-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JQVaCTeOYRWxjTL7mDnOFcUB1+8Lzd0fUGnX/pfyWuukPpSfhRmQas+IqIaBtQ5s qLUyHvHFfhaez6nW4mJj3w== /in/edgar/work/20000811/0000950123-00-007461/0000950123-00-007461.txt : 20000921 0000950123-00-007461.hdr.sgml : 20000921 ACCESSION NUMBER: 0000950123-00-007461 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000811 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GLOBALSTAR TELECOMMUNICATIONS LTD CENTRAL INDEX KEY: 0000933401 STANDARD INDUSTRIAL CLASSIFICATION: [4812 ] IRS NUMBER: 133795510 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-25456 FILM NUMBER: 693226 BUSINESS ADDRESS: STREET 1: CEDAR HOUSE 41 CEDAR AVENUE STREET 2: HAMILTON CITY: BERMUDA HM12 STATE: D0 BUSINESS PHONE: 4412952244 MAIL ADDRESS: STREET 1: 600 THIRD AVENUE CITY: NEW YORK STATE: NY ZIP: 10016 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GLOBALSTAR LP CENTRAL INDEX KEY: 0001037927 STANDARD INDUSTRIAL CLASSIFICATION: [4812 ] IRS NUMBER: 133759824 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 333-25461 FILM NUMBER: 693227 BUSINESS ADDRESS: STREET 1: 3200 ZARKEN R STREET 2: PO BOX 640670 CITY: SAN JOSE STATE: CA ZIP: 95164 BUSINESS PHONE: 4089334000 10-Q 1 e10-q.txt GLOBALSTAR TELECOMMUNICATIONS LTD. & L.P. 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 ------------------------ FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000 GLOBALSTAR TELECOMMUNICATIONS LIMITED CEDAR HOUSE 41 CEDAR AVENUE HAMILTON HM12, BERMUDA TELEPHONE: (441) 295-2244 COMMISSION FILE NUMBER 0-25456 JURISDICTION OF INCORPORATION: BERMUDA IRS IDENTIFICATION NUMBER: 13-3795510 GLOBALSTAR, L.P. 3200 ZANKER ROAD SAN JOSE, CA 95134 TELEPHONE: (408) 933-4000 COMMISSION FILE NUMBER: 333-25461 JURISDICTION OF INCORPORATION: DELAWARE IRS IDENTIFICATION NUMBER: 13-3759024 The registrants have 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 and have been subject to such filing requirements for the past 90 days. As of July 21, 2000, there were 96,911,740 shares of Globalstar Telecommunications Limited common stock outstanding. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Part I. FINANCIAL INFORMATION Globalstar Telecommunications Limited (A General Partner of Globalstar L.P.).......................................... 2 Globalstar, L.P............................................. 8 Management's Discussion and Analysis of Financial Condition and Results of Operations................................. 16 Part II. OTHER INFORMATION Submission of Matters to a Vote of Security Holders......... 19 Exhibits and Reports of Form 8-K............................ 20
1 3 PART I FINANCIAL INFORMATION GLOBALSTAR TELECOMMUNICATIONS LIMITED (A GENERAL PARTNER OF GLOBALSTAR, L.P.) CONDENSED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)
JUNE 30, DECEMBER 31, 2000 1999 ----------- ------------ (UNAUDITED) (NOTE) ASSETS Investment in Globalstar, L.P.: Redeemable preferred partnership interests................ $ 358,967 $ 358,968 Dividends receivable...................................... 3,323 3,323 Ordinary partnership interests............................ 727,360 661,072 Ordinary partnership warrants............................. 11,268 11,539 ---------- ---------- Total assets......................................... $1,100,918 $1,034,902 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Dividends payable......................................... $ 3,323 $ 3,323 Commitments and contingencies Shareholders' equity: Preference shares, $.01 par value, 20,000,000 shares authorized: 8% Series A convertible redeemable preferred stock, (4,396,295 shares outstanding, $220 million redemption value)................................................ 213,393 213,393 9% Series B convertible redeemable preferred stock, (2,999,990 and 3,000,000 shares outstanding at June 30, 2000 and December 31, 1999, respectively, $150 million redemption value)............................. 145,574 145,575 Common stock, $1.00 par value, 600,000,000 shares authorized (96,911,740 and 88,742,794 shares outstanding at June 30, 2000 and December 31, 1999, respectively).......................................... 96,912 88,743 Paid-in capital........................................... 1,001,132 756,615 Warrants.................................................. 11,268 11,539 Accumulated deficit....................................... (370,684) (184,286) ---------- ---------- Total shareholders' equity............................. 1,097,595 1,031,579 ---------- ---------- Total liabilities and shareholders' equity........... $1,100,918 $1,034,902 ========== ==========
- --------------- NOTE: The December 31, 1999 balance sheet has been derived from audited financial statements at that date. See notes to condensed financial statements. 2 4 GLOBALSTAR TELECOMMUNICATIONS LIMITED (A GENERAL PARTNER OF GLOBALSTAR, L.P.) CONDENSED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------- ------------------ 2000 1999 2000 1999 -------- -------- -------- ------- Equity in net loss applicable to ordinary partnership interests of Globalstar, L.P. ....................... $83,811 $15,777 $166,013 $31,475 Amortization of excess carrying value in Globalstar, L.P. ................................................ 10,701 20,385 Dividend income on Globalstar, L.P. redeemable preferred partnership interests...................... 7,771 9,940 15,280 14,690 Interest expense on convertible preferred equivalent obligations............................... 2,510 2,510 ------- ------- -------- ------- Net loss............................................... 86,741 8,347 171,118 19,295 Preferred dividends on convertible redeemable preferred stock................................................ 7,771 7,430 15,280 12,180 ------- ------- -------- ------- Net loss applicable to common shareholders............. $94,512 $15,777 $186,398 $31,475 ======= ======= ======== ======= Net loss per share -- basic and diluted................ $ 0.98 $ 0.19 $ 1.95 $ 0.38 ======= ======= ======== ======= Weighted average shares outstanding -- basic and diluted.............................................. 96,911 82,024 95,557 82,021 ======= ======= ======== =======
See notes to condensed financial statements. 3 5 GLOBALSTAR TELECOMMUNICATIONS LIMITED (A GENERAL PARTNER OF GLOBALSTAR, L.P.) CONDENSED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)
SIX MONTHS ENDED JUNE 30, ---------------------- 2000 1999 --------- --------- Operating activities: Net loss.................................................. $(171,118) $ (19,295) Equity in net loss applicable to ordinary partnership interests of Globalstar, L.P. ......................... 166,013 31,475 Amortization of excess carrying value in Globalstar, L.P. .................................................. 20,385 Accretion to redemption value of redeemable preferred partnership interests.................................. (210) Dividends accrued on redeemable preferred partnership interests.............................................. (3,500) --------- --------- Net cash provided by operating activities................. 15,280 8,470 --------- --------- Investing activities: Purchase of ordinary partnership interests in Globalstar, L.P. .................................................. (270,367) (45) Purchase of 8% redeemable preferred partnership interests in Globalstar, L.P..................................... (339,775) --------- --------- Net cash used in investing activities..................... (270,367) (339,820) --------- --------- Financing activities: Net proceeds from issuance of common stock upon exercise of options and warrants................................ 1,896 45 Net proceeds from sale of common stock.................... 268,471 Proceeds from issuance of 8% Series A convertible redeemable preferred stock............................. 339,775 Payment of preferred stock dividends...................... (15,280) (8,470) --------- --------- Net cash provided by financing activities................. 255,087 331,350 --------- --------- Net increase (decrease) in cash and cash equivalents........ Cash and cash equivalents, beginning of period.............. --------- --------- Cash and cash equivalents, end of period.................... $ -- $ -- ========= ========= Noncash transactions: Change in fair value of stock compensation for the benefit of Globalstar.......................................... $ (17,953) $ ========= =========
