Globalstar, Inc. - Quarter Report: 2009 June (Form 10-Q)

Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

(Mark One)
x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2009
OR
o	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)

 

 

461 South Milpitas Blvd.

Milpitas, California 95035

(Address of principal executive offices and zip code)

 

(408) 933-4000

Registrant’s telephone number, including area code

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x No o

 

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 o No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

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

 

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

 

Indicate the number of shares outstanding of each of the issuer’s classes of Common Stock, as of the latest practicable date. As of August 6, 2009, 145,309,799 shares of Common Stock, par value $0.0001 per share, were outstanding.

 

 

Table of Contents

 

TABLE OF CONTENTS

 

			Page
PART I - Financial Information			3
	Item 1.	Financial Statements	3
		Consolidated Statements of Operations for the three and six months ended June 30, 2009 and 2008 (unaudited)	3
		Consolidated Balance Sheets as of June 30, 2009 and December 31, 2008 (unaudited)	4
		Consolidated Statements of Cash Flows for the six months ended June 30, 2009 and 2008 (unaudited)	5
		Notes to Unaudited Interim Consolidated Financial Statements	6
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	48
	Item 4.	Controls and Procedures	49
PART II - Other Information			49
	Item 1.	Legal Proceedings	49
	Item 1A. Risk Factors		49
	Item 4.	Submission of Matters to a Vote of Security Holders	64
	Item 6.	Exhibits	65
	Signatures		66

 

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PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

GLOBALSTAR, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

 

		Three Months Ended						Six Months Ended
		June 30, 2009			June 30, 2008			June 30,  2009			June 30,  2008
					As Adjusted – Note 1						As Adjusted – Note 1
Revenue:
Service revenue		$	12,562		$	16,673		$	23,693		$	32,683
Subscriber equipment sales		3,154			6,326			7,186			12,450
Total revenue		15,716			22,999			30,879			45,133
Operating expenses:
Cost of services (exclusive of depreciation and amortization shown separately below)		7,961			8,607			18,369			16,082
Cost of subscriber equipment sales:
Cost of subscriber equipment sales		2,832			4,118			5,827			9,099
Cost of subscriber equipment sales — Impairment of assets		648			349			648			413
Total cost of subscriber equipment sales		3,480			4,467			6,475			9,512
Marketing, general, and administrative		11,408			15,482			25,385			31,230
Depreciation and amortization		5,468			6,521			10,892			11,939
Total operating expenses		28,317			35,077			61,121			68,763
Operating loss		(12,601		)	(12,078		)	(30,242		)	(23,630		)
Other income (expense):
Interest income		56			1,565			184			2,933
Interest expense		(3,141		)	(301		)	(3,381		)	(1,298		)
Derivative gain (loss)		(797		)	3,743			(797		)	204
Other		2,529			(77		)	(1,446		)	8,174
Total other income (expense)		(1,353		)	4,930			(5,440		)	10,013
Loss before income taxes		(13,954		)	(7,148		)	(35,682		)	(13,617		)
Income tax expense (benefit)		(192		)	29			(162		)	195
Net loss		$	(13,762	)	$	(7,177	)	$	(35,520	)	$	(13,812	)
Loss per common share:
Basic		$	(0.10	)	$	(0.09	)	$	(0.27	)	$	(0.17	)
Diluted		(0.10		)	(0.09		)	(0.27		)	(0.17		)
Weighted-average shares outstanding:
Basic		133,880			84,029			131,259			83,243
Diluted		133,880			84,029			131,259			83,243

 

See accompanying notes to unaudited interim consolidated financial statements.

 

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GLOBALSTAR, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except par value and Preferred Stock share data)

(Unaudited)

 

		June 30, 2009			December 31, 2008
					As Adjusted – Note 1
ASSETS
Current assets:
Cash and cash equivalents		$	16,037		$	12,357
Accounts receivable, net of allowance of $5,175 (2009) and $5,205 (2008)		7,910			10,075
Inventory		55,469			55,105
Advances for inventory		9,182			9,314
Prepaid expenses and other current assets		16,071			5,565
Total current assets		104,669			92,416
Property and equipment, net		748,926			642,264
Other assets:
Restricted cash		23,265			57,884
Other assets, net		86,026			15,670
Total assets		$	962,886		$	808,234
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	56,525		$	28,370
Accrued expenses		64,353			29,998
Payables to affiliates		4,082			3,344
Deferred revenue		20,106			19,354
Current portion of long term debt		71,438			33,575
Total current liabilities		216,504			114,641
Borrowings under revolving credit facility		—			66,050
Long term debt		79,562			172,295
Employee benefit obligations, net of current portion		4,782			4,782
Other non-current liabilities		59,419			13,713
Total non-current liabilities		143,763			256,840
Stockholders’ equity:
Preferred Stock, $0.0001 par value; 100,000,000 shares authorized, issued and outstanding — one at June 30, 2009; none at December 31, 2008:
Series A Preferred Convertible Stock, $0.0001 par value: 1 share authorized, 1 share issued and outstanding at June 30, 2009; none authorized, issued and outstanding at December 31, 2008		—			—
Common Stock, $0.0001 par value; 800,000 shares authorized, 141,181 shares issued and outstanding at June 30, 2009; 136,606 shares issued and outstanding at December 31, 2008		14			14
Additional paid-in capital		663,624			463,822
Accumulated other comprehensive loss		(4,720		)	(6,304		)
Retained deficit		(56,299		)	(20,779		)
Total stockholders’ equity		602,619			436,753
Total liabilities and stockholders’ equity		$	962,886		$	808,234

 

See accompanying notes to unaudited interim consolidated financial statements.

