-----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, GURosPN6SIRn1LPqEIHaeQDhIdzGgU8PnDHRS+BR8jCwHCgDwbf1FHZJgb1dhW2J QJ2g2s0Wuwmn5B2/RE1lSQ== 0000950123-98-005143.txt : 19980518 0000950123-98-005143.hdr.sgml : 19980518 ACCESSION NUMBER: 0000950123-98-005143 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980515 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: GLOBALSTAR TELECOMMUNICATIONS LTD CENTRAL INDEX KEY: 0000933401 STANDARD INDUSTRIAL CLASSIFICATION: RADIO TELEPHONE COMMUNICATIONS [4812] IRS NUMBER: 133795510 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-25456 FILM NUMBER: 98623368 BUSINESS ADDRESS: STREET 1: CEDAR HOUSE 41 CEDAR AVENUE STREET 2: HAMILTON CITY: BERMUDA STATE: D0 BUSINESS PHONE: 2126971105 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: RADIO TELEPHONE COMMUNICATIONS [4812] IRS NUMBER: 133759024 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 333-25461 FILM NUMBER: 98623369 BUSINESS ADDRESS: STREET 1: 3200 ZARKEN R STREET 2: PO BOX 640670 CITY: SAN JOSE STATE: CA ZIP: 95164 BUSINESS PHONE: 4084735550 10-Q 1 FORM 10-Q 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 MARCH 31, 1998 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: 13-3759824 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 or such shorter period as the registrants were required to file such reports and have been subject to such filing requirements for the past 90 days or such shorter period. As of May 1, 1998, there were 40,988,702 shares of Globalstar Telecommunications Limited common stock outstanding. ================================================================================ 2 PART I. FINANCIAL INFORMATION GLOBALSTAR TELECOMMUNICATIONS LIMITED (A GENERAL PARTNER OF GLOBALSTAR, L.P.) CONDENSED BALANCE SHEETS (In thousands, except share data)
MARCH 31, DECEMBER 31, 1998 1997 ----------- ------------ (Unaudited) (Note) ASSETS Investment in Globalstar, L.P.: Redeemable preferred partnership interests................ $303,352 $303,089 Ordinary partnership interests............................ 290,529 297,417 Ordinary partnership warrants............................. 12,155 12,210 -------- -------- Total assets...................................... $606,036 $612,716 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Interest payable.......................................... $ 1,679 $ 1,679 Convertible preferred equivalent obligations ($310,000 principal amount)......................................... 301,673 301,410 Commitments and contingencies (Note 4) Shareholders' equity: Common stock, $1.00 par value, 200,000,000 shares authorized (30,651,649 shares and 30,638,152 shares issued and outstanding at March 31, 1998 and December 31, 1997, respectively)................................ 30,652 30,638 Paid-in capital........................................... 319,031 318,643 Warrants.................................................. 12,155 12,210 Accumulated deficit....................................... (59,154) (51,864) -------- -------- Total shareholders' equity............................. 302,684 309,627 -------- -------- Total liabilities and shareholders' equity........ $606,036 $612,716 ======== ========
- --------------- Note: The December 31, 1997 balance sheet has been derived from audited financial statements at that date. See notes to condensed financial statements. 1 3 GLOBALSTAR TELECOMMUNICATIONS LIMITED (A GENERAL PARTNER OF GLOBALSTAR, L.P.) CONDENSED STATEMENTS OF OPERATIONS (In thousands, except per share data) (Unaudited)
THREE MONTHS ENDED MARCH 31, ------------------ 1998 1997 ------- ------- Equity in net loss applicable to ordinary partnership interests of Globalstar, L.P.............................. $ 7,290 $ 4,380 Dividend income on Globalstar, L.P. redeemable preferred partnership interests..................................... (5,300) (5,300) Interest expense on convertible preferred equivalent obligations............................................... 5,300 5,300 ------- ------- Net loss.................................................... $ 7,290 $ 4,380 ======= ======= Net loss per share -- basic and diluted..................... $ 0.24 $ 0.21 ======= ======= Weighted average shares outstanding -- basic and diluted.... 30,641 20,652 ======= ======= Pro forma net loss per share for two-for-one stock split (see Note 4) -- basic and diluted......................... $ 0.12 $ .011 ======= =======
See notes to condensed financial statements. 2 4 GLOBALSTAR TELECOMMUNICATIONS LIMITED (A GENERAL PARTNER OF GLOBALSTAR, L.P.) CONDENSED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited)
THREE MONTHS ENDED ------------------------------- MARCH 31, 1998 MARCH 31, 1997 -------------- -------------- Operating activities: Net loss.................................................. $(7,290) $ (4,380) Equity in net loss applicable to ordinary partnership interests of Globalstar, L.P. ......................... 7,290 4,380 Increase in redemption value of redeemable preferred partnership interests.................................. (263) (263) Amortization of convertible preferred equivalent obligation costs....................................... 263 263 ------- --------- Net cash provided by (used in) operating activities......... -- -- ------- --------- Investing activities: Purchase of ordinary partnership interests in Globalstar, L.P.................................................... (347) (110,911) Purchase of warrants in Globalstar, L.P................... -- (12,210) ------- --------- Net cash used in investing activities....................... (347) (123,121) ------- --------- Financing activities: Net proceeds from issuance of common stock upon exercise of options and warrants................................ 347 -- Proceeds from issuance of warrants in connection with sale of Globalstar, L.P.'s 11 3/8% Senior Notes............. -- 12,210 Proceeds from exercise of guarantee warrants.............. -- 110,911 ------- --------- Net cash provided by financing activities................... 347 123,121 ------- --------- Net increase (decrease) in cash and cash equivalents........ -- -- Cash and cash equivalents, beginning of period.............. -- -- ------- --------- Cash and cash equivalents, end of period.................... $ -- $ -- ======= ========= Supplemental information: Interest paid during the period........................... $ 5,037 $ 5,037 ======= =========
