-----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, Sn2hFYaKKc3XfVxT+7JGlunNJaW9To3toWpH2IA8EnvKn0jiOrrhn/DU11aLI54J ArahVZMcrfX462UJII9XQQ== 0000950123-99-004816.txt : 19990518 0000950123-99-004816.hdr.sgml : 19990518 ACCESSION NUMBER: 0000950123-99-004816 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990517 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: 99625765 BUSINESS ADDRESS: STREET 1: CEDAR HOUSE 41 CEDAR AVENUE STREET 2: HAMILTON CITY: BERMUDA STATE: D0 BUSINESS PHONE: 4412952244 MAIL ADDRESS: STREET 1: 600 THIRD AVENUE CITY: NEW YORK STATE: NY ZIP: 10016 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GLOBALSTAR LP CENTRAL INDEX KEY: 0001037927 STANDARD INDUSTRIAL CLASSIFICATION: 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: 99625766 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 MARCH 31, 1999 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 April 30, 1999, there were 82,024,171 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, 1999 1998 ----------- ------------- (Unaudited) (Note) ASSETS Investment in Globalstar, L.P.: Redeemable preferred partnership interests................ $ 339,858 $ -- Dividends receivable...................................... 4,667 Ordinary partnership interests............................ 552,710 568,394 Ordinary partnership warrants............................. 12,034 12,034 --------- --------- Total assets........................................... $ 909,269 $ 580,428 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Dividends payable......................................... $ 4,667 $ -- Commitments and contingencies (Note 4) Shareholders' equity: 8% Convertible redeemable preferred stock, $.01 par value, 10,000,000 shares authorized (7,000,000 issued and outstanding at March 31, 1999), $350 million redemption value.................................................. 339,858 -- Common stock, $1.00 par value, 600,000,000 shares authorized (82,020,019 and 82,016,679 issued and outstanding at March 31, 1999 and December 31, 1998, respectively).......................................... 82,020 82,017 Paid-in capital........................................... 588,813 588,802 Warrants.................................................. 12,034 12,034 Accumulated deficit....................................... (118,123) (102,425) --------- --------- Total shareholders' equity............................. 904,602 580,428 --------- --------- Total liabilities and shareholders' equity........ $ 909,269 $ 580,428 ========= =========
- --------------- Note: The December 31, 1998 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, ------------------ 1999 1998 ------- ------- Equity in net loss applicable to ordinary partnership interests of Globalstar, L.P. ............................ $15,698 $ 7,290 Dividend income on Globalstar, L.P. redeemable preferred partnership interests..................................... (4,750) (5,300) Interest expense on convertible preferred equivalent obligations............................................... -- 5,300 ------- ------- Net loss.................................................... 10,948 7,290 Preferred dividends on 8% convertible redeemable preferred stock and accretion to redemption value................... 4,750 -- ------- ------- Net loss applicable to common shareholders.................. $15,698 $ 7,290 ======= ======= Net loss per share -- basic and diluted..................... $ 0.19 $ 0.12 ======= ======= Weighted average shares outstanding -- basic and diluted.... 82,019 61,282 ======= =======
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, -------------------- 1999 1998 --------- ------- Operating activities: Net loss.................................................. $ (10,948) $(7,290) Equity in net loss applicable to ordinary partnership interests of Globalstar, L.P........................... 15,698 7,290 Accretion to redemption value of redeemable preferred partnership interests.................................. (83) (263) Dividends accrued on redeemable preferred partnership interests.............................................. (4,667) -- Amortization of convertible preferred equivalent obligation issue costs................................. -- 263 --------- ------- Net cash provided by (used in) operating activities......... -- -- --------- ------- Investing activities: Purchase of ordinary partnership interests in Globalstar, L.P.................................................... (14) (347) Purchase of redeemable preferred partnership interests in Globalstar, L.P........................................ (339,775) -- --------- ------- Net cash used in investing activities....................... (339,789) (347) --------- ------- Financing activities: Net proceeds from issuance of common stock upon exercise of options and warrants................................ 14 347 Proceeds from issuance of 8% convertible redeemable preferred stock........................................... 339,775 -- --------- ------- Net cash provided by financing activities................... 339,789 347 --------- ------- 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 ========= =======