 

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GLOBALSTAR, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

		Six Months Ended
		June 30, 2009			June 30, 2008
					As Adjusted –  Note 1
Cash flows from operating activities:
Net loss		$	(35,520	)	$	(13,812	)
Adjustments to reconcile net loss to net cash from operating activities:
Deferred income taxes		—			(269		)
Depreciation and amortization		10,892			11,939
Change in fair value of derivative instruments and derivative liabilities		797			(204		)
Stock-based compensation expense		5,432			7,003
Loss on disposal of fixed assets		53			80
Provision for bad debts		334			672
Interest income on restricted cash		(115		)	(2,474		)
Contribution of services		253			225
Cost of subscriber equipment sales - impairment of assets		648			413
Amortization of deferred financing costs		2,563			262
Loss on debt to equity conversion		305
Loss in equity method investee		321
Changes in operating assets and liabilities, net of acquisition:
Accounts receivable		1,983			239
Inventory		1,651			(10,025		)
Advances for inventory		644			(270		)
Prepaid expenses and other current assets		559			(186		)
Other assets		608			(2,167		)
Accounts payable		5,790			(2,281		)
Payables to affiliates		617			(142		)
Accrued expenses and employee benefit obligations		14,481			(2,734		)
Other non-current liabilities		(1,686		)	1,707
Deferred revenue		2,458			(2,429		)
Net cash from operating activities		13,068			(14,453		)
Cash flows from investing activities:
Spare and second-generation satellites and launch costs		(78,444		)	(132,581		)
Second-generation ground		(11		)	(5,074		)
Property and equipment additions		(1,367		)	(2,827		)
Proceeds from sale of property and equipment		—			146
Investment in businesses		(145		)	(2,000		)
Cash acquired on purchase of subsidiary		—			1,839
Restricted cash		31,436			(43,639		)
Net cash from investing activities		(48,530		)	(184,136		)
Cash flows from financing activities:
Borrowings from long-term convertible senior notes		—			150,000
Borrowings from long term debt		—			100,000
Borrowings from revolving credit loan		7,750			—
Borrowings from $55M Senior Convertible Notes		55,000			—
Borrowings under subordinated loan agreement		5,000			—
Borrowings under short term loan		2,260			—
Proceeds from equity contributions		1,000			—
Repayment of revolving credit loan		—			(50,000		)
Proceeds from irrevocable standby stock purchase agreement		—			—
Deferred financing cost payments		(21,166		)	(4,854		)
Payments for the interest rate cap instrument		(12,425		)	—
Reduction in derivative margin account balance requirements		—			335
Net cash from financing activities		37,419			195,481
Effect of exchange rate changes on cash		1,723			(8,850		)
Net increase (decrease) in cash and cash equivalents		3,680			(11,958		)
Cash and cash equivalents, beginning of period		12,357			37,554
Cash and cash equivalents, end of period		$	16,037		$	25,596
Supplemental disclosure of cash flow information:
Cash paid for:
Interest		$	6,228		$	4,613
Income taxes		$	45		$	157
Supplemental disclosure of non-cash financing and investing activities:
Conversion of debt to Series A Convertible Preferred Stock		$	180,177		$	—
Accrued launch costs and second-generation satellites costs		$	21,900		$	8,308
Capitalization of accrued interest for spare and second-generation satellites and launch costs		$	9,582		$	4,389
Vendor financing of second-generation satellites		$	11,977		16,408
Subordinated loan		$	10,000		$	—
Conversion of debt to Common Stock		$	7,500		$	—
Accretion of debt discount		$	2,450		$	1,831
Accrued deferred financing costs		$	42,522		$	39
Fair value of assets acquired on purchase of subsidiary		$	—		$	19,928
Fair value of liabilities assumed on purchase of subsidiary		$	—		$	13,211

 

See accompanying notes to unaudited interim consolidated financial statements.

 

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GLOBALSTAR, INC.

 

NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

 

Note 1: The Company and Summary of Significant Accounting Policies

 

Nature of Operations

 

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

 

Globalstar is a leading provider of mobile voice and data communications services via satellite. Globalstar’s network, originally owned by Globalstar, L.P. (“Old Globalstar”), was designed, built and launched in the late 1990s by a technology partnership led by Loral Space and Communications (“Loral”) and QUALCOMM Incorporated (“QUALCOMM”). On February 15, 2002, Old Globalstar and three of its subsidiaries filed voluntary petitions under Chapter 11 of the United States Bankruptcy Code. In 2004, Thermo Capital Partners L.L.C., together with its affiliates (“Thermo”), became Globalstar’s principal owner, and Globalstar completed the acquisition of the business and assets of Old Globalstar. Thermo remains Globalstar’s largest stockholder.  Globalstar’s Chairman controls Thermo and its affiliates. Two other members of Globalstar’s Board of Directors are also directors, officers or minority equity owners of various Thermo entities.

 

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

 

Basis of Presentation

 

The accompanying unaudited interim consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information. These unaudited interim consolidated financial statements include the accounts of Globalstar and its majority owned or otherwise controlled subsidiaries. All significant intercompany transactions and balances have been eliminated in the consolidation. In the opinion of management, such information includes all adjustments, consisting of normal recurring adjustments, that are necessary for a fair presentation of the Company’s consolidated financial position, results of operations, and cash flows for the periods presented. The results of operations for the three and six months ended June 30, 2009 are not necessarily indicative of the results that may be expected for the full year or any future period.