See notes to condensed financial statements. 4 6 GLOBALSTAR TELECOMMUNICATIONS LIMITED (A GENERAL PARTNER OF GLOBALSTAR, L.P.) NOTES TO CONDENSED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION The accompanying unaudited condensed financial statements have been prepared by Globalstar Telecommunications Limited ("GTL" or the "Company") pursuant to the rules of the Securities and Exchange Commission ("SEC") and, in the opinion of GTL, include all adjustments (consisting of normal recurring accruals) necessary for a fair presentation of financial position, results of operations and cash flows as of and for the periods presented. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to SEC rules. GTL believes that the disclosures made are adequate to keep the information presented from being misleading. The results of operations for the three and six months ended June 30, 2000 are not necessarily indicative of the results to be expected for the full year. These financial statements should be read in conjunction with GTL's audited financial statements and notes thereto included in the latest Annual Report on Form 10-K for GTL and Globalstar, L.P. ("Globalstar"). 2. ORGANIZATION AND BUSINESS GTL's sole business is acting as a general partner of Globalstar. In the first quarter of 2000, Globalstar commenced commercial operations and began the transition from a development stage entity to an operating entity. In 2000, Globalstar operations will focus on operating the Globalstar System and the provisioning of global wireless telecommunications services. Globalstar commenced commercial service in the first quarter of 2000, and subscriber revenues to date have been lower than originally anticipated. If Globalstar fails to rapidly and significantly improve its market penetration rates and revenues, it will be unable to fund its operating costs or service its debt, unless additional financing can be obtained, as to which there can be no assurance. If Globalstar is unable to obtain sufficient funds to pay for its debt service, Globalstar will be in default under its debt facilities. As of June 30, 2000, GTL held 38.7% of the outstanding ordinary partnership interests, 100% of the outstanding 8% convertible redeemable preferred partnership interests (the "8% RPPIs") and 100% of the outstanding 9% convertible redeemable preferred partnership interests (the "9% RPPIs") of Globalstar. GTL accounts for its investment in Globalstar on the equity method, recognizing its allocated share of net losses in the period incurred based on the ordinary partnership interests it owns. GTL's equity securities and convertible securities are represented by equivalent Globalstar partnership interests on an approximate four-for-one basis. 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Earnings Per Share Due to GTL's net losses for the three and six months ended June 30, 2000 and 1999, diluted weighted average common shares outstanding excludes: (i) the weighted average effect of the assumed conversion of GTL's 8% Series A convertible redeemable preferred stock (the "8% Preferred Stock") into 9.5 million and 15.1 million common shares for the three months ended June 30, 2000 and 1999, respectively, and into 9.5 million and 13.4 million common shares for the six months ended June 30, 2000 and 1999, respectively; (ii) the assumed conversion of GTL's 9% Series B convertible redeemable preferred stock (the "9% Preferred Stock") into 5.8 million common shares for both the three and six months ended June 30, 2000; and (iii) the assumed exercise of outstanding options and warrants, using the treasury stock method, into 9.1 million and 6.7 million common shares for the three months ended June 30, 2000 and 1999, respectively, and into 8.9 million and 6.4 million common shares for the six months ended June 30, 2000 and 1999, respectively as their effect would have been anti-dilutive. Accordingly, basic and diluted net loss per share is based on the net 5 7 GLOBALSTAR TELECOMMUNICATIONS LIMITED (A GENERAL PARTNER OF GLOBALSTAR, L.P.) NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED) 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED) loss applicable to common shareholders' and the weighted average common shares outstanding for the three and six months ended June 30, 2000 and 1999, respectively. Investment in Globalstar, L.P. GTL's investment in Globalstar includes the excess carrying value over GTL's interest in Globalstar's total partners' capital. Such excess totaled $855 million at June 30, 2000, including an increase of $243 million during the first quarter of 2000, resulting primarily from the additional investment in Globalstar's ordinary partnership interests discussed in Note 4. In connection with Globalstar's commencement of commercial operations, GTL began amortizing this excess in January 2000 over a period of 20 years. Accumulated amortization as of June 30, 2000 was $20.4 million. Comprehensive Loss During the periods presented, GTL had no changes in equity from transactions or other events and circumstances from non-owner sources. Accordingly, a statement of comprehensive loss has not been provided. 4. SHAREHOLDERS' EQUITY On February 1, 2000, GTL sold 8,050,000 shares of common stock in a public offering under its shelf registration statement. The sale yielded net proceeds of approximately $268.5 million to the Company. GTL used the proceeds to purchase 1,987,654 ordinary partnership interests in Globalstar. Globalstar is using the proceeds for general corporate purposes which may include the acceleration of Globalstar's roll-out through increased support of service provider marketing activities and the funding of promotional discounts, the development of new features, or potential repayment of debt. 5. GLOBALSTAR CREDIT FACILITIES $250 Million Credit Agreement On June 30, 2000, Globalstar's $250 million credit facility with The Chase Manhattan Bank became due, and was thereupon repaid in full by its guarantors, including Lockheed Martin Corporation ("Lockheed Martin"), Qualcomm, DASA and SS/L, who had previously received warrants for GTL common stock in consideration of their guarantee. Pursuant to the relevant agreements entered into in 1996, Globalstar issued three-year notes in the amounts of $206.3 million, $21.9 million, $11.7 million and $10.1 million to Lockheed Martin, Qualcomm, SS/L and DASA, respectively, in satisfaction of their subrogation rights. The notes are due on June 30, 2003 and bear interest, on a deferred basis, at a rate of LIBOR plus 3%. On June 30, 2000, Loral Space & Communications Ltd. ("Loral") paid $56.3 million on a net basis to Lockheed Martin in satisfaction of its obligation to indemnify Lockheed Martin for liability in excess of $150 million under Lockheed Martin's guarantee of Globalstar's $250 million credit facility. Accordingly, Loral is entitled to receive notes in respect thereof. Lockheed Martin, however, has rejected the notes it received and is instead asking Globalstar to issue new securities with additional rights and enhanced value, without waiving its claim that it is entitled to receive an immediate cash reimbursement by Globalstar of its $150 million payment to the bank lenders. Globalstar disputes Lockheed Martin's interpretation of the relevant agreements, but is, nonetheless, in discussions with Lockheed Martin to resolve the dispute. 6 8 GLOBALSTAR TELECOMMUNICATIONS LIMITED (A GENERAL PARTNER OF GLOBALSTAR, L.P.) NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED) If the dispute is not resolved, Globalstar cannot be sure that if the matter were litigated the court would agree with Globalstar's interpretation of the agreements. Moreover, if as a result of this dispute, a holder of Globalstar public bonds claimed a cross default under the applicable indentures, and a court ruled against Globalstar, the maturity date of the bonds would be accelerated. Management believes, however, that a court would agree with Globalstar's interpretation of the relevant agreements. $500 Million Credit Agreement On August 5, 1999, Globalstar entered into a $500 million credit agreement with a group of banks. The credit agreement provides for a $100 million three-year revolving credit facility ("Revolver"), a $100 million three-year term loan ("Term Loan A") and a $300 million four-year term loan ("Term Loan B"). As of June 30, 2000, all amounts under the $500 million credit agreement were drawn. Borrowings under the facilities bear interest, at Globalstar's option, at various rates based on margins over the lead bank's base rate or the London Interbank Offer Rate ("LIBOR") for periods of one to six months. Globalstar pays a commitment fee on the unused portion of the facilities. The credit agreement contains customary financial covenants that commence March 31, 2001, including minimum revenue thresholds, maintenance of consolidated net worth, interest coverage ratios and maximum leverage ratios. In addition, the credit agreement contains customary limitations on indebtedness, liens, contingent obligations, fundamental changes, asset sales, dividends, investments, optional payments and modification of subordinated and other debt instruments and transactions with affiliates. One of these covenants would require, among other things, that Globalstar have revenues of $100 million for the 12 month period ended March 31, 2001. Globalstar's revenues for the quarter ended June 30, 2000, the first three months of this period, were $708,000. Unless Globalstar can satisfy this covenant or obtain waivers or amendments from a majority of the bank lenders, Globalstar will be in default under its debt facilities and Globalstar's lenders and bondholders would have the right to accelerate payment of their loans to Globalstar. 7 9 GLOBALSTAR, L.P. CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT PARTNERSHIP INTERESTS)