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, 1999 are not necessarily indicative of the results to be expected for the full year. These financial statements should be read in conjunction with GTL's audited financial statements and notes thereto included in the latest Annual Report on Form 10-K for GTL and Globalstar, L.P. ("Globalstar"). 2. ORGANIZATION AND BUSINESS On November 23, 1994, GTL was incorporated as an exempted company under the Companies Act 1981 of Bermuda. 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 March 31, 1999, GTL held 34.8% of the outstanding ordinary partnership interests and 100% of the outstanding 8% Redeemable Preferred Partnership Interests ("8% RPPIs") (see Note 4) of 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, 1999 was $118,123,000. 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Earnings Per Share GTL follows Statement of Financial Accounting Standards No. 128, Earnings per Share ("SFAS 128") in presenting basic and diluted earnings per share. Due to GTL's losses for the three months ended March 31, 1999 and 1998, diluted weighted average common shares outstanding excludes the weighted average effect of the assumed conversion, prior to actual conversion in April 1998, of GTL's Convertible Preferred Equivalent Obligations into 20.1 million common shares for the quarter ended March 31, 1998, the assumed conversion of GTL's 8% convertible redeemable preferred stock into 15.1 million common shares for the quarter ended March 31, 1999 and the assumed exercise of outstanding options and warrants into 6.2 million and 5.7 million common shares for the quarters ended March 31, 1999 and 1998, respectively, as their effect would have been anti-dilutive. Accordingly, basic and diluted weighted average shares outstanding are based on the net loss applicable to common shareholders' and the weighted average common shares outstanding during the three months ended March 31, 1999 and 1998. 4. SHAREHOLDERS' EQUITY 8% Convertible Redeemable Preferred Stock On January 21, 1999, GTL sold 7 million shares (face amount of $50 per share) of 8% Convertible Redeemable Preferred Stock due 2011 (the "Preferred Stock"). The Preferred Stock has an aggregate liquidation preference equal to its $350 million aggregate redemption value and a mandatory redemption date of February 15, 2011. Dividends accrue at 8% per annum and are payable quarterly. The Preferred Stock is convertible into shares of GTL common stock at a conversion price of $23.2563 per share, subject to 4 6 GLOBALSTAR TELECOMMUNICATIONS LIMITED (A GENERAL PARTNER OF GLOBALSTAR, L.P.) NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED) adjustment for certain antidilution events. As of March 31, 1999, the Preferred Stock was convertible into 15,049,685 shares of GTL common stock. Loral Space & Communications Ltd. ("Loral") purchased 3 million shares ($150 million face amount) of the Preferred Stock issued, in order to maintain its prior percentage ownership interest in Globalstar. The Preferred Stock has limited voting rights. With respect to dividend rights and rights upon liquidation, winding up and dissolution, the Preferred Stock ranks senior to common stock and to all other future series of preferred stock or other class of capital stock of GTL, the terms of which do not expressly provide that such series or class ranks senior to or on parity with the Preferred Stock. Prior to its mandatory redemption date, the Preferred Stock is redeemable (at a premium which declines over time) by GTL beginning in February 2002 (or beginning in February 2000 if GTL's stock price exceeds certain defined price ranges). Payments due on the Preferred Stock may be made in cash, GTL common stock or a combination of both at the option of GTL. In the event accrued and unpaid dividends accumulate to an amount equal to six quarterly dividends, holders of the majority of the outstanding shares of Preferred Stock will be entitled to elect additional members to GTL's Board of Directors. GTL used the net proceeds of approximately $340 million to purchase 7 million units (face amount of $50 per unit) of Globalstar's 8% RPPIs having terms substantially similar to those of the Preferred Stock. 5 7 GLOBALSTAR, L.P. (A DEVELOPMENT STAGE LIMITED PARTNERSHIP) CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except partnership interest data)