See notes to condensed financial statements. 3 5 GLOBALSTAR TELECOMMUNICATIONS LIMITED (A GENERAL PARTNER OF GLOBALSTAR, L.P.) NOTES TO CONDENSED FINANCIAL STATEMENTS 1. The accompanying unaudited condensed financial statements have been prepared by Globalstar Telecommunications Limited ("GTL") 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. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles 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 months ended March 31, 1998 are not necessarily indicative of the results to be expected for the full year. These financial statements should be read in conjunction with the 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 On November 23, 1994, GTL was incorporated as an exempted company under the Companies Act 1981 of Bermuda. On February 14, 1995, GTL completed an initial public offering of 20,000,000 shares of common stock resulting in net proceeds of $185,750,000. Effective February 22, 1995, GTL purchased 21.3% of the ordinary partnership interests of Globalstar, L.P. (a development stage limited partnership), with the net proceeds of the initial public offering. GTL's financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. GTL's sole business is acting as a general partner of Globalstar, a development stage limited partnership, which is building and will operate a worldwide, low-earth orbit satellite-based wireless digital telecommunications system. At March 31, 1998, GTL held 29.3% of the ordinary partnership interests and 100% of the Redeemable Preferred Partnership Interests ("RPPI's") in Globalstar. GTL accounts for its investment in Globalstar on the equity method, recognizing its allocated share of net loss in the period incurred. GTL's allocated share of Globalstar's net loss applicable to ordinary partnership interests from the period February 22, 1995 through March 31, 1998 was $59,154,000. 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Earnings Per Share In 1997, Financial Accounting Standards Board Statement No. 128, "Earnings per Share" (SFAS 128") replaced the calculation of primary and fully diluted earnings per share with basic and diluted earnings per share. The adoption of SFAS 128 had no effect on reported net loss per share. Due to GTL's net losses for the quarters ended March 31, 1998 and 1997, respectively, diluted weighted average shares outstanding excludes the assumed conversion of GTL's 6 1/2% Convertible Preferred Equivalent Obligations due 2006 (the "CPEOs") and the assumed exercise of outstanding options and warrants as their effect would have been anti-dilutive. Accordingly, basic and diluted weighted average shares outstanding is based on the weighted average common shares outstanding during the quarters ended March 31, 1998 and 1997. Comprehensive Income Effective January 1, 1998, GTL adopted Financial Accounting Standards Board Statement No. 130, "Reporting Comprehensive Income" ("SFAS 130"). 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 as comprehensive loss equals net loss for all periods presented. 4 6 GLOBALSTAR TELECOMMUNICATIONS LIMITED (A GENERAL PARTNER OF GLOBALSTAR, L.P.) NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED) 4. SUBSEQUENT EVENTS Redemption and Conversion of CPEOs On March 31, 1998 (the "Call Date"), GTL called for the redemption on April 30, 1998 of all its outstanding CPEOs, $310 million aggregate principal amount. As of April 30, 1998, all the holders of the CPEOs had converted their holdings into 10,061,615 shares of GTL common stock. As a result of such conversion, Globalstar's RPPIs were converted into ordinary partnership interests. In connection with the redemption, GTL issued 269,660 additional shares of GTL common stock in satisfaction of a required interest make-whole payment totaling approximately $16.6 million. A corresponding dividend make-whole payment was also made by Globalstar for which additional ordinary partnership interests were issued. Prior to the conversion, interest on the CPEOs and, correspondingly, dividends on the RPPIs, were payable quarterly at the rate of 6 1/2% per annum. The conversion of the CPEOs and the related RPPIs will result in annual cash savings of approximately $20.1 million. Purchase of Globalstar Partnership Interests On April 24, 1998, Loral Space and Communications ("Loral") announced a series of transactions which, if completed, will have the effect of (1) increasing Loral's fully diluted ownership in Globalstar to approximately 42%, (2) establishing a Globalstar service provider fund of $210 million for reinvestment in the Globalstar project through the purchase of Globalstar gateways and user terminals and (3) the acquisition by entities advised by or associated with Soros Fund Management L.L.C. ("Soros") of 4.2 million shares of GTL common stock currently held by Loral. The GTL shares proposed to be acquired by Soros represent an indirect ownership in Globalstar of approximately 4%. In connection with the proposed series of transactions, GTL has agreed to provide a shelf-registration for the shares sold to Soros within one year after the purchase. The consummation of these transactions is contingent upon the completion of an equity financing by Loral and the satisfaction of all requirements under the Globalstar partnership agreements and applicable laws and regulations. GTL Two-For-One Stock Split On April 27, 1998, the Board of Directors of GTL, approved a two-for-one stock split of its common stock in the form of a stock dividend. The stock dividend will be paid on June 8, 1998 to shareholders of record as of May 29, 1998. GTL's equity securities and convertible securities are currently represented by equivalent Globalstar partnership interests on an approximate two-for-one basis. Globalstar's partnership interests will not be affected by the GTL stock split and, accordingly, GTL's equity securities and convertible securities will be represented by equivalent Globalstar partnership interests on an approximate four-for-one basis. At GTL's annual meeting on April 28, 1998, the shareholders approved a proposal to increase the number of GTL authorized common shares, $1.00 par value, to 600 million shares. 5 7 GLOBALSTAR, L.P. (A DEVELOPMENT STAGE LIMITED PARTNERSHIP) CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except partnership interest data)