JUNE 30, DECEMBER 31, 2000 1999 ----------- ------------- (UNAUDITED) (NOTE) ASSETS Current assets: Cash and cash equivalents................................. $ 414,846 $ 127,675 Restricted cash........................................... 48,640 46,246 Accounts receivable, net of allowance of $57 at June 30, 2000.................................................... 814 Production gateways and user terminals.................... 165,676 114,980 Other current assets...................................... 10,802 4,001 ---------- ---------- Total current assets.................................... 640,778 292,902 Property and equipment: Globalstar System, net.................................... 2,983,049 Other property and equipment, net......................... 4,722 5,128 ---------- ---------- 2,987,771 5,128 Globalstar System under construction: Space segment............................................. 2,109,275 Ground segment............................................ 50,679 1,071,914 ---------- ---------- 50,679 3,181,189 Additional spare satellites................................. 112,316 53,467 Deferred financing costs.................................... 169,444 151,873 Other assets................................................ 98,401 96,900 ---------- ---------- Total assets............................................ $4,059,389 $3,781,459 ========== ========== LIABILITIES AND PARTNERS' CAPITAL Current liabilities: Current portion of debt................................... $ 36,000 $ Accounts payable.......................................... 11,147 10,908 Payable to affiliates..................................... 144,276 468,536 Vendor financing liability................................ 115,812 137,484 Accrued expenses.......................................... 13,151 20,841 Accrued interest.......................................... 35,193 33,533 ---------- ---------- Total current liabilities.......................... 355,579 671,302 Deferred revenues........................................... 34,418 25,811 Vendor financing liability, net of current portion.......... 643,012 256,311 Deferred interest payable................................... 595 Revolving credit facility................................... 100,000 Term loans payable.......................................... 364,000 400,000 Notes payable............................................... 206,300 Notes payable to affiliates................................. 43,700 Senior notes payable ($1,450,000 aggregate principal amount)................................................... 1,403,388 1,399,111 Commitments and contingencies (Notes 4 and 6) Partners' capital: 8% Series A convertible redeemable preferred partnership interests (4,396,295 interests outstanding, $220 million redemption value)....................................... 213,393 213,393 9% Series B convertible redeemable preferred partnership interests (2,999,990 and 3,000,000 interests outstanding at June 30, 2000 and December 31, 1999, respectively, $150 million redemption value).......................... 145,574 145,575 Ordinary partnership interests (61,861,714 and 59,844,323 interests outstanding at June 30, 2000 and December 31, 1999, respectively)..................................... 336,410 516,530 Unearned compensation..................................... (1,773) (16,754) Warrants.................................................. 215,388 169,585 ---------- ---------- Total partners' capital................................. 908,992 1,028,329 ---------- ---------- Total liabilities and partners' capital................. $4,059,389 $3,781,459 ========== ==========
- --------------- NOTE: The December 31, 1999 balance sheet has been derived from audited consolidated financial statements at that date. See notes to condensed consolidated financial statements. 8 10 GLOBALSTAR, L.P. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER ORDINARY PARTNERSHIP INTEREST AMOUNTS) (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------ ------------------ 2000 1999 2000 1999 -------- ------- -------- ------- Gross revenue: Service.......................................... $ 483 $ $ 660 $ Royalty income................................... 317 788 -------- ------- -------- ------- Total gross revenue................................... 800 1,448 Less, discounts and promotions on service revenue........................................ (92) (131) -------- ------- -------- ------- Net revenue........................................... 708 1,317 -------- ------- -------- ------- Operating expenses: Operations....................................... 36,415 26,345 76,065 57,053 Marketing, general and administrative............ 15,237 10,243 31,258 21,671 Depreciation and amortization.................... 80,850 577 161,018 1,122 -------- ------- -------- ------- Total operating expenses....................... 132,502 37,165 268,341 79,846 -------- ------- -------- ------- Operating loss........................................ 131,794 37,165 267,024 79,846 Interest income....................................... 3,843 1,762 6,841 4,075 Interest expense...................................... 80,994 157,391 -------- ------- -------- ------- Net loss.............................................. 208,945 35,403 417,574 75,771 Preferred distributions on redeemable preferred partnership interests............................... 7,771 9,940 15,280 14,690 -------- ------- -------- ------- Net loss applicable to ordinary partnership interests........................................... $216,716 $45,343 $432,854 $90,461 ======== ======= ======== ======= Net loss per ordinary partnership interest -- basic and diluted......................................... $ 3.50 $ 0.78 $ 7.04 $ 1.55 ======== ======= ======== ======= Weighted average ordinary partnership interests outstanding -- basic and diluted.................... 61,862 58,182 61,527 58,181 ======== ======= ======== =======
See notes to condensed consolidated financial statements. 9 11 GLOBALSTAR, L.P. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)
SIX MONTHS ENDED JUNE 30, --------------------- 2000 1999 --------- -------- Operating activities: Net loss.................................................. $(417,574) $(75,771) Deferred revenues......................................... 8,607 Amortization of unearned compensation..................... (2,923) 786 Depreciation and amortization............................. 161,018 1,122 Non-cash interest......................................... 32,622 Changes in operating assets and liabilities: Accounts receivable..................................... (814) Other current assets.................................... (6,801) 382 Other assets............................................ (2,523) (56) Accounts payable........................................ 4,025 (4,813) Payable to affiliates................................... 38,282 27,273 Accrued expenses........................................ (7,690) (427) Accrued interest and other.............................. 1,065 --------- -------- Net cash used in operating activities................. (192,706) (51,504) --------- -------- Investing activities: Globalstar System....................................... (11,133) (415,482) Insurance proceeds from launch failure.................. 28,500 Payable to affiliates for Globalstar System............. (25,138) 63,327 Capitalized interest accrued............................ 3,087 Accounts payable........................................ (3,786) 4,114 Vendor financing liability.............................. 33,504 32,227 --------- -------- Cash used for Globalstar System......................... (6,553) (284,227) Advances for production gateways and user terminals..... (124,203) (20,427) Cash receipts for production gateways and user terminals.............................................. 73,507 30,623 Receipt and use of restricted cash...................... (2,394) (27,415) Additional spare satellites, net of vendor financing.... (16,501) (3,348) Purchases of property and equipment..................... (838) (1,465) Deferred FCC license costs.............................. (472) --------- -------- Net cash used in investing activities................. (76,982) (306,731) --------- -------- Financing activities: Sale of ordinary partnership interests upon exercise of options and warrants................................... 1,896 45 Sale of ordinary partnership interests.................. 268,471 Sale of 8% Series A convertible redeemable preferred partnership interests to GTL........................... 339,775 Repayment of vendor financing........................... (48,228) Distributions on redeemable preferred partnership interests.............................................. (15,280) (10,980) Borrowings under credit facilities...................... 350,000 --------- -------- Net cash provided by financing activities............. 556,859 328,840 --------- -------- Net increase (decrease) in cash and cash equivalents.... 287,171 (29,395) Cash and cash equivalents, beginning of period.......... 127,675 56,223 --------- -------- Cash and cash equivalents, end of period................ $ 414,846 $ 26,828 ========= ======== Noncash transactions: Issuance of notes to guarantors for repayment of revolving credit line.................................. $ 250,000 ========= Conversion of affiliate payables to vendor financing.... $(387,777) ========= Change in fair value of stock compensation for the benefit of Globalstar.................................. $ (17,953) =========