MARCH 31, DECEMBER 31, 1999 1998 ----------- ------------ (UNAUDITED) (NOTE) ASSETS Current assets: Cash and cash equivalents................................. $ 200,338 $ 56,739 Insurance proceeds receivable............................. -- 28,500 Production gateways and user terminals.................... 142,879 145,509 Other current assets...................................... 5,510 5,540 ---------- ---------- Total current assets.............................. 348,727 236,288 Property and equipment, net................................. 5,213 4,958 Globalstar System under construction: Space segment............................................. 1,827,151 1,678,514 Ground segment............................................ 758,114 686,848 ---------- ---------- 2,585,265 2,365,362 Additional spare satellites................................. 3,348 -- Deferred financing costs.................................... 14,609 15,845 Other assets................................................ 47,806 47,572 ---------- ---------- Total assets...................................... $3,004,968 $2,670,025 ========== ========== LIABILITIES AND PARTNERS' CAPITAL Current liabilities: Accounts payable.......................................... $ 7,460 $ 14,240 Payable to affiliates..................................... 228,840 216,542 Vendor financing liability................................ 164,788 127,180 Accrued expenses.......................................... 13,808 11,679 Accrued interest.......................................... 43,831 31,549 ---------- ---------- Total current liabilities......................... 458,727 401,190 Deferred revenues........................................... 25,811 25,811 Vendor financing liability, net of current portion.......... 225,895 243,990 Deferred interest payable................................... 467 458 11 3/8% Senior notes payable ($500,000 principal amount).... 479,608 479,566 11 1/4% Senior notes payable ($325,000 principal amount).... 307,029 306,949 10 3/4% Senior notes payable ($325,000 principal amount).... 321,039 320,997 11 1/2% Senior notes payable ($300,000 principal amount).... 288,797 288,663 Commitments and contingencies (Notes 4 and 5) Partners' capital: 8% redeemable preferred partnership interests (7,000,000 outstanding at March 31, 1999), $350 million redemption value.................................................. 339,858 -- Ordinary partnership interests (58,180,928 and 58,180,093 outstanding at March 31, 1999 and December 31, 1998, respectively).......................................... 528,757 573,421 Warrants.................................................. 28,980 28,980 ---------- ---------- Total partners' capital........................... 897,595 602,401 ---------- ---------- Total liabilities and partners' capital........... $3,004,968 $2,670,025 ========== ==========
- --------------- Note: The December 31, 1998 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 MARCH 23, 1994 MARCH 31, (COMMENCEMENT OF ------------------ OPERATIONS) TO 1999 1998 MARCH 31, 1999 ------- ------- ---------------- Operating expenses: Development costs..................................... $30,708 $16,490 $305,724 Marketing, general and administrative................. 11,973 8,271 123,675 Loss from launch failure.............................. -- -- 17,315 ------- ------- -------- Total operating expenses...................... 42,681 24,761 446,714 Interest income......................................... 2,313 5,165 60,090 ------- ------- -------- Net loss................................................ 40,368 19,596 386,624 Preferred distributions on redeemable preferred partnership interests and accretion to redemption value................................................. 4,750 5,300 65,472 ------- ------- -------- Net loss applicable to ordinary partnership interests... $45,118 $24,896 $452,096 ======= ======= ======== Net loss per ordinary partnership interest -- basic and diluted............................................... $ 0.78 $ 0.48 ======= ======= Weighted average ordinary partnership interests outstanding -- basic and diluted...................... 58,181 52,321 ======= =======
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 1999 1998 MARCH 31, 1999 --------- --------- ---------------- Operating activities: Net loss................................................... $ (40,368) $ (19,596) $ (386,624) Loss from launch failure................................... -- -- 17,315 Deferred revenues.......................................... -- -- 25,811 Stock compensation transactions............................ 440 322 3,331 Depreciation and amortization.............................. 545 347 4,528 Changes in operating assets and liabilities: Other current assets..................................... 30 (528) (5,510) Other assets............................................. (54) (355) (10,635) Accounts payable......................................... (6,401) 1,327 8,454 Payable to affiliates.................................... 4,877 5,994 83,971 Accrued expenses......................................... (2,538) (2,889) 9,141 --------- --------- ----------- Net cash used in operating activities....................... (43,469) (15,378) (250,218) --------- --------- ----------- Investing activities: Globalstar System under construction....................... (219,903) (213,716) (2,793,080) Insurance proceeds from launch failure..................... 28,500 -- 190,500 Payable to affiliates for Globalstar System under construction............................................. 7,421 (31,075) 136,069 Capitalized interest accrued............................... 13,825 6,898 75,345 Accounts payable........................................... (379) 12,073 (1,502) Vendor financing liability................................. 