-----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, E8f5na0n5L7tdVzUKCr+dCRWcr6jku0m0A141j1GlAPIEQQhTFYiuh+J/tM3pXKF G7mx/PPoZ4Y1muC+OE7N6A== 0000950123-98-009985.txt : 19981118 0000950123-98-009985.hdr.sgml : 19981118 ACCESSION NUMBER: 0000950123-98-009985 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981116 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: 98751755 BUSINESS ADDRESS: STREET 1: CEDAR HOUSE 41 CEDAR AVENUE STREET 2: HAMILTON CITY: BERMUDA STATE: D0 ZIP: 10016 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: RADIO TELEPHONE COMMUNICATIONS [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: 98751756 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 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 SEPTEMBER 30, 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 and have been subject to such filing requirements for the past 90 days. As of October 30, 1998, there were 82,015,931 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)
SEPTEMBER 30, DECEMBER 31, 1998 1997 ------------- ------------ (UNAUDITED) (NOTE) ASSETS Investment in Globalstar, L.P.: Redeemable preferred partnership interests................ $ -- $303,089 Ordinary partnership interests............................ 583,890 297,417 Ordinary partnership warrants............................. 11,956 12,210 -------- -------- Total assets...................................... $595,846 $612,716 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Interest payable.......................................... $ -- $ 1,679 Convertible preferred equivalent obligations ($310,000 principal amount)......................................... -- 301,410 Commitments and contingencies (Note 4) Shareholders' equity: Common stock, $1.00 par value, 600,000,000 shares authorized (82,012,029 and 30,638,152 issued and outstanding at September 30, 1998 and December 31, 1997, respectively).................................... 82,012 30,638 Paid-in capital........................................... 588,866 318,643 Warrants.................................................. 11,956 12,210 Accumulated deficit....................................... (86,988) (51,864) -------- -------- Total shareholders' equity........................ 595,846 309,627 -------- -------- Total liabilities and shareholders' equity........ $595,846 $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 NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------ -------------------- 1998 1997 1998 1997 ------- ------- -------- -------- Equity in net loss applicable to ordinary partnership interests of Globalstar, L.P........ $14,555 $ 7,278 $ 35,124 $ 17,981 Dividend income on Globalstar, L.P. redeemable preferred partnership interests................. -- (5,301) (22,197) (15,902) Interest expense on convertible preferred equivalent obligations.......................... -- 5,301 22,197 15,902 ------- ------- -------- -------- Net loss.......................................... $14,555 $ 7,278 $ 35,124 $ 17,981 ======= ======= ======== ======== Net loss per share -- basic and diluted........... $ 0.18 $ 0.12 $ 0.48 $ 0.33 ======= ======= ======== ======== Weighted average shares outstanding -- basic and diluted..................................... 82,008 61,266 72,973 54,082 ======= ======= ======== ========
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)
NINE MONTHS ENDED SEPTEMBER 30, --------------------- 1998 1997 -------- --------- Operating activities: Net loss.................................................. $(35,124) $ (17,981) Equity in net loss applicable to ordinary partnership interests of Globalstar, L.P. ...................................... 35,124 17,981 Increase in redemption value of redeemable preferred partnership interests.................................. (351) (789) Dividends accrued on redeemable preferred partnership interests.............................................. 1,679 -- Amortization of convertible preferred equivalent obligations costs...................................... 351 789 Change in operating liability: Interest payable....................................... (1,679) -- -------- --------- Net cash provided by (used in) operating activities....... -- -- -------- --------- Investing activities: Purchase of ordinary partnership interests in Globalstar, L.P. ..................................... (1,093) (140,910) Purchase of warrants in Globalstar, L.P. .............. -- (12,210) -------- --------- Net cash used in investing activities..................... (1,093) (153,120) -------- --------- Financing activities: Net proceeds from issuance of common stock upon exercise of options and warrants......................................... 1,093 23 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 Proceeds from exercise of GTL rights................... -- 29,976 -------- --------- Net cash provided by financing activities................. 1,093 153,120 -------- --------- Net increase (decrease) in cash and cash equivalents...... -- -- Cash and cash equivalents, beginning of period............ -- -- -------- --------- Cash and cash equivalents, end of period.................. $ -- $ -- ======== ========= Noncash transactions: Conversion of redeemable preferred partnership interests and related dividend make-whole payment into ordinary partnership interests.................................. $320,250 ======== Common stock issued upon conversion of convertible preferred equivalent obligations and related interest make-whole payment..................................... $320,250 ========
