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,September 30, 2019 
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)  
 
1351 Holiday Square Blvd.
Covington, Louisiana 70433
(Address of principal executive offices and zip code)
Registrant's Telephone Number, Including Area Code: (985) 335-1500
Securities registered pursuant to section 12(b) of the Act:    
Title of each class Name of exchange on which registered Trading Symbol
Voting Common Stock NYSE American GSAT
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 26,November 8, 2019, 1,450,115,1411,451,653,498 shares of voting common stock were authorized and outstanding and no shares of nonvoting common stock were authorized or outstanding. Unless the context otherwise requires, references to common stock in this Report mean the Registrant’s voting common stock. 


FORM 10-Q

GLOBALSTAR, INC.
TABLE OF CONTENTS
 
 Page
PART I -  FINANCIAL INFORMATION
 
   
Item 1.
   
Item 2.
   
Item 3.
   
Item 4.
   
PART II - OTHER INFORMATION
 
   
Item 1.
   
Item 1A. 
   
Item 2.
   
Item 3.
   
Item 4.
   
Item 5.
   
Item 6.
   
 



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 EndedThree Months Ended Nine Months Ended
March 31,
2019
 March 31,
2018
September 30,
2019
 September 30,
2018
 September 30,
2019
 September 30,
2018
Revenue:        
  
Service revenue$26,119
 $26,010
$34,152
 $29,898
 $86,971
 $83,903
Subscriber equipment sales3,959
 2,739
4,462
 5,794
 12,912
 14,264
Total revenue30,078
 28,749
38,614
 35,692
 99,883
 98,167
Operating expenses:        
  
Cost of services (exclusive of depreciation, amortization, and accretion shown separately below)9,853
 9,029
9,216
 9,429
 28,464
 27,984
Cost of subscriber equipment sales3,149
 2,172
4,482
 4,426
 11,209
 10,768
Marketing, general and administrative11,606
 11,275
12,895
 15,061
 35,523
 42,280
Revision to contract termination charge
 
 
 (20,478)
Depreciation, amortization and accretion23,801
 19,231
24,026
 24,738
 71,679
 66,585
Total operating expenses48,409
 41,707
50,619
 53,654
 146,875
 127,139
Loss from operations(18,331) (12,958)
Operating loss(12,005) (17,962) (46,992) (28,972)
Other income (expense):        
  
Interest income and expense, net of amounts capitalized(12,870) (7,353)(14,471) (13,358) (40,149) (31,016)
Derivative gain57,008
 108,944
50,156
 39,059
 142,280
 145,944
Gain on legal settlement
 
 120
 6,779
Other(9) (662)(2,529) 1,331
 (2,064) (2,682)
Total other income44,129
 100,929
Total other income (expense)33,156
 27,032
 100,187
 119,025
Income before income taxes25,798
 87,971
21,151
 9,070
 53,195
 90,053
Income tax expense27
 41
40
 51
 124
 116
Net income$25,771
 $87,930
$21,111
 $9,019
 $53,071
 $89,937
          
Other comprehensive income:   
Other comprehensive income (loss):       
Foreign currency translation adjustments(270) (330)1,022
 500
 254
 2,800
Comprehensive income$25,501
 $87,600
Comprehensive income (loss)$22,133
 $9,519
 $53,325
 $92,737
          
Net income per common share:   
Net income (loss) per common share:     
  
Basic$0.02
 $0.07
$0.01
 $0.01
 $0.04
 $0.07
Diluted0.02
 0.06
(0.01) (0.02) (0.05) (0.03)
Weighted-average shares outstanding:        
  
Basic1,448,318
 1,262,336
1,451,703
 1,264,516
 1,450,146
 1,263,416
Diluted1,632,257
 1,437,328
1,647,734
 1,427,800
 1,647,267
 1,448,920
 
See accompanying notes to unaudited interim condensed consolidated financial statements. 


GLOBALSTAR, INC.  
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except par value and share data)  
(Unaudited) 
March 31, 2019 December 31, 2018September 30, 2019 December 31, 2018
ASSETS 
  
 
  
Current assets: 
  
 
  
Cash and cash equivalents$13,773
 $15,212
$26,225
 $15,212
Restricted cash60,574
 60,278
61,224
 60,278
Accounts receivable, net of allowance of $3,652 and $3,382, respectively20,037
 19,327
Accounts receivable, net of allowance of $3,162 and $3,382, respectively20,909
 19,327
Inventory14,415
 14,274
17,240
 14,274
Prepaid expenses and other current assets24,406
 13,410
20,916
 13,410
Total current assets133,205
 122,501
146,514
 122,501
Property and equipment, net864,200
 882,695
820,315
 882,695
Operating lease right of use assets, net14,587
 
16,270
 
Intangible and other assets, net of accumulated amortization of $8,180 and $7,930, respectively32,916
 40,286
Intangible and other assets, net of accumulated amortization of $8,706 and $7,930, respectively36,744
 40,286
Total assets$1,044,908
 $1,045,482
$1,019,843
 $1,045,482
LIABILITIES AND STOCKHOLDERS’ EQUITY 
  
 
  
Current liabilities: 
  
 
  
Current portion of long-term debt$96,249
 $96,249
$98,829
 $96,249
Accounts payable6,206
 6,995
5,019
 6,995
Accrued expenses34,593
 23,085
36,839
 23,085
Payables to affiliates218
 656
353
 656
Derivative liabilities542
 757
129
 757
Deferred revenue31,485
 31,938
27,839
 31,938
Total current liabilities169,293
 159,680
169,008
 159,680
Long-term debt, less current portion374,039
 367,202
402,468
 367,202
Operating lease liabilities13,571
 
15,158
 
Employee benefit obligations4,541
 4,489
4,619
 4,489
Derivative liabilities89,315
 146,108
4,456
 146,108
Deferred revenue5,513
 5,692
5,261
 5,692
Other non-current liabilities3,261
 3,366
2,731
 3,366
Total non-current liabilities490,240
 526,857
434,693
 526,857
      
Contingencies (Note 8)

 



 

      
Stockholders’ equity: 
  
 
  
Preferred Stock of $0.0001 par value; 100,000,000 shares authorized and none issued and outstanding at March 31, 2019 and December 31, 2018, respectively
 
Series A Preferred Convertible Stock of $0.0001 par value; one share authorized and none issued and outstanding at March 31, 2019 and December 31, 2018, respectively
 
Voting Common Stock of $0.0001 par value; 1,900,000,000 shares authorized and 1,450,069,483 shares issued and outstanding at March 31, 2019; 1,500,000,000 shares authorized and 1,446,783,645 shares issued and outstanding at December 31, 2018145
 145
Nonvoting Common Stock of $0.0001 par value; no shares authorized and none issued and outstanding at March 31, 2019; 400,000,000 shares authorized and none issued and outstanding at December 31, 2018
 
Preferred Stock of $0.0001 par value; 100,000,000 shares authorized and none issued and outstanding at September 30, 2019 and December 31, 2018, respectively
 
Series A Preferred Convertible Stock of $0.0001 par value; one share authorized and none issued and outstanding at September 30, 2019 and December 31, 2018, respectively
 
Voting Common Stock of $0.0001 par value; 1,900,000,000 shares authorized and 1,451,635,661 shares issued and outstanding at September 30, 2019; 1,500,000,000 shares authorized and 1,446,783,645 shares issued and outstanding at December 31, 2018145
 145
Nonvoting Common Stock of $0.0001 par value; no shares authorized and none issued and outstanding at September 30, 2019; 400,000,000 shares authorized and none issued and outstanding at December 31, 2018
 
Additional paid-in capital1,938,293
 1,937,364
1,941,236
 1,937,364
Accumulated other comprehensive loss(4,109) (3,839)(3,585) (3,839)
Retained deficit(1,548,954) (1,574,725)(1,521,654) (1,574,725)
Total stockholders’ equity385,375
 358,945
416,142
 358,945
Total liabilities and stockholders’ equity$1,044,908
 $1,045,482
$1,019,843
 $1,045,482
 See accompanying notes to unaudited interim condensed consolidated financial statements.  


GLOBALSTAR, INC.  
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)  
(Unaudited) 
Common
Shares
Common
Stock
Amount
Additional
Paid-In
Capital
Accumulated Other Comprehensive Loss
Retained
Deficit
Total
Common
Shares
Common
Stock
Amount
Additional
Paid-In
Capital
Accumulated Other Comprehensive Loss
Retained
Deficit
Total
Balances – January 1, 20191,446,784
$145
$1,937,364
$(3,839)$(1,574,725)$358,945
1,446,784
$145
$1,937,364
$(3,839)$(1,574,725)$358,945
Net issuance of restricted stock awards, stock for employee stock option exercises and recognition of stock-based compensation3,285

1,000


1,000
Issuances (forfeitures) of restricted stock awards, stock for employee stock option exercises and recognition of stock-based compensation3,285

1,000


1,000
Contribution of services

47


47


47


47
Recognition of stock-based compensation of employee stock purchase plan

77


77


77


77
Stock offering issuance costs

(195) (195)

(195) (195)
Other comprehensive loss


(270)
(270)


(270)
(270)
Net income



25,771
25,771




25,771
25,771
Balances – March 31, 20191,450,069
$145
$1,938,293
$(4,109)$(1,548,954)$385,375
1,450,069
$145
$1,938,293
$(4,109)$(1,548,954)$385,375
  

  
Common
Shares
Common
Stock
Amount
Additional
Paid-In
Capital
Accumulated Other Comprehensive Loss
Retained
Deficit
Total
Balances – January 1, 20181,261,949
$126
$1,869,339
$(6,939)$(1,571,302)$291,224
Net issuance of restricted stock awards and recognition of stock-based compensation1,165

1,853


1,853
Issuances (forfeitures) of restricted stock awards, stock for employee stock option exercises and recognition of stock-based compensation232

968


968
Contribution of services

197


197
Net issuance of stock through employee stock purchase plan and recognition of stock-based compensation1,437

500


500
Investment in business

155


155
Other comprehensive loss


(498)
(498)
Net income



6,189
6,189
Balances – June 30, 20191,451,738
$145
$1,940,113
$(4,607)$(1,542,765)$392,886
Issuances (forfeitures) of restricted stock awards, stock for employee stock option exercises and recognition of stock-based compensation(102)
966


966
Contribution of services

47


47
Recognition of stock-based compensation of employee stock purchase plan

84


84


110


110
Contribution of services

137


137
Other comprehensive loss


(330)
(330)


1,022

1,022
Impact of adoption of ASC 606



3,093
3,093
Net income



87,930
87,930




21,111
21,111
Balances – March 31, 20181,263,114
$126
$1,871,413
$(7,269)$(1,480,279)$383,991
Balances – September 30, 20191,451,636
$145
$1,941,236
$(3,585)$(1,521,654)$416,142

See accompanying notes to unaudited interim condensed consolidated financial statements.


 
Common
Shares
Common
Stock
Amount
Additional
Paid-In
Capital
Accumulated Other Comprehensive Loss
Retained
Deficit
Total
Balances – January 1, 20181,261,949
$126
$1,869,339
$(6,939)$(1,571,302)$291,224
Net issuance of restricted stock awards and recognition of stock-based compensation1,165

1,853


1,853
Recognition of stock-based compensation of employee stock purchase plan

84


84
Contribution of services

137


137
Other comprehensive loss


(330)
(330)
Impact of adoption of ASC 606



3,093
3,093
Net income



87,930
87,930
Balances – March 31, 20181,263,114
$126
$1,871,413
$(7,269)$(1,480,279)$383,991
Net issuance of restricted stock awards and recognition of stock-based compensation275

1,052


1,052
Net issuance of stock through employee stock purchase plan and recognition of stock-based compensation716

545


545
Contribution of services

137


137
Other comprehensive income


2,630

2,630
Net loss



(7,012)(7,012)
Balances – June 30, 20181,264,105
$126
$1,873,147
$(4,639)$(1,487,291)$381,343
Net issuance of restricted stock awards and recognition of stock-based compensation1,317
1
930


931
Issuance of stock through employee stock purchase plan200

200


200
Contribution of services

107


107
Other comprehensive income


500

500
Net income



9,019
9,019
Balances – September 30, 20181,265,622
$127
$1,874,384
$(4,139)$(1,478,272)$392,100

See accompanying notes to unaudited interim condensed consolidated financial statements.


GLOBALSTAR, INC. 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months EndedNine Months Ended
March 31,
2019

March 31,
2018
September 30,
2019

September 30,
2018
Cash flows provided by (used in) operating activities: 
  
 
  
Net income$25,771
 $87,930
$53,071
 $89,937
Adjustments to reconcile net income to net cash provided by (used in) operating activities: 
  
 
  
Depreciation, amortization and accretion23,801
 19,231
71,679
 66,585
Change in fair value of derivative assets and liabilities(57,008) (108,944)(142,280) (145,944)
Stock-based compensation expense1,091
 1,150
4,140
 4,218
Amortization of deferred financing costs2,198
 1,658
9,136
 6,349
Provision for bad debts846
 361
1,436
 964
Noncash interest and accretion expense4,505
 2,400
13,932
 10,275
Unrealized foreign currency (gain) loss(88) 590
Revision to contract termination charge
 (20,478)
Change to estimated impact upon adoption of ASC 606(3,885) 
Unrealized foreign currency loss1,213
 2,479
Other, net1
 (40)344
 979
Changes in operating assets and liabilities: 
  
 
  
Accounts receivable(1,676) (269)(3,249) (4,486)
Inventory(107) (403)(4,267) 1,383
Prepaid expenses and other current assets(6,797) 13
(3,151) (4,326)
Other assets1,041
 172
(211) (3,756)
Accounts payable and accrued expenses9,122
 5,365
9,042
 12,350
Payables to affiliates(439) 71
(304) 420
Other non-current liabilities(248) (104)57
 (1,027)
Deferred revenue(688) 651
(659) 3,846
Net cash provided by operating activities1,325
 9,832
6,044
 19,768
Cash flows used in investing activities: 
  
Cash flows provided by (used in) investing activities: 
  
Second-generation network costs (including interest)(793) (341)(1,350) (5,887)
Property and equipment additions(1,013) (1,397)(3,480) (5,346)
Investment in business155
 
Purchase of intangible assets(455) (648)(2,950) (1,948)
Net cash used in investing activities(2,261) (2,386)(7,625) (13,181)
Cash flows provided by (used in) financing activities: 
  
 
  
Payments for debt and equity issuance costs(195) 
Principal payments of the Facility Agreement(47,435) (38,933)
Payments for financing costs(1,401) 
Proceeds from Subordinated Loan Agreement62,000
 
Proceeds from issuance of common stock and exercise of options and warrants2
 
402
 395
Net cash used in financing activities(193) 
Net cash provided by (used in) financing activities13,566
 (38,538)
Effect of exchange rate changes on cash, cash equivalents and restricted cash(14) (22)(26) 68
Net increase (decrease) in cash, cash equivalents and restricted cash(1,143) 7,424
11,959
 (31,883)
Cash, cash equivalents and restricted cash, beginning of period75,490
 105,279
75,490
 105,279
Cash, cash equivalents and restricted cash, end of period$74,347
 $112,703
$87,449
 $73,396
   
As of:As of:
March 31,
2019
 December 31,
2018
September 30,
2019
 December 31,
2018
Reconciliation of cash, cash equivalents and restricted cash      
Cash and cash equivalents$13,773
 $15,212
$26,225
 $15,212
Restricted cash (See Note 5 for further discussion on restrictions)60,574
 60,278
61,224
 60,278
Total cash, cash equivalents and restricted cash shown in the statement of cash flows$74,347
 $75,490
$87,449
 $75,490
      
      
      
Three Months EndedNine Months Ended
March 31,
2019
 March 31,
2018
September 30,
2019
 September 30,
2018
Supplemental disclosure of cash flow information: 
  
 
  
Cash paid for interest$
 $39
$12,922
 $12,109
      
Supplemental disclosure of non-cash financing and investing activities: 
  
 
  
Increase in capitalized accrued interest for second-generation network costs$78
 $1,330
$364
 $1,974
Capitalized accretion of debt discount and amortization of prepaid financing costs63
 1,277
280
 1,825
See accompanying notes to unaudited interim condensed consolidated financial statements.


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,Companies, through itscommonly controlled affiliates, (collectively, “Thermo”), is the principal owner and largest stockholder of Globalstar. The Company’s Executive Chairman of the Board 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, 2018, as filed with the SEC on February 28, 2019 (the “2018 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, condensed consolidated statements of stockholders' equity and condensed consolidated statements of cash flows for the periods presented. The results of operations for the three and nine months ended March 31,September 30, 2019 are not necessarily indicative of the results that may be expected for the full year or any future period.

