<PAGE> 1
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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, 1997
COMMISSION FILE NUMBER 0-25456
GLOBALSTAR TELECOMMUNICATIONS LIMITED
CEDAR HOUSE
41 CEDAR AVENUE
HAMILTON HM12, BERMUDA
TELEPHONE: (441) 295-2244
JURISDICTION OF INCORPORATION: BERMUDA
IRS IDENTIFICATION NUMBER: 13-3795510
The registrant has filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the preceding 12 months or
such shorter period as the registrant was required to file such reports.
As of May 14, 1997, there were 15,316,486 shares of Globalstar
Telecommunications Limited Common Stock outstanding.
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<PAGE> 2
PART I. FINANCIAL INFORMATION
GLOBALSTAR TELECOMMUNICATIONS LIMITED
CONDENSED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
----------- ------------
(UNAUDITED) (NOTE)
<S> <C> <C>
ASSETS
Investment in Globalstar, L.P.:
Redeemable preferred partnership interests........................ $ 302,300 $302,037
Ordinary partnership interests.................................... 282,361 158,038
Ordinary partnership warrants..................................... 17,019 22,601
-------- --------
Total assets.............................................. $ 601,680 $482,676
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Interest payable.................................................. $ 1,679 $ 1,679
Convertible preferred equivalent obligations ($310,000 principal
amount)........................................................... 300,621 300,358
Commitments and contingencies (Note 4)
Shareholders' equity:
Common stock, $1.00 par value, 60,000,000 shares authorized
(14,185,318 and 10,000,000 issued and outstanding at March 31,
1997 and December 31, 1996, respectively)...................... 14,185 10,000
Paid-in capital................................................... 300,268 175,750
Warrants.......................................................... 17,019 22,601
Accumulated deficit............................................... (32,092) (27,712)
-------- --------
Total shareholders' equity..................................... 299,380 180,639
-------- --------
Total liabilities and shareholders' equity................ $ 601,680 $482,676
======== ========
</TABLE>
Note: The December 31, 1996 balance sheet has been derived from audited
financial statements at that date.
See notes to condensed financial statements.
1
<PAGE> 3
GLOBALSTAR TELECOMMUNICATIONS LIMITED
CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------
MARCH 31, 1997 MARCH 31, 1996
--------------- ---------------
<S> <C> <C>
Equity in net loss applicable to ordinary partnership interests
of Globalstar, L.P........................................... $ 4,380 $ 3,282
Dividend income on Globalstar, L.P. redeemable preferred
partnership interests........................................ (5,300) (1,424)
Interest expense on convertible preferred equivalent
obligations.................................................. 5,300 1,424
------- -------
Net loss....................................................... $ 4,380 $ 3,282
======= =======
Net loss per share............................................. $ 0.42 $ 0.33
======= =======
Weighted average shares used in computing net loss per share... 10,326 10,000
======= =======
</TABLE>
See notes to condensed financial statements.
2
<PAGE> 4
GLOBALSTAR TELECOMMUNICATIONS LIMITED
CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------
MARCH 31, 1997 MARCH 31, 1996
--------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net loss..................................................... $ (4,380) $ (3,282)
Equity in net loss of Globalstar, L.P........................ 4,380 3,282
Increase in redemption value of redeemable preferred
partnership interests..................................... (263) --
Dividends accrued on redeemable preferred partnership
interests in excess of cash received...................... -- (1,424)
Amortization of convertible preferred equivalent obligations
issue costs............................................... 263 70
Change in operating liability:
Interest payable.......................................... -- 1,354
--------- ---------
Net cash provided by (used in) operating activities............ -- --
--------- ---------
Investing activities:
Purchase of warrants in Globalstar, L.P...................... (12,210) --
Purchase of ordinary partnership interests in Globalstar,
L.P....................................................... (110,911) --
Purchase of redeemable preferred partnership interests in
Globalstar, L.P........................................... -- (290,000)
--------- ---------
Net cash used in investing activities.......................... (123,121) (290,000)
--------- ---------
Financing activities:
Proceeds from issuance of warrants in connection with sale of
Globalstar, L.P.'s senior notes........................... 12,210 --
Proceeds from exercise of guarantee warrants................. 110,911 --
Payment of debt offering costs............................... -- (10,000)
Sale of convertible preferred equivalent obligations......... -- 300,000
--------- ---------
Net cash provided by financing activities...................... 123,121 290,000
--------- ---------
Net increase in cash and cash equivalents...................... -- --
Cash and cash equivalents, beginning of period................. -- --
--------- ---------
Cash and cash equivalents, end of period....................... $ -- $ --
========= =========
</TABLE>
See notes to condensed financial statements.