MARCH 31, DECEMBER 31, 1998 1997 ----------- ------------ (UNAUDITED) (NOTE) ASSETS Current assets: Cash and cash equivalents................................. $ 291,931 $ 464,154 Other current assets...................................... 29,335 29,626 ---------- ---------- Total current assets.............................. 321,266 493,780 Property and equipment, net................................. 2,908 2,574 Globalstar system under construction: Space segment............................................. 1,274,083 1,153,344 Ground segment............................................ 444,037 374,344 ---------- ---------- 1,718,120 1,527,688 Additional satellite spares and user terminals.............. 122,509 99,225 Deferred FCC license costs.................................. 10,551 10,342 Deferred financing costs.................................... 13,394 14,631 Other assets................................................ 1,168 813 ---------- ---------- Total assets...................................... $2,189,916 $2,149,053 ========== ========== LIABILITIES AND PARTNERS' CAPITAL Current liabilities: Accounts payable.......................................... $ 14,672 $ 1,272 Payable to affiliates..................................... 80,276 105,357 Vendor financing liability, current portion............... 45,599 -- Accrued expenses.......................................... 5,423 8,312 Accrued interest on senior notes.......................... 32,525 28,869 ---------- ---------- Total current liabilities......................... 178,495 143,810 Deferred revenues........................................... 23,652 23,652 Vendor financing liability.................................. 225,860 197,723 Deferred interest payable................................... 429 420 11 3/8% Senior notes payable ($500,000 principal amount).... 476,576 475,579 11 1/4% Senior notes payable ($325,000 principal amount).... 304,468 303,641 10 3/4% Senior notes payable ($325,000 principal amount).... 320,483 320,311 Commitments and contingencies (Notes 4, 5 and 6) Redeemable preferred partnership interests (4,769,230 outstanding, $310,000 redemption value)................... 303,352 303,089 Ordinary partners' capital: Ordinary partnership interests (52,325,825 and 52,319,076 outstanding at March 31, 1998 and December 31, 1997, respectively).......................................... 344,446 368,618 Warrants.................................................. 12,155 12,210 ---------- ---------- Total ordinary partners' capital....................... 356,601 380,828 ---------- ---------- Total liabilities and partners' capital........... $2,189,916 $2,149,053 ========== ==========
- --------------- Note: The December 31, 1997 balance sheet has been derived from audited consolidated financial statements at that date. See notes to condensed consolidated financial statements. 6 8 GLOBALSTAR, L.P. (A DEVELOPMENT STAGE LIMITED PARTNERSHIP) CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per ordinary partnership interest data) (Unaudited)
CUMULATIVE MARCH 23, 1994 THREE MONTHS ENDED (COMMENCEMENT OF -------------------------------- OPERATIONS) TO MARCH 31, 1998 MARCH 31, 1997 MARCH 31, 1998 -------------- -------------- ---------------- Operating expenses: Development costs............................ $16,490 $11,241 $205,253 Marketing, general and administrative........ 8,271 6,341 76,857 ------- ------- -------- Total operating expenses............. 24,761 17,582 282,110 Interest income................................ 5,165 2,295 45,801 ------- ------- -------- Net loss....................................... 19,596 15,287 236,309 Preferred distributions and related increase in redeemable preferred partnership interests... 5,300 5,301 43,825 ------- ------- -------- Net loss applicable to ordinary partnership interests.................................... $24,896 $20,588 $280,134 ======= ======= ======== Net loss per ordinary partnership interest -- basic and diluted................ $ 0.48 $ 0.44 ======= ======= Weighted average ordinary partnership interests outstanding -- basic and diluted............. 52,321 47,326 ======= =======
See notes to condensed consolidated financial statements. 7 9 GLOBALSTAR, L.P. (A DEVELOPMENT STAGE LIMITED PARTNERSHIP) CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited)
CUMULATIVE THREE MONTHS ENDED MARCH 23, 1994 MARCH 31, (COMMENCEMENT OF ---------------------- OPERATIONS) TO 1998 1997 MARCH 31, 1998 --------- --------- ---------------- Operating activities: Net loss.................................................. $ (19,596) $ (15,287) $ (236,309) Deferred revenues......................................... -- -- 23,652 Stock compensation transactions........................... 322 318 1,929 Depreciation and amortization............................. 347 236 2,600 Changes in operating assets and liabilities: Other current assets.................................... 291 (299) (29,335) Other assets............................................ (355) (27) (1,168) Accounts payable........................................ 1,327 (319) 2,528 Payable to affiliates................................... 5,994 (3,202) 5,817 Accrued expenses........................................ (2,889) (1,298) 5,423 --------- --------- ----------- Net cash used in operating activities....................... (14,559) (19,878) (224,863) --------- --------- ----------- Investing activities: Globalstar System under construction...................... (190,432) (137,636) (1,718,120) Payable to affiliates for Globalstar System under construction............................................ (31,075) (3,299) 65,659 Capitalized interest accrued.............................. 6,898 9,160 51,661 Accounts payable.......................................... 12,073 (529) 11,636 Vendor financing liability................................ 73,736 25,354 271,459 --------- --------- ----------- Cash used for Globalstar System........................... (128,800) (106,950) (1,317,705) Additional satellite spares and user terminals............ (23,284) (28,348) (122,509) Purchases of property and equipment....................... (681) (750) (5,493) Deferred FCC license costs................................ (209) (217) (8,316) Purchases of investments.................................. -- -- (126,923) Maturity of investments................................... -- -- 126,923 --------- --------- ----------- Net cash used in investing activities....................... (152,974) (136,265) (1,454,023) --------- --------- ----------- Financing activities: Net proceeds from issuance of $500,000 11 3/8% Senior Notes................................................... -- 472,090 472,090 Proceeds from warrants issued in connection with $500,000 11 3/8% Senior Notes.................................... -- 12,210 12,210 Net proceeds from issuance of $325,000 11 1/4% Senior Notes................................................... -- -- 301,850 Net proceeds from issuance of $325,000 10 3/4% Senior Notes................................................... -- -- 320,197 Deferred financing costs.................................. -- -- (2,125) Proceeds of capital subscriptions receivable.............. -- -- 282,441 Payment of accrued capital raising costs.................. -- -- (2,400) Sale of partnership interests to GTL...................... 347 110,911 327,027 Sale of redeemable preferred partnership interests to GTL..................................................... -- -- 299,500 Distributions on redeemable preferred partnership interests............................................... (5,037) (5,037) (40,020) Prepaid interest on redeemable preferred partnership interests............................................... -- -- 47 Borrowings under long-term revolving credit facility...... -- 65,000 171,000 Repayment of borrowings under long-term revolving credit facility................................................ -- (161,000) (171,000) --------- --------- ----------- Net cash provided by (used in) financing activities......... (4,690) 494,174 1,970,817 --------- --------- ----------- Net increase (decrease) in cash and cash equivalents........ (172,223) 338,031 291,931 Cash and cash equivalents, beginning of period.............. 464,154 21,180 -- --------- --------- ----------- Cash and cash equivalents, end of period.................... $ 291,931 $ 359,211 $ 291,931 ========= ========= =========== Noncash transactions: Payable to affiliates..................................... $ 9,308 =========== Accrual of capital raising costs.......................... $ 2,400 =========== Deferred FCC license costs................................ $ 2,235 =========== Warrants issued in exchange for debt guarantee............ $ 22,601 =========== Increase in redemption value of preferred partnership interests............................................... $ 263 $ 263 $ 3,852 ========= ========= =========== Supplemental Information: Interest paid during the period........................... $ 28,613 $ 1,704 $ 77,655 ========= ========= ===========
See notes to condensed consolidated financial statements. 8 10 GLOBALSTAR, L.P. (A DEVELOPMENT STAGE LIMITED PARTNERSHIP) NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. 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. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles 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 months ended March 31, 1998 are not necessarily indicative of the results to be expected for the full year. It is suggested that these consolidated financial statements be read in conjunction with the 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, founded by Loral Space & Communications Ltd. ("Loral") and QUALCOMM Incorporated ("Qualcomm"), is building and will operate a worldwide, low-earth orbit satellite-based wireless digital telecommunications system (the "Globalstar System"). Globalstar, a Delaware limited partnership with a December 31 fiscal year end, was formed in November 1993. It had no activities until March 23, 1994, when it received capital subscriptions for $275 million and commenced operations. The accompanying condensed consolidated financial statements reflect the operations of Globalstar from that date. 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Development Stage Company Globalstar is devoting substantially all of its present efforts to the design, licensing, construction, testing and financing of the Globalstar System, and establishing its business. Its planned principal operations have not commenced. Accordingly, Globalstar is a development stage company as defined in SFAS No. 7 "Accounting and Reporting by Development Stage Enterprises." Globalstar may encounter problems, delays and expenses, many of which may be beyond Globalstar's control. These may include, but are not limited to, problems related to technical development of the system, testing, regulatory compliance, manufacturing and assembly, the competitive and regulatory environment in which Globalstar will operate, marketing problems and costs and expenses that may exceed current estimates. There can be no assurance that substantial delays in any of the foregoing matters would not delay Globalstar's achievement of profitable operations. Earnings Per Ordinary Partnership Interest In 1997, Financial Accounting Standards Board Statement No. 128, "Earnings per Share" ("SFAS 128") replaced the calculation of primary and fully diluted earnings per share with basic and diluted earnings per share. The adoption of SFAS 128 had no effect on reported net loss per ordinary partnership interest. Due to Globalstar's net losses for the quarters ended March 31, 1998 and 1997, respectively, diluted weighted average ordinary partnership interests outstanding excludes the assumed conversion of Redeemable Preferred Partnership Interests ("RPPIs") and the assumed issuance of ordinary partnership interests upon exercise of GTL's outstanding options and warrants as their effect would have been anti-dilutive. Accordingly, basic and diluted weighted average ordinary partnership interests outstanding is based on net loss applicable to ordinary partnership interests and the weighted average ordinary partnership interests outstanding during the quarters ended March 31, 1998 and 1997. 