Recently Issued Accounting Pronouncements 

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Updates (“ASU”) No. 2016-13, Credit Losses, Measurement of Credit Losses on Financial Instruments. ASU No. 2016-13, as amended, 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 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. As part of the FASB's disclosure framework project, it has eliminated, amended and added disclosure requirements for fair value measurements. Entities will no longer be required to disclose the amount of, and reasons for, transfers between Level 1 and Level 2 of the fair value hierarchy, the policy of timing of transfers between levels of the fair value hierarchy and the valuation processes for Level 3 fair value measurements. Public companies will be required to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. This ASU is effective for public entities for annual and interim periods beginning after December 15, 2019. Early adoption is permitted as of the beginning of any interim or annual reporting period. This ASU will have an impact on the Company's disclosures.



In August 2018, the FASB issued ASU No. 2018-14, Compensation - Retirement Benefits - Defined Benefit Plans - General Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans. As part of the FASB's disclosure framework project, it has changed the disclosure requirements for defined pension and other post-retirement benefit plans. The FASB eliminated disclosure requirements related to the amounts in accumulated other comprehensive income expected to be recognized as components of net periodic benefit cost over the next fiscal year, the amount and timing of plan assets expected to be returned to the employer, if any, information related to Japanese Welfare Pension Insurance Law, information about the amount of future annual benefits covered by insurance contracts and significant transactions between the employer or related parties and the plan, and the disclosure of the effects of a one-percentage-point change in the assumed health care cost trend rates on the (1) aggregate of the service and interest cost components of net periodic benefit costs and the (2) benefit obligation for postretirement health care benefits. Entities will be required to disclose the weighted-average interest crediting rate for cash balance plans and other plans with promised interest crediting rates as well as an explanation of the reasons for significant gains and losses related to changes in the benefit obligation for the period. This ASU is effective for public entities for annual periods beginning after December 15, 2020. Early adoption is permitted as of the beginning of any annual reporting period. This ASU will have an impact on the Company's disclosures.

In August 2018, the FASB issued ASU No. 2018-15, Intangibles - Goodwill and Other - Internal-Use Software Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. This ASU requires companies to defer specified implementation costs in a cloud computing arrangement that are often expensed under current US GAAP and recognize these costs to expense over the noncancellable term of the arrangement. This ASU is effective for public entities for annual and interim periods beginning after December 15, 2019. 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 financial statements and related disclosures.

Recently Issued Financial Reporting Rules

In April 2019, the SEC adopted the final rules under SEC Releases 33-10618 and 34-85381, FAST Act Modernization and Simplification of Regulation S-K. Among other things, the amendments 1) allow registrants who present financial statements covering three years in their periodic reports to omit discussion of the earliest year from management's discussion and analysis if the discussion was included in a prior filing, 2) allow registrants to omit certain information and exhibits from their periodic reports without submitting confidential treatment requests to the Commission, 3) clarify and streamline certain risk factor and property disclosure requirements, 4) require all filings to include hyperlinks to information that is incorporated by reference in current filings to the information available on EDGAR, as applicable, and 5) require registrants to apply XBRL tags to certain information on cover pages of SEC filings. TheCertain of the amended rules will becomebecame effective April 2, 2019 or May 2, 2019 and will behave been applied to any filings after that date,these dates, except for the confidential treatment amendments, which became effective on April 2, 2019 and the XBRL tagging requirement, which is effective for large accelerated and accelerated filers for fiscal reports ending on or after June 15, 2019 and 2020, respectively. The Company does not expect these final rules to have a material impact on its disclosures and financial statements.

Recently Adopted Accounting Pronouncements

In February 2016, the FASB issued ASU No. 2016-02, Leases. ASU 2016-02 became effective for annual reporting periods beginning after December 15, 2018. ASU 2016-02 amended the FASB Accounting Standards Codification (“ASC”) and created a new ASC Topic 842, “Leases” (“ASC 842”). The Company adopted this standard on January 1, 2019. See Note 3: Leases for further discussion, including the impact on the Company's condensed consolidated financial statements and required disclosures.

In February 2018, the FASB issued ASU No. 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. This guidance allows companies to reclassify items in accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the H.R.1, “An Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018” (the “Tax Act”) (previously known as “The Tax Cuts and Jobs Act”). This ASU is effective for all entities for annual and interim periods beginning after December 15, 2018. The Company adopted this standard on January 1, 2019. The adoption of this standard did not have a material effect on the Company's financial statements or related disclosures.

In June 2018, the FASB issued ASU No. 2018-07, Compensation - Stock Compensation: Improvements to Nonemployee Share-Based Payment Accounting. ASU 2018-07 aligns the accounting for share-based payment awards issued to employees and nonemployees. Measurement of equity-classified nonemployee awards will now be valued on the grant date and will no longer be remeasured through the performance completion date. This amendment also changes the accounting for nonemployee awards with performance conditions to recognize compensation cost when achievement of the performance condition is probable, rather than upon achievement of the performance condition, as well as eliminating the requirement to reassess the equity or liability


classification for nonemployee awards upon vesting, except for certain award types. This ASU is effective for public entities for


annual and interim periods beginning after December 15, 2018. The Company adopted this standard on January 1, 2019. The adoption of this standard did not have a material effect on the Company's financial statements or related disclosures.

2. REVENUE

Disaggregation of Revenue

The following table discloses revenue disaggregated by type of product and service (amounts in thousands):
Three Months EndedThree Months Ended Nine Months Ended
March 31, 2019 March 31, 2018September 30, 2019 September 30, 2018 September 30, 2019 September 30, 2018
Service revenue:          
Duplex$8,645
 $8,783
$16,589
 $12,213
 $34,265
 $31,130
SPOT13,095
 12,962
12,482
 12,957
 38,196
 39,787
Commercial IoT3,698
 3,089
4,526
 3,542
 12,577
 9,847
IGO166
 209
139
 257
 484
 682
Other515
 967
416
 929
 1,449
 2,457
Total service revenue26,119
 26,010
34,152
 29,898
 86,971
 83,903
          
Subscriber equipment sales:          
Duplex$251
 $431
$349
 $436
 $906
 $1,618
SPOT1,591
 1,474
1,880
 2,970
 5,657
 6,455
Commercial IoT2,072
 833
2,182
 2,356
 6,226
 6,067
Other45
 1
51
 32
 123
 124
Total subscriber equipment sales3,959
 2,739
4,462
 5,794
 12,912
 14,264
          
Total revenue$30,078
 $28,749
$38,614
 $35,692
 $99,883
 $98,167

The Company attributes equipment revenue 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. The following table discloses revenue disaggregated by geographical market (amounts in thousands):
Three Months EndedThree Months Ended Nine Months Ended
March 31, 2019 March 31, 2018September 30, 2019 September 30, 2018 September 30, 2019 September 30, 2018
Service revenue:          
United States$19,252
 $18,380
$23,155
 $21,096
 $61,859
 $59,581
Canada3,811
 4,486
7,914
 5,723
 16,057
 15,003
Europe2,122
 2,246
2,251
 2,462
 6,585
 7,113
Central and South America564
 569
680
 527
 1,814
 1,708
Others370
 329
152
 90
 656
 498
Total service revenue26,119
 26,010
34,152
 29,898
 86,971
 83,903
          
Subscriber equipment sales:          
United States$2,211
 $1,595
$2,435
 $4,148
 $7,195
 $9,202
Canada812
 350
1,290
 907
 3,236
 2,050
Europe577
 389
371
 326
 1,388
 1,755
Central and South America312
 388
345
 370
 1,006
 1,096
Others47
 17
21
 43
 87
 161
Total subscriber equipment sales3,959
 2,739
4,462
 5,794
 12,912
 14,264
          
Total revenue$30,078
 $28,749
$38,614
 $35,692
 $99,883
 $98,167

During the third quarter of 2019, the Company changed its calculation of the estimated impact from the initial adoption of ASC Topic 606, "Revenue from Contracts with Customers" ("ASC 606") on January 1, 2018. In accordance with ASC 606, the Company accrues contract breakage to revenue based on historical usage patterns. The original calculation of the adoption impact



did not reduce deferred revenue and retained deficit enough for revenue that would have been recognized under ASC 606 for contracts that were open at the adoption date. This adjustment was immaterial to the Company’s financial statements for each period since January 1, 2018. Accordingly, the Company recorded a cumulative adjustment to service revenue during the third quarter of 2019; this adjustment included an out-of-period amount of $3.9 million.

Contract Balances

The following table discloses information about accounts receivable, costs to obtain a contract (as recorded in intangible and other assets, net on the Company's condensed consolidated balance sheet), and contract liabilities (as recorded in both current and long-term deferred revenue on the Company's condensed consolidated balance sheet) from contracts with customers (amounts in thousands):
March 31, 2019 December 31, 2018September 30, 2019 December 31, 2018
Accounts receivable$20,037
 $19,327
$20,909
 $19,327
Capitalized costs to obtain a contract1,970
 2,018
1,974
 2,018
Contract liabilities36,998
 37,630
33,100
 37,630

Accounts Receivable

Included in the accounts receivable balance in the table above are contract assets, which represent primarily unbilled amounts related to performance obligations satisfied by the Company of $0.9$1.6 million and $0.7 million as of March 31,September 30, 2019 and December 31, 2018, respectively.

The Company has agreements with certain of its independent gateway operators ("IGOs") whereby the parties net settle outstanding payables and receivables between the respective entities on a periodic basis. As of MarchSeptember 30, 2019, and December 31, 2019, $7.52018, $6.0 million and $7.8 million, respectively, related to these agreements was included in accounts receivable on the Company’s condensed consolidated balance sheet. The reduction in this accounts receivable balance from December 31, 2018 resulted primarily from the write-off of the receivable due from the Company's Mexican IGO partner following that gateway being shut down during 2019 and the settlement of the receivable due from the Argentinian IGO partner following the acquisition of their MSS license by Globalstar in 2019.

During the three months ended March 31, 2019 and March 31, 2018, impairment lossImpairment losses on receivables from contracts with customers was $1.8 million and $0.9 million, respectively, includinginclude both provisions for bad debt and the reversal of revenue for accounts where collectability is not reasonably assured. During the three months ended September 30, 2019 and 2018, impairment loss on receivables from contracts with customers was $1.0 million and $0.4 million, respectively. During the nine months ended September 30, 2019 and 2018, impairment loss on receivables from contracts with customers was $3.7 million and $2.2 million, respectively. The increase in the impairment loss on receivables during the threenine months ended March 31,September 30, 2019 compared to the same period in 2018 was driven primarily by a specific reserve related to one of the Company's IGOs.IGOs, which the Company recorded during the quarter ended March 31, 2019.

Costs to Obtain a Contract

The Company also capitalizes costs to obtain a contract, which include certain deferred subscriber acquisition costs whichthat are amortized consistently with the pattern of transfer of the good or delivery of the service to which the asset relates. The Company’s subscriber acquisition costs primarily include dealer and internal sales commissions and certain other costs, including but not limited to, promotional costs, cooperative marketing credits and shipping and fulfillment costs. The Company capitalizes incremental costs to obtain a contract to the extent it expects to recover them. These capitalized contract costs include only internal and external initial activation commissions because these costs are considered incremental and would not have been incurred if the contract had not been obtained. These capitalized costs are included in other assets on the Company’s condensed consolidated balance sheet and are amortized to marketing, general and administrative expenses on the Company’s condensed consolidated statement of operations on a straight-line basis over the estimated customer life of three years, which considers anticipated contract renewals. For each of the three months ended March 31,September 30, 2019 and March 31, 2018, the amount of amortization related to capitalized costs to obtain a contract was $0.3 million and $0.4 million, respectively. For the nine months ended September 30, 2019 and 2018, the amount of amortization related to capitalized costs to obtain a contract was $1.1 million and $1.2 million, respectively.



Contract Liabilities

Contract liabilities, which are included in deferred revenue on the Company’s condensed consolidated balance sheet, represent the Company’s obligation to transfer service or equipment to a customer for which it has previously received consideration from a customer. As of March 31,September 30, 2019, the total transaction price allocated to unsatisfied (or partially unsatisfied) performance obligations was $37.0$33.1 million. The amount of revenue recognized during the threenine months ended March 31,September 30, 2019 from performance obligations included in the contract liability balance at the beginning of the 2019 period was $13.7$29.5 million. The amount of revenue recognized during the threenine months ended March 31,September 30, 2018 from performance obligations included in the contract liability balance at the beginning of the 2018 period was $13.3$27.1 million.

In general, the duration of the Company’s contracts is one year or less; however, from time to time, the Company offers multi-year contracts. As of March 31,September 30, 2019, the Company expects to recognize $31.5$27.8 million, or approximately 85%84%, of its remaining performance obligations during the next twelve months and $2.6$2.4 million, or approximately 7%, between two to seven years from the balance sheet date. The remaining $2.9 million, or approximately 8%9%, is related to a single contract and will be recognized as work is performed by the Company, the timing of which is currently unknown.



3. LEASES

Adoption of ASC Topic 842 “Leases”

On January 1, 2019, the Company adopted ASC 842 using the modified retrospective method. The Company has presented financial results and applied its accounting policies for the period beginning January 1, 2019 under ASC 842, while prior period results and accounting policies have not been adjusted and are reflected under legacy GAAP pursuant to ASC 840.

In connection with the adoption of ASC 842, the Company performed an analysis of contracts under ASC 840 to ensure proper assessment of leases (or embedded leases) in existence as of January 1, 2019. The Company elected the package of practical expedients permitted under ASC 842, which allows the Company not to reassess 1) whether any expired or existing contracts as of the adoption date are or contain a lease, 2) lease classification for any expired or existing leases as of the adoption date and 3) initial direct costs for any existing leases as of the adoption date.

The most significant impact of applying ASC 842 was the recognition of right-of-use assets and lease liabilities for operating leases in its condensed consolidated balance sheet. For finance leases, the accounting remained generally consistent with legacy GAAP; however, the existing capital lease and obligation for these leases have been reclassified to a right-of-use asset and lease liability. On January 1, 2019, the Company recognized an initial operating right-of-use asset of $3.3 million and associated operating lease liabilities of $3.7 million. During the first quarterSince adoption of ASC 842 on January 1, 2019, the Company entered into additional leases, most significantly a lease agreement for its new headquarters location (see further discussion in Note 9: Related Party Transactions), resulting in the recognition of additional right-of-use assets and associated lease liabilities of $11.7$14.3 million. There was no impact to opening retained deficit as of January 1, 2019.

Leases

The Company has operating and finance leases for facilities and equipment throughout the United States and around the world, including corporate offices, satellite control centers, ground control centers, gateways and certain equipment.

Upon inception of a contract, the Company evaluates if the contract, or part of the contract, contains a lease. A lease conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Leases include both a right-of-use asset and a lease liability. The right-of-use asset represents the Company’s right to use the underlying asset in the lease. Certain initial direct costs associated with consummating a lease are included in the initial measurement of the right-of-use asset. The right-of-use asset also includes prepaid lease payments and lease incentives. The lease liability represents the present value of the remaining lease payments discounted using the implicit rate in the lease on the lease commencement date. For leases in which the implicit rate is not readily determinable, an estimated incremental borrowing rate is used, which represents a rate of interest that the Company would pay to borrow on a collateralized basis over a similar term. The Company has elected to combine lease and nonlease components, if applicable. As of March 31,September 30, 2019, there are no leases not yet commenced that create significant rights and obligations.

For operating leases, the Company records lease expense on a straight-line basis over the lease term in either marketing, general and administrative expense or cost of services, depending on the nature of the underlying asset. For finance leases, the Company records the amortization of the right-of-use asset through depreciation, amortization and accretion expense and records the interest expense on the lease liability through interest expense, net, using the effective interest method.



Variable lease payments are payments made to a lessor due to changes in circumstances occurring after the commencement date. Variable lease payments dependent upon an index or rate are included in the measurement of the lease liability; all other variable lease payments are not included in the measurement of the lease liability and recognized when incurred. Variable lease payments excluded from the measurement of the lease liability are uncommon and, when incurred, are immaterial for the Company.

The Company’s leases have remaining lease terms of 1 year to 1312 years. Lease terms include renewal or termination options that the Company is reasonably certain to exercise. For leases with a term of twelve months or less, the Company does not record a right-of-use asset and associated lease liability on its condensed consolidated balance sheet.

The Company reviews the carrying value of its right-of-use assets for impairment whenever events or changes in circumstances indicate that the recorded value may not be recoverable. Recoverability of assets is measured by comparing the carrying amounts of the assets to the estimated future undiscounted cash flows, excluding financing costs. If the Company determines that an impairment exists, any related impairment loss is estimated based on fair values.

The following tables disclose the components of the Company’s finance and operating leases (amounts in thousands):



 Three Months Ended As of:
 March 31, 2019 September 30, 2019
Operating leases:    
Right-of-use asset, net $14,587
 $16,270
    
Short-term lease liability (as recorded in accrued expenses) 1,376
 1,588
Long-term lease liability 13,571
 15,158
Total operating lease liabilities $14,947
 $16,746
    
Finance leases:    
Right-of-use asset, net (as recorded in intangible and other current assets, net) $174
 $121
    
Short-term lease liability (as recorded in accrued expenses) 94
 77
Long-term lease liability (as recorded in non-current liabilities) 63
 34
Total finance lease liabilities $157
 $111

Impact on Financial Statements

The following table summarizes the impact of the adoption of ASC 842 on the Company’s condensed consolidated balance sheet. There was no impact on the Company’s condensed consolidated statement of operations as a result of this adoption. Amounts are in thousands.

