employee interests.  Under the Equity Plan, the Company may grant incentive stock options, restricted stock awards, restricted stock units, and other stock based awards or any combination thereof to Eligible Participants.  The Compensation Committee of the Company’s board of directors (or its designee for non-executive officers and directors) establishes the terms and conditions of any awards granted under the plans.
For the three months ended March 31, 2015 and 2014, the Company recorded compensation expense related to its 2006 Equity Incentive Plan of $0.7 million and $0.5 million, respectively. These expenses are reflected in marketing, general and administrative expenses.
Grants to eligible participants of incentive stock options, restricted stock awards, and restricted stock units were as follows (in thousands of shares):  
 
Three Months Ended March 31,
 
2015
 
2014
Grants of restricted stock awards and restricted stock units
29

 
29

Grants of options to purchase common stock
113

 
293

Total
142

 
322

Employee Stock Purchase Plan 
For the three months ended March 31, 2015 and 2014, the Company recorded expense related to its Employee Stock Purchase Plan for the fair value of the grant of $0.1 million and $0.1 million, respectively, which is reflected in marketing, general and administrative expenses. Through March 31, 2015, the Company had issued 2,608,765 shares of common stock pursuant to this plan. 

17




12.  GEOGRAPHIC INFORMATION
 
The Company attributes equipment revenue to various countries based on the location equipment is sold. Service revenue is attributed to the various countries based on where the service is processed. Long-lived assets consist primarily of property and equipment and are attributed to various countries based on the physical location of the asset at a given fiscal year-end, except for the satellites which are included in the long-lived assets of the United States. The Company’s information by geographic area is as follows (in thousands):
 
 
Three Months Ended March 31,
 
2015
 
2014
Revenues:
 
 
 
Service:
 
 
 
United States
$
11,715

 
$
10,880

Canada
3,433

 
3,233

Europe
1,202

 
1,351

Central and South America
614

 
663

Others
143

 
122

Total service revenue
$
17,107

 
$
16,249

Subscriber equipment:
 
 
 
United States
1,588

 
2,314

Canada
1,161

 
1,282

Europe
533

 
532

Central and South America
633

 
159

Others

 

Total subscriber equipment revenue
$
3,915

 
$
4,287

Total revenue
$
21,022

 
$
20,536

 
 
March 31,
2015
 
December 31,
2014
Long-lived assets:
 

 
 

United States
$
1,096,027

 
$
1,108,675

Canada
326

 
357

Europe
357

 
413

Central and South America
3,092

 
3,309

Others
702

 
806

Total long-lived assets
$
1,100,504

 
$
1,113,560

 


18



13. CONDENSED CONSOLIDATING FINANCIAL INFORMATION 
In connection with the Company’s issuance of the 8.00% Notes issued in 2013, certain of the Company’s 100% owned domestic subsidiaries (the “Guarantor Subsidiaries”), fully, unconditionally, jointly, and severally guaranteed the payment obligations under the 8.00% Notes Issued in 2013. The following financial information sets forth, on a consolidating basis, the balance sheets, statements of operations and statements of cash flows for Globalstar, Inc. (“Parent Company”), for the Guarantor Subsidiaries and for the Parent Company’s other subsidiaries (the “Non-Guarantor Subsidiaries”).   
The condensed consolidating financial information has been prepared pursuant to the rules and regulations for condensed financial information and does not include disclosures included in annual financial statements. The principal eliminating entries eliminate investments in subsidiaries, intercompany balances and intercompany revenues and expenses. 
Globalstar, Inc.
 Condensed Consolidating Statement of Operations
Three Months Ended March 31, 2015
(Unaudited) 
 
 
Parent
Company
 
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
 
(In thousands)
Revenues:
 

 
 

 
 

 
 

 
 

Service revenues
$
18,915

 
$
907

 
$
5,102

 
$
(7,817
)
 
$
17,107

Subscriber equipment sales
58

 
3,449

 
2,498

 
(2,090
)
 
3,915

Total revenue
18,973

 
4,356

 
7,600

 
(9,907
)
 
21,022

Operating expenses:
 

