FAIR VALUE MEASUREMENTS

12 Months Ended

Dec. 31, 2011

FAIR VALUE MEASUREMENTS

6. 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 table provides a summary of the financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2011 and 2010 (in thousands):

	Fair Value Measurements at December 31, 2011:
	(Level 1)		(Level 2)		(Level 3)			Total  Balance
Other assets:
Interest rate cap	$	—	$	255	$	—		$	255
Total other assets measured at fair value	$	—	$	255	$	—		$	255
Other liabilities:
Liability for contingent consideration	$	—	$	—	$	(4,963	)	$	(4,963	)
Compound embedded conversion option with 8.00% Notes		—		—		(7,111	)		(7,111	)
Warrants issued with 8.00% Notes		—		—		(22,673	)		(22,673	)
Warrants issued with contingent equity agreement		—		—		(6,155	)		(6,155	)
Contingent put feature embedded in 5.0% Notes		—		—		(3,057	)		(3,057	)
Total other liabilities measured at fair value	$	—	$	—	$	(43,959	)	$	(43,959	)

	Fair Value Measurements at December 31, 2010:
	(Level 1)		(Level 2)		(Level 3)			Total  Balance
Other assets:
Interest rate cap	$	—	$	1,000	$	—		$	1,000
Total other assets measured at fair value	$	—	$	1,000	$	—		$	1,000
Other liabilities:
Liability for contingent consideration	$	—	$	—	$	(6,019	)	$	(6,019	)
Compound embedded conversion option with 8.00% Notes		—		—		(23,008	)		(23,008	)
Warrants issued with 8.00% Notes		—		—		(29,924	)		(29,924	)
Warrants issued with contingent equity agreement		—		—		(7,887	)		(7,887	)
Total liabilities measured at fair value	$	—	$	—	$	(66,838	)	$	(66,838	)

Interest Rate Cap

The fair value of the interest rate cap is determined using observable pricing inputs including benchmark yields, reported trades, and broker/dealer quotes at the reporting date.

Derivative Liabilities

The derivative liabilities in Level 3 include the compound embedded conversion option in the 8.00% Notes, 8.00% Warrants, Contingent Equity Agreement, and the contingent put feature of the 5.0% Notes. The Company marks-to-market these liabilities at each reporting date with the changes in fair value recognized in the Company’s results of operations.

As of December 31, 2011, the Company utilized valuation models that rely exclusively on Level 3 inputs including, among other things: (i) the underlying features of each item, including reset features, make whole premiums, etc.; (ii) stock price volatility ranges from 35% - 107%; (iii) risk-free interest rates ranges from 0.01% - 1.89%; (iv) dividend yield of 0%; (v) conversion price of $1.61; and (vi) market price of common stock at the valuation date of $0.54.

As of December 31, 2010, the Company utilized valuation models that relied exclusively on Level 3 inputs including, among other things: (i) the underlying features of each item, including reset features, make whole premiums, etc.; (ii) stock price volatility ranges from 33% – 106%; (iii) risk-free interest rates ranges from 0.07% – 3.30%; (iv) dividend yield of 0%; (v) conversion price of $1.61; and (vi) market price of common stock at the valuation date of $1.45.

Liability for Contingent Consideration

The fair value of the accrued contingent consideration was determined using a probability-weighted discounted cash flow approach at the acquisition date and reporting date.  The approach is based on significant inputs that are not observable in the market, which are referred to as Level 3 inputs.  The fair value is based on the acquired company reaching specific performance metrics over the next three years of operations. 

Level 3 Reconciliation

The following tables present a rollforward for all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for 2011 and 2010 as follows (in thousands):

Balance at December 31, 2010	$	(66,838	)
Issuance of contingent equity warrants		(8,313	)
Issuance of contingent put feature embedded in 5.0% Notes		(1,503	)
Derivative adjustment related to conversions and exercises		1,100
Contingent equity warrant liability reclassified to equity		5,955
Earnout payments made related to liability for contingent consideration		1,827
Change in fair value of contingent consideration		(771	)
Unrealized gain, included in derivative gain (loss), net		24,584
Balance at December 31, 2011	$	(43,959	)