Condensed Consolidated Balance Sheet
As of March 31,September 30, 2019
Impact on change in accounting policyImpact on change in accounting policy
As reported
March 31, 2019
 Impact of
ASC 842
 Legacy
GAAP
As reported
September 30, 2019
 Impact of
ASC 842
 Legacy
GAAP
Right-of-use asset, net$14,587
 $(14,587) $
$16,270
 $(16,270) $
Intangible and other assets, net174
 (174) 
121
 (121) 
Property and equipment, net
 174
 174

 121
 121
Accrued expenses1,471
 (1,267) 204
1,665
 (1,480) 185
Lease liabilities13,571
 (13,571) 
15,158
 (15,158) 
Other non-current liabilities63
 
 63
34
 
 34



Lease Cost

The components of lease cost are reflected in the table below (amounts in thousands). As noted above, prior periods have not been adjusted under the modified retrospective method of adoption.
 Three Months Ended Three Months Ended Nine Months Ended
 March 31, 2019 September 30, 2019 September 30, 2019
Operating lease cost:      
Amortization of right-of-use assets $409
 $440
 $1,257
Interest on lease liabilities 130
 305
 747
Finance lease cost:      
Amortization of right-of-use assets 26
 26
 78
Interest on lease liabilities 3
 3
 9
Short-term lease cost 169
 3
 179
Total lease cost $737
 $777
 $2,270

Weighted-Average Remaining Lease Term and Discount Rate

The following table discloses the weighted-average remaining lease term and discount rate for finance and operating leases.
  Three Months EndedAs of:
  March 31,September 30, 2019
   
Weighted-average lease term  
Finance leases 2.01.6 years
Operating Leases 9.37.6 years
   
Weighted-average discount rate  
Finance leases 7.88.0%
Operating leases 8.47.2%

Supplemental Cash Flow Information

The below table discloses supplemental cash flow information for finance and operating leases (in thousands).

  Nine Months Ended
  September 30, 2019
   
Cash paid for amounts included in the measurement of lease liabilities:  
Operating cash flows from operating leases $1,870
Operating cash flows from finance leases 9
Financing cash flows from finance leases 69



Maturity Analysis

The following table reflects undiscounted cash flows on an annual basis for the Company’s lease liabilities as of March 31,September 30, 2019 (amounts in thousands):
 Operating Leases Finance Leases Operating Leases Finance Leases
        
2019 (remaining) $1,949
 $78
 $774
 $26
2020 2,542
 72
 3,029
 72
2021 1,952
 11
 2,456
 11
2022 1,851
 6
 2,342
 6
2023 1,894
 3
 2,370
 3
2024 1,894
 
 2,370
 
Thereafter 8,810
 
 11,109
 
Total lease payments $20,892
 $170
 $24,450
 $118
Imputed interest (5,945) (13) (7,704) (7)
Discounted lease liability $14,947
 $157
 $16,746
 $111



4. PROPERTY AND EQUIPMENT
 Property and equipment consists of the following (in thousands): 
March 31,
2019
 December 31,
2018
September 30,
2019
 December 31,
2018
Globalstar System: 
  
 
  
Space component 
  
 
  
First and second-generation satellites in service$1,195,291
 $1,195,291
$1,195,291
 $1,195,291
Second-generation satellite, on-ground spare32,481
 32,481
32,443
 32,481
Ground component269,293
 256,850
268,687
 256,850
Construction in progress: 
  
 
  
Ground component10,593
 18,068
12,614
 18,068
Next-generation software upgrades2,087
 2,250
3,229
 2,250
Other1,585
 2,699
1,277
 2,699
Total Globalstar System1,511,330
 1,507,639
1,513,541
 1,507,639
Internally developed and purchased software18,644
 26,045
19,160
 26,045
Equipment9,773
 10,097
10,162
 10,097
Land and buildings3,304
 3,311
3,259
 3,311
Leasehold improvements1,321
 1,478
1,644
 1,478
Total property and equipment1,544,372
 1,548,570
1,547,766
 1,548,570
Accumulated depreciation(680,172) (665,875)(727,451) (665,875)
Total property and equipment, net$864,200
 $882,695
$820,315
 $882,695

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 remaining ground component of construction in progress represents costs (including capitalized interest) associated with the Company's contracts primarily with Hughes Network Systems, LLC (“Hughes”) and Ericsson Inc. (“Ericsson”)incurred for assets to upgrade the Company's ground infrastructure in certain regions around the world. These gateway assets will be deployed based on coverage optimization. In January 2019, the Company completed technology upgrades to allow customers to use Sat-Fi2TM® in certain areas of Latin America. Accordingly, it placed into service approximately $7.9 million of construction in progress (including capitalized interest) related to the deployment of two RANs to this region.region during 2019. The ground component of construction in progress also includes costs (including capitalized interest) associated with the Company's contract for the procurement and production of new gateway antennas.

Additionally, during the first quarter of 2019, a portion of internally developed and purchased software assets that were previously placed into service reached the end of their depreciable life. Accordingly, these assets were retired, which drove the decrease in the table above.



Amounts included in the Company’s second-generation satellite, on-ground spare balance as of March 31,September 30, 2019 and December 31, 2018, 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,September 30, 2019, this satellite has not been placed into service; therefore, the Company has not started to record depreciation expense.
  


5. LONG-TERM DEBT AND OTHER FINANCING ARRANGEMENTS 
 
Long-term debt consists of the following (in thousands): 
March 31, 2019 December 31, 2018September 30, 2019 December 31, 2018
Principal
Amount
 Unamortized Discount and Deferred Financing Costs 
Carrying
Value
 
Principal
Amount
 Unamortized Discount and Deferred Financing Costs 
Carrying
Value
Principal
Amount
 Unamortized Discount and Deferred Financing Costs 
Carrying
Value
 
Principal
Amount
 Unamortized Discount and Deferred Financing Costs 
Carrying
Value
Facility Agreement$389,390
 $22,115
 $367,275
 $389,390
 $24,355
 $365,035
$341,955
 $17,771
 $324,184
 $389,390
 $24,355
 $365,035
Subordinated Loan Agreement64,423
 110
 64,313
 
 
 
Loan Agreement with Thermo123,329
 21,695
 101,634
 119,702
 22,665
 97,037
131,046
 19,640
 111,406
 119,702
 22,665
 97,037
8.00% Convertible Senior Notes Issued in 20131,379
 
 1,379
 1,379
 
 1,379
1,394
 
 1,394
 1,379
 
 1,379
Total Debt514,098
 43,810
 470,288
 510,471
 47,020
 463,451
538,818
 37,521
 501,297
 510,471
 47,020
 463,451
Less: Current Portion96,249
 
 96,249
 96,249
 
 96,249
98,829
 
 98,829
 96,249
 
 96,249
Long-Term Debt$417,849
 $43,810
 $374,039
 $414,222
 $47,020
 $367,202
$439,989
 $37,521
 $402,468
 $414,222
 $47,020
 $367,202

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 and the total outstanding balance of the Company's 8.00% Convertible Senior Notes Issued in 2013 (the "2013 8.00% Notes") based on the put and call features in these notes. The Company believes that the principal payments due in June and December 2019 and June 2020 under the Facility Agreement will be in excess of its available sources of cash in order to also maintain compliance with the required balance in the debt service reserve account. The Company intends to raise funds in sufficient amounts to meet its obligations or, alternatively, seekis currently negotiating an amendment to or refinancing of these debt obligations; however, the source of fundsdefinitive documentation for such amendment has not yet been arranged nor have the terms of any such amendment or refinancing been determined.executed.
 
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, August 2015 and June 2017.

The Facility Agreement is scheduled to mature in December 2022. As of March 31,September 30, 2019, the Facility Agreement was fully drawn. Semi-annual principal repayments began in December 2014. Indebtedness under the facilityFacility Agreement bears interest at a floating rate of LIBOR plus 3.75% through June 2019, increasinga margin that increases by an additional 0.5% each year thereafter to a maximum rate of LIBOR plus 5.75%. For the twelve-month period ended June 30, 2019, this rate was LIBOR plus 3.75%. This margin increased to 4.25% on July 1, 2019. Interest on the Facility Agreement is payable semi-annually in arrears on June 30 and December 31 of each calendar year. Ninety-five percent of the Company’s obligations under the Facility Agreement are guaranteed by Bpifrance Assurance Export S.A.S. (“BPIFAE”) (formerly 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. Additionally, the Company has a required reserve being held with its credit card processor to address any liability arising from potential charge-backs given the growth in both volume and amount of the Company's annual service subscriptions, among other factors. The Company is in the process of transitioning to an alternative credit card processor and expects that the total cash required to be withheld will decrease to $5.0 million by the third quarter of 2019 and remain at approximately this level. The Company is in discussions with its senior lenders to evaluate if this reserve impacts the terms of the Facility Agreement.



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 December 2019. If the Company violates any 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 when due 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. The Company anticipates that it will needneeded an Equity Cure Contribution to maintain compliance with financial covenants under the Facility Agreement for the measurement periodsperiod ended June 30, 2019, andwhich it obtained through the Subordinated Loan Agreement. The Company anticipates that it will also need an Equity Cure Contribution to maintain compliance with financial covenants for the measurement period ended December 31, 2019, subject to the provisions of the Facility Agreement. The source of funds for thesethis Equity Cure ContributionsContribution has not yet been arranged. Additionally, the Company may not be in compliance with financial covenants for the measurement period June 30, 2020, and the Facility Agreement would not permit an Equity Cure Contribution at that time. As discussed above, the Company is actively working to amend the terms of the Facility Agreement, which is expected to include an extension of the Company's ability to use Equity Cure Contributions; however, the terms of any such amendment have not been finalized. As of March 31,September 30, 2019, the Company was in compliance with respect to the covenants of the Facility Agreement, except for one matter. The agent to the lenders of the Facility Agreement recently notifiedthat the Company that they believe it hadand its lenders are currently discussing whether or not compliedthe Company was in compliance with a certain administrative provisioncovenants, including primarily related to treasury processes required within the FacilityAccounts Agreement. The Company believesexpects these items will be resolved as part of the amendment that it has remedied any noncompliance within the allowed cure period in order to avoid an event of default.is currently being negotiated.

The Facility Agreement also requires the Company to maintain a debt service reserve account, which is pledged to secure all of the Company's obligations under the Facility Agreement. The use of the debt service reserve account funds is restricted to making principal and interest payments under the Facility Agreement. The balance in the debt service reserve account must equal at least the total amount of principal and interest payable by the Company on the next payment date. As of March 31,September 30, 2019, the balance in the debt service reserve account was $60.6$59.1 million and the balance in the equity proceeds account, that is also required to be used for obligations under the Facility Agreement, was $2.1 million, both of which are classified as restricted cash on the Company's condensed consolidated balance sheet.

In June 2019, the Company and the Lenders under the Facility Agreement reached an agreement in principal, which provides for the amendment of the Facility Agreement. We are currently negotiating the terms of the amendment, which is subject to final definitive documentation and customary closing requirements and conditions. The amendment provides primarily for (i) prepayment of the next three scheduled principal payments primarily using proceeds from a new second lien term loan facility, (ii) revisions to the remaining repayment schedule to reduce the amount of scheduled payments of principal required prior to maturity, and (iii) a reset of financial covenant levels together with an extension of the availability of the cure mechanism under the Facility Agreement. The Company cannot provide assurance that the amendment will be completed or that we will be able to obtain the second lien term loan facility.

Subordinated Loan

On July 2, 2019, the Company entered into a Subordinated Loan Agreement (the “Subordinated Loan Agreement”), effective as of June 28, 2019, with Thermo Funding Company LLC (an affiliated entity to Thermo), and certain unaffiliated parties (together with Thermo, the “Lenders”). Under the Subordinated Loan Agreement, the Lenders lent $62.0 million to the Company on June 28, 2019 for the primary purpose of funding the June 30, 2019 scheduled payment of interest and principal under the Company’s Facility Agreement and for certain other purposes. The loans under the Subordinated Loan Agreement qualified as an Equity Cure Contribution under the Facility Agreement. Globalstar’s indebtedness to the Lenders is subordinated to all obligations of the Company under the Facility Agreement. Thermo has agreed to subordinate the Company’s obligations to it under the Loan Agreement to the Company’s obligations under the Subordinated Loan Agreement.

The Subordinated Loan Agreement accrues interest at 15% per annum, which is capitalized and added to the outstanding principal in lieu of cash payments. Payments to the Lenders will be made only when permitted under the Facility Agreement. The Subordinated Loan Agreement becomes due and payable on December 31, 2023, or upon any acceleration of the maturity of the Subordinated Loan Agreement. As of September 30, 2019, $2.4 million of interest had accrued with respect to the Subordinated Loan Agreement; the Subordinated Loan Agreement is included in long-term debt on the Company’s condensed consolidated balance sheet.



The Subordinated Loan Agreement also contains an affirmative covenant requiring the Company to use reasonable best efforts to either (i) refinance its obligations under the Facility Agreement and the Subordinated Loan Agreement in full or (ii) refinance its obligations under the Subordinated Loan Agreement and obtain a corresponding amendment of the Facility Agreement to permit such refinancing. In addition, in the event the Company’s obligations under the Subordinated Loan Agreement have not been refinanced within 150 days of the date of the Subordinated Loan Agreement, the Company is required to use its reasonable best efforts to issue and do all things to facilitate the issuance of registered warrants exercisable for shares of common stock in the Company to the Lenders in such amounts and on such terms and the Company and the Lenders shall agree. The 150 day deadline noted above is an extension of the original 120 day deadline provided in the Subordinated Loan Agreement.

The Company evaluated the affirmative covenant in the Subordinated Loan Agreement and determined that the warrants did not qualify as contingently issuable equity under ASC 815 as of September 30, 2019 because the definitive terms of such warrants were not agreed upon at the time the Subordinated Loan Agreement was executed.

The Company’s Board of Directors considered the Subordinated Loan Agreement and the related transactions and unanimously concluded that they constitute a “Permitted Financing” under Article Eleventh of the Second Amended and Restated Certificate of Incorporation of the Company.

Thermo Loan Agreement 

In connection with the amendment and restatement of the Facility Agreement in July 2013, the Company amended and restated its loan agreement with Thermo (the “Loan Agreement”). All obligations of the Company to Thermo under the Loan Agreement are subordinated to the Company’s obligations under the Facility Agreement. The Loan Agreement is convertible into shares of common stock at a conversion price of $0.69 (as adjusted) per share of common stock. Based on the terms of the Settlement Agreement (as defined and discussed further in Note 8: Contingencies), the outstanding debt under the Thermo Loan Agreement with Thermo will convert into shares of Globalstar common stock at the conversion price in place at the time of certain financing events described in the Settlement Agreement, if and when such events occur. The Company expects that Thermo will agree to voluntarily convert the principal balance outstanding under the Thermo Loan Agreement if the amendment to the Facility Agreement discussed above is completed.

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,September 30, 2019, $79.8$87.5 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 7: 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 Monte Carlo simulation model. If the principal balance under the Thermo Loan is converted as discussed above, any remaining debt discount and deferred financing costs would be written off through the statement of operations and the derivative liability would be marked-to-market at the conversion date and then extinguished through the statement of operations.

As previously disclosed, in connection with the Settlement Agreement discussed in Note 8: Contingencies, the Company formed a Strategic Review Committee that is required to remain in existence for as long as Thermo and its affiliates own and its affiliates beneficially own forty-five percent (45%) or more of Globalstar’s outstanding common stock. To the extent permitted by applicable law, the Strategic Review Committee will havehas exclusive responsibility for the oversight, review and approval of, among other things and subject to certain exceptions, any acquisition by Thermo and its affiliates of additional newly-issued securities of the


Company and any transaction between the Company and Thermo and its affiliates with a value in excess of $250,000. The approval of any of the foregoing transactions will require the vote of at least three membersa majority of the Strategic Review Committee.



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 $0.69 (as adjusted) per share of common stock. 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. 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. As of March 31,September 30, 2019, the 2013 8.00% Notes have not been redeemed by the Company. 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 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.

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 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,September 30, 2019, the Company was in compliance with the terms of the 2013 8.00% Notes and the Indenture. 

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) over a 40-consecutive trading day settlement period. As of March 31,September 30, 2019, holders had converted a total of $55.4 million principal amount of the 2013 8.00% Notes, resulting in the issuance of approximately 98.5 million shares of voting common stock.

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 recorded this compound embedded derivative liability as a liability on its condensed consolidated balance sheets with a corresponding debt discount which was netted against the face value of the 2013 8.00% Notes. See Note 6: Derivatives for further information.

