-----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, DmSzw3UGmZ2ydGWn7/VESKCyaUm+zAVJiO46J2ppFN6933ymhnwaQBudtDEgUFRu PRAQsUfIQDTpzjnjti9dLQ== 0000950123-99-010266.txt : 19991117 0000950123-99-010266.hdr.sgml : 19991117 ACCESSION NUMBER: 0000950123-99-010266 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991115 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: 99755740 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: 99755741 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, 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: 13-3759024 The registrants have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and have been subject to such filing requirements for the past 90 days. As of October 31, 1999, there were 82,202,122 shares of Globalstar Telecommunications Limited common stock outstanding. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Part I. FINANCIAL INFORMATION Globalstar Telecommunications Limited (A General Partner of Globalstar L.P.).......................................... 2 Globalstar, L.P. (A Development Stage Limited Partnership).............................................. 7 Management's Discussion and Analysis of Financial Condition and Results of Operations................................. 14 Part II. OTHER INFORMATION Exhibits and Reports of Form 8-K............................ 19
1 3 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, 1999 1998 ------------- ------------ (UNAUDITED) (NOTE) ASSETS Investment in Globalstar, L.P.: Redeemable preferred partnership interests................ $ 340,109 $ -- Dividends receivable...................................... 3,500 -- Ordinary partnership interests............................ 523,467 568,394 Ordinary partnership warrants............................. 11,568 12,034 --------- --------- Total assets........................................... $ 878,644 $ 580,428 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Dividends payable......................................... $ 3,500 $ -- Commitments and contingencies (Note 4) Shareholders' equity: 8% Convertible redeemable preferred stock, $.01 par value, 10,000,000 shares authorized (6,999,900 issued and outstanding at September 30, 1999), $350 million redemption value....................................... 340,109 -- Common stock, $1.00 par value, 600,000,000 shares authorized (82,196,315 and 82,016,679 issued and outstanding at September 30, 1999 and December 31, 1998, respectively).................................... 82,196 82,017 Paid-in capital............................................. 591,940 588,802 Warrants.................................................... 11,568 12,034 Accumulated deficit......................................... (150,669) (102,425) --------- --------- Total shareholders' equity............................. 875,144 580,428 --------- --------- Total liabilities and shareholders' equity............. $ 878,644 $ 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. 2 4 GLOBALSTAR TELECOMMUNICATIONS LIMITED (A GENERAL PARTNER OF GLOBALSTAR, L.P.) CONDENSED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------ -------------------- 1999 1998 1999 1998 ------- ------- -------- -------- Equity in net loss applicable to ordinary partnership interests of Globalstar, L.P.......... $16,769 $14,555 $ 48,244 $ 35,124 Dividend income on Globalstar, L.P. redeemable preferred partnership interests................. (7,129) -- (21,819) (22,197) Interest expense on convertible preferred equivalent obligations.......................... -- -- 2,510 22,197 ------- ------- -------- -------- Net loss.......................................... 9,640 14,555 28,935 35,124 Preferred dividends on 8% convertible redeemable preferred stock and accretion to redemption value........................................... 7,129 -- 19,309 -- ------- ------- -------- -------- Net loss applicable to common shareholders........ $16,769 $14,555 $ 48,244 $ 35,124 ======= ======= ======== ======== Net loss per share -- basic and diluted........... $ 0.20 $ 0.18 $ 0.59 $ 0.48 ======= ======= ======== ======== Weighted average shares outstanding -- basic and diluted..................................... 82,062 82,008 82,035 72,973 ======= ======= ======== ========
See notes to condensed financial statements. 3 5 GLOBALSTAR TELECOMMUNICATIONS LIMITED (A GENERAL PARTNER OF GLOBALSTAR, L.P.) CONDENSED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, -------------------------- 1999 1998 --------- ------------- Operating activities: Net loss.................................................... $ (28,935) $(35,124) Equity in net loss applicable to ordinary partnership interests of Globalstar, L.P........................... 48,244 35,124 Accretion to redemption value of redeemable preferred partnership interests.................................. (339) (351) Dividends accrued on redeemable preferred partnership interests.............................................. (3,500) 1,679 Amortization of convertible preferred equivalent obligation issue costs................................. -- 351 Change in operating liability: Interest payable....................................... -- (1,679) --------- -------- Net cash provided by operating activities............ 15,470 -- --------- -------- Investing activities: Purchase of ordinary partnership interests in Globalstar, L.P.................................................... (2,846) (1,093) Purchase of redeemable preferred partnership interests in Globalstar, L.P........................................ (339,775) -- --------- -------- Net cash used in investing activities................ (342,621) (1,093) --------- -------- Financing activities: Net proceeds from issuance of common stock upon exercise of options and warrants................................ 2,846 1,093 Proceeds from issuance of 8% convertible redeemable preferred stock........................................ 339,775 -- Payment of dividends related to preferred stock........... (15,470) -- --------- -------- Net cash provided by financing activities............ 327,151 1,093 --------- -------- Net increase (decrease) in cash and cash equivalents........ -- -- Cash and cash equivalents, beginning of period.............. -- -- --------- -------- Cash and cash equivalents, end of period.................... $ -- $ -- ========= ======== Non-cash transactions: Conversion of redeemable preferred partnership interests and related dividend make-whole payment into ordinary partnership interests.................................. $ 5 $320,250 ========= ======== Common stock issued upon conversion of convertible preferred equivalent obligations and related interest make-whole payment..................................... $ -- $320,250 ========= ======== Common stock issued upon conversion of the 8% convertible redeemable preferred stock............................. $ 5 $ -- ========= ======== Supplemental information: Interest paid during the period........................... $ 2,510 $ 5,038 ========= ========