Balance at December 31, 2009	$	(49,755	)
Issuance of contingent equity warrants		(9,717	)
Derivative adjustment related to conversions and exercises		10,192
Contingent equity warrant liability reclassified to equity		11,940
Earnout payments made related to liability for contingent consideration		1,190
Change in fair value of contingent consideration		(7,209	)
Unrealized loss, included in derivative gain (loss), net		(23,479	)
Balance at December 31, 2010	$	(66,838	)

Nonrecurring Fair Value Measurements

In 2009, the Company adopted the authoritative guidance regarding non-financial assets and non-financial liabilities that are remeasured at fair value on a nonrecurring basis.  Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable.

The following table reflects the fair value measurements used in testing the impairment of long-lived assets at December 31, 2011 (in thousands):

	Fair Value Measurements at December 31, 2011:
	(Level 1)		(Level 2)		(Level 3)		Total Losses
Other assets:
Property and equipment, net	$	—	$	—	$	1,217,718	$	2,669
Intangible and other assets, net		—		—		23,798		909
Total	$	—	$	—	$	1,241,516	$	3,578

 Impairment

Capitalized costs related to the development of various retail products that were discontinued during the third quarter and capitalized costs related to the internal development of software were written down to its implied fair value, resulting in an impairment charge of $2.7 million. The carrying value of these costs prior to write down was $2.7 million and was included in property and equipment, net. The impairment charge is included in the Company’s results of operations for the year ended December 31, 2011.

Intangible assets related to developed technology acquired from Axonn, L.L.C. in 2009 were written down to fair value, resulting in an impairment charge of $0.9 million. These assets had a carrying value of $6.1 million prior to the write down. The impairment charge is included in the Company’s results of operations for the year ended December 31, 2011.

The following table reflects the fair value measurements used in testing the impairment of long-lived assets at December 31, 2010 (in thousands):

	Fair Value Measurements at December 31, 2010:
	(Level 1)		(Level 2)		(Level 3)		Total Losses
Other assets:
Investment in Open Range Communications	$	—	$	—	$	—	$	1,903
Goodwill		—		—		—		2,703
Property and equipment, net		—		—		1,150,470		450
Prepaid expenses and other current assets		—		—		5,061		97
Total other assets measured at fair value	$	—	$	—	$	1,155,531	$	5,153

Investment in Open Range Communications

The Company owned an equity method investment in Open Range Communications. The Company’s total cash contribution for its investment in Open Range Communications was approximately $3.0 million.  On September 14, 2010, the FCC issued an Order denying the Company’s requested relief and suspended the Company’s authority to operate WiMAX ATC stations in the 2483.5-2495 MHz frequency band. As a result of this Order, the Company ceased the use of its ATC spectrum and is unable to continue leasing spectrum to Open Range. The FCC has granted special temporary authority to Open Range to continue utilizing Globalstar’s licensed spectrum while it transitions its customers to other frequency bands. Effective January 5, 2011, the Company terminated the lease agreement with Open Range.

As a result of the regulatory rulings by the FCC, the Company wrote off the remaining carrying value of its equity method investment in Open Range Communications.  During 2010, the Company recorded $0.5 million in losses and a $1.9 million charge to write off its remaining investment in Open Range Communications.

Impairment

Goodwill related to the acquisition of Axonn L.L.C. in 2009 was written down to its implied fair value, resulting in an impairment charge of $2.7 million. The carrying value of this asset prior to write down was $2.7 million and was included in other assets. The impairment charge was included in the Company’s results of operations for the year ended December 31, 2010.

Gateway spare parts were written down to their implied fair value, resulting in an impairment charge of $0.5 million. The carrying value of these assets prior to write down was $0.7 million and was included in property and equipment, net. The impairment charge was included in the Company’s results of operations for the year ended December 31, 2010.

Spare parts were written down to their implied fair, resulting in an impairment charge of $0.1 million. The carrying value of these assets prior to write down was $0.4 million and was included in prepaid expenses and other current assets. The impairment charge was included in the Company’s results of operations for the year ended December 31, 2010.

During 2009, there were no adjustments to non-financial asset and non-financial liabilities recorded at fair value on a nonrecurring basis.