6. 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 are 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, 2019 December 31, 2018September 30, 2019 December 31, 2018
Derivative liabilities: 
  
 
  
Compound embedded derivative with the 2013 8.00% Notes$(542) $(757)$(129) $(757)
Compound embedded derivative with the Loan Agreement with Thermo(89,315) (146,108)(4,456) (146,108)
Total derivative liabilities$(89,857) $(146,865)$(4,585) $(146,865)



 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 EndedThree Months Ended Nine Months Ended
March 31, 2019 March 31, 2018September 30, 2019 September 30, 2018 September 30, 2019 September 30, 2018
Compound embedded derivative with the 2013 8.00% Notes$215
 $1,321
$159
 $322
 628
 709
Compound embedded derivative with the Loan Agreement with Thermo56,793
 107,623
49,997
 38,737
 141,652
 145,235
Total derivative gain$57,008
 $108,944
$50,156
 $39,059
 $142,280
 $145,944

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.agreements, which mature in December 2019. 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. The value of the interest rate cap was approximately zero as of March 31,September 30, 2019 and December 31, 2018, respectively.

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 Loan Agreement with Thermo. The fair value of each embedded derivative liability is marked-to-market at the end of each reporting period, or more frequently as deemed necessary, with any changes in value reported in its condensed consolidated statements of operations and its condensed consolidated statements of cash flows as an operating activity. The Company determined the fair value of its compound embedded derivative liabilities using a Monte Carlo simulation model. See Note 7: Fair Value Measurements for further discussion. Consistent with the classification of the 2013 8.00% Notes on the Company's condensed consolidated balance sheet, the Company has classified the associated derivative liability as current on its condensed consolidated balance sheet at March 31,September 30, 2019.

7. FAIR VALUE MEASUREMENTS 

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

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

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

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



Recurring Fair Value Measurements 

The following tables provide a summary of the liabilities measured at fair value on a recurring basis (in thousands): 
March 31, 2019September 30, 2019
(Level 1) (Level 2) (Level 3) 
Total
 Balance
(Level 1) (Level 2) (Level 3) 
Total
 Balance
Compound embedded derivative with the 2013 8.00% Notes$
 $
 $(542) $(542)$
 $
 $(129) $(129)
Compound embedded derivative with the Loan Agreement with Thermo
 
 (89,315) (89,315)
 
 (4,456) (4,456)
Total liabilities measured at fair value$
 $
 $(89,857) $(89,857)$
 $
 $(4,585) $(4,585)
 
December 31, 2018December 31, 2018
(Level 1) (Level 2) (Level 3) 
Total
 Balance
(Level 1) (Level 2) (Level 3) 
Total
 Balance
Compound embedded derivative with the 2013 8.00% Notes$
 $
 $(757) $(757)$
 $
 $(757) $(757)
Compound embedded derivative with the Loan Agreement with Thermo
 
 (146,108) (146,108)
 
 (146,108) (146,108)
Total liabilities measured at fair value$
 $
 $(146,865) $(146,865)$
 $
 $(146,865) $(146,865)

Derivative Liabilities

The Company has two derivative liabilities classified as Level 3. The Company marks-to-market these liabilities at each reporting date, or more frequently as deemed necessary, with the changes in fair value recognized in the Company’s condensed consolidated statements of operations. See Note 6: Derivatives for further discussion. 

The significant quantitative Level 3 inputs utilized in the valuation models are shown in the tables below:
March 31, 2019September 30, 2019
Stock Price
Volatility
 
Risk-Free
Interest
Rate
 
Note
Conversion
Price
 Discount Rate Market Price of Common Stock
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% Notes40% - 110% 2.2% $0.69
 27% $0.43
70% - 130% 1.6% $0.69
 11% - 27%
 $0.41
Compound embedded derivative with the Loan Agreement with Thermo40% - 110% 2.2% $0.69
 27% $0.43
70% - 130% 1.6% $0.69
 27% $0.41
 
December 31, 2018December 31, 2018
Stock Price
Volatility
 
Risk-Free
Interest
Rate
 
Note
Conversion
Price
 Discount Rate Market Price of Common Stock
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% Notes40% - 120% 2.5% $0.69
 28% $0.64
40% - 120% 2.5% $0.69
 28% $0.64
Compound embedded derivative with the Loan Agreement with Thermo40% - 120% 2.5% $0.69
 28% $0.64
40% - 120% 2.5% $0.69
 28% $0.64

Fluctuation in the Company’s stock price is one of the primary drivers for the changes in the derivative valuations during each reporting period. The Company's stock price decreased 33%36% from December 31, 2018 to March 31,September 30, 2019. As the stock price decreases, the value to the holder of the instrument generally decreases, thereby decreasing the liability on the Company’s condensed consolidated balance sheets. Stock price volatility is another significant unobservable input 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. Increases in the assumed probability of a change of control in the short-term would generally result in a lower fair value measurement, while increases in the assumed probability of a change in control in the long-term would generally result in a higher fair value measurement. 

As previously discussed, the Company is actively working on a refinancing of its debt obligations. A refinancing may result in the conversion of certain outstanding loan agreements. The potential conversion of both the Thermo Loan Agreement and the 2013 8.00% Notes was modeled based on a probability assessment of each financing scenario and, accordingly, was included in the valuation of the associated compound embedded derivatives as of September 30, 2019. These assumptions resulted in a reduction of the derivative valuations during the three and nine months ended September 30, 2019.

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 Loan Agreement with Thermo included the following inputs and features: payment-in-kind interest payments, make-whole premiums, a 40-day stock issuance settlement period upon conversion, estimated maturity date, and the principal balance of each loan at the balance sheet date. There are also certain put and call features, as well as potential redemptions by the Company, within the 2013 8.00% Notes that impact the valuation model.

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,Three Months Ended September 30, Nine Months Ended September 30,
2019 20182019 2018 2019 2018
Balance at beginning of period$(146,865) $(227,985)$(54,741) $(121,100) $(146,865) $(227,985)
Unrealized gain, included in derivative gain57,008
 108,944
50,156
 39,059
 142,280
 145,944
Balance at end of period$(89,857) $(119,041)$(4,585) $(82,041) $(4,585) $(82,041)

Fair Value of Debt Instruments

The Company believes it is not practicable to determine the fair value of the Facility Agreement without incurring significant additional costs. 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. 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, 2019 December 31, 2018September 30, 2019 December 31, 2018
Carrying Value Estimated Fair Value Carrying Value Estimated Fair ValueCarrying Value Estimated Fair Value Carrying Value Estimated Fair Value
Loan Agreement with Thermo$101,634
 $74,182
 $97,037
 $67,452
$111,406
 $83,686
 $97,037
 $67,452
2013 8.00% Notes1,379
 778
 1,379
 734
1,394
 837
 1,379
 734

8. CONTINGENCIES 



Securities Claim

As previously disclosed, onOn September 25, 2018, a shareholder action was filed against Globalstar, Inc. (the "Company:"Company" or "Globalstar"), members of the Board of Directors, Thermo Companies, Inc., and certain members of Globalstar management in the Court of Chancery of the State of Delaware (the "Court"), captioned Mudrick Capital Management, LP, et al. v. Monroe, et al., C.A. No. 2018-0699-TMR (the "Action"). As previously disclosed, on December 14, 2018, all parties to the Action, including plaintiffs Mudrick Capital Management, L.P. (“Mudrick Capital”) and Warlander Asset Management (“Warlander”, and, together with Mudrick Capital, the “Plaintiffs”), entered into a stipulation and agreement of settlement, compromise and release of stockholder derivative action (the “Settlement Agreement”) to settle all claims asserted against all defendants in the Action.

The Settlement Agreement is subject to approval byOn September 5, 2019, the Court of Chancery of the State of Delaware which held a hearing on April 1, 2019. The Company expects the Court to approveapproved the Settlement Agreement and awarded to the Plaintiffs' attorneys a fee of $4.5 million, inclusive of expenses. Payment of the fee award is currently awaiting its decision.due after the Court's order and judgment became final in November 2019.

In connection withAs of September 30, 2019, the Action described above, the Plaintiffs' claims for monetary relief fromPlaintiff's award was not paid, and, accordingly, the Company are now limited to attorneys' fees and expenses incurred in connection with and related to pursuing the Action, as well as in connection with and


related to a shareholder demand to inspect certain of the Company's books and records and a lawsuit seeking to enforce that demand. The Company evaluated the facts and circumstances under applicable accounting guidance and determined that a loss with respect to such Plaintiffs' attorneys' fees and costs is probable and reasonably estimable. In accordance with ASC 450, as of March 31, 2019, the Company estimated a range of loss and recorded a reserve based on the low end of the range, as there were no facts and circumstances to support a different point in the range. The Company accrued the total estimated loss of $3.0$4.5 million which is recorded as a current liability on the Company'sits condensed consolidated balance sheet and recorded in marketing, general and administrative expenses on the Company’s condensed consolidated statement of operations.

These estimated losses,sheet. This settlement award, as well as other costs incurred by the Company directly associated with the Action, exceeded the Company's retention limit of $1.5 million for a "securities claim" under its directors and officers insurance policy. According to ASC 450, a recovery related to a contingent loss (e.g., insurance recovery) is a contingent gain. Recovery of a recorded contingent loss shall be recognized only when realization of the recovery is deemed probable and reasonably estimable. The Company believes it is probable that any losses in excess of the Company's retention limit will be covered under the terms of its insurance policy. Accordingly, the Company has recorded a receivable of $3.1$4.8 million, which includes the $4.5 million settlement fee and certain other costs in excess of the Company's retention, as of September 30, 2019. The Company expects that this amount will be paid by its primary insurance provider in November 2019. The Company believes it is probable that its remaining costs will also be paid by the Company's insurance provider. This remaining uncollected amount is a contingent gain which would be recognized when realizable.

Tariff Ruling

In September 2019, U.S Customs and Border Protection ("CBP") issued a ruling related to the classification of certain of the Company's core products imported from China. This classification, which carries 25% tariffs upon import, is inconsistent with the classification the Company previously used based on external legal advice. As a result of the CBP ruling, during the third quarter of 2019, the Company recorded a payable of approximately $1.8 million in accrued expenses on the Company's condensed consolidated balance sheet related to goods imported from China from July 6, 2018 through September 30, 2019. Of the total amount accrued as of September 30, 2019, $0.9 million was associated with inventory sold since July 2018, thereby negatively impacting cost of subscriber equipment sales during the three months ended September 30, 2019. Of the remaining $0.9 million, $0.5 million was recorded as an increase to inventory as the goods have not yet been sold and $0.4 million was recorded as an offsetting reductionreceivable because the Company believes this amount, which represents the portion of duties owed for equipment transferred to marketing, generalforeign subsidiaries for sale, is recoverable as a duty drawback.

The Company plans on filing a protest against this ruling to challenge the classification and administrative expenses duringreduce the quarter ended March 31, 2019.amounts owed. The Company cannot provide any assurance that it may be successful in achieving a favorable outcome; as such, the Company is accounting for this matter as a gain contingency and may record any such gain from a reimbursement or change in ruling in future periods if and when the contingency is resolved.

Business Economic Loss Claim

In May 2018, the Company concluded the settlement of a business economic loss claim in which it was an absent member in a tort class action lawsuit. The Company is due proceeds of $7.4 million, net of legal fees, related to this settlement. The Company received the first installment of $3.7 million in January 2019. The second and final installment of $3.7 million is expected to be received in January 2020 and is recorded in prepaid expenses and other current assets on the Company's condensed consolidated balance sheet at March 31,September 30, 2019. The Company evaluated the facts and circumstances surrounding this settlement and determined that under ASC 450, this contingent gain was considered realizable as the signed settlement was enforceable, the counterparty had the wherewithal to pay the amount and the proceeds met the definition of an asset. During the second quarter of 2018, the Company recorded the present value of the proceeds of $6.8 million and a discount of $0.6 million. The present value of the net proceeds of $6.8 million was recorded in other income on the Company's condensed consolidated statement of operations. The discount of $0.6 million was recorded on the Company's condensed consolidated balance sheet and is being accreted to interest income over the term of the receivable using the effective interest method.



Other Litigation

Due to the nature of the Company's business, the Company is involved, from time to time, in various litigation matters or subject to disputes or routine claims regarding its business activities. Legal costs related to these matters are expensed as incurred.

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

9. RELATED PARTY TRANSACTIONS  

Payables to Thermo and other affiliates related to normal purchase transactions were $0.2$0.4 million and $0.7 million as of March 31,September 30, 2019 and December 31, 2018, respectively. The fluctuation in this payable is related to the timing of payment of expenses incurred by Thermo on behalf of the Company.

Transactions with Thermo 

Certain general and administrative expenses are incurred by Thermo on behalf of the Company. These expenses, which include non-cash expenses that the Company accounts for as a contribution to capital, related to services provided by certain executive officers of Thermo and expenses incurred by Thermo on behalf of the Company which are charged to the Company. The expenses charged are based on actual amounts (with no mark-up) incurred by Thermo or upon allocated employee time. The expenses charged to the Company were $0.4$0.1 million and $0.2 million during the three month periodsmonths ended March 31,September 30, 2019 and 2018, respectively, and $0.3 million and $0.6 million during the nine months ended September 30, 2019 and 2018, respectively.

Additionally, in February 2019, the Company entered into a lease agreement with Thermo Covington, LLC for the Company's new headquarters office. Annual lease payments for the new location will be $1.4 million per year, increasing at a rate of 2.5% per year, for a lease term of ten years. During the three and nine months ended March 31,September 30, 2019, the Company incurred lease expensesexpense of $0.3$0.5 million and $1.3 million due to Thermo under this lease agreement.

As of March 31,September 30, 2019, the principal amount outstanding under the Loan Agreement with Thermo was $123.3$131.0 million, and the fair value of the compound embedded derivative liability associated with the Loan Agreement was $89.3$4.5 million. During the three months ended March 31,September 30, 2019 and 2018, interest accrued on the Loan Agreement was approximately $3.6$3.9 million and $3.2$3.5 million, respectively. During the nine months ended September 30, 2019 and 2018, interest accrued on the Loan Agreement was approximately $11.3 million and $10.0 million, respectively.


On July 2, 2019, the Company entered into a Subordinated Loan Agreement, effective June 28, 2019, with Thermo and certain unaffiliated parties. Thermo's participation in the Subordinated Loan Agreement was $53.8 million. As of September 30, 2019, $2.1 million of interest had accrued with respect to Thermo's portion of the Subordinated Loan Agreement.

On April 24, 2018, Globalstar entered into the Merger Agreement with GBS Acquisitions, Inc., a Delaware corporation and wholly owned subsidiary of Globalstar (“Merger Sub”), Thermo Acquisitions, Inc., a Delaware corporation (“Thermo Acquisitions”), the stockholders of Thermo Acquisitions (collectively, the “Thermo Stockholders,” and each, individually, a “Thermo Stockholder”), and Thermo Development, Inc., in its capacity as the representative of the Thermo Stockholders as set forth therein (the “Stockholders’ Representative”). Thermo Acquisitions is controlled by James Monroe III, Executive Chairman of the Board of Directors of Globalstar and former Chief Executive Officer of Globalstar. Pursuant to the terms of the Merger Agreement, Merger Sub would merge with and into Thermo Acquisitions with Thermo Acquisitions continuing as the surviving corporation and a wholly owned subsidiary of Globalstar (the “Merger”). The transaction was unanimously recommended by the Special Committee of the Board of Directors of Globalstar, consisting entirely of disinterested independent directors, and unanimously approved by the full Board of Directors. On July 31, 2018, Globalstar, following the unanimous recommendation of its Special Committee of independent directors, and the Stockholders’ Representative, terminated the Merger Agreement by mutual written agreement by entering into a Termination of Agreement and Plan of Merger, between Globalstar and the Stockholders’ Representative. In addition, on July 31, 2018, the Voting Agreement between Globalstar and certain of its stockholders terminated in accordance with its terms as a result of the termination of the Merger Agreement. No termination fees are payable in connection with the termination of the Merger Agreement.

As previously disclosed, in connection with the Settlement Agreement discussed in Note 8: Contingencies, the Company formed a Strategic Review Committee that is required to remain in existence for as long as Thermo and its affiliates own and its affiliates beneficially own forty-five percent (45%) or more of Globalstar’s outstanding common stock. To the extent permitted by applicable law, the Strategic Review Committee will have exclusive responsibility for the oversight, review and approval of, among other things and subject to certain exceptions, any acquisition by Thermo and its affiliates of additional newly-issued securities of the Company and any


transaction between the Company and Thermo and its affiliates with a value in excess of $250,000. The approval of any of the foregoing transactions will require the vote of at least three membersa majority of the Strategic Review Committee.

See Note 5: Long-Term Debt and Other Financing Arrangements for further discussion of the Company's debt and financing transactions with Thermo.