 

The preparation of consolidated financial statements in conformity with 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. The Company evaluates its estimates on an ongoing basis, including those related to revenue recognition, allowance for doubtful accounts, inventory valuation, deferred tax assets, property and equipment, interest rate cap, warrants and embedded conversion option classified as a liability, warranty obligations and contingencies and litigation. Actual results could differ from these estimates.

 

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

 

Globalstar operates in one segment, providing voice and data communication services via satellite. As a result, all segment-related financial information required by Statement of Financial Accounting Standards (“SFAS”) No. 131, “Disclosures About Segments of an Enterprise and Related Information,” or SFAS 131, is included in the consolidated financial statements.

 

Other income (expense) includes foreign exchange transaction gains (losses) of $4.6 and $0.7 million for the three and six months ended June 30, 2009, respectively, and $(0.1) million and $8.1 million for the three and six months ended June 30, 2008, respectively.

 

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Recent Accounting Pronouncements

 

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

 

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

 

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

 

In May 2008, the FASB issued FASB Staff Position (“FSP”) APB 14-1, “Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)” (“FSP APB 14-1”). FSP APB 14-1 clarifies that convertible debt instruments that may be settled in cash upon either mandatory or optional conversion (including partial cash settlement) are not addressed by paragraph 12 of APB Opinion No. 14, Accounting for Convertible Debt and Debt issued with Stock Purchase Warrants. Additionally, FSP APB 14-1 specifies that issuers of such instruments should separately account for the liability and equity components in a manner that will reflect the entity’s nonconvertible debt borrowing rate when interest cost is recognized in subsequent periods. FSP APB 14-1 is effective retroactively for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years, and is applied to both new and previously issued convertible debt instruments. The Company adopted FSP APB 14-1 on January 1, 2009. The adoption of FSP APB 14-1 changed the Company’s full-year 2008 Consolidated Statements of Operations because the gains associated with conversions and exchanges of 5.75% Convertible Senior Notes (the “5.75% Notes”) in 2008 were recorded in stockholders’ equity prior to adoption of this standard. The adoption of FSP APB 14-1 also changed the Company’s Consolidated Statement of Operations for the three and six months ended June 30, 2008 because the Company issued the 5.75% Notes in April 2008. The Company capitalized the interest associated with the accretion of debt discount recorded in connection with the adoption of FSP APB 14-1, which resulted in an increase to property and equipment. The following tables present the effect of the adoption of FSP APB 14-1 on the Company’s affected Balance Sheet items as of June 30, 2008 and December 31, 2008:

 

		As of June 30, 2008
		As Originally			Effect of			As
		Reported			Change			Adjusted
		(in thousands)
Balance Sheet:
Property and equipment, net		$	451,811		$	1,830		$	453,641
Other assets		16,436			(1,591		)	14,845
Long-term debt		250,000			(52,844		)	197,156
Other non-current liabilities		33,920			22,416			56,336
Additional paid-in capital		421,063			30,496			451,559
Retained deficit		$	(19,601	)	$	171		$	(19,430	)

 

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

 

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On April 9, 2009, the FASB issued FSP FAS 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments,” relating to fair value disclosures for any financial instruments that are not currently reflected on the balance sheet at fair value. Prior to the issuance of this FSP, fair values for these assets and liabilities were disclosed only once a year. The FSP now requires these disclosures on a quarterly basis, providing qualitative and quantitative information about fair value estimates for all financial instruments not measured on the balance sheet at fair value. The FSP is effective for interim reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 31, 2009. The Company adopted the provisions of this FSP on April 1, 2009, and the adoption did not have a material effect on its results of operations or financial position.

 

In April 2009, the FASB issued FSP No. 115-2 and No. 124-2, Recognition and Presentation of Other-Than-Temporary Impairments, which amend existing guidance for determining whether impairment is other-than-temporary for debt securities. The FSPs require an entity to assess whether it intends to sell, or it is more likely than not that it will be required to sell a security in an unrealized loss position before recovery of its amortized cost basis. If either of these criteria is met, the entire difference between amortized cost and fair value is recognized in earnings.  For securities that do not meet the aforementioned criteria, the amount of impairment recognized in earnings is limited to the amount related to credit losses, while impairment related to other factors is recognized in other comprehensive income. Additionally, the FSPs expand and increase the frequency of existing disclosures about other-than-temporary impairments for debt and equity securities.  These FSPs are effective for interim and annual reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009.  The Company adopted the provisions of this FSP on April 1, 2009, and the adoption did not have a material effect on its results of operations or financial position.

 

In April 2009, the FASB issued Staff Position (FSP) No. 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset and Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly.  This FSP emphasizes that even if there has been a significant decrease in the volume and level of activity, the objective of a fair value measurement remains the same.  Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants.  The FSP provides a number of factors to consider when evaluating whether there has been a significant decrease in the volume and level of activity for an asset or liability in relation to normal market activity.   In addition, when transactions or quoted prices are not considered orderly, adjustments to those prices based on the weight of available information may be needed to determine the appropriate fair value.  The FSP also requires increased disclosures.  This FSP is effective for interim and annual reporting periods ending after June 15, 2009, and must be applied prospectively.  Early adoption is permitted for periods ending after March 15, 2009.  The Company adopted the provisions of this FSP on April 1, 2009, and the adoption did not have a material effect on its results of operations or financial position.