3
<PAGE> 5
GLOBALSTAR TELECOMMUNICATIONS LIMITED
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. The accompanying unaudited condensed financial statements have been prepared
by Globalstar Telecommunications Limited (the "Company" or "GTL") pursuant to
the rules of the Securities and Exchange Commission ("SEC") and, in the opinion
of the Company, 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.
The Company 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, 1997 are not necessarily indicative of the results
to be expected for the full year. It is suggested that these financial
statements be read in conjunction with the audited financial statements and
notes thereto included in the Company's latest Annual Report on Form 10-K.
2. ORGANIZATION AND BUSINESS
On November 23, 1994, GTL was incorporated as an exempted company under the
Companies Act 1981 of Bermuda. On February 14, 1995, the Company completed an
initial public offering of 10,000,000 shares of common stock resulting in net
proceeds of $185,750,000. Effective February 22, 1995, the Company purchased
10,000,000 ordinary partnership interests from Globalstar, L.P. ("Globalstar"),
with the net proceeds of the initial public offering. GTL's financial statements
have been prepared in accordance with accounting principles generally accepted
in the United States of America.
The Company's sole business is acting as a general partner of Globalstar, a
development stage limited partnership, which is building and is preparing to
launch and operate a worldwide, low-earth orbit satellite-based wireless digital
telecommunications system.
At March 31, 1997, GTL held 27.7% of the ordinary partnership interests and
100% of the Redeemable Preferred Partnership Interests in Globalstar, see Note
3 -- Exercise of the Guarantee Warrants. The Company accounts for its investment
in Globalstar on an equity accounting basis, recognizing its allocated share of
net loss in the period incurred. The Company's allocated share of Globalstar's
net loss applicable to ordinary partnership interests from the period February
22, 1995 through March 31, 1997 was $32,092,000.
3. EXERCISE OF GUARANTEE WARRANTS
On March 25, 1997, holders of warrants issued in connection with the
Globalstar credit agreement exercised warrants to purchase 4,185,318 shares of
GTL common stock for $26.50 per share. GTL received proceeds of approximately
$110.9 million. GTL used the proceeds from the warrants to purchase 4,185,318
Globalstar ordinary partnership interests for $26.50 per interest, increasing
GTL's holdings of Globalstar's ordinary partnership interests from 21.3% to
27.7%.
4. SENIOR NOTES AND WARRANTS
On February 13, 1997, GTL and Globalstar sold units consisting of $500
million aggregate principal amount of Globalstar's 11 3/8% Senior Notes due 2004
and warrants to purchase 1,032,250 shares of GTL common stock in a private
offering. The notes are senior in right of payment to the redeemable preferred
partnership interests, and may not be redeemed prior to February 2002 and are
subject to a prepayment premium prior to 2004. Interest on the notes is payable
semi-annually.
The indenture for the notes contains certain covenants that among other
things limit the ability of Globalstar to incur additional debt, issue preferred
stock, or pay dividends and certain distributions. In certain limited
circumstances involving a change of control of Globalstar, as defined, each note
is redeemable at the option of the holder for 101% of the principal amount plus
accrued interest.
4
<PAGE> 6
GLOBALSTAR TELECOMMUNICATIONS LIMITED
NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
The warrants are exercisable on or after February 19, 1998 at a price of
$69.575 per share and expire on February 15, 2004. The warrants represent
approximately 1.7% of Globalstar's total partnership interests on a fully
diluted basis. Any proceeds from the exercise of the warrants will be used to
purchase Globalstar ordinary partnership interests.