10. EARNINGS (LOSS) PER SHARE 

Basic earnings (loss) per share is computed by dividing income (loss) available to common stockholders by the weighted average number of shares of common stock outstanding during the period. The numerator includes the effect of dilutive securities, including interest expense, net, and derivative gains or losses reflected in net income (loss). During the third quarter of 2019, the Company identified a misapplication of GAAP in the previously reported calculation of net income (loss) attributable to common stockholders in the numerator of diluted EPS for certain prior periods. The correction of this calculation had no impact on net income (loss), retained deficit or any other financial statement line items. For comparative purposes, prior period calculations of diluted EPS have been adjusted to conform to current period presentation. Common stock equivalents are included in the calculation of diluted earnings per share only when the effect of their inclusion would be dilutive. Potentially dilutive securities include primarily outstanding stock-based awards, convertible notes and shares issuable pursuant to the Company's Employee Stock Purchase Plan. The share amounts for dilutive securities that are reflected in the table below are shown regardless of being in or out of the money.

The following table sets forth the calculation of basic and diluted earnings (loss) per share and reconciles basic weighted average shares to diluted weighted average shares of common stock outstanding for the periods indicated (in thousands):
Three Months Ended 
 March 31,
Three Months Ended September 30, Nine Months Ended September 30,
2019 20182019 2018 2019 2018
Net income$25,771
 $87,930
$21,111
 $9,019
 $53,071
 $89,937
Effect of dilutive securities:          
2013 8.00% Notes27
 15
(132) (294) (548) (643)
Loan Agreement with Thermo4,497
 2,396
(45,205) (34,350) (127,743) (134,979)
Income to common stockholders plus assumed conversions$30,295
 $90,341
Loss to common stockholders plus assumed conversions$(24,226) $(25,625) $(75,220) $(45,685)
Weighted average common shares outstanding:          
Basic shares outstanding1,448,318
 1,262,336
1,451,703
 1,264,516
 1,450,146
 1,263,416
Incremental shares from assumed exercises, conversions and other issuance of:          
Stock options, restricted stock, restricted stock units and ESPP3,204
 5,639
4,089
 2,370
 5,179
 5,661
2013 8.00% Notes1,998
 2,065
2,021
 1,867
 2,021
 2,087
Loan Agreement with Thermo178,737
 167,288
189,921
 159,047
 189,921
 177,756
Diluted shares outstanding1,632,257
 1,437,328
1,647,734
 1,427,800
 1,647,267
 1,448,920
Net income per share:   
Net income (loss) per share:       
Basic$0.02
 $0.07
$0.01
 $0.01
 $0.04
 $0.07
Diluted0.02
 0.06
(0.01) (0.02) (0.05) (0.03)




11. 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,September 30, 2019


(Unaudited)  
Parent
Company
 
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 Eliminations Consolidated
Parent
Company
 
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 Eliminations Consolidated
(In thousands)(In thousands)
Revenue: 
  
  
  
  
 
  
  
  
  
Service revenue$21,937
 $9,582
 $15,129
 $(20,529) $26,119
$21,493
 $13,173
 $19,767
 $(20,281) $34,152
Subscriber equipment sales302
 3,486
 1,501
 (1,330) 3,959
462
 4,354
 1,678
 (2,032) 4,462
Total revenue22,239
 13,068
 16,630
 (21,859) 30,078
21,955
 17,527
 21,445
 (22,313) 38,614
Operating expenses: 
  
  
  
  
 
  
  
  
  
Cost of services (exclusive of depreciation, amortization, and accretion shown separately below)7,015
 1,449
 2,891
 (1,502) 9,853
6,555
 1,645
 2,238
 (1,222) 9,216
Cost of subscriber equipment sales223
 3,066
 1,188
 (1,328) 3,149
217
 4,890
 1,406
 (2,031) 4,482
Marketing, general and administrative7,124
 1,301
 22,210
 (19,029) 11,606
8,522
 1,371
 22,063
 (19,061) 12,895
Depreciation, amortization and accretion23,195
 17
 589
 
 23,801
23,371
 17
 638
 
 24,026
Total operating expenses37,557
 5,833
 26,878
 (21,859) 48,409
38,665
 7,923
 26,345
 (22,314) 50,619
Income (loss) from operations(15,318) 7,235
 (10,248) 
 (18,331)(16,710) 9,604
 (4,900) 1
 (12,005)
Other income (expense): 
  
  
  
  
 
  
  
  
  
Interest income and expense, net of amounts capitalized(12,864) (4) (2) 
 (12,870)(14,445) (5) (21) 
 (14,471)
Derivative gain57,008
 
 
 
 57,008
50,156
 
 
 
 50,156
Equity in subsidiary earnings (loss)(2,933) (4,634) 
 7,567
 
2,761
 (3,427) 
 666
 
Other(122) 187
 (73) (1) (9)(651) 200
 (2,075) (3) (2,529)
Total other income41,089
 (4,451) (75) 7,566
 44,129
Total other income (expense)37,821
 (3,232) (2,096) 663
 33,156
Income (loss) before income taxes25,771
 2,784
 (10,323) 7,566
 25,798
21,111
 6,372
 (6,996) 664
 21,151
Income tax expense
 7
 20
 
 27

 7
 33
 
 40
Net income (loss)$25,771
 $2,777
 $(10,343) $7,566
 $25,771
$21,111
 $6,365
 $(7,029) $664
 $21,111
Comprehensive income (loss)$25,771
 $2,777
 $(10,607) $7,560
 $25,501
$21,111
 $6,365
 $(6,017) $674
 $22,133


Globalstar, Inc.
Condensed Consolidating Statement of Operations
Three Months Ended March 31,September 30, 2018
(Unaudited)
 
Parent
Company
 
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 Eliminations Consolidated
 (In thousands)
Revenue:   
  
  
  
Service revenue$20,534
 $9,074
 $15,608
 $(19,206) $26,010
Subscriber equipment sales47
 2,049
 1,196
 (553) 2,739
Total revenue20,581
 11,123
 16,804
 (19,759) 28,749
Operating expenses: 
  
  
  
  
Cost of services (exclusive of depreciation, amortization, and accretion shown separately below)6,257
 1,390
 2,868
 (1,486) 9,029
Cost of subscriber equipment sales41
 1,810
 875
 (554) 2,172
Marketing, general and administrative7,085
 1,064
 20,863
 (17,737) 11,275
Depreciation, amortization and accretion19,044
 96
 91
 
 19,231
Total operating expenses32,427
 4,360
 24,697
 (19,777) 41,707
Income (loss) from operations(11,846) 6,763
 (7,893) 18
 (12,958)
Other income (expense): 
  
  
  
  
Loss on extinguishment of debt
 
 
 
 
Interest income and expense, net of amounts capitalized(7,386) (2) 14
 21
 (7,353)
Derivative gain108,944
 
 
 
 108,944
Equity in subsidiary earnings (loss)(1,320) (3,387) 
 4,707
 
Other(462) (176) (8) (16) (662)
Total other income99,776
 (3,565) 6
 4,712
 100,929
Income (loss) before income taxes87,930
 3,198
 (7,887) 4,730
 87,971
Income tax expense
 6
 35
 
 41
Net income (loss)$87,930
 $3,192
 $(7,922) $4,730
 $87,930
Comprehensive income (loss)$87,930
 $3,192
 $(8,246) $4,724
 $87,600
 
Parent
Company
 
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 Eliminations Consolidated
 (In thousands)
Revenue:   
  
  
  
Service revenue$22,750
 $11,627
 $16,915
 $(21,394) $29,898
Subscriber equipment sales260
 5,144
 1,695
 (1,305) 5,794
Total revenue23,010
 16,771
 18,610
 (22,699) 35,692
Operating expenses: 
  
  
  
  
Cost of services (exclusive of depreciation, amortization, and accretion shown separately below)6,825
 1,556
 2,429
 (1,381) 9,429
Cost of subscriber equipment sales176
 4,259
 1,297
 (1,306) 4,426
Marketing, general and administrative10,706
 1,468
 22,911
 (20,024) 15,061
Depreciation, amortization and accretion25,041
 52
 (355) 
 24,738
Total operating expenses42,748
 7,335
 26,282
 (22,711) 53,654
Income (loss) from operations(19,738) 9,436
 (7,672) 12
 (17,962)
Other income (expense): 
  
  
  
  
Interest income and expense, net of amounts capitalized(13,360) (5) 7
 
 (13,358)
Derivative gain39,059
 
 
 
 39,059
Equity in subsidiary earnings (loss)3,170
 (2,571) 
 (599) 
Other(112) 23
 1,431
 (11) 1,331
Total other income (expense)28,757
 (2,553) 1,438
 (610) 27,032
Income (loss) before income taxes9,019
 6,883
 (6,234) (598) 9,070
Income tax expense
 5
 46
 
 51
Net income (loss)$9,019
 $6,878
 $(6,280) $(598) $9,019
Comprehensive income (loss)$9,019
 $6,878
 $(5,906) $(472) $9,519
 



Globalstar, Inc.
Condensed Consolidating Statement of Operations
Nine Months Ended September 30, 2019
(Unaudited)
 Parent
Company
 Guarantor
Subsidiaries
 Non-
Guarantor
Subsidiaries
 Eliminations Consolidated
 (In thousands)
Revenue: 
  
  
  
  
Service revenue$66,485
 $32,067
 $50,880
 $(62,461) $86,971
Subscriber equipment sales1,163
 11,592
 4,754
 (4,597) 12,912
Total revenue67,648
 43,659
 55,634
 (67,058) 99,883
Operating expenses: 
  
  
  
  
Cost of services (exclusive of depreciation, amortization, and accretion shown separately below)20,571
 4,472
 7,325
 (3,904) 28,464
Cost of subscriber equipment sales708
 11,282
 3,813
 (4,594) 11,209
Marketing, general and administrative22,297
 3,928
 67,861
 (58,563) 35,523
Depreciation, amortization and accretion69,721
 20
 1,938
 
 71,679
Total operating expenses113,297
 19,702
 80,937
 (67,061) 146,875
Income (loss) from operations(45,649) 23,957
 (25,303) 3
 (46,992)
Other income (expense): 
  
  
  
  
Interest income and expense, net of amounts capitalized(40,101) (12) (36) 
 (40,149)
Derivative gain142,280
 
 
 
 142,280
Gain on legal settlement120
 
 
 
 120
Equity in subsidiary earnings (loss)(2,452) (12,050) 
 14,502
 
Other(1,127) 327
 (1,258) (6) (2,064)
Total other income (expense)98,720
 (11,735) (1,294) 14,496
 100,187
Income (loss) before income taxes53,071
 12,222
 (26,597) 14,499
 53,195
Income tax expense
 33
 91
 
 124
Net income (loss)$53,071
 $12,189
 $(26,688) $14,499
 $53,071
Comprehensive income (loss)$53,071
 $12,189
 $(26,436) $14,501
 $53,325



Globalstar, Inc.
Condensed Consolidating Statement of Operations
Nine Months Ended September 30, 2018
(Unaudited)
 Parent
Company
 Guarantor
Subsidiaries
 Non-
Guarantor
Subsidiaries
 Eliminations Consolidated
 (In thousands)
Revenue: 
  
  
  
  
Service revenue$66,554
 $30,993
 $48,929
 $(62,573) $83,903
Subscriber equipment sales511
 12,541
 4,266
 (3,054) 14,264
Total revenue67,065
 43,534
 53,195
 (65,627) 98,167
Operating expenses: 
  
  
  
  
Cost of services (exclusive of depreciation, amortization, and accretion shown separately below)19,827
 4,444
 7,591
 (3,878) 27,984
Cost of subscriber equipment sales382
 10,350
 3,091
 (3,055) 10,768
Marketing, general and administrative29,173
 3,989
 67,852
 (58,734) 42,280
Revision to contract termination charge(20,478) 
 
 
 (20,478)
Depreciation, amortization and accretion65,434
 216
 935
 
 66,585
Total operating expenses94,338
 18,999
 79,469
 (65,667) 127,139
Income (loss) from operations(27,273) 24,535
 (26,274) 40
 (28,972)
Other income (expense): 
  
  
  
  
Interest income and expense, net of amounts capitalized(31,081) (9) 24
 50
 (31,016)
Derivative gain145,944
 
 
 
 145,944
Gain on legal settlement6,779
 
 
 
 6,779
Equity in subsidiary earnings (loss)(3,950) (12,199) 
 16,149
 
Other(482) 140
 (2,302) (38) (2,682)
Total other income (expense)117,210
 (12,068) (2,278) 16,161
 119,025
Income (loss) before income taxes89,937
 12,467
 (28,552) 16,201
 90,053
Income tax expense
 21
 95
 
 116
Net income (loss)$89,937
 $12,446
 $(28,647) $16,201
 $89,937
Comprehensive (loss) income$89,937
 $12,446
 $(25,945) $16,299
 $92,737




Globalstar, Inc.
Condensed Consolidating Balance Sheet
As of March 31,September 30, 2019 
(Unaudited)
 
Parent
Company
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 Eliminations Consolidated
Parent
Company
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 Eliminations Consolidated
(In thousands)(In thousands)
ASSETS 
  
  
  
  
 
  
  
  
  
Current assets: 
  
  
  
  
 
  
  
  
  
Cash and cash equivalents$9,860
 $281
 $3,632
 $
 $13,773
$22,238
 $159
 $3,828
 $
 $26,225
Restricted cash60,574
 
 
 
 60,574
61,224
 
 
 
 61,224
Accounts receivable, net of allowance7,931
 7,429
 4,677
 
 20,037
7,067
 8,697
 5,145
 
 20,909
Intercompany receivables1,051,185
 823,295
 68,438
 (1,942,918) 
1,085,038
 860,279
 90,528
 (2,035,845) 
Inventory7,290
 5,460
 1,665
 
 14,415
6,061
 9,023
 2,156
 
 17,240
Prepaid expenses and other current assets10,603
 9,111
 4,692
 
 24,406
11,269
 6,423
 3,224
 
 20,916
Total current assets1,147,443
 845,576
 83,104
 (1,942,918) 133,205
1,192,897
 884,581
 104,881
 (2,035,845) 146,514
Property and equipment, net833,129
 876
 30,191
 4
 864,200
790,615
 1,105
 28,591
 4
 820,315
Operating lease right of use assets, net12,436
 236
 1,915
 
 14,587
11,965
 217
 4,088
 
 16,270
Intercompany notes receivable5,674
 
 
 (5,674) 
5,674
 
 
 (5,674) 
Investment in subsidiaries(257,501) 45,744
 50,696
 161,061
 
(249,110) 42,618
 57,472
 149,020
 
Intangible and other assets, net29,104
 277
 3,547
 (12) 32,916
31,583
 246
 4,927
 (12) 36,744
Total assets$1,770,285
 $892,709
 $169,453
 $(1,787,539) $1,044,908
$1,783,624
 $928,767
 $199,959
 $(1,892,507) $1,019,843
LIABILITIES AND
STOCKHOLDERS’ EQUITY
 
  
  
  
  
 
  
  
  
  
Current liabilities: 
  
  
  
  
 
  
  
  
  
Current portion of long-term debt$96,249
 $
 $
 $
 $96,249
$98,829
 $
 $
 $
 $98,829
Accounts payable2,253
 2,851
 1,102
 
 6,206
1,683
 2,393
 943
 
 5,019
Accrued expenses19,453
 7,315
 7,825
 
 34,593
19,953
 9,699
 7,187
 
 36,839
Intercompany payables778,914
 827,358
 336,587
 (1,942,859) 
816,507
 849,900
 369,380
 (2,035,787) 
Payables to affiliates218
 
 
 
 218
353
 
 
 
 353
Derivative liabilities542
 
 ��
 
 542
129
 
 
 
 129
Deferred revenue1,650
 22,679
 7,156
 
 31,485
1,669
 20,673
 5,497
 
 27,839
Total current liabilities899,279
 860,203
 352,670
 (1,942,859) 169,293
939,123
 882,665
 383,007
 (2,035,787) 169,008
Long-term debt, less current portion374,039
 
 
 
 374,039
402,468
 
 
 
 402,468
Operating lease liabilities12,035
 201
 1,335
 
 13,571
11,602
 182
 3,374
 
 15,158
Employee benefit obligations4,541
 
 
 
 4,541
4,619
 
 
 
 4,619
Intercompany notes payable
 
 5,674
 (5,674) 

 
 5,674
 (5,674) 
Derivative liabilities89,315
 
 
 
 89,315
4,456
 
 
 
 4,456
Deferred revenue5,252
 243
 18
 
 5,513
5,080
 158
 23
 
 5,261
Other non-current liabilities449
 322
 2,490
 
 3,261
134
 322
 2,275
 
 2,731
Total non-current liabilities485,631
 766
 9,517
 (5,674) 490,240
428,359
 662
 11,346
 (5,674) 434,693
Stockholders’ equity (deficit)385,375
 31,740
 (192,734) 160,994
 385,375
416,142
 45,440
 (194,394) 148,954
 416,142
Total liabilities and stockholders’ equity$1,770,285
 $892,709
 $169,453
 $(1,787,539) $1,044,908
$1,783,624
 $928,767
 $199,959
 $(1,892,507) $1,019,843



