UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
(Mark One) 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended March 31, 2017  
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from                  to                

Commission file number 001-33117 
GLOBALSTAR, INC.
(Exact Name of Registrant as Specified in Its Charter) 
Delaware
 
41-2116508
(State or Other Jurisdiction of
 
(I.R.S. Employer Identification No.)
Incorporation or Organization)
 
 
 
300 Holiday Square Blvd.
Covington, Louisiana 70433
(Address of principal executive offices and zip code)
Registrant's Telephone Number, Including Area Code: (985) 335-1500
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  ☒ No ☐
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  ☒  No ☐
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. 
Large accelerated filer ☒
 
Accelerated filer ☐
 
 
 
Non-accelerated filer ☐
 
Smaller reporting company  ☐
(Do not check if a smaller reporting company)
 
Emerging growth company  ☐
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
 
As of April 28, 2017 , 982,550,410 shares of voting common stock and 134,008,656 shares of nonvoting common stock were outstanding. Unless the context otherwise requires, references to common stock in this Report mean the Registrant’s voting common stock. 




FORM 10-Q

GLOBALSTAR, INC.
TABLE OF CONTENTS
 





PART I - FINANCIAL INFORMATION
 
Item 1. Financial Statements.
 
GLOBALSTAR, INC.  
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(In thousands, except per share data)
(Unaudited)  
 
Three Months Ended
 
March 31,
2017
 
March 31,
2016
Revenue:
 
 
 
Service revenues
$
21,481

 
$
18,749

Subscriber equipment sales
3,171

 
3,087

Total revenue
24,652

 
21,836

Operating expenses:
 
 
 
Cost of services (exclusive of depreciation, amortization, and accretion shown separately below)
8,974

 
7,591

Cost of subscriber equipment sales
2,096

 
2,178

Marketing, general and administrative
9,490

 
8,610

Depreciation, amortization and accretion
19,294

 
19,155

Total operating expenses
39,854

 
37,534

Loss from operations
(15,202
)
 
(15,698
)
Other income (expense):
 
 
 
Gain on equity issuance
706

 
151

Interest income and expense, net of amounts capitalized
(8,828
)
 
(9,105
)
Derivative gain (loss)
3,223

 
(1,344
)
Other
(24
)
 
(760
)
Total other income (expense)
(4,923
)
 
(11,058
)
Loss before income taxes
(20,125
)
 
(26,756
)
Income tax expense
36

 
191

Net loss
$
(20,161
)
 
$
(26,947
)
 
 
 
 
Other comprehensive loss:
 
 
 
Foreign currency translation adjustments
(821
)
 
(651
)
Total comprehensive loss
$
(20,982
)
 
$
(27,598
)
 
 
 
 
Net loss per common share:
 
 
 
Basic
$
(0.02
)
 
$
(0.03
)
Diluted
(0.02
)
 
(0.03
)
Weighted-average shares outstanding:
 
 
 
Basic
1,113,968

 
1,041,028

Diluted
1,113,968

 
1,041,028

 
See accompanying notes to unaudited interim condensed consolidated financial statements. 

1



GLOBALSTAR, INC.  
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except par value and share data)  
(Unaudited)  
 
March 31, 2017
 
December 31, 2016
ASSETS
 

 
 

Current assets:
 

 
 

Cash and cash equivalents
$
23,535

 
$
10,230

Accounts receivable, net of allowance of $4,151 and $3,966, respectively
12,918

 
15,219

Inventory
8,851

 
8,093

Prepaid expenses and other current assets
4,829

 
4,588

Total current assets
50,133

 
38,130

Property and equipment, net
1,027,356

 
1,039,719

Restricted cash
37,915

 
37,983

Intangible and other assets, net of accumulated amortization of $7,079 and $7,021, respectively
18,526

 
16,782

Total assets
$
1,133,930

 
$
1,132,614

LIABILITIES AND STOCKHOLDERS’ EQUITY
 

 
 

Current liabilities:
 

 
 

Current portion of long-term debt
$
75,755

 
$
75,755

     Debt restructuring fees
20,795

 
20,795

Accounts payable
6,208

 
7,499

Accrued contract termination charge
18,727

 
18,451

Accrued expenses
27,519

 
23,162

Payables to affiliates
236

 
309

Deferred revenue
26,867

 
26,479

Total current liabilities
176,107

 
172,450

Long-term debt, less current portion
507,504

 
500,524

Employee benefit obligations
4,917

 
4,883

Derivative liabilities
277,946

 
281,171

Deferred revenue
5,860

 
5,877

Other non-current liabilities
6,191

 
5,890

Total non-current liabilities
802,418

 
798,345

 
 
 
 
Commitments and contingencies (Note 7)


 


 
 
 
 
Stockholders’ equity:
 

 
 

Preferred Stock of $0.0001 par value; 100,000,000 shares authorized and none issued and outstanding at March 31, 2017 and December 31, 2016, respectively

 

Series A Preferred Convertible Stock of $0.0001 par value; one share authorized and none issued and outstanding at March 31, 2017 and December 31, 2016, respectively

 

Voting Common Stock of $0.0001 par value; 1,200,000,000 shares authorized; 982,539,816 and 972,602,824 shares issued and outstanding at March 31, 2017 and December 31, 2016, respectively
98

 
97

Nonvoting Common Stock of $0.0001 par value; 400,000,000 shares authorized; 134,008,656 shares issued and outstanding at March 31, 2017 and December 31, 2016, respectively
13

 
13

Additional paid-in capital
1,663,882

 
1,649,315

Accumulated other comprehensive loss
(6,199
)
 
(5,378
)
Retained deficit
(1,502,389
)
 
(1,482,228
)
Total stockholders’ equity
155,405

 
161,819

Total liabilities and stockholders’ equity
$
1,133,930

 
$
1,132,614

 
See accompanying notes to unaudited interim condensed consolidated financial statements.  

2



GLOBALSTAR, INC. 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 
Three Months Ended
 
March 31,
2017

March 31,
2016
Cash flows provided by (used in) operating activities:
 

 
 

Net loss
$
(20,161
)
 
$
(26,947
)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
 

 
 

Depreciation, amortization and accretion
19,294

 
19,155

Change in fair value of derivative assets and liabilities
(3,223
)
 
1,344

Stock-based compensation expense
1,190

 
785

Amortization of deferred financing costs
2,076

 
2,346

Provision for bad debts
418

 
(52
)
Noncash interest and accretion expense
2,801

 
2,718

Change in fair value related to equity issuance
(706
)
 
(151
)
Unrealized foreign currency (gain) loss
(225
)
 
761

Other, net
754

 
(26
)
Changes in operating assets and liabilities:
 

 
 

Accounts receivable
1,957

 
(58
)
Inventory
(320
)
 
1,224

Prepaid expenses and other current assets
(829
)
 
122

Other assets
(214
)
 
39

Accounts payable and accrued expenses
2,140

 
1,574

Payables to affiliates
(73
)
 
(1
)
Other non-current liabilities
124

 
(655
)
Deferred revenue
307

 
425

Net cash provided by operating activities
5,310

 
2,603

Cash flows used in investing activities:
 

 
 

Second-generation network costs (including interest)
(2,300
)
 
(1,598
)
Property and equipment additions
(1,004
)
 
(2,949
)
Purchase of intangible assets
(784
)
 
(361
)
Net cash used in investing activities
(4,088
)
 
(4,908
)
Cash flows provided by financing activities:
 

 
 

Proceeds from issuance of stock to Terrapin
12,000

 
6,500

Proceeds from issuance of common stock and exercise of options and warrants
18

 
28

Net cash provided by financing activities
12,018

 
6,528

Effect of exchange rate changes on cash
(3
)
 
160

Net increase in cash, cash equivalents and restricted cash
13,237

 
4,383

Cash, cash equivalents and restricted cash, beginning of period
48,213

 
45,394

Cash, cash equivalents and restricted cash, end of period
$
61,450

 
$
49,777

 
 
 
 
 
As of:
 
March 31,
2017
 
December 31, 2016
Reconciliation of cash, cash equivalents and restricted cash
 
 
 
Cash and cash equivalents
$
23,535

 
$
10,230

Restricted cash (See Note 3 for further discussion on restrictions)
37,915

 
37,983

Total cash, cash equivalents and restricted cash shown in the statement of cash flows
$
61,450

 
$
48,213

 
 
 
 
 
Three Months Ended
 
March 31,
2017
 
March 31,
2016
Supplemental disclosure of cash flow information:
 

 
 

Cash paid for:
 

 
 

Interest
$
492

 
$

Income taxes
17

 

 
 
 
 
Supplemental disclosure of non-cash financing and investing activities:
 

 
 

Increase in capitalized accrued interest for second-generation network costs
$
971

 
$
729

Capitalized accretion of debt discount and amortization of prepaid financing costs
1,229

 
1,031

Issuance of common stock for legal settlement
453

 

See accompanying notes to unaudited interim condensed consolidated financial statements.

3



GLOBALSTAR, INC.  
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
1. BASIS OF PRESENTATION

Globalstar, Inc. (“Globalstar” or the “Company”) provides Mobile Satellite Services (“MSS”) including voice and data communications services through its global satellite network. Thermo Capital Partners LLC, through its affiliates (collectively, “Thermo”), is the principal owner and largest stockholder of Globalstar. The Company’s Chairman and Chief Executive Officer controls Thermo. Two other members of the Company's Board of Directors are also directors, officers or minority equity owners of various Thermo entities.

The Company has prepared the accompanying unaudited interim condensed consolidated financial statements in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) for interim financial information. Certain information and footnote disclosures normally in financial statements have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC"); however, management believes the disclosures made are adequate to make the information presented not misleading. These financial statements and notes should be read in conjunction with the consolidated financial statements and notes thereto included in the Globalstar Annual Report on Form 10-K for the year ended December 31, 2016 , as filed with the SEC on February 23, 2017 (the "2016 Annual Report"), and Management's Discussion and Analysis of Financial Condition and Results of Operations herein. 

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from estimates. The Company evaluates estimates on an ongoing basis. Significant estimates include the value of derivative instruments, the allowance for doubtful accounts, the net realizable value of inventory, the useful life and value of property and equipment, the value of stock-based compensation and income taxes. The Company has made certain reclassifications to prior period condensed consolidated financial statements to conform to current period presentation.

These unaudited interim condensed consolidated financial statements include the accounts of Globalstar and all its subsidiaries. All significant intercompany transactions and balances have been eliminated in the consolidation. In the opinion of management, the information included herein includes all adjustments, consisting of normal recurring adjustments, that are necessary for a fair presentation of the Company’s condensed consolidated statements of operations, condensed consolidated balance sheets, and condensed consolidated statements of cash flows for the periods presented. The results of operations for the three months ended March 31, 2017 are not necessarily indicative of the results that may be expected for the full year or any future period.

Recently Issued Accounting Pronouncements  

In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Updates ("ASU") No. 2014-09, Revenue from Contracts with Customers . ASU 2014-09 has been modified multiple times since its initial release. This ASU outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. ASU 2014-09, as amended, becomes effective for annual reporting periods beginning after December 15, 2017. Early adoption is permitted; however the Company plans on adopting this standard when it becomes effective on January 1, 2018. The Company has an internal project team that is evaluating the impact this standard will have on its financial statements, accounting systems and related disclosures. Currently, the Company expects that the most significant changes to the Company's revenue recognition accounting policies will be related to the following: 1) the allocation and timing of revenue recognized between service revenue and subscriber equipment sales, 2) the timing of service revenue recognized for breakage during certain customer's prepaid contracts and 3) the deferment of certain contract acquisition costs and the recognition of these costs over the expected life of a customer's contract. The standard permits the use of either the retrospective or cumulative effect transition method. The Company has not yet selected a transition method.

In March 2016, the FASB issued ASU No. 2016-02, Leases . The main difference between the provisions of ASU No. 2016-02 and previous U.S. GAAP is the recognition of right-of-use assets and lease liabilities by lessees for those leases classified as operating leases under previous U.S. GAAP. ASU No. 2016-02 retains a distinction between finance leases and operating leases, and the recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee have not significantly changed from previous U.S. GAAP. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize right-of-use assets and lease liabilities. The accounting applied by a lessor is largely unchanged from that applied under previous U.S. GAAP. In transition, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. This ASU is effective

4



for public business entities in fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted as of the beginning of any interim or annual reporting period. The Company is currently evaluating the impact this standard will have on its financial statements and related disclosures.

In March 2016, the FASB issued ASU No. 2016-04, Liabilities-Extinguishment of Liabilities: Recognition of Breakage for Certain Prepaid Stored-Value Products . ASU No. 2016-04 contains specific guidance for the derecognition of prepaid stored-value product liabilities within the scope of this ASU. This ASU is effective for public entities for annual and interim periods beginning after December 15, 2017. Early adoption is permitted as of the beginning of any interim or annual reporting period. The Company does not expect this ASU to have a material effect on its condensed consolidated financial statements and related disclosures.