See notes to condensed consolidated financial statements. 10 12 GLOBALSTAR, L.P. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements have been prepared by Globalstar, L.P. ("Globalstar") pursuant to the rules of the Securities and Exchange Commission ("SEC") and, in the opinion of Globalstar, include all adjustments (consisting of normal recurring accruals) necessary for a fair presentation of financial position, results of operations and cash flows as of and for the periods presented. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such SEC rules. Globalstar believes that the disclosures made are adequate to keep the information presented from being misleading. The results of operations for the three and six months ended June 30, 2000 are not necessarily indicative of the results to be expected for the full year. These condensed consolidated financial statements should be read in conjunction with Globalstar's audited consolidated financial statements and notes thereto included in the latest Annual Report on Form 10-K for Globalstar Telecommunications Limited ("GTL") and Globalstar. 2. ORGANIZATION AND BUSINESS Globalstar, L.P. ("Globalstar"), was founded by Loral Space & Communications Ltd. ("Loral") and QUALCOMM Incorporated ("Qualcomm") to design, construct and operate a worldwide, low-earth orbit ("LEO") satellite-based wireless digital telecommunications system (the "Globalstar System"). As of December 31, 1999, Globalstar's planned principal operations had not commenced and accordingly, Globalstar was a development stage company as defined in Statement of Financial Accounting Standards No. 7, Accounting and Reporting by Development Stage Enterprises. In the first quarter of 2000, Globalstar commenced commercial operations and began the transition from a development stage entity to an operating entity. In 2000, Globalstar operations will focus on operating the Globalstar System and the provisioning of global wireless telecommunications services. Globalstar commenced commercial service in the first quarter of 2000, and subscriber revenues to date have been lower than originally anticipated. If Globalstar fails to rapidly and significantly improve its market penetration rates and revenues, it will be unable to fund its operating costs or service its debt, unless additional financing can be obtained, as to which there can be no assurance. If Globalstar is unable to obtain sufficient funds to pay for its debt service, Globalstar will be in default under its debt facilities. Globalstar operates in one industry segment, global mobile telephone service. 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Earnings Per Ordinary Partnership Interest Due to Globalstar's net losses for the three and six months ended June 30, 2000 and 1999, diluted weighted average ordinary partnership interests outstanding excludes: (i) the weighted average effect of the assumed conversion of the 8% Series A convertible redeemable preferred partnership interests (the "8% RPPI's") into 2.3 million and 3.8 million ordinary partnership interests for the three months ended June 30, 2000 and 1999, respectively, and into 2.3 million and 3.3 million ordinary partnership interests for the six months ended June 30, 2000 and 1999, respectively; (ii) the assumed conversion of the 9% Series B convertible redeemable preferred partnership interests (the "9% RPPI's") into 1.4 million ordinary partnership interests for both the three and six months ended June 30, 2000; and (iii) the assumed issuance of ordinary partnership interests upon exercise of Globalstar warrants and GTL's outstanding options and warrants, using the treasury stock method, into 9.0 million and 2.6 million ordinary partnership interests for the three months ended June 30, 2000 and 1999, respectively, and into 7.8 million and 2.5 million ordinary partnership interests for the six months ended June 30, 2000 and 1999, respectively as their effect would have been anti-dilutive. Accordingly, basic and diluted net loss per ordinary partnership interest are based on the 11 13 GLOBALSTAR, L.P. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED) net loss applicable to ordinary partnership interests and the weighted average ordinary partnership interests outstanding for the three and six months ended June 30, 2000 and 1999, respectively. Property and Equipment Property and equipment are stated at historical cost, less accumulated depreciation. Depreciation is provided using the straight-line method over the estimated useful lives of the respective assets, as follows: Globalstar System Up to periods of 10 years from commencement of service in the first quarter of 2000 Furniture, fixtures & equipment 3 to 8 years Leasehold improvements Shorter of lease term or the estimated useful lives of the improvements
Service Revenue Globalstar owns and operates a global telecommunications network designed to serve virtually every populated area of the world by means of a 52-satellite constellation, including four in-orbit spares. Globalstar provides satellite services under agreements with its service providers and recognizes revenue as satellite services are provided. Gross service revenue represents the billable usage at the contracted rate for the respective services provided. Net service revenue reflects Globalstar's service revenue after promotions and discounts provided to service providers. These promotional programs include a 25% discount on mobile usage fees and free minutes, accumulated based on usage, to service providers for the advance purchase of airtime. A number of Globalstar service providers have committed to pre-purchase discount minutes of use, amounting to approximately $23 million in pre-committed gross revenue. Deferred revenue relating to advance purchases of airtime amounted to approximately $8 million as of June 30, 2000. Royalty Income Royalty income is comprised of royalty payments for Globalstar user terminals sold by user terminal manufacturers. Revenue is recognized as units are shipped by the user terminal manufacturers. Research and Development Expense Globalstar's research and development costs, which are expensed as incurred, were $1.5 million and $26.3 million for the three months ended June 30, 2000 and 1999, respectively, and $3.2 million and $57.1 million for the six months ended June 30, 2000 and 1999, respectively, and are included in operations expense. Comprehensive Loss During the periods presented, Globalstar had no changes in ordinary partner's capital from transactions or other events and circumstances from non-owners sources. Accordingly, a statement of comprehensive loss has not been provided. Reclassifications Certain reclassifications have been made to conform prior period amounts to the current period presentation. 12 14 GLOBALSTAR, L.P. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 4. ADDITIONAL SYSTEM COSTS From July 1, 2000 through December 31, 2000, Globalstar expects to spend approximately $161 million for the enhancement of its system software, for the eight spare satellites being constructed by Space Systems/ Loral Inc. ("SS/L"), for development work completed but not paid at June 30, 2000, for repayment of vendor financing and for the net financing provided to Globalstar's service providers to assist in the purchase of gateways, fixed access terminals and handsets (net of expected receipts of $129 million from the service providers as repayment of such financing). In addition, cash interest, preferred dividends and operating costs are estimated to be between $100 million and $125 million per quarter for the remainder of 2000. Globalstar expects that its cash on hand ($463 million at June 30, 2000) and remaining available credit as of June 30, 2000 of approximately $29 million under its vendor financing arrangements, will enable it to end 2000 with a cash surplus in excess of $100 million. Globalstar believes that it will require additional funds to the extent that cash on hand and revenue does not cover its expected cash outflows for 2001. While Globalstar believes it will be able to obtain the additional funds, there can be no assurance, however, that such funds will be available on favorable terms or on a timely basis, if at all. Globalstar also has secured from SS/L twelve and eighteen month call up orders for two additional Delta launch vehicles. The total future commitment for these launch vehicles is approximately $82 million plus escalation of 3% per year. If these launch vehicles are not used by the end of 2003, Globalstar will incur a termination charge of approximately $16.0 million. 5. PAYABLES TO AFFILIATES AND VENDOR FINANCING Payables and vendor financing due to affiliates is comprised of the following (in thousands):
JUNE 30, DECEMBER 31, 2000 1999 -------- ------------ SS/L........................................................ $311,425 $346,537 Qualcomm.................................................... 574,499 501,647 Other affiliates............................................ 17,176 14,147 -------- -------- 903,100 862,331 Less, current portion....................................... 260,088 606,020 -------- -------- Long-term portion........................................... $643,012 $256,311 ======== ========
