Globalstar
Annual Report
2008
Dear Fellow Stockholders,
To begin I would like to extend a sincere welcome to all of our stockholders who have invested in our
company since my last letter almost 18 months ago and thank all of you, old and new, for your continued faith in
Globalstar. We appreciate your continued support. This past year and a half has been a most challenging time for
the Company but thanks to the perseverance and level of commitment from our investors, employees, suppliers
and customers, I am pleased to say that we have more than met our challenges. Today I am proud to provide you
with a summary of our progress during what I can only describe as a tumultuous period in our company’s history.
MEETING OUR FINANCING CHALLENGE
As many of you are aware, on July 1, 2009 we announced the completion of a financing of
approximately $738 million. We required this funding to launch our second-generation satellites and continue
development of the initial phase of our next-generation ground segment. The fact that it was completed during
what many describe as the worst state of the global capital markets in the last 75-years underlines the Herculean
effort of all those who helped make it possible. The financing was the culmination of a painstaking and arduous
process that began about a year ago and was completed only after an extended period of analysis and due
diligence by the various banks, as well as our current and new investors. It is a testament to the confidence all
three of these groups have in Globalstar’s future.
As mentioned, the financing funds the second-generation satellite constellation and the continued
development of our IP-based ground segment. In other words, we now have the resources needed to launch the
first 24 satellites of a new constellation designed to last beyond 2025 and to continue developing the supporting
ground infrastructure needed to position us to market a host of advanced IP-based mobile satellite services. In the
future we expect to be in a position to initiate services such as push-to-talk, multicasting, advanced messaging
capabilities such as multimedia messaging, mobile video applications, geolocation services, multiband and
multimode handsets, as well as field data devices with GPS integration and cellular network compatibility.
Once our new satellite constellation is launched, the most immediate impact will be on those customers
who use our current satellite voice and duplex data services. These customers can expect a return to the high
reliability and service quality they enjoyed before we began to experience satellite degradation in 2007. Of course
our SPOT Satellite GPS Messenger™ and Simplex data customers, who have never been affected by this
degradation, will continue to receive the award-winning high quality service they have always enjoyed.
2008 – A YEAR OF TRANSITION
In many ways 2008 represented a year of transition for Globalstar. From preparing to transition to our
new constellation of satellites to adapting our product offerings to include SPOT Satellite GPS Messenger
consumer retail services, we continued to adapt and maximize our capabilities. Thanks to the success of SPOT
and the reliability of our simplex data services we grew our subscriber base by adding more than 61,000
subscriptions in 2008. This is almost three times the number of subscribers we added during 2007 when SPOT
was on the market only for a couple of months. Once again our staff of engineers and managers continued to
optimize the two-way communications capabilities of our satellite fleet, and our sales and marketing team
successfully continued its effort to retain much of our core business customers while we transition to our
constellation of new satellites. Thus once again we ended the year being the mobile satellite services provider
with the world’s largest base of voice and data customers.
Our preparations to transition to the Globalstar second-generation constellation continued throughout the
year. In late August 2008 we met a major milestone when we announced that our satellite manufacturer Thales
Alenia Space had commenced production assembly, integration and testing of the first Globalstar second-
generation flight model satellites. The first of these new satellites is scheduled for delivery early next year and a
total of 24 are scheduled to be launched during 2010.
As we await the launch of our new constellation, we have transitioned much of our commercial marketing
focus and are concentrating on maximizing revenue in the consumer retail market with our award-winning SPOT
Satellite GPS Messenger. This revolutionary satellite messaging and tracking product won numerous industry
awards throughout 2008, including The Wall Street Journal Technology Innovation Award, in the category of
consumer electronics. Perhaps of even greater significance we were recognized by the Mobile Satellite Users
Association as the first mobile satellite services (MSS) provider to successfully distribute a product to the
mainstream retail consumer market. We completed the year with orders to ship more than 120,000 units to more
than 7,500 SPOT points of distribution in North America, Europe, Latin America, Australia and New Zealand.
On the regulatory front, in April the U.S. Federal Communications Commission (FCC) issued a Report &
Order expanding Globalstar’s authority to offer complimentary terrestrial wireless or Ancillary Terrestrial
Component (ATC) services in the United States in conjunction with our mobile satellite services. As a
consequence of the FCC decision, we have permission to use 19.275 MHz of our spectrum for ATC services. In
October the FCC granted Globalstar the additional authority we needed to deploy the first ever ATC system with
our partner, Open Range Communications, Inc. Open Range subsequently received a loan of $267 million from
the Department of Agriculture’s Rural Utilities Service program and they intend to deploy a WiMAX wireless
service in more than 500 rural communities using our spectrum. Our agreement includes both fixed and variable
revenue streams, and as far as we know we are the very first MSS provider to monetize our ATC spectrum
authority in the United States.
Internationally we continued to integrate formerly independent gateway operations to Globalstar
ownership. In March we announced we had completed the transaction with Loral Space & Communications Inc.
and various affiliated entities to purchase the Brazilian Globalstar independent gateway operator, which owned
and operated three satellite ground stations in Brazil. We immediately began managing the Brazilian business and
the installation of Simplex data hardware at the gateway located in Petrolina, Brazil. This hardware expanded our
Simplex data coverage throughout Brazil, into parts of Northeastern Argentina and the nearby Atlantic coastal
maritime waters.
In October we also announced that our newly constructed gateway located in Singapore was operational.
This new gateway provides Globalstar satellite Simplex data coverage throughout Singapore, Malaysia, a
significant portion of Indonesia, and much of the surrounding maritime region. Singapore Telecommunications
Limited (SingTel) is operating the gateway, under contract, at their Seletar Satellite earth Station facility.
During the summer of 2008 we also announced the expansion of our Simplex data coverage to include all
of Alaska, the Aleutian Islands and the surrounding maritime regions including the Gulf of Alaska and portions of
both the north Pacific and south Arctic Oceans.
Finally we initiated the ground segment and gateway design upgrades that will be needed to transition our
service offerings to the next-generation of advanced wireless services discussed earlier. In October 2008 we
signed a $22.7 million agreement with Ericsson Federal Inc. to develop, implement and maintain our core
network system to be installed at our satellite gateways around the world.
LOOKING AHEAD – MILESTONES
Over the next 12 months our success will be measured by our ability to meet a number of major but
achievable operational milestones. These milestones are primarily associated with the final integration, test,
delivery and launch of our second-generation satellites , our continued domestic and international SPOT Satellite
GPS Messenger product initiatives, and the restarting of our two-way voice and duplex data sales and marketing
initiatives.
With our financing for our new satellites now complete, satellite manufacturer Thales Alenia Space has
adjusted the production schedule of our new constellation that will enable us to begin taking delivery of the first
flight model satellites in early 2010. With this delivery schedule we expect our launch services provider
Arianespace to launch the first six of our new satellites next spring using the highly reliable Soyuz launch vehicle.
The Soyuz has already successfully launched 32 Globalstar satellites and its reliability is second to none as it is
used to ferry astronauts and cosmonauts to the international space station. As we get closer to taking delivery of
our first satellites we will provide you with further detailed information regarding the scheduled launch dates for
our second-generation constellation.
Earlier this summer we announced a new and improved SPOT Satellite GPS Messenger product. This
new SPOT product is a smaller, lighter and more feature-rich version of our original device. We expect to begin
delivering the new SPOT product to major retailers beginning later this fall and we plan to continue to develop
new SPOT products and services for domestic and international introduction over the next 12 months. Our
intention is to replicate internationally the North American consumer acceptance and distribution of our SPOT
product and further broaden its appeal to the consumer and commercial enterprise markets, both domestically and
abroad.
In summary these past 18 months have been challenging to say the least but despite the present state of
the economy we have successfully emerged with our much needed financing and with a brand new consumer
product focus that we intend to continue expanding as we approach the launch of our new satellites. Yes there
will always be new challenges but as demonstrated by the recent financing we remain firmly committed to
unlocking our potential as we prepare to take Globalstar into the next decade.
Thank you and I look forward to writing to you again next year.
James Monroe III
Executive Chairman
Globalstar, Inc.
Annual Report of Globalstar, Inc.
For the Fiscal Year Ended December 31, 2008
TABLE OF CONTENTS
Our Business ............................................................................................................................................
Market for Our Common Stock and Related Stockholder Matters ..........................................................
Selected Financial Data............................................................................................................................
Management’s Discussion and Analysis of Financial Condition and Results of Operations...................
Quantitative and Qualitative Disclosures about Market Risk...................................................................
Consolidated Financial Statements and Supplementary Data ..................................................................
Report of Crowe Horwath LLP, independent registered public accounting firm...............................
Consolidated balance sheets at December 31, 2008 and 2007 ...........................................................
Consolidated statements of income (loss) for the years ended December 31, 2008, 2007 and 2006 .
Consolidated statements of comprehensive income (loss) for the years ended
December 31, 2008, 2007 and 2006...................................................................................................
Consolidated statements of ownership equity for the years ended
December 31, 2008, 2007 and 2006...................................................................................................
Consolidated statements of cash flows for the years ended December 31, 2008, 2007 and 2006......
Notes to Consolidated Financial Statements ......................................................................................
Performance Graph ..................................................................................................................................
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Introductory Note
Other than changes to reflect the retrospective adoption of FSP APB 14-1 as described in Note 19 to our
Consolidated Financial Statements, we have not modified or updated any other disclosures presented in this Annual Report.
All of such disclosures refer to conditions existing as of March 31, 2009. Updated information may be reviewed in our
Quarterly Reports on Form 10-Q and Current Reports on Form 8-K filed with the Securities and Exchange Commission.
Forward-Looking Statements
Certain statements contained in this Report, other than purely historical information, including, but not limited to, estimates,
projections, statements relating to our business plans, objectives and expected operating results, and the assumptions upon which
those statements are based, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of
1995. These forward-looking statements 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
similar expressions, although not all forward-looking statements contain these identifying words. These forward- looking statements
are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ
materially from the forward-looking statements. Forward-looking statements, such as the statements regarding our ability to develop
and expand our business, our ability to obtain additional financing, our ability to manage costs, our ability to exploit and respond to
technological innovation, the effects of laws and regulations (including tax laws and regulations) and legal and regulatory changes,
the opportunities for strategic business combinations and the effects of consolidation in our industry on us and our competitors, our
anticipated future revenues, our anticipated capital spending (including for future satellite procurements and launches), our
anticipated financial resources, our expectations about the future operational performance of our satellites (including their projected
operational lives), the expected strength of and growth prospects for our existing customers and the markets that we serve, and other
statements contained in this Report regarding matters that are not historical facts, involve predictions. Risks and uncertainties that
could cause or contribute to such differences include, without limitation, those in our filings with the Securities and Exchange
Commission. We do not intend, and undertake no obligation, to update any of our forward-looking statements after the date of this
Report to reflect actual results or future events or circumstances.
OUR BUSINESS
Overview
Globalstar, Inc. (the “Company”) is a leading provider of mobile voice and data communications services via satellite. By
providing wireless services in areas not served or underserved by terrestrial wireless and wireline networks, we seek to address our
customers’ increasing desire for connectivity. Using, at any given time, approximately 48 in-orbit satellites and 26 ground stations,
which we refer to as gateways, we offer voice and data communications services in over 120 countries. Unaffiliated companies, which
we refer to as independent gateway operators and which purchase communications services from us on a wholesale basis for resale to
their customers, operate 13 of these gateways.
Our network, originally owned by Globalstar, L.P. (“Old Globalstar”) was designed, built and launched in the late 1990s by a
technology partnership led by Loral Space and Communications and Qualcomm Incorporated, or QUALCOMM. On February 15,
2002, Old Globalstar and three of its subsidiaries filed voluntary petitions under Chapter 11 of the United States Bankruptcy Code. In
2004, we completed the second stage of a two stage acquisition of the business and assets of Old Globalstar. We completed the first
stage on December 5, 2003, when Thermo Capital Partners LLC was deemed to obtain operational control of the business, as well as
certain ownership rights and risks. We completed the second stage in 2004 when we received final approval from the U.S. Federal
Communications Commission, or the FCC. Thermo Capital Partners LLC, which owns and operates companies in diverse business
sectors and is referred to in this Report, together with its affiliates, as “Thermo,” became our principal owner in this transaction. We
refer to this transaction as the “Reorganization.”
We were formed as a Delaware limited liability company in November 2003, and were converted into a Delaware
corporation on March 17, 2006. Unless we specifically state otherwise, we present all information in this Report as if we were a
corporation throughout the relevant periods.
In anticipation of our initial public offering, which was completed on November 2, 2006, we amended our certificate of
incorporation on October 25, 2006 to combine our three series of common stock into one class and our board of directors approved a
six-for-one stock split. Unless we specifically state otherwise, we present all information in this Report as if these corporate events had
occurred at the beginning of the relevant periods.
We currently provide the following telecommunications services:
•
•
•
two-way voice communication between mobile or fixed handsets or user terminals and other mobile and fixed devices;
two-way data transmissions (which we call duplex) between mobile and fixed data modems; and
one-way data transmissions (which we call Simplex) between a mobile or fixed device that transmits its location or other
telemetry information and a central monitoring station.
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We currently have authority to operate a global wireless communications network via satellite over 25.225 MHz of radio
spectrum, which is comprised of two blocks of contiguous global radio frequencies. A few countries limit us to less than 25.225 MHz
because of conflicting internal frequency assignments. We refer to our licensed radio frequencies as our “spectrum.” The FCC also
licenses us to use 19.275MHz of our spectrum to provide an ancillary terrestrial component, known as ATC, in the United States in
combination with our existing satellite communications service. ATC services enable the integration of a satellite-based service with
terrestrial wireless service, resulting in a hybrid network designed to provide customers with advanced service and broad coverage.
See “Regulation.”
Our services are available only with equipment designed to work on our network. The equipment we offer to our customers
consists principally of:
•
SPOT™ satellite messenger products;
• mobile telephones;
•
•
•
fixed telephones;
telephone accessories, such as car kits and chargers; and
data modems.
At December 31, 2008, we served approximately 344,000 subscribers. We increased our net subscribers by approximately
21% from December 31, 2007 to December 31, 2008. We count “subscribers” based on the number of devices that are subject to
agreements which entitle them to use our voice or data communications services rather than the number of persons or entities who
own or lease those devices.
Old Globalstar launched our satellite constellation in the late 1990s. To supplement our then-existing satellite constellation,
we launched eight spare satellites in 2007. We expect these eight satellites to be an integral part of our second-generation
constellation. All of our originally launched satellites have experienced various anomalies over time, one of which is a degradation in
the performance of the solid-state power amplifiers of the S-band communications antenna subsystem. The S-band antenna provides
the downlink from the satellite to a subscriber’s phone or data terminal. Degraded performance of an S-band antenna amplifier reduces
the availability of two-way voice and data communication between the affected satellite and the subscriber. When the S-band antenna
on a satellite ceases to function, two-way communication is impossible over that satellite, but not over the constellation as a whole.
Two-way subscriber service continues to be available because some satellites are fully functional, but at certain times in any given
location it may take longer to establish calls and the average duration of calls may be reduced.
This S-band antenna amplifier degradation does not adversely affect our one-way Simplex data transmission services, which
use only the L-band uplink from a subscriber’s Simplex terminal to our satellites. The satellites transmit the signal back down on our
C-band feeder links, which are functioning normally. We have exploited and intend to continue to exploit our ability to provide
uninterrupted Simplex services with the introduction of new products and services, including a consumer-oriented, hand-held tracking
and emergency messaging device. We began sales of SPOT satellite messenger products and services in November 2007.
In November 2006, we and Thales Alenia Space entered into a contract for the construction of 48 low-earth-orbit satellites
for our second-generation satellite constellation, which we expect to extend the life of our network until at least 2025. The contract
requires Thales Alenia Space to commence delivery of the satellites in the third quarter of 2009. At our request, Thales Alenia Space
has presented a four-part sequential plan for accelerating delivery of the initial 24 satellites by up to four months. We have accepted
the first two portions of this plan. We cannot assure you that the acceleration will occur. We entered into an additional agreement with
Thales Alenia Space in March 2007 for the construction of the Satellite Operations Control Centers, Telemetry Command Units and In
Orbit Test Equipment (collectively “Control Network Facility”) for our second-generation satellite construction. In September, 2007,
we entered into a contract with Arianespace, our “Launch Provider,” for the launch of our second-generation satellites and certain pre-
and post-launch services. Pursuant to the contract, our Launch Provider will make four launches of six satellites each, and we have the
option to require our Launch Provider to make four additional launches of six satellites each. The contract price for the procurement of
our second-generation satellite constellation and related launch services (excluding launch costs for the second 24 satellites) is
approximately $1.26 billion (the majority of which is denominated in Euros, at a weighted average conversion rate of €1.00=$1.3151).
Our revenue for 2008, 2007 and 2006 was $86.1 million, $98.4 million, and $136.7 million, respectively. Our net income
(loss) for 2008, 2007 and 2006 was $(15.2) million, $(27.9) million, and $23.6 million, respectively.
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Industry
We compete in the mobile satellite services sector of the global communications industry. Mobile satellite services operators
provide voice and data services using a network of one or more satellites and associated ground facilities. Mobile satellite services are
usually complementary to, and interconnected with, other forms of terrestrial communications services and infrastructure and are
intended to respond to users’ desires for connectivity at all times and locations. Customers typically use satellite voice and data
communications in situations where existing terrestrial wireline and wireless communications networks are impaired or do not exist.
Worldwide, government organizations, military and intelligence agencies, natural disaster aid associations, event-driven
response agencies and corporate security teams depend on mobile and fixed voice and data communications services on a regular
basis. Businesses with global operating scope require communications services when operating in remote locations around the world.
Mobile satellite services users span the forestry, maritime, government, oil and gas, mining, leisure, emergency services, construction
and transportation sectors, among others. We believe many existing customers increasingly view satellite communications services as
critical to their daily operations.
Over the past two decades, the global mobile satellite services market has experienced significant growth. Increasingly,
better-tailored, improved- technology products and services are creating new channels of demand for mobile satellite services. Growth
in demand for mobile satellite voice services is driven by the declining cost of these services, the diminishing size and lower costs of
the handsets, as well as heightened demand by governments, businesses and individuals for ubiquitous global voice coverage. Growth
in mobile satellite data services is driven by the rollout of new applications requiring higher bandwidth, as well as low cost data
collection and asset tracking devices.
Communications industry sectors that are relevant to our business include:
• mobile satellite services, which provide customers with connectivity to mobile and fixed devices using a network of
satellites and ground facilities;
•
•
fixed satellite services, which use geostationary satellites to provide customers with voice and broadband
communications links between fixed points on the earth’s surface; and
terrestrial services, which use a terrestrial network to provide wireless or wireline connectivity and are complementary to
satellite services.
Within the major satellite sectors, fixed satellite services and mobile satellite services operators differ significantly from each
other. Fixed satellite services providers, such as Intelsat Ltd., Eutelsat Communications (“Eutelsat”) and SES Global, and very small
aperture terminals companies, such as Hughes Networks and Gilat Satellite Networks, are characterized by large, often stationary or
“fixed,” ground terminals that send and receive high-bandwidth signals to and from the satellite network for video and high speed data
customers and international telephone markets. On the other hand, mobile satellite services providers, such as Globalstar, Inmarsat
P.L.C. (“Inmarsat”) and Iridium Satellite L.L.C. (“Iridium”), focus more on voice and data services (including data services which
track the location of remote assets such as shipping containers), where mobility or small sized terminals are essential. As mobile
satellite terminals begin to offer higher bandwidth to support a wider range of applications, we expect mobile satellite services
operators will increasingly compete with fixed satellite services operators.
Low earth orbit (“LEO”) systems, such as the systems we and Iridium currently operate, reduce transmission delay compared
to a geosynchronous system due to the shorter distance signals have to travel. In addition, LEO systems are less prone to signal
blockage and, consequently, can provide a better overall quality of service.
Currently, our principal mobile satellite services global competitors are Inmarsat and Iridium. United Kingdom-based
Inmarsat owns and operates a geostationary satellite network and U.S.-based Iridium owns and operates a low earth orbit satellite
network. Inmarsat provides communications services, such as telephony, fax, video, email and high-speed data services. Iridium offers
narrow-band data, fax and voice communications services. We also compete with several regional mobile satellite services providers
that operate geostationary satellites, such as Thuraya Satellite Communications Company (“Thuraya”), principally in the Middle East
and Africa; SkyTerra (formerly Mobile Satellite Ventures (“MSV”)) and SkyTerra (Canada) Inc. (formerly Mobile Satellite Ventures
Canada) in the Americas; and Asia Cellular Satellite (“ACeS”—now operated by Inmarsat) in Asia.
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Sales and Marketing
We sell our products and services through a variety of retail and wholesale channels depending on the nature of the product
and the targeted market. Our sales and marketing efforts are tailored to each of our geographic regions and targeted markets. In the
past, we did not conduct mass consumer marketing campaigns. Rather, our sales professionals targeted specific commercial vertical
markets and customers with face-to-face meetings, product trials, advertising in specific publications for those markets and direct
mailings. However, we have curtailed the marketing of our two-way communications business, except store-and-forward data,
pending the launch of our second-generation satellites. Our current marketing campaign targets mass audiences for our SPOT satellite
messenger and vertical market segments for our other Simplex products and services. We also focus our marketing efforts on
attending tradeshows. In 2008, we attended approximately 100 corporate tradeshows, where we sponsored booths and demonstrated
our products. Our dealers and resellers attended additional tradeshows where they showcased our products.
Direct Sales, Dealers and Resellers
Our distribution managers are responsible for conducting direct sales with key accounts and for managing agent, dealer and
reseller relationships in assigned territories in over 30 countries. They conduct direct sales with key customers and manage
approximately 800 distribution outlets. We also distribute our services and products indirectly through over 50 major resellers and
value added resellers in the United States and through nine independent gateway operators that employ their own salespeople to sell
the full range of our voice and data products and services, directly and indirectly, in over 60 countries. Wholesale sales to independent
gateway operators represented approximately 4% of our service revenue for 2008. No agent, dealer or reseller represented more than
10% of our revenue for 2008.
The reseller channel is comprised primarily of communications equipment retailer companies and commercial
communications equipment rental companies that retain and bill clients directly, outside of our billing system. Many of our resellers
specialize in niche vertical markets where high-use customers are concentrated. We have productive sales arrangements with major
resellers to market our services, including some value added resellers that integrate our products into their proprietary end products or
applications.
Our typical dealer is a communications services business-to-business equipment retailer. We offer competitive service and
equipment commissions to our network of dealers to encourage increased sales. We continually monitor the effectiveness of our
dealers and have terminated our relationship with underperforming dealers and agents and replaced them with better performing new
dealers and agents. We believe our more stringent dealer and agent requirements and our incentive programs position us to continue to
experience growing dealer and agent sales due to a better-trained, focused and motivated sales network.
In addition to sales through our distribution managers, agents, dealers and resellers, customers can place orders through our
websites at www.globalstar.com and www.findmespot.com or by calling our customer sales office at (877) 728-7466.
SPOT Satellite Messenger Distribution
We distribute and sell our SPOT satellite messenger through a variety of existing and new distribution channels. We have
signed distribution agreements with a number of “Big Box” retailers and other similar distribution 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, Wal-Mart.com, West Marine, DBL Distribution, D.H.
Distributions, and CWR Electronics. We currently sell SPOT satellite messenger products through approximately 7,500 distribution
points and expect to reach 10,000 by the end of 2009. We also sell SPOT satellite messenger products and services directly using our
existing salesforce and through our direct e-commerce website (www.findmespot.com).
Independent Gateway Operators
Our wholesale operations encompass primarily bulk sales of wholesale minutes to the independent gateway operators around
the globe. These independent gateway operators maintain their own subscriber bases that are mostly exclusive to us and promote their
own service plans. The independent gateway operator system has allowed us to expand in regions that hold significant growth
potential but are harder to serve without sufficient operational scale or where local regulatory requirements or business or cultural
norms do not permit us to operate directly. Our wholesale efforts also include our Simplex and duplex data tracking devices.
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Set forth below is a list of independent gateway operators as of December 31, 2008:
Bosque Alegre
Dubbo
Location
Argentina ...........................................
Australia.............................................
Australia............................................. Mount Isa
Australia............................................. Meekatharra
China..................................................
Italy ....................................................
Korea..................................................
Mexico ...............................................
Peru ....................................................
Russia.................................................
Russia................................................. Moscow
Russia.................................................
Turkey................................................
Beijing
Avezzano
Yeo Ju
San Martin
Lurin
Khabarovsk
Novosibirsk
Ogulbey
Gateway
Independent Gateway Operators
TE.SA.M Argentina
Pivotal Group PTY Limited
Pivotal Group PTY Limited
Pivotal Group PTY Limited
China Spacecom
Elsacom N.V.
Dacom
Globalstar de Mexico
TE.SA.M Peru
GlobalTel
GlobalTel
GlobalTel
Globalstar Avrasya
We do not own or control these independent gateway operators nor do we operate their gateways. We own and operate
directly gateways in the United States, Canada, Venezuela, Nicaragua, Puerto Rico, France and Brazil. We also own a gateway in
Singapore which is operated by a third party. As of March 1, 2009, we held 24% of the ordinary shares in Globaltouch (West Africa)
Limited, which is installing a gateway in Nigeria.
Services and Products
Our principal services are satellite communications services, including mobile and fixed voice and data services, SPOT
satellite messenger services and asset tracking and monitoring services. We introduced our asset tracking and monitoring services in
late 2003, and demand for these services has grown rapidly since then. In November 2007, we introduced our SPOT satellite
messenger product and services. Sales of all services accounted for approximately 72%, 80%, and 67% of our total revenues for 2008,
2007 and 2006, respectively. We also sell the related voice and data equipment to our customers, which accounted for approximately
28%, 20%, and 33% of our total revenues for 2008, 2007 and 2006, respectively.
Our Services
Mobile Voice and Data Satellite Communications Services
We offer our mobile voice and data services to customers via numerous monthly plans at price levels that vary depending
upon expected usage. Except for our asset tracking and remote monitoring service, which we refer to as our Simplex service,
subscribers under these plans typically pay an initial activation fee to the agent or dealer, as well as a monthly usage fee to us that
entitles the customer to a fixed number of minutes in addition to services such as voicemail, call forwarding, short messaging, email,
data compression and internet access. We receive both an activation fee and monthly fee for Simplex services. Extra fees may apply
for non-voice services, roaming and long-distance.
We regularly monitor our service offerings in accordance with customer demands and market changes. We have introduced a
number of innovative pricing plans such as “bundled minutes,” Annual Plans and Unlimited Plans.
Personal Asset Tracking and Remote Monitoring (Simplex)
Our Simplex service, introduced in 2003, is designed to address the market for a small and cost-effective solution for sending
data (such as geographic coordinates) from assets in remote locations to a central monitoring station. Simplex is a one-way burst data
transmission from a Simplex device to our network. A customer may locate the device, for example, on a container in transit. At the
heart of the Simplex service is an application server, called an appliqué, which is located at a gateway. The appliqué-equipped
gateways provide coverage over vast areas of the globe. The server receives and collates messages from all Simplex telemetry devices
transmitting over our satellite network. Simplex devices consist of a telemetry unit, an application specific sensor, a battery (with up to
a seven-year life depending on the number of transmissions) and optional global positioning functionality. The small size of the
devices makes them attractive for use in tracking asset shipments, monitoring unattended remote assets, trailer tracking and mobile
security. Current users include various governmental agencies, including the Federal Emergency Management Agency (FEMA), the
U.S. Army and the Mexican Ministry of Education, as well as commercial and non-governmental organizations such as General
Electric, Dell and The Salvation Army.
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Customers are able to realize an efficiency advantage from tracking assets on a single global system as opposed to several
regional systems. Our Simplex services are currently available in countries served by the gateways in North America, France,
Venezuela, Mexico, Turkey, Korea, Australia, Singapore, Peru and Brazil. We sell our Simplex services (except our SPOT satellite
messenger services) through value added resellers. Value added resellers purchase the services directly from us by subscribing to
various pricing options offered by us to address various applications for this service and resell them to their end users. We receive a
monthly subscription service fee and a one-time activation fee for each activated Simplex device.
Fixed Voice and Data Satellite Communications Services
We provide fixed voice and data services in rural villages, at remote industrial, commercial and residential sites and on ships
at sea, among other places. Fixed voice and data satellite communications services are in many cases an attractive alternative to
mobile satellite communications services in situations where multiple users will access the service within a defined geographic area
and cellular or ground phone service is not available. Our fixed units also may be mounted on vehicles, barges and construction
equipment and benefit from the ability to have higher gain antennas. Our fixed voice and data service plans are similar to our mobile
voice and data plans and offer similar flexibility. In addition to offering monthly service plans, our fixed phones can be configured as
pay phones (installed at a central location, for example, in a rural village) that accept tokens, debit cards, prepaid usage cards, or credit
cards.
Satellite Data Modem Services (Duplex)
In addition to data utilization through fixed and mobile services described above, we offer data-only services. Our system is
well-suited to handle duplex data transmission. Duplex devices have two-way transmission capabilities; for asset-tracking
applications, this enables customers to control directly their remote assets and perform more complicated monitoring activities. We
offer asynchronous and packet data service in all of our territories. Customers can use our products to access the internet, corporate
virtual private networks and other customer specific data centers. Satellite data modems are sold principally through integrators and
value added resellers, who developed innovative end-market solutions. Our satellite data modems can be activated under any one of
our current pricing plans. Satellite data modems are a fast growing product group that provide solutions that are accessible in every
region we serve. Their store-and-forward capability reduces the impact of our S-band downlink degradation for those customers who
do not require real-time transmission and reception of data. The revenue that flows from these products provides an important and
growing source of recurring service revenue and subscriber equipment sales for us.
Additionally, we offer a data acceleration and compression service to the satellite data modem market. This service increases
web-browsing, email and other data transmission speeds without any special equipment or hardware.
Other Service Revenue
We also provide certain engineering services to assist customers in developing new technologies related to our system. These
services include installation of gateways and antennas.
Our Products
SPOT Satellite Messenger
In the fourth quarter of 2007, we introduced the SPOT satellite messenger, aimed at attracting both the recreational and
commercial markets that require personal tracking, emergency location and messaging solutions for users that require these services
beyond the range of traditional terrestrial and wireless communications. Using our Simplex network and web-based mapping software,
this device provides consumers with the capability to trace geographically or map the location of individuals. The product also enables
users to transmit messages to a specific preprogrammed email address, phone or data device, including a request for assistance in the
event of an emergency.
•
SPOT Satellite Messenger Addressable Market
We believe the addressable market for our SPOT satellite messenger products and services in North America alone is
approximately 50 million units. Our objective is to capture 2-3% of that market in the next few years. Our Simplex System, on which
our SPOT satellite messenger products and services rely, covers approximately 60% of the world population. We intend to market our
SPOT satellite messenger product and services aggressively in our overseas markets including South and Central America, Western
Europe, and through independent gateway operators in their respective territories.
•
SPOT Satellite Messenger Pricing
6
We intend the pricing for SPOT satellite messenger products and services to be extremely competitive. Annual service fees
currently range from $99.99 to approximately $140.00 for our basic plan, and $149.98 to approximately $200.00 for plans with
additional tracking capability. Retailers sell the equipment to end users at $149.99 to $280.00 per unit (subject to foreign currency
rates) and determine subscription prices in their service areas.
We began commercial sales of SPOT satellite messenger products and services in November 2007, and the commercial
success of these products and services cannot be assured. However, sales of SPOT satellite messenger products and services to date
have shown that there is a viable market for affordable emergency and tracking functionality worldwide.
Voice and Data Equipment
We offer our services for use only with equipment designed to work on our network, which is typically sold to users in
conjunction with an initial service plan. Our mobile phones, similar to ordinary cellular phones, are simple to use. In the fourth quarter
of 2006, we began offering a new satellite-only GSP-1700 phone, which is an update to the GSP-1600. The GSP-1700 phone includes
a user-friendly color LCD screen and a rugged, water resistant case available in multiple colors. The phones represent a significant
improvement over earlier-generation equipment, and we believe that the advantages will drive increased adoption from prospective
users as well as increased revenue from our existing subscribers as we launch our second-generation satellites. We also believe that
the GSP-1700 is among the smallest, lightest and least- expensive satellite phones available. We are the only satellite network operator
currently using the patented QUALCOMM CDMA technology that permits the selection of the strongest signal available.
QUALCOMM will supply us with what we project will be a sufficient number of advanced mobile phone units and accessories and
advanced data products to meet our expected demand through 2011.
Data-Only Duplex Equipment QUALCOMM GSP-1720 Satellite Voice and Data Modem
We introduced the GSP-1720 modem in the first half of 2007. The GSP-1720 is a satellite voice and data modem board with
multiple antenna configurations and an enlarged set of commands for modem control and is smaller, less expensive and easier to
operate than our previous product. We expect this board will be attractive to integrators because it has more user interfaces that are
easily programmable, which makes it easier for value added resellers to integrate the satellite modem processing with the specific
application (e.g., monitoring and controlling oil and gas pumps, monitoring and controlling electric power plants and more
economically facilitating security and control monitoring of remote facilities).
Customers
The specialized needs of our global customers span many markets. Our system is able to offer our customers cost-effective
communications solutions in areas underserved or unserved by existing telecommunications infrastructures. Although traditional users of
wireless telephony and broadband data services have access to these services in developed locations, our targeted customers often operate
or live in remote or under-developed regions where these services are not readily available or are not provided on a reliable basis.
Our top revenue generating markets in the United States and Canada are (i) government (including federal, state and local
agencies), public safety and disaster relief, (ii) recreation and personal and (iii) maritime and fishing, comprising 26%, 16% and 7%,
respectively, of our total subscribers in those regions at December 31, 2008. We also serve customers in the telecommunications, oil
and gas, natural resources (mining and forestry), and construction and utilities markets, which together comprised approximately 20%
of our total subscribers in the United States and Canada at December 31, 2008. We focus our attention on obtaining customers who
will be long-term users of our services and products and who will generate high average revenue per user and, therefore, higher
revenue growth.
None of our customers was responsible for more than 10% of our revenue in 2008, 2007 or 2006.
Our Spectrum
In most of the world, we were originally authorized to operate a wireless communications network via satellite in 27.85 MHz
of radio spectrum comprised of two blocks of contiguous global radio frequencies. In the United States, the FCC reduced our
assignment from 27.85 MHz to 25.225 MHz in November 2007. In October 2008, the FCC directed us to reduce our global spectrum
usage by the same amount. We have appealed the FCC’s decision reducing our U.S. assignment and have asked the FCC to reconsider
its October 2008 decision applying its November 2007 decision outside the United States. See “Regulation—United States FCC
Regulation.” Most of our competitors only have access to spectrum frequencies regionally. Access to this global spectrum enables us
to design satellites, network and terrestrial infrastructure enhancements cost effectively because the products and services can be
deployed and sold worldwide. This broad spectrum assignment enhances our ability to capitalize on existing and emerging wireless
and broadcast applications.
