Table ofContents

 

 

 

**UNITED STATES**

**SECURITIES AND EXCHANGECOMMISSION**

**Washington, D.C. 20549**

 

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**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,  2009** |
| ** **                                              |
| **OR**                                                  |
| ** **                                              |
| **o**                                                   | **TRANSITION REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |

 

**For the transition periodfrom                    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)  |       |                                  |

 

**461 South Milpitas Blvd.**

**Milpitas, California 95035**

(Address of principal executive offices and zip code)

 

**(408) 933-4000**

Registrant’s telephone number, including area code

 

Indicateby check mark whether the registrant (1) has filed all reports required tobe filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days.    Yes x  No o

 

Indicate by check mark whether the registrant has submittedelectronically and posted on its corporate Web site, if any, every InteractiveData File required to be submitted and posted pursuant to Rule 405 ofRegulation S-T during the preceding 12 months (or for such shorter period thatthe registrant was required to submit and post such files).    Yes o  No o

 

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, a non-accelerated filer or a smaller reporting company. Seethe definitions of “large accelerated filer,” “accelerated filer” and “smallerreporting company” in Rule 12b-2 of the Exchange Act.

 

| Large accelerated filer o                | ** ** | Accelerated filer x         |
|-----------------------------------------------|------------|----------------------------------|
|                                          |       |                             |
| Non-accelerated filer o                  |       | Smaller reporting company o |
| (Do not check if a smaller reporting company) |       |                             |

 

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

 

Indicate the number ofshares outstanding of each of the issuer’s classes of Common Stock, as of thelatest practicable date. As of May 5, 2009, 130,544,872 shares of Common Stock,par value $0.0001 per share, were outstanding.

 

 

 

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Table of Contents

 

TABLE OF CONTENTS

 
| ** **                          | ** **            | ** **                                                                                             | **Page** |
|-------------------------------------|-----------------------|--------------------------------------------------------------------------------------------------------|----------|
|                                |                  |                                                                                                   |     |
| **PART I -  Financial Information** | 3                     |
|                                |                  |                                                                                                   |     |
|                                | Item 1.               | Financial Statements                                                                                   | 3        |
|                                |                  |                                                                                                   |     |
|                                |                  | Consolidated  Statements of Operations for the three months ended March 31, 2009 and 2008  (unaudited) | 3        |
|                                |                  |                                                                                                   |     |
|                                |                  | Consolidated  Balance Sheets as of March 31, 2009 and December 31, 2008 (unaudited)                    | 4        |
|                                |                  |                                                                                                   |     |
|                                |                  | Consolidated  Statements of Cash Flows for the three months ended March 31, 2009 and 2008  (unaudited) | 5        |
|                                |                  |                                                                                                   |     |
|                                |                  | Notes to Unaudited Interim Consolidated Financial  Statements                                          | 6        |
|                                |                  |                                                                                                   |     |
|                                | Item 2.               | Management’s  Discussion and Analysis of Financial Condition and Results of Operations            | 21       |
|                                |                  |                                                                                                   |     |
|                                | Item 3.               | Quantitative  and Qualitative Disclosures about Market Risk                                            | 43       |
|                                |                  |                                                                                                   |     |
|                                | Item 4.          | Controls and  Procedures                                                                               | 43       |
|                                |                  |                                                                                                   |     |
| **PART  II - Other Information**    | 44                    |
|                                |                  |                                                                                                   |     |
|                                | Item 1.               | Legal Proceedings                                                                                      | 44       |
|                                |                  |                                                                                                   |     |
|                                | Item 1A. Risk Factors | 44                                                                                                     |
|                                |                  |                                                                                                   |     |
|                                | Item 6.               | Exhibits                                                                                               | 44       |
|                                |                  |                                                                                                   |     |
|                                | Signatures            | 45                                                                                                     |

 

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**PART I.FINANCIAL INFORMATION**

 

**Item 1.Financial Statements**

 

**GLOBALSTAR, INC.**

**CONSOLIDATED STATEMENTS OF OPERATIONS**

**(In thousands, except per share data)**

**(Unaudited)**

** **
| ** **                                                                            | ** ** | **Three Months Ended** | ** ** |
|---------------------------------------------------------------------------------------|------------|------------------------|------------|
| ** **                                                                            | ** ** | **March 31,  2009**    | ** ** | **March 31,  2008** | ** ** |
| ** **                                                                            | ** ** | ** **             | ** ** | ** ** | ** ** |
| Revenue:                                                                              |       |                   |       |   |   |
| Service revenue                                                                       |       | $                      | 11,131     |   | $ | 16,010 |   |
| Subscriber equipment sales                                                            |       | 4,032                  |       | 6,124 |   |
| Total revenue                                                                         |       | 15,163                 |       | 22,134 |   |
| Operating expenses:                                                                   |       |                   |       |   |   |
| Cost of services (exclusive of depreciation and amortization shown  separately below) |       | 10,408                 |       | 7,475 |   |
| Cost of subscriber equipment sales                                                    |       | 2,995                  |       | 5,045 |   |
| Marketing, general, and administrative                                                |       | 13,977                 |       | 15,748 |   |
| Depreciation and amortization                                                         |       | 5,424                  |       | 5,418 |   |
| Total operating expenses                                                              |       | 32,804                 |       | 33,686 |   |
| Operating loss                                                                        |       | (17,641                | )          | (11,552 | ) |
| Other income (expense):                                                               |       |                   |       |   |   |
| Interest income                                                                       |       | 128                    |       | 1,368 |   |
| Interest expense                                                                      |       | (240                   | )          | (997 | ) |
| Interest rate derivative loss                                                         |       | —                 |       | (3,539 | ) |
| Other                                                                                 |       | (3,975                 | )          | 8,251 |   |
| Total other income (expense)                                                          |       | (4,087                 | )          | 5,083 |   |
| Loss before income taxes                                                              |       | (21,728                | )          | (6,469 | ) |
| Income tax expense                                                                    |       | 30                     |       | 166 |   |
| Net loss                                                                              |       | $                      | (21,758    | ) | $ | (6,635 | ) |
| Loss per common share:                                                                |       |                   |       |   |   |
| Basic                                                                                 |       | $                      | (0.17      | ) | $ | (0.08 | ) |
| Diluted                                                                               |       | (0.17                  | )          | (0.08 | ) |
| Weighted-average shares outstanding:                                                  |       |                   |       |   |   |
| Basic                                                                                 |       | 128,608                |       | 82,448 |   |
| Diluted                                                                               |       | 128,608                |       | 82,448 |   |

 

See accompanyingnotes to unaudited interim consolidated financial statements.

 

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**GLOBALSTAR, INC.**

**CONSOLIDATED BALANCE SHEETS**

**(Inthousands, except par value)**

**(Unaudited)**

 
| ** **                                                                                                                                                                           | ** ** | **March 31,  2009** | ** ** | **December 31,  2008**         | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------|------------|--------------------------------|------------|
| ** **                                                                                                                                                                           | ** ** | ** **          | ** ** | **As Adjusted –  Note 1** | ** ** |
| **ASSETS**                                                                                                                                                                           | ** ** | ** **          | ** ** | ** **                     | ** ** |
| Current assets:                                                                                                                                                                      |       |                |       |                           |       |
| Cash and cash equivalents                                                                                                                                                            |       | $                   | 3,043      |                           | $          | 12,357 |   |
| Accounts receivable, net of allowance of $5,566  (2009) and $5,205 (2008)                                                                                                            |       | 6,287               |       | 10,075                         |       |
| Inventory                                                                                                                                                                            |       | 53,323              |       | 55,105                         |       |
| Advances for inventory                                                                                                                                                               |       | 9,182               |       | 9,314                          |       |
| Prepaid expenses and other current assets                                                                                                                                            |       | 5,406               |       | 5,565                          |       |
| Total current assets                                                                                                                                                                 |       | 77,241              |       | 92,416                         |       |
|                                                                                                                                                                                 |       |                |       |                           |       |
| Property and equipment, net                                                                                                                                                          |       | 735,178             |       | 642,264                        |       |
| Other assets:                                                                                                                                                                        |       |                |       |                           |       |
| Restricted cash                                                                                                                                                                      |       | 15,667              |       | 57,884                         |       |
| Other assets, net                                                                                                                                                                    |       | 16,745              |       | 15,670                         |       |
| Total assets                                                                                                                                                                         |       | $                   | 844,831    |                           | $          | 808,234 |   |
|                                                                                                                                                                                 |       |                |       |                           |       |
| **LIABILITIES AND SHAREHOLDERS’ EQUITY**                                                                                                                                        | ** ** | ** **          | ** ** | ** **                     | ** ** |
| Current liabilities:                                                                                                                                                                 |       |                |       |                           |       |
| Accounts payable                                                                                                                                                                     |       | $                   | 57,602     |                           | $          | 28,370 |   |
| Accrued expenses                                                                                                                                                                     |       | 35,210              |       | 29,998                         |       |
| Payables to affiliates                                                                                                                                                               |       | 3,388               |       | 3,344                          |       |
| Deferred revenue                                                                                                                                                                     |       | 20,076              |       | 19,354                         |       |
| Current portion of long term debt                                                                                                                                                    |       | 21,763              |       | 33,575                         |       |
| Total current liabilities                                                                                                                                                            |       | 138,039             |       | 114,641                        |       |
|                                                                                                                                                                                 |       |                |       |                           |       |
| Borrowings under revolving credit facility                                                                                                                                           |       | 73,800              |       | 66,050                         |       |
| Long term debt                                                                                                                                                                       |       | 193,107             |       | 172,295                        |       |
| Employee benefit obligations, net of current  portion                                                                                                                                |       | 4,786               |       | 4,782                          |       |
| Other non-current liabilities                                                                                                                                                        |       | 16,840              |       | 13,713                         |       |
| Total non-current liabilities                                                                                                                                                        |       | 288,533             |       | 256,840                        |       |
|                                                                                                                                                                                 |       |                |       |                           |       |
| Ownership equity:                                                                                                                                                                    |       |                |       |                           |       |
| Preferred Stock, $0.0001 par value; 100,000 shares  authorized, issued and outstanding — none                                                                                   |       | —              |       | —                         |       |
| Common Stock, $0.0001 par value; 800,000 shares  authorized, 129,885 shares issued and outstanding at March 31, 2009 and 136,606 shares issued  and outstanding at December 31, 2008 |       | 13                  |       | 14                             |       |
| Additional paid-in capital                                                                                                                                                           |       | 466,993             |       | 463,822                        |       |
| Accumulated other comprehensive income (loss)                                                                                                                                        |       | (6,210              | )          | (6,304                         | )          |
| Retained deficit                                                                                                                                                                     |       | (42,537             | )          | (20,779                        | )          |
| Total ownership equity                                                                                                                                                               |       | 418,259             |       | 436,753                        |       |
|                                                                                                                                                                                 |       |                |       |                           |       |
| Total liabilities and shareholders’ equity                                                                                                                                      |       | $                   | 844,831    |                           | $          | 808,234 |   |

 

See accompanyingnotes to unaudited interim consolidated financial statements.

 

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**GLOBALSTAR, INC.**

**CONSOLIDATEDSTATEMENTS OF CASH FLOWS**

**(Inthousands)**

**(Unaudited)**

** **
| ** **                                                                                      | ** ** | **Three Months Ended** | ** ** |
|-------------------------------------------------------------------------------------------------|------------|------------------------|------------|
| ** **                                                                                      | ** ** | **March 31, 2009**     | ** ** | **March 31, 2008** | ** ** |
| Cash flows from operating activities:                                                           |       |                   |       |   |   |
| Net loss                                                                                        |       | $                      | (21,758    | ) | $ | (6,635 | ) |
| Adjustments to reconcile net loss to net cash from  operating activities:                       |       |                   |       |   |   |
| Depreciation and amortization                                                                   |       | 5,424                  |       | 5,418 |   |
| Interest rate derivative loss                                                                   |       | —                 |       | 3,539 |   |
| Stock-based compensation expense                                                                |       | 3,006                  |       | 3,681 |   |
| Accretion of debt discount on 5.75% Senior  Convertible Notes                                   |       | 1,125                  |       | — |   |
| Loss on disposal of fixed assets                                                                |       | —                 |       | 80 |   |
| Provision for bad debts                                                                         |       | 444                    |       | 812 |   |
| Interest income on restricted cash                                                              |       | (111                   | )          | (1,223 | ) |
| Contribution of services                                                                        |       | 126                    |       | 112 |   |
| Amortization of deferred financing costs                                                        |       | 83                     |       | 4 |   |
| Loss in equity method investee                                                                  |       | 218                    |       | — |   |
| Changes in operating assets and liabilities, net of  acquisition:                               |       |                   |       |   |   |
| Accounts receivable                                                                             |       | 3,294                  |       | (1,429 | ) |
| Inventory                                                                                       |       | 694                    |       | (5,177 | ) |
| Advances for inventory                                                                          |       | (68                    | )          | (217 | ) |
| Prepaid expenses and other current assets                                                       |       | 174                    |       | 588 |   |
| Other assets                                                                                    |       | 276                    |       | 7 |   |
| Accounts payable                                                                                |       | 2,081                  |       | (198 | ) |
| Payables to affiliates                                                                          |       | 14                     |       | (336 | ) |
| Accrued expenses and employee benefit obligations                                               |       | 454                    |       | (495 | ) |
| Other non-current liabilities                                                                   |       | (192                   | )          | — |   |
| Deferred revenue                                                                                |       | 2,591                  |       | (111 | ) |
| Net cash used in operating activities                                                           |       | (2,125                 | )          | (1,580 | ) |
| Cash flows from investing activities:                                                           |       |                   |       |   |   |
| Spare and second-generation satellites, ground and  launch costs                                |       | (57,570                | )          | (67,499 | ) |
| Property and equipment additions                                                                |       | (778                   | )          | (2,660 | ) |
| Proceeds from sale of property and equipment                                                    |       | —                 |       | 146 |   |
| Investment in businesses                                                                        |       | (145                   | )          | — |   |
| Cash acquired on purchase of subsidiary                                                         |       | —                 |       | 1,839 |   |
| Restricted cash                                                                                 |       | 39,099                 |       | (41,148 | ) |
| Net cash used in investing activities                                                           |       | (19,394                | )          | (109,322 | ) |
| Cash flows from financing activities:                                                           |       |                   |       |   |   |
| Proceeds from revolving credit loan                                                             |       | 7,750                  |       | — |   |
| Borrowings from long term debt                                                                  |       | —                 |       | 100,000 |   |
| Deferred financing cost payments                                                                |       | (49                    | )          | — |   |
| Reduction in derivative margin account balance  requirements                                    |       | —                 |       | (4,000 | ) |
| Net cash from financing activities                                                              |       | 7,701                  |       | 96,000 |   |
| Effect of exchange rate changes on cash                                                         |       | 4,504                  |       | (8,186 | ) |
| Net decrease in cash and cash equivalents                                                       |       | (9,314                 | )          | (23,088 | ) |
| Cash and cash equivalents, beginning of period                                                  |       | 12,357                 |       | 37,554 |   |
| Cash and cash equivalents, end of period                                                        |       | $                      | 3,043      |   | $ | 14,466 |   |
| Supplemental disclosure of cash flow information:                                               |       |                   |       |   |   |
| Cash paid for:                                                                                  |       |                   |       |   |   |
| Interest                                                                                        |       | $                      | 4,140      |   | $ | 1,646 |   |
| Income taxes                                                                                    |       | $                      | 31         |   | $ | 56 |   |
| Supplemental disclosure of non-cash financing and  investing activities:                        |       |                   |       |   |   |
| Accrued launch costs and second-generation  satellites costs                                    |       | $                      | 31,122     |   | $ | 28,687 |   |
| Capitalization of accrued interest for spare and  second-generation satellites and launch costs |       | $                      | 1,047      |   | $ | 1,862 |   |
| Fair value of assets acquired on purchase of  subsidiary                                        |       | $                      | —     |   | $ | 19,928 |   |
| Fair value of liabilities assumed on purchase of  subsidiary                                    |       | $                      | —     |   | $ | 13,211 |   |
| Vendor financing of second-generation Globalstar  System                                        |       | $                      | 7,875      |   | $ | — |   |
| Conversion of Note Receivable to equity in investee  company                                    |       | $                      | 3,032      |   | — |   |
| Accrued deferred financing costs                                                                |       | $                      | 1,287      |   | — |   |

 

See accompanyingnotes to unaudited interim consolidated financial statements.

 

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**GLOBALSTAR, INC.**

 

**NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS**

 

**Note 1: The Company and Summary ofSignificant Accounting Policies**

 

***Nature of Operations***

 

Globalstar, Inc. (“Globalstar”or the “Company”) was formed as a Delaware limited liability company in November 2003,and was converted into a Delaware corporation on March 17, 2006.

 

Globalstar is a leadingprovider of mobile voice and data communications services via satellite.Globalstar’s network, originally owned by Globalstar, L.P. (“Old Globalstar”),was designed, built and launched in the late 1990s by a technology partnershipled by Loral Space and Communications (“Loral”) and QUALCOMM Incorporated (“QUALCOMM”).On February 15, 2002, Old Globalstar and three of its subsidiaries filedvoluntary petitions under Chapter 11 of the United States Bankruptcy Code. In2004, Thermo Capital Partners L.L.C., together with its affiliates (“Thermo”),became Globalstar’s principal owner, and Globalstar completed the acquisitionof the business and assets of Old Globalstar. Thermo remains Globalstar’slargest stockholder.  Globalstar’sChairman and Chief Executive Officer controls Thermo and its affiliates. Twoother members of Globalstar’s Board of Directors are also directors, officersor minority equity owners of various Thermo entities.

 

Globalstar offerssatellite services to commercial and recreational users in more than 120countries around the world. The Company’s voice and data products includemobile and fixed satellite telephones, Simplex and duplex satellite data modemsand flexible service packages. Many land based and maritime industries benefitfrom Globalstar with increased productivity from remote areas beyond cellularand landline service. Globalstar’s customers include those in the followingindustries: oil and gas, government, mining, forestry, commercial fishing,utilities, military, transportation, heavy construction, emergency preparedness,and business continuity, as well as individual recreational users.

 

***Basis of Presentation***

 

The accompanyingunaudited interim consolidated financial statements have been prepared inaccordance with generally accepted accounting principles in the United Statesof America (“GAAP”) for interim financial information. These unaudited interimconsolidated financial statements include the accounts of Globalstar and itsmajority owned or otherwise controlled subsidiaries. All significantintercompany transactions and balances have been eliminated in theconsolidation. In the opinion of management, such information includes alladjustments, consisting of normal recurring adjustments, that are necessary fora fair presentation of the Company’s consolidated financial position, resultsof operations, and cash flows for the periods presented. The results ofoperations for the three months ended March 31, 2009 are not necessarilyindicative of the results that may be expected for the full year or any futureperiod. Globalstar’s results of operations are subject to seasonal usagechanges. The months of April through October are typically peakmonths for service revenues and equipment sales. Government customers in NorthAmerica tend to use Globalstar’s services during summer months, often insupport of relief activities after events such as hurricanes, forest fires andother natural disasters.

 

The preparation ofconsolidated financial statements in conformity with GAAP requires managementto make estimates and assumptions that affect the reported amounts of assetsand liabilities and disclosure of contingent assets and liabilities at the dateof the financial statements and the reported amounts of revenues and expensesduring the reporting period. The Company evaluates its estimates on an ongoingbasis, including those related to revenue recognition, allowance for doubtfulaccounts, inventory valuation, deferred tax assets, property and equipment,warranty obligations and contingencies and litigation. Actual results could differfrom these estimates.

 

These unaudited interimconsolidated financial statements should be read in conjunction with theaudited consolidated financial statements and related notes included in theCompany’s Annual Report on Form 10-K for the year ended December 31,2008. Certain information and footnote disclosures normally included infinancial statements prepared in accordance with GAAP have been condensed oromitted. Certain reclassifications have been made to prior year consolidatedfinancial statements to conform to current year presentation.

 

Globalstar operates inone segment, providing voice and data communication services via satellite. Asa result, all segment-related financial information required by Statement ofFinancial Accounting Standards (“SFAS”) No. 131, “Disclosures AboutSegments of an Enterprise and Related Information,” or SFAS 131, is included inthe consolidated financial statements.

 

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Other income (expense)includes foreign exchange transaction gains (losses) of $(3.9) million for thethree months ended March 31, 2009, and $8.2 million for the three monthsended March 31, 2008.

 

***RecentAccounting Pronouncements***

 

In September 2006, the Financial Accounting Standards Board (the “FASB”) issued Statement of Financial Standards No. 157, “Fair Value Measurements” (“SFAS No. 157”), which clarifies the definition of fair value, establishes guidelines for measuring fair value, and expands disclosures regarding fair value measurements. SFAS No. 157 does not require any new fair value measurements and eliminates inconsistencies in guidance found in various prior accounting pronouncements. SFAS No. 157 initially was to be effective for the Company on January 1, 2008. However, on February 12, 2008, the FASB approved FASB Staff Position (“FSP”) FAS 157-2, which delays the effective date of SFAS No. 157 for all non-financial assets and non-financial liabilities except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). This FSP partially defers the effective date of SFAS No. 157 to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years, for items within the scope of this FSP. On January 1, 2009, the Company adopted the provisions of SFAS No. 157. This adoption did not have a material impact on the Company’s financial position, results of operations, or cash flows.

 

In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161, “Disclosures about Derivative Instruments and Hedging Activities an amendment of FASB Statement No. 133” (“SFAS No. 161”). SFAS No. 161 requires companies to provide enhanced disclosures regarding derivative instruments and hedging activities. It requires a company to convey better the purpose of derivative use in terms of the risks that it is intending to manage. Disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under SFAS No. 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect a company’s financial position, financial performance, and cash flows are required. SFAS No. 161 retains the same scope as SFAS No. 133 and is effective for fiscal years and interim periods beginning after November 15, 2008. On January 1, 2009, the Company adopted SFAS No. 161. See Note 11 for the Company’s disclosures about its derivative instruments.

 

In May 2008, the FASB issued Statement of Financial Accounting Standards No. 162, “The Hierarchy of Generally Accepted Accounting Principles” (“SFAS No. 162”). SFAS No. 162 identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with GAAP (the GAAP hierarchy). SFAS No. 162 supersedes the existing hierarchy contained in the U.S. auditing standards. The existing hierarchy was carried over to SFAS No. 162 essentially unchanged. The Statement becomes effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board amendments to the auditing literature. The new hierarchy is not expected to change current accounting practice in any area.