 
 

 
 

 
 

 
 

Cost of services (exclusive of depreciation, amortization, and accretion shown separately below)
3,020

 
3,040

 
3,099

 
(1,725
)
 
7,434

Cost of subscriber equipment sales
(18
)
 
3,306

 
2,446

 
(2,603
)
 
3,131

Marketing, general and administrative
1,947

 
3,722

 
2,927

 

 
8,596

Depreciation, amortization, and accretion
18,549

 
298

 
5,881

 
(5,682
)
 
19,046

Total operating expenses
23,498

 
10,366

 
14,353

 
(10,010
)
 
38,207

Loss from operations
(4,525
)
 
(6,010
)
 
(6,753
)
 
103

 
(17,185
)
Other income (expense):
 

 
 

 
 

 
 

 
 

Loss on extinguishment of debt
(65
)
 

 

 

 
(65
)
Interest income and expense, net of amounts capitalized
(8,336
)
 
(10
)
 
(171
)
 

 
(8,517
)
Derivative loss
(107,865
)
 

 

 

 
(107,865
)
Equity in subsidiary earnings
(10,663
)
 
4

 

 
10,659

 

Other
1,806

 
526

 
1,747

 
54

 
4,133

Total other income (expense)
(125,123
)
 
520

 
1,576

 
10,713

 
(112,314
)
Income (loss) before income taxes
(129,648
)
 
(5,490
)
 
(5,177
)
 
10,816

 
(129,499
)
Income tax expense
79

 
23

 
126

 

 
228

Net income (loss)
$
(129,727
)
 
$
(5,513
)
 
$
(5,303
)
 
$
10,816

 
$
(129,727
)
Comprehensive income (loss)
$
(129,727
)
 
$
(5,513
)
 
$
(6,593
)
 
$
10,816

 
$
(131,017
)


19



Globalstar, Inc.
 Condensed Consolidating Statement of Operations
Three Months Ended March 31, 2014
(Unaudited)
 
Parent
Company
 
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
 
(In thousands)
Revenues:
 
 
 

 
 

 
 

 
 

Service revenues
$
18,409

 
$
1,824

 
$
4,678

 
$
(8,662
)
 
$
16,249

Subscriber equipment sales
45

 
3,131

 
1,899

 
(788
)
 
4,287

Total revenue
18,454

 
4,955

 
6,577

 
(9,450
)
 
20,536

Operating expenses:
 

 
 

 
 

 
 

 
 

Cost of services (exclusive of depreciation, amortization, and accretion shown separately below)
2,637

 
2,063

 
2,295

 
(57
)
 
6,938

Cost of subscriber equipment sales

 
2,429

 
1,920

 
(1,277
)
 
3,072

Marketing, general and administrative
1,689

 
3,952

 
3,208

 
(1,080
)
 
7,769

Depreciation, amortization, and accretion
19,322

 
4,626

 
6,609

 
(7,225
)
 
23,332

Total operating expenses
23,648

 
13,070

 
14,032

 
(9,639
)
 
41,111

Loss from operations
(5,194
)
 
(8,115
)
 
(7,455
)
 
189

 
(20,575
)
Other income (expense):
 

 
 

 
 

 
 

 
 

Loss on extinguishment of debt
(10,195
)
 

 

 

 
(10,195
)
Interest income and expense, net of amounts capitalized
(10,824
)
 
(11
)
 
(86
)
 

 
(10,921
)
Derivative loss
(209,370
)
 

 

 

 
(209,370
)
Equity in subsidiary earnings
(14,929
)
 
(2,114
)
 

 
17,043

 

Other
25

 
(53
)
 
865

 
(124
)
 
713

Total other income (expense)
(245,293
)
 
(2,178
)
 
779

 
16,919

 
(229,773
)
Loss before income taxes
(250,487
)
 
(10,293
)
 
(6,676
)
 
17,108

 
(250,348
)
Income tax expense
54

 
8

 
131

 

 
193

Net (loss) income
$
(250,541
)
 
$
(10,301
)
 
$
(6,807
)
 