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 and nine months ended September 30, 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 40 million shares of common stock (as adjusted for two-for-one stock splits) 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, which is building and will operate a worldwide, low-earth orbit satellite-based wireless digital telecommunications system. At September 30, 1998, GTL held 34.8% of the ordinary partnership interests 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 September 30, 1998 was $86,988,000. 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Earnings Per Share In 1997, GTL adopted Statement of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 128"). The adoption of SFAS 128 had no effect on reported net loss per share. Diluted weighted average shares outstanding excludes the assumed conversion of GTL's 6 1/2% Convertible Preferred Equivalent Obligations due 2006 (the "CPEOs"), prior to their conversion, see Note 4, and excludes the assumed exercise of outstanding options and warrants as their effect would have been anti-dilutive due to GTL's net losses. Accordingly, basic and diluted weighted average shares outstanding are based on the weighted average common shares outstanding during the three and nine months ended September 30, 1998 and 1997. Comprehensive Income Effective January 1, 1998, GTL adopted Statement of Financial Accounting Standards 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. REDEMPTION AND CONVERSION OF CPEO'S On April 30, 1998, GTL redeemed all of its outstanding CPEOs, $310 million aggregate principal amount. As of April 30, 1998, all the holders of the CPEOs had converted their holdings into 20,123,230 shares of GTL common stock (as adjusted for two-for-one stock split, see Note 5). As a result of such conversion, Globalstar's Redeemable Preferred Partnership Interests ("RPPIs") were converted into 4,769,230 Globalstar ordinary partnership interests. In connection with the redemption, GTL issued 539,322 additional shares of GTL common stock (as adjusted for two-for-one stock split, see Note 5) in satisfaction of a required interest make-whole payment. A corresponding dividend make-whole payment was also made by Globalstar for which an additional 134,830 Globalstar 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. 5. SHAREHOLDERS' EQUITY Stock Split On June 8, 1998, GTL issued a two-for-one stock split to shareholders of record as of May 29, 1998 in the form of a 100% stock dividend. Accordingly, all GTL share and per share amounts, excluding the balance sheet, have been restated to reflect the two-for-one stock split. Prior to the stock split, GTL's equity securities and convertible securities were represented by equivalent Globalstar partnership interests on an approximate two-for-one basis. Globalstar's partnership interests were not affected by the GTL stock split and, accordingly, GTL's equity securities are now 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 and to authorize 10,000,000 GTL preferred shares, $.01 par value per share. Purchase of Globalstar Partnership Interests On July 6, 1998, Loral Space & Communications Ltd. ("Loral"), the managing general partner of Globalstar, purchased 4.2 million Globalstar ordinary partnership interests (corresponding to approximately 16.8 million shares of GTL common stock) from certain founding service providers for $420 million in cash. The founding service providers participating in this transaction have deposited half of their proceeds ($210 million) into escrow accounts to be used for the purchase of Globalstar gateways and user terminals. Concurrently, entities advised by or associated with Soros Fund Management L.L.C. ("Soros") purchased 8.4 million shares of GTL common stock owned by Loral for $245 million in cash. As a result of these transactions, Loral's fully diluted ownership in Globalstar increased from approximately 38% to 42% and Soros owns GTL shares equating to approximately 4% of Globalstar. Soros acquired from Loral shares of GTL common stock, which are restricted for U.S. securities law purposes. With respect to such shares, GTL has agreed to file a shelf registration statement and have such registration statement declared effective within one year from the closing date. 5 7 GLOBALSTAR, L.P. (A DEVELOPMENT STAGE LIMITED PARTNERSHIP) CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT PARTNERSHIP INTEREST DATA)
SEPTEMBER 30, DECEMBER 31, 1998 1997 ------------- ------------ (UNAUDITED) (NOTE) ASSETS Current assets: Cash and cash equivalents................................. $ 236,296 $ 464,154 Insurance proceeds receivable............................. 190,500 -- Production gateways and user terminals.................... 88,331 24,124 Other current assets...................................... 16,225 5,502 ---------- ---------- Total current assets.............................. 531,352 493,780 Property and equipment, net............................... 4,325 2,574 Globalstar System under construction: Space segment.......................................... 1,361,590 1,252,569 Ground segment......................................... 585,538 374,344 ---------- ---------- 1,947,128 1,626,913 Deferred costs and other assets........................... 55,585 25,786 ---------- ---------- Total assets...................................... $2,538,390 $2,149,053 ========== ========== LIABILITIES AND PARTNERS' CAPITAL Current liabilities: Accounts payable.......................................... $ 10,596 $ 1,272 Payable to affiliates..................................... 78,514 105,357 Vendor financing liability................................ 58,448 -- Accrued expenses.......................................... 8,627 8,312 Accrued interest.......................................... 44,006 28,869 ---------- ---------- Total current liabilities......................... 200,191 143,810 Deferred revenues........................................... 