7
Because most of the desirable spectrum below 3GHz has already been allocated by the FCC or will be auctioned by the FCC
for terrestrial wireless services, we believe there are limited options for new MSS spectrum allocations in the United States. The
European Community and other countries are considering whether to authorize MSS service in the 2 GHz MSS spectrum. The FCC
authorized ICO Global and TerreStar to operate in this band several years ago. Our spectrum location near the PCS bands should
allow us to deploy cost effectively the terrestrial component of an ATC network by leveraging existing terrestrial wireless
infrastructures and by adopting off-the-shelf infrastructure equipment to our spectrum bands. Further, we believe the ability of our
current network to support ATC services allows us to introduce new services and capabilities before our competitors, who must first
launch new satellites. To that end, we have entered into an agreement with Open Range Communications, Inc. which we believe will
begin to deploy its ATC services in 2009. See “Ancillary Terrestrial Component (ATC)—ATC Opportunities.” We are exploring
selective opportunities with a variety of additional media and communication companies to capture the full potential of our spectrum
and U.S. ATC license. See “Ancillary Terrestrial Component (ATC).”
The FCC has allocated a total of 40 MHz of spectrum at 2 GHz for mobile satellite services. This augments the mobile
satellite services spectrum allocation at 1.6 and 2.4 GHz and 1.5 and 1.6 GHz. In 2001, we received a license to use a portion of this 2
GHz spectrum. In February 2003, the FCC’s International Bureau cancelled our authorization based upon our alleged inability to meet
future construction milestones and, in June 2004, the FCC affirmed this cancellation. We have asked for reconsideration of the
cancellation although there can be no assurance that the FCC will reconsider it. See “Regulation—2 GHz Spectrum” and
“Management’s Discussion and Analysis of Financial Condition and Results of Operations—Overview.”
Domestic and Foreign Revenue
We supply services and products to a number of foreign customers. Although most of our sales are denominated in U.S.
dollars, we are exposed to currency risk for sales in Canada, Europe and Brazil. In 2008, approximately 40% of our sales were
denominated in foreign currencies. For information on our revenue from sales to foreign and domestic customers, see Note 9 to our
Consolidated Financial Statements in this Report.
Our Network
Our satellite network includes, at any given time, approximately 48 in-orbit operational low earth orbit satellites, plus in-orbit
spares. The design of our orbital planes ensure that generally at least one satellite is visible from any point on the earth’s surface
between 70o north latitude to 70o south latitude. A gateway must be within line-of-sight of a satellite to provide services and we have
positioned our gateways to cover most of the world’s land and population. In response to the S-band degradation in our existing
satellites, described elsewhere in this Report, we believe we have optimized the service availability of our duplex services, while
seeking to maintain the reliability of our Simplex services, by creating a constellation that combines two different orbital
configurations. Each satellite has a high degree of on-board subsystem redundancy, an on-board fault detection system and isolation
and recovery for safe and quick risk mitigation. Our ability to reconfigure the orbital location of each satellite provides us with
operating flexibility and continuity of service. The design of our space and ground control system facilitates the real time intervention
and management of the satellite constellation and service upgrades via hardware and software enhancements.
In November 2006, we entered into a definitive contract with Thales Alenia Space to construct 48 satellites for our
second-generation low-orbit satellite constellation and to provide launch-related and operations support services. In March 2007, we
entered into an agreement with Thales Alenia Space for the construction of the Satellite Operations Control Centers, Telemetry
Command Units and In Orbit Test Equipment for our second-generation satellite constellation. In September 2007, we entered into a
contract with our Launch Provider for the launch of our second-generation satellites and certain pre- and post-launch services.
Pursuant to the contract, our Launch Provider will make four launches of six satellites each, and we have the option to require our
Launch Provider to make four additional launches of six satellites each. The contract price for the procurement of our
second-generation satellite constellation and related launch services (excluding launch services for the second 24 satellites) is
approximately $1.26 billion (the majority of which is denominated in Euros, at a weighted average conversion rate of €1.00=$1.3151)
of which we spent $414.2 million through December 31, 2008.
In May 2008, we entered into a contract with Hughes Network Systems, LLC (“Hughes”) under which Hughes will design,
supply and implement the Radio Access Network (“RAN”) ground network equipment and software upgrades for installation at a
number of our satellite gateway ground stations and satellite interface chips to be a part of the User Terminal Subsystem (UTS) in our
various next-generation devices. The total contract purchase price of approximately $100.8 million is payable in increments over a
period of 40 months. We have the option to purchase additional RANs and other software and hardware improvements at pre-
negotiated prices.
8
In October 2008, we signed an agreement with Ericsson Federal Inc. (“Ericsson”), a leading global provider of technology
and services to telecom operators. According to the $22.7 million contract, Ericsson will work with us to develop, implement and
maintain a ground interface, or core network, system that will be installed at our satellite gateway ground stations. The all Internet
protocol (IP) based core network system is wireless 3G/4G compatible and will link our radio access network to the public-switched
telephone network (PSTN) and/or Internet. We are currently designing the new core network system with Ericsson.
See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Contractual Obligations and
Commitments.”
Our satellites communicate with a network of 26 gateways, each of which serves an area of approximately 700,000 to
1,000,000 square miles. We own 13 of these gateways and the rest are owned by independent gateway operators. In addition to our
satellites and 13 gateways, we have in storage spare parts for our gateways and our independent gateway operators’ gateways,
including antennas and gateway electronic equipment. We selectively replace parts as necessary, and anticipate that this supply will be
sufficient to serve all of our gateway needs throughout the expected life of our existing satellite constellation and beyond the
introduction of upgraded gateways designed and supplied by Hughes, which will begin delivering in 2011.
Each of our gateways has multiple antennas that communicate with our satellites and pass calls seamlessly between antenna
beams and satellites as the satellites traverse the gateways, thereby reflecting the signals from our users’ terminals to our gateways.
Once a satellite acquires a signal from an end-user, the serving gateway authenticates the user and establishes the voice or data
channel to complete the call to the public switched telephone network, to a cellular or another wireless network, or, in the case of a
Simplex data call, to the internet.
We believe that our terrestrial gateways provide a number of advantages over the in-orbit switching used by our principal
competitor, including better call quality and convenient regionalized local phone numbers for inbound calling. We also believe that
our network’s design, which relies on terrestrial gateways rather than in-orbit switching, enables faster and more cost-effective system
maintenance and upgrades because the system’s software and much of its hardware is based on the ground. Our multiple gateways
allow us to reconfigure our system quickly to extend another gateway’s coverage to make up some or all of the coverage of a disabled
gateway or to handle increased call capacity resulting from surges in demand.
Our network uses QUALCOMM’s patented CDMA technology to permit dynamic selection of the strongest available
signals. Patented receivers in our handsets track the pilot channel or signaling channel as well as three additional communications
channels simultaneously. Compared to other satellite and network architectures, we offer superior call clarity, virtually no discernable
delay and, with satellites unaffected by the S-band antenna degradation, a low incidence of dropped calls. Our system architecture
provides full frequency re-use. This maximizes diversity (which maximizes quality) and maximizes capacity as the assigned spectrum
can be reused in every satellite beam in every satellite. Our network also works with internet protocol data for reliable transmission of
IP messages. We have a long-standing relationship with QUALCOMM for the manufacture of our phone handsets and data terminals.
Although our network is CDMA-based, it is configured so that we can also support one or more other air interfaces that we
select in the future. For example, we have developed a non-QUALCOMM proprietary CDMA technology for our Simplex data
services. Because our satellites are essentially “mirrors in the sky,” and all of our network’s switches and hardware are located on the
ground, we can easily and relatively inexpensively modify our ground hardware and software to use other wave forms to meet
customer demands for new and innovative services and products. At this time, we are developing several inexpensive additional
products and services which will operate in this manner.
Gateway Acquisitions and Openings
Effective January 1, 2006, we consummated the purchase of all of the issued and outstanding stock of Globalstar Americas
Holding (“GAH”), Globalstar Americas Telecommunications (“GAT”), and Astral Technologies Investment Limited (“Astral”),
collectively, the “GA Companies.” The GA Companies owned assets, contract rights, and licenses to operate a satellite
communications business in Panama, Nicaragua, Honduras, El Salvador, Guatemala, and Belize. The purchase of the GA Companies
has enhanced our presence and coverage in Central America. We paid the $5.2 million purchase price for the GA Companies by
issuing approximately 521,000 shares of our Common Stock to the selling stockholders of the GA Companies for the purchase price
and interest. See Note 3 to our Consolidated Financial Statements in this Report.
In March 2008, we acquired an independent gateway operator that owns three gateways in Brazil for $6.5 million. We also
incurred transaction costs of $0.3 million related to this acquisition. Again, we paid the purchase price primarily in our Common
Stock. The acquisition allowed us to expand our coverage in South America and engage in discussions with potential partners to
provide ATC-type services in Brazil. See Note 3 to our Consolidated Financial Statement in this Report. We are unable to predict the
timing or cost of further acquisitions because independent gateway operations vary in size and value.
9
We have completed construction of a gateway in Singapore at a total cost of approximately $4.0 million. This gateway was
fully operational for Simplex service in October 2008. We expect to introduce Duplex service when our second- generation
constellation becomes operational.
We have entered into an agreement with Globaltouch (West Africa) Limited to construct and operate a gateway in Kaduna,
Nigeria, for which Globaltouch has paid us $6.8 million of its $8.4 million purchase obligation. As of March 1, 2009, we had acquired
24% of the ordinary shares of Globaltouch for $1.8 million.
Ancillary Terrestrial Component (ATC)
Background
In February 2003, the FCC adopted rules that permit satellite service providers to establish ATC networks. ATC
authorization enables the integration of a satellite-based service with terrestrial wireless services, resulting in a hybrid mobile satellite
services/ATC network designed to provide advanced services and broad coverage throughout the United States. The ATC network
would extend our services to urban areas and inside buildings where satellite services currently are impractical, as well as to rural and
remote areas that lack terrestrial wireless services. We believe we are at the forefront of ATC development and expect to be among the
first market entrants. For a description of the FCC’s ATC rules and our authorization to provide ATC services, see “Regulation—
United States FCC Regulation—ATC.”
On April 10, 2008, the FCC issued a decision extending our ATC authorization from 11MHz to a total of 19.275 MHz of our
spectrum, 7.775 MHz of which is in the L-band and 11.5 MHz is in the S-band. Outside the United States, other countries are
implementing regulations to facilitate ATC services. We expect to pursue ATC licenses in jurisdictions such as Canada and the
European Community.
In keeping with the FCC’s decision, ATC services must be complementary or ancillary to mobile satellite services in an
“integrated service offering,” which can be achieved by using “dual-mode” devices capable of transmitting and receiving mobile
satellite and ATC signals. Further, user subscriptions that include ATC services must also include mobile satellite services. Because of
these requirements, the number of potential early stage competitors in providing ATC services is limited, as only mobile satellite
services operators who are offering commercial satellite services can provide ATC services. At the time we commence ATC
operations, we must meet, or secure from the FCC a waiver, of all of the FCC’s authorization, or “gating” requirements, including
having an operational in-orbit spare satellite.
ATC Opportunities
We believe we are uniquely positioned to benefit from the development of our ATC license given our existing in-orbit satellite
fleet and ground stations and we expect to be the first to introduce these services. Unlike several of our competitors, who need to launch
new satellites and build ground facilities, our existing constellation and our ground stations, with relatively minor modification, are
technically capable of accommodating ATC operations. Even with high-bit rate applications, we believe that our network and spectrum
are sufficient to meet the demanding band-width requirements of the current and next generation of wireless services.
We could offer the following terrestrial services, among others, with ATC:
• mobile voice
• mobile broadband data
•
•
fixed broadband data
voice over internet protocol, or VOIP
• multi-casting and broadcasting services for music and video
On October 31, 2007, we entered into an agreement with Open Range Communications, Inc., or Open Range, that permits
Open Range to deploy service in certain rural geographic markets in the United States under our ATC authority. Open Range will use
our spectrum to offer terrestrial wireless WiMAX services with a dual mode terrestrial/MSS terminal to over 500 rural American
communities. Open Range will use our spectrum to offer dual mode mobile satellite based and terrestrial wireless WiMAX services to
up to over 500 rural American communities. Under the agreement as amended, Open Range will have the right to use a portion of our
spectrum within the United States and, if Open Range so elects, it can use the balance of our spectrum authorized for ATC services, to
provide these services. Open Range has options to expand this relationship over the next six years, some of which are conditional
upon Open Range electing to use all of the licensed spectrum covered by the agreement. Commercial availability is expected to begin
in selected markets in 2009. See—“Management’s Discussion and Analysis of Financial Conditions and Results of Operations—
Overview.”
10
On April 10, 2008, the FCC increased our ATC grant to a total of 19.275 MHz in our two frequency bands. The FCC’s order
is now final and effective. On May 16, 2008, we filed an application with the FCC to modify our authorization by adding additional
wave forms. One of these is the time division duplex (TDD) WiMAX wave form that Open Range intends to deploy. Two parties,
Iridium and Sprint Nextel, filed petitions to deny our application, and we and Open Range filed our oppositions to their petitions. On
October 31, 2008, the FCC granted us the authority necessary to implement our agreement with Open Range but deferred a decision
on waveforms other than WiMax. CTIA—The Wireless Industry Association petitioned the FCC to reconsider its decision and Iridium
filed a petition for review in the U.S. Court of Appeals for the District of Columbia Circuit. At the FCC’s request, the court is holding
the appeal in abeyance pending the FCC’s action on the petition for reconsideration.
Northern Sky Research has predicted that the ATC services market will account for 29% of in-service mobile satellite units
and 16% of industry retail revenues by the end of 2010.
Competition
The global communications industry is highly competitive. We currently face substantial competition from other service
providers that offer a range of mobile and fixed communications options. Our most direct competition comes from other global mobile
satellite services providers. Our two largest global competitors are Inmarsat and Iridium. We compete primarily on the basis of
coverage, quality, portability and pricing of services and products.
Inmarsat has been a provider of global communications services since 1982. Inmarsat owns and operates a fleet of
geostationary satellites. Due to its multiple-satellite geostationary system, Inmarsat’s coverage area extends and covers most bodies of
water more completely than we do. Accordingly, Inmarsat is the leading provider of satellite communications services to the maritime
sector. Inmarsat also offers global land-based and aeronautical communications services. Inmarsat generally does not sell directly to
customers. Rather, it markets its products and services principally through a variety of distributors, including Stratos Global
Corporation, Telenor Satellite Services, Vizada (formerly France Telecom Mobile Satellite), KDDI Corporation and The SingTel
Group, who, in most cases, sell to additional downstream entities who sell to the ultimate customer. We compete with Inmarsat in
several key areas, particularly in our maritime markets. We believe that the size and functionality of our mobile handsets and data
devices are superior to Inmarsat’s fixed units, which tend to be significantly bulkier and more cumbersome to operate. In addition, our
products generally are substantially less expensive than those of Inmarsat.
Iridium owns and operates a fleet of low earth orbit satellites that is similar to our network of satellites. Iridium entered into
bankruptcy protection in March 2000 and was out of service from March 2000 to January 2001. Since Iridium emerged from
bankruptcy in 2001, we have faced increased competition from Iridium in some of our target markets. Iridium provides data and voice
services at rates of up to 2.4 Kbps, which is approximately 25% of our uncompressed speed. In September 2008, GHL Acquisition
Corp. (“GHQ”) and Iridium Holdings LLC signed an agreement under which GHQ will acquire the parent company of Iridium subject
to shareholder and regulatory approvals. We have filed an objection to the acquisition with the FCC.
We compete with regional mobile satellite communications services in several markets. In these cases, our competitors serve
customers who require regional, not global, mobile voice and data services, so our competitors present a viable alternative to our
services. All of these competitors operate geostationary satellites. Our regional mobile satellite services competitors currently include
Thuraya, principally in the Middle East and Africa; ACeS (now operated by Inmarsat) in Asia; SkyTerra (formerly MSV) and
SkyTerra (Canada), Inc. (formerly Mobile Satellite Ventures Canada) in the Americas; and Optus MobileSat in Australia.
In some of our markets, such as rural telephony, we compete directly or indirectly with very small aperture terminal operators
that offer communications services through private networks using very small aperture terminals or hybrid systems to target business
users. Very small aperture terminal operators have become increasingly competitive due to technological advances that have resulted
in smaller, more flexible and cheaper terminals.
We compete indirectly with terrestrial wireline (landline) and wireless communications networks. We provide service in
areas that are inadequately covered by these ground systems. To the extent that terrestrial communications companies invest in
underdeveloped areas, we will face increased competition in those areas. We believe that local telephone companies currently are
reluctant to invest in new switches and landlines to expand their networks in rural and remote areas due to high costs and to decreasing
demand and subscriber line loss associated with wireless telephony. Many of the underdeveloped areas are sparsely populated so it
would be difficult to generate the necessary returns on the capital expenditures required to build terrestrial wireless networks in such
areas. We believe that our solutions offer a cost-effective and reliable alternative to ground-based wireline and wireless systems and
that continued growth and utilization will allow us to further lower costs to consumers.
With the launch of the SPOT satellite messenger, we created a new product category by combining a GPS receiver with a
multi-featured satellite transmitter. The SPOT satellite messenger can send a user’s GPS coordinates and status to others for tracking,
notification of “OK” or “HELP” status, or to alert emergency responders. We compete indirectly with Personal Locator Beacons
(PLBs). A variety of manufacturers, including ACR Electronics and McMurdo, offer PLBs to an industry specification. PLBs provide
only emergency response services via the COSPAS-SARSAT satellite system, and therefore do not assess any service fees. Currently,
PLB hardware is considerably more expensive than SPOT satellite messenger hardware.
11
Our industry has significant barriers to entry, including the cost and difficulty associated with obtaining spectrum licenses
and successfully building and launching a satellite network. In addition to cost, there is a significant amount of lead-time associated
with obtaining the required licenses, designing and building the satellite constellation and synchronizing the network technology. We
will continue to face competition from Inmarsat and Iridium and other businesses that have developed global mobile satellite
communications services in particular regions. We will also face competition from incipient mobile satellite ATC services providers,
such as TerreStar and ICOGlobal, who are currently designing a core satellite operating business and a terrestrial component around
their spectrum holdings.
Regulation
United States FCC Regulation
Mobile Satellite Services Spectrum and Satellite Constellation.
Our satellite constellation and four U.S. gateways are licensed by the FCC. Our system is sometimes called a “Big LEO” (for
“low earth orbit”) system.
Prior to November 9, 2007, we held regulatory authorization for two pairs of frequencies on our current system: user links
(from the user to the satellites, and vice versa) in the 1610 - 1621.35 and 2483.5 - 2500 MHz bands and feeder links (from the
gateways to the satellites, and vice versa) in the 5091 - 5250 and 6875 - 7055 MHz bands. On November 9, 2007, the FCC released a
Second Order on Reconsideration, Second Report and Order and Notice of Proposed Rulemaking. In the Report and Order (“R&O”)
portion of the decision, the FCC effectively decreased the L-band spectrum available to us while increasing the L-band spectrum
available to Iridium by 2.625 MHz. On February 5, 2008, we filed a notice of appeal of the FCC’s decision in the U.S. Court of
Appeals for the D.C. Circuit. The court heard oral argument on February 17, 2009, and should issue a decision later in 2009.
In a related matter, on October 15, 2008, the FCC interpreted its November 7, 2007 decision as applying to our service
globally, not only in the United States where the FCC has jurisdiction. The FCC invited us to file a request for waiver of its decision
where the decision would cause unusual hardship, and we have done so. We have also petitioned the FCC to reconsider its
interpretation. We cannot predict when, or if, the FCC will act on our waiver request and petition.
The FCC authorizes the operation of our satellite constellation and our gateways and mobile phones in the United States. We
will need FCC approval for the operation of our second-generation constellation, but we believe this approval will be routine.
Gateways outside the United States are licensed by the respective national authorities; these licenses are held by our foreign
subsidiaries or the independent gateway operators.
Three of our subsidiaries hold our FCC licenses. Globalstar Licensee LLC holds our mobile satellite services license. GUSA
Licensee LLC (“GUSA”), is authorized by the FCC to distribute mobile and fixed subscriber terminals and to operate gateways in the United
States. GUSA also holds the licenses for our gateways in Texas, Florida and Alaska. Another subsidiary, GCL Licensee LLC (“GCL”), holds
an FCC license to operate a gateway in Puerto Rico. GCL is also subject to regulation by the Puerto Rican regulatory agency.
ATC.
In January 2006, the FCC granted our application to add an ATC service to our existing mobile satellite services. ATC
authorization enables the integration of a satellite-based service with terrestrial wireless services, resulting in a hybrid mobile satellite
services/ATC network designed to provide advanced services and ubiquitous coverage throughout the United States. The FCC
regulates mobile satellite services operators’ ability to provide ATC-related services, and our authorization is predicated on
compliance with and achievement of various “gating criteria” adopted by the FCC in February 2003 and summarized below.
• The mobile satellite services operator must demonstrate that its satellites are capable of providing substantial satellite
service to all 50 states, Puerto Rico and the U.S. Virgin Islands and that its network can offer commercial mobile satellite
services service to subscribers throughout that area. A mobile satellite services operator can provide ATC services only
within its satellite footprint and within its assigned spectrum.
• Mobile satellite services and ATC services must be fully integrated either by supplying subscribers with dual-mode
mobile satellite services/ATC devices or otherwise showing that the ATC service is substantially integrated with the
mobile satellite services service.
• Companies, including our company, that operate low earth orbit constellations must maintain an in-orbit spare satellite at
the time that they initiate ATC service.
• The mobile satellite services operator may not offer terrestrial-only subscriptions.
12
In April 2008, the FCC granted, in part, our petition to use all of our remaining spectrum for ATC services. We are now
authorized to provide ATC over an aggregate 19.275 MHz of our licensed spectrum, including the portion of our S-band between
2483.5 and 2495 MHz and in the portion of the L-band that we do not share with Iridium.
2 GHz Spectrum.
On July 17, 2001, the FCC granted Old Globalstar and seven other applicants authorizations to construct, launch and operate
mobile satellite services systems in the 2 GHz mobile satellite services band, subject to strict milestone requirements. In the case of
foreign-licensed applicants, the FCC “reserved” spectrum but required the foreign applicants to meet the same milestones as the
domestic applicants. On July 17, 2002, Old Globalstar requested the FCC to grant certain waivers of later milestones. On January 30,
2003, the FCC’s International Bureau denied our waivers and declared the 2 GHz license to be null and void. In June 2004, the FCC
declined to reverse that decision, and we requested reconsideration, which request remains pending. Subsequently, all but two of the
other licensees (TerreStar Networks, Inc., a Canadian company licensed by Industry Canada, and ICO Global Communications, a
company licensed in the U.K.) either surrendered their licenses or had them cancelled.
On December 9, 2005, the FCC decided to reserve all of the 40 MHz allocation for TerreStar and ICO Global
Communications, both of which are non-U.S. corporations, although the reservation was made expressly subject to the outcome of our
request for reconsideration of the invalidation of our 2 GHz license. It is unlikely that the FCC will reverse its decision; however, we
do not believe that our existing operations or plans for the introduction of ATC services or for a second-generation satellite
constellation will be adversely impacted if the 2 GHz license is not reinstated.
Spectrum Sharing.
In July 2004, the FCC issued a decision giving Iridium shared access to the 1618.25 - 1621.35 MHz portion of our 1610 -
1621.35 MHz band and requested comments on whether it should require us to share an additional 2.25 MHz of spectrum with
Iridium. In shared spectrum, we and Iridium are “co-primary” for uplink usage, but we retain priority and are “primary” with respect
to the downlink usage in this band. We opposed any further sharing and requested reconsideration of certain portions of this decision,
including the specific frequencies that must be shared with Iridium and the technical requirements that will govern the sharing. Iridium
sought to extend the sharing over an additional 2.25 MHz of our spectrum, which we vigorously opposed. On November 9, 2007, the
FCC issued a Second Order on Reconsideration changing our and Iridium’s assignments. We and Iridium each now have access to
7.775 MHz of unshared spectrum, and we share 0.950 MHz of spectrum in the center of the band. The FCC expects us and Iridium to
reach a mutually acceptable coordination agreement in the shared portion. On February 5, 2008, we filed a notice of appeal of the
FCC’s decision in the U.S. Court of Appeals for the D.C. Circuit. Oral argument took place on February 17, 2009. On October 15,
2008, the FCC released an Order of Modification (“Order”) modifying both our and Iridium’s satellite constellation licenses consistent
with its Second Report. The FCC’s Order, which was effective December 14, 2008, reduces our spectrum assignment not only in the
United States but globally. The FCC invited us to file applications for waiver of the Order in the event that the Order would cause
particular hardship which we have done. We have also petitioned the FCC to reconsider its decision.
Also in the July 2004 decision, the FCC required us to share the 2496 - 2500 MHz portion of our downlink spectrum with
certain Broadband Radio Service fixed wireless licensees and with about 100 “grandfathered” Broadcast Auxiliary Service licensees.
We expect the latter to be relocated out of the band in the relatively near future. Although we and others requested reconsideration of
certain of the rules that will govern our sharing with these Broadband Radio Service and Broadcast Auxiliary Service licensees, the
FCC affirmed this portion of its decision in an order issued in April 2006. Certain parties have filed further requests with the FCC for
reconsideration of this decision, which we have opposed. In addition, on July 21, 2006, Sprint Nextel Corporation (“Sprint Nextel”)
one of the largest Broadband Radio Service licensees, filed an appeal of the FCC’s decision to relocate them to the 2496-2500 MHz
band with the U.S. Court of Appeals for the D.C. Circuit. The court is holding the case in abeyance pending the FCC’s decision on
reconsideration.
International Coordination
Our system operates in frequencies which were allocated on an international basis for mobile satellite services user links and
mobile satellite services feeder links. We are required to engage in international coordination procedures with other proposed mobile
satellite services systems under the aegis of the International Telecommunications Union. We believe that we have met all of our
obligations to coordinate our system.
13
National Regulation of Service Providers
In order to operate gateways, the independent gateway operators and our affiliates in each country are required to obtain a
license from that country’s telecommunications regulatory authority. In addition, the gateway operator must enter into appropriate
interconnection and financial settlement agreements with local and interexchange telecommunications providers. All 26 gateways
which we and the independent gateway operators operate are licensed. An independent gateway operator in South Africa, Vodacom,
was unable to secure a license to activate and operate the gateway in that country and turned the gateway over to Telkom, the South
African telephone company, in settlement of debts. We have initiated efforts to reestablish the business in South Africa through our
own subsidiary. In January 2009, we obtained new operating licenses that allow us to provide a broad array of services in South
Africa. However, we expect to do so with or through a local telecommunications company, which we have not yet arranged
Our subscriber equipment generally must be type certified in countries in which it is sold or leased. The manufacturers of the
equipment and our affiliates or the independent gateway operators are jointly responsible for securing type certification. Thus far, our
equipment has received type certification in each country in which that certification was required.
United States International Traffic in Arms Regulations
The United States International Traffic in Arms regulations under the United States Arms Export Control Act authorize the
President of the United States to control the export and import of articles and services that can be used in the production of arms. The
President has delegated this authority to the U.S. Department of State, Directorate of Defense Trade Controls. Among other things,
these regulations limit the ability to export certain articles and related technical data to certain nations. Some information involved in
the performance of our operations falls within the scope of these regulations. As a result, we may have to obtain an export
authorization or restrict access to that information by international companies that are our vendors or service providers. We have
received and expect to continue to receive export licenses for our telemetry and control equipment located outside the United States
and for providing technical data to our Launch Provider and the developers of our next generation of satellites.
Environmental Matters
We are subject to various laws and regulations relating to the protection of the environment and human health and safety
(including those governing the management, storage and disposal of hazardous materials). Some of our operations require continuous
power supply. As a result, current and historical operations at our ground facilities, including our gateways, include storing fuel and
batteries, which may contain hazardous materials, to power back-up generators. As an owner or operator of property and in connection
with our current and historical operations, we could incur significant costs, including cleanup costs, fines, sanctions and third-party
claims, as a result of violations of or in connection with liabilities under environmental laws and regulations.
Additional Information
We file annual, quarterly and current reports, proxy statements and other information with the Securities and Exchange
Commission (the “SEC”). You may read and copy any document we file with the SEC at the SEC’s public reference room at 100 F
Street, NE, Washington, DC 20549. Please call the SEC at 1-800-SEC-0330 for information on the public reference room. The SEC
maintains an internet site that contains annual, quarterly and current reports, proxy and information statements and other information
that issuers (including Globalstar) file electronically with the SEC. Our electronic SEC filings are available to the public at the SEC’s
internet site, www.sec.gov.
We make available free of charge financial information, news releases, SEC filings, including our annual report on Form 10-
K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to these reports as soon as reasonably practical after
we electronically file such material with, or furnish it to, the SEC, on our website at www.globalstar.com. The documents available
on, and the contents of, our website are not incorporated by reference into this Report.
14
MARKET FOR OUR COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Our Common Stock has been quoted on The NASDAQ Global Select Market under the symbol “GSAT” since November 2,
2006. Prior to that time, there was no public market for our stock. The following table sets forth the closing high and low prices of our
Common Stock as reported by The NASDAQ Global Select Market for the period indicated:
Quarter Ended:
March 31, 2007 ..............................................................................................................................................
June 30, 2007 .................................................................................................................................................
September 30, 2007 .......................................................................................................................................
December 31, 2007 ........................................................................................................................................
March 31, 2008 ..............................................................................................................................................
June 30, 2008 .................................................................................................................................................
September 30, 2008 .......................................................................................................................................
December 31, 2008 ........................................................................................................................................
High
$14.68
$11.20
$12.10
$9.84
$9.05
$7.59
$3.20
$1.75
Low
$9.75
$9.05
$7.33
$6.39
$6.50
$2.79
$1.55
$0.15
As of March 6, 2009, we had 310 holders of record of our Common Stock. We have never declared or paid any cash
dividends on our Common Stock. We currently intend to retain any future earnings and do not expect to pay any dividends in the
foreseeable future.
15
SELECTED FINANCIAL DATA
The following table presents our selected historical consolidated financial information and other data for the last five years,
and as of December 31, 2008, 2007, 2006, 2005 and 2004. Our selected historical consolidated financial data for the years ended
December 31, 2005 and 2004 and as of December 31, 2005 and 2004 has been derived from our audited consolidated balance sheets
as of those dates, which are not included in this Report.
You should read the selected historical consolidated financial data set forth below together with our Consolidated Financial
Statements and the related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” all
included in this Report. The selected historical consolidated financial data set forth below are not necessarily indicative of the results
of future operations.
2008
Year Ended December 31,
2006
(Dollars in thousands, except per share data, average
monthly revenue per unit and average monthly churn rate)
2005
2007
2004
Statement of Operations Data:
Revenue:
Service revenue
Subscriber equipment sales(1)
Total revenue
Operating Expenses:
Cost of services (exclusive of depreciation and
amortization shown separately below)
Cost of subscriber equipment sales:
Cost of subscriber equipment sales(2)
Cost of subscriber equipment sales—
Impairment of assets
Total cost of subscriber equipment sales
Marketing, general and administrative
Restructuring
Depreciation and amortization
Impairment of assets
Total operating expenses
Operating Income (Loss)
Gain on extinguishment of debt
Interest income
Interest expense(3)
Interest rate derivative loss
Other
Total other income (expense)
Income (loss) before income taxes
Income tax expense (benefit)
Net Income (Loss)
$
61,794 $
24,261
86,055
78,313 $
20,085
98,398
92,037 $
44,634
136,671
81,472 $
45,675
127,147
57,927
26,441
84,368
37,132
27,775
28,091
25,432
25,208
17,921
13,863
40,396
38,742
23,399
405
18,326
61,351
—
26,956
—
143,765
(57,710)
49,042
4,713
(5,733)
(3,259)
(4,497)
40,266
(17,444)
(2,283)
(15,161) $
19,109
32,972
49,146
—
13,137
—
123,030
(24,632)
—
3,170
(9,023)
(3,232)
8,656
(429)
(25,061)
2,864
(27,925) $
1,943
42,339
43,899
—
6,679
—
121,008
15,663
—
1,172
(587)
(2,716)
(3,980)
(6,111)
9,552
(14,071)
23,623 $
—
38,742
37,945
—
3,044
114
105,277
21,870
—
242
(269)
—
(622)
(649)
21,221
2,502
18,719 $
—
23,399
32,151
5,078
1,959
114
87,909
(3,541)
—
58
(1,382)
—
921
(403)
(3,944)
(4,314)
370
$
Balance Sheet Data:
Cash and cash equivalents
Restricted cash(4)
Total assets
Long-term debt
Redeemable common stock
Ownership equity
As of
December 31,
2008
As of
December 31,
2007
As of
December 31,
2006
(In Thousands)
As of
December 31,
2005
As of
December 31,
2004
$
$
$
$
$
$
12,357 $
57,884 $
808,234 $
238,345 $
— $
436,753 $
37,554 $
80,871 $
512,975 $
50,000 $
— $
405,544 $
43,698 $
52,581 $
331,701 $
417 $
4,949 $
260,697 $
20,270 $
— $
113,545 $
631 $
— $
71,430 $
13,330
—
63,897
3,278
—
40,421
16
(1) Includes related party sales of $0, $59, $3,423 and $440 for the years ended December 31, 2008, 2007, 2006 and 2005,
respectively.
(2) Includes costs of related party sales of $0, $46, $3,041 and $314 for the years ended December 31, 2008, 2007, 2006 and 2005,
respectively.
(3) Includes related party amounts of $0, $83, $0 and $176 for the years ended December 31, 2008, 2007, 2006 and 2005,
respectively.
(4) Restricted cash is comprised of funds held in escrow by two financial institutions to secure our payment obligations related to
(i) our contract for the construction of the second-generation satellite constellation and (ii) the next five semi-annual interest
payments on our 5.75% Senior Convertible Notes.
17
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
This Management Discussion and Analysis of Financial Condition and Results of Operations should be read in
conjunction with our Consolidated Financial Statements and notes thereto in this Report.
Overview
We are a provider of mobile voice and data communication services via satellite. Our communications platform
extends telecommunications beyond the boundaries of terrestrial wireline and wireless telecommunications networks to serve
our customer’s desire for connectivity. Using in-orbit satellites and ground stations, which we call gateways, we offer voice
and data communications services to government agencies, businesses and other customers in over 120 countries.
In early 2002, Old Globalstar and three of its subsidiaries filed voluntary petitions under Chapter 11 of the United
States Bankruptcy Code. We were formed in Delaware in November 2003 for the purpose of acquiring substantially all the
assets of Old Globalstar and its subsidiaries. With Bankruptcy Court approval, we acquired Old Globalstar’s assets and
assumed certain of its liabilities in a two-step transaction, with the first step completed on December 5, 2003, and the second
step on April 14, 2004 (the “Reorganization”). On January 1, 2006, we elected to be taxed as a C corporation, and on
March 17, 2006, we converted from a Delaware limited liability company to a Delaware corporation.
Going Concern. We currently lack sufficient resources to fund the procurement and deployment of our second-
generation constellation and other related construction costs and our on-going operations, which are currently generating
negative cash flows. Due to the worldwide economic crisis and the tight credit market, obtaining suitable additional financing
remains challenging. Our registered public accounting firm’s audit report on our Consolidated Financial Statements as of
December 31, 2008, and for the year then ended includes a “going concern” explanatory paragraph that expresses substantial
doubt about our ability to continue as a going concern. The “going concern” explanatory paragraph reflects substantial doubt
about our ability to obtain this financing in a timely manner.