Globalstar will use the net proceeds of approximately $485 million from the
offering for the construction and deployment of the Globalstar System.
5. SUBSEQUENT EVENTS
On April 8, 1997, GTL's Board of Directors approved a two-for-one stock
split of the common stock in the form of a stock dividend. The stock dividend
will be paid on May 28, 1997, to shareholders of record as of May 12, 1997.
On May 5, 1997, GTL received $30 million as a result of the exercise of
rights to purchase 1,131,168 shares of GTL common stock for $26.50 per share.
GTL used the proceeds to purchase 1,131,168 Globalstar ordinary partnership
interests for $26.50 per interest increasing GTL's holdings of Globalstar's
ordinary partnership interests from 27.7% to 29.3%.
5
<PAGE> 7
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PARTNERSHIP INTEREST DATA)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
---------- ------------
(UNAUDITED) (NOTE)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................ $ 359,211 $ 21,180
Other current assets............................................. 905 606
---------- --------
Total current assets.......................................... 360,116 21,786
Property and equipment, net........................................ 2,234 1,720
Globalstar System Under Construction:
Space segment.................................................... 829,161 730,513
Ground segment................................................... 199,508 160,520
---------- --------
1,028,669 891,033
Additional satellite spares........................................ 28,348 --
Deferred FCC license costs......................................... 8,907 8,690
Deferred financing costs........................................... 18,340 19,577
Other assets....................................................... 134 107
---------- --------
Total assets............................................. $1,446,748 $942,913
========== ========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable................................................. $ 3,553 $ 4,401
Payable to affiliates............................................ 57,436 63,937
Accrued expenses................................................. 5,631 6,929
Accrued interest on notes payable................................ 7,109 --
---------- --------
Total current liabilities..................................... 73,729 75,267
Deferred revenues.................................................. 23,652 23,652
Vendor financing liability......................................... 156,048 130,694
Borrowings under long-term revolving credit facility............... -- 96,000
Interest payable on long-term revolving credit facility............ 393 77
Commitments and contingencies (Note 6)
Notes payable ($500,000 principal amount).......................... 472,588 --
Redeemable preferred partnership interests (4,769,230 outstanding
$310,000 redemption value)....................................... 302,300 302,037
Ordinary partners' capital:
Ordinary partnership interests (51,185,318 and 47,000,000
outstanding at March 31, 1997 and December 31, 1996,
respectively)................................................. 401,019 292,585
Warrants......................................................... 17,019 22,601
---------- --------
Total ordinary partners' capital.............................. 418,038 315,186
---------- --------
Total liabilities and partners' capital.................. $1,446,748 $942,913
========== ========
</TABLE>
Note: The December 31, 1996 balance sheet has been derived from
audited consolidated financial statements at that date.
See notes to condensed consolidated financial statements.
6
<PAGE> 8
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
CUMULATIVE
MARCH 23, 1994
THREE MONTHS ENDED (COMMENCEMENT OF
--------------------------------- OPERATIONS) TO
MARCH 31,1997 MARCH 31,1996 MARCH 31, 1997
-------------- -------------- ----------------
<S> <C> <C> <C>
Operating expenses:
Development costs............................ $ 11,241 $ 11,377 $137,526
Marketing, general and administrative........ 6,341 4,024 49,334
------- ------- --------
Total operating expenses............. 17,582 15,401 186,860
Interest income................................ 2,295 1,449 22,446
------- ------- --------
Net loss....................................... 15,287 13,952 164,414
------- ------- --------
Preferred distribution and related increase in
redeemable preferred partnership interests... 5,301 1,424 22,624
------- ------- --------
Net loss applicable to ordinary partnership
interests.................................... $ 20,588 $ 15,376 $187,038
======= ======= ========
</TABLE>
See notes to condensed consolidated financial statements.