In June 2016, the FASB issued ASU No. 2016-13, Credit Losses, Measurement of Credit Losses on Financial Instruments . ASU No. 2016-13 significantly changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The standard will replace today’s incurred loss approach with an expected loss model for instruments measured at amortized cost. Entities will apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. This ASU is effective for public entities for annual and interim periods beginning after December 15, 2019. Early adoption is permitted for all entities for annual periods beginning after December 15, 2018, and interim periods therein. The Company has not yet determined the impact this standard will have on its financial statements and related disclosures.

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows - Classification of Certain Cash Receipts and Cash Payments . ASU No. 2016-15 is intended to reduce diversity in how certain cash receipts and cash payments are presented in the statement of cash flows. The new guidance clarifies the classification of cash activity related to debt prepayment or debt extinguishment costs, settlement of zero-coupon debt instruments, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, proceeds from the settlement of corporate and bank-owned life insurance policies, distributions received from equity-method investments, and beneficial interests in securitization transactions. The guidance also describes a predominance principle pursuant to which cash flows with aspects of more than one class that cannot be separated should be classified based on the activity that is likely to be the predominant source or use of cash flow. This ASU is effective for public entities for annual and interim periods beginning after December 15, 2017. Early adoption is permitted as of the beginning of any interim or annual reporting period. The Company is currently evaluating the impact this standard will have on its financial statements and related disclosures, but does not expect it to have a material effect on the Company's condensed consolidated financial statements and related disclosures.

In October 2016, the FASB issued ASU No. 2016-16, I ncome Taxes: Intra-Entity Transfers of Assets Other Than Inventory . ASU 2016-16 requires entities to account for the income tax effects of intercompany sales and transfers of assets other than inventory when the transfer occurs rather than current guidance which requires companies to defer the income tax effects of intercompany transfers of assets until the asset has been sold to an outside party or otherwise recognized. This ASU is effective for public entities for annual and interim periods beginning after December 15, 2017. Early adoption is permitted as of the beginning of any interim or annual reporting period. The Company is currently evaluating the impact this standard will have on its financial statements and related disclosures.

In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows - Restricted Cash . ASU 2016-18 requires entities to show the changes in the total of cash, cash equivalents, restricted cash and restricted cash equivalents in the statement of cash flows. When cash, cash equivalents, restricted cash and restricted cash equivalents are presented in more than one line item on the balance sheet, a reconciliation of the totals in the statement of cash flows to the related captions in the balance sheet is required. This ASU is effective for public entities for annual and interim periods beginning after December 15, 2017. Early adoption is permitted as of the beginning of any interim or annual reporting period. The Company adopted this standard effective with reporting periods beginning on January 1, 2017 and reflected the impact of this standard using a retrospective transition method for each period presented. Additionally, the Company added required disclosures pursuant to ASC 2016-18 to its condensed consolidated statements of cash flows.

In January 2017, the FASB issued ASU No. 2017-01, Business Combinations: Clarifying the Definition of a Business . ASU 2017-01 most significantly revises guidance specific to the definition of a business related to accounting for acquisitions. Additionally, ASU 2017-01 also affects other areas of US GAAP, such as the definition of a business related to the consolidation of variable interest entities, the consolidation of a subsidiary or group of assets, components of an operating segment, and disposals of reporting units and the impact on goodwill. This ASU is effective for public entities for annual and interim periods beginning after December 15, 2017. Early adoption is permitted as of the beginning of any interim or annual reporting period. The Company does not expect it to have a material effect on the Company's condensed consolidated financial statements and related disclosures.


5



In February 2017, the FASB issued ASU 2017-05, Other Income—Gains and Losses from the Derecognition of Nonfinancial Assets: Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets . ASU 2017-06 was issued to provide clarity on the scope and application for recognizing gains and losses from the sale or transfer of nonfinancial assets, and should be adopted concurrently with ASU 2014-09: Revenue from Contracts with Customers . This ASU is effective for public entities for annual and interim periods beginning after December 15, 2017. Early adoption is permitted as of the beginning of any interim or annual reporting period. The Company is currently evaluating the impact this standard will have on its financial statements and related disclosures.

In February 2017, the FASB issued ASU 2017-07: Compensation—Retirement Benefits: Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost . ASU 2017-07 requires sponsors of benefit plans to present the service cost component of net periodic benefit cost in the same income statement line or items as other employee costs and present the remaining components of net periodic benefit cost in one or more separate line items outside of income from operations. This ASU also limits the capitalization of benefit costs to only the service cost component. This ASU is effective for public entities for annual and interim periods beginning after December 15, 2017. Early adoption is permitted as of the beginning of any interim or annual reporting period. The Company does not expect it to have a material effect on the Company's condensed consolidated financial statements and related disclosures.

In March 2017, the FASB Issued ASU 2017-08: Receivables—Nonrefundable Fees and Other Costs: Premium Amortization on Purchased Callable Debt Securities . This ASU amends current US GAAP to shorten the amortization period for certain purchased callable debt securities held at a premium to the earliest call date. This ASU is effective for public entities for annual and interim periods beginning after December 15, 2018. Early adoption is permitted as of the beginning of any interim or annual reporting period. The Company does not expect it to have a material effect on the Company's condensed consolidated financial statements and related disclosures.

2. PROPERTY AND EQUIPMENT
 Property and equipment consists of the following (in thousands): 
 
March 31,
2017
 
December 31,
2016
Globalstar System:
 

 
 

Space component
 

 
 

First and second-generation satellites in service
$
1,211,090

 
$
1,211,090

Prepaid long-lead items
17,040

 
17,040

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

 
32,481

Ground component
48,695

 
48,400

Construction in progress:
 

 
 

Space component
452

 
81

Ground component
212,518

 
207,127

Next-generation software upgrades
10,898

 
10,223

Other
1,629

 
2,299

Total Globalstar System
1,534,803

 
1,528,741

Internally developed and purchased software
15,974

 
15,005

Equipment
9,968

 
9,875

Land and buildings
3,365

 
3,330

Leasehold improvements
1,896

 
1,893

Total property and equipment
1,566,006

 
1,558,844

Accumulated depreciation
(538,650
)
 
(519,125
)
Total property and equipment, net
$
1,027,356

 
$
1,039,719


Amounts in the above table consist primarily of costs incurred related to the construction of the Company’s second-generation constellation and ground upgrades. The ground component of construction in progress represents costs (including capitalized interest) associated with the Company's contracts with Hughes Network Systems, LLC ("Hughes") and Ericsson Inc. (“Ericsson”) related to the second-generation upgrades to the Company's ground infrastructure. The Company will begin depreciating this asset

6



when the second-generation gateways are placed into commercial service. See Note 7: Commitments and Contingencies for further discussion of these contracts.

Amounts included in the Company’s second-generation satellite, on-ground spare balance as of March 31, 2017 consist primarily of costs related to a spare second-generation satellite that has not been placed in orbit, but is capable of being included in a future launch. As of March 31, 2017 , this satellite and the prepaid long-lead items ("LLI") have not been placed into service; therefore, the Company has not started to record depreciation expense for these items.

Pursuant to the Amended and Restated Contract for the construction of Globalstar Satellites for the Second Generation Constellation between the Company and Thales Alenia Space France ("Thales"), dated and executed in June 2009 (the "2009 Contract"), the Company paid €12 million  in purchase price plus an additional €3.1 million in procurement costs for the LLI to be procured by Thales on the Company's behalf. The LLI were to be used in the construction of the Phase 3 satellites for the Company. As reflected on the Company's condensed consolidated balance sheets and in the above table, the Company believes that it owns the LLI and that title to the LLI transferred to the Company upon payment. The Company has asked Thales to turn over the LLI. Despite historical statements to the contrary, Thales currently disputes the Company's ownership of the LLI and has asserted that the Company released its title to the LLI pursuant to that certain Release Agreement, dated as of June 24, 2012, which is described more fully in Note 7: Commitments and Contingencies . Thales further asserts that the LLI belong to Thales and that Thales has no obligation to turn over possession of the LLI to the Company. The Company disputes Thales' assertions and is considering its rights and remedies to recover the LLI. At this time, the Company cannot predict the outcome related to this dispute, including, without limitation, the likelihood of any settlement or the probability of success with respect to any litigation that the Company may determine to commence with respect to the LLI.

Capitalized Interest and Depreciation Expense  

The following table summarizes capitalized interest (in thousands):   
 
Three Months Ended 
 March 31,
 
2017
 
2016
Interest costs eligible to be capitalized
$
12,436

 
$
11,845

Interest costs recorded in interest income (expense), net
(8,333
)
 
(8,579
)
Net interest capitalized
$
4,103

 
$
3,266

 
The following table summarizes depreciation expense (in thousands): 
 
Three Months Ended 
 March 31,
 
2017
 
2016
Depreciation expense
$
19,234

 
$
19,049

   

7



3. LONG-TERM DEBT AND OTHER FINANCING ARRANGEMENTS  
 
Long-term debt consists of the following (in thousands): 
 
March 31, 2017
 
December 31, 2016
 
Principal
Amount
 
Unamortized Discount and Deferred Financing Costs
 
Carrying
Value
 
Principal
Amount
 
Unamortized Discount and Deferred Financing Costs
 
Carrying
Value
Facility Agreement
$
543,011

 
$
42,763

 
$
500,248

 
$
543,011

 
$
45,651

 
$
497,360

Thermo Loan Agreement
96,810

 
28,841

 
67,969

 
93,962

 
29,615

 
64,347

8.00% Convertible Senior Notes Issued in 2013
17,126

 
2,084

 
15,042

 
17,126

 
2,554

 
14,572

Total Debt
656,947

 
73,688

 
583,259

 
654,099

 
77,820

 
576,279

Less: Current Portion
75,755

 

 
75,755

 
75,755

 

 
75,755

Long-Term Debt
$
581,192

 
$
73,688

 
$
507,504

 
$
578,344

 
$
77,820

 
$
500,524


The principal amounts shown above include payment of in-kind interest, as applicable. The carrying value is net of deferred financing costs and any discounts to the loan amounts at issuance, including accretion, as further described below. The current portion of long-term debt represents the scheduled principal repayments under the Facility Agreement due within one year of the balance sheet date. These short-term debt obligations are significant and the Company believes these obligations will be in excess of its cash flows from operations. The Company intends to raise funds in sufficient amounts to make these payments; however, the source of funds has not yet been fully arranged.
 
Facility Agreement  

In 2009, the Company entered into the Facility Agreement with a syndicate of bank lenders, including BNP Paribas, Société Générale, Natixis, Crédit Agricole Corporate and Investment Bank (formerly Calyon) and Crédit Industriel et Commercial, as arrangers, and BNP Paribas, as the security agent. The Facility Agreement was amended and restated in July 2013 and August 2015.

The Facility Agreement is scheduled to mature in December 2022 . As of March 31, 2017 , the Facility Agreement was fully drawn. Semi-annual principal repayments began in December 2014. Indebtedness under the facility bears interest at a floating rate of LIBOR plus 2.75% through June 2017, increasing by an additional 0.5% each year thereafter to a maximum rate of LIBOR plus 5.75% Ninety-five percent of the Company’s obligations under the Facility Agreement are guaranteed by Bpifrance (as assigned by COFACE), the French export credit agency. The Company’s obligations under the Facility Agreement are guaranteed on a senior secured basis by all of its domestic subsidiaries and are secured by a first priority lien on substantially all of the assets of the Company and its domestic subsidiaries (other than their FCC licenses), including patents and trademarks, 100% of the equity of the Company’s domestic subsidiaries and 65% of the equity of certain foreign subsidiaries.  

The Facility Agreement contains customary events of default and requires that the Company satisfy various financial and non-financial covenants. The covenants in the Facility Agreement limit the Company's ability to, among other things, incur or guarantee additional indebtedness; make certain investments, acquisitions or capital expenditures above certain agreed levels; pay dividends or repurchase or redeem capital stock or subordinated indebtedness; grant liens on its assets; incur restrictions on the ability of its subsidiaries to pay dividends or to make other payments to the Company; enter into transactions with its affiliates; merge or consolidate with other entities or transfer all or substantially all of its assets; and transfer or sell assets. The Company is currently in discussions with the agent for the lenders regarding its 2017 annual business plan, as contemplated by the terms of the Facility Agreement.

Pursuant to the terms of the Facility Agreement, the Company has the ability to cure noncompliance with financial covenants with Equity Cure Contributions (as described below) through a date as late as June 2019. If the Company violates any of these covenants and is unable to obtain a sufficient Equity Cure Contribution or obtain a waiver, or is unable to make payments to satisfy its debt obligations under the Facility Agreement and is unable to obtain a waiver, it would be in default under the Facility Agreement and payment of the indebtedness could be accelerated. The acceleration of the Company's indebtedness under one agreement may permit acceleration of indebtedness under other agreements that contain cross-acceleration provisions. As of March 31, 2017 , the Company was in compliance with respect to the covenants of the Facility Agreement.