 

InMay 2008, the FASB issued FASB Staff Position (“FSP”) APB 14-1, “Accounting for Convertible Debt InstrumentsThat May Be Settled in Cash upon Conversion (Including Partial CashSettlement)” (“FSP APB 14-1”). FSP APB 14-1 clarifies that convertibledebt instruments that may be settled in cash upon either mandatory or optionalconversion (including partial cash settlement) are not addressed by paragraph12 of APB Opinion No. 14, *Accountingfor Convertible Debt and Debt issued with Stock Purchase Warrants*.Additionally, FSP APB 14-1 specifies that issuers of such instruments shouldseparately account for the liability and equity components in a manner thatwill reflect the entity’s nonconvertible debt borrowing rate when interest costis recognized in subsequent periods. FSP APB 14-1 is effective retroactivelyfor financial statements issued for fiscal years beginning after December 15,2008, and interim periods within those fiscal years, and is applied to both newand previously issued convertible debt instruments. The Company adopted FSP APB14-1 on January 1, 2009. The adoption of FSP APB 14-1 changed the Company’sfull-year 2008 Consolidated Statements of Operations because the gainsassociated with conversions and exchanges of the 5.75% Convertible Senior Notes(the “Notes”) in 2008 were recorded in stockholders’ equity prior to adoptionof this standard. The adoption of FSP APB 14-1 had no impact on the Company’s ConsolidatedStatement of Operations for the three months ended March 31, 2008 becausethe Company did not issue the Notes until April 2008. The Companycapitalized the interest associated with the accretion of debt discountrecorded in connection with the adoption of FSP APB 14-1, which resulted in anincrease to property and equipment. The following tables present the effect ofthe adoption of FSP APB 14-1 on the Company’s affected Balance Sheet items asof December 31, 2008:

 
| ** **                  | ** ** | **As of December 31, 2008** | ** ** |
|-----------------------------|------------|----------------------------------|------------|
| ** **                  | ** ** | **As Originally**           | ** ** | **Effect of** | ** ** | **As** | ** ** |
| ** **                  | ** ** | **Reported**                     | ** ** | **Change** | ** ** | **Adjusted** | ** ** |
| ** **                  | ** ** | **(in thousands)**          | ** ** |
| Balance Sheet:              |       |                             |       |   |   |   |   |
| Property and equipment, net |       | $                                | 636,362    |   | $ | 5,902 |   | $ | 642,264 |   |
| Other assets                |       | 16,376                           |       | (706 | ) | 15,670 |   |
| Long-term debt              |       | 195,429                          |       | (23,134 | ) | 172,295 |   |
| Additional paid-in capital  |       | 488,343                          |       | (24,521 | ) | 463,822 |   |
| Retained deficit            |       | $                                | (73,630    | ) | $ | 52,851 |   | $ | (20,779 | ) |

 

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OnApril 9, 2009, the FASB issued FSP FAS 107-1 and APB 28-1, “InterimDisclosures about Fair Value of Financial Instruments,” relates to fair valuedisclosures for any financial instruments that are not currently reflected onthe balance sheet at fair value. Prior to issuing this FSP, fair values forthese assets and liabilities were disclosed only once a year. The FSP nowrequires these disclosures on a quarterly basis, providing qualitative andquantitative information about fair value estimates for all those financialinstruments not measured on the balance sheet at fair value. The FSP iseffective for interim reporting periods ending after June 15, 2009, withearly adoption permitted for periods ending after March 31, 2009. The Companyplans to adopt the provisions of this FSP and provide these disclosures duringthe second quarter of 2009, however, it does not expect the adoption to have amaterial effect on its results of operations or financial position.

 

In April 2009, the FASBissued FSP No. 115-2 and No. 124-2, *Recognitionand Presentation of Other-Than-Temporary Impairments,*which amendexisting guidance for determining whether impairment is other-than-temporaryfor debt securities.  The FSPs require anentity to assess whether it intends to sell, or it is more likely than not thatit will be required to sell a security in an unrealized loss position beforerecovery of its amortized cost basis.  Ifeither of these criteria is met, the entire difference between amortized costand fair value is recognized in earnings. For securities that do not meet the aforementioned criteria, the amountof impairment recognized in earnings is limited to the amount related to creditlosses, while impairment related to other factors is recognized in othercomprehensive income.    Additionally,the FSPs expand and increase the frequency of existing disclosures aboutother-than-temporary impairments for debt and equity securities.  These FSPs are effective for interim andannual reporting periods ending after June 15, 2009, with early adoptionpermitted for periods ending after March 15, 2009.  The Company plans to adoptthese FSPs in the second quarter of 2009; however, it does not expect theadoption to have a material effect on its results of operations or financialposition.

 

In April 2009, the FASBissued Staff Position (FSP) No. 157-4, *Determining Fair ValueWhen the Volume and Level of Activity for the Asset and Liability HaveSignificantly Decreased and Identifying Transactions That Are Not Orderly*.  This FSP emphasizes that even if there hasbeen a significant decrease in the volume and level of activity, the objectiveof a fair value measurement remains the same. Fair value is the price that would be received to sell an asset or paidto transfer a liability in an orderly transaction (that is, not a forcedliquidation or distressed sale) between market participants.  The FSP provides a number of factors toconsider when evaluating whether there has been a significant decrease in thevolume and level of activity for an asset or liability in relation to normalmarket activity.   In addition, whentransactions or quoted prices are not considered orderly, adjustments to thoseprices based on the weight of available information may be needed to determinethe appropriate fair value.  The FSP alsorequires increased disclosures.  This FSPis effective for interim and annual reporting periods ending after June 15,2009, and shall be applied prospectively. Early adoption is permitted for periods ending after March 15,2009.  The Company plans to adopt thisFSP in the second quarter of 2009, however, does not expect the adoption tohave a material effect on its results of operations or financial position.

 

**Note 2: Basic and Diluted Loss Per Share**

 

The Company applies theprovisions of Statement of Financial Accounting Standard No. 128, “EarningsPer Share” (“SFAS 128”), which requires companies to present basic and dilutedearnings per share. Basic earnings per share is computed based on theweighted-average number of shares of Common Stock outstanding during theperiod. Common Stock equivalents are included in the calculation of dilutedearnings per share only when the effect of their inclusion would be dilutive.

 

The following table setsforth the computations of basic and diluted loss per share (in thousands,except per share data):

 
| ** **                                   | ** ** | **Three Months Ended March 31, 2009** | ** ** | **Three Months Ended March 31, 2008** | ** ** |
|----------------------------------------------|------------|----------------------------------------------------------------|------------|----------------------------------------------------------------|------------|
| ** **                                   | ** ** | **Income  (Numerator)**                                        | ** ** | **Weighted  Average Shares  Outstanding  (Denominator)**  | ** ** | **Per-Share  Amount** | ** ** | **Income  (Numerator)** | ** ** | **Weighted  Average Shares  Outstanding  (Denominator)** | ** ** | **Per-Share  Amount** | ** ** |
| **Basic and Dilutive loss per common share** | ** ** | ** **                                                     | ** ** | ** **                                                     | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net loss                                     |       | $                                                              | (21,758    | )                                                              | 128,608    |   | $ | (0.17 | ) | $ | (6,635 | ) | 82,448 |   | $ | (0.08 | ) |
|                                              |            |                                                                |            |                                                                |            |  |  |  |  |  |  |  |  |  |  |  |  |

 

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For thethree-month periods ended March 31, 2009 and 2008, diluted net loss pershare of Common Stock is the same as basic net loss per share of Common Stock,because the effects of potentially dilutive securities are anti-dilutive. 

 

Shares issuedunder the Share Lending Agreement (17.3 million shares outstanding at March 31,2009) are included in the computation of earnings per share (Note 12).

 

**Note 3:****Property and Equipment**

 

Propertyand equipment consist of the following (in thousands):

 
| ** **                                                    | ** ** | **March 31,  2009** | ** **    | **December 31,  2008**    | ** ** |
|---------------------------------------------------------------|------------|--------------------------|---------------|--------------------------------|------------|
| ** **                                                    | ** ** | ** **               | ** **    | **As Adjusted –  Note 1** | ** ** |
| Globalstar System:                                            |       |                     |          |                           |       |
| Space component                                               |       | $                        | 132,982       |                           | $          | 132,982 |   |
| Ground component                                              |       | 26,161                   |          | 26,154                         |       |
| Second-generation satellites, ground and related launch costs |       | 614,025                  |          | 516,530                        |       |
| Furniture and office equipment                                |       | 17,222                   |          | 16,872                         |       |
| Land and buildings                                            |       | 3,831                    |          | 3,810                          |       |
| Leasehold improvements                                        |       | 681                      |          | 687                            |       |
| Construction in progress                                      |       | 1,263                    |          | 958                            |       |
|                                                          |       | 796,165                  |          | 697,993                        |       |
| Accumulated depreciation                                      |       | (60,987                  | )             | (55,729                        | )          |
|                                                          |       | $                        |  735,178 |                           | $          | 642,264 |   |

 

Property and equipment consists of an in-orbit satellite constellation(including eight spare satellites launched in 2007), ground equipment,second-generation satellites under construction and related launch costs,second-generation ground component and support equipment located in variouscountries around the world.

 

OnNovember 30, 2006, the Company entered into a contract with Thales AleniaSpace (formerly known as Alcatel Alenia Space France) to construct 48 low-earthorbit satellites. The total contract price, including subsequent additions, isapproximately €670.3 million (approximately $893.4 million at a weightedaverage conversion rate of €1.00 = $1.3328 at March 31, 2009) includingapproximately €146.8 million which was paid by the Company in U.S. dollars at afixed conversion rate of €1.00 = $1.2940. The contract requires Thales AleniaSpace to commence delivery of satellites in the third quarter of 2009, withdeliveries continuing until 2013 unless Globalstar elects to acceleratedelivery. At March 31, 2009, $5.3 million was held in escrow to secure theCompany’s payment obligations related to its contract for the construction ofits second-generation satellite constellation. Funds that the Company depositsinto the escrow account to support this contract will be used to make paymentsunder this contract in the future. At the Company’s request, Thales AleniaSpace presented a plan for accelerating delivery of the initial 24 satellitesby up to four months. The expected cost of this acceleration would range fromapproximately €6.7 million to €13.4 million ($8.8 million to $17.7 million at€1.00 = $1.3208).  In 2007, the Companyauthorized the first two portions of the Thales’ four-part sequential plan withan additional cost of €4.1 million ($5.7 million at €1.00 =$1.4022). However, due to revisions in the construction schedule in 2009requested by the Company at an initial cost of $2.0 million, the potential gainsfrom this acceleration may not be fully achieved.  Accordingly, the Company cannot provideassurance that any acceleration will occur, and the Company now believes thatit will not commence deploying its second-generation satellites prior to 2010.

 

In March 2007, the Company and Thales AleniaSpace entered into an agreement for the construction of the SatelliteOperations Control Centers, Telemetry Command Units and In Orbit Test Equipment(collectively, the “Control Network Facility”) for the Company’ssecond-generation satellite constellation. This agreement complements thesecond-generation satellite construction contract between Globalstar and ThalesAlenia Space for the construction of 48 low-earth orbit satellites and allowsThales Alenia Space to coordinate all aspects of the second-generationsatellite constellation project, including the transition of first-generationsoftware and hardware to equipment for the second generation. The totalcontract price for the construction and associated services is €9.2 million (approximately$13.1 million at a weighted average conversion rate of €1.00 = $1.4212)consisting of €4.1 million for the Satellite Operations Control Centers, €3.1million for the Telemetry Command Units and €2.0 million for the In Orbit TestEquipment, with payments to be made on a quarterly basis through completion ofthe Control Network Facility in late 2009. Globalstar has the option toterminate the contract if excusable delays affecting Thales Alenia Space’sability to perform the contract total six consecutive months or at itsconvenience. If Globalstar terminates the contract, it must pay Thales AleniaSpace the lesser of its unpaid costs for work performed by Thales Alenia Spaceand its subcontractors or payments for the next two quarters followingtermination. If Thales Alenia Space has not completed the Control NetworkFacility acceptance review within 60 days of the due date, Globalstar will beentitled to certain liquidated damages. Failure to complete the Control NetworkFacility acceptance review on or before six months after the due date resultsin a default by Thales Alenia Space, entitling Globalstar to a refund of allpayments, except for liquidated damage amounts previously paid or with respectto items where final delivery has occurred. The Control Network Facility, whenaccepted, will be covered by a limited one-year warranty. The contract containscustomary arbitration and indemnification provisions.

 

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On September 5,2007, the Company and Arianespace (the “Launch Provider”) entered into anagreement for the launch of the Company’s second-generation satellites andcertain pre and post-launch services. Pursuant to the agreement, the LaunchProvider will make four launches of six satellites each, and the Company hasthe option to require the Launch Provider to make four additional launches ofsix satellites each. The total contract price for the first four launches isapproximately $216.1 million. On July 5,2008, the Company amended its agreement with its Launch Provider for thelaunch of the Company’s second-generation satellites and certain pre andpost-launch services. Under the amended terms, the Company can defer payment onup to 75% of certain amounts due to the Launch Provider. The deferred paymentswill incur annual interest at 8.5% to 12% and become payable one month from thecorresponding launch date. See “Item 2. Management’s Discussion and Analysis ofFinancial Condition and Results of Operations - Liquidity and Capital Resources- Capital Expenditures” for a schedule of the payments to the Launch Provider.The launch window for the first four launches ranges from the first quarter of2010 through the end of 2010 and the optional launches are available fromspring 2010 through the end of 2014. Prolonged delays due to postponements bythe Company or the Launch Provider may result in adjustments to the paymentschedule.

 

To augment itsexisting satellite constellation, the Company successfully launched eight sparesatellites in two separate launches of four satellites each on May 29,2007 and October 21, 2007. The Company no longer has any spare satellitesremaining to be launched.  All of the eightspare satellites had been placed into service and were handling call traffic asof June 30, 2008.

 

OnMay 14, 2008, the Company and Hughes Network Systems, LLC (“Hughes”)entered into an agreement under which Hughes will design, supply and implementthe Radio Access Network (“RAN”) ground network equipment and software upgradesfor installation at a number of the Company’s satellite gateway ground stationsand satellite interface chips to be a part of the User Terminal Subsystem (UTS)in various next-generation Globalstar devices. The total contract purchaseprice of approximately $100.8 million is payable in various increments over aperiod of 40 months. The Company has the option to purchase additionalRANs and other software and hardware improvements at pre-negotiated prices. TheRANs, when completed, will be covered by a limited one-year warranty, with anoption for the Company to extend the warranty. The agreement contains customaryarbitration and indemnification provisions. Future costs associated withcertain projects under this contract will be capitalized once the Company hasdetermined that technological feasibility has been achieved on these projects.As of March 31, 2009, the Company had made payments of $5.9 million underthis contract and expensed $1.8 million of these payments and capitalized $4.1million under second-generation ground component.

 

On October 8, 2008, the Company signed an agreement with EricssonFederal Inc., a leading global provider of technology and services to telecom operators.According to the $22.7 million contract, Ericsson will work with the Company todevelop, implement and maintain a ground interface, or core network, systemthat will be installed at the Company’s satellite gateway ground stations. Theall Internet protocol (IP) based core network system is wireless 3G/4Gcompatible and will link the Company’s radio access network to thepublic-switched telephone network (PSTN) and/or Internet. Design of the newcore network system is now underway. The agreement represents the finalsignificant ground network infrastructure component for the Company’snext-generation of advanced IP-based satellite voice and data services.

 

As of March 31, 2009 and December 31, 2008, capitalizedinterest recorded was $43.7 million and $37.4 million, respectively.Interest capitalized during the three months ended March 31, 2009 and 2008was $6.3 million and $2.9 million, respectively. Depreciation expense foreach of the three months ended March 31, 2009 and 2008 was $5.4 million.

 

**Note 4:Payables to Affiliates**

 

Payablesto affiliates relate to normal purchase transactions, excluding interest, andare comprised of the following (in thousands):

 
| ** ** | ** ** | **March 31,  2009** | ** **  | **December 31,  2008** | ** ** |
|------------|------------|--------------------------|-------------|-----------------------------|------------|
| ** ** | ** ** | ** **               | ** **  | ** **                  | ** ** |
| QUALCOMM   |       | $                        | 2,564       |                        | $          | 2,498 |   |
| Others     |       | 824                      |        | 846                         |       |
|       |       | $                        |  3,388 |                        | $          | 3,344 |   |

 

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Thermo incurs certain general and administrative expenses on behalf ofthe Company, which are charged to the Company. For the three months ended March 31,2009 and 2008, total expenses were approximately $44,000 and $29,000,respectively.

 

For the three-month periods ended March 31, 2009 and 2008, theCompany also recorded approximately $127,000 and $112,000, respectively, ofnon-cash expenses related to services provided by two executive officers ofThermo and the Company who receive no compensation from the Company, which wereaccounted for as a contribution to capital. The Thermo expense charges arebased on actual amounts incurred or upon allocated employee time. Managementbelieves the allocations are reasonable.

 

**Note 5:Other Related Party Transactions**

 

Since 2005,Globalstar has issued separate purchase orders for additional phone equipmentand accessories under the terms of previously executed commercial agreementswith QUALCOMM. Within the terms of the commercial agreements, the Company paidQUALCOMM approximately 7.5% to 25% of the total order as advances forinventory.  As of March 31, 2009 andDecember 31, 2008, total advances to QUALCOMM for inventory were$9.2 million. As of March 31, 2009 and December 31, 2008, theCompany had outstanding commitment balances of approximately $49.4 million. On October 28,2008, the Company amended its agreement with QUALCOMM to extend the term for 12months and defer delivery of mobile phones and related equipment until April 2010through July 2011.

 

On August 16, 2006, theCompany entered into an amended and restated credit agreement with WachoviaInvestment Holdings, LLC, as administrative agent and swingline lender,and Wachovia Bank, National Association, as issuing lender, which wassubsequently amended on September 29 and October 26, 2006. On December 17,2007, Thermo Funding was assigned all the rights (except indemnificationrights) and assumed all the obligations of the administrative agent and thelenders under the amended and restated credit agreement and the creditagreement was again amended and restated. See Note 12.

 

During the three-monthperiod ended March 31, 2009, the Company purchased approximately $1.4million of services and equipment from a company whose chairman serves as amember of the Company’s board of directors.

 

***Purchases andother transactions with Affiliates***

 

Total purchasesand other transactions from affiliates, excluding interest, are as follows (inthousands):

 
| ** **       | ** ** | **Three months ended  March 31,** | ** ** |
|------------------|------------|--------------------------------------------------|------------|
| ** **       | ** ** | **2009**                                         | ** ** | **2008** | ** ** |
|             |       |                                             |       |   |   |
| QUALCOMM         |       | $                                                | 609        |   | $ | 2,881 |   |
| Other affiliates |       | 1,478                                            |       | 1,465 |   |
| Total            |       | $                                                | 2,087      |   | $ | 4,346 |   |

 

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**Note 6:Income Taxes**

 

On January 1,2007, the Company adopted Financial Accounting Standards Board Interpretation No. 48“Accounting for Uncertainty in Income Taxes” (“FIN 48”). FIN 48 prescribes arecognition threshold that a tax position is required to meet before beingrecognized in the financial statements and provides guidance on derecognition,measurement, classification, interest and penalties, accounting in interimperiods, disclosure and transition issues.

 

On January 1, 2009, the Company adopted FSP APB14-1, which was effective retrospectively. Prior to the adoption of FSP APB14-1, the Company had recorded the net tax effect of the conversions andexchanges of the Company’s 5.75% Convertible Senior Notes due 2028 (the “Notes”)(See Note 12) during the fourth quarter of 2008 againstadditional-paid-in-capital and reduced its deferred tax assets at December 31,2008. The adoption of FSP APB 14-1 resulted in the Company recording a gainfrom the exchanges and conversions of the Notes and reversing the charge takento additional-paid-in-capital and deferred tax assets. The Company establisheda valuation allowance to reduce the deferred tax assets to an amount that ismore likely than not to be realized. As of December 31, 2008, the Companyhad established valuation allowances of approximately $125.5 million.Accordingly, at December 31, 2008, net deferred tax assets were $0.

 

TheCompany has been notified that one of its subsidiaries and its predecessor,Globalstar L.P., are currently under audit for the 2004 and 2005 tax years.During the audit period, the Company and its subsidiaries were taxed aspartnerships. Neither the Company nor any of its subsidiaries, except for theone noted above, are currently under audit by the Internal Revenue Service (“IRS”)or by any state jurisdiction in the United States with respect to income taxes.The Company’s corporate U.S. tax returns for 2006 and 2007 and U.S. partnershiptax returns filed for years before 2006 remain subject to examination by taxauthorities. In theCompany’s international tax jurisdictions, numerous tax years remain subject toexamination by tax authorities, including tax returns for 2001 and subsequentyears in most of the Company’s major international tax jurisdictions.

 

**Note 7:Comprehensive Loss**

 

SFAS No. 130,“Reporting Comprehensive Income,” establishes standards for reporting anddisplaying comprehensive income and its components in shareholders’ equity.Comprehensive income (loss) includes all changes in equity during a period fromnon-owner sources. The change in accumulated other comprehensive income for allperiods presented resulted from foreign currency translation adjustments.

 

Thefollowing are the components of comprehensive loss (in thousands):

 
| ** **                               | ** ** | **Three months ended  March 31,** | ** ** |
|------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                               | ** ** | **2009**                                         | ** ** | **2008** | ** ** |
| Net loss                                 |       | $                                                | (21,758    | ) | $ | (6,635 | ) |
| Other comprehensive income:              |       |                                             |       |   |   |
| Foreign currency translation adjustments |       | 94                                               |       | (1,865 | ) |
|                                     |       |                                             |       |   |   |
| Total comprehensive loss                 |       | $                                                | (21,664    | ) | $ | (8,500 | ) |

 

**Note 8: Equity Incentive Plan**

 

TheCompany’s 2006 Equity Incentive Plan (the “Equity Plan”) is a broad based,long-term retention program intended to attract and retain talented employeesand align stockholder and employee interests. Approximately, less than  0.1 million and 0.8 million restricted stockawards and restricted stock units (including grants to both employees andexecutives) were granted during the three-month periods ended March 31,2009 and 2008, respectively. In January 2009, 2.7 million shares ofthe Company’s Common Stock were added to the shares available for issuanceunder the Equity Plan. Under the various management incentive plans, theCompany expects to issue additional shares of its Common Stock equivalent toapproximately $7.3 million to employees and executives during the second orthird quarter of 2009.