$
17,108

 
$
(250,541
)
Comprehensive (loss) income
$
(250,541
)
 
$
(10,301
)
 
$
(8,045
)
 
$
17,111

 
$
(251,776
)

 

 





20



Globalstar, Inc.
Condensed Consolidating Balance Sheet
As of March 31, 2015 
(Unaudited)
 
 
Parent
Company
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
 
(In thousands)
ASSETS
 

 
 

 
 

 
 

 
 

Current assets:
 

 
 

 
 

 
 

 
 

Cash and cash equivalents
$
9,206

 
$
1,086

 
$
3,363

 
$

 
$
13,655

Accounts receivable
4,638

 
5,290

 
4,970

 
402

 
15,300

Intercompany receivables
781,109

 
446,687

 
33,638

 
(1,261,434
)
 

Inventory
2,014

 
7,324

 
4,246

 

 
13,584

Prepaid expenses and other current assets
2,785

 
307

 
4,191

 

 
7,283

Total current assets
799,752

 
460,694

 
50,408

 
(1,261,032
)
 
49,822

Property and equipment, net
1,092,982

 
3,045

 
5,210

 
(733
)
 
1,100,504

Restricted cash
37,918

 

 

 

 
37,918

Intercompany notes receivable
13,006

 

 
11,945

 
(24,951
)
 

Investment in subsidiaries
(266,658
)
 
(365,320
)
 
31,093

 
600,885

 

Deferred financing costs
60,989

 

 

 

 
60,989

Intangible and other assets, net
7,846

 
468

 
1,134

 
(12
)
 
9,436

Total assets
$
1,745,835

 
$
98,887

 
$
99,790

 
$
(685,843
)
 
$
1,258,669

LIABILITIES AND
STOCKHOLDERS’ EQUITY
 

 
 

 
 

 
 

 
 

Current liabilities:
 

 
 

 
 

 
 

 
 

Current portion of long-term debt
$
6,450

 
$

 
$

 
$

 
$
6,450

Accounts payable
1,616

 
1,668

 
1,726

 

 
5,010

Accrued contract termination charge
19,023

 

 

 

 
19,023

Accrued expenses
11,633

 
6,924

 
8,148

 

 
26,705

Intercompany payables
530,407

 
572,697

 
163,862

 
(1,266,966
)
 

Payables to affiliates
376

 

 

 

 
376

Deferred revenue
2,448

 
15,821

 
3,212

 

 
21,481

Total current liabilities
571,953

 
597,110

 
176,948

 
(1,266,966
)
 
79,045

Long-term debt, less current portion
626,653

 

 

 

 
626,653

Employee benefit obligations
5,478

 

 

 

 
5,478

Intercompany notes payable
3,830

 

 
15,148

 
(18,978
)
 

Derivative liabilities
548,526

 

 

 

 
548,526

Deferred revenue
6,192

 
325

 

 

 
6,517

Debt restructuring fees
20,795

 

 

 

 
20,795

Other non-current liabilities
1,986

 
296

 
8,951

 

 
11,233

Total non-current liabilities
1,213,460

 
621

 
24,099

 
(18,978
)
 
1,219,202

Stockholders’ (deficit) equity
(39,578
)
 
(498,844
)
 
(101,257
)
 
600,101

 
(39,578
)
Total liabilities and stockholders’ equity
$
1,745,835

 
$
98,887

 
$
99,790

 
$
(685,843
)
 
$
1,258,669



21



Globalstar, Inc.
Condensed Consolidating Balance Sheet
As of December 31, 2014
(Unaudited)
 
 
Parent
Company
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
 
(In thousands)
ASSETS
 

 
 

 
 

 
 

 
 

Current assets:
 

 
 

 
 

 
 

 
 

Cash and cash equivalents
$
3,166

 
$
672

 
$
3,283

 
$

 
$
7,121

Accounts receivable
4,470

 
5,265

 
4,955

 
325

 
15,015

Intercompany receivables
755,482

 
441,525

 
23,967

 
(1,220,974
)
 

Inventory
2,018

 
8,424

 
4,292

 

 
14,734

Prepaid expenses and other current assets