7
<PAGE> 9
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
CUMULATIVE
MARCH 23, 1994
THREE MONTHS ENDED (COMMENCEMENT OF
------------------------------- OPERATIONS) TO
MARCH 31, 1997 MARCH 31, 1996 MARCH 31, 1997
-------------- -------------- ----------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss....................................................... $ (15,287) $(13,952) $ (164,414)
Deferred revenues.............................................. -- 1,739 23,652
Stock compensation transactions................................ 318 -- 635
Depreciation and amortization.................................. 1,473 1,568 7,844
Changes in operating assets and liabilities:
Other current assets......................................... (299) (2,724) (905)
Other assets................................................. (27) -- (134)
Accounts payable............................................. (319) 262 2,899
Payable to affiliates........................................ (3,202) (4,487) (1,891)
Accrued expenses............................................. (1,298) 1,809 5,631
--------- --------- -----------
Net cash used in operating activities............................ (18,641) (15,785) (126,683)
--------- --------- -----------
Investing activities:
Globalstar System under construction........................... (137,636) (108,565) (1,028,669)
Payable to affiliates for Globalstar System under
construction................................................. (3,299) (8,290) 50,527
Capitalized interest payable................................... 7,425 -- 7,502
Accounts payable............................................... (529) (163) 146
Vendor financing liability..................................... 25,354 19,365 156,048
--------- --------- -----------
Cash used for Globalstar System................................ (108,685) (97,653) (814,446)
Additional satellite spares.................................... (28,348) (28,348)
Purchases of property and equipment............................ (750) (230) (3,692)
Deferred FCC license costs..................................... (217) (576) (6,672)
Purchases of investments....................................... -- -- (126,923)
Maturity of investments........................................ -- -- 126,923
--------- --------- -----------
Net cash used in investing activities............................ (138,000) (98,459) (853,158)
--------- --------- -----------
Financing activities:
Proceeds from the issuance of senior notes..................... 472,588 -- 472,588
Proceeds from issuance warrants in connection with sale of
senior notes................................................. 12,210 -- 12,210
Proceeds from exercise of guarantee warrants................... 110,911 -- 110,911
Deferred financing costs....................................... -- (250) (2,125)
Proceeds of capital subscriptions receivable................... -- -- 282,441
Payment of accrued capital raising costs....................... -- -- (2,400)
Sale of partnership interests to GTL........................... -- -- 185,750
Sale of redeemable preferred partnership interests to GTL...... -- 290,000 299,500
Distributions on redeemable preferred partnership interests.... (5,037) -- (19,870)
Prepaid interest on redeemable preferred partnership
interests.................................................... -- -- 47
Borrowings under long-term revolving credit facility........... 65,000 -- 171,000
Repayment of borrowings under long-term revolving credit
facility..................................................... (161,000) -- (171,000)
--------- --------- -----------
Net cash provided by financing activities........................ 494,672 289,750 1,339,052
--------- --------- -----------
Net increase in cash and cash equivalents........................ 338,031 175,506 359,211
Cash and cash equivalents, beginning of period................... 21,180 71,602 --
--------- --------- -----------
Cash and cash equivalents, end of period......................... $ 359,211 $247,108 $ 359,211
========= ========= ===========
Noncash transactions:
Payable to affiliates.......................................... $ 9,308
===========
Accrual of capital raising costs............................... $ 2,400
===========
Deferred FCC license costs..................................... $ 2,235
===========
Warrants issued in exchange for debt guarantee................. $ 22,601
===========
Increase in redemption value of preferred partnership
interests.................................................... $ 263 $ 2,800
========= ===========
</TABLE>
See notes to condensed consolidated financial statements.
8
<PAGE> 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,
1997 are not necessarily indicative of the results to be expected for the full
year. It is suggested that these financial statements be read in conjunction
with the audited consolidated financial statements and notes thereto included in
the Annual Report on Form 10-K for Globalstar Telecommunications Limited
("GTL").
2. ORGANIZATION AND BUSINESS
Globalstar, founded by Loral Space & Communications Ltd. ("Loral") and
QUALCOMM Incorporated ("Qualcomm"), is building, and is preparing to launch and
operate a worldwide, low-earth orbit satellite-based wireless digital
telecommunications system (the "Globalstar System"). Globalstar's first launch
is currently scheduled for October 1997.