See notes to condensed financial statements. 4 6 GLOBALSTAR TELECOMMUNICATIONS LIMITED (A GENERAL PARTNER OF GLOBALSTAR, L.P.) NOTES TO CONDENSED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION The accompanying unaudited condensed financial statements have been prepared by Globalstar Telecommunications Limited ("GTL") 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, 1999 are not necessarily indicative of the results to be expected for the full year. These condensed 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 September 30, 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 losses in the period incurred. GTL's allocated share of Globalstar's net losses applicable to ordinary partnership interests from the period February 22, 1995 through September 30, 1999 was $150,669,000. GTL's equity securities and convertible securities are represented by equivalent Globalstar partnership interests on an approximate four-for-one basis. 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Earnings Per Share 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 net losses for the three and nine months ended September 30, 1999 and 1998, diluted weighted average common shares outstanding excludes the weighted average effect of the assumed conversion of GTL's 8% Convertible Redeemable Preferred Stock into 15.0 million and 13.9 million common shares for the three and nine months ended September 30, 1999, respectively, the assumed exercise of outstanding options and warrants into 7.9 million and 5.7 million common shares for the three months ended September 30, 1999 and 1998, respectively, and into 6.9 million and 5.7 million common shares for the nine months ended September 30, 1999 and 1998, respectively, and the assumed conversion, prior to actual conversion in April 1998, of GTL's Convertible Preferred Equivalent Obligations into 8.9 million common shares for the nine months ended September 30, 1998, as their effect would have been anti-dilutive. Accordingly, basic and diluted net loss per share is based on the net loss applicable to common shareholders' and the weighted average common shares outstanding for the three and nine months ended September 30, 1999 and 1998. 5 7 GLOBALSTAR TELECOMMUNICATIONS LIMITED (A GENERAL PARTNER OF GLOBALSTAR, L.P.) NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED) 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 adjustment for certain antidilution events. As of September 30, 1999, the Preferred Stock was convertible into 15,049,470 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. CREDIT FACILITY In August 1999, Globalstar completed a $500 million credit facility with Bank of America. The credit facility is guaranteed by two subsidiaries of Loral, which pledged certain assets to support the transaction. Loral received consideration for its guarantee in the form of warrants to purchase an aggregate of 3,450,000 Globalstar partnership interests (equivalent to approximately 13,800,000 shares of common stock of GTL). 6 8 GLOBALSTAR, L.P. (A DEVELOPMENT STAGE LIMITED PARTNERSHIP) CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT PARTNERSHIP INTEREST DATA)
SEPTEMBER 30, DECEMBER 31, 1999 1998 ------------- ------------ (UNAUDITED) (NOTE) ASSETS Current assets: Cash and cash equivalents................................. $ 171,343 $ 56,739 Insurance proceeds receivable............................. -- 28,500 Production gateways and user terminals.................... 126,733 145,509 Other current assets...................................... 4,323 5,540 ---------- ---------- Total current assets................................... 302,399 236,288 Property and equipment, net................................. 5,411 4,958 Globalstar System under construction: Space segment............................................. 2,072,705 1,678,514 Ground segment............................................ 954,769 686,848 ---------- ---------- 3,027,474 2,365,362 Additional spare satellites................................. 22,488 -- Deferred financing costs.................................... 163,935 15,845 Other assets................................................ 48,404 47,572 ---------- ---------- Total assets........................................... $3,570,111 $2,670,025 ========== ========== LIABILITIES AND PARTNERS' CAPITAL Current liabilities: Accounts payable.......................................... $ 8,243 $ 14,240 Payable to affiliates..................................... 405,511 216,542 Vendor financing liability................................ 170,343 127,180 Accrued expenses.......................................... 17,753 11,679 Accrued interest.......................................... 45,509 31,549 ---------- ---------- Total current liabilities.............................. 647,359 401,190 Deferred revenues........................................... 25,811 25,811 Vendor financing liability, net of current portion.......... 250,034 243,990 Deferred interest payable................................... 582 458 Term Loan B notes payable ($300,000 principal amount)....... 300,000 -- 11 3/8% Senior notes payable ($500,000 principal amount).... 479,692 479,566 11 1/4% Senior notes payable ($325,000 principal amount).... 307,190 306,949 10 3/4% Senior notes payable ($325,000 principal amount).... 321,122 320,997 11 1/2% Senior notes payable ($300,000 principal amount).... 289,066 288,663 Commitments and contingencies (Notes 4, 6 and 8) Partners' capital: 8% redeemable preferred partnership interests (6,999,900 outstanding at September 30, 1999), $350 million redemption value....................................... 340,109 -- Ordinary partnership interests (58,225,002 and 58,180,093 outstanding at September 30, 1999 and December 31, 1998, respectively).................................... 439,532 573,421 Warrants.................................................. 169,614 28,980 ---------- ---------- Total partners' capital................................ 949,255 602,401 ---------- ---------- Total liabilities and partners' capital................ $3,570,111 $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. 7 9 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 1999 1998 1999 1998 SEPTEMBER 30, 1999 ------- ------- -------- -------- ------------------ Operating expenses: Development costs............... $21,803 $18,285 $ 78,856 $ 51,943 $353,872 Marketing, general and administrative............. 20,067 10,817 42,860 30,199 154,562 Loss from launch failure...... -- 17,315 -- 17,315 17,315 ------- ------- -------- -------- -------- Total operating expenses... 41,870 46,417 121,716 99,457 525,749 Interest income................. 833 4,462 4,908 14,282 62,685 ------- ------- -------- -------- -------- Net loss........................ 41,037 41,955 116,808 85,175 463,064 Preferred distributions on redeemable preferred partnership interests and accretion to redemption value......................... 7,129 -- 21,819 22,197 82,541 ------- ------- -------- -------- -------- Net loss applicable to ordinary partnership interests......... $48,166 $41,955 $138,627 $107,372 $545,605 ======= ======= ======== ======== ======== Net loss per ordinary partnership interest -- basic and diluted................... $ 0.83 $ 0.72 $ 2.38 $ 1.93 ======= ======= ======== ======== Weighted average ordinary partnership interests outstanding -- basic and diluted....................... 58,191 58,178 58,185 55,697 ======= ======= ======== ========