20,711 23,652 Vendor financing liability, net of current portion.......... 276,876 197,723 Deferred interest payable................................... 448 420 11 3/8% Senior notes payable ($500,000 principal amount).... 478,569 475,579 11 1/4% Senior notes payable ($325,000 principal amount).... 306,122 303,641 10 3/4% Senior notes payable ($325,000 principal amount).... 320,826 320,311 11 1/2% Senior notes payable ($300,000 principal amount).... 288,218 -- Commitments and contingencies (Notes 4, 5, 6 and 8) Redeemable preferred partnership interests, $310,000 redemption value (none and 4,769,230 outstanding at September 30, 1998 and December 31, 1997, respectively)... -- 303,089 Ordinary partners' capital: Ordinary partnership interests (58,178,930 and 52,319,076 outstanding at September 30, 1998 and December 31, 1997, respectively)...................... 617,527 368,618 Warrants............................................... 28,902 12,210 ---------- ---------- Total ordinary partners' capital.................. 646,429 380,828 ---------- ---------- Total liabilities and partners' capital........... $2,538,390 $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 INTEREST DATA) (UNAUDITED)
CUMULATIVE THREE MONTHS ENDED NINE MONTHS ENDED MARCH 23, 1994 SEPTEMBER 30, SEPTEMBER 30, (COMMENCEMENT OF ------------------ ------------------- OPERATIONS) TO 1998 1997 1998 1997 SEPTEMBER 30, 1998 ------- ------- -------- ------- ------------------ Operating expenses: Development costs.............. $18,285 $20,013 $ 51,943 $47,823 $240,706 Marketing, general and administrative.............. 10,817 6,237 30,199 17,790 98,785 Loss from launch failure......... 17,315 -- 17,315 -- 17,315 ------- ------- -------- ------- -------- Total operating expenses............. 46,417 26,250 99,457 65,613 356,806 Interest income.................. 4,462 6,690 14,282 13,799 54,918 ------- ------- -------- ------- -------- Net loss......................... 41,955 19,560 85,175 51,814 301,888 Preferred distribution and related increase in redeemable preferred partnership interests...................... -- 5,300 22,197 15,901 60,722 ------- ------- -------- ------- -------- Net loss applicable to ordinary partnership interests.......... $41,955 $24,860 $107,372 $67,715 $362,610 ======= ======= ======== ======= ======== Net loss per ordinary partnership interest -- basic and diluted........................ $ 0.72 $ 0.48 $ 1.93 $ 1.34 ======= ======= ======== ======= Weighted average ordinary partnership interests outstanding -- basic and diluted........................ 58,178 52,317 55,697 50,520 ======= ======= ======== =======
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 NINE MONTHS ENDED MARCH 23, 1994 SEPTEMBER 30, (COMMENCEMENT OF --------------------- OPERATIONS) TO 1998 1997 SEPTEMBER 30, 1998 --------- --------- ------------------ Operating activities: Net loss.................................................. $ (85,175) $ (51,814) $ (301,888) Loss from launch failure.................................. 17,315 -- 17,315 Deferred revenues......................................... (2,941) -- 20,711 Stock compensation transactions........................... 964 969 2,571 Depreciation and amortization............................. 1,243 702 3,496 Changes in operating assets and liabilities: Production gateways and user terminals.................. (64,207) (19,625) (88,331) Other current assets.................................... (10,723) (5,741) (16,225) Other assets............................................ (2,205) (699) (3,018) Accounts payable........................................ 9,840 (1,708) 11,041 Payable to affiliates................................... 31,733 3,286 31,556 Accrued expenses........................................ 315 (2,721) 8,627 --------- --------- ----------- Net cash used in operating activities....................... (103,841) (77,351) (314,145) --------- --------- ----------- Investing activities: Globalstar System under construction...................... (528,030) (533,564) (2,154,943) Payable to affiliates for Globalstar System under construction............................................ (58,576) 44,062 38,158 Capitalized interest accrued.............................. 26,767 25,273 71,530 Accounts payable.......................................... (516) 1,160 (953) Vendor financing liability................................ 137,601 55,776 335,324 --------- --------- ----------- Cash used for Globalstar System........................... (422,754) (407,293) (1,710,884) Purchases of property and equipment....................... (2,994) (1,049) (7,806) Deferred FCC license costs................................ (627) (1,376) (8,734) Purchases of investments.................................. -- -- (126,923) Maturity of investments................................... -- -- 126,923 --------- --------- ----------- Net cash used in investing activities....................... (426,375) (409,718) (1,727,424) --------- --------- ----------- 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................................................... -- 301,850 301,850 Net proceeds from issuance of $325,000 10 3/4% Senior Notes................................................... -- -- 320,197 Net proceeds from issuance of $300,000 11 1/2% Senior Notes................................................... 287,552 -- 287,552 Deferred financing costs.................................. -- -- (2,125) Proceeds of capital subscriptions receivable.............. -- -- 282,441 Payment of accrued capital raising costs.................. -- -- (2,400) Sale of ordinary partnership interests.................... 