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 consolidated financial statements reflect the
operations of Globalstar from that date.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Development Stage Company
Globalstar is devoting substantially all of its present efforts to the
design, licensing, construction, testing and financing of the Globalstar System,
and establishing its business. Its planned principal operations have not
commenced. Accordingly, Globalstar is a development stage company as defined in
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,
problems related to technical development of the system, testing, regulatory
compliance, manufacturing and assembly, the competitive and regulatory
environment in which Globalstar will operate, marketing problems and costs and
expenses that may exceed current estimates. There can be no assurance that
substantial delays in any of the foregoing matters would not delay Globalstar's
achievement of profitable operations.
Notes Payable
Interest accrues on the Senior Notes at 11 3/8% per annum. Globalstar is
increasing the carrying value of the notes payable to their ultimate redemption
value.
Reclassifications
Certain reclassifications have been made to conform prior-year amounts to
the current-year presentation.
9
<PAGE> 11
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. GLOBALSTAR SYSTEM UNDER CONSTRUCTION
Total System Cost
At March 31, 1997, Globalstar's budget for the cost for the design,
construction and deployment of the Globalstar System, including working capital,
cash interest on anticipated borrowings and operating expenses is approximately
$2.5 billion. Globalstar has recently added enhanced capabilities and additional
test requirements and has experienced cost growth in the development of the
ground system, the final cost impact of which is under assessment. Actual
amounts may vary from this estimate and additional funds would be required in
the event of unforeseen delays, cost overruns, launch failures or other
technological risks or adverse regulatory developments, or to meet unanticipated
expenses. Globalstar, however, does not expect such cost growth to increase the
funding requirement for the project by more than five percent. Globalstar has
raised or received commitments for approximately $2.0 billion in equity, debt
and vendor financing.
Globalstar has also agreed to purchase from SS/L eight additional spare
satellites at a cost estimated at $175 million. In addition, Globalstar,
together with its strategic partners, will jointly finance the procurement of up
to 32 gateways for resale to service providers, thereby accelerating the
deployment of gateways around the world prior to the date on which Globalstar
expects to commence initial operations via a 40-satellite constellation.
Globalstar has agreed to finance approximately $80 million of the cost of these
gateways and expects to recover its cost from the resale of these gateways to
service providers.
Additional funds to complete the Globalstar System are expected to be
obtained through a combination of sources including, debt issuance (which may
include an equity component), financial support from the Globalstar partners,
projected service provider payments, projected net service revenues from initial
operations, and anticipated payments received from the sale of gateways and
Globalstar subscriber terminals. Although Globalstar believes it will be able to
obtain this additional financing, there can be no assurance that the financing
will be available on favorable terms or on a timely basis, if at all.
5. EXERCISE OF GUARANTEE WARRANTS
On March 25, 1997, holders of warrants issued in connection with the
Globalstar credit agreement exercised warrants to purchase 4,185,318 shares of
GTL common stock. GTL received proceeds of approximately $110.9 million. GTL
used the proceeds from the warrants to purchase 4,185,318 Globalstar ordinary
partnership interests for $26.50 per interest, increasing GTL's holdings of
Globalstar's ordinary partnership interests from 21.3% to 27.7%.
6. SENIOR NOTES AND WARRANTS
On February 13, 1997, GTL and Globalstar sold units consisting of $500
million aggregate principal amount of Globalstar's 11 3/8% Senior Notes due 2004
and warrants to purchase 1,032,250 shares of GTL common stock in a private
offering. The notes are senior in right of payment to the redeemable preferred
partnership interests, and may not be redeemed prior to February 2002 and are
subject to a prepayment premium prior to 2004. Interest on the notes is payable
semi-annually.
The indenture for the notes contains certain covenants that among other
things limit the ability of Globalstar to incur additional debt, issue preferred
stock, or pay dividends and certain distributions. In certain limited
circumstances involving a change of control of Globalstar, as defined, each note
is redeemable at the option of the holder for 101% of the principal amount plus
accrued interest.