9 11 GLOBALSTAR, L.P. (A DEVELOPMENT STAGE LIMITED PARTNERSHIP) NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Comprehensive Income Effective January 1, 1998, Globalstar adopted Financial Accounting Standards Board Statement No. 130, "Reporting Comprehensive Income" ("SFAS 130"). During the periods presented, Globalstar had no changes in ordinary partners capital from transactions or other events and circumstances from non-owner sources. Accordingly, a statement of comprehensive loss has not been provided as comprehensive loss equals net loss for all periods presented. Reclassifications Certain reclassifications have been made to conform prior amounts to the current period presentation. 4. GLOBALSTAR SYSTEM UNDER CONSTRUCTION Total System Cost In April 1998, Globalstar's budgeted expenditures for the design, construction and deployment of the Globalstar System to commence commercial service, including working capital, cash interest on borrowings and operating expenses increased to approximately $2.8 billion, reflecting revised cost estimates from Qualcomm and other increased Globalstar expenditures. In addition to expenditures for operating costs, working capital and debt service, Globalstar anticipates additional expenditures on system software for the improvement of system functionality and the addition of new features beyond those planned for the commencement of commercial service. In addition, Globalstar has agreed to purchase from SS/L eight additional spare satellites at a cost estimated at $175 million. Further, in order to accelerate the deployment of gateways around the world Globalstar has agreed to finance approximately $80 million of the cost of up to 32 of the initial 38 gateways. In December 1997, Globalstar ordered 40,000 fixed access terminals from Ericsson for $84 million. Globalstar has also agreed to finance approximately $67 million of the cost of handsets. Globalstar expects to recoup the amounts so financed following the acceptance by the service providers of the gateways, fixed access terminals and handsets. As of April 27, 1998, Globalstar had raised or received commitments for approximately $2.6 billion, including the vendor financing agreements. Globalstar intends to raise the remaining funds required for the Globalstar System from a combination of sources, including debt issuance (which may include an equity component), financial support from the Globalstar partners, projected service provider payments, projected net service revenues from initial operations, and anticipated payments from the sale of gateways and Globalstar phones. Although Globalstar believes it will be able to obtain these additional funds, there can be no assurance that such funds will be available on favorable terms or on a timely basis, if at all. 5. VENDOR FINANCING LIABILITY On March 4, 1998, Qualcomm entered into a deferred payment agreement with Globalstar providing $100 million of vendor financing. The deferred payments will accrue interest at a rate of 5.75% per annum, and will be capitalized to principal quarterly. Globalstar will make eight equal principal payments on a quarterly basis commencing on January 1, 2000 with final payment due October 1, 2001 accompanied by all then unpaid accrued interest. 6. SUBSEQUENT EVENTS Capital Contribution from ChinaSat On April 21, 1998, China Telecom (Hong Kong) Group Ltd. ("China Telecom"), through a subsidiary, exercised, an option to acquire 937,500 Globalstar ordinary partnership interests for an aggregate purchase price of $18,750,000. In addition, China Telecom has an option to acquire an additional 937,500 Globalstar ordinary partnership interests for an aggregate purchase price of $18,750,000. Globalstar had previously 10 12 GLOBALSTAR, L.P. (A DEVELOPMENT STAGE LIMITED PARTNERSHIP) NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) granted these options to China Telecom in connection with service provider arrangements in China under which China Telecommunications Broadcast Satellite Corporation ("ChinaSat") will act as the sole distributor of Globalstar service in China. Redemption and Conversion of CPEOs and RPPIs On March 31, 1998 (the "Call Date"), GTL called for the redemption on April 30, 1998 of all its outstanding Convertible Preferred Equivalent Obligations ("CPEOs"), $310 million aggregate principal amount. As of April 30, 1998, all the holders of the CPEOs had converted their holdings into 10,061,615 shares of GTL common stock. As a result of such conversion, Globalstar's RPPIs were converted into ordinary partnership interests. In connection with the redemption, GTL issued 269,660 additional shares of GTL common stock in satisfaction of a required interest make-whole payment totaling approximately $16.6 million. A corresponding dividend make-whole payment was also made by Globalstar for which additional ordinary partnership interests were issued. Prior to the conversion, interest on the CPEOs and, correspondingly, dividends on the RPPIs, were payable quarterly at the rate of 6 1/2% per annum. The conversion of the CPEOs and the related RPPIs will result in annual cash savings of approximately $20.1 million. Purchase of Globalstar Partnership Interests On April 24, 1998, Loral announced a series of transactions which, if completed, will have the effect of (1) increasing Loral's fully diluted ownership in Globalstar to approximately 42%, (2) establishing a Globalstar service provider fund of $210 million for reinvestment in the Globalstar project through the purchase of Globalstar gateways and user terminals and (3) the acquisition by entities advised by or affiliated with Soros Fund Management L.L.C. ("Soros") of 4.2 million shares of GTL common stock currently held by Loral. The GTL shares proposed to be acquired by Soros represent an indirect ownership in Globalstar of approximately 4%. Loral has agreed to purchase 4.2 million partnership interests in Globalstar from its original service provider partners. Partners participating in this transaction will reinvest one-half of their proceeds, or $210 million in the aggregate, into the Globalstar project by establishing an escrow account to be used solely for the purchase of Globalstar gateways and handsets. Concurrently, Soros will purchase from Loral 4.2 million shares of GTL common stock that Loral currently