19,843 140,910 346,523 Sale of redeemable preferred partnership interests to GTL..................................................... -- -- 299,500 Distributions on redeemable preferred partnership interests............................................... (5,037) (15,112) (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 financing activities................... 302,358 815,948 2,277,865 --------- --------- ----------- Net increase (decrease) in cash and cash equivalents........ (227,858) 328,879 236,296 Cash and cash equivalents, beginning of period.............. 464,154 21,180 -- --------- --------- ----------- Cash and cash equivalents, end of period.................... $ 236,296 $ 350,059 $ 236,296 ========= ========= =========== Noncash transactions: Payable to affiliates..................................... $ 9,308 =========== Accrual of capital raising costs.......................... $ 2,400 =========== Deferred FCC license costs................................ $ 2,235 =========== Insurance proceeds receivable from launch failure......... $ 190,500 $ 190,500 ========= =========== Warrants issued in exchange for debt guarantee............ $ 22,601 =========== Increase in redemption value of preferred partnership interests............................................... $ 351 $ 789 $ 3,940 ========= ========= =========== Ordinary partnership interests distributed upon conversion of preferred partnership interests and related dividend make-whole payment........................................ $ 320,250 $ 320,250 ========= =========== Warrants issued to China Telecom to acquire ordinary partnership interests..................................... $ 31,917 $ 31,917 ========= ===========
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 and nine months ended September 30, 1998 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 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 efforts to the construction, launch, licensing and testing of the Globalstar System and establishing its business. Globalstar's planned principal operations have not commenced and, accordingly, Globalstar is a development stage company as defined in Statement of Financial Accounting Standards 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, launch delays and launch failures (see Note 4), in-orbit failures, 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. Production Gateways and User Terminals Production gateways and user terminal costs represent amounts associated with financing by Globalstar to assist in the deployment of the gateways and user terminals. Globalstar expects to recoup such costs upon acceptance by the service providers of the gateways and user terminals. Earnings Per Ordinary Partnership Interest In 1997, Globalstar adopted Statement of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 128"). The adoption of SFAS 128 had no effect on reported net loss per ordinary partnership interest. Diluted weighted average ordinary partnership interests outstanding excludes the assumed conversion of the Redeemable Preferred Partnership Interests (the "RPPIs") prior to their conversion, see Note 7, and 9 11 GLOBALSTAR, L.P. (A DEVELOPMENT STAGE LIMITED PARTNERSHIP) NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) excludes the assumed issuance of ordinary partnership interests upon exercise of GTL's outstanding options and warrants as their effect would have been anti-dilutive due to Globalstar's net losses. 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 three and nine months ended September 30, 1998 and 1997. Comprehensive Income Effective January 1, 1998, Globalstar adopted Statement of Financial Accounting Standards 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 period amounts to the current period presentation. 4. GLOBALSTAR SYSTEM UNDER CONSTRUCTION As of October 30, 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 is approximately $3.3 billion. 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. On September 9, 1998, a malfunction of a Zenit 2 rocket, launched from the Baikonur cosmodrome in Kazakhstan, resulted in the loss of 12 Globalstar satellites. A $17.3 million loss from the launch failure was recorded in the third quarter of 1998, which reflects the value of the satellites and related capitalized costs, net of insurance proceeds receivable of $190.5 million. Globalstar activated its contingency launch plan and expects to initiate commercial service with at least 32 satellites in orbit in the third quarter of 1999. In addition, in order to accelerate the deployment of gateways around the world, Globalstar has agreed to help finance approximately $80 million of the cost of up to 32 of the initial 38 gateways. The contract for the 38 gateways is approximately $337 million. In December 1997, Globalstar ordered 40,000 fixed access terminals from Ericsson for $84 million. Further, 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. As of October 30, 1998, Globalstar had raised or received commitments for approximately $2.9 billion. Although Globalstar believes it will be able to obtain the remaining funds required prior to initiation of commercial service in September 1999 of approximately $600 million, there can be no assurance that such funds will be available on favorable terms or on a timely basis, if at all. 10 12 GLOBALSTAR, L.P. (A DEVELOPMENT STAGE LIMITED PARTNERSHIP) NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 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 added to the outstanding principal balance. Beginning on January 1, 2000, Globalstar will make eight equal quarterly principal payments. The final payment including all unpaid interest is due October 1, 2001. 