 

In May 2009, the FASB issued Statement of Financial Accounting Standards No. 165, “Subsequent Events” (“SFAS No. 165”), to establish general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. In particular, SFAS No. 165 sets forth: (a) the period after the balance sheet date during which management of a reporting entity shall evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, (b) the circumstances under which an entity shall recognize events or transactions occurring after the balance sheet date in its financial statements and (c) the disclosures that an entity shall make about events or transactions that occurred after the balance sheet date. The provisions of SFAS No. 165 are effective for interim or annual financial periods ending after June 15, 2009. The Company adopted the provisions of SFAS No. 165 effective as of June 30, 2009, and the adoption did not have a material impact on its results of operations or financial position.

 

In June 2009, the FASB issued Statement of Financial Accounting Standards No. 168, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles, a replacement of FASB Statement No. 162” (“SFAS No. 168”), which establishes the FASB Accounting Standards Codification as the source of authoritative accounting principles recognized by the FASB to be applied in the preparation of financial statements in conformity with GAAP. SFAS No. 168 explicitly recognizes rules and interpretive releases of the SEC under federal securities laws as authoritative GAAP for SEC registrants. The provisions of SFAS No. 168 are effective for interim or annual financial period ending after September 15, 2009. The Company does not expect the adoption of SFAS No.168 to have a material impact on its results of operations or financial position.

 

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Note 2: Basic and Diluted Loss Per Share

 

The Company applies the provisions of Statement of Financial Accounting Standard No. 128, “Earnings Per Share” (“SFAS 128”), which requires companies to present basic and diluted earnings per share. The Company computes basic earnings per share based on the weighted-average number of shares of Common Stock outstanding during the period. The Company includes Common Stock equivalents in the calculation of diluted earnings per share only when the effect of their inclusion would be dilutive.

 

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

 

		Three Months Ended June 30, 2009								Six Months Ended June 30, 2009
		Income  (Numerator)			Weighted  Average Shares  Outstanding  (Denominator)		Per-Share  Amount			Income  (Numerator)			Weighted  Average Shares  Outstanding  (Denominator)		Per-Share  Amount
Basic and Dilutive loss per common share
Net loss		$	(13,762	)	133,880		$	(0.10	)	$	(35,520	)	131,259		$	(0.27	)

 

		Three Months Ended June 30, 2008 (As Adjusted – Note 1)								Six Months Ended June 30, 2008 (As Adjusted – Note 1)
		Income  (Numerator)			Weighted  Average Shares  Outstanding  (Denominator)		Per-Share  Amount			Income  (Numerator)			Weighted  Average Shares  Outstanding  (Denominator)		Per-Share  Amount
Basic and Dilutive loss per common share
Net loss		$	(7,177	)	84,029		$	(0.09	)	$	(13,812	)	83,243		$	(0.17	)

 

For the three and six month periods ended June 30, 2009 and 2008, diluted net loss per share of Common Stock is the same as basic net loss per share of Common Stock, because the effects of potentially dilutive securities are anti-dilutive.

 

The Company included the outstanding shares issued under the Share Lending Agreement (17.3 million shares outstanding at June 30, 2009) in the computation of earnings per share (Note 12).

 

Note 3: Property and Equipment

 

Property and equipment consist of the following (in thousands):

 

		June 30, 2009			December 31, 2008
					As Adjusted – Note 1
Globalstar System:
Space component		$	132,982		$	132,982
Ground component		27,057			26,154
Construction in progress:
Second-generation satellites, ground and related launch costs		631,780			516,530
Other		824			958
Furniture and office equipment		18,560			16,872
Land and buildings		4,104			3,810
Leasehold improvements		778			687
		816,085			697,993
Accumulated depreciation		(67,159		)	(55,729		)
		$	748,926		$	642,264

 

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

 

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On June 3, 2009, Globalstar and Thales Alenia Space entered into an amended and restated contract for the construction of 48 low-earth orbit second-generation satellites to incorporate prior amendments, acceleration requests and make other non-material changes to the contract entered into in November 2006.  The total contract price, including subsequent additions, is approximately €678.9 million (approximately $936.6 million at a weighted average conversion rate of €1.00 = $1.3797 at June 30, 2009) including approximately €146.8 million which was paid by the Company in U.S. dollars at a fixed conversion rate of €1.00 = $1.2940. Upon completion of the Facility Agreement (See Note 12), amounts in the escrow account became unrestricted and were reclassed to cash and cash equivalents.

 

In March 2007, the Company and Thales Alenia Space entered into an agreement for the construction of the Satellite Operations Control Centers, Telemetry Command Units and In Orbit Test Equipment (collectively, the “Control Network Facility”) for the Company’s second-generation satellite constellation. The total contract price for the construction and associated services is €9.2 million (approximately $13.2 million at a weighted average conversion rate of €1.00 = $1.4336) consisting of €4.1 million for the Satellite Operations Control Centers, €3.1 million for the Telemetry Command Units and €2.0 million for the In Orbit Test Equipment, with payments to be made on a quarterly basis through completion of the Control Network Facility in the first quarter of 2010.

