3. PROPERTY AND EQUIPMENT

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

	September 30,			December 31,
	2012			2011
Globalstar System:
Space component	$	931,936		$	532,487
Ground component		49,040			49,109
Construction in progress:
Space component		294,093			650,920
Ground component		84,240			80,071
Prepaid long-lead items and other		18,135			18,028
Total Globalstar System		1,377,444			1,330,615
Internally developed and purchased software		14,140			14,052
Equipment		12,625			12,333
Land and buildings		4,021			4,152
Leasehold improvements		1,481			1,402
		1,409,711			1,362,554
Accumulated depreciation and amortization		(183,397	)		(144,836	)
	$	1,226,314		$	1,217,718

Contracts

The following table presents the core contract prices for the construction of the first 24 satellites of the Company's second-generation constellation, related launch services and ground upgrades (in thousands):

	Contract
	Price
Thales second-generation satellites	$	622,690
Arianespace launch services		216,000
Launch insurance		39,903
Hughes next-generation ground component		104,597
Ericsson next-generation ground network		29,036
Total	$	1,012,226

As of September 30, 2012, the Company had incurred $945.6 million of costs under these contracts, including contracts payable and accrued expenses of $23.8 million, excluding interest. Of the amounts incurred, the Company had capitalized $940.1 million and expensed $5.5 million of research and development costs. The table above does not include any amounts for the manufacture and launch of six additional second-generation satellites, as discussed further below.

Second-Generation Satellites

The Company has a contract with Thales for the construction of the Company's second-generation low-earth orbit satellites and related services. The Company has launched 18 of the 24 second-generation satellites and plans to launch the remaining six satellites in the first quarter of 2013; however, this plan is subject to numerous factors that are outside of the Company's control.

In June 2012, the Company and Thales agreed to settle their prior commercial disputes including those disputes which were the subject of a May 2012 arbitration award.

In September 2012, the Company entered into an agreement with Thales for the manufacture and delivery of six additional satellites for the Globalstar second-generation constellation. The purchase price for the six satellites, certain software upgrades and related services is €149.9 million, with an initial payment due upon the close of financing and subsequent payments due over a 34-month period subject to Thales' reaching construction milestones. Neither party is obligated to perform under the contract until Globalstar obtains financing for at least 85% of the total contract price, among other conditions. See Note 9 for further discussion.

In accordance with its plans, during October 2012, the Company successfully uploaded the AOCS software solution to the second-generation satellite that was previously taken out of service due to anomalous behavior with its momentum wheels. The Company intends to place this satellite into service in the near future. Although the Company does not expect this problem to arise in other satellites, this software solution can be uploaded to any satellite that may experience similar anomalous behaviors with its momentum wheels.

For assets that are no longer providing service, the Company removes the estimated cost and accumulated depreciation from property and equipment. During the second quarter of 2012, the Company reduced the carrying value of its first-generation constellation by approximately $7.1 million. This loss is recorded in operating expenses for the nine months ended September 30, 2012.

The Company has a contract with Arianespace 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. As previously disclosed, the Company was negotiating with Arianespace regarding certain additional costs related to prior launches. In September 2012, the Company completed these negotiations. All amounts owed to Arianespace for these prior launch costs are included in accounts payable as of September 30, 2012.

Next-Generation Gateways and Other Ground Facilities

In May 2008, the Company and Hughes entered into an agreement under which Hughes agreed to 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. The Company and Hughes have 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 also 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 entered into an agreement with Ericsson, a leading global provider of technology and services to telecom operators. The Company and Ericsson have amended this contract to increase the Company's 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 has the option to purchase additional core networks at pre-negotiated prices. 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):

	As of
	September 30, 2012		December 31, 2011

Total Interest Capitalized	$	209,533	$	176,361

	Three Months Ended				Nine Months Ended
		September 30, 2012		September 30, 2011		September 30, 2012		September 30, 2011

Current Period Interest Capitalized	$	8,234	$	14,221	$	33,172	$	39,823

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

	Three Months Ended				Nine Months Ended
	September 30, 2012		September 30, 2011		September 30, 2012		September 30, 2011

Depreciation Expense	$	17,964	$	12,078	$	47,542	$	33,550