8



In calculating compliance with the financial covenants of the Facility Agreement, the Company may include certain cash funds contributed to the Company from the issuance of the Company's common stock and/or subordinated indebtedness. These funds are referred to as "Equity Cure Contributions" and may be used to achieve compliance with financial covenants through a date as late as June 2019, subject to the conditions set forth in the Facility Agreement. The Company has drawn funds from its common stock purchase agreements with Terrapin Opportunity, L.P. ("Terrapin") and used these funds as Equity Cure Contributions under the Facility Agreement. The Company anticipates that it will need to obtain additional Equity Cure Contributions to maintain compliance with financial covenants under the Facility Agreement for the measurement periods ended June 30, 2017 and December 31, 2017. The source of funds for these Equity Cure Contributions has not yet been fully arranged. The Company is currently in discussions with its lenders regarding the modification of certain terms in the Facility Agreement.

The Facility Agreement also requires the Company to maintain a total of $37.9 million in a debt service reserve account, which is pledged to secure all of the Company's obligations under the Facility Agreement. The use of these funds is restricted to making principal and interest payments under the Facility Agreement. As of March 31, 2017 , the balance in the debt service reserve account, which was established with the proceeds of the loan agreement with Thermo discussed below, was $37.9 million and classified as restricted cash on the Company's condensed consolidated balance sheets. 

Thermo Loan Agreement 

In connection with the amendment and restatement of the Facility Agreement, the Company amended and restated its loan agreement with Thermo (as amended and restated, the “Loan Agreement”). All obligations of the Company to Thermo under the Loan Agreement are subordinated to all of the Company’s obligations under the Facility Agreement.

The Loan Agreement accrues interest at 12% per annum, which is capitalized and added to the outstanding principal in lieu of cash payments. The Company will make payments to Thermo only when permitted by the Facility Agreement. Principal and interest under the Loan Agreement become due and payable six months after the obligations under the Facility Agreement have been paid in full, or earlier if the Company has a change in control or if any acceleration of the maturity of the loans under the Facility Agreement occurs. As of March 31, 2017 , $53.3 million of interest had accrued since 2009 with respect to the Loan Agreement; the Loan Agreement is included in long-term debt on the Company’s condensed consolidated balance sheets.

The Company evaluated the various embedded derivatives within the Loan Agreement (See Note 5: Fair Value Measurements for additional information about the embedded derivative in the Loan Agreement). The Company determined that the conversion option and the contingent put feature upon a fundamental change required bifurcation from the Loan Agreement. The conversion option and the contingent put feature were not deemed clearly and closely related to the Loan Agreement and were separately accounted for as a standalone derivative. The Company recorded this compound embedded derivative liability as a non-current liability on its condensed consolidated balance sheets with a corresponding debt discount, which is netted against the face value of the Loan Agreement.

The Company is accreting the debt discount associated with the compound embedded derivative liability to interest expense through the maturity of the Loan Agreement using an effective interest rate method. The fair value of the compound embedded derivative liability is marked-to-market at the end of each reporting period, with any changes in value reported in the condensed consolidated statements of operations. The Company determines the fair value of the compound embedded derivative using a blend of a Monte Carlo simulation model and market prices.

The amount by which the if-converted value of the Thermo Loan Agreement exceeds the principal amount at March 31, 2017 , assuming conversion at the closing price of the Company's common stock on that date of $1.60 per share, is approximately $108.6 million .

8.00% Convertible Senior Notes Issued in 2013
 
The 8.00% Convertible Senior Notes Issued in 2013 (the "2013 8.00% Notes") are convertible into shares of common stock at a conversion price of $0.73 (as adjusted) per share of common stock, or 1,370 shares of the Company’s common stock per $1,000 principal amount of the 2013 8.00% Notes. The conversion price of the 2013 8.00% Notes is adjusted in the event of certain stock splits or extraordinary share distributions, or as a reset of the base conversion and exercise price pursuant to the terms of the Fourth Supplemental Indenture between the Company and U.S. Bank National Association, as Trustee, dated May 20, 2013 (the "Indenture").

The 2013 8.00% Notes are senior unsecured debt obligations of the Company with no sinking fund. The 2013 8.00% Notes will mature on April 1, 2028, subject to various call and put features, and bear interest at a rate of 8.00% per annum. Interest on the 2013 8.00% Notes is payable semi-annually in arrears on April 1 and October 1 of each year. Interest is paid in cash at a rate

9



of 5.75% per annum and in additional notes at a rate of 2.25% per annum. The Indenture for the 2013 8.00% Notes provides for customary events of default. As of March 31, 2017 , the Company was in compliance with respect to the terms of the 2013 8.00% Notes and the Indenture. 

Subject to certain conditions set forth in the Indenture, the Company may redeem the 2013 8.00% Notes, with the prior approval of the majority lenders under the Facility Agreement, in whole or in part, at any time on or after April 1, 2018, at a price equal to the principal amount of the 2013 8.00% Notes to be redeemed plus all accrued and unpaid interest thereon. 

A holder of the 2013 8.00% Notes has the right, at the holder’s option, to require the Company to purchase some or all of the 2013 8.00% Notes held by it on each of April 1, 2018 and April 1, 2023 at a price equal to the principal amount of the 2013 8.00% Notes to be purchased plus accrued and unpaid interest. 

Subject to the procedures for conversion and other terms and conditions of the Indenture, a holder may convert its 2013 8.00% Notes at its option at any time prior to the close of business on the business day immediately preceding April 1, 2028 , into shares of common stock (or, at the option of the Company, cash in lieu of all or a portion thereof, provided that, under the Facility Agreement, the Company may pay cash only with the consent of the Majority Lenders). 

As of March 31, 2017 , holders had converted a total of $39.4 million principal amount of the 2013 8.00% Notes, resulting in the issuance of approximately 72.1 million shares of voting common stock. There were no conversions during the three -month period ended March 31, 2017 .

Holders who convert 2013 8.00% Notes receive conversion shares over a 40 -consecutive trading day settlement period. Accordingly, the portion of converted debt is extinguished on an incremental basis over the 40 -day settlement period, reducing the Company's outstanding debt balance. As of March 31, 2017 , no conversions had been initiated but not yet fully settled.

The Company evaluated the various embedded derivatives within the Indenture for the 2013 8.00% Notes. The Company determined that the conversion option and the contingent put feature within the Indenture required bifurcation from the 2013 8.00% Notes. The Company did not deem the conversion option and the contingent put feature to be clearly and closely related to the 2013 8.00% Notes and separately accounted for them as a standalone derivative. The Company recorded this compound embedded derivative liability as a non-current liability on its condensed consolidated balance sheets with a corresponding debt discount which is netted against the face value of the 2013 8.00% Notes. 

The Company is accreting the debt discount associated with the compound embedded derivative liability to interest expense through the first put date of the 2013 8.00% Notes (April 1, 2018) using an effective interest rate method. The Company is marking to market the fair value of the compound embedded derivative liability at the end of each reporting period, with any changes in value reported in the condensed consolidated statements of operations. The Company determines the fair value of the compound embedded derivative using a blend of a Monte Carlo simulation model and market prices. 

The amount by which the if-converted value of the 2013 8.00% Notes exceeded the principal amount at March 31, 2017 , assuming conversion at the closing price of the Company's common stock on that date of $1.60 per share, is approximately $20.3 million .

10




Warrants Outstanding

Pursuant to the terms of the Contingent Equity Agreement with Thermo (See Note 9: Related Party Transactions in the Consolidated Financial Statements in the 2016 Annual Report for a description of the Contingent Equity Agreement), the Company issued to Thermo 41.5 million warrants at a strike price of $0.01 to purchase shares of common stock pursuant to the annual availability fee and subsequent reset provisions in the Contingent Equity Agreement. These warrants were issued between June 2009 and June 2012 and have a five -year exercise period from issuance. Thermo has exercised warrants to purchase approximately 16.9 million of these shares prior to the expiration of the associated warrants. As of March 31, 2017 , 24.6 million warrants remain outstanding under this agreement, all of which are scheduled to expire in June 2017.

Terrapin Opportunity, L.P. Common Stock Purchase Agreement  

In August 2015, the Company entered into a common stock purchase agreement with Terrapin pursuant to which the Company could require Terrapin to purchase up to $75.0 million of shares of the Company’s voting common stock over the 24 -month term following the date of the agreement. Through the term of this agreement, Terrapin purchased a total of 67.3 million shares of voting common stock for a total purchase price of $75.0 million . During the three months ended March 31, 2017 , the Company drew $12.0 million and issued to Terrapin 8.9 million shares of voting common stock. No funds remain available under this agreement.

4. DERIVATIVES  

In connection with certain existing borrowing arrangements, the Company was required to record derivative instruments on its condensed consolidated balance sheets. None of these derivative instruments is designated as a hedge. The following table discloses the fair values of the derivative instruments on the Company’s condensed consolidated balance sheets (in thousands):

 
March 31, 2017
 
December 31, 2016
Derivative assets:
 

 
 

Interest rate cap
$
2

 
$
4

Total derivative assets
$
2

 
$
4

Derivative liabilities:
 

 
 

Compound embedded derivative with the 2013 8.00% Notes
$
(25,505
)
 
$
(26,664
)
Compound embedded derivative with the Thermo Loan Agreement
(252,441
)
 
(254,507
)
Total derivative liabilities
$
(277,946
)
 
$
(281,171
)

 The following table discloses the changes in value recorded as derivative gain (loss) in the Company’s condensed consolidated statement of operations (in thousands): 

 
Three Months Ended
 
March 31, 2017
 
March 31, 2016
Interest rate cap
$
(2
)
 
$
(4
)
Compound embedded derivative with the 2013 8.00% Notes
1,159

 
449

Compound embedded derivative with the Thermo Loan Agreement
2,066

 
(1,789
)
Total derivative gain (loss)
$
3,223

 
$
(1,344
)

11




Intangible and Other Assets  

Interest Rate Cap  

In June 2009, in connection with entering into the Facility Agreement, under which interest accrues at a variable rate, the Company entered into five ten -year interest rate cap agreements. The interest rate cap agreements reflect a variable notional amount at interest rates that provide coverage to the Company for exposure resulting from escalating interest rates over the term of the Facility Agreement. The interest rate cap provides limits on the six-month Libor rate (“Base Rate”) used to calculate the coupon interest on outstanding amounts on the Facility Agreement and is capped at 5.50% should the Base Rate not exceed 6.5% . Should the Base Rate exceed 6.5% , the Company’s Base Rate will be 1% less than the then six-month Libor rate. The Company paid an approximately $12.4 million upfront fee for the interest rate cap agreements. The interest rate cap did not qualify for hedge accounting treatment, and changes in the fair value of the agreements are included in the condensed consolidated statements of operations.  

Derivative Liabilities  

The Company has identified various embedded derivatives resulting from certain features in the Company’s debt instruments, including the conversion option and the contingent put feature within both the 2013 8.00% Notes and the Thermo Loan Agreement. These embedded derivatives required bifurcation from the debt host agreement and are recorded as a derivative liability on the Company’s condensed consolidated balance sheets with a corresponding debt discount netted against the principal amount of the related debt instrument. The Company accretes the debt discount associated with each derivative liability to interest expense over the term of the related debt instrument using an effective interest rate method. The fair value of each embedded derivative liability is marked-to-market at the end of each reporting period with any changes in value reported in its condensed consolidated statements of operations. The Company determined the fair value of its compound embedded derivative liabilities using a blend of a Monte Carlo simulation model and market prices. See Note 5: Fair Value Measurements for further discussion.

5. FAIR VALUE MEASUREMENTS  

The Company follows the authoritative guidance for fair value measurements relating to financial and non-financial assets and liabilities, including presentation of required disclosures herein. This guidance establishes a fair value framework requiring the categorization of assets and liabilities into three levels based upon the assumptions (inputs) used to price the assets and liabilities.  Level 1 provides the most reliable measure of fair value, whereas Level 3 generally requires significant management judgment.  The three levels are defined as follows:

Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical assets or liabilities.

Level 2: Quoted prices in markets that are not active or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability. 

Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).