19,513 73,736 390,683 --------- --------- ----------- Cash used for Globalstar System............................ (151,023) (152,084) (2,001,985) Production gateways and user terminals..................... 2,630 819 (142,879) Additional spare satellites................................ (3,348) -- (3,348) Purchases of property and equipment........................ (800) (681) (9,726) Deferred FCC license costs................................. (180) (209) (9,179) Purchases of investments................................... -- -- (126,923) Maturity of investments.................................... -- -- 126,923 --------- --------- ----------- Net cash used in investing activities....................... (152,721) (152,155) (2,167,117) --------- --------- ----------- Financing activities: Net proceeds from issuance of $500,000 11 3/8% Senior Notes.................................................... -- -- 472,090 Proceeds from warrants issued in connection with $500,000 11 3/8% Senior Notes..................................... -- -- 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 Net proceeds from issuance of $300,000 11 1/2% Senior Notes.................................................... -- -- 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..................... 14 347 346,556 Sale of redeemable preferred partnership interests to GTL...................................................... 339,775 -- 639,275 Distributions on redeemable preferred partnership interests................................................ -- (5,037) (40,020) Prepaid interest on redeemable preferred partnership interests................................................ -- -- 47 Borrowings under long-term revolving credit facility....... -- -- 171,000 Repayment of borrowings under long-term revolving credit facility................................................. -- -- (171,000) --------- --------- ----------- Net cash provided by financing activities................... 339,789 (4,690) 2,617,673 --------- --------- ----------- Net increase (decrease) in cash and cash equivalents........ 143,599 (172,223) 200,338 Cash and cash equivalents, beginning of period.............. 56,739 464,154 -- --------- --------- ----------- Cash and cash equivalents, end of period.................... $ 200,338 $ 291,931 $ 200,338 ========= ========= =========== 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 =========== Accretion to redemption value of preferred partnership interests................................................ $ 83 $ 263 $ 4,023 ========= ========= =========== Ordinary partnership interests distributed upon conversion of redeemable preferred partnership interests and related dividend make-whole payment.............................. $ 320,250 =========== Warrants issued to China Telecom to acquire ordinary partnership interests.................................... $ 31,917 =========== Dividends accrued.......................................... $ 4,667 $ 4,667 ========= =========== Supplemental Information: Interest paid.............................................. $ 28,613 $ 28,613 $ 225,533 ========= ========= ===========
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, 1999 are not necessarily indicative of the results to be expected for the full year. These condensed consolidated financial statements should be read in conjunction with Globalstar's audited consolidated financial statements and notes thereto included in the latest Annual Report on Form 10-K for Globalstar Telecommunications Limited ("GTL") and Globalstar. 2. ORGANIZATION AND BUSINESS Globalstar, 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 launch, licensing, construction 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, in-orbit failures, problems related to technical development of the system, testing, regulatory compliance, manufacturing and assembly, user terminal availability in sufficient quantities, 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 Globalstar follows Statement of Financial Accounting Standards No. 128, Earnings per Share ("SFAS 128") in presenting basic and diluted earnings per interest. Due to Globalstar's net losses for the three months ended March 31, 1999 and 1998, diluted weighted average ordinary partnership interests outstanding excludes the weighted average effect of the assumed conversion, prior to actual conversion in April 1998, of the 6 1/2% redeemable preferred partnership interests into 4.8 million ordinary partnership interests for the quarter ended March 31, 1998, the assumed conversion of the 8% redeemable preferred partnership interests into 3.8 million ordinary partnership interests for the quarter ended March 31, 1999, and the assumed issuance of ordinary partnership interests upon exercise of GTL's outstanding options and warrants into 2.5 million and 3.3 million ordinary partnership interests for the quarters ended March 31, 1999 and 1998, respectively, as their effect would have been anti-dilutive. Accordingly, basic and diluted weighted 9 11 GLOBALSTAR, L.P. (A DEVELOPMENT STAGE LIMITED PARTNERSHIP) NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) average ordinary partnership interests outstanding are based on net loss applicable to ordinary partnership interests and the weighted average ordinary partnership interests outstanding for the three months ended March 31, 1999 and 1998. Reclassifications Certain reclassifications have been made to conform prior period amounts to the current period presentation. 