The warrants are exercisable on or after February 19, 1998 at a price of
$69.575 per share and expire on February 15, 2004. The warrants represent
approximately 1.7% of Globalstar's total partnership interests on a
10
<PAGE> 12
GLOBALSTAR, L.P.
(A DEVELOPMENT STAGE LIMITED PARTNERSHIP)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
fully diluted basis. Any proceeds from the exercise of the warrants will be used
to purchase Globalstar ordinary partnership interests.
Globalstar will use the net proceeds of approximately $485 million from the
offering for the construction and deployment of the Globalstar System.
7. SUBSEQUENT EVENT
On May 5, 1997, Globalstar received $30 million as a result of the exercise
by GTL of warrants to purchase 1,131,168 Globalstar ordinary partnership
interests for $26.50 per interest. Globalstar will use the proceeds for the
construction and deployment of the Globalstar System.
11
<PAGE> 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GTL is a holding company that acts as a general partner of Globalstar and
has no other business. The Company's sole asset is its investment in Globalstar
and GTL's results of operations reflect its share of the results of operations
of Globalstar on an equity accounting basis. Accordingly, management's
discussion and analysis addresses the financial condition and results of
operations of Globalstar. In its annual and quarterly reports, GTL presents
separate financial statements for GTL and Globalstar.
Except for the historical information contained herein, the matters
discussed in this Management's Discussion and Analysis of Financial Condition
and Results of Operations, and elsewhere in this Form 10-Q, are forward-looking
statements that involve risks and uncertainties, many of which may be beyond
Globalstar's control. These may include, but are not limited to, problems
relating to technical development of the system, testing, regulatory compliance,
manufacturing and assembly, the competitive and regulatory environment in which
Globalstar will operate, marketing problems and costs and expenses that may
exceed current estimates. The actual results that Globalstar achieves may differ
materially from any forward-looking statements due to such risks and
uncertainties.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1997, cash and cash equivalents increased to $359.2 million
from $21.2 million at December 31, 1996. The net increase is a result of the net
proceeds of $472.6 million received from the issuance of Globalstar's 11 3/8%
Senior Notes, $12.2 million received from the sale of warrants to GTL and $110.9
million received from the exercise of the Guarantee Warrants and interest of
$2.3 million earned on outstanding cash balances during the period, offset by
expenditures for the Globalstar System Under Construction of $108.7 million,
expenditures for the additional spare satellites of $28.3 million, net cash used
by operations of $18.6 million, preferred distributions on the Redeemable
Preferred Partnership Interests ("RPPIs") of $5.0 million and net repayments of
debt of $96.0 million.
Accounts payable, payables to affiliates and accrued expenses and interest
have decreased by $1.5 million from $75.3 million at December 31, 1996 to $73.7
million at March 31, 1997, as a result of the timing of payments to Globalstar
contractors.
Through March 31, 1997, Globalstar incurred costs of approximately $1.2
billion for the design and construction of the space and ground segments. Costs
incurred to date during fiscal year 1997 were approximately $148.9 million.
Globalstar's budget for the cost for the design, construction and
deployment of the Globalstar System, including working capital, cash interest on
anticipated borrowings and operating expenses is approximately $2.5 billion.
Globalstar has recently added enhanced capabilities and additional test
requirements and has experienced cost growth in the development of the ground
system, the final cost impact of which is under assessment. Globalstar, however,
does not expect such cost growth to increase the funding requirements for the
project by more than five percent. Globalstar has raised or received commitments
for approximately $2.0 billion in equity, debt and vendor financing.
Globalstar has also agreed to purchase from SS/L eight additional spare
satellites at a cost estimated at $175 million. In addition, Globalstar,
together with its strategic partners, will jointly finance the procurement of up
to 32 gateways for resale to service providers, thereby accelerating the
deployment of gateways around the world prior to the date on which Globalstar
expects to commence initial operations via a 40-satellite constellation.
Globalstar has agreed to finance approximately $80 million of the cost of these
gateways and expects to recover its cost from the resale of these gateways to
service providers.