 

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**Note 9: Litigation and OtherContingencies**

 

From time to time, the Company is involved in various litigationmatters involving ordinary and routine claims incidental to our business.Management currently believes that the outcome of these proceedings, eitherindividually or in the aggregate, will not have a material adverse effect onthe Company’s business, results of operations or financial condition. TheCompany is involved in certain litigation matters as discussed below.

 

*IPO Securities Litigation.*  On February 9, 2007, the first of threepurported class action lawsuits was filed against the Company, its CEO and CFOin the Southern District of New York alleging that the Company’s registrationstatement related to its initial public offering in November 2006contained material misstatements and omissions. The Court consolidated thethree cases as Ladmen Partners, Inc. v. Globalstar, Inc., et al.,Case No. 1:07-CV-0976 (LAP), and appointed Connecticut Laborers’ PensionFund as lead plaintiff. On September 30, 2008, the court granted theCompany’s motion to dismiss the plaintffs’ Second Amended Complaint withprejudice. Plaintiffs filed a notice of appeal to the U.S. Second Circuit Courtof Appeals. Plaintiffs (now appellants) filed their brief on January 29,2009, and the Company’s responsive brief was filed March 30, 2009.

 

*Stickrath v. Globalstar, Inc.*  On April 7, 2007, Kenneth Stickrath andSharan Stickrath filed a purported class action complaint against the Companyin the U.S. District Court for the Northern District of California, Case No. 07-cv-01941.The complaint is based on alleged violations of California Business &Professions Code § 17200 and California Civil Code § 1750, et seq.,the Consumers’ Legal Remedies Act. In July 2008 the Company filed a motionto deny class certification and a motion for summary judgment. The courtdeferred action on the class certification issue but granted the motion forsummary judgment on December 22, 2008. The court did not, however, dismissthe case with prejudice but rather allowed counsel for plaintiffs to amend thecomplaint and substitute one or more new class representatives. On January 16,2009, counsel for the plaintiffs filed a Third Amended Class ActionComplaint. The Company filed its answer on February 2, 2009. The Companywill continue to seek to have class certification denied and the case dismissedwith prejudice.

 

*Appeal of FCC S-Band Sharing Decision.*  This case is Sprint Nextel Corporation’spetition in the U.S. Court of Appeals for the District of Columbia Circuit forreview of, among others, the FCC’s April 27, 2006, decision regardingsharing of the 2495-2500 MHz portion of the Company’s radiofrequency spectrum.This is known as “The S-band Sharing Proceeding.” The Court of Appeals hasgranted the FCC’s motion to hold the case in abeyance while the FCC considersthe petitions for reconsideration pending before it. The Court has also grantedthe Company’s motion to intervene as a party in the case. The Company cannotdetermine when the FCC might act on the petitions for reconsideration.

 

*Appeal of FCC L-Band Decision.*  On November 9, 2007, the FCC released aSecond Order on Reconsideration, Second Report and Order and Notice of ProposedRulemaking. In the Report and Order (“R&O”) portion of the decision, theFCC effectively decreased the L-band spectrum available to the Company whileincreasing the L-band spectrum available to Iridium Satellite by 2.625 MHz. On February 5,2008, the Company filed a notice of appeal of the FCC’s decision in the U.S.Court of Appeals for the D.C. Circuit. Briefs were filed and oral argument washeld on February 17, 2009. On May 1, 2009, the court issued adecision denying the Company’s appeal and affirming the FCC’s decision. TheCompany is considering its further options.

 

*Appeal of FCC ATC Decision.*  On October 31, 2008, the FCC issued anOrder granting the Company modified Ancillary Terrestrial Component (“ATC”)authority. The modified authority allows the Company and Open Range Communications, Inc.to implement their plan to roll out ATC service in rural areas of the UnitedStates. On December 1, 2008, Iridium Satellite filed a petition with theU.S. Court of Appeals for the District of Columbia Circuit for review of theFCC’s Order. On the same day, CTIA-The Wireless Association petitioned the FCCto reconsider its Order. The court has granted the FCC’s motion to hold theappeal in abeyance pending the FCC’s decision on reconsideration.

 

*Patent Infringement.*  On July 2, 2008, the Company’ssubsidiary, Spot LLC, received a notice of patent infringement fromSorensen Research and Development. Sorensen asserts that the process used tomanufacture the Spot Satellite Personal Tracker violates a U.S. patent held bySorensen. The manufacturer, Axonn LLC, has assumed responsibility formanaging the case under an indemnity agreement with the Company andSpot LLC. Axonn was unable to negotiate a mutually acceptable settlementwith Sorensen, and on January 14, 2009, Sorensen filed a complaint againstAxonn, Spot LLC and the Company in the U.S. District Court for theSouthern District of California. The Company has filed an answer andcounterclaim and a motion to stay the proceeding pending completion of there-examination of the subject patent, which is now underway.

 

*YMax Communications Corp. v. Globalstar, Inc. andSpot LLC**.* On May 6, 2009, YMax Communications Corp. filed a patent infringement complaintagainst the Company and its subsidiary, Spot LLC, in the Delaware U.S. DistrictCourt (Civ. Action No. 09-329) alleging that the SPOT Satellite GPS Messengerservice infringes a patent for which YMax is the exclusive licensee. Thecomplaint follows on the heels of an exchange of correspondence between theCompany and YMax in which the Company endeavored to explain why the SPOTservice does not infringe the YMax patent. Globalstar’s answer to thecomplaint is due on May 26. The Company does not believe that the complaint hasmerit and  intends to defend itself vigorously.

 

*Sales and Use Tax.*  The Company is under a sales and use taxexamination by the California Board of Equalization for tax years ended 2005,2006 and 2007. The Company believes that the amount accrued on its booksrelated to sales and use tax contingency is adequate.

 

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**Note10: Geographic Information**

 

Revenue by geographic location, presented net of eliminations forintercompany sales, was as follows for the three months ended March 31,2009 and 2008 (in thousands):

 
| ** **                         | ** ** | **Three months ended March 31,** |
|------------------------------------|------------|-------------------------------------------------|
| ** **                         | ** ** | **2009**                                        | ** ** | **2008** | ** ** |
| Service:                           |       |                                            |   |   |   |
| United States                      |       | $                                               | 6,482 |   | $ | 8,330 |   |
| Canada                             |       | 2,837                                           |   | 5,771 |   |
| Central and South America          |       | 1,147                                           |   | 1,045 |   |
| Europe                             |       | 590                                             |   | 657 |   |
| Others                             |       | 75                                              |   | 207 |   |
| Total service revenue              |       | 11,131                                          |   | 16,010 |   |
| Subscriber equipment:              |       |                                            |   |   |   |
| United States                      |       | 1,523                                           |   | 2,545 |   |
| Canada                             |       | 1,377                                           |   | 2,328 |   |
| Central and South America          |       | 324                                             |   | 831 |   |
| Europe                             |       | 221                                             |   | 385 |   |
| Others                             |       | 587                                             |   | 35 |   |
| Total subscriber equipment revenue |       | 4,032                                           |   | 6,124 |   |
|                               |       |                                            |   |   |   |
| Total revenue                      |       | $                                               | 15,163 |   | $ | 22,134 |   |

 

**Note 11: Interest Rate Derivative**

 

In July 2006,in connection with entering into its credit agreement, which provides forinterest at a variable rate (Note 12), the Company entered into a five-yearinterest rate swap agreement. The interest rate swap agreement reflected a$100.0 million notional amount at a fixed interest rate of 5.64%. The fairvalue of the interest rate swap agreement as measured on a recurring basis asof March 31, 2008 was $9.5 million and was reported under “Other CurrentLiabilities” on the Balance Sheet. The decline in fair value for the threemonths ended March 31, 2008, of approximately $3.5 million, was charged to“Interest rate derivative loss” in the accompanying Consolidated Statements ofOperations. The  Company terminated the interestrate swap agreement on December 10, 2008, requiring the Company to make apayment of approximately $9.2 million.

 

**Note 12:Borrowings**

 

***Currentportion of long term debt***

 

Current portion of long term debt consists of $21.8million and $33.6 million due to the Company’s vendors under vendor financingagreements at March 31, 2009 and December 31, 2008, respectively.Details of vendor financing agreements are described later in this Note.

 

***Long Term Debt:***

 

Long term debt consists of the following (inthousands):

 
| ** **                                                   | ** ** | **March 31,  2009** | ** ** | **December 31,  2008  As Adjusted –  Note 1** | ** ** |
|--------------------------------------------------------------|------------|--------------------------|------------|---------------------------------------------------------|------------|
| Amended and Restated Credit Agreement:                       |       |                     |       |                                                    |       |
| Term Loan                                                    |       | $                        | 100,000    |                                                    | $          | 100,000 |   |
| Revolving credit loans                                       |       | 73,800                   |       | 66,050                                                  |       |
| Total Borrowings under Amended and Restated Credit Agreement |       | 173,800                  |       | 166,050                                                 |       |
| 5.75% Convertible Senior Notes due 2028                      |       | 49,795                   |       | 48,670                                                  |       |
| Vendor Financing (long term portion)                         |       | 43,312                   |       | 23,625                                                  |       |
| Total long term debt                                         |       | $                        | 266,907    |                                                    | $          | 238,345 |   |

 

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***Amended and restated creditagreement***

 

On August 16, 2006,the Company entered into an amended and restated credit agreement with WachoviaInvestment Holdings, LLC, as administrative agent and swingline lender,and Wachovia Bank, National Association, as issuing lender, which wassubsequently amended on September 29 and October 26, 2006. On December 17,2007, Thermo Funding was assigned all the rights (except indemnificationrights) and assumed all the obligations of the administrative agent and thelenders under the amended and restated credit agreement and the creditagreement was again amended and restated. On December 18, 2008, theCompany entered into a First Amendment to Second Amended and Restated CreditAgreement with Thermo Funding, as lender and administrative agent, to increasethe amount available to Globalstar under the revolving credit facility from$50.0 million to $100.0 million. The credit agreement as currently in effectprovides for a $100.0 million revolving credit facility and a$100.0 million delayed draw term loan facility. As of March 31, 2009,the Company had drawn $73.8 million of the revolving credit facility and theentire $100.0 million delayed draw term loan facility was outstanding. Asof December 31, 2008, the Company had drawn $66.1 million of the revolvingcredit facility and the entire $100.0 million delayed draw term loan facilitywas outstanding.

 

All loans willmature on December 31, 2012. Revolving credit loans bear interest at LIBOR plus 4.25% to 4.75% or thegreater of the prime rate or Federal Funds rate plus 3.25% to 3.75%.  The delayed draw term loan bears interest ateither 5% plus the greater of the prime rate and the Federal Funds rate plus0.5%, or LIBOR plus 6%.  The delayed drawterm loan facility bore an annual commitment fee of 2.0% until drawn orterminated. Commitment fees related to the loans, incurred during the threemonths ended March 31, 2009 and 2008 were less than $0.1 million, $0.2million, respectively. The revolving credit loan facility bears an annualcommitment fee of 0.5% until drawn or terminated. Additional term loans willbear interest at rates to be negotiated. To hedge a portion of the interest raterisk with respect to the delayed draw term loan, the Company entered into afive-year interest rate swap agreement. The Company terminated this interestrate swap agreement on December 10, 2008 (see Note 11). The loans may beprepaid without penalty at any time. On September 29, 2008, the Companyand Thermo agreed that, effective May 26, 2008, all payment of interest onthe debt will be deferred until 45 days after Thermo provides notice that theinterest is then payable. Interest accrues on this outstanding interest at thesame rate as the underlying loan and was compounded on December 31, 2008and annually thereafter.

 

The creditagreement limits the amount of the Company’s capital expenditures, requires theCompany to maintain minimum liquidity of $5.0 million and provides that asof the end of the second full fiscal quarter after the Company places 24 of itssecond-generation satellites into service and at the end of each fiscal quarterthereafter, the Company must maintain a consolidated senior secured leverageratio of not greater than 5.0 to 1.0. The Company was in compliance with thedebt covenants at March 31, 2009.

 

***5.75%Convertible Senior Notes due 2028***

 

On April 10, 2008,the Company entered into an Underwriting Agreement (the “Convertible Notes UnderwritingAgreement”) with Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner &Smith Incorporated and Deutsche Bank Securities Inc. (together, the “ConvertibleNotes Underwriters”) relating to the sale by the Company of $135.0 millionaggregate principal amount of the Notes. Pursuant to the Convertible NotesUnderwriting Agreement, the Company granted the Convertible Notes Underwritersa 30-day option to purchase up to an additional $15.0 million aggregateprincipal amount of the Notes solely to cover over-allotments, if any.

 

The sale of $135.0million aggregate principal amount of the Notes was completed on April 15,2008. The Convertible Notes Underwriters subsequently executed theirover-allotment option and purchased an additional $15.0 million aggregateprincipal amount of the Notes on May 8, 2008. The sale of the Notes wasregistered under the Securities Act of 1933, as amended, pursuant to aRegistration Statement on Form S-3 (File No. 333-149798), assupplemented by a prospectus supplement and a free-writing prospectus, bothdated April 10, 2008.

 

The Notes were issuedunder a Senior Indenture, entered into and dated as of April 15, 2008 (the“Base Indenture”), between the Company and U.S. Bank, National Association, astrustee (the “Trustee”), supplemented by a First Supplemental Indenture withrespect to the Notes, entered into and dated as of April 15, 2008 (the “SupplementalIndenture”), between the Company and the Trustee (the Base Indenture and theSupplemental Indenture, collectively, the “Indenture”). Also, pursuant to theIndenture, the Company, the Trustee and U.S. Bank, National Association, asescrow agent (the “Escrow Agent”), entered into a Pledge and Escrow Agreementdated as of April 15, 2008 (the “Pledge Agreement”).

 

In accordance with thePledge Agreement, the Company placed approximately $25.5 million of theproceeds of the offering of the Notes in an escrow account with the EscrowAgent. The Escrow Agent invests funds in the escrow account in governmentsecurities and, if the Company does not elect to make the payments from itsother funds, the funds in the escrow account will be used to make the first sixscheduled semi-annual interest payments on the Notes. Pursuant to the PledgeAgreement, the Company pledged its interest in this escrow account to theTrustee as security for these interest payments. At March 31, 2009, thebalance in the escrow account was $10.3 million.

 

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Except for the pledge ofthe escrow account under the Pledge Agreement, the Notes are senior unsecureddebt obligations of the Company. There is no sinking fund for the Notes. TheNotes mature on April 1, 2028 and bear interest at a rate of 5.75% perannum. Interest on the Notes is payable semi-annually in arrears on April 1and October 1 of each year, commencing October 1, 2008, to holders ofrecord on the preceding March 15 and September 15, respectively.

 

Subject to certainexceptions set forth in the Indenture, the Notes are subject to repurchase forcash at the option of the holders of all or any portion of the Notes (i) oneach of April 1, 2013, April 1, 2018 and April 1, 2023 or (ii) upona fundamental change, both at a purchase price equal to 100% of the principalamount of the Notes, plus accrued and unpaid interest, if any. A fundamentalchange will occur upon certain changes in the ownership of the Company, orcertain events relating to the trading of the Company’s Common Stock, asfurther described below.

 

Holders may convert theirNotes at their option at any time prior to the close of business on thebusiness day immediately preceding April 1, 2028. Holders may converttheir Notes into shares of Common Stock, subject to the Company’s option todeliver cash in lieu of all or a portion of the shares. The Notes areconvertible at an initial conversion rate of 166.1820 shares of Common Stockper $1,000 principal amount of Notes, subject to adjustment in the manner setforth in the Supplemental Indenture. The conversion rate may not exceed240.9638 shares of Common Stock per $1,000 principal amount of Notes, subjectto adjustment. In addition to receiving the applicable amount of shares ofCommon Stock or cash in lieu of all or a portion of the shares, holders ofNotes who convert their Notes prior to April 1, 2011 will receive the cashproceeds from the sale by the Escrow Agent of the portion of the governmentsecurities in the escrow account that are remaining with respect to any of thefirst six interest payments that have not been made on the Notes beingconverted.

 

Holders who convert theirNotes in connection with certain events occurring on or prior to April 1,2013 constituting a “make whole fundamental change” (as defined below) will beentitled to an increase in the conversion rate as specified in the Indenture.The number of additional shares by which the applicable base conversion ratewill be increased will be determined by reference to the applicable table belowand is based on the date on which the make whole fundamental change becomeseffective (the “effective date”) and the price (the “stock price”) paid, ordeemed paid, per share of the Company’s Common Stock in the make wholefundamental change, subject to adjustment as described below.  If the holders of Common Stock receive onlycash in a make whole fundamental change, the stock price will be the cashamount paid per share of the Company’s Common Stock.  Otherwise, the stock price will be the averageof the closing sale prices of the Company’s Common Stock for each of the 10consecutive trading days prior to, but excluding, the relevant effective date.

 

The events thatconstitute a make whole fundamental change are as follows:

 

·                  Any “person” or “group” (as such terms are used inSections 13(d) and 14(d) of the Exchange Act) is or becomes the “beneficialowner” (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, exceptthat a person shall be deemed to have beneficial ownership of all shares thatsuch person has the right to acquire, whether such right is exercisableimmediately or only after the passage of time), directly or indirectly, ofvoting stock representing 50% of more (or if such person is Thermo CapitalPartners LLC, 70% or more) of the total voting power of all outstanding votingstock of the Company;

 

·                  The Company consolidates with, or merges with or into,another person or the Company sells, assigns, conveys, transfers, leases orotherwise disposes of all or substantially all of its assets to any person;

 

·                  The adoption of a plan of liquidation or dissolutionof the Company; or

 

·                  The Company’s common stock (or other common stock intowhich the Notes are then convertible) is not listed on a United States nationalsecurities exchange or approved for quotation and trading on a nationalautomated dealer quotation system or established automated over-the-countertrading market in the United States.

 

Thestock prices set forth in the first column of the Make Whole Table below willbe adjusted as of any date on which the base conversion rate of the Notes isotherwise adjusted.  The adjusted stockprices will equal the stock prices applicable immediately prior to the adjustedmultiplied by a fraction, the numerator of which is the base conversion rateimmediately prior to the adjustment giving rise to the stock price adjustmentand the denominator of which is the base conversion rate as so adjusted.  The base conversion rate adjustment amountsset forth in the table below will be adjusted in the same manner as the baseconversion rate.

 

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| ** **                                            | ** ** | **Effective Date   Make Whole Premium (Increase in Applicable Base Conversion Rate)** | ** ** |
|-------------------------------------------------------|------------|---------------------------------------------------------------------------------------|------------|
| **Stock Price on Effective Date** | ** ** | **April 15,   2008**                                                        | ** ** | **April 1,   2009** | ** ** | **April 1,   2010** | ** ** | **April 1,   2011** | ** ** | **April 1,   2012** | ** ** | **April 1,   2013** | ** ** |
| $                                                     | 4.15       |                                                                                  | 74.7818    |   | 74.7818 |   | 74.7818 |   | 74.7818 |   | 74.7818 |   | 74.7818 |   |
| $                                                     | 5.00       |                                                                                  | 74.7818    |   | 64.8342 |   | 51.4077 |   | 38.9804 |   | 29.2910 |   | 33.8180 |   |
| $                                                     | 6.00       |                                                                                  | 74.7818    |   | 63.9801 |   | 51.4158 |   | 38.2260 |   | 24.0003 |   | 0.4847 |   |
| $                                                     | 7.00       |                                                                                  | 63.9283    |   | 53.8295 |   | 42.6844 |   | 30.6779 |   | 17.2388 |   | 0.0000 |   |
| $                                                     | 8.00       |                                                                                  | 55.1934    |   | 46.3816 |   | 36.6610 |   | 26.0029 |   | 14.2808 |   | 0.0000 |   |
| $                                                     | 10.00      |                                                                                  | 42.8698    |   | 36.0342 |   | 28.5164 |   | 20.1806 |   | 11.0823 |   | 0.0000 |   |
| $                                                     | 20.00      |                                                                                  | 18.5313    |   | 15.7624 |   | 12.4774 |   | 8.8928 |   | 4.9445 |   | 0.0000 |   |
| $                                                     | 30.00      |                                                                                  | 10.5642    |   | 8.8990 |   | 7.1438 |   | 5.1356 |   | 2.8997 |   | 0.0000 |   |
| $                                                     | 40.00      |                                                                                  | 6.6227     |   | 5.5262 |   | 4.4811 |   | 3.2576 |   | 1.8772 |   | 0.0000 |   |
| $                                                     | 50.00      |                                                                                  | 4.1965     |   | 3.5475 |   | 2.8790 |   | 2.1317 |   | 1.2635 |   | 0.0000 |   |
| $                                                     | 75.00      |                                                                                  | 1.4038     |   | 1.1810 |   | 0.9358 |   | 0.6740 |   | 0.4466 |   | 0.0000 |   |
| $                                                     | 100.00     |                                                                                  | 0.4174     |   | 0.2992 |   | 0.1899 |   | 0.0985 |   | 0.0663 |   | 0.0000 |   |

 

The actual stock price and effective date may not be set forth in thetable above, in which case:

 

·                  If the actual stock price on theeffective date is between two stock prices in the table or the actual effectivedate is between two effective dates in the table, the amount of the baseconversion rate adjustment will be determined by straight-line interpolationbetween the adjustment amounts set forth for the higher and lower stock pricesand the earlier and later effective dates, as applicable, based on a 365-dayyear;

 

·                  If the actual stock price on theeffective date exceeds $100.00 per share of the Company’s Common Stock (subjectto adjustment), no adjustment to the base conversion rate will be made; and

 

·                  If the actualstock price on the effective date is less than $4.15 per share of the Company’sCommon Stock (subject to adjustment), no adjustment to the base conversion ratewill be made.

 

Notwithstandingthe foregoing, the base conversion rate will not exceed 240.9638 shares of CommonStock per $1,000 principal amount of Notes, subject to adjustment in the samemanner as the base conversion rate.

 

Exceptas described above with respect to holders of Notes who convert their Notesprior to April 1, 2011, there is no circumstance in which holders couldreceive cash in addition to the maximum number of shares of common stockissuable upon conversion of the Notes.