See notes to condensed consolidated financial statements. 8 10 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 1999 1998 SEPTEMBER 30, 1999 --------- --------- ------------------ Operating activities: Net loss................................................... $(116,808) $ (85,175) $ (463,064) Loss from launch failure................................... -- 17,315 17,315 Deferred revenues.......................................... -- (2,941) 25,811 Stock compensation transactions............................ 1,280 964 4,171 Depreciation and amortization.............................. 1,704 1,243 5,672 Changes in operating assets and liabilities Other current assets..................................... 1,217 (1,199) (4,323) Other assets............................................. (35) (2,205) (10,616) Accounts payable......................................... (6,753) 9,840 5,168 Payable to affiliates.................................... 51,366 31,733 131,077 Accrued expenses......................................... 2,574 315 14,253 --------- --------- ----------- Net cash used in operating activities.................. (65,455) (30,110) (274,536) --------- --------- ----------- Investing activities: Globalstar System under construction....................... (662,112) (528,030) (3,235,289) Insurance proceeds from launch failure..................... 28,500 -- 190,500 Payable to affiliates for Globalstar System under construction............................................. 115,115 (58,576) 242,638 Capitalized interest accrued............................... 21,557 26,767 83,092 Accounts payable and other transactions.................... 897 (516) 3,216 Vendor financing liability................................. 49,207 137,601 420,377 --------- --------- ----------- Cash used for Globalstar System............................ (446,836) (422,754) (2,295,466) Production gateways and user terminals..................... 18,776 (73,731) (126,733) Additional spare satellites................................ (22,488) -- (22,488) Payables to affiliates for additional spare satellites..... 22,488 -- 22,488 Purchases of property and equipment........................ (2,157) (2,994) (11,083) Deferred FCC license costs................................. (797) (627) (9,796) Purchases of investments................................... -- -- (126,923) Maturity of investments.................................... -- -- 126,923 --------- --------- ----------- Net cash used in investing activities.................. (431,014) (500,106) (2,443,078) --------- --------- ----------- 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.................................................... -- 287,552 287,552 Proceeds from issuance of $300,000 Term Loan B............. 300,000 -- 291,298 Deferred financing costs................................... (13,568) -- (6,991) Proceeds from capital subscriptions receivable............. -- -- 282,441 Payment of accrued capital raising costs................... -- -- (2,400) Sale of ordinary partnership interests..................... 2,846 19,843 349,388 Sale of redeemable preferred partnership interests to GTL...................................................... 339,775 -- 639,275 Distributions on redeemable preferred partnership interests................................................ (17,980) (5,037) (58,000) Prepaid interest on redeemable preferred partnership interests................................................ -- -- 47 Borrowings under long-term revolving credit facility....... 75,000 -- 246,000 Repayment of borrowings under long-term revolving credit facility................................................. (75,000) -- (246,000) --------- --------- ----------- Net cash provided by financing activities.............. 611,073 302,358 2,888,957 --------- --------- ----------- Net increase (decrease) in cash and cash equivalents........ 114,604 (227,858) 171,343 Cash and cash equivalents, beginning of period.............. 56,739 464,154 -- --------- --------- ----------- Cash and cash equivalents, end of period.................... $ 171,343 $ 236,296 $ 171,343 ========= ========= =========== 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............. $ 141,000 $ 163,601 ========= =========== Accretion to redemption value of preferred partnership interests................................................ $ 339 $ 351 $ 4,279 ========= ========= =========== Ordinary partnership interests distributed upon conversion of redeemable preferred partnership interests and related dividend make-whole payment.............................. $ 5 $ 320,250 $ 320,255 ========= ========= =========== Warrants issued to China Telecom to acquire ordinary partnership interests.................................... $ 31,917 $ 31,917 ========= =========== Dividends accrued.......................................... $ 3,500 $ 3,500 ========= =========== Supplemental Information: Interest paid.............................................. $ 113,502 $ 93,348 $ 310,422 ========= ========= ===========
See notes to condensed consolidated financial statements. 9 11 GLOBALSTAR, L.P. (A DEVELOPMENT STAGE LIMITED PARTNERSHIP) NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements have been prepared by Globalstar, L.P. ("Globalstar") pursuant to the rules of the Securities and Exchange Commission ("SEC") and, in the opinion of Globalstar, include all adjustments (consisting of normal recurring accruals) necessary for a fair presentation of financial position, results of operations and cash flows. 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. 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, 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(TM) 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." On October 11, 1999, the Company announced a phased roll-out of service in regions of the world covered by its first nine gateways. By the end of 1999, Globalstar expects to have a total of nine gateways in operation. All of the 38 gateways on order have been manufactured and are ready for installation. 