In May 2000, Globalstar finalized $531.1 million of vendor financing arrangements (including $31.1 million of capitalized interest) with Qualcomm that replaced the previous $100 million vendor financing agreement. The vendor financing bears interest at 6%, matures on August 15, 2003 and requires repayment pro rata with the term loans under Globalstar's $500 million credit facility (see Note 6). As of June 30, 2000, $503 million was outstanding under this facility. In connection with this agreement, Qualcomm received warrants to purchase 3,450,000 Globalstar partnership interests at an exercise price of $42.25 per interest. The exercise price was determined by reference to the fair market value of GTL's common stock on the closing date of the vendor financing, based on an approximate one partnership interest for four shares of GTL common stock. Fifty percent of the warrants vested on the closing date. The remaining 50% will vest generally in two equal installments on September 1, 2000 and September 1, 2001. The warrants will expire in 2007. The fair value of such warrants totaled approximately $46.1 million and is being amortized over the term of the vendor financing arrangements. The fair value attributable to the unvested portion of such warrants is subject to adjustment based upon the future value of GTL's common stock. Loral has agreed that if the principal amount (excluding capitalized interest of $31.1 million at June 30, 2000) outstanding under the Qualcomm vendor financing facility exceeds the principal amount outstanding 13 15 GLOBALSTAR, L.P. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 5. PAYABLES TO AFFILIATES AND VENDOR FINANCING -- (CONTINUED) under Globalstar's $500 million credit facility, as determined on certain measurement dates, then Loral will guarantee 50% of such excess amount. As a result, Loral's aggregate guarantee liability for debt outstanding under the Qualcomm vendor financing facility and Globalstar's $500 million credit facility will not exceed $500 million. 6. CREDIT FACILITIES $250 Million Credit Agreement On June 30, 2000, Globalstar's $250 million credit facility with The Chase Manhattan Bank became due, and was thereupon repaid in full by its guarantors, including Lockheed Martin Corporation ("Lockheed Martin"), Qualcomm, DASA and SS/L, who had previously received warrants for GTL common stock in consideration of their guarantee. Pursuant to the relevant agreements entered into in 1996, Globalstar issued three-year notes in the amounts of $206.3 million, $21.9 million, $11.7 million and $10.1 million to Lockheed Martin, Qualcomm, SS/L and DASA, respectively, in satisfaction of their subrogation rights. The notes are due on June 30, 2003 and bear interest, on a deferred basis, at a rate of LIBOR plus 3%, and are presented as notes payable and notes payable to affiliates on the condensed consolidated balance sheet of Globalstar. On June 30, 2000, Loral paid $56.3 million on a net basis to Lockheed Martin in satisfaction of its obligation to indemnify Lockheed Martin for liability in excess of $150 million under Lockheed Martin's guarantee of Globalstar's $250 million credit facility. Accordingly, Loral is entitled to receive notes in respect thereof. Lockheed Martin, however, has rejected the notes it received and is instead asking Globalstar to issue new securities with additional rights and enhanced value, without waiving its claim that it is entitled to receive an immediate cash reimbursement by Globalstar of its $150 million payment to the bank lenders. Globalstar disputes Lockheed Martin's interpretation of the relevant agreements, but is, nonetheless, in discussions with Lockheed Martin to resolve the dispute. If the dispute is not resolved, Globalstar cannot be sure that if the matter were litigated the court would agree with Globalstar's interpretation of the agreements. Moreover, if as a result of this dispute, a holder of Globalstar public bonds claimed a cross default under the applicable indentures, and a court ruled against Globalstar, the maturity date of the bonds would be accelerated. Management believes, however, that a court would agree with Globalstar's interpretation of the relevant agreements. $500 Million Credit Agreement On August 5, 1999, Globalstar entered into a $500 million credit agreement with a group of banks. The credit agreement provides for a $100 million three-year revolving credit facility ("Revolver"), a $100 million three-year term loan ("Term Loan A") and a $300 million four-year term loan ("Term Loan B"). As of June 30, 2000, all amounts under the $500 million credit agreement were drawn. Borrowings under the facilities bear interest, at Globalstar's option, at various rates based on margins over the lead bank's base rate or the London Interbank Offer Rate ("LIBOR") for periods of one to six months. Globalstar pays a commitment fee on the unused portion of the facilities. The credit agreement contains customary financial covenants that commence March 31, 2001, including minimum revenue thresholds, maintenance of consolidated net worth, interest coverage ratios and maximum leverage ratios. In addition, the credit agreement contains customary limitations on indebtedness, liens, contingent obligations, fundamental changes, asset sales, dividends, investments, optional payments and modification of subordinated and other debt instruments and transactions with affiliates. 14 16 GLOBALSTAR, L.P. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 6. CREDIT FACILITIES -- (CONTINUED) One of these covenants would require, among other things, that Globalstar have revenues of $100 million for the 12 month period ended March 31, 2001. Globalstar's revenues for the quarter ended June 30, 2000, the first three months of this period, were $708,000. Unless Globalstar can satisfy this covenant or obtain waivers or amendments from a majority of the bank lenders, Globalstar will be in default under its debt facilities and Globalstar's lenders and bondholders would have the right to accelerate payment of their loans to Globalstar. 7. ORDINARY PARTNERS' CAPITAL On February 1, 2000, GTL sold 8,050,000 shares of common stock in a public offering under its shelf registration statement. The sale yielded net proceeds of approximately $268.5 million to GTL. GTL used the proceeds to purchase 1,987,654 ordinary partnership interests in Globalstar. Globalstar is using the proceeds for general corporate purposes, which may include the acceleration of Globalstar's roll-out through increased support of service provider marketing activities and the funding of promotional discounts, the development of new features, or potential repayment of debt. 15 17 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Globalstar Telecommunications Limited ("GTL" or the "Company") is a holding company that acts as a general partner of Globalstar, L.P. ("Globalstar") and has no other business. A subsidiary of Loral Space & Communications Ltd. ("Loral") serves as the managing general partner of Globalstar. The Company's sole asset is its investment in Globalstar and GTL's results of operations reflect its share of the results of operations of Globalstar on an equity accounting basis. Therefore, matters discussed in this section address the financial condition and results of operations of Globalstar. Except for the historical information contained herein, the matters discussed in the following Management's Discussion and Analysis of Financial Condition and Results of Operations are not historical facts, but are "forward-looking statements," as that term is defined in the Private Securities Litigation Reform Act of 1995. In addition, Globalstar and GTL or its representatives have made and may continue to make forward-looking statements, orally or in writing, in other contexts, such as in reports filed with the SEC, press releases or statements made with the approval of an authorized executive officer of either Globalstar or GTL. These forward-looking statements can be identified by the use of forward-looking terminology such as "believes," "expects," "plans," "may," "will," "would," "could," "should," "anticipates," "estimates," "project," "intend," or "outlook" or the negative of these words or other variations of these words or other comparable words, or by discussion of strategy that involve risks and uncertainties. These forward-looking statements are only predictions, and actual events or results may differ materially as a result of a wide variety of factors and conditions, many of which are beyond Globalstar's or GTL's control. Some of these factors and conditions include: (i) Globalstar has recently commenced commercial service and subscriber demand to date has been lower than expected; (ii) Globalstar must achieve significant revenue quickly in order to meet a financial covenant that will become effective in March 2001 (iii) dependence on service providers to market Globalstar service and implement important parts of its system and on third parties to complete its system; (iv) Globalstar has substantial debt; (v) Globalstar may require additional financing; (vi) satellites may fail prematurely; (vii) severe competition in the telecommunications industry; (viii) Globalstar is subject to regulation and (ix) the outcome of Globalstar's discussion with Lockheed Martin. For a detailed discussion of some of these factors and conditions, please refer to the most recent Report on Form 10-K that Globalstar and GTL filed with the SEC. In addition, Globalstar operates in an industry sector where securities values may be volatile and may be influenced by economic and other factors beyond Globalstar's control. LIQUIDITY AND CAPITAL RESOURCES Cash and cash equivalents, including restricted cash, increased from $174 million at December 31, 1999 to $463 million at June 30, 2000. The net increase is primarily the result of the net proceeds from the sale of Globalstar's ordinary partnership interests of $270 million and the net proceeds from borrowings under credit facilities of $350 million, partially offset by the net repayment of vendor financing of $48 million, net cash used in operating activities of $193 million, net expenditures for production gateways and user terminals of $51 million, net distributions on redeemable preferred partnership interests of $15 million, and net expenditures for additional spare satellites of $17 million. On June 30, 2000, Globalstar's $250 million credit facility with The Chase Manhattan Bank became due, and was thereupon repaid in full by its guarantors, including Lockheed Martin Corporation ("Lockheed Martin"), Qualcomm, DASA and SS/L, who had previously received warrants for GTL common stock in consideration of their guarantee. Pursuant to the relevant agreements entered into in 1996, Globalstar issued three-year notes in the amounts of $206.3 million, $21.9 million, $11.7 million and $10.1 million to Lockheed Martin, Qualcomm, SS/L and DASA, respectively, in satisfaction of their subrogation rights. The notes are due on June 30, 2003 and bear interest, on a deferred basis, at a rate of LIBOR plus 3%. On June 30, 2000, Loral paid $56.3 million on a net basis to Lockheed Martin in satisfaction of its obligation to indemnify Lockheed Martin for liability in excess of $150 million under Lockheed Martin's guarantee of Globalstar's $250 million credit facility. Accordingly, Loral is entitled to receive notes in respect thereof. 