 

If the Company makes atleast 10 scheduled semi-annual interest payments, the Notes are subject toredemption at the Company’s option at any time on or after April 1, 2013,at a price equal to 100% of the principal amount of the Notes to be redeemed,plus accrued and unpaid interest, if any.

 

TheIndenture contains customary financial reporting requirements and also containsrestrictions on mergers and asset sales. The Indenture also provides that uponcertain events of default, including without limitation failure to payprincipal or interest, failure to deliver a notice of fundamental change,failure to convert the Notes when required, acceleration of other materialindebtedness and failure to pay material judgments, either the trustee or the holdersof 25% in aggregate principal amount of the Notes may declare the principal ofthe Notes and any accrued and unpaid interest through the date of suchdeclaration immediately due and payable. In the case of certain events ofbankruptcy or insolvency relating to the Company or its significantsubsidiaries, the principal amount of the Notes and accrued interestautomatically becomes due and payable.

 

*Conversionof Convertible Senior Notes*

 

In2008, holders of $36.0 million aggregate principal amount of Notes, or 24% ofthe Notes originally issued, submitted notices of conversion to the trustee inorder to convert their Notes into Common Stock. The Company also entered intoagreements with holders of an additional $42.2 million aggregate principalamount of Notes, or 28% of the Notes originally issued, to exchange their Notesfor a combination of Common Stock and cash. The Company has issuedapproximately 23.6 million shares of its Common Stock and paid a nominal amountof cash for fractional shares in connection with the conversions and exchanges.In addition, the holders received an early conversion make whole amount ofapproximately $9.3 million representing the next five semi-annual interestpayments that would have become due on the converted Notes, which was paid fromfunds in an escrow account for the benefit of the holders of Notes. In theexchanges, Note holders received additional consideration in the form of cashpayments or additional shares of the Company’s Common Stock in the amount ofapproximately $1.1 million to induce exchanges. After these transactions,approximately $71.8 million aggregate principal amount of Notes remainedoutstanding at March 31, 2009.

 

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*Common Stock Offering and ShareLending Agreement*

 

Concurrentlywith the offering of the Notes, on April 10, 2008, the Company enteredinto a share lending agreement (the “Share Lending Agreement”) with MerrillLynch International (the “Borrower”), through Merrill Lynch, Pierce, Fenner &Smith Incorporated, as agent for Borrower (in such capacity, the “BorrowingAgent”), pursuant to which the Company agreed to lend up to 36,144,570 sharesof Common Stock (the “Borrowed Shares”) to the Borrower, subject to certainadjustments set forth in the Share Lending Agreement, for a period ending onthe earliest of (i) the date the Company notifies the Borrower in writingof its intention to terminate the Share Lending Agreement at any time after theentire principal amount of the Notes ceases to be outstanding and the Companyhas settled all payments or deliveries in respect of the Notes (as thesettlement may be extended pursuant to market disruption events or otherwisepursuant to the Indenture), whether as a result of conversion, redemption, repurchase, cancellation, at maturityor otherwise, (ii) the written agreement of the Company and the Borrowerto terminate, (iii) the occurrence of a Borrower default, at the option ofLender, and (iv) the occurrence of a Lender default, at the option of theBorrower. Pursuant to the Share Lending Agreement, upon the termination of theshare loan, the Borrower must return the Borrowed Shares to the Company.  The only exception would be that, if pursuantto a merger, recapitalization or reorganization, the Borrowed Shares wereexchanged for or converted into cash, securities or other property (“ReferenceProperty”), the Borrower would return the Reference Property.  Upon the conversion of Notes (in whole or inpart), a number of Borrowed Shares proportional to the conversion rate for suchnotes must be returned to the Company. At the Company’s election, the Borrowermay remit cash equal to the market value of the corresponding Borrowed Sharesinstead of returning to the Company the Borrowed Shares otherwise required byconversions of Note.

 

OnApril 10, 2008, the Company entered into an underwriting agreement (the “EquityUnderwriting Agreement”) with the Borrower and the Borrowing Agent. Pursuant toand upon the terms of the Share Lending Agreement, the Company will issue andlend the Borrowed Shares to the Borrower as a share loan. The Borrowing Agentalso is acting as an underwriter (the “Equity Underwriter”) with respect to theBorrowed Shares, which are being offered to the public. The Borrowed Sharesincluded approximately 32.0 million shares of Common Stock initially loaned bythe Company to the Borrower on separate occasions, delivered pursuant to theShare Lending Agreement and the Underwriting Agreement, and an additional 4.1million shares of Common Stock that, from time to time, may be borrowed fromthe Company by the Borrower pursuant to the Share Lending Agreement and theUnderwriting Agreement and subsequently offered and sold at prevailing marketprices at the time of sale or negotiated prices. The sale of the BorrowedShares was registered under the S-3 (33-149798).  The Company used two prospectus supplementsfor the transaction, one for the sale of the Notes (and the underlying CommonStock) and the other for the sale of the Borrowed Shares.  The Company filed the prospectus supplementfor the sale of the Borrowed Shares pursuant to Rule 424(b) (3) onApril 2, 2008 and pursuant to Rule 424(b) (5) on April 14,2008.  Hence the Borrowed Shares are freetrading shares. At March 31, 2009, approximately 17.3 million BorrowedShares remained outstanding.

 

The Company will notreceive any proceeds from the sale of the Borrowed Shares pursuant to the ShareLending Agreement but will receive a nominal lending fee of $0.0001 per sharefor each share of Common Stock that it loans to the Borrower pursuant to theShare Lending Agreement. The Borrower will receive all of the proceeds from thesale of Borrowed Shares pursuant to the Share Lending Agreement. At the Company’selection, the Borrower may remit cash equal to the market value of thecorresponding Borrowed Shares instead of returning the Borrowed Shares due backto the Company as a result of conversions by Note holders. See below.

 

The Borrowed Shares aretreated as issued and outstanding for corporate law purposes, and accordingly,the holders of the Borrowed Shares will have all of the rights of a holder ofthe Company’s outstanding shares, including the right to vote the shares on allmatters submitted to a vote of the Company’s stockholders and the right toreceive any dividends or other distributions that the Company may pay or makeson its outstanding shares of Common Stock. However, under the Share LendingAgreement, the Borrower has agreed:

 

·                  To pay, within one business day after the relevant payment date, to theCompany an amount equal to any cash dividends that the Company pays on theBorrowed Shares; and

 

·                  To pay or deliver to the Company, upon termination of the loan ofBorrowed Shares, any other distribution, in liquidation or otherwise, that theCompany makes on the Borrowed Shares.

 

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To the extent the Borrowed Shares the Companyinitially lent under the share lending agreement and offered in the CommonStock offering have not been sold or returned to it, the Borrower has agreedthat it will not vote any such Borrowed Shares. The Borrower has also agreedunder the share lending agreement that it will not transfer or dispose of anyBorrowed Shares, other than to its affiliates, unless the transfer ordisposition is pursuant to a registration statement that is effective under theSecurities Act. However, investors that purchase the shares from the Borrower(and any subsequent transferees of such purchasers) will be entitled to thesame voting rights with respect to those shares as any other holder of theCompany’s Common Stock.

 

On December 18,2008, the Company entered into Amendment No. 1 to Share Lending Agreementwith the Borrower and the Borrowing Agent. Pursuant to Amendment No.1, theCompany has the option to request the Borrower to deliver cash instead ofreturning Borrowed Shares upon any termination of loans at the Borrower’soption, at the termination date of the Share Lending Agreement or when theoutstanding loaned shares exceed the maximum number of shares permitted underthe Share Lending Agreement.  The consent of the Borrower is required forany cash settlement, which consent may not be unreasonably withheld, subject tothe Borrower’s determination of applicable legal, regulatory or self-regulatoryrequirements or other internal policies. Any loans settled in shares ofCompany Common Stock will be subject to a return fee based on the stock priceas agreed by the Company and the Borrower.  The return fee will not beless than $0.005 per share or exceed $0.05 per share.

 

As aresult of this amendment, the Company believes that, under generally acceptedaccounting principles in the United States as currently in effect, theapproximately 17.3 million Borrowed Shares outstanding at March 31, 2009 underthe Share Lending Agreement will be considered outstanding for the purpose ofcomputing and reporting its earnings per share. Prior to this amendment, theBorrowed Shares were not considered outstanding for the purpose of computingand reporting our earnings per share due to the substantial elimination of theeconomic dilution due to contractual provisions, that otherwise would haveresulted from the issuance of the Borrowed Shares.

 

TheCompany evaluated the various embedded derivatives within the Indenture forbifurcation from the Notes under the provisions of FASB’s Statement ofFinancial Standards No.133, “Accounting for Derivative Instruments and HedgingActivities” (“SFAS No. 133”), Emerging Issues Task Force Issue No. 01-6,“The Meaning of Indexed to a Company’s Own Stock” (“EITF 01-6”) and EmergingIssues Task Force Issue No. 00-19, “Accounting for Derivative FinancialInstruments  Indexed to, and PotentiallySettled in, a Company’s Own Stock” (“EITF 00-19”). Based upon its detailedassessment, the Company concluded that these embedded derivatives were either (i) excludedfrom bifurcation as a result of being clearly and closely related to the Notesor are indexed to the Company’s Common Stock and would be classified instockholders’ equity if freestanding or (ii) the fair value of theembedded derivatives was estimated to be immaterial.

 

TheCompany adopted FSP APB 14-1 on January 1, 2009, and it is applied on aretrospective basis. FSP APB 14-1 calls for a separation of the liability andequity components of the convertible debt instrument. The carryingamount of the liability component is computed by measuring the fair value of asimilar liability (including any embedded features other than the conversionoption) that does not have an associated equity component. The carrying amountof the equity component is represented by the embedded conversion option bydeducting the fair value of the liability component from the initial proceedsascribed to the convertible debt instrument as a whole. The excess of theprincipal amount of the liability component over its carrying amount isrecorded as debt discount and is amortized to interest cost using the interestmethod over a period of five years. The adoption of FSP APB 14-1 resulted in a decrease inthe Company’s long-term debt of approximately $23.1 million; an increase in itsstockholders’ equity of approximately $28.3 million; and an increase in its netproperty, plant and equipment of approximately $5.9 million as of December 31,2008.The adoption of FSP APB 14-1 changed the Company’s full year 2008 ConsolidatedStatement of Operations, because the gains associated with conversions andexchanges of Notes in 2008 were recorded in stockholders’ equity prior toadoption of this standard. The adoption of FSP APB 14-1 had no impact on theCompany’s Consolidated Statement of Operations for the three months ended March 31,2008 because the Company did not issue the Notes until April 2008. At March 31,2009 and December 31, 2008, the remaining term for amortization associatedwith debt discount was approximately 48 and 51 months, respectively. The annualeffective interest rate utilized for the amortization of debt discount duringthe three months ended March 31, 2009 was 9.17%. The interest costassociated with the coupon rate on the Notes and the corresponding debtdiscount amortized during the three months ended March 31, 2009, was $1.0million and $1.1 million, respectively, all of which was capitalized. The carrying amount of the equity andliability component, as of March 31, 2009 and December 31, 2008, ispresented below (in thousands):

 
| ** **                       | ** ** | **March 31, 2009** | ** ** | **December 31, 2008** | ** ** |
|----------------------------------|------------|-------------------------|------------|----------------------------|------------|
|                             |       |                    |       |                       |       |
| Equity                           |       | $                       | 54,675     |                       | $          | 54,675 |   |
| Liability:                       |       |                    |       |                       |       |
| Principal                        |       | 71,804                  |       | 71,804                     |       |
| Unamortized debt discount        |       | (22,009                 | )          | (23,134                    | )          |
| Net carrying amount of liability |       | $                       | 49,795     |                       | $          | 48,670 |   |

 

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***VendorFinancing***

 

In July 2008 the Company amended its agreement with itsLaunch Provider for the launch of the Company’s second-generationsatellites and certain pre and post-launch services. Under the amended terms,the Company can defer payment on up to 75% of certain amounts due to the LaunchProvider. The deferred payments will incur annual interest at 8.5% to 12%.

 

In September 2008the Company amended its agreement with Hughes for the construction of its RANground network equipment and software upgrades for installation at a number ofthe Company’s satellite gateway ground stations and satellite interface chipsto be a part of the UTS in various next-generation Globalstar devices. Underthe amended terms, the Company deferred certain payments due under the contractin 2008 and 2009 to December 2009. The deferred payments will incur annualinterest at 10%.

 

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At March 31,2009, the aggregate amount due which had been deferred for payment was $66.8million (of which $21.8 million is shown as “Current portion of long term debt”on the Consolidated Balance Sheet).

 

**Item 2.Management’s Discussion and Analysis of Financial Condition and Results ofOperations**

 

**Forward-Looking Statements**

 

Certain statements contained in or incorporated by reference into thisReport, other than purely historical information, including, but not limitedto, estimates, projections, statements relating to our business plans,objectives and expected operating results, and the assumptions upon which thosestatements are based, are forward-looking statements within the meaning of thePrivate Securities Litigation Reform Act of 1995. These forward-lookingstatements generally are identified by the words “believe,” “project,” “expect,”“anticipate,” “estimate,” “intend,” “strategy,” “plan,” “may,” “should,” “will,”“would,” “will be,” “will continue,” “will likely result,” and similarexpressions, although not all forward-looking statements contain theseidentifying words. These forward-looking statements are based on currentexpectations and assumptions that are subject to risks and uncertainties whichmay cause actual results to differ materially from the forward-lookingstatements. Forward-looking statements, such as the statements regarding ourability to obtain additional financing, our ability to develop and expand ourbusiness, our ability to manage costs, our ability to exploit and respond totechnological innovation, the effects of laws and regulations (including taxlaws and regulations) and legal and regulatory changes, the opportunities for strategicbusiness combinations and the effects of consolidation in our industry on usand our competitors, our anticipated future revenues, our anticipated capitalspending (including for future satellite procurements and launches), ouranticipated financial resources, our expectations about the future operationalperformance of our satellites (including their projected operational lives),the expected strength of and growth prospects for our existing customers andthe markets that we serve, and other statements contained in this Reportregarding matters that are not historical facts, involve predictions. Risks anduncertainties that could cause or contribute to such differences include,without limitation, those in Part II. Item 1A. Risk Factors in this Reportor incorporated by reference into this Report, including those described in ourAnnual Report on Form 10-K for the fiscal year ended December 31,2008.

 

Althoughwe believe that the forward-looking statements contained or incorporated byreference in this Report are based upon reasonable assumptions, theforward-looking events and circumstances discussed in this Report may notoccur, and actual results could differ materially from those anticipated orimplied in the forward-looking statements.

 

Newrisk factors emerge from time to time, and it is not possible for us to predictall risk factors, nor can we assess the impact of all factors on our businessor the extent to which any factor, or combination of factors, may cause actualresults to differ materially from those contained in any forward-lookingstatements. We undertake no obligation to update publicly or revise anyforward-looking statements. You should not rely upon forward-looking statementsas predictions of future events or performance. We cannot assure you that theevents and circumstances reflected in the forward-looking statements will beachieved or occur. These cautionary statements qualify all forward-lookingstatements attributable to us or persons acting on our behalf.

 

This “Management’sDiscussion and Analysis of Financial Condition” should be read in conjunctionwith the “Management’s Discussion and Analysis of Financial Condition” andinformation included in our Annual Report on Form 10-K for the year ended December 31,2008.

 

**Overview**

 

We are a provider of mobile voice and data communication services viasatellite. Our communications platform extends telecommunications beyond theboundaries of terrestrial wireline and wireless telecommunications networks toserve our customer’s desire for connectivity. Using in-orbit satellites andground stations, which we call gateways, we offer voice and data communicationsservices to government agencies, businesses and other customers in over 120countries.

 

*Material Trends and Uncertainties.*  Our satellite communications business, byproviding critical mobile communications to our subscribers, serves principallythe following markets: government, public safety and disaster relief;recreation and personal; oil and gas; maritime and fishing; natural resources,mining and forestry; construction; utilities; and transportation. Our industryhas been growing as a result of:

 

·                  favorable market reaction tonew pricing plans with lower service charges;

 

·                  awareness of the need forremote communication services;

 

·                  increased demand forcommunication services by disaster and relief agencies and emergency firstresponders;

 

·                  improved voice and datatransmission quality;

 

·                  a general reduction inprices of user equipment; and

 

·                  innovative data products andservices.

 

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Nonetheless, as further described under “Risk Factors,” in our AnnualReport on Form 10-K filed on March 31, 2009, we face a number ofchallenges and uncertainties, including:

 

·                  *Financialresources and liquidity. *We currentlylack sufficient funds to fulfill our commitments for capital expenditures andsupport our current operations.

 

·                  *Theeconomy. *The current recession andits effects on credit markets and consumer spending is adversely affecting bothsales of our products and services and our ability to obtain the additionalfinancing necessary to fund our capital expenditures and current operations.

 

·                  *Constellationlife and health. *Our currentsatellite constellation is aging. We successfully launched our eight spare satellitesin 2007. All of our satellites launched prior to 2007 have experienced variousanomalies over time, one of which is a degradation in the performance of thesolid-state power amplifiers of the S-band communications antenna subsystem(our “two-way communication issues”). The S-band antenna provides the downlinkfrom the satellite to a subscriber’s phone or data terminal. Degradedperformance of the S-band antenna amplifiers reduces the availability oftwo-way voice and data communication between the affected satellites and thesubscriber and may reduce the duration of a call. When the S-band antenna on asatellite ceases to be functional, two-way communication is impossible overthat satellite, but not necessarily over the constellation as a whole. We continueto provide two-way subscriber service because some of our satellites are fullyfunctional but at certain times in any given location it may take longer toestablish calls and the average duration of calls may be reduced. There areperiods of time each day during which no two-way voice and data service isavailable at any particular location. The root cause of our two-waycommunication issues is unknown, although we believe it may result fromirradiation of the satellites in orbit caused by the space environment at thealtitude that our satellites operate.

 

The decline in the quality of two-way communication does not affectadversely our one-way Simplex data transmission services, including our SPOTsatellite GPS messenger products and services, which utilize only the L-banduplink from a subscriber’s Simplex terminal to the satellites. The signal istransmitted back down from the satellites on our C-band feeder links, which arefunctioning normally, not on our S-band service downlinks.

 

Wecontinue to work on plans, including new products and services and pricingprograms to mitigate the effects of reduced service availability upon ourcustomers and operations. Among other things, we requested Thales Alenia Spaceto present a four-part sequential plan for accelerating delivery of the initial24 satellites of our second-generation constellation by up to four months. Todate, we have accepted the first two portions of this plan. However due torevisions in the construction schedule in 2009 requested by us at an initialcost of $2.0 million, the potential gains from this acceleration may not befully achieved.  Accordingly, we cannotprovide assurance that any acceleration will occur, and we now believe that wewill not commence deploying our second-generation satellites prior to 2010. See“Part I, Item 1A. Risk Factors—Our satellites have a limited life andsome have failed, which causes our network to be compromised and whichmaterially and adversely affects our business, prospects and profitability” ofour Annual Report on Form 10-K filed on March 31, 2009.

 

·                  *Competitionand pricing pressures. *We faceincreased competition from both the expansion of terrestrial-based cellularphone systems and from other mobile satellite service providers. For example,Inmarsat plans to commence offering satellite services to handheld devices inthe United States in 2009, and several competitors, such as ICO Global, areconstructing or have launched geostationary satellites that provide mobilesatellite service. Increased numbers of competitors, and the introduction ofnew services and products by competitors, increases competition for subscribersand pressures all providers, including us, to reduce prices. Increasedcompetition may result in loss of subscribers, decreased revenue, decreasedgross margins, higher churn rates, and, ultimately, decreased profitability andcash.

 

·                  *Technologicalchanges. *It is difficult for us torespond promptly to major technological innovations by our competitors becausesubstantially modifying or replacing our basic technology, satellites or gatewaysis time-consuming and very expensive. Approximately 87% of our total assets at March 31,2009 represented fixed assets. Although we plan to procure and deploy oursecond-generation satellite constellation and upgrade our gateways and otherground facilities, we may nevertheless become vulnerable to the successfulintroduction of superior technology by our competitors.

 

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*Capitalexpenditures. *We haveincurred significant capital expenditures during 2007 through March 31,2009 and we expect to incur additional significant expenditures through 2013under the following commitments:

 

·                  We estimate that procuringand deploying our second-generation satellite constellation and upgrading ourgateways and other ground facilities will cost approximately $1.26 billion(at a weighted average conversion rate of €1.00=$1.3168 and excluding launchcosts for the second 24 satellites, internal costs and capitalized interest),which we expect will be reflected in capital expenditures through 2013. Thefollowing obligations are included in this amount:

 

·                  In November 2006, weentered into a contract with Thales Alenia Space for the construction of oursecond-generation constellation. The total contract price, including subsequentadditions, will be approximately €670.3 million (approximately$893.4 million at a weighted average conversion rate of €1.00 =$1.3328 at March 31, 2009, including approximately €146.8 millionwhich was paid by us in U.S. dollars at a fixed conversion rate of €1.00 =$1.2940). We have made payments in the amount of approximately €294.2 million(approximately $394.3 million) through March 31, 2009 under this contract.At our request, Thales Alenia Space presented to us a four-part sequential planfor accelerating delivery of the initial 24 satellites by up to four months.The expected cost of this acceleration would range from approximately€6.7 million to €13.4 million ($8.8 million to$17.7 million at € 1.00 = $1.3208 at March 31, 2009). In2007, we accepted the first two portions of the Thales four-part sequentialacceleration plan with an additional cost of €4.1 million($5.7 million at €1.00 = $1.4022). However, in 2009, due to changesin the construction schedule, the potential gains from this acceleration willnot be fully achieved.

 

·                  In March 2007, weentered into a €9.2 million (approximately $13.1 million at aweighted average conversion rate of €1.00 = $1.4212) agreement with ThalesAlenia Space for the construction of the Satellite Operations Control Centers,Telemetry Command Units and In Orbit Test Equipment (collectively, the “ControlNetwork Facility”) for our second-generation satellite constellation. We havemade aggregate payments under this contract of approximately €8.2 million(approximately $11.8 million) through March 31, 2009.