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, having user terminals available 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 partnership interest. Due to Globalstar's net losses for the three and nine months ended September 30, 1999 and 1998, diluted weighted average ordinary partnership interests outstanding excludes the weighted average effect of the assumed conversion of the 8% 10 12 GLOBALSTAR, L.P. (A DEVELOPMENT STAGE LIMITED PARTNERSHIP) NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Redeemable Preferred Partnership Interests ("RPPI's") into 3.8 million and 3.5 million ordinary partnership interests for the three and nine months ended September 30, 1999, and the assumed issuance of ordinary partnership interests upon exercise of GTL's outstanding options and warrants into 5.2 million and 2.4 million ordinary partnership interests for the three months ended September 30, 1999 and 1998, respectively, and into 3.4 million and 2.8 million ordinary partnership interests for the nine months ended September 30, 1999 and 1998, respectively, and the assumed conversion, prior to the actual conversion in April 1998, of the 6 1/2% redeemable preferred partnership interests into 2.1 million ordinary partnership interests for the nine months ended September 30, 1998, respectively, as their effect would have been anti-dilutive. Accordingly, basic and diluted net loss per ordinary partnership interest are based on the net loss applicable to ordinary partnership interests and the weighted average ordinary partnership interests outstanding for the three and nine months ended September 30, 1999 and 1998. Reclassifications Certain reclassifications have been made to conform prior period amounts to the current period presentation. 4. GLOBALSTAR SYSTEM UNDER CONSTRUCTION During 1999, Globalstar incurred $509 million for the design, construction and deployment of the space and ground segments ("System Cost"), $153 million for capitalized interest (including $26 million of non-cash interest), and $139 million of pre-operating losses. Through September 30, 1999, Globalstar incurred costs of $2.59 billion for the System Cost, $438 million for capitalized interest (including $82 million of non-cash interest) and $546 million of pre-operating losses. Globalstar's estimated costs through December 31, 1999, are $2.66 billion for the System Cost, $490 million for capitalized interest (including $100 million of non-cash interest) and $677 million of pre-operating losses. In addition, further expenditures on system software for the improvement of system functionality beyond those planned for the start of service, for an additional eight spare satellites (for which the cost and payment terms have not been finalized with Space Systems/Loral, Inc., a subsidiary of Loral) and financing that Globalstar is providing to the service providers for the purchase of gateways, fixed access terminals and handsets, are estimated to be $493 million, of which $149 million has been incurred as of September 30, 1999 and $220 million is expected to be incurred as of December 31, 1999. However, Globalstar expects to receive $231 million from the service providers, as repayment of financing provided to them for the purchase of gateways, fixed access terminals and handsets. Net funds raised or committed through September 30, 1999 total $4.2 billion, including $500 million of vendor financing from Qualcomm (of which the last $100 million will be drawn during 2000), for which the terms of $400 million are still being finalized. In consideration for the additional vendor financing, Qualcomm is expected to receive warrants to purchase Globalstar partnership interests similar to that received by Loral (see Note 8). Of the total net funds raised or committed through September 30, 1999, $250 million must be repaid as early as June 30, 2000, unless it is extended or refinanced. Additional financing will be required if service revenues are insufficient to cover cash interest and operating costs estimated to be approximately $125 million per quarter. 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. 11 13 GLOBALSTAR, L.P. (A DEVELOPMENT STAGE LIMITED PARTNERSHIP) NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 5. PAYABLES TO AFFILIATES Payables to affiliates is comprised of the following (in thousands):
SEPTEMBER 30, 1999 DECEMBER 31, 1998 ------------------ ----------------- Qualcomm................................... $301,275 $120,606 SS/L....................................... 96,292 92,242 Other affiliates........................... 7,944 3,694 -------- -------- $405,511 $216,542 ======== ========
6. VENDOR FINANCING LIABILITY At September 30, 1999, the long term 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 in negotiations with SS/L to continue to defer commencement of repayment of the $90 million (see Note 4). 7. ORDINARY PARTNERS' CAPITAL 8% Redeemable Preferred Partnership Interests On January 21, 1999, Globalstar sold to GTL seven 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 September 30, 1999, the Preferred Stock was convertible into 15,049,470 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. 12 14 GLOBALSTAR, L.P. (A DEVELOPMENT STAGE LIMITED PARTNERSHIP) NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) GTL's equity securities and convertible securities are represented by equivalent Globalstar partnership interests on an approximate four-for-one basis. 8. CREDIT FACILITY On August 5, 1999, Globalstar entered into a $500 million credit agreement with a group of banks for the build-out of the Globalstar System. The credit agreement provides for a $100 million three-year revolving credit facility ("Revolver"), a $100 million three-year term loan ("Term Loan A") and a $300 million four-year term loan ("Term Loan B"). The Term Loan facilities are subject to an amortization payment schedule as follows: the Term Loan A facility requires payments of 10% of the principal amount on each of January 15, 2001, March 31, 2001, June 30, 2001, September 30, 2001 and December 31, 2001, 15% of the principal amount on each of March 31, 2002 and June 30, 2002 and a final payment of 20% of the principal amount on August 15, 2002; the Term Loan B facility requires payments of 1% of the principal amount on each of January 15, 2001 and June 30, 2001, a payment of 15% of the principal amount on June 30, 2002, a payment of 25% of the principal amount on March 31, 2003 and a final payment of 58% of the principal amount on August 15, 2003. All amounts outstanding under the Revolver are due and payable on August 15, 2002. Borrowings under the facilities bear interest, at Globalstar's option, at various rates based on margins over the lead bank's base rate or the London Interbank Offer Rate ("LIBOR") for periods of one to six months. Globalstar pays a commitment fee on the unused portion of the facilities. The credit agreement contains customary financial covenants that commence March 31, 2001, including, minimum revenue thresholds, maintenance of consolidated net worth, interest coverage ratios and maximum leverage ratios. In addition, the credit agreement contains customary limitations on indebtedness, liens, contingent obligations, fundamental changes, asset sales, dividends, investments, optional payments and modification of subordinated and other debt instruments and transactions with affiliates. As