12




Recurring Fair Value Measurements  

The following tables provide a summary of the financial assets and liabilities measured at fair value on a recurring basis (in thousands): 
 
March 31, 2017
 
(Level 1)
 
(Level 2)
 
(Level 3)
 
Total
 Balance
Assets:
 

 
 

 
 

 
 

Interest rate cap
$

 
$
2

 
$

 
$
2

Total assets measured at fair value
$

 
$
2

 
$

 
$
2

 
 
 
 
 
 
 
 
Liabilities:
 

 
 

 
 

 
 

Liability for potential stock issuance to Hughes
$

 
$
(1,964
)
 
$

 
$
(1,964
)
Compound embedded derivative with 2013 8.00% Notes

 

 
(25,505
)
 
(25,505
)
Compound embedded derivative with the Thermo Loan Agreement

 

 
(252,441
)
 
(252,441
)
Total liabilities measured at fair value
$

 
$
(1,964
)
 
$
(277,946
)
 
$
(279,910
)
 
 
December 31, 2016
 
(Level 1)
 
(Level 2)
 
(Level 3)
 
Total
 Balance
Assets:
 

 
 

 
 

 
 

Interest rate cap
$

 
$
4

 
$

 
$
4

Total assets measured at fair value
$

 
$
4

 
$

 
$
4

 
 
 
 
 
 
 
 
Liabilities:
 

 
 

 
 

 
 

Liability for potential stock issuance to Hughes
$

 
$
(2,706
)
 
$

 
$
(2,706
)
Liability for stock issuance due to legal settlement

 
(389
)
 

 
(389
)
Compound embedded derivative with 2013 8.00% Notes

 

 
(26,664
)
 
(26,664
)
Compound embedded derivative with the Thermo Loan Agreement

 

 
(254,507
)
 
(254,507
)
Total liabilities measured at fair value
$

 
$
(3,095
)
 
$
(281,171
)
 
$
(284,266
)
 
Assets 

Interest Rate Cap  

The fair value of the interest rate cap is determined using observable pricing inputs including benchmark yields, reported trades, and broker/dealer quotes at the reporting date. See Note 4: Derivatives for further discussion.

Liabilities 

Liability for potential stock issuance to Hughes

As described in Note 7: Commitments and Contingencies , the Company agreed to provide downside protection after the issuance of shares of common stock to Hughes in lieu of cash for contract payments in June 2015. This feature requires the Company to issue to Hughes additional shares of common stock equal to the difference, if any, between the initial consideration of $15.5 million and the total amount of gross proceeds Hughes receives from the sale of any shares plus the market value of any shares still held by Hughes as of the close of trading on June 30, 2017. The value of this option is calculated using a Black-Scholes pricing model. This liability is marked-to-market at each balance sheet date and through the settlement date.


13



Liability for future stock issuance due to legal settlement

As described in Note 7: Commitments and Contingencies , the Company settled litigation related to its Brazilian subsidiary in October 2016 through the payment of Globalstar common stock. In connection with this settlement, the Company agreed to provide downside protection for the difference between the total settlement amount and the total amount of gross proceeds the counterparty receives from the sale of these shares. An estimate of $0.4 million for this liability was recorded in accrued expenses in the Company's condensed consolidated financial statements as of December 31, 2016 . In March 2017, the Company settled this liability through the final payment of approximately 0.3 million shares of Globalstar common stock.

Derivative Liabilities

The Company has two derivative liabilities classified as Level 3. The Company marks-to-market these liabilities at each reporting date with the changes in fair value recognized in the Company’s condensed consolidated statements of operations. See Note 4: Derivatives for further discussion. 

The significant quantitative Level 3 inputs utilized in the valuation models are shown in the tables below: 

 
March 31, 2017
 
Stock Price
Volatility
 
Risk-Free
Interest
Rate
 
Note
Conversion
Price
 
Discount Rate
 
Market Price of Common Stock
Compound embedded derivative with the 2013 8.00% Notes
100% - 105%
 
1.0
%
 
$
0.73

 
25
%
 
$
1.60

Compound embedded derivative with the Thermo Loan Agreement
40% - 105%
 
2.1
%
 
$
0.73

 
25
%
 
$
1.60

 
 
December 31, 2016
 
Stock Price
Volatility
 
Risk-Free
Interest
Rate
 
Note
Conversion
Price
 
Discount Rate
 
Market Price of Common Stock
Compound embedded derivative with the 2013 8.00% Notes
100% - 110%
 
1.0
%
 
$
0.73

 
25
%
 
$
1.58

Compound embedded derivative with the Thermo Loan Agreement
40% - 110%
 
2.2
%
 
$
0.73

 
25
%
 
$
1.58


Fluctuation in the Company’s stock price is the primary driver for the changes in the derivative valuations during each reporting period. As the stock price increases away from the current conversion price for each of the related derivative instruments, the value to the holder of the instrument generally increases, thereby increasing the liability on the Company’s condensed consolidated balance sheets. These valuations are sensitive to the weighting applied to each of the simulated values. Additionally, stock price volatility is one of the significant unobservable inputs used in the fair value measurement of each of the Company’s derivative instruments. The simulated fair value of these liabilities is sensitive to changes in the expected volatility of the Company's stock price. Decreases in expected volatility would generally result in a lower fair value measurement. 

Probability of a change of control is another significant unobservable input used in the fair value measurement of the Company’s derivative instruments. Subject to certain restrictions in each indenture, the Company’s debt instruments contain certain provisions whereby holders may require the Company to purchase all or any portion of the convertible debt instrument upon a change of control. A change of control will occur upon certain changes in the ownership of the Company or certain events relating to the trading of the Company’s common stock. The simulated fair value of the derivative liabilities above is sensitive to changes in the assumed probabilities of a change of control. Decreases in the assumed probability of a change of control would generally result in a lower fair value measurement. 

In addition to the inputs described above, the valuation model used to calculate the fair value measurement of the compound embedded derivatives within the Company’s 2013 8.00% Notes and Thermo Loan Agreement included the following inputs and features: discount rate, payment in kind interest payments, make whole premiums, a 40 -day stock issuance settlement period upon conversion, automatic conversions, estimated maturity date, and the principal balance of each loan at the balance sheet date. There are also certain put and call features within the 2013 8.00% Notes that impact the valuation model. The trading activity in the

14



market provides the Company with additional valuation support. The Company uses a weight factor to calculate the fair value of the embedded derivatives to align the fair value produced from the Monte Carlo simulation model with the market value of the 2013 8.00% Notes. Due to the similarities of the debt instruments, the Company applies a similar weight to the embedded derivative in the Thermo Loan Agreement. These valuations are sensitive to the weighting applied to each of the simulated values.

The following table presents a rollforward for all liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) (in thousands):
 
Three Months Ended March 31,
 
2017
 
2016
Balance at beginning of period
$
(281,171
)
 
$
(239,642
)
Unrealized gain (loss), included in derivative gain (loss)
3,225

 
(1,344
)
Balance at end of period
$
(277,946
)
 
$
(240,986
)

Fair Value of Debt Instruments

The Company believes it is not practicable to determine the fair value of the Facility Agreement. Unlike typical long-term debt, interest rates and other terms for the Facility Agreement are not readily available and generally involve a variety of factors, including due diligence by the debt holders. As such, it is not practicable to determine the fair value of the Facility Agreement without incurring significant additional costs. The following table sets forth the carrying values and estimated fair values of the Company's other debt instruments, which are classified as Level 3 financial instruments (in thousands):

 
March 31, 2017
 
December 31, 2016
 
Carrying Value
 
Estimated Fair Value
 
Carrying Value
 
Estimated Fair Value
Thermo Loan Agreement
$
67,969

 
$
50,622

 
$
64,347

 
$
47,874

2013 8.00% Notes
15,042

 
14,845

 
14,572

 
14,350


6. ACCRUED EXPENSES AND OTHER NON-CURRENT LIABILITIES  

Accrued expenses consist of the following (in thousands): 
 
March 31,
2017
 
December 31,
2016
Accrued interest
$
5,669

 
$
381

Accrued liability for potential stock issuance to Hughes
1,964

 
2,706

Accrued compensation and benefits
3,320

 
3,193

Accrued property and other taxes
4,319

 
4,173

Accrued customer liabilities and deposits
3,919

 
3,907

Accrued professional and other service provider fees
3,532

 
2,544

Accrued commissions
928

 
858

Accrued telecommunications expenses
716

 
709

Accrued satellite and ground costs
545

 
2,076

Accrued inventory
584

 
90

Accrued liability for legal settlement

 
389

Other accrued expenses
2,023

 
2,136

   Total accrued expenses
$
27,519

 
$
23,162


Accrued liability for potential stock issuance to Hughes includes the estimated value of the downside protection that the Company provided to Hughes in connection with its April 2015 agreement (as amended).  See Note 5: Fair Value Measurements and Note 7: Commitments and Contingencies for further discussion.


15



Other accrued expenses include primarily capital lease obligations, warranty reserve, occupancy costs, advertising costs, payments to independent gateway operators ("IGOs") and estimated payroll shortfall under the Cooperative Endeavor Agreement with the Louisiana Department of Economic Development. 

Other non-current liabilities consist of the following (in thousands):   
 
March 31,
2017
 
December 31,
2016
Long-term accrued interest
$
193

 
$
99

Asset retirement obligation
1,445

 
1,443

Deferred rent and other deferred expense
420

 
470

Liability related to the Cooperative Endeavor Agreement with the State of Louisiana
405

 
445

Foreign tax contingencies
3,695

 
3,346

Capital lease obligations
33

 
87

   Total other non-current liabilities
$
6,191

 
$
5,890

 
7. COMMITMENTS AND CONTINGENCIES  

Contractual Obligations - Next-Generation Gateways and Other Ground Facilities

As of March 31, 2017 , the Company had purchase commitments with Thales, Hughes and Ericsson related to the procurement, deployment and maintenance of the second-generation network.  The Company is obligated to make payments under these purchase commitments totaling approximately $1.1 million during 2017, all of which are owed Ericsson and were accrued on its condensed consolidated balance sheet as of March 31, 2017 .

Hughes designed, supplied and implemented the Radio Access Network ("RAN") ground network equipment and software upgrades for installation at a number of the Company’s gateways. Hughes also provided the satellite interface chips to be used in various second-generation Globalstar devices. Ericsson developed, implemented and installed the Company's ground interface, or core network system, at certain of the Company's gateways. The second-generation Ericsson core links the Hughes RANs to the public-switched telephone network (“PSTN”), cellular networks and Internet. In December 2016, the Company formally accepted all contract deliverables under the core contracts for both Hughes and Ericsson necessary to deploy its second-generation ground infrastructure. In the near future, the Company will complete certain add-ons outside of the scope of the core contracts, which include certain punch list items with Ericsson and the installation of second-generation RANs at certain additional gateways.

In April 2015, Hughes exercised an option to be paid in shares of the Company's common stock (at a price 7% below market) in lieu of cash for certain of its remaining contract payments, totaling approximately $15.5 million . In June 2015, the Company issued 7.4 million shares of freely tradable common stock at the 7% discount pursuant to this option. In the April 2015 agreement (as amended), the Company agreed to provide downside protection through June 30, 2017. This feature requires that the Company issue additional shares of common stock equal to the difference, if any, between the initial consideration of $15.5 million and the total amount of gross proceeds Hughes receives from the sale of any shares plus the market value of any shares still held by Hughes as of the close of trading on June 30, 2017. Pursuant to this agreement, the Company recorded a liability of $2.0 million as of March 31, 2017 and $2.7 million as of December 31, 2016 . The Company calculated these estimates of the value of this option using a Black-Scholes pricing model and an estimate of the number of shares of common stock held by Hughes as of each balance sheet date. This liability is marked-to-market at each balance sheet date and through the settlement date. The Company records gains and losses resulting from changes in the value of this liability in its condensed consolidated statement of operations.

Other Second-Generation Commitments

Various maintenance, licensing and royalty agreements are necessary for the use of proprietary, third-party technology embedded in the Company's second-generation ground infrastructure and products. The fees due under these maintenance and license agreements are projected to be up to approximately $3.6 million per year and will be recognized in the Company's condensed consolidated statement of operations over the maintenance and license terms, which are expected to begin at various times during 2017 and 2018. The fees due under the royalty agreements will fluctuate based on product sales and will be recognized in the Company's condensed consolidated statement of operations on a per unit basis as second-generation products are manufactured, sold or activated. As of March 31, 2017 , a portion of these license and royalty fees have been paid and are recorded as a prepaid asset in the Company's condensed consolidated balance sheets.


16



Arbitration 

On June 3, 2011, Globalstar filed a demand for arbitration against Thales before the American Arbitration Association to enforce certain rights to order additional satellites under the 2009 Contract. The Company did not include within its demand any claims that it had against Thales for work previously performed under the contract to design, manufacture and timely deliver the first 25 second-generation satellites. On May 10, 2012, the arbitration tribunal issued its award in which it determined that the Company had terminated the 2009 Contract "for convenience" and had materially breached the contract by failing to pay to Thales the €51.3 million in termination charges required under the contract. The tribunal additionally determined that absent further agreement between the parties, Thales had no further obligation to manufacture or deliver satellites under Phase 3 of the 2009 Contract. Based on these determinations, the tribunal directed the Company to pay Thales approximately €53 million in termination charges, plus interest by June 9, 2012. On May 23, 2012, Thales commenced an action in the United States District Court for the Southern District of New York by filing a petition to confirm the arbitration award (the “New York Proceeding”). Thales and the Company entered into a tolling agreement as of June 13, 2013, under which Thales dismissed the New York Proceeding without prejudice. The tolling agreement has expired. Thales may refile the petition at a later date and pursue the confirmation of the arbitration award, which the Company would oppose. Should Thales be successful in confirming the arbitration award, this would have a material adverse effect on the Company's financial condition, results of operations and liquidity.