 

·                  In September 2007, weentered into a contract with our Launch Provider for the launch of oursecond-generation satellites and certain pre and post-launch services. Pursuantto the contract, our Launch Provider will make four launches of six satelliteseach, and we have the option to require our Launch Provider to make fouradditional launches of six satellites each. The total contract price for thefirst four launches is $216.1 million. On July 5, 2008, we amendedour agreement with our Launch Provider for the launch of our second-generationsatellites and certain pre and post-launch services. Under the amended terms,we can defer payment on up to 75% of certain amounts due to the LaunchProvider. The deferred payments will incur annual interest at 8.5% to 12% andbecome payable one month before the corresponding launch date. We have madeaggregate payments under this contract of approximately $26.3 millionthrough March, 31, 2009.

 

·                  On May 14, 2008, weentered into a contract with Hughes under which Hughes will design, supply andimplement the Radio Access Network (“RAN”) ground network equipment andsoftware upgrades for installation at a number of our satellite gateway groundstations and satellite interface chips to be a part of the User TerminalSubsystem (UTS) in our various next-generation devices. The total contractpurchase price of approximately $100.8 million is payable in variousincrements over a period of 40 months. We have the option to purchaseadditional RANs and other software and hardware improvements at pre-negotiatedprices. We have made aggregate payments under this contract of approximately$5.9 million through March 31, 2009. We expensed $1.8 million ofthese payments and capitalized $4.1 million as second-generation groundcomponent.

 

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·                  On October 8, 2008, wesigned an agreement with Ericsson Federal Inc., a leading global providerof technology and services to telecom operators. According to the$22.7 million contract, Ericsson will work with us to develop, implementand maintain a ground interface, or core network, system that will be installedat our satellite gateway ground stations. The all Internet protocol (IP) basedcore network system is wireless 3G/4G compatible and will link our radio accessnetwork to the public-switched telephone network (PSTN) and/or Internet. Designof the new core network system is now underway.

 

During the first quarter of 2009, we adopted various cost cuttingmeasures, including reducing worldwide labor and non-labor costs. We willcontinue to assess our operations and may continue to reduce costs byeliminating additional labor costs that we deem necessary to reduce further ournegative cash flow in the short term. We cannot assure you that any additionalcost cutting measures will be adopted.

 

See “Liquidity and Capital Resources” for a discussion of ourrequirements and resources for funding these capital expenditures.

 

·                  *Introductionof new products. *We workcontinuously with the manufacturers of the products we sell to offer ourcustomers innovative and improved products. Virtually all engineering, researchand development costs of these new products are paid by the manufacturers.However, to the extent the costs are reflected in increased inventory costs tous, and we are unable to raise our prices to our subscribers correspondingly, ourmargins and profitability would be reduced.

 

*Simplex Products (Personal Tracking Services andEmergency Messaging).*  Inearly November 2007, we introduced the SPOT satellite GPS messenger, aimedat attracting both the recreational and commercial markets that requirepersonal tracking, emergency location and messaging solutions for users thatrequire these services beyond the range of traditional terrestrial and wirelesscommunications. Using the Globalstar Simplex network and web-based mappingsoftware, this device provides consumers with the capability to trace or mapthe location of the user on Google MapsTM. The product enables users to transmitmessages to specific preprogrammed email addresses, phone or data devices, andto request assistance in the event of an emergency. We are continuing to workon second-generation SPOT-like applications.

 

·                  SPOT Satellite GPS MessengerAddressable Market 

 

We believe the addressable market for our SPOT satellite GPS messengerproducts and services in North America alone is approximately 50 millionunits primarily made up of outdoor enthusiasts. Our objective is to capture2-3% of that market in the next few years. The reach of our Simplex System, onwhich our SPOT satellite GPS messenger products and services rely, coversapproximately 60% of the world population. We intend to market our SPOT GPSsatellite messenger products and services aggressively in our overseas marketsincluding South and Central America, Western Europe, and through independentgateway operators in their respective territories.

 

·                  SPOT Satellite GPS MessengerPricing

 

We intend the pricing for SPOT satellite GPS messenger products andservices and equipment to be very attractive in the consumer marketplace.Annual service fees, depending whether they are for domestic or internationalservice, currently range from $99.99 to approximately $131.00 for our basiclevel plan, and $149.98 to approximately $182.00 with additional trackingcapability. The equipment is sold to end users at $149.99 to approximately$264.00 per unit (subject to foreign currency rates). Our distributors settheir own retail prices for SPOT satellite GPS messenger equipment and service.

 

·                  SPOT Satellite GPS MessengerDistribution

 

We are distributing and selling our SPOT satellite GPS messengerthrough a variety of existing and new distribution channels. We have signeddistribution agreements with a number of “Big Box” retailers and other similardistribution channels including Amazon.com, Bass Pro Shops, Best Buy Canada,Big 5 Sporting Goods, Big Rock Sports, Cabela’s, Campmor, Costco, Joe’s Sport,London Drug, Outdoor and More, Gander Mountain, REI, Sportsman’s Warehouse, TheSource by Circuit City dealers, Wal-Mart.com, West Marine, DBL Distribution,D.H. Distributions, and CWR Electronics. We currently sell SPOT satellite GPSmessenger products through approximately 7,500 distribution points and expectto reach 10,000 in 2009. We also sell directly using our existing sales forceinto key vertical markets and through our direct e-commerce website (*www.findmespot.com*).

 

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SPOT satellite GPS messenger products and services have been on themarket for only eighteen months in North America and their commercialintroduction and their commercial success globally cannot be assured.

 

·                  *Fluctuationsin interest and currency rates. *Debt under ourcredit agreement bears interest at a floating rate. Therefore, increases ininterest rates will increase our interest costs if debt is outstanding. Asubstantial portion of our revenue (37% for the three months ended March 31,2009) is denominated in foreign currencies. In addition, a substantial majorityof our obligations under the contracts for our second-generation constellationand related control network facility are denominated in Euros. Any decline inthe relative value of the U.S. dollar may adversely affect our revenues andincrease our capital expenditures. See “Item 3. Quantitative andQualitative Disclosures about Market Risk” for additional information.

 

·                  *AncillaryTerrestrial Component (ATC). *ATC is theintegration of a satellite-based service with a terrestrial wireless serviceresulting in a hybrid mobile satellite service. The ATC network would extendour services to urban areas and inside buildings in both urban and rural areaswhere satellite services currently are impractical. We believe we are at theforefront of ATC development and expect to be the first market entrant throughour contract with Open Range described below. In addition, we are considering arange of options for rollout of our ATC services. We are exploring selectiveopportunities with a variety of media and communication companies to capturethe full potential of our spectrum and U.S. ATC license.

 

On October 31, 2007, we entered into an agreement with Open RangeCommunications, Inc. that permits Open Range to deploy service in certainrural geographic markets in the United States under our ATC authority. OpenRange will use our spectrum to offer dual mode mobile satellite based and terrestrialwireless WiMAX services to over 500 rural American communities. On December 2,2008, we amended our agreement with Open Range. The amended agreement reducedour preferred equity commitment to Open Range from $5 million to$3 million (which investment was made in the form of bridge loans thatconverted into preferred equity at the closing of Open Range’s equityfinancing). Under the agreement as amended, Open Range will have the right touse a portion of our spectrum within the United States and, if Open Range soelects, it can use the balance of our spectrum authorized for ATC services, toprovide these services. Open Range has options to expand this relationship overthe next six years, some of which are conditional upon Open Range electing to useall of the licensed spectrum covered by the agreement. Commercial availabilityis expected to begin in selected markets in 2009. The initial term of theagreement of up to 30 years is co-extensive with our ATC authority and issubject to renewal options exercisable by Open Range. Either party mayterminate the agreement before the end of the term upon the occurrence ofcertain events, and Open Range may terminate it at any time upon payment of atermination fee that is based upon a percentage of the remaining leasepayments. Based on Open Range’s business plan used in support of its$267 million loan under a federally authorized loan program, the fixed andvariable payments to be made by Open Range over the initial term of30 years indicate a value for this agreement between $0.30—$0.40/MHz/POP.Open Range satisfied the conditions to implementation of the agreement on January 12,2009 when it completed its equity and debt financing, consisting of a$267 million broadband loan from the Department of Agriculture RuralUtilities Program and equity financing of $100 million. Open Range hasremitted to us its initial down payment of $2 million. Open Range’s annualpayments in the first six years of the agreement will range from approximately$0.6 million to up to $10.3 million, assuming it elects to use all of thelicensed spectrum covered by the agreement. The amount of the payments that wewill receive from Open Range will depend on a number of factors, including theeventual geographic coverage of and the number of customers on the Open Rangesystem.

 

In addition to our agreement with Open Range Communications, Inc.(See “Item 1.—Ancillary Terrestrial Component—ATC Opportunities” of ourAnnual Report on Form 10-K filed on March 31, 2009), we hope toexploit additional ATC monetization strategies and opportunities in urbanmarkets or in suburban areas that are not the subject of our agreement withOpen Range. Our system is flexible enough to allow us to use differenttechnologies and network architectures in different geographic areas.

 

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*Service and Subscriber Equipment Sales Revenues.*  The table below sets forth amounts andpercentages of our revenue by type of service and equipment sales for the threemonths ended March 31, 2009 and 2008 ($’s in thousands).

 
| ** **                           | ** ** | **Three months ended   March 31, 2009** | ** ** | **Three months ended   March 31, 2008** | ** ** |
|--------------------------------------|------------|------------------------------------------------------------------|------------|------------------------------------------------------------------|------------|
| ** **                           | ** ** | **Revenue**                                                      | ** ** | **% of Total  Revenue**                                | ** ** | **Revenue** | ** ** | **% of Total  Revenue** | ** ** |
|                                 |       |                                                             |       |                                                             |       |   |   |   |   |
| **Service Revenue:**                 | ** ** | ** **                                                       | ** ** | ** **                                                       | ** ** | ** ** | ** ** | ** ** | ** ** |
| Mobile (voice and data)              |       | $                                                                | 6,506      |                                                             | 43         | % | $ | 11,203 |   | 51 | % |
| Simplex                              |       | 2,564                                                            |       | 17                                                               |       | 879 |   | 4 |   |
| Fixed (voice and data)               |       | 614                                                              |       | 4                                                                |       | 951 |   | 4 |   |
| Independent gateway operators        |       | 367                                                              |       | 2                                                                |       | 860 |   | 4 |   |
| Data                                 |       | 146                                                              |       | 1                                                                |       | 255 |   | 1 |   |
| Other (1)                            |       | 934                                                              |       | 6                                                                |       | 1,862 |   | 8 |   |
| ** **                           |       |                                                             |       |                                                             |       |   |   |   |   |
| **Total Service Revenue**            |       | 11,131                                                           |       | 73                                                               |       | 16,010 |   | 72 |   |
|                                 |       |                                                             |       |                                                             |       |   |   |   |   |
| **Subscriber Equipment Sales:**      |       |                                                             |       |                                                             |       |   |   |   |   |
|                                 |       |                                                             |       |                                                             |       |   |   |   |   |
| Mobile equipment                     |       | 1,013                                                            |       | 7                                                                |       | 2,524 |   | 11 |   |
| Data and Simplex                     |       | 1,851                                                            |       | 12                                                               |       | 2,207 |   | 10 |   |
| Fixed equipment                      |       | 77                                                               |       | 1                                                                |       | 469 |   | 2 |   |
| Accessories/misc.                    |       | 1,091                                                            |       | 7                                                                |       | 924 |   | 5 |   |
| **Total Subscriber Equipment Sales** |       | 4,032                                                            |       | 27                                                               |       | 6,124 |   | 28 |   |
|                                 |       |                                                             |       |                                                             |       |   |   |   |   |
| **Total Revenue**                    |       | $                                                                | 15,163     |                                                             | 100        | % | $ | 22,134 |   | 100 | % |

 

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(1)             Includesengineering services and activation fees

 

*OperatingLoss.* We realized an operating loss of$17.6 million for the three months ended March 31, 2009, compared toan operating loss of $11.6 million for the same period in 2008. Weattribute the increase in operating loss to lower service revenue and increasedoperating costs from our acquisition of gateways in Brazil.

 

*Subscribers and ARPU for thethree months ended March 31, 2009 and 2008.*The following table set forth our averagenumber of subscribers and ARPU for retail, IGO and Simplex customers for thethree months ended March 31, 2009 and 2008. The following numbers aresubject to immaterial rounding inherent in calculating averages.

 
| ** **                                        | ** ** | **Three months ended March 31,** | ** ** |
|---------------------------------------------------|------------|---------------------------------------|------------|
| ** **                                        | ** ** | **2009**                              | ** ** | **2008** | ** ** | **% Net  Change** | ** ** |
| **Average number of subscribers for the period:** |       |                                  |       |   |   |   |   |
| Retail                                            |       | 114,551                               |       | 116,971 |   | (2 | ) |
| IGO                                               |       | 73,514                                |       | 87,036 |   | (16 | ) |
| Simplex                                           |       | 162,536                               |       | 84,681 |   | 92 |   |
| **ARPU (monthly):**                               |       |                                  |       |   |   |   |   |
| Retail                                            |       | $                                     | 23.08      |   | $ | 38.14 |   | (39 | ) |
| IGO                                               |       | $                                     | 1.66       |   | $ | 3.29 |   | (50 | ) |
| Simplex                                           |       | $                                     | 5.26       |   | $ | 3.46 |   | 52 |   |

 

The total numberof net subscribers increased from approximately 293,300 at March 31, 2008to approximately 356,900 at March 31, 2009. Although we experienced a netincrease in our total customer base of 22% from March 31, 2008 to March 31,2009, our total service revenue decreased for the same period. This is dueprimarily to reduction of our prices in response to our two-way communicationissues in addition to the change in our product mix.

 

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**Independent Gateway AcquisitionStrategy**

 

Currently, 13 of the 26 gateways in our network are owned and operatedby unaffiliated companies, which we call independent gateway operators, some ofwhom operate more than one gateway. We have no financial interest in theseindependent gateway operators other than arms’ length contracts for wholesaleminutes of service. Some of these independent gateway operators have beenunable to grow their businesses adequately due in part to limited resources.Old Globalstar initially developed the independent gateway operator acquisitionstrategy to establish operations in multiple territories with reduced demandson its capital. In addition, there are territories in which for political orother reasons, it is impractical for us to operate directly. We sell servicesto the independent gateway operators on a wholesale basis and they resell themto their customers on a retail basis.

 

We have acquired, and intend to continue to pursue the acquisition of,independent gateway operators when we believe we can do so on favorable termsand the current independent operator has expressed a desire to sell its assetsto us, subject to capital availability. We believe that these acquisitions canenhance our results of operations in three respects. First, we believe that,with our greater financial and technical resources, we can grow our subscriberbase and revenue faster than some of the independent gateway operators. Second,we realize greater margin on retail sales to individual subscribers than we doon wholesale sales to independent gateway operators. Third, we believeexpanding the territory we serve directly will better position us to market ourservices directly to multinational customers who require a globalcommunications provider.

 

However, acquisitions of independent gateway operators do require us tocommit capital for acquisition of their assets, as well as management resourcesand working capital to support the gateway operations, and therefore increaseour risk in operating in these territories directly rather than through theindependent gateway operators. In addition, operating the acquired gatewaysincreases our marketing, general and administrative expenses. Our creditagreement limits to $25.0 million the aggregate amount of cash we mayinvest in foreign acquisitions without the consent of our lenders.

 

In March 2008, we acquired an independent gateway operator thatowns three satellite gateway ground stations in Brazil for $6.5 million,paid in shares of our Common Stock. We also incurred transaction costs of$0.3 million related to this acquisition. We are unable to predict thetiming or cost of further acquisitions because independent gateway operationsvary in size and value.

 

**PerformanceIndicators**

 

Our management reviews and analyzes several key performance indicatorsin order to manage our business and assess the quality of and potentialvariability of our earnings and cash flows. These key performance indicatorsinclude:

 

·                  total revenue, which is anindicator of our overall business growth;

 

·                  subscriber growth and churnrate, which are both indicators of the satisfaction of our customers;

 

·                  average monthly revenue perunit, or ARPU, which is an indicator of our pricing and ability to obtaineffectively long-term, high-value customers. We calculate ARPU separately foreach of our retail, IGO and Simplex businesses;

 

·                  operating income, which isan indication of our performance;

 

·                  EBITDA, which is anindicator of our financial performance; and

 

·                  capital expenditures, whichare an indicator of future revenue growth potential and cash requirements.

 

**Seasonality**

 

Ourresults of operations are subject to seasonal usage changes. April throughOctober are typically our peak months for service revenues and equipmentsales. Government customers in North America tend to use our services duringsummer months, often in support of relief activities after events such ashurricanes, forest fires and other natural disasters.

 

**Critical Accounting Policies andEstimates**

 

The preparation of our consolidated financial statements requires us tomake estimates and judgments that affect our revenues and expenses for theperiods reported and the reported amounts of our assets and liabilities,including contingent assets and liabilities, as of the date of the financialstatements. We evaluate our estimates and judgments, including those related torevenue recognition, inventory, long-lived assets, income taxes, pensionobligations, derivative instruments and stock-based compensation, on an on-goingbasis. We base our estimates and judgments on historical experience and onvarious other assumptions that are believed to be reasonable under thecircumstances. Actual results may differ from our estimates under differentassumptions or conditions. We believe the following accounting policies aremost important to understanding our financial results and condition and requirecomplex or subjective judgments and estimates.

 

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***Revenue Recognition***

 

We defer customer activation fees and recognize them over four to fiveyear periods, which approximates the estimated average life of the customerrelationship. We periodically evaluate the estimated customer relationshiplife. Historically, changes in the estimated life have not been material to ourfinancial statements.

 

We bill monthly access fees to retail customers and resellers,representing the minimum monthly charge for each line of service based on itsassociated rate plan, on the first day of each monthly bill cycle. We billairtime minute fees in excess of the monthly access fees in arrears on thefirst day of each monthly billing cycle. To the extent that billing cycles fallduring the course of a given month and a portion of the monthly services hasnot been delivered at month end, we prorate fees and defer fees associated withthe undelivered portion of a given month. Under certain annual plans, wherecustomers prepay for minutes, we defer revenue until the minutes are used orthe prepaid time period expires. Unused minutes accumulate until they expire,usually one year after activation. In addition, we offer other annual plansunder which the customer is charged an annual fee to access our system. Werecognize these fees on a straight-line basis over the term of the plan. Insome cases, we charge a per minute rate whereby we recognize the revenue wheneach minute is used.

 

Occasionally we have granted to customers credits which are expensed orcharged against deferred revenue when granted.

 

Subscriber acquisition costs include items such as dealer commissions,internal sales commissions and equipment subsidies and are expensed at the timeof the related sale.

 

We also provide certain engineering services to assist customers indeveloping new technologies related to our system. We record the revenuesassociated with these services when the services are rendered, and we recordthe expenses when incurred. We record revenues and costs associated with longterm engineering contracts on the percentage-of-completion basis of accounting.

 

We own and operate our satellite constellation and earn a portion ofour revenues through the sale of airtime minutes on a wholesale basis toindependent gateway operators. We recognize revenue from services provided toindependent gateway operators based upon airtime minutes used by theircustomers and contractual fee arrangements. If collection is uncertain, werecognize revenue when cash payment is received.

 

Our annual plans (sometimes called Liberty plans) require users topre-pay usage charges for the entire plan period, generally 12 months,which results in the deferral of certain of our revenues. Under our revenuerecognition policy for these annual plans, we defer revenue until the earlierof when the minutes are used or when these minutes expire. We recognize anyunused minutes as revenue at the expiration of a plan. Most of our customershave not used all the minutes that are available to them or have not used themat the pace anticipated, which has caused us to defer a portion of our servicerevenue.

 

During the second quarter of 2007, we introduced an unlimited airtimeusage service plan (called the Unlimited Loyalty plan) which allowed existingand new customers to use unlimited satellite voice minutes for anytime callsfor a fixed monthly or annual fee. The unlimited loyalty plan incorporated adeclining price schedule that reduced the fixed monthly fee at the completionof each calendar year through the duration of the customer agreement, whichends on June 30, 2010. We record revenue for this plan on a monthly basisbased on a straight line average derived by computing the total fees chargedover the term of the customer agreement and dividing it by the number of themonths. If a customer cancels prior to the ending date of the customeragreement, we recognize the balance in deferred revenue. The Unlimited LoyaltyPlan is no longer offered to new customers. In March 2009, we introducedour Evolution Plan in North America, which offers a low monthly fee but noincluded minutes of usage.

 

We sell SPOT satellite GPS messenger services as annual plans and billthem to the customer at the time the customer activates the service. We deferrevenue on such annual service plans upon activation and recognize it ratablyover the service term.

 

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At March 31, 2009 and December 31, 2008, our deferred revenueaggregated approximately $23.2 million (with $3.1 million included innon-current liabilities) and $20.6 million (with $1.3 millionincluded in non-current liabilities), respectively.

 

Subscriber equipment revenue represents the sale of fixed and mobileuser terminals, accessories and SPOT satellite GPS messenger product. Werecognize revenue upon shipment provided title and risk of loss have passed tothe customer, persuasive evidence of an arrangement exists, the fee is fixedand determinable and collection is probable.

 

In December 2002, the Emerging Issues Task Force (“EITF”) reacheda consensus on EITF Issue No. 00-21, “Revenue Arrangements with MultipleDeliverables.” EITF Issue No. 00-21 addresses certain aspects of theaccounting by a vendor for arrangements under which it will perform multiplerevenue-generating activities. In some arrangements, the different revenue-generating activities (deliveries) are sufficiently separable and there existssufficient evidence of their fair values to account separately for some or allof the deliveries (that is, there are separate units of accounting). In otherarrangements, some or all of the deliveries are not independently functional,or there is not sufficient evidence of their fair values to account for themseparately. EITF Issue No. 00-21 addresses when and, if so, how anarrangement involving multiple deliverables should be divided into separateunits of accounting. EITF Issue No. 00-21 does not change otherwiseapplicable revenue recognition criteria.

 

***Inventory***

 

Inventory consists of purchased products, including fixed and mobileuser terminals, accessories and gateway spare parts. We state inventorytransactions at the lower of cost or market. At the end of each quarter, wereview product sales and returns from the previous twelve months and write offany excess and obsolete inventory. Cost is computed using the first-in,first-out (FIFO) method. We record inventory allowances for inventories with a lowermarket value or that are slow moving in the period of determination.

