3. PROPERTY AND EQUIPMENT

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

	December 31,
	2011			2010
Globalstar System:
Space component	$	532,487		$	171,888
Ground component		49,109			49,818
Construction in progress:
Space component		650,920			916,766
Ground component		80,071			60,350
Prepaid long-lead items and other		18,028			19,834
Total Globalstar System		1,330,615			1,218,656
Internally developed and purchased software		14,052			14,141
Equipment		12,333			11,480
Land and buildings		4,152			4,359
Leasehold improvements		1,402			1,406
		1,362,554			1,250,042
Accumulated depreciation and amortization		(144,836	)		(99,572	)
	$	1,217,718		$	1,150,470

Contracts

The following table presents the contract prices for the construction of the Company’s second-generation satellites and ground upgrades (in thousands):

	Contract
	Price
Thales second-generation satellites (Phase 1 and 2) and satellite operations control center	$	638,617
Arianespace launch services		216,000
Launch insurance		39,903
Hughes next-generation ground component		104,597
Ericsson next-generation ground network		29,138
Total	$	1,028,255

As of December 31, 2011, the Company has incurred $959.8 million of costs under these contracts, including contracts payable and accrued expenses of $37.4 million, excluding interest. Of the amounts incurred, the Company has capitalized $954.3 million and expensed $5.5 million of research and development costs.

Second-Generation Satellites

In June 2009, the Company and Thales entered into an amended and restated contract for the construction of the Company’s second-generation low-earth orbit satellites and related services, to incorporate prior amendments and acceleration requests, and to make other non-material changes to the contract entered into in November 2006. The Company has launched 18 of the 24 second-generation satellites (six satellites each were launched in each of October 2010, July 2011, and December 2011) and expects to launch the remaining six satellites during the second half of 2012. The Company also has a contract with Thales to construct additional second-generation satellites at a fixed price. The Company is currently in arbitration with Thales to enforce certain rights under this contract under which the Company has placed an order for additional satellites. See Note 9 for further discussion.

In March 2007, the Company and Thales entered into an agreement for the construction of the Satellite Operations Control Centers, Telemetry Command Units and In Orbit Test Equipment (collectively, the “Control Network Facility”) for the Company’s second-generation satellite constellation. The Control Network Facility achieved its final acceptance milestone in October 2010.

The Company’s second-generation satellites were designed with four momentum wheels. The design requires three functioning momentum wheels for operations. One momentum wheel is redundant (a non-operating wheel acting as a spare on the satellite in space). Momentum wheels are flywheels used to provide attitude control and stability on spacecraft. Momentum wheels on certain satellites launched in October 2010 and July 2011 have exhibited anomalous behavior necessitating the removal of such wheels from service. To date, this has not had a significant impact on the Company’s overall service levels. The satellites launched in December 2011 have not experienced any similar behavior associated with their momentum wheels. Globalstar and Thales are currently working together to develop a software-based solution that the Company plans to upload to certain satellites that may permit such satellites to operate on two momentum wheels. Although Thales has successfully conducted computer simulations of the proposed software solution, the Company can provide no assurance that a solution will be developed and implemented successfully. If the Company is unable to successfully develop and implement this solution, or otherwise resolve the anomalous behavior, its investment in certain satellites may be impaired.

In March 2010, the Company and Arianespace entered into an amended and restated contract to incorporate prior amendments to the contract entered into in September 2007 for the launch of the Company’s second-generation satellites and certain pre and post-launch services under which Arianespace agreed to make four launches of six satellites each and one optional launch of six satellites. Notwithstanding the one optional launch, the Company may contract separately with Arianespace or another provider of launch services after Arianespace’s firm launch commitments are fulfilled.

In August 2011, the Company received its final authorization to operate its second-generation satellite constellation. The French Ministry commenced the process to register the satellites with the United Nations under the Convention on Registration of Objects Launched into Outer Space. As a result, the Company activated its ground stations in North America to send and receive call traffic with the second-generation satellites, thus improving coverage availability for the Company’s Duplex customers in that region.

Next-Generation Gateways and Other Ground Facilities

In May 2008, the Company and Hughes entered into an agreement under which Hughes will design, supply and implement (a) the Radio Access Network (RAN) ground network equipment and software upgrades for installation at a number of the Company’s satellite gateway ground stations and (b) satellite interface chips to be a part of the User Terminal Subsystem (UTS) in various next-generation Globalstar devices.

From its inception through November 2011, the Company has amended this agreement extending the performance, revising certain payment milestones and adding new features. The Company has the option to purchase additional RANs and other software and hardware improvements at pre-negotiated prices. The Company and Hughes have amended their agreement to extend the deadline to make certain scheduled payments previously due under the contract. See Note 8 for further discussion.

In October 2008, the Company signed an agreement with Ericsson, a leading global provider of technology and services to telecom operators. Since inception of the contract through December 2011, the Company has amended this contract to increase its obligations for additional deliverables and features. According to the contract, Ericsson will work with the Company to develop, implement and maintain a ground interface, or core network, system that will be installed at the Company’s satellite gateway ground stations. The Company and Ericsson have amended their agreement to extend the deadline to make certain scheduled payments previously due under the contract. See Note 8 for further discussion.

Capitalized Interest and Depreciation Expense

The following tables summarize capitalized interest for the periods indicated below (in thousands):

	December 31,
	2011		2010

Total Interest Capitalized	$	176,361	$	122,222

	Year Ended December 31,
	2011		2010		2009

Current Period Interest Capitalized	$	54,139	$	47,122	$	35,887

The following table summarizes depreciation expense for the periods indicated below (in thousands):

	Year Ended December 31,
	2011		2010		2009

Depreciation Expense	$	46,952	$	24,435	$	21,805