As of March 31, 1997, Globalstar had raised or received commitments for
approximately $2.0 billion. Globalstar believes that its current capital, vendor
financing commitments, the availability of the Globalstar Credit Agreement are
sufficient to fund its requirements into the first quarter 1998. Globalstar
intends to raise the remaining funds required from a combination of sources
including, debt issuance (which may include an equity component), financial
support from the Globalstar partners, projected service provider payments,
12
<PAGE> 14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED)
projected net service revenues from initial operations and anticipated payments
from the sale of gateways and Globalstar subscriber terminals. Although
Globalstar believes it will be able to obtain these additional funds, there can
be no assurance that such funds will be available on favorable terms or on a
timely basis, if at all.
RESULTS OF OPERATIONS
Globalstar is a development stage partnership and has not commenced
operations. For the period March 23, 1994 (commencement of operations) to March
31, 1997, Globalstar has recorded cumulative net losses of $187.0 million. The
net loss applicable to ordinary Partnership interests for the three months ended
March 31, 1997 increased to $20.6 million as compared to $15.4 million for the
three months ended March 31, 1996. The net loss increased primarily as a result
of a full quarter's distribution on the RPPI's during the first quarter of 1997,
versus a distribution for a one month period during the first quarter of 1996,
as the RPPI's were issued in March 1996. Globalstar is expending significant
funds for the design, construction, testing and deployment of the Globalstar
System and expects such losses to continue until commencement of commercial
operations.
Globalstar has earned interest income of $22.4 million on cash balances and
short term investments since commencement of operations. Interest income during
the three months ended March 31, 1997 was $2.3 million as compared to $1.4
million for the three months ended March 31, 1996. Interest income for the
current period increased as a result of higher average cash balances outstanding
during the first quarter of 1997.
Operating Expenses. Development costs remain stable at $11.2 million and
$11.4 million for the three months ended March 31, 1997 and 1996, respectively.
These costs represent the development of Globalstar Phones and Globalstar's
continuing in-house engineering.
Marketing, general and administrative expenses were $6.3 million and $4.0
million for the three months ended March 31, 1997 and 1996, respectively. The
increase in marketing, general and administrative expenses is primarily the
result of an increase in employees, as Globalstar gears up for operations and
increased advertising costs.
Depreciation. Globalstar intends to capitalize all costs, including
interest as applicable, associated with the design, construction and deployment
of the Globalstar System, except costs associated with the development of the
Globalstar Phones and certain technologies under a cost sharing arrangement with
Qualcomm. Globalstar will not record depreciation expense on the Globalstar
System Under Construction until the commencement of commercial operations, as
assets are placed into service.
Income Taxes. Globalstar was organized as a limited partnership. As such,
no income tax provision (benefit) is included in the accompanying financial
statements since U.S. income taxes are the responsibility of its partners.
Generally, taxable income (loss), deductions and credits of Globalstar will be
passed through to its partners.
FINANCIAL ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128 "Earnings Per Share" ("SFAS 128"),
which is required to be adopted for fiscal periods ending after December 15,
1997. SFAS 128 establishes the accounting standards for computing and presenting
earnings per share. The Company believes that the adoption of SFAS 128 will not
have a material effect on the reported loss per share of GTL.