6. SENIOR NOTES In May 1998, Globalstar sold $300 million principal amount of its 11 1/2% Senior Notes due 2005 under terms generally consistent with Globalstar's existing senior notes. The 11 1/2% Senior Notes may not be redeemed prior to June 2003 and are subject to a prepayment premium prior to June 2001. Interest is paid semi-annually. The 11 1/2% Senior Notes rank pari passu with all of Globalstar's existing senior notes. 7. REDEMPTION AND CONVERSION OF CPEOS AND RPPIS On April 30, 1998, GTL redeemed all of its outstanding Convertible Preferred Equivalent Obligations ("CPEOs"), $310 million aggregate principal amount. As of April 30, 1998, all the holders of the CPEOs converted their holdings into 20,123,230 shares of GTL common stock (as adjusted for two-for-one stock split, see Note 8). As a result of such conversion, Globalstar's RPPIs were converted into 4,769,230 ordinary partnership interests. In connection with the redemption, GTL issued 539,322 additional shares of GTL common stock (as adjusted for two-for-one stock split, see Note 8) in satisfaction of a required interest make-whole payment. A corresponding dividend make-whole payment was also made by Globalstar for which an additional 134,830 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. 8. ORDINARY PARTNERS' CAPITAL Capital Contribution In April 1998, China Telecom (Hong Kong) Group Ltd. ("China Telecom"), through a subsidiary, exercised a warrant to acquire 937,500 Globalstar ordinary partnership interests for an aggregate purchase price of $18,750,000. In addition, China Telecom has a warrant to acquire an additional 937,500 Globalstar ordinary partnership interests for an aggregate purchase price of $18,750,000 after commencement of service. Globalstar had previously granted these warrants 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. The fair value of the warrants issued to China Telecom was approximately $31.9 million and has been recorded in the accompanying balance sheet in deferred costs and other assets. The fair value of the warrants will be amortized over 7 1/2 years, the expected life of the first generation of satellites. GTL Two-For-One Stock Split On June 8, 1998, GTL, a general partner of Globalstar, issued a two-for-one stock split of its common stock in the form of a 100% stock dividend. The stock dividend was paid to shareholders of record as of May 29, 1998. Prior to the stock split, GTL's equity securities and convertible securities were represented by equivalent Globalstar partnership interests on an approximate two-for-one basis. Globalstar's partnership interests were not affected by the GTL stock split and, accordingly, GTL's equity securities and convertible 11 13 GLOBALSTAR, L.P. (A DEVELOPMENT STAGE LIMITED PARTNERSHIP) NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) securities are now represented by equivalent Globalstar partnership interests on an approximate four-for-one basis. Purchase of Globalstar Partnership Interests On July 6, 1998, Loral, the managing general partner of Globalstar, purchased 4.2 million Globalstar ordinary partnership interests (corresponding to approximately 16.8 million shares of GTL common stock) from certain founding service providers for $420 million in cash. The founding service providers participating in this transaction have deposited half of their proceeds ($210 million) into escrow accounts to be used for the purchase of Globalstar gateways and user terminals. Concurrently, entities advised by or associated with Soros Fund Management L.L.C. ("Soros") purchased 8.4 million shares of GTL common stock owned by Loral for $245 million in cash. As a result of these transactions, Loral's fully diluted ownership in Globalstar increased from approximately 38% to 42% and Soros owns GTL shares equating to approximately 4% of Globalstar. The shares of GTL common stock acquired by Soros are restricted for U.S. securities law purposes. With respect to such shares, GTL has agreed to file a shelf registration statement and have such registration statement declared effective within one year from the closing date. 12 14 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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 within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. In addition, from time to time, Globalstar and or GTL or their representatives have made or may make forward-looking statements, orally or in writing. Such forward-looking statements may be included in, but are not limited to, various filings made by Globalstar and or GTL with the Securities and Exchange Commission, press releases or oral statements made by or with the approval of an authorized executive officer of Globalstar and or GTL. Actual results could differ materially from those projected or suggested in any forward-looking statements as a result of a wide variety of factors or conditions. All forward-looking statements involve risks and uncertainties, many of which may be beyond Globalstar's and or GTL's control. These may include, but are not limited to, problems relating to technical development and deployment 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. See the section of GTL's and Globalstar's registration statement on Form S-4 (File No. 333-57749), entitled "Risk Factors." 