 

***Globalstar System, Property andEquipment***

 

Our Globalstar System assets include costs for the design, manufacture,test and launch of a constellation of low earth orbit satellites, includingeight satellites previously held as ground spares which we launched in May andOctober 2007, which we refer to as the space component, and primary andbackup terrestrial control centers and gateways, which we refer to as theground component. We recognize loss from an in-orbit failure of a satellite asan expense in the period it is determined that the satellite is notrecoverable. We regard these recently launched satellites as part of thesecond-generation constellation which will be supplemented by the 48second-generation satellites currently being constructed. We estimate these 48second-generation satellites will have an in-orbit life of 15 years.

 

We review the carrying value of the Globalstar System for impairmentwhenever events or changes in circumstances indicate that the recorded value ofthe space component and ground component may not be recoverable. We look tocurrent and future undiscounted cash flows, excluding financing costs, asprimary indicators of recoverability. If we determine an impairment exists, wecalculate any related impairment loss based on fair value. We believe ourtwo-way telecommunications services, or Duplex services, after the launch ofour second- generation constellation, and Simplex services will generate sufficientundiscounted cash flow after our second-generation system becomes fullyoperational, which is expected to be sometime in 2010, to justify our carryingvalue for our second-generation costs.

 

We began depreciating the satellites previously recorded as sparesatellites and subsequently incorporated into the Globalstar System on the dateeach satellite was placed into service (the “In-Service Date”) over anestimated life of eight years.

 

***Income Taxes***

 

Until January 1, 2006, we were taxed as a partnership for U.S. taxpurposes. Generally, our taxable income or loss, deductions and credits werepassed through to our members. Effective January 1, 2006, we elected to betaxed as a corporation, and thus subject to the provisions as prescribed underSubchapter C of the Internal Revenue Code. We also began accounting forincome taxes under Statement of Financial Accounting Standards (“SFAS”) No. 109“*Accounting for Income Taxes*” (February 1997).

 

SFAS No. 109 also requires that when an enterprise changes its taxstatus from non-taxable to taxable, the effect of recognizing deferred taxassets and liabilities is included in income from continuing operations in theperiod of change. As a result of our election to be taxed as a corporationeffective January 1, 2006, we recognized gross deferred tax assets andgross deferred tax liabilities of approximately $204.2 million and$0.1 million, respectively.

 

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On January 1, 2009, we adopted FSP APB 14-1, which was effectiveretrospectively. Prior to the adoption of FSP APB 14-1, we had recorded the nettax effect of the conversions and exchanges of our Notes during the fourthquarter of 2008 against additional-paid-in-capital and reduced our deferred taxasset at December 31, 2008. The adoption of FSP APB 14-1 resulted in ourrecording a gain from the exchanges and conversions of the Notes.

 

At December 31, 2008, we recognized gross deferred tax assets ofapproximately $125.5 million. We also established a valuation allowance toreduce the deferred tax assets to an amount that is more likely than not to berealized. As of December 31, 2008, we had established valuation allowancesof approximately $125.5 million. Accordingly, at December 31, 2008,net deferred tax assets were $0.

 

***Second-Generation Satellites andLaunch Costs and Ground Component***

 

In November, 2006, we entered into a contract with Thales Alenia Spaceto construct 48 low-earth orbit satellites. We entered into an additionalagreement with Thales Alenia Space in March 2007 for the construction ofthe Satellite Operations Control Centers, Telemetry Command Units and In OrbitTest Equipment (collectively, the “Control Network Facility”) for oursecond-generation satellite constellation.

 

In September 2007, we and our Launch Provider entered into anagreement for the launch of our second-generation satellites and certain preand post-launch services. Pursuant to the agreement, our Launch Provider willmake four launches of six satellites each, and we have the option to requireour Launch Provider to make four additional launches of six satellites each.

 

On May 14, 2008, we entered into a contract with Hughes underwhich Hughes will design, supply and implement the Radio Access Network (“RAN”)ground network equipment and software upgrades for installation at a number ofour satellite gateway ground stations and satellite interface chips to be apart of the User Terminal Subsystem (UTS) in our various next-generationGlobalstar devices. The total contract purchase price of approximately$100.8 million is payable in various increments over a period of40 months. We have the option to purchase additional RANs and other softwareand hardware improvements at pre-negotiated prices. A portion of the paymentsmade under this contract is recognized as an expense.

 

On October 8, 2008, we signed an agreement with Ericsson, aleading global provider of technology and services to telecom operators.According to the $22.7 million contract, Ericsson will work with us todevelop, implement and maintain a ground interface, or core network, systemthat will be installed at our satellite gateway ground stations. The allInternet protocol (IP) based core network system is wireless 3G/4G compatibleand will link our radio access network to the public-switched telephone network(PSTN) and/or Internet. Design of the new core network system is now underway.

 

We will begin to depreciate these assets once they are completed andplaced into service.

 

***Pension Obligations***

 

We have a company-sponsored retirement plan covering certain currentand past U.S.-based employees. Until June 1, 2004, substantially all ofOld Globalstar’s and our employees and retirees who participated and/or met thevesting criteria for the plan were participants in the Retirement Plan of SpaceSystems/Loral, Inc. (the “Loral Plan”), a defined benefit pension plan.The accrual of benefits in the Old Globalstar segment of the Loral Plan wascurtailed, or frozen, by the administrator of the Loral Plan as of October 23,2003. Prior to October 23, 2003, benefits for the Loral Plan weregenerally based upon compensation, length of service with the company and ageof the participant. On June 1, 2004, the assets and frozen pensionobligations of the segment attributable to our employees were transferred intoa new Globalstar Retirement Plan (the “Globalstar Plan”). The Globalstar Planremains frozen and participants are not currently accruing benefits beyondthose accrued as of October 23, 2003. Our funding policy is to fund theGlobalstar Plan in accordance with the Internal Revenue Code and regulations.

 

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We account for our defined benefit pension and life insurance benefitplans in accordance with SFAS No. 87, “Employers’ Accounting for Pensions”,(“SFAS 87”), SFAS No. 106, “Employer’s Accounting for PostretirementBenefits Other than Pensions”, (“SFAS 106”) and SFAS No. 158, “Employers’Accounting Defined Benefit Pension and Other Postretirement Plans”, (“SFAS 158”)which require that amounts recognized in financial statements be determined onan actuarial basis. We adopted the recognition and disclosure provisions ofSFAS No. 158 on December 31, 2006 and this adoption did not have anyimpact on our results of operation. Pension benefits associated with theseplans are generally based on each participant’s years of service, compensation,and age at retirement or termination. Two critical assumptions, the discountrate and the expected return on plan assets, are important elements of expenseand liability measurement.

 

We determine the discount rate used to measure plan liabilities as ofthe December 31 measurement date for the U.S. pension plan. The discountrate reflects the current rate at which the associated liabilities could beeffectively settled at the end of the year. In estimating this rate, we look atrates of return on fixed-income investments of similar duration to theliabilities in the plan that receive high, investment grade ratings byrecognized ratings agencies. Using these methodologies, we determined adiscount rate of 5.75% to be appropriate as of December 31, 2008, which isa decrease of 0.25 percentage points from the rate used as of December 31,2007. An increase of 1.0% in the discount rate would have decreased our planliabilities as of December 31, 2008 by $1.5 million and a decrease of1.0% could have increased our plan liabilities by $1.8 million.

 

A significant element in determining our pension expense in accordancewith SFAS No. 158 is the expected return on plan assets, which is based onhistorical results for similar allocations among asset classes. For the U.S.pension plan, our assumption for the expected return on plan assets was 7.5%for 2008.

 

We defer the difference between the expected return and the actualreturn on plan assets and, under certain circumstances, amortize it over futureyears of service. Therefore, the net deferral of past asset gains (losses)ultimately affects future pension expense. This is also true of changes toactuarial assumptions. As of December 31, 2008, we had net unrecognizedpension actuarial losses of $5.2 million. These amounts representpotential future pension and postretirement expenses that would be amortizedover average future service periods.

 

***Derivative Instrument***

 

Prior to December 10, 2008, we utilized a derivative instrument inthe form of an interest rate swap agreement and a forward contract forpurchasing foreign currency to minimize our risk from interest ratefluctuations related to our variable rate credit agreement and minimize ourrisk from fluctuations related to the foreign currency exchange rates,respectively. We used the interest rate swap agreement and the forward contractfor purchasing foreign currency to manage risk and not for trading or otherspeculative purposes. At the end of each accounting period, we recorded thederivative instrument on our balance sheet as either an asset or a liabilitymeasured at fair value. The interest rate swap agreement and the forwardcontract for purchasing foreign currency did not qualify for hedge accountingtreatment. Changes in the fair value of the interest rate swap agreement andthe forward contract for purchasing foreign currency were recognized as “Interestrate derivative gain (loss)” and “Other Income” over the life of theagreements, respectively. We terminated the interest swap agreement on December 10,2008 by making a payment of approximately $9.2 million.

 

***Stock-Based Compensation***

 

Effective January 1, 2006, as a result of our initial publicoffering, we adopted the provisions of Statement of Financial AccountingStandards 123(R), “Share-Based Payment” (“SFAS 123(R)”), and relatedinterpretations, or SFAS 123(R), to account for stock-based compensationusing the modified prospective transition method and therefore have notrestated our prior period results. Among other things, SFAS 123(R) requiresthat compensation expense be recognized in the financial statements for bothemployee and non-employee share-based awards based on the grant date fair valueof those awards. Additionally, stock-based compensation expense includes anestimate for pre-vesting forfeitures and is recognized over the requisiteservice periods of the awards on a straight-line basis, which is generallycommensurate with the vesting term.

 

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**Resultsof Operations**

 

*Comparisonof Results of Operations for the Three Months Ended March 31, 2009 and2008 (in thousands):*

 
| ** **                                                                            | ** ** | **Three months ended  March 31,** | ** ** | ** ** | ** ** |
|---------------------------------------------------------------------------------------|------------|--------------------------------------------------|------------|------------|------------|
| ** **                                                                            | ** ** | **2009**                                         | ** ** | **2008**   | ** ** | **% Change** | ** ** |
| **Revenue:**                                                                          | ** ** | ** **                                       | ** ** | ** ** | ** ** | ** ** | ** ** |
| Service revenue                                                                       |       | $                                                | 11,131     |       | $          | 16,010 |   | (30 | )% |
| Subscriber equipment sales                                                            |       | 4,032                                            |       | 6,124      |       | (34 | ) |
| Total revenue                                                                         |       | 15,163                                           |       | 22,134     |       | (31 | ) |
|                                                                                  |       |                                             |       |       |       |   |   |
| **Operating expenses:**                                                               | ** ** | ** **                                       | ** ** | ** ** | ** ** | ** ** | ** ** |
| Cost of services (exclusive of depreciation and amortization shown  separately below) |       | 10,408                                           |       | 7,475      |       | 39 |   |
| Cost of subscriber equipment sales                                                    |       | 2,995                                            |       | 5,045      |       | (41 | ) |
| Marketing, general and administrative                                                 |       | 13,977                                           |       | 15,748     |       | (11 | ) |
| Depreciation and amortization                                                         |       | 5,424                                            |       | 5,418      |       | 0 |   |
| Total operating expenses                                                              |       | 32,804                                           |       | 33,686     |       | (3 | ) |
|                                                                                  |       |                                             |       |       |       |   |   |
| Operating loss                                                                        |       | (17,641                                          | )          | (11,552    | )          | 53 |   |
|                                                                                  |       |                                             |       |       |       |   |   |
| Other income (expense):                                                               |       |                                             |       |       |       |   |   |
| Interest income                                                                       |       | 128                                              |       | 1,368      |       | (91 | ) |
| Interest expense                                                                      |       | (240                                             | )          | (997       | )          | (76 | ) |
| Interest rate derivative loss                                                         |       | —                                           |       | (3,539     | )          | (100 | ) |
| Other income (expense)                                                                |       | (3,975                                           | )          | 8,251      |       | N/A |   |
| Total other income (expense)                                                          |       | (4,087                                           | )          | 5,083      |       | N/A |   |
|                                                                                  |       |                                             |       |       |       |   |   |
| Loss before income taxes                                                              |       | (21,728                                          | )          | (6,469     | )          | 236 |   |
| Income tax expense                                                                    |       | 30                                               |       | 166        |       | (82 | ) |
| Net Loss                                                                              |       | $                                                | (21,758    | )          | $          | (6,635 | ) | 228 | % |

 

***Revenue. ***Totalrevenue decreased by approximately $7.0 million, or 31%, to $15.2 million forthe three months ended March 31, 2009, from $22.1 million for the threemonths ended March 31, 2008 . This decrease isattributable to lower service revenues as a result of our two-way communicationissues and lower subscriber equipment sales. Our service revenue was lower dueprimarily to price reductions aimed at maintaining our subscriber base despiteour two-way communication issues. Our subscriber equipment sales decreasedduring the three months ended March 31, 2009 as compared to the sameperiod in 2008 primarily as a result of lower sales for our duplex products andservices. Our retail ARPU during the three months ended March 31, 2009,decreased by 39% to $23.08 from $38.14 for the same period in 2008. We added approximately63,600 net subscribers during the twelve-month period from March 31, 2008to March 31, 2009.

 

*ServiceRevenue.*Service revenue decreased $4.9 million, orapproximately 30%, to $11.1 million for the three months ended March 31,2009, from $16.0 million for the same period in 2008. Although oursubscriber base grew 22% during the twelve-month period ended March 31,2009, to approximately 356,900, we experienced decreased retail ARPU resultingin lower service revenue. The primary reason for this decrease in our servicerevenue was the reduction of our prices in response to our two-waycommunication issues and product mix.

 

*Subscriber Equipment Sales.* Subscriber equipment salesdecreased by approximately $2.1 million, or 34%, to $4.0 million forthe three months ended March 31, 2009, from $6.1 million for the sameperiod in 2008. The decrease was due primarily to lower sales of our duplexproducts and services during the three months ended March 31, 2009.

 

***Operating Expenses.***Total operatingexpenses decreased $0.9 million, or approximately 3%, to $32.8 million forthe three months ended March 31, 2009, from $33.7 million for the sameperiod in 2008. This decrease was due to lower cost of goods sold related tolower sales of subscriber equipment related to our duplex products, lowermarketing support costs and legal expenses, partially offset by higheroperating expenses as a result of the acquisition of our Brazilian subsidiaryon March 25, 2008.

 

*Cost of Services.* Our cost of services forthe three months ended March 31, 2009 and 2008, were $10.4 millionand $7.5 million, respectively. Our cost of services is comprisedprimarily of network operating costs. Although our costs are generally fixed innature, these costs were higher during the three months ended March 31,2009, as a result of our acquired subsidiary in Brazil and higher research anddevelopment expenses related to our second generation ground componentdevelopment.

 

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*Cost of Subscriber Equipment Sales.*Cost ofsubscriber equipment sales decreased approximately $2.1 million, or 41%,to $3.0 million for the three months ended March 31, 2009, from $5.0 millionfor the three months ended March 31, 2008. This decrease was due primarilyto lower sales of our duplex products.

 

*Marketing, General and Administrative.* Marketing,general and administrative expenses decreased approximately $1.8 million,or 11%, to $14.0 million for the three months ended March 31, 2009,from $15.7 million for the same period in 2008. This decrease was dueprimarily to lower marketing support costs and legal expenses offset partiallyby higher costs associated with the acquisition of our subsidiary in Brazil.

 

*Depreciationand Amortization.* Depreciation and amortization expense remainedconsistent at approximately $5.4 million for the three months ended March 31,2009 and 2008.The increase in depreciation expense associated with placing intoservice of all of our space satellites launched in 2007 was offset by thefirst-generation satellite constellation reaching fully-depreciated status at December 31,2008.

 

***Operating Loss.***  Operating loss increased approximately$6.1 million, to $17.6 million, for the three months ended March 31,2009, from $11.6 million for the same period in 2008. The increase was dueto the lower service revenue and higher cost of services offset in portion bylower operating costs described above.

 

*InterestIncome.* Interest income decreased by approximately $1.2 million, to$0.1 million, for the three months ended March 31, 2009, from$1.4 million for the same period in 2008. This decrease was due to loweraverage cash and restricted cash balances on hand.

 

*InterestExpense.*Interest expense decreased by $0.8 million, to$0.2 million, for the three months ended March 31, 2009, from$1.0 million for the same period in 2008. This decrease was due primarilyto the lower expense related to our deferred debt issuance costs.

 

*Interest Rate Derivative Loss*. We terminated our interest rate swapagreement on December 10, 2008. Interest rate derivative loss for thethree months ended March 31, 2008 was $3.5 million.

 

*OtherIncome (Expense).*Other income (expense) generally consists of foreignexchange transaction gains and losses. Other income decreased by$12.2 million for the three months ended March 31, 2009, as comparedto the same period in 2008, due to an unfavorable exchange rate on the Eurodenominated escrow account and a decline in the Canadian dollar during thethree months ended March 31, 2009.

 

*IncomeTax Expense.*Income tax expense for the three months ended March 31,2009 was less than $0.1 million compared to $0.2 million during thesame period in 2008. The change between periods was primarily a result of alower taxable income during the three months ended March 31, 2008 for oursubsidiaries that are profitable.

 

***Net Loss.***Our net loss increasedapproximately $15.2 million, to a loss of $21.8 million, for thethree months ended March 31, 2009, from a net loss of $6.6 millionfor the same period in 2008. This increase was primarily due to lower servicerevenue.

 

**Liquidityand Capital Resources**

 

The following table showsour cash flows from operating, investing, and financing activities for thethree months ended March 31, 2009 and 2008:

 
| ** **                                | ** ** | **Three Months Ended  March 31, 2009** | ** ** | **Three Months Ended  March 31, 2008** | ** ** |
|-------------------------------------------|------------|-----------------------------------------------------------------|------------|------------------------------------------------------------|------------|
|                                      |       |                                                            |       |                                                       |       |
| Net cash used in operating activities     |       | $                                                               | (2,125     | )                                                          | $          | (1,580 | ) |
| Net cash used in investing activities     |       | (19,394                                                         | )          | (109,322                                                   | )          |
| Net cash from financing activities        |       | 7,701                                                           |       | 96,000                                                     |       |
| Effect of exchange rate changes on cash   |       | 4,504                                                           |       | (8,186                                                     | )          |
| Net decrease in cash and cash equivalents |       | $                                                               | (9,314     | )                                                          | $          | (23,088 | ) |

 

Currently,our principal sources of liquidity are our credit agreement with Thermo Fundingand our existing cash.

 

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AtApril 1, 2009, our principal short-term liquidity needs were:

 

·                                          to makepayments to procure our second-generation satellite constellation, constructthe Control Network Facility and launch related costs, in a total amount notyet determined, but which will include approximately €67.6 million payableto Thales Alenia Space by March 2010 under the purchase contract for oursecond-generation satellites and €0.9 million payable to Thales Alenia Space byMarch 2010 under the contract for construction of the Control NetworkFacility, respectively;

 

·                                          to makepayments related to our launch for the second-generation satelliteconstellation in the amount of $187.2 million payable to our launch provider byMarch 31, 2010;

 

·                                          to makepayments related to the construction of our second-generation ground componentin the amount of $35.7 million by March 31, 2010; and

 

·                                          to fund our working capital (which was adeficit of $60.8 million at March 31, 2009).

 

Our liquidity sources at March 31, 2009 are insufficient to fundour short-term or long-term needs. We must obtain additional financing to fundthe procurement and deployment of our second-generation constellation and otherrelated construction costs and our on-going operations, which are currentlygenerating negative cash flows. Due to the worldwide economic crisis and thetight credit market, obtaining suitable financing remains challenging.

 

We are pursuing a number of options involving issuance of additionaldebt, equity or both to obtain the required funding as well as seeking toreduce our internal costs and aggressively grow our revenues. During the firstquarter of 2009, we adopted various cost cutting measures, including reducingworldwide labor and non-labor costs. We will continue to assess our operationsand may continue to reduce costs by eliminating additional labor costs that wedeem necessary to reduce further our negative cash flow in the short term. Wecannot assure you that any additional cost cutting measures will be adopted. Wecannot assure you that sufficient additional financing will be obtained onacceptable terms, if at all. If we fail to obtain necessary additionalfinancing, the procurement and deployment of our second-generation satelliteconstellation, related construction costs and our ongoing operations will bematerially adversely impacted. We could default on our commitments to oursatellite, launch, ground component and other third party vendors, possiblyleading to termination of our second-generation construction contracts or othercontracts some of which have substantial termination fees. We may also berequired to reduce substantially our ongoing operations or discontinueoperations all together. If we do not acquire and deploy our second generationconstellation and/or discontinue operations, we may lose our FCC license,international spectrum rights and/or ATC authority in the United States. If welose our FCC license, rights to international spectrum or ATC authority, wewill lose the right to operate our business in those parts of the world and maynot be able to continue as a going concern and would be required to sell oursatellite business or assets in those areas of the world or cease operationsall together.

 

In addition, we may have difficulty maintaining existing relationships,or developing new relationships, with suppliers or vendors as a result of ourfinancial condition. Our suppliers or vendors could choose to provide suppliesor services to us on more stringent payment terms than those currently inplace, such as by requiring advance payment or payment upon delivery of suchsupplies or services, which would have an adverse impact on our short-term cashflows. As a result, our ability to retain current customers, attract newcustomers and maintain contracts that are critical to our operations may beadversely affected.

 

Finally, these events may result in defaults under our currentfinancing arrangements which would permit acceleration of our indebtedness andexercise of remedies by our lenders.

 

On March 25, 2009, we announced that Coface, the export creditagency acting on behalf of the French government, has agreed to providelong-term credit insurance in support of a proposed $574 million creditfacility to be extended to us by a syndicate of banks. Banks who have receivedinitial credit committee approvals in relation to the credit facility, whichwill bear interest at a floating rate, include PNB Paribas, Natixis and SocieteGenerale. The credit facility and our receipt of funding are subject to finaldocumentation and closing conditions, and there can be no assurance that anyclosing will occur.

 

The principal closing conditions include the conversion into equity atclosing of the senior secured term and revolving credit facility loans to usfrom Thermo Funding and our receipt of additional equity and contingent equityin an amount of approximately $100 million, most of which is expected tobe provided by Thermo Funding.