We have initiated plans to improve our liquidity by seeking a combination of debt and equity funding to procure and
deploy our second-generation constellation and related ground infrastructure as well as to fund our current operations. Our
plans also include restructuring our operations by seeking to reduce costs in underperforming markets and consolidate
resources around the world to operate our network more efficiently. We have also undertaken a plan to market aggressively
our Simplex based products, including the SPOT personal satellite messenger, to generate incremental cash flow from
operations. If our plans are successful, we believe we will have sufficient liquidity to finance the anticipated costs to procure
and deploy the second-generation constellation and related ground infrastructure costs and to fund our current operations for
at least the next 12 months. However, the successful execution of our plans is dependent upon many factors, some of which
are beyond our control. We cannot assure you that any portion of our plans will be achieved. If we fail to obtain the necessary
additional financing in a timely manner, the procurement and deployment of our second-generation satellite constellation,
related construction costs and our ongoing operations will be materially adversely impacted.
On March 25, 2009, we announced that Coface, the export credit agency acting on behalf of the French government,
has agreed to provide long-term credit insurance in support of a proposed $574 million credit facility to be extended to us by
a syndicate of banks. Banks who have received initial credit committee approvals in relation to the credit facility, which will
bear interest at approximately 6.3%, include PNB Paribas, Natixis and Societe Generale. The credit facility and our receipt of
funding are subject to final documentation and closing conditions, and there can be no assurance that any closing will occur.
The principal closing conditions include the conversion into equity at closing of the senior secured term and
revolving credit facility loans to us from Thermo Funding and our receipt of additional equity and contingent equity in an
amount of approximately $100 million, most of which is expected to be provided by Thermo Funding.
Material Trends and Uncertainties. Our satellite communications business, by providing critical mobile
communications to our subscribers, serves principally the 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 industry has been growing as a result of:
•
•
favorable market reaction to new pricing plans with lower service charges;
awareness of the need for remote communication services;
18
•
•
•
•
increased demand for communication services by disaster and relief agencies and emergency first responders;
improved voice and data transmission quality;
a general reduction in prices of user equipment; and
innovative data products and services.
Nonetheless, as further described under “Risk Factors,” we face a number of challenges and uncertainties, including:
• Financial resources and liquidity. We currently lack sufficient funds to fulfill our commitments for capital
expenditures and support our current operations. See “Going Concern” above.
•
The economy. The current recession and its effects on credit markets and consumer spending is adversely
affecting both sales of our products and services and our ability to obtain the additional financing necessary to
fund our capital expenditures and current operations.
• Constellation life and health. Our current satellite constellation is aging. We successfully launched our eight
spare satellites in 2007. All of our satellites launched prior to 2007 have experienced various anomalies over
time, one of which is a degradation in the performance of the solid-state power amplifiers of the S-band
communications antenna subsystem (our “two-way communication issues”). The S-band antenna provides the
downlink from the satellite to a subscriber’s phone or data terminal. Degraded performance of the S-band
antenna amplifiers reduces the availability of two-way voice and data communication between the affected
satellites and the subscriber and may reduce the duration of a call. When the S-band antenna on a satellite
ceases to be functional, two-way communication is impossible over that satellite, but not necessarily over the
constellation as a whole. We continue to provide two-way subscriber service because some of our satellites are
fully functional but at certain times in any given location it may take longer to establish calls and the average
duration of calls may be reduced. There are periods of time each day during which no two-way voice and data
service is available at any particular location. The root cause of our two-way communication issues is unknown,
although we believe it may result from irradiation of the satellites in orbit caused by the space environment at
the altitude that our satellites operate.
The decline in the quality of two-way communication does not affect adversely our one-way Simplex data
transmission services, including our SPOT satellite messenger products and services, which utilize only the L-
band uplink from a subscriber’s Simplex terminal to the satellites. The signal is transmitted back down from the
satellites on our C-band feeder links, which are functioning normally, not on our S-band service downlinks.
We continue to work on plans, including new products and services and pricing programs to mitigate the effects of
reduced service availability upon our customers and operations. Among other things, we requested Thales Alenia
Space to present a four-part sequential plan for accelerating delivery of the initial 24 satellites of our second-
generation constellation by up to four months. To date, we have accepted the first two portions of this plan.
• Competition and pricing pressures. We face increased competition from both the expansion of terrestrial-based
cellular phone systems and from other mobile satellite service providers. For example, Inmarsat plans to
commence offering satellite services to handheld devices in the United States in 2009, and several competitors,
such as ICO Global, are constructing or have launched geostationary satellites that provide mobile satellite
service. Increased numbers of competitors, and the introduction of new services and products by competitors,
increases competition for subscribers and pressures all providers, including us, to reduce prices. Increased
competition may result in loss of subscribers, decreased revenue, decreased gross margins, higher churn rates,
and, ultimately, decreased profitability and cash.
•
Technological changes. It is difficult for us to respond promptly to major technological innovations by our
competitors because substantially modifying or replacing our basic technology, satellites or gateways is time-
consuming and very expensive. Approximately 79% of our total assets at December 31, 2008 represented fixed
assets. Although we plan to procure and deploy our second-generation satellite constellation and upgrade our
gateways and other ground facilities, we may nevertheless become vulnerable to the successful introduction of
superior technology by our competitors.
19
• Capital expenditures. We have incurred significant capital expenditures during 2007 and 2008 and we expect
to incur additional significant expenditures through 2013 under the following commitments:
• We estimate that procuring and deploying our second-generation satellite constellation and upgrading
our gateways and other ground facilities will cost approximately $1.26 billion (at a weighted average
conversion rate of €1.00=$1.3151 and excluding launch costs for the second 24 satellites, internal costs
and capitalized interest), which we expect will be reflected in capital expenditures through 2013. The
following obligations are included in this amount:
•
•
•
In November, 2006, we entered into a contract with Thales Alenia Space for the construction of our
second-generation constellation. The total contract price, including subsequent additions, will be
approximately €670.3 million (approximately $931.1 million at a weighted average conversion rate of
€1.00 = $1.3891 at December 31, 2008, including approximately €146.8 million which 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 €258.1 million (approximately $347.5 million) through December 31, 2008 under
this contract. At our request, Thales Alenia Space has presented to us a four-part sequential plan for
accelerating delivery of the initial 24 satellites by up to four months. The expected cost of this
acceleration will range from approximately €6.7 million to €13.4 million ($9.4 million to $18.9 million
at € 1.00 = $1.4097 at December 31, 2008). In 2007, we accepted the first two portions of the Thales
four-part sequential acceleration plan with an additional cost of €4.1 million ($5.9 million at €1.00 =
$1.4499).
In March 2007, we entered into a €9.2 million (approximately $13.1 million at a weighted average
conversion rate of €1.00 = $1.4252) agreement with Thales Alenia Space for the construction of the
Satellite Operations Control Centers, Telemetry Command Units and In Orbit Test Equipment
(collectively, the “Control Network Facility”) for our second-generation satellite constellation. We
have made aggregate payments under this contract of approximately €6.7 million (approximately
$9.9 million) through December 31, 2008.
In September, 2007, we entered into a contract with our Launch Provider for the launch of our second-
generation satellites and certain pre and post-launch services. Pursuant to the contract, our Launch
Provider will make four launches of six satellites each, and we have the option to require our Launch
Provider to make four additional launches of six satellites each. The total contract price for the first
four launches is $216.1 million. On July 5, 2008, we amended our agreement with our Launch
Provider for the launch of our second-generation satellites 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 Launch
Provider. The deferred payments will incur annual interest at 8.5% to 12% and become payable one
month before the corresponding launch date. We have made aggregate payments under this contract of
approximately $26.3 million through December, 31, 2008.
• On May 14, 2008, we entered into a contract with Hughes under which Hughes will design, supply and
implement the Radio Access Network (“RAN”) ground network equipment and software upgrades for
installation at a number of our satellite gateway ground stations and satellite interface chips to be a part
of the User Terminal Subsystem (UTS) in our various next-generation devices. The total contract
purchase price of approximately $100.8 million is payable in various increments over a period of
40 months. We have the option to purchase additional RANs and other software and hardware
improvements at pre-negotiated prices. We have made aggregate payments under this contract of
approximately $5.4 million through December 31, 2008. We expensed $1.8 million of these payments
and capitalized $3.6 million as second-generation ground component.
• On October 8, 2008, we signed an agreement with Ericsson Federal Inc., a leading global provider of
technology and services to telecom operators. According to the $22.7 million contract, Ericsson will
work with us to develop, implement and maintain a ground interface, or core network, system that will
be installed at our satellite gateway ground stations. The all Internet protocol (IP) based core network
system is wireless 3G/4G compatible and 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.
20
• We have completed construction of a gateway in Singapore at a total cost of approximately
$4.0 million. This gateway was fully operational for Simplex service in October 2008. We expect to
introduce Duplex service when our second- generation satellite constellation becomes operational.
See “Going Concern” and “Liquidity and Capital Resources” for a discussion of our requirements and resources for
funding these capital expenditures.
•
Introduction of new products. We work continuously with the manufacturers of the products we sell to offer
our customers innovative and improved products. Virtually all engineering, research and development costs of
these new products are paid by the manufacturers. However, to the extent the costs are reflected in increased
inventory costs to us, and we are unable to raise our prices to our subscribers correspondingly, our margins and
profitability would be reduced.
Simplex Products (Personal Tracking Services and Emergency Messaging). In early November 2007, we
introduced the SPOT satellite messenger, aimed at attracting both the recreational and commercial markets that
require personal tracking, emergency location and messaging solutions for users that require these services
beyond the range of traditional terrestrial and wireless communications. Using the Globalstar Simplex network
and web-based mapping software, this device provides consumers with the capability to trace or map the
location of the user on Google Maps™. The product enables users to transmit messages to specific
preprogrammed email addresses, phone or data devices, and to request assistance in the event of an emergency.
We are continuing to work on second-generation SPOT-like applications.
•
SPOT Satellite Messenger Addressable Market
We believe the addressable market for our SPOT satellite messenger products and services in North America
alone is approximately 50 million units primarily made up of outdoor enthusiasts. Our objective is to capture 2-
3% of that market in the next few years. The reach of our Simplex System, on which our SPOT satellite
messenger products and services rely, covers approximately 60% of the world population. We intend to market
our SPOT satellite messenger products and services aggressively in our overseas markets including South and
Central America, Western Europe, and through independent gateway operators in their respective territories.
•
SPOT Satellite Messenger Pricing
We intend the pricing for SPOT satellite messenger products and services and equipment to be very attractive in
the consumer marketplace. Annual service fees, depending whether they are for domestic or international
service, currently range from $99.99 to approximately $140.00 for our basic level plan, and $149.98 to
approximately $200.00 with additional tracking capability. The equipment is sold to end users at $149.99 to
approximately $280.00 per unit (subject to foreign currency rates). Our distributors set their own retail prices
for SPOT satellite messenger equipment and service.
•
SPOT Satellite Messenger Distribution
We are distributing and selling our SPOT satellite messenger through a variety of existing and new distribution
channels. We have signed distribution agreements with a number of “Big Box” retailers and other similar
distribution 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, The Source by Circuit City dealers, Wal-Mart.com, West Marine, DBL
Distribution, D.H. Distributions, and CWR Electronics. We currently sell SPOT satellite messenger products
through approximately 7,500 distribution points and expect to reach 10,000 in 2009. We also sell directly using
our existing sales force into key vertical markets and through our direct e-commerce website
(www.findmespot.com).
SPOT satellite messenger products and services have been introduced only recently and their commercial
introduction and their commercial success cannot be assured.
• Fluctuations in interest and currency rates. Debt under our credit agreement bears interest at a floating rate.
Therefore, increases in interest rates will increase our interest costs if debt is outstanding. A substantial portion
of our revenue (40% for the year ended December 31, 2008) is denominated in foreign currencies. In addition, a
substantial majority of our obligations under the contracts for our second-generation constellation and related
control network facility are denominated in Euros. Any decline in the relative value of the U.S. dollar may
adversely affect our revenues and increase our capital expenditures. See “Quantitative and Qualitative
Disclosures about Market Risk” for additional information.
21
• Ancillary Terrestrial Component (ATC). ATC is the integration of a satellite-based service with a terrestrial
wireless service resulting in a hybrid mobile satellite service. The ATC network would extend our services to
urban areas and inside buildings in both urban and rural areas where satellite services currently are impractical.
We believe we are at the forefront of ATC development and expect to be the first market entrant through our
contract with Open Range described below. In addition, we are considering a range of options for rollout of our
ATC services. We are exploring selective opportunities with a variety of media and communication companies
to capture the full potential of our spectrum and U.S. ATC license.
On October 31, 2007, we entered into an agreement with Open Range Communications, Inc. that permits Open
Range to deploy service in certain rural geographic markets in the United States under our ATC authority. Open
Range will use our spectrum to offer dual mode mobile satellite based and terrestrial wireless WiMAX services to
over 500 rural American communities. On December 2, 2008, we amended our agreement with Open Range. The
amended agreement reduced our preferred equity commitment to Open Range from $5 million to $3 million
(which investment was made in the form of bridge loans that converted into preferred equity at the closing of Open
Range’s equity financing). Under the agreement as amended, Open Range will have the right to use a portion of
our spectrum within the United States and, if Open Range so elects, it can use the balance of our spectrum
authorized for ATC services, to provide these services. Open Range has options to expand this relationship over
the next six years, some of which are conditional upon Open Range electing to use all of the licensed spectrum
covered by the agreement. Commercial availability is expected to begin in selected markets in 2009. The initial
term of the agreement of up to 30 years is co-extensive with our ATC authority and is subject to renewal options
exercisable by Open Range. Either party may terminate the agreement before the end of the term upon the
occurrence of certain events, and Open Range may terminate it at any time upon payment of a termination fee that
is based upon a percentage of the remaining lease payments. Based on Open Range’s business plan used in support
of its $267 million loan under a federally authorized loan program, the fixed and variable payments to be made by
Open Range over the initial term of 30 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
Rural Utilities Program and equity financing of $100 million. Open Range has remitted to us its initial down
payment of $2 million. Open Range’s annual payments 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 the licensed spectrum covered by
the agreement. The amount of the payments that we will receive from Open Range will depend on a number of
factors, including the eventual geographic coverage of and the number of customers on the Open Range system.
In addition to our agreement with Open Range Communications, Inc. (See “Our Business - Ancillary Terrestrial
Component—ATC Opportunities”), we hope to exploit additional ATC monetization strategies and opportunities
in urban markets or in suburban areas that are not the subject of our agreement with Open Range. Our system is
flexible enough to allow us to use different technologies and network architectures in different geographic areas.
Service and Subscriber Equipment Sales Revenues. The table below sets forth amounts and percentages of our
revenue by type of service and equipment sales for the years ended December 31, 2008, 2007 and 2006.
Year Ended
December 31, 2008
Year Ended
December 31, 2007
Year Ended
December 31, 2006
Revenue
% of
Total
Revenue
Revenue
% of
Total
Revenue
% of
Total
Revenue
Revenue
$
Service Revenue:
Mobile (voice and data)
Fixed (voice and data)
Data
Simplex
Independent gateway operators
Other(1)
Total Service Revenue
Subscriber Equipment Sales:
Mobile equipment
Fixed equipment
Data and Simplex
Accessories/misc
Total Subscriber Equipment
Sales
Total Revenue
$
41,883
3,506
784
6,362
3,098
6,161
61,794
8,095
1,164
10,170
4,832
24,261
86,055
49% $
4
1
7
4
7
72
9
1
12
6
60,920
5,369
1,649
2,407
4,465
3,503
78,313
11,931
2,160
1,946
4,048
62% $
5
2
2
5
4
80
12
2
2
4
71,101
7,741
1,573
1,636
8,032
1,954
92,037
22,542
6,149
2,023
13,920
52%
6
1
1
6
1
67
17
5
1
10
28
100% $
20,085
98,398
20
44,634
100% $ 136,671
33
100%
22
(1)
Includes activation fees and engineering service revenue.
Operating Income (Loss). We realized an operating loss of $57.7 million for 2008 compared to an operating loss of
$24.6 million in 2007. We attribute the increase in operating loss to lower service revenue, higher depreciation and operating
costs from our acquisition of gateways in Brazil.
Subscribers and ARPU for 2008, 2007 and 2006. The following table set forth our Average number of subscribers
and ARPU for retail, IGO and Simplex customers for 2008, 2007 and 2006. The following numbers are subject to immaterial
rounding inherent in calculating averages.
Average number of subscribers for the period:
Retail
IGO
Simplex
ARPU (monthly):
Retail
IGO
Simplex
Average number of subscribers for the period:
Retail
IGO
Simplex
ARPU (monthly):
Retail
IGO
Simplex
Ending number of subscribers:
Retail
IGO
Simplex
Total
Ending number of subscribers:
Retail
IGO
Simplex
Total
Year Ended December 31,
2008
2007
% Net
Change
118,580
79,202
118,072
35.19
3.26
4.48
$
$
$
122,709
90,254
64,034
46.26
4.12
3.11
(3)%
(12)
84
(24)%
(21)
44
Year Ended December 31,
2007
2006
% Net
Change
122,709
90,254
64,034
46.26
4.12
3.11
$
$
$
112,390
79,822
36,035
58.91
8.39
3.78
9%
13
78
(21)%
(51)
(18)
$
$
$
$
$
$
December 31,
2008
December 31,
2007
% Net
Change
115,371
73,763
155,196
344,330
118,747
87,930
77,449
284,126
(3)%
(16)
100
21%
December 31,
2007
December 31,
2006
% Net
Change
118,747
87,930
77,449
284,126
122,688
87,458
52,656
262,802
(3)%
1
47
8%
The total number of net subscribers increased from approximately 284,000 at December 31, 2007 to approximately
344,000 at December 31, 2008. Although we experienced a net increase in our total customer base of 21% from
December 31, 2007 to December 31, 2008, our total service revenue decreased for the same period. This is due primarily to
lower contributions from subscribers in addition to the change in our subscriber mix.
Independent Gateway Acquisition Strategy
Currently, 13 of the 26 gateways in our network are owned and operated by unaffiliated companies, which we call
independent gateway operators, some of whom operate more than one gateway. We have no financial interest in these independent
gateway operators other than arms’ length contracts for wholesale minutes of service. Some of these independent gateway operators
have been unable to grow their businesses adequately due in part to limited resources. Old Globalstar initially developed the
independent gateway operator acquisition strategy to establish operations in multiple territories with reduced demands on its capital.
23
In addition, there are territories in which for political or other reasons, it is impractical for us to operate directly. We sell services to
the independent gateway operators on a wholesale basis and they resell them to 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 terms and the current independent operator has expressed a desire to sell its assets to us,
subject to capital availability. We believe that these acquisitions can enhance our results of operations in three respects. First,
we believe that, with our greater financial and technical resources, we can grow our subscriber base and revenue faster than
some of the independent gateway operators. Second, we realize greater margin on retail sales to individual subscribers than
we do on wholesale sales to independent gateway operators. Third, we believe expanding the territory we serve directly will
better position us to market our services directly to multinational customers who require a global communications provider.
However, acquisitions of independent gateway operators do require us to commit capital for acquisition of their
assets, as well as management resources and working capital to support the gateway operations, and therefore increase our
risk in operating in these territories directly rather than through the independent gateway operators. In addition, operating the
acquired gateways increases our marketing, general and administrative expenses. Our credit agreement limits to $25.0 million
the aggregate amount of cash we may invest in foreign acquisitions without the consent of our lenders.
In February 2005, we purchased the Venezuela gateway for $1.6 million in cash to be paid over four years. Effective
January 1, 2006, we acquired the Central American gateway and other real property assets for $5.2 million, paid principally
in shares of our common stock. In March 2008, we acquired an independent gateway operator that owns three satellite
gateway ground stations in Brazil for $6.5 million, paid principally in the shares of our Common Stock. We also incurred
transaction costs of $0.3 million related to this acquisition. We are unable to predict the timing or cost of further acquisitions
because independent gateway operations vary in size and value.
Performance Indicators
Our management reviews and analyzes several key performance indicators in order to manage our business and
assess the quality of and potential variability of our earnings and cash flows. These key performance indicators include:
•
•
•
•
total revenue, which is an indicator of our overall business growth;
subscriber growth and churn rate, which are both indicators of the satisfaction of our customers;
average monthly revenue per unit, or ARPU, which is an indicator of our pricing and ability to obtain
effectively long-term, high-value customers. We calculate ARPU separately for each of our retail, IGO and
Simplex businesses;
operating income, which is an indication of our performance;
• EBITDA, which is an indicator of our financial performance; and
•
capital expenditures, which are an indicator of future revenue growth potential and cash requirements.
Seasonality
Our results of operations are subject to seasonal usage changes. April through October are typically our peak months
for service revenues and equipment sales. Government customers in North America tend to use our services during summer
months, often in support of relief activities after events such as hurricanes, forest fires and other natural disasters.
Critical Accounting Policies and Estimates
The preparation of our Consolidated Financial Statements requires us to make estimates and judgments that affect
our revenues and expenses for the periods reported and the reported amounts of our assets and liabilities, including
contingent assets and liabilities, as of the date of the financial statements. We evaluate our estimates and judgments,
including those related to revenue recognition, inventory, long-lived assets, income taxes, pension obligations, derivative
instruments and stock-based compensation, on an on-going basis. We base our estimates and judgments on historical
experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results may
differ from our estimates under different assumptions or conditions. We believe the following accounting policies are most
important to understanding our financial results and condition and require complex or subjective judgments and estimates.
24
Revenue Recognition
We defer customer activation fees and recognize them over four to five year periods, which approximates the
estimated average life of the customer relationship. We periodically evaluate the estimated customer relationship life.
Historically, changes in the estimated life have not been material to our financial statements.
We bill monthly access fees to retail customers and resellers, representing the minimum monthly charge for each
line of service based on its associated rate plan, on the first day of each monthly bill cycle. We bill airtime minute fees in
excess of the monthly access fees in arrears on the first day of each monthly billing cycle. To the extent that billing cycles fall
during the course of a given month and a portion of the monthly services has not been delivered at month end, we prorate
fees and defer fees associated with the undelivered portion of a given month. Under certain annual plans, where customers
prepay for minutes, we defer revenue until the minutes are used or the prepaid time period expires. Unused minutes
accumulate until they expire, usually one year after activation. In addition, we offer other annual plans under which the
customer is charged an annual fee to access our system. We recognize these fees on a straight-line basis over the term of the
plan. In some cases, we charge a per minute rate whereby we recognize the revenue when each minute is used.
Occasionally we have granted to customers credits which are expensed or charged 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 time of the related sale.
We also provide certain engineering services to assist customers in developing new technologies related to our
system. We record the revenues associated with these services when the services are rendered, and we record the expenses
when incurred. We record revenues and costs associated with long term engineering contracts on the percentage-of-
completion basis of accounting.
We own and operate our satellite constellation and earn a portion of our revenues through the sale of airtime minutes
on a wholesale basis to independent gateway operators. We recognize revenue from services provided to independent
gateway operators based upon airtime minutes used by their customers and contractual fee arrangements. If collection is
uncertain, we recognize revenue when cash payment is received.
Our annual plans (sometimes called Liberty plans) require users to pre-pay usage charges for the entire plan period,
generally 12 months, which results in the deferral of certain of our revenues. Under our revenue recognition policy for these
annual plans, we defer revenue until the earlier of when the minutes are used or when these minutes expire. We recognize any
unused minutes as revenue at the expiration of a plan. Most of our customers have not used all the minutes that are available
to them or have not used them at the pace anticipated, which has caused us to defer a portion of our service revenue.
During the second quarter of 2007, we introduced an unlimited airtime usage service plan (called the Unlimited
Loyalty plan) which allows existing and new customers to use unlimited satellite voice minutes for anytime calls for a fixed
monthly or annual fee. The unlimited loyalty plan incorporates a declining price schedule that reduces the fixed monthly fee
at the completion of each calendar year through the duration of the customer agreement, which ends on June 30, 2010.
Customers have an option to extend their customer agreement by one year at the fixed price. We record revenue for this plan
on a monthly basis based on a straight line average derived by computing the total fees charged over the term of the customer
agreement and dividing it by the number of the months. If a customer cancels prior to the ending date of the customer
agreement, we recognize the balance in deferred revenue.
We sell SPOT satellite messenger services as annual plans and bill them to the customer at the time the customer
activates the service. We defer revenue on such annual service plans upon activation and recognize it ratably over the service
term.
At December 31, 2008 and December 31, 2007, our deferred revenue aggregated approximately $20.6 million (with
$1.3 million included in non-current liabilities) and $20.4 million (with $1.0 million included in non-current liabilities),
respectively.
Subscriber equipment revenue represents the sale of fixed and mobile user terminals, accessories and SPOT satellite
messenger product. We recognize revenue upon shipment provided title and risk of loss have passed to the customer,
persuasive evidence of an arrangement exists, the fee is fixed and determinable and collection is probable.
In December 2002, the Emerging Issues Task Force (“EITF”) reached a consensus on EITF Issue No. 00-21,
“Revenue Arrangements with Multiple Deliverables.” EITF Issue No. 00-21 addresses certain aspects of the accounting by a
vendor for arrangements under which it will perform multiple revenue-generating activities. In some arrangements, the
different revenue- generating activities (deliveries) are sufficiently separable and there exists sufficient evidence of their fair
25
values to account separately for some or all of the deliveries (that is, there are separate units of accounting). In other
arrangements, some or all of the deliveries are not independently functional, or there is not sufficient evidence of their fair
values to account for them separately. EITF Issue No. 00-21 addresses when and, if so, how an arrangement involving
multiple deliverables should be divided into separate units of accounting. EITF Issue No. 00-21 does not change otherwise
applicable revenue recognition criteria.
Inventory
Inventory consists of purchased products, including fixed and mobile user terminals, accessories and gateway spare
parts. We state inventory transactions at the lower of cost or market. At the end of each quarter, we review product sales and
returns from the previous twelve months and write off any excess and obsolete inventory. Cost is computed using the first-in,
first-out (FIFO) method. We record inventory allowances for inventories with a lower market value or that are slow moving
in the period of determination.
Globalstar System, Property and Equipment
Our Globalstar System assets include costs for the design, manufacture, test and launch of a constellation of low
earth orbit satellites, including eight satellites previously held as ground spares which we launched in May and October 2007,
which we refer to as the space segment, and primary and backup terrestrial control centers and gateways, which we refer to as
the ground segment. We recognize loss from an in-orbit failure of a satellite as an expense in the period it is determined that
the satellite is not recoverable. We regard these recently launched satellites as part of the second-generation constellation
which will be supplemented by the 48 second-generation satellites currently being constructed. We estimate these 48 second-
generation satellites will have an in-orbit life of 15 years.
We review the carrying value of the Globalstar System for impairment whenever events or changes in circumstances
indicate that the recorded value of the space segment and ground segment may not be recoverable. We look to current and
future undiscounted cash flows, excluding financing costs, as primary indicators of recoverability. If we determine an
impairment exists, we calculate any related impairment loss based on fair value. We believe our two-way
telecommunications services, or Duplex services, after the launch of our second- generation constellation, and Simplex
services will generate sufficient undiscounted cash flow after our second-generation system becomes fully operational, which
is expected to be sometime in 2010, to justify our carrying value for our second-generation costs.
We began depreciating the satellites previously recorded as spare satellites and subsequently incorporated into the
Globalstar System on the date each satellite was placed into service (the “In-Service Date”) over an estimated life of eight
years.
Income Taxes
Until January 1, 2006, we were taxed as a partnership for U.S. tax purposes (Notes 8 and 12 of our Consolidated
Financial Statements). Generally, our taxable income or loss, deductions and credits were passed through to our members.
Effective January 1, 2006, we elected to be taxed as a corporation, and thus subject to the provisions as prescribed under
Subchapter C of the Internal Revenue Code. We also began accounting for income 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 tax status from non-taxable to taxable, the effect of
recognizing deferred tax assets and liabilities is included in income from continuing operations in the period of change. As a
result of our election to be taxed as a corporation effective January 1, 2006, we recognized gross deferred tax assets and gross
deferred tax liabilities of approximately $204.2 million and $0.1 million, respectively
At December 31, 2008 and 2007, we recognized gross deferred tax assets of approximately $125.1 million and
$144.0 million, respectively. We also established a valuation allowance to reduce the deferred tax assets to an amount that is
more likely than not to be realized. As of December 31, 2008 and 2007, we had established valuation allowances of
approximately $125.1 million and $122.4 million, respectively. Accordingly, at December 31, 2008 and 2007, net deferred
tax assets were approximately $0 and $21.6 million, respectively.
On January 1, 2007, we adopted Financial Accounting Standards Board Interpretation No. 48 “Accounting for
Uncertainty in Income Taxes” (“FIN 48”). See Note 8 to our Consolidated Financial Statements for the impact of this
adoption on our financial statements.
26
Second-Generation Satellites and Launch Costs and Ground Component
In November, 2006, we entered into a contract with Thales Alenia Space to construct 48 low-earth orbit satellites.
We entered into an additional agreement with Thales Alenia Space in March 2007 for the construction of the Satellite
Operations Control Centers, Telemetry Command Units and In Orbit Test Equipment (collectively, the “Control Network
Facility”) for our second- generation satellite constellation.
In September 2007, we and our Launch Provider entered into an agreement for the launch of our second-generation
satellites and certain pre and post-launch services. Pursuant to the agreement, our Launch Provider will make four launches
of six satellites each, and we have the option to require our Launch Provider to make four additional launches of six satellites
each.
On May 14, 2008, we entered into a contract with Hughes under which Hughes will design, supply and implement
the Radio Access Network (“RAN”) ground network equipment and software upgrades for installation at a number of our
satellite gateway ground stations and satellite interface chips to be a part of the User Terminal Subsystem (UTS) in our
various next-generation Globalstar devices. The total contract purchase price of approximately $100.8 million is payable in
various increments over a period of 40 months. We have the option to purchase additional RANs and other software and
hardware improvements at pre-negotiated prices. A portion of the payments made under this contract is recognized as an
expense.
On October 8, 2008, we signed an agreement with Ericsson, a leading global provider of technology and services to
telecom operators. According to the $22.7 million contract, Ericsson will work with us to develop, implement and maintain a
ground interface, or core network, system that will be installed at our satellite gateway ground stations. The all Internet
protocol (IP) based core network system is wireless 3G/4G compatible and 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 and placed into service.
Pension Obligations
We have a company-sponsored retirement plan covering certain current and past U.S.-based employees. Until
June 1, 2004, substantially all of Old Globalstar’s and our employees and retirees who participated and/or met the vesting
criteria for the plan were participants in the Retirement Plan of Space Systems/Loral, Inc. (the “Loral Plan”), a defined
benefit pension plan. The accrual of benefits in the Old Globalstar segment of the Loral Plan was curtailed, or frozen, by the
administrator of the Loral Plan as of October 23, 2003. Prior to October 23, 2003, benefits for the Loral Plan were generally
based upon compensation, length of service with the company and age of the participant. On June 1, 2004, the assets and
frozen pension obligations of the segment attributable to our employees were transferred into a new Globalstar Retirement
Plan (the “Globalstar Plan”). The Globalstar Plan remains frozen and participants are not currently accruing benefits beyond
those accrued as of October 23, 2003. Our funding policy is to fund the Globalstar Plan in accordance with the Internal
Revenue Code and regulations.
We account for our defined benefit pension and life insurance benefit plans in accordance with SFAS No. 87,
“Employers’ Accounting for Pensions”, (“SFAS 87”), SFAS No. 106, “Employer’s Accounting for Postretirement Benefits
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 on an
actuarial basis. We adopted the recognition and disclosure provisions of SFAS No. 158 on December 31, 2006 and this
adoption did not have any impact on our results of operation. Pension benefits associated with these plans are generally based
on each participant’s years of service, compensation, and age at retirement or termination. Two critical assumptions, the
discount rate and the expected return on plan assets, are important elements of expense and liability measurement.
We determine the discount rate used to measure plan liabilities as of the December 31 measurement date for the U.S.
pension plan. The discount rate reflects the current rate at which the associated liabilities could be effectively settled at the
end of the year. In estimating this rate, we look at rates of return on fixed-income investments of similar duration to the
liabilities in the plan that receive high, investment grade ratings by recognized ratings agencies. Using these methodologies,
we determined a discount rate of 5.75% to be appropriate as of December 31, 2008, which is a 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 plan
liabilities as of December 31, 2008 by $1.5 million and a decrease of 1.0% could have increased our plan liabilities by
$1.8 million.
27
A significant element in determining our pension expense in accordance with SFAS No. 158 is the expected return
on plan assets, which is based on historical 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 actual return on plan assets and, under certain
circumstances, amortize it over future years of service. Therefore, the net deferral of past asset gains (losses) ultimately
affects future pension expense. This is also true of changes to actuarial assumptions. As of December 31, 2008, we had net
unrecognized pension actuarial losses of $5.2 million. These amounts represent potential future pension and postretirement
expenses that would be amortized over average future service periods.
Derivative Instrument
Prior to December 10, 2008, we utilized a derivative instrument in the form of an interest rate swap agreement and a
forward contract for purchasing foreign currency to minimize our risk from interest rate fluctuations related to our variable
rate credit agreement and minimize our risk from fluctuations related to the foreign currency exchange rates, respectively. We
used the interest rate swap agreement and the forward contract for purchasing foreign currency to manage risk and not for
trading or other speculative purposes. At the end of each accounting period, we recorded the derivative instrument on our
balance sheet as either an asset or a liability measured at fair value. The interest rate swap agreement and the forward contract
for purchasing foreign currency did not qualify for hedge accounting treatment. Changes in the fair value of the interest rate
swap agreement and the forward contract for purchasing foreign currency were recognized as “Interest rate derivative gain
(loss)” and “Other Income” over the life of the agreements, 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 public offering, we adopted the provisions of Statement of
Financial Accounting Standards 123(R), “Share-Based Payment” (“SFAS 123(R)”), and related interpretations, or
SFAS 123(R), to account for stock-based compensation using the modified prospective transition method and therefore have
not restated our prior period results. Among other things, SFAS 123(R) requires that compensation expense be recognized in
the financial statements for both employee and non-employee share-based awards based on the grant date fair value of those
awards. Additionally, stock-based compensation expense includes an estimate for pre-vesting forfeitures and is recognized
over the requisite service periods of the awards on a straight-line basis, which is generally commensurate with the vesting
term.
5.75% Convertible Senior Notes due 2028
In May 2008, the FASB issued FSP APB 14-1, “Accounting for Convertible Debt Instruments That May Be Settled
in Cash upon Conversion (Including Partial Cash Settlement).” FSP APB 14-1 clarifies that convertible debt instruments that
may be settled in cash upon either mandatory or optional conversion (including partial cash settlement) are not addressed by
paragraph 12 of APB Opinion No. 14, “Accounting for Convertible Debt and Debt issued with Stock Purchase Warrants.”
Additionally, FSP APB 14-1 specifies that issuers of such instruments should separately account for the liability and equity
components in a manner that will reflect the entity’s nonconvertible debt borrowing rate when interest cost is recognized in
subsequent periods. As such, the initial debt proceeds from the sale of our 5.75% Convertible Senior Notes due 2028 (the
“Notes”), which are discussed in more detail in Note 16 to the Consolidated Financial Statements, are required to be allocated
between a liability component and an equity component as of the debt issuance date. FSP APB 14-1 is effective for financial
statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. We
adopted this FSP during the first quarter of 2009. We retrospectively recasted our results for the year ended December 31,
2008, to reflect the adoption of FSP APB 14-1.