4. GLOBALSTAR SYSTEM UNDER CONSTRUCTION Through March 31, 1999, Globalstar incurred costs of approximately $2.9 billion for the design, development and construction of the space and ground segments. Costs incurred during 1999 were approximately $222.1 million. Qualcomm is in the process of completing its revision to cost estimates for its portion of the ground segment. Due to additional scope and cost growth and based on preliminary information, Globalstar expects the total project cost to increase by less than 3%. The Qualcomm estimate is still subject to review by Globalstar. As of March 31, 1999, and including the effect of the preliminary Qualcomm estimate, Globalstar's budgeted expenditures were $3.17 billion for the design, construction and deployment of the Globalstar System to commence commercial service and $340 million for budgeted financing costs. In addition to expenditures for operating costs and debt service, Globalstar anticipates further 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. Substantial additional financing will be required if there are delays in the commencement of commercial service and, in any event, after the commencement of commercial service and before positive cash flow is achieved. 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. Globalstar has agreed, subject to its partners' approval, to purchase from Space Systems/Loral ("SS/L", a subsidiary of Loral) 12 additional spare satellites for which the cost and payment terms have not as yet been negotiated. It is anticipated that approximately $100 million will be expended for these spare satellites by the commencement of commercial service As of March 31, 1999, Globalstar has raised or received commitments for approximately $3.3 billion. Globalstar intends to raise the remaining funds required, of approximately $600 million, by the initiation of commercial service in September 1999, from a combination of sources including: high yield debt issuance (which may include an equity component), bank financing, equity issuance, financial support from the Globalstar partners, projected service provider payments, and anticipated payments for the sale of gateways and Globalstar user terminals. 5. VENDOR FINANCING LIABILITY At March 31, 1999, the current portion of vendor financing liability includes $90 million of interest bearing deferred billings due to SS/L which were scheduled for repayment in 20 quarterly installments beginning on March 31, 1999. Globalstar is currently in negotiations with SS/L to defer commencement of repayment of the $90 million. 10 12 GLOBALSTAR, L.P. (A DEVELOPMENT STAGE LIMITED PARTNERSHIP) NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 6. ORDINARY PARTNERS' CAPITAL 8% Redeemable Preferred Partnership Interests On January 21, 1999, Globalstar sold to GTL 7 million units (face amount of $50 per unit) of 8% RPPIs in Globalstar, in connection with GTL's offering of 7 million shares (face amount of $50 per share) of 8% Convertible Redeemable Preferred Stock due 2011 (the "Preferred Stock"). Dividends on the 8% RPPIs and the Preferred Stock accrue at 8% per annum and are payable quarterly. Globalstar is using the funds for the construction and deployment of the Globalstar System. The Preferred Stock is convertible into shares of GTL common stock at a conversion price of $23.2563 per share, subject to adjustment for certain antidilution events. As of March 31, 1999, the Preferred Stock was convertible into 15,049,685 shares of GTL common stock. Loral purchased 3 million shares ($150 million face amount) of the Preferred Stock issued, in order to maintain its prior percentage ownership interest in Globalstar. The Preferred Stock has limited voting rights. With respect to dividend rights and rights upon liquidation, winding up and dissolution, the Preferred Stock ranks senior to common stock and to all other future series of preferred stock or other class of capital stock of GTL, the terms of which do not expressly provide that such series or class ranks senior to or on parity with the Preferred Stock. Prior to its mandatory redemption date, the Preferred Stock is redeemable (at a premium which declines over time) by GTL beginning in February 2002 (or beginning in February 2000 if GTL's stock price exceeds certain defined price ranges). Payments due on the Preferred Stock may be made in cash, GTL common stock or a combination of both at the option of GTL. In the event accrued and unpaid dividends accumulate to an amount equal to six quarterly dividends, holders of the majority of the outstanding shares of Preferred Stock will be entitled to elect additional members to GTL's Board of Directors. The 8% RPPIs rank senior to ordinary partnership interests and have terms substantially similar to the Preferred Stock. However, they are subordinate to all existing and future liabilities of Globalstar, and cash distributions thereon are limited to the amount of the partnership capital accounts that are maintained for such interests. The 8% RPPIs will convert to ordinary partnership interests upon any conversion of the Preferred Stock into GTL common stock. Payments due on the 8% RPPIs may be made in cash, Globalstar ordinary partnership interests or a combination of both at the option of Globalstar. 