Globalstar, Inc.
Condensed Consolidating Balance Sheet
As of December 31, 2018
(Unaudited)
 
Parent
Company
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 Eliminations Consolidated
Parent
Company
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 Eliminations Consolidated
(In thousands)(In thousands)
ASSETS 
  
  
  
  
 
  
  
  
  
Current assets: 
  
  
  
  
 
  
  
  
  
Cash and cash equivalents$11,312
 $2,126
 $1,774
 $
 $15,212
$11,312
 $2,126
 $1,774
 $
 $15,212
Restricted cash60,278
 
 
 
 60,278
60,278
 
 
 
 60,278
Accounts receivable, net of allowance7,138
 7,826
 4,363
 
 19,327
7,138
 7,826
 4,363
 
 19,327
Intercompany receivables1,047,320
 824,920
 105,819
 (1,978,059) 
1,047,320
 824,920
 105,819
 (1,978,059) 
Inventory6,747
 6,149
 1,378
 
 14,274
6,747
 6,149
 1,378
 
 14,274
Prepaid expenses and other current assets7,765
 2,987
 2,658
 
 13,410
7,765
 2,987
 2,658
 
 13,410
Total current assets1,140,560
 844,008
 115,992
 (1,978,059) 122,501
1,140,560
 844,008
 115,992
 (1,978,059) 122,501
Property and equipment, net850,790
 1,242
 30,658
 5
 882,695
850,790
 1,242
 30,658
 5
 882,695
Intercompany notes receivable5,600
 
 6,436
 (12,036) 
5,600
 
 6,436
 (12,036) 
Investment in subsidiaries(255,187) 42,481
 50,220
 162,486
 
(255,187) 42,481
 50,220
 162,486
 
Intangible and other assets, net36,275
 324
 3,698
 (11) 40,286
36,275
 324
 3,698
 (11) 40,286
Total assets$1,778,038
 $888,055
 $207,004
 $(1,827,615) $1,045,482
$1,778,038
 $888,055
 $207,004
 $(1,827,615) $1,045,482
LIABILITIES AND
STOCKHOLDERS’ EQUITY
 
  
  
  
  
 
  
  
  
  
Current liabilities: 
  
  
  
  
 
  
  
  
  
Current portion of long-term debt$96,249
 $
 $
 $
 $96,249
$96,249
 $
 $
 $
 $96,249
Accounts payable2,420
 3,378
 1,197
 
 6,995
2,420
 3,378
 1,197
 
 6,995
Accrued expenses8,904
 6,747
 7,434
 
 23,085
8,904
 6,747
 7,434
 
 23,085
Intercompany payables778,340
 832,284
 367,396
 (1,978,020) 
778,340
 832,284
 367,396
 (1,978,020) 
Payables to affiliates656
 
 
 
 656
656
 
 
 
 656
Derivative liabilities757
 
 
 
 757
757
 
 
 
 757
Deferred revenue1,699
 23,943
 6,296
 
 31,938
1,699
 23,943
 6,296
 
 31,938
Total current liabilities889,025
 866,352
 382,323
 (1,978,020) 159,680
889,025
 866,352
 382,323
 (1,978,020) 159,680
Long-term debt, less current portion367,202
 
 
 
 367,202
367,202
 
 
 
 367,202
Employee benefit obligations4,489
 ���
 
 
 4,489
4,489
 
 
 
 4,489
Intercompany notes payable6,436
 
 5,600
 (12,036) 
6,436
 
 5,600
 (12,036) 
Derivative liabilities146,108
 
 
 
 146,108
146,108
 
 
 
 146,108
Deferred revenue5,339
 335
 18
 
 5,692
5,339
 335
 18
 
 5,692
Other non-current liabilities494
 323
 2,549
 
 3,366
494
 323
 2,549
 
 3,366
Total non-current liabilities530,068
 658
 8,167
 (12,036) 526,857
530,068
 658
 8,167
 (12,036) 526,857
Stockholders’ equity (deficit)358,945
 21,045
 (183,486) 162,441
 358,945
358,945
 21,045
 (183,486) 162,441
 358,945
Total liabilities and stockholders’ equity$1,778,038
 $888,055
 $207,004
 $(1,827,615) $1,045,482
$1,778,038
 $888,055
 $207,004
 $(1,827,615) $1,045,482



Globalstar, Inc.
Condensed Consolidating Statement of Cash Flows
ThreeNine Months Ended March 31,September 30, 2019
(Unaudited)
 
Parent
Company
 
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 Eliminations Consolidated
Parent
Company
 
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 Eliminations Consolidated
(In thousands)(In thousands)
Cash flows provided by (used in) operating activities$1,145
 $(1,747) $1,927
 $
 $1,325
$4,521
 $(1,659) $3,182
 $
 $6,044
Cash flows used in investing activities: 
  
  
    
Cash flows provided by (used in) investing activities: 
  
  
    
Second-generation network costs (including interest)(779) 
 (14) 
 (793)(1,309) 
 (41) 
 (1,350)
Property and equipment additions(901) (98) (14) 
 (1,013)(3,068) (308) (104) 
 (3,480)
Investment in business155
 
 
 
 155
Purchase of intangible assets(428) 
 (27) 
 (455)(1,993) 
 (957) 
 (2,950)
Net cash used in investing activities(2,108) (98) (55) 
 (2,261)(6,215) (308) (1,102) 
 (7,625)
Cash flows provided by (used in) financing activities: 
  
  
  
  
 
  
  
  
  
Payments for debt and equity issuance costs(195) 
 
 
 (195)
Principal payments of the Facility Agreement(47,435) 
 
 
 (47,435)
Payments for financing costs(1,401) 
 
 
 (1,401)
Proceeds from Subordinated Loan Agreement62,000
 
 
 
 62,000
Proceeds from issuance of common stock and exercise of options and warrants2
 
 
 
 2
402
 
 
 
 402
Net cash used in financing activities(193) 
 
 
 (193)
Net cash provided by financing activities13,566
 
 
 
 13,566
Effect of exchange rate changes on cash, cash equivalents and restricted cash
 
 (14) 
 (14)
 
 (26) 
 (26)
Net increase (decrease) in cash, cash equivalents and restricted cash(1,156) (1,845) 1,858
 
 (1,143)11,872
 (1,967) 2,054
 
 11,959
Cash, cash equivalents and restricted cash, beginning of period71,590
 2,126
 1,774
 
 75,490
71,590
 2,126
 1,774
 
 75,490
Cash, cash equivalents and restricted cash, end of period$70,434
 $281
 $3,632
 $
 $74,347
$83,462
 $159
 $3,828
 $
 $87,449


 
Globalstar, Inc.
Condensed Consolidating Statement of Cash Flows
ThreeNine Months Ended March 31,September 30, 2018
(Unaudited)
 
Parent
Company
 
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 Eliminations Consolidated
Parent
Company
 
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 Eliminations Consolidated
(In thousands)(In thousands)
Cash flows provided by operating activities$5,920
 $3,805
 $107
 $
 $9,832
Cash flows provided by (used in) operating activities$11,458
 $7,412
 $898
 $
 $19,768
Cash flows used in investing activities: 
  
  
  
  
 
  
  
  
  
Second-generation network costs (including interest)(318) 
 (23) 
 (341)(4,629) 
 (1,258) 
 (5,887)
Property and equipment additions(1,216) (98) (83) 
 (1,397)(4,140) (900) (306) 
 (5,346)
Purchase of intangible assets(633) 
 (15) 
 (648)(1,904) 
 (44) 
 (1,948)
Net cash used in investing activities(2,167) (98) (121) 
 (2,386)(10,673) (900) (1,608) 
 (13,181)
Cash flows provided by financing activities:
 
 
 
 
Cash flows provided by (used in) financing activities:         
Principal payments of the Facility Agreement(38,933) 
 
 
 (38,933)
Proceeds from issuance of common stock and exercise of options and warrants395
 
 
 
 395
Net cash used in financing activities(38,538) 
 
 
 (38,538)
Effect of exchange rate changes on cash, cash equivalents and restricted cash
 
 (22) 
 (22)
 
 68
 
 68
Net increase (decrease) in cash, cash equivalents and restricted cash3,753
 3,707
 (36) 
 7,424
Net decrease in cash, cash equivalents and restricted cash(37,753) 6,512
 (642) 
 (31,883)
Cash, cash equivalents and restricted cash, beginning of period96,499
 4,942
 3,838
 
 105,279
96,499
 4,942
 3,838
 
 105,279
Cash, cash equivalents and restricted cash, end of period$100,252
 $8,649
 $3,802
 $
 $112,703
$58,746
 $11,454
 $3,196
 $
 $73,396
 


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, 2018, as filed with the Securities and Exchange Commission (the "SEC") on February 28, 2019 (the "2018 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 2018 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. We offer these services over our network of in-orbit satellites and our active ground stations (“gateways”), which we refer to collectively as the Globalstar System. In addition to supporting one-way IoT data transmissions in a variety of applications, we are also able to provide reliable connectivity 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. By providing wireless communications services across the globe, we are able to meet our customers' increasing desire for connectivity.

We currently provide the following communications services, which are available only with equipment designed to work on our network: 

two-way voice communication and data transmissions using mobile or fixed devices, including our GSP-1700 phone, our Globalstar 9600TM hotspot, two generations of our Sat-FiTM®, and other fixed and data-only devices ("Duplex");
one-way or two-way communication and data transmissions using mobile devices, including our SPOT family of products, such as SPOT XTM®, SPOT Gen3® and SPOT Trace®, that transmit messages and the location of the device ("SPOT"); and
one-way data transmissions using a mobile or fixed device that transmits its location and other information to a central monitoring station, including our commercial IoT products, such as our battery- and solar-powered SmartOne, STX-3 and STINGR ("Commercial IoT").



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 after a $1.1 billion investment, 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 specific design of the Globalstar System (and based on customer input), we believe that our voice quality is the best 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 or message 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. By this measure, we believe that 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 on average, 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 designed our second-generation ground network, when combined with our next-generation products, to provide our customers with enhanced services featuring speeds up to 72 kbps as well as increased capacity. The second-generation ground network is an Internet protocol multimedia subsystem ("IMS") based solution providing such industry standard services as voice, Internet, email and short message services ("SMS").

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 a cost-effective, high quality leader in the MSS industry.  

As technological advancements are made, we continue to explore opportunities to develop new products and provide new services over our network to meet the needs of our existing and prospective customers. We are currently pursuing initiatives that we expect to expand our satellite communications business by effectively leveraging our network capabilities and distribution relationships. Among our current initiatives are the following: the development of a two-way reference design and multi-chip module to expand our commercial IoT offerings while reducing the form factor and cost of our existing devices and improving their performance; an emergency messaging and tracking device for the automotive market; derivatives of our Sat-Fi2TM® device, one specifically designed for the maritime industry and another for fixed installation outside of cellular range; and a miniaturized satellite-based wearable tracking device.

As of March 31,September 30, 2019, we had approximately 766,000775,000 subscribers worldwide, representing 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 direct as well as through a robust network of independent agents, dealers and resellers, and independent gateway operators ("IGOs"). We also have distribution relationships with a number of "Big Box" and other distribution channels.
Licensed Spectrum Overview
We benefit from a world-wide allocation of radio frequency spectrum in the international radio frequency tables administered by the International Telecommunications Union ("ITU"). Access to this globally harmonized spectrum enables us to design satellites, networks and terrestrial infrastructure enhancements more cost effectively because the products and services can be deployed and sold worldwide. In addition, this broad spectrum assignment enhances our ability to capitalize on existing and emerging wireless and broadband applications.

In the United States, the Federal Communications Commission ("FCC") has authorized us to operate our first-generation satellites in 25.225 MHz of radio spectrum comprising two blocks of non-contiguous radio frequencies in the 1.6/2.4 GHz band commonly referred to as the "Big LEO" Spectrum Band. We licensed and registered our second-generation satellites in France. We also obtained all authorizations necessary from the FCC to operate our domestic gateways with our second-generation satellites.



Terrestrial Authority for Globalstar's Licensed 2.4GHz Spectrum
 
In December 2016, the FCC unanimously adopted a Report and Order permitting us to seek modification of our existing MSS licenses to provide terrestrial broadband services over 11.5 MHz of our licensed Mobile Satellite Services spectrum at 2483.5 to 2495 MHz, throughout the United States of America and its Territories, covering approximately 328 million people.Territories. In August 2017, the FCC modified Globalstar's MSS licenses, granting us authority to provide terrestrial broadband services over a portion of our satellite spectrum. Specifically, the FCC modified Globalstar's space station authorization and our blanket mobile earth station license to permit a network using 11.5 MHz of our authorized Big LEO mobile-satellite service spectrum. We will need to comply with certain conditions in order to provide terrestrial broadband service, including obtaining FCC certifications for our equipment that will utilize this spectrum authority.

We believe our MSS spectrum position provides potential for harmonized terrestrial authority across many international regulatory domains and have been seeking approvals in various international jurisdictions. To date, we have received terrestrial authorizations in certain countries. We expect this global effort to continue for the foreseeable future while we seek additional terrestrial approvals to internationally harmonize our S-band spectrum across the entire 16.5 MHz authority for terrestrial mobile broadband services.

We expect our terrestrial authority will allow future partners to develop high-density dedicated networks using the TD-LTE protocol for private LTE networks as well as for the densification of cellular networks. We believe that our offering has competitive advantages over other conventional commercial spectrum allocations. Such other allocations must meet minimum population coverage requirements, which effectively prohibit the exclusive use of most carrier spectrum for dedicated small cell deployments. In addition, low frequency carrier spectrum is not physically well suited to high-density small cell topologies, and mmWave spectrum is subject to range and attenuation limitations. We believe that our licensed 2.4 GHz band holds physical, regulatory, and ecosystem qualities that distinguish it from other current and anticipated allocations, and that it is well positioned to balance favorable range, capacity and attenuation characteristics.

In December 2018, we were successful in obtaining approval to create a new defined band class, Band 53, from the Third Generation Partnership Project (3GPP) for our 2.4 GHz terrestrial spectrum. This new band class provides a pathway for our terrestrial spectrum to be integrated into handset and infrastructure ecosystems. Additional follow-on 3GPP specifications and approvals are expected in the future.

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, SPOT, Commercial IoT 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.

Comparison of the Results of Operations for the three and nine months ended March 31,September 30, 2019 and 2018  

Revenue

Total revenue increased by $1.3$2.9 million, or approximately 5%8%, to $30.1$38.6 million for the three months ended March 31,September 30, 2019 from $28.8$35.7 million for the same period in 2018 and increased $1.7 million, or approximately 2%, to $99.9 million for the nine months ended September 30, 2019 from $98.2 million for the same period in 2018. This increase wasThese variances were impacted by an out-of-period adjustment of $3.9 million during the third quarter of 2019 related to a change in the calculation of the estimated impact from the initial adoption of ASC 606. See further discussion in Note 2: Revenue.



For the three- and nine-month periods ended September 30, 2019, service revenue increased $4.3 million and $3.1 million, respectively, due primarily to the one-time adjustment to Duplex service revenue discussed above. Excluding this adjustment, total service revenue increased $0.4 million and decreased $0.8 million, respectively. For the three-month period, higher Commercial IoT service revenue, driven primarily by a $1.2 million increase inboth higher ARPU and average subscribers, as well as higher Duplex ARPU contributed to the increase; these favorable variances were offset by fewer average Duplex and SPOT subscribers. Similar trends occurred during the nine-month period, however, the unfavorable items more than offset the positive contributions from Commercial IoT service revenue and Duplex ARPU. Revenue from subscriber equipment sales resulting primarily from higher volume of our commercial IoT products.decreased $1.3 million and $1.4 million, respectively, for the three- and nine-month periods.

The following table sets forth amounts and percentages of our revenue by type of service (dollars in thousands).