of September 30, 1999, Globalstar had drawn down the $300 million Term Loan B. On November 12, 1999, Globalstar drew down the $100 million Term Loan A. The credit facility is guaranteed by Loral SatCom Ltd. and Loral Satellite, Inc., wholly owned subsidiaries of Loral. The guarantee is secured by the pledge of certain assets of Loral and its subsidiaries, including the stock of the guarantors and the Telstar 6 and Telstar 7 satellites. In consideration for the guarantee, Loral and certain Loral subsidiaries received warrants to purchase an aggregate of 3,450,000 Globalstar partnership interests (equivalent to approximately 13.8 million shares of common stock of GTL) at an exercise price of $91.00 per partnership interest (equivalent to $22.75 per share of GTL common stock, the average of the high and low trading prices of GTL common stock on August 5, 1999, the closing date of the credit facility). The warrants vest in stages (provided that the guarantee is then in effect): 50% on February 5, 2000, 25% on August 5, 2000 and the remaining 25% on August 5, 2001. The warrants are immediately exercisable after vesting and have a seven-year term. Globalstar may call the warrants after August 5, 2001 if the market price of GTL common stock exceeds $45.50 for a certain period. After giving effect to the issuance of the warrants, Loral's interest in Globalstar on a fully-diluted basis increased from 42% to 45%. 13 15 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Except for the historical information contained herein, the matters discussed in the following Management's Discussion and Analysis of Results of Operations and Financial Condition of the Company are not historical facts, but are "forward-looking statements," as that term is defined in the Private Securities Litigation Reform Act of 1995. In addition, the Company or its representatives have made and may continue to make forward-looking statements, orally or in writing, in other contexts, such as in reports filed with the SEC, press releases or statements made with the approval of an authorized executive officer of the Company. These forward-looking statements can be identified by the use of forward-looking terminology such as "believes," "expects," "plans," "may," "will," "would," "could," "should," "anticipates," "estimates," "project," "intend," or "outlook" or the negative of these words or other variations of these words or other comparable words, or by discussion of strategy that involve risks and uncertainties. These forward-looking statements are only predictions, and actual events or results may differ materially as a result of a wide variety of factors and conditions, many of which are beyond Globalstar's and/or GTL's control. Some of these factors and conditions include: (i) the harshness of the space environment in which Globalstar's satellites operate; (ii) governmental or regulatory changes; (iii) access to scarce launch vehicle resources and risk of launch failures; (iv) as a development-stage company Globalstar may continue to lose money, have negative cash flow, require additional money and suffer delays in meeting its targets; (v) severe competition in our industry; and (vi) Globalstar owes significant amounts of money. For a detailed discussion of these factors and conditions, please refer to the periodic reports that Globalstar and GTL file with the SEC. In addition, Globalstar and GTL operate in an industry sector where securities values may be volatile and may be influenced by economic and other factors beyond Globalstar's and/or GTL's control. 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. Therefore, matters discussed in this section address the financial condition and results of operations of Globalstar. LIQUIDITY AND CAPITAL RESOURCES Cash and cash equivalents increased from $56.7 million at December 31, 1998 to $171.3 million at September 30, 1999. The net increase is primarily the result of the net proceeds from the sale of Globalstar's 8% redeemable preferred partnership interests ("8% RPPIs") totaling $339.8 million, the proceeds from the August 5, 1999 credit agreement in the amount of $300.0 million, and proceeds from the sale of production gateways and user terminals of $18.8 million mostly offset by the net expenditures for the Globalstar System of $446.8 million, net cash used in operating activities of $65.5 million, distributions on redeemable preferred partnership interests of $18.0 million and payment of debt offering costs of $13.6 million. Current liabilities increased from $401.2 million at December 31, 1998 to $647.4 million at September 30, 1999, primarily as a result of the reclassification of a portion of vendor financing due within one year and the timing of payments to Globalstar affiliates. On October 11, 1999, the Company announced a phased roll-out of service in regions of the world covered by its first nine gateways. By the end of 1999, Globalstar expects to have a total of nine gateways in operation. All of the 38 gateways on order have been manufactured and are ready for installation. From January 1, to October 31, 1999, Globalstar had nine successful launches, of four satellites each, aboard a combination of Soyuz and Delta launch vehicles, bringing the total number of satellites in orbit to 44. Globalstar had previously launched its first two groups of four satellites each in 1998. The first 40 Globalstar satellites have reached their final orbital positions and are currently being used to test system functionality and to support Service Provider friendly user trials in preparation for the start of service. Four of the launched satellites are expected to reach their final orbital positions in December of 1999. As of October 31, 1999, in addition to the 44 satellites already in orbit, Globalstar had four completed satellites on hand and four more in final integration and test. Globalstar's current launch plan includes two launches of four satellites each, using a 14 16 Soyuz and a Delta rocket. According to the plan, Globalstar will launch a total of 52 satellites (including four in-orbit spares) by January 2000. During 1999, Globalstar incurred $509 million for the design, construction and deployment of the space and ground segments ("System Cost"), $153 million for capitalized interest (including $26 million of non-cash interest), and $139 million of pre-operating losses. Through September 30, 1999, Globalstar incurred costs of $2.59 billion for the System Cost, $438 million for capitalized interest (including $82 million of non-cash interest) and $546 million of pre-operating losses. Globalstar's estimated costs through December 31, 1999, are $2.66 billion for the System Cost, $490 million for capitalized interest (including $100 million of non-cash interest) and $677 million of pre-operating losses. In addition, further expenditures on system software for the improvement of system functionality beyond those planned for the start of service, for an additional eight spare