11 13 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, user terminal availability in sufficient quantities, 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 most recent Annual Report on Form 10-K entitled "Certain Factors That May Affect Future Results" and GTL's registration statement on Form S-3 (File No. 333-75677), 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 increased from $56.7 million at December 31, 1998 to $200.3 million at March 31, 1999. The net increase is primarily the result of the net proceeds from the sale of Globalstar's 8% convertible redeemable preferred partnership interests ("8% RPPIs") totaling $339.8 million, offset by net expenditures for the Globalstar System of $151.0 million and net cash used in operating activities of $43.5 million. Current liabilities increased from $401.2 million at December 31, 1998 to $458.7 million at March 31, 1999, primarily as a result of the reclassification of a portion of vendor financing due within one year, the timing of payments to Globalstar contractors and accrued interest on the senior notes. From January 1, to April 30, 1999, Globalstar had three successful launches, of four satellites each, aboard Soyuz launch vehicles from the Baikonur Cosmodrome in Kazakhstan, bringing the total number of satellites in orbit to twenty. Globalstar had previously launched its first group of four satellites on February 14, 1998 and its second group of four satellites on April 24, 1998. The first 16 Globalstar satellites have reached their final orbital positions and are currently being used to test basic system functionality, including the system's inter-satellite handoff capabilities and the latest four satellites are expected to reach their final orbital positions and will begin operations testing in May 1999. As of April 1999, in addition to the 20 satellites already in orbit, Globalstar had 8 completed satellites on hand and 24 more in final integration and test. For the remainder of 1999, Globalstar's current launch plan includes eight additional launches of four satellites each, using a mix of Delta and Soyuz rockets. According to the plan, Globalstar will deploy an operational constellation of a minimum of 32 satellites by September 1999 and a total of 52 satellites (including 4 in-orbit spares) by the end of 1999. Through March 31, 1999, Globalstar incurred costs of approximately $2.9 billion for the design, development and construction of the space and ground segments. Costs incurred during 1999 were approximately $222.1 million. Qualcomm is in the process of completing its revision to cost estimates for its portion of the ground segment. Due to additional scope and cost growth and based on preliminary information, Globalstar expects the total project cost to increase by less than 3%. The Qualcomm estimate is still subject to review by Globalstar. As of March 31, 1999, and including the effect of the preliminary Qualcomm estimate, 12 14 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED) Globalstar's budgeted expenditures were $3.17 billion for the design, construction and deployment of the Globalstar System to commence commercial service and $340 million for budgeted financing costs. In addition to expenditures for operating costs, and debt service, Globalstar anticipates further 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. Globalstar expects to achieve positive cash flow in the third quarter of 2000. Substantial additional financing will be required if there are delays in the commencement of commercial service and, in any event, after the commencement of commercial service and before positive cash flow is achieved. 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. Globalstar has agreed, subject to its partners' approval, to purchase from Space Systems/Loral 12 additional spare satellites for which the cost and payment terms have not as yet been negotiated. It is anticipated that approximately $100 million will be expended for these spare satellites by the commencement of the commercial service in September 1999. On January 21, 1999, Globalstar sold to GTL 7 million units (face amount of $50 per unit) of 8% Redeemable Preferred Partnership Interests (the "8% RPPIs"), in connection with GTL's offering of 7 million shares (face amount of $50 per share) of 8% Convertible Redeemable Preferred Stock due 2011 (the "Preferred Stock"). The Preferred Stock is convertible into shares of GTL common stock at a conversion price of $23.2563 per share. Loral purchased 3 million shares or $150 million face amount of the $350 million of the Preferred Stock offered, to maintain its ownership percentage. Dividends on the 8% RPPIs and the Preferred Stock accrue at 8% per annum and are payable quarterly. Globalstar is using the funds for the construction and deployment of the Globalstar System. As of March 31, 1999, Globalstar has raised or received commitments for approximately $3.3 billion. Globalstar intends to raise the remaining funds required, of approximately $600 million, by the initiation of commercial service in September 1999, from a combination of sources including: high yield debt issuance (which may include an equity component), bank financing, equity issuance, financial support from the Globalstar partners, projected service provider payments, and anticipated payments for the sale of gateways and Globalstar user terminals. 