 
Three Months Ended 
 March 31, 2019
 Three Months Ended 
 March 31, 2018
Three Months Ended 
 
September 30, 2019
 Three Months Ended 
 
September 30, 2018
 Nine Months Ended 
 
September 30, 2019
 Nine Months Ended 
 
September 30, 2018
Revenue % of Total
Revenue
 Revenue % of Total
Revenue
Revenue % of Total
Revenue
 Revenue % of Total
Revenue
 Revenue 
% of Total
Revenue
 Revenue 
% of Total
Revenue
Service revenue:Service revenue:      Service revenue:        
  
  
  
Duplex(1)$8,645
 29% $8,783
 31%$12,704
 37% $12,213
 34% $30,380
 32% $31,130
 32%
SPOT13,095
 44
 12,962
 45
12,482
 36
 12,957
 36
 38,196
 40
 39,787
 40
Commercial IoT3,698
 12
 3,089
 11
4,526
 13
 3,542
 10
 12,577
 13
 9,847
 10
IGO166
 1
 209
 1
139
 
 257
 1
 484
 
 682
 1
Other515
 1
 967
 3
416
 1
 929
 3
 1,449
 2
 2,457
 2
Total$26,119
 87% $26,010
 91%$30,267
 87% $29,898
 84% $83,086
 87% $83,903
 85%
 
The following table sets forth amounts and percentages of our revenue generated from equipment sales (dollars in thousands).
Three Months Ended 
 March 31, 2019
 Three Months Ended 
 March 31, 2018
Three Months Ended 
 
September 30, 2019
 Three Months Ended 
 
September 30, 2018
 Nine Months Ended 
 
September 30, 2019
 Nine Months Ended 
 
September 30, 2018
Revenue % of Total
Revenue
 Revenue % of Total
Revenue
Revenue % of Total
Revenue
 Revenue % of Total
Revenue
 Revenue 
% of Total
Revenue
 Revenue 
% of Total
Revenue
Subscriber equipment sales:Subscriber equipment sales:      Subscriber equipment sales:        
  
  
  
Duplex$251
 1% $431
 1%$349
 1% $436
 1% $906
 1% $1,618
 2%
SPOT1,591
 5
 1,474
 5
1,880
 6
 2,970
 8
 5,657
 6
 6,455
 7
Commercial IoT2,072
 7
 833
 3
2,182
 6
 2,356
 7
 6,226
 6
 6,067
 6
Other45
 
 1
 
51
 
 32
 
 123
 
 124
 
Total$3,959
 13% $2,739
 9%$4,462
 13% $5,794
 16% $12,912
 13% $14,264
 15%

(1) As previously disclosed, we recorded an out-of-period adjustment of $3.9 million during the third quarter of 2019 as a result of a change in the estimated impact of ASC 606. This adjustment, which increased Duplex service revenue, is excluded from Duplex service revenue in the table above. The percentage of total revenue calculations also exclude this adjustment.



The following table sets forth our average number of subscribers and ARPU by type of revenue.
Three Months Ended March 31,Three Months Ended September 30, Nine Months Ended September 30,
2019 20182019 2018 2019 2018
Average number of subscribers for the period:        
  
Duplex59,978
 69,033
57,091
 66,004
 58,415
 67,581
SPOT288,840
 293,561
280,632
 292,521
 283,371
 292,424
Commercial IoT384,673
 332,813
412,180
 361,472
 396,660
 348,535
IGO27,017
 31,200
26,378
 26,196
 26,464
 31,408
Other953
 1,253
912
 1,007
 936
 1,149
Total761,461
 727,860
777,193
 747,200
 765,846
 741,097
          
ARPU (monthly):          
Duplex$48.05
 $42.41
Duplex (1)
$74.17
 $61.68
 $57.79
 $51.18
SPOT15.11
 14.72
14.83
 14.76
 14.98
 15.12
Commercial IoT3.20
 3.09
3.66
 3.27
 3.52
 3.14
IGO2.05
 2.23
1.76
 3.27
 2.03
 2.41
 
(1) As previously disclosed, we recorded an out-of-period adjustment of $3.9 million during the third quarter of 2019 as a result of a change in the estimated impact of ASC 606. This adjustment, which increased Duplex service revenue, is excluded from Duplex ARPU in the table above. When the out-of-period adjustment is included in the calculation, ARPU for the three and nine month periods ended September 30, 2019 is $96.86 and $65.18, respectively.

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 sources which are not subscriber driven, such as engineering services. Accordingly, we do not present ARPU for other service revenue in the table above.

Service Revenue

As discussed above, we recorded a one-time out-of-period adjustment of $3.9 million during the third quarter of 2019, which increased Duplex service revenue. Excluding this adjustment, Duplex service revenue increased 4% and decreased 2%, respectively, for the three and nine months ended March 31, 2019 comparedSeptember 30, 2019. For the three-month period, the increase in revenue driven by ARPU more than offset the impact on revenue due to the samedecline in average subscribers. For the nine-month period, the decline in 2018 due primarily torevenue driven by a decrease in average subscribers; this decreasesubscribers was only offset partially by an increase in ARPU. The decrease in average subscribers for both periods was due to lower gross activations resulting from fewer equipment sales over the last twelve months as well as normal churn in the subscriber base;base. We released an improved Sat-Fi2® device during September 2019, and development efforts are underway to launch derivative products of this declinedevice. As shown in the table above, excluding the one-time adjustment of $3.9 million during the third quarter of 2019, ARPU increased 20% and 13%, respectively, for the three and nine months ended September 30, 2019 compared to the same periods in 2018. The increase in ARPU was driven primarily by rate plan changes.

SPOT service revenue decreased 4% for each of the three and nine months ended September 30, 2019 compared to the same periods in 2018 due primarily to a decrease in average subscribers of 4% and 3%, respectively. These subscriber declines negatively impacted DuplexSPOT service revenue by $0.5 million and $1.2 million.million during the three and nine months ended September 30, 2019, respectively, compared to the same periods in 2018. The decrease in average subscribers was due primarily to involuntary churn of nonpaying customers. Without these deactivations, average subscribers would have been higher than the prior period. ARPU increased 13%remained relatively flat for the three monthsthree-month period ended March 31,September 30, 2019 compared to the same period in 2018, contributing $1.0less than $0.1 million to the total Duplex service revenue increase. The increasechange in ARPU was driven primarily by price increases for certain of our legacy rate plans to align our rate plans with our service levels.

SPOT service revenue increasedrevenue. ARPU decreased 1%, for the three months ended March 31, 2019 compared to the same period in 2018 due to an increase in ARPU, offset partially by a decline in the average subscriber base. ARPU increased 3% for the three monthnine-month period ended March 31,September 30, 2019 compared to the same period in 2018, resulting in higherlower SPOT service revenue of $0.3$0.4 million. HigherFor the nine-month period, lower ARPU was drivenimpacted by the timing and amount of certain transactions during 2018 that did not recur during


2019, including primarily by rate plan increases. The blendincremental revenue recorded during the second quarter of subscribers in the SPOT base also impacts ARPU. For instance, rate plans for new subscribers activating our SPOT Gen3® and SPOT XTM devices are higher than our current blended ARPU, whereas SPOT Trace® subscribers activate on rate plans lower than current ARPU levels. The average number2018 of SPOT subscribers decreased 2% for the three months ended March 31, 2019 compared$0.4 million related to the same period in 2018 negatively impacting SPOT service revenue by $0.2 million. The decrease in average subscriberscollection of a customer account that was due primarily to lower activations in recent months due to fewer promotions in our retailer channel, coupled with production issues experienced upon the launch of SPOT XTM that slowed sales of that product during 2018. These production issues have been substantially resolved.previously treated as uncollectible.

Commercial IoT service revenue increased 20%28% for each of the three and nine months ended March 31,September 30, 2019 compared to the same periodperiods in 2018 due to increases in both ARPU and average subscribers. The increase in ARPU contributed $0.1$0.5 million and $1.4 million, respectively, and the increase in average subscribers contributed $0.5 million and $1.4 million, respectively, to higher service revenue during the three and nine months ended March 31,September 30, 2019. The increase in ARPU was driven in part by higher usage and a more favorable blend of rate plans in place during 2019. The increase in average subscribers was driven by higher equipment sales during the last twelve months, primarily in North America due to the 2018 launch of SmartOne SolarTM as well as strong sales of legacy equipment.

Other service revenue decreased $0.5 million and $1.0 million, respectively, for the three and nine months ended March 31,September 30, 2019 compared to the same periodperiods in 2018. This decrease was driven primarily by the timing and amount ofLower revenue we recognized related togenerated from government contracts which was negatively impacted bydue to regulatory delays that we expect to resolve inrepresented nearly all of the near future.decline for both periods.

Subscriber Equipment Sales

Revenue from Duplex equipment sales decreased $0.2$0.1 million and $0.7 million, respectively, for the three and nine months ended March 31,September 30, 2019 compared to the same periodperiods in 2018. The decreaseFor the three-month period, the decline in revenue was due todriven primarily by a lower sales volume of Duplex accessories; offsetting this decline was an increase in the volume of our Sat-Fi2® andGSP 1700 phone. For the nine-month period, the decline in revenue was driven primarily by a decline in the volume of Duplex products and related accessories. We also ran promotions near the end ofIn April 2018, which recurred in the first quarter of 2019 resulting in lower pricing of our GSP-1700 phones and related accessories. These decreases were offset partially by sales of Sat-Fi2TM, our newwe released a second-generation Duplex device, which was released in April 2018.Sat-Fi2®. Based on initial customer feedback, we have slowly released this product into the market as we focusfocused on optimizing functionality, performance and usability; therefore, sales of this device have been lower than expected.expected, which contributed to the decrease in revenue from Duplex equipment sales for both periods. We released an improved Sat-Fi2® device during the third quarter of 2019 and a remote antenna station device in October 2019. Development efforts are underway to launch further derivative products of the Sat-Fi2® device.

Revenue from SPOT equipment sales increased $0.1decreased $1.1 million and $0.8 million, respectively, for the three and nine months ended March 31,September 30, 2019 compared to the same periodperiods in 2018. This increaseThe variance for the three-month period was driven primarily by higher discounts and promotions offered on our SPOT products, which are expected to contribute to higher activations and service revenue in future periods. For the nine-month period, a decline in the volume of legacy SPOT devices was offset partially by higher sales of our new SPOT XTM® product, which was released in May 2018 andproduct. SPOT X® is also sold at a higher price than our other SPOT devices. Partially offsetting the revenue contribution from our latest SPOT product was a decline in the volume of our legacy SPOT products.

Revenue from Commercial IoT equipment sales decreased $0.2 million and increased $1.2$0.2 million, respectively, for the three and nine months ended March 31,September 30, 2019 compared to the same periodperiods in 2018. We continue to see increased demand for our commercial IoTThe changes in revenue recognized were driven by the mix of products including our latest device, SmartOne Solar™, which was launched in March 2018, and contributed to nearly fifty percent of total equipment sales revenuesold during the first quarter of 2019. Higher sales volume of our legacy products also contributed to the increase in equipment revenue.respective periods.

Operating Expenses 

Total operating expenses increased $6.7decreased $3.0 million, or 16%6%, to $48.4$50.6 million for the three months ended March 31, 2019. The increaseSeptember 30, 2019 compared to the same period in 2018. Total operating expenses increased $19.7 million, or 16%, to $146.9 million for the nine months ended September 30, 2019 compared to the same period in 2018. For both the three- and nine-month periods, lower management, general and administrative costs contributed to a decrease in total operating expenses. For the nine-month period, total operating expenses was drivenincreased due primarily byto a $20.5 million revision to a contract termination charge (see further discussion below) as well as an increase in depreciation, amortization and accretion expense.



Cost of Services 

Cost of services decreased $0.2 million and increased $0.9$0.5 million, respectively, for the three and nine months ended March 31,September 30, 2019 compared to the same periodperiods in 2018. This

For the three-month period, the decline was driven by a decrease in maintenance costs for our ground stations and associated network of $0.2 million due to changes in the nature and terms of our contracts with certain vendors.

For the nine-month period, the increase was duedriven primarily toby higher research and development costs of $0.4$0.3 million associated with our product development initiatives focusing on new commercial IoT offerings as well asand higher personnel and contractor costs of $0.3$1.1 million due to lower capitalized labor costs resulting from changes in the timing and scope of capital projects. OtherLower maintenance costs of $0.7 million (for the reasons discussed in the previous paragraph) and other smaller items contributed to the remaining change in cost of services during the year.partially offset these increases.



Cost of Subscriber Equipment Sales

Cost of subscriber equipment sales increased $0.1 million and $0.4 million, respectively, for the three and nine months ended September 30, 2019 from the same periods in 2018.

In September 2019, U.S. Customs and Border Protection ("CBP") issued a ruling related to the classification of certain of our core products imported from China. This classification, which carries a 25% tariff upon import, is inconsistent with the classification we previously used based on external legal advice. As a result of the CBP ruling, during the third quarter of 2019, we recorded a payable of approximately $1.8 million in accrued expenses on our condensed consolidated balance sheet related to goods imported from China from July 6, 2018 through September 30, 2019. Of the total amount accrued as of September 30, 2019, $0.9 million forwas associated with inventory sold since July 2018, thereby negatively impacting cost of subscriber equipment sales during the three months ended March 31, 2019 fromSeptember 30, 2019. Of the same periodremaining $0.9 million, $0.5 million was recorded as an increase to the cost of inventory and $0.4 million was recorded as a receivable, which we believe is recoverable as a duty drawback for the portion of duties owed for equipment we transferred to our foreign subsidiaries for sale. We plan on filing a protest against this ruling but cannot provide any assurance that we may be successful in 2018. Thisachieving a favorable outcome. We are also evaluating options to mitigate the impact of these tariffs, including pricing changes and product cost reductions in our supply chain, as well as engaging in discussions with our Chinese manufacturer regarding lowering their labor costs to us.

Excluding the $0.9 million increase in cost of subscriber equipment sales due to the China tariff ruling, the remaining fluctuation is generally consistent with the increasechanges in revenue generated from subscriber equipment sales. Predominantly contributing tosales during the increase are costs related to sales of two new products launched during 2018, our SPOT XTM and SmartOne Solar™.respective periods.

Marketing, General and Administrative

Marketing, general and administrative expenses increased $0.3decreased $2.2 million and $6.8 million, respectively, for the three and nine months ended March 31,September 30, 2019 compared to the same periodperiods in 2018, driven by several factors.2018.

As2018 included costs to support the now-terminated merger and associated litigation (see Note 8: Contingencies for further discussion); these costs did not recur in 2019, resulting in a decrease in costs of $3.9 million and $10.4 million for the three and nine-month periods, respectively.

Offsetting this reduction in expense was the write-off of $2.1 million of financing costs, which were previously disclosed, we movedcapitalized, associated with our efforts to refinance our debt obligations through the issuance of a new first-lien debt. This write-off was made during the third quarter of 2019 following our decision to pursue an amendment to our existing Facility Agreement instead of replacing it with new first lien debt. Additionally, for the three and nine months ended September 30, 2019, occupancy costs increased $0.4 million and $1.1 million, respectively, resulting primarily from our move into a new headquarters location in February 2019. As a result of this relocation, our annual rent expense, including associated taxes and other operating costs, has increased; the annualized impact of these higher occupancy costs is $1.5 million.

For the higher rent expense is $1.2 million. During the first quarter ofnine months ended September 30, 2019, total occupancy charges, including rent expense and operating costs, increased $0.4 million. Additionally,higher personnel costs and stock based compensation increased $0.4of $0.7 million and higher bad debt expense increasedof $0.5 million due to an aged receivable from an IGO that was deemed to be uncollectible. Increases in subscriber acquisition costs of $0.3 million also contributed to the increase in marketing, generalremaining variance. Other smaller items contributed to the remaining variance for both the three- and administrative expenses due to market research as well as the timing of event sponsorships. nine-month periods.

OffsettingRevision to Contract Termination Charge

In May 2018, the increasesstatute of limitations for Thales to enforce the arbitration award pursuant to the Federal Arbitration Act expired. Accordingly, we believe that payment of the contract termination charge is not probable, and we removed this liability from our condensed consolidated balance sheet during the second quarter of 2018, resulting in expense was a reduction in costs for consultants and other advisors related to strategic opportunitiesoperating expenses of $1.4€17.5 million, or $20.5 million. The first quarter of 2018 included costs to support the now-terminated merger of $0.4 million and related debt amendment costs of $0.4 million, both of which did not recur in 2019 (seeSee Note 9: Related Party TransactionsContingencies in our Consolidated Financial Statements in our Annual Report on Form 10-K for further discussion). Additionally, the timing and scope of work to support terrestrial spectrum-related efforts produced higher expense during the first quarter of 2018 than the first quarter of 2019.discussion.



Depreciation, Amortization and Accretion

Depreciation, amortization and accretion expense decreased $0.7 million and increased $4.6$5.1 million, respectively, for the three and nine months ended March 31,September 30, 2019 from the same periodperiods in 2018. ThisThe increase for the nine-month period was due primarily to placing our next-generation ground infrastructure into service during 2018 (as discussed below) as well as placing other assets into service, including manufacturing and testing equipment, software and leasehold improvements. Since April 1, 2018, we have placed into service approximately $220.4 million of construction in progress (including capitalized interest) associated with our next-generation upgrades to our ground infrastructure. The costs placed into service represent primarily the gateways capable of supporting commercial traffic from Sat-Fi2TM®, the first device to work on our upgraded network. We expect depreciation expense for these assets to be approximately $3.7 million per quarter for an estimated life of fifteen years.

As of March 31, 2019, we had $10.6 million in construction in progress primarily related to the remaining costs (including capitalized interest) associated with our next-generation upgrades to our ground infrastructure in certain regions around the world. We will place these assets into service when they are deployed.



Other Income (Expense) 

Interest Income and Expense

Interest income and expense, net, increased $5.5$1.1 million and $9.1 million, respectively, during the three and nine months ended March 31,September 30, 2019, compared to the same periodperiods in 2018.