satellites (for which the cost and payment terms have not been finalized with Space Systems/Loral, Inc., a subsidiary of Loral) and financing that Globalstar is providing to the service providers for the purchase of gateways, fixed access terminals and handsets, are estimated to be $493 million, of which $149 million has been incurred as of September 30, 1999 and $220 million is expected to be incurred as of December 31, 1999. However, Globalstar expects to receive $231 million from the service providers, as repayment of financing provided to them for the purchase of gateways, fixed access terminals and handsets. Net funds raised or committed through September 30, 1999 total $4.2 billion, including $500 million of vendor financing from Qualcomm (of which the last $100 million will be drawn during 2000), for which the terms of $400 million are still being finalized. In consideration for the additional vendor financing, Qualcomm is expected to receive warrants to purchase Globalstar partnership interests similar to that received by Loral (see below). Of the total net funds raised or committed through September 30, 1999, $250 million must be repaid as early as June 30, 2000, unless it is extended or refinanced. Additional financing will be required if service revenues are insufficient to cover cash interest and operating costs estimated to be approximately $125 million per quarter. 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 January 21, 1999, Globalstar sold to GTL seven million units (face amount of $50 per unit) of 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 Space & Communication Ltd. ("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 development, construction and deployment of the Globalstar System. In July 1999, Globalstar and GTL filed a shelf registration statement with the SEC covering up to $500 million of securities. Under the registration statement, Globalstar may, from time to time, offer debt securities, which may be either senior or subordinated or secured or unsecured and GTL may, from time to time, offer shares of common stock, preferred stock or warrants, all at prices and on terms to be determined at the time of the offering. Proceeds from any offering would be used for general corporate purposes, which may include refinancing of outstanding indebtedness. On August 5, 1999, Globalstar entered into a $500 million credit agreement with a group of banks for the build-out of the Globalstar System. The credit agreement provides for a $100 million three-year revolving credit facility ("Revolver"), a $100 million three-year term loan ("Term Loan A") and a $300 million four-year term loan ("Term Loan B"). The Term Loan facilities are subject to an amortization payment schedule as follows: the Term Loan A facility requires payments of 10% of the principal amount on each of January 15, 2001, March 31, 2001, June 30, 2001, September 30, 2001 and December 31, 2001, 15% of the principal amount on each of March 31, 2002 and June 30, 2002 and a final payment of 20% of the principal amount on August 15, 2002; the Term Loan B facility requires payments of 1% of the principal amount on each of January 15, 2001 and June 30, 2001, a payment of 15% of the principal amount on June 30, 2002, a payment of 25% of the principal amount on March 31, 2003 and a final payment of 58% of the principal amount on August 15, 2003. All amounts outstanding under the Revolver are due and payable on August 15, 2002. 15 17 Borrowings under the facilities bear interest, at Globalstar's option, at various rates based on margins over the lead bank's base rate or the London Interbank Offer Rate ("LIBOR") for periods of one to six months. Globalstar pays a commitment fee on the unused portion of the facilities. The credit agreement contains customary financial covenants that commence March 31, 2001, including, minimum revenue thresholds, maintenance of consolidated net worth, interest coverage ratios and maximum leverage ratios. In addition, the credit agreement contains customary limitations on indebtedness, liens, contingent obligations, fundamental changes, asset sales, dividends, investments, optional payments and modification of subordinated and other debt instruments and transactions with affiliates. As of September 30, 1999, Globalstar had drawn down the $300 million Term Loan B. On November 12, 1999, Globalstar drew down the $100 million Term Loan A. The credit facility is guaranteed by Loral SatCom Ltd. and Loral Satellite, Inc., wholly owned subsidiaries of Loral. The guarantee is secured by the pledge of certain assets of Loral and its subsidiaries, including the stock of the guarantors and the Telstar 6 and Telstar 7 satellites. In consideration for the guarantee, Loral and certain Loral subsidiaries received warrants to purchase an aggregate of 3,450,000 Globalstar partnership interests (equivalent to approximately 13,800,000 shares of common stock of GTL) at an exercise price of $91.00 per partnership interest (equivalent to $22.75 per share of GTL common stock, the average of the high and low trading prices of GTL common stock on August 5, 1999, the closing date of the credit facility). The warrants vest in stages (provided that the guarantee is then in effect): 50% on February 5, 2000, 25% on August 5, 2000 and the remaining 25% on August 5, 2001. The warrants are immediately exercisable after vesting and have a seven-year term. Globalstar may call the warrants after August 5, 2001 if the market price of GTL common stock exceeds $45.50 for a certain period. After giving effect to the issuance of the warrants, Loral's interest in Globalstar on a fully-diluted basis increased from 42% to 45%. 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, 1999, Globalstar has recorded cumulative net losses applicable to ordinary partnership interests of $545.6 million. The net loss applicable to ordinary partnership interests for the nine months ended September 30, 1999 increased to $138.6 million from $107.4 million for the nine months ended September 30, 1998. The net loss applicable to ordinary partnership interests for the three months ended September 30, 1999 increased to $48.2 million from $42.0 million for the three months ended September 30, 1998. The net loss for both periods 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 administrative costs. The increases for the three and nine months in 1999 would have been higher, if not for the loss on launch failure of $17.3 million in 1998. Globalstar is expending significant funds for the development, construction, launch, testing and deployment of the Globalstar System and expects such losses to continue through the start of service. Globalstar has earned interest income of $62.7 million on cash balances and short-term investments since commencement of operations. Interest income was $4.9 million and $14.3 million for the nine months ended September 30, 1999 and 1998, respectively and $0.8 million and $4.5 million for the three months ended