Upon adoption of FSP APB 14-1, we measured the fair value of the $150 million principal amount of Notes issued
in April 2008, using an interest rate that we could have obtained at the date of issuance for similar debt instruments without
an embedded conversion option. Based on this analysis, we determined that the fair value of the Notes was approximately
$95.5 million as of the issuance date, a reduction of approximately $54.5 million in the carrying value of the Notes. Also in
accordance with FSP APB 14-1, we are required to allocate a portion of the $4.8 million debt issuance costs that were
directly related to the issuance of the Notes between a liability component and an equity component as of the issuance date,
using the interest rate method as discussed above. Based on this analysis, we reclassified approximately $1.8 million of these
costs as a component of equity.
28
In 2008, holders of $36.0 million aggregate principal amount of Notes, or 24% of the Notes originally issued,
submitted notices of conversion to the trustee in order to convert their Notes into Common Stock and cash in accordance with
the terms of the Notes. We also entered into agreements with holders of an additional $42.2 million aggregate principal
amount of Notes, or 28% of the Notes originally issued, to exchange the Notes for a combination of Common Stock and cash.
We issued approximately 23.6 million shares of Common Stock and paid a nominal amount of cash for fractional shares in
connection with the conversions and exchanges. In addition, the holders received an early conversion make whole amount of
approximately $9.3 million representing the next five semi-annual interest payments that would have become due on the
converted Notes, which was paid from funds in an escrow account for the benefit of the holders of Notes. In the exchanges,
Note holders received additional consideration in the form of cash payments or additional shares of our Common Stock in the
amount of approximately $1.1 million to induce exchanges. As a result of adopting FSP APB 14-1, we recognized a gain
from extinguishment of debt of $49.0 million during 2008. After this conversion, approximately $48.7 million, net of debt
discount of $23.1 million, of the Notes were outstanding at December 31, 2008.
Results of Operations
Comparison of Results of Operations for the Years Ended December 31, 2008 and 2007
Statements of Operations
Revenue:
Service revenue
Subscriber equipment sales(1)
Total Revenue
Operating Expenses:
Cost of services (exclusive of depreciation and amortization
shown separately below)
Cost of subscriber equipment sales:
Cost of subscriber equipment sales(2)
Cost of subscriber equipment sales—Impairment of assets
Total cost of subscriber equipment sales
Marketing, general and administrative
Depreciation and amortization
Total Operating Expenses
Operating loss
Gain on extinguishment of debt
Interest income
Interest expense
Interest rate derivative loss
Other
Loss Before Income Taxes
Income tax expense (benefit)
Net Loss
Year Ended
December 31,
2008
Year Ended
December 31,
2007
(In thousands)
% Change
$
$
61,794
24,261
86,055
78,313
20,085
98,398
(21)%
21
(13)
37,132
27,775
17,921
405
18,326
61,351
26,956
143,765
(57,710)
49,042
4,713
(5,733)
(3,259)
(4,497)
(17,444)
(2,283)
(15,161) $
13,863
19,109
32,972
49,146
13,137
123,030
(24,632 )
—
3,170
(9,023 )
(3,232 )
8,656
(25,061 )
2,864
(27,925 )
$
34
29
(98)
(44)
25
105
17
(134)
N/A
49
(36)
1
N/A
(30)
N/A
(46)
(1)
(2)
Includes related party amounts of $0 and $59 for 2008 and 2007, respectively.
Includes related party amounts of $0 and $46 for 2008 and 2007, respectively.
Revenue. Total revenue decreased by $12.3 million, or approximately 13%, to $86.1 million for 2008, from
$98.4 million for 2007. This decrease is attributable to lower service revenues as a result of our two-way communication issues.
Our service revenue was lower primarily due to price reductions aimed at maintaining our subscriber base despite our two-way
communication issues. Our subscriber equipment sales increased during 2008 as compared to 2007 as a result of the launch of
our SPOT satellite messenger product and services. Our retail ARPU during 2008, decreased by 24% to $35.19 from $46.26 for
2007. We added approximately 60,000 net subscribers in 2008 compared to 21,000 net subscriber additions in 2007.
Service Revenue. Service revenue decreased $16.5 million, or approximately 21%, to $61.8 million for 2008, from
$78.3 million for 2007. Although our subscriber base grew 21% during 2008 to approximately 344,000, we experienced
decreased retail ARPU resulting in lower service revenue. The primary reason for this decrease in our service revenue was
the reduction of our prices in response to our two-way communication issues.
29
Subscriber Equipment Sales. Subscriber equipment sales increased by $4.2 million, or approximately 21%, to
$24.3 million for 2008, from $20.1 million for 2007. The increase was due primarily to sales in 2008 of our SPOT satellite
messenger product and services.
Operating Expenses. Total operating expenses increased $20.7 million, or approximately 17%, to $143.8 million
for 2008, from $123.0 million for 2007. This increase was due to higher cost of goods sold related to our new SPOT satellite
messenger product, increased marketing, general and administrative expenses due to our commencing sales of SPOT satellite
products and services in late 2007, as well as higher depreciation and amortization expenses related to our eight spare
satellites launched in 2007, all of which were partially offset by a $19.1 million asset impairment charge recognized in 2007.
In 2008, we incurred a $0.4 million asset impairment charge.
Cost of Services. Our cost of services for 2008 and 2007 were $37.1 million and $27.8 million, respectively. Our
cost of services is comprised primarily of network operating costs. Although our costs are generally fixed in nature, these
costs were higher in 2008 as a result of our recently acquired subsidiary in Brazil and higher research and development
expenses related to our second generation ground component development.
Cost of Subscriber Equipment Sales. Cost of subscriber equipment sales decreased approximately $14.6 million, or
approximately 44%, to $18.3 million for 2008, from $33.0 million for 2007. This decrease was due primarily to the absence
in 2008 of a $19.1 million impairment charge recorded in 2007 offset by higher costs from the launch of our SPOT satellite
messenger product, which began in November 2007.
Marketing, General and Administrative. Marketing, general and administrative expenses increased $12.2 million, or
approximately 25%, to $61.4 million for 2008, from $49.1 million for 2007. This increase was due primarily to higher sales
and marketing costs related to our SPOT satellite messenger product, costs associated with the acquisition of our subsidiary
in Brazil, and increased labor and fringe costs.
Depreciation and Amortization. Depreciation and amortization expense increased approximately $13.8 million, or
105%, to $27.0 million for 2008, from $13.1 million for 2007. This increase was due primarily to the additional depreciation
associated with placing into service all of our spare satellites launched in 2007.
Operating Income (Loss). Operating loss increased approximately $33.1 million, to $57.7 million for 2008, from
$24.6 million for 2007. The increase was due to the higher operating costs described above and lower service revenue.
Gain on Extinguishment of Debt. As a result of adopting FSP APB 14-1, we recognized $49.0 million in gains from
the conversions of Notes into our Common Stock during 2008.
Interest Income. Interest income increased by $1.5 million to $4.7 million for 2008, from $3.2 million for the same
period in 2007. This increase was due to increased average cash and restricted cash balances on hand.
Interest Expense. Interest expense decreased by $3.2 million, to $5.8 million for 2008 from $9.0 million for 2007.
This decrease was due primarily to the expensing, in 2007, of our deferred debt issuance costs of $8.1 million as a result of
Thermo Funding assuming all of the obligations of the administrative agent and the lenders under our credit agreement with
Wachovia Investment Holdings, LLC and the other lenders parties thereto. In 2008, we expensed $1.9 million in deferred
financing costs.
Interest Rate Derivative Loss. For 2008, interest rate derivative loss was $3.3 million compared to $3.2 million in
2007. This increase was due to the unfavorable change in fair value in our interest rate swap agreement which we terminated
during the fourth quarter of 2008.
Other Income (Expense). Other income (expense) generally consists of foreign exchange transaction gains and
losses. Other income decreased by $13.2 million for 2008 as compared to 2007 due to an unfavorable exchange rate on the
Euro denominated escrow account and a decline in the Canadian dollar during 2008.
Income Tax Expense (Benefit). Income tax benefit for 2008 was $2.3 million compared to an expense of
$2.9 million during 2007. The change between periods was primarily a result of benefits resulting from conversion of our
Notes into shares of our Common Stock during 2008.
30
Net Loss. Our net loss decreased approximately $12.7 million to a loss of $15.2 million for 2008, from a net loss of
$27.9 million for 2007. This decrease was due to the gain on extinguishment of debt, partially offset by increases in costs of
operations related to Brazil, higher depreciation and lower service revenue.
Comparison of Results of Operations for the Years Ended December 31, 2007 and 2006
Statements of Operations
Revenue:
Service revenue
Subscriber equipment sales(1)
Total Revenue
Operating Expenses:
Cost of services (exclusive of depreciation and amortization
shown separately below)
Cost of subscriber equipment sales:(2)
Cost of subscriber equipment sales
Cost of subscriber equipment sales—Impairment of assets
Total cost of subscriber equipment sales
Marketing, general and administrative
Depreciation and amortization
Total Operating Expenses
Operating Income (Loss)
Interest income
Interest expense
Interest rate derivative loss
Other income (expense), net
Income (Loss) Before Income Taxes
Income tax expense (benefit)
Net Income (Loss)
Year Ended
December 31,
2007
Year Ended
December 31,
2006
(In thousands)
% Change
$
$
78,313
20,085
98,398
92,037
44,634
136,671
(15)%
(55)
(28)
27,775
28,091
13,863
19,109
32,972
49,146
13,137
123,030
(24,632)
3,170
(9,023)
(3,232)
8,656
(25,061)
2,864
(27,925) $
40,396
1,943
42,339
43,899
6,679
121,008
15,663
1,172
(587 )
(2,716 )
(3,980 )
9,552
(14,071 )
23,623
$
(1)
(66)
N/A
(22)
12
97
2
N/A
170
N/A
19
N/A
N/A
(120)
N/A
(1)
(2)
Includes related party amount of $59 and $3,423 for the year ended December 31, 2007 and 2006, respectively.
Includes related party amount of $46 and $3,041 for the year ended December 31, 2007 and 2006, respectively.
Revenue. Total revenue decreased by $38.3 million, or approximately 28.0%, to $98.4 million for the year ended
December 31, 2007, from $136.7 million for 2006. This decrease is attributable in part to lower service revenues as a result
of our two-way communication issues. Our service revenue was lower primarily due to price reductions aimed at maintaining
our subscriber base despite our two-way communication issues. Our subscriber equipment sales also decreased significantly
during the year ended December 31, 2007 as compared to 2006 as a result of our two-way communications issues. Our retail
ARPU during the year ended December 31, 2007, decreased by 21.5% to $46.26 from $58.91 for 2006. We added
approximately 21,000 subscribers in 2007 compared to 67,000 net subscriber additions in 2006.
Service Revenue. Service revenue decreased $13.7 million, or approximately 14.9%, to $78.3 million for the year
ended December 31, 2007, from $92.0 million for 2006. Although our subscriber base grew 8.0% to approximately 284,000
over the year ended December 31, 2007, we experienced decreased retail ARPU resulting in lower service revenue. We
believe that the primary reason for this decrease in our service revenue was the reduction of our prices in response to our two-
way communication issues.
Subscriber Equipment Sales. Subscriber equipment sales decreased by $24.5 million, or approximately 55.0%, to
$20.1 million for the year ended December 31, 2007, from $44.6 million for 2006. The decrease was due primarily to
concerns over our two-way communications issues.
Operating Expenses. Total operating expenses increased $2.0 million, or approximately 1.7%, to $123.0 million for
the year ended December 31, 2007, from $121.0 million for the year ended December 31, 2006. This increase was due
primarily to a net asset impairment charge to our first-generation phone and accessory inventory of $19.1 million as a result
of our assessment of inventory quantities and higher depreciation expense which was partially offset by the lower cost of
subscriber equipment consistent with lower equipment sales for the year ended December 31, 2007.
31
Cost of Services. Our cost of services for the years ended December 31, 2007 and 2006 were $27.8 million and
$28.1 million, respectively. Our cost of services is comprised primarily of network operating costs, which are generally fixed
in nature. Cost of services declined as a result of lower telecom costs and reductions in certain labor costs offset partially by
an increase in non-cash executive incentive compensation as compared to 2006.
Cost of Subscriber Equipment Sales. Cost of subscriber equipment sales decreased $9.4 million, or approximately
22.1%, to $33.0 million for the year ended December 31, 2007, from $42.4 million for 2006. This decrease was due primarily
to lower equipment sales as a result of our two-way communication issues and lower equipment cost basis as a result of a net
asset impairment charge to our first-generation inventory. In 2007, we recorded a net impairment charge of $19.1 million
representing a write down on our first- generation phone and accessory inventory. This charge was taken after our assessment
of inventory quantities and recent and projected equipment sales. The asset impairment charge in 2006 was $1.9 million.
Marketing, General and Administrative. Marketing, general and administrative expenses increased $5.2 million, or
approximately 12.0%, to $49.1 million for the year ended December 31, 2007, from $43.9 million for 2006. This increase
was due primarily to higher professional fees related to operating as a public company and non-cash stock compensation
expense of $9.6 million resulting from the change in the Executive Incentive Compensation Plan offset partially by lower
dealer commissions as a consequence of lower sales. Additionally, advertising expenses were higher as a result of the
introduction of our new SPOT products and services in the fourth quarter of 2007.
Depreciation and Amortization. Depreciation and amortization expense increased $6.4 million, or 96.7%, to
$13.1 million for the year ended December 31, 2007, from $6.7 million for 2006. This increase was due primarily to the
additional depreciation associated with placing five of our recently-launched spare satellites into service and as a result of
reducing the remaining useful life of our satellite system and related assets from 39 months to 27 months, beginning in the
fourth quarter of 2006.
Operating Income (Loss). Operating income decreased $40.3 million, to an operating loss of $24.6 million for the
year ended December 31, 2007, from operating income of $15.7 million for 2006. The decrease was due to the asset
impairment charge described above and lower service and subscriber equipment revenues partially offset by lower cost of
equipment sales.
Interest Income. Interest income increased by $2.0 million to $3.2 million for the year ended December 31, 2007,
from $1.2 million for the same period in 2006. This increase was due to increased average cash balances on hand.
Interest Expense. Interest expense increased by $8.4 million, to $9.0 million for the year ended December 31, 2007
from $0.6 million for 2006. This increase was due primarily to the expensing of our deferred debt issuance costs of
$8.1 million as a result of Thermo Funding assuming all of the obligations of the administrative agent and the lenders under
our credit agreement with Wachovia Investment Holdings, LLC and the other lenders parties thereto.
Interest Rate Derivative Loss. For the year ended December 31, 2007, interest rate derivative loss was $3.2 million
compared to $2.7 million in 2006. This increase was due to the decrease in the fair value of our interest rate swap agreement.
Other Income (Expense). Other income (expense) generally consists of foreign exchange transaction gains and
losses. Other income increased by $12.6 million for the year ended December 31, 2007 as compared to 2006 due to a
favorable exchange rate on the Euro denominated escrow account during 2007.
Income Tax Expense (Benefit). Income tax expense for the year ended December 31, 2007 was $2.9 million
compared to a net income tax benefit of $14.1 million during 2006. The change between periods was primarily a result of a
$21.4 million deferred tax benefit recorded on January 1, 2006 upon our election to be taxed as a C Corporation.
Net Income (Loss). Our net income decreased $51.5 million to a loss of $27.9 million for the year ended
December 31, 2007, from net income of $23.6 million for the year ended December 31, 2006. This decrease was due
primarily to the $19.1 million asset impairment charge related to our inventory recognized in 2007, the non-cash charges
relating to the compensation and debt issuance costs discussed above, lower operating income in 2007 and the $14.1 million
net deferred tax benefit recognized in 2006.
32
Liquidity and Capital Resources
The following table shows our cash flows from operating, investing and financing activities for the years ended
December 31, 2008, 2007 and 2006 (in thousands):
Statements of Cash Flows
Net cash from (used in) operating activities
Net cash (used in) investing activities
Net cash from financing activities
Effect of exchange rate changes on cash
Net Increase (Decrease) in Cash and Cash Equivalents
Year Ended
December 31,
2008
Year Ended
December 31,
2007
Year Ended
December 31,
2006
$
$
(30,585) $
(258,581)
252,533
11,436
(25,197) $
(7,669 ) $
(183,378 )
193,489
(8,586 )
(6,144 ) $
14,571
(160,316)
170,601
(1,428)
23,428
Currently, our principal sources of liquidity are our credit agreement with Thermo Funding, our existing cash and
internally generated cash flow from operations, if positive.
At January 1, 2009, our principal short-term liquidity needs were:
•
•
•
•
to make payments to procure our second-generation satellite constellation, construct the Control Network
Facility and launch related costs, in a total amount not yet determined, but which will include approximately
€92.1 million payable to Thales Alenia Space by December 31, 2009 under the purchase contract for our
second-generation satellites and €2.4 million payable to Thales Alenia Space by December 2009 under the
contract for construction of the Control Network Facility, respectively;
to make payments related to our launch for the second-generation satellite constellation in the amount of
$132.7 million payable to our Launch Provider by December 31, 2009;
to make payments related to the construction of our second-generation ground component in the amount of
$20.6 million by December 31, 2009; and
to fund our working capital (which was a deficit of $22.2 million at December 31, 2008); we expect this deficit
to increase further in 2009.
Our liquidity sources at December 31, 2008 are insufficient to fund our short-term or long-term needs. We must obtain
additional financing to fund the procurement and deployment of our second-generation constellation and other related
construction costs and our on-going operations, which are currently generating negative cash flows. Due to the worldwide
economic crisis and the tight credit market, obtaining suitable financing remains challenging. Our registered public accounting
firm’s audit report on our Consolidated Financial Statements as of December 31, 2008, and for the year then ended includes a
“going concern” explanatory paragraph that expresses substantial doubt about our ability to continue as a going concern. The
“going concern” explanatory paragraph reflects substantial doubt about our ability to obtain this financing in a timely manner.
We are pursuing a number of options involving issuance of additional debt, equity or both to obtain the required
funding as well as seeking to reduce our internal costs and aggressively grow our revenues. We cannot assure you that
sufficient additional financing will be obtained on acceptable terms, if at all. If we fail to obtain necessary additional
financing, the procurement and deployment of our second-generation satellite constellation, related construction costs and our
ongoing operations will be materially adversely impacted. We could default on our commitments to our satellite, launch,
ground component and other third party vendors, possibly leading to termination of our second-generation construction
contracts or other contracts some of which have substantial termination fees. We may also be required to reduce substantially
our ongoing operations or discontinue operations all together. If we do not acquire and deploy our second generation
constellation and/or discontinue operations, we may lose our FCC license, international spectrum rights and/or ATC authority
in the United States. If we lose our FCC license, rights to international spectrum or ATC authority, we will lose the right to
operate our business in those parts of the world and may not be able to continue as a going concern and would be required to
sell our satellite business or assets in those areas of the world or cease operations all together.
In addition, we may have difficulty maintaining existing relationships, or developing new relationships, with
suppliers or vendors as a result of our financial condition. Our suppliers or vendors could choose to provide supplies or
services to us on more stringent payment terms than those currently in place, such as by requiring advance payment or
payment upon delivery of such supplies or services, which would have an adverse impact on our short-term cash flows. As a
result, our ability to retain current customers, attract new customers and maintain contracts that are critical to our operations
may be adversely affected.
33
Finally, these events may result in defaults under our current financing arrangements which would permit
acceleration of our indebtedness and exercise of remedies by our lenders.
During the years ended December 31, 2008, 2007 and 2006, our principal sources of liquidity were:
Cash on-hand at beginning of period
Proceeds from sale of Notes, net
Capital contributions by Thermo net
Borrowings under Thermo Funding credit agreement, net
Purchase of common stock by Thermo Funding
Proceeds of initial public offering, net
Cash generated (used) by operations
Year Ended
December 31,
2008
Year Ended
December 31,
2007
(Dollars in millions)
$
43.7
$
37.6
$
145.1
$
—
$
—
$
—
$
50.0
$
116.1
$
152.7
$
—
—
—
$
$
(7.7 ) $
(30.6) $
$
$
$
$
$
$
$
Year Ended
December 31,
2006
20.3
—
13.0
—
47.3
116.6
14.6
We plan to fund our short-term liquidity requirements from the following sources:
•
•
•
•
cash from our revolving credit agreement with Thermo ($33.9 million was available on an uncommitted basis at
December 31, 2008, of which we borrowed $7.8 million in 2009);
cash on hand ($12.4 million at December 31, 2008);
cash in our escrow account ($43.5 million at December 31, 2008), which will be used periodically to pay down
our obligation to Thales Alenia Space or, if permitted, for operating purposes; and
the incurrence of additional indebtedness, additional equity financings or a combination thereof as described
above.
Our principal long-term liquidity needs are:
•
•
•
to pay the costs of procuring and deploying our second-generation satellite constellation and upgrading our
gateways and other ground facilities;
to fund our working capital, including any growth in working capital required by growth in our business; and
to fund the cash requirements of our independent gateway operator acquisition strategy, in an amount not
determinable at this time.
We plan to fund our long-term capital needs with additional debt or equity financings as described above, any available
cash flow from operations in future periods, which we expect will be generated primarily from sales of our Simplex products
and services, including our SPOT satellite messenger products and services, and potential ATC monetization strategies.
Our liquidity and our ability to fund these needs and to make payments for principal and interest will depend on
achieving substantial growth in revenues, having positive cash flows from operations, obtaining additional financing or
access to our restricted cash for operating purposes or a combination thereof, which will be subject in part to general
economic, financial, regulatory and other factors, including obtaining the consent of others, that are beyond our control,
including our ability to achieve positive cash flow from operations despite the problems with our satellite constellation
described elsewhere, the willingness of others to invest in us and trends in our industry and technology discussed elsewhere
in this Report. In addition to these general and economic and industry factors, the principal factors affecting our cash flows
will be our ability to continue to provide attractive and competitive services and products, successfully manage the
degradation of our current satellite constellation until we can deploy our second-generation satellite constellation, increase
our number of subscribers and retail average revenue per unit, control our costs, and maintain our margins and profitability. If
those factors change significantly or other unexpected factors adversely affect us, our business may not generate sufficient
cash flow from operations and future financings may not be available on terms acceptable to us or at all to meet our liquidity
needs. In assessing our liquidity, our management reviews and analyzes our current cash on-hand, the average number of
days our accounts receivable are outstanding, the contractual rates that we have established with our vendors, inventory turns,
foreign exchange rates, capital expenditure commitments and income tax rates.
34
Net Cash from (used in) Operating Activities
Net cash used in operating activities for 2008 increased to a cash outflow of $30.6 million from an outflow of
$7.7 million for 2007. This increase was due primarily to lower revenues, lower inventory turnover and higher operating
expenses during 2008 as compared to 2007.
Net cash provided by operating activities for 2007 decreased to a cash outflow of $7.7 million from a cash inflow of
$14.6 million for 2006. This decrease was due primarily to lower revenues and lower inventory turnover during 2007 as
compared to 2006.
Net Cash from (used in) Investing Activities
Cash used in investing activities was $258.6 million for 2008, compared to $183.4 million in 2007. This increase
was primarily the result of capital expenditures associated with construction expenses for our second-generation satellite
constellation.
Cash used in investing activities was $183.4 million for 2007, compared to $160.3 million in 2006. This increase
was primarily the result of capital expenditures associated with construction expenses for our second-generation satellite
constellation and the launches of our eight spare satellites in 2007.
Net Cash from Financing Activities
Net cash provided by financing activities increased by $59.0 million to $252.5 million in 2008 from $193.5 million
in 2007. The increase was primarily due to $116.1 million, net drawn on the credit agreement with Thermo Funding and the
$145.1 million from the issuance of the Notes.
Net cash provided by financing activities increased by $22.9 million to $193.5 million from $170.6 million for 2007
as compared to 2006. The increase was primarily the result of $152.7 million of equity purchased by Thermo Funding
pursuant to its irrevocable standby stock purchase agreement and $50.0 million drawn on the revolving credit agreement with
Thermo Funding offset by $116.6 million received as proceeds from our initial public offering in November, 2006 and
$47.3 million received pursuant to Thermo Funding’s irrevocable standby stock purchase agreement during 2006.
Capital Expenditures
Our capital expenditures consist primarily of upgrading our satellite constellation and gateways and other ground
facilities. We have completed construction of a gateway in Singapore at a total cost of approximately $4.0 million. This
gateway was fully operational for Simplex service in October 2008. Duplex service is expected to be introduced when the
second- generation constellation becomes operational.
In 2005, we commenced capital expenditures for the launch of our eight spare satellites in 2007. In 2008 and 2007,
we incurred $0.1 million and $37.6 million (excluding capitalized interest and internal costs), respectively, related to the
launch of our eight spare satellites. The total cost for the launch of the spare satellites was approximately $124.0 million
exclusive of capitalized interest and internal costs. As of December 31, 2008, substantially all related payments had been
made.
In the fourth quarter of 2006, we entered into a contract with Thales Alenia Space for our second-generation satellite
constellation. The total contract price, including subsequent additions, is €670.3 million (approximately $931.1 million at a
weighted average conversion rate of €1.00 = $1.3891 at December 31, 2008, including approximately €146.8 million which
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 $347.5 million in related costs through December 31, 2008. At our request, Thales Alenia Space has presented
to us a four-part sequential plan for accelerating delivery of the initial 24 satellites by up to four months. The expected cost of
this acceleration will range from approximately €6.7 million to €13.4 million ($9.4 million to $18.9 million at €1.00 =
$1.4097 at December 31, 2008). In 2007, we authorized the first two portions of this plan with an additional cost of
€4.1 million ($5.9 million at €1.00 = $1.4499). We cannot provide assurance that the acceleration will occur.
In March 2007, we entered into an agreement with Thales Alenia Space for the construction of the Satellite
Operations Control Centers, Telemetry Command Units and In Orbit Test Equipment (collectively, the “Control Network
Facility”) for our second-generation satellite constellation. This agreement complements the second-generation satellite
construction contract with Thales Alenia Space for the construction of 48 low-earth orbit satellites and allows Thales Alenia
35
Space to coordinate all aspects of the second-generation satellite constellation project, including the transition of first-
generation software and hardware to equipment for the second generation. The total contract price for the construction and
associated services is €9.2 million (approximately $13.1 million at a conversion rate of €1.00 = $1.4252) consisting of
€4.1 million for the Satellite Operations Control Centers, €3.1 million for the Telemetry Command Units and €2.0 million for
the In Orbit Test Equipment, with payments to be made on a quarterly basis through completion of the Control Network
Facility in late 2009. We have made payments in the amount of approximately €6.7 million (approximately $9.9 million)
through December 31, 2008.
In September 2007, we entered into a contract with our Launch Provider for the launch of our second-generation
satellites and certain pre and post-launch services. Pursuant to the contract, our Launch Provider will make four launches of
six satellites each, and we have the option to require our Launch Provider to make four additional launches of six satellites
each. The total contract price for the first four launches is $216.1 million. As of December 31, 2008, we have made payments
in the aggregate amount of approximately $26.3 million associated with our launch services contract. The anticipated time
period for the first four launches ranges from as early as the fourth quarter of 2009 through the end of 2010 and the optional
launches are available from spring 2010 through the end of 2014. Prolonged delays due to postponements by us or our
Launch Provider may result in adjustments to the payment schedule.
On May 14, 2008, we entered into a contract with Hughes under which Hughes will design, supply and implement
the Radio Access Network (“RAN”) ground network equipment and software upgrades for installation at a number of our
satellite gateway ground stations and satellite interface chips to be a part of the User Terminal Subsystem (UTS) in our
various next-generation devices. The total contract purchase price of approximately $100.8 million is payable in various
increments over a period of 40 months. We have the option to purchase additional RANs and other software and hardware
improvements at pre-negotiated prices. As of December 31, 2008, we have made payments in the aggregate amount of
approximately $5.4 million associated with this contract. We expensed $1.8 million of these payments and capitalized
$3.6 million as second-generation ground component.
On October 8, 2008, we signed an agreement with Ericsson, a leading global provider of technology and services to
telecom operators. According to the $22.7 million contract, Ericsson will work with us to develop, implement and maintain a
ground interface, or core network, system that will be installed at our satellite gateway ground stations. The all Internet
protocol (IP) based core network system is wireless 3G/4G compatible and 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. The
agreement represents the final significant ground network infrastructure component for our next-generation of advanced IP-
based satellite voice and data services.
The cost for the satellites, launches and gateway 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 weighted average conversion rate of € 1.00=$1.3151 and excludes launch costs for the second 24 satellites, internal costs
and capitalized interest) of capital expenditures which we currently anticipate will be required to procure and deploy our
second-generation satellite constellation and related gateway upgrades. Since the fourth quarter of 2006, we have used
portions of the proceeds from sales of Common Stock to Thermo Funding under the irrevocable standby stock purchase
agreement, the proceeds from our initial public offering, the net proceeds from the sale of the Notes and borrowings under
our credit facility with Thermo Funding to fund the approximately $514.4 million (excluding internal costs and capitalized
interest but including $43.5 million which is held in escrow pursuant to the contract for the procurement of our second-
generation satellite constellation to secure our payment obligations under that contract) paid through December 31, 2008. We
plan to fund the balance of the capital expenditures through cash generated by our operations, which has been and is currently
negative, future debt financings, deferral of payments to certain of our vendors and additional issuance of equity or a
combination of these potential sources. The extent of our need for external capital, which we expect to be substantial, will
vary depending on the success of our SPOT satellite messenger product and services and other commercial factors. This
funding may not be available to us on acceptable terms, or at all.
36
The amount of actual and contractual capital expenditures related to the construction of the second-generation
constellation and satellite operations control centers, ground component and related costs and the launch services contracts is
presented in the table below (in millions):
Contract
Thales Alenia Second Generation
Constellation
Thales Alenia Satellite Operations
Control Centers
Launch Services
Hughes second-generation ground
component
Ericsson
Payments
through
December 31
,
2008
Currency
of Payment
2009
2010
2011
Thereafter
Total
EUR €
258.1 €
92.1 €
92.3 €
80.5 € 147.3 €
670.3
EUR €
USD $
USD $
USD $
6.8 €
26.3 $
2.4 €
132.7 $
— €
57.1 $
— €
— $
— €
— $
9.2
216.1
5.4 $
— $
19.6 $
1.0 $
62.2 $
5.9 $
13.6 $
13.0 $
— $
2.8 $
100.8
22.7
The exchange rate at December 31, 2008 was €1.00 = $1.4097. The contractual future payments do not include the
interest payable on vendor financing agreements related to the Arianespace and Hughes contracts. A portion of these above
costs are not considered capitalizable and will be expensed. See “Quantitative and Qualitative Disclosures About Market
Risk.”
Cash Position and Indebtedness
As of December 31, 2008, our total cash and cash equivalents were $12.4 million and we had total indebtedness of
$271.9 million, compared to total cash and cash equivalents and total indebtedness at December 31, 2007 of $37.6 million
and $50.0 million, respectively.
Convertible Debt
On April 15, 2008, we entered into an Underwriting Agreement (the “Convertible Notes Underwriting Agreement”)
with Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated and Deutsche Bank Securities Inc. (together,
the “Convertible Notes Underwriters”) relating to the sale by us of $135.0 million aggregate principal amount of Notes.
Pursuant to the Convertible Notes Underwriting Agreement, we granted the Convertible Notes Underwriters a 30-day option
to purchase up to an additional $15.0 million aggregate principal amount of the Notes solely to cover over-allotments.
The sale of the $135.0 million aggregate principal amount of the Notes was completed on April 15, 2008. The
Convertible Notes Underwriters subsequently executed their over-allotment option and purchased an additional $15.0 million
aggregate principal amount of the Notes on May 8, 2008. The sale of the Notes was registered under the Securities Act of
1933, as amended, pursuant to a Registration Statement on Form S-3 (File No. 333-149798), as supplemented by a
prospectus supplement and a free-writing prospectus, both dated April 10, 2008.
The Notes were issued under a Senior Indenture, entered into and dated as of April 15, 2008 (the “Base Indenture”),
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 “Escrow Agent”), entered into a Pledge
and Escrow Agreement dated as of April 15, 2008 (the “Pledge Agreement”).
In accordance with the Pledge Agreement, we placed approximately $25.5 million of the proceeds of the offering of
the Notes in an escrow account with the Escrow Agent. The Escrow Agent invests funds in the escrow account in
government securities and, if we do not elect to make the payments from other funds, the funds in the escrow account will be
used to make the first six scheduled semi-annual interest payments on the Notes. Pursuant to the Pledge Agreement, we
pledged our interest in this escrow account to the Trustee as security for these interest payments. At December 31, 2008, the
balance in the escrow account was $14.4 million.
Except for the pledge of the escrow account under the Pledge Agreement, the Notes are our senior unsecured debt
obligations. 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 is payable semi-annually in arrears on April 1 and October 1 of each year, commencing
October 1, 2008, to holders of record on the preceding March 15 and September 15, respectively.
37
Subject to certain exceptions set forth in the Indenture, the Notes are subject to repurchase for cash at the option of
the 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
fundamental change, both at a purchase price equal to 100% of the principal amount of the Notes, plus accrued and unpaid
interest, if any. A fundamental change will occur upon certain changes in the ownership of the Company, or certain events
relating to the trading of our Common Stock, as further described in the Indenture.
Holders may convert their Notes at their option at any time prior to the close of business on the business day
immediately preceding April 1, 2028. Holders may convert their Notes into shares of Common Stock, subject to our option to
deliver cash in lieu of all or a portion of the shares. The Notes are convertible at an initial conversion rate 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 $1,000 principal
amount of Notes, subject to adjustment. In addition to receiving the applicable amount of shares of Common Stock or cash in
lieu of all or a portion of 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 the portion of the government securities in the escrow account that are
remaining with respect to any of the first six interest payments that have not been made on the Notes being converted.
In 2008, holders of $36.0 million aggregate principal amount of Notes, or 24% of the Notes originally issued,
submitted notices of conversion to the trustee in order to convert their Notes into Common Stock. We also entered into
agreements with holders of an additional $42.2 million aggregate principal amount of Notes, or 28% of the Notes originally
issued, to exchange the Notes for a combination of Common Stock and cash. We have issued approximately 23.6 million
shares of Common Stock and paid a nominal amount of cash for fractional shares in connection with the conversions and
exchanges. In addition, the holders received an early conversion make whole amount of approximately $9.3 million
representing the next five semi-annual interest payments that would have become due on the converted Notes, which was
paid from funds in the escrow account for the benefit of the holders of Notes. In the exchanges, Note holders received
additional consideration in the form of cash payments or additional shares of Common Stock in the amount of approximately
$1.1 million to induce exchanges. As a result of adopting FSP APB 14-1, we recognized a gain from extinguishment of debt
of $49.0 million during 2008. After these conversions and exchanges, approximately $48.7 million, net of debt discount of
$23.1 million, of the Notes were outstanding at December 31, 2008.