16 18 Lockheed Martin, however, has rejected the notes it received and is instead asking Globalstar to issue new securities with additional rights and enhanced value, without waiving its claim that it is entitled to receive an immediate cash reimbursement by Globalstar of its $150 million payment to the bank lenders. Globalstar disputes Lockheed Martin's interpretation of the relevant agreements, but is, nonetheless, in discussions with Lockheed Martin to resolve the dispute. If the dispute is not resolved, Globalstar cannot be sure that if the matter were litigated the court would agree with Globalstar's interpretation of the agreements. Moreover, if as a result of this dispute, a holder of Globalstar public bonds claimed a cross default under the applicable indentures, and a court ruled against Globalstar, the maturity date of the bonds would be accelerated. Management believes, however, that a court would agree with Globalstar's interpretation of the relevant agreements. As of June 30, 2000, all 52 Globalstar satellites, including four in-orbit spares, have been launched and are being used to test system functionality, to support service provider friendly user trials, and to provide commercial service. Globalstar has secured from SS/L twelve and eighteen month call up orders for two additional Delta launch vehicles in the event additional spare satellites are required. The total future commitment for these launch vehicles is approximately $82 million plus escalation of 3% per year. If these launch vehicles are not used by year end 2003, Globalstar will incur a termination charge of approximately $16 million. From July 1, 2000 through December 31, 2000, Globalstar expects to spend approximately $161 million, for the enhancement of its system software, for the eight spare satellites being constructed by SS/L, for development work completed but not paid at June 30, 2000, for repayment of vendor financing and for the net financing provided to Globalstar's service providers to assist in the purchase of gateways, fixed access terminals and handsets (net of expected receipts of $129 million from the service providers as repayment of such financing). In addition, cash interest, preferred dividends and operating costs are estimated to be between $100 million and $125 million per quarter for the remainder of 2000. Globalstar expects that its cash on hand ($463 million at June 30, 2000) and remaining available credit as of June 30, 2000 of approximately $29 million under its vendor financing arrangements, will enable it to end 2000 with a cash surplus in excess of $100 million. Globalstar believes that it will require additional funds to the extent that cash on hand and revenue does not cover its expected cash outflows for 2001. While Globalstar believes it will be able to obtain the additional funds, there can be no assurance, however, that such funds will be available on favorable terms or on a timely basis, if at all. In May 2000, Globalstar finalized $531.1 million of vendor financing arrangements (including $31.1 million of capitalized interest) with Qualcomm that replaced the previous $100 million vendor financing agreement. The vendor financing bears interest at 6%, matures on August 15, 2003 and requires repayment pro rata with the term loans under Globalstar's $500 million credit facility (see Note 6 to Globalstar's condensed consolidated financial statements). As of June 30, 2000, $503 million was outstanding under this facility. In connection with this agreement, Qualcomm received warrants to purchase 3,450,000 Globalstar partnership interests at an exercise price of $42.25 per interest. The exercise price was determined by reference to the fair market value of GTL's common stock on the closing date of the vendor financing, based on an approximate one partnership interest for four shares of GTL common stock. Fifty percent of the warrants vested on the closing date. The remaining 50% will vest generally in two equal installments on September 1, 2000 and September 1, 2001. The warrants will expire in 2007. The fair value of such warrants totaled approximately $46.1 million and is being amortized over the term of the vendor financing arrangements. The fair value attributable to the unvested portion of such warrants is subject to adjustment based upon the future value of GTL's common stock. Loral has agreed that if the principal amount (excluding capitalized interest of $31.1 million at June 30, 2000) outstanding under the Qualcomm vendor financing facility exceeds the principal amount outstanding under Globalstar's $500 million credit facility, as determined on certain measurement dates, then Loral will guarantee 50% of such excess amount. As a result, Loral's aggregate guarantee liability for debt outstanding under the Qualcomm vendor financing and Globalstar's credit facility will not exceed $500 million. 17 19 In February 2000, GTL sold 8,050,000 shares of its common stock to the public under a shelf registration statement. GTL used the net proceeds from the offering of approximately $268.5 million to purchase 1,987,654 ordinary partnership interests in Globalstar. Globalstar intends to use the offering proceeds for general corporate purposes, which may include the acceleration of Globalstar's roll-out through increased support for service provider marketing activities and the funding of promotional discounts; development of new service features; and possible repayment of debt. Globalstar's $500 million credit facility contains various financial condition covenants, one which would require, among other things, that Globalstar have revenues of $100 million for the 12 month period ended March 31, 2001. Globalstar's revenues for the quarter ended June 30, 2000, the first three months of this period, were $708,000. Unless Globalstar can satisfy this covenant or obtain waivers or amendments from a majority of the bank lenders, Globalstar will be in default under its debt facilities and Globalstar's lenders and bondholders would have the right to accelerate payment of their loans to Globalstar. RESULTS OF OPERATIONS Effective January 1, 2000, Globalstar commenced commercial operations and as of June 30, 2000, 39 countries were in full service, served by 17 gateways. For the three months ended June 30, 2000, Globalstar recorded 1,137,000 minutes of billable service, more than double the usage in the first quarter. For the six months ended June 30, 2000, Globalstar recorded 1,687,000 minutes of billable service. For the six months ended June 30, 2000, Globalstar recognized gross service revenue of $660,000, royalty income of $788,000 relating to Globalstar user terminals sold by user terminal manufacturers, offset by promotions and discounts of $131,000 on service revenue, resulting in net revenue of $1,317,000. For the three months ended June 30, 2000, Globalstar recognized gross service revenue of $483,000, royalty income of $317,000, offset by promotions and discounts of $92,000 on service revenue, resulting in net revenue of $708,000. Globalstar has offered promotional programs to its service providers, including a 25% discount on mobile usage fees and free minutes for the advance purchase of airtime. A number of Globalstar service providers have committed to pre-purchase discount minutes of use, amounting to approximately $23 million in pre-committed gross revenue. Deferred revenue relating to such advance purchases amounted to approximately $8 million as of June 30, 2000. Operating Expenses. Operations costs increased to $76 million for the six months ended June 30, 2000 from $57 million for the six months ended June 30, 1999 and increased to $36 million for the three months ended June 30, 2000 from $26 million for the three months ended June 30, 1999. The increase is primarily the result of increased costs associated with Globalstar system integration and testing and gateway maintenance. Marketing, general and administrative costs increased to $31 million for the six months ended June 30, 2000 from $22 million for the six months ended June 30, 1999 and increased to $15 million for the three months ended June 30, 2000 from $10 million for the three months ended June 30, 1999. The increase is primarily the result of increased advertising and marketing costs associated with Globalstar commencing service. Depreciation and amortization increased to $161 million for the six months ended June 30, 2000 from $1 million for the six months ended June 30, 1999 and increased to $81 million for the three months ended June 30, 2000 from $0.6 million for the three months ended June 30, 1999. The increase is the result of Globalstar commencing service and starting to depreciate the Globalstar System in 2000. Interest income increased to $7 million for the six months ended June 30, 2000 from $4 million for the six months ended June 30, 1999 and increased to $4 million for the three months ended June 30, 2000 from $2 million for the three months ended June 30, 1999. The increase is the result of higher average cash balances available for investment during 2000, and to a lesser extent, higher interest rates. Interest expense increased to $157 million for the six months ended June 30, 2000 and increased to $81 million for the three months ended June 30, 2000 as compared to no interest expense in 1999. The increase is the result of Globalstar commencing service and starting to expense interest which was previously capitalized to the Globalstar system under construction. 