On June 24, 2012, the Company and Thales agreed to settle their prior commercial disputes, including those disputes that were the subject of the arbitration award. In order to effectuate this settlement, the Company and Thales entered into a Release Agreement, a Settlement Agreement and a Submission Agreement. Under the terms of the Release Agreement, Thales agreed unconditionally and irrevocably to release and forever discharge the Company from any and all claims and obligations (with the exception of those items payable under the Settlement Agreement or in connection with a new contract for the purchase of any additional second-generation satellites), including, without limitation, a full release from paying €35.6 million of the termination charges awarded in the arbitration together with all interest on the award amount effective upon the earlier of December 31, 2012, and the effective date of the financing for the purchase of any additional second-generation satellites. Under the terms of the Release Agreement, the Company agreed unconditionally and irrevocably to release and forever discharge Thales from any and all claims (with limited exceptions), including, without limitation, claims related to Thales’ work under the 2009 satellite construction contract, including any obligation to pay liquidated damages, effective upon the earlier of December 31, 2012, and the effective date of the financing for the purchase of any additional second-generation satellites. In connection with the Release Agreement and the Settlement Agreement, the Company recorded a contract termination charge of approximately €17.5 million which is recorded in the Company’s condensed consolidated balance sheets as of March 31, 2017 and December 31, 2016 . The releases became effective on December 31, 2012.

Under the terms of the Settlement Agreement, the Company agreed to pay €17.5 million to Thales, representing one-third of the termination charges awarded to Thales in the arbitration, subject to certain conditions, on the later of the effective date of the new contract for the purchase of any additional second-generation satellites and the effective date of the financing for the purchase of these satellites. As of March 31, 2017 , this condition had not been satisfied. Because the effective date of the new contract for the purchase of additional second-generation satellites did not occur on or prior to February 28, 2013, any party may terminate the Settlement Agreement. If any party terminates the Settlement Agreement, all parties’ rights and obligations under the Settlement Agreement shall terminate. The Release Agreement is a separate and independent agreement from the Settlement Agreement and provides that it supersedes all prior understandings, commitments and representations between the parties with respect to the subject matter thereof; therefore it would survive any termination of the Settlement Agreement. As of March 31, 2017 , no party had terminated the Settlement Agreement.

Litigation

Due to the nature of the Company's business, the Company is involved, from time to time, in various litigation matters or subject to disputes or routine claims regarding its business activities. Legal costs related to these matters are expensed as incurred. In 2016, the Company settled litigation incurred on behalf of the Company's Brazilian subsidiary. The Company paid the total settlement of 4.5 million reais, or $1.4 million , by issuing approximately 1.3 million shares of Globalstar common stock in October 2016. The Company agreed to provide downside protection for the difference between the total settlement amount of 4.5 million reais and the total gross proceeds received by the third party upon sale of these shares. In March 2017, the Company paid 0.3 million shares of Globalstar common stock related to this downside protection, valued at 1.4 million reais, or $0.5 million .

In management's opinion, there is no pending litigation, dispute or claim, other than those described in this report, which could be expected to have a material adverse effect on the Company's financial condition, results of operations or liquidity. 


17



8. RELATED PARTY TRANSACTIONS   

Payables to Thermo and other affiliates related to normal purchase transactions were $0.2 million and $0.3 million as of March 31, 2017 and December 31, 2016 , respectively. 

Transactions with Thermo  

General and administrative expenses are related to non-cash expenses and those expenses incurred by Thermo on behalf of the Company which are charged to the Company. Non-cash expenses, which the Company accounts for as a contribution to capital, relate to services provided by two executive officers of Thermo (who are also directors of the Company) and receive no cash compensation from the Company. The Thermo expense charges are based on actual amounts (with no mark-up) incurred or upon allocated employee time. Those expenses charged to the Company were $0.2 million and $0.1 million during the three months ended March 31, 2017 and 2016 , respectively.

As of March 31, 2017 , the principal amount outstanding under the Loan Agreement with Thermo was $96.8 million , and the fair value of the compound embedded derivative liability associated with the Loan Agreement was $252.4 million . During the three months ended March 31, 2017 and 2016 , interest accrued on the Loan Agreement was approximately $2.8 million and $2.5 million , respectively. In addition, as of March 31, 2017 , warrants to purchase approximately 24.6 million shares issued under the Contingent Equity Agreement remain outstanding, all of which are held by Thermo and are scheduled to expire in June 2017.

The Facility Agreement requires Thermo to maintain minimum and maximum ownership levels in the Company's common stock. Thermo may convert shares of nonvoting common stock into shares of voting common stock as needed to comply with these ownership limitations.

In 2013, the Company's Board of Directors formed a Special Committee consisting solely of independent directors of the Company, represented by independent counsel. The Special Committee serves as an independent board to review and approve certain transactions between the Company and Thermo.

See Note 3: Long-Term Debt and Other Financing Arrangements for further discussion of the Company's debt and financing transactions with Thermo.

9. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)  

Accumulated other comprehensive income (loss) includes all changes in equity during a period from non-owner sources.

The components of accumulated other comprehensive income (loss) were as follows (in thousands): 
 
Three Months Ended March 31,
 
2017
 
2016
Accumulated other comprehensive loss, beginning of period
$
(5,378
)
 
$
(4,833
)
Other comprehensive income (loss):
 

 
 

Foreign currency translation adjustments
(821
)
 
(651
)
Accumulated other comprehensive loss, end of period
$
(6,199
)
 
$
(5,484
)
 
No amounts were reclassified out of accumulated other comprehensive loss for the periods shown above.


18



10. GEOGRAPHIC INFORMATION
 
The Company attributes subscriber equipment sales to various countries based on the location where equipment is sold. Service revenue is generally attributed to the various countries based on the Globalstar entity that holds the customer contract. Long-lived assets consists primarily of property and equipment and are attributed to various countries based on the physical location of the asset at the end of a given period, except for the Company's satellites that are included in the long-lived assets of the United States. The Company’s information by geographic area is as follows (in thousands):
 
 
Three Months Ended March 31,
 
2017
 
2016
Revenues:
 
 
 
Service revenue:
 
 
 
United States
$
15,277

 
$
13,269

Canada
3,701

 
3,244

Europe
1,731

 
1,458

Central and South America
650

 
618

Others
122

 
160

Total service revenue
21,481

 
18,749

Subscriber equipment sales:
 
 
 
United States
1,781

 
1,304

Canada
715

 
760

Europe
416

 
430

Central and South America
259

 
388

Others

 
205

Total subscriber equipment sales
3,171

 
3,087

Total revenue
$
24,652

 
$
21,836

 
 
March 31,
2017
 
December 31,
2016
Property and equipment, net:
 

 
 

United States
$
1,022,964

 
$
1,035,331

Canada
657

 
670

Europe
395

 
408

Central and South America
3,107

 
3,084

Others
233

 
226

Total property and equipment, net
$
1,027,356

 
$
1,039,719

 


19



11. EARNINGS (LOSS) PER SHARE  

Basic earnings (loss) per share are computed based on the weighted average number of shares of common stock 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 calculation of basic and diluted earnings (loss) per share for the periods indicated (in thousands):
 
Three Months Ended 
 March 31,
 
2017
 
2016
Net loss
$
(20,161
)
 
$
(26,947
)
Weighted average common shares outstanding:
 
 
 
Basic shares outstanding
1,113,968

 
1,041,028

Diluted shares outstanding
1,113,968

 
1,041,028

Net loss per common share:
 
 
 
Basic
$
(0.02
)
 
$
(0.03
)
Diluted
(0.02
)
 
(0.03
)

For the three months ended March 31, 2017 and 2016 , 212.5 million and 204.5 million shares, respectively, of potential common stock were excluded from diluted shares outstanding because the effects of assuming issuance of these potentially dilutive securities would be anti-dilutive.



20



12. CONDENSED CONSOLIDATING FINANCIAL INFORMATION  

In connection with the Company’s issuance of the 2013 8.00% Notes, certain of the Company’s 100% owned domestic subsidiaries (the “Guarantor Subsidiaries”), fully, unconditionally, jointly, and severally guaranteed the payment obligations under the 2013 8.00% Notes. The following financial information sets forth, on a consolidating basis, the balance sheets, statements of operations and statements of cash flows for Globalstar, Inc. (the “Parent Company”), for the Guarantor Subsidiaries and for the Parent Company’s other subsidiaries (the “Non-Guarantor Subsidiaries”).   
The condensed consolidating financial information has been prepared pursuant to the rules and regulations for condensed financial information and does not include disclosures included in annual financial statements. The principal eliminating entries eliminate investments in subsidiaries, intercompany balances and intercompany revenues and expenses. 
Globalstar, Inc.
Condensed Consolidating Statement of Operations
Three Months Ended March 31, 2017
(Unaudited)   
 
Parent
Company
 
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
 
(In thousands)
Revenue:
 

 
 

 
 

 
 

 
 

Service revenues
$
17,612

 
$
9,356

 
$
11,001

 
$
(16,488
)
 
$
21,481

Subscriber equipment sales
67

 
2,291

 
1,350

 
(537
)
 
3,171

Total revenue
17,679

 
11,647

 
12,351

 
(17,025
)
 
24,652

Operating expenses:
 

 
 

 
 

 
 

 
 

Cost of services (exclusive of depreciation, amortization, and accretion shown separately below)
6,128

 
1,425

 
3,173

 
(1,752
)
 
8,974

Cost of subscriber equipment sales
34

 
1,717

 
427

 
(82
)
 
2,096

Marketing, general and administrative
5,659

 
1,119

 
17,908

 
(15,196
)
 
9,490

Depreciation, amortization and accretion
18,951

 
282

 
61

 

 
19,294

Total operating expenses
30,772

 
4,543

 
21,569

 
(17,030
)
 
39,854

Income (loss) from operations
(13,093
)
 
7,104

 
(9,218
)
 
5

 
(15,202
)
Other income (expense):
 

 
 

 
 

 
 

 
 

Gain (loss) on equity issuance
742

 

 
(36
)
 

 
706

Interest income and expense, net of amounts capitalized
(8,755
)
 
(8
)
 
(69
)
 
4

 
(8,828
)
Derivative gain
3,223

 

 

 

 
3,223

Equity in subsidiary earnings
(1,933
)
 
(3,434
)
 

 
5,367

 

Other
(345
)
 
(100
)
 
423

 
(2
)
 
(24
)
Total other income (expense)
(7,068
)
 
(3,542
)
 
318

 
5,369

 
(4,923
)
Income (loss) before income taxes
(20,161
)
 
3,562

 
(8,900
)
 
5,374

 
(20,125
)
Income tax expense

 
5

 
31

 

 
36

Net income (loss)
$
(20,161
)
 
$
3,557

 
$
(8,931
)
 
$
5,374

 
$
(20,161
)
Comprehensive income (loss)
$
(20,161
)
 
$
3,557

 
$
(9,751
)
 
$
5,373

 
$
(20,982
)

21



Globalstar, Inc.
Condensed Consolidating Statement of Operations
Three Months Ended March 31, 2016
(Unaudited)
 
Parent
Company
 
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
 
(In thousands)
Revenue:
 
 
 

 
 

 
 

 
 

Service revenues
$
16,938

 
$
7,495

 
$
9,425

 
$
(15,109
)
 
$
18,749

Subscriber equipment sales
328

 
1,692

 
1,677

 
(610
)
 
3,087

Total revenue
17,266

 
9,187

 
11,102

 
(15,719
)
 
21,836

Operating expenses:
 

 
 

 
 

 
 

 
 

Cost of services (exclusive of depreciation, amortization, and accretion shown separately below)
4,813

 
1,036

 
2,895

 
(1,153
)
 
7,591

Cost of subscriber equipment sales
144

 
1,428

 
1,215

 
(609
)
 
2,178

Marketing, general and administrative
5,174

 
532

 
16,845

 
(13,941
)
 
8,610

Depreciation, amortization and accretion
18,772

 
220

 
281

 
(118
)
 
19,155

Total operating expenses
28,903

 
3,216

 
21,236

 
(15,821
)
 
37,534

Income (loss) from operations
(11,637
)
 
5,971

 
(10,134
)
 
102

 
(15,698
)
Other income (expense):
 

 
 

 
 

 
 

 
 

Gain on equity issuance
151

 

 

 

 
151

Interest income and expense, net of amounts capitalized
(8,981
)
 
(9
)
 
(105
)
 
(10
)
 
(9,105
)
Derivative loss
(1,344
)
 

 

 

 
(1,344
)
Equity in subsidiary earnings (loss)
(4,351
)
 
3,047

 

 
1,304

 

Other
(785
)
 
(204
)
 
276

 
(47
)
 
(760
)
Total other income (expense)
(15,310
)
 
2,834

 
171

 
1,247

 
(11,058
)
Income (loss) before income taxes
(26,947
)
 
8,805

 
(9,963
)
 
1,349

 
(26,756
)
Income tax expense

 

 
191

 

 
191

Net income (loss)
$
(26,947
)
 
$
8,805

 
$
(10,154
)
 