Holders who convert their Notes in connection with certain events occurring on or prior to April 1, 2013 constituting
a “make whole fundamental change” (as defined in Note 16 to the Consolidated Financial Statements) will be entitled to an
increase in the conversion rate as described in Note 16 to our Consolidated Financial Statements in this Report.
If we make at least 10 scheduled semi-annual interest payments, the Notes are subject to redemption at our 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.
The Indenture contains customary financial reporting requirements and also contains restrictions on mergers and asset
sales. The Indenture also provides that upon certain events of default, including without limitation failure to pay principal or
interest, failure to deliver a notice of fundamental change, failure to convert the Notes when required, acceleration of other
material indebtedness and failure to pay material judgments, either the trustee or the holders of 25% in aggregate principal
amount of the Notes may declare the principal of the Notes and any accrued and unpaid interest through the date of such
declaration immediately due and payable. In the case of certain events of bankruptcy or insolvency relating to us or our
significant subsidiaries, the principal amount of the Notes 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 “Share
Lending Agreement”) with Merrill Lynch International (the “Borrower”), through Merrill Lynch, Pierce, Fenner & Smith
Incorporated, as agent for Borrower (in such capacity, the “Borrowing Agent”), pursuant to which we agreed to lend up to
36,144,570 shares of Common Stock (the “Borrowed Shares”) to the Borrower, subject to certain adjustments set forth in the
Share Lending Agreement, for a period ending on the earliest of (i) the date we notify the Borrower in writing of its intention to
terminate the Share Lending Agreement at any time after the entire principal amount of the Notes ceases to be outstanding and
we have settled all payments or deliveries in respect of the Notes (as the settlement may be extended pursuant to market
disruption events or otherwise pursuant to the Indenture), whether as a result of conversion, redemption, repurchase,
cancellation, at maturity or otherwise, (ii) our written agreement with the Borrower to terminate, (iii) the occurrence of a
Borrower default, at our option, and (iv) the occurrence of our default, at the option of the Borrower. Pursuant to the Share
Lending Agreement, upon the termination of the share loan, the Borrower must return the Borrowed Shares to us. The only
exception would be that, if pursuant to a merger, recapitalization or reorganization, the Borrowed Shares were exchanged for or
converted into cash, securities or other property (“Reference Property”), the Borrower would return the Reference Property.
Upon the conversion of Notes (in whole or in part), a number of Borrowed Shares proportional to the conversion rate for such
notes must be returned to us. At our election, the Borrower may remit cash equal to the market value of the corresponding
Borrowed Shares instead of returning to us the Borrowed Shares otherwise required by conversions of the Notes.
38
On April 10, 2008, we entered into an underwriting agreement (the “Equity Underwriting Agreement”) with the
Borrower and the Borrowing Agent. Pursuant to and upon the terms of the Share Lending Agreement, we will issue and lend
the Borrowed Shares to the Borrower as a share 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. The Borrowed Shares include an
aggregate of approximately 32.0 million shares of Common Stock loaned by us to the Borrower on separate occasions,
delivered pursuant to the Share Lending Agreement and the Underwriting Agreement, and an additional 4.2 million shares of
Common Stock that, from time to time, may be borrowed from us by the Borrower pursuant to the Share Lending Agreement
and the Underwriting Agreement and subsequently offered and sold at prevailing market prices at the time of sale or
negotiated prices. The sale of the Borrowed Shares was registered under the S-3(33-149798). We used two prospectus
supplements for the transaction, one for the sale of the convertible notes (and the 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 pursuant to
Rule 424(b) (3) on April 2, 2008 and pursuant to Rule 424(b) (5) on April 14, 2008. At December 31, 2008, approximately
24.2 million Borrowed Shares remained outstanding. The Borrower returned to us an additional 6.9 million Borrowed Shares
in January 2009.
We will not receive any proceeds from the sale of the Borrowed Shares pursuant to the Share Lending Agreement
but will receive a nominal lending fee of $0.0001 per share for each share of Common Stock that we loan to the Borrower
pursuant to the Share Lending Agreement. The Borrower will receive all of the proceeds from the sale of Borrowed Shares
pursuant to the Share Lending Agreement. At our election, the Borrower may remit to us cash equal to the market value of
the corresponding Borrowed Shares instead of returning the Borrowed Shares to us as a result of conversions by Note
holders.
The shares that we loaned to the Borrower will be issued and outstanding for corporate law purposes, and
accordingly, the holders of the Borrowed Shares will have all of the rights of a holder of our outstanding shares, including the
right to vote the shares on all matters submitted to a vote of our stockholders and the right to receive any dividends or other
distributions that we may pay or makes on its outstanding shares of Common Stock. However, under the Share Lending
Agreement, the Borrower has agreed:
• To pay, within one business day after the relevant payment date, to us an amount equal to any cash dividends
that we pay on the Borrowed Shares; and
• To pay or deliver to us, upon termination of the loan of Borrowed Shares, any other distribution, in liquidation
or otherwise, that we make on the Borrowed Shares.
To the extent the Borrowed Shares we initially lent under the Share Lending Agreement and offered in the Common
Stock offering have not been sold or returned to it, the Borrower has agreed that it will not vote any such Borrowed Shares.
The Borrower has also agreed under the Share Lending Agreement that it will not transfer or dispose of any Borrowed
Shares, other than to its affiliates, unless the transfer or disposition is pursuant to a registration statement that is effective
under the Securities Act. However, investors that purchase the shares from the Borrower (and any subsequent transferees of
such purchasers) will be entitled to the same voting rights with respect to those shares as any other holder of our Common
Stock.
On December 18, 2008, we entered into Amendment No. 1 to Share Lending Agreement with the Borrower and the
Borrowing Agent. Pursuant to Amendment No.1, we have the option to request the Borrower to deliver cash instead of
returning borrowed shares of Company Common Stock upon any termination of loans at the Borrower’s option, at the
termination date of the Share Lending Agreement or when the outstanding loaned shares exceed the maximum number of
shares permitted under the Share Lending Agreement. The consent of the Borrower is required for any cash settlement, which
consent may not be unreasonably withheld, subject to the Borrower’s determination of applicable legal, regulatory or self-
regulatory requirements or other internal policies. Any loans settled in shares of Company Common Stock will be subject to a
return fee based on the stock price as agreed by us and the Borrower. The return fee will not be less than $0.005 per share or
exceed $0.05 per share.
As a result of this amendment, we believe that, under generally accepted accounting principles in the United States
as currently in effect, the approximately 24.2 million Borrowed Shares currently outstanding under the Share Lending
Agreement will be considered outstanding for the purpose of computing and reporting our earnings per share. Prior to this
amendment, the Borrowed Shares were not considered outstanding for the purpose of computing and reporting our earnings
per share due to the substantial elimination of the economic dilution due to contractual provisions, that otherwise would have
resulted from the issuance of the Borrowed Shares.
39
We evaluated the various embedded derivatives within the Indenture for bifurcation from the Notes under the
provisions of FASB’s Statement of Financial Standards No.133, “Accounting for Derivative Instruments and Hedging
Activities” (“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 Emerging Issues Task Force Issue No. 00-19, “Accounting for Derivative Financial Instruments
Indexed to, and Potentially Settled in, a Company’s Own Stock” (“EITF 00-19”). Based upon our detailed assessment, we
concluded that these embedded derivatives were either (i) excluded from bifurcation as a result of being clearly and closely
related to the Notes or are indexed to our Common Stock and would be classified in stockholders’ equity if freestanding or
(ii) the fair value of the embedded derivatives was estimated to be immaterial.
Upon adoption of FSP APB 14-1, we measured the fair value of the $150 million principal amount of Notes issued
in April 2008, using an interest rate that we could have obtained at the date of issuance for similar debt instruments without
an embedded conversion option. Based on this analysis, we determined that the fair value of the Notes was approximately
$95.5 million as of the issuance date, a reduction of approximately $54.5 million in the carrying value of the Notes. Also in
accordance with FSP APB 14-1, we are required to allocate a portion of the $4.8 million debt issuances costs that were
directly related to the issuance of the Notes between a liability component and an equity component as of the issuance date,
using the interest rate method as discussed above. Based on this analysis, we reclassified approximately $1.8 million of these
costs as a component of equity.
In 2008, holders of $36.0 million aggregate principal amount of Notes, or 24% of the Notes originally issued,
submitted notices of conversion to the trustee in order to convert their Notes into Common Stock and cash in accordance with
the terms of the Notes. We also entered into agreements with holders of an additional $42.2 million aggregate principal
amount of Notes, or 28% of the Notes originally issued, to exchange the Notes for a combination of Common Stock and cash.
We issued approximately 23.6 million shares of our Common Stock and paid a nominal amount of cash for fractional shares
in connection with the conversions and exchanges. In addition, the holders received an early conversion make whole amount
of approximately $9.3 million representing the next five semi-annual interest payments that would have become due on the
converted Notes, which was paid from funds in an escrow account for the benefit of the holders of the Notes. In the
exchanges, Note holders received additional consideration in the form of cash payments or additional shares of our Common
Stock in the amount of approximately $1.1 million to induce exchanges. As a result of adopting FSP APB 14-1, we
recognized a gain from extinguishment of debt of $49.0 million during 2008. After this conversion, approximately $48.7
million, net of debt discount of $23.1 million, of the Notes were outstanding at December 31, 2008.
Credit Agreement
On August 16, 2006, we entered into an amended and restated credit agreement with Wachovia Investment
Holdings, LLC, as administrative agent and swingline lender, and Wachovia Bank, National Association, as issuing lender,
which was subsequently amended on September 29 and October 26, 2006. On December 17, 2007, Thermo Funding was
assigned all the rights (except indemnification rights) and assumed all the obligations of the administrative agent and the lenders
under the amended and restated credit agreement and the credit agreement was again amended and restated. On December 18,
2008, we entered into a First Amendment to Second Amended and Restated Credit Agreement with Thermo Funding, as lender
and administrative agent, to increase the amount available to us under the revolving credit facility from $50 million to
$100 million. We have also borrowed an aggregate of $100.0 million under the term loan facility of the credit agreement. In
addition to the $200.0 million revolving and term loan facilities, the amended and restated credit agreement permits us to incur
additional term loans on an equally and ratably secured, pari passu, basis in an aggregate amount of up to $250.0 million (plus
the amount of any reduction in the delayed draw term loan facility or prepayment of loans) from the lenders under the credit
agreement or other banks, financial institutions or investment funds approved by us and the administrative agent. We have not
sought commitments for these additional term loans. These additional term loans may be incurred only if no event of default
then exists and if we are in pro-forma compliance with all of the financial covenants of the credit agreement.
The credit agreement limits the amount of our capital expenditures, requires us to maintain minimum liquidity of
$5.0 million and provides that as of the end of the second full fiscal quarter after we place 24 of our second-generation
satellites into service and at the end of each fiscal quarter thereafter, we must maintain a consolidated senior secured leverage
ratio of not greater than 5.0 to 1.0. We were in compliance with these financial covenants at December 31, 2008.
Additionally, the credit agreement limits our ability to make dividend payments and other distributions.
All loans will mature on December 31, 2012. Revolving credit loans bear interest at LIBOR plus 4.25% to 4.75% or
the greater of the prime rate or the Federal Funds rate plus 3.25% to 3.75%. We had borrowings of $66.1 million under the
revolving credit facility at December 31, 2008. The delayed draw term loan bears interest at either 5% plus the greater of the
prime rate and the Federal Funds rate plus 0.5%, or LIBOR plus 6%. The delayed draw term loan facility bears an annual
commitment fee of 2.0% until drawn or terminated. The revolving credit loan facility bears an annual commitment fee of
40
0.5% until drawn or terminated. Additional term loans will bear interest at rates to be negotiated. The loans may be prepaid
without penalty at any time. On September 29, 2008, we and Thermo agreed that, effective May 26, 2008, all payment of
interest on the debt would be deferred until 45 days after Thermo provides notice that the interest is then payable. Interest
will accrue on this outstanding interest at the same rate as the underlying loan and be compounded on December 31, 2008
and annually thereafter.
To hedge a portion of the interest rate risk with respect to the delayed draw term loans, we entered into a five-year
interest rate swap agreement. See “Note 14: Derivatives” of the Notes to Consolidated Financial Statements in this Report.
Upon the assumption of the credit agreement by Thermo Funding, the interest rate swap agreement was amended to require
us to provide collateral in cash and securities equal to the negative value of the interest rate swap. On December 10, 2008, we
terminated the interest rate swap agreement by making a payment of approximately $9.2 million. At December 31, 2007 and
2006, the negative value of the interest rate swap agreement was classified as a non-current liability.
Irrevocable Standby Stock Purchase Agreement
In connection with the execution of the initial Wachovia credit agreement on April 24, 2006, we entered into an
irrevocable standby stock purchase agreement with Thermo Funding pursuant to which it agreed to purchase under the
circumstances described below up to 12,371,136 shares of our Common Stock at a price per share of approximately $16.17
(approximately $200.0 million in the aggregate), without regard to any future increase or decrease in the trading price of our
Common Stock. Thermo Funding’s obligation to purchase these shares was secured by the escrow of cash and marketable
securities in an amount equal to 105% of its unfunded commitment. Thermo Funding completed its purchase of all shares
subject to the agreement on November 2, 2007. All requirements were fulfilled by Thermo Funding by November 2007. As
required by the pre-emptive rights provisions contained in our former certificate of incorporation, we intend to offer our
stockholders as of June 15, 2006 who are accredited investors (as defined under the Securities Act of 1933) and who received
36 or more shares of our Common Stock as a result of the Old Globalstar bankruptcy, the opportunity to purchase shares of
our Common Stock on substantially the same terms as Thermo Funding. These stockholders, excluding stockholders who
have waived their pre-emptive rights, will be entitled to purchase, and upon entering into a commitment may elect to
purchase at any time thereafter, up to 785,328 additional shares of our Common Stock at approximately $16.17 per share in
the pre-emptive rights offering.
Contractual Obligations and Commitments
At December 31, 2008, we have a remaining commitment to purchase a total of $49.2 million of mobile phones,
services and other equipment under various commercial agreements with QUALCOMM. We expect to fund this remaining
commitment from our working capital, funds generated by our operations, and, if necessary, additional capital from the
issuance 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 and defer delivery of mobile phones and related equipment until 2011.
Effective August 10, 2007 (the “Effective Date”), our board of directors, upon recommendation of the
Compensation Committee, approved the concurrent termination of our Executive Incentive Compensation Plan and awards of
restricted stock or restricted stock units under our 2006 Equity Incentive Plan to five executive officers (the “Participants”).
Each Award Agreement provides that the recipient will receive awards of restricted Common Stock or restricted stock units,
which upon vesting, each entitle him to one share of our Common Stock. Total benefits per Participant (valued at the grant
date) are approximately $6.0 million, which represents an increase of approximately $1.5 million in potential compensation
compared to the maximum potential benefits under the Executive Incentive Compensation Plan. However, the new Award
Agreements extend the vesting period by up to two years and provide for payment in shares of Common Stock instead of
cash, thereby enabling us to conserve our cash for capital expenditures for the procurement and launch of our second-
generation satellite constellation and related ground station upgrades. One of the original five Participants left our employ 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 receive all but $750,000 of the original compensation in accordance with a modified vesting
schedule.
On November 30, 2006, we and Thales Alenia Space entered into a definitive contract pursuant to which Thales
Alenia Space will construct 48 low-earth- orbit satellites in two batches (the first of 25, including a proto-flight model
satellite, and the second of 23) for our second-generation satellite constellation. Under the contract, Thales Alenia Space also
will provide launch support services and mission operations support services. We have contracted separately with our Launch
Provider for launch services and will do so for launch insurance for the satellites. The total contract price, including
subsequent additions, will be approximately €670.3 million, (approximately $931.1 million at a weighted average conversion
rate of €1.00 = $1.3891 at December 31, 2008 including approximately €146.8 million which was paid by us in U.S. dollars
41
at a fixed conversion rate of €1.00 = $1.2940), subject to reduction by approximately €28.0 million (approximately
$41.2 million) if we elect to accelerate construction and delivery of the second batch of satellites. Of the €670.3 million,
approximately €630.1 million ($875.3 million) will be paid for the design, development and manufacture of the satellites and
approximately €40.2 million ($55.8 million) will be paid for launch and mission support services. We are also obligated to
pay Thales Alenia Space up to $75.0 million in bonus payments depending upon the fulfillment of various conditions,
including our cumulative EBITDA exceeding certain projections, Thales Alenia Space’s achievement of the specified
delivery schedule and satisfactory operation of the satellites after delivery. The approximately €12.4 million ($16.0 million)
paid by us to Thales Alenia Space pursuant to an Authorization to Proceed dated October 5, 2006, as amended, was credited
against payments to be made by us under the contract. We have established and maintain an escrow account with a
commercial bank to secure our payment obligations under the contract, with the amount of the escrow account equal to
approximately the next two quarterly payments required by the contract. The initial escrow deposit was €40.0 million. We
and Thales Alenia Space entered into the escrow agreement on December 21, 2006. We obtained the consent of our lenders
to establish the escrow account. Payments under the contract began in the fourth quarter of 2006 and will extend into the
fourth quarter of 2013 unless we elect to accelerate the delivery of the second batch of satellites. The contract requires Thales
Alenia Space to commence delivery of the satellites in the third quarter of 2009, with deliveries continuing until the third
quarter of 2013, unless we elect to accelerate deliveries. If we elect to accelerate delivery of the second batch of satellites, it
is contemplated that all of the satellites will be delivered by the third quarter of 2010. We have made payments in the amount
of approximately €258.1 million (approximately $347.5 million) through December 31, 2008 under this contract. At our
request, Thales Alenia Space has presented a four-part sequential plan to us for accelerating delivery of the initial 24 satellites
by up to four months. The expected cost of this acceleration will range from approximately €6.7 million to €13.4 million
($9.4 million to $18.9 million at €1.00 = $1.4097 at December 31, 2008). In 2007, we authorized the first two portions of this
plan with an additional cost of €4.1 million ($5.9 million at €1.00 = $1.4499). We cannot provide assurance that the
acceleration will occur.
In March, 2007, we entered into an agreement with Thales Alenia Space for the construction of the Satellite
Operations Control Centers, Telemetry Command Units and In Orbit Test Equipment (collectively, the “Control Network
Facility”) for our second-generation satellite constellation. This agreement complements the second-generation satellite
construction contract with Thales Alenia Space for the construction of 48 low-earth orbit satellites and allows Thales Alenia
Space to coordinate all aspects of the second-generation satellite constellation project, including the transition of first-
generation software and hardware to equipment for the second generation. The total contract price for the construction and
associated services is €9.2 million (approximately $13.1 million at a weighted average conversion rate of €1.00 = $1.4252)
consisting of €4.1 million for the Satellite Operations Control Centers, €3.1 million for the Telemetry Command Units and
€2.0 million for the In Orbit Test Equipment, with payments to be made on a quarterly basis through completion of the
Control Network Facility in late 2009. We have the option to terminate the contract if excusable delays affecting Thales
Alenia Space’s ability to perform the contract total six consecutive months or at its convenience. If we terminate the contract,
we must pay Thales Alenia Space the lesser of its unpaid costs for work performed by Thales Alenia Space and its
subcontractors or payments for the next two quarters following termination. If Thales Alenia Space has not completed the
Control Network Facility acceptance review within sixty days of the due date, we will be entitled to certain liquidated
damages. Failure to complete the Control Network Facility acceptance review on or before six 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 amounts
previously paid or with respect to items where final delivery has occurred. The Control Network Facility, when accepted, will
be covered by a limited one-year warranty. The contract contains customary arbitration and indemnification provisions. We
have made payments in the amount of approximately €6.7 million (approximately $9.9 million) through December 31, 2008.
On September 5, 2007, we entered into a contract with Arianespace (our “Launch Provider”) for the launch of our
second-generation satellites and certain pre and post-launch services. Pursuant to the contract, our Launch Provider will make
four launches of six satellites each, and we have the option to require our Launch Provider to make four additional launches
of six satellites each. The total contract price for the first four launches is $216.1 million. The cost for the launch of the first
24 satellites under this contract is included in the estimated $1.26 billion (at a weighted average conversion rate of
€1.00=$1.3151) to procure and deploy our second-generation satellite constellation and related gateway upgrades. The
anticipated time period for the first four launches ranges from as early as the fourth quarter of 2009 through the end of 2010
and the optional launches are available from spring 2010 through the end of 2014. Prolonged delays due to postponements by
us or our Launch Provider may result in adjustments to the payment schedule. On July 5, 2008, we amended our agreement
with our Launch Provider for the launch of our second-generation satellites 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 Launch Provider. The deferred
payments will incur annual interest at 8.5% to 12% and become payable one month before the corresponding launch date. As
of December 31, 2008, we have incurred $26.3 million associated with the launch services contract.
42
On May 14, 2008, we entered into a contract with Hughes under which Hughes will design, supply and implement
the Radio Access Network (“RAN”) ground network equipment and software upgrades for installation at a number of our
satellite gateway ground stations and satellite interface chips to be a part of the User Terminal Subsystem (UTS) in our
various next-generation devices. The total contract purchase price of approximately $100.8 million is payable in various
increments over a period of 40 months. We have the option to purchase additional RANs and other software and hardware
improvements at pre-negotiated prices. As of December 31, 2008, we have made payments in the amount of approximately
$5.4 million associated with this contract. We expensed $1.8 million of these payments and capitalized $3.6 million as
second-generation ground component.
On October 8, 2008, we signed an agreement with Ericsson, a leading global provider of technology and services to
telecom operators. According to the $22.7 million contract, Ericsson will work with us to develop, implement and maintain a
ground interface, or core network, system that will be installed at our satellite gateway ground stations. The all Internet
protocol (IP) based core network system is wireless 3G/4G compatible and 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. The
agreement represents the final significant ground network infrastructure component for our next-generation of advanced IP-
based satellite voice and data services.
Long-term obligations at December 31, 2008, assuming borrowing of the entire $200.0 million under our credit
agreement, are as follows:
Contractual Obligations:
Long-term debt obligations(1)(2)
Operating lease obligations
Purchase obligations(3)
Pension obligations
Total
Payments due by period:
Less than
1 Year
1-3 Years
$
$
—
1.4
303.9
0.4
305.7
$
$
200.0
2.3
590.4
2.6
795.3
3-5 Years
(In millions)
71.8
$
0.8
94.2
1.8
168.6
$
More Than
5 Years
Total
$
$
—
0.1
—
—
0.1
$
$
271.8
4.6
988.5
4.8
1,269.7
(1)
(2)
(3)
Does not include interest on debt obligations. Approximately $200.0 million of our debt bears interest at a floating
rate and, accordingly, we are unable to predict interest costs in future years. In addition, future interest costs will
depend on the outstanding balance from time to time of the revolving credit facility under our credit agreement and
the date on which we borrow the delayed draw term loan. See “Credit Agreement” above.
All of the indebtedness under our credit agreement may be accelerated by the lender upon an event of default. See
“—Liquidity and Capital Resources—Credit Agreement.” Events of default under the credit agreement include
default under certain covenants.
The purchase obligations for the construction of 48 low-earth satellites and the Control Network facility are
converted to U.S. dollars using an exchange rate of €1.00 = $1.4097.
Off-Balance Sheet Transactions
We have no material off-balance sheet transactions.
Recently Issued Accounting Pronouncements
See “Note 2: Summary of Accounting Policies” of the Consolidated Financial Statements in this Report.
43
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our services and products are sold, distributed or available in over 120 countries. Our international sales are made
primarily in U.S. dollars, Canadian dollars, Brazilian reais and Euros. In some cases insufficient supplies of U.S. currency
may require us to accept payment in other foreign currencies. We reduce our currency exchange risk from revenues in
currencies other than the U.S. dollar by requiring payment in U.S. dollars whenever possible and purchasing foreign
currencies on the spot market when rates are favorable. We currently do not purchase hedging instruments to hedge foreign
currencies. However, our credit agreement requires us to do so on terms reasonably acceptable to the administrative agent not
later than 90 days after the end of any quarter in which more than 25% of our revenue is originally denominated in a single
currency other than U.S. or Canadian dollars.
As discussed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—
Liquidity and Capital Resources—Contractual Obligations and Commitments,” we have entered into two separate contracts
with Thales Alenia Space to construct 48 low earth orbit satellites for our second-generation satellite constellation and to
provide launch-related and operations support services, and to construct the Satellite Operations Control Centers, Telemetry
Command Units and In-Orbit Test Equipment for our second-generation satellite constellation. A substantial majority of the
payments under the Thales Alenia Space agreements, are denominated in Euros.
Our interest rate risk arises from our variable rate debt under our credit agreement, under which loans 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
term debt available under our credit agreement, a 1.0% change in interest rates would result in a change to interest expense of
approximately $2.0 million annually.
Our exposure to fluctuations in currency exchange rates has increased significantly as a result of contracts for the
construction of our second- generation constellation satellite and the related control network facility, which are primarily
payable in Euros. A 1.0% decline in the relative value of the U.S. dollar, on the remaining balance related to these contracts
of approximately €414.7 million on December 31, 2008, would result in $5.9 million of additional payments. See “Note 4:
Property and Equipment” of the Consolidated Financial Statements in this Report.
44
CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
Globalstar, Inc.
We have audited the accompanying consolidated balance sheets of Globalstar, Inc. (“Globalstar”) as of December 31,
2008 and 2007, and the related consolidated statements of income (loss), comprehensive income (loss), stockholders’ equity, and
cash flows for each of the years in the three-year period ended December 31, 2008. We also have audited Globalstar’s internal
control over financial reporting as of December 31, 2008, based on criteria established in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Globalstar’s
management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and
for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying “Management’s
Annual Report on Internal Control over Financial Reporting.” Our responsibility is to express an opinion on these financial
statements and an opinion on the company’s internal control over financial reporting based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all
material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating
the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other
procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies
and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that
receipts and expenditures of the company are being made only in accordance with authorizations of management and
directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Consolidated Financial Statements referred to above present fairly, in all material respects, the
financial position of Globalstar as of December 31, 2008 and 2007, and the results of its operations and its cash flows for
each of the years in the three-year period ended December 31, 2008 in conformity with accounting principles generally
accepted in the United States of America. Also in our opinion, Globalstar maintained, in all material respects, effective
internal control over financial reporting as of December 31, 2008, based on the criteria established in Internal Control—
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
The accompanying financial statements have been prepared assuming that Globalstar will continue as a going concern. As
discussed in Note 1 to the financial statements, Globalstar has suffered recurring losses from operations and has a liquidity deficiency
that raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also
described in Note 18. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
As discussed in Note 8 to the accompanying Consolidated Financial Statements, effective January 1, 2007, the
Company adopted Financial Accounting Standards Board (FASB) Interpretation No. 48, “Accounting for Uncertainty in
Income Taxes.” As discussed in Note 19 to the Consolidated Financial Statements, the Consolidated Financial Statements
have been adjusted for the retrospective application of Financial Accounting Standards Board Staff Position No. APB 14-1,
“Accounting for Convertible Debt Instruments that May Be Settled In Cash Upon Conversion (Including Partial Cash
Settlement)”, which became effective January 1, 2009.
Oak Brook, Illinois
March 31, 2009, except for Note 19, as to which the date is August 20, 2009
/s/ CROWE HORWATH LLP
45
GLOBALSTAR, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
Current assets:
ASSETS
Cash and cash equivalents
Accounts receivable, net of allowance of $5,205 (2008), and $4,177 (2007)
Inventory
Advances for inventory
Deferred tax assets
Prepaid expenses and other current assets
Total current assets
Property and equipment, net
Other assets:
Restricted cash
Deferred tax assets
Other assets, net
Total assets
LIABILITIES AND OWNERSHIP EQUITY
Current liabilities:
Accounts payable
Accrued expenses
Payables to affiliates
Deferred revenue
Current portion of long term debt
Total current liabilities
Borrowings under revolving credit facility
Long term debt
Employee benefit obligations, net of current portion
Other non-current liabilities
Total non-current liabilities
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, 136,606 and 83,693
shares issued and outstanding at December 31, 2008 and 2007, respectively
Additional paid-in capital
Accumulated other comprehensive income (loss)
Retained deficit
Total ownership equity
Total liabilities and ownership equity
See notes to Consolidated Financial Statements.
December 31,
2008
As Adjusted
(Note 19)
2007
$
$
$
$
$
$
$
12,357
10,075
55,105
9,314
—
5,565
92,416
642,264
57,884
—
15,670
808,234
28,370
29,998
3,344
19,354
33,575
114,641
66,050
172,295
4,782
13,713
256,840
37,554
12,399
54,939
9,769
1,257
3,262
119,180
290,103
80,871
20,303
2,518
512,975
8,400
17,650
1,487
19,396
—
46,933
50,000
—
1,779
8,719
60,498
—
—
14
463,822
(6,304 )
(20,779 )
436,753
808,234
$
8
407,743
3,411
(5,618)
405,544
512,975
46
GLOBALSTAR, INC.
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(In thousands, except per share data)
Revenue:
Service revenue
Subscriber equipment sales
Total revenue
Operating expenses:
Cost of services (exclusive of depreciation and amortization shown
separately below)
Cost of subscriber equipment sales:
Cost of subscriber equipment sales
Cost of subscriber equipment sales—impairment of assets
Total cost of subscriber equipment sales
Marketing, general, and administrative
Depreciation and amortization
Total operating expenses
Operating income (loss)
Other income (expense):
Gain on extinguishment of debt
Interest income
Interest expense
Interest rate derivative loss
Other income (expense)
Total other income (expense)
Income (loss) before income taxes
Income tax expense (benefit)
Net income (loss)
Earnings (loss) per common share:
Basic
Diluted
Weighted-average shares outstanding:
Basic
Diluted
Year Ended December 31,
2008
As Adjusted
(Note 19)
2007
2006
$
$
61,794
24,261
86,055
$
78,313
20,085
98,398
92,037
44,634
136,671
37,132
27,775
28,091
17,921
405
18,326
61,351
26,956
143,765
(57,710)
49,042
4,713
(5,733)
(3,259)
(4,497)
40,266
(17,444)
(2,283)
(15,161) $
13,863
19,109
32,972
49,146
13,137
123,030
(24,632 )
—
3,170
(9,023 )
(3,232 )
8,656
(429 )
(25,061 )
2,864
(27,925 ) $
(0.18) $
(0.18)
(0.36 ) $
(0.36 )
86,405
86,405
77,169
77,169
40,396
1,943
42,339
43,899
6,679
121,008
15,663
—
1,172
(587)
(2,716)
(3,980)
(6,111)
9,552
(14,071)
23,623
0.37
0.37
63,710
64,076
$
$
See notes to Consolidated Financial Statements.
47
GLOBALSTAR, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
Net income (loss)
Other comprehensive income (loss):
Minimum pension liability adjustment
Net foreign currency translation adjustment
Total comprehensive income (loss)
Year Ended December 31,
2008
As Adjusted
(Note 19)
2007
2006
$
$
(15,161) $
(27,925 ) $
23,623
(3,516)
(6,199)
(24,876) $
402
4,175
(23,348 ) $
524
194
24,341
See notes to Consolidated Financial Statements.
48
GLOBALSTAR, INC.
CONSOLIDATED STATEMENTS OF OWNERSHIP EQUITY
(In thousands, as adjusted (Note 19))
Member
Interest
Units
Common
Shares
61,856 $ — $
Common
Stock
Amount
Additional
Paid-In
Capital
Member
Interests
Amount
— $ 73,314 $
Accumulated
Other
Comprehensiv
e
Income (Loss)
—
6
73,308
(73,314)
Balances—December 31, 2005
Member interests Series A—18,442
Member interests Series B—4,154
Member interests Series C—39,259
Recapitalization
Issuance of common stock upon initial
public offering, net of related offering
costs of $10,854
Issuance of common stock in relation to
the GAT acquisition
Conversion of Redeemable common
stock related to GAT settlement
Issuance of restricted stock awards and
recognition of stock-based
compensation
Distribution payable to member
Contribution of services
Issuance of common stock in connection
with Thermo agreement
Other comprehensive income
Net income
Balances—December 31, 2006
Issuance of common stock in connection
with Thermo agreement
Issuance of restricted stock awards and
7,500
1
116,645
4
15
242
—
—
2,928
—
—
72,545
—
—
—
—
—
—
—
—
7
249
—
1,185
—
189
47,343
—
—
238,919
9,443
1
152,656
recognition of stock-based compensation
1,179
Issuance of common stock related to
GAT settlement (including interest)
Issuance of common stock related to
GdeV acquisition
Contribution of services
Conversion of redeemable common stock
related to GAT settlement
Adoption of FIN 48
Other comprehensive income
Net loss
Balances—December 31, 2007
Issuance of restricted stock awards and
154
25
—
347
—
—
—
83,693
—
—
—
—
—
—
—
—
8
10,430
123
246
420
4,949
—
—
—
407,743
recognition of stock-based compensation
2,051
—
12,608
Issuance of convertible notes, net of
deferred taxes of $22,417 and issuance
costs of $1,762
Conversion of Notes
Issuance of common stock in relation to
Brazil acquisition
Contribution of services
Issuance of common stock under the
Share Loan Facility, net
Other comprehensive loss
Net loss
Balances—December 31, 2008
—
25,811
883
—
—
3
—
—
29,978
6,524
6,000
449
Retained
Earnings
(Deficit)
Total
(1,884) $
— $ 71,430
—
—
—
—
—
—
—
—
—
—
116,646
—
—
249
—
—
(686)
—
1,185
(686)
189
—
718
—
(1,166)
—
—
23,623
22,937
47,343
718
23,623
260,697
—
—
—
—
—
—
152,657
—
—
—
—
10,430
123
246
420
—
—
4,577
—
3,411
—
(630)
—
(27,925)
4,949
(630)
4,577
(27,925)
(5,618) 405,544
—
—
—
—
—
—
12,608
—
—
—
—
29,978
6,527
6,000
449
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
24,168
—
—
136,606 $
520
3
—
—
—
—
14 $ 463,822 $ — $
—
—
—
—
(9,715)
—
523
—
(9,715)
—
(15,161)
(15,161)
(6,304) $ (20,779) $436,753
See notes to Consolidated Financial Statements.