13
<PAGE> 15
PART II -- OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On April 8, 1997, at GTL's Annual Meeting of Stockholders, the following
proposals were acted on:
(1) In an uncontested election, the following individuals were elected
to the Board of Directors. The votes were as follows:
<TABLE>
<CAPTION>
FOR WITHHELD
--------- -------
<S> <C> <C>
Bernard L. Schwartz............................ 8,074,655 10,720
Michael P. DeBlasio............................ 8,074,665 10,710
Sir Ronald Grierson............................ 8,067,265 18,110
Robert B. Hodes................................ 8,074,265 11,110
E. John Peett.................................. 7,899,905 185,470
Michael B. Targoff............................. 8,074,155 11,220
A. Robert Towbin............................... 8,074,155 11,220
</TABLE>
(2) The proposal to fix the minimum and maximum number of directors at
five and nine, respectively, and to deem any vacancies on the Board to be
casual vacancies was ratified. The votes were as follows:
<TABLE>
<S> <C>
For............................................... 8,061,430
Against........................................... 10,150
Abstentions....................................... 13,795
</TABLE>
(3) The proposal to increase the number of authorized shares of Common
Stock of Globalstar Telecommunications Limited from 60,000,000 to
200,000,000 was ratified. The votes were as follows:
<TABLE>
<S> <C>
For............................................... 7,546,481
Against........................................... 517,174
Abstentions....................................... 21,720
</TABLE>
(4) The proposal to amend the Company's 1994 Stock Option Plan to
increase the number of shares of Common Stock available for issuance from
250,000 to 625,000 and to reduce the minimum purchase price at which
options may be granted thereunder was ratified. The votes were as follows:
<TABLE>
<S> <C>
For............................................... 7,215,498
Against........................................... 792,699
Abstentions....................................... 77,178
</TABLE>
(5) The selection of Deloitte & Touche, L.L.P. to serve as independent
auditors for the fiscal year ending December 31, 1997, was ratified. The
votes were as follows:
<TABLE>
<S> <C>
For............................................... 8,063,455
Against........................................... 9,455
Abstentions....................................... 12,465
</TABLE>
14
<PAGE> 16
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 Schedule
(b) Reports on Form 8-K
<TABLE>
<CAPTION>
DATE OF REPORT DESCRIPTION
------------------ --------------------------------------------------------------
<S> <C>
January 30, 1997.. Item 5 -- Press releases issued by GTL and Globalstar
February 12, Item 5 -- GTL and Globalstar issue units consisting of $500
1997............ million aggregate principal amount of Senior Notes and
warrants in a private offering
</TABLE>
15
<PAGE> 17
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GLOBALSTAR TELECOMMUNICATIONS LIMITED
------------------------------------
Registrant
NICHOLAS C. MOREN
-----------------
Treasurer
(Principal Financial Officer)
and
Registrant's Authorized Officer
Date: May 14, 1997
16
<PAGE> 1
EXHIBIT 12
STATEMENT REGARDING COMPUTATION OF RATIOS
(IN THOUSANDS, EXCEPT RATIOS)
GLOBALSTAR TELECOMMUNICATIONS LIMITED
RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31, 1997
--------------
<S> <C>
Earnings:
Net loss..................................................................... $ (4,380)
Add:
Equity in loss of Globalstar, L.P....................................... 4,380
Interest expense........................................................ 5,300
--------
Earnings available to cover fixed charges(1)................................... $ 5,300
========
Fixed charges -- interest expense.............................................. $ 5,300
========
Ratio of earnings to fixed charges............................................. 1x
========
</TABLE>
- ---------------
(1) The earnings of GTL available to cover fixed charges, consist solely of
dividends from Globalstar, L.P. on the Redeemable Preferred Partnership
Interests held by GTL.
GLOBALSTAR, L.P.
DEFICIENCY OF EARNINGS TO COVER FIXED CHARGES
<TABLE>
<CAPTION>
CUMULATIVE
MARCH 23, 1994
THREE MONTHS (COMMENCEMENT OF
ENDED OPERATIONS) TO
MARCH 31, 1997 MARCH 31, 1997
-------------- ----------------
<S> <C> <C>
Net loss...................................................... $(15,287) $ (164,414)
Dividends on and related increase in Redeemable Preferred
Partnership Interests....................................... (5,301) (22,624)
-------- ----------
Deficiency of earnings to cover fixed charges................. $(20,588) $ (187,038)
======== ==========
</TABLE>
17
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements of Globalstar Telecommunications Limited for the quarter
ended March 31, 1997 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 601,680
<CURRENT-LIABILITIES> 1,679
<BONDS> 0
300,621
0
<COMMON> 14,185
<OTHER-SE> 285,195
<TOTAL-LIABILITY-AND-EQUITY> 601,680
<SALES> 0
<TOTAL-REVENUES> 920
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,300
<INCOME-PRETAX> (4,380)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,380)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,380)
<EPS-PRIMARY> (.42)
<EPS-DILUTED> (.42)
</TABLE>