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 March 31, 1999, Globalstar has recorded cumulative net losses applicable to ordinary partnership interests of $452.1 million. The net loss applicable to ordinary partnership interests for the three months ended March 31, 1999 increased to $45.1 million from $24.9 million for the three months ended March 31, 1998. The net loss increased primarily as a result of increased activity in the development of Globalstar user terminals, increased in-house engineering and an increase in marketing, general and administration costs. Globalstar is expending significant funds for the construction, launch, testing and deployment of the Globalstar System and expects such losses to continue through commencement of commercial operations. Globalstar has earned interest income of $60.1 million on cash balances and short-term investments since commencement of operations. Interest income for the three months ended March 31, 1999 decreased to $2.3 million from $5.2 million for the three months ended March 31, 1998, as result of lower average cash balances available for investment during 1999. Operating Expenses. Development costs for the three months ended March 31, 1999 were $30.7 million as compared to $16.5 million for the three months ended March 31, 1998. Development costs 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 $12.0 million and $8.3 million for the three months ended March 31, 1999 and 1998, respectively. The increase in marketing, general and administrative expenses is primarily the result of an increase in the number of employees and an increase in marketing costs as Globalstar gears up for commercial operations. Depreciation. Globalstar capitalizes 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. TAXATION GTL will be subject to US federal, state and local corporate income tax on its share of Globalstar's income that is effectively connected with the conduct of a trade or business in the United States ("US income") and will be required to file federal, state and local income tax returns with respect to such US income. In addition, any portion of GTL's income from sources outside the US, realized through Globalstar or otherwise, may be subject to taxation by certain foreign countries. However, the extent to which these countries may require GTL or Globalstar to pay tax or to make payments in lieu of tax cannot be determined in advance. 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 1999 is denoted as "99" and not "1999"). 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, 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 five major sections covering both information and non-information technology systems: 1) business systems, 2) technical systems, 3) imbedded hardware/firmware, 4) products and services, and 5) vendor-supplied services. As of March 31, 1999, Globalstar has completed approximately 98% of the inventory phase and approximately 32% of its assessment phase. Globalstar expects to complete the first three phases, through the remediation phase, of the Year 2000 Program during the second quarter of 1999. The testing phase will be completed during the third quarter of 1999, prior to the anticipated in-service date of Globalstar. The fifth phase, the audit phase, commenced in January 1999 and is expected to 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 by Globalstar through March 31, 1999, for this effort were approximately $735,000. Based on its efforts to date Globalstar anticipates additional incremental expenses of approximately $565,000 will be incurred to substantially complete the effort. 14 16 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED) 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 progress achieved to date and Globalstar's expectations that its Year 2000 program will be substantially complete in the third 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. 