49
GLOBALSTAR, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Cash flows from operating activities:
Net income (loss)
Adjustments to reconcile net income (loss) to net cash from operating activities:
Deferred income taxes
Depreciation and amortization
Interest rate derivative loss
Stock-based compensation expense
Loss on disposal of fixed assets
Gain on conversion of convertible notes
Provision for bad debts
Interest income on restricted cash
Contribution of services
Equity losses in investee
Amortization of deferred financing costs
Impairment of assets
Non-cash expenses related to debt conversion
Interest on Note Payable
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable
Inventory
Advances for inventory
Prepaid expenses and other current assets
Other assets
Receivables from affiliates
Accounts payable
Payables to affiliates
Accrued expenses and employee benefit obligations
Other non-current liabilities
Deferred revenue
Net cash from (used in) operating activities
Cash flows from investing activities:
Spare and second-generation satellites and launch costs
Second-generation ground
Property and equipment additions
Proceeds from sale of property and equipment
Payment for intangible assets
Investment in businesses
Cash acquired on purchase of subsidiary
Restricted cash
Net cash used in investing activities
Cash flows from financing activities:
Net proceeds from initial public offering
Proceeds from Thermo under the irrevocable standby stock purchase agreement
Borrowings from long term debt
Proceeds from revolving credit loan, net
Borrowings from long-term convertible senior notes
Proceeds from subscription receivable
Payments on notes payable
Deferred financing cost payments
Distribution to affiliate
Payments related to interest rate swap derivative margin account
Issuance of Common Stock
Net cash from financing activities
Effect of exchange rate changes on cash
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
Supplemental disclosure of cash flow information:
Cash paid for:
Interest
Income taxes
Supplemental disclosure of non-cash financing and investing activities:
Accrued launch costs and second-generation satellites costs
Capitalization of interest for spare and second-generation satellites and launch costs
Vendor financing of second-generation Globalstar System
Non-cash capitalization of interest expense
Conversion of Convertible Senior Notes into Common Stock
Accretion of debt discount
Issuance of redeemable common stock in conjunction with acquisition
Conversion of redeemable common stock to common stock
Issuance of stock in relation to GdeV acquisition
Year Ended December 31,
2008
As Adjusted
(Note 19)
2007
2006
$
(15,161) $
(27,925) $
23,623
(1,432)
26,956
3,259
12,482
113
(49,042)
1,818
(4,015)
449
249
2,913
405
508
—
(128)
(12,416)
(1,695)
2,137
(1,805)
—
6,825
2,261
(5,123)
(965)
822
(30,585)
(268,433)
(5,697)
(11,956)
141
—
(2,620)
1,839
28,145
(258,581)
—
—
100,000
16,050
150,000
—
—
(4,893)
—
(9,144)
520
252,533
11,436
(25,197)
37,554
12,357
15,987
1,001
14,762
15,964
57,200
1,970
78,196
5,902
—
—
—
$
$
$
$
$
$
$
(554)
13,137
3,232
9,570
198
—
1,774
(2,310)
420
—
8,109
19,109
—
—
6,416
(36,445)
7,912
(971)
(44)
—
2,494
(5,075)
(2,503)
(503)
(3,710)
(7,669)
(165,377)
—
(4,612)
263
(1,657)
—
—
(11,995)
(183,378)
—
152,657
—
50,000
—
—
(477)
(2,503)
—
(6,188)
—
193,489
(8,586)
(6,144)
43,698
37,554
3,526
173
3,583
196
—
—
—
—
—
(4,949)
246
$
$
$
$
$
$
(17,720)
6,679
2,716
1,185
51
—
2,191
—
189
—
294
1,943
—
52
1,109
(18,090)
(2,084)
(46)
(1,242)
(43)
(746)
3,160
2,277
195
8,878
14,571
(103,185)
—
(4,359)
—
(191)
—
—
(52,581)
(160,316)
116,646
47,343
—
—
—
13,000
(195)
(5,507)
(686)
—
—
170,601
(1,428)
23,428
20,270
43,698
1,271
2,701
7,944
884
—
—
—
—
4,949
—
—
$
$
$
$
$
$
$
$
$
See notes to Consolidated Financial Statements.
50
GLOBALSTAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND DESCRIPTION OF BUSINESS
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 leading provider 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 partnership led by Loral Space and Communications (“Loral”) and QUALCOMM Incorporated
(“QUALCOMM”). On February 15, 2002, Old Globalstar and three of its subsidiaries filed voluntary petitions under
Chapter 11 of the United States Bankruptcy Code. In 2004, Thermo Capital Partners L.L.C. (“Thermo”) became Globalstar’s
principal owner, and Globalstar completed the acquisition of the business and assets of Old Globalstar. Thermo remains
Globalstar’s largest stockholder. Globalstar’s Chairman and Chief Executive Officer controls Thermo and its affiliates. Two
other members of Globalstar’s Board of Directors are also directors, officers or minority equity owners of various Thermo
entities.
Globalstar offers satellite services to commercial and recreational users in more than 120 countries around the
world. The Company’s voice and data products include mobile and fixed satellite telephones, Simplex and duplex satellite
data modems and flexible service packages. Many land based and maritime industries benefit from Globalstar with increased
productivity from remote areas beyond cellular and landline service. Globalstar’s customers include those in the following
industries: oil and gas, government, mining, forestry, commercial fishing, utilities, military, transportation, heavy
construction, emergency preparedness, and business continuity, as well as individual recreational users.
Going Concern
The Company’s registered public accounting firm’s audit report on its Consolidated Financial Statements as of
December 31, 2008, and for the year then ended includes a “going concern” explanatory paragraph that expresses substantial
doubt about the Company’s ability to continue as a going concern. The “going concern” explanatory paragraph reflects
substantial doubt about the Company’s ability to obtain in a timely manner the necessary financing to complete the
procurement and deployment of its second-generation satellite constellation and to support its current operations. Due to the
worldwide economic crisis and the tight credit market, obtaining suitable financing remains challenging. The Company is
pursuing a number of options involving issuance of debt, equity or both to obtain the required funding as well as seeking to
reduce its internal costs and aggressively grow its revenues. The Company cannot assure you that sufficient additional
financing will be obtained on acceptable terms, if at all. If the Company fails to obtain sufficient additional financing, the
construction of its second-generation satellite constellation, related construction costs and its ongoing operations will be
materially adversely impacted. The Company’s Consolidated Financial Statements are prepared assuming it is able to
continue as a going concern. See Note 18 for management’s plans to address the going concern issues presented above.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates in Preparation of Financial Statements
The preparation of Consolidated Financial Statements in conformity with accounting principles generally accepted
in the United States of America requires management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results could differ from estimates. Certain
reclassifications have been made to prior year Consolidated Financial Statements to conform to current year presentation.
Principles of Consolidation
The Consolidated Financial Statements include the accounts of Globalstar and all its subsidiaries. All significant
inter-company transactions and balances have been eliminated in the consolidation.
From January 1 through October 17, 2006, one subsidiary was 75% owned by Globalstar and 25% owned by
minority interests (Loral). On October 17, 2006, a $500,000 payment was made to acquire the 25% minority interest and to
resolve then pending litigation with the owner of the minority interest.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand and highly liquid investments with original maturities of three
months or less.
51
Restricted Cash
Restricted cash is comprised of funds held in escrow by two financial institutions to secure the Company’s payment
obligations related to its contract for the construction of its second-generation satellite constellation and the remaining
scheduled semi-annual interest payments on the Notes through April 1, 2011. On December 31, 2007, restricted cash also
included cash equal to the negative value of the interest rate swap agreement. On December 10, 2008, the Company
terminated its interest swap agreement.
Fair Value of Financial Instruments
The carrying amounts of financial instruments approximate fair value due to the short maturities of these
instruments. The Company has no material off-balance sheet financial instruments.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist
principally of cash and cash equivalents and restricted cash. Cash and cash equivalents and restricted cash consist primarily
of highly liquid short-term investments deposited with financial institutions that are of high credit quality.
Accounts Receivable
Accounts receivable are uncollateralized, without interest and consist primarily of on-going service revenue and
equipment receivables. The Company performs on-going credit evaluations of its customers and records specific allowances
for bad debts based on factors such as current trends, the length of time the receivables are past due and historical collection
experience. Accounts receivable are considered past due in accordance with the contractual terms of the arrangements.
Accounts receivable balances that are determined likely to be uncollectible are included in the allowance for doubtful
accounts. After all attempts to collect a receivable have failed, the receivable is written off against the allowance.
The following is a summary of the activity in the allowance for doubtful accounts (in thousands):
Balance at beginning of period
Provision, net of recoveries
Write-offs
Balance at end of period
$
$
2008
Year Ended December 31,
2007
2006
4,177
1,818
(790)
5,205
$
$
3,609
1,774
(1,206)
4,177
$
$
1,774
2,191
(356)
3,609
Inventory
Inventory consists of purchased products, including fixed and mobile user terminals, accessories and gateway spare
parts. Inventory is stated at the lower of cost or market value. Cost is computed using the first-in, first-out (FIFO) method
which determines the acquisition cost on a FIFO basis. Inventory allowances are recorded for inventories with a lower market
value or which are slow moving. Unsaleable inventory is written off. During the years ended December 31, 2008, 2007 and
2006, the Company recorded $0.4 million, $19.1 million and $1.9 million, respectively, in impairment charges on its
inventory representing a write-down of its first generation phone and accessory inventory, respectively. This charge was
recognized after assessment of the Company’s inventory quantities and its recent and projected equipment sales.
Property and Equipment
Property and equipment is stated at acquisition cost, less accumulated depreciation and impairment. Depreciation is
provided using the straight-line method over the estimated useful lives of the respective assets, as follows:
Globalstar System:
Space component
Ground component
Furniture, fixtures & equipment
Leasehold improvements
Up to periods of 9 years from commencement of service
Up to periods of 9 years from commencement of service
3 to 10 years
Shorter of lease term or the estimated useful lives of the
improvements, generally 5 years
52
Effective October 1, 2006, the Company reduced the estimated remaining lives for the Globalstar System assets
from 39 months to 27 months due to the uncertainties about their remaining useful lives.
The Globalstar System includes costs for the design, manufacture, test, and launch of a constellation of low earth
orbit satellites, including in-orbit spare satellites (the “Space Component”), and primary and backup control centers and
gateways (the “Ground Component”).
The Company records losses from the in-orbit failure of a satellite in the period it is determined that the satellite is
not recoverable.
The Company reviews the carrying value of the Globalstar System for impairment whenever events or changes in
circumstances indicate that the recorded value of the Space Component and Ground Component may not be recoverable.
Globalstar looks to current and future undiscounted cash flows, excluding financing costs, as primary indicators of
recoverability. If impairment is determined to exist, any related impairment loss is calculated based on fair value.
The Globalstar System includes costs for the design, manufacture, test, and launch of a constellation of low earth
orbit satellites, including satellites put into service which were previously recorded as spare satellites and held as ground
spares until the Company launched four satellites each in May and October 2007. The spare satellites and associated launch
costs included costs that were considered construction-in-progress and were transferred to Globalstar System when placed
into service. The Company began depreciating costs for each particular satellite over an estimated life of eight years from the
date it was placed into service.
Investments
The Company accounts for its non-marketable equity investments using either the cost or equity method of
accounting and includes such investments in other assets. The Company records non-marketable equity investments under the
equity method if it has the ability to exercise significant influence, but not control of, the investee. Significant influence
generally exists if the Company has an ownership interest representing between 20% and 50% of the voting stock of the
investee. Under the equity method of accounting, the Company states investments at initial cost and adjusts the cost for
subsequent additional investments and the Company’s proportionate share of earnings or losses and distributions. The
Company records its share of investee earnings or losses in other income (expense), after elimination of inter-company
transactions, in the accompanying consolidated statements of income (loss). For the years ended December 31, 2008, 2007
and 2006, the equity losses in investees included in other income (loss) were $0.2 million, $0 and $0, respectively. At
December 31, 2008 and 2007, the Company’s investments accounted for under the equity method of accounting, were
$0.8 million and $0.4 million, respectively. If the Company does not have ability to exercise significant influence over the
investee, the non-marketable equity investment is recorded at cost. At December 31, 2008 and 2007, the Company’s did not
have any investments accounted for under the cost method.
The Company evaluates its equity method investments for impairment when events or changes in circumstances
indicate, in management’s judgment, that the carrying value of such investment may have experienced an other-than-
temporary decline in value. If the estimated fair value is less than the carrying value and the Company considers the decline
in value to be other than temporary, the Company recognizes the excess of the carrying value over the estimated fair value in
the financial statements as an impairment.
Deferred Financing Costs
These costs represent costs incurred in obtaining long-term debt, credit facilities and long term convertible senior
notes. These costs are classified as long-term other assets and are amortized as additional interest expense over the term of
the corresponding debt, credit facilities or the first put option date for the long term convertible notes. As of December 31,
2008 and 2007, the Company had net deferred financing costs of $1.4 million and $0.1 million, respectively. The Company
incurred an additional $4.9 million in financing costs during 2008. Approximately $0.4 million and $8.1 million of deferred
financing costs were recorded as interest expense for the years ended December 31, 2008 and 2007, respectively. In
December 2007, upon assignment of the amended and restated credit agreement with Wachovia Investment Holdings, LLC,
as the administrative agent, to Thermo Funding Company LLC, the Company expensed all costs associated with the credit
agreement to interest expense. Upon conversions of the long term convertible notes, the unamortized portion of the
corresponding deferred financing costs were recognized as interest expense.
53
Asset Retirement Obligation
In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 143, “Accounting for Asset Retirement
Obligations,” the Company capitalized, as part of the carrying amount, the estimated costs associated with the retirement of five
gateways owned by the Company. As of December 31, 2008 and 2007, the Company had accrued approximately $720,000 and
$710,000, respectively, for asset retirement obligations. The Company believes this estimate will be sufficient to satisfy the
Company’s obligation under leases to remove the gateway equipment and restore the sites to their original condition.
Revenue Recognition and Deferred Revenues
Customer activation fees are deferred and recognized over four to five year periods, which approximates the
estimated average life of the customer relationship. The Company periodically evaluates the estimated customer relationship
life. Historically, changes in the estimated life have not been material to the Company’s financial statements.
Monthly access fees billed to retail customers and resellers, representing the minimum monthly charge for each line of
service based on its associated rate plan, are billed on the first day of each monthly bill cycle. Airtime minute fees in excess of
the monthly access fees are billed in arrears on the first day of each monthly billing cycle. To the extent that billing cycles fall
during the course of a given month and a portion of the monthly services has not been delivered at month end, fees are prorated
and fees associated with the undelivered portion of a given month are deferred. Under certain annual plans, where customers
prepay for minutes, revenue is deferred until the minutes are used or the prepaid time period expires. Unused minutes are
accumulated until they expire, usually one year after activation. In addition, the Company offers other annual plans whereby the
customer is charged an annual fee to access our system. These fees are recognized on a straight-line basis over the term of the
plan. In some cases, the Company charges a per minute rate whereby it recognizes the revenue when each minute is used.
Occasionally the Company has granted to customers credits which are expensed or charged 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 time of the related sale.
The Company also provides certain engineering services to assist customers in developing new technologies related
to our system. The revenues associated with these services are recorded when the services are rendered, and the expenses are
recorded when incurred. The Company records revenues and costs associated with long term engineering contracts on the
percentage-of-completion method of accounting. During 2008, 2007 and 2006, the Company recorded engineering services
revenues of $1.3 million, $2.5 million and $2.1 million, respectively, and related costs of $0.2 million, $0.7 million and
$1.4 million, respectively.
The Company owns and operates its satellite constellation and earns a portion of its revenues through the sale of
airtime minutes on a wholesale basis to independent gateway operators. Revenue from services provided to independent
gateway operators is recognized based upon airtime minutes used by customers of independent gateway operators and
contractual fee arrangements. Where collection is uncertain, revenue is recognized when cash payment is received.
The Company introduced annual plans (sometimes called Liberty plans) in August 2004 and broadened their
availability during the second quarter of 2005. These plans grew substantially in 2005 and 2006. These plans require users to
pre-pay usage charges for the entire plan period, generally 12 months, which results in the deferral of certain of the
Company’s revenues. Under its revenue recognition policy for annual plans, the Company defers revenue until the earlier of
when the minutes are used or when these minutes expire. Any unused minutes are recognized as revenue at the expiration of
a plan. Most of the Company’s customers have not used all the minutes that are available to them which has caused the
Company to defer large amounts of service revenue. At December 31, 2008 and 2007, the Company’s deferred revenue
aggregated approximately $20.6 million (of which $1.3 million was included in non-current liabilities) and $20.4 million (of
which $1.0 million was included in non-current liabilities), respectively. Accordingly, significant revenues from 2007
purchases of annual plans were recognized during 2008 as the minutes were used or expired.
During the second quarter of 2007, the Company introduced an unlimited airtime usage service plan (called the
Unlimited Loyalty plan) which allows existing and new customers to use unlimited satellite voice minutes for anytime calls for a
fixed monthly or annual fee. The unlimited loyalty plan incorporates a declining price schedule that reduces fixed monthly fee at
the completion of each calendar year through the duration of the customer agreement, which ends on June 30, 2010. Customers
have an option to extend their customer agreement by one year at a discounted fixed price. The Company records revenue for
this plan on a monthly basis based on a straight line average derived by computing the total fees charged over the term of the
customer agreement (including the optional year) and dividing it by the number of the months. If a customer cancels prior to the
ending date of the customer agreement, the balance in deferred revenue is recognized as revenue.
54
The Company sells SPOT satellite messenger services as annual plans and bills the customer at the time the customer
activates the service. The Company defers revenue on such annual service plans upon activation and recognizes it ratably over
service term.
Subscriber equipment revenue represents the sale of fixed and mobile user terminals, accessories and SPOT satellite
messenger product. The Company recognizes revenue upon shipment provided title and risk of loss have passed to the
customer, persuasive evidence of an arrangement exists, the fee is fixed and determinable and collection is probable.
In December 2002, the Emerging Issues Task Force (“EITF”) reached a consensus on EITF Issue No. 00-21, “Revenue
Arrangements with Multiple Deliverables.” EITF Issue No. 00-21 addresses certain aspects of the accounting by a vendor for
arrangements under which it will perform multiple revenue-generating activities. In some arrangements, the different revenue-
generating activities (deliveries) are sufficiently separable and there exists sufficient evidence of their fair values to account
separately for some or all of the deliveries (that is, there are separate units of accounting). In other arrangements, some or all of the
deliveries are not independently functional, or there is not sufficient evidence of their fair values to account for them separately.
EITF Issue No. 00-21 addresses when and, if so, how an arrangement involving multiple deliverables should be divided into
separate units of accounting. EITF Issue No. 00-21 does not change otherwise applicable revenue recognition criteria.
The Company does not record sales and use tax and other taxes collected from its customers in revenue.
Research and Development Expenses
Research and development costs were $3.2 million, $2.9 million and $2.3 million for the years ended December 31,
2008, 2007 and 2006, respectively, and are expensed as incurred as cost of services.
Advertising Expenses
Advertising expenses were $5.4 million, $1.5 million and $0.9 million for the years ended December 31, 2008, 2007
and 2006, respectively, and are expensed as incurred as part of marketing, general and administrative expenses.
Foreign Currency
Foreign currency assets and liabilities are remeasured into U.S. dollars at current exchange rates and revenue and
expenses are translated at the average exchange rates in effect during each period. For the years ended December 31, 2008,
2007 and 2006, the foreign currency translation adjustments were $(6.2) million, $4.2 million and $0.2 million, respectively.
Foreign currency transaction gains and (losses) are included in net income. Foreign currency transaction gains
(losses) were $(4.5) million, $8.2 million and $(4.0) million for the years ended December 31, 2008, 2007 and 2006,
respectively. These were classified as other income or expense on the statement of operations.
Income Taxes
Until January 1, 2006, Globalstar was treated as a partnership for U.S. tax purposes (Notes 8 and 13). Generally,
taxable income or loss, deductions and credits of the Company were passed through to its members. Effective January 1,
2006, Globalstar and its U.S. operating subsidiaries elected to be taxed as a corporation in the United States and began
accounting for these entities under SFAS 109. Prior to January 1, 2006, Globalstar did have some corporate subsidiaries that
require a tax provision or benefit using the asset and liability method of accounting for income taxes as prescribed by SFAS
No. 109, “Accounting for Income Taxes.” As of December 31, 2008 and 2007, the corporate subsidiaries had gross deferred
tax assets of approximately $125.1 million and $144.0 million, respectively. The Company established a valuation reserve of
$125.1 million and $122.4 million as of December 31, 2008 and 2007, respectively, due to the Company’s concern over it
being more likely than not that it may not utilize those deferred tax assets. On January 1, 2007, the Company adopted
Financial Accounting Standards Board Interpretation No. 48 “Accounting for Uncertainty in Income Taxes” (“FIN 48”). See
Note 8 to the Consolidated Financial Statements for the impact of this adoption on the Company’s financial statements.
Stock-Based Compensation
Effective January 1, 2006, as a result of its initial public offering, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 123(R), “Share-Based Payment” (“SFAS 123(R)”) and related interpretations, or
SFAS 123(R), to account for stock-based compensation using the modified prospective transition method and therefore has not
restated its prior period results. Among other things, SFAS 123(R) requires that compensation expense be recognized in the
financial statements for both employee and non-employee share-based awards based on the grant date fair value of those awards.
Additionally, stock-based compensation expense includes an estimate for pre-vesting forfeitures and is recognized over the
requisite service periods of the awards on a straight-line basis, which is generally commensurate with the vesting term.
55
Segments
Globalstar operates in one segment, providing voice and data communication services via satellite. As a result, all
segment-related financial information required by Statement of Financial Accounting Standards No. 131, “Disclosures About
Segments of an Enterprise and Related Information,” or SFAS No. 131, is included in the Consolidated Financial Statements.
Derivative Instruments
The Company had utilized derivative instruments in the form of an interest rate swap agreement and from time to
time, a forward contract for purchasing foreign currency to minimize its risk from interest rate fluctuations related to its
variable rate credit agreement and minimize its risk from fluctuations related to the foreign currency exchange rates,
respectively. The interest rate swap agreement and the forward foreign contract were used to manage risk and were not used
for trading or other speculative purposes. Derivative instruments were recorded in the balance sheet as either assets or
liabilities, measured at fair value. The interest rate swap agreement and the forward foreign currency contract did not qualify
for hedge accounting treatment. Changes in the fair value of the interest rate swap agreement and the forward foreign
currency contract were recognized as “Interest rate derivative loss” and “Other income,” respectively, over the life of the
agreements. The Company terminated the interest rate swap agreement on December 10, 2008, by making a payment of
approximately $9.2 million.
Comprehensive Income (Loss)
In accordance with SFAS No. 130, “Reporting Comprehensive Income,” all components of comprehensive income
(loss), including unrealized gains and losses on investment securities and foreign currency translation adjustment, are
reported in the financial statements in the period in which they are recognized. Comprehensive income (loss) is defined as the
change in equity during a period from transactions and other events and circumstances from non-owner sources.
Earnings Per Share
The Company applies the provisions of SFAS No. 128, “Earnings Per Share,” which requires companies to present
basic and diluted earnings per share. Basic earnings per share is computed based on the weighted-average number of common
shares outstanding during the period. Common stock equivalents are included in the calculation of diluted earnings per share
only when the effect of their inclusion would be dilutive.
The following table sets forth the computations of basic and diluted earnings (loss) per share (in thousands, except
per share data):
Year Ended December 31, 2008
Weighted-
Average
Shares
Outstanding
(Denominator)
Income
(Numerator)
Year Ended December 31, 2007
Weighted-
Average
Shares
Outstanding
(Denominator)
Per-Share
Amount
Per-Share
Amount
Income
(Numerator)
Basic and Dilutive (loss) per
common share
Net loss
$
(15,161)
86,405 $
(0.18) $
(27,925)
77,169 $
(0.36)
Basic earnings per common share
Net income
Effect of Dilutive Securities
Stock options to director
GAT acquisition
Diluted earnings per common share
Year Ended December 31, 2006
Weighted Average
Shares Outstanding
(Denominator)
Per-Share
Amount
Income
(Numerator)
$
$
23,623
—
—
23,623
63,710
$
0.37
99
267
64,076
$
0.37
For the year ended December 31, 2008 and 2007, diluted net loss per share 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. Restricted stock
awards and restricted stock units representing approximately 222,000 shares were excluded from the computation of diluted
shares outstanding for the year ended December 31, 2006 as their inclusion would have been anti-dilutive.
56
Shares issued under the Share Lending Agreement (24.2 million shares at December 31, 2008) are included in the
computation of earnings per share. See Note 13.
Recently Issued Accounting 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 Statement 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, 2008, the Company adopted the provisions of SFAS No. 157 that relate to establishing guidelines for
measuring fair value of financial assets and liabilities and non-financial assets and non-financial liabilities that are recognized
at fair value on a recurring basis. This adoption did not have a material impact on the Company’s financial position, results of
operations, or cash flows.
In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, “The Fair Value Option
for Financial Assets and Financial Liabilities” (“SFAS No. 159”). SFAS No. 159 allows companies to measure many
financial assets and liabilities at fair value. It also establishes presentation and disclosure requirements designed to facilitate
comparisons between companies that choose different measurement attributes for similar types of assets and liabilities. SFAS
No. 159 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods
within those fiscal years. On January 1, 2008, the Company adopted SFAS No. 159. The adoption of SFAS No. 159 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. The Company is currently assessing implementation plans and does not expect the adoption of SFAS No. 161 to have a
material impact, if any, on the Company’s financial position, results of operations, or cash flows.
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.
In May 2008, the FASB issued FSP APB 14-1, “Accounting for Convertible Debt Instruments That May Be Settled
in Cash upon Conversion (Including Partial Cash Settlement).” FSP APB 14-1 clarifies that convertible debt instruments that
may be settled in cash upon either mandatory or optional conversion (including partial cash settlement) are not addressed by
paragraph 12 of APB Opinion No. 14, “Accounting for Convertible Debt and Debt issued with Stock Purchase Warrants.”
Additionally, FSP APB 14-1 specifies that issuers of such instruments should separately account for the liability and equity
components in a manner that will reflect the entity’s nonconvertible debt borrowing rate when interest cost is recognized in
subsequent periods. As such, the initial debt proceeds from the sale of the Company’s 5.75% Senior Convertible Notes due
2028, which are discussed in more detail in Note 16, are required to be allocated between a liability component and an equity
component as of the debt issuance date. FSP APB 14-1 is effective for financial statements issued for fiscal years beginning
after December 15, 2008, and interim periods within those fiscal years. The Company adopted this FSP during the first
quarter of 2009. The Company has retrospectively recasted its results for the year ended December 31, 2008, to reflect the
adoption of FSP APB 14-1. The adoption of FSP APB 14-1 is discussed in more detail in Note 19.
57
In December 2008, the FASB issued FSP 132(R)-1, “Employers’ Disclosures about Postretirement Benefit Plan
Assets” (FSP 132(R)-1). FSP 132(R)-1 requires additional disclosures for plan assets of defined benefit pension or other
postretirement plans. The required disclosures include a description of the Company’s investment policies and strategies, the
fair value of each major category of plan assets, the inputs and valuation techniques used to measure the fair value of plan
assets, the effect of fair value measurements using significant unobservable inputs on changes in plan assets, and the
significant concentrations of risk within plan assets. FSP 132(R)-1 does not change the accounting treatment for
postretirement benefits plans. FSP 132(R)-1 is effective for the Company for fiscal year 2009.
3. ACQUISITIONS
Globalstar de Venezuela, C.A. (“GdeV”)
Pursuant to Globalstar’s continuing consolidation strategy and to enhance its presence in South America, on
February 4, 2005, GdeV, an indirect (through Globalstar Canada Satellite Company “GCSC”) subsidiary of Globalstar,
executed a series of agreements to acquire the mobile satellite services business assets of TE.SA.M. de Venezuela, C.A.
(“TESAM”), the Globalstar service provider in Venezuela, at a cost of $1.6 million. This asset purchase was completed in
two stages. The first stage, which transferred certain non-regulated assets, including the land where the Venezuelan gateway
is located, was completed upon the execution of the agreements.
The second stage of the transaction, which transferred regulated assets including the gateway equipment, was
completed after the Venezuelan regulatory consents were obtained in 2007. Management determined that operational control
passed to New Globalstar with the completion of the first stage of the transaction in February 2005. Pursuant to the purchase
agreements, GdeV paid approximately $342,000 upon execution of the agreements. The $1,250,000 balance of the purchase
price is payable in sixteen quarterly installments of $78,125 (interest imputed at 7.0% resulting in a discount of
approximately $250,000). Only the first two of these sixteen quarterly installments were required in advance of Venezuelan
regulatory approvals. Principal and interest payments made in 2007 were $820,000. In exchange for the principal amounts
outstanding of approximately $246,000, the Company issued approximately 25,471 shares of its Common Stock in
December 2007. As of December 31, 2008 and 2007, there were no outstanding amounts associated with this acquisition.
The following table summarizes the Company’s allocation of the estimated values of the assets acquired and
liabilities assumed in the acquisition (in thousands):
Current assets
Property and equipment
Total assets acquired
Current liabilities
Long-term debt
Total liabilities assumed
Net assets acquired
February 4,
2005
$
$
82
1,314
1,396
367
687
1,054
342
The Company has included the results of operations of GdeV in its Consolidated Financial Statements from the date
of acquisition.
Globalstar Americas Telecommunications, Ltd
Effective January 1, 2006, the Company consummated an agreement dated December 30, 2005 to purchase all of the
issued and outstanding stock of the Globalstar Americas Holding (“GAH”), Globalstar Americas Telecommunications
(“GAT”), and Astral Technologies Investment Limited (“Astral”), collectively, the “GA Companies.” The GA Companies
owned assets, contract rights, and licenses necessary and sufficient to operate a satellite communications business in Panama,
Nicaragua, Honduras, El Salvador, Guatemala, and Belize (collectively, the “Territory”). The Company believes the purchase
of the GA Companies will further enhance Globalstar’s presence and coverage in Central America and consolidation efforts.
The purchase price for the GA Companies was $5,250,500 payable substantially 100% in Globalstar Common Stock.
Additionally, the Company had a $1.0 million receivable from GA Companies as of the acquisition date that was treated as a
component to the total purchase price. At the time of closing of the purchase of the GA Companies, the selling stockholders
received 91,986 membership units, which subsequently were converted into the same number of shares of Common Stock of
the Company.
58
Under the terms of the acquisition agreement, the Company was obligated either to redeem the original stock issued
to the selling stockholders in January 2006 for $5.2 million in cash or to pay the selling stockholders, in cash or in stock, the
difference between $5.2 million and the market value of that stock multiplied by the 5-day average closing price of the
Company stock for the period ending November 22, 2006. In accordance with the supplemental agreement dated
December 21, 2006 with certain selling stockholders, the Company elected to make payment in Common Stock and issued
approximately 259,845 shares of additional Common Stock to certain selling stockholders. Under this supplemental
agreement this stock was valued at approximately $3.7 million. However, it was not registered and therefore was not
marketable. Accordingly, this supplemental agreement also provided that, in order to compensate the selling stockholders for
the inability to sell these shares, every month the Company paid interest on $3.7 million at the monthly New York prime rate
until these shares become marketable, but not later than December 31, 2007. In accordance with the supplemental agreement,
if the market value of the approximately 259,845 shares issued was less than $3.7 million at the time of registration or
December 22, 2007, whichever was sooner, the Company was required to pay to these selling shareholders the difference
between the market value and $3.7 million. On December 17, 2007, the Company issued 153,916 shares of the Common
Stock valued at approximately $1.5 million at a price of $9.675 per share as compensation to satisfy the shortfall in the value
of shares issued as well as in lieu of cash interest for 2007.
As of December 31, 2008 and 2007, no shares of redeemable Common Stock were outstanding, respectively.
During December 2006, the Company reached a settlement with the remaining selling stockholder and issued 15,109
shares of Common Stock to such stockholder. The 15,109 shares issued during December 2006 and the original 4,380 shares
issued in January 2006 to this selling stockholder were not considered redeemable as of December 31, 2006.
The following table summarizes the Company’s allocation of the estimated values of the assets acquired, and
liabilities assumed in the acquisition (in thousands):
Current assets
Property and equipment
Intangible assets
Total assets acquired
Current liabilities
Long-term debt
Total liabilities assumed
Net assets acquired
January 1,
2006
329
6,655
100
7,084
409
287
696
6,388
$
$
The results of operations of the GA Companies have been included in the Company’s Consolidated Financial
Statements from January 1, 2006.
Globalstar do Brazil
On March 25, 2008, the Company completed its acquisition of an independent gateway operator that owns and
operates three gateway ground stations in Brazil. Pursuant to the terms of the acquisition, the Company acquired all of the
outstanding equity of the independent gateway operator for $6.5 million, including $6.0 million payable in Common Stock of
the Company and $0.6 million in release of service fees owed to the Company by the independent gateway operator. The
Company also incurred transaction costs of $0.3 million. Earlier in 2008, the Company received the necessary Agencia
Nacional de Telecomunicacoes (ANATEL) regulatory approval. The acquisition allows the Company to expand its coverage
in South America and engage in discussions with potential partners to provide ancillary terrestrial component or ATC-type
services in Brazil.
The following table summarizes the Company’s preliminary allocation of the estimated values of the assets acquired
and liabilities assumed in the acquisition (in thousands):
Current assets
Property and equipment
Long-term assets
Total assets acquired
Current liabilities
Long-term liabilities
Total liabilities assumed
Net assets acquired
59
March 25,
2008
8,257
8,252
12,337
28,846
7,684
14,205
21,889
6,957
$
$
The Company has included results of operations of Globalstar do Brazil in its Consolidated Financial Statements
from the date of acquisition. The Company’s unaudited pro forma results of operations assuming the transaction had been
completed on January 1, 2008 with comparative figures for the year ended December 31, 2007 are presented in the table
below.
Revenues
Operating Expenses
Operating Loss
Net Loss
Basic loss per share
Diluted loss per share
4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following (in thousands):
Globalstar System:
Space component
Ground component
Second-generation satellites and related launch costs
Second-generation ground component
Spare satellites and related launch costs
Furniture and office equipment
Land and buildings
Leasehold improvements
Construction in progress
Accumulated depreciation
Year Ended December 31,
2008
2007
(In thousands–unaudited)
$
87,771
145,665
(57,894) $
(15,345) $
(0.18) $
(0.18) $
105,863
127,738
(21,875)
(28,580)
(0.37)
(0.37)
December 31,
2008
2007
132,982
26,154
505,468
11,062
—
16,872
3,810
687
958
697,993
(55,729)
642,264
$
$
85,142
21,530
147,998
—
47,848
14,417
2,478
717
1,132
321,262
(31,159)
290,103
$
$
$
$
$
$
$
Property and equipment consists of an in-orbit satellite constellation, ground equipment, spare satellites and related
launch costs, second-generation satellites and related launch costs, second-generation ground component and support
equipment located in various countries around the world.
On November 30, 2006, the Company entered into a contract with Thales Alenia Space (formerly known as Alcatel
Alenia Space France) to construct 48 low-earth orbit satellites. The total contract price, including subsequent additions, is
approximately €670.3 million (approximately $931.1 million at a weighted average conversion rate of €1.00 = $1.3891 at
December 31, 2008) including approximately €146.8 million which was paid by the Company in U.S. dollars at a fixed
conversion rate of € 1.00 = $1.2940. The contract requires Thales Alenia Space to commence delivery of satellites in the third
quarter of 2009, with deliveries continuing until 2013 unless Globalstar elects to accelerate delivery. At December 31, 2008,
$43.5 million was held in escrow to secure the Company’s payment obligations related to its contract for the construction of
its second-generation satellite constellation. Funds that the Company deposits into the escrow account to support this contract
will be used to make payments under this contract in the future. At the Company’s request, Thales Alenia Space has
presented a plan for accelerating delivery of the initial 24 satellites by up to four months. The expected cost of this
acceleration will range from approximately €6.7 million to €13.4 million ($9.4 million to $18.9 million at €1.00 = $1.4097 at
December 31, 2008). In 2007, the Company authorized the first two portions of the Thales’ four-part sequential plan with an
additional cost of €4.1 million (approximately $5.9 million at €1.00 = $1.4499). The Company cannot provide assurance that
the remaining acceleration will occur.