$
1,349

 
$
(26,947
)
Comprehensive income (loss)
$
(26,947
)
 
$
8,805

 
$
(10,808
)
 
$
1,352

 
$
(27,598
)



 
 
 
 
 
 
 
 
 
 
 

 



 
 
 
 
 
 
 
 
 
 




22



Globalstar, Inc.
Condensed Consolidating Balance Sheet
As of March 31, 2017  
(Unaudited)
 
 
Parent
Company
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
 
(In thousands)
ASSETS
 

 
 

 
 

 
 

 
 

Current assets:
 

 
 

 
 

 
 

 
 

Cash and cash equivalents
$
19,612

 
$
689

 
$
3,234

 
$

 
$
23,535

Accounts receivable
5,463

 
4,730

 
2,725

 

 
12,918

Intercompany receivables
918,869

 
697,182

 
38,410

 
(1,654,461
)
 

Inventory
2,230

 
5,274

 
1,347

 

 
8,851

Prepaid expenses and other current assets
2,078

 
936

 
1,815

 

 
4,829

Total current assets
948,252

 
708,811

 
47,531

 
(1,654,461
)
 
50,133

Property and equipment, net
1,019,154

 
3,808

 
4,389

 
5

 
1,027,356

Restricted cash
37,915

 

 

 

 
37,915

Intercompany notes receivable
8,500

 

 
6,436

 
(14,936
)
 

Investment in subsidiaries
(281,910
)
 
75,608

 
36,861

 
169,441

 

Intangible and other assets, net
16,103

 
108

 
2,327

 
(12
)
 
18,526

Total assets
$
1,748,014

 
$
788,335

 
$
97,544

 
$
(1,499,963
)
 
$
1,133,930

LIABILITIES AND
STOCKHOLDERS’ EQUITY
 

 
 

 
 

 
 

 
 

Current liabilities:
 

 
 

 
 

 
 

 
 

Current portion of long-term debt
$
75,755

 
$

 
$

 
$

 
$
75,755

Debt restructuring fees
20,795

 

 

 

 
20,795

Accounts payable
2,529

 
2,421

 
1,258

 

 
6,208

Accrued contract termination charge
18,727

 

 

 

 
18,727

Accrued expenses
14,932

 
6,203

 
6,384

 

 
27,519

Intercompany payables
654,878

 
761,024

 
238,520

 
(1,654,422
)
 

Payables to affiliates
236

 

 

 

 
236

Deferred revenue
1,328

 
19,346

 
6,193

 

 
26,867

Total current liabilities
789,180

 
788,994

 
252,355

 
(1,654,422
)
 
176,107

Long-term debt, less current portion
507,504

 

 

 

 
507,504

Employee benefit obligations
4,917

 

 

 

 
4,917

Intercompany notes payable
6,436

 

 
8,500

 
(14,936
)
 

Derivative liabilities
277,946

 

 

 

 
277,946

Deferred revenue
5,560

 
286

 
14

 

 
5,860

Other non-current liabilities
1,066

 
326

 
4,799

 

 
6,191

Total non-current liabilities
803,429

 
612

 
13,313

 
(14,936
)
 
802,418

Stockholders’ equity (deficit)
155,405

 
(1,271
)
 
(168,124
)
 
169,395

 
155,405

Total liabilities and stockholders’ equity
$
1,748,014

 
$
788,335

 
$
97,544

 
$
(1,499,963
)
 
$
1,133,930



23



Globalstar, Inc.
Condensed Consolidating Balance Sheet
As of December 31, 2016
(Unaudited)
 
 
Parent
Company
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
 
(In thousands)
ASSETS
 

 
 

 
 

 
 

 
 

Current assets:
 

 
 

 
 

 
 

 
 

Cash and cash equivalents
$
7,259

 
$
1,327

 
$
1,644

 
$

 
$
10,230

Accounts receivable
5,938

 
6,340

 
2,941

 

 
15,219

Intercompany receivables
897,691

 
678,707

 
32,040

 
(1,608,438
)
 

Inventory
2,266

 
4,354

 
1,473

 

 
8,093

Prepaid expenses and other current assets
1,570

 
955

 
2,063

 

 
4,588

Total current assets
914,724

 
691,683

 
40,161

 
(1,608,438
)
 
38,130

Property and equipment, net
1,031,623

 
3,708

 
4,384

 
4

 
1,039,719

Restricted cash
37,983

 

 

 

 
37,983

Intercompany notes receivable
8,901

 

 
6,436

 
(15,337
)
 

Investment in subsidiaries
(280,557
)
 
73,029

 
36,146

 
171,382

 

Intangible and other assets, net
15,259

 
128

 
1,407

 
(12
)
 
16,782

Total assets
$
1,727,933

 
$
768,548

 
$
88,534

 
$
(1,452,401
)
 
$
1,132,614

LIABILITIES AND
STOCKHOLDERS’ EQUITY
 

 
 

 
 

 
 

 
 

Current liabilities:
 

 
 

 
 

 
 

 
 

Current portion of long-term debt
$
75,755

 
$

 
$

 
$

 
$
75,755

Debt restructuring fees
20,795

 

 

 

 
20,795

Accounts payable
2,624

 
3,490

 
1,385

 

 
7,499

Accrued contract termination charge
18,451

 

 

 

 
18,451

Accrued expenses
10,573

 
5,884

 
6,705

 

 
23,162

Intercompany payables
636,336

 
750,084

 
221,980

 
(1,608,400
)
 

Payables to affiliates
309

 

 

 

 
309

Deferred revenue
1,576

 
19,304

 
5,599

 

 
26,479

Total current liabilities
766,419

 
778,762

 
235,669

 
(1,608,400
)
 
172,450

Long-term debt, less current portion
500,524

 

 

 

 
500,524

Employee benefit obligations
4,883

 

 

 

 
4,883

Intercompany notes payable
6,435

 

 
8,901

 
(15,336
)
 

Derivative liabilities
281,171

 

 

 

 
281,171

Deferred revenue
5,567

 
299

 
11

 

 
5,877

Other non-current liabilities
1,115

 
325

 
4,450

 

 
5,890

Total non-current liabilities
799,695

 
624

 
13,362

 
(15,336
)
 
798,345

Stockholders’ equity (deficit)
161,819

 
(10,838
)
 
(160,497
)
 
171,335

 
161,819

Total liabilities and stockholders’ equity
$
1,727,933

 
$
768,548

 
$
88,534

 
$
(1,452,401
)
 
$
1,132,614



24



Globalstar, Inc.
Condensed Consolidating Statement of Cash Flows
Three Months Ended March 31, 2017
(Unaudited)
 
 
Parent
Company
 
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
 
(In thousands)
Cash flows provided by (used in) operating activities
$
4,000

 
$
(354
)
 
$
1,664

 
$

 
$
5,310

Cash flows used in investing activities:
 

 
 

 
 

 
 
 
 

Second-generation network costs (including interest)
(2,274
)
 

 
(26
)
 

 
(2,300
)
Property and equipment additions
(711
)
 
(284
)
 
(9
)
 

 
(1,004
)
Purchase of intangible assets
(748
)
 

 
(36
)
 

 
(784
)
Net cash used in investing activities
(3,733
)
 
(284
)
 
(71
)
 

 
(4,088
)
Cash flows provided by financing activities:
 

 
 

 
 

 
 

 
 

Proceeds from issuance of stock to Terrapin
12,000

 

 

 

 
12,000

Proceeds from issuance of common stock and exercise of options and warrants
18

 

 

 

 
18

Net cash provided by financing activities
12,018

 

 

 

 
12,018

Effect of exchange rate changes on cash

 

 
(3
)
 

 
(3
)
Net increase (decrease) in cash, cash equivalents and restricted cash
12,285

 
(638
)
 
1,590

 

 
13,237

Cash, cash equivalents and restricted cash, beginning of period
45,242

 
1,327

 
1,644

 

 
48,213

Cash, cash equivalents and restricted cash, end of period
$
57,527

 
$
689

 
$
3,234

 
$

 
$
61,450

 

25



Globalstar, Inc.
Condensed Consolidating Statement of Cash Flows
Three Months Ended March 31, 2016
(Unaudited)
 
 
Parent
Company
 
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
 
(In thousands)
Cash flows provided by operating activities
$
1,175

 
$
1,218

 
$
210

 
$

 
$
2,603

Cash flows used in investing activities:
 

 
 

 
 

 
 

 
 

Second-generation network costs (including interest)
(1,560
)
 

 
(38
)
 

 
(1,598
)
Property and equipment additions
(1,732
)
 
(1,136
)
 
(81
)
 

 
(2,949
)
Purchase of intangible assets
(361
)
 


 


 


 
(361
)
Net cash used in investing activities
(3,653
)
 
(1,136
)
 
(119
)
 

 
(4,908
)
Cash flows provided by financing activities:
 

 
 

 
 

 
 

 
 

Proceeds from issuance of stock to Terrapin
6,500

 

 

 

 
6,500

Proceeds from issuance of common stock and exercise of options and warrants
28

 

 

 

 
28

Net cash provided by financing activities
6,528

 

 

 

 
6,528

Effect of exchange rate changes on cash

 

 
160

 

 
160

Net increase in cash, cash equivalents and restricted cash
4,050

 
82

 
251

 

 
4,383

Cash, cash equivalents and restricted cash, beginning of period
41,448

 
719

 
3,227

 

 
45,394

Cash, cash equivalents and restricted cash, end of period
$
45,498

 
$
801

 
$
3,478

 
$

 
$
49,777

 

26



Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Forward-Looking Statements.  

Certain statements contained in or incorporated by reference into this Quarterly Report on Form 10-Q (the "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 (including our ability to monetize our spectrum rights), our anticipated capital spending, 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 (including regulation related to the use of our spectrum), 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 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, commercial acceptance of new products, problems relating to the ground-based facilities operated by us or by independent gateway operators, worldwide economic, geopolitical and business conditions and risks associated with doing business on a global basis 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 Item 1A. Risk Factors in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016 , as filed with the Securities and Exchange Commission (the "SEC") on February 23, 2017 (the " 2016 Annual Report"). 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. 

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

This "Management's Discussion and Analysis of Financial Condition" should be read in conjunction with the "Management's Discussion and Analysis of Financial Condition" and information included in our 2016 Annual Report. 

Overview 

Mobile Satellite Services Business

Globalstar, Inc. (“we,” “us” or the “Company”) provides Mobile Satellite Services (“MSS”) including voice and data communications services globally via satellite. By providing wireless communications services in areas not served or underserved by terrestrial wireless and wireline networks and in circumstances where terrestrial networks are not operational due to natural or man-made disasters, we seek to meet our customers' increasing desire for connectivity. We offer voice and data communication services over our network of in-orbit satellites and our active ground stations (“gateways”), which we refer to collectively as the Globalstar System.

We currently provide the following communications services via satellite. These services are available only with equipment designed to work on our network: 

two-way voice communication and data transmissions using mobile or fixed devices, which we refer to as Duplex; and
one-way data transmissions using a mobile or fixed device that transmits its location and other information to a central monitoring station, including certain SPOT and Simplex products.

27




Our constellation of Low Earth Orbit ("LEO") satellites includes second-generation satellites, which were launched and placed into service during the years 2010 through 2013, and certain first-generation satellites. We designed our second-generation satellites to last twice as long in space, have 40% greater capacity and be built at a significantly lower cost compared to our first-generation satellites. We achieved this longer life by increasing the solar array and battery capacity, using a larger fuel tank, adding redundancy for key satellite equipment, and improving radiation specifications and additional lot level testing for all susceptible electronic components, in order to account for the accumulated dosage of radiation encountered during a 15-year mission at the operational altitude of the satellites. The second-generation satellites use passive S-band antennas on the body of the spacecraft providing additional shielding for the active amplifiers which are located inside the spacecraft, unlike the first-generation amplifiers that were located on the outside as part of the active antenna array. 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.

Due to the unique design of the Globalstar System (and based on customer input), we believe that we offer the best voice quality among our peer group. We define a successful level of service for our customers by their ability to make uninterrupted calls of average duration for a system-wide average number of minutes per month. Our goal is to provide service levels and call success rates equal to or better than our MSS competitors so our products and services are attractive to potential customers. We define voice quality as the ability to easily hear, recognize and understand callers with imperceptible delay in the transmission. Due to the unique design of the Globalstar System, by this measure our system outperforms geostationary (“GEO”) satellites used by some of our competitors. Due to the difference in signal travel distance, GEO satellite signals must travel approximately 42,000 additional nautical miles, which introduces considerable delay and signal degradation to GEO calls. For our competitors using cross-linked satellite architectures, which require multiple inter-satellite connections to complete a call, signal degradation and delay can result in compromised call quality as compared to that experienced over the Globalstar System. 

We compete aggressively on price. We offer a range of price-competitive products to the industrial, governmental and consumer markets. We expect to retain our position as the low cost, high quality leader in the MSS industry.  

Our satellite communications business, by providing critical mobile communications to our subscribers, serves principally the following markets: recreation and personal; government; public safety and disaster relief; oil and gas; maritime and fishing; natural resources, mining and forestry; construction; utilities; and transportation. 