18 20 As a result of the above, the net loss applicable to ordinary partnership interests increased to $433 million for the six months ended June 30, 2000 from $90 million for the six months ended June 30, 1999 and increased to $217 million for the three months ended June 30, 2000 from $45 million for the three months ended June 30, 1999. Income Taxes. Globalstar is organized as a limited partnership. As such, no income tax provision or benefit is included in the accompanying financial statements since U.S. income taxes are the responsibility of its partners. Generally, taxable income or loss, deductions and credits of Globalstar are passed through to its partners. NEW ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board issued Statement No. 133 Accounting for Derivative Instruments and Hedging Activities ("SFAS 133"), which requires that all derivative instruments be recorded on the balance sheet at their fair value. Changes in the fair value of derivatives are recorded each period in current earnings or other comprehensive income, depending on whether a derivative is designated as part of a hedge transaction and, if it is, the type of hedge transaction. Globalstar has not yet determined the impact that the adoption of SFAS 133 will have on its earnings or financial position. Globalstar is required to adopt SFAS 133 on January 1, 2001. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS On May 9, 2000, at GTL's Annual meeting of Shareholders, the following proposals were acted on: (1) In an uncontested election, the following individuals were elected to the Board of Directors of GTL. The votes were as follows:
FOR WITHHELD ---------- -------- Bernard L. Schwartz.................................... 86,480,798 628,161 Michael P. DeBlasio.................................... 86,526,624 582,335 Douglas G Dwyre........................................ 86,494,029 614,930 Sir Ronald Grierson.................................... 86,484,808 624,151 Robert B. Hodes........................................ 86,423,922 685,037 E. John Peett.......................................... 86,524,196 584,763 Michael B. Targoff..................................... 86,484,937 624,022 A. Robert Towbin....................................... 86,443,311 665,648 Eric J. Zahler......................................... 86,513,092 595,867
(2) The proposal to amend GTL's 1994 Stock Option Plan to increase the number of common shares, $1.00 par value, available for issuance from 5,000,000 to 10,000,000, was approved. The votes were as follows: For......................................................... 36,282,451 Against..................................................... 3,875,809 Broker non-votes............................................ 46,457,020 Abstentions................................................. 493,679
(3) The proposal to ratify the appointment of Deloitte & Touche LLP as independent auditors for the year ending December 31, 2000 was approved. The votes were as follows: For......................................................... 86,526,906 Against..................................................... 370,251 Abstentions................................................. 211,802
19 21 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits The following exhibits are filed as part of this report: Exhibit 12 -- Statement Regarding Computation of Ratios Exhibit 27.1 -- Financial Data Schedules Exhibit 27.2 -- Financial Data Schedules Exhibit 99.1 -- Financial Statements for Loral Qualcomm Satellite Services, L.P. Exhibit 99.2 -- Financial Statements for Globalstar Capital Corporation (b) Reports on Form 8-K None SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrants have duly caused this report to be signed on their behalf by the undersigned thereunto duly authorized. GLOBALSTAR TELECOMMUNICATIONS LIMITED Registrant /s/ RICHARD J. TOWNSEND -------------------------------------- Richard J. Townsend Vice President and Chief Financial Officer (Principal Financial Officer) and Registrant's Authorized Officer GLOBALSTAR, L.P. /s/ DANIEL P. MCENTEE -------------------------------------- Daniel P. McEntee Vice President and Chief Financial Officer (Principal Financial Officer) and Registrant's Authorized Officer Date: August 11, 2000 20 22 EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION - ----------- ----------- Exhibit 12 -- Statement Regarding Computation of Ratios Exhibit 27.1 -- Financial Data Schedules Exhibit 27.2 -- Financial Data Schedules Exhibit 99.1 -- Financial Statements for Loral Qualcomm Satellite Services, L.P. Exhibit 99.2 -- Financial Statements for Globalstar Capital Corporation
EX-12 2 ex12.txt STATEMENT RE COMPUTATION OF RATIOS 1 EXHIBIT 12 STATEMENT REGARDING COMPUTATION OF RATIOS (IN THOUSANDS, EXCEPT RATIOS) (UNAUDITED) GLOBALSTAR TELECOMMUNICATIONS LIMITED RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
SIX MONTHS SIX MONTHS ENDED ENDED JUNE 30, 2000 JUNE 30, 1999 -------------- -------------- Earnings: Net loss.................................................. $(171,118) $(19,295) Add: Equity in net loss applicable to ordinary partnership interests of Globalstar, L.P. .................... 186,398(1) 31,475 Interest expense....................................... 2,510 --------- -------- Earnings available to cover fixed charges(2)................ $ 15,280 $ 14,690 ========= ======== Fixed charges(3)............................................ $ 15,280 $ 14,690 ========= ======== Ratio of earnings to fixed charges and preferred stock dividends................................................. 1x 1x ========= ========
- --------------- (1) Includes $20,385 of amortization expense relating to the excess carrying value in Globalstar, L.P. (2) The earnings of GTL available to cover fixed charges, consist solely of dividends from Globalstar, L.P. on the redeemable preferred partnership interests held by GTL. (3) Fixed charges include interest expense and preferred dividends and related increase to redemption value of such preferred stock. GLOBALSTAR, L.P. DEFICIENCY OF EARNINGS TO COVER FIXED CHARGES AND DISTRIBUTIONS ON REDEEMABLE PREFERRED PARTNERSHIP INTERESTS
SIX MONTHS SIX MONTHS ENDED ENDED JUNE 30, 2000 JUNE 30, 1999 ------------- ------------- Net loss.................................................... $(417,574) $ (75,771) Dividends on redeemable preferred partnership interests..... (15,280) (14,690) Capitalized interest........................................ (3,381) (95,268) --------- --------- Deficiency of earnings to cover fixed charges and distributions on redeemable preferred partnership interests................................................. $(436,235) $(185,729) ========= =========
EX-27.1 3 ex27-1.txt FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the financial statements of Globalstar Telecommunications Limited for the period ended June 30, 2000 and is qualified in its entirety by reference to such financial statements. 0000933401 GLOBALSTAR TELECOMMUNICATIONS LTD 1,000 6-MOS DEC-31-2000 JUN-30-2000 0 0 0 0 0 0 0 0 1,100,918 3,323 0 0 358,967 96,912 641,716 1,100,918 0 0 0 0 0 0 0 (171,118) 0 (171,118) 0 0 0 (186,398) (1.95) (1.95)
EX-27.2 4 ex27-2.txt FINANCIAL DATA SCHEDULE
5 This schedule contains summary consolidated financial information extracted from the financial statements of Globalstar L.P. for the period ended June 30, 2000 and is qualified in its entirety by reference to such financial statements. 0001037927 GLOBALSTAR LP 1,000 6-MOS DEC-31-2000 JUN-30-2000 463,486 0 871 57 0 640,778 3,316,836 166,070 4,059,389 355,579 2,117,388 0 358,967 336,410 213,615 4,059,389 660 1,317 0 0 268,341 0 157,391 (417,574) 0 (417,574) 0 0 0 (432,854) (7.04) (7.04)
EX-99.1 5 ex99-1.txt FINANCIAL STATEMENTS - LORAL QUALCOMM 1 EXHIBIT 99.1 LORAL/QUALCOMM SATELLITE SERVICES, L.P. (A GENERAL PARTNER OF GLOBALSTAR, L.P.) CONDENSED BALANCE SHEETS (IN THOUSANDS)