owns. In connection with the proposed series of transactions, GTL has agreed to provide a shelf-registration for the shares sold to Soros within one year after the purchase. The consummation of these transactions is contingent upon the completion of an equity financing by Loral and the satisfaction of all requirements under the Globalstar partnership agreements and applicable laws and regulations. GTL Two-For-One Stock Split On April 27, 1998, the Board of Directors of GTL, general partner of Globalstar, approved a two-for-one stock split of its common stock in the form of a stock dividend. The stock dividend will be paid on June 8, 1998 to shareholders of record as of May 29, 1998. GTL's equity securities and convertible securities are currently represented by equivalent Globalstar partnership interests on an approximate two-for-one basis. Globalstar's partnership interests will not be affected by the GTL stock split and, accordingly, GTL's equity securities and convertible securities will be represented by equivalent Globalstar partnership interests on an approximate four-for-one basis. At GTL's annual meeting on April 28, 1998, the shareholders approved a proposal to increase the number of GTL authorized common shares, $1.00 par value, to 600 million shares. 11 13 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GTL is a general partner of Globalstar and has no other business. GTL'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. Except for the historical information contained herein, the matters discussed in this Management's Discussion and Analysis of Financial Condition and Results of Operations, and elsewhere in this Form 10-Q, are forward-looking statements that involve risks and uncertainties, many of which may be beyond Globalstar's control. These may include, but are not limited to, problems relating to technical development of the system, testing, regulatory compliance, manufacturing and assembly, the competitive and regulatory environment in which Globalstar will operate, marketing problems and costs and expenses that may exceed current estimates. The actual results that Globalstar achieves may differ materially from any forward-looking statements due to such risks and uncertainties. LIQUIDITY AND CAPITAL RESOURCES At March 31, 1998, cash and cash equivalents decreased to $291.9 million from $464.2 million at December 31, 1997. The net decrease is a result of expenditures for the Globalstar System of $128.8 million, expenditures for the additional spare satellites and user terminals of $23.3 million, net cash used in operating activities of $14.6 million and preferred distributions on the Redeemable Preferred Partnership Interests of $5.0 million. Current liabilities increased by $34.7 million from $143.8 million at December 31, 1997 to $178.5 million at March 31, 1998, primarily as a result of the classification of a portion of the vendor financing due within one year to current liabilities. Through March 31, 1998, Globalstar incurred costs of approximately $1.9 billion for the design and construction of the space and ground segments. Costs incurred to date during fiscal year 1998 were approximately $207 million. On February 14, 1998, Globalstar launched its first four satellites and launched four additional satellites on April 24, 1998. Globalstar expects to begin commercial service in early 1999 following the launch of 36 additional satellites during 1998. The remaining 12 satellites, including eight in-orbit spares, will be launched in the first half of 1999. In April 1998, Globalstar's budgeted expenditures for the design, construction and deployment of the Globalstar System to commence commercial service, including working capital, cash interest on borrowings and operating expenses increased to approximately $2.8 billion, reflecting revised cost estimates from Qualcomm and other increased Globalstar expenditures. In addition to expenditures for operating costs, working capital and debt service, Globalstar anticipates additional expenditures on system software for the improvement of system functionality and the addition of new features beyond those planned for the commencement of commercial service. In addition, Globalstar has agreed to purchase from SS/L eight additional spare satellites at a cost estimated at $175 million. Further, in order to accelerate the deployment of gateways around the world Globalstar has agreed to finance approximately $80 million of the cost of up to 32 of the initial 38 gateways. In December 1997, Globalstar ordered 40,000 fixed access terminals from Ericsson for $84 million. Globalstar has also agreed to finance approximately $67 million of the cost of handsets. Globalstar expects to recoup the amounts so financed following the acceptance by the service providers of the gateways, fixed access terminals and handsets. Globalstar and Globalstar service providers entered into contracts with Qualcomm, Ericsson OMC Limited and Telital S.p.A. for the initial manufacture and delivery of approximately 300,000 production handheld and fixed access terminals. On March 4, 1998, Qualcomm entered into a deferred payment agreement with Globalstar providing $100 million of vendor financing. The deferred payments will accrue interest at a rate of 5.75% per annum, and will be capitalized to principal quarterly. Globalstar will make eight equal principal payments on a quarterly basis commencing on January 1, 2000 with final payment due October 1, 2001 accompanied by all then unpaid accrued interest. 