 

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During the three months ended March 31, 2009 and the year ended December 31,2008, our principal sources of liquidity were:

 
| **Dollars in millions**                      | ** ** | **Three Months Ended  March 31, 2009** | ** ** | **Year Ended  December 31, 2008** | ** ** |
|--------------------------------------------------------|------------|------------------------------------------------------------|------------|--------------------------------------------------|------------|
| Cash on-hand at beginning of period                    |       | $                                                          | 12.4       |                                             | $          | 37.6 |   |
|                                                   |       |                                                       |       |                                             |       |
| Net proceeds from Convertible Senior Notes             |       | $                                                          | —     |                                             | $          | 145.1 |   |
|                                                   |       |                                                       |       |                                             |       |
| Borrowings under Thermo Funding credit  agreement, net |       | $                                                          | 7.8        |                                             | $          | 116.1 |   |
|                                                   |       |                                                       |       |                                             |       |
| Cash generated (used) by operations                    |       | $                                                          | (2.1       | )                                                | $          | (30.6 | ) |

 

We plan to fund our short-term liquidityrequirements from the following sources:.

 

·                  cashfrom our revolving credit agreement with Thermo ($26.2 million wasavailable on an uncommitted basis at March 31, 2009);

 

·                  cashon hand ($3.0 million at March 31, 2009);

 

·                  cashin our escrow account ($5.3 million at March 31, 2009), which will beused periodically to pay down our obligation to Thales Alenia Space or, ifpermitted, for operating purposes; and

 

·                  theincurrence of additional indebtedness, additional equity financings or acombination thereof as described above.

 

In April 2009,we sold $0.5 million of restricted Common Stock to Thermo Funding at marketprice.

 

Our principal long-term liquidity needs are:

 

·                  topay the costs of procuring and deploying our second-generation satelliteconstellation and upgrading our gateways and other ground facilities;

 

·                  tofund our working capital, including any growth in working capital required bygrowth in our business; and

 

·                  tofund the cash requirements of our independent gateway operator acquisitionstrategy, in an amount not determinable at this time.

 

We plan to fund our long-term capital needswith additional debt or equity financings as described above, any availablecash flow from operations in future periods, which we expect will be generatedprimarily from sales of our Simplex products and services, including our SPOTsatellite GPS messenger products and services, and potential ATC monetizationstrategies. See “Capital Expenditures” below and Item 1A. Risk Factors—“Ifwe fail to obtain, on a timely basis, the additional financing necessary tofund the procurement and deployment of our second-generation constellation andother related construction costs and our ongoing operations, which aregenerating negative cash flows, we may not be able to continue as a goingconcern” in our Annual Report on Form 10-K filed on March 31, 2009.

 

Our liquidity and our ability to fund theseneeds and to make payments for principal and interest will depend on achievingsubstantial growth in revenues, having positive cash flows from operations,obtaining additional financing or access to our restricted cash for operatingpurposes or a combination thereof, which will be subject in part to generaleconomic, financial, regulatory and other factors, including obtaining theconsent of others, that are beyond our control, including our ability toachieve positive cash flow from operations despite the problems with our satelliteconstellation described elsewhere, the willingness of others to invest in usand trends in our industry and technology discussed elsewhere in this Report.In addition to these general and economic and industry factors, the principalfactors affecting our cash flows will be our ability to continue to provideattractive and competitive services and products, successfully manage the degradationof our current satellite constellation until we can deploy oursecond-generation satellite constellation, increase our number of subscribersand retail average revenue per unit, control our costs, and maintain ourmargins and profitability. If those factors change significantly or otherunexpected factors adversely affect us, our business may not generate sufficientcash flow from operations and future financings may not be available on termsacceptable to us or at all to meet our liquidity needs. In assessing ourliquidity, our management reviews and analyzes our current cash on-hand, theaverage number of days our accounts receivable are outstanding, the contractualrates that we have established with our vendors, inventory turns, foreignexchange rates, capital expenditure commitments and income tax rates.

 

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***Net Cash from (usedin) Operating Activities***

 

Net cash used in operating activities duringthe three months ended March 31, 2009 increased to a cash outflow of $2.1 millionfrom an outflow of $1.6 million in the same period in 2008. This increasewas due primarily to lower revenues during the three months ended March 31,2009, as compared to the same period in 2008.

 

***Net Cash from (usedin) Investing Activities***

 

Cash used in investing activities was$19.4 million during the three months ended March 31, 2009, comparedto $109.3 million during the same period in 2008. This decrease wasprimarily the result of lower amounts required to be maintained in the escrowaccounts associated with construction expenses for our second-generationsatellite constellation during the three months ended March 31, 2009.

 

***Net Cash fromFinancing Activities***

 

Net cash provided by financing activitiesdecreased by $88.3 million to $7.7 million during the three monthsended March 31, 2009, from $96.0 million during the same period in2008. The decrease was due primarily to decline of $100.0 million, netdrawn on the credit agreement with Thermo Funding compared to the three monthsended March 31, 2008.

 

***Capital Expenditures***

 

Our capital expenditures consist primarily ofupgrading our satellite constellation and gateways and other ground facilities.We have completed construction of a gateway in Singapore at a total cost ofapproximately $4.0 million. This gateway was fully operational for Simplexservice in October 2008. Duplex service is expected to be introduced whenthe second- generation constellation becomes operational.

 

In 2005, we commenced capital expendituresfor the launch of our eight spare satellites in 2007. In 2008 and 2007, weincurred $0.1 million and $37.6 million (excluding capitalizedinterest and internal costs), respectively, related to the launch of our eightspare satellites. The total cost for the launch of the spare satellites wasapproximately $124.0 million exclusive of capitalized interest andinternal costs. As of December 31, 2008, substantially all relatedpayments had been made.

 

In the fourth quarter of 2006, we entered into a contract with ThalesAlenia Space for our second-generation satellite constellation. The totalcontract price, including subsequent additions, is €670.3 million(approximately $893.4 million at a weighted average conversion rate of€1.00 = $1.3328 at March 31, 2009, including approximately€146.8 million which was paid by us in U.S. dollars at a fixed conversionrate of €1.00 = $1.2940). We have made payments in the amount ofapproximately $394.3 million in related costs through March 31, 2009.At our request, Thales Alenia Space presented to us a four-part sequential planfor accelerating delivery of the initial 24 satellites by up to four months. Theexpected cost of this acceleration would range from approximately €6.7 millionto €13.4 million ($8.8 million to $17.7 million at €1.00 =$1.3208 at March 31, 2009). In 2007, we authorized the first two portionsof this plan with an additional cost of €4.1 million ($5.7 million at€1.00 = $1.4022). However due to revisions in the construction schedule in2009 requested by us at an initial cost of $2.0 million, the potential gainsfrom this acceleration may not be fully achieved. Accordingly, we cannotprovide assurance that any acceleration will occur, and we now believe that wewill not commence deploying our second-generation satellites prior to 2010.

 

In March 2007, we entered into anagreement with Thales Alenia Space for the construction of the SatelliteOperations Control Centers, Telemetry Command Units and In Orbit Test Equipment(collectively, the “Control Network Facility”) for our second-generationsatellite constellation. This agreement complements the second-generationsatellite construction contract with Thales Alenia Space for the constructionof 48 low-earth orbit satellites and allows Thales Alenia Space to coordinateall aspects of the second-generation satellite constellation project, includingthe transition of first-generation software and hardware to equipment for thesecond generation. The total contract price for the construction and associatedservices is €9.2 million (approximately $13.1 million at a conversionrate of €1.00 = $1.4212) consisting of €4.1 million for the SatelliteOperations Control Centers, €3.1 million for the Telemetry Command Unitsand €2.0 million for the In Orbit Test Equipment, with payments to be madeon a quarterly basis through completion of the Control Network Facility in late2009. We have made payments in the amount of approximately €8.2 million(approximately $11.8 million) through March 31, 2009.

 

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In September 2007, we entered into acontract with our Launch Provider for the launch of our second-generationsatellites and certain pre and post-launch services. Pursuant to the contract,our Launch Provider will make four launches of six satellites each, and we havethe option to require our Launch Provider to make four additional launches ofsix satellites each. The total contract price for the first four launches is$216.1 million. As of March 31, 2009, we have made payments in theaggregate amount of approximately $26.3 million associated with our launchservices contract. The anticipated time period for the first four launchesranges from as early as the first quarter of 2010 through the end of 2010 andthe optional launches are available from spring 2010 through the end of 2014.Prolonged delays due to postponements by us or our Launch Provider may resultin adjustments to the payment schedule.

 

On May 14, 2008, we entered into acontract with Hughes under which Hughes will design, supply and implement theRadio Access Network (“RAN”) ground network equipment and software upgrades forinstallation at a number of our satellite gateway ground stations and satelliteinterface chips to be a part of the User Terminal Subsystem (UTS) in ourvarious next-generation devices. The total contract purchase price ofapproximately $100.8 million is payable in various increments over aperiod of 40 months. We have the option to purchase additional RANs andother software and hardware improvements at pre-negotiated prices. As of March 31,2009, we have made payments in the aggregate amount of approximately$5.9 million associated with this contract. We expensed $1.8 million ofthese payments and capitalized $4.1 million as second-generation groundcomponent.

 

On October 8, 2008, we signed anagreement with Ericsson, a leading global provider of technology and servicesto telecom operators. According to the $22.7 million contract, Ericssonwill work with us to develop, implement and maintain a ground interface, orcore network, system that will be installed at our satellite gateway groundstations. The all Internet protocol (IP) based core network system is wireless3G/4G compatible and will link our radio access network to the public-switchedtelephone network (PSTN) and/or Internet. Design of the new core network systemis now underway. The agreement represents the final significant ground networkinfrastructure component for our next-generation of advanced IP-based satellitevoice and data services.

 

The cost for the satellites, launches andgateway upgrades under these contracts with Thales Alenia Space, Hughes,Ericsson and our Launch Provider are included in the estimated$1.26 billion (the majority of which is denominated in Euros at a weightedaverage conversion rate of € 1.00=$1.3168 and excludes launch costs for thesecond 24 satellites, internal costs and capitalized interest) of capitalexpenditures which we currently anticipate will be required to procure anddeploy our second-generation satellite constellation and related gatewayupgrades. Since the fourth quarter of 2006, we have used portions of theproceeds from sales of Common Stock to Thermo Funding under the irrevocablestandby stock purchase agreement, the proceeds from our initial publicoffering, the net proceeds from the sale of the Notes and borrowings under ourcredit facility with Thermo Funding to fund the approximately $567.1 million(excluding internal costs and capitalized interest but including$5.3 million which is held in escrow pursuant to the contract for theprocurement of our second-generation satellite constellation to secure ourpayment obligations under that contract) incurred through March 31, 2009.We plan to fund the balance of the capital expenditures through future debtfinancings, deferral of payments to certain of our vendors and additionalissuance of equity or a combination of these potential sources. The extent ofour need for external capital, which we expect to be substantial, will varydepending on the success of our SPOT satellite GPS messenger product andservices and other commercial factors. This funding may not be available to uson acceptable terms, or at all.

 

The amount of actual and contractual capitalexpenditures related to the construction of the second-generation constellationand satellite operations control centers, ground component and related costsand the launch services contracts is presented in the table below (inmillions):

 
| ** **                                          | ** ** | **Currency**        | ** ** | **Payments  through  March 31,** | ** ** | **Estimated Future Payments** | ** ** |
|-----------------------------------------------------|------------|---------------------|------------|---------------------------------------|------------|-----------------------------------------|------------|
| **Contract**                                        | ** ** | **of Payment** | ** ** | **2009**                              | ** ** | **2009**                                | ** ** | **2010** | ** ** | **2011** | ** ** | **Thereafter** | ** ** | **Total** | ** ** |
| Thales Alenia Second Generation  Constellation      |       | EUR                 |       | €                                | 294.2      |                                    | €     | 56.0 |   | € | 92.3 |   | € | 80.5 |   | € | 147.3 |   | € | 670.3 |   |
| Thales Alenia Satellite Operations Control  Centers |       | EUR                 |       | €                                | 8.2        |                                    | €     | 1.0 |   | € | — |   | € | — |   | € | — |   | € | 9.2 |   |
| Arianespace Launch Services                         |       | USD                 |       | $                                     | 26.3       |                                    | $          | 132.7 |   | $ | 57.1 |   | $ | — |   | $ | — |   | $ | 216.1 |   |
| Hughes second-generation ground component           |       | USD                 |       | $                                     | 5.9        |                                    | $          | 19.1 |   | $ | 62.2 |   | $ | 13.6 |   | $ | — |   | $ | 100.8 |   |
| Ericsson                                            |       | USD                 |       | $                                     | —     |                                    | $          | 1.0 |   | $ | 5.9 |   | $ | 13.0 |   | $ | 2.8 |   | $ | 22.7 |   |

 

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The exchange rate on March 31, 2009 was €1.00 = $1.3208. Theestimated future payments do not include the interest payable on vendorfinancing agreements related to the Arianespace and Hughes contracts. A portionof these above costs are not considered capitalizable and will be expensed. See“Item 3 - Quantitative and Qualitative Disclosures About Market Risk.”

 

***Cash Position and Indebtedness***

 

As of March 31, 2009, our total cash and cashequivalents were $3.0 million and we had total indebtedness of $288.7 millioncompared to total cash and cash equivalents and total indebtedness at December 31,2008 of $12.4 million and $271.9 million, respectively.

 

***Convertible Debt***

 

On April 15, 2008, we entered into anUnderwriting Agreement (the “Convertible Notes Underwriting Agreement”) with MerrillLynch & Co., Merrill Lynch, Pierce, Fenner & SmithIncorporated and Deutsche Bank Securities Inc. (together, the “ConvertibleNotes Underwriters”) relating to the sale by us of $135.0 millionaggregate principal amount of Notes. Pursuant to the Convertible NotesUnderwriting Agreement, we granted the Convertible Notes Underwriters a 30-dayoption to purchase up to an additional $15.0 million aggregate principalamount of the Notes solely to cover over-allotments.

 

The sale of the $135.0 million aggregateprincipal amount of the Notes was completed on April 15, 2008. TheConvertible Notes Underwriters subsequently executed their over-allotmentoption and purchased an additional $15.0 million aggregate principalamount of the Notes on May 8, 2008. The sale of the Notes was registeredunder the Securities Act of 1933, as amended, pursuant to a RegistrationStatement on Form S-3 (File No. 333-149798), as supplemented by aprospectus supplement and a free-writing prospectus, both dated April 10,2008.

 

The Notes were issued under a SeniorIndenture, entered into and dated as of April 15, 2008 (the “BaseIndenture”), between us and U.S. Bank, National Association, as trustee (the “Trustee”),supplemented by a First Supplemental Indenture with respect to the Notes,entered into and dated as of April 15, 2008 (the “Supplemental Indenture”),between us and the Trustee (the Base Indenture and the Supplemental Indenture,collectively, the “Indenture”). Also, pursuant to the Indenture, the Company,the Trustee and U.S. Bank, National Association, as escrow agent (the “EscrowAgent”), entered into a Pledge and Escrow Agreement dated as of April 15,2008 (the “Pledge Agreement”).

 

In accordance with the Pledge Agreement, weplaced approximately $25.5 million of the proceeds of the offering of theNotes in an escrow account with the Escrow Agent. The Escrow Agent investsfunds in the escrow account in government securities and, if we do not elect tomake the payments from other funds, the funds in the escrow account will beused to make the first six scheduled semi-annual interest payments on theNotes. Pursuant to the Pledge Agreement, we pledged our interest in this escrowaccount to the Trustee as security for these interest payments. At March 31,2009 and December 31, 2008, the balance in the escrow account was $10.3million and $14.4 million, respectively.

 

Except for the pledge of the escrow accountunder the Pledge Agreement, the Notes are our senior unsecured debtobligations. There is no sinking fund for the Notes. The Notes mature on April 1,2028 and bear interest at a rate of 5.75% per annum. Interest on the Notes ispayable semi-annually in arrears on April 1 and October 1 of eachyear, commencing October 1, 2008, to holders of record on the preceding March 15and September 15, respectively.

 

Subject to certain exceptions set forth inthe Indenture, the Notes are subject to repurchase for cash at the option ofthe holders of all or any portion of the Notes (i) on each of April 1,2013, April 1, 2018 and April 1, 2023 or (ii) upon a fundamentalchange, both at a purchase price equal to 100% of the principal amount of theNotes, plus accrued and unpaid interest, if any. A fundamental change willoccur upon certain changes in the ownership of the Company, or certain eventsrelating to the trading of our Common Stock, as further described in theIndenture.

 

Holders may convert their Notes at theiroption at any time prior to the close of business on the business dayimmediately preceding April 1, 2028. Holders may convert their Notes intoshares of Common Stock, subject to our option to deliver cash in lieu of all ora portion of the shares. The Notes are convertible at an initial conversionrate of 166.1820 shares of Common Stock per $1,000 principal amount of the Notes,subject to adjustment in the manner set forth in the Supplemental Indenture.The conversion rate may not exceed 240.9638 shares of Common Stock per $1,000principal amount of Notes, subject to adjustment. In addition to receiving theapplicable amount of shares of Common Stock or cash in lieu of all or a portionof the shares, holders of Notes who convert their Notes prior to April 1,2011 will receive the cash proceeds from the sale by the Escrow Agent of theportion of the government securities in the escrow account that are remainingwith respect to any of the first six interest payments that have not been madeon the Notes being converted.

 

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In 2008, holders of $36.0 millionaggregate principal amount of Notes, or 24% of the Notes originally issued,submitted notices of conversion to the trustee in order to convert their Notesinto Common Stock. We also entered into agreements with holders of anadditional $42.2 million aggregate principal amount of Notes, or 28% ofthe Notes originally issued, to exchange their Notes for a combination ofCommon Stock and cash. We have issued approximately 23.6 million shares ofCommon Stock and paid a nominal amount of cash for fractional shares inconnection with the conversions and exchanges. In addition, the holdersreceived an early conversion make whole amount of approximately$9.3 million representing the next five semi-annual interest payments thatwould have become due on the converted Notes, which was paid from funds in theescrow account for the benefit of the holders of Notes. In the exchanges, Noteholders received additional consideration in the form of cash payments oradditional shares of Common Stock in the amount of approximately$1.1 million to induce exchanges. After these conversions and exchanges,approximately $71.8 million aggregate principal amount of Notes remainedoutstanding at March 31, 2009.

 

Holders who convert their Notes in connectionwith certain events occurring on or prior to April 1, 2013 constituting a “makewhole fundamental change” (as defined in Note 12 to the unaudited interimconsolidated financial statements) will be entitled to an increase in theconversion rate as described in Note 12 to our unaudited interimconsolidated financial statements in Part I, Item 1 of this Report.

 

If we make at least 10 scheduled semi-annualinterest payments, the Notes are subject to redemption at our option at anytime on or after April 1, 2013, at a price equal to 100% of the principalamount of the Notes to be redeemed, plus accrued and unpaid interest, if any.

 

The Indenture contains customary financialreporting requirements and also contains restrictions on mergers and assetsales. The Indenture also provides that upon certain events of default,including without limitation failure to pay principal or interest, failure todeliver a notice of fundamental change, failure to convert the Notes whenrequired, acceleration of other material indebtedness and failure to paymaterial judgments, either the trustee or the holders of 25% in aggregateprincipal amount of the Notes may declare the principal of the Notes and anyaccrued and unpaid interest through the date of such declaration immediatelydue and payable. In the case of certain events of bankruptcy or insolvencyrelating to us or our significant subsidiaries, the principal amount of theNotes and accrued interest automatically becomes due and payable.

 

Concurrently with the offering of the Notes,on April 10, 2008, we entered into a share lending agreement (the “ShareLending Agreement”) with Merrill Lynch International (the “Borrower”), throughMerrill Lynch, Pierce, Fenner & Smith Incorporated, as agent forBorrower (in such capacity, the “Borrowing Agent”), pursuant to which we agreedto lend up to 36,144,570 shares of Common Stock (the “Borrowed Shares”) to theBorrower, subject to certain adjustments set forth in the Share LendingAgreement, for a period ending on the earliest of (i) the date we notifythe Borrower in writing of its intention to terminate the Share LendingAgreement at any time after the entire principal amount of the Notes ceases tobe outstanding and we have settled all payments or deliveries in respect of theNotes (as the settlement may be extended pursuant to market disruption eventsor otherwise pursuant to the Indenture), whether as a result of conversion,redemption, repurchase, cancellation, at maturity or otherwise, (ii) our writtenagreement with the Borrower to terminate, (iii) the occurrence of aBorrower default, at our option, and (iv) the occurrence of our default,at the option of the Borrower. Pursuant to the Share Lending Agreement, uponthe termination of the share loan, the Borrower must return the Borrowed Sharesto us. The only exception would be that, if pursuant to a merger,recapitalization or reorganization, the Borrowed Shares were exchanged for orconverted into cash, securities or other property (“Reference Property”), theBorrower would return the Reference Property. Upon the conversion of Notes (inwhole or in part), a number of Borrowed Shares proportional to the conversionrate for such notes must be returned to us. At our election, the Borrower mayremit cash equal to the market value of the corresponding Borrowed Sharesinstead of returning to us the Borrowed Shares otherwise required byconversions of the Notes.

 

On April 10, 2008, we entered into anunderwriting agreement (the “Equity Underwriting Agreement”) with the Borrowerand the Borrowing Agent. Pursuant to and upon the terms of the Share LendingAgreement, we will issue and lend the Borrowed Shares to the Borrower as ashare loan. The Borrowing Agent also is acting as an underwriter (the “Equity Underwriter”)with respect to the Borrowed Shares which were being offered to the public. TheBorrowed Shares include an aggregate of approximately 32.0 million sharesof Common Stock loaned by us to the Borrower on separate occasions, deliveredpursuant to the Share Lending Agreement and the Underwriting Agreement, and anadditional 4.2 million shares of Common Stock that, from time to time, maybe borrowed from us by the Borrower pursuant to the Share Lending Agreement andthe Underwriting Agreement and subsequently offered and sold at prevailingmarket prices at the time of sale or negotiated prices. The sale of theBorrowed Shares was registered under the S-3(33-149798). We used two prospectussupplements for the transaction, one for the sale of the convertible notes (andthe underlying common stock) and the other for the sale of the Borrowed Shares.We filed the prospectus supplement for the sale of the Borrowed Shares pursuantto Rule 424(b) (3) on April 2, 2008 and pursuant to Rule 424(b) (5) onApril 14, 2008. At March 31, 2009 and December 31, 2008,approximately 17.3 and 24.2 million Borrowed Shares remained outstanding,respectively. The Borrower returned to us 6.9 million Borrowed Shares in January 2009.