In March 2007, the Company and Thales Alenia Space entered into an agreement for the construction of the Satellite
Operations Control Centers, Telemetry Command Units and In Orbit Test Equipment (collectively, the “Control Network
Facility”) for the Company’s second-generation satellite constellation. This agreement complements the second-generation
satellite construction contract between Globalstar and Thales Alenia Space for the construction of 48 low-earth orbit satellites
and allows Thales Alenia Space to coordinate all aspects of the second-generation satellite constellation project, including the
60
transition of first-generation software and hardware to equipment for the second generation. The total contract price for the
construction and associated services is €9.2 million (approximately $13.1 million at a weighted average conversion rate of
€1.00 = $1.4252) consisting of €4.1 million for the Satellite Operations Control Centers, €3.1 million for the Telemetry
Command Units and €2.0 million for the In Orbit Test Equipment, with payments to be made on a quarterly basis through
completion of the Control Network Facility in late 2009. Globalstar has the option to terminate the contract if excusable
delays affecting Thales Alenia Space’s ability to perform the contract total six consecutive months or at its convenience. If
Globalstar terminates the contract, it must pay Thales Alenia Space the lesser of its unpaid costs for work performed by
Thales Alenia Space and its subcontractors or payments for the next two quarters following termination. If Thales Alenia
Space has not completed the Control Network Facility acceptance review within 60 days of the due date, Globalstar will be
entitled to certain liquidated damages. Failure to complete the Control Network Facility acceptance review on or before six
months after the due date results in a default by Thales Alenia Space, entitling Globalstar to a refund of all payments, except
for liquidated damage amounts previously paid or with respect to items where final delivery has occurred. The Control
Network Facility, when accepted, will be covered by a limited one-year warranty. The contract contains customary arbitration
and indemnification provisions.
On September 5, 2007, the Company and Arianespace (the “Launch Provider”) entered into an agreement for the
launch of the Company’s second-generation satellites and certain pre and post-launch services. Pursuant to the agreement, the
Launch Provider will make four launches of six satellites each, and the Company has the option to require the Launch
Provider to make four additional launches of six satellites each. The total contract price for the first four launches is
approximately $216.1 million. On July 5, 2008, the Company amended its agreement with its Launch Provider for the launch
of the Company’s second-generation satellites 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 Launch Provider. The deferred payments will incur
annual interest at 8.5% to 12% and become payable one month before the corresponding launch date. The launch window for
the first four launches ranges from the fourth quarter of 2009 through the end of 2010 and the optional launches are available
from spring 2010 through the end of 2014. Prolonged delays due to postponements by the Company or the Launch Provider
may result in adjustments to the payment schedule.
To augment its existing satellite constellation, the Company successfully launched eight spare satellites in two
separate launches of four satellites each on May 29, 2007 and October 21, 2007. The Company no longer has any spare
satellites remaining to be launched. All of the eight spare satellites had been placed into service and were handling call traffic
as of June 30, 2008.
On May 14, 2008, the Company and Hughes Network Systems, LLC (“Hughes”) entered into an agreement under
which Hughes will design, supply and implement the Radio Access Network (“RAN”) ground network equipment and
software upgrades for installation at a number of the Company’s satellite gateway ground stations and satellite interface chips
to be a part of the User Terminal Subsystem (UTS) in various next-generation Globalstar devices. The total contract purchase
price of approximately $100.8 million is payable in various increments over a period of 40 months. The Company has the
option to purchase additional RANs and other software and hardware improvements at pre-negotiated prices. The RANs,
when completed, will be covered by a limited one-year warranty, with an option for the Company to extend the warranty.
The agreement contains customary arbitration and indemnification provisions. Future costs associated with certain projects
under this contract will be capitalized once the Company has determined that technological feasibility has been achieved on
these projects. As of December 31, 2008, the Company had made payments of $5.4 million under this contract and expensed
$1.8 million of these payments and capitalized $3.6 million under second-generation ground component.
On October 8, 2008, the Company signed an agreement with Ericsson Federal 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
to develop, implement and maintain a ground interface, or core network, system that will be installed at the Company’s
satellite gateway ground stations. The all Internet protocol (IP) based core network system is wireless 3G/4G compatible and
will link the Company’s radio access network to the public-switched telephone network (PSTN) and/or Internet. Design of
the new core network system is now underway. The agreement represents the final significant ground network infrastructure
component for the Company’s next-generation of advanced IP-based satellite voice and data services.
As of December 31, 2008 and 2007, capitalized interest recorded was $37.4 million, and $1.1 million, respectively.
Interest capitalized during the years ended December 31, 2008, 2007, and 2006 was $36.3 million, $0.2 million and
$0.9 million, respectively. Depreciation expense for the years ended December 31, 2008, 2007 and 2006 was $26.8 million,
$12.9 million and $6.6 million, respectively.
61
5. ACCRUED EXPENSES
Accrued expenses consist of the following (in thousands):
Accrued interest
Accrued compensation and benefits
Accrued property and other taxes
Customer deposits
Accrued professional fees
Accrued commissions
Accrued telecom
Warranty reserve
Accrued Second-Generation construction and spare
satellite launch costs
Other accrued expenses
December 31,
2008
2007
14,957
3,413
3,182
2,666
1,168
448
433
101
35
3,595
29,998
$
$
196
2,443
4,894
3,458
1,066
216
300
235
1,563
3,279
17,650
$
$
Other accrued expenses primarily include outsourced logistics services, storage, maintenance, and roaming charges.
Warranty terms extend from 90 days on equipment accessories to one year for fixed and mobile user terminals.
Warranties are accounted for in accordance with SFAS No. 5, “Accounting for Contingencies,” such that an accrual is made
when it is estimable and probable that a loss has been incurred based on historical experience. Warranty costs are accrued
based on historical trends in warranty charges as a percentage of gross product shipments. A provision for estimated future
warranty costs is recorded as cost of sales when products are shipped. The resulting accrual is reviewed regularly and
periodically adjusted to reflect changes in warranty cost estimates. The following is a summary of the activity in the warranty
reserve account (in thousands):
Balance at beginning of period
Provision
Utilization
Balance at end of period
$
$
2008
Year Ended December 31,
2007
2006
235
67
(201)
101
$
$
879
(177)
(467)
235
$
$
977
1,153
(1,251)
879
6. PAYABLES TO AFFILIATES
Payables to affiliates relate to normal purchase transactions, excluding interest, and are comprised of the following
(in thousands):
QUALCOMM
Others
December 31,
2008
2007
$
$
2,498
846
3,344
$
$
1,286
201
1,487
Thermo incurs certain general and administrative expenses on behalf of the Company, which are charged to the
Company. For the years ended December 31, 2008, 2007 and 2006, total expenses were approximately $219,000, $182,000
and $49,000, respectively. For the years ended December 31, 2008, 2007 and 2006, the Company also recorded $449,000,
$420,000 and $189,000, respectively, of non-cash expenses related to services provided by two executive officers of Thermo
and the Company who receive no compensation from the Company which were accounted for as a contribution to capital.
The Thermo expense charges are based on actual amounts incurred or upon allocated employee time. Management believes
the allocations are reasonable.
62
7. PENSIONS AND OTHER EMPLOYEE BENEFITS
Pensions
Until June 1, 2004, substantially all Old and New Globalstar employees and retirees who participated and/or met the
vesting criteria for the plan were participants in the Retirement Plan of Space Systems/Loral (the “Loral Plan”), a defined
benefit pension plan. The accrual of benefits in the Old Globalstar segment of the Loral Plan was curtailed, or frozen, by the
administrator of the Loral Plan as of October 23, 2003. Prior to October 23, 2003, benefits for the Loral Plan were generally
based upon contributions, length of service with the Company and age of the participant. On June 1, 2004, the assets and
frozen pension obligations of the Globalstar Segment of the Loral Plan were transferred into a new Globalstar Retirement
Plan (the “Globalstar Plan”). The Globalstar Plan remains frozen and participants are not currently accruing benefits beyond
those accrued as of October 23, 2003. Globalstar’s funding policy is to fund the Globalstar Plan in accordance with the
Internal Revenue Code and regulations.
Components of the net periodic pension cost of the Company’s contributory defined benefit pension plan for the
years ended December 31, were as follows (in thousands):
Interest cost
Expected return on plan assets
Actuarial loss, net
Net periodic pension cost (income)
$
$
2008
2007
2006
$
759
(843)
16
(68) $
761
(802)
62
21
$
$
735
(697)
91
129
As of the measurement date (December 31), the status of the Company’s defined benefit pension plan was as
follows (in thousands):
2008
2007
Benefit obligation, beginning of year
Interest cost
Actuarial (gain) loss
Benefits paid
Benefit obligation, end of year
Fair value of plan assets, beginning of year
Actual return (loss) on plan assets
Employer contributions
Benefits paid
Fair value of plan assets, end of year
Funded status, end of year
Unrecognized net actuarial loss
Net amount recognized
Amounts recognized on the balance sheet consist of:
Accrued pension liability
Accumulated other comprehensive loss
Net amount recognized
$
$
$
$
$
$
$
$
$
$
$
13,183
759
248
(737)
13,453
11,404
(2,441)
444
(736)
8,671
$
(4,782) $
5,180
398
$
(4,782) $
5,180
398
$
13,366
761
(165)
(779)
13,183
10,844
896
443
(779)
11,404
(1,779)
1,664
(115)
(1,779)
1,664
(115)
At December 31, 2008, and 2007, the fair value of plan assets less benefit obligation was recognized as a non-
current liability on the Company’s balance sheet in the amount of $4.8 million and $1.8 million, respectively.
The assumptions used to determine the benefit obligations at December 31 were as follows:
Discount rate
Rate of compensation increase
2008
2007
5.75%
N/A
6.00%
N/A
The principal actuarial assumptions to determine net period benefit cost for the years ended December 31 were as follows:
Discount rate
Expected rate of return on plan assets
Rate of compensation increase
2008
2007
2006
6.00%
7.50%
N/A
5.75%
7.50%
N/A
5.50%
7.50%
N/A
63
The assumptions, investment policies and strategies for the Globalstar Plan are determined by the Globalstar Plan
Committee. Prior to June 1, 2004, the assumptions, investment policies and strategies for the Globalstar segment of the Loral
Plan were determined by the Loral Plan Committee. The expected long-term rate of return on pension plan assets is selected
by taking into account the expected duration of the projected benefit obligation for the plans, the asset mix of the plans and
the fact that the plan assets are actively managed to mitigate risk.
The defined benefit pension plan asset allocation as of the measurement date (December 31) and the target asset
allocation, presented as a percentage of total plan assets were as follows:
Debt securities
Equity securities
Other investments
Total
2008
2007
50%
47%
3%
100%
42%
54%
4%
100%
Target
Allocation
35%-50%
50%-60%
0%-5%
The benefit payments to retirees are expected to be paid as follows (in thousands):
Years Ending December 31,
2009
2010
2011
2012
2013
2014-2018
$
$
779
791
817
838
855
4,383
For the years ended December 31, 2008 and 2007, the Company contributed $444,000 and $443,000, respectively,
to the Globalstar Plan. The Company expects to contribute a total of approximately $358,000 to the Globalstar Plan in 2009.
Other Employee Plans
The Company has established various other employee benefit plans which include an employee incentive program
and other employee/management incentive compensation plans. The employee/management compensation plans are based
upon annual performance measures and other criteria and are paid in shares of the Company’s Common Stock. The total
expenses related to these plans for the years ended December 31, 2008, 2007 and 2006 were $12.5 million, $9.6 million and
$3.6 million, respectively.
On August 1, 2001, Old Globalstar adopted a defined contribution employee savings plan, or “401(k),” which
provided that Old Globalstar would match the contributions of participating employees up to a designated level. Prior to
August 1, 2001, Old Globalstar’s employees participated in the Loral 401(k) plan. This plan was continued by New
Globalstar. Under this plan, the matching contributions were approximately $508,000, $341,000 and $437,000 for 2008, 2007
and 2006, respectively.
8. TAXES
Until January 1, 2006, the Company was taxed as a partnership for U.S. tax purposes (Note 12). Generally, taxable
income or loss, deductions and credits of the Company were passed through to its members. Effective January 1, 2006, the
Company elected to be taxed as a corporation, and thus subject to the provisions as prescribed under Subchapter C of the
Internal Revenue Code. The Company also began accounting for income taxes under Statement of Financial Accounting
Standards (“SFAS”) No. 109 “Accounting for Income Taxes” (February 1997).
Under SFAS No. 109, the Company recognizes deferred tax assets and liabilities for future tax consequences
attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their
respective tax basis, operating losses and tax credit carryforwards. The Company measures deferred tax assets and liabilities
using tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be
recovered or settled. The Company recognizes the effect on deferred tax assets and liabilities of a change in tax rates in
income in the period that includes the enactment date.
64
The Company also recognizes valuation allowances under SFAS No. 109 to reduce deferred tax assets to the amount that is
more likely than not to be realized. In assessing the likelihood of realization, management considers: (i) future reversals of existing
taxable temporary differences; (ii) future taxable income exclusive of reversing temporary differences and carryforwards; (iii) taxable
income in prior carryback year(s) if carryback is permitted under applicable tax law; and (iv) and tax planning strategies.
SFAS No. 109 also requires that when an enterprise changes its tax status from non-taxable to taxable, the effect of
recognizing deferred tax assets and liabilities is included in income from continuing operations in the period of change. As a
result of the Company’s election to be taxed as a corporation effective January 1, 2006, the Company recognized gross
deferred tax assets and gross deferred tax liabilities of approximately $204.2 million and $0.1 million, respectively.
The components of income tax expense (benefit) were as follows (in thousands):
Current:
Federal tax (benefit)
State tax
Foreign tax
Total
Deferred:
Federal and state tax (benefit)
Foreign tax (benefit)
Total
Income tax expense (benefit)
Year Ended December 31,
2007
2006
2008
$
$
$
—
21
(1,302)
(1,281)
(2,763)
1,761
(1,002)
(2,283) $
—
98
3,320
3,418
—
(554)
(554)
2,864
$
$
—
102
4,045
4,147
(20,039)
1,821
(18,218)
(14,071)
U.S. and foreign components of income (loss) before income taxes are presented below (in thousands):
U.S. income (loss)
Foreign income (loss)
Total income (loss) before income taxes
$
$
2008
Year Ended December 31,
2007
(17,545) $
(7,516)
(25,061) $
1,003
(18,447)
(17,444) $
$
2006
5,120
4,432
9,552
As of December 31, 2008, the Company had cumulative U.S. and foreign net operating loss carryforwards for
income tax reporting purposes of approximately $196.0 million and $52.8 million, respectively. As of December 31, 2007,
the Company had cumulative U.S. and foreign net operating loss carryforwards for income tax reporting purposes of
approximately $173.0 million and $53.0 million, respectively. The net operating loss carryforwards expire on various dates
beginning in 2009 and some of which do not expire.
The Company has not provided for United States income taxes and foreign withholding taxes on approximately
$2.4 million of undistributed earnings from certain foreign subsidiaries indefinitely invested outside the United States.
Should the Company decide to repatriate these foreign earnings, the Company would have to adjust the income tax provision
in the period in which management believes the Company would repatriate the earnings.
In May 2008, the Company entered into a $150.0 million convertible senior note transaction. During the fourth
quarter of 2008, some of these note holders converted or exchanged their notes for Common Stock, which resulted in a
taxable gain in the U.S. of approximately $71.8 million. On January 1, 2009, the Company adopted FSP APB 14-1, which
was effective retrospectively. Prior to the adoption of FSP APB 14-1, the Company had recorded the net tax effect of the
conversions and exchanges of its Notes during the fourth quarter of 2008 against additional —paid-in-capital and reduced its
deferred tax asset at December 31, 2008. The adoption of FSP APB 14-1 resulted in the Company’s recording of a gain from
the exchanges and conversions of the Notes.
The components of net deferred income tax assets were as follows (in thousands):
Federal and foreign net operating loss and credit carryforwards
Property and equipment
Accruals and reserves
Deferred tax assets before valuation allowance
Valuation allowance
Net deferred income tax assets
65
December 31,
2008
75,121
35,286
14,714
125,121
(125,121 )
—
2007
77,218
61,312
5,475
144,005
(122,445)
21,660
$
$
$
$
The change in the valuation allowance during the years ended December 31, 2008, 2007, and 2006 was $2.7 million,
$7.2 million, and $183.7 million, respectively.
The actual provision for income taxes differs from the statutory U.S. federal income tax rate as follows (in
thousands):
Provision at U.S. statutory rate of 35%
Nontaxable partnership interest
State income taxes, net of federal benefit
Incorporation of U.S. company
Change in valuation allowance
Effect of foreign income tax at various rates
Foreign losses with no tax benefit
Permanent differences
Other (including amounts related to prior year tax
matters)
Total
Tax Audits
$
Year Ended December 31,
2007
2008
(6,106) $
—
60
—
1,698
759
4,666
1,322
(8,762) $
—
(1,053)
—
7,195
1,664
1,445
1,072
2006
3,344
—
461
(21,378)
1,304
1,588
—
—
(4,682)
(2,283) $
1,303
2,864 $
610
(14,071)
$
The Company 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 the subsidiary were taxed as partnerships.
Neither the Company nor any of its subsidiaries, except for the one noted above, are currently under audit by the Internal
Revenue Service (“IRS”) or by any state jurisdiction in the United States. The Company’s corporate U.S. tax returns for 2006
and 2007 and U.S. partnership tax returns filed for years before 2006 remain subject to examination by tax authorities. As a
partnership, the Company did not pay entity level taxes during the years before 2006. Accordingly, any adjustments to the
2004 and 2005 returns would not cause the Company to have additional tax expense. However, if there is any adjustment to
the basis of the assets, this could reduce the allowed depreciation in 2006 and 2007. The potential impact of such possibilities
has been considered in the FIN 48 analysis. State income tax returns are generally subject to examination for a period of three
to five years after filing of the respective return. The state impact of any federal changes remains subject to examination by
various states for a period of up to one year after formal notification to the states. In the Company’s international tax
jurisdictions, numerous tax years remain subject to examination by tax authorities, including tax returns for 2001 and
subsequent years in most of the Company’s major international tax jurisdictions.
FIN 48
The reconciliation of the Company’s unrecognized tax benefits is as follows (in thousands):
Gross unrecognized tax benefits at January 1, 2008
Gross increases based on tax positions related to current year
Reductions to tax positions related to prior years audit settlements paid during 2008
Gross unrecognized tax benefits at December 31, 2008
$
$
2008
74,233
6,558
—
80,791
The total unrecognized tax benefit of $80.8 million at December 31, 2008 included $4.3 million which, if
recognized, would reduce the effective income tax rate in future periods.
As of January 1, 2007, the Company adopted the provisions of FIN 48, Accounting for Uncertainty in Income Taxes,
issued July 2006, and interpretation of SFAS No. 109, as supplemented by FASB Financial Staff Position FIN 48-1,
Definition of Settlement in FASB Interpretation No. 48, issued May 2, 2007. FIN 48 clarifies the accounting for income taxes
by prescribing the minimum recognition threshold a tax position if required to meet before being recognized in the financial
statements. FIN 48 also prescribes guidance on derecognition, measurement, classification, interest and penalties, accounting
in interim periods, disclosure and transition. The minimum threshold is defined in FIN 48 as the tax position that is more
likely than not to be sustained upon examination by the applicable taxing authority, including resolution of any related
appeals or litigation processes, based on the technical merits of the position. The tax benefit is measured as the largest
amount of benefit that is greater than fifty percent likely to be realized upon ultimate settlement. FIN 48 must be applied to
all existing tax positions upon initial adoption. The provisions of FIN 48 are effective January 1, 2007, with the cumulative
effect of the change in accounting principle recorded as an adjustment to retained earnings in the year of adoption.
66
Prior to the Company’s adoption of FIN 48, its policy was to classify interest and penalties as an operating expense
in arriving at pretax income. The Company has computed interest on the difference between the tax position recognized in
accordance with FIN 48 and the amount previously taken or expected to be taken in its tax returns. Upon adoption of FIN 48,
the Company has elected an accounting policy to also classify accrued interest and penalties related to unrecognized tax
benefits in its income tax provision.
In connection with the FIN 48 adjustment, at December 31, 2008 and 2007, the Company recorded interest and
penalties of $772,000 and $231,000 respectively. In addition, the Company had accrued penalties and interest of $500,000
and $290,000, respectively, in regard to un-filed returns at January 1, 2008. The Company credited these amounts to income
in 2008 as a result of foreign tax strategies implemented during the year. Accordingly, at December 31, 2008, the Company
had no penalties or interest accrued.
It is anticipated that the amount of unrecognized tax benefit reflected at December 31, 2008 will not materially
change in the next 12 months; any changes are not anticipated to have a significant impact on the results of operations,
financial position or cash flows of the Company.
The Company is subject to income taxes in the U.S. and numerous foreign jurisdictions. Significant judgment is
required in evaluating its tax positions and determining its provision for income taxes. During the ordinary course of
business, there are many transactions and calculations for which the ultimate tax determination is uncertain. The Company
evaluates these tax positions in accordance with the requirements of FIN 48.
9. GEOGRAPHIC INFORMATION
The revenue by geographic location is presented net of eliminations for intercompany sales, and is as follows (in
thousands):
Service:
United States
Canada
Central and South America
Europe
Others
Total service revenue
Subscriber equipment:
United States
Canada
Central and South America
Europe
Others
Total subscriber equipment revenue
Total revenue
Year Ended December 31,
2007
2006
2008
$
$
32,092 $
19,500
5,947
3,521
734
61,794
12,513
6,886
2,601
1,895
366
24,261
86,055 $
43,214 $
26,445
2,883
4,692
1,079
78,313
46,417
32,820
3,934
5,891
2,975
92,037
22,764
7,303
8,031
5,656
4,210
1,161
4,802
5,334
4,827
631
20,085
44,634
98,398 $ 136,671
The long-lived assets (property and equipment) by geographic location are as follows (in thousands):
Long-lived assets:
United States
Canada
Europe
Central and South America
Others
Total long-lived assets
December 31,
2008
2007
$
$
631,857 $ 283,222
1,314
573
4,117
877
642,264 $ 290,103
919
130
7,082
2,276
67
10. OTHER RELATED PARTY TRANSACTIONS
Since 2005, Globalstar has issued separate purchase orders for additional phone equipment and accessories under
the terms of previously executed commercial agreements with QUALCOMM. Within the terms of the commercial
agreements, the Company paid QUALCOMM approximately 7.5% to 25% of the total order as advances for inventory. As of
December 31, 2008 and 2007, total advances to QUALCOMM for inventory were $9.2 million and $9.7 million,
respectively. As of December 31, 2008 and 2007, the Company had outstanding commitment balances of approximately
$49.4 million and $57.0 million, respectively. On October 28, 2008, the Company amended its agreement with
QUALCOMM to extend the term for 12 months and defer delivery of mobile phones and related equipment until 2010.
As required by the lender under the Company’s then-current credit agreement discussed below, the Company
executed an agreement with Thermo Funding Company LLC, an affiliate of Thermo (“Thermo Funding”), to provide
Globalstar up to an additional $200.0 million of equity via an irrevocable standby stock purchase agreement. The irrevocable
standby purchase agreement allowed the Company to put up to 12,371,136 shares of its Common Stock to Thermo Funding
at a predetermined price of approximately $16.17 per share when the Company required additional liquidity or upon the
occurrence of certain other specified events. Thermo Funding also could elect to purchase the shares at any time. Minority
stockholders of Globalstar as of June 15, 2006 who were accredited investors and who received at least thirty-six shares of
Globalstar Common Stock as a result of the Old Globalstar bankruptcy will be provided an opportunity to acquire Common
Stock on the same terms. By November 2007, Thermo Funding had purchased all the Common Stock subject to the
agreement and fully satisfied its commitment.
On August 16, 2006, the Company entered into an amended and restated credit agreement with Wachovia
Investment Holdings, LLC, as administrative agent and swingline lender, and Wachovia Bank, National Association, as
issuing lender, which was subsequently amended on September 29 and October 26, 2006. On December 17, 2007, Thermo
Funding was assigned all the rights (except indemnification rights) and assumed all the obligations of the administrative
agent and the lenders under the amended and restated credit agreement and the credit agreement was again amended and
restated. See Note 16.
During each of the years ended December 31, 2008, 2007 and 2006, the Company employed, in non-executive
positions, certain immediate family members of its executive officers. The aggregate compensation amounts recognized for
these immediate family members during the years ended December 31, 2008, 2007 and 2006 were $0.3 million for each year.
In 2008, the Company purchased approximately $7.7 million of services and equipment from a company whose
chairman serves as a member of the Company’s board of directors.
Purchases and other transactions with Affiliates
Total purchases and other transactions from affiliates, excluding interest, are as follows (in thousands):
QUALCOMM
Other affiliates
Total
$
$
11. COMMITMENTS AND CONTINGENCIES
Future Minimum Lease Obligations
2008
Year Ended December 31,
2007
39,883 $ 57,515
796
40,071 $ 58,311
9,650 $
7,936
17,586 $
188
2006
Globalstar currently has several operating leases for facilities throughout the United States and around the world,
including California, Florida, Texas, Canada, Ireland, France, Venezuela, Brazil, Panama, and Singapore. The leases expire
on various dates through August 2015. The following table presents the future minimum lease payments (in thousands):
Years Ending December 31,
2009
2010
2011
2012
2013
Thereafter
Total minimum lease payments
68
$
$
1,358
738
766
778
680
248
4,568
Rent expense for the years ended December 31, 2008, 2007 and 2006 were approximately $1.6 million, $1.4 million
and $1.4 million, respectively.
Contractual Obligations
The Company has purchase commitments with QUALCOMM, Thales, Arianespace, Ericsson, Hughes and other
venders totaling approximately $303.9 million, $299.3 million, $174.9 million, $116.2 million, $94.2 million and $0 million
in 2009, 2010, 2011, 2012, 2013 and thereafter, respectively. The Company expects to fund its long-term capital needs with
any remaining funds available under its credit agreement, cash flow, which it expects will be generated primarily from sales
of its Simplex products and services, including its new SPOT products and services, and the incurrence of additional
indebtedness, additional equity financings or a combination of these potential sources of funds.
Litigation
From time to time, the Company is involved in various litigation matters involving ordinary and routine claims
incidental to our business. Management currently believes that the outcome of these proceedings, either individually or in the
aggregate, will not have a material adverse effect on the Company’s business, results of operations or financial condition.
The Company is involved in certain litigation matters as discussed below.
IPO Securities Litigation. On February 9, 2007, the first of three purported class action lawsuits was filed against
the Company, its CEO and CFO in the Southern District of New York alleging that the Company’s registration statement
related to its initial public offering in November 2006 contained material misstatements and omissions. The Court
consolidated the three cases as Ladmen Partners, Inc. v. Globalstar, Inc., et al., Case No. 1:07-CV-0976 (LAP), and appointed
Connecticut Laborers’ Pension Fund as lead plaintiff. On September 30, 2008, the court granted the Company’s motion to
dismiss the plaint ffs’ Second Amended Complaint with prejudice. Plaintiffs filed a notice of appeal to the U.S. Second
Circuit Court of Appeals. Plaintiffs (now appellants) filed their brief on January 29, 2009, and the Company’s responsive
brief was filed March 30, 2009.
i
Stickrath v. Globalstar, Inc. On April 7, 2007, Kenneth Stickrath and Sharan Stickrath filed a purported class action
complaint against the Company in 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 motion to deny class certification and
a motion for summary judgment. The court deferred action on the class certification issue but granted the motion for
summary judgment on December 22, 2008. The court did not, however, dismiss the case with prejudice but rather allowed
counsel for plaintiffs to amend the complaint and substitute one or more new class representatives. On January 16, 2009,
counsel for the plaintiffs filed a Third Amended Class Action Complaint. The Company filed its answer on February 2, 2009.
The Company will continue to seek to have class certification denied and the case dismissed with prejudice.
Appeal of FCC S-Band Sharing Decision. This case is Sprint Nextel Corporation’s petition in the U.S. Court of
Appeals for the District of Columbia Circuit for review of, among others, the FCC’s April 27, 2006, decision regarding
sharing 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 has granted the FCC’s motion to hold the case in abeyance while the FCC considers the
petitions for reconsideration pending before it. The Court has also granted the Company’s motion to intervene as a party in
the case. The Company cannot determine when the FCC might act on the petitions for reconsideration.
Appeal of FCC L-Band Decision. On November 9, 2007, the FCC released a Second Order on Reconsideration,
Second Report and Order and Notice of Proposed Rulemaking. In the Report and Order (“R&O”) portion of the decision, the
FCC effectively decreased the L-band spectrum available to the Company while increasing the L-band spectrum available to
Iridium 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 was held on February 17, 2009. The Company does not
expect a decision until the third quarter of 2009.
Appeal of FCC ATC Decision. On October 31, 2008, the FCC issued an Order granting us 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 United States. On December 1,
2008, Iridium Satellite filed a petition with the U.S. Court of Appeals for the District of Columbia Circuit for review of the
FCC’s Order. On the same day, CTIA-The Wireless Association petitioned the FCC to reconsider its Order. The court has
granted the FCC’s motion to hold the appeal in abeyance pending the FCC’s decision on reconsideration.
69
Patent Infringement. On July 2, 2008, the Company’s subsidiary, Spot LLC, received a notice of patent infringement
from Sorensen Research and Development. Sorensen asserts that the process used to manufacture the Spot Satellite Personal
Tracker violates a U.S. patent held by Sorensen. The manufacturer, Axonn LLC, has assumed responsibility for managing the
case under an indemnity agreement with the Company and Spot LLC. Axonn was unable to negotiate a mutually acceptable
settlement with Sorensen, and on January 14, 2009, Sorensen filed a complaint against Axonn, Spot LLC and the Company in
the U.S. District Court for the Southern District of California. The Company has filed an answer and counterclaim and a motion
to stay the proceeding pending completion of the re-examination of the subject patent, which is now underway.
Sales and Use Tax. The Company is under a sales and use tax examination by the California Board of Equalization
for tax years ended 2005, 2006 and 2007. The Company believes that the amount accrued on its books related to sales and
use tax contingency is adequate.
12. INCORPORATION AND RECAPITALIZATION
In preparation for meeting its commitments to register Globalstar shares of Common Stock under the Securities
Exchange Act of 1934, Globalstar elected to be taxed as a C corporation effective January 1, 2006. Effective March 17, 2006,
Globalstar was converted from a limited liability company into a corporation under Delaware law. On that date, the
Company’s 61,947,654 issued and outstanding membership units (adjusted for a subsequent six-for-one stock split) were
automatically converted into a like number of shares of Common Stock, its limited liability company agreement was replaced
by a certificate of incorporation and bylaws, and its name was changed to Globalstar, Inc. In connection with its conversion
into a corporation, the Company established three classes of $0.0001 par value Common Stock, Series A (300,000,000 shares
authorized); Series B (20,000,000 shares authorized); and Series C (480,000,000 shares authorized). All classes of Common
Stock had identical rights and privileges except with respect to their rights to elect directors. Series A holders were entitled to
elect two directors, Series B holders to elect one director, and Series C holders to elect up to five directors. Under the
applicable Delaware statute, all assets and liabilities of the limited liability company became the property of and were
deemed to be assumed by the corporation. On October 25, 2006, the Company amended and restated its certificate of
incorporation to, among other things, create a single class of Common Stock and convert each share of the Company’s three
series of Common Stock into one share of a single series of Common Stock. Immediately following the filing of the amended
and restated certificate of incorporation, a six-for-one stock split (in the form of a five-shares-for-one-share stock dividend),
which had been pre-approved by the Company’s board of directors, was effected. All references to shares of Common Stock
and membership interests and their respective per-unit amounts in these Consolidated Financial Statements and notes to
Consolidated Financial Statements have been restated to reflect the effect of this stock split on a retroactive basis as if it had
occurred on January 1, 2004. Except where otherwise expressly indicated, the information in these notes also gives effect to
the conversion of the Company’s three series of Common Stock into a single series of Common Stock.
Pursuant to the operating agreement of Globalstar, in connection with its conversion to a Delaware corporation,
Globalstar was obligated to distribute $685,848 to Thermo. This amount represents a deferred payment of interest that
accrued from December 6, 2003 to April 14, 2004 on loans made by Thermo to Globalstar that were converted to equity on
April 14, 2004. In connection with the negotiation of Globalstar’s credit agreement, Thermo agreed to defer receipt of this
payment until the completion of the Company’s initial public offering. As permitted by its credit agreement, Globalstar
distributed the $685,848 to Thermo on December 12, 2006.
On November 2, 2006, the Company completed its initial public offering and sold 7,500,000 shares of its Common
Stock at $17.00 per share. The Company received cash proceeds, net of underwriting fees and other offering expenses, of
approximately $116.6 million.
13. EQUITY INCENTIVE PLAN
The Company’s 2006 Equity Incentive Plan (the “Equity Plan”) is a broad based, long-term retention program
intended to attract and retain talented employees and align stockholder and employee interests. In January 2008, the
Company’s Board of Directors approved the addition of approximately 1.7 million shares of the Company’s Common Stock
to the shares available for issuance under the Equity Plan. The Company’s stockholders approved the Amended and Restated
Equity Plan on May 13, 2008, which added an additional 3.0 million shares of the Company’s Common Stock to the shares
available for issuance under the Equity Plan. At December 31, 2008, the number of shares of Common Stock that remained
available for issuance under the Equity Plan was approximately 3.0 million. In January 2009, the Company’s Board of
Directors approved an additional 2.7 million shares of the Company’s Common Stock to the shares available for issuance
under the Equity Plan. Equity awards granted to employees in 2008 under the Equity Plan consisted of primarily restricted
stock awards and restricted stock units. Equity awards generally vest over a period of 2-5 years from the date of grant. The
fair value of the restricted stock awards and restricted stock units is based upon the fair value of the Company’s Common
Stock on the date of grant.
70
Effective January 1, 2006, the Company adopted the provisions of SFAS 123 (R), as discussed in Note 2. For the
years ended December 31, 2008, 2007 and 2006, the total compensation costs charged against income were $12.5 million,
$9.6 million and $1.2 million, respectively. The total tax benefit recognized in 2008, 2007 and 2006 for these equity awards
was approximately $0.7 million, $0.4 million and $0.3 million, respectively. For the years ended December 31, 2008 and
2007, the stock compensation costs capitalized as a part of the second-generation constellation was $0.5 million and
$0.2 million, respectively. The Company did not capitalize any stock compensation expense during 2006. At December 31,
2008 and 2007, the amount related to non-vested shares expected to be amortized over the remaining vesting period was $4.2
(excluding $9.5 million of expected amortization related to the Company’s Executive Incentive Compensation Plan) and
$4.0 million, respectively. At December 31, 2008 and 2007, the weighted average remaining vesting term of the non-vested
shares was 1.2 years and 2.5 years, respectively.
Effective August 10, 2007 (the “Effective Date”), the board of directors, upon recommendation of the Compensation
Committee, approved the concurrent termination of the Company’s Executive Incentive Compensation Plan and awards of
restricted stock or restricted stock units under the Company’s 2006 Equity Incentive Plan to five executive officers (the
“Participants”). Each award agreement provides that the recipient will receive awards of restricted Common Stock (or, for the
non-U.S. Participant, restricted stock units, which upon vesting, each entitle him to one share of Globalstar Common Stock).