For the three months ended March 31,September 30, 2019, the increase in interest expense, net, was driven by a reductionan increase in gross interest costs of $1.7 million offset by an increase in capitalized interest of $5.0$0.5 million dueand higher interest income of $0.1 million. The increase in gross interest costs was driven primarily to a reduction in our construction in progress balance related to our ground network, which results in lower interest eligible to be capitalized. As discussed above, we placed approximately $220.4by $2.7 million of assetsinterest associated with the Subordinated Loan Agreement we entered into service during 2018 and the first quarter ofin June 2019 which decreased our construction in progress balance. Gross interest costs increased $0.7as well as $0.6 million due to an increase in interest expense on our Facility Agreement from a higher margin and LIBOR rate used to calculate the interest rate anddriven by a higher principal balance outstanding on our Loan Agreement with Thermo. ThisThermo; offsetting these increases was a decrease of $1.5 million in interest for our Facility Agreement driven by a lower principal amount outstanding and other interest costs of $0.1 million. The increase in capitalized interest of $0.5 million decreased interest expense, was offset by annet. The increase in interest income of $0.1 million was due to a higher balance in our restricted cash account.

For the nine-months ended September 30, 2019, the increase in interest expense, net, was driven by an increase in gross interest costs of $3.1 million and a reduction in capitalized interest of $6.4 million, offset by higher interest income of $0.4 million. Similar to the three-month period discussed above, the increase in gross interest costs was due to higher interest for the Subordinated Loan Agreement of $2.8 million and the Loan Agreement with Thermo of $1.6 million offset by lower interest for our Facility Agreement of $1.1 million and other interest costs of $0.2 million, resultingmillion. The decrease in capitalized interest for the nine-month period was due primarily fromto higher capitalized interest recorded in the first few months of 2018 prior to placing our second-generation ground network into service in April 2018. Higher interest income was due to a higher balance in our restricted cash account.

Derivative Gain

Derivative gain was $57.0$50.2 million and $39.1 million for the three months ended March 31,September 30, 2019 compared to a $108.9and September 30, 2018, respectively. Derivative gain was $142.3 million and $145.9 million for the same period in 2018.nine months ended September 30, 2019 and September 30, 2018, respectively.

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 generally the most significant cause for the change in value of these derivative instruments, other inputs impact the value, including stock price volatility, discount rate, maturity date, probabilities of conversion and change of control, the base conversion rate and changes in the principal amount of notes outstanding. During 2019, the derivative gains were recognized primarily due to the assumed high probability of conversion associated with the expected debt refinancing, which decreases the value of our derivative liabilities. See Note 7: Fair Value Measurements to our condensed consolidated financial statements for further discussion of the computation of the fair value of our derivatives. 

Gain on Legal Settlement

In May 2018, we concluded the settlement of a business economic loss claim in which we will receive proceeds of $7.4 million, net of legal fees. We received the first installment of $3.7 million in January 2019; the final installment is expected to be received in January 2020. During the second quarter of 2018, we recorded $6.8 million, the present value of such proceeds, as other income in our condensed consolidated statement of operations. During the second quarter of 2019, in connection with a follow-on settlement related to this matter, we received additional proceeds of $0.1 million and recorded the gross amount of these proceeds as other income in our condensed consolidated statement of operations. See Note 9: Contingencies to our Consolidated Financial Statements in our Annual Report on Form 10-K for further discussion.



Other

Other income (loss) fluctuated by $0.7$3.8 million to nearly zeroloss of $2.5 million for the three months ended March 31,September 30, 2019 from income of $1.3 million for the same period in 2018. Other income (loss) fluctuated by $0.6 million to loss of $2.1 million for the nine months ended September 30, 2019 from a loss of $0.7$2.7 million for the same period in 2018. 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. Also included in other income (loss) for the three and nine months ended September 30, 2019 are costs for legal and other advisers totaling $0.3 million and $0.6 million, respectively, related to our efforts to seek an amendment of our Facility Agreement (see further discussion in Note 5: Long-Term Debt and Other Financing Arrangements to our condensed consolidated financial statements), which is expected to be treated as a debt modification under applicable accounting guidance.

Liquidity and Capital Resources

Overview

Our principal liquidity requirements include paying our debt service obligations and funding our operating costs, including certain contractual obligations discussed in Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations in our 2018 Annual Report.Report, which have not materially changed since the time of that filing. Our principal sources of liquidity include cash on hand and cash flows from operations. We expect that these sources of liquidity will be insufficient to pay our debt service obligations over the next twelve months (see Note 5: Long-Term Debt and Other Financing Arrangements to our condensed consolidated financial statements for further discussion of management's plans to address this shortfall). We also expect sources of liquidity to include funds from other debt or equity financings that have not yet been arranged. See below for further discussion. See Part I, Item 1A. Risk Factors in our 2018 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,September 30, 2019, we held cash and cash equivalents of $13.8$26.2 million and restricted cash of $60.6 million, consisting of the balance in our debt service reserve account under the Facility Agreement. The Facility Agreement restricts the use of these funds$61.2 million. Restricted cash is required to makingbe used to make principal and interest payments under our Facility Agreement. See below for further discussion.

As of March 31, 2019, we also had a reserve of $10.1 million held with our credit card processor to address any liability arising from potential charge-backs given the growth in both volume and amount of our annual service subscriptions, among other factors. We are in the process of transitioning to an alternative credit card processor and expect that the total cash required to be withheld will decrease to $5.0 million by the third quarter of 2019. The reserve amount is recorded in prepaid and other current assets on our condensed consolidated balance sheet. We are in discussions with our senior lenders to evaluate how this reserve impacts the terms of our Facility Agreement.



As of December 31, 2018, we held cash and cash equivalents of $15.2 million and had $60.3 million in restricted cash.

The carrying amount of our current and long-term debt outstanding was $96.2$98.8 million and $374.0$402.5 million, respectively, at March 31,September 30, 2019, compared to $96.2 million and $367.2 million, respectively, at December 31, 2018. The current portion of our debt outstanding at these dates represents primarily principal payments under our Facility Agreement scheduled to occur within 12 months. At March 31,September 30, 2019, this current debt balance also included the total outstanding amount of our 2013 8.00% Notes based on the put and call features in these notes. Accordingly, any such redemption is expected to result in the conversion of the notes by the holders in lieu of cash payment by us at par value. The increase in our total debt balance was due primarily to our borrowing of $62.0 million plus accrued PIK interest under the June 2019 Subordinated Loan Agreement, a higher carrying value of the Loan Agreement with Thermo due to PIK interest accruing on that debt as well as accretion of the associated debt discount, associated with the Loan Agreement with Thermo and a higher carrying value of the Facility Agreement due to accretion of debt financing costs. These increases were offset by a principal payment of $47.4 million under the Facility Agreement in June 2019.

Indebtedness and Available Credit 

Facility Agreement 

We entered into the Facility Agreement in 2009, which was amended and restated in July 2013, August 2015 and June 2017. The Facility Agreement is scheduled to mature in December 2022. As of September 30, 2019, the principal amount outstanding under the Facility Agreement was $342.0 million.

The Facility Agreement contains customary events of default and requires that we satisfy various financial and non-financial covenants. 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 December 2019, subject to the conditions set forth in the Facility Agreement. If we violate any covenants and are unable to obtain a sufficient Equity Cure Contribution 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 anticipate that we will needneeded an Equity Cure Contribution to maintain compliance with financial covenants under the Facility Agreement for the measurement periodsperiod ending June 30, 2019 and2019. We also anticipate that we will need an Equity Cure Contribution to maintain compliance with financial covenants for the measurement period ending December 31, 2019. The source of funds for thesethis Equity Cure ContributionsContribution has not yet been arranged. Additionally, we may not be in compliance with financial covenants under the Facility Agreement for the measurement period June 30, 2020, and the Facility Agreement would not permit an Equity Cure Contribution at this time. As


previously discussed, we are actively working to amend the terms of the Facility Agreement, which we expect would include an extension of our ability to use Equity Cure Contributions; however, such amendment has not been executed. As of March 31,September 30, 2019, we were in compliance with respect to the covenants of the Facility Agreement, except for one matter. The agent to the lenders of the Facility Agreement recently notified us that they believe that we had not complied with a certain administrative provision within the Facility Agreement. We believe that we have remedied any noncompliance within the allowed cure period in order to avoidand therefore avoided an event of default.

The Facility Agreement also requires that we maintain a debt service reserve account that is pledged to secure all of our obligations under the Facility Agreement. We may use the debt service reserve account funds only to make principal and interest payments under the Facility Agreement. The balance in the debt service reserve account must equal at least the total amount of principal and interest payable on the next payment date. As of March 31,September 30, 2019, the balance in the debt service reserve account was $60.6$59.1 million and the balance in our equity proceeds account was $2.1 million, both of which were classified as restricted cash on our condensed consolidated balance sheets.

Our indebtednessIndebtedness under the Facility Agreement bears interest at a floating rate of LIBOR plus 3.75% through June 2019, increasinga margin that increases by an additional 0.5% each year thereafter to a maximum rate of LIBOR plus 5.75%. This margin increased to 4.25% on July 1, 2019. Interest on the Facility Agreement is payable semi-annual in arrears in June and December of each calendar year. Ninety-five percent of our obligations under the Facility Agreement are guaranteed by Bpifrance Assurance Export S.A.S. ("BPIFAE") (formerly COFACE). 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 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 5: Long-Term Debt and Other Financing Arrangements to our condensed consolidated financial statements for further discussion of the Facility Agreement.

Subordinated Loan Agreement

On July 2, 2019, we entered into a Subordinated Loan Agreement (the “Subordinated Loan Agreement”), effective as of June 28, 2019, with Thermo Funding Company LLC (an affiliated entity to Thermo, as previously defined in this filing), and certain other unaffiliated parties (together with Thermo, the “Lenders”). Under the Subordinated Loan Agreement, we borrowed $62.0 million from the Lenders on June 28, 2019 for the primary purpose of funding the June 30, 2019 scheduled payment of interest and principal under our Facility Agreement and maintaining compliance with our financial covenants. The proceeds from the Subordinated Loan Agreement qualified as an Equity Cure Contribution under the Facility Agreement. Our indebtedness to the Lenders is subordinated to our obligations under the Facility Agreement. Thermo has agreed to subordinate our obligations under the Loan Agreement to our obligations under the Subordinated Loan Agreement. As of September 30, 2019, the principal amount outstanding under the Subordinated Loan Agreement was $64.4 million.

The Subordinated Loan Agreement accrues interest at 15% per annum, which is capitalized and added to the outstanding principal in lieu of cash payments. Payments to the Lenders will be made only when permitted under the Facility Agreement. The Subordinated Loan Agreement becomes due and payable on December 31, 2023, or upon any acceleration of the maturity of the Subordinated Loan Agreement. As of September 30, 2019, $2.4 million of interest had accrued with respect to the Subordinated Loan Agreement.

The Subordinated Loan Agreement also contains an affirmative covenant requiring us to use reasonable best efforts to either (i) refinance our obligations under the Facility Agreement and the Subordinated Loan Agreement in full or (ii) refinance our obligations under the Subordinated Loan Agreement and obtain a corresponding amendment of the Facility Agreement to permit such refinancing. In addition, in the event our obligations under the Bridge Loan have not been refinanced within 150 days of the date of the Bridge Loan, we are required to use reasonable best efforts to issue and do all things to facilitate the issuance of registered warrants exercisable for shares of Globalstar common stock to the Lenders on terms to be agreed by the parties. The 150 day deadline noted above is an extension of the original 120 day deadline provided in the Subordinated Loan Agreement.



Thermo AgreementsAgreement

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 there is a change in control or any acceleration of the maturity of the loans under the Facility Agreement occurs. As of March 31,September 30, 2019, the principal amount outstanding was $123.3$131.0 million, including $79.8$87.5 million of interest that had accrued since 2009 under to the Loan Agreement.

As part of the July 2013 amendment and restatement of the Loan Agreement, conversion features were added to the Loan Agreement consistent with those features in the 2013 8.00% Notes. Outstanding amounts under the Loan Agreement are convertible into shares of common stock at a conversion price of $0.69 (as adjusted) per share of common stock.

See Note 5: Long-Term Debt and Other Financing Arrangements to our condensed consolidated financial statements for further discussion of the Thermo Agreements.

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 $0.69 (as adjusted) per share of common stock. As of March 31,September 30, 2019, the principal amount outstanding of the 2013 8.00% Notes was $1.4 million. The 2013 8.00% Notes will mature on April 1, 2028, subject to various call and put features. 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 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. 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.

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,September 30, 2019, we were in compliance under the terms of the 2013 8.00% Notes and the Indenture. 

See Note 5: Long-Term Debt and Other Financing Arrangements to our condensed consolidated financial statements for further discussion of the 2013 8.00% Notes.  

Cash Flows for the threenine months ended March 31,September 30, 2019 and 2018

The following table shows our cash flows from operating, investing and financing activities (in thousands): 
Three Months EndedNine Months Ended
March 31,
2019
 March 31,
2018
September 30,
2019
 September 30,
2018
Net cash provided by operating activities$1,325
 $9,832
$6,044
 $19,768
Net cash used in investing activities(2,261) (2,386)(7,625) (13,181)
Net cash used in financing activities(193) 
Net cash provided by (used in) financing activities13,566
 (38,538)
Effect of exchange rate changes on cash, cash equivalents and restricted cash(14) (22)(26) 68
Net increase (decrease) in cash, cash equivalents and restricted cash$(1,143) $7,424
$11,959
 $(31,883)
 
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 threenine months ended March 31,September 30, 2019 was $1.3$6.0 million compared to $9.8$19.8 million during the same period in 2018. This decrease was due primarily to unfavorable working capital changes related predominantlyincluding: 1) a lower amount of cash interest capitalized during 2019, 2) a higher amount of inventory purchases, driven in part by prepayments to a $7.8 million increase innew product manufacturer as well as increased production and cost of recently launched products, and 3) costs associated with efforts to refinance our debt obligations, including the reserve required fromwrite-off of financing costs for the issuance of new first-lien debt that was ultimately not pursued and third-party costs to support the modification of our credit card processor, as previously discussed. Also contributing to the decrease was lower net income, after adjusting for non-cash items.Facility Agreement.



Cash Flows Used in Investing Activities 

Cash used in investing activities was $2.3$7.6 million for the threenine months ended March 31,September 30, 2019 compared to $2.4$13.2 million for the same period in 2018. DuringThis decrease was due primarily to a reduction in the first quarteramount of 2019, we had additions primarilycash interest capitalized of $3.2 million. As previously disclosed, our construction in progress balance has decreased significantly since 2018, specifically related to our ground network; therefore, the constructionamount of new antennas for our gateways aroundinterest eligible to be capitalized is lower. Also contributing to the world as well as costs to support an upgraded billing system. During the first quartervariance in cash used in investing activities were fewer property and equipment purchases offset by higher purchases of 2018, additions wereintangible assets related to costs to bring our newly developed products into production, including softwareinternational MSS and other back officespectrum efforts.

Cash Flows Used inProvided by (Used in) Financing Activities 

There were no significant cashCash flows provided by financing activities includes primarily proceeds from the issuance of debt or Globalstar common stock. Cash flows used in financing activities during eachincludes primarily principal payments of the three month periods ending March 31,Facility Agreement. During the first nine months of 2019, the Company raised $62.0 million from our Subordinated Loan Agreement (as discussed above), which was used predominantly to fund the June 2019 principal and interest payment under our Facility Agreement. For the nine months ended September 30, 2019 and 2018.2018, principal payments of the Facility Agreement totaled $47.4 million and $38.9 million, respectively. Additionally, in connection with our financing efforts during 2019, we paid $1.4 million for services provided by financial advisers, legal counsel and other parties.

Contractual Obligations and Commitments 

There have been no significant changes to our contractual obligations and commitments since December 31, 2018.

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.
 
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 $389.4$342.0 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 $3.9$3.4 million annually.

See Note 7: Fair Value Measurements in 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,September 30, 2019, 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, each of our Principal Executive Officer and Principal Financial Officer concluded that as of March 31,September 30, 2019 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 Securities and Exchange Commission 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 threenine months ended March 31,September 30, 2019.

(b) Changes in internal control over financial reporting.

As of March 31,September 30, 2019, 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,September 30, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
 


PART II: OTHER INFORMATION
 
Item 1. Legal Proceedings.

For a description of our material pending legal and regulatory proceedings and settlements, see Note 8: 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 2018 Annual Report.

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

Not Applicable

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
3.1
10.1
   
31.1 
   
31.2 
   
32.1 
   
32.2 
   
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



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 2,November 12, 2019By:/s/ David B. Kagan
   David B. Kagan
   Chief Executive Officer (Principal Executive Officer)
    
   /s/ Rebecca S. Clary
   Rebecca S. Clary
   Chief Financial Officer (Principal Financial Officer)
  



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