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. LIQUIDITY AND CAPITAL RESOURCES Cash and cash equivalents decreased from $464.2 million at December 31, 1997 to $236.3 million at September 30, 1998. The net decrease is primarily a result of expenditures for the Globalstar System of $422.8 million, and net cash used in operating activities of $103.8 million, including financing of production gateways and user terminals totaling $64.2 million, offset by the net proceeds from the sale of Globalstar's 11 1/2% Senior Notes due 2005 totaling $287.6 million and the proceeds from the sale of partnership interests to China Telecom of $18.8 million. Current liabilities increased from $143.8 million at December 31, 1997 to $200.2 million at September 30, 1998, primarily as a result of the classification of a portion of vendor financing due within one year and the timing of payments to Globalstar contractors and accrued interest on the senior notes. On February 14, 1998, Globalstar launched its first four satellites and launched four additional satellites on April 24, 1998. On September 9, 1998, however, a malfunction of a Zenit 2 rocket, launched from the Baikonur cosmodrome in Kazakhstan, resulted in the loss of 12 Globalstar satellites. Globalstar activated its contingency launch plan and expects to initiate commercial service with at least 32 satellites in orbit in the third quarter of 1999. The revised plan is under contract and provides additional assurance of successful satellite deployment through greater flexibility and redundant capacity, reducing Globalstar's dependence on any one launcher and further reducing risk. Through September 30, 1998, Globalstar incurred costs of approximately $2.4 billion for the design and construction of the space and ground segments. Costs incurred to date during fiscal year 1998 were approximately $580 million. As of October 30, 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 is approximately $3.3 billion, which includes the delay of three months in the initiation of commercial service is at a cost of approximately $100 million, representing the additional interest and operating expenses directly attributable to the delay, the estimated costs for revisions to Globalstar's launch plan of approximately $140 million, and the cost of eight additional spare satellites already under construction by SS/L of $180 million (previously classified as additional satellite spares in the condensed consolidated financial statements). In addition to expenditures for operating costs, working capital 13 15 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, in order to accelerate the deployment of gateways around the world, Globalstar has agreed to help finance approximately $80 million of the cost of up to 32 of the initial 38 gateways. The contract for the 38 gateways is approximately $337 million. 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 such costs upon acceptance by the service providers of the gateways and user terminals. 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 added to the outstanding principal balance. Beginning January 1, 2000, Globalstar will make eight equal quarterly principal payments. The final payment including all unpaid interest is due October 1, 2001. In April 1998, China Telecom (Hong Kong) Group Ltd. ("China Telecom"), through a subsidiary, exercised, a warrant to acquire 937,500 Globalstar ordinary partnership interests for an aggregate purchase price of $18,750,000. In addition, China Telecom has a warrant to acquire an additional 937,500 Globalstar ordinary partnership interests for an aggregate purchase price of $18,750,000 after commencement of service. Globalstar had previously granted these warrants 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. As of October 30, 1998, Globalstar had raised or received commitments for approximately $2.9 billion. Globalstar believes that its current capital, vendor financing commitments and the availability of the Globalstar credit agreement ($250 million available at September 30, 1998) are sufficient to fund its requirements for the baseline system into the first quarter of 1999. Globalstar intends to raise the remaining funds required prior to the initiation of commercial service in September 1999 of approximately $600 million from a combination of sources including: high yield debt issuance (which may include an equity component), equity issuance, 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 30, 1998, GTL redeemed all of its outstanding CPEOs, $310 million aggregate principal amount. As of April 30, 1998, all the holders of the CPEOs had converted their holdings into 20,123,230 shares of GTL common stock (as adjusted for two-for-one stock split). As a result of such conversion, Globalstar's RPPIs were converted into 4,769,230 Globalstar ordinary partnership interests. In connection with the redemption, GTL issued 539,322 additional shares of GTL common stock (as adjusted for two-for-one stock split) in satisfaction of a required interest make-whole payment. A corresponding dividend make-whole payment was also made by Globalstar for which an additional 134,830 Globalstar ordinary partnership interests were issued. Dividend payments and related increase in RPPIs were $0 and $22.2 million for the three and nine months ended September 30, 1998, respectively, and $5.3 million and $15.9 million for the three and nine months ended September 30, 1997, respectively. The interest make-whole payment and related dividend make-whole payment were recorded as interest expense and dividends, by GTL and Globalstar, respectively. 