Total benefits per Participant (valued at the grant date) are approximately $6.0 million, which represents an increase of
approximately $1.5 million in potential compensation compared to the maximum potential benefits under the Executive
Incentive Compensation Plan. However, the new award agreements extend the vesting period by up to two years through
2011 and provide for payment in shares of Common Stock instead of cash, thereby enabling the Company to conserve its
cash for capital expenditures for the procurement and launch of its second-generation satellite constellation and related
ground station upgrades. One of the original five Participants left the employ of the Company 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
receive all but $750,000 of the original compensation in accordance with a modified vesting schedule. At December 31,
2008, the amount related to non-vested share awards related to the Company’s Executive Incentive Compensation Plan
expected to be amortized over the remaining vesting period was $9.5 million of which $1.3 million is related to share awards
that have not been issued as of December 31, 2008 and have not been included in the table below. In accordance with the
Company’s Executive Incentive Compensation Plan, additional shares equivalent to approximately $3.8 million will be
issued upon vesting in the second quarter of 2009.
In accordance with SFAS 123 (R), the Company adjusts its estimates of expected equity awards forfeitures based
upon its review of recent forfeiture activity and expected future employee turnover. The effect of adjusting the forfeiture rate
for all expense is recognized in the period in which the forfeiture estimate is changed. The effect of forfeiture adjustments for
the year ended December 31, 2008 was $1.4 million. The effect of changes to the forfeiture estimates during the years ended
December 31, 2007 and 2006 was insignificant.
A summary of the nonvested shares under the Company’s restricted stock and restricted unit awards as of
December 31, 2008 and changes during the year ended December 31, 2008, is presented below:
2008
2007
2006
Issued Nonvested Restricted Stock Awards
and Restricted Stock Units
Outstanding at January 1
Granted
Vested
Forfeited
Outstanding at December 31
Shares
1,618,743 $
2,297,173
(1,387,668)
(44,836)
2,483,412 $
14. DERIVATIVES
Weighted-
Average
Grant-
Date
Fair Value
Per Share
15.00
4.12
3.44
9.71
8.92
Weighted-
Average
Grant-
Date
Fair Value
Per Share
15.00
10.29
9.97
14.41
11.06
Weighted-
Average
Grant-
Date
Fair Value
Per Share
0.00
15.00
15.00
15.00
15.00
Shares
— $
294,532
(70,124)
(2,535)
221,873 $
Shares
221,873 $
1,470,138
(50,095)
(23,173)
1,618,743 $
In July 2006, in connection with entering into its credit agreement, which provides for interest at a variable rate
(Note 16), the Company entered into a five-year interest rate swap agreement. The interest rate swap agreement reflected a
$100.0 million notional amount at a fixed interest rate of 5.64%. The fair value of the interest rate swap agreement as
measured on a recurring basis as of December 31, 2007 and 2006 was $5.9 million and $2.7 million, respectively. The
interest rate swap agreement was terminated on December 10, 2008 by the Company making a payment of approximately
$9.2 million.
71
The increase in fair value of the interest rate swap agreement liability, for the year ended December 31, 2008, 2007
and 2006, of approximately $3.3 million, $3.2 million and $2.7 million, respectively, was recognized as “Interest rate
derivative loss” in the accompanying Consolidated Statements of Operations.
15. OTHER COMPREHENSIVE INCOME (LOSS)
The components of other comprehensive income (loss) were as follows (in thousands):
Accumulated minimum pension liability adjustment
Accumulated net foreign currency translation adjustment
Total accumulated other comprehensive income (loss)
December 31,
2008
2007
$
$
(5,180) $
(1,124)
(6,304) $
(1,664)
5,075
3,411
16. BORROWINGS
Current portion of long term debt
Current portion of long term debt consists of $33.6 million due to the Company’s vendors under vendor financing
agreements at December 31, 2008. Details of vendor financing agreements are described later in this Note.
Long Term Debt:
Long term debt consists of the following (in thousands):
Amended and restated Credit Agreement:
Term Loan
Revolving credit loans
Total Borrowings under Amended and restated Credit Agreement
5.75% Convertible Senior Notes due 2028
Vendor Financing
Total long term debt
December 31,
2008
December 31,
2007
(In Thousands)
$
$
100,000 $
66,050
166,050
48,670
23,625
238,345 $
—
50,000
50,000
—
—
50,000
Amended and restated credit agreement
On August 16, 2006, the Company entered into an amended and restated credit agreement with Wachovia
Investment Holdings, LLC, as administrative agent and swingline lender, and Wachovia Bank, National Association, as
issuing lender, which was subsequently amended on September 29 and October 26, 2006. On December 17, 2007, Thermo
Funding was assigned all the rights (except indemnification rights) and assumed all the obligations of the administrative
agent and the lenders under the amended and restated credit agreement and the credit agreement was again amended and
restated. On December 18, 2008, the Company entered into a First Amendment to Second Amended and Restated Credit
Agreement with Thermo Funding, as lender and administrative agent, to increase the amount available to Globalstar under
the revolving credit facility from $50.0 million to $100.0 million. The credit agreement as currently in effect provides for a
$100.0 million revolving credit facility and a $100.0 million delayed draw term loan facility. As of December 31, 2008, the
Company had drawn $66.1 million of the revolving credit facility and the entire $100.0 million delayed draw term loan
facility was outstanding. As of December 31, 2007, the Company had drawn $50.0 million of the revolving credit facility but
none of the delayed draw term loan was outstanding.
All loans will mature on December 31, 2012. Revolving credit loans bear interest at LIBOR plus 4.25% to 4.75% or
the greater of the prime rate or Federal Funds rate plus 3.25% to 3.75%. The delayed draw term loan bears interest at either
5% plus the greater of the prime rate and the Federal Funds rate plus 0.5%, or LIBOR plus 6%. The delayed draw term loan
facility bore an annual commitment fee of 2.0% until drawn or terminated. Commitment fees related to the loans, incurred
during the years ended December 31, 2008, 2007 and 2006, were $0.1 million, $2.3 million and $1.0 million, respectively.
The revolving credit loan facility bears an annual commitment fee of 0.5% until drawn or terminated. Additional term loans
will bear interest at rates to be negotiated. To hedge a portion of the interest rate risk with respect to the delayed draw term
loan, the Company entered into a five-year interest rate swap agreement. This interest rate swap agreement was terminated on
December 10, 2008. The loans may be prepaid without penalty at any time. On September 29, 2008, the Company and
Thermo agreed that, effective May 26, 2008, all payment of interest on the debt will be deferred until 45 days after Thermo
provides notice that the interest is then payable. Interest accrues on this outstanding interest at the same rate as the underlying
loan and was compounded on December 31, 2008 and annually thereafter.
72
The credit agreement limits the amount of the Company’s capital expenditures, requires the Company to maintain
minimum liquidity of $5.0 million and provides that as of the end of the second full fiscal quarter after the Company places
24 of its second-generation satellites into service and at the end of each fiscal quarter thereafter, the Company must maintain
a consolidated senior secured leverage ratio of not greater than 5.0 to 1.0. The Company was in compliance with the debt
covenants at December 31, 2008. Additionally, the credit agreement limits the Company’s ability to make dividend payments
and other distributions.
5.75% Convertible Senior Notes due 2028
On April 10, 2008, the Company entered into an Underwriting Agreement (the “Convertible Notes Underwriting
Agreement”) with Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated and Deutsche Bank
Securities Inc. (together, the “Convertible Notes Underwriters”) relating to the sale by the Company of $135.0 million
aggregate principal amount of its 5.75% Convertible Senior Notes due 2028 (the “Notes”). Pursuant to the Convertible Notes
Underwriting Agreement, the Company granted the Convertible Notes Underwriters a 30-day option to purchase up to an
additional $15.0 million aggregate principal amount of the Notes solely to cover over-allotments, if any.
The sale of $135.0 million aggregate principal amount of the Notes was completed on April 15, 2008. The
Convertible Notes Underwriters subsequently executed their over-allotment option and purchased an additional $15.0 million
aggregate principal amount of the Notes on May 8, 2008. The sale of the Notes was registered under the Securities Act of
1933, as amended, pursuant to a Registration Statement on Form S-3 (File No. 333-149798), as supplemented by a
prospectus supplement and a free-writing prospectus, both dated April 10, 2008.
The Notes were issued under a Senior Indenture, entered into and dated as of April 15, 2008 (the “Base Indenture”),
between the Company 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 the
Company 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 “Escrow Agent”),
entered into a Pledge and Escrow Agreement dated as of April 15, 2008 (the “Pledge Agreement”).
In accordance with the Pledge Agreement, the Company placed approximately $25.5 million of the proceeds of the
offering of the Notes in an escrow account with the Escrow Agent. The Escrow Agent invests funds in the escrow account in
government securities and, if the Company does not elect to make the payments from its other funds, the funds in the escrow
account will be used to make the first six scheduled semi-annual interest payments on the Notes. Pursuant to the Pledge
Agreement, the Company pledged its interest in this escrow account to the Trustee as security for these interest payments. At
December 31, 2008, the balance in the escrow account was $14.4 million.
Except for the pledge of the escrow account under the Pledge Agreement, the Notes are senior unsecured debt
obligations of the Company. 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 is payable semi-annually in arrears on April 1 and October 1 of each year,
commencing October 1, 2008, to holders of record on the preceding March 15 and September 15, respectively.
Subject to certain exceptions set forth in the Indenture, the Notes are subject to repurchase for cash at the option of
the 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
fundamental change, both at a purchase price equal to 100% of the principal amount of the Notes, plus accrued and unpaid
interest, if any. A fundamental change will occur upon certain changes in the ownership of the Company, or certain events
relating to the trading of the Company’s Common Stock, as further described below.
Holders may convert their Notes at their option at any time prior to the close of business on the business day
immediately preceding April 1, 2028. Holders may convert their Notes into shares of Common Stock, subject to the
Company’s option to deliver cash in lieu of all or a portion of the shares. The Notes are convertible at an initial conversion
rate of 166.1820 shares of Common Stock per $1,000 principal amount of 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 $1,000
principal amount of Notes, subject to adjustment. In addition to receiving the applicable amount of shares of Common Stock
or cash in lieu of all or a portion of 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 the portion of the government securities in the escrow account that
are remaining with respect to any of the first six interest payments that have not been made on the Notes being converted.
The if-converted value of these Notes does not exceed the principal amount at December 31, 2008.
73
Holders who convert their Notes in connection with certain events occurring on or prior to April 1, 2013 constituting
a “make whole fundamental change” (as defined below) will be entitled to an increase in the conversion rate as specified in
the Indenture. The number of additional shares by which the applicable base conversion rate will be increased will be
determined by reference to the applicable table below and is based on the date on which the make whole fundamental change
becomes effective (the “effective date”) and the price (the “stock price”) paid, or deemed paid, per share of the Company’s
common stock in the make whole fundamental change, subject to adjustment as described below. If the holders of common
stock receive only cash in a make whole fundamental change, the stock price will be the cash amount paid per share of the
Company’s common stock. Otherwise, the stock price will be the average of the closing sale prices of the Company’s
common stock for each of the 10 consecutive trading days prior to, but excluding, the relevant effective date.
The events that constitute a make whole fundamental change are as follows:
• Any “person” or “group” (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act) is or
becomes the “beneficial owner” (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that a
person shall be deemed to have beneficial ownership of all shares that such person has the right to acquire,
whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of voting
stock representing 50% of more (or if such person is Thermo Capital Partners LLC, 70% or more) of the total
voting power of all outstanding voting stock of the Company;
• The Company consolidates with, or merges with or into, another person or the Company sells, assigns, conveys,
transfers, leases or otherwise disposes of all or substantially all of its assets to any person;
• The adoption of a plan of liquidation or dissolution of the Company; or
• The Company’s common stock (or other common stock into which the Notes are then convertible) is not listed
on a United States national securities exchange or approved for quotation and trading on a national automated
dealer quotation system or established automated over-the-counter trading market in the United States.
The stock prices set forth in the first column of the Make Whole Table below will be adjusted as of any date on which the
base conversion rate of the notes is otherwise adjusted. The adjusted stock prices will equal the stock prices applicable immediately
prior to the adjusted multiplied by a fraction, the numerator of which is the base conversion rate immediately prior to the adjustment
giving rise to the stock price adjustment and the denominator of which is the base conversion rate as so adjusted. The base
conversion rate adjustment amounts set forth in the table below will be adjusted in the same manner as the base conversion rate.
Stock Price on Effective
Date
$
$
$
$
$
$
$
$
$
$
$
$
4.15
5.00
6.00
7.00
8.00
10.00
20.00
30.00
40.00
50.00
75.00
100.00
April 15,
2008
74.7818
74.7818
74.7818
63.9283
55.1934
42.8698
18.5313
10.5642
6.6227
4.1965
1.4038
0.4174
Effective Date
Make Whole Premium (Increase in Applicable Base Conversion Rate)
April 1,
2009
74.7818
64.8342
63.9801
53.8295
46.3816
36.0342
15.7624
8.8990
5.5262
3.5475
1.1810
0.2992
April 1,
2010
74.7818
51.4077
51.4158
42.6844
36.6610
28.5164
12.4774
7.1438
4.4811
2.8790
0.9358
0.1899
April 1,
2011
74.7818
38.9804
38.2260
30.6779
26.0029
20.1806
8.8928
5.1356
3.2576
2.1317
0.6740
0.0985
April 1,
2012
74.7818
29.2910
24.0003
17.2388
14.2808
11.0823
4.9445
2.8997
1.8772
1.2635
0.4466
0.0663
April 1,
2013
74.7818
33.8180
0.4847
0.0000
0.0000
0.0000
0.0000
0.0000
0.0000
0.0000
0.0000
0.0000
The actual stock price and effective date may not be set forth in the table above, in which case:
•
If the actual stock price on the effective date is between two stock prices in the table or the actual effective date
is between two effective dates in the table, the amount of the base conversion rate adjustment will be
determined by straight-line interpolation between the adjustment amounts set forth for the higher and lower
stock prices and the earlier and later effective dates, as applicable, based on a 365-day year;
•
•
If the actual stock price on the effective date exceeds $100.00 per share of the Company’s common stock
(subject to adjustment), no adjustment to the base conversion rate will be made; and
If the actual stock price on the effective date is less than $4.15 per share of the Company’s common stock
(subject to adjustment), no adjustment to the base conversion rate will be made.
74
Notwithstanding the foregoing, the base conversion rate will not exceed 240.9638 shares of common stock per
$1,000 principal amount of Notes, subject to adjustment in the same manner as the base conversion rate.
Except as described above with respect to holders of notes who convert their Notes prior to April 1, 2011, there is no
circumstance in which holders could receive cash in addition to the maximum number of shares of common stock issuable
upon conversion of the Notes.
If the Company makes at least 10 scheduled semi-annual interest payments, the Notes are subject to redemption 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.
The Indenture contains customary financial reporting requirements and also contains restrictions on mergers and asset
sales. The Indenture also provides that upon certain events of default, including without limitation failure to pay principal or
interest, failure to deliver a notice of fundamental change, failure to convert the Notes when required, acceleration of other
material indebtedness and failure to pay material judgments, either the trustee or the holders of 25% in aggregate principal
amount of the Notes may declare the principal of the Notes and any accrued and unpaid interest through the date of such
declaration immediately due and payable. In the case of certain events of bankruptcy or insolvency relating to the Company or
its significant subsidiaries, the principal amount of the Notes and accrued interest automatically becomes due and payable.
Upon adoption of FSP APB 14-1, the Company measured the fair value of the Notes issued in April 2008, using an
interest rate that it could have obtained at the date of issuance for similar debt instruments without an embedded conversion
option. Based on this analysis, the Company determined that the fair value of the Notes was approximately $95.5 million as
of the issuance date, a reduction of approximately $54.5 million in the carrying value of the Notes. The Company will
amortize the resulting debt discount over the Notes’ expected life (approximately five years) as additional non-cash interest
expense, subject to the Company’s capitalized interest policy. Also in accordance with FSP APB 14-1, the Company was
required to allocate a portion of the $4.8 million debt issuances costs that were directly related to the issuance of the Notes
between a liability component and an equity component as of the issuance date, using the interest rate method as discussed
above. Based on this analysis, the Company reclassified approximately $1.8 million of these costs as a component of equity.
Conversion of Convertible Senior Notes
In 2008, holders of $36.0 million aggregate principal amount of Notes, or 24% of the Notes originally issued,
submitted notices of conversion to the trustee in order to convert their Notes into Common Stock and cash in accordance with
the terms of the Notes. The Company also entered into agreements with holders of an additional $42.2 million aggregate
principal amount of Notes, or 28% of the Notes originally issued, to exchange the Notes for a combination of Common Stock
and cash. The Company has issued approximately 23.6 million shares of its Common Stock and paid a nominal amount of cash
for fractional shares in connection with the conversions and exchanges. In addition, the holders received an early conversion
make whole amount of approximately $9.3 million representing the next five semi-annual interest payments that would have
become due on the converted Notes, which was paid from funds in an escrow account for the benefit of the holders of the Notes.
In the exchanges, Note holders received additional consideration in the form of cash payments or additional shares of the
Company’s Common Stock in the amount of approximately $1.1 million to induce exchanges. As a result of adopting FSP APB
14-1, the Company recognized a gain from extinguishment of debt of $49.0 million during 2008. After this conversion,
approximately $48.7 million, net of debt discount of $23.1 million, of the Notes were outstanding at December 31, 2008.
Common Stock Offering and Share Lending Agreement
Concurrently with the offering of the Notes, on April 10, 2008, the Company entered into a share lending agreement
(the “Share Lending Agreement”) with Merrill Lynch International (the “Borrower”), through Merrill Lynch, Pierce, Fenner &
Smith Incorporated, as agent for Borrower (in such capacity, the “Borrowing Agent”), pursuant to which the Company agreed to
lend up to 36,144,570 shares of Common Stock (the “Borrowed Shares”) to the Borrower, subject to certain adjustments set
forth in the Share Lending Agreement, for a period ending on the earliest of (i) the date the Company notifies the Borrower in
writing of its intention to terminate the Share Lending Agreement at any time after the entire principal amount of the Notes
ceases to be outstanding and the Company has settled all payments or deliveries in respect of the Notes (as the settlement may be
extended pursuant to market disruption events or otherwise pursuant to the Indenture), whether as a result of conversion,
redemption, repurchase, cancellation, at maturity or otherwise, (ii) the written agreement of the Company and the Borrower to
terminate, (iii) the occurrence of a Borrower default, at the option of Lender, and (iv) the occurrence of a Lender default, at the
option of the Borrower. Pursuant to the Share Lending Agreement, upon the termination of the share loan, the Borrower must
return the Borrowed Shares to the Company. The only exception would be that, if pursuant to a merger, recapitalization or
reorganization, the Borrowed Shares were exchanged for or converted into cash, securities or other property (“Reference
Property”), the Borrower would return the Reference Property. Upon the conversion of Notes (in whole or in part), a number of
Borrowed Shares proportional to the conversion rate for such notes must be returned to the Company. At the Company’s
election, the Borrower may remit cash equal to the market value of the corresponding Borrowed Shares instead of returning to
the Company the Borrowed Shares otherwise required by conversions of Note.
75
On April 10, 2008, the Company entered into an underwriting agreement (the “Equity Underwriting Agreement”)
with the Borrower and the Borrowing Agent. Pursuant to and upon the terms of the Share Lending Agreement, the Company
will issue and lend the Borrowed Shares to the Borrower as a share loan. The Borrowing Agent also is acting as an
underwriter (the “Equity Underwriter”) with respect to the Borrowed Shares, which are being offered to the public. The
Borrowed Shares included approximately 32.0 million shares of Common Stock initially loaned by the Company to the
Borrower on separate occasions, delivered pursuant to the Share Lending Agreement and the Underwriting Agreement, and
an additional 4.1 million shares of Common Stock that, from time to time, may be borrowed from the Company by the
Borrower pursuant to the Share Lending Agreement and the Underwriting Agreement and subsequently offered and sold at
prevailing market prices at the time of sale or negotiated prices. The sale of the Borrowed Shares was registered under the S-
3 (33-149798). The Company used two prospectus supplements for the transaction, one for the sale of the Notes (and the
underlying Common Stock) and the other for the sale of the Borrowed Shares. The Company filed the prospectus supplement
for the sale of the Borrowed Shares pursuant to Rule 424(b) (3) on April 2, 2008 and pursuant to Rule 424(b) (5) on April 14,
2008. Hence the Borrowed Shares are free trading shares. At December 31, 2008, approximately 24.2 million Borrowed
Shares remained outstanding. The Borrower returned an additional 6.9 million Borrowed Shares in January 2009.
The Company will not receive any proceeds from the sale of the Borrowed Shares pursuant to the Share Lending
Agreement but will receive a nominal lending fee of $0.0001 per share for each share of Common Stock that it loans to the
Borrower pursuant to the Share Lending Agreement. The Borrower will receive all of the proceeds from the sale of Borrowed
Shares pursuant to the Share Lending Agreement. At the Company’s election, the Borrower may remit cash equal to the
market value of the corresponding Borrowed Shares instead of returning the Borrowed Shares due back to the Company as a
result of conversions by Note holders. See below.
The Borrowed Shares are treated 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 of the Company’s outstanding shares, including the right to vote
the shares on all matters submitted to a vote of the Company’s stockholders and the right to receive any dividends or other
distributions that the Company may pay or makes on its outstanding shares of Common Stock. However, under the Share
Lending Agreement, the Borrower has agreed:
• To pay, within one business day after the relevant payment date, to the Company an amount equal to any cash
dividends that the Company pays on the Borrowed Shares; and
• To pay or deliver to the Company, upon termination of the loan of Borrowed Shares, any other distribution, in
liquidation or otherwise, that the Company makes on the Borrowed Shares.
To the extent the Borrowed Shares the Company initially lent under the share lending agreement and offered in the
Common Stock offering have not been sold or returned to it, the Borrower has agreed that it will not vote any such Borrowed
Shares. The Borrower has also agreed under the share lending agreement that it will not transfer or dispose of any Borrowed
Shares, other than to its affiliates, unless the transfer or disposition is pursuant to a registration statement that is effective
under the Securities Act. However, investors that purchase the shares from the Borrower (and any subsequent transferees of
such purchasers) will be entitled to the same voting rights with respect to those shares as any other holder of the Company’s
Common Stock.
On December 18, 2008, the Company entered into Amendment No. 1 to Share Lending Agreement with the
Borrower and the Borrowing Agent. Pursuant to Amendment No.1, the Company has the option to request the Borrower to
deliver cash instead of returning borrowed shares of Company Common Stock upon any termination of loans at the
Borrower’s option, at the termination date of the Share Lending Agreement or when the outstanding loaned shares exceed the
maximum number of shares permitted under the Share Lending Agreement. The consent of the Borrower is required for any
cash settlement, which consent may not be unreasonably withheld, subject to the Borrower’s determination of applicable
legal, regulatory or self-regulatory requirements or other internal policies. Any loans settled in shares of Company Common
Stock will be subject to a return fee based on the stock price as agreed by us and the Borrower. The return fee will not be less
than $0.005 per share or exceed $0.05 per share.
As a result of this amendment, the Company believes that, under generally accepted accounting principles in the
United States as currently in effect, the approximately 24.2 million borrowed shares currently outstanding under the Share
Lending Agreement will be considered outstanding for the purpose of computing and reporting its earnings per share. Prior to
this amendment, the Borrowed Shares were not considered outstanding for the purpose of computing and reporting our
earnings per share due to the substantial elimination of the economic dilution due to contractual provisions, that otherwise
would have resulted from the issuance of the Borrowed Shares.
76
The Company evaluated the various embedded derivatives within the Indenture for bifurcation from the Notes under
the provisions of FASB’s Statement of Financial Standards No.133, “Accounting for Derivative Instruments and Hedging
Activities” (“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 Emerging Issues Task Force Issue No. 00-19, “Accounting for Derivative Financial Instruments
Indexed to, and Potentially Settled in, a Company’s Own Stock” (“EITF 00-19”). Based upon its detailed assessment, the
Company concluded that these embedded derivatives were either (i) excluded from bifurcation as a result of being clearly and
closely related to the Notes or are indexed to the Company’s Common Stock and would be classified in stockholders’ equity
if freestanding or (ii) the fair value of the embedded derivatives was estimated to be immaterial.
Vendor Financing
In July 2008, the Company amended its agreement with its Launch Provider for the launch of the Company’s second-
generation satellites 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 Launch Provider. The deferred payments will incur annual interest at 8.5% to 12%.
In September 2008, the Company amended its agreement with Hughes for the construction of its RAN ground
network equipment and software upgrades for installation at a number of the Company’s satellite gateway ground stations
and satellite interface chips to be a part of the UTS in various next-generation Globalstar devices. Under the amended terms,
the Company deferred certain payments due under the contract in 2008 and 2009 to December 2009. The deferred payments
will incur annual interest at 10%.
At December 31, 2008, the aggregate amount due which had been deferred for payment was $57.2 million (of which
$33.6 million is shown as “Current portion of long term debt” on the Consolidated Balance Sheet).
The Company’s debt matures in the amount of $33.6 million, $23.6 million, $0, $166.1 million and $71.8 million in
2009, 2010, 2011, 2012 and 2013, respectively.
17. QUARTERLY FINANCIAL DATA (UNAUDITED)
Total revenue
Net income (loss)
Basic loss per common share
Diluted loss per common share
Shares used in basic per share calculations
Shares used in diluted per share calculations
Total revenue
Net income (loss)
Basic earnings (loss) per common share
Diluted earnings (loss) per common share
Shares used in basic per share calculations
Shares used in diluted per share calculations
Quarter Ended
March 31,
2008
June 30,
2008
September 30,
2008
December 31,
2008
(In thousands, except per share amounts)
22,134
$
(6,635) $
(0.08) $
(0.08) $
82,448
82,448
22,999
$
(7,177) $
(0.09) $
(0.09) $
84,029
84,029
22,525
$
(26,019) $
(0.31) $
(0.31) $
84,631
84,631
18,397
24,670
0.27
0.27
90,100
90,100
Quarter Ended
March 31,
2007
June 30,
2007
September 30,
2007
December 31,
2007
(In thousands, except per share amounts)
$
$
$
$
23,154
444
0.01
0.01
73,652
73,746
25,837
$
(12,687) $
(0.17) $
(0.17) $
75,657
75,657
$
$
$
$
25,688
652
0.01
0.01
78,000
79,044
23,719
(16,334)
(0.21)
(0.21)
81,814
81,814
$
$
$
$
$
$
$
$
18. MANAGEMENT’S PLANS REGARDING FUTURE OPERATIONS
The Company has initiated plans to improve its liquidity by seeking to obtain a combination of debt and equity
funding to procure and deploy its second-generation constellation and related ground infrastructure as well as to fund its
current operations. The Company’s business is currently generating negative cash flow from operations. The Company’s
plans also include restructuring its operations by reducing costs in underperforming markets and consolidating resources
around the world to operate its network more efficiently. It has also undertaken a plan to market aggressively its Simplex
based products, including the SPOT satellite messenger, to generate incremental cash flow from operations. If the Company’s
plans are successful, it believes it will have sufficient liquidity to finance the anticipated costs to procure and deploy the
second-generation constellation and related ground infrastructure and to fund its current operations for at least the next
12 months. However, the successful execution of the Company’s plans is dependent upon many factors, some of which are
beyond its control. The Company cannot assure you that any portion of its plans will be achieved.
77
19. RETROSPECTIVE ADOPTION OF FSP APB 14-1
In May 2008, the FASB issued FSP APB 14-1. The Company adopted this FSP during the first quarter of 2009.
The Company has retrospectively recasted its results for the year ended December 31, 2008, to reflect the adoption of FSP
APB 14-1. In addition, the Company has adjusted Notes 2, 3, 4, 8, 9, 16 and 17 to the Consolidated Financial Statements to
present the retrospective adoption of this FSP. FSP APB 14-1 requires the liability and equity components of convertible
debt instruments that may be settled in cash upon conversion (including partial cash settlement) to be separately accounted
for in a manner that reflects the issuer’s nonconvertible debt borrowing rate. As such, the initial debt proceeds from the sale
of the Company’s Notes, which are discussed in more detail in Note 16, are required to be allocated between a liability
component and an equity component as of the debt issuance date. The Company will amortize the resulting debt discount
over the instrument’s expected life (approximately five years) as additional non-cash interest expense. FSP APB 14-1 was
effective for fiscal years beginning after December 15, 2008 and requires retrospective application.
Upon adoption of FSP APB 14-1, the Company measured the fair value of the Notes issued in April 2008, using an
interest rate that it could have obtained at the date of issuance for similar debt instruments without an embedded conversion
option. Based on this analysis, the Company determined that the fair value of the Notes was approximately $95.5 million as
of the issuance date, a reduction of approximately $54.5 million in the carrying value of the Notes. The Company will
amortize this resulting debt discount over the Notes’ expected life (approximately five years) as additional non-cash interest
expense, subject to the Company’s capitalized interest policy. Also in accordance with FSP APB 14-1, the Company was
required to allocate a portion of the $4.8 million debt issuance costs that were directly related to the issuance of the Notes
between a liability component and an equity component as of the issuance date, using the interest rate method as discussed
above. Based on this analysis, the Company reclassified approximately $1.8 million of these costs as a component of equity.
In 2008, holders of $36.0 million aggregate principal amount of Notes, or 24% of the Notes originally issued,
submitted notices of conversion to the trustee in order to convert their Notes into Common Stock and cash in accordance with
the terms of the Notes. The Company also entered into agreements with holders of an additional $42.2 million aggregate
principal amount of Notes, or 28% of the Notes originally issued, to exchange the Notes for a combination of Common Stock
and cash. The Company has issued approximately 23.6 million shares of its Common Stock and paid a nominal amount of cash
for fractional shares in connection with the conversions and exchanges. In addition, the holders received an early conversion
make whole amount of approximately $9.3 million representing the next five semi-annual interest payments that would have
become due on the converted Notes, which was paid from funds in an escrow account for the benefit of the holders of the Notes.
In the exchanges, Note holders received additional consideration in the form of cash payments or additional shares of the
Company’s Common Stock in the amount of approximately $1.1 million to induce exchanges. As a result of adopting FSP APB
14-1, the Company recognized a gain from extinguishment of debt of $49.0 million during 2008. After this conversion,
approximately $48.7 million, net of debt discount of $23.1 million, of the Notes were outstanding at December 31, 2008.
The following table illustrates the impact of adopting FSP APB 14-1 on the Company’s Consolidated Statement of
Income (Loss) and Consolidated Balance Sheet for the year ended December 31, 2008 and as of December 31, 2008, respectively.
There were no impacts to the 2006 and 2007 Consolidated Statements of Income (Loss) and Consolidated Balance Sheets:
As Originally
Reported
For The Year Ended December 31, 2008
Effect of
Change
(In thousands)
As
Adjusted
Gain on extinguishment of debt
Interest expense
Income (loss) before income taxes
Income tax expense (benefit)
Net income (loss)
Basic earnings (loss) per share
Diluted earnings (loss) per share
Property and equipment, net
Other assets, net
Long-term debt
Additional paid-in capital
Retained deficit
$
$
$
$
$
$
$
$
$
$
$
$
78
—
$
(6,779) $
(67,532) $
49,042
1,046
50,088
$
$
$
480
$
(2,763) $
(68,012) $
52,851
(0.79) $
(0.79) $
636,362
16,376
195,429
488,343
$
$
$
$
(73,630) $
$
$
$
$
0.61
0.61
5,902
(706) $
(23,134) $
(24,521) $
52,581
$
49,042
(5,733)
(17,444)
(2,283)
(15,161)
(0.18)
(0.18)
642,264
15,670
172,295
463,822
(20,779
PERFORMANCE GRAPH
The following graph shows a comparison from November 2, 2006 (the date our Common Stock commenced trading
on the Nasdaq Stock Market) through December 31, 2008 of cumulative total return for our Common Stock, the Nasdaq
Telecommunications Index and the Nasdaq Composite Index, assuming $100 had been invested in each on November 2,
2006. Such returns are based on historical results and are not intended to suggest future performance. The calculation of
cumulative total return is based on the change in stock price and assumes reinvestment of dividends for the Nasdaq
Telecommunications Index and the Nasdaq Composite Index. We have never paid dividends on our Common Stock and have
no present plans to do so.
Globalstar, Inc. Common Stock Performance Graph
$140.00
$120.00
$100.00
$80.00
$60.00
$40.00
$20.00
$-
IP O (N ove m ber 2, 2006)
Globalstar, Inc.
Nasdaq Telecommunications Index
Nasdaq Composite Index
31-D ec-06
31-M ar-07
30-Jun-07
30-S ep-07
31-D ec-07
31-M ar-08
30-Jun-08
30-S ep-08
31-D ec-08
79
Executive Office
Globalstar, Inc.
461 S. Milpitas Blvd.
Milpitas, CA 95035 USA
(408) 933-4000
World Wide Web
Home Page
www.globalstar.com
Stockholder
Information
For further information
about the company,
additional hard copies of
this report, SEC filings,
and other published
corporate information
please visit the Company
website noted above or
call
(408) 933-4006.
Transfer Agent
Computershare Shareholder
Services, Inc.
250 Royall Street
Canton, MA 02021
(781) 575-4238
www.computershare.com
Independent Auditors
Crowe Horwath LLP
Oak Brook, IL
Legal Counsel
Taft Stettinius & Hollister LLP
Cincinnati, OH
Board of Directors
James Monroe III
Executive Chairman of the
Board
Peter J. Dalton
Chief Executive Officer
William A. Hasler
Director, DiTech Networks
Corp., Harris Stratex
Networks, Mission West
Properties and the Schwab
Funds.
Kenneth E. Jones
Chairman, Globe Wireless,
Inc.
(Maritime Communications)
James F. Lynch
Managing Director
Thermo Capital Partners,
(Private Equity Investment)
J. Patrick McIntyre
President and Chief
Operating Officer
Lauridsen Group
Incorporated
(Nutritional Functional
Proteins)
Richard S. Roberts
VP & General Counsel
Thermo Development, Inc.
(Management Firm)
Executive Officers
James Monroe III
Executive Chairman of the
Board
Peter J. Dalton
Chief Executive Officer
Fuad Ahmad
Senior Vice President and
Chief Financial Officer
Anthony J. Navarra
President, Global Operations
Steven Bell
Senior Vice President, North
American and European
Sales Operations
Robert D. Miller
Senior Vice President,
Engineering and Ground
Operations
William F. Adler
Vice President, Legal and
Regulatory Affairs
Paul A. Monte
Vice President, Engineering
and Product Development
Martin E. Neilsen
Vice President, New
Business Ventures
Richard S. Roberts
Corporate Secretary
Mark Stevenson
Vice President, Strategic
Sales and Alliances
Common Stock
The Company’s stock is
traded on The NASDAQ
Global Select Market under
“GSAT”. As of September 1,
2009, the company had
approximately 150,881,958
shares outstanding and 281
holders of record.
Notice of Annual
Meeting
Sept 23, 2009, 10:00 a.m. PT
Globalstar, Inc.
461 South Milpitas Blvd.
Suite 2
Milpitas, CA USA
95035
(408) 933-4000
For directions to the meeting,
please call (408) 933-4006.
Globalstar, Inc.
461 S Milpitas Blvd.
Milpitas, CA 95035
USA +1.408.933.4000
www.globalstar.com