12 14 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED) As of April 27, 1998, Globalstar had raised or received commitments for approximately $2.6 billion. Globalstar believes that its current capital, vendor financing commitments and the availability of the Globalstar credit agreement ($250 million available at March 31, 1998) are sufficient to fund its requirements into the fourth quarter of 1998. Globalstar intends to raise the remaining funds required from a combination of sources including; debt issuance (which may include an equity component), financial support from the Globalstar partners, projected service provider payments, projected net service revenues from initial operations and anticipated payments from the sale of gateways and Globalstar subscriber terminals. Although Globalstar believes it will be able to obtain these additional funds, there can be no assurance that such funds will be available on favorable terms or on a timely basis, if at all. On April 21, 1998, China Telecom (Hong Kong) Group Ltd. ("China Telecom"), through a subsidiary, exercised, an option to acquire 937,500 Globalstar ordinary partnership interests for an aggregate purchase price of $18,750,000. In addition, China Telecom has an option to acquire an additional 937,500 Globalstar ordinary partnership interests for an aggregate purchase price of $18,750,000. Globalstar had previously granted these options to China Telecom in connection with service provider arrangements in China under which China Telecommunications Broadcast Satellite Corporation ("ChinaSat") will act as the sole distributor of Globalstar service in China. On March 31, 1998 (the "Call Date"), GTL called for the redemption on April 30, 1998 of all its outstanding CPEOs, $310 million aggregate principal amount. As of April 30, 1998, all the holders of the CPEOs had converted their holdings into 10,061,615 shares of GTL common stock. As a result of such conversion, Globalstar's RPPIs were converted into ordinary partnership interests. In connection with the redemption, GTL issued 269,660 additional shares of GTL common stock in satisfaction of a required interest make-whole payment totaling approximately $16.6 million. A corresponding dividend make-whole payment was also made by Globalstar for which additional ordinary partnership interests were issued. Prior to the conversion, interest on the CPEOs and, correspondingly, dividends on the RPPIs, were payable quarterly at the rate of 6 1/2% per annum. The conversion of the CPEOs and the related RPPIs will result in annual cash savings of approximately $20.1 million. RESULTS OF OPERATIONS Globalstar is a development stage partnership and has not commenced operations. For the period March 23, 1994 (commencement of operations) to March 31, 1998, Globalstar has recorded cumulative net losses applicable to ordinary partnership interests of $280.1 million. The net loss applicable to ordinary partnership interests for the three months ended March 31, 1998 increased to $24.9 million as compared to $20.6 million for the three months ended March 31, 1997. The net loss increased primarily as a result of increased activity in the development of Globalstar user terminals, and increased in-house engineering and marketing efforts. Globalstar is expending significant funds for the design, construction, testing and deployment of the Globalstar System and expects such losses to continue until commencement of commercial operations. Globalstar has earned interest income of $45.8 million on cash balances and short term investments since commencement of operations. Interest income during the three months ended March 31, 1998 was $5.2 million as compared to $2.3 million for the three months ended March 31, 1997. Interest income for the current period increased as a result of higher average cash balances outstanding during the first quarter of 1998. Operating Expenses. Development costs during the three months ended March 31, 1998 were $16.5 million as compared to $11.2 million for the three months ended March 31, 1997. Development costs for the current period increased as a result of increased activity in the development of Globalstar user terminals and in-house engineering. 13 15 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED) Marketing, general and administrative expenses were $8.3 million and $6.3 million for the three months ended March 31, 1998 and 1997, respectively. The increase in marketing, general and administrative expenses is primarily the result of an increase in the number of employees as compared to the first quarter of 1997 as Globalstar gears up for operations and increased marketing costs. Depreciation. Globalstar intends to capitalize all costs, including interest as applicable, associated with the design, construction and deployment of the Globalstar System, except costs associated with the development of the Globalstar Phones and certain technologies under a cost sharing arrangement with Qualcomm. Globalstar will not record depreciation expense on the Globalstar System Under Construction until the commencement of commercial operations, as assets are placed into service. Income Taxes. Globalstar was organized as a limited partnership. As such, no income tax provision (benefit) is included in the accompanying financial statements since U.S. income taxes are the responsibility of its partners. Generally, taxable income (loss), deductions and credits of Globalstar will be passed through to its partners. FINANCIAL ACCOUNTING PRONOUNCEMENTS Effective January 1, 1998, Globalstar adopted the Financial Accounting Standards Board Statement No. 130, "Reporting Comprehensive Income" ("SFAS 130"). The requirements of SFAS 130 had no effect on the financial statements presented. In June 1997, the Financial Accounting Standards Board issued Statement No. 131, "Disclosures About Segments of an Enterprise and Related Information" ("SFAS 131"), and in February 1998, issued Statement No. 132, "Employers' Disclosures About Pensions and Other Postretirement Benefits" ("SFAS 132"). SFAS 131 establishes annual and interim reporting standards for an enterprise's business segments and related disclosures about its products, services, geographic areas and major customers. SFAS 132 expands and standardizes the disclosure requirements for pensions and other postretirement benefits. Globalstar is required to adopt SFAS 131 and SFAS 132 in 1998 and the financial statements of Globalstar will reflect the appropriate disclosures. YEAR 2000 ISSUE Globalstar is evaluating the potential effect on its information processing systems to determine what actions will be necessary or appropriate in connection with the "Year 2000 Issue." The Year 2000 Issue is the result of computer programs which were written using two digits rather than four to signify a year (i.e., the year 1997 is denoted "97" and not "1997"). Computer programs written using only two digits may recognize the year 2000 as the year 1900. This could result in a system failure or miscalculations causing disruption of operations. It is not known at this time what modifications, if any, will be required. All costs associated with any modification will be expensed as incurred. In addition, Globalstar has requested, and will continue to seek, information from third-party entities on which it relies, certifying that their computer systems will not negatively affect its operations. No assurance can be given that there will not be some unforeseen issue, in particular, in connection with third parties' systems, that may materially affect Globalstar's operations. 