JUNE 30, DECEMBER 31, 2000 1999 ----------- ------------ (UNAUDITED) (NOTE) ASSETS: Investment in Globalstar, L.P............................... $-- $-- --- --- Total assets................................................ $-- $-- === === PARTNERS' CAPITAL: Partners' Capital: Partnership interests (18,000 interests outstanding)...... $-- $-- --- --- Total partners' capital..................................... $-- $-- === ===
NOTE: The December 31, 1999 balance sheet has been derived from audited financial statements at that date. See notes to condensed balance sheets. 2 LORAL/QUALCOMM SATELLITE SERVICES, L.P. (A GENERAL PARTNER OF GLOBALSTAR, L.P.) NOTES TO CONDENSED BALANCE SHEETS 1. BASIS OF PRESENTATION The unaudited interim financial information as of June 30, 2000 has been prepared on the same basis as the audited balance sheets. In the opinion of management, such unaudited information includes all adjustments (consisting of normal recurring accruals) necessary for a fair presentation of financial position for the interim period presented. 2. ORGANIZATION AND BACKGROUND Loral/Qualcomm Satellite Services, L.P. ("LQSS") was formed in November 1993 as a Delaware limited partnership with a December 31 fiscal year end. The general partner of LQSS is Loral/Qualcomm Partnership, L.P. ("LQP"), a limited partnership whose general partner is Loral General Partner, Inc. ("LGP"), a subsidiary of Loral Space & Communications Ltd., a Bermuda company ("Loral") and whose limited partners include a subsidiary of QUALCOMM Incorporated ("Qualcomm"). LQSS's only activity is acting as the managing general partner of Globalstar, L.P. ("Globalstar"). In the first quarter of 2000, Globalstar commenced commercial operations and began the transition from a development stage entity to an operating entity. In 2000, Globalstar operations will focus on operating the Globalstar system and the provisioning of global wireless telecommunications services. At June 30, 2000, LQSS held a 29.1% interest in Globalstar's outstanding ordinary partnership interests. 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Investment in Globalstar, L.P. LQSS accounts for its investment in Globalstar ordinary partnership interests on the equity basis, recognizing its allocated share of net loss for each period since its initial investment in March 1994. The difference between LQSS's initial investment in Globalstar and its interest in Globalstar's ordinary partnership capital is attributable to certain intangible assets contributed to Globalstar for development of the Globalstar system. During 1995, LQSS's investment in Globalstar was reduced to zero. Accordingly, LQSS has discontinued providing for its allocated share of Globalstar's net losses, and will recognize a liability as a result of its general partner status in Globalstar only in the event that Globalstar's losses result in an aggregate ordinary partners' capital deficiency. At June 30, 2000, suspended losses representing LQSS's unrecognized equity in Globalstar's net losses aggregated approximately $306.1 million. Globalstar commenced commercial service in the first quarter of 2000, and subscriber revenues to date have been lower than originally anticipated. If Globalstar fails to rapidly and significantly improve its market penetration rates and revenues, it will be unable to fund its operating costs or service its debt, unless additional financing can be obtained, as to which there can be no assurance. If Globalstar is unable to obtain sufficient funds to pay for its debt service, Globalstar will be in default under its debt facilities. EX-99.2 6 ex99-2.txt FINANCIAL STATEMENTS - GLOBALSTAR CAPITAL CORP. 1 EXHIBIT 99.2 GLOBALSTAR CAPITAL CORPORATION (A WHOLLY-OWNED SUBSIDIARY OF GLOBALSTAR, L.P.) CONDENSED BALANCE SHEETS
JUNE 30, DECEMBER 31, 2000 1999 ----------- ------------ (UNAUDITED) (NOTE) ASSETS Receivable from parent...................................... $1,000 $1,000 ====== ====== LIABILITIES AND SHAREHOLDER'S EQUITY Commitments and contingencies Shareholder's equity Common stock, par value $.10; 1,000 shares authorized, 100 shares issued and outstanding.......................... $ 10 $ 10 Paid-in capital............................................. 990 990 ------ ------ $1,000 $1,000 ====== ======
NOTE: The December 31, 1999 balance sheet has been derived from audited financial statements at that date. See notes to condensed balance sheets. 2 GLOBALSTAR CAPITAL CORPORATION (A WHOLLY-OWNED SUBSIDIARY OF GLOBALSTAR, L.P.) NOTES TO CONDENSED BALANCE SHEET 1. BASIS OF PRESENTATION The unaudited interim financial information as of June 30, 2000 has been prepared on the same basis as the audited balance sheet. In the opinion of management, such unaudited information includes all adjustments (consisting of normal recurring accruals) necessary for a fair presentation of financial position for the interim period presented. 2. ORGANIZATION Globalstar Capital Corporation ("Globalstar Capital"), a wholly-owned subsidiary of Globalstar, L.P. ("Globalstar") was formed on July 24, 1995 for the primary purpose of serving as a co-issuer and co-obligator with respect to certain debt obligations of Globalstar. Globalstar commenced commercial service in the first quarter of 2000, and subscriber revenues to date have been lower than originally anticipated. If Globalstar fails to rapidly and significantly improve its market penetration rates and revenues, it will be unable to fund its operating costs or service its debt, unless additional financing can be obtained, as to which there can be no assurance. If Globalstar is unable to obtain sufficient funds to pay for its debt service, Globalstar will be in default under its debt facilities. Globalstar $250 Million Credit Agreement On June 30, 2000, Globalstar's $250 million credit facility with The Chase Manhattan Bank became due, and was thereupon repaid in full by its guarantors, including Lockheed Martin Corporation ("Lockheed Martin"), Qualcomm, DASA and SS/L, who had previously received warrants for GTL common stock in consideration of their guarantee. Pursuant to the relevant agreements entered into in 1996, Globalstar issued three-year notes in the amounts of $206.3 million, $21.9 million, $11.7 million and $10.1 million to Lockheed Martin, Qualcomm, SS/L and DASA, respectively, in satisfaction of their subrogation rights. The notes are due on June 30, 2003 and bear interest, on a deferred basis, at a rate of LIBOR plus 3%. On June 30, 2000, Loral Space & Communications Ltd. ("Loral") paid $56.3 million on a net basis to Lockheed Martin in satisfaction of its obligation to indemnify Lockheed Martin for liability in excess of $150 million under Lockheed Martin's guarantee of Globalstar's $250 million credit facility. Accordingly, Loral is entitled to receive notes in respect thereof. Lockheed Martin, however, has rejected the notes it received and is instead asking Globalstar to issue new securities with additional rights and enhanced value, without waiving its claim that it is entitled to receive an immediate cash reimbursement by Globalstar of its $150 million payment to the bank lenders. Globalstar disputes Lockheed Martin's interpretation of the relevant agreements, but is, nonetheless, in discussions with Lockheed Martin to resolve the dispute. If the dispute is not resolved, Globalstar cannot be sure that if the matter were litigated the court would agree with Globalstar's interpretation of the agreements. Moreover, if as a result of this dispute, a holder of Globalstar public bonds claimed a cross default under the applicable indentures, and a court ruled against Globalstar, the maturity date of the bonds would be accelerated. Management believes, however, that a court would agree with Globalstar's interpretation of the relevant agreements. Globalstar $500 Million Credit Agreement On August 5, 1999, Globalstar entered into a $500 million credit agreement with a group of banks. The credit agreement provides for a $100 million three-year revolving credit facility ("Revolver"), a $100 million 3 three-year term loan ("Term Loan A") and a $300 million four-year term loan ("Term Loan B"). As of June 30, 2000, all amounts under the $500 million credit agreement were drawn. Borrowings under the facilities bear interest, at Globalstar's option, at various rates based on margins over the lead bank's base rate or the London Interbank Offer Rate ("LIBOR") for periods of one to six months. Globalstar pays a commitment fee on the unused portion of the facilities. The credit agreement contains customary financial covenants that commence March 31, 2001, including minimum revenue thresholds, maintenance of consolidated net worth, interest coverage ratios and maximum leverage ratios. In addition, the credit agreement contains customary limitations on indebtedness, liens, contingent obligations, fundamental changes, asset sales, dividends, investments, optional payments and modification of subordinated and other debt instruments and transactions with affiliates. One of these covenants would require, among other things, that Globalstar have revenues of $100 million for the 12 month period ended March 31, 2001. Globalstar's revenues for the quarter ended June 30, 2000, the first three months of this period, were $708,000. Unless Globalstar can satisfy this covenant or obtain waivers or amendments from a majority of the bank lenders, Globalstar will be in default under its debt facilities and Globalstar's lenders and bondholders would have the right to accelerate payment of their loans to Globalstar. -----END PRIVACY-ENHANCED MESSAGE-----