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. On July 6, 1998, Loral, the managing general partner of Globalstar, purchased 4.2 million Globalstar ordinary partnership interests (corresponding to approximately 16.8 million shares of GTL common stock) 14 16 from certain founding service providers for $420 million in cash. The founding service providers participating in this transaction have deposited half of their proceeds ($210 million) into escrow accounts to be used for the purchase of Globalstar gateways and user terminals. Concurrently, entities advised by or associated with Soros Fund Management L.L.C. ("Soros") purchased 8.4 million shares of GTL common stock owned by Loral for $245 million in cash. As a result of these transactions, Loral's fully diluted ownership in Globalstar increased from approximately 38% to 42% and Soros owns GTL shares equating to approximately 4% of Globalstar. With respect to such shares, the GTL common stock acquired by Soros are restricted for U.S. securities law purposes, and for which GTL has agreed to file a shelf registration statement and have such registration statement declared effective within one year from the closing date. RESULTS OF OPERATIONS Globalstar is a development stage partnership and has not commenced commercial operations. For the period March 23, 1994 (commencement of operations) to September 30, 1998, Globalstar has recorded cumulative net losses applicable to ordinary partnership interests of $362.6 million. The net loss applicable to ordinary partnership interests for the nine months ended September 30, 1998 increased to $107.4 million as compared to $67.7 million for the nine months ended September 30, 1997. The net loss for the nine months ending September 30, 1998, increased primarily as a result of the launch failure, increased activity in the development of Globalstar user terminals and increased in-house engineering and marketing expenses. The net loss applicable to ordinary partnership interests for the three months ended September 30, 1998 increased to $42.0 million as compared to $24.9 million for the three months ended September 30, 1997, primarily as a result of the launch failure. Globalstar is expending significant funds for the construction, launch, testing and deployment of the Globalstar System and expects such losses to continue until commencement of commercial operations. Globalstar has earned interest income of $54.9 million on cash balances and short-term investments since commencement of operations. Interest income during the nine months ended September 30, 1998 was $14.3 million as compared to $13.8 million for the nine months ended September 30, 1997, a result of higher average cash balances available for investment during the current period. Interest income during the three months ended September 30, 1998 was $4.5 million as compared to $6.7 million for the three months ended September 30, 1997, a result of lower average cash balances available for investment during the third quarter of 1998. Operating Expenses. Development costs during the nine months ended September 30, 1998 were $51.9 million as compared to $47.8 million for the nine months ended September 30, 1997. Development costs increased as a result of increased activity in the development of Globalstar user terminals and in-house engineering. Development costs during the three months ended September 30, 1998 were $18.3 million as compared to $20.0 million for the three months ended September 30, 1997. The decrease is a result of timing of invoices received from Qualcomm for the development of user terminals. Marketing, general and administrative expenses were $30.2 million and $17.8 million for the nine months ended September 30, 1998 and 1997, respectively and were $10.8 million and $6.2 million for the three months ended September 30, 1998 and 1997, respectively. The increases in marketing, general and administrative expenses for both periods is primarily the result of an increase in the number of employees and an increase in marketing costs as Globalstar gears up for operations. On September 9, 1998, a malfunction of a Zenit 2 rocket, resulted in the loss of 12 Globalstar satellites. A $17.3 million loss on the launch failure was recorded in the third quarter of 1998, which reflects the value of the satellites and related capitalized costs, net of insurance proceeds receivable of $190.5 million. 15 17 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 user terminals 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 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 will be passed through to its partners. OTHER MATTERS New 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. Impact of Year 2000 Issue Globalstar's Year 2000 Program is proceeding on schedule. 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 as "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. Globalstar, has implemented a Year 2000 program (the "Year 2000 Program") for its internal products, system and equipment, as well as for key vendor supplied products, system and equipment. As part of the Year 2000 Program, the Globalstar is assessing the Year 2000 capabilities of, among other things, its satellites, ground equipment, research and development activities, and facility management systems. The Year 2000 Program consists of the following phases: Inventory of Year 2000 items, Assessment (including prioritization), Remediation (including modification, upgrading and replacement), Testing and Auditing. This five-step program is divided into six major sections covering both information and non-information technology systems: 1) business systems, 2) technical systems, 3) products and services, 4) imbedded hardware/firmware, and 5) vendor supplied products. To date, Globalstar has completed approximately 95% of the inventory phase and approximately 25% of its assessment phase. Globalstar expects to complete the first four phases, through the testing phase, of the Year 2000 Program during the second quarter of 1999, which is prior to it's anticipated in-service date of Globalstar. The fifth phase, the audit phase, is expected to commence in January of 1999 and continue through the third quarter of 1999 to accommodate re-audits if deemed necessary. Both internal and external resources are being utilized to execute Globalstar's plan. The program to address Year 2000 has been underway since July 1997. The incremental costs incurred to date for this effort