 

In September 2007, the Company and Arianespace (the “Launch Provider”) entered into an agreement for the launch of the Company’s second-generation satellites and certain pre and post-launch services. Pursuant to the agreement, the Launch Provider agreed to make four launches of six satellites each, and the Company had the option to require the Launch Provider to make four additional launches of six satellites each. The total contract price for the first four launches is approximately $216.1 million. In July 2008, the Company amended its agreement with the Launch Provider for the launch of the Company’s second-generation satellites and certain pre and post-launch services. Under the amended terms, the Company could defer payment on up to 75% of certain amounts due to the Launch Provider. The deferred payments incurred annual interest at 8.5% to 12% and become payable one month from the corresponding launch date. In June 2009, the Company and the Launch Provider again amended their agreement reducing the number of optional launches from four to one and modifying the agreement in certain other respects including terminating the deferred payment provisions. Notwithstanding the one optional launch, the Company is free to contract separately with the Launch Provider or another provider of launch services after the Launch Provider’s firm launch commitments are fulfilled

 

In May 2008, the Company and Hughes Network Systems, LLC (“Hughes”) entered into an agreement under which Hughes will design, supply and implement the Radio Access Network (“RAN”) ground network equipment and software upgrades for installation at a number of the Company’s satellite gateway ground stations and satellite interface chips to be a part of the User Terminal Subsystem (UTS) in various next-generation Globalstar devices. The total contract purchase price of approximately $100.8 million is payable in various increments over a period of 40 months. The Company has the option to purchase additional RANs and other software and hardware improvements at pre-negotiated prices. Future costs associated with certain projects under this contract will be capitalized once the Company has determined that technological feasibility has been achieved on these projects. As of June 30, 2009, the Company had made payments of $5.9 million under this contract and expensed $1.8 million of these payments and capitalized $4.1 million under second-generation ground component.

 

In October 2008, the Company signed an agreement with Ericsson Federal Inc., a leading global provider of technology and services to telecom operators. According to the $22.7 million contract, Ericsson will work with the Company to develop, implement and maintain a ground interface, or core network, system that will be installed at the Company’s satellite gateway ground stations.

 

As of June 30, 2009 and December 31, 2008, capitalized interest recorded was $50.2 million and $37.4 million, respectively. Interest capitalized during the three and six months ended June 30, 2009 was $6.5 million and $12.8 million, respectively, and $7.3 million and $10.1 million for the three and six months ended June 30, 2008, respectively. Depreciation expense for the three and six months ended June 30, 2009 was $5.5 million and $10.9 million, respectively, and $6.5 million and $11.8 million for the three and six months ended June 30, 2008, respectively.

 

Note 4: Payables to Affiliates

 

Payables to affiliates relate to normal purchase transactions, excluding interest, and are comprised of the following (in thousands):

 

		June 30, 2009			December 31, 2008
QUALCOMM		$	2,972		$	2,498
Others		1,110			846
		$	4,082		$	3,344

 

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Thermo incurs certain general and administrative expenses on behalf of the Company, which are charged to the Company. For the three and six month periods ended June 30, 2009, total expenses were approximately $44,000 and $87,000, respectively, and $82,000 and $110,000 for the three and six month periods ended June 30, 2008.

 

For the three and six month periods ended June 30, 2009, the Company also recorded approximately $126,000 and $253,000, respectively, of non-cash expenses related to services provided by two executive officers of Thermo and the Company who receive no compensation from the Company, which were accounted for as a contribution to capital. The Company recorded $112,000 and $225,000 for the three and six month periods ended June 30, 2008, respectively, in similar charges. The Thermo expense charges are based on actual amounts incurred or upon allocated employee time. Management believes the allocations are reasonable.

 

Note 5: Other Related Party Transactions

 

Since 2005, Globalstar has issued separate purchase orders for additional phone equipment and accessories under the terms of previously executed commercial agreements with QUALCOMM. Within the terms of the commercial agreements, the Company paid QUALCOMM approximately 7.5% to 25% of the total order as advances for inventory.  As of June 30, 2009 and December 31, 2008, total advances to QUALCOMM for inventory were $9.2 million and $9.2 million, respectively. As of June 30, 2009 and December 31, 2008, the Company had outstanding commitment balances of approximately $49.4 million. On October 28, 2008, the Company amended its agreement with QUALCOMM to extend the term for 12 months and defer delivery of mobile phones and related equipment until April 2010 through July 2011.

 

On August 16, 2006, the Company entered into an amended and restated credit agreement with Wachovia Investment Holdings, LLC, as administrative agent and swingline lender, and Wachovia Bank, National Association, as issuing lender, which was subsequently amended on September 29 and October 26, 2006. On December 17, 2007, Thermo Funding was assigned all the rights (except indemnification rights) and assumed all the obligations of the administrative agent and the lenders under the amended and restated credit agreement and the credit agreement was again amended and restated. In connection with fulfilling the conditions precedent to funding under the Company’s Facility Agreement, in June 2009, Thermo converted the loans outstanding under the credit agreement into equity and terminated the credit agreement. In addition, Thermo and its affiliates deposited $60.0 million in a contingent equity account to fulfill a condition precedent for borrowing under the Facility Agreement, purchased $11.4 million of the Company’s 8% convertible senior unsecured notes, provided a $2.2 million short-term loan to Company, and loaned $25.0 million to the Company to fund its debt service reserve account. See Note 12.

 

During the three and six month periods ended June 30, 2009, the Company purchased approximately $0.7 million and $2.2 million of services and equipment from a company whose non-executive chairman serves as a member of the Company’s board of directors. Corresponding purchases made during the three month and six month periods ended June 30, 2008 were $1.7 million and $4.1 million, respectively.