September 30, 1999 and 1998, respectively. The decrease in interest income during both periods was a result of lower average cash balances available for investment during 1999. Operating Expenses. Development costs for the nine months ended September 30, 1999 were $78.9 million as compared to $51.9 million for the nine months ended September 30, 1998. Development costs for the three months ended September 30, 1999 were $21.8 million as compared to $18.3 million for the three months ended September 30, 1998. Development costs increased as a result of increased activity in the development of Globalstar user terminals and in-house engineering. Marketing, general and administrative expenses increased to $42.9 million from $30.2 million for the nine months ended September 30, 1999 and 1998, respectively and to $20.1 from $10.8 million for the three months ended September 30, 1999 and 1998, respectively. Marketing, general and administrative expenses increased primarily as a result of increased marketing costs in anticipation of the start of service. 16 18 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 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, systems 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 September 30, 1999, Globalstar has completed 99% of the Inventory Phase and 96% of the Assessment Phase. Globalstar expects to complete all phases of its Year 2000 Program during the fourth quarter of 1999, prior to the anticipated in-service date of Globalstar. 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 September 30, 1999 for this effort were approximately $1.2 million. Based on its efforts to date, Globalstar anticipates additional incremental expenses of approximately $140,000 will be incurred to substantially complete the effort. As an added safeguard against the possibility that a Year 2000 related issue will adversely affect the Company's ability to continue operations, contingency plans are being developed under the assumption that worst case scenarios are encountered in critical areas. Emphasis is being placed upon the action to be taken if there is discontinuance of services and/or lack of delivery of compliant products from third party suppliers, including utilities which provide power, water, fuel and telecommunications. Baseline contingency plans are expected to be completed during the fourth quarter of 1999. The Company believes that adequate time will be available to ensure that its contingency plans are developed, assessed and implemented prior to a Year 2000 issue having a material negative impact on the operations of the Company. However, there can be no assurances that such plans will be completed on a timely basis. 17 19 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, the ability of vendors to meet specific commitments 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. Ongoing assessments are made by Globalstar regarding the Year 2000 readiness of its key third-party suppliers. Information requests are distributed to such suppliers and replies are evaluated. When the risk is deemed material, on-site visits to suppliers are 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, 2001. 18 20 ITEM 5. OTHER EVENTS On October 28, 1999, the Company announced that Dr. Gregory J. Clark would leave his position as Vice Chairman effective December 1, 1999. 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 Exhibit 99.1 -- Financial Statements for Loral Qualcomm Satellite Services, L.P. Exhibit 99.2 -- Financial Statements for Globalstar Capital Corporation (b) Reports on Form 8-K
DATE OF REPORT DESCRIPTION -------------- ----------- August 5, 1999 Item 5 -- Other Events Globalstar Credit Agreement
19 21 SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrants have duly caused this report to be signed on their behalf by the undersigned thereunto duly authorized. GLOBALSTAR TELECOMMUNICATIONS LIMITED Registrant /s/ RICHARD J. TOWNSEND -------------------------------------- Richard J. Townsend Vice President and Chief Financial Officer (Principal Financial Officer) and Registrant's Authorized Officer GLOBALSTAR, L.P. /s/ STEPHEN WRIGHT -------------------------------------- Stephen Wright Vice President and Chief Financial Officer (Principal Financial Officer) and Registrant's Authorized Officer Date: November 12, 1999 20 22 EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION - ----------- ----------- Exhibit 12 -- Statement Regarding Computation of Ratios Exhibit 27 -- Financial Data Schedules Exhibit 99.1 -- Financial Statements for Loral Qualcomm Satellite Services, L.P. Exhibit 99.2 -- Financial Statements for Globalstar Capital Corporation
EX-12 2 STATEMENT RE COMPUTATION OF RATIOS 1 EXHIBIT 12 STATEMENT REGARDING COMPUTATION OF RATIOS (IN THOUSANDS, EXCEPT RATIOS) (UNAUDITED) GLOBALSTAR TELECOMMUNICATIONS LIMITED RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
NINE MONTHS NINE MONTHS ENDED ENDED SEPTEMBER 30, 1999 SEPTEMBER 30, 1998 ------------------ ------------------ Earnings: Net loss................................................... $(28,935) $(35,124) Add: Equity in loss applicable to ordinary partnership interests of Globalstar, L.P..................... 48,244 35,124 Interest expense...................................... 2,510 22,197 -------- -------- Earnings available to cover fixed charges(1)............... $ 21,819 $ 22,197 ======== ======== Fixed charges(2)........................................... $ 21,819 $ 22,197 ======== ======== 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
NINE MONTHS NINE MONTHS ENDED ENDED SEPTEMBER 30, 1999 SEPTEMBER 30, 1998 ------------------ ------------------ Net loss................................................... $(116,808) $ (85,175) Dividends on redeemable preferred partnership interests.... (21,819) (22,197) Capitalized interest....................................... (153,293) (130,706) --------- --------- Deficiency of earnings to cover fixed charges and distributions on redeemable preferred partnership interests................................................ $(291,920) $(238,078) ========= =========
EX-27 3 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY CONSOLIDATED FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF GLOBALSTAR TELECOMMUNICATIONS LIMITED FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000933401 GLOBALSTAR TELECOMMUNICATION LIMITED 9-MOS DEC-31-1999 SEP-30-1999 0 0 0 0 0 0 0 0 878,644 3,500 0 0 340,109 82,196 452,839 878,644 0 0 0 0 0 0 2,510 (28,935) 0 (28,935) 0 0 0 (48,244) (0.59) (0.59)
EX-27.1 4 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY CONSOLIDATED FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF GLOBALSTAR L.P. FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0001037927 GLOBALSTAR LP 9-MOS DEC-31-1999 SEP-30-1999 171,343 0 0 0 0 302,399 3,061,045 5,672 3,570,111 647,359 1,697,070 0 340,109 609,146 0 3,570,111 0 0 0 0 121,716 0 0 (116,808) 0 (116,808) 0 0 0 (138,627) (2.38) (2.38)