by Globalstar was approximately $200,000. Based on the efforts of Globalstar and its operating affiliates to date, Globalstar anticipates additional incremental expenses of approximately $1.1 million will be incurred to substantially complete the effort. Based upon the accomplishments to date, no contingency plans are expected to be needed. As risks are identified, contingency plans will be developed and implemented as necessary. However, because of the 16 18 progress achieved to date and Globalstar's expectations that its Year 2000 program will be substantially complete in the second quarter of calendar 1999, Globalstar believes adequate time will be available to insure alternatives can be developed, assessed and implemented prior to a Year 2000 issue having a material negative impact on its operations of Globalstar. However, there can be no assurance that such modifications and conversions, if required, will be completed on a timely basis. The cost of the program and the dates on which Globalstar believes it will substantially complete Year 2000 modifications are based on management's best estimates. Such estimates were derived using software surveys and programs to evaluate calendar date exposures and numerous assumptions of future events, including the continued availability of certain resources, third-party Year 2000 readiness and other factors. Because none of these estimates can be guaranteed, actual results could differ materially and adversely from those anticipated. Specific factors that might cause an adjustment of costs are: number of personnel trained in this area, the ability to locate and correct all relevant computer codes, the ability to validate supplier certification and similar uncertainties. Globalstar's failure to remediate a material Year 2000 problem could result in an interruption or failure of certain basic business operations. These failures could materially and adversely effect Globalstar's results of operations, liquidity and financial condition. Globalstar and its operating affiliates are also assessing the Year 2000 readiness of its key third-party suppliers. Information requests have been distributed to such suppliers and replies are being evaluated. If the risk is deemed material, on-site visits to suppliers will be conducted to verify the adequacy of the information received. However, due to the general uncertainty of the Year 2000 problem, including uncertainty with regard to third-party suppliers, Globalstar is unable to determine at this time whether the consequences of Year 2000 failures will have an adverse material impact on Globalstar's results of operations, liquidity or financial condition. Globalstar's Year 2000 Program is expected to have considerably reduced Globalstar's level of exposure in regard to third-party supplier Year 2000 problems. 17 19 PART II -- OTHER INFORMATION 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
DATE OF REPORT DESCRIPTION - -------------- ----------- September 9, 1998 Item 5 Other Events -- Globalstar announces launch failure September 22, 1998 Item 5 Other Events -- Globalstar revises launch strategy
18 20 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 Nicholas C. Moren -------------------------------------- Treasurer (Principal Financial Officer) and Registrant's Authorized Officer GLOBALSTAR L.P. -------------------------------------- Steven Wright -------------------------------------- Chief Financial Officer (Principal Financial Officer) and Registrant's Authorized Officer Date: November , 1998 19 EX-12 2 COMPUTATION OF RATIOS 1 EXHIBIT 12 STATEMENT REGARDING COMPUTATION OF RATIOS (IN THOUSANDS, EXCEPT RATIOS) GLOBALSTAR TELECOMMUNICATIONS LIMITED RATIO OF EARNINGS TO FIXED CHARGES
NINE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, 1998 1997 ----------------- ----------------- Earnings: Net loss................................................. $(35,124) $(17,981) Add: Equity in loss applicable to ordinary partnership interests of Globalstar, L.P..................... 35,124 17,981 Interest expense.................................... 22,197 15,902 -------- -------- Earnings available to cover fixed charges(1)............... $ 22,197 $ 15,902 ======== ======== Fixed charges -- interest expense.......................... $ 22,197 $ 15,902 ======== ======== Ratio of earnings to fixed charges......................... 1X 1X ======== ========
- --------------- (1) The earnings of GTL available to cover fixed charges, consisted 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
NINE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, 1998 1997 ----------------- ----------------- Net loss................................................... $ (85,175) $ (51,814) Dividends on redeemable preferred partnership interests.... (22,197) (15,901) Capitalized Interest....................................... (130,706) (60,747) --------- --------- Deficiency of earnings to cover fixed charges.............. $(238,078) $(128,462) ========= =========
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 September 30, 1998 and is qualified in its entirety by reference to such financial statements. 0000933401 GLOBALSTAR TELECOMMUNICATIONS LTD. 9-MOS DEC-31-1998 SEP-30-1998 0 0 0 0 0 0 0 0 595,846 0 0 0 0 82,012 513,834 595,846 0 0 0 0 0 0 22,197 (35,124) 0 (35,124) 0 0 0 (35,124) (0.48) (0.48)
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 September 30, 1998 and is qualified in its entirety by reference to such financial statements. 0001037927 GLOBALSTAR L.P. 9-MOS DEC-31-1998 SEP-30-1998 236,296 0 0 0 0 531,352 1,951,453 0 2,538,390 200,191 1,393,735 0 0 646,429 0 2,538,390 0 0 0 0 99,457 0 0 (85,175) 0 (85,175) 0 0 0 (107,372) (1.93) (1.93)
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