14 16 PART II -- OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS On April 28, 1998, at GTL's Annual Meeting of Stockholders, 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......................................... 22,879,321 90,069 Gregory J. Clark............................................ 22,880,488 88,902 Michael P. DeBlasio......................................... 22,880,266 89,124 Sir Ronald Grierson......................................... 22,876,572 92,818 Robert B. Hodes............................................. 22,877,316 92,074 E. John Peett............................................... 22,875,386 94,004 Michael B. Targoff.......................................... 22,879,998 89,392 A. Robert Towbin............................................ 22,880,620 88,770
(2) The proposal to increase the number of authorized common shares, $1.00 par value, of Globalstar Telecommunications Limited from 200,000,000 to 600,000,000 was ratified. The votes were as follows: For.............................................. 21,044,830 Against.......................................... 1,891,936 Abstentions...................................... 32,624
(3) The proposal to authorize and create 10,000,000 preference shares, par value $.01 per share, of Globalstar Telecommunications Limited (the "Preferred Stock") and to amend the bye-laws to authorize the Board of Directors to establish the rights, preferences and designations of such Preferred Stock was ratified. The votes were as follows: For.............................................. 12,250,163 Against.......................................... 3,200,895 Abstentions...................................... 43,263
(4) The proposal to approve amendments to GTL's bye-laws (i) to provide that stock distributions may be approved by the Board of Directors, (ii) to fix the maximum number of directors at fifteen (15) and to provide that directors may fill any vacancy on the Board and (iii) to provide that directors' fees shall be determined by the Board was ratified. The votes were as follows: For.............................................. 22,095,905 Against.......................................... 830,693 Abstentions...................................... 42,792
(5) The proposal to the appointment of Deloitte & Touche LLP as independent auditors for the year ending December 31, 1998 was ratified. The votes were as follows: For.............................................. 22,866,517 Against.......................................... 78,368 Abstentions...................................... 24,505
15 17 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 -- Financial Data Schedules (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 GLOBALSTAR, L.P. ------------------------------------------ Registrants Nicholas C. Moren ----------------------------------------------------------------------- Treasurer (Principal Financial Officer) and Registrants' Authorized Officer Date: May 14, 1998 16 EX-12 2 STATEMENT REGARDING COMPUTATION OF RATIOS 1 EXHIBIT 12 STATEMENT REGARDING COMPUTATION OF RATIOS (IN THOUSANDS, EXCEPT RATIOS) GLOBALSTAR TELECOMMUNICATIONS LIMITED RATIO OF EARNINGS TO FIXED CHARGES
THREE MONTHS THREE MONTHS ENDED ENDED MARCH 31, 1998 MARCH 31, 1997 -------------- -------------- Earnings: Net loss.................................................. $(7,290) $(4,380) Add: Equity in loss applicable to ordinary partnership interest of Globalstar............................ 7,290 4,380 Interest expense..................................... 5,300 5,300 ------- ------- Earnings available to cover fixed charges(1)................ $ 5,300 $ 5,300 ======= ======= Fixed charges -- interest expense........................... $ 5,300 $ 5,300 ======= ======= Ratio of earnings to fixed charges.......................... 1x 1x ======= =======
- --------------- (1) 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. GLOBALSTAR, L.P. DEFICIENCY OF EARNINGS TO COVER FIXED CHARGES
THREE MONTHS THREE MONTHS ENDED ENDED MARCH 31, 1998 MARCH 31, 1997 -------------- -------------- Net loss.................................................... $(19,596) $(15,287) Dividends on redeemable preferred partnership interests..... (5,300) (5,301) Capitalized interest........................................ (39,483) (12,260) -------- -------- Deficiency of earnings to cover fixed charges............... $(64,379) $(32,848) ======== ========
EX-27.1 3 FINANCIAL DATA SCHEDULE
5 This schedule contains summary consolidated financial information extracted from the financial statements of Globalstar Telecommunications Limited for the quarter ended March 31, 1998 and is qualified in its entirety by reference to such financial statements. 0000933401 GLOBALSTAR TELECOMMUNICATIONS LIMITED 1,000 3-MOS DEC-31-1998 MAR-31-1998 0 0 0 0 0 0 0 0 606,036 1,679 0 0 301,673 30,651 272,033 606,036 0 5,300 0 0 0 0 5,300 (7,290) 0 (7,290) 0 0 0 (7,290) (0.24) (0.24) Note: The adoption of SFAS 128 had no effect on reported earnings per share for the quarter ended March 31, 1997.
EX-27.2 4 FINANCIAL DATA SCHEDULE
5 This schedule contains summary consolidated financial information extracted from the financial statements of Globalstar L.P. for the quarter ended March 31, 1998 and is qualified in its entirety by reference to such financial statements. 0001037927 GLOBALSTAR, L.P. 1,000 3-MOS DEC-31-1998 MAR-31-1998 291,931 0 0 0 0 321,266 1,846,122 2,600 2,189,916 178,495 1,101,527 0 303,352 356,601 0 2,189,916 0 5,165 24,761 24,761 0 0 0 (19,596) 0 (19,596) 0 0 0 (24,896) (0.48) (0.48) Note: The adoption of SFAS 128 had no effect on reported earnings per share for the quarter ended March 31, 1997.
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