EX-99.1 5 FINANCIAL STATEMENTS 1 EXHIBIT 99.1 LORAL/QUALCOMM SATELLITE SERVICES, L.P. (A GENERAL PARTNER OF GLOBALSTAR, L.P.) CONDENSED BALANCE SHEETS (IN THOUSANDS)
SEPTEMBER 30, DECEMBER 31, 1999 1998 ------------- ------------ (UNAUDITED) (NOTE) ASSETS: Investment in Globalstar, L.P............................... $ -- $ -- -------- -------- Total assets................................................ $ -- $ -- ======== ======== PARTNERS' CAPITAL: Partners' Capital: Partnership interests (18,000 interests outstanding)...... $ -- $ -- -------- -------- Total partners' capital..................................... $ -- $ -- ======== ========
NOTE: The December 31, 1998 balance sheet has been derived from audited financial statements at that date. See notes to condensed balance sheets. 2 LORAL/QUALCOMM SATELLITE SERVICES, L.P. (A GENERAL PARTNER OF GLOBALSTAR, L.P.) NOTES TO CONDENSED BALANCE SHEETS 1. The unaudited interim financial information as of September 30, 1999 has been prepared on the same basis as the audited balance sheets. In the opinion of management, such unaudited information includes all adjustments (consisting of normal recurring accruals) necessary for a fair presentation of financial position for the interim period presented. 2. ORGANIZATION AND BACKGROUND Loral/Qualcomm Satellite Services, L.P. ("LQSS") was formed in November 1993 as a Delaware limited partnership with a December 31 fiscal year end. The general partner of LQSS is Loral/Qualcomm Partnership, L.P. ("LQP"), a limited partnership whose general partner is Loral General Partner, Inc. ("LGP"), a subsidiary of Loral Space & Communications Ltd., a Bermuda company ("Loral") and whose limited partners include a subsidiary of QUALCOMM Incorporated ("Qualcomm"). LQSS's only activity is acting as the managing general partner of Globalstar, L.P. ("Globalstar"), a development stage limited partnership, which was founded to design, construct and operate a worldwide, low-earth orbit satellite-based wireless digital telecommunications system (the "Globalstar(TM) System"). The Globalstar System's world-wide coverage is designed to enable its service providers to extend modern telecommunications services to millions of people who currently lack basic telephone service and to enhance wireless communications in areas underserved or not served by existing or future cellular systems, providing a telecommunications solution in parts of the world where the build-out of terrestrial systems cannot be economically justified. At September 30, 1999, LQSS held a 30.9% interest in Globalstar's outstanding ordinary partnership interests. 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Investment in Globalstar, L.P. LQSS accounts for its investment in Globalstar using the equity method of accounting. Under this method, LQSS recognizes its allocated share of Globalstar's net loss, for each period since its initial investment in March 1994. The difference between LQSS's initial investment in Globalstar and its interest in Globalstar's ordinary partnership capital, at that time, is attributable to certain intangible assets contributed to Globalstar for development of the Globalstar System; this difference will be accreted by LQSS on a ratable basis upon Globalstar's commencement of commercial services. During 1995, LQSS's investment in Globalstar was reduced to zero. Accordingly, LQSS has discontinued providing for its allocated share of Globalstar's net losses, and will recognize a liability as a result of its general partner status in Globalstar only in the event that Globalstar's losses result in an aggregate ordinary partners' capital deficiency. At September 30, 1999, suspended losses representing LQSS's unrecognized equity in Globalstar's net losses aggregated approximately $150,827,000. 4. INVESTMENT IN GLOBALSTAR On January 21, 1999, Globalstar sold to GTL $350 million face amount of 8% redeemable preferred partnership interests ("8% RPPI's") in connection with GTL's offering of $350 million of 8% Convertible Redeemable Preferred Stock due 2011 (the "Preferred Stock"). Conversion of the 8% RPPIs would result in the issuance of 3,762,368 interests, subject to adjustment for certain antidilution events. In August 1999, Globalstar issued Loral and certain subsidiaries of Loral warrants to purchase an aggregate of 3,450,000 Globalstar partnership interests at an exercise price of $91.00 per partnership interest. The warrants were issued in consideration for the guarantee by Loral and such subsidiaries under a $500 million credit agreement entered into by Globalstar. Assuming all reserved interests had been issued at September 30, 1999, and the assumed exercise of outstanding options and warrants into 6.5 million Globalstar ordinary partnership interests, LQSS's direct interest in Globalstar's ordinary partnership interests would have decreased to 26.3%. EX-99.2 6 FINANCIAL STATEMENTS 1 EXHIBIT 99.2 GLOBALSTAR CAPITAL CORPORATION (A WHOLLY-OWNED SUBSIDIARY OF GLOBALSTAR, L.P.) CONDENSED BALANCE SHEETS
SEPTEMBER 30, DECEMBER 31, 1999 1998 ------------- ------------ (UNAUDITED) (NOTE) ASSETS Receivable from parent...................................... $1,000 $1,000 ====== ====== LIABILITIES AND SHAREHOLDER'S EQUITY Commitments and contingencies (Note 2 and 3) Shareholder's equity Common stock, par value $.10; 1,000 shares authorized, 100 shares issued and outstanding.......................... $ 10 $ 10 Paid-in capital............................................. 990 990 ------ ------ $1,000 $1,000 ====== ======
NOTE: The December 31, 1998 balance sheet has been derived from audited financial statements at that date. See notes to condensed balance sheets. 2 GLOBALSTAR CAPITAL CORPORATION (A WHOLLY-OWNED SUBSIDIARY OF GLOBALSTAR, L.P.) NOTES TO CONDENSED BALANCE SHEETS 1. The unaudited interim financial information as of September 30, 1999 has been prepared on the same basis as the audited balance sheet. In the opinion of management, such unaudited information includes all adjustments (consisting of normal recurring accruals) necessary for a fair presentation of financial position for the interim period presented. 2. ORGANIZATION Globalstar Capital Corporation ("GCC"), a wholly-owned subsidiary of Globalstar, L.P. ("Globalstar"), was formed on July 24, 1995 for the primary purpose of serving as a co-issuer and co-obligator with respect to certain debt obligations of Globalstar. 3. GLOBALSTAR 8% REDEEMABLE PREFERRED PARTNERSHIP INTERESTS On January 21, 1999, Globalstar sold to GTL $350 million face amount of 8% redeemable preferred partnership interests ("8% RPPI's") in connection with GTL's offering of $350 million of 8% Convertible Redeemable Preferred Stock due 2011 (the "Preferred Stock"). Such preferred partnership interests are subordinate to the borrowings to which GCC is a guarantor. 4. CREDIT FACILITY In August 1999, Globalstar completed a $500 million credit facility with Bank of America. GCC is a guarantor of the credit facility. -----END PRIVACY-ENHANCED MESSAGE-----