 

Purchases and other transactions with Affiliates

 

Total purchases and other transactions from affiliates, excluding interest and capital transactions, are as follows (in thousands):

 

		Three months ended June 30,						Six months ended  June 30,
		2009			2008			2009			2008
QUALCOMM		$	607		$	3,023		$	1,216		$	5,904
Other affiliates		837			1,844			2,315			4,252
Total		$	1,444		$	4,867		$	3,531		$	10,156

 

Note 6: Income Taxes

 

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

 

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On January 1, 2009, the Company adopted FSP APB 14-1, which was effective retrospectively. Prior to the adoption of FSP APB 14-1, the Company had recorded the net tax effect of the conversions and exchanges of the Company’s 5.75% Convertible Senior Notes due 2028 (the “Notes”) (See Note 12) during the fourth quarter of 2008 against additional-paid-in-capital and reduced its deferred tax assets at December 31, 2008. The adoption of FSP APB 14-1 resulted in the Company recording a gain from the exchanges and conversions of the Notes and reversing the charge taken to additional-paid-in-capital and deferred tax assets. The Company established a valuation allowance to reduce the deferred tax assets to an amount that is more likely than not to be realized. As of December 31, 2008, the Company had established valuation allowances of approximately $125.5 million. Accordingly, at June 30, 2009 and December 31, 2008, net deferred tax assets were $0.

 

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

 

Note 7: Comprehensive Loss

 

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

 

The following are the components of comprehensive loss (in thousands):

 

		Three months ended  June 30,						Six months ended  June 30,
		2009			2008			2009			2008
Net loss		$	(13,762	)	$	(7,177	)	$	(35,520	)	$	(13,812	)
Other comprehensive income (loss):
Foreign currency translation adjustments		1,490			(409		)	1,584			(1,456		)
Total comprehensive loss		$	(12,272	)	$	(7,586	)	$	(33,936	)	$	(15,268	)

 

Note 8: Equity Incentive Plan

 

The Company’s 2006 Equity Incentive Plan (the “Equity Plan”) is a broad based, long-term retention program intended to attract and retain talented employees and align stockholder and employee interests. Less than 0.1 million restricted stock awards and restricted stock units (including grants to both employees and executives) were granted during the six month period ended June 30, 2009. No grants were made during the three month period ended June 30, 2009. Approximately 1.2 million and 1.9 million restricted stock awards and restricted stock units (including grants to both employees and executives) were granted during the three and six months ended June 30, 2008, respectively. In January 2009, 2.7 million shares of the Company’s Common Stock were added to the shares available for issuance under the Equity Plan. Under the various management incentive plans, the Company expects to issue additional shares of its Common Stock equivalent to approximately $8.2 million to employees and executives during the third quarter of 2009.

 

Note 9: Litigation and Other Contingencies

 

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

 

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IPO Securities Litigation.  On February 9, 2007, the first of three purported class action lawsuits was filed against the Company, its CEO and CFO in the Southern District of New York alleging that the Company’s registration statement related to its initial public offering in November 2006 contained material misstatements and omissions. The Court consolidated the three cases as Ladmen Partners, Inc. v. Globalstar, Inc., et al., Case No. 1:07-CV-0976 (LAP), and appointed Connecticut Laborers’ Pension Fund as lead plaintiff. On September 30, 2008, the court granted the Company’s motion to dismiss the plaintffs’ Second Amended Complaint with prejudice. Plaintiffs filed a notice of appeal to the U.S. Second Circuit Court of Appeals. The parties and the Company’s insurer have agreed in principle to a settlement of the litigation. Plaintiffs have filed a motion withdrawing the appeal by consent without prejudice to reinstatement until December 31, 2009 in anticipation of concluding the settlement.

 

Walsh and Kesler v. Globalstar, Inc. (formerly Stickrath v. Globalstar, Inc.)  On April 7, 2007, Kenneth Stickrath and Sharan Stickrath filed a purported class action complaint against the Company in the U.S. District Court for the Northern District of California, Case No. 07-cv-01941. The complaint is based on alleged violations of California Business & Professions Code § 17200 and California Civil Code § 1750, et seq., the Consumers’ Legal Remedies Act. In July 2008 the Company filed a motion to deny class certification and a motion for summary judgment. The court deferred action on the class certification issue but granted the motion for summary judgment on December 22, 2008. The court did not, however, dismiss the case with prejudice but rather allowed counsel for plaintiffs to amend the complaint and substitute one or more new class representatives. On January 16, 2009, counsel for the plaintiffs filed a Third Amended Class Action Complaint substituting Messrs. Walsh and Kesler as the named plaintiffs. The Company filed its answer on February 2, 2009. A hearing on the motion to deny class certification is expected to be held in September 2009.

 

Appeal of FCC S-Band Sharing Decision.  This case is Sprint Nextel Corporation’s petition in the U.S. Court of Appeals for the District of Columbia Circuit for review of, among others, the FCC’s April 27, 2006, decision regarding sharing of the 2495-2500 MHz portion of the Company’s radiofrequency spectrum. This is known as “The S-band Sharing Proceeding.” The Court of Appeals has granted the FCC’s motion to hold the case in abeyance while the FCC considers the petitions for reconsideration pending before it. The Court has also granted the Company’s motion to intervene as a party in the case. The Company cannot determine when the FCC might act on the petitions for reconsideration.

 

Appeal of FCC L-Band Decision.  On November 9, 2007, the FCC released a Second Order on Reconsideration, Second Report and Order and Notice of Proposed Rulemaking. In the Report and Order (“R&O”) portion of the decision, the FCC effectively decreased the L-band spectrum available to the Company while increasing the L-band spectrum available to Iridium Satellite by 2.625 MHz. On February 5, 2008, the Company filed a notice of appeal of the FCC’s decision in the U.S. Court of Appeals for the D.C. Circuit. Briefs were filed and oral argument was held on February 17, 2009. On May 1, 2009, the court issued a decision denying the Company’s appeal and affirming the FCC’s decision.