 

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We will not receive any proceeds from thesale of the Borrowed Shares pursuant to the Share Lending Agreement but willreceive a nominal lending fee of $0.0001 per share for each share of CommonStock that we loan to the Borrower pursuant to the Share Lending Agreement. TheBorrower will receive all of the proceeds from the sale of Borrowed Sharespursuant to the Share Lending Agreement. At our election, the Borrower mayremit to us cash equal to the market value of the corresponding Borrowed Sharesinstead of returning the Borrowed Shares to us as a result of conversions byNote holders.

 

The shares that we loaned to the Borrowerwill be issued and outstanding for corporate law purposes, and accordingly, theholders of the Borrowed Shares will have all of the rights of a holder of ouroutstanding shares, including the right to vote the shares on all matterssubmitted to a vote of our stockholders and the right to receive any dividendsor other distributions that we may pay or makes on its outstanding shares ofCommon Stock. However, under the Share Lending Agreement, the Borrower hasagreed:

 

·                  Topay, within one business day after the relevant payment date, to us an amountequal to any cash dividends that we pay on the Borrowed Shares; and

 

·                  Topay or deliver to us, upon termination of the loan of Borrowed Shares, anyother distribution, in liquidation or otherwise, that we make on the BorrowedShares.

 

To the extent the Borrowed Shares weinitially lent under the Share Lending Agreement and offered in the CommonStock offering have not been sold or returned to it, the Borrower has agreedthat it will not vote any such Borrowed Shares. The Borrower has also agreedunder the Share Lending Agreement that it will not transfer or dispose of anyBorrowed Shares, other than to its affiliates, unless the transfer ordisposition is pursuant to a registration statement that is effective under theSecurities Act. However, investors that purchase the shares from the Borrower(and any subsequent transferees of such purchasers) will be entitled to thesame voting rights with respect to those shares as any other holder of ourCommon Stock.

 

On December 18, 2008, we entered intoAmendment No. 1 to Share Lending Agreement with the Borrower and theBorrowing Agent. Pursuant to Amendment No.1, we have the option to request theBorrower to deliver cash instead of returning Borrowed Shares upon anytermination of loans at the Borrower’s option, at the termination date of theShare Lending Agreement or when the outstanding loaned shares exceed themaximum number of shares permitted under the Share Lending Agreement. Theconsent of the Borrower is required for any cash settlement, which consent maynot be unreasonably withheld, subject to the Borrower’s determination ofapplicable legal, regulatory or self-regulatory requirements or other internalpolicies. Any loans settled in shares of Common Stock will be subject to areturn fee based on the stock price as agreed by us and the Borrower. Thereturn fee will not be less than $0.005 per share or exceed $0.05 per share.

 

***Credit Agreement***

 

On August 16, 2006, we entered into anamended and restated credit agreement with Wachovia InvestmentHoldings, LLC, as administrative agent and swingline lender, and WachoviaBank, National Association, as issuing lender, which was subsequently amendedon September 29 and October 26, 2006. On December 17, 2007,Thermo Funding was assigned all the rights (except indemnification rights) andassumed all the obligations of the administrative agent and the lenders underthe amended and restated credit agreement and the credit agreement was againamended and restated. On December 18, 2008, we entered into a FirstAmendment to Second Amended and Restated Credit Agreement with Thermo Funding,as lender and administrative agent, to increase the amount available to usunder the revolving credit facility from $50 million to $100 million.We have also borrowed an aggregate of $100.0 million under the term loanfacility of the credit agreement. In addition to the $200.0 millionrevolving and term loan facilities, the amended and restated credit agreementpermits us to incur additional term loans on an equally and ratably secured, *pari passu*, basis in an aggregate amountof up to $250.0 million (plus the amount of any reduction in the delayeddraw term loan facility or prepayment of loans) from the lenders under thecredit agreement or other banks, financial institutions or investment fundsapproved by us and the administrative agent. We have not sought commitments forthese additional term loans. These additional term loans may be incurred onlyif no event of default then exists and if we are in pro-forma compliance withall of the financial covenants of the credit agreement.

 

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The credit agreement limits the amount of ourcapital expenditures, requires us to maintain minimum liquidity of$5.0 million and provides that as of the end of the second full fiscalquarter after we place 24 of our second-generation satellites into service andat the end of each fiscal quarter thereafter, we must maintain a consolidatedsenior secured leverage ratio of not greater than 5.0 to 1.0. We were incompliance with these financial covenants at March 31, 2009. Additionally,the credit agreement limits our ability to make dividend payments and otherdistributions.

 

All loans will mature on December 31,2012. Revolving credit loans bear interest at LIBOR plus 4.25% to 4.75% or thegreater of the prime rate or the Federal Funds rate plus 3.25% to 3.75%. We hadborrowings of $73.8 million under the revolving credit facility at March 31,2009. The delayed draw term loan bears interest at either 5% plus the greaterof the prime rate and the Federal Funds rate plus 0.5%, or LIBOR plus 6%. Thedelayed draw term loan facility bears an annual commitment fee of 2.0% untildrawn or terminated. The revolving credit loan facility bears an annualcommitment fee of 0.5% until drawn or terminated. Additional term loans willbear interest at rates to be negotiated. The loans may be prepaid withoutpenalty at any time. On September 29, 2008, we and Thermo agreed that,effective May 26, 2008, all payment of interest on the debt would bedeferred until 45 days after Thermo provides notice that the interest isthen payable. Interest will accrue on this outstanding interest at the samerate as the underlying loan and be compounded on December 31, 2008 andannually thereafter.

 

To hedge a portion of the interest rate riskwith respect to the delayed draw term loans, we entered into a five-yearinterest rate swap agreement. See “Note 11: Interest rate derivative” ofthe Notes to the unaudited interim consolidated financial statements in Part I,Item 1 of this Report. Upon the assumption of the credit agreement by ThermoFunding, the interest rate swap agreement was amended to require us to providecollateral in cash and securities equal to the negative value of the interestrate swap. On December 10, 2008, we terminated the interest rate swapagreement by making a payment of approximately $9.2 million.

 

***ContractualObligations and Commitments***

 

At March 31, 2009, we have a remainingcommitment to purchase a total of $49.4 million of mobile phones, servicesand other equipment under various commercial agreements with QUALCOMM. Weexpect to fund this remaining commitment from our working capital, fundsgenerated by our operations, and, if necessary, additional capital from theissuance of equity or debt or a combination thereof. On October 28, 2008,we and QUALCOMM amended our agreement to extend the term for 12 months anddefer delivery of mobile phones and related equipment until 2011.

 

Effective August 10, 2007 (the “EffectiveDate”), our board of directors, upon recommendation of the CompensationCommittee, approved the concurrent termination of our Executive IncentiveCompensation Plan and awards of restricted stock or restricted stock unitsunder our 2006 Equity Incentive Plan to five executive officers (the “Participants”).Each Award Agreement provides that the recipient will receive awards ofrestricted Common Stock or restricted stock units, which upon vesting, eachentitle him to one share of our Common Stock. Total benefits per Participant(valued at the grant date) are approximately $6.0 million, which representsan increase of approximately $1.5 million in potential compensationcompared to the maximum potential benefits under the Executive IncentiveCompensation Plan. However, the new Award Agreements extend the vesting periodby up to two years and provide for payment in shares of Common Stock instead ofcash, thereby enabling us to conserve our cash for capital expenditures for theprocurement and launch of our second-generation satellite constellation andrelated ground station upgrades. One of the original five Participants left ouremploy in January 2009 and agreed to provide consulting services through December 31,2009. If he fulfills all the terms of the consulting agreement, he will receiveall but $750,000 of the original compensation in accordance with a modifiedvesting schedule.

 

On November 30, 2006, we and Thales Alenia Space entered into adefinitive contract pursuant to which Thales Alenia Space will construct 48low-earth-orbit satellites in two batches (the first of 25, including aproto-flight model satellite, and the second of 23) for oursecond-generation satellite constellation. Under the contract, Thales AleniaSpace also will provide launch support services and mission operations supportservices. We have contracted separately with our Launch Provider for launchservices and will do so for launch insurance for the satellites. The totalcontract price, including subsequent additions, will be approximately€670.3 million, (approximately $893.4 million at a weighted averageconversion rate of €1.00 = $1.3328 at March 31, 2009 includingapproximately €146.8 million which was paid by us in U.S. dollars at afixed conversion rate of €1.00 = $1.2940), subject to reduction byapproximately €28.0 million (approximately $37.0 million) if we electto accelerate construction and delivery of the second batch of satellites. Of the€670.3 million, approximately €630.1 million ($839.8 million)will be paid for the design, development and manufacture of the satellites andapproximately €40.2 million ($53.6 million) will be paid for launch andmission support services. We are also obligated to pay Thales Alenia Space upto $75.0 million in bonus payments depending upon the fulfillment ofvarious conditions, including our cumulative EBITDA exceeding certainprojections, Thales Alenia Space’s achievement of the specified deliveryschedule

 

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and satisfactory operation ofthe satellites after delivery. The approximately €12.4 million($16.0 million) paid by us to Thales Alenia Space pursuant to anAuthorization to Proceed dated October 5, 2006, as amended, was creditedagainst payments to be made by us under the contract. We have established andmaintain an escrow account with a commercial bank to secure our paymentobligations under the contract. The initial escrow deposit was€40.0 million. We and Thales Alenia Space entered into the escrow agreementon December 21, 2006. We obtained the consent of our lenders to establishthe escrow account. Payments under the contract began in the fourth quarter of2006 and will extend into the fourth quarter of 2013 unless we elect toaccelerate the delivery of the second batch of satellites. The contractrequires Thales Alenia Space to commence delivery of the satellites in thethird quarter of 2009, with deliveries continuing until the third quarter of2013, unless we elect to accelerate deliveries. If we elect to acceleratedelivery of the second batch of satellites, it is contemplated that all of thesatellites will be delivered by the third quarter of 2010. We have madepayments in the amount of approximately €294.2 million (approximately$394.3 million) through March 31, 2009 under this contract. At ourrequest, Thales Alenia Space presented a four-part sequential plan to us foraccelerating delivery of the initial 24 satellites by up to four months. Theexpected cost of this acceleration would range from approximately€6.7 million to €13.4 million ($8.8 million to $17.7 million at€1.00 = $1.3208 at March 31, 2009). In 2007, we authorized the firsttwo portions of this plan with an additional cost of €4.1 million($5.7 million at €1.00 = $1.4022). However due to revisions in theconstruction schedule in 2009 requested by us at an initial cost of $2.0million, the potential gains from this acceleration may not be fully achieved.Accordingly, we cannot provide assurance that any acceleration will occur, and wenow believe that we will not commence deploying our second-generationsatellites prior to 2010.

 

In March, 2007, we entered into an agreementwith Thales Alenia Space for the construction of the Satellite OperationsControl Centers, Telemetry Command Units and In Orbit Test Equipment(collectively, the “Control Network Facility”) for our second-generationsatellite constellation. This agreement complements the second-generationsatellite construction contract with Thales Alenia Space for the constructionof 48 low-earth orbit satellites and allows Thales Alenia Space to coordinateall aspects of the second-generation satellite constellation project, includingthe transition of first-generation software and hardware to equipment for thesecond generation. The total contract price for the construction and associatedservices is €9.2 million (approximately $13.1 million at a weightedaverage conversion rate of €1.00 = $1.4212) consisting of€4.1 million for the Satellite Operations Control Centers, €3.1 millionfor the Telemetry Command Units and €2.0 million for the In Orbit TestEquipment, with payments to be made on a quarterly basis through completion ofthe Control Network Facility in late 2009. We have the option to terminate thecontract if excusable delays affecting Thales Alenia Space’s ability to performthe contract total six consecutive months or at its convenience. If weterminate the contract, we must pay Thales Alenia Space the lesser of itsunpaid costs for work performed by Thales Alenia Space and its subcontractorsor payments for the next two quarters following termination. If Thales AleniaSpace has not completed the Control Network Facility acceptance review withinsixty days of the due date, we will be entitled to certain liquidated damages.Failure to complete the Control Network Facility acceptance review on or beforesix months after the due date results in a default by Thales Alenia Space,entitling us to a refund of all payments, except for liquidated damage amountspreviously paid or with respect to items where final delivery has occurred. TheControl Network Facility, when accepted, will be covered by a limited one-yearwarranty. The contract contains customary arbitration and indemnificationprovisions. We have made payments in the amount of approximately€8.2 million (approximately $11.8 million) through March 31,2009.

 

On September 5, 2007, we entered into acontract with Arianespace (our “Launch Provider”) for the launch of oursecond-generation satellites and certain pre and post-launch services. Pursuantto the contract, our Launch Provider will make four launches of six satelliteseach, and we have the option to require our Launch Provider to make fouradditional launches of six satellites each. The total contract price for the firstfour launches is $216.1 million. The cost for the launch of the first 24satellites under this contract is included in the estimated $1.26 billion(at a weighted average conversion rate of €1.00=$1.3168) to procure and deployour second-generation satellite constellation and related gateway upgrades. Theanticipated time period for the first four launches ranges from as early as thefirst quarter of 2010 through the end of 2010 and the optional launches areavailable from spring 2010 through the end of 2014. Prolonged delays due topostponements by us or our Launch Provider may result in adjustments to thepayment schedule. On July 5, 2008, we amended our agreement with ourLaunch Provider for the launch of our second-generation satellites and certainpre and post-launch services. Under the amended terms, we can defer payment onup to 75% of certain amounts due to the Launch Provider. The deferred paymentswill incur annual interest at 8.5% to 12% and become payable one month beforethe corresponding launch date. As of March 31, 2009, we have incurred$26.3 million associated with the launch services contract.

 

On May 14, 2008, we entered into acontract with Hughes under which Hughes will design, supply and implement theRadio Access Network (“RAN”) ground network equipment and software upgrades forinstallation at a number of our satellite gateway ground stations and satelliteinterface chips to be a part of the User Terminal Subsystem (UTS) in ourvarious next-generation devices. The total contract purchase price ofapproximately $100.8 million is payable in various increments over aperiod of 40 months. We have the option to purchase additional RANs andother software and hardware improvements at pre-negotiated prices. As of March 31,2009, we have made payments in the amount of approximately $5.9 millionassociated with this contract. We expensed $1.8 million of these paymentsand capitalized $4.1 million as second-generation ground component.

 

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On October 8, 2008, we signed anagreement with Ericsson, a leading global provider of technology and servicesto telecom operators. According to the $22.7 million contract, Ericssonwill work with us to develop, implement and maintain a ground interface, orcore network, system that will be installed at our satellite gateway groundstations. The all Internet protocol (IP) based core network system is wireless3G/4G compatible and will link our radio access network to the public-switchedtelephone network (PSTN) and/or Internet. Design of the new core network systemis now underway. The agreement represents the final significant ground networkinfrastructure component for our next-generation of advanced IP-based satellitevoice and data services.

 

**Off-Balance Sheet Transactions**

 

Wehave no material off-balance sheet transactions.

 

**Recently Issued AccountingPronouncements**

 

The information provided under “Note 1: The Companyand Summary of Significant Accounting Policies — Recent AccountingPronouncements” of the notes to unaudited interim consolidated financialstatements in Part I, Item 1 of this Report is incorporated herein byreference.

 

**Item 3. Quantitative and QualitativeDisclosures about Market Risk**

 

Our services and products are sold,distributed or available in over 120 countries. Our international sales aremade primarily in U.S. dollars, Canadian dollars, Brazilian reais and Euros. Insome cases insufficient supplies of U.S. currency may require us to acceptpayment in other foreign currencies. We reduce our currency exchange risk fromrevenues in currencies other than the U.S. dollar by requiring payment in U.S.dollars whenever possible and purchasing foreign currencies on the spot marketwhen rates are favorable. We currently do not purchase hedging instruments to hedgeforeign currencies. However, our credit agreement requires us to do so on termsreasonably acceptable to the administrative agent not later than 90 daysafter the end of any quarter in which more than 25% of our revenue isoriginally denominated in a single currency other than U.S. or Canadiandollars.

 

As discussed in “Item 2. Management’s Discussion andAnalysis of Financial Condition and Results of Operations—Liquidity and CapitalResources—Contractual Obligations and Commitments,” we have entered into twoseparate contracts with Thales Alenia Space to construct 48 low earth orbitsatellites for our second-generation satellite constellation and to providelaunch-related and operations support services, and to construct the SatelliteOperations Control Centers, Telemetry Command Units and In-Orbit Test Equipmentfor our second-generation satellite constellation. A substantial majority ofthe payments under the Thales Alenia Space agreements is denominated in Euros.

 

Our interest rate riskarises from our variable rate debt under our credit agreement, under whichloans bear interest at a floating rate based on the U.S. prime rate or LIBOR.Assuming that we borrowed the entire $200.0 million in revolving and termdebt available under our credit agreement, a 1.0% change in interestrates would result in a change to interest expense of approximately$2.0 million annually.

 

Our exposure to fluctuations in currencyexchange rates has increased significantly as a result of contracts for the constructionof our second-generation constellation satellite and the related controlnetwork facility, which are primarily payable in Euros. A 1.0% decline in therelative value of the U.S. dollar, on the remaining balance related to thesecontracts of approximately €376.8 million on March 31, 2009, would resultin $5.0 million of additional payments. See “Note 3: Property and Equipment” ofthe unaudited interim consolidated financial statements in Part I, Item 1of this Report.

 

**Item 4.Controls and Procedures**

 

*(a)**                               Evaluation of disclosurecontrols and procedures.*

 

Our management, with the participation of ourchief executive officer and chief financial officer, evaluated theeffectiveness of our disclosure controls and procedures pursuant to Rule 13a-15(b) underthe Securities Exchange Act of 1934 as of March 31, 2009, the end of theperiod covered by this Report. The evaluation included certain internal controlareas in which we have made and are continuing to make changes to improve andenhance controls. This evaluation was based on the guidelines established in *Internal Control—Integrated Framework*issued by the Committee of Sponsoring Organizations of the Treadway Commission(COSO). In designing and evaluating the disclosure controls and procedures,management recognized that any controls and procedures, no matter how welldesigned and operated, can provide only reasonable assurance of achieving thedesired control objectives.

 

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Based on this evaluation, our chief executiveofficer and chief financial officer concluded that as of March 31, 2009our disclosure controls and procedures were effective to provide reasonableassurance that information we are required to disclose in reports that we fileor submit under the Exchange Act is recorded, processed, summarized andreported within the time periods specified in Securities and ExchangeCommission rules and forms, and that such information is accumulated andcommunicated to our management, including our chief executive officer and chieffinancial officer, as appropriate, to allow timely decisions regarding requireddisclosure.

 

We believe that the consolidated financialstatements included in this Report fairly present, in all material respects,our consolidated financial position and results of operations as of and for thethree months ended March 31, 2009.

 

*(b)**                               Changes in internalcontrol over financial reporting.*

 

As of March 31, 2009, our management,with the participation of our chief executive officer and chief financialofficer, evaluated our internal control over financial reporting. Based on thatevaluation, our CEO and CFO concluded that there were no changes in ourinternal control over financial reporting that occurred during the three monthsended March 31, 2009, that have materially affected, or are reasonablylikely to materially affect, our internal control over financial reporting.

 

**PART II: OTHER INFORMATION**

 

**Item 1. Legal Proceedings**

 

We are involved in certain litigation matters as discussed elsewhere inthis Report. For more detailed information on litigation matters outstandingplease see Note 9 of the Notes to unaudited interim consolidated financialstatements in Part I, Item 1 of this Report. From time to time, weare involved in various other litigation matters involving ordinary and routineclaims incidental to our business. Management currently believes that theoutcome of these proceedings, either individually or in the aggregate, will nothave a material adverse effect on our business, results of operations orfinancial conditions.

 

**Item 1A. Risk Factors**

 

You should carefully consider the risks described in this Report andall of the other reports that we file from time to time with the Securities andExchange Commission (“SEC”), in evaluating and understanding us and ourbusiness. Additional risks not presently known or that we currently deemimmaterial may also impact our business operations and the risks identified inthis Report may adversely affect our business in ways we do not currentlyanticipate. Our financial condition or results of operations also could bematerially adversely affected by any of these risks. There have been no material changes to the riskfactors disclosed in Part I. Item 1A.”Risk Factors” of our Annual Reporton Form 10-K for the year ended December 31, 2008, as filed with theSEC on March 31, 2009.

 

**Item 6. Exhibits**

** **
| **Number** | ** ** | **Description**                                                                                                                                                                              |
|------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       |       |                                                                                                                                                                                         |
| 10.1† |       | Amendment  No. 6 to Satellite Construction Contract by and between Thales Alenia Space  France (formerly Alcatel Alenia Space France) and Globalstar, Inc. dated  February 5, 2009 |
|       |       |                                                                                                                                                                                         |
| 10.2† |       | Amendment  No. 7 to Satellite Construction Contract by and between Thales Alenia  Space France (formerly Alcatel Alenia Space France) and Globalstar, Inc.  dated March 5, 2009    |
|       |       |                                                                                                                                                                                         |
| 10.3† |       | Amendment  No. 8 to Satellite Construction Contract by and between Thales Alenia  Space France (formerly Alcatel Alenia Space France) and Globalstar, Inc.  dated April 9, 2009    |
|       |       |                                                                                                                                                                                         |
| 31.1       |       | Section 302  Certification of the Chief Executive Officer                                                                                                                               |
|       |       |                                                                                                                                                                                         |
| 31.2       |       | Section 302  Certification of the Chief Financial Officer                                                                                                                               |
|       |       |                                                                                                                                                                                         |
| 32.1       |       | Section 906  Certifications                                                                                                                                                             |

 

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†              Portions of theexhibit have been omitted pursuant to a request for confidential treatmentfiled with the Commission. The omitted portions of the exhibit have been filedwith the Commission.

 

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SIGNATURES

 

Pursuant to the requirementsof the Securities Exchange Act of 1934, the registrant has duly caused thisreport to be signed on its behalf by the undersigned thereunto duly authorized.

 
|                     | GLOBALSTAR,  INC. |
|--------------------------|-------------------|
|                     |              |
|                     | By:               | /s/  JAMES MONROE III |
| Date:  May 11, 2009 |              | James  Monroe III |
|                     |              | Chairman  and Chief Executive Officer |
|                     |              |   |
|                     | By:               | /s/  FUAD AHMAD |
| Date:  May 11, 2009 |              | Fuad  Ahmad |
|                     |              | Senior Vice President and Chief Financial Officer |

 

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