Our products and services are sold through a variety of independent agents, dealers and resellers, and IGOs. We also have distribution relationships with a number of "Big Box" and online retailers and other similar distribution channels. 

Regulatory Reform for Terrestrial Spectrum Authority
 
In December 2016, the Federal Communications Commission (the "FCC") adopted a Report and Order which will enable us to offer terrestrial broadband services over our 11.5 MHz band of licensed 2.4 GHz spectrum. The Report and Order was published in the Federal Register on January 31, 2017 and became effective on March 2, 2017. In April 2017, we filed an application with the FCC to modify our mobile satellite services licenses consistent with the Report and Order.

Shortly after receiving this ruling from the FCC, we began seeking similar terrestrial authority in several international jurisdictions.

Performance Indicators  

Our management reviews and analyzes several key performance indicators in order to manage our business and assess the quality 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 user, 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 type of our Duplex, Simplex, SPOT and IGO revenue;
operating income and adjusted EBITDA, both of which are indicators of our financial performance; and
capital expenditures, which are an indicator of future revenue growth potential and cash requirements.


28



Comparison of the Results of Operations for the three months ended March 31, 2017 and 2016   

Revenue

Total revenue increased by $2.9 million , or approximately 13% , to $24.7 million for the three months ended March 31, 2017 from $21.8 million for same period in 2016 . This increase was driven primarily by a $2.8 million increase in service revenue due to increases in ARPU for most types of revenue.

The following table sets forth amounts and percentages of our revenue by type of service (dollars in thousands).
 
 
Three Months Ended 
 March 31, 2017
 
Three Months Ended 
 March 31, 2016
 
Revenue
 
% of Total
Revenue
 
Revenue
 
% of Total
Revenue
Service revenue:
 
 
 
 
 
 
 
Duplex
$
7,598

 
31
%
 
$
6,334

 
29
%
SPOT
10,397

 
42

 
9,101

 
42

Simplex
2,416

 
10

 
2,365

 
11

IGO
211

 
1

 
244

 
1

Other
859

 
3

 
705

 
3

Total
$
21,481

 
87
%
 
$
18,749

 
86
%
 
The following table sets forth amounts and percentages of our revenue generated from equipment sales (dollars in thousands).
 
Three Months Ended 
 March 31, 2017
 
Three Months Ended 
 March 31, 2016
 
Revenue
 
% of Total
Revenue
 
Revenue
 
% of Total
Revenue
Subscriber equipment sales:
 
 
 
 
 
 
Duplex
$
899

 
3
%
 
$
848

 
4
%
SPOT
1,236

 
5

 
961

 
5

Simplex
907

 
4

 
933

 
4

IGO
139

 
1

 
303

 
1

Other
(10
)
 

 
42

 

Total
$
3,171

 
13
%
 
$
3,087

 
14
%


29



The following table sets forth our average number of subscribers and ARPU by type of revenue.
 
Three Months Ended March 31,
 
2017
 
2016
Average number of subscribers for the period:
 
 
 
Duplex
73,444

 
77,372

SPOT
278,790

 
267,523

Simplex
295,576

 
300,975

IGO
37,768

 
38,999

Other
1,582

 
2,747

Total
687,160

 
687,616

 
 
 
 
ARPU (monthly):
 
 
 
Duplex
$
34.48

 
$
27.29

SPOT
12.43

 
11.34

Simplex
2.72

 
2.62

IGO
1.86

 
2.08

 
The numbers reported in the above table are subject to immaterial rounding inherent in calculating averages.   

We count "subscribers" based on the number of devices that are subject to agreements that entitle them to use our voice or data communications services rather than the number of persons or entities who own or lease those devices. 

Other service revenue includes revenue generated primarily from engineering services and third party sources, which are not subscriber driven. Accordingly, we do not present ARPU for other service revenue in the table above. Effective April 1, 2016, we began classifying activation fees with the service revenue to which they relate.

Service Revenue

Duplex service revenue increased 20% during the three months ended March 31, 2017 compared to the same period in 2016 due primarily to an increase in ARPU. ARPU increased 26% for the three months ended March 31, 2017 compared to the same period in 2016 , resulting in a total increase in Duplex service revenue of approximately $1.6 million . Higher ARPU was due primarily to rate plan increases and increased revenue from annual, usage-based plans. We increased prices for certain of our legacy rate plans during 2016 to align our rate plans with our service levels and prospective rate plans for future products. Additionally, the popularity of our annual, usage-based plans has continued throughout the past few years. These plans result in higher service revenue recognized when unused minutes expire on the anniversary date of the customer's contract. A decrease in average subscribers of 5% offset the increase in ARPU, which negatively impacted Duplex service revenue by approximately $0.3 million .

SPOT service revenue increased 14% for the three months ended March 31, 2017 compared to the same period in 2016 due to increases in both ARPU and the average subscriber base. ARPU increased 10% for the three months ended March 31, 2017 compared to the same period in 2016 , resulting in a total increase in SPOT service revenue of $0.9 million . Higher ARPU was primarily driven by rate plan increases and a significant number of SPOT Gen3 TM sales over the past 12 months. We sell SPOT Gen3 TM with a higher annual rate plan compared to other SPOT products due to its enhanced tracking features. The average number of SPOT subscribers increased 4% for the three months ended March 31, 2017 compared to the same period in 2016 , contributing approximately $0.4 million to the total SPOT service revenue increase.

Simplex service revenue increased 2% for the three months ended March 31, 2017 , compared to the same period in 2016 . A decrease in average subscribers during the period offset slightly an increase in ARPU. Effective April 1, 2016, we began classifying activation fees from other service revenue to Simplex service revenue which contributed to $0.2 million of the increase quarter over quarter. This increase was impacted by a 2% decline in the average subscriber base, in part reflecting slower equipment sales and activations from some of our largest customers who operate in the oil and gas industry. We continue to expand our Simplex customer base to new and existing markets, which may increase our average subscriber base in future periods.


30



Other revenue increased approximately $0.2 million , or 22% , for the three months ended March 31, 2017 compared to the same period in 2016 . The increase in other revenue is due primarily to higher revenue generated from government contracts, an increase of approximately $0.4 million . This increase was offset by a reclassification of activation fees from other revenue to Simplex and Duplex service revenue beginning April 1, 2016, which contributed $0.3 million to the total decrease for the three months ended March 31, 2017 compared to the same period in 2016 .

Subscriber Equipment Sales

Revenue from Duplex equipment sales increased approximately $0.1 million for the three months ended March 31, 2017 compared to the same period in 2016 . We experienced higher demand in 2016 due to both lower service plan prices in effect during that quarter and a change in sales promotions in 2017 as we manage phone inventory levels prior to the launch of a second-generation device. However, there was an increase in margin as handsets were sold at a higher average price in 2017 compared to the same period in 2016.

Revenue from SPOT equipment sales increased 29% for the three months ended March 31, 2017 compared to the same period in 2016 due to an increase in the volume of units sold during the respective periods. The success of our SPOT products continues, as evidenced by our increased subscriber base.

Revenue from Simplex equipment sales decreased 3% for the three months ended March 31, 2017 compared to the same period in 2016 . The total volume of Simplex units sold quarter over quarter contributed to a decrease in Simplex equipment revenue; however, this decrease was partially offset by higher margins recognized due to the mix of products sold in the respective periods.

Operating Expenses  

Total operating expenses increased $2.3 million , or approximately 6% , to $39.9 million for the three months ended March 31, 2017 from $37.6 million for the same period in 2016 . This increase was due to higher cost of services and marketing, general and administrative costs.  

Cost of Services  

Cost of services increased $1.4 million for the three months ended March 31, 2017 from the same period in 2016 . This increase was due primarily to higher research and development costs of $0.7 million driven by new products and technology being developed internally and through external partners. Additionally, support costs related to our ground network increased $0.4 million from the first quarter of 2016.

Cost of Subscriber Equipment Sales

Cost of subscriber equipment sales decreased $0.1 million for the three months ended March 31, 2017 from the same period in 2016 . This decrease is not directly correlated to the total increase in revenue from subscriber equipment due to changes in the volume and mix of products sold during the respective periods and price variations across our worldwide markets and product portfolio.

Marketing, General and Administrative

Marketing, general and administrative expenses increased approximately $0.9 million for three months ended March 31, 2017 compared to the same period in 2016 . This increase is due primarily to higher stock compensation cost of $0.4 million and personnel costs of $0.3 million . A fluctuation in bad debt expense of approximately $0.5 million also contributed to the increase during this period. During the three months ended March 31, 2016 , we recognized a partial recovery of an accounts receivable balance that was reserved as bad debt in a previous period. A similar recovery did not recur in the first quarter of 2017 . These increases were offset partially by a decrease in subscriber acquisition costs of $0.2 million driven primarily by certain sales promotions offered in the first quarter of 2016 that did not recur in 2017 .


31



Depreciation, Amortization and Accretion

Depreciation, amortization and accretion expense increased $0.1 million to $19.3 million for the three months ended March 31, 2017 from $19.2 million during the same period in 2016 .

As of March 31, 2017 , we had $212.5 million in construction in progress related to costs (including capitalized interest) associated with our contracts with Hughes and Ericsson to complete next-generation upgrades to our ground infrastructure. We will begin depreciating these assets when the second-generation gateways are placed into commercial service.

Other Income (Expense)  

Gain (Loss) on Equity Issuance

For the three months ended March 31, 2017 and 2016 , gain on equity issuance was $0.7 million and $0.2 million , respectively. This change was driven primarily by downside protection features included in certain of our contracts relating to payment of consideration with our common stock in lieu of cash.

As discussed in Note 7: Commitments and Contingencies to our condensed consolidated financial statements, we have an agreement with Hughes whereby it exercised its right to receive a pre-payment of certain payment milestones in shares of our common stock at a 7% discount to the market value in lieu of cash. In connection with this agreement, we provided Hughes downside protection through June 30, 2017. This agreement generally would require us to issue additional shares to Hughes if the market value of our common stock at the end of the downside protection period is less than the price at issuance. We mark this liability to market at each balance sheet date through the settlement date. During the first quarter of 2017 and 2016 , we recorded non-cash gains of $0.7 million and $0.2 million , respectively, representing changes in the estimated value of this option between initial issuance and March 31, 2017 and 2016 , respectively.

Interest Income and Expense

Interest income and expense, net, decreased $0.3 million to an expense of $8.8 million for the three months ended March 31, 2017 from an expense of $9.1 million for the same period in 2016 . Gross interest costs increased $0.6 million during the three months ended March 31, 2017 compared to the same period in 2016 resulting primarily from a higher LIBOR-based interest rate on our Facility Agreement and a higher principal balance outstanding on our Thermo Loan Agreement. The increase in gross interest expense was offset by an increase in capitalized interest of $0.9 million during the same periods due primarily to an increase in our construction in progress balances related to our ground network, which results in higher interest eligible to be capitalized.

Derivative Gain (Loss)

Derivative gain (loss) fluctuated by $4.5 million to a gain of $3.2 million for the three months ended March 31, 2017 , compared to a loss of $1.3 million for the same period in 2016 .

We recognize gains or losses due to the change in the value of certain embedded features within our debt instruments that require standalone derivative accounting. Although fluctuation in our stock price is the most significant cause for the change in value of these derivative instruments, other inputs can impact the value including volatility, discount rate, maturity date and changes in the principal amount of notes outstanding. See Note 5: Fair Value Measurements to our condensed consolidated financial statements for further discussion of the fair value computations of our derivatives.  

Other

Other income (loss) fluctuated $0.8 million to expense of less than $0.1 million for the three months ended March 31, 2017 from expense of $0.8 million for the same period in 2016 .  Changes in other income (loss) are due primarily to foreign currency gains and losses recognized during the respective periods given the significant financial statement items we have denominated in foreign currencies, including primarily the Brazilian real, euro and Canadian dollar.


32



Liquidity and Capital Resources

Overview

Our principal liquidity requirements include paying our debt service obligations and funding our operating costs. Our principal sources of liquidity include cash on hand and cash flows from operations. We expect sources of liquidity to include funds from other debt or equity financings that have not yet been arranged. See Part I, Item 1A. Risk Factors in our 2016 Annual Report for a description of risks, some of which are beyond our control, affecting our ability to fulfill our liquidity requirements.

As of March 31, 2017 , we held cash and cash equivalents of $23.5 million . We also had $37.9 million in restricted cash, consisting of the balance in our debt service reserve account under the Facility Agreement. The Facility Agreement (as defined below) requires us to maintain $37.9 million in a debt service reserve account and restricts the use of these funds to making principal and interest payments under the Facility Agreement. 

As of December 31, 2016 , we held cash and cash equivalents of $10.2 million and had $38.0 million in restricted cash.