 

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

 

Patent Infringement.  On July 2, 2008, the Company’s subsidiary, Spot LLC, received a notice of patent infringement from Sorensen Research and Development. Sorensen asserts that the process used to manufacture the Spot Satellite Personal Tracker violates a U.S. patent held by Sorensen. The manufacturer, Axonn LLC, has assumed responsibility for managing the case under an indemnity agreement with the Company and Spot LLC. Axonn was unable to negotiate a mutually acceptable settlement with Sorensen, and on January 14, 2009, Sorensen filed a complaint against Axonn, Spot LLC and the Company in the U.S. District Court for the Southern District of California. The Company and Axonn filed an answer and counterclaim and a motion to stay the proceeding pending completion of the re-examination of the subject patent. The court granted the motion for stay on July 29, 2009.

 

YMax Communications Corp. v. Globalstar, Inc. and Spot LLC.  On May 6, 2009, YMax Communications Corp. filed a patent infringement complaint against the Company and its subsidiary, Spot LLC, in the Delaware U.S. District Court (Civ. Action No. 09-329) alleging that the SPOT Satellite GPS Messenger service infringes a patent for which YMax is the exclusive licensee. The complaint follows on the heels of an exchange of correspondence between the Company and YMax in which the Company endeavored to explain why the SPOT service does not infringe the YMax patent. Globalstar filed its answer to the complaint on June 26, 2009. The Company does not believe that the complaint has merit and intends to defend itself vigorously.

 

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

 

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Note 10: Geographic Information

 

Revenue by geographic location, presented net of eliminations for intercompany sales, was as follows for the three and six month periods ended June 30, 2009 and 2008 (in thousands):

 

		Three months ended  June 30,						Six months ended  June 30,
		2009			2008			2009			2008
Service:
United States		$	7,414		$	8,345		$	13,896		$	16,675
Canada		3,119			5,351			5,956			11,122
Europe		656			1,027			1,246			2,072
Central and South America		1,288			1,761			2,435			2,418
Others		85			189			160			396
Total service revenue		12,562			16,673			23,693			32,683
Subscriber equipment:
United States		1,405			3,443			2,928			5,988
Canada		725			1,684			2,102			4,012
Europe		247			588			468			1,419
Central and South America		653			607			977			992
Others		124			4			711			39
Total subscriber equipment revenue		3,154			6,326			7,186			12,450
Total revenue		$	15,716		$	22,999		$	30,879		$	45,133

 

Note 11: Derivative Instruments

 

In March 2008, the FASB issued SFAS 161, “Disclosures about Derivative Instruments and Hedging Activities.” SFAS 161 provides companies with requirements for enhanced disclosures about derivative instruments and hedging activities to enable investors to better understand their effects on a company’s financial position, financial performance, and cash flows. In accordance with the effective date of SFAS 161, the Company adopted the disclosure provisions of SFAS 161 during the quarter ended March 31, 2009.

 

In July 2006, in connection with entering into its credit agreement with Wachovia, which provided for interest at a variable rate (Note 12), the Company entered into a five-year interest rate swap agreement. The interest rate swap agreement reflected a $100.0 million notional amount at a fixed interest rate of 5.64%. The interest rate swap agreement did not qualify for hedge accounting under FASB’s Statement of Financial Standards No.133, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS No. 133”). The decline in fair value for the three and six months ended June 30, 2008 was charged to “Derivative gain (loss)” in the accompanying Consolidated Statements of Operations. The interest rate swap agreement was terminated on December 10, 2008 by the Company making a payment of approximately $9.2 million.

 

In June 2009, in connection with entering into the Facility Agreement (See Note 12), which provides for interest at a variable rate, the Company entered into a ten-year interest rate cap agreement. The interest rate cap agreement reflected a variable notional amount ranging from $586.3 million to $14.8 million at interest rates that provide coverage to the Company for exposure resulting from escalating interest rates over the term of the Facility Agreement. The interest rate cap provides limits on the 6 month Libor rate (“Base Rate”) used to calculate the coupon interest on outstanding amounts on the Facility Agreement of 4.00% from the date of issuance through December 2012. Thereafter, the Base Rate 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 then the then 6 month Libor rate. The Company paid an approximately $12.4 million upfront fee for the interest rate cap agreement. The interest rate cap does not qualify for hedge accounting treatment under SFAS 133. The decline in the fair value of the interest rate cap derivative instrument for the three month period ended June 30, 2009, of approximately $4.1 million, was charged to “Derivative gain (loss)” in the accompanying Consolidated Statement of Operations.

 

The Company recorded the conversion rights and features embedded within the 8.00% Convertible Senior Unsecured Notes (“8.00% Notes”) as a compound embedded derivative liability within Other Long Term Liabilities on its Consolidated Balance Sheet with a corresponding debt discount which is netted against the face value of the 8.00% Notes (Note 12). The Company will amortize the debt discount associated with the compound embedded derivative liability to interest expense over the term of the 8.00% Notes using an effective interest rate method. The fair value of the compound embedded derivative liability will be marked-to-market at the end of each reporting period, with any changes in value reported as “Derivative gain (loss)” in the consolidated statements of operations. The Company determined the fair value of the compound embedded derivative using a Monte Carlo simulation model based upon a risk-neutral stock price model.