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 is 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. In addition, Globalstar has commenced discussions with its service providers to determine the status of their Year 2000 capabilities. However, due to the general uncertainty of the Year 2000 problem, including uncertainty with regard to third-party suppliers and service providers, especially those in developing countries, 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. There can be no assurance that the Company's Year 2000 Program will be successful in avoiding any interruption or failure of certain basic business operations, which may have a material adverse effect on the Company's results of operations or financial position. NEW ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board issued Statement No. 133 Accounting for Derivative Instruments and Hedging Activities ("SFAS 133"), which requires that all derivative instruments be recorded on the balance sheet at their fair value. Changes in the fair value of derivatives are recorded each period in current earnings or other comprehensive income, depending on whether a derivative is designated as part of a hedge transaction and, if it is, the type of hedge transaction. Globalstar has not yet determined the impact that the adoption of SFAS 133 will have on its earnings or financial position. Globalstar is required to adopt SFAS 133 on January 1, 2000. 15 17 PART II - OTHER INFORMATION ITEM 2(C). CHANGES IN SECURITIES On January 26, 1999, GTL sold $350 million face amount of 8% Convertible Redeemable Preferred Stock due 2011 in a private offering pursuant to Rule 144A and Regulation D under the Securities Act of 1933. The initial purchasers of the Preferred Stock were Bear, Stearns & Co. Inc., Donaldson, Lufkin & Jenrette Securities Corporation, Lehman Brothers Inc., C.E. Unterberg, Towbin, CIBC Oppenheimer Corp. and ING Baring Furman Selz LLC. In addition, Loral purchased $150 million face amount of the Preferred Stock. The price to the initial purchasers and Loral was 97.25% of the face amount of the Preferred Stock. The Preferred Stock is convertible at the option the holder, initially at the conversion price of $23.2563 per share. 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 -------------- ----------- January 7, 1999 Item 5 -- Sale of $350 Million of Preferred Stock January 21, 1999 Item 5 -- Sale of $350 Million of Preferred Stock
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. ------------------------------------------ Stephen Wright -------------------------------------------------------------------------- Chief Financial Officer (Principal Financial Officer) and Registrant's Authorized Officer Date: May 14, 1999 16 18 EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION - ----------- ----------- Exhibit 12 -- Statement Regarding Computation of Ratios Exhibit 27 -- Financial Data Schedules
EX-12 2 COMPUTATION OF RATIOS OF EARNINGS 1 EXHIBIT 12 STATEMENT REGARDING COMPUTATION OF RATIOS (IN THOUSANDS, EXCEPT RATIOS) (UNAUDITED) GLOBALSTAR TELECOMMUNICATIONS LIMITED RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
THREE MONTHS THREE MONTHS ENDED ENDED MARCH 31, 1999 MARCH 31, 1998 -------------- -------------- Earnings: Net loss.................................................. $(10,948) $(7,290) Add: Equity in loss applicable to ordinary partnership interests of Globalstar, L.P. .................... 15,698 7,290 Interest expense..................................... -- 5,300 -------- ------- Earnings available to cover fixed charges(1)................ $ 4,750 $ 5,300 ======== ======= Fixed charges(2)............................................ $ 4,750 $ 5,300 ======== ======= Ratio of earnings to fixed charges and preferred stock dividends................................................. 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. (2) Fixed charges include interest expense and preferred dividends and related increase to redemption value of such preferred stock. GLOBALSTAR, L.P. DEFICIENCY OF EARNINGS TO COVER FIXED CHARGES AND DISTRIBUTIONS ON REDEEMABLE PREFERRED PARTNERSHIP INTERESTS
THREE MONTHS THREE MONTHS ENDED ENDED MARCH 31, 1999 MARCH 31, 1998 -------------- -------------- Net loss.................................................... $(40,368) $(19,596) Dividends on redeemable preferred partnership interests..... (4,750) (5,300) Capitalized interest........................................ (46,252) (39,483) -------- -------- Deficiency of earnings to cover fixed charges and distributions on redeemable preferred partnership interests................................................. $(91,370) $(64,379) ======== ========
EX-27.1 3 FINANCIAL DATA SCHEDULE
5 This schedule contains summary consolidated financial information extracted from the financial statements of Globalstar Telecommunication Limited for the quarter ended March 31, 1999 and is qualified in its entirety by reference to such financial statements. 0000933401 GLOBALSTAR TELECOMMUNICATIONS LIMITED 3-MOS DEC-31-1999 MAR-31-1999 0 0 0 0 0 0 0 0 909,269 4,667 0 0 339,858 82,020 482,724 909,269 0 0 0 0 0 0 0 (10,948) 0 (10,948) 0 0 0 (15,698) (0.19) (0.19)
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, 1999 and is qualified in its entirety by reference to such financial statements. 0001037927 GLOBALSTAR L.P. 3-MOS DEC-31-1999 MAR-31-1999 200,338 0 0 0 0 348,727 2,598,339 4,513 3,004,968 458,727 1,396,473 0 339,858 557,737 0 3,004,968 0 0 0 0 42,681 0 0 (40,368) 0 (40,368) 0 0 0 (45,118) (0.78) (0.78)
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