The carrying amount of our current and long-term debt outstanding was $75.8 million and $507.5 million , respectively, at March 31, 2017 , compared to $75.8 million and $500.5 million , respectively, at December 31, 2016 . The current portion of our long-term debt outstanding at these dates represents principal payments under our Facility Agreement scheduled to occur within 12 months. The increase in our total debt balance was due primarily to a higher carrying value of the Thermo Loan Agreement due to interest accruing on that debt and accretion of the debt discounts and debt financing costs related to our Facility Agreement and convertible notes.

Indebtedness and Available Credit 

Facility Agreement  

We entered into the Facility Agreement in 2009, which was amended and restated in July 2013 and August 2015. The Facility Agreement is scheduled to mature in December 2022.

The Facility Agreement contains customary events of default and requires that we satisfy various financial and non-financial covenants. If we violate any of these covenants and are unable to obtain a sufficient Equity Cure Contribution (as described below) or a waiver, or are unable to make payments to satisfy our debt obligations under the Facility Agreement and are unable to obtain a waiver, we would be in default under the Facility Agreement, and the lenders could accelerate payment of the indebtedness. The acceleration of our indebtedness under one agreement may permit acceleration of indebtedness under other agreements that contain cross-acceleration provisions. We are currently in discussions with the agent for the lenders regarding our 2017 annual business plan as contemplated by the terms of the Facility Agreement. As of March 31, 2017 , we were in compliance with respect to the covenants of the Facility Agreement.

The compliance calculations of the financial covenants of the Facility Agreement permit us to include certain cash funds we receive from the issuance of our common stock and/or subordinated indebtedness before or immediately after the calculation date. We refer to these funds as "Equity Cure Contributions" and we may include them in calculating compliance with financial covenants through a date as late as June 2019, subject to the conditions set forth in the Facility Agreement. We have drawn funds from our common stock purchase agreements with Terrapin Opportunity, L.P. ("Terrapin") and used these funds as Equity Cure Contributions under the Facility Agreement. We anticipate that we will need to obtain additional Equity Cure Contributions to maintain compliance with financial covenants under the Facility Agreement for the measurement periods ended June 30, 2017 and December 31, 2017. The source of funds for these Equity Cure Contributions has not yet been fully arranged. We are currently in discussions with our lenders regarding the modification of certain terms in the Facility Agreement.

The Facility Agreement also requires that we maintain a total of $37.9 million in a debt service reserve account that is pledged to secure all of our obligations under the Facility Agreement. We may use these funds only to make principal and interest payments under the Facility Agreement. As of March 31, 2017 , the balance in the debt service reserve account was $37.9 million and classified as restricted cash on our condensed consolidated balance sheets.

Our indebtedness under the Facility Agreement bears interest at a floating rate of LIBOR plus 2.75% through June 2017, increasing by an additional 0.5% each year thereafter to a maximum rate of LIBOR plus 5.75%. Ninety-five percent of our obligations under the Facility Agreement are guaranteed by Bpifrance, the French export credit agency. Our obligations under the Facility Agreement are guaranteed on a senior secured basis by all of our domestic subsidiaries and are secured by a first priority

33



lien on substantially all of our assets and our domestic subsidiaries (other than their FCC licenses), including patents and trademarks, 100% of the equity of our domestic subsidiaries and 65% of the equity of certain foreign subsidiaries. 

See Note 3: Long-Term Debt and Other Financing Arrangements to our condensed consolidated financial statements for further discussion of the Facility Agreement.

Thermo Loan Agreement

We have an amended and restated loan agreement with Thermo (the “Loan Agreement”). Our obligations to Thermo under the Loan Agreement are subordinated to all of our obligations under the Facility Agreement.  Amounts outstanding under the Loan Agreement accrue interest at 12% per annum, which we capitalize and add to the outstanding principal in lieu of cash payments. We will make payments to Thermo only when permitted by the Facility Agreement. Principal and interest under the Loan Agreement become due and payable six months after the obligations under the Facility Agreement have been paid in full, or earlier if a change in control or any acceleration of the maturity of the loans under the Facility Agreement occurs. As of March 31, 2017 , the principal amount outstanding was $96.8 million , including $53.3 million of interest that had accrued since 2009 with respect to the Thermo Loan Agreement.

See Note 3: Long-Term Debt and Other Financing Arrangements to our condensed consolidated financial statements for further discussion of the Thermo Loan Agreement.

8.00% Convertible Senior Notes Issued in 2013  

Our 2013 8.00% Notes are convertible into shares of our common stock at a conversion price of $0.73 (as adjusted) per share of common stock, or 1,370 shares of our common stock per $1,000 principal amount of 2013 8.00% Notes.

As of March 31, 2017 , the principal amount outstanding of the 2013 8.00% Notes was $17.1 million . Interest on the 2013 8.00% Notes is payable semi-annually in arrears on April 1 and October 1 of each year. We pay interest in cash at a rate of 5.75% per annum and by issuing additional 2013 8.00% Notes at a rate of 2.25% per annum.

A holder of 2013 8.00% Notes has the right, at the holder’s option, to require us to purchase some or all of the 2013 8.00% Notes on each of April 1, 2018 and April 1, 2023 at a price equal to the principal amount of the 2013 8.00% Notes to be purchased plus accrued and unpaid interest. 

The indenture governing the 2013 8.00% Notes provides for customary events of default. If there is an event of default, the Trustee may, at the direction of the holders of 25% or more in aggregate principal amount of the 2013 8.00% Notes, accelerate the maturity of the 2013 8.00% Notes. As of March 31, 2017 , we were in compliance with respect to the terms of the 2013 8.00% Notes and the Indenture. 

See Note 3: Long-Term Debt and Other Financing Arrangements to our condensed consolidated financial statements for further discussion of the 2013 8.00% Notes.  

Terrapin Opportunity, L.P. Common Stock Purchase Agreement  

In conjunction with the amendment to the Facility Agreement in August 2015, we entered into the August 2015 Terrapin Agreement pursuant to which we were entitled to require Terrapin to purchase up to $75.0 million of shares of our voting common stock over the 24-month term following the date of the agreement. Through the term of this agreement, Terrapin purchased a total of 67.3 million shares of voting common stock for a total purchase price of $75.0 million . During the three months ended March 31, 2017 , we drew $12.0 million and issued to Terrapin 8.9 million shares of voting common stock. No funds remain available under this agreement.

34




Cash Flows for the three months ended March 31, 2017 and 2016

The following table shows our cash flows from operating, investing and financing activities (in thousands): 
 
Three Months Ended
 
March 31,
2017
 
March 31,
2016
Net cash provided by operating activities
$
5,310

 
$
2,603

Net cash used in investing activities
(4,088
)
 
(4,908
)
Net cash provided by financing activities
12,018

 
6,528

Effect of exchange rate changes on cash
(3
)
 
160

Net increase in cash and cash equivalents
$
13,237

 
$
4,383

 
Cash Flows Provided by Operating Activities   

Cash provided by operations includes primarily cash receipts from subscribers related to the purchase of equipment and satellite voice and data services. We use cash in operating activities primarily for personnel costs, inventory purchases and other general corporate expenditures. Net cash provided by operating activities during the three months ended March 31, 2017 was $5.3 million compared to $2.6 million during the same period in 2016 . The increase was due primarily to a lower net loss after adjusting for non-cash items. A favorable change in working capital also contributed to the increase.

Cash Flows Used in Investing Activities 

Cash used in investing activities was $4.1 million for the three months ended March 31, 2017 compared to $4.9 million for the same period in 2016 . This decrease was driven primarily by the timing of payments made to our second-generation ground vendors and software providers.

Cash Flows Provided by Financing Activities 

Net cash provided by financing activities was $12.0 million for the three months ended March 31, 2017 compared to $6.5 million for the same period in 2016 . This increase was due to higher proceeds from the sale of our common stock to Terrapin.

Contractual Obligations and Commitments  

There have been no significant changes to our contractual obligations and commitments since December 31, 2016 .

Off-Balance Sheet Transactions  

We have no material off-balance sheet transactions.

Recently Issued Accounting Pronouncements

For a discussion of recently issued accounting guidance and the expected impact that the guidance could have on our condensed consolidated financial statements, see Recently Issued Accounting Pronouncements  in Note 1: Basis of Presentation to our condensed consolidated financial statements in Part 1, Item 1 of this Report.
 

35



Item 3. Quantitative and Qualitative Disclosures about Market Risk.
 
Our services and products are sold, distributed or available in over 120 countries. Our international sales are denominated primarily in 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. We are obligated to enter into currency hedges with the lenders to the Facility Agreement no later than 90 days after any fiscal quarter during which more than 25% of revenues is denominated in a single currency other than U.S. or Canadian dollars. Otherwise, we cannot enter into hedging agreements other than interest rate cap agreements or other hedges described above without the consent of the agent for the Facility Agreement, and with that consent the counterparties may only be the lenders to the Facility Agreement.

We also have operations in Venezuela. Since 2010, the Venezuelan government's frequent modifications to its currency laws have caused the bolivar to devalue significantly and resulted in Venezuela being considered a highly inflationary economy. We continue to monitor the significant uncertainty surrounding current Venezuela exchange mechanisms.

Our interest rate risk arises from our variable rate debt under our Facility Agreement, under which loans bear interest at a floating rate based on the LIBOR. In order to reduce the interest rate risk, we completed an arrangement with the lenders under the Facility Agreement to limit the interest to which we are exposed. The interest rate cap provides limits on the 6-month Libor rate (Base Rate) used to calculate the coupon interest on outstanding amounts on the Facility Agreement to be capped at 5.50% should the Base Rate not exceed 6.5%. Should the Base Rate exceed 6.5%, our Base Rate will be 1% less than the then 6-month LIBOR rate. We have $543.0 million in principal outstanding under the Facility Agreement. A 1.0% change in interest rates would result in a change to interest expense of approximately $5.4 million annually.

See Note 5: Fair Value Measurements to our condensed consolidated financial statements for discussion of our financial assets and liabilities measured at fair market value and the market factors affecting changes in fair market value of each.

Item 4. Controls and Procedures.
 
(a) Evaluation of disclosure controls and procedures.
 
Our management, with the participation of our Principal Executive Officer and Principal Financial Officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934 as of March 31, 2017 , the end of the period covered by this Report. This evaluation was based on the guidelines established in Internal Control - Integrated Framework issued in 2013 by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.
 
Based on this evaluation, our Principal Executive Officer and Principal Financial Officer concluded that as of March 31, 2017 our disclosure controls and procedures were effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our Principal Executive Officer and Principal Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
 
We believe that the condensed consolidated financial statements included in this Report fairly present, in all material respects, our condensed consolidated financial position and results of operations for the three months ended March 31, 2017 .

(b) Changes in internal control over financial reporting.

As of March 31, 2017 , our management, with the participation of our Principal Executive Officer and Principal Financial Officer, evaluated our internal control over financial reporting. Based on that evaluation, our Principal Executive Officer and Principal Financial Officer concluded that no changes in our internal control over financial reporting occurred during the quarter ended March 31, 2017 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
 
PART II: OTHER INFORMATION
 

36



Item 1. Legal Proceedings.

For a description of our material pending legal and regulatory proceedings and settlements, see Note 7: Commitments and Contingencies in our Condensed Consolidated Financial Statements in Part I, Item 1 of this Report.

Item 1A. Risk Factors.  

You should carefully consider the risks described in this Report and all of the other reports that we file from time to time with the SEC, in evaluating and understanding us and our business. Additional risks not presently known or that we currently deem immaterial may also impact our business operations and the risks identified in this Report may adversely affect our business in ways we do not currently anticipate. Our financial condition or results of operations also could be materially adversely affected by any of these risks. There have been no material changes to our risk factors disclosed in Part I. Item 1A. "Risk Factors" of our 2016 Annual Report.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None

Item 3. Defaults upon Senior Securities.

None

Item 4. Mine Safety Disclosures.

Not Applicable

Item 5. Other Information.

None.

Item 6. Exhibits.
 
Exhibit
Number
 
Description
 
 
 
31.1
 
Section 302 Certification of the Principal Executive Officer
 
 
 
31.2
 
Section 302 Certification of the Principal Financial Officer
 
 
 
32.1
 
Section 906 Certification of the Principal Executive Officer
 
 
 
32.2
 
Section 906 Certification of the Principal Financial Officer
 
 
 
101.INS
 
XBRL Instance Document
 
 
 
101.SCH
 
XBRL Taxonomy Extension Schema Document
 
 
 
101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase Document
 
 
 
101.DEF
 
XBRL Taxonomy Extension Definition Linkbase Document
 
 
 
101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase Document
 
 
 
101.LAB
 
XBRL Taxonomy Extension Label Linkbase Document
 
 
 


37



SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
 
 
GLOBALSTAR, INC.
 
 
 
 
Date:
May 4, 2017
By:
/s/ James Monroe III
 
 
 
James Monroe III
 
 
 
Chairman and Chief Executive Officer (Principal Executive Officer)
 
 
 
 
 
 
 
/s/ Rebecca S. Clary
 
 
 
Rebecca S. Clary
 
 
 
Chief Financial Officer (Principal Financial Officer)
  



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