 

Due to the cash settlement provisions in the warrants issued with the 8.00% Notes (Note 12) , the Company recorded the warrants as Other Long Term Liabilities on its Consolidated Balance Sheet with a corresponding debt discount which is netted against the face value of the 8.00% Notes. The Company will amortize the debt discount associated with the warrant liability to interest expense over the term of the warrants using an effective interest rate method. The fair value of the warrant liability will be marked-to-market at the end of each reporting period, with any changes in value reported as Derivative gain (loss) in the Consolidated Statements of Operations. The Company determined the fair value of the Warrant derivative was determined using a Monte Carlo simulation model based upon a risk-neutral stock price model.

 

The Company determined that the warrants issued in conjunction with the availability fee for the Contingent Equity Agreement (Note 12), were a liability and recorded it as a component of Other Long Term Liabilities, at issuance. The corresponding benefit is recorded in prepaid and other current assets and is being amortized over the one-year availability period.

 

None of the derivative instruments described above was designated as a hedge. The following tables disclose the fair value of the derivative instruments as of June 30, 2009 and December 31, 2008, and their impact on the Company’s unaudited interim consolidated statement of operations for the three and six month periods ended June 30, 2009 and 2008 (in thousands):

 

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		June 30, 2009					December 31, 2008
		Balance Sheet Location		Fair Value			Balance Sheet Location		Fair Value
Interest rate cap derivative		Other assets, net		$	8,331		N/A		N/A
Compound embedded conversion option		Other non-current liabilities		(21,272		)	N/A		N/A
Warrants issued with 8.00% Notes		Other non-current liabilities		(11,764		)	N/A		N/A
Warrants issued with contingent equity agreement		Other non-current liabilities		(6,000		)	N/A		N/A
Total				$	(30,705	)			$

 

		Three months ended June 30,
		2009					2008
		Location of Gain (loss) recognized in Statement of Operations		Amount of Gain (loss) recognized on Statement of Operations			Location of Gain (loss) recognized in Statement of Operations		Amount of Gain (loss) recognized on Statement of Operations
Interest rate swap derivative		N/A		N/A			Derivative gain (loss)		$	3,743
Interest rate cap derivative		Derivative gain (loss)		(4,094		)	N/A		N/A
Compound embedded conversion option		Derivative gain (loss)		2,270			N/A		N/A
Warrants issued with 8.00% Notes		Derivative gain (loss)		1,027			N/A		N/A
Warrants issued with contingent equity agreement		Derivative gain (loss)		—			N/A		N/A
Total				$	(797	)			$	3,743

 

		Six months ended June 30,
		2009					2008
		Location of Gain (loss) recognized in Statement of Operations		Amount of Gain (loss) recognized on Statement of Operations			Location of Gain (loss) recognized in Statement of Operations		Amount of Gain (loss) recognized on Statement of Operations
Interest rate swap derivative		N/A		N/A			Derivative gain (loss)		$	204
Interest rate cap derivative		Derivative gain (loss)		(4,094		)	N/A		N/A
Compound embedded conversion option		Derivative gain (loss)		2,270			N/A		N/A
Warrants issued with 8.00% Notes		Derivative gain (loss)		1,027			N/A		N/A
Warrants issued with contingent equity agreement		Derivative gain (loss)		—			N/A		N/A
Total				$	(797	)			$	204

 

Note 12: Borrowings

 

Current portion of long term debt

 

Current portion of long term debt consists of $69.2 million and $33.6 million due to the Company’s vendors under vendor financing agreements at June 30, 2009 and December 31, 2008, respectively. Details of vendor financing agreements are described later in this Note. Additionally, in June 2009 Thermo Funding loaned the Company $2.2 million as a short term loan payable within one year at an annual interest rate of 12%.

 

Long Term Debt:

 

Long term debt consists of the following (in thousands):

 

		June 30, 2009			December 31, 2008 As Adjusted – Note 1
Amended and Restated Credit Agreement:
Term Loan		$	—		$	100,000
Revolving credit loans		—			66,050
Total Borrowings under Amended and Restated Credit Agreement		—			166,050
5.75% Convertible Senior Notes due 2028		50,957			48,670
8.00% Convertible Senior Unsecured Notes		18,817			—
Vendor Financing (long term portion)		—			23,625
Subordinated loan		9,788			—
Total long term debt		$	79,562		$	238,345

 

Borrowings under Facility Agreement

 

         On June 5, 2009, the Company entered into a $586.3 million senior secured facility agreement (the “Facility Agreement”) with a syndicate of bank lenders, including BNP Paribas, Natixis, Société Générale, Caylon, Crédit Industriel et Commercial as arrangers and BNP Paribas as the security agent and COFACE agent. Ninety-five percent of the Company’s obligations under the agreement are guaranteed by COFACE, the French export credit agency.  The initial funding process of the Facility Agreement began on June 29, 2009 and was completed on July 1, 2009. The new facility is comprised of:

 

·                  a $563.3 million tranche for future payments and to reimburse the Company for amounts it previously paid to Thales Alenia Space for construction of its second-generation satellites. Such reimbursed amounts will be used by the Company (a) to make payments to Arianespace for launch services, Hughes Networks Systems LLC for ground network equipment, software and satellite interface chips and Ericsson Federal Inc. for ground system upgrades, (b) to provide up to $150 million for the Company’s working capital and general corporate purposes and (c) to pay a portion of the insurance premium to COFACE; and

 

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